High fuel costs particularly painful in rural Alaska towns

Throughout rural Alaska, the summer’s fuel barges arrived with loads of diesel, heating fuel and a big bill for cities and boroughs.

Away from Alaska’s road system and along western and northern coasts that freeze in winter, fuel arrives by barge or plane once, twice or a handful of times per year. This year, those deliveries are coming with prices near record highs.

While consumers are paying at the pump directly, there is the growing potential for a second financial hit as towns, villages, cities and boroughs absorb high fuel costs in their budget.

The results have yet to play out, but experts are already warning of the potential for service cuts or tax increases, particularly in small towns and villages.

“At the community level, in much of rural Alaska, I think it’s a huge hit to municipal budgets,” said Nils Andreassen, director of the Alaska Municipal League, an umbrella organization for local governments across the state.

“To some extent, those costs … will be passed on to residents. For actual fuel sales, it’ll be passed on. But I think a lot else will just be absorbed by the municipal government, and they’re already making hard decisions,” he said.

In the Southwest town of Aniak, finance director Missy Kameroff said officials are considering whether to shut down the fire station in order to compensate for the cost of fuel.

It’s not a decision that’s come out of the blue — the local fire department has been without a chief, certification and volunteers — but it’s an example of the decisions that are being considered.

In Aniak, population 557, city officials were quoted a price of $9.10 per gallon for 5,000 gallons of bulk fuel — $5.16 per gallon more than was paid last year, she wrote in an email to Andreassen.

In a later phone interview, she said officials are considering how much they can cut their fuel order and whether delaying action might help. Fuel costs have been falling in the Lower 48 in recent weeks.

In many small towns, the cost of fuel to run heavy equipment, heat buildings and generate electricity is already one of the biggest local expenses.

Cordova, a town of 2,248 people off of the road system at the mouth of the Copper River, is lucky to have hydroelectric power part of the year, said city manager Helen Howarth. “We would be in a world of hurt without it.”

Even with hydropower, the city’s electric cooperative still burns some diesel, and the town’s average monthly residential power bill is about $250. That’s the highest figure in at least a decade, even adjusted for inflation.

When it comes to running the city’s heavy equipment and heating city buildings, “in terms of the cost right now, what we’re seeing in terms of fuel — and however we consume it, at any level — has doubled,” Howarth said.

The state runs a bulk fuel loan program intended to help communities front the cost. The state pays for the fuel directly — up to $750,000 per community, per year — and local governments pay the money back throughout the year.

Melody Nibeck, who runs the program for the Alaska Department of Commerce, Community and Economic Development, said officials there haven’t seen more communities join the program — 40 had enrolled as of late July, four fewer than in all of 2021 — but those who have enrolled are asking for more money.

It’s possible that those figures could change. According to historical records kept by the program, activity peaks in the late summer and early fall, just before the rivers freeze in many parts of Alaska.

Another figure to watch is the number of borrowers in default, which could indicate financial stress among communities. Those numbers won’t be available until 2023, at the earliest.

Nibeck, who lived in rural Alaska before being hired by the state, said it’s critical to remember that high fuel costs now mean those prices are likely locked in for a year, until the next barge arrives in summer 2023.

“Those pricing schemes stay there, and it’s just pervasive, and it just impacts everything,” she said.

In the Kuskokwim River town of McGrath, population 231, it’s the water system that’s the biggest concern, said city manager Sarah McClellan.

McGrath has underground piped water and sewer service, but in a place where temperatures reach minus 50 with regularity, that means heating the water is a necessity.

“This year, due to the exorbitant cost of diesel, the city ordered 7,000 gallons (of diesel) less than normal but still paid $30,000 more,” she wrote by email to Andreassen.

She said the year’s barge has already arrived, which means fuel costs have been locked in until 2023.

“Fuel is a fifth of our budget, and it’s something we can’t change,” she said.

As a consequence of the cost, the city has had to take more money from its general fund, which covers unexpected expenses. City officials — all four are part-time employees — will do everything they can to avoid raising fees for the water system, she said, but they can’t control if a truck unexpectedly needs new tires or a road washes out.

“There will come a point where we won’t be able to make those repairs,” she said.