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5 More Questions for EnerNOC's CEO Tim Healy

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A lot has changed since we last caught up with Tim Healy, CEO of EnerNOC (s ENOC), the Boston-based company that reduces electricity demand for power grid operators by automating energy conservation.

“Demand response” is a term being heard more and more frequently these days as companies and utilities alike get serious about running electric systems more efficiently. Enernoc’s stock, meanwhile, has been on a rollercoaster, falling to $5.19 last month from its 2007 IPO price of $26, then more than doubling to $11.06 as of Thursday’s close.

CEO Healy this week gave us an overview of the company’s strategy, its outlook for 2009 and the message it’s sending to a new administration as it shapes its energy policy.

How do you explain your work with demand response to a company that is just waking up to the concept?

Demand response is basically a killer app of the smart grid, an application that curtails electricity usage at peak times in order to increase reliability of the electric grid. It brings supply and demand more into balance and hopefully reduces prices overall on the electric system.

We built a network operations center here that runs our software applications. They allow us to automatically curtail customers’ non-essential electricity usage across our network and track and verify that curtailment. The utilities need that curtailment as an alternate form of capacity. They can actually see it happening in real time and pay us for that performance so that we can compensate the commercial, industrial and institutional customers on our network for their participation in the demand response activity.

Can you give some specific examples of how different companies would change their electricity usage?

For example, with the hotels we work with, we can affect things like pool pumps and water fountains and heating pumps that heat up the spa pools. At a manufacturing facility, we can shut a line down and have it go to maintenance mode during a demand response event. At a data center we might run the auxiliary generation in order to not be taking power from the grid, instead generating their own power from their backup generators.

How does a hotel, say, manage this so they don’t hear complaints from their own customers?

We try to make sure we’re not affecting negatively creature comfort at the hotels. So we probably won’t touch the air-conditioning in the hotel rooms and instead focus on dimming some of the lighting in the main lobby and turning off the heating units of the exterior and interior pools, or running auxiliary generation and so forth.

But if you look at grocery stores, we found data that suggesting that when a store goes from full lighting to two-thirds lighting, the customers actually feel like it’s a little bit cooler in there.

The market seemed to like your new agreement with Xcel Energy (S XEL). How will that work?

Xcel has asked us to deliver up to 44 megawatts of demand response capacity initially. So we will be working hand in hand with the account managers and other staff at Xcel. There’s a hardware device that we’ll be installing at the commercial and industrial sites that we work with in Xcel’s territory. These customers are getting basic access to our software systems so that they can track their demand response activity. It helps them manage their performance and see their performance and helps them give some insight into energy consumption.

We’ve also announced a number of wins with state governments and cities, most recently in the city of Boston. And a number of wins with the Department of Defense and three or four other states outside of New England to manage their demand response capacity as well. So it’s been one of the best five or six months in EnerNOC’s history in terms of growth and competitive opportunities and also having a say in what’s going on in Washington right now.

What are the kinds of things you’ve been telling people in Washington?

That demand response is extremely attractive in part because it doesn’t need mandates. It doesn’t need subsidies, it simply needs a regulatory construct that allow for demand response to flourish. So we actually don’t expect that there will be direct subsidies of any specific nature for demand response.

What we do want, however, is for the regulatory constructs to evolve and adapt so that we can have an opportunity for more demand response to play a role in the utilities’ resource planning moving forward. The utilities should be given an opportunity to make more money by investing in energy efficiency rather than investing in any other resource in their portfolio.

That’s something that is a new way of thinking about building our nation’s infrastructure and that hasn’t been the case traditionally. Utilities lose money if they invest too much in energy efficiency under many regulatory constructs that exists across the U.S. today, and we would like to see that change.

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