The assignment asks a series of questions related to the Alaska Power Cost Equalization (PCE) program administered by the Alaska Energy Authority (AEA). The PCE program provides grants to rural Alaska electric utilities to subsidize retail rates to residential consumers. The subsidized retail rate is calculated as 95% of the "eligible costs" per kWh between a floor price and a ceiling price of $1.00/kWh for the first 750 kWh. The floor price, or "base rate," is determined by the average of recent Anchorage, Fairbanks, and Juneau retail electricity prices. It also subsidizes up to 70kwh per month per community resident for "community facilities" such as a washeteria. When residential customers use more than 750 kWh threshold in a month, they pay the full rate for consumption above the threshold. Schools, government agencies, and commercial customers do not receive a subsidy. For example, if the floor price is 20 cents per kWh, and the utility retail electricity rate is 50 cents per kWh, of which 40 cents/kWh is "eligible costs," then the subsidy is $0.40 - 0.95*($0.40-$0.20) = $018 /kWh, and customers pay $0.50 - $0.18 = $0.32 per kWh for the first 750 kWh in a month. For a residential customer that used 500 kWh in a particular month, their bill that month would be $0.32*500 = $160. Without PCE, they would pay $250, so you can see that PCE is important for making electricity affordable for rural Alaska households. For contrast, the average Alaska household living in urban Alaska would be paying about $0.20 per kWh, so their monthly bill for 500 kWh would be $100. Two things about PCE are important to keep in mind as you answer the questions. First, the utilities participating in the PCE program are all subject to rate regulation by the Regulatory Commission of Alaska (RCA). Second, the "eligible costs" for the subsidy are basically the utility's costs. The Alaska legislature, in enacting the PCE program, did not want to subsidize the utility's full regulated electricity rate, because that would mean subsidizing the utility's profits. The data for the following questions are adapted from real costs reported by an actual rural Alaska utility to the AEA in 2023. The floor price (base rate) in 2023 was 19.58 cents per kWh.

Suppose the utility has to pay a carbon tax on the carbon dioxide emissions from burning diesel to generate electricity. The tax rate is $100 per metric ton (tonne). Question #1 1a. Using emission factors for diesel fuel (no. 2 distillate) at the EPA emission factor site, what are annual emissions in metric tons, and annual carbon taxes if the utility only uses the diesel plant to produce electricity?

1b. What are total utility revenue requirements and the regulated price of electricity with the carbon tax if the utility only uses diesel?

1c. What are the annual emissions and carbon taxes if the utility also is using the wind turbine? (It does not matter whether the utility or the IPP owns the turbine.)

1d. What are total utility revenue requirements and the regulated price of electricity with the carbon tax if the utility is also using the wind turbine? Assume in this case that the utility purchases power from the IPP.

1e. What is the PCE subsidy and and PCE subsidized price if the utility only has diesel power?

1f. What is the PCE subsidy and PCE subsidized price if the utility also purchases power from the IPP? Carbon tax

	Diesel power alone	Diesel with wind
Carbon tax rate ($/metric ton)	$100	$100
CO2 emissions (kg/year)
Carbon tax ($/year)