Memorandum submitted by Energy Retail Association (EN05)
Submission of written evidence on smart meters to the Energy Bill Committee
With the Committee Stage of the Energy Bill beginning imminently, I am submitting written evidence on behalf of the Energy Retail Association (ERA).
As you may be aware, the ERA, formed in 2003, represents the main electricity and gas suppliers in the domestic market in Great Britain. The ERA works closely with government, NGOs, charities and other organisations in England, Scotland and Wales to ensure a coordinated approach to dealing with the key issues affecting our industry and the British consumer. The main energy suppliers operating in the residential market in Great Britain are members of the association - British Gas, EDF Energy, RWE npower, E.on, ScottishPower, and Scottish and Southern Energy.
I appreciate that you may already be aware of our campaign. In summary, following the commitment made in the May 2007 Energy White paper in support of smart meters, the ERA is calling on the government to provide a mandate in the Energy Bill to the energy retail industry to roll out smart meters to all 25 million British households. It is the energy industry's view that the business case for smart meters and competition law require that a mandate is provided by primary legislation. The Energy Bill Review Team (a cross industry group supported by the industry's four main trade associations - the Energy Networks Association, ERA, Association of Electricity Producers, and Gas Forum - and also by the United Kingdom Business Council for Sustainable Energy) has produced a draft mandate which the ERA hopes the Energy Bill Committee will consider.
The energy retail industry has carefully assessed the specification for smart meters and eight potential market designs for their roll out. The ERA's aim was firstly to identify a technology standard for smart meters that would ensure interoperability - in other words, once you have a smart meter installed you don't have to change it if you change suppliers. Secondly, we sought a roll out methodology that can deliver universal smart metering within ten years, with the lowest cost and disruption to customers and with the highest delivery success.
Both elements require significant cooperation between energy suppliers. To make the business case work and to address the problems raised by competition law, it is the industry's view that primary legislation is required to ensure an effective mandate for the roll out of smart meters.
Smart meters are the next generation of electricity and gas meters. They will bring about the end of estimated bills and meter readings, and provide customers and energy suppliers with accurate information on the amount of electricity and gas being used. They will also provide the platform for the development of a much greater choice in energy tariffs and services for all homes. In short, smart meters would empower consumers to make informed choices about how much energy they use.
The ERA is firmly of the view that the energy efficiency and carbon reduction objectives of the EU and the UK Government are unlikely to be achieved with the current technological and administrative arrangements for metering and billing. It is for these reasons that the ERA hopes that a mandate for energy suppliers to roll out smart metering will be included in the Energy Bill.
Illustrative drafting for a smart metering mandate
NEW METERING ARRANGEMENTS
78 Interpretation of this Part
(1) The relevant licensees for the purposes of this Part are -
(a) gas suppliers and gas transporters within the meaning of Part 1 of the Gas Act 1986; and
(b) electricity suppliers and electricity distributors within the meaning of Part 1 of the Electricity Act 1989.
(2) The effective date for the purposes of this Part is the date which is ten years after the date on which section 79 comes into force.
(3) Expressions used in this Part have the same meaning as in Part 1 of the Gas Act 1986 or Part 1 of the Electricity Act 1989, as the case may be.
79 Implementation of new metering arrangements
(1) The purposes of this Part are -
(a) to ensure that new metering arrangements for each premises in Great Britain to which gas or electricity is supplied are implemented by the effective date; and
(b) to make such provision for or in relation to the activities of relevant licensees as may be necessary to secure that objective.
(2) As from the effective date, a relevant licensee must not supply gas or electricity to any premises that is not subject to new metering arrangements.
(3) The Secretary of State may exempt any relevant licensee from the prohibition imposed by subsection (2) in relation to such premises, for such period of time, and subject to such conditions as he considers appropriate in all the circumstances of the case.
(4) References in this Part to new metering arrangements are to arrangements (including the provision and operation of any necessary communications and data-handling infrastructure) designed to ensure that, by the effective date, every premises supplied with gas or electricity in Great Britain is and will continue to be so supplied through a meter that conforms to the following three requirements.
(5) The first requirement is that the meter must record and be able to store measured consumption data for multiple time periods.
(6) The second requirement is that the meter, either on its own or with an ancillary device, must facilitate remote access to such data.
(7) The third requirement is that the meter must meet any specifications that may be set out in any regulations made by the Secretary of State under this Part, pursuant to his duties under Part 1 of the Gas Act 1986 and Part 1 of the Electricity Act 1989, for the purposes of facilitating the introduction of new metering arrangements.
(8) This section may not be brought into force before 1 January 2010.
80 Power to modify licence conditions
(1) The Secretary of State may, in accordance with this section, modify -
(a) the conditions of a particular licence held under section 7(1) or 7A(1) or (2) of the Gas Act 1986 or under section 6(1) of the Electricity Act 1989; or
(b) the standard conditions of licences of any type mentioned in those subsections,
if he considers it necessary or expedient to do so for the purpose of securing the implementation of new metering arrangements.
(2) The power to make modifications under paragraph (a) or (b) of subsection (1) includes power -
(a) to make modifications requiring licence holders, or classes of licence holder, to co-operate together, under arrangements approved by the Gas and Electricity Markets Authority ("the Authority"), for the purpose of ensuring that the purposes of this Part are achieved;
(b) to make modifications requiring any relevant licensee to take or refrain from taking any specified action, whether in relation to premises supplied with gas or electricity or otherwise, for the purpose of ensuring that the purposes of this Part are achieved;
(c) to make modifications relating to the operation of, access to, or use of pipe-line systems and distribution systems; and
(d) to make incidental, consequential, or transitional modifications.
(3) Before making modifications under this section, the Secretary of State must consult the Authority, the holder of any licence being modified, and such other persons as he considers appropriate.
(4) Subsection (3) may be satisfied by consultation undertaken before, as well as by consultation undertaken after, the commencement of this section.
(5) Any modification under subsection (1)(b) of part of a standard condition of a licence shall not prevent any other part of the condition from continuing to be regarded as a standard condition for the purposes of Part 1 of the Gas Act 1986 or Part 1 of the Electricity Act 1989, as the case may be.
(6) Where the Secretary of State modifies the standard conditions of licences of any type under subsection (1)(b), the Authority must make (as nearly as may be) the same modifications of those standard conditions for the purposes of their incorporation into licences of that type granted after that time.
(7) The Secretary of State must publish any modifications under this section in such manner as he considers appropriate.
(8) The power of the Secretary of State under this section may not be exercised after the end of the period of five years beginning with the passing of this Act.
Part 5: New metering arrangements
In line with the organisation of the Energy Bill, the relevant three sections are grouped into a single Part because of their unifying theme.
Section 78: Interpretation of this Part
Subsection (1): This ensures that the persons to whom Part 5 primarily applies are the licensed suppliers and transporters of gas, and licensed suppliers and distributors of electricity, under the main industry statutes.
Subsection (2): This establishes the date (i.e. ten years after the commencement date) by which it is intended that new metering arrangements will be fully implemented.
Subsection (3): This ensures that expressions used in this Part that are also used in the industry's principal legislation (such as meter, distribution system, licence holder, pipe-line system, premises, standard conditions, and supply) have the same meaning as they have in that legislation.
Section 79: Implementation of new metering arrangements
Subsection (1): This sets out the purposes of Part 5, i.e. to ensure that new metering arrangements in relation to all premises supplied with electricity or gas in Great Britain are implemented by the effective date, and to make appropriate provision in relation to the activities of relevant licensees for securing that objective.
Subsection (2): This makes it unlawful to supply gas or electricity on or after the full implementation date to premises not covered by the new metering arrangements.
Subsection (3): This allows the Secretary of State to exempt a particular supplier, or all suppliers, from the supply prohibition under subsection (2), in whole or in part, and subject to conditions, if the circumstances require this. There are two reasons for this exempting power. The first is that, without the benefit of this, a supplier might be at risk of breach through the failures or omissions of others.
The second reason is to enable government to exempt from the coverage of a national rollout those premises, or categories of premises, particularly in the large business and industrial sector, that already have sophisticated metering technology installed that provides remote access to consumption data recorded for multiple time periods.
Subsection (4): This, taken in conjunction with the next two subsections, clarifies the nature of the new metering arrangements that are intended to be implemented. These arrangements may be physical, commercial, or legal in their nature, and are envisaged to include the provision and operation of any necessary communications infrastructure, with the purpose of ensuring that every meter installed at premises within the ten-year period is able to satisfy three key requirements.
Subsection (5): This describes the first such requirement, i.e. that the meter must be able to record and store measured consumption data for multiple time periods.
Subsection (6): This describes the second such requirement, i.e. that the meter (on its own or with support from an ancillary device) must be able to facilitate remote access to the consumption data.
Note: the content of subsections (4) to (6) reflects, with some adaptations, the draft legal definition of smart metering in BERR's consultation paper.
Subsection (7): This describes the third requirement, i.e. that the meter must comply with any additional specifications set out in regulations made as a statutory instrument by the Secretary of State to facilitate new metering arrangements. (This instrument would also be able to make any necessary changes to those schedules of the Electricity and Gas Acts that deal with matters related to meters, subject (by virtue of current clauses 88 and 89 of the Bill) to an affirmative resolution procedure in Parliament.)
Subsection (8): This ensures that the earliest date on which the section can be brought into force is 1 January 2010, which would thus be the earliest commencement date for the mandated implementation of the new metering arrangements.
Section 80: Power to modify licence conditions
Subsection (1): This provides a wide power for the Secretary of State to modify the conditions of a particular gas or electricity licence, or the standard conditions of any type of gas or electricity licence, for the purpose of facilitating the implementation or operation of the new metering arrangements.
Note: Although the licences requiring new or amended standard conditions to support a smart metering rollout will be mainly supply and distribution licences, the power should cover all types of licence in order to cater for all eventualities. Power to modify special licence conditions (i.e. the conditions of a particular licence) will also be necessary as a backstop measure in order, for example, to ensure appropriate price control treatment for stranded legacy metering assets.
Subsection (2): This ensures that the power to modify licences under subsection (1) includes, in particular, power to make the following:
* modifications requiring licence holders, or classes of licence holder, to co-operate together, under arrangements approved by Ofgem, with a view to ensuring that the purposes of Part 5 are achieved;
* modifications requiring relevant licensees, whether individually or otherwise, to act in relation to premises supplied with gas or electricity in such a way as to ensure that the purposes of Part 5 are achieved;
* modifications relating to the operation or use of gas and/or electricity networks (for example, in relation to the carrying of communications and data); and
* consequential and transitional modifications.
Subsection (3): This requires the Secretary of State to consult appropriately on any proposed licence modifications.
Subsection (4): This permits any consultation undertaken before the section comes into effect to count for the purposes of subsection (3).
Subsection (5): This ensures that the modification, under this section, of a part of a standard condition does not affect the status of the rest of the condition.
Subsection (6): This requires any modifications, under this section, of any standard licence conditions to be replicated by the Authority for incorporation into all future licences of that type.
Subsection (7): This requires the Secretary of State to publish any modifications of licence conditions under this section.
Subsection (8): This limits the period for exercising the power to modify licences under this section to five years from the passing of this Energy Act.
It would be undesirable to maintain the power indefinitely, as that would override the protections for companies contained in the usual statutory processes for modifying licences. On the other hand, an early sunset clause (of the kind provided in the Utilities Act 2000 for the NETA licence modification power) would be too restrictive, since clearly the rules for rolling out the new arrangements may need to be refined during the course of the rollout period.
A period of five years from Royal Assent, so that the power would cease during the fourth year of the rollout period, should be sufficient for the purpose.