Collin Smith is the California regulatory affairs manager at Leap.
On April 24, the California Public Utilities Commission issued its final decision on the fate of the Demand Response Auction Mechanism, or DRAM. After roughly two years of deliberation and stakeholder comments, the commission opted to discontinue DRAM after 2024, signaling the end of what may be the longest-running pilot for market-integrated demand response in the U.S.
For veterans of the DR industry, the term “DRAM” has likely been part of their vocabulary for some time. Launched in 2015, DRAM was the nation’s first auction for behind-the-meter demand response resources, billed at the time by Greentech Media as “one of the country’s biggest experiments in pricing the value of distributed energy resources for utilities and the grid.” It also established a centralized procurement target for California’s investor-owned utilities to purchase demand response from aggregators, creating a market for DER aggregation in California.
DRAM was representative of a broader shift towards more inclusive demand-side energy programs. Most excitingly, it was available to — and even actively encouraged — aggregations of smaller DERs like smart thermostats, residential batteries and electric vehicles, providing one of the first opportunities these devices ever had to compete against traditional DR on cost. It was an exciting, optimistic time for DERs in California, and there was an impression that California was blazing a trail for the rest of the U.S.
DRAM played a foundational role for California’s DR market
Much of this optimism turned out to be well-founded, as DRAM did jump-start a new wave of DR companies in California. The program consistently showed it was incorporating new companies and customers each time that it was evaluated, including high percentages of residential and low-income customers. It also succeeded in providing capacity to California customers at lower prices and lower emissions than generation resources.
Now DRAM is on its way out, following an extensive public comment period in which every investor-owned electric utility in California advocated for its departure. Their reasons for this position largely boil down to two arguments: 1) DRAM is no longer necessary, and 2) it failed to provide cost-effective capacity when it was needed.
There’s some justification for both of these claims. Thankfully, California’s DR sector has evolved significantly in the last decade and many DR providers are now able to contract directly with load-serving entities such as customer choice aggregators rather than using DRAM to sell capacity to IOUs. And as a pilot program, DRAM’s penalty structure was calibrated more towards encouraging new entrants than policing established ones. Although resource performance improved over the course of the pilot, it was never truly structured to hit the performance metrics that the CPUC was targeting.
As a result, when faced with a decision to revamp DRAM or end it, the CPUC opted for the latter, perhaps imagining the program to be an obsolete remnant of an earlier era. If that’s the case, the CPUC was mistaken: although California’s DR sector has expanded, DRAM continues to occupy an important position in the state’s ecosystem of DR programs, one that others are not yet equipped to fill.
Without DRAM, customers will have limited access to important incentives
The most immediate impact of DRAM’s departure is actually unconnected to the pilot itself, but rather the landscape of programs that grew around the pilot since 2015. This includes incentive programs like Automated DR, which provides upfront rebates for technologies like smart thermostats and commercial equipment controls, as long as customers enroll those devices in a qualified DR program.
For years, the only third party-administered program the CPUC has listed as a “qualified” DR program is DRAM. Third-party DR providers have asked the CPUC to expand this list to include other options that exist in the state — including the bilateral contracts that the IOUs referenced as a replacement for DRAM — but the CPUC has repeatedly declined to do so. Now, if this list is not updated in 2025, any customers receiving — or that want to receive — incentives like AutoDR will be required to enroll in a utility-run program instead.
This situation is anathema to California’s long-running efforts to build a balanced and open market for DR, one in which utilities and third-party providers compete on a level playing field. Third-party DR providers help foster a robust and competitive DR marketplace, catalyzing innovation and new cost-effective opportunities for customers. Post-DRAM, certain incentives will only be accessible to customers that enroll in utility programs — essentially amounting to a state subsidy for utility DR and forcing third-party providers to become utility subcontractors if they want to work with these customers at all.
DRAM provided a key market entry point for new companies operating in California
Despite its growth over the last ten years, California’s DR market still has substantial barriers to entry for new companies. For example, in order to sign bilateral contracts with CCAs, DR providers must go through an extensive review process of their past performance in similar DR programs. This creates a challenge for new DR providers that might not have a record of performance for the CPUC to review, preventing them from participating in the wholesale market programs that would allow them to build that performance record in the first place.
As a result, most of the third-party providers that sell capacity in California's Resource Adequacy program today first did so through DRAM.
As a forward capacity auction, DRAM didn’t require reviews of ex-post performance data for companies to participate, but rather that they post collateral in proportion to the contract that they were awarded. This offered a significantly more streamlined pathway to market participation for these companies, and without it, California will have a more difficult time attracting innovative new companies attempting to help the state leverage its enormous pool of distributed resources to support the grid.
Hopefully, California will address both of these issues in the near future. The CPUC is on track to finalize a new capacity accreditation process for 2026, and stakeholders are continuing to advocate for the list of DR programs eligible for incentives to be changed as well. However, unless and until these changes are made, California’s DR sector will continue to sport several DRAM-sized holes. If California can move quickly to fill these gaps, it will be able to enter the post-DRAM era by building on the program’s legacy rather than backtracking on it.
