On hot summer days in California, when electricity demand is high and the electric grid is stressed, grid operators turn to demand-response programs: Large electric customers are called on to lower their electricity use for a few hours. The customers are paid for their load reduction, the utility avoids the need to build additional highly polluting and costly peaker power plants, and all Californians enjoy lower electricity prices and cleaner air.

It sounds like a win-win-win proposition, and demand-response programs are a top priority in California’s transition to a clean energy future.

But there’s a hidden infestation plaguing California’s demand response programs: backup generators or (more colorfully) “BUGs.”

BUGs are stationary fossil-fueled generators. Their natural habitat is the back lot of industrial, medical, or school campuses, where they provide emergency power during a blackout. Because they’re intended to only be used in emergencies,their emissions historically have been unregulated. Older models are usually diesel-fueled, similar to the engine in an 18-wheel semi. At their worst, these diesel engines can emit 100 times more pollution-per-kilowatt-hour than a conventional power plant. Some newer BUGs run on natural gas, but their impact on air pollution is still significant. Because BUGs are usually located in urban areas and are closer to the ground than big power plants, we inhale more of whatever pollution they emit: A person downwind of a small natural-gas generator will inhale 160 times more particulate matter for each unit of energy it generates, compared to inhaled pollution from a conventional power plant.

Engines like these have no place in demand response. Demand response participants are paid to provide carbon-free load reductions, not to turn on generators that are dirtier than the grid. For over a decade, the California Public Utilities Commission has written that using BUGs in demand-response programs is antithetical to the intent of the programs, yet the utilities seem unwilling to clear the air.

BUGs are scuttling for cover in three separate corners of the Commission.

The first proceeding is intended to gather information on how many BUGs are providing demand response, and for how long. We don’t know the full extent of the problem, but suspect it’s significant: 60 percent of demand-response participants who owned a BUG admitted they used it to respond to demand-response events. In two separate decisions (first in 2011, and again last December), the Commission ordered PG&E, SCE and SDG&E to find out which demand-response participants own a BUG and when they operate it –- but the utilities proposed only a voluntary survey. As the Sierra Club noted in its opposition to this proposal, California ratepayers bankroll the utilities’ demand-response programs, and the public must have confidence that their money is being properly used to pay for a preferred resource, not to subsidize dirty generation that undermines California’s climate policy and pollutes local communities. The process is currently stalled, and we’re waiting for the Commission to issue a decision on the utilities’ survey proposals.

The second proceeding deals with whether BUGs should be allowed to participate in the Demand Response Auction Mechanism (DRAM), a new pilot program designed to test whether load reduction can be bought and sold in a normal wholesale market for energy. PG&E and SCE (but notably, not SDG&E) want to allow BUGs to bid into this auction. But the DRAM pilot is intended to test and create space for the growth of true preferred resources, not create a new revenue stream for conventional fossil generation. As Commissioner Sandoval wrote in her opposition to the utilities’ plan, “allowing fossil-fueled BUGs in the DRAM is unnecessary.” The Commission will vote on this issue on this week, deciding between a staff resolution that would permit BUGs and a dissent by Commissioner Sandoval, which would exclude them.

The third proceeding is SCE’s application to procure new generation to replace the San Onofre nuclear plant. The utility was required to procure a certain amount of “preferred resources,” like storage or renewables, and as part of this requirement SCE requested approval for 70 megawatts of demand response contracts. Although originally redacted in its public filing, the Sierra Club discovered the proposed demand-response contracts would actually be provided by fossil-fueled backup generation. The engines would be dispersed throughout the Los Angeles Basin, one of the most polluted air basins in the country. SCE’s efforts to explain why BUGs should take the place of clean resources like energy storage or wind and solar read like a trip to Wonderland, where up is down and down is up. For example, this gem: “The use of...natural gas...does not make these projects GFG [gas-fired generation].”

The Commission needs to step up and exterminate the BUGs. Anyone who wants money from California ratepayers for providing demand response should be required to disclose BUG ownership, and their generator should be metered and monitored to ensure that when they do participate in demand-response programs, they actually reduce load and don’t simply turn on dirty substitute generation. BUGs should not be allowed to participate in the DRAM pilot, polluting both the air and the results from what is meant to be an experiment in novel demand-response procurement mechanisms. Finally, the Commission must reject SCE’s attempt to disguise BUGs as preferred resources. Especially in a time when clean resources like storage are market-ready, it’s time for a little pest control.


Alison Seel is an associate attorney with the Sierra Club's Environmental Law Program.