Clause 71 - Smart meters

Energy Bill [Lords] – in a Public Bill Committee am 3:00 pm ar 16 Mehefin 2011.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change) 3:00, 16 Mehefin 2011

I beg to move amendment 168, in clause 71, page 54, line 15, at end insert—

‘(3A) In subsection (3)(g) after “consumers”, insert “(including adherence to an independent Code of Practice for Installation)”.’.

Photo of David Crausby David Crausby Llafur, Bolton North East

With this it will be convenient to discuss the following:

New clause 36—Smart metering strategy—

‘(1) The Secretary of State must, following consultation with energy consumers and other interested parties, prepare and publish a strategy to assist suppliers to deliver the intended benefits of smart meters to consumers, including in particular low income and vulnerable consumers. In preparing the strategy the Secretary of State must set out how the smart meter rollout will—

(a) deliver to consumers and taxpayers the benefits identified in the Government’s Impact Assessment;

(b) contribute to the carbon targets specified in the Climate Change Act 2008;

(c) contribute to the elimination of fuel poverty as specified in the Warm Homes and Energy Conservation Act 2000; and

(d) contribute to wider Government policy goals in particular, digital access, healthy living and water affordability.’.

New clause 37—Smart meter rollout—annual report—

‘(1) It is the duty of the Secretary of State to report to Parliament or an appropriate parliamentary committee on the progress of smart meter rollout every year starting from six months after the coming into force of the Act. The report should cover progress on the delivery of smart meters to domestic and micro-businesses, including—

(a) progress against the smart metering impact assessments;

(b) the number of smart meters installed in the United Kingdom including any national or regional trend;

(c) the estimated benefits to consumers, taxpayers and industry of the smart meter rollout, with particular reference to low income and vulnerable consumers;

(d) estimated effects on the levels of fuel poverty;

(e) the estimated energy and carbon reduction from the smart meter rollout;

(f) the degree to which interoperability of smart meters has been achieved;

(g) customer satisfaction indicators, including levels of complaint; and

(h) security of smart meters and smart grids including in relation to privacy and commercial confidentiality.’.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

Amendment 168 in effect tries, in the nicest possible way, to bind the hands of the Minister to produce a code of practice. Over the past few months, there has been considerable discussion among consumer groups and others about having a code of practice, and the Minister has been sympathetic towards putting one in place.

The two new clauses relate to a smart metering strategy. This is not directly related, but the scale of the roll-out of smart meters reminds me of the scale of the digital roll-out and the amount of planning and preparation  involved. A considerable amount of effort went into a strategy to ensure that that worked effectively and that different consumer groups had proper preparation, including the vulnerable and elderly. We are asking for a strategy.

New clause 37 asks for an annual report on the smart meter roll-out. We know that that is time-limited and will happen quite rapidly over a short period of years. We are asking for an annual report to Parliament, in which we would like the Minister to deal with a number of issues, such as progress on the smart meter, an impact assessment, the number of smart meters installed and national and regional trends, as detailed in new clause 37.

As the Minister will be aware, smart metering is already a fact of life. Many companies have already decided to go in early and pre-emptively to install their own smart meters. I confess that I am one of the early adopters; I do not know whether the Minister is as well.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

I am not going to say which one. I already have a smart meter, and it is very good; it has changed our behaviour. We have a typical house, with two adults and three children. We never quite know where the children are in the house and what they are up to at any moment, particularly with electricity.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

The Minister says from a sedentary position that I should. Well, now we do, thanks to the smart meter. We can see where energy demand is escalating and see the blips and traffic light systems going on to warn us that we are consuming more than we should. A shout then goes down the corridor: “What on earth are you playing at? Who has the wi-fi and the Wii on?” I am sure that that is familiar to families up and down the land.

There are already many different types and standards of smart meters out there, and it is entirely laudable that many of the larger energy companies have decided to launch their own initiatives. However, there are also fears about that path too, particularly when the most recent estimate indicates that something like 170,000 smart meters have already been installed in Britain. I do not have the up-to-date figures, but I am sure that the Minister can give them to us.

British Gas, which is owned by Centrica, has one of the most ambitious programmes. It is reported to be installing up to 1,000 smart meters a day, with the target of 2 million to be installed by the end of 2012. Before the Government have a firm grip on the smart meter roll-out, we will see 2 million from British Gas. Also, E.ON has said that it is likely to have 1 million meters installed by March 2014, and 100,000 meters by the end of this year. Significant numbers of smart meters will have been installed before the official start date of the Government roll-out. As I said, while it is great to have some technology on the market and have some feedback from it, there are dangers with it, which I will come to.

The Energy Retail Association has, commendably, already developed a code of practice for the installation of smart meters, but it is voluntary. One of the key concerns regarding the code is that it does not exclude sales activity during installation, when the supplier is in customers’ homes. Widespread problems with doorstep selling practices have already been acknowledged, including, regrettably, from energy companies. We want to protect consumers against the risk of some suppliers, or individual operators for suppliers that have been told not to, going for the hard sell when inside people’s homes. That is why we need a mandatory code of practice.

There is precedent to validate consumers’ concerns. The 2008 Ofgem probe into the energy retail market found that more than 40% of consumers switched to a worse deal as a result of high-pressure doorstep selling. We have seen prices rising over the last winter and currently, and one way that the Secretary of State recommends people to avoid that is to switch suppliers. However, we know that slightly less than half of all consumers switch to a worse deal as a result of high-pressure doorstep selling. The study that was carried out by Consumer Focus in May 2009 on supplier sales practice found that 34% of consumers described their experience of doorstep sales as “intimidating” and 68% ranked their customer experience as the lowest score possible.

Ofgem launched a spring package of measures to deal with what it terms early movers on the roll-out. The document covers issues of interoperability, which I will come to, remote disconnection and leaving stranded assets—leaving behind a redundant, inoperable smart meter when a consumer switches suppliers—and customers’ ability to switch supplier. The document also covers marketing, as I have just mentioned, but states that

“Ofgem is not persuaded that there are urgent issues that need addressing. Furthermore, Ofgem already has powers under existing consumer protection legislation and through the marketing licence condition to tackle certain forms of behaviour should it arise.”

Not only do we know that elements of marketing mis-selling are going on in a different area of energy, but it is clear from customer feedback that Ofgem is not applying whatever powers it has to deal with them. The document continues:

“In particular, the marketing licence condition now requires suppliers to take all reasonable steps to ensure that their marketing activity in respect of new domestic supply contracts is conducted in a fair, transparent, appropriate and professional manner…At this stage, Ofgem does not propose to introduce any new requirements to deal with sales and marketing as part of the Spring Package.”

I am not persuaded by Ofgem’s argument, because the feedback from consumer organisations and individual consumers shows consistently that they are worried about doorstep and high-pressure selling. We still need to address things such as the sale of tariffs at the point of installation, the marketing of products and clarifying the difference between good, sensible advice and marketing.

I now turn away from the code of practice, but I hope that the Minister is sympathetic and sees the need for it. He may well say that the Government will bring one forward subsequently, but amendment 168 proposes that he commit to doing so in the Bill. I realise that I am tying the Minister’s hands, but I think that I am tying them to something that he intends to do anyway. In new clauses 36 and 37 we are trying to develop a robust approach to the smart meter roll-out and to ensure  transparency and accountability throughout. I recognise that the Minister has been working hard with his officials to get a grip on where we are heading with the roll-out of smart meters, because it is essential that the roll-out provides real benefits to consumers.

I want to voice our concerns and explain why we need a strategy and a duty to report to Parliament. The impact assessment that DECC produced for the roll-out estimates that the cost is likely to be about £10 billion, although I am sure that the Minister will give me an updated figure if that has changed. The consumer benefits of about £4.6 billion that are indentified in the impact assessment are expected to come from customers being able to use up-to-date information on their gas and electricity consumption to reduce their energy use and to save money on their energy bills.

The impact assessment estimates that the roll-out will cost approximately £10 billion, but it is worth stressing that the net benefit for Britain plc should be positive at £15.8 billion, which includes consumer benefits from reduced consumption. If that does not happen; if something goes wrong with the roll-out; and if, with the best will and the best intentions, it does not all go as planned, the business case that this is predicated on—the cost analysis—might be considerably weakened, and customers might end up worse off. I will explain why. First, DECC estimates that customers will reduce their energy consumption by on average 0.3% to 0.4% a year or an estimated £23 a year for a dual fuel customer by 2020. It is expected that costs will be passed on to consumers across the whole customer base, so if costs spiral, consumers will foot the bill.

The benefits of smart meters are intended to derive from reductions in energy use. It is not just smart meters, but smart consumers. The Minister will know, because we are at the vanguard of this, that there are other parts of the world where they have tried versions of smart meters, but not to the extent we are talking about rolling out right across the country. We do not know exactly what savings there will be. While there is good primary evidence to suggest that there is an immediate response from consumers as they learn to understand the technology, to use it and to reduce their demand, we have no similar longitudinal studies to show that that is sustained and that households do not simply slip backwards as they become used to the idea of paying a little bit more. Yes, they have the traffic lights system but they get used to it and they do not work quite as hard to manage their energy down and deal with carbon reductions.

The full effect on bills and carbon reduction is slightly open to debate, especially after that initial period. Will the Minister explain how we will persuade, cajole or motivate people so that they not only take the initiative seriously at the start but continue with it long term? That is to do with changing hearts and minds. It is not simply having a technological device in the home. Perhaps I could point him towards one of the developments that we used quite extensively and successfully at DEFRA during my term as a Minister. It was known within the civil service as the four Es model. He might not be familiar with it at DECC, although I should be surprised because DECC grew out of the old DEFRA family.

That model aims to combine factors of encouraging, motivating and enabling people to make easy decisions to make the change possible. It not only explains to people why they should do it, it makes it easy for them  to do so. It involves engaging people and gaining their support for policies and leading by example. Leading by example should also apply to Government buildings, both central and local, agencies and so on. That approach takes some resource to make it happen. I should like to hear something about the resources to persuade people of the benefits of smart meters, both in carbon reduction and price savings.

The American Council for an Energy-Efficient Economy reviewed 36 different metering programmes internationally and concluded:

“To realize potential feedback-induced savings, advanced meters”— its terminology for smart meters—

“must be used in conjunction with in-home…displays and well-designed programs that successfully inform, engage, empower, and motivate people.”

That needs to be part of the strategy. We should not just let the technology run, but persuade people to engage with it. The review continues:

“Customer engagement with smart metering will have a significant impact on the overall costs of the programme and the consumer’s opportunity to benefit. In places such as the Netherlands and California where there has been a consumer backlash against smart metering as a result of health concerns and privacy issues, this has resulted in a considerable increase in costs.”

I should like to hear the Minister’s thoughts on the hearts and minds aspect, the engaging and motivating and putting the Government’s argument out there. Then there is the impact on low-income households. The Government’s impact assessment has been criticised in some quarters for its lack of focus on the impacts on low-income and vulnerable customers. I am sure that the Minister and his team will have been working to respond to those criticisms. DECC has stated that it will review the impact of roll-out on different consumer groups, including vulnerable customers, in 2014. As I have said, it is estimated that by that time 4 million meters will have been installed, a significant number of which are likely to be in low-income or vulnerable households. Has there been a thorough assessment of the impact of the roll-out on low-income households? Where will the costs lie, initially and in the long term?

We have had great debate in a different context about prepayment meters. What we want to avoid is another cost being added on for low-income households because they joined up with the Minister in his drive to get smart meters out there, and to save energy and drive carbon down. We do not want those households penalised for that. Perhaps the Minister’s assessment would be useful.

The Government’s impact assessment highlights the potential additional costs from an accelerated early roll-out, but the early roll-out also carries the potential of missing cost savings. I would therefore be interested in what discussions the Minister has had to revisit an earlier one that the hon. Member for Brighton, Pavilion and I engaged in with the Minister of State, the hon. Member for Bexhill and Battle, on the issue of water metering.

At what point will there be synchronicity, as to display functions and so on, between smart meters that engage with energy and electricity, and those for water? I suggest we need a strategy, even it is not immediate or in the early stages, to deal with the issue and explain how,  when we have compatible technologies and display functions, they can be included in the roll-out. The smart meters will have a lifespan and will need to be refurbished or renewed at certain points. It seems that there will be an opportunity to do that if our thinking caps are on.

It is essential that the programme, with the coherence strategy, should be designed and monitored with a view to the impacts on energy and carbon reduction; the benefits for and impacts on consumers—especially those on low incomes, and vulnerable customers; the effect on fuel poverty levels; the contribution to wider policy goals in Government—that is where the strategy really plays in; the resolution of interoperability issues between devices and different energy companies and retailers; and, of course, security concerns.

I want to make a few comments on interoperability and the ability to switch. Switching has been a live issue in the past few weeks. At some point we shall be talking about switching with meters in place, provided in one way or another by a particular energy company. Of course, technology could be incompatible between the meters of different energy companies.

If customers must change their meter to change supplier, it will not only be harder to switch, but pretty inconvenient, and unnecessarily costly. The meter costs would surely be passed on to the consumer somehow. In its spring package, which I quoted earlier, Ofgem said:

“In these very early stages of rollout we recognise that the meter may need to revert to dumb mode on change of supplier”—

“dumb mode” meaning that it is not two-way intelligent; it is purely a reading, in effect.

It says:

“At this early stage, ahead of obligations relating to mandated rollout”— which the clauses in question relate to—

“and full technical and commercial interoperability being introduced, smart prepayment presents a particular challenge as these meters cannot be used in dumb prepayment mode. Without a communications link there is no ready way to top up the meter as there will no longer be any physical device…In order to encourage suppliers to find a solution to this issue and to protect consumers in the meantime we are proposing that suppliers should not be allowed to install smart meters for use in prepayment mode unless they could be used in prepayment mode by an incoming supplier.

I should welcome the Minister’s response to those observations.

Full interoperability is not expected to be in place until at least 2014, when the data communications company is operational. In the meantime, if a customer wishes to switch supplier, their smart meter will only operate in dumb mode after they switch. They will not be able to switch from a smart deal to another smart deal, without having their meter changed. I speak from experience, having made one change myself.

Photo of Luciana Berger Luciana Berger Shadow Minister (Energy and Climate Change) 3:15, 16 Mehefin 2011

Forgive me if I make points that my hon. Friend wishes to mention later. Does he share my concerns that some of the current smart meter roll-out uses technology that cannot be accessed across the UK? I refer to General Packet Radio Service, which cannot be used in some homes if they have basements or are in certain areas. There are also concerns that that technology might become obsolete. If every household that could access GPRS had a smart meter with that technology there would be issues about the capacity of the system.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

My hon. Friend makes a good point, of which I know the Minister is aware and concerned about. It is not just the technology of the device, it is the platform on which it rests. We are waiting to see that resolved. It again argues the case strongly for a strategy and a report. If we, with the Minister’s wise team of officials, devise this in the correct way, we will be able, on the basis of the amendments, to hear each year how that is going. Alternatively, we could hear each year that there have been problems, because the Minister with his wise counsel has selected an innovative platform that seemed to be the bee’s knees but has not quite lived up to it. We know that happens in Government. I am not pointing the finger at the coalition; we know that happens. However, with something like this which is on the scale of digital roll-out, to come back and report to Parliament on annual basis on how that strategy is performing is necessary as well as desirable.

With regard to tariff complexity, a key benefit of the smart meter programme comes from consumers reducing their energy consumption and taking advantage of tariffs that would reduce their consumption, particularly at peak times. That requires smart consumers as well; I have made that point repeatedly. It is no good just having the device there if one is not going to use the information to one’s advantage. Smart meters offer the potential for a new range of tariffs, for example, multiple rate time of use tariffs, so that they can help reduce demand at peak times and lower the cost for consumers. From a personal perspective, that is what we are already doing in our house. The wonderful device we have flashes when there is peak demand or when that is anticipated. It flashes to warn against putting on the kettle or other devices, and to wait for another time.

Truly smart meters, with their two-way communication, mean that one can save money as well as help the Minister to manage his carbon reduction targets. Ofgem’s response was,

“Ofgem is aware of the wider concerns about tariff complexity and the importance of consumers being able to exercise effective choice. As part of the Probe remedies the marketing licence condition was strengthened to require suppliers to provide a written estimate of the annual charges based on the consumer’s annual energy use. Where suppliers are making claims about the savings to be gained from a time-of-use tariff we would expect this to be based on the consumer’s consumption pattern in different periods.”

Again, the strategy for Parliament would be extremely useful in putting forward the Minister’s joined-up thinking, as the years go by with the roll-out, of how tariff systems would work, in favour of consumers. The systems should not confuse them with complexity, but enable them to pick simply, under the E of enabling, easy choices of how to reduce bills and carbon take.

I have already mentioned remote disconnection. Concerns have also been raised about load limiting, restricting the amount of electricity and gas used by a household when low on credit. There is a worry of remote disconnection that could arise from that. We cannot have a situation where smart meters, rather than enable the consumer, allow disconnection, without notice or discussion, because there is intelligent monitoring of a household. That would be the worst sort of use, so I look forward to hearing the Minister’s response and whether he sees that those considerations will form part  of his strategy. We also need robust safeguards to prevent remote disconnection or customers being switched from debit to pay as you go without their consent.

In conclusion, I will refer to Consumer Focus’s three key asks. First, it requests new protections to safeguard customers in a smart world as soon as possible, including measures related to smart meters, as I have mentioned, as well as switching, sales and marketing, and data protection—I will not go into that issue in detail, but the Minister will know that there are worries over effective encryption and decryption, not only within the home, but when that information leaves the home and is communicated down two-way lines to suppliers. Consumer Focus also asks for protections relating to remote functionality and for vulnerable and low-income consumers.

Secondly, it asks for a strategy to be put in place, as we are asking now, to deliver the consumer benefits of smart metering. That should include governance of the scheme, its reporting, and a national engagement plan, which I have referred to. If the Minister does not like the previous Government’s four Es, by all means, rebrand it, but we need a strategy that will engage and motivate people, and not simply leave it up to them or companies to drive it forward. As part of that second point about a strategy, Consumer Focus also suggests that the Government should report back annually to Parliament on the costs and benefits achieved for consumers and Britain plc, as proposed by one of our new clauses.

Finally, Consumer Focus recommends that extra help must be provided for low-income and vulnerable consumers, because all consumers should be able to access the benefits of smart metering, especially when all customers will pay for it. That suggestion is absolutely right, and it is one of the points that we were seized with during the digital roll-out. We have to focus precisely on people who might have the most difficulty making sense and use of a new technology within their homes, or on people who might be able to make sense of it if they had a little support. That does not always have to be from the Government; it could come from within their community, which fits ideally into the big society.

Therefore, our three asks are for a code of practice, the reporting function to Parliament, and that a strategy is put in place. I think that the Minister would be sympathetic to all those suggestions—but perhaps not. However, if he is sympathetic, in the cordial spirit of my speaking to the new clauses and amendments, I hope that he will accept them on to the face of the Bill.

Photo of David Crausby David Crausby Llafur, Bolton North East

Order. I bring it to the Committee’s attention that the same rules apply here as in the House. It is not in order for Ministers or Members to pass between the sight line of the Chair and whoever has the floor. I would appreciate your future co-operation.

Photo of Alan Whitehead Alan Whitehead Llafur, Southampton, Test

Some while ago, Spike Milligan had a product called “Snibbo”, which he regularly advertised on his television programme. If someone put it on their dog, it would cure its fleas. People could lubricate their rusty bicycle chain with it. It was a suitable spread for toast on a cold winter evening, and broken vases could be glued back together with it. I mention that, because it appears to be the way that smart meters have been discussed recently. It is said that they are the all-in solution to the question of how we use our electricity  and gas most effectively, how we measure it, and how we develop the role of smart grids, which use the relevant information. Altogether, they will revolutionise how our energy is used, supplied, transported and decreased, in terms of the amount that goes out. All that is true. That is what smart meters can do. However, as my hon. Friend the Member for Ogmore said, we have moved to the roll-out of smart meters and recognise that they are not Snibbo. They are devices that can do a good job, but have several difficulties in their operational process, and their roll-out could end us up in a bad place. We must bear in mind the ability of our grid to operate in the best possible way if the roll-out is botched, if the results of the roll-out are far less optimal than expected or if, indeed, the public decide over time that the smart meters are not of universal benefit, but are some sort of universal demon in their houses and should be resisted.

As my hon. Friend mentioned, a couple of Californian counties held a moratorium on the roll-out of smart meters on the grounds that they were a public health hazard and an intrusion into people’s houses. There was a substantial campaign by citizens’ groups and stickers were put on people’s front doors saying, “Smart meters not required here. Do not install a smart meter in my property. Go away.”

Photo of David Crausby David Crausby Llafur, Bolton North East 3:30, 16 Mehefin 2011

Order. We are discussing amendment 168, and what the hon. Gentleman is saying is probably more attributable to a stand part debate.

Photo of Alan Whitehead Alan Whitehead Llafur, Southampton, Test

I thank you for your advice, Mr Crausby. I will shortly be coming to my arguments in favour of new clauses 36 and 37.

In this country, big brother watch is already under way in denouncing smart meters. Indeed, Mrs Doretta Cocks of the weekly bin collection campaign stated recently that,

“First, we had a spy in the bin and now we’re going to have a spy in the home.”

That is how some of the debate on smart meters is beginning to shape up in certain parts of our country, and which has been the case abroad. It is imperative that smart meters are rolled-out in the most efficient, effective and speedy way, and I am completely sold on the idea that they will indeed revolutionise how our energy is supplied and works. Among other things, they will make a substantial contribution to the battle against global warming and how we can manage our electricity in a much smarter way overall.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

My hon. Friend has successfully talked me out of wanting to install a smart mater. What would happen if I, like many others, refuse to install such meters?

Photo of Alan Whitehead Alan Whitehead Llafur, Southampton, Test

That is precisely the issue to which I am alluding. Several people might not want a smart meter installed in their home for either actual or perceived views about the security of the data that might be supplied through the meter, and the extent to which it would be possible remotely to undertake actions that  the householder might not want undertaken. In rolling-out the smart meters, it is essential that such issues are properly addressed and that a strategy is in place that enables them to be dealt with.

We want a strategy to enable us to be sure that people are not undertaking some disruption in order to have a dumb meter in their homes rather than a smart meter, which perhaps would need to be ripped out and replaced after a few years. Indeed, we can already see that the early roll-out of smart meters by some utilities is clearly designed to capture the market for interoperability. Whether that will prove to be the case over time remains to be seen.

We need to have a clear strategy about what can be delivered on consumer benefits. We need to know how to answer all the questions relating to the privacy, commercial confidentiality and security of smart meters, in terms of how they perform a national function, as far as that smart use of energy information is concerned, so that they do not end up being only as good as mobile phone coverage. All those issues are part and parcel of a successful roll-out of smart meters, such that they work in the best possible way for this country.

It is common sense that we should have not only a strategy to address that when roll-out takes place, but post-legislative scrutiny of the roll-out in action, as well as an annual report to address the degree of success or to flash up warning signs, just like the smart meter flashes up a warning sign when my hon. Friend the Member for Ogmore should not put his kettle on. We should have warning signs if the roll-out is being pursued in a way that is inimical to its ultimate success.

The measures in new clauses 36 and 37 should be an integral part of a smart meter roll-out, so I hope that the Minister will welcome them. They would underline and underpin what would be an ambitious and hopefully successful programme of smart meter roll-out, which has to be carried out in the full knowledge that it will not be without problems that will need to be addressed.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

It is a huge pleasure to serve under your chairmanship, Mr Crausby, and to make my first speech in this Committee after almost two weeks. I hope that I shall prove that I am not here just for decoration. I am the living embodiment of the squeezed middle, about which we have heard so much today.

I am grateful to the hon. Member for Ogmore for the way in which he has taken us through these issues, and I am grateful to the hon. Member for Southampton, Test for expressing his concerns. We have had a good discussion about some of the general challenges of smart metering. I want to respond to those and, specifically, to the issues that have been raised.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

I have a basic question, which I have just asked my hon. Friend the Member for Southampton, Test: what are the consequences if an individual does not want a smart meter?

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

As now, there is no compulsion on people to have smart meters. I hope that the process will be such a success that people will say, “I have seen what it has done for the hon. Member for Ogmore, and I want that in my house.” We should be doing this because people want to buy into it. A great deal of our effort is  to ensure that there is consumer satisfaction so that we get demand for this to be rolled out more quickly, rather than resistance. We are very much alive to that point.

I thought that we got a fascinating insight into the home of the shadow Minister and life in Ogmore—the children running wild with no idea of where they are, and more gadgets than one finds in a branch of Currys, by the sound of it. When the lights are on and all the family are home, they can probably be seen from Mars.

The hon. Gentleman rightly recognised that the Government have got a grip of this issue. We have put a great deal of effort into ensuring that we can move forward more quickly, and the way of doing that is to get early agreement on the key stages that have to be sorted out. I am worried that the longer we talk about intra-operability and what the key criteria and functionality should be, the more the companies will hold back from putting in place smart metering in the early part of the phase.

I am encouraged that companies such as E.ON are joining Centrica by saying that they want to see a big roll-out of the smart metering programme, and that they have committed to putting in place a million over the next few years. They can do that only because we are saying that they will have clarity by early next year about what the functionality of smart meters should be. They are aware that there is a risk that if we set a functionality that the current smart meters do not address, they would have to be removed at some point. We want to give the companies clarity as soon as we can—to some extent this addresses the issue raised by the hon. Member for Liverpool, Wavertree—on what the functions should be, and we will then know that the companies are there for the longer term. Consumers can then switch when they want to, and they will not need the smart meter to be taken out or to go back into dumb mode. That is the key to enabling the process to go forward at the speed to which we aspire.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

I assure the Minister that he is in no way arm candy on the Front Bench. He is a sterling performer, and he is doing well on this group of amendments.

Although there are advantages to some of the companies going out early, and not least so that the Minister is able to see how particular technologies work, will he assure the Committee that standards will not be determined by the early innovators? That process will be a good learning experience, but will his mind be set by what best meets the criteria he wants for the consumer and the criteria that will drive down carbon emissions and bills?

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

I do not think I have ever been called arm candy—on the sexy MP website I came just below the Speaker’s dog—but I am grateful for the shadow Minister’s kind comments—[ Interruption. ] It is rude to laugh at one’s own jokes, but I have just realised what the Speaker’s dog looks like.

The hon. Gentleman raises a critical point. We will not be doing this on the basis of what business tells us is commercially convenient. We will be putting in place a regime that works for the longer term and that will, therefore, pass the test of time. We do not wish simply to rule out things that the companies are doing—we can learn a huge amount from the work that is happening now—but we have to get smart meters right.

The hon. Gentleman also referred to the point that we have to ensure that smart meters are future proofed. New things will come along—for example water metering can be tied into this—so we should not make decisions now that will close down future options.

On the connectivity mechanisms to which the hon. Member for Liverpool, Wavertree referred, we want to ensure that a wide range of technologies is used so that all parts of the country are covered and we do not close down options that might be more useful or better in some parts of the country. We do not want our decisions to require unnecessary, significant investment in the telecoms infrastructure. The decisions we are making now will make this right for the longer term.

We can also learn from what has been done in other places. Sweden, Ontario and Italy have each had a full roll-out. Holland has had a sizeable roll-out during which it has experienced significant problems. We should learn as much from what people have got right as we do from what they have got wrong.

The hon. Member for Ogmore is completely right to say that smart meters do not bring about change themselves. People have to buy into them and be active participants in the process if they are going to achieve these benefits. If they simply choose to keep to their existing consumption patterns, they will not derive the benefit of switching to better tariffs, so the consumer engagement process will be critical. The impact assessment states that £100 million will be spent on the consumer engagement programme, a lot of which will come from industry. Having seen the way in which Centrica, E.ON and some of the smaller companies are taking this forward, it is encouraging that they are emphasising how consumers can get the best out of their smart metering investment.

The other thing we can look to is how technology can deal with some of the problems. Through smart metering and the development of smart grids over time, it will be possible for people to say, “When the price of electricity drops below a certain variable tariff, charge up my immersion heater; and when it goes above a certain level, switch off my fridge and freezer.” The smart meter will be able to make those decisions. Rather than us all wanting our hot water at the same time and wanting our immersion heaters on when we come home from work, we will be able to spread those things that can be spread in the most sensible way.

Photo of Ian Lavery Ian Lavery Llafur, Wansbeck

On tariffs and price sensitivity, does the Minister agree with reports that at times of peak demand the price of electricity could be up to nine times higher than during off-peak periods? That would adversely affect people with ill health who are not able to change their lifestyle pattern. Such people need electricity at certain times, so will the Minister please give that consideration?

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change 3:45, 16 Mehefin 2011

The hon. Gentleman raises an important point, which is easily resolved. There will be competition between the tariffs, and there will be no requirement for people to go on to those that involve that sort of penal charge at times of high demand. Companies will offer tariffs, and people who are out all day might say that, as none of them is back until after 6 pm, they do not mind buying into a tariff that requires them to buy electricity  at times of peak use. That would be one of a range of tariff options that people could choose. Any problems of affordability and fuel poverty—we will come on to them under later clauses—that might arise from how tariffs are set can certainly be avoided. That is undoubtedly a live concern, but it will be completely resolved by how the tariffs are structured.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

Has the Minister given any thought to whether any consumers will simply be unable to avail themselves of better tariffs—for example because of continuing medical or other needs? In the water industry, it is usual to devise social tariffs to avoid the problem of vulnerable consumers being penalised by their inability to switch to more attractive tariffs. Will he apply such thinking to tariffs for smart meters?

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

There is every reason why tariffs should work in that way. In addition, we and Ofgem are carrying out work to improve liquidity so that more companies offer their services and act as a broker. The Co-op is coming in and other high street retailers are looking to do so as well. They will be able to offer a range of tariffs in response to such circumstances. Specialist niche providers, whom we have seen and given extra support to this week, can also offer specialist tariffs. All such issues can be resolved in that way.

The final issue about fuel poverty relates to prepayment meters, which the hon. Member for Ogmore raised. One of the most encouraging things about the position is that in Northern Ireland, where about half the homes have smart meters, people on prepayment meters are on a better tariff than those who are not. There are challenges to do with prepayment meters, but they can bring very real benefits.

You might have thought that I had already done so, Mr Crausby, but I turn now to new clauses 36 and 37 and amendment 168, the purpose of which was set out by the hon. Member for Ogmore. When similar proposals to the new clauses were debated in another place, the Government explained the approach that we have followed, including extensive consultation to ensure that our plans for the roll-out of smart meters will achieve the benefits sought for in the programme. We explained our view that new requirements would be counter-productive, and we also stated our commitment to transparency about progress and levels of benefit.

The Government are clear that we are accountable for the successful delivery of the programme, and because of that we have brought more of the programme work that was being done by Ofgem into DECC. The benefits of the programme are set out in the impact assessment, and there is a difference of perhaps more than £7 billion between the costs and the ensuing benefits. However, a provision in primary legislation to consult on and to publish a new strategy is not required, and that would cut across what the Government have already done. There has sometimes been a tendency to over-consult in the development of energy policy. At a time when we are engaging constructively with the industry, consumer groups and trade unions, it would be a mistake to require a further period of consultation, as that would only delay the time when installers can have certainty.

Yesterday, I had an extremely useful meeting with the union Unite, which included a discussion about smart metering. It is concerned that until there is clarity in the interim phase, people involved in installing meters might be laid off because companies might scale back the roll-out. If we were to announce now that the Bill will not come into force for some weeks and that there will then be a further period of consultation, all we would do would be to roll back the date when people could start to install with clarity and certainty. As a consequence, the time period about which Unite is understandably concerned would grow, and more people who can be actively involved in this process could lose their jobs.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

Perhaps I may suggest a way forward. I appreciate the Minister’s concerns that we would inadvertently put a hiatus into the process, which would be the last thing that we would want. When we looked at the same issue with respect to avoiding a pause in progress with the digital action plan, that was exactly what we did. Rather than going for a complete consultation and a strategy, we brought together the excellent work that had already been done, as well as examining some areas that may not have been covered before. That was pulled together into an action plan that was published and then discussed within Parliament. May I suggest that to the Minister as an alternative? If he were willing to do that, it could cover the issues to which new clause 36 relates about carbon targets and the elimination of fuel poverty, as well as wider governmental goals.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

I hope that I can persuade the hon. Gentleman that that is not necessary. We have had an immensely lengthy consultation. We have published one of the longest documents that I have ever seen. We consulted on it and then gave our feedback on the documentation. There has been positive engagement from industry, consumer groups and the unions on how that process is being moved forward. We are aware of all the areas in which there are remaining doubts for the consumer groups, the unions and the industry itself. We are now working on getting consensus on those areas. The sort of consultation that he is talking about—even the non-consultation consultation—cannot add to the work that has happened.

I will take the hon. Gentleman through that a bit further. In March, we published a detailed set of decisions and plans for further work. That represents our strategy to achieve the full range of benefits, and it followed a full and thorough consultation with consumer groups, industry and other parties. We published our prospectus in July last year. To re-consult on that now, or to go further in the way for which he is calling, would only slow down the process. Everything that we have been trying to do is to give people early clarity about what will be necessary.

The plans that were published in March set out the work that is now under way as part of the foundation stage of the programme. That includes developing and implementing a consumer engagement strategy. The development of a code of practice on installation will ensure that energy suppliers provide information to consumers to enable them to benefit from their smart meters. That code of practice will be binding. It will be a licence condition, and it will not be something that they can opt in or out of.

There will be an absolute requirement for those installing smart meters to adhere to that code of practice, which was initially being taken forward by industry and consumer groups. I specifically asked for the trade unions to be involved in that process so that it would be as comprehensive as possible. To suggest that there needs to be a separate independent code of practice, which, by definition, suggests that the one that has been done by consensus between the different groups is somehow inadequate, would make it more difficult to take things forward.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

On a point of clarification, is the Minister referring to the voluntary code of practice that is currently in place?

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

At the moment, it is in development as a voluntary code of practice. We have made it clear to the industry that that will be a licence condition. There will be a need to sign up to the code of practice as it is consolidated and finalised, and the major companies are clear that they want to do this. If there are new suppliers and new entrants into the market that want to cut corners, this is our way of ensuring that they still adhere to that code of practice. We are ensuring that the code of practice is fully robust and something that delivers what the hon. Gentleman wants to achieve.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

I think that it will. I suspect that the Minister has devised a different approach through licences to make things mandatory that avoids the heavy duty of regulation—the one in, one out. In that case, why will he decline our proposals, because they give legs to what he is already intent on doing through a different way?

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

Because this was already happening, because we are already well through the process, and because of the word “independent” in amendment 168, which I find particular queer. We are getting agreement and consensus from industry, consumer groups, trade unions and others on what the code of practice should be. We had very useful discussions with Unite yesterday about how to protect consumers from being told “Your wiring isn’t up to scratch; you’ve got to spend thousands of pounds with my mate round the corner to get it put right,” and how to protect people from being taken advantage of at the point of sale.

That is all being done through our existing code of practice and by consensus. To suggest that there is a need for something independent, which I assume would mean independent of industry and suppliers, would remove something valuable and important from the equation.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

May I try to help the Minister? I would be happy—I would be willing to withdraw the amendment on this basis—if he or I could return with an amendment that removed the word “independent” and added a form of words about including adherence to a code of practice for installation as part of the licence condition. That is exactly what the Minister says, but such an approach would make things as clear as day in primary legislation.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

I will certainly write to the hon. Gentleman and other members of the Committee to explain exactly how the code of practice on which we  are working will be taken forward. I hope that that will persuade him, but there will be time for further informal discussions before Report, if he feels that that would appropriate.

By going through the detail of the process, I hope that I can persuade the hon. Gentleman that what he is talking about is already going to happen. The industry already understands that there will be a binding code of practice to which it will have to adhere. I therefore hope that we can encourage the hon. Gentleman to withdraw the amendment.

I want to touch on the proposed annual report. There will be some requirement for an annual report, but I am concerned about setting out a requirement in the Bill as the hon. Gentleman proposes. That approach would give us no leeway for adaption. In addition, we want the roll-out to be finished well before the end of the decade, but new clause 37 would require the detailed work in question to be done for time immemorial at an annual cost of hundreds of thousands of pounds, even when the roll-out is complete. The only way round that obligation would be to remove it through a further Act of Parliament. The new clause would impose a significant obligation and would provide more detail than would be absolutely necessary.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

In the spirit of trying to assist the Minister, I would be more than happy for he or I to return with a new clause with slightly different wording and including a sunset provision that could be reviewed once a year in a statutory instrument Committee.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

It is intended that we shall require reporting to Parliament. Much of the information will be provided through the process of parliamentary questions and everything else. The list in the new clause is very prescriptive, but it is probably not exhaustive, so there would therefore be a need to amend it.

We believe that it is better that anything of this kind should be dealt with by secondary legislation and, more importantly, should be able to evolve over time to reflect what people believe is needed. The Government would in any case want to be doing much of the work in question, but flexibility would be better to enable us to take things forward in the best way.

I think that a dramatic change to the new clause’s wording would be necessary to make it acceptable to me. I urge the hon. Gentleman not to press it to a Division and perhaps to reflect on the position before Report. I believe that we have the powers to make an annual energy statement to Parliament that will undoubtedly deal with smart metering. There are other occasions on which we report to the House. There are many ways in which we can do so without binding us to a bureaucratic measure in legislation for time immemorial.

I hope that the hon. Gentleman will be prepared to withdraw the amendment.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

I thank the Minister for his lucid and extensive remarks on the amendment and new clauses. I shall take them one by one, as he did. I will withdraw the amendment on the code of practice, subject to the view of the other hon. Members who added their names to it, but I am not fully satisfied on that point, because there is an opportunity to enshrine in the Bill what the Minister is doing.

I do not want to put words into the Minister’s mouth, but as a former better regulation Minister, I suspect that he is trying to minimise the impact and burdens by not putting in something mandatory, for which he would have to account to the Secretary of State and the Cabinet Office, at least. However, the amendment would simply make real in primary legislation what the Minister has told me that he will do anyway through a licence condition, which will have exactly the same impact; it will be a minimal and absolutely necessary burden on those installing smart meters.

I will withdraw the amendment, but I suggest to the Minister that we may want to revisit the matter at some point, because I am not convinced that we do not need that provision in the Bill. The amendment would simply make clear what we all regard as good practice by putting in place a code of practice. The Minister has described the current voluntary code of practice, which is wonderful and which is coming together. From what the Minister has told me, however, that voluntary code of practice will in fact be mandatory, because it will be subject to licence conditions for installing smart meters, so I struggle to see the difference.

I turn to new clause 36 and the smart metering strategy. I take on board what the Minister has said about trying to avoid any delay or hiatus. I am concerned about the points that we have raised in new clause 36; often when we table new clauses and amendments we do not get the wording absolutely right, but we have deliberately included issues such as carbon targets, fuel poverty—a major source of debate in relation to various aspects of the Bill so far—and wider Government policy goals including healthy living, water affordability and digital access. I accept the Minister’s argument, however, so we will withdraw the new clause.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change 4:00, 16 Mehefin 2011

May I point out one practical difficulty? Smart meters are related to a particular property. We know the status of the people who are living there when the meter is installed, and therefore we might know whether they are in fuel poverty. We have no idea three years later whether those people are still there, and without going back to every single one of our 40 million homes to ascertain the status of the occupants, such information simply cannot be provided properly. We can have targets and we can work towards these things, but we cannot with certainty measure some of those outcomes. Although we understand the aspirations, the delivery might be fairly complicated.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

I understand what the Minister is saying, and we are getting into the sort of detail that we might see in a strategy. I suggest that he considers drawing together the work that is currently going on into some coherent action plan, or whatever he wants to call it, which does not require any further consultation whatever. It would simply pull everything together so that the industry, the public, Committee members and both Houses of Parliament could see the coherent shape of the Minister’s vision for the roll-out of smart meters.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

One of the things that I said to the industry was that I wanted to see early agreement on these issues; I wanted to see real progress made on determining the basic criteria, so that those who are starting to roll them out can do so with confidence. I said that if we could not make progress, I would put people in a room on a bank holiday Friday and we would not leave the room until they had finished. So far, it has not been necessary to do that, because we have made huge progress on agreeing across the industry, which has very different perspectives, the objectives, the functionality and the operability issues. The prospectus that we set out recently shows how much progress has been made, and there is a great deal of industry support for those conclusions.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

I applaud the Minister’s approach; it is the darkened room with either a gun or a bottle of whisky. Both are quite effective, but I find that the whisky is normally more so. I take his reassurances, but new clause 37 causes me more difficulty. We will withdraw our request for a code of practice—with the proviso that I have given about the possibility of modifying the wording—and we will withdraw our request for the Minister to devise a strategy for the good reasons that he has articulated—everything is in place already. On that basis it seems straightforward that the Minister would want to bring forward a report once a year, although not on the Floor of the House, so that we could look at the progress of the roll-out. As he has said, in other countries and regions there have been good examples, and also some worrying examples of the technology and the way it has engaged, or failed to engage, the wider public.

On something so significant, on such a huge scale and with such a potential impact on so many different people, including the more socially disadvantaged who might have fears about the technology, it seems logical to have an annual report to Parliament in one form or another. We could build in, as I mentioned, some form of sunset clause, so that when the process has finished in four, five or six years’ time, we can happily say, “That is the end of it; we no longer need to monitor how the Minister is doing.” Would the Minister be willing to take that away this weekend and have a good look at it to see whether he could fashion something simple that removes the detail but gives both Houses certainty that there will be an annual report on this critical area of Government policy?

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

I hope I can give the hon. Gentleman that assurance. The Government are already obliged to report annually to Parliament on progress towards our legally binding carbon budgets. Those reports include a sector-by-sector account of the carbon savings that have been achieved. Smart metering, once under way, would be an integral part of that process. There is a legally binding obligation on the Government to report to Parliament, so to some extent the proposal would mean repeating an obligation. My concern is first about the open-ended nature, and secondly about being so specific about what would have to be reported on. The nature of these things should be that we can respond to pressure from Members of Parliament and from Select Committees to change and evolve the statements so that they are as helpful and constructive as possible. The structure, the intention and the will are there, and I  hope that the hon. Gentleman will not press the new clause, given the obligation that is already on us to report on those carbon budgets.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Energy and Climate Change)

The Minister is making a good fist of trying to persuade me. Bearing in mind the length of our debate today, and the time, I will not press the new clause, but I ask him to try to clarify exactly how the duty to report on smart meters will be discharged. Perhaps, with the good will that he has already shown, he will write to all members of the Committee to explain precisely where that reporting function will be discharged. My strong feeling is that we are talking about such an important area of Government policy—it is on the scale of the digital roll-out—that it merits a separate report to Parliament. If he is convinced that there is another way of ensuring that, I simply ask him to write to us and explain exactly where that will be done—not where it may or can be done, but where it will be physically made real. If he can do so before Report, I will not press the new clause.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

I will certainly write to the hon. Gentleman and copy in other members of the Committee, in the hope that it gives them the absolute persuasion and comfort they seek.

Amendment, by leave, withdrawn.

Clause 71 ordered to stand part of the Bill.

Clause 72 ordered to stand part of the Bill.