California Senate committee unanimously passes Pathways bill to expand Western markets

A state Senate committee unanimously passed a bill to create a wider regional electric market within California by allowing entities to participate in markets governed by a separate, independent regional organization.

Senate Bill 540, passed by the Senate Committee on Energy, Utilities and Communications on April 22, would implement Step 2 of the West-Wide Governance Pathways Initiative which lays out plans to transfer governance authority over existing regional energy markets from the California Independent System Operator to a new regional organization.

"While there are several other steps to go, the significant support from Committee members and stakeholders demonstrated that this is the right path to achieve the benefits of regionalization (easier to meet reliability, increase resources to help affordability, continue deployment of clean resources) -- while preserving each state's ability to set and enforce its own energy policies," Scott Miller, executive director of the Western Power Trading Forum, told S&P Global Commodity Insights April 23. "The unprecedented coalition supporting SB 540 [from labor, environmental, customers, developers and utilities] helped make the case for the bill's favorable consideration and the benefits of this proposal to the entire West."

The bill was filed in February by Sen. Josh Becker, chair of the state Senate Committee on Energy, Utilities and Communication, and Sen. Henry Stern, vice chair of the Joint Legislative Committee on Climate Change Policy.

"As we move toward achieving California's 100% clean energy goals, we must look at all possible solutions to reduce costs, improve reliability, and cut emissions," Becker said in an April 22 statement. "Pathways strikes that balance by unlocking the benefits of a regional energy market while safeguarding California's critical public policy priorities. It offers a win-win scenario for California -- achieving cleaner energy, more reliable power, and real savings for ratepayers."

What it means

Step 2 of the West-Wide Governance Pathways Initiative allows California utilities to participate in a market not governed by CAISO. California legislation is necessary to implement Step 2. The legislature could enact a bill any time during its session, but no later than Sept. 12, 2025.

"With better access to shared resources across the West, grid operators will be better equipped to address peak demand periods, reduce the likelihood of blackouts, and support the resilience of the grid in the face of growing challenges such as extreme weather events and climate-driven disruptions," Hunter Stern, president of the Coalition of California Utility Employees, said in an April 22 statement.

The bill contains key safeguards to ensure CAISO will continue operating these markets and California retains its control over critical functions such as transmission planning, procurement and other public policies. The bill also allows CAISO until after Jan. 1, 2027, to assess the national political environment and analyze the benefits of joining a regional market before it has the authority to join it.

"The Senate Energy, Utilities and Communications Committee's unanimous 17-0 vote to advance SB 540 emphasizes the support for and progress being made toward strengthening California's collaboration with the rest of the West," CAISO spokesperson Jayme Ackemann told Commodity Insights April 23. "Growing the extended day-ahead energy market is a critical component of maintaining a reliable, affordable and clean grid in California and the broader Western region."

A Brattle Group analysis found the bill is expected to save California ratepayers up to nearly $800 million annually by enabling a least-cost dispatch across a broader pool of Western resources.

Where it started

The West-Wide Governance Pathways Initiative was launched in the summer of 2023 by a coalition of regulators from five Western states.

Step 1, which the CAISO board of governors and the Western Energy Markets governing body approved in November, would establish a more independent and broadly regional approach for how market decisions are made, for both the WEIM and the Extended Day-Ahead Market, elevating the WEM governing body's decision-making from joint authority to primary authority. CAISO plans to have its first market participant go live in the EDAM in spring 2026.

Step 3 would continue expanding the scope of regionalized functions and services offered by the regional organization.