Smart meter roll-out––the Easter package

May 2012

Cornwall Energy

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Smart Meter supplement—May 2012

Contents

Introduction ................................................................................................................................................................................ 3

Major smart meter update issues on cue ............................................................................................................................ 4

DECC milestones ...................................................................................................................................................................... 5

No exemptions granted from smart meter roll-out ......................................................................................................... 6

DECC seeks views on proposals to put consumers at heart of roll-out ..................................................................... 7

Government makes smart meter data pledge .................................................................................................................... 8

DECC sets out DCC licence conditions ............................................................................................................................. 9

Smart Energy Code takes a step forward ......................................................................................................................... 10

Sales banned during smart meter installation .................................................................................................................. 11

Costs of roll-out fall ............................................................................................................................................................... 12

Glossary .................................................................................................................................................................................... 13

Disclaimer

While Cornwall Energy considers that the information and opinions given in this report and all other documentation are sound, all parties must

rely upon their own skill and judgement when making use of it. Cornwall Energy will not assume any liability to anyone for any loss or damage

arising out of the provision of this report howsoever caused.

The report makes use of information gathered from a variety of sources in the public domain and from confidential research that has not been

subject to independent verification. No representation or warranty is given by Cornwall Energy as to the accuracy or completeness of the

information contained in this report.

Cornwall Energy makes no warranties, whether express, implied, or statutory regarding or relating to the contents of this report and specifically

disclaims all implied warranties, including, but not limited to, the implied warranties of merchantable quality and fitness for a particular

purpose.

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Smart Meter supplement—May 2012

Introduction

Welcome!

On 5 April DECC published the latest round of documents regarding the Smart Metering Implementation Programme

(SMIP). The publications include a number of consultations and the government’s response to earlier consultations

issued in August 2011. Key documents published:

programme update document

consumer engagement strategy consultation—closes 1 June

consultation on data access and privacy—closes 1 June

data and Communications Company (DCC) Licence Conditions and Licence Application Regulations consultation—

closes 1 June (16 May for aspects concerning application regs.)

Smart Energy Code consultation—closes 1 June

government response to consultation on draft licence conditions and technical specifications for the rollout of gas

and electricity smart metering equipment

government response to Consultation on draft licence conditions for a code of practice for the installation of smart

electricity and gas meters; and

updated Impact Assessments

Introducing the documents energy minister Charles Hendry said: “In less than three years energy suppliers will begin the

mass roll-out of smart meters across the country and I am determined that consumers are at the heart of this ambitious

programme”.

As a package the documents provides much needed clarity for market participants, particularly suppliers who will be

responsible for the roll-out. Arrangements for the current “foundation” stage are clearer, but much still needs to be

completed to put in place the enduring arrangements for the beginning of the mass rollout in 2014.

This supplement provides an overview each of the key documents, summarised in a single page, and sets out what the

programme means for market participants and areas of work that are still to be concluded.

Nigel Cornwall

May 2012

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Smart Meter supplement—May 2012

Major smart meter update issues on cue

The update, a raft of further consultations and other documents from the Smart Meter Implementation

Programme issued just ahead of Easter.

Energy suppliers are required to complete the roll-out of smart meters to domestic and smaller non-domestic

customers by 31 December 2019—a “challenging but achievable” timescale. The summary of the programme status

issued on 5 April provides detail on the smart meter roll-out strategy and supports further developments in the

foundation stage before the mass roll-out starts in 2014.

During the foundation stage the industry is to develop a framework to help the industry manage the transition to the

enduring arrangements and the period while the enduring system is being established. A proportion of existing meters

will need to be replaced, on a business-as-usual basis, before full specifications are finalised. The government’s plans aim

to provide industry with flexibility to manage the transition efficiently, as well as gradually increasing clarity on the

enduring solution by setting out the roll-out obligations and technical specifications.

Suppliers will be required to offer an in-home display as part of any compliant smart meter installation during both the

foundation stage and mass roll-out. But the government has decided not to introduce exemptions in relation to early

installations of domestic smart-type meters that do not meet the technical specifications.

The government also confirmed its intention to publish shortly the conclusions regarding the Smart Metering Equipment

Technical Specifications (SMETS). The SMETS will define the equipment, but not the communications technology (for

example the Home Area Network (HAN)), to be used. But it does require that HAN technology must be based on

open standards. The government believes this will give suppliers the freedom to select communication technologies that

will help support “a productive foundation stage”. But in the future the government does intend to develop a

specification for a communications hub, although this will not be required under the initial SMETS.

To ensure consumers receive the functionalities set out in the March 2011 prospectus response, the government has

decided to introduce a licence condition requiring suppliers to utilise the functionality of smart meters installed in

consumers’ premises. It will consult on proposals later this year.

The update also confirmed that DECC will not place obligations on suppliers to enrol meters with the DCC at this

point, and it does not intend to apply obligations retrospectively. To facilitate the enrolment of smart meters that

comply with the initial version of SMETS, the government will publish in the summer the enrolment criteria for meters

to be managed by the DCC. The government is also minded to introduce a general licence condition to ensure suppliers

take all reasonable steps to address residual risks.

As well as providing an update of the programme to-date, the supporting technical specifications and draft licence

conditions, the suite of documents issued on 5 April included a number of separate consultations which we have

outlined in this document.

Over the next 12 months the government intends to implement the licence changes and to further develop the

regulatory, technical and commercial framework (see p5). Measures relating to consumer engagement and protection

will also be finalised. Regulations governing the roll-out are expected to be laid before parliament in autumn 2012;

regulations relating to the installation visit and the associated Code of Practice will be progressed on the same

timetable.

The consultation on privacy and data access will run until late May; any necessary regulations are planned to be laid in

autumn 2012 and come into force around the turn of the year. Similarly the government expects any regulation relating

to the Consumer Engagement Strategy to come into force by the end of the year.

The publication of these documents is a key delivery milestone for DECC during the foundation stage.

There is a veritable feast of information here, which contains some important policy developments,

which we will address more fully in coming issues of Energy spectrum.

DECC

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Smart Meter supplement—May 2012

DECC target

dates DECC milestones

2012 Implement the licence changes as outlined in the 5 April 2012 publications

2012 Notify the rollout licence conditions to the European Commission

5 April 2012 Notify first iteration of SMETS to EU (completed)

Spring 2012 Publish “Monitoring & Evaluation Strategy” and consult on how powers granted under the Energy Act can be used to modify licences enabling them to gather data

from Suppliers on Programme costs and benefits

June 2012

Consultation on Privacy and Data Access closes

Consultation on Draft DCC Licence and Licence Application Regulation closes

Consultation on Smart Energy Code closes

Consultation on Consumer Engagement Strategy closes

Summer 2012 Consult on further version of SMETS

Summer 2012 Government lays licence conditions relating to the Smart Metering Installation Code of Practice before Parliament

Summer 2012 Further develop the SMETS with a further version consultation

Summer 2012 Consult on the necessary criteria to assist the enrolment of smart meters into the DCC and the novation of Foundation Stage contracts from Suppliers to the DCC

Summer 2012 Consult on the legal draft of the first version of the Smart Energy Code

Summer 2012 Commence the first DCC licence application process

Autumn 2012 Government lay regulations governing roll-out before Parliament Code of Practice

Autumn 2012 Any necessary regulations resulting from privacy and data access consultations are

laid before Parliament

Late 2012 EC approved SMETS regulations come into force

Late 2012 Installation visit regulations and the associated Code of Practice come into effect

Late 2012 Any necessary regulations resulting from privacy and data access consultations come into force

Late 2012 Any regulation relating to consumer engagement strategy comes into force

Early 2013 Regulations on privacy and data access come into force

Early 2013 Obligations in place for the necessary criteria to assist the enrolment of smart meters into the DCC and the novation of Foundation Stage contracts from

Suppliers to the DCC

March 2013 Procure the Data & Communication Service Providers on behalf of the DCC

April 2013 Award the DCC licence

H2 2013 Central delivery mechanism for consumer engagement in place

Before 2014 Initial review of benefits realisation against those forecast in the Impact

Assessment

By 2018 Further review of benefits realisation against those forecast in the Impact

Assessment

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Smart Meter supplement—May 2012

No exemptions granted from smart meter roll-out

DECC has published the government’s response to the August 2011 consultation on draft licence

conditions and technical specifications for the roll-out of gas and electricity smart metering equipment.

The government previously determined the roll-out should be completed in 2019 but asked what specific date should be

set in licence. Acknowledging respondents’ concerns regarding the timetable the government has landed on an end-date

of 31 December 2019.

A major focus of the previous consultation was the Smart Metering Equipment Technical Specifications (SMETS). Views

were invited on the proposed approach to developing the SMETS and on the Industry’s Draft Technical Specifications,

which the government proposed would be the basis for the SMETS. In recognition of concerns over the time it will take

to resolve all the technical challenges involved in developing the specifications, the government has chosen to adopt an

“evolutionary approach” to their design.

The first iteration of the SMETS will provide for core functionality and interoperability of smart metering systems. This

confirms the position set out in the December 2011 revised Programme Delivery Plan. Although the majority of

respondents believed the roll-out licence conditions as drafted and the associated technical would support the Smart

Metering Implementation Programme’s (SMIP) objectives, the government has decided it is necessary to introduce

another licence condition that will require suppliers to utilise the functionality of smart metering systems, including for

example a requirement for suppliers to make consumption data available to consumers. A consultation on proposals for

this will follow later in the year.

Separate from the August consultation the government canvassed opinion

in early 2012 on possible exemptions from the roll-out obligations to

enable smart-type meters to remain in place beyond the roll-out

completion date in 2019. The government recognised the potential

benefits of an exemption ahead of the confirmation of SMETS but

concluded that the benefits are outweighed by the risks involved. It noted

that an exemption for smaller suppliers could produce further benefits it

said it is unlikely to address the financial investment challenges faced by

some. As such all smart-type meters not compliant with SMETS must be

replaced before the end of the roll-out.

Another key aspect of the draft licence conditions was the period of

notice suppliers should be given before obligations take effect to install a

smart meter when a traditional meter is being replaced or installed.

Respondents saw the need for a notice period, but views were varied on

how long this should be. The government said it will work with industry

to establish the criteria to be met before the obligation enters into force,

but it expected the replacement obligation will take effect when the mass

roll-out commences.

The amount of notice suppliers should be given before obligations to

offer an in-home display (IHD) take effect was also consulted upon. As

with the new and replacement obligation, many respondents agreed a notice period was necessary but believed less

time was needed for IHDs as the technical complexity of these devices is much lower. As the licence conditions are

now expected to take effect in late 2012 the government considered the need for additional notice is no longer needed.

Suppliers will therefore be required to: offer an IHD at the time of installation of any SMETS-compliant meter; keep the

offer open for 12 months after installation if initially refused; and within the 12 months of installation repair or replace

faulty IHDs. Obligations on suppliers to supply, repair or replace an IHD, following change of supplier, will take effect

when the technical specifications are further developed.

There is a lot of welcome detail here but we are still not at the end point.

DECC

Summary of supplier obligations

New supplier licence conditions

expected to go live by end of 2012;

roll-out to be completed by 31

December 2019;

no exemption from roll-out completion

date obligation for smart-type meters

already installed;

mandatory installation of smart meters

on replacement or installation of

existing meters not confirmed, but

expected to coincide with start of mass

roll-out;

further iterations of SMETS to follow

“evolutionary” approach;

IHDs to be installed with SMETS

complaint meters; and

additional consultations expected during

the year on requiring suppliers to

provide customers with consumption

data

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Smart Meter supplement—May 2012

DECC seeks views on proposals to put consumers at heart of roll-out

A key element of the SMIP is the consultation on the Consumer Engagement Strategy.

DECC reiterated that the national roll-out of smart meters will bring significant benefits. But for the devices to achieve

their full potential consumers must understand what they are and the opportunities that they could bring. It has

proposed the high-level aims for the Consumer Engagement Strategy should include: boosting consumer support for the

roll-out by building confidence in benefits and providing reassurance on areas of consumer concern; delivering cost-

effective energy savings by helping all consumers to use smart metering to better manage their energy consumption and

expenditure; and ensuring that vulnerable and low income consumers can benefit from the roll-out.

These aims are to be delivered by meeting a number of more specific objectives for the Consumer Engagement Strategy:

to develop understanding of consumer attitudes and the drivers affecting energy-consuming behaviour relating to

smart meters, and to conduct further work in this area during the foundation stage;

to establish which parties are best placed to undertake different aspects of consumer engagement;

to set a delivery mechanism for centralised engagement activities;

to determine how non-domestic consumers can be most effectively engaged with the programme; and

to determine how smart metering consumer engagement can help ensure the success of the roll-out.

Views are sought on whether these objectives are the appropriate approach.

Given the roll-out is supplier-led, the government believes that benefits will be maximised if some elements of

engagement are managed centrally. It outlined a number of behavioural theories, which strongly point to the importance

of the messenger in conveying information or advice. Although it was acknowledged that suppliers will have an

important role in engagement, third parties such as charities and consumer groups can be more effective and credible

messengers. DECC also noted that encouraging households to use

less energy does not align with suppliers’ commercial interests. It has

therefore proposed a mechanism for some centralised engagement,

established by suppliers, but with clear routes for consumer

representative input to ensure credibility. Centralising some

engagement activities under one delivery mechanism would allow for

the possibility of an umbrella brand to position individual suppliers’

roll-outs as part of a national programme. As such DECC has set out

a number of proposals for how engagement should be undertaken

on an individual supplier, co-ordinated and centralised basis.

On individual engagement activities suppliers will be required to

develop, and work in-line with, a licence-backed installation Code of

Practice (see p9) that will aim to ensure customers receive a good

service throughout the installation process. The government is also

working with suppliers to implement proposals for a domestic

energy consumption comparison tool. For the centralised approach the government is intending that suppliers establish

a joined-up engagement programme with appropriate checks and balances. DECC’s current thinking is that this

integrated programme would be delivered through placing licence conditions on the larger suppliers. These conditions

would oblige suppliers to establish and fund a central delivery body (CDB) (or put in place arrangements to use an

existing body) to deliver objectives relating to consumer engagement for smart meters set by government. Obligations

could be in place by the end of 2012 with the CDB being established in the first half of 2013.

In the non-domestic sector the programme will require suppliers to comply with standards in relation to the installation

visit, and to produce and operate in line with an installation Code of Practice. Responses are requested by 1 June.

Given the experience from other roll-out programmes a successful engagement is essential.

DECC

Organisation of interventions

Source: DECC

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Smart Meter supplement—May 2012

Government makes smart meter data pledge

DECC is seeking views on a proposed framework for securing and protecting consumers’ data that is

transmitted from smart meters.

The consultation noted that access to detailed and more accurate energy consumption data from smart meters has the

potential to deliver benefits for consumers, suppliers and the energy system more widely. It will also stimulate

innovation and competition in the developing energy services market.

But the document stressed that “consumers' interests must be protected in the smart metering world”. Concerns about

privacy have been raised in many countries already rolling-out smart meters. “It will be important to give consumers

clarity and reassurance about the ways in which their energy consumption data can be accessed, by whom, for which

purposes, and the choices that consumers have about this”, it added.

As such the proposed regime may impose tighter restrictions on the collection and use of energy consumption data

than the Data Protection Act 1998 would on its own. But this legislation would continue to apply in conjunction with any

smart metering regime. Suppliers and other data users would continue to have to comply with relevant requirements

under the Act (for example, obligations to register with the Information Commissioner’s Office and inform it about

personal data being processed, and to comply with data protection principles). Consumers would also retain their rights

under the Act, including rights to access information held about them, to object to processing that is causing them

distress, and to prevent data being use for direct marketing.

Consumers will be able to easily access their own consumption data through their in-home display, through the

connection of additional devices to the Home Area Network, or by requesting information from their supplier.

The proposed framework for supplier access to domestic consumers’ energy consumption would:

allow suppliers to access monthly (or less) energy consumption data to bill customers or in order to fulfil “any

statutory requirement or licence obligation” without having to ask a customer’s permission. The suppliers will also

have access to daily energy consumption data “for any purpose except marketing” but there must be a “clear

opportunity” for consumers to opt-out of that collection. Other uses for consumption data may include better

detection and prevention of theft, and the development of more appropriate debt management processes;

require distribution network operators (DNOs) to develop and submit plans for approval detailing how privacy

concerns would be addressed and what half-hourly energy consumption data would be used for. DECC is seeking

views on what the arrangements should be in circumstances where DNOs have not submitted plans or they have

not been approved; and

allow consumers to share their data easily with third parties, such as switching sites and energy services companies.

But safeguards will be put in place to verify the identity of the person where permission has been given to third

parties to access the consumption data from the Data and Communications Company. The government proposes to

use the Smart Energy Code (see p8) to ensure third parties have arrangements in place to protect consumers.

Views are also sought on the approach to data access in the non-domestic sector, including how to enable business

customers to access their own data and understand the implications of their choices.

As with domestic consumers there would be some exceptions to this basic framework, for example to allow half-hourly

energy consumption data to be used for the purposes of approved trials, provided that the consumer had the

opportunity to opt out of the trial.

Responses are requested by 1 June. The government intends to prepare a response to this consultation, and

provide any necessary regulations for parliamentary scrutiny, later in 2012.

This seems a sensible (and necessary) set of guidelines. Consumers will be reassured the government is

taking data security so seriously.

DECC

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Smart Meter supplement—May 2012

DECC sets out DCC licence conditions

Views are sought on a set of draft licence conditions for the Data Communications Company who will

oversee communications between smart meters and other parties.

The Data Communications Company (DCC) licence will be the key tool used by Ofgem as the regulator overseeing the

conduct of the DCC. The licence will establish the overall objectives for the DCC to ensure efficient delivery of

communication services for smart meters under the new Smart Energy Code (see p8).

The DCC will have obligations to facilitate effective competition in the energy market, innovation in energy supply

networks and price reductions. But as the DCC is not a consumer-facing body, the government does not propose to

give it a consumer-related objective. Instead it will serve consumers indirectly by providing “efficient and effective

services” to suppliers and networks.

The DCC will provide core and elective communications services, associated enabling services, and value-added

categories. To ensure customers are not disadvantaged in terms of access to the benefits of smart meters as a result of

their location, core communication services must be provided on a standard (socialised) basis.

The DCC will be appointed following a competitive licensing process run under the Licence Application Regulations,

which are to be laid before Parliament in summer. The application process will involve four mandatory stages:

qualification; proposal; best and final offer; and preferred applicant. Each stage will have a declining number of bidder

participants until a single successful applicant is selected, to whom the DCC licence will be granted.

A licence will be granted for a fixed, non-rolling term of 12 years, with a potential six year extension. Over the summer

the government will publish the qualification documentation for the initial licence competition. The Licence Application

Regulations are expected to take effect towards the end of the summer, after which the government will commence the

initial DCC licence competition via advertisements in the national and international press inviting bidders to submit a

completed qualification questionnaire. Current proposals for the DCC licence consist of terms relating to its grant and

revocation (including handover requirements) and a range of conditions covering:

the division of the DCC’s licensed business into mandatory business (comprising the provision of core and elective

communications services as well as associated enabling services) and permitted business (comprising the provision

of value added services and minimal services);

obligations to offer certain types of smart meter communication services and restrictions on undertaking other

types of activities;

security obligations to maintain an adequate and proportionate level of security on its systems and assets;

independence requirements so that the DCC would not be unduly influenced by its users or service providers;

start-up and transitional obligations, giving powers for the DCC to be involved in smart meter market readiness

activities;

high-level principles controlling how the DCC is allowed to charge its users for its mandatory business services;

an obligation to maintain and comply with the Smart Energy Code;

price control licence conditions that will limit the amount of revenue the DCC will be able to recover from its users

for operating its mandatory business, and set appropriate incentives for increasing efficiency; and

provisions to ensure continuity of service in the event of a serious deterioration in the DCC’s financial health.

It is also proposed that the DCC licence could be revoked in the event of serious underperformance.

Responses are requested by 1 June. But responses to the Licence Application Regulations (questions 15-18 in the

consultation document) are requested by 16 May.

This is an important consultation and ensuring the DCC is managed by the most suitable organisation is

vital to the programme’s overall success.

DECC

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Smart Meter supplement—May 2012

Smart Energy Code takes a step forward

The fourth and final consultation sets out the proposed arrangements under which energy market

participants will access and use the services of the DCC to communicate remotely with smart metering

equipment in consumers’ premises.

The industry’s new Smart Energy Code (SEC) will govern the relationship between the DCC and the users of its

services, including energy suppliers, electricity and gas network operators and other parties.

Views are being sought on key features of the SEC including:

the overall scope of the matters that will be included in the SEC, and how it fits into the wider regulatory

framework for smart metering;

terms for the provision of smart meter communication services by the DCC;

arrangements to ensure systems comply with the SMETS, and requirements in relation to Communications Hubs;

how participants will become parties to the SEC and the rights and obligations that will apply to them;

the framework governing the services that are to be

provided by the DCC, eligibility of participants to receive

those services, and the terms on which they will be provided

(including charging, billing, and payment arrangements);

how the SEC will be governed, administered and modified;

how the SEC will ensure parties meet their obligations, and

that there are appropriate arrangements to deal with

breaches, liabilities and disputes where these arise; and

arrangements for withdrawing from the SEC, and treatment

of intellectual property rights and confidential information.

The government has also made a number of proposals to enable

the delivery of the SEC, including:

changing existing licence obligations and industry codes to provide an end-to-end regulatory framework for the

arrangements for smart metering;

giving effect to the SEC being a multilateral agreement, which will include appropriate governance and change

control mechanisms to oversee its operation and development;

identifying parties that might accede to the SEC: the DCC; gas suppliers; electricity suppliers; gas transporters;

electricity distributors; and other users of the DCC’s communication services;

the rules and procedures that should apply when parties seek to accede to the SEC. It outlines the information that

acceding parties will have to provide and other requirements that will have to be satisfied;

the provisions for the governance and change control process; and

proposals for the assurance and enforcement of obligations and liabilities.

DECC also recognised that, as a result of ongoing work within the SMIP, policy will continue to develop in relation to a

number of matters that will have implications for the detailed content of the SEC. These arrangements include

development of communications hub standards; security requirements for the enduring arrangements; and requirements

relating to the technical characteristics of smart metering systems.

Responses are requested by 1 June. The government will publish its conclusions and a draft legal text this summer.

Further work to address transitional matters is ongoing. We await the publication of further papers

relating to these and other aspects affecting the SEC over the next 12 months.

DECC

Overview of smart metering regulatory regime

Source: Ofgem

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Smart Meter supplement—May 2012

Sales banned during smart meter installation

As part of the tranche of documents issued on 5 April DECC published the government’s response to its

August 2011 consultation on licence conditions for a code of practice for installers of smart meters.

The 50-page consultation, opened on 18 August 2011 (ES294, p5, 22/08/11), sought views on new conditions that

would require suppliers to develop and adhere to Code(s) of Practice (CoP) governing the installation of smart meters

in both domestic and micro-business properties.

At the core of the CoP is a desire to ensure that during the installation consumers receive an appropriate standard of

service, are treated fairly and transparently, and understand how they can use their smart metering equipment to

improve the way in which they use energy.

In its response to the consultation the government concluded that:

suppliers will be required to operate in-line with a set of overarching objectives governing the way they interact

with their domestic and micro-business customers when they install smart metering equipment. The focus of the

objectives will be on: standards of conduct and service; fair and transparent behaviour; accuracy of information

provided; and the avoidance of unwelcome sales and marketing activities;

suppliers will be able to use the information they collect about customers’ responses to the installation to inform

their continuing approach to the roll-out;

licence conditions will be introduced to require suppliers to develop a smart meter installation CoP, submit it to

Ofgem for approval, and monitor its implementation. Monitoring will also allow Ofgem to take enforcement action

where suppliers are non-compliant;

the process for establishing and maintaining the CoP will be defined at a high-level in licence conditions and, in areas

that are of particular concern to the government or consumers, more detailed requirements for the content of the

CoP will be specified. These include requirements: to provide energy efficiency advice related to the smart meter;

not to charge domestic customers up-front for installation of standard smart metering equipment (including the in-

home display); to identify and meet the needs of vulnerable domestic consumers;

suppliers will be able to provide written marketing material without restriction, but may only carry out face-to-face

marketing discussions during the visit with the prior consent of the customer. In addition no sales should be allowed

to be completed at the visit; and

licence conditions will apply to smart meters that comply with the SMETS rather than other smart-type meters.

The high-level process for establishing and maintaining the CoP will be defined in the licence conditions, and will include

requirements that:

suppliers collectively develop a CoP covering the customer experience throughout the smart meter installation

process. This must take into account the views of consumer groups and other interested parties;

where suppliers fail to submit an acceptable CoP to Ofgem for approval the regulator will be able to direct changes

to the submitted document or designate another in its place; and

suppliers put in place monitoring arrangements and procedures for reviewing and updating the CoP, consulting

consumer groups and seeking the views of their customers. Ofgem will also have the right to instigate changes to

the CoP once it is in operation.

Due to the EU notification process there will be a period of time before the government lays the licence conditions

before Parliament, although it expects to do so this summer, with a view to their entering into force in late 2012.

In the meantime suppliers will continue to develop the CoP and must submit it to Ofgem for approval within one month

of the licence conditions taking effect.

There are some sensible suggestions here. It is vital a robust CoP is in place to protect consumers from

unwarranted sales and marketing activity.

DECC

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Smart Meter supplement—May 2012

Costs of roll-out fall

The government’s revised impact assessments for rolling-out smart meters to every home and micro-

business in the country by the end of this decade were recently issued.

The cost-benefit case of a mandated roll-out of smart meters has been carried out and developed over the last four

years. The analysis and evidence base has been re-assessed and updated at each key programme decision point. The

revised impact assessments take into account the latest programme assumptions.

Implementation of the programme is expected to cost just under £11bn for the domestic sector and nearly £600mn in

the non-domestic sector. But with benefits over £15bn and almost £3bn expected respectively, the net benefit (based

on 2011 values) is estimated at £7bn in total over a 20-year-time period.

With near real-time information on energy consumption, consumers are expected to make energy savings through

enhanced energy efficiency behaviour. This reduction in energy use also implies carbon savings, in the form of reduced

EU Emission Trading Scheme allowance purchases.

In parallel, smart meters will allow suppliers to make a range of

operational cost savings. They remove the need for site visits to

complete meter reads and are expected to reduce suppliers’ call

centre traffic, with fewer queries about estimated bills. Smart meters

are also expected to make the consumer switching process cheaper

and simpler, thanks to accurate billing and more streamlined

interaction between involved parties. Suppliers should see improved

theft detection and debt management; and improved consumption

information should enable consumers better manage debt.

Network operators will be able to improve electricity outage

management and resolve any network failures more efficiently once a

critical mass of smart meters has been rolled-out. It is now expected

these benefits will total £15.68mn, down slightly from the August

2011 estimate of £15.97mn.

Suppliers will be required to fund the capital costs of smart meters,

in-home displays and potentially the communications hub that links

the meter(s) in a property to the supplier via the DCC. Suppliers will

also have to pay for the installation, operation and maintenance of

equipment. The roll-out also implies upfront investment in supporting

IT systems and the DCC, as well as their on-going maintenance. Other industry participants such as distribution

network operators will also need to upgrade their systems to integrate into the smart meter network. Further costs

include the accelerated disposal of basic meters being replaced, the energy consumed by the smart meter equipment

itself and the launch and support of a Consumer Engagement Strategy (see p5). The government expects these costs to

reach £10.85bn, down on the £11.06bn predicted last summer.

With total expected present value (PV) costs of £10.9bn and total PV benefits of £15.7bn up to 2030, the net present

value (NPV) for the domestic roll-out of smart meters in GB is estimated to be £4.8bn—down slightly on the August

estimate. The roll-out is now expected to reduce the average household electricity and gas bill by £25 in 2020, and by

£40 in 2030. The changes in costs are mainly driven by the updated assumptions regarding timing and roll-out profiles

and new assumptions about risks from early meters. Changes to external input parameters has had a smaller impact on

costs; most notably moving the PV base year into 2012 and increasing projected fossil fuel and carbon prices.

The government has committed to publish a smart meters monitoring and evaluation consultation and strategy before

summer.

At this stage there is no material change in predicted costs of the programme, but the monitoring and

evaluation strategy is a welcome and necessary development.

DECC––domestic DECC—non-domestic

Overview of benefits—domestic

Overview of costs—domestic

Source: DECC

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Glossary

Advanced Meter Reading (AMR)––Meter that, either on its own or with an ancillary device, and in compliance with

the requirements of any relevant industry code provides measured energy consumption data for multiple time periods

and is able to provide the remote access to such data. Energy suppliers are under licence obligations to supply larger

customers through AMR equipment from April 2014. Smart meters have additional functionality to AMR equipment.

Codes––Industry codes establish detailed rules that govern market operation, the terms for connection and access to

energy networks. The supply and network licences require the establishment of a number of industry codes that

underpin the gas and electricity markets. The electricity codes are: Balancing and Settlement Code (BSC), Connection

and Use of System Code (CUSC), Distribution Code, Grid Code, Master Registration Agreement (MRA), System

Operator-Transmission Owner Code (STC) and Distribution Connection and Use of System Agreement (DCUSA). The

gas codes are the Uniform Network Code (UNC), Independent Gas Transporter (IGT) Network Codes, and Supply

Point Administration Agreement (SPAA). The Smart Energy Code (SEC) constitutes a new industry code that will apply

to gas and electricity markets.

Commercial interoperability––Contractual arrangements to ensure suppliers can make use of all smart metering

equipment functionality following a customer switch.

Customer–– Any person supplied or requiring to be supplied with electricity or gas at any premises in Great Britain

(supply licence definition)

Data Communications Company (DCC)––New proposed entity which would be created and licensed to deliver

central data and communications activities. DCC would be responsible for managing the procurement and contract

management of data and communications services that will underpin the smart metering system.

Data Protection Act 1998––Defines UK law on the processing of data on identifiable living people. It is the main

piece of legislation that governs the protection of personal data in the UK.

Electricity meter–– A meter which conforms to the requirements of paragraph 2 of Schedule 7 to the Electricity Act

1989 and is of an appropriate type for measuring the quantity of electricity supplied. (Supply licence definition)

Supplier––Any person authorised to supply gas or electricity to consumers. This is a licensable activity, but exemptions

from needing a licence are permitted under the Electricity (Class Exemptions from the Requirement for a Licence) Order

2001.

Estimated bills––Where a supplier is unable to obtain a meter reading, a customer’s bill will be estimated based on

past usage.

Foundation phase––This is the period up to 2014, when mass roll-out begins. The Foundation Phase provides an

opportunity to test, trial and learn ahead of mass roll-out

Functional requirements––The minimum functions that must be supported by the different elements of the smart

metering system to ensure the delivery of the benefits of smart metering. Describes what the smart metering system

must do (not how it must do so).

Gas meter––a meter which conforms to the requirements of section 17(1) of the Gas Act 1986 and is of an

appropriate type for registering the quantity of gas supplied. (Supply licence definition)

Home Area Network (HAN)––The smart metering HAN will be used for communication between smart meters,

IHDs and other devices in consumers’ premises.

In-home display (IHD)––An in-home display is an electronic device, linked to a smart meter, which provides

information on a customer’s energy consumption.

Industry Draft Technical Specifications (IDTS)—Issued in August 2011, these documents are designed to

describe, in detail, the requirements for domestic and smaller non-domestic Smart Metering equipment in Great Britain

Licence Application Regulations—These regulations will provide the regulatory framework for the award of the

DCC licence through a competitive process.

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Mass roll-out stage—The period between the dates at which the DCC starts providing core communications services

and the fulfilment of the roll-out obligation as specified in the roll-out licence conditions.

Network operators––The companies that are licensed by Ofgem to maintain and manage the electricity and gas

networks in GB.

Prepayment meter (PPM)––Meters that require payment for energy to be made in advance. A PPM customer pays

for energy by inserting electronic tokens, keys or cards into the meter. References to the installation or removal of a

PPM includes the switching of any meter to or from such a mode.

Smart Energy Code—An industry code that will underpins operation of the smart arrangements. The code will

include an explanation of the roles and responsibilities of suppliers, network owners and the DCC and agreements

regarding data access and privacy and cost-recovery.

Smart grid––An energy system that can intelligently integrate the actions of all users connected to it in order to

efficiently deliver sustainable, economic and secure supply.

Smart meter––Metering equipment in Great Britain that complies with the Smart Metering Equipment Technical

Specifications (SMETS). In addition to traditional metering functionality (measuring and registering the amount of energy

which passes through it), smart meters are capable of two-way communication allowing them to transmit meter reads

and receive data remotely. They also have the functionality to allow for remote switching of payment methods, updating

of tariffs, and load-limiting/ disconnection.

Smart Metering Implementation Plan (SMIP)—This is the plan that the government will follow to install 53mn

smart meters in homes and businesses across the UK.

Smart Metering Equipment Technical Specifications (SMETS)—Formal specifications describing metering

equipment that complies the Measuring Instruments Directive. Energy suppliers will have to install SMETS compliant

meter once licence conditions have been enacted (due late 2012)

Smart metering regulatory regime––Provision of arrangements for the introduction and ongoing operation of

smart metering. These regulatory arrangements will be introduced using powers under the Energy Act 2008 to amend

existing licences and codes, and to create a new licensable activity and a new licence for the DCC role.

Technical interoperability––The capability of systems or devices to provide and receive services and information

between each other, and to use these services and information exchange to operate effectively together in predictable

ways without significant user intervention. Within the context of the smart metering system, this means the seamless,

end-to-end connectivity of hardware and software from customer premises equipment through to DCC, suppliers,

network operators and other authorised parties.

Time-of-use tariff––A customer offering where the supplier varies its charges based on when energy is used (e.g.

day/night; peak/off-peak; or by season). Such tariffs can be dynamic (changes in real time) or static (changes at

predictable times).

Wide area network (WAN)––The smart metering WAN will be used for two-way communication between smart

meters and DCC (via the WAN communications module in the customer’s premises).

If you would like further information please contact:

Ed Reed ed@cornwallenergy.com 01692 407865

Alison Morris alison-m@cornwallenergy.com 01603 283635