By Ted Caddell
Constellation Energy and demand side management specialist Comverge said last week they are combining their demand response businesses for commercial and industrial customers.
The announcement came the day before PJM proposed ways for demand response to comply with an appellate court ruling in the Electric Power Supply Association’s (EPSA) challenge of the Federal Energy Regulatory Commission’s Order 745. (See related story, Awaiting FERC Action, PJM Floats ‘Trial Balloon’ on DR Post-EPSA.)
Despite the uncertainty following the EPSA decision, Constellation and Comverge said they believe there is still gold to be mined in the DR market.
The two companies said the new combined business will be operated as a standalone company, with Constellation taking a minority stake and private equity investment firm H.I.G. Capital holding the majority. Terms of the agreement were not released. Comverge, which went public in 2007, was acquired by H.I.G. for $49 million in 2012.
Comverge and Constellation officials said the name of the new company will be announced after the closing of the transaction.
Scale
Comverge CEO Gregory Dukat said the new company’s “size, focus and years of expertise helping C&I [commercial and industrial] customers successfully participate in demand response programs make it a formidable presence in the market.”
Mark Huston, president of Constellation Retail, said DR customers will “benefit from a company solely dedicated to DR products and services.”
Comverge has more than 5.5 million energy management devices in the field and thousands of C&I customers. They also brought more than 1 million residential customers into various DR programs. It has absorbed other demand response businesses, including Enerwise Global Technologies, which it acquired in 2007 for $75 million.
Jason Cigarran, Comverge’s vice president of marketing and communications, said that because the new company will be taking what had been Comverge’s C&I customers, the rest of Comverge will now concentrate on residential and small business exclusively. He declined to say how many megawatts of DR the company has under its control.
Constellation’s retail businesses serve more than 100,000 commercial customers and more than 1 million residential customers. It purchased CPower, which managed 850 MW of DR capacity, in 2010. Constellation said it controlled 1,300 MW of DR as of the end of 2013.
Competition
The merger will give the combined company more scale to compete against publicly traded EnerNOC, which has between 24,000 and 27,000 MW of peak load management. According to a recent Securities and Exchange Commission filing, EnerNOC had $22.1 million in revenue in 2013, about 45% of that from the PJM market.
NRG Energy is also moving into the market in a larger way and now has about 2,000 MW of demand management load under its control.
Some analysts say that the increased competition in the DR market is putting pressure on prices. The loss of the guaranteed prices that had been afforded by FERC’s Order 745 may also slow some of the demand response market, they say. A study by Greentech Media predicted the loss of Order 745 will reduce the annual growth rate of the DR industry from 8% to 4.9% through 2023. (See Appeals Court Snuffs Hope for FERC Demand Response Jurisdiction.)