Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 80 - 99)



  80. Why?
  (Mr McCarthy) California started off with a net deficit of capacity, we are starting off with spare capacity of around 39 per cent[5]. 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.

Mr Davidson

  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 information?
  (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 the equivalent?
  (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 known?
  (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 seriously.

  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

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