64. At present customer
protection is delivered through a series of Codes of Practice
which PESs are required to adhere to as a condition of their supply
licences. The DGES has proposed that such arrangements should
be continued, subject to appropriate modifications, in the post
liberalisation market and that they should be extended to second
tier suppliers. We recommend that this should be done with
some urgency.
65. In this section we consider
a limited number of customer protection issues which may give
rise to the need for strengthening existing Codes of Practice
or adopting other measures to ensure that all customers are adequately
protected.
Price restraints in the competitive market
66. In Aspects of the
Electricity Supply Industry, we indicated that we saw a need
for some regulation of prices in the post 1998 market, at least
for a transitional period, reflecting our concerns that not all
customers might benefit from liberalisation in the short term.[146]
The majority of witnesses who commented on price restraints accepted
that some controls for vulnerable customers in the post 1998 market
would be desirable.[147]
In November 1995, the DGES gave his initial view that price restraint
in relation to smaller customers should continue to apply to PESs
after 1998.[148]
In his second consultation document on price restraints, the
DGES said that it would seem sensible to propose price restraints
for tariff customers of incumbent PESs with an annual consumption
somewhere in the range of 8,000 to 20,000 kWh per annum and that
the restraint should be set for two years with possible extension
or modification in 2000.[149]
Price controls set in this consumption range would cover between
90% and 99% of all domestic consumers and between 50% and 75%
of businesses currently in the franchise market. We recommend
that the DGES should proceed with the establishment of price controls
on consumption between 8,000 and 20,000 kWh per annum for the
period immediately following 1st April 1998 for a minimum of two
years.
67. The NCC argued that
price restraints should apply to all consumers with a particular
level of consumption rather than excluding those who choose to
take supply from a second tier supplier or on contract terms.[150]
However, second tier suppliers will need to offer competitive
terms in order to attract customers away from the incumbent PES.
If the second tier supplier were then to increase their tariff
rates, customers would have the option to return to the local
PES and protected tariffs. There are similar reasons for not
extending restraints to contract customers, although it may be
more difficult for contract customers to return to tariff conditions
as the terms of the contract may stipulate a fixed term or only
permit termination after an unduly long notice period. We agree
with the DGES that price regulation of second tier suppliers'
tariffs will not be necessary but we recommend that he give
further consideration to the need to restrain prices for contract
customers who have the same consumption levels as those on protected
tariffs. [151]
68. The DGES has not yet
produced firm proposals for price restraints and some fundamental
issues still need to be determined, such as whether there should
be a single consumption limit or different consumption limits
for different groups of consumers or different regions of the
country. Progress on other developments for the 1998 market,
such as information systems, are not dependent on the form or
the level of price restraints so final determination is not such
an urgent matter at this stage.
69. If price restraints
are set too high, they will not provide adequate protection to
consumers. On the other hand, as British Energy pointed out,
if PESs are required to supply at a rate where the profit margin
is too small, there may not be enough incentive for other suppliers
to enter the market.[152]
Therefore, we recommend that the Director General, in determining
the level of price restraints, seeks to strike an appropriate
balance between the need to protect consumers and the need to
provide adequate incentives to new entrants.
Code of practice on marketing
70. During the gas trials
in the South West some of the marketing strategies employed by
suppliers, and one company in particular, were less than desirable.
"According to the Director of Trading Standards for Devon
County Council, the complaints received in this regard probably
constituted the largest number of complaints ever received in
Devon and Cornwall about one trader in such a short period".[153]
As London Electricity told us, it is important that there is
no repetition of such events in 1998 as new and existing suppliers
compete for electricity customers.[154]
71. In response to a request
from the DGES, the Electricity Association is, in consultation
with the industry and consumer groups, drawing up a Code of Practice,
to which signatories will have to adhere. Witnesses were split
as to whether agreement to the Code should be mandatory or voluntary.
The Electricity Association and the Minister believed that the
Code should be voluntary.[155]
However, the ECCCG argued that it would be difficult to impose
sanctions against those in breach of a voluntary Code and therefore
favoured a licence condition to enforce acceptance and adherence.
We are not convinced that it is appropriate for the DGES to become
closely involved in the marketing practices of licensees; nevertheless
we are concerned that consumers should be adequately protected
against the sort of abusive marketing that occurred during the
gas trials. We recommend that the DGES ask the Office of Fair
Trading, in consultation with the Electricity Association, to
consider ways in which sanctions could be imposed upon those suppliers
who breach the Code of Practice on Marketing - whether full members
of the Electricity Association or not.
Meter readers
72. The draft Competitive
Supply Code at present states that persons entering customers'
premises to undertake work on meters should be suitable in terms
of training and expertise. The NCC argued that the definition
of `suitable' should also include consideration of any criminal
record. We agree. We recommend that the Director General
amend the Competitive Supply Code so that the provision relating
to persons entering customers' premises include consideration
of criminal records.
146 Aspects of the Electricity Supply Industry,
para 19. Back
147 eg.
Ev. p.51, 53. Back
148 OFFER,
The Competitive Electricity Market from 1998: Customer Protection,
Competition and Regulation, November 1995, para 4.35. Back
149 OFFER,
Competitive Electricity Market from 1998: Price Restraints,
January 1997, paras 2.24 and 3.1. Back
150 Ev.
p.89. Back
151 OFFER,
The Competitive Electricity Market from 1998: Customer Protection,
Competition and Regulation, November 1995, para 4.33. Back
152 Ev.
p.39. Back
153 Ev.
p.86. Back
154 Ev.
p.52. Back
155 QQ.127,
199. Back
