Echelon Announces New, Long-Term Relationship with Enel S.p.A.

(San Jose, CA - October 25, 2006) - Echelon Corporation (NASDAQ: ELON), a global networking company providing technology and solutions for controls, smart metering, and energy and environment management, today announced that it has entered into a series of agreements with Enel Distribuzione S.p.A., a subsidiary of Enel S.p.A. (the latter listed at NYSE: EN; at Milan: ENEL and the largest electric utility in Italy). Previously, Echelon and Enel had collaborated on Enel's highly successful Contatore Elettronico project. The combination of Echelon's power line components embedded in the meters and Echelon's data concentrators enables the meters to communicate reliably across the electric power lines to allow Enel to significantly reduce operating costs while increasing service quality and consumer choice. The new agreements enable long-term maintenance and enhancement of the Contatore Elettronico system for 27 million electronic meters running on the largest electric distribution network in Italy. Assuming initial acceptance tests are completed successfully, revenue to Echelon resulting from the agreements is expected to be between $20 million and $50 million, the timing and amount of which will depend upon the quantity of product and services ultimately needed by Enel.

"We are very pleased to renew our relationship with Enel," said Ken Oshman, Echelon's chairman and chief executive offer. "Enel has been a leader in the application of advanced networking technology to electricity metering and has established the benchmark for functionality, business process improvements, and customer service enhancements, and by which all future advanced metering deployments should be measured. We are honored that they have again entrusted us with the networking of their meters—their 'cash registers'—as they look to enhance their system."

"Echelon has supplied products of high quality for the Contatore Elettronico project, thereby contributing to its success," said Livio Gallo, president of Enel Distribuzione. "The Contatore Elettronico project, which has assured significant savings in operating costs, has allowed us to better manage our customers by enabling services such as performing remote readings and offering varied tariff structures. The new long term agreements with Echelon are properly aimed at evolving our system's functions to better serve our customers".

Enel and Echelon have entered into a development and supply agreement and a software enhancement agreement. Under the development and supply agreement, assuming that initial acceptance tests are completed successfully, Enel will purchase a minimum of 2.5 million metering kits containing Echelon power line networking components and a minimum of 35,000 Echelon data concentrators. Enel may purchase up to an additional 4 million metering kits and 21,000 data concentrators, or higher quantities subject to Echelon's acceptance. Under the software enhancement agreement, Echelon will provide software enhancements to Enel to enable them to continue to evolve and improve their system. The agreements run through December 31, 2009, although delivery of products and services can extend beyond that date and the agreements may be extended under certain circumstances.

About Echelon Corporation
Echelon Corporation (NASDAQ: ELON) is a pioneer and world leader in control networking — networks that connect machines and other electronic devices — for the purpose of sensing, monitoring and controlling the world around us. Echelon's LonWorks® platform for control networking was released in 1990 and has become a worldwide standard in the building, industrial, transportation, and home automation markets. Launched in 2003, Echelon's Networked Energy Services (NES) system is an open, extensible, advanced metering infrastructure that can bring benefits to every aspect of a utility's operation, from metering and customer services to distribution operations and value-added business. In 2005 Echelon introduced the world's first embedded control network infrastructure, the Pyxos™ platform. The Pyxos platform extends the benefits of networking inside machines to the sensors and actuators that make them function and expands the reach and power of LonWorks control networks.

Echelon has been a leader in the advanced metering infrastructure market, providing the underlying network technology for 27 million meters installed in Italy in the world's largest advanced metering project and winning tenders to provide the NES system to 700,000 customers (with options for 400,000 more) of utilities in Sweden, The Netherlands and Australia.

Echelon is based in San Jose, California, with international offices in China, France, Germany, Italy, Hong Kong, Japan, Korea, The Netherlands, and the United Kingdom. Further information regarding Echelon can be found at http://www.echelon.com.

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