California state senators on March 12 heard arguments for and against the bill to implement “Step 2” of the West-Wide Governance Pathways Initiative, with some lawmakers voicing concerns about guardrails against market manipulation and what the effort means for the Golden State’s autonomy to set its own energy policies. 

Members of the state Senate Energy, Utilities and Communications Committee brought in proponents and opponents of the Pathways Initiative for an informational hearing. Pathways is an effort to support expansion of CAISO’s Western Energy Imbalance Market (WEIM) and the soon-to-be-implemented Extended Day-Ahead Market (EDAM) to entities outside California by shifting governance of the markets from the ISO to a proposed independent regional organization (RO). 

Sen. Jerry McNerney (D) said he was “a little nervous” about the risks associated with establishing a day-ahead market intended to unleash the value of the market. He cited Enron, which collapsed spectacularly after its market manipulation schemes wreaked havoc on California and CAISO during the electricity crisis of 2000/01. 

“I mean, what are the risks here? I mean, have you laid those risks out so that we can get a clear understanding what they might look like?” McNerney said. 

Siva Gunda, vice chair at the California Energy Commission, responded that the effort is about optimizing existing resources and ensuring “we have access to the largest number of resources.” 

Gunda also noted that California has put in place several guardrails since the Enron crisis, including market monitoring at CAISO and statutory responsibility to protect the public interest. 

Sen. Monique Limón (D) said she is “slightly more skeptical” of where she will land on the issue, “in part because what I’m looking for are what those guardrails would be like.” 

Limón said she would need more details on guardrails as they evolve and how those will be designed to keep up with new technology “that poses a risk to a lot of our systems, not just this.” 

Members of the committee also asked questions about how the initiative would impact California’s independence over its energy policies and how it differs from previous attempts to expand energy markets in the West. 

Alice Reynolds, president of the California Public Utilities Commission, said previous efforts focused on expanding CAISO’s balancing authority area, noting the ISO would remain a BAA within its current boundaries under the Pathways proposal. (See California Energy Officials Pitch Pathways Plan to State Senators.) 

Participation in the market is also voluntary, Reynolds said, adding, “We would keep the control of our operation, of our transmission in the CAISO. She pointed out that “we would just be making a decision about whether the CAISO should join a market, or regional market, and then CAISO itself would operate it.” 

‘Incredibly Difficult Environment’

Democratic Sens. Henry Stern and Josh Becker introduced SB 540 — or the Pathways bill — in February. The proposed legislation sets conditions under which CAISO and Golden State utilities can participate in energy markets governed by an independent RO. (See Pathways ‘Step 2’ Bill Sets Conditions for EDAM Governance.) 

During the March 12 hearing, Stern said he appreciated the scrutiny about how the effort will impact California’s autonomy and emissions goals.  

However, Pathways can help build trust among Western states amid trade wars with Canada, staff cuts at the Bonneville Power Administration and other actions taken by the Trump administration aimed toward the energy sector, according to Stern. 

“There’s a lot of politicization in the energy arena, too,” Stern said. He added “the reason, I guess, I’m a part of this initiative is that I think we still have to be on that mission and try to … build that trust in an incredibly difficult environment.” 

He said it is a tricky balancing act to ensure the economic and reliability benefits will work for states like California, which is “as green as it gets, or for a state that doesn’t want to make that their banner.” 

The commission heard from various other stakeholders, including environmental organizations, labor parties and utilities. 

Michael Colvin, director of regulatory and legislative affairs at the Environmental Defense Fund, told the commission, “To ensure that we have a fully clean electric grid funded by affordable bills, and that we make the necessary clean infrastructure investments to keep the lights on, we must leverage the geographic diversity of the West.” 

“I think of Pathways as a critical ingredient to help us fight climate change, to ensure that our electric bills remain affordable and that we have the reliability that we need to keep the lights on,” Colvin added. 

Skeptics of Pathways also joined the meeting, including former CPUC President Loretta Lynch. 

Lynch contended that many of the arguments favoring Pathways rely on hypothetical scenarios in which EDAM would consist of participants from all Western states. This is unlikely, Lynch said, noting several entities have already decided not to join EDAM. 

Lynch also said California would give up control of energy policies and risk losing jobs to other Western states. 

Right now, California is in charge, “but Pathways throws all that out. California gets a yet to be priced seat in the back of the plane where don’t know the destination, how the plane is flown, or even our ticket price, until and unless you give up control of the pilot seat,” Lynch said.