SB540 - Independent System Operator: independent regional organization: California Renewables Portfolio Standard Program.

Amended IN Senate May 29, 2025 Amended IN Senate May 28, 2025 Amended IN Senate May 01, 2025 Amended IN Senate March 24, 2025 CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Senate Bill No. 540 Introduced by Senators Becker and Stern February 20, 2025 An act to amend Sections 337 and 399.12 of, to add Sections 345.6 and 399.16.5 to, to repeal Section 352 of, and to repeal Article 4 (commencing with Section 355), Article 5 (commencing with Section 359), and Article 5.5 (commencing with Section 359.5) of Chapter 2.3 of Part 1 of Division 1 of, the Public Utilities Code, relating to electricity. LEGISLATIVE COUNSEL'S DIGEST SB 540, as amended, Becker. Independent System Operator: independent regional organization: California Renewables Portfolio Standard Program. (1) Existing law provides for the establishment of an Independent System Operator (ISO) as a nonprofit public benefit corporation and requires the ISO to ensure efficient use and reliable operation of the electrical transmission grid consistent with achieving planning and operating reserve criteria no less stringent than those established by the Western Electricity Coordinating Council and the North American Electric Reliability Council. Existing law, the Clean Energy and Pollution Reduction Act of 2015, provides for the transformation of the ISO into a regional organization, with the approval of the Legislature, pursuant to a specified process. That process provides that modifications to the ISO’s governance structure, through changes to its bylaws or other corporate governance documents, will not become effective until the ISO, the Public Utilities Commission (PUC), the State Energy Resources Conservation and Development Commission (Energy Commission), the State Air Resources Board (state board), the Governor, and the Legislature take specified actions on or before January 1, 2019. This bill would delete the above-described provisions providing for the transformation of the ISO into a regional organization. The bill would authorize the ISO and the electrical corporations that are participating transmission owners whose transmission systems are operated by the ISO, in lieu of the ISO managing related energy markets, as provided, ISO to use voluntary energy markets governed by an independent regional organization, only if specified requirements are satisfied. The bill would authorize the ISO, on or after January 1, 2028, to implement tariff modifications accepted by the Federal Energy Regulatory Commission to operate the energy markets whose rules are governed by an independent regional organization if the governing board of the ISO adopts a resolution, as specified, finding that each of the specified requirements have been, or will be, adopted by the independent regional organization. The bill would require the ISO to maintain the necessary technical capability to operate energy markets, as specified, and would require the ISO to continue its functions and responsibilities as a balancing authority, as provided. This bill would establish the Regional Energy Market Oversight Council, which would be responsible for ensuring that participation in regional energy markets serves the interests of the state. The bill would require the council to approve or disapprove initial participation in the independent regional organization by electrical corporations and any other participating load-serving entities and determine whether electrical corporations and any other participating load-serving entities should be required to withdraw from an energy market governed by the independent regional organization. The bill would require the council to convene a duly noticed public meeting to make a finding of approval or withdrawal of participation in the independent regional organization and would require the council to disapprove of initial participation in the independent regional organization, or order withdrawal, if the council makes any of specified findings. (2) Existing law establishes the California Renewables Portfolio Standard Program, which requires the PUC to establish a renewables portfolio standard requiring all retail sellers, as defined, to procure a minimum quantity of electricity products from eligible renewable energy resources, as defined, at specified percentages of the total kilowatthours sold to their retail end-customers during specified compliance periods. Existing law defines “California balancing authority” and “balancing authority area” for purposes of the program. This bill would provide that the above-described independent regional organization is not a California balancing authority and its geographic footprint is not a balancing authority area for purposes of the program. The program, consistent with the goals of procuring the least-cost and best-fit eligible renewable energy resources that meet project viability principles, requires that all retail sellers procure a balanced portfolio of electricity products from eligible renewable energy resources, as specified, referred to as the portfolio content requirements. This bill would require, in making determinations regarding the eligibility of products to satisfy the portfolio content requirements, the Energy Commission to require, at a minimum, resources that do not have a first point of interconnection to a California balancing authority to demonstrate either that the resource operates under a pseudo-tie agreement or dynamic scheduling agreement with the Independent System Operator of another California balancing authority, or that the resource has secured, and exercised its rights to, firm transmission necessary to deliver its output to a California balancing authority without substituting electricity from another source. (3) Existing law requires the Power Exchange to provide an efficient competitive auction, open on a nondiscriminatory basis to all suppliers, that meets the loads of all exchange customers at efficient prices, and authorizes the Power Exchange governing board to form appropriate technical advisory committees composed of market and nonmarket participants to advise the governing board on relevant issues. This bill would delete these provisions. (4) Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the PUC is a crime. Because certain provisions of this bill would be part of the act and a violation of a PUC action implementing the bill’s requirements would be a crime, the bill would impose a state-mandated local program. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: YES Bill Text The people of the State of California do enact as follows: SECTION 1. Section 337 of the Public Utilities Code is amended to read: 337. (a) The Independent System Operator governing board shall comprise a five-member independent governing board of directors appointed by the Governor and subject to confirmation by the Senate. Any reference in this chapter or in any other provision of law to the Independent System Operator governing board means the independent governing board appointed under this subdivision. (b) A member of the independent governing board appointed under subdivision (a) may not be affiliated with any actual or potential participant in any market administered by the Independent System Operator. (c) (1) All appointments shall be for three-year terms. (2) There is no limit on the number of terms that may be served by any member. (d) The Oversight Board shall require the articles of incorporation and bylaws of the Independent System Operator to be revised in accordance with this section, and shall make filings with the Federal Energy Regulatory Commission as the Oversight Board determines to be necessary. (e) For purposes of the initial appointments to the Independent System Operator governing board, as provided in subdivision (a), the Governor shall appoint one member to a one-year term, two members to a two-year term, and two members to a three-year term. SEC. 2. Section 345.6 is added to the Public Utilities Code, to read: 345.6. (a) In lieu of the Independent System Operator managing related energy markets as provided in subdivision (b) of Section 345.5, the The Independent System Operator and the electrical corporations that are participating transmission owners whose transmission systems are operated by the Independent System Operator may use voluntary energy markets governed by an independent regional organization only if all of the following requirements are satisfied: (1) The independent regional organization is a nonprofit corporation whose governance documents, and the tariff approved by the Federal Energy Regulatory Commission, include obligations to do both of the following: an obligation to (A) Respect respect the authority of each state that has a load-serving entity or balancing authority participating in the market to set its own procurement, resource adequacy, environmental, reliability, and other public interest policies. (B) Manage energy markets in a manner that is consistent with all of the following: (i) Making the most efficient use of available energy resources. (ii) Reducing, to the extent possible, overall economic cost to consumers. (iii) Complying with applicable state laws intended to protect the public’s health and the environment. (iv) Maximizing availability of existing electrical generation resources necessary to meet the needs of electricity consumers. (v) Conducting internal operations in a manner that minimizes cost impacts on ratepayers to the extent practicable and consistent with state law. (vi) Communicating with all balancing area authorities participating in the independent regional organization in a manner that supports electrical reliability. (2) The governing board of the independent regional organization maintains a public policy committee consisting of members of the governing board of the independent regional organization that engages with states, local power authorities, and federal power marketing administrations about potential impacts to state, local, or federal policies before it approves a tariff change for filing at the Federal Energy Regulatory Commission. (3) The governing board of the independent regional organization maintains a relationship with and seeks input from a body of state regulators or similar body to receive the views of state regulators. (4) The independent regional organization makes funding available for a consumer advocate organization that represents the interests of one or more consumer advocate offices authorized in state law, including the Public Advocate’s Office of the Public Utilities Commission, and facilitates engagement by those offices in the markets governed by the independent regional organization. (5) The independent regional organization maintains an office of public participation to provide information and education to members of the public about issues and initiatives at the independent regional organization, including facilitating engagement in those processes. (6) In addition to any independent market monitoring activity required by a Federal Energy Regulatory Commission order, the independent regional organization maintains access to independent market analysis for the governing board of the independent regional organization on the impacts of market dynamics or rule changes to minimize overall costs to end-use consumers. (7) Market Subject to reasonable confidentiality provisions, market data is available to the commission and the Public Advocate’s Office of the Public Utilities Commission, and other states’ commissions and public advocate offices, to the same or greater extent as existed on December 31, 2024, for the markets governed by the Independent System Operator. (8) There is a stakeholder process designed to provide nonbinding advice to the governing board of the independent regional organization. (9) The independent regional organization is obligated to conduct meetings and make decisions in an open process with transparent, documented rationales, and all meetings of the governing board of the independent regional organization are publicly noticed and, excluding executive sessions, are available to remote participants, recorded and posted on the independent regional organization’s internet website, open to the public, and subject to open record requirements. The obligations in this paragraph shall be at least as stringent as substantially similar to those that apply to the Independent System Operator. Operator at the time a resolution is adopted pursuant to subdivision (b). (10) The Independent System Operator continues to operate the energy markets, subject to the market rules determined by the independent regional organization as accepted by the Federal Energy Regulatory Commission. (11) The market rules of the independent regional organization provide greenhouse gas emissions information and protocols sufficient to enable compliance with the requirements of any state agency. (12) The independent regional organization does not do either of the following: (A) Establish, operate, or rely on a centralized capacity market, or separate energy markets for dispatchable, firm, and intermittent resources. (B) Establish any mandatory requirements relating to resource adequacy or reserve margins. (13) Nothing in the tariff filed with the Federal Energy Regulatory Commission for the independent regional organization, or any other aspect of participating in energy markets overseen by the independent regional organization, shall cause California electrical corporations that are participating transmission owners, or load-serving entities, to be assessed any costs of fossil fuel generation resources that are not dispatched to serve California end-use loads or any costs to subsidize fossil fuel generation resources. (14) The tariff filed with approved by the Federal Energy Regulatory Commission for the independent regional organization provides a procedure for unilateral withdrawal from the independent regional organization’s energy markets by any state or participant on their own accord, or as required by an applicable regulatory authority, with reasonable prior notice and without any penalties, unreasonable costs, or further approvals. (15) The governance documents of the independent regional organization and the tariff approved by the Federal Energy Regulatory Commission authorize the use of the process outlined in subdivision (c) for determining initial participation in, and voluntary withdrawal from, the independent regional organization by electrical corporations and any other participat [Text truncated for display. Full text available on Congress.gov.]