Electricity Purchasing Options Part 1: What is an Index Plus Block Solution?

We designed the “Index Plus Block Solution” for customers who want the flexibility that comes with taking an active role in managing energy costs and who have a higher risk tolerance for the volatility of electricity market prices.

With the Index Plus Block option, you can pursue electricity purchases using both fixed and index rates. “Block” quantities of electricity are purchased for a fixed price. For any additional electricity consumed beyond the specified block quantity, you will pay hourly (or in some markets, sub-hourly) “index” or market-based retail prices.

For an example, see the screen shot below from Constellation NewEnergy Online. The orange line shows an example customer’s hourly load for a week, while the light blue bars indicate the hourly block quantities for which the customer has fixed the price.

As the example shows, the customer’s load varies by time of day. The chart illustrates that the customer uses more power during the “peak” hours, identified generally as typical work hours on weekdays, and the customer uses less power during off-peak hours, the hours at night and weekends. The example highlights a decision to fix the price of electricity for on-peak and off-peak in different quantities; this is why the blue bars show different quantities for different hours of the day and for weekdays versus weekends.

The area above the blue bar and below the orange bar shows the portion of hourly electricity usage that the customer will be charged the real time price. The table below, also from Constellation NewEnergy Online, shows how this works.

In the table to the left, you can see detailed calculations of how blocks are settled on an hourly basis. Actual usage (Column 3) for each hour is netted from the fixed quantity purchased under the block (Column 5) to produce the residual usage (Column 7) that is subject to hourly prices (Column 6). The cost is the residual usage priced at real-time prices (Column 6). The total of the hourly charges in Column 8 plus the cost of the block appears on the customer’s bill.

I hope this is helpful. In my next post, I will discuss how to determine if the Index Plus Block Solution is the right electricity product for you.