Smart Meters Bill

Lord Stevenson of Balmacara Excerpts

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

[Lord Skelmersdale (Con)]

My Lords, is there not actually a rather bigger problem than the one the noble Lord has just explained? At the moment smart meters are offered to consumers. They do not actually have to have them. This whole scenario falls absolutely flat unless there is an imposition on the energy companies, whether gas or electricity, to install smart meters in their customers’ premises.

[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.

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[Baroness Featherstone]

I shall speak to Amendment 7, which is in my name and that of my noble friend Lady Maddock. Much was and is made about the upside of the benefits, or the hoped-for benefits, to the consumer of the rollout of smart meters. In the other place, the Secretary of State Greg Clarke said:

“About a third of the savings come from the possible reductions in the use of energy. Just over 40% comes from the supplier’s cost savings, which is a result of not having to read meters … We expect those savings to be passed onto consumers as savings in their bill”.—[Official Report, Commons, 24/10/17; col. 238.]


We want a new clause that makes that expectation of the Secretary of State into a reality by putting it into the Bill, and we do that by amending the Energy Act 2008 to put in a provision,

“requiring the holder of a supply licence to pass on any savings made by the holder as a result of the Smart Metering Implementation Programme to the consumer”.

I do not really feel that I need to labour the point—I think that it is clear. A promise has been made, and this is the methodology for making sure that that promise is delivered.

[Lord Stevenson of Balmacara]

My Lords, this is a wide-ranging group of amendments and it is a bit hard to find the right balancing point to address it, so I am going to give up at the beginning and just go through them one by one—in a slightly different order, just to confuse everyone.

Amendment 5 is right on the money in trying to make us focus again on why we are doing this and what it is about. It will not be worth doing unless there is an impact on energy efficiency. As we were reminded in the first group by the noble Lord, Lord Teverson, the problem we face and the one that the Government have to open themselves to be honest about is whether this will be worth having in the sense that it will actually change people’s behaviour and therefore save us some of the costs that we have from our expensive use of energy. If that is not part of what we are thinking, we need to make it part of the process and, indeed, the plan, if we go that way.

I was listening hard to what the Minister was saying, but I was expecting him to say a lot about the industrial strategy, since it is seated in his department and it seems to me that this is part of the industrial strategy. Our energy efficiency should have a material effect on our ability as a nation to continue to operate as a net importer of energy and as we gradually try to be more effective and efficient in what energy we can produce and how we use it. Those things seem crucially the bedrock on which any industrial strategy, and therefore any chance of this country surviving in the long term, is placed. I would have thought that it would be important to the Government to put this at the heart of what they were saying about the future stages of this process, because that will be helpful in convincing consumers, both those in fuel poverty and others who are just interested in the overall economics and efficiency of the country. So the requirement to lay a report that focuses on that might help us to win the battle of hearts and minds to get people more to accept it, and we support the amendment.

Amendment 7 is a bit more on the money in real terms, because it says that, if there are economic and other efficiencies in the process, the consumer should benefit from them. Again, we would support that. You do not have to be a conspiracy theorist—well, probably you do, but you do not have to be a genuine conspiracy theorist—to sense that there is something a bit odd going here. In a curious sort of way, the noble Lord, Lord Teverson, said it. Here we have an £11 billion programme. It is not being financed out of general taxation; there is a money tree, and that money tree is consumers who are being asked to pay for this without actually knowing what they are paying for. This is being loaded on to their bills and recouped by the companies. It is not being passed on to those who are benefiting from efficiencies. Nor is it being used for useful purposes for trying to help those who are suffering fuel poverty. Have I got this wrong? If I am right in this, we ought to confess that this is what we are doing and think much more carefully about the £11 billion price tag. The noble Lord, Lord Teverson, put his finger on it in saying that we ought to be certain about the benefits that will flow from this before we push the button, and his amendment, which we are coming on to, focuses on that.

The noble Baroness, Lady Featherstone, talked about real benefits to individuals. If we were interested in the consumer approach and in consumers buying this programme, getting behind it and saying that everybody should have one of these things because not only do they give you pretty pictures about what energy you are using but you get money out of it because it shows you how to reduce your costs and that benefit comes back to you, that would be an advantage to the Government, who might otherwise be struggling to get people behind this.

Amendments 12 and 13—effectively, Amendment 13 —take us back to our discussions on the first group of amendments and Amendment 4, which is tabled in my name and that of my noble friend Lord Grantchester. Amendment 13 sets as a condition of minimum confidence 500,000 SMETS 2 meters—still a very small number—which are so far really untested in operation. Going back to what I said earlier about the need to operate in the wider context of opening up for innovation and bringing in new ideas, new ways of saving money and new ways that consumers could try to do things differently in their home in their use of equipment and the internet of things, we know all these other things are there and should be part of this process and package, but they cannot be until this project goes well. This amendment might look like a simple delaying tactic, but it sets an important pausing point at which everybody who is concerned in this, whether there is a proper plan or not, can say that they have confidence to go ahead with this project because they know it works and that at least at the level of the first 500,000 of these SMETS 2 meters it is a going concern, it is terrific, we can talk it up and we can all get behind it. There is a lot to commend this amendment to the Minister and I look forward to hearing him respond to it.

The Government have a rather uncomfortable choice. It would be very sensible for them to accept either this amendment or Amendment 4 because without some sort of overall bringing together of the consumer interest, the supplier interest, the regulator interest, Parliament, which needs to have a role in this, and the Government we will not get this working properly. That will be suboptimal for the country and for everyone in the long term.

[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.

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[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 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.

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[Baroness Featherstone]

Clause 3 seeks to protect the consumer from any costs that might ensue following a failure of the DCC. How could the DCC fail? It is a new service and there is a change in the top management at this critical point. No aspersion is intended but it is a change right at the top, and of course there are questions about the financial security of the DCC, should the parent company, Capita, run into problems. That is a timely point to make, given that my right honourable friend Vince Cable has secured an Urgent Question which is being debated right now. This afternoon Capita has revealed losses of £500 million last year, it has launched a £700 million fundraising effort to reduce its vast debt pile and its share price has plunged by 47.5%. At Second Reading it was mentioned by noble Lords across the House that Capita had issued a profit warning. They were right to do so.

We are all nervous since the collapse of Carillion. Is Capita too big to fail? What will we do if it does? Clause 3 is about insuring against the unknown, because the costs of any failure should not be a liability for the consumer. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, in this group we have Amendment 10, which I think takes the debate a little further forward. The noble Baroness, Lady Featherstone, made the case very well about the immediacy of the problem that now faces the Government and how they make progress with a company which has given a profits warning and has had to raise funding. Although it says that it might have access to many billions of pounds in borrowings and other things, it obviously raises questions of an order similar to those in the Carillion episode of a few months ago. I look forward to the Minister’s response on that, which I hope will cover the question of whether the Crown’s official involved in checking out companies that have major contracts with the Government has considered its longer-term prospects, making sure that any contracts placed with that company are satisfactorily secured in terms of delivery.

Our amendment fits in very neatly with this, at least in the sense that the reality of an administration is that it is a failure not only of the operations but of the possible costs. Like the noble Baroness, Lady Featherstone, and the noble Lord, Lord Teverson, we do not wish to see those costs passed on to the consumer. However, it also raises wider questions about what is going on here. In a sense, this is relatively familiar territory in that the Government are achieving a social objective using private sector activities. As was said in the other place only this afternoon, this is not new to Governments; Governments of all shapes have for the last 20 years or so increasingly used the private sector. Indeed, it is a long and distinguished history: Governments do not do very much on the ground in terms of buildings or roads. They may well carry responsibility for them and pay for them but the physical work is done by others. Outsourcing can deliver benefits. However, at a time when margins are being decreased and there is a bit more concern about whether these companies will be able to survive, we have to be very careful in what we do.

The thinking behind Amendment 10 concerns not just the mechanics of what happens in a default but whether the Government can think a bit more widely about how the company operates. Obviously, the new company, the DCC, is crucial to the delivery of the SMETS 2 programme. It is wholly owned by Capita; it has a ring-fenced arrangement with Capita but is nevertheless entirely under the control of that company. Although there are independents on the board, and everything else, do the Government really feel that that is sufficient at a time when so much is riding on it? We are talking about £8 billion worth of investment and work going forward, and everything that we have said this afternoon in relation to the future of our energy policies and initiatives and to consumer interests is certainly part of the whole operation.

When we were considering the green bank—I am waiting for the head of the noble Lord, Lord Teverson, to snap up at this point—we came across a similar problem, which was trying to make sure that the body that was being set up in the private sector, which we knew at that time was to be sold, had imposed within its structures a set of conditions under which the Government retained a golden share, to make sure that its original purposes, and green purposes in particular, were not polluted or changed by subsequent changes in the operational management of the company when it was set up or in its eventual sale. It turned out to be a very complicated issue, and I pay due credit to the noble Lord, Lord Teverson, for pursuing it to the point where we found a solution, which was not one that the Government ever thought we would come up with. But it was possible to come up with something that met the requirements that the Treasury set, unrealistic though they were, that the arrangements should not leave the Government in a direct power relationship to the company, because that would require any costs and everything else to go on to the balance sheet, but still retained the ability of the company to operate so that the green objectives were retained and operated. I am simplifying to make the point.

Does not this arise also with DCC? Is there not a worry here that we are talking about an organisation, a structure, a delivery function and an operation which suggests that we really ought to be thinking harder about the overall structure here? If the narrow question about what happens in an insolvency is insufficient to probe it, should not the wider concerns about all the companies that are going through difficulties with their delivery of public service obligations? The newspapers will be full of questions about what is happening to recruitment to the Army, because Capita is not performing very well on that, and what happens to other areas of activity. We may find that, £3 billion into the programme, the main structural body responsible for organising the network for our safety and data and all the operations that will lead to customer buy-in to this is unable to fulfil its objectives because of other financial constraints, and we do not have the right regulatory structures in place to ensure that it carries on the way it does. This amendment gives the Government at least some incentive to look at that, and I hope that they will respond positively to it.

[Lord Teverson]

My Lords, I support the amendment moved by my noble friend Lady Featherstone. Indeed, I agreed with many of the points that the noble Lord, Lord Stevenson, mentioned. The structure of the company in terms of green shares or golden shares is an interesting point that may be well worth pursuing.

Perhaps I should know this, as it is a factual question, but how long is the contract with Capita for DCC? What are the arrangements at the end of that contract? However long the smart metering programme goes on for—and one hopes that smart meters will be there for many decades before the next technology comes along—what are the arrangements for selecting the next incumbent? Does the DCC remain, or does it transfer to the new contractor, or is there a new corporate structure at that time? I am just trying to understand the length of commitment that we have with DCC at the moment. I am sure that, if I had done that research, I would already know, but perhaps the Minister could enlighten me.