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F I S C A L I M P A C T R E P O R T

SPONSOR Campos

ORIGINAL DATE

LAST UPDATED

1/27/06

2/13/06 HB 111/aHBIC/aHTRC/aHFL#1

SHORT TITLE

NM Renewable Energy Transmission

Authority

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(100.0) Recurring General Fund

(33.0) Recurring Local Govern-

ments

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates SB 317.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

State Treasurer’s Office (STO)

Attorney General (AGO)

Energy Minerals and Natural Resources Department (EMNRD)

Public Regulation Commission (PRC)

SUMMARY

Synopsis of HFL Amendment #1

House Floor Amendment #1 to House Bill 111 will add the president of the Navajo Nation or the

president’s designee as an additional ex-officio nonvoting member of the New Mexico renew-

able energy transmission oversight committee, which is created in House Bill 111.

The amendment also amends the definition of “eligible facilities” so that at least 30 percent of a

facility’s transmitted or stored energy will need to come from renewable sources within one year

after the facility begins to transmit or store electricity, and so that to remain eligible the amount

of energy from renewable sources will not be allowed to fall below 30 percent.

House Bill 111/aHBIC/aHTRC/aHFL#1 – Page

2

Synopsis of HTRC Amendment

The House Taxation and Revenue Committee amendment to House Bill 111 replaces the original

bill’s gross receipts tax deduction for selling equipment and services to the authority with two

separate gross receipts tax deductions— one for equipment and one for services.

The amendment also inserts language to make the PRC more involved with the authority. The

authority’s ability to exercise eminent domain when acquiring property or rights of way for pro-

jects will be subject to PRC determination that such action does not materially diminish electric

service reliability in the state. In addition, the legislative oversight committee created in the bill

will have to report its findings to the PRC in addition to the legislature and governor.

Synopsis of HBIC Amendment

The House Business and Industry Committee amendment to House Bill 111 strikes Section 2,

which describes legislative findings and purposes for the bill. The amendment also specifies that

public utilities may recover capital costs of projects undertaken pursuant to the Renewable En-

ergy Transmission Authority Act from its retail customers if the project has received a certificate

of public convenience and necessity from the PRC, while municipal utilities may recover capital

costs of projects if the project is approved by the municipality’s governing body.

Synopsis of Original Bill

House Bill 111 creates a quasi-governmental agency, the New Mexico Renewable Energy

Transmission Authority. The authority will be able to hire an executive director and other em-

ployees; enter agreements and contracts; finance or plan, acquire, maintain and operate electric

transmission and storage facilities which, within one year after beginning operation, will gener-

ate at least 30 percent of their electricity from renewable sources; and issue renewable energy

transmission bonds as necessary to finance projects.

The renewable energy transmission bonds authorized in House Bill 111 will be repayable from

the newly-created renewable energy transmission bonding fund. Proceeds from the bonds will be

appropriated to the authority to finance or acquire electric transmission and storage facilities that

will generate at least 30 percent of electricity from renewable sources, and money in the fund

will be pledged for bond debt service. On the last day of January 31 and July 30 of each year, the

authority will transfer the balance of the bonding fund, except for the amount needed for the next

12 months of debt service, to the newly-created renewable energy transmission authority opera-

tional fund. The authority is also authorized to refund existing bonds when such action is deemed

beneficial. Bonds will be exempt from New Mexico taxes.

The authority will be required to submit a report of its activities to the governor and legislature

no later than December 1 of each year.

The bill also creates the New Mexico renewable energy transmission oversight committee, a

joint interim legislative committee. Members of the committee will be chosen by the legislative

council, and the legislative council will staff the committee.

The bill creates a new gross receipts tax deduction for receipts from selling equipment or provid-

ing services to the renewable energy transmission authority or an agent or lessee of the authority

House Bill 111/aHBIC/aHTRC/aHFL#1 – Page

3

for planning, construction, repair, maintenance or operation of a facility acquired by the author-

ity.

The authority will have five voting members: three governor appointees approved by the senate,

one member to be appointed by the speaker of the house, and one member to be appointed by the

senate president pro tempore. One of the governor’s appointees will need expertise in major elec-

trical transmission financing. The other four members will need special knowledge of the public

utility industry or renewable energy development. The secretary of EMNRD will also serve as a

non-voting member. Authority members will receive per diem and mileage reimbursements.

The effective date of these provisions is July 1, 2006.

FISCAL IMPLICATIONS

According to TRD, New Mexico currently has over 400 megawatts of wind-energy capacity.

Wind capacity is expected to grow in the future due renewable energy portfolio mandates that

utilities must generate at least 10 percent of their portfolio from renewable sources by 2011.

TRD assumes that wind capacity served by the renewable energy transmission authority will in-

crease by 20 megawatts per year. Assuming that wind facilities will cost about $150 thousand

per megawatt to construct, total expenditures eligible for the new gross receipts tax deduction

will probably total about $3 million per year after a few years of authority operations. These op-

erations are not expected to generate any deductions until FY08.

In addition, the bonds that the authority will issue will be tax exempt, which will reduce personal

and corporate income tax revenue. TRD estimates that income tax revenue will decrease by less

than $100 thousand per year once authority operations are established.

According to EMNRD, funding to implement is act will be necessary in the General Appropria-

tion Act.

SIGNIFICANT ISSUES

An electricity generation or storage facility must be estimated to generate or store 30 percent of

its energy from renewable sources within one year of the beginning of operations. Renewable

energy is defined as electricity generated from low or zero-emissions technology with long-term

production potential, solar, wind, hydropower, geothermal resources, non-fossil fueled fuel cells,

or biomass.

According to EMNRD, lack of transmission capacity is the biggest obstacle to development of

New Mexico’s wind resources. EMNRD believes the renewable energy transmission authority

will help develop New Mexico’s electricity transmission infrastructure and energy storage tech-

nologies. The purpose of the authority will be to promote development of renewable energy fa-

cilities by aiding the addition of facilities to transmit electricity to the market.

EMNRD states that the bill will offer economic development opportunities in rural areas of New

Mexico.

House Bill 111/aHBIC/aHTRC/aHFL#1 – Page

4

ADMINISTRATIVE IMPLICATIONS

TRD reports that this bill will have a small administrative impact. TRD will troubleshoot sys-

tems, revise forms and instructions, educate taxpayers, prepare seminar materials, and train per-

sonnel.

EMNRD has already requested additional staff resources to cover its responsibilities under this

act.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 111 is a duplicate of Senate Bill 317.

TECHNICAL ISSUES

TRD suggests consideration of a sunset provision, which would give the legislature the opportu-

nity to revisit the provisions of this bill once the renewable energy industry has had more time to

develop. A sunset should be a minimum of five years into the future.

The AGO is concerned about several instances where the bill is written more broadly than neces-

sary. For example, Section 5(B)(5) gives the authority the power to establish corridors for the

transmission of electricity in the state and Section 5(B)(6) authorizes the authority to investigate,

plan, prioritize and negotiate with entities within and outside the state for the establishment of

interstate transmission corridors. These powers granted to the authority may encroach on powers

of the PRC pursuant to Sections 62-9-1 and 62-9-3 NMSA 1978.

AGO also notes that Sections 5(B)(15) and 5(E) authorize the authority to establish rates for use

of transmission facilities and provide that the authority will not be subject to PRC jurisdiction.

This leaves questions about the status of authority facilities if they are leased to public utilities

that are subject to PRC jurisdiction.

PRC notes that the bill may enable the authority to acquire a rural utility’s transmission line and

lease it to another utility. This may create challenges for the PRC.

The terms “low-emission” and “long-term production potential” in the definition of renewable

energy are not clear and may cause future litigation.

The amount of bonds the authority may issue are not limited in any way.

The authority will have eminent domain authority in New Mexico but will not have this advan-

tage if it builds transmission lines in other states.

OTHER SUBSTANTIVE ISSUES

According to EMNRD, a few weeks after a similar bill failed to pass the senate in 2005, Wyo-

ming announced a new transmission line that must carry electricity twice as far and through dif-

ficult terrain. Transmission markets are growing, competition is increasing. However, PRC notes

that due to its investment in uneconomical projects, California has declared that it is not inter-

ested in purchasing energy from this Wyoming project because uneconomical projects have

made the price offered by Wyoming too high.

House Bill 111/aHBIC/aHTRC/aHFL#1 – Page

5

TRD notes that construction is one of the largest pieces of the gross receipts tax base, represent-

ing 13 percent of the base. State officials have traditionally been reluctant to enact provisions

that exempt construction activities from taxation.

SS/mt:yr