Smart Meter Data: Privacy and Cybersecurity

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Smart Meter Data: Privacy and Cybersecurity

Summary

Fueled by stimulus funding in the American Recovery and Reinvestment Act of 2009 (ARRA),

electric utilities have accelerated their deployment of smart meters to millions of homes across

the United States with help from the Department of Energy’s Smart Grid Investment Grant

program. As the meters multiply, so do issues concerning the privacy and security of the data

collected by the new technology. This Advanced Metering Infrastructure (AMI) promises to

increase energy efficiency, bolster electric power grid reliability, and facilitate demand response,

among other benefits. However, to fulfill these ends, smart meters must record near-real time data

on consumer electricity usage and transmit the data to utilities over great distances via

communications networks that serve the smart grid. Detailed electricity usage data offers a

window into the lives of people inside of a home by revealing what individual appliances they are

using, and the transmission of the data potentially subjects this information to interception or theft

by unauthorized third parties or hackers.

Unforeseen consequences under federal law may result from the installation of smart meters and

the communications technologies that accompany them. This report examines federal privacy and

cybersecurity laws that may apply to consumer data collected by residential smart meters. It

begins with an examination of the constitutional provisions in the Fourth Amendment that may

apply to the data. As we progress into the 21st century, access to personal data, including

information generated from smart meters, is a new frontier for police investigations. The Fourth

Amendment generally requires police to have probable cause to search an area in which a person

has a reasonable expectation of privacy. However, courts have used the third-party doctrine to

deny protection to information a customer gives to a business as part of their commercial

relationship. This rule is used by police to access bank records, telephone records, and traditional

utility records. Nevertheless, there are several core differences between smart meters and the

general third-party cases that may cause concerns about its application. These include concerns

expressed by the courts and Congress about the ability of technology to potentially erode

individuals’ privacy.

If smart meter data and transmissions fall outside of the protection of the Fourth Amendment,

they may still be protected from unauthorized disclosure or access under the Stored

Communications Act (SCA), the Computer Fraud and Abuse Act (CFAA), and the Electronic

Communications Privacy Act (ECPA). These statutes, however, would appear to permit law

enforcement to access smart meter data for investigative purposes under procedures provided in

the SCA, ECPA, and the Foreign Intelligence Surveillance Act (FISA), subject to certain

conditions. Additionally, an electric utility’s privacy and security practices with regard to

consumer data may be subject to Section 5 of the Federal Trade Commission Act (FTC Act). The

Federal Trade Commission (FTC) has recently focused its consumer protection enforcement on

entities that violate their privacy policies or fail to protect data from unauthorized access. This

authority could apply to electric utilities in possession of smart meter data, provided that the FTC

has statutory jurisdiction over them. General federal privacy safeguards provided under the

Federal Privacy Act of 1974 (FPA) protect smart meter data maintained by federal agencies,

including data held by federally owned electric utilities.

A companion report from CRS focusing on policy issues associated with smart grid cybersecurity,

CRS Report R41886, The Smart Grid and Cybersecurity—Regulatory Policy and Issues, by

(name redacted), is also available.

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Smart Meter Data: Privacy and Cybersecurity

Contents

Overview.......................................................................................................................................... 1

Smart Meter Data: Privacy and Security Concerns ......................................................................... 3

Detailed Information on Household Activities.......................................................................... 3

Increased Potential for Theft or Breach of Data........................................................................ 6

Smart Meters and the Fourth Amendment ....................................................................................... 7

State Action: Privately Versus Publicly Owned Utilities........................................................... 8

Privately Owned and Operated Utilities.............................................................................. 8

Publicly Owned and Operated Utilities............................................................................. 10

Reasonable Expectation of Privacy in Smart Meter Data ....................................................... 13

Third-Party Doctrine ......................................................................................................... 14

Privacy in the Home.......................................................................................................... 16

Mosaic and Dragnet Theories............................................................................................ 19

Assumption of the Risk—Consent .................................................................................... 21

Statutory Protection of Smart Meter Data ..................................................................................... 22

The Electronic Communications Privacy Act (ECPA) ............................................................ 23

The Stored Communications Act (SCA) ................................................................................. 24

Electronic Communication Services ................................................................................. 25

Remote Computing Services............................................................................................. 27

The Computer Fraud and Abuse Act (CFAA) ......................................................................... 28

The Federal Trade Commission Act (FTC Act)............................................................................. 29

Covered Electric Utilities ........................................................................................................ 29

Investor-Owned Utilities ................................................................................................... 30

Publicly Owned Utilities ................................................................................................... 30

Federally Owned Utilities ................................................................................................. 34

Cooperatively Owned Utilities.......................................................................................... 35

Enforcement of Data Privacy and Security ............................................................................. 40

“Deceptive” Privacy Statements ....................................................................................... 40

“Unfair” Failure to Secure Consumer Data....................................................................... 41

Penalties ............................................................................................................................ 42

The Federal Privacy Act of 1974 (FPA)......................................................................................... 43

Federally Owned Utilities as “Agencies”................................................................................ 43

Smart Meter Data as a Protected “Record” ............................................................................. 44

Requirements........................................................................................................................... 44

Figures

Figure 1. Identification of Household Activities from Electricity Usage Data................................ 5

Contacts

Author Contact Information........................................................................................................... 45

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Overview

Smart meter technology is a key component of the Advanced Metering Infrastructure (AMI)1 that

will help the smart grid2 link the “two-way flow of electricity with the two-way flow of

information.”3 Privacy and security concerns surrounding smart meter technology arise from the

meters’ essential functions, which include (1) recording near-real time data on consumer

electricity usage; (2) transmitting this data to the smart grid using a variety of communications

technologies;4 and (3) receiving communications from the smart grid, such as real-time energy

prices or remote commands that can alter a consumer’s electricity usage to facilitate demand

response.5

Beneficial uses of AMI are developing rapidly, and like the early Internet, many applications

remain unforeseen.6 At a basic level, smart meters will permit utilities to “collect, measure, and

analyze energy consumption data for grid management, outage notification, and billing

purposes.”7 The meters may increase energy efficiency by giving consumers greater control over

their use of electricity,8 as well as permitting better integration of plug-in electric vehicles and

renewable energy sources.9 They may also aid in the development of a more reliable electricity

grid that is better equipped to withstand cyber attacks and natural disasters, and help to decrease

peak demand for electricity.10 To be useful for these purposes, and many others, data recorded by

AMI includes the meters at the consumer’s residence or business, the communications networks that send data

between the consumer and utility, and the data management systems that store and process data for the utility.

ELECTRIC POWER RESEARCH INST., ADVANCED METERING INFRASTRUCTURE (AMI) (2007), available at

http://www.ferc.gov/eventcalendar/Files/20070423091846-EPRI%20-%20Advanced%20Metering.pdf. The primary

function of AMI is to “combine interval data measurement with continuously available remote communications” to

increase energy efficiency and grid reliability, and decrease expenses borne by the utility and consumer. Id.

The Energy Independence and Security Act of 2007 (EISA) lists ten characteristics of a smart grid. These include

“[i]ncreased use of digital information and controls technology to improve reliability, security, and efficiency of the

electric grid”; “[d]evelopment and incorporation of demand response, demand-side resources, and energy-efficiency

resources”; and “[d]eployment of “smart” technologies (real-time, automated, interactive technologies that optimize the

physical operation of appliances and consumer devices) for metering, communications concerning grid operations and

status, and distribution automation.” EISA, P.L. 110-140, §1301, 121 Stat. 1492, 1783-84 (2007) (to be codified at 42

U.S.C. §17381).

DEP’T OF ENERGY, COMMUNICATIONS REQUIREMENTS OF SMART GRID TECHNOLOGIES 1 (2010) [hereinafter DEP’T OF

ENERGY COMMUNICATIONS REPORT], available at http://energy.gov/sites/prod/files/gcprod/documents/

Smart_Grid_Communications_Requirements_Report_10-05-2010.pdf.

Id. at 3, 5. These technologies include fiber optics, wireless networks, satellite, and broadband over power line. Id.

Id. at 20. “Demand response is the reduction of the consumption of electric energy by customers in response to an

increase in the price of electricity or heavy burdens on the system.” Id.

DEP’T OF ENERGY, DATA ACCESS AND PRIVACY ISSUES RELATED TO SMART GRID TECHNOLOGIES 5, 9 (2010)

[hereinafter DEP’T OF ENERGY PRIVACY REPORT], available at http://energy.gov/sites/prod/files/gcprod/documents/

Broadband_Report_Data_Privacy_10_5.pdf; see also ELIAS LEAKE QUINN, SMART METERING & PRIVACY: EXISTING

LAW AND COMPETING POLICIES: A REPORT FOR THE COLORADO PUBLIC UTILITIES COMMISSION 1, 12 (2009) [hereinafter

COLORADO PRIVACY REPORT], available at http://www.dora.state.co.us/puc/docketsdecisions/DocketFilings/09I593EG/09I-593EG_Spring2009Report-SmartGridPrivacy.pdf.

DEP’T OF ENERGY COMMUNICATIONS REPORT, supra note 3, at 12.

Companies are developing several new applications that use smart meter data to offer consumers and utilities better

control over energy usage, for example by determining the energy efficiency of specific appliances within the

household. DEP’T OF ENERGY PRIVACY REPORT, supra note 6, at 5, 9; see also COLORADO PRIVACY REPORT, supra note

6, at 1, 12.

DEP’T OF ENERGY COMMUNICATIONS REPORT, supra note 3, at 1.

Id. at 3.

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smart meters must be highly detailed, and, consequently, it may show what individual appliances

a consumer is using.11 The data must also be transmitted to electric utilities—and possibly to third

parties outside of the smart grid—subjecting it to potential interception or theft as it travels over

communications networks and is stored in a variety of physical locations.12

These characteristics of smart meter data present privacy and security concerns that are likely to

become more prevalent as government-backed initiatives expand deployment of the meters to

millions of homes across the country. In the American Recovery and Reinvestment Act of 2009

(ARRA), Congress appropriated funds for the implementation of the Smart Grid Investment

Grant (SGIG) program administered by the Department of Energy.13 This program now permits

the federal government to reimburse up to 50% of eligible smart grid investments, which include

the cost to electric utilities of buying and installing smart meters.14 In its annual report on smart

meter deployment, the Federal Energy Regulatory Commission cited statistics showing that the

SGIG program has helped fund the deployment of about 7.2 million meters as of September

2011.15 At completion, the program will have partially funded the installation of 15.5 million

meters.16 By 2015, the Institute for Electric Efficiency expects that a total of 65 million smart

meters will be in operation throughout the United States.17

Installation of smart meters and the communications technologies that accompany them may have

unforeseen legal consequences for those who generate, seek, or use the data recorded by the

meters. These consequences may arise under existing federal laws or constitutional provisions

governing the privacy of electronic communications, data retention, computer misuse, foreign

surveillance, and consumer protection. This report examines federal privacy and cybersecurity

laws that may apply to consumer data collected by residential smart meters. It examines the legal

implications of smart meter technology for consumers who generate the data, law enforcement

officers who seek smart meter data from utilities, utilities that store the data, and hackers who

access smart grid technology to steal consumer data or interfere with it. This report looks at

federal laws that may pertain to the data when it is (1) stored in a utility-owned smart meter at a

consumer’s residence; (2) in transit between the meter and the smart grid by way of various

communications technologies; and (3) stored on computers in the grid. This report does not

address state or local laws, such as regulations by state Public Utilities Commissions, that may

establish additional responsibilities for some electric utilities with regard to smart meter data. It

also does not discuss the mandatory cybersecurity and reliability standards enforced by the North

See NAT’L INST. OF STANDARDS AND TECH., GUIDELINES FOR SMART GRID CYBER SECURITY: VOL. 2, PRIVACY AND

THE SMART GRID 14 (2010) [hereinafter NIST PRIVACY REPORT], available at http://csrc.nist.gov/publications/nistir/

ir7628/nistir-7628_vol2.pdf.

Id. at 3-4, 23-24, 29.

The act provides $4.5 billion for “electricity delivery and energy reliability,” which includes “activities to modernize

the electric grid, to include demand responsive equipment,” as well as “programs authorized under title XIII of the

Energy Independence and Security Act of 2007.” ARRA, P.L. 111-5, 123 Stat. 115, 138-39.

ARRA §405(5), (8), 123 Stat. 115, 143-44 (amendment to be codified at 42 U.S.C. §17386) (amending the Energy

Independence and Security Act of 2007 (EISA) to allow for the reimbursement of up to 50% of qualifying smart grid

investments instead of only 20%); see also EISA, P.L. 110-140, §1306, 121 Stat. 1492, 1789-91 (to be codified as

amended at 42 U.S.C. §17386) (initially establishing the SGIG program).

FED. ENERGY REGULATORY COMM’N, ASSESSMENT OF DEMAND RESPONSE & ADVANCED METERING 3 (2011),

available at http://www.ferc.gov/legal/staff-reports/11-07-11-demand-response.pdf.

Id.

INST. FOR ELECTRIC EFFICIENCY, UTILITY-SCALE SMART METER DEPLOYMENTS, PLANS & PROPOSALS 1 (2011),

available at http://www.edisonfoundation.net/iee/issuebriefs/SmartMeter_Rollouts_0911.pdf.

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American Electric Reliability Corporation, which impose obligations on utilities that participate

in the generation or transmission of electricity.18

General federal privacy safeguards provided under the Federal Privacy Act of 1974 (FPA) protect

smart meter data maintained by federal agencies, including data held by federally owned electric

utilities. Section 5 of the Federal Trade Commission Act (FTC Act) allows the Federal Trade

Commission (FTC) to bring enforcement proceedings against electric utilities that violate their

privacy policies or fail to protect meter data from unauthorized access, provided that the FTC has

statutory jurisdiction over the utilities.

It is unclear how Fourth Amendment protection from unreasonable search and seizures would

apply to smart meter data, due to the lack of cases on this issue. However, depending upon the

manner in which smart meter services are presented to consumers, smart meter data may be

protected from unauthorized disclosure or unauthorized access under the Stored Communications

Act (SCA), the Computer Fraud and Abuse Act (CFAA), and the Electronic Communications

Privacy Act (ECPA). If smart meter data is protected by these statutes, law enforcement would

still appear to have the ability to access it for investigative purposes under procedures provided in

the SCA, ECPA, and the Foreign Intelligence Surveillance Act (FISA).

Smart Meter Data: Privacy and Security Concerns

Residential smart meters present privacy and cybersecurity issues19 that are likely to evolve with

the technology.20 In 2010, the National Institute of Standards and Technology (NIST) published a

report identifying some of these issues, which fall into two main categories: (1) privacy concerns

that smart meters will reveal the activities of people inside of a home by measuring their

electricity usage frequently over time;21 and (2) fears that inadequate cybersecurity measures

surrounding the digital transmission of smart meter data will expose it to misuse by authorized

and unauthorized users of the data.22

Detailed Information on Household Activities

Smart meters offer a significantly more detailed illustration of a consumer’s energy usage than

regular meters. Traditional meters display data on a consumer’s total electricity usage and are

typically read manually once per month.23 In contrast, smart meters can provide near real-time

usage data by measuring usage electronically at a much greater frequency, such as once every 15

For additional information on the development of mandatory national smart grid privacy and cybersecurity standards

by federal agencies, see MASS. INST. OF TECH., THE FUTURE OF THE ELECTRIC GRID 197-234 (2011) [hereinafter MIT

GRID STUDY]; see also CRS Report R41886, The Smart Grid and Cybersecurity—Regulatory Policy and Issues, by

(name redacted).

According to the authors of the MIT study, cybersecurity “refers to all the approaches taken to protect data, systems,

and networks from deliberate attack as well as accidental compromise, ranging from preparedness to recovery.” MIT

GRID STUDY, supra note 18, at 208. Closely related is the concept of “information privacy,” which “deals with policy

issues ranging from identification and collection to storage, access, and use of information.” Id. at 219 n.viii.

See NIST PRIVACY REPORT, supra note 11, at 1.

Id. at 4, 11. Data that offers a high degree of detail is said to be “granular.” Id.

See id. at 4, 23-24, 29.

Id. at 2, 9.

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minutes.24 Current smart meter technology allows utilities to measure usage as frequently as once

every minute.25 By examining smart meter data, it is possible to identify which appliances a

consumer is using and at what times of the day, because each type of appliance generates a unique

electric load “signature.”26 NIST wrote in 2010 that “research shows that analyzing 15-minute

interval aggregate household energy consumption data can by itself pinpoint the use of most

major home appliances.”27 A report for the Colorado Public Utilities Commission discussed an

Italian study that used “artificial neural networks” to identify individual “heavy-load appliance

uses” with 90% accuracy using 15-minute interval data from a smart meter.28 Similarly, softwarebased algorithms would likely allow a person to extract the unique signatures of individual

appliances from meter data that has been collected less frequently and is therefore less detailed.29

By combining appliance usage patterns, an observer could discern the behavior of occupants in a

home over a period of time.30 For example, the data could show whether a residence is occupied,

how many people live in it, and whether it is “occupied by more people than usual.”31 According

to the Department of Energy, smart meters may be able to reveal occupants’ “daily schedules

(including times when they are at or away from home or asleep), whether their homes are

equipped with alarm systems, whether they own expensive electronic equipment such as plasma

TVs, and whether they use certain types of medical equipment.”32 Figure 1, which appears in

NIST’s report on smart grid cybersecurity, shows how smart meter data could be used to decipher

the activities of a home’s occupants by matching data on their electricity usage with known

appliance load signatures.

Id. at 13.

COLORADO PRIVACY REPORT, supra note 6, at 2. Some utilities may elect to receive data at less frequent intervals

because “backhauling real-time or near real-time data from the billions of devices that may eventually be connected to

the Smart Grid would require not only tremendous bandwidth” but also greater data storage capacities that could make

the effort “economically infeasible.” DEP’T OF ENERGY COMMUNICATIONS REPORT, supra note 3, at 20. However, the

“trend” is for utilities to collect data more frequently. See COLORADO PRIVACY REPORT, supra note 6, at A-1 n.111.

NIST PRIVACY REPORT, supra note 11, at 2, 14.

Id. at 14. But see DEP’T OF ENERGY PRIVACY REPORT, supra note 6, at 9 (claiming, in 2010, that smart meter

technology “cannot yet identify individual appliances and devices in the home in detail, but this will certainly be within

the capabilities of subsequent generations of Smart Grid technologies”).

COLORADO PRIVACY REPORT, supra note 6, at 3 n.7, A-8.

Id. at A-9.

NIST PRIVACY REPORT, supra note 11, at 6 & n.9.

Id. at 11.

DEP’T OF ENERGY PRIVACY REPORT, supra note 6, at 2.

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Figure 1. Identification of Household Activities from Electricity Usage Data

Unique Electric Load Signatures of Common Household Appliances

Source: NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY (NIST), GUIDELINES FOR SMART GRID CYBER

SECURITY: VOL. 2, PRIVACY AND THE SMART GRID 13 (2010), available at http://csrc.nist.gov/publications/nistir/ir7628/

nistir-7628_vol2.pdf.

Note: Researchers constructed this picture from electricity usage data collected at one-minute intervals using a

nonintrusive appliance load monitoring (NALM) device, which is similar to a smart meter in the way that it

records usage data. For a comparison of the technologies, see COLORADO PRIVACY REPORT, supra note 6, at A-1

to A-9.

Smart meter data that reveals which appliances a consumer is using has potential value for third

parties, including the government. In the past, law enforcement agents have examined monthly

electricity usage data from traditional meters in investigations of people they suspected of

illegally growing marijuana.33 For example, in United States v. Kyllo, a federal agent subpoenaed

the suspect’s electricity usage records from the utility and “compared the records to a spreadsheet

for estimating average electrical use and concluded that Kyllo’s electrical usage was abnormally

high, indicating a possible indoor marijuana grow operation.”34 If law enforcement officers

obtained near-real time data on a consumer’s electricity usage from the utility company, their

ability to monitor household activities would be amplified significantly.35 For example, by

observing when occupants use the most electricity, it may be possible to discern their daily

schedules.36

NIST PRIVACY REPORT, supra note 11, at 11, 29; see also United States v. Kyllo, 190 F.3d 1041, 1043 (9th Cir.

1999), rev’d on other grounds, 533 U.S. 27 (2001).

Kyllo, 190 F.3d at 1043.

See supra notes 26-32 and accompanying text.

See supra note 32 and accompanying text.

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As smart meter technology develops and usage data grows more detailed, it could also become

more valuable to private third parties outside of the grid.37 Data that reveals which appliances a

person is using could permit health insurance companies to determine whether a household uses

certain medical devices, and appliance manufacturers to establish whether a warranty has been

violated.38 Marketers could use it to make targeted advertisements.39 Criminals could use it to

time a burglary and figure out which appliances they would like to steal.40 If a consumer owned a

plug-in electric vehicle, data about where the vehicle has been charged could permit someone to

identify a person’s location and travel history.41

Even privacy safeguards, such as “anonymizing” data so that it does not reflect identity, are not

foolproof.42 By comparing anonymous data with information available in the public domain, it is

sometimes possible to identify an individual—or, in the context of smart meter data, a particular

household.43 Moreover, a smart grid will collect more than just electricity usage data. It will also

store data on the account holder’s name, service address, billing information, networked

appliances in the home, and meter IP address, among other information.44 Many smart meters will

also provide transactional records as they send data to the grid, which would show the time that

the meter transmitted the data and the location or identity of the transmitter.45

Increased Potential for Theft or Breach of Data

Smart grid technology relies heavily on two-way communication to increase energy efficiency

and reliability, including communication between smart meters and the utility (or other entity)

that stores data for the grid.46 Many different technologies will transmit data to the grid, including

“traditional twisted-copper phone lines, cable lines, fiber optic cable, cellular, satellite,

microwave, WiMAX, power line carrier, and broadband over power line.”47 Of these

communications platforms, wireless technologies are likely to play a “prominent role” because

they present fewer safety concerns and cost less to implement than wireline technologies.48

According to the Department of Energy, a typical utility network has four “tiers” that collect and

transmit data from the consumer to the utility.49 These include “(1) the core backbone—the

primary path to the utility data center; (2) backhaul distribution—the aggregation point for

NIST PRIVACY REPORT, supra note 11, at 14, 35-36.

Id. at 27-28.

Id. at 28.

Id. at 31.

Id.

Id. at 13.

See id. at 13, 25.

Id. at 26-27.

Id. at 12 (drawing a comparison to telecommunications providers’ “call detail records”).

Id. at 3; DEP’T OF ENERGY COMMUNICATIONS REPORT, supra note 3, at 3 (stating that “integrated two-way

communications ... allows for dynamic monitoring of electricity use as well as the potential for automated electricity

use scheduling.”). As more consumers become generators of electricity through the use of “fuel cells, wind turbines,

solar roofs, and the like,” the importance of two-way communication will increase. MIT GRID STUDY, supra note 18, at

201.

DEP’T OF ENERGY COMMUNICATIONS REPORT, supra note 3, at 3.

Id. at 5, 51 n.215.

Id. at 16.

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neighborhood data; (3) the access point—typically the smart meter; and, (4) the HAN—the home

network.”50 Energy usage data moves from the smart meter,51 and then to an “aggregation point”

outside of the residence such as “a substation, a utility pole-mounted device, or a communications

tower.”52 The aggregation points gather data from multiple meters and “backhaul” it to the utility

using fiber, T1, microwave, or wireless technology.53 Utilities typically rely on their own private

networks to communicate with smart meters because they have found these networks to be more

reliable and less expensive than commercial networks.54

As NIST explains, consumer data moving through a smart grid becomes stored in many locations

both within the grid and within the physical world.55 Thus, because it is widely dispersed, it

becomes more vulnerable to interception by unauthorized parties56 and to accidental breach.57 The

movement of data also increases the potential for it to be stolen by unauthorized third parties

while it is in transit, particularly when it travels over a wireless network58—or through

communications components that may be incompatible with one another or possess outdated

security protections.59

Smart Meters and the Fourth Amendment

The use of smart meters presents the recurring conflict between law enforcement’s need to

effectively investigate and combat crime and our desire for privacy while in our homes. With

smart meters, police will have access to data that might be used to track residents’ daily lives and

routines while in their homes, including their eating, sleeping, and showering habits, what

appliances they use and when, and whether they prefer the television to the treadmill, among a

host of other details.60 Though a potential boon to police, access to this data is not limitless. The

Fourth Amendment, which establishes the constitutional parameters for government

investigations, may restrict access to smart meter data or establish rules by which it can be

obtained.61 The Fourth Amendment ensures that the “right of the people to be secure in their

persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be

violated....”62 This section discusses whether the collection and use of smart meter data may

Id.

The home network will be used to provide consumers with near real-time data on their energy usage. Id. at 13-15.

Id. Many urban installations use wireless mesh networks to carry data from the meters to the aggregation point.

These networks are more reliable because each smart meter can serve as a router in the network, providing redundant

network coverage. Id. at 18.

Id. at 16, 19.

Id. at 4, 19, 44.

NIST PRIVACY REPORT, supra note 11, at 23.

Id. at 23-24.

Id. at 29.

See id. at 9, 12, 33, and 36.

MIT GRID STUDY, supra note 18, at 209, 213-16.

Jack I. Lerner & Deirdre K. Mulligan, Taking the “Long View” on the Fourth Amendment: Stored Records and the

Sanctity of the Home, 2008 STAN. TECH. L. REV. 3, ¶ 3 (2008).

Additionally, as described below, there are federal statutory protections that may pertain to this data. State

constitutional and statutory safeguards may also apply, but these are beyond the scope of this report.

U.S. CONST. amend IV.

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contravene this protection. Although there is no Fourth Amendment case on point, analogous

cases may provide guidance.63

To assess whether there has been a Fourth Amendment violation, two primary questions must be

asked: (1) whether there was state action; that is, was there sufficient government involvement in

the alleged wrongdoing to trigger the Fourth Amendment; and (2) whether the person had an

expectation of privacy that society is prepared to deem reasonable.64 If the first question is

answered in the affirmative, then the analysis moves to the second question. But if no state action

is found, the analysis ends there and the Fourth Amendment does not apply. This subpart will first

determine whether access to smart meter data by police, or by privately and publicly owned

utilities, satisfies the state action doctrine, thereby warranting further Fourth Amendment review.

State Action: Privately Versus Publicly Owned Utilities

Most of the safeguards for civil liberties and individual rights contained in the U.S. Constitution

apply only to actions by state and federal governments.65 This rule, known as the state action

doctrine, arises when a victim claims his constitutional rights have been violated, and therefore

must prove the wrongdoer had sufficient connections with the government to warrant a remedy.66

Applying the state action test is intended to determine whether a utility’s collection and

dissemination of smart meter data is governed by the Fourth Amendment, and if so, to what

extent. Although there are many variations in the governance and ownership of utilities—some

are privately owned, others publicly owned, some federally operated, and still others nonprofit

cooperatives—they generally fall into two broad categories: public and private.67 This section will

analyze the constitutional differences between privately and publicly owned utilities under the

state action doctrine and a public records theory.

Privately Owned and Operated Utilities

It is broadly said that the Fourth Amendment applies only to acts by the government.68 But there

are at least two exceptions to this rule. First, if a utility performs a function traditionally exercised

by the government, it may be considered a state actor under the public function exception.

Second, the Fourth Amendment may apply when a private utility acts as an instrument or agent of

the police.69

For additional analyses of smart meters under the Fourth Amendment, see Cheryl Dancey Balough, Privacy

Implications of Smart Meters, 86 CHI.-KENT L. REV. 161 (2011); see also QUINN, supra note 6, at 28 (“[I]nterval data

of electricity consumption appears to be in something of a no-man’s-land under Supreme Court Fourth Amendment

jurisprudence.”).

California v. Ciraolo, 476 U.S. 207, 211 (1986) (citing Katz v. United States, 389 U.S. 347, 360 (1967) (Harlan, J.,

concurring)).

Civil Rights Cases, 109 U.S. 3, 11 (1883) (“It is State action of a particular character that is prohibited. Individual

invasion of individual rights is not the subject-matter of the [Fourteenth] amendment.”); see JOHN E. NOWAK &

RONALD D. ROTUNDA, CONSTITUTIONAL LAW §12.1(a)(i) (8th ed. 2010).

NOWAK & ROTUNDA, supra note 65.

Determining whether a private actor is sufficiently “public” is not clear-cut. Then Justice Rehnquist noted, “[t]he true

nature of the State’s involvement may not be immediately obvious, and detailed inquiry may be required in order to

determine whether the test is met.” Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351 (1974).

Burdeau v. McDowell, 256 U.S. 465, 475 (1921).

See United States v. Jacobsen, 466 U.S. 109, 113 (1984).

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Under the public function exception, a nominally private entity is treated as a state actor when it

assumes a role traditionally played by the government.70 Determining when this exception applies

has not proved easy,71 but it is reasonably clear that private utilities do not, in most instances,

satisfy it. In Jackson v. Metropolitan Edison Co., a customer sued a privately owned utility under

the Civil Rights Act of 1871 for improperly shutting off her service without providing her notice

or a hearing.72 The Supreme Court asked whether there was a close enough nexus between the

state and the utility for the acts of the latter to be treated as those of the former.73 Although the

utility was heavily regulated by the state, it was held not to be a state actor.74 The Court reasoned

that the provision of utility service is not generally an “exclusive prerogative of the State.”75 Also

absent was the symbiotic relationship between the utility and the state found in previous cases.76

Though its holding was broad, the Court did not foreclose the possibility that a privately owned

utility could be a state actor under different circumstances.77 This possibility, however, appears

narrow.

The Fourth Amendment may also apply to a private utility if its acts were directed by the

government. Generally, searches performed by private actors without police participation or

encouragement are not governed by the Fourth Amendment.78 A search by a private insurance

investigator, for instance, was not a “search” in the constitutional sense, though the evidence was

ultimately used by the government at trial.79 This result differs, however, if there is sufficient

government involvement. If the search has been ordered or requested by the government, the

private actor will become an “instrument or agent of the state” and must abide by Fourth

Amendment strictures.80 For example, the Fourth Amendment does not apply when a telephone

company installs a pen register on its own initiative.81 The same action constitutes a search,

however, if requested by the government.82

This theory applies not only to direct instigation, but also on a broad, programmatic level. In the

1960s and 1970s the federal government required privately owned and operated airlines to

institute new security measures to combat airline hijacking.83 In United States v. Davis, the airline

Marsh v. Alabama, 326 U.S. 501 (1946) (holding that privately owned property was equivalent to “community

shopping center” thus private party was subject to the First and Fourteenth Amendments).

See NOWAK & ROTUNDA, supra note 65, §12.2.

Jackson, 419 U.S. at 347; see also Mays v. Buckeye Rural Elec. Coop., Inc., 277 F.3d 873, 880-81 (6th Cir. 2002)

(holding that nonprofit cooperative utility was not a state actor under the federal constitution); Spickler v. Lee, No. 021954, 2003 U.S. App. LEXIS 6227, at *2 (1st Cir. March 31, 2003) (holding that private electric utility company was

not a state actor).

Jackson, 419 U.S. at 351.

Id. at 358-59.

Id. at 353.

Id. at 357.

Id. at 351.

1 WAYNE R. LAFAVE, SEARCH AND SEIZURE §1.8, at 255 (4th ed. 2004).

United States v. Howard, 752 F.2d 220, 227-28 (6th Cir. 1985).

Coolidge v. New Hampshire, 403 U.S. 443, 487 (1971) (internal quotation marks omitted); see LAFAVE, supra note

78, §1.8(b).

United States v. Manning, 542 F.2d 685, 686 (6th Cir. 1976).

People of Dearborn Heights v. Hayes, 82 Mich. App. 253, 258 (1978).

United States v. Davis, 482 F.2d 893, 897-903 (9th Cir. 1973).

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searched a passenger based on these requirements and found a loaded gun.84 The Ninth Circuit

held that it made no difference whether the search was conducted by a private or public official:

“the search was part of the overall, nation-wide anti-hijacking effort, and constituted ‘state action’

for purposes of the Fourth Amendment.”85 Thus, if a private party is required to perform a search

or collect data under federal or state laws or regulations, there will be sufficient state action for

the Fourth Amendment to apply. Or, put another way, the government cannot circumvent the

Fourth Amendment by requiring a private party to initiate a search or implement an investigative

program.

This agency theory might apply to the collection of smart meter data. If the utility is accessing

this information “independent of the government’s intent to collect evidence for use in a criminal

prosecution,”86 the utility will not be considered an agent of the government for Fourth

Amendment purposes. But there might be instances when government instigation will trigger

further analysis. If, for example, the government requested the utility to record larger quantities of

data than was customary (e.g., increasing the intervals from sub-15 minute intervals to sub-five

minute or sub-one minute intervals), this would likely warrant Fourth Amendment scrutiny. Also,

if the police requested the utility to hand over customer data, say, for spikes in energy

commensurate with a marijuana growing operation, this would likely be a sufficient instigation to

trigger further constitutional review. Other situations may arise where the government establishes

a dragnet-type law enforcement scheme in which all smart meter data is filtered through police

computers. This could also implicate the agency theory and warrant a finding of state action.

Publicly Owned and Operated Utilities

Although the Fourth Amendment (with its warrant and probable cause requirement) typically

applies to public actors, in certain instances their collection of information may not fall under the

Fourth Amendment or may prompt a lower evidentiary standard. The Supreme Court has

infrequently considered the scope of the Fourth Amendment “on the conduct of government

officials in noncriminal investigations,”87 and even less frequently as to “noncriminal

noninvestigatory governmental conduct.”88 Nonetheless, there are two lines of cases that may

apply to smart meters in which the Fourth Amendment may not apply at all (noncriminal

noninvestigatory conduct) or may be reduced (noncriminal investigations). The key to this

analysis is the government’s purpose in collecting the data.

The Supreme Court has developed a line of cases dubbed the “special needs” doctrine that

permits the government to perform suspicionless searches if the special needs supporting the

program outweigh the intrusion on the individual’s privacy.89 It is premised on the notion that

“‘special needs,’ beyond the normal need for law enforcement, make the warrant and probablecause requirement impracticable.”90 If, on the one hand, the objective of the search is not for law

Id. at 895.

Id. at 904.

United States v. Howard, 752 F.2d 220, 228 (6th Cir. 1985).

The Supreme Court, 1986-Term—Leading Cases, 101 HARV. L. REV. 119, 230 (1987).

United States v. Attson, 900 F.2d 1427, 1430 (9th Cir. 1990) (emphasis in original).

Ferguson v. City of Charleston, 532 U.S. 67, 77-78 (2001).

Skinner v. Ry. Labor Executives’ Ass’n, 489 U.S. 602, 620 (1989) (quoting Griffin v. Wisconsin, 483 U.S. 868, 873

(1987)).

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enforcement purposes but for other reasons such as public safety91 or ensuring the integrity of

sensitive government positions,92 then the doctrine will apply. If, however, the “primary purpose”

or “immediate objective” was “to generate evidence for law enforcement purposes,” then

application of the special needs doctrine is not appropriate, and the government must adhere to

general Fourth Amendment principles.93 Again, the primary inquiry is the purpose of the search.

Some circuit courts of appeal have extended the special needs theory, holding that the Fourth

Amendment does not apply (in contrast to a reduced standard of suspicion as with the special

needs cases) unless the “conduct has as its purpose the intention to elicit a benefit for the

government in either its investigative or administrative capacities.”94 In United States v. Attson,

the Ninth Circuit held that the collection of blood by a government-employed physician, which

was subsequently used by the police in a drunk driving prosecution, was not within the scope of

Fourth Amendment protection.95 The panel reasoned that the doctor drew the blood for medical

purposes, not to further a governmental purpose in obtaining evidence against the defendant in its

criminal investigation, so the Fourth Amendment did not apply.96

Applying these two theories to smart meters, a court would focus on the publicly owned utility’s

purpose in collecting the data. If it were for ordinary business purposes such as billing, informing

the customer of its usage patterns, or aiding the utility in making the grid more energy-efficient,

then it would not violate the Fourth Amendment. If, however, the public utility began aggregating

data at the request of a law enforcement agency, with the purpose of aiding a criminal

investigation or other administrative purpose, the Fourth Amendment would seemingly apply. As

with private utilities, if the government requested that the public utility report any suspicious

electricity usage, or created a program where certain data was regularly transmitted to the police,

this might become investigatory and warrant Fourth Amendment protections. It appears law

enforcement cannot evade Fourth Amendment restrictions by requesting a publicly owned utility

to collect data for it.

Law enforcement might also request smart meter data under a public records theory. It is

generally accepted that public records are not accorded Fourth Amendment protection.97 Unless

there is a state or federal statute prohibiting disclosure, “law enforcement access to state public

records is unrestricted.”98 Thus the inquiry hinges on whether a document is a public record.

Id.

Nat’l Treasury Employees Union v. Von Raab, 489 U.S. 656, 670 (1989).

Ferguson, 532 U.S. at 83 (emphasis in original).

See United States v. Attson, 900 F.2d 1427, 1431 (9th Cir. 1990); Poe v. Leonard, 282 F.3d 123, 137 (2d Cir. 2002);

United States v. Elliot, 676 F. Supp. 2d 431, 435-36 (D. Md. 2009).

Attson, 900 F.2d at 1433.

Id.

See Nilson v. Layton City, 45 F.3d 369, 372 (10th Cir. 1995) (“Information readily available to the public is not

protected by the constitutional right to privacy.”); Doe v. City of New York, 15 F.3d 264, 268 (2d Cir. 1994)

(“Certainly, there is no question that an individual cannot expect to have a constitutionally protected privacy interest in

matters of public record.”); United States v. Ellison, 462 F.3d 557, 562 (6th Cir. 2006) (accessing license plate number

from computer database held not an intrusion of a constitutionally protected area, thus not a Fourth Amendment

“search”); United States v. Baxter, 492 F.2d 150, 167 (9th Cir. 1973) (holding that Fourth Amendment protections do

not extend to telephone company toll and billing records); see also Christopher Slobogin, The Search and Seizure of

Computers and Electronic Evidence: Transaction Surveillance by the Government, 75 MISS. L. J. 139, 156 (2005).

Slobogin, supra note 97.

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Whether a person’s utility records are public records differs from state to state.99 Some states

deem records of a municipally owned and operated electric utility as public records open for

public inspection, while others have accorded these records statutory and constitutional

protections.

In Florida, for example, records kept in connection with the operation of a city-operated utility

are considered public records.100 A similar policy applies in Georgia, where all records of a

government agency, including utility records, must be open for inspection.101 South Carolina, too,

takes a similar approach.102 It is not clear, however, from the reported cases whether these statutes

permit access to personally identifiable information or simply operating records of the utility.

Oklahoma is more explicit, permitting access to “records of the address, rate paid for services,

charges, consumption rates, adjustments to the bill, reasons for adjustment, the name of the

person that authorized the adjustment, and payment for each customer.”103 Oklahoma does protect

some confidentiality, including “credit information, credit card numbers, telephone numbers,

social security numbers, [and] bank account information for individual customers.”104 Other

states, like Washington, specifically protect personally identifiable utility records. Washington

does not require a showing of probable cause, but instead “a reasonable belief” that the record

will help establish the customer committed a crime.105 North Carolina likewise states that any

“[b]illing information compiled and maintained by a city or county or other public entity

providing utility services in connection with the ownership or operation of a public enterprise” is

not a public record.106

Because the focus of this report is federal law and the Fourth Amendment, a full treatment of state privacy law is

beyond its scope.

100

In re Public Records—Records of Municipally Operated Utility, Op. Att’y Gen. Fla. 74-35 (1974), available at

http://www.myfloridalegal.com/ago.nsf/Opinions/B4AED736C2272860852566B30067371A; see FLA. STAT.

§119.01(1) (2008) (“It is the policy of this state that all state, county, and municipal records are open for personal

inspection by any person.”).

101

See GA. CODE ANN. §50-18-70(b) (2011); Op. Att’y Gen. Ga. 2000-4 (2000) (requiring personal utility records of

certain public employees to be disclosed under public records law). Georgia defines a “public record” as “all

documents, papers, letters, maps, books, tapes, photographs, computer based or generated information, or similar

material prepared and maintained or received in the course of the operation of a public office or agency.” GA. CODE

ANN. §50-18-70(a).

102

In South Carolina, public records include “information in or taken from any account, voucher, or contract dealing

with the receipt or expenditure of public or other funds by public bodies.” S.C. CODE ANN. §30-4-50 (2011). See Kelsey

M. Swanson, The Right to Know: An Approach to Gun Licenses and Public Access to Government Records, 56 UCLA

L. REV. 1579, 1601 (2009).

103

OKLA. STAT. tit. 51, §24A.10 (2011).

104

Id.

105

WASH. REV. CODE §42.56.335 (2011). In Washington, the following rule applies to public utility districts and

municipally owned electrical utilities:

A law enforcement authority may not request inspection or copying of records of any person who

belongs to a public utility district or a municipally owned electrical utility unless the authority

provides the public utility district or municipally owned electrical utility with a written statement in

which the authority states that it suspects that the particular person to whom the records pertain has

committed a crime and the authority has a reasonable belief that the records could determine or

help determine whether the suspicion might be true. Information obtained in violation of this

section is inadmissible in any criminal proceeding.

WASH. REV. CODE §42.56.335. The Washington Supreme Court has raised this protection to state constitutional status

in In re Personal Restraint of Maxfield, 133 Wash. 2d 332, 344 (1997).

106

However, the North Carolina public records law declares that “[n]othing contained herein is intended to limit public

disclosure by a city or county of bill information: ... that is necessary to assist law enforcement, public safety, fire

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Determining whether a utility is a state actor or whether smart meter data is a public record are

merely threshold matters. A finding that an entity is a state actor or data is public does not

foreclose law enforcement’s ability to retrieve customer smart meter data, but instead activates

the next step of Fourth Amendment analysis: whether the government invaded a reasonable

expectation of privacy.

Reasonable Expectation of Privacy in Smart Meter Data

Under the modern conception of the Fourth Amendment, the government may not intrude into an

area in which a person has an actual expectation of privacy that society would consider

reasonable.107 In the case of smart meter data, the government presumably seeks records in the

custody of third-party utilities on the energy use at a specific home. However, a significant body

of cases has refused to recognize constitutionally protected privacy interests in information

provided by customers to businesses as part of their commercial relationships.108 This theory, the

third-party doctrine, permits police access to the telephone numbers a person dials109 and to a

person’s bank documents,110 free from Fourth Amendment constraints.

There are two relevant differences, however, between smart meters and the traditional third-party

cases that may warrant a shift in approach. First is the possible judicial unease with the notion

that advancement of technology threatens to erode further the constitutional protection of

privacy.111 From that perspective, as technology progresses, society faces an ever-increasing risk

that an individual’s activities will be monitored by the government. This is coupled with the

concern that the breadth and granularity of personal information that new technology affords

provide a far more intimate picture of an individual than the more limited snapshots available

through prior technologies. Do the richness and scope of new information technologies warrant

increased constitutional scrutiny?

Second, smart meters can convey information about the activities that occur inside the home, an

area singled out for specific textual protection in the Fourth Amendment and one deeply ingrained

in Anglo-Saxon law.112 Even when the Court declared that “the Fourth Amendment protects

people, not places,”113 ostensibly shifting away from a property-based conception of the Fourth

Amendment, it has still carved out special protections for the home.114 However, concomitant

with the increased use of technology in our private lives is increased exposure of our private

activities, including those conducted in the home. Commonly, we share more personal

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protection, rescue, emergency management, or judicial officers in the performance of their duties.” N.C. GEN. STAT.

§132-1.1(c)(3).

107

Katz v. United States, 389 U.S. 347, 361 (1967) (Harlan, J., concurring).

108

See Smith v. Maryland, 442 U.S. 735 (1979).

109

Id.

110

United States v. Miller, 425 U.S. 435 (1976).

111

Kyllo v. United States, 533 U.S. 27, 33-4 (2001) (“It would be foolish to contend that the degree of privacy secured

to citizens by the Fourth Amendment has been entirely unaffected by the advance of technology.”).

112

See Entick v. Carrington, 19 How. St. Tr. 1029 (C.P. 1765).

113

Katz v. United States, 389 U.S. 347, 351 (1967).

114

See Orin S. Kerr, The Fourth Amendment and New Technologies: Constitutional Myths and the Case for Caution,

102 MICH. L. REV. 801, 809-10 (2004) [hereinafter Kerr, Fourth Amendment and New Technologies].

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information, even as our concerns grow that more individuals, businesses, and others can glean

more information about our personal lives as a matter of course. As with technology generally,

does the fact that more of our lives are becoming “public” call for lesser or greater constitutional

protection, and how does a “reasonable expectation”-based model continue to apply in a

technologically intensive society?

This subpart will first look at the third-party doctrine as it is commonly conceived by the courts.

Then it will discuss whether there are sufficient differences between the use of smart meters and

traditional third-party cases to counsel against its application.

Third-Party Doctrine

Traditionally, there has been no Fourth Amendment protection for information a consumer gives

to business as part of their business dealings.115 This doctrine dates back to the secret agent cases,

in which any words uttered to another person, including a government agent or informant, were

not covered by the Fourth Amendment.116 It was later extended to business records, giving police

access to documents such as telephone records,117 bank records,118 motel registration records,119

and cell phone records.120 The Supreme Court has reasoned that the customers assume the risk

that the information could be handed over to government authorities,121 and also that they consent

to such access.122 Some lower courts have applied this theory to traditional analog utility

meters.123 This section discusses the possible application of the third-party doctrine to smart

meters.

In Miller v. United States, agents of the Bureau of Alcohol, Tobacco, and Firearms (ATF)

subpoenaed several banks for records pertaining to the defendant, including copies of the

defendant’s checks, deposit slips, and financial statements.124 The defendant moved to suppress

the records at trial, arguing that a warrantless retrieval of the bank records (his “private

papers”)125 was an intrusion into an area protected by the Fourth Amendment. The Court

115

Orin S. Kerr, The Case for a Third-Party Doctrine, 107 MICH. L. REV. 561, 563 (2009) [hereinafter Kerr, ThirdParty Doctrine]. While the third-party doctrine has supporters like Professor Kerr, this group is overshadowed by its

vocal detractors. Professor LaFave described its underpinnings as “dead wrong” and that the “Court’s woefully

inadequate reasoning does great violence to the theory of Fourth Amendment protection which the Court developed in

Katz.” LAFAVE, supra note 78, §2.7(c). Justice Sotomayor lent credence to this sentiment in United States v. Jones,

where she posited that it “may be necessary to reconsider the premise that an individual has no reasonable expectation

of privacy in information voluntarily disclosed to third parties.” United States v. Jones, 565 U.S. ___, 5 (Sotomayor, J.,

concurring in the judgment and the opinion).

116

United States v. White, 401 U.S. 745, 750 (1971) (holding that the Fourth Amendment “affords no protection to a

wrongdoer’s misplaced belief that a person to whom he voluntarily confides his wrongdoing will not reveal it.”)

(internal quotation marks omitted).

117

Smith v. Maryland, 442 U.S. 735 (1979).

118

United States v. Miller, 425 U.S. 435 (1976).

119

United States v. Willis, 759 F.2d 1486, 1498 (11th Cir. 1985).

120

United States v. Hynson, No. 05-576, 2007 WL 2692327, at *6 (E.D. Pa. September 11, 2007).

121

Smith, 442 U.S. at 744.

122

Kerr, Third-Party Doctrine, supra note 115.

123

United States v. McIntyre, 646 F.3d 1107 (8th Cir. 2011).

124

Miller, 425 U.S. at 437-438.

125

Brief for Respondent at 4, Miller, 425 U.S. 435 (No. 74-1179), 1975 WL 173642, at *4 (“The Fourth Amendment is

historically rooted in a concern for control over personal and private information in the face of governmental demands

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disagreed, broadly declaring “the Fourth Amendment does not prohibit the obtaining of

information revealed to a third-party and conveyed by him to Government authorities, even if it is

revealed on the assumption that it will be used only for a limited purpose and the confidence

placed in the third-party will not be betrayed.”126 The Court further noted that “the depositor takes

the risk, in revealing his affairs to another, that the information will be conveyed by that person to

the Government.”127

Three years later, the Court extended the third-party doctrine to outgoing numbers dialed from a

person’s telephone.128 In Smith v. Maryland, the defendant robbed a woman and began making

obscene phone calls to her.129 Suspecting Smith placed the calls, the police used a pen register to

track the telephone numbers dialed from his phone.130 The police failed to obtain a warrant or

subpoena before installing the pen register.131 The register revealed that Smith was in fact making

the phone calls to the woman. In denying Smith’s motion to suppress, the Court relied on the

third-party doctrine, stating that “this Court consistently has held that a person has no legitimate

expectation of privacy in information he voluntarily turns over to third parties.”132 As applied to

the telephone context, the Court found that “[w]hen he used his phone, [Smith] voluntarily

conveyed numerical information to the telephone company and ‘exposed’ that information to its

equipment in the ordinary course of business. In so doing, [Smith] assumed the risk that the

company would reveal to police the numbers he dialed.”133

Traditionally, utility records have been handled similarly to bank records and telephone records.

Several lower federal courts have held that customers do not have a reasonable expectation of

privacy in their utility records, thereby permitting warrantless access to these records. In United

States v. Starkweather, the Ninth Circuit held that a person does not have a reasonable expectation

of privacy in his utility records.134 The panel reasoned that (1) these records were no different

from phone records, and thus did not justify a different constitutional result; and (2) the public

was aware that such records were regularly maintained, thereby negating any expectation of

privacy.135 The Eighth Circuit has also upheld warrantless police access to utility records in

United States v. McIntyre.136 The Eighth Circuit panel distinguished Kyllo, declaring that the

means of obtaining the information in Kyllo (a thermal-imaging device) was significantly more

intrusive than simply subpoenaing the records from the utility company.137 The court held that

“the means to obtaining the information is legally significant.”138 Likewise, the court in United

(...continued)

for access and use.”) (citing Entick v. Carrington, 19 How. St. Tr. 1029 (C.P. 1765)).

126

Miller, 425 U.S. at 443.

127

Id.

128

Smith v. Maryland, 442 U.S. 735 (1979).

129

Id. at 737.

130

Id.

131

Id.

132

Id. at 743-44.

133

Id. at 744.

134

United States v. Starkweather, No. 91-30354, 1992 WL 204005, at *2 (9th Cir. August 24, 1992).

135

Id.

136

United States v. McIntyre, 646 F.3d 1107 (8th Cir. 2011).

137

Id. at 1111.

138

Id.

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States v. Hamilton held that the means of obtaining power records from a third-party by way of

administrative subpoena as opposed to “intrusion on the home by ‘sense enhancing technology’”

is “legally significant,” removing this type of situation from the Kyllo-home privacy line of cases

into the Miller-third-party line.139

It is difficult to predict whether a court would extend this traditional third-party analysis to smart

meters. The courts may seek to ensure the predictability and stability of the third-party doctrine

generally and administration of utility services specifically, thus requiring a bright-line rule for all

third-party circumstances.140 There is an advantage to a rule that is easy to apply, that allows

utilities to better govern their affairs, and does not permit “savvy wrongdoers [to] use third-party

services in a tactical way to enshroud the entirety of their crimes in zones of Fourth Amendment

protection.”141 However, there are three overarching considerations embodied in the use of smart

meters that might weigh against the application of traditional third-party analysis. These include

(a) a person’s expectation of privacy while at home; (b) the breadth and granularity of private

information conveyed by smart meters; (c) the lack of a voluntary assumption of the risk or

consent to release of this data.

Privacy in the Home

The location of the search mattered little in the traditional third-party cases, but it may take on

constitutional significance with smart meters.142 In the case of smart meters, the information is

generated in the home, an area accorded specific textual protection in the Fourth Amendment, and

one the Supreme Court has persistently safeguarded.143 In no uncertain terms the Court has

asserted that “[a]t the very core [of the Fourth Amendment] stands the right of a man to retreat

into his own home and there be free from unreasonable government intrusion.”144 Even as

technology advances—whether a tracking or thermal-imaging device or something new—the

Court has maintained this bulwark. Because of the significance of the home, access to smart

139

United States v. Hamilton, 434 F. Supp. 2d 974, 980 (D. Or. 2006); Booker v. Dominion Va. Power, No. 3:09-759,

2010 U.S. Dist. LEXIS 44960, at *17 (E.D. Va. May 7, 2010); see also Samson v. State, 919 P.2d 171, 173 (Ala. App.

1996) (holding under state constitution that “utility records are maintained by the utility and do not constitute

information in which society is prepared to recognize a reasonable expectation of privacy”); People v. Stanley, 86 Cal.

Rptr. 2d 89, 94 (Cal. App. 1999) (same).

140

See Duncan Kennedy, Form and Substance in Private Law Adjudication, 89 HARV. L. REV. 1687, 1710 (1976).

141

Kerr, Third-Party Doctrine, supra note 115, at 564.

142

In Smith, the “site of the call was immaterial for purposes of analysis” of that case. Smith v. Maryland, 442 U.S.

735, 743 (1979). Whether a person dials a telephone number from his home, a telephone booth, or any other location

does not alter the nature of the activity, and thus does not affect the Fourth Amendment analysis. The privacy interests

implicated are the same no matter where the call is placed. The same theory applies to bank records. It matters not

where someone writes a check, or fills out a deposit slip—the privacy interest is the same.

143

Payton v. New York, 445 U.S. 573, 589 (“The Fourth Amendment protects the individual’s privacy in a variety of

settings. In none is the zone of privacy more clearly defined than when bounded by the unambiguous physical

dimensions of an individual’s home—a zone that finds its roots in clear and specific constitutional terms: ‘The right of

the people to be secure in their ... houses ... shall not be violated.’”) (quoting U.S. CONST. amend IV); Minnesota v.

Carter, 525 U.S. 83, 99 (1998) (Kennedy, J., concurring) (“[I]t is beyond dispute that the home is entitled to special

protection as the center of the private lives of our people. Security of the home must be guarded by law in a world

where privacy is diminished by enhanced surveillance and sophisticated communication systems.”).

144

Silverman v. United States, 365 U.S. 505, 511 (1961).

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meter data may prompt a doctrinal shift away from the third-party doctrine. Several home privacy

cases shed light on this possible approach.145

In Kyllo v. United States, the Court had to decide whether the use of a thermal-imaging device

from the outside of a home that detected the amount of heat coming from inside the home was a

violation of the Fourth Amendment.146 In Kyllo, an agent of the Department of the Interior

suspected Danny Kyllo was growing marijuana in his home with the use of high-intensity

lamps.147 The agent used a thermal imager to scan the outside of Kyllo’s apartment to determine if

he was using these “grow” lamps.148 Thermal imagers can detect energy emitting from the outside

surface of an object.149 When scanning the home, the thermal imager produced an image with

various shades of black, white, or gray—the shades darker or lighter depending on the warmth of

the area being scanned.150 From the passenger seat of his car, the agent scanned Kyllo’s home for

several minutes.151 From his scan, he determined that the area over the garage and one side of his

home were relatively hot compared to neighboring homes.152 Based on utility bills, informant

tips, and the results of thermal imaging, the agents obtained a warrant to search Kyllo’s home.153

As suspected, inside the home the agents found a marijuana growing operation, including over

100 plants.154

Justice Scalia first posited that “with very few exceptions, the question whether a warrantless

search of the home is reasonable must be answered no.”155 Searches of the home were historically

analyzed under the common law doctrine of trespass,156 but during the mid-20th century the Court

instead anchored the Fourth Amendment to a conception of privacy.157 While this test may be

difficult to apply in the context of automobiles, telephone booths, or other public areas, it is made

easier when concerning the home:

In the case of the search of the interior of homes—the prototypical and hence most

commonly litigated area of protected privacy—there is a ready criterion, with deep roots in

the common law, of the minimal expectation of privacy that exists, and that is acknowledged

145

In April 2012, the Supreme Court will hear oral arguments in its most recent home privacy case, Jardines v. Florida,

73 So. 3d 34 (Fla. 2011), cert granted, 2012 U.S. LEXIS 7 (January 6, 2012) (No. 11-564), where it will decide

whether a drug sniff at the front door of a suspect’s house by a trained narcotics dog is a Fourth Amendment search

requiring probable cause. This case should shed further light on the parameters of privacy surrounding the home.

146

Kyllo v. United States, 533 U.S. 27, 29 (2001).

147

Id.

148

Id.

149

Id.

150

Id. at 29-30.

151

Id. at 30.

152

Id.

153

Id.

154

Id. The Ninth Circuit held that Kyllo had not exhibited a subjective expectation of privacy in the home because he

did not attempt to prevent the heat emitting from the lamps from escaping his home. United States v. Kyllo, 190 F.3d

1041, 1046 (9th Cir. 1999). Further, the panel held that even if he had a subjective expectation of privacy, it was not a

reasonable one since the imager “did not expose any intimate details of Kyllo’s life.” Id. at 1047.

155

Kyllo, 533 U.S. at 31.

156

See Olmstead v. United States, 277 U.S. 438 (1928).

157

Katz v. United States, 389 U.S. 347, 361 (1967) (Harlan, J., concurring). The modern formulation of the reasonable

expectation of privacy test derives not from the majority opinion but from Justice Harlan’s concurrence.

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to be reasonable. To withdraw protection of this minimum expectation would be to permit

police technology to erode the privacy guaranteed by the Fourth Amendment.158

The Court ultimately held that “obtaining by sense-enhancing technology any information

regarding the interior of the home that could not otherwise have been obtained without physical

intrusion into a constitutionally protected area constitutes a search—at least where (as here) the

technology in question is not in general public use.”159 Kyllo affirmed the notion that “an

expectation of privacy in activities taking place inside the home is presumptively reasonable.”160

The Court also protected home privacy by prohibiting the monitoring of the location of a beeper

while inside a residence.161 In United States v. Karo, with the consent of a government informant

the police attached a beeper to the false bottom of a can of ether, which was sold to Karo.162 The

can of ether was transported between several residences and storage facilities.163 The police used

the beeper to monitor the location of the can several times while it was located inside of the

residences.164 The Court was asked to determine “whether the monitoring of a beeper in a private

residence, a location not open to visual surveillance, violates Fourth Amendment rights of those

who have a justifiable interest in the privacy of the residence.”165 The Court answered in the

affirmative.

The Court reiterated the long-standing notion that “private residences are places in which the

individual normally expects privacy free of governmental intrusion not authorized by a warrant,

and that expectation is plainly one that society is prepared to recognize as justifiable.”166 Unless

there are exigent circumstances, “searches and seizures inside a home without a warrant are

presumptively unreasonable....”167 The Court ultimately held that the warrantless monitoring of

the beeper in the home was a Fourth Amendment violation.168

Kyllo and Karo demonstrate that the Supreme Court “has defended the home as a sacred site at

the ‘core of the Fourth Amendment.’”169 Although neither the Supreme Court nor any lower

federal court has ruled on the use of smart meters, a few propositions can be deduced from Kyllo

and Karo bearing on this question.

Because smart meters allow law enforcement to access information regarding intimate details

occurring inside the home, a highly invasive investigation that could not otherwise be performed

without intrusion into the home, a court may require a warrant to access this data. In Kyllo, the

158

Kyllo, 533 U.S. at 34.

Id. (internal quotation marks omitted).

160

Lerner & Mulligan, supra note 60, ¶ 18.

161

United States v. Karo, 468 U.S. 705 (1984).

162

Id. at 708.

163

Id.

164

Id. at 709-10.

165

Id.

166

Id. at 714.

167

Id. at 714-15.

168

Id. at 718.

169

Stephanie M. Stern, The Inviolate Home: Housing Exceptionalism in the Fourth Amendment, 95 CORNELL L. REV.

905, 913 (2010) (citing Wilson v. Layne, 526 U.S. 603, 612 (1999)).

159

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police merely obtained the relative temperatures of a house,170 and in Karo the police only

generally located the beeper in the house.171 Although this information was limited, the Court

nonetheless prohibited such investigatory techniques. Smart meters have the potential to produce

significantly more information than that derived in Kyllo and Karo, including what individual

appliances we are using; whether our house is empty or occupied; and when we take our daily

shower or bath.172 Further, a look at Figure 1, supra, makes it clear that this level of information

is much more intimate than prior technologies used by law enforcement. This depth of intrusion

suggests that customers may have a reasonable expectation of privacy in smart meter data.

There is also a question whether smart meters are in “general public use.” (The police must use

technology not in general public use for Kyllo to apply.)173 Unfortunately, the Court provided no

criterion for making this determination.174 Several courts applying this test have held that night

vision goggles were in general public use.175 One federal district court reasoned that the goggles

were regularly used by the military and police and could be found on the Internet, so were

considered in general public use.176 In 2009, the Department of Energy estimated that 4.75% of

all electric meters were smart meters.177 The department projects that by 2012 approximately 52

million more meters will be installed.178 With little guidance on this issue, it is uncertain whether

this jump in numbers would elevate smart meters into the general public use category.

The means by which data is gathered also differentiates the thermal-imaging in Kyllo from smart

meters. In Kyllo, the police independently gathered the information using the thermal imager; an

agent went outside Kyllo’s house and used the thermal imager himself.179 With smart meters, the

utility company compiles the information and the police subpoena the company for the data. This

difference in means was material in one lower court analyzing access to traditional utility data.180

It is not clear whether this difference advises against application of Kyllo here.

Mosaic and Dragnet Theories

The second factor guiding against the application of the third-party doctrine is composed of two

interconnected theories: the mosaic and dragnet theories. The mosaic theory is grounded in the

idea that surveillance of the whole of one’s activities over a prolonged period is substantially

170

United States v. Kyllo, 533 U.S. 27, 30 (2001).

Karo, 468 U.S. at 705, 709-10.

172

NIST PRIVACY REPORT, supra note 11, at 14 & n.35. It is unclear whether the specificity of the data from the smart

meter will directly affect the constitutional analysis. Kyllo, 533 U.S. at 37 (“The Fourth Amendment’s protection of the

home has never been tied to measurement of the quality or quantity of information obtained.”). With that said, the

NIST report maintains that sufficient information about the activities inside of the home are presented to implicate a

Kyllo, home search analysis.

173

Kyllo, 533 U.S. at 34.

174

See Douglas Adkins, The Supreme Court Announces a Fourth Amendment “General Public Use” Standard for

Emerging Technologies but Fails to Define It: Kyllo v. United States, 27 DAYTON L. REV. 245 (2002).

175

See United States v. Dellas, 355 F. Supp. 2d 1095, 1107 (N.D. Cal. 2005).

176

United States v. Vela, 486 F. Supp. 2d 587, 590 (W.D. Tex. 2005).

177

DEP’T OF ENERGY, SMART GRID SYSTEM REPORT vi (2009), available at http://energy.gov/sites/prod/files/oeprod/

DocumentsandMedia/SGSRMain_090707_lowres.pdf.

178

Id.

179

United States v. Kyllo, 533 U.S. 27, 29 (2001).

180

United States v. McIntyre, 646 F.3d 1107, 1111-12 (8th Cir. 2011).

171

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more invasive than a look at each item in isolation.181 In the case of smart meters, this is the

difference between knowing a person’s monthly energy usage, and being able to discern a

person’s daily activities with considerable accuracy. This theory intersects with dragnet-styled

law enforcement techniques in which the police cast a wide surveillance net, taking in a wealth of

personal information with the goal of finding criminal activity among the stream of data.

Although the Supreme Court has never formally adopted the mosaic theory, there seems to be a

ready-made majority potentially willing to consider it.182 In United States v. Jones, the police used

a GPS tracking device to track Jones’s movements for almost a month.183 The majority, led by

Justice Scalia, held that attaching a GPS device on a vehicle for the purpose of collecting

information constituted a “search” under the Fourth Amendment.184 The physical intrusion, rather

than a Katz-type invasion of privacy, was the lynchpin of the decision.185 Justices Alito and

Sotomayor both agreed that this was a search, but on different grounds. Both discussed an

adaptation of the mosaic theory as prohibiting police from tracking a person for an extended

period of time. Justice Alito, joined by Justices Breyer, Ginsburg, and Kagan, assumed that a

short-term search would not violate the Fourth Amendment, but that “the use of longer term GPS

monitoring in investigations of most offenses impinges on expectations of privacy.”186 Likewise,

Justice Sotomayor agreed with this “incisive” observation, noting that “GPS monitoring generates

a precise, comprehensive record of a person’s public movements that reflects a wealth of detail

about familial, political, professional, religious, and sexual associations.”187 Both of these

comments closely mirror those of the opinion below, which relied on the mosaic theory: “A

person who knows all of another’s travels can deduce whether he is a weekly church goer, a

heavy drinker, a regular at the gym, an unfaithful husband, an outpatient receiving medical

treatment, an associate of particular individuals or political groups—and not just one such fact

about a person, but all such facts.”188

Although the Jones majority did not embrace the mosaic theory, the concurrences demonstrate

that five justices are flirting with the idea. These arguments resemble those made against the

unfettered use of smart meter data. With smart meters, police would have a rich source of

personal data that reveals far more about a person than traditional analog meters. Understanding a

person’s daily activities, including what appliances he is using, is a far leap from knowing his

monthly energy usage. This is the difference between knowing about a single trip a person took

and monitoring his movements over a month-long period. The breadth and granularity of the

smart meter data may be seen as warranting application of the mosaic theory and may perhaps

find receptive ears on the Court.

Additionally, the dragnet theory may apply to collection of energy usage data. This theory states

that surveillance normally permitted under the Fourth Amendment—such as monitoring a

person’s movements on a public street—becomes an impermissible invasion of privacy when

181

See Cent. Intelligence Agency v. Sims, 471 U.S. 159, 178 (1985).

See Orin Kerr, VOLOKH CONSPIRACY, What’s the Status of the Mosaic Theory After Jones?, http://volokh.com/2012/

01/23/whats-the-status-of-the-mosaic-theory-after-jones/.

183

United States v. Jones, 565 U.S. ___, 2 (2012).

184

Id. at 3.

185

Id. at 4.

186

Id. at 13 (Alito, J., concurring in the judgment).

187

Id. at 3 (Sotomayor, J., concurring in the judgment and the opinion).

188

United States v. Maynard, 615 F.3d 544, 562 (D.C. Cir. 2010).

182

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conducted on a prolonged, 24-hour basis.189 “If such dragnet-type law enforcement practices as

respondent envisions should eventually occur,” Justice Rehnquist asserted earlier in United States

v. Knotts, “there will be time enough then to determine whether different constitutional principles

may be applicable.”190 Twenty-four hour access to our intimate daily activities, including what

appliances we use, when we take our daily shower or bath, eat, and sleep, may push smart meters

into the dragnet category.

Coinciding with the mosaic and dragnet theories is the difference in sophistication and the

quantity of the data revealed between traditional third-party cases and smart meters. Comparing

Smith with Katz provides insight into this distinction. Pen registers, as used in Smith, have

“limited capabilities”—they can only record the numbers dialed from a phone.191 In comparison,

in Katz the police listened to the contents of Katz’s phone call—the actual words spoken.192 In

noting this distinction, it seems the Smith Court, in permitting the use of pen registers,

intentionally limited its holding to the discrete set of data conveyed—the telephone numbers

dialed. Smart meters, to the contrary, have the potential to collect and aggregate precise detail

about the activities inside the home. It is more than one packet of data, but reveals minute-byminute activity, something far more revealing, and arguably more like Katz than Smith.

Assumption of the Risk—Consent

The third difference between traditional third-party cases and smart meters is the nature of

services involved and whether the customer actually assumes the risk or consents to this

information being shared with others. Assumption of the risk and consent are the two leading

theories supporting the third-party doctrine. In United States v. Miller, the customer “assumed the

risk” that the bank would turn over the bank records to government authorities.193 That was a risk

he took in doing business with the bank. As to the consent theory, one commentator asked and

answered the question as follows: “When does a person’s choice to disclose information to a

third-party constitute consent to a search? So long as a person knows that they are disclosing

information to a third-party, their choice to do so is voluntary and the consent valid.”194

With banking or telephone services, a customer has the option of transferring his business to

another bank or another telephone carrier.195 To the contrary, because electric utilities are

essentially monopolies, the customer cannot simply switch services. The only way to avoid the

recordation of his electric usage is to terminate his utility service altogether, an impracticable

option in modern society. As one state court has noted:

Electricity, even more than telephone service, is a “necessary component” of modern life,

pervading every aspect of an individual’s business and personal life: it heats our homes,

189

Id. at 558.

United States v. Knotts, 460 U.S. 276, 283-84 (1983). Because this statement was not essential to the holding, it was

dictum: persuasive, but not binding.

191

Smith, 442 U.S at 741 (citing Katz v. United States, 389 U.S. 347 (1967)).

192

Katz, 389 U.S. at 348.

193

Smith, 442 U.S. at 744 (citing United States v. Miller, 425 U.S. 435 (1976)).

194

Kerr, Third-Party Doctrine, supra note 115, at 588.

195

Contra Smith, 442 U.S. at 750 (Marshall, J., dissenting) (“[U]nless a person is prepared to forgo use of what for

many has become a personal or professional necessity, he cannot help but accept the risk of surveillance. It is idle to

speak of “assuming” the risk in contexts where, as a practical matter, individuals have no realistic alternative.”).

190

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powers our appliances, and lights our nights. A requirement of receiving this service is the

disclosure to the power company (and in this case an agent of the state) of one’s identity and

the amount of electricity being used. The nature of electrical service requires the disclosure

of this information, but that disclosure is only for the limited business purpose of obtaining

the service.196

It is not clear whether assumption of the risk or consent should apply to smart meters. It is

reasonable to assume that customers understand utility companies must collect usage data to bill

the customer for that usage. Customers receive their statement each month demonstrating this

fact. However, most customers are probably not familiar with the sophistication of smart meters

and the detailed data sets that can be derived from them. Even if customers are aware their utility

usage can be recorded in sub-fifteen minute intervals, a reasonable customer would probably be

surprised, if not shocked, to know that data from smart meters can potentially be used to pinpoint

the usage of specific appliances. If knowledge of the sophistication of the data is a prerequisite to

assumption of the risk or consent, it is difficult to say whether a reasonable customer would

understand the privacy implications with this new technology.197

Because smart meters are an emerging technology not yet judicially tested, it is difficult to

conclude with certainty how they would be handled under the Fourth Amendment. Further,

beyond the possible constitutional implications of smart meters, federal communication and

privacy statutes may also apply. As noted by Professor Kerr, “in recent decades, legislative

privacy rules governing new technologies have proven roughly as privacy protective, and quite

often more protective than, parallel Fourth Amendment rules.”198

Statutory Protection of Smart Meter Data

This section discusses federal statutory protections that may be applicable to the contents of

communications sent by a smart meter, independent of the Fourth Amendment, while they are

either stored within the smart meter prior to transmission, during transmission, or after they have

been delivered to the utility. Three federal laws, the Electronic Communications Privacy Act

(ECPA),199 the Stored Communications Act (SCA),200 and the Computer Fraud and Abuse Act

(CFAA)201 may be applicable to these situations and are discussed in more detail below.

196

In re Restraint of Maxfield, 133 Wn.2d 332, 341 (Wash. 1997); see also Balough, supra note 63, at 185.

Cf. United States v. Warshak, 631 F.3d 266, 288 (6th Cir. 2010) (“Miller involved simple business records, as

opposed to the potentially unlimited variety of ‘confidential communications’ at issue here.”).

198

Kerr, Fourth Amendment and New Technologies, supra note 114, at 806.

199

For more detailed information on ECPA, see CRS Report R41733, Privacy: An Overview of the Electronic

Communications Privacy Act, by (name redacted).

200

For a more detailed discussion of the SCA, see CRS Report R41733, Privacy: An Overview of the Electronic

Communications Privacy Act, by (name redacted).

201

For more detailed information on the CFAA, see CRS Report 97-1025, Cybercrime: An Overview of the Federal

Computer Fraud and Abuse Statute and Related Federal Criminal Laws, by (name redacted).

197

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The Electronic Communications Privacy Act (ECPA)

ECPA, enacted in 1986, “addresses the interception of wire, oral and electronic

communications.”202 The statute defines electronic communications as “any transfer of signs,

signals, writing, images, sounds, data, or intelligence of any nature transmitted in whole or in part

by a wire, radio, electromagnetic, photoelectronic or photooptical system that affects interstate or

foreign commerce....”203 Based on the description of the smart meter network provided above,204

the envisioned transmission of customers’ energy usage data by smart meters would seem to fall

squarely within the definition of electronic communications under ECPA.

ECPA generally prohibits the interception of electronic communications, but also provides a

mechanism for government entities to conduct such surveillance, and a number of other

exceptions.205 Additionally, the statute provides that interception under the procedures and

exceptions set forth in ECPA, or pursuant to the Foreign Intelligence Surveillance Act, are the

exclusive means for intercepting electronic communications.206 The unlawful interception of

electronic communications in violation of ECPA is generally punishable by imprisonment for not

more than five years and/or a fine of not more than $250,000 for individuals and not more than

$500,000 for organizations.207

Of particular relevance to the immediate discussion is the fact that ECPA permits interception of

an electronic communication where a party to the communication has consented to such

interception.208 In the context of a smart meter network that is the subject of this report, it appears

that the utility would be a party to all of the communication sent by the smart meters, since it is

primarily receiving that information for its own billing purposes. Therefore, if the utility consents

to law enforcement’s interception of the traffic which is addressed to it, that surveillance would

not appear to violate the prohibitions in ECPA.

ECPA also provides a procedural mechanism for law enforcement to conduct surveillance

activities for investigative purposes without the consent of any party to the communication. The

statute limits the types of criminal cases in which electronic surveillance may be used209 and

requires court orders authorizing electronic surveillance to be supported by probable cause to

believe that the target is engaged in criminal activities, that normal investigative techniques are

202

S.Rept. 99-541 at 3.

18 U.S.C. §2510(12).

204

See supra note 47 and accompanying text (noting that smart meters may use a variety of communications

technologies, including fiber optics, wireless networks, satellite, and broadband over power line).

205

18 U.S.C. §2516. Exceptions cover things such as interception with the consent of a party to the communication and

interception by communication service providers as an incident to providing service.

206

18 U.S.C. §2511(2)(f). FISA defines electronic surveillance to include more than the interception of wire, oral, or

electronic communications, 50 U.S.C. §1801(f), but places limitations on its definition based upon the location or

identity of some or all of the parties to the communications involved.

207

“Except as provided in (b) of this subsection or in subsection (5), whoever violates subsection (1) of this section

shall be fined under this title or imprisoned not more than five years, or both.” 18 U.S.C. §2511(4)(a).

208

18 U.S.C. §2511(2)(c).

209

The list of covered criminal provisions can be found at 18 U.S.C. §2516(1), and includes offenses such as violence

at international airports; animal enterprise terrorism; arson; bribery of public officials and witnesses; unlawful use of

explosives; fraud by wire, radio, or television; terrorist attacks against mass transportation; sexual exploitation of

children; narcotics production and trafficking; and many others.

203

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insufficient, and that the facilities that are the subject of surveillance will be used by the target.210

It also limits the use and dissemination of information intercepted.211 In addition, when an

interception order expires, authorities must notify those whose communications have been

intercepted.212 Law enforcement may also conduct electronic surveillance when acting in an

emergency situation pending issuance of a court order.213

The government may also conduct electronic surveillance under the authority of the Foreign

Intelligence Surveillance Act (FISA). FISA governs the gathering of information about foreign

powers, including international terrorist organizations, and agents of foreign powers.214 Although

it is often discussed in relation to the prevention of terrorism, it applies to the gathering of foreign

intelligence information for other purposes.215 Although some exceptions apply, such as for

emergency situations,216 the government typically must obtain a court order, supported by

probable cause, from the Foreign Intelligence Surveillance Court (FISC), a neutral judicial

decision maker, in order to conduct electronic surveillance pursuant to FISA.217

The Stored Communications Act (SCA)

The SCA was enacted in 1986 as Title II of the Electronic Communications Privacy Act

(ECPA),218 to “address[] access to stored wire and electronic communications and transactional

records.”219 The SCA prohibits unauthorized persons from accessing a facility through which an

electronic communication service (ECS) is provided; or obtaining, altering, or preventing access

to an electronic communication while it is in electronic storage in an ECS.220 The SCA also limits

the circumstances in which providers of ECS or a remote computing service (RCS) may disclose

information that they carry or maintain.221 The SCA also provides a mechanism by which law

enforcement may compel the disclosure of stored communications.222

The terms “electronic communication service,” “remote computing services,” and “electronic

storage” are all specifically defined by the SCA. As described above, the SCA applies only to

providers of either an ECS or an RCS; stored communications held by other types of entities are

not protected by the SCA. Therefore, in order to determine whether the SCA would protect stored

information collected by a smart meter, this report will first examine whether a utility’s

deployment of a smart meter network falls within the definition of an ECS or an RCS and then

210

18 U.S.C. §§2516, 2518(3).

18 U.S.C. §2517.

212

18 U.S.C. §2518(8).

213

18 U.S.C. §2518(7).

214

See 50 U.S.C. §1801(a) (definition of “foreign power”).

215

For example, it extends to the collection of information necessary for the conduct of foreign affairs. See 50 U.S.C.

§1801(e) (definition of “foreign intelligence information”).

216

50 U.S.C. §1805(e).

217

50 U.S.C. §§1801-1808. FISA authorizes electronic surveillance without a FISA order in specified instances

involving communications between foreign powers. 50 U.S.C. §1802.

218

P.L. 99-508.

219

S.Rept. 99-541 at 3.

220

18 U.S.C. §2701(a). Unauthorized access includes exceeding an authorization to use the facility. Id.

221

18 U.S.C. §2702.

222

18 U.S.C. §2703.

211

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discuss the protections and disclosure restrictions that might apply to any smart meter network

that qualifies as an ECS or RCS.

Electronic Communication Services

An ECS is defined by the SCA as any service which provides users “the ability to send or receive

wire or electronic communications.”223 The statute also defines an “electronic communication” as

“any transfer of signs, signals, writing, images, sounds, data, or intelligence of any nature

transmitted in whole or in part by a wire, radio, electromagnetic, photoelectronic or photooptical

system that affects interstate or foreign commerce.”224 As described above, one of the essential

functions of a smart meter would appear to be the capability to transmit consumer electricity

usage data to the smart grid using a variety of communications technologies.225 These

transmissions would seem to fall neatly within the SCA’s definition of an electronic

communication. Therefore, whether a smart meter network would qualify as an ECS would likely

depend on whether the deployed smart meters could be said to be providing this ability to users.

It is not clear whether it would be accurate to categorically describe smart meters as providing

customers with “the ability to send or receive” communications. It could be argued that a utility

customer would use the smart meter to transmit usage information to the utility, in the same way

that the same customer uses a traditional meter to record household electricity usage over a

billing period. However, the Ninth Circuit has suggested that an ECS should not include

situations in which electronic communications are used only “as an incident to providing some

other service, as is the case with a street-front shop that requires potential customers to speak into

an intercom device before permitting entry, or a ‘drive-thru’ restaurant that allows customers to

place orders via a two-way intercom located beside the drive-up lane.”226 On one hand, it may not

be accurate to describe utility customers as users of smart meters at all, particularly if the

deployment of such smart meters is intended principally for the benefit of the utility and does not

change the experience of utility customers. On the other hand, some of the proposed uses of

deployed smart meters may include using collected data for the benefit of the customers, for

example by determining the energy efficiency of specific household appliances.227 As a result, the

ultimate classification of a particular smart meter network as an ECS may depend largely on the

specific facts present, such as the manner in which it is marketed, or the ostensible purposes for

which the transmissions are intended to be used.

If a smart meter network qualifies as an ECS, then transmissions containing smart meter data

would be protected under the SCA only while such transmissions are in electronic storage, as that

term is defined by the statute.228 Therefore, one must first determine whether, and under what

circumstances, the data collected by a smart meter network is in electronic storage in order to

determine what protections apply.

223

18 U.S.C. §2510(15).

18 U.S.C. §2510(12). Wire communications are defined as communications containing the human voice and are not

implicated here. 18 U.S.C. §2510(1).

225

See supra note 47 and accompanying text.

226

Company v. United States (In re United States), 349 F.3d 1132, 1141 (9th Cir. 2003) (holding that definition of ECS

includes service that provides drivers with the ability to make phone calls from their car for directory assistance,

driving directions, or roadside assistance because those activities are intrinsically communicative).

227

See supra note 8.

228

18 U.S.C. §2701.

224

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For purposes of the SCA, a communication is in electronic storage at an ECS if it is in temporary,

intermediate storage incidental to electronic transmission or in storage for backup protection.229

As applied to the smart meter network, data residing on the smart meter itself prior to being sent

to the utility would appear to be in electronic storage, as such storage is likely temporary and

undertaken solely in anticipation of some eventual transmission to the utility. In contrast, once the

data has arrived at the utility and resides on its servers, it may no longer be in temporary or

intermediate storage. However, some form of the communications may still be being held for

backup purposes, and in such a case might be considered in electronic storage under the statute.

To the extent that the data would be considered in electronic storage, either while on the meter or

on the utility’s computers, the data would appear to be subject to the SCA’s provisions applicable

to providers of ECS.

The SCA prohibits intentionally accessing without authorization, a facility through which an ECS

is provided and obtaining, altering, or preventing access to an electronic communication while it

is in electronic storage.230 Criminal penalties for violating the SCA’s prohibitions on unauthorized

access start at imprisonment for not more than one year (not more than five years for a

subsequent conviction) and/or a fine of not more than $100,000.231 However, violations

committed for malicious, mercenary, tortious or criminal purposes are subject to higher penalties

and may be punished by imprisonment for not more than five years (not more than 10 years for a

subsequent conviction) and/or a fine of not more than $250,000 (not more than $500,000 for

organizations).232 Victims of a violation of the SCA also have a civil cause of action for equitable

relief, reasonable attorneys’ fees and costs, and damages equal to the loss and gain associated

with the offense but not less than $1,000.233

The SCA generally restricts the ability of providers of ECS to disclose the contents of

communications in electronic storage, if the ECS is offering those services to the public.234

However, the statute also permits certain disclosures to law enforcement. Such permitted

disclosures by a provider of electronic communication services to law enforcement can be either

voluntary or compelled. Normally, voluntary disclosure to law enforcement is authorized only if

the contents of the communication were inadvertently obtained by the service provider and

appear to pertain to the commission of a crime.235 However, it should be noted that the utility in

this case appears to be the intended recipient of all communications sent over the smart meter

network, and the SCA’s restrictions on disclosures of electronically stored information held by

ECS or RCS providers may generally be overcome if an intended recipient of the communication

consents to the disclosure.236 Consequently, the utility may have more latitude to share

communications in electronic storage with law enforcement than a traditional provider of ECS,

such as a telephone company, would have.

229

18 U.S.C. §2510(17).

18 U.S.C. §2701(a). Unauthorized access includes exceeding an authorization to use the facility. Id.

231

18 U.S.C. §2701(b)(2).

232

18 U.S.C. §2701(b)(1).

233

18 U.S.C. §2707.

234

18 U.S.C. §2702(a)(1) (“a person or entity providing an electronic communication service to the public shall not

knowingly divulge to any person or entity the contents of a communication while in electronic storage by that

service”).

235

18 U.S.C. §2702(b)(7).

236

See 18 U.S.C. §2702(b)(3).

230

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For purposes of compelled disclosures to law enforcement, the SCA distinguishes between recent

communications and those that have been in electronic storage for more than 180 days. A search

warrant is required to compel providers to disclose communications held in electronic storage for

180 days or less.237 However, communications held for more than 180 days may be obtained by

law enforcement through a warrant, subpoena, or a court order supported by specific and

articulable facts sufficient to establish reasonable grounds to believe that the contents are relevant

and material to an ongoing criminal investigation.238 Customers whose communications have

been disclosed are generally required to be given notice of such disclosure, but such disclosure

may be delayed if notification might result in endangering the life or physical safety of an

individual; flight from prosecution; destruction of or tampering with evidence; intimidation of

potential witnesses; or otherwise seriously jeopardizing an investigation or unduly delaying a

trial.239

Remote Computing Services

It is likely that the classification of a smart meter network as an RCS would similarly be factdependent. The SCA defines an RCS as a service in which computer storage or processing

services by means of an ECS are provided to the public.240 It is conceivable that the data collected

by smart meters may in fact be stored or processed by the utility, but there is no indication that

such storage or processing would be categorically provided as a service to the public, rather than

solely for the utility’s internal benefit.241 If such service is not provided to the public, then it

would likely be inaccurate to classify the smart meter network as an RCS. However, if one of the

features of a particular smart meter deployment is to give customers the ability to store or process

their usage data, then it would appear to qualify as an RCS.

For those smart meter networks which qualify as an RCS, the SCA generally protects the contents

of electronically transmitted communications “carried or maintained on that service” for

customers of the service. Disclosures of such information are generally prohibited,242 but the SCA

also provides a means for law enforcement to obtain access to the contents of such

communications. The government may obtain a warrant supported by probable cause, or use a

subpoena or a court order supported by specific and articulable facts sufficient to establish

reasonable grounds to believe that the contents are relevant and material to an ongoing criminal

investigation.243 However, use of a subpoena or court order supported by specific and articulable

facts also requires the government to give prior notice to the customer whose information is

sought, unless particular circumstances warrant delayed notice.244 RCS customers whose

237

18 U.S.C. §2703(a).

18 U.S.C. §2703(d). Some courts have held that this “reasonable grounds” standard is a less demanding standard

than “probable cause.” See In re Application of the United States, 620 F.3d 304, 313 (3d Cir. 2010) (“We also conclude

that this [§2703(d)] standard is a lesser one than probable cause.”).

239

18 U.S.C. §2705(a).

240

18 U.S.C. §2711(2).

241

However, if some other service provided by the utility allows the data collected by a smart meter to be stored or

manipulated for the benefit of the utility’s customers, it is possible that this system would fall within the definition of

an RCS.

242

The SCA allows providers of an RCS to disclose stored communications with the consent of the subscriber of an

RCS. 18 U.S.C. §2702(b)(3).

243

18 U.S.C. §2703(b)(1).

244

18 U.S.C. §2703(b)(1)(B).

238

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communications have been disclosed in violation of the SCA may pursue a civil cause of action

for equitable relief, reasonable attorneys’ fees and costs, and damages equal to the loss and gain

associated with the offense but not less than $1,000.245

The Computer Fraud and Abuse Act (CFAA)

The Computer Fraud and Abuse Act (CFAA) prohibits intentionally accessing and obtaining

information from a computer used in or affecting interstate commerce, without authorization or in

excess of a granted authorization.246 The definition of a computer for purposes of the CFAA is “an

electronic, magnetic, optical, electrochemical, or other high speed data processing device

performing logical, arithmetic, or storage functions, and includes any data storage facility or

communications facility directly related to or operating in conjunction with such device”

excluding “an automated typewriter or typesetter, a portable hand held calculator, or other similar

device....”247

The servers on a utility’s network would likely fall squarely within the definition of a computer

under the CFAA. Similarly, smart meters themselves also appear to meet the definition of a

computer, insofar as they store customers’ energy usage data and also perform logical operations

by routing transmissions across the utility’s network. Additionally, in light of the significant role

that energy utilities play in the modern economy, the smart meter network would also likely be

considered to have an effect on interstate commerce, even if they operate entirely within one

state. Therefore, intentionally gaining access to the utility’s servers or smart meters to obtain

customer data would likely constitute a violation of the CFAA if done without the utility’s

authorization or in excess of an authorization granted by the utility.

The criminal penalties for violating the unauthorized access provisions of the CFAA have a three

tier sentencing structure. Simple violations are punished as misdemeanors, imprisonment for not

more than one year and/or a fine of not more than $100,000 ($200,000 for organizations).248 At

the next level, cases in which: “(i) the offense was committed for purposes of commercial

advantage or private financial gain; (ii) the offense was committed in furtherance of any criminal

or tortious act in violation of the Constitution or laws of the United States or of any State; or (iii)

the value of the information obtained exceeds $5,000” may be punished by imprisonment for not

more than five years and/or a fine of not more $250,000 ($500,000 for organizations).249 The third

tier is for repeat offenders whose punishment is increased to imprisonment of not more than 10

years and/or a fine of not more than $250,000 ($500,000 for organizations) for a second or

subsequent conviction.250

245

18 U.S.C. §2707.

18 U.S.C. §1030(a)(2). For more detailed information on the CFAA, see CRS Report 97-1025, Cybercrime: An

Overview of the Federal Computer Fraud and Abuse Statute and Related Federal Criminal Laws, by (name redacted).

247

18 U.S.C. §1030(e)(1).

248

18 U.S.C. §1030(c)(2)(A).

249

18 U.S.C. §1030(c)(2)(B).

250

18 U.S.C. §§1030(c), 3571.

246

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The Federal Trade Commission Act (FTC Act)

Section 5 of the FTC Act prohibits “unfair or deceptive acts or practices in or affecting

commerce”251 and gives the Federal Trade Commission (FTC) jurisdiction to bring enforcement

actions against “persons, partnerships, or corporations” that engage in these practices.252 In the

past, the FTC has used its authority under Section 5 to take action against businesses that violate

their own privacy policies or that fail to adequately safeguard a consumer’s personal

information.253 Although there do not appear to be any cases in which the FTC has taken action

against an electric utility for failing to protect consumer smart meter data, the Commission would

have authority to enforce Section 5 against a utility that fell within its statutory jurisdiction.

Covered Electric Utilities

This section considers whether the FTC would have Section 5 jurisdiction over each of the four

types of electric utilities identified by the Energy Information Administration (EIA): investorowned, publicly owned, federally owned, and cooperative.254 It finds that the FTC clearly has

jurisdiction over investor-owned utilities. It is unclear whether the Commission has jurisdiction

over publicly owned utilities or federally owned utilities. The FTC could enforce Section 5

against for-profit electric cooperatives, and case law suggests that nonprofit electric cooperatives

may also be subject to the act’s requirements.

The FTC has jurisdiction to enforce Section 5 against “persons, partnerships, or corporations,”

with exceptions not applicable here.255 Utilities that are “persons” or “partnerships” would be

subject to the FTC’s enforcement powers automatically,256 as the statute does not provide any

additional jurisdictional requirements for these entities. Most electric utilities, however, are

organized as legal entities that would potentially fit within the definition of “corporation.” The

FTC Act states that, for the purposes of Section 5, the term “corporation”:

shall be deemed to include any company, trust, so-called Massachusetts trust, or association,

incorporated or unincorporated, which is organized to carry on business for its own profit or

that of its members, and has shares of capital or capital stock or certificates of interest, and

any company, trust, so-called Massachusetts trust, or association, incorporated or

unincorporated, without shares of capital or capital stock or certificates of interest, except

partnerships, which is organized to carry on business for its own profit or that of its

members.257

251

15 U.S.C. §45(a)(1).

15 U.S.C. §45(a)(2).

253

See “Enforcement of Data Privacy and Security,” infra p. 41; see also NIST PRIVACY REPORT, supra note 11, at 23

n.48.

254

ENERGY INFO. ADMIN., ELECTRIC POWER INDUSTRY OVERVIEW (2007) [hereinafter EIA ELECTRIC POWER

OVERVIEW], available at http://www.eia.gov/cneaf/electricity/page/prim2/toc2.html.

255

15 U.S.C. §45(a)(2).

256

The FTC Act does not further define “persons” or “partnerships” or impose any additional jurisdictional

requirements on these entities in the way that it does for “corporations.” See 15 U.S.C. §44.

257

15 U.S.C. §44.

252

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This definition, particularly in its use of the words “shall be deemed to include,” suggests that a

wide variety of legal entities could potentially constitute “corporations.” Moreover, in California

Dental Ass’n v. FTC, the Supreme Court remarked that the “FTC Act directs the Commission to

prevent the broad set of entities under its jurisdiction” from violating Section 5.258 In that case,

the Court found that the term “corporation” also included nonprofit entities, so long as they

imparted significant economic benefit to their members.259 Thus, as the Court’s opinion

demonstrates, the key question when determining whether an entity is a “corporation” for the

purposes of Section 5 jurisdiction is not what legal form the entity takes, but rather whether the

entity is “organized to carry on business for its own profit or that of its members.”

Investor-Owned Utilities

Investor-owned utilities are clearly subject to the FTC’s Section 5 jurisdiction as “corporations.”

The EIA defines investor-owned electric utilities as those that “have the fundamental objective of

producing a profit for their investors” and distributing these profits as dividends or reinvesting

them in the business.260 These utilities satisfy the definition of “corporation” under the statute

because they are companies organized to carry on business for the profit of their investors.261

Publicly Owned Utilities

It is unclear whether the FTC has Section 5 jurisdiction over publicly owned utilities. The agency

probably lacks jurisdiction over these utilities if it characterizes them as “corporations,” but it is

possible that it may have jurisdiction over them if it characterizes them as “persons.” Publicly

owned utilities include “municipals, public utility districts and public power districts, State

authorities, irrigation districts, and joint municipal action agencies.”262 The EIA describes these as

“nonprofit government entities that are organized at either the local or State level,” are exempt

from state and federal income taxes, and “provide service to their communities and nearby

consumers at cost.”263 In contrast to investor-owned utilities or cooperatively owned utilities,

publicly owned utilities obtain capital by issuing debt rather than selling an ownership interest in

the utility to investors or members.264

As “Corporations”

Publicly owned utilities probably do not fall within the FTC’s Section 5 jurisdiction over

“corporations” because they are not organized to carry on business for profit. Rather,

governments form these utilities for the sole purpose of distributing electricity to consumers at

258

Cal. Dental Ass’n v. FTC, 526 U.S. 756, 768 (1999) (emphasis added) (internal quotation marks omitted).

Id. at 766-69.

260

EIA ELECTRIC POWER OVERVIEW, supra note 254.

261

Indeed, the FTC has asserted Section 5 jurisdiction over holding companies with investor-owned electric utility

subsidiaries in the past. See, e.g., DTE Energy Co., 131 F.T.C. 962 (May 15, 2001) (complaint); CMS Energy Corp.,

127 F.T.C. 827 (June 2, 1999) (complaint). See also In re DTE Energy Co., FTC File No. 001 0067 (May 15, 2001)

(consent order); In re CMS Energy Corp., FTC File No. 991 0046 (June 2, 1999) (consent order).

262

EIA ELECTRIC POWER OVERVIEW, supra note 254.

263

Id.

264

DAVID E. MCNABB, PUBLIC UTILITIES: MANAGEMENT CHALLENGES FOR THE 21ST CENTURY 165 (2005).

259

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cost.265 Significantly, when publicly owned utilities realize net income—that is, revenues they

earn in excess of their expenses—they either (1) use it to finance their operations in lieu of

issuing more debt,266 or (2) transfer it to the general fund of the political subdivision that they

serve.267 These utilities typically lack investors or members to which they could distribute net

income as dividends.268 Thus, publicly owned utilities are probably not “organized to carry on

business” for profit and are probably exempt from the FTC’s Section 5 jurisdiction if

characterized as “corporations.”

As “Persons”

It is unclear whether a court would find that the FTC has Section 5 jurisdiction over publicly

owned utilities as “persons,” as a court could employ several different canons of statutory

interpretation when deciding whether “persons” includes state or local government entities.269 In

the 1980s, the FTC attempted to assert Section 5 jurisdiction over two state-chartered municipal

corporations—the cities of New Orleans and Minneapolis—as “persons,” alleging that the cities

engaged in unfair methods of competition by assisting taxicab companies in maintaining high

prices and stifling competition.270 The Commission later withdrew both complaints, and thus no

court considered whether jurisdiction was proper. More recently, the Commission has asserted

jurisdiction over state government agencies that regulate certain professions such as dentistry,271

optometry,272 and funeral services.273

There appears to be only one court case that engages in a full discussion and interpretation of the

meaning of “persons” under Section 5. In California State Board of Optometry v. FTC, the D.C.

Circuit Court of Appeals considered “whether a State acting in its sovereign capacity is a ‘person’

within the FTC’s enforcement jurisdiction.”274 The FTC had issued a rule declaring “certain state

laws restricting the practice of optometry to be unfair acts or practices.”275 Petitioners, which

were state boards of optometry and professional associations, argued that the court should strike

down the rule because it went beyond the FTC’s statutory authority.276 In vacating the rule, the

court found nothing in the relevant provisions of the FTC Act “to indicate that Congress intended

to authorize the FTC to reach the ‘acts or practices’ of States acting in their sovereign

capacities.”277

265

EIA ELECTRIC POWER OVERVIEW, supra note 254.

MCNABB, supra note 264, at 165.

267

EIA ELECTRIC POWER OVERVIEW, supra note 254.

268

MCNABB, supra note 264, at 165.

269

In contrast to entities that are “corporations,” the FTC does not have to show that entities qualifying as “persons” are

organized for profit. See 15 U.S.C. §44.

270

In re City of Minneapolis, 105 F.T.C. 304 (May 7, 1985) (order withdrawing complaint); In re City of New Orleans,

105 F.T.C. 1 (January 3, 1985) (order withdrawing complaint).

271

In re N.C. State Bd. of Dental Exam’rs, 151 F.T.C. 607 (February 3, 2011) (state action opinion); In re South

Carolina State Bd. of Dentistry, 138 F.T.C. 229 (September 12, 2003) (complaint).

272

In re Mass. Board of Registration in Optometry, 110 F.T.C. 549 (June 13, 1988) (decision).

273

In re Va. Bd. of Funeral Dirs. & Embalmers, 138 F.T.C. 645 (October 1, 2004) (complaint).

274

910 F.2d 976, 979 (D.C. Cir. 1990).

275

Id. at 978.

276

Id. at 978-79.

277

Id. at 980, 982.

266

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A court approaching the question of whether “persons” includes publicly owned utilities would

start with the language of the statute. Courts traditionally give broad deference to an agency when

the agency interprets the extent of its own jurisdiction unless the reach of its jurisdiction is clear

from reading the statute “under ordinary principles of construction.”278 Attempting to discern the

Commission’s jurisdiction under Section 5 of the FTC Act is difficult, as the statute does not

define the term “persons” for the purposes of that provision. Title 1, Section 1 of the United

States Code (the Dictionary Act) provides: “In determining the meaning of any Act of Congress,

unless the context indicates otherwise ... the words ‘person’ and ‘whoever’ include corporations,

companies, associations, firms, partnerships, societies, and joint stock companies, as well as

individuals.”279

However, the context in which “persons” appears in Section 5 probably forecloses the use of the

default definition of “person” in the Dictionary Act. In Section 5, Congress listed the terms

“persons,” “partnerships,” and “corporations” separately, which indicates that it intended to give

each term independent significance. The terms “corporations” and “partnerships” would not have

independent meaning in Section 5 if the term “persons” in Section 5 included the entities listed in

the Dictionary Act. Furthermore, the FTC Act requires that “corporations” be organized for their

own profit or the profit of their members in order for the FTC to exercise jurisdiction over

them—a requirement it does not impose on the other entities.280 By reading the term “persons” to

include the entities listed in the Dictionary Act, the FTC could evade this additional requirement

simply by bringing its complaint against an entity as a “person” rather than a “corporation”—a

result that Congress probably did not intend. Thus, a court that ended its analysis here could find

that the meaning of “persons” remains ambiguous. The court could then choose to defer to the

FTC’s broad interpretation of its own jurisdiction under the Supreme Court’s decision in Chevron

U.S.A., Inc. v. NRDC, Inc.281

The California Optometry court, however, declined to defer to the FTC’s interpretation of its own

jurisdiction because it found that principles of federalism outweighed Chevron deference.282

Quoting the Supreme Court’s decision in Will v. Michigan Department of State Police,283 the

278

See Cal. Dental Ass’n v. FTC, 526 U.S. 756, 765-66 (1999) (“Respondent urges deference to this interpretation of

the Commission’s jurisdiction as reasonable. But we have no occasion to review the call for deference here, the

interpretation urged in respondent’s brief being clearly the better reading of the statute under ordinary principles of

construction.”) (internal citations omitted); see also Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 842-43 (1984).

279

1 U.S.C. §1 (emphasis added).

280

See 15 U.S.C. §44.

281

Chevron, 467 U.S. at 842-43. In that case, the Court held that

When a court reviews an agency’s construction of the statute which it administers, it is confronted

with two questions. First, always, is the question whether Congress has directly spoken to the

precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the

court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.

If, however, the court determines Congress has not directly addressed the precise question at issue,

the court does not simply impose its own construction on the statute, as would be necessary in the

absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect

to the specific issue, the question for the court is whether the agency’s answer is based on a

permissible construction of the statute. Id.

282

Todd H. Cohen, Double Vision: The FTC, State Regulation, and Deciding What’s Best for Consumers, 59 GEO.

WASH. L. REV. 1249, 1267 (1991) (“In sum, the California State Board of Optometry court relied on federalism

principles to justify protecting state interests. The court extended the judicially-created Parker state action doctrine to

cover FTC trade regulation rules and applied the clear statement doctrine to prevent the FTC from invalidating a state

law as unfair without additional congressional action.”).

283

491 U.S. 58 (1989).

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California Optometry court stated that “in common usage, the term person does not include the

sovereign, and statutes employing the word are ordinarily construed to exclude it.”284 In the Will

case, the Court considered whether the term “person” as it appeared in 42 U.S.C. §1983 included

a state.285 The Court held that it did not, invoking the principles of federalism when it wrote that

“[t]his approach is particularly applicable where it is claimed that Congress has subjected the

States to liability to which they had not been subject before.”286 The Court found that the statute’s

language fell “far short of satisfying the ordinary rule of statutory construction that if Congress

intends to alter the ‘usual constitutional balance between the States and Federal Government,’ it

must make its intention to do so ‘unmistakably clear in the language of the statute.’”287

The Court’s decision in Will, as interpreted by the D.C. Circuit in California Optometry, suggests

that Congress must clearly indicate in a particular statute when it wishes to subject states to a new

form of liability, particularly when this would change the balance between state and federal

authority by intruding on the actions a state takes in its sovereign capacity. There does not appear

to be a clear indication that Congress intended the word “persons” in the FTC Act to subject

publicly owned utilities to FTC enforcement actions.288 Thus, if the FTC’s enforcement of Section

5 against a publicly owned utility would alter the balance between the state and federal

governments, a court might read “persons” to exclude these utilities. As the California Optometry

court indicated, whether the balance is altered may depend on whether the operation of the utility

amounts to the state acting in its sovereign capacity (balance altered) or merely engaging in a

proprietary function (balance not altered).289 The California Optometry court suggested that

whether a state is acting in its sovereign capacity or engaging in a proprietary function may vary

according to the antitrust laws’ state action doctrine, a multi-pronged analysis that is beyond the

scope of this report.290 If a court found that the state was acting in its sovereign capacity when the

state (or one of its subdivisions) operated an electric utility, the court could hold that the FTC

does not have Section 5 jurisdiction because of the federalism principles and clear statement rule

that guided the interpretation of the statute in Will and were adopted by the court in California

Optometry.291

A third possible choice for a court would be to adopt the reasoning of the FTC and find that

Congress clearly intended “persons” to include government entities, because under the other

antitrust laws, the term “persons” includes state and local government entities, and the antitrust

284

California Optometry, 910 F.2d 976, 980 (D.C. Cir. 1990) (internal quotation marks omitted).

Will, 491 U.S. at 60.

286

Id. at 64.

287

Id. at 65 (citations omitted).

288

Representative Covington, the sponsor of the act, explained during floor debate on the measure that Section 5

“embraces within the scope of that section every kind of person, natural or artificial, who may be engaged in interstate

commerce.”51 CONG. REC. 14,928 (1914). Despite this remark, courts have not taken such a broad view of the FTC’s

jurisdiction under the act. Even the Supreme Court has held that there are some limits on the entities covered by

Section 5. See Cal. Dental Ass’n v. FTC, 526 U.S. 756, 766-67 (1999) (requiring, for jurisdiction, that a “proximate

relation” must exist between the activities of a nonprofit and the benefit it provides to its members, and implying that

the activities must confer “more than de minimis or merely presumed economic benefits” on the members).

289

See California Optometry, 910 F.2d at 980-81 (“This rule of statutory construction serves to ensure that the States’

sovereignty interests are adequately protected by the political process.”).

290

Id. at 980. For more information on the factors that courts consider when making this determination, see FED. TRADE

COMM’N, REPORT OF THE STATE ACTION TASK FORCE (2003), available at http://www.ftc.gov/os/2003/09/

stateactionreport.pdf.

291

See Cohen, supra note 282, at 1267.

285

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laws, including the FTC Act,292 should be read together.293 The California Optometry court

acknowledged this argument, writing that “several Supreme Court decisions hold that a State is a

person for purposes of the antitrust laws.”294 The court ultimately rejected the argument, however,

because it found that “when a State acts in a sovereign rather than a proprietary capacity, it is

exempt from the antitrust laws even though those actions may restrain trade,” and that this state

action doctrine may “limit the reach of the FTC’s enforcement jurisdiction.”295 Thus, if a court

found that a state acted in its proprietary capacity when the state (or one of its subdivisions)

operated a public utility, then the state action doctrine would not apply, and it would be possible

for a court to find jurisdiction even under the California Optometry case. The FTC has advanced

this reasoning, arguing that the state boards over which it asserts jurisdiction do not amount to the

states acting in their sovereign capacities.296 Whether the operation of a particular publicly owned

utility consists of the state acting in its sovereign capacity or engaging in a proprietary function

may vary according to the antitrust laws’ state action doctrine, a multi-pronged analysis that is

beyond the scope of this report.297

Thus, whether a court would find that the word “persons” in Section 5 includes certain

government entities such as publicly owned utilities is unclear because it may depend on which, if

any, of several principles of statutory construction the court adopts. A court could, among other

options: (1) find that the meaning of “persons” in Section 5 is ambiguous, and thus defer to the

FTC’s broad interpretation of its own jurisdiction because of the Chevron doctrine; (2) find that

the statute is ambiguous, but that principles of federalism outweigh the court’s usual Chevron

deference to the Commission’s interpretation of its own jurisdiction—a determination that may

require a court to find that the state is acting in its sovereign capacity when the state (or one of its

subdivisions) operates an electric utility; or (3) find that Congress clearly intended “persons” to

include government entities because Section 5 should be read together with the other antitrust

laws, under which the term “person” includes state and local government entities—a

determination that may require a court to find that the state is performing a proprietary function

when the state (or one of its subdivisions) operates a utility.

Federally Owned Utilities

It is unclear whether the FTC could enforce Section 5 against a federally owned utility. Indeed,

there does not appear to be any case in which the FTC has sought to enforce Section 5 against a

federal agency.298 The FTC probably lacks Section 5 jurisdiction over the nine federally owned

292

Although this report focuses on the FTC’s consumer law cases under Section 5 (“unfair or deceptive acts or

practices”), and not its antitrust cases (“unfair methods of competition”), both types of prohibited activities share the

same phrase for the purposes of determining the agency’s jurisdiction: “persons, partnerships, or corporations.” See 15

U.S.C. §45(a)(2).

293

See In re Mass. Board of Registration in Optometry, 110 F.T.C. 549 (June 13, 1988) (decision) (citations omitted).

294

California Optometry, 910 F.2d at 980 (citations omitted).

295

Id. at 980 (citation omitted).

296

See, e.g., In re N.C. State Bd. of Dental Exam’rs, 151 F.T.C. 607 (February 3, 2011) (state action opinion); In re

Mass. Board of Registration in Optometry, 110 F.T.C. 549 (June 13, 1988) (decision).

297

For more information on the factors that courts consider when making this determination, see FED. TRADE COMM’N,

REPORT OF THE STATE ACTION TASK FORCE (2003), available at http://www.ftc.gov/os/2003/09/stateactionreport.pdf.

298

This report does not consider whether any constitutional implications would result if the FTC, an independent

executive branch agency, brought an enforcement proceeding against another executive branch agency. See generally

Michael Eric Herz, When Can the Federal Government Sue Itself?, 32 WM. & MARY L. REV. 893 (1991).

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utilities operating in the United States299 if it characterizes them as “corporations.” Like publicly

owned utilities, federally owned utilities are not organized for profit. As the EIA notes, “federal

power is not sold for profit, but to recover the costs of operations and repay the Treasury for

funds borrowed to construct generation and transmission facilities.”300 If the Commission

characterizes these utilities as “persons,” it is unclear whether a court would find that this term

includes government entities.301

As a practical matter, FTC enforcement of Section 5 against federally owned utilities is probably

unnecessary in the context of smart meter data because of other federal laws, such as the Privacy

Act,302 that would likely protect this data when it is stored in records systems maintained by

federal agencies, including federally owned utilities.303

Cooperatively Owned Utilities

For-profit electric cooperatives would clearly fall within the Commission’s Section 5 jurisdiction

over “corporations” operated for their own profit or that of their members.304 Indeed, the FTC has

maintained jurisdiction over for-profit cooperatives as “corporations” in the past, including a rural

healthcare cooperative305 and a wine maker.306 However, it appears that most electric

cooperatives—and particularly the cooperatives that will receive funds under the Department of

Energy’s Smart Grid Investment Grant program—are nonprofits.307

It is possible that the FTC would have Section 5 jurisdiction over these nonprofit electric

cooperatives as “corporations” organized for profit. These distribution utilities are owned by the

“consumers they serve,” and those that are tax-exempt must “provide electric service to their

members at cost, as that term is defined by the Internal Revenue Service.”308 However, when the

activities of a cooperative result in revenues that exceed the cooperative’s costs, these “net

margins ... are considered a contribution of equity by the members that are required to be returned

to the members consistent with the organization’s bylaws and lender limitations imposed as a

condition of loans.”309 Thus, in contrast to publicly owned utilities, which typically transfer any

net income to the general fund of the government that they serve, electric cooperatives return net

margins to their members as equity, and when that equity is retired by the board of directors,

members receive cash payments.310 Although it does not appear that a court has considered

299

EIA ELECTRIC POWER OVERVIEW, supra note 254. Among these utilities are the Tennessee Valley Authority, the

four power marketing administrations in the Department of Energy, and the Army Corps of Engineers. Id.

300

Id.

301

See supra notes 269-97 and accompanying text.

302

5 U.S.C. §552a.

303

See “The Federal Privacy Act of 1974,” infra p. 45.

304

15 U.S.C. §44.

305

In re Minn. Rural Health Coop., FTC File No. 051 0199 (December 28, 2010) (decision and order).

306

In re Heublein, Inc., 96 F.T.C. 385 (October 7, 1980) (final order).

307

See DEP’T OF ENERGY, CASE STUDY – NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION SMART GRID

INVESTMENT GRANT 1, available at http://energy.gov/sites/prod/files/oeprod/DocumentsandMedia/

NRECA_case_study.pdf.

308

EIA ELECTRIC POWER OVERVIEW, supra note 254.

309

Id. “Net margins” is the term given to “revenues in excess of the cost of providing service.” Id.

310

See, e.g., Cent. Rural Electric Coop., Patronage Capital, http://www.crec.coop/CRECAdvantage/PatronageCapital/

tabid/711/Default.aspx (“Allocated patronage capital appears as an entry on the permanent financial records of the

(continued...)

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whether the FTC has Section 5 jurisdiction over a nonprofit electric cooperative that returns its

net margins to its consumer-members in addition to providing them with electricity service, the

Supreme Court, as well as lower federal courts, have issued guidance on factors that a court may

consider in answering this question.

Applicable Law

Under Section 5, the FTC Act requires that a “corporation” be “organized to carry on business for

its own profit or that of its members.”311 In California Dental Ass’n v. FTC, the Court considered

whether the FTC could enforce Section 5 against a “voluntary nonprofit association of local

dental societies” that was exempt from paying federal income tax and furnished its members with

“advantageous insurance and preferential financing arrangements” in addition to lobbying,

litigating, and advertising on their behalf.312 The Court found that the FTC had jurisdiction over

the California Dental Association as a “corporation,” stating that

the FTC Act is at pains to include not only an entity “organized to carry on business for its

own profit,” but also one that carries on business for the profit “of its members.” While such

a supportive organization may be devoted to helping its members in ways beyond immediate

enhancement of profit, no one here has claimed that such an entity must devote itself singlemindedly to the profit of others. It could, indeed, hardly be supposed that Congress intended

such a restricted notion of covered supporting organizations, with the opportunity this would

bring with it for avoiding jurisdiction where the purposes of the FTC Act would obviously

call for asserting it.313

The Court declined to specify the percentage of a nonprofit entity’s activities that must be “aimed

at its members’ pecuniary benefit” to subject it to FTC jurisdiction.314 However, the Court wrote

that a “proximate relation” must exist between the activities of the entity and the profits of its

members, and implied that the activities must confer “more than de minimis or merely presumed

economic benefits” on the members.315 The Court’s justification for this result was that “nonprofit

entities organized on behalf of for-profit members have the same capacity and derivatively, at

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cooperative and reflect [sic] your equity or ownership in CREC. When patronage capital is retired, a check or bill credit

is issued to you and your equity in the cooperative is reduced. ... When considering a retirement, the board analyzes the

financial health of the cooperative and will not authorize a retirement that will adversely affect the financial integrity of

the cooperative.”); Fall River Rural Electric Coop., Patronage Capital, http://www.frrec.com/myAccount/

patronageCapital.aspx (“The Cooperative’s Board of Directors retires patronage capital when finances allow, often on

an annual basis. The oldest patronage capital is retired first. Fall River currently retires patronage capital on a rotation

of approximately 20 years.”); Kauai Island Util. Coop., Member Patronage Capital Information, http://www.kiuc.coop/

member_patcap-qa.htm (“A portion of Patronage Capital may be periodically paid to the members upon approval of the

Board of Directors and our lenders.”); Sulphur Springs Valley Electric Coop., Inc., Patronage Capital Credits,

http://www.ssvec.org/?page_id=583 (“Capital credits represent your share of the Cooperative’s margins – margins are

the operating revenue remaining after operating expenses. The amount assigned in your name depends on your energy

purchases. To calculate this, we divide your annual energy purchase by the Cooperative’s operating income for the

year. The more electricity you buy, the more capital credits you earn.”).

311

15 U.S.C. §44 (emphasis added).

312

526 U.S. 756, 759-60, 767 (1999).

313

Id. at 766 (internal citations omitted).

314

Id.

315

Id. at 766-67.

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least, the same incentives as for-profit organizations to engage in unfair methods of competition

or unfair and deceptive acts.”316

It is clear that the FTC may still have Section 5 jurisdiction even when the benefits that a

nonprofit provides to its members are secondary to its charitable functions. In American Medical

Ass’n v. FTC, the Second Circuit considered whether the FTC could enforce Section 5 against

three medical professional associations, including the American Medical Association (AMA), a

nonprofit corporation composed of “physicians, osteopaths, and medical students.”317 The court,

acknowledging that the associations served “both the business and non-business interests of their

member physicians,” found jurisdiction because the “business aspects” of their activities,

including lobbying for members and offering business advice to them, subjected them to the

FTC’s jurisdiction despite the fact that the business aspects “were considered secondary to the

charitable and social aspects of their work.”318

When determining whether jurisdiction exists, a court may consider other factors in addition to

the benefits that the nonprofit provides to its members. In Community Blood Bank v. FTC, the

Eighth Circuit considered whether a “corporation” included all nonprofit corporations.319 The

appeals court held that the FTC lacked Section 5 jurisdiction over nonprofit blood banks because

the banks’ activities did not result in “profit” in the sense of “gain from business or investment

over and above expenditures.”320 The blood banks, the court observed, lacked shares of capital,

capital stock, or certificates, and were “organized for and actually engaged in business for only

charitable purposes.”321 One bank’s articles of incorporation touted the entity’s charitable

purposes, and all of the banks were exempt from paying federal income taxes.322 Upon

dissolution, the corporations would transfer their assets to other charitable or nonprofit

organizations.323 In addition, none of the funds collected by the blood banks had “ever been

distributed or inured to the benefit of any of their members, directors or officers.”324 The court

found that these factors made the blood banks “charitable organizations” both “in law and in

fact,” exempting them from the FTC’s Section 5 jurisdiction.325

Analysis

The case law suggests several factors that a court may weigh when determining whether a private,

nonprofit entity composed of members, such as an electric cooperative, is subject to the FTC’s

Section 5 jurisdiction as a “corporation.”326 The most significant factor is whether the nonprofit

316

Id. at 768.

638 F.2d 443, 446 (1980).

318

Id. at 448. The court noted in passing that the AMA’s articles of incorporation stated that one purpose of the

organization was to “safeguard the material interests of the medical profession.” Id.

319

405 F.2d 1011, 1015 (8th Cir. 1969).

320

See id. at 1017. The court also remarked that at least one case had established that “even though a corporation’s

income exceeds its disbursements its nonprofit character is not necessarily destroyed.” Id.

321

Id. at 1020, 1022.

322

Id. at 1020.

323

Id.

324

Id.

325

Id. at 1019.

326

This analysis assumes that a court would extend the holdings of the applicable case law, which covered entities

organized as nonprofit corporations and professional associations, to include entities organized as nonprofit electric

(continued...)

317

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provides an economic benefit to its members that is more than de minimis and that is proximately

related to the nonprofit’s activities. This benefit need not be the sole—or even primary—function

of the nonprofit. Additional factors that the case law suggests weigh in favor of a finding of

jurisdiction include that the nonprofit: (1) has gain from its business or investments that exceeds

its expenditures; (2) has shares of capital or capital stock or certificates; (3) is not organized

solely for charitable purposes or does not engage only in charitable work; (4) has articles of

incorporation that list profit-seeking objectives; (5) is subject to federal income tax liability; (6)

would distribute its assets to profit-seeking entities upon dissolution; and (7) distributes any of

the funds it collects to its members, directors, or officers.

It is possible that the FTC has Section 5 jurisdiction over nonprofit electric cooperatives, although

the outcome in any particular case may depend on the characteristics of the individual utility. A

court could find that the typical nonprofit electric cooperative provides “economic benefit” to its

members in at least two ways: (a) by providing electricity service to members;327 and (b) by

returning net margins to members in the form of patronage capital, which is an ownership interest

in the cooperative that is later converted to cash payments to members when that capital is

retired.328 With regard to (a), it is likely that a court would find that electricity service is an

“economic benefit” as defined in the case law. In California Dental Ass’n, the nonprofit

professional association provided “advantageous insurance and preferential financing

arrangements,” as well as lobbying, litigation, and advertising services to its members.329 In

American Medical Ass’n, the nonprofit lobbied on behalf of its members and offered business

advice to members.330 These benefits, it is assumed, enabled the members to more easily conduct

business profitably. Electricity service allows people to conduct activities at all times of the day,

and thus provides a similar and clearly significant economic benefit to those who use it, whether

for business or recreational purposes. As the primary objective of an electric cooperative is to

provide electricity service to members, the necessary proximate relation between the activities of

the nonprofit and the benefit to its members clearly exists.

Despite its pecuniary nature, there are a few problems with considering benefit (b), patronage

capital, to be an “economic benefit” as defined by the Court. First, it is not clear that patronage

capital actually is a benefit. A court could view patronage capital as a no-interest loan from the

consumer-member to the utility,331 or, because it is typically allocated to member accounts in a

manner proportional to members’ spending on electricity, simply a refund of money collected

from the members that reflects the actual cost of providing service in a particular year.332 If

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cooperatives.

327

Many cooperatives provide other services to their communities that could constitute “economic benefits.” The

National Rural Electric Cooperative Association notes that, “In addition to electric service, many electric co-ops are

involved in community development and revitalization projects” that include “small business development and jobs

creation, improvement of water and sewer systems, and assistance in delivery of health care and educational services.”

Nat’l Rural Electric Coop. Ass’n, Member Directory, http://www.nreca.coop/members/MemberDirectory/Pages/

default.aspx.

328

See sources cited supra note 310.

329

Cal. Dental Ass’n v. FTC, 526 U.S. 756, 759-60, 767 (1999).

330

Am. Med. Ass’n v. FTC, 638 F.2d 443, 448 (1980).

331

See, e.g., Cent. Rural Electric Coop., Patronage Capital, http://www.crec.coop/CRECAdvantage/PatronageCapital/

tabid/711/Default.aspx (“These margins represent an interest-free loan of operating capital by the membership to the

cooperative.”).

332

See, e.g., Kauai Island Util. Coop., Member Patronage Capital Information, http://www.kiuc.coop/member_patcap(continued...)

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adopted by a court, neither of these characterizations would appear to be consistent with the

“profit” that the statute describes333 or the “economic benefit” that the Supreme Court requires for

a nonprofit to be a “corporation.”

Second, even if a court found patronage capital to be an economic benefit, it is not clear that it is

more than de minimis. Patronage capital must be “retired” before members receive cash payments

for it.334 Retirements are made at the discretion of the cooperative’s board of directors because the

capital is needed to finance the cooperative’s ongoing expenses, and thus retirement of a class of

capital typically occurs after a long rotation period, such as 20 years.335 Although the Supreme

Court did not hold that an “economic benefit” must produce immediate advantage to the members

of a nonprofit, a court could potentially view the decades-long delay in cash payments as

significantly decreasing the degree of economic benefit that the capital provides. In addition,

patronage capital would probably be considered de minimis if the cooperative’s net margins were

small, as this would mean that little capital would be issued to members. It is thus difficult to

discern whether a court would find that an economic benefit accrues to members as a result of

their receipt of patronage capital, which nevertheless probably bears the requisite “proximate

relation” to the activities of the cooperative that produce any net margins distributed as capital.

With regard to the additional factors, those favoring jurisdiction include (2) cooperatives typically

have shares of capital stock, including patronage capital;336 (3) cooperatives do not operate solely

for the benefit of the people outside of the organization like the nonprofits in Community Blood

Bank did because cooperatives provide electricity service and patronage capital to their

members;337 and (7) an electric cooperative typically returns any net margins to members in the

form of patronage capital, an ownership interest refunded to consumer-members as cash when the

capital is retired.338 Factors that cannot be evaluated because they are specific to each individual

cooperative include (1) whether the revenues of the cooperative exceed its expenditures; (4) the

particular objectives listed in a cooperative’s articles of incorporation or other foundational

document; (5) whether a nonprofit electric cooperative is exempt from federal income tax

liability, which depends on whether it meets the requirements under Section 501(c)(12) of the

Internal Revenue Code;339 and (6) whether a cooperative would distribute its assets to profitseeking entities upon dissolution—a factor that also may depend on state laws.340

It is likely that a court would find that nonprofit electric cooperatives impart economic benefits to

their members by distributing electricity to them or, possibly, by issuing patronage capital to

them. However, because many of the other factors that courts consider may differ for each

(...continued)

qa.htm (characterizing the retirement of patronage capital as a “refund”).

333

15 U.S.C. §44.

334

See sources cited supra note 310.

335

See id.

336

See Nat’l Rural Electric Coop. Ass’n, Seven Cooperative Principles, http://www.nreca.coop/members/

SevenCoopPrinciples/Pages/default.aspx (describing “Members’ Economic Participation”).

337

Whether electricity service and patronage capital, which are clearly benefits, constitute “economic benefits” within

the meaning of the Supreme Court’s holding in California Dental Ass’n is a separate question.

338

See sources cited supra note 310.

339

I.R.C. §501(c)(12).

340

See Cmty. Blood Bank v. FTC, 405 F.2d 1011, 1020 (8th Cir. 1969).

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particular cooperative, it is not possible to draw any general conclusions about whether the FTC

would have Section 5 jurisdiction over these entities as “corporations.”

Enforcement of Data Privacy and Security

If the FTC has Section 5 jurisdiction over a particular electric utility, it may bring an enforcement

action against the utility if its privacy or security practices with regard to consumer smart meter

data constitute “unfair or deceptive acts or practices in or affecting commerce.”341 The FTC Act

defines an “unfair” act or practice as one that “causes or is likely to cause substantial injury to

consumers which is not reasonably avoidable by consumers themselves and not outweighed by

countervailing benefits to consumers or to competition.”342 According to the FTC, an act or

practice is “deceptive” if it is a material “representation, omission or practice” that is likely to

mislead a consumer acting reasonably in the circumstances.343 The history of the Commission’s

enforcement of consumer data privacy and security practices shows that the agency has brought

complaints against entities that (1) engage in “deceptive” acts or practices by failing to comply

with their stated privacy policies; or (2) employ “unfair” practices by failing to adequately secure

consumer data from unauthorized parties.344 Often, conduct constituting a violation could fall

under either category, as a failure to protect consumer data may be an unfair practice because of

the unavoidable injury it causes, as well as a deceptive practice because it renders an entity’s

“Deceptive” Privacy Statements

A utility that fails to comply with its own privacy policy may engage in a “deceptive” act or

practice under Section 5 of the FTC Act. In Facebook, Inc., the FTC alleged, among other things,

that the social networking site violated promises contained in its privacy policy when it made

users’ personal information accessible to third parties without users’ consent.345 Facebook had

claimed that users could limit third-party access to their personal information on the site. Despite

this promise, applications run by users’ Facebook friends were able to access the users’ personal

information. The Commission also charged that Facebook altered its privacy practices without

users’ consent, causing personal information that had been restricted by users to be available to

third parties. This change, which allegedly “caused harm to users, including, but not limited to,

threats to their health and safety, and unauthorized revelation of their affiliations” constituted both

a “deceptive” and an “unfair” practice in the view of the Commission.346 Finally, the Commission

alleged that Facebook had represented to users that it would not share their personal information

with advertisers but had done so anyway.

341

15 U.S.C. §45(a)(1). For more details on FTC enforcement of consumer data privacy and security under Section 5,

see CRS Report RL34120, Federal Information Security and Data Breach Notification Laws, by (name redacted).

342

15 U.S.C. §45(n).

343

In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 174 (1984) (policy statement at end of opinion).

344

See Consumer Privacy: Hearing Before the S. Comm. on Commerce, Sci., and Transp., 11th Cong. (2010) (statement

of Jon D. Leibowitz, Chairman, Fed. Trade Comm’n) (describing the FTC’s enforcement activity in the areas of

consumer data privacy and security), available at http://www.ftc.gov/os/testimony/100727consumerprivacy.pdf. The

FTC recently released a preliminary report on the consumer privacy implications of new technologies. FED. TRADE

COMM’N, PROTECTING CONSUMER PRIVACY IN AN ERA OF RAPID CHANGE: A PROPOSED FRAMEWORK FOR BUSINESSES

AND POLICYMAKERS (2010), available at http://www.ftc.gov/os/2010/12/101201privacyreport.pdf.

345

FTC File No. 092 3184 (November 29, 2011) (complaint).

346

Id.

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In Twitter, Inc., the FTC alleged that the social networking site engaged in “deceptive” acts when

it violated claims made in its privacy policy about the security of consumer data by failing to “use

reasonable and appropriate security measures to prevent unauthorized access to nonpublic user

information.” 347 The Commission found that Twitter had permitted its administrators to access

the site with easy-to-guess passwords and failed to limit the extent of administrators’ access

according to the requirements of their jobs. In a consent order, the company agreed not to

misrepresent its privacy controls and to implement a comprehensive information security

program that would be assessed by an independent third party.348

As smart meter data becomes valuable to third parties,349 utilities may be tempted to sell or share

this information with others to increase revenues and provide new services to their customers. If

prohibited by the terms of the utility’s privacy policy, it may be a “deceptive” act or practice for

the utility to share a consumer’s personal information with third parties without a consumer’s

consent.350 The FTC could also find deception when a utility represents that its privacy controls

are capable of protecting smart meter data when, in fact, they are not.

“Unfair” Failure to Secure Consumer Data

Failure to Protect Against Common Technology Threats or Unauthorized Access

The FTC may consider it an “unfair” practice when an electric utility fails to safeguard smart

meter data from well-known technology threats as the data travels across the utility’s

communications networks. For example, in DSW Inc., the FTC brought enforcement proceedings

against the respondent, the owner of several shoe stores.351 The agency alleged that the

respondent failed to protect customers’ credit card and check information as it was transmitted to

the issuing bank for authorization. The information collected at the register traveled wirelessly to

the store’s computer network, and from there to the bank or check processor, which

communicated its response back to the store through the same channels. The agency charged that

[a]mong other things, respondent (1) created unnecessary risks to the information by storing

it in multiple files when it no longer had a business need to keep th

This text is long and has been trimmed here. Open the source document for the complete record.

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