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, or Customer Energy Downflow (CED) — 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 distributed generation (DG)* 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
PTO 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 DG* 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.
Cost of implementation is negligible compared to benefits
Implementing the Clean Coalition’s proposed TAC fix will require installing revenue-grade meters at substations, at a total cost of less than $20 million: an average meter upgrade cost of less than $10,000 per substation, and fewer than 2000 substations need a meter upgrade. This implementation cost is negligible compared to the tens of billions of dollars in TAC savings for ratepayers over the next 20 years. Furthermore, the communications solutions are already in place for use with the existing non-revenue grade metering hardware.
Want to get involved?
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.
Timeline of key events
- June 2016: CAISO releases a TAC issue paper to serve as the basis for a new, TAC-focused stakeholder initiative, the TAC Wholesale Billing Determinant initiative. Stakeholders submitted comments to CAISO about the issue paper on June 30.
- May 2016: CAISO announces it will open a separate TAC-focused stakeholder initiative because, “…TAC billing determinant changes will be of interest and importance to many stakeholders… who might inadvertently miss this important topic due to its reduced visibility within ESDER 2.”
- April 2016: the Clean Coalition files in ESDER a detailed proposal for changing PTOs’ TAC assessment methodology.
- March 2016: CAISO announces it will address the TAC issue in Phase 2 of its Energy Storage and Distributed Energy Resources (ESDER) stakeholder initiative.
- November 2015: Clean Coalition submits a filing to CAISO about the TAC market distortion.
Clean Coalition documents
- Two-page TAC overview
- TAC Campaign Q&A
- Briefing for CAISO Market Surveillance Committee on Transmission Access Charges Wholesale Billing Determinant Initiative
Clean Coalition regulatory filings
- Filing to the CAISO about the TAC wholesale billing determinant (June 30, 2016)
- Filing to the CAISO about TAC in their potential expansion (June 10, 2016)
- Filing to the CAISO for the ESDER Straw Proposal (June 9, 2016)
- Filing to the CAISO for the ESDER stakeholder initiative (April 18, 2016)
- Filing to the CAISO about TAC straw proposal for the TAC Options stakeholder initiative (March 23, 2016)
- Filing to the CAISO about TAC (November 20, 2015)
- Filing to the California Energy Commission about TAC (September 24, 2015)
- California local renewables are getting robbed, but CAISO can help | Utility Dive (June 16, 2016)
- 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)
*DG includes (i) wholesale DG, or small energy resources that interconnect to the distribution grid to serve local load, and (ii) BTM generation exports to the distribution grid, for example NEM customer exports.