This article develops a method for planning smart grid functions (peak-demand management, direct load control, and demand response) for residential loads. The proposed planning method is developed based on modeling the thermal energy stored in thermostatically controlled appliances (TCAs) as energy charged into a virtual (fictitious) equivalent battery storage unit (VE-BSU) at the distribution transformer that feeds these TCAs. The thermal energy stored in TCAs can reduce their power demands during peak-demand times. These reductions in power demands of TCAs can be modeled as discharging energy from the VE-BSU. The energy charged and discharged by the VE-BSU can be used to plan smart grid functions to maximize storing thermal energy in TCAs during off-peak-demand times (short time horizons). This feature is due to the ability to store thermal energy in TCAs, and completely use it over short time intervals. The VE-BSU-based planning method is implemented and tested for residential loads fed by five different distribution transformers. Test results demonstrate the ability of the proposed method to plan effective and stable actions of smart grid functions, with minor sensitivity to the number of residential loads and/or seasonal variations in their power demands.