Power cost equalization is about far more than money

Most Alaskans are unfamiliar with the Power Cost Equalization, or PCE, program and its funding so it is important to understand that the Alaska State Legislature established the PCE program and later, the endowment to fund PCE, as an equitable compromise for rural Alaskans to balance the commitment of state funds used for energy projects and programs which continue to lower the cost electricity for residents on the Railbelt, on the road system and in Southeast Alaska.

The stated intent of the PCE program is to bring the cost of electricity for rural consumers more in line with the costs for electricity in Anchorage, Juneau and Fairbanks. For the majority of Alaskans, the cost of power is around $0.20/kwh, well above the national average of $0.14/kwh, but significantly lower than typical rates for power in rural Alaska that average $0.50/kwh or more.

For some, the disparity is easily justified with a simple assumption that with greater concentrations of people the cost of electricity comes down. That is certainly a component in energy costs but it does not explain the whole story. A large credit for the “low” cost of power in Alaska’s Railbelt and Southeast goes to previous Alaska Legislatures that committed funds to build projects that reduce the cost of power. Projects like building dams and hydroelectric generation stations and building electrical tie-lines to transmit power to share low cost energy. From Homer to Fairbanks, and in Valdez, Kodiak and Southeast Alaska, the cost of power has been bought down by the state’s commitment of funds.

Unfortunately, those grand projects do not reach small, isolated communities that are home to more than 80,000 Alaskans. To be equitable, previous Legislatures agreed to also set aside a fund, separate from the general fund, an endowment, to fund PCE from its earnings; a fair trade for the substantial state funds that were committed to build physical projects and to provide continuing subsidies that keep the cost of power lower for the communities connected to those projects.

The actions of the present Legislature to allow the PCE Endowment Fund to be swept into the Constitutional Budget Reserve and not immediately reversing the sweep cripples the PCE Program. It is akin to triggering an avalanche that takes out the Tyee Intertie or starting a wildfire that interrupts the intertie that allows cheap power from Bradley Lake Hydro to reach the population centers of Alaska, drastically increasing the cost of power when those state-funded projects are offline.

The unfortunate nature of the PCE Endowment Fund is that it is a financial instrument and not a physical project. The Legislature has been unable to muster the three-fourths majority vote needed for the annual reinstatement of the PCE endowment and other funds “swept” into the Constitutional Budget Reserve at the end of the last fiscal year. The endowment is being held hostage by legislators who see it simply as a pawn in their quest to wrest budget conciliations for their constituents.

Meanwhile, rural residential customers and community facilities can expect their electrical rates to double and even triple, jeopardizing the operation of water and sewer facilities, straining already tight municipal funds, carving an even larger portion out of family budgets, jeopardizing the hard-won harvests sitting in electric freezers.

Everything in rural Alaska cost more: food, transportation, shelter, heat. PCE is at least a small attempt to provide some equity in the cost of electricity, a fair trade to balance the funds committed elsewhere in the state to buy down the cost of electricity. The majority of rural homes heat with fuel oil, at a cost per gallon two to three times that for fuel oil on the road system, and four to six times the cost of heating with natural gas available from Cook Inlet. The state forfeits millions of dollars in oil and gas tax credits to help Cook Inlet gas remain marketable, at a price that also contributes to the low cost of gas-generated electricity on the Railbelt.

The state has done much to make Alaska a hospitable place with earnings garnered from the development of state resources. The Legislature should be vigilant to protect these gains and defend the projects and programs that make the cost of electricity reasonable for everyone in the state. They should not, through inaction or indifference, disrupt the projects and programs that are so vital to the infrastructure of our communities and the livelihoods of our citizens. The PCE Endowment Fund, just like brick-and-mortar projects, should not be trifled with, and should be protected for the greater benefit of Alaska.

Bill Stamm serves as president and CEO of the Alaska Village Electric Cooperative.

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