Enel Dispute May Delay Recording of Revenues for Echelon

5/16/2003 - Echelon Corporation (NASDAQ: ELON) the creator of the LONWORKS® device networking platform for connecting everyday devices to each other and the Internet, disclosed that a contractual dispute has arisen with Enel S.p.A., the Italian utility that is integrating Echelonís LONWORKS technology into its remote metering management project, the Contatore Elettronico. The dispute relates to the transition from the current version of the metering kit that Echelon sells to Enelís meter manufacturers, to the combo chip metering kit. Echelon had previously agreed with Enel to sell to Enelís meter manufacturers an additional 2 million units of the current version of the metering kit to ease the impact of Enelís transition to the new metering kit.

Echelonís agreement with Enel provides that Echelon will be entitled to a higher sales price on the additional two million units, so long as certain milestones are achieved by specified dates. The higher sales price would result in an aggregate of $3.0 million of additional revenue to Echelon, and a like amount of additional gross profit. Echelon believes that such milestones were achieved by the applicable dates, and that it is therefore entitled to the additional revenue, but Enel contends that a single milestone was not achieved by the applicable date. Echelon firmly believes that Enelís contention is without merit.

Echelon has notified Enel that if Enel does not pay Echelon the $3 million for the additional 2 million units as the units are shipped, then Echelon intends to pursue arbitration of the dispute. Echelon believes that arbitration would not be completed for several months, which could delay Echelonís ability to record revenue until the arbitration is completed. If this dispute is not resolved in Echelonís favor, Echelonís revenues and operating results could each be reduced by as much $2.7 million for the second quarter of 2003, and by as much as $3,000,000 for 2003.

About Echelon Corporation
Echelon Corporation is the creator of the LonWorks® platform, the world's most widely used standard for connecting everyday devices such as appliances, thermostats, air conditioners, electric meters, and lighting systems to each other and to the Internet. Echelon's hardware and software products enable manufacturers and integrators to create smart devices and systems that lower cost, increase convenience, improve service, and enhance productivity, quality, and safety. Thousands of companies have developed and installed more than 30 million LonWorks based devices into homes, buildings, factories, trains, and other systems worldwide.

The protocol underlying LonWorks networks and the signaling used by Echelon's power line and free topology transceivers have been adopted as standards by the American National Standards Institute (ANSI). Echelon is a founding member of the LonMark® Interoperability Association, an open industry forum of hundreds of leading manufacturers, integrators, and users dedicated to promoting the use of interoperable LonWorks devices. More information about LonMark interoperability is available at http://www.LonMark.org. Further information regarding Echelon can be found at http://www.echelon.com.

Echelon, LONWORKS and the Echelon logo are registered trademarks of Echelon Corporation registered in the United States and other countries.

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