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By Canary Media
By Canary Media
Canary Media
California lawmakers face a make-or-break choice about the state’s biggest and most successful virtual power plant program: Give it enough money to keep running this summer or scrap it altogether.
The administration of California Gov. Gavin Newsom (D) has proposed ending the four-year-old Demand Side Grid Support program, which pays homes and businesses to send rooftop solar power back to the grid or reduce their energy use during times of peak electricity demand. DSGS has more than 1 gigawatt of capacity, making it one of the biggest VPPs in the country.
The proposal has set off alarm bells for environmental advocates and clean energy companies, which say that eliminating the program would be a costly mistake. And some state lawmakers briefed on the plan have questioned the logic of ending a program that’s successfully delivering grid relief.
DSGS backers argue that the program saves money not only for those who participate but also for all Californians, who face some of the highest utility rates in the country.
A study conducted by consultancy The Brattle Group and commissioned by Sunrun and Tesla Energy, two companies with large numbers of solar-and-battery-equipped customers enrolled in the program, indicates that “DSGS is a significantly lower-cost alternative” to relying on costly fossil gas–fired power plants or other resources available during grid emergencies.
In February, the Newsom administration’s Department of Finance issued two budget proposals regarding DSGS. One proposes ending DSGS, which is administered by the California Energy Commission, and shifting its customers to another program administered by the California Public Utilities Commission — either a current program that has been far less successful to date or one that has yet to be created.
For the past two years, environmental and clean energy groups have been fighting to protect DSGS from a series of funding cuts ordered by the Newsom administration, and have so far been unsuccessful. “California has already invested years of effort and hundreds of millions of dollars to build out DSGS. It’s a model now for clean reliability,” said Laura Deehan, state director of Environment California, one of the dozens of environmental advocacy groups that have signed a letter protesting the plan. “We have to make sure we keep the lights on on the program and not abandon what’s already been built up.”
A coalition of industry groups that have enrolled customers in DSGS echoed that view in a March letter to state lawmakers. It warned that “dissolving an existing successful program and attempting to re-create the same type of program at a different agency causes delays, wastes public resources, and has no assurances that it will be as successful.”
Environmental and industry groups are throwing their weight behind the Newsom administration’s other budget proposal, which would instead increase DSGS funding. This alternative calls for shifting money from another, underfunded distributed energy program to DSGS, bringing its funding for the coming year to roughly $53 million, up from the $26.5 million now remaining in its budget.
This is still short of the $75 million that backers have been asking for, said Caleb Weis, clean energy campaign associate at Environment California. But it should be enough to ensure enrolled customers are ready to help the grid through what’s expected to be a much hotter summer and fall season than the state has seen over the past two years, he said.
“The DSGS program kicks on when the primary alternative would be importing expensive energy from out of state or firing up expensive peaker plants that are dirty and cost money just sitting there, not being used,” he added. Meanwhile, DSGS “has clean assets that are ready to protect the California system during times of extreme stress and high cost. It’s almost a no-brainer to use this.”
Supporters of the proposal to end DSGS have been less vocal. While the state has underscored that DSGS was always meant to be temporary, few other justifications have been offered for ending the program before its original 2030 sunset date — and no major stakeholders have come out in support of that plan.
The conversation around DSGS is heating up ahead of key budget decisions. California must pass its 2026–2027 budget by June 15, and that budget must be finalized before Aug. 31. Sometime between now and that deadline, state lawmakers will be forced to decide on the future of the program.
Lawmakers raised concerns about the proposal to scrap DSGS during a March 5 hearing of the Senate Budget Subcommittee on Resources, Environmental Protection, and Energy at the state capitol.
“DSGS has largely been a successful program,” said Sen. Eloise Gómez Reyes, a Democrat who chairs the subcommittee. “Why is the administration proposing to start over?”
David Evans, a staff finance budget analyst at the state’s Department of Finance, responded that the “original vision and intent of the program was not allowed for it to be an indefinite, ongoing program.” He highlighted the state’s ongoing budget shortfall, which the Newsom administration had cited as the rationale for cutting DSGS funding in 2024 and 2025.
But Gómez Reyes pushed back on that justification, noting that the administration’s alternative proposal — shifting funds from elsewhere — could allow DSGS to successfully operate this year without impacting the budget.
“If something is successful, and it appears that this is a successful program, why don’t we continue … even if we intended it to be something that was temporary?” she said.
Gómez Reyes also questioned the wisdom of shifting DSGS participants to the California Public Utilities Commission, given the agency’s comparative lack of success in managing VPP programs.
Under the CPUC’s oversight, California’s biggest utilities have largely failed to follow through on the state’s decade-old policy imperative to incorporate rooftop solar systems, backup batteries, smart thermostats, and other distributed energy resources into how they manage their grids. California remains well short of current targets on that front.
DSGS has been the most successful of a set of programs created in response to California’s grid emergencies in the years 2020 through 2022 designed to utilize individual customers’ devices to help the grid. Unlike those other programs, which are overseen by the CPUC and administered individually by the state’s three biggest utilities, DSGS is credited for its ease of enrollment, clear rules for participants, and availability to all state residents.
In particular, DSGS has been able to scale up and deliver grid relief much better than the Emergency Load Reduction Program, which the CPUC established in 2021.
Both programs enlist customers with batteries, EV chargers, smart thermostats, and other devices. But according to data provided by legislative staff for the March 5 hearing, while DSGS ended 2025 with an estimated 1,145 megawatts of peak load reduction enrolled — “enough to power the peak electricity demand for all of San Francisco” — ELRP has enrolled only about 190 megawatts. Its residential program was discontinued last year “due to very low cost-effectiveness.”
A recent test of both programs underscored once again the difference in scale. In July 2025, utilities measured how much solar-charged battery power capacity each program provided over the course of two consecutive hours.
The test delivered a total of 539 megawatts of capacity over that time. According to the Brattle Group’s analysis, roughly 476 megawatts of that capacity was provided by about 100,000 participants in the DSGS program — while only 64 megawatts came from ELRP participants.
Utility Pacific Gas & Electric lauded the test, noting that it “showed that home batteries can be counted on during peak demand.”
Sen. Catherine Blakespear, a Democrat, brought up the relatively poor performance of ELRP during the March 5 hearing. “It does seem like there are members of the legislature and stakeholders who really have a lot of confidence in DSGS and want it to continue, and that there’s a concern that ELRP is just not as effective,” she said. “We should focus back on the thing that’s already working and that might have a better chance of being successful.”
CPUC Executive Director Leuwam Tesfai noted at the hearing that ELRP isn’t the only alternative on the table. The budget proposal that would eliminate DSGS would also allow enrolled customers to join a new program administered by the CPUC. The agency has yet to create this new program but is actively exploring it as part of an ongoing proceeding scheduled to wrap up by the end of 2026, she said.
But Gómez Reyes replied that any work the CPUC might or might not undertake to create an alternative program to the ELRP wouldn’t be finished until “after we have completed this budget. And that becomes a problem for us as we make our decisions.”
It’s unclear how quickly state lawmakers and the Newsom administration will move to resolve these conflicts.
“It’s not out of the question that it goes through the end of August,” said Katelyn Roedner Sutter, California senior director at the Environmental Defense Fund, an environmental group that supports DSGS. “I hope it goes faster, because by the end of August is when we need to be drawing on some of these resources.”
Roedner Sutter also highlighted that the DSGS program is funded through taxpayer dollars. Most CPUC-administered programs, by contrast, are financed by authorizing utilities to pass on the costs of operating them to their customers.
“At a time when we’re trying to find ways to pay for these things outside of electricity bills, it makes less sense to move things over to the CPUC,” she said.
Sen. Josh Becker, a Democrat who authored a VPP bill that was vetoed by Newsom last year, told Canary Media that he would “strongly urge the administration to reconsider” ending the DSGS program and shifting its participants to a CPUC program. “[For] those in the legislature that have been focusing on this and care about this, it’s not a move any of us think is in the right direction.”
Becker highlighted that dozens of states are pursuing VPPs to make “better use of the clean energy resources that people already have in their homes to lower cost, to improve reliability, and to reduce pollution.” He has introduced another VPP bill in this legislative session that he said would instruct the CPUC to modify “rules that prevent these resources from participating fully in the market.”
Leah Rubin Shen, managing director at the trade group Advanced Energy United, said its member companies involved in DSGS support eventually shifting to a new program that might emerge from the kind of efforts that Becker and other lawmakers are proposing. But “you’ve got to make sure that everyone knows what the rules are, and that the rules aren’t going to change,” she said.
“DSGS has been a great program,” she said. “Keep it humming along for a few more years, until it’s supposed to be put to bed. And in the meantime, set up this market integration pathway that can funnel what we’ve learned from DSGS into something bigger and better.”
Jeff St. John is chief reporter and policy specialist at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging, and more.
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