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Author: Craig Lewis Published: May 13, 2019 Utility Dive

The following is a contributed article by Craig Lewis, Executive Director at Clean Coalition.

Since 2017, Pacific Gas & Electric (PG&E), California’s largest utility, has racked up more than $30 billion in liabilities for wildfire-related damages caused by its equipment. In January 2019, PG&E filed for Chapter 11 bankruptcy protection with the goal of shedding these liabilities.

This grave situation also represents a golden opportunity for the Golden State.

Experts have been weighing in on what should become of PG&E. Ideas include making PG&E a public authority controlled by the state, breaking it up into municipal utilities, and making it a fully deregulated utility.

But there’s a better solution, one that should be applied to all the state’s investor-owned utilities (IOUs): require the utilities to divest their transmission assets. This solution avoids another utility bailout, protects utility customers from rate increases and wildfire risks, and fixes a major obstacle to California’s zero-emission, clean energy future.

A broken business model

The current utility business model is fundamentally broken and needs to change. IOUs now earn a guaranteed rate of return on infrastructure investments, which incentivizes them to build more transmission infrastructure and has led to out-of-control transmission costs around the country.

Credit: Sunrun

Because transmission costs are the fastest-growing part of electricity bills, it could soon cost more to deliver energy than to generate it. And it’s worse than it looks.

The capital costs of transmission infrastructure, high as they are, represent a fraction of total transmission costs. Operations and maintenance (O&M) and returns on investments drive up transmission costs significantly over the life of these assets, with those excessive costs borne by ratepayers.

In nominal dollars, total lifetime ratepayer cost is nearly 10x the initial capital cost; O&M accounts for 68% of this because it increases much faster than inflation. In real dollars (constant value dollars, accounting for inflation), the total lifetime cost is 5x the initial capital cost, and O&M accounts for 55% of this.

In California, the way consumers are charged for the transmission system is also broken. Currently, all energy in California’s IOU territory is subject toTransmission Access Charges (TAC), whether or not that energy actually travels over the transmission grid.

Generating energy closer to where we use it means less transmission infrastructure is needed, which lowers costs for ratepayers by avoiding expensive transmission lines. In contrast, continuing with business as usual will cost Californians an estimated $60 billion in avoidable transmission costs over the next 20 years.

Transmission costs are already at 3 cents per kilowatt-hour (kWh) in California and could double in the next two decades. In IOU service territories (unlike for municipal utilities), where the utilities have a major conflict of interest in owning both the distribution and the transmission grid, clean local energy is being burdened with these costs — currently up to 50% of total project costs — even though it’s not using the transmission grid.

This major market distortion makes clean local energy projects look much more expensive than they really are, with the result that far fewer of those projects are deployed.