The Biden administration’s recent executive order aims to establish vigilant oversight over emerging artificial intelligence systems. It also addresses critical workforce implications and national security concerns. It’s imperative for energy companies to assess potential legal ramifications of integrating AI into their operations.
They must remain acutely aware of evolving legislation that could shape the landscape of data handling and AI governance.
Within the energy sector, legislation may encompass regulations that safeguard privacy of energy consumers’ usage data and establish more robust safety and security standards.
AI systems deployed in the utility sector may be deemed high-risk due to their potential to impact the well-being of a large population and disrupt everyday life. Therefore, it’s conceivable these systems may be subject to more stringent national security legislation in the future.
Clean Energy Applications
AI now plays a central role in the business operations of energy companies—supporting climate data tracking, power grid optimization, and expedited development of energy storage solutions. Additionally, AI empowers the alignment of energy grids with shifting climate patterns, optimizing energy efficiency and distribution.
These advancements extend beyond developed nations, encompassing initiatives to deploy grid-edge sensors in challenging, data-scarce environments. Collaborative partnerships are essential to transform these ambitious concepts into tangible realities.
Utility Sector Applications
AI’s role in the utility sector primarily centers on optimizing efficiency and automating tasks that were traditionally human-dependent. While AI has potential to streamline operations in industries such as manufacturing and transportation, the challenge lies in aligning AI solutions with genuine customer needs.
Effective integration of AI into utility optimization necessitates more than just technology implementation; it involves development of robust data systems, creation of simulated environments, and establishment of rigorous testing frameworks.
Challenges related to privacy, security, and handling extensive historical data further complicate the utility sector. Each utility company faces distinct challenges and opportunities, and while they often prefer end-to-end solutions, seamlessly integrating external applications into existing operations remains a persistent challenge.
Investment in AI applications for utilities is increasing, with significant funding opportunities such as the Department of Energy’s $13 billion grid modernization initiative.
However, the crucial aspect often overlooked is integration and management of these technologies, including cultivation of human capital to bridge the gap between AI and the energy sector. Promotion of open-source utility software presents one solution, encouraging companies to build services on top of these platforms to facilitate the integration of AI solutions into utilities.
Consumer Data Privacy
The companies implementing AI technologies in the electricity industry often handle consumer data, gathered with the consent of electricity consumers. Their activities raise important questions about data quality and protection of consumer privacy, emphasizing the necessity of clear and transparent responsibilities in data collection and storage.
While general AI regulations may cover data privacy aspects, it’s vital to define roles and responsibilities for data privacy in contractual agreements within this sector. Additionally, one must consider the potential financial impacts of any forthcoming changes in the legal landscape governing this industry.
Risks
The opacity of some AI technologies and the outsourcing of AI development to private companies can affect energy systems’ transparency. AI-based systems that independently handle critical tasks such as error detection, operational management, and future decision-making within electricity systems have the potential to hinder the ability of human operators to intervene effectively.
From a contractual perspective, it’s imperative to allocate risks carefully and seek precise indemnities, especially in the context of cybersecurity risks. These risks need to be thoroughly defined to establish a robust mitigation mechanism.
Pricing
The emergence of decentralized price negotiations facilitated by AI-based systems poses significant challenges for competition authorities and energy regulators in their efforts to monitor and control price dynamics. Companies operating within this sector should prioritize comprehensive risk mitigation strategies to address potential legal challenges to their pricing methodologies.
Regulation
The governing authority for AI software and its intersection with the energy sector remain ambiguous. This complexity is evident in the synergy between mobility and energy, particularly in the interplay between self-driving electric vehicles and energy infrastructure.
In this dynamic landscape, multiple governing regimes including those set forth in state motor vehicle laws, newer laws pertaining to electric vehicle infrastructure, and regulations covering AI, may be concurrently applicable.
Utility pricing is typically under the purview of regulatory commissions, which may lack the jurisdiction to govern AI technology effectively. Hence, the regulatory landscape remains uncertain. In these scenarios, it’s prudent to anticipate substantial shifts in legislation in the foreseeable future and manage risk carefully when entering into contractual agreements.
Investing in climate tech and AI demands more than just financial commitment. It necessitates a profound comprehension of the prevailing challenges and active engagement with experts in the field.
A well-balanced strategy must carefully weigh the interests of citizen privacy alongside the imperative for a robust energy system, and account for the potential for legislative shifts to affect operational costs.
The energy and AI sectors are in the midst of a profound transformation. Adeptly navigating the intricate interplay of technology, regulations, and consumer concerns is pivotal for achieving sustainable progress.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Thomas R. Burton, III is chair of Mintz’s energy & sustainability practice.
Ayaz R. Shaikh is chair of Mintz’s projects & infrastructure practice.
Manushi Desai contributed to this article.
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