EnergyConnect Group, Inc. (ECNG-OTC: BB)

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March 5, 2010 Issue

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With A Growing Demand On Power Grids, EnergyConnect Group, Inc. Is In The Right Market At The Right Time With Unique Software That Enables Customers To Leverage Smart Energy Management To Reduce Their Cost Of Electricity And Improve Grid Reliability

Company Profile:

EnergyConnect delivers industry leading demand response technologies and services to commercial, institutional and industrial consumers enabling them to manage their use of electricity in response to market prices or regional power shortages. The company’s technology platform provides a scalable, cost-effective, clean technology to enhance the grid’s efficiency and reliability.

Kevin R. Evans

Chief Executive Officer and President

Kevin R. Evans joined EnergyConnect 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 also has an extensive background in transportation, banking, manufacturing, distribution services, communications and technology. In those fields, he held officer level finance and operating positions in businesses ranging from start-ups to Fortune 500 companies. Mr. Evans holds a dual bachelor’s degree in Economics and Management from Sonoma State University and a master’s in Business Administration from San Diego State University.


Utilities
Electric Utilities
(ECNG-OTC: BB)


EnergyConnect Group, Inc.
901 Campisi Way, Suite 260
Campbell, CA 95008
Phone: 408-370-3311

 

Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – March 5, 2010


CEOCFO:
Mr. Evans, what is the focus at EnergyConnect?

Mr. Evans: We enable our customers to manage their use of electricity in response to market prices or regional power shortages. The concept of what we do is widely known as demand response.

 

CEOCFO: Would you explain how demand response works?

Mr. Evans: Demand response involves encouraging customers to cut back or shift their electrical use or demand in response to grid emergencies or high market prices for electricity. Today there are three different types of demand response services. The first is where customers receive compensation for electing to standby to reduce a portion of their electric demand in a grid emergency. These are called “capacity resources” and are typically activated a few times a year for up to 6 hours at a time. The second type involves sending customers price signals to encourage them to reduce demand during peak hours. The higher the hourly prices, the greater financial incentive a customer has for reducing their electric load. Customers can participate at their discretion for as little as one hour at a time. These are called “energy markets.” The last involves very short grid-initiated curtailment events with very short notification. These are typically 10 to 30 minute reductions with 10 minutes notice. These are called “ancillary services” and help the grid operator smooth out short-term imbalances of electrical supply. At EnergyConnect we provide all three types of products with an emphasis on energy markets.

 

CEOCFO: Who are your customers?

Mr. Evans: We are focused on the commercial, institutional, and industrial base with a primary focus in PJM Interconnect, the largest managed grid area in the country. PJM stands for Pennsylvania, Jersey and Maryland but also includes nine other states in the Midwest and mid-Atlantic, as well as Washington, DC. We also have an expanding focus in New England, New York, Texas, and California.

 

CEOCFO: Would you give us a case study of somebody you work with; how does it actually work on a day-to-day, need-to-need basis?

Mr. Evans: We work with a number of different industries, but let us use a steel mill as an example. Production activities are scheduled based upon its book of business. Some steel making processes have a high degree of flexibility in their timing while others cannot be moved at all. We work with the customer to determine the degree of flexibility in certain operations and help them with scenarios that will not negatively affect their business operations if loads are shifted for a couple of hours at a time. We then automatically monitor hourly wholesale electricity prices and notify them when there is an opportunity to earn money by shifting load from peak hours. We make it easy for customers to evaluate different curtailment scenarios and decide which, if any, are appropriate for the next day. If they decide to engage, we initiate a transaction with the grid operator to obtain a payment for returning the unused electricity to the marketplace.

 

CEOCFO: How long have you been doing this?

Mr. Evans: We became a public company in 1998, and focused primarily on demand response since 2004.

 

CEOCFO: How do you reach your potential customers?

Mr. Evans: Today we predominantly use a direct sales model, calling on large commercial, industrial and institutional customers. Increasingly, however, we are beginning to work through channel partners who could include energy resellers, energy suppliers, as well as utilities.

 

CEOCFO: Would you tell us about your FlexConnect product?

Mr. Evans: FlexConnect is our price responsive demand product discussed in the steel mill example. In effect, what we do is make it easy for a customer to engage in a wholesale market. Electricity prices change every five minutes and it is very difficult for a customer to monitor the market and understand what it means in context with their energy use. We are an authorized clearing agent, which enables our customer--utilizing their unused energy--to participate in wholesale energy markets just as if they were a generator adding electricity to the grid. We facilitate and administer this for customers, enabling them to focus on their businesses, while we handle the rest. Once they engage, we broker the transaction with the grid operator, monitor the reduction, and provide an automated back office to settle the transaction.

 

CEOCFO: What is the differentiator?

Mr. Evans: Our differentiator is our software platform developed for and dedicated to these types of markets. We have automated it in a way that makes it quick and easy for customers to decide if the time and price is right to engage in demand response. In addition to wholesale energy markets in deregulated areas, the emergence of smart meters will give rise to real time energy prices in more areas. Customers will need to understand the impact of changing hourly electricity rates on their energy use behavior. We are fortunate in that we have built our reputation and market lead in this area. For price responsive demand, PJM has been the most forward-looking area, and EnergyConnect has over 50% of the market share in their energy market.
 

CEOCFO: What is the competitive landscape?

Mr. Evans: For now, most of our competitors are focused on capacity programs, primarily because they are easy to implement and customers do not have to perform very often. The capacity business is rapidly becoming commoditized. Rather than divert our resources to building a large capacity business that may or may not be viable in a few years, we have focused more on price responsive energy management. This has put us in a leadership position in this area. While our focus has traditionally been selling directly to large energy users, we are seeing increasing interest in our platform by third parties that wish to distribute our software or offer it to their customer base.

 

CEOCFO: Do you see more companies looking for solutions?

Mr. Evans: What we see is that price based demand response is a new and emerging counterbalance to the escalating price of electricity. If you are able to respond to high electricity price signals then you can avoid those higher costs by engaging in demand response. With the latest recession, the wholesale prices of electricity are at historically low levels. As we slowly emerge from the recession, electricity prices will resume their rise. When you combine this with the expected exponential adoption in smart metering, demand response will become more mainstream whether it is in response to high wholesale prices or dynamic pricing structures.

 

CEOCFO: What is the financial picture like at EnergyConnect today?

Mr. Evans: We are very encouraged. Over the last several years, the business has continued to focus on developing this market. 2009 was a tough year for everybody, but we were fortunate in that we were able to build our capacity business while focusing on further development of our software for price responsive demand. In this regard, we are nicely positioned to take advantage and expand our customer base as electricity prices rise in 2010 and beyond.

 

CEOCFO: Will you be moving into other geographic areas?

Mr. Evans: We will continue to place heavy emphasis on PJM. As the largest regional transmission operator (RTO), PJM has been around the longest, and has the most mature price responsive demand market. That said, New England, New York, Texas, and California RTOs are active in new market development for price responsive demand. We are monitoring these markets and will expand our footprint when we can provide a valuable product for our customers. We are also closely watching the roll out of smart metering with dynamic price structures.

 

CEOCFO: How does it work?

Mr. Evans: Fixed rate customers in PJM pay an average of $75 per megawatt hour for electricity. Depending on local demand, the wholesale price of electricity can be as low as perhaps $25 but as much as $500 per megawatt hour. When a customer is paying only $75 for something that costs $500 to provide them, the market is upside down. Most customers have no idea this is happening behind the scenes. When wholesale prices exceed retail prices, the grid operator is willing to pay customers to reduce energy rather than add more supply to the grid. If a customer typically uses 10 units of electricity per hour and can cut back to 8 units, it can get paid the wholesale market rate for the 2 units they did not use. Understanding this and taking advantage of it is not easy for the typical customer. At EnergyConnect, we monitor these markets, notify customers of opportunities, and make it easy for them to participate. All they do is reduce demand when prices are high, and we do the rest.

 

CEOCFO: Where does this take place?

Mr. Evans: The largest market for this right now is in the PJM area. PJM has market mechanisms in place that allow the substitution of generation with demand reduction. In effect, reducing demand for electricity eliminates the need for PJM to buy additional power on the open market, enabling them to pass along the savings to the customer in return for reducing grid congestion and avoiding a shortage in overall power.

 

CEOCFO: Why should potential investors pay attention to EnergyConnect?

Mr. Evans: There are several reasons, but one in particular: demand response is largely seen as a “killer app” for the smart grid and EnergyConnect is providing a simple software tool to bring it to the masses. By everybody’s estimate on Wall Street as well as Main Street, the focus on more efficient use of energy is a very interesting space. In particular, for EnergyConnect, we are fortunate to be on the cutting-edge of this new emerging market with an early market lead. We have an established base of over 300 customers today, with plans for significant growth in the future. I think we have a leading edge technology, likely to result in acceleration in adoption as electricity prices rise in 2010 and beyond. That will have a very positive effect on our business.

 

CEOCFO: Final thoughts, what should readers remember most when they read about EnergyConnect?

Mr. Evans: EnergyConnect is the leader in price based demand response technology. We have the tools to bring a complex market to our customers’ desktops, making it easy for them to understand and receive financial rewards for smart energy management.

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What we see is that price based demand response is a new and emerging counterbalance to the escalating price of electricity. If you are able to respond to high electricity price signals then you can avoid those higher costs by engaging in demand response. - Kevin R. Evans

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