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HomeMy WebLinkAboutCollected Papers on Energy Use in Rural Alaska 1988Collected Papers on Energy Use in Rural Alaska Published by the Alaska Energy Policy Task Force April 1988 TABLE OF CONTENTS Introduction Section A "Power Cost Equalization -- A Critical Appraisal," by Pat Brown, Shawneen Conover and Judy White. Section B "The Effect of Electricity Subsidy Programs on the Economic Incentives for Improving Generation and End-Use Technologies," by Alan Mitchell. Section C "The Economic Potential of Energy Efficiency In Rural Alaskan Resi- dences," by Alan Mitchel]. 2480/DD34/1 INTRODUCTION This document contains a collection of recent papers relating to the use of energy in rural Alaska and to the state's rural energy programs, particularly the Power Cost Equalization Program. The intent here is to make these papers readily available to those concerned with Alaska's rural energy issues, it being believed that each contains valuable information and analysis. The first paper, "Power Cost Equalization -- A Critical Appraisal" was written by Judy White and co-authors Pat Brown and Shawnee Conover to satisfy the requirements of a graduate-level course at the University of Alaska, Anchorage. This paper represents only the personal views of the lead author (White) and not the official view of her emplover, the Alaska Public Utilities Commission or any other agency. Aside from its factual content, this paper contains an interesting discussion of how structural barriers can adversely affect the ability of state government to conduct programs based on logical strategic theory. The second and third papers were written by Alan Mitchell of Analysis North under contract using funds appropriated by the Alaska Legislature to the Alaska Power Authority for the work of Governor Cowper's Alaska Energy Policy Task Force. In the one titled "The Effect of Electricity Subsidy Programs on the Economic Incentives for Improving Generation and End-Use Technologies", Mitchell presents an analysis of the effects of different types of subsidy on the incentives to conserve electricity. He shows the superior nature of fixed-payment formulas over the form of payment currently offered in Alaska's Power Cost Equalization Program. Alan Mitchell's other paper, "The Economic Potential of Energy Effi- ciency in Rural Alaskan Residences", demonstrates the potentially major economic benefits of instituting various energy-efficiency measures, especially the construction of superinsulated homes, utilization of efficient stoves and weatherization of existing houses in rural Alaska. Persons interested in these documents will also find useful the follow- ing, listed in order of publication date: 1. “Rural Energy -- An Overview of Programs and Policy." House Research Agency Report 85-C, House Research Agency, Alaska State Legislature, P.0. Box Y, Juneau, Alaska, 99811, February 1985. 2. “Energy Policy Report" The Power Cost Equalization Program." (Prepared by the Governor's Energy Policy Task Force), Divi- sion of Policy, Office of the Governor, P.O. Box AM, Juneau, Alaska, 99811, January 1988. 2480/DD34/2 3. "Final Report of the Alaska Energy Policy Task Force." (Avail- able from the Alaska Power Authority, 701 East Tudor Road, P:0. Box 190869, Anchorage, Alaska, 99519-0869). February 1988. 4. "Chairman's Report to the Governor on the Alaska Energy Policy Task Force." (Available from the Alaska Power Authority, 701 East Tudor Road, P.O. Box 190869, Anchorage, Alaska, 99519-0869.) February 1988. 5. "Energy Planning in Alaska: Past Efforts and a Future Direc- tion." House Research Agency Report 88-B, House Research Agency, Alaska State Legislature, P.0. Box Y, Juneau, Alaska, 99811. February 1988. -- Neil Davis, Chairman Alaska Energy Policy Task Force 2480/0D34/3 POWER COST EQUALIZATION--A CRITICAL APPRAISAL by Pat Brown Shawneen Conover Judy White BA655 Administrative Policy August 7, 1986 TABLE OF CONTENTS Introduction Alaska's Rural Electric Energy Subsidy Program Since 1980 Power Production Cost Assistance Power Cost Assistance Power Cost Equalization Origins and Development of the Power Cost Equalization Program The PCE Program in Action A Quantitative Look at PCE A Critical Examination of PCE's Strategic Success be SN UWW 10 Le LT 23 INTRODUCTION The original and tentative scope of this paper was as follows: 1. to determine the objectives of the Power Cost Equalization (PCE) program and explore the development of these objectives; 2. to examine the changes in the program which have occurred; 3. to analyze the success of the program in meeting its objectives; 4. to determine alternatives to the program; 5. to develop recommendations relating to either the continuation of the program or changes to the program. As research progressed, however, it became increasingly obvious that the PCE program was not the result of a planning process that progressed from problem definition to goal articulation to alternative consideration and selection. In fact, the program is an excellent example of how structural barriers limit the application of strategic theory to government. Therefore the organization of the paper has changed to the following: 1. a summary and comparison of the three electric subsidy programs enacted since 1988 by the Alaska Legislature for rural Alaska; 2. a description of how the PCE program originated and grew, with an emphasis on the varying goals and strategies of key forces; 3. quantitative and critical examinations of the way the PCE program actually "works." 4. a look at the future for PCE. The authors of this paper are especially grateful for assistance given to them by state employees at the Anchorage offices of Legislative Affairs and APA. Information officers at Legislative Affairs assisted in locating several reports on rural energy programs which were not otherwise available in Anchorage; Cheryl Young at the APA provided 1986 fiscal year (FY) data submitted by utilities participating in the Power Cost Equalization Program and data regarding actual APA payments to utilities. The opinions and conclusions reached in this paper are those of the authors and should not be considered to reflect the views of any agency which provided data. ALASKA'S RURAL ELECTRIC ENERGY SUBSIDY PROGRAMS SINCE 1980 The purpose of this section is to provide a summary and comparison of the three rural Alaskan electric subsidy programs enacted by the Alaska Legislature beginning in 1988. Those programs are the Power Production Cost Assistance program, the Power Cost Assistance program, and the Power Cost Equalization program. This section addresses only the substance of the three legislative products; it does not include any discussion of the legislative negotiations which led to enactment of the three programs. Power Production Cost Assistance (PPCA) In 1986 the Alaska Legislature enacted legislation establishing the PPCA program, to be administered by the Alaska Power Authority (APA) and the Alaska Public Utilities Commission (APUC). The purpose of the PPCA program was to provide financial assistance to eligible electric utilities in the state. The legislation directed the APUC to determine the subsidy amounts and the APA to make the actual payments to the utilities. The actual subsidy amounts received by the utilities were completely passed on to consumers and noted specifically on consumers' bills. As with the two subsidy programs which followed PPCA, both utilities whose rates were regulated by the APUC and utilities whose rates were not subject to the APUC's jurisdiction were eligible to participate in the program. However, for a utility to be eligible to participate in the PPCA program in any particular year, 15 percent of its sales in the previous year had to have been to residential customers. The per kilowatt hour (KWH) subsidy determined by the APUC would apply as a credit to the bills of residential customers, local community facilities, and charitable organizations. The PPCA legislation limited the costs to be subsidized to "power production costs" specified in the legislation. Basically, these costs were generation, transmission, and purchased power costs; distribution costs were not included. The amount of PPCA subsidy was determined by subtracting the “adjusted power production costs" from the "actual power production costs." The actual power production costs were derived from current fuel information provided by the utility and the covered non-fuel costs in the utility's last rate case. The "adjusted power production costs" were equal to the sum of (a) 15 percent of the portion of actual power production costs which did not exceed 49 cents/KWH and (b) a base power production cost escalator established in the legislation to begin at 7.65 cents/KWH. In reality the formula's components resulted in no subsidy unless actual covered power production costs exceeded 9 cents/KWH and therefore eliminated from coverage most utilities serving the urban areas of the state. Utilities ineligible to participate because their covered costs did not exceed 9 cents/KWH included those in Anchorage, Juneau, Fairbanks, Homer, Seward, Ketchikan, and Wrangell. In addition to changes to the subsidy level which occur because of such circumstances as fuel surcharge changes and general rate increases, the subsidy amount was also to be recalculated each year due to an annual adjustment of the escalator by a percentage equal to the percentage of change in the Anchorage consumer price index for the year. Thus each year the "window" of covered costs was to become smaller. Power Cost Assistance (PCA) In 1981 the Alaska Legislature repealed the PPCA program and replaced it with the PCA program. As with the PPCA program, the PCA fund was established "to provide financial assistance to eligible electric utilities in the state."* The PCA program went into effect July 1, 1981, with a provision for transitional payments under PPCA until January 1, 1982. Although substantial portions of the PCA legislation were identical in language to the PPCA legislation, there were several major changes. The first change involved a substantial broadening of the utility's costs which would be included in determining the subsidy amount. The PCA required the APUC to include "all allowable costs, except return on equity, used by the commission to determine the revenue requirement . ..." A new restriction on covered power costs required the exclusion of any other type of assistance that reduced the customer's costs of power on a KWH basis which was provided within 60 days before the APUC determined the PCA for the utility. The window of covered costs was also changed. Under PCA power costs eligible for assistance during the first fiscal year were limited to minimum power costs of more than 12 cents/KWH and less than 45 cents/KWH. It would be a mistake, however, to conclude that the PCA program required higher costs than the PPCA program to qualify for a subsidy payment. Although the PPCA floor was in reality 9 cents/KWH and the PCA floor was 12 cents/KWH, the PCA program covered costs which were not covered by the PPCA program, e.g., distribution costs. An example of the increased subsidy under PCA is a comparison of the APUC's initial determinations of subsidy amounts for the Alaska Village Electric Cooperative (AVEC): the 198@ PPCA subsidy for AVEC's sales was 14.59 cents/KWH; the 1981 PCA subsidy was 26.93 cents/KWH. Part of this difference may be attributed to AVEC's increased fuel costs; however, the majority of the difference is simply due to the changes in the subsidy program. The amount of the PCA subsidy was equal to 95 percent of the covered costs in the window or the average rate per eligible KWH sold, whichever was less. The average rate restriction was a new requirement added in the PCA legislation. In addition to changes to the subsidy level which would occur because of such circumstances as fuel surcharge changes and general rate increases, the PCA subsidy amount was also to be recalculated each year by adjusting the initial 12 cents/KWH floor upward by 1 cent/KWH on June 38 of each year. This had the general effect of reducing the subsidy by about .95 cents/KWH each year. The second change was to apply any determined subsidy amount to all customers (i.e., to add commercial and industrial customers) of the utility but to add a limitation to the monthly energy for which any consumer would receive a PCA subsidy. Customers in all classes, except local community facilities, were entitled to PCA on actual consumption up to 690 KWH per customer per month. Local community facilities would be credited with PCA, calculated in the aggregate for each community served by the utility, for actual consumption of not more than 55 KWH per month for each resident of the community. To put the 688 KWH figure into perspective, consider that in 1976 the following figures represented average monthly residential usage: Anchorage (municipal utility) 806 KWH AVEC (48 villages across Alaska) 156 KWH Barrow 294 KWH Fairbanks (municipal utility) 543 KWH Ft. Yukon 114 KWH Juneau 543 KWH Kodiak 555 KWH The PPCA utility eligibility requirement of at least 15 percent residential sales was dropped; essentially any company or association furnishing electric service to the public for compensation was eligible to participate in the PCA program if its costs were high enough to qualify for a subsidy amount. The PCA legislation also added several provisions, including requirements that a utility could not be denied PCA because complete cost information was not available and that the APUC must assist utilities exempt from rate regulation with providing any needed cost information. Power Cost Equalization (PCE) In 1984 the Alaska Legislature replaced the PCA program with the PCE program. Unlike the predecessor programs, which established funds "to provide financial assistance to eligible electric utilities," the PCE fund was established "for the purpose of equalizing power cost per kilowatt-hour statewide at a cost close or equal to the mean of the cost per wn? There were kilowatt-hour in Anchorage, Fairbanks, and Juneau... several major changes to the subsidy program under PCE. The first such change made participation in the program less discretionary by utilities. Under the PCE legislation if the APA receives a petition requesting PCE signed by at least 25 percent of the customers of a utility which (a) is economically regulated by the APUC and (b) has not applied for PCE, APA must require the utility to submit a PCE application. After the APUC has made a PCE determination, the utility must pass the PCE benefits on to its customers. The second change was to establish new criteria for the utilities eligible to participate in the program. As with PCA, under PCE a utility is required to furnish electricity to the public for compensation. In addition, a utility may not participate in the PCE unless it meets both of the following criteria: (1) during calendar year 1983 had residential consumption level of power eligible for PCE of less than 7,584 megawatt hours (MWH) or, if the utility served two or more municipalities or unincorporated communities, a residential consumption level of power eligible for PCE of less than 15,8088 MWH; (2) during calendar year 1984 used diesel fired generators to produce more than 75 percent of the electrical consumption of the utility. These new criteria resulted in some utilities which had received PCA in losing eligibility for PCE no matter what their costs might be or become, i.e., Kodiak Electric Association, Inc., and Copper Valley Electric Association, Inc. The utilities affected by this provision were utilities newly able to receive hydroelectric power from one of the "Four Dam Pool" projects. The third change increased customers' usage which was eligible for the subsidy amount: for all customers except community facilities, PCE would be credited for the first 750 KWH used; for community facilities, PCE would be credited in the aggregate for each community served by the utility for actual consumption of not more than 7@ KWH per month for each resident of the community. The PCE legislation retained the PCA language that in calculating the subsidy amount, the APUC was to include "all allowable costs, except return on equity, used by the commission to determine the revenue requirement... [ad The biggest change in the PCE legislation was to increase the size of the window of covered costs eligible for PCE. Under PCE power costs eligible for assistance included costs between 8.5 cents/KWH and 52.5 cents/KWH. Unlike the PPCA and PCA programs there is no decreasing of the window of covered costs each year. So long as costs are in excess of 8.5 cents/KWH, the utility is eligible to receive a subsidy. ORIGINS AND DEVELOPMENT OF THE POWER COST EQUALIZATION PROGRAM "Power rate equalization is biggest turkey yet" read the headline for former Governor Jay Hammond's "Bushrat'lings" column in the January 13, 1985, Anchorage Daily News. Hammond attacked the PCE legislation for its "hidden dividend," lack of equity, and great costs. While Hammond's article was interesting simply for its content, the more interesting aspect was that the PCE program only increased an existing energy subsidy to rural Alaskans. The energy subsidy legislation being amended was signed into law by Governor Jay Hammond in 19890. But PCE's history begins several years before 1988, and the Arab oil embargo of October 1973 is a good starting place. The embargo affected Alaska's electric utilities serving rural areas of the state much more than it did those serving the large population centers. Hydroelectric power from the federal Alaska Power Administration's Snettisham project served Juneau. In Anchorage long term contracts provided cheap gas to both Chugach Electric Association and the local gas utility (which sold natural gas to the municipal electric utility). Fairbanks was at least partially insulated by some coal usage. In rural Alaska, however, diesel oil was essentially the sole source of electric power. The immediate effect of the oil embargo was a radical change in the way electric rates were regulated. Prior to the embargo, raising electric rates was a lengthy process: application to the APUC, suspension of the filing for further investigation, audit of the utility's records, and several months later final action on the utility's application. The embargo led to the APUC's approval of fuel cost rate -1¢- adjustment provisions for the rural utilities; these provisions allowed the utilities to increase their rates immediately to pass increased fuel costs on to their consumers. Some utilities increased their rates several times a year under this provision. In 1975 the Alaska legislature's House Finance Committee contracted with the Institute of Social and Economic Research (ISER) to study the state's power needs. Major concerns were energy independence from OPEC controlled fuel, alternatives to diesel generation, and concern for rural communities. ISER produced a report, "Alaska Electric Power Study," which included among other things the idea of a public authority which would finance hydro projects through revenue bonding. Legislators from Southeast Alaska, with its vast water resources, were strongly supportive of the concept. Rural legislators, meanwhile, were concerned not only with the diesel fuel problem but also with decreased federal financing of electric generation projects. The situation was ripe for legislative logrolling. In 1976 a Juneau legislator sponsored HB 799 which created an independent Alaska Power Authority (APA), based on the New York State Power Authority model, to finance future hydroelectric projects through the sale of revenue bonds. The legislation also created a power revolving loan fund to help rural areas. Gordon Harrison, Associate Director of the Office of Management and Budget, Division of Strategic Planning, states that there was little questioning of the basic assumptions of the bill. The record is clear that intention of the House Finance Committee version of HB 779 was to avoid the route of general fund appropriations for hydro projects; the preferred route was to be the tax exempt bond market that would, it was firmly believed, scrutinize the proposed projects by the strictest market test. The money of outsiders, rather than Alaskans' oil money, was to She finance power projects. The rigorous project analysis by the bond market was also to assure that the costs were controlled. The independence of the board was seen as necessary by some because the Administration was seen as uninterested jn energy problems [and] unattentive to planning for energy needs. At the last hearing on the bill Senator Ferguson (Kotzebue) amended the bill to add the following material: The authority may make loans from the fund, at such interest rates as it determines, to cities, boroughs, village corporations, village councils, nonprofit marketing cooperatives for purposes of constructing, equipping and the initial filling of fuel storage facilities, and for other energy requirements, including but not limited to electrical utilities, geothermal, solar, hydroelectric, or wind power energy production, or for natural gas line construct. As amended by Senator Ferguson the bill passed both houses of the legislature. Governor Hammond signed the bill but noted his belief that the bill conferred more power to the new authority than was consistent with the expressed purpose of the new authority, which was the establishment of power projects. He noted specifically the broad loan making power for such items as fuel storage facilities. In 1977 Governor Hammond introduced legislation to restrict APA's power. Harrison notes that the thrust of Hammond's proposal was to "make the APA more responsive to the Governor, to require stricter standards in project selection and to assure that power sales contracts covered each customer's power production costs."° Legislation incorporating the gist of Hammond's wishes was signed into law in July 1978. At the same time the legislature was beginning to appropriate significant amounts for energy projects. In 1978 the legislature appropriated $6,008,008 to the power project revolving fund and $10,988,000 as a loan to Sitka for its Green Lake hydro project. The same year the legislature created a loan program for low cost (under $10,006) alternative energy generation projects. -12- Following the 1978 legislative session, Senator Ferguson chaired an interim Committee on Rural Energy Policy, whose staff was directed to look at the "lifeline" concept. That term normally refers to a reduced cost for a given "lifeline" quantity of energy purchased by low-income consumers. During the same period that the interim committee was studying the lifeline concept, Congress declined to provide federal guarantees for the Susitna Dam project studies. Governor Hammond announced he would request $7 million for the studies projects. Although a much smaller amount for the Susitna study was appropriated in 1979, energy legislation momentum was definitely on the increase. In 1980 there were sixty-six pieces of energy legislation introduced into the legislature--in addition to Governor Hammond's energy package, which included several items to promote alternate technologies and conservation and to establish a bulk fuel loan program. As it relates to the later PCE program, however, the most significant event was the passage of the Power Production Cost Assistance (PPCA) program. The legislature considered two pieces of subsidy legislation that year: a Hammond supported measure that would have subsidized 288 KWH/month and the PPCA legislation which was based on work done by Charles Sitkin of Arthur Young and Co. The PPCA legislation reduced the cost of electricity to consumers by subsidizing certain power production costs (i.e., generating costs but not distribution costs) of the utilities, e.g., fuel, maintenance of generating plant. Harrison states that "The goal of the {Arthur Young] report and of the original legislation was to provide solvency to rural utilities facing sharply increasing fuel costs."© According to Harrison the APUC, “wanting utilities to provide justifying =13= records and fearing that opening up the program would result in abuse," supported the PPCA legislation rather than the lifeline proposal. Numerous pieces of energy legislation collected in the House Finance Committee which finally amended SB 438 to include something for everyone: a bulk fuel program, PPCA, the Anchorage-Fairbanks Intertie, and $318,888,008 in revenue bonds for the Tyee, Swan and Terror hydro projects. As Harrison points out, the amended SB 438 included "items of interest to the bush caucus [PPCA], .. . to the Governor ..., but mostly it expressed the House Democratic Majority's concern for alternative technology and energy conservation."® There was some opposition to the PPCA concept. Harrison states that in the legislature "Hugh Malone voted against the [omnibus amended SB 438] bill because it included power [production] cost assistance, even though the hydro amendments were largely of his authorship" and that the Governor nearly vetoed HCS SB 438 am H because of the power [production] cost assistance provision. In his letter transmitting the signed bill, he notes his intention to submit legislation to "modify the subsidy design." This project was to occupy gonsiderable executive branch time during the 1989 interim. In their review of rural energy programs for the House Research Agency, Keiser and Hoke similarly describe Hammond's opposition to the program. The heart of Governor Hammond's energy plan was the goal of sharing the wealth generated through the exploitation of State energy resources at Prudhoe Bay. Governor Hammond envisioned that this sharing would be accomplished through direct transfer of Permanent Fund earnings to every Alaskan "as opposed to artificially lowering the price of particular items such as energy." Governor Hammond's policy was clearly opposed to "direct price subsidy schemes that would encourage greater consumption of energy (lifeline proposals, energy stamps, subsidies to utilities)." It appears that the 198@ compromise between the legislature and the administration resulted in each -14- camp getting a little of what it wanted: a distribution of Permanent Fund earnings as well as a subsidy of electric power costs in rural Alaska." Kaiser and Hoke quote Hammond as stating that A general principle of this administration is that the price of goods and services paid by consumers should reflect the true cost of producing or providing the good or service. It is not the policy of the State to use the manipulation of electricity prices as a means for income distribution (either among indivi yals or regions) or for directing population settlement patterns. In 1981 the 1988 scenario repeated itself. In the end the PPCA program was expanded significantly into the PCA program and became law as a result of being combined with another large hydro financing bill. Harrison describes the 1981 situation. Hammond's goals for amendments to . .. [PPCA] were to increase equity and efficiency by subsidizing no more than 280 kwh/month for eligible consumers for 100% of the price charge between 15 cents/kwh and 48 cents/kwh. The program would be eliminated at the time of implementation of the Permanent Fund Dividend Program or at a 20% decrease per year. . . . Hammond's desire to correct the program to assure greater equity and efficiency created a legislatiys opportunity to expand the program and make it permanent. Again in 1984 the situation repeated itself: strong forces want major changes in the State's energy policy; in return rural legislators demand increased subsidy of electric rates. The result: the PCA program is expanded into the PCE program. The specific terms: continuing appropriation provisions for PCE ($21.7 million), Susitna ($288 million) and Bradley Lake ($58 million). Because of a 1985 court case actually directed against the Susitna project but which attacked the continuing appropriation provisions, the PCE program now must be funded on an annual basis. One difference between the 1984 PCE scenario and the PPCA/PCA scenarios of 1980/1981 was the different view of the executive branch. ass Whereas Governor Hammond had reluctantly signed omnibus bills containing the subsidy programs, Governor Sheffield supported the PCE program. Annually the Executive Branch issues an Energy Plan. The 1985 Energy Plan lists six energy goals for the State. The first goal is to "Ensure that ALL Alaskans have an adequate supply of quality energy at reasonable costs to the consumer and the State." Keiser and Hoke refer to this first goal as the "central aim" of Sheffield's energy policy and note that According to a 1984 Tundra Times article, when asked what energy goals he had for rural Alaska, Governor Sheffield replied "My goal is to provide clean dependable power to all Alaskans at affordable rates." This policy clearly reinforces the legislative, intent of the 1984 Power Cost Equalization legislation. aSliG= THE PCE PROGRAM IN ACTION This section of the paper is divided into two parts: first, a quantitative analysis of the PCE program; second, a critical examination of the program. A Quantitative Look at PCE In a summary of energy appropriations covering fiscal years 1977 through 1985, the House Research Agency shows /4 the rural electric power subsidies receiving only 2.9% of the total energy appropriations over that period ($48,699,808 out of $1,651,391,088). One is struck first by the immensity of the total energy appropriation figures. The chart on page 18 summarizes those figures both for the entire period and for a single year, FY 1985. On page 19 the growth of energy appropriations is illustrated. This chart begins to put numbers behind the politics described in the previous section of this paper. In FY 1981 the first PPCA appropriation was about $1.5 million. The 1981 significant expansion into PCA resulted in an FY 1982 appropriation of more than $18 million. This same FY 1982 budget contained an enormous increase in funding for urban hydroelectric projects: the so called "Four Dam Pool" projects of Wrangell/Petersburg, Kodiak, Valdez, and Ketchikan. PCA funding continued at about the same level until the expansion into the PCE program in late 1984, resulting in an FY 1985 PCE appropriation of $19.2 million. The FY 1986 PCE appropriation was $21.7 million. The FY 1985 apporpriation for urban hydroelectric projects reflects $58 million for Bradley Lake and $200 million for Susitna. 17 STATE OF ALASKA ENERGY APPROPRIATIONS SUMMARY: FY77 - Total FY77-FY85 (888 $) (3) Statewide Energy Analysis 2,233 6.14% Wind Energy Progrms 2,532 6.15% Waste Heat Recovery 15,556 8.94% Village Studies 553 6.03% Weatherization 19,081 1.16% Energy Conservation 46,059 2.79% Energy Extension ’ 1,488 0.09% Alternative Technology 11,438 0.69% Renewable Resources Projects 802 0.05% Single Wire Ground Return 1,138 0.07% Regional Energy Studies 3,765 0.23% Rural Reconnaissance & Feasibility 11,460 0.69% Coal and Peat Resources 4,476 0.27% Geothermal 2,249 0.14% Electric Intertie 139,264 8.43% Bulk Fuel Storage 7,445 G.45% Fuel Emergency 2,080 9.12% Electric Power Subsidies 48,699 2.95% Rural Electrifiction Loans 7,586 8.45% Urban Hydroelectric Projects 1,195,743 72.41% Rural Electrification Grants 85,440 5.17% Unallocable Agency Appropriations 42,511 2.57% Total 1,651,391 198 .98% =19- FY85 Actual FY85 (G88 $) (%) NA 46 9.01% 2,176 G.45% NA 5,456 1.12% 2,809 6.58% NA 1,008 G.20% NA NA 1,408 9.29% 258 G.95% 2,009 G.41% 108 6.02% 31,064 6.37% 2,144 9.44% NA 19,233 3.94% NA 392,404 80.41% 17,854 3.66% 16,075 2.06% 488,011 100.00% THE GROWTH OF ENERGY APPROPRIATIONS IN ALASKA Total Annual Electric Urban Energy Power Hydroelectric Appropriation Subsidies Projects YEAR (888 $) (8B $) (88 S$) Yai 496 FY 78 2,191 555 FY 79. 27,163 25,808 FY 80 18,014 8,919 FY 81 80,689 1,488 26,228 FY 82 582,119 16,478 399,166 FY 83 367,112 8,308 314,685 FY 84 85,596 9,208 28, 008 FY 85 488,011 19,233 392,404 Total 1,651,391 48,699 1,244,442 Source: House Research Agency -19- PCE, however, is unlike any of the other categories of energy appropriations: it is direct, it is obvious, it is recurring, it is statewide, and in many conmunities it is big on a per capita basis. By the terms of the legislation the bill of every consumer of a utility participating in the PCE program must contain the following language: > NOTICE TO CUSTOMER For the current billing period the utility will be paid under the State of Alaska's power cost equalization program (AS 44.83.162) to assist the utility and its customers in reducing the high cost of generation of electric energy. Your total electrical service cost | Se ee Less state equalization Soci otto iol eit Your charge Se iileiiirellrstellvellis Each utility which passes PCE on to its customers must request Payment on a monthly basis from APA. The request for payment includes a listing of total monthly KWH sales, PCE covered sales for community facilities, and PCE covered sales for non-community facilities (i.e., regular customers subject to the 75@ KWH/month limit). The authors of this Paper have combined summaries of FY 1986 utility data submitted to the APA with actual PCE payments by APA to utilities to describe the effect of the program on a utility, its consumers, and communities. [There are three utilities which have received PCE authorization from the APUC but which received no PCE payments in FY 1986: Circle Electric, Ekwok Electric, and Elfin Cove. These are very small utilities, and the lack of data regarding them should have a negligible effect on the conclusions drawn from the data. ] The summary in Appendix A shows that as of July 1986, the APA had paid $16.1 million in FY 1986 PCE payments to utilities serving communities with a combined population of 62,205 persons. If the FY 1986 data are annualized and no changes in consumption occur, the authors of this paper -20- project an actual FY 1987 expenditure of $18.3 million, or a per capita average of $294. These overall figures illustrate one reason the cost of electricity is so high. There are ninety-six electric utilities serving a population approximately sixty percent the size of Fairbanks and the Fairbanks North Star Borough. Even this understates the problem. The ninety-six utilities serve over 15@ different communities, and a separate utility plant is required in each community. If one assumes an average household size of four persons, the total PCE subsidy amounts on the average to about $189 per household per month. The actual subsidy varies considerably. In Appendix B annualized PCE payments are divided by comunity populations to derive average per capita yearly PCE amounts. Individuals served by twenty-six utilities receive annual PCE subsidies of over $588 (or $2,808 per four person household). The highest per capita subsidy is in Chitina where actual usage results in a per capita annual subsidy of over $1,096. Appendix B ranks the utilities participating in the PCE program according to the average annual per capita subsidy. The per capita subsidies calculated by the authors of this paper are a function of several factors: the per KWH subsidy amount set by the APUC, individual household or business electric consumption, the number of community facilities, and the electric consumption of the community facilities. Appendix C contains current data on the APUC authorized PCE for program participants. Utilities are arranged in descending order according to the authorized PCE levels. A comparison of Appendix C data with Appendix B data shows the importance of usage pattern on per capita -21l- subsidy. Of the nine utilities whose customers are now authorized to receive the statutory maximum PCE amount of 41.8 cents/KWH, only one (Beaver Electrical) is among the top ten of annual per capita subsidy. For the most part Appendices D and E simply rearrange the data in Appendix B; in addition, the community populations and number of utility customers are added. In Appendix D the utilities are arranged according to average KWH usage of non-community facility customers. In Appendix E the utilities are arranged according to average KWH usage of community facility customers. Appendix D shows that average monthly KWH consumption covered by PCE for non-community facility customers ranges from 188 KWH per month in Arctic Village to 669 KWH per month in St. Paul. Appendix E shows that average monthly KWH consumption of community facility customers ranges from 5,527 KWH per month in Kotzebue to less than 10@ KWH per month in a few villages. The variation in the number of community facilities is also interesting. Twelve utilities report no community facilities. For the utilities which have customers classed as community facilities the ratios of community population:number of community facilities range from 432 at Sheldon Point to 3.1 at Thorne Bay. Thirteen utilities report ratios of less than 20:1. Community facility consumption is important because as stated earlier in this paper the 758 KWH per month limit does not apply to community facilities. Instead each utility participating in PCE may credit PCE to each location's community facility customers in the aggregate for actual consumption up to 7@ KWH per month for each resident of the community. Seven utilities have monthly community facility usage in excess of -22— 5@ KWH per community resident per month, and two utilities (the City of Ruby and Kotzebue Electric Association) have community facility usage in excess of 6@ KWH per capita per month. On the other hand, thirty utilities report community facility usage of less than 18 KWH per resident per month. A Critical Examination of PCE's Strategic Success An examination of the success of any strategy requires some agreement about the goal of the strategy: winning a war, increasing profits, eliminating functional illiteracy--all are goals by which to measure the success of a strategy. The difficulty in measuring the strategic success of the PCE program is that there is little consensus about the goals of the program. This criticism is hardly new. In their report on rural energy, Keiser and Hoke entitle one chapter "Alaska Energy Programs Lack Rational Policy" and begin the chapter with this damning summary. During the last nine years, the Alaska State Legislature has appropriated roughly $1.7 billion for a host of energy programs founded on policies which were often inconsistent or poorly articulated. State energy programs often are self-defeating or counterproductive because the policies which underlie these programs sometimes have conflicting purposes, propose ambiguous or unrealistic goals, or were implemented without a clear definitign of the rural energy problems they were intended to address. In this section the authors will evaluate PCE's strategic success by measuring it according to a variety of standards which have been used at varying times by varying forces to justify a particular energy program: wealth distribution, conservation, reasonability, and equity. As must be obvious, the authors have concluded that the PCE program was not a part of a consistent and rational energy program for Alaska. In the main, PCE was one part of the political answer to the question of how -23- to distribute the State's oil wealth. It is easy to conclude that PCE and its predecessors were simply a strategy of rural legislators to "bring home the bacon." However, it is just as logical to see these programs as a strategy of urban lawmakers. Legislative logrolling requires more than one party. If the rural legislators wanted rural energy subsidies simply for the direct benefits of those rural energy subsidies, so did urban legislators want those same rural energy subsidies as a way to insure construction of energy projects directly benefiting their urban constituents. It is therefore just as reasonable to measure the strategic success of the rural energy subsidy programs from the perspective of urban legislators as rural legislators. In 1981 the PCA program was a trade-off for "Four Dam Pool" funding. To the extent that PCA resulted in the construction of those four power projects, the authors conclude that it was a strategic success for the supporters of those four hydro projects. As PCA continued and then expanded into PCE, it became a trade-off for the Susitna Dam project. In early summer 1986, the APA, concluding that Susitna "cannot be financed under current economic conditions that are acceptable,"27 withdrew its Federal Energy Regulatory Commission license application for Susitna. To the extent that continued funding for PCE did not ensure the continued construction of that project, the authors conclude that PCE was not a strategic success for the supporters of Susitna. Against the political standard of bringing home the bacon, PCE must be judged a strategic success, at least in the short run, for rural legislators. Alaska's rural energy subsidy programs have now been in effect for almost six years at an approximate cost of $78 million--for the =34- benefit of at most 63,000 people. In 1979 Cleveland State University's Institute of Urban Studies prepared a report on more than 120 state energy assistance programs. Using that report as a comparison to Alaska's subsidy Programs, the authors conclude that there is no other program in the United States that provides the large per capita dollar amounts of PCE or that is as widely applicable to all consumers. In fact, most other energy assistance programs are income targeted: to help the elderly, disabled, or other low-income persons. PCE, on the other hand, is primarily location targeted. A poor Kodiak consumer receives no PCE assistance; a successful business in Bethel receives PCE for its first 758 KWH per month. Although the authors believe that the political standards above are the most appropriate measures of PCE's success as a strategy, there certainly are more traditional ways of approaching this evaluation. Since PCE was supported by the Sheffield Administration and became law under Sheffield, it is reasonable to measure PCE against the energy policy goals of the Sheffield Administration. Since Sheffield became governor, the Department of Commerce and Economic Development has issued four long-term energy reports. These reports are required by Alaska Statute 44.83.224, under which a total of six annual reports have now been prepared. Until 1985 these reports were prepared by consultants and generally focused on program descriptions rather than energy policy. Alaska's Energy Plan 1985 and Alaska's Energy Plan 1986, however, are definitely Sheffield Administration products, and it, therefore, seems appropriate to measure PCE by the goals articulated in those reports. -25=- Alaska's Energy Plan 1985 lists six energy goals: 1. Ensure that ALL Alaskans have an adequate supply of quality energy at reasonable costs to the consumer and the State. 2. Improve energy-related services by coordinating the activities of State Government agencies in a fiscally responsible manner. 3. State agencies will work with industry, public utilities, nonprofit organizations and consumers when developing energy plans and programs. 4. Improve the capabilities of local governments and organizations, industry and utilities, in planning and developing energy services. 5. Foster efficient uses of energy that are consistent with environmental and social concerns, emphasizing local impact. 6. Encourage the development of alternative energy technologies, particularly those that utilize local resources. According to the 1986 report, it has been designed to build on the 1985 plan, and goals are set in seven issue areas: energy planning, major projects, energy support and efficiency, energy conservation, thermal energy, fossil fuels, and transportation. According to the report the "Seven issue area goals were formulated under the State's long-term, overall goal which is: 'Seek to assure that all Alaskans have an adequate supply of energy at lowest reasonable costs to the consumer, the environment, and the State.'" There are recurring themes in these goals which are applicable to PCE: conservation; alternative energy technologies; insuring an adequate supply of quality energy at reasonable costs. It is fairly clear that PCE does not encourage either conservation of energy or alternative energy technologies. Under the PCE legislation, when a utility's costs increase, the subsidy will increase to cover 95% of the increased costs so long as the total subsidy does not exceed 41.8 cents/KWH. The covered usage amounts--758 KWH/month for non-community facility customers and [for all practical purposes] essentially unlimited -26—- usage for community facilities--encourage consumption, not conservation; the 75@ KWH usage level is three times the traditional usage level in most rural communities. There is simply no incentive to conserve--either in usage (by the consumer) or costs (by the utility). An engine sales representative of NC Machinery Co. criticizes the PCE program and states that the program hurts his company by “subsidizing costs above a certain level." He states that his firm could sell utilities generators that are more efficient than what they are using but the utilities have no incentive to improve because "they're being paid for excess fuel costs."28 The same criticism applies to alternative energy technologies. If a utility could find a cheaper alternative energy technology and reduce its costs, its reward would be a reduction of PCE subsidy to the tune of 95% of the reduced costs. In fairness, however, there is general consensus that for a variety of reasons there are few practical alternatives to diesel generated electricity in rural Alaska. Keiser and Hoke note that for most villages wind, hydroelectric, coal and natural gas sources are too remote to be economically developed, their development costs are too high, or the sources are only seasonably reliable. Wind energy systems have frequently been suggested for rural Alaska. However, Installation costs of these wind energy systems have run between $3,008 and $4,000 per kilowatt of generating capacity for wind systems designed to produce 19 kilowatts of electric power under optimal wind conditions. By comparison, typical diesel installation costs range between $259 per kilowatt of generating capacity for 688 kw generators and $1,200 per kw for 35 kw diesel generators. Also, the success of any technology new to Alaska depends heavily on a commitment for proper operation and maintenance by those who will benefit from the technology--a commitment hard to achieve when villages view the project as part of just another program -27- conceived and financed by the State. This concern is heightened given the disappointing operation and maintenance record for diesel generators in rural use even thqygh diesel technology is better understood and thoroughly proven. It is, however, the Sheffield Administration's overall energy goal--assuring all Alaskans an adequate supply of energy at lowest reasonable costs to the consumer, the environment, and the State--by which PCE should be most strictly measured. The stickler, of course, comes when one has to define "reasonable." As noted earlier, as quoted in the Tundra Times, Governor Sheffield has stated that “My goal is to provide clean dependable power to all Alaskans at affordable rates." This statement implies that "reasonable" should be judged from the perspective of the consumer. If this is the case, there is a strong argument that PCE is a giant step toward this goal. In theory, the program permits a residential or commercial customer a subsidy of up to $313.58 per month (the statutory maximum subsidy of 41.8 cents/KWH times 75@ KWH) or $3,762 per year. In reality, the average PCE subsidy level is considerably below the statutory maximum, and in almost all communities usage is still below 500 KWH per month. As an aside, an Advisory Committee on Statewide Power Production Costs, appointed by Governor Sheffield in 1984, has recommended a program which may be closer to what the Governor had in mind when he spoke of “affordable rates" for "all Alaskans." That committee recommends a statewide electric power marketing agency. This agency would purchase electric energy from each participating utility in the State at an established rate per kilowatt-hour and then resell this power to the utility at an average statewide rate. This concept shifts subsidizing the higher cost utilities from the State General Fund to the consumers who currently enjoy lowgs cost electric rates--primarily, the Anchorage and Juneau areas. If, however, one considers "reasonable" from the perspective of “9g other residents of the state, the debate rapidly degenerates into a disagreement about values. Obviously, the PCE program considers utility costs up to 52.5 cents/KWH to be reasonable since it covers 95% of a utility's costs between 8.5 cents/KWH and 52.5 cents/KWH. Others may argue that when a utility's costs are that high, then other alternatives must be taken: individually owned and operated diesel generators; relocation to an area with lower costs; or simply doing without electricity. In essence, this latter argument was made by former Governor Hammond in the column quoted earlier in this paper. But, you say, doesn't the power equalization proposal meet the equity test? Everyone would pay exactly the same amount per kilowatt-hour. Moreover, power costs are an expense common to all. Sure. And I suppose equity to some would mean the price of strawberries in Eek should be the same as in Anchorage. Certainly food and medical care are more vital needs than electricity. Why not equalize their costs before we do so for power? Along with the blessings one may perceive from living in the Bush also come burdens one expects to bear. In my view the proper extent to which those burdens should be reduced by the state shouldbe no more nor less than if one lives on Muldoon or Miller Creek. Although it is difficult to reconcile Governor Hammond's 1985 column with his signing the PPCA and PCA programs into law, he does clearly state the argument that there must be some limits to a subsidy program. The authors of this paper note that PCE subsidizes not energy in general but a special subset: utility generated electric energy. There is a cliche that one way to get more of something is to subsidize it. The rural energy subsidy programs (PPCA, PCA, and PCE) in combination with the state's rural electrification grants for utility plant have resulted in the creation of numerous utilities. On page 31 of this paper, a chart lists the PCE utilities which -29- have fewer than 58 customers, their PCE subsidy levels, and electrification grants when known. Of the 36 utilities listed, only two were certificated by the APUC two years ago, evidence that most of these entities are not viable economic entities in the absence of significant subsidy. Again, the authors conclude that if the goal is statewide availability of utility generated electric energy no matter what the cost, PCE is a strategic success. If a goal is economically self sufficient utilities, the PCE program is harmful in at least some cases because it has fostered the creation of utilities that probably will not exist in its absence: PCE has not decreased the cost of creating electric energy in rural Alaska; it has only decreased the price to the consumer. One final standard, equity, will be used to measure the strategic success of PCE from three different perspectives: who is eligible; the amount of the subsidies; and "equalization." The PCE legislation was carefully written to assure that the "Four Dam Pool" communities would not be eligible to receive PCE benefits. Presumably, the customers of these utilities received benefits from the hydro projects that offset the PCE benefits. The authors note, however, that on a per capita basis electrification grants to some utilities participating in the PCE program were very significant, but these utilities were not precluded from participation. (See chart on p. 31) =30= PCE UTILITIES WITH 58 OR FEWER CUSTOMERS FY 1959 - FY 1985 Rural Electrification Grants PCE Dollars Customers Level Total Per Utility (#) (cents/KWH) (G88 S$) Capita Akutan, City of 37 14.58 1,132.9 5,989 Andreanof Electric Co. (Atka) 37 16.45 180.8 1,075 Atmautluak Joint Utilities 58 26.39 625.0 2,615 Beaver Electrical 48 41.58 336.8 5,888 Bettles Light & Power 49 34.27 9.8 @ Birch Creek Village Electric 22 36.58 182.6 5,688 Chalkyitsik Energy Systems 35 49.91 288.0 2,886 Chenega Bay IRA Village Counci 22 27.76 G.G a Chitina Power Company 31 30.87 261.08 6,214 Clark's Point, City of 17 15.68 0.0 G Diomede Power 31 26.52 223.8 1,858 Eagle Village Energy Systems 28 41.88 137.9 848 Ekwok Electric <58? 24.25 369.6 4,557 Elfin Cove <50? 26.58 25.8 893 False Pass Electric Assoc. 23 18.66 663.08 9,471 Far North Utilities 3. 34.81 400.0 11,111 Hughes Power and Light 42 38.28 172.9 2,324 Igiugig Village Council 19 35.25 577.2 17,491 Ipnatchiaq Electric (Deering) 47 17.87 447.5 2,696 Kokhanok Village 32 41.808 425.8 5,120 Nelson Lagoon Electric Coop. 28 23.79 26.8 339 Nightmute Light Plant 39 14.33 489.0 3,316 Nikolai, City of 47 41.89 235.8 2,898 Pedro Bay Village Council 32 41.80 1,100.8 33,333 Perryville, City of 28 28.58 158.5 1,428 Pilot Point Village Council 28 26.58 459.0 6,818 Port Heiden, City of 41 11.56 42.6 433 Rampart Village Council 25 41.88 346.0 6,928 Sheldon Point Electric Company 23 19.43 610.0 5,495 Stevens Village Council 41 41.88 296.8 3,983 Tatitlek 34 29.17 76.8 1,629 Takotna Community Association 36 13.54 159.0 3,313 Telida Village Utility 9 41.80 537.0 2,594 Tetlin Village Energy System 31 25.23 187.6 1,748 Umnak Power (Nikolski) 39 33.58 206.8 4,000 Ungusraq Power Co. (Newtok) 47 22.52 608.0 3,359 Sources Number of Customers: Alaska Power Authority PCE Level: Alaska Public Utilities Commission Rural Electrification Grants: House Research Agency =31= The result of the eligibility restrictions is that customers of utilities participating in PCE may actually pay less for electricity than customers of utilities not eligible for PCE. The authors have not surveyed the actual residential rates of every utility in the state. However, the charts on pp. 33-34 show rate structures and sample bills for 758 KWH residential customers in the following categories: (a) Anchorage, Fairbanks, Homer, and Juneau electric utilities; (b) utilities receiving the statutory maximum 41.8 cents/KWH PCE; (c) utilities receiving approximately 27 cents/KWH PCE (this is the level for AVEC, the rural utility which receives about 25 percent of all PCE funds); and (d) two Four Dam Pool utilities (Kodiak Electric and Copper Valley Electric-Valdez) and a similar coastal utility (Cordova Electric). A comparison of data in the last column of the chart on p. 33 shows that residential electric consumers in Valdez and Kodiak pay considerably more for 75@ KWH (an average of 18.87 cents/KWH and 16.48 cents/KWH, respectively) than do the consumers of some utilities receiving PCE. In the chart on p. 34, the sampled utilities are arranged by PCE level. If the bills of consumers receiving very similar PCE subsidies (27.15 cents/KWH to 27.76 cents/KWH) are compared, there is a wide disparity. After PCE is subtracted, these consumers would still owe from $76.88 (Chenega Bay) to $286.92 (Egegik) . -32- A final look at the equity issue is to go to the stated goal of the PCE legislation: “equalizing power cost per kilowatt-hour statewide at a cost close or equal to the mean of the cost per kilowatt-hour in Anchorage, Fairbanks, and Juneau." In examining how closely the program has met this objective, the authors firmly state their belief that this goal was not a realistic expectation of any of the supporters of PCE. The PCE legislation changed significantly from its legislative introduction at the beginning of the 1984 session to its passage in the frenzied final hours of the session. Several hearings were held on the bill. Mike Scott, an aide to Senator Ferguson, provided almost all the expert testimony on the bill. In his last appearance (May 26, 1984 before the House Rules Committee), he testified that the 8.5 cents/KWH level at which subsidy would begin was not the average rate in Anchorage, Fairbanks, and Juneau, but rather a "compromise" figure and not a figure to be adjusted should rates in Anchorage, Fairbanks, and Juneau change. The "equalizing" language has also caused significant confusion. In their otherwise excellent report on rural energy cited several times earlier in this paper, Hoke and Keiser simply err when they assert that Rural utilities can now apply for a State subsidy which reduces power costs to 8.5 cents/kwh for 75@ kwh monthly usage by each customer. (p. 5) The PCE provides a State subsidy to a universal 8.5 cents/kwh power rate (or the average of rates in Anchorage, Fairbanks, and Juneau) for the first 758 KWH used each month by rural consumers. (p. 25) PCE provides additional electric cost assistance sufficient to bring rural electricity prices down to 8.5 cents per kwh. (p. 37) The authors suggest that there is some significance that the most thorough study of rural energy in Alaska makes such a fundamental error. -35- It is easy, however, to understand the error. The PCE legislation provides that The amount of power cost equalization provided per kilowatt-hour * « »« May not exceed 95 percent of the power costs, or the average rate per eligible kilowatt-hour sold, whichever is less, as determined by the commission. However (1) during the state fiscal year that begins July 1, 1984 the power costs for which power cost equalization may be paid to an electric utility are limited to minimum power costs of more than 8.5 cents.per kilowatt-hour and less than 52.5 cents per kilowatt-hour™”. What many people, apparently including Hoke and Keiser, fail to understand is the distinction between "costs" and "rates" in the PCE legislation. The APUC determines the total average costs to a utility to sell one KWH. This amount is then compared with the average rate to a consumer for one KWH on a bill of 75@ KWH. On page 38 a condensed version of the APUC approach to making a PCE determination is illustrated. [As an aside, the authors also believe that the APUC has erred in defining the term "average rate" to mean the average rate in excess of 8.5 cents/KWH.] The costs associated with truly equalizing electric rates are enormous. Governor Sheffield's Advisory Committee Report on Statewide Power Production Costs gives some idea of those costs. That committee proposes a rather convoluted plan for equalizing rates that will not be detailed here. However, one part of its plan involves the creation of a rate stabilization fund "established over 8 years, 1986 to 1993, inclusively, to be made up of eight equal deposits of approximately $259 million with all interest accruing to the fund."23 Notwithstanding the above, "equalization" is a part of the title of the present rural energy subsidy program. If this equalizing language is the equity standard, then PCE has been only a partial strategic success. -36- Even after PCE, an AVEC customer still must pay $117.23 for 758 KWH while his Anchorage counterpart would pay about half that amount. Have the rates been equalized: No. Has a step been taken toward equalization of rates. Yes, a giant one. aye SAMPLE APUC APPROACH TO PCE DETERMINATION Costs Rates costs ($/KWH) ($/KWH) 1. Non-fuel Component Revenue requirement less fuel costs & return on equity: $1,772,749 Divided by Annual KWH Sales: 8,303,622 6.2135 2. Fuel Component Annual fuel consumption (gal): 890,289 times Current fuel price ($/Gal.): 8.879 divided by Annual KWH Sales: 8,383,622 0.0847 Total costs 0.2982 Less base: 0.9850 times 95% factor 6.95 PCE covered costs 6.2625 AVERAGE RATE CALCULATIONS 1. Residential rate schedule: Bill for 750 KWH: $249.13 Average rate: 6.3322 Less base @.8859 PCE Determination ($/KWH) "Average rate"--residential 0.2472 2. Commercial rate schedule: Bill for 750 KWH: 261.43 Average rate: 0.3486 Less base 0.0850 "Average rate"~-commercial 0.2636 PCE DETERMINATION For each schedule, least of A. Statutory maximum of $.418 B. PCE covered costs C. "Average rate" Residential PCE: Commercial PCE: -38- 8.2625 8.2025 THE FUTURE OF POWER COST EQUALIZATION This paper began with a statement that PCE is an example of how structural barriers limit the application of strategic theory to government. The history of PPCA/PCA/PCE is one of political negotiation and compromise rather than program development to meet a set of objectives consistent with an overall goal. The division of policy setting authority between governor and legislature and among many legislators creates an environment ripe for compromise rather than for optimal answers to serious problems. Indeed, the attention often focuses on finding a problem to fit a preconceived solution. So long as the appropriations pie was large enough for all participants to get most of what they wanted, the rural energy subsidy was a tool used by urban and rural legislators. However, since the time the first energy subsidy program, PPCA, was passed in 1980, there has been some recognition of its problems: failure to actually reduce the costs of producing electricity; disincentives to utilities either to conserve fuel or convert to alternate technologies; disincentives to utility customers to limit their usage of high cost electricity; a tenuous relationship between subsidy levels and the actual rates paid by consumers; PCE ineligibility for some consumers paying higher rates than consumers eligible for PCE; the whole issue of whether it is reasonable to assure utility provided electricity, no matter what the cost, to every person in the state. These problems have been largely ignored by logical PCE opponents so long as these other players received the quid pro quo of their own hydro -39- projects. Now, however, the Four Dam Pool projects are in operation, and consumers of these hydro projects pay higher electric bills than some PCE assisted consumers. The Railbelt consumers have lost Susitna, and in the absence of Susitna the Intertie provides substantial assistance only to the Fairbanks utilities. In any event, the capital funding provided to the hydro projects did not exceed on a per capita basis the rural electrification grants provided to some communities whose constituents receive PCE subsidies. The authors of this paper suggest that supporters of the next PCE appropriation will face a triple threat: a general fiscal crisis, lack of economic justification for the program as it exists, and fewer negotiating partners. In the end, PCE's biggest problem was the same problem of other rural energy programs: its fundamental purpose was never clearly articulated and agreed on by all the players whose support is necessary for its continued existence. The authors predictions: PCE will become a more highly visible political issue; it will not continue in its present form for more than two years; the program will be discontinued (least likely), changed to a program similar to the original lifeline legislation of 1989, or revised to a general energy subsidy with eligibility statewide. -4g- FOOTNOTES lohapter 118, SLA 1981; AS 44.56.162. chapter 133, SLA 1984; AS 44.83.162(a). 3chapter 133, SLA 1984; AS 44.83.162(b). 4 Gordon S. Harrison, The Energy Program for Alaska; Origins and Evolution, Office of Management and Budget, March 1985, p. 18. *Ibid., p. 20. Sipid., p. 34. Tibid., p. 35. Sibid., pp. 37-38. %tpid., p. 39. 19Gretchen Keiser and O. Alexander Hoke, Rural Energy: An Overview of Programs and Policy, House Research Agency, Alaska State Legislature, February 1985, p. 31. Lipid. 12uarrison, Energy Program, p. 47. 13 Keiser and Hoke, Rural Energy, p. 32. 14Ibia., Appendix C. Sag 44.83.162(k) (1). 6 pei ser and Hoke, Rural Energy, p. 29. 7 mgnd of a Dream--Alaska Power Authority, Citing Changed Economic Circumstances, Withdraws Susitna Hydro Project," Federal Energy Regulatory Commission Monitor, July 16, 1986, p. 1. 18761 ephone interview with Gary Hirschberg, Anchorage, August 4, 1986. 1 eiser and Hoke, Rural Energy, pp. 43-44. =A) 20 xavisory Committee Report on Statewide Power Production Costs, December 15, 1984, p. 4. 2h say Hammond, "Power rate equalization is biggest turkey yet," Anchorage Daily News, January 13, 1985. 2245 44.83.162(d). 3 aavisory Committee Report, p. ll. -42- Alaska. Alaska. Alaska. Alaska. Alaska. Alaska. Alaska. Alaska. Alaska. Alaska. Alaska. Alaska. Alaska. Alaska. SOURCES CONSULTED Advisory Committee Report on Statewide Power Production Costs. December 15, 1984. Alaska Power Authority. "Utility Summary; Power Cost Equalization; Monthly PCE Statistics Report for Fiscal Year 1986." July 3, 1986. Alaska Power Authority. "Power Cost Equalization; Monthly Disbursement Report for Fiscal Year 1986." July 3, 1986. Alaska Public Utilities Commission. "General Order No. 8" {implementing the Power Production Cost Assistance program]. July 25, 1986. Alaska Public Utilities Commission. "General Order No. 9" {implementing the Power Cost Assistance program]. October 9, 1981. Alaska Public Utilities Commission. "General Orders No. 14-A and No. 14-B" [implementing the Power Cost Equalization program]. September 27, 1984. Alaska Public Utilities Commission. "Power Cost Equalization Program Status Sheet." July 25, 1986. Alaska State Legislature. House Research Agency. Rural Energy: An Overview of separ ams and Policy by Gretchen Keiser and 0. Alexander Hoke. February 1985. Alaska State Legislature. Following legislation: Ch. 83, SLA 1980. [Power Production Cost Assistance] Ch. 118, SLA 1981. [Power Cost Assistance] Ch. 133, SLA 1984. [Power Cost Equalization] Alaska State Senate. Rural Research Agency. Alaska's Public Energy Resources. July 1985. Department of Commerce and Economic Development. A Discussion of Considerations Pertaining to Rural Energy Policy Options by Arthur Young and Co. April 1979. Department of Commerce and Economic Development. 1983 Energy Report. Department of Commerce and Economic Development. 1984 Long-Term Energy Report. Department of Commerce and Economic Development. Alaska's Energy Plan 1985. February 15, 1985 =43= Alaska. Department of Commerce and Economic Development. Alaska's Energy Plan 1986. February 1, 1986. Alaska. Legislative Affairs Agency. Audio recordings and STAIRS data base minutes of Power Cost Equalization legislation hearings before the following committees of the Alaska State Legislature: House Finance Committee May 8, 1984 House Finance Committee May 14, 1984 House Finance Committee May 24, 1984 House Finance Committee May 25, 1984 House Rules Standing Committee May 26, 1984 Alaska. Office of Management and Budget. The Energy Program for Alaska; Origins and Evolution by Gordon S. Harrison. March 1985. Alaska. State Energy Policy Committee. Analysis of Policies and Recommendations. January 31, 1979. Cleveland State University. Institute of Urban Studies. Energy Assistance Programs and Pricing Policies in the Fifty States. March 1979. "End of a Dream--Alaska Power Authority, Citing Changed Economic Circumstances, Withdraws Susitna Hydro Project, "Federal Energy Regulatory Commission Monitor. July 10, 1986. Hammond, Jay. "Power rate equalization is biggest turkey yet." Anchorage Daily News. January 13, 1985. Telephone interview with Gary Hirschberg, Anchorage, August 4, 1986. -44- APPENDIX A PCE PAYMENTS TO UTILITIES Note: Utilities are listed in alphabetical order. Source of Data: All data supplied by the Alaska Power Authority except that in the column entitled "Projected FY 87 PCE ($)." The authors of this paper calculated the data in that column by annualizing the actual FY 1986 data. Actual Total # of FY 86 Projctd FY 86 PCE FY 87 Comnty(s) Months Payments PCE Popultn NAME Data ($) ($) Akiachak Limited aE 55,439 60,479 432 Akiak City Council 17 46,465 58,689 277 Akutan, City of 9 16,279 21,705 189 Alaska Power & Telephone Co ey 547,347 597,106 3,307 Alaska Village Electric Coop ll 4,915,922 5,362,825 16,316 Allakaket City Energy Coop 16 36,768 44,112 175 Alutiiq Power Company 4 1,864 5,592 98 Andreanof Electric Corp. 1l 31,071 33,895 93 Aniak Light and Power Co, Inc E15 183,398 200,061 483 Arctic Village Electric Co. > 11,378 27,289 156 Atmautluak Joint Utilities 11 78,858 86,018 248 Beaver Electrical 10 39,561 47,401 62 Bethel Utilities Corp., Inc. VT 533,163 581,633 3,681 Bettles Light & Power, Inc. 10 73,961 88,681 94 Birch Creek Village Elec Co. 2 3,758 22,558 58 Chalkyitsik Energy Systems 10 21,159 25,391 94 Chefornak Light and Power ll 42,597 46,469 278 Chenega Bay IRA Vlg Counc 2 3,577 21,461 75 Chignik, City of me: 37,376 40,774 124 Chitina Power Co. 16 35,581 42,602 42 Circle Electric Clark's Point, City of 1 679 8,147 80 Cordova Electric Coop, Inc EE 667,905 727,641 2,528 Diomede Power, City of 1l 39,521 43,114 178 Eagle Power Company als 35,991 39,263 142 Eagle Village Energy Sy 11 22,432 24,471 54 Egegik Light & Power 11 83,435 91,026 164 Ekwok Electric Elfin Cove False Pass Electric Assoc. 1 1,044 12,526 23 Far North Utilities 4 9,482 28,445 43 G & K, Inc. 16 62,632 75,159 250 Galena, City of 1g 269,891 323,869 942 Golovin Power Utilities alt 47,919 52275 121 Gustavus Electric Company eal 106,064 115,706 EST Gwitchyaa Zhee Utility Co. 16 176,141 211,369 643 Haines Light & Power Co, Inc 19 212,586 255,080 1,079 Hughes Power & Light Company EL 35,014 38,197 98 I-N-N Electric Coop, Inc 11 286,385 312,428 499 Igiugig Village Council 6 | 125967 25,935 33 Ipnatchiag Electric 1} 41,006 44,734 158 King Cove, City of 16 49,614 59,537 547 Kobuk Valley Electric 11 20,861 22,758 86 Kokhanok Village EL 18,738 20,442 138 Koliganek Village Council a 23,254 25,368 154 Kotlik, City of 9 88,247 117,663 413 Kotzebue Electric Assoc, Inc LI 595,797 649 ,960 2,978 Kwethluk 16 118,226 141,865 507 Kwig Power Company 1l 54,311 59,248 354 Larsen Bay, City of ey 46,939 51,206 180 Levelock Electric Coop, Inc. 11 89,643 87,974 119 Actual Total # of FY 86 Projctd FY 86 PCE FY 87 Comnty(s) Months Payments PCE Popultn NAME Data ($) ($) Manley Utility Co., Inc. ae: 24,314 26,525 80 Manokotak Power Company 11 67,645 73,794 299 McGrath Light & Power Co. rT 283,156 308,898 5108 Middle Kuskokwim Elec Coop 11 121,130 132,142 446 Naknek Electric Assoc, Inc 11 378,378 412,768 1,275 Napakiak Ircinaq Power Co. 11 91,483 99,713 323 Napaskiak, Inc. 6 64,884 129,767 268 Nelson Lagoon Electric Coop 3 52,772 57,570 58 Nightmute Light Plant 1g 19,857 23,829 145 Nikolai Light & Power 1l 68,905 65,468 121 Nome, City of 16 752,435 982,922 3,732 North Slope Power & Light Sy 10 357,342 428,819 2,099 Northway Power & Light, Inc. ae; 75,418 82,274 342 Nushagak Electric Coop., Inc. La 464,107 506,298 2,128 Ouzinkie Utilities 11 36,574 39,899 233 Pedro Bay Village Council li 36,134 32,873 76 Pelican Utility Company 6 8,871 17,741 213 Perryville, City of 11 31,831 34,725 1108 Pilot Point Village Council 9 29,168 38,891 67 Port Heiden, City of 9 16,261 21,681 94 Puvurnaq Power Co 1 68,681 66,197 235 Rampart Village Council 19 21,568 25,882 50 Ruby, City of 16 138,188 156,225 233 Sand Point Electric 11 114,953 125,404 896 Sheldon Point Electric Co 9 4,095 5,461 138 St. George Municipal Elec U. 9 108,314 133,452 172 St. Paul, City of 9 268,893 267,858 595 Stevens Village Council 19 18,964 227151 88 Takotna Community Assoc. 1 OE 21,244 23,175 66 Tanana Power Company, Inc. 11 149,612 163,213 417 Tatitlek 11 44,335 48,365 103 Telida Village Utility 6 4,984 9,968 26 Teller Power Company 6 23,289 46,577 247 Tenakee Springs, City of 10 49,213 59,056 156 Tetlin Village Energy System 11 18,182 19,835 110 Thorne Bay, City of 8 109,818 163,527 393 Tlingit-Haida Regional Electric 1l 1,292,541 1,410,045 2,678 Tulkisarmute, Inc. 1 5733 61,595 462 Tuntutuliak Comm Services 11 61,528 67,122 216 Umnak Power (Nikolski) 8 21,712 32,658 56 Unalakleet Valley E (MEA) 11 168,455 183,769 787 Unalaska, City of Ls 423,058 461,517 1,922 Ungusraq Power Company 1l 21,1108 23,038 187 White Mountain Utilities 8 36,468 54,691 158 Yakutat Power, Inc. ae: 111,727 121,884 462 Total 16,101,017 18,262,188 62,205 Total average per capita ($/person): 293.58 APPENDIX B PCE PAYMENTS ON A PER CUSTOMER AND PER CAPITA BASIS Note: Utilities are arranged according to the data in the last column, "Average Total Yearly PCE Subsidy Per Capita ($)." Source of Data: All data in this appendix calculated by the authors of this paper based on the following FY 1986 information for each utility from the Alaska Power Authority: number of months, community population, number of customers (both community and non-community facility), monthly KWH sales to both community facility customers and non-community facility customers, PCE payments. Average Average Average Average Average Average Monthly Honthly Total Total Fonthly Monthly PCE PCE Monthly Yearly PCE PCE Sutsidy Subsidy PCE PCE Covered Covered Average Per Non- Per Subsidy Subsidy Sales per Sales per PCE Com Faclt Com Faclty Per Per Hon-ComFelty Com Fuclty Subsidy Customer Customer Capita Capita WAME Customer Customer ($/KWH) (s) ($s) ($) (s) Roecssuceucesseusasecacarcstssretessiscscseteerssssgaragacsserszrgazegcrarcecssriirgecersessazcarssseagsas Chitina Power Co. 342 267) 0.3419 116.9 91.3 84.5 1,018.0 Nelson Lagoon Electric Coop 528 313° 0.3368 176.5 105.4 62.7 992.8 Bettles Light & Power, Inc, 430 WA 0.3518 151.0 uty 18.6 943.2 Egcgik Lignt & Power 278 385) 0.3489 97.0 134.3 12.9 679.8 Levelock Electric Coop, Inc, 286 679 = 0.3805 108.8 334.5 66.6 199.2 Igtugig Village Council 239 575 0.3898 93.2 224.1 65.5 786.0 St. George Municipal Elec U. an 2,679 0.2618 107.6 101.8 64.8 117.6 Gustavus Electric Company 212 420. 0.3850 61.6 161.7 63.9 766.8 Beaver Electrical 163 1,008 0.4162 67.6 WIT.9 63.7 764.8 Ruby, City of 189 1,177 «0.3172 60.0 563.7 55.9 670.8 Far North Utilities 225 340) 0.3338 15.1 113.5, 55.1 661.2 Umnak Power (Mikolski) 209 +205 0.3350 10.0 68.7 54.8 652.8 I-N-N Electric Coop, Inc 300 94S 0.3188 95.6 301.3 $2.2 626.4 McGrath Light & Power Co, 316 3,877 «0.2637 83.3 1022.8 50.5 606.0 Pilot Potct Village Council 453 * 3 0.2650 120.0 0.8 58.8 580.8 False Pass Electric Assoc. a8 231 (0.1866 55.5 43.1 a5.8 544.8 Mikolat Light & Power 169 906 0.8168 70.8 377.6 45.1 541.2 Tlingit-Ha egional Electric 435 3,945 96.5 875.0 44.0 528.0 tv Council 226 108 94.5 43.5 43.1 517.2 . 348 423 133.8 162.7 41.6 999.2 Pedro Bay Village Council 209 458 79.8 178.8 39.1 469.2 Tatitlek 408 315 119.0 109.8 39.1 469.2 Eagle Village Energy Sy. 168 780 60.4160 16.9 326.0 37.6 453.6 Birch Creek Village Elec Co. 223 285 «=0.3650 61.8 108.0 37.6 451.2 St. Paul, City of 669 1,600 0.1829 122.8 292.6 37.5 450.0 Colovin Power Utilities 219 517 0.3020 66.1 156.1 36.0 432.0 Thorne Bay, City of 368 149) (0.1624 59.8 24.2 34.7 516.8 Aniak Light and Power Co, Ine 368 NA 0.2252 82.9 NA 34.5 418.0 Tanana Pi Company, Inc. 239 1,953 0.2332 55.7 338.8 32.6 = 391.2 Hughes Power & Light Company 129 922 0.4090 52.8 377.1 32.5 390.0 Telida Vil Utility 216 236 «60.4180 90.3 98.6 32.0 Ten Springs, City of 161 429° 0.2783 44.8 119.8 31.5 Andreanof Electric Corp, 380 2,229 0.1590 4 354.8 30.4 Atmautluak Joint Utilities 407 198 0.3597 a 71.2 29.9 Takotna Community Assoc. yaa 763 0.1338 45.9 101.8 29.3 White Mountain Utilities 170 700 «0.3367 57.2 235.7 26.8 Galena, City of uu 2,415 0.2303 71.6 556.2 28.7 Manley Utility Co., Inc. 113 238 0.1957 33.9 86.6 27.6 Alaska Village Electric Coop 263 838 «=60.3027 19.6 253.7 27.8 Cnignik, City of 332 298 «0.1751 58.1 52.2 27.48 Gwitchyaa Zhee Utility Co. 226 689 0.1982 8 136.6 27.8 Waknek Electric Assoc, Inc 378 2,136 0.1309 49.5 279.6 27.9 Perryville, City of 370 WA 0.2792 103.3 WA 26.3 Tuntutullak Comm Services 215 249 0.2719 14.8 67.7 25.9 Wapakiak Ircinaq Power Co, 256 183 0.3850 94.7 70.5 25.7 G&K, Inc. 585 WA 0.1576 92.2 Na 25.1 Middle Kuskokwim Elec Coop v7 255 «0.4180 74.0 106.6 24.7 Cordova Electric Coop, Inc 389 2,063 0.0973 37.8 200.7 24.1 Chenega Bay IRA Vlg Counc 260 992 0.2776 12.2 275.8 23.8 Kotlik, City of 262 1,407 0.3217 84.3 452.6 23.7 Larsen Bay, City of 257 175 (0.2271 58.4 176.0 23.7 Average Average Average Average Average Average Monthly Monthly Total Totel Monthly Monthly PCE PCE Monthly Yearly PCE PCE Subsidy Subsidy PCE PCE Covered Covered Average Per Non- Per Subsidy Subsidy Sales per Sales per PCE Com Faclt Com Focity Per Per Won-ComFelty Com Faclty Subsidy Customer Customer Capita Capite WAME Customer Customer ($/KWH) () (s) (s) aw Saregresaasstezasesazracrsssassaaaeesessesssrasacsecssssagszigisssacssssigsaassearsicaseesesssasezsssrzarss Ipnatchiag Electric ais 750 0.1789 74.2 134.2 23.6 283.2 Puvurnaq Power Co 301 0.2992 90.1 4.2 23.5 282.0 Kwethluk 382 WA 0.2407 91.9 WA 23.3 279.6 Eagle Power Company 208 43) 0.2340 47.7 26.4 23.0 276.0 Chalkyitsik Energy Systems 143 190 0.4085 58.8 17.6 22.5 270.0 Kobuk Valley Electric 161 176 0.2703 43.5 47.6 22.1 265.2 Yakutat Power, Inc. 502 874 = 0.0677 34.0 59.2 22.0 264.0 Stevens Village Council ws 108 =—0.4180 46.8 45.1 21.6 259.2 Allakaket City Energy Coop 123 219° «0.4180 Sia 91.5 21.0 252.0 Manokotak Power Company 320 1,071 0.2110 67.5 226.0 20.6 247.2 Diomede Power, City of 217 WA 0.2652 73.5 MA 20.2 242.8 Wome, City of am 3,005 0.0959 39.7 288.2 20.2 242.4 Northway Power & Light, Inc. 324 1,183 0.1698 61.5 224.5 20.0 240.0 Unalaska, City of 415 3,029 0,2032 64.3 615.5 20.0 240.0 Wushagak Electric Coop., Inc. 393 1,001 0.0941 37.0 94.2 19.8 237.6 Haines Light & Power Co, Inc 460 0.0597 27.5 168.0 19.7 236.8 Unalakleet Valley E (HEA) 429 1,388 0.1182 50.7 163.6 19.5 Port Heiden, City of “13 0 0.1150 47.5 NA 19.2 230.4 Kotzebue Electric Assoc, Inc 336 $.527 0.1068 35.9 590.3 18.2 216.8 Worth Slope Power & Light Sy 410 577 0.1158 54.2 66.6 171.0 204.0 Teller Power Company 161 615 0.2650 46.0 163.0 15.7 166.4 Akiak City Council 310 567 = 0. 1806 56.0 102.8 15.2 162.4 Arctic Village Electric Co. 108 "85 «0.2571 27.8 124.7 15.2 162.4 Alaska Power & Telephone Co 350 2,228 0.0768 26.7 170.2 15.0 160.0 Tetlin Vill Energy Systen 165 662 «0.2468 45.7 163.8 15.0 180.0 Cnefornak Light and Power 286 488 (0.1866 53.7 git 403 171.6 Ourinkle Utilities 2348 1,002 0.1890 34.9 189.3 18.3 171.6 Kwig Power Company 259 208 «(0.2534 65.6 51.7 13.9 166.8 Koliganek Village Council 198 98 0.2132 a1 20.9 13.7 164.8 Wightmute Light Plant 34a 195 0.1529 52.6 29.8 13.7 164.8 Bethel Utilities Corp., Inc, 395 NA 0.0740 29.2 NA 13.2 158.48 Kokhanok Vill 7 512 0.2557 45.3 130.9 13.1 157.2 Tulkisaraute, Inc. 368 583 0.2007 13.9 117.0 12.8 153.6 Akiachak Liaited 261 255 (0.1953 51.0 49.8 WT 140.4 Sand Point Electric 302 1,528 0.0712 21.5 108.5 WT 140.8 Ungusraq Power Company 179 203° 0.2252 40.3 45.7 10.3 123.6 Akutan, City of 358 200 «0.1450 51.3 29.0 9.6 115.2 King Cove, City of 433 1,871 0.0628 27.2 V7.5 9.1 109.2 Clark's Point, City of 232 620 0.1568 36.8 97.2 6.5 102.0 Pelican Utility Company 423 WA 0.0299 12.6 MA 6.9 62.8 Alutiig Power Company 234 150 0.0713 16.7 10.7 5.2 62.8 Sheldon Point Electric Co wW71 WA 0,0995 19.7 WA 3.3 39.6 Circle Electric WA WA WA WA WA mA WA Ekwok Electric NA NA NA WA WA mA NA Elfin Cove NA NA NA MA WA MA NA APPENDIX C AUTHORIZED PCE SUBSIDY AMOUNTS AS OF JUNE 27, 1986 Note: Utilities are arranged in descending order according to the authorized PCE level ($/KWH). Utilities may be listed more than once if more than one PCE level is authorized. Source of Data: Alaska Public Utilities Commission PCE LEVEL UTILITY CENTS/KWH ALLAKAKET CITY ENERGY COOPERATIVE, INC, 41.80 EAGLE VILLAGE ENERGY SYSTEMS 41,80 KOKHANOK VILLAGE 41,80 IF 55.1 CENTS/KWH RATE IN EFFECT 2 MONTHS MIDDLE KUSKOKWIM ELECTRIC COOPERATIVE 41,80 RES. ,GOVT.,SM.COMN.; 40.00 LG.COMM. , SCHOOL NIKOLAI, CITY OF 41.80 PEDRO BAY VILLAGE COUNCIL 41.80 RAMPART VILLAGE COUNCIL 41.80 STEVENS VILLAGE COUNCIL 41.80 TELIDA VILLAGE UTILITY 41.80 BEAVER ELECTRICAL 41,50 RESIDENTIAL; 41.80 COMMERCIAL CHALKYITSIK ENERGY SYSTEMS 40.91 TO BE EFF. AFTER STAFF REV. OF 2 MOS. BLNGS TELLER POWER COMPANY 40.37 RESIDENTIAL AND CONNERCIAL; 33.25 LARGE POWER GUSTAVUS ELECTRIC COMPANY 38.50 WAPAKIAK IRCINAQ POWER COMPANY 38.50 NAPASKIAK, INC. 38.46 LEVELOCK ELECTRIC COMPANY 38.07 RESIDENTIAL AND COMMERCIAL; 37.50 SCHOOL BIRCH CREEK VILLAGE ELECTRIC COMPANY 36.50 WHITE MOUNTAIN UTILITIES 35.59 IGIUGIG VILLAGE COUNCIL 35.25 I-N-N ELECTRIC COOPERATIVE, INC. 35.09 FAR NORTH UTILITIES 34.81 BETTLES LIGHT AND POWER 34.27 NIKOLSKI POWER AND LIGHT COPANY 33.50 KOTLIK, CITY OF 32.17 CIRCLE ELECTRIC 31.75 RUBY D/B/A RUBY ELECTRIC COMPANY, CITY OF 31.56 KOKHANOK VILLAGE 31.50 FOR PWR. PRCHASD FROM LAKE & PEN. SCH, DIST. ST. GEORGE MUNICIPAL ELECTRIC UTILITY 30.97 RESI.;26.64 COMM. ;28.60 GOVT.;25.40 LG.PWR. CHITINA POWER COMPANY 30.87 HUGHES POWER AND LIGHT 30.20 TATITLEK 29.17 RESIDENTIAL AND COMMERCIAL; 20.50 ELDERLY KOKHANOK VILLAGE 28.99 FOR POWER GENERATED BY KOKHANOK PERRYVILLE, CITY OF 28.50 CHENEGA BAY IRA VILLAGE COUNCIL 27.76 EGEGIK LIGHT AND POWER 27.70 AVEC 27.55 WITH SOME EXCEPTIONS FOR COMMUNITY FACILITIES AVEC-COMMUNITY FACILITIES 27.55 EXCLUDING KWIl EXCEEDING 1500 FOR SCHED. GS-2 GOLOVIN POWER UTILITIES 27.15 KOBUK VALLEY ELECTRIC 27.03 DIOMEDE POWER, CITY OF 26.52 PILOT POINT VILLAGE COUNCIL 26.50 ATMAUTLUAK JOINT UTILITIES 26.39 MCGRATH LIGHT & POWER COMPANY 25.75 KWIG POWER COMPANY 25.70 TANANA POWER COMPANY, INC. 25.35 ALL EXCEPT LG. COMM.; 24.90 LG. COMM. TETLIN VILLAGE ENERGY SYSTEM 25.23 TENAKEE SPRINGS, CITY OF 25.13 FYVOK ELECTRIC 24.25 NELSON LAGOON ELECTRIC COOPERATIVE 23.79 UTILITY EAGLE POWER COMPANY MANLEY UTILITY COMPANY KWETHLUK LARSEN BAY UTILITY COMPANY UNGUSRAQ POWER COMPANY AVEC-COMMUNITY FACILITIES ANIAK LICHT AND POWER COPMANY AKIACHAK LIMITED ARCTIC VILLAGE ELECTRIC CO, KOLIGANEK VILLAGE COUNCIL MANOKOTAK GALEWA, CITY OF ELFIN COVE TLINGIT-HAIDA REGIONAL ELECTRIC AUTHORITY TULKISARMUTE, INC. CHEFORNAK LIGHT AND POWER SHELDON POINT ELECTRIC COMPANY TUNTUTULIAK COMMUNITY SERVICES ASSOCIATION FALSE PASS ELECTRIC ASSOCIATION GMITCHYAA ZHEE UTILITY COMPANY AKIAK CITY COUNCIL NORTHWAY POWER & LIGHT, INC. IPNATCHIAQ ELECTRIC PUVURWAQ POWER COMPANY ANDREANOF ELECTRIC CORPORATION THORNE BAY, CITY OF CHIGNIK, CITY OF GSK, INC. CLARK'S POINT, CITY OF AKUTAN, CITY OF NIGHTMUTE LIGHT PLANT OUZINKIE UTILITIES TAKOTNA COMMUNITY ASSOCIATION NORTH SLOPE BOROUGH-ATQASUK, NUIQSUT NAKNEK ELECTRIC ASSOCIATION, INC. ST. PAUL MUNICIPAL ELECTRIC UTILITY NORTH SLOPE BOROUGH-PT. LAY, ANAKTUVAK WATANUSKA ELECTRIC ASSN.-UNALAKLEET PORT HEIDEN, CITY OF ALASKA POWER AND TELEPHONE COMPANY-HYDABURG UNALASKA, CITY OF NORTH SLOPE BOROUGH-KAKTOVIK, PT. HOPE, WNWRGHT KOTZEBUE ELECTRIC ASSOCIATION NUSHAGAK ELECTRIC COOPERATIVE, INC. NOME JOINT UTILITY SYSTEM CORDOVA ELECTRIC COOPERATIVE, INC. CECI-COMMUNITY FACILITIES ALUTIIQ POWER COMPANY BETHEL UTILITIES CORPORATION, INC, 23.40 23.05 23.03 22.71 22.52 22.28 22.14 22.10 21.46 21.32 21.10 20.74 20.58 20.18 20.07 19.76 19.43 19.19 18.66 18.66 18.07 17.47 17.07 16.80 16.45 16.24 16.23 16.08 15.68 14.50 14.33 13.56 13.58 13.50 13.11 12.71 12.50 11.62 11,50 We14 10.89 10.50 10.42 9.65 9.59 1.97 7.16 7.13 6.37 PCE LEVEL CENTS/KWH FOR USAGE IN EXCESS OF 1500 FOR SCHED. GS-2 RESIDENTIAL, SCHOOL, ARPT ENT.; 14.85 FAA RESIDENTIAL; 11.50 COMMERCIAL RES. ,COMM.,LG.PWR.; 4.45 AIR FORCE RESIDENTIAL; 11.50 COMMERCIAL RESIDENTIAL AND COMMERCIAL; 8.91 BULK POWER RESIDENTIAL; 11.50 COMMERCIAL RES. ,SM.COMM.,PUB.BLDG.,LG.PWR.;8.26 STR. LTS. WITH SOME EXCEPTIONS FOR COMMUNITY FACILITIES 1,001 KWH - 20,000 KWH PCE LEVEL UTILITY CENTS/KWH KING COVE 6.28 ALASKA POWER AND TELEPHONE COMPANY-TOK 6.12 RESIDENTIAL AND COMMERCIAL; 3.78 BULK POWER PELICAN UTILITY COMPANY-SAND POINT 5.50 CECI-COMMUNITY FACILITIES 5.16 OVER 20,000 KWH ALASKA POWER AND TELEPHONE COMPANY-CRAIG 4.89 RESIDENTIAL AND COMMERCIAL; 3.64 BULK POWER YAKUTAT POWER, INC, 4.85 ALASKA POWER AND TELEPHONE COMPANY-SKAGWAY Y.N7 RESIDENTIAL AND CONMERCIAL; 1.91 BULK POWER HAINES LIGHT AND POWER 4.37 RES. ,COMM.,LG.PWR.,BT.HBR.; .75 ST.LGTS. PELICAN UTILITY COMPANY-PELICAN 2.99 APPENDIX D PCE DATA Note: Utilities are arranged in descending order according to the data in the column marked by the ***** ; that column contains the average monthly PCE covered sales per non-community facility customer. Source of Data: The community population and customer count data were supplied by the Alaska Power Authority (APA). The remaining data in this appendix was calculated by the authors of this paper from APA supplied data, both that appearing in this appendix and PCE payment and KWH sales records. kkikk Average Average Average Average Monthly Monthly Monthly Monthly PCE pce Monthly @ of Non- @ of Pce PCE Subsidy Subsidy PCE Community Community Covered Covered Averege Per Hone Per Subsidy Subsidy Comnty(s) Facility Facility Sales per Sales per PCE Com Faclt Com Facity Per Per Popultn Customers Customers Won-Comfclty Com Faclty Subsidy Customer Customer Capite Capita MAME Customer Customer ($/KWwil) (s) ® () (> Sarrasesasessreeescacsassenasecsasesscssageseessassasscacsasssssesssacsssssessssacstsrassisersergrrarseeresaaacssaseeeseustazezsszasa208 St. Paul, City of 595 137 19 669 1,600 0.1829 122.4 292.6 31.5 450.0 GK, Inc, 250 68 0 585 WA 0.1576 92.2 WA 25.1 301.2 Welson Lagoon Electric Coop 58 26 2 524 313 (0.3368 176.5 105.4 62.7 992.8 Yakutat Power, Inc, 462 273 15 502 878 = =0,0677 34.0 59.2 268.0 Worth Slope Power & Light Sy 2,099 645 " 470 S717) 0.1158 54.2 66.6 208.0 Haines Light & Power Co, Inc 1,079 725 6 460 2,818 0.0597 27.5 168.0 236.8 Pilot Point Village Council 67 27 1 453 3. 0.2650 120.0 0.8 580.8 Tlingit-Haida Regtonal Electric 2,670 673 38 aS 3,945 0.2218 96.5 875.0 528.0 King Cove, City of 5a7 148 8 433 1,871 0.0628 27.2 117.5 109.2 Bettles Light & Power, Inc, ga 49 Qo 430 WA 0.3511 151.0 WA 18.6 943.2 Unalakleet Valley E (MEA) 187 247 v 429 1,388 «0.1182 50.7 163.6 19.5 234.0 Pelican Utility Company 213 Ww ° 423 WA 0.0299 12.6 WA 6.9 62.8 Ipnatchiag Electric 198 a3 a ais 750 «(0.1789 14.2 134.2 23.6 Unalaska, City of 1,922 317 9 3,029 0.2032 64.3 615.5 20.0 Wome, City of 3,732 1,569 aS 3,005 0.0959 39.7 288.2 20.2 Port Helden, City of 8 38 3 a3 0 0.1150 47.5 NA 19.2 St. George Municipal Elec U. 12 hy 3 an 2,679 0.2618 107.6 701.8 64.8 Tatitlek 103 32 2 408 375 (0.2917 119.0 109.8 39.1 Atmautluak Joint Utilities 240 a8 2 407 198 0.3597 186.8 71.2 29.9 Bethel Utilities Corp., Inc. 3,681 1,657 ° 395 NA 0.0740 29.2 nA 13. Wushagak Electric Coop., Inc. 2,123 1,067 29 393 1,008 0.0941 37.0 94.2 19. Cordova Electric Coop, Inc 2,520 1,342 a9 389 2,063 0.0973 37.8 200.7 a4. Kwetnluk 507 128 0 382 WA 0.2407 91.9 WA 23. Andreanof Electric Corp. 93 35 2 380 2,229 0.1590 60.8 3548.48 30. Naknek Electric Assoc, Inc 1,275 673 4 318 2,136 0.1309 49.5 279.6 27. Perryville, City of 0 28 0 370 WA 0.2792 103.3 NA 26. Aniak Light and Power Co, Inc 4A} 201 0 368 WA 0.2252 62.9 WA 34. Thorne Bay, City of 333 176 128 368 149 0.1628 59.8 24.2 34. Tulkisaraute, Inc. 402 68 1 368 583 0.2007 13.9 117.0 2. Akutan, City of 189 33 4 354 200 «(0.1450 51.3 29.0 9. Alaska Power & Telephone Co 2,307 1,722 22 350 2,228 0.0768 26.7 170.2 15. Mapaskiak, Inc, 260 16 4 348 423) 0.3846 133.8 162.7 a. Mightaute Light Plant 145 36 3 344 195 0.1529 52.6 29.8 13. Takotna Community Assoc. 66 3 5 348 163 0.1334 45.9 101.8 29. Cnitina Power Co. a2 28 3 342 267 «0.3819 116.9 91.3 oa Kotzebue Electric Assoc, Inc 2,978 967 33 336 5,527 0.1068 35.9 590.3 Cnignik, City of 124 53 6 332 298 «(0.1751 58.1 52.2 27.8 Northway Power & Light, Inc. 342 97 a 324 1,183 0.18698 61.5 224.5 20.0 Manokotak Power Company 299 81 3 320 1,078 0.2110 61.5 226.0 20.6 McGrath Light & Power Co. 510 235 6 316 3,877 «0.2637 83.3 1022.48 50.5 Galena, City of 942 284 12 3 2,415 0.2303 71.6 556.2 28.7 Akiak City Council 277 70 3 310 567 0.1806 56.0 102.8 15.2 Sand Point Electric 896 40S 16 302 1,524 0.0712 21.5 108.5 WT Puvurnag Power Co 235 61 a 301 We 0.2992 90.1 4.2 23.5 I-H-N Electric Coop, Inc 499 222 iL an a ee ee ate nea Chefornak Light and Power 270 67 : : . . Levelock Electric Coop, Inc. 110 52 5 286 879 «0. 3805 108.8 334.5 66.6 Egegik Light & Power 104 14 3 278 385) (0.3489 97.0 134.3 12.9 Diomede Power, City of 178 31 0 217 WA 0.2652 13.5 NA 20.2 Tuntutuliak Comm Services 216 72 3 275 249° (0.2719 74.8 67.7 25.9 Alaska Village Electric Coop 16,316 8,473 357 263 838 =©0,3027 19.6 253.7 27.8 REKKR Average Average Average Average Average Average Monthly Monthly Totel Total Monthly Monthly PCE PCE Monthly Yearly @ of Won 6 of PCE PCE Subsidy Subsidy pce pce Community Comaunity Covered Covered Average Per Hon- Per Subsidy Subsidy Comaty(s) Facility Facility Sales per Sales per PCE Com Faclt Com Facity Per Per Popultn Customers Customers Won-ComFclty Com Faclty Subsidy Customer Customer Capite Capita WAKE Customer Customer ($/KWH) ( wD w (3) Srrgseaassresassseasseessss23eses22232550283aecas2325053235525353sEserSs ss esasesssirsgassiisgsgsestssasesesszazgazreseassagsegssssst388 Kotlik, City of 413 95 5 262 1,807 0.3217 84.3 452.6 23.7 284.8 Akiachak Licitted 832 98 1 261 255 0.1953 51.0 49.8 WT 140.8 Chenega Bay IRA Vig Counc 15 2 1 260 992 0.2776 72.2 275.8 23.8 285.6 Kwig Power Company 354 69 8 259 208 0.2534 65.6 $1.7 13.9 166.8 Larsen Bay, City of 180 55 6 257 115 (0.2271 58.4 116.0 23.7 284.8 Wapakiak Ircinag Power Co, 323 61 9 246 183 (0.3850 94.7 10.5 25.7 308.8 False Pass Electric Aysoc, 23 2 2 24u4 231 0.1866 45.5 43.1 45.4 544.8 Igiugig Village Council 33 16 3 239 575 0.3898 93.2 224.1 65.5 786.0 Tanana Power Company, Inc. 417 v1 " 239 1,453 0.2332 55.7 338.8 32.6 391.2 Alutilg Power Company 90 26 8 234 150 0.0713 16.7 10.7 5.2 62.8 Ouzinkle Utilities 233 4 $ 234 1,002 0.1490 34.9 189.3 18.3 171.6 Clark's Point, City of 80 16 1 232 620 0.1568 36.4 97.2 8.5 102.0 Guwitchyaa Znee Utility Co. 643 284 36 226 689 0.1982 44.8 136.6 27.8 328.8 Rampart Village Council 59 a 4 226 108 0.8180 94.5 43.5 a3.1 517.2 Far Worth Utilities a3 30 1 225 340 0.3338 15.1 413.5, 55.1 661.2 Birch Creek Village Elec Co, 50 18 4 223 285 0.3650 61.4 104.0 37.6 851.2 Golovin Power Utilities 121 54 5 219 517 0.3020 66.1 156.1 36.0 432.0 Telida Village Utility 26 il 2 216 236 «0.4180 90.3 98.6 32.0 384.0 Gustavus Electric Company 1$1 116 1 212 420 0.3850 61.6 161.7 63.9 7166.8 Pedro Bay Village Council 7a 30 2 209 458 «0.3817 719.8 174.8 39.1 969.2 Uanak Power (Nikolski) 50 4 5 209 205 0.3350 70.0 68.7 S48 652.8 Eagle Power Company a2 67 3 2084 1130 (0.2380 47.7 26.4 23.0 276,0 Koliganek Village Council 158 50 2 198 98 0.2132 aie 20.9 13.7 164.8 Ruby, City of 233 123 10 189 1,777 0.3172 60.0 563.7 55.9 670.8 Tetlin Village Energy System 110 29 2 185 662 0.2468 45.7 163.8 15.0 180.0 Eagle Village Energy Sy 54 18 2 184 780 «0.4180 16.9 326.0 37.8 453.6 Teller Power Company 247 14 2 181 615 0.2650 48.0 163.0 15.7 188.8 Ungusraq Power Company 187 42 5 19 203. 0.2252 40.3 45.7 10.3 123.6 Kokhanok Village 130 29 3 IT 512 0.2557 45.3 130.9 13.1 157.2 Middle Kuskokwia Elec Coop 446 129 4 WT 255 0.4180 74.0 106.6 24.7 296.8 Sheldon Point Electric Co 138 23 0 "7 WA 0.0915 19.7 NA 3.3 39.6 Manley Utility Co., Inc, 60 64 1 173 238 = =0.1957 33.9 46.6 27.6 331.2 White Mountain Utilities 158 63 4 170 700 0.3367 57.2 235.7 28.8 345.6 Mikolai Lignt & Power W21 40 7 169 906 «60.4168 70.8 377.6 45.1 541.2 Beaver Electrical 62 46 2 163 1,008 0.4162 67.8 417.9 63.7 768.8 Kobuk Valley Electric 86 25 W 164 176 0.2703 43.5 47.6 22.1 265.2 Tenakee Springs, City of 156 86 9 161 429 0.2783 44.8 119.8 31.5 378.0 Cnalkyitsik Energy Systems 94 0 4 143 190 0.4085 58.4 17.6 22.5 270.0 Hugnes Power & Lignt Company 98 39 3 129 922 0.4090 52.8 377.1 32.5 390.0 Allakaket City Energy Coop 75 59 7 123 219 0.4180 51.8 91.5 21.0 252.0 Stevens Village Council 88 cy 4 wm 108 «0.4160 46.4 45.1 21.6 259.2 Arctic Village Electric Co. 150 55 6 108 485 «0.2571 27.8 124.7 15.2 182.8 Circle Electric WA WA NA KA WA uA WA Ekwok Electric NA NA WA WA WA mA WA Elfin Cove WA NA WA WA WA NA WA APPENDIX E PCE DATA Note: Utilities are arranged in descending order according to the data in the column marked by the ***** ; that column contains the average monthly PCE covered sales per community facility customer. Source of Data: The community population and customer count data were supplied by the Alaska Power Authority (APA). The remaining data in this appendix was calculated by the authors of this paper from APA supplied data, both that appearing in this appendix and PCE payment and KWH sales records. NAME @ of None Community Community Comnty(s) Facility Popultn Customers Customers Hon-ComFclty Com Faclty Subsidy Customer Customer 6 of Facility Average Monthly Covered akkKKK BQesrragsseeggrssagessarsgssssATASR CSTE S SAT TSTTIsLasTeasrssrsesessrssegTrITgsTTST TILT aT RT TTTaTTSTTTaTS ea TTA sea TeeRaesIEITaTae TEE ET Kotzebue Electric Assoc, Inc Tlingit-Haida Regional Electric McGrath Light & Power Co, Unalaska, City of Home, City of Haines Light & Power Co, Inc St. George Municipal Elec U. Galena, City of Andreanof Electric Corp. Alaska Power & Telephone Co Waknek Electric Assoc, Inc Cordova Electric Coop, Inc King Cove, City of Ruby, City’ of St. Paul, City of Sand Point Electric Tanana Power Company, Inc. Kotlik, City of Unalakleet Valley E (MEA) Northway Power & Light, Inc, Manokotak Power Company Beaver Electrical Ouzinkie Utilities Mushagak Electric Coop., Inc. Chenega Bay IRA Vlg Counc I-N-N Electric Coop, Inc Hughes Power & Light Company Nikolai Light & Power Levelock Electric Coop, Inc. Yakutat Power, Inc. ~ Alaska Village Electric Coop Eagle Village Energy Sy Larsen Bay, City of Takotna Comaunity Assoc. Ipnatchiag Electric White Mountain Utilities Gwitchyaa 2hee Utility Co. Tetlin Village Energy System Clark's Point, City of Teller Power Company Tulkisarmute, Inc, Worth Slope Power & Light Sy Igiugig Village Council Akiak City Council Golovin Power Utilities Kokhanok Village Chefornak Light and Power Arctic Village Electric Co, Pedro Bay Village Council Tenakee Springs, City of Wapaskiek, Inc. 2,978 2,670 510 1,922 3.732 1,079 Ww 942 93 3,307 1,275 2,520 SAT 233 595 696 a7 a3 187 342 299 62 233 2,128 15 499 98 yt 110 462 16,316 ” 160 66 158 158 643 110 60 2uT 402 2,099 33 277 121 130 270 150 70 156 260 967 873 235 317 1,569 125 64 284 35 1,722 673 1,382 148 123 137 405 117 95 247 97 81 46 14 1,067 a 222 39 40 52 273 4,873 18 55 3 43 63 264 29 16 4 68 645 16 70 54 29 67 55 30 86 16 33 38 6 19 45 8 3 12 2 22 4 49 8 10 19 16 W 4 Ww 4 3 2 5 29 1 w Ro — Sauaws w FONOWWUWWS He Nene Zan Average Average Average Average Average Monthly Monthly Total Totel Monthly PCE PCE Monthly Yearly PCE Subsidy Subsidy PCE PCE Covered Average Per Non- Per Subsidy Subsidy Sales per Sales per PCE Com Faclt Com Faclty Per Per Customer Capita Capita Customer ($/KWH) ) (s) @ (s) 336 5,527 0.1068 35.9 590.3 18.2 218.8 435 3.9495 0.2218 96.5 675.0 44.0 528.0 316 3.877 0.2637 83.3 1022.8 50.5 606.0 a5 3,029 0.2032 64.3 615.5 20.0 240.0 a 3,005 0.0959 39.7 288.2 20.2 242.4 460 2,818 0.0597 27.5 168.0 19.7 236.8 au 2,679 0.2618 107.6 701.8 64.8 117.6 yu 2,415 0.2303 71.6 556.2 28.7 380 2,229 0.1590 60.8 354.8 30.8 350 2,228 0.0768 26.7 170.2 15.0 378 2,136 0.1309 49.5 279.6 27.0 389 2,063 0.0973 37.8 200.7 24.1 433 1,671 0.0628 27.2 V7.5, 9.1 189 1,777) 0.3172 60.0 563.7 55.9 669 1,600 0.1829 122.4 292.6 37.5 302 1,524 0.0712 21.5 108.5 W.7 239 1,453 0.2332 55.7 338.8 32.6 262 1,407 0.3217 84.3 452.6 23.7 429 1,384 0.1182 50.7 163.6 19.5 324 1,183 0.1898 61.5 224.5 20.0 320 1,071 0.2110 67.5 226.0 20.6 163 1,008 0.4162 67.8 4IT.9 63.7 234 1,002 1890 34.9 4.3 393 1,001 0.0991 37.0 19.8 260 992 0.2776 12.2 275.8 23.8 300 945 0.3188 95.6 301.3 52.2 129 922 0.8090 52.8 377.1 32.5 169 906 «0.4168 70.8 377.6 45.1 286 679 =—0.3805 108.8 334.5 66.6 502 878 «0.0677 34.0 59.2 22.0 263 838 =©0.3027 19.6 253.7 27.8 184 780 0.8180 16.9 326.0 31.8 257 175 (0.2271 58.8 176.0 23.7 yaa 163 0.1338 45.9 101.8 29.3 415 750 0.1789 74.2 134.2 23.6 170 700 «0.3367 57.2 235.7 28.8 226 689 «0.1962 44.8 136.6 27.8 185 662 0.2468 45.7 163.8 15.0 232 620 0.1568 36.8 97.2 8.5 181 615 0.2650 48.0 163.0 15.7 368 583 0.2007 13.9 117.0 12.8 470 577 0.1158 54.2 66.6 17.0 239 575 0.3898 93.2 224.1 65.5 310 567 0.1806 56.0 102.8 15.2 219 517 0.3020 66.1 156.1 36.0 177 512 0.2557 45.3 130.9 1.1 288 488 0.1866 53.7 gi. 14.3 108 485 0.2571 27.8 124.7 15.2 209 458 0.3817 19.8 174.8 39.1 161 429 0.2783 aa8 119.8 31.5 348 423° 0.3846 = 133.8 162.7 41.6 akeee Average Average Average Average Average Average Monthly Monthly Total Totel Monthly Monthly PCE PCE Monthly Yearly @ of Hon oof PCE PCE Subsidy Subsidy PCE PCE Community Community Covered Covered Average Per None Per Subsidy Subsidy Comnty(s) Facility Facility Sales per Sales per PCE Com Faclt Com Faclty Per Per Popultn Customers Customers Non-ConFelty Com Faclty Subsidy Customer Customer Capita Capita WAME Customer Customer ($/KWH) (s) () () () SECRSaauaeaaaereasserazgesasaaeas823542° see RNNaazea TEE TEAT ARS ATTN TATA STATS THTas EST TTI LATS ssT TTS AESETASTTTAS SATA AT ssaseReT sar eezaTaeaTES Custavus Electric Company 151 116 1 212 420 © 0.3850 81.6 161.7 63.9 7166.8 Egegik Light & Power 108 14 3 278 365 «0.3489 97.0 139.3 72.9 678.8 Tatitlek 103 32 2 408 375 -0.2917 119.0 109.4 39.1 469.2 Far North Utilities a3 30 1 225 340 (0.3338 15.1 113.5 55.1 Nelson Lagoon Electric Coop 58 26 2 524 313° (0.3368 176.5 105.48 62.7 Chignik, City of v8 53 6 332 298 «0.1751 58.1 52.2 27.48 Birch C Village Elec Co. 50 18 4 223 285 0.3650 61.8 108.0 37.6 Chitina Power Co. 42 28 3 342 267) 0.3819 116.9 91.3 84.5 1,014.0 Akiachak Limited 432 98 1 261 255 «0.1953 51.0 49.8 W7 140.8 Middle Kuskokwim Elec Coop 6n6 129 4 v7 255 0.4180 74.0 106.6 24.7 296.8 Tuntutuliak Comm Seryices 216 T2 3 275 249° (0.2719 74.8 67.7 25.9 310.8 Manley Utility Co,, Inc. 80 64 1 173 238 «0.1957 33.9 46.6 27.6 331.2 T ja Village Utility 26 7 2 216 236 «0.8180 90.3 98.6 32.0 384.0 fF Pass Electric Assoc. 23 2 2 aug 231 (0.1866 45.5 43.1 45.8 544.8 Allakaket City Energy Coop 5 59 7 123 219 «0.4180 51.8 91.5 21.0 252.0 Umnak Power (Wikolski) 50 4 5 209 205 = 0.3350 70.0 68.7 54.8 652.8 Kwig Power Company 358 69 8 259 208 «0.2534 65.6 51.7 13.9 166.8 Ungusraq Power Company 187 42 5 19 203 0.2252 40.3 45.7 10.3 123.6 Akutan, City of 139 33 5 354 200 «0.1450 51.3 29.0 9.6 115.2 Atmautlusk Joint Utilities 280 48 2 407 198 0.3597 146.8 71.2 29.9 358.8 Wightmute Light Plant 145 36 3 34 195 0.1529 52.6 29.8 13.7 168.8 ChalkyStsik Energy Systems 54 3 4 183 190 «0, 4085 58.8 17.6 22.5 270.0 Napakiak Ircingg Power Co, 323 8 9 246 183 0.3850 94.7 10.5 25.7 308.8 Kobuk Walley Electric 86 25 7 161 176 60.2703 43.5 97.6 22.1 265.2 Alutiiq Power Company 90 26 3 238 150 «0.0713 16.7 10.7 5.2 62.8 Thorne City of 393 176 128 368 149) (0.1628 24.2 34.7 416.4 Eagle Power Company 12 67 3 208 113° 0.2340 26.8 23,0 276.0 Stevens Vill Council 68 u 4 it 108 «0.4180 45.1 21.6 259.2 Rampart Vill Counci) 50 2 4 226 108 = =—0.8180 3.1 517.2 Koliganek Village Council 154 50 2 198 98 0.2132 13.7 164.8 Puvurnag Power Co 235 61 4 301 4 0.2992 23.5 282.0 Pilot Point Village Council 67 27 1 453 3 0.2650 46.8 580.8 Port Helden, City of 94 38 3 413 0 0.1150 19.2 230.8 Aniak Light and Power Co, Inc 483 201 0 368 WA 0.2252 34.5 418.0 Bethel utilities Corp,, Inc, 3,681 1,657 0 395 WA 0.0740 13.2 158.8 Bettles Light & Power, Inc, 94 49 0 430 WA 0.3511 18.6 943.2 Circle Electric WA WA WA WA WA Diomede Power, City of 178 3 0 277 WA 0.2652 20.2 282.4 Ekwok Electric WA WA WA MA NA Elfin Cove WA WA WA NA HA G&K, Inc, 250 68 ° 585 WA 0.1576 25.1 301.2 Kwethluk 507 128 0 382 WA 0.2407 23.3 279.6 Pelican Utility Company 213 WT 0 423 WA 0.0299 6.9 62.8 Perryville, City of 110 28 0 370 WA 0.2792 26.3 315.6 Sheldon Point Electric Co 138 23 0 17 NA 0.1915 3.3 39.6 ANALYSIS NORTH 3511 Tanglewood. #A * Anchorage. AK 99517 THE EFFECT OF ELECTRICITY SUBSIDY PROGRAMS ON THE ECONOMIC INCENTIVES FOR IMPROVING GENERATION AND END-USE TECHNOLOGIES A Comparison of Power Cost Equalization and Alternatives Prepared for the Governor's Energy Policy Task Force By Alan Mitchell December 7, 1987 ABSTRACT This paper evaluates the effects that electricity subsidy programs have on the economic incentives for utilities and individuals to make improvements in the generation and efficient use of electricity. The paper analyzes eight different types of subsidy programs, including the current Power Cost Equalization program. The analysis shows that the current Power Cost Equalization program ranks less than average (relative to the eight example programs) for both its effect on a utility's incentive to reduce electrical generation costs and its effect on a customer's incentive to utilize energy-efficient technologies. A fixed payment type program received the top ranking in both the utility incentive and customer incentive categories. This program is structured so that a customer receives a fixed amount of monetary credit on their electric bill each month. This dollar credit is the same for each customer of a particular utility. The credit varies across different utilities according to a formula-determined cost of generating electricity. Section 7 of the paper goes beyond the incentive analysis and describes some of the other characteristics of this fixed payment program. In the author's opinion, advantages in addition to improved incentives include administrative simplicity, larger benefit for low income households, larger benefit for utilities currently unable to effectively manage PCE reporting requirements, elimination of many of the abuses present with the current PCE program, and flexibility of the program in utilizing available funding. THE EFFECT OF ELECTRICITY SUBSIDY PROGRAMS ON THE ECONOMIC INCENTIVES FOR IMPROVING GENERATION AND END-USE TECHNOLOGIES 1. INTRODUCTION The cost of providing electrical services in rural Alaska is very high. One method for reducing this hardship is to make improvements in the technologies and techniques for generating and utilizing electricity. The other approach is to directly subsidize the cost of electricity. The state of Alaska has felt that the high energy costs justify government involvement in the problem, and the state has primarily spent its assistance dollars in the form of direct electricity subsidies, namely the Power Cost Equalization (PCE) program. Despite the emphasis on direct subsidies, the potential for improvement in electrical generation and end use technologies is substantial. This paper evaluates the effects that electricity subsidy programs, such as PCE and other alternatives, have on the economic incentives for utilities and individuals to undertake these technical improvements on their own. If a subsidy program diminishes these incentives (not all types do), the effective benefit of the subsidy program will be reduced. The cost- inefficiency generated by the subsidy program will in essence cancel part of the dollar payments from the program. Specifically, two types of incentives are examined: i.) the incentive for utilities to reduce the cost of generating electricity, ii.) the incentive for utility customers to reduce electricity costs by utilizing energy-efficient appliances and lights, energy-efficient lifestyle changes, and small- scale power production technologies. The effects on these incentives are evaluated for eight different types of subsidy programs, including the current Power Cost Equalization program. Within each type of incentive a ranking is produced that orders the programs as to their effect on the incentive. 2. BASIC ASSUMPTIONS The programs that are evaluated were chosen so that the level of subsidy for each program (total funding required) is the approximately the same as the current PCE program. The analysis is concerned with how the structure of a particular type of subsidy program affects incentives. Since level of subsidy was Page 1 not the focus of the study it was held constant across the programs. The study only addresses the incentive effects on the residential sector. This focus does not distort the relative ranking of the subsidy programs in terms of their effects on incentives. The focus does lead to overstating the absolute effect of the subsidy programs on incentives, since much of the electricity sold to commercial and institutional customers is not affected by subsidy programs. This study concentrates on the effects of subsidy programs on the economic rewards to utilities and individuals who undertake technical improvements. There exist other rewards that occur from improving electrical generation and use. Psychological rewards accrue from the implementation of changes that are perceived to be socially beneficial in a broad sense. Psychological rewards also accrue from reducing the state's subsidy expenditures. Technical improvements implemented by a utility reduce the chance of penalties from the PUC. These are very real motivational factors but are not addressed by this analysis. 3. DESCRIPTION OF SUBSIDY PROGRAMS EVALUATED The subsidy programs that are examined here represent some of the programs that have been suggested as possible alternatives to the current PCE program. The programs can be broadly classified into two types: i.) Rate Subsidies: An example is PCE. The price paid by the customer for each kilowatt-hour is reduced via the subsidy program. ii.) Fixed Payment Subsidies: An example is the Low Income Home Energy Assistance Program (LIHEAP), a space heating fuel subsidy program. A fixed dollar amount (independent of the amount of energy consumption) is deducted from a customer's energy bill with this type of program. Each program described below is assigned a short name that will be used to refer to the program throughout the paper. Names of rate subsidy programs end with the word "Rate", and names of fixed payment subsidies start with the word "Fixed Payment". RATE SUBSIDIES PCE Rate: The current Power Cost Equalization Program. The amount of rate subsidy is a fixed fraction of the difference between the actual cost of electricity for the utility receiving the subsidy and a fixed base rate. The formula is: Page 2 Sy ce Geis, 10)) where, S = The rate subsidy in cents/kWh. (i.e. the amount deducted from the actual cost of electricity) F = The fraction of the cost difference that is subsidized. In the case of PCE, F = 0.95. C = The actual cost of electricity in cents/kWh for the utility receiving the subsidy. B = A fixed base rate. In the case of PCE, B = 8.5 cents/kWh. With the current PCE program, each customer is limited to 750 kWh/month of subsidized electricity. PCE Formula Rate: A program similar to current PCE program except the amount of rate subsidy is not based on the actual cost of electricity for the utility receiving the subsidy but instead is based on a formula-derived cost of electricity for that utility. The formula would incorporate variables such as the size of the utility gud the utility's fuel cost to estimate the cost of electricity. Shared Savings Rate: A rate subsidy similar to PCE but incorporating a 50% shared savings mechanism. The initial amount of rate subsidy would be determined by the PCE formula, but if any cost-saving measures were implemented by a utility, the PCE subsidy would not be reduced as much as implied by the PCE formula. With the current PCE program, for each 1 cent/kWh cost saving that a utility can effect, the PCE rate subsidy is reduced 0.95 cents/kWh. With a 50% shared savings component to the PCE program, the PCE rate subsidy would only be reduced 0.5 cents/kWh for every 1 cent/kWh cost saving implemented by the utility. Baseline Rate: A "lifeline" or "baseline" rate subsidy program. A block of electricity sufficient to cover essential needs is provided at a reduced rate. For the purposes of this analysis, a baseline rate program must be chosen that results in the same amount of total subsidy as the current PCE program. (This is done to eliminate the effect of subsidy level on the results of the analysis). A variety of programs meet this criteria. The PCE program itself is a form of a baseline rate program; 750 mr. Peter Hansen, an employee of the Alaska Power Authority, has done substantial work in developing such a formula. Page 3 kWh/month are provided at about one-third of real cost. The baseline rate program that will be used for this analysis is one where a much smaller block of electricity is provided at no cost. It is estimated that a program that provides about 200 kWh/month at no cost would require about the same funding level as PCE. The extreme case was chosen to provide the most contrast with the current PCE program. Postage Stamp Rate: A program that provides enough rate subsidy so that all rural electric rates are equal to a desired "postage stamp" rate. This is actually a variant of the current PCE program, except F in the formula is 1.0, and B is set to the postage stamp rate. The postage stamp rate program evaluated here is assumed to have a 750 kWh limit on the subsidized electricity per customer, just as the current PCE program. FIXED PAYMENT SUBSIDIES Fixed Payment Formula: A fixed credit would be applied to each customer's monthly electric bill. The credit would vary across communities according to the costliness of producing power in the community. A formula such as the one used in PCE Formula Rate would be used to determine the power cost scaling. A customer receiving a credit that exceeds their monthly bill would be able to carry the credit forward to following months. A net credit at the end of the year could be paid to the customer's fuel dealer, or applied to the purchase of an energy conservation product. Fixed Payment Cost: Same as Fixed Payment Formula except that the scaling of the payment is done according to actual electric costs, not a formula-generated cost. Fixed Payment Formula - No Excess: Same as program Fixed Payment Formula except any net credit at year-end is returned to the State and not the customer. (This program is actually very similar to Baseline Rate). The next two sections rank these programs as to their effects on the incentives of utilities and customers to reduce costs. 4. INCENTIVES FOR EFFICIENT PRODUCTION OF ELECTRICITY When a regulated utility makes a cost-saving improvement, the net savings flow through to the utility's customers via reduced rates. With some types of electricity subsidy programs, the rate reduction resulting from a cost-saving improvement is partially cancelled by an associated reduction in subsidy payment. If this Page 4 effect occurs, the subsidy program has reduced the economic incentive for a utility to undertake such cost-saving improvements. In order for a subsidy program to not interfere with a utility's cost-cutting incentives, it is necessary that the subsidy payments be totally independent of the utility's specific costs or activities. If this is the case, any utility initiated improvements will not result in a change in subsidy payment. To test the incentive effects of a subsidy program, first imagine an improvement that produces a net savings of 1 cent/kWh. Then trace the effects of this cost savings on the subsidy payments to the utility. The fraction of the 1 cent/kWh that is actually kept by the utility is an indicator of the incentive environment produced by the subsidy program in question. This test was applied to the eight subsidy programs, and the ranking shown in Table 1 was produced. The programs that maintain the highest level of incentive are listed first. TABLE 1 - INCENTIVE FOR UTILITY COST REDUCTIONS FRACTION OF SAVINGS KEPT BY THE RESIDENTIAL CUSTOMERS FOR A 1 CENT/KWH REDUCTION IN COST PCE Formula Rate Fixed Payment Formula Fixed Payment Formula - No Excess Shared Savings Rate Baseline Rate Fixed Payment Cost PCE Rate Postage Stamp Rate The highest ranking programs are the three programs that adjust the subsidy payment according to the cost of genergting power but do so with a formula and not actual utility costs. Using a formula to scale the payment keeps the subsidy payment totally 2credit to Mr. Peter Hansen for discovering this relationship. Page 5 independent of a utility's actions and therefore maintains full incentive for reducing costs. Both the existing PCE program and Postage Stamp Rate rank low on the scale. For these two programs, a cost reduction by a utility is almost totally cancelled by a decrease in subsidy payment. Appendix A describes in detail how the measure of incentive for each program was determined. 5. INCENTIVES FOR EFFICIENT USE OF ELECTRICITY With an electricity subsidy program, a portion of a customer's bill is paid for by the subsidy. If the customer reduces electricity consumption through use of an energy conservation measure, their total electric bill is reduced. If the dollar amount of their subsidy is also reduced because of reduced consumption, the benefit to the customer of the conservation measure is diminished. If a customer does not see the full cost reduction from a conservation measure, the economic payback period is lengthened, and the customer is less likely to implement the measure. 3For all of the example programs there is a fundamental difference between the degradation of incentive occurring with the utility and the degradation occurring with the customer. In the case of the utility, both savings and costs from a cost- reducing measure are reduced in the same proportion. Consider a measure that costs 3 cents/kWh but saves 8 cents/kWh. Under the current PCE program, the 3 cent/kWh cost has the effect of increasing the PCE subsidy by 0.87 x 3 cent/kWh while the 8 cent/kWh savings has the effect of decreasing the PCE subsidy by 0.87 x 8 cent/kWh. With equal proportional effects on savings and costs, the program does not change a measure that has net positive benefits overall into one that has net negative benefits for the utility. The effect of the subsidy program is to reduce the magnitude of the net benefit (savings - cost). A measure that produces $1000 of net benefit only delivers $130 of that net benefit to the customers (the rest goes to the state). The situation is different regarding the customer incentive to conserve. The subsidy programs reduce the dollar savings received by the customer from a conservation measure. However, the programs never reduce the cost of the measure. Thus, the existence of the subsidy program can change an economical conservation measure (from the state + customer perspective) into one that is not economical from the customer perspective. Imagine a measure costing $100 and producing $120 of total savings. A subsidy program could reduce the savings seen by a customer to $40 while not reducing the cost any. From the customer's perspective the measure is rendered economically unattractive. Page 6 In order for a subsidy program to not degrade a customer's incentive to conserve, the amount of subsidy to a customer must be totally independent of the customer's actual energy consumption. Thus, any reductions in usage will not reduce the amount of subsidy received. As a test of the incentive effects of a subsidy program, consider a customer in a utility that has a 40 cent/kWh residential rate (unsubsidized). A measure of the incentive for efficient use of electricity is the fraction of that 40 cents/kWh that is actually kept by the customer if consumption is reduced by 1 kWh. If a customer reduces consumption by 1 kWh but the subsidy is reduced 10 cents, the savings actually kept by the customer is 30 cents, or 75% of the total savings. The 75% figure would be the measure of incentive for this subsidy program. This test was applied to the eight subsidy programs, and the ranking in Table 2 was produced. The programs that maintain the highest level of incentive are listed first. 4utotal savings" is used loosely here. Although electric rates in rural Alaska are frequently over 40 cents/kWh, a reduction of one kWh of use does not result in 40 cents of savings to the utility. A substantial portion of the cost of producing electricity is fixed (e.g. salaries and most O&M). True "avoided" or variable costs are generally 10 to 20 cents/kWh. However, this paper compares savings to the customer to the full cost of electricity, including fixed cost. This measure of incentive is only meant to be a relative measure. Page 7 TABLE 2 - INCENTIVE TO CONSERVE ELECTRICITY FRACTION OF SAVINGS KEPT BY A RESIDENTIAL RANKING PROGRAMS CUSTOMER FOR A 1 KWH REDUCTION IN CONSUMPTION Fixed Payment Formula Fixed Payment Cost Baseline Rate Fixed Payment Formula - 75% No Excess PCE Rate 33% Postage Stamp Rate Shared Savings Rate less than 33% PCE Formula Rate significantly less than 33% The two fixed payment programs that allow excess subsidy credit to be returned to the customer are the highest ranking programs. With these programs, the dollar benefit to the customer of the subsidy is totally independent of usage. Thus, full incentive for reducing consumption is present. The lowest ranking programs are Shared Savings Rate and PCE Formula Rate. With these programs, if a utility implements a cost-saving measure a large fraction of a utility cost reduction is passed through to the subsidized customer rates. Thus, subsidized rates are driven substantially below what they are under the current PCE program. Since the subsidized customer rates determine the savings seen by the customer from a conservation measure, conservation savings are reduced with lower subsidized rates. Appendix B describes in detail how the measure of incentive for each program was determined. 6. SUMMARY Table 3 summarizes the results of the above analysis, showing the utility and customer incentive measures for each program. Page 8 TABLE 3 - SUMMARY OF INCENTIVE IMPACTS | UTILITY CUSTOMER PROGRAM INCENTIVE INCENTIVE PCE Rate 33% PCE Formula Rate significantly less than 33% Shared Savings Rate less than 33% Baseline Rate 75% Postage Stamp Rate 33% Fixed Payment Formula 100% Fixed Payment Cost 100% Fixed Payment Formula - 75% No Excess Fixed Payment Formula is the only program that provides full incentive to utilities and full incentive to customers for reducing energy costs. It does so because the subsidy payment is independent of both the utility's actions and an individual customer's consumption level. In general, the fixed payment programs scored better than the rate subsidies with regards to incentives. In fact, all fixed payment programs were superior or equal to the best rate subsidy program with regards to the customer incentive to conserve. The results were not as clearly divided concerning utility incentives. The analysis was done assuming the eight programs received funding at a level equal to the current PCE funding. It is expected that the ranking of the programs as to their effects on incentives would not change if the programs were funded at a lower level. The relative ranking of the programs is primarily a function of the structures of the programs and not the level of funding. (The absolute effect on incentives is typically a function of funding level: the greater the funding, the greater the degradation of incentive). As a rough indicator of the importance of incentives, consider the following estimates. The potential for cost reduction through use of efficient lighting and refrigeration equipment in the residential sector alone could amount to $ 3 million of Page 9 savings per year in rural utilities. (These figures will be refined and further substantiated in a subsequent report). Significant additional potential exists in the conversion of electric water heaters, small electric space heaters, and cooking ranges to fuel oil or propane. Increasing the fuel efficiency of diesel generators from the FY 1987 average of 12.2 kWh/gallon to an achievable 14 kWh/gallon could save over $2 million per year in fuel costs for rural utilities. Improvements in operating and maintenance procedures present possibly the largest potential for cost savings (O&M costs were $27 million in FY 1987). A byproduct of cost reductions of this type would be the development of better trained utility operators and managers. Over $10 million of diesel generator waste heat is vented to the atmosphere each year in rural utilities. Installation of waste heat recovery systems could turn a portion of this waste into useful heat for buildings. A portion of this potential could be tapped via market forces by improving the incentive environment created by our current PCE program. However, providing proper market signals is only one component in the solution to rural energy problems. Not only do actors in the energy marketplace need to be rewarded economically for their smart decisions, they also need access to the resources required to make smart decisions. Information concerning technical options and the capital to implement the desired options are two necessary ingredients that are frequently lacking in the rural energy arena. These market failures must be addressed as well if substantial improvement in the rural energy situation is desired. 7. AUTHOR'S RECOMMENDATIONS The preceding analysis focused on only one aspect of electricity subsidy programs, i.e. their effects on incentives. One subsidy program, Fixed Payment Formula, was shown to rank highest in its ability to preserve both utility and customer incentives. It is the author's opinion that this program also represents the best alternative to current PCE in a broader sense. The following section compares some of the other features of this program to the existing PCE program. Each utility participating in PCE is required to report their costs in order that a subsidy payment can be determined. While the reporting requirements are not exceptionally comprehensive, smaller utilities often have problems documenting all the necessary information. The result is either the hiring of outside expertise (and therefore additional cost) or the submission of incomplete documentation. Incomplete documentation generally results in reduction in subsidy payment since some utility costs are not allowed into the PCE formula. This situation raises concerns over the equity of the subsidy program. Page 10 With the fixed payment program, the total dollar payment to a utility is determined by the number of customers in the utility and a formula-determined price for electricity. Inputs to the formula are determined by the location of the utility, which is a proxy for fuel cost, and its size. Thus, the only pieces of information that a utility must report are number of customers and total kWh sold. This administrative simplicity provides advantages over the current PCE program. Another characteristic of the fixed payment program is its ability to be used with any level of funding. With the current PCE program, the only way funding can be altered is through a legislated change in the PCE formula. Without a formula change, the amount of funding required is determined by the eligible kWh sold during the year and the cost of those kWh, both of which are out of control of the state. With the fixed payment program, the process is reversed and total funding for the year is determined first. Derived from this total funding level, the number of eligible customers, and the formula-determined utility costs is a monthly payment per customer for each utility. Although this funding flexibility may be seen as an advantage by some, it may also be perceived as a threat by others. The inflexibility in the current PCE program protects it from those who would like to decrease its funding. A very important difference between the current PCE program and a fixed payment program would be in the distribution of benefit from the program (total dollar benefit can be kept the same for the two programs). With the current PCE program, the dollar benefit to a customer is proportional to the amount of electricity used, up to the 750 kWh/month cap. Thus, larger users receive more benefit than smaller users. With a fixed payment program, the dollar benefit would not vary across size of user. A small user would receive the same dollar benefit as a large user. To the extent that small users tend to be low-income households, the switch to a fixed payment program would benefit the poor. The other important distributional concern is the how the benefit varies across different utilities. With the current PCE program, utilities with costly electricity receive more benefit that those with less costly electricity. With the fixed payment program, this same variation occurs. but scaling is done via a formula- determined utility cost not an actual utility cost. The distributional differences between the two approaches are described below. Imagine two utilities that are located in the same area and have the same number of customers with similar electrical consumption habits. One utility is operated in a cost-efficient manner while the other is mismanaged and operated inefficiently. Under the current PCE program, the dollar benefit of the subsidy would be greater for the inefficient utility, since their cost of Page 11 electricity is higher. Under a fixed payment program with formula-based scaling, the dollar benefit to both utilities would be the same since they are the same size and operating in the same environment. Thus, a switch from PCE to a fixed payment program would shift benefit from inefficiently operated utilities to cost-efficient utilities. Another difference in distribution across utilities was alluded to previously. Utilities with poor cost documentation are penalized under the PCE program. No cost documentation is required under a formula-scaled fixed payment program so distribution of benefit is independent of this factor. Finally, abuse of the subsidy program must be considered. With PCE, additional costs on a utility's books are covered in large part by additional PCE subsidy. Situations have been reported where utilities are employing more people than necessary, buying fuel to heat community facilities, and incurring other costs unrelated to running the electric utility. While this abuse of the program generally cannot be considered waste, since much of additional subsidy payment is being applied to very necessary purchases, the abuse does constitute a form of inequity. Some utilities benefit from this technique while others do not. With a formula-scaled fixed payment program, additional utility costs do not result in additional state subsidy. The utility reports essentially two items: number of customers, and total annual kWh (which acts as an indicator of utility size in the utility cost formula). A utility can inflate their number of customers to obtain more subsidy, but a building count would catch this abuse. Reporting fewer kWh than actually sold would tend to increase the subsidy payment to a utility, since the formula for estimating utility cost will estimate a higher price for utilities with smaller loads. This abuse would be harder to detect. If this is a substantial concern, number of customers could be used in the formula as indicator of utility size instead of total kWh sold. Other features can be added to a fixed payment program to achieve desired goals. If a program that only serves low-income people is desired, an income test or income scaling factor can be added. If it is desired to give higher payments to larger households, a scaling factor for household size can be added to the program. These additional factors can fine-tune the program but do increase administrative complexity and potential for abuse. Page 12 APPENDIX A Derivation of Table 1: Incentive for Utility Cost Reductions PCE Formula Rate, Fixed Payment Formula, and Fixed Payment Formula - No Excess are all top-ranked. The subsidy payment in these three programs is totally independent of the utility's actions, so full incentive to cut costs is maintained. These programs do give increased subsidy to high cost communities, but the scaling is determined by a formula and not by actual costs of the utility. The ranking for the remaining programs is slightly more complicated. Figure 1 supplies some needed information. It shows what fraction of the total residential kilowatt-hours would receive subsidy if there is a limit on the subsidized kilowatt- hours per customer. With the current PCE program, a customer's use is only subsidized up to 750 kWh/month. Beyond that the customer pays full cost for the electricity. The graph below shows that about 92% of all residential kilowatt-hours are subsidized. The other 8% appear on customers' bills who use more than 750 kWh/month. EFFECT OF SUBSIDY CAP ON NUMBER OF RESIDENTIAL kWh SUBSIDIZED 186% 98% 88x 7a 68x % OF kWh SUBSIDIZED °% 48x 38% 20% 18x ex 8 1e6 206 388 468 «S88 6866 788 886 SUBSIDY CAP (kWh/month) FIGURE 1: The graph is derived from the table on Page 51 of Energy Policy Report for the Governor's Energy Policy Task Force: The Power Cost Equalization Program, November 1987. Percentages for each usage bracket are calculated by dividing the MWH Amended Cap by 4856 MWH/Month (Total MWH/Month Consumed) . Page A-1 Shared Savings Rate, Baseline Rate, and Fixed Payment Cost cause approximately the same reduction in a utility's incentive to reduce costs. With Shared Savings Rate, each 1 cent/kWh reduction in utility cost causes a 0.5 cent/kWh reduction in subsidy. However, since the subsidy program has a 750 kWh/month cap, only 92% of residential kilowatt-hours are affected by the program. The other 8% of the residential kilowatt-hours see the full 1 cent/kWh reduction in cost. Thus, the effective savings to the utility is: (92% x 0.5 cent/kWh) + (8% x 1.0 cent/kWh) = 0.54 cent/kWh. For Baseline Rate only 200 kWh/month per customer is subsidized, but that usage is subsidized 100%. Thus, a 1 cent/kWh cost decrease results in a 1 cent/kWh subsidy reduction for those kilowatt-hours. Figure 1 shows that approximately 40% of total residential kilowatt-hours would be subsidized under such a program. All other kilowatt-hours see the full cost reduction. Therefore, the effective savings to the utility from a 1 cent/kWh cost reduction is: (40% x 0.0 cent/kWh + (60% x 1.0 cent/kWh) = 0.60 cent/kWh. The incentive environment is approximately the same as under the Shared Savings Rate. Fixed Payment Cost is actually quite similar to Baseline Rate. For customers consuming more than the 200 kWh/month cap in Baseline Rate, they in essence are receiving a fixed payment equal to 200 kWh/month times their local electric rate. Because of the similarity of the programs, their effects on utility incentives are essentially equal. 5The analysis only addresses the residential sector. Witha program such as PCE where there is a limit on subsidized kWh per customer, a very large percentage of the kilowatt-hours sold to schools and commercial buildings is unsubsidized since usage per building is much higher. ®The only reason Fixed Payment Cost and Baseline Rate differ is the effect on customers with consumption less than 200 kWh/month. With Fixed Payment Cost the very small user actually receives benefit from credit in excess of her electric bill. With Baseline Rate no net credit can accrue. 7The reasoning is a bit subtle. Assume a utility receives the same total dollar payment under Baseline Rate as they would Fixed Payment Cost (the intent is to compare different subsidy programs with the same level of subsidy). The dollar payment in Baseline Rate is directly proportional to the utility's electric cost, since it simply equals the number of subsidized kilowatt- hours times electric cost. In Fixed Payment Cost, the dollar payment is directly proportional to the utility's electric cost by definition of the program. Thus, a certain percentage reduction in electric cost will produce the same reduction in subsidy payment under both programs. Page A-2 PCE Rate, the current PCE program, ranks poorly because incremental changes in costs are subsidized to such a large extent (95%), and the program applies to almost all kilowatt- hours sold in the residential sector (92%). The savings seen to the utility from a 1 cent/kWh reduction in cost is: (92% x 0.05 cent/kWh) + (8% x 1.0 cent/kWh) = 0.13 cent/kWh. Postage Stamp Rate has the worst effect on utility incentive. For kWh below the cap (750 kWh/month), the rate seen by the customer is constant and totally independent of the actions of the local utility. A 1 cent/kWh cost saving measure is totally cancelled by a 1 cent/kWh reduction in subsidy payment. The kilowatt-hours sold above the 750 kWh/month cap are unaffected by the program so see the full 1 cent/kWh reduction. Therefore, the incentive measure is: (92% x 0.00 cent/kWh) + (8% x 1.0 cent/kWh) = 0.08 cent/kWh. Page A-3 APPENDIX B Derivation of Table 2: Incentive To Conserve Electricity With both Fixed Payment Formula and Fixed Payment Cost the dollar benefit to the customer is totally independent of their specific level of consumption. Thus, if a customer reduces electric consumption there is no loss in dollar benefit from the subsidy program, and full incentive to conserve is maintained. Fixed Payment Formula - No Excess and Baseline Rate rank similarly. For customers that consume at a level above the baseline block or above the fixed payment amount in the case of Fixed Payment Formula - No Excess, a 1 kWh reduction in use nets the full cost savings of 40 cents. However, for customers that generally consume below the baseline cut-off or below the fixed payment level, a reduction in use garners no net savings (for Baseline Rate, electricity is free below the cut-off, and for Fixed Payment Formula - No Excess reducing consumption just generates more net credit, which is not paid to the customer). Figure 3, page 53, in the Energy Policy Report for the Governor's Energy Policy Task Force indicates that about 25% of the customers use less than 200 kWh/month, the estimated cap for Baseline Rate. Thus, 75% of the customers receive full incentive and 25% of the customers receive no incentive. The measure of incentive is therefore: 0.75 x 100% + 0.25 x 0% = 75%. The next program, PCE Rate, is the current PCE program. For those customers that use over the 750 kWh/month cap, full incentive is provided for reducing consumption. Each kWh saved nets the full 40 cents on their bill. Figure 3 from the above cited report indicates that about 10% of residential PCE customers use over 750 kWh/month. However, customers that generally use less than the cap receive far less incentive to conserve. Each kWh reduction saves them the subsidized price of electricity. For the 40 cent/kWh utility, the subsidized price is about 10.1 cents/kWh, assuming all utility costs are allowable in the PCE formula. The subsidized price of 10.1 cents/kWh is 25% of the full cost of electricity. Thus, 90% of the residential PCE customers receive 25% of the full incentive to conserve. The measure of incentive is therefore: 0.9 x 25% + 0.1 x 100% = 32.5%. Postage Stamp Rate ranks about the same as current PCE. If the postage stamp program is structured so that the same number of kWh are subsidized as in the PCE program (i.e. the caps on subsidized kWh and the classes of eligible customers are the same), then the average subsidy per kWh would be the same in both programs, since this analysis holds the total level of funding constant across programs. The subsidized price to the customer would on average be the same in both programs, and therefore the incentive to conserve would be the same. However, structuring Page B-1 the postage stamp program to have caps and eligible customers different from the PCE program would change this result. Shared Savings Rate initially looks the same as the PCE program to the customer. The amount of rate subsidy, the cap on subsidized kWh, and the eligible customers are the same. Where the program differs from PCE is in its future effects. The subsidized residential rate for our hypothetical 40 cent/kWh utility is 10.1 cents/kWh. Imagine that the utility finds a way to cut costs by 5 cents/kWh. Under Shared Savings Rate the rate subsidy would be reduced by 2.5 cents/kWh, and the utility would keep the other 2.5 cents/kWh of the cost reduction. This savings would be passed through to customer rates in a regulated utility, and the new residential rate would be 7.6 cents/kWh. This subsidized rate is the amount a customer would save if they reduced consumption by 1 kWh. The customer's incentive to conserve was 10.1 cents/kWh before the cost reduction and now is 7.6 cents/kWh, significantly less. Shared Savings Rate improves a utility's incentive to cut costs but degrades a customer's incentive to conserve electricity. PCE Formula Rate, the PCE-type program with the rate subsidy determined by a formula-based cost, has the same problem as Shared Savings Rate except to a larger degree. With PCE Formula Rate, not all utilities would get the same rate subsidy as they did under PCE. The cost estimation formula would give two utilities operating under the same types of conditions the same amount of rate subsidy, even though their actual costs may be very different. However, the average rate subsidy would be the same under both programs since the total funding level would be the same. For sake of example, assume that the hypothetical 40 cent/kWh utility is an average utility, and they would receive the same rate subsidy under the current PCE and the PCE Formula Rate. Now assume the utility reduces costs by 5 cents/kWh. Their rate subsidy would not change, since it is independent of actual costs. If the utility is regulated, the 5 cent/kWh savings would be passed through to customer rates. The subsidized residential rate would drop from 10.1 cents/kWh to 5.1 cents/kWh, and the incentive for a customer to conserve electricity would be reduced drastically in this utility. Page B-2— ANALYSIS NORTH 3511 Tanglewood. #A + Anchorage. AK 99517 THE ECONOMIC POTENTIAL OF ENERGY EFFICIENCY IN RURAL ALASKAN RESIDENCES Prepared for the Governor's Energy Policy Task Force By Alan Mitchell March 22, 1988 ABSTRACT This paper analyzes the economic benefits and costs of energy efficiency measures for rural Alaskan residences. Analyzed are measures such as improving heating system efficiency, superinsulating new homes, and upgrading existing lighting systems to high efficiency lighting. For each measure, the benefits and costs of the measure are assessed for one or more rural situations. Then, an estimate of the total number of possible applications of the efficiency measure is made. From these two components, the total benefits and total costs of the efficiency measure can be determined assuming all possible applications are utilized. The analysis is limited to the approximately 20,000 households that receive Power Cost Equalization payments. For these households, the total potential benefits from energy efficiency were found to be $370 million (present value), achievable at a cost of $130 million (present value). Expressed on a per existing household basis, the benefits are $18,500 and the costs $6,500. Compared to other energy projects, the $240 million net benefit and the benefit to cost ratio of 2.8 are excellent. (For example, the House Research Agency assessment of the Bradley Lake Hydroelectric project showed a $45 million net benefit and 1.1 benefit/cost ratio, based only on the remaining costs of the project.) Superinsulating new homes and improving the efficiencies of heating systems were the efficiency measures demonstrating the largest net benefits. Figure 1 and Table 1 on pages 7-9 of the report summarize the benefits and costs of all of the efficiency measures analyzed. THE ECONOMIC POTENTIAL OF ENERGY EFFICIENCY IN RURAL ALASKAN RESIDENCES Prepared for the Governor's Energy Policy Task Force By Alan Mitchell March 22, 1988 1 INTRODUCTION This paper investigates the potential economic benefits from improving the energy efficiency of rural Alaskan residences. + Technologies are examined that provide the same level of service in terms of light, warmth, and refrigerated storage (for example) as technologies currently in use yet do so with less energy input. Examples of energy efficiency improvements analyzed here include heating system efficiency improvements, increased attic insulation, conversion of electric ranges to propane ranges, and energy efficient lighting retrofits. For each of the efficiency improvements addressed, two types of calculations are done. First, the economic costs and benefits of the improvement are assessed for a typical application or range of applications in rural Alaska. Next, a rough determination of the total possible applications of the technology is made, and the total economic benefits and total costs are multiplied out. This total economic potential reflects the effect of utilizing all possible applications of the technology. For this analysis, rural Alaskan residences are defined as the approximately 20,000 homes that receive Power Cost Equalization payments. The funding for this work was minimal, so the investigation is obviously limited. The author chose to limit the depth of the work as opposed to the breadth in order that the rough potentials of a wide range of technologies could be presented. The sacrifice, however, is the accuracy of the calculations.2 The benefit/cost analyses of particular efficiency applications are probably accurate to +/- 30%. An example of such a calculation is the estimation of the benefits and costs of upgrading the insulation in a particular attic from R-19 to R-60. There is similar uncertainty in the estimates of the number of such applications. These figures were derived from personal experience and from conversations with other individuals engaged in energy and housing activities in rural Alaska. End use surveys would provide better information concerning the number of applications of efficiency improvements. Calculation methods and assumptions are contained in Appendix A. The lthis paper does not address energy efficiency in commercial and institutional buildings. However, significant benefits from energy efficiency do exist in these sectors. 2Given the uncertainty of the future (e.g. fuel prices, technological advancements, etc.) some of these calculations do not warrant much more depth. 1 benefit/cost calculations themselves and more detailed descriptions of the technologies are given in Appendix B. The body of the report describes in general the technologies and summarizes the results of the benefit/cost calculations. 2. TECHNOLOGIES EXAMINED 2.1. Space Heating Efficiency Improvements Three methods are available for reducing the amount of fuel needed to heat a building. The amount of heat that is lost to the environment from the building can be reduced through improved insulation, reduced air leakage, and lower indoor temperatures. The efficiency of the heating system can be improved so that a higher fraction of the energy in the fuel is converted to useful heat. Finally, the utilization of free heat (e.g. solar energy through windows) can be increased. Technologies relevant to the first two methods are examined in this paper. Solar energy (especially passive solar) and recovery of wasted heat (especially from generators) do have beneficial applications in rural Alaska but are not addressed here. A number of retrofit possibilities are examined in the space heating energy end use. These technologies find application in the existing stock of homes in rural Alaska. Measures analyzed include: a) replacing low-efficiency heating systems with high-efficiency types, b) increasing attic insulation levels, c) caulking and sealing air leakage points in a home, d) improving window systems with interior storm windows or new super- insulating glass, and e) replacing solid wood doors with metal foam-insulated doors. In addition, the improvement in energy efficiency of homes built in the future is analyzed. In order to perform such an analysis, a baseline for comparison must be established. For this work, a home built to the new Alaskan Thermal Standard is used as the reference. The home compared to this reference is a home built to insulation and air-tightness levels that minimize the life- cycle cost of the home; i.e. levels that represent economically optimal levels of construction.2 A home built to the standards of the Alaska Craftsman Home Program typifies this class of energy efficient construction. A home built in compliance with the Alaskan Thermal Standard represents a 3The retrofit analysis addresses each building component separately. For the new construction analysis, the home that minimizes life-cycle cost is analyzed as a package. Costs and benefits for separate components (windows, doors, etc.) are not presented. tm significant improvement over the efficiency level of the existing rural housing stock. A typical existing 1000 square foot home in rural Alaska consumes about 1000 gallons per year of heating oil, whereas a similar sized home built to the Alaska Thermal Standards consumes about 450 gallons per year. Since the Thermal Standard home is the baseline in this analysis, none of this improvement over the existing housing stock is reflected in the economic potential figures derived. The figures for energy-efficient new construction only show the costs and benefits of surpassing the Thermal Standard level by building to level that minimizes life-cycle cost. This economically optimal home (optimal from the energy perspective) uses about 200 gallons per year of fuel, an 80%+ savings with respect to a typical existing home. 2.2. Electrical End-Use Efficiency Improvements Substantial progress has been made in recent years in reducing the amount of electricity required to provide residential lighting, refrigeration, and electronic entertainment. The most efficient mass-produced US refrigerator uses 60% less electricity than the average model sold in 1972. A hand-made model sold primarily to homes using photovoltaic panels for electricity saves more than 90% with respect to the 1972 model. Compact fluorescent lamps that are suitable replacements for standard incandescent light bulbs reduce electricity use by 70% and last significantly longer. Many of these technologies are assessed in this paper. The cost-effectiveness of the energy efficient lighting technologies is attractive enough to justify early replacement of existing lighting systems. Both this “immediate retrofit” scenario and the upgrade of lighting in homes built in the future are investigated. For the other appliances--freezers, refrigerators, and televisions--the analysis assumes that an efficient model is chosen at the time of normal replacement of the existing appliance. Energy efficient lights and appliances reduce the cost of providing residential energy services in two ways. First, they reduce the fuel consumption of the utility's diesel generators. In addition, the technologies generally reduce the peak or maximum demand for electricity and therefore allow for reductions in the size and cost of diesel generator replacements. (Of these two cost reductions, the fuel cost reduction is the dominant benefit.) The result is that for every kilowatt-hour of electric load reduction, approximately 12.5 cents of generation cost is saved. The "avoided cost” figure depends primarily on the cost of fuel and the efficiency of the generator, but 12.5 cents is reasonable average for rural Alaska. This study correctly values the electricity savings of load reducing measures at the avoided cost of electricity and not the retail price, which is significantly higher.4 4the retail price for electricity substantially exceeds the avoided cost because there is a large amount of fixed cost incurred in the operation of a rural utility. Employees’ salaries and many operation and maintenance costs, for example, are not solidly related to the amount of kilowatt-hours generated. Some analysts claim that this high proportion of fixed costs may indicate the inappropriateness of centralized utilities in a small village 3 2.3. Fuel Switching Possibilities Electric resistance heating systems are a very inefficient and costly use of energy, yet electric ranges, electric domestic hot water heaters, and even electric space heaters are found in rural Alaska.> These systems are inefficient because approximately 25% of the energy content of the diesel fuel burned in a generator reaches the consumer in the form of electricity. Alternatively, that same fuel can be burned directly in the home at 60 - 90% efficiency to provide heat. This factor of 3 reduction in fuel usage makes the elimination of electrical heating appliances very cost-effective. This analysis examines the potential economic benefits of converting existing electric hot water heaters to oil-fired units. Also, the conversion of existing electric ranges/hot-plates to propane units is analyzed. The substitution of fuel-fired water heaters and ranges for electric units in the future is not specifically analyzed because of lack of information on expected consumer choices. The absence of analysis is not meant to imply that the issue is not important. Conversations with individuals in Hooper Bay, Alaska indicate that many households are choosing to buy electric ranges instead of propane cooking appliances. Electric ranges are particulary detrimental on small village utility systems because of the peak loads and phase imbalances they create. ‘a Y OF RE s Figure 1 summarizes the results of the economic benefit/cost calculations performed in Appendix B. Table 1 gives more detail about each efficiency measure shown in Figure 1. In Figure 1 two bars are shown for each efficiency measure. The dark bar represents the present value of the economic benefits derived from the efficiency measure. The cross-hatched bar represents the present value of the costs of the efficiency measure. The present value technique is a method for combining costs and benefits that occur at different times. It accounts for the fact that a dollar received today is worth more than a dollar received a year from now, because today’s dollar can be invested and earn interest. Appendix A details the specific economic assumptions used in the calculations. The figure shows that the total potential benefits from the efficiency envirnoment. Independent power systems, with their lower fixed costs, may prove to be more appropriate in some situations. 5a recent survey done by the Rural Alaska Community Action Program showed that about 25% of the homes in Hooper Bay, Alaska use portable electric space heaters on occasion. These heaters are generally used as supplemental heat in cold parts of a home. The need for this supplemental heat can often be eliminated through weatherization. This benefit of weatherization (the reduction of electric space heater use) was not quantified in the weatherization analysis thus lending conservatism to those calculations. 4 measures analyzed amounts to $370 million, and the cost of acquiring those benefits is $130 million, subject to the caveats concerning uncertainty mentioned in section 1. The net benefit of $240 million and the benefit to cost ratio of 2.8 compare favorably to other energy investments and investments in general.® Expressed per existing rural household (20,000 existing households), total benefits are $18,500/household, total costs are $6,500/household, and net benefits are $12,000.’ The efficiency measures having the largest net benefits are "Superinsulated Homes” and "Heater Retrofits". The "Superinsulated Homes” measure analyzes the upgrading of the next 20 years of new housing construction to Alaska Craftsman standards (life-cycle cost optimal construction). The Heater Retrofits measure addresses replacement of entire heating systems with high efficiency types, replacing inefficient oil burners in boilers and furnaces, and tuning up burners. As discussed in Appendix C, the uncertainty in the Heater Retrofit calculations is probably larger than the uncertainty in the calculations for other efficiency measures. The electrical efficiency measure that shows the most net benefit is high- efficiency Lighting Retrofits. Efficient freezers and refrigerators appear relatively low in the ranking because the analysis of these measures involved comparing the best available models against the average model currently sold. Because of appliance standards and market demands, the average model sold is significantly better than the existing stock of refrigerators and freezers being used. This improvement was not captured in the analysis. 4, CONCLUSIONS This analysis has shown that significant economic benefits could be realized from the implementation of energy efficiency measures in existing and future rural residences. The analysis focused on measures that probably will not be implemented by the unaided marketplace. For example, the analysis of space heating efficiency measures in new housing compared economically-optimal construction against construction that would meet the state Residential Thermal Standard. Any improvement that the thermal standard effects relative to the existing stock of housing was not counted in the benefit/cost figures. 6The March 18, 1987 House Research Agency analysis of the Bradley Lake hydroelectric project showed net benefits of $45 million (benefit to cost ratio of 1.1), based on the remaining costs of the project. The implication of the analysis was that when sunk costs are also counted, the net benefits of the project are negative over a 50 year analysis period. The Alaska Power Authority Preliminary Economic Assessment of the Railbelt Intertie Proposal showed a net economic loss of $5 million for that project. ’These benefits affect more than 20,000 different homes because efficiency measures that affect future housing are included in the analysis. Also, some of the benefits accounted for occur as distant as 60 years from now. For example, the benefits of superinsulating a home built 20 years from now accrue over the 40 year life of the home. Thus, the last year of benefit from this investment is 60 years from now. 5) If the implementation of these energy efficiency measures is deemed a policy priority, there are a variety of possible policy strategies. Three general strategies are given below. Number 1 can be described as “minimize energy price distortions caused by existing government programs”, number 2 as “improve information concerning energy efficiency”, and number 3 as "provide financial incentives to reduce the initial cost barrier associated with energy efficiency investments”. These policy strategies progress numerically from the least intrusive to the most intrusive in terms of government involvement in the marketplace. 1. The rate of adoption of these energy efficient technologies by the market is related to the economic payback seen by the user of the technologies. Any government programs that artificially lower the price of energy will reduce the paybacks seen by consumers from use of these technologies and therefore will hinder their adoption. Grants for energy supply projects (power plants, distribution lines, and bulk fuel storage) and the Power Cost Equalization program are examples of state activities that artificially lower the price of energy. If investment in energy efficiency is seen to be important, these programs should be restructured so that the efit t c ties is intained but the i tort 2. Consumers need good information as to what their options are and how the options perform when making decisions that affect energy use. If consumers do not know that there exist 15 watt light bulbs that can replace 60 watt light bulbs and that these light bulbs can save $60 of electricity over their life, then they are not likely to buy them. Government programs can help provide this information. 3. Consumers typically avoid paying now when they can pay later, even if it means paying much more later. If there exists no easy way to spread out the costs of energy efficiency measures over time, consumers will forgo the investments and tolerate the higher energy costs later. This phenomena is even more true for low-income people. Government can help alleviate this bias against the initial costs of energy efficiency by providing financial incentives such as loans and rebates. ey (= = = RURAL ENERGY EFFICIENCY POTENTIAL Residential Sector Figure 1 Superinsulated Homes Heater Retrofits Attic Insulation Caulk and Seal Window Retrofits Door Retrofits Lighting Retrofits New Home Lighting Freezers FOTALS Benefits = $370 mil Refrigerators Costs = $130 mil Televisions Net = $240 mil Electr. Water Heater Effic. Showerheads Electric Cooking 1 1 J | O 20 40 60 80 100 PRESENT VALUE ($ million) MMM senerits MWcosts Analysis North SUMMARY OF ENERGY EFFICIENCY MEASURES Table 1 NAME DESCRIPTION Superinsulated Homes Implementation: Upon construction of new residences. Compares life-cycle cost optimal construction (Alaska Craftsman Standard) to Alaska Residential Thermal Standard construction. Benefits and costs are assessed for the next 20 years of new housing construction. Heater Retrofits Implementation: Immediate Retrofit. Improving the energy efficiency of heating systems by replacing heating systems, replacing burners, and tuning-up heating systems. Attic Insulation Implementation: Immediate Retrofit. Upgrading of all attics with less than R-30 insulation to the R-60 level. Caulk and Seal Implementation: Immediate Retrofit. Caulking and sealing of air leakage points in residences. Window Retrofits Implementation: Immediate Retrofit. Upgrading the energy efficiency of windows by adding interior storm windows or changing the glass to R-5.0 glass. _ Door Retrofits Implementation: Immediate Retrofit. Replacing all solid wood exterior doors with metal insulated doors. Lighting Retrofits Implementation: Immediate Retrofit. Replacing incandescent lighting systems with compact fluorescent systems and upgrading ballasts and lamps in existing fluorescent lighting systems to energy-efficient models. New Home Lighting Implementation: Upon construction of new residences. Compares the use of state-of-the-art energy efficient lighting in new residences to the lighting system that most likely will be installed in the unaided market. Benefits and costs are assessed for the next 20 years of new housing construction. Freezers Implementation: Upon normal retirement of existing freezers. Compares the purchase of the most energy efficient freezers available to the purchase of average freezers. Benefits and costs are assessed for the next 20 years of freezer purchases. NAME Table 1 - Continued DESCRIPTION a a RR RR RR Refrigerators Televisions Electr. Water Heater Effic. Showerheads Electric Cooking Implementation: Upon normal retirement of existing refrigerators. Compares the purchase of the most energy efficient refrigerators available to the purchase of average refrigerators. Benefits and costs are assessed for the next 20 years of refrigerator purchases. Implementation: Upon normal retirement of existing televisions. Compares the purchase of the most energy efficient televisions available to the purchase of average televisions. Benefits and costs are assessed for the next 20 years of television purchases. Implementation: Immediate retrofit. Replacing all possible electric water heaters with oil-fired units. Implementation: Immediate retrofit. Replacing all showerheads with high-quality energy-saving models. Implementation: Immediate retrofit. Replacing electric ranges and hot-plates with propane models in small villages. APPENDIX A APPENDIX A General Assumptions and Calculation Methods Basic onomic sum ons A real (as opposed to "nominal”) analysis was performed. Costs and benefits were time-discounted at a real rate of 3.5% per year, equal to the discount rate used in Alaska Power Authority economic assessments. There are assumed to be approximately 20,000 existing rural residences, with rural being defined as those villages and communities receiving Power Cost Equalization payments. Energy Prices Benefits from electrical load reductions were valued at an avoided cost of $0.125 per kilowatt-hour and assumed to escalate at 1% per year, real. For the analysis of converting electric ranges and hot-plates to propane models, the approach was more sophisticated, incorporating peak demand effects. See the appropriate portion of Appendix B for more information. The user price of fuel oil was assumed to be $1.55 per gallon and was assumed to escalate at 1.5% per year, real (this is less than escalation rates typically used in Alaska Power Authority economic assessments). For space heating efficiency measures, only reductions in fuel oil use were accounted for. Reductions in wood consumption were assigned no value. Retrofit Cost Assumptions Most retrofit projects were evaluated over a 25 year time period. If the technologies were not expected to last that long, replacement costs were included. (Procedurally, the intial cost was amortized over the expected life of the measure, and this annual cost was assumed to occur over the entire 25 year analysis period.) In some cases, a shorter evaluation period was used when it was judged that the type of buildings receiving the retrofit were likely to have a shorter life. It was assumed that retrofit projects were accomplished through a comprehensive retrofit program. The initial cost of energy efficient technologies was estimated as: (bid price of materials + freight to rural Alaska + installation labor) x 1.22 The 1.22 factor adjusts for overhead and design costs of the projects. The costs incurred by the RurAL CAP Weatherization department for their projects were used as a reference when estimating retrofit costs. No insurance costs were included for retrofit projects because in reality such costs would probably not be incurred for additions or replacements in an existing building. Property taxes were also not included because these are 10 APPENDIX A not “costs” from a societal perspective; they are income transfers (i.e. dollar exchanges that do not involve additional consumption of labor or materials). Maintenance costs were also neglected in the analysis. Many of the retrofit measures have minimal maintenance costs, and some measures actually decrease maintenance costs. For example, the replacement of an incandescent lighting system with a compact fluorescent system results in a decrease in maintenance costs. A compact fluorescent lamp lasts about 10 times as long but only costs 6 times as much as the incandescent lamp it replaces (the unballasted compact fluorescents, not the self-ballasted types). In addition, replacement labor is reduced by a factor of 10. As an additional example, consider thermally efficient window systems. Condensation on the interior pane is virtually eliminated with these systems, thus decreasing wood rot and its associated maintenance cost. Normal Replacement and New Construction Measures For those measures that are assumed to occur upon normal replacement of a piece of equipment or upon construction or installation of a new piece of equipment or home, conservation costs are evaluated differently. First, it is assumed that materials are purchased through normal distribution channels; material costs are not as low as obtained through large quantity bids. However, no overhead and design costs are assessed, as was done with retrofit projects. For new construction measures, insurance costs are assessed at the rate 0.8% of the capital cost per year. For example, $1,000 of insulation would increase insurance costs by $8 per year. This cost is assumed to stay constant in real terms; i.e. the cost increases with the general rate of inflation. As with the retrofit case, no incremental maintenance costs are assumed to be incurred because of the energy efficiency measures. “T Present Value Calculations For determining the present value of a stream of equal costs or benefits occurring over n years, the following formula is used: (l+r)®-1 P=|-=ctx—-_—_ where, (l+rn"%xr P= The present value of the stream of costs or benefits ($). Cc = The annual cost or benefit ($ per year). r= The discount rate used to down-weight future costs or benefits (3.5% per year, in this analysis). n = The number of years that the costs or benefits occur over. a APPENDIX A For determining the present value of a stream of costs that escalate in magnitude at a fixed percentage rate per year, substitute the following expression for r in the above formula: er substitute for r: ——— - 1 where, ltre rae The discount rate, as before. e-= The rate of escalation of the annual cost or benefit. If an annual benefit increases 2% per year in real terms, e = 0.02. In the special case where r = e, i.e the discount rate and cost escalation rate are equal, the present value formula simplifies to: P= Cxn Space Heating Calculations A simple degree-day heat loss model was used to estimate space heating fuel savings for various energy efficiency improvements. The formula for fuel consumption of a building with this model is: F = (HLC x DD x 24 hrs/day) /e where, F = Annual fuel use (Btu's). HLC = The building heat loss coefficient (Btu/hr/deg F). This is calculated by summing the quotient of building component areas and their thermal R-values (i.e. area,/R-value; + areag/R- valueg + ...) and adding to this the loss coefficient due to infiltration of outside air. The infiltration heat loss coefficient is calculated by multiplying the infiltration in cubic feet per minute times 1.08. DD = Annual degree days, base 65 deg F. This is a measure of the climate severity, accounting for only temperature and not wind. For this analysis, 13,500 degree-days is assumed to be a rural Alaskan average. e-= Heating system efficiency, expressed as a fraction (e.g. for 75% e = 0.75). For analysis of efficiency measures that lower the building HLC, e = 0.83 was assumed. This is a high heating system efficiency and therefore lends conservatism to the analysis of insulation and air-tightness improvements. Efficiency measures either decrease the HLC, the heat loss coefficient, or increase the heating system efficiency, e. The formula is calculated twice, once with before values and once with after values, and the difference in fuel use values is the fuel savings. The fuel savings in Btu's is converted to gallons of oil by assuming that a gallon of #1 heating oil contains 128,000 Btu's of energy. 12 APPENDIX A Electrical Efficiency Calculations For electrical devices that draw a constant amount of power when on, annual energy use calculated by the following formula: E = P xh where, E = Annual energy use (kilowatt-hours). P = Power consumption of the device when on (kilowatts, which is Watts/1000). h = Number of hours used per year (hours/year). No approximations are made in this formula. If the values for P and h are exact, the answer is exact. 13 APPENDIX B Superinsulated Homes APPENDIX B - Calculations Alaska Craftsman Home vs. Thermal Standard Home Description This section analyzes the benefits and costs of building a home in rural Alaska to Alaska Craftsman standards (life-cycle cost optimal construction) instead of to the Alaska Thermal Standard level. The analysis only addresses new construction of residences; retrofit measures are addressed separately. The total economic potential of this measure is defined as the effect of adopting this type of construction for all rural homes built during the next 20 years. Numeric As Ss The typical home examined in this analysis is a 40’ x 26' (1040 exterior square feet) single story home. The thermal characteristics of this home, for both Thermal Standard construction and Alaska Craftsman construction, are given in the chart below. (The R-values of the windows are adjusted to account for increased heat loss around the perimeter; thus the R-values are lower than the glass R-values stated in the Thermal Standard.) Also given are the incremental costs of upgrading the building components from the Thermal Standard Level to the Alaska Craftsman level. *** THERMAL STANDARD HOME *** HEAT LOSS AREA R-VALUE COEFF Walls 939 30 31.3 Ceiling 1040 38 27.4 Floor 1040 38 27.4 Windows 100 2.6 38.5 Door WZ i 2.4 Infiltration 0.5 ACH 74.9 202 Btu/hr/deg F *** ALASKA CRAFTSMAN HOME *** HEAT LOSS INCREMENTAL AREA R-VALUE COEFF COST Walls 939 43 21.8 $977 Ceiling 1040 60 17.3 $915 Floor 1040 60 17.3 $915 Windows 100 4.5 22ee, $900 Door Ly 7 2.4 $0 Infiltration 0.26 ACH 38.2 $1,600 119 . $5,307 Btu/hr/deg F Heating System Capital Cost Savings: ($1,000) TOTAL INCREMENTAL COST $4,307 14 APPENDIX B Superinsulated Homes The windows used in the Craftsman home are assumed to be vinyl- framed! with special triple-layered construction consisting of a standard pane of glass, a layer of low-emissivity plastic film (trademark: Heat Mirror), and a pane of low-emissivity glass. This glass has an R-value slightly over 5.0, not accounting for increased heat loss around the perimeter. R-4.5 was used in the calculation to roughly adjust for these edge effects. It should be noted that R-7.0 glass is possible by taking this same glass arrangement and filling the trapped spaces between the layers with an inert gas such as Argon or Krypton. This R-7.0 gas-filled window will be commercially available shortly. The 0.26 effective air change per hour rate in the Craftsman home results from 0.15 ACH of natural infiltration and 0.35 ACH of mechanical ventilation with 70% heat recovery. The incremental cost of $1,400 includes the cost of constructing an air-tight shell and the cost of the heat recovery ventilation system. It should be noted that the insulation costs in the above calculation were based on barging insulation to rural communities. Some people have mailed bags of loose-fill insulation via the U.S. Postal Service to rural communities, thereby garnering substantial savings (over 30%) in the landed cost of the insulation (which probably amounts to a subsidy from the Federal Government). To stay conservative, this freight option was not analyzed. The analysis includes a $1,000 savings per home in initial heating system cost resulting from superinsulated construction. In homes with moderate or poor insulation, a good heat distribution system (typically forced air or hydronic) is required to maintain even temperatures. In superinsulated homes, passive heat distribution is generally adequate, and a point-source heating system can be employed with success. Boiler systems can cost as much as $8,000 in rural villages (says one HUD architect) whereas an efficient mini-furnace can have an installed cost of about $1,000. In situations where the superinsulation makes possible such a substitution, the thousands of dollars of savings in initial heating system cost can substantially offset the incremental cost of superinsulating the building. Thus, low energy costs can be achieved with very little incremental construction cost. $1,000 was conservatively assumed to be the average heating system capital cost savings resulting from superinsulated construction. Non-economic benefits of superinsulation are not included in this analysis. Superinsulated homes are more comfortable because of fewer drafts, fewer cold surfaces that cause radiant chill, and very low transmission of noise from outside the home. In addition, superinsulated homes cool off very slowly upon heating system failure. If the outdoor temperature is -20 degrees F and the heating system fails, the superinsulated home considered in this analysis will take about 20 hours before cooling down to 32 degrees indoors. This results in better occupant safety and better freeze-up protection. Finally, indoor air quality in superinsulated homes is excellent because of a controlled mechanical ventilation system. Conventional homes rely on uncontrolled leaks through the building shell to provide fresh air to occupants. During warm, lincidentally, excellent vinyl-framed windows are manufactured here in Alaska by the Alaska Window Company in Fairbanks. 15 APPENDIX B Superinsulated Homes low-wind conditions, this natural infiltration is often insufficient for maintaining occupant health. During cold, windy conditions excessive fresh air is introduced resulting in high energy costs. This variability in ventilation is solved without an excessive energy consumption penalty by the heat-recovery mechanical ventilation system present in superinsulated homes. The incremental costs shown do not include incremental insurance costs, but these insurance costs are included in the cost calculation below. The efficiency measures are analyzed over an expected 40 year life of the home. For calculating energy savings, the efficiency of the heating systems in both homes is assumed to be 83% (excellent) and the climate is assumed to be one with 13,500 degree-days. Benefit alcu i Cost per Home: Initial incremental cost of $4,310 plus an annual insurance increment of 0.8% of the $3,310, i.e. $34/year, assumed to stay constant in real terms. The present value of the insurance costs occurring over the 40 year life of the home is $740. Thus, total present value of costs is: $5,050. Benefit per Home: Using the heat loss model described in Appendix A: Annual . (202 - 119) Btu/hr/deg F x 13,500 deg F-days x 24 hrs/day Fuel Savings = 0.83 = 32.4 x 108 Btu/yr = 250 gallons/yr with 128,000 Btu/gallon of #1 Fuel oil = $390/yr @ $1.55/gallon The present value of $390/yr escalating at 1.5%/yr for 40 years is: $10,700. Economic Potential C atio The total economic potential of superinsulated construction in rural Alaska depends on the number of homes that will be built in the next 20 years. A Rural Housing Needs Assessment currently being performed by the Rural Alaska Community Action Program indicates that the need for new housing amounts to about 10% of the existing stock. The stock of homes considered in this energy efficiency analysis is 20,000, so the needs assessment would suggest that 2,000 new homes are currently needed. However, the federal Housing and Urban Development (HUD) program, a major supplier of rural housing, will only build about 280 homes in rural Alaska in 1988. Privately constructed housing could add a few hundred to this total. For this assessment, a simplistic assumption will be used. If the amount of homes remains constant over a long period time, the rate of construction equals the rate of retirement, which equals the number of existing homes 16 APPENDIX B Superinsulated Homes divided by the life of a home. With a current stock of 20,000 homes and an average life of 40 years, this assumption implies that 500 homes will be built each year. The table below shows the costs and benefits of superinsulating 500 homes per year for the next 20 years. For analysis purposes, the benefits are listed as occurring during the year of construction by using the present value figure calculated above. Because fuel prices are assumed to escalate at 1.5% per year real, the benefit figures for homes built in future years are larger. TOTAL TOTAL NUMBER cosTS BENEFITS YEAR BUILT COST BENEFIT ($ mil) ($ mil) PV Costs = $37.1 mir: 1 500 $5,050 $10,700 $2.5 $5.4 PV Benefits - $ 89.5 mil. 2 500 $5,050 $10,861 $2.5 $5.4 3 500 $5,050 $11,023 $2.5 $5.5 4 500 $5,050 $11,189 $2.5 $5.6 5 500 $5,050 $11,357 $2.5 $5.7 6 500 $5,050 $11,527 $2.5 $5.8 7 500 $5,050 $11,700 $2.5 $5.8 8 500 $5,050 $11,875 $2.5 $5.9 9 500 $5,050 $12,053 $2.5 $6.0 10 500 $5,050 $12,234 $2.5 $6.1 11 500 $5,050 $12,418 $2.5 $6.2 12 500 $5,050 $12,604 $2.5 $6.3 13 500 $5,050 $12,793 $2.5 $6.4 14 500 $5,050 $12,985 $2.5 $6.5 15 500 $5,050 $13,180 $2.5 $6.6 16 500 $5,050 $13,377 $2.5 $6.7 17 500 $5,050 $13,578 $2.5 $6.8 18 500 $5,050 $13,782 $2.5 $6.9 19 500 $5,050 $13,989 $2.5 $7.0 20 500 $5,050 $14,198 $2.5 $7.1 Total Benefit =$ 90 mil Total Cost = $ 29 mil Total Net Benefit = $ 61 mil 17 APPENDIX B Heater Retrofits Heating System Efficiency Improvements Description A large majority of the heating systems in rural Alaska inefficiently convert fuel to useful heat. Oil heating is often accomplished with drip-pot stoves or oil cook stoves that have no thermostats and have no controlled combustion air. Resultant seasonal efficiencies are generally below 60%. Those homes that burn wood generally do so in stoves with unregulated combustion air and no catalytic converters. This efficiency measure examines the benefits and costs of improving the efficiency of existing heating systems. Drip-pot burners are assumed to be replaced with high-efficiency mini-furnaces (brand names: Monitor, and Toyostove) . Inefficient oil heating burners in boilers and furnaces are assumed to be replaced with efficient flame-retention units (or entirely replaced with a mini-furnace, depending on the situation). The remaining furnaces and boilers receive a tune-up and cleaning if necessary. In areas with limited wood supplies that force some reliance on oil, inefficient wood stoves are replaced with air-tight catalytic models. This retrofit increases the useful heat provided by the limited wood and therefore can reduce oil use. For this analysis it is assumed that the savings from catalytic wood stoves are taken primarily as reduced oil use. Ni s tions The table below gives the numeric assumptions used in estimating the potential improvements in heating system efficiency. Saturation figures indicate the percentage of rural residences that utilize a particular type of heating system. The saturation figures are the author's estimates, derived primarily ' from conversations with individuals who work extensively in rural Alaska and from RurAL CAP survey data. Residences are classified according to their heating fuel and the type of primary heating system. The "% OIL SAVINGS” figures are the estimated heating oil savings from the indicated efficiency measure. To calculate the gallons of oil saved by the measure, the percentage is multiplied by the total fuel use of the residence, assum t_were heated en ely by oil (even though it may not be). At the bottom of the chart are shown the weighted averages for the existing housing stock of the oil savings percentage and the efficiency measure cost. It should be noted that there is significant uncertaintly associated with this data. Data concerning the actual efficiencies of heating systems and the fuel type splits (wood/oil/electric) is limited. 18 APPENDIX B Heater Retrofits EXISTING % OIL RETROFIT HEATING SYSTEM TYPE EFFICIENCY MEASURE SATURATION SAVINGS cost Saeewees so ceen as eeeemee neces essen seen eseeesseeee ses sssssesseesenssee5=5 secsessces <= ALL OIL 40% Inefficient Furnace/Boiler Replacement Burner 10% 22% $650 Pot Burner/Cook Stove Minifurnace 24% 30% $1,130 Efficient Heating System Tune-up 6% 5% $175 PREDOMINANTLY OIL 30% Inefficient Furnace/Boiler Replacement Burner 8% 18% $650 Pot Burner/Cook Stove Minifurnace 18% 25% $1,130 Efficient Heating System Tune-up 4% 4% $175 PREDOMINANTLY WOOD 15% Inefficient Wood Stove Catalytic Wood Stove 13% 18% $800 Efficient Wood Stove None 2% ox $o ALL WOOD 15% Inefficient Wood Stove None 13% Ox so Efficient Wood Stove None 22 Ox $o WEIGHTED AVERAGE ------ 18% $713 It is assumed that the typical rural residence (about 750 square feet) would use approximately 700 gallons per year of oil, if it were entirely heated with oil. Benefit/Cost Calculation Cost per house: $713 initial cost, replacement of measure every 12 years costing $713, real. Present Value of costs for 25 year analysis period = $ 1,220 Benefit per house: 18% x 700 gallons/yr = 126 gallons/yr fuel savings 126 gallons/yr x $1.55/gallon = $195/yr annual fuel cost savings Present Value for 25 years, escalating at 1.5% real = $3,820 Economic Potential Calculation Total Cost = 20,000 homes x $1,220 = $24 million Total Benefit = 20,000 homes x $3,820 = $76 million Total Benefit =$ 76 mil Total Cost =$ 24 mil Total Net Benefit = $ 52 mil 19 APPENDIX B Attic Insulation ATTIC INSULATION RETROFITS Description This retrofit efficiency measure addresses upgrading attic insulation to R-60. Attics with insulation levels of R-30 or below are targets for retrofits in this analysis. Numeric Assumptions Attic insulation is assumed to cost $0.042 per R-value per square foot, installed and is assumed to last for the remaining life of the building. A typical home is assumed to be 750 square feet in size. Methods in Appendix A are used for heat loss calculations. Benefit/C alculation The following table shows the present value benefits and costs for insulating attics with varying initial R-values. The saturation figure indicates the percentage of existing attics that have the associated R-value. The remaining building life is given in years and is assumed to be shorter for the homes with poorly insulated attics (older homes). Savings are given assuming a reduction in fuel oil use. _ EXISTING NEW REMAINING PRESENT VALUE R-VALUE R-VALUE SATURATION BLDG. LIFE SAVINGS COST il 60 18% 15 yrs $3,390 $1,540 19 60 45% 25 $2,500 $1,290 30 60 12% 30 $1,330 $ 950 30+ -- 25% $ 0 $ 0 WEIGHTED AVERAGE ----- $1,890 $ 970 Economic Potential Calculatio To account for those homes that totally heat with wood (or nearly so), only 80% of the rural homes are assumed to receive this measure. Total Cost = 20,000 homes x 80% x $970 = $15.5 million Total Benefit = 20,000 homes x 80% x $1,890 = $30.2 million Total Benefit = $ 30 mil Total Cost =$ 16 mil Total Net Benefit = $ 14 mil 20 APPENDIX B Caulking and Sealing, CAULKING AND SEALING Description This measure consists of weatherstripping, caulking, and sealing air leakage points in existing rural homes. Numeric Assumptions Blower door tests performed by the Rural Alaska Community Action Program indicate that a typical 750 square foot home has an air leakage of 0.85 air changes per hour (85 cfm). Caulking and sealing is assumed to reduce this leakage by 25%. Appendix A heat loss calculation methods were used. ene Cost cula Cost is assumed to be $220, recurring every 6 years. For an expected remaining home life of 25 years, the present value is: $680. The measure saves 70 gallons/year or $108/year, escalating at 1.5% real. The present value is: $2,130. co otentia a 80% of rural homes are assumed to use a significant amount of oil for heating. Total Cost = 20,000 homes x 80% x $680 = $10.9 million Total Benefit = 20,000 homes x 80% x $2,130 = $34.1 million Total Benefit =$ 34 mil Total Cost = §$ 11 mil Total Net Benefit = $ 23 mil 20 APPENDIX B Window Retrofits WINDOW RETROFITS Description This efficiency measure analyzes the upgrading of windows in existing rural homes. Most existing rural homes utilize double or single pane window units (many newer homes are using triple pane). In addition, the frames that hold the glass and provide for opening the window leak air in varying degrees. Adding storm windows or changing the glass in the windows are retrofits that can prove cost-effective in many situations. For windows where the glass is replaced, the R-5.0 glass is used. This glazing unit was described previously in the Superinsulated Homes section of Appendix B. Numeric Assumptions and Benefit/Cost Calculation The following table gives the costs and benefits of window retrofits for a variety of different window types. The glass portion of all window retrofits is assumed to have a life of 15 years, but costs and benefits are assessed over the remaining life of the building. If the building life is longer than 15 years, replacement costs are included. (For double-pane fixed windows, only the incremental cost of the efficient glass is counted in the replacement cost. It is assumed that the existing window would also have required replacement in 15 years.) Infiltration figures are given in cubic feet per minute (cfm). All costs, benefits, and infiltration figures are for 70 square feet of the indicated type of window. 70 square feet is assumed to be the amount of window area in a typical existing rural home. weaneee For 70 square feet of Windows ****** EXISTING REMAINING -- Existing -- -- New -- PV WINDOW TYPE RETROFIT SATURATION BLDG. LIFE R-VALUE INFILTR. R-VALUE INFILTR. PV COST BENEFITS Single Pane Fixed New Glass 7.5% 15 1.0 2 4.5 1.7 $1,370 $3,330 Opening Add Storm 7.52% 15 1.0 26 1.9 7.8 $1,240 $3,220 Double Pane Fixed New Glass 35.0% 25 aie) 2 4.5 Aes 7: $1,620 $2,190 Opening Add Storm 35.0% 25 1.8 iS Zoo 4.5 $1,770 $2,420 Triple Pane + None 15.0% $ oO $ QO WEIGHTED AVERAGE ------ $1,380 $2,100 22 APPENDIX B Window Retrofits Economic Potential Calculation Assuming 80% of rural homes have significant amounts of oil heat: Total Cost: 20,000 homes x 80% x $1,380 = $22.1 million Total Benefit: 20,000 homes x 80% x $2,100 = $33.6 million Total Benefit =$ 34 mil Total Cost =$ 22 mil Total Net Benefit = $ 12 mil 22 APPENDIX B Door Retrofits DOOR RETROFITS Description This measure examines the replacement of wood exterior doors with metal insulated doors in existing rural homes. Benefit/Cost Calculation Cost per door = $400, installed. No replacement costs. Savings based on replacing an R-2 wood door with 12 cfm of infiltration with an R-7 metal door with 7.2 cfm of infiltration. Surface area of door = 17 square feet. Remaining life of home assumed to be 25 years. Present Value of Benefits = $1,040 - >Economic u Assuming 80% of rural homes have significant amounts of oil heat and 25% of those have one wood door: Total Cost = 20,000 homes x 80% x 25% x $400 = $1.6 million Total Benefit = 20,000 x 80% x 25% x $1,040 = $4.2 million Total Benefit Total Cost Total Net Benefit = 24 APPENDIX B Lighting Retrofits LIGHTING RETROFITS Description The predominant type of lighting in rural residences is incandescent lighting. Compact fluorescent lamps are now available that have light characteristics similar to incandescent lamps but are 65 - 80% more energy efficient. Although there are few residential quality fixtures that use these lamps, there are a variety of fixtures available that are primarily meant for use in commercial buildings. This efficiency measure examines the replacement of incandescent lighting in existing rural homes with these compact fluorescent fixtures. Although the fixtures are not particularly attractive, this was not considered to be a major concern in rural Alaska. Also addressed in this measure is the upgrade of existing fluorescent lighting systems to more energy efficient lamp/ballast systems. Electronic ballasts and energy-saver lamps can save 40% with respect to fluorescent fixtures using standard ballasts and lamps. Numeric Assumptions A recent end-use survey conducted by the Rural Alaska Community Action Program in the village of Hooper Bay indicated that upgrading to efficient lighting in the residences would save approximately 720 kilowatt-hours per year per home. Installed cost would be approximately $350 per home. These figures were used for calculating total economic potential of lighting retrofits. Although a smaller percentage of the fixtures in homes located in regional centers would be amenable to retrofit because of aesthetic concerns, these homes have more total fixtures. Thus the Hooper Bay figures may be reasonable estimates for regional center homes also. en ost Calculation Assuming an avoided cost of $0.125/kWh escalating at 1% per year real, and a remaining home life of 25 years, the present value of 720 kWh/year of electricity savings is: $1,660. A $200 replacement cost is included in year 15. A replacement cost less than $350 is used because the inefficient fixtures would also need replacement had the retrofit not occurred. The present value of the initial installation cost and the replacement cost is: $470. Zs APPENDIX B Lighting Retrofits Economic Potential Calculation Total Benefits = 20,000 homes x $1,660 = $33.2 million Total Costs = 20,000 homes x $470 = $9.4 million Total Benefit = § 33 mil Total Cost =$ 9 mil Total Net Benefit = $ 24 mil 26 APPENDIX B New Home Lighting EFFICIENT LIGHTING IN NEW CONSTRUCTION Description The previous measure accounted for the economic potential of lighting retrofits. This measure identifies the economic potential of efficient lighting in newly constructed residences. Newer homes in rural Alaska are utilizing more fluorescent lighting, but potential for efficiency improvements still exists. Few electronic ballasts are being used, and applications that do not require much light are either being served with incandescents or being overlit with standard fluorescents. Compact fluorescent technology is not being utilized to its fullest potential. Numeric Assumptions The electricity savings potential per square foot of home is less in the new construction situation than the retrofit situation because the efficiency of rural residential lighting systems is improving in the unaided marketplace. However, newly constructed homes are about 30% larger than existing homes. This characteristic tends to increase the savings potential per home. For this analysis, 500 kWh/year of savings will be assumed per home built. The incremental cost of achieving this level of efficiency is assumed to be $250 (approximately $10 - $20 per fixture), and lighting system replacements are assumed to occur every 15 years. ene Cost Calculation Present value of benefits with $0.125/kWh avoided cost, escalating 1%/year for "40 years: $1,580. Present value of costs ($250 initial plus $250 replacement cost every 15 years): $460. “ Economic Potential C. u. oO The economic potential is assessed for the homes built during the next 20 years. The procedure used is the same as was used for the efficiency measure “Alaska Craftsman Home vs. Thermal Standard Home”. It is assumed once again that 500 homes per year are built. The table below summarizes the calculation: 27 APPENDIX B New Home Lighting TOTAL TOTAL NUMBER costs BENEFITS YEAR BUILT COST BENEFIT ($ mil) ($ mil) PV Costs = $ 3.4 mil. 1 500 $460 $1,580 $0.2 $0.8 PV Benefits = $ 12.6 mil. 2 500 $460 $1,596 $0.2 $0.8 3 500 $460 $1,612 $0.2 $0.8 4 500 $460 $1,628 $0.2 $0.8 5 500 $460 $1,644 $0.2 $0.8 6 500 $460 $1,661 $0.2 $0.8 7 500 $460 $1,677 $0.2 $0.8 8 500 $460 $1,694 $0.2 $0.8 9 500 $460 $1,711 $0.2 $0.9 10 500 $460 $1,728 $0.2 $0.9 11 500 $460 $1,745 $0.2 $0.9 12 500 $460 $1,763 $0.2 $0.9 13 500 $460 $1,780 $0.2 $0.9 14 500 $460 $1,798 $0.2 $0.9 15 500 $460 $1,816 $0.2 $0.9 16 500 $460 $1,834 $0.2 $0.9 17 500 $460 $1,853 $0.2 $0.9 18 500 $460 $1,871 $0.2 $0.9 19 500 $460 $1,890 $0.2 $0.9 20 500 $460 $1,909 30.2 $1.0 Total Benefit = $ 13 mil Total Cost = $ 3 mil Total Net Benefit = $ 9 mil 28 APPENDIX B Freezers EFFICIENT FREEZERS Description This efficiency measure addresses energy-efficient freezers. Analyzed here are the economic benefits and costs of replacing freezers as they normally retire over the next 20 years with the most energy-efficient model available. The benefits and costs are assessed relative to replacing the freezer with the average model being sold at the time of replacement. The average model itself is significantly more efficient than unit being replaced, but this savings is not counted in the analysis. The average 20 cubic foot freezer in use today consumes about 1200 kWh/year, the average 20 cubic foot freezer sold today uses about 820 kWh/year, and the best U.S. mass-produced 20 cubic foot chest freezer uses 520 kWh/year. Refrigeration experts expect that a mass-produced unit consuming 245 kWh/year will be available in the U.S. market in 1991, representing a cost-effective 80% savings with respect to our current stock of freezers. These savings are achieved primarily through better insulation of the case and more efficient compressor systems. The best freezer models today use 3 inches of polyurethane foam for insulation, having an insulation value of over R-20. Older models utilizing only 2.5 inches of fiberglass insulation have R-values near R-9. It should be noted that this analysis does not consider the immediate replacement of freezers with more efficient models (early retirement). This is cost-effective in many rural Alaskan situations; however, a fairly large psychological barrier needs to be overcome before people would throw away operable freezers. Also, the energy efficiency of freezers is improving over time. The early retirement of a freezer now precludes the option of replacing the freezer with and even more efficient model upon its normal retirement date. Another option not analyzed here is the option of using community freezers, which serve multiple households. A practical community freezer would be a small superinsulated building with a compressor system to keep the inside temperature near 0 degrees Fahrenheit. Such a system has outstanding energy efficiency because it is highly insulated (R-40 +), has a low surface area to volume ratio, and is exposed to cool outdoor temperatures instead of warm indoor temperatures. The electricity use of such a community freezer is approximately 120 kWh/year per 20 cubic feet of storage space and would cost about $700 to build per 20 cubic feet of storage space. Thus, the electricity use is 4 times less than the most efficient mass-produced freezer sold today and 10 times less than the average freezer in use today. Numeric Assumptions The current 300 kWh/year spread between the average 20 cubic foot freezer sold and the best 20 cubic foot freezer sold will be used to determine benefits. It is assumed that this spread will persist throughout the 20 years of replacements considered. 29 APPENDIX B Freezers It is difficult to discern the cost difference between average models and efficient models from market prices. Sometimes efficient models are actually less expensive than inefficient models. Engineering analyses indicate an approximate $70 difference in cost. It is assumed that a freezer has a 15 year life. Benefit/Cost Calculation Present value of 300 kWh/year, $0.125/kWh escalating 1%/year for 15 years: $465. Initial Cost = $70 ono! otent cu It is assumed that the number of freezers in rural Alaska equals 75% of the number of households. (A RurAL CAP survey in Hooper Bay showed the ratio there to be 100%). Thus, the current stock is 15,000 freezers. Using the simple stock/flow model explained in the "Alaska Craftsman Home vs. Thermal Standard Home”, the number of freezers purchased each year is 15,000/15 yrs = 1,000. The following table describes the costs and benefits of upgrading the next 20 years of freezer purchases: TOTAL TOTAL NUMBER COSTS BENEFITS YEAR BOUGHT COST BENEFIT ($ mil) ($ mil) PV Costs = § 1.0 mil. 1 1000 $70 $465 $0.07 $0.47 PV Benefits = $ 7.4 mil. 2 1000 $70 $470 $0.07 $0.47 2 1000 $70 $474 $0.07 $0.47 4 1000 $70 $479 $0.07 $0.48 § 1000 $70 $484 $0.07 $0.48 6 1000 $70 $489 $0.07 $0.49 7 1000 $70 $494 $0.07 $0.49 8 1000 $70 $499 $0.07 $0.50 9 1000 $70 $504 $0.07 $0.50 10 1000 $70 $509 $0.07 $0.51 11 1000 $70 $514 $0.07 $0.51 12 1000 $70 $519 $0.07 $0.52 13 1000 $70 $524 $0.07 $0.52 14 1000 $70 $529 $0.07 $0.53 15 1000 $70 $535 $0.07 $0.53 16 1000 $70 $540 $0.07 $0.54 17 1000 $70 $545 $0.07 $0.55 18 1000 $70 $551 $0.07 $0.55- 19 1000 $70 $556 $0.07 $0.56 20 1000 $70 $562 $0.07 $0.56 Total Benefit = $7.4 mil Total Cost = $ 1.0 mil Total Net Benefit = $ 6.4 mil 30 APPENDIX B Refrigerators EFFICIENT REFRIGERATORS Description This measure addresses energy-efficient refrigerators. The benefits and costs are assessed for replacing refrigerators as they normally wear out with the most efficient refrigerator available. As in the freezer analysis, the most efficient refrigerator is compared against the average model currently sold. The average model sold represents a substantial savings with respect to the existing stock of refrigerators. The average consumption for the existing stock of refrigerators is about 1500 kWh/year, the consumption of the average refrigerator currently sold is about 1100 kWh/year, and the best 17 cubic foot automatic defrost refrigerator/freezer consumes 740 kWh/year. Refrigeration experts expect a cost-effective 390 kWh/year model to be available in 1991. Numeric Assumptions The 360 kWh/year difference between the best refrigerator currently sold and the average refrigerator currently sold is assumed to continue through the 20 years of replacements analyzed. The incremental cost of this refrigefator is about $70, and the refrigerator is assumed to last 15 years. Benefit/Cost Calculation Present value of 360 kWh/year at a $0.125 avoided cost escalating at 1%/year real for 15 years: $560. Initial Cost Increment: $70. onomic Potenti Calcu Assume there are 14,000 refrigerators amongst 20,000 rural homes. As in the freezer analysis, replacements are approximately 14,000/15 yrs = 933 per year. The following table summarizes the benefits and costs for the next 20 years of replacements: 31 APPENDIX B Refrigerators TOTAL TOTAL NUMBER COSTS BENEFITS YEAR BOUGHT cOsT BENEFIT ($ mil) ($ mil) PV Costs = §$ 1.0 mil. i 933 $70 $560 $0.07 $0.52 PV Benefits = $ 8.4 mil. 2 933 $70 $566 $0.07 $0.53 3 933 $70 $571 $0.07 $0.53 4 933 $70 $577 $0.07 $0.54 5 933 $70 $583 $0.07 $0.54 6 933 $70 $589 $0.07 $0.55 7 933 $70 $594 $0.07 $0.55 8 933 $70 $600 $0.07 $0.56 9 933 $70 $606 $0.07 $0.57 10 933 $70 $612 $0.07 $0.57 11 933 $70 $619 $0.07 $0.58 12 933 $70 $625 $0.07 $0.58 13 933 $70 $631 $0.07 $0.59 14 933 $70 $637 $0.07 $0.59 15 933 $70 $644 $0.07 $0.60 16 933 $70 $650 $0.07 $0.61 Ad. 933 $70 $657 $0.07 $0.61 18 933 $70 $663 $0.07 $0.62 19 933 $70 $670 $0.07 $0.62 20 933 $70 $677 $0.07 $0.63 Total Benefit Total Cost Total Net Benefit 32 APPENDIX B Televisions EFFICIENT TELEVISIONS Description This measure addresses the replacement of televisions as they normally wear out with energy-efficient models. Televisions vary substantially in energy consumption, even across models with the same screen size. The more efficient designs are not necessarily more expensive. Typical color TVs use about 130 Watts, whereas the most efficient models use approximately 60 watts. Numeric Assumptions Assume TVs are on for 8 hours per day. Typical TV Power = 130 Watts, Efficient TV Power = 60 Watts. Annual Savings = (130 - 60)/1000 * 365 * 8 = 204 kWh/year. Incremental Cost of Efficient TV = $0 Television Life = 10 years Benefit/Cost Calculation Present Value of 204 kWh/yr savings, at $0.125/kWh avoided cost escalating 1%/year for 10 years: $223 Incremental Cost = $0 Economic Potential Calculation Assume there are 18,000 TVs amongst 20,000 homes. With an average life of 10 years, approximately 1,800 TVs are purchased each year. The table below summarizes the benefits and costs of upgrading these purchases for the next 20 years: 33 APPENDIX B Televisions TOTAL TOTAL NUMBER COSTS BENEFITS YEAR BOUGHT COST BENEFIT ($ mil) ($ mil) PV Costs = $ 0.0 mil t 1800 $0 $223 $0.00 $0.40 PV Benefits = $ 6.4 mil 2 1800 $0 $225 $0.00 $0.41 3 1800 $0 $227 $0.00 $0.41 4 1800 $0 $230 $0.00 $0.41 5 1800 $0 $232 $0.00 $0.42 6 1800 $0 $234 $0.00 $0.42 7 1800 $0 $237 $0.00 $0.43 8 1800 $o $239 $0.00 $0.43 2 1800 $0 $241 $0.00 $0.43 10 1800 $0 $244 $0.00 $0.44 11 1800 $o $246 $0.00 $0.44 12 1800 $0 $249 $0.00 $0.45 13 1800 $0 $251 $0.00 $0.45 14 1800 $0 $254 $0.00 $0.46 15 1800 $0 $256 $0.00 $0.46 16 1800 $0 $259 $0.00 $0.47 17 1800 $0 $261 $0.00 $0.47 18 1800 $0 $264 $0.00 $0.48 Lo. 1800 $0 $267 $0.00 $0.48 20 1800 $0 $269 $0.00 $0.48 Total Benefit Total Cost Total Net Benefit 34 APPENDIX B Electr. Water Heater CONVERSION OF ELECTRIC WATER HEATERS TO OIL Description Heating domestic hot water with electricity is substantially more expensive (and fuel consumptive) than heating water with oil. This measure examines the immediate retrofit of all possible electric water heaters with energy- efficient oil-fired units. Numeric Assumptions Assume that the electric water heater uses 4800 kWh/year, somewhat less than the national average use for an electric water heater. For an oil water heater with 63% seasonal efficiency, the equivalent consumption is 200 gallons/year. The oil water heater is assumed to last for the remaining life of the home, 25 years. Retrofit cost = $1,500 Benefit/Cost Calculation Present Value of electricity cost for electric hot water heater (4800 kWh/year, $0.125/kWh avoided cost with 1%/yr escalation): $11,100. Present Value of oil cost for oil hot water heater (200 gallons/year, $1.55/gallon with 1.5%/year escalation): $6,100. Present Value of savings: $11,100 - $6,100 = $5,000 Retrofit Cost = $1,600 Economic Potential Calculation Assume that there are 2,000 electric water heaters that can be converted amongst the 20,000 rural households. Total Present Value Benefits = $6,100 x 2,000 = $12.2 mil. Total Present Value Costs = $1,600 x 2,000 = $3.2 mil. Total Benefit =o micl| Total Cost = §$ 3 mil Total Net Benefit = $ 9 mil 35 APPENDIX B Effic. Showerheads ENERGY-SAVING SHOWERHEADS Description Showers are often the largest hot water use in residence. Standard showerheads use 3.5 gallons per minute or more of water. There exist well- designed energy-saving showerheads that use approximately 2.5 gallons per minute of water and deliver a shower comparable to a standard showerhead. The SPA 2000 model manufactured by Energy Technology Laboratories uses a nozzle design instead of the perforated plate design employed by most showerheads. The effect of the nozzle design is a powerful shower with less water. N ic As tions Assume an oil-fired hot water heater with 60% seasonal efficiency is being used. Assume 15 minutes of showering per day per showerhead. Water use of standard showerhead = 3.5 gallons/minute. Water use of energy-saving showerhead = 2.5 gallons/minute. Shower temperature = 105 degrees F, ground water temperature = 40 degrees F. Water Savings per year = 1.0 gallon/minute x 15 minutes/day x 365 days/yr = 5480 gallons/year 5480 gal/yr x 8.34 lb/gal x (105 - 40)degF x 1 Btu/lb/degF Fuel Savings = 128,000 Btu/gal-oil x 0.60 = 39 gallons of oil per year $60/year @ $1.55/gallon Retrofit Cost = $25 Retrofit Life = 25 years, remaining life of building. Benefit/Cost Calculation Present Value of $60/year, escalating at 1.5% real for 25 years: $1,180 Retrofit Cost: $25 E 01 tenti Ca io Assume there are 10,000 showerheads in the 20,000 homes. Total PV Benefits = $1,180 x 10,000 = $11.8 mil. Total PV Cost = $25 x 10,000 = $0.25 mil. Total Benefit = $ 12 mil Total Cost = § 0.3 mil Total Net Benefit = $ 12 mil 36 APPENDIX B Electric Cooking CONVERSION OF ELECTRIC COOKING APPLIANCES TO PROPANE Description Electricity is in general an expensive fuel type to heat with, and the cooking end use is no exception. This measure analyzes the immediate conversion of all electric ranges and hot plates to propane models. Only applications in small utility systems are considered, because, as is explained below, the cost-effectiveness of the retrofit is best there. The calculation technique used for analyzing this measure is different from other measures because electric cooking appliances have such poor load factors (ratio of average power consumption to peak power consumption). The calculation method is explained below. Use of cooking appliances is often coincident with the peak demand period of a utility. Because the electric resistance heating elements used for cooking are high wattage, they are significant contributors to this peak demand. For large utilities, the cost penalty incurred because of this peak contribution is determined by the capital cost of purchasing additional power plants to meet the peak. For small utilities that operate one constant-capacity diesel generator 24 hours per day, there is the capital cost penalty and also a fuel cost penalty from a peak demand contribution. This fuel cost penalty associated with the peak demand is often the largest cost associated with providing service to electric cooking appliances. The fuel cost penalty results from the fact that most diesel generators have a component to their fuel consumption that is independent of the amount of load being supplied; i.e. fuel is consumed even when no load is being supplied. This fixed component of fuel consumption can be simplistically modeled as a percentage of the full load fuel consumption, typically 15%. Since the peak demand determines the size of the generator and the size of the generator determines the fixed component (or no-load) fuel consumption, increasing peak demand increases fuel consumption. This logic is used to calculate the cost of serving electric cooking appliances. Numeric Assumptions Assume the electric range or hot-plate consumes 1200 kWh/year and contributes 1.0 kW to the utility peak demand. Incremental electrical distribution losses are 10%, the utility generator is sized 20% greater than peak demand, generator efficiency is 11 kWh/gallon, the ratio of no-load fuel use to peak fuel use is 15%, fuel costs $1.30/gallon, the incremental cost of diesel generation capacity is $140/kW, and generators last 7 years. An equivalent propane cooking system (either hot-plate or range) would use 75 gallons of propane per year costing $3.30 per gallon. The average retrofit cost would be $700. Retrofit life = 25 years 37 APPENDIX B Electric Cooking Benefit/Cost Calculation Calculate the cost of operating the electric cooking system: Annual Generator Fuel Use = P x f x 8766 /H + Ex (1 - f£) /H where, P = Peak demand including distribution loss and reserve margin, kW. £f = Ratio of idle fuel consumption to full-load fuel consumption. H = Efficiency of diesel generator at full load, kWh/gallon. E = Energy consumption including distribution loss, kWh/year. = 1.0 kW/0.9x1.2 = 1.33 kW = 0.15 11 kWh/gallon = 1200 kWh/yr / 0.9 = 1333 kWh/year moh 1 Annual Fuel Use = 1.33 kW x 0.15 x 8766 hrs/yr / 11 kWh/gallon + 1333 kWh x 0.85 / 11 kWh/gallon = 262 gallons/year $340/year @ $1.30/gallon Present Value of fuel cost over 25 years, escalating 1.5% per year: $6,660 Incremental Capacity Cost = 1.33 kW x $140/kW = $186 25 year present value of this cost and replacements every 7 years: $501 TOTAL OPERATING COST OF ELECTRIC COOKING SYSTEM: $7,160 Present Value Present Value of 75 gallons/yr of propane costing $3.30/gallon and escalating 1.5%/yr real for 25 years: $4,850 OPERATING COST SAVINGS FROM CONVERSION: $7,160 - $4,850 = $2,310 PV RETROFIT COST = $600 E omic 2 C. ula Assume that there are 6,000 possible conversions in rural villages. Total Benefits = $2,310 x 6,000 = $13.9 mil. Total Costs = $600 x 6,000 = $3.6 mil. Total Benefit =$ 14 mil Total Cost =§$ 4 mil Total Net Benefit = $ 10 mil 38