Some parts of rural Alaska will see gas prices as high as $4.50 a gallon this summer.
To remedy this economic nightmare, a special council reported recommendations to the governor Wednesday on how cities can reduce costs in the short and long terms.
The largest of the 12 recommendations made by the Rural Energy Action Council is to fully fund a $21.5 million program that gives money to qualifying municipalities to offset energy costs.
Rural towns and villages have struggled since Gov. Frank Murkowski eliminated a $22 million annual revenue sharing program in 2003.
"People from time to time again tell us that rural Alaska has to pay its own way," said Sen. Al Kookesh, D-Angoon. "We're willing to do that, but the first step has to be affordable energy."
The REAC is made of Bush businesses owners, Native advisers and Edgar Blatchford, the Alaska Department of Commerce, Community and Economic Development commissioner.
Reducing fuel costs is one of three key agendas of the Alaska Legislature's rural caucus. The others are lobbying for school operating needs and maintenance funding and getting cities affordable insurance rates.
Gustavus Mayor Sandi Marchbanks said the tourism business is difficult when the city pays 53 cents per kilowatt hour. The town relies on diesel generators to supply electricity, and the fuel must be delivered by barge.
"We got a lot of things going on here that makes it real tough to do business in Gustavus."
The council recommended funding the Power Cost Equalization program at $21 million. The PCE is a subsidy system set up in 1984 for rural communities so they pay energy costs equal to urban areas and cities near the rail line.
The House of Representatives approved $18.75 million in the operating budget, or House Bill 67. In the past three years, PCE funding averaged about $15.7 million annually.
Residents in Hoonah pay 36 cents per kilowatt hour and without the state's help the city would pay 44 cents. By comparison, Juneau pays an average of 8 cents.
Hoonah is also dogged by higher prices for vehicle fuel: currently at $2.98 per gallon.
"I fill it up until it stops and hope it doesn't go over $50," said Hoonah City Administrator Jerry Medina.
The council proposed that communities buy fuel together in bulk to have more bargaining power over the prices. Murkowski compared the idea to shopping at Costco.
Northern Interior municipalities purchase fuel only in the summer, when transportation there is possible.
Rural Energy Council Recommendations
Give $21 million to cities for energy subsidies
Encourage towns to create bulk fuel cooperatives
Support alternative energy systems, such as coal, wind and natural gas projects
Accelerate renewable energy programs and implement energy conservation measures
Create an item in the state operational budget for school district energy funding
Some Southeast Alaska municipal officials believe the concept wouldn't work here.
"We talked about it," said Medina, but it didn't make sense after considering a number of factors.
If they bought a bulk amount at $2.80 a gallon, the towns would be stuck with the fuel even if the price of gasoline drops shortly thereafter. Sharing and dividing the fuel would require overhead costs, Medina said.
Marchbanks said Southeast Alaska towns would still have to pay freight charges to move the fuel between those sharing the bulk. And she said Gustavus does not have the infrastructure to support such plan.
"We've got a lousy dock here," Marchbanks said.
Other ideas suggested were to support alternative energy systems using coal, wind and natural gas. Accelerating renewable energy programs and adopting energy conservation measures were also advised.
The council's research found school districts spending 23 percent of their operating budget on energy. The proposal suggests reserving a line in the state's operating budget to fund school district energy needs.
Medina favors the idea of building an oil refinery in Alaska so the state doesn't have to import fuel from the Lower 48. He also expects Hoonah's rates to significantly drop when the town becomes connected to Juneau's power grid via an underwater intertie to be laid in 2007.
Andrew Petty can be reached at email@example.com.