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Questions & Answers Regarding New Echelon Control System Open Software Platform, Edge Control Node Extensible Hardware, and Duk

^{Published on 2010-09-08 10:16:52 - Market Wire}
 

NEW YORK--([ BUSINESS WIRE ])--Echelon Corporation ([ NASDAQ ]:[ ELON ]) today unveiled [ the Echelon Control System (ECoS) ], a new open software platform for intelligent distributed control of the smart grid. The announcement was made at a special event in New York City. ECoS will run throughout the edge of the grid on [ the new Edge Control Node (ECN) 7000 ] series of open and extensible hardware solutions. Echelon also [ announced today that Duke Energy will be the first customer for the ECoS ].

Announcement & Platform

Q:What are we announcing?

A: We are announcing the Echelon Control System (ECoS) software platform and the first ECoS powered products, the Edge Control Node (ECN) 7000 series of extensible hardware products. This open-standard software/hardware combination brings intelligent distributed control to the edge of the grid, which enables a more responsive, reliable, automated, self-healing and intelligent power grid.

We are also announcing our first ECN 7000 series customer, Duke Energy, which has placed a large ($14.5M+) order for the ECN 7000 series products.

Q:What is intelligent distributed control?

A: Intelligent distributed control distributes sensing and control through the grid. There is no single point of decision making, and therefore there is no single point of failure. Decisions are made closer to the point of control, for more rapid response time and increased reliability with decreased communications cost.

Q:Why is intelligent distributed control needed?

• Intelligent distributed control delivers the needed response time;
• Intelligent distributed control enhances system survivability;
• Intelligent distributed control increases reliability;and,
• Intelligent distributed control lowers cost.

Q:What is ECoS?

A: ECoS is an open and secure application framework, including a software development kit and management tools, that enables intelligent distributed control at the edge of the network. In the ECN 7000, ECoS provides a set of core services, along with built-in ECoS apps, that provide the software infrastructure necessary to support multiple apps running cooperatively to monitor and control devices to implement smart grid applications.

Q:Is ECoS an operating system?

A: ECoS is more than an operating system. It is a set of tools and services that provide a framework that makes it easy to develop powerful applications for intelligent distributed control. By way of analogy, ECoS is to the smart grid what Android is to smart phones. Android provides an open and secure software framework, built on Linux, which provides a set of services and supporting tools to simplify development of smart phone apps. Similarly, ECoS provides an open and secure software framework, built on Linux, which provides a set of services with supporting tools to simplify development of smart grid apps.

Q:Why is ECoS important?

A: Just as application frameworks have transformed the smart phone market by creating an explosion of applications and innovation, we expect ECoS to do the same for the smart grid market. The ECoS platform enables utilities and their partners to quickly build aECoS appsa that allows utilities to meet next generation demand response challenges, optimize local grid efficiency, predict power outages before they occur and rapidly restore service, and implement other smart grid services. For example, an ECoS app might monitor power quality and line signal strength and look for anomalies like voltage fluctuations to give utilities the potential to see where their next outage may strike and take corrective action before it occurs.

Q:What is the ECN 7000 series of hardware products?

A: The ECN 7000 series are an open and extensible series of hardware products designed for the smart grid. The ECN 7000s are the first ECoS-powered products. We are announcing two members of the series today a" one with ruggedized packaging for use outdoors on the side of a pad-mount transformer or on a utility pole, and another for indoor use. Powered by ECoS, the ECN 7000 brings the power of intelligent distributed control to the edge of the grid to enable a more responsive, reliable, automated, self-healing and intelligent grid. They are important new additions to Echelona™s Networked Energy Services (NES) System.

Q:What do you mean when you say the ECN 7000 series of products is aopen and extensiblea™?

A: The ECN 7000 series products provide open, published interfaces to allow third parties to develop additional hardware and software options. The interfaces are completely open, meaning that they are available without licensing restrictions. With these open interfaces we look to foster a community of hardware developers creating peripheral cards to connect to the myriad of devices found in the field, as well as software developers creating new and innovative ECoS apps for the smart grid. For example, a third party can build an option board and software driver to connect to an advanced metering infrastructure (AMI) network and make AMI data available to ECoS apps.

Q:Why are the ECN 7000 series products important?

A: A key piece of the puzzle has been missing that prevents the full promise of the smart grid. That missing piece has been a point of intelligence at the edge of the grid. By distributing intelligent control into the grid at the low voltage transformer, ECoS and the ECN 7000 series products will raise system reliability and survivability to the next level by eliminating central points of failure and vulnerability. ECoS will deliver the near real-time response utilities need to increase efficiency, create balance and increase control at the edge of the grid.

Q:What is the difference between ECoS and the ECN 7000 series products?

A: ECoS is the software platform that runs on the ECN 7000 series products. By way of analogy, just as Android powers Droid phones, ECoS powers Edge Control Nodes.

Q:What do you mean by the edge of the grid?

A: The edge of the grid is also sometimes referred to as the alast milea of the distribution grid. It is the critical point where the electricity distribution network connects to customers.

Q:Why is the edge of the grid important?

A: The edge of the grid is important because demands on it are changing dramatically. At the same time, the design of the grid has not changed since Edisona™s and Westinghousea™s days in the late 1800s.

• Governmental policy is changing the nature of supply;
• Customer behavior is driving dramatic changes at the edge of the grid;
• Economic and national security concerns make grid reliability and survivability more critical than ever; and
• Worldwide demands for electricity are growing; we need to be more efficient going forward.

Q:Why is Echelon the right company to bring this platform to the industry?

A: Echelon has 20 years of proven, trusted and unmatched experience in control networking and software innovation. This experience has given us unique insight and the skills needed to create the infrastructure needed to meet the needs of the smart grid:

• Robust & reliable a" with no single point of failure and local intelligence, Echelon systems offer predictive intelligence and resilience in the face of failure;
• Scalable a" from a handful of nodes to tens of millions of nodes;
• Interoperable a" products and applications from multiple suppliers that work together; and,
• Adaptive a" control systems are long lived, but the world around them is evolving at a pace like never before. Echelon has experience architecting systems that work with new technologies as they arise without the need to replace devices previously installed. The smart grid cannot undergo a arip and replacea upgrade cycle every few years. It must be able to absorb new technologies as they emerge.

And, wea™ve enabled this in a way that is easy for developers to create devices and easy for end-users to install, manage, and maintain.

Q:How is the smart grid different from smart meters?

A: The smart grid is broader than smart metering. Smart meters are just a single application within the smart grid. Different people use the term asmart metera™ to refer to different things, but in general smart meters have been thought of as the way to help balance supply and demand by implementing time-of-use billing, which means the cost of energy to consumers changes as the price of energy changes to utilities, and by giving consumers a view of their consumption pattern over the day so they can adjust their behavior to reduce or shift load.

The smart grid goes beyond the meter to provide a broader set of services that increase reliability, survivability and responsiveness of the grid. With a smart grid utilities can meet next generation demand response challenges, optimize local grid efficiency, predict power outages before they occur and rapidly restore service, and implement other services. Unlike most smart meters, Echelona™s NES meters go beyond basic billing and provide essential information about the health and status of the grid required to build many smart grid applications.

Q:To what extent is the ECoS software based on open-source operating systems, drivers, etc?

A: ECoS is built on top of the Linux operating system. ECoS apps are built using Eclipse, the worlda™s most widely used open source embedded software development tool.

Q:What security measures are included in ECoS? I have heard a lot about the vulnerability of the grid to hackers.

A: Ensuring world-class security was fundamental to the design of ECoS and the ECN 7000 series.Security is integrated throughout; from physical security measures such as anti-tamper screws used to secure the ECN 7000 enclosure; to a tamper detect sensor within the ECN 7000 which is monitored whether the ECN is powered up or not; to embedded GPS location awareness to detect if the ECN 7000 was moved; to SSL connection support, 128-bit encryptionwith protection against record/playback attacks, strong authentication, firewall protection, 802.11X security, access control lists, denial of service attack prevention; and other measures built into the ECoS software.

Product

Q:What is the NES System?

A: Echelona™s Networked Energy Services (NES) system is an open platform for the smart grid that provides access to smart devices via a Web services based network operating system over an IP networking infrastructure. At the enterprise, the NES system software a" the network operating system for the smart grid a" provides scalable, secure web services to collect information from, manage, and control millions of devices in the field. Edge devices in the NES system include NES data concentrators, which provide monitoring, control, and management services for devices connected to the low voltage power grid, and ECN 7000s, which enable any device, speaking any protocol, connected over any network to be integrated into the system. In the field, the NES system enables smart devices to use the low voltage power grid as a reliable and secure network. Going beyond basic AMI functions such as time of use billing, NES meters offer a wealth of information related to the status and health of the grid, including reactive power, voltage, phase current, power factor, frequency and total harmonic distortion. In addition, NES meters, working in concert with the NES Data Concentrator or the ECoS NES Data Concentrator app, provide an automatic topology management service that amaps outa the connection between meters and low voltage transformers. This information is a critical component of next-generation demand response and micro grid distribution automation applications.

Q:How does the ECN 7000 series extend the capabilities of the NES System?

A: The ECN 7000 series uses ECoS, running Echelon and third party applications, to extend the reach and power of the NES system to include not only devices connected directly to the low voltage grid but also others devices, speaking other protocols, connected over other media. With the ECN 7000, information for any device, speaking any protocol, over any media can be integrated into local decision making and enterprise applications, creating a broader market opportunity for Echelon and its partners and a richer set of capabilities for utilities.

Q:Do the ECN 7000 series products replace NES Data Concentrators?

A: No. NES Data Concentrators will continue to be offered and are an ideal solution for utilities looking to deploy a smart grid or smart meter system that leverages the low voltage distribution network to reduce cost and improve operating efficiency. For utilities looking to incorporate information from other devices into their smart grid applications, or to run the wide range of third party apps that will be available, the ECN 7000 series extends the reach of the NES system to include not only devices connected directly to the low voltage grid but also others devices, speaking other protocols, connected over other media. One of the core services provided by the ECoS platform is an NES Data Concentrator service, which enables ECN 7000 series products and NES data concentrators to be mixed and matched in the same system to enable utilities to add support for additional connected devices and the distributed control capabilities of ECoS apps, where appropriate.

Q:Does the open connectivity of ECoS and the ECN 7000 series products mean that an NES system might not contain any NES meters from Echelon?

A: Thata™s right; a deployed NES system might not contain any NES meters from Echelon and might in fact not contain any meters at all. The NES System was designed from day one to provide the core of the smart grid and to not just be a simple AMI system. The name NES a" Network Energy Services a" was intended to convey this idea. The NES System has always been about building out a network of smart devices that work together to provide variety of services related to energy, that is, to deliver what has now come to be commonly referred to as the smart grid. NES meters were the first and most common device connected to the NES System but need not be the only device connected. There is tremendous value in intelligent distributed control at the transformer to optimize grid efficiency, predict power outages before they occur, automatically restore service, meet future micro-distribution challenges, and implement other smart grid services that goes far beyond smart meters.

However, while NES meters are not a required part of the system, they do offer tremendous value and important information beyond basic AMI functions such as time of use billing. NES meters offer a wealth of information related to the status and health of the grid, including reactive power, voltage, phase current, power factor, frequency and total harmonic distortion. In addition, NES meters, working in concert with the ECoS NES Data Concentrator app, provide an automatic topology management service that amaps outa the connection between meters and low voltage transformers. This information is a critical component of next-generation demand response and micro grid distribution automation applications.

Q:Do the ECN 7000 series products work with third-party meters?

A: Yes; the ECN 7000 series products and ECoS platform are completely open. The ECN 7000 series products include built-in support for NES meters as well as optional capability to collect AMR data from Badger gas meters or other 900 MHz RF AMR systems. In addition, the ECN 7000 series products provide open, published hardware and software interfaces to allow third parties to integrate any type of network or meter into ECN products and ECoS platform. These other meters can be managed by ECoS apps and expose all their information and control capability to other ECoS apps, to existing enterprise systems, or through the NES system software.

Q:Why would someone want to integrate an existing AMR meter into the ECN?

A: Many utilities have AMR meters that are not yet fully depreciated and therefore will not be replaced in the near term. For some utilities this presents a significant hurdle in creating a business case for a smart grid project. Integrating AMR meters through the ECN 7000 series products provides a number of benefits. Through ECoS, the ECN 7000 series products and NES system software provides utilities the ability to build a scalable and secure afixed networka that eliminates the need for manual data collection and enables them to incrementally replace AMR meters as they wear out with NES meters or AMI meters. In addition, the consumption data collected from AMR meters can be made available within the ECN to other ECoS apps for use within their calculations and to home energy management systems for consumer use.

Q:Why would someone want to integrate an existing AMI meter into the ECN?

A: In AMI systems the data produced by the AMI meter is transported to the head-end for bill preparation or perhaps displayed to homeowners but is not available to make local decisions at the edge of the grid. Integrating AMI meters into the ECN 7000 enables ECoS apps to take whatever data is available from these meters and use it as part of the appsa™ control algorithms. Through the ECN 7000 and ECoS, AMI meters can become participants in smart grid control decisions. For example, if the AMI meters provide voltage, that can be used as part of a voltage optimization algorithm along with cap bank control.

Q:Why would someone want to use NES meters with the NES system if they can use any smart meter?

A: NES meters offer what we believe is an unmatched set of capabilities to utilities looking to deliver smart grid benefits to their customers. Most smart meters only offer AMI functions such as time of use billing. NES meters not only offer AMI functions, but also a wealth of information related to the status and health of the grid, including reactive power, voltage, phase current, power factor, frequency and total harmonic distortion at a price point competitive with smart meters that only offer AMI functionality. In addition, NES meters, working in concert with the ECoS NES Data Concentrator app, provide an automatic topology management service that amaps outa the connection between meters and low voltage transformers. This information is a critical component of next-generation demand response and micro grid distribution automation applications. NES meters are and remain a very important offering within the NES system and are very successful in the marketplace.

Q:Do the ECN 7000 series products work with non power line products?

A: Absolutely. The ECN 7000 series products includes a variety of standard and optional RF, wired, and power line interfaces. In addition, the ECN 7000 series products provide open, published hardware and software interfaces to allow third parties to integrate any type of network into the ECN product and ECoS platform.

However, use of the low voltage power line provides the ECN 7000 with critical information required by utilities to effectively implement next-generation demand response and micro grid distribution automation applications. The ECoS NES Data Concentrator app, working in concert with NES devices and meters on the low voltage power line, provides an automatic topology management service that amaps outa the connection between meters and low voltage transformers, something that RF systems cannot do since they bypass the grid.

Q:Where do ECoS and the ECN 7000 series products fit relative to Echelona™s LonWorks^® infrastructure product line?

A: ECoS is an enabling software infrastructure for building intelligent distributed control applications that interact with any device, using any protocol, over any media, including, but not limited to, LonWorks networks. The LonWorks platform enables rapid development of a wide range of smart devices that work together cooperatively in control networks to improve operating efficiency and reduce life cycle costs. ECoS sits the next level up in the control system hierarchy. ECoS can interface to LonWorks networks, and other types of device networks, as well as to non-networked devices. With ECoS, data is presented in one common framework a" one language allowing developers to write apps without needing to know anything about the underlying networks. ECoS breaks down the barriers between devices, networks, and applications to speed development and foster innovation.

Q: Where do ECoS and the ECN 7000 series products fit relative to Echelona™s i.LON^® SmartServer products?

A: ECoS leverages SmartServer and other core Echelon technologies and applies them to the unique needs of the smart grid.

Q:Do the ECN 7000 series products replace the Echelon SmartServer products in commercial demand response applications?

A: No. The ECN 7000 series product announced today is targeted at utility smart grid applications.

Q:Do the ECN 7000 series products replace the Echelon SmartServer products in intelligent street lighting applications?

A: No. The SmartServer will continue to be an ideal solution for cities looking to manage street lighting costs and for utilities where street lights are served by dedicated distribution transformers. For utilities that provide managed street light services and have street lights intermixed with residential customers on the same transformer, the ECN 7000 series with an appropriate ECoS app represents a very cost-effective way to add intelligent street lighting services.

Q:Will the SmartServer be powered by ECoS in the future?

A: We are not announcing any new SmartServer products at this time.

Utilities and Third-Party Developers

Q:Are ECoS and the ECN 7000 series products a custom development done for Duke Energy?

A: No. ECoS and the ECN 7000 series products is the result of almost 10 years of experience in the smart grid market with input from customers and partners around the globe, including Duke Energy.

Q:Do you have customers for the ECN 7000 series products other than Duke Energy?

A: Today we are announcing Duke Energy as our first customer. We have recently begun presenting the product to other utilities and partners and we are very pleased with the positive response thus far. We are not announcing any additional customers at this time.

Q:Are European customers interested in the ECN 7000 series products?

A: Very much so. Utilities around the world are all experiencing similar, new demands being placed upon their grids. As demonstrated by the support and participation of some key European utilities in our ECoS platform and ECN product launch today, it is clear that the need for intelligent distributed control at the edge of the grid and the solutions enabled by the ECoS platform and the ECN 7000 series products have global applicability.

Q:What kind of partners are you targeting?

A: Having an intelligent point of monitoring and control at the distribution transformer is an incredibly valuable resource and a key requirement for many sorts of applications. We have already had discussions with a wide range of companies offering products and applications to make the grid smart, more efficient, and more reliable and have received overwhelming enthusiastic response.

ECoS and the ECN 7000 series products provide a single platform that enables multiple applications from multiple vendors to work together to deliver a smarter grid.

There are a wide variety of devices and applications that can benefit from ECoS and the ECN 7000 series products that are natural partners for us to work with:

• Distribution management systems (DMA), distribution automation (DA) and supervisory control and data acquisition (SCADA) providers. ECoS and the ECN 7000 series products allow them to reach deeper into the grid and have access to more fine-grained information;
• Software companies. ECoS and the ECN 7000 series products represent an opportunity for software providers to distribute and embed analytics within the grid;
• Grid equipment manufacturers (transformers, capacitor banks, reclosers, medium voltage sensors, etc.) ECoS and the ECN 7000 series products give them a platform to monitor and manage their products and integrate data and control capabilities to deliver a variety of applications;
• Demand response providers. ECoS and the ECN 7000 series products provide them the ideal location to implement next generation demand response apps that take into account the interaction across homes and devices on the transformer to provide maximum protection to the grid with minimal impact to customers;
• In-home devices and systems. ECoS and the ECN 7000 series products provide a single point of intelligence for interacting with various devices and controllers in the home and around the low voltage grid;
• Electrical vehicles and chargers. ECoS and the ECN 7000 series products give electrical vehicle chargers access to data they need, at the right point in the grid, to enable them to intelligently manage changing to prevent overloading the low voltage grid;
• Street lighting and municipal services. By providing a single platform for multiple applications, ECoS and the ECN 7000 series products change the cost equation for deploying intelligent street light applications or deploying other distributed sensors as part of a smart city. These systems no longer need to deploy their own dedicated infrastructure but can instead be deployed incrementally with smart devices and ECoS apps; and,
• System integrators and application developers. By breaking down the barriers between devices and systems and making all data available in a common format, ECoS and the ECN 7000 creates a platform for innovation on the smart grid just as application frameworks have done for smart phones.

There are many other potential applications and partners as well. We plan to aggressively expand this ecosystem of partners to further broaden our application solutions and provide greater value to our customers.

Q:When will the ECOS toolkit be ready to enable developers to start writing applications?

A: We have begun to work with an initial set of application developers and intend to roll the program out more broadly by the end of the year.

Q:What is the cost of the ECoS SDK?

A: Nothing. Echelon is providing the ECoS SDK free of charge. To further promote productivity and innovation, our SDK is built on top of Eclipse, the worlda™s most widely used open development platform.

Q:Are there any licensing restrictions, fee, or royalties?

A: No. ECoS and the ECN 7000 series products are entirely open.

Q:What kind of developer support will Echelon offer?

A: Echelon intends to offer a broad range of training and support programs.

Pricing and Availability

Q:When is the ECN 7000 series shipping?

A: Field trial units are expected to ship in late 2010. Production shipments are targeted to begin in mid-2011.

Q:Why did you introduce this product in advance of the general availability date?

A: Two reasons: First, the power of ECoS is the ecosystem of partners it enables. We want to start working with partners now so we have many ECoS apps available at shipment time. Second, the decision-making and evaluation process within utilities is a long cycle. Many utilities and their regulators are beginning to move their focus beyond billing and AMI onto building a more reliable, robust, and responsive smart grid. As such, we believe the time to introduce ECoS and the ECN 7000 series of products is now so that we can take part in those discussions today.

Q:What about pricing?

A: We are not publically announcing pricing at this time.

Financials

Q:How does this announcement change guidance?

A: It does not, since we only give quarterly guidance, and revenues will begin in late 2011.

Q:What gross margins are you expecting?

A: We are not disclosing this information at this time.

Duke Order

Q:How large is the Duke order?

A: The initial order, excluding optional ECN peripherals, is for approximately $14.5 million.

Q:What does the phrase, aexcluding optional ECN peripheralsa mean?

A: Depending upon where it will be located, each ECN 7000 will be equipped with additional peripherals, such as EVDO modems for cellular communication, Wi-Fi for connection to wireless devices and other nearby ECN 7000s, mounting brackets for pole or pad mounting, etc. The exact mix of ECN peripherals that will be required is not known at this time and they will therefore be ordered at a later date.

Q:How many units are in the Duke order?

A: We are not disclosing the quantity of units.

Q:What is the timing of the order?

A: Shipments of ECN field trial units are expected to begin by the end of 2010. Shipments of production units are targeted for the second half of 2011. All deliveries under the initial order are expected to be completed by the middle of 2013.

Q:What does it mean that this order is under the existing long-term supply agreement?

A: The long-term supply agreement entered into between Duke Energy and Echelon in August of 2009 gives Duke Energy the right to purchase products for all of the territories it serves. This means that they also have the right to buy the ECN 7000 for all of these territories. Duke Energy currently provides electricity service to approximately four million customers in five states a" North Carolina, South Carolina, Indiana, Ohio and Kentucky.

About Echelon Corporation

Echelon Corporation ([ NASDAQ ]: [ ELON ]) is leading the worldwide transformation of the electricity grid into a smart, communicating energy network, connecting utilities to their customers, enabling networking of everyday devices, and providing customers with energy aware homes and businesses that react to conditions on the grid.

Echelon's NES System a" the control networking infrastructure for the smart grid a" enables intelligent distributed control applications and devices that deliver maximum reliability, survivability and responsiveness. Through the ECoS platform, the NES system enables any device, speaking any protocol, connected over any network to be integrated into local decision making and connected securely to enterprise IT systems through virtually any IP network. The NES System helps utilities compete more effectively, reduce operating costs, provide expanded services and help energy users manage and reduce overall energy use.

Echelon's LonWorks^® Infrastructure products extend the smart grid in to smart buildings factories, homes and other systems, powering tens of millions of energy aware, everyday devices made by thousands of companies a" connecting them to each other, to the electricity grid and to the Internet. LonWorks based products work together to monitor and save energy; lower costs; improve productivity; and enhance service, quality, safety, and convenience in utility, municipal, building, industrial, transportation, and home area networks.

More information about Echelon can be found at [ http://www.echelon.com ].

Echelon, i.LON, LonWorks, and the Echelon logo are registered trademarks of Echelon Corporation registered in the United States and other countries. Other product or service names mentioned herein are the trademarks of their respective owners.

This press release may contain statements relating to future plans, events or performance. Such statements may involve risks and uncertainties, including risks associated with uncertainties pertaining to market acceptance of the Edge Control Node, including the ECoS Software, and the timing and level of orders from Duke Energy as well as other customers; risks that Edge Control Node, including the ECoS Software, does not perform as designed and that liability may accrue as a result; the risk that third parties will not become interested in developing ECoS apps for the Edge Control Node that would expand the market for this product; and other risks identified in Echelon's SEC filings. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Echelon undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.