Texas Attorney General Ken Paxton is suing Griddy Energy, claiming the company that charges wholesale electric prices for customers used deceptive advertising.
The lawsuit comes after Griddy customers reported spikes in electric bills during the winter storm in February.
"Griddy misled Texans and signed them up for services which, in a time of crisis, resulted in individual Texans each losing thousands of dollars," Paxton said in a statement. "As Texans struggled to survive this winter storm, Griddy made the suffering even worse as it debited outrageous amounts each day."
Paxton's office argues Griddy violated the Texas Deceptive Trade Practices Act and did not adequately inform customers of risks associated with its pricing model. In less than two weeks, the Attorney General's office received more than 400 complaints from Griddy customers, according to the lawsuit.
"Griddy was fully aware of the reality of the risk in its pricing scheme - sky-high energy rates at a time when consumers are the most vulnerable," the lawsuit reads.
The lawsuit criticizes the energy company for using an auto-billing system during the storm and accuses Griddy of making "false or misleading comparisons to traditional retail electricity providers' pricing."
The attorney general's office is asking that Griddy be barred from advertising "false or misleading" electricity rates and that the company restores all service charges for customers from Feb. 12 to Feb. 21. The office is also calling for the company to pay civil penalties for violations of the Texas Deceptive Trade Practices Act.
Griddy is aware of the lawsuit filed by Paxton, a Griddy spokesperson said in an emailed statement.
"We do not agree with the claims alleged in the complaint, and plan to vigorously defend against it," the statement reads. "Until then the company has no further comment."
Griddy customers pay a low monthly membership fee and wholesale market prices for electricity. These prices are often below the fixed rate offered by other electric providers. But during the winter storm, wholesale prices increased 10,000%, capping at $9 per kilowatt hour. The company encouraged its customers to find another provider that offers fixed rates, shielding them from the erratic market.
The company's access to Texas' electric grid was revoked Friday because of nonpayment. The Electric Reliability Council of Texas, the state's power grid manager, is transferring customers to other providers.
As of Friday, ERCOT was waiting for more than $2 billion from Texas electricity providers to pay power plants following the freezing temperatures across the state, according to Bloomberg. Some of that cost - $800 million - was covered through another revenue source, leaving a $1.3 billion shortfall.
"ERCOT took our members and have effectively shut down Griddy," Griddy said in a statement posted on its website after being cut from the grid. "On the same day when ERCOT announced that it had a $2.1 billion shortfall, it decided to take this action against only one company that represents a tiny fraction of the market and that shortfall."
Griddy is also facing a class action lawsuit in Harris County seeking relief for Texan's who relied on the company for electricity.