Sometimes less is more. That reality has been a long time catching on in the global electric utility industry, where executives for years have been trained to promote more usage of their product.

To be sure, they’ve been highly successful, as America has become increasingly electrified. Since Thomas Edison threw the first switch in the late 19th century, power usage in America has grown by leaps and bounds. And demand has surged faster still around the world.

Impressively, the upward trend has continued even when the overall economy has faltered. Over the past 40 years or so, US power demand has slipped three times: 1974, 1982 and 2001. The average decline, however, was less than 2 percent and it was followed by an average increase of over 6 percent the next year when the economy eventually recovered.

Looking ahead to 2030, the US Energy Information Administration anticipates America’s electricity use to grow at least 20 percent. And that’s adding in some very aggressive targets for energy savings along the way.

A study commissioned by the Edison Electric Institute earlier this year projects power companies will have to spend as much as $1.7 trillion to meet the demands of a real 21st century economy in the US. That includes massive investment in transmission and distribution, as well as new generation and meeting the almost certain cost of regulating carbon.

To the extent US utilities are successful earning a return on that needed investment, shareholders will prosper. In fact, even in the thick of this economic crisis, we’ve continued to see several companies post strong profits from new infrastructure investment.

On the other hand, history shows utilities that invest and don’t recover and/or earn a decent return wind up in the poor house. By the end of the last major industry building cycle in the 1970s and ’80s, utilities were routinely denied billions in building costs regulators deemed in hindsight to be imprudent. That resulted in dividend cuts, plunging share prices and even a couple of bankruptcies.

The US power industry is also not too far removed from another major crisis that at its peak threatened the solvency of some two dozen companies: The 2001-02 meltdown in the wake of several years of overbuilding, excessive leverage, ill-advised deregulation and outright fraud. That, too, has diminished the industry’s appetite for risk, just as the need for new investment has become particularly acute and construction costs are rising.

Costs for building wind plants, for example, has more than doubled since 2005. A number of companies have applied for permits to build new nuclear plants, mostly on sites of existing facilities to avoid delays due to local opposition and to take advantage of existing infrastructure. The cost of components and construction materials, however, has tripled since 2000. Then are the labor costs, which are at a premium due to a near halting of new construction for decades and a resulting lack of qualified personnel.

Financial needs and building costs are far from the only risk when it comes to power plants. There are siting and permitting requirements, which are almost always opposed by someone. Coal power plants are virtually impossible to build, given growing concerns about carbon emissions. Wind mills have been barred from some communities as eyesores.

Even when a plant is already constructed, it may find itself unable to operate for legal reasons. Aquila’s Cass County, Missouri plant was already up and running when a judge ordered it shut down for improper permitting. The new owner of the plant, Great Plains Energy (NYSE: GXP) is now feverishly negotiating with regulators and legislators to avoid having to tear it down, as local opponents have demanded in court.

Enter negawatts, the catchword describing spending on projects that eliminate the need to build new capacity. One negawatt equals one new megawatt of capacity saved.

Building negawatts requires no siting or permitting. It by nature reduces environmental risk of any kind including carbon emissions because it eliminates the need to build generation of any sort. And provided plans are approved by regulators, the investment is immediately recovered in rates. That adds to earnings by boosting sales and helping control costs.

According to the Electric Power Research Institute (EPRI), energy efficiency improvements through negawatt spending could cut projected energy use by 7 to 11 percent over the next two decades. EPRI, which is itself sponsored by the power industry, notes achieving 11 percent is only possible with sufficient technology innovation, as well as consumer adoption of more efficient building codes and appliance standards.

That’s of course at odds with consumers’ ever-increasing appetite for energy hungry electronics, such as plasma televisions that consume two-and-a-half times more energy than conventional TVs. Fortunately, there are some innovations that utilities can easily accomplish now, and which already enjoy considerable regulatory support in many states.

The most important of these are so-called smart meters, known more technically as advanced metering infrastructure (AMI) systems. AMI enables utility companies to basically monitor energy flows throughout their systems from a central location. It’s a giant first step in the adoption of the smart grid, a major industry-wide efficiency push.

According to the US Dept of Energy, if the US power grid were just 5 percent more efficient, it would permanently eliminate the equivalent of fuel and greenhouse gas emissions of 53 million cars. The other element of the smart grid is reliability, which has become ever more critical as the world has become ever more connected via the Internet. Outages cost US businesses an estimated USD100 billion a year, and those costs rise the more power-dependent the world becomes and the more the overall system ages.

AMI differs from traditional meters in one major aspect. Traditional meters are passive devices that measure usage. AMI, in contrast, is interactive, providing information to utilities in terms of controlling waste and allowing consumers greater ability to use electricity efficiently. Energy can be priced real time, enabling customers to better control their usage for non-peak usage times, thereby reducing peak load and overall system controlling costs. And devices can be pre-programmed, eliminating the need for consumers to do anything to realize savings, other than flip a switch.

The industry leader in AMI is Itron (NSDQ: ITRI), which focuses on the global energy and water industries. It’s also entered a joint venture with wireless leader AT&T (NYSE: T), which should dramatically enhance its offerings.

Itron operates under two divisions: Itron in North America and Actaris outside of North America. The company has close to 8,000 individual utilities worldwide as customers, giving it one of the largest, blue chip revenue streams of any company in the world. The company’s technology is used in metering, data collection and utility software solutions, including automated meter reading (AMR), meter data management, related software applications. It also provides its own project management, installation, and consulting services.

The company’s second quarter revenue surged 28 percent over 2007’s tally, with North American sales rising 16 percent and Actaris sales–now more than two-thirds of the overall company–surging 34 percent. Advanced meter sales rose to 2,600 globally from 2,050 a year earlier, while overall meter sales ticked up more than 20 percent.

As for profits, gross margin rose to 34 percent overall and a company record 32 percent at Actaris, up from 25 percent the year earlier. GAAP earnings per share swung to a sharp gain from a loss the year earlier. Meanwhile, operating income excluding one time items surged to $1.02 a share from 89 cents a year earlier, despite a 13 percent increase in outstanding shares to finance growth and reduce convertible debt.

Itron is slated to announce third quarter earnings Oct. 29. I expect to see some tapering off of new order generation, given the state of the global economy and the tightness of credit markets. Utilities under these conditions may be loath to ask regulators for rate increases to pay for AMI projects in the near term, given the weakness of the economy and growing disconnects in some areas. Any slowing, however, should prove quite temporary, given that utilities’ only long-term alternative to negawatt spending is to build new capacity.

The surge in the US dollar since early summer could also hurt Itron by depressing the value of foreign-based revenue. The company should be able to overcome some of this with prudent cash management, however, and this too is unlikely to be a real barrier to its long-term growth. Meanwhile, the credit quality of its customer base–utilities and governments–should prevent any real rise in unpaid bills, a real benefit of operating a business not directly dependent on consumer spending.

Itron’s other important selling point is price. After surging to well over USD100 a share earlier this year, the stock has now plunged to below USD50 in the wake of global economic concerns. Today’s price is just 93 percent of sales and less than 12 times the lowest Wall Street estimate, despite a five-year profit growth rate of nearly 20 percent.

That’s the kind of value that’s rare in such strong companies with such a powerful niche in building critical 21st century infrastructure. Buy Itron up to 55.