June 2020 Back Page – Will The Fuel Charge On Your Electric Bill Go Away?Posted: June 5, 2020
With the recent historic drop in crude oil prices, communities across the state are hoping to see fuel costs in their communities come down dramatically. Many members have asked us why they still have a fuel charge when surely our cost of fuel has gone down to next to nothing! It would be helpful to understand what the components of local fuel cost are and when and how changes occur.
Most of AVEC’s fuel was ordered in February and is now underway to rural Alaska. Deliveries will begin in early June. We have locked in fuel pricing at about $1 per gallon below 2019 prices, but the cost to bring the fuel to Alaska and then to deliver it to the villages adds about 1.25 – $1.75 per gallon, depending on how far upriver the fuel must travel and how many times it must be handled.
Once the fuel is delivered, the new lower cost fuel mingles with last year’s fuel and an average cost per gallon is computed. That cost in turn determines what the fuel charge will be and what the PCE rate is, which must then be approved by the Regulatory Commission of Alaska. The earliest that the RCA would review and provide a new fuel charge is likely to be September or October since the first fuel delivery for all the villages is not complete until August.
Why doesn’t the cost of heating fuel or gas in the village reflect the lower crude oil price? The raw cost of crude oil is a significant component of the cost of wholesale retail fuel but the cost or refining that fuel does not go down when crude oil prices fall. Local fuel dealers also have the additional cost of transporting the fuel and owning, operating and maintaining their tank farm, which can add up to $3 per gallon, depending on how much fuel they sell in a year.
The world is in a strange situation right now. With COVID-19 restrictions, discretionary travel has plummeted. Private vehicles and air travel are using minimal amounts of fuel. Alaska Airlines, for example, has cancelled 70% of its flights. The average American used to drive 12,000 miles a year and is probably now doing 10% of that. It’s spring (and warm) in the Lower 48, so there’s no need for heating fuel either. So there is literally no demand for oil and nowhere to put the oil that continues to be pumped around the world. At one point last April, crude oil producers were willing to pay refiners to take their product because they had nowhere to store it.
In the meantime, we continue to work with our communities to keep the lights on while keeping you all and our own employees safe. Remember, if you are having difficulty paying your electric bill because of the pandemic, please contact us for a deferred payment arrangement.