Texas Cold Snap Caused High Power Bills From Griddy Energy : The Indicator from Planet Money The recent winter storm caused thousands of Texans to see their power bill climb to hundreds, even thousands of dollars. Can economics explain what happened?
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The $1,000 Power Bill

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The $1,000 Power Bill

The $1,000 Power Bill

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UNIDENTIFIED PERSON, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

ALEXI HOROWITZ-GHAZI, HOST:

This is THE INDICATOR FROM PLANET MONEY. I'm Alexi Horowitz-Ghazi.

STACEY VANEK SMITH, HOST:

And I'm Stacey Vanek Smith. The snowstorms that hit Texas left millions of people without heat, power and water, including Kaitlyn Pham and her boyfriend, Jordan. They had no power in their Houston apartment for three days.

HOROWITZ-GHAZI: But right before their power went out, they got an email from their power company - subject; urgent. The email read, we advise our members to immediately switch to another provider as unprecedented price surges are forecasted.

KAITLYN PHAM: Me and Jordan were, like, confused. We were like, damn, like, how serious is this if our electricity provider is telling us to leave?

VANEK SMITH: Kaitlyn and her boyfriend were busy making preparations for the storm, so they just stuck with their power company.

HOROWITZ-GHAZI: But when they got their bill, they wished they'd listened to that email. It was higher than they ever dreamed an electricity bill could be.

VANEK SMITH: At the heart of the issue - economics.

HOROWITZ-GHAZI: Of course.

VANEK SMITH: Of course (laughter).

(SOUNDBITE OF MUSIC)

VANEK SMITH: So the first thing to understand is that Texas has its very own power grid. Most states are hooked into, like, big regional grids and connect it up but not Texas. Joshua Rhodes is with the Webber Energy Group at the University of Texas at Austin.

JOSHUA RHODES: So we get to kind of do our own thing down here. And anybody who wants to - thinks they can make money in that market can come in and build a power plant, which means we have a bunch of private companies that own power plants. And then we have a bunch of private companies that sell electricity to consumers. And those two interact in this thing we call the wholesale market.

HOROWITZ-GHAZI: The wholesale market - this is where the companies that make energy - hydroelectric, natural gas, wind farms, et cetera - sell the energy they generate to the power companies.

VANEK SMITH: And those power companies buy it up, turn around and sell it to Texans, just like most markets. But unlike most markets, Josh says, electricity is instant. Like, you flip on your light switch. That is the demand, and you expect the supply to be there right then.

RHODES: Electricity is the only the only thing I know of that has to be made at the exact same instant that it's consumed.

HOROWITZ-GHAZI: That means supply and demand are changing all the time, every second. And so the price for electricity is also changing all the time.

VANEK SMITH: To try to keep up with this ever-changing supply and demand, the Texas power grid has auctions about every 15 minutes where power companies place their orders, and the energy companies look at their supply of energy and the demand from the power companies and set a price.

HOROWITZ-GHAZI: Say a bunch of people across the state all get home around 4 p.m. and turn on their air conditioners all at the same time, and demand for power goes way up in the same instant. That power gets really expensive but maybe only for an hour or so. At 3 a.m., there's almost no demand for power. Prices might be almost zero.

RHODES: It's always dynamic. It's always changing.

VANEK SMITH: This is, like, the beautiful free market at work.

RHODES: Of course. Yes, this is what Texas wanted.

HOROWITZ-GHAZI: Most power companies in Texas charge customers a flat monthly fee and hope that fee covers what they end up paying energy companies in the power auctions, plus a little extra - the classic middleman markup. Most people end up paying around 100, 120 bucks a month for power in Texas.

VANEK SMITH: But then a disruptor came to town - Griddy, this company. And Griddy said, listen; no reason for you to pay this middleman markup. Just give us a little subscription fee - 10 bucks a month. And we will give you access to the wholesale market.

PHAM: So that was the best choice for us.

HOROWITZ-GHAZI: Kaitlyn Pham, who we heard from earlier, is a sophomore at the University of Houston. And a couple of months ago, she and her boyfriend, Jordan, moved into a one-bedroom apartment near campus with their two dogs.

PHAM: There's so much stress when you're trying to move, and, like, trying to find an electricity provider is another thing on top of the stress. So...

VANEK SMITH: And Internet and - yeah.

PHAM: Yeah, and Internet - you know, like, everything. So we're like, OK, let's just go with Griddy because our friends told us it was good. You know, they're not paying extreme prices.

VANEK SMITH: Yeah.

PHAM: And that's what we wanted. You know, that's what anyone wants. They want to save their money.

HOROWITZ-GHAZI: Kaitlyn works when she's not in class, and Jordan works construction. They're in a pretty lean budget.

VANEK SMITH: And for a couple of months, things were great.

HOROWITZ-GHAZI: Then came the storm. Kaitlyn first heard about it on a little family group chat.

PHAM: It was going to be, like, 19 degrees in Houston. And to us, that is so insane. Like, we've never experienced anything like that.

VANEK SMITH: On Monday the 15, it started snowing. And a few hours later, Kaitlyn and Jordan's power went out. Shortly after that, the water shut off. Kaitlyn and Jordan ate canned tuna for dinner, stuffed blankets around the doors and windows and put their groceries outside in the cold. And they huddled up with their dogs. It was like that for three days.

PHAM: Thursday, in the middle of the night, it came back on.

HOROWITZ-GHAZI: And that is when the dings started. Kaitlyn's boyfriend, Jordan, paid the electricity bill through his Chase account. And he set it up so that he got a text alert every time his card is charged.

PHAM: We were - just kept getting these texts, kept getting theses texts - a charge from Griddy, a charge from Griddy.

VANEK SMITH: What sound does he have on his phone?

PHAM: It's like a bing (ph) (laughter).

VANEK SMITH: Remember all those power grid auctions and the beautiful free market? It did its job. The energy supply was really low. Demand was through the roof, and the prices rose and rose and rose until supply and demand found their balance.

HOROWITZ-GHAZI: The only problem - it was a really expensive balance.

PHAM: And then it just kept happening. I just keep hearing ding, ding. Like, at 5 a.m....

(SOUNDBITE OF PHONE CHIMING)

PHAM: ...Forty-eight dollars. Six a.m....

(SOUNDBITE OF PHONE CHIMING)

PHAM: ...Forty-four dollars. Seven a.m....

(SOUNDBITE OF PHONE CHIMING)

PHAM: ...Forty-five. Eight a.m....

(SOUNDBITE OF PHONE CHIMING)

PHAM: ...Forty-six. Nine a.m....

(SOUNDBITE OF PHONE CHIMING)

PHAM: ...Fifty. And then it went down to 37 and then...

(SOUNDBITE OF PHONE CHIMING)

PHAM: ...Thirty-three at 11 a.m. And then...

(SOUNDBITE OF PHONE CHIMING)

PHAM: Yeah, the highest amount was $51 at 6 p.m.

HOROWITZ-GHAZI: Thirteen charges in all for Thursday for a total of $700 for one day of power.

VANEK SMITH: And what was the grand total of your February power bill?

PHAM: So grand total so far is $1062.97 for a 790-square-foot apartment.

VANEK SMITH: Wow.

PHAM: Yeah.

HOROWITZ-GHAZI: Energy expert Josh Rhodes says there's an economic lesson here.

RHODES: You know, depending on how long you were a Griddy customer, you were probably paying a lot less. But you had a lot higher risk, and that, you know, risk is being realized.

HOROWITZ-GHAZI: Risk - the fixed-rate energy companies do have a markup, but they also shield customers from the volatility of the wholesale energy market. If the market goes haywire, the fixed-rate power company eats those costs. They take on the risk of energy prices going crazy.

VANEK SMITH: But with Griddy, customers are exposed directly to the market. Now, Griddy does address those risks on its website. It has a section called Price Spike Risks.

HOROWITZ-GHAZI: Yup, it says price spikes only happen 0.6% of the time.

VANEK SMITH: And of that 0.6% of the time, those spikes are usually pretty tame. The chances of a price spike getting anywhere near as high as it did during the storm - 0.1% of the time.

HOROWITZ-GHAZI: That's 0.1% of 0.6% - a tiny, tiny risk.

VANEK SMITH: Minuscule - Josh has been studying the Texas power grid for a decade. And he says if Griddy had been offered in his area of Austin, he probably would have signed up for it.

RHODES: I've seen those prices. I mean, it would have been highly tempting to do so.

VANEK SMITH: Also, Josh says understanding the risks associated with energy, power and weather events is really complicated. Even experts have trouble with it. And every once in a while, something will happen that nobody saw coming, and prices will go nuts.

HOROWITZ-GHAZI: When this happens in most markets, if prices spike, people will just stop buying whatever it is. The problem with electricity, says Josh, is that it isn't really a choice.

RHODES: I mean, when it's cold outside and you've got young kids and, you know, you weren't - you can't let the house - if you have power and energy, you can't let the house get down into the 40s. I mean, you just can't do it, and so it's not like you have an alternative.

VANEK SMITH: That is why in most places, the government regulates and, in some cases, even runs the power grid - to protect people from a freak free-market event like the one Texas just saw. So they take on that risk, and they take the hit instead of a college student and her boyfriend who are trying to make ends meet.

HOROWITZ-GHAZI: Griddy said in a statement that it did not make extra money off of the price surges, that it only collects its $10-a-month membership fee and that wholesale prices are always changing.

(SOUNDBITE OF MUSIC)

VANEK SMITH: Kaitlyn and her boyfriend are kind of done with energy market volatility. They have switched to a flat-rate power company.

(SOUNDBITE OF MUSIC)

VANEK SMITH: This episode of THE INDICATOR was produced by Emma Peaslee and Nick Fountain. THE INDICATOR is edited by Jolie Myers and is a production of NPR.

(SOUNDBITE OF MUSIC)

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