Determinants of the Cost of Electricity Service in PCE Eligible Communities

This report is one of two companion reports ISER prepared for the Alaska Energy Authority. The other report, “True Cost of Electricity in Rural Alaska and True Cost of Bulk Fuel in Rural Alaska,” is dated October 26, 2016. That report estimates the full costs of providing electricity in rural Alaska, including the costs of subsidies provided to lower the price consumers pay. This second report assesses how the costs of electric generation in Power Cost Equalization (PCE) communities are or might be affected by three factors that are not related to the differences in electricity generation costs. Those three factors are the organizational structures of utilities, postage stamp rate design, and managerial information available on energy subsidy programs. 1. Organizational Structures of Utilities Electric utilities in PCE communities are organized as cooperatives, are run by local villages and municipalities, or are investor-owned utilities. The scale of these utilities varies widely, and includes regional utilities that manage separate electric grids in multiple communities. A review of those organizational structures indicates that: 1.1. There are significant differences in distribution, customer service, and general and administrative costs (DCG&A) across utilities. These differences are correlated with the utility size and organizational structure, with the smallest utilities having significantly higher DCG&A costs per kWh. 1.2. Small local utilities that have merged with larger regional utilities have benefited from reduced costs and professional management. Incentives to encourage small local utilities to join larger, more efficient regional utilities should be considered. 1.3. The cost of borrowing for large local and regional electric coops remains low compared with that for stand-alone local villages, municipalities, and investor-owned utilities. 1.4. The state government should consider allowing a return on equity as an allowable expense within the PCE cost of service [AS 42.45.110(a)] to enable utilities to build equity, enhance debt coverage and facilitate the expanded use of private capital, and reduce dependency on limited public capital resources. This private capital may take the form of investor capital for investor-owned utilities or member capital for cooperatives. 2. Postage Stamp Rate Designs 2.1. Postage stamp rate designs—a single rate for electricity for some set of customers—can help reduce costs and improve affordability in smaller, remote communities through an implicit cost subsidization from customers in larger communities. 4 2.2. The subsidies in postage stamp rates may decrease incentives for utilities to manage their costs, because higher costs may be subsidized by postage stamp rate-making. 2.3. The increase in cost in subsidy-providing communities risks inefficient bypass by large commercial or government users. This could increase the total cost of electric service and leave the remaining customers with higher rates and diminished affordability. Separating communities into rate groups according to their cost structure may mitigate, but not eliminate, the risk of self-generators bypassing the local electric utility. 3. Efficiency in Governance of Energy Subsidy Systems 3.1. To assess whether the PCE program is achieving its goals, transparent information about the allocation of the subsidies and about the operation of the subsidized utilities is required. The companion report to this one identified some issues about reliability of information generated under the current reporting system. Improvements in the reporting requirements could address these issues. A common issue is inconsistency in accounting for capital that state and federal agencies contribute to utilities. Those capital contributions include both grants or low-interest loans to finance capital projects as well as sources of short-term government financing, such as annual fuel loans, emergency loans, and write-offs of operating loans for troubled utilities. If capital investments for generation were separated from other capital, investments to reduce fuel costs (such as wind power) could be assessed more directly. 3.2. The PCE program is one of several programs that subsidize energy costs in rural Alaska, and an understanding of the interaction among these programs is required. An annual compilation of all state and federal heating and electrical subsidy support systems by community would enable better understanding of both individual program impact and also the collective programmatic impact of the subsidies on energy affordability. 3.3. Information on system reliability, usually measured as outage hours, is required to fully assess utility performance. 3.4. Currently, there is no information on how well the PCE program and other energy subsidy programs in rural Alaska target families and communities that face the greatest energy affordability challenges. Because of limitations on income data in small rural Alaska communities, assessing how well subsidies are targeted may be challenging. However, in light of general information that energy subsidies are often inefficient at poverty reduction, this is an important question. 3.5. The environmental impact of energy subsidies for rural Alaska, including the PCE program, through CO2 emissions and PM 2.5 emissions, has not been assessed.Alaska Energy AuthorityExecutive Summary / Background / Impact of Alternative Utility Organizational Structures on Cost / Postage Stamp Rate Design Issues for PCE Communities / Energy Subsidy Administration / Summar

Affordability and the Funding Gap Trends among Low-and Moderate-Income Households, 1995-2005

The period between 1995 and 2005 was a tumultuous one for low- and moderate-income (LMI) households seeking to purchase their first home. A booming housing market, stagnant incomes, and low interest rates taken together have presented both opportunities and challenges for these households. Meanwhile, regional disparities have increased markedly due to the different rates of price appreciation across housing markets. The upshot of these regional disparities is that LMI households can achieve homeownership without significant subsidies in some places, while in other places multiple layers of grants and concessionary financing, in combination with other policy tools, are the only hope for such families to ever achieve homeownership.The severe erosion of housing affordability in many markets has undermined the ability of government and nonprofit organizations to promote homeownership attainment by blunting the effectiveness of their traditional policy approaches. The response to this situation is a two-stage process. First, the nature of affordability challenges must be understood at the market level, and metropolitan-level housing markets must be accurately classified based on the difficulty that low- and moderate-income households face in becoming homeowners in each place. Second, organizations operating in each market must have access to the right tools to help their clients become owners; the approach must be accurately matched to the affordability regime in the market(s) in which they operate.This paper addresses the first issue. It develops a housing market typology based on affordability into which markets can be sorted, and to which homeownership policy approaches can be matched. The paper unfolds in several steps. It begins by deconstructing housing affordability into three elements -- house prices, incomes and mortgage costs -- and reviewing recent changes in each. It then looks at the performance of house price indexes over the past decade, explaining why they tend to show only small affordability declines despite substantial changes in house price. Following this, the paper examines affordability conditions for low- and moderate-income families in 127 housing markets using two measures: the change in affordability-index values and the gap between the maximum mortgage a household can afford and the amount required to purchase a modest home. Based on these results, we develop an affordability-based typology of market types that can be linked to policy interventions designed to promote homeownership attainment in each type of market

Improving Health Care Access for Older Alaskans: What Are the Options?

This report focuses on the problem older Alaskans who rely on Medicare face getting access to primary care, and discusses some of the options policymakers are considering to resolve the problem. But older Americans across the country also report difficulty getting the primary care they need. The discussion here sheds light on the problem and potential solutions nationwide. Most Americans 65 and older use Medicare as their primary health insurance. Medicare is federal health insurance for people 65 and older, people under 65 with certain disabilities, and people of any age with end-stage renal disease—but this report looks only at access issues for Medicare beneficiaries 65 and older. Doctors don’t have to participate in the Medicare program. But those who do participate have to accept, as full payment, what Medicare pays for specific services. Many primary-care doctors say Medicare doesn’t pay them enough to cover their costs—so growing numbers are declining to see new Medicare patients. Among primary-care doctors nationwide, 61% accept new Medicare patients.1 National surveys sponsored by the Medicare Payment Advisory Commission have found that 17% of Medicare patients in the U.S. had “a big problem” finding family doctors in 2007—up from 13% in 2005.2 In Alaska, a 2008 survey by the Institute of Social and Economic Research (ISER) found that just over half of Alaska’s primary-care doctors were willing to treat new Medicare patients.3 The situation was worse in Anchorage, where 40% of all older Alaskans live. Only 17% of primary-care doctors in Anchorage were willing to treat new Medicare patients as of 2008 (Figure 1).4The Harold E. Pomeroy Public Policy Research EndowmentIntroduction / How Medicare Works / Closed Doors / Older Anchorage Residents and Primary Care / Options for Changing Access to Primary Care: What is Alaska Considering? / Conclusions / Appendi

UA Research Summary No. 14

In the past few years, Alaskans have been hearing reports that some primary-care doctors won’t see new Medicare patients. Medicare pays these doctors only about two-thirds of what private insurance pays—and that’s after a sizable increase in 2009. But most Americans 65 or older have to use Medicare as their main insurance, even if they also have private insurance. Just how widespread is the problem of Alaska’s primary-care doctors turning away Medicare patients? ISER surveyed hundreds of doctors to find out—and learned that so far there’s a major problem in Anchorage, a noticeable problem in the Mat-Su Borough and Fairbanks, and almost no problem in other areas.University of Alaska Foundation

UA Research Summary No. 18

Health-care spending for Alaskans reached about $7.5 billion in 2010. For comparison, that’s close to half the wellhead value of all the oil produced in Alaska that year. It’s also roughly equal to half the wages Alaskans collected in 2010. The state’s health-care spending has been rising fast, tripling since 1990 and jumping 402010—and at current trends it could double by 2020, reaching more than$14 billion. Here we report on who’s paying the bills, what we’re buying, what’s contributing to the growth, and other aspects of health-care spending. We conclude with a discussion of how Alaska could get better value for its health-care dollars