FERC Rejects PJM Challenge, Upholds EnerNOC’s View

Looks like demand response heavyweight EnerNOC (s ENOC) isn’t breaking market rules after all. The Federal Energy Regulatory Commission has rejected a complaint from Mid-Atlantic grid operator PJM that certain companies were “double counting” the megawatts their demand response customers were turning down. While EnerNOC wasn’t named in the complaint, FERC’s Thursday order upholds EnerNOC’s view of the way the market is meant to work.

That’s good news for EnerNOC, which saw its shares dive after the PJM complaint (PDF) became the subject of industry analyst notes and commentary. PJM, which serves 51 million customers, also accounts for about 60 percent of the Boston-based company’s revenues.

“EnerNOC is pleased that the Commission has delivered a swift order to bring clarity to this issue for the upcoming delivery year,” EnerNOC president David Brewster said Friday in a prepared statement. The company’s shares stood at $22.19 in mid-afternoon trading Friday, up $3.08, or 16 percent from their previous day’s close.

The dispute centered around PJM’s claim that individual customers aggregated into demand response blocks by companies like EnerNOC should not be allowed to claim money for megawatts they reduce beyond a level called their peak load contribution (PLC), which is a figure set by counting a customers’ consumption during PJM’s five peak hours in the year before.

But because EnerNOC aggregates multiple customers in blocks of power reduction, it often sees cases when some of those customers deliver more reductions than their PLC and others under-deliver on their maximum loads. Still, EnerNOC and other demand response aggregators are bound to deliver the exact level of reduction they’re called upon to deliver.

In fact, EnerNOC called PJM’s argument a misunderstanding of the very nature of demand response aggregation — a view with which FERC seems to have agreed in its Thursday order.

“We will not consider the issuance of the Joint Statement in any of our considerations regarding market manipulation, and will treat it as if it were never issued,” the FERC order read. “In this fashion, market participants will be placed in exactly the same situation that they were prior to the Joint Statement.”

EnerNOC had requested on Feb. 23 that FERC issue this order by no later than this week, since it and other demand response providers are set to begin bidding for capacity auctions that are coming up in PJM market later this month. The PJM statement, while it didn’t carry the weight of an official change to market rules, had “created a tremendous amount of uncertainty in the market,” Brewster told me in an interview last week. “We’re asking FERC to, as quickly as possible, weigh in and provide clarity.”

It isn’t clear whether PJM will seek to request an official change to the way it manages its demand response market. The grid operator is set to discuss making that request in May, but FERC’s quick response to EnerNOC’s request for this declaratory order may be taken as a sign that the federal regulator will be less than receptive to attempts to make it official policy.

That’s good news for demand response aggregators like EnerNOC, Comverge (s COMV), Constellation Energy and others that bring smaller loads together into blocks to help utilities and grid operators shave load during peak demand times. FERC has generally been supportive of the demand response industry, and FERC Chairman Jon Wellinghoff has called it the “killer app” of the smart grid, with the potential to forestall the building of new power plants just to meet the nation’s peak demand times.

At the same time, FERC hasn’t yet made clear when it will take up a proposal that “negawatts” of power reduced in demand response get the same price as megawatts generated and sold on wholesale power markets. The commission had planned to issue an order on that subject in a Feb. 17 meeting, but withdrew the item from its docket without explanation, and hasn’t made clear when it may be brought up in the future.

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Image courtesy of Alan.Khazei via Creative Commons license.