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Sponsor Statement for SB 185
PCE Amount & Eligibility

An Act relating to the basis for determining eligibility for and the amount of power cost equalization payments; and providing for an effective date.

Committee Substitute for Senate Bill 185 (Fin)am revises the formula under which PCE subsidies are paid, making it a more equitable program, and adjusts the maximum kilowatt-hours eligible for the subsidy to more accurately reflect power usage in PCE communities and encourage energy conservation.

Currently, rates in some PCE-eligible communities are subsidized to below what many other Alaskans in non-PCE-eligible communities pay, and the program fails to do a good job of encouraging energy conservation. This is poor public policy and highly discriminatory against Alaskans who pay higher than PCE-subsidized rates.

This legislation partially corrects this inequity and makes the program closer to what its name implies-equal. The legislation first changes the manner in which rates are calculated to make payments more equalized. Instead of basing payments on the average cost per kilowatt-hour in Anchorage, Fairbanks and Juneau with a floor of 12 cents per kilowatt-hour, the floor is raised to 16.75 cents per kilowatt-hour, which is what the average residential customer living outside of Anchorage, Juneau and Fairbanks pays for electricity. A review of communities' residential electric rates for FY 01 indicates that many communities receiving PCE pay less for power than those that do not receive PCE.

The legislation next encourages energy conservation by lowering the maximum number of subsidized kilowatt-hours per month from 500 to 450 for the months of October through March and to 350 for the months of April through September. A review of FY 01 usage reveals that the average kilowatt-hours used per month in communities eligible for PCE is 412. At the current 500 kWh level of subsidy, there is a reduced incentive for these customers to conserve energy. By lowering the maximum to a seasonal 450 kWh and 350kWh, individuals still receive a subsidy for the kilowatt-hours needed to power their homes.

The PCE program under this more equitable formula is estimated to cost approximately $12.8 million, which is $2.9 million less than what has been appropriated for the program the last two-three years. Despite the lowered cost of the program, because of the complex way PCE payments are calculated and because payments area currently prorated at 85%, the revisions contained in CSSB 185(Fin) result in slightly higher payments being made to 12 percent of the communities receiving PCE. With these reforms in place, hopefully the amount annually statutorily available from the Power Cost Equalization Endowment Fund may be sufficient to fully fund the program under the revised formula, negating the need for general fund subsidies.

An amendment adopted on the Senate floor protects residential customers from dramatic increases in power cost bills. It inserted a provision that no utility may receive more than a 25% reduction in payments from the prior year. Additional reductions are to be applied to utilities receiving less than a 25% reduction to make up the difference.

Finally, in anticipation of additional funds being deposited into the principal of the Power Cost Equalization Endowment Fund, and in response to the possibility that endowment funds available for appropriation to the Power Cost Equalization program may exceed the costs of the program under this legislation, CSSB 185(Fin) contains legislative intent specifying that should this occur, the legislature will review PCE statutes and consider revising the program in order to further lower the cost of electricity to rural customers. Additionally, the revisions made by CSSB 185 (Fin) are repealed after five years and the program is restored to its current status.

Committee Substitute for Senate Bill 185(Fin) revises the PCE program making it more equitable statewide and cost-effective while ensuring that those hardest hit by higher power costs are assisted.

DD:dld 4/12/02

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