dollars and cents in terms of the economic opportunity. We then go and install our site server, this gateway device at the site and the first thing we will do is an exception test. We will basically simulate a demand response event so we can measure exactly what the results are for that demand reduction.
X: Then you have to be able to model how much power they would be consuming at a given moment—because if you do have a demand response event on a Sunday there’s probably less energy saved than if you did it on a Wednesday.
DB: That’s absolutely correct. We’re looking at every site on a near real time basis, and we’re collecting energy data, and what we do is feed that into our applications here, our PowerTrak application here, that devises a baseline for that customer. So that for any day of the week, and any day of the year, we’re going to know what their baseline is. We’ll have a very good estimate of what their energy consumption would be on that day based on actual historical data. And then during events we are taking actual readings from the site so we can again compare our baseline to the actual readings and that’s how we document our performance during the event.
X: How does sales work around here? You’re paid by the utilities. So what happens first? Does a state or a region decide, “Hey, we’re interested in demand response, we’re tired of interruptible rates, we want to see what else is possible, let’s got out there and see who wants to bid on it?” In other words, are you working mainly through public utility commissions? Or do you do more in terms of directly approaching commercial and industrial customers and creating these demand reduction networks that you can then “sell” to the utilities? I guess you are probably going at it from both directions.
DB: We are absolutely going at it from both directions. It’s sort of a chicken and egg thing. To take a step back, there are two different types of electric power markets. One is the traditional regulated electric monopoly that has been the historical status quo. That’s most of the country, really. And in those situations we need to sign a bilateral agreement with a utility to provide this capacity. Just as if we were a peaking power plant, they sign an agreement with EnerNOC to build a demand response network in their service territory. And then we need to get state public utility commission approval saying this is a prudent use of ratepayer dollars to go after and sign these contracts. And we have invested very heavily in regulatory affairs staff who work with and influence stakeholders like consumer advocate groups and public utility commissions, and also we have a utility sales teams that is really aggressively selling to utilities across the country.
We also operate very effectively in restructured markets, markets that have been deregulated, including New England, New York, the mid-Atlantic, California, Texas, and parts of the Midwest. Large chunks of the country have gone through deregulation. In deregulated markets we don’t necessarily need a bilateral contract with the utility. We can sell directly to C&I customers and bring them to what’s called an ISO, the independent system operator, or regional transmission organization that manages the grid, and we can bid these resources in and we get treated just like we were a peaking power plant. In many markets we don’t even need a bilateral agreement, which is great.
X: Can you still approach commercial and industrial customers in markets where you don’t have to have a bilateral agreement?
DB: We can, but we are not going to be able to give them money until we actually have a contract that is approved, where we are deemed functionally equivalent to power plants and we have a revenue source. So we can’t promise revenue to these customers until we’ve gone through that process of securing a bilateral agreement. But there is this effect where we do have several thousand customer sites, and for every new utility service territory that we go to we are able to go hand in hand with some serious groups of customers that are already there and we are able to tell the utility and the public utility commission that we are ready to go and these customers have written letters of intent to participate. So it gives a lot of credence and momentum to our proposals when we have that customer base raring to go.
X: Are you talking about customers that may already have a national footprint and you may already have worked with them in other areas? Like a Wal-Mart?
DB: Exactly. Like a Wal-mart or a Whole Foods or an AT&T. A lot of our customers have a national presence.
X: During demand response events, the commercial and industrial customers get compensated based on how much power they saved. Are they also paying in? Is there some kind of contract they have with you? In what sense are they “customers?”
DB: We are just paying them. A customer of ours never pays us a dime in terms of demand response, our core offering. There’s two different revenue streams that they typically get. The first is a capacity payment where they are getting paid an accruing value each month of the year just for being part of the program, regardless of whether they are every called upon. The second is an energy payment they get for actual curtailment during a demand response event.
Then you get into the value-added services. As we get into helping them with energy procurement, energy efficiency, emissions trading, training and support, there could be arrangements where the customer would pay us. Often times it would just be us paying them less than we would have paid them if they were just in a demand response. So it’s still no money out of pocket.
X: These value-added services—did the idea for those come up as you were installing these data networks and being able to take more control and having more visibility into your customer sites? Did it occur to you then that there are other things you could do, or was that part of the business plan from the beginning?
DB: It was a little bit of both. But certainly, the opportunity became much clearer as we had customers in our network that were coming to us asking us to help them. It’s pretty amazing how quickly we’ve been able to
