03/12/2009 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

HB 150-POWER COST EQUALIZATION                                                                                                
                                                                                                                                
9:54:10 AM                                                                                                                    
                                                                                                                                
CO-CHAIR HERRON announced that the  final order of business would                                                               
be  HOUSE BILL  NO.  150, "An  Act  repealing certain  provisions                                                               
relating to  modifying the  factors that  apply to  calculate the                                                               
amount  of power  cost equalization;  providing for  an effective                                                               
date by  repealing the  effective date  of sec.  3, ch.  2, 4SSLA                                                               
2008; and providing for an effective date."                                                                                     
                                                                                                                                
9:54:22 AM                                                                                                                    
                                                                                                                                
ERIN  HARRINGTON, Staff,  Representative  Alan Austerman,  Alaska                                                               
State Legislature,  speaking on behalf of  the sponsor, explained                                                               
that HB  150 removes the  sunset of  an increased ceiling  on the                                                               
power cost  equalization (PCE) program  that the  legislature put                                                               
in place  last summer.  She  informed the committee that  PCE was                                                               
established  in  1984,  when the  state  was  making  significant                                                               
investments  in power  projects  that would  cause a  significant                                                               
decrease in the cost of power  generation in certain areas of the                                                               
state.   This relates to  what was  eventually known as  the Four                                                               
Dam  Pool Dams.   At  the time  PCE was  established to  equalize                                                               
power  costs across  the state  in recognition  that the  state's                                                               
investment  in power  in certain  areas  couldn't necessarily  be                                                               
replicated across the entire state.   The program included all of                                                               
the communities  in the state  that generated 75 percent  or more                                                               
of  their power  using  diesel  fuel, which  is  expensive.   The                                                               
current  program covers  135 communities  that are  served by  85                                                               
utilities,  which include  a number  of  cooperatives and  single                                                               
community  utilities.   The largest  of the  cooperatives is  the                                                               
Alaska  Village   Electric  Cooperative  (AVEC),  which   has  53                                                               
communities  within  its  utility.     The  PCE  program  has  an                                                               
endowment  that  has been  funded  over  the years  from  various                                                               
sources.  Ms. Harrington explained  that when the PCE program was                                                               
implemented there  was a  floor, which  was the  weighted average                                                               
for the cost  of power in Juneau, Anchorage, and  Fairbanks and a                                                               
ceiling of  52.5 cents.   Therefore,  any power  generation above                                                               
the floor and beneath the ceiling  was offset by the PCE program.                                                               
In 1984,  the ceiling  of 52.5  cents was high  and there  was no                                                               
concern  that  power  generation   would  cost  more  than  that.                                                               
However, since  that time there  have been  significant increases                                                               
in oil  prices that reached their  peak last year, which  is when                                                               
the legislature  recognized the need  to implement a  new ceiling                                                               
and did  so in  the amount  of $1.00.   Although fuel  costs have                                                               
somewhat  decreased since  that  time, communities,  particularly                                                               
those in the north, only  receive fuel deliveries when the season                                                               
allows it.   Therefore, those northern  communities received fuel                                                               
deliveries in  the summer and last  summer was about the  peak of                                                               
fuel  generation  costs  and thus  rural  communities  are  still                                                               
generating power from diesel purchased  last summer and paying as                                                               
much as $7  per gallon for fuel.  Ms.  Harrington emphasized that                                                               
essentially HB  150 removes the  sunset of June 30,  2009, placed                                                               
on the $1 ceiling.                                                                                                              
                                                                                                                                
10:00:48 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  HERRON  announced  his  intent to  listen  to  all  the                                                               
testimony today.                                                                                                                
                                                                                                                                
10:02:25 AM                                                                                                                   
                                                                                                                                
ROBERT  NICK, Chairman,  ABC  Housing  Association, informed  the                                                               
committee that  gas prices  in Bush Alaska  are $7-$8  per gallon                                                               
and heating  oil is just  above that.   In Anchorage  the average                                                               
electric bill is about $80-$100,  which is $.07-$.08 per kilowatt                                                               
hour  (kWh) for  a 2,000  square foot  home in  the winter  using                                                               
around  1,000 kWh.   In  Bethel the  same square  foot home  pays                                                               
$150-$200 for about 600 kWh  of electricity with the PCE program.                                                               
However, without the  help of the PCE program the  costs would be                                                               
$300-$400.  This winter has been  one of the coldest, and in fact                                                               
some  in  Bush Alaska  used  electric  appliances to  heat  which                                                               
correlates  to the  rise in  the use  of electricity.   Moreover,                                                               
cold temperatures have increased  heating fuel use, especially in                                                               
poorly  built  homes.   Mr.  Nick  pointed  out that  almost  all                                                               
families use  fuel burning systems that  also require electricity                                                               
to run.   He related that  in the lower Yukon  some families paid                                                               
about $1,000 a  month for electricity.  He  highlighted that Bush                                                               
Alaska residents are now choosing  fuel over food and instructing                                                               
their children to eat breakfast and  lunch at school.  Many homes                                                               
have  empty cupboards  and refrigerators  and are  getting by  on                                                               
purely subsistence food.  As for  jobs, they are lacking in rural                                                               
areas, he related.   On top of all that,  grocery and store items                                                               
are very expensive due to high  freight and operating costs.  The                                                               
high cost  of consumables, he  opined, will be  further increased                                                               
due to the  proposed 30-40 percent increase in  bypass mail costs                                                               
in two months.   Many village residents have limited  income.  In                                                               
fact, the Bethel  census unemployment rate is  16.6 percent while                                                               
the Wade-Hampton unemployment  rate is 22.8 percent.   The Bethel                                                               
census  poverty  rate  is 20.7  percent  while  the  Wade-Hampton                                                               
poverty rate  is 26 percent.   Mr. Nick related  his thankfulness                                                               
for  last year's  increase in  the  ceiling of  the PCE  program,                                                               
which was very helpful to  the rural communities.  In conclusion,                                                               
Mr. Nick requested  continued funding of PCE at  the cost ceiling                                                               
of $1.00 per  kWh and to do  so in a permanent fashion.   He also                                                               
requested the  legislature consider the household  limit from 500                                                               
kW per month  to the national average  of 750 kW per  month.  The                                                               
regional  economy is  fragile and  vulnerable  and needs  further                                                               
consideration in  the PCE  program, he said.   He  then requested                                                               
the restoration  of PCE eligibility  to businesses,  clinics, and                                                               
other  public facilities  that were  originally  included in  the                                                               
program.   Without  PCE, schools  are struggling  with very  high                                                               
energy and  electrical costs,  maintaining utilities,  and taking                                                               
away  from   teachers  and   classroom  budgets,   and  therefore                                                               
compromising  the quality  of education  in those  schools.   Mr.                                                               
Nick  noted  that he  will  provide  emails  from tribes  in  the                                                               
villages and he encouraged the members to read them.                                                                            
                                                                                                                                
10:11:59 AM                                                                                                                   
                                                                                                                                
RICHARD  JUNG, speaking  as a  business owner,  opined that  this                                                               
winter  has  been the  worst  with  the  high  cost of  fuel  and                                                               
groceries.  He noted that he  sells the groceries and is in shock                                                               
as to  what they cost.   He related his desire  for businesses to                                                               
be  able to  get  a break  with  the PCE.    Although the  higher                                                               
ceiling  this  winter was  helpful  for  homeowners, he  said  he                                                               
struggled to  keep his  electric usage  to less  than 550  kW per                                                               
month.   He  related that  he tried  an electric  heater for  one                                                               
month  and the  cost was  $350; without  the electric  heater his                                                               
bill was only $57.   As a business owner he has  been able to cut                                                               
$400-$500 in  electric costs  per month at  his business,  but is                                                               
unable to reduce  it further and thus has to  pass on those costs                                                               
to customers.                                                                                                                   
                                                                                                                                
10:14:45 AM                                                                                                                   
                                                                                                                                
MEERA KOHLER, President/CEO,  Alaska Village Electric Cooperative                                                               
(AVEC),  related  her  support  of  HB 150.    She  reminded  the                                                               
committee that last year the  Alaska Village Electric Cooperative                                                               
(AVEC)  was in  favor of  enacting a  higher ceiling  to the  PCE                                                               
eligible  cost.   Unfortunately,  the  ceiling  was done  with  a                                                               
sunset date of  this year.  She said that  she could offer fairly                                                               
graphic testimony as  to the impact there will be  if the ceiling                                                               
reverts back  to 52.5 cents.   Ms. Kohler informed  the committee                                                               
that AVEC  serves 53 villages,  which represents a  population of                                                               
22,000.     When  last  year's   fuel  costs  heat   the  village                                                               
communities,  the  average  cost  of fuel  was  $4.73  a  gallon.                                                               
Therefore,  the  fuel  only  component   of  the  electric  costs                                                               
averages  over $.37  kWh  and the  non-fuel  costs increases  the                                                               
total to  $.62.  Therefore, if  the PCE ceiling returned  to 52.5                                                               
cents,  there  would  be  an  average increase  of  $.10  kWh  to                                                               
residential  users.    In  some communities,  such  as  those  in                                                               
western Alaska, that  increase will be as high as  $.25 kWh.  The                                                               
higher cost  will continue  through October 2009.   "It  is silly                                                               
for the  cost cap to  keep fluctuating  back and forth  between a                                                               
$1.00  a kilowatt  hour and  52.5 cents  a kilowatt  hour because                                                               
anybody that  believes that  the cost  of fuel  is going  to stay                                                               
where  it is  today obviously  has  not paid  close attention  to                                                               
what's happening  in the entire  world," Ms. Kohler opined.   The                                                               
world's supply of oil is  diminishing and she predicted that once                                                               
the economy recovers there will  be extremely high fuel costs for                                                               
which  the $1.00  ceiling  will  likely not  be  sufficient.   In                                                               
conclusion, Ms.  Kohler strongly urged  the extension of  the PCE                                                               
cost ceiling to $1.00 per kWh.                                                                                                  
                                                                                                                                
10:18:04 AM                                                                                                                   
                                                                                                                                
PATRICK  SAMPSON, Low  Income  Home  Energy Assistance  Director,                                                               
Association of  Village Council  Presidents (ACVP),  informed the                                                               
committee that AVCP is a  private nonprofit tribal human services                                                               
organization that  serves the  56 tribal  villages of  the Yukon-                                                               
Kuskokwim  Delta region.    In recent  years,  electric and  fuel                                                               
costs have taken  almost all of the disposable  income of village                                                               
residents.    As  has  been  reported in  the  news  media,  many                                                               
families have had to choose between  food and the cost of energy.                                                               
The PCE  program is a priority  for the region, and  therefore he                                                               
requested continuation  of it  and the  current ceiling  of $1.00                                                               
per kWh.  He informed the  committee that residents in the region                                                               
are  already paying  upwards  of 70  percent  of their  available                                                               
disposable income  on energy costs.   If the PCE  rate decreases,                                                               
the  villagers'   costs  will  increase  immediately   and  local                                                               
utilities  will have  to collect  those  fuel costs  in order  to                                                               
recover the  2008 outlay.   The cost, he relayed,  is transferred                                                               
to the  families in the  villages.   Increased funding to  PCE is                                                               
part  of  the solution  as  it  helps  to equalize  energy  costs                                                               
between rural and urban areas on the  first 500 kW used.  He then                                                               
informed the committee  that only 29 percent  of electricity sold                                                               
by PCE utilities  is eligible for PCE while the  other 71 percent                                                               
is paid  for by  homeowners and businesses  at rates  almost five                                                               
times  those   in  urban  Alaska.     Additionally,  Mr.  Sampson                                                               
requested  an increase  in the  household limit  to the  national                                                               
average of  750 kW  per month.   After  last year's  fuel prices,                                                               
virtually  all of  the PCE  communities are  over the  52.5 cents                                                               
ceiling.   Mr.  Sampson also  requested that  PCE eligibility  be                                                               
restored to  clinics, businesses, and other  facilities that were                                                               
included in the  original program.  The  aforementioned, he said,                                                               
is  critical  to  keeping  down   inflation  and  increasing  the                                                               
viability of local  economies in rural Alaska.   Mr. Sampson then                                                               
related that  yesterday his office  called 14 communities  in the                                                               
area and discovered that the  average cost of electricity is $.71                                                               
kWh,  with the  highest  being  at $.81  kWh  in  the Village  of                                                               
Newtok.                                                                                                                         
                                                                                                                                
10:23:15 AM                                                                                                                   
                                                                                                                                
MICHELLE NICKLES,  AVCT Energy  Assistance Program,  related that                                                               
she  is struggling  to pay  utilities as  they are  $400-$500 per                                                               
month.                                                                                                                          
                                                                                                                                
10:24:23 AM                                                                                                                   
                                                                                                                                
STEVEN MAXIE,  JR., testified that businesses  should be eligible                                                               
for PCE  at either  a lower  rate or  the same  rate as  that for                                                               
residential  customers   otherwise  the  high  food   costs  will                                                               
continue.                                                                                                                       
                                                                                                                                
10:25:35 AM                                                                                                                   
                                                                                                                                
CO-CHAIR HERRON  announced that HB  150 would be held  over until                                                               
Tuesday, March 17th.