Smart Meters
Debate between John Healey and Jim Dowd
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.