Oct. 9, 2009 at 8:00 AM ET
Would you sign up for a discount with your power company in exchange for surrendering control of your thermostat? What if it means that, one day, your auto insurance company will know that you regularly arrive home on weekends at 2:15 a.m., just after the bars close?
Welcome to the complex world of the Smart Grid, which may very well pit environmental concerns against thorny privacy issues. If you think such debates are purely philosophical, you're behind the times.Maryland residents this month received fliers offering annual discounts of up to $100 in exchange for allowing their power company, Pepco, to occasionally shut off their air conditioning units during hot days, when demand is high. Pepco says consumers will hardly notice the change, and the two-way communication between utility and appliances will go a long way toward preventing brownouts.
Pepco's discount plan is among the first signs that the futuristic "Smart Grid" has already arrived. Up to three-fourths of the homes in the United States are expected to be placed on the "Smart Grid" in the next decade, collecting and storing data on the habits of their residents by the petabyte. And while there's no reason to believe Pepco or other utilities will share the data with outside firms, some experts are already asking the question: Will saving the planet mean inviting Big Brother into the home? Or at least, as Commerce Secretary Gary Locke recently warned, will privacy concerns be the "Achilles' heel" of the Smart Grid?
To advocates, the Smart Grid means appliances will work in electric harmony: Icemakers will operate only when the washing machine isn't, TVs will shut off when viewers leave the room, and so on. All of these gadgets will be wirelessly connected to the Internet. Households with solar panels will actually be able to sell their excess energy back to the power company. The result: lower power consumption, lower power bills, people and planet happier. That's the grand vision of the Smart Grid, a plan to upgrade power meters and electronic devices so they all constantly communicate.
Dark side of a bright idea
But others see a darker side. Utility companies, by gathering hundreds of billions of data points about us, could reconstruct much of our daily lives -- when we wake up, when we go home, when we go on vacation, perhaps even when we draw a hot bath. They might sell this information to marketing companies -- perhaps a travel agency will send brochures right when the family vacation is about to arrive. Law enforcement officials might use this information against us ("Where were you last night? Home watching TV? That's not what the power company says … "). Divorce lawyers could subpoena the data ("You say you're a good parent, but your children are forced to sleep in 61-degree rooms. For shame ..."). A credit bureau or insurance company could penalize you because your energy use patterns are similar to those of other troublesome consumers. Or criminals could spy the data, then plan home burglaries with fine-tuned accuracy.
Space-aged visions of talking appliances may seem farfetched. They're not. At last month's GridWeek in Washington D.C., hundreds of companies vying for a market some say is as big as the Internet bragged about their new gadgets. Many are competing for the $4.5 billion set aside in the White House's stimulus package for investment in Smart Grid technologies. Already, some 8 million "Smart Meters," with the ability to conduct two-way communication with utility companies, have been installed in U.S. homes. There will be nearly 50 million by 2012. And while we race headlong into the brave new world of hair dryers that have IP addresses, privacy experts like Jules Polonetsky are wondering out loud if we've really thought through all the implications.
"The potential benefits of the Smart Grid are fabulous," he said. "I just think that it's critical that sober and adequate thinking be done at this stage. We must do this right or we could hamper the rollout of the Smart Grid and you could have folks unwilling to participate. ... We are trying to help before it's too late."
Polonetsky, director of The Future of Privacy Forum, heads a small crowd of researchers who are asking important questions about the future of our futuristic power delivery plans.
"Knowing what's going on in people's homes … this strikes at some of our most core values," he said.
Eli Quinn, a research analyst at the Center for Energy and Environmental Security in Boulder, Colo., convinced that state's public utility commission to hold hearings on the grid and privacy after he published two papers on the subject.
"The biggest privacy danger is it's hard to wrap your head around the unintended consequences," he said. "It's not that different from the privacy risks of Facebook or other technologies … but it's a lot more surprising to people what you can conclude from detailed electricity usage information."
Larry Ponemon, a privacy auditor who runs The Ponemon Institute, said it's often hard to get consumers and regulators to focus on potential privacy issues ahead of time.
"Most people don't think about the issues until they become a victim of a privacy abuse," he said. "I see the privacy issues here as potentially serious. I'm not sure if I trust the utilities. It's hard to know how that information would be appended to other information and be used against consumers."
As an example, he cited recent moves by banks to target customers who shop at stores that are frequented by consumers with low credit scores. Some are having the credit limits lowered merely because of where they shop -- a guilt-by-association model that infuriates some consumers. (It was first observed by msnbc.com a year ago.)
Privacy expert Alessandro Acquisti, who studies the intersection of economics and privacy at Carnegie Mellon University, said privacy issues routinely arise even when companies that collect data do so with all good intention. Many times, data that collected is harmless in isolation, but becomes troublesome when combined with other data, or examined by a third party for patterns.
As an example, in 2006, America Online posted what it thought were anonymized searches from its service. But observers quickly learned how to connect searches to individuals, creating a black eye for AOL and embarrassing hundreds of users.
More recently, students at MIT created a formula they say can predict which Facebook users might be gay, based on their public friend listings.
"This is the great challenge we face in the privacy realm," he said. "Often when data is combined, you can draw inferences that are unexpected."
'Tsunami of information'
Given the sheer avalanche of data that is going to be generated by Smart Meters that talk back to the grid, it's easy to imagine unintended consequences. Utility companies sometimes collect only two meter readings per year on a customer. Smart meters can easily send two readings per hour.
"It could mean more data than you've ever collected," he said. "It's a tsunami of information. … I don't know that companies appreciate how much data is coming."
According to a recent discussion by experts at Smart Grid Security, here's a quick explanation of the sudden explosion in data. In the United Kingdom, for example, 44 million homes had been creating 88 million data entries per year. Under a new two-way, smart system, new meters would create 32 billion data entries. Pacific Gas & Electric of California says it plans to collect 170 megabytes of data per smart meter, per year. And if about 100 million meters are installed as expected in the United States by 2019, 100 petabytes (a million gigabytes) of data could be generated during the next 10 years.
Utility companies could adopt a European approach called "data minimalization," Ponemon said. Firms in Europe are legally bound to collect as little information as is necessary to complete a transaction, and they must delete the data as soon as it is no longer needed. That's unlikely, however.
"Once a company monetizes data it collects, even if the amount is small, it is very reluctant to give it up," he said. Many companies he audits have robust privacy policies but end up using information in ways that frustrate or cost consumers, he said. "They talk a good game, but I'm sure (utility companies) will find ways to use the data, and not necessarily to benefit people but to harm people."
Data creep will inevitably happen. Already, some consumers are getting statements that compare their use to neighbors' usage -- and "overusage" premium pricing isn't far behind. But what if the comparisons aren't fair? Most families would want to be compared to similar families -- how much power do three teen-ager daughter households use?
Cost savings, efficient allocation
Acquisti, who wears dual hats as both an economist and privacy expert, says consumers should not expect the worst from Smart Meters and the Smart Grid. In general, he says, more information is helpful to any economic system.
"I do not want people to be paranoid," he said. "Information from the Smart Grid could lead to cost savings and more efficient allocation of resources."
The key, he said, often lies in setting consumer expectations ahead of time. In numerous studies of consumer attitudes towards data collection, Acquisti has found what seems like contradictory attitudes, with users angry at some companies while pleased with others. But he thinks it boils down to transparency.
"If a consumer knows what is gathered and why, they can be comfortable with it. But when news comes out because of an investigative report in the news, they get angry. Even if it is the very same information used in the same way," he said.
Polonetsky hopes utility companies have learned something from the missteps of Internet firms through the years. Early on, many consumers reflexively deleted Internet cookies in part because didn't understand what they were, and how they helped the consumer experience. They also didn't trust Web sites after a few embarrassing news stories.
But not all Web firms suffered that fate.
"Amazon is doing well, but they are tracking the books you buy. But they are also making suggestions," he said. "I think people feel, 'Hey, you are doing something for me.' And that's ok."
The key, he said, will be the actions of utility companies early on in the Smart Grid upgrade process. They need to "recognize that they will be having complicated conversations with customers" and work to build trust now, before the digital makeover begins in earnest. After all, many consumers might prefer that their security alarm system be automatically armed if the lights on the house have been dark for two days, as long as someone explains the benefits to them.
"This is all coming very quickly and we don't have the history of how to understand whether people will or won't want these things," he said.
Already, complaints of high bills
Discounts, like the one offered to Maryland consumers, could certainly serve as the carrot that entices U.S. power users to sign up for smart meters, and agree to allow collection of data. But some consumers already feel new meters are being used as sticks instead of carrots.
When California's Pacific Gas & Electric flipped the switch on smart meters earlier this year, a cascade of complaints followed. A host said their energy bills doubled the first month after the smart meters were installed. Complaints have been so vocal that the California state Legislature recently held a hearing about it. One consumer, Jane Hahn, said her August power bill soared 422 percent, to $735, over the same month a year ago.
That's hardly the way to win over a potentially skeptical population. Still, someone will have to pay for installation of two-way electronic sensors in the system. The data mining and marketing opportunities may prove too tempting, since they could fund much of the upgrade. But doing so could create a backlash that could place the entire upgrade in peril.
"Will the folks involved learn from the mistakes of the past?" Polonetsky said. "Will the grid end up with a marketing model, with unease and distrust, and complaints that 'I didn't even know you had this data.' Or will it be 'How can I respect your data' and will this model evolve as the best of Web 2.0 … giving people control of their information and great new tools? "
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To see a sample working smart meter, including dollars spent per hour and hour of highest consumption, click here.