Nancy Lipps and her son John Lipps, in Dinuba, are one of more than 200,000 households in California signed up for a statewide program that pays them to help the grid when it’s very hot outside and electricity is at peak demand. They have a battery hooked up to their solar panels, and they share power from it in times of need. It was an easy choice.
“It gives back to our neighbors and helps make sure the grid is sustainable,” said John, 52, who works in the lawn care business launched by his parents. It also provides the Lipps with a $300 credit at the end of the year for helping out.
But those benefits could be coming to an end soon, due to budget cuts. Letters signed by dozens of local officials, legislators from both houses, environmental groups and clean energy businesses have flooded in to try to save the program.
The state’s Demand-Side Grid Management program works by tapping into an army of smart thermostats, EV chargers, and solar-powered batteries that are registered to share power or ramp down electricity use when the grid is strained.
According to clean energy advocates, the program, launched in 2022, has been a resounding success, with the enrolled households creating more than an entire gigawatt of power when state needs it. That’s about as much as a nuclear power plant provides, or enough to power San Francisco at peak demand.
One health benefit of “demand response” programs like this is that they keep older, dirtier gas fired power plants from turning on. “At the exact moment when the grid is dirtiest and most expensive to run, this program surges in with the cheapest and cleanest power,” said Leah Stokes, an energy expert and professor at UC Santa Barbara.
Yet that’s in jeopardy as the program faces budget cuts for the third consecutive year. A proposalfrom Gov. Gavin Newsom would stop funding it after 2026, and transfer its customers to a program at the California Public Utilities Commission.
Advocates say that would crush the momentum, and could spell the end of the world’s largest “virtual power plant.”
“It would not be a smooth process,” said Caleb Weis, an energy campaign associate at Environment California, which, along with other environmental groups, is asking the legislature to continue funding the program in its current form. “There’s a lot of concern about that proposal.”
Newsom’s office said his proposal “builds on the foundation” of the current successful program and streamlines the state’s demand response strategy.
It makes it more efficient, “slashing administrative overhead costs and simplifying options for customers who currently have to navigate a fragmented and often confusing landscape of competing programs, and ultimately lowering costs for ratepayers,” spokesperson Anthony Martinez said.
Currently, the California Energy Commission handles the highly subscribed, state-funded program, which serves Californians in every legislative district. The lowest-income counties have the highest per capita participation rates, according to a recent report from Stokes.
Newsom has proposed boosting the program for just this year with $27 million in unspent funds from another energy reliability program. With that, and the program’s remaining budget of $26.5 million, it should be able to run through the end of the 2026, albeit at a reduced capacity. After that, the program’s out of money.
In hearings this year, the California’s Department of Finance said the program was meant to run for a limited time and expressed concern about funding it in perpetuity from the state budget.
“The current budget climate cannot sustain additional appropriations,” David Evans, a Department of Finance budget analyst said at an April 29 Assembly budget committee hearing. “The proposal is to utilize the existing resources that we have, and then transition towards a more sustainable funding source.”
The governor’s proposal involves transferring $70 million in interest from unspent school air conditioning program funds to the Public Utilities Commission. The money would help cover costs as the Commission shifts customers onto its existing ratepayer-funded program that’s similar to the energy commission-run program and explores setting up a new one.
But the Public Utilities Commission program, which has been run by investor-owned utilities since 2021, has been notably less effective, spending far more on administrative costs, according to the recent hearing, and generating a small fraction of the energy capacity.
“That program is just a utility handout of administrative fees,” said Stokes.
And setting up a new one could be even more difficult and unwieldy.
“Even if the CPUC is able to put something together, it seems really unlikely that it would be ready in time to really make a difference or be as effective as the Demand-Side Grid Management program has been,” said Weis.
The CPUC did not respond to a request for comment and its Public Advocate’s Office declined to weigh in. In the hearing, commission executive director Leuwan Tesfai said the two programs are difficult to compare and that the plan was to have a proposed decision on a new program before the end of the year.
Advocates are pushing to keep the soon-to-sunset school AC program running, and give its interest to the CEC-administered demand response program instead, which could keep it going through 2028. At that point they’re hoping that the virtual power plant can sell power directly into the California energy market.
A study commissioned by Sunrun and Tesla, which enrolls customers in the energy commission program, showed that extending it through 2028 could save the grid system $206 million, even after accounting for the cost of paying participant households.
Lawmakers at a recent hearing backed up clean energy advocates’ proposal, and questioned why the state would end a successful program in favor of one that has produced less energy capacity or has yet to be created.
“At least a significant percentage of Assemblymembers are leaning towards option one which is … have the funding stay with CEC,” said Assemblymember Steve Bennett, chair of the budget subcommittee on climate and energy.
Newsom will release a revised budget on Thursday. But the fate of the program is likely to remain a live negotiation until the budget is finalized in July.
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