Transmission Access Charges (TAC)

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.

TAC infographic (06_dm, 6 Jul 2016)

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.

TAC LCBF (02_dm, 6 Jul 2016)

Initially, utility and ratepayer TAC costs remain constant

The immediate impact of eliminating the TAC market distortion, as shown in the chart below is:
  • 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

TAC cost shift (06_dm, 6 Jul 2016)

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.

TAC forecast (04_dm, 6 Jul 2016)

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 josh@clean-coalition.org.

Timeline of key events

Resources

Clean Coalition documents

Clean Coalition regulatory filings

Media coverage

*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.