Why a risk-hedging product for small customers isn't the gamble you may think.
Some innovators in the electric industry recently began offering financial hedging products that absorb risk from large customers. Why not offer this kind of protection to customers with small electric loads?
Flat pricing is not flat rates per kilowatt-hour, nor is it a budget bill program. Such common products help customers to levelize monthly bill variance, but do not actually protect customers from price and billing risk. Protecting customers from price risk is the essence of flat pricing, and it is where a company can step in and capitalize.
The flat pricing concept is not rocket science. In fact, it isn't even considered innovative. Many industries, including some that are similar to the electric industry, use it as their pricing strategy of choice. Capacity-constrained Internet service providers quickly moved from volumetric pricing to flat bills early in that industry's history. Another industry with capacity constraints, the cellular phone service market, has evolved from pure volumetric pricing to a more customized menu of flat offerings. Even the volatile retail gas market has been experimenting with its version of residential flat bills.