For some local businesses, the fallout from the great February freeze persists – plumbing problems, flooring to be replaced, furnaces gone kaput; but for Griddy Holdings, an electricity service provider that exclusively serves Texas, the freeze may never end.
In a press release from March 16, Texas Attorney General Ken Paxton announced that his office is suing Griddy for their deceptive advertising, which misrepresented their service and led to over 24,000 consumers owing $29.1 million for a few days of electricity. The massive electric costs accrued as the demand for electricity increased in response to plunging temperatures. Paired with a plummet in supply, electricity prices soared, prices that Griddy passed onto their consumers. This information went public one day after Griddy Energy LLC filed for Chapter 11 bankruptcy.
Deceptive Advertising and Marketing
Deceptive advertising, also known as false advertising, is advertising claims which mislead consumers about the price, quality, and/or quantity of a service or product, when that service/product made be rendered or available, or incorrect information about the sale of a service/product.
Misleading consumers about the price or value of a service/product is one of the most common forms of deceptive advertising. You may have encountered online stores that claim a product’s price has been severely cut – for instance, an item that initially cost hundreds of dollars on sale for just tens of dollars. Yet when you receive the product, the grift is clear: the quality is not worth the original price. The original “pre-discount” price was false; the seller misrepresented the product’s actual value with fraudulent pricing techniques. The allegations brought forth against Griddy are similar in nature.
The Case Against Griddy: What Was so Deceptive?
The official petition filed by the Texas AG delineates many aspects of Griddy’s advertising practices that the state alleges to be deceptive. Foremost, their argument centers on Griddy’s central advertised promise: “cost savings over traditional retail electric providers to consumers looking to reduce their electricity bill,” and the service’s inability to deliver on this promise, in conjunction with other deceptive marketing materials they used to bolster the legitimacy of the aforementioned claim (Griddy Petition).
For instance, the petition emphasizes Griddy’s use of the word “wholesale” as misleading because Griddy did not own the electricity it provided customers. The Better Business Bureau warned consumers about Griddy’s usage of the word wholesale, stating that businesses should refrain from employing the word unless it “actually owns and operates or directly and completely controls a wholesale or distribution facility which primarily sells products to retailers for resale.”
Additionally, Griddy included testimonials on their website that boasted massive savings despite not being the typical experience of a Griddy customer. In 2019, Griddy’s average price per Kilowatt-hour (kWh) delivered was actually higher than the Texas average. The state alleges that, via a series of misleading charts and graphs, Griddy duped consumers by misrepresenting fluctuations in wholesale electricity prices.
Perhaps the most misleading graph of all compared the average kWh rates in 2019 for Griddy and TXU Flex Rewards. Similar to the events of February 2021, in August 2019, amidst a phenomenal heatwave, an analogous price hike occurred in which consumers were billed hundreds or thousands of dollars for a few days of electricity. That’s an increase between 20x and 10,000x the marketed rates — but Griddy did not make any adjustments to their marketing materials. On the contrary, in the graph comparing 2019 rates, Griddy asserted their highest rate during the August heatwave was $0.24 per kWh, when it actually peaked for some customers at $9 per kWh. The state claims in their petition that had Griddy properly disclosed the potential volatility of the electricity market during severe weather events, consumers would likely not have joined their service.