Staff Report Item 17
Staff Report Item 17
To: Ava Community Energy Authority
From: Todd Edmister, Sr. Director of Public Policy and Deputy General Counsel Dominic Faria, Senior Policy Coordinator
Subject: Seeking Board approval for supporting SB 540 (Pathways legislation) Date: March 19, 2025
________________________________________________________________ Summary/Recommendation
This Staff Report and accompanying presentation are intended to inform the Ava Board of Directors about SB 540 and the West-wide Pathways Initiative, and to seek approval to adopt a Resolution in support of SB 540 and authorizing the CEO to sign the attached Letter of Support.
Financial Impact
There is no cost associated with sending a letter of support but adoption of SB 540 could potentially result in operational savings for Ava in the future.
Analysis and Context
California CCAs, including Ava, have been asked to sign a letter supporting California Senate Bill 540 (SB 540). The letter is being led and signed by a broad coalition of stakeholders, including CalCCA, Natural Resources Defense Council, American Clean Power, among others.
The letter will be sent to members of the legislature urging them to support the legislation.
What is SB 540? On February 20, state Senators Josh Becker (D-Menlo Park) and Henry Stern (D-Los Angeles) introduced SB 540, a bill that establishes a process through which the California Independent System Operator (CAISO) and California utilities can participate in an energy market governed by an independent, West-wide regional organization (RO) as proposed by the Pathways Initiative.
Staff Report Item 17
Under current California law, the state’s energy market rules are governed by the CAISO Board of Governors, a five-member body whose members are appointed by the Governor and confirmed by the state Senate. The CAISO operates the Western Energy Imbalance Market (WEIM), a regional market that enables participants to buy and sell power in real time and plans to launch an Extended Day Ahead Market (EDAM) in 2026. The CAISO also oversees transmission planning, energy project selection, transmission system operation and cost allocation, balancing authority functions, reliability coordination, and energy market operations.
SB 540 would allow the CAISO to transfer its existing governance of the western energy markets to an RO starting in 2027, but only if the CAISO decides that the RO meets a set of specific statutory requirements. The bill does not alter the CAISO’s existing authority over transmission planning, balancing authority functions, or reliability and renewable portfolio standards. Instead, it would merely give the CAISO the authority to decide whether to transfer its existing governance over the energy market rules to the RO while retaining the remainder of its current authorities and functions.
Who is supporting and opposing the Pathways Initiative? SB 540 is co-sponsored by the Coalition of California Utility Employees, State Association of Electrical Workers, Environmental Defense Fund, and Natural Resources Defense Council. It is supported by a range of other utility, labor, developer, and environmental advocacy groups. Supporters within the CCA community include MCE, Silicon Valley Clean Energy and Peninsula Clean Energy. The CalCCA Board of Directors voted in February 2025 to support the legislation.
Opposition has come from Consumer Watchdog and former CPUC President Loretta Lynch.
What is the Pathways Initiative? The Pathways Initiative is a multi-state effort aimed at establishing a unified, independently governed wholesale electricity market that includes all states in the Western Interconnection, including California. The Pathways Initiative began in 2023 at the request of public utility and energy commissioners from California, Oregon, Washington, Arizona, and New Mexico with the intent of maximizing the benefits of coordinated wholesale electricity markets for customers across the entire Western U.S.
The Pathways Initiative Launch Committee was formed in October 2023 and is led by representatives from a variety of stakeholders, including state regulators, investor-owned utilities (IOUs), public utilities, labor unions, non-utility load serving entities (e.g., CCAs), consumer advocates, and others.
This past November, the Pathways Launch Committee approved its Step 2 Final Proposal outlining a plan to form an independent RO responsible for overseeing an integrated WEIM and EDAM for all western states, with the intent to take incremental steps toward ultimate governance and operational control of the market later down the line.
The Pathways Initiative is as notable for what it is not as for what it is. Unlike prior regionalization efforts that have failed to clear the California state legislature or garner requisite support from other states, the Pathways Initiative does not establish a full West-wide regional transmission organization (RTO) with authority over grid operation, capacity requirements, and transmission planning. The proposal does not change existing grid operators or balancing authorities and does not change existing resource adequacy or renewables standards for any Staff Report Item 17
state involved. The RO that Pathways establishes is only limited to governance over regional energy market rules.
By enabling California to transfer authority over the regional energy markets to an RO, SB 540’s passage would be a key step forward in the process of advancing the Pathways proposal and achieving potential energy cost savings, and reliability and emissions benefits for California.
Possible RO benefits: Since it was established in 2014, the WEIM reports saving its 22 market participants a total of $6.62 billion. The WEIM states that it is using state-of-the-art technology to find and deliver the lowest-cost resources to meet immediate power needs and manage congestion on transmission lines to maintain grid reliability. The Pathways proposal aims to expand the benefits and cost savings of the WEIM and soon-to-launch EDAM by increasing coordination with and market participation from balancing authorities in other states.
Through an independent RO, market participants would be able to draw resources from a broader energy footprint and thus potentially increase overall reliability and efficiency. A study by The Brattle Group estimates that expanding the EDAM footprint would save California participants anywhere from $182 million to $800 million per year, depending on the size and extent of the regional market; and that market expansion would also reduce the state’s fossil fuel generation by up to 31% and wind and solar curtailment by up to 10%, resulting in a net reduction in statewide greenhouse gas emissions of up to 11.2%, according to the study.
Another study conducted by the Stanford Woods Institute estimates that an expanded regional energy market would substantially reduce the risks of unserved energy and rotating outages by as much as 40% during extreme stress conditions, such as summer heat waves. This analysis also estimates that unserved load would be more than cut in half during these scenarios, from 1901 GWh to 877 GWh.
Possible benefits to Ava: Based on CAISO’s latest WEIM benefits report, the WEIM saves LSEs within CAISO roughly $50 million per year. Ava serves approximately 4% of the CAISO balancing area’s load, meaning that WEIM saves Ava about $2 million per year under the current market arrangement.
Based on Brattle’s $182 million to $800 million system cost savings estimate, transferring market governance to an independent RO and subsequently expanding the EDAM could save Ava anywhere from $7 million to $32 million per year. Again, the actual cost savings Ava ends up realizing will depend on how many entities join the RO-governed EDAM, the overall size of the EDAM footprint, and how efficiently “seams” issues between an RO-Governed EDAM and adjacent markets are resolved. A larger EDAM footprint generally should lead to greater savings.
Concerns with the Pathways Initiative: Pathways Initiative opponents have raised concerns over California relinquishing to the federal government what remaining, energy crisis-era, control it has over the western energy market. This at a time and moment when an aggressively pro-fossil fuel administration has just taken power and is actively attempting to exert greater control over independent federal agencies, like the FERC.
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This is a very real concern. However, the loss of remaining state control over energy markets is balanced against the reality that the status quo will not hold anyway. SPP’s Markets+, a competing RTO proposal from the Southwest, is already courting commitments from power suppliers and balancing authorities across the West. Should any delays or failures occur in implementing the Pathways proposal, there is a risk that potential EDAM participants instead elect to join Markets+. The resulting supply-demand dynamic in the EDAM could provide less cost reduction than estimated, and in a worst-case scenario could lead to increased wholesale and retail energy prices.
In short, if California does not cede its already limited control over the CAISO markets, critical suppliers (e.g., Bonneville Power Authority and/or Powerex) will likely join competing markets, with a corresponding reduction in supply to California. At minimum, the Pathways Initiative will reduce the number of supplier “defections” from EIM, while at best, as outlined above, the Pathways Initiative expands the universe of available resources. Which leads to the Staff recommendation below.
Staff Recommendation
Staff recommends that the Board authorize the CEO to sign the letter of support on behalf of Ava. Overall, SB 540 will have little to no immediate direct impact on Ava’s operations, but the potential reliability enhancements and operational savings Ava could achieve via a broader, independently governed regional energy market are significant. Even if the estimated expanded EDAM benefits are not fully realized, it is expected to at least be a marginal improvement over the status quo.
Attachments
A. Resolution
B. SB 540 Letter of Support
C. Author’s Fact Sheet
D. Power Point Presentation
Attachment Staff Report Item 17A
RESOLUTION NO. R-2025-XX
A RESOLUTION OF THE BOARD OF DIRECTORS
OF THE AVA COMMUNITY ENERGY AUTHORITY SUPPORTING
CLAIFORNIA SENATE BILL 540 (2025)
WHEREAS Ava Community Energy Authority (“Ava”) was formed as a community choice aggregation agency (“CCA”) on December 1, 2016, under the Joint Exercise of Powers Act, California Government Code sections 6500 et seq., among the County of Alameda, and the Cities of Albany, Berkeley, Dublin, Emeryville, Fremont, Hayward, Livermore, Piedmont, Oakland, San Leandro, and Union City to study, promote, develop, conduct, operate, and manage energy-related climate change programs in all of the member jurisdictions. The cities of Newark and Pleasanton, located in Alameda County, along with the City of Tracy, located in San Joaquin County, were added as members of Ava and parties to the Joint Powers Agreement (“JPA”) in March of 2020. The city of Stockton was added as a member to Ava in September of 2022. The city of Lathrop was added as a member to Ava in October of 2023. San Joaquin County was added as a member to Ava in July 2024. On October 24, 2023, Ava legally adopted the name Ava Community Energy Authority, where it had previously used the name East Bay Community Energy Authority since its inception; WHEREAS, on February 20, 2025, California State Senators Josh Becker and Henry Stern introduced SB 540 as a critical step in advancing the West-wide Pathways Initiative by allowing the California Independent System Operator (CAISO) and California load serving entities to participate in an energy market governed by an independent regional organization (RO);
WHEREAS SB 540 and the Pathways proposal aims to lower energy bills, improve grid reliability, and reduce pollution while retaining control over California’s procurement, environmental, reliability, and other public policies; and WHEREAS Ava, as a load serving entity that serves energy demand within the CAISO grid, stands to benefit from the expected cost savings associated with transferring governance over the energy market from the CAISO to an independent RO.
NOW, THEREFORE, THE BOARD OF DIRECTORS OF AVA COMMUNITY ENERGY AUTHORITY DOES HEREBY RESOLVE AS FOLLOWS:
Section 1. The Board of Directors hereby expresses its support for SB 540 and authorizes the CEO to sign the Letter of Support urging members of the California legislature to do the same.
ADOPTED AND APPROVED this 19th day of March, 2025.
Attachment Staff Report Item 17A
Jack Balch, Chair
ATTEST:
Adrian Bankhead, Clerk of the Board
We are writing to express our strong support for SB 540. This bill provides the statutory authorization necessary to implement the Pathways Proposal, which would make electricity more affordable for California consumers while protecting California’s procurement, environmental, reliability, and other public interest policies.
Developed by a large and diverse set of stakeholders, the Proposal would create a new, independent regional organization that would be solely responsible for setting energy market rules. The California Independent System Operator (CAISO) would continue to operate the markets as it does today, as well as continuing its role in operating the transmission system, transmission system planning, and balancing authority functions. SB 540 ensures the expertise and infrastructure that the CAISO has built is maintained, further protecting investments in current energy markets.
Creating an independent organization responsible for energy market rules would enable more utilities across the West to participate in consolidated electricity markets, making electricity in California more affordable and reliable while also reducing emissions in California.
SB 540 Provides More Affordable Electricity
This legislation, and the consolidated electricity markets it enables, would provide much needed energy affordability benefits to Californians. A new analysis conducted for the California Energy Commission (CEC) determined a West-wide day-ahead market could produce nearly $800 million in annual cost savings for California customers. 1 SB 540 Improves Electric Reliability
The legislation would enhance the reliability of California’s power grid by enabling more efficient and coordinated management of energy supply and demand across the Western region. With better access to shared resources, grid operators will be better equipped to draw on a wider resource pool during 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.
2 SB 540 Increases Use of Clean Energy
A consolidated western energy market will maximize use of existing clean energy generation and enable a faster, more affordable clean energy future. SB 540 makes more clean energy available both in California and around the West by reducing curtailment (deliberately reducing output below what could have been produced), a growing problem for solar and wind power generators in California. The CEC study determined the expanded market would reduce wind 1 John Tsoukalis, et al., Brattle Group, “Preliminary Day-Ahead Market Impact Study: Impact of Market Footprints on California Customers” (Prepared for California Energy Commission, January 24, 2025). 2 See Tsoukalis, et al. and Michael Wara, et al., Stanford Climate & Energy Policy Program, “Grid Regionalization in the West: Reliability Benefits from Increased Cooperation in Electricity Markets and Operations”(Prepared for California Energy Commission, January 24, 2025).
Attachment Staff Report Item 17B
and solar curtailment by 10%. This improvement would reduce air pollution by displacing other less efficient emitting resources and enhance the financial foundation for clean energy investment and jobs by enabling California to use and sell more of its clean energy. 3 With 80% of energy customers in the West now served by utilities with net-zero carbon energy mandates, the demand for clean energy resources will continue to grow. Maximizing use of existing clean generation is the fastest, most affordable way to reduce emissions.
SB 540 Protects Consumers and California Energy Policy
SB 540 would permit CAISO and California investor-owned utilities to participate in the independently governed energy markets only if the new regional organization meets guardrails designed to protect consumers and ensure that California can continue to set its own procurement, environmental, reliability, and other public interest policies. These protections include:
● public interest protections in the corporate documents; ● specific roles and engagement with state regulators and consumer advocate offices including access to market data;
● transparent and accessible operations including an office of public participation; ● independent market analysis and monitoring to protect consumers; ● engagement with states, local power authorities, and federal power marketing agencies to evaluate potential impacts of proposed market rule and tariff changes to state, local, and federal policies; and
● retention of the right to withdraw from the energy markets governed by the new regional organization if participation were no longer in the interests of their customers.
The diverse set of signatories on this letter represent an unprecedented coalition of consumer advocates, organized labor, environmental advocates, clean energy developers, investor-owned utilities, public power, and large customers who strongly support SB 540. For all of the above reasons, we support this legislation and request your support. 3 John Tsoukalis, et al., Brattle Group, “Preliminary Day-Ahead Market Impact Study: Impact of Market Footprints on California Customers” (Prepared for California Energy Commission, January 24, 2025).
Attachment Staff Report Item 17B
SB 540 - Pathways Initiative
SUMMARY
SB 540 provides the California Independent
System Operator (CAISO) the authority
necessary to implement the Pathways Initiative
Proposal if it determines an independent regional
organization (RO) meets specific requirements.
The bill allows CAISO to tap into a wider
market of electricity resources which studies
have shown stand to provide significant benefits
to Californians including cost savings, enhanced
grid reliability, and reduced air pollution.
While prior attempts to create a wider regional
market have failed out of concerns that
California would lose control over its
environmental policies, SB 540 enables an
innovative approach that would secure the gains
of an expanded market while protecting
California’s ability to set and enforce its own
procurement, environmental, reliability, and
other public policies.
PROBLEM
For many years, California’s energy regulators
have explored how they could optimize
available energy supplies across other western
states to expand our energy markets and enable
an affordable, clean, and reliable grid.
Studies have shown that there are significant
benefits for California in an expanded energy
market. For example, a Stanford Woods Institute
(2024) study found that an expanded market
would relieve strain on the electric grid during
extreme heat events–in an expanded market
scenario the grid was strained 40% fewer hours.1
A study commissioned by the California Energy
Commission (CEC) found that under an
expanded market, California would save nearly
$800 million per year and gas generation would
fall by 31%, moving us closer to our 100% clean
1 Stanford Woods Institute: “Grid Regionalization in
the West”
energy goals while reducing air pollution.2
However, these benefits only materialize if
other states want to join the regional market, a
market they are wary of if it’s solely under
California’s control.
Several different proposals, that would reassure
other Western states of California’s willingness
to work jointly, have made their way before the
Legislature. Most recently, AB 538 (Holden,
2023) would have transformed CAISO into a
regional transmission organization (RTO).
However, these previous efforts have failed over
reasonable concerns about losing control of the
state’s critical public policies.
The Pathways Proposal offers a way to solve
these problems. Instead of creating an RTO, the
Pathways Proposal creates an RO that only
governs the market rules for energy markets
while retaining CAISO’s role as a
California-governed balancing authority so that
California and CAISO retain control over
procurement, environmental, reliability, and
other public policies.
CURRENT LAW
Existing law enables CAISO to, and instructs
how it will, manage the transmission grid and
related energy markets. It requires, among other
things, that CAISO manage those markets in a
manner that maximizes efficiency, reduces costs
to consumers, protects public health and the
environment, and ensures reliability. However,
additional authority is required in order for
CAISO and California utilities to use energy
markets overseen by an RO as proposed by the
Pathways Initiative.
THIS BILL
SB 540 enables the CAISO and California
utilities to participate in energy markets
governed by a separate, independent regional
2 Brattle: “Preliminary Day-Ahead Market Impacts
Study”
Last Updated 02/20/2025
Attachment Staff Report Item 17C
organization. If the RO meets specific criteria,
CAISO would be authorized to enact a
resolution allowing the RO’s rules to govern
CAISO’s energy markets. The CAISO would
continue to be the operator of the energy
markets.
SB 540 does not transfer authority for
transmission planning, transmission cost
allocation, balancing authority functions, or
reliability coordination–this authority would
remain with the existing CAISO board structure.
The bill also does not immediately authorize
utilities to enter a market governed by an RO,
CAISO must first demonstrate the RO meets a
number of statutory requirements before moving
control of the market rules to the RO including:
confirming that California regulatory agencies
and CAISO retain control over Renewables
Portfolio Standard requirements, climate policy,
other procurement requirements, transmission
planning, CAISO’s interconnection queue, and
resource adequacy requirements; requiring that
the RO provides a procedure for withdrawal
from the market, should it no longer benefit
California to participate; maintaining the
capability to operate its own market, should
California decide to withdraw from the RO;
ensuring the RO is obligated to make decisions
in an open process; making funding available
for consumer advocates to engage in the process,
and more.
The expanded market that SB 540 would enable
will save ratepayers money, improve grid
reliability, and reduce air pollution from power
plants in California by:
1) Optimizing the use of generation, storage and
transmission resources.
2) Securing California’s ability to export excess
renewables rather than curtailing them and
importing them from other states when
available.
3) Allowing California to draw upon a wider set
of Western renewable resources when our grid is
stressed.
4) Making less use of back-up diesel generators
and the oldest, dirtiest gas plants during system
peaks.
SB 540 will ensure that we reach our climate
goals in the most cost-effective and reliable
manner possible by tapping into a much wider
set of Western resources–lowering energy bills,
improving grid reliability, and reducing
pollution in front-line communities, while also
retaining control of our procurement,
environmental, reliability, and other public
policies.
SUPPORT
Coalition of California Utility Employees
(co-sponsor)
State Association of Electrical Workers
(co-sponsor)
Environmental Defense Fund (co-sponsor)
Natural Resources Defense Council (co-sponsor)
American Clean Power–California
California Community Choice Association
California Environmental Voters
Clean Energy Buyers Association
Pattern Energy
Peninsula Clean Energy
FOR MORE INFORMATION
Erika Romero
Policy Analyst
[email protected]
Last Updated 02/20/2025
Attachment Staff Report Item 17C
SB 540 and the West-wide Pathways Initiative
Todd Edmister & Dominic Faria | March 19, 2025
Attachment Staff Report Item 17D
Overview
2 1. What is SB 540?
2. What the bill does
3. What is the Pathways Initiative?
4. Potential benefits & concerns
5. Summary and next steps
Attachment Staff Report Item 17D
What is SB 540?
3 • Introduced Feb 20 in CA Senate by Sens. Josh Becker (D-Menlo Park) and Henry Stern (D-Los Angeles)
• Establishes a process through which the California Independent System Operator (CAISO) and California utilities can participate in an energy market governed by an independent, west-wide regional organization (RO) as proposed by the Pathways Initiative
• Co-sponsored by the Coalition of California Utility Employees, State Association of Electrical Workers, Environmental Defense Fund, and Natural Resources Defense Council
• The CalCCA Board of Directors voted in February 2025 to support the legislation Attachment Staff Report Item 17D
What the bill does
4 • California’s energy market rules are governed by the CAISO Board of Governors, a five-member body whose members are appointed by the Governor and confirmed by the state Senate • CAISO operates the Western Energy Imbalance Market (WEIM), a regional market that enables participants to buy and sell power in real time, and plans to launch an Extended Day Ahead Market (EDAM) in 2026. • SB 540 would allow CAISO to transfer its existing governance of the western energy markets (WEIM and EDAM) to an RO starting in 2027 only if CAISO decides that the RO meets a set of specific statutory requirements, including:
▪ The RO’s governing documents confirm that California regulatory agencies and CAISO will retain control over RPS and other procurement requirements, climate policy, transmission planning, CAISO’s interconnection queue, and RA requirements ▪ The RO makes decisions in an open, public process and establishes formal processes through which to engage with state regulators, policy experts, stakeholders, and the public ▪ The RO makes funding available for consumer advocates to engage in the process ▪ The CAISO continues to operate the energy markets, subject to the market rules determined by the RO ▪ The RO permits and provides a procedure for withdrawal by any participant • Allows CAISO to act as a vendor, through a contract with the RO, to provide market operations, generation dispatch, transmission, and reliability coordination services.
Attachment Staff Report Item 17D
Graphic courtesy of CalCCA
5 Attachment Staff Report Item 17D
What is the Pathways Initiative?
6 • The Pathways Initiative is a multi-state effort aimed at establishing a unified, independently governed wholesale electricity market that includes all states in the Western Interconnection, including California. It began in 2023 at the request of public utility and energy commissioners from California, Oregon, Washington, Arizona, and New Mexico with the intent of maximizing the benefits of coordinated wholesale electricity markets for customers across the entire Western U.S. • The Pathways Initiative Launch Committee was formed in October 2023 and is led by representatives from a variety of stakeholders, including state regulators, IOUs, public utilities, labor unions, non-utility load serving entities (CCAs), consumer advocates, and others. • This past November, the Pathways Launch Committee approved its Step 2 Final Proposal outlining a plan to form an independent RO responsible for overseeing an integrated WEIM and EDAM for all western states.
• The Pathways proposal does not change existing grid operators or balancing authorities and does not change existing RA or RPS standards for any state involved.
Attachment Staff Report Item 17D
Potential Benefits
7 • Estimated cost savings: $182 million to $800 million reduction in annual California system costs, depending on size and extent of the market, compared to the status quo. Translates to roughly $7 million to $32 million in annual cost savings for Ava.
• Enhanced grid reliability: Relieves strain on the electric grid during extreme heat events, reducing the number of hours the grid is strained by as much as 40% and reducing unserved load by more than half in these scenarios.
• Reduced emissions: Decreases California’s fossil fuel generation by up to 31% and greenhouse gas emissions by up to 11.2%
• Optimized resource use: Reduces solar and wind energy curtailment by up to 10%, allowing California to export and import more excess renewable energy to and from other states. • Helps achieve state climate goals: California will maintain authority over its existing policies while being able to tap into a wider set of regional resources in a cost-effective and reliable manner Sources: Stanford Woods Institute: “Grid Regionalization in the West” and The Brattle Group: “Preliminary Day-Ahead Market Impacts Study” Attachment Staff Report Item 17D
Other Considerations
8 • Potential concern: Relinquishing CA control over energy market governance at a time when the administration is attempting to exert greater control over independent agencies, like FERC • Western entities electing to participate in a competing market: SPP's Markets+ is already courting commitments from power suppliers and balancing authorities across the West, limiting the possible benefits of EDAM
• Bottom line: Should any delays or failures occur in implementing the Pathways proposal, there is a risk that potential EDAM participants instead elect to join Markets+. If California does not cede its already limited control over the CAISO markets, critical suppliers will likely join competing markets, with a corresponding reduction in supply to California.
Attachment Staff Report Item 17D
Summary and Next Steps
9 • By enabling California to transfer authority over the regional energy markets to an RO, SB 540’s passage would be a key step forward in the process of advancing the Pathways proposal and achieving energy cost savings, and reliability and emissions benefits for California and Ava. • SB 540 will have a hearing in the Senate Energy, Utilities, and Communications Committee (date TBD)
• The legislature will have until the end of the 2025 session (September 12) to pass SB 540, and then the Governor will have until October 12 to sign the bill into law • Once SB 540 is signed into law, CAISO will have the power to decide whether to join the RO no earlier than January 1, 2027. Until then, the Pathways Formation Committee will work to stand up the RO by finalizing its governing rules and seating the initial seven-member board. • Staff recommendation: Ava should sign onto a coalition letter urging California legislators to support SB 540.
Attachment Staff Report Item 17D