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After years of failed attempts, California lawmakers have cleared the way to create an electricity-trading market that would stretch across the U.S. West. Advocates say that could cut the region’s power costs by billions of dollars and support the growth of renewable energy. But opponents say it may make the state’s climate and clean-energy policies vulnerable to the Trump administration.
Those are the fault lines over AB 825, also known as the “Pathways Initiative” bill, which was signed into law by Democratic Gov. Gavin Newsom on Sept. 19 as part of a major climate-and-energy legislative package. The law will grant the California Independent System Operator (CAISO), which runs the transmission grid and energy markets in most of the state, the authority to collaborate with other states and utilities across the West to create a shared day-ahead energy-trading regime.
Passage of this bill won’t create that market overnight — that will take years of negotiations. CAISO’s board wouldn’t even be allowed to vote on creating the market until 2028.
But for advocates who’ve been working for more than a decade on plans for a West-wide regional energy market, it’s a momentous advance. “We’ve shot the starting gun,” said Brian Turner, a director at clean-energy trade group Advanced Energy United, which was outspoken in support of the legislation.
Today, utilities across the Western U.S. trade energy via bilateral arrangements — a clunky and inefficient way to take advantage of cheaper or cleaner power available across an interconnected transmission grid. An integrated day-ahead trading regime could drive major savings for all participants — nearly $1.2 billion per year, according to a 2022 study commissioned by CAISO.
That integrated market could create opportunities for solar power from California and the Southwest and wind power from the Rocky Mountains and Pacific Northwest to be shared more efficiently, driving down energy costs and increasing reliability during extreme weather.
Lower-cost power more readily deliverable to where it’s needed could also reduce consumers’ monthly utility bills — a welcome prospect at a time of soaring electricity rates.
The regional energy market plan is backed by a coalition that includes clean-energy trade groups such as Advanced Energy United and the American Clean Power Association; environmental groups including the Sierra Club, Union of Concerned Scientists, and the Natural Resources Defense Council; business groups including the California Chamber of Commerce and the Clean Energy Buyers Association; and the state’s major utilities. It also has the backing of U.S. senators representing California, Oregon, and Washington, all states with strong clean-energy goals.
Assemblymember Cottie Petrie-Norris, a Democrat who authored AB 825, said in a statement following its passage that it “will protect California’s energy independence while opening the door to new opportunities to build and share renewable power across the West.”
But consumer advocates, including The Utility Reform Network, Consumer Watchdog, and Public Citizen, say the bill as passed fails to protect that energy independence. The Center for Biological Diversity and the Environmental Working Group share their concerns. They fear a new trading market will allow fossil fuel–friendly states like Idaho, Utah, and Wyoming to push costly, dirty coal power into California — and give an opening to the Trump administration to use the federal government’s power over regional energy markets to undermine the state’s clean-energy agenda.
The arguments for a day-ahead energy-trading market can be boiled down to a simple concept, Turner said — bigger is better. Being able to obtain power from across the region could reduce the amount of generation capacity that individual utilities have to build. And tapping into energy supplies spanning from the Pacific Ocean to the Rocky Mountains would allow states undergoing heat waves and winter storms to draw on power from parts of the region that aren’t under the same grid stress, improving resiliency against extreme weather.
A Western trading market could also serve as a starting point for even more integrated activity between the dozens of utilities in the region that now plan and build power plants and transmission grids in an uncoordinated way. A 2022 study commissioned by Advanced Energy United found that a regional energy organization could yield $2 billion in annual energy savings, enable up to 4.4 gigawatts of additional clean power, and create hundreds of thousands of permanent jobs.
CAISO proposed this Extended Day-Ahead Market (EDAM) concept six years ago as an expansion of the real-time energy trading it already conducts with utilities across the West. CAISO’s EDAM scheme is competing with another prospective day-ahead market being promoted by the Southwest Power Pool, a regional grid operator based in Arkansas that serves 14 Midwest and Great Plains states.
For advocates of a Western market, the chief challenge has been to design a structure that doesn’t give up California’s control over its own energy and climate policies, but allows other states and their utilities a share of decision-making authority over how the market works. Taking a lead on that design work has been the West-Wide Governance Pathways Initiative, a group of utilities, state regulators, and environmental and consumer advocates.
Regional-market boosters tried and failed to pass enabling legislation in California in 2017 and 2018 in the face of opposition from environmental groups that feared the plan would clear the way for coal-fired power to come in from other states. Labor unions representing California utility workers also opposed those earlier bills on the grounds that cheaper out-of-state power could lead to less clean energy being built in California.
But many of these prior opponents, including the Sierra Club and key unions, came around to support the latest plan.
With the passage of AB 825, “we’re looking at a fairly rapid and clear rollout of the organization, so that Western states and utilities can begin to get engaged,” Turner said.
But by engaging in a regional energy market, California could risk losing some control over its climate and clean-energy progress, critics say. They argue that the final version of AB 825 doesn’t have enough protections against this outcome.
“We’re strongly opposed,” said Matthew Freedman, staff attorney at The Utility Reform Network (TURN). Previous versions of the bill “had a bunch of provisions we thought would have protected California’s sovereignty and prevented the federal government from weaponizing its authority. Most of those protections were stripped from the bill, inexplicably.”
In particular, in May, TURN and its allies pushed to add an amendment that would have created an oversight council including California lawmakers that would have had the authority to pull the state out of the market if they determined it would raise energy costs or work against the state’s carbon-emissions goals.
“It’s about retaining the state’s sovereignty,” said Jamie Court, president of Consumer Watchdog. “This is our last political check on when we get into the market and when we get out of the market.”
But the provisions in that amendment were “poison pills” for other states considering membership in the market, said Merrian Borgeson, California policy director for climate and energy for NRDC, which supported the legislation. “That would have made it far too unstable.”
The final version of AB 825 still gives California lawmakers the authority to pull the state out of the regional day-ahead market, said Turner of Advanced Energy United — just not via the hair-trigger structure that opponents had sought. “At any time, the Legislature could say, ‘This market is no longer in the interest of California. We’re going to order the Public Utilities Commission to order the utilities to stop participating in this market,’” he said.
The bill’s authors argue that they got the balance right. State Sen. Josh Becker, a Democrat whose bill initially contained the Pathways proposal before it was shifted into AB 825, said that the final structure “provides the accountability that some folks wanted but that’s also enticing to market participants.”
However, TURN and Consumer Watchdog say that the risks outweigh the benefits — particularly if an expanded market exposes the state to federal interference. The Trump administration has been using federal emergency powers to prevent regional grid operators from closing coal plants set for retirement, and it may seek to force the Federal Energy Regulatory Commission to abandon its historically apolitical approach to governing regional energy markets, which could “frustrate key state environmental, resource-planning, reliability, or other public-interest policies,” Freedman said.
“Why California should give up its governance over that regional market is a mystery to me,” he said. “We have no faith that federal agencies will act with good faith or common sense or the law.”
Turner at Advanced Energy United disagrees with that assessment. “CAISO is currently a FERC-regulated market, and this will not increase its exposure to FERC regulation,” he said.
In the end, AB 825 won the support of what Becker described as a “broad and unprecedented coalition spanning environmental organizations, labor, business, and consumer advocates.”
In fact, joining with other states might actually strengthen California’s position against Trump administration overreach, Turner argued. “We understand the federal government may try to distort the free market in ways that benefit their preferred technologies,” he said. “There is a very credible argument to be made that joining shoulder to shoulder with other states improves our ability to defend ourselves against those kinds of things.”
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