Most commercial energy buyers think they have two choices: lock everything at a fixed rate, or float everything on a variable one. There's a third structure that larger and more sophisticated buyers use constantly, and it sits right between the two — block and index pricing. It lets you hedge part of your load at a fixed price while leaving the rest exposed to the wholesale market, deliberately choosing how much certainty and how much upside you want.

This guide explains what block and index pricing is, the mechanics of how it's built, who it fits, and how it compares to a straightforward fixed rate.

What Is Block and Index Pricing?

Block and index splits your energy supply into two parts:

• The block is a fixed quantity of power — say, 2 megawatts every hour — purchased ahead of time at a locked, fixed price. This is your hedge. No matter what the market does, that block costs the same.
• The index is everything else — the portion of your load above (or below) the block — which is settled at the live wholesale market price, typically the day-ahead or real-time index at your zone.

So if your business uses 5 MW at a given hour and you've blocked 3 MW, then 3 MW is billed at your fixed block price and the remaining 2 MW floats at the index. You've hedged 60% of that hour and left 40% on the market. The ratio is a choice you make up front, and it's the whole point of the structure: you decide how much of your load to fix.

How a Block Is Built

Blocks are usually shaped to match your load. A flat business that runs around the clock might buy a single round-the-clock (7x24) block. A business that runs hard during business hours buys an on-peak (5x16) block that only covers weekday daytime hours, leaving nights and weekends to the index where prices are typically lower.

The art is sizing the block to your actual usage profile. Block too little and you're barely hedged — you're effectively on a variable rate. Block more than your minimum load and you can end up "long," selling surplus power back into the market at whatever price it's fetching, which introduces its own risk. Getting this right requires a real read of your interval data and load shape, which is why block and index is a structure that rewards good data and good advice.

Block and Index vs. a Fixed Rate

The trade-offs against a standard fixed rate are clear once you see them side by side:

• Cost. A full fixed rate bakes in a risk premium — the supplier charges extra to absorb all the volatility for you. Block and index removes that premium on the indexed portion, so over time it often costs less. But "often" isn't "always": in a rising or volatile market, the indexed portion can spike and erase the savings.
• Certainty. A fixed rate gives you one number you can budget around perfectly. Block and index gives you a partly-known, partly-floating bill — easier to forecast than full variable, but not as clean as fixed.
• Control. This is block and index's real advantage. You choose your hedge ratio, and many programs let you add blocks over time — locking more of your load as prices move in your favor, similar to the timing judgment behind deciding when to lock in rates.
• Exposure to demand and peak risk. Because the indexed portion settles at real-time prices, your bill is sensitive to what you use during high-price hours — which puts a premium on managing your peaks. See our guides to demand charges and capacity charges.

Who Block and Index Pricing Actually Fits

Block and index isn't for everyone. It tends to fit a business that:

• Has meaningful, fairly predictable load. The bigger and steadier your usage, the more a block can be shaped to it precisely — and the more the saved risk premium is worth.
• Can tolerate some bill variability. If a single high-price month would blow your budget, you want more fixed and less index — or a full fixed rate.
• Has someone watching the market. The structure's upside comes from actively layering in blocks at good moments and managing the indexed exposure. Set-and-forget buyers get less out of it.
• Wants to participate in falling prices. A fixed rate locks you out of declines; the indexed portion of block and index lets you ride them down.

For a smaller or budget-sensitive business with a spiky load and no one watching the wholesale market, a clean fixed rate is usually the better, simpler choice. Block and index is a tool for buyers who want to trade a bit of certainty for lower expected cost and more control — and who have the data and oversight to manage it.

Our Recommendation

Block and index pricing is the most flexible structure in commercial energy procurement, but flexibility cuts both ways — it can lower your cost or expose you to volatility depending on how it's built and managed. The decision shouldn't come down to a supplier's pitch. It should come down to your load shape, your tolerance for a variable bill, and whether someone is actively managing the indexed exposure. For many buyers the right answer is a blend: enough block to protect the budget, enough index to capture upside.

We structure and manage block and index programs for commercial and industrial clients across every deregulated market in the U.S., on a transparent-commission basis. Send us your usage and a recent bill, and we'll model block and index against a full fixed rate on your actual load — for free — so you can see which structure your business should be in.