AFN, others file lawsuit against Dunleavy's 'back-door veto' of Power Cost Equalization

Without the funds in place, energy prices are expected to double in some parts of the state.

Good afternoon, Alaska! We’re finally getting a much-needed bit of rain after a sweltering weekend. Now we just have to figure out this humidity thing.

In this edition: The latest lawsuit against the Dunleavy administration was predicted two years ago, a bit of history on Power Cost Equalization and the reading list.

A lawsuit long in the making

Nearly two years ago to the day, Bethel Democratic Sen. Lyman Hoffman and other senators were in a hearing getting an overview of Gov. Mike Dunleavy’s plan to vastly expand the number of funds and programs affected by the Constitutional Budget Reserve’s sweep (a deeply wonky bit that I explain in more detail here). At the time, legislators were deeply critical of the “ugly” move that most involved said was a plainly wrong reading of the Alaska Constitution and the accompanying laws regarding the sweep. The legislature’s budget director warned that if Dunleavy/Clarkson were right about PCE, then the Alaska Permanent Fund’s earnings could be swept up, too.

"I think that is going to be determined sometime in the future through the legal process,” Hoffman said at the time.

Today, the state is getting that lawsuit in the form of a filing brought by the Alaska Federation of Natives and more than a dozen other tribal groups, local governments and utilities. At the heart of it, the lawsuit is seeking a declaration that Dunleavy—at the advice of now-former Attorney General Kevin Clarkson—was wrong to so vastly expand the sweep.

The logic behind the case is that Dunleavy and company are completely wrong on the factors that make something subject to the sweep: That the money be in the general fund at the end of the year and that the money be available for appropriation. Clarkson had argued that because the funds could be treated like general fund dollars, they should be treated like general fund dollars. While the money in the fund is available for appropriation, the lawsuit argues that it’s not part of the general fund (something that seems to be backed up by the state’s own budget documents) because it’s in a separate account in the Alaska Energy Authority. From the lawsuit:

“The governor’s analysis erroneously conflates these two issues, and effectively makes it a one-part test. It is not sufficient to simply say that ‘the PCE Endowment Fund is no different than general fund money’ because an additional appropriation may be needed before it can be expended, and the Legislature can appropriate it for any purpose. Although the legislature certainly could appropriate monies from the PCE Endowment Fund for any purpose, the PCE Endowment Fund is still not in the general fund,; by statute it is a separate fund within the AEA. And the constitutional test is not whether it is ‘like’ or ‘similar’ to general fund mines, the test is whether it is actually in the general fund.”

Both the groups bringing the lawsuit and the state are asking the courts to take the case up on an expedited basis. The funds have, apparently, not yet been transferred to the Constitutional Budget Reserve and are set to do so some time in August.

“Affordable energy is essential to the survival of Alaska’s rural, Native communities, particularly as our families and individuals recover from the pandemic,” AFN President Julie Kitka said in a prepared statement. “We urge the court to confirm the PCE is not subject to a sweep and let our people continue with their lives.”

Why it matters: Freeing Power Cost Equalization and the dozens of other programs that Dunleavy included in the sweep would dramatically change the balance of leverage in the Legislature. Dunleavy-aligned Republicans have sought to use the three-quarter vote as leverage to deliver that bigger PFD as well as a load of largely unpopular changes to the budget and the Alaska Constitution. While this lawsuit wouldn’t change the math on that vote, it would free many programs—PCE being top among them—that are critically important to several legislators. Remove PCE from the sweep and suddenly the reverse sweep is not that big of a deal.

On the other hand: If Dunleavy and Clarkson prevail in this case and the Supreme Court accepts as correct Clarkson’s legal thinking—that if something can be treated like the general fund dollars then they are the general fund dollars—could be monumental. As former Legislative Finance Division Director David Teal pointed out, that kind of thinking would make the Alaska Permanent Fund’s earnings reserve account similarly subject to a sweep.

A bit of history

While Dunleavy and company claim to support the program, they’ve in the same breath called for significant changes to the program that would force the program to become part of the annual budget fight. Though the governor latest take on constitutionalizing the PFD would also add PCE to the constitution, even some Republicans have pointed out that the proposed amendment—which would leave the shape and scope of the project up to legislators—wouldn’t guarantee that the program is actually maintained.

So alongside this whole debate on the sweep and reverse sweep, several Dunleavy-aligned Republicans are trying to force a discussion on the future and value of the Power Cost Equalization program. To them, they see it as an unfair subsidy that benefits someone other than them. That overlooks a considerable amount of background, history and purpose of the program. A letter from the ANCSA Regional Association, which represents the 12 Alaska Native regional corporations (and typically stays out of charged political debates, so them sending a letter is quite remarkable), sent to legislators last week argues the program is intended to bring equity in light of much larger investments in urban Alaska. From the letter:

“It is critical to understand that the PCE program is just that: cost equalization. The massive state investment during the 1970s and 1980s into power facilities and transmission capability for the Railbelt was not replicated for rural regions, and the PCE program was explicitly designed to compensate for that disparate investment The PCE is not a subsidy; it is compensations for unequal subsidization of development that occurred decades ago, development that provides ongoing benefits to urban areas. Neglecting to protect the PCE endowment will cause disproportionate harm to rural Alaskans. … This increase would be seen as unacceptable in any urban region of the state and rural Alaska should not be treated any differently. Alaska’s rural residents should not be used as a bargaining chip in budget negotiations, and it is your responsibility as legislators to ensure that all Alaskans are treated equally by the state government.”  

Bill Stamm, the president and CEO of the Alaska Village Electric Cooperative, also penned an editorial for the Anchorage Daily News over the weekend that outlined the disparities in energy prices in Alaska and provides some important background. According to his write-up, most Alaskans pay about $0.20/kwh while rates for power in some rural Alaska communities is as high a $0.50/kwh or more. From his op-ed:

For some, the disparity is easily justified with a simple assumption that with greater concentrations of people the cost of electricity comes down. That is certainly a component in energy costs but it does not explain the whole story. A large credit for the “low” cost of power in Alaska’s Railbelt and Southeast goes to previous Alaska Legislatures that committed funds to build projects that reduce the cost of power. Projects like building dams and hydroelectric generation stations and building electrical tie-lines to transmit power to share low cost energy. From Homer to Fairbanks, and in Valdez, Kodiak and Southeast Alaska, the cost of power has been bought down by the state’s commitment of funds. … Unfortunately, those grand projects do not reach small, isolated communities that are home to more than 80,000 Alaskans. 

Reading list