John Healey (Wentworth and Dearne) (Lab)
I am grateful to have secured this Adjournment debate. I am both a supporter and a sceptic of smart meters. I strongly back the benefits that could come from universal smart meters with the right specifications for all consumers, but I am concerned that the Government need to get a grip on some of the essential elements of the national programme. I am also concerned that consumers will end up footing the big national bill without knowing it. There are, too, already consumer complaints over early installation of smart meters, which could irrevocably damage confidence and the reputation of the programme if they are allowed to escalate.
This is a hugely ambitious prospectus for us all. It was kicked off by Labour when in government, and is now being continued by the coalition. The aim is to install 55 million high-tech gas and electricity meters in all UK households and businesses by 2020. I am told that those involved in the project have as their mantra, “Starting well and finishing early.” If the Government get this wrong, it could end up starting badly, failing to finish and costing the consumer dearly.
Let me start by being upbeat. Our UK smart metering plan has a number of world-first features. It involves both gas and electricity meters; it builds in a requirement for an in-home display for all consumers; it sees installation as being led by energy suppliers rather than the energy distribution and network firms; it has functionality for the consumer, the energy supply companies and the network operators that is far ahead of smart meters in other countries; and it places a single central data communications provider at the nerve centre of the system.
That is why consumer groups, including Which?, as well as energy companies and industry experts, all accept the potential benefits. Those benefits include: an end to estimated energy bills; detailed real-time information on energy use, with options to reduce consumption and bills; new tariffs based on time of use, consumption, carbon emissions and a range of other factors; pay-as-you-go options so we can put an end to the penalty premium that hits the poorest, who use prepayment meters at present; better control of distributed energy generation and microgeneration; easier switching; and, of course, remote connection, disconnection and meter reading without the need for a field work force.
However, the installation of smart meters is showing early signs of problems for consumers. Which?, Consumer Focus and the Office of Fair Trading are all picking up complaints, often about mis-selling, in an industry where consumer protection is still too weak and consumer trust in energy companies is at an all-time low. For instance, we are picking up reports of energy reps cold calling, with the customer believing that the purpose of the visit is to install a smart meter whereas the real purpose is to switch supplier; reports of customers being told that they qualify for a smart meter, as long as they switch supplier; and reports of reps offering free smart meters if people sign up to their energy supplier. The clear rules against any sales on installation visits, which the Minister published earlier this month as part of his update on the smart meter programme, should help, but they will help only if they are fully and toughly enforced.
Like all other hon. Members, I received the Minister’s update letter, coincidentally dated today, on the smart meter programme. I thank him for it, but it has little or nothing to say about the areas of greatest concern. Let us call them the four Cs: cost; consumer confidence; controlled testing in trials and proper pilots; and the contract for the data and communications nerve centre.
Jim Dowd (Lewisham West and Penge) (Lab)
I congratulate my right hon. Friend on raising such a significant issue. May I add a fifth C—competition—to the four that he has outlined? If the smart metering programme is implemented optimally, it stands a chance of bringing greater competition into an area beset by the big six cartel. Although there are huge dangers, as there have been with many public sector IT projects over the years, we should not lose sight of the fact that this is an opportunity to regain public confidence in the energy sector, which that cartel has seriously undermined in recent years.
John Healey
My hon. Friend is absolutely right: a perceived lack of proper competition is responsible for a large part of the loss of confidence among consumers. It is also responsible, in large part, for the frustration of many smaller suppliers, who feel closed out of what should be an open and competitive market. As he will see as I proceed, I pinpoint those doubts about proper competition in this sector as underpinning some of the difficulties that I anticipate this programme may have if the Government do not adjust their approach.
Let me deal with my first C—cost—which is central to this matter. People have seen their energy bills go through the roof recently. Many people are struggling to pay, more report falling behind with their payments and some report being forced to choose between the very basics of eating and heating. They see energy companies making huge profits, little real competition to keep down prices, no help from the Government and no action from the regulator. The cost of the meters in total will be about £12 billion—at least on current estimates. That is more than £100 per smart electricity meter and more than £130 per smart gas meter. All costs are going directly on to the bills of consumers, yet there is no requirement to report these costs or show these costs in consumer bills; there is no guarantee that companies will pass the considerable savings on to the consumers in their bills; and, above all, there is no control over costs of installation, other than the Government’s assertion that market competition will do the job.
The Minister will be well aware that the Public Accounts Committee shared some of those concerns in a report last year. The first conclusion of its report, “Preparations for the roll-out of smart meters,” is:
“Consumers will have to pay energy suppliers for the costs of installing smart meters through their energy bills, but many of the benefits will pass in the first instance to the energy suppliers.”
That paragraph concludes:
“The Department is relying on competition to drive down prices, but Ofgem have clearly found that the energy market is not functioning effectively as a competitive market.”
That was the point that my hon. Friend the Member for Lewisham West and Penge (Jim Dowd) made so clearly.
At present, the Government are writing a blank cheque for the industry. The Government and Ofgem have some powers under the Energy Act 2011 to obtain information from suppliers on cost and performance, and as a start they should use them directly. The Minister also needs to rethink the membership of the panel he proposes to oversee the implementation of the smart meter programme. It is set out in one of the update papers he published earlier this month, the “Smart Energy Code”, which shows on page 73 that the governance panel to oversee the implementation consists of 13 full members with only up to two consumer representatives, no representatives from companies that specialise in metering and—potentially, as it says “possibly” in brackets—only one Government appointee, who will not have voting rights. The Minister should accept that if the programme is to be perceived as one that is directly tailored to maximise the benefits to consumers, the way he manages it and such arrangements must reflect that intent.
Secondly, on consumer confidence, the net benefits of the programme are said to be on average about £25 a year for a household with both electricity and gas meters. The benefits, both environmental and financial, can only be fully realised if there is widespread take-up and if consumers use the information to reduce their consumption, to change tariffs and to switch suppliers if needed to get the best deal. Confidence, knowledge and trust in the smart meters are therefore essential, but they are also fragile. Fewer than one in four consumers—only 23%—consider energy suppliers to be trustworthy. Allowing them to run the roll-out without clear Government leadership risks damaging confidence in the overall purpose and benefits of smart meters. The Government’s hands-off policy therefore risks the very future of smart meters, and I think the collapse of consumer confidence and the failure of smart meters in other countries, such as Australia and the Netherlands, and in the state of California, are cautionary tales for us in the UK.
My third C is controlled testing and pilots. As the Government are letting energy companies lead the installation of smart meters, activity is patchy. Some suppliers are holding back and one or two others, such as British Gas, are taking a market decision to move fast. British Gas has already installed 400,000 smart meters and tells me that only a quarter will need replacing in the light of the Government’s latest technical specifications and that its trials are producing valuable data and intelligence for the future. A more common view among consumer groups, energy supply companies and industry experts is that a greater grip is required from Government and that prior to the start of the planned roll-out from 2014, all aspects of the programme and its participants should be thoroughly tested. They believe that much greater direction and co-ordination is required by Government of the big energy companies to test different communications links, different ways of getting consumer confidence and the interoperability between suppliers and devices.
In particular, I am concerned that the poorest will be put last. Smart meters should do away for good with higher charges for people who prepay for their energy, but none of British Gas’s 400,000 smart meters replaced prepayment meters and Government work on how prepayment will be built into the smart meter specs is being pushed back further into the future. It simply will not happen if each supplier is left to do its own thing, or to do nothing. It must be a higher priority for Ministers to sort out specifying what will be required for prepayment in all smart meters; trialling the installation and use of such meters; and establishing what help is needed for the most vulnerable. The digital switchover is a good example of both what can be done and the scale of what might be needed. I am told that in the Granada region, a team of 7,000 volunteers stood ready to step in to help consumers who were struggling to deal with switchover to make that change.
The fourth C is the contract for the central data communications and data services company. This is required, of course, to link smart meters to suppliers. The PAC, again rightly, warns in the fifth conclusion of its report:
“We expect the Department to take on board the lessons learned from other large Government IT programmes and to ensure that the contracts they place are sufficiently flexible to cater for smart grids and avoid additional costs falling to consumers.”
In my view, the Government have the right approach: as long as levels of security and reliability are sensibly specified, as long as the system is kept as simple as possible, and as long as this is done and tested in good time for the national roll-out, so that the extra costs of modifying or upgrading meters are avoided, the single competitively appointed supplier for data and communications could make the market and the service more efficient. It is certainly better than allowing the 23 active energy suppliers simply to do their own thing.
If that approach is right in principle and in practice for data communications, it is, however, reasonable to ask why a similar, tighter, Government-led approach is not right for meter installation as well. Which? is so concerned that it wants Ministers to call a halt to the current roll-out strategy, which is led by suppliers, to get proper trials under way, and then to restart the roll-out in 2014, so that it works for consumers, who in the end will pay for it.
In conclusion, there are serious questions about how the Government are handling this huge national programme. I hope that Ministers will heed the warnings and adjust the Government’s approach, because this is an area where I and millions of hard-pressed consumers paying high electricity bills all want the Government to succeed.
The Minister of State, Department of Energy and Climate Change (Charles Hendry)
As the right hon. Member for Wentworth and Dearne (John Healey) said, less than three weeks have elapsed since we published a number of smart metering consultations and decisions. The debate is therefore timely and I congratulate him on securing it and commend him for the measured way in which he introduced it, supporting the ambition but raising realistic, sensible and constructive questions about how it is being taken forward. I assure him that the Government are alive to the issues and that, for us, the interests of the consumer are at the heart of the programme. It is the consumer experience that will determine its success, and if consumers do not have the experience we want, it will not deliver and satisfy the ambition we all share.
I agree with the right hon. Gentleman that the roll-out of smart meters will unlock huge benefits for consumers. We have brought forward the timetable because we think those benefits are so substantial. We want every home in Great Britain to have a smart meter and an in-home display by the end of 2019, enabling people to manage their energy consumption and reduce their carbon emissions.
The roll-out will play an important role in Great Britain’s transition to a low-carbon economy and will help us to meet some of the long-term challenges that we face in ensuring an affordable, secure and sustainable energy supply. This is a huge and challenging project. It is one of the largest and most comprehensive smart metering projects in the world, and it is the largest change-over programme in the energy industry since the introduction of North sea gas about 40 years ago.
The smart meter implementation programme must ensure that the roll-out is achieved in a cost-effective way, and the benefits to consumers and to industry need to be maximised. We have completed the first year of the foundation stage, which is critical preparation for the mass roll-out that will start in 2014. The publications on 5 April represent a key milestone in the implementation programme. They provide further detail on the technological and regulatory framework, and they set out substantial new proposals for engaging and protecting consumers throughout that period.
Of course, there would be little point in such an undertaking without its bringing real and substantial benefits. Alongside our recent consultations, we have published updated economic impact assessments. These show a slight increase in the net benefits over the previous assessments, resulting in total net benefits of £7.2 billion over the next 20 years. For me, the consumer benefits will always be at the heart of the smart meter programme, so in my comments I shall focus on how we are working with industry and consumer groups to make sure that smart meter installation delivers all it promises for consumers.
Most importantly, smart meters will give consumers near real-time information on their energy consumption to help them control their energy use, save money and reduce emissions, but as the right hon. Gentleman says, for smart meters to work effectively, the consumer needs to know how to work with them. Smart meters will bring an end to estimated billing, so no more surprises for consumers, and switching between suppliers will be smoother and faster. When consumers want to switch because they feel that the companies are not passing on the benefits that they expect from the smart meter programme, they will be in a stronger position to do so. We expect that new products will be supported by a more vibrant, more competitive and more efficient market in energy and energy management.
We know that for consumers to realise all the benefits, an effective consumer engagement strategy will be needed—one that can ensure that consumers have confidence in the benefits and are reassured when they have concerns, and one that helps them to understand how to use their smart meters and better manage their consumption. More importantly, we need to recognise that some vulnerable consumers may struggle to access all the benefits of smart meters without additional help. In short, we need to place consumers’ interests at the heart of the roll-out, and on 5 April we announced a package of measures designed precisely to do that.
Fundamental to consumers’ experience of smart metering will be the installation visit. That is why we are setting rules through a licence-backed code of practice to make sure that consumers have a good experience throughout the installation process, and that they are given the information they need to understand how to use their new meter and display, and how both can help them to use their energy more efficiently. We consulted last year on rules governing installation, and our recently published documents included our response to the consultation. They will place licence obligations on installing suppliers to offer customers an in-home display, allowing them to see what energy is being used and how much it is costing, as well as requiring suppliers to provide efficiency advice as part of the installation visit. Suppliers must also identify and meet the needs of vulnerable consumers, whether by arranging for a relative or carer to be present at the installation or by providing additional help in understanding and using the in-home display.
We have also been clear that householders should not be subject to unwelcome sales or marketing in their own home, an experience that would be a huge turn-off for many and would risk putting vulnerable consumers under unacceptable pressure. The licence conditions for the code will therefore ban any sales during the installation visit, and they will require that suppliers must obtain consumers’ permission in advance of the installation visit if they are to talk to them about their own products. In all those areas we have been strongly guided by the interests and views of consumer groups.
The code of practice will be developed by suppliers and approved by the regulator. It is right that suppliers should develop the code of practice because they know their customers, and they will be at the front end of installation, but if suppliers fail to submit an acceptable code, Ofgem will be able to direct changes or designate another code in its place. Ofgem will be able to take enforcement action if any supplier breaches the code.
Efficient and customer-focused installations will be essential if we are to engage customers and help them to understand smart meters and the opportunities they bring. However, the Government, industry and others recognise that the action of individual suppliers on its own will not be enough. Building the confidence and trust of all consumers—an issue to which the right hon. Gentleman understandably referred—and reaching out to vulnerable or hard-to-reach consumers, needs consistent and co-ordinated communications. We know from research that third parties such as voluntary organisations, local authorities, and housing associations, as well as friends and family, can provide an effective and more credible source of information than either suppliers or central Government. We are therefore consulting on a consumer engagement strategy that would include a central delivery system delivered by suppliers, but with independent direction and external advisory input.
Giving suppliers the responsibility to establish and fund a central body is right in the context of a supplier-led roll-out. It means they can establish arrangements that support their own engagement activities. It also means that efforts designed to raise awareness of and support for smart metering will sit alongside those tasks designed to encourage behaviour change. Of course, it will be important for a central body to reflect wider public policy and consumer interests. The consultation also therefore seeks views on the governance arrangements needed to ensure that a central body delivers the consumer engagement objectives, for example, by proposing an independent board and an advisory board with consumer expertise, and we will take into account the concerns that the right hon. Gentleman expressed on that board set-up.
Consumer engagement also offers the possibility of synergies with other energy policies. Smart metering will support the green deal by encouraging choices that increase energy efficiency, and we are encouraging suppliers to bring together smart meter roll-out with the delivery of obligations such as the affordable warmth element of the energy company obligation. Bringing those together will provide not only efficiency savings but a more comprehensive package for vulnerable and low-income consumers. An essential part of the strategy will be continual monitoring of the delivery of smart meter consumer benefits from the foundation stage onwards. Ahead of the roll-out we will be looking at the results of suppliers' trials and of community-level engagement. Where benefits are not being delivered we will take further action.
As the right hon. Gentleman has said, there is one group of customers who typically already engage with their energy consumption in a different way from most consumers, and those are the prepayment meter customers. As prepayment customers are often already more aware of their energy use and costs, our impact assessment forecasts a lower level of gas savings in particular from that sector. However, we believe that smart metering still has the potential to bring significant benefits to prepayment customers. Every smart meter will have the functionality to operate in either prepayment or credit mode, so the meters enable easy switching between the two payment methods as customers' circumstances change. Smart meters will allow more convenient ways of topping up payments, such as by phone, cash points or online, which should make prepayment appeal to a much wider group of customers. They will also enable periods to be set when disconnection will be prevented, for instance to stop customers losing supply overnight or when shops are shut.
Another important area of consumer protection addressed in our recent consultations is the need to protect the privacy of individuals and make sure they have control over the data recorded by the smart meter. The principle that has been absolutely critical to our thinking in this area from the start is that consumers must have a choice over who has access to their smart meter data, except where the data are needed to fulfil regulated duties. Suppliers need access to a certain amount of data for billing and to fulfil statutory requirements or licence obligations. For these purposes, we are proposing in our consultation that suppliers can have access to monthly data without consumer consent. If suppliers wish to access daily data, we propose that they may do so but that they will have to provide a clear opportunity for the consumer to opt out and that the data cannot be used for marketing without the customer's explicit consent. Beyond that, if suppliers wish to access half-hourly data—for instance, to develop more sophisticated services for consumers, such as the time-of-use tariffs to which the right hon. Gentleman referred—they must obtain explicit consent from the consumer to do so.
It will not just be suppliers who will wish to access data from smart meters; a range of other parties, including individual consumers, network operators, energy service companies and online switching sites, might all have reasons for using data. Our principle—that consumers should have a choice about how their data are used and by whom—will also apply in this regard. Steps are being taken to ensure that consumers are able easily to access their own consumption data and share them with third parties, such as switching sites, should they wish to do so.
We are also requiring that 13 months of data can be stored in the meter itself and that it is accessible to the consumer. That will ensure that the consumer has control over and can access their own data even if they have no wish to share it with other parties. Meanwhile, we have embedded security in the technical design of the meters to ensure that personal data are properly stored.
I hope that I have been able to reassure the right hon. Gentleman about this massive and challenging project. We have come a long way and the publication of key consultations and conclusions earlier this month marked another milestone on the way to mass roll-out. I am grateful to him for securing the debate and hope that what I have been able to say shows that we are absolutely putting consumers’ interests at the heart of the roll-out, because for us that is integral to its success.
Question put and agreed to.