USA – CALIFORNIA Law and Practice Contributed by: Nora Sheriff, Gwenneth O’Hara, Samir Hafez, Antonio Carrejo and Timothy Lee, Buchalter LLP
CAISO Wholesale Market Structure and Price Determination The wholesale price of electricity in the CAISO mar- ket is primarily set by competitive bids from genera- tors and demand-side resources. CAISO employs a security-constrained economic dispatch to determine which resources are used to meet demand. CAISO Energy Markets and Capacity Mechanism California has both energy markets and a capacity mechanism. Energy markets CAISO operates distinct day-ahead and real-time energy markets. • The day-ahead market allows market participants to secure prices for energy delivery for the next operating day and hedge against real-time price volatility. Supply offers and demand bids are submitted, and CAISO determines schedules and hourly locational marginal prices (LMPs) for each participating location (node). • The real-time market manages actual grid opera- tions, adjusting for differences between day-ahead schedules and real-time conditions. The real-time market includes a 15-minute market and a five- minute dispatch to balance supply and demand continuously, while also producing LMPs. CAISO capacity mechanism California does not have a centralised capacity auc- tion market like some other jurisdictions. Instead, the CPUC oversees a mandatory RA programme for the LSEs it regulates (IOUs, CCAs, ESPs). Previously, LSEs had to procure sufficient year-ahead and month- ahead capacity resources (system, local and flexible) to meet their forecasted peak demand, plus a reserve margin. These RA resources then had to offer their capacity into the CAISO energy markets. Beginning in 2025, the CPUC’s new SOD RA construct requires LSEs to demonstrate that they have sufficient capac- ity to meet demand in every hour of a 24-hour period, each month. The RA resources must still offer their capacity into the CAISO energy markets.
CAISO Nodal Pricing The CAISO market utilises LMPs, which are calcu- lated at thousands of specific locations (nodes) on the transmission system. An LMP at a given node reflects the marginal cost of supplying the next increment of electricity at that location, considering generation offer prices, transmission congestion and energy losses. This results in different prices across the grid, Entities within California’s electricity system that operate outside CAISO’s direct market manage- ment include the Western Area Power Administration (WAPA) and the Balancing Authority of Northern Cali- fornia (BANC). WAPA markets and transmits wholesale hydroelectric power from federal water projects, primarily to rural electric co-operatives, municipal utilities and feder- al and state agencies in 15 western states, includ- ing California. BANC is a joint-powers agency that provides services similar to CAISO, but is limited to municipal utilities, irrigation districts and other public entities located in Northern California. Addressing High-Load Consumers (eg, Data Centres) High-load consumers like data centres typically pro- cure electricity as customers of load-serving entities (LSEs) under regulated retail tariffs or bespoke service agreements, and their rapidly increasing demand con- tinues to significantly influence LSE load forecasting and resource adequacy (RA) obligations. Since early 2025, California regulators and policymakers have intensified their focus on this segment. These efforts are being advanced through several CPUC proceed- ings, including (i) PG&E’s Electric Rule 30 application addressing transmission-level interconnection for large loads; (ii) related proceedings on cost recovery and allocation for large-load interconnections; (iii) the CPUC’s 2026 rule-making on electric rate design for data centres and other transmission-connected cus- tomers; and (iv) the Resource Adequacy successor proceeding, which is incorporating large-load growth into reliability planning and procurement frameworks. signalling local scarcity or surplus. Non-CAISO Market Management
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