Growing transmission costs threaten to become a crisis
Today, Transmission Access Charges create a massive market distortion that could cost Californians billions of dollars in unneeded electricity transmission spending.
If we don’t fix this problem, soon it could cost more to deliver energy than to generate it. This will only worsen as California transitions to more clean energy, electric vehicles, and building electrification.
Consequences for ratepayers
Paying a toll doesn’t make sense if you don’t cross the bridge, but this is how we are charged for electricity transmission infrastructure in much of California. Currently, all ratepayers pay the same charge for “using” the transmission system, whether or not the energy they use travels across that system.
This inherent inequity has huge consequences for ratepayers, because it causes community choice aggregators (CCAs) and investor-owned utilities (IOUs) to ignore the transmission costs when they buy energy for customers — so they often end up buying energy from distant sources that require billions of dollars of transmission wires to reach customers. The more utilities buy remotely generated energy, the more transmission infrastructure has to be built to deliver it, needlessly driving up California’s energy bills. In other words, utilities buy energy that’s cheaper for them, but more expensive for all of us.
The real value of locally generated electricity
Unlike remotely generated electricity, locally generated electricity does not require construction of a massive transmission network to move electricity from source to customer. In fact, the closer a generation source is located next to where that energy is used, the less infrastructure is needed, and the less expense is incurred.
When this major advantage is priced into the total cost of energy, clean local energy is much more competitive — and actually less expensive in many cases:
TAC currently steal 2¢/kWh from clean local energy projects — artificially inflating the cost of this energy and needlessly crippling an industry that has the potential to drive economic development for every community in the state.
TAC pay for existing transmission infrastructure, which clean local energy does not use, but clean local energy projects also provide value by avoiding future transmission needs. This value is partly reflected in the Avoided Cost Calculator (ACC) used by the California Public Utilities Commission (CPUC) to value clean local energy projects. Based on an April 2020 CPUC decision, at least a portion of transmission costs will finally be accurately assessed to reflect their true exorbitant costs to ratepayers — specifically, the elements in yellow in the charts above that represent avoided future costs of transmission that would be needed to accommodate forecasted load growth on the transmission grid (measured in MW of peak load).
There is still no plan to correct the TAC distortion, nor to value the savings from avoiding future transmission investments for needs due to other reasons, such as avoiding new transmission lines to facilitate new renewable energy projects in the middle of pristine lands, avoiding transmission lines that would be needed to meet Renewable Portfolio Standard (RPS) requirements, and more. Including all the proper values in the ACC could potentially double the value of avoided transmission.
How TAC reform can contain exploding transmission costs
We can save Californians over $60 billion in unnecessary spending over the next 20 years by reforming TAC.
Fixing TAC will make clean local energy cheaper, so more of these projects will be deployed. That means less transmission infrastructure will be built — and it will be built only to the extent is it paid for by energy using the system.
We know our solution works; already in 2017-2018, Californians saved $2.6 billion in avoided transmission costs, in large part because of increased energy efficiency and clean local energy. Fixing TAC to make transmission charges equitable will increase these savings by encouraging more clean local energy.
The bottom line
The current way of charging for transmission infrastructure is outdated now that clean local energy provides an efficient alternative to remotely generated energy. This outdated method unfairly impedes the development of clean local energy as an efficient, resilient alternative to remotely generated energy.
Charge for electricity transmission infrastructure based on actual use of the transmission grid.
Change the way TAC are metered and assessed in California Independent System Operator (CAISO) territory so that all charges are consistently based on actual use of the transmission grid, across all utility service territories. This method is already being implemented correctly for non-participating transmission owner (non-PTO) utilities, such as California’s many municipal utilities.
This sounds good in theory, but does it work in practice?
Most of California’s independent municipal utilities have been saving ratepayers money for decades because they are assessed transmission charges based on actual use of the transmission system. These cost savings make clean local energy projects much more price-competitive and help these municipal utilities limit their impacts on the transmission system.
Now, the big private investor-owned utilities (PG&E, SCE, and SDG&E) need to follow suit.
Our reform will put California on a path to sensible, equitable transmission spending
Our suggested reform will make it state policy for the cost of electricity to include both the cost of generating energy AND the cost of delivering that energy to consumers.
By correctly pricing in the delivery cost for remotely generated energy, our reform will result in utilities buying the energy that is truly most cost-effective for customers. By aligning pricing with reality, this reform will correct the existing market distortion that has led to explosive, superfluous growth in transmission spending and needlessly depressed the development of clean local energy.
More clean local energy means savings in transmission spending — a fact acknowledged by CAISO and the California Public Utilities Commission (CPUC) and supported by irrefutable evidence.
Benefits from this fix
Reduce the clean local energy costs by 2¢/kWh (3¢/kWh levelized over 20 years).
Save Californians billions of dollars in unnecessary transmission costs over 20 years.
Keep energy dollars in local communities by spurring investment in local renewables.
Improve resilience by building more clean local energy resources near actual use.
The Clean Coalition's TAC proposal ensures that the transmission grid is consistently paid for by energy that actually uses it. Importantly, this approach accurately values all local renewables and other distributed energy resources for avoiding transmission use. Bravo to this effort, which I am pleased to support.
Professor of Energy, University of California, Berkeley & Energy and Climate Partnership of the Americas Fellow, supporting the US Secretary of State
This is a question of equity, environmental justice, and fundamental fairness. Ratepayers are being extorted by utilities profiting from excess transmission investment, and regulators have failed to make simple reforms to limit excessive transmission growth. This “business as usual” situation is no longer acceptable.
Today, CAISO has recognized this is a genuine issue, but is deferring to stakeholders with vested interests in ever more transmission spending. This means that the state of California must step in through the legislature and the CPUC to develop a comprehensive roadmap for transmission cost recovery that will stop penalizing utilities and CCEs that are doing their part to make the transmission system cheaper for everyone.
Please add your voice to those of our elected officials and regulators demanding that this expensive system be fixed.