It is, but then people couldn't pay -- and since they couldn't pay, neither can Griddy, since it ran cash-lean and didn't extract enough profit during low rate periods to cover this amount of delinquency. The $2.1B shortfall is being assessed equally among resellers, so Griddy acting like they're some victim instead of just another participant is a bit silly. You don't see Encor complaining about the shortfall makeup assessment, despite all of their customers being on fixed-rate.
Griddy is obviously insolvent since its members are, so far with you. But many other providers are also defaulting. Why are they forcing only Griddy to shut down? Conspiracy theory: putting them into bankruptcy with no hope of recovery has a good chance of making all those huge bills you have read about in the press go away.
This strikes to me as a typical American solution to peoples crass financial ignorance: socialize the debts. Here is what happens next:
> If buyers are not able to cover their bills, Ercot will pay the generator and the charges will ultimately be spread out to other market participants, including other generators and traders, as permitted by regulations.
To be clear, today's decision actually is your quoted statement -- there was a $2.1B shortfall, so ERCOT is requiring payments from its transmitters to cover the payments it already made to the producers. Griddy is unable to cover its portion of this payment, so is exiting the business instead. There are other resellers in deficit, but none that I know of in default -- Green Mountain, Reliant, Encor, Vital, NEC and so on will simply pay their portion of the assessed shortfall and continue business as usual.
Further I don't think Griddy was actually a generator. I believe they fundamentally operated as broker/transmitters at best. I.e. futures trading. Everyone else had the capacity to meet demand, and Griddy served as the buyer to connect client demand to supplier generation capacity. Most of the other utilities have privately owned electrical infrastructure in play. That's part of the reason why Griddy got away for so long running as cash lean as they were. No infra upkeep, no maintenance to coordinate or hedge, just price discovery and arbitrage.
When all their customers were in a position, however, where they needed electricity from Griddy, but no one had any to sell... Well... That's why spot buying can leave you with your arse out in the cold.
I do feel sympathy for those caught out, but I also understand what Griddy's intent was, even if I think the position and business model they chose was unwise. It goes good when its all good, but when things go bad, you have a responsibility to have been planning for that eventuality.
It sucks. It feels wrong that it should end up happening that way. That's kinda jow life rolls though. At least, has been for me.
This being wholesale doesn't somehow make it not price gouging. Raising prices on a product (electricity) that you were already selling during an emergency is widely considered to be highly immoral, and is illegal almost everywhere, including Texas [1]. There does not appear to be any exception for "wholesale" goods, or b2b transactions, nor should there be morally since that would defeat the whole purpose of keeping necessities flowing.
The fact that ERCOT sets the prices makes this whole situation complicated, I have no clue if anyone actually broke the law here. But certainly setting the price this high was immoral, useless, and just a transfer of money from people buying electricity to the people who were already producing as much electricity as they could at 1/10th the price. The fact that these people participated in the wholesale market assuming that that market operated under the normal norms of western civilization is not particularly their fault, but an entirely reasonable thing for them to have done. The solution to this problem is not to not let people participate in markets, but to make markets actually follow the normal norms of civilization and not engage in unethical price gouging during emergencies.
>But certainly setting the price this high was immoral, useless, and just a transfer of money from people buying electricity to the people who were already producing as much electricity as they could at 1/10th the price.
Not really, raising the prices also increases supply (eg. hiring workers to work overtime to get it fixed, or renting out expensive equipment to get it fixed faster), as well as discouraging non-essential use (if electricity costs $5/kWh you sure as hell are going to do everything in your power to cut your usage, rather than blasting the space heater to a comfy 75 degrees).
There is a point to which this is true, and there is a point at which this is no longer true because everyone is already doing everything they already can.
Texas was quite obviously well beyond that second point during this crisis.
Moreover that only excuses the people who actually had those extra expenses of charging more. The rest of the producers of electricity are morally (and under normal circumstances legally) obligated to not also raise their prices just because they can.
> There is a point to which this is true, and there is a point at which this is no longer true because everyone is already doing everything they already can.
Are they? I'm sure if the electricity rate was high enough it'd be worth it to airlift diesel generators across the country to make up the shortfall. Hell, you can probably fly in temp workers from europe/asia to do the necessary fixes.
> it'd be worth it to airlift diesel generators across the country to make up the shortfall. Hell, you can probably fly in temp workers from europe/asia to do the necessary fixes.
This event lasted 3 days. You think these private entities had the ability to coordinate airlifting generators (for what it's worth, IIRC fuel was the problem, not generators), and bringing in foreign skilled labor, to address a situation that will last a couple days?
If your next argument is going to be "The US Government/Military can do it" expect my response to be "If the US government can solve this problem for it's citizens during a crisis, it should be doing so whether the set price of electricity is >$9/kWh or not"
Someone did this in the aftermath of hurricane Rita I believe. They rented a uhaul and bought some generators, and drove halfway across the country to sell them to people the very next day. Then they got charged with price gouging.
Restricting them to a maximum 25 percent markup for all that effort (i.e. making them eat a loss) will obviously prevent people doing it. It's still just another example of the economic rule that price fixing creates shortages.
I believe there is an exception to price gouging laws if the cost of producing the direct item/product/service is impacted. In this case Griddy's cost went way up as well, which makes them not-clearly-in-the-wrong.
Do you have any idea how much damage can be done to the grid if there is a great disparity that forms between demand and supply?
You literally had machines running on redline to keep up with demand because so much generation capacity went offline at the same time, and the weather precliuded deployment of either the personnel or equipment to handle it safely and quickly.
That is why the statutory max price was set. If you were going to use that power, and put that generating capacity at risk, so PUC thought, you were going to pay for it. They figured the pricing signal would control demand.
Well... They were wrong.
"Your debt collection stops being my concern when my and my dependent's survival is on the line." --Every human being in the back of their head, in the lizard brain, ever.
Sure, it feels bad afterward, and you try to follow what guidance you can at the end of the day, and reach out to those you're in a position to reasonably help, but that was a demand inelastic situation. Be able to pump a certain threshold of BTU's into your environment by money, barter, burning, or retaining via insulation... Or die.
I'll give ERCOT and PUC the benefit of a assumption of reasonability given info at the time; but I really can't forgive the human nature centric myopia that the homo economicus model has foisted on the world.
>They figured the pricing signal would control demand.
>Well... They were wrong.
I don't think they ever thought it would reduce demand, they just thought it would increase supply. The reasoning for not reducing demand is simple: most consumers pay fixed rate plans, so if you were at home and had power, there really wasn't any incentive for you to reduce power consumption.
Yes, definitely wasn't trying to accuse Griddy of price gouging here, they're just a middle man. I am accusing the people who set the price of doing so (at least morally), and perhaps even the producers of the electricity who didn't set the price (as well as those who were involved in setting it) since they are going along with selling it at that exorbitant price.
> People buying electricity at wholesale prices is on them.
This feels too much like victim blaming for me to agree with. In general, people are lead to believe "wholesale" just means something like "cheaper in bulk" à la Costco. I am sympathetic to anyone who was ignorant of the fact that it meant their personal rates could be much much higher too.
Broader: Literally every other residential customer in the United States other than Griddy customers in Texas. (There’s some variable rate but not like that)
I had a friend who worked there and we discussed potential solutions to this after the 2019 spike (I worked at a BNPL fintech and now at an insuretech). It was really a lot for a startup to do and no third parties would take on a program at that scale.
Technically this company was trying to fulfill the market need driven by the deregulation, and trying to provide lower cost solutions to the consumer, but they needed to build something to help with these spikes. They could have eventually I think, but just a tough business frankly!
> It was really a lot for a startup to do and no third parties would take on a program at that scale.
No one wanted to take the other side of a tail risk trade?
I wonder if they could have made tail risk bets that prices could spike during seasonal occurrences that had small fixed upfront costs, but high enough payout to absorb losses while still keeping prices lower than competitors. If they could have, none of us would be talking about this now (except maybe "How one energy company won big betting that energy prices would eventually spike").
Well for starters you're adding a third party into the mix.
I guess that sounds sarcastic, because probably for most people it's not worth it, but there's probably a point where the added overhead of the third party is worth the savings. Maybe then the third party insurer would be motivated to build active cost monitoring device that will cut the power to your house when the price gets too high. Do you trust your power provider to build un-backdooered logic, that they won't use for other purposes, for such a thing?
It being a third party also affords other opportunities, like, not buying the insurance and building your own power/price monitoring kit/algorithm. Suppose you are willing to pay a high premium to keep your freezer running but not the wall warts on all of your voltage-transformed devices?
I disagree completely. This business model should never have been allowed to exist, in the same way and for the same reason that "almost fully self-driving cars" should not be allowed on the roads: humans are just not capable of quickly and correctly responding in situations where 99.99% of the time no input is required and once in a blue moon you have to act immediately to avoid disaster.
I would love the opportunity to sign up for this, if and only if they could send me some test messages so I could make sure my load-shedding scripts work.
The opportunity to engage more directly with the market would be cool and useful for folks with the technical chops to participate appropriately. And if everyone's smart appliances and bitcoin miners could actually cut themselves off with price spikes, _the grid would be healthier for it_.
I think of it like self-insurance. If you have the financial resources to weather the foreseeable eventualities, you can forego many traditional types of insurance. However, you have to prove that you have the money in the bank.
In this case, there was nobody checking that these wholesale customers had the technical chops to meaningfully participate in the wholesale market. THAT is the problem. The market should exist, but just like you can't register a car without either normal insurance or proving your self-insurability, you shouldn't get electrical service without either paying normal consumer rates or proving your ability to play the wholesale game.
Better. Retail price in Texas depends on time-of-use, so you're paid more per kWh for the electricity you net-generate during the day than the electricity you net-use during the night.
The only way other electric companies would be able to eat the difference between retail and wholesale rates would be to overcharge for years, hoard cash, and then pay out that buffer during this crisis. Presumably, this is what they did.
Except during events like this, that people are not and cannot be prepared for. Griddy going out of business is nothing -- if someone else wants to take up the business model, they can tomorrow. Individual people being charged thousands for debts difficult to discharge is the real harm.
For one, I suspect that ERCOT wouldn't allow a new company with this model access to the grid immediately, at least until this blows over a bit.
But regarding "thousands in debts"; I'm curious how that will be handled. It seems that these are debts to Griddy, but Griddy no longer exists, apparently for non-payment, which implies that ERCOT does not expect to be paid. Do these customers now owe this debt to ERCOT directly?
Griddy is shutting down. They exist for the moment, the debt they are owed is an asset, and even if they are dissolved their assets will be sold off to pay their creditors, so someone will be owed the money.
But on net, people _would_ be better off having taken the savings from Griddy and stuck it in the bank. Consumers aren't losing money overall in the Griddy model -- it's just happening at once.
The other providers can only survive (assuming they do) by having overcharged for years.
That wasn't overcharging. They had infrastructure costs to meet.
I mean, I could be wrong, I"m not a CPA with their books in front of me... But I cannot see running a power network as anything but expensive.
Now whether they imvested properly or not, that remains to be seen. The fact that arlt least we didn't totally lose everything shows it wasn't all for naught.
Almost fully self driving cars are physically dangerous to others. Whether or not you think people should be allowed to bankrupt themselves speculating on wholesale energy prices; it’s an entirely different situation.
The problem here as I understand it is that ERCOT stepped in and artificially set an absurdly high wholesale price, to try to stimulate production. And then Griddy was forced to pass this price straight down to their customers. The narrative about this being a "market failure" seems really wrong.
Really seems like it should be on TX to make the customers whole here, given that they ordered Griddy to pass along huge amounts of money to producers for days.
That solution wouldn't really be fair either. All the other electricity providers are going to have to sit down with ERCOT and figure out how to split the $2 billion bill here (https://www.wsj.com/articles/texas-power-market-is-short-2-1...) ; why should Griddy get their share subsidized by the state just because they passed the bill on to consumers? I don't think you're entirely wrong, but it seems like the bottom line is that Griddy's billing model just isn't compatible with the ERCOT market.
Before PUCT pegged the prices, we were able to load-shift our showers, heat, and device charging to parts of the day where there actually was still sufficient supply to drive prices down under 50c/kWh.
Even if you aren't shifting your use around, there's a really big difference in the total damage done by power rates pegged at $9/kWh 24/7, and power that was occasionally hitting this rate but was otherwise ~averaging somewhere on the order of $2-3/kWh over a 24h period early on in the crisis.
The day before PUCT pegged the rate had a few hours of relatively tolerable prices. Thankfully we lost power for nearly a full day of the fixed $9/kWh rate.
>The problem here as I understand it is that ERCOT stepped in and artificially set an absurdly high wholesale price
Incorrect. ERCOT set a price ceiling, not a price. The wholesale price without the ERCOT price ceiling would have been far, far higher than $9000 kwh. That ERCOT is at blame for the price ceiling is absurd.
* ERCOT is to blame for a lot of other things though.
A) There are actually 2 price ceilings. The $9000/MWh is the "high" cap. The situation lasted for long enough that they were supposed to switch to the "low" cap of (the greater of) $2,000/MWh or 50x the natural gas price index. Due to the also high price of natural gas during the crisis, this "low" cap ended up being higher then the "high" cap.
B) To protect the grid at a techincal level, portions of it were disconnected (load shedding). The result is that the "market" value within the grid that remained connected actually did drop below the cap. Since this only happened because supply was so low that some consumers couldn't buy at any price, the decision was made to set the price to the cap to better reflect the full demand instead of just the demand that was still connected.
> “Because energy prices should reflect scarcity of the supply, the market price for the energy needed to serve load being shed in the face of scarcity should also be at its highest,” the PUC’s news release stated.
> The PUC added, “The decision was spurred by ERCOT’s discovery that energy prices across the system were clearing at less than the current system-wide offer cap of $9,000 established by Commission rule.”
> In addition, the PUC ordered wholesale prices be backdated to February 15 when the storm escalated circumstances in the state.
I don't blame them for doing whatever it took to attract electricity generation onto the grid. But passing the costs directly to customers seems like the wrong way to handle that side of the transaction. I think the difference should have been paid for as part of the overall relief package.
I think the point is that no price would have made any extra electricity supply available. All this $9000 imaginary price did was provide the remaining generators with an extra $8000/MWh and causing a number of electricity wholesale buyers (far from only Griddy) to default.
It's not like any generator is making money having a power plant sit idle, they are losing tons. Any positive price is incentive enough, but no level of price can make whatever is causing the outage to be fixed in 4 days. The Texas grid is an entirely isolated system.
Wikipedia disagrees with you: “On February 15, during the power crisis, the state's Public Utility Commission required ERCOT to set the price to the $9,000 maximum. The commission reasoned that the trading prices for energy (as low as $1,200) were inconsistent with the supply scarcity.”
It links to source material that mostly reads as gibberish to me but does seem to make clear near the start that PUCT/ERCOT have the power to change the price and were unhappy that it was lower than $9000.
Out of curiosity can you point me to where that's stated in plain English by the parties involved (if there is such a place)? I must have bad info/assumptions
> ERCOT has informed the Commission that energy prices across the system are clearing at less than $9,000, which is the current system-wide offer cap pursuant to 16 TAC §25.505(g)(6)(B)... The Commission believes this outcome is inconsistent with the fundamental design of the ERCOT market... the market price for the energy needed to serve that load should... be at its highest.
It’s not exactly plain English, but the Public Utilities Commission is pretty clearly telling ERCOT that they should ignore the current clearing rates and raise prices until there’s enough power or they hit the $9,000 ceiling, whichever comes first.