Smart Meters Bill

Lord Henley Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 24th April 2018 Grand Committee

[Lord Stevenson of Balmacara (Lab)]

My Lords, I support my noble friend Lord Grantchester in his Amendment 4 and reiterate his important suggestion. He accepts that his amendment is not necessarily the definitive way forward and is inviting the Government to engage with him and others to try to find a form of words, process and activity that would enable a national plan to come forward that we could all get behind. I hope that when the Minister responds he might signal that this is something he will consider.

Like the noble Baroness, Lady Featherstone, I have come to this relatively late. Those who have not been living the ups and downs of this over the past few years are completely and utterly shocked that it could have got to this stage without some very serious consequences. At a superficial level—I know it is more complicated than this—the initial programme has had to be restarted and reset but is now about to stop, and people are being laid off and made redundant because there is no guarantee that the SMETS 1 meters will be continued after October 2018. A completely new, untested and uncertain scheme involving SMETS 2 will be brought in on top of that and will therefore go back over ground already covered in a way that is as yet unforeseen.

At the same time, the whole costs of this are hidden and difficult to ascertain. The process under which levers can be exercised on people is not clear and the role of Ofgem, the regulator, is very passive in relation to the capacity it has now. It all smacks of being a complete and utter train crash of enormous proportions, and the only solution appears to be to keep ploughing on. British pluck is all very well but it has not always been the most successful way forward, particularly in matters involving technology.

I urge the Minister, when he comes to respond, to think very carefully about the way in which the Opposition are proposing this and about the support we have received from others. If we do not come out of this with a clear and approachable process—whether it is this national plan or not—the real danger is that consumers will literally be switched off in the sense that they will not wish to be involved in this. As a result, the huge upside of this, the benefits of bringing in a new technology, opening up innovation and bringing in new thinking about how we manage our energy supply—which was the point made by the noble Lord, Lord Teverson—will be lost if consumers are not prepared to walk along. This is not about individual customers having a better time; it is about how we as a country can cope with the energy demands that we will face, and minimising them while strengthening our approach as we go through. This is a terrific chance to get this right in a proper and positive way.

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

My Lords, the noble Lord, Lord Teverson, used the examples of the length of a number of wars. I will not follow him down that track because I think one could come up with some longer wars as examples. He mentioned that this had started under a Labour Government, continued under a coalition Government and was now being dealt with by a Conservative Government. I have been a member of two of those—obviously I was not a member of the Labour Government. It has been going some time but we want to get it right.

When things have been going some time I am always faintly surprised when Oppositions put forward amendments to suggest that we should take even longer. I suppose that is why the noble Lord, Lord Grantchester, prefaced his remarks with, “Unusual as it may seem”. I take note of that. I will not rise to his bait to make any comments about the likely outcome of the next election. Quite rightly, he wants whoever is in government at the time, whomsoever that may be, to be helpful, possibly referring to the remarks on the word “helpful” made by the noble and learned Lord, Lord Goldsmith, in yesterday evening’s debates. We will try to avoid “helpful” in the future.

To continue on the helpful theme, I would obviously like to be helpful. The noble Lord asked whether we could have further meetings. I will make myself available when the noble Lord, the noble Lord’s colleagues and the noble Baroness, Lady Featherstone, and others want to have meetings between now and Report if we feel that we can discuss things further and take things forward.

In the meantime, I will respond in a little detail to the specific amendments—Amendments 1, 2 and 4 in the first group. As I said, the first amendment proposes to extend certain powers that the Secretary of State has to develop, amend and oversee regulations relating to smart meters until November 2026, although in this Bill we have sought only the powers that we think are justified, which extend to 2023. Extending the powers to 2023 would allow the Government to continue to oversee the programme, while suppliers meet the obligation on them to take all reasonable steps to install smart meters in homes and businesses by the end of 2020.

The noble Lord referred to my letter where I talked about them offering rather than installing—we are trying to make sure that they have at least offered something to everyone. Obviously no Government can guarantee that one can be installed in every home because it is quite possible that a number of individuals will refuse to have a meter for whatever reason. It also allows the Government to undertake a post-rollout review once the programme has been operating in a steady state and then implement any of the recommendations that emerge. We hope this will help to ensure that the smart metering programme is fit for purpose—whether SMETS 1 or SMETS 2—for decades to come.

[Lord Stevenson of Balmacara]

I am sorry to interrupt, but on the narrow point, what specification are the Government adhering to? Is it the obligation on energy suppliers to take all reasonable steps to install smart meters or not?

[Lord Henley]

We hope that they will offer—and if they do, obviously they must then install. There is no point offering to install one unless they do so. So we hope that all of them will have offered and installed by that date.

[Lord Stevenson of Balmacara]

It is important that we get this right, because there is a world of difference between making an offer to install and having an installation completed. My noble friend Lord Grantchester, in making his proposal, would give an additional three years because the understanding we had from the first paragraph of the Minister’s letter was that it was about the completion of that process. If the noble Lord is saying that the licence obligation placed as a condition of licence on energy suppliers is only to offer, does he not accept that that completely changes the process?

[Lord Henley]

No. I wanted to make clear that there is no obligation to have got to a 100% rate of installation because we know we can never get to that target. What we are looking for is that they must make the offer and then make the installation—that is the undertaking—by the appropriate date. We do not think that extending the time is necessary. Does the noble Lord follow me?

[Lord Stevenson of Balmacara]

I will try one more time and then I will stop. The obligation placed statutorily on companies operating as energy suppliers is, as I understand it, to have made an offer to take all reasonable steps to install smart meters in homes covered by the mandate by the end of 2020. That will be considered to have been completed if they have written to and received information back from all those who would be eligible to receive these things, and, where there has been an acceptance, have completed the installation. Obviously, as the Minister said, you cannot install a meter if somebody says that they do not want one, so those people are taken out of it—but must everyone else, if they say that they want a meter, have had one installed by 2020? That seems extraordinary.

[Lord Henley]

It is not simply a matter of writing a letter to the individuals concerned. One letter would not be enough. The energy suppliers must show that they have made reasonable efforts with all their customers while allowing a degree of flexibility in certain circumstances. The rollout obligation puts that onus on them. Ofgem has made it publicly clear in an open letter that it will need to adapt its approaches to consumer engagement, using other approaches where necessary. It is not merely a letter, but it must make a genuine attempt—merely making a solitary offer is not sufficient—to get hold of those people to make an installation.

[Lord Grantchester]

I shall interject very quickly to follow up on my noble friend’s comments. There has been a lot of confusion about what sort of meter will be installed. The Government have backed away from SMETS 1, but I am also hearing industry commentators suggesting that if SMETS 1 meters can be interoperable, the process should continue beyond October as they will then be interoperable as though they were SMETS 2 meters. So if, as we are hearing from other commentators, people are standing down staff from being able to put meters into premises where they have said yes because of the unavailability of SMETS 2 meters, that in itself will mean there will be a considerable delay to implementation. In the circumstances, it is rather unclear to the consumer what exactly their expectations will be and what will be delivered by what date—hence my argument. The Minister needs to appreciate that there is probably still a lot of confusion out there regarding what meters will be done by what date, when they might be installed and when any benefits will be appreciated.

[Lord Henley]

As the noble Lord is aware, SMETS 2 meters are now being installed. I cannot remember the figures given at Second Reading, but so far there have been very few. However, we expect to see a fast increase over the coming months.

We have also made clear—the noble Lord alluded to this—is that SMETS 1 will no longer count by October, the date to which he referred, and thereafter SMETS 2 will be installed. If a SMETS 1 is installed after that date and is upgraded to a SMETS 2, obviously that will count as a SMETS 2. I will take advice and write to the noble Lord if I am wrong on that. However, as the noble Lord knows, from October SMETS 2 will count in meeting that commitment.

With that, with the changes and with the gradual rise in the number of SMETS 2 installed, no suppliers will have problems in finding work for their staff, and so will not have to lay people off and bring them back on during this process.

[Baroness Featherstone]

My understanding is that there are so few SMETS 2 meters out there—mainly in supplier homes—that their testing with the DCC cannot be relied upon at this stage. Surely it cannot be done with fewer than 50,000. I am not a technician—I do not know what the number is—but 300 or fewer is not enough to ramp up the rollout of SMETS 2 in the way the Minister is suggesting.

[Lord Henley]

Again, I will take advice on that. We will come back to it on a later amendment. The noble Lord, Lord Teverson, has spoken about not moving further until we have a large number rolled out. However, my understanding is that this process is beginning to happen and that numbers are going up. The noble Baroness is looking at me in disbelief, as she so often does. We often disagree.

[Baroness Maddock (LD)]

In defence of my noble friend, we have had briefings which tell us what she has just said to the Minister. I do not know where he gets his briefings, but the industry has briefed us and it is clear that SMETS 2 is not at the stage that he thinks it is.

[Lord Henley]

My Lords, I am not sure whether, strictly speaking, the noble Baroness is correct. My understanding is that the number of SMETS 2 installations will go up over the coming months, in which case it will be possible to test them, and therefore that by October we will be at a stage where we can go ahead. We have time on our hands on this matter and, as I said, I would like to have further meetings with the noble Baroness and others between now and Report. We could then go through some of these particular points.

At the moment perhaps I may get on with these amendments and come back to my point. As I said in response to the noble Lord, Lord Grantchester, there will be this change in October. SMETS 1 meters will no longer count, but suppliers will still be able to make use of their workforce in the installation process.

On the extension that the noble Lord is generously seeking on behalf of the Government, we do not think it can be justified. It would not send out the right signals and could even have—dare I say it?—an unhelpful impact. It could suggest that the Government would play an active role in leading the programme well beyond the point at which the self-sustaining industry model overseen by Ofgem is due to take over. It also risks undermining industry momentum in progressing the rollout just as suppliers are accelerating deployment with the new generation of meters being brought in. Delay to investment decisions and deployment would also bring delay to the benefits that accrue to consumers from receiving smart meters. In turn, that could impact on the pace of moving to a smart meter system with dynamic time-of-use tariffs made possible by smart meter installation. That is why we are firmly committed to the programme’s timetable as reflected in Clause 1.

The noble Lord referred to the NAO report. We welcomed it and the follow-up study on smart meters, and will work closely with the NAO to help review the progress of the programme, but I do not believe that the report necessarily means that we need a pause in the rollout. As the noble Lord knows, it is routine for the NAO periodically to examine every major government programme, as it did on smart metering in 2011 and 2014. We will take note of the report and discuss it with the NAO, but I do not think that the programme needs a pause.

Amendment 2 relates to the power to remove licensable activities. This amendment seeks to limit the extension of the Secretary of State’s power, so that beyond 1 November 2018 he would not be able to exercise the power to remove any licensable activities in respect of smart meter communications. The Government have so far used the power only to establish the provision of a smart meter communication service as a licensable activity. That ensures that we have a communications and data system that supports secure, reliable and interoperable services for smart meters. The DCC is playing a fundamental role in driving smart metering benefits, and we do not currently consider that we will exercise this power to remove the provision of a smart meter communication service as a licensable activity.

However, we cannot rule out that evidence could emerge to suggest that the removal of at least some elements of this licensable activity to the market could be justified. Retaining the power to remove licensable activities in respect of smart meter communications is therefore necessary as a backstop and is consistent with the Secretary of State’s principal objective of protecting the interests of energy consumers. The Secretary of State may also determine that it is appropriate and in energy consumers’ best interests to introduce further licensable activities in support of smart metering by 2023.

As detailed in our delegated powers memorandum, the smart metering programme continues to develop policy in a number of discrete areas, including overseeing the development of technical solutions delivering smart benefits to the small number of premises which are currently not expected to be served by the smart meter communications network as to do so would be disproportionately expensive. This is typically due to location and surroundings. For example, this can affect premises in highly built-up areas with many tall buildings as well as remote or mountainous areas.

One of the tools we may wish to use to deliver the policy is requiring activity to be licensed. For example, it might be considered appropriate to create a licensable activity that relates to arranging the establishment of communications to these properties. Should we introduce a new licensable activity here that is subsequently found no longer to be justified or needed, we would need to have retained until 1 November 2023 the ability swiftly to remove that licensable activity.

As the noble Lord will be aware, we have used the affirmative resolution procedure. We have also referred it to the Delegated Powers and Regulatory Reform Committee. It did not raise any issues with it. Further—I shall read this out because it is not often that one gets praise of this sort—the memorandum from the committee, in the part that I have highlighted, states:

“There is nothing in this Bill we would wish to draw to the attention of the House. We do, however, wish to commend the helpful and well-drafted memorandum about the delegated powers in the Bill, provided by the Department for Business, Energy and Industrial Strategy”.


We do not often get praise, so I think that it is worth repeating it on this occasion to make sure that it is properly on the record. Obviously, it was already on the record, as it was in the committee’s 17th report—but I am grateful for the opportunity to repeat it.

Amendment 4 is the big amendment tabled by the noble Lord, Lord Grantchester, and principally supported by the noble Baroness, Lady Featherstone, and the noble Lord, Lord Teverson. I am grateful to the noble Lord, Lord Grantchester, for what he said about it. He talked about there being confusion on a number of points, which I hope I can help deal with. He also spoke about moving from rollout by suppliers to rollout by DNOs, as happens in another country. I suggest to him that making such a change might bring more confusion and chaos than absolutely necessary. Let us first deal with the amendment and no doubt we can talk about that later.

The amendment would task Ofgem with consulting stakeholders and publishing a national plan for smart meters by 31 December 2018. It would then require the Secretary of State to specify the final version of such a plan in regulations. The large-scale rollout of smart meters across Great Britain by 2020 is a substantial technical, logistical and organisational challenge. As we have made clear, meeting that challenge depends on collective and co-ordinated delivery. I think that that programme should be led by the Government, who set the policy and regulatory framework for the realisation of the benefits. The rollout is delivered by energy suppliers, networks and others. Ofgem’s role is to make sure that consumers remain protected during the rollout, to monitor energy suppliers’ compliance with their obligations and potentially to enforce against any non-compliance. The Government have provided strong leadership and established governance frameworks, with clear roles and responsibilities, across all these parties. Under this leadership, the smart metering programme has already made substantial progress.

Given the scale of the challenge, I understand and welcome the noble Lord’s appetite for information and reassurance on progress. I remind him of the commitments that the Government made earlier in the passage of the Bill—namely, that we will publish an annual report on the progress of the smart metering implementation programme as well as an updated cost-benefit analysis in 2019, to reflect the state of play after the transition from SMETS 1 to SMETS 2 meters has taken effect.

In that context, it is not clear what the additional value of a national plan of the type proposed by the noble Lord would be. The purpose seems to be to task Ofgem with the oversight of smart metering implementation and to reduce the Government’s role. Such a change in approach would simply divert attention and resources from the rollout delivery and associated consumer benefits. The Government are rightly accountable for safeguarding the benefits of smart metering. The new clause would duplicate existing efforts to deliver an efficient rollout and would put an undue burden on Ofgem. Furthermore, requiring the Secretary of State to specify the final version of the national plan in regulations would limit his ability to use the Section 88 power, of which the noble Lord will be aware, to modify the smart metering framework in future. The purpose of the Bill is to enable the Government to respond to the operational realities of the rollout and to adjust the monitoring framework as may be required. The new clause would undermine that intent.

In summary, a high-level plan for the rollout of smart meters was set by the Government in their 2011 prospectus document, which establishes the framework for the rollout.

[Lord Campbell-Savours (Lab)]

I was engaged in debates on these matters with the noble Lord, Lord Teverson, 10 years ago, when the original legislation was put through. I am unable to understand what pressure is on the Government to get on with this before the National Audit Office produces its report. I would have thought that that report was critical in all this, as it may well make recommendations that do not fit within the proposals of this legislation. What is the pressure? Could we not have waited for another six months? What would have happened if we had?

[Lord Henley]

I have been criticised for the Government going rather slowly on something that was introduced in 2006 by the Government of whom the noble Lord was a supporter. As the noble Lord, Lord Teverson, said, this has continued through the length of two world wars and a bit more; I asked him not to specify any further wars. The NAO has already reported three times. As I said, we will respond to the NAO’s report, but I do not see why we should not continue with what we are doing at the moment. As far as I know, we are all in full agreement on the general benefits of a smart metering programme and of getting as many people as possible on to it, so that they will be wiser about their use of energy and more able to consider which energy supplier to choose—I am just giving all the benefits of smart meters. I do not think that there is any need to pause for the NAO report. As I said, we will consider it and respond as appropriate.

[Lord Campbell-Savours]

Has the NAO expressed a view on whether the legislation should have been delayed? It will have a view. Is it happy for us to proceed with legislation without its report?

[Lord Henley]

I am not aware that the NAO has asked for any delay, but the noble Lord can look at its three reports, including the most recent one, which I have referred to. I will leave that to him.

As I said, we published our prospectus document in 2011, which established a framework for the rollout and was the basis for the regulatory framework through which the rollout is now being delivered. It is right that we have progressed from planning to implementation. Both the Government and Ofgem are focused on monitoring the rollout to ensure that it delivers in a timely way—albeit, as the noble Lord, Lord Teverson, put it, slightly less timely than he would have liked. Where our monitoring activity identifies areas where the course of the rollout needs to be adjusted, we will of course take action.

In due course, we want smart metering to be business as usual in a competitive retail market. The Government will then be able to step back when it is right so to do. However, in the short to medium term, the Government do not intend to step back from their leadership role. Through the powers in the Bill, we will sustain our active engagement with the industry to ensure that any risks to meeting the 2020 deadline are identified and addressed as quickly as possible. I repeat what I said about hoping to have ongoing discussions with the noble Lord and others, but I hope that in the meantime he will feel able to withdraw his amendment.

[Lord Grantchester]

Before the noble Lord sits down, could I just come back to the NAO report, just to be clear in my mind about exactly what is happening? Am I to understand that the NAO is still planning to report by July 2018 on the cost-benefit analysis of introducing smart meters? The noble Lord has correctly said that the NAO has already done two reports—in 2011 and 2014. It is now four years since the report of 2014 and I understood that the general consensus was that it was about time to do another cost-benefit analysis, in order to prove to consumers that what is happening is for their benefit, even though the costs are going up. However, if the review is being shelved, it is important to know that. We understand that it was not part of any legislative programme but that it was going to improve consumers’ perspectives on accepting an offer that would be beneficial to them. Can the Minister be precise: is the NAO report going ahead in July 2018 or not?

[Lord Henley]

I do not know about the precise timing of that report. Obviously, that has to be a matter for the NAO. We will respond at that moment, but I do not think it is necessary for the Government to delay what we are proposing to do. As the noble Lord, Lord Teverson, said, there has already been too much delay. We will await with interest the report from the NAO.

[Lord Grantchester]

I do not think that the NAO wants to cause any delay. I understood that it did not have the resources to undertake this work and therefore that it would not happen, although it is crucial for the continuing rollout that consumers can easily see the benefit over and above the cost of the programme. It is not easy to understand it within their own bills, but if the NAO produced a report showing that overall it was beneficial to consumers that this was going ahead, it could be very constructive in allaying some people’s fears that this is not for them because of the cost. I want only to understand whether the NAO still has a commitment to produce the report this year.

[Lord Henley]

Again, I do not know about this year. I understand that the NAO still plans to undertake a review. It has not confirmed its timetable. Obviously, that is a matter for the NAO. When there is a new cost-benefit analysis, obviously we will look at it—but I cannot go into the NAO’s timetable.

[Lord Teverson]

Perhaps it might be useful if we could meet the NAO and go through this and make sure that the audit is broad enough in scope without it taking longer. I realise that this question is not completely to do with these amendments, but I did ask the Minister about the transferability of SMETS 1 meters, which is different from interoperability—SMETS 1 meters are surprisingly interoperable generally—and the problem of taking one out and replacing it with one that is almost identical but is from a different supplier. Is the Minister aware of that? Do his officials see that as a significant problem? Is there a solution so that we can stop this almost immediately, if it is happening?

[Lord Henley]

I think I had better take advice on that and possibly write to the noble Lord, or deal with it in any meeting that we have. I understand that some SMETS 1 meters can be upgraded. But I do not want to put on the record anything that I might have to make a personal statement about and correct the following day. Perhaps we could leave that to a letter or a discussion with the noble Lord.

[Lord Teverson]

I am very happy with that. I stress that it is an asset and financing issue, rather than an interoperability issue.

--- Later in debate ---

[Lord Grantchester]

I support Amendments 6 and 11 which are also in this group. In Amendment 6, the noble Baroness, Lady Maddock, seeks a review of the code of practice energy suppliers must follow in the installation of smart meters. We agree with that as a necessary and constant reassessment of best practice should become part of any post-rollout review.

Similarly, Amendment 11, also in the names of the noble Baronesses, Lady Maddock and Lady Featherstone, calls for a review of the use of data from the operation of smart meters. I am grateful to them and my noble friend for highlighting some of the problems that could arise if we are not careful in this operation. We agree that it should be kept under constant review by the department to make sure that the risk of errors and non-compliance is kept to a minimum.

[Lord Henley]

Like the noble Lord, Lord Grantchester, I take it that we are dealing with Amendments 3, 6 and 11. The noble Baroness, Lady Maddock, caused me some confusion when she said Amendment 7. However, I am sure she meant Amendment 6 if she did say Amendment 7. I take it she was speaking to Amendment 7, and I will come to it in due course. I will deal with the amendments in the order in which the three leads took them and so I will deal first with Amendment 3, then Amendment 11 and then Amendment 7. If I get confused in my note I hope the noble Lord, Lord Grantchester—who is always quick on these things—will stop me.

I will also take note of the points raised by the noble Lord, Lord Campbell-Savours, and his general remarks about service charges in flats and the consumption of water by himself and others. Obviously that is wide of the Bill. I am sure the noble Lord uses appropriate amounts of water and comes to the House as clean as he always should be. We will read nothing into the amount of water that appears on his service charge. However, he makes a perfectly good and valid point about what people can understand from information about the use of a particular flat or residence by the consumption of gas, electricity or whatever. I hope that can be partly dealt with in what I have to say about security but it might also be helpful if I write to the noble Lord and others about it in due course.

Amendment 3 asks GCHQ to undertake an annual risk assessment of smart metering’s vulnerability to cyberattacks. Considerable effort has been invested by the energy industry as a whole and by government—including the National Cyber Security Centre, which is part of GCHQ—in designing security protection into the end-to-end, trust-based security architecture. Robust security requirements have been developed for smart metering equipment, the DCC and participating organisations, as well as assurance on the implementation of these requirements. These are a fundamental part of the smart metering regulatory framework.

In April 2016, the NCSC technical director published a blog on the security of smart meters in which he stated,

“we’re confident that the Smart Metering System strikes the best balance between security and business needs, whilst meeting broader policy and national security objectives”.

The NCSC continues to be fully engaged on smart metering, providing an annual threat report and practical guidance.

Underpinning the security requirements, assurance and governance arrangements currently in place is a security risk assessment. This has been through a number of iterations on the back of public consultation to ensure emerging and future security threats are appropriately addressed. This is in turn informed by the annual threat assessment that the NCSC provides. Additionally, each organisation must carry out an assessment of its processes for the identification and management of risk at least annually.

The end-to-end security model is also subject to ongoing monitoring and review. Smart metering regulations require that a review of the end-to-end security model is undertaken at least annually. This is undertaken by industry in the form of the Smart Energy Code security sub-committee, which is independent of government and composed of security experts from industry. Industry is also subject to an independent security assessment prior to using systems and annually thereafter. This assessment is set against a security controls framework, which is detailed in regulations. This is the basis for a consistent level of review across all organisations and provides a guide to the types of evidence that should be provided to demonstrate compliance.

Based on the detail I have just outlined, an additional security assessment annually by GCHQ, most likely by the NCSC, is unnecessary given the existing and ongoing risk management and security assessment arrangements and the close engagement GCHQ and the NCSC have had and continue to have in relation to smart metering. I hope that the noble Lord will feel that his amendment is largely dealt with.

I move to Amendment 11, tabled by the noble Baroness, Lady Featherstone, which deals with data privacy. It refers to data obtained by energy suppliers, both as a result of half-hourly settlement and due to smart metering in general. This data has the potential to deliver benefits for consumers, suppliers and the energy system, but we recognise again that appropriate safeguards are required on who has access to data, in which circumstances and for which purposes.

--- Later in debate ---

[Lord Campbell-Savours]

I ask a consumer question: if someone wanted to know now whether it was possible for their meter to be hacked, who would they ask? Who could tell them?

[Lord Henley]

The first people to ask would be the suppliers of that meter, to ask them what evidence they have and to take it from there. The same is true for any IT equipment that the noble Lord buys for any purpose. None of us can give any absolutely cast-iron guarantees as to what can and cannot be done by nefarious people.

[Lord Campbell-Savours]

This is one of the reasons why the amendment asking for this sort of national plan would have been interesting. Those are the kinds of questions that the consumer would expect to find in a report of that nature. I would not ask my supplier; I would ask the manufacturer whether its equipment could be hacked. If it said that it could be, I would want assurances as to how that would be dealt with. I am not altogether convinced that manufacturers have been asked, or whether GCHQ has been asked that question for it to appraise separately. It is on the list; I presume it too has been asked about the system that is being introduced.

[Lord Henley]

The point I am making to the noble Lord is that it would be wrong for anyone to give an absolute cast-iron guarantee of any sort with equipment of this sort. I can think of a whole range of other questions on other subjects. I remember that it used to be said that if you went to a school and asked about its policy on bullying and were told there was no bullying, you should immediately reject that school because quite obviously it had no idea of what was going on. Similarly, if someone offered a cast-iron guarantee that their equipment was unhackable, I would have some doubts about it. They could say that they had done everything possible to make sure it was unhackable, but we have the right processes in place with suppliers and others to make sure that checks can be done—which is what I have set out—to make metering as secure as possible. In response to the noble Baroness, Lady Featherstone, who dealt with privacy, that is why we have also had consultations with the privacy commissioner. I think that we have all the appropriate checks in place—but if I offered the noble Lord the guarantee he is asking for, he would know that I was a charlatan.

[Lord Campbell-Savours]

There is another question that would have been answered in this report. It is the question that the public ask all the time. If I have a supplier and I have a piece of equipment installed, will I be able to change supplier? Most people in this Room probably know the answer about retaining that equipment, but the great public outside do not know the answer, and that is what they worry about. So it is essential to the Government’s case to make it clear when and in what circumstances that problem will no longer arise.

[Lord Henley]

I fully understand what the noble Lord is saying and the need to provide the public with as much reassurance as possible, and clearly to explain the range of steps that the Government have taken with security experts, including GCHQ, which I mentioned earlier, to provide robust security for the smart metering system. We worked in partnership with GCHQ on the blog on smart metering infrastructure. We will continue to support Smart Energy GB, among others, to provide a clear and reassuring message to the public on smart metering security. We will do all we can. Everyone else will do all they can. All I am saying is that one can never get beyond that 99.9% security up to 100%.

[Lord Campbell-Savours]

The noble Lord, Lord Teverson, drew a distinction between transferability and interoperability. The question I am asking is what the public are asking. When will they be given assurances that it will be possible to change supplier and retain their smart meter? It is a very simple question, and I do not think you will find the answer anywhere at the moment as far as the public are concerned.

[Lord Henley]

The noble Lord is moving on to another question.

[Lord Campbell-Savours]

This is one of the amendments.

[Lord Henley]

The noble Lord asked what assurance we can give to the public about security, and I think I have given as much assurance as I can. I acknowledge that it is important for the Government to continue to give as much assurance as possible. That is why we talked to GCHQ and others. With regard to changing supplier—is it changing the meter or changing supplier? They are two different matters.

[Lord Campbell-Savours]

One is the consequence of the other, as I understand it. That is the problem. When you change your supplier, I understand that on occasion you have to change the meter. Am I not correct?

[Lord Teverson]

Unfortunately, probably after the First World War, the Second World War and the Korean War, the phoney war bit during the coalition Government was around the whole process more or less coming to a halt because this whole security issue came up, which was a major delaying factor at the time. I do not want to talk on behalf of the Government of that time, but security was given huge focus. From a personal point of view, I feel that that area has been dealt with enough at the moment. It clearly needs an ongoing security look, but it was one reason why the whole programme pretty much ground to a halt during part of the period of the coalition Government—if that is at all helpful.

[Lord Henley]

We will get on to “helpful” again later on. I do not know whether I can take the noble Lord much further. We have talked about security, and I have made it clear that we must give the public as much assurance as possible. I think that the noble Lord is happy about that and the involvement of GCHQ and others.

The noble Lord raised the question about consumers in effect losing functionality when switching supplier. When installing a smart meter, it is necessary for energy suppliers to take reasonable steps to inform the consumer that they may lose some of the functionality when switching supplier—but only some. There is also the question of whether those with SMETS 1 meters can switch supplier. The noble Lord’s question started on one level and moved to quite different levels at different moments, but I think that that was what he was talking about. Consumers with the first generation of SMETS 1 can still switch energy supplier, and they are often in a better position to do so. That is a matter for them, and they can continue to do that.

I shall now move on to the second in this block of amendments—the amendment tabled by the noble Baroness, Lady Maddock, Amendment 6, which suggests that there should be a review of the code of practice by the Secretary of State. Receiving a positive installation experience that leaves consumers satisfied and well informed is vital to ensuring that they can engage with their smart meter and take control of their energy use. Energy suppliers were required by their licence to develop and adhere to an installation code of practice when installing in domestic and microbusiness premises. In developing this code, energy suppliers were required to ensure that it both supported the delivery of overarching objectives and, in a number of key areas, met detailed requirements. Those requirements include providing energy efficiency guidance, not charging consumers up front for the installation, and meeting the needs of vulnerable domestic consumers. Energy suppliers were also required to take into account the views of consumer groups and other interested parties when developing the code.

The code was consulted on in draft in 2013 and subsequently approved by Ofgem in its capacity as the authority in this area. It is overseen by a code governance board composed of representatives from large, small and microbusiness energy suppliers. It also includes representatives from Citizens Advice. Any of those representatives has the ability to propose amendments to the code, which are then presented to Ofgem for consideration. This governance framework ensures that consumer interests are represented on an ongoing basis across all elements of the code’s operation.

Energy supply licence conditions supporting the code of practice also require energy suppliers to put in place monitoring arrangements and procedures for reviewing and updating the code. As part of this activity, energy suppliers are required to obtain views from consumers on the installation process and conduct of their installers. To achieve this, the code requires all energy suppliers installing more than 5,000 smart meters a year to undertake a survey of their customers. These surveys are conducted regularly, the results are anonymised, and reports are provided to the code governance board on a quarterly basis, enabling any areas of concern to be identified and rectified, including through amendment to the code.

As a further backstop, in the event that significant concerns are raised regarding the suitability of the code, Ofgem also has the power to require energy suppliers to review specific features of the code and can direct modifications if necessary. The amendment here would require a one-off review of the code to be undertaken, but I hope that in outlining the governance and monitoring requirements already in place I have demonstrated that the code is already subject to ongoing review and continues to evolve to meet consumer needs.

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[Baroness Maddock]

I made two points about gas. When it is turned off, I certainly do not expect them to allow things that are unsafe. My point was that there is no provision for somebody in poor circumstances—say they are elderly and they have a smart meter put in and it is the middle of winter and they cannot use their boiler—to get a new boiler. I think the Government need to look at this. It is a very small point but there will be several people affected by it.

The Minister has explained how the process works at the moment and how the code of conduct works and how it can be amended. Can he tell us how it has been amended as the process has gone along?

[Lord Henley]

I would prefer to write to the noble Baroness regarding any amendments that have taken place. I, like others involved in this, but not all, am relatively new to the subject—but it has been going for some time, so I imagine that amendments have been taking place.

I think the noble Baroness suggested earlier—just in terms of the travails on the telephone—a degree of aggression.

[Baroness Maddock]

It was the lack of understanding of the person who was trying to persuade to have a meter of how it worked and what the options were and whether they were interoperable.

[Lord Henley]

If the operator could not cope with the noble Baroness, obviously they probably need further training. I think that is probably a matter for that particular supplier. There is guidance for them and they should take every opportunity to treat all domestic customers fairly and to be as transparent and accurate as possible in their communications. I hope that they will continue to do so. I note what the noble Baroness said.

I hope I have dealt with the three amendments in sufficient detail and I hope that the noble Lord will feel able to withdraw Amendment 3.

[Lord Grantchester]

I thank the Minister for his comprehensive reply. Initially I was slightly alarmed when he talked about the national infrastructure having to be a balance between security and business needs. I would have thought that our national infrastructure is critical and must be entirely secure at all times. However, he went on in his reply to further elaborate that energy threats are assessed each year and I was very satisfied that the situation is under constant review, so I am very happy to withdraw my amendment.

--- Later in debate ---

[Lord Teverson]

My Lords, may I correct something I said about Hinkley Point C? EDF’s latest estimate is actually £19 billion to £20 billion. Preventing that sort of capital expenditure on energy generation is what this programme should be about. I apologise to the Committee that it is a rather larger sum than even I thought.

[Lord Henley]

My Lords, £1 billion here, £1 billion there and pretty soon we are talking real money. I will deal with the amendments in the order they came: that is, Amendments 5, 7, 12 and 13. Amendments 12 and 13 go together. Actually, all three go together, but there was some confusion.

Starting with Amendment 5, which was tabled by the noble Baroness, Lady Maddock, on energy efficiency and fuel poverty, I ought to say in passing that I very much support the spirit behind these amendments but I am concerned that they could undermine the efficient delivery of the rollout and could lead to unintended consequences and costs for consumers. But I will deal with the amendments one by one, starting with Amendment 5.

One of the main objectives of the smart meter rollout in Great Britain—it does not apply to Northern Ireland—is to put consumers in control of their energy use so that they become more informed and efficient, and save themselves money. Smart metering will reduce the costs for prepayment customers and enable remote topping-up, meaning that some of Britain’s hardest-pressed energy consumers will have access to more competitive deals and more convenience in paying for their energy. I was grateful for what the noble Baroness said about people with prepayment meters and the price cap. We will get on to the price cap for others more generally, but it is already in existence for people with prepayment meters and I think that it has been working with some success.

If I heard her aright, the noble Baroness said that she had heard that SMETS 2 meters posed a problem for some prepayment customers. We believe that SMETS 1 meters provide significant smart functionality to consumers, but SMETS 2 will provide them with additional benefits and will allow consumers always to retain smart functionality when they switch suppliers. SMETS 2 meters will also allow consumers, if they choose, to share data with third parties, and those third parties may be able to offer, for example, tailored energy-efficiency advice, which could be of use to certain customers.

Amendment 5 would introduce a new clause requiring the Secretary of State to commission a review to consider how the extended use of powers would impact energy use in the United Kingdom, with a particular focus on the impact on fuel poverty and energy efficiency.

With in-home displays offered to households as part of the installation, low-credit alerts are more visible, giving consumers an early warning. The ability for consumers to set a budget and to see exactly how much they are using, in pounds and pence, is giving prepayment consumers control over their energy use and contributing to greater levels of satisfaction among prepayment consumers. Certainly, the research that we have done shows that 84% of smart prepayment customers are satisfied with their smart meters and 88% are likely to recommend them. Government research shows that eight out of 10 would recommend them to family or friends, and 82% of people with a smart meter have taken at least one step to reduce their energy use. British Gas is reporting that its dual fuel customers with smart meters are making sustained 4% annual energy savings.

To some extent, that brings me on to the question about accessibility of meters raised by the noble Baroness. As she is well aware, the accessibility of existing meters can be pretty difficult, as I discovered in London the other day as I lay down on the floor trying to read a meter. I realised that I did not have my reading glasses with me but then realised that reading glasses would not help as I was wearing my contact lenses. It is a minor problem for someone in a reasonably fit state, but we accept that reading meters can be difficult for certain people, depending on where the meters are put.

The technical specifications for IHDs require them to be designed to enable the information on them to be easily accessed and presented in a form that is clear and easy to understand, including by consumers with impaired sight, memory, learning ability or dexterity. Energy suppliers, led by Energy UK, have been working together to develop a fully accessible IHD, and we expect that device to be available shortly. If it can be made available to those who have problems, the noble Baroness and I will also find it a great deal easier.

[Baroness Maddock]

The thing that surprises me—and I have not really had an answer to it—is why, when the Government planned the programme, it was not part of the plan that everybody with a smart meter should have an in-home display. It would be an obvious enhancement and would not be difficult. I do not know why it was not thought that this should be insisted on from the beginning.

[Lord Henley]

This is going back in history. The past is another country. I do not think I want to go there just for the moment. I do not know the answer to that. If I can find out more, I will certainly let the noble Baroness know.

The noble Baroness also raised the question of smart meters working with solar panels and spoke about the information she had received from one of her noble friends. As I understand it, all SMETS-compliant electricity meters must be capable of both measuring the amount of energy the household consumes or imports from the grid and recording the electricity generated by solar panels or other microgeneration technologies that is fed back or exported to the grid. We are not aware of any technical reasons why smart meters cannot be installed in premises with microgeneration technologies. However, some suppliers may start installing for these customers later in the rollout. If the noble Baroness would like to go back to her unnamed noble friend—perhaps it was not a noble friend, perhaps it was someone misleading the noble Baroness—and get back to me, I will take this up and find out what the real answer is. The initial response is that we feel that this should not be the case, but I will respond when the noble Baroness gives me more information.

Amendment 7 was spoken to by the noble Lord, Lord Teverson, and the noble Baroness, Lady Featherstone. The rollout of smart meters offers an opportunity for consumers to take control of their energy use and realise significant savings as soon as the meter is installed. Like any infrastructure project, the smart metering programme involves some investment, but it will enable a net reduction in consumers’ energy bills over time. Amendment 7 would give the Secretary of State power to modify licence conditions and industry codes so as to require energy suppliers to pass the savings they make from the rollout on to consumers.

We expect that competitive pressures will encourage energy suppliers to pass on the cost savings they make from the rollout of smart meters. If energy suppliers do not pass on the savings to their customers, their customers, as we all know, can switch to a better deal among an increasing number of competitors. As noble Lords will be aware, there is an increasing number of competitors and it is quite simple to switch. We recognise that the market is not working for all customers. That is why we have introduced to Parliament the Domestic Gas and Electricity (Tariff Cap) Bill—it is in another place at the moment—which will require Ofgem to set a cap that protects existing and future domestic customers who pay standard variable and default rates. The cap will last until 2020, and it may be extended annually, up until 2023, if it is assessed that the conditions for effective competition are not yet in place. In setting the cap, we expect Ofgem to take into account the benefits that energy suppliers will achieve from the rollout.

Smart meters are themselves an enabler to greater competition in the energy retail market. Smart meters provide near real-time information to consumers on their energy consumption and how much it is costing them, giving consumers greater awareness, which in turn is expected to further increase consumer switching. The signs on this are encouraging. According to a report on consumer engagement in the energy market, published by Ofgem in 2017, 23% of consumers who say they have a smart meter have switched supplier in the past 12 months, compared with 17% of those who say they do not have a smart meter. It is worth pointing out that we would expect the level of engagement from consumers to help inform Ofgem’s review into whether the conditions for effective competition are in place.

I turn now to the final two amendments in the name of the noble Lord, Lord Teverson—Amendments 12 and 13. The Government want consumers to benefit as soon as possible from the advantages of smart meters. That is why we continually review the rollout and take action to remove any barriers to effective delivery. The amendments would require, as a condition of extending powers that the Secretary of State has to amend or introduce new regulation for the purposes of smart metering, one of two conditions are met first before those powers can commence. The noble Lord suggested either 500,000 second generation—SMETS 2—meters must have been installed or a review of the programme, focused on consumer satisfaction and value for money, must be complete. We do not believe that either of those conditions for commencing the extended regulatory powers are warranted or necessary. We are also concerned that the effect of those amendments would be to leave the Government without powers to intervene to unlock delivery barriers and ensure consumer benefits are being realised.

I will take each condition in turn. I shall deal, first, with the noble Lord’s SMETS 2 target of 500,000. Like the noble Lord, we want to see the SMETS 2 meter installation accelerated. It is very small at the moment, but in the near term this should happen only if it is in the best interests of consumers. Setting a target would remove suppliers’ flexibility to plan and manage the rollout efficiently in order to serve their customers effectively in a competitive market and could lead to unintended consequences. We are assured that larger energy suppliers have commercial and financial incentives to drive them to install SMETS 2 meters as soon as is practicable. SMETS 2 meters unlock more of the customer base, supporting more cost-effective marketing approaches. They also include capability for load control and additional support for consumer access devices, thereby supporting service offers in line with energy suppliers’ potential future business strategies. These incentives align with regulatory imperatives to make progress, not least that our current expectations are that from later this year the installation of SMETS 1 meters will no longer count towards an energy supplier’s rollout obligations. We intend to include in future quarterly statistical publications—subject to sufficient supplier anonymisation—information about the number of SMETS 2 meters that have been installed, allowing for progress to be tracked and transparent.

We agree with the noble Lord that the programme should understand its impact during operations, in terms of consumer satisfaction and value for money. As regards consumer satisfaction, the department commissions and receives, including via Smart Energy GB, regular survey updates on smart meter consumer satisfaction. I have referred to some of them, and the satisfaction levels that have been achieved. In terms of value for money, my right honourable friend the Minister for Business and Energy, Claire Perry, has committed, as part of the Bill’s passage in another place, to undertaking and publishing an updated cost-benefit analysis in 2019, which will reflect, among other things, the real benefit for consumers. On this basis, the noble Lord’s condition would be duplicative and risks undermining the powers that the Government need to ensure the rollout is progressed smoothly and in consumers’ best interests.

[Lord Campbell-Savours]

Can I just ask again a rather simple question? I understand that we are not the only country in Europe with a smart meter installation programme. The French claim that they have done it for half the price of the programme in the United Kingdom. They claim it is going to cost them €5.5 billion, whereas we are potentially spending £11 billion. Is there any truth in that? Is our equipment the same as what the French are introducing? Is there some explanation for this suggestion that we are paying rather a lot for our equipment?

[Lord Henley]

I do not necessarily take all claims from France as seriously as the noble Lord does. I will certainly have a look at that claim being made by the French, but I believe we are doing reasonably well. Obviously, I will have a look at what they are doing and, if there are things that we can learn from that, we should do so. Just as we will continue to monitor delivery in this country, we will study and look at what is happening abroad. I have received advice about what is happening and whether we are sharing our experience with other countries and whether other countries have shared their experience with us. We have looked not just at what is happening throughout Europe—we have met representatives from Ireland, Sweden, Spain, Malta and, I understand, France—but we have looked further afield to India, Australia and the United States. Lessons we have learned include the importance of consumer engagement. That is why I emphasised earlier what we have done on consumer engagement.

On the actual costs, the advice I have received is that the EU average comes in at £181, compared with our figure of around £155 for a single-fuel electricity installation. So that is somewhat lower. On that front we are doing better. If there is anything further I can add about gas distribution grids in Malta or Italy that might be of use or even of interest to the noble Lord, I will pass it on. Another matter that came up was a concern about privacy, which is something that the noble Lord is concerned about and we discussed earlier.

In conclusion, we will continue to monitor the delivery of the programme and will continue to provide updates in annual reports and an updated cost-benefit analysis. I do not think the amendments add much. They risk duplicating those processes and could result, as I said, in unintended consequences that might delay getting the benefits to the consumer. I hope, therefore, that the noble Baroness, Lady Maddock, will feel able to withdraw her amendment.

[Lord Teverson]

The purpose of my amendment—I accept a lot of what the Minister said about its effects—was to get to understand what the test will be. What criteria will the department use to say, “SMETS 2 meters will work, they will integrate with the systems they have to integrate with, so we will give them the green light”? How will the assessment be made that SMETS 2 works—not just the individual meters but as a system—before we invest the other £8 billion?

[Lord Henley]

My Lords, we have started. The noble Lord gave his figure for how many SMETS 1 meters have been installed—I think it was about 10 million, which I do not dispute. I do not have the precise figure in front of me. We feel it is likely that we will be ready to cease to count the SMETS 1 meters towards the target in about October and therefore the suppliers will move on to SMETS 2, which brings further benefits. Over this year, we will see a growth in the number. I am not going to give a precise figure now for how that will grow, but we are likely to see the benefits from that. There is no point sticking with SMETS 1 when we can move on to SMETS 2.

[Lord Teverson]

I agree entirely with that, but it is not the point I am trying to make. SMETS 2 operates through DCC in a different system. It has different software and capabilities; otherwise, there is no point in doing this. SMETS 1 machines work on different systems. They work through the suppliers in bespoke ways. I understand the difference between the two. We need to stop operating SMETS 1 as soon as possible and we want to roll out SMETS 2. What is the test so that we can be happy that SMETS 2 functions correctly and confident that it is all systems go? I do not understand the test.

[Lord Stevenson of Balmacara]

I suggest that the test has already been passed and we are doing SMETS 2 come what may.

[Lord Henley]

We are going ahead to SMETS 2. The noble Lord is right there. We will see benefits from that, just as we have seen benefits from SMETS 1. That process will continue. I am suggesting to noble Lords and the rest of the Committee that we will provide appropriate reports back as to how that goes in due course, but I cannot provide any figures on exactly how fast that is likely to go, particularly in the initial stage this year.

[Lord Campbell-Savours]

I shall put it another way: what would happen if, having fitted 500,000, we found that there was a problem?

[Lord Henley]

My Lords, I do not believe in crossing bridges until we get to them. When we get to that stage, if there is a problem, I will come back to the noble Lord.

[Lord Stevenson of Balmacara]

Let us put the noble Lord, Lord Teverson, to bed happily. There is no further testing. The Government have accepted this, on the basis of what we understand to be the evidence of 300 SMETS meters placed into the homes of employees of the companies commissioning them. The network is said to be working, and may or may not be, at two different levels in the north—I am not quite sure where—and the south because there are two different arrangements, with an imperfect but satisfactory, to all intents and purposes, gas approach based on the idea that the SMETS 2 meters that go on to the gas equipment have to be shut down for most of the time that they are there because otherwise they will use up the batteries, which they are restricted to using because you cannot use electricity near gas since it might blow up. Therefore, they are battery-driven and the batteries cannot last forever. It would be ridiculous to have a situation where you had to have teams of people coming in right across the country replacing the batteries all the time because that is what we are trying to stop them doing when they have to read all the meters. The Government are going ahead with this—this is the point I still do not quite get—on the basis of very imperfect testing on a scale of £8 billion to be spent over the next few years, which is effectively a voluntary tax paid by people who did not know that they were being asked to pay it. It is bonkers.

[Lord Henley]

I am afraid I do not recognise what the noble Lord has offered. I suggest that we continue discussions on this. What the noble Lord is putting to me is not what has been put in front of me in other places. As I said, we will continue to monitor matters and to provide information. That will be sufficient to deal with the amendments. If the noble Lord would like to continue to make these strange allegations about what is happening, we can continue to do that in the discussions that I offered when dealing with the first amendment.

[Baroness Maddock]

My Lords, I am grateful to the Minister for his full response to me on Amendment 5. I am still not totally convinced that the Government always look very carefully at how their different policies interact. I am grateful that he has asked for extra information about the photovoltaics. It was new to me and I will come back to him with a bit more detail. Let us hope that it is just a one-off—that the supplier was just not very interested in doing this particular person’s house and that there is nothing more to it than that. I was quite shocked: lots of people have photovoltaics and if that really was the case we really need to do something about it. As I said, it was a probing amendment to try to open up discussion on these issues that I am concerned about. At this stage, I beg leave to withdraw Amendment 5.

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[Lord Henley]

My Lords, as the noble Lord, Lord Teverson, says, there is always a lot to be said for asking questions to which one already knows the answer. In fact, I was told that that was one of the firm rules—that one should only ask questions to which one knows the answer.

My noble friend Lord Young will respond to the UQ on Capita debated today in another place—in time, I hope, for noble Lords to go through and listen to it. We do not believe that any of our strategic partners, including Capita, are in anything like a comparable position to Carillion. The current licensee is wholly owned by Capita but is required to operate at arm’s length from it. There are provisions in its licence to prevent Capita from taking working capital out of the licensee. Together those provisions mean that DCC would continue to operate while Ofgem, as regulator, sought to appoint a new licensee or for a new owner to be secured. I shall not say anything further on that subject at the moment but I hope I have dealt with the points raised by the noble Lord, Lord Teverson, and his noble friend Lady Featherstone. If necessary, I shall write to them in greater detail.