America's Smart Grid: Four Companies Set to Profit from a Federal Cash Injection

David Fessler
by David Fessler, Energy & Infrastructure Strategist, The Oxford Club

America's Smart Grid: Four Companies Set to Profit from a Federal Cash Injection

by David Fessler, Advisory Panelist

Wednesday, September 30, 2009: Issue #1105

What do Cisco Systems (Nasdaq: CSCO), IBM (NYSE: IBM), AT&T (NYSE: T) and Intel (Nasdaq: INTC) all have in common?

The obvious answer is that they're four of the most successful technology companies on the planet.

But they're also heavily involved in the modernization plans for America's "Smart Grid" - a topic I introduced in a previous column.

Make no mistake, with a decade-long project as monumental as modernizing the country's "Smart Grid," the devil is truly in the details. And the Commerce Department released the finer details of the initiative last week.

Until now, one of the big problems with the "Smart Grid" was the lack of set standards. Without them, each power company would be free to do as it pleases, resulting in a hodge-podge of small grids that, in all likelihood, wouldn't work together.

To put this in perspective, just imagine how well the Internet would work if there weren't hundreds (or perhaps even thousands) of standards in place so that everything works seamlessly.

So the National Institute of Standards (NIST) prepared the detailed standards that the Commerce Department wants the power industry to use as they build intelligence into the electrical power grid.

Job #1: Setting Up an American "Smart Grid" Standard

The standards released last week are the result of NIST's review of proposed measures it sent out to companies like Cisco, IBM, AT&T and Intel, plus hundreds of others, seeking industry comments.

This plan basically details the integration and connection of smart meters, plus data sharing on energy usage among utilities and cyber security standards.

With regard to the latter, the big four firms lobbied vigorously for certain data and communications standards. This is because they want to integrate the essential "hooks" into their product lines as soon as possible.

And the NIST standards require internet-protocol (IP) technology in any system connected to the "Smart Grid." The idea here is that the existing Internet could be used as the information highway for "Smart Grid" data communications and also for control purposes.

That's good news for Cisco, in particular. It's already a leader in IP technology, having integrated it into the "Smart Grid" systems that it currently sells.

But this brings up a potentially big problem...

Smart Meters By Name... But Not By Nature

If "Smart Grid" communication is based on IP technology, how vulnerable is it to hacking?

In order to attack the hardware, you first need to gain access to it to determine the kind of programming required to hack it. Smart hackers could simply walk up to a house where no one is home and steal one using a pair of pliers.

Once the hacker has access to the smart meter's programming and special software codes, he can then begin communicating with all the meters made by that same manufacturer. As utilities continue their rollout of smart meters, those numbers will be in the millions.

As Mike Davis, a senior security consultant at IOActive, says, current smart meters are "probably not mature enough" and can easily be hacked.

Davis has tested a number of currently available meters (he hasn't publicly revealed which ones) and identified vulnerabilities that could allow an experienced hacker to shut off large numbers of meters all at once from anywhere in the world.

Imagine a hacker issuing a command to several hundred thousand meters, telling them to simultaneously turn off all at once... and then immediately back on. The resulting surge would blow just about every breaker in the utilities' grid, taking hours if not days to restore. And the next day, they could do it all over again.

Clearly, this is a serious problem for the utilities and meter makers to address. So what's being done about it?

These Four Tech Titans Are Poised to Cash In

The good news is that with standards now in place, the Obama administration is ready to start issuing checks - perhaps as early as November. And those checks are worth a total $4.5 billion - money that the government earmarked for the "Smart Grid" project back in January.

And the beneficiaries of this windfall? Cisco, IBM, AT&T, Intel and others.

This just goes to show that it's not just the obvious candidates that stand to profit from the electrical "Smart Grid" plans (utilities, etc). These great tech giants are ready and waiting to deliver crucial services, too.

Good investing,

David Fessler

comments powered by Disqus