American Electric Power said it has selected IBM to help put together its gridSmart initiative that, ideally, will help it better distribute power and reduce electricity consumption. The project will initially consist of pilot projects but ultimately could affect a wide swath of AEP's 11 million customers.

The deal has several facets. IBM will help AEP set up and run three "model city" demonstrations that will cover 100,000 or more customers each. The two will also create a five-year plan and study the effectiveness of smart meters for reducing power consumption at home.

Smart grid: You just can't get enough of those words these days. The term refers to a blanket set of technologies that help control the consumption and delivery of power through computing and networking. Facing a brown out? A utility can use smart grid technologies to minutely reduce the power going to thousands of air conditioners to avoid a crisis. In the future, utilities are expected to function more like datacenters than power generators, many have said.

Utilities have kicked off several pilots in smart grid. Tendril, which makes smart meters and software interfaces that help consumers reduce power consumption, has 29 trials going on right now with utilties.

VC investing in smart grid and energy efficiency, meanwhile, passed biofuels in the third quarter. Smart grid companies – which essentially rely on familiar software and hardware concepts – require less capital than, say, a a typicalsolarmodule maker.

Smart grid giddiness aside, some do warn that this market could take a long time to develop. Utilities are known for practicing the "death by 1,000 beta tests," said John Moore, CEO of Acorn Energy, which has investments in several smart grid companies.

Utilities, he added, also buy from large companies. That could hurt startups, but work in IBM's favor.

IBM has been somewhat aggressive in building out a practice in smart grid. The company sells equipment but also consulting services. It began working with utilities on pilots such as CenterPoint in Texas a few years ago.

Earlier this week, Computing giant IBM and French utility EDF on Friday said they've formed a research collaboration over smart grid issues such as better integrating renewables such as wind and solar into the grid.