Host Daniel Raimi talks with Sarah Propst, the Cabinet Secretary of the Energy, Minerals, and Natural Resources Department for the state of New Mexico. New Mexico recently enacted legislation to transition to 100 percent zero carbon electricity by the year 2050, and to provide transition assistance to workers and communities affected by the changing energy landscape. Daniel and Sarah discuss how the bill was developed, how much it's going to cost, and what other steps New Mexico is taking to reduce greenhouse gas emissions.
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- The Rise and Fall of the Dinosaurs by Stephen Brusatte
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Daniel Raimi: Hello and welcome to Resources Radio, a weekly podcast from Resources for the Future. I'm your host, Daniel Raimi. This week we talk with Sarah Propst, the Cabinet Secretary of the Energy, Minerals, and Natural Resources Department for the state of New Mexico. New Mexico recently enacted legislation to transition to 100 percent zero carbon electricity by the year 2050, and provide transition assistance to workers and communities affected by the changing energy landscape. I'll ask Secretary Propst about how the bill was developed, how much it's going to cost, and what other steps New Mexico is taking to reduce greenhouse gas emissions. Stay with us.
Sarah Propst, thank you so much for joining us today on Resources Radio. It's really great to have you.
Sarah Propst: Thanks, it's my pleasure.
Daniel Raimi: Sarah, we're going to talk in detail about New Mexico's energy transition act today, but we always like to learn about how our guests got interested in the world of energy and the environment. Can you tell us about how you found yourself working in this space?
Sarah Propst: You bet. I grew up in the Shenandoah Valley of Virginia. The first environmental group I got to know was a group called The Friends of the North Fork of the Shenandoah River. Very, very local, very grass roots, and they inspired my interest in environmental policy, and then in college I had an experience with Davidson in Washington with my college to go have an internship in DC, and I worked for an environmental nonprofit that focused on climate change. Then, one opportunity led to another and I've been in the energy and environmental policy space ever since.
Daniel Raimi: Fantastic, so you went to Davidson?
Sarah Propst: I did.
Daniel Raimi: Oh, great. I'm from North Carolina so I-
Sarah Propst: Oh really? Cool.
Daniel Raimi: ... I'm all for it. And the song Shenandoah, of course, is ringing in my ears as we speak.
Sarah Propst: Yes, it's a beautiful song and a beautiful place.
Daniel Raimi: Yeah, fantastic. Let's move from the East Coast out to the South West to New Mexico, and talk about the Energy Transition Act, which was signed into law recently by Governor Michelle Lujan Grisham. I'm just going to give a little bit of background about the bill, and you can correct anything I get wrong. Then, I'll ask you some questions sort of about how it's developed, and about some particular policy elements that I find really interesting.
The bill, as some of our readers might know, it sets out requirements for 100 percent zero carbon dioxide electricity, and 80 percent renewables by 2050 in New Mexico. There are some safety valves in the bill that are in place in case there are very high costs, or problems for liability, or other technical problems that could adjust those goals as time goes on, but those are the main goals that are laid out in the legislation. There's also a lot of focus in the bill on funding for transition assistance for workers and communities that are dependent on fossil fuel production and consumption. The bill is focused on the electricity sector, rather than other parts of the economy. It doesn't directly address, for example, oil and gas production in New Mexico, which has surged in recent years, particularly in the Permian Basin. I know there are other legislative efforts related to methane, and other issues that New Mexico is focused on.
That's my super brief summary of the Energy Transition Act. One of the things that strikes me about this policy is that we've seen ambitious climate policy enacted in a number of states, including places like New York and California, where the political environment is pretty different from New Mexico's, which is more, I would say politically balanced, maybe is one way to say it. Can you first correct any mistakes I may have made in characterizing the legislation, and then tell us a little bit about the stakeholder engagement process, and the dialogue that you and the governor went through to help develop this piece of legislation?
Sarah Propst: You're right, this is a really big, complex, and ambitious bill. The bill was first introduced last year in the 2018 legislative session, before the governor was elected, and the political climate changed here. I think the lead sponsor, Senator Jacob Candelaria and his co-sponsors learned a lot through that painful process when the bill did not pass, of what the sensitivities were around it, and what kinds of problems needed to be solved for this time around.
A couple of things happened. Over last summer, stakeholders were meeting. I actually, my previous job was part of that conversation about how can we change the bill to gain more support, and for it to be a better deal for New Mexico. Then, Governor Lujan Grisham, one of her primary campaign platforms was a stronger RPS. That was very important to her, and to see that in the bill, and for it to be statewide, not just applying to Public Service Company of New Mexico, which was in the draft last year.
The bill actually became stronger over the summer, and as the governor and administration got involved this year. We, as far as the negotiation process, the governor was very firm about those RPS targets, and was not willing to dilute them. She wanted to negotiate up, and that's exactly what we did by adding the zero carbon standards on top of the RPS.
Because, that ultimately ... climate change is the problem that we're solving for, and having a zero carbon standard is important. Because the bill had run last year we were aware of a number of issues. One was a concern about utilities owning a lot of the replacement power. There were also concerns about community assistance, and worker transition. There were tribal concerns, there were consumer concerns. Each individual utility and the co-ops all have a different electricity mix, and a different set of constraints and opportunities for moving forward to comply with these kinds of standards.
We took them one at a time, and it was really intense, particularly during this legislative session, but, [we] just solved for those problems. We solved for the workforce issues, we solved for labor issues, we solved for ownership issues, we solved for RPS and zero carbon. The sponsors were personally involved in the negotiations, the governor was personally involved in the negotiations, I was personally involved, basically lived at the Capitol this session, trying to get this bill done.
A lot of other Cabinet Secretaries helped, so it was all hands on deck, and it was very pragmatic in trying to solve for these problems.
Daniel Raimi: Yeah. Well, it's fascinating to hear at least a little bit about the process. Can you maybe go into detail about, maybe pick one of the big challenges, or big processes that you went through with stakeholder groups, and kind of give us a little bit more detail about how it was developed? Maybe issues related to workforce, or procurement, or anything that you want to give us some more detail on?
Sarah Propst: As far as workforce and community transition, this was really hard. There are some other models out there nationally, but not a great one. We really had to think about what is the situation right now in New Mexico, what is the timeframe for the shutdown, which in our case is 2022, so just a few short years. And, who do we need to help? What transpired was a set of three different funds that would be funded through the transition bond proceeds, if the securitization packages approved by the PRC.
One is a fund administered by the Department of Workforce Solutions, so they would help with worker retraining for programs for affected workers in the community.
One is at the Economic Development Department, so for bigger economic development transition programs that might affect the city of Farmington, for example, in the four corners region. Then finally, a fund at the Indian Affairs Department that will focus exclusively on tribal issues. One of the things that we heard from legislatures, and tribal legislatures in particular, was that there are issues in Indian country that are unique, and it's different than just your traditional workforce training types of programs. Governor was very understanding of that, and so we added that fund as well.
We also had extensive conversations, government to government, with the Navajo Nation, because a lot of the workers at both the San Juan Generating Station and the mine are Navajo. We talked with President Nez, and his administration about what they needed to see to help those workers transition. They ultimately supported the bill because of some of the changes that we made to reflect their concerns.
Daniel Raimi: Yeah, that's great. For listeners who don't have a good mental map of New Mexico in their heads, and where these important coal generating stations and mines are, they are ... I believe there's three coal plants in New Mexico, they're all in the sort of North Western portion of the state, and two particularly large ones in the four corners region, right up there in the North West. Is that about right?
Sarah Propst: The San Juan Generating Station is in New Mexico. That is the facility. Two units have already been shutdown, and the remaining two units are what we're discussing with this bill. PNM, the primary owner, it's our largest utility in New Mexico, has already said, "We don't see this plant as being economic after 2022, and we want to get out of it." That's what precipitated this whole conversation in this legislation.
Sarah Propst: The Four Corners Generating Station is actually on the Arizona side.
Daniel Raimi: Okay.
Sarah Propst: But, it could be ... PNM owns a portion of that too, so it could be affected by this bill. Escalante is a tri-state facility that co-ops received power from, and it's not in play in this legislation right now.
Daniel Raimi: Okay, interesting. Thank you for that. Let's go back to another term that you mentioned a couple moments ago, which was the energy transition bond. There are two sort of interrelated and really important elements of the Energy Transition Act; one of them is called the energy transition bond, which is a bond that utilities will issue to help finance the costs of the transition. Second is an energy transition charge, which is the charge that consumers will see on their utility bills to support the cost of the effort. Can you give us a little bit more detail about each of those elements of the legislation, and also maybe give us an estimate if you have them, about the size of the bond offerings that will be necessary to sort of complete the transition, and how much consumers might face on a monthly basis when it comes to increased charges that they will see on their utility bills?
Sarah Propst: The energy transition costs are defined in the bill to include abandonment costs, not to exceed the lower of the 375 million dollars, or 150 percent of the undepreciated investment in the qualifying generating facility. Which is a lot of jargon, but basically the bill does cap the amount of these bonds. It's not infinite-
Daniel Raimi: Right.
Sarah Propst: ... Of what it can be. Then, there's some more detail under that. That's the cost. Consumers in New Mexico are already paying for San Juan and to pay down that capital cost of the plant, so the current charge that they're paying would be removed from the bills, and it would be replaced with this new charge to pay for the bonds. What is attractive about securitization and why the legislation was needed, because before this bill utilities did not have the ability to go use securitization and apply for it at the PRC at our regulatory commission. They can go for triple A rated bonds, and that's a much lower cost of capital than what the utility would otherwise have access to, and that saves customers money.
Daniel Raimi: Right. That makes sense. Can you tell us how that sort of idea came about? Is it a model that you had seen deployed in other jurisdictions, or in other sort of energy transition contexts, or did it come about in some other manner?
Sarah Propst: Securitization is a concept and a mechanism that's familiar to the utility industry. It's been used around the country for various purposes, from retiring nuclear, to other types of plants. It is something we're familiar with, but it does require legislative authorization in New Mexico.
Daniel Raimi: Great. Moving on to talk a little bit more about sort of the local effects of the plant closures that are likely to be coming about in the coming years; can you talk a little bit more about how specifically these transitioned funds will be used to help workers and businesses make the transition away from relying on this one particular coal plant, the San Juan Generating Station, and the mechanisms that you think might be put in place to actually really deploy these funds, and help workers and communities transition?
Sarah Propst: Yeah, so in the case of PNM's coal-fired San Juan plant, securitization is expected to provide over 40 million dollars to assist plant employees, mine workers, and others with severance pay and job training. There was a lot of discussion about how that money would flow, and where it would go, and who would control it, as is often the case with funding.
Daniel Raimi: Right.
Sarah Propst: The bill... I mentioned the three funds at workforce solutions, economic development, and Indian Affairs. But, they are required under the act to have a public input process, and to create an advisory committee that will provide them with ideas generated from the local community about what they want to see, and what they think the highest needs are in the community.
In the case of the Indian Affairs fund, they are required to include representatives of local Navajo nation chapter houses as part of their coalition.
Affected workers are supposed to be part of the coalition. It is meant to be bipartisan. We have a State Tribal Collaboration Act in New Mexico that requires government to government consultation on matters that affect our joint jurisdictions, or our separate jurisdictions, and so that act is to be followed with this process. A lot of care and thought about exactly how consultation with the community, and with the tribes, and nations would work. And, making sure that we have as much buy-in as possible, and that the programs are appropriate for the local community.
Daniel Raimi: Yeah, that makes a lot of sense. It sounds like the departments will be working to gather stakeholder input, and then sort of develop their approaches based on that input. Is that right?
Sarah Propst: Yes. In fact, my colleague, the Secretary of Workforce Solutions has already been up to Farmington, and already has been talking to people about this taskforce. Efforts are underway.
Daniel Raimi: Right. And Farmington, just for those who don't know. Again, this is ... I think it's the largest city up in the North Western part of the state. Is that right?
Sarah Propst: Yeah, and it's the zip code for the coal plant.
Daniel Raimi: Okay, great. Also interestingly, a big natural gas producing region, which brought me out there a few years ago, and a beautiful place in general. One more question about this particular policy approach, the Energy Transition Act. Some states have used carbon pricing as a tool to reduce emissions from the power sector, and other sectors as well. RFF, we've done a lot of work on carbon pricing, as well as other policies like clean energy standards. Can you talk a little bit about how legislatures and the governor picked this particular approach, this standards-based approach to reduce emissions, relative to some of the other options that might have been out there, like carbon pricing?
Sarah Propst: I want to be clear that I wouldn't rule out that New Mexico will never consider carbon pricing. In fact, I think we should in the future. But, for now this bill came about organically as a result of conditions on the ground. We have a coal plant that has become uneconomic, and how do you deal with that, and how do you think about the replacement power, and where the state's going to go. And, being a vertically integrated state, where the utilities are fully regulated by our Public Regulation Commission, it's very important to tell them what the expectations are, and how to plan. That's why a renewable portfolio standard, and a zero carbon standard are important, so that they can plan their future and know what resources we expect them to bring online, and that the commission expects to bless ultimately. That was important.
The market based solutions are also important, and they can be very important for achieving other economy-wide greenhouse gas emission reductions. The governor, as you may know, issued a climate change executive order in January, that enumerates a number of specific action items on methane reductions, and clean cars, and building codes, and other strategies to reduce greenhouse gas emissions in New Mexico. The Energy Transition Act, and the RPS, and the zero carbon standard are really important to achieving those emission reductions, but we know we need to do some other things in other sectors of the economy.
Daniel Raimi: Right. That leads right into the next question that I wanted to ask you which is moving beyond the electricity sector. Of course, moving to a zero emissions electricity grid by 2050 is an ambitious goal in and of itself, but it doesn't include other sectors as I mentioned earlier, and as you just alluded to. So, things like residential and commercial buildings, industrial sector, transportation, and on and on. Can you talk a little bit more about some of those additional plans that are in the pipeline to reduce emissions from those sectors?
Sarah Propst: Governor Lujan Grisham announced that New Mexico would join the US Climate Alliance to achieve the Paris greenhouse gas emission reductions. We've established an inter-agency taskforce to identify all the things that we need to do to achieve those goals. The executive order does spell out some of the things that she expects us to get started on right away. One of them, for example, is a methane reduction rule. As you mentioned, New Mexico is a large oil and gas producing state. We have the Permian Basin, which is in the South Eastern corner of New Mexico. The Permian Basin straddles New Mexico and Texas. That is a huge oil producing region. It is booming right now. Because it's an oil producing region, we're seeing a lot of methane emissions, a lot of natural gas emissions as a byproduct of that. They're not going for the gas, they're going for the oil.
And so, that satellite data indicates that we have a big problem there, and we need to address it. The San Juan Basin is a gas producing region. Things are pretty slow right now because of the low price of gas, but that is another place where we'll probably be more focused on leaks, and leak detection.
We are working in conjunction with the Environment Department, on what that platform will look like to reduce emissions.
Daniel Raimi: Great. How about for some of the other sectors? You mentioned transportation; can you talk a little bit about what the governor might have in mind for that sector as well as any other important parts of the economy?
Sarah Propst: One of the bills that the governor promoted during the legislative session that passed, and she signed, requires our utilities to start planning for electric vehicle infrastructure, and to propose plans every two years to the utility commission for what they think the barriers are to more EV deployment, what they need to do in terms of deploying charging stations, what the opportunities are, should we be offering incentives, all of those kinds of things. I think that bill sets New Mexico on a course towards planning for an electric vehicle future.
We also just for state government, are installing charging stations at some of the state government facilities in Santa Fe, around the capitol. And, installing solar to power them at those buildings. Expect more from us I think on transportation and electric vehicles, but that bill did get us started.
Daniel Raimi: Yeah, fascinating. One last question that I want to ask you about New Mexico, that's different from many other states. And we've already mentioned it a couple times, which is the relationship between the state government and the tribal government that is located within New Mexico. Can you talk a little bit about how the state has worked with different tribal entities to accomplish some of these environmental goals? Just because the situation in New Mexico is different from a lot of other states in that we have these multiple sovereigns within the same geographical space looking to accomplish the same goals, but coming from different perspectives.
Sarah Propst: Sure. New Mexico is one of the few states, I don't know how many there are, that have a cabinet level Indian Affairs Department. That sends a very strong signal of how seriously we take our government to government relationships in New Mexico. Every single agency has a tribal liaison for the issues that we cover. Sometimes the work on the ground that you're asking about is a sharing of technical expertise, that happens a lot with the Environment Department. For our department at Energy, Minerals, and Natural Resources, we often have discussions about attracting renewable energy developers, and how to do that. We share information about developers, and transmission, and things that cross borders. A lot of information flow happens.
New Mexico also has a process to provide what we call capital outlay, and that's funding for infrastructure projects like roads, and schools, and facilities, and community centers. The tribal governments are eligible to receive capital outlay money as well. I believe the Navajo Nation receives support for some solar initiatives that they have this year. There are policy, and expertise, and funding relationships that happen.
Daniel Raimi: Great, that's really helpful. Thank you. All right, so Sarah Propst, I wish I could keep you on the line and ask you many, many more questions about the details of this bill and other fascinating issues. But, we're running short on time. I want to transition us to our last part of the show, in which we ask all of our guests to tell us what's at the top of their literal, or metaphorical reading stack. So, something that you've read, or watched, or heard, or seen, or done recently that is related to energy and the environment that you think is really interesting, and that you'd recommend to our listeners.
I'll get us started with a quick mention of a trip that I took to a large wind farm in Michigan. I actually live in Michigan. I went to the thumb of Michigan, which is a very windy part of the state, and toured a couple of wind farms there. What really surprised me was that on a windy day, which it was when I visited, you literally cannot hear the wind turbines unless you get right up next to them. That surprised me, I sort of had, from meteor reports and other sources, I had a vision in my head that once you get anywhere near these large turbines you would sort of hear a low frequency noise with the whishing of the winds. But, that actually wasn't the case.
That's partly because the wind in itself is loud, and so when the wind is whistling you can't necessarily hear the turbines spinning at the same rate. That's my little factoid of the day. But Sarah, it would be great to know what's on the top of your reading stack?
Sarah Propst: I'm going to go in a different direction from energy on this one.
Daniel Raimi: Great.
Sarah Propst: Our department covers state parks, as you may know. One of our state parks is Clayton Lake. Clayton Lake is home to some really incredible dinosaur tracks that are being studied right now. I've gotten kind of interested in the Southwest, and dinosaurs, and that park, and the tracks, and what's going on. I'm currently reading a book called The Rise and Fall of the Dinosaurs, by a paleontologist. It really is meant for you and me to read. You don't have to be a scientist to understand this book. It's just, it's really wonderful, and it paints the picture of what the Southwest, and what the world was like during the Jurassic Period, and when the dinosaurs were stomping around out here.
Daniel Raimi: Yeah.
Sarah Propst: I recommend that book, yeah.
Daniel Raimi: Fantastic. What's it called again and who is the author?
Sarah Propst: It's called, The Rise and the Fall of the Dinosaurs, it's by Stephen Brusatte.
Daniel Raimi: Okay, wonderful.
Sarah Propst: ... If I'm pronouncing his name right, I hope I am.
Daniel Raimi: Well, we'll put a link to it up on the show page so people can find it.
Sarah Propst: Cool.
Daniel Raimi: All right. Well Sarah Propst, thank you so much for joining us today on Resources Radio, and telling us all about the Energy Transition Act, and so much more.
Sarah Propst: Thank you so much.
Daniel Raimi: Thank you so much for joining us on Resources Radio. We'd love to hear what you think, so please rate us on iTunes and leave us a review. It helps us spread the word. Also, feel free to send us your suggestions for future episodes. Resources Radio is a podcast from Resources For The Future. RFF is an independent, nonprofit research institution in Washington DC. Our mission is to improve environmental energy, and natural resource decisions, do impartial economic research, and policy engagement. Learn more about us at RFF.Org.
The views expressed on this podcast are solely those of the participants. They do not necessarily represent the views of Resources For The Future, which does not take institutional positions on public policies. Resources Radio is produced by Kate Peterson, with music by Daniel Raimi. Join us next week for another episode.