Legislature(2019 - 2020)CAPITOL 17
03/05/2019 10:15 AM House ENERGY
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Power Cost Equalization | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
March 5, 2019
10:18 a.m.
MEMBERS PRESENT
Representative Grier Hopkins, Chair
Representative Zack Fields, Vice Chair
Representative John Lincoln
Representative Ivy Spohnholz
Representative Tiffany Zulkosky
Representative George Rauscher
MEMBERS ABSENT
Representative Lance Pruitt
COMMITTEE CALENDAR
PRESENTATION: POWER COST EQUALIZATION
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
MEERA KOHLER, President & CEO
Alaska Village Electric Cooperative (AVEC)
Anchorage, Alaska
POSITION STATEMENT: Presented a PowerPoint titled "Power Cost
Equalization A Primer and Look Back."
ACTION NARRATIVE
10:18:55 AM
CHAIR GRIER HOPKINS called the House Special Committee on Energy
meeting to order at 10:18 a.m. Representatives Hopkins,
Zulkosky, Rauscher, Lincoln, and Spohnholz were present at the
call to order. Representative Fields arrived as the meeting was
in progress.
^PRESENTATION: POWER COST EQUALIZATION
PRESENTATION: POWER COST EQUALIZATION
10:21:17 AM
CHAIR HOPKINS announced that the only order of business would be
a presentation by the Alaska Village Electric Cooperative,
Incorporated on Power Cost Equalization.
10:21:50 AM
MEERA KOHLER, President & CEO, Alaska Village Electric
Cooperative (AVEC), directed attention to a PowerPoint, titled,
"Power Cost Equalization A Primer and Look Back." She explained
that Alaska Village Electric Cooperative, Incorporated was
referenced as AVEC and PCE was a reference to Power Cost
Equalization.
10:22:40 AM
MS. KOHLER presented slide 1, titled "Looking back to 1977,"
noting that this was "the year that oil first flowed down the
pipeline." She reported that there was virtually no
transmission system in Alaska. Chugach Electric was the big
utility and it owned a transmission line from the Beluga gas
field to Anchorage, which provided power to Anchorage.
Fairbanks relied on local heavy oil and coal, with diesel fuel
as the primary energy source everywhere else. There was very
little hydropower in Alaska, although the Eklutna 30 MW
[megawatt] power project served the Anchorage and Matanuska-
Susitna areas and the Snettisham 52 MW project served Juneau.
She said there were an additional 20 MW of small projects
scattered throughout the state, primarily in Southeast Alaska.
MS. KOHLER moved on to slide 2 titled "Oil started flowing down
the Pipeline." There was a focus that affordable energy was
needed all over the state, so the State began to spend its
newfound wealth. A transmission line to Fairbanks was started,
the Susitna 1600 mega-project design was started, the Bradley
Lake 90 MW hydro project was started near Homer, and the four
dam pool projects for Ketchikan, Wrangell, Southeast, and
Petersburg, as well as Kodiak and Valdez began work with funding
from a mix of grants and bonds from the state. She referenced a
study commissioned in the early 1980s to identify projects to
reduce the cost of electricity throughout Alaska. She moved on
to slide 3, "The First Power Cost Assistance program." She
reminded the committee of the oil embargo in the late 1970s, as
oil prices had peaked in 1979 and diesel-fueled utilities were
hit hard. This triggered the Alaska State Legislature to
establish the Power Production Cost Assistance (PCA) Program in
1980 as a one year stop-gap to bring down the cost of
electricity for those diesel-powered communities. In 1981, the
program was amended into the Power Cost Assistance Program,
which was designed to self-extinguish in five years. This was
the precursor to the Power Cost Equalization (PCE) program,
which was implemented in 1984.
10:26:22 AM
MS. KOHLER addressed slide 4, "And finally - PCE." In 1984, the
consultants admitted defeat and determined that there was no
practical silver bullet alternative for Rural Alaska's electric
needs. Small loads and small communities spread across
thousands of miles could not be interconnected. The Alaska
State Legislature established Power Cost Equalization (PCE), and
the PCA was rewritten as the PCE, effective in October 1984.
All users were eligible for the first 750 kWh [kilowatt hour]
used. A floor for the cost of power was to be equalized to the
average of Anchorage, Fairbanks and Juneau, about 8.5 cents per
kwh. She explained that communities with utilities using diesel
to generate at least 75 percent of power in calendar year 1983
were eligible for PCE. She noted that the four dam pool
communities and any communities connected by the Railbelt were
excluded, as these communities had already received substantial
funding to build the facilities. She added that there was a
ceiling for subsidy, any costs above 52.5 cents were not
covered. Community facilities received PCE on 100 percent of
their usage up to 70 kwh of use per resident of the community.
She reported that this would usually pay for a washeteria, a
water and sewer project, street lighting, or a community city
hall, noting that AVEC found that only about half of this limit
was used by the communities.
10:30:30 AM
MS. KOHLER moved on to slide 5, "The Situation from 1985 - 2017"
and reported that during that time the floor had been raised 124
percent to 19.02 cents per kWh, the ceiling had been raised from
52.5 cents to $1.00 per kWh, and eligible electricity had been
reduced one-third to 500 kWh, with only one eligible meter per
resident. She stated that the 6,000+ commercial customers no
longer qualified for PCE. She relayed that fuel cost was up 127
percent, but efficiency was also dramatically up by 32 percent.
Fuel cost per kWh went from $.1033 - $.1875. Non-fuel costs per
kWh are up 31 percent, from $.1407 in 1985 to $.1839 in 2017.
Current funding ($28 million) is at a 100 percent level. She
explained that for 15 years, as there seemed to be an annual
battle with the Alaska State Legislature for funding, there had
been less than full funding.
10:34:49 AM
REPRESENTATIVE ZULKOSKY asked for examples of non-fuel costs.
MS. KOHLER said that she would offer some examples later in the
PowerPoint, adding that it was everything other than fuel which
included power plant and distribution operations, and the cost
of borrowed money, as well as billing, insurance, and
collection.
10:35:43 AM
MS. KOHLER presented slide 6, "Program Changes since FY86," and
reported that PCE accounted for $17.8 million in FY86 and PCE
disbursed $26.1 million in FY17. She pointed out that the
population served had increased from 62,000 people to 84,000 in
those years, and that total sales in gigawatt hours had doubled.
She reported that the eligible sales had modestly increased from
108 to 133. She added that, in 1986, 48 percent of the
electricity sold in a community was eligible for PCE, while in
2017, it was down to 29 percent. She pointed out that, in 1986,
21 million gallons of fuel were used to generate 225 [giga]watt
hours while in 2017, 29 million gallons of fuel to produce more
than twice as much electricity, a statement of success for
efficiency.
10:37:19 AM
REPRESENTATIVE RAUSCHER asked if the eligible sales amount of 30
percent in 2000 and 29 percent in 2017 was by design.
MS. KOHLER reiterated that when the program was first
established, all users received PCE and the threshold was
higher; whereas, today many users in the community were not
eligible to get PCE, such as commercial users or usage over 500
kWh each month. She added that this was by design which
occurred in the late 1990s to bring the cost of the program
within defensible parameters.
10:38:22 AM
CHAIR HOPKINS asked about the interaction of the renewable
energy projects in Rural Alaska with the PCE.
MS. KOHLER explained that a community which had received 75
percent of its electricity from diesel in 1983 would always be a
PCE community. She shared an example of Cordova, that even with
two hydro projects providing 75 percent of its electricity, the
community was still on the PCE program. She reminded the
committee that the PCE program covered non-fuel costs, as well,
as a large amount of money had been borrowed and invested in the
hydro projects. She reported that there were wind projects in
13 locations, serving 20 communities, and that these operating
expenses were captured in the non-fuel cost of the PCE funding
formula. She added that these programs did not negatively
impact the PCE, pointing out that this encouraged renewable
investment as the focus was to drive down costs.
10:40:23 AM
REPRESENTATIVE FIELDS asked whether PCE could be a financing
source for more affordable investments over time.
MS. KOHLER replied that there had been work with the Alaska
Energy Authority (AEA) and others for ways to use the program in
a modest way to pay for major investments. She offered an
example of a community which did not have the money to pay for
the overhaul of a generator; it was easier to let it fail so the
state would replace it. She pointed out that the cost of an
overhaul, properly structured, could be included in the rate
structure and PCE would help to offset the ongoing cost.
10:41:49 AM
MS. KOHLER returned attention to slide 6 and reported that PCE
had covered 32 percent of the total costs in 1986, and by 2017,
PCE covered 16 percent of the total costs. The communities were
now paying 84 percent of the total costs.
10:42:22 AM
MS. KOHLER moved on to slide 7, "About AVEC," and shared that
AVEC served 58 communities, with Bethel being the largest, about
32,000 people, which was 38 percent of the beneficiaries of PCE.
However, because the communities tended to be a bit more
expensive, AVEC received about 41 percent of the total PCE
disbursed.
10:43:26 AM
REPRESENTATIVE FIELDS asked about the services provided to
Yakutat.
MS. KOHLER replied that Yakutat had approached AVEC as they did
not have the expertise to operate the municipal utility system.
She noted that the kilowatt hour sales in some villages were so
small that AVEC could not garner enough revenue from these
villages to pay for the operation.
10:45:38 AM
MS. KOHLER shared slide 8, "Map of Alaska Village Electric
Cooperative Villages," a snapshot to show the size of small and
large communities.
10:46:38 AM
MS. KOHLER directed attention to slide 9, "AVEC Systems
Statistics," and reported that AVEC operated 50 power plants and
13 wind systems serving 20 villages. She reported that in the
last year, two larger wind turbines for 900kW had been
installed. She reported that AVEC bought about 8.5 million
gallons of diesel fuel for the communities.
10:47:16 AM
REPRESENTATIVE FIELDS asked how many of the wind systems were at
least partially financed by the Renewable Energy Fund.
MS. KOHLER replied that AVEC had begun building five wind
systems in 2003, which predated the fund's establishment in
2008. She relayed that there had been partial state
participation in about six systems since then. She added that
the Denali Commission also participated in funding.
10:48:38 AM
MS. KOHLER moved on to slide 10, "2018 Overview," noting that
total sales were about 118 million kWh, with residential
revenues per kWh of $0.48 and total revenue per kWh of $0.44.
She noted that AVEC received 41 percent of the total PCE
disbursed, about $10.7 million, which was about 21 percent of
the total AVEC revenue.
10:49:15 AM
MS. KOHLER shared slide 11, "Qn. #1 - Does PCE Reduce Rural
Power Cost to Urban Levels?" She reported that the residential
power cost for Chugach Electric for Anchorage was $0.1991,
Golden Valley for Fairbanks was $0.2411, AEL&P for Juneau was
$0.1189, and Kodiak Electric for Kodiak was $0.1530. She stated
that the costs after PCE for the 56 AVEC Villages was about
$0.2300.
10:50:32 AM
REPRESENTATIVE FIELDS declared that he was impressed that Kodiak
had cheaper energy than Anchorage. He offered his belief that
Kodiak had decided to go to more renewables and had held energy
costs constant, or in inflation adjusted terms, dropping. He
asked what opportunities there were around Alaska to offer a
similar renewable portfolio to save consumers money.
MS. KOHLER explained that Kodiak "has the perfect storm
situation for them, except that it's a very nice storm to have."
There was a 20 MW hydro project built by the State of Alaska in
the mid-1980s. She added that, as the four dam pool projects
were sold back to the communities, Kodiak received its hydro
"paid for at 20 cents on the dollar for what was paid for that
project." She pointed out that the community had been very
forward thinking and was currently in the process of adding a
third turbine to expand the capacity of the hydro project. She
explained that the wind project had been built in two phases,
reporting that, although $4 million had been received from the
Renewable Energy Fund, it was a $23 million project. They had
also used the federal Clean Renewable Energy bonds for funding.
She pointed out that renewable energy in Kodiak already
accounted for more than 90 percent of use when they began use of
wind power. She declared that this was a remarkable story of
perseverance and leadership, with a willingness to put more
money into renewable as they recognized the volatility of the
price of diesel.
10:53:05 AM
REPRESENTATIVE ZULKOSKY offered her understanding that Kodiak
had access to renewable resources, most likely not able to be
duplicated in other parts of Alaska.
MS. KOHLER expressed her agreement, acknowledging that hydro was
a valuable resource and that finding a local sustainable,
affordable substitute for hydro was difficult.
10:54:19 AM
REPRESENTATIVE FIELDS asked if the renewable energy atlas had
proven valuable for finding any small-scale renewable projects.
MS. KOHLER reported that AVEC had helped fund that project,
noting that AVEC had desired a more refined map than the
existing broad scale maps. In response to Representative
Fields, she said that utility of the atlas had been mixed,
noting that there were instances where the map depicted a more
generalized availability of renewable resources than local
knowledge indicated. She added that tapping the resources was
often very expensive.
REPRESENTATIVE FIELDS asked about the rapid advancement of
battery technology, as well as the new fly wheel technology, for
energy storage.
MS. KOHLER replied that storage was "coming along at a very good
pace," and expressed optimism that it would play a significant
role in the future, even though it was currently still very
expensive. She pointed out that a delicately balanced item,
such as a fly wheel, required a rock foundation. She reported
that the wind turbines in her community required pilings driven
60 feet into the ground to anchor them in the permafrost. She
referenced a "grid bridging system" project which allowed
storage for 90 seconds of capacity to bring a diesel generator
on-line.
10:58:30 AM
MS. KOHLER brought attention to slide 12, "Cost of 700
Residential kwh," a comparison of the monthly home energy costs
in different communities. She pointed out that Juneau at
$83.23, and Kodiak at $107.10, were the winners. The most
expensive were the Middle Kuskokwim villages at $421.12, with
the average in the AVEC Villages at $219.00. She reminded the
committee that only the first 500 kWh were covered by PCE, and
that, in this example, the remaining 200 kWh were at full cost.
10:59:11 AM
MS. KOHLER turned to slide 13, "Qn. #2 - Who gets PCE?" She
noted that the Community Facilities received up to 70 kWh per
resident per month, and this included streetlights, washeterias,
water and sewer facilities, and community buildings. She added
that in most villages the public clinic was also eligible for
PCE as it would receive a lump sum funding to offset some costs,
which did not include the electric bill.
11:00:20 AM
MS. KOHLER moved on to slide 14, "Qn. #3 - Who doesn't get PCE?"
She listed schools, churches, state or federal facilities,
commercial customers, and consumers with seriously delinquent
accounts.
MS. KOHLER, in response, offered her belief that the commercial
threshold was about 25 percent.
11:01:23 AM
MS. KOHLER addressed slide 15, "Qn. #4 - How does PCE work?"
She explained that the utility applied to the [RCA] Regulatory
Commission of Alaska to participate and submitted its detailed
cost and operational data. The RCA would review these costs and
determine eligible costs and compute the PCE by rate class. The
utility then bills its customers and applies a PCE credit based
upon actual consumption (subject to kWh limit). The consumer is
responsible to pay the bill after the PCE credit. The utility
bills the state, the Alaska Energy Authority (AEA), for all PCE
credited and provides the AEA with detailed billing records.
She noted that the utility filed an annual update of costs with
the RCA, per the schedule established by the RCA.
11:03:23 AM
MS. KOHLER shared slide 16, "Qn. #5 - Doesn't PCE discourage
Conservation & Innovation?" She stated that this was not the
case, pointing out that only 29 percent of all the electricity
sold in eligible communities received PCE. She pointed out that
the smaller the community, the more kWh that were eligible
(because of minimal commercial usage), citing as an example AVEC
villages with 48 percent of kWh sales eligible because of lower
commercial activity, Cordova with 28 percent eligible, Kotzebue
with 27 percent eligible, and Napakiak with 72 percent of
electricity sales eligible.
11:04:38 AM
MS. KOHLER, in response to an earlier question from
Representative Zulkosky, shared slide 17, "Qn. #6 Doesn't Most
of PCE go to "Overheads?" She reported that total fuel costs
were more than $76 million and non-fuel costs were more than $85
million, totaling almost $162 million with $26 million disbursed
through PCE. She stated that this was 16 percent of all costs
and 34 percent of fuel costs. She moved on to slide 18, "Qn. #7
What are Overheads?" She listed operating and maintaining power
plants, operating and maintaining tank farms, operating and
maintaining distribution lines, connecting customers, billing,
collections, administration, accounting, engineering, warehouse,
insurance, depreciation, cost of long-term debt, taxes and
miscellaneous as overhead expenses.
11:05:49 AM
MS. KOHLER presented slide 19, "AVEC's Non-fuel Costs - 2017,"
which listed the non-fuel costs to include almost 21 cents per
kWh, and the fuel costs to be about 22 cents per kWh.
11:06:11 AM
MS. KOHLER directed attention to slide 20, "Qn. #8 - Do PCE
Villages have any Plant Investment?" She acknowledged that in
very small communities that were not AVEC communities, there was
not any community investment in the plant, as it was paid by the
state; however, in most communities with the utilities regulated
by the state, there was plant investment per customer, citing
the AVEC villages to have more than $14,000 per customer
invested, about $2 million per village. She added that in the
Lower 48, the average plant investment per customer service was
about $2,500.
11:08:37 AM
MS. KOHLER announced slide 21, "Qn. #9 - Isn't PCE Abused?" and
opined that "it is quite the opposite." She noted that many
communities did not have sophisticated accounting processes and
did not capture all the costs potentially eligible for PCE, and
reported that she could find a problem with the accounting in
villages that still had a cost of more than 30 cents per kWh
after PCE. She pointed out that there were very stringent
standards established through the RCA and the AEA that ensured
there was not any abuse. She pointed out that AVEC wrote off
less than .005 percent annually in bad debt.
11:09:39 AM
MS. KOHLER addressed slide 22 "Qn. #10 - Would PCE Money be
better spent on Alternative Energy?" She reminded the committee
that wind generation was six times the cost of diesel
generation, and, as it was intermittent, it was still necessary
to have the diesel generation and fuel storage. She reported
that the average village load was about 150 kW, and the typical
cost of a 300kW integrated project was more than $4 million.
Diesel generation and fuel tankage were still needed for the
more than 70 percent of energy that the wind generation could
not provide.
11:10:21 AM
MS. KOHLER concluded with slide 23 "Qn. #11 Why are we
subsidizing Rural Alaska?" and stated: "Because this was the
compromise that was reached in 1984." She declared that "every
dime that has gone into PCE is a quid pro quo. The same holds
true of the PCE endowment fund." She added that every dollar
invested in the endowment fund was part of a grand scheme
compromise, and the most recent investment, $400 million in
2011, was part of a $1.1 billion compromise in the Alaska State
Legislature. She declared "we can't afford to go back to annual
battles for PCE. We need folks to understand how vital this
program is."
11:11:26 AM
REPRESENTATIVE ZULKOSKY asked which was the number one priority
to help bring down the cost drivers for utilities: the pursuit
and investment of renewable energy in Rural Alaska; energy
efficiency; or, addressing the cost of fuel to run these
operations.
MS. KOHLER replied that displacement of diesel was the akin to
the search for "golden fleece." She reported that the AVEC
board had a goal for cutting 25 percent of diesel use in the
communities over the next 10 years. She declared that "the big
player there really is efficiency" and noted that another
kilowatt hour gained per gallon of diesel fuel was an 8 percent
improvement in efficiency with the reduction in fuel use. She
pointed out that, as the options were so limited, the renewable
resources were intermittent even though there were still the
attendant costs. She lauded that AVEC had one of the highest
displacement rates in the nation, in some cases approaching 40
percent displacement of diesel fuel for electricity generation.
She noted that this did not include heat. She expressed her
hope that the new 900 kW turbine to serve Mountain Village and
St. Mary's would have surplus electricity to sell at a nominal
rate for heat to either the school or the water treatment plant
to help displace diesel fuel. She pointed out that the RCA did
penalize any sales of recovered heat or excess wind by taking
the revenue and calling it a reverse expense, resulting in
reduction of the PCE rate. She declared that PCE should not be
used as a tool to penalize communities for doing the right
thing.
11:15:46 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 11:15 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2019-03-05 - Kohler AVEC PCE Presentation.pdf |
HENE 3/5/2019 10:15:00 AM |