Utility companies throughout the nation are rapidly adopting “

smart meters," devices installed at their customers' locations that enable information about electricity consumption to be tracked and sent to the electricity provider. By aggregating the data from millions of consumers, companies can gain an idea of how people use electricity throughout the day, enabling them to respond quickly and efficiently to changing market conditions.

At the same time, these companies can reduce their costs because there will seldom be any need to physically send an employee to read a meter -- all the information is transmitted wirelessly to a central location, and energy providers can control whether to shut off or restore power with the touch of a button.

Despite the high hopes that many have for these devices, there are some who have serious reservations. Because smart meters automatically collect massive amounts of data about household energy consumption, there is the potential for this information to be misused.

Privacy advocates are concerned that careful examination of this data could enable third parties to determine users' daily routines, appliance usage, and even television habits.

In response to these concerns, the U.S. Department of Energy has issued a voluntary code of conduct regarding the use of smart meters. It contains guidelines regarding customer consent, the ability of users to access their own data, and data integrity.

Because compliance with these recommendations is up to the discretion of each market operator, it may be possible that the guidelines will have little effect.

In any case, firms may be required to turn over some of the information they've collected as a consequence of legal action. A report from San Diego Gas & Electric revealed that in 2012, the records of 4,062 customers were disclosed in accordance with the legal process.

Even if many companies decide to fully implement the energy department's rules, there are other problems that may be difficult to control. Because the use of smart meters involves thousands or millions of interconnected units spread over wide geographical areas, the security of communications could open the door to potential issues.

Hackers or other malefactors could obtain information through illicit means and then sell it off to interested parties. The FBI has discovered that in 2009, employees of a Puerto Rico utility company learned how to alter the settings of smart meters and were charging between $300 and $3,000 to do so.

Counterbalancing these drawbacks to smart meters are a wide range of benefits. By obtaining data in real-time about electrical demand, energy providers will be able to distribute electricity in a more efficient way, leading to fewer outages. Customers will be able to look at their own usage patterns and change them in order to reduce or reschedule consumption, thereby lowering their monthly bills.

By employing sophisticated software packages, utility companies will be able to analyze the tendencies of customers, aiding them in determining pricing policy and promotional offerings. They will also be able to more easily diagnose and fix customer-reported problems and outages.

Regardless of whether or not smart meters pose a net societal benefit or not, they have certainly grown in popularity in recent years. Plenty of legislation has emerged mandating their use, although some jurisdictions have placed a moratorium on their introduction due to the privacy concerns and hacking risks.

Governments, utility companies, and industry watchdogs have a difficult task ahead of them as they try to harness the efficiency improvements made possible by these meters while protecting customers' sensitive personal data.

Photo Credit: Pi-lens / shutterstock.com