The Cost of Fuel & Need for Greater PCE Funding
People who make and sell electricity are always talking about the volatility of fuel pricing. With a war escalating in the Middle East, early hopes that oil prices would come back down before fuel tankers loaded for Alaskan markets now seem unlikely. The war in Iran immediately restricted the flow of global oil, creating a 60% increase in crude oil price in a little over a week at the start of the war. Offensive and retaliatory strikes on oil and natural gas infrastructure only increase and prolong the pressure on the upward pricing of fuel.
Alaska exports most of the crude oil it extracts from the North Slope. With only 3 small refineries, Alaska imports most of its diesel, gasoline, and jet fuel. Most of the diesel in Western Alaska over the last 5 years has come from large refineries in Asia, made with crude oil from the Middle East. With tankers stalled at the Strait of Hormuz, and destruction of the capacity to produce and refine crude oil, suppliers are scrambling to re-map supply lines. Fuel prices and, therefore, electricity prices will be higher this year than last. How high remains to be seen.
Higher fuel prices will take a little time to show up on your electricity bill. Every few months, AVEC submits a filing with the Regulatory Commission of Alaska (RCA) to update its Cost of Power Adjustment (COPA). This COPA looks back at what AVEC has paid for fuel used to generate electricity and divides that cost over projected kilowatt-hour sales. Just last month, AVEC filed for a reduction in COPA to reflect the lower fuel prices enjoyed at the end of last year. When more expensive fuel gets delivered this summer, the COPA, and therefore electricity cost, will go back up.
The Power Cost Equalization program takes a big bite out of COPA, helping to defray the cost of electricity for residential and community facilities. Legislators, who are working on the state operating budget right now, are being encouraged to boost appropriations for PCE to avoid a shortfall in covering the increased cost of fuel. Unfortunately, all our commercial, industrial, school, state, and federal AVEC members, who are not eligible for PCE, will have to bear the full brunt of the cost of power with record-high fuel prices.
Of course, war is about more than the cost of electricity. Our thoughts are with the dedicated service men and women fighting for our country, and we hope for an early resolution to this conflict.
Until next time,
Bill Stamm
Correction: In last month’s issue it was stated the increase in Consumer Price Index since the last AVEC rate increase 2 years ago was 2.4% and the average increase in AVEC rates was 2.75%, the increase in CPI was actually 4.2% and the average increase in AVEC rates was 4.75%.