California Gov. Gavin Newsom signed Senate Bill 905 and Senate Bill 913 into law on Wednesday, clearing a legislative path for virtual power plants — aggregated rooftop-solar batteries, EV chargers, smart thermostats and other controllable devices — to displace capital spending on gas-fired peaker plants and grid overbuild at the state's three major investor-owned utilities.

Both bills come from state Sen. Josh Becker (D). Together they direct the California Public Utilities Commission and the California Independent System Operator, which manages the state's transmission grid, to measure and reward the grid value of customer-owned devices that can shift hundreds of megawatts of demand away from the grid during peak stress — typically hot summer evenings that drive an outsized share of the costs utilities recover through rates.

The economics at stake are structural. SB 913 targets the cost of keeping aging gas-fired peaker plants online for a handful of hours per year. For decades, utilities have paid customers to switch off air conditioners and appliances to reduce the need for those plants, but California has lagged other states in monetizing customer-owned resources for this purpose.

SB 905 targets delivery-side capital: utilities overbuild their grids to meet peaks, leaving much of that capacity idle most of the time. The bill instructs the CPUC to require utilities to measure and report how efficiently they use their existing grids — a first step toward identifying where VPPs or other technologies could raise utilization at lower cost, and how regulators could reward utilities for deploying the technology rather than funding conventional upgrades.

Newsom's approval marks a reversal. He vetoed three VPP bills last year, and his administration has demanded successive funding cuts to the state's premier VPP program, which may be unable to operate next year unless the legislature and the next governor agree quickly on funding.

"We're kind of shocked that he signed both bills," Becker said in a Wednesday interview. But "as we build out these distributed energy resources, and have them in more and more people's homes, it just makes sense to help them out to help the grid" by paying for the services their devices provide. "And if they can't deliver in a cheaper fashion, they won't be used."

Brad Heavner, executive director of the California Solar and Storage Association, called the signings a step forward but cautioned: "Implementation of the bill at the CPUC under the next governor will determine whether customers see lower bills."

Cost-containment provisions

SB 905 is not solely a VPP bill. It carries a package of utility cost-containment measures, many building on SB 205, another Becker bill enacted last year. Both laws rein in the return on equity utilities collect on one of their largest cost categories: wildfire prevention and mitigation investments. They also order utilities to borrow more to fund a larger share of grid investments, offsetting a portion of profit-earning capital expenditures.

Becker said the big utilities were "very opposed" to these provisions. "It's a huge sign to the public that we can get something done that works on fundamental utility economics and get it signed by the governor," he said.

SB 205 also ordered state agencies to create a "transmission accelerator" program using state-backed bonds for utility transmission projects. Last month, Newsom signed Assembly Bill 192, funding that effort with $325 million from the $10 million climate bond package — reported as a climate bond package passed by voters in 2024 — with the accelerator drawing $325 million from it.

California's utilities have tens of billions of dollars of transmission buildouts underway, many running behind schedule. AB 2493, also signed Wednesday, orders the CPUC to monitor progress on those projects and take "remedial action" if they slip.

SB 1098, signed the same day, limits utilities' use of balancing and memorandum accounts — mechanisms created to manage hard-to-forecast costs that have become overused and difficult for regulators to police, according to Mark Toney, executive director of The Utility Reform Network, a ratepayer advocacy group that sponsored seven bills this session, all of which passed into law. The shared aim of SB 1098 and SB 905, Toney said, is "making sure that utilities don't overspend."

Rate pressure and the veto

Average residential rates at the state's three major investor-owned utilities have climbed to roughly twice the U.S. average over the past decade, even as those utilities reported record profits. Newsom signed the affordability slate against that backdrop and against utility opposition to legislation reducing the capital base on which they earn regulated returns.

Clean energy advocates did not secure everything. Newsom vetoed a bill that would have ordered state agencies to overhaul California's moribund market for community solar-battery systems — a segment other states have deployed far more effectively.

Kat Lockwood, CEO of The Climate Center, a nonprofit think tank, said in a Wednesday statement: "Governor Newsom is delivering on his promise to bring down electricity costs and clean up climate pollution."

What happens next turns on implementation. The CPUC proceedings under the next governor — from utilization reporting under SB 905 to VPP compensation under SB 913 and transmission enforcement under AB 2493 — will decide whether the demand-side capacity the state has already paid for actually shows up as avoided capital and lower rates.