The Texas Department of Criminal Justice
Finds Lower Rates in Deregulated Marketplace

The deregulated electricity market has brought competition to parts of Texas and has improved pricing for many customers.

The Texas Department of Criminal Justice (TDCJ) has taken steps to get the best deal for Texas taxpayers by tendering electricity supply contracts for its facilities in deregulated areas. For calendar year 2012, about half of TDCJ’s 111 prison units will be supplied by Constellation New Energy, negotiated on TDCJ’s behalf by Texas Energy Aggregation (TEA), an energy consulting and brokerage firm.

The Council on Competitive Government, which operates in conjunction with the Texas Comptroller of Public Accounts’ Strategic Sourcing Division, identified Waco-based TEA as a contractor that could potentially help state agencies achieve the best possible deal in the deregulated electricity market.

The new contract will reduce TDCJ’s deregulated energy cost by 16 percent in calendar year 2012, an estimated cost avoidance of about $4.1 million, according to Mike Williford, assistant director of the TDCJ Contracts and Procurement Department, Information Technology, Construction and Utilities Branch.

Energy Costs in 2011 and 2012
Calendar Year Energy cost Delivery cost Commission Kilowatt hour cost
2011 $0.05 $0.01 $0.001* $0.06
2012 $0.04 $0.01 $0.000019532** $0.05

*LPB Energy Consulting.
** Texas Energy Aggregation

Source: Texas Department on Criminal Justice (TDCJ)

The Texas Department of Criminal Justice has obtained a 16 percent reduction on its deregulated electricity cost in calendar year 2012 using the services of CCG electricity procurement contractor Texas Energy Aggregation.

TDCJ is the highest electricity consumer among state agencies, spending approximately $50 million on power in fiscal 2011. Slightly more than half of that amount was for electricity purchased in deregulated markets, with the balance paying for electricity supplied by municipalities, co-operatives and investor owned utilities who are the sole suppliers for those still-regulated areas, Williford says.

Timing was one factor in locking in the supply price, because much of Texas’ electricity generation is fueled by natural gas.

“Most of the load is tied to the NYMEX natural gas futures,” says Williford. “That was on a downward slope, so it was a big factor.”

According to TDCJ, the 361 million kWh of energy supplied in fiscal year 2011 for deregulated areas averaged 6.94 cents per kWh; regulated energy was more expensive at 7.16 cents per kWh.

Electricity Expenditures for Fiscal Year 2011
(Sep. 1, 2010 - Aug. 31, 2011)
Source Type Metered kWh Cost per kWh
Deregulated 361,377,705 $0.0694
Regulated 331,090,917 $0.0716
Total 692,468,622 $0.0705*

* Average cost

Source: The Texas Department on Criminal Justice (TDCJ)

For fiscal 2011, the Texas Department of Criminal Justice had 111 prison units and other facilities located throughout Texas. Slightly more than half its electricity expenditures were paid to suppliers in the deregulated market.

In addition to the units where offenders are confined, TDCJ requires electricity to operate its meat packing plants and vegetable cannery that supply food for inmates, and Texas Correctional Industries (TCI) manufacturing facilities. Since the 1963 Prison Made Goods Act was passed, TCI has expanded to manufacture clothing, furniture, license plates, signage, janitorial supplies and other goods used by government agencies.

TEA’s expertise in dealing with electricity wholesalers helped, too.

Williford says the TDCJ Utilities Strategy Team chose TEA after careful consideration, because they had very reasonable rates and could offer market timing sensitive negotiations with the retail electric providers (REPs). Their negotiation capabilities, based on intra-day market prices, allowed TDCJ to avoid an additional $400,000 to $500,000 in electricity cost over the cost avoidance realized by favorable market conditions alone.

The electricity supply has been purchased on a fixed one-year contract from Constellation New Energy, which will shield TDCJ from price fluctuations in the fuel supply and during periods of heavy demand.

“Our team works to ensure that clients pay the lowest possible price for their energy,” says T.J. Ermoian, president and CEO of TEA. “Few people really understand the intricacies of the electricity market, let alone know how to begin negotiating a lower price. As a state-approved consulting firm, we can help identify and implement ways for Texas state agencies and other governmental entities to cut their energy expenditures.”

Learn more about the Council on Competitive Government’s Energy Management services.

Learn more about Texas Energy Aggregation (TEA).