EnerNOC Jumps After U.S. Supreme Court Upholds Energy Rule

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  • Shares move a record on expected growth in conservation
  • Environmental groups say ruling means fewer power plants

EnerNOC Inc., the top U.S. provider of energy conservation services, gained as much as 86 percent after the U.S. Supreme Court upheld a federal rule that pays large users to conserve power.

EnerNOC rose 69 percent to $7.05 at the close in New York, after touching $7.73 for the biggest intraday gain since the stock started trading in 2007. The Boston-based company helps large industrial energy consumers curtail use in return for payments from grid operators and ultimately other customers.

Power suppliers challenged the Federal Energy Regulatory Commission rule claiming it overcompensated large users for what is know as demand response and exceeded the agency’s authority. Monday’s decision paves the way for growth in energy conservation services in wholesale power markets.

“This case has been an overhang for the industry of demand response for a number of years, so to have a final resolution at the highest court in the land is a huge victory,” David Brewster, president and co-founder of EnerNOC, said in a phone call.

Demand response allows payments to industrial users who switch off lights or air conditioning when energy is most needed. The rule is designed to help grid operators avoid blackouts. 

“The court has shown it’s taking a pretty broad definition of FERC jurisdiction,” Jay Rhame, who manages $2.5 billion in energy stocks at Reaves Asset Management in Jersey City, New Jersey, said by phone Monday.

System Reliability

U.S. power producers that sell into competitive markets including Talen Energy Corp., Dynegy Inc., Exelon Corp. and FirstEnergy Corp., the largest suppliers in the mid-Atlantic grid, would have benefited if the rule were eliminated, according to Bloomberg Intelligence analyst Kit Konolige. Generators will now continue to face more competition in energy markets, driving revenues lower.

"By ruling in favor of demand response -- a rule that pays customers for not using power -- the Supreme Court effectively boosted supply and increased pressure on prices,” Konolige said in research published Monday.

Shares of independent power producers fell as much as 8 percent, led by Dynegy, which declined as much as 12 percent.

Excessive Subsidies

American Electric Power Co. said payments to demand response providers are too generous.

“AEP’s main concern with demand response was that it was being compensated in the markets in the same way as a power plant, but not held to the same availability and performance criteria,” Melissa McHenry, a company spokeswoman, said in a statement.

Calpine Corp. won’t comment, said spokesman Brett Kerr. A representative for Public Service Enterprise Group Inc. didn’t immediately respond to queries. John Shelk, president of the Washington-based Electric Power Supply Association, which brought the legal challenge, said in an e-mail that he is still reviewing the court’s decision.

“We don’t oppose demand response programs but it’s our view that FERC” overcompensates, George Lewis, a spokesman for Talen Energy Corp., said by phone Monday. “We continue to believe that the excessive subsidies for demand response programs unfairly tilt the playing field to the disadvantage of generators. That ultimately could result in a less-reliable system.”

Reduced Emissions

Payments to industrial consumers in the mid-Atlantic grid, the largest market for demand response, have totaled over $144 million since 2002, according to data from PJM Interconnection LLC, which manages the system.

"This decision means that consumers will continue to see the significant benefits of demand response, which enhances competition in the markets, reduces wholesale prices, and helps makes the grid more reliable," Norman Bay, chairman of FERC, said in a statement.

Environmental groups say demand response eliminates the need to build new power plants and reduces emissions blamed for global warming.

“Demand response provides tremendous benefits to our environment, helps consumers save money and makes our electricity grid more reliable,” the environmental group Earthjustice said Monday in a statement.