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

1/28/08

1/30/08 HB

SHORT TITLE Engineer Authority Over Underground Water

SB 262

ANALYST Wilson

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY08

FY09

FY10 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$0.1

$0.1

$0.1 Recurring General

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(unknown)

(unknown) Recurring Land Grant

Permanent Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Attorney General’s Office (AGO)

Department of Agriculture (DA)

Energy, Minerals & Natural Resources Department (EMNRD)

Environment Department (ED)

Office of the State Engineer (OSE

State Land Office (SLO)

SUMMARY

Synopsis of Bill

Senate Bill 262 amends Section 72-12-25 NMSA 1978 to authorize the State Engineer to declare

as an underground water basin any aquifer containing non-potable water in which the top of the

aquifer is 2,500 feet or more below the ground surface. Following the State Engineer’s

declaration of such basins, all appropriations of water from the basins will be subject to

Senate Bill 262 – Page

2

requirements of the general groundwater code, in Sections 72-12-1 through 72-12-24 NMSA

1978, except that proposed appropriations for purposes of oil and gas exploration and production

or for geothermal use will continue to be subject to the provisions of Sections 72-12-26 through

72-12-28 NMSA 1978.

SB 262 also specifies that it shall not affect the disposal of produced water pursuant to Paragraph

(15) of Subsection B of Section 70-2-12 NMSA 1978 and Section 70-2-12.1 NMSA 1978.

FISCAL IMPLICATIONS

SLO states that it is not possible to determine the fiscal implications of the bill without in-depth

economic studies of the New Mexico oil and gas industry. SB262 could have significant impact

on that industry, which is a major source of jobs and tax revenue in New Mexico. In addition, oil

and gas revenues in the form of lease bonuses and royalties make up 90% of the annual revenue

generated by state trust land. Royalties are the source of nearly all of the funds directed to the

Land Grant Permanent Fund for investment; lease bonuses have been an important source of

annual revenues to a number of institutions that receive income from state trust lands. Loss of

these revenues will have to be offset with other general fund revenues such as taxes. Although

not as significant to New Mexico, the bill could have adverse effects on the development of

geothermal resources.

SIGNIFICANT ISSUES

The AGO notes under existing law, Sections 72-12-25 through 72-12-28 NMSA 1978, the State

Engineer is limited in his ability to require permits to appropriate groundwater from deep saline

aquifers. Removing these limitations will provide the State Engineer with more uniform

administrative and regulatory authority over all of the State’s groundwater. This is necessary

because of the growing interest in the use of deep saline aquifers as new sources of supply

spurred by increasing demand for potable water and recent improvements in desalination

technology.

This bill will leave 72-12-26 through 72-12-28 NMSA 1978 unchanged. Those statutes will

continue to govern only the appropriation of water for purposes of oil and gas exploration and

production or for geothermal use.

This bill also will make clear that it will not affect the disposal of produced water from the

exploration for or production of oil and gas, which pursuant to Paragraph (15) of Subsection B of

Section 70-2-12 NMSA 1978 and Section 70-2-12.1 NMSA 1978 is under the jurisdiction of the

Oil Conservation Division of EMNRD and not under the State Engineer.

This bill will bring non-potable water in aquifers deeper than 2,500 feet under the administrative

jurisdiction of the OSE. It will make appropriations of deep saline water subject to the same

existing statutes, rules and regulations that apply to all other appropriations of water, regardless

of the physical characteristics (depth and quality) of the source of the water. Because

applications to appropriate water in these deeper aquifers will be evaluated and administered

using the same statutes, rules and regulations as apply to all other water appropriations, the result

should be a more consistent, efficient and effective administration of all groundwater across the

state.

Senate Bill 262 – Page

3

ED notes there is increased interest among growing communities in the state in the use of non-

potable groundwater as potential source of drinking water. At one time, such waters were not

valued as potential water sources because higher quality groundwater was available. As New

Mexico’s higher quality groundwater becomes depleted or fully allocated, public perceptions are

changing about the use of non-potable ground water for domestic supply and the economics for

treatment of those waters. State law does not allow the State Engineer to control the use of non-

potable groundwater. If the state fails to regulate the use of non-potable groundwater, it could

lead to the exploitation of that resource and could result in adverse impacts to higher quality

groundwater.

SLO claims that attempting to clarify regulatory authority over non-potable water lying 2,500

feet or more below the ground, SB262 will delay well drilling by imposing notice requirements

that did not previously exist. In addition, it opens the door to litigation that could delay if not

actually prevent such wells from being drilled and greatly increase costs. Because of the

complexity and extended duration of litigation over the impairment of water rights, SB262 opens

the door to abuse of the litigation as a means for a plaintiff to obtain concessions from oil and

gas operators by alleging impairment of water rights. The oil and gas operator has an incentive

to grant concessions regardless of the merits of the suit to avoid project delays.

ADMINISTRATIVE IMPLICATIONS

The OSE states this bill will benefit the people of the state, by allowing the State Engineer to

fully supervise and administer the State of New Mexico's declared underground water basins in a

consistent manner using the same set of existing statutes, rules and regulations that apply to other

appropriations of water, regardless of the physical characteristics (depth and quality) of the

source of the water. Administration of Notices of Intent under § 72-12-25 will be limited to

relatively minor appropriations for oil and gas exploration and production and geothermal use.

The small increase in the number of applications to the OSE for permits to appropriate

groundwater will result in some additional administrative duties related to increased record

keeping and processing of permit applications.

The SLO states that as the manager of the state trust land, the Commissioner of Public Lands

might require additional staff to protect his ability to generate income from oil and gas leases and

to protect the State’s claim to non-potable water underlying state trust so that it might be used to

generate income from those lands.

TECHNICAL ISSUES

EMNRD provided the following:

The reference in Subsection C (page 2, lines 12 through 16) to "appropriations of water

from such an aquifer for oil and gas exploration and development" raises the question

whether it is the intent of the bill to provide that the drilling of an oil or gas well that

incidentally produces water constitutes an appropriation of water. There is no authority

in New Mexico holding that this is an "appropriation of water." However, this language

in the bill could be read as making it an appropriation of water by statute.

Senate Bill 262 – Page

4

The reference in Subsection D (page 2, line 20) to "disposal of produced water" raises the

question whether this phrase is identical to, or in some way different from, the phrase

"disposition of produced water" employed in the Oil and Gas Act [NMSA 1978 Sections

70-2-12.B (15) and 72-2-12.1, as amended]. Probably the intent is that "disposal" in the

amendment mean the same thing as "disposition" in the Oil and Gas Act. However,

interpreters of statutes sometimes infer that the use of a different word imports a different

intent. In this case, Oil Conservation Division (OCD) specifically recommended the use

of "disposition" rather than "disposal" at the time the referenced provisions of the Oil and

Gas Act were adopted because the definition of "disposal" includes the meaning of "an

act of throwing out or away" (Webster's II New Rev. University Dictionary 1994). Since

the intent was to give OCD power over treatment and use of produced water as well as

waste disposition, OCD recommended, and the Legislature adopted, provisions using the

arguably broader term "disposition."

OTHER SUBSTANTIVE ISSUES

ED further notes

i

ncreased development of non-potable ground water resources will result in

large volumes of groundwater with high dissolved solids being pulled to the surface for treatment

as a public water supply. Those waters must be contained and disposed of in a manner that

protects higher quality groundwater near drilling projects, the environment, biota and wildlife.

Suitable, cost-effective disposal options for the treatment wastes that result from non-potable

groundwater are uncertain at this time. In order to make use of non-potable waters, treatment is

required to reduce the dissolved solids content to potable levels. Such treatment typically results

in a highly concentrated reject water waste stream (i.e., wastewater with very high dissolved

solids or salt concentrations). Disposal of those waste streams may pose challenges. Injection of

such wastes into deep wells tapping non-potable aquifers has been a common approach, yet the

future viability of deep injection may be questionable given the changing perspectives regarding

the value of non-potable groundwater for domestic supply purposes. Surface evaporation of

waste streams with high dissolved solids may be a viable option but may require a large area of

land for evaporation processes and the resulting salt minerals also require appropriate disposal.

DW/mt