Today I would like to introduce you to my colleague Ted Wood. Ted is a patent attorney with the law firm of Sterne Kessler Goldstein & Fox and is at the forefront of the smart grid cyber security and innovation discussion. He has some great ideas to help smart grid technology developers and is passionate about what innovation means to our energy independence and security.
Evers: Ted, how is innovation relevant to those in the energy industry and to businesses that rely on reliable energy delivery?
Wood: Thank you for the opportunity to discuss my views concerning the role of innovation. Innovation does and will continue to play a critical role in reducing vulnerabilities to the power grid. A recent article in the Washington Post citing top government intelligence officials indicated that "a major cyber attack somewhere in the United States is increasingly possible.” The article went on to warn that an assault on America's power grid system “represents the battleground for the future.” Based upon this article and several others, as well as my own observations and analyses, it goes without saying that a successful cyber attack on the grid could have a devastating impact on our national security, economy and our way of life.
Evers: Ted, I agree. One of the goals for the smart grid is for it to operate resiliently against attack and natural disaster. A smarter grid protects against outside forces by incorporating a system-wide solution that reduces physical and cyber vulnerabilities and enables fast recovery from disruptions. What is the connection to innovation?
Wood: Innovation = grid resiliency
Evers: OK, connect the dots for me.
Wood: Through innovation, new technologies can emerge to help enhance the grid’s resiliency. Such technologies should address protecting the grid from cyber and other attacks, detecting when failures occur and responding and recovering accordingly. Successful innovation includes creativity, investment and intellectual property (IP) protection. Investment is essential to transforming creativity into tangible technologies and IP protection is a significant factor considered by investors when deciding in which technologies to invest to maximize their returns. And it is critical to have strong IP protection in place before entering the marketplace.
Evers: So it’s a cycle. Innovation → Investment → IP protection→ safer, smarter grid?
Wood: That’s right. However, I would adjust your model a bit:
Innovation → IP protection → Investment → safer, smarter grid. Most investors want to know the IP protection is in place first.
Evers: So Ted, with all of the American Recovery and Reinvestment Act funding, the race is on. I imagine there are a lot of great ideas out there and the developers may feel like they can’t get to the marketplace quick enough. Any ideas on how you can help them? Admittedly I am not from the Patent and Trademark Office, but I have been involved in getting regulatory approvals for a long time and they usually don’t occur at the speed of innovation.
Wood: Recognizing the urgency of cyber security and the development of the smart grid, I believe that some sort of Grid Resiliency patent incentive program might help to spur grid resiliency innovations. The objective of one such program, for example, would be to streamline the examination of patent applications specifically focused on technical innovations to reduce vulnerabilities by ensuring the grid's resiliency. This streamlined process could help improve the revenue stream for innovators by increasing the development speed of their products and technologies. For example, patent applications covered under such a program would include resiliency-enhancing technologies that could be added to existing grid components and systems, as well as resiliency-enhancing technologies integrated into next-generation components and systems. The intent is to leverage the U.S. patent system to encourage grid related R&D investments and innovations which would reduce the grid's vulnerabilities. There are other programs, some already underway at the US Patent and Trademark Office, to encourage innovation across the board. These programs could be used to spur grid innovations.
Evers: That is great! What is the current status of the Grid Resiliency Patent Incentive Program?
Wood: We are vetting a number of different ideas through different means, such as industry blogs and discussions with industry and government representatives. The goal is to try and find the right mix of ideas that will help promote innovation and R&D investment in grid resiliency enhancing technologies.
Evers: I can imagine there are a lot of entrepreneurs hoping to participate. It will be a game changer for those who need funding as soon as possible. Please let me know when this is finalized. What are the other programs at the PTO that can be leveraged by smart grid innovators?
Wood: There are two that come to mind. The first is the Green Technology Pilot Program, which provides for accelerated examination of patent applications related to development of renewable energy sources, energy conservation etc. A few of the technical categories covered by this pilot program also related to smart grid. The second program is the newly implemented Track 1 initiative. Track 1 provides for accelerated examination for applications for payment of a $4,000 fee. Given the limited scope of the green pilot program with respect to grid resiliency and possibility that all innovators may not have access to Track 1 given the required fee, there may still be room for additional programs or incentives to spur grid resiliency innovations.
So Linda, I am going to switch things up a bit and if you don’t mind, I have a few questions for you?
Evers: Sure, but let me remind you…it’s my blog. (laughing)
Wood: I think the next roadblock is getting the utilities to try the new products. I know you represent a lot of utilities so I wondered if you had any insight to share on this issue?
Evers: Absolutely. …cost recovery.
Wood: My turn. Please connect the dots for me.
Evers: Ted, you are talking about new technology. The developer should expect to demonstrate to the prospective utility client that the benefits outweigh the risks. We take risks everyday or nothing would get done. In the case of the smart grid, we know the cost of doing nothing is high. However, it will be an extremely expensive undertaking to fully develop the smart grid. Utilities are very careful when making investments out of concern they will not get the cost recovery they seek from state regulatory agencies.
Wood: But developing the smart grid is a huge priority for our country. I would think the state regulators would be supportive?
Evers: I know this may surprise to you, but there is a fair amount of regulatory uncertainty in this area. Views towards the smart grid will vary by state and some states have laws that require aggressive action in this area. Generally, utilities have to summit their plans to their state PUCs for approval. Part of the approval process is making the business case to support the proposed expenses. And let me tell you, 2010 was a rough year for smart grid approvals, particularly the cost recovery issue, in spite of Uncle Sam contributing $4.5 billion.
Evers: Yes! Maryland, Connecticut, Indiana and Ohio to name a few. And in California and Maine, the regulators are acting on one of my favorite lines: “I reserve the right to change my mind,” and are contemplating revising plans they have already approved, notwithstanding the fact that these utilities have already implemented most of the plan.
So for the innovators out there, the best way to get selected is to educate, educate, educate. Spend time explaining to regulators and consumer advocates the importance of your product to the grid. In the end, how does it benefit customers? Ideally, the product should be apart of the utility’s plan that gets approved.
Ted, it will happen slowly at first – layer by layer, but we will get there. Remember when cell phones first came out? For the first few years they were big and clunky and really only used by executives. And now just last year, even to my surprise, off we went to buy my son an iPhone for his 13th birthday. Progress can be like a sluggish car, slow to get going but it can hold its own on the highway. One day you will look around and bam: you will be driving to Pennsylvania to visit my family without any thought as to where you will charge your electric car; people will just know not to wash clothes and dishes in the afternoon; their appliances will conveniently start the laundry and dishes for them at 2:00 am and utilities will restore service before you even know there was an outage. All these great smart grid related things will be happening and as a county we will be more energy efficient.