Category: Oil & Gas

Mora County Commissioner John Olivas wants a ban on oil and gas drilling in Mora County because he is concerned with the environmental impact of a drilling process named hydraulic fracturing – or “fracking,” as it is colloquially called.

Under New Mexico’s “Renewable Portfolio Standard” law, regulated electric utilities must derive 15 percent of their electricity needs from renewable sources by 2015, with 20 percent to come from renewable sources by 2020. Starting in late June, Public Service Company of New Mexico will begin holding Integrated Resource Planning public meetings to determine how it will comply with the renewable mandate over the next decade-plus.

Already, organizations like New Mexico Industrial Energy Consumers are expressing concern over rates that have gone up by 24 percent in the past three years.

PNM for its part has requested a 21 percent increase. To be fair, these hikes have not been driven by New Mexico’s foray into renewable energy, which now stands at 6 percent of electricity sales, but mandated increase in more costly renewable sources will result in even greater hikes over time as these mandates take hold.

Unfortunately, not only is New Mexico’s mandate forcing New Mexico utility customers to pay for more expensive “renewable” electricity, the law which originally allowed utilities to use the renewable energy source that made the most economic sense was later changed to force utilities to adhere to specific “mandates-within-a-mandate.”

This additional mandate means that investor-owned-utilities must derive at least 20 percent of their renewable power from wind, 20 percent from solar, 10 percent from “other technologies” like biomass and, by 2015, 3 percent of the electricity must be derived through distributed generation.

So-called distributed generation is yet another onerous requirement on utilities. Specifically, this means that PNM and other investor-owned-utilities such as El Paso Electric must now rely on output from many small energy sources. This has the makings of a paperwork, security and reliability nightmare that will further drive up costs for consumers.

Because of these policies, particularly the solar requirement — although the “other technologies” and distributed generation requirements are problematic — New Mexicans face higher electricity prices. That is, even after significant federal subsidies for renewables, which they are paying for yet again, are priced-into the equation. Nonetheless, the cost of solar thermal electricity, made by using the sun’s heat to boil water and spin a turbine, would be nearly three times that of coal and more than twice that of natural gas.

All of these costs and subsidies are passed on to consumers.

Of course, in today’s difficult economy, with jobs and economic growth taking precedence over supposedly high-minded “green” energy mandates, politicians should realize that unrealistic mandates will kill New Mexico’s economy and hurt the very consumers they are supposed to protect.

Take California as a prime example.

There are many reasons that have caused California to become an economic basket case. Idealism in pursuit of unrealistic environmental goals like the state’s renewable portfolio standard is one. In an executive order issued in November 2008, Gov. Arnold Schwarzenegger set in law goals of generating 20 percent of all electricity from renewable sources by 2010 and 33 percent by 2020. According to the state’s leading utility, PG&E, the state is currently at 12 or 13 percent renewable.

There are really only two viable ways forward at this point.

First, and in the shorter term, regulations and laws must be loosened in order to give utilities the flexibility to determine what sources to derive “renewable” energy from. After all, since wind is half as expensive as solar, shouldn’t PNM and other utilities at least have the freedom to generate energy from the least-costly source?

Ultimately, the public, utility customers and our elected leaders must decide when the economic costs of “renewable” energy exceed benefits. The only logical and, dare I say moral, thing to do is to give consumers the freedom to choose for themselves. If it is worth it for a business or consumer to pay extra for the peace of mind of supporting the growth of renewable energy sources like solar or wind, they should have the freedom to do this.

It is simply unfair and wrong for a minority to use government to force their preferences on the majority of consumers who wish to buy the least expensive and most reliable electricity possible.

Consumers have two opportunities to weigh in on this issue. Once in the upcoming public hearings and again in November when three slots on the PRC are up for election.

Here’s hoping that economic reality will get average citizens and not just renewable energy zealots to engage in the process.

Paul Gessing is president of the Rio Grande Foundation, 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.

Misinformed and misguided laws and policies affecting how New Mexico and the nation generate and use energy are in danger of being enacted. These policies will cost consumers money, hurt the state and national economies at a perilous time, and increase reliance on oil imports from countries that are hostile to America.

Unfortunately, the proposed laws and regulations largely are based on a “sound bite” approach rather than real knowledge of energy and the economy. Superficially, these plans sound good but the results would be just the opposite.

These elected and appointed officials appear to have developed their proposals for two reasons rather than a rational, “fact-based” methodology.

They appear motivated by an ideological dogma that “hydrocarbons are bad” and should be done away with via regulation and taxes or de facto prohibition. “Hydrocarbons” in layman’s terms means oil and natural gas, and coal. The supporters of “green” (aka “renewable”) energy are generally the same ones who have feeling of disgust (that’s not too strong a word for their sentiment) for the hydrocarbons like oil and gas, etc.

Based on the framework outlined above, New Mexicans and Americans need to be alert to the following:

The Obama Administration wants to single out America’s oil and gas companies and eliminate them, and only them, from a previously enacted tax law that encouraged U.S. industrial production. The Congressional Research Service late last year reported that the result of this change will be increased reliance on imported oil, rather than improved energy security as the administration says it wants. Such a narrowly-focused, punitive tax seems obviously based on a misguided attempt to discourage investment in oil production altogether.

Even the most promising estimates for renewable energy production foresee substantial reliance on traditional energy sources for decades to come. Pushing production overseas only reduces jobs, not our carbon footprint.

Leaders in the administration, both houses of Congress, Governor Richardson, et al, have jumped on the so-called “cap and trade” bandwagon as the favored way to reduce global warming. This, despite the fact that cap and trade has (a) not reduced CO2 emissions in Europe and (b) has been subject to “gaming the system” or outright corruption and fraud.

These problems have been brought to light by the U.S. Government Accountability Office (GAO), and by the United Nations which recently suspended clean energy project auditor in the European market. Even the environmental group, Friends of the Earth, is uneasy with the complexity of the proposed scheme.

According to Michelle Chan of Friends of the Earth, the cap and trade market “could take on the same characteristics as the mortgage derivatives market if investors are allowed to securitize emissions credits without strong regulatory oversight and enforcement…If we aren’t careful,’ she continues, ‘we could end up creating a massive, poorly regulated derivatives that not only poses risks to the broader financial markets, but also undermines efforts to save the climate.’

Finally, Governor Richardson is gung-ho for the Western Climate Initiative, a western-states climate “credit” exchange – a foolishly narrow attempt to solve a global problem that would nonetheless cost New Mexico as many as 4,689 net jobs, $1.2 billion in personal income, and $219 million in per capita disposable income according to a new study by the Beacon Hill Institute.

Congressional leaders and the Obama Administration seem poised to prevent oil and gas production along the Outer Continental Shelf (OCS), offshore along parts of the U.S. coastline.  A recent study by the American Energy Alliance shows why outlawing OCS drilling would be contrary to our national interests:  “With more than 85 billion barrels of recoverable oil and over 440 trillion cubic feet of natural gas located right off our shores, exploration in the OCS stands to contribute $273 billion annually to the national economy.”  Not using this resource, like the tax provision repeal mentioned earlier, also would result in increased reliance on foreign oil imports.

It does not make sense to treat American energy resources as an enemy when our economy needs both the emerging “green, renewable” resources as well as existing hydrocarbon resources. Yet, the members of our congressional delegation have largely been silent on the proposed taxes and laws mentioned above. Only Congressman Harry Teague has stated publicly that America needs both renewable and traditional energy resources. Senator Jeff Bingaman, who exercises great power as the chairman of the Senate Energy Committee, has toed the party line along with Nancy Pelosi and Harry Reid in their ongoing assault on energy.

Paul Gessing is President of the Rio Grande Foundation; a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

New Mexico businesses— whether directly engaged in the energy industry or not— should be wary of proposed policy changes supposedly targeted at energy companies. If enacted, these laws would actually harm users of energy (residential as well as business users).

The misguided proposals under consideration would tax alleged “windfall profits” and address global warming in a wasteful and counterproductive way. New Mexico politicians have a disproportionately powerful place in all this. Democratic Sen. Jeff Bingaman is the new chairman of the Senate Energy Committee and the senior Republican and immediate past chairman is Republican Sen. Pete Domenici. Meanwhile, our ambitious Gov. Bill Richardson, a former Energy Department cabinet secretary, has spoken out for both misguided proposals.

THE NEW CONGRESS AND THE “WINDFALL PROFITS TAX”: Although neither Bingaman nor Domenici seems to be enthusiastic about a proposed windfall profits tax on oil and gas companies, the newly resurgent Democratic leadership in both houses has control of the agenda and is making noise about such a proposal.

A little perspective is needed here: Even during the “spike” of gasoline prices when Hurricane Katrina knocked out much import and refining capacity, the price of gasoline came nowhere close to its all-time high. When we compare prices over time, we need to adjust them for changes in the purchasing power of the dollar. Adjusted for inflation, 1981 gasoline prices were some 24 percent higher than they were during last year’s $3-plus-a-gallon “spike.” Moreover, disposable income in New Mexico has increased since 1981. The average New Mexican’s disposable income could buy 88 percent more gasoline even at the peak of the 2005-06 “spike” than it could in 1981.

The last thing we need now is for government to make matters worse by bashing profits. Seeking profits (and avoiding losses) is what drives all sectors of that market economy; and it is why we are prosperous.

When we see rising profits we can be sure that more resources will be devoted to the profit-generating activity. It may come about a bit slower in the case of oil and gasoline (compared, say, to Microsoft) because of the difficulties of bringing new wells into production or of building and expanding refineries.

Oil companies’ profits may be a little higher than their long-term average; but those profits are not unreasonable compared to other industries. Moreover, taxes paid by oil companies are actually higher than their profits.

CARBON “CAP AND TRADE” AS A SOLUTION TO GLOBAL WARMING: Putting aside questions of whether recent temperature variations are outside the normal swings that have occurred over many centuries, and (if so) whether or not such changes are human-caused, a policy that administers a system of artificial caps on energy sources, poses serious problems for our national— and state— economies:   Giving federal and state bureaucrats control over how much carbon is emitted and from what sources would be counterproductive, highly complex and a nightmare to administer. It would mean higher energy prices and a system that is wide open to political favor seeking.

The politics of carbon emissions would inevitably result in large, unfair transfers of wealth. For example, under the Kyoto treaty, to which the U.S. is not a party, purchases of carbon credits are flowing from the European Union to Russia in massive amounts. Do we want to have the U.S. become victim to this sort of dollar outflow?

It turns out, intentionally or not, that the U.S. is at a real disadvantage when it comes to reducing carbon emissions compared to Europe and Russia. The year selected as the base year from which to reduce carbon emissions (1990) just happens to coincide with vigorous economic activity in the U.S. and recessions in Europe and Russia. In 1990 Europe and Russia were already well below their normal emissions. Nonetheless we find that Europe and Russia are unable to meet their targets.

There are changes in energy policy that would be helpful and would especially benefit our energy producing state. We could strike a better balance between benefits and costs when it comes to regulation. We could allow the building of new refineries. We could relax restrictions on drilling and exploration for oil. All of these actions would reduce the costs and risks for producers, thereby benefiting New Mexico.