Duke Energy Corp. (DUK) said Tuesday the utility company is partnering with Cisco Systems Inc. (CSCO) to fast-track Duke's plans to transform its electric system into a digital "smart grid."

Duke plans to invest $1 billion in grid upgrades in its Indiana and Ohio service territory over the next few years, company spokesman Dave Scanzoni said. The company also has preliminary plans to modernize the electric system in North Carolina, South Carolina and Kentucky.

Smart grids use digital technology that allows utilities to monitor the electric system more closely, improving system reliability. Such technology also allows customers to monitor their electricity use and make adjustments.

Cisco, the leading maker of computer networking equipment, will provide a communications system that can be easily upgraded as technology improves. Duke and Cisco will jointly evaluate and test communications hardware and software on Duke's electric grid.

Cisco will also work with Duke to develop and install devices for home energy management and test durable, weather-proof communications equipment for Duke's electric substations.

Duke's partnership with Cisco comes as several utilities are pursuing smart-grid technology in an effort to increase energy efficiency and reduce carbon dioxide emissions from power plants. Minneapolis-based Xcel Energy (XEL) has a longstanding partnership with International Business Machines Corp. (IBM) for smart grid development, and Michigan utility Consumers Energy, a subsidiary of CMS Energy Corp. (CMS), is working with IBM to test digital electric meters.

Duke, based in Charlotte, N.C., will launch a five-year deployment of smart grid technology in Ohio later this year and is seeking approval from Indiana regulators to launch a similar program in that state.

Duke shares recently rose 12 cents to $14.21.

-By Christine Buurma, Dow Jones Newswires; 201-938-2061; christine.buurma@dowjones.com