For decades, utilities have paid customers for demand response -- that is, for turning down their energy use at certain times to help manage grid energy peaks. But who says utilities must be the middleman between power customers and these grid needs?

Not Ohmconnect. In the past several months, the bootstrapped, San Francisco-based startup has built a software platform and business model meant to bridge the gap between home energy savings and direct participation in grid markets.

And unlike most of the home automation and demand response platforms out there, Ohmconnect is taking grid market payments and transferring them directly to individual customers via monthly PayPal or Venmo deposits, based on exactly how much energy they reduce during these “OhmHour” events.

At least, that’s how the startup has launched its service so far, via pilot projects in California. Expanding its direct-to-market grid services model will require some significant changes to grid and energy market regulations -- although in states like California and New York, these transformations are already beginning to happen.

So far, the startup has enrolled about 3,500 homeowners, mostly in the San Francisco peninsula region, though it’s expanding in territory served by Northern California utility Pacific Gas & Electric and plans to start courting customers of San Diego Gas & Electric in the next few months, co-founder Curtis Tongue said in an interview last week.

Ohmconnect needs to target customers in certain areas, because it’s aggregating and playing their combined power-reduction capabilities into grid markets that are focused on meeting more local grid needs, Matthew Duesterberg, CEO and co-founder, said.

These ancillary services markets, run by the California Independent System Operator (CAISO), pay participants based on their ability to meet localized marginal prices (LMPs) at certain nodes on the grid in fifteen-minute increments. That’s different than the traditional demand response approach, which pools customers across an entire utility service territory to meet system-wide demands.

Duesterberg, a former energy trader with DC Energy and analyst for meter data analytics firm DataRaker (bought by Oracle in 2012), met Tongue, who’s worked with various companies in online marketing and business development, at last year’s Hackathon event in Oakland. The two left their respective startups to form Ohmconnect shortly afterwards. 

“In the beginning, we were just doing for energy,” Duesterberg said of their first business plan, which entailed providing homeowners with energy data. “But everybody’s doing that.” Plenty of companies provide home energy data, send email and text alerts asking users to save energy, and provide utility incentives to participate in demand response programs.

Ohmconnect’s basic approach -- sending emails and texts asking people to turn down power, or encouraging them to install smart thermostats and other home devices to automate their participation -- matches many of these existing programs. Likewise, the company has been able to get customers to reduce energy use by about 10 percent during events, which is in line with results from other home energy management platforms.

But beyond that, the company is focused on the opportunities opening up in California to create a new model of demand response. First, California’s big utilities have deployed smart meters, which provide the revenue-grade data needed to confirm each home’s actual energy reductions compared to baselines set by CAISO, and they have started to make that data available to approved third parties via the Green Button initiative.

Second, California’s Electric Rule 24, now being finalized by the California Public Utilities Commission, calls for the opening of direct participation in demand response markets, Duesterberg said. That’s the key to Ohmconnect’s plan to expand beyond utility-operated demand response programs, he added.

Ohmconnect woudl like to bid its aggregated 15-minute load reductions into PG&E’s Intermittent Renewable Management Pilot Phase 2, a program that allows demand response, energy storage and other distributed assets to earn payments directly from CAISO’s Proxy Demand Resource product. That program requires at least 100 kilowatts of aggregated load to participate, and the startup has about 30 kilowatts today, he said.

But “we are much more keen on going direct,” he said, through new Rule 24-compliant programs being developed in the state. "By 2015, we want to have megawatts,” he said.

As for sharing the wealth, Ohmconnect takes 20 percent of the CAISO payments it receives and gives the remaining 80 percent to its customers, based on individual metering data that ties payment directly to participation. Customers can earn about $100 to $130 per year, and can “cash out” the points they earn as they receive them, Duesterberg said. Or they leave them in the system, to raise their scores for neighborhood competitions, community leaderboard positions, and other social media-influenced parts of Ohmconnect’s customer platform.

The idea is to reinforce the understanding among customers that “if you’re paying me for it, I’m clearly providing a value to the grid,” he said. The same concept is being applied to projects with schools and nonprofit organizations and others that want to turn energy savings into “passive fundraising,” with rewards being pooled for a good cause, he said.

There’s a lot of behind-the-scenes work Ohmconnect has to do to meet these grid market calls, which can happen several times a week, compared to the relatively rare peak events that trigger traditional demand response.

“There’s a level of financial risk we’re taking on,” Tongue noted, since Ohmconnect has to be able to predict how much energy its customers will reduce during each event to bid the aggregated amount into the market. “That’s why we pay very close attention to our analytics,” which provide insight into how each customer responds to alerts over time, as well as how that aggregated resource affects local grid conditions.

But with its analytics in place, Ohmconnect can do a lot of interesting things that traditional demand response programs do not. For example, it can show customers how their responses to events, along with their neighbors, are reducing the need for CAISO to call for natural-gas-fired peaker plants to turn on.

“One of our pitches is, we’re a power plant on your phone,” Duesterberg said. And because “peaker plants tend to be really local” in their impacts, that can give customers a sense of how their individual actions are making a real change in how the grid is operated. “The fundamental idea is distilling down what the smart grid is to a single user.”