Knowles announces plan to sell state dams, underwrite rural power rates

JUNEAU (AP) -- Electric bills in rural communities would be subsidized by a fund endowed by the sale of four state-owned hydroelectric projects under a plan announced by Gov. Tony Knowles on Tuesday.

Sale of the Four Dam Pool projects for $73 million would make up the largest portion of a new $120 million endowment fund to pay for the Power Cost Equalization program, which lowers electricity costs in the homes of 78,000 Alaskans in 193 villages.

Earnings from the endowment would cover about half the annual cost of PCE. Knowles' plan also calls for spending earnings from the Alaska Industrial Development and Export Authority, a proposal legislators rejected last year.

Knowles said his plan addresses two ongoing, thorny issues: communities served by the hydroelectric projects want to buy them, and rural communities want a reliable source of money to underwrite power rates.

Power Cost Equalization remains one of the highest priorities for Bush legislators.

''To us, this is an economic engine that is going to help us in rural Alaska,'' said Sen. Al Adams, D-Kotzebue.'

The fund that formerly paid the subsidy ran dry this year, and finding money to replace it has become one of the dominant issues for the Legislature. The income the state currently gets from the Four Dam Pool picked up part of the cost, but the program was still about $8 million short.

Without subsidies, some villagers pay at least five times the electric rates of communities whose utilities have access to cheap power from hydroelectric projects, natural gas or coal. Rural utilities use generators that burn expensive diesel fuel.

The Four Dam Pool, so named because customers from all projects pool operating costs and pay 6.8 cents per kilowatt hour, consists of the Swan Lake project, serving Ketchikan; the Tyee project, serving Petersburg and Wrangell; the Terror Lake project, serving Kodiak; and the Solomon Gulch project, serving Valdez and Glennallen. All are dams except for Tyee, which is a lake tap.

Former Petersburg Mayor Dave Carlson, who represents the utilities, said Tuesday's purchase agreement for the hydroelectric projects built in the early 1980s culminates six years of trying. Carlson said taking control of the dams will avoid a host of future political problems, allowing power users to make decisions locally.

''We wanted local control and we wanted to control our own destiny,'' Carlson said.

Customers pay 2.8 cents per kilowatt hour for operating expenses and 4 cents per kilowatt hour to the state as ''debt retirement.'' Those payments were due to continue through 2031, Carlson said.

Current power sales agreements would be retained after the purchase by a new entity made up of representatives from the utilities that operate the projects. Carlson said the utilities will borrow the $73 million purchase cost from the Alaska Industrial Development and Export Authority.

''We hope to have the debt retired in no more than 20 years,'' Carlson said, after which the utilities would lower power rates.

''These projects will be supplying power well into the next generation, and the generation after that, and the generation after that,'' Carlson said.

Knowles' plan calls for a PCE endowment fund of $120 million within two years. Besides the $73 million from the hydroelectric projects sale, the agreement calls for the utilities to relinquish a $20 million low-interest loan for the proposed intertie between the Swan Lake and Tyee projects that could be added to the fund.

A $13 million insurance fund for the projects also would be turned over to the endowment. Four Dam Pool rate payers are due to make two more $10 million debt payments before 2002. One would be go to the endowment fund and one would cover PCE costs during the transition.

Each year 7 percent of the fund, projected at $7-8 million, would be transferred to an account and used for PCE.

Knowles plan calls for the rest, up to $9 million annually, to come from earnings of the Alaska Industrial Development and Export Authority, a state agency that encourages economic growth and diversification through financing and helping businesses.

Knowles proposed using a portion of the AIDEA dividend last year and was turned down by legislators.

Sen. Robin Taylor, R-Wrangell, said the plan has broad bipartisan support but he could not predict whether his colleagues would support using AIDEA money to underwrite rural electric rates. He said he was pleased to work with the governor toward the sale of the hydroelectric projects.

''This is a day I've waited for for a long time,'' Taylor said.

The state began the PCE program in 1985 and last year eliminated subsidies for commercial power users. Only the first 500 kilowatts used in homes each month are subsidized.

Adams acknowledged that $15.7 million might not cover the rural power subsidy if fuel prices remain high. But he said legislation in 1993 specified that the state would spend $17 million on PCE until 2013, Adams said.

''We're using that as a guideline,'' Adams said. ''Our preference would be to go up to at least $17 million.''