Texas/electricity: cold comfort | Financial Times

“Tx, we hope you’re staying safe! And yep, things suck right now.” Griddy Energy’s chirpy homepage message offers little comfort to Texans living without electricity. Griddy Energy is not a well-known company. But its problems, and those of its customers, are at the centre of a power struggle in the state.

The Lone Star State is in the midst of an unprecedented cold snap, with temperatures approaching zero degrees Fahrenheit in some parts. Winter weather has turned into a public safety nightmare as power blackouts keep homes and businesses from staying warm. The calamity has focused attention on Texas’s uniquely deregulated power market, in which companies such as Griddy compete for business.

Texas politicians were quick to attack California when the liberal West Coast state was hit by rolling blackouts during the last wildfire season. Their own system is now under scrutiny. In most US states consumers buy power from a monopoly whose prices are set by state regulators. In Texas, which boasts its own intrastate grid called Ercot, citizens can readily switch among “retail” providers who purchase power from producers — although transmission lines remain regulated. Griddy, for example, charges only its wholesale price of electricity and makes money from its $10/month membership fee.

According to data from the US Energy Information Administration, Texas residents paid on average under 12 cents per kilowatt hour for electricity in 2019. The average across the US was 13 cents. In California and New York the average price was 19 cents and 18 cents, respectively.

In recent days, the wholesale spot price of electricity (measured in megawatt hours) has hit $9,000 in Texas. The figure was $40 just a few days ago. The issue is not just demand but supply as cold weather and ice has curtailed wind turbines and deliveries of natural gas. Any broad judgment on the Texas energy model is premature. But the age of climate change, extreme weather and a devotion to the free market mean that the once dull American electricity model is now a live wire.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.