A price cap protects you from both rising and falling prices. If you are on our SmartPay Plus Cap program, no matter how high world oil prices go, your price won’t skyrocket. And if market prices fall, your price comes down too.

There is, however, a fee associated with this protection because it has become very expensive to offer this type of insurance. The following graph illustrates why this is so.

These graphs represent typical two-week periods in 1995 and in 2012. As you can see, the price of oil is much more volatile today, on a day-to-day basis, than it was in the past. The cost of the price cap fee is based on this volatility, along with how far in advance we purchase options for a price cap. The flee fluctuates based on these two factors.

This helps explain why the fee we have to charge for our price cap option is higher today than in earlier years. Traditionally, we would buy oil to cover the needs of our customers, and then buy a financial “hedge,” or insurance policy, to protect ourselves if market prices fell below our purchase price. If prices did fall, we would sell back our original supply of oil to our supplier and purchase new oil at the lower price.

In recent years, however, the market has been so volatile—and the risks associated with hedge insurance so great—that the price of this insurance has increased dramatically. Therefore, in order to continue to offer our price cap option, we must pass along the increased cost of the insurance to you in the form of a fee.