Alaska Legislature OKs increase to rural power subsidy
by James Brooks, Alaska Beacon
May 16, 2022
Residents of 194 rural Alaska towns and villages will get more of their monthly power bill subsidized by the state if Gov. Mike Dunleavy signs legislation approved Monday by the Alaska House of Representatives.
On May 16, the state House voted 38-2 to increase the maximum subsidy allowed under the state’s Power Cost Equalization program. The bill passed the Senate on May 3.
With the governor’s approval, the maximum amount of subsidized residential power will increase from 500 kilowatt-hours to 750 kilowatt-hours per month.
In 2020, the average American house consumed 893 kwh per month, according to the U.S. Energy Information Administration.
In PCE-eligible communities, electric companies reduce the cost of power for homes, then apply to the Alaska Energy Authority for credits that bring the overall cost of power closer to the average of electricity in Juneau, Anchorage and Fairbanks.
The size of the subsidy has forced rural residents to drastically conserve power or risk a major hike in their electric bill if they go over the subsidized amount.
“You go to the communities at Christmas and you wonder why there’s not that many lights on. It’s not because they don’t believe in Christmas or don’t have holiday spirit,” said Sen. Bert Stedman, R-Sitka.
Return to original compromise
When created in 1984, PCE was intended to serve as part of a grand compromise: Southeast Alaska would get state-funded dams, southcentral Alaska would get subsidized natural gas, and rural Alaska would get PCE.
The program originally subsidized up to 750 kwh per month, but the Alaska Legislature reduced that figure in 2000 because of cost concerns.
“We just want to get back to where we were on the program that was negotiated back in 1984,” said Sen. Lyman Hoffman, D-Bethel.
After the 2000 decrease, the legislature created an endowment to fund the program in perpetuity, and that endowment has grown to $1.1 billion.
The PCE extension would increase spending from the endowment by as much as $15.6 million per year, but the endowment’s investment earnings are large enough to cover the cost, according to estimates provided by the Legislature.
Squeeze on community assistance
The drawback is that other programs could suffer. State law says that money not used for PCE — up to 5% of the endowment’s value annually — may be used on the state’s community assistance program, which provides general-purpose grants for local governments.
Expanding PCE means less money available for that program and others, including a renewable energy grant program that also relies on extra PCE earnings.
“I feel a little bit like I’m between a rock and a hard place on this one,” Nils Andreassen, director of the Alaska Municipal League, told the House Finance Committee earlier this month.
Andreassen represents towns that rely on PCE, local governments that rely on community assistance and municipalities that need both.
Members of the Senate Finance Committee were told in April that an additional $320 million deposit into the PCE endowment would be needed to eliminate the risk to community assistance programs if PCE subsidies were raised.
“If we don’t make those endowments, then this would also take away the earnings for those additional programs,” said Sen. David Wilson, R-Wasilla.
Neither the House nor the Senate proposed an additional deposit into the PCE fund to address the problem.
More aggressive investing
The bill does contain a provision that allows PCE fund managers to invest the fund more aggressively, which could increase investment earnings and over time increase the amount of money available to spend. It would also increase the risk of losses in any given year.
Previously, managers were told to target 4% returns; they will now be able to pursue all “prudent” investments, similar to the approach employed by the Alaska Permanent Fund.
Many legislators, including Sen. Donny Olson, D-Golovin, said the program’s expansion will help rural residents as they anticipate significantly higher home heating and fuel costs.
“People can no longer live in rural Alaska where they were born and raised,” he said.
“Those people that can’t afford to live in rural Alaska … are going to be forced to move, and where are they going to move? They’re going to move to the cities. So if you think the homeless population in the metropolitan areas is bad now, you ought to wait,” he said.
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