Smart Meters Bill (Fourth sitting)

Steve McCabe Excerpts

Committee Debate: 4th sitting: House of Commons
Thursday 23rd November 2017 Public Bill Committees

[The Chair]

It is a little hot in here. Some Members asked earlier whether they could remove their jackets, and I am minded to allow that in this instance.

Clause 1

Smart meters: extension of time for exercise of powers

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

I beg to move amendment 12, in clause 1, page 1, line 5, after “23”, insert

“, except in relation to SMETS 1 meters”.

This amendment would exclude the rollout of SMETS 1 meters from the extended licence.

It is a pleasure to serve under your chairmanship, Mrs Gillan.

The amendment would exclude the roll-out of SMETS 1 meters from the extended licence. Let me be absolutely clear that this most certainly is not a wrecking amendment. I really hope that we can bring a bit of clarity to some of the issues that the Committee is already dealing with and will labour on for some time to come.

The purpose of the amendment is to try to get to the bottom of the interoperability issue with SMETS 1 meters, which we heard a lot about in our evidence session on Tuesday. I really want to know why the Department for Business, Energy and Industrial Strategy should continue with the roll-out of SMETS 1 meters if they are not interoperable. I asked the Minister’s predecessor, the hon. Member for Hereford and South Herefordshire (Jesse Norman), in a written question to suspend the installation of SMETS 1 meters until the interoperability issue had been resolved. His answer was no. He added that work was

“underway to make SMETS1 smart meters interoperable between energy suppliers, through enrolment in to the DCC’s system.”

Plans for a solution to this technical difficulty are supposed to be published by the end of this year. With just a few weeks of the year remaining, time is obviously short. I wonder whether the Minister can tell us whether his plans will be published before the Committee reports. It seems to me that this issue is likely to have quite a big bearing on the Committee’s thinking as we work our way through the Bill.

The Government currently recognise two types of domestic meters as working towards the smart meter roll-out target. SMETS 1 meters are the first generation of energy smart meters, compliant with the first version of the Government’s smart metering equipment technical specifications, or SMETS—it sounds like some Russian spy organisation. SMETS 1 meters were meant to be rolled out only as part of the foundation stage between 2011 and 2016. However, they are still being rolled out as part of the main roll-out phase because of delays in the SMETS 2 infrastructure.

The Government recently announced that as of 13 July 2018, SMETS 1 meters will no longer count towards the 2020 target, hence the amendment. If SMETS 1 meters will not count towards that target, why are they still being installed and why is an extension of powers relating to SMETS 1 required beyond the Government’s 13 July 2018 date?

SMETS 2 meters are the second generation of energy smart meters, compliant with the second and latest version of SMETS. They were meant to be rolled out as soon as the main roll-out stage was launched in November 2016 and they were supposed to resolve some problems identified in SMETS 1. As a recent parliamentary question revealed and as I think we heard in evidence on Tuesday, we are still at the testing stage for SMETS 2. Only 250 of the meters have been installed so far, instead of the millions required before scaling up the roll-out.

As I understand it, Government policy is to encourage consumers to shop around and switch supplier to get the best energy deal but, as we have heard, there are many examples of SMETS 1 meters not being interoperable, so customers who have such a meter and switch might find themselves without a functional smart meter because it has then been placed in dumb mode. A witness told us that 20% of the 8 million meters already installed are now operating in dumb mode. In passing, I should point out that that is a substantial increase on the BEIS figure of 460,000 that I was given in a recent parliamentary answer.

Does the Minister accept in principle that the issue of interoperability—this problem of people thinking they have a smart meter and discovering that if they switch supplier they no longer have one—is having a detrimental effect on the public’s perception of smart meters and the supposed benefits of the smart meter programme?

The aim, if I understand it correctly, is for smart meters installed by one supplier to be capable of being operated by another supplier, so that consumers may switch supplier and retain the smart benefits. In 2016, however, the Select Committee on Science and Technology found that the issue of interoperability of energy smart meters was one that it described as still “unresolved”.

The Government continue to claim that work is under way to ensure that SMETS 1 meters will be interoperable through enrolment in the DCC system, but a number of industry parties have explored other approaches that enable consumers to retain their smart services when switching at present. We heard on Tuesday that the industry already has a solution to make SMETS 1 meters fully interoperable.

Mr Lickorish of Secure Meters explained that technical interoperability is now available for 95% of installed SMETS 1 meters. He explained—with the benefit of the cups—how technical interoperability can facilitate change of supplier and enable enduring smart functionality, and that that technology has already been demonstrated to BEIS. Instead of having one DCC system, the technology enables communications between people’s smart meters and energy suppliers using a number of mini DCCs. The companies Secure Meters and CGI have made their systems interoperable. Some 36 energy suppliers already use Secure Meters’ mini DCC system and the majority of the big six use the CGI system.

Will the Minister explain why BEIS is resisting that approach? For energy suppliers, there would be no change in their existing business. They would continue to use the mini DCC system to operate SMETS 1 smart meters. They could also gain customers with SMETS 1 smart meters and there would be no need to operate the meters in dumb mode. The consumer would be able to switch retailer and retain smart functionality. The mini DCC system enables a change of supplier while retaining complete SMETS 1 smart meter functionality. I am at a loss to understand why the DCC is spending more and more money on a project that is perhaps unnecessary and at the very least ought to be reviewed, especially when we know that consumers will be picking up the bill.

The industry faces a number of challenges with the proposed July 2018 end date for the installation of SMETS 1 meters, in terms of the Government counting them as part of the programme, and the ramp up of SMETS 2. As previously discussed, there is a lack of certainty in the market generally and a lack of confidence that the targets set for the installation of SMETS 2 meters can be reached. It is also possible that the installation engineers, whose training has been heavily invested in, may be left without smart meters in April 2018. That is the point my hon. Friend the Member for Southampton, Test made this morning when he talked about the risk of people driving around with empty vans: there is a real risk that the money invested in those engineers will end up being wasted.

Two options are available to us at this stage; I genuinely want to know what the Minister’s, and therefore the Government’s, thinking is. The amendment is not intended to be a wrecking amendment, but I am at a loss to understand why we should persist with something that we think might not work and we fear might cost quite a lot of money when there may already be a viable alternative.

It could be that I have missed a perfectly valid explanation, but I do not think I have read that explanation anywhere and I have not heard any Minister propose that explanation so far. I hope that the amendment affords that opportunity to the Minister now.

We should either exclude SMETS 1 from the extension, as the amendment would, and say in no circumstances would it be sensible to allow energy suppliers to install them, or we could allow energy suppliers to install SMETS 1 meters and use the existing interoperable mini DCC systems. That does not mean that we could not move to the SMETS 2 system, but it would avoid the potential period, which my hon. Friend referred to, in which there could be a complete gap. That, it seems to me, would be the best way to protect the customer’s interest. It may also be the best way to safeguard the programme overall. It is almost certainly the best way to provide some assurance that we can contain costs.

If we are left solely reliant on a system that requires the DCC, which is still in test phase—it is about to get an extension through the Bill—to spend more and more money, with those costs eventually rebounding on the customer, we are taking an enormous risk with our constituents’ money without considering the other technical opportunities. That is the reason for the amendment. I want to know why we are going down this route.

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[Richard Harrington]

I want to make the answer very precise, so I would prefer to write to the hon. Gentleman about the consultation, if that is acceptable, rather than give him a vague answer that does not have the precision he deserves.

[Steve McCabe]

As I said at the outset, the amendment’s purpose was to explore this problem and to help Members to get a better understanding of interoperability. A question mark hangs in the air about how successful the SMETS 2 roll-out will be and what the problems will be if we end up with a lot of SMETS 1 meters installed but no longer counted in the Government’s target or, as my hon. Friend the Member for Southampton, Test said, with a hiatus in which there are no meters available. The amendment’s purpose was to explore that point.

The Minister has done his best to explain where he stands. I am not sure that we have reached complete agreement on that, if I am truthful with him, but he has done his best and it would not serve any useful purpose to force the amendment to a Division. That would be a wrecking amendment, which is not my intention, and I am grateful for what he said. I ask him to continue to reflect on this issue, which will be central to the roll-out programme and needs to be considered. However, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Steve McCabe]

I beg to move amendment 6, in clause 1, page 1, line 12, at end insert—

“(c) in section 56FA(3) after ‘including’, insert—

“, the supply of such meters to energy companies, the disposal of old or malfunctioning meters and”.

This amendment would allow the Secretary of State by order to add “the supplying of smart meters to energy companies” and the “disposal of old or malfunctioning smart meters” to the list of licensable activities.

[The Chair]

With this it will be convenient to discuss amendment 7, in clause 1, page 1, line 19, at end insert—

“(c) in section 41HA(3) after ‘including’, insert—

“, the supply of such meters to energy companies, the disposal of old or malfunctioning meters and”.

This amendment would allow the Secretary of State by order to add “the supplying of smart meters to energy companies” and the “disposal of old or malfunctioning smart meters” to the list of licensable activities.

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[Steve McCabe]

The distinction between amendments 6 and 7 is that amendment 6 applies to electricity and amendment 7 applies to gas. Otherwise, they are effectively the same.

I hope that the Minister considers the amendments to be sensible. They grant the Secretary of State the powers to license and regulate meter asset providers and deal with the disposal or recycling of metering equipment. I am conscious that disposal is currently subject to an EU directive—without wanting to get into that debate, which seems to be the only debate we have these days. None of us knows at this stage what will happen to that directive, but we know that a large existing supply of meters has not yet been disposed of in accordance with the directive and that the supply of meters could grow. I am trying to offer the Minister and the Secretary of State an opportunity to take some powers to deal with that, which may become a pressing issue in the near future.

Let me start with the meter asset providers—or MAPs, as I believe they are known in the industry. As we heard from expert witnesses, MAPs are crucial players in the current roll-out programme. I was interested to learn a bit more about what MAPs are. A cursory online search told me that meter asset providers are independent providers of metering equipment, constructing and operating essential utility assets to serve millions of homes in the UK. They provide the following services: funding provision, contract management, asset management, asset tracking, fault management and asset disposal.

As Members will have spotted, there is a connection between the role of MAPs and what happens to redundant and old meters at the end of their life. MAPs are essentially the middlemen, providing, managing and disposing of smart meters. When I was first told about them and was trying to understand them, the best analogy that I could come up with was a football agent—the person who smooths the path to the club, provides the player and helps the player move on when it is in their interest. It seems to me that MAPs do a similar job: they essentially provide a facility for energy suppliers.

As Members may recall, Mr Bullen told us that MAPs play an important funding role. I take this opportunity to mention that Mr Bullen got in contact with me after the evidence session to make it absolutely clear that his company has no role or direct beneficial interest in relation to MAPs; that might not have been the impression given to the Committee during the session, but he was very clear. I wanted to put that on the record so that there is no doubt about it. Mr Bullen told us that MAPs play a beneficial role by providing a funding arrangement to make capital available so that energy suppliers can install smart meters without absorbing the cost from their cash flow. The MAP then rents the smart meter to the energy supplier throughout the course of the meter’s life. That is basically how it works, as I understand it.

However, when a customer switches supplier, it is not necessarily in the supplier’s interest to take on the potentially high rental cost of a SMETS 1 meter, particularly if they have been told that a mass roll-out of SMETS 2 meters is just around the corner. Commercially, it is better simply to turn the installed meter to dumb mode and install a new meter—perhaps an identical meter—using a cheaper contract with a different MAP. That seems to be how we got into the situation that we have been discussing.

In that context, it is a vital message for the Committee that SMETS 1 meters are technically capable of interoperability using the mini DCC systems, but there is often a lack of commercial interoperability when people switch from big six companies to smaller energy suppliers, which is exactly what we are encouraging them to do and what BEIS is telling consumers they should do.

I suggest that that commercial problem is causing the biggest issues with the smart meter roll-out for both consumers and suppliers. Members will recall that one witness described them as deemed rentals within industry circles. Basically, the acquiring energy supplier would not necessarily have the same contract with the same MAP and therefore the customer says, “I am switching from supplier A to B.” The customer already has a smart meter provided in conjunction with their contract with supplier A. When they switch to supplier B the MAP gets involved and says, “There’s a meter in place, but this is what we are going to charge you in order to use it as a smart meter.”

The supplier is not sure what is happening, how long they will be able to maintain this SMETS 1 meter, and how long it will be before the Government’s promised move to SMETS 2—they are told it is just around the corner. Not surprisingly, the MAP tries to take advantage of this situation by offering the rental at an even better rate, to get an even better return over what they assume will be a shorter time. As I understand it, to the best of my ability—I have spent quite a lot of time looking at and discussing this—that is what happens.

The new supplier has two choices. They can either take on an expensive contract, which actually diminishes their profit, or they can put the meter into dumb mode. In some circumstances, they can go to another MAP and put an identical meter into the customer’s property, but they will pay a lower charge for that.

It is an unregulated market. It seems to me to be having a perverse impact on the benefits for customers that the Minister is trying to achieve and his roll-out programme. Citizens Advice has said that that severely damages the credibility of the smart meter programme.

I am not saying that this is a case of bad business or horrible profiteering companies. That is not the point I am trying to make. Rather, the market as it exists has provided for the development of this middleman, who is entitled to try and make the maximum profit available to him in what he judges to be the timeframe available for that product. Naturally, he looks at every opportunity to increase his return. It seems to me that that is exactly what is happening, but the consequence is this situation where we have all these dumb meters. I do not know, but the Department told me in a parliamentary answer that the number in dumb mode is actually 460,000; obviously the witness who told us it is 20% thought it was a considerably higher figure. Whether it is half a million or more, we know that the intention that a person gets a smart meter and can continue to use it when they switch supplier is being thwarted because of the market mechanism that has developed because of the need for the middleman to make money. That is what this is about.

I suggest that it would be in the Minister’s interest to take some powers to regulate that market, to make it part of his licensable activities. I am not saying in this amendment that he has to use them. I am not telling him to do anything, but I am saying that this is where we are and this is what is happening now. It is already having an impact on his programme ambitions and it could continue to thwart them even further. The Bill is designed to deal with events the Minister fears could occur. He keeps telling us that those are not things that will happen and that the roll-out is fine. He tells us that this is a belt-and-braces piece of legislation designed to address things he is anxious about, but we should also be anxious about the role of MAPs. They not only have an adverse impact on consumers but may well be distorting the progress of the very programme the Minister is trying to promote. It would make perfect sense if he took powers that enabled him to step in and act to regulate that element of the market if he reached a stage where he felt it was in the interests of the programme’s long-term viability and of the consumers, for whom he clearly has an overriding concern.

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[Richard Harrington]

I actively disagree with the hon. Gentleman. I accept the problem—whether it is 4%, 20% or the numbers that have been talked about that do not work—but I do not view that as an aspect of market failure. In my submission, market failure would mean the charge being 400% or 500% of the cost of manufacture. I regard it as a failure, but a technical failure that we hope will be changed within months by the operability technical changes, as I explained. I understand what the hon. Gentleman means, but I do not regard it as market failure. My contention is that the regulation of the supply, or the ability to regulate, as the hon. Member for Birmingham, Selly Oak mentioned, would not have made a difference to the technical failure side of it.

[Steve McCabe]

I just want to clarify what the Minister said, in case I misheard him. I think he said it is not a market failure but a technical failure, which within months we hope to address. As I pointed out earlier, his Department’s position is that it is meant to be addressed by the end of this year. In fact, I asked him if he would produce the plan by the end of the Committee. Is the Minister now revising that timescale? Is that what he is telling us?

[Richard Harrington]

I used the expression “within months” as a figure of speech; I apologise for that.

[Steve McCabe]

I just want to be clear.

[Richard Harrington]

It is a very fair point. I did not do it as a way of pulling back on what I said before, I promise. The point I want to make is that the Government do not believe it necessary to make provision to require MAPs, as asset providers, to be licensed because the competition is working and providing good value to energy consumers.

Away from the Committee, the hon. Gentleman and I had a discussion on meter disposal, and I have given it considerable thought. This is not an excuse, but the responsibility for disposal lies with the Secretary of State for Environment, Food and Rural Affairs. I have not discussed this issue with the Secretary of State, or in fact anything to do with general disposal issues, particularly not gas and electricity meters.

If the hon. Gentleman will bear with me, I suggest that we hold a roundtable with DEFRA and BEIS officials, himself and the shadow Minister, if he is prepared to come—I hope he will—so that we can discuss this. It is not something I can give a short answer to; it is much more complex than I first thought. Having made both those points, I would be delighted if the hon. Gentleman agreed to withdraw his amendment.

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[Steve McCabe]

I am very happy with what the Minister said in his conclusion. An opportunity for people to get around the table and see whether we can agree a situation where people are comfortable with what is likely to happen seems a good and sensible proposition. I can see he was very relieved to discover that the issue is not directly his responsibility.

I have to say that I am not at all convinced by the Minister’s comments about the first part of the amendment. I think there is a failure of the market here. It is having, as I pointed out, a negative impact on both the consumer and his programme. I am tempted to test that with a vote, but given what the Minister said at the end of his remarks, I would prefer to ask him if he will think again about the role of MAPs. There is time before the end of the Committee and the conclusion of the Bill’s passage. There is an issue here, and I would be grateful if he at least went back and discussed it again with his officials.

As I tried to point out, I am not against these businesses or out to put them out of business. I am concerned about the impact of some of their behaviour in this environment and the unintended effect it may have on both consumers and the Minister’s programme. In the circumstances, it would be better to give him a chance to reflect on that. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ordered, That further consideration be now adjourned. —(Mike Freer.)