78 PART | I Setting the Context Giving customers on dynamic pricing a credit for the hedging premium they no longer need once they move from flat rate pricing to dynamic pricing. Existing fixed price rates are very costly for suppliers to service since they transfer all price and volume risk from the customers to the suppliers. In addition, the supplier takes all the volume risk. In order to stay in busi- ness, the supplier has to hedge against the price and volume risk embodied in such open-ended fixed price contracts. It does so by estimating the mag- nitude of the risk and charging customers for it through an insurance pre- mium. The risk depends on the volatility of wholesale prices, the volatility of customer loads, and the correlation between the two. Theoreti- cal simulations and empirical work suggest that this risk premium ranges between 5 and 30% of the cost of a fixed rate, being higher when the exist- ing rate is fixed and time-invariant and being smaller when the existing rate is time-varying or partly dynamic. For example, a flat and fixed and non- time varying rate may bear a premium of 30% when compared to a real- time pricing rate or a premium on 10% when compared to a critical peak pricing rate. Giving customers a choice of rate designs. Dynamic pricing rates, even with all the items mentioned above, may still be too risky for some customers. Thus, they should have the option of migrating to other time-varying