Smart Meter Communication Licensee: decision

What changed

Ofgem has selected DCC2 Ltd, a wholly-owned subsidiary of SECCo Ltd, as the Successor Licensee for the Smart Meter Communication Licence following an open competitive tender run under the Tender Regulations (SI 2012/2414). The decision was published on 9 February 2026; the final licence is scheduled to take effect in March 2026. DCC2 replaces the incumbent Data Communications Company (now framed as DCC1) at the expiry of the original twelve-year licence granted to Smart DCC Ltd in 2013.

The tender ran a closed two-stage process: an open Qualification stage (8 September to 6 October 2025), then an invitation-only Proposal stage (5 November 2025 to 12 January 2026), with selection on 9 February. Three structural changes define DCC2's mandate: a transition to majority-independent governance, a transition to ex-ante cost control, and the production of a business strategy and technology roadmap. A Joint Handover Steering Group, chaired independently by Jayesh Parmar, will oversee the DCC1-to-DCC2 transition.

What this means in practice

The headline is continuity dressed as competition. The "open competitive tender" produced a winner that is a subsidiary of SECCo, the company already at the centre of the Smart Energy Code governance ecosystem. No new commercial operator enters the smart-metering communications layer that connects roughly 38 million domestic and small-business meters. The incumbent governance constellation keeps the licence. This is selection without contestability: a qualification stage open to anyone, a proposal stage open to whoever survived it, and an outcome that reproduces the existing structure under a not-for-profit, purpose-driven shell that mirrors how Elexon runs the BSC. Whether that is the right model is arguable; calling the process competitive when one credible bidder was always structurally favoured is not.

The consequential change is buried in the second bullet: ex-ante cost control replacing pass-through. Under the original DCC licence, the operator recovered its costs through a margin on a substantially pass-through base, with profit earned largely irrespective of cost discipline. That is the Averch-Johnson problem in its purest form: a cost-plus structure rewards spending, not efficiency, and the DCC's history of budget overruns and delayed delivery is the predictable consequence of the incentive structure, not a failure of execution. Ex-ante control sets the allowed cost envelope before the period, so overspend lands on the operator rather than being recovered automatically from suppliers and, through them, from consumer bills. This is the single change in the decision that materially shifts who bears the cost of inefficiency.

The not-for-profit framing should not be mistaken for the discipline. A purpose-driven body with no equity holders has no profit motive to overspend, but it also has no profit motive to underspend. What disciplines a not-for-profit monopoly is the ex-ante envelope and the credibility of the regulator's refusal to top it up, not the absence of shareholders. Elexon works as a model because the BSC parties govern it and the cost framework binds, not because it is constituted as not-for-profit. The same test applies here: the structural change worth watching is whether Ofgem holds the ex-ante line when DCC2 inevitably argues for in-period uplifts.

For energy suppliers, who fund DCC charges and pass them through to customers, the practical effect depends entirely on how tightly the ex-ante envelope is set and policed. A well-calibrated cap transfers delivery risk from billpayers to the licensee. A loose one, or one routinely reopened, reproduces pass-through under a different name. The methodology for setting that envelope is where the consumer-bill outcome is actually determined, and it is not in this decision.

What happens next

The final SMCL text is to be published and brought into effect in March 2026. The Joint Handover Steering Group, under Jayesh Parmar, runs the Business Handover Plan from DCC1 to DCC2 and is tasked with ensuring no adverse impact on DCC customers through the transition; its risk and delivery oversight is the near-term operational watch item.

The detail that matters has not yet landed. The ex-ante cost control methodology, the allowed-cost baseline, the treatment of in-period uplifts, and the majority-independent governance arrangements are all downstream of this announcement. These determine whether the structural change delivers bill discipline or just relabels the recovery mechanism. Track the final licence conditions and the cost-control methodology when published: that is where the consumer outcome is set, not in the choice of operator. The handover from DCC1 to DCC2 will run through 2026, with the new licence period operating under whatever cost framework Ofgem finalises alongside the March licence.