California's final budget leaves its largest virtual power plant with no funding for 2027

California's final budget bills, published in the week before the 31 August 2026 deadline, authorise no money for the Demand Side Grid Support programme for 2027. Canary Media, which reported the outcome on 1 September, says Senate Democrats had proposed moving $70 million into the programme from another California Energy Commission fund and that Governor Newsom's administration rejected it. A separate administration proposal, to move the programme to the California Public Utilities Commission, was also left out of the final language.

DSGS is not a pilot. It was created by Assembly Bill 205 (Ting, Chapter 61, Statutes of 2022) as part of California's Strategic Reliability Reserve, sits in Public Resources Code section 25792, was widened by Assembly Bill 209, and is administered for the Energy Commission by Olivine. It pays households and businesses to cut load or export power when the grid is short. Canary Media reports roughly 130,000 homes with batteries and roughly 75,000 with smart thermostats and other flexible devices enrolled, more than a gigawatt between them, and a July 2025 test in which 476 MW was sustained for two hours, which Pacific Gas and Electric called the largest test of its kind in California. [UNVERIFIED] Utility Dive reported in May 2026 that DSGS had dispatched over 539 MW of average output across July test events. The two figures have not been reconciled here and may not describe the same thing. [NEEDS DATA: Energy Commission programme reports giving enrolment, dispatch events and total payments for 2025 and 2026]

The squeeze is already visible in the programme's own rules rather than only in the budget. The Energy Commission's fifth edition guidelines suspend Participation Option 1, the emergency dispatch option, for the 2026 programme year on budget grounds. Option 3, the storage virtual power plant option, is closed for 2026 to any aggregator that did not take part in October 2025, with an exception for aggregators of bidirectional EV chargers. The administrator publishes 2026 funding availability of up to $3 million for Option 2, $42.7 million for Option 3 and $7.27 million for Option 4, with a 30 per cent bonus on capacity incentives, against Option 3 capacity payments of $6.75 to $19.20 per kW-month depending on duration. [UNVERIFIED] The Energy Commission's own site and document server refused connections while this was being checked, so those figures come from the administrator's participant site and from trade coverage of the fifth edition guidelines rather than from the guidelines themselves. The same applies to the statutory citations above and to a reported $109.5 million of total programme funding authorised across AB 205, AB 102, AB 107 and SB 108.

The 2026 money is not cleanly documented in public either. Advanced Energy United said on 30 June 2026 that the budget agreement moved $22 million into DSGS from the Distributed Electricity Backup Assets programme, and called for an August agreement directing interest from the CalSHAPE school programme to DSGS as well. Canary Media describes $27 million secured earlier in the summer. Those are not the same number and the difference is unresolved. [NEEDS DATA: the specific budget line items and transfers into DSGS for the 2026 programme year]

The part worth watching is custody rather than the amount. Utility Dive reported in May 2026 that the Governor's budget revision proposed moving customers enrolled by this summer into the Emergency Load Reduction Programme, which is run by Pacific Gas and Electric, San Diego Gas and Electric and Southern California Edison, and a CPUC-operated successor programme from 2027. Brandon Garcia of Advanced Energy United told Utility Dive the group had "serious concerns about transferring the program to the CPUC", citing higher administration costs and lower enrolment capacity. On the budget outcome he told Canary Media the group was "incredibly disappointed the administration rejected the legislature's proposal". Sachu Constantine of Vote Solar told the same outlet the state should "use these resources that customers and companies have already invested in". The Governor's office did not respond to Canary Media's request for comment.

The distinction this exposes is between a right written into a tariff and a payment written into an appropriation. A wholesale market obligation persists because it is a rule: anyone who qualifies is paid, and ending it requires a proceeding, a record and someone willing to sign the decision. An incentive programme funded from an annual appropriation ends when a line is not renewed, which produces no finding, no reversal and nothing to appeal. California assembled more than a gigawatt of household capacity by the second route, and the second route is now doing what it does.

The custody proposals sharpen the point. Shifting enrollees to a utility-run programme removes no devices and disconnects no batteries. It changes who the counterparty is, and therefore who sets the terms on which a household's battery is worth enrolling. The same legislature spent this session advancing bills that write distributed resources into the system, including a resource adequacy bill now sitting with the Governor. Passing rules that permit participation at the edge while declining to fund the largest working instance of it is not a contradiction. It is a demonstration that permission and payment are different kinds of commitment, and only one of them is self-executing.

What is still unknown. The exact budget instrument, and whether it forecloses a mid-year augmentation before the 2027 season. How much of the enrolled capacity is contractually committed into 2027 and how much simply lapses. What the administration's stated reason for rejecting the $70 million transfer actually said. Whether the CPUC transfer returns outside the budget process. And what a participating household earned in 2025 and 2026, which is the number that decides whether anyone re-enrols. Garcia's warning to Canary Media was about timing rather than money: if an incoming administration waits until June, he said, he does not know how many participants will still be there.