Update: Governor Newsom signed the Pathways Bill into law on September 19, 2025.
On September 13, 2025, Assembly Bill (AB) 825, titled the Independent System Operator: Independent Regional Organization Act, passed the California state Senate on a 34-0 vote, and a 74-1 approval in the Assembly.[1] The bill now heads to the Governor’s desk for final approval.
AB 825 will implement Step 2 of the Pathways Initiative[2] and establishes a legal framework for the California Independent System Operator (CAISO) to participate in a voluntary, multi-state regional energy market governed by an Independent Regional Organization (IRO). This transition is designed to preserve California’s policy autonomy while unlocking the benefits of regional coordination.
On or after January 1, 2028, through resolution adopted by the governing board of CAISO, CAISO may implement tariff modifications accepted by the Federal Energy Regulatory Commission (FERC) to operate energy markets governed by an IRO. The reforms adopted in AB 825 include the following key elements:
1. Structure and Oversight of the Independent Regional Organization
The IRO must be a nonprofit corporation with a governance charter that explicitly respects each participating state’s authority over procurement, environmental, reliability, and other public interest policies. The IRO must maintain a Public Policy Committee that engages with states, local power authorities, and federal power marketing agencies before submitting tariff changes to FERC. The IRO’s governing board must maintain a formal relationship with a body of state regulators, ensuring that state-level perspectives are incorporated into decision-making.
2. Transparency and Public Engagement
The IRO must operate with open meetings, publicly noticed and accessible to remote participants, with documented rationales for decisions. It must maintain an Office of Public Participation to educate and inform the public. A stakeholder advisory process must be in place to provide nonbinding input to the governing board.
3. Consumer and Market Protections
Funding must be made available for consumer advocate organizations, including California’s Public Advocates Office (PAO). The IRO must provide independent market analyses to minimize costs for end-use customers, in addition to FERC-required market monitoring. Market data must be shared with the California Public Utilities Commission (CPUC), PAO, and other state commissions at levels equal to or greater than those available as of December 31, 2024.
4. Withdrawal and Autonomy
Participation in the IRO’s markets must be voluntary, and each entity retains autonomy over the extent of its involvement. The IRO’s tariff must include a unilateral withdrawal procedure for any participant, with reasonable notice and no penalties or excessive costs.
5. CAISO’s Role
CAISO must retain the technical capability to operate separate markets for entities that choose not to participate in the IRO. CAISO will continue its role as a Balancing Authority (BA) unless specific conditions are met for combining with other California BAs. Beginning one year after the implementation of the IRO’s markets, and annually thereafter, CAISO, in consultation with the IRO, must submit annual reports to the Legislature, CPUC, and California Energy Commission (CEC) on the status of the development of the IRO and compliance with the bill. CAISO leadership must testify annually before legislative committees and present these reports.
6. Regulatory Oversight
The CPUC must formally determine that all statutory requirements are satisfied before California electrical corporations can participate in the IRO. The CPUC retains authority to order California electrical corporations to withdraw from the IRO if its activities undermine California’s resource adequacy, integrated resource planning, or procurement mandates under California Public Utilities Code Section 380, 454.51, or 454.52.
7. Preservation of State Clean Energy Goals
The market rules of the IRO must provide greenhouse gas emissions information and protocols sufficient to enable compliance with the requirements of any state agency. AB 825 explicitly states that participation in the IRO does not alter California’s Renewables Portfolio Standard (RPS) or its 2045 zero-carbon electricity target.[3] The CPUC and CEC must revise rules to ensure that regional market participation does not expand the types of transactions that meet the RPS portfolio content category requirements, beyond standards as of December 31, 2025.
The passage of AB 825 marks a significant step toward integrating California’s electricity grid into a broader western regional market. Stoel’s energy regulatory team is available to answer any questions that stakeholders may have about AB 825 or western regionalization.
[1] LegiScan, Assem. Bill No. 825, Reg. Sess. (2025) (enrolled), Votes, https://legiscan.com/CA/votes/AB825/2025.
[2] Step 2 (of 3) of the Pathways Initiative intends to transfer governance authority over existing energy markets to a new, fully independent regional organization with sole authority over Western Energy Imbalance Market (WEIM) and Extended Day Ahead Market (EDAM). Step 1 elevated the WEIM’s Governing Body’s authority from joint to primary authority over decisions related to the WEIM and the EDAM. See West-Wide Governance Pathways Initiative, Step 2 Draft Proposal Briefing, briefing-on-west-wide-pathways-initiative-step-2-initiative-presentation-sep-2024.pdf.
[3] Cal. Pub. Util. Code § 454.53.