By Kennedy Maize
The western electricity landscape looks like it is moving toward a long-anticipated future as a west-wide regional transmission operator. It’s led by California and the state legislature’s seminal passage in September of legislation, AB 25, that created the framework, based on the California Independent System Operator’s (CAISO) Western Energy Imbalance Market.
According to an analysis by SheppardMullin attorney Avery Lajeunes, the new independent system operator for the region “will oversee CAISO’s Western Energy Imbalance Market (WEIM) and upcoming Extended Day-Ahead Market (EDAM), while CAISO will retain grid-balancing operations, resource adequacy and reliability, transmission planning, and policy implementation.”
The transition looks like it is working on California time, which means nothing important happens rapidly. According to Lajeunes, the new RTO won’t launch until at least Jan. 1, 2028, and then only if a long list of procedural hurdles have been jumped. These include Federal Energy Regulatory Commission approval of the new RTO’s tariff, a California Public Utilities Commission decision that allows the utilities now in the CAISO to participate, and a “guardrail checklist” to protect state authorities and consumer interests, contained in separate legislation, AB 825, passed at the same time as AB 25.
The CAISO’s imbalance market is the heart and soul of the new regional organization. Created in 2014, it provides a platform for 21 participants outside the CAISO, representing 80% of the load in the Western Interconnection, to buy and sell wholesale electricity on a day-ahead basis, producing substantial economic benefits and helping integrate renewable energy into the region. According to the CAISO, the market created “nearly $412 million in economic benefits to participants in the third quarter of 2025” and $7.8 billion in cumulative savings since 2014.
The broader Extended Day-Ahead Market, approved in 2023 and set to go live next year, is a voluntary real-time market. CAISO says this market “efficiently positions supply to meet forecasted demand across the EDAM footprint and identifies economic transfers between participating areas, providing reliability, economic, and environmental benefits for participating balancing areas and their utilities.”
During the 1990s, as the U.S. electricity system was undergoing a radical and fundamental change, widely known at the time as “restructuring,” California was the first state in the nation to embrace the concept of unlinking high-voltage transmission from retail distribution of power to customers.
CAISO, which was born in 1996 and went into operation in 1998, was the first “independent system operator” in the U.S., although it was just California. The giant PJM Interconnection, which went into service in 1997 with FERC’s blessing, was the first multi-state RTO. PJM grew out of a 1927 consortium, a “power pool” among investor-owned electric companies in Pennsylvania, New Jersey, and Maryland to collectively dispatch generation based on least cost first, regardless of the generating plant. Its evolution into an RTO, now serving some 65 million customers across 13 eastern U.S. states and the District of Columbia.
SheppardMullin’s Lajeunes predicts that the CAISO expansion into a west-wide transmission operator will boost renewables in the region, which are already experiencing strong growth. He wrote that the expanded market “may significantly reduce the need to curtail, or waste, renewable energy. Currently, the California grid is often unable to accommodate surplus solar or wind generation capacity. In such cases, CAISO is forced to curtail generation resources resulting in lost revenues for owners of renewable energy assets.”
Also, according to Lajeunes, “The new regional market would allow California’s renewable and storage resources to be sold to a much broader customer base across the West, and should create greater efficiencies for developers and owners of energy projects, by enabling load optimization and expanded transmission paths to major load centers throughout the Western United States.”
The transformation of CAISO into a regional independent transmission giant, says Lajeunes, could be “a foundational transformation of wholesale electricity market governance in the Western United States. As California pursues aggressive decarbonization targets (e.g. 100 % clean electricity by 2045), the regional market would provide enhanced access to import renewables generated throughout the region when demand is high, while similarly facilitating the export of excess renewable generation that otherwise would have been curtailed.”
Getting over the many hurdles, particularly the 13 “guardrails” in AB 825, could “unlock scalable and flexible grid solutions by making it easier to balance, dispatch, and integrate renewable resources across a wider footprint. Given California’s size, demand growth, climate challenges, and leadership role in the implementation of clean energy, AB 825 may enable California to remain dominant in the renewable energy industry.”