AFN, utilities, tribes and towns sue Dunleavy over ‘back-door veto’ of Power Cost Equalization

Gov. Mike Dunleavy during a September 2020 town hall. (Photo by Governor's Office/Flickr)

It wasn’t until Gov. Mike Dunleavy took office that the state’s Power Cost Equalization program, which helps communities cope with high-cost energy, was tangled up with the state’s annual budgeting process. The move broke with long-set precedent, and nearly exactly two years ago today Bethel Sen. Lyman Hoffman suggested the whole thing would end up in the courts.

“I think that is going to be determined sometime in the future through the legal process,” he said at a finance committee hearing in 2019.

Today, the state’s getting that lawsuit. 

The Alaska Federation of Natives, several rural utilities, local governments, tribal governments and other organizations filed a lawsuit today challenging the governor’s decision to include the Power Cost Equalization program’s funds in the annual accounting process known as the “sweep.” The lawsuit seeks a ruling that the fund is exempt from the sweep and that the program be restored immediately.

[PDF: Initial complaint in Alaska Federation of Natives et al. v. Dunleavy et al.]

The sweep is outlined in the Alaska Constitution and requires, essentially, that any withdrawals from the Constitutional Budget Reserve be paid back with whatever funds are left over at the end of the year. Typically, that money has been put back with a supermajority three-quarter vote of each chamber—known as the “reverse sweep”—but achieving that vote has proven difficult as Dunleavy-aligned legislators have sought to use it as leverage for larger PFDs and a slew of other generally traction-less changes to the budget and Alaska Constitution. 

The addition of the Power Cost Equalization’s $1 billion endowment in the sweep was based on legal advice of now-former Attorney General Kevin Clarkson. 

Today’s filing argues that Clarkson and Dunleavy were wrong to make that change, arguing they wrongly applied the standards for what should be considered sweep-able and are infringing on the Legislature’s ability to appropriate. 

“By improperly designating the PCE Endowment Fund as being subject to the CBR sweep, the governor has impermissibly invaded the legislature’s appropriation power in two ways,” explained the filing. “First, the governor has had the unconstitutional effect of vetoing validly appropriated funds that have been made into the PCE Endowment Fund for decades. Second, the governor will have accomplished a back-door veto of a validly-appropriated transfer of funds from the PCE Endowment to the PCE (program) for this fiscal year.” 

Dunleavy and his allies have claimed they’re supportive of Power Cost Equalization and have suggested adding it to the Alaska Constitution along with a strict formula for the Alaska Permanent Fund dividend, but even Republican legislators have remarked that the current proposal would offer very little guarantee that PCE would be maintained because the change would leave the shape of the program up to the Legislature. 

Power Cost Equalization—specifically, its $1 billion endowment—has become a recent target of far-right, Dunleavy-aligned legislators. In the run-up to the 2020 election, the governor’s former budget director Donna Arduin held a presentation where she suggested liquidating the program to provide cash for a “glidepath” on the state’s budget. It’s a sentiment that has gained traction with several far-right legislators, who’ve argued that the program should have to compete with the rest of the budget.

But those familiar with the program argue that this recent animus overlooks the program’s history and purpose. A letter from the ANCSA Regional Association, which represents the 12 Alaska Native regional corporations, sent to legislators last week argues the program is intended to bring equity in light of much larger investments in urban Alaska’s energy system.

[PDF: Read the full ANCSA Regional Association letter here]

“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,” explained the letter. “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.”

Already, utilities are warning that energy bills in some areas of the state could double without the program, a move that would not only hit household pocketbooks directly but would also trickle out to other utilities such as water and wastewater treatment that could make it difficult for them to continue operating.

“This increase would be seen as unacceptable in any urban region of the state,” argued the letter from the ANCSA Regional Association, “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.”  

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