Do you remember when caveat emptor (buyer beware) was the predominant business attitude about customers? Over time, we’ve witnessed the evolution to what has been declared the Age of the Customer*. Companies that do well in the Age of the Customer will have to excel in their abilities to exploit realtime data to enhance interactions and embrace a customer-centric approach that is integrated across all interaction channels.
While re-orienting mindsets and operations for customers is a smart move, it’s only the first step in an evolutionary process that is unique to utilities and culminates in a new conceptual framework. For utilities, this is the Age of the Prosumer.
The word customer doesn’t adequately describe the relationship that utilities will increasingly have with the humans and assets on the other side of an electric meter. Consumer is a better, more encompassing term. A residential or commercial customer has the direct bill-paying relationship with a utility, but multiple consumers, such as a family unit or multiple business tenants in an office building can be associated with that one customer. But the word consumer is also inadequate to describe the relationship with electric utilities.
Electricity consumers are transforming into prosumers capable of production as well as consumption. A prosumer can generate kilowatts in the form of rooftop solar or create negawatts in the form of participation in a demand response or EV smart charging program. That’s why for utilities, this is the Age of the Prosumer. It’s a uniquely disruptive conceptual framework that will have significant impacts to utility business models.
Why is it unique? It’s unique on several levels. First, it’s not the typical Smart Grid disruption caused by technology, policy, or capital innovation although these drivers will heavily influence the responses that utilities can develop to deal with a world of expanding availability of prosumer choices. Second, it’s a unique designation in industry sectors. No other business sector has the potential for bi-directionality of the transacted product or service. We don’t have similar bi-directional transactions of buying and selling clothes from and to Bloomingdales or remodeling supplies from and to Home Depot. Prosumers can do that with utilities. And that bi-directional transaction is very disruptive. It will require transformations of utility business processes, metrics, best practices, and resource skillsets.
Although utilities will have to adapt in the Age of the Prosumer, they don’t have to reinvent wheels. There’s certainly experience from other business sectors that can speed their successful evolutions. One area that is particularly relevant is consumer value. Consumer value is more than a formula. It’s a mindset that many businesses incorporate into their customer retention, acquisition, and value growth strategies. For example, the telecommunications sector invests considerable time and money to analyses of demographic and behavioral data to identify consumers with the highest real or projected value to them. That knowledge shapes their product and service development, influencer and partnership approaches, customer acquisition and customer retention strategies. The outcomes in increased revenue or customer satisfaction are carefully monitored and measured to ensure programs meet performance expectations.
Utilities need to take the lessons about how to assess consumer value and expand it into definitions of prosumer value that are leveraged in prosumer-centric operations. More on that in next week’s article.
A crisis is a terrible thing to waste. It took a drought of epic proportions to force the Australian nation to radically reform its water policies and practices. California is now in the fourth year of its own serious drought, with growing negative impacts to economies, communities, and ecosystems. While there’s great value in California adopting similar actions that Australia took to manage a dwindling resource, there are great challenges as well.
For starters, California’s water laws are irrational. Senior and junior water claims are based on the timing of gold rush era prospectors nailing pieces of paper to trees adjacent to water sources. Some industry experts estimate that it would take 30 years of full time work just to sort out the claims and hierarchies on water sources before an overhaul could be started. That would be a daunting task here and in other western states governed by similar claim precedents. But it gets worse. California’s water consumers are also irrational. In California, 90% of the state’s water is dedicated to agricultural use. Much of that agriculture is focused on water-intensive crops like cotton and alfalfa. If you’re wondering why a desert climate is producing crops that are better suited to regions with significantly predictable precipitation, you’re not alone.
At that December water conference, California officials seemed most interested in the physical improvements that could be mandated in building codes (such as rain catchments) but deflected questions on how legislation could change California water laws to encourage conservation and agriculture models more suited to desert climates.
There’s an additional complication. California’s primary source of water is winter precipitation that is conveniently stored in the form of snow. It’s very difficult to measure exactly how much snow falls in any given season and accurately predict how much of that snow will melt into useable water in the ensuing summer. Snow water equivalent describes the amount of water contained in snow pack. As you can intuit, dry snow contains less water than wet snow, and sometimes the differences can be as extreme as thirty inches of dry snow for one inch of water versus five inches of wet snow yielding one inch of water.
California’s snowpack, or lack of it, is not just an important source of drinking water. It is also a source of electricity generation in the state. A shrinking snowpack impacts the hydropower that can be generated. It’s a uniquely Californian take on that energy/water nexus, and it’s not a sustainable strategy. There’s a real lack of resiliency in the current water infrastructure that also impacts energy.
There are more available solutions to address hydropower reductions than potable water reductions. The electricity infrastructure is more amenable to optimization through ongoing applications of innovative technologies, policies, and financial capital. More distributed generation plus energy storage can replace some hydropower reductions. But as far as water infrastructure goes, these systems are much more inflexible and much less optimized than their electric grid counterparts. It’s just the early days for deployment of Smart Grid technologies into water infrastructure in California and much of the rest of the USA. But more than that, we’ll need smart water policies and innovations in financing the necessary water infrastructure upgrades to address critical resiliency concerns.
Two important drought-related events happened in California late last year. The state received much-needed rainfall in December, and it convened a daylong conference in Sacramento to compare Australian and Californian water policies. Australia recently survived a “millennium drought” of twelve years duration. The experience resulted in development and deployment of innovative water management policies that serve as excellent examples for California and the rest of the USA.
The Australian government’s complete overhaul of water allocation rights is truly revolutionary. They threw out the old rules and started over. They separated urban and agricultural usage in their policy design and then completed a systemic overhaul of the agricultural water market. An online system documented exchanges and eliminated trade restrictions on water. In essence, it’s a cap and trade system, but instead of carbon emissions the units are water volume. Farmers with the flexibility to grow crops with less water intensity could sell their excess allocation to farmers with water-intense crops.
As is often quoted about electricity, you can’t manage what you can’t measure. It’s equally true about water. Australia invested significant time and financial resources to calculate the amount of water in reservoirs required to sustain the 90% of the population that resides in the southeast. The policy-makers understood the need for a data reset, acknowledging that past data is not necessarily predictive of future outcomes – something especially true as climate changes impact patterns of precipitation and water supply assumptions. As a result, their new policy approach combines technology and data to maximize efficiency at every stage of the water supply chain. If you think this sounds like a Smart Grid philosophy, you are right.
The government also designed incentives to get consumers to conserve as much water as possible. I’ve written before about the value of gamification to increase awareness. The government published a daily report about the liters per person (LPP) used the previous day. This required infrastructure capable of measurement precision, but by publishing daily usage data with 24 hours turnaround, people could recall how they used water the previous day and were thus more fully engaged in personal and community efforts to lower the LPP number. And even though the drought is over, those conservation behaviors are persistent and Australians consume significantly less water now.
Technologies that had the largest water savings impact included decentralized storm water capture and lining aqueducts with impermeable material to prevent seepage and evaporation that results in large losses of useable water. On the data side, accurate measurement of total water supplies and the flow of water through distribution grids identified potable water leaks for immediate repairs. New hydrology data about stream flows and source levels is now monitored to provide very precise allotments of water with minimal losses and overhead.
Australians had a shared pain – they were all in the drought together, and had to put aside political differences to address severely dysfunctional policies that prevented smart water management. They invested in big infrastructure with the aim to increase water supplies with desalination plants and reduce systemic losses through pipeline upgrades. They embraced big data for precise agricultural irrigation and other water saving measures. They harnessed shared social affiliations to engage all consumers in persistent and sustainable water conservation efforts. They did everything with an eye towards protection of the natural resources and especially the riparian ecosystems so important to water supplies.
Could California adopt similar measures? We may be forced to find out if this drought does not end, but there are significant challenges in the way of developing smart statewide water policies and practices, as next week’s article will cover.
Thanks to M2M and Smart Grid technologies, new energy usage data can be invaluable to help intelligently manage energy and reduce utility operations costs and consumer costs. However, new data means new privacy risks for consumers (residential, commercial, industrial, and agricultural), utilities, their vendor communities, and other entities that collect, transmit, use, and/or store that data. As noted in the new book Data Privacy for the Smart Grid*, the variety of entities with access to this data can blur privacy roles and responsibilities. Confusion about data privacy is not a good state of mind for consumers, utilities, vendors, or regulators. Privacy is an outcome of intelligent cyber and physical security technologies, policies and practices, and its protection has to become part of organizational cultures. Look at it this way. Utilities have worked diligently to instill “top of mind” safety procedures in their organizations, because of the many dangers associated with electricity, gas, and water services. We use this analogy in our guidance to utilities and vendors regarding data privacy. A cybersafety culture has to be embedded within utilities and vendors with access to energy usage data. Like safety procedures, regular exercises that identify all potential privacy risk and their mitigations must become an important habit of a cybersafety culture. Think beyond energy usage data too. EV charging, vehicle telematics, and digital health applications produce new data that has considerable privacy implications. Smart Grid technologies that are applied to water can produce new data about water consumption and waste water production that will have similar privacy concerns and risks, as well as other data that delivers personally identifiable information. How do you achieve a cybersafety culture? Here are three suggestions derived from our methodology:
- Try the “chain of data custody” exercise. Can you accurately map out the sensitive data gathered, used, transmitted, or stored in your business processes and who has access to this data? The exercise results may astonish you.
- Ask your employees who is the ultimate owner of energy usage data. If they don’t know, you have a training issue to address. The owner has ultimate control and decision-making authority over their data. Utility customers are explicitly identified as owners of energy usage data in some Sometimes energy usage data is narrowly defined as consumption data. As consumers transform into prosumers capable of generating kilowatts and negawatts (and new data), energy production data ownership must also be addressed.
Wednesday is Data Privacy Day in the USA, and it should receive heightened awareness after the recent Sony Pictures cyberattack. While media attention focused on cybersecurity weaknesses, privacy is the natural consequence of good cybersecurity. Security – cyber and physical – is a strategy that ensures a privacy outcome.
Unfortunately, determined cyberattackers or the deliberate or careless actions of current or former employees can defeat the best cybersecurity and physical security systems. Mandatory privacy policies and protections minimize the risks that sensitive data will be exposed – whatever that data might be. Sensitive data such as social security numbers, bank account information, and personal health records are managed to protect privacy. Utilities already manage sensitive data too, but need to prepare for significant increases in privacy risks.
Sensors are gathering more and/or new types of data. Inexpensive data transmission and storage makes it possible to handle new volumes, varieties, and velocities of data. Smart Grid technologies can deliver new granularity in time-stamped data about consumer use of electricity, gas or water. More M2M technologies can generate location-based data that accurately maps activity over the course of a day.
All these converging technologies increase data privacy risks, and make the publication of Data Privacy for the Smart Grid* very timely. It’s a key reason I helped write it. The Smart Grid delivers a myriad of benefits to utilities and consumers, but it also creates new risks and new concerns about data privacy. Energy usage data is invaluable to help intelligently manage energy and reduce utility operational costs and consumer costs. Privacy risks emerge in questions of how that energy usage data is used, shared, stored and otherwise accessed.
Utilities have prominent roles in the collection of energy usage data, but they may not be the only entities gathering, receiving, storing, or using that data. In the future it is very likely that businesses other than utilities may manage generation assets or water conservation equipment, sell electricity, or collect energy usage data directly from consumers. The variety of potential players coupled with new services and technologies can easily confuse everyone with blurry responsibilities for privacy protection and more exposure risks. Will consumers always know the “chain of data custody” for their energy usage data? The answer is no, and that has serious policy, process, and training implications for utility executives and vendors of solutions capable of gathering, transmitting, and using this data.
This is definitely a situation where what you don’t know about privacy risks can hurt you – in the forms of criminal or civil litigation and financial penalties, bad publicity, lost goodwill, and reputation damage. What steps should utilities and vendors take to protect the privacy of their customers’ energy usage data and the fallouts of failure? The answers are the focus of next week’s article.
* Published by Taylor and Francis Group. Co authors: Christine Hertzog and Rebecca Herold. ISBN: 978-1-46-657337-6. Available for pre-sale now.