Preparations for the roll-out of smart meters - Public Accounts Committee Contents

2 Minimising costs and securing the benefits for all consumers

9.The costs of the smart meter programme will fall to consumers through increased energy charges. The Department has estimated that by 2015 the programme will on average add a net £6 to all dual fuel customers' bills (£14 costs less £8 assumed savings from the benefits that consumers will be receiving by then).[17] The Department estimates that if consumers engage with the programme in line with its forecasts, households could see a positive net benefit by 2017.[18] However, consumers may find it easier instead to compare the estimated lifetime cost of £240 for a dual fuel meter with the range of potential benefits that may be achievable.[19] Transparency in costs are essential if confidence in smart meters is to be achieved.

10. Suppliers stand to benefit significantly from the installation of smart metering, for example through the introduction of automated meter reading.[20] Of the £18.7 billion total benefits identified by the Department in its updated detailed benefits analysis £9 billion (48% of the total) were expected to accrue to suppliers.[21] The Department argued that competition between suppliers would ensure that consumers secure the benefits from smart meters. Suppliers would shop around to get the best deal on the procurement of the meters and consumers could switch suppliers if they did not consider they were getting a good price or service. However experience to date suggests consumers find it very difficult to understand different tariffs, and the pricing structure and information provided by suppliers does not encourage competition. The Department was actively encouraging people to switch and smart meters could help consumers to see their energy costs and switch sooner.[22]

11.We asked what safeguards were proposed to ensure that suppliers did not profit unfairly from installing smart meters in every home, for example by inflating costs or selling additional products. [23] We were also concerned about the Department's ability to ensure that suppliers pass their cost savings on in full to consumers.[24] Historically, suppliers have been quick to pass on higher charges to consumers but slow to reduce retail prices when wholesale energy costs fall.[25] The Department was confident that suppliers will pass the benefits of smart meters to consumers but we were not convinced that the Department had fully developed a strategy to achieve this.[26]

12.The Department told us that it did not expect the cost of smart meters to be separately disclosed in energy bills as there are concerns that existing bills are too complex. Moreover, the cost of smart metering was only expected to account for around 1% of households' energy bills.[27] The Department told us it would, however, monitor costs and with Ofgem look at suppliers' accounts as it would be accountable for constraining the costs and delivering the benefits.[28] The Department was not clear, however, on how it proposed to ensure greater transparency for consumers about the cost of smart meters and about the way suppliers would pass on cost savings to consumers.[29]

13. Many consumers already take advantage of ways to reduce their energy bills but there are others who do not. Participants in many of the trials undertaken have been energy savvy consumers, who were keen to participate in the programme and already recognised the scope for benefits from using smart meters to reduce their energy consumption.[30] It is by no means certain that the rest of the country will embrace the programme as willingly or will be able to switch to preferential tariffs. Some consumers do not have a bank account, precluding them from taking advantage of potential savings available from using direct debits.[31] It would be naïve to expect competition alone to fully protect these consumers and there is a pressing need for simple, low cost tariffs, easy to understand.[32] We were particularly concerned that vulnerable consumers should be protected from remote disconnection without proper engagement if they failed to pay their bills.

14.Vulnerable consumers, those on low incomes and those who use prepayment meters, who are already at a significant disadvantage when energy costs rise, are also at risk of not being able to take advantage of the benefits of smart metering, and the method chosen by the Department to introduce smart metering by charging every customer for the cost of the meter and its installation is by its nature regressive.[33] The Department told us that it has funded dedicated qualitative research with low-income consumers to identify the impact on them of smart meters and their particular issues in engaging with the meters.[34] The Department assured us it will be tracking how the benefits and costs affect different groups of users, including the impact on the vulnerable. [35]

17   Qq 8, 36-40, 123 -126, 131, 135 Back

18   Q 40 Back

19   Qq 131, 137 Back

20   Q 113 Back

21   DECC Consultation Document, Smart Metering Implementation Programme, August 2011, para 2, C&AG's Report, Figure 7  Back

22   Qq 58-59, 68, 73, 114, 116 Back

23   Qq 45-46 Back

24   Qq 113-114 Back

25   Qq 10, 12, 59 Back

26   Qq 71, 113-115, 149. Back

27   Q 87 Back

28   Qq 86, 92-93 Back

29   Qq 91-92 Back

30   Qq 16, 80, 103, 108, 149; Ev 40 Back

31   Qq 138, 139 Back

32   Qq 17, 42, 58, 59, 146, 147 Back

33   Qq 3, 25, 40, 42, 43, 107 and 146 Back

34   Q106 Back

35   Q140 Back

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© Parliamentary copyright 2012
Prepared 17 January 2012