April 15, 2025
SENATE ENERGY, UTILITIES,
AND COMMUNICATIONS COMMITTEE
1021 O Street, Suite 3350
Sacramento, CA 95814
RE: SB 540 (Becker, Stern) – OPPOSE
To the Honorable Members of the Senate Energy, Utilities and Communications Committee ~ Chair Becker, Vice Chair Ochoa Bogh, and Members Allen, Archuleta, Arreguín, Ashby, Caballero, Dahle, Gonzalez, Grove, Hurtado, Limón, McNerney, Rubio, Stern, Strickland, and Wahab:
The Center for Biological Diversity, California Alliance for Community Energy, Local Clean Energy Alliance, 350 Bay Area, The Protect Our Communities Foundation, the Reclaim Our Power Utility Justice Campaign, and the Environmental Working Group submit this letter opposing SB540. The bill would allow the California Independent System Operator (CAISO) and electrical corporations that own transmission systems that are operated by the CAISO to participate in unspecified energy markets governed by a Regional Organization (RO), and on or after January 2027, for CAISO to operate the energy markets governed by the RO, provided certain conditions, and “in lieu of” CAISO following its current state law mandates.
As currently drafted, SB540 still suffers the same flaws as its predecessors, in particular, ceding California’s authority and oversight over energy policy. California must decide whether to risk ceding control over its energy and climate choices to other states who do not share California’s commitment to clean energy or face the same crisis of affordability that plagues 2 California ratepayers. It is additionally concerning that SB540 would cede California controls over energy to FERC which is especially problematic in the wake of the recent announcement and Executive Orders to “unleash” fossil fuel, nuclear power and other polluting energy resources “through the removal of all illegitimate impediments” targeting State and local government energy regulations.1
Moreover, SB540 could likely worsen climate impacts and increase electricity bills in California even further.
I. SB540 Enables the Loss of California’s Autonomy Over Energy Policy.
SB540 lacks specificity in outlining which “energy markets governed by” the RO that CAISO and transmission owners would be able to participate in. Nevertheless, despite this vagueness, which is of considerable concern, the CAISO’s “use” of or participation in those markets is subject to 12 conditions. One of those conditions is:
(10) The Independent System Operator continues to operate the energy markets, subject to the market rules determined by the independent regional organization as accepted by the Federal Energy Regulatory Commission. 2 In other words, not only do we not know which markets are involved, but CAISO would then be subject to the RO’s rules, “as accepted by” FERC.
And SB540 does not include sufficient safeguards. Participating in or operating the energy markets would also be “in lieu of . . . subdivision (b) of Section 345.5.”3 Yet Section 345.5(b) currently requires CAISO to run all electricity markets consistent with:
(1) Making the most efficient use of available energy resources. (2) Reducing, to the extent possible, overall economic cost to the state’s consumers. (3) Applicable state law intended to protect the public’s health and the environment. (4) Maximizing availability of existing electric generation resources necessary to meet the needs of the state’s electricity consumers.
(5) Minimizing cost impact on ratepayers.
(6) Communicating with all balancing area authorities in California to support electrical reliability.4
1 See e.g. White House, Protecting American Energy from State Overreach (April 8, 2025) available at https://www.whitehouse.gov/presidential-actions/2025/04/protecting-american-energy-from-state-overreach/ 2 Proposed Public Utilities Code § 345.6(a)(10) (emphasis added). 3 Proposed Public Utilities Code § 345.6(a).
4 Public Utilities Code § 345.5(b).
3 SB540 removes all of these energy market requirements for the new regional markets operator and for the CAISO. Then, on or after January 1, 2027, CAISO could operate the RO, subject to FERC oversight and conditions,
5 and with no requirement to continue to follow state
mandates enumerated in Section 345.5(b).
II. SB540 Replacement Safeguards Are Either Unenforceable or Illusory.
A. SB540 Replaces Safeguard Laws with Policies and Advisory Groups.
SB540 then attempts to address the removal of these statutory safeguards with several provisions that are either unenforceable or illusory. The 12 conditions are replete with reference to public interest or environmental “policies,”6 or advisory watchdog groups,7 which is a far cry from adhering to the required “laws intended to protect the public’s health and the environment” as currently required by Section 345.5(b).
SB540 also includes specific—but equally illusory—language designed to safeguard CAISO’s current responsibilities with electricity markets:
Except as provided in subdivision (a) with respect to managing energy markets as provided in this section, this section does not change the responsibilities of the Independent System Operator under Section 345.5.
Subdivision (a) as referenced, however, is Section 345.5(b). In which case, SB540 is clear that participation in energy markets is not subject to the 6 above criteria CAISO currently must maintain consistency with to protect the environment, public health, and ratepayers.
Furthermore, even assuming arguendo the effectiveness of the 12 conditions for participation in RO markets, SB540 lacks any identifiable enforcement mechanism for these critical commitments.
B. SB540 Threatens the RPS and Other California Climate Policy.
These concerns are extremely problematic for maintenance of California’s Renewable Portfolio Standard. While the bill includes a recent amendment that tries to address this concern, it is similarly an illusory safeguard:
(e) (1) This section does not change any requirement related to the California Renewables Portfolio Standard Program as provided in Article 16 (commencing with Section 399.11).
5 Proposed Public Utilities Code § 345.6(b).
6 See e.g. Proposed Public Utilities Code § 345.6(a)(1) and (2). 7 Proposed Public Utilities Code § 345.6(a)(8) (establishing a stakeholder process designed to provide nonbinding advice to the governing board of the RO).
4 Certainly, SB540 does not affect the RPS by the bill’s terms, just like all of the prior versions of this bill proposing CAISO expansion, which similarly did not affect the RPS.
Importantly, however, the regulatory structure that SB540 creates does not guard against future changes imposed or conditioned by the RO or by FERC. It also does not guard against future litigation to challenge the RPS and similar California environmental and climate laws based on federal preemption and the interstate commerce clause.
C. SB540 Withdrawal Provisions are Illusory.
Finally, the “escape” provision included in SB540 is also practically ineffective:
(12) The independent regional organization provides a procedure for unilateral withdrawal by any participant with reasonable prior notice and without any further approvals.8
Prior versions of CAISO expansion legislative proposals included a 2 year notice limit for withdrawal, while SB540 leaves the length of the withdrawal period up to the yet-to-be-created RO. Moreover, SB540 gives the RO complete discretion to impose any condition it chooses for any withdrawal.
We emphasize that proponents of SB540 have provided no evidence of any member leaving any Regional Transmission Operator (RTO) successfully. FERC could also add additional onerous conditions of departing the RO, which the March 24, 2025 amendments cannot prevent, as California cannot limit FERC’s ability to approve, or impose conditions on, any withdrawal from a FERC-approved market.
Overall, FERC could take future adverse actions to deny or disregard climate, environmental, biodiversity and public health impacts of continued fossil fuel and combustion pollution, undermining California’s prioritization of renewable resources in favor of coal or gas-fired generation. Despite clarion calls from the world's leading scientific institutions that new fossil fuel projects are incompatible with maintaining a livable planet,9 FERC continues to disregard the science and approve such projects.
California must avail itself of all available safeguards to limit the damage that could flow from FERC. For example, FERC could require the RO to devalue clean energy resources in favor of fossil fuels or other combustion resources and eliminate California’s ability to apply critical environmental standards to imports. This includes the social costs of carbon pollution and protections for biodiversity. For instance, the RO could allow substantial imports of electricity from Western coal-fired generation to serve California residents, perpetuating those coal power plants’ operation in other states. This would be problematic under any federal administration, but 8 Proposed Public Utilities Code § 345.6(a)(12).
9 See e.g. Oxford Open Climate Change, Volume 5, Issue 1, Scientists’ Warning on Fossil Fuels (March 31, 2025) available at https://doi.org/10.1093/oxfclm/kgaf011. 5 it is particularly concerning given that the Trump Administration has “vow[ed] to ramp up U.S. production of “clean coal.”10
Similarly for utility-scale renewables, California has supported land use planning to steer renewable development to areas where there are fewer on-the-ground impacts. Such policies include County planning and the Bureau of Land Management’s Desert Renewable Energy Conservation Plan, which balances protection of irreplaceable desert habitats, plants, animals and ecological processes with the development of a significant amount of centralized renewable energy (from solar, wind and geothermal facilities) by focusing on areas with the least ecological impact. Out-of-state utility scale power from the same types of renewable resources may not have similar protections for biodiversity and the RO and FERC could well favor ecologically damaging resources over adequately sited energy generation in California.
III. SB540 Would Increase Climate Pollution.
In January 2025, Brattle produced a Preliminary Day-Ahead Market Impacts Study (Brattle 2025 Study) for the California Energy Commission. The Study examined four main scenarios for expanded western regional markets, including an analysis of projected impacts for each scenario.
11 Each scenario includes a mix of participation (by utilities in California and neighboring states) in CAISO’s Extended Day-Ahead Market (EDAM) and (by other utilities in the western U.S.) in different day-ahead markets (Markets+) that will not include California. The scenarios are: the Baseline Case (with already approved EDAM commitments); the Baseline+ Case (with projected likely EDAM commitments); the Expanded EDAM Case (which assumes maximum EDAM potential/commitments); and the Split Market Case (with projected likely participation in EDAM and Markets+).
“The benefits of EDAM will depend on the size and diversity of members that join. A larger and more diverse EDAM footprint will deliver more benefits to customers in California.” 12 The Expanded EDAM Scenario is extremely unlikely as several potential participants have already committed or indicated that they will join the Southwest Power Pool markets. Given existing commitments or expressed intentions to support, however, either the Baseline+ or Split Market Case are the most likely outcomes under SB540. In that case, expanding either CAISO’s EDAM or Southwest Power Pool’s Market+, would increase total CO2 emissions from power plants connected to the western U.S. grid. While California would see reduced CO2, notably, increased CO2 in the western U.S. offset CO2 reductions in California. 13 10 LA Times, Trump vows to immediately ramp up U.S. production of ‘beautiful, clean coal’ (March 18, 2025), available at https://www.latimes.com/environment/story/2025-03-18/trump-ramp-up-production-of-beautiful-clean-coal. 11 Brattle 2025 Study, slide 3, available at https://www.brattle.com/wp-content/uploads/2025/02/Preliminary-Day-Ahead-Market-Impacts-Study-Impact-of-Market-Footprints-on-California-Customers.pdf. 12 Id., Slide 1.
13 Id., Slide 6.
6 To put numbers on this net increase, in the most likely Split Market outcome under SB540, California emissions decrease by less than 1 million tons of CO2, but the Western region emissions increase by over 3 million tons, producing a net increase of over 2 million tons of CO2.
14 This is not progress but rather a step backwards for the climate.
Compounding this significant climate concern, although a claimed benefit of expanding integrated markets is improved reliability (through sharing surplus generation), the Brattle 2025 Study found that the vast majority of these “shared” or “extra surplus” generation would be fossil fuel power plants, including nearly 5,000MW of coal plants, as illustrated below. 15 14 Id.
15 Id., Slide 8.
7 Therefore, even without the substantial risks to our environment, public health, and rates imposed by FERC, even the studies upon which proponents of SB540 rely show that the bill would still jeopardize California’s advancements as a Climate Leader, and our ability to tackle the climate emergency.
IV. In the Midst of an Affordability Crisis, SB540 Risks Increasing California Ratepayer Costs.
SB540 also fails to include any mechanisms to ensure that California electricity rates do not increase under the proposed RO structure. While the Brattle 2025 Study showed that costs for power generation may decrease, the costs for power delivery—which are substantial— have not been addressed and would likely fall on California ratepayers. The significant costs of power delivery (including transmission buildout, and associated wildfire mitigation or transmission maintenance) are also the two principal drivers of high electricity rates in the state.16 Neither the Public Utilities Commission nor CAISO have yet conducted any studies to decipher how much the proposed RO and associated transmission buildout (which would also require wildfire mitigation costs) could increase rates.
Furthermore, given the Trump Administration’s vows to increase electricity generation with “clean coal,” it is possible that, as part of an RO, California residents would also have to begin paying for coal subsidies. There has similarly been no analysis about this potential, and substantial, impact.
* * *
16 Senate Bill 695 Report to the Governor and Legislature on Actions to Limit Utility Cost and Rate Increases Pursuant to Public Utilities Code Section 913.1 (2022). 8 While we support coordination with other markets to tackle the state’s energy challenges, there are ways to do so without resorting to increased reliance on potentially problematic out-of-state resources and without ceding state control over one of our most essential energy supplies.
Many of these solutions are already in place, including the Energy Commission’s Clean Energy Reliability Investment Plan, and the extent to which California eliminates barriers to and maximizes local energy supply resources. California should be focusing on reforming the state’s investor-owned utilities, prioritizing local clean energy resources, and putting the consumer, not for-profit energy companies, at the center of all energy decision making.
For these reasons, we oppose SB540 and we urge the Committee to vote no and to protect California’s authority over its clean energy policies, our environment, and the well-being of California residents and ratepayers.
Sincerely,
Roger Lin
Christina Scaringe
Center for Biological Diversity
Claire Broome
350 Bay Area
Emi Yoko-Young
Reclaim Our Power
Malinda Dickenson
The Protect Our Communities Foundation
Bernadette Del Chiaro
Environmental Working Group
Jessica Tovar
Local Clean Energy Alliance
Barbara Stebbins
California Alliance for Community Energy