Experts sound alarm that large customers could be left out of the smart meter rollout

Ofwat’s approach to calculating cost allowances for the smart meter rollout in AMP8 have led to fears from many quarters that the rollout will be underfunded and may leave larger customers out – despite the fact these users offer the greatest water efficiency potential.

The point is among those made by bodies including the Strategic Panel, MOSL and the UK Water Retailer Council (UKWRC) in their Draft Determination (DD) responses.

For instance, the UKWRC noted DD funding is 13% below the £1.8bn wholesalers requested overall, with adjustments ranging from allowance increases at six companies to cuts of up to 59% at others. Thames and Anglian, the companies with the most experience, face cuts of around 30%. UKWRC said: “We do not follow the basis of this, given... i) their experience in smart meter installation, ii) the costs are presumably based on competitively sourced contract rates and iii) the assumption that they have completed most of the easier installations and will be moving onto the more difficult, and by definition, more expensive installations.”

The retailer representative went on to argue that under Ofwat’s approach, wholesalers will be incentivised to deliver as many smart meters as they can for their reduced cost allowance. “This means they will focus on the easier to instal and cheaper household meters at the expense of larger non household (NHH) and/or the harder-to-read or more remote NHH meters, potentially leaving those to the next AMP. UKWRC members see this as a significant issue that needs to be addressed in the Final Determinations (FDs) by a separate unit rate for medium and large NHH meters and the ‘long unread’ and the more difficult to reach meters. This should be backed up with a target and separate Price Control Deliverables (PCDs) for the rollout of medium and large meters.”

The UKWRC warned that given 72% of consumption in the NHH market is accounted for by the 13% of users with large and medium size meters: “It will be critical for achieving the [demand] reduction target that these customers and their medium and large size meters are included in the smart meter rollout.”

The Strategic Panel made similar points, and added: “Without changes to the approach the Panel is concerned that more expensive and hard to find/read meters which are more likely to have been excluded from meter upgrade programmes under PR19 will again risk being missed if companies are incentivised to focus on the cheapest to install meters across their household and NHH customer base. This creates the risk of a regional patchwork with very different offerings, in particular if smart tariffs are rolled out for smart metered customers.”

MOSL encouraged Ofwat to align the FDs with the recommendations set out in the National Metering Strategy for the market published earlier this year. It championed specifically:

• Including targets for small, medium and large meters to ensure larger meters do not get left behind in favour of household meters which are commonly less expensive to manufacture and install. 

• Setting out specific numbers of NHH smart meters each wholesaler will be required to deliver under the PCD to ensure they are prioritised and business demand reductions are met.

• Reconsidering the use of a median average unit rate to ensure wholesalers can deliver the volume of NHH smart meters put forward in their business plans.

• Smart meter communications infrastructure provider Arqiva reported last week that it had passed the 2m smart water meter connections milestone. It emphasised that against the backdrop of increased regulatory attention around meter connectivity levels and cost, its 2m meters have industry-leading network connectivity and read success rates. 

Mike Smith, executive director of smart utilities networks at Arqiva, said: “Our services provide an uninterrupted supply of the rich data required for a successful smart water meter programme, and it is the data that provides the true return on investment for a rollout. Data helps our customers monitor supply, address consumer needs, demonstrate success to stakeholders and ultimately gain a greater understanding of the use of this most valuable resource.”