The ghost of energy dereg haunts effort to tie CA grid to other states

A quarter century after the California energy crisis, some supporters of energy deregulation have taken to a new idea: turning over control of the state’s energy grid to a West Coast nonprofit.

The proposal is known as the West-Wide Governance Pathways Initiative. It calls for at least five states – Arizona, California, New Mexico, Oregon and Washington – to combine their utilities into a single, broad electricity market.

Supporters say this arrangement would result in significant cost savings as well as improved grid reliability during extreme weather. But there’s no doubt it also would affect oversight of California utilities.

The nonprofit that would oversee the partnership would be run by unelected energy officials. That organization, in turn, would be overseen by the Federal Energy Regulatory Commission, which also has jurisdiction over the state today. That commission, of course, is now controlled by a Trump administration hostile to California’s energy goals.

Sens. Josh Becker (D-San Mateo) and Henry Stern (D-Los Angeles) are sponsoring legislation to make the Pathways Initiative a reality. Their bill, SB 540, passed out of the Senate in June, but is now hung up in the Assembly.

Pathways Initiative supporters oppose Senate amendments that they say the market would never accept. The latest version of the bill calls for the creation of an independent council to assess the partnership and unilaterally pull out of it if the group determines its bad for the state.

The fight over the Pathways Initiative combines old grudges from the energy crisis with differing views on how best to address climate change and is set against looming fears about the Trump administration and its opposition to all things Californian. Adding fuel to that combustible mix, Gov. Gavin Newsom recently signaled that he wants to see the Pathways Initiative implemented.

“I’m calling on the Legislature to enable the expansion of regional energy markets to lower energy costs, reduce air pollution, and avoid power outages,” Newsom wrote in an Aug. 13 post on X, formerly known as Twitter. “This is our best shot at making electric bills more affordable and securing a clean, reliable energy future.”

Becker, whose office said the Senator did not have control over the controversial Senate amendments, reposted the governor’s remarks to his Instagram page.

The fight over the Pathways Initiative combines old grudges from the energy crisis with differing views on how best to address climate change…

“The Governor, legislators, and an unprecedented coalition of environmental groups, consumer advocates, and labor all agree: It’s time for a regional power market—one that lowers utility costs and accelerates our clean energy goals,” Becker wrote on IG. “That’s why I’m advancing SB 540. I’m working side-by-side with stakeholders to pass this groundbreaking bill and deliver real, lasting results for Californians. #SB540 #caleg”

Diverse renewables, integrated across states
The supporters of the Pathways Initiative include Pacific Gas and Electric, San Diego Gas and Electric, the California Chamber of Commerce and the Natural Resources Defense Council, all organizations that supported energy deregulation, which led to the 2000-01 energy crisis.

But supporters insist that comparison is a red herring. Deregulation, they say, involved tearing down regulations in what was a wholesale change in how the energy market here worked. The Pathways Initiative, on the other hand, is a far more incremental reform, they say, with the biggest change simply being that California would be able to draw from more energy sources.

“PG&E supports California efforts to expand the energy markets across the West to optimize generation, transmission and storage assets across the western grid,” said Lynsey Paulo, a PG&E spokeswoman, in a prepared statement. “This meaningful action would help lower electricity costs for customers and increase reliability. A study by the California Energy Commission found an expanded market could save customers near $800M a year by reducing reliance on pricey fossil fuel generation and increasing access to lower-cost renewable energy from other states.”

Supporters also note that the California Independent System Operator, otherwise known as California ISO, would continue to oversee the grid under this plan, ensuring that the state’s interests would be protected. They acknowledge that Trump’s control of the Federal Energy Regulation Commission could pose a problem for California, but say that’s also true now, under the current system.

In short, according to the supporters’ arguments, governance of the state electricity grid really wouldn’t be all that different from what it is now. But the proposal would offer what they say are enticing new opportunities to address climate change.

Kelsie Gomanie, an advocate for the Natural Resources Defense Council, said integrating the Western electricity grid would allow participating states to take greater advantage of the diverse renewable resources available throughout the region. That would then allow the states to better achieve their climate change goals, she said.

“The potential amount of decarbonization is essential for California and other states meeting decarbonization and other climate change goals,” Gomanie said.

The Pathways Initiative also has the support of the International Brotherhood of Electrical Workers and Coalition of California Utility Employees. Marc Joseph [Editor’s note: no relation to Capitol Weekly reporter Brian Joseph], a lawyer representing the IBEW, said the proposal has the union’s support because it “does not jeopardize California jobs” and “would greatly improve the economics of building solar and wind in California.”

Joseph called the coalition backing the Pathways Initiative “as broad and deep and diverse as you could have on an energy issue.”

Not to be outdone, another supporter of the plan, Edson Perez, a senior principal with Advanced Energy United, an industry association representing companies that offer a range of energy technologies and services, put forth another superlative for the Pathways Initiative, calling it the best way to relieve stress on the grid by sharing abundant clean energy across the Western region.

“Everybody that works in energy thinks this needs to get done this year,” he said.

Minimum supply equals maximum profit
Opponents of the Pathways Initiative, which include California Environmental Justice Alliance, Consumer Watchdog and the Environmental Working Group, say it’s telling that supporters of energy deregulation now support this plan because they argue it has the same problems.

“It’s clearly deregulation 2.0,” said Jamie Court, president of Consumer Watchdog. As what happened during the energy crisis, he said this proposal would take control of the grid away from California policymakers, leaving it in the hands of the market. “The market wants to minimize supply and maximize price,” Court said.

That alone is reckless, he said, but it’s even worse at this moment, with President Trump’s control over the Federal Energy Regulatory Commission, which could force California to buy coal to satisfy its energy needs.

“It threatens our clean energy goals,” Court said, “…and it allows for higher costs based on the model it’s built on.”

Matthew Freedman, staff attorney for The Utility Reform Network or TURN, disputed the supporters’ assertion that California ISO would continue to be able to protect the state’s interests or that Trump’s oversight over the California energy market would be no different than it is today.

He said under the Pathways proposal California ISO would relinquish policy control of the critical Day-Ahead Market to the nonprofit that would govern the partnership.  If California didn’t like what the nonprofit does, its only recourse would be to complain to Trump’s Federal Energy Regulatory Commission, which Freedman suggested isn’t likely to be sympathetic.

“This transfer of authority, if done improperly, is impossible to reverse,” he said.

Arguably the loudest and most prominent critic of the Pathways Initiative in California has been Loretta M. Lynch, who served on, and at one point led, the California Public Utilities Commission in the early 2000s, during the energy crisis. Among her criticisms: that the proposal yokes California to other states that have different – or entirely non-existent – climate change goals, that the nonprofit overseeing the partnership doesn’t have to consider California’s wishes and that any changes made to the state’s system now wouldn’t go into effect until there’s a new governor.

“Now is not the time – now is not the time – for California to surrender our authority and our independence to the Trump FERC,” Lynch said in February during a presentation by the California Alliance for Community Energy. “And now is never the time to tie the hands of the next California governor. And make that governor Gray Davis! Pete Wilson signed the deregulation law on his watch, but it didn’t take effect until the next governor showed up. And I can tell you as an appointee of Gray Davis, to the PUC, just how hard it was to protect California after the prior governor had thrown away control.”

“Now is not the time – now is not the time – for California to surrender our authority and our independence to the Trump FERC.”

Heena Singh, energy justice manager for the California Environmental Justice Alliance, acknowledged in a prepared statement that the Pathways Initiative could reduce operation of the state’s gas-fired power plants but also could “undermine California’s greenhouse gas and environmental justice goals by exporting some of the dirtiest gas plants to out-of-state energy consumers.”

“We want to see protections in this bill for frontline communities that live near gas plants,” Singh said. “This includes limiting the participation of facilities that emit N2O emissions above 2ppmv, requiring CA electricity generators to report all emissions associated with exported power to CARB in addition to the county and CalEnviroScreen scores, and ensure all CA electricity generators in state be subject to compliance obligations under cap-n-trade.”

Bernadette Del Chiaro, the Environmental Working Group’s senior vice president for California, said the cost of artificial intelligence, which requires an enormous amount of power, is fueling the push for the Pathways Initiative. Google, Microsoft and the Data Center Coalition support the plan.

“This is all being driven by the fact that electricity is the new oil and there is a huge gold rush going on,” Del Chiaro said. “…The environment is, like, an afterthought.”

What now?
SB 540 passed out of the Senate on June 4. The following day it was read in the Assembly for the first time but held at the desk.

More than a month later it was referred to both Assembly Appropriations and the Assembly Utilities and Energy Committee. Its first committee hearing in the Assembly was set for July 16 but was cancelled the day before “at the request of author,” in LegInfo parlance.

For now, the bill is in a kind of limbo with negotiations ongoing. But Becker’s office assures that the goal remains to try to get it to the governor before the end of session, which could position SB 540 to be one of the bills to watch as the first year of the cycle heads to adjournment.