Innovator: Itron Inc.
Headquarters: Spokane, Wash.
Employees: 2,250
Business: Energy and water management tools for utilities
Interviewee: Leroy Nosbaum, CEO

The utility industry hasn't always been known for its innovation, but innovation and inspiration are just what’s needed in the current utility environment.

In response to a host of customer service, energy conservation, and regulatory challenges, utilities need to learn how to better market new products and services, offer greater flexibility to customers, and most importantly, efficiently manage constrained resources.

Automated meter reading (AMR), which started to gain traction in the ‘90s, offers solutions to a number of these pressing requirements by streamlining operations, improving customer service, and providing a tool for real-time energy management and long-range forecasting. It also could be the foundation for the “smart energy” revolution often touted in trade magazines and boardrooms, offering a host of new products and services that enable both customers and utilities to more efficiently manage energy usage.

Itron Inc. (Nasdaq: ITRI), which started out more than 25 years ago with the goal of making AMR an industry standard, is now North America’s leading provider of advanced data metering and management for electric and water utilities. Itron has nearly 3,000 customers (primarily in the United States, Canada, Mexico and the Caribbean) with more than 30 million advanced meters now in place.

Last year, for example, Niagara Mohawk, the second largest combined electric and gas utility in New York, installed 1.5 million Itron residential meters equipped with AMR technology in just 18 months. The meters enable utilities to collect advanced metering data accurately, efficiently and more frequently via wireless communication networks. Utilities can then use the data to support a wide variety of customer service and energy delivery applications, such as time-of-use rates, demand response, and asset management.

According to utility research firm Chartwell, Itron controls approximately 60 percent of the North American market for automated meters. However, the growth rate for AMR has been declining, from double-digit growth rates for nearly the last decade to single-digit growth last year. One of the key hurdles facing Itron and its competitors is the initial high cost to install AMR devices, which run more than $100 per meter (for a new device or to retrofit an existing one). But with only around 20 percent market penetration, many analysts see room for growth as utilities balance upfront costs against long-term gain.

And Itron, which has called the Northwest home since its inception, continues to expand. Itron’s acquisition of Schlumberger Electricity Metering for more than $250 million in 2004 nearly doubled the size of the company. And earlier acquisitions have positioned the company to provide a range of integrated services including energy information management, demand response, load forecasting, web-based workforce automation, and enterprise and residential energy management.

Wall Street seems to like what it’s seeing: Itron’s stock is currently trading near 52-week highs and is worth nearly double what it was a year ago. The company’s market capitalization is roughly half a billion dollars.

One key question is how Itron will continue to integrate all of its recent acquisitions and new capabilities while staying focused on its mission. Itron, in its bid to provide full-service data management capabilities to electric and water utilities, may be piecing together an integrated solution that utilities will find increasingly critical. But it won’t be easy. Itron faces a host of competitors, both large and small, including companies like General Electric (NYSE: GE), Hunt, and Siemens (NYSE: SI).

Since electricity is the only utility-based commodity that can’t be stored and yet requires considerable management, it’s likely to remain at the core of Itron’s business. However, Itron is well positioned to take advantage of the growing need to manage the world’s water supply, one of the most precious commodities on earth. About one-quarter of the company’s business is now in water. Company officials say Itron plans to continue to leverage what it has learned in the electric metering and management space, helping utilities measure and analyze water flow and resource planning.

As utilities are pressed to enhance shareholder return, effectively manage assets and grow their bottom line, the efficient management of resources will become an increasingly important mandate. Company CEO Leroy Nosbaum rightly pointed out that in a world of growing demand, limited new supplies, and increasing prices, electric utilities need to better manage their negawatts and negaliters.