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March 2017 – PCE Through the Years –

by / Tuesday, 25 April 2017 / Published in Messages from the CEO

One of the first back pages I wrote in 2001 talked about power cost equalization. I thought it would be a useful discussion to see how things have changed through the years. Sixteen years ago, we celebrated the establishment of the PCE endowment fund the previous year with the first deposit of $100 million and the proceeds of the sale of the Four Dam Pool hydro projects. By the end of 2001, $184 million had been deposited into the fund.

Since then, two additional deposits have been made, both a result of urban-rural legislative agreements: $182.7 million was added in 2006 and $400 million was deposited in 2011. PCE credits totaled $17 million in FY01, which was not quite 100 percent funding.

Since the endowment fund was recently established, PCE had to be paid out of the general fund for several years. The program was severely curtailed until the end of 2005. PCE is expected to cost about $35 million in FY18. The endowment fund has provided all of the funding for PCE only since 2014 because the amount that can be appropriated is based on the average balance during the previous three years.

When PCE was established in 1984, the floor was set at 9.5 cents per kilowatt-hour. That was the average cost of electricity in Anchorage, Fairbanks and Juneau. Each year, that cost is recalculated and a new floor is established. The current floor is 16.67 cents. In 1985, rural utilities reported costs of $55 million, or about 25 cents a kWh and a gallon of fuel cost $1.17. PCE represented $17.8 million, or 32 percent of costs.

In 2015, the most recent year for which records are complete, rural utility costs have risen to $184 million, with PCE covering $37 million—or 20 percent—of those costs. Fuel was $3.97 a gallon. The cost per kWh was 41 cents—an increase of 64 percent—which is not dramatically different from the increase in costs in urban Alaska. The increase in the floor from 9.5 cents to 16.67 cents is about 75 percent, so rural Alaska seems to have done better than urban Alaska.

I should point out total sales of rural electricity in 2015 is double the sales in 1985 so rural utilities have done remarkably well at containing costs. The nonfuel cost per kWh in 1985 was 14 cents. In 2015, it was 17 cents. That is an increase of only 21 percent over 30 years. That is something we are very proud of.

Of course, we all know the real culprit for increased costs lies in the cost of fuel. Even with the many efficiencies rural Alaska has gained through the years, the cost of fuel per kWh has risen from 10 cents to 24 cents in the past 20 years.

While the 2017 legislative session is far from over, I am hopeful PCE will not be negatively affected, and that it will be fully funded for the coming fiscal year. I believe the endowment fund also will remain intact. We will continue our efforts to protect that critical funding source for this program that is so imperative for rural Alaska.

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