UPDATE 1-FERC says needs more time to consider PJM rule changes

LOS ANGELES, June 3 Fri Jun 3, 2011 11:27pm EDT

LOS ANGELES, June 3 (Reuters) - Federal energy regulators on Friday said proposed changes to how electricity load reductions by large energy consumers are measured during system emergencies may be "unlawful," and that it needs more time to review the matter.

The highly-anticipated decision by the Federal Energy Regulatory Commission concerns the way so-called demand response companies like EnerNOC Inc and Comverge Inc record energy curtailments by their customers.

Demand response companies work with grid operators, utility companies and large electricity consumers to lower energy use during expensive peak hours, reducing pressure on the grid.

The rule changes were sought by grid operator PJM, which wants to use an average of a customer's actual load during the five peak hours the previous year as a reference point for measuring load reduction. A customer's demand response compensation would be capped at that level. PJM has said the rule changes are aimed at insuring grid reliability.

The changes were opposed by EnerNOC and other demand response companies, which want to use as a reference point the amount of energy a customer would have consumed without a system emergency.

PJM, which runs the power grid and energy market serving 51 million people from New Jersey to Illinois -- is EnerNOC's top customer.

"We find that PJM's proposed tariff changes have not been shown to be just and reasonable and may be unjust, unreasonable, unduly discriminatory or preferential or otherwise unlawful," FERC said in its order, which was issued late on Friday.

At the same time, however, FERC said it could not reject the filing entirely and needed more information. The Commission, therefore, accepted the rule changes but issued a five-month suspension during which its staff will weigh additional information.

"We need additional information so we may determine whether PJM's proposal is just and reasonable and not unduly discriminatory," FERC said.

FERC staff must convene a "technical conference" within 60 days, the order said.

EnerNOC said the order was a victory for demand response providers.

"We are extremely pleased with this outcome," EnerNOC President David Brewster said in an e-mailed statement. "We applaud FERC staff and Commissioners for taking their time to thoroughly review all sides of this policy debate and arrive at the exact right answer: that PJM has not met its burden of showing that its filing is just and reasonable."

PJM said FERC agreed with its concerns on a key issue.

"In its order, the FERC shares PJM's concern that consumers in the PJM region will pay only for the capacity that is actually delivered," PJM spokesman Ray Dotter said. "We will supply the additional information that the Commission seeks to support the rule clarifications, which were supported by the vast majority of our members."

EnerNOC's shares have lost 32 percent this year, in part due to concerns that PJM's rule changes could hurt profits.

The company has said that 5 to 10 percent of its revenue would be at risk if FERC ruled in favor of PJM.

EnerNOC shares closed at $16.21 on the Nasdaq, down 47 cents, or 2.8 percent. (Reporting by Nichola Groom, Editing by Jonathan Thatcher)

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