Kilowatts have become an overnight sensation. Largely ignored for decades, they are suddenly front-page news in a country that wants to keep track of their whereabouts, quantity, quality, and price fluctuations. This increasing interest promises to deliver a boost to the bottom lines of some small companies that measure and monitor electricity -- companies like Silicon Energy, Metering Technology Corp., and Power Measurement Ltd.
Ground zero, of course, is California, where electricity bills have tripled or quadrupled in the last six months even as reliability has fallen. Blame it on the growing demand for more and better kilowatts, an inadequate supply of them, and badly botched deregulation.
These days, to control costs and guard against outages -- even millisecond blips matter in the world of silicon chips -- it is crucial for both utilities and end users to know how much energy is being consumed, and in which parts of the operation at any given time. At Power Measurement in Victoria, Canada, which provides digital power-monitoring networks, revenue from Californian clients during the last quarter of 2000 shot up nearly 200% over each of the three previous quarters.
SHOPPING AROUND. Here's how Power Measurement's network fits in at Oracle Corp.: The crew that monitors electricity flow gets a message via pagers from Power Measurement's software when the system is in danger of overload. That way, nonessential power uses can be curtailed or backup brought online in order to avert an outage. This is the world of "enterprise energy management." Such electricity "load profiling" lets customers know how much their operations use at any given time, as well as the rate at which power is being consumed.
The whole point of deregulation is to link price with supply and demand, says Bryan Gilbert, product manager at Power Measurement. "If you go out to buy a couch, you need to know what color and size you're looking for. If you're going to buy electricity, you need to know how much you use and when you use it," he adds. End users could band together to purchase supplies if they have compatible profiles -- that is, if one's demand slacks off when the other's is heavy, Gilbert says.
"We've been preaching this stuff for a number of years now," says Brad Forth, CEO of Power Measurement, which was founded in the late 70s. Now, the company is seeing demand rise with the growth of digital assets and deregulation. Before long, Forth predicts, it will be common to see electricity priced according to the time it is used and the quality of the supply. Even fairly small strip malls in California are looking into such metering, he adds, now that price hikes have motivated both landlords and tenants to figure out just who is using how much electricity.
GILDED OFFERINGS? Power Measurement has put Internet technology into metering devices to coordinate power-delivery devices. The company also uses the Net to send billing information in real time, allowing utilities and others to monitor peak demand and, eventually, to price power according to the time of day -- that is, for low- or high-demand periods.
"They have equipment it would take big companies 5 to 10 years to develop and make," notes Patrick Hodges, chief energy analyst at Frost & Sullivan in Palo Alto, Calif. "Their intangible stock is going to shoot through the roof."
Power Measurement's tangible stock may be next to interest investors. The company is growing so rapidly it expects to pursue an initial public offering (IPO) by the end of the year in order to purchase some of its partners and expand more quickly, says Forth, who adds: "We think the time is right."
The time could also be right for Silicon Energy in Alameda, Calif., which has filed preliminary papers for an IPO through Goldman, Sachs & Co. Founded in 1997, the company makes software that lets users monitor and manage their use and purchase of electricity, both off the grid and through so-called "distributed-energy assets" like on-site fuel cells. Its services include installation and support of its software, server hosting, project management, and training for large organizations -- including government agencies, universities, huge hotel chains, national retailers, and the utilities themselves.
DETAIL ORIENTED. "They have created a niche for themselves, in that they are a data nexus for multiple vendors and are hardware-focused as well as software-focused," Hodges says of Silicon Energy. The hardware component stems from the fact that the company has partnerships with appliance and equipment makers to install its software modules in their products. This gives users raw data on the energy usage of individual items of hardware.
"They want to get 20 different pieces of equipment to interact with their software, which is better than off-the-shelf energy packages that can't interact with energy-monitoring systems in the field," he says. Silicon Energy "is about monitoring in such detail that the energy manager can respond to pricing changes, and buy off the spot market or power up in a way that others don't let them."
Citing the "quiet period" before its stock offering, Michelle Schofield, Silicon Energy's vice-president for corporate marketing, says she can't discuss revenue figures or growth plans. She did say, however, that the company's pre-IPO registration papers, filed in October with the Securities & Exchange Commission, are "very much out of date." They showed that for the year ended Dec. 21, 1999, Silicon Energy had a net loss of $7 million on revenue of $520,000. For the first half of last year, the net loss was $10.2 million on revenue of $2.3 million. The registration notes that Silicon Energy "began generating significant revenue in the second quarter of 1999." Not coincidentally, that's when electricity bills started tripling in California.
A third small company positioned to benefit from the chaos in California is Metering Technology. Although this three-year-old metering-software developer, which is based in Scotts Valley, Calif., is still focusing on the last stage of equipment trials, Chuck Sathrum, vice-president for marketing, says the company expects sales of $100 million within two years. "The phone is pretty much ringing off the hook," he says. "A couple days ago, I got several calls in an hour from commercial places in California."
GREAT EXPECTATIONS. Metering Technology, partially financed by Enron Corp., was founded in response to deregulation, says CEO Peter Larsson. "We knew meters that could communicate a lot of information would be important. With doubling and tripling of rates, we are benefiting from some of the changes in the industry. We wouldn't be 100% honest if we said we weren't happy about it," he confesses.
The company, which makes devices to measure gas and water as well as electricity, has contracts to deliver millions of meters to China over the next 10 years. In addition to its own sales, Metering Technology licenses its products to partners like Silicon Energy, Johnson Controls, and Hewlett-Packard.
Does Metering Technology, too, expect an IPO in the near future? "We're pre-public. We are going to take our time," Larsson says. All the same, the company would seem ripe for purchase. Says Larsson: "That's a possibility. We are concentrating on building our business, which can only lead to good things."
Technology analysts agree. Peter Huber and Mark Mills, writing in the recent, inaugural issue of their Power Report newsletter, published by George Gilder's GilderGroup, point out that hundreds of billions of dollars per year are going to be invested in new technologies to "move, condition, store, and distribute electrons." That could mean these small metering and monitoring companies, in the right niche at the right time, won't be small for long. By Theresa Forsman in New York