Newsom just vetoed California bills meant to make the grid reliable and tackle high costs

This story was originally published by Canary Media and is reproduced here as part of the Climate Desk collaboration.

Gov. Gavin Newsom of California has vetoed three bills that aimed to boost the use of virtual power plants, undermining an opportunity to decrease the state’s fast-rising electricity costs and increase its grid reliability.

On Friday, Newsom vetoed AB 44, AB 740, and SB 541, which were passed by large majorities in the state legislature last month. Each bill proposed a distinct approach to expanding the state’s use of rooftop solar, backup batteries, electric vehicles, smart thermostats, and other customer-owned energy technologies.

In three separate statements, Newsom argued that the bills would complicate state regulators’ existing efforts to use those technologies to meet clean energy and grid reliability goals. The moves come as utility costs reach crisis levels in California; its residents now pay roughly twice the US average for their power.

In response, Newsom did sign into law a package of bills aimed at combating cost increases at the state’s three major utilities: Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric. But some supporters of the virtual power plant (VPP) bills speculated that these same utilities were to blame for Newsom’s vetoing legislation that could have further driven down costs, as the governor has received significant campaign contributions from PG&E and the policies would have eaten into utility profits.

“These vetoes effectively stall progress on key distributed energy and affordability strategies,” said Kurt Johnson, community energy resilience director​at the Climate Center, a nonprofit group. ​“Policies and programs in California continue to be killed because they threaten the economic interests of California’s powerful investor-owned utilities.”

Izzy Gardon, Newsom’s director of communications, declined to comment on these critiques in an email response to Canary Media, saying, ​“The Governor’s veto messages speak for themselves.”

But Edson Perez, who leads California legislative and political engagement for clean-energy trade group Advanced Energy United, argued that the justifications cited in the veto statements fail to adequately consider the value the state’s increasingly large numbers of rooftop solar systems, backup batteries, EVs, and smart appliances can deliver to the grid.

An August report from think tank GridLab and grid-data analytics startup Kevala found that California could cut energy costs for consumers by between $3.7 billion and $13.7 billion in 2030 by triggering home batteries, EV chargers, and smart thermostats to reduce summertime grid demand peaks that drive an outsize portion of utility grid costs.

The Brattle Group, a well-regarded energy consultancy, found in a 2024 analysis that VPPs could provide more than 15 percent of the state’s peak grid demand by 2035, delivering $550 million in annual utility customer savings. Simply put, paying homes and businesses for the grid value of devices they’ve already bought and installed is cheaper than the alternative of utilities building out new poles and wires and substations to serve peak demand.

“These distributed energy resources are already deployed, connected to customers, and connected to the internet,” Perez said. ​“The longer we wait to tap into this potential, the longer we waste away the savings.”

To date, the VPP programs run by California’s major utilities have failed to capture that savings value. In fact, the programs administered by the California Public Utilities Commission (CPUC) have seen their overall capacity fall over the past five years or so, even as installations of the underlying technologies have risen.

The saving grace for VPPs in California has been the Demand Side Grid Support program, which is administered by the California Energy Commission (CEC) and has expanded rapidly in the past three years. A Brattle Group study released in August found that the roughly 700 megawatts of capacity from solar-charged batteries in homes and businesses enrolled in the DSGS program could save California utility customers from $28 million to $206 million over the next four years.

But last month the DSGS program was stripped of its funding during last-minute negotiations between legislative leaders and Newsom’s staff, leaving its future in doubt.

That’s frustrating to companies like Sunrun, the leading US residential solar and battery installer, which has enlisted customers in California to supply hundreds of megawatts of DSGS capacity from their solar-charged batteries.

“Do we want to leverage existing infrastructure—electrons in batteries that are already there—and nonratepayer capital to lower rates for everyone in creating a more efficient and smarter grid?” said Walker Wright, Sunrun’s vice president of public policy. ​“Yes or no?”

Because of changes made during closed-door negotiations in August, the VPP legislation vetoed by Newsom was relatively limited, but it still would have made a positive difference had it passed, said Gabriela Olmedo, regulatory affairs specialist at EnergyHub, a company that manages demand-side resources and virtual power plants in the US and Canada.

“These were unopposed bills that were pretty uncontroversial but would have made impactful steps toward enhancing load flexibility in California,” she said. ​“We can’t afford to keep leaving these readily available and affordable solutions off the table.”

SB 541, for instance, would have authorized the CEC to create regulations to track the progress toward a state-mandated goal of achieving 7 gigawatts of ​“load shift” capacity by 2030 across utilities, community energy providers, and other entities supplying power to customers. Newsom’s veto statement said the bill would have been ​“disruptive of existing and planned efforts” by the CPUC, CEC, and state grid operator CAISO.

“I’m disappointed in this veto,” state Sen, Josh Becker, the Democrat who authored SB 541, said in a statement to Canary Media. ​“This bill was about affordability,” he said. ​“Next year this area will be a focus of the clean energy community. Clearly we have some educating to do.”

AB 44 would have authorized the CEC to expand a method it has used to help some of California’s community choice aggregators (CCAs) tap VPPs to reduce peak demand.

Newsom’s veto statement declared that the bill ​“does not align” with the long-running effort by the CPUC to reform the Resource Adequacy program that sets the rules for how these grid needs are met. But critics say the CPUC has consistently failed to allow VPPs and other distributed energy resources to offset the increasingly high prices that utilities and CCAs are bearing to meet those needs.

AB 740 would have instructed the CEC to work with the CPUC, CAISO, and an advisory group representing disadvantaged communities to adopt a VPP deployment plan by November 2026.

Newsom’s veto statement declared that the bill would result in ​“costs to the CEC’s primary operating fund, which is currently facing an ongoing structural deficit.” But critics have pointed out that the text of the law would have instructed the VPP plan only to move forward ​“subject to available funding,” which would have forestalled any budget impacts.

“Even if it were signed, it would not have to be implemented unless the state budget proactively funded it,” Perez said. ​“It is very disappointing that we can’t even have the agencies talk about this in a comprehensive way. It’s kind of shocking that even that’s not allowed.”