A regional electricity market can help California lower costs, improve reliability, and accelerate clean energy—SB 540 paves the way.

By Kelsie Gomanie, Advocate and Victoria Rome, Director, NRDC

A landmark bill in California can help advance clean energy, save consumers and businesses money, and improve electricity system reliability if legislators get it back on track.  

This legislation, Senate Bill 540, by Senators Josh Becker and Henry Stern, would enable California utilities to participate in a regional electricity market that connects the state with the broader West. SB 540 builds 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 has broad support from labor and environmental groups, consumer advocates, clean energy providers, utilities, and businesses, and new polling confirms that Californians are in agreement: 80 percent of voters confirm 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—represents 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. If not addressed, these changes risk deterring participation, which could 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—are sounding the alarm and working 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.  

The consensus is clear. With smart adjustments in the Assembly, California can pass a strong, forward-looking bill this session. A bill that strengthens the grid, reduces emissions, and lowers costs across the West. We’re optimistic that, together, we’ll get it done. 

The need for western grid integration

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!

The California Independent System Operator (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 can take a leadership role in advancing a cohesive, well-structured market that benefits the entire region.

Why is legislation needed?

Independent governance

CAISO is uniquely positioned to lead this integration effort and SB 540 allows 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. SB 540 enables 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, SB 540 includes 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.

This blog has been sourced from the official website of NRDC and can be accessed here