HB0137

HOUSE BILL 137

57th legislature - STATE OF NEW MEXICO - first session, 2025

INTRODUCED BY

Susan K. Herrera

AN ACT

RELATING TO WATER; ENACTING THE STRATEGIC WATER SUPPLY ACT; CREATING THE STRATEGIC WATER SUPPLY PROGRAM; AUTHORIZING THE DEPARTMENT OF ENVIRONMENT, THE ENERGY, MINERALS AND NATURAL RESOURCES DEPARTMENT AND THE OFFICE OF THE STATE ENGINEER TO ENTER INTO CONTRACTS AND AWARD GRANTS FOR PROJECTS THAT REDUCE THE STATE'S RELIANCE ON FRESH WATER RESOURCES OR EXPAND WATER REUSE OPPORTUNITIES; CREATING THE STRATEGIC WATER SUPPLY PROGRAM FUND; PROVIDING REQUIREMENTS BEFORE A PERSON DRILLS WELLS OR RECOMPLETES EXISTING WELLS TO APPROPRIATE WATERS; IMPOSING A FIVE-CENT ($.05) FEE ON BARRELS OF PRODUCED WATER FROM OIL OR GAS WELLS AND DEPOSITING MONEY COLLECTED FROM THE FEE INTO THE STRATEGIC WATER SUPPLY PROGRAM FUND; MAKING APPROPRIATIONS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1. [NEW MATERIAL] SHORT TITLE.--Sections 1 through 5 of this act may be cited as the "Strategic Water Supply Act".

SECTION 2. [NEW MATERIAL] DEFINITIONS.--As used in the Strategic Water Supply Act:

A. "brackish water" means water that:

(1) is sourced from an aquifer, the top of which is at a depth of two thousand five hundred feet or more below the surface of the ground;

(2) contains not less than one thousand parts per million of dissolved solids; and

(3) is not produced water;

B. "produced water" means a fluid that is an incidental byproduct from drilling for or the production of oil and gas;

C. "public entity" means a county, municipality, political subdivision, state agency or state institution of higher education;

D. "treated brackish water" means brackish water that has undergone a process to remove or eliminate contaminants to meet applicable standards for water quality established pursuant to the Water Quality Act by the water quality control commission; and

E. "treated produced water" means produced water that is reconditioned by mechanical or chemical processes into a reusable form.

SECTION 3. [NEW MATERIAL] APPLICABILITY.--The strategic water supply program applies only to produced water under the jurisdiction of the water quality control commission and brackish water.

SECTION 4. [NEW MATERIAL] STRATEGIC WATER SUPPLY PROGRAM.--

A. The "strategic water supply program" is created. Subject to the availability of funds and a project that meets all eligibility requirements, the department of environment, the energy, minerals and natural resources department and the office of the state engineer may each enter into contracts or award grants for eligible projects involving treated brackish water or treated produced water for the purposes of reducing the state's reliance on fresh water resources or expanding water reuse opportunities.

B. A contract entered into pursuant to this section shall be in accordance with the Procurement Code, except that the contract duration shall not exceed twenty years in length, including extensions and renewals.

C. To be eligible for a strategic water supply program contract, a project shall:

(1) comply with all applicable state, tribal and local governmental standards, permit requirements and other provisions of law to protect public health and the environment;

(2) furnish financial assurance, other than third party guarantees, to the oil conservation division of the energy, minerals and natural resources department for the life of the project in accordance with rules of the division, running to the benefit of the state and with any forfeitures deposited in the state treasury in the strategic water supply program fund;

(3) clearly demonstrate how the project will advance state, tribal or local government economic development goals in accordance with the purposes of reducing the state's reliance on fresh water resources or expanding water reuse opportunities; and

(4) submit a specific, actionable and measurable community benefits plan that includes a process for community engagement and is designed to provide broadly shared benefits to members of the public who are or may be impacted by the strategic water supply program contract.

D. To be eligible for a strategic water supply program grant, a project shall:

(1) be approved by the state engineer as advancing the exploration, production or treatment of brackish water in New Mexico;

(2) comply with applicable state, federal, tribal and local governmental standards and permit requirements and other provisions of law to protect public health and the environment;

(4) be administered by or in partnership with a public entity such that the public entity is the grant recipient.

E. The agency awarding a strategic water supply contract shall publish the community benefits plan to the agency's website.

F. When evaluating grant or contract proposals for compliance with Paragraph (3) of Subsection C or Paragraph (3) of Subsection D of this section, the agency shall:

(1) do so in accordance with the State-Tribal Collaboration Act, where applicable;

(2) consult with the secretary of economic development; and

(3) evaluate how the projects in the proposals will limit greenhouse gas emissions.

G. No contract shall be provided pursuant to the provisions of the Strategic Water Supply Act for the production of treated produced water except for treated produced water uses that are in accordance with the Water Quality Act and rules adopted by the water quality control commission.

SECTION 5. [NEW MATERIAL] STRATEGIC WATER SUPPLY PROGRAM FUND.--

A. The "strategic water supply program fund" is created in the state treasury and shall be administered by the department of environment. The fund consists of distributions, appropriations, gifts, grants, donations, income from investment of the fund and fees collected pursuant to Section 70-13-6 NMSA 1978.

B. Money in the fund is appropriated to the department of environment, the energy, minerals and natural resources department and the office of the state engineer for the purpose of administering the strategic water supply program pursuant to Section 4 of the Strategic Water Supply Act and the reporting and accounting of barrels of produced water pursuant to Section 70-13-6 NMSA 1978.

C. Expenditures from the fund shall be to the department of environment, the energy, minerals and natural resources department or the office of the state engineer by warrant of the secretary of finance and administration pursuant to vouchers signed by all of the following: the secretary of environment or the secretary's authorized representative, the secretary of energy, minerals and natural resources or the secretary's authorized representative and the state engineer or the state engineer's authorized representative.

SECTION 6. Section 7-1-2 NMSA 1978 (being Laws 1965, Chapter 248, Section 2, as amended) is amended to read:

"7-1-2. APPLICABILITY.--The Tax Administration Act applies to and governs:

A. the administration and enforcement of the following taxes or tax acts as they now exist or may hereafter be amended:

(1) Income Tax Act;

(2) Withholding Tax Act;

(3) Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act;

(4) Gross Receipts and Compensating Tax Act, Interstate Telecommunications Gross Receipts Tax Act and Leased Vehicle Gross Receipts Tax Act;

(5) Liquor Excise Tax Act;

(6) Local Liquor Excise Tax Act;

(7) any municipal local option gross receipts tax or municipal compensating tax;

(8) any county local option gross receipts tax or county compensating tax;

(9) Special Fuels Supplier Tax Act;

(10) Gasoline Tax Act;

(11) petroleum products loading fee, which fee shall be considered a tax for the purpose of the Tax Administration Act;

(12) Alternative Fuel Tax Act;

(13) Cigarette Tax Act;

(14) Estate Tax Act;

(15) Railroad Car Company Tax Act;

(16) Investment Credit Act, rural job tax credit, Laboratory Partnership with Small Business Tax Credit Act, Technology Jobs and Research and Development Tax Credit Act, Film Production Tax Credit Act, Affordable Housing Tax Credit Act and high-wage jobs tax credit;

(17) Corporate Income and Franchise Tax Act;

(18) Uniform Division of Income for Tax Purposes Act;

(19) Multistate Tax Compact;

(20) Tobacco Products Tax Act;

(21) the telecommunications relay service surcharge imposed by Section 63-9F-11 NMSA 1978, which surcharge shall be considered a tax for the purposes of the Tax Administration Act;

(22) the Insurance Premium Tax Act;

(23) the Health Care Quality Surcharge Act;

(24) the Cannabis Tax Act; and

(25) the Health Care Delivery and Access Act;

B. the administration and enforcement of the following taxes, surtaxes, advanced payments or tax acts as they now exist or may hereafter be amended:

(1) Resources Excise Tax Act;

(2) Severance Tax Act;

(3) any severance surtax;

(4) Oil and Gas Severance Tax Act;

(5) Oil and Gas Conservation Tax Act;

(6) Oil and Gas Emergency School Tax Act;

(7) Oil and Gas Ad Valorem Production Tax Act;

(8) Natural Gas Processors Tax Act;

(9) Oil and Gas Production Equipment Ad Valorem Tax Act;

(10) Copper Production Ad Valorem Tax Act;

(11) any advance payment required to be made by any act specified in this subsection, which advance payment shall be considered a tax for the purposes of the Tax Administration Act;

(12) Enhanced Oil Recovery Act;

(13) Natural Gas and Crude Oil Production Incentive Act; and

(14) intergovernmental production tax credit and intergovernmental production equipment tax credit;

C. the administration and enforcement of the following taxes, surcharges, fees or acts as they now exist or may hereafter be amended:

(1) Weight Distance Tax Act;

(2) the workers' compensation fee authorized by Section 52-5-19 NMSA 1978, which fee shall be considered a tax for purposes of the Tax Administration Act;

(3) Uniform Unclaimed Property Act (1995);

(4) 911 emergency surcharge and the network and database surcharge, which surcharges shall be considered taxes for purposes of the Tax Administration Act;

(5) the solid waste assessment fee authorized by the Solid Waste Act, which fee shall be considered a tax for purposes of the Tax Administration Act;

(6) the water conservation fee imposed by Section 74-1-13 NMSA 1978, which fee shall be considered a tax for the purposes of the Tax Administration Act; [and]

(7) the gaming tax imposed pursuant to the Gaming Control Act; and

(8) the produced water fee imposed pursuant to Section 70-13-6 NMSA 1978, which fee shall be considered a tax for the purposes of the Tax Administration Act; and

D. the administration and enforcement of all other laws, with respect to which the department is charged with responsibilities pursuant to the Tax Administration Act, but only to the extent that the other laws do not conflict with the Tax Administration Act."

SECTION 7. Section 7-1-8.8 NMSA 1978 (being Laws 2019, Chapter 87, Section 2, as amended) is amended to read:

"7-1-8.8. INFORMATION THAT MAY BE REVEALED TO OTHER STATE AND LEGISLATIVE AGENCIES.--An employee of the department may reveal confidential return information to the following agencies; provided that a person who receives the information on behalf of the agency shall be subject to the penalties in Section 7-1-76 NMSA 1978 if the person fails to maintain the confidentiality required:

A. a committee of the legislature for a valid legislative purpose, return information concerning any tax or fee imposed pursuant to the Cigarette Tax Act;

B. the attorney general, return information acquired pursuant to the Cigarette Tax Act for purposes of Section 6-4-13 NMSA 1978 and the master settlement agreement defined in Section 6-4-12 NMSA 1978;

C. the commissioner of public lands, return information for use in auditing that pertains to rentals, royalties, fees and other payments due the state under land sale, land lease or other land use contracts;

D. the secretary of health care authority or the secretary's delegate under a written agreement with the department:

(1) the last known address with date of all names certified to the department as being absent parents of children receiving public financial assistance, but only for the purpose of enforcing the support liability of the absent parents by the child support enforcement division or any successor organizational unit;

(2) return information needed for reports required to be made to the federal government concerning the use of federal funds for low-income working families;

(3) return information of low-income taxpayers for the limited purpose of outreach to those taxpayers; provided that the health care authority [department] shall pay the department for expenses incurred by the department to derive the information requested by the health care authority [department] if the information requested is not readily available in reports for which the department's information systems are programmed;

(4) return information required to administer the Health Care Quality Surcharge Act and the Health Care Delivery and Access Act; and

(5) return information in accordance with the provisions of the Easy Enrollment Act;

E. the department of information technology, by electronic media, a database updated quarterly that contains the names, addresses, county of address and taxpayer identification numbers of New Mexico personal income tax filers, but only for the purpose of producing the random jury list for the selection of petit or grand jurors for the state courts pursuant to Section 38-5-3 NMSA 1978;

F. the state courts, the random jury lists produced by the department of information technology under Subsection E of this section;

G. the director of the New Mexico department of agriculture or the director's authorized representative, upon request of the director or representative, the names and addresses of all gasoline or special fuel distributors, wholesalers and retailers;

H. the public regulation commission, return information with respect to the Corporate Income and Franchise Tax Act required to enable the commission to carry out its duties;

I. the state racing commission, return information with respect to the state, municipal and county gross receipts taxes paid by racetracks;

J. the gaming control board, tax returns of license applicants and their affiliates as provided in Subsection E of Section 60-2E-14 NMSA 1978;

K. the director of the workers' compensation administration or to the director's representatives authorized for this purpose, return information to facilitate the identification of taxpayers that are delinquent or noncompliant in payment of fees required by Section 52-1-9.1 or 52-5-19 NMSA 1978;

L. the secretary of workforce solutions or the secretary's delegate, return information for use in enforcement of unemployment insurance collections pursuant to the terms of a written reciprocal agreement entered into by the department with the secretary of workforce solutions for exchange of information;

M. the New Mexico finance authority, information with respect to the amount of municipal and county gross receipts taxes collected by municipalities and counties pursuant to any local option municipal or county gross receipts taxes imposed, and information with respect to the amount of governmental gross receipts taxes paid by every agency, institution, instrumentality or political subdivision of the state pursuant to Section 7-9-4.3 NMSA 1978;

N. the superintendent of insurance, return information with respect to the premium tax and the health insurance premium surtax;

O. the secretary of finance and administration or the secretary's designee, return information concerning a credit pursuant to the Film Production Tax Credit Act;

P. the secretary of economic development or the secretary's designee, return information concerning a credit pursuant to the Film Production Tax Credit Act;

Q. the secretary of public safety or the secretary's designee, return information concerning the Weight Distance Tax Act;

R. the secretary of transportation or the secretary's designee, return information concerning the Weight Distance Tax Act;

S. the secretary of energy, minerals and natural resources or the secretary's designee, return information concerning tax credits or deductions for which eligibility is certified or otherwise determined by the secretary or the secretary's designee and return information concerning the produced water fee and to facilitate the identification of taxpayers that are delinquent or noncompliant in payment of the produced water fee pursuant to Section 70-13-6 NMSA 1978;

T. the secretary of environment or the secretary's designee, return information concerning tax credits for which eligibility is certified or otherwise determined by the secretary or the secretary's designee; and

U. the secretary of state or the secretary's designee, taxpayer information required to maintain voter registration records and as otherwise provided in the Election Code."

SECTION 8. Section 70-2-12 NMSA 1978 (being Laws 1978, Chapter 71, Section 1, as amended) is amended to read:

"70-2-12. ENUMERATION OF POWERS.--

A. The oil conservation division of the energy, minerals and natural resources department may:

(1) collect data;

(2) make investigations and inspections;

(3) examine properties, leases, papers, books and records;

(4) examine, check, test and gauge oil and gas wells, tanks, plants, refineries and all means and modes of transportation and equipment;

(5) hold hearings;

(6) provide for the keeping of records and the making of reports and for the checking of the accuracy of the records and reports;

(7) limit and prorate production of crude petroleum oil or natural gas or both as provided in the Oil and Gas Act; and

(8) require either generally or in particular areas certificates of clearance or tenders in connection with the transportation of crude petroleum oil or natural gas or any products of either or both oil and products or both natural gas and products.

B. The oil conservation division may make rules and orders for the purposes and with respect to the subject matter stated in this subsection:

(1) to require dry or abandoned wells to be plugged in a way so as to confine the crude petroleum oil, natural gas or water in the strata in which it is found and to prevent it from escaping into other strata; pursuant to Section 70-2-14 NMSA 1978, the division shall require financial assurance conditioned for the performance of the rules;

(2) to prevent crude petroleum oil, natural gas or water from escaping from strata in which it is found into other strata;

(3) to require reports showing locations of all oil or gas wells and for the filing of logs and drilling records or reports;

(4) to prevent the drowning by water of any stratum or part thereof capable of producing oil or gas or both oil and gas in paying quantities and to prevent the premature and irregular encroachment of water or any other kind of water encroachment that reduces or tends to reduce the total ultimate recovery of crude petroleum oil or gas or both oil and gas from any pool;

(5) to prevent fires;

(6) to prevent "blow-ups" and "caving" in the sense that the conditions indicated by such terms are generally understood in the oil and gas business;

(7) to require wells to be drilled, operated and produced in such manner as to prevent injury to neighboring leases or properties;

(8) to identify the ownership of oil or gas producing leases, properties, wells, tanks, refineries, pipelines, plants, structures and all transportation equipment and facilities;

(9) to require the operation of wells with efficient gas-oil ratios and to fix such ratios;

(10) to fix the spacing of wells;

(11) to determine whether a particular well or pool is a gas or oil well or a gas or oil pool, as the case may be, and from time to time to classify and reclassify wells and pools accordingly;

(12) to determine the limits of any pool producing crude petroleum oil or natural gas or both and from time to time redetermine the limits;

(13) to regulate the methods and devices employed for storage in this state of oil or natural gas or any product of either, including subsurface storage;

(14) to permit the injection of natural gas or of any other substance into any pool in this state for the purpose of repressuring, cycling, pressure maintenance, secondary or any other enhanced recovery operations;

(15) to regulate the disposition, handling, transport, storage, recycling, treatment and disposal of produced water during, or for reuse in, the exploration, drilling, production, treatment or refinement of oil or gas, including disposal by injection pursuant to authority delegated under the federal Safe Drinking Water Act, in a manner that protects public health, the environment and fresh water resources;

(16) to determine the limits of any area containing commercial potash deposits and from time to time redetermine the limits;

(17) to regulate and, where necessary, prohibit drilling or producing operations for oil or gas within any area containing commercial deposits of potash where the operations would have the effect unduly to reduce the total quantity of the commercial deposits of potash that may reasonably be recovered in commercial quantities or where the operations would interfere unduly with the orderly commercial development of the potash deposits;

(18) to spend the oil and gas reclamation fund and do all acts necessary and proper to plug dry and abandoned oil and gas wells and to restore and remediate abandoned well sites and associated production facilities in accordance with the provisions of the Oil and Gas Act, the rules adopted under that act and the Procurement Code, including disposing of salvageable equipment and material removed from oil and gas wells being plugged by the state;

(19) to make well price category determinations pursuant to the provisions of the federal Natural Gas Policy Act of 1978 or any successor act and, by regulation, to adopt fees for such determinations, which fees shall not exceed twenty-five dollars ($25.00) per filing. Such fees shall be credited to the account of the oil conservation division by the state treasurer and may be expended as authorized by the legislature;

(20) to regulate the construction and operation of oil treating plants and to require the posting of bonds for the reclamation of treating plant sites after cessation of operations;

(21) to regulate the disposition of nondomestic wastes resulting from the exploration, development, production or storage of crude oil or natural gas to protect public health and the environment; [and]

(22) to regulate the disposition of nondomestic wastes resulting from the oil field service industry, the transportation of crude oil or natural gas, the treatment of natural gas or the refinement of crude oil to protect public health and the environment, including administering the Water Quality Act as provided in Subsection E of Section 74-6-4 NMSA 1978; and

(23) to require reporting and accounting of each barrel of produced water from an oil or gas well for the purpose of imposing the produced water barrel fee pursuant to Section 70-13-6 NMSA 1978."

SECTION 9. Section 70-13-1 NMSA 1978 (being Laws 2019, Chapter 197, Section 1) is amended to read:

"70-13-1. SHORT TITLE.--[Sections 1 through 5 of this act] Chapter 70, Article 13 NMSA 1978 may be cited as the "Produced Water Act"."

SECTION 10. A new section of the Produced Water Act, Section 70-13-6 NMSA 1978, is enacted to read:

"70-13-6. [NEW MATERIAL] FEES--REGULATION AND REPORTING.--

A. Until January 1, 2036, there is imposed on the working interest owners of an oil or gas well in New Mexico a fee of five cents ($.05) per barrel of produced water from the oil or gas well, as reported to the taxation and revenue department by the oil conservation division of the energy, minerals and natural resources department, regardless of the ultimate destination of that produced water, except for produced water that is:

(1) used for enhanced or secondary oil;

(2) recycled or reused at a well or facility that is permitted by the oil conservation division of the energy, minerals and natural resources department; or

(3) for a use regulated by the water quality control commission pursuant to the Water Quality Act and for which a permit from the department of environment is required.

B. The fee imposed by this section may be referred to as the "produced water fee" and shall be imposed, collected and administered by the taxation and revenue department in accordance with the provisions of the Tax Administration Act.

C. The owner or operator of an oil or gas well shall report the monthly production volume of produced water on or before the fifteenth day of the second month following the month of the production in the electronic form and manner required by the oil conservation division of the energy, minerals and natural resources department. An owner or operator may apply to the oil conservation division for an exemption from the electronic filing requirement based upon a demonstration that such requirement would be an economic or other hardship. Within sixty days of receiving this report, the oil conservation division shall report the volume of produced water from oil and gas wells to the taxation and revenue department.

D. The produced water fee shall be paid to the taxation and revenue department within sixty days of the monthly volume report required pursuant to Subsection C of this section, and the department shall promulgate rules to provide for the required manner and form of collection of the produced water fee.

E. All money received from the fees imposed pursuant to Subsection A of this section shall be delivered to

the state treasurer and deposited in the strategic water supply program fund.

F. The oil conservation division of the energy, minerals and natural resources department shall promulgate rules for mandatory reporting and accounting of produced water from an oil or gas well."

SECTION 11. Section 72-12-26 NMSA 1978 (being Laws 1967, Chapter 86, Section 2) is amended to read:

"72-12-26. NOTICE OF DRILLING--DEPTH AND LOCATION.--Any person proposing to drill wells or recomplete existing wells to appropriate waters referred to in Section [1 of this act] 72-12-25 NMSA 1978 shall file a notice of intention to drill or recomplete with the office of the state engineer in such form as the state engineer shall prescribe and shall publish a notice, in a newspaper of general circulation in the county in which the proposed wells will be located once a week for three consecutive weeks, stating the location and the proposed depth of such wells, the purpose for which the water shall be used and an estimate of the volume of water to be used. [Said] The wells shall not be drilled or recompleted prior to [10] ten days after the last publication of [such] the notice and until the state engineer has determined that the use of water stated in the notice will not impair existing water rights, be contrary to the conservation of water within the state or be detrimental to the public welfare of the state."

SECTION 12. APPROPRIATIONS.--

A. Seventy-five million dollars ($75,000,000) is appropriated from the general fund to the strategic water supply program fund for expenditure in fiscal year 2026 and subsequent fiscal years for the purposes of the fund. Any unexpended or unencumbered balance remaining at the end of a fiscal year shall not revert to the general fund.

B. Twenty-eight million seven hundred fifty thousand dollars ($28,750,000) is appropriated from the general fund to the board of regents of the New Mexico institute of mining and technology for expenditure in fiscal years 2026 through 2028 for aquifer monitoring and improved ground water characterization. Any unexpended or unencumbered balance remaining at the end of fiscal year 2028 shall revert to the general fund.

C. Four million dollars ($4,000,000) is appropriated from the general fund to the board of regents of New Mexico state university for expenditure in fiscal years 2026 through 2028 for innovation, research, monitoring, support and development of technology associated with potential projects for a strategic water supply program grant or contract. Any unexpended or unencumbered balance remaining at the end of fiscal year 2028 shall revert to the general fund.

- 24 -