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The Outlook for Energy Costs in Rural Alaska in 2020

Posted: April 12, 2020

By Meera Kohler

About 15% of all Alaskans live in some 200 rural communities spread across more than 500,000 square miles. 32,000 (33%) of those live in one of 58 communities served by AVEC. Our communities, sadly, have the highest cost of living of anywhere in the United States.

Rural households spend 27% of their annual income on home energy, compared with less than 7% in urban Alaska. Despite world oil prices having fallen, costs in rural Alaska have generally not shown much improvement. Benchmark West Texas crude oil fell as low as $30 a barrel in 2016, and rose to $60 a barrel in 2019. This year, disruptions in the world market have again driven crude oil to $30 a barrel, indicating that prices may be significantly lower than last year.

AVEC has been an aggressive leader in the battle to combat the high cost of energy.

  • We continue to reduce our non-fuel expenses. We reduced our rates several years ago by two cents a kWh, resulting in a reduction in revenue of $1.5 million annually.
  • We continue to lead the charge in protecting PCE and the PCE Endowment Fund during these times of state budget deficits.
  • We have added several communities in the last few years – Teller, Kotlik, Ekwok, Kobuk, Bethel, Oscarville and Yakutat. Adding communities allows us to spread our fixed costs over more kWh sales.
  • We have installed wind turbines – our 36 machines are the largest fleet in the state. Almost 6% of our generation came from wind in 2019. This year we hope to install a third 900 kW wind turbine to serve Stebbins and St. Michael.
  • We invested in two sets of tugs and barges and contracted with Vitus Marine to operate them. This reduced our cost of fuel transportation by about 20 cents a gallon, which translates to about 1.6 cents per kWh. This is passed on entirely to our consumers.
  • Vitus’ entry in the fuel delivery market has lowered fuel costs to everyone in rural Alaska.
  • We continue to urge the State of Alaska to develop and implement an energy plan that reduces costs for all Alaskans.
  • We continue to spearhead the Alaska Grid project that would develop gas-fired generation on the North Slope and a robust transmission system to deliver low-cost power to urban and rural hubs as well as fish processors, military bases, mines and other resource developers. Since heat and electricity comprise 80+% of the homeowner’s energy budget, lowering these costs while supporting job creation would be a huge step toward self-sufficiency and sustainability in rural Alaska.

So what is the outlook for 2020?

In 2019, the average cost of a gallon of diesel delivered to our tank farms was $3.43, three cents less than in 2018, resulting in an average fuel charge of 25.7 cents per kWh in addition to the average non-fuel rate of 27 cents a kWh.

As 2020 fuel is delivered, we expect the fuel charge to decrease after the summer deliveries since the current cost of fuel is lower than a year ago. Saint Mary’s currently has the lowest fuel charge at 9.03 cents and in Noatak, where fuel must be flown in, the fuel charge is 61.46 cents. Fortunately, Power Cost Equalization lowers the cost to the homeowner to about 25 cents per kWh, but more than half the kWh used in our villages are not eligible for PCE.

We expect the cost of fuel (and therefore electricity) to be several cents lower than in 2019 since the cost of a barrel of crude oil is significantly lower than a year ago. We will continue to press for the State to develop a comprehensive energy plan for Alaska that treats all Alaskans fairly and equitably.