Energy consumption data provides sufficient information to describe patterns of behavior that could constitute remote surveillance.  Used appropriately, this is valuable information that can help consumers build awareness and make intelligent choices about energy consumption.  However, and this is a big caveat – this information could also be quite valuable to vendors and service providers who want to learn more about consumer habits, lifestyles, and choices in order to more effectively target marketing campaigns to them.   

Two sessions at the recent EnergySec Summit West addressed privacy issues, which are inextricably linked to security issues.  There is a growing body of work focused on the privacy protections for energy consumption data, including a recent California Public Utilities Commission (CPUC) ruling that considers primary uses of energy consumption data.  Primary uses include analysis of a consumer’s data to identify opportunities for energy savings through actions that range from shifting energy use to hours with cheaper rates and recommendations on replacement of inefficient devices coupled with rebate program information.  As defined by the CPUC, primary users are utilities, their authorized service providers, and consumers.  Secondary users of energy consumption data include appliance manufacturers, data aggregators, agencies, law enforcement and other governmental entities, and advertisers.  Just to be extra confusing, secondary users are also called third parties, and include service providers such as wired and wireless communications carriers. 

There are two troubling aspects to this ruling and to other ongoing work.   First, almost all of the discussion presumes that utilities own the energy consumption data and have the primary relationship with the consumer.  That may be true today, but perhaps future business models and technologies will offer new options in which third parties – those service providers –have the primary relationship with consumers, and do not use smart meters to obtain their data.  Utilities are in the background, delivering electricity, but no value-add services.  Secondly, although the CPUC ruling is quite good about requirements for utilities to make all data available to consumers, there is no direction about how consumers will be educated. 

This lack of guidance about the education of consumers is a real concern.  This is new data, and consumers need to be aware of the potentials for abuse.  It is quite likely that utilities will follow the lead of financial institutions and communications carriers, and produce densely worded privacy policies that appear as an annual insert in one of our bills.  How many consumers read those inserts in the mail or privacy pages on a website?  What we need is plain and simple communications that clearly state the value of this data, and consumer rights around it.  We need consensus around who is responsible to deliver this information, and how educational campaigns are funded.  Without effective education, we may be consigned to learn the hard way about what energy consumption data says about our behaviors within our homes – just like many early adopters of Facebook discovered in posting details about their lives.   Without effective education, we may gain insights, but lose the opportunities for financial compensation in providing access to our data to third parties.  Without effective education, we’ll know much more about how to protect ourselves from electrical hazards, but not the ones generated by energy consumption data. 

But when it comes to consumers, this link in the electricity value chain is lacking in knowledge about the benefits that the Smart Grid delivers.  This knowledge gap has profound implications for utilities.  A recent study from EcoAlign shows that consumer awareness has the potential to go a long way in reducing energy consumption and reducing energy bills (with a concomitant reduction in CO2 emissions).  In fact, the EcoAlign study reveals that a stunning 87% of the respondents would like utilities to suggest ways to reduce their bills.  This is the opportunity and the challenge for utilities.

Utilities can play a distinctly new role with their commercial, industrial, and most especially residential consumers.   Utilities can take on the role of “trusted advisors” with consumers to educate and enlighten them on products, services, and simple behavior changes that reduce energy consumption without impact to lifestyles, comfort, or health.  Trusted advisors can build interactions or engagement with consumers and move beyond the traditional delivery of electrons.  Why is this important?  Historically, the lifetime value of a consumer used to mean that utilities supplied electricity, gas, and/or water, and consumers reliably purchased it, at steadily growing rates of consumption year over year.  However, with consumers expecting utilities to suggest ways to reduce their bills, which means reducing their consumption, lifetime value would be a diminishing number.  That’s not exactly a thriving business model or one that excites a lot of investors.

Utilities that become trusted advisors will have a portfolio of different services beyond the safe and reliable delivery of electricity.  These new services go well beyond the rollout of Demand Response (DR) programs to residential consumers.  New services may include Home Energy Management Systems (HEMS), home health or wellness, or water management services.  Services like these offer intriguing possibilities for utilities to increase the lifetime value of consumers.   And even services that utilities are more accustomed to offering, such as energy efficiency and DR, benefit from utilities taking a more active educational role with consumers.

A 2010 report from the Department of Energy’s Lawrence Berkeley National Lab titled “Coordination of Energy Efficiency and Demand Response” studied opportunities for utilities to offer both energy efficiency and demand response programs as a powerful combination to reduce overall and peak demand.  The conclusion was that the payoffs are substantial, but since these are complicated topics, program participation will require consumer education.  Utilities structured to operate as trusted advisors can provide that education, and will be the organizations that thrive in the future Smart Grid.  Otherwise, utilities may simply deliver electricity, gas, or water and watch other businesses sell services to help consumers manage consumption and other home and business-based activities.

Utilities will have to reorient their operations to take on the trusted advisor role.  Part of the transition includes a thorough communications strategy for internal and external constituencies.  This will be one of the discussion topics in an upcoming webinar on June 21 titled How to Deliver Communications and Education about Smart Grid Benefits to Utility Customers.  Join us to learn more about Smart Grid transformations.

CAISO, following the lead of other ISOs based in the Northeast and Mid-Atlantic states is introducing a new program called Proxy Demand Response or Proxy DR into the wholesale California power market around August of this year.  Demand Response (DR), which is saddled with a terrible name, is a smart energy practice to reduce electricity use at times when demand is greatest.  California has always had DR programs at the retail level (such as residential opt-in programs to change air conditioning temperatures), but the introduction of Proxy DR into the wholesale market has broader implications for California commercial and industrial (C&I) and residential consumers. 

Proxy DR lets companies – not just utilities – be generators of virtual power by reducing energy consumption at times of peak electricity demand.  In other words, you reward the behavior.  In practice, a chain of grocery stores could commit to dimming lights in California stores at high use times to reduce their electricity needs, and receive compensation for their reductions.   Those payments help them keep their operating costs down, which in turn benefit consumers through lower prices for products and services.  Since Proxy DR participation is based on a competitive bidding system, CAISO can award business to the lowest bidders, helping ensure the lowest costs for electricity in its region. 

There are regional and national environmental benefits as well.  Jon Wellinghoff,  Chairman of the Federal Energy Regulatory Commission (FERC) stated that an estimated nationwide 20% reduction in peak electricity demand “if realized, can reduce…the number of power plants needed to meet peak demand and thereby reduce carbon emissions by as much as 1.2 billion tons of carbon annually.”  That’s huge.

In addition to saving money and the environment, Proxy DR is also an important tool to integrate variable renewable energy sources such as solar and wind into the grid.   If you’ve ever been sailing, you understand how fickle the wind can be. The ability to quickly reduce system-wide electricity use through a Proxy DR market program helps ISOs manage variations in electricity production caused by solar or wind through deployment of these virtual generation resources. 

Proxy DR is a creative program that can be used at wholesale and retail power markets, and the retail aspect will be addressed in next week’s blog.  The retail market presents different challenges, and that’s where Smart Grid technologies such as Home Energy Management Systems (HEMS) come into play.  However, as many of my blogs point out, there’s a need for consumer education about this market innovation.  Consumer education and enlightenment models will be discussed at the upcoming Peak Load Management Alliance (PLMA) Spring Conference, where I’ll be one of the panelists delivering perspectives on how to rollout innovative technologies and services.