Is Real-Time Wholesale Electricity Pricing Like Griddy "Risky Business"?

Original publication date of 10/20/2017

To say Texas has a complicated electricity market is an understatement! The unique deregulated electricity market confuses most consumers with the tricky ads, teaser rates, and crazy terms. Sprinkle in some disruptors in the electricity market, such as Energy Ogre. You'll get many Texans that are about as confused as a goat on AstroTurf!

When shopping for electricity, most consumers choose plans with a "fixed" rate that offer predictable bills. Now real-time wholesale electricity price options are back on the market, just adding to the confusion. 

Griddy is a membership-based business in Texas, allowing customers to buy all their electricity at wholesale rates. But does Griddy really offer the best option for Texans?

Is Real-Time Wholesale Pricing Like Griddy a Good Option?

This is David Kinchen, Energy Ogre's Director of Automated Operations. He discusses the volatility of real-time pricing and why buying electricity at wholesale rates is a big gamble!

The wholesale price of electricity depends on many variables, including power plant outages, weather, and more. Companies like Griddy may not disclose that all the time. Therefore, the actual cost of electricity ping-pongs every 15 minutes, causing variable pricing from -$23 to over $2,100. 

Many retail electricity providers (REPs) take the risk of potential price surges by buffering some safety into their fixed-rate costs. As a result, other retailers will shift some of these pricing risks to the consumer in an effort to lower rates. Griddy gives their customers direct access to wholesale with pay-as-you-go billing, usage information, and tracking of price alerts.

Real-Time Pricing is Risky Business

In a real-time model, Griddy has no fiscal responsibility for price surges. Griddy's prepaid daily plan offers a real-time wholesale rate (plus delivery company charges). When there is a price surge, real-time consumers are the ones at risk. They could have a potential astronomical bill or no electricity after the prepaid account is depleted.

Griddy claims these risks are overblown. They say it's to justify the large staffs and power trading systems employed by retail electricity provider competitors. However, this graph below is an example of what wholesale consumers face.

On October 7-9th, 2017, prices surged in the real-time market. Real-time buyers either had to turn off or limit their power during the surge for 4 hours on October 9th or pay out the wazoo for electricity! A customer using 2,800 kWhs a month paid over $32 that day for electricity if they made no adjustment—those on a fixed rate paid $3.55 for the day.

Risky Business

Other examples of volatility in the market include 430 intervals in Houston. Prices in Houston were over $100 from January through September 2017. The largest price spike in this time frame was $3,095.98 or $3.10 per kWh. Congestion on the grid leads to higher prices. Those price spikes can happen in a matter of seconds. So you can pay double digits for one kWh.

This wholesale model isn't new. In fact, it was attempted in 2008 for commercial customers. It was a big bust and loss for those purchasing in real-time. Even more, it failed in commercial with a more flattened demand profile. Consequently, new residential consumers are even more exposed to volatility. Are you willing to take that risk?

Griddy says its members should be able to better capitalize on times when the prices actually go into negative territory. This is true; however, historically those negative instances are in off-peak hours like when we are sleeping and electricity use is minimal.

Real-Time Pricing is a Time Suck

It will be important for real-time customers to consistently monitor the app. Most importantly, customers need to have the ability to adjust electricity usage in their homes at a moment's notice when there happens to be a price surge. We aren't sure about you, but we have more important things to do daily than watch an app and turn our electricity on and off. 

Therefore, we also understand there is a small subset of folks who have the time and inclination to monitor their app. They turn it on and off their electricity based on price. But for a majority, including our members, Energy Ogre feels there is too much risk. Plus, there's too much work with too little benefit.

Ogres aren't Gamblers

Because we are an advocate for our members, Energy Ogre discourages Texans to try this model. Remember we are agnostic to REPs and our sole allegiance is to our members. 

As a result, Energy Ogre chooses not to place our members in real-time pricing. We feel there is too much exposure to the wholesale market. We choose the most competitive fixed rates on the market. So, that gives our members a fair deal at a fair price and ultimately saving. We consider buying real-time pricing like picking up pennies in front of a steamroller.