Block and Index Supply for Manufacturers: A Worked Example
By Illinois Commercial Energy editorial team
Reviewed by JakenEnergy commercial energy team
Block-and-index is a layered way to buy electricity supply. Instead of fixing one price for every kilowatt-hour or floating the entire load on the market, a manufacturer fixes a base "block" of energy and lets the rest float at an index. Done well, it matches the contract to how the plant actually consumes power. This guide explains the mechanism, why load shape drives the split, and walks through a clearly hypothetical example so the moving parts are visible. It uses no invented prices, because the value of the structure comes from how it is built, not from any number a broker can quote today.
What "block" and "index" each mean
A block is a fixed quantity of energy — often expressed as a flat number of megawatts across defined hours — purchased at a price locked in advance. It behaves like a fixed-price contract, but only for the volume inside the block. Because the quantity is set, the block delivers the same amount whether the plant runs hot or slow that hour.
The index is the floating portion. Any consumption above the block is settled against a wholesale market reference, so its cost rises and falls with the market. For a ComEd-territory account the underlying market is PJM; for an Ameren-territory account it is MISO. The index portion carries no upfront price premium, but it carries market exposure.
A block-and-index contract simply combines the two: a fixed base plus a floating balance. The essential design choice is where to draw the line between them.
Why load shape drives the split
The reason this structure exists is that most manufacturers do not consume a flat, predictable amount of power every hour. A plant typically has a baseload — lighting, controls, compressed air, refrigeration, HVAC, and always-on process equipment — that runs at a fairly constant level regardless of output. On top of that sits a swing component that moves with production: extra shifts, seasonal demand, batch processes, or ramp-ups that push usage well above the floor.
Interval data is what makes the shape visible. Reviewing 12 to 24 months of hourly usage reveals the floor the facility rarely drops below and the peaks it occasionally reaches. That floor is the natural candidate for the fixed block, because it is the volume the plant is nearly certain to use. Fixing it removes market risk on the predictable part of the bill. The swing above it is uncertain by nature, so locking it can mean paying a risk premium for volume the plant might not consume — which is exactly what leaving it on the index avoids.
In short: fix what you know you will use, float what you cannot predict. Gathering clean interval data is therefore the first real step, and it connects directly to the broader commercial energy procurement process and to reading the ComEd bill or Ameren equivalent to confirm usage.
A worked example (hypothetical, no prices)
Consider a hypothetical injection-molding plant in ComEd territory running two shifts most weekdays and a partial third shift in busy months. Its interval data shows a consistent overnight and weekend floor driven by compressors, chillers, and building systems, with daytime peaks during active molding.
A procurement team looking at that shape might reason as follows. The overnight-and-weekend floor is present in nearly every hour of the year, so it is a strong candidate for a fixed block sized at or slightly below that floor. That base is locked, giving the finance team a predictable line item for the majority of hours. The daytime production swing — which varies with orders and shift count — is left on the index, because its volume is genuinely uncertain and fixing it would mean buying certainty the plant may not need.
If orders surge and the third shift runs more often, the extra energy is settled at the index; if orders soften, the plant simply buys less on the index and is not stuck paying for a large fixed block it cannot fill. The block protects the predictable core of the bill; the index absorbs the variability. Notice that no rate is required to see the logic — the structure follows the load shape, and the split is a decision about risk, not a bet on a specific price. Any real design would still be normalized and compared apples-to-apples against alternatives before signing.
Trade-offs versus pure fixed or pure index
Versus a fully fixed price. A single fixed price covering all volume gives maximum budget certainty and the simplest bill to forecast. Its cost is flexibility: the supplier prices in a risk premium to guarantee volume, and a plant with a large, unpredictable swing may pay to lock energy it does not ultimately use. Fixed is often the better fit when budget certainty is the top priority or when the load is genuinely flat. See fixed versus index for that comparison in isolation.
Versus a pure index. A fully floating index removes the premium and can be attractive when a facility can tolerate volatility, but it exposes the entire load — including the predictable baseload — to market movement. For a manufacturer with a large, steady floor, floating that floor introduces risk with little upside, since the baseload was never the uncertain part.
Block-and-index sits between the two. It is more complex to administer and requires active management and good interval data, but it lets a manufacturer place certainty where certainty is valuable (the baseload) and flexibility where the load is genuinely variable (the swing). The right block size is a judgment call informed by risk tolerance, budget discipline, and how much of the load is truly predictable.
What does not change
Whatever supply structure is chosen, the delivery side is unaffected. ComEd and Ameren continue to own the wires, maintain the system, read the meter, restore outages, and bill delivery charges under their regulated tariffs. A block-and-index contract changes only the supply portion of the bill that a licensed ARES provides. Demand charges and the capacity tag still apply and are worth understanding alongside any supply decision — see commercial demand charges. Structure is one lever among several, and it is best evaluated as part of a whole-account review through contract review rather than in isolation.
Sources
Structure follows load shape; no block-and-index design guarantees a lower cost or any specific savings.
Frequently Asked Questions
QWhat is a block-and-index electricity contract?
It is a layered supply structure that fixes a base 'block' of energy at a set price and lets the remaining volume float at a market index. The block gives budget certainty for predictable baseload usage, while the index covers the variable portion of consumption.
QWhy would a manufacturer choose block-and-index over a fully fixed price?
A manufacturer with a steady baseload plus variable production swing can fix only the predictable part and avoid paying a risk premium to lock volume it may not use. The trade-off is that the floating portion is exposed to market movement, so it fits operations that can tolerate some budget variability.
QHow is the size of the fixed block decided?
The block is usually sized to the account's baseload — the volume the facility consumes almost every hour regardless of production. Interval data showing hourly usage is what reveals that floor. Everything above it is treated as swing and left on the index.
QDoes the delivery utility change under a block-and-index contract?
No. ComEd or Ameren still delivers the power, maintains the lines, reads the meter, and handles outages. A block-and-index structure affects only the supply portion of the bill — the part an ARES provides.
QIs block-and-index only for very large accounts?
It is most common for larger commercial and industrial loads because it requires interval data and active management. Smaller accounts often use simpler fixed or index products, though the right structure always depends on the load shape rather than size alone.