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22 JUNE 2016 | FUEL OIL NEWS | www.fueloilnews.com C harlie Uglietto, owner and president of Cubby Oil & Energy in Somerville, Mass., swears by price-cap programs. "We have been doing price cap plans for close to twenty years," Uglietto said. "I feel if we don't offer our customers tools that are available to potentially help them then we're doing them a disservice." When Cubby Oil first started offering price cap plans, Uglietto said, "we bought in the summer and prices usually went up in the winter and it was a great tool, and fairly easy to manage." Today, with price volatility and much higher pricing, the practice isn't that simple any more, Uglietto observes, "but we've still continued to see the value in offering our customers the ability to cap their oil price." Uglietto said he has always chosen to offer cap pricing rather than fixed pricing because "we've always been cognizant of the fact that prices can move in either direction, defying any type of logic that one might want to apply to the market. I'm not a trader, I'm not a guy who thinks he knows the market better than anybody else. I'm in the busi- ness of providing services to our customers. We've always felt that cap pricing offers our customers the best value, so [they've] got upside protection, and [they've] got downside protection. We market it to them as a way for them to have some price certainty in a very volatile market," he said. "The market has become a lot more complicated, and for the owners—for us—there are a lot more tools out there for us to put money in our pockets," Uglietto adds. "There are more economical ways to provide cap plans." Cubby Oil works with Danny Silverman of Angus Energy, who "brings those tools to the table," Uglietto said. Back in the day, Uglietto recalls, he might buy one million gallons worth of wet barrels, and one million gallons worth of put options. Today, in contrast, Silverman of Angus might advise him that there is a better way. "He will show me what is the best way to protect our program, add money to the bot- tom line through increased margins, and still provide me with the ability to go to bed at night and not worry that I'm going to wake up in the morning and the Middle East is on fire and my plan has blown up," Uglietto said. "I'm very comfortable with what they come up with. It's very cost-effective for me to use them." Uglietto added, "As far as pricing plans go we've only offered cap plans. I know in vari- ous parts of the country there are fixed plans and pre-paid fixed plans and things like that, but I've always felt that capped price plans were the best way to go—the best plan for our customers and the best plan for contin- ued customer satisfaction." Phil Baratz, president of Angus Energy, with offices in Connecticut, Florida, New York and Pennsylvania, said that price cap plans started to come into being in the late 1980s when exchanges started trading futures con- tracts and options contracts. "Dealers were in a position where they could go to customers and say, 'Prices are very volatile. Instead of just giv- ing you my cost plus a little bit of markup I can cap your price. If you buy all your oil from me over this next year your oil will be "X" dollars per gallon or less.' It's truly a cap." Baratz said part of the appeal is that "if prices are going to be jumping all over the place it's very hard for customers to budget for their household expenses." If the cap is $1.99 per gallon, Baratz said, customers "pay that—never any more. But if prices go down, you could even pay less." The fee that typically accompanies a price cap plan can be a sticking point for some customers, but the experts note that there are effective ways to address that issue. The support for a price cap program is provided by a futures and options contracts, and a fee is typically charged (in one form or another) to support the service costs. Uglietto said he deals with it candidly and from the get-go, while sparing customers the details of just how it is done. The Appeal of PRICE CAP PLANS Well-managed price cap plans can put fuel oil marketers, as well as their customers, at ease BY STEPHEN BENNETT