California’s ratepayers pay for the transmission of electricity their utilities don’t use to serve them, but relief is on the way.
Utilities in California are currently billed unfairly by CAISO for the transmission of high-voltage energy even when they serve their customers without using the transmission grid. The costs of the construction, maintenance, and operation of the transmission grid is paid for through Transmission Access Charges (TAC), which are now charged inconsistently across the state, such that some utilities or CCAs don’t get charged for using transmission when they use local energy to serve local customers, while others must pay regardless.
This means that some utilities have no incentive to avoid using the transmission system. “If we do not fix this problem, soon it could cost more to deliver energy than to generate it. This will only get worse as California moves to clean energy, electric vehicles, and building electrification. Distorted transmission charges steal 3 cents per kWh from clean local energy projects — raising the cost of this energy by as much as 40 percent and disadvantaging an industry that has the potential to drive economic development for every community in the state,” calculates the Clean Coalition.
“The more utilities buy remotely generated energy, the more transmission has to be built to carry it, 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 Coalition explains. “The bottom line is that the current way of charging for transmission is outdated now that clean local energy provides an efficient alternative to remotely generated energy,” the group says.
The California-based Clean Coalition has been lobbying for over three years for the CAISO and the California Public Utilities Commission (CPUC) to change their rules. The Clean Coalition is a project of Natural Capitalism Solutions, a 501(c)(3) non-profit based in Longmont, CO.
Adding insult to injury, these TAC charges do not reflect the billions of dollars that these local energy generators cumulatively have saved ratepayers by causing the cancellation state-approved schedules of building out large new transmission projects —worth billions of dollars per year.
This situation exists because the dated formula for charging electricity users for moving electricity into a local grid did not consider the possibility of today’s localized solar power generation or other forms of distributed energy generation (DER). Local energy substitutes for remote power that can be more expensive when transmission costs are included in the utilities calculations when they purchase from large plants inside and out of the state. When this system was created, virtually all energy crossing the customer meter came from remote generators since local energy didn’t exist. That isn’t true today.
The Clean Coalition proposed a conceptually simple reform of measuring transmission use at the transmission-distribution substation at the end of the transmission grid instead of at the customer meter. This would charge utilities for transmission only on energy they buy that uses the transmission grid.
Instead, CAISO has come up with a hybrid formula for transmission charges that attempts to address the impacts of high-peak use of transmission through demand charges. Under this proposal, roughly half of the cost of the transmission grid would be recouped through the old system, while half would be charged to utilities based on their peak use of the transmission system. In turn, utilities could use a range of tools to reduce their peak energy use to relieve pressure on the transmission grid, such as energy efficiency, demand response, behind-the-meter solar or batteries, or in-front-of-the meter local energy and batteries. However, this design does nothing to address inconsistent treatment of local energy and in fact singles out in-front-of-the-meter generation and batteries in investor-owned utility territory and excludes these from generating credit for the utilities that buy these resources.
CAISO finalized a draft proposal on September 26 to rework the transmission charges, and is asking for stakeholders to respond by October 9. A final proposal will be submitted to the ISO Board of Governors later this year, whom would forward a recommendation to the Federal Energy Regulatory Commission for approval. The measure then could take effect in 2019 or 2020.
Unlike the CPUC-regulated local distribution system, transmission infrastructure is considered to be interstate commerce, and is regulated by FERC. In California, three investor-owned public utilities own most of the transmission facilities: Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E). These transmission owners are required to provide transmission service at just and reasonable rates that cover the costs of providing transmission service as well as a return on the associated capital invested in transmission. The total cost of providing transmission service, including the return, is referred to as the utility’s “retail transmission revenue requirement,” the Clean Coalition explains. It is this Transmission Revenue Requirement that is recouped through transmission access charges.
“Most of California’s independent municipal utilities have been saving ratepayers money for decades by using local energy, which they can do because their transmission charges are based on their actual use of the transmission system,” the Clean Coalition notes. “These cost savings make local resources much more price-competitive and help these municipal utilities limit their impacts on the transmission system. Now, the big private investor-owned utilities need to follow suit,” the group charges.
“Our suggested reforms will make it state policy for utilities to make electricity procurement decisions include both the cost of generating energy and the cost of delivering that energy to consumers. Distributed energy resources can help contain the excessive growth in transmission spending, a fact acknowledged by the CAISO and the CPUC, and supported by irrefutable evidence,” the Clean Coalition says.