Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



  40. I notice that on page 28 the National Audit Office, and there is also a reference to the DTI Report, says that the perception of risk is one of the deterrents to people. Do you not feel that the details of mis-selling publicised in papers are a big deterrent to people to transfer?
  (Mr McCarthy) Yes, we do, and that is why we have taken action against the companies who have bad records and why we will not hesitate to take action in future, and why we have stiffened the licence conditions in order to ensure that mis-selling is reduced as much as we can.

  41. The NAO Report says that an estimated £674 million could be saved by existing consumers who have failed to switch and, therefore, anything that lifts the barrier to switching is important because I would have thought that if that money is in the pockets of the utility companies at the moment, the electricity companies in this case, the Chancellor might well be eyeing this up.
  (Mr McCarthy) I am very keen to ensure that as many people as possible know about the advantages of switching and know about the ease of switching. The work done by the NAO and done by MORI, which we do every year, to find attitudes showed that 70 per cent of people believe that switching is very easy, just under 90 per cent of people who switch find the process very easy.

  42. Have the price gains by consumers been achieved at the expense of poorer services?
  (Mr McCarthy) There is no evidence of that. If I could just return to Mr Steinberg's comment about the equivalent of a car with a rattle, one of the things is when you change your supplier, subject to the continuing existence of the supplier, the electricity is the same electricity.

  43. Let me stop you there. You say there is no evidence but you have signed up to a report that says in paragraph 2.12 "In the year to July 2000, electricity customers who had changed their supplier made 7,900 complaints about ongoing services, mostly concerning delays in receiving bills or arranging direct debits, and the accuracy of bills." I return to my question: have price gains by consumers been achieved by the provision of poorer services? For up to 7,900 people that would appear to be the case.
  (Mr McCarthy) No. I believe that it is undoubtedly the case that people who transfer, because they are doing something which inherently raises a series of problems, are more likely to have complaints because if you do not transfer you do not have, for example, a new source of billing, you do not have a problem about changing from one meter reading to another, and a number of other things. I do not actually take that as evidence that the service from new providers is worse than the service from existing providers.

  44. So the six times greater volume of complaints from customers who have changed their supplier as against those who have not, you do not think reflects poorer services?
  (Mr McCarthy) I believe that the probability of your getting uninterrupted electricity supply is not affected—

  45. That is a very narrow definition. Would you like to expand on that definition?
  (Mr McCarthy) Sorry, I was making a distinction between that and the problems which are inherent in changing from one supplier to another, such as billing questions that arise, but I would say that I think overall the trend on the problem of transfer as evidenced by complaints is absolutely in the right direction and transfer complaints with both gas and electricity per 1,000 transfers are falling.

  46. Two groups lag behind, the Report says, in taking advantage of lower prices, the poor and those living in rural areas. Only 20 per cent of people with incomes under £9,500 as against 30 per cent of people earning over £25,000 have done the switch, and rural area inhabitants are less than half as likely to switch. Why is this?
  (Mr McCarthy) I think there are very different reasons. If I can take rural customers first, I think there are two reasons that probably lie behind the NAO figures. The first is that we know that most of the people who switch, more than three-quarters of them, switch to a dual fuel, ie a gas and electricity combined offering and, by definition, because of lesser spread of gas in the countryside that is available to a smaller proportion in the countryside.

  47. You have got me on a theme that I would like to dwell on and that is gas as the major competitor. Your regulation at present seems to be facilitating competition and choice in gas to existing customers and seems to deter non-gas customers from being able to sign up because they have got to pay the full costs and do it in their life-time rather than spread it either over the whole system and all consumers or future buyers of gas in their own homes.
  (Mr McCarthy) Could I answer the first question and come back to the connections question. In terms of the second reason for the problems of rural customers, the most effective way of marketing, particularly to the lower income groups, is doorstep selling and doorstep selling is most effective when houses are close together and, by definition, they are not very close together in the country. Because of those two reasons there is some evidence of a problem, though the evidence that we have from MORI suggests that it is less of a problem than does the NAO evidence, about getting competitive offerings available in the countryside. We recognise this as a problem and we are taking a number of steps with particular groups aimed at making sure that the knowledge of the competitive offering is properly spread through the countryside. We are doing that through ACRE and the Women's Institute and other bodies.

  48. I understand that there are more than 400 communities greater than 150 dwellings and over 1,300 communities greater than 300 dwellings which are off gas and 1,200 of these are within two kilometres of a gas main, but your regulatory system does not give any incentive for those people to be signed up.
  (Mr McCarthy) One of the things that we are looking at is the pricing and costing system that was inherited from the nationalised industry of connections pricing to see whether there are unfair disincentives in connection with pricing. It is also one of the things that in terms of the fuel poverty work, the conclusions of which were announced last Friday, where the DTI is setting up a working group to look at that on which we will serve.

  Mr Griffiths: That is the best answer you have given so far to the Committee. I will leave it there.

  Chairman: Thank you. Mr Geraint Davies?

Mr Davies

  49. A constituent of mine, and this is one of many examples, a Mr Terry O'Brien, approached me to say that he had an erroneous account similar to Mr Steinberg. He was with British Gas, he suddenly found a bill from Npower, and the next thing that happened is British Gas threatened him with court action to finalise his arrangement. He had not signed anything and knew nothing about it. How widespread are examples like that and are you sure that you know about all of them?
  (Mr McCarthy) If I can answer the last part, no, I am absolutely sure that I do not know about all of them. This example was drawn to our attention in July 1999. We immediately referred it to BGT. It is, as you say, a question of erroneous transfer for Mr O'Brien. It should not have happened. It was a mix-up between two companies.

  50. He was quite baffled by being told he was an "erroneous account", he thought he was on ordinary person. He was quite annoyed when he came to see me.
  (Mr McCarthy) The only consolation in this unhappy story is the fact that he received £100 off his bill from BGT and a substantial reduction has been offered to him from Npower, who are the two companies involved, but it is a bad story.

  51. I am glad you have done your homework. It is like Prime Minister's Question Time. In terms of one complaint in a 1,000 or whatever the complaints you are quoting there, are they complaints to you and to energywatch or the totality of all complaints to all gas and electricity companies?
  (Mr McCarthy) They are just the complaints to Ofgem and energywatch.

  52. When you say only one in 1,000 complain, you do not know how many people complain?
  (Mr Neilson) We do monitor how many erroneous transfers happen in the industry.

  53. How do you do that?
  (Mr Neilson) We collect the statistics from all the companies.

  54. They tell you, so you do not get them from the customer? If in this case it was not raised through Ofgem and had been resolved by the relevant companies, would you have known that?
  (Mr Neilson) It would have been incorporated in the statistics from the companies.

  55. You would know about erroneous accounts, clearly somebody's gas supply illegitimately transferred, and all the rest of it, but would you know about normal complaints to the gas company? You might sign something and not be happy and you might phone up and say, "I have not signed anything, there is a problem here", that is resolved, for argument's sake, would you know about that? That is not in your one in 1,000?
  (Mr McCarthy) That would depend very much on the facts of the case and whether that was resolved amicably or not.

  56. Would you know Jerry Steinberg's two complaints? I guess you would, it has already been said you know erroneous accounts. On the issue of doorstep selling there is widespread concern in the community about commission-led pressurised sales on vulnerable people because, let's face it, who is at home in the day, a lot of those people are pensioners, many couples who work are not there, and they are being pressurised into doing things they would not want. I have had one person who was approached by the gas company saying, "Will you take the electric?" "No." "Will you fill in this form about market research?" "Yes." A week later they get a thank-you-very-much letter for becoming one of our new customers. They go to the Citizen's Advice Bureau, they sorted it out, and two weeks later another letter, more pressure. There is no reason to think that you or energywatch would have got that letter. There is every reason to think this is the tip of iceberg, is there not?
  (Mr McCarthy) Could I expose to you the question that worries us very much about direct doorstep selling and the sort of criticism that you are very fairly putting forward to it. There is no doubt that doorstep selling has been the most effective means of making people aware of the advantages of competitive offering. It has been particularly effective for making it available to those who are on the lowest incomes, so we do not want to stop doorstep selling. We do want to make sure it is done effectively, well, honestly, and the best way of doing that is ensuring that the companies manage their workforces very fiercely and toughly.

  57. Can I stop you for just a second. My worry is that of the six million people who have changed electricity supply (the average saving is £45) but 90 per cent of those people could have got a better deal if they shopped around, but they bought from the first door-to-door salesman or woman who came along. Does that not worry you?
  (Mr McCarthy) It worries me, but truthfully not as much as all those people who have not transferred because the fact is that both in economic theory and in real life people satisfice, ie they do not always go around optimising the very best solution.

  58. No, they do not, but is there a facility to enable them to optimise through more direct intervention and clarity in terms of best value?
  (Mr McCarthy) Absolutely. That is why we produce, from Ofgem, detailed information, regularly updated, on the price offering that exists. That is why we get something like 45,000 hits on our website every month and with people downloading that price information.

  59. On your Ofgem website?
  (Mr McCarthy) Yes.

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