On Jan. 1, 2002, Texas deregulated its electric utility market, and Houston immediately began looking for ways to maximize its energy savings. The city knew it needed flexibility with its electricity demand relative to the suppliers' generating capabilities. It also needed to gain favorable rates either by aggressive negotiation on its own, or through aggregating with other energy users to increase marketplace bargaining power.

Deregulation posed complex issues for Houston — and for all Texas cities. Existing utilities began offering new rate options; new suppliers of energy services emerged; and energy source options, such as fuel switching and interruptible supply, offered new economic options for many users.

Houston contracted with Cambridge, Mass.-based Camp Dresser & McKee to assist it in procuring a retail electric provider (REP). The process included drafting a request for proposals for energy services, informing the local government on the complexities of energy deregulation, securing the best price for services, and developing an energy plan to enhance conservation efforts and reduce the risk of a supply crisis.

The city's competitive procurement process incorporated several first-of-a-kind components, including minority business enterprise participation in both the energy and demand-side management areas. Houston was able to negotiate with the REP and ensure that customers would receive energy serv-ices at a reasonable cost. The city also negotiated additional benefits, including customized electronic billing; information, account, and electric usage analyses; and energy education services for customers.

The selected REP, Reliant Energy Solutions, will provide Houston with electricity through June 30, 2004. The agreement will save the city almost $25 million annually in electricity costs (a total of about $55 million through the term of the contract) with a negotiated rate approximately 26 percent lower than the FY2001 rate.