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Select Committee on Trade and Industry First Report
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Notes:
Category 2 complaints
are those where the customer approaches the GCC first.
Source: Derived
The Work of the Directors General, page 223.
133. The vast majority of
complaints received by the GCC relate to British Gas rather than
to other gas suppliers. For instance, of the 32,629 category
1 complaints received by the GCC between 1st April 1996 and 31st
October 1996, 31,782 related to British Gas.[296]
British Gas and other Companies, April-October 1996
Source: Ev. p.109.
134. The GCC told us that
32% of the complaints they receive about British Gas Trading relate
to disputes over volumes of gas consumed and that a further 35%
relate to billing. Complaints over domestic gas supply rose by
over 100% in the period January to October 1996 compared to the
same period in 1995.[297]
The DGGS told us that this increase was not primarily as a result
of the domestic gas trials in the South West but a reflection
of the problems encountered as British Gas introduced a new billing
system nationwide.[298]
For British Gas Service 57% of complaints to the GCC related
to contract servicing and repair work, 11% to demands for repair
work and another 11% regarded installation of new central heating
systems.[299]
135. The GCC believe that
one of reasons that the number of complaints has risen is that
"as we move more into a consumer society people understand
that they can complain, and that there is such a thing as redress".[300]
Nevertheless, they told us that there had also been a number
of problems caused by British Gas's "move to a new structure
... and the amount of time which they have had to change their
systems in preparation for competition".[301]
We note that British Gas have also withdrawn from the Chartermark
Scheme and that a substantial part of the increase in the number
of all forms of complaint coincides with increased public dissatisfaction
with the management approach of the company. The NCC point to
the increasingly large volume of complaints, together with a decline
in the standards of service from British Gas, and the dubious
marketing practices employed by some gas suppliers in the gas
trials in the South West, as evidence that OFGAS has not done
enough to protect consumer interests.[302]
136. Similar steps designed
to protect consumers interests have been taken by the DGES. Since
vesting, prices to domestic electricity consumers have fallen
in real terms by 10%. Prices to industrial consumers have also
fallen. In 1991, the DGES set Standards of Performance for PESs
covering important customer service areas such as appointments,
account queries, meter reading and the restoration of supply.
Some of these Standards are `guaranteed', which means that the
PESs are obliged to pay compensation to customers if the appropriate
quality of service is not maintained. Over time, the Standards
have been raised and, according to OFFER, company performance
has improved.[303]
RECs are also covered by Overall Standards, which set mandatory
performance levels in key operational areas. OFFER argue that
here, too, company performance has, in general improved - for
example, in 1991-92, the worst performing REC obtained firm meter
readings from 90% of its customers; by 1994-95, all companies
obtained firm meter readings from 97% of customers.[304]
There has also been a significant fall in the number of domestic
customers disconnected for debt from 65,000 in 1990-91 to 1,083
in 1994-95.[305]
(We note, however, that these figures do not include self-disconnections,
ie. those prepayment customers who stop consuming because they
cannot afford to make the payments). Codes of practice have been
drawn up to cover such issues as complaints handling and services
for the elderly and disabled.[306]
137. There has also been
a fall in the number of complaints received by OFFER (see Table
VI), although OFFER do point out that it is their policy to encourage
consumers to take up their grievance with the company concerned
first. Nevertheless, the DGES believes that the decline in complaints
reflects "among other things ... the sustained pressure which
OFFER has placed on PESs to improve their service standards".[307]
Complaints about PES services received by the ECCCG have also
halved in the last two years.[308]
Source: HC 645, July 1996, page
309.
138. The ECCCG told us that
the DGES had been "successful in improving standards of customer
service and prices are falling ... the system is more consumer
orientated than it was".[309]
However, some witnesses argued that OFFER could have done more
to protect consumer interests since vesting. The NCC told us
that they were "not convinced that the interests of domestic
consumers have been sufficiently protected with regard to price
controls".[310]
They believe that all the original price controls set by the
Government were too generous to shareholders and that the new
controls for distribution are still too lax.[311]
139. The NCC said that there
was "inadequate weight given in legislation ... to the protection
of consumer interests".[312]
Such concerns have led some to argue that customer protection
should be made a primary regulatory duty, rather than a relevant
secondary consideration as it is at present. For instance, Professor
Cosmo Graham said that "the statutory duties as drafted do
not give a high enough priority to the interests of domestic consumers
and social obligations".[313]
The EIUG argued that consumer interests should be the primary
concern and that other duties should be clearly prioritised.[314]
140. Several witnesses,
such as Professor Catherine Waddams[315]
and Aileen McHarg,[316]
argued in terms similar to the NGC who told us that "social
costs ... are logically things which we believe should be considered
by the Secretary of State".[317]
Professor Waddams illustrated her argument by reference to consumers
using prepayment meters. Such customers, she told us, are frequently
those on low incomes and many will be in receipt of Government
benefits, but the benefit system may actually penalise them.
Benefits payments are adjusted in accordance with movements in
the RPI which reflects average household expenditure. Thus, if
competition and regulation reduce average gas and electricity
prices over time, benefit levels fall, increasing the proportion
of income those in receipt of benefit must spend on fuel. Professor
Waddams argued that such problems are great enough to "cause
real difficulties to vulnerable consumers", particularly
as low income households tend to spend a higher average proportion
of income on energy than other consumers.[318]
"These problems are primarily those of poverty and ideally
the benefits systems should be adjusted to account for them".[319]
Furthermore, as Ms McHarg pointed out, given the discretion the
regulators have, "it is probably naive to assume that the
regulators' priorities are directly determined by their statutory
duties", so altering the order of the duties would have little
effect.[320]
OFFER told us that flexibility in the interpretation of duties
was important as "different duties may come into prominence
at different times, as the ... market develops".[321]
141. We recognise that the
introduction of competition into energy markets is likely to lead
to unbundling and more cost-reflective pricing. These developments,
if unfettered, are likely to lead to wider differentials between
tariffs, with those on pre-payment meters, usually low income
consumers, suffering most or, at best, gaining least. The extent
to which tariff differentials should be tolerated, or those on
low-incomes compensated, is a matter of social policy and therefore
for the Government, and not the regulator, to determine. Nevertheless,
we would not want to preclude the use of the regulatory system
as a tool for implementing Government policy, as it may be the
most efficient delivery system. Nor would we wish to see economic
regulatory policy conflicting with either Government policy or
consumer interests. Thus, we have concluded that the current
legislative balance between economic and social issues is broadly
correct.
142. It is inevitable that
the regulators' duties in respect of customer protection will
vary slightly, reflecting the differences between the structures
of the industries and the nature of the product supplied, but
we can see no justification for the exclusion of the chronically
sick from the list of those to whom the DGES must pay special
regard. As Professor Graham, inter alia, argued, if the
chronically sick need protection in gas then presumably they do
so in electricity.[322]
We recommend that the Government introduce legislation amending
the 1989 Electricity Act to impose a duty on the Director General
of Electricity Supply to take into account in the exercise of
his primary duties the needs of those who are chronically sick.
143. The liberalisation
of the domestic energy markets raises particular concerns in relation
to consumer protection. The NCC told us that "it is, as
yet, not certain whether the introduction of competition in these
sectors in 1998 will bring about lower prices and better quality
of service for all groups of consumers, including those on low
incomes".[323]
Such concerns seem to be justified by initial findings from the
second phase of gas trials, where the GCC have reported substantial
differences in the prices offered to different groups of customers.[324]
Nor are consumer groups certain that the regulators have taken
enough action to protect all consumers' interests. For instance,
the NCC points to the dubious marketing practices, employed by
one company in particular, at the launch of the gas trials in
the South West last year. The DGGS has indicated her intention
to take earlier and more effective action on such matters as liberalisation
progresses. The NCC, while welcoming this commitment, do not
accept that it is sufficient.[325]
The Suppliers Section of the Gas Forum have developed voluntary
guidelines on marketing for gas suppliers, but there is doubt
over how effective a voluntary code will be. As for domestic
electricity supply liberalisation, the NCC reports concerns over
the number of exemptions to be granted from the obligation to
supply which may result in suppliers `cherry-picking' the more
lucrative customers; over the right of existing suppliers to veto
customers in arrears switching to alternative suppliers; and the
absence of second tier supplier licence conditions prohibiting
undue discrimination and undue preference.[326]
Most of these concerns centre on the interests of low-income
customers.
144. Both regulators have
already taken action in an attempt to ameliorate the potential
adverse effects of competition on vulnerable consumers.[327]
Nevertheless, there will be an ongoing need to monitor the impact
of liberalisation on these consumers and further action may be
necessary to address the concerns of the NCC and other consumer
groups. We recommend that both regulators undertake detailed
monitoring of the effects of liberalisation on vulnerable consumers
and publish their findings, and take swift remedial action where
necessary. We further recommend that they continue to seek ways
in which the interests of such consumers can be best protected
and implement such provisions where it is consistent with their
other duties.
145. Several witnesses,
including Scottish-Hydro and the NCC, favoured extending the duties
of the regulators to include an instruction to take into account
the needs of those on low incomes.[328]
Professor Graham was adamant that "social obligations should
be extended to low income consumers"[329]
We believe that such a reform would reduce the likelihood of
economic regulatory decisions conflicting with Government's wider
social policy and therefore recommend that the Government introduce
legislation to impose duties on the Directors General of Electricity
Supply and Gas Supply to take into account in the exercise of
their primary duties the needs of those who are on low incomes.
294 Ev. p.251. Back
295 The
Work of the Directors General, Appendix
6, p.180. Back
296 Ev.
p.109. Back
297 Ev.
p.108. Back
302 Mem.
p.62. Back
303 Ev.
p.280. Back
304 The
Work of the Directors General, Appendix
8, p.307. Back
306 Ev.
p.317. Back
307 The
Work of the Directors General, Appendix
8, p.309. Back
309 Ev.
p.131. Back
310 Mem.
p.63. Back
314 Ev.
p.109. Back
315 Ev.
p.168. Back
316 Ev.
p.173. Back
318 Ev.
p.169. Back
320 Ev.
p.182. Back
321 Ev.
p.272. Back
322 Mem.
p.119; Ev. p.94. Back
323 Mem.
p.61. Back
324 GCC
News Release, 9.2.97. Back
326 Mem.
p.64. Back
328 Mem.
p.43, 68. Back
329 Mem.
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| © Parliamentary copyright 1997 | Prepared 18 March 1997 |