If a tree falls on a power line, and no one's around to detect it, can it take the grid down? As we learned following the blackout of 2003, the answer to that question is yes.

The CEO of Quanta Services (NYSE:PWR), a leading electric transmission contractor, told Bloomberg this week that utilities have cut maintenance spending by up to 50% in recent years, opening the door for increased outages. I can't vouch for that number, but if remotely accurate, the implications are troubling.

Investment in new transmission did pick up significantly over the past decade, but we're also going to need a lot more maintenance spending if we want to improve the reliability of existing infrastructure. The Brattle Group pegs this cost at nearly $300 billion over the next two decades.

Regulated, investor-owned utilities like Duke Energy (NYSE:DUK) and Southern (NYSE:SO) aren't going to invest adequately in maintenance and reliability upgrades without the proper incentives in place. Fines for outages are one mechanism -- a "stick," if you will -- for achieving better results. FPL Group (NYSE:FPL) recently agreed to a $25 million penalty for a 2008 Florida outage. As far as carrots, the obvious one is to provide certain cost recovery for reliability investments. Accelerated depreciation and other mechanisms can sweeten the pot.

Then, of course, there's always cash from Uncle Sam. Last year's $3.4 billion smart grid stimulus package, in addition to promoting the installation of two-way meters sold by the likes of Itron and Echelon (NASDAQ:ELON), also awarded $400 million for efficiency improvements. This includes the installation of phasor measurement units (PMUs) that can detect disturbances before they escalate into blackout-sized problems.

This transmission reliability angle may be less sexy than the smart-metering networks that Silver Spring is implementing with partners Cisco Systems (NASDAQ:CSCO) and General Electric (NYSE:GE), but it's an important step in smartening up our grid that should reap an outsized return on investment. As far as grid reliability businesses go, I've got my eye on a few, but they're mostly microcaps that I can't discuss. If you've got an idea in this area, please share with the group in the comments section below.