Southwest Renewable Energy Conference Spotlight on State Policies:

1. The “New Energy Economy”NM Initiatives in Renewable Energy Craig O’Hare, Special Assistant for Clean Energy Southwest Renewable Energy Conference Spotlight on State Policies: Success Stories of the Southwest Santa Fe, New Mexico 15 September 2010

2. Outline • Steps New Mexico has Taken to Attract Renewable Energy Projects and Manufacturing • “The Message”  Justifying RE Requirements and Incentives • Economic Development and Job Creation Establishing a Clean Energy Industry Cluster • Diversifying NM’s economy as the oil and gas patch “plays out” by the end of this century • Just a nice coincidence that it’s good for the environment • The “Sleeping Giant” – Geothermal’s Potential for New Mexico and the Southwest • “Where the Rubber Meets the Road” Implementing RE Statutes at the Utility Commission • Food for Thought: “Big Picture” Utility Commission Issues Affecting Renewable Energy

3. Utility-Scale Renewable Energy:Legislative Action: Renewable Energy Act • Specific statutory language affects/controls PRC’s implementation – for better or worse! • RPS: IOUs  10%: 2011, 15%: 2015 20%: 2020 --- “Jumps” doesn’t “ramp” Rural Coops  5%: 2015,10% by 2020 • REC Ownership: by “default” RECs are owned by utility not the generator (problem! Limits development of REC market) – need to amend. • Requires utility’s RE portfolio to “be diversified as to the type of RE resource” – paved the way for PRC’s diversity rule

4. Renewable Energy Act- cont’d • Established a “Reasonable Cost Threshold” above which utilities are not required to acquire  leaves PRC with a lot of discretion to limit RE due to cost concerns. • Created arguments as to whether RCT means “immediate impact on rates” or cost-comparisons (with traditional generation) over the long-haul • Findings: Recognizes that RE “can bring significant economic benefits to NM.” – paves the way for economic benefits to be part of the “balancing” act.

5. Utility-Scale RE Legislation Action • Adv. Energy Tax Credit (> 1 MW) – 6 % of project development expenditures • RE Production Tax Credit (>1 MW) • $10/mwh for wind and biomass. $27/mwh for solar. Good for 10 years. Refundable (Fully accessible to developer) • Best solar incentive in the country! • Aggregate caps to keep budget impact in check • Legislature is Scrutinizing all Tax Credits for Effectiveness Given State Budget Constraint • Revenue “hit” is calculated using “static” not “dynamic "scoring – ignores the revenue generation from economic activity.

6. Utility-Scale RE  Progress • 600 MW of Wind Farms • 10 MW Geothermal Plant in Hidalgo County • Utility-Scale Solar: Announced • Over 100 MW of Utility Scale PV • Stimulate due to PRC Diversity Rule • 92 MW Solar Thermal Tower Project Abandoned because US DOE did not provide loan guarantee  thermal storage key to dispatchability and high % of RE integration 204 MW “NM Wind Energy Center” (PNM), near House, NM 30 MW PV on Ted Turner’s Ranch NE NM

7. Solve Transmission Constraint for Utility-scale Renewable Energy Projects • RETA is the key to developing 10s of 1000s of MW of wind and solar projects for export to out-of-state markets. • Governor’s Transmission Task Force – addressing 5, 10 and 20 year collector systems, cost recovery and allocation, siting & permitting  report in November

8. “Distributed Generation” Scale Renewable Energy PV Panels On Every Roof Someday? At the proper sites, small wind systems are promising. Solar thermal adsorption cooling: AZ National Guard  Replaces energy intensive A/C!

9. Ground-Coupled Heat Pump: “Geoexchange” Heating & Cooling New 30% NM Income Tax Credit: 2009 Legislature Jicarilla Apache Nation – Dept. of Ag. Bldg. - ARRA Española City Hall - ARRA

10. Distributed Gen. Renewable Energy: Legislative Action • NM Solar Rights Act – ensuring solar roof exposure is protected from future development and preventing city ordinances or Homeowners Assns. from restricting roof-top solar. • Solar Mkt Dev Tax Credit  solar PV and solar thermal - 10% (2009 Legislature). Complements 30% federal credit. • DG RE Financing  Legislative Adoption of “PACE” Property Tax Districts • The missing “leg” of the DG solar incentives “stool” • FHFA has stalled PACE programs nationwide. • EMNRD is considering joining California AG suit – local governments rights to administer special property tax assessments. • Federal Legislation Needs Support : HR 5766, S 3642 • PACENOW.org

11. On-Site Scale RE: Legislative Action • Clarification that 3rd party arrangements are legal and don’t constitute being a “utility” (2010) • Solar Market Development Income Tax Credit – 10% • Gross Receipts (Sales) & Property Tax Exemptions • New Law: Utilities are allowed to assess “interconnected customer rate riders” on roof-top solar owners to make up for lost fixed cost recovery. Rider must be approved by PRC. (Don’t do this!) • Depending on magnitude of rider, this could be a huge disincentive to roof-top solar

12. “The Message”  RE Brings Job Creation & Economic Development: Establishing a Clean Energy Industry Cluster • Provides justification for tax incentives  NM is competing with other states and nations for the “new energy economy”. Nowis the time to act! • Alt. Energy Product Mfgrs Tax Credit (component manufacturing)  5% of mfg. facility development expenditures • Coordinated State and Local Economic Development Efforts  NM Econ. Dev. Dept. and NM Partnership • Coordinated “hand holding” of out-of-state/country recruiting prospects from arrival to departure and “start from scratch” assistance with new start-ups • Companies  impressed with the focused attention of economic dev. agencies and “access” they receive to high level officials. • Trained Ready-to-Go Workforce

13. Deep-source Geothermal  Can run 24/7 & complement wind and sun’s variability • With new technology, “Enhanced Geothermal Systems”, no longer need hot water to generate electricity. • DOE Secretary Chu: “If you can drill for oil, you can drill for heat”. • As a result, NM and the SW may have a “gold mine” of geothermal resource! • Oil & gas wells: conduit to hot rock, opportunities for co-production. • NM resource assessment and data base being developed. Geothermal Plant in Iceland

14. Deep Source Geothermal: The “Sleeping Giant” (Google Energy Plan) of SW RE Potential

15. With “Enhanced Geothermal Systems”, the Southwest has Enormous Potential

16. Implementing RPS at the PRC  Where the Rubber Meets the Road • Statute left much to be interpreted – particularly around cost impacts • PRC is elected. Compared to an appointed utility commission, is an elected utility commission more subject to keeping rates as low as possible today, as opposed to keeping them low (via RE and EE) over the long haul (e.g. 30 years)? • Diversity Rule: Now stimulating utility-scale solar development and DG solar geothermal in the future • >20% wind, >20% solar, >10% “other” (biomass, geothermal) 1.5% DG, 3% DG 2015

17. RPS Rule • RPS rule requires a utility to “…take into consideration the potential for environmental and economic benefits to NM.” •  supposed to keep discussion from focusing solely on rate impact issues. • RCT Rule: In 2011, 2% “of all customers’ aggregated overall annual electric charges”. • Does not clarify who “all customers” are. Just today’s customers or customers over the life of the renewable energy projects? • How is RE’s avoided cost calculated? Capacity value? • Over a year old draft rule further clarifying the interpretation of the RCT has not been adopted. • RCT is repeatedly used as a tool to say that RE, and especially diversity, is too expensive to comply with.

18. Other PRC Issues: • New statute allowing utilities to assess a “solar access charge” on roof-top solar • One utility proposed a > 8¢/kwh of solar generation charge (≈ $30/ month for a 2kw system) • Another utility proposed about 1.2¢/kwh • Will require a lot of time and expertise to fight in utilities’ filings before the PRC.

19. Food for Thought: Major RE Issues for All Utility Commissions • Utilities will continue to resist roof-top solar because every installation decreases their revenues and therefore, profits. How can we achieve 30-40% roof-top penetration and still allow the utilities the ability to make a fair profit? Is decoupling the answer? • Historical Utility Regulation: Commissions focused solely on keeping rates as low as possible today, while allowing shareholders a reasonable rate of return. Important public policy issues were not considered the domain of utility regulation. • Today: Utilities and utility commissions must recognize the third concern in the “balancing” act – the “public interest” (e.g. environmental and public health concerns, economic development and job creation, bill impacts well in to the future not just on today’s ratepayers, etc.)

20. Core Utility Commission RE Issues In exchange for the privilege of being a regulated monopoly (i.e. the utility), free from the pressures of competition, utility commissions must require utilities to behave in a way that looks after both the immediate and long-term well-being of the citizens they serve. • PRC Enabling Statute: “…the commission should fulfill its responsibility to balance the public interest, the consumer interest, and investor interest” (8-8-12 NMSA). Is similar language in your commission’s enabling legislation? • Utility Commissions must avoid making myopic decisions that appear to keep rates/bills as low as possible now but have the effect of causing large increases down the road.

21. Making Energy $mart Resource Decisions for the Long Term… • Energy Efficiency and Renewable Energy appear to cost more in the short-term but provide lasting rate/bill stability in the long term – compared with traditional forms of generation. • Are we going to buy the $6 garden hose that lasts a year or the $20 garden hose that lasts 10 years? By ignoring the long term financial benefits of RE and EE, we’re in a way buying the $6 hose, thinking we’re saving $14, when in fact we’re spending 300% more over 10 years!

22. CleanenergyNM.org Thank you!