Meter leader

Call it Itron Inc.’s billion-dollar Christmas wish. The region’s top publicly traded company is competing for several blockbuster contracts that would solidify the company’s reputation as a leader in power metering, and justify its remarkable stock rise.

In the next several weeks, four large utilities, including three in power-plagued California, will announce plans to spend upward of $2 billion on new electricity and natural gas meters.

It’s a seminal moment for Itron, a company hatched 30 years ago in a Hayden garage by a group of engineers.

The company is worth $2.4 billion on Wall Street and conducts business across the state line in Liberty Lake.

“Depending on who wins the contracts, they will get a lot of attention,” said Deloris Duquette, the company’s vice president of investor relations.

Itron has already garnered plenty of acclaim with investors, including major mutual fund companies such as venerable Fidelity. The Boston-based heavy-hitter bought a 13 percent stake during the summer.

Itron also has found favor with socially responsible investors who approve of the company’s products that can help conserve power and gas.

All combined, the interest in this company housed in a quiet, pleasant-hued office building makes Itron a local superstar with 500 local employees and another 8,000 stretched across the globe.The company did hiccup earlier this month when it missed analyst estimates for the third quarter and said it would earn less money for the year than initially forecast.

Investors dumped shares and chopped the price $18.10 in one day. Itron stock had been soaring during the year — from a low of $46.87 to a lofty $112.92.

Yet, Itron stock remains about 41 percent higher than it was last year and the firm has proven rather resilient during the market downtown.

John Quealy, a financial analyst with Canaccord Adams, has called Itron a bellwether for the high-tech metering business, an industry cast as a critical tool for achieving not just better electricity and natural gas management for utilities, but one that could help save electricity, thus curbing the need for new power plants and greenhouse gas emissions.

The United States and the rest of the world are using more electricity than ever.

In the next 10 years, peak summer electricity demand will rise by 17.7 percent while 8.4 percent more power generation is planned, according to the North American Reliability Corp.

“It may be too difficult for utilities to build their way out of trouble,” said Tim Wolf, director of marketing for Itron.

Especially if new coal-burning power plants are ruled out due to environmental concerns.

So utilities and regulators are interested in changing the demand side of the scenario.

Enter Itron.

The company has long been a leader in meter-reading technology, helping utilities shave costs by, for example, having meter-readers carry handheld computers that can electronically retrieve data from low-wattage electronic signals, rather that walk from house to house jotting down numbers on paper.

While this automated meter reading business remains a useful and profitable line for Itron, the company has invested heavily in next-generation technology called Advanced Metering Infrastructure, or AMI.

At its best, this new technology would allow utilities to control the energy usage of cooperating business and residential ratepayers.

Imagine a utility being able to send signals to thousands of electricity meters mounted on houses, that then relays messages to thermostats to turn off or at least turn down air conditioners.

This could help utilities — think those in California — avoid brownouts or rolling blackouts by rerouting electricity, a unique commodity that cannot be stored like grains, metals and crude oil.

Utilities have been pressured to find new solutions to energy shortfalls not just by regulators, but also by Wall Street following the 2000-2001 electricity crisis that exposed power grid and balance sheet problems alike.

Despite Itron’s stock drop in November, JP Morgan analyst Paul Coster said the outlook for AMI remains strong, but said: “Patience will however be required.”

He also cautioned investor clients about the risks, including if AMI pilot projects prove to be technically unfeasible or don’t yield the sort of benefits utilities expected. This could lead to a major slowdown in metering upgrades.

Coster said another problem could be reluctance by commissions to allow utilities to embed the cost of these new metering systems into rates.

The utilities actively seeking this new way of metering and saving energy include:

“ Pacific Gas & Electric, the nation’s largest utility serving much of Northern and Central California. It wants to replace and upgrade 9 million electric and natural gas meters, representing a potential $800 million to $900 million contract if Itron can beat out competitors.

“ Southern California Edison, with 5 million meters, is a contract worth perhaps $500 million.

“ San Diego Gas & Electric has another 3.2 million meters, representing a potential contract worth about $300 million.

“ Detroit Edison, serving 3.5 million customers in Michigan, a contract worth perhaps $300 million.

CenterPoint Energy of Houston already has selected Itron’s new AMI system, branded OpenWay.

The big utility completed a 10,000 unit pilot project and put out a news release saying it was pleased with the performance. CenterPoint must now finish its business plan and submit it to regulators. Duquette said a contract for large-scale AMI deployment could happen by summer and be worth an estimated $300 million.

Other utilities are interested, but have not publicly announced their intentions.

LeRoy Nosbaum, Itron’s chairman and chief executive, told analysts in early November that utilities want to tamp down the buzz as they carefully work with their boards and, perhaps more importantly, state regulatory commissions.

“I know some of you guys want us to say more about individual prospects out there,” Nosbaum said in declining to elaborate.

“When somebody who might give me a $400 million order says shut up, generally I listen.”

By 2012, it is anticipated that the market for new metering systems may be worth more than $2.2 billion a year.

The trick for Itron will be maintaining its reputation as a market leader and devising a pricing scenario that can both win contracts and satisfy demanding stockholders.

The company has made several moves, the biggest of which was the $1.6 billion buyout of Actaris Metering Systems, a European rival with global name recognition and reputation.

Three years ago, Itron acquired the Schlumberger’s electric meters unit, a deal that brought a century of meter business and innovation into the firm.

Despite all the work, if a company with the financial might of, say, General Electric, entered the market, Itron and other competitors could be affected.

Competitors include Sensus Metering Systems Inc., Cellnet Technology Inc., Elster Group, Esco Technologies Inc. and others.

Duquette said GE seems more interested in developing new technology and products for the power grid, from power generation to transmission and distribution, rather than the end-point of metering.

GE did take a look at Itron years ago. Nothing materialized.

“We think we’re in an excellent position to do well,” Duquette said. “We’ll have to see.”