With encryption of name and address - but disclosure of usage and billing - customers can have their cake and eat it too.
How to assure consumer privacy in energy deregulation has utilities, energy marketers and regulators in a dither.
With a deregulating market, utilities must share their consumer data with energy marketers in their territories. The more information energy marketers have about consumers, the better the products, prices and payment plans they can offer. This information, however, may include sensitive details about a consumer's finances and habits. Regulators have tried to strike a balance among conflicting interests - the consumer's right to privacy, the burden imposed on utilities to release customer information available, and the needs of marketers for real information to create viable offerings in a timely fashion.
The industry struggles to deal with this issue at a time when individual privacy has become a hot-button issue among consumers. When most people talk about privacy they usually mean one of three things:
* The right to control information about themselves,
* The right to have their own personal space, or
* The right to be left alone, both as consumers and individuals.
When individuals do consent to relinquish privacy, that consent should be meaningful - given voluntarily, without pressure and with full knowledge of the implications. Privacy has become an issue precisely because of the absence of meaningful consent in a large and growing number of consumer transactions.
By now consumers know that their every purchase becomes part of one or more massive databases that retailers compile and resell, apparently indiscriminately. These databases contain information on customer buying patterns and credit history. Consumers don't need more evidence of this trend; they see their privacy invaded almost daily by the inundation of junk mail and dinnertime telephone solicitations. But above all, they're alarmed by talk of sensitive medical records, including information on genetic predisposition to certain conditions, falling into the hands of insurance companies or prospective employers.
Understandably, consumers also are concerned about losing control of their privacy when they request that their utilities transfer their usage data to newcomer energy marketers. They fear these marketers may swamp them with calls or sell their names to other marketers. What's needed is a cost-effective, quick means of transferring sensitive data to energy marketers. Fortunately, the computer technology that feeds consumer fears about privacy control also provides a means of ensuring confidentiality.
Sign a Form? Too Slow, Too Costly
State public utilities commissions have tried to respond to these concerns about privacy and meaningful consent. They have set rules covering what consumer information is to be made available to the energy provider and what is to remain confidential until the consumer releases it. Some states still require that a utility get the consumer's "wet signature" - ink on a piece of paper - before it may transfer data to an energy marketer. Many have given consumers the option of adding their names to a "Don't Call Me" list. Others have prescribed a negative response mechanism: Unless the consumer returns a postcard restricting release of load data or of all information, the utility will provide marketers with the consumer's name and address, rate information, account number and load data.
While these arrangements protect consumer privacy by allowing the consumer to control whom he deals with and when, they're labor-intensive, slow and sometimes counter-productive. In some pilot programs, the utility's workload increased astronomically, and information exchange took weeks. Confused consumers lost track of the process, grew frustrated with the delay and didn't take full advantage of the benefits of the newly competitive market.
Such rules to guard privacy also are expensive. To cover their added labor costs, some utilities started charging up to $10 per year to customers who requested that their information be transferred.
The flaw in this approach to addressing the need for privacy is that it not only increases utilities' costs, but it also puts customer satisfaction on the back burner. The longer people have to wait for their quotes, the more disappointed they become. Deregulation promised them a choice, they've consented to release their utility data, so they're waiting for the information they need to choose an energy provider. If the information doesn't come promptly, their attention moves to other, more pressing issues. Consequently, they may miss the opportunity for savings and aim their resentment at the utility.
Why Not Encryption? Open, Yet Secure
Computers have penetrated every aspect of our daily lives. They threaten privacy, yet also offer a way out. Already we use cyber technology to secure credit card, e-mail and Internet transactions. Why not energy?
Here's how encryption works. The utility transfers its entire customer database to a CD-ROM. Each consumer record is divided into two parts. One, containing the consumer's name, address, telephone number and other account information, is encrypted and accessible only with a password specific to and known by only the consumer. The second, unencrypted part includes usage and possibly billing history.
The marketer evaluates the usage data for all (anonymous) consumers and creates products for a specific class of consumers or geographic area. When a consumer provides his password - the electronic form of meaningful consent - the marketer accesses the encrypted information and immediately develops a price quote. The sensitive data of consumers who don't want to participate in energy choice remains secure.
With respect to consumer privacy, encryption is at least as good as the old-fashioned "wet signature" because only the consumer knows his password, and only he can give consent. It's also faster and cheaper to implement.
Our analysis found that the encrypted CD-ROM is the most cost-effective way to transfer consumer data to energy marketers. (See table, "Cost Comparison of Data Transfer Methods.") We compared various methods for transferring consumer data, including the following:
Mail Request/Mail Delivery. The consumer requests the data transfer by mail ("wet signature"); the utility forwards the data by mail.
Phone Request/Mail Delivery. The consumer requests a copy of his data by telephone; the utility forwards his data to the marketer by mail.
Encrypted CD-ROM. The utility provides marketers with a CD-ROM with specific consumer data encrypted. When the consumer gives the marketer his password, it accesses the consumer's information.
The encrypted CD-ROM is a quick and cost-efficient way for utilities to supply information while protecting their customers' privacy. It provides energy suppliers with a fast, convenient way to generate price quotes. Most important, it increases customer satisfaction and confidence in deregulation. Consumers get their quotes promptly, they can comparison shop and make energy choices without delay or frustration and they feel confident that their privacy will not be abused.
Ken Cuccinelli is president of International Business Ventures, a business development consulting company. Cuccinelli is a former executive of the American Gas Association and Consolidated Natural Gas. He can be reached at kcucc@nauticom.net.
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