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CNBC ON DIGG

Companies Poised to Profit as Smart Grid Technology Surges

Published: Wednesday, 28 Oct 2009 | 10:23 AM ET

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By: Brain A. Shactman, Molly Mazilu,
CNBC Reporter, Producer

While President Obama unveiled $3.4 billion worth of stimulus grants for smart grid technologies Tuesday in Florida, CNBC was in South Carolina, looking at a company that stands to reap big profits from that money.

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Itron [ITRI Loading... () ] does many things, and one of them is manufacturing smart meters — the next generation in the evolution of energy use, distribution and monitoring.

Basically, a smart meter allows two-way communication between a home or business and the utility company. The concept is that, through cost-saving efficiencies, both the customer and the utility will benefit from sharing demand and usage information.

A good example is a hot summer day. With a fully functioning smart grid, the power company can send a message—directly to a home display—that prices are about to increase because of intense demand. The customer can decide to continue current usage levels and pay the premium or simply ratchet down the that air conditioner.

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Right now, the technology to do this is available, but the networks have not been completed, even at the regional level. Over the next few years, millions of homes — and hundreds of communities — need the equipment, systems and software to fully integrate the network. For Itron, that means President Obama’s announcement will be followed by the purchase of a huge number of these smart meters.

Here’s a quick peek at how Itron’s bottom line could get a big boost.

DTE Energy [DTE Loading... () ], Centerpoint [CNP Loading... () ], and Glendale Power and Water are all current clients of Itron. They were awarded a combined $304 million, and a large portion of that money will go toward purchasing and installing approximately three million smart meters.

Itron anticipated this day and has already increased production and hired 120 new employees in the last six weeks. Currently, the state-of-the-art West Union factory is at half capacity, with the intention of ramping it up to full capacity within the next 18-months or so.

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That is exactly what the Federal Government wanted to happen.

“We will begin moving funds in the next 60 days,” said Matt Rogers of the Department of Energy. “Once the company is selected, they tend to move aggressively… so when the check clears, they are ready to move aggressively.”

Itron isn’t even a direct recipient of the funds, and that’s exactly what that company did.

In several respects, the multiplier affect of this $3.4 billion will be dramatic. Part of the mandate of these grants included matching funds by those companies awarded money. To that end, $4.7 billion was committed by the private sector, bringing the total dollar investment for smart grid development over $8 billion.

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The grants range in scope and size. There were 100 in total — 25 large projects and 75 smaller ones. The smallest was around $400,000, and there were several for $200 million.

If you want to see the breakdown of how the $3.4 billion was spent, take a look — either by state or by catagory.

For more insight into Itron as an investment, pay close attention to the company’s earnings, which will be released after the market close on Wednesday, October 28. The consensus estimate is for earnings of 52-cents a share, with revenue expectations ranging from $405-435 million.

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Analysts will focus on what can be gleaned by the company’s backlog and any comments Itron might make concerning new contracts with utility companies. The company cannot comment on any pending deals, but it is clear that some are in the works, especially considering the expected increase in production.

So far, about 22-percent of the $787 in stimulus funding has been paid out, in the form of contracts, grants, loans, tax relief, or entitlements.

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Molly Mazilu contributed to this report. Be sure to get in touch with us: