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

SPONSOR Cisneros

ORIGINAL DATE

LAST UPDATED

2/7/08

HB

SHORT TITLE Renewable Energy Production Tax Credit Cap

SB 506

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

(1,677.0)

(3,333.0) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Energy Minerals and Natural Resources Department (EMNRD)

SUMMARY

Synopsis of Bill

Senate Bill 506 increases the renewable energy production tax credit cap to four million

megawatt hours (MWh) and introduces a two tier rate structure. The first tier for the first two

million MWh of electricity will receive a $0.01 credit per MWh, which is the current rate, and

the second two million MWh would receive a $0.005 credit per MWh. The credit is for

electricity generated by wind or biomass electricity generation facilities.

Under current law, EMNRD can approve the credit for no more than two million MWh in a year

and no more than 400 thousand MWh per qualified electric generator. The current rate per MWh

is $0.01.

The effective date is July 1, 2008.

FISCAL IMPLICATIONS

According to TRD, the original 2,000,000 megawatt-hour limit is very near full subscription, but

the additional 500,000 megawatt-hours reserved for solar-light- or solar-heat-derived energy

remains unsubscribed. Of the proposed 2,000,000 megawatt-hour limit increase, EMNRD

Senate Bill No. 506 – Page

2

predicts that one-half will be subscribed within three years, at equal annual increments, but the

rest would not be subscribed for at least eight years. This is based on the prediction that in about

three years the electrical transmission lines will be operating at full capacity, and that this

capacity will not be increased until at least 2016. Thus no more electricity production could

come on line and the $5,000,000 revenue impacts estimated for FY11 and FY12 would remain

constant until near the end of the period of eligibility, January 1, 2018.

Estimated Revenue Impact*

FY2008 FY2009 FY2010 FY2011 FY2012 FY 08-12

R or

NR**

Fund(s) Affected

$0

($1,667) ($3,333) ($5,000) ($5,000) ($15,000) R General Fund

* In thousands of dollars. Parentheses ( ) indicate a revenue loss. ** Recurring (R) or Non-Recurring (NR).

Source: TRD

SIGNIFICANT ISSUES

Although forecast to phase-in much more slowly, the 2007 enacted renewable production tax

credit was immediately used and EMNRD certified all of the credits for wind and biomass

(although wind is by far the major source). In the fiscal analysis for SB463 from the 2007

session, the credit was not expected to reach its maximum until 2012 but in fact reached it in

2007.

EMNRD:

The federal tax credit for wind power is due to expire at the end of 2008. New Mexico’s

tax credit is fully allocated except for $500,000 set aside for solar. EMNRD has

approved applications for five wind facilities. One application for biomass was denied

and the appeal is pending. Other wind applications are in line if the program cap is

increased. Expanding the PTC will be beneficial for New Mexico’s economic

development in rural areas due to the great wind, solar, and biomass resources available.

With the federal production tax credit scheduled to expire in December 2008, an

expanded PTC will help maintain New Mexico’s position as a leader in offering

renewable energy incentives and attracting renewable energy development.

ADMINISTRATIVE IMPLICATIONS

TRD reports that the agency will require an additional FTE at the cost of $30,000 to handle the

additional administrative and tracking responsibilities.

TECHNICAL ISSUES

TRD notes that the limits imposed by the Renewable Energy Production Tax Credit apply to

both the Corporate Income and Franchise Tax Act and the Income Tax Act. A corresponding

amendment should be made to Section 7-2-18.18 of the Income Tax Act.

NF/mt