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
Part 1: Gas
Section 41HA: New licensable activities: smart meters
479.This section gives the Secretary of State an order-making power to both create new licensable activities under section 41C of the Gas Act 1986 in relation to smart metering and to order that such new licensable activities shall cease to be licensable.
480.Subsection (2) provides that once activities become licensable, it will be an offence under section 5(1) of the Gas Act to undertake them without a licence.
481.Subsection (3) sets out the scope of the licensing power and that it may only be used to make licensable some or all of the activities connected with the provision, installation or operation of smart meters or related infrastructure or services. This could include, for example, the communications infrastructure for smart meters. Subsection (4) provides for the definition of “smart meters” to be set out in the order.
482.Subsection (5) makes provision for the order to include any necessary consequential, transitional, incidental or supplementary changes to primary legislation. This will enable the Secretary of State to add any new licensable activities to the current list of licensable activities in sections 5(1) and 7 of the Gas Act and to make other amendments necessary to ensure that the new licences fit within the existing statutory framework. Such changes could include making a provision similar to section 81(1) of the Utilities Act 2000 to specify how any new standard conditions are to come into effect and/or be suspended; and amending section 81(2) of the Utilities Act so that any modified standard conditions are incorporated as standard conditions for licences of that type. It is envisaged that the existing licensing framework and metering provisions in the Gas Act will be applied to the new licensable activities including, for example, the procedures for modification of licences in sections 23 to 27 of the Gas Act and the enforcement powers in sections 28 to 32 of the Gas Act.
483.Subsection (5)(c) makes provision for the order to specify the standard conditions for any new licensable activities and to modify any existing standard conditions of licences.
484.Subsection (6) sets out a further non-inclusive list of the type of provisions which an order creating new licensable activities could contain. This includes provision restricting the geographic scope of licences which would, for example, facilitate national or regional licensing of smart metering activities (paragraphs (a) and (b)). The order could also confer functions of the Secretary of State or the Authority which would, for example, enable the conferral of the general licensing powers in section 7B(4) to (11) of the Gas Act on the Secretary of State so that he can determine the general licence conditions for any new licences created under these powers (paragraph (e)).
485.Subsection (7) makes provision for the Secretary of State to specify how long an order will remain in force which could limit the period during which any smart metering activities are licensable.
Section 41HB Section 41HA: supplemental
486.This section sets out the procedure with which the Secretary of State must comply when making an order under section 41HA(1). Subsection (1) obliges the Secretary of State to consult the Authority and others as appropriate before making an order. By virtue of subsection (2), the power to make an order may not be exercised after the end of the period of 5 years beginning with the day on which section 41HA(1) comes into force. Section 41HA(1) comes into force on the passing of the Act (see Section 110(1)).
487.Subsection (3) provides that the affirmative procedure will apply to the order and that it will not come into force unless approved by resolution of each House of Parliament (see also Schedule 5 amending section 64(2) of the Gas Act).
488.Subsection (4) gives the Secretary of State certain supplemental powers contained in sections 47(1) to (3) of the Gas Act when making any order under section 41HA(1). These include a power to make provision for the determination of any questions of fact or law which may arise in giving effect to the order; prescribing time-limits within which things are to be done; and providing for matters under the order to be determined by specified persons and in accordance with specified procedures.
Section 41HC: Competitive tendering for licences for new licensable activities
489.This section gives the Secretary of State power to make regulations providing for the award of licences for new licensable activities connected with the provision of smart meters, by the Secretary of State or the Authority following a competitive tender procedure.
490.Subsection (3) sets out a non-inclusive list of the type of provisions which the regulations may include. The regulations may provide for the licences to be awarded by either the Secretary of State or the Authority (paragraph (a)); and may prescribe the necessary procedures for the tender process, including publication of an invitation to tender and the conditions and any restrictions governing the making of applications (paragraphs (b) to (f)).
491.The regulations may also make provision concerning how the applications for licences are to be considered and determined. In particular, the regulations may authorise or require the Secretary of State or the Authority to have regard to an applicant’s suitability in relation to both gas and electricity activities when awarding a licence for new activities under the Gas Act (paragraphs (g) and (h)). The regulations may also confer functions on either the Secretary of State or the Authority in relation to the conduct of the tender (paragraph (i)).
492.Subsection (4) gives the Secretary of State power to make provision for the Secretary of State or the Authority to recover the costs of running the tender and to specify the consequences of any failure to make payment. This could, for example, give the Secretary of State power to require applicants to make payments to cover the costs of running the tender and ending their participation in the tender, and if necessary ending the tender exercise, in the event of any failure to comply. Subsection (6) states that any sums received by the Secretary of State or the Authority will be paid into the Consolidated Fund.
493.The regulations would be subject to the negative resolution procedure.
Part 2: Electricity
Section 56FA New licensable activities: smart meters
494.Section 91 gives the Secretary of State an order-making power to both create new licensable activities under section 56A of the Electricity Act in relation to smart metering and to order that such new licensable activities shall cease to be licensable.
495.Subsection (2) provides that once activities become licensable, it will be an offence under section 4(1) of the Electricity Act to undertake them without a licence.
496.Subsection (3) sets out the scope of the licensing power and it may only be used to make licensable some or all of the activities connected with the provision, installation or operation of smart meters or related infrastructure or services. This could include, for example, the communications infrastructure for smart meters. Subsection (4) provides for the definition of “smart meters” to be set out in the order.
497.Subsection (5) makes provision for the order to include any necessary consequential, transitional, incidental or supplementary changes to primary legislation. This will enable the Secretary of State to add any new licensable activities to the current list of licensable activities in sections 4(1) and 6(1) of the Electricity Act and to make other amendments necessary to ensure that the new licences fit within the existing statutory framework. Such changes could include making a provision similar to section 33(2) of the Utilities Act 2000 to specify how any new standard conditions are to come into effect and/or be suspended; and amending section 33(1) of the Utilities Act so that any modified standard conditions are incorporated as standard conditions for licences of that type.
498.It is envisaged that the existing licensing framework and metering provisions in the Electricity Act will be applied to the new licensable activities including, for example, the procedures for modification of licences in sections 11 to 15 of the Electricity Act and the enforcement powers in sections 25 to 28 of the Electricity Act.
499.Subsection (5)(c) makes provision for the order to specify the standard conditions for any new licensable activities and to modify any existing standard conditions of licences.
500.Subsection (6) sets out a further non-inclusive list of the type of provisions which an order creating new licensable activities could contain. This includes provision restricting the geographic scope of licences which would, for example, facilitate national or regional licensing of smart metering activities (paragraphs (a) and (b)). The order could also confer functions of the Secretary of State or the Authority which would, for example, enable the conferral of the general licensing powers in section 7 of the Electricity Act on the Secretary of State so that he can determine the general licence conditions for any new licences created under these powers.
501.Subsection (7) makes provision for the Secretary of State to specify how long an order will remain in force which could limit the period during which any smart metering activities are licensable.
Section 56FB: section 56FA:supplemental
502.This section sets out the procedure with which the Secretary of State must comply when making an order under section 56FA(1).
503.Subsection (1) obliges the Secretary of State to consult the Authority and others as appropriate before making an order. By virtue of subsection (2), the power to make an order may not be exercised after the end of the period of 5 years beginning with the day on which section 56FA(1) comes into force. Section 56FA(1) comes into force on the passing of the Act (see section 110(1).
504.Subsection (3) provides that the affirmative procedure will apply to the order and it will not come into force unless approved by resolution of each House of Parliament (see also Schedule 5 amending section 106(2)(b) of the Electricity Act).
505.Subsection (4) gives the Secretary of State certain supplemental powers contained in section 60 of the Electricity Act when making any order under section 56FA(1). These include power to make provision for the determination of any questions of fact or law which may arise in giving effect to the order; prescribing time-limits within which things are to be done; and providing for matters under the order to be determined by specified persons and in accordance with specified procedures.
Section 56FC: Competitive tendering for licences for new licensable activities
506.This section gives the Secretary of State power to make regulations providing for the award of licences for new licensable activities by the Secretary of State or the Authority following a competitive tender procedure.
507.Subsection (3) sets out a non-inclusive list of the type of provisions which the regulation may include. The regulations may provide for the licences to be awarded by either the Secretary of State or the Authority (paragraph (a)); and may prescribe the necessary procedures for the tender process including publication of an invitation to tender and the conditions and any restrictions governing the making of applications (paragraphs (b) to (f)).
508.The regulations may also make provision concerning how the applications for licences are to be considered and determined. In particular, the regulations may authorise or require the Secretary of State or the Authority to have regard to an applicant’s suitability in relation to both gas and electricity activities when awarding a licence for new activities under the Gas Act (paragraphs (g) and (h)). The regulations may also confer functions on either the Secretary of State or the Authority in relation to the conduct of the tender (paragraph (i)).
509.Subsection (4) gives the Secretary of State power to make provision for the Secretary of State or the Authority to recover the costs of running the tender and to specify the consequences of any failure to make payment. This could, for example, give the Secretary of State power to require applicants to make payments to cover the costs of running the tender and ending their participation in the tender, and if necessary ending the tender exercise, in the event of any failure to comply. Subsection (6) states that any sums received by the Secretary of State or the Authority will be paid into the Consolidated Fund.
510.The regulations would be subject to the negative resolution procedure.