Smart Meters Act 2018

Commentary on provisions of the Act

Section 1: Smart meters: extension of time for exercise of powers

23. Subsection (1) amends section 88(5) of the Energy Act 2008 to extend until 1 November 2023 the period within which the Secretary of State can exercise the power under section 88(1). Section 88(1) provides for the Secretary of State to modify conditions of licences, and documents maintained in accordance with licence conditions (and agreements giving effect to such documents), for example industry codes.
24. Subsections (2)(a) and (3)(a) amend section 7A(10D) of the Electricity Act 1989 and section 8AA(10D) of the Gas Act 1986 to extend to 1 November 2023 the expiry date for the provisions allowing for the Secretary of State to veto a proposed transfer of the DCC Licence.
25. Subsections (2)(b) and (3)(b) amend section 56FB(2) of the Electricity Act 1989 and section 41HB(2) of the Gas Act 1986 to extend until 1 November 2023 the period within which the Secretary of State can exercise the power to provide for activities connected with smart meters to be licensable activities. Licensable activities are those determined in legislation to be prohibited to undertake without being the holder of a licence or without an exemption from the requirement to hold a licence.
26. Subsection (4) makes consequential repeals.

Section 2: Smart meter communication licensee administration orders

27. Subsection (1) describes a "smart meter communication licensee administration order" (or an "smcl administration order") as an order made by the court in relation to a smart meter communication licensee, which directs that the affairs, business and property of the company are to be managed by a person appointed by the court, while the order is in force.
28. Subsections (2) and (3) explain that the person appointed by the court for the purposes of an smcl administration order is known as the "smart meter communication administrator", who must perform the duties of a smart meter communication administrator so as to achieve the objective set out in Section 3.
29. Subsection (4) establishes that an smcl administration order can only apply to the affairs and business of a non-GB company (i.e. a company incorporated outside Great Britain and including a company incorporated in Northern Ireland) which are carried out in Great Britain and to its property in Great Britain.
30. Subsection (5) sets out which licence holders may be subject to an smcl administration order.

Section 3: Objective of a smart meter communication licensee administration

31. Subsection (1) establishes that the objective of the smart meter communication administrator in performing his duties is (1) to ensure that the functions that a smart meter communication licensee performs under its licences are provided efficiently and economically and (2) to render the continuation of the smart meter communication licensee administration unnecessary for this purpose by rescuing the company or making a transfer in accordance with subsection (2).
32. Subsection (2) sets out the means by which the continuation of the smart meter communication licensee administration may be made unnecessary. These are either the rescue of the company as a going concern, or transfers which fall within subsection (3). Subsection (3) provides for the transfer of the undertaking, or part of it, as a going concern to a single company or different parts of the undertaking to multiple companies. Subsection (4) provides for how such transfers may take place.
33. Subsection (5) provides that rescue is to be preferred to transfer in achieving the objective of smart meter communication licensee administration. Transfers are only to be effected when rescue is not reasonably practicable without a transfer, where the objective of the smart meter communication licensee administration cannot be achieved through rescue without a transfer or where such a transfer would produce a better result for the creditors or members of the company.
34. Subsections (6)and (7) allow the Secretary of State to make regulations by statutory instrument subject to a negative resolution procedure specifying the activities carried out by the company that the smart meter communication administrator must give priority to, and how this should be done.

Section 4: Application of certain provisions of the Energy Act 2004

35. This Section modifies the provisions in sections 156 to 167 of, and Schedules 20 and 21 to, the Energy Act 2004 (the existing special administration regime for energy licensees), and sections 171 and 196 (interpretation) so they apply in relation to an smcl administration order.
36. The effect of applying those provisions includes:

Section 156 of the Energy Act 2004, which provides that an application to the court for an smcl administration order can be made only by the Secretary of State or by the Authority with the consent of the Secretary of State;

Section 157 which empowers the court in relation to an application for an smcl administration order. The court can make an smcl administration order only if it is satisfied that the company is insolvent, facing insolvency or that on a petition from the Secretary of State under section 124A of the Insolvency Act 1986 (c.45) it would be just and equitable (aside from the objective of smart meter communication licensee administration) to wind up the company in the public interest;

Section 158 which stipulates the status of the smart meter communication administrator. It provides that the administrator must exercise management functions for the purpose of achieving the objective of the smart meter communication licensee administration as quickly and efficiently as is reasonably practicable and must exercise powers and perform duties in the manner which, in so far as it is consistent with the objective of the smart meter communication licensee administration, best protects the interests of the creditors of the company as a whole and, subject to those interests, the interests of the members of the company as a whole;

Section 159 applies the rule making power in section 411 of the Insolvency Act 1986 (c.45). Schedule 20 provides for certain provisions, with modifications, of Schedule B1 to the Insolvency Act 1986 (covering detailed rules relating to administration) to have effect in relation to smart meter communication licensee administration;

Schedule 21, which provides for the transfers to another company or companies as a going concern of the whole or part of the smart meter communication licensee’s assets to ensure that the objective of the smart meter communication licensee administration is met. Such transfer schemes are to be made by the smart meter communication administrator with the approval of the Secretary of State, after he has consulted the Authority;

Sections 160 to 164, which prevent smart meter communication licensee administration being frustrated by prior orders of various types being granted before the Secretary of State or the Authority have been given an opportunity to apply for an smcl administration order or by other steps being taken when an smcl administration order has been made or an application is outstanding;

Section 165 which enables the Secretary of State, with the consent of the Treasury, to give a grant or loan to a company in smart meter communication licensee administration in order to achieve the objective of smart meter communication licensee administration. It also enables the Secretary of State to set the terms of a grant or loan including the requirement that all or part of a grant should be repaid;

Section 166 which enables the Secretary of State, with the consent of the Treasury, to indemnify persons in respect of liabilities incurred or loss or damage sustained in connection with the exercise of the smart meter communication administrator’s powers and duties and requires the Secretary of State to lay a statement of any such agreement to indemnify persons before Parliament as soon as practicable;

Section 167 which enables the Secretary of State, with the consent of the Treasury, to provide guarantees in relation to a smart meter communication licensee in smart meter communication licensee administration and requires the Secretary of State to lay a statement of any guarantees given before Parliament as soon as practicable; and

Section 171 which provides interpretations of various specific terms and Section 196 which provides interpretations of various general terms.

Section 5: Conduct of administration, transfer scheme, etc.

37. This Section gives the Secretary of State powers to make rules under section 411 of the Insolvency Act 1986 in order to give effect to relevant sections relating to the SAR.

Section 6: Modifications of particular or standard conditions

38. Subsection (1) enables the Secretary of State to modify the conditions of any gas or electricity licence held by a particular person and the standard conditions of gas or electricity licences in relation to the new regime for smart meter communication licensee administration. The modifications that can be made are specified in Section 7, and include the making of incidental, consequential or transitional modifications.
39. Subsection (3) requires the Secretary of State to consult the holder of any licence being modified and anyone else he thinks appropriate before making a modification. Subsection (4) enables the consultation to take place before the commencement of these provisions. Subsections (5) and (6) require the Secretary of State to publish the modifications made under this Section.
40. Subsection (8) requires that where the Secretary of State has made modifications to the standard conditions of gas or electricity licences of any type, the Authority must ensure that the modifications are incorporated into the standard conditions for future grants of licences and must publish these modifications.
41. Subsection (9) limits the exercise of the powers under this Section to eighteen months after commencement of the Section.
42. Subsections (10) and (11) provide that modifications made under this Section to standard conditions of (i) electricity generation, distribution and supply licences and (ii) gas transporter, supply and shipping licences, are reflected in the sections of the Utilities Act 2000 which govern the standard conditions of those licences.
43. Subsections (12) and (13) require the Secretary of State to act for the purposes of this Section in accordance with the principal objective to protect the interests of consumers and general duties as set out in the Gas Act 1986 and Electricity Act 1989.

Section 7: Licence conditions to secure funding of smart meter communication licensee administration

44. This Section specifies the modifications that the Secretary of State can make to gas and electricity licences to secure funding of smart meter communication licensee administration.
45. Subsections (1) and (2) state the modifications that may be made under Section 6 include requiring the holder of the licence to raise the charges imposed on its customers or users so as to raise such amounts as may be determined by the Secretary of State and to pay the amounts raised to specified persons for the purpose of making good a shortfall in the property of a smart meter communication licensee available to meet the expenses of smart meter communication licensee administration. This will allow the costs of smart meter communication licensee administration to be recouped via the licence mechanism from the industry.
46. Subsection (3) defines a ‘shortfall’ in meeting the expenses of smart meter communication licensee administration as the property of the company being insufficient to meet the costs of smart meter communication licensee administration. It also defines making payment to make good the shortfall as discharging ‘relevant debts’ which cannot otherwise be met out of the available property.
47. Subsection (4) defines relevant debts and includes obligations to repay the grants, loans, sums paid out under an indemnity, and sums paid out under guarantees under sections 165, 166 and 167 of the Energy Act 2004 as applied by Section 4.

Section 8: Modifications under the Enterprise Act 2002

48. This Section provides that the power to modify or apply enactments conferred on the Secretary of State by sections 248, 277 and 254 of the Enterprise Act 2002 includes a power to make consequential modifications to these Sections relating to the SAR, and to Chapter 3 of Part 3 of the Energy Act 2004 as applied by Section 4, where the Secretary of State considers this appropriate. This power is designed to ensure that the current provisions do not get out of line where the Enterprise Act 2002 provisions are used to modify or apply enactments.

Section 9: Power to make further modifications of insolvency legislation

49. Subsection (1) grants the Secretary of State a power to provide for insolvency legislation to apply and to make such modifications of insolvency legislation (including any applied by virtue of Section 9) as he or she considers appropriate in relation to any provision made by or under these Sections relating to the SAR. Subsection (2) defines 'insolvency legislation' and includes both primary and subordinate legislation that relate to insolvency. Subsection (3) states that provision made under subsection (1) may take the form of direct amendments to these Sections relating to the SAR. This power is designed to enable the Secretary of State to amend the detail of the regime as experience of its application highlights any difficulties or areas of concern.

Section 10: Interpretation

50. This Section defines the terms used in Sections 2 to 9.

Section 11: Modification of electricity codes etc: settlement using smart meter information

51. This Section gives powers to the Authority to make modifications to a document maintained in accordance with an electricity licence, and to an agreement that gives effect to such a document.
52. Subsection (2) provides that this power is exercisable when the Authority considers that it is necessary or desirable for the purpose of enabling or requiring suppliers to calculate half-hourly electricity imbalances using information about their customers’ actual consumption of electricity on a half-hourly basis..
53. Subsection (3) provides that the power to make modifications under this Section includes a power to make provision about the determination of payment in connection with half-hourly electricity imbalances, a power to remove or replace all of the provisions of a document, a power to make different provision for different purposes and a power to make incidental, supplementary, consequential or transitional amendments.
54. Subsection (4) provides that the power cease to be exercisable 5 years after the power comes into force.
55. Subsection (5) defines the terms used in Section 11.

Section 12: Modification under section 11

56. Section 12 sets out the procedure that the Authority must follow before making modifications under Section 11.
57. Subsection (1) sets out the notice requirements, including a requirement that the Authority considers representations made by parties in relation to the proposed modification received within a specified period.
58. Subsection (2) provides a list of parties that the notice must be sent to.
59. Subsection (3) provides that the Authority must allow parties at least 28 days from when the notice under subsection (1) is published for representations to be made and considered.
60. Subsection (4) states that the notice under subsection (1) must include information on the modification and its intended effect, the reasons why the Authority is proposing the modification and when the Authority proposes that the modification will come into effect.
61. Subsection (5) states that if the Authority proceeds with making the modification, it must publish a further notice, setting out the effect of the modification, when it comes into effect, consideration of representations made by parties under subsection (1) and, if there are changes from the original proposal notified under subsection (1), the reason for those changes.
62. Subsection (8) provides that the exercise of the power under Section 11 is subject to the Authority’s principal objective and general duties found in sections 3A to 3D of the Electricity Act 1989.
63. Subsection (9) provides that impact assessment procedures under section 5A of the Utilities Act 2000 apply to the power to make modifications under Section 11.
64. Subsection (10) provides that the impact assessment duties under subsection (9) are also subject to the Authority’s principal objective and general duties under sections 3A to 3D of the Electricity Act 1989.

Section 13: Date from which modifications of electricity licence conditions may have effect

65. Section 13 inserts a new section 11AA in the Electricity Act 1989 to enable the Authority to make modifications to licences, in certain circumstances, without having to provide for the usual 56 day period before the modifications take effect. The circumstances in which the Authority can do this are where the modifications are necessary or desirable for half-hourly settlement, where the Authority consider that the reduction in the 56 day period is necessary or expedient and where the consulation and time limit conditions are satisfied.
66. Subsection (3) provides the consultation requirement and states that if the Authority wish to reduce the usual 56 day period, they must explain this in the consultation on the proposed licence modification and explain why the reduction will not have a material adverse effect on licence holders.
67. Subsection (4) provides that the time limit for exercising the power to modify licences in these circumstances ceases 5 years after Section 11 comes into force.

Section 14: Short title, commencement and extent

68. This Section makes provision about the short title, commencement and extent and is self-explanatory.