We’ve had some big mergers lately in commercial and industrial (C&I)-scale demand response, but this could be the biggest. On Tuesday, Constellation Energy and Comverge announced they’re forming a new company that will combine their nationwide portfolios of C&I demand response -- a collection of factories, office buildings, warehouses and other sites that can reduce multiple megawatts' worth of energy demand to help stabilize the grid.

The deal hasn’t closed yet, but if it goes through by the end of the year, as the partners expect, “the merged enterprise will become one of the largest demand response companies in the industry,” according to Tuesday’s press release.

Financial terms of the transaction weren’t disclosed, nor were operational details such as the number of megawatts the new company would manage. Representatives of both companies declined to comment further on financial details when reached by phone.

Constellation will hold a minority stake in the new company, while H.I.G. Capital, the company that took Comverge private for $49 million in 2010 and has run it since then, will hold a majority stake. The commercial and industrial customers making up Comverge’s portion in the new business come from the portfolio of Enerwise Global Services, acquired by Comverge in 2007, said Jason Cigarran, Comverge’s vice president of corporate marketing.

Meanwhile, Comverge itself will retain its residential and small commercial demand response business, which it does as a turnkey service or under contract to utilities, said Cigarran. That part of Comverge’s business accounted for about three-fifths of its revenues when H.I.G. took it private in 2012, though the company hasn't disclosed any details on its market share or split between business units since then.

Constellation, for its part, has been in the commercial demand response business since 2006, bought CPower in 2010 to roughly double its megawatts under management, and has since added new customers and new technology to support its growth. Last year it managed more than 1,300 megawatts of dispatchable load capacity in the NYISO, ISO-NE, PJM, CAISO and ERCOT markets, said Kelly Biemer, external communications manager at Constellation Energy, in an email.

Even so, Constellation's demand response strategy has been less clear since it was acquired by fellow energy giant Exelon two years ago. This raises the possibility that Tuesday's merger offers it a chance to separate its demand response business from its broader retail energy efforts. The new company will operate separately from both parents, according to Tuesday’s announcement, although Constellation will “continue to promote demand response services to its power and gas customers through the new company.”

The new company has some stiff competition for the position of market leader in C&I-scale demand response. EnerNOC, the country’s biggest DR provider, has between 24,000 and 27,000 megawatts of peak load under management, according to its website.

NRG Energy, the generation and retail energy giant, has also been making moves into demand response, buying Energy Curtailment Specialists last year to bring more than 2,000 megawatts of C&I load under its control.

At the same time, traditional business models for demand response are facing pressure, with prices on a slow but steady decline in key markets like the one operated by mid-Atlantic grid operator PJM. In one sense, that’s a function of the industry’s success -- as more and more megawatts of demand-side management come on-line at increasingly competitive prices, the overall effect will be to lower the cost of serving those peak demand moments on the grid, and thus lower the payments that providers can earn.

More recently, legal challenges have put a crimp in the economic markets that represent a new frontier for most U.S. demand response providers. In May, a U.S. appeals court vacated Federal Energy Regulatory Commission (FERC) Order 745, which required grid operators around the country to pay demand response providers the same amount paid to electricity generators on economic markets.

GTM Research has projected this ruling could reduce long-term revenue growth of U.S. demand response by as much as $4.4 billion over the next decade. Even so, U.S. demand response is projected to grow from a $1.4 billion market this year to $2.2 billion by 2023, GTM Research predicts, even if Order 745 remains overturned.

If FERC and its supporters can win the legal battle in the U.S. Supreme Court -- or if enough states implement similarly beneficial programs and policies on their own -- that could grow to $2.6 billion in revenues by 2023. Either way, it’s a market worth fighting for.

For more context on the demand response market, see GTM Research's new report, Demand Response Outlook 2014.