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Avalanche Economics

Alaskan crisis demonstrates pocketbook power.

Fortnightly Magazine - September 2008

A series of avalanches thundered down the sides of coastal mountains near Juneau, Alaska, early in the morning on April 16. No people were hurt—not directly. But the avalanches took out several transmission towers that carried electricity from the Snettisham hydroelectric dam, cutting Juneau off from its primary source of power.

The resulting crisis turned into an instructive experiment for Alaska Electric Light & Power Co.—Juneau’s privately held utility—as well as the industry in general. Namely, it showed that consumers can and will take extreme measures to reduce their power consumption when electricity rates go through the roof.

More interestingly, though, it showed that consumption won’t necessarily spring back to normal when rates come back down.

Elasticity Experiment

Like many cities and towns in rugged and sparsely populated Alaska, Juneau’s power grid is an isolated system. Fortunately AEL&P had anticipated it might get cut off from the Snettisham plant someday. So when the avalanche fell in April, the company fired up the fleet of diesel generators it keeps on standby, averting a power crisis that could have crippled Alaska’s capital city.

That doesn’t mean, however, that all was well in Juneau. Burning $3.50-a-gallon diesel fuel to serve the electricity appetite of 31,000 residents (about 1,000 MWh on April 15) caused a secondary crisis in the city—a financial one.

“My diesel power is 10 times more expensive than hydro,” says Scott Willis, vice president of generation for AEL&P. The company asked the Alaska Regulatory Commission to approve an emergency fuel-cost surcharge that would quintuple its retail electric rates—from 11 cents to 52 cents a kilowatt hour.

The commission approved AEL&P’s surcharge within days of the company’s filing, and the company spread the word, telling customers their bills would skyrocket if they continued consuming power as they had before the avalanche.

Customers responded in multiple ways, not all of them helpful. More than 100 protestors assembled on the steps of Alaska’s state house in May, and a group calling itself the Juneau People’s Power Project urged utility customers to tear up their utility bills, alleging AEL&P mismanaged the power lines that were wrecked by the avalanche.

“There was a tremendous amount of fear and anger in the community about these high electric bills,” Willis says.

But despite such reactions, most utility customers in Juneau responded constructively. “Once they realized they had the power to control their consumption, everybody in town started really aggressive conservation,” Willis says. They kept their lights off unless absolutely necessary. They minimized TV viewing and shortened the length of their showers. “Overall, we cut our energy use by about 30 percent within a few days of the avalanche. It was an interesting experiment in price elasticity.”

The results of that “experiment” attracted widespread attention because they showed just how much electricity consumers can conserve—when utilities give them a good reason to do so. As the emergency rates took effect in May, environmental advocates predicted the Juneau avalanche would teach

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