Swedish utility Vattenfall AB has exercised options for 200,000 additional Echelon meters and associated data concentrators under the framework contract announced in December 2005. This award brings the total number of meters released under the agreement thus far to 500,000, with two additional options for 100,000 meters each, available for exercise through late 2008. Revenue to Echelon under the options is expected to be approximately $15 million, depending upon the mix of products, with shipments expected to take place over a 9- to 12-month period beginning in the second quarter of 2007. Sweden is in the process of transitioning to fully automated residential electricity metering in response to legislation designed to promote a more open and efficient energy market.
Leveraging the power of the NES system to expand and adapt to the changing needs of the utility industry, Echelon has also agreed to make some updates available in the first half of 2007 that will enable Vattenfall to optimize and reduce communications costs while collecting enhanced information about the quality of service delivered to its customers. In accordance with U.S. Generally Accepted Accounting Principles (GAAP), Echelon will defer revenue and expenses associated with the Vattenfall project until the update is released, at which time the initial six phases of 50,000 meters each are expected to be complete. While this deferral is not expected to have a material impact on reported earnings for the fourth quarter of 2006, approximately $4.2 million of revenue previously anticipated to be recognized in the fourth quarter of 2006 is now expected to instead be recognized in the second quarter of 2007.