Itron Inc. hopes that a $480 million utility-meter contract it landed with Southern California Edison in Decemberby far the biggest contract in the history of the company and the utility-meter industryis just the first such enormous order.


Rosemead, Calif.-based Southern California Edison plans to install 5.3 million of Itrons automated meters between 2009 and 2012, the Liberty Lake company says.


The contract will address huge problems faced by the California utility, as well as by other major electricity providers in California and elsewhere, says Itron Chairman and CEO LeRoy Nosbaum.


At peak periods of the day, theres more load than you can serve in the service territories of Southern California Edison; San Diego Gas & Electric; and San Francisco-based Pacific Gas and Electric, Nosbaum says.


Theyve made the decision they will literally change out all of their utility meters and replace them with new meters capable of two-way connectivity, Nosbaum says. That will enable the utilities to shed load at peak periods by doing such things as remotely turning off air conditioners and clothes dryers in customers homes, he says.


The big California utilities have huge numbers of meters, and Itrons contract with Southern California Edison is the first in a series of mega orders expected by the utility-metering industry in the next few years, Nosbaum says.


Deloris Duquette, Itrons vice president for investor relations and corporate communications, says Itrons $480 million contract with Southern California Edison right now is an anomaly. Going forward it wont be.


Were chasing a handful of contracts like that right now, Nosbaum says. We are at the precipice in the U.S. of extraordinary change, with utilities concentrating ever more closely on predicting and managing peak load, he says.


On his radar screen, Nosbaum, whose position requires him to watch global change much like a futurist, is keeping track of near-miss regional electricity blackouts in the U.S., developing water shortages in the U.S. and abroad, and sweeping attitude changes around the globe toward energy use. All of those trends, he says, will cause growing utility-metering infrastructure needs.


We were very close to having the lights go out in San Diego last month, Nosbaum said in an interview March 5. In Texas, there was a Stage II energy alert last week. The next stage, Stage III, is rolling blackouts.


Texas gets 15 percent of its power from wind, and the wind stopped, Nosbaum says. He adds, In the (Feb. 26) outage in Miami, they would have loved to have taken some load off of the system.


To deal with sudden plunges in energy supply, utilities need to be able to turn off clothes dryers and adjust thermostats in customers homes to shed load quicklya capability that two-way connectivity, such as that provided by Itrons metering systems, could give them, he says.


Nosbaum also is watching tremendous change in Europe, where Itrons Actaris subsidiary, the worlds largest meter manufacturer, is based, and where entire nations have changed out utility meters so utilities could communicate directly with customers meters.


Itrons acquisition of Actaris, which it completed last April, has given the Spokane company the capability to respond to changes in demand for metering technology in Europe and elsewhere in the worldand also has transformed Itron dramatically, Nosbaum says.


Its a $1.7 billion company now, he says. After the acquisition, Itron sent executive Malcolm Unsworth from Spokane to run Actaris new head office in Brussels, Belgium, and Nosbaum says he told Unsworth, Youre in charge of the world.


Actaris was doing business in many places in the globe, while Itron was doing business mostly in the U.S., he says. Itron now does business in 15 foreign languages and three foreign currencies.


Were hedging currencies, Nosbaum says. Our finance and accounting staff in Spokane has grown because it has had to. We have teams of people going back and forth all the time, including engineering, finance, and marketing teams, he says. Last week, Nosbaum, Duquette, and Itron CFO Steve Helmbrecht traveled to Europe for meetings held outside of Paris with 60 Actaris managers.


While Itron has no union employees in the U.S., its dealing with unions and work councils all over Europe, and also in South America, Nosbaum says. A comment such as, We make money every day, which would be understood in the U.S. to mean that a company does something each day to make itself succeed in business, would be seen as boastful and inappropriate in some cultures, he says.


Itron and Actaris operate 30 manufacturing plants around the world, partly because theres truth to the maxim, If you dont make it there, you dont sell it there, Nosbaum says.


Itron now is No. 1 in the world in electricity and water meters and No. 2 in natural-gas meters, and the Actaris acquisition has positioned the company well for a period of perhaps 20 years, Nosbaum says.


Yet, he bristles about how the Actaris acquisition forced Itron to report its financial results recently, when Itron posted a $16.1 million net loss under generally accepted accounting principles (GAAP).


Those accounting rules forced Itron to take a $36 million expense for Actaris in-process research and development last yeareven though Actaris already had taken the expense, Nosbaum says.


Itron also must amortize Actaris $700 million in intangible assets, and it began doing that in 2007 with an $84 million expense, which cut deeply into gross profits. In addition, it had to take a $16 million charge to reflect the value of Actaris inventory at the time of the saleeven though Itron will sell that inventory and derive income from it, he says.


Nosbaum says he was disappointed that some financial writers presented the companys results without the needed perspective of reporting its non-GAAP net income, which was $87.3 million, or $2.81 a share, compared with $55.6 million, or $2.12 a share, in 2006. The market seemed to understand, anyway. The companys stock went up $10 a share the day it announced its fourth-quarter and annual earnings.


Weve made more money than at any time in the history of the company; weve generated more cash, Nosbaum says. Still, an acquaintance, having read a news report about the companys results, asked him whether Itron was going to lay off people, which he said was frustrating when you havent lost any money. Youre making money like mad. It was a great acquisition.


At one time, Actaris had been the global electricity-metering arm of Schlumberger Ltd. Schlumberger spun it off at about the same time it sold its U.S. electricity-metering arm to Itron, says Nosbaum, who came to Itron from Schlumberger in 1996.


We knew Actaris people, he says. We knew them well. In 2005, we began talking about how we could put these two companies back together. It took us until 2007. It really transformed us into a very different company.


When he took over Itron as CEO in 2000, Nosbaum says the companys focus very clearly was on how utilities used electricity and natural-gas meters. Times changed, and after Itron acquired software-development capability in some of its seven acquisitions since Nosbaum assumed control, the companys focus eventually shifted to transforming data gathered by its metering systems into useful knowledge, he says. That knowledge, gleaned by storing and analyzing enormous amounts of usage data, enables utilities to predict their peak loads, to learn the identity of their big users, to reduce load during peak periods, and to encourage it during periods of less usage.


In Europe, broad-based efforts are under way to save electricity, concern about global warming is pervasive, and the trend is to price energy more cheaply during low-demand periods, he says.


If youre in London or Paris for a few days, you will see an article on the front page of a major newspaper about your personal carbon footprint, he says.


They take the earth seriously. Frankly, its a bit fashionable, but theres more of an awareness about energy conservation. Energy is expensive. They read meters once or twice a year, but theres a movement to go to once a month, which Nosbaum says will drive demand for upgraded metering systems. He adds, They want to provide real-time feedback to energy users.


He adds, All around the world, electrical meters will have technology addedtechnology that Itron supplies.


He also expects big changes in water-system metering.


Were running out of water everywhere; thats not going to stop, he says. Water wars have begun in the southeastern U.S., 22 percent of the worlds population doesnt have access to an adequate supply of fresh water, and huge volumes of water are leaking from water systems everywhere, partly because the infrastructure in many places is so old, Nosbaum says.


If youre in New York, youre getting water from wooden water mains in the older, central part of the city, Nosbaum says. If youre in London, youre getting water from wooden water mains.


In North America, he says, as much as 40 percent of the water you put into (pipes in) the ground leaks out, and its estimated that $750 billion needs to be spent on water-system infrastructure between now and 2020.


Changing times already have enabled the company to grow prodigiously since 2000, when it had $180 million in sales, and should help it continue to grow, he says.


In seven years, we have grown tenfold. We didnt just get lucky.


Contact Richard Ripley at (509) 344-1261 or via e-mail at editor@spokanejournal.com.