Appendix: Ofgem's response
The roll-out of smart meters is a government policy
that will affect every home and smaller business in Britain. We
think the roll-out of smart meters offers significant benefits
for customers and has the potential to change how the market operates
for the benefits of all energy consumers.
We want to make sure that consumers remain protected
and empowered in the transition to smart meters. We will continue
to monitor measures to protect and empower consumers in the rollout
of smart meters, and introduce new measures if we need to. In
the longer term, we also want to ensure that consumers benefit
from the wider market developments facilitated by smart meters.
We have therefore established our Smarter Markets Programme to
help ensure that these developments happen in a co-ordinated and
timely way[1].
We agree with the Committee's recommendation that
the Department and Ofgem should set out how each intends to minimise
the costs of installing smart meters and ensure that the subsequent
operational cost savings to suppliers are passed on to consumers.
Ofgem response
Ofgem believes that competition is the best way to
ensure that suppliers minimise the costs of the smart meter roll-out.
If suppliers do not efficiently manage the roll-out of smart meters
and pass the benefits onto to consumers through lower prices and
improved quality of service, then customers will vote with their
feet and move to a supplier offering a better deal.
We will ensure that competition in the retail market
puts pressure on suppliers to roll out efficiently. This is being
done through a number of different initiatives, including:
· We have introduced a comprehensive package
of measures through our Retail Market Review designed to increase
consumer trust and participation in the market by making it simpler,
clearer and fairer[2].
· Our "Be An Energy Shopper" campaign
is encouraging customers to re-engage with the market and be more
confident in switching supplier. This consumer-facing initiative
has a dedicated website at
www.goenergyshopping.co.uk.
· We have referred the market to the Competition
and Markets Authority (CMA) for a full investigation. We think
this is the best way to ensure there are no barriers to effective
competition in the energy market and to help rebuilt trust.
Smart meters have the potential to stimulate competition
by providing opportunities for innovation. Smart meters will allow
suppliers to develop and advance new products and services to
customers; companies may also emerge that offer consumers tailored
analysis of their energy consumption data and new services or
products based on that analysis. Smart meters will enable reform
of existing industry processes making it quicker and easier for
consumers to change supplier, which will in turn help create a
more competitive market.
There are some circumstances where competition will
not be the best way to protect consumers. These are primarily
where there are natural monopolies such as the gas and electricity
networks. In these areas we set revenue controls and incentives
to ensure that consumers benefit. For smart meters, this is relevant
only for:
· The Data and Communications Company (DCC)
- The DCC is subject to an ex-post price control. We closely monitor
the DCC and may disallow costs that are not economic and efficient
or impose other measures on them to better manage costs.
· The electricity distribution companies
- We have set challenging cost targets for network companies that
will incentivise them to maximise the full benefits of smart meters
to reduce costs and be more efficient. If network companies fail
to do so, they will be less likely to meet our efficiency targets.
We are considering responses to our draft decision and will be
issuing our final decision at the end of November.
1 https://www.ofgem.gov.uk/publications-and-updates/promoting-smarter-energy-markets-work-programme. Back
2
https://www.ofgem.gov.uk/gas/retail-market/market-review-and-reform/retail-market-review Back
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