Every day, solar panels scattered across sunny Los Angeles generate clean local energy. A key benefit of producing electricity on homes and businesses, close to where it’s used, is that it reduces costs by avoiding the expensive and inefficient long-distance transmission of energy.
But only some Los Angelenos are seeing these savings.
That’s because of an outdated, unfair and inconsistent approach to allocating transmission costs by California’s electric grid operator, the California Independent System Operator (CAISO).
Currently, transmission costs for Southern California Edison (SCE) are calculated differently than for the Los Angeles Department of Water and Power (DWP), and SCE customers are getting shortchanged. Over the long run, everyone pays more than they should, even DWP customers.
For DWP and most California utilities, CAISO levies transmission charges only on electricity that travels over the transmission grid — the high-voltage system that includes large, remotely located towers and wires. For large investor-owned utilities like SCE, Pacific Gas and Electric (PG&E), and San Diego Gas & Electric (SDG&E), however, CAISO levies transmission charges on all electricity that is delivered through a customer meter.
As a result, energy exported from local renewables is hit with transmission costs, even though it never touches the transmission grid. By adding transmission charges to local renewable energy, CAISO is artificially inflating the cost of local energy. This also incentivizes the construction of transmission-dependent energy, which drives the construction of more transmission infrastructure and further exacerbates the market distortion.
Given that transmission costs are socialized broadly across California, including on any DWP energy imports from CAISO, all ratepayers end up paying more than they should for transmission investments. If this problem is not fixed, California ratepayers will pay approximately $40 billion too much in transmission costs over the next 20 years. This should have customers up in arms.
Overinvesting in transmission creates a vicious cycle that locks Californians into long-term, expensive investments, many of which could have been avoided with local renewables. Generating energy close to where it is used reduces the need for new transmission, saving billions of dollars in the process.
More than a dozen transmission projects planned in California were recently cancelled because rooftop solar and energy efficiency deemed new transmission infrastructure to be unnecessary. In one example, PG&E customers saw a new $192 million transmission investment canceled, which will provide savings to ratepayers of multiple times that amount when considering the guaranteed rate-of-return and operations and maintenance costs of transmission assets over their 50-year lifetimes.
Additionally, these unfair transmission charges on local renewables make it more difficult to reach the state’s energy and climate goals. Shipping costs for energy are significant, but most decisions about where to purchase new electricity are based on a “sticker price” that only accounts for energy generation costs — not the delivery costs. Recent pricing data has shown that local renewable energy can offer the cheapest form of power when transmission charges are properly allocated.
The inconsistent application of transmission charges also restricts access to clean local energy. Cities and towns across the state, including Los Angeles County, have started purchasing electricity directly from power producers through Community Choice programs. These programs generally have a focus on local renewables, which strengthens local economies by developing community-based renewables. But currently, the transmission charge mistreatment in investor-owned utility service territories artificially increases the price of electricity from local renewables.
The solution is that CAISO needs to adopt a consistent and fair “user-pays” approach across California. Most utilities in the state, including DWP, already pay transmission charges in the correct manner, incurring transmission charges only on electricity that travels over the transmission grid. This approach needs to be extended to SCE, PG&E, and SDG&E. California Senate Bill 692, currently in the California Assembly after handily passing through the Senate, directs CAISO to address this issue by ensuring transmission costs are allocated consistently and fairly across the state.
The time has come for CAISO to fix its unfair and inconsistent approach to allocating transmission costs.
California’s strong, forward-thinking energy and environmental policies have buoyed the state’s economy. California boasts the highest national rate of employment in the solar industry, and the Los Angeles region has seen an 11 percent increase in solar jobs over the past two years.
With the announcement of the U.S. withdrawal from the Paris Agreement, the Trump Administration is doing its best to gather dark clouds over the nation’s future. California needs to keep the sun shining on rooftops across the state and provide a shining example for the country.
Craig Lewis is executive director of the Clean Coalition, a California-based nonprofit organization whose mission is to accelerate the transition to renewable energy and a modern grid through technical, policy and project development expertise.
