A Texas Power Company Charged $9.99 a Month to Let Customers Pay Exactly What the Wholesale Market Paid. In February 2021 the Market Paid $9,000 a Megawatt-Hour, and Griddy Drafted It Straight From Their Accounts.

Griddy Energy, a small Houston company that launched in 2017, sold Texans a simple idea. Most households in the state's deregulated electricity market pay a retailer a fixed rate, and the retailer carries the risk that wholesale power will cost more than it charged. Griddy removed the retailer's margin and, with it, the cushion. Members paid a $9.99 monthly fee and in return were billed whatever the wholesale market was charging, as it was charging it, with the money drafted automatically from a bank account or credit card. "You effectively pay the same price as a retail energy provider or utility," the company said. "No markups. No hidden fees. No contracts. That's it."

Most of the time this was cheap. The Texas Tribune put the average wholesale price at about $35 a megawatt-hour. The scheme rested on a single assumption, which was that the wholesale price would continue to behave like one. In the week of 14 February 2021, during Winter Storm Uri, the wholesale price was set by the state's regulators at $9,000 a megawatt-hour and held there for days. Griddy's roughly 29,000 customers had signed up to pay exactly what the market paid, and they did.

The Order

As the cold knocked generators offline and the grid operated by the Electric Reliability Council of Texas, or ERCOT, came close to collapse, the Public Utility Commission of Texas directed ERCOT to set wholesale prices at $9,000 per megawatt-hour, the maximum the market allowed. "Energy prices should reflect scarcity of the supply," the order stated. The intention was to entice generators to produce more electricity. For a fixed-rate household, the order was an abstraction that would surface later in its retailer's accounts. For a Griddy household, it was a line item.

William Hogan, the Harvard Kennedy School professor described by The New York Times as the architect of the Texas market design, said the prices reflected the market working as designed. "As you get closer and closer to the bare minimum, these prices get higher and higher," he said, "which is what you want."

The Advice

Griddy saw the bill coming before its customers did. Foreseeing a huge jump in wholesale prices, it warned them and encouraged all of them to switch to another provider when the storm arrived. This was the company's emergency procedure: to tell its members that the product they had chosen was not one they should currently be using. Switching, however, takes time. DeAndré Upshaw, a Dallas resident, signed up to switch and was still being charged until the change took effect the following Monday. Many others, the Times reported, were simply unable to switch at all.

The automatic payments continued. Scott Willoughby, a 63-year-old Army veteran living on Social Security in a Dallas suburb, told the Times that he had nearly emptied his savings to pay a $16,752 electricity bill charged to his credit card, about 70 times what he usually paid for all of his utilities combined. "My savings is gone," he said. "There's nothing I can do about it, but it's broken me." Katrina Tanner, in Nevada, Texas, had been charged $6,200 that month, more than five times what she had paid in all of 2020, and watched the figure in the company's app go "just rising, rising, rising." Griddy took the money from her bank account. She had $200 left, and suspected she had kept that much only because her bank stopped further withdrawals. Upshaw, who normally paid about $80 a month, owed more than $6,700. "I don't feel like I've used $6,700 of electricity in the last decade," he said.

Lisa Khoury, of Chambers County, said in a class-action lawsuit that her bill had reached $9,340 for the week, against a usual $200 to $250 a month, and that Griddy had drafted $1,200 before she blocked further charges at her bank. She sought $1 billion on behalf of affected customers. Griddy, for its part, published a blog post. "At Griddy, transparency has always been our goal," it began. "We know you are angry and so are we. Pissed, in fact." The company, whose entire proposition had been that customers should pay the market price, vowed to fight the raised prices. "The market is supposed to set the prices," it said, "not political appointees."

The Extra Day

On this point, at least, the state's own watchdog partly agreed. Potomac Economics, the independent market monitor for the Public Utility Commission, wrote to the commission that ERCOT had kept prices too high for nearly two days after widespread outages ended late on the night of 17 February. The prices should have been reset the following day. According to the Texas Tribune, the cap stayed in place for a further 32 hours, and the monitor put the cost to Texas power companies at $16 billion. Carrie Bivens, a vice president at Potomac Economics, wrote that leaving the prices in place would cause "substantial and unjustified" economic harm and recommended they be corrected, while acknowledging that "revising the prices retroactively is not ideal."

The commission declined. Its chairman, Arthur D'Andrea, said the proposal was "very simplistic" and that "there are a lot of consumers that could be hurt by repricing." Bill Magness, ERCOT's outgoing chief executive, submitted a report stating that the decision had been "intentional and carefully considered" and adding: "It was not an error." Potomac Economics later narrowed its recommended correction to $4.2 billion. D'Andrea said he would not reverse even that, and told legislators he did not believe the commission had the legal authority to change a settled price. State Representative Chris Paddie, a Republican from Marshall, framed the question as "whether or not we want to go back and change the rules of the game after the game's been played." Lieutenant Governor Dan Patrick wanted to. On 15 March the Texas Senate introduced, voted on and passed a bill that would have forced ERCOT to reverse the charges for the 32-hour period. The House declined to take it up, and a 30-day rule then meant ERCOT no longer had the authority to reprice the market.

The Release

ERCOT's position on Griddy did. On 26 February 2021 it revoked the company's right to operate in the Texas market for missing required payments, and began moving its customers to other providers. Griddy said it had asked ERCOT for emergency help and been ignored. "On the same day when ERCOT announced that it had a $2.1 billion shortfall, it decided to take this action against only one company that represents a tiny fraction of the market and that shortfall," it told customers. On 1 March the Texas Attorney General, Ken Paxton, sued Griddy under the Deceptive Trade Practices Act, saying that "Griddy misled Texans and signed them up for services which, in a time of crisis, resulted in individual Texans each losing thousands of dollars."

On 15 March Griddy filed for Chapter 11 bankruptcy, owing ERCOT more than $29 million and with no customers left. It laid off half of its staff of 30. Its co-founder, Gregory Craig, said: "Our model worked in August 2019 and would have worked in February 2021, had the grid not failed and the regulators not intervened." Paxton's office said the bankruptcy plan would release about 24,000 former customers from $29.1 million in unpaid bills. The final settlement, announced on 30 August 2021, released former customers from "any and all outstanding balances," and permanently barred Griddy and its parent, Griddy Holdings, from false or misleading advertising of retail electricity. Customers who had already paid, because the payments had been taken automatically, were told they could file a claim in the bankruptcy court.

The Public Utility Commission concluded that it could not change a price after the market had settled. Griddy's customers who had not yet paid it were released from it by a liquidation plan, which required the company to stop existing first. Those who had paid on time were invited to join the queue of creditors.

Filed from public reporting:

• The New York Times via Boston.com — "Enormous electric bills come due for Texans who had power during storm"
• The Texas Tribune — "Texas woman who received $9,300 electricity bill files class-action lawsuit against wholesale electricity provider Griddy"
• The Texas Tribune — "Griddy customers moved to other electricity providers after ERCOT boots it from Texas market"
• ABC13 Houston — "AG Ken Paxton sues electricity provider Griddy for 'deceptive practices'"
• ABC13 Houston — "Public Utility Commission of Texas rejects $16 billion ERCOT charge correction"
• The Texas Tribune — "Lt. Gov. Dan Patrick spars with last remaining Public Utility Commission member over readjusting energy prices during winter storm"
• KWTX — "Repricing the state’s electricity market after the winter storm seems increasingly unlikely"
• The Texas Tribune — "Griddy Energy customers may be off the hook for exorbitant energy bills after company files bankruptcy"
• CBS News / Associated Press — "Griddy Energy settles with Texas, releasing customers from $9,000 power bills during freeze"
• Office of the Texas Attorney General — "Paxton Announces Finalized Settlement with Griddy Energy, LLC"