What is fixed and what is indexed?
Block-and-index is a pricing arrangement combining specified fixed-price energy blocks with an indexed treatment for defined remaining exposure.
The structure concerns how energy quantities are priced. It does not necessarily fix utility demand, capacity, transmission, or every other charge. Start with the complete supply component map before describing the product as partly fixed. A statement about energy coverage cannot be applied automatically to total account expenditure.
The DOE time-variable pricing resource describes block-and-index as a combination of fixed pricing and market-linked pricing. Its overview gives the basic concept; the hotel’s executed schedule supplies the block quantities, time shape, and settlement method.
The bills hub explains component separation. For this definition, accounting needs to see each fixed and variable energy calculation distinctly and then reconcile the other components around them.
What information makes a block complete?
Record quantity, units, applicable hours, days, season, start, end, and price. A block specified in kW across a set of hours is different from a total kWh purchase allocated by another rule. Convert units only under the actual schedule, and keep the conversion visible.
Ask whether the block applies continuously, only during designated periods, or according to a custom shape. Identify holidays and other exceptions where defined. Do not assume an annual total is delivered evenly or that every block referred to as peak uses the same hours across markets.
The hotel can have several blocks layered at different prices and dates. A complete record should identify each one and the aggregation method. Combining them into a single average may help budgeting but can conceal the price and quantity that apply to a particular billed interval.
| Field | What it establishes | Question for invoice review |
|---|---|---|
| Quantity and units | Defined purchase obligation | Power across hours or allocated energy? |
| Delivery shape | Eligible hours and days | Which intervals receive fixed coverage? |
| Fixed price | Price for covered quantities | What components and fees are included? |
| Residual reference | Market-linked calculation | Location, series, weighting, conversions? |
| Below-block treatment | Settlement when usage is lower | Credit, sale, adjustment, or other rule? |
| Change provisions | Possible revised obligations | Account or operating changes permitted? |
How should residual exposure be defined?
Compare actual contracted load with the applicable block in each relevant period. Where the agreement prices positive differences at an index, the indexed quantity follows that difference. Its treatment below zero is a separate provision; do not silently force it to zero unless the contract says to do so.
Read interval data and load profile before interpreting hourly or shorter-period exposure. The meter boundary, time convention, and units must match the block schedule. Monthly consumption alone cannot reconstruct every interval difference.
Some products use shaping or settlement conventions rather than direct observed interval matching. Identify those explicitly. An example described in a sales presentation may illustrate the structure without representing the final contractual allocation method for this account.
What does a hypothetical block calculation show?
Assume a simplified period with 100 MWh of hotel consumption, a defined 70-MWh fixed block at an assumed $80/MWh, and a positive 30-MWh residual at an assumed $120/MWh. Energy cost is 70 × $80 + 30 × $120 = $9,200 before other items.
The resulting simplified average is $92/MWh, equivalent to $0.092/kWh. Neither reference price is a current quote, and the quantities are teaching inputs. The arithmetic assumes one applicable period and no other shaping, loss, fee, or adjustment rules.
If the same 70-MWh block faces 120 MWh of consumption at those illustrative prices, residual rises to 50 MWh and modeled cost becomes $5,600 + $6,000 = $11,600. The fixed block stayed unchanged while exposure increased. That explains why an initial forecast coverage percentage does not necessarily describe the final actual coverage.
What changes when consumption falls below the block?
Suppose the hotel instead uses an assumed 60 MWh against that 70-MWh block. The agreement must explain what happens to the 10-MWh difference. A sale or credit at a specified reference could create one result; another contractual method could create another. Do not assume the hotel simply pays for sixty units at the original block price.
For a separate hypothetical rule, assume the customer pays $5,600 for the block and receives a credit for 10 MWh at an assumed $50/MWh. Net modeled energy cost is $5,100, before other charges. This is an illustration of one assumed settlement rule, not a statement that a particular product permits it.
Record the source quantity and the credit formula independently. A lower load can reduce grid purchases while creating a different commercial settlement. Renovations, closures, efficiency, or solar changes should therefore be reviewed against the block obligations rather than evaluated only as avoided kWh.
Why do location and time shape affect the index?
The PJM data directory lists distinct market datasets and time conventions. If a product references such data, identify the exact series and location. A hub price and another location’s price can answer different questions; a public average is not automatically the customer’s residual reference.
Align observations with the actual load and block periods. A month-average reference produces a different calculation from interval load weighting. Preserve the stated averaging method instead of choosing whichever dataset makes the invoice easier to approximate.
For the underlying formula concept, consult index pricing. Block-and-index adds a defined fixed quantity to that calculation; it does not remove the need to verify the index’s publisher, units, additions, and correction rules.
Which charges stay outside the block calculation?
The DOE utility-rate analysis guide distinguishes energy, demand, fixed charges, and rate structures. A hotel can have stable fixed-block energy costs while a utility demand component changes. The block is not necessarily a fixed entire-bill arrangement.
Read pass-through charges for separately treated costs. Capacity or other items can be fixed, passed through, or packaged under the specific product. Obtain an inclusion list and reference the relevant clause before assigning the item to the residual energy calculation.
Broker compensation also needs explicit treatment. Ask whether an embedded unit adder, direct fee, or other method applies, how it is charged on fixed and residual quantities, and its projected term total. Fees should appear once in the model and should not vanish merely because a portion of the energy follows a public market reference.
How is the structure different from a full fixed contract?
A fixed-rate contract establishes constant treatment for specified prices and quantities under its terms. Block-and-index identifies distinct fixed blocks and indexed exposure. The difference is in allocation and price mechanics, not a promise that one arrangement has superior economics in every market.
Neither label establishes unlimited volume or freedom from contractual changes. Review term, credit, usage, account, and termination provisions separately. A hotel can obtain budget certainty for selected quantities while retaining substantial exposure elsewhere.
What should a reproducible block invoice contain?
- Identify every block’s quantity, units, shape, price, and dates.
- Match the relevant account load with the same periods.
- Calculate fixed costs under the defined schedule.
- Determine positive and below-block exposure separately.
- Apply the exact index and settlement rules.
- Reconcile other charges and compensation.
- Document corrections and unexplained differences.
Use The Hotel Bill Teardown to retain that component record. A complete definition makes the product’s covered quantities and remaining exposure visible. It gives the hotel a way to verify billed mechanics without mistaking an annual coverage slogan for the actual agreement.