A small but loud -- and growing -- subset of utility customers believes that smart meters are a threat to their privacy. What can utilities and their smart grid partners do to prove those critics wrong?

San Diego Gas & Electric is taking a stab at the issue, joining Canada’s Ontario province this week in officially making “Privacy by Design” its rulebook for smart grid deployments. The utility and Ontario’s Office of Information and Privacy released a paper Thursday that lays out how they’ve built privacy into SDG&E’s customer-facing smart grid systems, including an online energy management tool that should be available to customers by May. 

Designed by Ontario’s privacy commission and big utility Hydro One in partnership with vendors including General Electric, IBM, Telvent and Trilliant, Privacy by Design essentially creates a code of conduct for how utility IT operations -- smart meter networks, distribution grid management systems, back-office meter data management software, billing and customer service operations, enterprise resource management platforms and the rest -- should handle customer and grid data.

“This is intended for engineers, coders, and software designers -- you bake it into the architecture, so it’s part of the system being developed,” is how Dr. Ann Cavoukian, Ontario’s privacy commissioner, described the scope of the system in an interview last year. Ontario, which has one of the biggest smart meter, time-of-use pricing rollouts in the world with some 4 million utility customers involved, has been using the principles to design its province-wide smart meter program.

While that implies some very specific technology choices for vendors implementing the system, the basics themselves are pretty simple: privacy by default in all settings, encoded from end to end from the time the data is created to when it’s disposed of, and made visible and transparent for any customer -- or regulator -- who wants to know how data is being protected.

So, what’s new here? Pretty much every utility promises not to let customer smart meter data fall into the wrong hands, and most state utility regulators are demanding that every smart grid plan includes some kind of privacy and security requirements.

But reports from the U.S. General Accounting Office last year, and from the Department of Energy’s inspector general this year, have given the utility industry poor marks on following through on their privacy and security promises. Even those utilities that have security measures in place don't necessarily intend to test them, according to a January survey from KEMA.

And while most utilities and smart meter vendors are taking adequate precautions, bad apples can give the entire industry a bad name. In one well-publicized example earlier this year, two German researcher-hackers demonstrated how they had hacked into smart meters by German company Discovergy and had been able to view customer energy usage data all the way down to when they were watching TV, as well as trick the meter into reporting inaccurate energy readings.

That can’t be reassuring to customers who are worried that their smart meters will allow hackers, data thieves or other nefarious parties to know when they’re home and when they’re away, or to piece together other personal information. Sure, people tend to give away lots more personal information when they’re surfing the internet -- but they do so by choice, whereas smart meters are being installed on their homes without their direct permission.

Indeed, privacy concerns, be they reasonable ('How will my utility prevent my energy data from being lost or stolen?') or hyped-up ('The utility is spying on me!'), are increasingly joining the list of complaints from customers who are refusing to have a smart meter installed at their homes. 

Unfortunately, “whether the fear is rational or not doesn’t matter,” Cavoukian told me last year. “In defense of the public, nobody’s been talking to them from the utility. They’re confused -- the technology sounds strange. Are people going to be able to peer into my home?” It doesn’t help that smart meters do enable certain features, like power theft detection, that do peer into customers’ energy usage.

But the real threat utilities should be worried about is the dreaded privacy breach, Cavoukian said. Measured against the public relations and political ramifications for the smart grid of the possibility of a major loss or theft of customer data, “utilities shouldn’t be asking how much money it costs -- they should be asking how much money it will save,” to invest in privacy protection upfront, she said.

Cavoukian’s work has led Privacy by Design to be adopted as a standard by the International Association of Privacy Commissioners and Data Protection Authorities, an entity that represents government privacy authorities around the world. While the U.S. doesn’t have a privacy officer per se, Cavoukian notes that the National Institute of Technology and Standards (NIST) has adopted many of the principles of Privacy by Design in its own privacy developments. In short, it’s about as close as utilities are going to get in terms of a standard, at least for now.

SDG&E, for its part, started working with Ontario last year to fit its new variable pricing programs within the Privacy by Design framework, becoming the first big U.S. utility to do so. It has also been piloting a number of customer-facing smart grid programs, including real-time and critical-peak pricing schemes and home energy management systems connected via broadband -- and, some day, via smart meter ZigBee networks.

The California Public Utilities Commission has come out early on the issue of smart grid data privacy and security, and has spent the past two years or so coming up with rules for the state’s big three utilities, including SDG&E. It will be interesting to see how Privacy by Design fits in with the state’s emerging rules on smart grid data privacy -- particularly on the subject of third-party access to customer data.

That could become a point of contention between privacy advocates and companies looking for ways to make money from the new flood of data that the smart grid makes available. As programs like "Green Button" make customer energy data more easily available to those customers and to third parties they choose to share it with, potential privacy problems could start to become reality.