The language for the proposed California bill to implement “Step 2” of the West-Wide Governance Pathways Initiative became public late Feb. 20, revealing the conditions under which CAISO and Golden State utilities can participate in energy markets governed by an independent regional organization (RO) if lawmakers vote to approve the legislation.
Introduced by Sens. Josh Becker and Henry Stern, SB 540 — or the Pathways bill — seeks to amend sections of the California Public Utilities Code to enable California entities to join an energy marketplace governed by an independent RO. Ultimately, the RO would take over governance of CAISO’s Western energy markets to make CAISO markets more attractive for entities outside of California and allow stakeholders to tap into a broader market of electricity resources.
Before CAISO can hand over the reins, the bill requires the RO to fulfill 12 requirements. The bill’s text focuses on ensuring the RO’s independence and maintaining the authority of each state with a power entity in the market “to set its own procurement, environmental, reliability and other public interest policies.”
For example, the RO must engage with states, local power authorities and federal power marketing administrations before filing tariff changes with FERC. The RO’s governing board must also seek input from a body of state regulators “to receive the views of state regulators,” according to the bill.
The legislation also requires the RO to ensure public interest protections, including making funding available for a consumer advocate organization and maintaining an office of public participation.
The bill is the result of the Pathways Initiative, which aims to expand CAISO’s Western Energy Imbalance Market (WEIM) and the soon-to-be-implemented Extended Day-Ahead Market (EDAM) by shifting governance of the markets from the ISO to the proposed independent RO.
Previous efforts to expand markets in the West have failed, partly due to non-Californian entities expressing concerns about a market governed by CAISO, whose Board of Governors is appointed by the California governor. The Pathways bill strives to solve this issue.
Lincoln Davies, professor of law and executive director of energy, resource and environment programs at the University of Utah S.J. Quinney College of Law, told RTO Insider the bill “marks a monumental moment for California and all of the West.”
“It is an important departure from prior efforts, each of which failed,” Davies said. “Rather than islanding California from other states, the bill advances core Western values that were absent in past efforts — collaboration among stakeholders, respect for each state’s right to self-govern, and imagination and innovation. This new market would look different from any other market in the U.S., and that’s exactly how it should be. The West is unique. Its markets should be, too.”
The Northwest Energy Coalition (NWEC) said a West-wide energy market is the most efficient way to meet energy needs, ensure affordability and tackle extreme weather events.
“That is why we have committed so many resources to the Pathways Initiative to help create an independent regional organization to run the combined Extended Day-Ahead and Western Energy Imbalance Market,” NWEC stated. “This bill would pave the way for shared governance across all Western states in this region-wide energy market. We hope this bill passes quickly so that all utilities in the West join the EDAM energy market.”
The effort comes as the region prepares for the launch of EDAM and some entities have already committed to the market. But SPP’s Markets+ has also gained significant traction by positioning itself as offering independent governance from the get-go.
A study by The Brattle Group suggests California ratepayers could save $790 million a year under an EDAM that includes nearly every Western balancing authority except for Western Area Power Administration entities already engaged with SPP markets, Public Service Co. of Colorado (PSCo) and the Imperial Irrigation District.
But California likely would see significantly lower benefits than the top end — $182 million — in what will be the most likely outcome in the West — the “Split Market” case, where Markets+ consists of Powerex, the Bonneville Power Administration and most Washington utilities, NorthWestern Energy, PSCo, Arizona’s utilities and El Paso Electric, according to the Brattle study.
