California picks transmission capital over utility oversight

California chose transmission capital over utility oversight in the same Friday signing run in which Gavin Newsom vetoed a bill that would have created an inspector general for the California Public Utilities Commission and approved AB 192, which stands up a transmission infrastructure accelerator and authorizes it to select projects that may receive public financing from the California Transmission Accelerator Revolving Fund. Only one of the two items carries a balance sheet, and it is the accelerator.

AB 192 gives the accelerator two jobs: evaluating the California Independent System Operator's transmission planning process and selecting eligible projects that may draw on the revolving fund, but eligibility is narrower than the mandate sounds. Projects must be new high-voltage transmission facilities subject to the competitive solicitation CAISO administers and consistent with the state's reliability and greenhouse gas policy objectives, and the accelerator is expected to develop program guidelines by Dec. 31, 2027.

The condition attached to that financing is where the bill earns its place: a sponsor must commit to requesting a revenue requirement at the Federal Energy Regulatory Commission that reflects only its actual capital structure and, for the portion of the project financed through the fund, the actual cost of capital associated with that portion, a commitment written to minimize the costs collected through the transmission access charge. Read plainly, California is buying a slice of a project's capital at cost and insisting the tariff show that cost rather than a sponsor's return on it.

California made no attempt to reopen CAISO's planning authority or write a new siting standard; it hung capital on a process the ISO and FERC already run, with conditions that are voluntary in the only sense that matters, because a sponsor takes them by taking the money. That is a cheaper way to reach into a federally regulated planning process than litigating it, and it likely explains why a lending program cleared a governor who, in the same week, turned down new offices on cost grounds.

The revenue-requirement condition does more than a grant of the same dollar size would, because a grant adds dollars to a project while a cost-of-capital condition subtracts them from the revenue requirement, so the spread between a sponsor's weighted cost of capital and the state's on the financed slice lands in the transmission access charge for the life of the asset rather than in a single check at financial close. The benefit compounds over decades and cannot be banked and forgotten when construction ends.

None of it happens quickly: guidelines due at the end of 2027 put the first selection round, the first revenue-requirement commitments and the first disbursements in 2028 at the earliest, which makes the accelerator as written a 2028 instrument aimed at the next round of CAISO solicitations rather than at the constraints that motivated the bill. It also inherits a schedule it does not control, because competitively solicited transmission has to clear route and need questions on someone else's clock — a PJM-selected line in West Virginia ran into exactly that this month — and California has now layered a financing decision on top of that process rather than beside it.

The vetoes complete the batch: AB 353 would have required the governor to appoint an inspector general for a six-year term and moved existing auditing powers into that office, and Newsom's statement cited flaws in the bill, said it would compromise the Public Advocate's Office by granting agency staff access to internal deliberations, work products and litigation strategies, and put the reorganization's fixed and operational costs in the tens of millions of dollars that the current budget does not carry. AB 1761, the second veto, would have required utilities and the commission to disclose all data behind the Power Charge Indifference Adjustment fee, a measure community choice electricity providers had championed; the report does not give the governor's reasoning on that one.

The vetoed bills and the signed ones keep landing on the same question: what a customer pays and how the number gets built. AB 1715, also signed, requires utilities to report public grants and pass those savings directly to customers, the same instinct as the AB 192 clause limiting what the transmission access charge may collect; a revolving fund bills the state when a project draws on it, while an inspector general bills it every year, which likely explains which of the two survived a budget review.

There is a cost to that ordering, and it is worth naming without pretending it is scandalous: the same cycle that declined to add an auditor to the commission created a body authorized to select transmission projects and direct public financing to them, a concentration of discretion that the legislature had itself tried to counterbalance. Power rights have become their own asset class, as this publication has argued, with queue positions trading before electrons do, and California's version of the trade is to buy position inside CAISO's competitive solicitation, backing projects that come through that process rather than opening a parallel queue and writing the ratepayer benefit into a revenue requirement instead of a grant agreement.

The number to watch is the fund's own cost of capital: until the accelerator says how the revolving fund is capitalized, which the coverage of the signing does not, "actual cost of capital" is a condition nobody can price, and the revenue requirement it is meant to shape cannot be tested against the plain alternative of a sponsor financing the line itself. Guidelines are due by Dec. 31, 2027, and the first revenue requirement filed under them is where the claim gets settled.