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House of Commons Hansard
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Public Bill Committees
23 November 2017

Smart Meters Bill (Third sitting)

The Committee consisted of the following Members:

Chairs: †Mike Gapes, Mrs Cheryl Gillan

† Carden, Dan (Liverpool, Walton) (Lab)

† Debbonaire, Thangam (Bristol West) (Lab)

† Freer, Mike (Finchley and Golders Green) (Con)

Gibson, Patricia (North Ayrshire and Arran) (SNP)

† Grant, Bill (Ayr, Carrick and Cumnock) (Con)

† Harrington, Richard (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)

† Kerr, Stephen (Stirling) (Con)

† Lewis, Clive (Norwich South) (Lab)

† McCabe, Steve (Birmingham, Selly Oak) (Lab)

† Morris, Grahame (Easington) (Lab)

† Pawsey, Mark (Rugby) (Con)

† Quince, Will (Colchester) (Con)

Ross, Douglas (Moray) (Con)

Smith, Laura (Crewe and Nantwich) (Lab)

† Tolhurst, Kelly (Rochester and Strood) (Con)

† Warman, Matt (Boston and Skegness) (Con)

† Watling, Giles (Clacton) (Con)

Western, Matt (Warwick and Leamington) (Lab)

† Whitehead, Dr Alan (Southampton, Test) (Lab)

Jyoti Chandola, Clementine Brown, Committee Clerks

† attended the Committee

Public Bill Committee

Thursday 23 November 2017

(Morning)

[Mike Gapes in the Chair]

Smart Meters Bill

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Good morning, everyone. Before we begin line-by-line consideration I have a few preliminary announcements.

Please switch electronic devices to silent. Tea and coffee are not allowed during sittings, but you may if you wish remove your jackets—[Interruption.] I am delighted that the Whip is first off.

We will now begin our line-by-line consideration. The selection list for today is available in the room and on the Bill web page. It shows how the selected amendments have been grouped together for debate. Grouped amendments are generally on the same or a similar issue.

Amendment 20 has been selected even though it is starred. That is because it was tabled before the deadline but withdrawn and re-tabled due to an administrative error.

A Member who has put their name to the leading amendment in a group is called first. Other Members are then free to catch my eye to speak on all or any of the amendments in that group. A Member may speak more than once in a single debate. At the end of the debate on a group of amendments I shall call the Member who moved the leading amendment again. Before they sit down, they will need to indicate whether they wish to withdraw the amendment or to seek a decision.

If any Member wishes to press any other amendment or new clause in a group to a vote, they need to let me know. I shall work on the assumption that the Minister wishes the Committee to reach a decision on all Government amendments when we reach them.

Please note that decisions on amendments take place not in the order that they are debated, but in the order that they appear on the amendment paper. In other words, debate occurs according to the selection and grouping list, and decisions are taken when we come to the clause that the amendment affects. Decisions on adding new clauses or schedules are taken towards the end of proceedings but may be discussed earlier if grouped with other amendments.

I shall use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules following the debates on relevant amendments.

I hope that explanation is helpful.

Clause 1

Smart meters: extension of time for exercise of powers

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I beg to move amendment 1, in clause 1, page 1, line 4, leave out ‘1 November 2023’ and insert ‘31 December 2020’.

This amendment would reduce the proposed extension of powers to align them with the planned completion of the smart meter rollout.

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With this it will be convenient to discuss the following:

Amendment 2, in clause 1, page 1, line 9, leave out ‘1 November 2023’ and insert ‘31 December 2020’.

This amendment would reduce the proposed extension of powers to align them with the planned completion of the smart meter rollout.

Amendment 3, in clause 1, page 1, line 12, leave out ‘1 November 2023’ and insert ‘31 December 2020’.

This amendment would reduce the proposed extension of powers to align them with the planned completion of the smart meter rollout.

Amendment 4, in clause 1, page 1, line 16, leave out ‘1 November 2023’ and insert ‘31 December 2020’.

This amendment would reduce the proposed extension of powers to align them with the planned completion of the smart meter rollout.

Amendment 5, in clause 1, page 1, line 19, leave out ‘1 November 2023’ and insert ‘31 December 2020’.

This amendment would reduce the proposed extension of powers to align them with the planned completion of the smart meter rollout.

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Good morning. It is a pleasure to serve under your chairmanship, Mr Gapes. I should probably confess to you that this morning in the railway station, as I discovered that the 8.30 and 8.50 trains had both been cancelled, I wondered about phoning you to ask whether I could be the first Back Bencher to make it into Hansard by moving the amendment on Skype. I was intrigued to know what your ruling on that might be. However, as I am sure the Minister and his colleagues are relieved to hear, at the 11th hour a train arrived. It was an interesting journey, but I made it here.

The amendment seeks to reduce the period for which the extension of the licence would apply. Amendments 2 to 5 are consequential. To be clear, I am in favour of smart metering. I believe that it is a technological advance with the potential to save energy use and to reduce customer bills, and it may have wider, long-term and beneficial applications. I assure the Minister that these are not wrecking amendments. Rather, the purpose is to probe, to uncover the explanation for what has gone so wrong with the roll-out so far. What assurances can he give the Committee that an extension of the deadline will result in a satisfactory outcome, not simply allow an extension of the delays and spiralling costs, which have been a feature of the programme to date?

It is the Government’s wish that by 2020 more than 50 million new energy smart meters will have been rolled out to 30 million homes and smaller non-domestic sites. The programme is currently in the main roll-out stage, which is due to end in 2020. However, as I said, it has faced persistent delays. As a result, SMETS 1, the early version of meters that we heard about in the oral evidence sessions, is still being rolled out, and that is scheduled to continue until July 2018.

As I have indicated, there are real benefits from the programme. Smart meters coupled with a functioning in-home display—an IHD, as it is referred to in most of the documentation—can make energy usage and cost visible to customers in near real-time, enabling consumers to change their patterns of consumption. That in turn can help with demand management for the energy supply across the country.

The scale of what remains of the smart meter roll-out programme is immense. Only 8 million meters have been installed so far out of a target of approximately 53 million. That is about 15% coverage, with only three years left of the main roll-out stage.

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I am not clear about what would be achieved by a move of date. If, as the hon. Gentleman says, and I agree with him, it is a stiff target to install the remaining balance of meters by 2020, why change the date when the purpose of the Bill is to allow the Secretary of State that flexibility?

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As I said at the outset, the purpose of the amendment is to probe the Minister to explain what has happened so far and why he is so confident that in the future he will be able to stick to deadlines that have not been kept to so far. We could simply settle on the date of 2023 as currently specified in the Bill, but it would be remiss of us both as constituency Members of Parliament and legislators to let that go through without being clear about what we have voted for and what the likely implications are. Hence I suggest we look at the date.

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These are important questions. I have received representations from a number of organisations, including National Energy Action, which points out that part of the rationale behind the original timetable was a cost-benefit analysis. It is concerned that if we were to delay roll-out as suggested, and as the Minister is advocating, the benefits to be enjoyed by consumers—particularly hard-pressed consumers on low incomes—would be delayed. Whatever the arguments on supply, there is a cost to consumers. We need to consider that carefully and, as some of the witnesses argued, whether we need another cost-benefit analysis, or whether that would delay the process even further.

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There is a new clause to be considered later that would provide for a fresh cost-benefit analysis, partly on the basis that with the most recent one there was a significant downward revision of the benefits identified. Clearly, to let the programme trundle on, without any idea of the costs and benefits, might mean that we are doing constituents and customers a severe disservice.

As I was saying, the roll-out has reached the stage of about 15% coverage, with three years to go. The Government are on record as saying, only last month, that nearly 350,000 meters are being installed each month; but to reach 100% coverage by 2020 more than 40,000 meters a day need to be installed. That is a 70% increase in the installation rate.

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I am a little confused; perhaps the hon. Gentleman can help me. Is the objective to offer smart meters to every one of the 53 million establishments by 2020, or to complete installations? Currently an offer is being made, and there is no mandate on consumers to install a smart meter. I am not sure that it is possible to have a target of 100% completion by 2020 on the basis of an offer to consumers.

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The Minister may want to help the Committee with that, but my understanding is that he has an installation target. Clearly there will be people who refuse to accept smart meters, and that will inevitably affect any overall figure; but, as far as I understand the matter, the Government have an installation target. My point is that if they need to achieve a 70% increase in the daily rate, that does not seem to be likely or credible; it is not on the cards. However, the Government are adamant that the 2020 target is achievable—a sentiment that the Committee will remember was echoed by some of the witnesses we heard from on Tuesday. I think that we need to hear from the Minister how he will achieve that.

A recently circulated myth-busting document from the Department for Business, Energy and Industrial Strategy says it is a myth that the Bill

“is just a means of extending the roll-out until 2023.”

It states:

“Reality: Energy suppliers remain legally obliged to complete the roll-out by the end of 2020.”

If BEIS is right in its myth-busting, why does the Secretary of State need such an extension of powers to develop, amend and oversee regulations relating to smart meters? If the energy suppliers are legally obliged to complete by 2020 and it is a myth to suggest that the Bill is simply about creating an extension, and BEIS is confident about that, why are we here discussing an extension to 2023?

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Will my hon. Friend consider myth-busting the myth-busting? It is not the case that all suppliers are legally required to install smart meters by 2020: it is those suppliers who are under an obligation, because they have more than 250,000 customers, to pay and take part in green and social tariffs. Suppliers with fewer than 250,000 customers have a target to supply by 2020, but are not legally obliged to do so. That may be of use to my hon. Friend in considering the target itself. The fact that some companies do not have the same obligation may be cause for further thought about whether targets will be reached.

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I am extremely grateful to my hon. Friend for that observation. Unfortunately, I have relied on the wording of the Department for Business, Energy and Industrial Strategy and its myth-busting document. However, it is very helpful to hear what my hon. Friend has just said and it would be extremely helpful if the Minister took that point on board when he seeks to enlighten the Committee on how we will proceed.

What will happen to energy suppliers if they fail to meet the roll-out targets by the end of 2020? So far, the Government have indicated that the reasons for the extension are

“to remove delivery barriers, protect consumers, and help households and small businesses continue to get the most from their smart meters once installed.”

We heard on Tuesday that some customers cannot possibly be getting

“the most from their smart meters”,

because once they are installed and the customer switches provider, they cease to be a functioning smart meter. So I can see why the Minister is keen to address that problem.

Perhaps the Minister would be kind enough to explain to the Committee exactly how an extension to 2023 helps achieve each of those stated aims. If the target for installation is going to be met by 2020, as BEIS asserts, there will be no “delivery barriers” to remove. Also, it is unclear what protection the Government think customers would need in relation to the roll-out, unless it is specifically about this question of the problem that arises when people try to switch providers.

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Surely this delay in the roll-out, potentially to 2023, would also have a significant effect on the Government’s cost analysis. We have heard about the astronomical sums of money that are involved in the roll-out. Has my hon. Friend had any indication of what a delay would mean for the cost of this scheme in the future?

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I hope that before the Committee concludes its business, all of us here will have a much better understanding of exactly what this programme currently costs and what it is likely to cost by the time of completion. I was quite taken aback at the evidence session on Tuesday when one of the witnesses told us that the cost to the customer had already gone up in 12 months from £5 to £13. If we multiply that increase over the period of the extension that is now under discussion, we can see that, far from being a measure designed to cut the energy costs for consumers, the Bill could well load cost after cost on poor people who are already struggling to pay their energy bills.

That is one of the reasons why, in discussing the Bill and deciding whether to give the Minister this extension and these approvals, we need to be absolutely clear what we are committing to. It is on us in this Committee to determine whether we are genuinely standing up for customers, or whether we are considering the implementation of a programme that is primarily designed to provide benefits to suppliers, in the sense that the suppliers are meant to make the savings and then pass them on to the customers. If we were to end up in a situation whereby the benefits to the customer are not realised and the costs to the customer rise exponentially, that would be a disaster and a total dereliction of our responsibilities.

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Yesterday, we sat through the Budget and heard very specific sums of money being put here, there and everywhere. Is it my hon. Friend’s understanding that the budget for the roll-out of smart meters is unlimited?

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Again, I defer to the Minister; I genuinely look forward to hearing his explanation of this situation. It is my fear that, although the budget may not be unlimited, the costs are loaded on the consumer and the costs to the consumer could be unlimited. We could find that, instead of protecting people, we are loading them with costs into the foreseeable future.

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Order. There is potential to go into a large number of issues on this amendment. I would be grateful if hon. Members, as far as possible, focused on the terms of the amendment we are debating and others in this group. We will have an opportunity later to discuss some of the wider issues.

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I am grateful for that guidance, Mr Gapes. Of course, the amendments are about restricting the date.

Interestingly, not one expert witness we heard from gave a clear reason why it is essential to agree a date of 1 November 2023. What I really want to know is, what is so important about that date, given that 2020 is the key year for the project? Is it arbitrary or pragmatic? It just happens to be five years in the future, and it might reasonably be expected that a great many of those currently connected with the delivery of this programme will have moved on to other things after that time—they might not be quite as culpable or responsible as they would be if the date were a bit closer. Can the Minister offer any additional insight about why he chose that specific time?

I am pursuing this matter because it is my contention that the project is littered with set-backs. I am conscious that the Minister inherited this brief recently, and I certainly do not hold him responsible for what has happened to date. None the less, the main national roll-out was initially intended to begin in 2014 and be complete by 2019. In 2013, the then Secretary of State, the right hon. Member for Kingston and Surbiton (Sir Edward Davey), announced that he was putting the start date back to 2015 and the completion date back to 2020. He said:

“The consistent message was that more time was needed if the mass roll-out was to get off to the best possible start and ensure a quality experience for consumers.”

Well, he gave them that extra time, and here we are with a Bill that says, “Give us more time again.” That is the situation we have arrived at.

It is probably fair to say that the industry, especially the suppliers but also the middle men—the asset providers, to whom I am not quite so well disposed—wants certainty, and I am not at all convinced that the 2023 date provides that. It simply extends the completion date. Surely the Minister can see that it makes no sense to insist on a target that nobody believes in and simultaneously create a provision in the Bill that allows it to be extended beyond 2020. It is tantamount to saying, “Don’t worry—we are not really serious.”

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The arguments for extending the roll-out period are contentious. I refer my hon. Friend and the Committee to the evidence that Mr Derek Lickorish from Secure Meters gave when my hon. Friend the Member for Liverpool, Walton asked that question. Mr Lickorish identified two impediments: one technical and one commercial. He argued that the 2020 date was achievable, and said:

“I think that Ofgem ought to be able to bring the people round the table who can solve these”

commercial and technical

“issues. I do not think they are particularly visible at the moment.”––[Official Report, Smart Meters Public Bill Committee, 21 November 2017; c. 37, Q68.]

So there are mixed opinions about the feasibility of the benefits of extending the period. The Committee needs to be convinced of the benefits of allowing a longer roll-out period, because the experts who presented evidence to the Committee were not absolutely clear and of one mind.

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I am grateful for that. That is exactly the point I have been endeavouring to establish. I cannot see how the Minister can reconcile an insistence by his officials, which he is forced to mouth on occasions, that the roll-out will complete by 2020 and at the very same time take powers to extend it to 2023. The point questions exactly what is going on.

I can think of various projects that Governments have insisted would complete on time and within cost over the years—I will not go into them in detail—but of all Governments this one is littered with projects of this kind where the plug is ultimately pulled, particularly on IT projects, and usually after enormous cost to the taxpayer. The main difference here is that the enormous cost, as I said earlier, is to the consumer. We are putting the cost directly on to the consumer.

My fear is that unless the Minister—I am hoping genuinely that he will be able to do this today—can offer a convincing explanation for why he has selected 2023 as the period of his extension, unless he can give an assurance that we have not yet heard of what has changed to make this completion target very likely now, and unless he can offer a convincing explanation for what has gone on before, I do not see how in all conscience we can be confident that we are making the right decision.

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To clarify the point about costs—

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Order. Just a moment. I do not want to stray from the terms of the amendment. If the hon. Gentleman wishes to intervene, can he keep specifically to the group of amendments?

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Yes, Mr Gapes. On the amendments and the arguments for changing the date and extending the roll-out period, part of the argument being put by my hon. Friend relates to the cost consequences. I simply wanted to identify what those costs were, as presented to the Committee. Is that in order?

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That is for later. When we discuss other matters it will be in order. I would rather not have a general debate on the amendment. We can have a debate on other clauses as we consider the Bill, but I do not wish us to have a general debate at every point. If interventions can focus on the amendments before us at this time, it will be helpful.

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Thank you, Mr Gapes. As I indicated at the outset, I am not opposed to the smart meter programme. I do not regard these amendments as wrecking amendments. I hope the Minister will accept that they are deliberately probing because they seek to establish, as I was saying, why we should have confidence in the new date and what the justification for the time period is, as well as how we can understand what has happened and how we can be confident that things have been put right so that the process will not continue to repeat itself.

One of the consequences of such repetition would be escalating costs. I suspect that that is the point that my hon. Friend the Member for Easington was referring to. [Interruption.] My hon. Friend has just passed me the evidence from Mr Lickorish, which points out his extreme concern about the way these costs will escalate. However, I think it will be better if I stay with the date.

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Yes, it would.

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I simply say that my fear is that we could end up agreeing a timescale that does not have safeguards or an obvious justification, which in itself is an opportunity for further delay and is perhaps a recipe for failure. I ask the Minister: would it not be sensible, at this point in the roll-out of the programme, to send a clear message to the industry, consumers and everyone that an extension until 2023 is needed and to make it absolutely crystal clear why that date has been chosen and what will happen in that period—or whatever period BEIS picks? It has been interested in other dates in the past, but now it thinks it should be 2023. Would it not be sensible to send a clear message to the industry, so that we can ensure that the benefits of the programme that the Minister intends are actually realised?

If it is not possible in all conscience to do that and to convince the Committee that we are on track for that outcome, would it not be sensible to revert to the 2020 target and to actually develop a sense of common purpose that says to all those people engaged in the programme, “You said you could do this. We are telling you that 2020 is the delivery target. We are absolutely clear that that is where we are heading”? Would it not be sensible to stop the backsliding and to say that what we actually want is to deliver what we are telling the public we are capable of delivering? We simply cannot have it both ways; we cannot be emphatic on both points. There is either an achievable deadline of 2020, and all the statements from the Department are believable, or that deadline is unachievable and the Minister needs to set a new deadline, explain it and justify it and convince us that that one is deliverable.

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My understanding of my role, with regard to the amendments, is that I am not summing up on behalf of the Opposition but speaking in support of the amendment put very ably by my hon. Friend the Member for Birmingham, Selly Oak just a moment ago. Before I say anything else, I need to emphasise, as my hon. Friend did, what the Opposition think about the Bill as a whole and what we think about smart meters and their roll-out.

We need to be clear from the start that we are certainly not opposed to the Bill overall and we are certainly not opposed to smart meters. We think that smart meters are not only a desirable but a necessary part of the process of smartening up our energy systems as a whole, and that they will have considerable benefits for both consumers and the energy system as a whole when they are rolled out.

We are also anxious to see that that roll-out proceeds in a timely fashion and that we have a substantial coverage of smart meters at the earliest possible stage, so that those benefits can start to be realised. Indeed, as we heard in oral evidence, there are quite a few issues relating to how many smart meters need to be installed in order for those benefits to start rolling out. Getting those numbers in is an important part of the process of realising benefits for the future.

The amendments we are talking about, and indeed clause 1, are about the process of changing the date by which time licensable activities will have ceased from 2020 to 2023. Whether or not it was a wholly wise idea, the 2004 and 2008 Energy Acts and subsequent regulations specified a date for those licensable activities to end, so after 2018 the Government will have no control over what goes on. Everybody knows that in 2018 we will still be at a relatively early stage of the roll-out. It is impossible to conceive that it would be wise to continue with the original timetable, so we support the idea of specifying a more satisfactory date in the statute book.

The date specified in the Bill is 2023, but as my hon. Friend the Member for Birmingham, Selly Oak pointed out, that does not appear to coincide with the Government’s publicly stated ambition for the end of the roll-out. I say that with caution, because their statements about the roll-out have changed over time, but they have always revolved around the idea of ending it in 2020. There has been a lot of talk from the Government about 53 million smart meters being installed in homes by then. Indeed, the “frequently asked questions” page of the Smart Energy GB website states:

“By the end of 2020, around 53 million smart meters will be fitted in over 30 million premises (households and businesses) across Wales, Scotland and England.”

However, the Government have changed their position; they are now saying that by the end of 2020, 53 million customers

“will have been offered a smart meter”—

a very different proposition. We could interpret that as 53 million people being offered a smart meter by 2020, but only 10 million having them installed, although I assume that that is not what the Government mean. That statement may be meaningless or meaningful, depending on what happens before the end of 2020 and on a variety of issues that will appear along the road, many of which the Committee will examine in its consideration of the Bill.

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Does the hon. Gentleman agree that if the word “offering” really suggests something voluntary on the part of the consumer, any targets set beyond that level are fairly redundant?

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Not entirely. That is one interpretation of the word “offering”. If we adopt that theoretically interesting but practically difficult interpretation, what are we doing here, worrying about the roll-out? Provided that we can ensure that the chosen vehicles for the roll-out—the energy supply companies—can at some stage up to the end of 2020 tick a box showing that they have contacted Mrs Miggins of Acacia Avenue and Mr Bloggins of somewhere else, and asked them “Do you want a smart meter: yes or no?” and those people answered, “Hmm, I don’t know,” that is the end of it. Presumably we could end up at the end of 2020 with 20% coverage and a small number of meters rolled out.

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I am following my hon. Friend’s arguments about critical mass and the number of people participating. Does he have a view about why Northern Ireland is not in the scope of the Bill? With regard to Scotland, the hon. Member for Stirling pointed out that it was because of problems with internet coverage, and so on. Is there a similar issue with Northern Ireland and is that relevant to helping to achieve critical mass in the number of people who apply?

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I can only surmise that because there is an all-Ireland energy network system, which has different protocols from the UK system attached to it, there may be different circumstances for smart meter roll-out in Northern Ireland, so that what we are considering does not apply. Obviously it is proper for it to apply to the whole of the rest of the UK—Scotland as well as England and Wales—because energy is a reserved matter.

To return to the question of what it means for everyone to be offered a smart meter, I hope that the Minister will be able to clarify matters this morning, but we surely cannot mean that the whole obligation for the roll-out will be discharged by doors being knocked on and someone saying something. From the outset, we cannot mean that, because of the whole twofold purpose of smart meter roll-out. Yes, the smart meter goes into the home, but additionally the data that comes from the installation has, to a considerable extent, a life of its own. In aggregate it drives, to a substantial degree, the future energy system, in terms of how smart the system becomes and the use of the aggregate data to inform decisions about grid strengthening, local network arrangements and all sorts of things to smarten up the whole system—a system that smart meters are only a part of.

If the smart meter installation programme is pursued on the basis of just making a desultory offer, the result will be way below the critical mass necessary for the overall aggregate data to work properly and lead to decent decisions. At that point £11 billion or some such amount would have been wasted on nothing much.

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Is the hon. Gentleman making the case, then, that consumers should have no choice in the matter, and that the installation of a smart meter in everyone’s home should be obligatory?

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No, I am not making that case, and I am deliberately not making it, because, as has been emphasised in the evidence sessions and on a number of other occasions, the smart meter programme is voluntary. People do not have to have a smart meter in their home if they do not want one. By the way, in the future that will create some difficulties and expenses for energy supply companies inasmuch as they may have to run a dumb meter inspection programme, as it were, alongside a different meter management programme for smart meters. Nevertheless, that is the position that all of us have taken from the beginning. The smart meter programme is not compulsory.

I am reminded of a visit I undertook some while ago with the then Energy and Climate Change Committee, where we talked about smart meter installation in the US. In some states, they had sheriffs and marshals on hand to ensure the installation of smart meters in particular people’s homes.

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Order. That is very interesting, and it is enlightening in many respects, but I will be minded not to permit a clause stand part debate if we spend so much time discussing this amendment and the clause generally. It is very interesting, but I hope we can focus a little more narrowly in order to have a wider clause stand part debate later.

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Thank you, Mr Gapes. I am happy to follow your guidance. In my defence I can only say that I think I was led by an intervention into an interesting anecdote about what happens in the United States as far as meter installation is concerned. I will endeavour not to go any further on that.

We have a smart meter installation programme that is voluntary and, at the same time, we need a proportion—not 100% but quite a lot—of smart meters installed in order to make the programme work by having worthwhile aggregated data, so we clearly need to put a lot of effort into ensuring that the benefits of the programme are explained to the public. The evidence suggests that the public overwhelmingly like smart meters when they are introduced and that they want to have them in their homes. We therefore need to make a lot of effort over the period to ensure that the two ends—the voluntary nature of the programme and the need for substantial roll-out—can be reconciled. That will constitute much of our debate over the next few sittings. What is it that we need to be doing and should be done, but perhaps has not been done to ensure that the roll-out programme gets its output properly organised and smart meters installed?

The first question is about what we mean by an offer for everyone to have a smart meter. We have gone over that for a little while, and I am sure the Minister will have something to say on that. We then need to consider what we mean by the 2023 date in the Bill. I have four possible explanations as to the thinking behind that date.

The first is that we may not actually meet the roll-out date of the end of 2020, so we may need Government control to continue up to the end of 2023. Let us remember that this is about Government control of licensing arrangements for the whole roll-out. We may need that control to continue to deal with the eventuality that the roll-out date is changed. We may, at some future date, say that the new target is 2021, 2022 or whatever, and that we still need that control in place. We do not want to be here in 2023—I probably will not be here, but other hon. Members may be—going through this whole thing all over again and saying that we would like to have that control extended to whatever date.

The second is to do with the remedial action that may need to be taken if smart meters are just offered up to 2020 and the offer proves to be just that. Conceivably, given what the Government have said is their aim for the roll-out, we may reach the target date for their offer to be made—the end of 2020—and it may turn out that it is not really a roll-out at all and that we need to do various other things. Perhaps the 2023 date is there so that we can consider what to do in the eventuality that the offer turns out to be not very good at all.

There is also the question of what is happening with the specification of smart meters. We will look further at that, but it is pertinent to the roll-out date. As we heard in evidence, the Data Communications Company is supposed to control everything as far as smart meters are concerned. It will receive and organise data, it will communicate between the centre, the smart meters and the many networks, and it may well be responsible for further patching networks to ensure that wide area networks work. All that will be done through the DCC. It was always necessary for the DCC to start its roll-out to enable smart meters that have been installed and those that will be installed to connect with it and therefore go live at the earliest possible date. However, the DCC systematically failed to go live when it should have done. It repeatedly announced delays in going live. It eventually went live in autumn last year, under circumstances in which most of the industry raised substantial eyebrows.

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We are dealing specifically with dates and with whether we have a justification for extending the roll-out period by three years. As my hon. Friend indicated, we are talking about huge sums of money. That may not be public money from the Treasury, but the consumer will certainly bear the scheme’s cost, which is of the order of £12 billion. It is relevant that the DCC, which is the company responsible for delivery, and the framework and arrangements that sit around it—the Minister seeks to amend some of the terms of those, particularly the dates involved—are fit for purpose. Is the DCC a stand-alone company or a subsidiary of a larger group or company?

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My hon. Friend asks two questions, one of which I fear is a little outside the scope of the Bill—

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indicated assent.

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—as you indicate, Mr Gapes. I would very much like to expatiate on what is happening with the costs of smart meters, but I think I would not be able to continue down that path very long before being guided kindly away from it. There is certainly an issue about the extent to which costs are transparent and manageable—and stand-alone or controlled by an outside source. The DCC is not a stand-alone company. It was set up in order to run all these things, and was then effectively auctioned out to a company that could run it, and the successful bidder was Capita plc. As far as running the systems is concerned, DCC is effectively a subsidiary of Capita plc. Again, that may be an issue that we want to return to later.

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But not now. Any interventions should be on the specific issues in the amendment, not on Capita or anything related to it.

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Indeed, Mr Gapes, and I would not want to go down that path either.

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I am certainly not going to challenge your patience, Mr Gapes—

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No, you are not.

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This specifically relates to the date.

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The hon. Gentleman is past the point of no return.

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That is certainly not my intention, Minister. My point relates to the amendment, the justification for extending the date by an additional three years and whether the delivery vehicle is fit for purpose. Was my hon. Friend surprised, as I was, when the witnesses told us that only 250 units had gone live to date? Does that imply that the company is fit for purpose?

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I thank my hon. Friend for that intervention, which is absolutely bang in scope.

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I managed to hit the target!

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For once.

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As my hon. Friend points out, and as I was suggesting before I was slightly diverted down a different route, DCC went live last autumn, but in the going live report, there were about eight pages of workarounds—things it had not sorted out yet. It only went live in part of the country, and was fully live in all parts of the country after autumn 2016. If it had not gone live at that date, the company would have suffered considerable penalties, so that was as late as it could be within the window of when it could go live without going into default. That, among other things, has caused considerable difficulties with SMETS 2 meters replacing SMETS 1 meters as the main kind of meter deployed up to the end of the roll-out in 2020. The SMETS 2 meters have a marginally different specification from the SMETS 1 meters and are allegedly much better at interoperability and intercommunication—

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I remind the hon. Gentleman that amendment 12 on that issue is to be debated after this one.

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Indeed. I will want to say one or two things on that amendment.

As we heard in evidence, only 250 SMETS 2 meters are fully operational, and we are supposed to have 39 million SMETS 2 meters up on walls by the end of 2020. That does not strike me as a terribly good start. The years are concertinaing into each other and we are running up to 2020.

That relates directly to my third thought about why the 2023 date may be required. There could be such concern in Government about the fact that SMETS 2 meters are not appearing in the way they should that an extension is needed to accommodate the roll-out problem. That is to say that there may well be a hiatus when the SMETS 1 meter installation comes to an end and the SMETS 2 meters, for various reasons that we may go into in greater depth, are not yet fully available, and there may well be a problem of empty vans going around with nothing to install for a period.

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Is the scenario that my hon. Friend depicts not the reason why the Minister has to explain fully the purposes of the timescale he has selected? That is exactly what some of us fear.

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Indeed. I hope the Minister will say something reassuring about that, and I am sure he is fully ready to do so.

The final important issue to do with the date is the number of appointments that energy suppliers are making—due to expressions of interest or otherwise—to put a smart meter up on a wall. We heard in evidence from Smart Energy GB about what it calls a pan-supplier customer funnel. That is a fancy way of saying that there is an enormous difference between people who say they would like a smart meter and people who actually get a smart meter at any stage of the installation proceedings. The number of installation appointments booked by energy companies looks very different from the position at the point of interest being expressed and people saying, “I would like a smart meter in my home. When are you coming to install it?” It is not a question of whether people want a smart meter, but whether they get the smart meter on the wall after they have said they want one. That appears to be a continuing problem in the roll-out.

Indeed, if hon. Members look at page 19 of the cost-benefit analysis from the end of 2016, they will see how considerations are changing with regard to the installation profile of smart meters up to the end of 2020. We may need another cost-benefit analysis in the not-too-distant future. As new cost-benefit analyses emerge, and as more information on the ground comes to light, the profile changes. I do not wish to repeat the theory of the four cups on the table from our evidence session, but hon. Members can see from a graph in the cost-benefit analysis the change between the profile of the roll-out and the profile in the cost-benefit analyses of 2014 and 2016: the mountain gets steeper and steeper as we come to the end of 2018 and the beginning of 2019.

It is suggested that a roll-out of some 15 million a year will be necessary in 2019 to get the programme on track in the way we all want and hope. A number of people think that that roll-out profile—a roll-out by the end of 2020—verges on the improbable. That is the fourth—and last, you will be pleased to hear, Mr Gapes—reason that I put forward for why 2023 has been decided on. The question is how that reflects on the roll-out, the communications, the offer and the ability of the whole system to work properly as far as future energy systems are concerned.

As the Minister is itching to tell us which one of the four is the actual reason—or perhaps it is all four or something else; I do not know—I will give him the opportunity to do that, but I hope that we can start the Bill with a very clear idea of what we are talking about as regards the 2023 date, because that will inform the rest of our discussions.

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The shadow Minister took my “itch” comment correctly. I was, as Mr Speaker would call it, mumbling from a sedentary position.

Mr Gapes, I understand fully your rulings on scope. There are points from hon. Members on both sides of the Committee, and particularly Opposition Members, that I would like to speak about, but the issues raised are not within the Bill. If they would like to meet me separately, either formally or informally over a cup of tea, I would be very happy to do that, because I am absolutely obsessed with smart meters, and that is my job; the hon. Member for Birmingham, Selly Oak, who spoke so eloquently, and I have met to discuss the subject. I took on this project quite recently, and I am determined to make a success of it, as are the officials. In my admittedly short and less than illustrious ministerial career, I have never come across people with such enthusiasm and energy for the project. We want to get it right, and I accept fully hon. Members’ statements that the amendments are not designed to wreck the Bill. The expression used is “probing”. We have heard very genuine comments and questions, and I will do my best to answer them.

I was going to make a longer speech. I thought that in the first bit of it, it would be better to put on record what the whole Bill and smart meter programme is about, but in the spirit of your ruling that Members’ contributions have been outside the scope of the Bill, Mr Gapes, I think I would be pushing it, but I would have liked to have done that; I would like to put that on record, anyway.

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Try, and see where you get to.

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Well, I would like to make it very clear—this is absolutely within the scope of the Bill and the amendments—that the purpose of the Bill and clause 1 is not to give the Government more time because they or the companies are behind on targets. It really is not; it is to extend the existing powers of the Secretary of State to do quite a lot of things. I will not say this again unless I am asked, but it is not to give the Government more time. Hon. Members’ comments have often probed that point, so I thought I should make that absolutely clear, and then happily go through the measure.

I have seen in my business life quite a lot of targets. They are called hockey sticks. When we look at a business plan, or any plan, suddenly next year seems so fantastic compared with this year, and all of a sudden we wake up on 1 January and say, “Oh great, we’re going to do five times as much as we did in November.” I must say that when I first looked at this plan, that was my thought. It is my job to be cynical. Just as it is the Opposition’s job to be cynical with regard to me, it is my job to be cynical with regard to officials on the programme; that is what the system exists for.

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Will the Minister clarify something? I am slightly confused. If the purpose of the measure is not to give the suppliers more time to meet their obligations, what is the justification?

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I repeat that it is absolutely to extend the Secretary of State’s powers. I was going to mention the 2023 issue and the reason for that. In fact, I scribbled myself a note to answer the hon. Gentleman’s comments about it. So as not to repeat my own scrawl—in fact, I will repeat my scrawl later, because I cannot remember where I put the note.

On the 2023 issue, a lot of things in the powers are not about the targets. Richard Milhous Nixon, whose biography I have just been reading, said, “If you’ve got them by the balls, their hearts and minds will follow.” I do not know if that is unparliamentary; if it is, I apologise. We could easily say, “That’s it; we will leave those powers, because then they will do it”, but that is not what is happening. I am not a fan of Richard Milhous Nixon, for those who might think that, but it struck me that that often in life, that is why people do things.

A lot of things in the powers that are needed will be involved in winding up. I will cover them a little bit later. I do not think it would be possible for any organisation to suddenly give a date—31 December or November or whatever—when the powers run out and that is it. A lot of the things involved go beyond the target. The targets are made with the suppliers. It was asked what happens if suppliers do not do this. There are powers to fine; the regulator has powers to fine suppliers, from memory—if I am wrong by a bit, I will correct the record—10% of turnover if they do not comply with the agreed targets.

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Will the Minister give way on that point?

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Go on—I cannot resist the hon. Gentleman.

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It is a very simple question. The Minister says the regulator has those powers, but is there any evidence that they have been exercised?

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They have not needed to be yet, but they are there. The hon. Gentleman does not mention—no one has given any credit for this—the 7 million smart meters that have been installed. That is quite a lot of smart meters. I have seen the programme that has been put out, and having spoken to so many of the companies and organisations involved, I am satisfied that it is a realistic target. I had better make some progress; I will not be able to address his amendment properly unless I do.

For me, this is the most significant thing that has happened in electricity, but also in power supply to homes, since Edison or whoever it was—hon. Members will have to excuse me; it is a long time since I did it at school.

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That is right. Swan was not matches then.

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Order. Let us get back to the Bill, please.

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Let us get back to business straight away. I was tempted by the hon. Gentleman.

This is a precursor to a smart grid through which everyone—poorer people, richer people, businesses, houses—will be able to make real choices all the time. They might have computer programmes or apps to do it for them. Our children and grandchildren will not talk about SMETS 1 and SMETS 2, as the shadow Minister does in day-to-day conversation over breakfast. They will just look at what they are paying for their power every half hour or whatever, and they will know. That is why we are bringing forward the Bill.

We are committed to ensuring that every home and small business has been offered a smart meter by 2020; I believe that was in the Conservative party manifesto, so it must be true. That is our clear policy, and it is what we are going to do.

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Will the Minister say exactly what “offer” means in that context? There is an issue over whether “offer” equals mandate, but we have clearly said that there is not a mandate or a requirement for consumers to have a smart meter.

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It is precisely that: it is not compulsory, it is an offer, which is deemed to be people being told by phone or in writing that they can have a smart meter, as indeed I have been and am arranging for. I am sure many hon. Members in this room will be doing the same.

The extension of the powers proposed in the Bill will enable us to drive progress to the 2020 deadline, act on evidence to remove any emerging barriers to the roll-out and then—this is the important thing for the 2023 extension—to respond to the findings of a post-roll-out review, to ensure that the benefits for consumers are fully realised over the long term. Industry and consumer groups have made it clear that they see a need for Government leadership on this, which we hope we are providing.

I know it is not customary to try to answer questions put by Opposition Members, but I will do my best—[Laughter.] On the point, among many good points, made by the hon. Member for Birmingham, Selly Oak about the costs to consumers increasing, the Bill does not change the existing roll-out deadline. Consumers start saving as soon as their smart meter is installed. By 2020 the next benefit means that consumers will save £11 a year annually, rising to £47 a year by 2030. We are monitoring the costs, as is the regulator.

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I hope that the Minister will respond to one of the points that Derek Lickorish made the other day when he said,

“It is no good having a target that nobody believes in...we need a recognition now that says, ‘We will look at all the issues and have a unity of purpose about what the targets should be’.”––[Official Report, Smart Meters Bill Public Bill Committee, 21 November 2017; c. 37, Q69.]

What proactive undertakings is the Minister proceeding with to bring the suppliers together to make 2020 a realistic date in this context?

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I can reassure the hon. Gentleman that we speak regularly to the suppliers. In fact, yesterday morning I met a group of them. I think Mr Lickorish was there, but certainly others who gave evidence, Mr Bullen and Mr Salter-Church from Ofgem, were there. BEIS has regular meetings. I would not put my name or that of the Department to this target if I thought it was unrealistic. Hon. Members have referred to Mr Lickorish’s evidence showing some cynicism about it. The cliché on these occasions is, “He would say that, wouldn’t he?” I am sure it is a genuinely held belief, but it is the Government’s intent to make sure this happens. I would be hauled, as they say in the press, before whatever Committee if the target is not met in 2020, or whatever the date might be—not 2023, because that would be on a different issue; that is not the target. But I might end up being accused of misleading the House, albeit not on purpose, and being told I was completely wrong and should pay the price. However, I am personally satisfied that the date is not as unrealistic as Mr Lickorish said.

The extension of powers has been mentioned, and I think I have stressed enough that is not because of failing to meet the target. The hon. Member for Liverpool, Walton said earlier that he was concerned that the cost to consumers from the smart meter roll-out could be unlimited. He was probably referring to poorer people in our constituencies, who currently do prepayment and might suddenly be hit with an unlimited charge by suppliers, justified or not. I want to make it clear to him and to everyone else that we are monitoring the costs all the time. The DCC, which is a natural monopoly, simply because it is the only company connecting smart meters, is subject to price control regulated by Ofgem, which has provisions for monopolies. The DCC is slap bang in the middle of that.

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Is there not a danger that building in an overrun will inevitably lead to cost escalation? The estimates presented in evidence were an increase from £1.3 billion to £2.1 billion, and the overall programme is £12 billion, which I think Mr Lickorish told us was the equivalent of 10 200-bed hospitals.

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Actually, concentrating the mind in the Nixonian way, the next couple of years will surely lead to reduced costs because of economies of scale, but we can discuss that another time. I will be happy to.

The shadow Minister said that small suppliers have a weaker obligation in relation to 2020. That is not quite true, although he did not intend to mislead us with the wording he used. It is exactly the same obligation. The only flexibility the small suppliers have been given is that they can deliver their programmes in line with their broader corporate strategy. We are allowing the smaller ones to be later in the programme because, unlike British Gas and others that have been mentioned, they have not got the bulk.

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Will the Minister give way?

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The hon. Gentleman will have to excuse me. I am being told to make progress.

Amendment 1 relates to the Secretary of State’s power to modify the relevant electricity licence conditions and industry codes, which relate to the detailed regulatory framework, covering the activities of energy suppliers and network operators, and the data and communications licensee. It would cause those powers to expire at the end of 2020, which, again, has nothing to do with the target. I do not think anyone would argue that they should just disappear. I oppose amendment 1 because it removes the Department’s ability to conduct an effective post-implementation review, which, as I said earlier, we will need to do. The aim is for that to happen in 2021. The extension of powers until 2023 allows us to complete that exercise and implement the recommendations.

I know that this is a probing amendment, as the hon. Member for Birmingham, Selly Oak said, but I do not think he took those things into consideration. He concentrated his comments on whether to extend the target, which I hope I have covered. In contrast, in the absence of the power we are asking for to modify the energy licence conditions and industry codes beyond 2020, we would have to bring the review forward. For it to be consulted on properly, and to provide the appropriate parliamentary process, it would be necessary to conclude the evidence gathering the year after next at the absolute latest, which as far as I can see would completely reduce the robustness of the assessment and exclude valuable evidence from the final stages of the roll-out. It would also prevent the consideration of longitudinal research exploring the impact of smart metering on consumer behaviour, which is what this is all about, and energy saving over the course of several years. If it were carried out before 2020, there would not be enough evidence. I believe smart meters will be absolutely revolutionary, and will change the way people use their energy bills. If hon. Members believe in smart metering—I am sure you have been persuaded, as the rest of us have, Mr Gapes, that this is a really good thing to do—and think it is not just a short-term thing, it is right that the Government can ensure that the regulatory framework is there and is fit for purpose for decades to come.

Amendments 2 and 4 would limit the period to which the Secretary of State can veto Ofgem’s proposal to give consent to the transfer of the whole or of any part of the communication licence. Again, if the amendments were passed, the Secretary of State could prevent the transfer only up to the end of 2020. DCC’s smart meter licences were awarded in 2013 for 12 years. The curtailment of that power would create an imbalance in the Government’s arrangements of the smart metering programme, undermining our leadership role within it.

I know it sounds like we want it both ways, but the Government’s role is absolutely central to this. We have to provide the leadership that we have been asked for. I do not want to risk having a situation in which a smart meter communication licence was transferred in a manner that conflicts with activities undertaken by the programme as part of its post-implementation review. It is necessary to extend the power to 1 November 2023 to retain coherence in the Government relating to the smart metering programme and to ensure that these activities are appropriately co-ordinated.

Amendments 3 and 5 would limit the Secretary of State’s ability to introduce new licensable activities in relation to the smart metering roll-out. The power we are talking about was used to set up the provision of the smart meter communications service, which led to the granting of the DCC’s licences. I want to make it clear that we have no specified or defined plans to use the power. Perhaps the hon. Member for Birmingham, Selly Oak will still argue that if the scenarios change, primary legislation will be needed to go through it again, and I understand that. However, I can see scenarios that could develop where we will need the ability to introduce new, licensable activities quickly, in order to overcome barriers and to ensure that the benefits are realised. Such situations can arrive relatively late in the roll-out or in the immediate post-implementation period.

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Will the Minister give way?

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I would rather make some progress.

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I just wanted an example, that was all.

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I know we have four more days, but I would like to make progress on this particular point, although I will give an example that might be acceptable to the hon. Gentleman. As an example, it may be necessary to create new licensable activities to ensure that all premises can secure a home area network if that cannot currently be achieved. Technology develops, as do apps, different systems and inventions. It is for us to be able to act quickly so that there is flexibility for the consumer to take advantage of all those things.

Our current explanation is that we may know when solutions are appropriate and viable for these premises only towards the end of 2020 or even in early 2021. I must say, clearly, that we would use this power only after going through the normal policy development process, including consulting relevant stakeholders. I feel that I have done my best to make that point. It is for us to show leadership in this matter. The decisions taken up to now have driven this momentum, and whatever has been said on cynicism about the targets, the installation volumes are increasing dramatically and it is important that we can keep a robust regulatory framework that enables the delivery of the benefits.

It is vital that this work can continue and that the Secretary of State retains the powers available to him to direct the efficient delivery of the roll-out. I am sure that hon. Members will take these points into consideration, other than the target itself, which we have discussed. The last thing that hon. Members want is a cliff edge—they argue against cliff edges many times on the Floor of the Chamber—and the last thing that we want in this case is a cliff edge. I hope that the hon. Gentleman will find these arguments reassuring and that he will feel able to withdraw his amendment

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I am conscious of the time, but I want to be dead straight: I did not find that particularly reassuring, if I am honest. If hon. Members look through Hansard, they will find that I raised a number of questions that have not really been answered at all. As I said at the outset, the amendment was intended as a probing amendment, so I do not intend to push it to a vote at this stage. I recognise that the Minister is very sincere in his approach to this matter, but will he reflect on some of the points that have been made during this part of the debate? Perhaps at a later stage in Committee or in the Bill’s progress, he will see whether he can be a bit more persuasive with the quality of the answers that he provides. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ordered, That further consideration be now adjourned. —(Mike Freer.)

Adjourned till this day at Two o’clock.

Written evidence reported to the House

SMB 06 Derek Lickorish MBE, Secure Meters, Supplementary to oral evidence.

Smart Meters Bill (Fourth sitting)

The Committee consisted of the following Members:

Chairs: Mike Gapes, †Mrs Cheryl Gillan

† Carden, Dan (Liverpool, Walton) (Lab)

† Debbonaire, Thangam (Bristol West) (Lab)

† Freer, Mike (Finchley and Golders Green) (Con)

Gibson, Patricia (North Ayrshire and Arran) (SNP)

† Grant, Bill (Ayr, Carrick and Cumnock) (Con)

† Harrington, Richard (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)

† Kerr, Stephen (Stirling) (Con)

† Lewis, Clive (Norwich South) (Lab)

† McCabe, Steve (Birmingham, Selly Oak) (Lab)

† Morris, Grahame (Easington) (Lab)

† Pawsey, Mark (Rugby) (Con)

† Quince, Will (Colchester) (Con)

Ross, Douglas (Moray) (Con)

Smith, Laura (Crewe and Nantwich) (Lab)

† Tolhurst, Kelly (Rochester and Strood) (Con)

† Warman, Matt (Boston and Skegness) (Con)

† Watling, Giles (Clacton) (Con)

Western, Matt (Warwick and Leamington) (Lab)

† Whitehead, Dr Alan (Southampton, Test) (Lab)

Jyoti Chandola, Clementine Brown, Committee Clerks

† attended the Committee

Public Bill Committee

Thursday 23 November 2017

(Afternoon)

[Mrs Cheryl Gillan in the Chair]

Smart Meters Bill

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It is a little hot in here. Some Members asked earlier whether they could remove their jackets, and I am minded to allow that in this instance.

Clause 1

Smart meters: extension of time for exercise of powers

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I beg to move amendment 12, in clause 1, page 1, line 5, after “23”, insert

“, except in relation to SMETS 1 meters”.

This amendment would exclude the rollout of SMETS 1 meters from the extended licence.

It is a pleasure to serve under your chairmanship, Mrs Gillan.

The amendment would exclude the roll-out of SMETS 1 meters from the extended licence. Let me be absolutely clear that this most certainly is not a wrecking amendment. I really hope that we can bring a bit of clarity to some of the issues that the Committee is already dealing with and will labour on for some time to come.

The purpose of the amendment is to try to get to the bottom of the interoperability issue with SMETS 1 meters, which we heard a lot about in our evidence session on Tuesday. I really want to know why the Department for Business, Energy and Industrial Strategy should continue with the roll-out of SMETS 1 meters if they are not interoperable. I asked the Minister’s predecessor, the hon. Member for Hereford and South Herefordshire (Jesse Norman), in a written question to suspend the installation of SMETS 1 meters until the interoperability issue had been resolved. His answer was no. He added that work was

“underway to make SMETS1 smart meters interoperable between energy suppliers, through enrolment in to the DCC’s system.”

Plans for a solution to this technical difficulty are supposed to be published by the end of this year. With just a few weeks of the year remaining, time is obviously short. I wonder whether the Minister can tell us whether his plans will be published before the Committee reports. It seems to me that this issue is likely to have quite a big bearing on the Committee’s thinking as we work our way through the Bill.

The Government currently recognise two types of domestic meters as working towards the smart meter roll-out target. SMETS 1 meters are the first generation of energy smart meters, compliant with the first version of the Government’s smart metering equipment technical specifications, or SMETS—it sounds like some Russian spy organisation. SMETS 1 meters were meant to be rolled out only as part of the foundation stage between 2011 and 2016. However, they are still being rolled out as part of the main roll-out phase because of delays in the SMETS 2 infrastructure.

The Government recently announced that as of 13 July 2018, SMETS 1 meters will no longer count towards the 2020 target, hence the amendment. If SMETS 1 meters will not count towards that target, why are they still being installed and why is an extension of powers relating to SMETS 1 required beyond the Government’s 13 July 2018 date?

SMETS 2 meters are the second generation of energy smart meters, compliant with the second and latest version of SMETS. They were meant to be rolled out as soon as the main roll-out stage was launched in November 2016 and they were supposed to resolve some problems identified in SMETS 1. As a recent parliamentary question revealed and as I think we heard in evidence on Tuesday, we are still at the testing stage for SMETS 2. Only 250 of the meters have been installed so far, instead of the millions required before scaling up the roll-out.

As I understand it, Government policy is to encourage consumers to shop around and switch supplier to get the best energy deal but, as we have heard, there are many examples of SMETS 1 meters not being interoperable, so customers who have such a meter and switch might find themselves without a functional smart meter because it has then been placed in dumb mode. A witness told us that 20% of the 8 million meters already installed are now operating in dumb mode. In passing, I should point out that that is a substantial increase on the BEIS figure of 460,000 that I was given in a recent parliamentary answer.

Does the Minister accept in principle that the issue of interoperability—this problem of people thinking they have a smart meter and discovering that if they switch supplier they no longer have one—is having a detrimental effect on the public’s perception of smart meters and the supposed benefits of the smart meter programme?

The aim, if I understand it correctly, is for smart meters installed by one supplier to be capable of being operated by another supplier, so that consumers may switch supplier and retain the smart benefits. In 2016, however, the Select Committee on Science and Technology found that the issue of interoperability of energy smart meters was one that it described as still “unresolved”.

The Government continue to claim that work is under way to ensure that SMETS 1 meters will be interoperable through enrolment in the DCC system, but a number of industry parties have explored other approaches that enable consumers to retain their smart services when switching at present. We heard on Tuesday that the industry already has a solution to make SMETS 1 meters fully interoperable.

Mr Lickorish of Secure Meters explained that technical interoperability is now available for 95% of installed SMETS 1 meters. He explained—with the benefit of the cups—how technical interoperability can facilitate change of supplier and enable enduring smart functionality, and that that technology has already been demonstrated to BEIS. Instead of having one DCC system, the technology enables communications between people’s smart meters and energy suppliers using a number of mini DCCs. The companies Secure Meters and CGI have made their systems interoperable. Some 36 energy suppliers already use Secure Meters’ mini DCC system and the majority of the big six use the CGI system.

Will the Minister explain why BEIS is resisting that approach? For energy suppliers, there would be no change in their existing business. They would continue to use the mini DCC system to operate SMETS 1 smart meters. They could also gain customers with SMETS 1 smart meters and there would be no need to operate the meters in dumb mode. The consumer would be able to switch retailer and retain smart functionality. The mini DCC system enables a change of supplier while retaining complete SMETS 1 smart meter functionality. I am at a loss to understand why the DCC is spending more and more money on a project that is perhaps unnecessary and at the very least ought to be reviewed, especially when we know that consumers will be picking up the bill.

The industry faces a number of challenges with the proposed July 2018 end date for the installation of SMETS 1 meters, in terms of the Government counting them as part of the programme, and the ramp up of SMETS 2. As previously discussed, there is a lack of certainty in the market generally and a lack of confidence that the targets set for the installation of SMETS 2 meters can be reached. It is also possible that the installation engineers, whose training has been heavily invested in, may be left without smart meters in April 2018. That is the point my hon. Friend the Member for Southampton, Test made this morning when he talked about the risk of people driving around with empty vans: there is a real risk that the money invested in those engineers will end up being wasted.

Two options are available to us at this stage; I genuinely want to know what the Minister’s, and therefore the Government’s, thinking is. The amendment is not intended to be a wrecking amendment, but I am at a loss to understand why we should persist with something that we think might not work and we fear might cost quite a lot of money when there may already be a viable alternative.

It could be that I have missed a perfectly valid explanation, but I do not think I have read that explanation anywhere and I have not heard any Minister propose that explanation so far. I hope that the amendment affords that opportunity to the Minister now.

We should either exclude SMETS 1 from the extension, as the amendment would, and say in no circumstances would it be sensible to allow energy suppliers to install them, or we could allow energy suppliers to install SMETS 1 meters and use the existing interoperable mini DCC systems. That does not mean that we could not move to the SMETS 2 system, but it would avoid the potential period, which my hon. Friend referred to, in which there could be a complete gap. That, it seems to me, would be the best way to protect the customer’s interest. It may also be the best way to safeguard the programme overall. It is almost certainly the best way to provide some assurance that we can contain costs.

If we are left solely reliant on a system that requires the DCC, which is still in test phase—it is about to get an extension through the Bill—to spend more and more money, with those costs eventually rebounding on the customer, we are taking an enormous risk with our constituents’ money without considering the other technical opportunities. That is the reason for the amendment. I want to know why we are going down this route.

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This is the first opportunity I have had to express my pleasure at serving under your chairmanship in this Committee, Mrs Gillan. I am sure we will have a great Committee under your chairmanship for the rest of our proceedings.

I commend my hon. Friend the Member for Birmingham, Selly Oak on an excellent presentation of the problem at the moment with SMETS 1 meters being effectively rolled out in a way they were not originally intended to be. Because of various events, some of which I have alluded to, those meters have been rolled out in substantial numbers—in the millions—to date.

As my hon. Friend mentioned, the roll-out of SMETS 1 meters is supposed to stop by July 2018. The ordering process, the supply chains and everything else that has gone into SMETS 1 meters will be effectively extinguished in July 2018. At that point, theoretically, SMETS 2 meters should take over. Those are manufactured by different people and have different supply chains. In theory, those new supply chains and new meters for installation should be in place by July 2018, for the transfer between SMETS 1 and SMETS 2.

As my hon. Friend states, the issue is not quite as simple as that. Originally, SMETS 1 was a foundation model of smart meter, and SMETS 2 was supposed to be the final item that would be the basis for the whole roll-out of smart meters, and the two meters were supposed to have very different properties. When SMETS 1 were first conceived of and introduced, they were not thought to be interoperable. If we wanted a long-term system whereby our meter would retain full functionality if we switched suppliers, we would need a SMETS 2 meter, because that could not be done with a SMETS 1 meter. Indeed, we saw in some of the early switching of SMETS 1 meters that switching does not allow for full functionality, and the meter then effectively acts as a dumb meter—that is to say, it produces the data and the material, but the in-home display and various other things do not happen.

Since that original clear distinction between SMETS 1 and SMETS 2 meters, quite a lot of work has been undertaken on the software arrangements of SMETS 1 meters. Indeed, with later iterations of the model, it now appears that SMETS 1 meters can be made effectively interoperable, as far as overall systems are concerned, through enrolment in the DCC or the mini DCC systems and their enrolment in the DCC. On an immediate basis, it is between the meter, the mini DCC system and the final DCC that is established.

In effect, one of the main issues that divides SMETS 1 meters from SMETS 2 meters may be in the process of being resolved. Indeed, that was the basis of some of the evidence we received earlier this week. As my hon. Friend the Member for Birmingham, Selly Oak rightly said, it appears that a number of issues arise from that. Do we continue to say there is a complete cut-off date concerning SMETS 1 meters and assume that SMETS 2 meters are coming on stream, or do we, taking that information into account, look at other ways in which SMETS 2 meters—which, by the way, have other advantages in addition to being interoperable—can eventually be rolled out?

I would add two complications to that scenario. First, the Government are already in the process of consulting on whether the July 2018 date should be moved. A consultation document was issued recently with that aim precisely in mind. The consultation document suggests that suppliers—this is out for consultation, so it is not a final agreement—could for a limited period, I think it is three months after July 2018, continue to install SMETS 1 meters up to a number based on how many SMETS 2 meters they had already installed. They would therefore not be bound by the July 2018 date. That is, among other things, to make sure that the stocks of SMETS 1 meters in the pipeline can be used up properly.

There are problems with that. If the roll-out of additional SMETS 1 meters is allowed after July 2018 based on the number of SMETS 2 meters the suppliers have already put into place, it may not make much of a difference at all, given what we have heard about the number of SMETS 2 meters already installed. It may not make too much of a difference for another reason. As I mentioned this morning, because the DCC was so late in going live—there are still concerns about whether the DCC is live to the extent that we want—one of its central functions has yet to be put into place: the ability for a full end-to-end field testing of SMETS 2 meters, so that we know they really are going to work. That can be done only by installing a number of SMETS 2 meters, testing them against a live DCC and looking at how that all works in practice. That is not just one theoretical meter on the wall, but a whole range of SMETS 2 meters installed in different circumstances in different parts of the country so that we understand how that process actually works. To date, that process has not been undertaken, as far as I understand.

We are saying that in July 2018—or three months afterwards, subject to the consultation—there will be no more SMETS 1 meters and they will be replaced by a meter that is yet to have any field testing at all, regarding its operation. We are then saying that we are sufficiently confident—I hope the Minister will be able to advise us on this—that by that particular date, a large number of SMETS 2 meters will be available for installation, so that that handover can take place.

The problem, as I mentioned this morning, is that if that is not the case, the programmes to install smart meters—already underway, and ramping up considerably —will grind to a halt, because there will be no meters in the vans to go out and install. Even though people want a smart meter, have asked for one and have an appointment for one to be installed, it will not be possible to install that smart meter. The smart meter installation programme may well just pause because of that particular issue. Unless that issue is resolved, all the targets and milestones being put in place for supply companies could be completely overthrown; if the companies do not physically have the meters, they cannot meet the milestone requirements for a complete roll-out by 2020.

As the consultation alludes to—inadequately, I think—there has to be some kind of solution to that potential impasse. Either we have to be clear that SMETS 2 meters will be available in volume, reliably and tested, so that they can get into the vans, or we look further at the position of SMETS 1 meters. That is at the heart of the amendment.

As we have established, SMETS 1 meters were originally supposed to be only part of the foundation programme, but they have had a use far beyond that, and people have been working on their development far beyond what was supposed to be the case. We have therefore developed a substantial supply chain and manufacturing base for SMETS 1 meters that was never supposed to be. There was supposed to be a limited manufacture and limited supply, with a small number rolled out that would be replaced by SMETS 2 meters, and that would be the end of the SMETS 1 meter. They were never supposed to be on the walls of millions of households. People were never supposed to potentially have to rip those smart meters out at some stage to put new ones in, if some of the fixes had not been put forward.

Indeed, I suggest that the development of those fixes and programmes to make those smart meters interoperable arose precisely because of that hiatus. If the people manufacturing those smart meters and concerned with their roll-out had not done that work, we would be in a desperate place. All the smart meters rolled out to date would effectively have to be junked, and we would have to start all over again, several years down the line, with the 2020 roll-out date looming. It looks like that will not be necessary, but the consequence is that SMETS 1 meters have taken on a different dimension as far as the whole roll-out is concerned.

Does the Minister have further intentions for the use of SMETS 1 meters in the instance that SMETS 2 meters are simply not ready and available for installation? If he does have plans for further installation of SMETS 1 meters beyond the July cut-off date, is he confident they will work as well as he might think? If he does think they will work in the eventual scheme of things, does that not suggest there is a further potential role for SMETS 1 meters up to the end of roll-out, over and beyond what the Minister has considered so far? That is to say, is it possible to think about a much longer-term roll-out arrangement for SMETS 1 meters? SMETS 2 meters would come on in the future, as meters are replaced by new ones by the end of the roll-out date overall, but the bulk of the heavy lifting in the initial roll-out would be done by SMETS 1 meters.

This needs to be considered in conjunction with all the other issues we will discuss in Committee about the difficulties and problems to overcome leading up to the end of the roll-out period. Are we not creating an additional hurdle to get over in the roll-out by how we are doing the SMETS 1 and SMETS 2 changeover? Might we not lower the height of that hurdle by furthering considering what we do about SMETS 1 meters over the next period?

I think the whole Committee is concerned about whether we will be able to get to the end of the roll-out date with the hoped-for number of meters having been installed. We would be wise to take this issue seriously and to think carefully about what we do about SMETS 1 and SMETS 2 meters over the next period, so that we at least have a clear line ahead for industry, for those who are installing the smart meters and for the overall progress of the programme. If we can achieve those three aims by looking carefully at what we do about SMETS 1 and SMETS 2 as a whole, we will have done a seriously good turn for the roll-out.

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Like everyone else, I formally welcome you back to the Chair—you were here for the programme motion. I am sure that, if I stray from the scope of what is being discussed, you will be just as much a disciplinarian as Mr Gapes was this morning. I shall do my best to comply with his edicts and yours.

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That is good to hear.

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Well, I promised I would do my best; I did not say anything legally binding. No, of course I shall. You will tell me if I do not.

As with everything else we have discussed, I fully respect the Opposition’s intentions and the contribution from the shadow Minister, as ever. The hon. Member for Birmingham, Selly Oak confirmed again that the amendment is not intended to wreck the Bill, which I fully accept. However, I will point out, from the Government’s point of view, that a lot of myths are doing the rounds about the differences between SMETS 1 and SMETS 2. I felt it might be worthwhile for me to explain them.

First, the hon. Member for Birmingham, Selly Oak repeated some evidence given during oral evidence—the contention that 20% of 7 million smart meters are now dumb meters. I do not recognise that figure from the numbers I have been given or from my conversations with stakeholders and officials. The number we have is 4%, not 20%. I fully accept in principle that, because of a change of supplier, some meters become dumb, but I do not believe the problem is as comprehensive as the evidence given suggests.

Obviously, I will be very happy for that evidence to be given if its numbers could be verified. I felt I ought to make that point, because I think the SMETS 1 programme has been successful in its own right. There are 7 million of them, and the vast majority provide a lot of really helpful information to the residents concerned, and that is what they are for.

I will try to clarify the list, which I scrawled down while the shadow Minister was speaking, of the differences between a SMETS 1 with DCC interoperability—the software that will allow them to talk to each other—and the SMETS 2. It is quite important to know, because very few of us—including me, I might add—are experts on the technical side of things. In practical terms, which I think is the most important matter for our constituents and should therefore be reflected in the laws that we try to make, the differences between a SMETS 2 and a SMETS 1 with DCC software are not very great; there are some differences, but most of their functions are the same. A SMETS 2, rather than a converted SMETS 1, has some technical flexibilities, but they are all fundamentally better than a dumb meter. I have looked at both SMETS 1 and SMETS 2, and have examined them while asking this question, and there is not that much difference between a converted SMETS 1 and a SMETS 2. It is just the fact that technology moves on. The SMETS 2 is certainly better, but when the software comes into being it will be able to do most things. The hon. Member for Birmingham, Selly Oak said that what were smart meters would become dumb meters; that will certainly not be the case.

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Will the Minister clarify that point on the SMETS 2 meters for my benefit and that of the Committee? The key issue that was raised originally with the witnesses was interoperability. Obviously, that problem is being solved by the SMETS 2 meters, so theoretically it is possible to solve the problem of interoperability. Will the SMETS 1 generation of smart meters require a different methodology to solve that problem in order to recalibrate them to give them that interoperability functionality—if that makes sense?

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The hon. Gentleman makes a lot of sense, but not in a technical way. I cannot answer him in a technical way, other than to say that my understanding is that the software is remotely operated—in our day we might have called it via the lines—through the air to the meter, so it is not a question of people coming out to revisit them to make them nearly as good as SMETS 2s. The SIM card on the dumb ones is reactivated remotely.

One of the good points about SMETS 2s is that they allow energy suppliers to roll out smart meters to premises that just have gas customers. They allow distribution network operators to view maximum electricity demand for a premises in order to plan their network investments. There are a number of specialist types of smart meters, for example, polyphase meters for large electricity users, and smart meters that can be used to replace traditional Economy 7 and 10 teleswitches, which we may have come across in our constituencies, and they can only be SMETS 2. But when upgraded—if I may call it that—with the DCC software, SMETS 1s do most of the smart things that SMETS 2s do. It is just how things move on. We must accept the fact that the foundation stage of the programme was based on SMETS 1, which was infinitely better than the previous option of different companies manufacturing different types of meters for their own customers, perfectly properly, with the technology that there was. This system has replaced that anarchy—although it was legal anarchy—in terms of national organisation.

I accept the point about timing, but the foundation stage was always intended to be different from the main installation phase. We have to see this transition from SMETS 1 to SMETS 2, because it is the latest technology and we want as many people as possible to have it. I feel it is fair to say that the foundation stage has provided real benefits. We are seeing savings. Mr Bullen, in particular, spoke about his 600,000 prepayment customers with the key system, which is very old fashioned and difficult for elderly people and vulnerable people. Anyone can recognise objectively that that has been a very good thing; had we waited for SMETS 2 to be developed, those people would not have had the benefit of smart meters. It is fair to say, like with any new technology, that we want to see the industry move from SMETS 1 to SMETS 2 as soon as possible, for the reasons I have explained.

The witness from the supplier company, Secure Meters Ltd, was basically arguing very much for SMETS 1, presumably because that company is a big supplier of SMETS 1 meters. I do not mean that in any sarcastic or improper way; that is what the company does. It was said very clearly that at the moment 250 SMETS 2 meters have been connected. I hope that in the two days since then, it is a lot more than that, but it is a small number. [Interruption.] Well, at least 251, if I may say so to the shadow Minister. Anyway, they are being installed.

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They have not been tested yet.

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I will try to come on to that.

Secure Meters was saying that its kit can offer interoperability; why do we need the DCC? I state again that via the DCC network operators can access meters to provide a lot of system benefits. All suppliers are required to use DCC for SMETS 2 meters, which allows full interoperability for enrolled meters; we are not talking about just one company. Several hon. Members have mentioned fear about the DCC’s price control. DCC offers opportunities to enhance security arrangements. The main point is that the DCC systems have been future-proofed. This is not one company providing a system that, with the best intentions, works but is not part of a national system and is not future-proofed in the same way as we expect DCC to be.

In answer to the question that was asked, DCC has published an approved plan, which was agreed by BEIS, for this system to begin in late 2018, so that consumers can keep their smart services when they switch supplier. That will be done. There is, if I may say so, some cynicism—I mean that in a polite way—about whether it will work or work quickly. It has been suggested that it is untested and so on, but it is being done in phases, batch by batch. We heard evidence from the chief executive officer of DCC that this is a very serious operation. Some could say that it is a very expensive operation, but it is not a wing-and-a-prayer type of thing, as much as any software roll-out is not—I am perfectly prepared to accept that. From big Government projects all the way through, I accept that recent history is littered with disappointments in the efficiency of these roll-outs, but the DCC was very carefully appointed and has very carefully been tested. BEIS is monitoring very successfully, and we are happy with what we have produced. Subject to a cost and security assessment, we expect all SMETS 1 meters to be enrolled in DCC. As I have said, that will make them similar but not exactly the same as the SMETS 2 meters.

I say this in the spirit in which the amendment was meant—I say it in good faith; it is not some political point. I believe that the amendment could undermine delivery of this project, for example where changes to the regulatory framework are needed after the current expiry date of October 2018 to ensure that the process for enrolling the meters into DCC runs smoothly. Were the amendment to apply, such changes could not be made. That would risk delaying or even preventing the benefits of an interoperable service for energy consumers. I state again that I know that that is not the intention of the amendment. That would be irresponsible, and the hon. Member for Birmingham, Selly Oak is anything but irresponsible about this project; he cares for it as much as me or anyone in the Committee or, indeed, in the House generally.

In addition, the amendment would mean that any new consumer protections or other obligations on suppliers introduced after our powers’ current expiry date would not be applicable to SMETS 1 meters or consumers with those meters. Again, I am sure that the hon. Gentleman does not intend that. I know he wants to ensure that relevant consumer protections extend to consumers, whatever type of smart meter they happen to have.

I hope that my explanation reassures hon. Members that we recognise the benefits of moving to SMETS 2 as soon as possible and have established a clear end-date for SMETS 1. We are delivering a solution to resolve the interoperability issues that may be experienced when a consumer with a SMETS 1 meter switches energy supplier. We have thought about this issue, and I am very happy to discuss it with individual Members if they feel that I have missed something out. I hope that on that basis, the hon. Member for Birmingham, Selly Oak feels able to withdraw his amendment.

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Will the Minister say something briefly about the consultation that is under way on extending the period after which SMETS 1 meters cannot be installed? Will he perhaps inform us of the intention behind the consultation, and whether it has any bearing on our discussion today about the interface between SMETS 1 and SMETS 2?

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I want to make the answer very precise, so I would prefer to write to the hon. Gentleman about the consultation, if that is acceptable, rather than give him a vague answer that does not have the precision he deserves.

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As I said at the outset, the amendment’s purpose was to explore this problem and to help Members to get a better understanding of interoperability. A question mark hangs in the air about how successful the SMETS 2 roll-out will be and what the problems will be if we end up with a lot of SMETS 1 meters installed but no longer counted in the Government’s target or, as my hon. Friend the Member for Southampton, Test said, with a hiatus in which there are no meters available. The amendment’s purpose was to explore that point.

The Minister has done his best to explain where he stands. I am not sure that we have reached complete agreement on that, if I am truthful with him, but he has done his best and it would not serve any useful purpose to force the amendment to a Division. That would be a wrecking amendment, which is not my intention, and I am grateful for what he said. I ask him to continue to reflect on this issue, which will be central to the roll-out programme and needs to be considered. However, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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I beg to move amendment 6, in clause 1, page 1, line 12, at end insert—

“(c) in section 56FA(3) after ‘including’, insert—

“, the supply of such meters to energy companies, the disposal of old or malfunctioning meters and”.

This amendment would allow the Secretary of State by order to add “the supplying of smart meters to energy companies” and the “disposal of old or malfunctioning smart meters” to the list of licensable activities.

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With this it will be convenient to discuss amendment 7, in clause 1, page 1, line 19, at end insert—

“(c) in section 41HA(3) after ‘including’, insert—

“, the supply of such meters to energy companies, the disposal of old or malfunctioning meters and”.

This amendment would allow the Secretary of State by order to add “the supplying of smart meters to energy companies” and the “disposal of old or malfunctioning smart meters” to the list of licensable activities.

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The distinction between amendments 6 and 7 is that amendment 6 applies to electricity and amendment 7 applies to gas. Otherwise, they are effectively the same.

I hope that the Minister considers the amendments to be sensible. They grant the Secretary of State the powers to license and regulate meter asset providers and deal with the disposal or recycling of metering equipment. I am conscious that disposal is currently subject to an EU directive—without wanting to get into that debate, which seems to be the only debate we have these days. None of us knows at this stage what will happen to that directive, but we know that a large existing supply of meters has not yet been disposed of in accordance with the directive and that the supply of meters could grow. I am trying to offer the Minister and the Secretary of State an opportunity to take some powers to deal with that, which may become a pressing issue in the near future.

Let me start with the meter asset providers—or MAPs, as I believe they are known in the industry. As we heard from expert witnesses, MAPs are crucial players in the current roll-out programme. I was interested to learn a bit more about what MAPs are. A cursory online search told me that meter asset providers are independent providers of metering equipment, constructing and operating essential utility assets to serve millions of homes in the UK. They provide the following services: funding provision, contract management, asset management, asset tracking, fault management and asset disposal.

As Members will have spotted, there is a connection between the role of MAPs and what happens to redundant and old meters at the end of their life. MAPs are essentially the middlemen, providing, managing and disposing of smart meters. When I was first told about them and was trying to understand them, the best analogy that I could come up with was a football agent—the person who smooths the path to the club, provides the player and helps the player move on when it is in their interest. It seems to me that MAPs do a similar job: they essentially provide a facility for energy suppliers.

As Members may recall, Mr Bullen told us that MAPs play an important funding role. I take this opportunity to mention that Mr Bullen got in contact with me after the evidence session to make it absolutely clear that his company has no role or direct beneficial interest in relation to MAPs; that might not have been the impression given to the Committee during the session, but he was very clear. I wanted to put that on the record so that there is no doubt about it. Mr Bullen told us that MAPs play a beneficial role by providing a funding arrangement to make capital available so that energy suppliers can install smart meters without absorbing the cost from their cash flow. The MAP then rents the smart meter to the energy supplier throughout the course of the meter’s life. That is basically how it works, as I understand it.

However, when a customer switches supplier, it is not necessarily in the supplier’s interest to take on the potentially high rental cost of a SMETS 1 meter, particularly if they have been told that a mass roll-out of SMETS 2 meters is just around the corner. Commercially, it is better simply to turn the installed meter to dumb mode and install a new meter—perhaps an identical meter—using a cheaper contract with a different MAP. That seems to be how we got into the situation that we have been discussing.

In that context, it is a vital message for the Committee that SMETS 1 meters are technically capable of interoperability using the mini DCC systems, but there is often a lack of commercial interoperability when people switch from big six companies to smaller energy suppliers, which is exactly what we are encouraging them to do and what BEIS is telling consumers they should do.

I suggest that that commercial problem is causing the biggest issues with the smart meter roll-out for both consumers and suppliers. Members will recall that one witness described them as deemed rentals within industry circles. Basically, the acquiring energy supplier would not necessarily have the same contract with the same MAP and therefore the customer says, “I am switching from supplier A to B.” The customer already has a smart meter provided in conjunction with their contract with supplier A. When they switch to supplier B the MAP gets involved and says, “There’s a meter in place, but this is what we are going to charge you in order to use it as a smart meter.”

The supplier is not sure what is happening, how long they will be able to maintain this SMETS 1 meter, and how long it will be before the Government’s promised move to SMETS 2—they are told it is just around the corner. Not surprisingly, the MAP tries to take advantage of this situation by offering the rental at an even better rate, to get an even better return over what they assume will be a shorter time. As I understand it, to the best of my ability—I have spent quite a lot of time looking at and discussing this—that is what happens.

The new supplier has two choices. They can either take on an expensive contract, which actually diminishes their profit, or they can put the meter into dumb mode. In some circumstances, they can go to another MAP and put an identical meter into the customer’s property, but they will pay a lower charge for that.

It is an unregulated market. It seems to me to be having a perverse impact on the benefits for customers that the Minister is trying to achieve and his roll-out programme. Citizens Advice has said that that severely damages the credibility of the smart meter programme.

I am not saying that this is a case of bad business or horrible profiteering companies. That is not the point I am trying to make. Rather, the market as it exists has provided for the development of this middleman, who is entitled to try and make the maximum profit available to him in what he judges to be the timeframe available for that product. Naturally, he looks at every opportunity to increase his return. It seems to me that that is exactly what is happening, but the consequence is this situation where we have all these dumb meters. I do not know, but the Department told me in a parliamentary answer that the number in dumb mode is actually 460,000; obviously the witness who told us it is 20% thought it was a considerably higher figure. Whether it is half a million or more, we know that the intention that a person gets a smart meter and can continue to use it when they switch supplier is being thwarted because of the market mechanism that has developed because of the need for the middleman to make money. That is what this is about.

I suggest that it would be in the Minister’s interest to take some powers to regulate that market, to make it part of his licensable activities. I am not saying in this amendment that he has to use them. I am not telling him to do anything, but I am saying that this is where we are and this is what is happening now. It is already having an impact on his programme ambitions and it could continue to thwart them even further. The Bill is designed to deal with events the Minister fears could occur. He keeps telling us that those are not things that will happen and that the roll-out is fine. He tells us that this is a belt-and-braces piece of legislation designed to address things he is anxious about, but we should also be anxious about the role of MAPs. They not only have an adverse impact on consumers but may well be distorting the progress of the very programme the Minister is trying to promote. It would make perfect sense if he took powers that enabled him to step in and act to regulate that element of the market if he reached a stage where he felt it was in the interests of the programme’s long-term viability and of the consumers, for whom he clearly has an overriding concern.

I do not think there is a great deal of purpose in my talking extensively about the second part of the amendment, which relates to disposal. I simply point out that these meters are assets owned by the MAPs. Those businesses may, in the long run of events, have a relatively short life in this industry. Understandably, they may be trying to make the maximum profit available with a piece of technology at a particular stage in the cycle. That is how quite a lot of businesses operate. I am not making judgments about that, and I think many Conservative Members would understand and accept that position. That may not be a permanent feature of the energy industry. The MAPs may be a transitory component, and that is a very good reason for keeping an eye on them and having the powers to regulate them if need be.

The MAPs will at some stage be left with a large supply of meters that have to be disposed of. Because we cannot be sure what will happen with the EU directive, it would make absolute sense for the Minister to have a provision in his belt-and-braces legislation so that if we were to run into difficulty, we would not need to rush through emergency legislation.

I was present when the Minister proposed the Nuclear Safeguards Bill just a few weeks ago. I do not think I can quote him verbatim, but if I recall correctly, his argument for the provisions he was promoting was that he wanted to have sensible legislation in place in case he needed to take action for the benefit of the wider community. On that occasion, I thought he was absolutely right. I suggest that he would be equally right to accept those powers now to safeguard against events about which we cannot be entirely confident at this stage.

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My hon. Friend the Member for Birmingham, Selly Oak has tabled an amendment that is not only interesting but timely and important. As he says, it would be overwhelmingly helpful to the roll-out procedure and would not force anyone to do anything. It would give the Minister the opportunity to consider what should be done, perhaps by secondary legislation or something similar, to confront the issues raised by what we might call reverse meter logistics, which the industry is beginning to talk about.

The amendment is particularly helpful, because this problem is not a theoretical problem for the future, or something that we can think about during the extension period; it is happening now. Indeed, the problem is not only happening now, but its extent and complexity will inevitably increase hugely as the number of new meter installations ramps up, and it will increase even more if we have any further issues with replacing SMETS 1 and SMETS 2 meters as we go through the roll-out process.

There are several aspects of the problem. First, what about malfunctioning and existing smart meters that are no longer installed and are now redundant? Secondly, what about the huge number of existing meters that will be removed and need to be disposed of as smart meters are installed? It is a combination problem. However, it is joined together by the issue of the status of meters generally—not just smart meters—in the firmament of electricity and gas supply.

Indeed, my hon. Friend has pointed out the existence of the MAPs, and it has been a long-standing arrangement in the industry that the meters are not owned by the suppliers; the meters are merely read by the suppliers. The supplier will contract others, even, as happens currently, when a dumb meter is being replaced by another dumb meter. The normal thing is that the supplier will contract with a MAP to put a meter in. The MAP has a very secure asset, inasmuch as they put the meter in, get a charge for the operation of the meter and they carry out a contract for the supplier, but they always essentially own the meter in the last instance.

When we pursue a programme of removing old meters, whether they are dumb meters or previous generation smart meters, we have a problem that is precisely the reverse of the situation when the meters go in, namely that the meters being removed by suppliers—because they are the people putting the new meters in—do not actually belong to them. So as I understand it, we now have a situation where, in warehouses up and down the country, there is supposed to be a process of reverse meter logistics taking place. That consists, essentially, of triaging those old meters, deciding who the actual owner of a meter is, and then inviting the owner of that meter to come and collect it, in order to dispose of it. The suppliers themselves do not have the ability, in their own right, just to dispose of the meter, because it is not their meter to dispose of.

The consequence of that is, first, one is not entirely sure who the owner of the meter is in some circumstances, when a meter has been taken off a wall. Unless there has been careful archiving and, as it were, archaeological numbering of meters, to determine where they need to be taken, and unless there are absolutely first-class systems of triaging, inevitably the system of getting those old meters out becomes jumbled up.

We could have meter mountains across the UK. The meters are potentially valuable assets. They are worth having, with their rare earths, rare metals and all the rest of it; they can be recycled well. However, if there are warehouses full of meters whose provenance is not known and nobody is coming to claim them, and the meters cannot be processed, the only solution is to go and tip them into landfill. Then we will get a terrible outcome to what should be an entirely different process as far as meter re-provision is concerned.

My hon. Friend the Member for Birmingham, Selly Oak touched on the reason for that; it is because of the waste electrical and electronic equipment directive. In case hon. Members think that directive will no longer apply once we leave the EU, I remind them that it has already been implemented into UK law.

The WEEE directive introduces producer responsibility for disposing of electrical and electronic goods. In principle, that is a good thing: when someone needs to dispose of their fridge, freezer or hi-fi system, the company that produced it should have a hand in that. Quite sophisticated systems have evolved for sending electrical goods back to their producers for disposal. That is fine for goods labelled “Panasonic” or “Electrolux”, but I am sure hon. Members can see that it is much more difficult for redundant meters.

If we are not careful, this issue will overwhelm the roll-out or at least have a significant negative effect on the overall atmosphere of it. After all, before the directive was implemented we had fridge mountains in this country, as the Committee may recall.

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But not any more.

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That is because the WEEE directive operated properly, but before it was implemented there were a number of small alps of electrical goods around the country. It will reflect badly on the smart meter roll-out if we end up with Dolomites of old meters as a memorial to it.

We must sort this problem out. Amendment 6 gives the Minister a golden legislative opportunity to do so; we may not get another, so he should be anxious to grasp this one with both hands. I hope he will.

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I will try to deal separately with supply and disposal, just as the hon. Members who spoke to the amendments did. The Government are clear that we support free markets and the benefits of competition generally. However, we have also shown that we are quite prepared to regulate where necessary to protect consumers.

We have done a lot to regulate energy suppliers. Their licence conditions require them to use smart electricity and gas meters that meet the SMETS standard. All energy suppliers must install smart meters that conform to minimum common standards, including ensuring that they are, or can become, interoperable and can be used by competing energy suppliers.

The supply of the meters themselves is a competitive market. There are quite a few suppliers, and they compete with each other; some manufacture both SMETS 1 and 2 meters. The Government set the technical standards, but it is up to the market and the suppliers to compete for the best price. Competition from other energy suppliers would mean that if smart meters supplied were unreliable, incompatible or unduly costly, suppliers would risk losing customers. I do not mean risking losing consumer customers—the wholesale supplier of the product rather than the end user. There is strong competition. Energy suppliers and meter asset providers have plenty of choice.

This morning I provided the Committee with some details on who the asset owners actually were, which I handed out informally, and left with the Clerk. Now it has been referred to, could it be included as written evidence to the Committee? All those Committee members who wanted to have seen it.

Competition is leading to lower prices and continuous innovation, and I do not believe it is necessary for the Government to provide for further powers requiring meter manufacturers to be licensed, because competition is working and effective product standards are already in place, ensuring good value to energy customers. I have not seen evidence to the contrary.

The amendment, as currently defined, may also provide for orders requiring these asset providers to be licensed. Those companies own traditional smart meters and rent them to energy suppliers. That allows the asset provider to aggregate demand and assess lower-cost finance, as well as supporting competition by avoiding the costly transfer of meter ownership when consumers switch energy supplier.

The point that the shadow Minister mentioned is very complex. When I first looked at it, I was very confused about MAP. The evidence we were given the day before yesterday, although very interesting, confused quite a few people. I should explain that suppliers have two choices when they gain a meter. They sign what is known as a churn contract with one of the meter asset providers, which broadly mirrors the installing supplier’s contract, or they pay the deemed rental, mentioned in the evidence and by the hon. Member for Easington in his intervention, that means a higher price but provides flexibility.

We come back again to the DCC, which I know some people are cynical about, including some hon. Members today. One of the benefits of the DCC system, however, is that we believe that the greater certainty provided by the operation of the SMETS 1 meters, as adapted to DCC, will increase the uptake of churn contracts.

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Having listened to the amendment moved by my hon. Friend the Member for Birmingham, Selly Oak, I think he is articulating a market failure. I am listening to you quite carefully.

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Mr Lewis, you are not listening to me; you are listening to the Minister.

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I apologise. It seems to me that the Minister is ignoring the fact that many of these meters are being switched to being dumb meters. Therefore it seems that this system is not working and the market is failing. The Minister may say that the market is working, but it is not, because so many meters are being switched to dumb meters.

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I actively disagree with the hon. Gentleman. I accept the problem—whether it is 4%, 20% or the numbers that have been talked about that do not work—but I do not view that as an aspect of market failure. In my submission, market failure would mean the charge being 400% or 500% of the cost of manufacture. I regard it as a failure, but a technical failure that we hope will be changed within months by the operability technical changes, as I explained. I understand what the hon. Gentleman means, but I do not regard it as market failure. My contention is that the regulation of the supply, or the ability to regulate, as the hon. Member for Birmingham, Selly Oak mentioned, would not have made a difference to the technical failure side of it.

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I just want to clarify what the Minister said, in case I misheard him. I think he said it is not a market failure but a technical failure, which within months we hope to address. As I pointed out earlier, his Department’s position is that it is meant to be addressed by the end of this year. In fact, I asked him if he would produce the plan by the end of the Committee. Is the Minister now revising that timescale? Is that what he is telling us?

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I used the expression “within months” as a figure of speech; I apologise for that.

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I just want to be clear.

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It is a very fair point. I did not do it as a way of pulling back on what I said before, I promise. The point I want to make is that the Government do not believe it necessary to make provision to require MAPs, as asset providers, to be licensed because the competition is working and providing good value to energy consumers.

Away from the Committee, the hon. Gentleman and I had a discussion on meter disposal, and I have given it considerable thought. This is not an excuse, but the responsibility for disposal lies with the Secretary of State for Environment, Food and Rural Affairs. I have not discussed this issue with the Secretary of State, or in fact anything to do with general disposal issues, particularly not gas and electricity meters.

If the hon. Gentleman will bear with me, I suggest that we hold a roundtable with DEFRA and BEIS officials, himself and the shadow Minister, if he is prepared to come—I hope he will—so that we can discuss this. It is not something I can give a short answer to; it is much more complex than I first thought. Having made both those points, I would be delighted if the hon. Gentleman agreed to withdraw his amendment.

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I am very happy with what the Minister said in his conclusion. An opportunity for people to get around the table and see whether we can agree a situation where people are comfortable with what is likely to happen seems a good and sensible proposition. I can see he was very relieved to discover that the issue is not directly his responsibility.

I have to say that I am not at all convinced by the Minister’s comments about the first part of the amendment. I think there is a failure of the market here. It is having, as I pointed out, a negative impact on both the consumer and his programme. I am tempted to test that with a vote, but given what the Minister said at the end of his remarks, I would prefer to ask him if he will think again about the role of MAPs. There is time before the end of the Committee and the conclusion of the Bill’s passage. There is an issue here, and I would be grateful if he at least went back and discussed it again with his officials.

As I tried to point out, I am not against these businesses or out to put them out of business. I am concerned about the impact of some of their behaviour in this environment and the unintended effect it may have on both consumers and the Minister’s programme. In the circumstances, it would be better to give him a chance to reflect on that. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ordered, That further consideration be now adjourned. —(Mike Freer.)

Adjourned till Tuesday 28 November at twenty-five past Nine o’clock.