Connecting the West: How California Can Strengthen the Grid

A landmark bill in California, Senate Bill 540, by Senators Josh Becker and Henry Stern, was introduced to enable California utilities to participate in a regional electricity market that connects the state with the broader West. SB540 was built on the West-Wide Governance Pathways Initiative (Pathways Initiative), a multistate effort to create a governance structure for a regional market that respects state authority while improving grid efficiency. The Pathways Initiative had broad support from labor and environmental groups, consumer advocates, clean energy providers, utilities, and businesses, and recent polling confirmed that Californians are in agreement: Eighty percent of voters confirmed that the legislature needs to pass a workable SB540. The bill—cosponsored by NRDC, the Environmental Defense Fund, the Coalition of California Utility Employees, and the California State Association of Electrical Workers—represented an opportunity to strengthen the grid while advancing California’s ambitious clean energy goals. 

However, when SB540 passed the Senate earlier this year, it passed with amendments that raise concerns for regional partners and California market participants and could hinder the state's ability to fully realize the benefits of market integration. Left unaddressed, these changes would have risked deterring participation, which could’ve cost California more than $1 billion annually in lost economic and climate benefits.  

That’s why a large and unified coalition—including NRDC, the Environmental Defense Fund, California Environmental Voters, Union of Concerned Scientists, Sierra Club California, utilities, local clean energy providers, businesses, and others—sounded the alarm and worked to get the bill back on track.  

Governor Gavin Newsom has made clear that clean energy is central to California’s economic leadership, and grid reliability and regional market integration is a key part of that future. His support for the Pathways Initiative underscores just how important this opportunity is for California and the West.

California is a leading force in the clean energy transition, but it can’t do it alone. As the state works to meet its 100 percent clean electricity target and decarbonize other sectors of the economy, states across the region are also pursuing ambitious clean energy goals. Right now, California and the West face increasing energy challenges, such as rising electricity demand from intensifying climate-driven heat waves and threats to system reliability from wildfires and extreme weather events. Without greater coordination across the West, these decarbonization efforts remain fragmented, leading to inefficiencies and higher costs.

A regional electricity market would allow states to share energy resources more effectively. The West’s geographic diversity is a huge asset waiting to be harnessed: Solar power is abundant in the Southwest, along with strong wind energy in the Rockies and the Great Plains and hydro resources in the Northwest. A coordinated market enables states to access the most cost-effective energy at any given time, reducing reliance on fossil fuels and lowering costs for consumers. Recent analysis shows California could save more than $1 billion annually and reduce in-state gas generation by 31 percent by participating in a regional day-ahead market with the broader West. This could lead to a 11.2 percent reduction in carbon emissions!

CAISO has already demonstrated the benefits of regional energy trading through the Western Energy Imbalance Market (WEIM), which has saved participants more than $6.6 billion since its launch in 2014. Building on this success, CAISO’s Extended Day-Ahead Market (EDAM) will allow states to plan optimized electricity dispatch a day in advance. EDAM represents a critical step toward broader market integration. By expanding cooperation beyond real-time transactions, the West can improve efficiency, unlock deeper cost savings, and enhance grid reliability. 

Currently, utilities and grid operators operate in silos, leading to inefficiencies and unnecessary costs. A single, unified regional electricity market is the most effective way to optimize resources across the West and avoid overbuilding generation capacity in different regions, which only drives up electricity costs for consumers.

Fragmentation also increases the risk of reliability challenges, especially during extreme weather events. An integrated grid under WEIM and EDAM would allow power to flow where it is needed most, reducing the likelihood of blackouts and ensuring that no state is left vulnerable. By passing SB 540, California has taken a leadership role in advancing a cohesive, well-structured market that benefits the entire region.

Independent governance

CAISO is uniquely positioned to lead this integration effort and SB540 allowed California to participate in a regional electricity market with an independent governance structure that ensures California can meet its own clean electricity goals.

In the past, potential regional market participants have worried that joining a CAISO-led market could mean being subject to California’s state policies. However, the Pathways Initiative directly addresses those concerns through the creation of a new organization with an independent board that will oversee the WEIM and EDAM. 

The Pathways Initiative was developed to continue the incremental work to integrate the western grid with broad stakeholder support from public utility commissioners, several districts of the International Brotherhood of Electrical Workers, clean energy advocates, and more. SB540 enabled the Pathways Initiative proposal to become a reality by allowing California to join a regional market governed by an independent organization only if certain conditions are met, including strong consumer protections, educational resources for members of the public, and transparent decision-making that allows all participants to benefit from regional cooperation without compromising their own policy goals.

Protections for state rights and local goals

Importantly, SB540 included strong protections to ensure that California retains control over its clean energy trajectory. It requires the independent regional organization to include safeguards for state authority to ensure that California—or any other participating state—retains control over its own clean energy and other policies. 

Additionally, the legislation ensures that any regional market must demonstrate clear benefits before California commits to participation, and it preserves the state’s ability to withdraw if the market no longer serves its interests.