How does Pathways differ from prior efforts to regionalize?
Prior efforts attempted to remove the CAISO Governor-appointed board from oversight of all its existing functions. Pathways leaves the CAISO board intact; instead, it moves a single CAISO function—energy markets—to governance by a new regional organization (RO) and a board constituted from across the West. A diversity of stakeholders, including prior opponents, have coalesced around this new design.

What will change for CCAs?
The energy markets CCAs and other load-serving entities participate in today, both day-ahead and real-time, will no longer be under the governance of the CAISO’s Governor-appointed board; the rules for these markets will be overseen by a new RO with an independent board from across the West. The shift is limited to governance, and the CAISO will continue to operate these markets under contract with the RO.

Map of Western Energy Imbalance Market participants. Credit: WEIM.

Are there elements of Western electricity markets that have already been regionalized?
Yes. The West is taking an incremental approach to regionalization in contrast to the East’s holistic approach. The California Independent System Operator’s (CAISO’s) Energy Imbalance Market (EIM) and soon-to-be-implemented Extended Day Ahead Market (EDAM) integrate resources and loads from several Western states. Likewise, compliance with federal and regional grid standards has also been regionalized, with the CAISO serving as the Reliability Coordinator for 25 Western balancing authorities and 39 transmission operators.

What are the potential benefits of Pathways?
Studies commissioned by the California Energy Commission from the Brattle Group and Stanford Climate & Energy Policy Program highlight the potential cost savings, enhanced grid reliability, and reduced air pollution that could result from implementing SB 540.

• Enhanced Reliability. Geographic and weather diversity in a broader regional market allows participants to draw on a much wider resource pool during unexpected or extreme events. The increased EDAM footprint could expand California’s supply cushion by 25,000 MW, with most of this availability falling during the 10 tightest hours on the system.
• Cost Savings. California could achieve up to $1 billion annually in lower net total system costs compared to baseline assumptions due to:
• More efficient dispatch. Pooling resources across a larger geographic area can lead to more efficient energy production and distribution, producing cost savings for consumers.
• Renewable energy integration. Today, consumers may pay twice for energy when excess renewable contracts are curtailed on the CAISO system: they must pay for both the curtailed energy and the energy they consume. Regionalization provides a broader market for California’s solar and wind resources, reducing curtailment of existing resources and lowering customer costs.
• Environmental Benefits. By optimizing the use of renewable resources across the region, regionalization, as envisioned by Pathways, reduces reliance on California’s gas resource fleet by up to 31% relative to baseline assumptions, thereby reducing greenhouse gas emissions and offering other environmental co-benefits. Collaborative efforts can enhance the effectiveness of environmental policies across state lines.

Will regionalizing energy markets undermine California’s achievement of key policy initiatives?
No. The crucial elements of reliability and climate policies will remain in the hands of California legislators and regulators. Resource adequacy, resource procurement, the Renewable Portfolio Standard, carbon reduction programs, retail rates, programs, and other functions will remain soundly within California’s control.

Will Pathways expand FERC jurisdiction over energy markets serving California?
No. Today, FERC regulates the CAISO-managed wholesale energy markets, including EIM and EDAM, and transmission grid. Pathways simply shifts governance of the EIM and EDAM energy markets to a new FERC-regulated entity: the regional organization (RO). The key jurisdictional change is replacing the California Governor’s unilateral right over CAISO board appointments with a regional board selection process.

If California were to find that participating in the RO market is undermining its fulfillment of key policy objectives, could it revert to today’s CAISO status quo?
Yes. All regional operations, including the CAISO’s EDAM and EIM markets, specify a process for withdrawal from the market. The RO will also have withdrawal provisions that would be available to and could be exercised by California participants. Even reinstatement of the status quo, however, could not avoid federal jurisdiction given that FERC regulates the CAISO markets today.

When would governance of energy markets shift from the CAISO to a new RO?
SB 540 does not specify an exact timeline for when the new regional energy market could become operational. CAISO must first demonstrate that the RO meets a number of statutory requirements before moving control of the market rules to the RO.​ The timeline would depend on how quickly the RO can meet the necessary requirements and how efficiently CAISO can complete the demonstration and authorization process. ​The process is likely to take several years.

According to the Brattle Group, west-wide greenhouse gas (GHG) emissions will go up. Isn’t that a problem?

The Brattle Group study has been broadly misunderstood and misinterpreted. Three things are important to understand. First, every model relies on assumptions, and the dispatch model used turns significantly on the natural gas price assumption. That assumption determines how much gas and coal are actually dispatched to serve load; higher gas prices give coal more room to compete. The Brattle Study relies on a relatively high gas price; for that reason, the model generated more emissions than it would at a lower gas price. Second, the most important takeaway from this slide is the comparison between the Expanded EDAM case (SB 540 is successful) and the Split Market case (SB 540 fails). The emissions results are better if SB 540 is successful. Third, the emissions are a comparison to the Baseline + model, not the current emissions. Brattle has rerun its model against a true current baseline, and the results are shown in the below slide, demonstrating that emissions fall in all scenarios modeled:

Will there be private entities, like fossil fuel interests, on the Governing Board?
Private entities will not be on the Governing Board. The Governing Board must be independent, meaning they cannot have any affiliation with an entity, whether private or governmental. Moreover, any fossil fuel influence on the Board is strongly countered or outweighed by the many consumer advocates (funded by the RO), publicly owned utilities, CCAs, cooperatives, the Body of State Regulators, and other interests with consumers on their minds.

Some have voiced concerns about other regions that couldn’t exit a similar process. Will that be the case here?
The only cases on withdrawal are from Regional Transmission Organizations. In these cases, participating transmission owners are removing their assets from the control of the RTO, and FERC has very different considerations in these cases.

Moreover, SB 540 requires that the tariff approved by FERC permit withdrawal without penalty and without further approval. So, California will know that is in place before it must participate in the market.

How will the process ensure California’s continued leadership on clean energy goals?
All of California’s key clean energy goals are a matter of state jurisdiction and will remain so. California controls what types of resources get built; the RO market, like the CAISO market, only optimizes the use of the resources once they’re built. Also, GHG goals are independent of FERC, and SB 540 requires that the RO provide information to facilitate California’s program.

There’s a big difference between now and the future: hasn’t the CAISO EDAM already been approved by FERC under the previous administration?
This may be a red herring. The administration approving the RO shouldn’t make any difference. As noted above, an approved RO tariff needs to be in place before the market moves forward. If we don’t like what FERC does on approval, we don’t join.

It’s important to remember that the Trump administration can target California (and is trying through Executive Orders today) on our climate policies. FERC ultimately controls the CAISO today, and putting market rules under the RO doesn’t change the extent of FERC’s ability to influence and control. Keep in mind that while it may be somewhat helpful to have a state-appointed governing board for the CAISO, it only recommends rules, it does not decide them.

• If we go through this process again, the Trump administration could come after us, but we have a solid reason for fighting back.
• We’ll have to send the new RO to FERC for approval.

Not all the states around us are GHG friendly. Is that a problem?
Many, if not most, are GHG friendly, although levels of commitment vary. In addition:

• GHG policies are state jurisdictional.
• If the RO causes a disruption in state policy, California can withdraw.
• California entities cannot enter into long-term coal contracts by law.
• The Brattle study showed no coal imports into California.

Putting coal resources into a market competing against zero or negative cost renewables will gradually push them out when they are unable to compete.

It’s also important to understand that even if the RO is not formed, there is and will continue to be out of state coal in CAISO markets. Today, coal resources participate in the CAISO imbalance market. In addition, Pacificorp, owned by Berkshire Hathaway, has joined the CAISO’s Extended Day Ahead Market. So, there is and will be coal in our markets under any scenario.

Some are concerned that recent pushes to bring back coal may incentivize old, already built coal plants to come back on-line (with capital costs of $0). It’s important to keep in mind that California has a coal tax. That, in addition to the highly competitive cost of renewables, means a significant return to coal is unlikely.

There’s a transmission access charge (5 cents) for everything that comes from outside California. Will this increase costs?
No. Transmission operations and rates are not being regionalized. SB 540 only permits participation in energy – i.e., commodity – markets. So, nothing will change with California’s existing transmission control or cost allocation.

How much money are we going to spend on regionalization; could this money be better spent in California?