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Power Cost Equalization Funding Formula Review

Research Matters No. 58.  Power Cost Equalization Funding Formula Review
March 26, 2012


A new analysis by ISER  researchers Ginny Fay, Alejandra Villalobos Meléndez, and Tobias Schwörer examines how the current Power Cost Equalization (PCE) program formula affects incentives for rural communities to increase their energy efficiency and add renewable energy sources. The state PCE program helps bring the high cost of electricity in small rural places closer to costs in urban areas, by paying eligible utilities part of the costs of the first 500 kilowatt hours of electricity for each residential customer every month. PCE rates are currently linked to fuel costs and use.

The analysis looks at the history of the PCE program and levels and patterns of electricity consumption across regions of Alaska, and finds that the PCE program ultimately affects the price of electricity in four ways, which in turn affect incentives for efficiency, innovation and conservation. First, PCE broadly affects prices and consumption. A second way PCE affects the price of electricity is through the specific application of the current PCE formula, as written in statute and administered by the Regulator Commission of Alaska (RCA). A third is how PCE affects heat sales in high-penetration wind-diesel systems. A fourth way PCE affects the price of electricity is how the savings from integrating lower-cost renewable resources are distributed among kilowatt hours that are eligible for PCE, those that are not eligible, and the PCE program.

The analysis found that an alternative PCE formula—a seasonal fixed-payment formula—would have have several benefits and could help encourage communities to reduce how much they rely on diesel.

See the full report, Power Cost Equalization Funding Formula Review (3.8MB), by Ginny Fay, Alejandra Villalobos Meléndez, and Tobias Schwörer, prepared for the National Renewable Energy Laboratory.

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