Smart Meters Bill (First sitting)

Stephen Kerr Excerpts

Committee Debate: 1st Sitting: House of Commons
Tuesday 21st November 2017 Public Bill Committees

[Grahame Morris (Easington) (Lab)]

Q Good morning. Why has there been such slippage in the programme from the original scheduled roll-out date of 2020? I read in the brief that there is 74% satisfaction among customers when it comes to the existing meters. Is it public perception? Is it lack of advertising? Why has take-up not been as good as originally anticipated?

Audrey Gallacher: We currently have the foundation stage for the smart meter roll-out with first generation meters. That was always the intention, as it is important that a programme of this nature and size is properly trialled and tested, so that when we move on to the mass roll-out that can be done as cost effectively and efficiently as possible, and with the best possible customer experience.

It is probably fair to say that the foundation stage has continued longer than we originally envisaged because there have been some delays around the enduring infrastructure to support the second generation meters. While that was really important, and there are already 8 million of those meters already, a lot of learnings have been taken, which means that we have a delay in the real ramp up. Until we see that ramp up, it might be difficult to understand the consumer appetite and attitude to smart meters, because we have not yet really started in earnest.

Bill Bullen: Obviously I have some difference of opinion about that. Certainly, in the market where we operate there has been great engagement with smart meters. In terms of the roll-out, one of the big issues has been the delays around the central systems for the second generation of meters. Personally, I think it was possibly not the best decision to go down that route in the first place. We would not be where we are, with 8 million meters already installed, if we did not have the first generation going out there.

My key concern, without wanting to rake over the coals of the past, is what is going to happen in the next two or three years. That will clearly be critical to the continued roll-out of smart meters, and particularly to delivering benefits to low-income prepayment households. That will be to do with the rules around the cut-over between SMETS 1 and SMETS 2 and whether continued roll-out of smart meters is going to be financially viable, because of the pre-pay price cap and changes to environmental levies that are going to have an impact on that going forward.

[Stephen Kerr (Stirling) (Con)]

Q I am interested to hear about the proposition to consumers. How do you package smart meters up? What are the benefits that you talk of when you talk to consumers about smart meters? In relation to your answer to that question, why are we where we are? Why are we only 7 million in?

Bill Bullen: You have to realise that there is a completely different benefits case for prepayment customers versus normal credit customers. We are completely focused on prepayment.

As I have said already, the benefits to prepay customers are huge—the convenience alone is worth a considerable amount to somebody who may otherwise suffer an interruption to their power supply at a critical moment. With a smart meter, they can get the supply back on immediately; with a dumb meter, they cannot. Frankly, that is the biggest selling point right now, not least because, with the price cap at the level it is, there is no differential in price anymore. But customers are still buying smart prepay, so our growth rate has slowed down since 1 April, but it has not stopped. Customers do still get the benefits.

Audrey Gallacher: For consumers more generally, there are lots of benefits around an end to estimated balances. There should be improvements in the accuracy of bills and consumers should have more control over their energy because they can see it in pounds and pence in real time, so they can reduce consumption and save money. There is more information available to facilitate easier switching, so you can change to another supplier with more confidence.

Lots of the stats that Smart Energy GB, the communications and marketing company, is providing from its research show that this is starting to bear fruit. People are much more confident that their bill is accurate—83% compared with 61% of the non-smart population. There is a lot of satisfaction with the smart process. About 80% of people like their smart meter and thought it was a good process, 75% would recommend them to friends and family, and 80% have already taken action to reduce their energy consumption. There are lots of real benefits. We have also seen a reduction in complaints and an increase in satisfaction.

But the real prize is much longer term. Smart meters are an enabler for a much smarter and more flexible future. They are going to allow us to have much more control over the networks so that we can not only reduce demand and hopefully reduce the need for ever more energy generation, but use the networks more flexibly. They are an enabler for electric vehicles and storage, and all the other things that we anticipate for the future, so it is really critical that we get this done. To Bill’s point, we want to do it as effectively as possible at the least possible cost to consumers and with minimal interruption, but it is an absolutely essential component of the energy system of the future.

[Stephen Kerr]

Q Do you think smart meters are encouraging the market to act more competitively?

Audrey Gallacher: At the moment, one of the things that we are looking at for the roll-out of smart meters is that they will enable a lot more innovative products. We have seen the obvious customer service benefits for prepayment meter customers, but there are longer-term issues around what kinds of products and innovations can come out there, such as time of use, free weekend use—there are lots and lots of things. We are just starting to see the beginnings of that. It is not yet in place, but that is one of the things that smart will hopefully deliver.

[Stephen Kerr]

Q Has the lack of interoperability in the SMETS 1 meter been a drag?

Audrey Gallacher: It has probably been a bigger issue in the newspapers than for customers. That is one thing that we should bear in mind. Last month, 572,000 smart meters were put in and about 200 people contacted Citizens Advice with complaints or questions, so thankfully the customer experience and research looks a lot better than if you are just reading the news clippings.

Bill Bullen: I would make the case even more strongly than that: I do not think there really is an interoperability problem. The companies out there rolling out SMETS 1 generation meters have gone to great lengths to ensure that that is not a problem. We certainly exchange customers with smart meters with other suppliers all the time, and there is not a problem with interoperability. I think the issue has been massively overplayed, frankly.

[Mark Pawsey (Rugby) (Con)]

Q May I follow that up? I have a constituent—

--- Later in debate ---

[The Chair]

Mr Kerr, you were in the middle of a string of questions. I will give you one more and then move on to someone else.

[Stephen Kerr]

Q I am not clear about the whole issue of interoperability. My personal experience is that when I switched supplier, my smart meter did not continue to be very smart. Frankly, I could not see the value of using the information to make a switch and then losing the meter. Are you saying that is not the case? Should I have asked my new supplier for another meter?

Bill Bullen: No, I am simply saying that I cannot govern all energy suppliers. If you switched to an energy supplier that decided for its own reasons not to support a smart service—

[Stephen Kerr]

No, it does.

Bill Bullen: As I said, there is interoperability between SMETS 1 meters. In fact, there are only two or three types of meter out there, so actually the same headings are operating all of those meters. The interoperability problems of SMETS 1 is an issue that has been massively overplayed. Frankly, it is also giving some suppliers an easy excuse not to support a SMETS 1 product, saying that interoperability is difficult. It is not difficult. At the end of the day, you are talking about very few electronic messages that you need to exchange with a smart meter system, and it is not difficult. It really is not.

[Patricia Gibson (North Ayrshire and Arran) (SNP)]

Q Like probably most people in this room, I can see that there are benefits to smart meters, but I wonder whether I could put to you a number of concerns that have been raised specifically with me about the roll-out. Perhaps they might explain the difficulty in penetrating the market as quickly and deeply as we would like at this stage, and indeed by 2020.

Would you like to comment on concerns, raised by trading standards, that not enough of the energy companies are making it clear to consumers that they can refuse a smart meter if they wish? There are real concerns that some energy companies may be guilty of breaching the Consumer Protection from Unfair Trading Regulations 2008.

What do you think about the idea that consumers are being sold the meters—by “sold” I am talking about the idea—as free, when we all know that in fact they are not free? The other thing is that, as far as I am aware, some of the models rely quite heavily on a wi-fi signal, which may or may not be available to all consumers. I may have got that wrong, because I am not terribly technically minded.

One of my concerns is what we do with the information when we have it. If we imagine a future where everybody has a smart meter, will that be used to charge a higher rate for electricity usage during peak times, when families cannot avoid using it? Will the need to use electricity at specific times be used to increase the price in the market?

I realise I am throwing a list at you, and I apologise for that. The idea that you pay for what you use is attractive to consumers, but the fact is that when a smart meter is installed on your property, as I know from my own experience, your direct debit bill stays exactly the same, because they spread it over the year. Yes, you are paying for what you use, but when you reduce your usage, your monthly or quarterly bill does not necessarily go down. What are your thoughts on that, given that it is sold comprehensively as, “You only pay for what you use”? You do, but not necessarily at the time when you use it. You will also know that there are concerns about the security of the data. I know that I have given you a long list, but I would be very interested to hear your thoughts.

Audrey Gallacher: I will run through it as quickly as possible. The questions you have raised are all legitimate ones, which are discussed on an ongoing basis through the programme. There is a lot of scrutiny and oversight of the programme, and everybody is working hard to get it right, so your questions are the right ones.

Loads of stuff has been done on security. This will not be happening over the internet, and GCHQ has been all over it. There are really strict security protocols; you will probably have experts in later today who will know more about it than I do, but if there is anything that we should be worried about in the programme, it is not security. A lot has been done there, for obvious reasons. It is a critical national infrastructure, not to mention the impact on individual consumers in their own home if something goes wrong. I would take some comfort that we have that.

The question of deemed appointments is a tricky one. This is an opt-in programme. The Government’s manifesto commitment is that customers should be offered a smart meter, but suppliers have an obligation to install them by 2020, so it is already quite a complex policy environment. Companies have to go out there and sell the benefits of smart meters and encourage consumers to take them. We are working hard to do that. We have also had some feedback from Ofgem, the regulator, that companies should be taking a much more assertive approach, because we have heard reports that they are really struggling to get people to take a day off work to stay in the house and get the smart meter installed.

We need to sell the benefits and we also have to try to encourage people. Clearly, there is a line there that should not be crossed, because it is not currently a mandatory programme. At some point in the future, we might want to think about the policy framework to ensure that we get as many meters out there as possible, and not just for the individual consumer benefits they would bring—a whole business case around the programme is predicated on as many people as possible having meters. We need to be really careful on communications: sell the benefits and encourage people to get meters, but do not cross that line. That is really important.

Thirdly, you currently pay for metering equipment. It is free at the point of installation, so there should be no charge. Let us be quite clear that nobody will be charged up front, but, like everything else in the energy system, there is an associated cost, whether it is the pipes and wires getting the gas and electricity to users or the metering equipment, right down to the customer service. The key is to make sure that it is done as efficiently as possible. It is a competitive market and it is really important that costs are kept down.

I have a lot of sympathy with the point about direct debits and budgets, but we know from research that people like to spread the cost of their energy over the year. They do not want to see big spikes on their bills—high bills in the winter when they are using loads and nothing in the summer when the gas central heating is off. Smart meters should allow customers to move to an option where they can pay monthly as they go, but for a lot of people direct debit is a budgeting tool and has been very popular.

As for the future, Bill spoke about what he is doing for prepayment meter customers. Some analysis suggests that when everybody has smart meters, up to 50% will not be paying by direct debit, but on a pay-as-you-go basis, as with mobile phones. You will probably see the market and how people engage with their energy supply and pay for it radically changing as we roll this out. That will be good, if there are innovations and benefits. Obviously, we need to make sure that people are adequately protected and know what they are doing from a trading standards perspective.

Finally, on data, a lot of protocols are in place to make sure that we are quite clear that it is customers’ data coming out of the meters. People can opt out of more granular data collection. If you do not want information to be taken daily, you can opt out of that. Right now, it is taken monthly. If the supplier wants to take data from the smart meter every half hour, the customer has to provide consent. A lot of rules have been put in place to ensure that data use and privacy are at the forefront of the programme.

Bill Bullen: A couple of points are relevant to us. First, on customers accepting meters, until the prepay price cap came in we were typically saving customers something like £100 compared with the big six, if they switched to a prepay meter. Whether that counts as being free or not, I do not know, but they were clearly making significant financial savings from switching to smart prepay. That is one of the reasons customers do it, in addition to the other benefits.

Clearly, we are a competitive company. Customers could always refuse to take our product; if they want to stick with a dumb meter, they are entitled to. Something like 80% of the prepay market still has not switched to smart, but 20% has, so more and more are doing so.

Audrey has already answered the point about direct debits. People are going to switch more to pay-as-you-go and be totally in control of the balance. We think that is going to be much more important going forward. Basically, people can take total control over their budget.