Fixed vs. Block-and-Index: Which Energy Contract Fits Your Commercial Building?
A good rate on the wrong contract structure still costs you. How fixed, index and block-and-index contracts work — and how a Texas commercial property should choose between them.
A good rate on the wrong contract structure can still cost you. For a commercial building, the question isn't just "what's the price?" — it's "fixed, index, or block-and-index, and which one fits how this building actually uses energy and carries risk?"
Here's how the three structures work, and how to choose.
Fixed: certainty, at a premium
A fixed contract locks one rate for the whole term. The supplier carries the market risk, so you pay a small premium for that protection — but you get a number you can budget and forget.
Best for: owners and managers who value budget certainty, triple-net leases where the rate flows to tenants, and anyone who doesn't want to watch the market.
Index: cheap when calm, brutal when not
An index (or pass-through) contract tracks the wholesale market. When ERCOT is calm you ride low prices; when a summer scarcity event hits, you're exposed to the spike — and in Texas those spikes can be severe.
Best for: buildings with the flexibility to curtail during peaks, a high risk tolerance, and someone actively watching the market. Rarely the right default for a property owner who just wants to budget.
Block-and-index: the hybrid most buildings should consider
Block-and-index fixes a "block" of your predictable baseload at a known price and indexes only the variable portion on top. You get budget certainty on the bulk of your usage and market exposure on the rest.
Best for: buildings with a steady base load plus variable demand — which describes most office, retail and mixed-use property. It's often the sweet spot between certainty and cost.
How to actually choose
- Read the load shape first. A steady, high-load-factor building can carry more index exposure than a peaky one.
- Decide who carries the risk. If your leases pass energy straight to tenants, predictability may matter more than squeezing the last dollar.
- Mind the summer. 4CP and scarcity pricing land in June–September; an index-heavy contract needs a plan for those windows.
- Match term to your horizon. Holding the building five years? A longer fix can lock today's certainty. Selling in eighteen months? Structure around that.
The honest answer: it depends on your building
There's no universally "best" structure — only the one that fits your load, your leases and your tolerance for risk. Our fixed vs. index vs. block-and-index comparison breaks down the mechanics side by side.
The fastest way to get it right is to have someone read your actual usage and model each structure against it. That's what UPG's free Energy Health Check does — and we put the recommendation in writing, so the decision stays yours. See how we work with commercial real estate, or start your free Energy Health Check.
Fixed vs. Block-and-Index: Which Energy Contract Fits Your Commercial Building? — quick questions
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