Alaska Federation of Natives and other groups sue Dunleavy administration over fund that subsidizes rural energy

The state’s largest Alaska Native organization and several other groups are suing the Dunleavy administration over the Power Cost Equalization fund that lowers high rural energy prices for some 80,000 Alaskans in nearly 200 communities.

The Alaska Federation of Natives, electric cooperatives, rural communities and others argue that Gov. Mike Dunleavy’s administration violated the Alaska Constitution when in 2019 it determined the Power Cost Equalization Endowment Fund must automatically be swept into the Constitutional Budget Reserve, a key state savings account.

The effect of that move this year is that the program has not been funded for the fiscal year that began on July 1. Moving the rural power fund out of the savings account requires a three-quarters vote of each chamber in the Alaska Legislature, a high hurdle that the Legislature has so far not met.

The lawsuit was filed in Anchorage Superior Court on Monday.

The Legislature created the $1.1 billion fund in 2000 to help equalize power prices in rural areas that don’t benefit from state-funded power projects such as dams that help reduce power costs in the state’s larger cities. The power cost equalization program was created in the mid-1980s.

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The lawsuit asserts that without appropriate explanation, the Dunleavy administration in 2019 took a “very expansive view” of the Power Cost Equalization fund and other funds, deciding they should be swept into the Constitutional Budget Reserve.

The lack of funding in July is impacting dozens of utilities across the state that must cover the costs for a program that usually supports much of their budget, utility representatives say. If the situation remains unresolved, rural residents will ultimately face much higher bills, they say.

“We are essentially giving away free power, unless we turn back around and add those additional costs to our consumer bases,” said Bill Stamm, chief executive at Alaska Village Electric Cooperative, a plaintiff in the lawsuit. “So next month, that would be the full cost of energy and whatever we didn’t charge for the previous month.”

The Alaska Village Electric Cooperative, which provides power to 59 rural communities, must cover funds amounting to about $800,000 this month that had traditionally covered by the state, Stamm said.

The Legislature and the governor have approved $32 million in subsidies for the program this year. The money will be available if the Legislature reverses the sweep, or if the plaintiffs are successful.

A similar situation played out in 2019. Then, the rural power fund was not funded for a month, but the Legislature later found enough votes to undo the sweep. They also retroactively covered costs, utility representatives say.

The lawsuit argues that the power fund is not part of the general fund that’s subject to be moved into the savings account, Stamm said.

Instead, Stamm argued the fund is a unique account placed into the Alaska Energy Authority, a quasi-independent state agency, to spin off revenue for power cost equalization.

Dunleavy said in a statement on Monday that he has asked his administration to pursue a quick decision in the case.

“This issue is too important to delay any further,” the governor said. “A decision by the court will help clarify what is in the general fund and what is not to determine what gets swept into the Constitutional Budget Reserve to repay it. In order for us to fulfill our constitutional duties, both the executive and legislative branches need to know if the PCE is subject to the sweep.”

The Alaska Federation of Natives said in a statement on Monday that the rural power fund should not be swept in the savings account.

“Affordable energy is essential to the survival of Alaska’s rural, Native communities, particularly as our families and individuals recover from the pandemic,” said Julie Kitka, AFN President.

Dunleavy has proposed a plan that he says will protect the Power Cost Equalization fund, by placing it in the $81 billion Alaska Permanent Fund, the statement from the governor’s office said.

Helping bring the lawsuit are top former staffers under former Alaska Gov. Bill Walker. Jahna Lindemuth, Walker’s attorney general, and Scott Kendall, Walker’s former chief of staff, are two of the lawyers with Holmes, Weddle and Barcott that filed the case. Lindemuth and Kendall last year provided legal counsel to the campaign to recall the governor.