Texas cities cut electricity prices in deal with Direct Energy

More than 100 Texas municipalities, including several in Tarrant County, expect to cut their annual electricity bill by at least $30 million in 2009 under the terms of a new five-year contract with Direct Energy and FPL Energy.

Geoffrey Gay, an Austin attorney for the Cities Aggregation Power Project, said member cities will pay between 5 cents and 8 cents per kilowatt-hour for power, plus distribution and administrative charges, depending on their location in the state. West Texas enjoys the lowest power prices, thanks to a surplus of wind power in the region, while Houston and South Texas typically have the highest prices.

North Texas cities in CAPP include Arlington, Grapevine and North Richland Hills, among others. They paid about 10.5 cents per kilowatt hour on average for their power in 2008, Gay said.

Approximately 50 smaller communities in another group, the South Texas Aggregation Project, also will purchase their electricity under similar terms, Gay said.

“By contracting now, CAPP members are able to take full advantage of the dip in energy prices that occurred in the latter half of 2008,” CAPP said in a prepared release. Those prices are generally locked in through 2014, the group said. Natural gas is a major component in the generation of electricity.

The contract with Direct Energy and FPL Energy, which went into effect Jan. 1, replaces a previously negotiated deal with Luminant Generation that was announced in September. That pact offered exceptionally low power costs and was intended to last 24 years, but also required participants to issue long-term bonds to help Luminant finance some of its operations.

Gay said only about 40 CAPP members voted to participate in the Luminant contract. Their electrical load was much less than Luminant, the power generating operation of Dallas-based Energy Future Holdings, formerly TXU Corp., hoped to supply, he said.

The ongoing financial crisis created too much uncertainty for such a long-term contract, Gay said.

In a prepared statement, Luminant said that “while we believe this contract offered a number of positive benefits, the conditions to closing the contract were outside of our control. We continue to work with CAPP on future opportunities that would be beneficial to CAPP members.”

Gay said that under the new contract, CAPP members agree to buy all their electricity for their own operations from Florida-based FPL Energy. Direct Energy will handle billing and administration.

While FPL is Texas’ and the nation’s biggest generator of wind power, the CAPP contract does not include a specific quota for wind, Gay said.