Hedging with Blocks and Shaping: A Simple Model
By Illinois Commercial Energy editorial team
Reviewed by JakenEnergy commercial energy team
Hedging sounds complicated, but the core idea is simple: buy energy in pieces so that no single price and no single moment controls your whole cost. Two concepts do most of the work — the block, a fixed chunk of energy bought at a locked price, and shaping, the practice of matching what you buy to how you actually use power. This guide explains both in plain terms and shows how layering them manages price risk. It stays entirely qualitative, using no invented prices, because the value of the approach comes from its structure, not from any number a supplier can quote today. For a longer worked walkthrough, see our block-and-index example for manufacturers.
What a block is
A block is a fixed quantity of energy purchased at a price set in advance — commonly described as a flat number of megawatts delivered across a defined set of hours. The defining feature is that the quantity is fixed. A block delivers the same amount every hour it covers, whether your facility happens to run hot or slow in that hour. In that sense a block behaves exactly like a fixed-price contract, but only for the specific volume inside it.
Because the quantity is locked, a block gives budget certainty for whatever portion of your load it covers. You know the price and you know the amount. What a block does not do is flex with your actual consumption — and that gap between a flat block and a variable load is precisely what shaping exists to address.
Why load shape creates the problem
Very few commercial facilities consume a flat, constant amount of power. Usage rises and falls with the day, the week, and the season. A restaurant peaks around meal service; an office climbs during business hours; a plant swings with production shifts. Most operations have a baseload — the always-on floor of lighting, controls, refrigeration, and HVAC that runs at a fairly steady level — plus a variable component stacked on top that moves with activity.
A single flat block cannot match that shape. Buy a block sized to your peak, and you have locked more energy than you use most hours, paying for volume you do not consume. Buy one sized to your floor, and everything above it is unhedged. The load profile is a curve; a single block is a straight line. Bridging that difference is the entire point of shaping. Seeing the curve requires interval data — the hourly usage record that reveals your floor and your peaks — which is why gathering it is the first practical step in any procurement process.
How shaping matches purchases to the load
Shaping is the work of making the purchase profile approximate the load profile. Rather than one flat block, a buyer layers several: a base block covering the hours and volume the facility almost always uses, and additional, smaller blocks covering higher-usage periods — daytime hours, or heavier seasons. Stacked together, these blocks form a stair-step that follows the real load far more closely than any single purchase could.
Shaping does not require blocks to cover everything. A common and sensible design fixes the predictable baseload with blocks and leaves the uncertain balance on a market index — the block-and-index structure. The blocks lock the part of the load you are confident you will use; the index absorbs the swing you cannot predict. The guiding principle is straightforward: fix what you know you will use, float what you cannot forecast. That keeps you from paying to lock volume that may never materialize while still protecting the predictable core of the bill.
How layering manages price risk
Layering adds a second dimension: when you buy. Instead of committing your entire volume in one transaction — betting everything on a single day's price — a buyer can place blocks at different times, building the hedge in stages. Because each layer locks a portion of the load at the price available when it is placed, no single moment sets your whole cost. This spreads timing risk the way buying an investment gradually spreads it, rather than committing all at once.
Layering across time and shaping across the load work together. Shaping decides how much of each part of the profile to fix; layering decides when to lock each piece. Together they let a buyer concentrate certainty where usage is known and predictable, and keep flexibility where it is genuinely uncertain. The result is a purchase that is neither fully exposed to the market nor rigidly locked in a way that ignores how the facility actually runs. Any real design should still be normalized and compared apples-to-apples against simpler alternatives, and slotted into a deliberate procurement calendar so the timing decisions are planned rather than reactive.
The trade-offs to keep in view
This flexibility is not free of complexity. A shaped, layered program requires good interval data, active management, and a supplier or ARES able to administer it. It suits larger or more variable loads better than small, flat ones, which are often served perfectly well by a simple fixed price. The blocks you fix remove market risk on that volume but also remove the chance to benefit if prices fall; the index portion does the reverse. There is no structure that wins in every market — the point is to place certainty and exposure where they fit your operation and your tolerance for budget variability, a judgment best made within a full contract review.
What does not change
Whatever supply structure you build, the delivery side is untouched. ComEd in northern Illinois and Ameren in central and southern Illinois continue to own the wires, maintain the system, read the meter, restore outages, and bill delivery charges under their regulated tariffs. Blocks, shaping, and layering affect only the supply portion of the bill that a competitive supplier provides — the underlying wholesale markets being PJM for ComEd territory and MISO for Ameren territory. Hedging is a way to manage risk on that supply portion; it is one lever among several, and it works best as part of a whole-account strategy rather than in isolation. The same logic extends to natural gas, which can be hedged with its own blocks and layers.
Sources
Hedging with blocks and shaping manages price risk; it does not guarantee a lower cost or any specific savings.
Frequently Asked Questions
QWhat is a 'block' of energy in a commercial supply contract?
A block is a fixed quantity of energy — often a flat number of megawatts across defined hours — bought at a price locked in advance. It behaves like a fixed-price purchase for that specific volume, delivering the same amount each hour whether your actual usage that hour is higher or lower.
QWhat does 'shaping' mean?
Shaping is matching what you buy to how you actually consume power over time. Since a flat block delivers a constant amount but real usage rises and falls, shaping layers blocks of different sizes and hours, or leaves part of the load on an index, so the purchase profile approximates the load profile.
QHow does layering blocks reduce price risk?
Buying in layers — several blocks placed at different times rather than one purchase — spreads out when you lock prices, so no single moment determines your whole cost. Fixing the predictable baseload while floating the variable balance concentrates certainty where usage is known and flexibility where it is not.
QDoes hedging with blocks change my delivery utility or bill?
No. ComEd or Ameren still delivers the power, maintains the lines, reads the meter, and handles outages. Blocks and shaping affect only the supply portion of the bill that a licensed ARES provides. Delivery charges are set through regulated tariffs and are unaffected.