Legislature(2019 - 2020)BELTZ 105 (TSBldg)

03/26/2019 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS

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Audio Topic
03:31:26 PM Start
03:32:06 PM Presentation: Power Cost Equalization
04:35:35 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Power Cost Equalization by Meera Kohler, Alaska
Village Electric Cooperative
                    ALASKA STATE LEGISLATURE                                                                                  
    SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                  
                         March 26, 2019                                                                                         
                           3:31 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Click Bishop, Chair                                                                                                     
Senator Chris Birch, Vice Chair                                                                                                 
Senator Mia Costello                                                                                                            
Senator Lyman Hoffman                                                                                                           
MEMBERS ABSENT                                                                                                                
Senator Elvi Gray-Jackson                                                                                                       
COMMITTEE CALENDAR                                                                                                            
PRESENTATION: POWER COST EQUALIZATION                                                                                           
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
MERRA KOHLER, President and CEO                                                                                                 
Alaska Village Electric Cooperative, Inc.                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Provided an overview of the cooperative and                                                               
the Power Cost Equalization Program.                                                                                            
ACTION NARRATIVE                                                                                                              
3:31:26 PM                                                                                                                    
CHAIR  CLICK  BISHOP called  the  Senate  Community and  Regional                                                             
Affairs Standing Committee meeting to  order at 3:31 p.m. Present                                                               
at the call to order  were Senators Costello, Birch, Hoffman, and                                                               
Chair Bishop.                                                                                                                   
^PRESENTATION: Power Cost Equalization                                                                                          
             PRESENTATION: Power Cost Equalization                                                                          
3:32:06 PM                                                                                                                    
CHAIR   BISHOP  announced   that  the   committee  will   hear  a                                                               
presentation  on the  Power Cost  Equalization  (PCE) Program  by                                                               
Merra  Kohler  from  the   Alaska  Village  Electric  Cooperative                                                               
3:32:53 PM                                                                                                                    
MERRA  KOHLER,   President  and  CEO,  Alaska   Village  Electric                                                               
Cooperative,  Inc., Anchorage,  said she  has been  involved with                                                               
the  PCE  Program  since  before   its  inception.  She  began  a                                                               
PowerPoint,  "Power Cost  Equalization,  A Primer  and Look  Back                                                               
dated March 26, 2019."                                                                                                          
MS. KOHLER reviewed slide 2, Looking back to 1977, which read:                                                                  
     Almost no transmission in Alaska                                                                                           
        o Chugach electric owned a line (built in 1968)                                                                         
          from the Beluga gas field to Anchorage                                                                                
        o Fairbanks relied on local heavy oil and coal                                                                          
        o Diesel fuel was the primary energy source                                                                             
     Very little hydropower                                                                                                     
        o Eklutna- 30 mw, serving ML&P, MEA, CEA                                                                                
        o Cooper Lake -20 mw serving CEA                                                                                        
        o Snettisham, 52 mw, serving Juneau                                                                                     
        o ~20 MW of small projects scattered throughout SE                                                                      
She noted  that 1977  was the  year the  oil in  the Trans-Alaska                                                               
Pipeline System  (TAPS) started flowing.  She said that  1977 was                                                               
also the year  when Alaska struggled to emerge from  a very vast,                                                               
underserved state.                                                                                                              
MS.  KOHLER  reviewed  slide  3, Oil  started  flowing  down  the                                                               
Pipeline, which read                                                                                                            
     The State began to spend its newfound wealth                                                                               
        o A transmission line to Fairbanks was started                                                                          
        o The Susitna mega-project design was started                                                                           
        o A Bradley Lake project was started                                                                                    
        o Kodiak,    Valdez,   Ketchikan,    Wrangell,   and                                                                    
          Petersburg began work on four hydro-projects                                                                          
        o Studies were commissioned to identify projects to                                                                     
          reduce the cost of electricity throughout Alaska                                                                      
MS. KOHLER explained that once  oil started flowing through TAPS,                                                               
wealth started flowing  into state coffers and  the state started                                                               
considering the  primary priority  of affordable  energy. Without                                                               
affordable  energy  economic  development  or  prosperity  cannot                                                               
happen  since everything  hinges on  the availability  of energy.                                                               
Energy  studies  included  a  Stone &  Webster  report  that  was                                                               
produced in  1983, a  five-volume report that  continues to  be a                                                               
good  resource for  future  projects that  might  be possible  in                                                               
3:36:38 PM                                                                                                                    
MS.  KOHLER reviewed  slide 4,  The First  Power Cost  Assistance                                                               
Program, which read:                                                                                                            
   • Oil prices peaked in 1979                                                                                                  
   • Diesel-fueled utilities were hit hard                                                                                      
   • Legislature established the Power Production Cost                                                                          
     Assistance Program in 1980 - a one year stop-gap                                                                           
   • In 1981, the program was amended into the Power Cost                                                                       
         Assistance Program, which was designed to self-                                                                        
     extinguish in five years                                                                                                   
MS. KOHLER reviewed slide 5, And finally - PCE, which read:                                                                     
   • In 1984, consultants admitted defeat                                                                                       
       o There was no "silver bullet" for rural Alaska's                                                                        
         electric needs                                                                                                         
       o Small loads and small communities spread across                                                                        
         thousands of miles could not be interconnected                                                                         
   • Legislature established Power Cost Equalization                                                                            
      o PCA was rewritten as PCE - effective October 1984                                                                       
       o Utilities using diesel to generate at least 75 %                                                                       
         of power in calendar year 1983 were eligible                                                                           
       o Cost of power was to be equalized to the average                                                                       
         of Anchorage, Fairbanks, and Juneau $0.0850 per                                                                        
       o Costs above $0.5250 per kwh were not covered                                                                           
      o All users were eligible for the first 750kwh used                                                                       
       o Community facilities received PCE on 100% of their                                                                     
MS.  KOHLER  specified  communities   that  were  served  by  the                                                               
Railbelt,  the Four  Dam Pool,  and  the Copper  Valley were  not                                                               
eligible for  PCE. Any utility  that was  not 75 percent  or more                                                               
served with diesel in 1983 was not eligible, she said.                                                                          
3:38:40 PM                                                                                                                    
MS. KOHLER reviewed slide 6,  Enter the PCE Endowment Fund, which                                                               
   • Established in FY00 via HB 446                                                                                             
        o 15 years of underfunding (FY92-FY07)                                                                                
   • Invested to achieve 7% return                                                                                              
   • $100 M from CBR in FY01                                                                                                    
   • $84 M from sale of the Four Dam Pool hydros in FY02                                                                        
   • $182.7 M in FY07                                                                                                           
   • $400 Min FY12                                                                                                              
   • Revised target of 5% return in FY16                                                                                        
   • After PCE,   returns   fund   Municipal   Assistance,                                                                      
     Renewable Energy Grants                                                                                                    
MS. KOHLER explained  that the PCE Endowment Fund  was formed out                                                               
of a  quid pro  quo for  programs that  already existed.  PCE was                                                               
funded with  60 percent of  the receipts  from the Four  Dam Pool                                                               
Project when the  state decided to divest those  projects back to                                                               
the communities that  were served by them, which was  in 2000 and                                                               
2001.  She  said that  the  total  investment  for the  Four  Dam                                                               
Project  was $450  million. However,  the hydroelectric  projects                                                               
were sold  to the communities  for $74  million for less  than 20                                                               
cents on the  dollar, which is why a  $100 million Constitutional                                                               
Budget Reserve  (CBR) match  was used as  the first  deposit into                                                               
the PCE Endowment Fund.                                                                                                         
She noted  that there were  two additional deposits into  the PCE                                                               
Endowment  Fund,  adding that  Senator  Hoffman  can explain  the                                                               
reasoning to what the quid pro  quo was for the two deposits. The                                                               
deposits  were  based on  a  rural-urban  consensus priority  for                                                               
rural communities,  a total  of $740  million was  deposited into                                                               
the endowment fund.                                                                                                             
MS.  KOHLER explained  the way  the PCE  Endowment Fund  works is                                                               
that the average  value of the preceding three  fiscal years will                                                               
determine the  amount that can be  spun off for PCE.  The initial                                                               
amount was 7 percent of earnings,  but it changed to 5 percent in                                                               
2015. She  said clever  language was included  in the  change for                                                               
the endowment fund that benefited the entire state:                                                                             
     70 % of the remaining  balance can then be appropriated                                                                    
     to pay  for, first, municipal  assistance of up  to $30                                                                    
     million, and  then if  there is  anything left  over it                                                                    
     goes  to the  Renewable Energy  Grant Fund,  which also                                                                    
     benefits the entire state.                                                                                                 
She summarized  that in  FY 2017,  $30 million  was spun  off for                                                               
municipal assistance [;is another  $15 million into the Renewable                                                               
Energy Grant Fund.  In FY 2018 there will be  enough funds to pay                                                               
for  municipal  assistance,  but  a pittance  for  the  Renewable                                                               
Energy Fund.                                                                                                                    
3:42:17 PM                                                                                                                    
MS. KOHLER reviewed slide 7,  The Situation from 1985-2017, which                                                               
        • The floor has been raised 124% to $0.1902                                                                             
        • The ceiling was raised from $0.5250 to $1.00                                                                          
        • Eligible electricity has been reduced 1/3 to 500                                                                      
        • 6,000+ commercial customers no longer get PCE                                                                         
        • Fuel cost up 127% but efficiency is also up32%                                                                        
             o Fuel cost per kwh went from $0.1033 to $0.1875                                                                   
        • Non-fuel costs per kwh are up 31%                                                                                     
             o $.141 in '85 to $.184 in '17                                                                                     
        • Current funding ($28 million) is at 100% level                                                                        
        • PCE cost in FY86 $17.8 million                                                                                        
        • PCE cost in FY17 $26.1 million                                                                                        
MS.  KOHLER provided  additional details  on the  PCE Program  as                                                               
   • The floor is the minimum that every utility or the consumer                                                                
     must pay.                                                                                                                  
   • The ceiling is the cost to operate a utility. The first                                                                    
     $1.00 is covered.                                                                                                          
   • Only the first meter is eligible for consumer assistance.                                                                  
     Specifically, only one home is eligible if an individual                                                                   
     owns multiple homes.                                                                                                       
   • All commercial users were taken off the PCE program in                                                                     
   • Schools, federal buildings, and state operated buildings                                                                   
     are not eligible for PCE.                                                                                                  
   • The number of eligible PCE users has gone down                                                                             
   • Fuel cost is up.                                                                                                           
        o In 1985 the average cost of a gallon of fuel was                                                                      
        o The most recent average cost of a gallon of fuel year                                                                 
          is $2.56, a 127 % increase.                                                                                           
   • Efficiency has grown at a very dramatic pace.                                                                              
        o In 1985, 10kwh was sold per gallon in the PCE                                                                         
        o Today, 13kwh is sold per gallon.                                                                                      
   • Non-fuel costs have gone up 31 % on average per kwh.                                                                       
   • Current funding is $28 million.                                                                                            
        o The highest was $41 million in 2009, the year after                                                                   
          very high fuel costs when PCE funding was a much                                                                      
          higher need.                                                                                                          
   • Total spent on PCE was just under $18 million in FY1986 and                                                                
     $26 million in FY2017.                                                                                                     
3:45:35 PM                                                                                                                    
MS. KOHLER reviewed slide 8, Program changes since FY86, which                                                                  
showed a table with the following information:                                                                                  
   • Population served:                                                                                                         
        o 1986: 62,042                                                                                                          
        o 2000: 77,625                                                                                                          
        o 2017: 83,850                                                                                                          
   • Total sales (gigawatt hours (GWh)                                                                                          
        o 1986: 225 GWh                                                                                                         
        o 2000: 391 GWh                                                                                                         
        o 2017: 463 GWh                                                                                                         
   • Eligible sales                                                                                                             
        o 1986: 108                                                                                                             
        o 2000: 116                                                                                                             
        o 2017: 133                                                                                                             
   • Percentage eligible                                                                                                        
        o 1986: 48%                                                                                                             
        o 2000: 30%                                                                                                             
        o 2017: 29%                                                                                                             
   • Average fuel cost (per gallon)                                                                                             
       o 1986: $1.17                                                                                                            
       o 2000: $1.10                                                                                                            
       o 2017: $2.66                                                                                                            
   • Fuel consumed                                                                                                              
       o 1986: 21 million gallons                                                                                               
       o 2000: 28 million gallons                                                                                               
       o 2017: 29 million gallons                                                                                               
   • Fuel cost                                                                                                                  
        o 1986: $23 million                                                                                                     
        o 2000: $30 million                                                                                                     
        o 2017: $77 million                                                                                                     
   • Non-fuel cost                                                                                                              
        • 1986: $32 million                                                                                                     
        • 2000: $42 million                                                                                                     
        • 2017: $85 million                                                                                                     
   • Total utility cost                                                                                                         
               o 1986: $55 million                                                                                              
               o 2000: $72 million                                                                                              
       o 2017: $162 million                                                                                                     
   • Total PC                                                                                                                   
        o 1986: $17.8 million                                                                                                   
        o 2000: $14.4 million                                                                                                   
        o 2017: $26.1 million                                                                                                   
   • Percentage of total costs                                                                                                  
               o  1986: 32%                                                                                                     
               o  2000: 20%                                                                                                     
               o  2017: 16%                                                                                                     
MS. KOHLER  referred to the  percentage of total costs  and noted                                                               
that 32 percent  of total costs were covered by  PCE in 1986, but                                                               
only 16  percent in  2017. Sixteen percent  PCE coverage  in 2017                                                               
means 84  percent of  the cost of  generating electricity  in PCE                                                               
communities is borne by the local communities, she said.                                                                        
3:46:17 PM                                                                                                                    
MS. KOHLER reviewed slide 9, About AVEC, which read:                                                                            
   • 58 villages (recently added Yakutat, Bethel)                                                                               
   • 32,000 population                                                                                                          
        o 38 % of PCE population served                                                                                         
        o 41 % of total PCE disbursed                                                                                           
        o Shageluk (smallest) 77                                                                                                
        o Bethel (largest) 6,224                                                                                                
       o Anchorage 294,356                                                                                                      
   • 92 % Alaska native.                                                                                                        
She provided additional details on AVEC as follows:                                                                             
   • Cooperative was incorporated in 1967.                                                                                      
   • 2019 is the 50th anniversary for the cooperative's first                                                                   
     annual meeting.                                                                                                            
   • Smaller AVEC communities are typically higher PCE per                                                                      
     capita recipients due to poor economies of scale.                                                                          
   • Half a dozen AVEC communities have populations that are                                                                    
     less than 100 residents.                                                                                                   
   • Bethel and Yakutat are recent additions to AVEC:                                                                           
        o Bethel was acquired in 2014.                                                                                          
        o Yakutat was acquired in 2017.                                                                                         
   • In addition to Yakutat, AVEC has Southeast Alaska presence:                                                                
        o Angoon was an early member:                                                                                           
             square4 Inside Passage Electric Cooperative was turned                                                             
               over to Angoon that also helped energize four                                                                    
               additional communities.                                                                                          
   • AVEC is almost entirely Alaska native population.                                                                          
3:48:22 PM                                                                                                                    
MS. KOHLER  reviewed slide  10, which  showed a  map of  the AVEC                                                               
villages,  noting that  communities are  located from:  Kivalina,                                                               
the farthest north  village, to Old Harbor on  Kodiak Island, 824                                                               
miles to the south; and  Gambell, farthest west, to Yakutat, over                                                               
1,000 miles to the east.                                                                                                        
MS.  KOHLER  reviewed slide  11,  AVEC  System Statistics,  which                                                               
     • 50 power plants                                                                                                          
     • 13 wind systems serving 20 villages                                                                                      
     • 170+diesel generators                                                                                                    
     • 500+ fuel tanks                                                                                                          
     • 8.5 million gallons fuel burned                                                                                          
She said AVEC  recently installed two wind  systems, 900 kilowatt                                                               
(kW) machines,  in Bethel  and St. Mary's.  The two  wind systems                                                               
added  five  communities  to  the number  of  villages  that  are                                                               
receiving electricity  from wind. She  noted that AVEC  also owns                                                               
two tugs and barges, the only  utility in the world that owns its                                                               
own water borne vessels to deliver fuel to its communities.                                                                     
MS. KOHLER reviewed slide 12, 2018 Overview, which read:                                                                        
     • 11,400 Services  residential and commercial                                                                              
     • 118 million kWh sales                                                                                                    
     • $52.4 million revenues                                                                                                   
     • $28.1 million total fuel cost                                                                                            
     • $25.4 million non-fuel cost                                                                                              
     • $0.44 - total revenue per kWh                                                                                            
     • 397kwh - average residential usage per month                                                                             
     • $0.48 - residential revenue per kWh                                                                                      
   • PCE: $10.7 million                                                                                                         
       o 21% of revenue, 41% of total PCE disbursed                                                                             
MS. KOHLER  explained that to put  the 118 million kwh  sales for                                                               
AVEC in perspective,  Chugiak Electric sells 15  times the amount                                                               
of power;  however, AVEC is  proud of what  it does for  not very                                                               
3:50:48 PM                                                                                                                    
CHAIR BISHOP  asked what life would  look like if PCE  were to go                                                               
MS. KOHLER  replied that life  would be  very bleak. She  said to                                                               
put not having  PCE is perspective, in one  average AVEC village,                                                               
PCE pays  50 percent  of the  residential users'  electric bills.                                                               
Running one  electric heater for  three or four  hours translates                                                               
into an additional $350 a month on an electrical bill.                                                                          
She  explained that  energy represents  an enormous  component of                                                               
the disposable  income that  an AVEC  household has.  The average                                                               
household income  in an AVEC  community is about $21,000  with 70                                                               
percent living below the poverty line,  about a third of what the                                                               
average income is in urban  Alaska. AVEC communities are not cash                                                               
economies and  having to  come up  with extra cash  to pay  for a                                                               
higher  electric   bill  would  cripple  households   and  impact                                                               
municipal facilities.                                                                                                           
3:53:59 PM                                                                                                                    
SENATOR  HOFFMAN asked  Ms. Kohler  to give  committee members  a                                                               
better idea of what 500 kilowatts pays for.                                                                                     
MS. KOHLER answered that the  average residential consumption for                                                               
AVEC consumers  is 397 kWh.  Subsistence harvesting is  stored in                                                               
freezers  and   using  freezers   accounts  for  60   percent  of                                                               
electrical usage. Lighting accounts  for 20 percent of electrical                                                               
usage,  but the  use  of  heat tape  for  water  and sewer  pipes                                                               
increases electrical consumption.  There is not much  that can be                                                               
done  to  curb  electric  usage in  residential  homes  in  rural                                                               
Alaska, but the 500 kWh ceiling from PCE is a good deterrent.                                                                   
SENATOR  HOFFMAN  asked  what  the   average  consumption  is  in                                                               
Anchorage, Fairbanks, and Juneau.                                                                                               
MS. KOHLER answered that the  average consumption in Anchorage is                                                               
650 kWh  a month with  higher consumption in Fairbanks  and lower                                                               
in Juneau. Rural households use half  to 60 percent as much as an                                                               
urban household.                                                                                                                
3:57:57 PM                                                                                                                    
SENATOR COSTELLO  asked if  there was  ever a  conservation about                                                               
having PCE cover schools.                                                                                                       
MS. KOHLER explained  that the issue with PCE for  schools or any                                                               
other  facilities that  are paid  for by  the government  is that                                                               
coverage equates  to taking money  out of one pocket  and putting                                                               
it in another. Adding schools  to PCE would substantially dive up                                                               
the program's  cost and the beneficiary  in the end would  be the                                                               
state's funding  formula. In AVEC communities,  schools typically                                                               
represent  30 percent  or  more  of all  electricity  sales in  a                                                               
SENATOR COSTELLO explained that she  is interested in parsing out                                                               
the foundation formula  to identify energy and  building costs to                                                               
provide  transparency   in  what  dollars  are   getting  to  the                                                               
classroom for education.                                                                                                        
MS. KOHLER  replied that based  on her experience, 70  percent of                                                               
education appropriations  should go into the  classroom; however,                                                               
in  school  districts with  high  operation  costs, achieving  70                                                               
percent is  not possible when  keeping the lights on  and warming                                                               
buildings puts a drain on funds.                                                                                                
4:01:39 PM                                                                                                                    
SENATOR  BIRCH  asked  what  percent   of  AVEC  communities  are                                                               
supported by renewable energy.                                                                                                  
MS.  KOHLER answered  that wind-diesel  projects  were tested  in                                                               
Kotzebue  and Wales  in the  late  1990s and  an aggressive  wind                                                               
program  started in  2003. However,  renewable energy  is capital                                                               
intensive and  expensive. A typical  100kW wind turbine  costs $1                                                               
million  installed and  two 900kW  turbines  that AVEC  installed                                                               
last  year were  $6 million.  Installing wind  turbines in  rural                                                               
Alaska  is expensive  due to  challenging geographic  conditions,                                                               
transportation  costs,  and  moving  heavy  equipment  logistics.                                                               
Still, AVEC owns 36 wind turbines, she said.                                                                                    
4:07:18 PM                                                                                                                    
SENATOR BIRCH  asked if AVEC  has an  opportunity to weigh  in on                                                               
energy generation and infrastructure.                                                                                           
MS. KOHLER  answered that  AVEC is part  of the  discussion every                                                               
time  something happens.  The challenge  for AVEC  communities is                                                               
size  since these  communities  are so  small  plus their  energy                                                               
demands are  so small that  it becomes economically  difficult to                                                               
put together a capital project.                                                                                                 
4:11:47 PM                                                                                                                    
MS. KOHLER reviewed  slide 13, Question 1: Does  PCE Reduce Rural                                                               
Power Cost to Urban Levels?"                                                                                                    
     Residential Power Cost per 2017 PCE Report                                                                               
          • Chugach Electric Anchorage;    .1991                                                                                
          • Golden Valley   Fairbanks;     .2411                                                                                
          • AEL&P:          Juneau         .1189                                                                                
          • Kodiak Electric Kodiak         .1530                                                                                
          • Kotzebue Electric Kotzebue     .1939*                                                                               
          • AVEC            56 Villages    .2300*                                                                               
          • Bettles         Bettles        .3167*                                                                               
          • MKEC            5 Villages;    .4158*                                                                               
          • Napakiak        Napakiak       .4888*                                                                               
     *after PCE                                                                                                                 
MS. KOHLER  summarized that PCE  does not bring power  costs down                                                               
to Anchorage levels, but PCE gets rural Alaska close.                                                                           
4:12:40 PM                                                                                                                    
MS.  KOHLER reviewed  slide 14,  Cost of  700 Residential  kwh as                                                               
        • Anchorage    $139.37                                                                                                  
        • Fairbanks    $168.77                                                                                                  
        • Juneau       $83.23                                                                                                   
        • Kodiak       $107.10                                                                                                  
        • Kotzebue     $173.23*                                                                                                 
        • AVEC Village $219.00*                                                                                                 
        • Bettles      $296.27*                                                                                                 
        • MKEC         $421.12*                                                                                                 
        • Napakiak     $409.40*                                                                                                 
MS. KOHLER reviewed slide 15, "Question 2: Who gets PCE?                                                                        
   • Every residential consumer                                                                                                 
        o Only one meter per consumer                                                                                           
        o Only the first 500 kWh                                                                                                
   • Community Facilities                                                                                                       
        o Up to 70 kWh/resident per month                                                                                       
             square4 Streetlights                                                                                               
             square4 Washeterias                                                                                                
             square4 Water and sewer facilities                                                                                 
             square4 Community buildings                                                                                        
She summarized that some communities  exceed the PCE cap. Selawik                                                               
is a community that exceeds its  cap during the winter due to the                                                               
use of  electric heat tape for  water and sewer pipes.  She added                                                               
that most  clinics are  eligible for PCE.  She said  that getting                                                               
community facilities certified for PCE is always a battle.                                                                      
4:15:02 PM                                                                                                                    
SENATOR  HOFFMAN asked  if teachers  and other  professionals who                                                               
come into the AVEC villages as renters are eligible for PCE.                                                                    
MS.  KOHLER answered  that  if  the electric  bill  is under  the                                                               
teacher's  name,  the individual  is  considered  a resident  and                                                               
would be eligible for PCE.                                                                                                      
MS. KOHLER  reviewed slide  16,Question 3:  Who doesn't  get PCE?                                                               
which read:                                                                                                                     
   • Schools                                                                                                                    
   • State facilities                                                                                                           
   • Federal facilities                                                                                                         
   • Commercial consumers                                                                                                       
   • Consumers with seriously delinquent accounts                                                                               
She said PCE  consumers paying their electric bill  is in statute                                                               
in  order  to receive  PCE.  AVEC  does  not have  customers  not                                                               
getting PCE  due to delinquency  because AVEC cuts  off customers                                                               
that are  delinquent. She noted  that there are  some communities                                                               
where  only  70  to  80   percent  of  electricity  billables  is                                                               
collected. AVEC writes  off less than 0.0050 percent  due to bill                                                               
4:17:48 PM                                                                                                                    
MS. KOHLER reviewed slide 17, Question 4: How does PCE work?                                                                    
which read:                                                                                                                     
   • Utility applies to the Regulatory Commission of Alaska                                                                     
     (RCA) to participate                                                                                                       
   • Utility submits detailed cost and operational data                                                                         
   • RCA determines eligible costs and computes PCE by rate                                                                     
   • Utility bills customers per normal tariff rates                                                                            
   • Utility applies   PCE   credit  based   upon   actual                                                                      
     consumption (subject to kWh limit)                                                                                         
   • Consumer is responsible to pay bill after PCE credit                                                                       
   • Utility bills State, Alaska  Energy Authority  (AEA),                                                                      
     for all PCE credited                                                                                                       
   • Utility provides AEA with detailed billing records                                                                         
   • Utility files annual update of  costs  with RCA,  per                                                                      
     schedule established by RCA                                                                                                
MS. KOHLER reviewed slide 18, Question 5: Doesn't PCE discourage                                                                
conservation and innovation?                                                                                                    
   • Only 29%  of   all  electricity   sold  in   eligible                                                                      
     communities receives PCE                                                                                                   
   • But the smaller the community, the more kWh  that are                                                                      
     eligible (because of minimal commercial usage)                                                                             
        o Akiachak       46%                                                                                                    
        o Aniak          37%                                                                                                    
        o AVEC           48%                                                                                                    
        o Cordova        28%                                                                                                    
        o Kotzebue       27%                                                                                                    
       o Napakiak       72% (School is on own generation)                                                                       
        o Tanana         38%                                                                                                    
4:20:13 PM                                                                                                                    
SENATOR BIRCH asked how widespread the PCE communities were                                                                     
throughout Alaska.                                                                                                              
MS. KOHLER answered that the PCE Program is implemented                                                                         
throughout the state. She reiterated that the communities in the                                                                
Railbelt  system are  not eligible.  The North  Slope Borough  is                                                               
technically  eligible for  PCE,  but the  borough subsidizes  the                                                               
electricity and fuel oil for  its seven villages. The North Slope                                                               
village  rate is  $0.1500 per  kWh, even  though their  costs are                                                               
similar to  AVEC communities  whose rates  run about  $0.5000 per                                                               
kWh. The  North Slope Borough does  not get PCE because  the rate                                                               
is lower than the cost.                                                                                                         
MS. KOHLER reviewed slide 19, Question  6, Doesn't Most of PCE go                                                               
to Overheads?                                                                                                                   
            FY17 Program Statistics                                                                                             
     Fuel Costs               $76,759,457                                                                                       
     Non-Fuel Costs           $85,141,895                                                                                       
     Total Electricity Cost   $161,901,352                                                                                      
     Total PCE Disbursed      $26,099,807                                                                                       
     Percent of Fuel Costs         34%                                                                                          
     Percent of Total Costs        16%                                                                                          
MS.  KOHLER  specified  that  PCE   communities  have  costs  for                                                               
operation, but not  for overhead because the  costs are separated                                                               
into fuel  costs and non-fuel costs.  She added that a  large gap                                                               
exists  between  the total  costs  and  the percentage  that  PCE                                                               
applies to.                                                                                                                     
4:22:40 PM                                                                                                                    
MS. KOHLER reviewed slide 20, Question 7, What are Overheads?                                                                   
Overheads are all non-fuel costs                                                                                                
   • 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                                                                                                    
She said overhead  costs represent a very large  part of non-fuel                                                               
MS. KOHLER reviewed slide 21, AVEC's Non-fuel Costs - 2017:                                                                     
     Generation operation and maintenance         11.5                                                                          
     Distribution operations and maintenance      1.5                                                                           
     Customer accounts                            1.7                                                                           
     Administration, insurance                    3.7                                                                           
     Depreciation                                 3.7                                                                           
     Interest on long term debt                   1.3                                                                           
     All other                                    0.6                                                                           
          Total                    24.0 cents per kWh                                                                           
          Fuel                     21.9 cents per kWh                                                                           
4:23:49 PM                                                                                                                    
MS. KOHLER reviewed slide 22, Question 8:  Do PCE Villages have                                                                 
any Plant Investment? The slide consisted of a table with the                                                                   
following information:                                                                                                          
   o Generally speaking, investment per customer served is                                                                      
     higher in rural Alaska (2007)                                                                                            
     Total plant:$101,728,884                                                                                                   
     Per customer: $6,635                                                                                                       
     Chugach Electric                                                                                                           
     Total plant: $773,762,915                                                                                                  
     Per customer: $9,981                                                                                                       
     Golden Valley                                                                                                              
     Total plant: $434,881,925                                                                                                  
     Per customer: $10,563                                                                                                      
     Total plant: $84,698,822                                                                                                   
     Per customer: $14,839                                                                                                      
     Total plant: $16,203,807                                                                                                   
     Per customer: $13,526                                                                                                      
     Total plant: $108,496,970                                                                                                  
     Per customer: $14,404                                                                                                      
     Per village: $2,047,113                                                                                                    
She said the data shows  the actual investment per customer, non-                                                               
grant-funded  dollars per  customer invested  by the  utility. In                                                               
the Lower 48, the average  investment is $2,600 per customer, she                                                               
said.  This  data  provides  a   perspective  of  how  much  more                                                               
expensive it  is to serve  customers in Alaska, primarily  due to                                                               
MS. KOHLER reviewed slide 23, Question 9: Isn't PCE Abused?                                                                     
     There are strict requirements of RCA and AEA                                                                               
        • Line Loss standards  12%                                                                                              
        • Only one eligible account per customer                                                                                
        • Various expenses (like lobbying) disallowed                                                                           
        • Monthly reports must be submitted to AEA                                                                              
        • Community facilities are scrutinized by AEA                                                                           
        • Revenues billed must be collected                                                                                     
             o AVEC writes off less than .005% annually in                                                                      
               bad debts                                                                                                        
MS. KOHLER  explained that if line  loss is more than  12 percent                                                               
of power  sold, a penalty factor  would kick in and  the PCE rate                                                               
will  go down  as a  result.  She emphasized  that mechanisms  in                                                               
place deter line loss from being too high.                                                                                      
She emphasized the PCE is scrutinized  to such an extent that the                                                               
program  is  simply   not  abused.  In  fact,   PCE  is  actually                                                               
underutilized. In reviewing some  communities in the PCE reports,                                                               
she  has  noticed  that  their non-fuel  costs  are  $0.0600  and                                                               
$0.0700.  She said  she  would  like to  work  with utilities  to                                                               
figure out what their costs  should be to appropriately calculate                                                               
their PCE rate.                                                                                                                 
4:26:32 PM                                                                                                                    
MS. KOHLER  reviewed slide  24, Question 10:  Would PCE  Money be                                                               
better spent on Alternative Energy?                                                                                             
        Wind generation is six times the cost of diesel                                                                         
        • Utility-turbines as in Lower 48 cannot be used                                                                        
        • Average village load is approximately 150 kW                                                                          
        • There are only one or two manufacturers of 50-                                                                        
          100kW units                                                                                                           
        • To accommodate sophisticated integration needs,                                                                       
          the existing generation and distribution must be                                                                      
        • Typical cost of a 300kW integrated project is $4+                                                                     
        • Diesel generation and fuel tankage still needed                                                                       
          for the 70+ percent energy that wind cannot                                                                           
        • AVEC has recently installed two 900kW turbines                                                                        
She offered  her belief that  $26 million a  year does not  buy a                                                               
lot  of  alternative  energy.  She   emphasized  that  base  load                                                               
generation  must   be  available   when  alternative   energy  is                                                               
4:27:36 PM                                                                                                                    
MS.  KOHLER   reviewed  slide  25,   Question  11:  Why   are  we                                                               
subsidizing Rural Alaska?                                                                                                       
   • This was the compromise reached in 1984, when the Alaska                                                                   
     Legislature recognized that there was no answer to bring                                                                   
     affordable power to rural Alaska                                                                                           
   • Billions of dollars were spent or committed to reduce power                                                                
     costs for urban Alaska and communities fortunate to have                                                                   
   • Railbelt communities continue to benefit from heavily                                                                      
     subsidized natural gas since 1968                                                                                          
   • In 1985, PCE utilities paid $1.17/gallon of diesel, 25                                                                     
     times the cost of Railbelt gas at $0.35/mcf                                                                                
She  pointed  out   that  Alaska  has  had  a   long  history  of                                                               
subsidizing  energy.  She  said   she  has  researched  the  huge                                                               
subsidies  that  went  into  providing   gas  access  to  Chugiak                                                               
Electric for  providing gas  power in  Anchorage. She  noted that                                                               
greatly reduced  royalty rates  for Cook Inlet  gas have  been in                                                               
place since  the 1960s. These  were reductions  specifically done                                                               
to  bring affordable  energy into  Anchorage and  the surrounding                                                               
area that continues to be a built-in subsidy, she said.                                                                         
She emphasized that  subsidizing the cost of energy is  not a bad                                                               
idea   because   affordable   energy   underpins   all   economic                                                               
prosperity. The  legislature and  the administration  have agreed                                                               
upon compromises every step of the  way to provide some degree of                                                               
affordable  power  to  rural  Alaska.  However,  PCE  still  only                                                               
impacts less than  30 percent of all the kilowatt  hours that are                                                               
sold in rural Alaska so much of rural Alaska struggles.                                                                         
She offered her  belief that Alaska is a state  of energy poverty                                                               
and  energy refugees.  The PCE  program was  a wonderful  program                                                               
that worked  well for the first  few years, then the  bottom fell                                                               
out of  the oil market  and the legislature started  cutting back                                                               
appropriations for  PCE. PCE  was underfunded  for 15  years from                                                               
1992 to 2007  and that was after the program  was drastically cut                                                               
back to reduce the number of eligible kilowatt hours.                                                                           
She explained that the endowment fund  was created for PCE with a                                                               
lot of  blood, sweat and  tears along  the way. She  said Senator                                                               
Hoffman  must be  recognized for  his  undying work  to make  the                                                               
endowment happen and to build the  fund to the level where it can                                                               
fully support PCE. She expressed  hope that it could also support                                                               
municipal assistance.                                                                                                           
4:31:14 PM                                                                                                                    
MS. KOHLER summarized that much more  could be said about PCE and                                                               
how critical it  is for not just rural Alaska,  but urban Alaska.                                                               
She said  that urban  Alaska would  not be  happy to  have 90,000                                                               
rural residents move  to town for affordable  electricity. PCE is                                                               
a balancing act that must be kept  in mind each time an effort to                                                               
use the endowment fund for other purposes occurs.                                                                               
CHAIR  BISHOP   commended  Ms.   Kohler  for   her  comprehensive                                                               
presentation. He asked what she would  do if she had a magic wand                                                               
for the systems that she runs.                                                                                                  
MS. KOHLER replied she would build  a two gigawatt power plant on                                                               
the North  Slope to  provide cheap  electricity from  natural gas                                                               
for $0.02 or  $0.03 per kWh with a transmission  grid to send the                                                               
electricity throughout  the state. She said  Alaska treats itself                                                               
like an  energy refugee  and the  state needs  to stop  doing so.                                                               
Alaska's natural  resources are harvested and  shipped instead of                                                               
being  processed in-state  for creating  jobs. Affordable  energy                                                               
would attract industry from around the world, she said.                                                                         
4:33:50 PM                                                                                                                    
CHAIR BISHOP noted  that he recently toured  Iceland and observed                                                               
their  thriving economy.  Iceland  was a  poor  country until  it                                                               
finally got  off diesel fuel  and coal. Today, Iceland  can bring                                                               
in raw bauxite from South America for smelting, he said.                                                                        
MS. KOHLER  agreed with Chair  Bishop and noted that  Iceland has                                                               
$0.02 per kWh power.                                                                                                            
CHAIR BISHOP said if the  legislature and administration can pull                                                               
in the  same direction, Alaska could  be in the same  position as                                                               
Iceland.  He said  investing in  big  infrastructure projects  is                                                               
what governments  do to lower  operating costs for  everybody and                                                               
to grow the economy.                                                                                                            
4:35:35 PM                                                                                                                    
There being no further business to come before the committee,                                                                   
Chair Bishop adjourned the Senate Community and Regional Affairs                                                                
Standing Committee meeting at 4:35 p.m.                                                                                         

Document Name Date/Time Subjects
PCE Overview_ Meera Kohler.pdf SCRA 3/26/2019 3:30:00 PM
Brief Legislative History of the PCE Program.pdf SCRA 3/26/2019 3:30:00 PM