The latest version of California’s “Pathways” bill strips out a previous amendment that would have given state regulators authority to order utilities to withdraw from the West-Wide Governance Pathways Initiative’s “regional organization” (RO) under certain circumstances.

But that doesn’t mean the bill has been slimmed down. Just the opposite, in fact.

Instead, a newer iteration of the bill replaced that provision with a lengthier one prescribing a more complicated process for undertaking the same action, while adding a slew of other conditions intended to protect California’s policies and ratepayers.

“In short, this new provision reflects the delicate negotiation between California and the rest of the West as they figure out how to marry their energy systems,” Lincoln Davies — professor of law and executive director of energy, resource and environment programs at the University of Utah’s S.J. Quinney College of Law — told RTO Insider in an email.

“This should be expected, and this bill is still a strong step in the right direction. It would ensure RO independence but give California assurance it can exercise its sovereign power to protect its citizens,” Davies said.

Senate Bill 540 emerged from the Senate’s Appropriations Committee on May 23 in a 4-1 vote recommending that the full house pass the legislation as amended, but the exact content of the amended bill remained a mystery until the Legislature printed and posted it May 28. (See California’s ‘Pathways’ Bill Heading to Senate Floor.)

The newest version removes language the Senate Judiciary Committee added in April to address the concerns of constituents and lawmakers who fear that CAISO’s membership in the proposed independent RO could provide a backdoor for the Trump administration to compromise California’s ambitious environmental and clean energy policies. (See California Lawmakers Seek to Trump-proof Pathways Initiative Bill.)

To prevent that outcome, the Judiciary Committee inserted an amendment stipulating that the California Public Utilities Commission could direct its jurisdictional utilities to withdraw from the RO if the new entity’s rules were to become “detrimental to California consumers.”

The amendment also mandated withdrawal if the state’s renewable portfolio standard is “held invalid by [a] reviewing court on claims of impermissible discrimination” or if the Trump administration — or future administrations — invoke emergency powers that require California to subsidize fossil fuel generation.

That amendment has been deleted, only to be replaced by a more complex one that outlines the creation of a new Regional Energy Market Oversight Council designed to ensure “that participation in a regional energy market serves the interests of the state.”

The council would consist of the CPUC president; the chair of the California Energy Commission; the chairs of the Senate Committee on Energy, Utilities and Communications and Assembly Committee on Utilities and Energy; and the state’s attorney general, with the AG serving as chair.

It would be charged with approving “initial participation” in the RO by California’s “electrical corporations” and load-serving entities and, “at any point” after that approval, determining whether those entities “should be required to withdraw from an energy market governed by the independent regional organization” after convening a public meeting on the matter.

In its capacity for making RO withdrawal decisions, the council also would be responsible for reviewing the RO tariff both before and after FERC approval, as well as for monitoring any “subsequent actions” related to the market that might:

• • weaken or invalidate California’s RPS;
  • require the state, CAISO or any LSE to procure or subsidize fossil fuel generation located outside California; or
  • result in “adverse impacts on California’s resource planning, procurement, environmental, reliability or other applicable public interest policies.”

The amendment also makes the council respsonsible for protecting ratepayers by authorizing the new body to order utilities to withdraw from the RO if the organization or the federal government take measures that cause the cost of California’s regional market participation to exceed benefits over a two-year period.

The council also could order withdrawal if the RO fails to fully compensate California ratepayers for CAISO’s costs to provide the RO with “any services, facilities, equipment and property, including intellectual property,” or if the RO doesn’t hold both ratepayers and the ISO “harmless” for legal claims arising from the operation of the regional market.

The new amendment further prohibits CAISO from modifying its own tariff in relation to the RO without the council’s approval.

Getting Hitched

Sources familiar with the California legislative process have told RTO Insider that the Appropriations Committee’s process of adding amendments to bills is something of a black box — and that appears to be the case for SB 540.

One source close to the SB 540 effort said it was unclear exactly which lawmakers added the amendments, or why. The office of the bill’s sponsor, Sen. Josh Becker, had not responded to questions as of press time.

But Davies said he thinks the new provision seeks to achieve three objectives.

“First, it creates a checkpoint for California electricity providers for entry or exit into these new markets. Under the prior version of the bill, this was left mostly to self-execution, with an express reservation of PUC authority to order withdrawal. Now, companies need to ask ‘mother, may I?’ to get in or out of the markets,” he said.

“Second, it spreads authority across multiple entities rather than concentrating it in the CPUC. The prior withdrawal provision left sole authority to the CPUC to act. Now, the council would have representatives from multiple agencies, both chambers of the Legislature and the attorney general.”

The third objective could be the most fundamental, according to Davies, because it aims to allow California to maintain control over its policies while still providing for independent governance of CAISO’s markets.

“This is understandable, particularly given how federal energy policy is developing right now, including the White House specifically naming California energy policy as a target for federal action in executive orders,” he said.

Davies noted that “any bill that erodes the independence of the new RO is certain to crater a broader Western market,” and that the widest possible market is in the interest of all participants, including California.

“At some point, of course, everyone will need to end the courtship and just decide to get hitched or not,” he said. “This bill should make that possible — to the benefit of California, the climate and the broader West. Anything that moves more control to California likely will not.”