Energy and Climate Change CommitteeWritten evidence submitted by Consumer Focus

About Consumer Focus

Consumer Focus is a statutory consumer group established by the 2007 Consumers, Estate Agents and Redress Consumer Focus is the statutory consumer champion for England, Wales, Scotland and (for postal consumers) Northern Ireland.

We operate across the whole of the economy, persuading businesses, public services and policy makers to put consumers at the heart of what they do.

Consumer Focus tackles the issues that matter to consumers, and aims to give people a stronger voice. We don’t just draw attention to problems—we work with consumers and with a range of organisations to champion creative solutions that make a difference to consumers’ lives.

Executive Summary

Positive steps have been taken in the domestic sector to help safeguard consumers against potential risks caused by roll-out and new technology. These include new protections around remote disconnection, switching to prepayment, and load limiting; the introduction of an Installation Code of Practice, and a new data privacy framework. Security concerns are also high on the Government’s agenda. Monitoring the effectiveness of new measures will be essential. Also some of these protections still need to be extended to micro-business customers and domestic consumers who share a supply with a business.

There are significant potential benefits to consumers from roll-out. Government needs to thoroughly map these opportunities—taking care to capture not just monetised benefits such as energy savings, but also harder to quantify benefits such as improvements in service for different customer segments. Success should be measured against the delivery of this complete picture.

The installation of smart meters alone will not in itself guarantee customer benefit. Energy savings will require sustained behaviour change by consumers, while problems with suppliers’ back office systems and unreliable communications need to be overcome if we are to get accurate bills. Further action is also needed to ensure customers can easily access data and maximise its use. This is particularly the case for micro-businesses.

Trialling of new technologies at scale is essential. However, suppliers rolling out smart meters more widely, prior to full interoperability and a finalised meter specification, presents particular challenges. Interoperability problems can cause barriers to switching, resulting in increased customer inconvenience, additional waste and higher costs. Government and Ofgem have introduced a number of measures to address issues, but we doubt that these will be sufficient to solve all problems. It is also unclear if these problems will be enduring for some customers.

Smart technology could help revolutionise the prepay energy market, addressing historic problems in this market, reducing costs to serve and improving customer service. However, we are not on track to deliver these benefits. Prepayment customers may be one of the last groups to get smart meters and in practice face increased costs and a decline in service unless the needs of this customer group are prioritised.

The Government has made significant progress on its consumer engagement strategy in the last couple of years. However, success or failure will be largely dependent on the effectiveness of the Central Delivery Body. It remains to be seen if the regulatory framework is robust enough to ensure this supplier-funded and predominantly industry-led Body will meet the challenge. Work on small business engagement, while now under way, has also been slower to progress.

It is essential that all customers, especially those who are vulnerable or on low incomes benefit from roll-out. DECC has taken some positive steps in this regard. This includes requiring, under licence condition, the CDB to support vulnerable, low income customers and in home displays to be designed in a way that makes them easy to use for as many customers as possible.

An extra help scheme should also be introduced. This could provide a package of social and environmental measures, during or alongside the installation visit to those most in need. Indeed steps should be taken to link smart meters with wider fuel poverty and sustainability programmes such as the Energy Company Obligation programme. In Home Displays should also have an accurate account balance to help customers budget more easily and back billing rules up-dated.

We continue to advocate that a distributional impact assessment of smart meter roll-out is undertaken to fully understand who will be the winners and losers from smart metering and likely market developments. This must consider the impact on a range of consumer segments including, by income, household make-up, payment type, location, fuels used, and dwelling type. Government promised this more than a year ago.

We strongly welcome DECC’s decision to produce an Annual Progress Report on the costs and benefits of roll-out to consumers and quarterly statistical updates. Also the proposed reporting and monitoring framework. These should help improve transparency.

However, Consumer Focus remains to be convinced that roll-out model adopted will deliver smart metering at lowest cost, minimal hassle and maximum benefit to consumers. In particular, there is no mechanism in place to limit the financial risk to consumers if costs start to rise. The competitive market is not sufficient to keep the costs in check. We believe there are significant savings and efficiencies that could be delivered from a more co-ordinated approach to supplier activity.

For further information contact zoe.mcleod@consumerfocus.org.uk

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

Timescales

1.1 The Government’s aim that all homes will have smart meters installed by December 2019, is incredibly challenging. We doubt that mass roll-out will commence at the end of 2014 given the complexities of the programme, current position of the procurement exercise, the maturity of standards for manufacturers to develop compliant products and the readiness of the utility companies to deploy meters at scale.

1.2 At present more than 623,200 smart-type have been installed in the domestic sector. The overwhelming majority of these will have to be replaced by 2019 because they are non-compliant.1

1.3 Similarly 100% coverage is not expected to be achieved—while suppliers have to take “all reasonable steps” to install equipment, it may not be technically possible or cost-effective to do so for some households.

1.4 The final minimum standards for smart metering equipment (Smart Meter Equipment Technical Specifications—SMETS 2) have yet to be approved. It’s estimated that around two million SMETS 1 meters could be installed prior to end 2014. But to ensure security, effective switching and inter-changeability of smart-related products and services, minimise asset stranding and customer disruption, and to maximise the consumer benefit, SMETS 2 meters are preferable.

1.5 Appropriate time will also be needed for end to end testing to ensure that new systems are robust and provide reliable service.

1.6 This is a complex programme—the focus should be on getting it right and maximising the consumer benefits. Tight timescales could result in pressure on installers to get in and out of the home as quickly was possible, potentially at the expense of a high-quality installation experience including a proper demonstration of the display and new equipment, good-quality energy efficiency advice and appropriate support for vulnerable, prepayment and low income customers. Customers will probably not remember when the smart meter deployment started, but they will certainly remember if it worked or not.

Costs

1.7 We remain to be convinced that the shape of the current roll-out will deliver smart metering at lowest cost, minimal hassle and maximum benefit to consumers.

1.8 There is no mechanism in place to limit the financial risk to consumers should costs start to rise.

1.9 We are one of just a handful of countries in the world to have a supplier-led roll-out. The norm is distribution network led roll-out model—this allows for a greater degree of financial oversight via price controls.

1.10 We don’t believe that relying on the competitive market is enough to keep the costs in check. We are sceptical that suppliers will pass on benefits in full to consumers, given their track record on prepayment and the failures of suppliers to reduce retail prices promptly when wholesale energy costs have fallen. This is a view shared by the Public Accounts Committee in its report on the Preparations for the roll-out of smart meters.2

1.11 Certain costs do not appear to have been captured in the Impact Assessment (IA) while other cost savings may be over-estimated. For example: there may be new costs associated with additional home visits due to wireless communication problems and costs associated with the transition from the current prepayment infrastructure to smart wireless prepay.

1.12 The IA projects total net benefits for the non-domestic sector of £2.3 billion, of which £1.75 billion are expected to come from energy saving. There is little evidence as to how these energy saving benefits will be delivered.

1.13 Trust in suppliers is low—it will be a real challenge to get people to open their door and then engage with the new technology to achieve the consumer energy savings identified in the IA. Government steps to establish a consumer engagement strategy and a Central Delivery Body to help with this are very positive but delivering behaviour change is notoriously challenging and will be dependent on how effective this supplier-led Body is.

Billion pound benefits that could result from greater supplier co-ordination risk being missed

1.14 There is currently no requirement on suppliers to coordinate installations whether on a regional or community level—this is a missed opportunity to reduce costs and engage customers.

1.15 Frontier Economics’ (former Government consultant) research implies that a more coordinated approach could result in billion pound savings.3 Although their assessment is based on analysis of a network-led roll-out, much of the rational such as reduced travel costs and increased consumer engagement that could result from more coordinated approaches still applies. The DECC IA estimates a conservative £10 efficiency saving per household if gas and electricity are installed at the same time. This is due to reduced travel time between visits, and time saved from connectivity testing and wider checks only having to be carried out once. We believe the actual figure is likely to be higher.

1.16 The current proposition is for suppliers to deliver their own programmes and to develop their own solutions to problems, but a more coordinated policy from Government would provide solutions at a reduced cost with savings passed on to the customer.

1.17 Competition rules are often cited as a reason why suppliers cannot work together even where there are cost savings that could be delivered for customers and tax payers. The legal boundaries of competition law and the potential role for the CDB need to be properly explored.

1.18 The Energy Networks Association estimates that 22% of installations will be non -standard, potentially requiring network support and the possibility of at least one additional visit. Small scale community based approaches and greater information sharing between companies could arguably facilitate the networks to have “floating help teams” with fewer visits for the customer and quicker resolution of problems.

1.19 Siemens estimate that 19% of all households live in multiple dwelling units—defined as high rise, low rise and converted buildings. These kinds of properties may require additional technology due to communication challenges. Under the current approach suppliers will select and install their own communications equipment and meters at different times, dependent on their roll-out schedules. This is likely to result in increased costs from parallel and duplicate equipment being installed by different companies; greater inconvenience to customers and landlords from multiple visits; restrict the ability to properly test the system; make it harder to identify who is responsible and what the problem is when things go wrong as no one has overall control of all the technology in the building; and increase the chance of interference with customers appliances and equipment.

1.20 Around a third of customers do not have dual fuel contracts. A coordinated approach would help minimise disruption and inconvenience to customers caused by the need for two visits. In practice it will be hard for customers to arrange both visits on the same day if they have two separate suppliers. If customers have their gas meter installed first this also may result in additional cost and inconvenience.

1.21 According the TOA UK Cost of Waiting Survey, waiting in for the meter man results in loss of earnings, disproportionately impacting those on low incomes who are paid by the hour; results in days taken off sick—a cost to the economy, and inconvenience and annoyance for customers.4

1.22 Experience of the Low Carbon Network Fund Pilots and Warm Zones indicates that suppliers don’t naturally work together even when there are benefits and cost savings that could be delivered to consumers/tax payers.

1.23 In the then Energy Retail Association (ERA) Newsletter Smart Comment July 2009 Issue 4 companies stated “It is difficult to envisage how suppliers alone could lead any form of co-ordination under what is fundamentally a competitive meter installation approach.”

1.24 Consumer Focus believes that the Central Delivery Body should have a coordination role. Community pilots also need to be carried out as a matter of urgency so that there are clear bench marks against which the efficiency of the supplier-led approach can be measured. The Central Delivery Body should have an explicit objective to carry out community trials and to help meet Government’s stated purpose “to deliver consumer engagement activities which contribute to a cost-effective smart metering roll-out and the realisation of consumer benefits, particularly those related to reducing energy consumption”.5

1.25 We also remain to be convinced that Government has fully explored the potential cost savings that could be achieved from synergies with smart water meter roll-out, the digital inclusion agenda and local and national energy efficiency and fuel poverty programmes.

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 There are significant potential benefits for consumers. However Consumer Focus continues to have concerns, that opportunities to deliver benefits will be missed and that not all consumers will be able access the advantages that smart metering could bring.

2.2 Accurate bills and ending back billing

Smart meters are expected to end estimate and inaccurate billing, which is a major source of consumer complaints.6 However:

Calls to Consumer Direct/Citizens Advice consumer service indicate that some customers are not getting accurate bills after their smart meters are installed. This can be a problem with one or both fuels, many months after installation.

Failure to get an accurate bill causes particular detriment when the customer receives a back-bill for usage they thought they had paid for. Shock bills can push customers into debt or overdraft with resultant additional charges and knock-on effects.

This is equally problem for small businesses, where surprise bills of thousands of pounds have reportedly pushed some companies out of business. As well as the detriment to customers, it risks undermining confidence in roll-out.

Suppliers report that this is primarily due to problems with legacy billing systems and unreliable communications.

Under current protections, domestic customers can be back-billed, for up to a year’s worth of usage, where the supplier has been at fault in undercharging. While progress has been made to address back-billing for small businesses following the Committees intervention, we do not yet have parity.

In response to concerns DECC introduced a new licence condition. This will require suppliers to take “all reasonable steps” to establish and maintain a connection between the meter and the Wider Area Network to help ensure that a meter read can be taken. This is very welcome, but for it to be effective Guidance is needed to define “reasonable steps”.7 For example, if suppliers are doing everything they can with their legacy systems but have failed to make the investment in appropriate billing systems, is that action enough? If the supplier has pinged the meter for a reading three times and the communication has failed does that suffice?

In addition, Consumer Focus proposes that once a smart meter is installed suppliers should not be allowed to back-bill customers, as consumers expect to get an accurate bill. Ending back-billing, where it’s not the customer’s fault, after a smart meter is installed, will incentivise early resolution of problems by energy companies and investment in new systems. Suppliers also need to manage customer expectations during early roll-out where there are teething problems. Rules should apply to both domestic and non-domestic companies. Ofgem should consider setting a Guaranteed Standard around billing accuracy.

EXAMPLE CALLS TO CONSUMER DIRECT/CITIZENS ADVICE CONSUMER SERVICE
SWITCHING AND MORE CHOICE

“I was advised to get smart meters installed to avoid estimated bills as I had lost my job and needed to manage my accounts. I received electricity bills but no gas bills. I had only paid £250 since it was installed. Then the company back billed me for £700 which they took directly from my account. This resulted in bank charges and extra charges on other accounts due to unpaid bills.”

“The supplier fitted smart meters five months ago but have now told the consumer that there is a problem with all smart meters in the area which means that the consumer will not be able to get a bill. Consumer already has an outstanding debt and doesn’t want this to grow.”

2.3 Easier switching and customer choice

It is proposed that smart metering will make switching easier, more efficient and faster for consumers but there are a number of challenges to this:

In practice the physical process of switching supplier is unlikely to be easier or faster until interoperability issues have been fully resolved. Full interoperability will not be in place until the DCC is operational—expected earliest end 2014. At present if a customer switches supplier they could loose smart functionality, have to have their meter replaced, or in the worst cases be prevented from switching to a particular offer.

DECC and Ofgem have introduced new regulation to try and address problems. While the measures are very welcome we are sceptical that they will be sufficient to resolve all problems and are unclear of the cost implications.

More than 2.6 million meters could be installed during Foundation.8 SMETS 2 meters are not expected to be widely available before end 2014. As non-compliant and SMETS 1 meters do not have be enrolled in the DCC—customers with these types of meters may continue to face problems post 2014. Customers who have non-compliant or SMETS 1 meters and who purchase enhanced energy displays, or appliances such as a smart fridge or heating system may find that these do not work fully or are not supported if they move property or change supplier.

Similarly, customers living in properties with non-compliant or SMETS 1 systems may find they are not able to access new products and services which become available in the market without incurring the cost and inconvenience of having their system upgraded or exchanged.

There are no simple solutions to these problems. Barriers are largely a product of the Government’s decision to encourage early roll-out before minimum standards for equipment had been fully agreed and the Data Communications Company (DCC) is operational. While we recognise that pilots at scale are needed, consideration should be given as to whether numbers of non-compliant or SMETS 1 meters should be limited to minimise any potential detriment. Certainly Ofgem will need to monitor the effectiveness of new licence conditions around effective switching to ensure that customers who receive meters early make an informed decision as to whether they opt to have a smart meter before full interoperability is delivered.

Further work is needed on small supplier interoperability in particular. Calls to Consumer Direct/Citizens Advice consumer service suggest that some customers with advanced meters (ADMs) are facing barriers to switching including suppliers not accepting them as they have an advanced meter; tariff choice being restricted and customers ending up on more expensive tariffs as a result of problems. Consumer Focus is carrying out research into microbusinesses’ experiences of having advanced and smart meters. We will be happy to share this when the findings are available.

Interoperability problems are likely to result in increased customer inconvenience, additional waste and higher costs for consumers. In addition negative customer experiences during Foundation risk undermining engagement in wider smart meter roll-out which could increase costs and result in missed benefits for consumers.

EXAMPLE CASE STUDIES FROM CONSUMER DIRECT/CITIZENS ADVICE CONSUMER SERVICE

Consumer is a small supplier H customer and has a smart meter in prepay mode. He is trying to change supplier and has approached big supplier A and big supplier E but neither can take him on because he has an electricity smart meter. He’s asked supplier H to change it back to a normal credit meter but they say they cannot do this.

In May consumer had a smart meter fitted. The consumer is now trying to switch to supplier A but they refuse to take him on because of his smart meter. Consumer is a pensioner on a limited income and A currently offer the best tariff and he wants to take advantage of it.

Consumer had an economy 7 meter and was advised to change to a smart meter which they did. The consumer is now trying to switch supplier but new supplier say they can’t take a dual rate smart meter. Old supplier has said this shouldn’t be a problem as the consumer is on a single rate tariff now but have offered to change the meter to a “dumb” single-rate one for £62.

In addition:

If suppliers chose to differentiate by providing enhanced displays or energy efficiency packages alongside their smart meter we could see a rise in long-term contracts that lock-in consumers to recoup costs over a period of months, or even years, as was the case with mobile phones. New safeguards may be needed as in the mobile phone sector.

2.4 Energy reductions/bill savings

The overwhelming majority of consumer benefits identified in the Impact Assessment for both domestic and non-domestic roll-outs are expected to come from customers using up to date and more detailed information on their gas and electricity consumption to identify where they can reduce energy use and save money on their bills. DECC estimates that domestic customers will reduce their energy consumption by on average 0.3–4% a year, or an estimated £25 a year for a duel fuel customer by 2020.9 This level of reduction is achievable but not guaranteed. In the non-domestic IA, energy savings make up £1.75 billion of the estimated £1.76 billion consumer benefits. DECC project that this equates to average customer savings of £191 by 2020. We are unclear how realistic this is given the lack of evidence in both GB and internationally. There are also significant barriers to delivering energy savings. See also Question 5.

2.5 Budgeting—accurate account balance

The in-home display will provide customers with information on their energy use in pounds and pence, but this will only be an estimated or “indicative” figure, not an accurate one. This is a missed opportunity.

Face-to-face Omnibus research carried out for Consumer Focus in May 2011 showed that 93% of consumers would be interested in having an accurate account balance on their IHD that showed how much their electricity and gas had cost, and how much they owed their energy supplier, since their last energy bill. This interest was consistent across social classes.10

In early smart metering trials of the 1980s an up-to-date account balance for electricity consumption was the most accessed function via the in-home display at that time. The trial report states that; “There is no doubt that customers appear to have tremendous enthusiasm for such a device, the prime motivation being that of up-to-date information on their indebtedness.”11

Cost is the bottom line for consumers. Focus group research showed that consumers consider there is too much information on bills; all they really wanted to know was how much they owe.12 Consumer Focus research has also shown that 35% of consumers find both gas and electricity bills hard to understand.13 An accurate account balance on the IHD would provide consumers with immediate access to their account balance, and provide greater choice of ways in which consumers can easily access and understand their bill and see how much they owe and potentially a more convenient and accessible option.

Customers may expect this basic account information from a so-called “smart” meter and it could cause confusion or problems if the figure on their bill is different from that showing on the energy display. Research carried out recently by Consumer Focus, DECC and NEA14 looking at the experience of vulnerable consumers with a smart meter, showed that some were assuming that the IHD showed them how much money they were spending on their gas and electricity, and were budgeting accordingly. As the figure on the IHD may not include any debt, Green Deal charge or standing charge it could be significantly lower than their actual bill.

The full arguments to support accurate account information on the IHD are outlined in our Open Letter to DECC of July 2011. This is supported by the Fuel Poverty Advisory Group, Age UK and Sustainability First.15

2.6 Energy demand shifting and reduction

The facilitation of more complex demand side response (DSR) is seen to be a major benefit of smart technology, potentially bringing considerable financial savings which may be passed onto customers. Smart metering is expected to facilitate a range of new tariffs which could incentivise energy reduction or the shifting of energy from peak times to off-peak times. Subject to Ofgem’s tariff proposals and wider regulatory change, this could result in a number new offers—for example, multiple rate time of use tariffs, critical peak pricing, energy efficiency packages, remote control of appliances, more localised pricing and single energy tariffs amongst them.

Analysis commissioned by DECC from Redpoint and Element, suggests that demand side response from domestic households could save between £60 million and £500 million a year by 2030.

If all of these savings were shared equally among all consumers, the analysis says, this could translate to £5-£15 a year per household, or up to £90 per household if the savings were passed only to those on DSR tariffs.16 However, not all customers will benefit from likely new offers and further research is needed to understand the real potential and who the winners and losers of any likely new tariffs will be:

Not all customers will necessarily have discretionary load they can shift which enables them to benefit from new offers.

Not all customers will be able to shift load to off-peak times due to lifestyle considerations. Eg low income working households may have to use energy at peak times after work/school; long-term sick could be reliant on continuous access to appliances for health and wellbeing.

Customers may not be willing to shift their usage. Sustainability First states “there could be a limited match in the household sector between what contributes to morning and evening peak...and what households may be willing to shift”—this may be a particular problem in reducing the winter evening peak.17

Currently an estimated 19% of domestic consumers in GB have a meter capable of demand side response, and may be on a time of use (TOU) tariff.18 In its 2012 Smart Metering Impact Assessment, DECC estimates that by 2030 an additional 20% of consumers will be on a static time of use tariff. In practice customers may be unwilling to take up new deals—a particular concern when these are likely to be the most competitively priced.

The figure of 20% of small businesses being on time-of-use tariffs in the DECC Impact Assessment (IA) seems particularly high. Who are these businesses and how will they be equipped to deal with complex TOU tariffs and make savings?

There is the potential for new tariffs to increase complexity. It will be harder for customers to compare offers to identify which is the most appropriate one for them and also to predict energy spend. Any new deals must be comparable and customer risk limited or made apparent eg limiting the number of time bands for time of use tariffs or requiring suppliers to provide customers with a projected energy spend based on actual energy consumption over multiple seasons before signing them up to an offer. Ofgem needs to ensure customers have tools to compare more complex deals in a timely way. eg switching sites do not currently support multiple rate TOU. Customers will need free access to data on not just how much energy they use but also when they use it. This needs to be available in appropriate formats—MiData is only making limited progress.

Even if customers who are able and willing to sign up to new deals they may not see the savings if they don’t understand how to benefit from them. Consumer Focus research on customer experience of using current very basic time of use tariffs suggests that nearly 40% of consumers on TOU tariffs may not be getting any benefit from them at all because of their use of heating and appliances.19

In the IA, DECC recognises “Even though this shift will likely result in bill reductions for those taking up TOU tariffs, bill savings for some customers may be offset by bill increases for other customers, as the existing cross-subsidy across time of use unwinds”. Government needs to properly understand the implications of smart tariffs and review the protections framework accordingly.

2.7 Smart grids

A move towards an electricity “smart” grid is seen to be a vital part of helping us to reach the Government’s carbon reduction targets. Recent work by the DECC/Ofgem Smart Grid Forum has suggested that smart solutions could save £10 billion–£19 billion to 2050, over conventional grid upgrades.20 The key potential benefits to consumers from smart grids are:

Cost reduction, which should translate to lower energy bills for some consumers.

Carbon reduction, and cleaner air in our cities.

Improved customer service eg less time off-supply due to improved fault resolution and new ways to manage outages, quality and reliability of supply.

However, we are unclear if the current technology and framework will effectively facilitate the introduction of smart grids in practice and how and if cost savings will be passed onto customers.

2.8 Prepayment

It is clear that the introduction of smart technologies could offer substantial benefits to customers currently using a prepayment meter, and generate wider customer interest and choice in prepay energy offerings for customers currently using alternative payment options. However, we are not on track to deliver benefits—prepayment customers may be the last to get smart meters in practice customers could face a decline in service and new problems (see Question 6 below for more detail).

2.9 Vulnerable and low income customers

The Government has a legally binding target to eradicate fuel poverty by 2016.21 The Government’s own estimate indicates that in 2012 there are 3.9 million households in England in fuel poverty22 though other estimates with the 2011 energy price rises suggest this could now be as high as six million.23 According to FPAG almost 50% are pensioners and overall some 80% can be categorised as vulnerable.

We continue to have concerns that low income and vulnerable consumers in particular will not get value for money from the smart meter roll-out and that opportunities to deliver benefits will be missed. DECC has taken a number of very welcome and positive steps to address concerns but more needs to be done:

It is unclear if vulnerable or low income consumers will achieve comparable energy savings to other groups. They may already be more energy efficient due to budgetary constraints; less likely to plug in their IHD because of lack of available plug sockets; or face greater barriers to engaging with new technology, for example.24 Further research is needed in this area.

Government states that Energy Demand Research Project trials (EDRP) produced evidence that consumers from areas of high concentrations of low income households were not only able to achieve savings comparable to other areas, but that savings increased over time. However, such savings were reportedly achieved with a significant amount of handholding including regular customer contact, advice and personal budget setting. As the IA states, the EDRP did not include an assessment as to how the savings were achieved yet this this is the critical factor. More work is needed on what additional support is needed to help ensure all customers can benefit.

Consumer Focus strongly advocates that as a first step all suppliers set up a dedicated pathway for vulnerable customers, pre, during and post installation. This should include: improved methods to identify and understand a customers’ vulnerability; additional time for installation when extra help may be needed; tailored communications and a follow-up call or visit to answer questions that may have arisen since the installation. This should be delivered by appropriately trained installers.25 DECC and Ofgem should incentivise such an approach as part of their reporting framework.

As a next step to above, action is needed to develop and trial an extra help scheme for low income and vulnerable customers. Smart meter roll-out provides a valuable opportunity to improve the delivery of existing fuel poverty programmes. We propose that a package of assistance is developed for low income and vulnerable consumers which is delivered alongside the installation of a smart meter—either by the supplier, a third party carrying out complementary activity, or the Central Delivery Body. Such a scheme could use existing resources more efficiently and cost effectively to help those in need.

A package of measures might include energy efficiency products and services, which are currently offered as part of the proposed new Energy Company Obligation, and debt advice, benefits maximisation checks or social tariffs which suppliers already offer. For example, Groundwork has been working with Southern Water to deliver energy and water audits, benefits entitlement checks and install small measures (eg water efficiency measures) as part of its water metering programme.26 Consumer Focus hopes to work with DECC, Ofgem and a number of suppliers to trial different approaches.

Consumer Focus research found strong public support for some kind of extra help scheme, with 81% of people thinking it is a good idea for those who are eligible.27

We welcome protections that have been introduced to help prevent suppliers from misusing the ability to remotely disconnect customers or switch people to prepayment without their consent or appropriate checks for vulnerability. However these safeguards only extend to domestic customers and not those who share supply with a business eg people living above shops, churches, pubs etc.

Smart technology could be used to help customers budget more easily eg by providing an accurate account balance on the IHD, or texting reminders to customers if they are likely to go over an agreed budget limit. It is unclear if there are sufficient incentives in place for suppliers to offer these services free of charge to those that would most benefit.

The National Audit Office report suggested that low income customers may be less likely to engage in the market to be able to access the cheaper deals which smart will facilitate. This could result in the costs and benefits being unevenly distributed.28 We share this concern. In Victoria, Australia, concerns have been raised that certain groups of consumers such as low income working families would not be able to use their energy at off-peak times and have little discretionary load. Also that they would not be able to afford appliances required to access cheaper deals that require automation.29

While analysis by the Brattle Group in the US is quoted in the IA as potential evidence that low income customers benefit more than average from time of use tariffs—we have little confidence that this research based in sunshine states with a very different climate and energy needs is comparable. Further research is needed in the GB context.

As we understand it, Treasury Green Book guidelines suggest that a distributional analysis30 of smart meter roll-out should take place. The only impact assessment that appears to do this and considers fuel poverty was in 2007. We would question why a similar assessment has still not taken place as part in any of the seven subsequent impact assessments. This is particularly the case given public commitments by DECC in 2011 and Ofgem to do so.31

We continue to advocate that a distributional impact assessment of smart meter roll-out is undertaken to fully understand who will be the winners and losers from this programme. This must consider the impact on a range of consumer segments including, by income, household make-up, payment type, fuels used, rurality and dwelling type.

We continue to advocate that Government develop a strategy and roadmap which outlines how fuel poor, prepayment and vulnerable customers will benefit from smart metering. The Annual Progress Report on smart metering should report on the contribution roll-out makes to meeting fuel poverty targets.

2.10 Access to data

There are significant potential benefits to customers from greater access to data. New tools and applications could help people better manage their energy use; budget more easily and make more informed switching and purchasing decisions. There are also opportunities to hold companies to account to improve quality of service. For example, consumers who have had smart meters installed report that they were able to identify faulty appliances which are costing them unnecessary money, and energy meters which needed to be fixed.

However there are a number of challenges to customers accessing benefits and we are unclear how consumers will respond to new offers. These include but are not limited to:

How do you ensure data is available to customers in a timely and secure way?

How can you ensure that all customers including those who do not use or have access to the internet can access information? The MiData programme for example is very focussed on technology-friendly customers.

DECC has taken welcome steps maximise the potential customer benefit from IHDs. This includes setting minimum standards for information and around usability. But monitoring is needed to understand how effective these are in practice.

How much will access to products and services which use data cost? Who will pay and how? Processing data costs money. What will be free and what will customers be charged for?

How do you ensure that data is in a format that customers can use?

None of the arrangements appear to enable customers to access information related to quality of supply. Voltage quality information could be available to consumers in a format that allows them to a) assess if they are getting the quality of supply outlined in their terms and conditions b) monitor outages c) use as evidence to seek redress and compensation. We would welcome DECC exploring what advantages it might have for customers who frequently suffer flickering lights, outages, or power surges that can break electrical equipment. This is likely to be particularly important in a world of automation.

More work is needed on the information requirements of customers with micro-generation. The basic IHD is unlikely to meet their needs and it is unclear how easy it is to for generating consumers to access data on generation to monitor efficiencies and amounts owed.

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 Yes, there is a risk that suppliers will gain considerably more than consumers from smart meters. While the physical installation of smart metering technology will facilitate most of the industry benefits, as noted, there are significant further barriers to overcome before consumer benefits are realised.

3.2 As mentioned, we don’t believe that relying on the competitive market is enough to keep the costs in check. A mechanism to cap costs would be welcome.

3.3 We are sceptical that suppliers will pass on benefits in full to consumers, given their track record on prepayment and the failures of suppliers to reduce retail prices promptly when wholesale energy costs have fallen.

3.4 We strongly welcome DECC’s decision to produce an Annual Progress Report on the costs and benefits of roll-out to consumers and quarterly statistical updates. These are designed to help improve transparency. But we doubt monitoring and reporting will provide sufficient oversight to ensure accountability. We query what action can and will be taken if problems are identified. It is important that the Annual Report highlights the distributional impact of smart metering eg the benefits and costs broken down by different customer segments and constituency (see also Question 1).

3.5 There is also an issue that some customers may want a smart meter but not be able to have one installed, or may have to wait several years eg the technology may not work in some homes or businesses. What alternative products and services will these customers be offered instead?

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

4.1 More than 50 countries are installing or planning to install smart metering equipment, with individual states in the US, Canada and Australia having their own roll-out programmes.

4.2 There is some useful international learning but direct comparisons should be made with caution. The GB business case, technology being deployed, scale of the deployment, and roll-out model adopted are notably different from most other countries. In particular:

We have a supplier-led roll-out. The norm is distribution network led roll-out model.

Our solution relies on a central data communications provider—this is very rare.

We are deploying smart meters for both gas and electricity, whereas most other deployments are for a smart electricity meter only. Though France and Ireland are among those deploying both.

We have a relatively large prepayment customer base (around 13% of all customers) this adds challenges and costs.

Our cost benefit case is heavily dependent on energy savings—this is not the case in all countries. The business case in France for example is reportedly largely dependent on network savings; in Italy it was driven initially by electricity theft prevention and the efficiency of operating processes; in Victoria, Australia and some US states by a desire to address growing numbers of outages; in Spain the benefit of the roll-out identified by the Government and energy suppliers is gaining the ability to remotely change the limits on the amount of energy the household can draw upon.

4.3 Consumer engagement

Consumer backlash against deployments in parts of the US, Australia and the Netherlands in particular, have highlighted the importance of addressing consumer concerns and engaging customers prior to, during and post roll-out. In particular customers have been concerned about privacy issues, health effects of wireless technologies and rising costs. As Chris Johns, President of PG&E said shortly after the company undertook the SmartRate Pricing Program pilot project in 2010: “We thought we were undertaking an infrastructure project but it turned out to be a customer project”.32 Customer concerns were often aggravated by companies’ poor complaint handling services and inadequately trained staff. We believe Government has sought to learn from these experiences in developing its consumer engagement strategy. However it is important that suppliers train and offer specialist staff to handle queries and complaints in a timely way.

4.4 Delivering energy savings

International pilots and experience has highlighted the importance of consumer engagement programmes and the provision of an in home display to delivering behaviour change and energy savings.33 Reliance solely on web portals for information has been criticised in Austria and France. This is because customers do not access it regularly, it is not real-time and in particular customers without internet access receive no information.34 This supports the Government’s decision to require suppliers to offer an IHD. However there is evidence that new innovative feedback mechanisms could also be effective eg information available via a mobile phones, remote control heating systems and hard copy energy reports with tailored advice. Organisations such as Opower combine energy consumption data with additional information about a customer’s dwelling type, its energy efficiency and the household make-up to help deliver energy savings.35 In Denmark, electricity savings of more than 17% were reportedly achieved across 55,000 households over three years in part from segmenting the customer base and providing regular tailored communications and target setting amongst other approaches.36

4.5 Joined-up approach to wider government and environmental policies

The experience of smart meter roll-out in Denmark and Sweden suggests that public attitudes towards energy saving and sustainability more widely can have a positive influence on attitudes towards smart meters. In Denmark there is a strong political commitment to sustainability: with 70% of electricity production37 expected to come from renewable sources by 2020. In Denmark, the political decision to roll-out smart meters was backed by broad public consensus, and motivated by longstanding concerns about protecting the environment, reducing energy consumption and saving money. Similarly, in Sweden, where environmental issues and sustainability are given high importance, the Swedish Consumer Organisation38 report that most consumers regard the roll-out as a positive step to modernise the energy grid. Queensland also highlighted the benefits of an overarching sustainability brand, by linking up smart meter roll-out with wider programmes on sustainable transport, health and water. This highlights the importance of joining up Government environmental policies and placing smart within a wider context.

4.6 Ensuring value for money

Network led roll-outs allow for much greater financial oversight. In some European countries, ensuring value for money for energy customers is built into the regulatory framework, and this would continue to apply in the context of a smart roll-out. For example, in the Netherlands it has been agreed that consumers won’t pay for a smart meter more than they pay for the current dumb meter; around 30 Euros, per meter, per year. In Denmark, ensuring value for money is part of the general regulation for energy companies, and requires them to be transparent around costs. Further steps are needed in GB. In parts of the US customers who refuse a smart meter are charged an additional monthly fee, to reflect the additional costs to serve them. Ofgem will need to take a view on such an approach.

4.7 The importance of consumer choice

In the Netherlands the Government’s initial decision to mandate granular collection of data and force customers to have a smart meter led to the halting of roll-out and significant customer backlash. Dutch consumers are now offered a range of options about the smart meter itself. Consumers have the right to: have a smart meter installed and choose how often they are billed; have a smart meter installed with the communications module turned off to address health and privacy concerns; or to refuse a smart meter. DECC should consider offering similar choices to GB customers. In addition, it should be noted that our information request found that most suppliers say they will not remove a smart meter once it is installed but rather operate it in dumb mode. It remains to be seen if this will allay customer concerns.

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

5.1 It’s unclear. DECC estimates that domestic customers will reduce their energy consumption by on average 0.3–4% a year, or an estimated £25 a year for a duel fuel customer by 2020.39 This level of reduction is achievable but not guaranteed.

Having a smart meter will not automatically save customers money or help them better manage their energy use—a smart meter with a display is just a tool to help consumers better manage their energy use.

The Public Accounts Committee stated in their smart meter Report that “Consumers will benefit from smart meters only if they understand the opportunity to reduce their energy bills and change their behaviour. So far the evidence on whether they will do so has been inconclusive.”40

How much customers save on their energy bill will depend on whether they are able to/or decide to use the information on their energy monitor or via other media to work out where they can reduce their energy use.

Delivering enduring behaviour change is particularly challenging as even customers who make changes when their meter is first installed may lapse into less energy efficient behaviours after time.

Consumer Focus’ international research looking at energy efficiency programmes found that it was difficult to engage more than 60% of the public on an issue.41

Barriers to engagement are numerous, including refusing the installation of a smart meter, apathy, not seeing the benefit to them, fear it will cost then more money, and barriers to technology access and data.

The Empower Demand report which looked at more than 100 roll-out pilots involving over 450,000 residential customers identified a number of key factors that were crucial to the long term success of programmes. These included: engagement strategies tailored to meet consumers’ needs; behaviour change campaigns based on customer segmentation; energy displays; technological support and a constructive regulatory framework.42

Some customers may already be very energy efficient and see no saving while for other consumers reductions could be higher than average. DECC recognises that prepayment meter customers for example are less likely to see gas savings as they already have a high degree of visibility over their energy use.43

Benefits will not be fully realised unless the market provides appropriate products and services, and customers take action to reduce their consumption. Cost of accessing services may be a barrier.

The IHD is only likely to go so far in helping the customer understand their energy use. Greater reductions are likely come from more tailored feedback and support, home improvements, including heating controls. Present thinking is leaving the whole controls arena isolated and vendors are ignoring the smart metering gateway and installing a second communications gateway into the home—increasing the cost to the consumer.

5.2 Micro-businesses

Small businesses face additional barriers. In the non-domestic IA, energy savings make up £1.75 billion of the estimated £1.76 billion consumer benefits. DECC project that this equates to average customer savings of £191 by 2020.44 We are unclear how realistic this is.

Suppliers are not required to offer small business customers an IHD or access to data for free. This could act as a barrier to then accessing benefits. Initial findings from Consumer Focus’ research have found that:

In Home Displays are not normally provided to customers with advanced or smart-type meters (though apparently 2013 will see more of them).

A minority of suppliers (smaller suppliers generally) charge for data access.

Web portals seem to be the preferred option and there are a wide range of charges.

Some suppliers claim to provide energy efficiency information/behavioural tips at the point provided at point of installation.

This is a particular missed opportunity as the Carbon Trust research has reportedly found that that smaller non domestic users have a higher propensity to reduce gas consumption by responding to information feedback. Indeed non-domestic users have a higher average consumption per premise than domestic users, increasing the value of any percentage saving derived from the use of smart or advanced metering.

We query in practice what options, in terms of third party access to data, exist or will exist for many small businesses. As we understand, a sizeable number of sites will have non-compliant or advanced or SMETS1 meters installed. As the Home Area Network is not defined, and therefore potentially not fully interoperable or open, we query if third parties will be able to provide services via this route.

It is also unclear how many small business meters will be adopted by the DCC—meaning for many, accessing products and services from a company that is not their current supplier may not be possible. Anecdotal feedback suggests that there is not a great appetite among industry to use the DCC. The net effect is that the customer is locked into their supplier for the provision of services with the resultant negative impact on choice, cost and wider competition.

We continue to advocate that small business customers be offered an energy display alongside their smart meter at no upfront or additional cost. It is absolutely essential that DECC develops a mechanism by which small business can access their data for free. It would be wholly proportionate for all suppliers, not just those who have opted out of the DCC, to have to provide small business customers with personal data inventories on a regular basis and that data should be made available in a common machine readable format so they can share it with third parties. This and some way to access near real-time feedback should be a minimum.

While work is underway, DECC doesn’t currently have a clear understanding of how to empower micro-business customers.

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

6.1 Prepayment customers are unlikely to see the same energy savings as those using other payment methods because they already have a high degree of visibility over their energy use. DECC’s Smart Metering Impact Assessment (IA), for example, estimates that gas prepayment meter customers will achieve average savings of 0.5% compared to two% for gas prepayment.

6.2 However it is clear that smart technologies could help to address many of the historic problems experienced by these customers and deliver improved customer service. Potential advantages include but are not limited to:

More competitively priced tariffs—as all smart meters have prepayment functionality built in, costs to serve should decrease as separate meters and a completely separate infrastructure will no longer be required. In addition, there could be savings from increased efficiencies, such as a reduction in misdirected or unallocated payments, reduced home visits, and an end to costs associated with payment devices as these will no longer be needed.

Easier and quicker resolution of problems when things go wrong—when errors occur or customers believe that their meter settings are configured incorrectly, remote diagnostics should make it quicker and easier to identify and resolve problems. These diagnostics will reduce the need for the customer to visit the vending outlet, or for the supplier and customer to incur the time and cost of a home visit.

Greater choice and convenience when topping up—new technology can facilitate a range of innovative top-up options, including crediting the meter via a text message, smart phone application or phone call, as well as through an online or in-home display. In addition to the current cash-only option, customers could pay by debit or credit card at payment outlets.

An end to problems caused by lost, broken or stolen payment devices—customers need a key or card to add credit to their meter. These devices are frequently lost, broken or stolen, resulting in customer inconvenience, additional cost and sometimes self-disconnection. Problems with faulty, lost or stolen payment devices accounted for approximately one-fourth of the calls to the Consumer Direct helpline about prepayment during the period from October 2011 to March 2012. A further one in 10 calls about PPMs came from customers experiencing a delay in receiving a replacement device, half of which were without supply.

Reduction in misdirected and unallocated payments—smart metering will enable real-time validation of the customer’s payment against supplier information, thereby removing the likelihood of payments being attributed to the wrong supplier or not allocated to any supplier.

Reduced barriers to switching between payment methods—if full commercial and technical interoperability are achieved, customers would be able to switch to and from prepay immediately without the cost and inconvenience of a meter exchange. There also will be less justification for suppliers to require a security deposit on change of payment method if they are able to monitor daily energy consumption or offer managed credit tariffs to prevent debt build-up.

A reduction in self-disconnection—smart metering facilitates a range of actions that could help prevent self-disconnection caused in error rather than due to financial problems: Offering friendly credit or no-disconnect periods for gas as well as electricity. These are periods when customers remain on supply even if their emergency credit runs out and they have no money on the meter; In-home displays placed in a convenient location could offer low credit alerts to warn customers when they are in danger of self-disconnecting. Many meters have this functionality but customers do not hear the warnings as the meters are located out of earshot (eg outside the property or in a cupboard under the stairs); Real-time and more granular data available from smart metering will make it possible for suppliers to offer services that help customer budget and prevent disconnection. For example, some energy companies are trialling sending low credit warnings to customers’ mobile phones.

New ways to help tackle self-disconnection—remote access to data and the ability to credit meters remotely could make it easier for suppliers to identify customers who are regularly disconnecting. It could also help suppliers to provide support more quickly for those customers who are off supply or at risk of self-disconnecting. In the long-term, if load limiting is implemented, as an alternative to self-disconnection for prepay customers only, customers could be offered a “life-line of energy” (a trickle flow) that might allow them limited use of essential appliances, such as lights and the refrigerator, as an alternative to complete self-disconnection. But this policy would not be acceptable if it resulted in a weakening of existing protections.

6.3 However, Consumer Focus does not believe these benefits are on track to be delivered and at present PPM customers could be the last to get smart meters. There is also a real risk that customers could face a decline in service and new problems. Barriers include:

Increased costs leading to more expensive tariffs.

New topping-up options raise equality issues.

Lack of interoperability results in new barriers to switching.

Decline in reliability and quality of service.

Solutions to address misdirected and unallocated payments leave customers off supply.

Incompatability with microgeneration.

6.4 It is particularly important that benefits are delivered to PPM customers as more than 13% of consumers pay by this payment method and the number is expected to rise.45 Consumer Focus estimates that 9.6 million people in Great Britain live in homes where they pay for their energy through a PPM.46

6.5 While not all PPM users in Great Britain are from vulnerable groups, they remain disproportionately on low incomes compared to those using other payment types.47

6.6 In Great Britain, the number of energy customers on prepayment has steadily increased–from approximately 6 million to 6.8 million between 2008 and 2011. On average, an estimated 1,724 PPMs are installed every working day.48 This is predominantly due to debt.

6.7 Timely action is needed by suppliers, Ofgem and DECC if smart metering is to benefit prepayment customers. It is widely acknowledged by the energy industry that prepayment was not a priority when energy markets were liberalized; it is important that we do not repeat this mistake as we enter into a smart world.

Full details and recommendations are available in our 2013 report Smart Metering Prepayment in Great Britain—Making prepaid energy work in a smart world.

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

7.1 We make the following comments:

Experience from supplier obligations such as the Carbon Emissions Reduction Target Super Priority Group, suggests it can be difficult and expensive to target low income, vulnerable households specifically. Gaining access and engagement may be particularly challenging as Consumer Focus research shows lower levels of interest and awareness (see Question 10).

A pragmatic approach would be, for as far as possible, an area based scheme, targeted in places of multiple deprivation and at social housing providers. This would echo the approach taken by the Carbon Saving Communities Obligation, under the new Energy Company Obligation, such trials should therefore be undertaken on this basis.

However, before such an approach is adopted suppliers and Government need to be confident that low income customers will benefit and have the mechanisms and support in place to ensure this happens. For example, an extra help scheme will need to be available, and appropriate technology and communications for customers including those with impairments. PPM customers tend to be disproportionately on low incomes but could face significant problems if they got smart early depending on what progress is made.

There will inevitably be teething problems in the early stages of roll-out—it is important to ensure that vulnerable customers, who may be among the least likely to deal with problems, are not guinea pigs for new technology.

Consumers who “live above the shop” must be remembered by suppliers in roll-out—they can vulnerable but end up falling through the cracks on protection (eg they are not protected from remote disconnection in the same way as domestic customers), because they are on a non-domestic account. It’s worth remembering that non-domestic can also mean not-for-profit and even less engaged or savvy with regards to energy, for example charities, town halls and small voluntary organisations. These groups are often key opinion formers in communities.

Those living in hard to treat properties are less likely to be able to take up traditional energy efficiency measures such as cavity wall insulation. For them, behaviour change, facilitated by smart meters may well be one of the few options available to help reduce energy use.

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 Provisional findings from DECC research49 and our own experience of presenting at NEA regional Forums, suggests that community groups and local authorities are keen to get involved. They can help raise awareness, maintain momentum, provide practical help and support to consumers including handholding customers and helping them to really understand what smart means for them. There are also opportunities for groups to act as trail blazers or ambassadors and show case activity.

8.2 Third parties face a number of challenges to engagement: lack of funding and resources; and insufficient time, skills and knowledge. In order to involve them they need to be supported. This includes the provision of training; being provided with marketing and communication materials that they can adapt and brand themselves to meet local needs; and in some instances funding.

8.3 It is essential that it is easy for groups to get involved. They do not want to have to deal with six big suppliers, and a score of smaller and non-domestic customers. A single point of contact is essential.

8.4 Rather than inventing new structures it is best where possible to piggy back on existing networks and programmes. The Digital UK outreach model successfully used existing networks of relationships between charities, and between charities and their clients. It leveraged these networks rather than replicating them. It is now being used in other areas of public policy, including the drive to increase broadband take-up. Such an approach also includes engaging with local authorities, the police (to help prevent distraction burglary and rogue traders), the fire services and health workers for example. These are groups that often already have contact with customers including the most vulnerable and the hardest to reach. Also it is important to join up with existing activity in an area eg fuel poverty and energy efficiency initiatives.

8.5 Third party involvement and partnership working will be essential to engage consumers. Consumer Focus research found that only 26% of customers trusted their electricity supplier to help them save money on their energy bills and go green, with confidence in gas companies even lower at 23%.50

8.6 Consumer Focus 2012 research found that no one group was trusted by everyone to provide information on smart meters: 33% of bill payers trusted an independent consumer group to provide them with advice; 26% their energy supplier, 26% their friends and family, 23% trusted Government; 17% said they would trust a specialist independent body like the Digital Switchover but for energy; 16% said they would trust a specialist green organisation eg EST, with 12% trusting an online price comparison site.51

8.7 Importantly we found that for different issues different bodies were trusted. For information on the health impact of smart meters for example, local GPs and the NHS were most trusted with 33% and 30% of customers trusting them, whereas only 15% thought their supplier would tell the truth.

8.8 A one-sized fits all approach cannot be taken. Different organisations will need to be involved to reach different demographics. For example, Age UK could deliver messages to the elderly while other groups will be needed to reach people with disabilities or where English is not a first language.

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 following are some of the key obstacles from a consumer perspective:

Consumers decline meters:

The most common reasons for refusals in other countries include: concerns about privacy, remote disconnection, health risks and rising costs—Ofgem has introduced new protections to prevent misuse of remote functionality and protect vulnerable customers; DECC’s new privacy framework comes into effect in June. As noted below, more needs to be done to address health concerns and monitor the effectiveness of new protections.

If customers who get a smart meter early have a negative experience this will discourage wider take-up. The Smart Metering Installation Code of Practice (SMICOP) is designed to ensure a positive installation experience but doesn’t cover non-standard installations in sufficient detail. For up to a quarter of installations a customer may need multiple visits resulting in additional inconvenience and disruption to the customer. Routine safety checks could result in appliances being condemned or a customer being disconnected. While not a smart specific issue, customers may be worried this will happen to them if they have a smart meter installed. Standard processes need to be established to ensure timely resolution of problems and end the current postcode lottery approach. Customers should have a single point of contact where there are problems and not be left negotiating the process themselves between different parties such as the network and the supplier.

Cost—Government has ensured that customers will not face an upfront cost for smart meters, this is welcome. However, if the supplier hasn’t read the meter for a long time, the customer may receive an adjustment bill for any undercharge, when they have a smart meter installed. While this is not a smart only issue it could result in customers associating smart meters with costing them money. To prevent this, suppliers should reconcile customers’ accounts before installation so the two are not associated. Similarly costs incurred due to the smart meter installation eg hard wiring a display due to communication problems in a particular property, or moving the meter or meter box should not fall on the individual customer.

Early roll-out/transition causes a number of additional obstacles:

Barriers to switching—analysis of contacts to Citizen’s Advice consumer service shows a growing trickle of calls from customers worried that if they have a smart meter they won’t be able to switch supplier. Interoperability problems need to be addressed as quickly as possible before concerns grow.

Developing an effective consumer engagement programme is essential. But consistent and simple messaging to aid consumer engagement is made more difficult by suppliers’ different levels of readiness during Foundation. Similarly, while the competitive approach allows for differentiation of products and services, it makes communicating the benefits of smart and supporting customers more challenging.

Industry’s transition from 100% legacy meters to 100% smart is difficult. We query how industry’s IT systems will cope with the various changes they need to make and what the resultant impact will be on customer service. Those rolling out early are already making changes to systems, which will have to be further adapted when DCC becomes operational.

Government has banned sales during the installation visit but marketing is still allowed with customers consent—this effectively exposes the customer to a face to face sales pitch in their home, and the associated risks. Careful monitoring of protections is needed, in particular, to ensure that customers are fully aware of what they are consenting to when they agree to marketing. The kinds of products and services suppliers are allowed to promote should be restricted to those linked to government programmes around sustainability and tackling fuel poverty.

Problems with third party intermediaries are already a big issue in the non-domestic energy world—mis-selling and mis-representation is rife. We need to ensure that this is not allowed to happen during the roll-out of smart. Ofgem are looking at a TPI code of practice at the moment but government needs to consider how to protect businesses from mis-selling, especially by third parties, during the roll-out.

Lack of an effective prepayment solution is a significant barrier for around 13% of customers to accessing the benefits of smart metering. This needs to be a higher priority for Government and suppliers. Similarly, further work is needed to understand other customer segments such as tele-switching and time of use customers as there are likely to be changes to their service and bills.

Operational barriers to installations in some areas and property types may mean some households who want a smart meter can’t have one—cost effective technological solutions need to be developed to ensure that certain groups of customers, such as those in rural areas or high rise blocks of flats, aren’t the last to receive smart meters.

Suppliers inflexible back-office systems could restrict innovation eg we are told by some suppliers that existing systems are a barrier to the provision of accurate cost information on the IHD, monthly payment options such as variable direct debit and the provision of tailored energy reports.

Security and reliability—robust end to end testing of the system will not be possible until the DCC is fully operational. This needs to be carried out as soon as possible. Unreliable communication solutions could mean customers continue to receive estimate bills, face additional home visits and a decline in service. Ofgem should consider updating the Guaranteed Standards to ensure quality and reliability of service.

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

10.1 Awareness of smart metering is very low amongst small businesses, as reported by our colleagues in various business lobbying groups.

10.2 Findings from Consumer Focus’ research into domestic bill payers’ attitudes shows:52

Around half of customers say they have heard of smart meter (52%). However it was clear when we probed further that the number that understood what they were and the potential benefits was significantly lower. There was particular confusion between a clip-on display and a smart meter.

A slight decline in interest in having as smart meter with a display installed—44% were interested in 2012 compared to 51% in 2011. In 2012, 29% were not interested compared to 23% in 2011. The rest were unsure. We used comparable methodology.

Both surveys showed that older customers tended to be more aware of smart meters, but less interested in having one. The 2012 survey found that the highest level of interest among consumers aged 18–34 (53%). This gradually decreased with age: 47% of consumers aged 45–54 were interested, 45% of consumers aged 55–64. Over 65’s were least interested (27%). Surveys also showed lower levels of awareness and interest among DE classes than AB.

In both surveys customers said they weren’t interested because they were: worried that costs will rise/smart meter just an excuse to put up prices; don’t see the point—this includes apathy, can’t be bothered for £25, already feel they are energy efficient, have a clip-on display; hassle factor—thought something could go wrong. A very small minority raised issues around health, privacy and security.

The main reasons why customers were interested were: to help save money; greater control over what they were using, and to budget more easily. They also said they thought accurate bills, access to detailed data so they could get the best deal, and having a reliable energy supply were important smart benefits. Easier switching and fewer visits from the meter man were not considered as important but were still valued.

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

11.1 Evidence suggests low levels of concerns about smart metering. However, complacency should be avoided as experience in other countries suggests the consumer mood can change very quickly.

11.2 As noted, Consumer Focus’ analysis in calls to Citizen’s Advice consumer service suggests a slight rise in contacts from domestic customers concerned that smart meters will be a barrier to switching. Contacts about health and privacy concerns have remained low.

11.3 Where businesses know that remote disconnection is part of smart they are very concerned, often about the potential for accidental disconnection and the attendant revenue loss. This function should be monitored carefully. Negative stories of remote disconnection in the non-domestic sector could also have a knock-on effect in terms of domestic engagement. Protections should be strengthened.

11.4 Generally information on business’ aspirations or fears is low; our quantitative work on smart and small businesses will be published later this year and should paint a picture of how smart is already doing. We will also be re-running our domestic customers attitudes to smart metering survey again this March and are happy to share findings.

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

12.1 Given where suppliers are in terms of readiness to roll-out, we think appropriate action is being taken at the moment to raise consumer awareness of smart metering specifically. It is important not to generate demand that cannot be met, or to raise unrealistic expectations of what will be delivered to customers at this stage.

12.2 However, there is more Government could be doing to raise awareness of the energy challenges we face as a nation. It would be useful if DECC could create a narrative around energy issues that supports not just smart metering but Green Deal and wider low carbon and energy efficiency programmes.

12.3 DECC and Ofgem should be praised for the timely introduction of new protections which should help allay customer concerns around the privacy risks, and remote disconnection and remote switching to prepayment.

12.4 The development of Government’s consumer engagement strategy, including the Consumer Engagement Delivery Plan and the reporting and monitoring framework are very welcome. We particularly support the setting up of a Central Delivery Body with clear objectives to help deliver behaviour change and to assist vulnerable, low income and pre-payment customers.

12.5 DECC has also taken a number of other positive steps: These include requiring suppliers to offer all domestic customers an IHD which meets minimum standards around information and accessibility; supporting a demonstration of the smart metering system and display during the home visit, along with the provision of energy efficiency advice.

12.6 However, the following further activities are needed:

Community engagement trials are required as a matter of urgency.

The Central Delivery Body should have a greater coordination role—DECC or Ofgem should clarify once and for all to what extent competition rules actually hinder joint activity that could deliver wider consumer benefits and cost savings.

We continue to have concerns that in practice the Central Delivery Body is not properly independent and that customers will not trust it to provide impartial information. It is set up and funded by suppliers. There are only four consumer representatives on a board of 15 including an independent chair. While suppliers might not always agree, under the proposed simple majority vote it remains to be seen if the consumer voice is consistently outvoted by industry.

Further work is also needed around change of tenancy issues. The National Census 2001 estimated that one in eight people (6.3 million householders) move home every year and that our population is becoming increasingly mobile. There could be significant numbers of customers moving into properties with smart meters who have not had a smart meter before. It is important that new customers moving into a property are:

Made aware of the fact that they have a smart metering system.

Offered an IHD when they move in at no upfront cost (the previous tenant may have taken it with them or not had one).

Asked if they have had a smart meter before and are taken through how to use it, with potential supplier differences are explained.

Given a follow-up call to check they have got the IHD up and running if this is sent through the post.

Given free access to the support they need to set up and use the display. A home visit should be offered and available where it is clear that the customer has not managed to or is not able to set up the display themselves.

Given free levels of support which are at least as good as those received during the installation visit—including around energy efficiency advice and information on using the meter in prepay mode.

More work is needed on how customers can use smart to maximise gas savings and what incentives may be needed to facilitate that. Most of the focus to date has been on electricity savings but there may be significant potential for linking smart and heating controls.

It is unclear if there are sufficient incentives on suppliers to deliver the appropriate support, advice, products and services that customers need to access the benefits of smart. In particular, how effective displays are needs to be kept under review.

Government needs to be much more proactive in joining up strategy between smart meters and other energy efficiency policies across DECC, particularly the Green Deal and Energy Company Obligation programme to ensure that when suppliers are entering consumers’ homes, the opportunity to make the property more energy efficient and deliver social assistance to fuel poor customers, is not lost.

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

13.1 Consumer attitudes towards privacy are complex with some customers very concerned about use of their personal data, and others more comfortable with sharing information in the digital age.53

13.2 We are aware that to date in GB there have been very few public concerns voiced about smart meter data or health in relation to smart, but the potential for these to become issues that jeopardise consumer engagement and results in customer detriment should not be under-estimated.

13.3 DECC has been proactive in taking steps to address customer concerns around privacy while also seeking to promote competition and the potential for wider benefits that data access can deliver. Government should be praised on their open and collaborative approach to this sensitive issue.

13.4 We particularly welcome the decision not to give suppliers default access to data that is any more granular than daily. Half-hourly reads from all customers are not needed for tariff design; could encourage lazy competition by suppliers and risk resulting in customers’ tariff choices being restricted. In addition, Consumer Focus’s Private Lives research found that customers are increasingly aware that their data has a value and want something in exchange for it eg energy efficiency advice or discounts.54

13.5 Consumer Focus particularly supports the proposed now data (was privacy) charter which should help provide customers with choice, control and transparency over how their data is used.

13.6 However, how effective protections will be in practice, will depend in particular on:

How suppliers implement and interpret new rules—there are still a lot of grey areas in the legislation. We recommend that DECC produces Guidance to support Licence Conditions.

How they are communicated to customers and when—the range of opt-in/opt-out choices for example has the potential to be very confusing to customers. Also, three out of four (82%) of bill payers said they were unaware of their energy company’s data and privacy policies in a recent Consumer Focus survey.55 When probed further it was apparent that the real number was significantly higher still. Different approaches need to be trialled and tested to find the best approach.

The robustness of the monitoring and enforcement framework—especially as responsibility is split between the Information Commissioner’s Office and Ofgem. Data privacy regulation is notorious poorly enforced.

13.7 As mentioned, further work is needed to ensure that customers have appropriate access to data—particularly for small businesses and pre DCC.

13.8 In the absence of the Data Protection Act, and in particular because of the issue of shared premises, we would particularly welcome sector-specific data access and privacy regulation for small businesses and believe that similar kinds of rules could apply as in the domestic sector.

13.9 We continue to seek clarify as to what access Government, local councils and security services will have to granular data that can give a unique insight into customers activity within their home, and if this data will be admissible in a court of law. This is a notable gap that may cause concerns.

Health

13.10 A significant minority of consumers are worried about possible health implications of smart meters. Some concerns have been raised about the long-term impact of electro-magnetic field emissions on customers’ health. In addition, a minority of consumers report a condition called electro-hypersensitivity (also known as electro-magnetic sensitivity), that they attribute to electromagnetic fields from technologies such as mobile phones and wireless technologies.

13.11 In response to the survey question—“Many smart meters use similar communication technologies as those used for wireless internet, mobile and cordless phones, how concerned are you about any potential health effects from these technologies?”—17% said they were very or quite concerned, 26% not sure, with 57% not concerned.56

13.12 Consumer Focus does not have any health experts and do not have a view on whether or not smart metering technologies could have implications for people’s health.

13.13 However, we believe that insufficient action has been taken to address customer concerns in this area. In the Netherlands the smart meter has been designed so that customer can control whether communications systems in the home are on or off. Health concerns can also be borne in mind when guidance is set on how often information can be transmitted from the meters as this may affect consumers’ overall exposure.

13.14 Many customers will want to know there has been thorough testing which shows there is no health risk, before they are happy to have a meter in their home. The Health Protection Agency has committed to testing smart meters but questions may be asked why testing wasn’t carried out prior to roll-out. Consumers also need access to information which compares emissions from smart meters to common appliances that they may already have in their home, such as the wireless internet so that they have a meaningful comparison.

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

14.1 We expect smart metering to deliver significant supplier benefits and substantially more benefits than identified in the IA for networks. It is essential that savings made by both suppliers and DNOs are passed on to the consumer and help reduce household energy bills. Consumer Focus believes that these commercial savings will far outweigh those expected through energy savings. Further steps also need to be taken to ensure that products and services which could deliver benefits to low income and vulnerable households are delivered even where there are not the commercial incentives to do so.

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 have a general uneasiness that Government appears to be procuring a solution where the specifications and requirements are still developing and are therefore not yet fully defined. In particular a final decision on the communications technology has not yet been agreed but this will have a significant impact on costs and the customer experience.

15.2 We query if sufficient time has been allocated for testing. Robust end to end testing is needed covering customer journeys (change of supply, change of tenancy, change from credit to prepayment payment methods), as well as connectivity testing.

15.3 There is real potential for the DCC to run behind schedule (therefore undermining the cost benefit analysis) and over budget.

15.4 Consumer Focus has concerns that with no DCC mandating for the non-domestic market, that interoperability will suffer, thus restricting switching rates and hence competitive pressures generally. Small businesses are unlikely to procure communications separate from their supplier. Possibly all suppliers will join the DCC anyway, however there is likely to be a large/small supplier split which entrenches the division between these sub-groups.

15.5 We have concerns that opportunities to address historic problems will be missed. For example data flow issues such as misdirected payments, change of supplier failures, incorrect billing caused by transposed meters, which result in consumer issues need to be resolved.

15.6 We seek reassurances that the needs of all consumer segments including prepayment, radio tele-switch customers, those in high rise concrete blocks, and with district heating are properly catered for.

15.7 Appropriate thinking about the customer experience and consumer scenario testing is needed especially where there are split responsibilities.

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

16.1 DECC needs to thoroughly map the full range of potential benefits that smart metering can deliver for both domestic and micro-business customers. This should include not just monetised benefits such as energy savings, but also those that are harder to quantify, but valuable, such as improvements in customer service. Success should be measured by the degree to which these are delivered to customers.

16.2 Monitoring and evaluation must assess the impact of smart metering on different customer segments eg by income, vulnerability, payment type, location and fuel type to ensure fairness. We expect that not all consumers will see the same benefits, but all must be able to access some benefit and get value for money from the programme they are helping to fund.

16.3 The Impact Assessments focus predominantly on the monetised benefits so measuring progress against these documents alone is not sufficient. Key benefits such as those that could be delivered to prepayment meter customers are not fully captured.

16.4 In addition roll-out should be evaluated against the contribution it makes to wider Government programmes such as those designed to tackle fuel poverty, digital inclusion and the delivery of smart grids. This should be reported in the Annual Progress Report.

16.5 A successful roll-out will also result in high levels of customer satisfaction and low levels of complaints—helping to improve trust in the energy market and wider customer engagement.

February 2013