Lawmakers press for funding of demand flexibility, DSGS and energy efficiency to reduce peak costs

Lawmakers at a Senate oversight hearing pushed state agencies and the administration to prioritize funding for demand‑side programs — including the Department of Water Resources’ Direct Supply Grid Support (DSGS) program, virtual power plants and energy efficiency — as cost‑effective ways to cut peak demand and reduce ratepayer bills.

“The electron that isn't used…is the cheapest form of energy,” Vince Huert Maggio of MCE told the committee during public comment, summarizing an argument repeated in testimony that demand‑side measures both improve reliability and lower costs.

Why it matters: Agencies and stakeholders argued that demand‑side and behind‑the‑meter resources can substitute for costly supply‑side procurement when properly deployed and funded. The CEC and CPUC described a three‑part role for demand flexibility: (1) “demand modifiers” using rate design and efficiency to permanently reshape load (CEC described roughly 3,000 MW of potential load shift from that category), (2) qualifying demand‑side resources in resource adequacy so they can be contracted as supply, and (3) operational programs for emergency response.

Key hearing details:

• DSGS and VPPs: Vice Chair Sibagunda and CPUC staff described the DSGS program’s progress; CEC noted more than 1 gigawatt of subscription and that a recent activation produced about 650 MW of actual response. Committee members were told the current budget did not include continued DSGS funding, and several senators and commenters urged the administration and Legislature to identify $50–$100 million in near‑term funding to scale the program and related virtual power plant efforts.

• Demand aggregation and RA value: Agencies described a “slice‑of‑day” approach in the resource adequacy program to ensure capacity is available in each hour; they also noted opportunities to qualify behind‑the‑meter batteries and aggregated demand as resource adequacy capacity, though those resources currently represent smaller volumes (hundreds of MW) compared with the 3,000‑MW demand‑modifier estimate.

• Energy efficiency economics: Multiple witnesses cited CPUC and program reporting showing energy efficiency remains highly cost effective (cited benefit roughly $8 returned per $1 invested). Commenters and agency staff said continuing EE investments reduces long‑run procurement needs and can avoid upstream system costs.

• Funding tradeoffs and duplication concerns: CPUC President Alice Reynolds cautioned the committee about potential overlap and “double dipping” — where customers or program participants might be compensated from multiple sources for the same capacity — and emphasized the need to design programs to avoid shifting costs to ratepayers without new benefits.

Public commenters and several senators urged the legislature to restore or expand DSGS funding as a near‑term, cost‑effective complement to procurement and transmission investments. Advocates recommended appropriating at least tens of millions of dollars this budget cycle to maintain DSGS and related DEVA (distributed energy backup assets) pilots while agencies refine participation and measurement rules.

The committee asked agencies for written analyses showing incremental costs and benefits of DSGS expansions and the degree to which additional funding would reduce the need for other supply‑side spending.