Making Energy More Affordable
November 17th, 2011 by Ruralite

Power Cost Equalization offsets the higher cost of electricity in rural Alaska

Wind turbines tower above the village of Kasigluk. In an effort to decrease their reliance on diesel—and its volatile prices—electric utilities in rural Alaska are developing alternative energy sources. Photo courtesy Alaska Village Electric Cooperative

Wind turbines tower above the village of Kasigluk. In an effort to decrease their reliance on diesel—and its volatile prices—electric utilities in rural Alaska are developing alternative energy sources. Photo courtesy Alaska Village Electric Cooperative

Customers in rural parts of Alaska pay three to five times more for electricity than customers in the state’s more urban areas. Other expenses are higher, too.

To ensure the availability of reliable centralized power, the state’s Power Cost Equalization program pays a part of the electricity costs of qualifying customers in rural areas. The program also protects the viability of local utilities.

The goal is to “equalize” the high costs of electricity in rural communities with the lower costs in more urban areas.

According to the Alaska Energy Authority (AEA), 183 communities participated in the PCE program during fiscal year 2010—the most recent period for which statistics are available. More than 78,000 people live in those communities.

The program was established in 1984 as part of a statewide energy plan. It provided financial assistance to rural residents at the same time state funds were used to construct major energy projects in more urban areas. It was preceded by the Power Production Assistance Program and the Power Cost Assistance Program.

Most urban and road-connected communities benefit from major state-subsidized energy projects such as the Four Dam Pool, Bradley Lake and the Intertie.

“Communities in areas that are not served by road experience very high costs of producing electricity, usually by diesel, due to high transportation costs and high diesel prices,” the AEA notes in the Power Cost Equalization Program Guide. “These high costs must be recovered from the limited number of customers with limited disposable income associated with generally low economic development.”

The PCE program was funded at 100 percent in fiscal year 2010, with payments for customers of 84 utilities totaling about $30.6 million. PCE pays on about 30 percent of all kilowatt-hours sold by participating utilities.

Eligibility for PCE Payments
Customer eligibility is based on power purchased. State and federal offices and facilities, commercial customers and public schools are excluded from PCE.

AEA determines the eligibility of community facilities and residential customers, and authorizes payment to electric utilities. Participating utilities are required to reduce each eligible customer’s bill by the amount the state pays for PCE.

The Regulatory Commission of Alaska determines if a utility is eligible to participate in PCE, and calculates the amount per kilowatt-hour payable to the utility. It considers the cost of fuel, including transportation, and non-fuel expenses such as salaries, insurance, taxes, power plant parts and supplies, and interest.

An electric utility participating in the PCE program must:

Provide electric service to the public for compensation.

During calendar year 1983, had less than 7,500 megawatt-hours of residential consumption or less than 15,000 MWh if two or more communities were served.

During calendar year 1984, used diesel-fired generators to produce more than 75 percent of its electrical consumption.

Electric utilities in the Railbelt, Juneau and those that receive electric power from the Four Dam Pool facilities—Ketchikan, Wrangell, Petersburg, Kodiak, Glennallen and Valdez—are not eligible for PCE.

Residential customers are eligible for PCE credit up to 500 kWh a month.

Community facilities, as a group, can receive PCE credit for up to 70 kWh a month multiplied by the number of residents in a community. For example, a community of 100 would receive credit on up to 7,000 kWhs for its combined community facilities.

Eligible utilities submit monthly reports to AEA that document the eligible power sold and PCE credits applied to customers’ bills. AEA calculates the amount of PCE on a monthly basis and issues payment to the utility based on available funds.

PCE is funded annually through the state operating budget. Part of the funding comes from the state’s general fund and part from the PCE Endowment Fund, created in 2001 by an appropriation from the Constitutional Budget Reserve and the proceeds from the sale of the Four Dam Pool projects. The Endowment Fund has grown by an infusion of funds in 2006 and, more recently, an appropriation of $400 million in the fiscal year 2012 operating budget.

“Reliable lower cost energy enhances the quality of life, standard of living and economic strength of the communities,” the PCE program guide states. “Economic development and affordable power go hand-in-hand in the effort to grow healthy economics in rural Alaska.”

Continued funding at 100 percent is an ongoing concern for rural utilities.

“Rural Alaskans routinely spend 40-plus percent of their very modest per capita income on energy: electricity, heat and transportation fuel,” says Meera Kohler, president and CEO of Alaska Village Electric Cooperative. “Were it not for PCE, their electric bills would be 21/2 to 3 times higher than they are, and life in our remote villages would be even more challenging than it is.

“In the past, it has been an annual struggle to convince the Legislature to adequately fund PCE. With full funding of the PCE Endowment Fund, that battle will hopefully be behind us, and we can focus on bringing down the cost of energy for all Alaskans and their businesses into the future.”

Formula to Determine PCE Level for Utilities

  • 95 percent of the eligible costs per kilowatt-hours between 13.42 cents per kWh (the floor) and $1 per kWh (the ceiling). Costs below 13.42 cents and above $1 per kWh are not eligible for PCE.
  • Example: If the eligible costs are $1 per kWh or more, the maximum PCE level is 82.25 cents per kWh. ($1 – 13.42 cents = 86.58 cents x 95 percent = 82.25 cents).