Examination of Witnesses (Questions 40
WEDNESDAY 28 FEBRUARY 2001
40. I notice that on page 28 the National Audit
Office, and there is also a reference to the DTI Report, says
that the perception of risk is one of the deterrents to people.
Do you not feel that the details of mis-selling publicised in
papers are a big deterrent to people to transfer?
(Mr McCarthy) Yes, we do, and that is why we have
taken action against the companies who have bad records and why
we will not hesitate to take action in future, and why we have
stiffened the licence conditions in order to ensure that mis-selling
is reduced as much as we can.
41. The NAO Report says that an estimated £674
million could be saved by existing consumers who have failed to
switch and, therefore, anything that lifts the barrier to switching
is important because I would have thought that if that money is
in the pockets of the utility companies at the moment, the electricity
companies in this case, the Chancellor might well be eyeing this
(Mr McCarthy) I am very keen to ensure that as many
people as possible know about the advantages of switching and
know about the ease of switching. The work done by the NAO and
done by MORI, which we do every year, to find attitudes showed
that 70 per cent of people believe that switching is very easy,
just under 90 per cent of people who switch find the process very
42. Have the price gains by consumers been achieved
at the expense of poorer services?
(Mr McCarthy) There is no evidence of that. If I could
just return to Mr Steinberg's comment about the equivalent of
a car with a rattle, one of the things is when you change your
supplier, subject to the continuing existence of the supplier,
the electricity is the same electricity.
43. Let me stop you there. You say there is
no evidence but you have signed up to a report that says in paragraph
2.12 "In the year to July 2000, electricity customers who
had changed their supplier made 7,900 complaints about ongoing
services, mostly concerning delays in receiving bills or arranging
direct debits, and the accuracy of bills." I return to my
question: have price gains by consumers been achieved by the provision
of poorer services? For up to 7,900 people that would appear to
be the case.
(Mr McCarthy) No. I believe that it is undoubtedly
the case that people who transfer, because they are doing something
which inherently raises a series of problems, are more likely
to have complaints because if you do not transfer you do not have,
for example, a new source of billing, you do not have a problem
about changing from one meter reading to another, and a number
of other things. I do not actually take that as evidence that
the service from new providers is worse than the service from
44. So the six times greater volume of complaints
from customers who have changed their supplier as against those
who have not, you do not think reflects poorer services?
(Mr McCarthy) I believe that the probability of your
getting uninterrupted electricity supply is not affected
45. That is a very narrow definition. Would
you like to expand on that definition?
(Mr McCarthy) Sorry, I was making a distinction between
that and the problems which are inherent in changing from one
supplier to another, such as billing questions that arise, but
I would say that I think overall the trend on the problem of transfer
as evidenced by complaints is absolutely in the right direction
and transfer complaints with both gas and electricity per 1,000
transfers are falling.
46. Two groups lag behind, the Report says,
in taking advantage of lower prices, the poor and those living
in rural areas. Only 20 per cent of people with incomes under
£9,500 as against 30 per cent of people earning over £25,000
have done the switch, and rural area inhabitants are less than
half as likely to switch. Why is this?
(Mr McCarthy) I think there are very different reasons.
If I can take rural customers first, I think there are two reasons
that probably lie behind the NAO figures. The first is that we
know that most of the people who switch, more than three-quarters
of them, switch to a dual fuel, ie a gas and electricity combined
offering and, by definition, because of lesser spread of gas in
the countryside that is available to a smaller proportion in the
47. You have got me on a theme that I would
like to dwell on and that is gas as the major competitor. Your
regulation at present seems to be facilitating competition and
choice in gas to existing customers and seems to deter non-gas
customers from being able to sign up because they have got to
pay the full costs and do it in their life-time rather than spread
it either over the whole system and all consumers or future buyers
of gas in their own homes.
(Mr McCarthy) Could I answer the first question and
come back to the connections question. In terms of the second
reason for the problems of rural customers, the most effective
way of marketing, particularly to the lower income groups, is
doorstep selling and doorstep selling is most effective when houses
are close together and, by definition, they are not very close
together in the country. Because of those two reasons there is
some evidence of a problem, though the evidence that we have from
MORI suggests that it is less of a problem than does the NAO evidence,
about getting competitive offerings available in the countryside.
We recognise this as a problem and we are taking a number of steps
with particular groups aimed at making sure that the knowledge
of the competitive offering is properly spread through the countryside.
We are doing that through ACRE and the Women's Institute and other
48. I understand that there are more than 400
communities greater than 150 dwellings and over 1,300 communities
greater than 300 dwellings which are off gas and 1,200 of these
are within two kilometres of a gas main, but your regulatory system
does not give any incentive for those people to be signed up.
(Mr McCarthy) One of the things that we are looking
at is the pricing and costing system that was inherited from the
nationalised industry of connections pricing to see whether there
are unfair disincentives in connection with pricing. It is also
one of the things that in terms of the fuel poverty work, the
conclusions of which were announced last Friday, where the DTI
is setting up a working group to look at that on which we will
Mr Griffiths: That is the best answer you have
given so far to the Committee. I will leave it there.
Chairman: Thank you. Mr Geraint Davies?
49. A constituent of mine, and this is one of
many examples, a Mr Terry O'Brien, approached me to say that he
had an erroneous account similar to Mr Steinberg. He was with
British Gas, he suddenly found a bill from Npower, and the next
thing that happened is British Gas threatened him with court action
to finalise his arrangement. He had not signed anything and knew
nothing about it. How widespread are examples like that and are
you sure that you know about all of them?
(Mr McCarthy) If I can answer the last part, no, I
am absolutely sure that I do not know about all of them. This
example was drawn to our attention in July 1999. We immediately
referred it to BGT. It is, as you say, a question of erroneous
transfer for Mr O'Brien. It should not have happened. It was a
mix-up between two companies.
50. He was quite baffled by being told he was
an "erroneous account", he thought he was on ordinary
person. He was quite annoyed when he came to see me.
(Mr McCarthy) The only consolation in this unhappy
story is the fact that he received £100 off his bill from
BGT and a substantial reduction has been offered to him from Npower,
who are the two companies involved, but it is a bad story.
51. I am glad you have done your homework. It
is like Prime Minister's Question Time. In terms of one complaint
in a 1,000 or whatever the complaints you are quoting there, are
they complaints to you and to energywatch or the totality of all
complaints to all gas and electricity companies?
(Mr McCarthy) They are just the complaints to Ofgem
52. When you say only one in 1,000 complain,
you do not know how many people complain?
(Mr Neilson) We do monitor how many erroneous transfers
happen in the industry.
53. How do you do that?
(Mr Neilson) We collect the statistics from all the
54. They tell you, so you do not get them from
the customer? If in this case it was not raised through Ofgem
and had been resolved by the relevant companies, would you have
(Mr Neilson) It would have been incorporated in the
statistics from the companies.
55. You would know about erroneous accounts,
clearly somebody's gas supply illegitimately transferred, and
all the rest of it, but would you know about normal complaints
to the gas company? You might sign something and not be happy
and you might phone up and say, "I have not signed anything,
there is a problem here", that is resolved, for argument's
sake, would you know about that? That is not in your one in 1,000?
(Mr McCarthy) That would depend very much on the facts
of the case and whether that was resolved amicably or not.
56. Would you know Jerry Steinberg's two complaints?
I guess you would, it has already been said you know erroneous
accounts. On the issue of doorstep selling there is widespread
concern in the community about commission-led pressurised sales
on vulnerable people because, let's face it, who is at home in
the day, a lot of those people are pensioners, many couples who
work are not there, and they are being pressurised into doing
things they would not want. I have had one person who was approached
by the gas company saying, "Will you take the electric?"
"No." "Will you fill in this form about market
research?" "Yes." A week later they get a thank-you-very-much
letter for becoming one of our new customers. They go to the Citizen's
Advice Bureau, they sorted it out, and two weeks later another
letter, more pressure. There is no reason to think that you or
energywatch would have got that letter. There is every reason
to think this is the tip of iceberg, is there not?
(Mr McCarthy) Could I expose to you the question that
worries us very much about direct doorstep selling and the sort
of criticism that you are very fairly putting forward to it. There
is no doubt that doorstep selling has been the most effective
means of making people aware of the advantages of competitive
offering. It has been particularly effective for making it available
to those who are on the lowest incomes, so we do not want to stop
doorstep selling. We do want to make sure it is done effectively,
well, honestly, and the best way of doing that is ensuring that
the companies manage their workforces very fiercely and toughly.
57. Can I stop you for just a second. My worry
is that of the six million people who have changed electricity
supply (the average saving is £45) but 90 per cent of those
people could have got a better deal if they shopped around, but
they bought from the first door-to-door salesman or woman who
came along. Does that not worry you?
(Mr McCarthy) It worries me, but truthfully not as
much as all those people who have not transferred because the
fact is that both in economic theory and in real life people satisfice,
ie they do not always go around optimising the very best solution.
58. No, they do not, but is there a facility
to enable them to optimise through more direct intervention and
clarity in terms of best value?
(Mr McCarthy) Absolutely. That is why we produce,
from Ofgem, detailed information, regularly updated, on the price
offering that exists. That is why we get something like 45,000
hits on our website every month and with people downloading that
59. On your Ofgem website?
(Mr McCarthy) Yes.