Update on preparations for smart metering

1 Reportby the Comptroller and Auditor GeneralDepartment of Energy & Climate ChangeUpdate on preparations for smart MeteringHC 167 SESSION 2014-15 5 JUNE 2014 Our vision is to help the nation spend public audit perspective helps Parliament hold government to account and improve public National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 860 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies.

2 He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of almost billion in by the Comptroller and Auditor GeneralOrdered by the House of Commons to be printed on 5 June 2014 This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the ActAmyas Morse Comptroller and Auditor General National Audit Office30 May 2014HC 167 | of Energy & Climate ChangeUpdate on preparations for smart MeteringThis briefing focuses on the remaining risks and challenges for the smart metering implementation programme .

3 To complement the Department of Energy & Climate Change s progress Update report to the Committee of Public Accounts. National Audit Office 2014 The material featured in this document is subject to National Audit Office (NAO) copyright. The material may be copied or reproduced for non-commercial purposes only, namely reproduction for research, private study or for limited internal circulation within an organisation for the purpose of review. Copying for non-commercial purposes is subject to the material being accompanied by a sufficient acknowledgement, reproduced accurately, and not being used in a misleading context.

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5 The National Audit Office is not responsible for the future validity of the 06/14 NAOThe National Audit Office study team consisted of: Richard Davis and Ken Foreman, under the direction of Jill Goldsmith. This report can be found on the National Audit Office website at further information about the National Audit Office please contact:National Audit Office Press Office 157 197 Buckingham Palace Road Victoria London SW1W 9 SPTel: 020 7798 7400 Enquiries: : : @NAOorgukContentsSummary 4 Part OneProgress against plans 12Pa r t TwoThe economic case 21 Part ThreeGovernance and risk management 33 Appendix OneImpact assessments, March 2011 to January 2014 36 Appendix TwoOur evidence base 374 Summary Update on preparations for smart MeteringSummaryScope of the briefing1 The Department of Energy & Climate Change (the Department) is leading the smart metering implementation programme (the programme ).

6 Under the programme , energy suppliers must replace 53 million meters in homes and small businesses across Great Britain with smart electricity and gas meters by 2020. The Comptroller and Auditor General reported on the Department s preparations for the roll-out of smart meters in 2 The Department provided an Update report to the Committee of Public Accounts on 31 March The Department s report sets out its work to prepare for mass roll-out from 2015 and its responses to the Committee s We have prepared this briefing, which focuses on the remaining risks and challenges for the programme , to complement the Department s report.

7 We have reviewed the progress the Department describes and evaluated the reasons for, and impacts of, any changes to the economic case for the programme , based on a review of key documents and interviews with Department officials, key industry participants and stakeholders conducted in March and April 2014. We did not fully audit the data the Department provided or statements the Department made and have not sought to come to a value-for-money conclusion. Our methodology is set out in Appendix The economic case for the programme remains positive: it is expected to cost billion and bring economic benefits of billion.

8 The Department has provided strong programme leadership. It has made good progress with Ofgem in preparing for mass roll-out, and has established much of the necessary regulatory, technical and commercial framework needed to pave the way for passing responsibility to industry. The Department told us that all major suppliers have used the foundation stage to test and trial smart metering equipment, but four of the big six suppliers have not yet installed a significant number of meters. Significant risks remain including potential consumer resistance to smart meters, the need for industry to resolve outstanding technical issues, the readiness of suppliers, network operators and the supply chain for large-scale installation and the robustness of the data security and privacy arrangements.

9 1 Comptroller and Auditor General, preparations for the roll-out of smart meters, Session 2010 2012, HC 1091, National Audit Office, June Department of Energy & Climate Change, smart metering implementation programme : Progress Update report to the Public Accounts Committee, March HC Committee of Public Accounts, preparation for the roll-out of smart Meters, Sixty-third Report of Session 2010 2012, HC 1617, January 2012. Update on preparations for smart metering Summary 54 The Department s assessment of the likelihood of these risks is low, but the potential impact in some cases is high. The Department s economic case is based on the assumption that the programme will achieve near universal roll-out.

10 It has allowed about billion for higher than expected costs. The Department is relying both on the suppliers own commercial incentives to bear down on costs, and on competition between suppliers to ensure efficient roll-out and to keep costs under control. The Department and Ofgem have broad powers to intervene through financial penalties, introduction of further regulation and, in extreme cases, revoking licences. During and following the transition from a Department-led programme to industry-led governance, the Department must retain its ownership of the programme s key risks, ensure that roles and accountabilities are clear and make appropriate use of its powers to manage risks, costs and The government wants suppliers to install smart meters in all homes and smaller non-domestic buildings in Britain by 2020.