FCC Ruling May Spur Generator Demand

In an effort to keep phone and wireless networks online during natural disasters, the FCC is now requiring telecom and wireless companies to provide backup power for cell sites and remote telecom facilities. The new measures, prompted by an FCC review of telecom outages in the aftermath of Hurricane Katrina, are likely to increase demand for generators, batteries and other power protection equipment. The rules also pose a challenge for carriers with equipment in locations that may not easily support backup equipment due to space constraints or environmental considerations.

The new rules cover most local exchange carriers (LECs) and mobile service providers, who must provide backup power systems for central offices, cell sites, and remote switches and terminals. There are more than 210,000 cellular sites and about 20,000 telecom central offices in the U.S., according to industry statistics. The FCC says central offices should be able to operate for 24 hours without grid power, while eight hours of backup power is required for cell sites, remote switches and remote terminals.

The new rules could affect the market for diesel generators, which are widely used by data centers to provide backup power to keep servers running during grid power outages. The current data center building boom has led to lengthy delivery delays for 2-megawatt generators. Most central offices and cell towers would require smaller generators, but it’s not clear how the additional demand for components and raw materials could affect production capacity for major generator manufacturers.

More on Generators and SCADA Hacking

The recent generator hacking demonstration from the Department of Homeland Security continues to generate discussion among Internet security experts. Ira Winkler, a former National Security Agency analyst and author, has done extensive “white hat” penetration testing of computer systems running the U.S. power grid. In a column at Internet Evolution, Winkler said the “Project Aurora” demo - in which DHS staff used an electronic attack to destroy a large diesel generator, apparently by altering the engine’s operating cycle and causing it to malfunction - couldn’t be expanded to threaten the power grid.

But vulnerabilities in power control systems known as SCADA (Supervisory Control and Data Acquisition) offer plenty of other avenues for skilled hackers to damage the grid, according to Winkler, who described a test he conducted 10 years ago on a utility company’s network:

My team was supposed to perform a simple assessment of the security of a Website owned by a power company. The Website had a security vulnerability and provided us a connection to the company’s internal network. From there, we could get to any system in the company, including its SCADA systems. We were told by the security manager to leave out access to the SCADA system in our report, but we were allowed to download the personnel records of the CEO and CIO, so that the results would be hard for them to ignore.

In discussions of the generator attack and SCADA hacking, many people are surprised that these kind of systems can be accessed via the Internet. Aren’t they managed by some secure internal network?

Generator Shortage: A Barrier to Entry?

“Web 2.0 has joined Silicon Valley and the Rust Belt at the hip.” So notes Nicholas Carr in his post today about the continuing supply-demand imbalance in the booming market for large diesel generators. In Caterpillar: Web 2.0 Giant, Carr observes that demand from data center builders for generators helped boost Cat’s sales of electric power applications by 44 percent. That trend has also been a driver in the sensational rise in shares of Cummins (CMI), which have gained 137 percent this year.

Carr also passes along a report that will be of interest to data center builders:

I hear that supplies remain short today, delaying construction projects nine months or more. Rumor has it, in fact, that Microsoft and Google have locked up a significant portion of Caterpillar’s production for the foreseeable future.

The availability of generators is a major reason why we won’t see any oversupply of data centers anytime soon. Lengthy backlogs for 2 megawatt generators persist, and in an environment of scarcity, Caterpillar (CAT) and other major generator manufacturers will look after their largest existing customers.

Schneier: Generator Hack Staged, Dubious

Prominent security specialist Bruce Schneier has an interesting post today about the Department of Homeland Security’s claim that it has been able to destroy a diesel generator with an electronic attack. Schneier posted an anonymous email he received that challenges the interpretation of the report and video, which were widely circulated. An excerpt:

By the way - they were unable to hurt the generator you see in the video but did destroy the shaft that drives it and the power unit. They triggered the event from 30 miles away! Then they extrapolated the theory that a malfunctioning generator can destroy not only generators at the power company but the power glitches on the grid would destroy motors many miles away on the electric grid that pump water or gasoline (through pipelines).

As usual, the resulting discussion in the comments at Bruce’s blog is lively, opinionated and informative.

Generator Flaw May Affect Other Providers

The flaw that caused last week’s generator failures and outage at 365 Main’s San Francisco data center may be found in similar equipment used at other data centers, the company said today. The final incident FAQ attributed the outage to a weakness in a small but essential component in the back-up system known as a DDEC (Detroit Diesel Electronic Controller).

“This is a problem that is going to be felt by anyone who is using a Detroit Diesel MTU 4 controller,” said J.P. Balajadia, 365 Main’s Vice President of Operations. “We’ve talked with other people in our industry that have seen the same issues. We fixed our exposure in all of our data centers and are sharing the information we’ve learned with others who may be affected.”

Cummins Shares Buck Wall Street Tide

There’s a saying among traders that you “don’t fight the tape.” But as the Dow and other major indices plunged Thursday, investors were snapping up shares of Cummins Engine Co. (CMI) after its earnings beat analysts’ expectations. Shares of Cummins closed at $116.15 a share, up 5.77 percent on the day, after trading as high as $122 a share early in the session. Prior to yesterday’s opening bell, Cummins posted second-quarter net income of $214 million, or $2.13 a share. That was down 3% from $220 million ($2.19 a share) a year ago, but far outpaced the $1.59 a share analysts polled by Thomson Financial had been expecting.

As we recently noted,has Cummins has benefited from record sales of generators, supported by strong demand from the data center sector. That trend continued in the second quarter.

Generator Sales Boost Cummins Shares

Strong demand for diesel generators has helped make Cummins Inc. (CMI) one of the hot stocks of 2007. Shares of Cummins closed at an all-time high of $117.64 Monday, up 159% on the year to date. Investor enthusiasm was boosted by an upgrade Friday from Bear Stearns analyst Pete Nesvold, who predicted that new emissions standards for diesel engines will help Cummins gain market share.

With its core market of truck sales lagging, Cummins has benefited from record sales of generators, supported by strong demand from the data center sector. Sales in Cummins’ power generation unit were $675 million in the first quarter of 2007, up 26 percent from the same period in 2006. Commercial generator sales rose 27 percent and alternator sales increased 43 percent, as both markets showed strength in almost all geographic areas. “The business saw a significant increase in demand for its commercial generator sets and alternators around the world - most notably in North America, India and the Middle East,” the company said in its quarterly report to the SEC.

The data center building boom has created backlogs for the large generators that provide emergency backup power, with some facility operators reporting lengthy delays on new units of the most popular 2 megawatt models.

The Planet Spends $3M for Generators

The Planet said today that it will invest $3 million in new backup generators for its six data centers. As part of its initial investment, the huge dedicated hosting specialist has added two new Cummins generators at its Dallas data centers for increased backup capacity and redundancy.

The new generators will be installed at all The Planet’s data centers, although the company did not provide a timetable for when the additional generators would be in place. There have been lengthy backlogs for large diesel generators, with a number of data center providers reporting delays of up to a year for 2-megawatt units. Huge demand for generators from Korea and China is a significant factor in the delays. For veteran data center operators like The Planet, existing vendor relationships and long-term planning are typically key in managing generator supply and demand.