Smart Meters Bill (First sitting)

Steve McCabe Excerpts

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

[The Chair]

The deadline for amendments to be considered at the Committee’s first sitting for line-by-line consideration of the Bill was the rise of the House yesterday. The next deadline will be the rise of the House on Thursday, for the Committee’s sitting a week today.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

On a point of order, Mr Gapes. I understand what you have just said, but what happens if something comes up in the evidence-taking sitting that would lend itself to an amendment, given that the sitting is happening after the deadline?

[The Chair]

That, unfortunately, is not a matter for the Chair. Tabling deadlines are set out in Standing Orders. If the hon. Gentleman would like to make a change to the tabling deadlines, I recommend that he writes to the Procedure Committee. It may be helpful if I make it clear that if oral evidence introduces a completely novel idea on the issues in the Bill—something that we did not expect to hear—and Members could not have had the foresight to enable them to table relevant amendments, I would take that into consideration in selection and grouping.

[Steve McCabe]

Thank you, Mr Gapes.

Resolved,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Richard Harrington.)

[The Chair]

Copies of written evidence that the Committee receives will be made available in the Committee Room.

Resolved,

That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Richard Harrington.)

--- Later in debate ---

[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.

[Steve McCabe]

Q I have three quick questions. If I have this right, the programme is behind schedule, the cost is escalating and the Minister now wants to increase the timescale and take extra powers. What needs to be done to ensure that this thing stays on track and within cost and does not become an albatross for the consumer?

Bill Bullen: That is difficult. We are already a long way down the track of delays and cost escalations. Consumers already pay a significant chunk of their bill towards the Government’s smart meter programme.

[Steve McCabe]

Q Do you know how much?

Bill Bullen: It is going to go up to, I think, £13 per customer from 1 April. That is something like £8 higher than it was a year ago. Once you multiply that by 27 million households, it is a lot of money.

The Government have spent something like more than £1 billion—I think £1.3 billion—on the Data and Communications Company. To put that in perspective, I think the competitive suppliers providing similar services for SMETS 1 generation meters have not spent 10% of that money. They are already out there working, and have been since 2013, so I think there are some real issues.

Clearly, consumers have already seen massive delays and are being stopped from getting the benefits of smart meters because of the Government programme. One of my key concerns, as I said earlier on, is how we will be able to carry on in business over the next couple of years, because of some of the intricate rules about what type of meters we can install when.

We desperately need a lot more flexibility to carry on rolling out smart prepayment meters without any kind of significant hiatus. It is not in the consumer’s interest to have a hiatus, and it is certainly not in the interest of the economy generally to have potentially a lot of qualified meter installers, vans, and warehouses, but no ability to install meters. That is a big problem.

Those problems are with us right now and we have to solve them very soon, because the sheer logistics of managing supply chains—not only ours, but the supply chain to the meter manufacturer, all the component purchases and so on, which stretch out a year in advance—mean that we are already right up against the buffers of maintaining a smooth roll-out programme, given that the SMETS 1 end date is currently stated to be in July next year. That is a really big issue. We are heading at the moment for a massive hiatus in the roll-out of smart meters.

Audrey Gallacher: It would be a huge mistake to underestimate the size of the challenge here with the smart meter roll-out. It is a massive logistical infrastructure programme—53 million meters—so it will be tough. As Bill said, we have already seen some issues around delays and costs overrunning. There is an impact assessment out there—a business case that says there is a net benefit to customers of nearly £6 billion. It is critical that we protect that business case, regardless of how difficult it becomes.

It may well be that the Department for Business, Energy and Industrial Strategy should look at a re-run of that against what we are seeing currently—a new impact assessment to ensure that the benefits case is still alive. There is also a lot of engagement with the Government and energy suppliers on the programme, because we are all working on it together to get it done. You could argue, though, that we might want to see a wee bit more of that. Is there more that we could do to understand what constitutes best practice, within competition rules obviously, and make sure that everybody is doing it as best they possibly can?

[Steve McCabe]

Q Are you suggesting a new cost-benefit analysis?

Audrey Gallacher: I am suggesting a re-run of what we have done. One analysis was done in 2014; the most recent one is from 2016. Going into next year, it is important that we understand that that benefits case remains intact. Also, we are here today to discuss whether we have to change the regulatory framework to make sure that those benefits are delivered, around the nature of the programme being opt-in versus opt-out, the cost control over the DCC, and the transparency across the control on those costs. There are many things that we need to keep under tight scrutiny.

Bill Bullen: I do not think it is really feasible to re-run the cost-benefit analysis simply because of time. Everybody understands a lot more about smart meters now—the logistics, the costs and the benefits. I think that businesses are in a much better place to just get on and do the job, rather than have another round of consultations wondering what we are going to do. That would soak up most of the next 12 months if we were not careful—a critical time for delivering this benefit to consumers. I differ with Audrey on that point.

[Steve McCabe]

Q Thanks. May I ask about the interoperability issue again? If I understood correctly, Mr Bullen was saying that part of the problem was that some suppliers choose not to help people who switch have a functional smart meter. Is one of the other problems the role of the smart meter asset providers who, if I understood correctly, are a bit like the energy businesses’ equivalent of a football manager? They are the middle people who provide the meters. It might not be in the interest of energy suppliers that get their meters from one asset provider to switch when a customer switches supplier. Is that how it works?

Bill Bullen: I would not agree with that.

[Steve McCabe]

Q Is that because you have an interest, Mr Bullen?

Bill Bullen: No. There is a set of commercial arrangements around rolling out smart meters. As I say, different suppliers have chosen to engage or not in that. All I can say is that we have built business from scratch that has now got—

[Steve McCabe]

Q Tell me what a smart meter asset provider is. What is the function and role?

Bill Bullen: They are merely providing a funding arrangement to provide the capital, so that suppliers can get meters installed without absorbing that massive hit on their cash flow, or having to charge customers for it. Nobody wants to charge the customer for it, so the meter asset provider will simply provide that capital and then rent that meter to whoever the supplier is over the course of that meter’s life.

[Steve McCabe]

A middle man.

[The Chair]

We are short of time. I am going to take Bill Grant and then we are unlikely to have further time. This will probably be the last question.

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[Richard Harrington]

Q Thanks to both of you for coming this morning. May I ask Ofgem, in particular, what you are doing to ensure energy suppliers deliver their obligations?

Rob Salter-Church: I might first explain the role of Ofgem and the Government in the roll-out, because that sets out the context for answering that question. To be clear, the roll-out of smart metering is Government policy. The Government have powers, and one of the parts of the Bill we are considering today is to extend their power to put in place the licence arrangements around smart metering. Ofgem’s role is to oversee suppliers and DCC compliance with the policy framework that the Government have put in place.

We are hugely supportive of smart metering, and we think it has real potential to improve consumers’ outcomes. Through regular engagement with suppliers, we are overseeing their compliance with their licence obligations. We do that through regular bilateral engagements, gathering significant information from suppliers and working in partnership with Citizens Advice and the energy ombudsman to gather information about consumers’ experience of smart metering.

We use the data we gather to hold suppliers to account, challenge them and make sure they are doing what they are required to do in terms of installing smart metering—adhering to their roll-out plans and, perhaps more importantly, delivering a good-quality installation, providing energy-efficiency advice to consumers when they do that and making sure consumers are aware of how they can realise the benefits of smart metering.

We have a range of tools in our toolkit that we can use to secure supplier compliance. Ultimately, if we feel that a supplier is not doing what they need to do to stick to the rules and make the programme a success, we can take enforcement action against them—a process that enables us to levy a fine against that organisation if it is failing to meet what is required of them.

[Steve McCabe]

Q I notice that it says in your written evidence that you see a significant benefit for consumers, and you have repeated that. How will the benefit be realised? What are the practicalities? How will it be realised for the most vulnerable customers—the elderly and the most disadvantaged? How will we see that, and what kind of timescale are we talking about?

Rob Salter-Church: There is a whole range of benefits that consumers—including vulnerable consumers and those on prepayment meters—can get. One of the key ways in which consumers can benefit from smart meters is through being in control and having access to real-time information about their energy usage and what it is costing them. Many people, including vulnerable people, are often worried about getting an unexpected bill—having a bill shock that they are unable to meet—and falling into debt. One of the great things about smart meters is that they give real-time information so people are in control and can manage their energy usage to prevent those kinds of issues from arising.

Another benefit that will accrue to all people, but may well have particular relevance for more vulnerable customers, is the end to estimated billing. They will know exactly what they are being billed and will be able to make sure they are not being over-billed by their supplier.

The last thing I will say is about prepayment meters. Smart metering has the potential to absolutely transform the realities of energy for prepayment customers. People will no longer have to go out in the rain to go down to the shop to put credit on their meter; they will be able to very simply and easily top up the meter when they need to. The functionality also enables suppliers to help customers manage their energy usage. For example, rather than running out of credit overnight, the smart meter technology allows the supplier to offer services to customers that enable them to have a small amount of energy to ensure that the heating and lights are still on in the morning. Those kind of quality of service benefits are huge, and they should accrue to customers through the point at which they get a meter installed.

[Steve McCabe]

Q Am I right in thinking that you are responsible for enforcing the code of practice?

Rob Salter-Church: Are you referring to the smart meter installation code of practice?

[Steve McCabe]

Yes.

Rob Salter-Church: That is correct. Suppliers have a licence obligation to have that code of practice.

[Steve McCabe]

Q So how is it that people can receive a cold call telling them that it is a legal obligation to have a smart meter?

Rob Salter-Church: It is very troubling when we hear things like that, because, as the Committee knows, that is not the case. We are clear to suppliers that they need to try very hard to explain the benefits of smart meters. I struggle to see why someone would not want a smart meter, given the benefits that they offer to consumers. Suppliers do need to be clear that if a customer does not want one, they do not have to have one.

[Steve McCabe]

Q But it is wrong for anyone to phone up and say, “You are legally obliged to have one.” That person is clearly breaching the code of practice.

Rob Salter-Church: That is right. We gather data on a regular basis on suppliers’ compliance with the code of practice. If we saw a systematic problem, then we would take action against a supplier.

[Patricia Gibson]

Q I want to probe this a little further; I raised it with the previous witness and I would be interested in your thoughts, given that you are in charge of the code of practice. Trading standards have raised concerns that there are potential offences being committed under the misleading actions provision of the Consumer Protection from Unfair Trading Regulations Act 2008. They have said that these infractions may be being committed because some energy suppliers are giving the impression that smart meter installation is compulsory. What are your thoughts on that? Have you had any contact or dialogue with trading standards on their very serious concerns?

Rob Salter-Church: The first thing I would do is to reiterate what I said earlier: we expect suppliers to be very clear that there is no compulsion on consumers to have a smart meter. We are driving suppliers to be as clear as they can on what the benefits are, so that customers want to have a smart meter.

In answer to your point about trading standards, we engage with a range of organisations, including Citizen’s Advice, and we do from time to time talk to trading standards to gather information about where there are potential licence breaches. We would take action. I do not believe that I have had a discussion with trading standards, but I can check whether there has been one between the organisations and write in, if that is helpful.