NEWS

Ofgem has published a consultation on the draft Smart Meter Communication Licence, marking a significant step in shaping how Britain’s smart meter communications network will operate once the current Data Communications Company (DCC) model comes to an end. The consultation runs until 7 November 2025 and reflects the decisions made in Ofgem’s review of the DCC.

The draft licence outlines how the future communications company will be governed, how its costs will be managed and how it will continue to provide secure, reliable services to energy suppliers and networks. The communications network is one of the most critical parts of the smart system, linking meters in homes and businesses with energy providers and ensuring data flows safely and efficiently. How it is regulated will influence everything from service quality to the cost of smart metering for years to come. In this article, we’ll tell you more about it.

The next framework

The new Smart Meter Communication Licence translates the findings of the DCC Review into a new operational framework for the next phase of the UK’s smart metering rollout. It aims to create an organisation that is efficient, transparent and fully accountable to users and consumers.

The next company to run smart meter operations, whoever that may be, will be responsible for the ‘core mandatory business’ of smart meter communications. It will be required to run on a not-for-profit basis. This will ensure that essential services remain focused on reliability and value rather than commercial return.

The draft licence also clarifies and simplifies several existing conditions from the current DCC licence. It defines the scope of services, sets out procurement and performance obligations, and lays down clear rules for how the organisation must be governed. These updates are designed to strengthen the network’s foundations while giving the next operator a more modern and flexible structure.

Changes to costs and governance

A major reform in the draft licence is the move to an ex-ante cost control regime. Rather than reimbursing costs after they are incurred, Ofgem proposes to agree and regulate key categories of spending in advance. This approach provides more stability for users and stronger incentives for efficiency.

Under the new framework:

• Stable and predictable costs – Regulated through ex-ante controls or a pre-approved budget process
• Variable costs – Reconciled through adjustment mechanisms and periodic reviews
• User-funded core business – Charges recovered from energy suppliers and network operators rather than from consumers (directly)

Governance could also change significantly:

• Majority independent board – to oversee the organisation and reduce conflicts of interest
• Regulatory Instructions and Guidance (RIGs) – Issued by Ofgem to set out how the company must report performance, manage procurement and demonstrate compliance
• Regular reporting and transparency requirements – To give users clearer oversight of how funds are managed

Together, these measures move the system from cost reimbursement to proactive cost management. The goal is a communications operator that delivers value, efficiency and confidence to the smart energy sector.

Flexibility and accountability

The new licence keeps the outsourced delivery model, with most operations continuing to be delivered through competitively procured contracts. This ensures continuity while maintaining pressure on providers to perform.

Key features include:

• Competitive procurement – For major contracts, encouraging fair pricing and innovation
• Clear performance obligations – Delivery standards will be measurable and enforceable
• Financial separation – Core services and extra projects (innovation etc.) will be kept separate to avoid cross-subsidy
• Structured reporting – To openness about costs, performance and governance decisions

Ofgem has built flexibility into the regime to accommodate future change. As technologies evolve and market conditions shift, the regulator can adapt requirements through consultation without needing to overhaul the licence entirely.

This combination of firm accountability and controlled adaptability is designed to create a communications system that can evolve with the energy landscape while maintaining reliability and public trust.

Looking to the future

Ofgem’s draft Smart Meter Communication Licence sets the foundation for a smarter, more efficient and more transparent communications network to support Britain’s energy transition.

By tightening cost control, strengthening governance and keeping flexibility at the core, the regulator aims to ensure that the next generation of smart meter infrastructure delivers value for users and reliability for consumers. The way this framework is shaped now will define how well the UK’s smart metering system performs over the next decade. We all hope it succeeds.