A forthcoming revision to California's demand response framework could encourage as much as 2 gigawatts of behind-the-meter energy resources to join the state grid operator's wholesale power market, according to Advanced Energy United's lead regulatory official for the western United States. The California Independent System Operator is expected to release the revised framework on Aug. 19, 2026. A draft proposal CAISO published in July would reclassify how distributed energy resource aggregators participate in the wholesale market, treating them as distinct resources and letting them sell power within CAISO load zones until their net load reaches zero.
The draft proposal would assign wholesale market value to aggregated behind-the-meter batteries that help cut demand within any of CAISO's more than 20 sub-load aggregation points — distinct sections of its transmission network. Right now, batteries can capture wholesale market earnings when they reduce on-site consumption during peak periods, but any electricity exported beyond the meter only receives retail net metering or net billing tariff credit, according to Brian Turner, a senior director with Advanced Energy United. The current setup effectively prevents behind-the-meter batteries from entering CAISO's resource adequacy market, partly because of the grid operator's worries about the dependability of locally exported electricity, Turner told Utility Dive. Aggregators seeking to become net energy exporters would still need to join the proper generation interconnection queue under the proposal.
CAISO's Demand and Distributed Energy Market Integration working group said in the draft proposal that these and other modifications aim to offer more flexibility for distributed resources to take part in wholesale demand response programs as more California customers install behind-the-meter batteries and other distributed energy resources. The approach "enables greater use of behind-the-meter resources while not modifying the fundamental definition of [demand response] as load curtailment," CAISO said in a summary of the draft proposal. Turner described it as "a small accounting change [that] could significantly change the battery market in California," adding that it "makes a big difference for how California will get real deliverable resources from these DERs."
A separate demand response rulemaking now underway at the California Public Utilities Commission could further strengthen distributed resource market participation in the nation's largest behind-the-meter battery market, though the schedule for action remains uncertain, Turner said. In a February 2026 scoping order, CPUC said it would examine several questions around demand response, including reforms to make demand response resources more predictable and cost-effective, such as valuation methods for participating resources, CAISO market integration, and resource adequacy valuation. The commission set an accelerated timeline to decide on "bridge year" funding extensions that would allow the state's investor-owned utilities to keep running existing demand response programs through the 2028-2029 biennium. For four less-urgent issues, CPUC said it would target a decision in the fourth quarter of 2026 while giving itself up to two years — until February 2028 — to settle all remaining questions. Turner put "the optimistic case" for when CPUC might resolve those questions at the first half of 2027, adding that the pending CAISO framework "does make the job easier for the CPUC and the new governor" to prioritize completing this work "as a near-term win for affordability and reliability."