Fixing a major market distortion that disadvantages local renewables
The Clean Coalition, backed by a broad range of organizations, is leading a campaign to remedy an unfair charge on local renewable energy in California.
What are TAC?
Transmission Access Charges (TAC) are fees designed to pay for the state’s transmission system, including operations and maintenance, amortization of capital, and return-on-equity. TAC add about $0.03 per kilowatt-hour (kWh) to the levelized cost of energy over a 20-year contract, which is about 30% of the wholesale value of energy in California. To align costs and benefits, TAC should only apply to energy that is delivered through the transmission system. Therefore, TAC should be calculated based on the metered Transmission Energy Downflow as measured at the transmission substation and distribution substation, where energy down-converts from transmission grid voltages to distribution grid voltages.
TAC are being misapplied
Currently, any California utility that owns part of California’s transmission grid (known as a Participating Transmission Owner or PTO) applies TAC based on the metered load of its customers — not the utility’s metered Transmission Energy Downflow. As a result, PTOs pay TAC on every kWh delivered at the customer level, even if that energy was not delivered through the transmission system.
The current TAC assessment on every kWh of metered customer electric usage, instead of on metered Transmission Energy Downflow, creates a major market distortion. The transmission cost savings of local wholesale distributed generation (WDG) are denied to ratepayers, local generation is denied fair market competition, and communities lose the benefits of local energy development.
Creating a level playing field for local renewable energy
The Clean Coalition’s campaign seeks to change PTOs’ TAC assessment methodology to calculate TAC based on metered Transmission Energy Downflow, aligning charges with cost causation. Through this campaign, we seek to correct the California Independent System Operator (CAISO) tariff language to assess TAC on a utility’s Transmission Energy Downflow. This fix will ensure proper valuation of local renewable generation, including the avoided use of transmission. Local energy should not continue to subsidize transmission infrastructure when these resources are actually reducing the need for future investments into the transmission system.
Leveling the playing field helps WDG win utility procurement bids
Utilities evaluate energy project bids through the Least Cost Best Fit (LCBF) analysis. Using LCBF, a project is evaluated by its cost of generation plus the cost of any system losses or upgrades required to deliver the project’s energy to consumers. LCBF does not currently consider TAC because CAISO assesses TAC regardless of whether energy is delivered through the transmission system. As shown in the example below, a local WDG project may have higher generation costs, but lower total delivered cost – if recognized for avoiding use of transmission capacity.
Initially, utility and ratepayer TAC costs remain constant
- No change to the Transmission Revenue Requirement (TRR) used to calculate the TAC rate; the transmission system continues to be fully paid for and used
- Slight decrease in metered transmission usage used to calculate the TAC rate
- Slight increase in TAC rate
- No change to total transmission costs incurred by ratepayers
Ratepayers save over time when less transmission is needed to deliver energy
Eliminating the TAC market distortion will result in increased deployments of local generation, which reduces required investments in new transmission. As a result, TAC will not grow as quickly and can even decline as existing assets depreciate, saving ratepayers enormously: about $40 billion over 20 years for all California ratepayers, $20 billion over 20 years for PG&E alone. The chart below shows drastically reduced TAC rates over 20 years by eliminating the TAC market distortion. The area between the blue curve and the other curves represents avoided ratepayer transmission costs.
Want to get involved?
CAISO is addressing the TAC market distortion in 2016 in Phase 2 of its Energy Storage and Distributed Energy Resources (ESDER) initiative. CAISO held an initial Phase 2 ESDER stakeholder workshop April 4, during which it raised three concerns about the impact of the Clean Coalition’s proposed TAC change. Stakeholder comments about the workshop were due April 18. Next, CAISO will develop a straw proposal by May 19, and stakeholder comments about the straw proposal are due June 9. Your support will help ensure CAISO resolves the TAC market distortion by eliminating TAC charges on local renewable generation. To become a TAC Campaign supporter, contact Josh Valentine at firstname.lastname@example.org.
Clean Coalition documents
- Clean Coalition filing to the CAISO for the ESDER stakeholder initiative (April 18, 2016)
- Clean Coalition filing to the CAISO about TAC straw proposal for the TAC Options stakeholder initiative (March 23, 2016)
- Clean Coalition filing to the CAISO about TAC (November 20, 2015)
- Clean Coalition filing to the California Energy Commission about TAC (September 24, 2015)
Clean Coalition webinars
- The Perils of Wholesale Distributed Generation: Can California Live Up to Its Promise? | Greentech Media (March 9, 2016)
- Transmission Charges Penalize Local Clean Power in California | Microgrid Media (November 25, 2015)
- In California, a Campaign to Take Transmission Charges Out of Distributed Energy | Greentech Media (November 17, 2015)