Executive Q & A: Itron CEO Philip Mezey

In January, Philip Mezey became CEO of Itron, a company with $2.4 billion in sales last year. Mezey, who has a background in history and software, is intent on transforming the Spokane-area maker of smart meters into a technology-intensive business with an expertise in smart grids and smart cities.

EDUCATION: I studied history at the University of California, Berkeley. I was interested in the notion that the Thirty Years War [in 17th century Europe] came from an effort to preserve the status quo. That understanding worked out for me. When you are being buffeted about in the hype cycle of the clean tech industry, it is useful to have the analytical ability to stand back and say, How is all this going to look five years from now? Itron has been seen as the Microsoft of the metering business.

[Studying] history taught me that protecting the status quo is not a safe position to be in and that you need to keep reinventing yourself.

CAREER: After graduating from college and working in construction for six months carrying buckets of stucco, I took a couple of entry-level courses in software programming. I ended up writing software for the utility industry for 20 years. I was working at Silicon Energy, which focused on commercial and industrial energy users, when Itron acquired the company in 2003. I ended up first running all of Itrons software business, and then the global water and gas business.

DOWNTURN: Itron was accused of being a troglodyte company when money was flooding into the clean tech industry and new companies were making flashy projections. Instead of chasing the crowd, we focused on customers and successful outcomes, which is tough to do when you are losing business based on the [inflated] claims [of competitors]. In retrospect, you will find that Itron delivered on the large projects we deployed in recent years while a number of our competitors foundered.

SUCCESSES: We had five very large projects awarded two years ago in San Diego, Los Angeles, Houston, Detroit and Vancouver. CenterPoint Energy of Houston saved three million truck rolls by installing our system. We saved them $300 million by reducing the need for truck trips with a system that allows you to remotely do things like turn power on or off. That also means fewer car accidents, reduced carbon emissions, less traffic and better customer satisfaction.

PROUDEST MOMENT: At a closeout dinner for the Houston project, where we installed more than two million smart meters, the president said to me: Philip, the project came in ahead of schedule, under budget and well in excess of the business benefits expected. The finest moment of a leader is when you ask a team to do something that doesnt seem possible and they accomplish it. The sense of satisfaction that they get is a moment of ecstasy almost. We were completely transparent with our customers. We shared every defect that we discovered and put remediation plans in place. We allowed them to audit all of our manufacturing facilities, our software processes, and our internal financial and delivery processes. Each of these customers is now a fantastic reference for us. It was a high-wire risk and it was exhilarating, scary.

MANUFACTURING: My two predecessors were manufacturing people with industrial backgrounds. We are very proud that we manufacture in North America. We have a highly automated factory in South Carolina where labor is only four to seven percent of cost. We still bid out our products to outsourcers each year to make sure we are cost effective. We sell in 128 countries from 30 plants around the world.

TECHNOLOGY: While manufacturing is important, its not a sustainable competitive advantage. That comes through innovation and putting more technology in our products, including communications and computational capability. Were focused on collecting data and storing and performing high-powered data analysis. Utilities want to know where the grid is overloaded and where solar is going to be placed in the network. We add value by offering insight, not by lowering the manufacturing cost of a product.

NEW FRONTIERS: We are the worlds leading metering communications and software company. But we are not a network infrastructure company, so we decided to integrate Ciscos technology into our product. Since we announced the deal, we have not lost a major deal to our main competitor. Were also embedding cellular communications into smart meters, using the same Qualcomm chip thats in the iPhone. That will allow our products to run on many different cellular standards in the world. The same metering technology that we use in Los Angeles, Vancouver and Detroit, we are now using in pilot projects in Hong Kong, Brazil, Japan, South Africa and several European Union markets.

SMART GRID: What meters havent yet delivered is consumer engagement. One reason is that the consumers pay a flat rate for services like electricity. Without a price signal, there is no incentive for consumers to change their habits to use energy when its least in demand. In California, now that they have all the smart meters deployed, they are starting to roll out time-of-use rates. Eventually, we are going to need that in the Puget Sound region as well to avoid building new power plants. Then, wouldnt it be nice to have an app on your smartphone that tells you when to charge your electric car to get the best deal on electricity?

UTILITIES: Think of our business as being [metering] electricity, gas and water, in each of four geographies: North America, Asia/Pacific, Latin America and Europe/Africa. So its a matrix of 12 possible markets. Electricity in North America is the biggest market. My goal is for us to increase sales in the 11 other cells. Those are hugely promising markets for us. We want to take what we have learned with smart electric meters in North America and apply it to smart water and smart gas in all markets. How do we build a network that can sense gas leaks and corrosion in pipes through things like pressure variation? How do we build a water network that can detect leaks in the water distribution network and inside of your housesay, in your toilets? We are taking the platform we built in the U.S. and applying it to all other markets. I truly believe that 15 to 20 percent of energy use could be saved if we paid more attention to that. In terms of gross margins, gas and water are actually higher than the electric business.

SMART CITIES: There are 2.6 billion electric and gas meters in the world. Fewer than 10 percent are connected. If we connect them, we have powerful platforms to collect, store and analyze all that data. There is a big market developing for analytics. There is electricity theft in British Columbia, for example. The region is second only to California as a marijuana growing region. To address that theft was a big driver for our project with BC Hydro. The next step is to start integrating traffic lights and parking meters and collect data that can help reduce congestion and make cities cleaner and safer. We are working with Microsoft, Cisco, Qualcomm and others on a smart cities council. People are talking about the internet of everything. We are going to go from the concept of smart meters to smart grid and from smart grid to smart cities.

OUTSIDE INTERESTS: I loved being in school. I really enjoy the learning process. When I took my daughter to a piano lesson and she said she didnt want to do it, I thought, Im not going to wait another moment, and I started taking lessons. I also do dressage, a kind of ballet on horses.