Smart meters – who wants them and why turkeys don’t vote for Christmas

When I wrote about smart meters yesterday I published my post before the Office of Gas and Electricity Markets (Ofgem) had announced the result of a 32 month enquiry into the National Grid’s practices in relation to smart meters. National grid have been fined £41.6 million. Ofgem, as a regulator, has a duty to ensure that a business with a dominant market position does not abuse it.

The National Grid supplies owns the gas and electricity network in the UK (or most of it) and permits the six large energy companies to supply gas and electricity through its network for a fee. It also owns around 99% of all gas and electricity meters, so the terms on which it supplies these meters and maintains them and allows people to change the meters have a direct impact on a competitive market.

According to Ofgem, National Grid has entered into contracts with five of the six UK gas and electricity suppliers which included severe financial penalties that would arise if a supplier replaced more than a tiny fraction of meters belonging to National Grid. This locks the meter business into National Grid and can make the installation of any new meters including smart meters prohibitively expensive.

Ofgem has concluded that National Grid has severely restricted the competition in the market for domestic meters and accordingly fined National Grid £41,600,000. The National Grid will appeal against the fine. They strenuously deny any abuse of their market dominance.

Ofgem findings are that National Grid has prevented energy suppliers from contracting with other companies and think that this has the effect of limiting competition, and in particular preventing the take up of smart meters in large numbers.

Last May, in an interview with the Financial Times the Chief Executive of National Grid, Mr Steve Holliday, called for incentives to help the energy companies sell less energy. In the same article (7th May 2007) he was reported to be pressing the government for the installation of smart meters and Mr Holliday, called for the responsibility for smart meters to be given to the companies running the distribution network (that is National Grid) and he said that he thought that this “could be done competitively”.

The spin is that everyone in the fossil fuel industry is in favour of smart meters. The trade association of energy suppliers say they are a good thing, National Grid say they are a good thing. They can show consumers what they are spending their money on in detail and they can also help consumers to consume less.

In these circumstances we can wonder why there is not a national program to replace the old fashioned meters with smart meters. I think that the reason is to do with the way that capitalist business inevitably works.

Small businesses aim to become monopolies and large businesses that are monopolies aim to retain their monopoly. Six energy suppliers for 22 million people are in effect monopolies as is one National Grid. If this set up is to work in the public interest then we need a strong regulator and Ofgem have shown some of the strength that we need by imposing the fine.

The way in which the energy markets are organised is fundamentally flawed because it conflicts with our objective of reducing carbon emissions. It is probably too much to expect National Grid to act in a way that permits prospective competitors of their own accord to open up “their” market to everyone on an even playing field or to expect the energy companies to embrace energy efficiency and renewables. I have no doubt about the energy companies and National Grid’s desire to produce fewer carbon emissions. It is just that their desire conflicts with their core business.

“Between the emotion / and the response / falls the shadow”

Businesses do not deliberately share profits with their competitors, they prefer an uneven playfield titled in their favour, and turkeys do not vote for Christmas, even if they genuinely believe in Santa Clause. 

2 Responses

  1. I agree. Unfortunately sound business ethics are contradictory to the aim of increasing profits especially when the companies concerned sell fossil fuel energy

  2. We shouldn’t just blame the companies because we all use fossil fuel energy

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