Examination of Witnesses (Questions 80
WEDNESDAY 28 FEBRUARY 2001
(Mr McCarthy) California started off with a net deficit
of capacity, we are starting off with spare capacity of around
39 per cent.
The way in which privatisation took place there was particularly
difficult because if you have both price controls at the retail
end and no control at the wholesale end you squeeze the retailers,
which is exactly what has happened in California, and the way
in which the wholesale market was reformed in California was particularly
wanting in a number of respects.
81. So if excess capacity went down to zero,
what would happen?
(Mr McCarthy) I do not expect excess capacity to come
down to zero because there are incentives for people to build
spare generating capacity.
82. Am I right in assuming as a consumer that
if I change my suppliers I am likely to make a saving? I have
not done it because I have taken the view that life is too short
to go through the complexity of it, and I am sure I am not alone
in all of that. Would you accept that anyone who is buying electricity
or gas, or indeed anything else that you cover, for less than
the best price represents a market failure and a failure of market
(Mr McCarthy) No, I would not accept that because
all of us do not spend all our time looking for the very best
offering and for example
83. I understand that but time is limited. I
understand that, the point I made earlier on about life being
short, but do you then not regard yourselves as having had a degree
of responsibility for ensuring that offerings made by different
companies are comprehensible and comparable? If I wander into
Safeway's I can see this is so much per 100 grams and that is
so much per 100 grams. Am I right in thinking you have not done
(Mr McCarthy) First of all, I agree with you that
one of our aims is to make the price offering as comparable as
possible. We have spent a lot of time, and indeed are about to
publish a document reporting on our findings, trying to do exactly
the same in principle as your price per 100 grams. We call that
an energy cost index.
84. But you have not done it?
(Mr McCarthy) We have not done it.
85. Let's not beat about the bush, you have
not done it, you have been in post for a while, you were not appointed
yesterday; why have you not done it up to now?
(Mr McCarthy) We have not done it for the very good
reason when we tried to devise an energy cost index and tested
it on groups of consumers they did not find it helpful.
86. It obviously was not a very good one then.
(Mr McCarthy) It is the best one that could be made.
87. Electricity is not rocket science. You can
compare chunks of it or a bottle of it. A bottle this size of
electricity would cost you so much from Npower and so much from
somebody else. It does not seem to me to be beyond the wit of
man or your staff to produce comparable statistics. Is it not
done internationally? Is there no other international example
anywhere in the world where a market exists where comparable produce
offerings are made?
(Mr McCarthy) Given that, for example
88. Is that a yes or a no?
(Mr McCarthy) The answer to your question is we have
not found anywhere in the world where there is a competitive market
where there is a single useful index of the sort you describe,
nor have we been able to devise one, nor when we devised the best
that we could find was there in any way uniform support for it
among the consumer groups. The Consumer Association, for example,
was deeply sceptical about the use of it.
89. So price competition which is not opaque
and incomprehensible is impossible in electricity, is it?
(Mr McCarthy) No, that is not what I said. What I
said was that the energy cost index did not work. We think that
there are ways of making sure that the comparison is easier and
we will be coming forward with proposals on what those ways are.
90. Coming back to the point I made, given the
complexities of all this while you have produced explanations
as to why people would not buy the best offering, surely you would
accept that anyone not buying the best offering available does
represent a market failure?
(Mr McCarthy) I would not accept that it represents
a market failure. For example, there are some people who as of
today will make the very best choice and there will be a new offering
in the month or two's time.
91. If we move to the question of changing supplier,
today if I decide to spend some time on it, I should be able,
or should I not, to identify which is actually the best available
to me by making comparisons? Is that possible?
(Mr McCarthy) Yes that is and we give advice to people
explaining to them exactly how to do that.
92. So it is possible, coming back to this point,
for you to be able to tell everybody what is the best for them?
As I understand it then, people can phone a number that is not
widely known to get information which will be somewhat complex
because of different offerings. So they will phone a number they
do not know, get information they cannot understand, and then
they can work it out for their area if they have got the time.
Is that your understanding of the best position possible?
(Mr McCarthy) That is not how I would describe it.
93. I know it is not how you would describe
it. What did I get wrong there? Is it not a number that is not
(Mr McCarthy) It is not a number that is not known.
94. I have never come across anybody in my constituency
that knows the number and my constituency has one of the lowest
figures for access to the Internet in the country so they would
not get it through the Internet. In all the discussions there
have been about mis-selling in my area I have never ever heard
anybody suggest there is a phone number they could phone to get
comparisons. Why do you think that is?
(Mr McCarthy) There is a phone number on the back
of every single bill for gas and electricity which tells people
the number to ring. We get 5,000 calls on the help-line and Stephen
now gets the number he gets every week, so it is a number known
by an appreciable number of people.
95. An "appreciable" number. Can I
turn to the question of mis-selling and so on. How effective do
you think naming and shaming has been? Have you seen an appreciable
collapse in the number of customers being gained by the companies
that you have named and shamed? Has there been any noticeable
affect of naming and shaming?
(Mr McCarthy) We have seen two effects. One is in
terms of the companies we have imposed licence conditions on,
where we have seen a very marked improvement in their performance,
both in respect of London and other companies. Second, in terms
of the overall position as measured by complaints those figures
have come down very markedly indeed.
96. I understand your point about improvement,
that is part of the whole exercise. Presumably part of the whole
exercise is also about penalties. If there are no penalties for
misbehaviour and all that happens is you get told not to do it
again and improve in the future, that is not really a sanction.
Am I correct in assuming that naming and shaming has not been
an effective sanction?
(Mr McCarthy) I do not believe that is correct because
it is undoubtedly something that when we have threatened companies
with they have made marked changes in the management of their
sales force and there is good evidence of that.
97. I understand the point about improvement,
you are returning to the same point, but what evidence is there
that naming and shaming or anything else you have done to those
companies has placed a penalty upon them, that has actually cost
them money? Otherwise, if I am running an electricity company,
what you are saying to me I can do what I like, make any amount
of money by malpractice, then when you catch me is I have to clean
up my act but I do not get punished for what I did before. Am
I misunderstanding that? What effective punishment has there been
on London and Npower?
(Mr McCarthy) I thought I had explained to the Committee
that until the Government makes effective that part of the Utilities
Act 2000 which gives Ofgem the power to impose financial penalties,
there is nothing else we can do. I would welcome that power being
introduced as soon as possible.
98. So would I, but you are accepting that naming
and shaming has had no adverse impact on the companies who are
so named and shamed?
(Mr McCarthy) I accept there are no financial penalties.
I think it has had an effect on their reputation which they take
99. But it has not cost them money?
(Mr McCarthy) No.
5 Note by Witness: The spare capacity is 29
per cent, not 39 per cent. Back