UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 161-iii

house of commons

oral evidence

taken before the

Energy and Climate Change Committee

Smart Meter roll-out

Tuesday 4 June 2013

Maxine Frerk

Baroness Verma, Daron Walker and Jacqui Russell

Evidence heard in Public Questions 287 - 418

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Energy and Climate Change Committee

on Tuesday 4 June 2013

Members present:

Mr Tim Yeo (Chair)

Ian Lavery

Mr Peter Lilley

Albert Owen

John Robertson

Sir Robert Smith

Dr Alan Whitehead

________________

Examination of Witness

Witness: Maxine Frerk, Partner, Sustainable Development, Ofgem, gave evidence.

Q287 Chair: Good morning. Thank you very much for coming in, and sorry we have kept you waiting a few minutes. Could I start by asking what Ofgem is going to do to make sure that the costs of this quite ambitious programme are kept down, and that the benefits are passed on by the suppliers to the consumers?

Maxine Frerk: Yes. It is probably worth starting by saying that obviously there are some benefits that accrue to suppliers-and we are keen to ensure those are passed on-but there are a lot of benefits that accrue directly to consumers, in terms of the ability to better manage their energy bills, better customer service and so on. So I think it is really important. Consumers will get a lot of benefits from this, whatever happens.

The costs and benefits that suppliers face, and the savings that they make through not having to have meter readers and so on, clearly we are reliant there on a competitive market to make sure that they do that in as efficient a way as possible and pass on the savings to customers. As you know, at the minute we have concerns about how competitive the retail market is. That is why we are doing radical proposals around the Retail Market Review that you talked to Andrew Wright about a few weeks ago. We are not there yet, but, by the time we get to mass roll-out, I think the market should look very different, and by that point we would expect suppliers to be under real pressure to pass those savings on.

Q288 Chair: Yes. I think in the present climate there is probably some degree of suspicion that companies are better at keeping the benefits for themselves than they are at passing them on to customers. Certainly the level of trust, after things like mis-selling, after the lack of transparency in some of their company accounts in the past, would not fill consumers-possibly not even this Committee-with confidence that this programme, if left entirely to the free judgment of the companies, will be entirely for the benefit of customers.

Maxine Frerk: As I say, that is why we are taking a lot of action to try to make sure that we get a simpler, clearer, fairer market and rebuild trust. I absolutely agree with you, we are not going to have a successful programme if we do not have consumers engaged and a bit more trust in this market than we have at the minute. That said, relatively speaking, the costs of the programme are a small amount on consumers’ bills, so it is important to keep this in that context. I know DECC themselves will be doing a lot of work monitoring those costs and monitoring the benefits that are passed through, because ultimately they are accountable for delivery of that business case.

Q289 Chair: Consumer Futures has suggested that the programme could be made more efficient if the roll-out was co-ordinated with other energy efficiency schemes and fuel poverty schemes. What do you think about that?

Maxine Frerk: There is quite a lot in there at the minute to ensure that we take the opportunity of the installation visit to make that as good an experience as possible. Part of Ofgem’s role is that we approve the Insulation Code of Practice. That sets out what suppliers can do, cannot do and must do as part of the installation visit. Within that code of practice, they are required to give customers general energy efficiency advice and to point them to places where they can get information. But then, having told the customer, "We are coming to install a smart meter", we don’t want them to try to sell them energy efficiency products, so there are quite tough rules in that code about sales and marketing. There is a balance to be had between making sure that we are taking advantage of those opportunities and the obligation they have to identify vulnerable customers and offer them additional help. To link it up and make it a very different sort of programme, I think we would be worried because we have seen a lot of problems with selling on the doorstep. We don’t want those sorts of problems fed through into the smart metering programme.

Q290 Chair: What do you think about the suggestions we have had from one of our witnesses that the SMETS 2 design was developed to meet the needs of suppliers, rather than consumers, and it will not add value to the consumer who ultimately pays the bill?

Maxine Frerk: I do not think there is an issue there. There are things that have been thought about. Clearly parts of the design are aimed at enabling network companies to better manage into the future, to control loads and smarter tariffs. All of those things are ultimately helping consumers, as we get into a very different world where we have a lot more renewable, intermittent energy supplies. We need to be able to find ways to help the network companies and suppliers to better match load to that intermittent demand. A lot of the more sophisticated functionality that is in the meters is designed to make sure it is future-proofed to cope with that rather different world.

Q291 Chair: If you are a customer with a pre-SMETS 2 meter, will you be able to access the same products as people who have a SMETS 2 meter?

Maxine Frerk: From a customer perspective, Ofgem has not been involved in the detailed design of the metering specifications. I am talking here a bit of my past experience. The functionality that is in those earlier meters gives customers the things that customers are most interested in, which are an end to estimated bills, the ability to see on their IHD how much they are using, the ability to access time-of-use tariffs and the ability to switch remotely between pre-payment and credit. The things that really matter to consumers are all in the early versions of the meters that are being rolled out now.

Q292 Chair: Do you know how many consumers are going to have to have meters replaced because they are noncompliant or do not have all the functions?

Maxine Frerk: The last figures that were published by DECC show that, at September last year, there were just over 600,000 domestic meters of the pre-SMETS type. I think most suppliers are now installing SMETS meters. In many cases those customers would have had to have had a new dumb meter installed, so the question is whether it was better for them to have that early benefit. They were going to have to have a new smart meter or a new dumb meter installed in any event.

Q293 Sir Robert Smith: You have highlighted that you are going to rely on the market being efficient so that, in theory, if a company benefits then the consumer benefits because a more efficient company has a lower need for bills.

Maxine Frerk: Yes.

Q294 Sir Robert Smith: What are the direct benefits that mean the customer can say, "Tangibly I am getting this from having this put into my house"?

Maxine Frerk: The most obvious benefit that customers see is the in-home display, which allows them to feel much more in control of their energy use. Customers really like that, and most of them see that as being the smart meter. That gives them the ability to understand what is using more energy in their home and to keep track of how much energy they are spending in pounds and pence. Research shows that that enables them to understand their energy use and to put that into effect, in terms of making energy savings.

There is the first bit about putting customers in control of their energy use, leading to more efficient choices about how they use energy. Then there is the end to estimated bills. We know estimated bills is one of the things that causes most complaints. Customers will now be able to get an accurate bill and get much more detail about their past usage, accurate comparisons with their past usage, or usage of other customers. For pre-payment customers, I think it transforms the experience because they will be able to top up. If they have a bank account, they will be able to top up over the phone or online. The supply will not go off in the middle of the night if they run out of credit. They can easily switch back to credit mode from pre-payment if their circumstances change, and they will know how much credit they have left on their in-home display.

Q295 Sir Robert Smith: You say one of the benefits is accurate billing, which must be one of the basic benefits you would expect. Consumer Focus-now Consumer Futures-has questioned whether customers, who have experienced smart meters now, have actually been getting those accurate bills. Do you agree that there is an issue of whether the companies have the systems in place to deliver the accurate bills?

Maxine Frerk: I know that there was an issue a year or so ago with concerns about whether customers were getting accurate bills. I think a lot of that was teething problems: silly things like suppliers not realising that, if a customer rang in with a read, now they should not take that read instead of the meter read that was coming from the smart meter; or if a customer switched to a supplier that did not support smart metering, obviously at this stage they would not be able to get an accurate bill. I think it was all put down to teething problems, and the suppliers were put on notice that they needed to sort that out because it was an important benefit for them.

Q296 Sir Robert Smith: Would there be a licence condition, going forward, that once you have smart meters you have to produce an accurate bill?

Maxine Frerk: There are already various licence conditions around accurate billing, and this is something that we have looked at. I can’t remember exactly what the position is, so it might be better if we send you a note to set out what that is.

Q297 Sir Robert Smith: Yes. It just seems that, of all the many benefits, the one blindingly obvious one should be an accurate bill, so if it cannot quite deliver that, it is going to-

Maxine Frerk: Yes, and I think there are existing protections in there, but I can confirm that.

Q298 Sir Robert Smith: Does that mean the end of back-billing?

Maxine Frerk: One of the issues is that when you go to install a smart meter, it may uncover problems that already exist. For example, if you have a meter that was wired up to the wrong property or something like that, it may uncover some of those problems. I think there is a concern that there may be a short-term increase in back-billing issues. However, once smart meters are in place, then those problems will be resolved and the existing back-billing arrangements should make sure that customers are protected during the roll-out.

Q299 Sir Robert Smith: All the more intangible benefits of lifestyle and managing your circumstances and energy efficiency, do you think those on low incomes are going to have more difficulty accessing those kinds of benefits?

Maxine Frerk: The evidence that we have, from the EDRP trials that were carried out a few years ago, is that those on low incomes were getting similar levels of savings to other customers. Although they will almost certainly be being more economical with their energy usage, they have more motivation to try to engage with it and to use that information to make other savings. The evidence that we have seen from EDRP, and also from a trial that National Energy Action carried out, was again that those on low incomes were managing in most cases to make similar levels of savings.

Q300 John Robertson: On the low incomes, it is surprising that you say there was the same level of savings. What reasons were there for that? Did they know? Did they say?

Maxine Frerk: As I say, they were motivated to try to find ways to make use of the information that they had in order to save energy. So they were looking for ways, and realised that some things did not use as much energy as they might have thought.

Q301 John Robertson: I say that because I wonder, was there any accent put on the fact that it could be the price that was making them switch things off? I know from constituents that they worry about running electricity bills up because of the price. Therefore, it would not be unexpected that the fuel poverty people were spending less when they were paying so much more for the actual electricity in the first place. Did they look at that, or was that not part of the criteria for the information?

Maxine Frerk: They were done on the basis of having a control pilot. You had a control group that did not have the smart metering and another group that did, so one was able to compare and try to strip out the effects of things like price. Obviously, if price is what is driving them to want to save energy, what the in-home display is doing is helping them understand which things are using the most energy and, therefore, to make more informed decisions about which things it is important for them to switch off, or to realise that they have left things running when they did not mean to.

Q302 John Robertson: Would it be fair then to say that they did not look at the reasons behind the reduction? It was just that they had a reduction?

Maxine Frerk: The EDRP was just that they had a reduction. The National Energy Action study did more qualitative research, looking at the way that they were using that information. Obviously DECC are doing further research at the minute to try to understand and everybody is committed to making sure that low-income customers are able to get those benefits.

Q303 Ian Lavery: The IHDs are expected to enable ordinary people, consumers, customers, to see the real-time energy costs in their homes, and basically in pounds, shillings and pence. How integral are these IHDs to help the customers and consumers achieve energy and bill savings with the smart meters?

Maxine Frerk: They are the central part of the programme. They are what consumers think of as the smart meters. Again, going back to a lot of the research, EDRP and European studies have always shown that, with an in-home display, the energy savings are 2% to 4% higher than with other kinds of feedback, because it is there. There are pounds and pence, but there is also a traffic light system on the IHD that is very easy to see out of the corner of your eye, and people who find it hard to get to grips with numbers can see very easily, "It has gone red now. I am using a lot. What is on?" and think about whether they really need to have that on.

Q304 Ian Lavery: I fully understand that answer. In that case, why are suppliers not being obliged to provide non-domestic consumers with IHDs?

Maxine Frerk: The way that non-domestic customers work is that different sorts of businesses will have very different sorts of needs. An IHD in the home is quite useful. In a business where you have a number of different people working in the business, it may or may not be a helpful device. Our expectation was that, if that was the best way of interfacing, non-domestic customers would either be able to buy their own IHDs from B&Q and get them installed, or that suppliers would offer them. It is not going to be appropriate for all businesses, so DECC did not mandate having an in-home display for non-domestics.

Q305 Ian Lavery: It just seems natural that, if the IHD in a domestic property, with a traffic light system for example, is a really good thing-and I tend to think that it is-surely it would be the same in small businesses.

Maxine Frerk: The point is that small businesses are all very different. Whether it is a small office or a shop or a fish and chip shop, they are going to have different needs and different people managing their energy consumption.

Q306 Ian Lavery: How do you respond to the fact that some small businesses are saying that they are being treated as second-class citizens in the roll-out?

Maxine Frerk: I am concerned that they feel that they are. Certainly, DECC have sought very hard to make sure that the views of small businesses and other businesses were taken into account. Indeed, I think many of them are getting smart meters earlier than domestic customers. It is an important part of the work. I know DECC are doing a lot of work now, starting to begin to understand how non-domestic customers are using smart metering and what the opportunities are.

Q307 Ian Lavery: Again, in terms of the communication with the consumer in the properties, for example, the EDF survey data from the Energy Demand Research Project showed that customers would have valued more engagement and instructions beyond the installation of their smart meters and the in-home displays. Will the forthcoming smart meter Installation Code of Practice specify a minimum level of information and support that must be provided to consumers upon installation of the smart meter and the IHD?

Maxine Frerk: Yes. Ofgem has just approved that Installation Code of Practice. It came into force this weekend on 1 June. That specifies the information that suppliers must provide to customers as part of that visit. It covers non-domestic customers as well, so on that one not all of the bits apply to non-domestic customers, but that Installation Code of Practice, in terms of the requirements and the information that must be provided, covers non-domestic as well.

Q308 Ian Lavery: Will there be a minimum level of information and support that must be provided?

Maxine Frerk: To all customers, yes.

Q309 Ian Lavery: SSE Chief Executive Ian Marchant has said that the four-tariff cap proposed under the Retail Market Review tariff reforms will prevent innovation and will prevent customers reaping the benefits of smart meters. Do you think this is a distinct possibility? Do you think it is right what Mr Marchant says?

Maxine Frerk: I don’t think it is right. I don’t know when he said it. In our latest proposals we are much clearer now that a customer with a smart meter can be offered either a choice of time-of-use tariffs or a choice of ordinary tariffs. In the last round of responses to our March consultation, none of the suppliers raised any issues about the restrictions of the four-tariff cap in relation to time-of-use tariffs, which they had been concerned about previously.

Q310 Albert Owen: DECC have stated on more than one occasion that no one will be obliged to have a smart meter. What percentage of customers do you anticipate will opt out of having a smart meter?

Maxine Frerk: I don’t think we know at this stage.

Q311 Albert Owen: Do you have any idea?

Maxine Frerk: The experience in other countries has been that it has been very small percentages by the time they have got to the end of the roll-out. Initially there may be some customers who are a bit nervous but, by the time you get to the end of the roll-out, the experience in other countries is that they are 1% or 2%.

Q312 Albert Owen: It is a small percentage. As part of this inquiry, we have been to the United States-in California, for instance-and there was a vociferous group against. My next question is, with regards to the opt-out, will they be charged for it? Will the person who, on principle or for whatever reason, does not want a smart meter incur any additional charges?

Maxine Frerk: On one level this is DECC’s responsibility, in terms of the plans for the roll-out. I think our view is that it would be unfair at this stage in the roll-out to be charging a customer. For instance Mrs Smith has been offered a smart meter and turned it down but Mrs Jones who lives next door has not yet been offered one, so she would not face any additional charges. I think all the suppliers agree that this is an issue for the end of the roll-out, if it becomes an issue at all. At that stage-

Q313 Albert Owen: I hear what you are saying. Obviously we will ask DECC the very same question, but, from your perspective as a regulator, do you not have concerns that some people might not want one on principle but will be charged a lot extra for having an alternative, which they already have and do not want to get rid of and it is working perfectly efficiently for them?

Maxine Frerk: At the minute, under our current RMR proposals, suppliers would not be able to levy that kind of charge, so a simpler, clearer, fairer set of rules precludes them from doing that.

Q314 Albert Owen: I hear what you are saying, and all this is in the future-the roll-out has been put back a year-but we are trying to establish what would be in the best interests of all the customers. Looking after that small percentage I think is important as well. As a regulator, you have said you have looked at other countries and you do not see there have been large numbers, but you do see some regimes in other countries where the regulator has had to intervene. In the United States there was a fixed fee for not having one, and then there was a monthly penalty levied at customers who have opted out. Do you see that kind of thing happening in this country?

Maxine Frerk: It would not happen until we get to 2019, 2020, and it is very hard to look ahead that far into the roll-out.

Q315 Albert Owen: It is, but some areas are not going to start until then anyway. Some of the peripheral areas are not going to start, and there may be campaigns. The supplier should be able to indicate to those people, "We are going to come to your area in a certain time, and if you don’t do it then there is likely to be a charge". I think that is perfectly reasonable, don’t you?

Maxine Frerk: It has been very successful in other countries in getting a number of customers, those that just can’t be bothered to be at home or are quite happy. There are real costs to suppliers of maintaining two systems, so it may well be that in future we would say it was reasonable for suppliers to charge if there were additional costs.

Q316 Albert Owen: In the future, if there are to be additional costs, who would regulate that?

Maxine Frerk: We have a competitive market. We don’t regulate prices. What Ofgem has done in the past is say that certain prices count as discriminatory or "You can levy particular charges or not for different sorts of services". Ofgem could be expected to have an interest in that area, but we would not be regulating the level of any charges.

Q317 Albert Owen: From what I understand, the regulator in California-I don’t know if it went to court, but there was certainly a hearing and it was reduced-said that those were unfair charges. Could you envisage that happening if they are too high in this country?

Maxine Frerk: Certainly, if they are disproportionately too high, then there is the general consumer protection law and Ofgem has powers to enforce the level of incidental charges. California is in a regime where the regulator sets the prices overall, so has much more interest in the prices of those sort of charges than we do here where we have a competitive market.

Q318 Albert Owen: So the suppliers could get away with things in this country that they could not in California?

Maxine Frerk: No. You have a competitive market that is setting the prices, rather than a regulator and a monopoly.

Q319 Albert Owen: If I could move on to small businesses. As my colleague said, some of them do feel second-class on this, that it is all for the domestic customers and not for businesses and non-domestic customers. With regard to free access to energy use data once the roll-out is complete, will this happen for businesses?

Maxine Frerk: The licence conditions that DECC have put in place include the right for small businesses to have access to their data on request, so they will have access to that data.

Q320 Albert Owen: That will be free?

Maxine Frerk: I might have to get back to you on that. I cannot remember whether it specifies that in the licence or not.

Q321 Albert Owen: With regards to the data being misused-and obviously this is a concern that some businesses do have-as a regulator, will you have a framework with the licence there that there will be a naming and shaming for some rogue suppliers, if they were to produce this for other companies or whatever and it is a breach of that licence?

Maxine Frerk: There are some licence conditions about access to the data, so the domestic customer has a choice about who has access to their data. Similarly, the smaller businesses, micro-businesses are able to say that they don’t want their supplier to collect the more detailed data about their usage if they are concerned about how it might be used. They have the ability to opt out, if they are unhappy, apart from the basic information that the supplier needs to bill them.

How that information is then used is governed by the Data Protection Act, if they are sole traders, and it is the Information Commissioner who would then govern how that information is used.

Q322 Albert Owen: If I was a small business signing up with a supplier, I would have a little tick-box to say, "I want this limited data made available to certain people"?

Maxine Frerk: Yes.

Q323 Albert Owen: In very small print at the bottom?

Maxine Frerk: I hope not, but that is one of the many things that we will want to keep an eye on as it goes forward.

Chair: Thank you very much. That probably concludes our questions. Thank you for coming in.

Examination of Witnesses

Witnesses: Baroness Verma, Parliamentary Under-Secretary of State, DECC, Daron Walker, Director, Fuel Poverty and Smart Meters, DECC, and Jacqui Russell, Head of Consumer Engagement and Roll-out, DECC, gave evidence.

Q324 Chair: Good morning. Welcome to the Committee. We are very delighted to have this first opportunity of talking to you. Would you like to just introduce your officials? We were not quite sure who the second one was going to be.

Baroness Verma: Daron Walker, would you like to introduce yourself, and Jacqui, would you like to introduce yourself? I think that would be easier.

Daron Walker: I am Daron Walker. I am the Director of Fuel Poverty and Smart Meters.

Jacqui Russell: I am Jacqui Russell. I head up the Consumer Engagement and Roll-out Team within the smart metering programme of DECC.

Q325 Chair: Thank you very much. Could you shed some light on a bit of a mystery about the ministerial responsibilities inside the Department? We discussed this briefly with the Secretary of State a couple of weeks ago. Nothing much seems to have happened since then. On 28 March, which was the last posting on your Department’s website, following the appointment of Michael Fallon, it said the exact portfolio of the Energy Minister is still to be confirmed. Do you know, is there a sort of turf war taking place between the private offices and the Department at the moment, or is it just a sort of muddle about who is supposed to be doing what? Has a decision been made about allocating ministerial responsibilities?

Baroness Verma: As far as I am concerned, Mr Chairman, ministerial responsibilities have not changed since Michael Fallon came into his new role. It may well be that the website has not been updated, but I can take that back to the Department and ask them why that has not happened. No, I don’t think anything has really changed, apart from the fact that I have an extra little bit to do from John Hayes’ portfolio on better regulation.

Q326 Chair: Thank you. You have an opportunity to shine, compared with your Secretary of State, because he said he would take it back two weeks ago, since when nothing much seems to have occurred. Just for interest, the only information on the Department’s website about Michael Fallon’s responsibilities was related to those in the Department for Business and Enterprise. It does not say anything about his responsibilities inside DECC, which seems slightly eccentric for DECC’s website.

In terms of your responsibilities, the website says you are responsible for efficiency, but I understand that other efficiency-based initiatives, like the Green Deal, are the responsibility of Greg Barker.

Baroness Verma: That is right.

Q327 Chair: Apart from smart meters, what other areas do you handle in terms of efficiency?

Baroness Verma: As I have just mentioned, I have just taken on looking at regulation within the Department. I also look at decommissioning and the GDF programme. Between smart meters, GDF, efficiency and better regulation, I tend to have quite a handful, because, as you are aware, as a person from the House of Lords, I have to have quite a big overview of the whole Department’s work anyway. I am well placed to be well busy with everything going on at the moment, I think.

Q328 Chair: Of course, very shortly you have the alluring prospect of taking the Energy Bill through the House of Lords.

Baroness Verma: Indeed.

Q329 Chair: I am sure that will produce acclamation on all sides. Coming on to smart meters, which, by themselves, are a pretty substantial area of responsibility, what are the benefits that DECC hopes to deliver from the smart meter programme?

Baroness Verma: What we are trying to do is to ensure that, first of all, consumers can have some control over their own usage. I think for a long time the balance between suppliers’ relationship with consumers has been slightly in the favour of the supplier. With the smart meter, I think the consumers will be better informed. It also gives them an idea of the sort of appliances that they are using and the levels of energy usage. I think it is about looking at behaviour change, trying to make consumers more empowered, and also make energy companies work a little harder, knowing that they have a much more savvy consumer that they are going to have to deal with.

Q330 Chair: The Department has an estimate that the smart meter roll-out will provide a net benefit of £6.7 billion. Are you confident that is going to be achieved?

Baroness Verma: Yes, I am. I think that is on the conservative side of everything. When we have taken into account all the very conservative savings that individuals may make initially, it is a reasonable sum to be looking at. I do think in the long term we will be looking at a much greater benefit, not just in monetary terms but also in usage terms. There is an important relationship to be seen there, and it is not just all about monetary savings, I think it is also about being able to look at being a much more efficient consumer and nation.

Q331 Chair: One of our witnesses suggested, and I quote, "Civil servants cook the numbers to come up with a net benefit for roll-out". What do you think about that idea?

Baroness Verma: I have looked at the evidence, Mr Chairman, and I think that cooking the numbers is far, far from the truth. We do in-depth analyses, and I am sure both Daron and Jacqui would verify that. We do go through looking at huge amounts of evidence on a very regular basis to ensure that the numbers stack up.

Q332 Chair: I am sure people will judge from previous experience whether DECC is an expert at cooking up numbers or not. How do you hope that costs can be kept down, given the scale of the project and the fact it is using some new, perhaps rather untested technology?

Baroness Verma: It is in the interests of suppliers to ensure that they are looking at it as a proper business case. It is a competitive market out there. It would not be in the interests of anybody to escalate costs. As you rightly pointed out, there are some untested usages that we are putting forward, but, by and large, we have come together with suppliers and with other stakeholders to look at costs, and we think we are at a place reasonable to the estimates that we have made.

Q333 Chair: As we have been taking evidence, one of the recurrent suspicions that we have felt is the risk that this is a programme where, although it may be intended to benefit consumers, the bulk of the benefits will be obtained by the suppliers. What can you do to try to keep the balance more in favour of consumers?

Baroness Verma: Ultimately, it will be in the interests of the suppliers to ensure that they are not ratcheting up costs in favour of themselves. As I have said earlier, I think that, with the consumer getting better informed and becoming much more savvy with their own usage, it will be harder for suppliers to be able to use the methods that they have been using up until now, whereby consumers did not really understand what they were being billed for. The balance of understanding is going to shift, and, just on that premise, I think suppliers will find that they are going to have to work harder to retain the customer base that they have, and also to engage with new customers.

Q334 Chair: Do you think there are opportunities for achieving efficiencies by co-ordinating the roll-out of this programme with other Government energy efficiency and fuel poverty initiatives?

Baroness Verma: I think that is right, and it is the right way to approach it. Of course, what we don’t want to do is muddle the consumer up. When we go out there, part of the code for installation-I may just get some backup in a moment-is to be able to ensure that the installers are talking about other energy efficiency measures, such as the Green Deal. We have made it very clear that, first of all, it has to be a process where the consumer desires that engagement rather than have it thrust upon them. There is still some work to be done on how to engage with consumers better, and that is being done through the Central Delivery Body that we will have set up by the end of this month. I do think that there is a lot that can be done in working with other energy efficiency measures that we already have in place.

Q335 John Robertson: The energy installers are talking about efficiencies and things like that. What are the time constraints that the companies put on these engineers? I was an engineer once, and I know that I had to do X amount of work in a day. If these people are busy talking-and some customers will talk longer than others-then they might not reach their productivity targets. What happens then, when an engineer is disciplined because they actually did what you want them to do?

Baroness Verma: Mr Robertson, I think that is a fair question to ask. The point with consumer engagement before the mass roll-out is to be able to see methods and ways of being able to have that installation process be made as smooth as possible, by ensuring that, before any work starts, the consumer understands what they are going to be getting in the benefits. It isn’t just about turning up and saying, "We need to have a conversation" and install. It is about long-term going into consumer engagement. That is why we are setting up the Central Delivery Body to ensure that we are reaching out, particularly through third-party groups, with the benefits, so consumers know beforehand by and large what they are expecting.

Q336 John Robertson: That is all very well, but that does not answer the question. That is that large companies will subcontract to smaller companies, who will be under a certain amount of pressure to get X amount of jobs done and each engineer will be expected to do that. I maintain that an engineer at some stage will end up being disciplined for not meeting his targets or not appearing to meet his targets, although he may be doing exactly what you want him to do, and that is to explain to the customer exactly why the smart meter is there and what it does. What I am trying to say is there has to be some cover for these people.

Baroness Verma: If I can just ask Jacqui, would you just-

Jacqui Russell: You describe a risk that we are aware of. Meter installers today do not engage with customers at all. It is a technical job. Their job is to make sure the installation is completed safely and efficiently and that they meet their productivity targets. One of the things that suppliers are looking at during the foundation phase is: what is productivity going to look like in the roll-out of smart meters? The installations will take longer than a dumb meter installation. That is mostly because you have to install the communications equipment as well as the meter. We are also going to have a lot of new installers out there who are less experienced, and we know that their productivity will be lower, particularly when they are new, and there is this extra requirement from us about talking about energy efficiency, demonstrating the IHD.

The reason that we have embedded in the licence conditions relating to the Installation Code of Practice the requirement to give energy efficiency advice, is because we know that is the bit that would probably fall away if it was left to suppliers. What we would expect suppliers to do-and what we know they are doing-is to take the licence conditions around the Installation Code of Practice and embed those into the contracts with meter installer suppliers, and part of that contract is about making sure installers are given the time to provide that energy efficiency advice.

Q337 John Robertson: Then will you oversee the contracts, which are made with the subcontractors, to ensure that the subcontractor is not picked because they say they can do X amount of jobs more than Y can do? Will you make sure that is going to happen, and, if so, I would like to know how you are going to do it.

Jacqui Russell: Ultimately it is Ofgem’s job to ensure compliance with the licence conditions. From now we are monitoring what suppliers are planning to do. We are collecting information from them now about how they are planning on approaching the installation challenge. Some of them will be using in-house installers; some of them will be going out to procurement; some of them will be using a mixed approach. We are talking to them about what our expectations are, making sure that, as far as possible, DECC and Ofgem are on the same page, so that when it comes to Ofgem with the formal oversight for licence conditions, they can do that.

John Robertson: There is a first for everything. On the same page, but are we?

Q338 Mr Lilley: The Committee received evidence that a number of early estimates of the cost-benefit showed that costs would exceed the benefits. Normally, as one goes into these things in more detail, one finds additional costs that one had not originally established. In this case, you seem to have managed to evaporate some of the costs and the costs have gone down. Could you tell us which were the costs that the original studies thought would take place but you now no longer think will be incurred, and which were the benefits that you originally overlooked that you subsequently discovered?

Daron Walker: If I may take that question. Originally there was a study done-I think it was 2008-looking at the costs and benefits of a potential smart metering programme. At that point there was lots of uncertainty about the delivery model, lots of uncertainty about the different technologies that might be used.

Under Green Book rules there are requirements to have very high levels of optimism bias when you have lots of uncertainty around the potential costs of different elements, so the big reduction between 2008 and then the published impact assessment in 2009 were driven by better information about the delivery model, better information about the technologies that would be used, which allowed the optimism bias assumptions to be reduced. Also there was better information about the costs of metering and the smart meters. So all of those elements have seen the figures on the costs come down.

At the same time, some of the benefits that were perceived but not yet monetised, they have also increased over time, again, as we understand more about how smart metering works and more about how they are rolled out, especially in the foundation stage.

However, there is still £2 billion worth of cost escalation and optimism bias embedded in our impact assessment, so £2 billion of the £12 billion costs are for potential cost escalation and optimism bias.

Q339 Sir Robert Smith: In looking at the costs and benefits, because of the breakdown of trust and the lack of confidence in the market, you get a strange dichotomy whereby the consumer does not want their supplier to benefit. Yet, if the market was meant to be working, if the supplier can do something more efficiently, that should be to the benefit of the consumer. Do you not think that for the smart metering to really be accepted we need to get this trust again in suppliers and the market working?

Baroness Verma: I completely accept that, Sir Robert. It is a huge task for suppliers to be able to build up that trust, but with the steps that we are taking in consumer engagement, whereby we have suppliers and other stakeholders, such as third party trusts like charities, all coming together through the Central Delivery Body, we anticipate that we will be able to start breaking down some of the barrier creep over the last few years, in as much as the consumer does not, by and large, trust suppliers. It was what the Chairman said to the previous witness, or it may have been you, about, "Is it going to be in the small print?" The sort of information that consumers would benefit from.

We are trying to ensure that, before roll-out, consumers are better engaged through the Central Delivery Body and that it is an onus on us as Government, as a Department, to ensure that all the stakeholders are working towards building that trust up. It is a task, it is a challenge, and one that we have to very much overcome.

Q340 Sir Robert Smith: You have shifted the timescale for roll-out by a year. What were the factors behind that, and what do you hope to be achieved in that extra year?

Baroness Verma: I think that it was right that we reviewed things as they went along. On behalf of the Department, I did undertake to have a good look at everything towards the end of last year to see where we were with certain programmes. We listened very carefully to what suppliers were saying, but also to other stakeholders. What we want to make sure is that the roll-out achieves what it is supposed to achieve. That is, at the end of the day, to give the consumer a good experience of having a smart meter. Listening to all the voices around the table, at that time I felt that a year’s delay was the right thing to do. I think, by and large, it has been welcomed across all stakeholder groups, that it was the right thing to do, because ultimately-as I am sure the Committee wants-it needs to be a successful roll-out programme.

Q341 Sir Robert Smith: What sort of key systems need to be ironed out before the roll-out takes place?

Baroness Verma: We need to make sure that all the mechanisms, such as the DCC, have had real, vigorous, end-to-end testing, so that we are absolutely prepared and suppliers are absolutely prepared that they are able to go out there and deliver to an end date, whereby they comply with our desire to ensure that there is a mass roll-out by 2020. There are still some systems that need testing. We need to make sure that what we want to deliver out of a mass roll-out is going to happen and that, at the end of it, consumers feel assured that what they are getting is beneficial to them. Do you want to add to that, Daron?

Daron Walker: If it is helpful to set out a few specifics. When the timetable for the period of designing, building and testing the DCC systems was set out, back in March 2011, it was necessarily based on an estimate at that time. As the Minister said, last December we said that we would review the timetable in March and April of this year, particularly to take account of the lessons learned from those suppliers rolling out early in foundation. Also, we are in the final stages of the contract discussion and dialogue for the DCC services and the providers of those.

What became clear in the period up to March and April was that there wasn’t sufficient time allowed for the designing, the building and the testing of the systems. Effectively, we have taken note of that and added an extra year, which will allow more testing of the DCC service provider systems, but, in addition, a six-month period for those systems to then be tested end-to-end into the energy supplier systems and the energy company systems. That extra year was seen as necessary, but also seen as prudent. We now expect the mass roll-out to start in autumn 2015. To compensate that we have also moved the date at the end of the roll-out back by a year. The broad consensus was that five years was do-able for the roll-out, but condensing that down to the four years that would have been left was effectively generating too many operational cost risks.

Q342 Sir Robert Smith: Are you still cautious that if the security cannot be rigorously tested, you would be able to delay the roll-out even further to make sure that security was going to be-

Baroness Verma: We are now in a very confident place that with what we have done-particularly around security, which we have taken very, very seriously-we will have all pieces in place to ensure that the roll-out will take place at the end of 2015. The foundation period is a good learning period for us as well, because it is being able to yield out some of the difficulties that some of the suppliers are facing. Again, it is not just about waiting for mass roll-out; it is learning and looking at what is already happening during the foundation stages.

Q343 Sir Robert Smith: One concern raised with us is that if it is a rigorously enforced timetable, you could end up with costs escalating as people try to get in under the wire to meet the deadlines at the end. Do you see any flexibility about how long the roll-out would take?

Baroness Verma: There are some suppliers who are already doing roll-out. They are already putting meters in in the foundation period, and I think one or two of the suppliers have shown that they would rather wait a little longer. I don’t see further delays. We have listened carefully, we have taken into account all the concerns that have been raised by supplier groups, by other stakeholder groups, and I think that the timetable now-given what we want to achieve-has allowed them a little bit more flexibility in how they want to roll-out. Also, it allows us to be able to look and test and review as that roll-out is happening, so I think we are in a very good place now.

Q344 Dr Whitehead: When the smart meter programme was first announced, the original roll-out was the end of 2020. That was at the end of 2009. Then it came forward to 2018. Then it went back to 2019. That was May 2011. Now it is the end of 2020, an exact completion of the circle of the original date of roll-out. Are we really to believe that is the final word on the matter, or do we think there are there further modifications to come?

Baroness Verma: Dr Whitehead, what we have very sensibly done is looked at and reviewed the dates as they have come along, and I think any sensible Government-be it the previous one or ours-would be reviewing at every juncture. As Daron has said, those dates are dates that are there for reviewing. If we need to sensibly move the date, then that was the right thing to do. I have been in post about nine months now, and I have looked very, very carefully at the programme and listened very carefully to all groups involved in it. The conclusion I came to at the end, and that was my recommendation to the Secretary of State, was that it would be beneficial to have this extra period to make sure that we did the testing. I do not think there is anything more behind that. It is about reviewing what is in front of you with the evidence that you have at the time.

Q345 Dr Whitehead: We still do not have the SMETS 2 specification finalised, do we not? When will that be finalised with you?

Baroness Verma: I think it is December next year.

Daron Walker: Obviously energy suppliers are able to roll-out SMETS 1 meters and that will contribute to their roll-out obligations, and some of them are already doing that. We have successfully notified part 1 of the SMETS 2 specification, which effectively allows manufacturers to get on and build and design the actual meters. There is a remaining part that is due to be completed in quarter 1 next year, which is more about specifying some of the standards for the HAN communication, so that that and the security requirements will allow all of these meters to work with the DCC systems when they are in place. Manufacturers now have the information successfully notified to the EU to allow them to get on and start manufacturing and designing those meters.

Q346 Dr Whitehead: For the person who is not entirely up with SMETS 1 and SMETS 2, what would you describe as the real difference in functionality between the two standards?

Daron Walker: I think the main difference-because there are some smaller, technical differences-for SMETS 1 is we didn’t define the HAN standard, so we effectively said, "You need to use an open standard, but beyond that it is for energy suppliers to choose". For SMETS 2 we have effectively chosen the HAN standard and defined that, and that is the work that needs to be done to work through into the detailed specifications that will be published in quarter 1 next year. That is really important for the interoperability, so that when the DCC systems are up and running, if you switch supplier, the new supplier will be able to use that equipment in the way that the previous supplier did. That is the main difference-the specification of the HAN communication standards.

Q347 Dr Whitehead: Effectively we now have three different standards: SMETS 1 compliant, SMETS 1A compliant, SMETS 2 forthcoming, smart meter non-compliant.

Daron Walker: It is right that there are effectively three standards. The non-compliant is a smarter type of meters that energy companies that decided that they wanted to roll-out smarter meters to their consumers, so that they could benefit from those early deployments, have done at their own risk. Effectively we have SMETS 1 compliant meters now available. People are installing those. On the split of SMETS 2, effectively, it will come together in one meter when those meters are manufactured. By splitting part 1 of SMETS 2 and part 2, we have allowed the meter manufacturers to start designing the hardware and start designing the meters. In the meantime, we continue to work through the detail of the software that will go on those. That will come together in time for those meters to be available for testing with the DCC systems.

Q348 Dr Whitehead: Right, but if a customer switches at the moment, they will be required to have a different meter installed as a result of their switching, or they may do, depending on whether the meter that they have already-which they may not know about-is or is not compliant; that is, if they have had a smart meter that they thought was a smart meter installed by a non-compliant company, they would have to have that meter taken out. I noticed the change in ruling recently. That would not have to be replaced by a SMETS 2 meter but could be replaced by a SMETS 1 meter, which will continue to be compliant. Am I still-

Daron Walker: You are on track. It is quite a complex setup. For a non-

Q349 Dr Whitehead: I think the thrust of my question is: first, what degree of really non-compliant meters are likely to have to be ripped out and straightforwardly replaced? What level of meters look like they are compliant and, therefore, can work into the system, and to what extent is that going to cause distress and confusion among customers who thought they had a smart meter and perhaps don’t? On the other hand, they may do.

Daron Walker: The first thing is, for non-compliant meters, in effect, if you inherit that as a new supplier, you can choose to keep that equipment in the home and continue to operate it. Most likely you would operate it in dumb mode, but there is no requirement to rip it out. The requirements that we are suggesting that will come forward in December are for compliant meters. If you inherit a compliant meter as a new supplier to that home, you will have two choices. You will either negotiate with the original installing supplier and negotiate terms to take over responsibility for that and operate those meters, or install your own SMETS 1 compliant meter. What we envisage will happen is that suppliers will need to make their choices, but effectively what that will do is create the commercial environment for the installing supplier to negotiate terms with the inheriting supplier. We expect that over time that market will allow the customer to keep their meter and also, over time, keep their smart service as well.

Q350 Dr Whitehead: How many customers do you think that affects in terms of-

Daron Walker: At the moment, there are small numbers of compliant meters. There are around 600,000 non-compliant meters out there, which have been installed over a number of years, separate to the smart metering programme that we are defining here.

Q351 Dr Whitehead: We may say that that is tough luck on those companies that went in for early adopter arrangements and will see their meters removed. Nevertheless, that will increase the overall cost of roll-out, will it not?

Daron Walker: Again, they will not need to be removed until the end of 2020 now. That is the first thing to say. Consumers obviously will be benefiting from having a smart meter. The response is even-

Q352 Dr Whitehead: Will they not count?

Daron Walker: They will not count towards the obligation, because one of the important-

Q353 Dr Whitehead: Towards the overall cost of roll-out?

Daron Walker: They will contribute to the overall cost of the roll-out. Obviously it is still seven years away before they will need to be ripped off the wall. Of course, this is for the individual suppliers to have made their own commercial choices. We were very clear that if you were installing non-compliant meters, you did so at your own commercial risk. Those companies have taken the decision to do that because they saw benefits to retaining or acquiring new customers, but because it is not compliant, because we cannot ensure interoperability, we felt it was right to make it clear that they did that at their own commercial risk.

Q354 Dr Whitehead: Would it not be a good idea-bearing in mind where we are now, in terms of the quasi-completion of SMETS 2 and some information on manufacturing but not all information being available, and therefore the suggestion that perhaps all this will be repeated all over again-to wait until SMETS 2 is fully completed and we can confidently go ahead on a roll-out, to do that roll-out at that stage, rather than phasing it in the way that we have described this morning?

Daron Walker: Again it is important to separate the non-compliant meters, which we have talked about already, and the SMETS 1 compliant meters. Those meters allow consumers to benefit from all of the things that are consistent with the business case in the smart metering programme. Those meters will contribute to the suppliers’ roll-out obligations, they will stay on the wall, and the consumers will be getting all the benefits of accurate billing and remote readings. It will also allow those suppliers to invest now, because we want them to invest now, because we want them to learn from foundation and we want consumers to benefit from smart metering as soon as possible. The ability for those to be installed now, for those suppliers that want to do that, we think is a good thing for the overall programme.

Baroness Verma: Ultimately, it is supplier choice. If that is the decision they take, then it is a business decision they have taken.

Q355 Sir Robert Smith: In terms of consumer engagement, do you think we should move away from the language of "ripped off" and talk about "removed" or "unscrewed"? I am sure the engineers-

Daron Walker: Probably so.

Q356 Sir Robert Smith: In terms of the development of the standard, you said that the hardware had been approved and the software was still being developed. Is there any risk that the software engineers would say, "If only I had known this and you could have tweaked the hardware, it would have made my life a lot easier", or is that feedback loop already in place?

Daron Walker: I would say that feedback loop is already in place. In fact, one of the things that we are very clear about within the programme, in terms of taking decisions about whether to separate SMETS 2 part 1 from SMETS 2 part 2 was to validate that that was not going to be a risk. Enough work was done on the software side to allow us to progress the hardware side.

Q357 John Robertson: It strikes me that what you are doing is you are just covering the manufacturers that were making the original SMETS 1 meter to give them something to sell, rather than waiting for the next generation of meter, which will come along in a matter of months. You are not going to be helping the consumer at all because they are going to have to replace the SMETS 1 meter with another meter, so there are two bites at the cherry. I do not see how this helps the consumer in their costs when you can do it all in one go and go to a better meter, rather than putting in an inferior meter knowing that a better one is coming along.

Baroness Verma: I am not quite sure I buy the argument, Mr Robertson. I think what we are trying to do is give immediate or quick access to those consumers who want it, so that-

Q358 John Robertson: Being quick does not necessarily mean good. It is much better to get a state-of-the-art meter that you know you can rely on and will work, than put something in there that you know you are going to have to replace. It just strikes me as being nonsensical that you would fit something that you are going to replace.

Baroness Verma: The consumer will benefit from the SMETS 1 anyway. All SMETS 2 is doing is adding a little bit more functionality, and Daron is far better placed to tell you about the technical side of that.

Q359 John Robertson: This is not about technology, this is about cost. At the end of the day, the person that is going to end up paying for this will be the consumer who will have to pay for two meters and two installations. Unless you can guarantee the Government is going to handle the cost of the replacement meter, then I would be quite happy. If it is going to be that the cost will be passed on to the consumer then I am not happy.

Daron Walker: SMETS 1 is not an inferior meter to SMETS 2. It doesn’t have a defined-

John Robertson: It is just not as good.

Daron Walker: No, SMETS 1 meters-

Q360 John Robertson: Hang on a second here, I may not be the cleverest person in this room but if I have a replacement meter, and it is obviously a generation thing, it will be better than the previous one. If it is not, what is the point of having it in the first place? So it must be better.

Daron Walker: The main difference is SMETS 1 meters you can deploy ahead of the availability of the DCC.

Q361 John Robertson: But why? What for?

Daron Walker: Because there is a whole load of complexity of learning, there is a whole load of manufacturing design and development that will need to take place.

Q362 John Robertson: Going back to what I said, it is for the manufacturers. It has nothing to do with the consumer. You are doing it for the manufacturers. Be honest with us, it is for the benefit of the manufacturer. It has nothing to do with the consumer. They couldn’t care less what kind of meter it is, whether it is the SMETS 1 or the SMETS 2. They don’t care. They want the meter. I do object to the fact that you will be charging twice.

Daron Walker: They will not have to be replaced. That is the point.

Q363 John Robertson: Never?

Daron Walker: At the end of their life they will need to be replaced, but SMETS 1 meters will not have to be replaced. They will last their lifetime and then effectively the next generation will come along. I imagine over time we will have a-

Q364 John Robertson: But the next generation has come along. It is not that we are waiting for the next generation to be invented. It has been invented. It is there. Why bother with the first one when you can go straight to the second one? Unless you want to help the manufacturers.

Daron Walker: The key thing is that if those companies that want to install smart meters know that they are installing a compliant meter, that will stay on the wall and contribute to their obligation, they can do so. When the DCC is in place you need additional specifications to ensure it is interoperable, and that is the element. It is the HAN communication that we are specifying for the SMETS 2 meter. The SMETS 1 meter allows the customer to do all of the things that they will want to do: real-time data, access to historical information.

Q365 John Robertson: You mean new criteria for the second one. Why? Because you think it is better, so why not just wait and go for the better model? But you won’t. Look, you are not going to get me to agree here because I just feel that, if you are going to spend all the money on a meter, let’s go for the best one and not put an inferior one in. You can say it is not inferior, it is inferior otherwise it would not be being replaced and it certainly would not meet the criteria that you are putting on it.

Baroness Verma: Mr Robertson, it is not about inferiority or superiority, it is just about added functionality, which will be able to be delivered through the DCC and SMETS 2. Consumers being engaged in SMETS 1 now, up front, will get the benefits of that now rather than wait until further on in the development of SMETS 2.

Q366 John Robertson: Have you done a cost assessment of fitting the SMETS 1 meters and then following in with the SMETS 2, and what it would be if you just went straight to SMETS 2? Have you done a cost on it? Although the next model is always cheaper than the first model.

Daron Walker: We have done impact assessments on the way we are rolling the meters out, and in effect-

Q367 John Robertson: It is the cost I am concerned about. I appreciate you have done that. I appreciate that, but it is the cost.

Daron Walker: Would it be okay to write to the Committee on that? I would rather do that than give slightly wrong information.

John Robertson: Yes.

Q368 Albert Owen: Minister, can I take you back to the response you gave to the Chairman with regards to consumer benefit against the perception? Many of our witnesses were concerned that energy suppliers would be the main beneficiaries of smart metering roll-out. You mentioned that some of the benefits to the customer would be simpler billing and engagement with new customers. With respect, as a Committee, we have recommended simple bills. The regulator has done its Retail Market Review and recommended simple billing. The Government wants simple billing. It is going to legislate for simpler billing. That is already there, why do we need smart metering on top of that to provide what you said would be the main benefits to the customer?

Baroness Verma: It is not just about billing. I think this is something I also said to the Chairman in the beginning, that it is not just about billing, it is also about being able to change our behaviour to how we utilise energy. Part of the problem has been that people do not quite understand what it is that they are being billed for. By being able to show them the levels of energy usage during the day, through smart metering and in-home displays, it actually-

Q369 Albert Owen: I understand the theory. What I am saying is that in practice now people are getting simpler billing. People are getting help through environmental and social benefits. They are getting their houses lagged, their lofts lagged. All that is happening now. That is not going to happen because of smart metering. It is happening now.

Baroness Verma: No, but it adds on. It adds on to the fact that we do want to make sure that consumers do actually understand. Even through simpler billing a lot of consumers are still not reaping the benefits, and what we are trying to do is to ensure that through-

Q370 Albert Owen: So switching doesn’t work then?

Baroness Verma: Switching does work but it also works if you are better informed, and what we want to try and do, ultimately, is to make sure that the consumer has better information at their fingertips on what it is that they are using their energy for. It may be time-of-use tariffs. That is another area that we are looking at, which Jacqui can elaborate a little bit more on.

The ultimate goal for us in the Department is to ensure that the balance is better placed, where the consumer has a little bit more control over, first of all, what they are paying for but also how they are using their energy. That has been something that has been missing out of the equation for a very long time.

Q371 Albert Owen: Some of the witnesses have said to us that, yes, they would get all these gadgets but after a while they would not use them anyway. So it is a complete waste. They get it, but it is just like another remote control and they put it to one side. How do you respond to that?

Baroness Verma: I don’t buy that argument. Like the Committee, I have also spoken to a lot of people who have seen such benefits in being able to visualise through their in-home displays the sort of energy uses that they are doing. It has changed the way that they actually do switch on and switch off. So I don’t buy the argument. We are becoming a much more gadget-driven society, and I think we are becoming far more aware-

Q372 Albert Owen: There is a threshold. You can have three remote controls for your TV. You just use the one. You put the other two in the drawer and never use them again when the battery runs out.

Baroness Verma: Perhaps I am not as pessimistic of the consumer. I personally think that it is a good device and a good method of being able to really do what we should have been doing for a long time, which is actually getting consumers more in control of how they are using their energy.

Q373 Albert Owen: I understand that. DECC has also said that accurate bills is one of the main benefits as well. If I could concentrate on that because, in evidence to us, Consumer Focus suggested that those who already have smart meters are not currently receiving accurate real-time billing information. Do you see this as a problem, Minister?

Baroness Verma: I think it is near to real-time information, but I think Jacqui can elaborate on that.

Jacqui Russell: Yes. You are right to identify accurate billing as what we see as one of the key benefits. We are doing quite a lot of research understanding what consumers see as the key benefits of smart metering, and the evidence shows that they see accurate billing as really important. One of the benefits of foundation is that it allows energy suppliers to do all the work they need to do with their back office systems to make sure they can deliver that accurate billing. There have been some teething problems for a small proportion of customers. That has been particularly around getting the meter reads from the meter to the supplier, getting all the way through the appropriate bits of their IT systems and landing accurate real-time on billing day. That hasn’t always happened and there was a particular problem with one of the suppliers around a year ago, which is exactly what we see the foundation stage is about. It is to identify where these issues arise, and they are tackling those. It makes us feel more confident that when it gets to mass roll-out, and we are starting to see millions of customers with smart meters rather than thousands, we will start to see those benefits right from day one.

Q374 Albert Owen: Will there be a requirement for suppliers to provide that real-time accurate billing?

Jacqui Russell: The existing licence condition requires suppliers to bill on the best information that is available to them.

Q375 Albert Owen: It is a bit vague, isn’t it?

Jacqui Russell: The licence conditions that we, DECC, have put in place require energy suppliers to establish a connection with the smart meter, so we have taken a facilitating step so that we know the suppliers will have information from the smart meter. The bit about the accurate billing falls into Ofgem’s territory. Their judgment at the moment is that the extra licence conditions we have put in place, around using the smart meter, with the existing licence conditions around billing, together should mean that you have to use your smart meter data to provide an accurate bill. Ofgem have said they will keep that under review, and if they need to amend that billing licence condition then they will look at doing that.

Q376 Albert Owen: So, I have all the gadgets, I want to know between midday and 6.00pm how much energy I use, and after 6.00pm. I would be able to do that regularly?

Jacqui Russell: You ought to be able to do that on your in-home display. We have defined the minimum functionality that an in-home display has to be able to provide, and it has to be able to give you both real-time and historic data on your energy consumption. Of course, what we hope is that a new market will develop. People will innovate, they will be offering consumers all sorts of fancy gadgets and widgets that they will be able to use in their home to access their energy data and to interpret it.

Q377 Albert Owen: Will suppliers be prevented from back-billing once customers have smart meters installed?

Jacqui Russell: Again, it is Ofgem that regulates in this space. Suppliers are aware now that they have quite a lot of meters out there that have not been read for a long time. Some of them are being quite active in trying to get out there and get readings from those meters before the smart meter roll-out starts, so that they can get any back-billing issues sorted out, within the constraints Ofgem have already placed on back-billing, before they go and install a smart meter. I guess there is a concern that people will associate the installation of a smart meter with back-billing.

Once a smart meter is there, and you can get to your meter reads without needing to get entry to the property, which is what the challenge is at the moment, then there should be no reason for people to be able to back-bill. There is no excuse. It is for Ofgem to regulate on that specifically.

Q378 Albert Owen: What is DECC’s view on it? You have a view. I understand the regulator will make the decisions, but we are now in this foundation phase. You are learning. You are listening to everybody. Certainly, as DECC, you should have a view. Do you think there should be back-billing once these have been installed? Or the day they come in, I have a new meter, a historic reading is taken, from then on I am in the new technology age. Then I shouldn’t need back-billing, and I would suggest they should be prevented.

Baroness Verma: It is a question that we need to take back, and it is a question that needs in-depth response back to the Committee.

Q379 Albert Owen: Thank you. I have one final question with regards to the energy saving benefits from smart meters. There are a number of concerns that vulnerable and low income families-who are already rationing their energy bills-will not benefit from this. How do you respond? What extra can smart metering give somebody who is living very close to the breadline and is concerned about that, so they are doing everything possible? As I indicated earlier, these are the people who will have their lofts insulated, they will have the social benefit, which are good things, that comes through with some of the charges that are on all customers, to benefit these vulnerable people. What extra benefits can they get from smart metering?

Baroness Verma: Evidence that we have seen has shown that, by and large, it is comparable savings and benefits across the population.

Q380 Albert Owen: No, I understand somebody is wasting, and leaving things on and gadgets and alarms go off, and they can switch it off. I am talking about the person who in the winter when the lights go on they put them off in every room, all that is done. What benefits are they going to get from smart metering? These are savvy people, they might not be technically savvy but they are very savvy people.

Baroness Verma: Absolutely, Mr Owen. One of my biggest concerns when I came into the Department was: how do we ensure that those who really do need the benefits of this actually will access the benefits of this? I think key to all of this will be our own ability, through our customer engagement strategy, to ensure that those consumers-particularly, from my own experience of going out and speaking to groups, the elderly, poor or the BME community poor-are able to understand what benefits can arise from having a smart meter in place.

The long and the short of it will be about better informed consumer usage. I think that is something that is in the minds of all of us, including suppliers, because ultimately nobody wants to lose a customer. So it will be for suppliers to be able to better engage, better offer the best possible tariff times of use for those customers, but also to be able to ensure that the consumers themselves know what they have to do to be able to engage better.

Q381 Albert Owen: I am suggesting these people already know what they are doing. They are struggling. What extra things are they going to get-

Baroness Verma: Ultimately, it is about being able to use energy at cheaper times of the day and all sorts of things like that that can happen. Our strategy and consumer engagement will draw that out much further, and that is what we are waiting for in developing that. Do you want to build on that?

Daron Walker: Just a couple more points. You make a very fair point because obviously, if someone is budgeting carefully, then the scope for them to save will naturally be diminished. The trials that we did a few years ago actually showed, in control groups for people who were classified as fuel poor, that they were still able to make savings as a result of the combination of the IHD and the smart meter. Obviously there will be special cases, like you describe, that may find it harder but there is still learning from the smart meter and the IHD.

There is another element that we will hope to deliver through the programme as well, which is to remove the cost differential between pre-payment costs and standard costs, because you will be able to provide pre-payment without having to visit the home and without all of the costs associated with traditional systems to support pre-payment. One of the things we want to do through the system is to get rid of that cost.

Q382 Albert Owen: If the Energy Bill goes through and these new tariffs come in, on a smart meter, a pre-paid customer who has debt with that company will be able to, what, levelise the debt-

Daron Walker: It is all to do with the service costs because, at the moment, quite a lot of the costs are having the infrastructure to allow you to have a pre-payment system. Also quite often they require minimal visits to the home, and all of those costs will be removed once you can do pre-payment remotely. That is one element. The other thing that-

Q383 Albert Owen: Wouldn’t it be in the interests of the vulnerable low income people if the roll-out started in those areas where there is a high percentage of low income people?

Daron Walker: Some of the companies who are rolling out already are focusing on pre-payment because it is beneficial, both to the consumer and to them.

Q384 Ian Lavery: Getting back to the IHDs and whether the customers are getting the benefit financially from cheaper bills, has DECC made a recent estimation on how much the consumers will save as a result of these formulas?

Baroness Verma: The conservative estimate is about £24 a year, is it?

Daron Walker: By 2020.

Baroness Verma: By 2020. That is the very conservative amount that the consumers will save. By evidence that we have seen once a consumer gets an IHD into their homes they do become far more aware of the way they are utilising their energy, and just on that note we envisage that consumer savings will be much bigger.

Jacqui Russell: Our impact assessment assumes that domestic consumers will reduce their consumption by 2.8%. That was based on evidence that was available a few years ago. What is coming through now-both in the UK and internationally-is that that is quite a conservative assumption and we could expect to see larger energy savings. We have quite a lot of research going on, over the next year to 18 months, trying to understand how people have responded to smart metering in this country and what sort of things we can do to optimise our energy savings and support them with behaviour change. Our assumption remains 2.8% in the impact assessment. That is one of the things the Minister referred to at the beginning, saying that our impact assessment is relatively conservative in terms of the total benefits it is looking at for GB, and that is one of the areas where we are quite conservative at the moment.

Q385 Ian Lavery: Purely in cost terms, £24 in seven years’ time certainly wouldn’t encourage me to have a smart meter installed. Would it be right to say that between now and 2020 the cost benefit to the consumer will be a lot less than £24, building up to a maximum of £24 or 2.8% of the bill? Is that right?

Baroness Verma: No. What we are trying to get across is that this is a benefit at the conservative end. The assumption will be that there will be greater benefits, because the consumer will be able to visualise when they are using their energy at the highest level and the cost of that energy at that time. Jacqui is right in saying that we have ongoing research to be able to monitor what is happening here in the UK through the foundation period, but also what we are seeing across countries outside of the UK who have smart meters. There has been a behaviour change, which does impact on bills because you are tending to use energy in a different way to what you would have normally done had you taken no steps to change from the regular meter to a smart meter and in-home displays.

I have talked to consumers who have said that just by having an in-home display it has made them think very carefully about how they use energy. I think that will happen to a lot of consumers, particularly those consumers who tend to be more frugal in wanting to save anyway.

Q386 Ian Lavery: How integral do you believe the IHDs are to achieving these savings?

Baroness Verma: I think they are integral. Evidence has shown that, where they have been installed, people have understood very much more about the savings on monetary terms as well as on energy usage far more than those that did not have an IHD. In fact I don’t think that there has been any home that has not accepted an IHD.

Jacqui Russell: The Energy Demand Research Project, which was carried out for a couple of years in the run up to 2011, looked specifically at the information you can give to people to help them change their behaviour. That showed that the combination of a smart meter and IHD made a real difference to the level of energy savings that people were able to make. That is what informed our requirement that all domestic consumers should be offered an IHD, because we saw a real difference in that trial.

Q387 Ian Lavery: On the overall cost of providing each household with an IHD with a smart meter, has there been an assessment by DECC of how much that overall cost would be and perhaps how much an individual IHD smart meter would cost?

Baroness Verma: I think an IHD costs about £15.

Jacqui Russell: The assumption in our impact assessment at the moment is that an IHD would cost £15 each.

Q388 Ian Lavery: Forgive my ignorance, but that is just part of the smart meter. What would the overall cost of a smart meter be with the IHD?

Daron Walker: I have it. The IHD is roughly £15. The total installation cost-so you are including the smart gas meter, the smart electricity meter, the communications hub to allow you to communicate, the installation process and visiting-comes to roughly £200 for the dual fuel, obviously spread over the 15 years of the life of the assets.

Q389 Ian Lavery: We have had a lot of evidence in front of this Committee with regards to the roll-out of the smart meters. There has been discussion and people oppose the fact that you need IHDs as part of smart meters. What do you think of the idea that there should be opportunities and options to people to use smart phones, web portals and other devices to access the consumption data on the smart meter? Is that a viable option?

Jacqui Russell: Absolutely. We have specifically designed the system to encourage that sort of innovation. Customers will have two ways that they can access their data. They can access it directly from their meter in their home, so they will be offered an IHD that will do that for them from day one. But we hope that people will develop all sorts of widgets and clever things that they can, within their home, connect to their own meter that will allow them to see their data. Their data will also be able to be drawn from their meter through the DCC out to other parties, whether that is suppliers or whether that is people offering exciting energy services and online apps and stuff. The consumer can also choose to opt into those services, and ask people to access their data from their meter and feed back to them an interpretation of what their energy consumption is looking like. That could come through any wizzy bits of technology that might develop over the next decade.

Q390 Ian Lavery: Getting back to the costs of the IHDs, Mr Walker, do you think the cost that you mention is justified?

Daron Walker: What is clear from the work that we have done-both from the trials in the UK but also from international comparisons-is having a device like the IHD will save much more cost than the cost of the IHD itself, in terms of through energy savings. We are not mandating that everyone has one. We are mandating that everyone is offered one. So, if the consumer decides that they don’t want the IHD and they want to opt for some of the wizzy devices that Jacqui was talking about, they can do that. One of the things that we are defining is the specification for something called a consumer access device, which will allow consumers to buy other products that will allow them to extract the data very much along the lines that Jacqui said. So the business case is sound for the IHD. As time goes on, and if some of these other devices become more popular, more attractive, and individual consumers want to buy those instead, then they are able to do that, but the case for having an IHD to drive the benefits case is strong.

Q391 Ian Lavery: If it is that strong, the cost justified, why are suppliers not being obliged to provide non-domestic consumers with the devices?

Daron Walker: Are you happy to take that?

Jacqui Russell: Yes. Non-domestic consumers is a different group of people from domestic. It is quite a diverse group. There are about 2 million premises that are covered in the roll-out of non-domestic, and that is a whole mix of different types of people. Our understanding is that, across that group of 2 million, they will each access or have different approaches to the way they manage their energy. Some of those non-domestic businesses employ energy managers. They are already quite active. They may have advanced metering already, and it is someone’s job to worry about energy. Actually, an IHD in that context is not likely to make a lot of difference.

If businesses think an IHD or a wizzy gadget in their home with real-time in front of somebody relevant is what they need, they will be able to access those from the market and connect them to their meter within the home. What there isn’t is a business case for saying, "Every non-domestic premises should be offered an IHD" and that is the diversity of the types of businesses that we are talking about and the different ways that they approach their energy management.

Q392 Ian Lavery: Finally, Baroness Verma, you mentioned the need for consultations and communications with the consumers when they get the smart meters and the IHDs installed on their property. Will there be a minimum level of information in support that must be provided at that point in time?

Baroness Verma: Absolutely. The key crucial question is: what information will be given to consumers? That is where we are working very closely with all the groups to ensure that what the consumer is going to get has made clear and utter sense to the consumer, so that they know how to utilise those benefits. There is still work being done, and it is an ongoing process, but I do think what I am very clear about is that, at the end of it, the consumer must know his or her rights and also what the benefits are for them to be able to have these instruments in place. My worry has always been that those groups that Mr Owen talked about would be the ones that would be missed out. Hence, we have made it very clear to the Central Delivery Body that one of their key areas must be making sure that all suppliers are obliged to ensure that those groups are able to access and understand information equally as easily as the mainstream groups. We are working on that, and I am determined to ensure that we see much greater engagement than there has been so far from suppliers to those hard-to-reach groups.

Jacqui Russell: If I could just add to that? It is the Installation Code of Practice that is supported by the licence conditions. It sets out the advice that installers will have to provide during the installation visit. So it specifies, for example, that they must demonstrate the smart metering system and the IHD to the customers, so they actually get to see it work. They must provide them with energy efficient advice, and that has to include pointing people towards independent advice from people other than their own supplier. It has to include giving generic information about schemes like the Green Deal. That is set out in the Installation Code of Practice. We hope the Central Delivery Body will come along and make some of that real. For example, they may produce common materials that all suppliers might use. That is the sort of thing, once the CDB is set up at the end of this month, that they will start to think about: how can they support all of the suppliers in fulfilling their licence obligations around providing advice.

Q393 Sir Robert Smith: One thing that has come up is time-of-use pricing and the benefits of smart meters and in-home displays that will interact with that. Is there anything in the drive for simplifying the market, and to have a reduced number of tariffs, that could cut across innovative time-of-use information and time-of-use pricing?

Baroness Verma: What we will see is that time-of-use tariffs will be part of the simplified tariffs available to consumers. There are four, are there not, at the moment? I think time-of-use plays a part in that.

Q394 Sir Robert Smith: You were mentioning how a lot of businesses have their own energy manager but, of course, a lot of businesses are micro and small businesses, and the history of the electricity market in that area is one of fairly uncontrolled behaviour by the suppliers because it has been assumed that you are entering into a contract. But these businesses are virtually domestic consumers in all but name, in terms of their skills and the time they can devote to it. Is there some desire, perhaps, for those smaller micro businesses that they should be treated more as domestic consumers?

Jacqui Russell: We are aware we have a really diverse group of non-domestic. It includes your local branches of Tesco and Sainsbury’s, right through to someone sitting in their garden shed in their office and they both fall into this same roll-out. The Central Delivery Body does have an obligation to support non-domestic consumers, particularly where they can do that by adapting domestic materials. We are thinking there particularly about the types of people that you are describing. While on paper they have a non-domestic supply contract, actually in the way they behave they are more like a domestic consumer. The Central Delivery Body should be reaching out to those people to help them to understand what they can get out of a smart meter and make the most of it.

Q395 Dr Whitehead: All this is dependent, to a considerable extent, is it not, on the success of the comms strategy subsequent to all this installation, and you have a requirement of 97.5% coverage on the general system. Presumably that requirement will be ready to go in the autumn of 2015, will it?

Baroness Verma: We have been told, and have been assured, that suppliers will be able to do 97.5% coverage. Of course, the licence conditions in the DCC will ask them to work towards 100%. What the suppliers are doing and those that have started early through foundation, these are the very teething problems that they are able to address. But, yes, by 2015 we would expect all suppliers to be working towards getting a very high percentage of their coverage out there.

Jacqui Russell: You are right that in competition for the communications service providers we set 97.5% as our minimum requirement. The evaluation procedure is designed to incentivise and to come forward with bids higher than that, although we do not expect to get to 100% because of the cost escalation as you get to that final area. We are allowing flexibility. It will be acceptable for them to come forward with a bid that gives a lower level of coverage on day one, growing to pretty close to whatever we contract for within a year. So it is possible that the coverage on day one will be lower than it will be in autumn 2015. It may be lower than autumn 2016, and whatever the contracted level is at has to be there by the end of roll-out. That growth in the coverage is about making a cost effective roll-out of the communications, not incurring too many costs up front.

Q396 Dr Whitehead: Will there be penalties if they fail to reach that requirement?

Jacqui Russell: Absolutely. There are incentives and penalties built into the contract-a combination-both around hitting the milestones within the roll-out period for coverage and for the enduring coverage from 2020 and beyond.

Q397 Dr Whitehead: As you roll-out-and bearing in mind that, as you say, there will probably not be 97.5% coverage on day one-it will be necessary presumably, rather than leave that at least 2.5% behind until the end of 2020, to start developing a mix of technologies to overcome that coverage, some of which may be redundant, presumably, if we get to the higher coverage. Or is it the intention to start going on a mix of technologies, patch technology and so on from day one?

Jacqui Russell: Are you talking about communications technologies?

Dr Whitehead: Yes. Where you do not have coverage, and you presumably wish to start installing, then I understand there will be an obligation to-I am not quite sure on whom-

Jacqui Russell: To install a smart meter.

Dr Whitehead: To install a smart meter, and provide some form of alternative technology that is able to make that meter viable.

Jacqui Russell: If you were an energy supplier, and you have a meter that has come to the end of its life and it happens to be in an area where there no one coverage available yet, the current licence conditions, once activated, would require you to install a smart meter. We would expect them to operate that in dumb mode until the communications came along. So if you needed to install a meter in 2015, the coverage is not going to arrive until 2016, you install a smart meter, you walk away, it keeps operating in dumb mode and we have designed the system so that when the coverage arrives the meter wakes up on its own. You don’t need to revisit the property, it becomes a smart meter and it starts talking to the system.

That is a sort of interim approach while the coverage is rolling out, and I guess part of the challenge there is the customer will want to know when their meter starts becoming smart because they want to know when they can start to see the benefits, like accurate billing, because in the meantime, in effect, they still have a dumb meter.

Q398 Dr Whitehead: How will they know? Will there be a little tune or something?

Jacqui Russell: One of the things that the CSPs will have to provide is coverage maps, both to the suppliers and to the Central Delivery Body, which will show where the coverage is available and how that coverage is going to grow over time.

Q399 Sir Robert Smith: Can I just ask one thing? If you are installing when you do not have the actual coverage to find out where to put the aerial or where to position the meter, how is the meter going to know to wake up if it is not in the right part of the building?

Jacqui Russell: There is a risk that some meters might not wake up on their own, so there are solutions that the communications service providers are coming forward with. We are not expecting meters to be installed in different places from where they are now. We are not expecting there to be a lot of use of external aerials. There is a risk that some meters might not wake up, but the evidence we have so far gives us good reason to believe that the vast majority should wake up on their own.

There is a slightly different issue around the contracts that we sign now. A contract is signed for coverage of somewhere between 97.5% and 100% coverage at the end of 2020. What about those people? As the Minister mentioned, built into the DCC licence is the requirement to always strive to reach 100%. It is quite possible that, before we reach 2020, there will be developments in the technologies, and it has become cheaper to reach out further and the coverage will be higher than whatever we sign a contract for now. There are still likely to be some people outside that. Now that we are seeing what the coverage is likely to look like, what we are starting to look at is: who are those households and are there other technology options we can offer them in the home, so they can see some of the benefits of smart metering? For example, could you enable them to have an IHD in their home so that they could see their real-time energy consumption and access that part of the benefits, although they might not get the remote meter readings and the accurate billing benefits? That is the sort of thing that we are starting to test now, now that we are getting more information about what the coverage is going to look like.

Q400 Dr Whitehead: Are you saying then that, by the end of 2020, to all intents and purposes, there will be 100% WAN coverage of the country and, therefore, we can reasonably confidently state that the system will encompass everybody or that there will be a number of people-not 2.5%, but let’s say 1%-who will either never or certainly by 2020 will not receive WAN coverage, and will therefore have to, for the purpose of the programme, receive other forms of coverage? Who would be responsible for putting that in? Would that be the contractor? Would that be the supplier, and how would we get any sort of correlation between who is putting in what system and the security of the systems between each other?

Baroness Verma: It would be in the interests of the suppliers, of course, to be able to reach out as reasonably as possible to 100%. That is what the licence conditions ask of them. So that is where the work will go towards and that is what the research, looking at what is happening through the period from now until 2020, will be. Ultimately, what we do recognise is that there still remains that risk that there will be a very small percentage that may not just get that coverage. In effect, what we are asking suppliers to do is to work towards making sure that that is a reduced risk as we move towards 2020.

Q401 Albert Owen: Chair, can I just come in on this very point? We have been here before, with mobile phone coverage, with broadband. There are not-spots in the United Kingdom and people know where they are, and we as constituent MPs know the people who live there. They say there are 1.2% in not-spots. Prior to rolling out this contract, have you identified that there is going to be 2.5% of the population in difficult-to-reach areas?

Jacqui Russell: What we have asked all of the bidders in the competition for the communications service provider is to come back to us with information about where they are offering to provide coverage, and what they would charge for those levels of coverage. What we are trying to balance is getting as high a level of coverage as we can with securing value for money. That is the challenge for us. We are testing the evidence they are providing, so when they say, "We can provide," they are all above 97.5% and that is what we are encouraging them to come forward with. They are all coming back with evidence saying, "We have robust evidence to show that we can reach the meter points in these homes". Of course meters are not in the most convenient places.

Q402 Albert Owen: I understand that, but I am talking about geographical areas, because what concerns me is that the areas that don’t have very good broadband, don’t have mobile phone coverage, will be the very same areas. In some of these rural areas they have the fuel poor, and they are the very people that don’t get gas and electricity and dual fuel benefits. So why can’t we be targeting them very early on in the process?

Baroness Verma: I think Jacqui has already alluded to the fact that they can still get some benefits, still having-

Q403 Albert Owen: Yes, but if you have no gas mains, you are not getting the benefit of dual fuel, you are not going to get the full benefit of smart metering, you are going to feel like a second class citizen in the UK.

Baroness Verma: That is why we are working very hard with all the stakeholders. Our ultimate goal is to ensure that we cover all the population. We have seen that we are on better coverage than some of the mobile phone provision. We are working in the right direction, but I think there are some challenges still that we have to overcome. As new technologies evolve, of course, there will be other ways and means of being able to ensure that smart metering reaches those very hard-to-reach groups that both you and I are very concerned about.

Q404 Dr Whitehead: There is a separate and additional problem, though, isn’t there, which is that the SMETS 2 meters on the 2.4GHz HAN frequency are only likely to reach about 70% of the population. So two thoughts: there is going to be a super SMETS 2 definition on 868MHz, I believe, but presumably a large number of SMETS 2 meters-let alone the ones that will stay there as we talked about earlier, which are not SMETS 2 meters-will stay in installation, and will have to have other methods of communications arranged for them, presumably, in order to access the theoretically available WAN system. Is that right?

Daron Walker: There are lots of questions in that question. Just to break it down, one of the things that is designed into the system is that the meter is going to be separate from the comms hub. Obviously you are talking about the Home Area Network there with your 70% rather than the Wide Area Network, so the comms hub that will be installed initially as we see the roll-out starting will be using the 2.4GHz.

Q405 Dr Whitehead: If I can get this clear, the meters have to talk to themselves and then talk to the WAN?

Daron Walker: Absolutely. The meters will be connected to the comms hub and then the comms hub will talk to the WAN.

Q406 Dr Whitehead: Yes, but it is a question then of the extent of , for example, first the SMETS 2 problem but there is also the issue of where meters are placed relative to the comms hub, in basements of flats, in high buildings and various other things, all of which reduces the total-

Daron Walker: The comms hub is likely to be placed very near the electricity meter. You are then concerned about how you make sure you get the signal to the gas meter. So the comms hub will be very closely located. We are clear that already the solution that we are putting into the standard will cover 70% of homes. We have also identified solutions that are being developed that will take that up to 95%. You have mentioned the 868 as part of that, and that will be developed over time and is already being worked on. There are problems around multi-block buildings, so the other thing the programme is looking at working with industry on is fixed HANs; so they won’t be wireless, they will be wired HANs. Our aspiration is to get to 100% of coverage. We believe there are already solutions there or being developed to get us to 95%, and we are now working on the wired HAN to get us all the way up to 100%.

Q407 Dr Whitehead: Sorry, I was thinking of hands-free there and various other things. We have had suggestions that something like 60% of flats and converted buildings can’t be served by SMETS 2 for those reasons. Is that a figure you recognise or is that an over-estimate?

Daron Walker: Is it 60% of multi-block tenancies or 60% of flats?

Dr Whitehead: It is 60% of flats and converted buildings, i.e. you would need other forms of assistance in addition to the standard specification.

Daron Walker: We would not recognise that figure. I have figures that are based on total dwellings, and we will need wired HANs for around 5% of those dwellings. It is possible the 60% is of a different starting point, but we have 868 and 2.4 will take us to 95% and we will be needing to look at wired HAN to get us all the way up to 100% from 95%.

Q408 Dr Whitehead: Yes. Are you confident that those sort of additional solutions and the combination of frequency actually resolve those problems over the period of roll-out, or might it not be sensible to just look a little bit further to make sure a common solution can be found and rolled out?

Daron Walker: For the 95% we are very confident because we have done our own trials in the programme. Industry in the last few months have done their own trials within multi-block tenancies, and they are finding, using wired HAN technology, they can get the signal up to the top floors and more work will need to go on to develop that but we are clear that already we are getting up to a high 90% with that, and obviously we need to continue to develop the wired HAN solution.

Q409 Dr Whitehead: The HAN is the same sort of thing that you might have with a home hub and, increasingly, you will stick other things on to your Home Area Network, i.e. you will start controlling various elements of your home management through the HAN. Therefore, that will mean that a range of other things, other than smart meter information itself, will be going through the HAN, so I understand. Are there concerns about the security of other things, other than the smart meter information, being accessible through the HAN to make other systems in the household insecure, even if the material that is coming out as far as the smart meter function itself may be secure?

Daron Walker: First of all, you are absolutely right, the smart metering HAN itself is very secure. The evidence that I have been given is that there is a number of layers of control and, in principle, the kind of security standards you have are akin to what you might see in online banking. It is a closed loop system, so to get access to it you need to have a device that is meeting certain security standards, it needs to be identified and tagged and different parties need to give it the ability to hook into the system.

The smart metering system itself, because it will be secure, you will not be able to access it and then start doing naughty stuff inside people’s homes. Obviously what we are not trying to do is secure people’s own home Wi-Fi through this programme, but we are very clear that our system is secure. Things like attaching a consumer access device, all that will be able to do is drag information about price and information about usage. It will not be able to feed information backwards or forwards beyond that. So I don’t think the presence of the smart metering HAN adds to the security risk of that home. In fact you have a very secure system there, from our programme at least.

Q410 Sir Robert Smith: Albert Owen’s houses are already losing out on broadband and gas. In my constituency they also tend to be built of granite and the meter is on the outside. Will they have to have a wired Home Area Network? Even if the meter is not accessing the communication centrally they are going to have difficulty because most wireless signals doesn’t go through granite.

Daron Walker: There will be a range of dwellings where the Home Area Network might not allow you to penetrate all the way through to the gas meter, for example. So, again, the wired HAN might well be the solution for those. In effect that is what will need to be tested over the coming years.

Q411 Sir Robert Smith: How intrusive is the wiring?

Baroness Verma: The tests are on using existing wiring, so there is no new wiring going in at all. The first round of trials has just been testing the feasibility of using existing wiring and it is looking promising at this stage. If it works that is obviously quite an attractive solution.

Q412 Sir Robert Smith: What sort of percentage of customers do you think will say, either for health reasons, for security reasons or for Big Brother reasons, that they are not going to have a smart meter?

Baroness Verma: There will always be a small number of consumers that will have health concerns, but the evidence that has been produced and given to us from Public Health England shows that there is very little evidence that there are any health risks. Again, it is about being able to give informed knowledge to consumers about the truth rather than the myths around smart meters. I think those consumers that still find it would be difficult for them to have a smart meter will not be obliged to have one. They will be offered one because that is what suppliers will be asked to do but, ultimately, it has to be consumer choice.

Q413 Sir Robert Smith: In the US, if consumers choose not to have a smart meter what has often happened is the companies have said, "That is your choice" but then there are extra costs, especially there they do monthly readings. But even in the UK the whole point of smart metering is to get rid of the meter reader. So will consumers who opt not to have a smart meter face extra costs from being read manually?

Baroness Verma: That will be something that suppliers will have to address ultimately. It will be the suppliers’ role to work out how they are going to engage with those consumers that will not take a smart meter. It is a competitive market; suppliers will know that, to retain and keep those consumers engaged, they can’t pile on costs to a consumer that is not going to have a smart meter.

Q414 Sir Robert Smith: Presumably, there will no regulatory control on charges, it will be the market?

Baroness Verma: Ofgem is the regulator, and if consumers feel that they are being unfairly treated then they have recourse to go back to Ofgem. So there are checks and balances in place.

Q415 Sir Robert Smith: The suppliers are under the obligation to take all reasonable steps to install smart meters for everybody. What is that meant to mean? What is "reasonable steps"?

Baroness Verma: Again, it is about being able to ensure that those people who want to have a smart meter get a smart meter. It has been pointed out where there may be pockets where, ultimately, it is not doable in the first instance, but they need to make sure that it is in their programming, using newer technologies, newer instances to be able to ensure that those people who want a smart meter can get the benefits of having a smart meter. We have kept it reasonably flexible to be able to ensure that all suppliers are working towards 100% coverage. It is in the interests of suppliers. Ultimately it reduces their costs, so they would see it as a benefit to try and get 100% coverage in the end. It has been rightly pointed out by Mr Owen and yourself, Sir Robert, that there will be instances where there will be harder-to-reach properties and they will take a little time and perhaps newer technologies.

Q416 Albert Owen: I am not saying that. I am saying the market will not deliver it in the first instance because, in my opinion, the market will be great for the easy ones, for the large cities and towns. I am asking the Government, as I did not get the answer-sorry, Chair, for intervening at this point-to give some direction to help the vulnerable. I am not saying it is just about technology, it is sometimes market driven and there is not the economic benefits of doing it there first.

I wanted to raise another point with regards to those people who-and you say it is their choice-are going to be penalised for not going with the flow. We see it now in telecom. If you pay BT by cheque or anything you get penalised because you don’t want to go online and pay online. So it is not real choice, is it? I would be more comfortable if the Government was to look at this seriously and say, "There are people, for whatever reason, whether there be perceived health reasons or for Big Brother, that don’t want to do it." Then there should be some system there, not left to the suppliers, that could be regulated so that they can’t be penalised over and above what is deemed to be their costs. Yes, they will be incurring extra costs, but those people have taken that choice to have the status quo. They might today have the best available technology, and just because a new technology is coming along, and they don’t want it, should they be penalised? I think that is something that can be looked at seriously because we did not get an answer from the regulator. We got an answer from you that it would be up to the suppliers. I don’t think it is good enough to be left to the suppliers.

Baroness Verma: I have also caveated that with the fact that, if consumers feel that they are being unfairly penalised, they do have recourse to go to Ofgem. It would not be in the interest of suppliers not to ensure that they aren’t overly burdening any individual consumer, just because they have made a choice not to have the smart meter. I do not think it is Government’s place to intervene at that juncture. I think it is a job for Ofgem to ensure that the rights and-

Q417 Albert Owen: You would be giving guidance to Ofgem to look at this seriously?

Baroness Verma: Ofgem is part and parcel of the engagement that we are doing.

Q418 Albert Owen: You did not give us a clear answer earlier on, that is why I am pressing you.

Baroness Verma: Ofgem is part of the discussions in consumer engagement. They are part and parcel of it, as are third party groups, as are the suppliers. So there is real engagement going on, particularly in making sure that we respond to concerns, either on health issues or coverage issues, so that we do not inadvertently over-penalise those consumers, whatever choices are made, either through, "I’m not wanting to have it on health issues or Big Brother issues", or on the basis that they are not getting coverage due to technology. Those engagements are going on and they will continue to go on. The whole point of setting up the Consumer Delivery Body is to be able to feed in to that.

Chair: I think we are done now. Thank you very much for being so generous with your time.