Some legislative candidates are talking about eliminating the PCE Fund, rural legislators are nervous

The Alaska State Capitol
The Alaska State Capitol(KTUU)
Published: Oct. 23, 2020 at 5:05 PM AKDT|Updated: Oct. 23, 2020 at 5:11 PM AKDT
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JUNEAU, Alaska (KTUU) - Some legislative candidates are talking about using the Power Cost Equalization Fund as a source of revenue to bridge the state’s fiscal gap, and rural legislators are nervous that the fund could be eliminated.

The fund is used to help rural communities pay for high energy costs. The Alaska Energy Authority says that power bills can be three to five times higher in rural Alaska than urban Alaska.

With state savings accounts virtually exhausted, the $1.1 billion fund is an inviting source of revenue for legislators.

Rep. Sarah Vance, a Republican of Homer, supports assisting rural communities with their power bills, but she believes payments should be “prioritized along with everything else.”

“So, I think that should be funded every year by the Legislature,” Vance said. “Why are those funds considered sacred, and legislators are able to freely take the Permanent Fund dividend that goes to all Alaskans?”

Republican Robert Myers, who is running to represent the North Pole in the Senate, agrees.

“We have a billion dollars sitting there and we would be crazy not to look at that as a potential funding source or bridge,” Myers said. “Of course, it’s only a bridge for one year because of how big our deficit is.”

Both Vance and Myers support a full Permanent Fund dividend. The nonpartisan Legislative Finance Division says that a full PFD would give each eligible Alaskan roughly $3,100 in 2021.

A full statutory dividend would also cause the deficit to balloon to roughly $2.4 billion.

PCE: “It’s a tremendous help” and how it’s changed

The PCE Program was established in the mid-1980s as an annual appropriation. The fund was established in 2000 with an initial $100 million endowment. Subsequent endowments were made and the fund grew.

Curtis Thayer, the executive director of the Alaska Energy Authority, said the state had invested in energy infrastructure in urban Alaska and the fund was intended to compensate rural Alaska where less investment had been made.

Around 84,000 Alaskans receive the payments in communities that largely use diesel to generate electricity. Rural legislators say the endowment is critical.

House Speaker Bryce Edgmon, an independent from Dillingham, said electricity bills can be a third or even a half of a rural Alaskan’s annual household bills. “So, it’s a tremendous help for those out in the Bush,” he said.

Julie Kitka, the president of the Alaska Federation of Natives, agreed that the fund should not be eliminated. “I will just say, we are unequivocally opposed to doing away with the Power Cost Equalization Endowment,” she said.

Rep. Tiffany Zulkosky, a Democrat from Bethel, spoke on behalf of the Bush Caucus last week before the AFN annual convention. She said there had been unprecedented attacks on the PCE Fund.

“The Bush Caucus and our colleagues from urban and coastal communities have sought how to make reductions with precision in these lean budget times while pushing back on these deep, regressive cuts to rural Alaska,” Zulkosky added.

In recent years, the fund has grown large enough to fully support rural power costs. Its purpose has since expanded.

The Legislature passed a bill in 2016 that allowed for the endowment to fund community assistance programs. It also helps fund renewable energy projects across the state.

Around $30 million goes first to helping rural Alaskans' power bills, while another $30 million goes to community assistance programs. Any remaining funds go to inflation proofing the fund itself and renewable energy projects.

Thayer said the fund provided $10-$12 million for renewable projects a few years ago when it earned $100 million.

Investments in renewable energy are making a difference. Around 17%-18% of Alaska’s power generation currently comes from renewable energy sources and that could grow to 28%-30% by 2025, Thayer said.

But for the next fiscal year, the fund’s investment earnings may not be enough to pay for rural power costs and community assistance.

Thayer said the fund makes roughly $70 million per year in investment earnings. In the fiscal year that ended on June 30, the fund made $48 million after COVID-19 impacted returns.

Dunleavy pledges to protect the fund

The fund has been recently earmarked for elimination. The governor’s 2019 budget called for spending from the fund for state services which was rejected by legislators.

Budget fights later that year saw the fund briefly emptied until the Legislature refilled it. The Dunleavy administration said it wanted to turn the energy payments to rural communities into an annual appropriation.

Dunleavy then reversed his position. He spoke before the AFN convention in October of 2019 and pledged to support the fund after an outcry from the Bush.

“As a result, I am committed to working with Senator Hoffman, Representative Lincoln and other lawmakers to ensure the long-term protection of the PCE fund so that affordable electricity for rural Alaska is never in doubt,” the governor said.

Jeff Turner, a spokesperson for the governor’s office, said last week that the governor remains unchanged in his support of the PCE Fund.

Edgmon said he had heard that pledge from Dunleavy at the AFN convention in 2019, but never saw legislation introduced that could insulate the fund from being spent down. A simple majority vote of both the House and the Senate would be needed to spend from the PCE Fund.

With a big budget deficit, Edgmon said the Dunleavy administration and the Legislature would be looking for “every possible nickel, every possible dime” to bridge the fiscal gap. “I think the threat to the PCE endowment is very real, and something I’m keeping a close eye on,” he added.

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