Oral evidence: Rolling out smart meters, HC 1851

Oral evidence, 9 January 2019.

Witnesses

Audrey Gallacher and Dhara Vyas.

Chair

Thank you very much to Audrey Gallacher and Dhara Vyas for coming to give evidence to the Select Committee this morning. We have two sessions this morning, first with the both of you, and the second one with the Minister and officials. Obviously the rollout of the smart meters is an incredibly important issue, and we appreciate you coming to give your time today. We have a number of questions, and we will start this morning with Albert Owen.

Albert Owen

Thank you very much, Chair. Happy new year to you both, and welcome. The opening question really is this: do you broadly support the conclusions of the National Audit Office’s recent report on smart metering? We have had a briefing on it and read the conclusions. What is your view?

Audrey Gallacher

Yes. It is a really accurate, well-considered, balanced, fair report. There is nothing in it that I do not recognise in terms of the findings, and I think the recommendations are the right ones for the industry.

Albert Owen

Do you think they are strong enough for Government to take real notice?

Audrey Gallacher

There are some absolutely critical ones at the moment. There is a big issue around ensuring the costs and benefits of the programme are stacking up, and we are doing it in the most efficient way. It is really important that we have transparency around those costs that will help make decisions on the programme going forward. For our members, there is a big issue about not just what happens when you get to 2020 and however many meters have been installed; it is about how we actually complete this roll-out. The big benefit and the big prize here is making sure we get as much penetration as possible to transform the industry, and allow the smart and flexible energy system of the future that we need. It is really, really important that we understand what that looks like, and what the policy and regulatory framework is like, so we can get the thing finished.

Albert Owen

For the practical roll-out, do you think the SMETS1 meters will eventually match the functionality of SMETS2? Do you think that is doable from the industry’s perspective?

Audrey Gallacher

The plan, as you will no doubt know from the NAO report, is that the meters will be enrolled into the central system, the DCC system. There is not really any obvious issue or difference for customers right now, apart from the interoperability issue, if you change supplier and lose functionality. When it is in the DCC, that should be addressed.

Albert Owen

That is quite an issue, is it not? It is slow. People are not turning up. Smart meters are now going back to become dumb meters. There are massive issues here.

Audrey Gallacher

At this moment in time, yes, of course. That will be addressed in the longer term when the meters are enrolled. There are probably some issues—

Albert Owen

When you say “longer term”, are you saying past 2020, and how much past 2020?

Audrey Gallacher

The plan at the moment is that the first tranche of SMETS1 metering equipment will start to be enrolled into the DCC in May 2019, so May this year. Right now, two-thirds of them are in the plan. The final third of meters are still to be decided on. There is going to be a consultation on that by the Government this year, but the plan is that they will all be enrolled by October 2020. I must say, though, that that is a very, very challenging timescale.

Albert Owen

What about from the consumer’s perspective and Citizens Advice?

Dhara Vyas

As you know, we are the statutory energy watchdog, and we have been closely involved in the smart meter roll-out for many years now. I thought that the NAO report picked up on the right things. Our two primary concerns are not dissimilar to Energy UK. They have been around the timescales. The rush to a deadline of 2020 is having an impact on the consumer experience of the installations. It is important that quality and cost are prioritised over speed of delivery at this point. The programme has experienced some significant delays and those have not been reflected in that timescale, which could possibly mean more of an impact on the way that consumers experience installations.

Albert Owen

Would you like to share a little about their experiences so far?

Dhara Vyas

Yes, I am really happy to. In 2017, in local offices, we had about 78,000 customers contacting us with energy issues, and about 61,000 contacts to our consumer service. Contacts about smart meters have always been a proportion of those. They are not always in line with the proportion of people who have smart meters, because, as you are probably well aware, most people with smart meters really like them. They are a good thing, particularly for prepay customers. When you have a smart meter and it works, it is transformative. It really changes your experience, so they are a good thing. For those people who experience problems, they can be quite significant. Lots and lots of people contact us with issues around billing. They were promised an end to estimated bills and more accurate bills, and that has not happened. That is an issue.

Chair

Why is that, then?

Dhara Vyas

The smart meter has not configured properly or it has not been updating. Those are technical issues.

Chair

Is that because they are rushing to install them and not doing their job properly?

Dhara Vyas

I would not say that, and I would let Audrey answer on what the reasons are.

Albert Owen

Before you do, you said some people are really happy with them. Is it because they are saving money, or is it just that they like playing with a digital thing that they have in their hands? That is the purpose, is it not, to have consumer benefit?

Dhara Vyas

People like being able to see what they can use. We have to remember that this is an industry, and meters are one of the last analogue things in people’s homes. It is a really important programme, because digitising the energy market is an enabling technology. It is not the end point. It is not about the meter in the home; it is about what it will lead to, which is why we have been supportive of smart meters and the roll-out. It should herald the dawn of the future energy market that we need.

Albert Owen

Just to press you, are people contacting you saying that they are already receiving benefits?

Dhara Vyas

People do not contact us with good stories.

Albert Owen

No, that is why I picked you up when you said they were really happy. If I am really happy, I do not usually phone somebody up and tell them.

Dhara Vyas

People contact us when they have a problem, obviously, and what we do is twofold. We commission research, and our research generally coincides and agrees with a lot of research that the BEIS Department and others commission. It corroborates the fact that most people with them do like them. With our research and with contacts to the consumer service, we try to understand the people who experience problems, to work with those things that we identify via the consumer service and via contacts to local offices, and through our research, to identify issues. We take them up bilaterally with suppliers when there are concerns, if there is a problem or some sort of issue that we see as specific to one supplier. We also try to identify systemic issues that are impacting across the industry, and we will then work with Energy UK or BEIS to tackle those issues. In relation to issues, it is a huge programme. It is a complicated programme. There will be problems. It is really important that we are working to address those before they are being installed at a really high rate, where more and more things are likely to go wrong.

Albert Owen

Okay, but at the beginning of 2019 do you have updated research that you could share with us?

Dhara Vyas

Do you mean figures?

Albert Owen

Yes.

Dhara Vyas

We have commissioned some right now, so I am very happy to come back to the Committee if you want to see them.

Chair

That would be very helpful, thank you.

Stephen Kerr

On the progress of the project, it is behind schedule. Why is that?

Audrey Gallacher

As Dhara has mentioned, it is a hugely complex undertaking. It is the first time it has ever been done. This technology does not exist anywhere in the world. We are one of the only countries that have decided to roll out gas smart meters. This was set out quite clearly in the NAO report; if you look at that whole ecosystem and all of the different devices that have to speak to one another, it was a complex process. The timelines have not been met because problems were identified during testing. You could argue that we or the Government were too ambitious in that timeframe, given the complexity and size of the undertaking.

Stephen Kerr

What is different about our smart meters from the smart meters that are being used elsewhere in Europe?

Audrey Gallacher

Lots of countries have only rolled out electricity meters. We are doing gas and electricity, with a communications hub between them. We have a central communications infrastructure to allow interoperability and change of supplier.

Stephen Kerr

So the way we are doing it is unique in respect of the DCC. That is massively delayed, is it not? What is your assessment as to why that is so delayed? Was the technology that was going to be used known before we got on board with the DCC as a concept?

Audrey Gallacher

The specification was set out, and that specification has been subject to some changes along the way. Things are put in place. We start the testing and defects are found. You have to then revisit that specification.

Stephen Kerr

It is an inordinate delay, though, is it not? It is six years behind and it is still not functional.

Audrey Gallacher

There is absolutely no doubt that there have been delays. I know you have DCC in and it can account for some of this. Our issues have been on things like ensuring that we can start testing on actual meters rather than emulators. That was one of the early issues that meant the development of the software and infrastructure was delayed somewhat.

Stephen Kerr

What has held up the SMETS2 meters, then? SMETS1 was supposed to be interim: “Get ready; get set; go”. SMETS1 was supposed to be temporary. Then it was supposed to be SMETS2, and to date there are very few SMETS2 meters.

Audrey Gallacher

There are about 250,000 as I understand it, which is a lot lower than SMETS1 meters and a lot lower than you would have anticipated at this point in time based on the original project plan.

Stephen Kerr

Was that technological? Do they just not work?

Audrey Gallacher

The meter specification is less mature than it should have been to allow mass roll-out. That is about how the meters have interacted with the DCC, the communications and the data service providers. It is about making sure that the whole thing works end to end, and that has just taken a whole lot longer and been a whole lot more complicated than I think was ever envisaged, and that is because the specification was really tight. It was a really high specification, as you would want it to be, but it just means that it has taken a whole lot longer to get it off the ground. Please do not be under any illusion: everybody—meter manufacturers, energy suppliers, the DCC—has been working really, really hard to deliver this but it has been delayed, as you say.

Stephen Kerr

You say very confidently that the SMETS1 meters will begin to be adopted by the DCC this year, but we have heard this before, have we not? This is part of the delay. You sounded confident, but give us the confidence you have. Why do you think it is going to start this year, when it did not start last autumn or the previous spring?

Audrey Gallacher

Are you asking whether it is hope over expectation?

Stephen Kerr

I believe in hope, but give me some substance for my hope.

Audrey Gallacher

There is a project plan in place. As I understand it, BEIS has seen a demonstration of the initial operating configuration on SMETS1 meters. I have not seen it myself, but I have heard about it. There is a plan in place. I do not think all SMETS1 meters in that tranche are going to be in on 1 May; it will be a gradual process. We are told that that is the day that things will start. It remains to be seen. Of course there have been delays, because we were expecting it back in November. That is the current project plan. It has been demonstrated, but we would be irresponsible not to have some concerns over whether that can be delivered.

Stephen Kerr

Have you really been too optimistic about the idea that the adoption is going to start, or that all the SMETS1 meters will eventually be adopted?

Audrey Gallacher

You would want to see it. The issue we have is that we are not currently seeing it in live operations in practice right now.

Stephen Kerr

As a last question, the Government had an objective in 2013 that every establishment would have a smart meter by 2019. A year later it became 2020, and then for some reason in 2016 they decided everything should be sped up. Has that caused problems?

Audrey Gallacher

You cannot imagine that the delays at the beginning are not going to have a knock-on effect at the end. A lot of our members, the larger ones, said at the outset that this was a programme that would probably take about five years to roll out. If you work back on the timeframe from when the DCC is going to be available to operate at scale, that is going to be tight. We have a lot more SMETS1 meters than were ever envisaged.

Stephen Kerr

Millions more, yes.

Audrey Gallacher

That is because companies have been under an obligation to install as many smart meters as they possibly can by 2020. That deadline has had an impact.

Stephen Kerr

Do you have any insight as to why in 2016 the Government, not having the SMETS2 green light, decided to press on with SMETS1 knowing the inadequacies?

Audrey Gallacher

To be fair, decisions have been made with the absolute best intentions. I am sure you know that. It was important that SMETS1 was done. I do not want to labour the point about how complex it is, but it is not just making and manufacturing a new specification of meters. It is procurement, recruiting staff and training them up. It was important that those things were put in place by suppliers that would help in the long term for the mass roll-out, if you know what you are doing and you are doing it more efficiently and effectively. I also do not think we would be at the point where we could be rolling out 20,000 SMETS2 meters now if we had not done that on SMETS1. A lot of stuff was learned in that, and companies that were doing that did a whole lot of pipe cleaning around how the programme could progress. We had to do it, and it was beneficial when we needed it. The big question is whether we needed 11 million, and we have those because companies have been under a lot of pressure to continue rolling out smart. Customers like them. Customers have the benefits right now. They have not had the long-term benefits that we are talking about around energy transition, but people like them. They are saving money. They are reducing their energy consumption.

Stephen Kerr

I quite liked mine until I changed supplier and suddenly it did not work any more.

Caroline Flint

What is your evidence that they are saving money? As far as I can work out no distributional analysis has been done by the Government into the different types of families and households that are using these. In fact, I am a bit concerned that neither of you have mentioned that the overall increasing costs of this project are spread evenly across all bill payers, including people on prepaid meters.

Chair

We are coming on to that issue about the distributional analysis. Anna Turley wants to ask about that in a bit.

Mark Pawsey

I wonder if I could keep on questions with Audrey Gallacher. If you look at the basic principles of why we have introduced this programme, it was essentially to encourage consumers to save energy. You have just told us that you believe there are lots of consumer benefits, but I am interested in how much the industry will save. In the original principles 49% of the quantified benefits were supposed to accrue to the industry, which the industry would then be able to pass on to consumers, but you have already told us that the programme is taking much longer than was anticipated. It has been much more complicated and the costs have risen. My question to you is whether the benefits are ever going to be realised.

Audrey Gallacher

From the original benefits case, we are in the period where costs have been accrued. The benefits come later, after the roll-out has been completed. Those benefits will be delayed or deferred.

Mark Pawsey

So you are saying the benefits will still be there; they will just come much later on in the programme than was originally anticipated.

Audrey Gallacher

As I understand it, yes, but we have been calling, for a couple of years now, for an updated benefits case.

Mark Pawsey

You said that is as you understand it, but is it your assessment that the savings that were originally anticipated by embarking on this highly ambitious programme are going to be realised?

Audrey Gallacher

We have some evidence from analysis that Smart Energy GB has done, and some monitoring that our members have done, on how customers have changed their behaviour and what people’s views are on smart meters.

Mark Pawsey

I am interested specifically in the savings that industry is able to make as a consequence of the programme. That was estimated to be 49% of the benefits. Are those savings and benefits that were originally anticipated going to be realised—yes or no?

Audrey Gallacher

I am hopeful that they will be, but we have not had an updated impact assessment.

Mark Pawsey

You have nothing more scientific than the fact that you are hopeful that they may be. We are all hopeful that they may be. You are involved in this sector; I am asking you for your opinion as to whether they are likely to be realised.

Audrey Gallacher

We know fewer customers complained, so there has been improved customer service.

Mark Pawsey

I am not bothered about the customers right now. I am concerned about the suppliers. Are the suppliers getting the savings that were originally anticipated from the programme? Are they going to get the savings?

Audrey Gallacher

I would need to come back to you on what the figures are on savings right now, but we knew from the original impact assessment that the savings would not happen yet because the roll-out is incurring costs. We do know about reduced complaints, reduced customer contact and more satisfaction.

Mark Pawsey

When do you expect that the savings will be realised, by what date?

Audrey Gallacher

The original impact assessment says that the big savings would start coming through in 2020 and 2021.

Mark Pawsey

Do you still believe that is the case?

Audrey Gallacher

They could be delayed, which is why we are asking for an updated cost-benefit.

Mark Pawsey

How long do you think they will be delayed? When do you think the savings will be realised?

Audrey Gallacher

You will start seeing savings, but it is about when you get the full savings. The current business case is up to 2030.

Mark Pawsey

When do you expect the full savings of 49% of the benefits to be realised?

Audrey Gallacher

Sorry, I do not have that. I would need to come back, which is why we want an updated impact assessment. Right now, the benefit case goes out to 2030.

Mark Pawsey

So it could be as late as beyond 2030 that there will be any benefits to the suppliers of the system.

Audrey Gallacher

No, the benefits will accrue as the roll-out progresses. One of the big challenges we have is that you do not want to run two systems. You do not want to have a dumb system and a smart system. You do not want to have customers with different metering configurations, because you have to train up staff. There are big inefficiencies there. The real thing we are looking for is to get everybody on the smart system so that we are operating a single system, and then those benefits can come through. If there is a delay in getting everybody there, that might ultimately impact on when the full savings are delivered, but there will be incremental savings throughout.

Mark Pawsey

This may come in a further question, but you are expecting that every household, 100% of households, will have a smart meter by the end of the roll-out.

Audrey Gallacher

There is a difference between the roll-out and where we are going. Imagine a 60 watt lightbulb. You do not get them any more. At some point in time, this will be normalised and smart meters will be the gas and electricity meters that you get. In the fullness of time, I would hope that every premises would have one.

Chair

One of the issues is that the cost-benefit analysis has not been updated despite the fact that the roll-out is not going as planned. It is the responsibility of the Government to publish that, but it would be useful, Audrey Gallacher, if from your members you could get to us, even if it is indicative, whether they are experiencing that. One of the issues the NAO has raised is that it is costing more. Despite the fact that both of you have said customers who have them like them, the take-up has not been as high as expected. It has not been as easy to fit them into some properties as hoped. For those reasons, Mark Pawsey is right to suggest that the benefits to industry are perhaps not as great as those expected in the cost-benefit analysis. We hope the Government will update that analysis this year, but anything you could give us on that would be very helpful.

Audrey Gallacher

Yes, definitely.

Drew Hendry

Good morning. Dhara, what is your assessment of the way consumers have been affected by the roll-out?

Dhara Vyas

I am not going to labour the point that most people with them like them. From contacts to us, I have the figures for the full year 2017. We had about 3,000 smart meter contacts in 2017, and there was quite a range of issues that people contacted us about. Some of the ones that were most frequently reported to us were aggressive sales practices from suppliers who were quite eager to get smart meters installed, missed appointments and incomplete or aborted installations, which waste people’s time. It makes people feel very negative, because they think, “Well, I am not going to take the morning off work again. That was pointless”. As I have touched on earlier, despite having smart meters installed customers might still have difficulty getting accurate bills. That is down to a range of issues, including where there is no network service to take the remote reading, a gas meter cannot communicate with the comms hub, or if they lose smart functionality when they change suppliers. People contact us then. We also get contacts from people saying, “I have asked for a smart meter and I cannot get one”. That is one of the issues with having SMETS1 meters and now SMETS2 meters, and with SMETS1 meters being enrolled at different times. On that point, there has not really been enough information around the cost of enrolment and adoption, and the rationale for the speed with which it is happening. We are concerned that that might add more to cost as well, and that is not something that has been raised. On the messaging to consumers, it is very hard, because it is a different answer depending on where you live or, more importantly, who your supplier is, whether they are installing in your area and what type of meter they are installing.

Drew Hendry

You spoke earlier about people liking them. We have heard that a lot of the SMETS1 meters have actually gone dumb because people have switched. Obviously that will affect people. Is that an issue that has been raised with you?

Dhara Vyas

Yes, it is. People contact us saying they are unhappy, they did not think that was what would happen and they did not really understand, because some suppliers are able to operate with that smart meter system operator. Some meters can stay smart because suppliers have agreements between them, but again it is a market that has rapidly changed during this entire roll-out. There are now far more suppliers, and they all have separate agreements with different smart meter systems operators.

Drew Hendry

Would it be fair to say it is a bit of a lottery for people when they have a SMETS1 meter?

Dhara Vyas

It is a bit of a lottery. It is really hard to navigate and to understand, because you have to know what meter you have, who the system operator is, and then whether the supplier you are changing to has a contact with them and will be able to operate your meter in smart mode. Very few consumers are that savvy. I do not think I am.

Drew Hendry

You mentioned right at the beginning of the reply that people are feeling under pressure, with pressure sales to take the smart meters on. Is that quite a big problem in the reports?

Dhara Vyas

There was a period last year where that was a bigger problem. The Department, Ofgem and Energy UK worked together to quite quickly address the issues that a couple of suppliers had, to do with that. It is not a mandatory roll-out, and consumers should know that they can refuse to have one if they do not want one, but equally suppliers are under a lot of pressure to get them installed. Suppliers should be allowed to test various communication methods, but if a consumer clearly says they do not want one that should be accepted and noted, and they should not be approached again, or there should be an agreement as to when they might be approached again.

Drew Hendry

Do you feel the industry has now got to that stage, or is there still a problem with pressure on people?

Dhara Vyas

The industry has done a lot to tackle the issue. There is going to be more pressure in the coming months and years. It is going to be a live issue that we stay on top of.

Drew Hendry

What is the biggest effect on the consumers that we should have seen that is not happening, in your view? What is the biggest result for the consumer that is not happening at the moment?

Dhara Vyas

Broadly, right now, we should be seeing SMETS2 installed at scale. Generally, it is the delays that have been experienced. There has been talk about the impact on costs. The NAO has found that it is going to cost another £17 per household. That is potentially going to be even greater, particularly in relation to marketing costs that suppliers will have in trying to attract people and encourage people to take them.

Drew Hendry

As a final point on that cost that you mentioned there, the £17, do you have an estimate or an idea of what it might be?

Dhara Vyas

We have been asking the Department over the last few years for an updated cost-benefit. The last one was done in 2016, and so much has changed since then. There is a real information gap here, and it impacts on us being able to do our job as the watchdog.

Anna Turley

I would like to pick up on the points Caroline raised earlier about the potential for unequal distribution of the benefits of this. There are two approaches to that. One is around use and accessibility, and the other is around cost-benefit in particular. The Department has said that vulnerable consumers, particularly those with disabilities, are often understood to require additional assistance. We have heard of people who are perhaps intimidated by the new technology and do not quite know how to use it or get the benefits of it. Have you seen any efforts from the industry to support disabled and vulnerable customers in the use and accessibility of it? I would also like to focus on the cost and the savings of that, because as Caroline mentioned they are unlikely to be evenly distributed. It is going to be a fairly flat rate. We also know that often the most vulnerable people in poverty are living in the most energy inefficient homes, private rented sectors and so on. Do you feel at the moment that the benefits are evenly distributed, and does that give you cause for concern?

Dhara Vyas

On your first point about vulnerable consumers, over the years we have done quite a lot, working with industry, to give extra support to vulnerable consumers. In the last few years, we have had less of a focus on that because there have been other issues with the roll-out that we have been concentrating on. There are a number of issues to highlight. One is that this is a really good opportunity for suppliers to make contact and interact with every single person they supply energy to. If that is done well, it is a really good opportunity for them. One of those is to note vulnerability where they did not know that there was someone in vulnerable circumstances in a household. In terms of actual interaction with smart meters, while some vulnerable consumers, or consumers in vulnerable circumstances, stand to benefit the most from having a smart meter, such as in the prepay example I gave earlier about how it can transform the way you interact with energy, we have never wanted them to go first, because they should not be the guinea pigs. They also stand to lose the most. Nor should they go last, because then they do not feel the benefits. I am not entirely sure if we are at that mid-point where they ought to be rolled out to vulnerable consumers. Industry, the Government and Ofgem—but industry in particular—need to have a real focus on giving vulnerable consumers that extra time and attention. There is a lot of work across the charitable sector, and with SEGB, on specific support and services to consumers during the installations. I think NEA did some work recently on deaf consumers, and SEGB has done some work on disabled consumers. That is happening, but because of the roll-out and the issues that have been experienced it has possibly not been at the top of the list of things, if I am honest with you. We did some work a couple of years ago where we made a big information request of suppliers, asking questions around policy, intention and strategy in relation to how they treat vulnerable consumers through the installation. From that, we did a lot around best practice and how you share, because it is not a competitive area; we want the best for consumers. We have been able to do quite a lot with industry on sharing best practice. We plan to do a lot more of that.

Anna Turley

Thank you, that is great. Do you feel you have been listened to?

Dhara Vyas

Yes, with industry, I feel we have. We have such a depth of experience in doing this across the retail market more generally. As the market has changed so much, it is really different for the new, emerging suppliers than it is for the bigger, more established suppliers. There is more of a job for us there in explaining the obligations in relation to vulnerable consumers, particularly around installation.

Anna Turley

From a supplier’s perspective, do you think you are taking reasonable steps to support vulnerable customers?

Audrey Gallacher

Yes. There are quite a lot of specific initiatives. We worked with the RNIB to create an accessible, in-home display for blind or partially sighted people. There are some specific examples, to try to ensure the technology can be used by everybody and they get the benefits of it. I have seen some really interesting case studies. Dhara spoke about prepayment meters. During the “beast from the east” last year one of our members could see everybody who was off supply and gave them an automatic £16 credit on the meter. They did not wait for them to phone them. It might have been an empty house, but they just did not want to take the chance that people would be off supply in that kind of weather. That is the kind of thing that you could never have done before. There is also some really interesting stuff being done about health and social care, just at the pilot stages at the moment, but there is real potential here. We just need to make sure that consumers get the benefit of them and society can take advantage of this technology. The other important thing is that there is a code of practice in place that sets out specifically that suppliers have to identify and log vulnerability. A best practice guide has been published by the Department; all our members have adopted it.

Caroline Flint

Ms Gallacher, around 30% of consumers are not being offered energy saving advice during installation. That is contrary to the code of practice Ofgem should be enforcing. Why are your members not providing that as just something that happens when they install smart meters?

Audrey Gallacher

Not only are they required to do it; Dhara has also pointed out what an amazing opportunity this is to do it.

Caroline Flint

Why are they not doing it?

Audrey Gallacher

There are different levels of performance. It is good and it is really important that this is being monitored. It is important that we are publicising these figures. There is a range of performance across different suppliers. Some suppliers are in excess of 90%.

Caroline Flint

I do not quite understand the answer. As I understand it, it is part of the code of practice that energy suppliers, whatever they are, should be providing this advice as a matter of course, but 30% of consumers are not getting it. Is this something you are taking up with your members, and do you feel that Ofgem should be enforcing the code more strongly?

Audrey Gallacher

Yes, definitely. We have asked all our members if they have adopted the BEIS toolkit, which they said they have. There is no doubt that there is a range in performance, and some companies need to do better. If there is a role for the regulator to enforce against that, that is something that we would welcome as an industry. Consumers have to get the benefit of this. It is not good enough and it has to improve.

Antoinette Sandbach

Do you think there has been sufficient oversight of the programme? I will ask Citizens Advice.

Dhara Vyas

Do I think there has been sufficient oversight of the programme? The NAO report clearly shone a spotlight on two of our big concerns to do with the programme, which were around the cost and the lack of recent information on costs and benefits, but also the deadline. It has been really timely, and it has been necessary. The programme itself has been going on for many years, and the market has changed. The world has changed since it began.

Antoinette Sandbach

Dhara, just so that those watching this session understand, it has cost every household £374. You are suggesting there is going to be another £17 on top, possibly more.

Dhara Vyas

Yes.

Antoinette Sandbach

In 2016, the cost-benefit analysis was £11 billion worth of costs to bill payers, not to the companies, but to bill payers. We then hear that there are these gaps, so what do you think should be improved?

Dhara Vyas

There should be a big focus on doing a new cost-benefit analysis, and more transparency around the emerging costs. For example, on the SMETS1 enrolment and adoption, there should be more transparency around what that will cost consumers and the impact of doing that within such a short timeframe. If the rebuttal is that, as long as you drag it out, you have two systems, what is the cost of that versus the cost of doing it quickly? We do not have a good enough idea in order to play that watchdog role. It has been really timely, and it is really crucial, because as you say, ultimately, customers are all paying for this via bills. To the point around whether all customers will feel the benefit in the same way, they will not, because some customers are already very energy efficient and very aware of what they are spending.

Antoinette Sandbach

Ms Gallacher, there is a recommendation that a senior official, or somebody with sufficient seniority, from the Treasury should sit on the boards of the companies rolling this out, where it is a publicly funded, i.e. consumer-funded, programme. How many of your members have invited a senior Treasury official to sit on their board in these types of programmes?

Audrey Gallacher

I am not aware of any, but I can come back and check on that. There was a suggestion that the Treasury should be more directly involved in the smart meter implementation programme as well, the BEIS Government programme that industry and consumer organisations sit on. I think it would be a great idea for them to get involved in that.

Antoinette Sandbach

You have accepted that nearly a million meters have gone dumb, so that £374 per household that is paid for a meter that has gone dumb is wasted, is it not?

Audrey Gallacher

One thing we need to recognise, which is linked to the cost-benefit analysis, is that right now we look at this as an average. It is £374, and there is still plenty of money left to support the overall positive impact of the business case.

Antoinette Sandbach

But we do not know that, do we, because there is not sufficient transparency?

Audrey Gallacher

Exactly, you are dead right.

Antoinette Sandbach

Do you think the energy companies should be more transparent about the data that they hold and putting that into the public domain? You cannot even tell Mr Pawsey what benefits have been received by the cost savings to the energy companies.

Audrey Gallacher

All the information we have provided to BEIS. Some of it might be commercially sensitive information that you could not or would not want to put in the public domain.

Antoinette Sandbach

Do you not accept that it is the consumer; it is me, the bill payer; it is my constituents; it is every single constituent of every MP around this table who is paying the bill, not you or your supplier companies? It is the consumer who is paying the bill, so why should commercial confidentiality attach to that data?

Audrey Gallacher

The information is made available in the programme. Obviously there are costs outside that, direct supplier costs in procuring the meters and rolling them out. We have £1 billion a year going on the DCC, so there are significant costs across this whole programme. What is really important is that we understand what those are and start making decisions about the future of the programme based on individual social benefits, not the overall case.

Antoinette Sandbach

Can I clarify this? Are you saying that £1 billion cost for the DCC is being borne by the energy companies and is not passed on to the consumer?

Audrey Gallacher

Ultimately, everything is passed on to the consumer.

Antoinette Sandbach

Right, so let us just clarify that, then. In terms of dual-band communications and the Alternative HAN solution, when are you expecting those to be widely rolled out? When are they going to be rolled out?

Audrey Gallacher

I have the figures here. Right now, there is one dual-band comms hub. It is Q3 2019 but, again, that is still going through testing.

Antoinette Sandbach

But it was due to be 2018, was it not?

Audrey Gallacher

Yes.

Antoinette Sandbach

So how confident are you, when you are sitting here in front of this Committee giving evidence, that that target is going to be hit?

Audrey Gallacher

Right now, it is a plan. We have already acknowledged that the plan was an ambitious one, given the complexity and the technology.

Antoinette Sandbach

You have had six years, have you not?

Audrey Gallacher

Yes, and clearly there have been delays. We have acknowledged that.

Antoinette Sandbach

What is the industry’s plan to deal with the third of the SMETS1 meters that may not be rolled on to the new DCC?

Audrey Gallacher

Right now, the Government’s plan is that, if a meter is not enrolled, it has to be replaced by 2020. We have to have a think about this. If we end up replacing meters, there will be a cost to that and an impact on consumers, because it is another day off work. Obviously we hope that all the meters will be enrolled, but ultimately the policy decision here is that, if the meter is not enrolled, every meter has to be interoperable by the end of 2020, so it will be replaced. That will come at a cost.

Stephen Kerr

Who will pay?

Antoinette Sandbach

The consumer. If I phone up my energy supplier and say, “You want to install a meter into my property”, I appreciate most consumers will not know if it is SMETS1 or SMETS2, but if I asked the person at the end of the phone, “Is it a SMETS2 meter?”, would your staff know?

Audrey Gallacher

Yes. When they were booking appointments, they would know, because the engineer you would send out is one who would be trained up to do a SMETS2 installation. That should be apparent. Companies should know what they are rolling out. As you know, we are going through the transition at the moment, and the SMETS1 end date is scheduled for 15 March. That is going to be a massive challenge, because on 15 March there will not be any SMETS2 prepayment meters. We still have issues with rolling out SMETS2 meters across the whole of the northern network, so there is a big challenge on that transition, which goes back to the point about whether you want to incur additional costs by replacing meters in stranded assets.

Antoinette Sandbach

What liaison have you as energy companies had with Citizens Advice, councils and consumers, to say to them, “You can have a meter now that would need to be replaced or you can wait until Q3”—or whatever you said the date was—“and by delaying by a few months you will get a new, up-to-date meter”? Is the reality that you are not confident that any, or very many, SMETS2 meters are going to be delivered?

Audrey Gallacher

There is a plan in place. We have not seen the DCC delivering at scale. There are only 250,000 of them out there, but there is a plan in place that this is the enduring solution. This is what everybody is working towards. There are 10,000 meter installers out there looking for a job to do, to install meters.

Antoinette Sandbach

Given that there has been a plan in place for six years that has not been adhered to, what would you say to us as MPs about how the appropriate oversight should be of your companies, if you cannot deliver to the promise that you have made around SMETS2?

Audrey Gallacher

I do not think it is just energy companies. We are talking about a whole end-to-end system here, from meter manufacturers that make the things, energy companies that procure them, the back office in the energy companies that do that, right through to the central systems.

Antoinette Sandbach

Sorry, can I just stop you there? Are you saying in the last six years you have not learnt the lessons of the testing and the roll-out that has happened so far, and that at every stage of the process there is still a problem in all those areas that is going to potentially affect the SMETS2 roll-out? I am asking you for very specific advice to us about how the oversight is done. Looking at everybody, where have the lessons been learnt and where have they not been learnt? Where are you as a representative body focusing to make sure that the issues with the programme are addressed?

Audrey Gallacher

There is a huge amount of work going on at the moment on testing, to ensure that the testing regime is as robust as it can be. There have been a huge amount of learnings from the SMETS1 roll-out, which has got us to where we are. There is also industry governance, the smart energy code, which looks to ensure that the whole system operates effectively. There are obligations on suppliers to roll these out; they will get fined up to 10% of their turnover if they do not do it, so there is already a process in place. What I would say for this Committee is that I will get additional information. We are happy to provide anything that we can provide. I want to reassure you that it is in everybody’s interests—energy companies, customers, the Government—to work on this roll-out. I cannot stress enough how much effort has gone into it. I know it is tremendously frustrating. It is frustrating for us. It is frustrating for customers that there have been these delays, but please be assured that the industry is working incredibly hard to deliver this.

Chair

To finish, do you think that the 2020 deadline will be met? If not, do you think the Government should put in place a new timetable and reassess that deadline and that ambition? I will start with you, Dhara.

Dhara Vyas

We do not. We think, if it is met, it will be at greater cost and inconvenience to consumers. There are varying degrees of complexity. For that reason, we should be valuing quality of installation, to get things like the energy efficiency messaging right. It is really important to slow down and focus on quality and cost.

Audrey Gallacher

The NAO has said 70% to 75%. I would suggest the Committee might want to get the most up-to-date roll-out forecast, which will be submitted to Ofgem this month, to get a better understanding. Whatever we get by 2020 cannot be the end of it, because we need to complete the roll-out. That is why it is really important that we have a clear understanding of what that is going to look like and that we can do it in the most cost effective way.

Chair

You also think that there needs to be a reassessment of that deadline.

Audrey Gallacher

Yes.

Chair

Thank you very much. Thank you both for coming to give evidence this morning. We will move straight on to the next session now. Thank you. Examination of Witnesses

Witnesses

Claire Perry MP, Daron Walker, Rob Salter-Church and Richard McCarthy.

Chair

Thank you very much, Minister and the other three witnesses, for coming in to give evidence to us this morning. We have just heard from Citizens Advice and Energy UK. We are pleased to be taking evidence from you now. Perhaps for the record it would be good if you could introduce yourselves and say where you are from.

Rob Salter-Church

I am Rob Salter-Church from Ofgem.

Claire Perry

I am Claire Perry, Minister for Energy and Clean Growth.

Daron Walker

I am Daron Walker, the SRO for the programme from BEIS.

Richard McCarthy

I am Richard McCarthy, chairman of the Smart DCC.

Chair

Thank you very much. Can I start by asking the Minister how many smart meters have been rolled out so far?

Claire Perry

The number as of today is 12.8 million. If I may just say a word of context, first of all, happy new year, and secondly we really welcome this investigation. Not only are we very keen to talk about the programme specifically, but the role of the programme and smart meters in delivering a digitised energy system is absolutely vital. For example, the announcement we made yesterday on the smart export guarantee, on which we would welcome scrutiny at some point, would not have been possible without the commitment to rolling out this programme. Not only is it a consumer-facing benefit; it is also a really important benefit for the whole energy system.

Chair

Energy UK and Citizens Advice both said that as well this morning, Minister. What fraction of the meters installed so far have been SMETS2 meters?

Claire Perry

The current number of SMETS2 meters is 250,000 as of last week. Sorry, I do not have my calculator to do the percentages. I would just point out that, when I started answering PQs on this back in the summer, we were at 1,000 or 2,000. The ramp‑up rate of that programme is absolutely phenomenal. I believe the installation rate is now around 4,000 meters a day.

Chair

What fraction of the total roll-out does this constitute so far? Where are we against everyone getting a smart meter?

Claire Perry

You will know, Chair, that the original commitment was to offer every household a smart meter by the end of 2020. We are currently at 25%. The number is a little higher in the prepayment meter category, but in general around a quarter of all households have now had an installation.

Chair

I know that there have been some particular issues around SMETS2 meters in the north of England and Scotland. How many of those 250,000 SMETS2 meters have been installed in the DCC north region?

Claire Perry

Far too few. The current number is 10,000, which is about 4% of the total number of SMETS meters. If it is appropriate, I would like to invite Richard to explain why that is. I feel particularly strongly that, given a third of households are in the north, we must see a normalisation of the installation rates as soon as possible. I have been assured by the team that we should be at a like‑for‑like installation rate by the beginning of Q3. Perhaps I can invite Richard to talk about why we are lagging behind unacceptably in the north.

Chair

We will come on to those issues later. I am keen to get some of the numbers done first, if that is okay. We will come back to that issue, though, Richard. The roll-out slowed down in 2018, Minister. Why was that?

Claire Perry

It was because we always knew that we would have this transitional period. There were two things going on. One was that I believe a lot of the low-hanging fruit got done first, and a lot of the very energy-enabled consumers were the ones who actually requested the smart meters. Of course, there was this transitional period from SMETS1 to SMETS2, with lots of concern, rightly, about interoperability issues. Essentially it became harder to install those meters, but I have been pleased to see acceleration, particularly in the SMETS2 meters, which is where we want the programme to go. There has been very substantial acceleration in the last couple of months.

Chair

I know there is some specific work being done across the industry, called Alt HAN, on some of the hardest to install properties: ones with thick walls, meters outside or in high-rise flats. How close are we to being able to install meters in those sorts of properties, Minister?

Claire Perry

I am happy to answer the question. Daron is my expert as the SRO on this, but I believe we will have a full solution by the end of 2019. It is a particular issue both in rural areas and, as you say, Chair, in high-rise areas. It is also where you have separation of gas and electricity meters. Those households could install today a meter that would just deal with the electricity element of the bill, but not the dual-fuel element of the bill. Again, I think it is absolutely right that we have this industry group with strong governance, and we need to fix that patch at the latest by the end of this year.

Chair

We will move on in more detail to those in due course.

Anna Turley

I would like to talk fairly specifically about the issue of half-hourly settlement. One of the biggest selling points about smart meters was to enable people to prevent waste and use energy at cheaper times, when it is off-peak. Ofgem consulted on this issue back in 2012, and it was predicted that, of the £900 million that would be saved by smart meters between 2018 and 2022, £200 million would be as a result of half-hourly settlement and people’s ability to switch. It seems that we are not going to be in a situation to use half-hourly settlement across the market until 2022, which is the point after which that £200 million is supposed to have been saved. Why is it still not ready? I will start with the Minister.

Claire Perry

I agree that half-hourly settlement is a really important part of unlocking this smart energy system. Some suppliers are offering it already. Perhaps I could invite Rob from Ofgem to answer this specific question.

Rob Salter-Church

It is probably worth explaining the approach that we have taken to moving to market-wide half-hourly settlement. The first step that we took, and we implemented these reforms a couple of years ago, was to introduce cost-effective half-hourly settlement on an elective basis for domestic properties. Previously, the half-hourly settlement regime was designed for the very largest industrial consumer, and it was very expensive so suppliers would not offer it to domestic customers. We have already introduced reforms that will enable those suppliers, as the Minister said, to offer more interesting tariffs, in particular around EV charging. We are already seeing some suppliers offering those on the basis of half-hourly settlement. Having delivered that important enabler, we are looking at market-wide half-hourly settlement. We are expecting to make our decision about how to move to market-wide half-hourly settlement at the end of this year. You are right to have identified that there are some benefits that might occur now in relation to time-of-use tariffs, but half-hourly settlement is really about the long-term future for the energy system and creating a smarter, more flexible system. With the Government, we commissioned a report from UCL looking at the potential benefits. Out to 2050, you have some £50 billion of efficiency savings from having a more flexible system. Smart meters and half-hourly settlement are key enablers to achieve that over the long term, and we are confident that the reforms we are putting in place, alongside the work we are doing to support smart metering, will enable those long term benefits to be made for customers.

Anna Turley

I will come back to the Minister. Having heard that explanation, are you not worried that this blows a big hole in the savings predicted from this key flagship Government policy?

Claire Perry

It is definitely a concern. As Rob said, we have started with the customers for whom the cost is less prohibitive. There are domestic suppliers who are prepared to offer this. It was interesting in the NAO report that this was acknowledged but not seen as a major risk to the benefits. I suppose one of the things I have realised—you learn a lot from being Minister—is that, when you think about this, you think of it just as a consumer-facing project. Actually, there are benefits to the whole energy system. We will have the most digitised energy system in the world when we have completed this roll-out. We just need to ensure we are advancing on all fronts, including half-hourly settlements. I know suppliers are pushing, in the most innovative cases, to deliver the settlement, because they see the benefits for their consumers and, frankly, their own tariffs.

Antoinette Sandbach

Do you accept the conclusions of the most recent NAO report?

Claire Perry

It is an excellent report. I accept almost all the conclusions.

Antoinette Sandbach

On page 18 to 19 of the NAO report, there are a number of recommendations from A to F for BEIS, and then some for Ofgem.

Claire Perry

Yes.

Antoinette Sandbach

It might be quicker to deal with Ofgem first. Do you accept the recommendations, Ofgem?

Rob Salter-Church

Yes. It is a fair report. We accept the recommendations and we will act on them.

Antoinette Sandbach

When?

Rob Salter-Church

We are already acting on those recommendations. For example, we are already holding suppliers to account for the work they are doing to provide energy efficiency advice, and we are working with the CMA on its review of the prepayment meter cap to feed in the information we have on how SMETS1 meters are affecting switching.

Antoinette Sandbach

What about the transparency of DCC costs?

Rob Salter-Church

Again, we continue to drive DCC to be as transparent as possible. We have made some changes already to the way we run the price control that governs DCC’s costs, to make it more transparent and easier for suppliers and DCC’s customers to engage in that process. We will continue to do more and drive DCC to be more transparent.

Antoinette Sandbach

Minister, there were recommendations A to F. You said you substantially accept all of them.

Claire Perry

I am taking action in all the areas. Indeed, we have specifically brought forward action on what I thought was a superb recommendation, around trying to improve consumer engagement post meter installation. We launched an innovation competition for that at the beginning of the year, totalling £6.2 million. I am taking action in all the areas. It is an excellent report. My only minor quibble was that one of the challenges is around the impact on switching. The data we have suggests that those who have a smart meter are more likely to switch than not. I think it is partly because they may be in that vanguard of customers.

Antoinette Sandbach

Given that their meter may go dumb when they switch, can I ask whether you have requested an economic analysis of the effects of the extension? An extension was made of one year for smart meter roll-out. Secondly, have you looked at the risks that have been highlighted in the NAO report, which indicates that there are risks to consumers in terms of price and delivery? We have seen it in the north.

Claire Perry

Potentially, there are risks.

Antoinette Sandbach

Did you commission the report, either you or your predecessors?

Daron Walker

Is it possible to clarify the specific question, so I can make sure I get it right?

Antoinette Sandbach

Yes. Did either the Minister or predecessor Ministers specifically commission an economic analysis of the effects of the extension of the smart meter roll-out by a year?

Daron Walker

Let me see if I can answer that. You are asking whether the idea of allowing SMETS1 meters to carry on being rolled out was a sensible idea economically.

Antoinette Sandbach

Yes. Sorry, I have asked a very specific question.

Daron Walker

We did not commission a specific analysis, but we did some qualitative studies of whether extending the roll-out, because SMETS2 was not quite ready, was better than not extending it for SMETS1. You had thousands of installers and all of that cost; if they were sitting idle, all those costs would be passed on to the consumer.

Claire Perry

The answer is no. There was no specific economic analysis commissioned. There were detailed conversations, and we have had these conversations. We have had derogation extensions of the SMETS1 installation deadline to March 15. The trade-off is whether you want customers to achieve some form of saving now by having a SMETS1 installation. I personally chaired a consumer-facing round table.

Antoinette Sandbach

Sorry to interrupt you, but can I clarify this? The detailed analysis was done in 2016. We are now in 2019. There has been a substantial change in the landscape, and a far greater roll-out of SMETS1 meters than would have been anticipated in 2016. What analysis of the risks to the programme, and in effect the cost to the consumer, has been made by the Department in the light of that changed landscape? Consumer engagement is very important, but in reality is the programme going to deliver the benefits it is supposed to?

Claire Perry

One of the things we have committed to is to review those consumer benefits this year, which I believe was a suggestion in the NAO report. It came up with updated cost numbers, up 4% on the total programme cost, but as you rightly point out the last time the benefits were assessed was in 2016. I take your point entirely about the risks. There is also evidence from the installation, particularly from some large suppliers, that consumers are saving more on their tariffs, twice as much in some cases as was originally forecast. It is really important that we do that benefit analysis this year. We have committed to do so, and we will obviously make those results public.

Chair

On recommendation A, the issue about updating the cost-benefit analysis, you are going to update it this year. Can you be a little more specific, Minister, about when this year that will be updated?

Claire Perry

Daron is writing “the summer”, but as we know the summer can be long. Do we have a specific target date?

Daron Walker

We are aiming for July.

Claire Perry

It is July this year, so the start of Q3.

Chair

Thank you. That is very helpful. Also in recommendation A, the NAO has said to assess the value for money of leaving the 2020 deadline in place compared with adopting a new deadline. As part of the cost-benefit analysis, will you also be reassessing that 2020 deadline?

Claire Perry

Yes, and it is linked to the second recommendation, which is that we should clarify what our post-2020 landscape looks like. On their own analysis, we cannot mandate installation. They are assuming we will get to 75% installation by the end of 2020.

Chair

Even though we are only at 25% now.

Claire Perry

That is right. We agree; it is amazing, the roll-out. We are at 12.8 million meters now, and we see that roll-out accelerating. But it is absolutely right that we think about what the 2020 landscape is, and think about it now. We do not want to mandate this. One of the things we get lots of letters about is where Mrs So-and-so tells me she is being forced to have a smart meter. That is not true. It is going to be interesting, because suppliers are increasingly bringing forward tariffs and benefits linked to smart meters.

Chair

The rate of installation would have to go up 20-fold compared with what it is now to get to just 75% next year.

Claire Perry

I am assured that that is achievable. If I might ask Daron and perhaps Ofgem to comment, those are the ones reviewing the weekly numbers.

Daron Walker

The last forecast that the energy suppliers put forward, which was about a year ago, said between 70% and 75% by the end of 2020. The roll-out would not need to double; it would be something like a 40% to 50% increase, because we are doing a million and a bit per quarter. We would need to get up to 6 million or 7 million a year to start tracking up towards the 70% to 75%. The data of 12.8 million is from September so we have another quarter of data to add in. It is certainly challenging, but it is not out of the question that we can get to those levels.

Chair

How many per quarter are going in at the moment?

Daron Walker

Just over a million and a quarter, so that is around 4 million to 5 million a year. It is about 1.2 million each quarter, at the moment. You need to get up to 8 million or 9 million per year.

Claire Perry

You need to double it, or just over.

Chair

It is a bit more than that. If you are at 25% now at 12.8 million, that means you need to get another 25 million in.

Daron Walker

We have another quarter of data. We have all the smaller suppliers, which we only add in at the end of each year. We also have the fact that a lot of suppliers have been waiting for SMETS2 before they really scale up. You are right to say that it is a challenge.

Chair

That is just to get to 75%.

Daron Walker

Yes.

Claire Perry

I have not made a public announcement but I think I should share this with the Committee. I am looking closely at whether to implement the New and Replacement Obligation soon and bring forward a consultation, because I believe that is particularly important, especially in new buildings, to make sure that this is effectively baked into the infrastructure of our housing stock. We will do whatever we can, in the Department and with the team, to do what we need to do with the powers we have. It is interesting to go back to the consumer point. This is not a technical proposition; it is a foot-in-the-door proposition. It is basically persuading somebody they want one, and then making sure they are there to do the installation. There are some suppliers who are very good at this and others who are not good. We have been working very closely with other organisations, such as broadband providers, to teach them how to do this. What happens if you have a missed appointment? How do you avoid having missed appointments to ensure what we are not wasting suppliers’ and consumers’ time? There is nothing more annoying than failed installations, so there is a lot of work going on. Of course, we are looking at whatever other recommendations we need to ensure we meet those targets.

Chair

You may or may not have seen the evidence we have already had this morning, but both Energy UK and Citizens Advice said that that 2020 target would not be met and that it should be reassessed, not least because, if we want to get the benefits for consumers, which we all want to achieve, actually getting it right is just so important. If we try to rush it we will not actually achieve the benefits. I hope, Minister, when you come back in the summer to look at the cost-benefit analysis and the timetable, you take on board those views. Can I ask about the recommendations to Ofgem, recommendation C, Mr Salter-Church? It says to “ensure, by March 2019, that no energy suppliers are falling materially short of their obligation to provide advice on energy efficiency”. This is something that Members of this Committee are very concerned about: that 30% of people who are having meters installed are not being given advice, even though that is in their obligations. What penalties have you put so far already on those energy suppliers for not meeting, one time out of three, those obligations that they have already committed to? What penalties have already been put in place?

Rob Salter-Church

The Committee is right to focus on energy efficiency as an important part of the roll-out. So far we have not taken any enforcement action against suppliers.

Chair

Even though the National Audit Office and Citizens Advice this morning have said to us that, one time out of three when meters are installed, that energy advice, which is an obligation they are given, is not being met today—you know that and we know that—you have not put in place any penalties.

Rob Salter-Church

We have a range of actions that we can take.

Chair

Which ones have you taken?

Rob Salter-Church

We have taken a range of compliance actions with suppliers. For example, we stepped in with one supplier.

Chair

What supplier was that?

Rob Salter-Church

I can write to the Committee to confirm the name of the supplier. We have taken action with a number of them. I can explain how we have gone about addressing this issue, because it is an important one. Suppliers are required to undertake a quarterly survey of their customers who have had smart meters installed, to assess the quality. Part of that survey is about whether the customer recalls having energy efficiency advice, and that is the stat I think you are referring to from the NAO. This particularly supplier had a recall rate of around 63%, which is absolutely not good enough. We stepped in with that supplier, used the threat of enforcement action to challenge it to make improvements and to put in place a remediation plan. We closely monitored what it did, and as a result of our actions with it that increased within a quarter to 83%. Now, as the metric is about recall, you are never going to get to 100% of customers recalling that, in part because customers could refuse the offer of energy efficiency advice, but also with recall it is not always going to be 100% remembered. The best supplier is at about 89% recall. That is really positive. We can see that, when we have taken action using our compliance tools, the threat of enforcement has had a quick impact.

Chair

You agree, Mr Salter-Church, that this is really important.

Rob Salter-Church

It is really important, and I do not rule out taking enforcement action in the future if suppliers do not improve.

Chair

Who got 89%?

Rob Salter-Church

Again, I can write to the Committee with more information.

Chair

It is just that you are saying this is really important, and you are giving evidence to a Select Committee on it today. We agree it is really important, Mr Salter-Church, and if I think something is important I try to remember it and have it at my fingertips. You cannot tell us who the best and worst are today. A supplier got 63%, so four times out of 10 when it went to visit a customer it did not give them the advice that it is obliged to do. It is not just a “nice to have”; suppliers are obliged to do it. They have made that commitment. You are the regulator, and here we are again with Ofgem, and Ofgem is not using the powers that it has.

Rob Salter-Church

I would contest that. We have used the powers that we have. We have a large range of powers.

Chair

No, sorry, Mr Salter-Church. Almost four out of 10 customers, 37%, of one supplier, whose name you cannot remember even though it is really important, did not get something that the supplier had committed to give. You did not use the powers you have to fine and reprimand that supplier. I do not think that is good enough, Mr Salter‑Church. I would say to you and Ofgem that you are given important powers by the Secretary of State and by Parliament. We would ask you to use those powers, because the whole point of rolling out smart meters is to get benefits to customers. They will not get those benefits if they are not given the advice. We will say to Ofgem, as we have before, that you were given powers by Parliament. Use them. Is that understood?

Rob Salter-Church

That is understood. If I may explain, we have a range of different powers, as well as enforcement. We think carefully about the right approach to take that will get the quickest and best outcome for consumers. That is what we have done. If you look more broadly at the evidence, it shows that customers are achieving some of the savings, changing their behaviour and adopting energy efficiency steps. According to a Smart Energy GB survey, 81% of customers who have had a smart meter installed have taken at least one step to help save energy. Yes, this is a serious issue. We treat it very seriously, and we will take action if suppliers do not improve.

Chair

I have one more thing before I come to you, Minister, because I do want to hear from you. When we previously took evidence on the energy price cap from Ofgem, Dermot Nolan apologised to this Committee for not in the past protecting vulnerable customers in the way that they should have done. We are again talking about vulnerable customers today, who most need advice with energy efficiency so they are not paying more than they should for their energy. I do not want you or Dermot Nolan to have to come back to us again in the future and say, “I am sorry. We should have acted sooner but we did not”. Yet here we are again, when you have powers given to you by Parliament, and by the Secretary of State and the Minister who is here today, and you are not using them. Frankly, we would like to see our regulators use the powers that they have, to enforce this against the powerful on behalf of the vulnerable. That is what we urge and ask you to do, because that is your job. I will come now to the Minister.

Claire Perry

Thank you, Chair. I will make sure this is added to my agenda for my monthly meetings with the Ofgem heads, chair and CEO.

Chair

Thank you, Minister.

Claire Perry

I just wanted, if it is helpful, to share my own personal experience, because not only is the one-off energy savings advice really important, but so is the continual education as to what you might do. I believe what happens is that people will take one action when they first get it, because it is all very interesting and new. In my case, I found I had an old fridge that was really energy inefficient, so I switched it off. The meter sits and blinks at you in your kitchen and you think that is very interesting. We need ongoing reminders as to what you can do to continue to save energy, and all the good stuff that suppliers do. “So-and-so down the street has the same output as you and is saving more money”. That is part of the future of this. This becomes a mechanism to encourage people to save energy going forward in their homes, rather than just the one-off because it is quite exciting if you switch your lights off to see how much you save. That was the reason that we really welcomed the suggestion for further innovation, and I was happy to launch the competition. It is really important that this is a fundamental part of the relationship we want suppliers to have with their customers. It is not a “nice to have”.

Chair

No, and it is not just about making it easier for suppliers to get energy readings. It is about delivering benefits for the consumer and for the environment.

Claire Perry

Absolutely.

Stephen Kerr

You are clearly behind schedule, and one of the reasons we were given in the previous session this morning was the technical complexity. I am looking at Richard, because I want to understand what drove the thinking that we would have a smart meter roll-out more complex and technologically ambitious than anything else in the European Union, and do it in the same timespan that our European Union partners were doing something less complex and much simpler. What was our thinking to come up with such a plan?

Richard McCarthy

To be perfectly honest with you, we are the deliverer of a Government policy.

Stephen Kerr

All right, I will come back to the Minister.

Claire Perry

We are not going to pass the buck. This has been running now over several Governments, and the original plan, which was set out in 2009, was ambitious, to be clear. We have seen slippage in deadlines as a result of that. We have also seen, quite rightly, a realisation that you cannot just have an uncontrollable race to develop a meter. One of the challenges is always to ask why we stuck with SMETS1. The reason is that we wanted to consolidate everybody into a single standard that could then be seamlessly switched into an interoperable system.

Stephen Kerr

Was it technically possible to do what the ambition was in 2009 in any timescale? Did the technology exist?

Claire Perry

Could I ask Daron? By the way, he is the civil servant who has stuck with a major programme longer than almost any other Department, so I am pleased that we have him on the team.

Daron Walker

It is a really important question. One of the challenges we had with this, which I think the Chair has already indicated, is how we make sure suppliers are doing the right thing for consumers. One of the reasons we set an ambitious deadline was to make sure that energy suppliers were driven to make the investment.

Stephen Kerr

It is not about the deadline, but the whole technological aspect of the project. That is the reason that comes up time and time again to justify the delay. “We are delayed on this because of technology”. The technology does not even exist to fulfil the mandate that the Government laid before the industry. Why did we go down this road in the first place?

Daron Walker

We went down this road because we wanted to be ambitious. We wanted consumers to benefit as soon as possible. If we had set a later deadline, more consumers would have waited for longer.

Stephen Kerr

Was it properly flagged from the beginning that this technology did not exist or it was not tested?

Daron Walker

It was flagged that we would need to introduce various technologies in stages over time. The core solution that the DCC has built is good for 70% of households. This year it will roll that out to 95% of households. The Chair mentioned Alt HAN, which is for the last 5%. There was a staged approach, and it was all driven to bring benefits to consumers as soon as possible.

Stephen Kerr

Was the risk acknowledged at the beginning?

Daron Walker

The risk was acknowledged, yes.

Stephen Kerr

Why are we so intransigent about 2020, then?

Daron Walker

My answer to the 2020 thing—

Stephen Kerr

It is clear we are nowhere near achieving it.

Daron Walker

We are trying to drive industry change. Some of the parties are willing to do the right thing and bring forward—

Stephen Kerr

So this is all about constructive tension with the suppliers.

Daron Walker

It is about driving them to do the right thing for consumers, which is why the programme exists in the first place.

Stephen Kerr

It is a Government policy objective, is it not? You are using a Government policy objective as a means to create constructive tension with suppliers. It seems a very strange approach.

Claire Perry

It is a little like the broadband roll-out, which is a similarly ambitious programme.

Stephen Kerr

It has not gone that well.

Claire Perry

We started off with a solution and an ambition. We then changed the technical solution; we realised that other technical solutions were emerging that could accelerate this. The original SMETS1 technology, as I understand it, is not particularly complicated; it is a meter that talks over a mobile system. It is not sending someone to the moon. The SMETS2 system is more complicated because it is a bespoke system to provide interoperability across the whole UK[1], which is a more technical system and was slower to deploy than we wanted. We want that to be robust before it rolls out. It is now rolling out and it is robust. Since the programme started, which was originally, quite rightly, set up as a cost-saving, carbon-reducing, consumer-facing programme, the systems benefits from this have become even more compelling. That is why there is an absolute determination to roll this out and to roll this out properly. On this backbone, we can deliver things such as smart export guarantee.

Stephen Kerr

Minister, we are all signed up to the idea. It is always about the how, is it not? Let us talk about the how.

Richard McCarthy

I will answer this question.

Stephen Kerr

How many meters are now connected to the Smart DCC?

Richard McCarthy

The Minister advised you that as of Friday last week we hit 250,000 SMETS2 meters. I can tell you today we are now at over 260,000. Yesterday, yet again, we broke a new record, with 5,000 installs in one day. If you look at the rate of installation growth, which is critical, accepting that we start from a low base, in the last full month of our figures, which would be November last year, the overall growth in SMETS2 installations for that month from the previous month was 76%. That is not an unusual figure.

Stephen Kerr

But this is small beer against what has to be done between now and the end of 2020.

Richard McCarthy

I understand that challenge, and that has been answered already.

Stephen Kerr

How confident are you, then, about the achievement of it?

Richard McCarthy

What I can give you is the confidence of our system to support the large numbers. That is our job. Our job is to provide you with a network that works, and that is capable of handling scale. We have had this independently tested. We are equipped to manage 280,000 installs a week. We are ready to manage the numbers.

Stephen Kerr

You have the capacity. Let me ask you about the SMETS1 meter. Will all those SMETS1 meters in the country, all 11 million‑plus of them, be enrolled and adopted into the DCC?

Richard McCarthy

What I am going to tell you is that today we have great confidence in the programme.

Stephen Kerr

I love how you begin your answers with “what I am going to tell you”.

Richard McCarthy

I want to be very honest and clear with you. The programme that is planned to be implemented from December last year through to the end of 2020 has four elements to it. The first element is the development of what is called a dual-control organisation, which ensures that we align the SMETS1 meters with the security provisions we have built into SMETS2. That is very important for our consumers. Then there are three cohorts, as identified in the NAO report. All the terms are agreed for cohort 1. We expect to see the first migration start in quarter 2. We have now agreed commercial terms with Secure, which is in cohort 2, identified within the NAO report as a risk. The matter is now with lawyers, to simply tie up the paperwork. We expect the second cohort to then be released in quarter 3, and the last cohort to be released in quarter 4. We have a very clear plan.

Stephen Kerr

The answer to my question is yes.

Richard McCarthy

We have confidence, yes. If you remember, the report talks about a tolerance rate of 2% potentially not being able to be adopted. We have no reason to change that assumption at this point.

Stephen Kerr

The red flag was that up to a third of the SMETS1 meters could not be adopted.

Richard McCarthy

At the time of the NAO report, we had not been able to demonstrate to anybody, as we did at the end of November last year, that the proof of concept actually worked. We had Daron in our office with others who saw a SMETS1 meter move over to the DCC network, and the message has been successfully sent.

Stephen Kerr

Within the margin of error, the deadline for completion of the SMETS1 adoptions is—

Richard McCarthy

The end of 2020.

Claire Perry

One of the prioritisation factors within each cohort is meters that have gone dumb. We believe those who have switched and lost their functionality should be a priority for enrolment into the DCC network, so they regain that functionality as quickly as possible.

Stephen Kerr

How will consumers learn of this? How will they know?

Claire Perry

That is an interesting question, and that is something we need to examine.

Daron Walker

First, once things have gone live, suppliers will need to inform their customers of when their service has gone back smart. That is one of the things we will need to work with suppliers on, to make sure they are communicating properly about that.

Richard McCarthy

I believe we have proved the concept. I would encourage suppliers to gear up for early migration, and the Committee endorsing that would be very helpful.

Stephen Kerr

That is a very clear commitment that you are giving. What about the functionality of the SMETS1 meter?

Richard McCarthy

The key thing is that, first of all, the functionality that exists now is retained.

Stephen Kerr

The same as SMETS2?

Richard McCarthy

No, the functionality that is built into the individual SMETS1 meters. The second thing is that the interoperability functionality is switched on immediately. That is the most critical thing. There are network benefits that will come as well, which include what is sometimes called the last gasp messaging. If there is a long-term or serious outage of power, at the moment network operators have to rely on people ringing them unless there is a smart meter telling them that there has been an outage. That is one of the benefits of the SMETS2 programme. In the future, we will have the ability to update functionality from within DCC.

Stephen Kerr

With the SMETS1?

Richard McCarthy

With the SMETS1.

Stephen Kerr

Will the SMETS1 functionality match the SMETS2 functionality?

Richard McCarthy

I understand that it will not in all elements beyond what I have just told you, but it will match the key functionality element of interoperability.

Stephen Kerr

How much of an obstacle will the 11 million SMETS1 meters, with their limited functionality, be to the achievement of the smart home, smart grid, smart energy system that the Minister quite rightly enthuses over?

Richard McCarthy

It is relatively minimal, actually. The key thing is that people will have benefits. People have designed SMETS1 meters in slightly different ways, allowing them to communicate with different devices. People out there have innovated in ways to enable that to happen.

Stephen Kerr

So you can see no obstacle to the SMETS1 meters that are currently out there being used for the full functionality of the SMETS2, whether it is EVs or whatever is going to be used.

Richard McCarthy

There are no serious obstacles. I made the point that it is absolutely fundamentally focused on the key points of functionality. I would have to go through every combination to tell you what may not be available.

Stephen Kerr

But the advantage of the smart meter for the consumer, as we have discussed earlier—