A rapid and significant expansion in transmission infrastructure this decade is key for California to meet its ambitious climate goals. However, this build-out will be expensive – with the potential to overburden ratepayers and undermine the state’s clean energy transition. Strategies to minimize the cost of transmission are therefore an important consideration for policymakers.
In an analysis released today, the Public Advocates Office estimate the potential for $28 billion in ratepayer savings over the coming decades if California’s transmission infrastructure is financed with public investment as opposed to traditional utility-financing. Put another way, this equates to about a 25% saving for ratepayers. The California Independent System Operator’s 20-Year Transmission Outlook is used as a basis to identify key transmission needs (Fig. 1).
To develop this estimate, the Public Advocates Office undertook a comparative cost analysis between a traditional utility-funded and utility-owned $200 million transmission project relative to a project driven by public investment. Based on the analysis, the public model resulted in ratepayer savings on the order of $184 million over the lifetime of a single project (Fig. 2).
As seen in the Figure, the majority of benefits stem from eliminating the need to compensate shareholders (return on equity) with non-private project ownership. Lower-cost public bonds that are available to non-privately owned projects further reduces the effective interest rate paid by ratepayers over the lifetime of the project. A smaller proportion of savings could be achieved through state and federal tax advantages.
An important point to note is that these benefits are likely, in fact, understated. This is because the analysis conservatively assumes that utilities would have access to the same cost of debt (4.58% interest rate) as the State. Often, utilities will have a higher cost of debt.
The Public Advocates Office recommend that California policymakers explore pathways to build electric transmission and other types of infrastructure with more public support. These include:
- Creating a public California “infrastructure authority” with bonding authority and/or the ability to own infrastructure, a model that has been instituted in other states such as New Mexico;
- Leveraging federal financing programs such as the U.S. Department of Energy’s Western Area Power Administration’s (WAPA) transmission finance program.
California needs to drastically increase its pace and scale of transmission deployment in order to achieve its ambitious climate goals. Stakeholders are currently focused on the ‘pace’ aspect, with important efforts to streamline permitting including SB 420 (Becker) and SB 619 (Padilla) currently moving through the Legislature. However, the ‘scale’ aspect has not yet received the same attention. This analysis from the Public Advocates Office highlights an important way to minimize the burden on ratepayers while delivering a net-zero emissions by 2045 goal.
For more information on California transmission, please contact Sam Uden (email@example.com).