California is often portrayed as a leader in the energy sector: The state has vastly expanded rooftop solar, pushes energy efficiency, has aggressive goals for electric vehicles and is the first U.S. state with an energy storage mandate. But where does demand response fit on this list?

Until recently, it barely did.

“There has been little progress toward increasing the amount of DR used in the state,” according to the conclusion of the California Energy Commission's Integrated Energy Policy Report, which was published in February. 

The state of demand response in California

The state's largest utilities have demand response programs in place, and combined they budget hundreds of millions of dollars towards the initiative. But the programs have stopped growing, are not meeting their potential and, while some do qualify for resource adequacy planning, they are never dispatched except for trial run purposes, according to critics. 

In 2012, the CPUC approved demand response programs and budgets through 2014 for Pacific Gas and Electric Co. ($191,886,588), San Diego Gas & Electric Co. ($65,806,526), and Southern California Edison Co. ($196,338,052). But for several years, California missed a goal that demand response would meet 5% of the state's peak demand. 

Observers of California's demand response initiatives note the programs may be considered for resource planning at the CPUC but never make the dispatch list for the California ISO. Barriers between the marketing side and operations at utilities make it difficult to implement the programs as well, and some utilities may not have the confidence that program participants will actually curtail demand when asked.

But now the state has lost 2,000 MW due to the closing of the San Onofre nuclear plant. Meanwhile, the state's gas-fired generators are aging, and the State Water Resources Control Board has called for the phased elimination of generating plants that use once-through cooling by 2020 or earlier.

All of this begs the question: Has California reached the point where promoting demand response resources is less about ideology, and more about keeping the lights on?

How California is catching up

Gov. Jerry Brown (D) signed legislation last month directing California to include demand response in adequacy planning, to develop values for demand response resources, and to put in place consumer safeguards for those who choose to take part in the programs. 

The legislation's high-level goals are similar to New York's Reforming the Energy Vision proceeding, which is focused on modernizing the utility grid. Proponents say the law is a serious boon to demand response providers and programs.

The bill, SB 1414, attempts to remedy the issues with demand response by directing the CPUC to establish new programs, maintain existing ones and the tariffs to support them, and to use those resources in the resource adequacy planning done by utilities.

The law also:

• Requires the state's load-serving entity to maintain both electrical demand response and physical generating capacity adequate to meet its load requirements
• Calls on state regulators to ensure investments are equitable, efficient, cost effective and help to achieve electrical grid reliability
• Directs the CPUC to ensure appropriate valuation of both supply and load modifying demand response resources and to establish a mechanism to value load modifying demand response resources
• Sets up rules for backup generation to make sure large customers don't switch to a dirtier source of power when asked to curtail their use

The bill was authored by Sen. Lois Wolk (D-Davis), who called the governor's signature on the bill “a turning point for the state of California.” 

“Demand response programs will not only enable Californians to get rebates in exchange for reducing their electricity use during times of peak energy demand," she said, "but will reduce the need for costly and polluting power plants that run only when there is peak demand for electricity.”

Environmental, consumer advocates want demand response

The new law has strong support from environmental activists and consumer advocates.

The Environmental Defense Fund was one of the most vocal proponents. The new law allows the state to take a “laser focus” to demand response, according to EDF attorney Lauren Navarro-Treichler.

“California has a long-term focus on clean energy,”  Navarro-Treichler said, but “is ahead of only Texas and the Southwest in demand response.” 

The CPUC will likely take about a year to put these programs in place, according to Navarro-Treichler. And as the state continues to modernize its power grid and grow its economy, EDF “hopes to see the rest of the nation follow suit to advance the innovative technologies needed to create cleaner, more efficient, and more affordable power,” she said.

That idea—California as an energy leader among the states—was also voiced by the Advanced Energy Management Alliance (AEMA). The group advocates for ratepayer efficiency programs, and issued a statement saying “this legislation exemplifies California’s leadership in developing smart energy solutions.”

“As the nation’s grid evolves, this law sets an important example for other states to follow. As a result, demand response will be a key tool in helping California develop a cleaner, more reliable electric grid,” AEMA's release said.

The CPUC's Office of the Ratepayer Advocates also supported the bill, noting that since the energy crisis of 2001-2002, the commission expanded ratepayer-funded incentive programs to promote demand response among customers of the investor-owned utilities.

"However, the inclusion of demand response strategies in the utilities’ supply management practices has been limited at best," ORA said. The new law "would encourage the utilities to make better use of these programs to save money for ratepayers."

But some are 'a little skeptical'

Brett Feldman, a demand response analyst with Navigant Consulting, has a more cautious view of the bill. Feldman is all for demand response and the value it brings, but California has a tendency to try and do a lot of things at once, he said.

“I'm always a little skeptical of California,” Feldman told Utility Dive. “California goes back and forth and they don't really keep a consistent path. It's such a big place with so many people that sometimes it seems like they go overboard in one direction and they kind of go back another way.”

Feldman worked in California after the Enron crisis, and worked for a consulting company with the utilities and with the California Energy Commission on the first generation of demand response. The state, Fedlman said, seems to be struggling with how it wants to run the demand response programs, whether through mandates like the new law or through market-based programs.

“California can't really decide if they want to let the markets work in encouraging demand response and other kinds of demand-side resources and distributed generation, or if they want it to be more of a state mandated thing,” Feldman said. “They try to do a little of both and sometimes that creates the worst possible effectiveness.”

"It just sends mixed signals and creates uncertainty, which private companies in the sector loathe and hinders investment," Feldman said. "They would rather have it one way or the other and be able to plan around it."

Ultimately, the state would need to significantly boost dynamic pricing signals for the programs to be widely successful, he said. The CPUC is considering a time-varying rate proceeding, Feldman said, building on what the state has done for energy efficiency, where it has more experience.

"For energy efficiency there are very specific cost-benefit analyses that are used, different types of resource tests, but those don't really work for demand response and distributed generation, so they will have to figure out different cost-benefit analyses that do work for different types of resources," Feldman said. "And eventually you want to look at them holistically ... It's certainly not simple, but you can't look at them all through the lens of energy efficiency."