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Texas startup Griddy has a simple pitch to energy consumers: Switch to Griddy and save money on your electricity bills.
But last week, following a winter storm that caused widespread blackouts across the Lone Star State, that promise fell apart dramatically.
Many Griddy customers were stuck with thousands of dollars in energy bills. Some owed more than $15,000 to the Houston-based firm, the New York Times reported.
Those steep bills stem from the mechanism that can make the company cheaper than its competitors.
Griddy allows consumers to buy their power at the real-time prices available on Texas’ wholesale market. Usually, those prices, determined by supply and demand, are low. Last week, however, natural gas plants and other generators failed and Texans cranked up their heaters, causing those prices to shoot up. Griddy passed those surging prices on to its customers.
The startup, founded in 2016, shows the challenges of trying to disrupt a large and unregulated energy market without providing adequate protection for consumers, said Kiran Bhatraju, the founder and CEO of Arcadia, an energy broker and digital utility that competes with Griddy in Texas.
“Variable-rate plans are dangerous, as we’re seeing this past week,” Bhatraju said. “A lot of these consumers who were put on these wholesale products, they got screwed.”
In a statement to Insider, Griddy said that it doesn’t control the price of electricity. It also took a number of actions to help customers avoid big bills ahead of the storm — at one point going so far as to encourage all 29,000 of them to switch providers.
Still, the company faces questions from state investigators in Texas’ consumer protection division. And experts told Insider that the firm’s high-risk energy plan may turn off customers who are seeking more stability in the wake of last week’s events.
Griddy set out to disrupt the $21 billion energy market in Texas
Buying energy in Texas isn’t that different from buying anything else. There are loads of companies making it, plenty more selling it, and everyone is looking for the best deal.
The market is huge, generating $21 billion in annual revenues, amounting to more than a third of the US retail market, according to the research firm Wood Mackenzie.
Typically, consumers buy energy from retailers at a fixed rate — meaning, they’re guaranteed a certain price of electricity over some period of time. Those retailers make money by buying wholesale energy and selling it at a profit.
Customers at Griddy get something different: They pay for real-time, wholesale prices, or indexed prices, which the grid manager ERCOT publishes every 15 minutes. They pay $10 a month to Griddy for the service.
That model was developed by founders Nicholas Bain and Gregory Craig, both energy industry veterans. Griddy is backed by power giants Macquarie and EDF Group.
“We thought there was a better way, and technology allowed us to implement a better way to save Texans money,” Craig told Good Morning Texas in 2019.
This model is unusual in Texas and across the US, said Professor Varun Rai, director …read more
Source:: Business Insider