Twenty First Report Contents

Draft Modifications to the Standard Conditions of Electricity and Gas Supply Licences (Smart Meters No. 3 of 2017)

Additional Information from the Department for Business, Energy and Industrial Strategy (BEIS)

Q1: In the Explanatory Memorandum you say: “Government has consulted on the legal text of these changes to the Supply Licence Conditions in an open letter between 16 and 23 November 2016 (“BEIS open letter consultation on removing the Early Rollout Obligation”)”. I take this to mean that BEIS allowed consultation respondents one week to put forward their views. This is an extremely short period for consultation. Why did BEIS not allow longer, in order to ensure that interested parties had sufficient time to coordinate their concerns and put them forward in a timely way?

A1: The consultation timing was short but was considered appropriate in order to allow for the potential removal of the Early Rollout Obligation (ERO) ahead of it coming into force. This would have otherwise risked suppliers falling into non-compliance or taking decisions to meet the ERO with potential adverse outcomes for consumers e.g. installing meters without sufficient testing of operational systems/consumer journeys. The consultation itself was supported by discussions with stakeholders ahead of the consultation period–both in one to one outreach with large and small suppliers, Ofgem and Citizens Advice as well as at a meeting of key stakeholders, where the timing of the consultation was forewarned. The consultation secured a good response rate with 17 respondents sending in a reply (for comparison, the February 2016 SEC consultation secured 9 responses on the ERO implementation). We did not receive any requests for further time, nor were any objections raised on the consultation timing.

Q2: The Explanatory Memorandum refers to arguments from Citizens Advice and other stakeholders that any increased deployment of SMETS1 meters that might result from removing the ERO would offer lower overall benefits for customers and network operators respectively. In its response to BEIS’ consultation letter,9 Citizens Advice says:

“Our research established that, despite the existence of a requirement on suppliers to inform consumers about the limitations of SMETS1 meters, just 3% said they had been told about any by their supplier ahead of their meter being installed. However, when told about the potential issues with SMETS1, specifically that most were unable to retain ‘smart’ functionality after switching, nearly half those we surveyed said they would probably or definitely not get one. This combination of lack of education and negative sentiment towards SMETS1 meters makes it important that SMETS2 iterations are made available to consumers as soon as possible.

“The Government’s new CBA for the programme flagged an anticipated increase in SMETS1 numbers from 5.4 to 8 million meters. As the figures for this document were gathered in August and that the communications system for SMETS2 was delayed several times subsequently, it is not unreasonable to speculate that this is a conservative assessment. Indeed, the DCC’s10 Initial Enrolment Feasibility Report estimates the market will reach at least 10 million SMETS1 meters.

“Given consumer sentiment, it is crucial for consumers that the Government takes all necessary steps to ensure that fully interoperable SMETS2 meters are rolled out as soon as possible. This will ensure people get the best possible experience, avoiding the inconvenience of either losing their ‘smart’ functionality or having to get a replacement for their SMETS1 meter on switching”.

Do you accept the Citizens Advice estimate that at least 10 million SMETS1 meters will be installed? If so, how do you justify the claim that the ERO “has largely fulfilled its purpose of being a catalyst for SMETS2”? And what is your view of the Citizens Advice statement that there is a “combination of lack of education and negative sentiment towards SMETS1 meters”, and that “SMETS2 iterations are made available to consumers as soon as possible”?

A2: As a result of the ERO, larger suppliers have committed to their SMETS2 procurement strategies. There were no such contracts in place before the ERO was implemented so it has been a catalyst for change. We do not expect the removal of the ERO to result in suppliers reversing out of these strategies now commitments have been made given the commercial and wider regulatory imperatives now on them. The ERO is therefore irrelevant to the total number of SMETS1 meters which may now be installed.

We would agree with Citizens Advice that it is in consumer and wider Programme interests that SMETS2 meters are rolled out as early as possible. At least one supplier suggested that the removal of the ERO was helpful in this regard as it allowed them to focus their energies on their overall SMETS2 implementation strategy rather than side track resource to meet the ERO. We have signalled to suppliers that only SMETS2 meters will be allowed to be installed from Q2 2018. This will be the major driver for suppliers building up their SMETS2 supply chains and installation profile during 2017 (alongside the obligation to have completed the roll out by end 2020).

In terms of the broader questions on SMETS1 meters, we would agree with Citizens Advice that there is work to do to educate consumers about the many benefits all smart meters have to offer, from an end to estimated billing to near real time energy use information. Government, suppliers and Smart Energy GB are working to achieve this. However we do not agree with Citizens Advice that there is negative sentiment towards SMETS1 meters. Evidence suggests otherwise; for instance the Populus consumer research conducted by Smart Energy GB found that 8 in 10 households with a smart meter would recommend them to family and friends.11

Q3: Citizens Advice have offered an estimate that at least 10 million SMETS1 meters will be installed. You have said that your estimate of the total number of SMETS1 meters remains in line with the Cost Benefit Analysis published late last year meaning that the majority of the 53 million smart meters being installed under the Programme will be SMETS2. Does your estimate concur with the figure of at least 10 million SMETS1 meters being installed?

A3: …just to reinforce upfront, the Licence obligation we are now seeking to remove was introduced to drive larger suppliers SMETS2 metering procurement activity. It has been successful in this endeavour with all relevant suppliers now having procurements in place. Its proposed removal is predicated on our judgement that it is in consumers best interests e.g. it stops suppliers from trying to push out meters in immature environments to meet a regulatory obligation. The majority of stakeholders agreed with this assessment. As indicated previously, its removal should have no bearing on SMETS1 numbers so SMETS1 interoperability issues do not present themselves for this decision.

As set out in the CBA we estimate that 8 million SMETS1 meters will be installed. This is lower than supplier projections (reflected by the 10m figure in the DCC report Citizens Advice quote) but we adjust for historic over estimation by suppliers of their profile. Should the number of SMETS1 meters prove to be higher in practice, our view is that this will have no bearing on long term consumer benefits with the intention for SMETS1 meters to be enrolled in the DCC and so fully interoperable.

Q4: What are the disbenefits to consumers of having a SMETS1 meter installed?

A: There are no disbenefits to consumers having a SMETS1 meter installed over a traditional meter. SMETS1 meters have provided consumers the opportunity to have early smart metering benefits including bill savings ahead of DCC going live and SMETS2 meters becoming available. Against SMETS2 meters SMETS1 meters offer the same consumer facing functionality–the only disbenefit being that temporarily, some suppliers are not offering to retain a consumers smart service when you switch to them. I should note that SMETS2 meters do additionally support network related functionality e.g. outage reporting, which is why they offer higher overall benefits to the Programme and why in the consultation response we stress the importance of suppliers installing SMETS2 meters as soon as practicable.

Q5: How far have suppliers complied with the ERO: in other words, how many SMETS2 meters have been installed, and by which suppliers?

A: We have yet to receive supplier data on installs since the DCC went live late last year–SMETS2 meters could only be installed after this point. Our understanding is that no SMETS2 meters have been installed against suppliers roll out targets yet and our expectation is that SMETS2 meters will first be included in the Jan–March 2017 report period, with the relevant quarterly report due to be published in June.

6 January 2017

10 The DCC, or Data Communications Company, has been set up to establish and manage the data and communications network to connect smart meters to the business systems of energy suppliers, network operators and other authorised service users of the network.

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