Draft Electricity and Gas (Smart Meters licensable Activity) Order 2012
The Committee consisted of the following Members:
† Baker, Steve (Wycombe) (Con)
† Bebb, Guto (Aberconwy) (Con)
† Blenkinsop, Tom (Middlesbrough South and East Cleveland) (Lab)
† Bridgen, Andrew (North West Leicestershire) (Con)
Dobson, Frank (Holborn and St Pancras) (Lab)
† Greatrex, Tom (Rutherglen and Hamilton West) (Lab/Co-op)
† Hayes, Mr John (Minister of State, Department of Energy and Climate Change)
† Hemming, John (Birmingham, Yardley) (LD)
† James, Margot (Stourbridge) (Con)
† McKechin, Ann (Glasgow North) (Lab)
† Munn, Meg (Sheffield, Heeley) (Lab/Co-op)
† Raynsford, Mr Nick (Greenwich and Woolwich) (Lab)
Shannon, Jim (Strangford) (DUP)
† Shepherd, Mr Richard (Aldridge-Brownhills) (Con)
† Stride, Mel (Central Devon) (Con)
Stuart, Ms Gisela (Birmingham, Edgbaston) (Lab)
† Williams, Roger (Brecon and Radnorshire) (LD)
Sarah Petit, Committee Clerk
† attended the Committee
The following also attended, pursuant to Standing Order No. 118(2):
McFadden, Mr Pat (Wolverhampton South East) (Lab)
Tenth Delegated Legislation Committee
Wednesday 12 September 2012
[Hywel Williams in the Chair]
Draft Electricity and Gas (Smart Meters Licensable Activity) Order 2012
2.30 pm
The Minister of State, Department of Energy and Climate Change (Mr John Hayes): I beg to move,
That the Committee has considered the Draft Electricity and Gas (Smart Meters Licensable Activity) Order 2012.
The Government’s vision is that by the end of 2019 every home in Great Britain will have a smart meter and an in-home display. The aim is to empower consumers to manage their energy consumption more efficiently and to reduce their carbon emissions as a result. The roll-out of smart meters will play an important part in Great Britain’s transition to a low-carbon economy and help us to meet the long-term challenge we face in ensuring an affordable, secure and sustainable energy supply. None of that will come as any surprise to the Committee, and nor indeed will the order, because its genesis is in the Energy Act 2008, which amended the Gas Act 1986 in that respect. The order is anticipated as part of a programme that had its origins under the previous Administration and is now being fulfilled by this Government.
The project is obviously huge and challenging. The pure scale of the task is significant: the largest changeover programme in the energy industry since the introduction of North sea gas around 40 years ago. It will result in the installation of about 53 million meters in Great Britain, involving visits to some 30 million homes and businesses. The roll-out is challenging but essential if we are to empower consumers as I described.
There would be little point in such an undertaking without its bringing real and substantial benefits. Our impact assessment shows estimated net benefits of about £7 billion over the next 20 years for consumers, industry and the economy at large. Smart meters will give consumers near real-time information on their energy consumption to help them control their energy use. In turn, that will mean that they save money and reduce emissions. Giving energy suppliers remote access to their customers’ consumption data will bring an end to estimated billing and make switching between suppliers smoother and faster.
The roll-out of smart meters will be led by the energy suppliers. The competitive environment will be enhanced by better information flows to ensure that the efficiencies and benefits achieved are passed to consumers. The Government are also playing an essential role by establishing the necessary regulatory and commercial framework, and the order is in essence part of that process.
The communications and the data transfer and management required to support smart metering are to be organised by a single new central communications body—that is really what the order is about—which will
be known as the Data and Communications Company or DCC. The DCC will be a private sector company regulated under licence by Ofgem, like various other parts of the energy industry. The DCC will not be funded by the Government and its revenue will come from users. The first licence will be awarded next year, following a competitive process. The intention is to re-compete the licence periodically to help incentivise low cost and high performance.The DCC will provide the service for remotely communicating with smart meters on behalf of electricity and gas suppliers, electricity distribution companies, gas transporters and other third parties authorised by the consumer. It will also provide services to other third parties authorised by the consumer, such as large energy service companies, helping to open up that market. The DCC will play a key role in supporting the competitive supply market by delivering a single system that will support easier switching between suppliers. The DCC will not operate these services itself, but will contract with data and communications companies for their provision. Those contracts will also be re-competed periodically.
Placing the DCC at the centre of the system will deliver the security and interoperability required for a GB-wide smart meter system. Clearly, satisfactory security is critical in that endeavour, and the order pays appropriate attention to this regulatory and structural change by introducing a new activity in the list of those requiring licences under the Electricity Act 1989 and the Gas Act 1986, to which I have referred. It will be unlawful to undertake that activity without holding a licence. The effect, therefore, is to require the DCC to operate under licence, which is critical given the potentially sensitive nature of the data.
The activity is to be inserted in each Act, but the provisions make it clear that the holder of a licence under one must be the holder of the licence under the other. There will be one active licensee at any one time, and the licence will be granted for 12 years. A further order setting out the competitive process for awarding the licence will be made when this draft order has been made. We consulted on a draft of the licence, as well as on the orders, and that is available on the Department’s website. I was anxious to ensure that was the case in anticipation of today’s consideration, so I asked my new officials to ensure that all members of the Committee would have access.
The licensable activity created by the order was defined to capture something that only the DCC will be doing—making arrangements for all domestic suppliers to provide a communication service for smart meters. That is defined as narrowly as possible—I emphasise this—to limit the potential for other persons to be caught in its scope. However, in the period before the DCC is established and able to offer services, other persons will be active in the market to support early smart meter installations. We want to support that as part of the foundation stage of the smart meter programme, which is the initial phase when energy suppliers will install a smaller number of smart meters, providing important information and lessons for the subsequent mass roll-out. To avoid the risk of that activity being caught by the prohibition in the draft order, we have included a transitional general exemption lasting 36 months from the date the order comes into force.
With those, I hope, clear but brief comments, I am happy to commend the order.
2.37 pm
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op): It is a pleasure to serve under your chairmanship again, Mr Williams. I welcome the Minister to his first Department of Energy and Climate Change statutory instrument; I am sure that there will be many more, and that we will enjoy discussing a range of issues in the months ahead, from smart meters to the Energy Bill and all sorts of things.
The order is not contentious, so I do not intend to detain the Committee for long, not least because I am sure the Minister is busy getting himself up to speed with aspects of his new brief. However, I want to make a couple of points, and to ask a couple of questions. I will understand if he cannot answer them today, but it would be much appreciated if he could write with the answers for the record.
During his opening remarks, the Minister made some important points about the origins of the order, and the potential of smart meters. The anticipated roll-out is that by 2019 there will be 50 million smart meters in 30 million households and school premises. I do not have a problem with the substance of the order and the establishment of the DCC, but I want to ask a couple of questions about it. The establishment of the DCC and the work that it will undertake builds on the importance of interoperability, and the ability for information to be shared, and for people with a smart meter to switch relatively easily and straightforwardly. That is important.
I note that the cost estimate of the DCC’s development has not been updated since 2009. There have been many assessments and developments in the smart meter programme since then, so can the Minister tell me whether there has been any further assessment of the estimate? I am sure he will appreciate that the Public Accounts Committee and others who have considered the smart meter programme in the round have raised some pertinent issues about cost and efficiency. The document that talks about the cost estimate also refers to there being 2 million meters in homes by the end of 2012. I am sure the Minister is aware that we are nowhere near that, and I suspect that information is not as up to date as it could be.
Specifically on the order, I want to ask about the roll- out programme, which is dependent on the establishment of the DCC and its work, as obviously the roll-out cannot happen until then. In terms of the associated process, I am aware both from discussions with some energy companies and from speculation in a recent edition of “Utility Week” that shortlisted providers are concerned about the time scale of the next stage—in other words, getting to the three final bids and then the procurement phase, which I think was due to be done by quarter 4 this year. Will the Minister explain whether that is still likely to be the case, and if not, what is the Department’s best estimate for us to reach that stage?
Finally, I want to make a wider point about public awareness of smart meters. The Minister touched on the potential of smart meters. I have a smart meter and, like many others, I can see the benefits. However, the public attitudes survey undertaken in July by DECC indicated that 53% of people had never heard of smart
meters, so there is a considerable way to go. Given that the installation of smart meters entails going into people’s homes, and that there have been issues in the past about door-to-door selling, it is important that the public understand what smart meters are and how they are to be installed in their homes. Because of that level of ignorance, it is important that there is a consumer engagement strategy. I am aware that the Department’s consultation on that matter closed in June. Will the Minister inform us when the conclusions are likely to be published and when the programme will be launched? When will the Government implement the consumer engagement strategy, and what vehicle will be used to do so?2.41 pm
Meg Munn (Sheffield, Heeley) (Lab/Co-op): I want to expand on a couple of my hon. Friend’s points. As he said, although it is not directly relevant to the order, which is a tight piece of legislation about the process, there is concern about public awareness and the process of the roll-out of smart meters. I was offered a smart meter in my accommodation in London, but because I could never be there at the same time as the people who wanted to provide it, I had to pass up the chance. As I am sure that my circumstances are not unusual, I am greatly worried about how quickly the programme will be implemented.
Will the Minister tell us either now or subsequently, in relation to the DCC appointments, not only when he expects the process to happen, as my hon. Friend asked, but whether he will make available on the website or elsewhere all the key stages of the process, so that MPs and external organisations can monitor whether the process is going ahead as expected for each stage of this complex issue?
2.43 pm
Mr Hayes: I am extremely grateful for the contributions that have been made to the debate, and I welcome you to the Chair, Mr Williams, as it is always a delight to serve under you. I am looking forward with eager anticipation to being scrutinised and shadowed immensely closely by the hon. Member for Rutherglen and Hamilton West. To add a little excitement to our affairs, I shall deal with the questions in reverse order. That will send a shockwave across my officials, who will of course be dealing with them in chronological order in terms of the advice they offer me. None the less, we will try something a little different.
The hon. Member for Sheffield, Heeley makes an excellent suggestion, and I will ensure that it happens. We will put that process on the website and make it available in exactly the form she describes, which will be helpful for public awareness and engagement. The chronology is important because, as I described in my earlier remarks, which I shall not repeat, the roll-out is ambitious. It is based on a plan that was seeded by the previous Administration, of which the hon. Lady was a notable part. None the less, like all radical technological change, gaining public acceptance and understanding is a challenge. I qualify that slightly by saying that there is an explosive effect once new technology becomes pervasive. In recent times, one thinks of mobile telephones; when I first got mine, people looked at me strangely as the
phone was carried in a satchel with a battery almost the same size as a car battery to support it. Then, after what seemed like a moment, everyone had one. There is a kind of explosive effect with new technology, but none the less that is not a counter-argument; it is merely supporting the hon. Lady’s suggestion.That takes me to the consumer engagement strategy, which was mentioned by the hon. Member for Rutherglen and Hamilton West. I commit to making it publicly available this autumn. As he knows, we have been fully engaged with it. I see it as an important part of the policy of creating greater empowerment and awareness, as I outlined, with all that that means in terms of energy demand changes. The debate has too often been conducted wholly, or at least largely, around production and not sufficiently about consumption. I am sure the hon. Gentleman will agree that engagement with consumers in a way that allows for a more productive debate around consumption and demand is an important part of forward strategy. As a result, I commit to publication of the strategy in weeks rather than months.
The roll-out timetable was mentioned by the hon. Member for Sheffield, Heeley and was perhaps a reflection of the remarks made by the hon. Member for Rutherglen and Hamilton West. We may want to go further than was suggested. As a result of this consideration, I am inclined to ask my officials to look again at a public awareness campaign and ask, “What have we done? What are we planning to do? What might we do?” As a direct result of this scrutiny, I will ask for a fresh look at that. As well as putting it on the website, I want to make it available to the House, because it is important that Members are made aware of it. Information has been placed in the Library on smart metering, and it has been provided by letter, but it is perhaps time to do so again. I will write to Members and make the timetable and our plans clear, so that people are fully equipped with the information they need, not least to spread the word among those over whom they have influence and for whom they have responsibility.
I am now going to seek inspiration as to the cost estimate of the DCC. As the hon. Member for Rutherglen and Hamilton West said, the estimate certainly needs to be updated. The latest estimate was conducted before the technology moved on and before we drew up our current plans on implementation. In the information that I provide to the House, I think I should update the DCC cost estimate when further information is available in the light of the licence competition and the service provider procurement. The draft order catalyses a series of events of that kind, but it is important that, at that point, we update the cost estimate to which the hon. Gentleman referred.
I am again inclined, if I may, to write to the hon. Gentleman about interoperability when I have made further inquiries. As I said in my opening remarks, it is central to the mission. If consumers are not able to use information for a considered purpose—to drive down their bills—the information, although not valueless, is of much less value. It is absolutely right, as the hon. Gentleman said, that the system is such that it facilitates that kind of flexibility. It is a well-made point, and I will happily write to him when I have taken further advice.
With those comments, I hope that the Committee will, in the spirit offered by the hon. Gentleman—
Mr Nick Raynsford (Greenwich and Woolwich) (Lab) rose—
Mr Hayes: I see the right hon. Member for Greenwich and Woolwich rising and I do not want to curtail the debate, so I will sit down.
Mr Raynsford: I shall not detain the Committee, but I have one concern that was prompted by the Minister’s reference to the explosive effect of new technology. While we would all welcome the explosive effect in terms of extending public awareness of the importance of smart metering, the other potential interpretation of his remark is that inadequately installed equipment could pose a risk to the public. I raise this because there was a debate last Thursday in Westminster Hall about the implications of the Government’s possible changes to building regulations relating to gas and electrical safety in the home. Very large programmes are being introduced by the Minister’s Department for the installation in a large number of homes either of smart meters or, in the case of the green deal, energy efficiency measures. We know from international experience, particularly in Australia, that when programmes of this nature are conducted without proper regard to safety there can be unfortunate incidents. If cowboy builders were to make unsafe installations it would discredit the whole process.
That was a rather long introduction, but the point is that it is essential for the credibility of the project and for the DCC that the installation work is done in a way that poses no risk to members of the public in their homes. I hope that the Minister will have time to talk to his colleagues in the Department for Communities and Local Government about ensuring that the proper standards apply, so that work carried out on this very large scale—30 million homes—is done in compliance with best practice and the building regulation requirements for competent persons to do the work.
Mr Hayes: The right hon. Gentleman will be delighted to know that we are working closely with the Department of Health and the Health Protection Agency to exactly that end. During the development of the programme we are anxious to ensure that we act in line with best information and guidance and we will keep the latest evidence under review.
In addition to the points the right hon. Gentleman made, I can be open with the Committee and say that some people claim that radio waves produced by smart meters might be an issue but we have been very diligent on that subject. The independent adviser to Government on health and health protection says that the evidence to date suggests that exposure to radio waves produced by smart meters poses no risk to health. I take the right hon. Gentleman’s point about installation, however. Certainly we will want to ensure that the process is completed to the highest possible professional standards. My performances in the House, however, I make no apology for saying, will continue to be dynamite.