Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  100. That is what I thought. You said that you have stiffened the licence conditions. I am not quite clear what that means. Presumably effectively that means "do not do it again". You are bringing them up to the standards they should have been in the first place.
  (Mr McCarthy) No, for example, it extended rules that originally covered doorstep selling to other places like selling in supermarkets, so there was an extension of the powers that were in the original licence.

  101. These are effectively people whose practice you have seen and identified as being inappropriate. Basically they are chancers or crooks and you have said "stop doing that", not only stop doing that on the doorstep where we have caught it but stop doing it elsewhere as well. Basically it is stopping them doing what they should not have been doing in the first place. It is not a penalty; it is bringing them up to a higher standard. Is that correct?
  (Mr McCarthy) Yes.

  102. It is disappointing that you have no sanction, but you mentioned that. Can I come back to this question of the standard form where you said that you were not persuaded that you should have a standard form because it would then be difficult to compare with things like phone operations and the Internet and so on, and I understand that. It does seem to me that some of the companies, because they are quite widely varying forms, have clearly been managing to get people to sign for new supplies when they thought they were signing for a survey. They clearly have had forms that were misleading, or were described misleadingly. Surely it would be advantageous to have a standard form which presumably had been approved by yourselves, and while that will not overcome the problem of people on the doorstep lying, it will at least overcome any difficulty about confusion, will it not?
  (Mr McCarthy) One of the licence conditions that we have introduced is to ensure that every company is under an obligation to make clear what is a contract, and that is the approach which has been adopted, rather than saying every company must use a single form of a uniform nature.
  (Mr Neilson) On many companies' forms the word "contract" appears precisely where the customer has to sign, and "contract" appears in big letters at the top of the form. We have had extensive discussions with the companies about their forms.

  103. So if it appears in big letters on the top of the form—
  (Mr Neilson) Saying "this is a contract"—

  104. And you have another bit of paper there, then that is the problem overcome really, is it not?
  (Mr Neilson) On the place where the signature is required is actually printed the word "contract" and you sign over that word. That occurs in many companies.

  105. I am happy to hear that. Could I ask you in terms of the numbers of complaints, because as with almost every other service it always strikes me that registered complaints are really just the tip of the iceberg. Coming back to the question that life is short, a lot of people think "I am not going to bother complaining about this. I recognise that I have been done but I cannot bother to change back". To what extent do you think that the complaints that you are receiving are the total number? To what extent are 90 per cent of people involved saying "I will not bother"?
  (Mr McCarthy) We believe, as does the OFT that was quoted in the NAO Report, that the number of people who complain is a fraction of those who have had problems. That is why we take the number of complaints as a measure of direction rather than an absolute measure.

  106. I see. So when you were telling us earlier on that the level of erroneous transfers was 1.5 per thousand for electricity and 0.8 for gas, that was misleading because that is only reported complaints, is that right?
  (Mr McCarthy) No, because I carefully said that those were complaints. John Neilson explained that we track, because it is something that we can track, erroneous transfers and know them at the level at which they are running in the industry, which is around two per cent.

  107. How do you know if it is an erroneous transfer if someone does not complain?
  (Mr McCarthy) To be in the category of an erroneous transfer somebody has to say that there has been an error, I accept that.

  108. If I come home and find I have been transferred to somebody else and I start paying it because I assume my wife did it, and she assumes I did it, there has been an erroneous transfer and they have got away with it?
  (Mr McCarthy) I am afraid there is nothing I can do about that.

  109. Can I clarify this point you made about applying the lessons from gas and the mis-selling and so on and irregularities and the like. Your defence was that it was no worse for electricity, although it declined later on. Surely if it was no worse, that is the very least we should have expected, we should have expected it to have been a great deal better.
  (Mr McCarthy) My point was that, in fact, the performance was better. Within one and a half years of opening up the market in electricity we got to a position that was equivalent to the position four years after it in gas. There had been an initial point at which there had been a level that was higher than we would have wished but it came down very rapidly, and much more rapidly than the decline in gas.

  110. I understand the point that it declined rapidly, but surely the point that it was as high at the beginning was in itself a failure of preparation? Surely you should never have been in that position?
  (Mr McCarthy) We would have hoped not to have been in that position, I agree.

  111. Why were you?
  (Mr McCarthy) Because this is what has happened, despite all our efforts.

  112. I know this has happened. What I am trying to identify is what did you do wrong? What information did you not act on? What action did you not take that would have resulted in that initial figure being lower?
  (Mr McCarthy) I am not conscious in respect of that of what else we could have done. We drew to the attention of the electricity companies the experience in gas. We imposed on them licence conditions that reflect the experience that we had in gas. We took advantage of what we had learned in policing these companies from gas and applied it to electricity. I do not know truthfully what else we could have done.

  113. So a certain level of mis-selling and complaint is inevitable and we have just got to learn to live with it?
  (Mr McCarthy) That is not a conclusion from what I have said.

  114. Where did I get it wrong then because you said that you took every reasonable action that you could have taken and still it happened? What have I missed?
  (Mr McCarthy) I do not want to suggest that Ofgem accepts that any level of mis-selling is acceptable. It may be very difficult to avoid but my only point in reply to your question is that we are not accepting that any level is an acceptable level.

  115. The final point I want to make is if people, say pensioners, as happened in my constituency, and people did not entirely understand the forms, signed something which led them to be committed to a contract, it strikes me that is essentially fraud. How many cases of fraud have been prosecuted or pursued by either the companies involved or yourselves or pursued in any way? What sanctions have been taken against the individuals? As I understand it, some of the companies involved contracted it out to direct sales organisations. What has happened to them?
  (Mr McCarthy) I am sorry, I do not have the number for the total number of prosecutions that have occurred. We encourage all the companies, if they have an example of a fraudulent salesman who has broken the law, to prosecute that salesman or saleswoman.

  116. You say you do not know but are there any?
  (Mr McCarthy) Yes.

  117. Do you monitor the figures?
  (Mr McCarthy) No.

  118. Why not?
  (Mr McCarthy) If I monitored them I would give them to you.

  119. Why do you not monitor them?
  (Mr McCarthy) Because we have left that to the companies, having encouraged the companies to pursue them in that respect.

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