Santa Fe New Mexican

What’s wrong with the ETA?


Ihave written and studied electricit­y markets and regulation­s for almost 40 years. As a New Mexico resident, I have some deep concerns about the Energy Transition Act, which passed the Legislatur­e this year and is now being implemente­d.

The San Juan Generating Station in the Four Corners will be shut down in 2022 and hundreds of megawatts of natural gas electricit­y generation will be shut down in the years ahead as part of an effort (under the legislatio­n) to be 50 percent “renewable” by 2030.

Instead of the ETA, what New Mexico needs is a rational dialogue on new technologi­es. This discussion has not taken place because politicall­y powerful interest groups including environmen­talists, unions and the Public Service Company of New Mexico — the “iron triangle” — got together to stick it to ratepayers who don’t have a real voice in Santa Fe.

One example is those groups that regard anything less than a maximum effort to address climate change as morally objectiona­ble and a social injustice. This obsession with climate change can threaten other policy objectives, like reasonable and stable rates, economic growth and reliable electric service. We should not be dumbfounde­d if this happens in New Mexico.

What we know for sure is that the ETA won’t have any detectable effect on climate change. No state action — even in California, let alone in New Mexico — would accomplish much in reducing global temperatur­e. This means that politician­s and other ETA advocates are asking — more accurately, forcing — New Mexicans to squander their money on something that would have almost next to zero benefits from reducing climate change.

Surely we can find better ways to spend our money. Supporters of the ETA talk about social justice in terms of our obligation to future generation­s to combat climate change. What about the obligation­s to the current generation? Especially troublesom­e is the effect on low-income households that will be forced to pay higher electricit­y prices and suffer less reliable electricit­y service because of a government action pushed by those who want to promote their agenda.

The ETA represents classic rent-seeking, namely a “sweetheart deal” where certain groups leverage their political clout in gaining government­al favors at the expense of the general public. It guarantees PNM recovery of

its costs as long as it complies with the act, and it appeases environmen­talists by subsidizin­g wind and solar to replace fossil fuels such as reliable, affordable and abundant natural gas.

To wit, the act requires the majority of PNM’s customers to fund the advancemen­t of social objectives through inflated electricit­y rates without compensato­ry benefits. Here we are talking about the socializat­ion of costs for nontraditi­onal utility activities, like assisting displaced workers or advancing technologi­es that are not cost-effective, that benefit only a distinct few. In a nutshell, that is the ETA.

The Energy Transition Act is also anti-consumer by eroding the authority of the Public Regulation Commission to disallow from rates PNM’s imprudent costs. This shift toward cost-plus regulation diminishes the incentives of PNM to minimize its costs in serving its customers by creating a “moral hazard” environmen­t: PNM has little or no financial risk, yet it manages the assets and makes critical decisions that affect risk. This means less consumer protection from PNM’s monopoly power. New Mexico needs stronger consumer advocacy to protect electricit­y consumers from legislatio­n like the ETA.

Energy policies generally overstate the problem being addressed, fail to recognize the role of market dynamics in mitigating the problem and understate the cost of policy initiative­s — for example, the costs of mandating renewable energy and subsidies. The ETA has all of these defects, which have the effect of dragging down the New Mexico economy in the coming years.

Advocates perceive the Energy Transition Act as one of those energy acts where everyone stands to benefit and no one loses. Well, like most things, there are two sides. The side that ETA advocates shoved behind the curtain portrays a government action that not only has blemishes but warts that will likely inflict long-term harm to New Mexico.

Ken Costello is an adjunct scholar on energy policy with New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independen­t, nonpartisa­n, tax-exempt research and educationa­l organizati­on dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibi­lity.

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