By Tim Bradner
There’s an urban myth that energy costs in rural villages are heavily subsidized. The facts indicate that it’s more complicated.
Power Cost Equalization, or PCE, is a state program that does help reduce some, but not all, rural residential electricity costs. But there are limits to what’s included in the state’s support, and they have been substantially reduced over the years.
What is also important is that commercial enterprises in rural communities, from small grocery stores to fish processing plants, are not eligible for PCE support and pay the full rate charged by a local electric utility.
PCE was originally set up to pay the difference between average power costs in large communities like Anchorage and Fairbanks, and small villages like Napakiak, in the Yukon-Kuskowkim Delta. It doesn’t really do that, however.
Meera Kohler, president and CEO of Alaska Village Electric Cooperative, explained this in a presentation in Juneau last March to the House Special Committee on Energy. Currently, only 29 percent of all electricity sold in small rural communities is eligible for PCE. Commercial enterprises do not get PCE support and neither do state and federal facilities including schools. This means there are 6,000 electricity customers in rural communities who pay full rate, Kohler said.
For residential consumers only the first 500 kilowatt hours a month gets the support. Any use of power over that, and 700 kilowatt hours a month is considered normal, pays the full rate. Any consumer delinquent in his or her utility bill gets the PCE subsidy cut, too.
Some community buildings do get limited PCE support as do water and sewer plants, washeterias and local streetlights, but only up to a limit of 70 kilowatt hours per resident per month.
PCE has been steadily reduced since it began in 1986. The percentage of total power generation costs supported by PCE in 1986 was 32 percent. By 2017 it had been reduced to 16 percent of generation costs even though the population in eligible communities had increased from 62,042 in 1986 to 83,850 in 2017. Total sales of power more than doubled during that period, but the costs covered by PCE dropped by half.
This is good news, of course and it is explained by the increasing efficiencies of village diesel generation plants, thanks to improved technology and investment by rural utilities like AVEC as well as support from the state through Alaska Energy Authority programs.
The development of renewable energy like wind and hydro in small communities in recent years has also helped. Another program of the state energy authority helps fund small renewable energy projects through the Renewable Energy Fund, or REF, but local communities contribute a match to the state grants.
PCE is aimed at helping defray the cost of diesel generation which still supplies most of the electricity in rural communities – it doesn’t subsidize the renewable energy production.
While the program has indeed helped narrow the difference between electricity costs in large and small, diesel-dependent rural communities, there is still a gap even with the support.
In 2017 the average cost of power sold by Chugach Electric Association in Anchorage was about 20 cents a kilowatt hour, or kwH, Kohler told the legislative committee. In Napakiak, in the Yukon-Kuskokwim Delta, the average cost was about twice that, and the same with small villages in the mid-Kuskokwim River region, she said.
However, in some communities that have the benefit of wind or hydro, or both, enjoyed rates below Anchorage. For example in Kotzebue, where wind supplements diesel, the rate was 19.3 cents per kwH in 2017; in Kodiak, where wind and hydro now almost completely displace diesel, the 2017 rate was 15.3 cents per kwH. Juneau, Alaska’s capital city, depends on hydro for most of its power, and enjoys Alaska’s lowest cost of power, about 12 cents per kwH; in 2017.
Power cost equalization as it now exists was created in the mid-1980s when fuel oil prices were high and very high in rural communities because of transportation costs. At the time the state was also enjoying huge revenues from North Slope oil production, which had started in 1977.
The Legislature worked to use the state’s new oil wealth in efforts to reduce energy costs across Alaska. Several hundred million dollars were spent, in cash, to build hydro plants in Southeast Alaska and in Kodiak and near Valdez in Southcentral. To serve the state’s large population centers in Anchorage, the Mat-Su and Fairbanks, an ambitious plan to build a large hydro project on the Susitna River north of Anchorage was developed but then dropped due to high costs (the idea was resurrected in recent years but then again abandoned).
Rural Alaska was extremely difficult, however, with dozens of small communities spread over a hug land area. Legislators and state officials worked hard at it concluded there was no “silver bullet.” The only workable idea was a partial-support program that was modeled on a temporary, early version of PCE implemented in 1980, which was also the first year Alaska received substantial oil revenues.
Even PCE was no magic solution for rural energy problems. The Legislature came back several years later with the Renewable Energy Fund to help support small renewable energy projects where local conditions are suitable, and this has helped.
Today the projects helped by the REF are displacing millions of gallons of diesel that would otherwise have had to be purchased. However, the state has had to throttle back its support for the REF because of lower oil revenues.
But what has been accomplished is helping and there are continuing, and encouraging, technological advances for rural energy supported not only by the state energy authority but also the University of Alaska’s Center for Energy and Power.
Innovations in using surplus power from wind projects to heat community buildings are well along in practical application and researchers, and rural utilities themselves, are exploring ways of using solar, even at northern latitudes, as well as local geothermal resources where they exist.
What PCE does today is help buy time for rural Alaska as these new ideas are developed into workable energy solutions.
Tim Bradner is copublisher of the Alaska Economic Report and Alaska Legislative Digest
