Traditionally, the primary goal of electric utility regulation has been to control the pricing behavior of monopoly providers in order to achieve reliable electric supply at a low cost to consumers. Now, electric regulators are frequently tasked with other objectives, particularly environmental. (See “Rent-Seekers Infiltrate Public Utility Regulation,” Summer 2018.) A recent example is the New Mexico Energy Transition Act (ETA), which became law in March 2019. It promises to clean the air of local pollutants, mitigate climate change, create new jobs, motivate firms to move to New Mexico, lower electricity rates, make New Mexico a leader in clean energy, and redress almost any other imaginable ill that afflicts the state.

The ETA achieves these miracles by committing New Mexico to stringent renewable-energy and clean-energy standards pushed aggressively by special interests. Such objectives are far beyond the traditional expertise of public utility regulation.

Deep decarbonization to achieve the temperature-change limits (holding warming to 1.5° C above pre-industrial limits) advocated by climate activists requires collective action among the industrialized countries of the world. One country, even as large as the United States, let alone a single state like New Mexico, cannot achieve that goal by itself. Thus, the ETA won’t have any detectable effect on climate change. It forces New Mexicans to spend their money on electricity generation projects whose climate change benefits are next to zero. The ETA is not a serious policy to reduce global temperature. Instead, it furthers the symbolic goals of environmentalists and sends the bill to electricity consumers, probably with regressive results.

Subsidies: A particularly troubling aspect of the ETA is its subsidies for renewable energy. The ETA, for example, requires generation technologies to be 50% renewable by 2030, 80% by 2040, and 100% carbon-free by midcentury. To achieve the last goal may require the use of expensive technologies like carbon capture and advanced nuclear power plants that would likely require subsidies to shelter consumers from their actual costs.

Briefly Noted

The ETA also downplays the potential of natural gas, which is a reliable, affordable, and abundant energy source that produces lower carbon emissions per unit of output than traditional generator fuels. There is an abundance of domestic natural gas at affordable prices. Why should we wean ourselves, over the next two decades, from this energy source that has produced tremendous benefits to individuals and businesses in New Mexico and elsewhere?

Bootleggers and Baptists: It is understandable why environmentalists support the ETA, but so does New Mexico’s largest electric utility. The law guarantees that utilities recover their costs if they comply with the act while environmentalists achieve a transition away from fossil fuels to wind and solar.

The losers from this bootleggers- and-Baptists coalition are consumers. The ETA erodes the traditional authority of the state utility commission to disallow utilities from passing through excessive (i.e., imprudent) costs to their customers. This shift toward cost-plus regulation diminishes a utility’s incentive to minimize its operating and capital costs. The ETA has in effect created a “moral hazard” situation: a utility has no financial risk for complying with costs imposed by the ETA.

In many states, the core objective of electric utility regulation — to protect consumers from the monopoly power of utilities — has been compromised because of legislation like the ETA. These issues, if anything, should be left to other governmental entities and market forces to address. (See “Public Utilities as Social Agencies,” Spring 2020.)

Utility regulation should return to its original concern of incentivizing utilities to serve consumers at least cost. Climate change policy should be left to national and international policymakers. The ETA asks utility customers to pay for the agenda of special interests without receiving any benefits. This is government at its worst: the politically connected exploit the general public.