What Is Griddy?
Updated: Jun 30, 2022
What is Griddy? Griddy has been demonized pretty heavily due to the winter storm. What did Griddy do wrong? They performed the service they promised to provide, that is what they did "wrong". People are concerned about high ERCOT prices being passed through to customers, and most of us will see an increase in those charges called pass-through charges due to ancillary services (a/s), a direct pass-through charge. Most of you have never thought about the a/s charges because they only add about .00096/kwh to your normal bill, last week the a/s was clearing at a price that would come out at about $1/kwh. Now that is for last week and will be averaged in with the rest of the monthly clearing prices so it will be reduced some. Those are quick back of the envelope calcs so don't hold me to them. Griddy offered people the opportunity with a monthly $9.99 fee to "cut out the middle man". Who are the middle men? The middle man, in the deregulated market, are the Retail Electric Providers that insulates the customer from the index pricing through fixed price deals, they are the guys with back-office people, credit groups, risk groups, they perform invoicing, traders to hedge their risk, and they are the ones to carry the risk if they are not hedged properly. They are the ones that have to post collateral with ERCOT in an event like last week, billions of dollars of collateral were posted just last week because of the event. REP's are the ones that will go bankrupt if the market blows out for an extended time and they are not properly hedged. For this service and for their willingness to take on this risk they charge a premium, that premium will go up after last week because they were not charging enough, and Griddy offered people the opportunity to take on the role of REP and not have to pay that premium. Unfortunately, Griddy customers are now understanding why the services provided by REPs are worth the premium. Griddy is not guilty of price gouging, they are guilty of giving customers exactly what they signed up for. If there is a complaint to be had it should be that regulatory bodies allowed people who are unsophisticated in the power market to be exposed to such risk. To properly manage the index pricing requires the ability to follow the market 24 hours per day. There are many things normal retail investors are not able to invest in because they are not sophisticated investors, the lesson learned here is that should have applied to residential power customers as well. Griddy is not the one who allowed that to happen, they just gave a legal platform for it to happen. For all of us the forward power price curves will increase, and our power prices will go up, but very few are directly exposed to the $9,000/mw, $9/kw, index market.
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