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?
And What About the Index?
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?
- $0.06 x 100 = $6 / hr
- 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)
- 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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