Power Cost Equalization is threatened once again
Power Cost Equalization was created by the State of Alaska in 1984 to subsidize the high cost of electricity production in rural Alaska. The idea was to lower the cost to the consumer in communities where 75 percent of the power was generated by burning diesel. The PCE fund also pays for power in community washeterias, water plants, streetlights and other municipal properties. When they created PCE in 1984, the legislature knew that the rural economy would be built on affordable energy.
From the beginning PCE was underfunded by the legislature. Bush legislators would battle every year for funding, trading away political capital for other important issues such as water and sewer, schools and housing. This led to an urban-rural compromise in 2000 which created the PCE Endowment Fund. The initial deposit was for $100 million, money which came from the Constitutional Budget Reserve. Deposits in fiscal years 2007 and 2012 helped the fund grow to its current level of $1.06 billion. It is invested to produce a five percent return. Five percent of the total balance of the fund is used to pay for PCE, making it self-sustaining.
As legislators look around for a way to balance the state’s budget shortfall, the PCE Endowment Fund is a tempting target. On Nov. 18 a Zoom conference sponsored by the Alaska Renewable Energy Project featured Alaska Village Electric CoOp CEO Meera Kohler in a discussion of the PCE and the threat to the endowment fund from urban legislators. “The PCE endowment fund is what we are currently really concerned about,” said Kohler. “Because we fear this is being seen as a potential nest egg of money that could be tapped to help bridge the budget gap.”
“A number of Republicans have stated that they want to either tap into or fully drain the $1 billion PCE endowment,” said Representative Neal Foster in an email response to a Nome Nugget question about preserving the fund. “If they get control of the House then they will likely use those funds in the House budget to fill some of the deficit. If that were to happen then there’s still a chance that rural senators could stop the raid in the Senate version of the budget. If our coalition gets control of the House then things will be better. But it’s still an uphill battle.”
It takes a three-quarter affirmative vote to keep the PCE endowment intact, according to Rep. Foster. That’s not easy to reach. “In years past that vote was usually a given and pretty non-controversial. But the deficit has sent many legislators looking to nontraditional places for money,” Foster said.
Rural lawmakers brace for the possibility that a bill to dip into the PCE endowment may be introduced. “It’s obviously going to be heard in finance both in the House and on the Senate side,” said Senator Donny Olson. “And so, if we have Neal as the chairman like he was last year I think he’ll kill the bill. And then you’ll have either myself or Lyman Hoffman or Bert Stedman on the Senate side we’ll kill the bill in Senate finance as well.”
“The one problem that we do have is the governor can go ahead and put it into his budget,” said Sen. Olson. “In order to stop that we’ve got to have what’s called a reverse sweep, which is three-quarters of the legislature, and I don’t think we have that.” Senator Olson is currently in Anchorage where he’s huddled up with fellow Democrats. “I’m trying to make sure Power Cost Equalization doesn’t get raided in case the wrong people come to power. We’re going to fight and try and keep them out. I think it’s 50-50 right now.”
There’s an attitude on the road system, projected by a number of legislators, that if people want to live in rural Alaska they should accept the reality that it’s going to be expensive. They ignore the fact that Alaska’s wealth comes from the bush, not from the road system, and that energy throughout the urban areas has been heavily subsidized since the late 1960s. “What I want to point out is the rail belt communities, even today, benefit from very heavily subsidized natural gas,” said Kohler. “Those subsidies have been in place since the 1960s. Hundreds of millions of dollars are going into subsidies for southcentral gas. In 1985 the PCE utilities paid $1.17 per gallon for diesel fuel which was equivalent to 25 times the cost of the natural gas the rail belt was using at that time.”
Alaska Governor Mike Dunleavy’s 2019 budget called for spending part of the fund on state services but that was rejected by the legislators. In budget fights the fund was emptied and shortly after refilled. The Dunleavy administration expressed a desire to return to the annual appropriation funding of pre-Endowment Fund years. After an outcry from rural Alaska, Dunleavy appeared at AFN in October of 2019 and pledged his support for the fund. “I am committed to working with Senator Hoffman, Representative Lincoln and other lawmakers to ensure the long-term protection of the PCE fund so that affordable electricity for rural Alaska is never in doubt,” the governor said.
The contribution of PCE to rural villages is, on the average, about $65,000 annually per community. That’s not a lot of money but it might be ten to fifteen percent of the village’s disposable income. “It’s the difference between having a $100 electric bill and a $200 electric bill,” said Kohler. “That’s huge for a community member whose disposable income is very modest.”
It’s important to tribal governments because without PCE they would not be able to keep the clinic open, pay for streetlights, keep somebody operating at city hall. If the endowment fund were to go away, it would once again come down to a battle in the legislature every year and subsidies to power in the rural areas would be played against other necessary needs. “The rural representatives would be trading away their political capital for PCE,” said Kohler.
“While we have some of the better rates in rural communities and a higher fuel efficiency with our generation equipment, it’s still is much more expensive here than living on the rail belt,” said John Handeland, manager of Nome Joint Utilities and Mayor of Nome. “The PCE program is important to not just Nome but to all of our communities here in Western and Northern Alaska and down in YK, too.”
A look at a typical Nome electric bill shows a monthly charge of $69.18 for 249 kilowatt hours. The State of Alaska pays $29.42 toward the bill from the Power Cost Equalization fund. That is 42 percent of the bill. There is an additional $32.99 added on for generator fuel surcharge.
AVEC finds monthly consumption of electricity has gone up slightly in the villages, mostly because there is a wide variety of new electronic devices now in use. But rural power consumers still use only two-thirds of what road system consumers use.
In 2016, the legislature passed a bill that allowed for the endowment fund to pay for community assistance programs and to fund renewable energy projects around the state. Wind farms in the areas where diesel is expensive have been successful in lowering rates. About 18 percent of Alaska’s power generation is now from renewable sources with more growth on the horizon.