My turn: Why is the power cost adjustment rate where it currently is?

Posted: Thursday, May 22, 2008

In the first hours after the April 16 avalanches severed Juneau's connection to the Snettisham hydroelectric project, Alaska Electric Light & Power Co. estimated we would need to burn up to 100,000 gallons of diesel each day to meet the community's electrical demand. We estimated electrical rates would be five to six times the normal rate for the first month of the outage to pay for all that diesel.

To their credit, Juneau residents achieved impressive conservation efforts, and by the time AEL&P filed with state utility regulators under the company's emergency cost-of-power adjustment (ECOPA) tariff provision, diesel consumption was in the high 50,000-gallons-per-day range.

But even though daily fuel consumption was significantly lower than the original estimate, the power cost adjustment rate was not lower. Why?

A quick analogy for the cost per kWh of energy generated with diesel is to look at the cost per mile to drive a vehicle. If your vehicle gets 20 miles to the gallon and fuel is $4 per gallon, then the fuel cost to drive each mile is 20 cents. As long as the fuel cost per gallon remains the same, driving your vehicle will cost you 20 cents per mile, regardless of how many miles you drive. The total cost for your trip, of course, will vary with how many miles you drive on the trip - if you drive fewer miles, you will pay less for fuel.

That's similar to why our ECOPA per-kWh rate did not decrease. Even though overall daily fuel consumption has been lower than originally projected, and the resulting total fuel cost is less, that decreased cost of fuel is subsequently divided by decreased kWh sales, which keeps the per-kWh rate roughly the same. Customers save money as they buy less electricity, but it still costs about the same per kWh to generate that electricity with diesel.

There are other factors that go into the emergency rate. The biggest factor, the one that really drives the mathematical calculation, is the cost of fuel. That cost influences the per-kWh rate more than anything else. Unfortunately, fuel costs have increased even higher in just the month since our initial emergency filing. All other things being equal, those ever-increasing fuel costs will increase the per-kWh ECOPA rate.

A second factor that affects the ECOPA rate is the proportion of total energy needs we are able to generate with our local hydro plants.

Even though our connection to Snettisham is down, we have hydro production from smaller generating plants at Salmon, Gold and Annex creeks. Conservation efforts in town have reduced the diesel-fueled generation needed to meet Juneau's energy needs, which means that a higher proportion of energy can be provided by the lower-cost hydro plants. All other things being equal, increased conservation helps with a small decrease in the ECOPA rate.

Of these two primary factors - fuel cost and conservation - the price of fuel is the much larger factor on the per-kWh cost. However, Juneau's conservation efforts have been astounding and will dramatically decrease the total gallons consumed during the emergency. Customers' individual conservation efforts will directly benefit them by having fewer kWh billed at the ECOPA rate, which means a much lower bill than they might otherwise have received.

Meanwhile, the per-kWh emergency surcharge will be significantly lower for June because the May surcharge had to cover fuel for six weeks after the mid-April avalanche.

• Connie Hulbert is secretary-treasurer for AEL&P.

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