The West-Wide Governance Pathways Initiative on Nov. 15 released its final proposal for establishing a Western “regional organization” (RO) that would assume oversight for CAISO’s Western Energy Imbalance Market (WEIM) and Extended Day-Ahead Market (EDAM).

The proposal offers a blueprint for divvying up functions between CAISO and the RO that Pathways backers envision would provide an independent framework for governing the ISO’s Western markets. Launched in July 2023, the effort aims to address regional concerns about the state of California’s oversight of CAISO and to counter the appeal — and potential growth — of SPP’s Markets+, a competitor of EDAM for market participants.

The Pathways Launch Committee will vote on the proposal during its next public meeting Nov. 22. The content of the Step 2 proposal will play a big role in shaping the bill that Pathways supporters are looking to move through the California State Legislature in 2025 to relax the state’s authority over CAISO’s markets.

“This proposal marks a major milestone in a decades-long series of incremental steps,” Launch Committee Co-Chair Kathleen Staks, executive director of Western Freedom, said in a statement. “The regional organization will have sole authority over the energy markets, ensuring shared and independent Western ownership, while deliberately setting the stage for an organization empowered to develop its own regional solutions for years to come.”

The final plan adopts most of the recommendations the committee set out in its Step 2 draft proposal released in September, while incorporating stakeholder feedback on the draft. (See Pathways Initiative Releases ‘Step 2’ Proposal for Western ‘RO’.)

As in the draft, a key element of the final proposal is the Launch Committee’s choice to launch the RO in the form of the “Option 2.0” structure discussed during Pathways meetings. Under that option, the RO would serve primarily as a “policy-setting” body and assume “sole” authority over WEIM and EDAM market rules, holding exclusive rights to file with FERC under Section 205 of the Federal Power Act.

That stops short of the more comprehensive “Option 2.5,” which would see the RO take on more of CAISO’s market functions and legal responsibilities along with the accompanying financial and legal risks. But the plan states that, within nine months of the RO’s formation, the RO board must perform analysis of advancing toward Option 2.5.

“The feasibility analysis would at a minimum evaluate: vendor management role, financial liability, existing regulatory contract changes and future RO staffing needs,” the proposal notes.

The plan also calls for the RO to maintain a single, integrated tariff with the ISO instead of establishing a separate tariff. The Launch Committee recommends the Formation Committee work with CAISO “to explore ways to provide more clarity in the tariff that can be proposed to the RO board once it is seated.”

The proposal also describes how the RO would be funded: through “a tariff-based mechanism under which the CAISO collects funding from market participants and remits the funding to the RO.” It notes that the RO and CAISO would follow a stakeholder process to develop the mechanism and how it might “interrelate” with the ISO’s current approach to collecting its grid management charge. The mechanism would be subject to FERC approval.

Budget, Location, Relationship with CAISO

The plan says the RO would start out with “limited staffing” at an estimated budget of $1.25 million to $1.5 million, which eventually could increase to $10 million to $14 million over time.

The proposal also sets out how the RO would influence CAISO’s management and market monitoring structure, saying it would have “advisory authority to provide noncontrolling input on hiring and performance of one or more officer-level senior CAISO managers responsible for the business line (or ‘vertical’) that oversees the markets.”

It notes that CAISO’s Board of Governors would consider “the most appropriate way” for the RO board to advise on the hiring of any future CEO of the ISO. The two boards also would jointly select future heads of the ISO’s Department of Market Monitoring (DMM) and members of its Market Surveillance Committee.

The plan calls for the RO’s contract with CAISO to “provide an opportunity for the RO to offer an annual performance evaluation of the CAISO management personnel subject to the RO’s noncontrolling hiring input, including the CAISO officer(s) overseeing market services and the DMM.”

The proposal affirms the Launch Committee’s previous recommendation that the RO be incorporated as a 501(c)(3) nonprofit in Delaware and have its principal place of business in Folsom, Calif. — near CAISO’s headquarters.

It sets out the RO’s governance structure, including the seven-member board, the Formation Committee and the Public Policy Committee, the last of which would be “tasked with conducting outreach at key points in the stakeholder process to states, local power authorities and federal power marketing administrations to collect input about the potential for adverse impacts on a state, local or federal policy by an initiative.”

The Step 2 proposal also sketches out the RO’s framework for protecting the public interest, including the intention to carry over the existing Western Energy Markets Body of State Regulators (BOSR) into the RO and create an independent Consumer Advocate Organization and Office of Public Participation to facilitate engagement with the public.

The proposal’s program for stakeholder engagement includes the structure for the proposed Stakeholder Representative Committee (SRC) the Launch Committee discussed with stakeholders in October. (See Revised Pathways Proposal Focuses on Sector Issues.) The proposal notes that voting within the SRC is “ultimately advisory” and intended to identify “significant opposition” to an initiative; it says the Formation Committee in the future would work with a Stakeholder Process Work Group and stakeholders to develop the “remand” process to respond to such opposition.

The proposal additionally breaks out the roles for the SRC and RO staff in the stakeholder process. It also notes that the RO’s Formation Committee would work with CAISO to determine staffing for the RO’s stakeholder process and “to refine the roles needed” and identify whether they would “best sit with” the RO or CAISO.

‘Logical Next Step’

Most parties who commented on the draft proposal expressed support for the Launch Committee’s decision to proceed with Option 2.0 rather than a more aggressive option in which the RO would take on more responsibility for CAISO’s markets.

But key among the skeptics were entities in the Northwest known to favor Markets+ over EDAM, including Puget Sound Energy (PSE) and the Bonneville Power Administration.

“PSE is concerned that this proposal still leaves significant uncertainty with regard to achieving meaningful independence, does not ensure sufficient near-term independence of the RO from the California Independent System Operator, and does not provide a clear line-of-sight to Option 4 [which outlined a nearly complete transfer of CAISO functions to the RO] or a viable, broad, independent Western regional transmission organization footprint that includes California,” PSE said in its comments on the draft plan.

BPA officials expressed a similar view during a Nov. 4 workshop and follow-up press briefing to discuss the status of its day-ahead market decision process. (See BPA Execs Lay out Markets+ Benefits, Risks, Reasons.) They noted the agency’s preference for Pathways’ Option 4, questioned whether the RO would even adopt Option 2.5 and said Markets+ already offered the governance option that “satisfies” its needs.

“We have an option that’s no longer hypothetical. It is a real option that has a real independent market governance structure that satisfies us, and that’s what we’re measuring everything else against,” Rachel Dibble, BPA vice president of bulk power marketing, said during the briefing.

EDAM supporters have argued the Pathways Step 2 plan represents the incremental step needed to move the West to a regionwide market that includes California.

“We believe that the Step 2 proposal is a logical ‘next step’ for markets for the Western Interconnection,” said Jim Shetler, executive director the Balancing Authority of Northern California (BANC) and a member of the Launch Committee. “The concept of phasing the evolution of market services with participation on a voluntary basis is an approach that has worked successfully for the West and is consistent with BANC’s strategic vision. BANC is happy to support this next phase of the Pathways process.”