Smart Meters Bill

Lord Henley Excerpts

2nd reading (Hansard): House of Lords
Tuesday 13th March 2018 Lords Chamber

Moved by

[Lord Henley]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, the rollout of smart meters is a key enabler for the transformation of our energy system. Smart meters are a critical part of the platform for the development of a smart grid and demand-side measures. Smart meters will facilitate greater flexibility in the production and consumption of energy by providing better information and improving communication between consumers, suppliers and network companies. In particular, they will improve the ability to shift demand to match supply, allowing us to make use of excess renewable electricity when it is available and use less electricity at peak times when it is more expensive. They will also improve distribution network companies’ understanding of and control over the use of their networks, allowing more power to flow through the existing wires without reinforcement, improving reliability and safety as well as reducing costs.

The development of a world-leading smart energy system, which delivers secure, cheaper and cleaner energy, is an important part of our industrial strategy. The vision of a smarter energy system, built on a platform of smart metering, is a prize worth striving for. The smart metering programme is one of the most significant infrastructure projects our country has seen. Over 50 million gas and electricity meters are expected to be installed in over 30 million homes and small businesses. The Government are committed to ensuring that all homes and small businesses are offered smart meters by the end of 2020, and considerable progress has been made. The enduring national data and communications service has been built, tested and launched. The Government have also established much of the regulatory, policy and technical framework necessary for this programme to be a success.

Energy suppliers are now actively installing smart and advanced meters, backed by Smart Energy GB’s national consumer awareness-raising campaigns. By September 2017, over 8.6 million smart and advanced meters were operating in homes and businesses across Great Britain. Rates of installation are also increasing, with around 400,000 being installed each month. Households and small businesses can start saving energy and money as soon as their smart meters are installed. Indeed, smart meters are expected to take £300 million off domestic energy bills in 2020 alone, rising to £1.2 billion a year by 2030. These are not small sums of money, and it is right that the Government continue to oversee and monitor the rollout to ensure that it delivers effectively, bringing benefits to GB consumers.

The costs of the rollout were debated extensively in another place, and the Government have listened to the concerns raised. Along with the regulator Ofgem, we closely monitor progress and costs to ensure that the significant benefit case, estimated at £5.7 billion net benefits, is secured. It is worth highlighting to the House that, following those debates and as part of our broader commitment to transparency, we agreed to publish a further update of the cost-benefit analysis for the programme in 2019. The Bill received broad support at Third Reading in another place, as would be expected for a well-established programme that has its origins in the Energy Act 2008 and was considered further when its powers were amended in the Energy Act 2011. I hope that we can continue the same constructive debate that has characterised the Bill’s passage to date.

Let me turn to the Bill itself, which has three measures. The first measure in the Bill extends by five years the Government’s powers to direct the rollout of smart meters, which are due to expire in November 2018. The most important of these is the power to modify energy licence conditions and industry codes, for the purposes of supporting the smart metering rollout. The Government have used their powers to put in place minimum common technical standards and consumer safeguards, including in relation to data access and privacy. Extending these powers to 1 November 2023 is necessary to maintain coherence in the rollout of smart meters and ensure that relevant activities are co-ordinated. This could include situations where new technical solutions are required to address any residual challenges to full smart meter coverage to ease industry-wide delivery challenges. In addition, the Government will look to take opportunities to maximise benefits from smart meters once installed.

The second measure will enable the establishment of a special administration regime for the smart meter communication licensee—currently the Data Communications Company, or DCC—to ensure the continuity of the smart meter communication service in the unlikely event of the licensee’s insolvency. The DCC is a licensed private sector entity and provides the national communications infrastructure for smart metering. The DCC enables energy suppliers and networks to collect energy consumption data remotely and securely, supporting them in delivering the full benefits of smart metering. Meters operated within the DCC will also be fully interoperable, enabling consumers to switch their energy supplier and keep their smart services. The special administration regime for the smart meter communication licensee is similar to that for energy networks and energy suppliers. The provision of a special administration regime has also been adopted across other sectors, including rail and water. The DCC’s financial arrangements are constructed so as to make the risk of insolvency low. However, the special administration regime is a sensible precaution, with the aim of ensuring continuity of the DCC’s services and so protecting consumers and industry from the impact of any hiatus in service provision.

The third measure relates to the delivery of half-hourly electricity settlement by Ofgem. Half-hourly settlement is a key enabler of the move to a smart energy system and will help deliver benefits to consumers and the energy system by providing incentives on energy suppliers to develop and offer innovations such as time-of-use tariffs, which will enable customers to use energy when it is cheaper, reducing their bills and the costs of the future energy system. This will also help the energy system become more resilient as we move towards an increasingly low-carbon generation mix. Ofgem is currently working with industry and consumer groups to assess the costs, benefits and market design options for market-wide half-hourly settlement. It intends to take a decision on whether and how to implement it, informed by an impact assessment, by the second half of 2019. This third measure will provide Ofgem with new powers that would allow it to deliver these reforms more swiftly and smoothly than under existing processes by allowing it to directly modify relevant industry codes and documents.

In summary, smart meter rollout will deliver a much-needed digital transformation to our energy system, providing the platform for a smarter, more flexible energy system that supports innovation in new, smart products and services. For consumers, smart meters provide the foundation for smarter living, creating opportunities for the emergence of innovative products and services, and taking us to a future where, for example, smart appliances such as dish-washers and fridges use energy when it is cheapest and to help reduce peak demand and energy system costs; energy networks know who has been affected by a power cut; and new tools support assisted living. Access to detailed, accurate energy consumption information will also support the delivery of tangible and immediate benefits to households and small businesses across Great Britain. I beg to move.

--- Later in debate ---

[Lord Lennie (Lab)]

My Lords, I should start by making a declaration—or perhaps a confession. I am a smart meter user. I accepted the offer made by the company. It is a SMETS 1, so it is not doing me much good in terms of reducing my consumption or the cost—but at least I have one. That, I think, may be unique among Members of this House, but not so much so among the wider public. I also thought until yesterday that we might be able to have a debate which did not involve the European Union. However, having seen E.ON’s and RWE’s proposals, we are reminded that this is not taking place in a vacuum and that E.ON will now become the major provider for the customers of electricity while RWE is getting back into green research and the provision of electricity—reversing a decision that was taken before our decision to come out of the European Union.

I thank all noble Lords who have taken part in the debate. I share with everyone their support for the Bill—with reservations, and unfortunately it is those reservations which are going to take up most of my time. I thank in particular my noble friend Lord Grantchester for his analysis at the start of the debate. It has saved me a lot of time because he has already done the work. I shall try to avoid any repetition during the course of what I have to say. I also thank the Minister for the meetings and briefings we have had about the proposals prior to this debate. They have been very helpful in our preparations.

The Bill has three stated interrelated purposes. The first is extending the powers of the Secretary of State in regulations for smart meters. The second is introducing a special administrative regime, the SAR, with a Data Communications Company, the DCC, to ensure that service continues in the event of their insolvency. The third is to introduce new powers to allow Ofgem to facilitate half-hourly settlements.

First, the extension of powers that are currently due to expire on 1 November 2018. The Bill seeks a further five-year period, until 2023, during which time the completion of the rollout of the smart meters and their claimed benefits will have become evident. That is the plan. What are the chances of this and what benefits will consumers see? The rollout requires companies to have offered every household and small business, and there are 40 million to 50 million of them, a meter by the end of 2020. The offer of the smart meter 1 has been slowed down, while the smart meter 2 is in some kind of preparatory phase and is being tested for workability and interoperability. So the chances of meeting the 2020 deadline are fast receding, unless the Government announce some huge increase of capacity to achieve their intention. The benefits to consumers are deemed to be so positive that they will take little persuasion—but, in this House and in other places, the consumer seems less trusting of the benefits than the Government seem to think. The record tells a different story.

Thus far, the second-generation SMETS 2 have been installed in only 70, perhaps 100, households out of a total of 50 million. If the SMETS 1s can be upgraded to SMETS 2 capability, it will account for some of the increase—but it will still need three times the current rate of approach, interchange and offer of these meters to achieve the 2020 deadline.

The benefit for the customer is that he or she will be in control of their pattern of energy usage, with real-time information being provided and an end to estimated billing. That is true: the smart meter tells you how much you have spent today. At any point in time, it will give you a scare. You have spent £5, £10 or whatever it is you have spent today. It does not tell you anything about what it is that is consuming that money. The DCC will be provided with a half-hour readout of the overall usage of our electricity consumption in order to benefit its purchasing power and allow it to more accurately purchase electricity to meet our needs, each half-hour of the day, as I understand things.

That should lead to a reduction in the price it pays at certain times in the day. That will then be passed on to the consumer in reduced billing. Someone talked about half-hour billings; I do not know if that is going to come about any time soon, but we will certainly know when it is cheaper to run certain types of electricity consumption. In order to make those changes, the customer has to be sure of the benefits or they are not going to change anything. They are going to carry on doing what they do at the time they prefer to do it. The chances of the lower-end pre-paid customer changing their habits, given the other pressures that there are in their life, are more remote than for those who perhaps have more time on their hands, can study these things and can make adjustments to habits that have been ingrained for some years, as they go through life, with family, children who move away and so on.

How will the Government force the energy companies to pass on savings that they will make to the customers? There was some talk in the energy committee in the other place that the Government will make sure that this happens, but how do they intend to enforce it? The Energy Minister in the other place quoted Richard Nixon, who said:

“If you’ve got them by the balls, their hearts and minds will follow”,—[Official Report, Commons, Smart Meters Bill Committee, 23/11/17; col. 73.]


but if you have not, they are not going to. That is about the size of it. I am not sure that the squeeze is happening quite where it needs to happen. Do the Government anticipate a change of heart among the energy companies towards their customers? That is unlikely. They are private businesses; they are in business to make a profit. That is their right and that is what they are set up to do. Their shareholders are their principal guides and they expect a return. It is hard to see where the customer fits into the squeeze there might be on the price of electricity to suppliers. The Government need to think through how the customer benefits are to be realistically delivered.

Another thing concerning the change in our pattern of usage of night-time electricity for white goods is that there are increased risks that the Government should be aware of. Household fires are more likely with unsupervised white goods. Nuisance neighbour noise disputes will be on the increase as energy powers machines at night, particularly in places where people live one on top of another, in blocks of flats and so on. So the attractions of changing patterns of usage of electricity may not lead to the greenfield nirvana the Government seem to believe in.

One of the things that might have been possible—maybe the Minister will comment on this—was the Government taking responsibility for providing the customer with tariff information. Would it have been possible under SMETS 1? Is it possible under SMETS 2? SMETS 3 could possibly, if it has not been thought of before, inform customers about their best possible energy price sources. It is hard enough right now to know exactly where my best deal is, comparing tariffs within one supplier, let alone across a range of suppliers, with six major companies and a number of other minor providers. It is a complicated matter. Could the Government introduce this into the SMETS system and pass on the information to customers? That would be a real benefit and a real selling point for the meters being accepted by more customers.

I turn to the DCC. The Government intend the regime to take back control should the company go into administration. A special administration regime is to be established. The provocation for this lies somewhere between the recent failure of Carillion, an oversight in the original setting up of the DCC and doubts about the performance of Capita, the current DCC operator. If the DCC fails, the customer will foot the bill. The risk of failure is said to be extremely low. However, the impact would be high. Could the Government provide some analysis or report to reassure us that the DCC’s remote chances of failure are so unlikely that no one can see it happening? What happens if the DCC decides to walk away from the contract? Are there penalties? What are they? Might the Government be left high and dry, not by the failure of the company but by the company no longer wishing to provide the service because it does not believe it will meet the 2020 deadline, let alone those beyond it?

These are some of the questions. We support the Bill. It is deficient in some areas and these will be explored more as we go through Committee and Report, but I would be grateful if the Minister could answer some of the questions raised so far.

[Lord Henley]

My Lords, on the last or second to last point made by the noble Lord, Lord Lennie, he looked forward to a world with a SMETS 3 or 4 that might be able to assist a customer in finding a new supplier and direct him in that way. I think we are already there. I imagine that the noble Lord reads the Guardian more often than I do, but the Guardian of 11 March was talking about one company that is developing some sort of dongle that can be plugged into one’s meter and will automatically switch one to the best supplier according to the programme one puts in. One can put in, “I want the greenest supplier” or “I want the cheapest supplier” and one could find oneself having a different supplier from month to month, possibly two or three times a year. The future is good. I refer the noble Lord to that article to see just what is happening out there and what smart meters, as they are at the moment, could possibly lead to.

I have to say that, listening to the debate, I felt that it was a fairly Eeyoreish performance, even by the standards of this House. The noble Baroness, Lady Featherstone, was politer—she referred to it as a masterclass in faint praise. The noble Baroness, Lady Maddock, was, as always, very kind to me: after making her Eeyoreish speech, along with her colleagues and all other noble Lords, she said that she expected something more optimistic from me, “Because the noble Lord always is very optimistic”. I think there is nothing wrong with being optimistic when one has technical developments that are going to bring great benefits to everyone. They are going to bring benefits to the consumer, as I made clear in my opening speech, but they will also bring benefits in terms of reducing our overall consumption and in many other ways.

Like the noble Baroness, Lady Featherstone, I was very amused by the picture of her noble friend Lord Teverson under the floorboards or somewhere—I am not quite sure where he was; it was rather a confusing picture, but he was in the rain with a torch. All I can do is refer the noble Lord to Hilaire Belloc’s “Lord Finchley”. The noble Lord will remember that Lord Finchley came to an untimely end because he tried to do these things himself. In future, the noble Lord can get someone else to look at these things, but smart meters will solve the problem for him.

Others, such as the noble Lord, Lord Whitty, and me, took us back to 2008. I was very grateful to him for doing that and for saying that back in 2008 he was giving warnings, in his Cassandra-like way, and now he could say, “I told you so”. The great thing is that he can say “I told you so” to everyone here, in that the 2008 Act, as the noble Lord and others on the Benches opposite will remember, was passed under a Labour Government. The 2011 Act that I referred to was passed under the coalition Government. I think that we had a Liberal Democrat in both the business department and the energy department during that time, so their fingers must have touched this at some point. Now, in 2018 we have a Conservative Government, so perhaps, like Peter Simple’s Dr Heinz Kiosk, I can just say, “We are all guilty!”, if something has gone wrong. I think, from the degrees of optimism I have listened to in the course of the debate, that there is a general acceptance that smart meters are going to be able to do something that has not been available before and that, as I said, that will bring great advantages to us.

A very large number of questions of a fairly detailed sort have been raised and I will try to address a number of them. However, I think that what a debate of this sort also shows is that even a Bill such as this—a Bill that is broadly welcomed on all sides, that has been through pre-legislative scrutiny, that has had a very useful trip through another place since that pre-legislative scrutiny and that is now here—will benefit from what your Lordships can do in Committee. I look forward to that Committee and hope that we can tease out just where the problems are so that I can give appropriate assurances on matters that are relevant to noble Lords and, if necessary, make amendments, but I do not think that that will be necessary. As the noble Lord, Lord Grantchester, put it, this is a largely technical Bill dealing with three small matters, but its title allows us to discuss the generality of smart meters, smart metering and how we get the rollout completed. I hope that in the course of this debate, Committee and further stages we can continue that process and provide the proper assurances.

This afternoon, I propose to answer a few of the questions to the best of my ability. I think it would be useful if I write another letter to all noble Lords who have taken part in this debate and place a copy in the Library, setting out a more detailed answer of the sort that one cannot properly give to some of the more detailed questions and very sensible suggestions made by my noble friend Lady Manzoor. I give that assurance that I will send that detailed response to all noble Lords.

In the meantime, I shall answer a few of the questions that have been asked. The first, and most important, is to give some sort of assurance that we believe that it is still possible, despite the numbers which the noble Lord, Lord Grantchester, quoted from Which?. The numbers probably appeared in the Daily Mail as well, for all I know—that was another publication that was mentioned. We believe that we will be able to get there in due course. The rollout to date has been growing. Around 400,000 smart meters are being installed every month. That has to get up to a bigger figure if we are going to get to the end in the three years that are available. I do not think that is representative of the next phase of the programme when most suppliers will be installing smart meters with greater numbers of installers and more types of customers across Britain. We will certainly continue to collect data—this was something that the noble Baroness, Lady Maddock, asked about—on the rollout, getting independent, official, quarterly statistics on progress by the large suppliers, and we will make sure that they are published quarterly, as I think they have been since September 2013. In addition, a summary of the annual rollout progress for the calendar year is published every March, so we should have that in due course. I do not know whether it will be before Committee, as no one has yet given me a suggested date for the next stage of the Bill.

[Lord Teverson]

As I said, I think it is impossible to get to that. Can I just be clear about the commitment? It is to offer everybody a smart meter. Are the Government clear with the suppliers about what “offer” means and that it is not just an email saying, “Do you want a smart meter”? Are we clear about the target? Not everybody wants one. Is that a potential get-out clause in this target?

[Lord Henley]

The noble Lord knows that we are not going down the route of saying that everyone will have one, but we hope everyone will see the benefits of them and that everyone will be offered one, and I hope that offer will be more than just the email that the noble Lord suggests. It is difficult to persuade people to change. Some months ago we discussed the ease with which one can change one’s electricity supplier. However, because of inertia, few people do. The easier that it becomes and the more benefits that there are, the more people will switch supplier. The same applies to smart meters: people will adopt them as they see the benefit. We shall continue to push suppliers to do what they can, because of the benefits. That is not only those benefits to consumers that we all recognise, but those to the country through reducing our overall electricity consumption by evening it out and those other benefits identified.

[Lord Grantchester]

I thank the Minister for giving way. It is the responsibility of Ofgem to report on the companies’ taking all reasonable steps to offer consumers a smart meter.

[Lord Henley]

The noble Lord is absolutely correct. I apologise for not making that clear. There will be information available from Ofgem.

On rollout, I agree with points made that there is more that we can do to engage with customers in moving to smart metering. This is important and we shall certainly do more. As noble Lords will know, we have required the establishment of Smart Energy GB. This is an independent not-for-profit organisation leading the centralised programme to raise national awareness alongside activities to drive behaviour change and help consumers to benefit from smart working. The situation is changing. I think that the noble Baroness, Lady Maddock, quoted figures about satisfaction rates, but on awareness of smart metering, this has increased from some 40% to over 80% in three years and has driven demand for millions. Research shows—I believe that this is a figure that the noble Baroness quoted—that some 80% of consumers who have smart meters would recommend them to friends and family.

The question of safeguards, safety of data and related issues, is a concern of my noble friend Lady Manzoor, the noble Lord, Lord Whitty, the noble Baroness, Lady Maddock, and others and it is something to which we shall come back in due course. National smart meter infrastructure has been developed from the outset in consultation with experts from industry and government including the National Cyber Security Centre, which is part of GCHQ. The smart meter security model establishes physical, regulatory and operational security controls backed by independent security assurance arrangements. For instance, critical commands will only be accepted by the smart meter if they are issued by the responsible energy supplier and authenticated through strong encryption. Moreover, they have to be countersigned independently by the DCC.

The Government have also put in place a strict data access framework that protects consumers’ privacy. This is important. I think that this was at the heart of some remarks of the noble Baroness, Lady Featherstone. Households will have control over who can access their detailed energy consumption data and for what purposes, except where this is required for regulated purposes—that includes billing.

I am beginning to run out of time. I shall write in greater detail. The final point that I shall address now is that of the noble Lord, Lord Broers. He highlighted the importance of more work to ensure that a promise of a connected home was delivered. The noble Lord will be aware of a joint BEIS-Ofgem smart systems and flexibility plan that was published in July 2017. That reaffirmed that smart meters are the foundation of a smart meter energy system. It included a commitment to work with industry to develop standards for smart appliances that will allow consumers to provide flexibility and benefit from demand-side response.

I appreciate that I was asked many more questions and that there is much detail that will need to be gone into. What I hope to do is to write a letter as soon as possible to all those who took part in the debate detailing all those points that need to be covered. The important point is that we can then sit down—or stand up—and discuss these matters in detail in Committee, make sure we have the Bill right when we send it back to the Commons and make sure that we can look forward to broad, sunlit, happy uplands. As I said, I will continue to be the optimist rather than one of the series of Eeyores I have heard speaking on this occasion. I look forward to a bright future for smart meters, whether that is SMETS 1, SMETS 2 or even SMETS 3 as mentioned by the noble Lord, Lord Lennie.

Bill read a second time and committed to a Grand Committee.