Understanding CAISO and Its Role in California’s Energy Market

Transmission is one of the critical components in bringing offshore wind power into our grids, ensuring that electricity generated by power plants reaches our homes and businesses. Before I began my journey into offshore wind, I only knew that I paid my electricity bill to PG&E and assumed the government handled transmission planning. I never really thought about how electricity prices are set, which agencies are involved in planning transmission, or how the California energy market operates.

My curiosity was piqued when I started using power generation and consumption data from the California Independent System Operator (CAISO) for my research. Here’s a brief overview of CAISO’s roles and functions, along with some relevant information. This is just the beginning, and I’ll keep updating it as I learn more.

CAISO’s Key Roles:

  • Grid Management: CAISO ensures reliable and cost-effective electricity delivery across the transmission grids it controls.
    • It manages about 80% of the transmission grids (power lines) in California, while the remaining 20% is managed by municipal utilities and other independent transmission operators.
  • Reliability and Planning: CAISO oversees the transmission planning process (TPP) and publishes an annual transmission plan. It also updates a 20-year transmission outlook to inform the 10-year planning process.
    • CAISO coordinates with policymakers and regulatory agencies, particularly the CPUC and CEC, to integrate new energy sources into the grid. In December 2022, CAISO, CEC, and CPUC signed a joint Memorandum of Understanding to enhance coordination in transmission planning. The CEC forecasts customer load requirements, the CPUC provides a 10-year resource outlook, and these inputs feed into CAISO’s TPP.
  • Wholesale Electricity Market Operation:
    • Day-Ahead Market: Generators submit bids to sell electricity for each hour of the next day, specifying quantity and price.
    • Real-Time Market: This market makes adjustments to the day-ahead market, with prices being more volatile.

CAISO 2023-2024 Transmission Plan:

As of June 2024, the Board of Governors approved the 2023-2024 transmission plan. You can find details about the transmission planning process here. A few key takeaways:

  • Project Categories: Projects are categorized as reliability-driven (e.g., increased load in Oakland), policy-driven (e.g., offshore wind integration in Humboldt), and economic-driven. The total recommended budget for transmission projects is $6.1 billion, including $1.54 billion for 19 new reliability-driven projects and $4.59 billion for 7 policy-driven projects.
  • Offshore Wind Projects: Two projects related to offshore wind are eligible for competitive solicitation, with applications opening in Phase 3.


Other Information:

  • Retail Market:
    • Retail providers buy electricity from the wholesale market and sell it to customers.
    • Most residential consumers rely on retail providers, but some have options like Community Choice Aggregation, which allows local governments to procure electricity for their residents and businesses.
  • Power Purchase Agreements (PPAs):
    • These are long-term contracts between generators and buyers (such as retail providers like PG&E or large consumers) to ensure revenue certainty for generators and a reliable supply for buyers. Excess electricity by generators beyond PPA can be sold in the wholesale market, while shortages may require buying from the same market.

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