Examination of Witnesses (Questions 100
WEDNESDAY 28 FEBRUARY 2001
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
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
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
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
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.