200,000 Californians are helping the grid in hard times and getting paid for it. Now that is up in the air

Nancy Lipps and her son John Lipps, of Dinuba, are one of more than 200,000 families in California who have signed up for a statewide program that pays them to help the grid when it's too hot outside and electricity is in high demand. They have a battery connected to their solar panels, and share the power from it in times of need. It was an easy decision.

“It gives back to our neighbors and helps make sure the grid is sustainable,” said John, 52, who works in a lawn care business launched by his parents. It also gives the Lipps a $300 credit at the end of the year for helping out.

But those benefits could end soon, thanks to budget cuts. Letters signed by dozens of local officials, legislators from both houses, environmental groups and clean energy companies have flooded in to try to save the plan.

The province's Demand-Side Grid Management program works by tapping into an army of smart thermostats, EV chargers, and solar batteries that are registered to share power or reduce electricity use when the grid is struggling.

According to clean energy advocates, the program, which was launched in 2022, has been a resounding success, with registered households generating more than a gigawatt of energy when the state needs it. That's about as much as a nuclear power plant can provide, or enough to power San Francisco's peak demand.

One health benefit of “demand response” systems like these is that they keep greenhouse gas-fired power plants from being opened. “At the exact time when the grid is dirty and expensive to run, this system comes in with cheap and clean energy,” said Leah Stokes, an energy expert and professor at UC Santa Barbara.

However, that is in jeopardy as the program faces budget cuts for three years in a row. A a suggestion from Gov. Gavin Newsom will stop funding it after 2026, and transfer its customers to the California Public Utilities Commission system.

Advocates say that would deplete power, and could mean the end of the world's largest “virtual power plant.”

“It's not going to be a smooth process,” said Caleb Weis, an energy campaign associate at Environment California, along with other environmental groups, asking the legislature to continue funding the program in its current form. “There are many concerns about this proposal.”

Newsom's office said his proposal “builds on the foundation” of the current successful program and directs a strategy to respond to the state's needs.

It makes it more efficient, “reducing administrative costs and simplifying options for customers who currently have to navigate a disparate and often confusing landscape of competing systems, and ultimately lowers costs for taxpayers,” said spokesman Anthony Martinez.

Currently, the California Energy Commission operates an oversubscribed, state-sponsored program that serves Californians in all jurisdictions. The lowest-income counties have the highest per capita participation rates, according to a recent report from Stokes.

Newsom proposed expanding the program this year alone with $27 million in unused funds from another energy trust program. With that, and the program's remaining budget of $26.5 million, it should be able to operate until the end of 2026, even if at a reduced level. After that, the program runs out of money.

At hearings this year, the California Department of Finance said the program was scheduled to run for a limited time and expressed concern about continuing to fund it in the state budget.

“The current state of the budget cannot support additional appropriations,” said David Evans, a budget analyst for the Department of Finance during an April 29 Assembly budget committee hearing.

The governor's proposal involves transferring $70 million in unspent school air conditioning funds to the Public Utilities Commission. The money will help defray costs as the Commission transitions customers from its existing taxpayer-funded system to the energy commission-run system and evaluates setting up a new one.

But the Public Utilities Commission's system, which has been run by investor-owned utilities since 2021, has been inefficient, spending too much money on administrative costs, according to recent hearings, and generating a fraction of the energy capacity.

“That plan is just a useful management fee plan,” Stokes said.

And setting up a new one can be even harder and less powerful.

“Even if the CPUC is able to put something together, it seems unlikely that it will be ready in time to really make a difference or be as successful as the Demand-Side Grid Management program was,” said Weis.

The CPUC did not respond to a request for comment and the Office of the Public Advocate declined to comment. In the hearing of this case, the director of the commission Leuwan Tesfai said that the two programs are difficult to compare and that the plan was to have a proposed decision on the new program before the end of the year.

Advocates are pushing to keep the school's soon-to-be-dead AC program, and give its interest in a CEC-controlled demand response program instead, which could continue through 2028. At that time they hope that the virtual power plant can sell power directly to the California energy market.

A study by Sunrun and Tesla, which registers customers in the energy commission system, showed that extending until 2028 could save the grid system $ 206 million, even after calculating the cost of paying participating families.

Lawmakers at a recent hearing supported a proposal by clean energy advocates, and questioned why the state would end a successful program in favor of producing little or no energy.

“At least the majority of members of the Assembly are leaning towards the first option which is … staying funded by the CEC,” said MP Steve Bennett, chairman of the climate and energy budget subcommittee.

Newsom will release a revised budget on Thursday. But the end of the program is likely to remain a live negotiation until the budget is finalized in July.