Startup flips the switch by plugging Texans into the wholesale market | Crain's Austin

Startup flips the switch by plugging Texans into the wholesale market

  • Griddy wants to sell electricity straight from the spot market to consumers for a $9.99 fee. (Courtesy of Wikimedia)

    Griddy wants to sell electricity straight from the spot market to consumers for a $9.99 fee. (Courtesy of Wikimedia)

  • Griddy connects customers directly into the wholesale electricity market and sends alerts when electricity is cheapest.  | Photo courtesy of Griddy.

    Griddy connects customers directly into the wholesale electricity market and sends alerts when electricity is cheapest. | Photo courtesy of Griddy.

  • Greg Craig, CEO of the California-based startup Griddy that launched in Texas this month.  | Photo courtesy of Griddy.

    Greg Craig, CEO of the California-based startup Griddy that launched in Texas this month. | Photo courtesy of Griddy.

  • Griddy customers can see their electricity consumption and cost in real time using the app.  | Photo courtesy of Griddy.

    Griddy customers can see their electricity consumption and cost in real time using the app. | Photo courtesy of Griddy.

A California startup wants to change the way people buy electricity in Texas by giving consumers access to the wholesale market.

Griddy launched statewide this month with the promise of providing simple, easy to understand pricing with no hidden fees. It’s available now for both iOS and Android. Customers pay a flat membership fee of $9.99 per month for access to spot pricing.

“No price is better than the wholesale price,” said Greg Craig, CEO and founder of the Playa Vista, California-based company. “There’s real-time pricing for you to see exactly what you’re being charged every hour, every day and every month.”

The Griddy app alerts customers when wholesale prices are lowest, signaling them to use electricity, and alerts them when prices are higher so they can adjust consumption. The app also has a 36-hour pricing forecast so customers know when it’s the most advantageous to charge an electric vehicle or run appliances.

The app can also help consumers go green by increasing consumption when there’s an influx of wind or solar energy on the grid.

“When it’s cheapest, it’s greenest,” Craig said. “We’re trying to signal people to use when it’s cheapest. When prices are highest, there’s dirty stuff on the market so we reduce consumption during those times.”

Griddy is just one of dozens of retail electric providers, or REPs, that sell electricity to consumers in Texas' deregulated market but this startup rebels against the standard practices by offering wholesale pricing. 

However, consumer advocates are suspicious of Griddy’s approach because it leaves ratepayers vulnerable when prices skyrocket during peak conditions.

For example, wholesale prices spike in August when temperatures soar above 100 degrees or when an ice storm takes power lines down and everyone cranks their heaters on.

“The bottom line is when you need electricity the most, you pay the highest price,” said Carol Biedrzycki, executive director of the Texas Ratepayers Organization to Save Energy, which advocates for affordable energy for low-income families. “That might be a little risky. Most people prefer to have fixed rates so they know what it is. They like predictability and stability in their energy.”

How it works

Playing the wholesale market could be a gamble, said Tom “Smitty” Smith, the director of Public Citizen’s Texas office.

Griddy requires customers maintain a prepaid account that automatically withdraws from the bank. If the balance dips below $25 and the credit card or debit card defaults, electricity can be shut off with little notice, according to Griddy’s terms of service.

The prepaid account works similar to a tolltag and the software predicts when the consumer will be charged to refill their account.

 “I don’t see where this is a boon for consumers,” Biedrzycki said. “There’s a whole different set of rules for prepaid accounts.”

Customers will get alerts but the prepaid accounts don’t have the same protections that traditional pay as you go services do, putting low-income consumers at risk, she said.

“In the hottest month of the summer, you could be breaking the bank,” Smith said. “You’re betting against people who know this market far better than you do so the likelihood is you’re going to lose.”

Craig counters that the traditional fixed-rate plans are deceptive, from the Power to Choose website to all the hidden fees that are passed on to consumers. They’ve launched their own website, www.powertoconfuse.org, to show how the Texas Public Utility Commission’s site misleads consumers, he said.

Most REPs charge a termination fee if customers leave before the plan ends. Griddy doesn’t charge one so customers can leave whenever they want.

“We know you’re going to like us so there’s no break-up fee,” Craig said. “We say, come and go as you please.”

Buying visibility

The wholesale price of electricity fluctuates wildly based on a number of factors, including weather, maintenance issues and the time of day.

In 2016, there were 555 instances where the wholesale price of electricity was actually negative because there was wind energy flooding the grid. That amounted to 139 hours in 2016, according to Griddy. 

“If you had used energy during that period, you earned credit,” Craig said.

But only if you were buying wholesale electricity.

Most Texans who live in deregulated portions of the state lock themselves into contracts with a fixed price per kilowatt. The retail electric provider hedges their bets that electricity prices will be lower than the locked in price the majority of the time, which makes them money.

Craig argues that these REPs pass on the risk to customers through higher locked-in rates and hidden fees. With Griddy, customers can see real-time pricing and see how much they are paying per day at any time.

“There’s a daily visibility to your use and charges,” Craig said. “Unlike most competitors who just give you a bill way after consumption.”

Going green

Texas has more than 18,000 megawatts of wind power installed, more than any other state, according to the Electric Reliability Council of Texas (ERCOT). The state recently set a record for wind power generation with 16,141 MW generated on March 31.

But fossil fuels still make up the majority of the power consumed in Texas with natural gas representing 43 percent and coal being 28 percent in 2016, according to the 2016 annual report from ERCOT 

Many of the REPs offer plans that use a percentage of renewable energy but Griddy’s Power to Confuse website warns that these plans aren’t as green as you think.

Even homes that have 100 percent green energy are still connected to the same electric grid as their neighbors. That means they use a mix of fossil fuels, nuclear and renewable energy.

Craig said what consumers are actually doing when they sign up for a green energy plan is buying voluntary renewable energy credits (RECs). These RECs could be from green energy produced 10 years ago in California or from methane from landfills.

Griddy takes a different approach by encouraging customers to use more energy when prices are lowest and greenest, Craig said. Homeowners who have smart thermostats and other connected devices would benefit because they can adjust consumption even if they aren’t home.

“We are the return on investment for connected devices,” Craig said. “We’re the only energy provider that anyone with an electric vehicle should have.”

Pavel Molchanov, a senior vice president and equity research analyst with Raymond James & Associates, said it’s an intriguing concept and shows how much technology is changing every aspect of life. But he also warns consumers about the volatility of wholesale pricing.

“My advice for anybody who’s thinking about signing up for this is to look at how much power they use and when do they use it, what time of day," Molchanov said. “We know from experience that there’s no free lunch. Not everybody is going to make money on this relative to what they are currently paying.”

April 26, 2017 - 11:38am