Nearing 30 years, state power program keeps going and going

About to turn 30 years old, a state power assistance program is more important than ever to life in rural Alaska.

The Power Cost Equalization Program, known as PCE, helps mitigate the financial burden of electric bills that can be downright exorbitant with just modest power use in some parts of the state.

Designed to bring power costs for rural residents in line with the rates their urban counterparts pay, Alaska Village Electric Cooperative President and CEO Meera Kohler said PCE takes what is often a rate of 60 cents per kilowatt-hour or more and reduces it to a more manageable rate of about 20 cents per kilowatt-hour, or kwh.

“PCE is probably the number one issue in terms of importance to us,” Kohler said.

Rising diesel prices — the fuel behind power generation in almost all PCE participating communities — particularly in the last five years, has pushed the program to provide roughly $40 million in annual assistance of late to the 81,000 Alaskans that lived in the 190 communities eligible in fiscal year 2013, according to data provided by the Alaska Energy Authority, which administers the program.

Eligible utilities turn in monthly reports to the authority and are then reimbursed for the qualifying power their customers used.

The base PCE rate is the weighted average of Railbelt and Juneau utility rates. Because Chugach Electric Association in Anchorage provides more than half of the residential sales used to calculate the base rate, its rate accounts for more than half of the equation. That rate is expected to be 14.8 cents per kwh for state fiscal year 2015, up 0.8 cents from 2014, and is very near current Chugach rates.

AEA Executive Director Sara Fisher-Goad told the authority’s board June 26 that not all of Golden Valley Electric Association’s residential sales, at by far the highest rates among Railbelt utilites, factor in to the base PCE rate.

“Although Golden Valley has the higher rates, the percentage of their impact to those rates is less because it’s just the City of Fairbanks that is included, not the entire (Fairbanks) North Star Borough,” she said.

As a result, sales to about 35,000 residents are calculated into the formula, not 90,000. Golden Valley was calculated into the latest PCE base with a rate of 23 cents per kwh.

The maximum PCE rate for each community is equal to 95 percent of the local utility’s operating costs, up to $1 per kwh, minus the base rate. For this fiscal year, the PCE assistance cap is 80 cents per kwh. The most recent average cost after assistance is 21 cents per kwh, according to AEA.

Fisher-Goad said only utilities participating in the program at its inception in October 1984 are eligible for assistance today. Any utility with costs below the urban average, primarily those utilizing natural gas or hydropower, is not eligible. That includes the “Four Dam Pool” communities of Ketchikan, Wrangell, Petersburg, Kodiak and the Copper River valley.

To qualifying utilities, PCE offsets about 30 percent of all of the power they sell, according to AEA. Assistance is offered to residential customers, with a cap of 500 kilowatt hours per month, and community facilities, with a cap of 70 kilowatt hours per resident per month. The local qualifying local services include sewer and water, community buildings and public lighting.

Without PCE, average rural customers would see their bills triple from about $100 per month to $300 per month, Kohler said. That is particularly significant when the customers often have limited incomes that go almost exclusively towards energy bills, food and clothing, she said.

“Most of the protein on their tables comes from subsistence (harvest) so thank goodness for that,” Kohler said.

Commercial customers, eligible for assistance in the early years of the program, no longer qualify; neither do state facilities.

Kohler said the local facility assistance is essential to keeping some rural towns alive.

“The cities are able to operate their facilities because their cost of power is a third of what it would otherwise be and if PCE were to go away I think there would be a lot of communities that would basically close their doors,” Kohler said. “The local governments would not be able to pay the electric bill. They’re already struggling with the heating bill.”

As it stands, a lot of rural communities have cut all full-time employees to save money, she said.

Along with eliminating commercial customers, PCE has seen its use cap lowered from 700 kwh per month to the current 500 kwh, a reduction that cut program costs by 40 percent, but also put a seasonal strain on some customers, Kohler said.

A vast majority of rural residents don’t hit the 500 kwh cap during summer, she said, but exceed it in winter. Kohler said she has supported bills that have stalled in the Legislature in recent years that would raise the cap to 600 kwh per month.

“I would very much support PCE going to support commercial customers, especially if the limit is the same as residential and for some small businesses it might make a very material difference,” she said. “But the political realities — you choose your battles and my battle is to preserve PCE for residential customers.”

Fisher-Goad said ways to improve the program are always being investigated, but in recent years it has been healthy and self-sustaining. The Power Cost Equalization Endowment Fund was capitalized in 2000 with Constitutional Budget Reserve money and sale proceeds from the Four Dam Pool projects, she said.

The fund has about $943 million in it today and was supplemented in 2006 and 2011 with capital appropriations totaling $582 million. Managed by the Department of Revenue, AEA is authorized to take up to 7 percent of its three-year market average from the endowment to pay for the program.

Fisher-Goad said the authority uses about $300,000 to cover administrative costs and another “very small” amount to train utility operators on how to comply with the program to achieve maximum efficiency every year.

AEA anticipates investments by the Revenue Department will be relied upon as the sole funding source for the endowment for the foreseeable future, Fisher-Goad said.

Revenue has a legislative mandate to achieve 7 percent returns on the endowment in order to keep it solvent. Along with the legislation to raise the kilowatt-hour ceiling, legislation to eliminate the return mandate and cap AEA’s draw at 5 percent stalled last session.

While the department has done “a fabulous job on meeting the investment mandate,” and then some the last several years as Fisher-Goad said, Deputy Revenue Commissioner Mike Pawlowski said discussions came up in the department during the last session about how to reduce the stress of hitting such a high return.

“PCE is one of the only funds that Revenue manages that has statutory direction to achieve that type of a rate of return and internally we’ve raised that there are risks that come along with chasing that type of return,” Pawlowski said.

Regardless of how the program may change in the future, Kohler said she wants all Alaskans to understand it is not an entitlement program, particularly during years of leaner state budgets.

“(PCE) makes a very, very modest amount of electricity affordable for Alaskans who want to live in the places they’ve lived for thousands and thousands of years,” she said. “I feel that all the wealth of Alaska has come from rural Alaska and the very least we can do is sustain rural Alaska because in my opinion, that’s what makes Alaska, Alaska — rural Alaska.”

Elwood Brehmer can be reached at [email protected].

11/21/2016 - 4:30pm