Outsourcing, Commercial Transactions, and Energy Alert

Outsourcing, Commercial Transactions,
and Energy Alert
February 2, 2010
Are You Ready for the Smart Grid?
Susan P. Altman
K&L Gates includes lawyers practicing
out of 35 offices located in North
America, Europe, Asia and the Middle
East, and represents numerous GLOBAL
500, FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies,
entrepreneurs, capital market
participants and public sector entities.
For more information, visit
The Smart Grid is coming. Commentators typically have focused on the interaction
of the Smart Grid with alternative energy sources and its cost, but few have focused
on the new legal issues that it presents. The arrival of the Smart Grid poses legal
issues involving data use, security and control that will engage many parties,
including electric utilities, service providers of electrical usage monitoring tools,
technology standards organizations, utility regulators and other state and federal
The “Smart Grid” refers to an advanced power grid that enables two-way flows of
energy and uses two-way communications and controls to provide better energy
management and more efficient consumption of energy. Smart Grid technology will
reach into everyday life. Linked to the Smart Grid, and facilitated by the Smart Grid,
are a fast growing list of tools, devices and applications that may be thought of as
Smart Grid infrastructure, including:
Smart Meters interacting with home appliances to maximize energy efficiency
and create novel billing models,
Plug-in electric vehicles providing both transportation and electrical storage for
the power grid, and
Network systems better able to address outages and load balancing.
New Contractual Relationships
Like many great technology innovations, the Smart Grid requires a sophisticated
contractual infrastructure to govern the relationships among the numerous affected
parties. At the center sit the electric utilities, many of which are embarking on Smart
Meter projects. At a minimum, these utility companies can expect to be contracting
with system integrators, meter manufacturers and installers, service providers of inhome electrical usage monitoring tools, telecommunications providers, and, most
visibly, customers. An expanding web of contracts will result as these parties
contract with one another.
New Issues
Lots of New Data
Electric utilities and companies providing electrical usage monitoring tools are
facing interesting legal issues in implementing Smart Grid technology because of the
data the Smart Grid technology creates. The Smart Grid will generate large volumes
of data about itself and about usage both at its multiple end points and at the huge
range of devices connected to those end points. Real-time electrical usage
monitoring yields information about electrical usage and also information about
activity cycles, behavior patterns, identity, and use by the electric power consumer of
specific devices (including virtually all electric-powered devices such as electric
vehicles, home appliances, HVAC systems, and industrial equipment).
Outsourcing, Commercial Transactions, and Energy Alert
Data as an Asset
All this information will be a highly valuable asset
for multiple parties. The general effect is just like
the immensely valuable data created by internet
searches, internet shopping, social networking and
similar activities. The data produced by Smart
Meters and their monitoring tools will be a valuable
asset to be licensed and sold. The question is: by
It is unlikely that any party will have exclusive
ownership rights in the data, and everyone other than
the end consumer of electricity will almost certainly
not have completely unrestricted use of that data
because of privacy rights. It is likely that multiple
parties will have rights in the data, particularly
aggregated data. These ownership rights may be
non-exclusive, with consumers having greater rights
only to the data their use generates, and with power
companies and the monitoring tool service provider
also having rights in the data, either as to individual
consumers or as to aggregated data. Expect to see
the multiple rights in the data addressed through
contracts between the parties and by regulation.
Expect to see more licensing deals between the
parties that have rights in the data and those who
want to use it. Expect to see electrical usage
databases separately valued in merger and
acquisition transactions.
The usage data collected by the Smart Grid and its
associated infrastructure is sufficient to provide
“surveillance-level” information on the activities
going on at the home or business being metered.
This information could be diverted for nefarious
uses ranging from criminal surveillance to theft of
trade secrets.
It is not realistic to base a privacy model on the
concept that the end user of the electrical power is to
be deemed the exclusive owner of the data. Many
parties have legitimate and compelling interests in
the data, including:
Federal and state government – in a world of
cyber-attacks and more conventional threats,
national security requires that the government
have the data access necessary to ensure the
integrity of the electric grid,
Federal and state government - want to
promote energy efficiency and achieve goals to
address global warming,
Utility companies – want to ensure costeffective availability of electricity to customers,
Manufacturers of products interacting with
Smart Meters – want to produce and constantly
improve cost-effective, interoperable products,
Consumers – want cost-effective, reliable
electricity for themselves.
Confidentiality is a key consideration for each party.
Consumer privacy ultimately is protected through a
combination of technological and contractual
controls, as well as regulatory “sticks” in the form
of oversight and enforcement. We can expect to see
rapid regulatory development in this area of privacy
and information security just as we saw it rapidly
develop in the financial and health care sectors.
Although electric utilities may have privacy and
security policies in place today, they should take
note of the much more robust privacy and security
environments, the oversight, and not the least, the
paperwork and administration involved in
monitoring privacy and security matters at financial
services institutions, health care providers and any
business handling sensitive personal data.
Cyber Security
The electric grid becomes “smart” because it uses
information technology and telecommunications
infrastructure cybernetically in real time. That
dynamic in turn requires protecting the security of
systems and information from deliberate attacks,
hardware and software failures, and natural disasters
in order to maintain the confidentiality, integrity and
availability of the Smart Grid infrastructure. As
cyber attacks continue to rise in number and
sophistication, the exponential growth in
vulnerability points will be a growing concern for
power companies and their service providers.
Utilities will need to address security requirements
beginning with the design phase of their Smart
Meter initiatives. We can expect to see contracts
between the utility and its service providers
becoming more specific in assigning responsibility
and liability for data breaches and security attacks.
We can expect to see the development of
February 2, 2010
Outsourcing, Commercial Transactions, and Energy Alert
increasingly stringent and specialized security
standards from standards organizations and
regulators (such as state public utility commissions)
and a specialized legal practice developing to
address these needs.
Complex Regulatory Environment
In addition to federal law, most notably the federal
Energy Independence and Security Act, many states
have adopted their own energy efficiency and
conservation legislation. Each of these state laws in
turn leads to additional state regulation of public
utilities. The public utilities will be most directly
affected by their applicable state public utility
commissions and the commissions’ interpretation of
Smart Grid and Smart Meter policy. Utilities
operating in more than one state may face
harmonization issues as a result of inconsistent
requirements among the various state utility
commissions having jurisdiction over the utilities.
The Smart Grid promises many benefits. Are you
ready for the challenging legal issues that will
inevitably accompany those benefits?
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GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market
participants and public sector entities. For more information, visit www.klgates.com.
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February 2, 2010