Term: Block & Index

Block + Index Electricity

Block + Index electricity contracts allow customers the ability to fix prices for certain portions of their electricity consumption (blocks), while floating other portions on the open market (index). When purchasing electricity from a supplier, commercial customers have many options spanning from fully-fixed rates to fully-variable rates. Purchasing a fixed rate allows customers to eliminate the risk of the market, however, they pay a premium to suppliers for taking on that risk. Variable rates, on the other hand, float up and down with the market. They are great when market prices are low, and terrible when market prices are high. Many larger customers, who enjoy a balance of fixed and variable rates choose block + index products. 

What's the Block?

The fixed portion of a block + index product is called a block. Typically, when purchasing a fixed price in a block + index contract, the customer will “block out” certain volumes of energy at fixed prices. Unlike traditional fixed rate products where customers simply pay the same $/kWh for all electricity consumption, in a B+I contract, the customer is obligated to pay for the “blocks” of fixed power, even if they are not consumed. It is important to speak with a seasoned energy advisor prior to negotiating your block volumes with a supplier.

And What About the Index?

The variable portion of the B+I contract that floats up and down with the market is known as the index. Basically, every other kWh of electricity consumption that is not consumed in the block, is billed on the open index market.

How Much Can I Block?

That’s really up to you and your energy supplier. Most electricity suppliers offer all sorts of block + index products that can be customized to your usage. In a typical block + index agreement, a customer can fix prices in a block during certain times throughout the day, month, or year. Some suppliers even offer load-following block + index solutions that do not follow simple B+I rules, but rather move with your energy usage. See Load-Following Block + Index to learn more about that product.

A typical customer who enjoys a balance between risk and reward might block prices during the most volatile times of the year/market, and float the index during less volatile conditions. Here is an example of what that might look like below:

How Is It Calculated?

The best way to understand your block + index bill is to first start with the blocks. If you fixed your block prices at $0.06 for 100 kW per day, than you will pay $0.06 x 100 kW for each hour of the day…
  • $0.06 x 100 = $6 / hr
For any given hour, if your electricity usage is more than 100 kW, than the remaining kW is billed at the market (index) rate for that particular hour…
  • 200 kW consumed from 12:00 PM – 1:00 PM
  • Market (index) price for that hour is $0.08
  • $0.06 x 100 = $6 (for first 100 kW of usage)
  • $0.08 x 100 = $8 (for the second 100 kW of usage)
For any given hour, if your electricity usage is less than the 100 kW block, the remainder of unused electricity is sold back the the market (index) at the market price for that hour.
  • 50 kW consumed from 12:00 PM – 1:00 PM
  • Market (index price) for that hour is $0.08
  • $0.06 x 100 = $6 (for the 100 kW block)
  • $0.08 x -50 = -$4 (credit for the -50 kW that was not used)

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