Measuring Up: Itron's Transition into Software

| FROM THE PRINT EDITION |
 
 

Around the world, an estimated 34 percent of treated 
water never reaches the tap because of leaks in aging infrastructure. Helping to identify those leaks so they can be plugged is one of many new analytic capabilities that Liberty Lake-based Itron Inc. provides utilities as part of a new strategy.

Itron has more than 8,000 utility customers in 100 countries and sees its future growth coming from delivering to utilities the software to collect and analyze information from a new generation of smart meters. “We’re at a turning point in our industry,” says Itron CEO Philip Mezey.

Just as the transition from old-style cash registers to electronically connected point-of-sale devices created a revolution in retail — giving merchants valuable information about who was buying what and how to reach customers better — smarter meters and better software offer huge opportunities for utilities to make more efficient use of their resources.

For example, new smart meters have computing and two-way communications capabilities that allow utilities to collect and transmit meter data. Utilities can use that information to bill customers remotely. Or they can identify where resources are being lost to leakage or theft — an important capability as water and energy resources shrink and the world’s population grows.

Since becoming Itron’s CEO in 2012, Mezey, whose background is in software, has shifted the company’s focus from making money from meters to providing information and services based on the capabilities of those smart meters.
By using industry-standard technology from companies like Qualcomm and Cisco in its smart meters, for example, Mezey made it easier for utilities to deploy Itron products without worrying about being locked into a proprietary system. The use of standards also makes it quicker and cheaper for utilities to deploy the smart meters. And the standards make it easier for Itron to focus its development efforts on delivering to utilities software-backed data collection, information analysis and even day-to-day remote management of systems. 

In July, Itron announced it uses Microsoft Azure as a cloud computing platform for hosting its analytics application to study data collected from utilities’ metering systems and smart grids. Customers can install Itron’s analytics locally or in the cloud, or pay Itron to manage it.

“Roughly $1 to $2 million [of revenues] currently comes from software and management services,” notes Mezey. “I’ve talked to our investors about growing that into a $500 million business. That business tends to be higher margin and it tends to be a higher recurring business.”

Successful implementations 
In recent years have led to important new wins. Last spring, Southern Connecticut Gas Company chose Itron to modernize and manage its metering system. Itron will install 220,000 gas communication modules and build a fixed-network infrastructure. It also will handle day-to-day management tasks, data collection, analysis and operations.

To implement the strategy more effectively, Mezey in 2013 broke Itron into three key business lines: water, gas and electricity. That approach, he points out, allows each line to manage its own product development and go-to-market strategy.

The effort is beginning to bear fruit. After showing declining revenues from 2011 to 2013 as an early boost from stimulus spending tapered off, analysts expect Itron to show sales of about $1.95 billion for 2014, up slightly from 2013, and a healthy 5.5 percent increase in 2015. Meanwhile, the company is expected to be solidly in the black after posting losses in three of the past five years.    

Itron’s strongest growth has been in water and gas. “We’ve had double-digit growth and very strong margin in those businesses,” says Mezey. These sectors have been particularly strong overseas, where Itron recently secured contracts to develop smart water-automation projects for Irish Water, RWW in Germany and DJB Delhi in India. 
Many of these projects will address issues such as leakage and billing accuracy. “If the water that’s put into the distribution system doesn’t make it to the end user because of leaks and aging infrastructure,” Mezey explains, “it’s possible to stop those leaks by looking at the data and employing a little more technology.”

The growth potential in the water supply business is especially noteworthy because 30 percent of water utility customers worldwide don’t have water meters. “You can’t manage it until you can measure it,” Mezey asserts.

Itron’s data analysis and advanced technology can also be used to pinpoint electricity loss and to manage a utility’s load for peak electricity use. In North America, about 3 to 5 percent of electrical energy gets lost in transmission and distribution each year.

Vancouver-based BC Hydro selected Itron’s smart metering system to reduce electricity theft that accounted for $100 million in lost revenues each year. Much of the stolen electricity is reportedly used by illegal marijuana farms. New distribution system meters and special software tools help BC Hydro determine where the theft is occurring.

In some markets, Itron is installing advanced smart meters that can measure electricity usage in 15-minute to one-hour increments. Last June, the Los Angeles Department of Water and Power selected Itron for an advanced time-of-use electric metering system. With the new technology, the utility is offering incentives to persuade customers to use major appliances and electric vehicle charging stations during off-peak hours.

“Most of us pay a flat-rate price,” says Mezey. “The [Los Angeles] system allows that option of time-of-use pricing.” By encouraging more customers to use electricity during off-peak hours, utilities can reduce the load on the grid during peak hours, thereby avoiding the necessity of investing in additional generating capacity to cover those peak periods. The savings from not having to make the additional investment can then be passed on to customers.

The utility also will adopt Itron’s technology to measure electricity that residential and commercial customers sell back from switching to such renewable energy projects as home solar systems. The system will help the utility meet the challenges from the growing number of commercial solar and wind power projects being attached to the grid. Utilities can tie smart metering systems with other grid technologies to manage peak load, and mitigate the intermittent availability of renewable energy sources such as wind and sun, says Tim Wolf, Itron’s director of marketing for smart grid solutions.

Mezey says Itron is working with businesses like Microsoft and Cisco to develop other smart-city initiatives. As smart meters connect to citywide computer systems, Mezey sees cities taking advantage of the capabilities to gather and analyze data in ways that allow them to operate water and energy systems, manage traffic lights and handle other support services more efficiently. Water utilities, for example, might be able to reveal information about when residents and businesses consume the least energy to determine the optimal time for using electricity to pump and treat city water. “Figuring out a better pumping schedule can provide significant savings in a city’s energy bill,” adds Mezey.

A smart grid demonstration project that started about five years ago in Pullman, Washington, showed what’s possible with advanced technology and Itron’s smart meters, he says. By managing the system remotely and analyzing the data in the cloud, Mezey explains, Itron was able to identify ways to reduce the 3 to 5 percent of electricity that is typically lost in distribution. Such pilot systems, along with the new ones being put in place in utilities across the world, could position Itron to remain a leader in the space well into the future. 

Related Content

Small-town company’s niche is making totes with staying power

The layoffs at the company, which makes a patented sonic face brush, are part of facility closure, federal filing shows

The layoffs at the company, which makes a patented sonic face brush, are part of facility closure, federal filing shows

French Girl built its niche by providing consumers a beauty fix