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