Is data the new oil? Why access to energy data matters for customers and businesses

Blog_18

Fingers are feeling a bit rusty as I return to writing after my November hiatus but I am glad to be back. I took the month off to focus on some exciting developments on the work front which I am excited to share more about in my January piece. But, before I do that, I wanted to spend some time on the importance of consumer access to energy data, why the current state of affairs is less than optimal for end customers and the grid as a whole, and lastly propose some models from other sectors the energy industry could learn from.

The state of data privacy and access in the US today

First, it’s helpful to set context around how data access and data privacy works today in the United States. Unlike many of our developed nation peers, the US does not have federal-level data portability laws that cover all industries. Instead, we have a patchwork of different regulatory bodies covering only a few industries, primarily finance and healthcare, that design and enforce specific policies on rights to data privacy, access, and portability within those sectors.

This lack of an overarching federal standard means some industries are left to suffer without the benefits of easily accessible data, while players in other industries have proactively responded and developed their own corporate data access policies. This has produced some interesting outcomes in the private sector — most notably, private companies like Apple and Google making changes to their products’ privacy requirements that are having major impacts on third parties whose businesses rely on access to data collected by the two companies.

The specific examples of Apple and Google are interesting because they highlight the outsized impacts of policy changes by large, near-monopolistic firms on all other actors in their respective ecosystems. In the case of Apple, it announced big changes to IDFA (ID for Advertisers) which shift the default setting from IDFA turned on to IDFA turned off until users opt-in, basically requiring third party applications on Apple devices to explicitly seek consent to track users. By adding this opt-in step, more customers are likely to refuse to consent, thus hampering companies’ ability to collect user data for monetization purposes. Furthermore, this will allow Apple to productize first-party customer data via their own APIs. Google is taking a similar approach and introducing greater privacy via the deprecation of third-party cookies, which have historically allowed online marketers generous access to users’ browser data without their explicit consent.

These changes by Apple and Google will adversely impact B2C and B2B marketers trying to identify and target potential customers and measure performance of online marketing campaigns. However, it will also force third parties to design privacy-first solutions to leveraging customer data, which seems like a happy medium to strike between full, unfettered access to user data and antagonistic walling off of customer data in the name of privacy. Hopefully, in the face of slow or nonexistent regulatory action to establish a universal federal data privacy standard, other industries, including energy, can learn how to strike a similar balance between privacy and access.

Note: If you’re interested in learning more about Apple and Google’s privacy changes I recommend this summary.

Focusing on data access in energy

Now turning to energy — why does access to this data matter in the first place? As end users of energy increasingly own the distributed assets that comprise a growing share of supply and demand nodes on the grid, it makes sense that they should be able to access, understand, and share data on their energy usage with any third party they please — it is their data, after all. Alas, that is not what happens today. Since utilities own and operate the distribution-level grid on which all customer energy usage data travels, they are the default collectors and stores of the individual usage data generated by customers. Though that data belongs to the customer, Michael Murray, founder of data access advocacy group Mission:data, points out that because no overarching regulation exists governing whether utilities grant third parties access, they essentially reserve the right to use or monetize that data however they want, even if they are not the technical owner of the data (the customer is). Below are the broad buckets of data that utilities collect and use cases third parties may have for that data, clearly demonstrating the market need for better access.

Source: Utility Dive

This is extremely anticompetitive behavior, and utilities feel emboldened to take this stance due to their regulated monopoly status granted by Public Utilities Commissions that have less than objective relationships with their regulatory subjects. Let’s take utility behavior and imagine some large technology company engaging in similar tactics. If Apple were to suddenly change its position to bar any third party from accessing user data generated by the user and instead take that data and monetize it for Apple alone, Congress would fall over itself trying to break up the company. So why do we allow such abuse to occur in the crucial sector of energy?

Assuming that granting third parties access to individual consumers’ energy usage data actually benefits consumers, there is not a single argument a utility should be allowed to make that would prevent this access, especially considering how advanced differential privacy and other encryption techniques have become. This question is even more important considering the growing number of companies offering customers greater insight into and control over their energy usage through a wide range of products — software, DERs, controls, and more.

To fully capture the value of these products for customers, companies need access to individual-level, real-time energy data that utilities collect and warehouse (this is by virtue of the fact that they own all the poles and wires along which it travels — for more on this, read my piece on franchise rights). Utilities actively muddle, at best, or block, at worst, access to data citing vague, unsubstantiated privacy concerns. When they are forced to provide data, it is often in non-machine-readable and non-standardized formats, making it extremely challenging for third parties to use it at scale in any business application.

The reason utilities can claim privacy concerns as a legitimate reason for not sharing customer data is due to the overly restrictive 15/15 policy adopted by some utilities. Under this standard, customer data can only be shared if there are at least 15 customers in the shared cohort and no single customer makes up more than 15% of the data. According to a report from Institute for Market Transformation (IMT), the 15/15 rule designed to protect customer privacy is “ambiguous or overly restrictive with regard to the types of data requests [entities] make,” leaving large opening for the utility to exercise discretion over what type and how much data is released. Unsurprisingly, utilities err towards releasing less data for the aforementioned unsubstantiated privacy reasons, arguing that increased privacy is in the best interest of the customer.

To top it off, the American Statistical Association Committee on Privacy and Confidentiality has evaluated the 15/15 standard and declared that it is far too restricting and introduces challenges to using the data without adding any additional privacy benefit. IMT cites a study done by the New York PSC that found that when the 15/15 standard was applied to energy usage data, 35–80% of it would not have been releasable for small commercial customers and 80–100% would not have been releasable for large industrial or transportation customers. Any data privacy standard that precludes the release of a majority of customer data to third parties seems to be a waste of time and a convenient excuse to not release any data to third parties.

Challenges of a hostile energy data access policy

By preventing third parties from accessing customer energy data, utilities are barring customers from realizing the full value of DER assets through participation in energy markets and optimizing their performance via a third party — whether through demand response or some other mechanism. According to Utility Dive, “timely and convenient access to granular energy usage data can help customers track and manage their energy use; equip utilities and competitive suppliers with the information necessary to develop new and innovative customer offerings; empower third-party (non-utility) companies to animate the market for distributed energy resources (DERs); and enable utilities to transition to a more customer-focused culture and business model.” As energy markets change and the landscape of companies building on top of the legacy distribution system grows, the need for this data access will only grow more urgent.

A major consequence of blocking third-party data access and the resulting undervaluing of DERs is the ultimate failure of DER adoption to reach its full potential. This is because there are many potential customers interested in DERs if and only if the math pencils, and in many cases that only happens when the full value of the DER is realizable. With utilities gatekeeping individual energy-usage data, that is a near impossible task. The equivalent in the digital marketing world would be like an online advertising agency trying to convince clients its ads are the most effective, but not being allowed access to the customer click-through-data that Google warehouses to prove it. This prevents the agency from demonstrating the full value of its ads to potential customers. In the same way, utilities blocking access to third-party data prevents the full value of DER assets from being realized by the customer, since the third-parties that would operationalize, capture, and measure that value are unable to.

Looking outward: Open banking as a framework for energy

Given this state of affairs, I find it instructive to look to other industries as examples for how utilities could provide third parties access to data in a useful way without compromising customer privacy. In online advertising, a strategy that is increasingly being used is differential privacy, which is the process by which information about a dataset describing patterns or information about a group of individuals is released without revealing the underlying identities of the individuals in the dataset.

This is possible thanks to the law of large numbers — a program will take an individual’s true value in the dataset and add some level statistical noise; if you aggregate a large enough set of individuals, the statistical noise cancels out and leaves you with the average representative of the population. In online marketing, the actions of a cohort of users with a certain set of characteristics would be tracked by the first party data owner, then that entity would add statistical noise at the individual level or aggregate level (depending on whether it’s a global or local DP standard) and share with third party.

Due to law of large numbers, the average in that cohort would be representative of the cohort’s population. A similar practice could be adopted for sharing data with third parties that need cohort data to figure out how to design new products for various segments in a market or to identify which user groups to market a product to. However, differential privacy, while useful, does not solve the problem of individual-level usage data, which is where I’ll turn next.

The instructive example for individual-level energy usage data is the open banking concept. According to the Future of Privacy Forum (FPF), open banking “describes banks and other financial institutions, such as credit unions, providing rights to customers over their financial data, including the ability to share data or permissions over their data with third parties for various services. These rights include the right to access their financial data, port their data and switch financial institutions, and grant permission to third parties to carry out transactions and provide financial services to best meet a customer’s needs.” An example of this would be a customer of Bank of America granting a third party application the right to round each of my transactions up to the nearest dollar and roll that differential into a separate education savings account at my bank.

The way this system is operationalized is via a “standardized and interoperable API [that] would allow third parties to carry out their services on behalf of customers without accessing certain personal information, such as various login credentials.” This mechanism preserves customer privacy while still allowing customers to exercise their right to own their own data and is more secure than hacked-together methods some third-parties might try to use in absence of such an API.

It is not difficult at all to see how this model could easily transfer to the energy sector. Take the quotation above from FPF and replace every mention of “bank” or “financial institution” with utility, and you have a great model for how utilities should allow third-parties to access customer data collected and housed by the utility. So long as the customer owns the rights to his or her own data, he or she preserves the right to grant any entity access to it, and utilities ought to be compelled to grant this access in a privacy-first manner. It would fall on the utility to convincingly make the case that energy usage data is somehow more sensitive or confidential than highly-sensitive financial data, and only in successfully doing so would the utility have grounds to not implement such a program. I have yet to see such an argument.

Conclusion

Data is extremely powerful. It can deliver paradigm-shifting insights, drive value for customers, and spark innovation. In energy specifically, it can help decarbonize and make our electric grid more resilient. As it stands today, utilities are abusing their status as regulated monopolies and default data warehouses to preserve their market power and prevent any perceived competitors from accessing this rich treasure trove of data. This has negative impacts on innovation in the energy sector and, more importantly, the experience of end consumers. In a world where privacy concerns and customer ownership of data are front of mind, it seems foolhardy for utilities to cling desperately to unfounded, legacy data sharing practices. Customers and the grid deserve better!