California’s demand response program in jeopardy

demand response – A successful California “virtual power plant” helps the grid during heat, but funding could end after 2026.

When the heat peaks and California’s electricity demand surges. hundreds of thousands of households have been turning their homes into backup power—helping keep the grid running while earning credits for participating.. For families like Nancy Lipps and her son John Lipps in Dinuba. that arrangement has been more than a seasonal perk.. It’s a way to contribute during the moments when the system is most strained.

More than 200. 000 California households are enrolled in a statewide demand-side program that pays participants for reducing electricity use and sharing power when conditions are hardest on the grid.. The Lipps family has a battery connected to its solar panels. and they route power from it during times of need.. John Lipps said the decision was an easy one. framing participation as a contribution to neighbors and an effort to keep the grid sustainable.. The program also provides them with a $300 credit at the end of the year for helping out.

But that benefit may not last.. The report stated that letters—signed by dozens of local officials. legislators from both houses. environmental groups. and clean energy businesses—have poured in as advocates push to preserve the program in the face of budget cuts.. Their concern centers on whether the state will keep funding California’s Demand-Side Grid Management program. which currently operates through a mix of smart thermostats. EV chargers. and solar-powered batteries registered to share power or ramp down usage when the grid is under stress.

Demand-side advocates argue the approach has delivered measurable results since the program launched in 2022.. They said enrolled households have generated more than an entire gigawatt of power when state needs it—capacity comparable to that of a nuclear power plant and enough to power San Francisco at peak demand.. Leah Stokes. an energy expert and professor at UC Santa Barbara. linked the program’s value to both cost and emissions. saying it helps keep older. dirtier gas plants from being brought online at the most expensive and most polluting moments.

That environmental and grid-support narrative is now colliding with fiscal and administrative debates at the state level.. The report stated that the program faces budget cuts for the third consecutive year, with a proposal from Gov.. Gavin Newsom to stop funding it after 2026 and transfer its customers to a program overseen by the California Public Utilities Commission.. Advocates say the shift could break momentum and potentially end what they call the state’s largest “virtual power plant.”

Newsom’s office characterized the proposal differently. saying it builds on the existing program’s foundation while streamlining how demand response is handled.. A spokesperson for the governor said the plan would make demand response more efficient by reducing administrative overhead costs and simplifying options for customers who currently deal with a landscape of competing programs—goals described as a way to lower costs for ratepayers.

Under the current structure. the California Energy Commission administers the demand-side program. which is state-funded and serves Californians in every legislative district.. The report noted that the lowest-income counties show higher per-capita participation rates, according to a recent report authored by Stokes.. Newsom’s proposal also includes a short-term boost for just this year using $27 million in unspent funds from another energy reliability program.. With that amount. along with the program’s remaining $26.5 million budget. supporters said it should run through the end of 2026. even if at reduced capacity.

After that, advocates say the program runs out of money.. In hearings this year. the California Department of Finance reportedly indicated the program was designed to be temporary and raised concerns about continuing to fund it indefinitely through the state budget.. A Department of Finance budget analyst. David Evans. said the current budget climate could not sustain additional appropriations and that the proposal was to use existing resources first. then transition toward a more sustainable funding source.

The governor’s approach also depends on shifting funding streams.. The report stated that Newsom’s proposal would transfer $70 million in interest from unspent school air conditioning program funds to the Public Utilities Commission.. That money would help cover costs as the CPUC transitions customers onto its own ratepayer-funded program—one described as similar to the California Energy Commission-run system—and explores whether to set up a new program.

Advocates contend the CPUC plan has underperformed.. In the hearing. it was reported that the utility-run program—run by investor-owned utilities since 2021—has spent far more on administrative costs and generated only a small fraction of the energy capacity compared with the CEC-administered model.. Stokes described it as largely an administrative-fee arrangement. while Weis argued that even if the CPUC were able to build a replacement in time. it is unlikely it would match the effectiveness of Demand-Side Grid Management.

Questions about timing and execution also loom.. Weis said advocates are concerned that the CPUC option would be difficult to stand up quickly enough to make a meaningful difference. and he warned it could leave California without a capable demand response resource when the state most needs it.. Meanwhile. the CPUC did not respond to a request for comment. and the commission’s Public Advocate’s Office declined to weigh in.

At the same time, CPUC leadership disputed the ease of comparison between the two programs.. The report stated that in the hearing. CPUC executive director Leuwan Tesfai said the programs are difficult to compare and that any plan for a new program would depend on having a proposed decision ready by the end of the year.. That timeline, advocates argue, may be incompatible with the calendar for when the Energy Commission program would otherwise sunset.

Supporters are also trying to preserve additional funding that would carry the effort beyond 2026.. The report said advocates are pushing to keep the soon-to-sunset school air conditioning program running and instead direct its interest to the CEC-administered demand response effort. which they say could keep it active through 2028.. Their long-term vision is that the virtual power plant could sell directly into California’s energy market once it is positioned to do so.

A study commissioned by Sunrun and Tesla—both of which enroll customers in the Energy Commission program—was cited in the report as finding that extending the program through 2028 could save the grid system $206 million. even after accounting for the cost of paying participating households.. At a recent hearing. lawmakers reportedly backed the advocates’ proposal and questioned why the state would end a proven program in favor of one that has produced less capacity or is still being planned.

Assemblymember Steve Bennett. chair of the budget subcommittee on climate and energy. said that at least a significant portion of assemblymembers were leaning toward keeping the funding with the CEC.. The report also said Newsom plans to release a revised budget on Thursday. though the program’s fate is expected to remain under negotiation until the budget is finalized in July.

For households like the Lipps family, the debate is about more than paperwork and administrative authority.. The demand response setup is designed to activate quickly during heat-driven peaks—when the system is most expensive to operate and. according to advocates. when cleaner and cheaper resources can help prevent dirtier generators from being used.. The shift under discussion raises the stakes for the reliability of that backup function. especially given the stated concern that the CPUC’s framework may not be ready in time to replicate the CEC’s effectiveness.

It also highlights a broader tension in state energy policy: how to fund and manage grid flexibility efforts in a way that both rewards participation and scales effectively as demand rises.. Supporters argue that the current model has already built a functioning network of smart devices and batteries. while critics of the proposed redirection say it could dismantle a working system before a new one is fully operational.

Even as the final outcome remains tied to budget negotiations. the letters and hearings described in the report suggest the program has become a focal point for California’s climate and grid resilience agenda.. Whether the state chooses to keep Demand-Side Grid Management intact. alter its administration. or pursue a transitional plan. the immediate question will be whether California can preserve a demand response resource that advocates describe as both cleaner and more effective during the moments when the grid is under the greatest pressure.

As July approaches, the decision will likely determine not only who receives credits and how the program is run, but also whether California’s virtual power plant remains a durable feature of its energy strategy or becomes a temporary initiative that ends before its potential fully materializes.

California energy grid demand response program virtual power plant Gov. Gavin Newsom smart thermostats CPUC vs CEC