State of California Public Utilities Commission
San Francisco
Date : 31 May 1996
To : Consumer protection subgroup of Direct Access
WG
From : DRA
File No.:
Subject : Competitor access to customer information while preserving customer privacy
This memo develops one approach to the multiple problems of
assuring customer privacy, facilitating competitor access to utility
information from customers, and enhancing competition. Enhancing
competition has two components: giving competitors access, and
directly informing customers about beneficial competitive options.
Protecting customer privacy has at least two components: Maintaining
customer control and choice over the dissemination of personal
information currently in the possession of the utilities and providing
meaningful safeguards which prevent unauthorized disclosure and
which allow for limited disclosure at the discretion of the customer.
In the process of carrying out their monopoly duties, electric utilities have accumulated a customer and usage database of significant value. It would be extremely costly or impossible for utility competitors to replicate such a database. Enhancing competition requires greater potential access to customer information by market participants other than the utilities.
Currently, access to such information is very limited as a
matter of law.[1]. The right to privacy in California is an inalienable
right under Article 1, Section 1 of the California Constitution.
In addition, Public Utilities Code [588 restricts the basis on
which a utility may provide personal customer information including
customer service usage information, with civil penalties attaching
to violations. Other statutes, particularly related to restricted
access to residential
1 The Information Access Study Team report, Access
to Strategic Customer Information to Facilitate Meaningful Consumer
Choice for Energy Services (February 1996) provided
background information for this memo.
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telephone customer information, articulate the state's recognition
of privacy rights in personal information related to utility service
and financial information. The increase in competition in provision
of telephone service has given rise to a variety of situations
analogous to those challenges faced in the electric industry restructuring
in that the new regulatory frameworks sought to enhance competition
while preserving constitutionally protected rights to privacy
in customer information currently held by the monopoly provider.
The Commission recognized this concern in the December Decision stating:
"As a monopoly provider of integrated generation, transmission,
and distribution services, the incumbent utility has access to
considerable information about its customers, including individual
load profiles and billing histories. In a competitive arena, access
to such information is quite valuable for marketing purposes.
Because this information is not automatically available to the
utility's competitors, the incumbent utility has a major marketing
advantage that could allow it to target and sign up preferred
customers before its competitors can. The Framework Parties voice
significant concern about this possibility.
"Mitigation: We
will require that customer specific information necessary for
the distribution (accounting and billing) functions of the utility
be made available on terms that are fair to all competitors in
the generation sector. Because customer confidentiality concerns
attach to this information, customer consent will be a prerequisite
for all suppliers that obtain access. Separation of a separate
distribution subsidiary would assist our efforts to make customer
information available on equal terms and conditions; however,
it is not essential." D.95-12-063 at page 108.
Currently, customers have a strong expectation of privacy
to electric consumption information. Customers have also expressed
to legislators their dissatisfaction with incessant telemarketing
by long distance providers. Consequently, one of the major issues
for information access will be maintaining meaningful privacy
protections while facilitating the commercial and customer benefits
of access.
Electric consumption information varies in its sensitivity
by customer and customer class. Large industrial customers have
expressed concern that competitors can estimate production levels
of ultimate goods and may be able to determine production methods
based on billing data. For these customers, billing data would
or could constitute or be regarded as a trade secret.
For residential customers, consumption usage is certainly
personal. Protections for personal information accessed by utilities
from residential customers has been afforded more
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explicit and restrictive legislative attention, in
part through an articulation of privacy concerns attendant to
rights of protection against unreasonable search and seizure.
See California Constitution Article 1, [13.
Different categories of information have been accorded higher
levels of protection than others, but customer usage data has
been amongst the most sensitive and as a result the most restricted.
Credit information is also protected under special statute.
Telecommunications usage data was substantially protected
in the switch from monopoly to competition. While AT&T's market
share has eroded, that erosion has been slow. Limited availability
of data may have reduced the level of competition.
One major difference between the treatment of telephone service
and electric services is the ability of telephone customers to
request unlisted service. In this manner, residential telephone
service customers have been able to maintain greater privacy protection
in the context of their transactions with the telephone company
than those residential customers who are generally listed. It
may be fruitful to create an explicit class of residential customers
who have self-designated the desire to be anonymous to third parties
and to have their personal information held strictly confidential.
Customers must be able to protect their privacy. Privacy means
both disclosure of individual information, as well as how customers
are contacted by potential service providers, customers be able
to control the use of information which is specifically about
them. Customers must have a meaningful method for providing or
withholding consent to the disclosure of personal information
to third parties. Customers must also have a meaningful method
to withdraw consent or to limit access by competitors, choosing
both to whom it may be given and by contractual agreements limiting
the purpose for which the competitor gaining access may put it.
Customers should receive all of the benefits (including sales
revenue) generated from monopoly customer information files.
Standardized levels of privacy protection should be designed
based on expectations by customer type.
Customers should be thoroughly informed of their privacy options
and of the benefits of providing access to competitors.
Efficient competition requires that existing information be
available to the maximum possible degree.
All competitors should have comparable access to existing
information.
All competitors should have equivalent flexibility to request
and receive information tailored to their needs.
Competitors should have unlimited access to aggregated information,
to the extent that aggregated information reveal the individual
identities and personal information provided by individuals.
Competitor access should be timely.
The information custodian's responsibility is to maintain
customer information confidentiality within legal limitations.
Whatever entity has custody of customer information must protect
the integrity of that information. The information custodian should
be creative and entrepreneurial in unlocking the full value of
customer information on behalf of customers without disclosing
confidential information.
The utility should charge market based rates for all information
users, rather than presumably lower incremental costs. Market
based rates provide greater information revenues to customers,
as well as providing greater incentives for customers to disclose
information.
The information custodian should disseminate information to
increase competition.
Two primary means can be used to implement the principles
and goals above: customers would designate a level of privacy,
and one role the information custodian would play is to act as
a "fulfillment house." A fulfillment house is essentially
an intermediary between the information user and customers which
acts to protect customer privacy. This concept will be discussed
further below.
A utility mailing would invite each customer to designate
a particular level of privacy. This memo suggests several such
levels. See Public Utilities Code [2891 for restrictions and consent
procedures related to residential telephone customers. However,
DRA's primary recommendation is that market research
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with customers would be heavily weighted in determining privacy
designations. There would probably be two stages of market research.
The first would flesh out customer concerns and preferences, in
order to provide the building blocks to design a privacy designation
program. The second stage would test that program, and fine tune
it based on customer response to the specifics. In other words,
the second stage would include specific forms and choices. Customers
would be questioned to assure that they understood their choices,
and that the choices provided met their needs and preferences.
While the market research results should provide more specific
findings, DRA's hypothesis would be that customers are significantly
more sensitive about telemarketing than being contacted via mail.
If so, there could be various hierarchies of access, based on
the resulting menu of privacy designation.
There could be privacy designations which differ for each
customer class. As part of caller ID for telco, each customer
has the option to block all ID, and selectively unblock, or to
unblock, and then selectively block each call. For residential,
the following is one possibility:
During the last group meeting, some participants expressed
the concern that closing information access would hamper competition.
That is probably a legitimate concern, although those who want
no contact should be fairly unlikely to respond to unwanted contacts.
The "no access" level is comparable to sending a letter
to the direct mail associations asking for "blocking"
of unsolicited mail. Few people use it because the choice is so
draconian; most people like some of the catalogs, etc. which they
receive. The answer may lie in designing a very low contact category.
Protected information release and receipt would be the default,
if a customer did not select an option. The greater the level
of access a customer provided, the greater the claim that customer
would have on any information revenue generated by the custodian.
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Of course, setting up this privacy designation would cost
some money. There are many ways to recover these required costs.
Competitors who choose to use the custodian's database could be
charged start-up costs. Start-up costs could be charged against
information revenues.
Customers would receive a bill insert (preferably with the
CPUC logo at the top, or another equivalent means which demonstrates
to consumers that the information is reliable and accurate) that
shows what the customer's bill would be if based on rates from
utility competitors. For example, this might compare the utility's
rates (or more precisely the forecast total bundled rate including
Exchange prices) to the five best competitors, and provide telephone
numbers for those competitors. This kind of specific, credible
information should be an effective way to make customers aware
of alternatives, and lead them to act.
This mailing would go out to all or most customers in advance
of 1/1/98, or whenever competition would commence. These specific
rate comparisons might also go out at one year or eighteen month
intervals, thereafter.
This proposal involves a lot of computational power, and may
involve upgrading the billing system. It also questionably assumes
that there will be several utility competitors and that their
rates are calculated and discernable on a reasonably comparable
basis. Even if there are several competitors, the likely limits
on the availability of direct access may constrain the ability
of customers to respond to favorable rates. Thought needs to be
given to the telco problem: providers appear to have been successful
in making it difficult to compare rates.
The information custodian will be responsible for responding
to requests for information about customers. Because competitor
needs are likely to be many and varied, requests should not be
limited to a standardized menu.
Competitors are likely to have two basic needs: customer contact
and customer research. Customer research requests should all be
aggregated, but in various ways. A competitor may want both a
total load profile of a municipality, as well as a breakdown by
rate schedule. Working Assets may want to better understand the
usage of their customer base[2], both to design
2 The existing customer base would be those who use Working
Assets long distance. Working Assets would likely cross market
electric service as well.
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better marketing material and to develop pricing packages.
This type of request would involve forwarding specific customer
identities, and obtaining aggregate information about those customers.
Customer research information should be straightforward in
terms of protecting the privacy of individuals. What could be
less straightforward is protecting the information strategies
of utility competitors from the non-custodian portion of the utility.
Utilities should recommend an organizational structure that assures
integrity. One potential partial solution is that a competitor
could request that the fulfillment house make the information
request, so that the competitor identity is masked.
Customer contact does raise more issues of individual privacy.
The fulfillment house concept appears well-suited to resolving
these issues. The pure fulfillment house would be situated between
the utility/custodian and the competitor. The custodian would
generate the customer contact listing, and turn this list over
to an independent fulfillment company. The utility competitor
would send the fulfillment company the promotional materials it
wants sent out. The competitor would never have direct control
of the contact list. Fulfillment firms are all certified and monitored
by a national trade association.
If a competitor already has some information regarding customers,
it could also merge that data with the data requested from the
custodian. That would alleviate competitor concerns about protecting
their information strategy from the utility.
Obtaining timely, creative responses from the custodian is
another major challenge. Probably some level of revenue sharing
with the custodian is desirable. Other revenue would be given
as a credit to customers. However, a utility may well perceive
the cost of well informed competitors exceeding any level of benefit
from revenue sharing. Traditional regulation does not seem particularly
well-suited to ensuring that the custodian works. Both timeliness
and rates and charges are not easily definable. While some standardized
charges can probably be developed, that alone will not be an adequate
regulatory tool. DRA has previously put forth the concept of an
independent billing company, which may become necessary.