Demand Response Energy Management Technology

”Customers don’t understand price; they don’t understand that electricity is priced every hour and the effect that could have on their businesses. So we want to help educate end users on the market prices of electricity, their usage profile and, in turn, how they can shape
their use to lower their overall cost of electricity.” 

TWST: Would you begin with a brief overview of the history and evolution of EnergyConnect?

Mr. Evans: Dating back to 2004, EnergyConnect was established to focus on the demand response marketplace. From then up until the present time, a number of decisions were made regarding how the company should evolve. At one point, there was a decision to merge it with an electrical contractor, as the thinking was the installation requirements of metering would be a synergistic combination. Last year the board and management team made a decision that it really wasn’t the best fit, and EnergyConnect was best as a stand-alone business focused on price-responsive demand. So Christensen Electric was spun off and EnergyConnect became a stand-alone business.

TWST: Would you give us an idea of your marketplace, customers and geography?

Mr. Evans: Our primary focus is in the commercial and industrial sector, which makes up about two-thirds of electricity consumption. We target the largest users of electricity. Geographically, we’re primarily focused on an area called PJM, which is basically the Mid-Atlantic area just south of New York, starting at the Atlantic coast and going west to Chicago. That area represents about 20% to 25% of the electricity consumed in the United States. Our secondary markets are New England and California.

TWST: What does the customer base look like and what’s changing within the landscape as far as your competitive dynamics go?

Mr. Evans: We have a number of different verticals we serve — the steel mills, cement plants, universities, hospitals, commercial buildings and government facilities. We target large customers with automated production capability. A good example would be cement plants as they are large users of electricity and have some flexibility in their production cycles. We’re also engaged with food processing businesses, specifically flash-freezing and refrigeration operations, which gives us an opportunity to work with them on how and when they use their electricity. On the commercial or institutional side, we work with large office buildings and campuses where there are lighting and HVAC requirements. We have a large university footprint where, in effect, a university campus is much like a small city, as it has its own air conditioning control capabilities as well as other back-up generation. So we focus on a broad array of large commercial and industrial customers.

TWST: Are the barriers to entry into your market segment very high? If so, does the intellectual property you have remove some of that competitive threat?

Mr. Evans: Yes, I think the barriers to entry are high, and I would characterize the market as one where we’re dealing in a fairly regulated environment. Hence, actually becoming involved in those markets, getting to know them and understand how they work often favor the incumbent utilities. I think those are the barriers to entry we see most. FERC has taken a number of steps, in particular last year, by issuing their Order 719 that really said, “We will open up the markets to demand response providers like EnergyConnect.” What we’ve really tried to do is focus on how we, one, educate customers about what demand response is and the potential for them to reduce their energy costs, and two, how to provide those customers with a technology platform to make demand response easy. One of the things that we’ve done with our technology is really focus on automating the interface and allowing customers to better understand their use of electricity, and how they can take advantage of their flexibility to lower their energy costs by choosing to reduce usage during high-price times of the day.

TWST: What’s the overall agenda, the priorities for the company, over the next 12 to 24 months? What would make that time frame a success?

Mr. Evans: Today the demand response market is largely dominated by what is referred to as the capacity markets. That’s really a back-up reserve capability where the grid operator calls on large loads, such as our commercial and industrial customers, to reduce consumption during critical shortages. That’s actually an old-line business model that the utilities have used for decades and in which demand response providers can now participate. But I think the real value that we see is price-responsive demand. The FERC recently completed a national assessment, which identifies the real growth opportunity is for customers to reduce their peak use of electricity by responding to dynamic pricing. So, we view our technology as ideally positioned to enable customers to focus on price signals to shape their use of electricity.

TWST: As far as key metrics or events go, what should investors focus on as they track EnergyConnect’s performance?

Mr. Evans: I think there are several things. Firstly, we’ve demonstrated very solid growth in our capacity business. We increased our callable megawatts by more than 50% in the last year. This I believe speaks to some good execution overall and is in line with what we projected in terms of market expansion overall. Secondly, we are creating new demand response businesses around dynamic prices in PJM. We have developed a new user interface to automate the complex processes necessary for customers to respond to prices, schedule curtailment, measure the reduction, and manage their settlement and compensation. While prices are low today, we certainly expect they will come back overtime, and we’ll be the leading technology for price-responsive demand. So I think tracking the growth that we have in our economic business is a very important step to identifying the new emerging market opportunities. And then, thirdly, the last piece goes a little bit beyond what I would call our direct business and begins to look at the acceptance of new price-responsive models in the electricity market. We’re focused on establishing a utility pilot using dynamic capacity pricing as a new model. We would hope to see that come into play over the next year, where we identify a few select utilities that are willing to pilot this new approach. I am confident that we can distinguish its value to lower costs, improve participation and delight customers with this market innovation.

TWST: Is there anything in the realm of public or regulatory policy that is of major concern to you at this time?

Mr. Evans: I wouldn’t say concern, I would say opportunity. One of the things that we’ve got in the coming weeks is a filing from PJM to the FERC that relates to their price-responsive business. They are looking to re-instituting a program to encourage demand response when prices are high, otherwise known as an incentive payment on the economic business. We are current in the 60-day review and decision-making period by the FERC. We are very encouraged by the opportunity this new important regulatory tariff will bring to our business in PJM.

TWST: Tell me what are some of the growth opportunities for the company as far as other geographies?

Mr. Evans: Certainly in New England and California, or what we would refer to as more-developing wholesale markets, there will be new opportunities for price-responsive demand. PJM is clearly the leader for now, but I think New England is making some good strides. And California is currently focused on piloting programs. In the case of California, we would expect over the next year for the ISO to identify programs it would implement, now that it has its new MRTU system in place. We think that those are both pretty good midterm opportunities. But then ultimately, we would expect, as noted in the FERC’s national assessment, all geographies will use price as a mechanism for demand response. We think that customers don’t understand price; they don’t understand that electricity is priced every hour and the effect that could have on their businesses. So we want to help educate end users on the market prices of electricity, their usage profile and, in turn, how they can shape their use to lower their overall cost of electricity.

TWST: Please introduce us to two or three key individuals on your top-level management team.

Mr. Evans: Clearly, the heart and soul of the company is built around our Chief Technology Officer, John Stremel. John has a long career in the electricity business. He started off in the load forecasting business probably 30 years ago at TVA and since then has been actively involved in electricity markets. One of the businesses that he helped found and develop was Automated Power Exchange, or APX. John’s background, experience, and our software and technology team is truly one of the crown jewels. On the sales side is Jay Crookston, VP of Sales, who comes from MCI. He spent over 20 years helping to build MCI from a startup to an industry titan. Jay’s telecom experience is actually a unique differentiator, which really helps us in terms of how to focus on delighting customers in a deregulating market. Then there is Joe Bugica, VP of Product Management and Strategy. Joe and I worked together most recently at the Electric Power Research Institute (EPRI). Joe also has about 20 years’ experience at both GE and Westinghouse, and is very knowledgeable about the need for technology to automate the electricity business.

TWST: What is it in your background that led you to where you are today? What brought you to EnergyConnect?

Mr. Evans: Prior to coming to EnergyConnect, I spent five years at the Electric Power Research Institute (EPRI). EPRI is a non-profit collaborative research institution that is funded largely by the utility industry to solve the difficult science and technology challenges that face the electricity business. EPRI has a long and very well-respected history, and so for me it was a great place to begin to learn the electricity business. I started as their CFO and then subsequently became the Chief Business Officer, where I focused on building their sales, marketing, customer service and international business. At EPRI, I gained a broad education of the electricity industry and the technologies it really needs. I view the electricity business as supply and demand-oriented. The supply side is dominated by the large capital-intensive vendors like GE, Siemens and Westinghouse, which I didn’t find very interesting for me, in terms of a good fit.

However, on the demand side of the business is the smart grid and the need for enabling technologies. I saw an opportunity to leverage my background in software and hi-tech with the electricity business. That marked the beginnings of my decision to come into EnergyConnect. I also have to give credit to Kurt Yeager, who was the CEO that recruited me into EPRI at the time and who now sits on the EnergyConnect board of directors. Kurt thought that EnergyConnect could benefit from my insights into the demand-side technology challenges today’s grid is facing, coupled with my startup experience and my focus on execution. Certainly from my standpoint, it was a great opportunity to step in and really help shape a new emerging smart grid technology. Prior to that, I spent a little over 15 years in various technology businesses. Most recently was PlaceWare, which we sold to Microsoft in 2003 to serve as their platform for Live Meeting.

TWST: What historically has been the shareholder base with EnergyConnect? Has that base undergone any changes this year?

Mr. Evans: I don’t think it has undergone much change. I think it was a shareholder base that was built up over a number of years, arguably with some expectations about how fast this market was going to take off. I think the price of the stock historically had great expectations for a fast jump-start in the demand response. Our shareholders, for the most part, have hung on as the company has gone through its challenges. Last year we essentially ran out of money. So I was brought in to get the business funded, to get it right-sized and back on track by leveraging our technology. So as I’ve spoken with the shareholders, I’ve asked them to be patient, to support us as we rebuild the company. As we reported our second quarter results, we were pleased to have achieved nice sequential growth in the business. We’re able to achieve a profit for the quarter and feel comfortable that the growth in our capacity business has established a solid foundation. I think our investors have become a bit more encouraged with regard to the overall long term survivability of the business. That was in question at one point, and they are now feeling much better. The challenge that we face is how to expand beyond the current geographic footprint that we have in PJM and really leverage the technology to take advantage of the price-responsive demand market opportunity which we anticipate over the coming years.

TWST: In your discussions with investors and the investment community, are there any recurring questions or misperceptions that you encounter? Do you believe the investment community really understands the EnergyConnect story?

Mr. Evans: I would say that we have a limited following. I don’t know that there is really anybody publishing on EnergyConnect. We have a very small market cap. So in general, people don’t pay much attention to the stock at its current level. What I’ve tried to do is establish a track record of execution. We will continue to do so and as revenues grow, we think we can attract broader coverage overall. We need to deliver on our objective to provide the industry’s leading price-responsive demand technology and demonstrate an EBITDA-positive business model. My sense is that the analysts I talk to are very interested in our business model; they want to publish on us but we’re just a little too small for them. So I’ve asked them to let us prove the business of price-responsive demand is a game changer. As we build the business, I’m certain that we’ll attract more attention and get a broader following.

TWST: What are the key summary points that would compel investors to include ECNG as part of their current portfolio and long-term investment strategy?

Mr. Evans: I think that there are really two opportunities. First, with the stock at the price that it is today, there is a steep discount, which is a hangover from the survivability concern of the business. Now that we’ve gotten over that hump, investors need to better understand what are the metrics or the multiples that they believe are appropriate for valuing our business. As we begin to gain recognition for our achievements — like we have had in capacity and as we anticipate in the price-responsive demand business — I think we will begin to see an appreciation in the business overall. So I would ask the investment community to keep an eye on us, as we begin to deliver on the promise of price-responsive demand. Leveraging off the success we’ve demonstrated in our capacity business, let’s develop PJM’s price-responsive marketplace, and let’s put in place some industry proof points, if you will, in terms of pilots that show customers really will respond effectively to prices signals when managing their electricity needs.

TWST: Is there anything you would like to add regarding strategies?

Mr. Evans: Lastly, I would re-emphasize the tremendous opportunity for price-responsive demand identified in the FERC’s recent national assessment. It’s a very comprehensive study that quantifies the opportunity to reduce, if not flatten, the overall growth in the peak use of electricity by leveraging demand response. Their estimate identifies up to 150 gigawatts of peak reduction that’s possible over the next 10 years. Most importantly, essentially all of the growth in the market is anticipated to come in price-responsive demand. Accordingly, EnergyConnect is ideally positioned to enable customers to realize the potential of demand response.

KEVIN R. EVANS
President & CEO
EnergyConnect Group, Inc.
901 Campisi Way Suite 260
Campbell, CA 95008
(408) 370-3311
(866) 858-0478 — FAX
www.energyconnectgroup.com

KEVIN R. EVANS, CEO and President of EnergyConnect, joined the company with over two decades of proven financial and operational leadership in various industries. Prior to EnergyConnect, Mr. Evans served as Senior Vice President and Chief Financial Officer at the Electric Power Research Institute (EPRI). During his five years at EPRI he also held positions overseeing sales, marketing and customer service. Prior to EPRI, he was instrumental as Chief Financial Officer for PlaceWare, Inc., where he successfully negotiated the sale of the business to Microsoft. Mr. Evans has an extensive background including, transportation, banking, manufacturing, distribution services, communications and technology. In those fields, he held officer-level finance and operating positions in businesses ranging from startups to Fortune 500 companies. Mr. Evans holds a dual bachelor’s degree in economics and management from Sonoma State University; he holds an MBA from San Diego State University.

September 21, 2009 Copyrighted material: For reproduction permission contact Kenneth Wolfrath (212) 952-7400

Posted on Thursday, September 24th, 2009 - BlogConnect

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