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Energy Act 2008

Smart Meters

Summary and Background

459.In Meeting the Energy Challenge: A White Paper on Energy (May 2007) the Government indicated the importance it placed on improving the information energy customers receive about their energy use. Improved information will enable them to better manage, and take action to reduce, their energy consumption, and as a result reduce their carbon emissions. In this context the Government set out the potential for smart meters to provide, amongst other things, accurate, real time information to consumers about their energy consumption.

460.An announcement was made in the 2008 Budget setting out the Government’s intention to mandate a roll out of “smart meters” to medium-sized businesses over the next five years. A further announcement was made in October 2008,, which confirmed the Government’s intention to proceed with a roll out of “smart meters” to domestic customers. Sections 88 to 91 will allow for these roll-outs to be mandated. The sections would also allow for a roll-out of smart meters to smaller business in the future, if the Government decides to proceed with a roll-out for that segment..

461.The power in section 88 will allow the Secretary of State to modify electricity distribution and supply licences and gas transporter, shipper and supply licences, or documents made under licence conditions, to require the licence holder to install, or facilitate the installation of, smart meters. As is common practice in regulating these parts of the electricity and gas sectors the intention is to specify the detail of the requirements being placed on licensees and other relevant arrangements, through modified licence conditions and/or amendments to the agreements and codes entered into under the licences.

462.Provision is made for Parliamentary scrutiny. In addition to requirements for the Secretary of State to consult relevant licensees, the Gas and Electricity Markets Authority and any other appropriate persons, there is a requirement on the Secretary of State to lay the draft modifications in Parliament and allow a period of 40 days in which either House of Parliament can reject the draft conditions.

463.In addition to the licence modification power in Section 88, section 91 and Schedule 4 enable the Secretary of State to create new licensable activities in relation to providing, installing or operating smart meters or related infrastructure under the Gas and Electricity Acts by affirmative order. These licences may be used to centralise some, or all, aspects of smart metering provision if that is deemed necessary to ensure their efficient installation across Great Britain. The power may, for example, be used to ensure that a centralised communications infrastructure is put in place to support smart metering.

464.Section 91 and Schedule 4 allow for the geographic scope of a licence to be restricted – for instance to provide for regional delivery of smart meters – if required. The order may provide for either the Secretary of State or the Authority to award the licences and Schedule 4 includes power for the Secretary of State to make regulations for a competitive tendering process for purposes of identifying to whom these licences will be awarded.

465.It is expected that the existing licensing framework and metering provisions in the Electricity and Gas Acts would be applied to the new licensable activities, for example: the prohibition on unlicensed activities in section 4 of the Electricity Act and section 5 of the Gas Act; the procedures for modification of licences in sections 11 to 15 of the Electricity Act and sections 23 to 27 of the Gas Act; and the enforcement powers in sections 25 to 28 of the Electricity Act and sections 28 to 32 of the Gas Act.

Commentary on Sections

Section 88: Power to amend licence conditions etc: smart meters

466.This section gives the Secretary of State the power to modify, for the purposes described below:

  • a particular electricity distribution or supply licence (subsection (1)(a))

  • a gas transporter, shipper or supply licence (subsection (1)(c))

  • standard licence conditions of those types of gas and electricity licence (subsections (1)(b) and (1)(d).

  • documents maintained under the licence conditions of relevant gas and electricity licences – for example, industry codes (subsection (1)(e)).

467.Subsection (2) sets out the scope of the modification power. It may only be exercised for the purpose of:

  • requiring licence holders to provide or install, or facilitate the provision, installation or operation of, a meter of a particular kind; or

  • requiring licence holders to make arrangements relating to such matters.

468.Subsection (3) sets out an inclusive list of various types of modifications that may be made under the new power. These include the technical specifications of the meter and provisions to allow two way communications between energy suppliers/distributors and meters installed in business or domestic premises (see paragraphs (a) and (j)).

469.Paragraph (l) makes provision for the Secretary of State to set a date from which the modification(s) come into force. This would, for example, allow the Secretary of State to set a time limit for the roll-out of smart meters.

470.Subsection (4)(a) allows the modification power to be exercised to make different provision in relation to different classes of customer (for example domestic, small business or medium/larger businesses). Subsection (4)(d) makes provision for the Secretary of State to make any incidental, supplementary, consequential or transitional modifications to licence conditions or documents of the kind mentioned in subsection (1)(e).

471.By virtue of subsection (5) the modification power may not be exercised after the end of the period of 5 years beginning with the day on which subsection (1) comes into force. Subsection (1) comes into force on the passing of the Act (see section 99(1)).

472.Subsection (6) ensures that, where the power under subsection (1) to make modifications is exercised, certain general provisions of the Gas and Electricity Acts which are relevant to this power are applicable – so that, for example, the modifications can include a requirement for the licence holder to comply with directions by the Secretary of State or the Gas and Electricity Markets Authority as to specified matters.

473.Subsection (7) states that references to a meter in any part of section 81 also include visual display units or other devices associated with or ancillary to the meter.

Section 89: Power to amend licence conditions etc: Procedure

474.This section sets out the procedure that the Secretary of State must comply with in order to exercise the modification powers conferred by section 88. Subsection (1) obliges the Secretary of State, before making modifications, to consult the holders of licences being modified, the Gas and Electricity Markets Authority and others as appropriate. This consultation may take place before or after the passing of the Act. Subsections (3) and (4) state that before making modifications the Secretary of State must lay the draft modifications before Parliament and allow a period of 40 days for either House of Parliament to reject the draft.

Section 90: Smart meters: supplemental and Schedule 5: minor and consequential amendments

475.This section makes three supplemental provisions in relation to the modification power conferred by section 88. Subsection (1) ensures that any modifications made to a standard licence condition under this power do not prevent any other part of the condition from being a standard condition. This means that the remainder of the standard condition will be subject to the rules relating to standard conditions under the Gas and Electricity Acts. Subsection (2) ensures that where licence modifications are made to standard licence conditions, the Gas and Electricity Markets Authority must make the same modifications for the purpose of future licences, and also must publish those modifications. Schedule 5 amends sections 33(1) and 81(2) of the Utilities Act 2000 so that any standard conditions which are modified under section 88(1) are incorporated as standard conditions for licences of that type.

476.Subsection (3) is an order making power for the Secretary of State to make consequential amendments to provisions made by or under an Act (including Acts of the Scottish Parliament) as he considers appropriate.

Section 91 and Schedule 4: Licensing of activities relating to smart meters

477.Part 1 of Schedule 4 inserts the following new sections into the Gas Act 1986:

  • 41HA New licensable activities: smart meters

  • 41HB Section 41HA: supplemental

  • 41HC Competitive tendering for licences for new licensable activities

478.Part 2 of Schedule 4 inserts the following new sections into the Electricity Act 1989:

  • 56FA New licensable activities: smart meters

  • 56FB Section 41HA: supplemental

  • 56FC Competitive tendering for licences for new licensable activities

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