Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Cisneros

ORIGINAL DATE

LAST UPDATED

2/19/07

3/03/07 HB

SHORT TITLE Coal Electric Facility Gross Receipts

SB 994/aSCORC/aSFC

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

*See Narrative Recurring

Air Quality

Permit Fund-

Fee Revenue

($480.0) Recurring General Fund-

Credits

($320.0) Recurring

Local

Governments

(Parenthesis ( ) Indicate Revenue Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$75.0

$75.0

$150.0 Recurring General

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB 178, SB 431, SB 463, HB 430

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Environment Department (NMED)

Energy Minerals and Natural Resource Department (EMNRD)

Taxation and Revenue Department (TRD)

Economic Development Department (EDD)

No Response Received From

Public Regulation Commission (PRC)

Senate Bill 994/aSCORC/aSFC – Page

2

SUMMARY

Synopsis of SFC Amendment

The Senate Finance Committee amendment to Senate Bill 994 will require NMED to report

annually to the appropriate interim legislative committee information that will allow the

committee to analyze the effectiveness of the advanced energy tax credit created in the bill.

Information will include the identity of credit claimants, the energy production means used, the

amount of emissions identified as reduced and removed by credit claimants, and whether any

requests to receive the credit were denied due to program limits.

Synopsis of SCORC Amendment

The Senate Corporations and Transportation Committee amendment to Senate Bill 994 amends

the definition of “qualified generating facilities" that will be eligible to receive the advanced

energy tax credit to include associated renewable energy storage facilities or recycled energy

projects. “Recycled energy" is defined as energy produced by a generation unit with a name-

plate capacity of up to 15 megawatts that converts energy that is otherwise lost from the exhaust

stacks or pipes into electricity without additional fossil fuel combustion.

The amendment also expands the definition of “sequester" to include techniques using coalbed

methane to prevent the release of CO

2

into the atmosphere.

The amendment dictates that fees collected by NMED will be deposited in the state air quality

permit fund, which is created in Section 74-2-15 NMSA, instead of the general fund. Current law

appropriates money in that fund to NMED to pay the reasonable costs of permit review, permit

enforcement, court costs, emissions monitoring, regulations development and other costs.

The amendment also clarifies that language in the bill does not relieve public utilities of the duty

to act reasonably and prudently as circumstances indicate once development and construction of

a clean energy project begins.

Finally, the amendment allows PRC to consider renewable energy storage facilities and

advanced coal technology projects as clean energy projects.

Synopsis of Original Bill

Senate Bill 994 creates the advanced energy tax credit, which may be claimed by a taxpayer who

holds an interest in a new solar thermal electric generating facility or new or repowered coal

electric generating facility that begins construction before December 31, 2015. The credit will be

available for the state portion of gross receipts tax, the compensating tax, or the withholding tax.

Credits in excess of tax liability may be carried forward for up to five years.

The amount of the advanced energy tax credit will be up to 6 percent of the plant’s expenditures

for development and construction, including permitting, site characterization and assessment,

engineering, design, CO

2

capture, treatment, compression, transportation and sequestration, site

and equipment acquisition, and fuel supply development. The maximum credit claimed per

generating facility will be limited to $60 million.

Senate Bill 994/aSCORC/aSFC – Page

3

To qualify for the credit, the solar or coal facility must meet several emissions standards.

•

The facility must emit the lesser of 1) what the best available technology allows, or 2) 35

thousandths pound per million Btu of sulfur dioxide (SO

2

), 25 thousandths pound per

million Btu of nitrous oxides, and 1 hundredth pound per million Btus of total

particulates in the flue gas.

•

The facility must also remove 1) the greater of what the best available technology allows,

or 2) 90 percent of mercury emissions.

•

The facility must capture and sequester or control CO

2

emissions so that by the later of

January 1, 2017 or 18 months after the facility’s commercial operation date, no more than

1,100 pounds per megawatt-hour of CO

2

is emitted.

•

CO

2

sequestration infrastructure must be in place by the later of January 1, 2017 or 18

months after the facility’s commercial operation date.

•

The facility must also have methods in place to monitor CO

2

emissions and must not

exceed a net of 700 megawatts nameplate capacity.

To apply for the credit, an entity that holds an interest in a qualified electric generating facility

will need to apply for a certificate from NMED. NMED will be required to determine if the

facility is eligible for the credit, issue a certificate stating whether or not the facility is eligible,

and issue rules governing the credit. NMED will also issue a schedule of application fees not to

exceed $150 thousand.

A taxpayer that receives advanced energy tax credits but does not control CO

2

emissions as

required by the bill will have its eligibility for the credit revoked and will be required to repay

some or all credits claimed to the state, as determined by NMED through a public hearing

process.

To prevent double-dipping in state tax credits, the bill does not allow expenditures for which

advanced energy tax credits are claimed to be eligible for any other gross receipts tax,

compensating tax, or withholding tax credits.

The bill also allows public utilities an opportunity to request rate recovery for development and

construction of a clean energy project from the PRC. PRC will be required to adopt rules to

allow public utilities an opportunity to recover PRC-approved costs for the development and

construction of a clean energy project. A public utility will be allowed to recover costs of

reducing emissions at new or existing power plants, whether those plants qualify as clean or

advanced energy projects.

The effective date of these provisions will be July 1, 2007.

FISCAL IMPLICATIONS

The bill allows NMED to establish fees associated with facility certification. The Senate

Corporations and Transportation Committee amendment dictates that these fees will be deposited

into the air quality permit fund, which is appropriated to NMED. The amount of fees collected

will depend on the fee schedule set by NMED and the number of facilities that apply for

certification.

TRD expects that credits claimed pursuant to the bill would be limited in the next few years

Senate Bill 994/aSCORC/aSFC – Page

4

because no qualified facilities are currently being planned. TRD reports that at least one

developer is considering construction of a solar thermal facility that would be eligible, but the

timing and scale of the project are uncertain. NMED reports that technologies to store energy

produced at a solar thermal facility are being developed and won’t be operational for several

years.

Regarding recycled energy facilities, TRD reports that several eligible facilities are planned for

location in New Mexico in the next few years. Facilities would cost an average of $10 million

each. Assuming one facility is built each year yields a fiscal impact of about $600 thousand per

year.

For illustration purposes, TRD calculates that a 25 megawatt facility with capital costs of $50

million would qualify for $3 million in tax credits. The tax liability would probably be less that

this, especially if the taxpayer utilizes Industrial Revenue Bonds. TRD roughly estimates a fiscal

impact of $200 thousand per year, of which 60 percent would come from the general fund and 40

percent from local governments.

LFC stresses that the fiscal impact of the bill could be substantially higher in the future if a large

qualifying facility (up to 700 net megawatts) is constructed. As currently planned, the Desert

Rock coal facility to be constructed in northwestern New Mexico would not qualify for the

credits because its emissions will be too high. However, that facility could change its plans if

given an incentive provided by this bill. Such a facility could feasibly exhaust the $60 million

cap over several years.

SIGNIFICANT ISSUES

Water use and emissions from any coal facility must be considered, since the southwest faces

severe water constraints and coal facilities emit mercury, nitrogen oxides (a component of ozone

and smog), carbon-dioxide (CO

2

), sulfur-dioxide (SO

2

), and other toxins into the environment.

The bill does not set any water use standards that must be met for a electric generating facility to

qualify for the credit.

CO

2

is a greenhouse gas that is currently not regulated by federal emissions laws. SO

2

emissions

are regulated by the Clean Air Act, and lower emissions standards are scheduled to take effect in

2015. Regarding mercury, a neurotoxin that is particularly harmful when ingested by pregnant

women and children, about 920 pounds of mercury is currently emitted each year in New

Mexico.

According to NMED, the bill provides an incentive for solar thermal and clean coal technologies

to promote the state’s abundant solar and coal resources in a way that is environmentally

responsible and obviates the need to construct new conventional coal power plants that are

harmful to the environment.

NMED reports the incentives provided in this bill are consistent with a Western Governors’

Association (WGA) Clean and Diversified Energy Advisory Committee recommendation to

develop clean energy in western states and increase energy efficiency. The bill’s incentives are

also consistent with the December 2006 final report issued by the citizen’s advisory panel

created by Governor Richardson in Executive Order 05-033.

Senate Bill 994/aSCORC/aSFC – Page

5

NMED asserts that the incentives proposed help alleviate the higher costs and risks associated

with clean coal electrical generation. Clean coal requires costly equipment as well as use of

newer technology, which is not as well-established.

PERFORMANCE IMPLICATIONS

The bill may help NMED meet one of its performance based budgeting targets, the reduction of

statewide greenhouse gas emissions. It may also help the state reach its goals to reduce

greenhouse gas emissions to 2000 levels by 2012, to 10 percent below 2000 levels by 2020, and

to 75 percent of 2000 levels by 2050.

ADMINISTRATIVE IMPLICATIONS

NMED anticipates requiring one additional FTE to accomplish the certification duties required

by the bill. LFC estimates this cost, which is not appropriated in the bill, to be about $75

thousand per year. This cost is reflected in the “Estimated Additional Operating Budget Impact"

table on page one of this analysis.

TRD reports it will need to track the credit manually. The $60 million cap per facility will

require TRD to maintain records indefinitely.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 994 relates to House Bill 178 and Senate Bill 431, which would provide a

compensating tax credit for the planned Desert Rock coal generating facility. That facility, which

will be built on Navajo land by Sithe Global Power, would receive a compensating tax credit of

$85 million over about nine years. According to NMED, Desert Rock could not qualify for the

credit created in this bill unless it reduced SO

2

emissions by 1/3 and reduced CO

2

emissions by

60 percent.

Senate Bill 994 also relates to Senate Bill 463, the renewable energy production tax credit bill,

and House Bill 430, the advanced energy manufacturing product tax credit.

TECHNICAL ISSUES

On page 6, the bill requires credit recipients who do not adequately control CO

2

emissions to

refund all or some of the credits claimed. However, the bill does not have a similar provision for

the other pollutants that must be controlled for a facility to be eligible for the credit (i.e. nitrous

oxides, SO

2

, and mercury).

TRD notes that taxpayers will be required to apply for the credit within one year after their

construction expenses are incurred. However, since construction can take several years, it is

unclear how NMED will determine that a plant meets the bill’s criteria since the plant may not

be operating after the first year of construction expenses have been incurred.

TRD also notes that NMED will make a ruling on whether a facility is qualified for the credit

within 180 days of receiving all necessary information. It is unclear whether the facility will be

deemed qualified or unqualified in NMED does not make a ruling within 180 days.

Senate Bill 994/aSCORC/aSFC – Page

6

EMNRD notes that the Senate Corporations and Transportation Committee amendment to the

definition of “qualified generating facility" makes it unclear whether the credit will be available

to a standalone recycled energy project or only to a recycled energy project related to a solar

thermal facility. The credit should apply to standalone facilities because typically solar thermal

facilities do not generate any “recycled energy" opportunities.

OTHER SUBSTANTIVE ISSUES

In an effort to mitigate global climate change, the California Public Utilities Commission voted

on January 25, 2007 to prohibit California power companies from entering new long-term

contracts with electricity providers that emit more that 1,100 pounds of carbon dioxide (CO

2

) per

megawatt hour of electricity produced. The emissions standards proposed in this bill meets

California’s new requirements.

SS/nt