Major Another approach which is under development is one in which the retail consumer's rate may include a fixed cost to cover the cost of purchasing a call option. Under this approach, the consumer subscribes to a specific quantity of service in peak hours at a fixed price. For example, a residential consumer's rate might include a subscription for 6kW of peak service at 8¢/kWh. In this case, whenever the market price (or utility's marginal cost) exceeds 8¢/kWh, the consumer is entitled to 6kW at that price. The consumer in effect owns a 6kW call option with an 8¢ strike price. If the consumer uses less than 6kW when prices exceeds 8¢/kWh, the consumer earns a credit equal to the difference between the market price and 8¢/kWh. Conversely, the consumer pays market prices (or marginal cost) for any usage in excess 6kW. This approach varies from the Peak Time Rebate approach in that, unlike the baseline in Peak Time Rebate, the option quantity is transparent and could be changed by a consumer who chooses to subscribe to and pay the fixed cost for a higher or lower option quantity.
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