CleanTechnica’s Charles W. Thurston recently talked with Doug Karpa, the policy director of the Menlo Park-based Clean Coalition about his organization’s efforts to convince CAISO, the California Independent System Operator of the grid, to treat wholesale distribution-connected solar generators and grid storage more fairly in terms of transmission charges that eventually trickle down to customers. The Clean Coalition represents about 80 interested parties in CAISO’s current round of regulation review.
California and other states have antiquated rules for charging utilities for the transmission system used to deliver energy to their customers — and for charging utilities for driving the need for that transmission system. The utilities ultimately pass these costs on to their customers.
One of the problems with the existing rate design is that it overlooks the positive contribution of local distribution-connected solar generation and energy storage — especially small wholesale generation — in providing grid services and in supplanting the need for yet more new transmission infrastructure. While distribution-connected resources save on transmission expansion costs, the existing rate design in investor-owned utility (IOU) territory completely fails to recognize these beneficial impacts.
The cost savings — or better, cost avoidance — enabled by solar and other distributed energy resources, or DER, like wind, battery storage and other green sources, could be massive, according to the Clean Coalition. Over the next 20 years, DER could help slow the growth of transmission spending by 6 percentage points, which could result in California utilities avoiding spending $3 billion per year, according to Karpa.
CT: How do California transmission charges currently work?
DK: Basically, California’s transmission charges are designed to make sure that everyone pays a fair share of the total costs of building and operating the transmission system. CAISO collects these costs through Transmission Access Charges charged to utilities, which then pass those costs on to their customers.
For non-participating municipal utilities, these charges are based on the amount of energy they draw from the transmission system. But for the investor-owned utilities, their charges are instead based on the energy used by all customers in their territories. That means that the generators pay Transmission Access Charges — the utilities pay these, based on the energy used by their customers, and then they pass the charges on to ratepayers. Also, since the charges go to investor-owned utilities, these charges also aren’t billed to Community Choice Energy entities (CCEs) at all, regardless of where their energy comes from.
Second, this means that IOUs are paying for using the transmission system even when they, or CCEs, serve their customers with clean local wholesale distributed generation that doesn’t actually use the transmission system to deliver energy to their customers. In contrast, non-participating municipal utilities pay for using the transmission system only for energy that actually uses the transmission system to reach customers.
As a third point, it is super critical to be clear about the distinction between residential behind-the-meter generation and wholesale in-front-of-the-meter generation, which are fundamentally different components of the energy grid. Behind-the-meter resources serve only the customer who owns them and already don’t incur transmission charges. In-front-of-the-meter resources sell energy to the utilities and incur transmission charges in IOU territory, but not in non-participating municipal utility territory.
CT: Is CAISO likely to correct this imbalance of who pays for transmission?
DK: No, because CAISO is proposing to not change how they charge the utilities in IOU territory. While CAISO recognizes there may be some merit to the idea, and staff at the California Public Utilities Commission (CPUC) have suggested the issue needs further investigation, the stakeholders with financial interests in the transmission system have opposed the proposal, so CAISO has been unwilling to move forward.
CT: How does this hamper efforts to get clean local energy?
DK: The key question is whether the load-serving entities (LSEs) — the agencies and companies that buy energy in the market for their customers — are seeing a difference in transmission charges depending on how much their energy uses the transmission system. When the LSEs in IOU territory purchase energy, they ignore differences in the costs of the infrastructure used to deliver that energy. That means that LSEs in IOU territory purchase energy largely based on the cost of just energy generation, and not on the total costs of generation and delivery. By ignoring the real costs that distributed generation saves for ratepayers, LSEs can often end up buying energy for their customers that is actually more expensive for them in the long run, because excess purchases of remote energy drive up the need for ever more transmission investment. This issue affects wholesale distributed generation — including the solar energy exported to the grid by behind-the-meter generators. Although behind-the-meter generation is largely irrelevant to this issue when the energy is consumed onsite, the contributions of net energy metering exports to reducing the need for new transmission should also be accounted for. At the end of the day, LSEs should be buying the most cost-effective energy sources for their customers. That only happens when LSEs evaluate the costs of alternative energy sources based on the full cost of the energy to ratepayers. In many cases, clean local energy looks more expensive than it actually is because LSEs are failing to include the costs of delivery. Looking only at the energy costs is only half the story.
CT: What is the shape of the proposal CAISO is now considering?
DK: Instead of fixing this fairly straightforward issue, CAISO has come up with a hybrid formula for transmission charges that will charge the IOUs, non-participating municipal utilities, and others a demand charge based on 12 coincident peaks. While demand charges have some theoretical appeal in charging utilities more if they contribute to peak transmission use, this charge falls a little wide of the mark because the peak demand charge isn’t based on peak transmission flows. Instead, CAISO is proposing to measure peak transmission use at the customer meter. Again, that’s the wrong place to measure transmission usage, because load served with local energy doesn’t contribute to peak transmission flows. As a result, the hybrid proposal will do nothing to solve the Transmission Access Charges problem, because the demand charge is not changing where transmission use is measured.
CT: Thanks for your explanation of this complicated TAC debate.
DK: You’re welcome.
The Clean Coalition is a nonprofit “working to accelerate America’s transition away from an outdated energy system built around large, centralized, fossil-fueled power plants and miles of inefficient transmission lines; and toward a modern energy system where smaller-scale, efficient, renewable energy projects deliver affordable and reliable power to communities,” as stated on its website.