Energy and Climate Change CommitteeWritten evidence submitted by British Gas

Executive Summary

British Gas and smart meters

1. British Gas has led the industry in our mobilisation for the deployment of smart meters, and has already installed over 800,000 meters in UK homes and businesses.

2. British Gas agrees with the Committee that smart meters and smart grids have the potential to bring significant benefits to both the UK energy industry and consumers, and we are strongly behind the smart meter roll-out. Working together, smart meters and smart grids can make a valuable contribution to reducing energy bills for domestic and business consumers, to cutting carbon emissions, and to delivering a more competitive economy.

3. We have been preparing for the smart meter roll-out for a number of years and, having insourced our metering operations in 2010, we now have 1,200 engineers in the field, 120 field managers, and 500 staff in our dedicated Smart Energy Centre in Leeds. We have trained 800 engineers in our British Gas Academy and will train a further 70 apprentices this year.

4. Our apprentices go through a rigorous training programme, after which they are not only equipped to install smart meters and engage consumers, but also ready to progress down a range of possible long-term career paths with British Gas. These include in our servicing, central heating installations and renewable technologies businesses, and also into supervisory and management posts.

5. We have also led the way in helping consumers understand the benefits of smart meters, and our British Gas smart customers have been overwhelmingly positive about their experiences. British Gas will shortly be launching a major new initiative to drive sustained consumer engagement in the residential sector. Personalised Smart Energy Reports will soon be available to our smart meter customers and will provide insight, for the first time, on their patterns of consumption by time period and appliance type. These free reports will be invaluable in helping our customers both to reduce their energy use, and to reschedule it to take advantage of cheaper prices through time-of-use tariffs.

6. In this context, we are concerned that Ofgem’s Retail Market Review proposals, which will limit the number of tariffs suppliers can offer, may prevent time-of-use tariffs being available, thereby undermining both the consumer benefits and the impact this technology can make on demand reduction. However we are pleased at the emerging consensus that customers with smart meters should be allowed greater flexibility through an ability to choose from four time-of-use tariffs (based on mode of operation) as well as four “dumb” tariffs. Our view remains that smart tariffs should be exempt from tariff reform proposals to allow maximum innovation in this emerging segment.

7. We are also working to deliver smart benefits to our business customers. Smart meters are essential to increase understanding of energy use by businesses. They give certainty of energy costs by eliminating estimated bills and provide a reference point to measure consumption against.

8. British Gas has developed a web-based energy analytics dashboard (Business Energy Insight) for our SME customers that enables them to access the half-hourly data from the meter and view it in easily understandable charts and graphs. The service allows businesses to see their consumption and track it over time.

9. In addition, we have trained 100 of our account managers in energy efficiency so that business customers can discuss how to reduce their consumption through their behaviour. Active use of the data from smart meters is expected to save customers up to 10% on their energy bills, around £15,000 annually for our average medium sized business.

10. For larger corporate customers we provide a more sophisticated automated monitoring and targeting (am&t) service that allows businesses to compare performance of their buildings and interrogate the data in conjunction with degree day analysis and other useful performance metrics.

11. Smart meters will also benefit suppliers by delivering a lower consumer cost to serve, thus strengthening the business case for deployment. In a competitive market, with amongst the lowest prices in Europe, any benefits enjoyed by suppliers will quickly feed through to consumers.

Smart meter benefits

12. Whilst the benefits are potentially significant, we recognise that the scale of the investment required to deliver the smart roll-out, estimated at around £12bn, demands that close attention is given to deploying in a cost-effective way. Many of the benefits, meanwhile, will only be fully realised if consumers are appropriately engaged, and once all suppliers are fully behind the roll-out.

13. A recent report for British Gas by Oxford Economics calculated that Britain will be nearly £14 billion better off due to the introduction of smart meters. Smart meters mean that, for the first time, customers can easily understand what energy they are using and what it costs. This offers a route to meaningful consumption savings—a key long-term mitigation for rising unit energy prices, and particularly if smart meters are accompanied by a package of tailored advice and support

14. British Gas has seen our customers reduce their energy bills by an average of 1.6% following a smart meter installation, supporting DECC’s IA, and expect this to increase further when we launch our Personalised Smart Energy Reports. Recent trials of time-of-use tariffs have shown customers can reduce their peak demand by around 7% and their overall consumption by 2.5%.

15. We therefore welcome that the draft Smart Meter Installation Code of Practice (SMICoP) specifies that energy efficiency guidance must be offered at installation. However, we are deeply concerned that, as currently drafted, suppliers will not be allowed to promote the Green Deal at install without explicit customer consent, and believe this will be a barrier to Green Deal take-up.

16. The potential of smart roll-out to support, and be supported by, the Green Deal should be recognised. Both programmes currently have low public engagement and are facing negative media coverage. A more aligned government narrative and approach would help both programmes. As customers are increasingly able to understand their energy use through smart meters, the Green Deal offers access to finance to deliver energy efficiency and saving measures, maximising the consumer benefits of smart. The smart roll-out itself, which will see every home and business in Britain visited over the coming years, is a unique opportunity to promote the Government’s Green Deal programme. British Gas will therefore be responding to Ofgem’s SMICoP consultation and proposing that Green Deal promotion should be allowed at smart install without prior customer consent.

17. Smart will bring further important consumer benefits. We note that Which? research has highlighted that accuracy and transparency of billing is the number one concern of customers. Smart meters will lead to bespoke tariffs, faster switching and an end to pedestrian meter readings.

18. Our smart metered customers have high levels of satisfaction, with Net Promoter Scores (a widely accepted service measure) tracking at 59, 40% higher than our standard customer base. One in three customer bills are currently estimated. British Gas has already seen how, over time, the removal of estimated bills delivers a significant reduction in customer contact rates. We have also found that customers with smart meters complain around 40% less. .

19. Beyond giving essential transparency to the market, smart meters are a transformational technology. They are the foundation to a smart home and smart grid, better managing supply and demand across the UK via innovative technologies such as decentralised energy, home automation and electric cars.

Smart deployment

20. British Gas fully supports DECC’s approach to the deployment of smart meters. A robust infrastructure and governance regime is critical to a successful roll-out, and we welcome that DECC has engaged and is working closely with suppliers through every part of this process. Given the complexity of the programme, political support is crucial, and we would urge the smart roll-out to be given political priority in the coming years.

21. We believe that an appropriate roll-out framework has been established and in particular welcome:

(a)The priority given to the standardisation of the meter specification (SMETS 1 and SMETS 2), removing infrastructure dependencies and creating the path for progress to be made on a replacing 58 million meters by 2019;

(b)The recognition that metering and communications technological development will continue, and that specifications should continue to evolve through planned releases;

(c)Limiting the scope of the Data Communications Company to the services that are required for interoperability, avoiding many of the risks inherent in major IT programmes;

(d)A DCC procurement process and commercial structure that is designed to deliver value for stakeholders.

22. Despite these critical elements being put in place, however, progress in delivery has stalled as a result of two key challenges—programme complexity, and the failure of other suppliers to deploy in a meaningful way in the Foundation stage.

23. The finalisation of the technical design has proved more complex than initially envisaged. There have been extended technical debates (such as the choice of HAN and WAN, and the approach to security) that have taken a long time to conclude.

24. We do not believe it would be helpful to prioritise fuel poor or vulnerable customers in the deployment. To do so would add further complexity and cost to a programme that is already highly complex and logistically challenging. Adding new constraints and targets will undermine suppliers’ pursuit of efficiency in their deployment. Furthermore, there are installation scenarios for which no agreed technical solution is yet in place, for example to high rise buildings. Prioritising one customer segment or housing type would perpetuate technical debates, further delaying progress and postponing consumer benefits for the majority.

25. We recognise that fuel-poor customers would benefit from the general introduction of smart prepayment meters, as there is a higher proportion of lower-income customers on prepayment meters. Prepayment customers are already very engaged in their energy use, but smart metering will bring a transformation in vending convenience and choice for anyone with a bank account (cash vending over the counter will continue for anyone without). Prepayment customers will have access to the full range of tariff choices so will be able to access suppliers’ best deals. Credit customers in payment difficulty can switch to prepayment before large arrears have been accrued. It may also be possible (subject to privacy constraints) to monitor levels of self-disconnection to identify those in severe hardship and in need of extra help.

26. The technical challenges of the smart roll-out for credit customers are extensive. Prepayment is more complex, and relies on more external parties for delivery. Nonetheless, smart prepayment offers major benefits to consumers and to suppliers. British Gas is the only supplier looking to deliver prepayment in the Foundation stage of the smart roll-out, and we are working hard to offer this to customers as soon as we can.

27. Other suppliers are not making as much progress as British Gas in the smart roll-out during the crucial Foundation stage to 2014. Valid, but resolvable, concerns about some elements of the roll-out, including interoperability, security, and technical specifications, have been used as a reason to postpone embracing the roll-out. As a consequence, with only six years now remaining until the end of the programme, there is industry risk around the successful national deployment by 2019, in itself an ambitious target given the complexity and scale of the programme.

28. The failure of some other suppliers to deploy in line with more active participants, such as British Gas, has undermined confidence in the agreed UK equipment specifications and introduced commercial risk around the longevity of hardware. In hindsight, a clear and early obligation on all suppliers to participate in the Foundation stage would have helped the industry’s level of preparedness and removed much risk from the programme. Instead, the smart roll-out framework was originally established with only an end target and optionality around deploying in the first Foundation stage.

29. The relatively low level of industry participation to date has meant that orders for metering equipment have been lower than anticipated, keeping costs higher in the short-term. This has penalised the early movers and sustained the reluctance of other parties to commit.

30. Suppliers will experience a lengthy time lag between their investment in the smart roll-out and the realisation of benefits. All the costs are early, tangible and up-front; many of the supplier and consumer benefits are dependent on “tipping points” being reached, which will only come about as a result of mass participation involving all suppliers, and will only be realised nearer the end of the roll-out.

31. We therefore welcome the recent licence condition on suppliers to set by the end of this year annual deployment targets to 2019, and to achieve at least 95% success against those targets. We believe that these targets should provide a clear and achievable trajectory to the end of the programme, and that penalties for failing to meet these interim targets must be greater than the cost of deployment, in order to provide the right incentives and encourage action.

32. We would also encourage DECC to consider the scope for incentives to support engagement in the Foundation stage. In particular, encouragement for suppliers to adopt Foundation stage smart meters would be welcome. To facilitate this, we believe DECC should monitor the proportion of meters adopted at change of supplier, and to analyse whether SMETS-compliant smart meters are being removed. Such action would reverse progress to 2019, disengage customers, increase costs and is wholly unjustifiable.

Consumer engagement

33. As the Committee recognises, customer awareness and engagement are crucial to a successful roll-out. Both are currently very low. The supplier-funded Central Delivery Body (CDB), which is being established as the primary centralised vehicle to deliver a programme of consumer engagement activities to tackle concerns and encourage consumers to embrace the technology, will not be operational until January 2014.

34. The possibility of triggering excess consumer demand that cannot be met if consumer awareness is driven too early has often been used as a reason not to begin a sustained consumer engagement drive. However, heightened consumer awareness will not in itself necessarily lead to increased demand, and to suggest otherwise fails to recognise the current low level of consumer interest.

35. In this context, we note the experience of the recent digital switchover as a national campaign with a similar reach. The company responsible for switchover communications was established over three years ahead of implementation and began its major customer communications campaigns in 2006, fully 30 months before the first switchover. We believe a similarly early approach to smart consumer engagement would have been helpful, although we recognise and welcome ministerial support for the establishment of the CDB.

36. In addition to the CDB, British Gas supports the involvement of a broad range of voices in promoting the benefits of smart meters. We therefore welcome the involvement of trusted third parties as a route to engage consumers, including those based in local communities and the third sector who we believe can play an important role.

37. We have concerns that the framework on data access is unduly restrictive and will impact engagement. DECC’s own research indicates that very few customers have any concerns over data access. Despite this, suppliers are able to have access only to monthly data without customer consent, to daily data only if a clear opportunity is given for the customer to opt-out, and to half-hourly data only with explicit consumer consent.

38. Default access to half-hourly data is needed for maximum understanding and management of energy use. Without this data, tailored bills are difficult, appliance-by-appliance level analysis over how to cut bills is impossible, and time of use tariffs are ruled out. Asking customers to opt-in to this data is likely to be a huge behavioural barrier and we therefore would support default access to half-hourly data. Furthermore we believe the level of information and choice suppliers are required to provide as part of the installation process is bewildering and potentially disengaging.

Measuring success

39. British Gas believes a successful roll-out should be assessed primarily against the extent to which the DECC Impact Assessment (IA) is achieved. We believe the monitoring an evaluation approach being progressed by DECC aligns closely to the business case set out in the IA. There are further qualitative measures that should be considered, however. These include a redefinition of consumers’ relationship with their supplier and the providers of energy services. Energy suppliers should be seen to be working for consumers’ benefit by providing choice, empowerment, control and high satisfaction. Smart metering alone cannot deliver this but the technology does provide a springboard from which visionary companies can transform themselves into providers of services that customers actively choose rather than simply need.

40. Given the complexity and scale of the roll-out, the important potential benefits, and the need fully to engage consumers, British Gas welcomes the Energy and Climate Change Committee’s scrutiny of the smart roll-out and is pleased to respond to the specific questions raised by the inquiry.

Question 1. Are the Government’s cost and timescale predictions for roll-out realistic and will it deliver value for money?

1.1 We believe that the Government’s cost and timescale predictions for roll-out are challenging given the current uncertainty in the programme.

1.2 In particular, we note that costs for the establishment and operation of the DCC are currently unknown, and subject to a procurement process that has not yet concluded. However we believe that the procurement process is being run professionally, and we see no current reason why an efficient and cost-effective service will not be delivered.

1.3 We fully support the approach DECC has taken on the industry architecture for smart metering as a DCC will provide full interoperability—essential for the UK competitive energy market—whilst avoiding the risks often associated with the creation of large IT projects. Suppliers are able to deploy smart meters in advance of the appointment of the communications and data service providers and the establishment of the DCC. Without this ability we do not believe the target of 2019 could be achievable.

1.4 We believe that DECC created the right framework for the completion of roll-out by 2019. A clear and early obligation on all suppliers to participate in the Foundation stage, however, would have helped the industry’s level of preparedness and removed much risk from the programme.

1.5 We support Ofgem’s stance on enforcement, that the sanctions for underachievement of the roll-out obligation must exceed the costs of fulfilling it.

1.6 Some suppliers have indicated a reluctance to maintain smart functionality in the Foundation stage following a change of supplier, which we believe is to the detriment of consumers.

1.7 The Impact Assessment (IA) assumes that the cost for metering equipment will drop markedly once mass roll-out commences and large orders are placed. British Gas will be installing around one third of all smart metering systems in the UK so, by committing now to smart metering, we have done more than anyone to establish supply chains and use volume to drive down the cost of equipment. We could reasonably expect to realise these volume benefits earlier than some other suppliers but there is still a significant gap between our costs and those anticipated in the IA.

Question 2. What are the potential benefits of smart meters for consumers, and what barriers need to be overcome in order for consumers to realise them?

2.1 British Gas strongly believes that smart metering has the potential to deliver significant benefits to consumers and transform customer relationship with energy and energy suppliers. A recent report for British Gas by Oxford Economics calculated that Britain will be nearly £14 billion better off due to the introduction of smart meters.

2.2 Smart meters mean that, for the first time, customers can easily understand what energy they are using and what it costs, opening the door to consumption savings—a key long-term mitigation for rising unit energy prices. Information on usage and expenditure is available instantly and can be scrutinised, reviewed, and compared over different time periods. British Gas smart meter customers can also compare their usage with similar properties and households, providing an opportunity to highlight differences and identify energy-saving measures that may be appropriate.

2.3 Other key benefits include:

an end to estimated bills;

no more “bill shocks” (through lack of visibility on usage, occasionally compounded by billing problems such as successive estimates);

no need to provide access to meter readers;

simple transfers between credit and pay-as-you-go;

faster switching;

the option to choose monthly billing and time-of-use tariffs.

2.4 In time, there will also be significant benefits for pre-payment customers (described in our answer to Question 6)

2.5 Smart meters are also the foundation to a smart home and smart grid, better managing supply and demand across the UK via innovative technologies such as decentralised energy, home automation and electric cars.

2.6 Suppliers will also benefit through achieving a lower consumer cost to serve. In a competitive market, with amongst the lowest prices in Europe, these supplier benefits will quickly feed through to consumers.

2.7 Many of these benefits, however, will only be achieved once there is mass roll-out, itself dependent on all suppliers fully embracing the smart programme. Furthermore, consumers must be given the support to take action, particularly in understanding how to make their homes and businesses more efficient. British Gas welcomes and supports the Green Deal as a key route to finance and believes Green Deal promotion should be allowed at smart install without prior customer consent. We believe this will also help encourage uptake of the Green Deal.

2.8 A lack of positive consumer engagement on smart is also a current barrier. Consumer awareness levels are low, there is confusion about the benefits, and press coverage has, at time, been negative. The supplier-funded Central Delivery Body (CDB) will be critical in supporting and providing context for the engagement initiatives undertaken by suppliers. The single most important contribution the CDB can make is to educate, stimulate interest and encourage customers to agree appointments and open their doors to installers. The logistical challenge of visiting every home and small business in the UK to replace their meters is unprecedented and should not be underestimated.

2.9 We are also concerned that the framework on data access is unduly restrictive and will impact engagement. Access to half-hourly data is important to deliver personalised energy saving advice. Without this data, tailored bills are difficult, appliance-by-appliance level analysis over how to cut bills is impossible, and time of use tariffs are ruled out. DECC’s own research indicates that few customers have concerns over data access. Despite this, suppliers are only able to have access to half-hourly data only with explicit consumer consent. Our views on this area are expanded in our response to Question 12.

Question 3. Is there a possibility that suppliers will gain considerably more than consumers from smart meters? Is enough being done to ensure that any financial benefits accruing to suppliers will be passed on to consumers?

3.1 Smart meters benefit suppliers by delivering a lower consumer cost to serve.

3.2 In a competitive market, where all energy suppliers are focused on cost management in order to stay competitive, any benefits enjoyed by suppliers will quickly feed through to consumers. Any failure to reflect cost-saving in tariffs would make a supplier uncompetitive and quickly drive customers to competitors. We do not therefore believe that it is possible for a supplier to gain “more” benefits than consumers.

3.3 The economic case for suppliers is complex as it relies on a large up-front expenditure on equipment, infrastructure and personnel to encourage consumers to use less of the commodity on which the profitability of the business has traditionally relied. The benefits are more esoteric than the costs, and many will come later when the majority of customers have been switched over to a smart meter. They will come from improved efficiencies in service delivery, such as reduced meter-reading costs, fewer billing queries, no more estimates, more effective debt management and theft detection, fewer callouts to attend meter faults, more effective industry processes, better data quality to support change of supplier, and avoided meter replacements for changes between credit and pre-payment.

3.4 British Gas has committed to a large smart metering deployment programme in the Foundation stage of the Programme. This is a significant investment in capability that has now been running for five years but without which we do not believe we—or the supply chain we have supported—could have been ready for mass roll-out. As a result of our go-early strategy, our metering costs will be higher than those who follow later in the Programme.

3.5 Our decision to press ahead with deployment more aggressively than our competitors has been premised on realising an earlier return on our investment. We are passionate about being competitive on price, delivering the best customer service and the most attractive range of propositions. We believe we will accrue reputational benefits from industry leadership, outstanding service and compelling smart-enabled customer propositions. We would expect these to feed through to improved customer acquisition and retention and a deepening of the customer relationship through the purchase of additional energy-related products and services.

Question 4. What lessons can be learned from successful smart meter implementation and usage elsewhere in the world?

4.1 Lessons from abroad show that the critical component for success is the timing and extent of customer communication.

4.2 In Ontario, Canada, a communication programme was led by the IESO (Independent Electricity System Operator), similar in role to National Grid but set up on a not-for-profit basis. Electricity suppliers frequently referenced IESO communications in their own engagement activities and materials, whilst retaining competitive differentiation. The core messages were tied to energy conservation and job creation and resonated well with consumers. There were no significant trust issues and time-of-use tariffs are viewed by consumers as having had a neutral or favourable impact. Peak consumption has reduced by nearly 3%.1 This clear alignment with core messages and the strong communication push well ahead of the roll-out are generally accepted to have contributed significantly to a successful deployment.

4.3 In Italy, the approach was based on openly declared cost savings for Enel SpA, (wholly state-owned at the time), energy efficiency and customer empowerment.

4.4 94% of Italian homes now have smart electricity metering, the quality of service has improved (measured in supply interruptions) and operating costs are 40% lower than in 2001 (due primarily to efficiencies in load management and technician costs, and improved revenue protection). The investment was recouped in around four years. The delivery of empowerment and energy efficiency messages has been secondary to the cost reduction and service improvement, but these are benefits that have passed through to consumers.2

4.5 The deployment in Italy had a different emphasis to that in the UK, where there is a primary focus on consumer benefits and energy efficiency, underwritten by the financial benefits of operating efficiencies and the opportunities for industry simplification. British Gas supports Government’s aspiration that customers should be at the heart of the UK smart meter roll-out. The UK is unique in mandating the offer of an IHD, a wholly consumer benefit.

4.6 The key lesson for the UK is on the importance of early engagement. We believe the Central Delivery Body will be able to implement an effective centralised campaign. It would be hugely advantageous if suppliers were able to build their own communications on the back of this, but the CDP will not be operational until 2014. As a result, customer awareness of, and interest in, smart metering is low, making deployment in the Foundation period more challenging.

Question 5. Will smart meters empower customers to take greater control of their energy consumption?

5.1 We believe that smart meters can empower customers to take greater control of their energy consumption, but only if they are engaged with the technology.

5.2 British Gas evidence from our smart customers indicates that most are taking greater control of their energy and reducing their consumption as a result.

5.3 We are confident that smart metering will bring energy into the digital age and allow services and products to emerge that will further change customers’ attitudes and expectations of their suppliers. Information is empowering: it allows better decisions and choices to be made and should support the industry’s pressing need for simplicity and speed.

Question 6. Will consumers on pre-pay meters obtain the same benefits from smart meters as other consumers?

6.1 Smart meters will give credit customers accurate bills, more frequent billing, and feedback on energy usage and cost. Prepayment customers already have these benefits and the benefits of smart will therefore be lower.

6.2 Once switched to smart metering, however, prepayment customers will enjoy a step change in convenience and we anticipate the following benefits:

A transformational step forward in vending convenience and choice. New payment channels will allow anyone with a bank account to top up from home. It is expected that automated top-ups will be introduced.

Greater protection for vulnerable customers, through non-disconnect periods for both fuels and the ability to apply credits in times of difficulty, almost instantaneously.

Access to a wider range of tariff choices (including fixed-term contracts), equivalent to credit.

6.3 Prepayment customers have a higher understanding of the cost of energy than credit customers, and reductions in usage are therefore expected to be lower. However consumption savings in this segment are achievable. British Gas undertook a smart pre-payment trial in 2012. Customer research showed that the presentation of consumption information through an improved interface (IHD) in a more visible location may deliver consumption reduction. The research findings were as follows:

Question 7. Should vulnerable customers and the fuel-poor be first in line for smart meters so they can get the benefits sooner?

7.1 British Gas does not support the mandated prioritisation of any particular customer segment in the smart deployment. We believe that this would add unnecessary complexity, inefficiencies and cost to the roll-out.

7.2 Suppliers are already incentivised to deploy smart metering in the most efficient way they can, and the Smart Meter Installation Code of Practice provides the assurance that vulnerable customers will be given appropriate attention, care and service.

7.3 A significant proportion of fuel-poor customers will have prepayment meters, currently an expensive segment to service: the infrastructure required to support physical payment devices is expensive, hardware costs are high (comparable to smart meters), reliability is lower, and call volumes are disproportionately high.
Given the supplier benefits smart prepayment meters will bring, it is likely that suppliers will be keen to focus on this segment without mandation. British Gas is committed to rolling out smart prepayment meters as quickly as possible and the small-scale trial reference in our answer to Question 6 has been invaluable in helping us to scope the task.

7.4 However it should be noted that smart prepayment meters are technically complex, and are not ready to be deployed en masse. Furthermore, before the costly infrastructure for conventional prepayment metering can be dismantled the appointed Communications Service Providers will need to be near 100% coverage, and all suppliers will need to delivering smart prepayment meters to their customers. We therefore do not expect there to be any significant movement in this segment until the DCC is fully operational

7.5 For other vulnerable groups, particularly those with some form of impairment, we believe deployment should be delayed until an appropriate technical solution is found to these specific needs. As an example, there is currently no IHD that is suitable for customers with a sight impairment, and, where this is known, British Gas is currently deferring the installation of smart meters. Nor is there yet a technical solution for customers occupying high-rise buildings where we would expect overlap with those in fuel poverty

Question 8. What is the best way of involving third-party trusted messengers, such as charities, consumer groups, community organisations, local authorities and housing associations in roll-out?

8.1 British Gas supports the involvement of a broad range of voices in promoting the benefits of smart meters. We therefore welcome the involvement of trusted third parties as a route to engage consumers, including those based in local communities and the third sector who we believe can play an important role.

8.2 We are enthusiastic about engaging other trusted parties as advocates of smart metering but have been disappointed by messages from some stakeholders when public statements have included a subtext on the risks and drawbacks, seeding a negative perception overall. For smart metering to succeed, engage and transform consumers’ relationship with energy, it would be helpful for all stakeholders to recognise and promote the benefits.

8.3 British Gas has run some limited trials with the National Housing Federation. These were small scale due to the current technical constraints relating to difficult installations and the absence of a scalable pre-payment solution. Housing Associations conducted awareness and engagement campaigns to identify customers wishing to opt-in for smart meters, resulting in increased access rates and kept appointments.

8.4 Parallels have been drawn with Digital UK, who enjoyed considerable success in their engagement of local communities and third parties. There is certainly some valuable learning to be taken from their approach—notably the period of time ahead of switchover over which they elevated awareness—but there are also some significant differences:

Customers were already interested in watching TV.

There were consequences of doing nothing.

The benefits of additional channels were easily understood.

There was a specific event on which to hang communications and call for action.

There was no need to visit every home in the UK.

The broadcasters did not concentrate resources on debating delivery of switchover. Competition was wholly related to content.

There were no significant challenges from consumer groups over whether Digital switchover was a good idea.

8.5 We are aware of interest from some quarters in the concept of a “smart town”, a co-ordinated deployment and engagement activity involving multiple agencies and all suppliers. British Gas believes there may be merit in stimulating interest and raising awareness in this way. However given the need to have all suppliers and the relevant network operators engaged to support this we do not believe this kind of initiative will be practical before 2014.

Question 9. What are the potential obstacles to rolling out smart meters in the UK and how should these be addressed? What pitfalls have hindered roll-out programmes elsewhere and are we doing all we can to avoid them?

9.1 The principal obstacles to the successful roll-out of smart meters are low awareness by customers, and a lack of interest in the technology. The clear message from international deployments is that without a full explanation to customers of what is happening, why and when, customers will not engage. Communication is vital and its absence stokes suspicion.

9.2 The roll-out of smart metering in Victoria, Australia is a good example of the potential consequences of inadequate consumer engagement. The roll-out was distributor-led and insufficient attention was initially given to explaining the context and benefits of smart meters. It prefaced significant price increases for energy and the introduction of penal time-of-use tariffs. From a consumer perspective, smart metering was therefore not something that had been requested, it was not fully explained and the impacts that followed were negative. There was a major consumer backlash, deployment stalled and time-of-use tariffs were halted.

9.3 There are also technical challenges associated with the roll-out, particularly in light of the aspiration for smart meters to be available to 100% of homes and small businesses.

9.4 Mobilising an industry to replace 58 million meters in six years is a phenomenal logistical challenge impacting on recruitment, training, systems, processes, procurement, business organisation, data and technology, and finance. Each of these areas contains challenges that must be overcome.

9.5 British Gas does not believe that any of these areas contains insurmountable challenges and waiting to solve them all should not be an excuse for inactivity.

Question 10. Are levels of public awareness of and support for smart meter roll-out increasing?

10.1 We do not believe that levels of public awareness of and support for smart meter roll-out are increasing. All research on this topic indicates that there is consumer confusion about what a smart meter is, and does. The number of customers who believe they have had one installed suggests that many believe the term is applicable to any meter with a clip-on electricity monitor. When arranging smart metering installations (most usually as a result of a need to replace an ageing meter) the majority of customers need an explanation about what a smart meter is and what benefits it can provide.

10.2 As the most active of the large suppliers, British Gas has undertaken numerous initiatives to try to raise awareness. These have included media activity, and a high profile multi-media campaign in summer 2012 on smart-connected homes, which scored high recognition levels, , but overall awareness and interest in smart metering remains low.

Question 11. Is enough being done to increase consumer awareness about smart meters? Could DECC’s consumer engagement strategy be improved?

11.1 The experiences from other deployments around the world strongly suggests that it is the communication with customers that exerts the greatest impact on the success or failure of an implementation. A failure fully to explain the purposes and benefits of smart metering leaves customers open to the influence of small but vocal anti-smart lobby groups. In hindsight, therefore, we believe it would have been helpful to establish the CDP earlier.

11.2 We believe DECC’s approach to consumer engagement is appropriate, although we believe there would have been merit in establishing the supplier-funded Central Delivery Body (CDP) earlier

11.3 We also note that our industry body, Energy UK, is developing a comprehensive engagement plan around smart, an initiative we fully support.

Question 12. Are consumers’ concerns about privacy and health being addressed adequately?

12.1 British Gas recognises that some customers will have data and privacy concerns related to the installation of smart meters. Our own customer research, however, clearly shows that these concerns are held by a very small minority of consumers. DECC’s own research indicates that very few customers have any concerns over data access.

12.2 We have concerns that the framework on data access is unduly restrictive and will impact engagement. Suppliers are able to have access only to monthly data without customer consent, to daily data only if a clear opportunity is given for the customer to opt-out, and to half-hourly data only with explicit consumer consent. We believe this will be a barrier to consumer engagement.

12.3 Default access to half-hourly data is needed for maximum understanding and management of energy use. Without this data, tailored bills are difficult, appliance-by-appliance level analysis over how to cut bills is impossible, and time-of-use tariffs are ruled out. Asking customers to opt-in to this data is likely to be a huge behavioural barrier and we therefore would support default access to half-hourly data.

12.4 Concerns about health are extremely low in volume but we accept are strongly held. British Gas would not support any technology which we believed posed a health risks to our customers. We support the ability for any customer to refuse a smart meter which should ensure that individual concerns are satisfied.

12.5 We welcome the involvement of the Health Protection Agency (HPA) in this issue, the impartial science-based approach they take, and evidence-based statements that they do not believe smart meters pose a health risk. We welcome the on-going HPA research project, which we expect to go some way to further allay concerns.

12.6 We believe that allaying consumer concerns on privacy and health issues should be a priority for the CDB.

Question 13. Is there any evidence that consumers’ concerns about smart meters are declining or growing?

13.1 We have seen no perceptible change in customers’ concerns about smart meters. Energy UK now tracks the volume and “sentiment” (whether negative, neutral or supportive) of smart metering references in social media. This has confirmed that the traffic is low and the sentiment fairly static (mostly neutral).

Question 14. Will the commercial benefits of smart meter roll-out be captured within the UK?

14.1 We expect the smart roll-out programme to deliver commercial benefits to the UK, most notably through the jobs created by the deployment and resultant expected heightened customer demand for energy efficiency.

14.2 British Gas now has 1,200 smart engineers in the field, 120 field managers and 500 staff in our dedicated Smart Centre in Leeds. We have trained 800 smart engineers in our Academy and will train a further 70 apprentices this year. Further jobs will be created in the supply chain (including meters, uniforms, tools and vehicles) and areas such as warehousing and logistics.

14.3 In time, smart meters should also be a catalyst for investment in energy efficiency and that there will be market opportunities created for new products and energy services.

14.4 We therefore welcome that the draft Smart Meter Installation Code of Practice (SMICoP) specifies that energy efficiency guidance must be offered at installation. However, we are deeply concerned that, as currently drafted, suppliers will not be allowed to promote the Green Deal at install without explicit customer consent, and believe this will be a barrier to Green Deal take-up.

14.5 The potential of Smart roll-out to support, and be supported by, the Green Deal should be recognised. Both programmes currently have low public engagement and are facing negative media coverage. A more aligned government narrative and approach would help both programmes. As customers are increasingly able to understand their energy use through smart meters, the Green Deal offers access to finance to deliver energy efficiency and saving measures, maximising the consumer benefits of smart. The smart roll-out itself, which will see every home and business in Britain visited over the coming years, is a unique opportunity to promote the Government’s Green Deal programme. British Gas will therefore be responding to Ofgem’s SMICoP consultation and proposing that Green Deal promotion should be allowed at smart install without prior customer consent.

Question 15. Will DECC’s current approach to roll-out, including on procurement and establishment of the central Data and Communications Company, deliver an optimal data and communications strategy?

15.1 We believe that DECC’s current approach to the roll-out is appropriate and in particular welcome:

The priority given to the standardisation of the meter specification (SMETS 1 and SMETS 2), removing infrastructure dependencies and creating the path for progress to be made on a replacing 58 million meters by 2019;

The recognition that metering and communications technological development will continue, and that specifications should continue to evolve through planned releases;

Limiting the scope of the Data Communications Company to the services that are required for interoperability, avoiding many of the risks inherent in major IT programmes;

A DCC procurement process and commercial structure that is designed to deliver value for stakeholders.

15.2 In particular we welcome the prioritisation of technical specification work, and the pragmatic approach to the evolution of the technical specifications which has allowed deployment in advance of the establishment of the DCC.

15.3 Further action is now required to ensure a cost-effective programme is implemented. Most notably, we believe that a non-discretionary, effective smart metering change of supplier process ahead of the DCC is urgently needed.

15.4 Without this, progress made by active suppliers including British Gas could be reversed if other suppliers with a lower level of readiness for smart either change the meter to a conventional (“dumb”) operation or, removes it and installs cheaper conventional metering in its place.

15.5 For smart metering change of supplier to become standard practice, suppliers must adopt SMETS-compliant smart meters and pay a market rate in asset rental to the Meter Asset Provider (MAP). By paying for the additional functionality, the incentives to use it and deliver the benefits are strengthened and the customer experience is protected. Installing suppliers are already obligated to offer smart metering services to gaining suppliers, so the requirement on gaining suppliers to use them (even if only automated reads, for example) need not be unduly onerous.

15.6 We have some concerns over the time set aside for testing, which is challenging for a programme of this scale. That said, we believe the strategy and approach to testing are well drafted within the context of the time constraints available to the Programme.

Question 16. What criteria should DECC use to measure the ongoing success of roll-out?

16.1 We are satisfied the criteria identified by DECC for benefits tracking, tied to the IA, are appropriate. These are set out in the template for annual reporting by suppliers and include data on costs, benefits, and timeliness. Ultimately, the achievement of the IA should be the measure of success.

1.2 Over and above the IA, there are qualitative criteria that should also be part of the definition of success. These include a robust security framework, the development of the smart grid to the benefit of all energy users, the adoption of time-of-use tariffs and delivery of load-shifting, and an expansion of the green economy. Most importantly there should be a legacy of sustained consumption reduction.

1.3 Reduction in energy consumption by volume requires a cultural change in attitude and an end to profligacy. It should also redefine consumers’ relationship with their supplier and the providers of energy services. Our definition of success would include a new and deeper relationship with customers, in which British Gas is not simply a necessary utility, but a company that is seen to be working for consumers’ benefit by providing choice, empowerment, control and high satisfaction. Smart metering cannot deliver this but it provides a springboard from which visionary companies can transform themselves into providers of services that customers actively choose rather than simply need.

February 2013

1 The Effects of Time of Use Rates on Residential Electricity Consumption, Newmarket Tay Power Distribution 2010

2 http://www.euractiv.com/climate-environment/enel-italy-reaping-first-mover-benefits-smart-meters, http://www.businessweek.com/globalbiz/content/nov2009/gb20091116_319929.htm, AMM Drivers in Italy or “Why to become smart”,

Prepared 26th July 2013