Not long before Valentine’s Day, Pat Wood III got a text message from Griddy Energy, his electric provider, warning that extremely cold weather was about to wreak havoc on the electricity market in Texas. “Prices are looking to stay at record rates over the next couple of days due to the polar vortex,” the notice read. “Unless you are a Griddy energy-saving expert, we recommend you immediately switch to another provider.”

Wood followed the company’s advice, even though almost no Texan could be considered more of an “energy-saving expert.” The former chairman of the state’s Public Utility Commission, appointed by Governor George W. Bush in 1995, Wood helped set up Texas’s deregulated market. He later followed Bush to Washington and ran the Federal Energy Regulatory Commission, where he dealt with the California power crisis in 2001 and a blackout in the Northeast—one of the largest in U.S. history—two years later.

Wood’s Houston home is built to maximize energy efficiency—solar panels on the roof, storage batteries in the garage, an electric vehicle that he charges at night when prices are cheaper, and a smart thermostat that receives electricity price updates in real time and adjusts the temperature accordingly. In other words, he was the ideal Griddy customer.

Griddy charged its 29,000 Texas customers about $10 a month to help them buy electricity wholesale. Most days that meant lower prices than other consumers could get, about 13 percent less per kilowatt-hour, on average. Griddy says that difference saved its customers $17 million between the company’s spring 2017 launch and last February.

Those savings came with risks, however. Wholesale prices fluctuate constantly, so Griddy customers lacked certainty in their electricity costs from day to day, or even hour to hour. By contrast, those who have fixed-rate plans through most other electric retailers usually pay more, but they enjoy predictable bills.

The price volatility built into Griddy’s business model left its residential customers financially vulnerable during the severe winter storm in mid-February. Power plants and natural-gas providers in Texas—who are not required to winterize their facilities, as are their counterparts in neighboring states that weathered the storm with little disruption—froze and tripped offline, cutting electricity to more than four million homes as temperatures stayed below freezing for days. The desperate need for heat statewide caused wholesale prices to spike. Some Griddy customers’ bills ran as high as $17,000 for that month. The company became a target for lawsuits, fodder for unflattering stories about Texas in the national media, and an easy scapegoat for public officials looking for someone to blame. Just weeks after the crisis, Griddy found itself sued by the state and forced into bankruptcy. In late May, the Legislature outlawed wholesale plans like Griddy’s altogether.

Griddy’s demise underscores long-standing flaws in the deregulated market—a lack of consumer protection, poor public understanding of the market, and virtually no provisions to safeguard reliability. Yet while Griddy customers got steamrolled in the February crisis, they also enjoyed years of significantly lower bills and the ability to adjust their electricity spending on a real-time basis—the exact sort of benefits that deregulation was supposed to offer consumers. “[Griddy’s customers] were seeking a better deal on power,” Wood said. “That’s kind of what the whole point of the market was—to allow people to have options. They just didn’t appreciate the downside.”

Lisa Khoury, huddled with her family in her Mont Belvieu home on February 16, was painfully aware of the downside. She’d received the same notice from Griddy as Wood, but by the time she tried to switch electricity providers, other retailers weren’t accepting new customers because of the looming crisis. Khoury’s bill, which typically ran between $200 and $250 a month for her three-thousand-square-foot home, skyrocketed to almost $11,000 for the first nineteen days of February, even though her power was out for nearly 24 hours at one point during the freeze.

Like most Griddy customers, she had authorized the company to maintain a balance of $150 in  her account. Griddy could automatically withdraw that money and replenish the balance from Khoury’s bank account, much as a toll tag works. Griddy took $1,200, in $150 increments, before she stopped further payments, but her bill kept going up.

Khoury signed up for Griddy in June 2019, after hearing about the company on a neighborhood Facebook page. Two months later, extreme summer heat triggered a demand surge, and prices spiked. Khoury paid $800 that month. Griddy later pointed out that while its customers experienced high bills that August, those who stayed with the company for the next twelve months paid less than the state average. That was borne out by Khoury’s experience. “Over the months and years, I was pretty satisfied,” she said.

Before being branded a villain of the statewide blackout, Griddy portrayed itself as a champion of consumers, exposing problems in the market. On May 30, 2019, it informed its customers that wholesale prices had briefly spiked to the maximum of $9,000 per megawatt-hour for no apparent reason. Calpine, a power generator, later admitted that one of its employees had mistakenly indicated the company was taking four thousand megawatts—enough to power about 800,000 homes—offline.

The mistake was corrected within three minutes, and Griddy customers paid an average of just $3 more as a result. The Electric Reliability Council of Texas, the state’s grid operator, didn’t refund the overcharge, and it said that such pricing inaccuracies occur almost daily but aren’t a significant issue because the costs aren’t passed on to most consumers, who have fixed-rate plans. Griddy’s disclosure became the basis for a lawsuit by Aspire Commodities, a trading firm, which said the May 2019 mispricing essentially created an $18 million windfall for power generators. “I’m glad that our transparency is helping the industry become more transparent,” Griddy’s then–chief operating officer Jason Huang crowed to the Houston Chronicle. (Griddy’s executives declined to be interviewed for this article, citing pending legal proceedings.)

Griddy still argues that despite the risks, it helped make the grid more stable. Customers on fixed-rate plans have no financial incentive to curtail energy use during power shortages. Griddy customers, however, were acutely aware of price fluctuations. Griddy says that as electricity supplies grew short amid peak summer demand in August 2020, its customers reduced their usage by about 20 percent. If more customers had been in the wholesale market in February, they “could have made a meaningful impact on grid conditions throughout the winter storm,” Griddy has argued in its bankruptcy court filings.

Wood, for one, agrees, “If people knew that their power was expensive, that they weren’t going to get a ten-cents-a-kilowatt hour negotiated rate, they might have turned their thermostats a lot lower.”

Soaring prices alone didn’t spell Griddy’s demise. The company blames its fate on ERCOT and the PUC, which it says didn’t follow their own rules during the February freeze. As the extreme cold settled over the state, demand rose. It quickly became clear that it would exceed ERCOT’s worst-case forecast. The market, however, didn’t respond as it was designed to.

Before deregulation, monopoly utilities generated electricity, distributed it to homes and businesses, and collected bills from customers. Nearly twenty years ago, Texas split those processes into three distinct markets: generation, distribution, and retail. Generators and retailers compete; distributors don’t (and their prices still must be approved by the PUC).

Generators like NRG in Houston and Vistra in Dallas compete to produce electricity from their power plants and sell it on the wholesale market, where traders buy and sell contracts based on demand from customers. Prices can change every five minutes, and they can range from almost nothing to $9,000 per megawatt-hour.

When demand threatens to exceed supply, wholesale prices, which are typically about $30 per megawatt-hour, are supposed to spike. In emergencies they can hit the $9,000 limit. At those prices, the theory goes, generators will put every spare electron they can find into the market.

But in February, that didn’t happen. Generators had no power to spare. Plants froze, and so did natural gas wells and pipelines, which curtailed vitally needed fuel supplies that many plants required to keep producing electricity.

However, ERCOT algorithms that should have triggered higher prices didn’t. So the PUC stepped in and set wholesale prices at the maximum—$9,000. Those prices remained in effect for more than 87 hours. (Before that week, prices had hit the $9,000 cap for a total of three hours over the previous five years.) For more than three days, Griddy customers paid the maximum amount allowed.  

Those maximum prices should have been rescinded on February 18, when the grid stabilized, and the extreme cold began to lift. Instead, ERCOT kept the emergency prices in place for another 32 hours. ERCOT’s Independent Market Monitor later found that this “inappropriate pricing intervention” led to $16 billion in excess costs, most of which were borne by retail providers, municipal utilities, cooperatives—and Griddy customers. Where that money wound up is less clear, although at least some of it went to Wall Street trading firms. “In the span of one devastating week—through the failings of ERCOT which resulted in price intervention by the PUC—Griddy was left in a position where it had no choice but to file this Chapter 11 case,” the company said in its bankruptcy filing.

Griddy says that thanks to its warnings to customers, more than 9,700 homes had changed providers by February 15, the day before Khoury tried to switch. In its bankruptcy filings, it outlined the efforts it says it took to protect customers. On February 17, it asked the PUC for permission to move its remaining customers to “providers of last resort,” retailers that typically serve customers with bad credit—those no one else wants. The rates are typically higher than other retailers offer, but they would have been far lower than what Griddy customers were paying that week. The PUC’s staff was having its own issues with power and internet outages and couldn’t discuss such a move. That same day, Griddy’s financial backer, the Australian investment firm Macquarie, said Griddy had defaulted on its financing agreements, and it seized control of the company’s bank accounts, according to the bankruptcy documents. A spokesman for Macquarie declined to comment.

Then ERCOT said Griddy needed to pony up $2.9 million. The grid operates on a system of shared costs, and each retailer must maintain a deposit with ERCOT to cover its portion. In times of crisis, ERCOT requires retailers to add cash to these deposits. A few days later, ERCOT raised its demand to Griddy to more than $11.2 million. By the time ERCOT allowed electricity prices to return to normal—$20 per megawatt-hour—on February 19, Griddy’s tab was more than $25 million. The following week, Griddy scraped together its remaining cash and paid Macquarie more than $11 million, which bought it some financial wiggle room, but it had little left to pay ERCOT.

ERCOT finally moved all of Griddy’s customers to providers of last resort on February 26. Four days later, the PUC filed a petition to revoke Griddy’s certificate to act as a retail electric provider. Griddy’s customers owed it $29.1 million, but because of the PUC’s action, the company was unable to collect any of that money to pay ERCOT’s demands. Griddy filed for bankruptcy.

ERCOT referred questions about Griddy to the PUC. “The PUC is currently investigating Griddy for compliance with customer protection rules,” PUC spokesman Andrew Barlow said. “Until that process is completed, it would be inappropriate to discuss their assertions.”

Horror stories of the staggering electric bills facing Griddy customers made headlines. For those unfamiliar with Texas’s uniquely deregulated market, it seemed as if Griddy (along with some other providers) gouged customers amid the February crisis.

On March 1, two weeks before Griddy’s bankruptcy filing, Attorney General Ken Paxton—while facing charges of securities fraud—sued the company, on behalf of the state, for violations of its Deceptive Trade Practices Act. “Griddy misled Texans and signed them up for services which, in a time of crisis, resulted in individual Texans each losing thousands of dollars,” Paxton argued. The lawsuit also contended that Griddy made customers’ suffering worse by debiting “outrageous amounts” from their accounts each day.

The liquidation plan Griddy filed with the federal bankruptcy court in Houston would include a provision for eliminating customers’ bills from the crisis. “Forgiveness of bills is great,” said Derek Potts, the Houston attorney representing Khoury and others in a lawsuit filed on behalf of Griddy customers. “It’ll help all Texas families, but what about the families that paid their bills?” Potts said tens of millions of dollars may have been swept from accounts like Khoury’s, and that money wouldn’t be returned under Griddy’s plan filed with the court.

Thanks to their fixed-price contracts, most other consumers didn’t see their bills skyrocket in February. But other electric retailers, as well as some municipal utilities and cooperatives, found themselves in a squeeze similar to the one that strangled Griddy. ERCOT demanded higher payments of them too, but they couldn’t pass the costs to their customers—yet. Most Texans may indeed face higher rates the next time they renew their electricity contract or sign on with a new provider. “Retailers are taking the hit,” said Marcie Zlotnik, former president of a Houston-based retail provider. “They had nothing to do with the crisis because they don’t generate power. There was nothing they could have done.”

Between February and mid-May, at least one cooperative and two retail providers other than Griddy have filed for bankruptcy, and nine others have left the market. Zlotnik and others on the retail side of the business worry that even more companies could be forced out of the market, reducing choices for consumers.

While it might seem that the Legislature was right to outlaw consumers’ access to the wholesale electricity market, Wood believes that rather than fewer retailers like Griddy, we should have more. Consumers, he said, too often think little about how much power they’re using. They crank their air conditioners in the middle of summer because they aren’t worried about higher bills, even when the grid is overloaded.

“I’d like to have more dynamic pricing,” Wood said. “That was the point [of deregulation], to have more creativity. It would have been nice to have more people understand that ‘gosh, it’s expensive for me to run that heater.’ That might have put some discipline on the demand.”

If we’re ever again going to have retailers in the vein of Griddy, though, we’re going to need some sort of protection for customers during emergencies, which Wood likens to catastrophic health insurance. One company proposed a plan for doing exactly that just weeks before the February freeze hit. That company was Griddy.