31. Doorstep selling is significant in raising awareness
of competition and persuading customers to change supplier. When
the domestic gas market was opened up to competition the Gas Consumers
Council received complaints about the doorstep selling practices
of gas suppliers, so that in January 1998 gas suppliers' licences
were modified to include standards for doorstep selling. In the
first year of electricity supply competition, however, there were
some 4,900 complaints about high pressure or misleading selling
practices, or 1.06 complaints per thousand transfers, broadly
as in the first year of domestic gas competition.
32. Ofgem said that there was no doubt that doorstep
selling had been the most effective means of making people aware
of the advantages of competitive choices, especially those on
the lowest incomes. They wanted to make sure, however, that it
was done honestly, and the best way of doing this was to ensure
that the companies managed their workforces effectively. Ofgem
had taken advantage of what they had learned in regulating marketing
abuses by companies in the domestic gas market, by drawing to
the attention of the electricity companies the experience with
gas, and imposing licence conditions that reflected their experience
of the gas market. These licence conditions had since been extended
in a number of ways.
33. Our predecessors asked Ofgem whether they penalised
companies who were responsible for marketing abuses. In reply,
Ofgem said that they could not impose financial penalties. They
named and shamed, and applied licence conditions requiring suppliers
to manage their sales force more tightly, with the threat of stopping
them marketing if they did not comply. They acted in 1999 against
London Electricity and in 2001 against Npower.
Ofgem stated that they had seen a very marked improvement in the
performance of these two companies. The overall level of complaints
had come down markedly. Companies took the effect on their reputation
seriously and the threat of naming and shaming had led companies
to make changes in the management of their sales force. Ofgem
said that the Utilities Act 2000 would give them the power to
impose financial penalties and they would welcome the introduction
of these as soon as possible.
34. Asked whether prospective customers should be
warned that door-to-door sales agents would be visiting their
community, energywatch said that it would be valuable to
advertise the presence of doorstep sales agents in a particular
did not think that warning consumers would lessen the potential
for those who exploited vulnerable consumers to trick their way
into people's houses to commit burglary. It was a licence requirement
that all agents should be properly badged. They did, however,
recommend that older people joined their supplier's priority customer
scheme, which would give them, among other things, a password
which they could use to check the identity of callers from their
existing supplier. Discussions were also taking place with the
Direct Marketing Association about the potential for operating
a doorstep preference scheme so that householders could elect
not to have sales agents calling at their door, and the Association
were investigating the practicalities of such a scheme.
35. Ofgem said that they did not know how many prosecutions
for fraudulent mis-selling had taken place because they left it
to the companies to pursue sales agents who had broken the law.
They subsequently reported that there had been relatively few
prosecutions for fraud and that 126 cases were reported to the
police in 2000. Suppliers had taken disciplinary action of some
form against over 5,400 sales agents that had breached their standards
in 2000, compared with 2,000 in 1999.
Customer dissatisfaction and complaints
36. Ofgem accepted that the level of complaints had
been higher than they would have wished. But it had fallen rapidly,
and more so than in the gas market. There were only some 55 complaints
a week in December, against a background of 113,000 transfers
a week. This was the same level as in the gas market where competition
had been in place for two extra years. They did not, however,
regard any level of mis-selling as acceptable.
37. Research by the Office of Fair Trading suggests
that complaints received by the regulators are the tip of the
iceberg, with the true level of customer problems being much higher.
Ofgem accepted that the level of dissatisfaction was greater than
the number of complaints.
There was no common way of measuring complaints and energywatch
would be taking this forward.
38. Complaints received by Ofgem about marketing
included cases where customers had not understood that they had
entered a contract, sometimes having gained the impression that
the sales agents were just requesting information.
When our predecessors looked at the introduction of competition
in the gas market, they were concerned at the anxiety that involuntary
transfers due to errors or dishonest marketing could cause to
customers, especially the elderly and other potentially vulnerable
groups. Of 510,000
electricity customers who had signed contracts to change supplier
in March 2000, 4,000 subsequently denied having done so.
39. Energywatch said that their purpose was
to work on behalf of consumers as their champion in dealings they
had with the suppliers, and that the level of complaints from
customers who had changed supplier deeply concerned them. It was
an indication that although the competitive market might be helping
many consumers, there were others who were not deriving benefits
from competition as quickly and as openly as they should.
40. Ofgem said that the level of complaints about
erroneous electricity transfers had halved and was running at
1.5 per thousand transfers, equivalent to some 600 a month. Asked
whether this fall in complaints gave the full picture, Ofgem said
that they did not know about all erroneous transfers, only about
complaints made to them and energywatch about such transfers.
Ofgem acknowledged that for a transfer to be classified by a company
as erroneous, somebody would have had to complain and that the
number of people who complained was a fraction of those who had
had problems. There
were a series of problems with the transfer process, which was
inherently complex. Ofgem were undertaking a study of the process
which they wanted to clarify and simplify.
41. Energywatch told us that the supplier
was the right first port of call in the event of a complaint.
If a complaint was not being handled satisfactorily energywatch
would want customers to come to them.
Energywatch added that mis-selling and erroneous transfers
were examples of market failure. They believed that consumers
should be able to sign contracts in a standard format so that
they would know whether what they were signing for was a contract
or for information only.
Asked whether it would be useful to introduce an approved standard
transfer form, Ofgem said that, rather than requiring every company
to use a standard form, they had introduced a licence condition
to ensure that every company had an obligation to make clear what
was in the contract. It was also important for consumers to understand
that it was a contract, and on many companies' forms the word
"contract" appeared precisely where the customer had
to sign, and also appeared prominently at the top of the form.
42. Although the level of complaints has fallen substantially
since competition was introduced, there are still over 55 complaints
a week about high pressure or misleading selling techniques against
a background of 113,000 transfers a week. Ofgem accept that the
level of dissatisfaction will be higher than the number of customers
who go to the trouble of complaining, and they do not regard any
level of mis-selling as acceptable. While Ofgem can compel companies
whose sales agents act improperly to tackle malpractice, they
will not be able to penalise such companies until financial penalties
provided for in the Utilities Act 2000 come into force. These
penalties will provide a stronger incentive to deal with improper
practice, and Ofgem should not hesitate to impose them on companies
which do not tackle marketing malpractice on the part of their
43. Ofgem are working with the Direct Marketing Association
to develop a scheme whereby people can elect not to be approached
by sales agents. Energywatch believe that giving advance
warning of doorstep sellers operating in an area would also be
valuable. In these ways or otherwise, Ofgem need to take early
action to protect customers from inappropriate selling techniques.
44. Ofgem rely on suppliers to take action against
sales agents who engage in fraudulent activities such as forging
customer signatures. Suppliers reported 126 cases to the police
in 2000 and took some form of disciplinary action against 5,400
agents, confirming that there is a serious problem. Ofgem should
systematically check that suppliers are taking appropriate action
against sales agents who fail to meet standards of behaviour.
45. Being transferred to a different supplier without
their having given authority can cause considerable inconvenience
and anxiety for customers. Ofgem have been receiving complaints
about erroneous transfers, which often result from sales agents
misleading customers, at a rate of some 600 a month, and acknowledge
that many customers transferred in error do not complain to them
or energywatch. Ofgem should work with energywatch,
who now have responsibility for representing consumer interests,
to obtain a much clearer picture of the extent and nature of involuntary
transfers, for example by surveying consumers and encouraging
customers to raise complaints with energywatch.
46. One problem is that customers may not be aware
that they have signed a contract to change supplier. We agree
with energywatch that requiring suppliers to use a standard
contract format would help make clear to customers what they are
signing and would reduce the scope for involuntary transfers.
Ofgem told us that many suppliers already use contract forms that
make clear to potential customers what they are signing. Ofgem
should consider making an approved standard format obligatory.
31 C&AG's Report, paras 3.7, 3.21-3.22 Back
Qs 9, 28, 56, 112 Back
Qs 11, 36, 73-74 Back
Qs 95-98 Back
Qs 69-70, 72 Back
Evidence, Appendix 2, pp 13-19 Back
Qs 115, 117 Back
Evidence, Appendix 2, pp 13-19 Back
Qs 10, 31, 33, 109, 114 Back
C&AG's Report, para 3.24 Back
Evidence, Appendix 2, pp 13-19 Back
C&AG's Report, para 3.22 Back
8th Report of the Committee of Public Accounts, (HC
171, Session 1999-2000), para 3 Back
C&AG's Report, para 2.16 Back
Qs 18, 51, 105-108 Back
Qs 18, 22 Back
Evidence, Appendix 1, p13 Back
Qs 102, 104 Back