Guidelines for Developers and Investors Interested in the ......Guidelines for Developers/Investors Interested in the AWS Scientific, Inc., KEMA Consulting, enXco Wind Energy Sector

Guidelines for Developers and Investors Interested in the Wind Energy Sector in

New Mexico

Submitted To: Michael McDiarmid, P.E.

New Mexico Energy, Minerals and Natural Resources Department 1220 South Saint Francis Drive

Santa Fe, NM 87505

Submitted By: Robert Putnam, P.E.

AWS Scientific, Inc. 251 Fuller Road

Albany, NY 12203

September 4, 2002

Guidelines for Developers/Investors Interested in the AWS Scientific, Inc., KEMA Consulting, enXco Wind Energy Sector in New Mexico

TABLE OF CONTENTS

1 NEW MEXICO – THE TECHNOLOGY STATE ..............................1

1.1 THE ECONOMY ............................................................................................................................................... 2 1.2 ENERGY AND UTILITIES .................................................................................................................................. 2 1.3 TRANSPORTATION .......................................................................................................................................... 3 1.4 STATE AND NATIONAL PARKS ........................................................................................................................ 3 1.5 FUTURE GROWTH ........................................................................................................................................... 4

2 INCENTIVES AND POLICY DEVELOPMENTS .............................5

2.1 FINANCIAL INCENTIVES .................................................................................................................................. 5

2.1.1 Industrial Development Training Program ........................................................................................... 5 2.1.2 Industrial Revenue Bonds (IRBs) ........................................................................................................... 5 2.1.3 Private Activity Bonds ........................................................................................................................... 5 2.1.4 New Mexico Severance Tax Loan Program ........................................................................................... 5 2.1.5 New Mexico Business Participation Loans ............................................................................................ 6

2.2 TAX CREDIT INCENTIVES................................................................................................................................ 6

2.2.1 Investment Tax Credit ............................................................................................................................ 6 2.2.2 Rural Jobs Tax Credit ............................................................................................................................ 6

2.3 RECENT POLICY DEVELOPMENTS – 2002 LEGISLATIVE SESSION .................................................................... 7

2.3.1 Renewable Energy Production Tax Credit – Senate Bill 187 ................................................................ 7 2.3.2 House Bills 143, 373, & 377 (combined) ............................................................................................... 7

3 TAXATION .............................................................................................9

4 THE NEW MEXICO TRANSMISSION SYSTEM ..........................10

4.1 OVERVIEW OF THE NEW MEXICO TRANSMISSION SYSTEM ........................................................................... 10

4.1.1 Western New Mexico and Transmission in the West ........................................................................... 14 4.1.2 Eastern New Mexico and Transmission in the Midwest ...................................................................... 15

5 REGIONAL TRANSMISSION ORGANIZATIONS .......................16

5.1 WESTERN RTO POSSIBILITIES ...................................................................................................................... 16 5.2 MIDWESTERN RTO POSSIBILITIES ................................................................................................................ 17

Guidelines for Developers/Investors Interested in the AWS Scientific, Inc., KEMA Consulting, enXco Wind Energy Sector in New Mexico

6 POTENTIAL FOR SITING WIND GENERATION IN NEW MEXICO ................................................................................................19

6.1 POTENTIAL FOR WIND POWER IN EASTERN NEW MEXICO ........................................................................... 19

6.1.1 Northeast to Albuquerque .................................................................................................................... 19 6.1.2 Blackwater to Albuquerque ................................................................................................................. 21 6.1.3 Artesia to El Paso ................................................................................................................................ 22

6.2 POTENTIAL FOR WIND POWER IN WESTERN NEW MEXICO .......................................................................... 23

7 PERMITTING, LICENSING AND ZONING PROCESS ...............24

8 KEY CONTACTS .................................................................................25

TABLE OF FIGURES

1. New Mexico Unemployment Rates by County…………………………… 1 2. New Mexico State and Federal Highways, Major Railways..….………… 3 3. The Four Synchronous Areas of North America…………………………. 11 4. The New Mexico Transmission System…………………………………… 11 5. The Four Transmission Areas Within New Mexico……………………… 12 6. Bulk Power Transmission Serving Western New Mexico……………….. 14 7. Likely Western RTO Areas………………………………………………... 16 8. Likely Eastern RTOs……………………………………………………….. 17 9. New Mexico Electric Transmission and Wind Speed Map………………. 20 10. Northeast Site Area………………………………………………………… 20 11. Blackwater Site Area………………………………………………………. 21 12. Artesia Site Area…………………………………………………………… 22

Guidelines for Developers/Investors Interested AWS Scientific, Inc., KEMA Consulting, enXco in the Wind Energy Sector in New Mexico 1

1 NEW MEXICO – THE TECHNOLOGY STATE1 New Mexico has one of the fastest growing labor forces in the country, with a 20 percent increase in population between 1990 and 2000. Like most of the Western US, it is a young state, with a median age of 34.6 years almost evenly divided between males and females. It is also tenth in the percentage of population with advanced degrees (Milken Institute, October 2000). Most of New Mexico’s growth is occurring in or near its larger cities. The largest city in the state is Albuquerque, with a population of 448,607. Albuquerque is also ranked seventh in the nation as a technology center, while the State is ranked first in the nation for research and development intensity. New Mexico also offers a rich culture and history, recreational opportunities, and enjoyable climate (the second sunniest state in the nation). Despite much higher rates of growth in employment in recent years compared to the national average, New Mexico still has the 5th highest unemployment rate in the country (5.6% in July 2001) and the 48th lowest per capita income. New Mexico residents are therefore clamoring for new employment opportunities. Many rural areas in New Mexico’s 33 counties are experiencing even higher rates of unemployment as shown in Figure 1, presenting an excellent opportunity for new and expanding businesses to take advantage of available financial incentives and human resources.

Figure 1: New Mexico Unemployment Rates by County

1 Source: New Mexico Factbook, New Mexico Economic Development Department


1.1 The Economy New Mexico ranks 4th in natural gas and 7th in crude oil production in the nation, accounting for 16% of goods producing employment in the state (June 2001). The growing services economy in New Mexico accounts for 86% of total nonagricultural employment. New Mexico is also home to the National Center for Genome Research, Los Alamos and Sandia National Laboratory, the Air Force Research laboratory, several precision optics firms, and one of the nation’s five optics research centers. Agriculture is still a foundation of New Mexico’s economy. Approximately 27% of New Mexico’s farms occupy 1,000 acres or more. The average farm size in New Mexico is 3,249 acres. The large majority of farms are cattle ranches. The leading agricultural Counties in New Mexico by number of farms are Dona Ana, Rio Arriba and Roosevelt. 1.2 Energy and Utilities New Mexico has a large (but mostly untapped) potential in renewable energy resources, including geothermal, solar, wind, biomass, and hydropower. New Mexico is ranked 12th in the nation in wind energy potential, capable of producing 49,700 Average MWs or 435 billion kWh annually.2 Currently, there is one 660 kW wind turbine installed in all of New Mexico. A second 660 kW turbine is expected to be in operation in early 2003, bringing total installed capacity to 1.32 MW. There are over 40 small wind energy conversion systems currently operating in the state, and an estimated 5,000 functioning water-pumping systems. Eighty-nine percent of the electricity generated within New Mexico comes from coal-burning power plants. New Mexico is a net exporter of electric power. The chief markets for New Mexico electricity are California, Arizona, and Texas. There are presently four investor-owned electric power providers and one generation and transmission cooperative in New Mexico, serving approximately 73% of the state’s electric power customers (Public Service Company of New Mexico – 43%, Southwestern Public Service Company – 14%, El Paso Electric Company – 10%, Texas-New Mexico Power Company – 6%, and Plains Electric Generation & Transmission Cooperative, Inc. – 27%). In addition, there are seven municipal power companies serving customers in Farmington, Gallup, Raton, Truth or Consequences, Aztec, Springer and Los Alamos, and seventeen rural electric cooperatives serving the remaining communities. This primarily low-density service area includes 85% of the total land area of the state (at 121,365 square miles, New Mexico is the 5th largest state in the union).

2 An Assessment of the Available Windy Land Area and Wind Energy Potential in the Contiguous United States, Pacific Northwest Laboratory, 1991.


1.3 Transportation New Mexico’s location in the heart of the Southwest offers convenient accessibility to all national market centers through an extensive and reliable transportation system. Three interstate highways transect the state, and a statewide network of railroads connects New Mexico with regional and national markets as shown in Figure 2. There are also 63,905 miles of highway in the state and 61 airports located near key cities and towns (including scheduled air service to 13 airports). Figure 2: New Mexico State and Federal Highways, Major Railways

1.4 State and National Parks The state operates more than 40 parks, and there are three national parks (Carlsbad Caverns, Lechguilla Cave, and the Gila Wilderness) and ten national monuments in the state (the most famous of these is White Sands National Monument).


1.5 Future Growth The next few years are expected to be a time of tremendous change in New Mexico. The US Census Bureau predicts that the population of New Mexico will grow by nearly 10% over the next five years. The State of New Mexico Economic Development Department’s Mission is to facilitate the creation, retention and expansion of jobs and to increase investment through public/private partnerships to establish a stable diversified economy to improve the quality of life for New Mexico citizens and realize their vision of a flourishing dynamic state that offers opportunities for everyone.


2 INCENTIVES AND POLICY DEVELOPMENTS 2.1 Financial Incentives 2.1.1 Industrial Development Training Program Qualifying employers (e.g., new businesses that manufacture or produce a product in New Mexico) may have up to 65% (depending on the area of the state where the company is located) of their training costs reimbursed. Costs that are reimbursable include a trainee’s starting hourly wage up to 1,040 hours, public educational institutions, trainer’s travel and per diem, and instructional materials. Trainees must be residents of New Mexico and guaranteeed full-time employment after training. Trainees must have resided in New Mexico for at least one year. Under some circumstances, assistance may be provided to non-retail businesses in the service sector depending on the extent to which the service will be exported to other states or will reduce the need for importing a service to New Mexico. 2.1.2 Industrial Revenue Bonds (IRBs) There are two types of IRBs in New Mexico – tax exempt IRBs and taxable IRBs. Both can exempt up to 100% of property taxes. IRBs in New Mexico are not used as a financing tool, but rather as a tool to accomplish tax exemption. The exemption is achieved because legally the plant is city or county owned. The company makes lease payments to a bond trustee, who acts as a third party and uses the money to pay off the bonds. The exemption is in effect for the duration of the lease payments. Taxable IRBs are not subject to IRS regulations or state caps. The primary advantages of IRBs include the exemption of ad valorem property taxes for the term of the bond, the exemption of gross receipts (5%) and compensating tax (5%), and tax-free bonds have lower interest rates than taxable bonds. 2.1.3 Private Activity Bonds The New Mexico Board of Finance may authorize private activity bonds to enable a corporation to exempt interest from gross income for federal tax purposes. The project must be a manufacturing facility, bonds may not be issued in excess of $10 million, and the bond request must be sponsored by a local government. The corporation may also be eligible for the state property and compensating tax abatements. Costs which may be financed with tax exempt bond proceeds include: land and hard construction costs; equipment; related soft costs such as architectural, engineering, title, etc.; capitalized interest during construction, and; percentage of the bond issue toward the costs of issuing the bonds. Term may be up to 30 years. 2.1.4 New Mexico Severance Tax Loan Program Also referred to as the Baa Program, the State of New Mexico Investment Council is authorized to invest up to $20 million in a debt instrument rated Baa, Bbb or the equivalent, or secured by a letter of credit from an institution rated A or better. Proceeds may be used to purchase land, building and equipment. The yield on the investment is set at the treasury yield for a comparable


maturity plus 50 to 100 basis points, depending on the financial condition of the borrower and the nature of the investment. 2.1.5 New Mexico Business Participation Loans The State of New Mexico Investment Council is authorized to invest in participation of up to 80% in a loan by a financial institution to a start-up, expanding or relocating corporation. Eligible uses of the funds include the purchase of land and attached buildings, and refinancing existing debt if the loan is for expansion purposes. Loan amounts may range from $500,000 to $2 million. Loans mature in not less than five years or more than 15. 2.2 Tax Credit Incentives 2.2.1 Investment Tax Credit A credit applied to the purchase of qualified equipment used in a manufacturing operation in New Mexico. The investment credit is an amount equal to the compensating tax rate (5%) applied to the value of qualified equipment provided certain employment conditions are met. The employment conditions are:

1. For the first $2 million of equipment, one employee must be added for each $250,000 of equipment for which the credit is claimed;

2. For amounts over $2 million and up to $30 million, one employee must be added for each $500,000 of equipment; and

3. For amounts exceeding $30 million, one employee must be added for each $1,000,000 of equipment.

A taxpayer must apply for the credit. Once approval is granted by the Taxation and Revenue Department, the amount of any available credit may be applied against the taxpayer’s compensating tax, gross receipts tax (does not include county or municipal taxes), or withholding tax due. The amount of the investment credit claimed on any Combined Reporting System (CRS) return is limited to 85% of CRS taxes due. 2.2.2 Rural Jobs Tax Credit Employers in “rural” areas are entitled to a modified combined (excluding local option gross receipts taxes), personal or corporate income tax credit when expanding their work force. An “eligible employer” is one qualifying for in-plant assistance (training) and occupied by an eligible employee for at least 48 weeks in a 12-month qualifying period. The “rural area” of New Mexico is anywhere other than Los Alamos County, any municipality of 30,00 or more within the Albuquerque, Las Cruces, Rio Rancho, or Santa Fe Metropolitan Statistical Areas, and the area within 10 miles of one of these municipalities. “Tier One” rural areas consist of rural municipalities with 15,000 or less population and all rural area not within a municipality. “Tier Two” rural areas are municipalities over 15,000 in population in the rural area. The credit amounts to 6.25% of the first $16,000 in wages paid for a qualifying job. If the job is located in Tier One, the employer may receive a credit for four consecutive years; if it is in Tier Two, the employer may take the credit for two consecutive years. A credit once earned is transferable.


Other tax credit incentives include:

• Technology jobs tax credit; • Research and development gross receipts tax exemption; and • Corporate child care tax credit.

More information on financial and tax incentives is available at https://gonm.biz and from the New Mexico Taxation and Revenue Department, http://www.tax.newmexico.gov , 505/827-0700. 2.3 Recent Policy Developments – 2002 Legislative Session3 2.3.1 Renewable Energy Production Tax Credit – Senate Bill 187 Effective July 1, 2002, a taxpayer that owns a qualified energy generator certified by the Energy, Minerals and Natural Resources Department is eligible for a tax credit of one cent per kilowatt-hour for the first 400,000 megawatt-hours in the taxable year. A taxpayer shall be eligible for the tax credit for ten consecutive years. "Qualified energy generator" means a facility with at least 20 megawatt generating capacity located in New Mexico that produces electricity using a qualified energy resource and that sells that electricity to an unrelated person. "Qualified energy resource" means a resource that generates electrical energy by means of a zero-emissions generation technology that has substantial long-term production potential and that uses only the following energy sources: (a) solar light; (b) solar heat; or (c) wind. The total amount of electricity produced annually by all qualified energy generators that may be certified for the credit will not exceed 800,000 megawatt-hours per year. Applications shall be considered in the order received. The renewable energy production tax credit may be deducted from the taxpayer's New Mexico corporate income tax liability for the taxable year. If the amount of the tax credit claimed exceeds the taxpayer's corporate income tax liability, the excess may be carried forward for up to five consecutive taxable years. 2.3.2 House Bills 143, 373, & 377 (combined) 2.3.2.1 Industrial Revenue Bond Act The Industrial Revenue Bond Act was amended to include in its definition of a project any electrical generation facility other than one for which both location approval and a certificate of convenience and necessity are required. 2.3.2.2 Apportionment Of Business Income

3 As it is still early in the process, no regulations have been written. Therefore, further guidance is difficult. We recommend you consult with an attorney knowledgeable in these matters.

https://gonm.biz/

http://www.tax.newmexico.gov/


Allows an alternative method of business income apportionment for income tax purposes to apply to any electrical generation facility other than one for which both location approval and a certificate of convenience and necessity are required. 2.3.2.3 Deduction from Gross Receipts Tax for Wind Energy Generation Equipment Sales To

Government Agencies A new section of the Gross Receipts and Compensating Tax Act was enacted to read: “Receipts from selling wind generation nacelles, rotors or related equipment to the United States or New Mexico or any governmental unit or subdivision, agency, department or instrumentality thereof, if such equipment is installed on a supporting structure, may be deducted from gross receipts.”


3 TAXATION4 The Tax and Revenue Department of New Mexico in Santa Fe can provide guidance on tax matters in the state. Recently passed legislation established a state production tax credit and granted counties the ability to provide tax exempt financing for wind power projects using industrial revenue bonds. The State will value property for the purpose of calculating the personal property taxes collected by a County. Statutorily, the assessed value will be equal to 33.3% of the “hard costs” of the project. The assessed value is reduced by 5% on an annual basis for the first 15 years of the project’s life as the project depreciates, and then remains constant at 25% of the original assessed value over the remaining life of the project. The County will then collect personal property tax annually in an amount equal to the product of the assessed value multiplied by the mill rate (per $1,000 of assessed value) in the County. Currently the mill rate in Quay County is 25.116. Income tax in New Mexico generally follows Internal Revenue Service rules. In addition to income and personal property taxes, owners of wind projects may be subject to: sales tax on equipment and the sale of electricity, compensating tax that is akin to a use tax, and gross receipts taxes on construction services and wheeling of electricity. Notwithstanding all of these tax categories, the State allows various exemptions based on the manner in which the transactions are structured and the entity that purchases and wheels the electricity. For example, if Public Service Company of New Mexico purchases the electricity from the project for resale and wheels the power, the project owner could be exempt from sales tax. During discussions on personal property tax, compensation tax and gross receipts tax, the Tax and Revenue Department of New Mexico seemed to agree that only procurement and installation (construction) costs would be considered in the project valuation (excluding legal fees, interest during construction, etc.), but they did not provide any definitive answers. Since the agency hasn’t made a definitive ruling on how these taxes should be calculated, the guidance given here is subject to change.

4A developer/investor should pay significant attention to all tax matters related to the project. The contents of this section are only presented as a guide to the developer’s/investor’s potential New Mexico tax liability. A developer should seek appropriate tax advice from his own accountant or tax attorney, taking into account the specifics of the project, the developer’s/investor’s own corporate tax situation, and current federal, state and local tax regulations.


4 THE NEW MEXICO TRANSMISSION SYSTEM The electric power transmission system in New Mexico reflects its geographic characteristics. New Mexico ranks 36th among the 50 states in population and 45th in population density. The electric load is relatively light compared to other states and, except for the Albuquerque-Los Alamos-Santa Fe, and El Paso, Texas areas, it is very dispersed. The ‘strongest’ parts of the transmission system deliver power to the load centers around Albuquerque and El Paso. The state’s strongest transmission interconnections are to the rest of the West through Arizona. Eastern New Mexico is interconnected to Texas and the systems in the Midwest and East. Since the electrical loads in eastern New Mexico are much smaller than those in the central and western parts of the state, these interconnections have much lower capability than those to the West. The North American electric transmission network is divided into four vast regions as shown in 3. These four areas operate independently and have only very limited interconnection capabilities.

• The largest of these areas is often referred to as the Eastern Interconnection. It extends from the Maritime Provinces of eastern Canada to the Dakotas and Saskatchewan in the north, to Florida, Louisiana and Oklahoma in the south. This Eastern Interconnection also includes portions of north Texas (Amarillo and Lubbock) and eastern New Mexico (Carlsbad, Roswell, Clovis, Santa Rosa).

• The second largest of these areas is the Western Interconnection. This system extends from British Columbia and Montana in the north to California, New Mexico and the El Paso area of Texas in the south.

New Mexico is at the far edges of these two electric transmission networks. 4.1 Overview of the New Mexico Transmission System The New Mexico electric power transmission system primarily consists of 345 kV, 115 kV and 69 kV transmission as shown in Figure . There are five clusters of facilities:

1. In the northwest corner there are two large power plants, San Juan and Four Corners, that are well connected to Arizona and, to a lesser extent, New Mexico.

2. In the north center of the state there is a cluster in the Albuquerque/Santa Fe area that also includes significant loads in Los Alamos and Las Vegas.

3. In the center of the state, west of Albuquerque, there is a cluster of facilities that roughly follow the path of cities along the route of Interstate 40.

4. In the southern part of the state there is a cluster roughly following the route of interstate 10 and extending to Alamogordo and El Paso.

5. In the southeast corner there is a cluster connecting Roswell, Carlsbad, and Hobbs.


Figure 3: The Four Synchronous Areas of North America

Figure 4: The New Mexico Transmission System


The major transmission-owning utilities in New Mexico5 have, for many years, made special joint studies of the transmission reliability of the state. There are certain transmission boundaries that have been established based on these technical studies. These boundaries split New Mexico into four regions as shown in Figure 5.

Figure 5: The Four Transmission Areas Within New Mexico

The first region is eastern New Mexico. This part of the system is not operated in synchronism with the rest of New Mexico. It is served by utilities based in Texas and Oklahoma. These utilities are part of the Southwest Power Pool (SPP). The rest of New Mexico is part of the Western Electricity Coordinating Council (WECC). Eastern New Mexico is interconnected to the rest of the state by two DC facilities—at the Blackwater and Eddy County stations. These

5 The major transmission owning utilities in New Mexico are Southwestern Public Service Company (much of Eastern New Mexico), Public Service Company of New Mexico (most of Northern New Mexico) and El Paso Electric (El Paso, Las Cruces, and much of Southern New Mexico).


facilities interconnect Southwestern Public Service Company (SPS) with Public Service Company of New Mexico (PNM) and El Paso Electric (EPE) respectively. The second region is the far northwest corner of the state. This region includes the major generating facilities at Four Corners and San Juan and the customer load located in the area. This region has much more transmission capability to deliver power to Arizona than it does to deliver to the rest of New Mexico. It is connected to Arizona and the West by one 500 kV, six 345 kV, and two 230 kV circuits. The third and fourth regions include the remaining large geographic area of New Mexico. The third region is northern New Mexico (NNM) and includes Albuquerque, Santa Fe and the rest of the northern half of the state. This region has interconnections to the Four Corners area (three 345 kV and two 230 kV circuits), the SPP at Blackwater (345 kV), and with southern New Mexico (one 345 kV circuit). The fourth region is southern New Mexico (SNM) which includes El Paso, Las Cruces, and the rest of New Mexico. This region has interconnections to NNM (one 345 kV circuit), Arizona 9two 345 kV circuits), and the SPP at Eddy County (345 kV). The import capability of NNM and SNM from the Four Corners area and Arizona is limited and interrelated—this is why the utilities have been involved in joint studies. The utilities have identified two alternating current (AC) transmission systems know as the NNM and SNM Transmission Systems. The joint studies establish the first contingency total transfer capability (FCTTC) for the SNMTS and the NNMTS. These capabilities are critical limitations used in planning and operating the NNM and SNM power systems. Recent studies indicate that the NNM import limit is about 1,800 MW and the SNM import limit is about 925 MW. The limiting factors for both northern and southern imports are related to low voltage conditions when critical 345 kV transmission circuits are out of service. This is typical for transmission systems in the West where distances are long between generation and load centers. In general, as more power flows over longer distances voltage gets lower at the receiving end of the transmission system. Similarly, as the customer load increases in an area the voltage gets lower unless enough local reactive (var) support is provided. Finally, voltages will get lower when interconnecting transmission lines are out of service. In New Mexico, northern imports are limited by low voltages in the Albuquerque area with the outage of either of the two 345 kV circuits between San Juan and the Albuquerque area. Southern imports are limited by low voltages at Hidalgo and Luna with the outage of the Springerville-Luna 345 kV circuit. There are also the two DC interconnections, one to NNM (220 MW) and one to SNM (200 MW). The DC ties are limited by the capability of their components, but FCTTC of these facilities are not addressed in the joint studies. The following two sections of this report will discuss and describe the western and eastern parts of the system respectively.


4.1.1 Western New Mexico and Transmission in the West The bulk transmission system serving western New Mexico is shown in Figure . The figure highlights the most important transmission paths (in yellow) and indicates the general pattern of transmission use (blue arrows). The figure also shows the approximate border that separates the areas of the state connected to the West and Midwest. There are three main 345 kV interconnections between Arizona and New Mexico. While these transmission lines are capable of carrying very large amounts of power, as discussed above, the capability is being fully utilized by Public Service of New Mexico and El Paso Electric to deliver power from the West.

Figure 6: Bulk Power Transmission Serving Western New Mexico

The New Mexico 345 kV transmission system was built primarily to supply loads in the Albuquerque and El Paso areas. These areas have limited local generation and rely on remote


power sources to meet their load during much of the year. This dependence on outside sources is greatest during the summer peak-load season. The dominant usage pattern is west-to-east and north-to-south serving the load centers in Albuquerque and El Paso. The power flows into New Mexico from Arizona and the West. This dependence on outside supplies is serious enough that there is no available transmission capability from the West. 4.1.2 Eastern New Mexico and Transmission in the Midwest The bulk transmission system serving eastern New Mexico is much smaller than that of western part of the state as can be seen in Figure and Figure . Most of the load in this area is served by SPS and is part of the Midwestern electric network. Eastern New Mexico is connected to Texas and the SPP with two 230 kV circuits at Blackwater and one 230 kV and two 115 kV circuits near Artesia. The combined capability of these circuits may be as high as 600-800 MW depending on system conditions. They are generally not loaded with exports from eastern New Mexico. There are also DC interconnections to western New Mexico at Blackwater Falls and Artesia. Both these interconnections involve DC converters with limited capability. The Blackwater converter is limited to about 220 MW and the Artesia converter is limited to about 200 MW. The net of customer load and local generation in the eastern part of New Mexico is much less than the capability of the transmission system. This means that the transmission capability is rarely a factor in supplying power between this area and Texas. The situation is such that the utilities do not track or post available transmission capability between eastern New Mexico and Texas. It is possible, that with sufficient new generation, these facilities could become critically loaded.


5 REGIONAL TRANSMISSION ORGANIZATIONS 5.1 Western RTO Possibilities There are three likely RTOs that may form in the western interconnection as shown in Figure 7. It is very unclear what RTO(s) will emerge in the West that will include New Mexico. In all of the WECC, RTO West is the closest to implementation. RTO West still has many unresolved issues related to its proposed tariff. The California ISO has recently proposed a major change to its market design. This is likely to have little impact on New Mexico as it applies only to part of California. There have been several abortive attempts to organize an RTO in the Arizona/New Mexico area. Most recently was the attempt to form Desert Star. Desert Star is considered a failed attempt and is no longer active. The utilities in the area are still trying to organize into some form of RTO but the exact form it will take is still unclear.

Figure 7: Likely Western RTO Areas


The FERC has proposed a standard market design model that has begun the process of public comment. Many in the industry believe that FERC will make a more formal proposal during the fall of 2002 that will result in some kind of Order by the spring or summer of 2003. The standard market design will establish many of the factors that may affect market operation and generation in general. 5.2 Midwestern RTO Possibilities The eastern part of New Mexico is part of the SPP. This region is rapidly converging on the Midwest ISO (MISO). The MISO includes utilities that cover a broad section of the Midwestern states. The original area of the MISO included the states roughly from Ohio in the east to Indiana in the west as shown in Figure 8. Utilities in a much larger area have since joined (or announced their intent to join) the MISO. The MISO area now is likely to stretch from Ohio and Kentucky in the east to North Dakota and north Texas (and eastern New Mexico) in the west. The MISO will likely include the NERC regions of MAPP, MAIN, SPP and much of ECAR.

Figure 8: Likely Eastern RTOs


Since the MISO has a tariff that has been approved by FERC and is published, there is a better idea as to how the RTO may affect wind generation in this area. While the most recent MISO tariff includes 12 Schedules, only the first four are relevant to wind power:

1. Scheduling, System Control And Dispatch Service

• 2. Reactive Supply And Voltage Control From Generation Sources Service 3. Regulation And Frequency Response Service 4. Energy Imbalance Service

Of these four services, only Schedules 3 and 4 have terms that are consequentially different from those commonly used around the country. These two Schedules, in particular, may set the minimum measurement quantity at 1 kW. The normal minimum measurement amount is ±1.5% but not less than 1 MW. This change is important to small loads and small generators. The 1 MW normal amount lets small loads and generators have an error of as great as -±1 MW before any imbalance charges apply. A generator or load that scheduled 2 MW could vary between 1 MW and 3 MW without incurring any imbalance charge. Some of the control areas in the MISO are seeking to lower this threshold by a factor of 1,000 to ±1 kW. This would mean that a load or generator scheduling 2 MW would be charged for imbalance if went above 2.03 MW (1.5%) or below 1.97 MW. This would be a big change for small customers. It must be pointed out, however, that while they are seeking this change, the FERC has not approved it. Schedules 3 and 4 in the MISO tariff were suspended by FERC and are subject to further review. Until these changes are approved the measurement amount is 1 MW.


6 POTENTIAL FOR SITING WIND GENERATION IN NEW MEXICO

The potential for wind generation in New Mexico is impacted by both the location and suitability of the existing transmission system, and location and amounts of wind potential. Figure 9 combines a wind-speed map for New Mexico and the transmission system map. The nature of the transmission system has been discussed above. The areas with greatest wind potential are those shown in pink, orange and red on the figure. 6.1 Potential for Wind Power in Eastern New Mexico As Figure 9 makes clear, the greatest wind potential is in the eastern half of the state. The figure also shows the approximate border between the portions of the state electrically connected to the West and Midwest. Most of the high-wind-speed area is in the area connected to the Midwest network. Only a small portion of the northeast corner of the high-wind area of the state is connected to the West. There are, however, two other potential opportunities to connect to the West—the 345 kV AC circuit running west from Blackwater and the 230 kV AC circuit running west from Artesia. Within the state, the greatest opportunity and need is in the Albuquerque and El Paso areas. So there would appear to be three main possibilities where wind power in the east could serve load in the western part of New Mexico: northeast to Albuquerque, Blackwater to Albuquerque, and Artesia to El Paso. 6.1.1 Northeast to Albuquerque The area in the northeast corner of the state appears to offer an opportunity to serve this important load area as shown in Figure 10. As the figure shows there is a transmission connection to the Albuquerque area and the wind speeds are relatively high. This area has the potential to serve the Albuquerque-Santa Fe area. The problem is that this area is very weakly connected to the Albuquerque area. The substation at the end of this circuit, Rosebud, is about 175 circuit-miles from the Ojo substation. This is a very long distance for a 115 kV circuit. Because this part of the New Mexico system is so weak, it is probably capable of handling no more than about 50 MW of generation. There is a planned system change that could strengthen this area. The owner of SPS (Excel Energy) is proposing a new 230 kV circuit between Colorado and the Rosebud area. Once completed, this would strengthen the area and make it possible for additional power to be transferred to Albuquerque. The amount of such an improvement would require detailed study.


Figure 9: New Mexico Electric Transmission and Wind Speed Map

Figure 10: Northeast Site Area


6.1.2 Blackwater to Albuquerque The second area is west of the Blackwater substation as shown in Figure 11. There is a fairly large area of high wind speeds in this part of the state. And while it is over 200 circuit-miles from Blackwater to Albuquerque, this is a 345 kV circuit. Blackwater has a strong connection with the Albuquerque area.

Figure 11: Blackwater Site Area

The Blackwater-Albuquerque circuit was recently upgraded to be capable of transferring about 1,000 MW. Part of this is already committed to other users, however:

• PNM has a long-standing commitment to use this circuit for 200 MW of delivery from the SPP through the DC tie at Blackwater, and

• A large wind farm is planned that will use 200 MW.

Thermally, this still leaves room for an additional 600 MW of generation in the area. However, it would most likely require upgrades to the system at other substations to allow for these transfers. The specific additions would have to be determined by a detailed transmission study. Locating new wind generation in this area would also likely incur some other interconnection costs. Unless the generation was connected at the existing substations at Blackwater or Guadalupe (about half way to Albuquerque), there would need to be some considerable expense for a new substation. The cost of a new substation would be high because it would require 345 kV transformers, breakers, switches and other substation equipment. This equipment is more expensive at higher voltages than at lower voltages.


There is also a 115 kV line shown in Figure 11 that provides a path to the “Midwest side” of the Blackwater substation. Generation located near this circuit could deliver power to SPS. This circuit appears to be able to support about 100 MW of new generation. Specific studies would be needed to confirm this estimate. 6.1.3 Artesia to El Paso The third area is in southeastern New Mexico between Artesia and El Paso as shown on Figure 12. There is considerable wind potential east of Artesia, and east of the DC tie at Blackwater. Artesia is connected to western New Mexico by a fairly strong 345 kV circuit.

Figure 12: Artesia Site Area

Because the good wind areas are east of Artesia, delivering power from this area to western New Mexico will be challenging. In order to economically deliver power to western New Mexico, it will be necessary to connect to the western side of the DC connection at Artesia. Because such a transmission connection might have to physically cross the existing transmission circuits of SPS, there may be legal obstacles to such construction. (There are not likely to be any insurmountable technical problems.) This would require a detailed review and study of the actual arrangement of facilities at Artesia and laws of New Mexico. Connecting to the system in this area to deliver to Albuquerque or El Paso may be prohibitively expensive and difficult. It does however, appear to be a good location to deliver power to SPS, because the full capability of the DC terminal is already committed for use, there is no available way to deliver more power from the SPS side of Artesia without a very expensive upgrade to the DC terminals.


6.2 Potential for Wind Power in Western New Mexico Since the Albuquerque and El Paso areas are deficient in local generation there could be an opportunity for wind power to supply these areas. Generation located in the immediate vicinity of either area would likely be able to deliver its full output without restriction. Detailed studies would be required for specific sites. Additional generation located west of Albuquerque or El Paso will increase the loading on the existing circuits from Arizona. There is no available capability on these circuits. Additional generation located in these areas will face difficult technical hurdles in order to be able to deliver power into the two major load centers. There may be reasonable opportunities for generation located close to Albuquerque or El Paso, though their ability to deliver power to the two load centers may be restricted during high load conditions. There is an area northeast of Albuquerque that may provide a reasonable opportunity for new wind-powered generation. This is the area around Santa Fe, Las Vegas, and Los Alamos. The load in this area is served by power flowing from the Albuquerque area. This means that new generation in this area will reduce transmission loading and generally improve the reliability of the local system.


7 PERMITTING, LICENSING AND ZONING PROCESS There is a two- step process to obtain the necessary permits to build a wind power project in New Mexico: “zoning approval” by the respective county and building permits issued by the Construction Industries Division (CID) of the New Mexico Regulation and Licensing Department in Santa Fe.

1. The County in which the project is located will “zone” the site for the installation of a wind power project. Requirements may differ among the counties. In Quay County for example, the “zoning approval” will be issued pursuant to an application for approval of a subdivision. The specific requirements can be obtained from the office of the County Manager in Tucumcari.

2. Irrespective of the project location, the CID will permit all wind power projects in the state. In general, all work must be done by contractors licensed to do business in the state, and the work must be done according to applicable codes. Copies of the codebooks and the schedule of permit costs can be obtained at the CID office in Santa Fe. The CID requires plans stamped by a professional engineer licensed to do business in New Mexico. In most cases, plan review is expected to take approximately thirty business days to complete. While no firm policy has been established, the CID has expressed a willingness to consider issuing one building permit for the project, rather than issuing a separate building permit for each wind turbine generator and the substation. It is anticipated that CID personnel will inspect the site during the construction process.

For projects less than 300 MW in size and producing no emissions, there is no official process for review by the New Mexico Public Regulation Commission, although they might review the project. If the proposed project receives no federal funds, is not on federal land, and no federal contracts are involved, there is no federal permitting.


8 KEY CONTACTS State of New Mexico Energy, Minerals & Natural Resources Department Michael McDiarmid, P.E. Wind Power Program Manager 1220 S. St. Francis Drive Santa Fe, NM 87505 Tel: 505/476-3319 Fax: 505/476-3322 E-mail:[email protected] New Mexico Economic Development Department Joseph M. Montoya Bldg. 1100 St. Francis Drive Santa Fe, NM 87505-4147 Fax: 505/827-0588 Karen Wentworth Information Officer Tel: 505/827-2020 Rosemary L. Thompson Business Recruiter Offcei of Science and Technology Tel.: 505/827-5650 Patrick D. Gannon Community Development Representative Economic Development Division 505/827-2790 Peter Mitchell Director Economic Development Division Tel: 505/827-0265 State of New Mexico Taxation & Revenue Department Jeanne Flannery

mailto:[email protected]


Manager Montoya Bldg. 1100 St. Francis Drive Santa Fe, NM 87505-4147 Tel: 505/827-0908


US Department of the Interior Bureau of Land Management Lee Otteni Program Manager Renewable Energy Resources 1235 La Plata Hwy., Ste. A Farmington, NM 87401 Tel: 505/599-8911 Fax: 505/599-6377 Public Service Company of New Mexico Economic Development Department Alvarado Square – MS-0402 Albuquerque, NM 87158 Tel: 505/241-4548 Fax: 505/241-2340 E-mail:[email protected] Plains Electric Generation & Transmission Cooperative, Inc. Michael McInnes General Manager 2401 Aztec Road, N.E. Albuquerque, NM 87107-4224 Tel: 505/889-7200 Fax: 505/889-7636 E-mail:[email protected] Southwestern Public Service Company Kenny Munsell Transmission Account Representative 6086 West 48th Street Amarillo, TX 79109 Tel: 806/679-3205 Fax: 806/457-6460 E-mail:[email protected]





El Paso Electric Company Ernie Martinez Power System Engineer PO Box 982 El Paso, TX 79960 Tel: 915/543-2062 Fax: 915/521-4763 E-mail:[email protected] Texas-New Mexico Power Company Keith Nix 302 West Broadway Silver City, NM 88061 Tel: 505/538-3768 ext. 208 Fax: 505/388-9548 E-mail:[email protected] New Mexico Rural Electric Cooperative Association Keven Groenewold General Manager 614 Don Gaspar Santa Fe, NM 87501 Tel: 505/982-4671 Fax: 505/982-0153 E-mail:[email protected] Southwest Power Pool Bruce Rew Manager, Engineering 415 North McKinley, #700 Plaza West Little Rock, AR 72205-3020 Tel: 501/664-0146 ext. 214 Fax: 501/664-9553 E-mail:[email protected]






New Mexico Construction Industries Division Regulatory and Licensing Department 725 St. Michael’s Drive Santa Fe, NM 87505 Tel: 505/827-7030 Fax: 505/827-7045 New Mexico Public Regulation Commission 1120 Paseo De Peralta PO Box 1269 Santa Fe, NM 87504 Tel: 800/947-4722 Legal: 505/827-4818 Corporations: 505/827-4508 Transportation: 505/827-4519 Administration: 505/827-4084

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