PUBLISHED: 11:30 AM on Wednesday, June 18, 2008
Skyrocketing fuel costs drain rural Alaska bank accounts
Ron Hunnicutt, of Crowley Marine Service, fills a 55-gallon drum with heating oil at Crowleys terminal in Kotzebue in this 2006 photo. Bulk fuel costs are rising at an alarming rate, especially affecting Alaska's rural communities. AP Photo/James Mason

Fuel costs in rural communities in Western and Interior Alaska are soaring. Based on prices for the first spring, 2008 deliveries of diesel, gasoline and aviation fuel in Dillingham and other regional hub communities, 2008 prices may be a third or more higher this year over last.

In Dillingham, the wholesale price for sales of diesel delivered in mid-May was $1.45 more than prices at the time of the last delivery in fall 2007. Oil prices have continued to rise since the May barge deliveries in Dillingham, so prices are certain to increase further as barge deliveries continue through the summer.

The price difference over last year is also likely to grow, to an estimated $1.50 per gallon or even $2 per gallon over last year, as deliveries are made in more remote communities that require the fuel to be moved by small barges from the hub communities, where there are large bulk fuel tanks.

Fuel operators in the region say prices last year for diesel sold to larger customers, and those with good credit, were about $4 per gallon on average, although the price varied by region and was higher in more remote communities.

About 80 million gallons of diesel is sold yearly in Western and Interior rural communities, and if the average price reaches $6 a gallon in 2008, with a $2 per gallon difference over last year, this translates to a $160 million addition to fuel bills for the region.

It is an amount that is simply unaffordable for many communities, said Meera Kohler, president of Alaska Village Electric Cooperative, which supplies power in 53 small villages.

AVEC is the region's largest single fuel customer and has solid credit with fuel suppliers. But this year, the cooperative is having problems paying the fuel bill, Kohler said. AVEC may apply for the first time for a loan under the state's bulk fuel loan program, which is already under pressure from its existing borrowers, mostly rural municipal governments and other small utilities.

The cooperative's board passed a resolution May 27 declaring a fuel emergency and asked Gov. Sarah Palin and the Legislature to adopt an emergency plan to assist rural fuel consumers as they consider Palin's proposal for an emergency energy plan announced May 15.

The Legislature will consider various options for energy relief when it meets in special session this month.

AVEC's price for diesel has increased from an average of $2.93 per gallon in 2007 to at least $4.60 per gallon for 2008 deliveries. Recent spikes in crude oil prices could push the delivered cost to as much as $4.87 per gallon, according to information from the cooperative.

The co-op has issued a purchase order for 5.4 million gallons that will likely cost $26 million, about $12 million more than last year.

"AVEC does not have the financial ability to make such an outlay, nor do its members have the financial ability to pay the electric bills that will ensue following incorporation of current costs into rates," the resolution passed by the cooperative's board said.

Only half of the power sold by AVEC is to residential consumers eligible for support from the state's power cost equalization fund, and the PCE support is capped at costs below 52.5 cents per kilowatt-hour. With the added fuel costs, the actual power rates in many communities will be higher.

AVEC isn't alone in the struggle. Communities that borrow from the state's bulk fuel loan program are finding they will buy less fuel for the same amount they borrowed last year. The state fuel loans are capped at $400,000.

The bulk fuel loans give small communities the funds to pay the large up-front cost of purchasing a year's supply of fuel.

If there isn't enough money to buy enough fuel to fill storage tanks, a village could run out of fuel by late winter, which would require the state to step in with emergency assistance, and fuel

would have to be flown in by air at a much greater expense.

Alternatives are already being suggested to Palin's emergency energy plan.

AVEC has proposed a program to give state support to electric utilities dependent on diesel that would cap prices at $10 per million British Thermal Units, translating to about $1.30 to $1.40 per gallon for most fuels.

"The fuel supplier would be the entity that would deliver the fuel, charge the utility the state-mandated price and bill the state for the balance," Kohler told Palin in a May 27 letter.

If action is taken quickly, "this would provide immediate relief to thousands of electric consumers in the state who are struggling tremendously form the extraordinary cost of power," Kohler wrote.

Assuming the price support would cover about 100 million gallons of fuel purchased by electric utilities statewide, the plan would cost the state about $320 million, Kohler said in the letter.

In another proposal, Anchorage Mayor Mark Begich has proposed a combination of state actions that would speed efforts to improve energy efficiency and provide rebates for home and building owners of up to $10,000 per family. The proposal would cost about $150 million.

Begich, who is a candidate for statewide office, also proposed a $300 million state program to match 50 percent of electric utility capital expenditures that result in energy efficiency savings of 15 percent or more.

"This combines the benefit of retiring inefficient generation and reducing ratepayer debt load," Begich said May 27, when he announced the program.

The Anchorage mayor also proposed improved bus and commuter rail services where it is possible. Begich's proposals total $650 million.

Palin proposed a $1.2 billion program to grant relief through a two-part plan, one being a fuel debit card worth $100 a month for 12 months issued to permanent fund dividend recipients, and a second that would provide grants to utilities that would have them reduce utility costs to consumers by 60 percent.

Tim Bradner can be reached at