Smart Meters Bill (Third sitting)

Alan Whitehead Excerpts

Committee Debate: 3rd sitting: House of Commons
Thursday 23rd November 2017 Public Bill Committees

[Steve McCabe]

The Minister may want to help the Committee with that, but my understanding is that he has an installation target. Clearly there will be people who refuse to accept smart meters, and that will inevitably affect any overall figure; but, as far as I understand the matter, the Government have an installation target. My point is that if they need to achieve a 70% increase in the daily rate, that does not seem to be likely or credible; it is not on the cards. However, the Government are adamant that the 2020 target is achievable—a sentiment that the Committee will remember was echoed by some of the witnesses we heard from on Tuesday. I think that we need to hear from the Minister how he will achieve that.

A recently circulated myth-busting document from the Department for Business, Energy and Industrial Strategy says it is a myth that the Bill

“is just a means of extending the roll-out until 2023.”

It states:

“Reality: Energy suppliers remain legally obliged to complete the roll-out by the end of 2020.”

If BEIS is right in its myth-busting, why does the Secretary of State need such an extension of powers to develop, amend and oversee regulations relating to smart meters? If the energy suppliers are legally obliged to complete by 2020 and it is a myth to suggest that the Bill is simply about creating an extension, and BEIS is confident about that, why are we here discussing an extension to 2023?

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Will my hon. Friend consider myth-busting the myth-busting? It is not the case that all suppliers are legally required to install smart meters by 2020: it is those suppliers who are under an obligation, because they have more than 250,000 customers, to pay and take part in green and social tariffs. Suppliers with fewer than 250,000 customers have a target to supply by 2020, but are not legally obliged to do so. That may be of use to my hon. Friend in considering the target itself. The fact that some companies do not have the same obligation may be cause for further thought about whether targets will be reached.

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[Steve McCabe]

I simply say that my fear is that we could end up agreeing a timescale that does not have safeguards or an obvious justification, which in itself is an opportunity for further delay and is perhaps a recipe for failure. I ask the Minister: would it not be sensible, at this point in the roll-out of the programme, to send a clear message to the industry, consumers and everyone that an extension until 2023 is needed and to make it absolutely crystal clear why that date has been chosen and what will happen in that period—or whatever period BEIS picks? It has been interested in other dates in the past, but now it thinks it should be 2023. Would it not be sensible to send a clear message to the industry, so that we can ensure that the benefits of the programme that the Minister intends are actually realised?

If it is not possible in all conscience to do that and to convince the Committee that we are on track for that outcome, would it not be sensible to revert to the 2020 target and to actually develop a sense of common purpose that says to all those people engaged in the programme, “You said you could do this. We are telling you that 2020 is the delivery target. We are absolutely clear that that is where we are heading”? Would it not be sensible to stop the backsliding and to say that what we actually want is to deliver what we are telling the public we are capable of delivering? We simply cannot have it both ways; we cannot be emphatic on both points. There is either an achievable deadline of 2020, and all the statements from the Department are believable, or that deadline is unachievable and the Minister needs to set a new deadline, explain it and justify it and convince us that that one is deliverable.

[Dr Whitehead]

My understanding of my role, with regard to the amendments, is that I am not summing up on behalf of the Opposition but speaking in support of the amendment put very ably by my hon. Friend the Member for Birmingham, Selly Oak just a moment ago. Before I say anything else, I need to emphasise, as my hon. Friend did, what the Opposition think about the Bill as a whole and what we think about smart meters and their roll-out.

We need to be clear from the start that we are certainly not opposed to the Bill overall and we are certainly not opposed to smart meters. We think that smart meters are not only a desirable but a necessary part of the process of smartening up our energy systems as a whole, and that they will have considerable benefits for both consumers and the energy system as a whole when they are rolled out.

We are also anxious to see that that roll-out proceeds in a timely fashion and that we have a substantial coverage of smart meters at the earliest possible stage, so that those benefits can start to be realised. Indeed, as we heard in oral evidence, there are quite a few issues relating to how many smart meters need to be installed in order for those benefits to start rolling out. Getting those numbers in is an important part of the process of realising benefits for the future.

The amendments we are talking about, and indeed clause 1, are about the process of changing the date by which time licensable activities will have ceased from 2020 to 2023. Whether or not it was a wholly wise idea, the 2004 and 2008 Energy Acts and subsequent regulations specified a date for those licensable activities to end, so after 2018 the Government will have no control over what goes on. Everybody knows that in 2018 we will still be at a relatively early stage of the roll-out. It is impossible to conceive that it would be wise to continue with the original timetable, so we support the idea of specifying a more satisfactory date in the statute book.

The date specified in the Bill is 2023, but as my hon. Friend the Member for Birmingham, Selly Oak pointed out, that does not appear to coincide with the Government’s publicly stated ambition for the end of the roll-out. I say that with caution, because their statements about the roll-out have changed over time, but they have always revolved around the idea of ending it in 2020. There has been a lot of talk from the Government about 53 million smart meters being installed in homes by then. Indeed, the “frequently asked questions” page of the Smart Energy GB website states:

“By the end of 2020, around 53 million smart meters will be fitted in over 30 million premises (households and businesses) across Wales, Scotland and England.”

However, the Government have changed their position; they are now saying that by the end of 2020, 53 million customers

“will have been offered a smart meter”—

a very different proposition. We could interpret that as 53 million people being offered a smart meter by 2020, but only 10 million having them installed, although I assume that that is not what the Government mean. That statement may be meaningless or meaningful, depending on what happens before the end of 2020 and on a variety of issues that will appear along the road, many of which the Committee will examine in its consideration of the Bill.

[Stephen Kerr]

Does the hon. Gentleman agree that if the word “offering” really suggests something voluntary on the part of the consumer, any targets set beyond that level are fairly redundant?

[Dr Whitehead]

Not entirely. That is one interpretation of the word “offering”. If we adopt that theoretically interesting but practically difficult interpretation, what are we doing here, worrying about the roll-out? Provided that we can ensure that the chosen vehicles for the roll-out—the energy supply companies—can at some stage up to the end of 2020 tick a box showing that they have contacted Mrs Miggins of Acacia Avenue and Mr Bloggins of somewhere else, and asked them “Do you want a smart meter: yes or no?” and those people answered, “Hmm, I don’t know,” that is the end of it. Presumably we could end up at the end of 2020 with 20% coverage and a small number of meters rolled out.

[Grahame Morris]

I am following my hon. Friend’s arguments about critical mass and the number of people participating. Does he have a view about why Northern Ireland is not in the scope of the Bill? With regard to Scotland, the hon. Member for Stirling pointed out that it was because of problems with internet coverage, and so on. Is there a similar issue with Northern Ireland and is that relevant to helping to achieve critical mass in the number of people who apply?

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[Dr Whitehead]

I can only surmise that because there is an all-Ireland energy network system, which has different protocols from the UK system attached to it, there may be different circumstances for smart meter roll-out in Northern Ireland, so that what we are considering does not apply. Obviously it is proper for it to apply to the whole of the rest of the UK—Scotland as well as England and Wales—because energy is a reserved matter.

To return to the question of what it means for everyone to be offered a smart meter, I hope that the Minister will be able to clarify matters this morning, but we surely cannot mean that the whole obligation for the roll-out will be discharged by doors being knocked on and someone saying something. From the outset, we cannot mean that, because of the whole twofold purpose of smart meter roll-out. Yes, the smart meter goes into the home, but additionally the data that comes from the installation has, to a considerable extent, a life of its own. In aggregate it drives, to a substantial degree, the future energy system, in terms of how smart the system becomes and the use of the aggregate data to inform decisions about grid strengthening, local network arrangements and all sorts of things to smarten up the whole system—a system that smart meters are only a part of.

If the smart meter installation programme is pursued on the basis of just making a desultory offer, the result will be way below the critical mass necessary for the overall aggregate data to work properly and lead to decent decisions. At that point £11 billion or some such amount would have been wasted on nothing much.

[Mark Pawsey (Rugby) (Con)]

Is the hon. Gentleman making the case, then, that consumers should have no choice in the matter, and that the installation of a smart meter in everyone’s home should be obligatory?

[Dr Whitehead]

No, I am not making that case, and I am deliberately not making it, because, as has been emphasised in the evidence sessions and on a number of other occasions, the smart meter programme is voluntary. People do not have to have a smart meter in their home if they do not want one. By the way, in the future that will create some difficulties and expenses for energy supply companies inasmuch as they may have to run a dumb meter inspection programme, as it were, alongside a different meter management programme for smart meters. Nevertheless, that is the position that all of us have taken from the beginning. The smart meter programme is not compulsory.

I am reminded of a visit I undertook some while ago with the then Energy and Climate Change Committee, where we talked about smart meter installation in the US. In some states, they had sheriffs and marshals on hand to ensure the installation of smart meters in particular people’s homes.

[The Chair]

Order. That is very interesting, and it is enlightening in many respects, but I will be minded not to permit a clause stand part debate if we spend so much time discussing this amendment and the clause generally. It is very interesting, but I hope we can focus a little more narrowly in order to have a wider clause stand part debate later.

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[Dr Whitehead]

Thank you, Mr Gapes. I am happy to follow your guidance. In my defence I can only say that I think I was led by an intervention into an interesting anecdote about what happens in the United States as far as meter installation is concerned. I will endeavour not to go any further on that.

We have a smart meter installation programme that is voluntary and, at the same time, we need a proportion—not 100% but quite a lot—of smart meters installed in order to make the programme work by having worthwhile aggregated data, so we clearly need to put a lot of effort into ensuring that the benefits of the programme are explained to the public. The evidence suggests that the public overwhelmingly like smart meters when they are introduced and that they want to have them in their homes. We therefore need to make a lot of effort over the period to ensure that the two ends—the voluntary nature of the programme and the need for substantial roll-out—can be reconciled. That will constitute much of our debate over the next few sittings. What is it that we need to be doing and should be done, but perhaps has not been done to ensure that the roll-out programme gets its output properly organised and smart meters installed?

The first question is about what we mean by an offer for everyone to have a smart meter. We have gone over that for a little while, and I am sure the Minister will have something to say on that. We then need to consider what we mean by the 2023 date in the Bill. I have four possible explanations as to the thinking behind that date.

The first is that we may not actually meet the roll-out date of the end of 2020, so we may need Government control to continue up to the end of 2023. Let us remember that this is about Government control of licensing arrangements for the whole roll-out. We may need that control to continue to deal with the eventuality that the roll-out date is changed. We may, at some future date, say that the new target is 2021, 2022 or whatever, and that we still need that control in place. We do not want to be here in 2023—I probably will not be here, but other hon. Members may be—going through this whole thing all over again and saying that we would like to have that control extended to whatever date.

The second is to do with the remedial action that may need to be taken if smart meters are just offered up to 2020 and the offer proves to be just that. Conceivably, given what the Government have said is their aim for the roll-out, we may reach the target date for their offer to be made—the end of 2020—and it may turn out that it is not really a roll-out at all and that we need to do various other things. Perhaps the 2023 date is there so that we can consider what to do in the eventuality that the offer turns out to be not very good at all.

There is also the question of what is happening with the specification of smart meters. We will look further at that, but it is pertinent to the roll-out date. As we heard in evidence, the Data Communications Company is supposed to control everything as far as smart meters are concerned. It will receive and organise data, it will communicate between the centre, the smart meters and the many networks, and it may well be responsible for further patching networks to ensure that wide area networks work. All that will be done through the DCC. It was always necessary for the DCC to start its roll-out to enable smart meters that have been installed and those that will be installed to connect with it and therefore go live at the earliest possible date. However, the DCC systematically failed to go live when it should have done. It repeatedly announced delays in going live. It eventually went live in autumn last year, under circumstances in which most of the industry raised substantial eyebrows.

[Grahame Morris]

We are dealing specifically with dates and with whether we have a justification for extending the roll-out period by three years. As my hon. Friend indicated, we are talking about huge sums of money. That may not be public money from the Treasury, but the consumer will certainly bear the scheme’s cost, which is of the order of £12 billion. It is relevant that the DCC, which is the company responsible for delivery, and the framework and arrangements that sit around it—the Minister seeks to amend some of the terms of those, particularly the dates involved—are fit for purpose. Is the DCC a stand-alone company or a subsidiary of a larger group or company?

[Dr Whitehead]

My hon. Friend asks two questions, one of which I fear is a little outside the scope of the Bill—

[The Chair]

indicated assent.

[Dr Whitehead]

—as you indicate, Mr Gapes. I would very much like to expatiate on what is happening with the costs of smart meters, but I think I would not be able to continue down that path very long before being guided kindly away from it. There is certainly an issue about the extent to which costs are transparent and manageable—and stand-alone or controlled by an outside source. The DCC is not a stand-alone company. It was set up in order to run all these things, and was then effectively auctioned out to a company that could run it, and the successful bidder was Capita plc. As far as running the systems is concerned, DCC is effectively a subsidiary of Capita plc. Again, that may be an issue that we want to return to later.

[The Chair]

But not now. Any interventions should be on the specific issues in the amendment, not on Capita or anything related to it.

[Dr Whitehead]

Indeed, Mr Gapes, and I would not want to go down that path either.

[Grahame Morris]

I am certainly not going to challenge your patience, Mr Gapes—

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[Grahame Morris]

That is certainly not my intention, Minister. My point relates to the amendment, the justification for extending the date by an additional three years and whether the delivery vehicle is fit for purpose. Was my hon. Friend surprised, as I was, when the witnesses told us that only 250 units had gone live to date? Does that imply that the company is fit for purpose?

[Dr Whitehead]

I thank my hon. Friend for that intervention, which is absolutely bang in scope.

[The Chair]

Yes.

[The Chair]

For once.

[Dr Whitehead]

As my hon. Friend points out, and as I was suggesting before I was slightly diverted down a different route, DCC went live last autumn, but in the going live report, there were about eight pages of workarounds—things it had not sorted out yet. It only went live in part of the country, and was fully live in all parts of the country after autumn 2016. If it had not gone live at that date, the company would have suffered considerable penalties, so that was as late as it could be within the window of when it could go live without going into default. That, among other things, has caused considerable difficulties with SMETS 2 meters replacing SMETS 1 meters as the main kind of meter deployed up to the end of the roll-out in 2020. The SMETS 2 meters have a marginally different specification from the SMETS 1 meters and are allegedly much better at interoperability and intercommunication—

[The Chair]

I remind the hon. Gentleman that amendment 12 on that issue is to be debated after this one.

[Dr Whitehead]

Indeed. I will want to say one or two things on that amendment.

As we heard in evidence, only 250 SMETS 2 meters are fully operational, and we are supposed to have 39 million SMETS 2 meters up on walls by the end of 2020. That does not strike me as a terribly good start. The years are concertinaing into each other and we are running up to 2020.

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[Dr Whitehead]

Indeed. I hope the Minister will say something reassuring about that, and I am sure he is fully ready to do so.

The final important issue to do with the date is the number of appointments that energy suppliers are making—due to expressions of interest or otherwise—to put a smart meter up on a wall. We heard in evidence from Smart Energy GB about what it calls a pan-supplier customer funnel. That is a fancy way of saying that there is an enormous difference between people who say they would like a smart meter and people who actually get a smart meter at any stage of the installation proceedings. The number of installation appointments booked by energy companies looks very different from the position at the point of interest being expressed and people saying, “I would like a smart meter in my home. When are you coming to install it?” It is not a question of whether people want a smart meter, but whether they get the smart meter on the wall after they have said they want one. That appears to be a continuing problem in the roll-out.

Indeed, if hon. Members look at page 19 of the cost-benefit analysis from the end of 2016, they will see how considerations are changing with regard to the installation profile of smart meters up to the end of 2020. We may need another cost-benefit analysis in the not-too-distant future. As new cost-benefit analyses emerge, and as more information on the ground comes to light, the profile changes. I do not wish to repeat the theory of the four cups on the table from our evidence session, but hon. Members can see from a graph in the cost-benefit analysis the change between the profile of the roll-out and the profile in the cost-benefit analyses of 2014 and 2016: the mountain gets steeper and steeper as we come to the end of 2018 and the beginning of 2019.

It is suggested that a roll-out of some 15 million a year will be necessary in 2019 to get the programme on track in the way we all want and hope. A number of people think that that roll-out profile—a roll-out by the end of 2020—verges on the improbable. That is the fourth—and last, you will be pleased to hear, Mr Gapes—reason that I put forward for why 2023 has been decided on. The question is how that reflects on the roll-out, the communications, the offer and the ability of the whole system to work properly as far as future energy systems are concerned.

As the Minister is itching to tell us which one of the four is the actual reason—or perhaps it is all four or something else; I do not know—I will give him the opportunity to do that, but I hope that we can start the Bill with a very clear idea of what we are talking about as regards the 2023 date, because that will inform the rest of our discussions.

[Richard Harrington]

The shadow Minister took my “itch” comment correctly. I was, as Mr Speaker would call it, mumbling from a sedentary position.

Mr Gapes, I understand fully your rulings on scope. There are points from hon. Members on both sides of the Committee, and particularly Opposition Members, that I would like to speak about, but the issues raised are not within the Bill. If they would like to meet me separately, either formally or informally over a cup of tea, I would be very happy to do that, because I am absolutely obsessed with smart meters, and that is my job; the hon. Member for Birmingham, Selly Oak, who spoke so eloquently, and I have met to discuss the subject. I took on this project quite recently, and I am determined to make a success of it, as are the officials. In my admittedly short and less than illustrious ministerial career, I have never come across people with such enthusiasm and energy for the project. We want to get it right, and I accept fully hon. Members’ statements that the amendments are not designed to wreck the Bill. The expression used is “probing”. We have heard very genuine comments and questions, and I will do my best to answer them.

I was going to make a longer speech. I thought that in the first bit of it, it would be better to put on record what the whole Bill and smart meter programme is about, but in the spirit of your ruling that Members’ contributions have been outside the scope of the Bill, Mr Gapes, I think I would be pushing it, but I would have liked to have done that; I would like to put that on record, anyway.

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[Richard Harrington]

Actually, concentrating the mind in the Nixonian way, the next couple of years will surely lead to reduced costs because of economies of scale, but we can discuss that another time. I will be happy to.

The shadow Minister said that small suppliers have a weaker obligation in relation to 2020. That is not quite true, although he did not intend to mislead us with the wording he used. It is exactly the same obligation. The only flexibility the small suppliers have been given is that they can deliver their programmes in line with their broader corporate strategy. We are allowing the smaller ones to be later in the programme because, unlike British Gas and others that have been mentioned, they have not got the bulk.

[Dr Whitehead]

Will the Minister give way?

[Richard Harrington]

The hon. Gentleman will have to excuse me. I am being told to make progress.

Amendment 1 relates to the Secretary of State’s power to modify the relevant electricity licence conditions and industry codes, which relate to the detailed regulatory framework, covering the activities of energy suppliers and network operators, and the data and communications licensee. It would cause those powers to expire at the end of 2020, which, again, has nothing to do with the target. I do not think anyone would argue that they should just disappear. I oppose amendment 1 because it removes the Department’s ability to conduct an effective post-implementation review, which, as I said earlier, we will need to do. The aim is for that to happen in 2021. The extension of powers until 2023 allows us to complete that exercise and implement the recommendations.

I know that this is a probing amendment, as the hon. Member for Birmingham, Selly Oak said, but I do not think he took those things into consideration. He concentrated his comments on whether to extend the target, which I hope I have covered. In contrast, in the absence of the power we are asking for to modify the energy licence conditions and industry codes beyond 2020, we would have to bring the review forward. For it to be consulted on properly, and to provide the appropriate parliamentary process, it would be necessary to conclude the evidence gathering the year after next at the absolute latest, which as far as I can see would completely reduce the robustness of the assessment and exclude valuable evidence from the final stages of the roll-out. It would also prevent the consideration of longitudinal research exploring the impact of smart metering on consumer behaviour, which is what this is all about, and energy saving over the course of several years. If it were carried out before 2020, there would not be enough evidence. I believe smart meters will be absolutely revolutionary, and will change the way people use their energy bills. If hon. Members believe in smart metering—I am sure you have been persuaded, as the rest of us have, Mr Gapes, that this is a really good thing to do—and think it is not just a short-term thing, it is right that the Government can ensure that the regulatory framework is there and is fit for purpose for decades to come.

Amendments 2 and 4 would limit the period to which the Secretary of State can veto Ofgem’s proposal to give consent to the transfer of the whole or of any part of the communication licence. Again, if the amendments were passed, the Secretary of State could prevent the transfer only up to the end of 2020. DCC’s smart meter licences were awarded in 2013 for 12 years. The curtailment of that power would create an imbalance in the Government’s arrangements of the smart metering programme, undermining our leadership role within it.

I know it sounds like we want it both ways, but the Government’s role is absolutely central to this. We have to provide the leadership that we have been asked for. I do not want to risk having a situation in which a smart meter communication licence was transferred in a manner that conflicts with activities undertaken by the programme as part of its post-implementation review. It is necessary to extend the power to 1 November 2023 to retain coherence in the Government relating to the smart metering programme and to ensure that these activities are appropriately co-ordinated.

Amendments 3 and 5 would limit the Secretary of State’s ability to introduce new licensable activities in relation to the smart metering roll-out. The power we are talking about was used to set up the provision of the smart meter communications service, which led to the granting of the DCC’s licences. I want to make it clear that we have no specified or defined plans to use the power. Perhaps the hon. Member for Birmingham, Selly Oak will still argue that if the scenarios change, primary legislation will be needed to go through it again, and I understand that. However, I can see scenarios that could develop where we will need the ability to introduce new, licensable activities quickly, in order to overcome barriers and to ensure that the benefits are realised. Such situations can arrive relatively late in the roll-out or in the immediate post-implementation period.