Judge rules Alaska’s rural-energy subsidy should be funded

An Anchorage Superior Court judge has ruled that a state subsidy for rural home electricity was not defunded earlier this year.

Judge Josie Garton’s written order Wednesday means power companies can still receive subsidy payments, lowering the cost of home electricity for 82,000 Alaskans and reducing the cost of power for community buildings and infrastructure in 192 rural Alaska towns and villages.

The Alaska Federation of Natives and several other plaintiffs had sued the state of Alaska in July, seeking to preserve the billion-dollar endowment fund behind Alaska’s Power Cost Equalization program.

“It’s easy for me to say they’re all very, very pleased with the outcome,” said attorney Scott Kendall, speaking on behalf of the plaintiffs.

In courtroom arguments last week, attorneys representing both sides indicated they likely would appeal to the Alaska Supreme Court. Assistant Attorney General Kate Demarest said late Wednesday that the Department of Law has a process for evaluating whether to appeal, and that process is underway now.

She said that if the state does appeal, it will not seek an injunction against Garton’s order, meaning that in either case, the Power Cost Equalization program will continue, at least temporarily.

The Alaska Energy Authority operates the program on behalf of the state. Officials said on Wednesday that they’re waiting for the go-ahead to resume payments.

“We are prepared, and we’ve asked for the utilities to keep providing us information, so that when this situation is resolved, we can pay them immediately,” said Curtis Thayer, the authority’s director.

Wednesday’s decision hinges on whether or not the PCE program’s endowment is considered part of the state’s “general fund” or whether it’s in a special separate account.

Under a 1990 constitutional amendment, “the amount of money in the general fund available for appropriation” at the end of the state’s fiscal year is supposed to be “swept” into the state’s Constitutional Budget Reserve to repay any spending from the reserve.

Legislators have spent more than $10 billion from the reserve in recent years.

Garton concluded that money in the endowment is “available for appropriation,” but “whether the PCE Endowment Fund is in the general fund presents a more difficult question, because the term ‘general fund’ is not defined in the state constitution, in statute, or by the Alaska Supreme Court,” she wrote.

Given the absence of a definition, she turned to the language of the law that created the PCE endowment. That law says the endowment was created “as a separate fund of the (Alaska Energy) Authority.”

With no evidence to say that the 1990 constitutional amendment limited the Legislature’s ability to create special funds, “this court concludes that the term ‘general fund’ does not include a separate fund of a public corporation. Accordingly, it does not include the PCE Endowment Fund.”

Alaska has many other similar funds created with similar legal language, but Garton’s ruling discusses only the PCE endowment.

Legislators and governors had long believed the endowment was immune from the annual sweep, but in 2019, the administration of Gov. Mike Dunleavy redefined the endowment fund, adding it to a list of sweepable accounts.

To prevent the endowment from being transferred into the budget reserve, three-quarters of the state House (30 of 40 members) and three-quarters of the state Senate (15 of 20 members) needed to vote for a “reverse sweep.”

That vote passed in 2019 and 2020, but it failed this year because of opposition from Republican lawmakers.

Rep. Kevin McCabe, R-Big Lake, said he felt “bullied” by the decision to make several Mat-Su infrastructure projects contingent upon a reverse sweep vote and a failure of the House’s legislative majority to engage with the House’s Republican minority.

The failure of the reverse sweep vote was “the predictable result of treating the minority with such arrogant disdain,” he said Thursday morning.

Other members of the Republican minority have long considered using PCE money for other purposes, principally Permanent Fund dividends. Budget plans proposed by the governor also call for spending the PCE money on different things.

To keep the PCE program functioning without the endowment, Republicans proposed funding it in the annual budget, but that idea was rejected by members of the coalition majority in control of the state House.

Created in 1984, Power Cost Equalization is intended to provide equity for rural Alaska by subsidizing the cost of electricity in places without state-built hydroelectric dams, state-subsidized natural gas, or similar state-paid infrastructure.

Until 2000, PCE was funded in the state’s annual budget, but that position forced rural legislators to defend it on an annual basis, putting them at a disadvantage against urban lawmakers whose dams and physical infrastructure weren’t vulnerable to budget cuts.

To provide fair treatment, the state created a $187 million endowment fund to pay for PCE in perpetuity without the need for additional funding. The fund has been wildly successful and grew to more than $1.15 billion by June 30. It’s so large that the state in recent years has begun using it to build renewable energy projects in rural Alaska and to provide grants that communities can use for non-energy needs.