Implementation and regulation of smart metering

The government’s Smart Metering Implementation Programme aims to roll out smart meters to domestic electricity and gas consumers, and smart or advanced meters to smaller non-domestic consumers, by the end of 2020.

The Department of Energy and Climate Change (DECC) and Ofgem have published guidance on how they will act in relation to the design, implementation, operation and regulation of the programme.

DECC is responsible for government policy on smart metering, for the design and overall implementation of the Programme, and for the realisation of its benefits to energy consumers.

Ofgem is responsible for regulating licensed energy suppliers, network operators and the Data and Communications Company (or “DCC”).

Ofgem states as a main objective the protection pf  the interests of current and future energy consumers. In carrying out its functions, it has a duty to make sure the electricity and gas markets operate effectively.

The guidance letter underlines that energy suppliers are primarily responsible for delivering the benefits of smart metering to their customers, as part of a competitive retail energy market, supported as required by energy network operators.

Consumer protection

DECC advises that it has led the programme to put in place a regulatory, commercial and technical framework that requires smart meters to be rolled out in a way that protects consumers and enhances competition.

It says that its aim is ultimately to leave the management and evolution of smart metering to energy industry participants, governed through the arrangements set in the Smart Energy Code and subject to regulatory oversight by Ofgem.

DECC will remain responsible for the government’s retail energy policy and for the realisation of the benefits set out in the programme’s business case. If necessary, DECC will introduce further regulation to protect these benefits, using its powers in the Energy Acts 2008 and 2011.

DECC’s current leadership roles include:

• aligning, scrutinising and driving the delivery plans of the Digital Communications Company (DCC), energy suppliers and network operators;
• acting to contain costs and enhance benefits;
• introducing further regulation if necessary to sustain policy objectives, overcome barriers to implementation and to help ensure benefits are realised;
• managing changes to the Smart Energy Code and making certain determinations on appeals, disputes and issues in relation to testing under governance arrangements during the transition period; and
• ensuring industry parties find collective solutions to shared issues.

DECC will gradually transfer remaining technical and governance responsibilities to the Smart Energy Code Panel or other industry bodies.

Enrolment project

The department will also determine the timing of the start of the DCC’s initial enrolment project to enrol SMETS11 meters which will need to balance successful delivery of the SMETS2 system with the industry-wide benefits of enrolled SMETS1 meters (Smart Metering Equipment Technical Specifications).

Ofgem is responsible for ensuring that energy suppliers, network operators and the DCC comply with their licence obligations and it can create new licence conditions and modify or remove existing conditions.

In deciding whether to take enforcement action, Ofgem applies its prioritisation criteria, set out in its Enforcement Guidelines. These include having regard to better regulation principles of transparency, accountability, proportionality and consistency and only targeting cases in which action is needed.

Ofgem is also a competition authority and has powers to take enforcement action where it encounters anti-competitive conduct or agreements in the energy sector.

Rollout plans

Energy suppliers have a licence obligation to take all reasonable steps to ensure that a smart metering system is installed before the end of 2020 and from 2016 the larger suppliers must submit rollout plans which will include binding and enforceable annual milestones.

Ofgem may take enforcement action if suppliers fail to meet their own targets and when considering whether suppliers are meeting their smart meter obligations, Ofgem consider the actions they are taking today to prepare for rollout. This will be informed by suppliers’ existing compliance performance with the advanced metering rollout obligation.

DECC has placed obligations on larger energy suppliers to establish, support, fund and monitor Smart Energy GB, and on smaller energy suppliers to fund its operating costs. Energy suppliers have a duty to ensure that Smart Energy GB delivers its objectives in a way that is transparent, impartial and cost-effective. Ofgem will assess energy suppliers’ compliance with these obligations.

As part of the RIIO ED1 network price control, Ofgem expects electricity distribution network operators to deliver operational efficiencies and direct consumer benefits through their use of smart metering data.

Delivery milestones

Ofgem will approve electricity distribution network operators’ plans for obtaining smart meter consumption data from 2015.

During the design and build stages of the Data and Communications Company, DECC will continue to direct the DCC in relation to its planning and delivery milestones. It will also approve certain DCC work, such as technical subsidiary documents that form part of the Smart Energy Code. As part of this, DECC will take into account the views of Ofgem, DCC service users and other SEC Parties.

During the design and build stages Ofgem is responsible for overseeing the DCC’s compliance with its licence obligations, the DCC’s transitional incentive regime and making decisions on the DCC’s price control and applications to adjust the DCC’s baseline margin values.

Ofgem will develop a new DCC incentive regime to apply after the DCC has begun providing operational services.