UK Energy Watchdog Slaps Down Capita's £130M Smart Meter Splurge

UK energy regulator Ofgem is set to disallow current and projected costs of nearly £130 million ($165 million) accrued by Data Communications Company (DCC), the Capita-owned monopoly responsible for the UK's smart meter platform.

Ofgem regulates DCC in an attempt to ensure it offers higher quality services and performance levels throughout the UK's much-criticized £13.5 billion ($17 billion+) smart meter project.

In a price control document [PDF] launched earlier this month, the regulator said it remains concerned that DCC has become over-reliant on the use of external consultants, including for roles that are primarily business-as-usual and undertaken regularly.

It also lists a number of items in DCC's current and future spending, which it is set to disallow.

Disallowed internal costs for the 2023/24 financial year amount to a total of £17 million ($21.5 million) and include inefficiencies in planning (£6.1 million) and contractor staff salaries that exceed the relevant benchmarks. Disallowed external costs amount to £8.5 million and include work that was carried out without a clear mandate or benefit (£3.4 million) and sunk costs (£2.5 million).

Ofgem also said it was minded to disallow a total of £72.3 million ($92 million) in forecast internal costs for 2024/25 and 2025/26 as well as £30.9 million ($39 million) in forecast external costs for the same years.

DCC's total reported costs for the latest fiscal year are £684 million ($868 million), up 15 percent on last year's forecasts, including a 57 percent increase in internal costs.

"In comparison to last year's forecast, there has been a material increase in costs," the report said. "There are several drivers for this, but as with previous years, the main reasons for these include DCC updating the forecast costs associated with the procurement of new contracts, unforeseen issues which arose throughout the RY, and previous cost disallowances made through our Price Control determinations caused zero baseline for some areas."

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Ofgem said it would revise its figures if presented with "satisfactory evidence" before it makes a final decision.

Last year, the UK's public spending watchdog found that energy companies were only 57 percent through the rollout of smart meters nearly four years after the government's first deadline for the £13.5 billion ($17 billion) project.

The National Audit Office (NAO) report said indicative savings from smart meters equated to £56 (c $70) annually per household, a little less than £5 (c $6.30) each month.

Back in 2012, the government created a legal obligation for energy suppliers to make sure they completed the rollout of smart meters by the end of 2019. Subsequently, it pushed back the deadline three times, first to the end of 2020, then 2024, and then 2025. As of February 2023, the government launched a consultation on plans to have smart meters installed in 80 percent of homes and 73 percent of small businesses by the end of 2025.

In 2019, the government estimated that the project would cost around £13.5 billion ($17 billion+) between 2013 to 2034. During that period, overall benefits could reach £19.5 billion ($24.7 billion), it found.

Capita currently holds the license for DCC, and Ofgem is responsible for "designing and awarding the next license, which is expected to run to 2040," the NAO said. ®