How will the issue of open standards play into smart grid companies' efforts to get a piece of $4.5 billion in stimulus funds?

If a consortium of utilities could have its way, the federal government will focus first and foremost on "inter-system" standards — that is, standards for communications that happen at the borders where utility systems meet each other and those of grid operators, regulators and customers — and avoid messing with "inside the utility" systems already in place.

That's according to a paper on smart grid standards issues prepared earlier this month by a host of America's largest utilities. Given the billions of dollars utilities are now spending on bringing smart meters with two-way digital communications capability to millions of customers — the starting pieces of a future smart grid — it makes sense that utilities wouldn't want to jeopardize their investments.

And given that $4.5 billion in federal matching grants are to be tied to using open standards in smart grid deployments —  at least "if available and appropriate" — there's some urgency to clearing up how the Department of Energy defines what "standards" are in the program for giving out grants it's supposed to have prepared in the next two months.

Complicating the matter is the fact that, despite many companies claiming that their technologies are more “standards-based� than their competitors, clearly defined standards for the emerging smart grid industry aren't really set in stone (see Smart Grid: a Matter of Standards).

(PS - for more in-depth discussion of standards for the smart grid, tune in to the upcoming Green:Net conference hosted by the GigaOm Network, taking place on Tuesday, March 24 at the Golden Gate Club in San Francisco. I will be moderating a session on smart grid standards featuring IBM vice president of energy and environment Rich Lechner, Pacific Gas & Electric's senior director of smart energy web Andrew Tang, Foundation Capital general partner Warren Weiss, and Scott Lang, CEO of Silver Spring Networks. Greentech Media readers can get a 15-percent discount on their tickets by ordering them through this link. What are you waiting for!)

"The primary issue is not that applicable, mature standards do not exist," the utility group white paper noted wryly, "but rather how to get all the stakeholders focused on quickly prioritizing, adopting and implementing Smart Grid interoperability standards across such a broad and complex technical landscape with many projects already underway." (For a look at the paper, visit the OpenSG Users Group.)

To do that, regulators should first work on standards for how utilities get data from one another to regulators and customers, the paper stated. That means standards for things like getting smart meters to talk to home area devices and plug-in hybrid or electric vehicles, or making customer data available through Web-based systems using standard application programming interfaces (APIs).

It also means that "it isn’t necessary to first resolve interoperability of “intra-system� interfaces within the utility’s Smart Grid implementations before projects can proceed," the paper stated. That, no doubt, would be a relief to utilities using smart meters from companies like Itron, Landis+Gyr and Elster, which use proprietary networking standards.

Those companies wrote a letter to U.S. Senators protesting language in a draft version of the stimulus bill — since removed  — that would have required all projects seeking stimulus grant funds to use Internet protocol as a networking standard.

Using IP for smart meter networking has its supporters and detractors. Some companies with proprietary networking systems protest that IP requires more bandwidth than many smart meter deployments can handle. Others say that those concerns may be outweighed by the need to settle on some networking standard.

"We really need to move quickly to a common standard -- and the question I have is, if it’s not IP, tell me what it should be," David Mohler, chief technology officer for Duke Energy, said of why the utility supported requiring the "must use IP" language in the draft stimulus bill.

Some smart meter makers that use proprietary networking systems have also objected to the risk that IP won't be secure enough for a network that, after all, could have the ability to turn on and off millions of home appliances in a way that could cause blackouts if misused.

But Mohler points out that IP is "used for financial transactions, for the architecture for battlefield command by the Department of Defense -- it’s out there. It's proven it can be secure."

In any case, Energy Secretary Steven Chu has said he wants to see open standards in any smart grid project being funded by his department. The 2007 Energy Independence and Security Act gave the National Institute for Standards and Technology the task of developing “protocols and model standards for information management to achieve interoperability of smart grid devices and systems."

The institute got $10 million in the stimulus bill to develop a smart grid interoperability framework, making it the likely arbiter of the meaning of "standards" in smart grid applications. But NIST sees such a complex set of issues before that it will first be working on simply figuring out which areas need to have standards defined sooner rather than later, Patrick Gallagher, the institute's deputy director, told a Congressional committee earlier this month (via CNET).