Liberty Lake-based Itron Inc., the No. 1 supplier of automatic meter-reading equipment in North America, is striving to compete in the next big meter-reading markettechnology that gives utilities and their customers two-way communication.


The North American market for whats called advanced metering infrastructure, or AMI, systems is expected to be $2 billion, and the offshore market is projected at $4 billion, says Philip Mezey, senior vice president and chief operating officer for Itron North America.


Itron has dipped its oar into this potential ocean of AMI business with two field installations in the U.S. and Canada, but much of the real action right now is boiling up on the other side of the Atlantic, Mezey says.


France plans to replace all 40 million of its utility meters with units that employ AMI technology, Spain plans to change out its 30 million meters, and The Netherlands, Sweden, Norway, and Denmark, all are expected to do follow suit, as are Australia and New Zealand on the other side of the world.


This is business that were chasing every day, even though Itron hasnt built revenue from AMI into its business plan as yet, Mezey says.


Enel, Italys largest power company, says that in a $3 billion project it already has replaced all 30 million of its customers meters with electronic AMI devices that take meter readings in real time and provide information on systemwide load to the company. The devices also enable Enel to curb or increase supply remotely to manage contractual relationships for power. The company says, This innovation has enabled Enel to implement time-of-use electricity charges, which offer customers savings for evening and weekend electricity use.


Both newly allowed retail competition among energy providers and Europeans strong desires to conserve energy and combat global warming are driving the nationwide metering-system change-outs in Europe, Mezey says.


Heretofore, some European utilities read customers meters only once every six months, or even just once a year, but utilities now must calculate closing bills and set up new billing accounts quickly as customers change energy providers, he says. AMI helps utilities do those things, he adds, while enabling their customers to take advantage of energy-saving initiatives such as rate reductions at times of day when power supply is abundant.


Similar trends are altering the North American meter-reading market, although Itron declined for some time to climb aboard the two-way communication bandwagon, Mezey says.


We had been advocating against two-way networks. We were becoming flat-earthers arguing against two-way networks, he says.


Then, he says, California decided as a state it was going to embrace AMI, with Pacific Gas & Electric, of San Francisco, one of three giant utilities in the state, deciding in 2004 to award a contract for AMI technology, Mezey says.


We kind of had a wakeup call, he says. AMI systems are more expensive than AMR systems, but cost per end point was not winning the day, he says.


After PGE awarded its AMI contract, utilities in Texas, where electric utilities are engaged in robust retail competition, and in the Canadian province of Ontario indicated they were willing to pay a premium for systems with sophisticated two-way communication, Mezey says. At that point, he says, Itron embarked on a crash program to develop its own AMI system.


The company also made another key strategic decision. Itron long had supplied proprietary equipment in its systems, but decided that its new AMI system, which it has named OpenWay, would feature open standards architecture, Mezey says. He says that means the company will share information about its AMI system with other manufacturers so they can develop their own pieces of equipment that will work with OpenWay.


Thats a pretty substantial departure for Itron, Mezey says. Yet, he adds, By embracing industry standards, you are taking advantage of a lot of industry investment by other companies.


Itron says OpenWay utilizes smart meters capable of collecting detailed energy usage from all of a utilitys customerswhich can include hundreds of thousands of residential usersand making that data readily accessible for a variety of applications, including time-based utility-rate incentive programs.


When demand for electricity peaks on a utilitys system, the utility can seek to reduce usage by raising the rates it charges for power, and when demand falls, the utility can lower its rates, giving customers an incentive to use electrical equipment at such times, Mezey says. Two-way communication enables a utility to signal to customers when rates are being raised or lowered, and gives their customers meters the capability to measure their energy usage during periods of increased or decreased rates and the capability to price usage at the appropriate rates during those periods.


AMI systems also enable advanced control capabilities, Itron says. For example, when loads on a utilitys system hit levels that could strain the system, the utility, with customers permission, could send:


Commands to programmable light ballasts in retail stores to dim the lights and conserve power.


Alerts to factories to have their workers stop processes that consume electricity and turn their attention to chores that use little or no power.


Commands to programmable thermostats in customers homes to raise the temperature on the air conditioning or to turn down the heat.


AMI systems could disconnect interruptible customers, such as manufacturers, when utility system loads climb to high thresholds, and reconnect such customers once peak loads fall back to normal levels, Itron says. In addition, the systems could notify utilities when customers suffer outages, verify restoration of service when outages have been repaired, and combat energy theft achieved through meter tampering.


A key to the systems viability is involving utilities residential customers in energy-incentive programs that previously have been available to commercial and industrial customers.


In June last year, Itron announced that Manitoba Hydro, of Winnipeg, Manitoba, would become the first utility in North America to deploy OpenWay by installing 5,000 of Itrons new Centron AMI electricity meters in 2006 and 1,000 such natural gas meters in early 2007.


In November, Itron said that CenterPoint Energy, of Houston, would deploy OpenWay to support an intelligent grid technology it had deployed on a limited basis earlier in the year. CenterPoint would install 10,000 Centron meters in selected areas of Houston and work with both Itron and IBM Corp. on five core applicationsmeter reading, remote connection and disconnection of customers, outage detection, load management, and voltage threshold monitoring.


Itron wont realize revenue this year from AMI, but in the last 12 months, three trends have added momentum to the demand for the systems, Mezey says.


U.S. demand for electricity is shooting up by higher-than-normal rates of 1.5 percent to 3 percent a year, and at such growth rates, utilities would have to invest $900 billion in new generation, transmission, and distribution facilities by 2020 to meet demand. They cannot practically build that, and will have to become more efficient and also help customers conserve energy to bridge the gap.


U.S. electricity prices will rise fairly dramatically over the next three to five years as rate caps put in place during an earlier wave of utility mergers expire. Rates will climb 30 percent to 50 percent in the Northeast and also will rise in the Pacific Northwest, further increasing pressure to conserve energy.


U.S. electric utilities already produce 40 percent of the worlds greenhouse gases, and foreign governments are demanding that the U.S. reduce its production of such gases. Currently, the most practical way for utilities to add generation is to build coal-fired plants, but its not realistic to think they can build enough coal-fired plants to keep up with surging U.S. electrical demand given the rising opposition to global warming.


It takes AMI systems to improve energy efficiency and implement response by utility customer to efforts to curb demand, he says.


In the next 18 months, San Diego Gas & Electric, another of Californias huge utilities, which are big enough to move the market when they select infrastructure systems to buy, is expected to start an AMI conversion, Mezey says.


Itron has been making a very significant R&D investment in AMI, he says. The company plunked down $59 million for research-and-development outlays in 2006, up from $47 million in 2005, it says in its annual report.


Meanwhile, the company still has a large market for its automatic meter-reading business, and it must take care of that business, Mezey says. The company estimates that just 25 percent to 30 percent of the companys 305 million electricity, gas, and water meters in North America have automatic meter-reading technology.


Outside the U.S. and Canada, the company estimates there are 2.1 billion utility metersless than 2 percent of which can be read automaticallyalthough Mezey says many foreign utilities might bypass AMR and go directly to AMI.


Itron sees its acquisition of Actaris Metering Systems, of Luxembourg, Belgium, as a key to its competitiveness offshore. Mezey says, though, that its going to take some timelikely 18 monthsto meld Actaris meter manufacturing capability with Itrons data collection and software capabilities.


The lesson that weve learned from acquiring companies is dont mess them up, he says, calling Actaris a beautifully managed company.


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