June 16th, 2021

The Biggest Risk to the American Power Grid


Dear Retail Investor,

It was a warm October morning.

I was headed out for my daily caffeine fix, and as I drove I sensed something weird with the sky.

There was a strange, giant grey cloud on the horizon. At first I thought it was a thunderhead.

Then it hit me – that wasn’t a cloud.

 It was a huge plume of smoke to the north.


I live in Northern California, where sadly we now get wildfires every year… especially in the fall, when the dreaded “Diablo” winds blow.

Thanks to the Diablo winds from the previous night, what had started as a small fire had now exploded in size, and was heading our way.

So I packed up some clothes and my laptop just in case.

The next morning my cell phone started screeching that it was time to evacuate… NOW.

I drove to a friend’s place outside the evacuation zone. The next few days were nerve wracking, as the winds did indeed turn hellacious and threatened area cities and towns.

Four days after being evacuated we were cleared to return home.

But when I got there I found we had no electricity or gas, as PG&E (Pacific Gas and Electric, our power company) had pulled the plug on it.

Power shut-offs like this are the new normal for much of California during fire season (roughly May through October), as it’s easily the most effective way for PG&E to reduce the odds of wildfires caused by high winds.

Intermittent power shut-offs might also become the new normal for much of the rest of the US.

We’re now experiencing deadlier wildfires in California and the Western US… stronger hurricanes in Florida, the Eastern Seaboard, and the Gulf states…  more destructive tornadoes in the Midwest…

The point is, we all take “on-demand” power for granted.

From our gas stoves… to the lights in our homes … to our air conditioning and heating systems… and every other modern convenience…

No one worries much about whether “juice” will be available the moment we need it.

But America’s power grids face some very serious threats.

Everything from wildfires, floods and hurricanes, to the political instability of energy producing countries, and the manipulation of energy supplies (as evidenced by the 2019 OPEC spat between Russia and Saudi Arabia).

Then there’s terrorists and foreign hackers who may do an attack on Infrastructure cybersecurity.

This last threat is particularly worrying.

Russia Has Already Hacked into the US Energy Grid – Infrastructure Cybersecurity

On March 15, 2018, the US government released a report describing a massive Russian hacking campaign to infiltrate America’s “critical infrastructure” — things like power plants, nuclear generators and water facilities.

The day after the report was released, former energy secretary Rick Perry told lawmakers that cyberattacks like this happen hundreds of thousands of times every day.

So how do the Russians hack into our systems?

In the case of the March 2018 incident, they first attacked smaller, less secure companies — like those that make parts for generators or sell software that power plant companies use.

From there, they worked to gain access to their primary targets.

One way they did that was to send emails from a compromised account that the receiver trusted in order to get that person to reveal confidential information.

After acquiring the logins needed to fool computers into letting them in, the intruders then set up local administrator accounts.

Then they used them to place malware in the networks.

Russian Attacks Were All About Scouting, Not Sabotage

Once inside the computers of a power company, the attackers set up programs that collected information, like captured screenshots that recorded details about the computer (including information about its users).

The report doesn’t say attackers were able to seize direct control of the power plants.

Instead of disrupting power generation, the intruders watched and recorded information from computers that received the data from the energy generation systems.

Essentially, this attack gave Russia a peek at how US power plants work and report data.

China is Also Suspected of Hacking into US Utility Computers

In August 2019, an enterprise security company called Proofpoint said that APT10 – a notorious Chinese hacking group – was behind a July 2019 cyber campaign targeting US utility companies.

As was the case in some Russian hacking incidents, this was another campaign targeting company employees with emails purporting to be from a trusted source.

APT10 had also made headlines in June 2019, when it was reported that the group had compromised the systems of at least 10 cellular carriers around the world.

Terrorist Threats to the Energy Grid are Also Worrying

These include potential biological attacks, radiological weapons or electromagnetic pulse (EMP) devices, which could cause significant infrastructure damage.

Some states are so concerned about these kinds of attacks, they’re considering legislation to study the impacts on the nation’s energy infrastructure resulting from deliberate acts of terrorism.

The military is equally concerned.

That’s why, to prevent major supply disruptions, they’re building “micro grids” that can provide power for up to two consecutive weeks.

So What Are the Best Opportunities in the Energy Security Space?

In my opinion, the best place to look is in three types of companies.

  1. Those engaged in the field of cybersecurity.
  2. Companies that provide the resources needed for utility grid upgrades.
  3. And companies that make software that guards against malicious codes and attachments.

Right now, I think companies that provide the resources needed for utility grid upgrades are the best bet.

The reason? I see upgrading the U.S. utility grid as the most pressing need.

Our current electricity grid dates back to about 1890. So even without the threat of cyberattacks, we need to upgrade.

And even though they’ve been updated piecemeal throughout the years, the US Department of Energy says nearly 70 percent of the transmission and distribution lines in the country are over 25 years old.

That’s why there’s been such a governmental push to implement what’s known as the “smart grid.”

At the heart of the smart grid is digital technology that allows for two-way communication between a utility and its customers.

Like the Internet, the smart grid consists of controls, computers, automation, and new technologies and equipment working together to facilitate that communication.

These technologies will enable utilities to react quickly to fast-changing electric demand and power outages.

A smarter grid will also add resiliency to our electric power system and make it better prepared to address emergencies caused by severe storms, earthquakes and large solar flares (not to mention terrorist and foreign hacking attacks).

An ETF called the First Trust Clean Edge Smart Grid Infrastructure Index Fund (Nasdaq: GRID) is an interesting way to enter this space.

This ETF tracks an equity index called the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index.

The index is comprised of niche companies engaged in implementing smart grid technology.

One reason I like GRID is because it’s in a long-term uptrend.

In fact, it’s gained 114% since the COVID-led downturn that hit in March 2020.

I expect this trend to continue, so I see it as a good long-term investment.

Anyway, that’s it for now.

Until next time, 

Doug Fogel

Contributing Editor, Dear Retail

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