Electricity subsidies as economic development an unwise move

We at the Rio Grande Foundation view economic development and growth as the most important issues facing New Mexico. But that doesn’t mean that every idea on bringing jobs and economic growth to the Land of Enchantment makes sense. Take a recent legislative proposal that has generated some attention in the Albuquerque Journal. The idea is to allow utilities like PNM to provide electricity at discounted prices in order to attract businesses to the state. It is being sponsored by Democrat Moe Maestas HB 296 and Republican Stuart Ingle SB 283. Recent articles supporting the proposal include an op-ed from NAIOP and this one.

As outlined in the second article, we agree with the big-government advocacy group AARP which is rare indeed.

Sounds great, right? Businesses save on their electric bills and create more jobs. It might work, but it could also result in cost-shifting from businesses to average New Mexicans. After all, PNM has to make money somehow and they don’t make it from a group of major consumers, they may be forced to pass those costs along to the rest of us. That’s not exactly fair.

More importantly, to the extent that electricity costs are an impediment to businesses locating here (our prices are in the middle of the pack among states), policymakers should remove costly regulations like the renewable portfolio standard (RPS) which unnecessarily raise electricity costs for all New Mexicans. Of course, that would require intestinal fortitude to stand up to the wind and solar lobbies, not to mention AARP which, despite pleas against overt subsidies for business’ electricity costs, tends to support regulations like the RPS which drive the cost of electricity higher for the seniors they purport to represent.

And then there is former Public Regulation Commission member Douglas Howe who bizarrely claimed in a recent article (which I blogged) that electricity prices have no bearing on economic growth.

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7 Replies to “Electricity subsidies as economic development an unwise move”

  1. We completely agree with this assessment. There are alternative methods of offering incentives to businesses that the State feels it wants to attract to New Mexico. There is a concept that our state legislators seem to overlook in there zeal to make new law—-that would be the law of adverse consequences.

    1. Thanks Roger. It sounds like a nice idea, but there is certainly room for additional utility price discrimination in the future if this law were to pass…imagine what a field day the “progressives” could have. They’d allow/ask utilities to provide low or no cost power to entire new groups of people while sticking anyone who actually pays taxes with the bill.

  2. The reason this is being considered is that there are competing states for lucrative manufacturing (and other) businesses that DO provide electricity discounts to businesses willing to come to their states. New Mexico has lost out on bidding for several of these businesses as a result and these companies explicitly say that it is due to the electrical discounts. What do you suggest?

    1. Lisa, I do appreciate your perspective. I suggest we start doing the basics right before we attempt to offer a bunch of incentives to attract businesses here. A Right to Work law, some pro-growth tax reforms, a move to increase educational choice, and criminal justice reforms would be some big items.

      I just don’t think that shifting costs from one group of utility customers to another is a can of worms that I want to open. Today it’s businesses, tomorrow it’s another politically-favored group.

  3. Paul,

    Government does not understand business which is why so many bad regs get written and I would suggest that RGF also suggests it is not in tune with normal business practices, i.e. volume discounts. If that were the basis for any “discounts” it would preclude other entities who are a class rather than a single purchaser from qualifying. I would quickly grant the point that the libs will of course try to twist it but I think too often we avoid doing the right thing, or making the right decision, because of our concern about how they will react, which we know will be anti freedom, anti business aided and abetted by their media allies.

    If we are in fact going to generate economic development in competition with surrounding states given that we have many problems going in, most notably our abysmal education system and non RTW, I think we have to seek any offsetting benefits we might be able to offer that will incentivize CEO’s to at least consider NM when considering any expansion such as the TESLA plant discussed in this morning’s Journal which most obviously would have a very significant economic impact, and given the cost of energy, I think this volume discount makes a lot of sense for a big user.

    1. I appreciate the thoughts Eddie. I just think that once you open the door to discounts for one group, you’ll wind up with every special interest group lobbying for discounts. Already you have the schools doing this.

  4. You want economic development? Adopt right-to-work legislation, with a rider outlawing public sector unions where employees are protected by any Civil Service rules. The money saved on the second would provide seed funding for the foundation of the first.

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