In this unique and timely episode, Paul sits down with two experts on utilities to discuss the purchase of PNM by Avangrid and the impact the push for “renewables” is having on electricity prices and grid stability in New Mexico.
Larry Behrens runs Power the Future NM which advocates for pro-energy policies. Larry’s group has been critical of the Energy Transition Act.
Dax Contreras was an energy trader for five years working for PNM. Dax’s job was to keep the lights on for PNM customers across New Mexico by purchasing (and selling) power to customers across the Western United States.
The following are charts directly from New Mexico’s state page on the New York Times COVID 19 tracking page on October 28. The main takeaways are that New Mexico is in the worst position it has been in terms of the spread of the virus, but, at least so far the number of deaths has not spiraled upward (there has been an uptick to be sure). We will see if that continues or if the situation deteriorates even further.
What is plain to see is that the Gov.’s strategy for stopping the spread has either failed to stop the spread of the Virus OR enough people are tired of them to the point that they are disregarding them (and thus spreading the Virus). Perhaps both are true.
Just in time for the election, the Rio Grande Foundation’s Tipping Point New Mexico is now available in yet another format: television!In addition to the audio podcast, the show is available in Albuquerque on Saturdays from 1:15pm to 2pm on Saturdays on the Rock of Talk AM 1600 or FM 93.7.
Also, the show is available Thursdays at 5:00 PM on HII 88-9 FM Cloudcroft, 100.5 FM Alamogordo, and KEDU 102.3 FM Ruidoso.
On October 26 and 27 of 2020 New Mexico (including RGF’s home town Albuquerque) received a big snow storm which dumped about 10 inches of snow on the area. Snow is one of many weather phenomena that impact electricity demand (and production, especially when so-called “renewables” are involved).
As of 4:30pm on the 27th (several hours after the snow stopped falling) PNM was getting just 9% of its electricity from “renewable” sources. Results vary depending on demand and weather, but 9% is a paltry number.
The Gov. has some new COVID orders. While Paul and Wally both acknowledge that these are more focused on problem areas than her previous orders were, the Gov. has backed herself into a corner in addressing the Virus. Spread is FAR worse than it has been at any other time of this crisis.
We truly do feel for UNM (and NMSU’s) sports programs, especially those (like UNM football) who have been living in limbo because of the Gov.’s orders. Of course, that “limbo” (and the likely loss of fan attendance revenues for Lobo basketball) isn’t going to do much for the athletics budget looking forward.
Amazingly, the University has (according to the Journal) “At the end of the 2020 fiscal year, the university had about $346 million in plant fund reserves.” This is the fund out of which the deficit will be paid.
The following appeared in the Sun News on October 25 and several other papers and media outlets.
A recent report from the Pew Center determined that New Mexico had the fourth highest volatility in tax revenue collection over the past 20 years. Unsurprisingly, the study cited reliance on oil and gas revenues as the likely cause of this volatility. What the study didn’t consider was the fact that New Mexico’s misguided economic policies actually reinforce our reliance on oil revenues.
Over the years New Mexico has developed mechanisms like the “rainy day fund” and permanent funds (these are two different things) to help smooth the ups and downs inherently associated with rising and falling oil and gas prices and production.
It has been well-documented that New Mexico has risen to be the 3rd-largest oil producing state in the nation. We often forget that Texas remains the largest oil producer at more than six times the amount produced here in New Mexico, yet Texas, as the report noted, “ranked close to the middle of states for overall revenue volatility.”
Why is that? Simply put, Texas is less reliant on oil and gas than is New Mexico as a percentage of its overall budget. Again, according to Pew, “severance tax accounted for 7.5% of Texas’ total tax collections over the past decade.” That is a far more comfortable position to be in than New Mexico’s reliance for 40% of its budget from oil and gas.
These are all pretty widely-agreed upon facts among New Mexico policymakers and thought leaders. This is where things get tricky.
Democrats, especially their more “progressive” wing (now dominant in the Legislature) seem ready to eliminate oil and gas entirely without much in the way of a plan for how to fund New Mexico government. Long-time “progressive” Albuquerque-based Senator Jerry Ortiz y Pino argued in an op-ed this year that New Mexico should “go cold turkey” to stop our “addiction” to oil and gas. Gov. Lujan Grisham recently echoed those sentiments in a webcast with the US Climate Alliance, saying “New Mexico should transition out of fossil fuels.”
Those sound like nice goals to many environmentalists, but aside from raising taxes on a massive scale, how do you fund State government? That question is left unanswered.
According to NMSU professor Jim Peach, New Mexico faces not one, but two threats: 1) the short-term effects of reduced revenues and slower economic growth from the lockdown; 2) the longer-term challenge of replacing oil as a funding mechanism for state government.
Rather than killing the oil industry (or seeing revenues from it decline rapidly due to depressed demand) and then frantically looking to find a replacement, the Gov. and Legislature need to use the 2021 session to enact long-overdue reforms like GRT reform that CAN make us more competitive. Texas has no income tax and is a “right to work” state. It is known to be business-friendly and consistently scores well in state rankings on such issues. New Mexico, on the other hand, is rightly perceived as being rather hostile to business. And, the gross receipts tax is unfair and riddled with breaks for special-interests.
One issue that is sure to come up in 2021 is tax hikes. Professor Peach and others have mentioned them with an air of inevitability. Tempting as they may be, tax hikes will make us even less competitive with Texas and other states as a destination for jobs and economic growth. Given the gulf between New Mexico and Texas in terms of economic competitiveness it is no surprise that the Federation of Tax Administrators ranks New Mexico as having the 7th-heaviest tax burden while Texas is among the lowest at 47th.
Ironically, if New Mexico were to streamline government, truly make the state attractive for business, and thus diversify its economy, like Texas, New Mexico’s economy and tax revenues wouldn’t be as volatile. Unfortunately, we have a very long way to go to make that happen.
Paul Gessing is president of 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
The latest Wallethub report on how state unemployment rates are recovering is out. New Mexico remains among the least-recovered states as the graphic below shows:
In other news, according to an October 16 report from the Legislative Finance Committee that we obtained, Gross receipts tax collections in New Mexico were down $31.6 million in August compared to the same month last year, according to preliminary data from the Taxation and Revenue Department.
Furthermore, total fiscal-year-to-date GRT collections through August were down $30.3 million from the same period a year ago, or 6.3 percent.
Basically, it appears that the combined effects of the Governors lockdowns, their increased intensity, and the lack another round of federal stimulus are having serious, negative impacts on New Mexico’s economy. How long will this last? We have no idea.
You may have heard by now that PNM (pending PRC approval) has been purchased by the Spanish utility Avangrid. According to the Albuquerque Journal article detailing the purchase, Avangrid paid 19.3% above the PNM share price.
The following “check” was used by RGF president Paul Gessing as a prop in a 2019 hearing on the Energy Transition Act. It remains relevant as ever, but perhaps should be paid to the order of Avangrid now.
We don’t know exactly what this all means, but we DO know the following:
The 19.3% premium (paid by Avangrid) HAS to come from somewhere and it is unlikely those efficiencies of scale will be enough to justify that premium price.
This adds another wrinkle to the PRC election and ballot measure on the ballot this fall (the PRC will have to approve or deny this purchase).
Arguably the damage to NM rate payers has already been done (or baked-in) by the ETA. The major impact New Mexicans see from this purchase is that one of the State’s only major publicly-traded companies will be no more. Corporate sponsorships, jobs, and other aspects of PNM’s presence could dry up over time.