Examination of Witnesses (Questions 123-139)
22 JUNE 2004
Mr John Neilson, Mr Dave Barnes
Q123 Chairman: Good afternoon, Mr Neilson.
Welcome back to the Committee. You have been here before, but
I do not think we have met your colleagues, and I think that Ms
Frerk was supposed to be with us, but is not.
Mr Neilson: Let me introduce them.
On my left is Iain Osborne; he is the Director of Consumer Markets
at Ofgem; and on my right is Dave Barnes; he is our Head of Social
Issues.
Q124 Chairman: Maybe we could start.
I think you have been in for most of our session. We have been
considering this question of the marked decrease in the number
of disconnections, but even then a disconnection for a debt is
a problem that the companies quite clearly take seriously, and
I suspect that the tragedy that occurred last year was obviously
a consideration. How big a problem do you think it is? I realise
you have produced these guidelines, but how seriously do you think
companies take this, or is debt such a tiny percentage of the
turnover that it is more cost-effective just to ignore the problem
or not to worry too much about it? How do you perceive the attitudes
of the companies in this?
Mr Neilson: We certainly take
it very seriously, and clearly it is serious for every single
household which ends up getting disconnected. Disconnection should
be very much the last resort for companies, and the regulatory
framework involves very substantial safeguards for companies before
they ever get to the point of disconnection. Companies have to
offer a wide variety of ways of paying. If there is a debt they
have to set the level of repayment only at the level that the
customer has ability to pay. This is something that has not been
discussed this afternoon, but I think it is very relevant, because
it means that if a customer is reliant only on basic benefits,
then not more than £2.80 a week can be demanded by the energy
supplier for the repayment of a debt. The option of disconnection
only comes in at all if the customer fails to follow a pattern
of debt repayment; so if a debt arises for any reason, the company
must offer a schedule of repayments at a level that the customer
can pay. If for some sad reason that goes wrong, the company has
to look at the option of a pre-payment meter in every case again
before they get to disconnection.
Q125 Chairman: One of the reasons we
are having this inquiry is to look into your document which you
have drawn up along with the power companies. But this is really
your second bite of the cherry, is it not, because you produced
something in 2002 with energywatch?
Mr Neilson: Yes. In 2002 in collaboration
with energywatch we produced best practice guidelines on the whole
wide subject of debt and disconnection. It was about how the companies
can help customers avoid getting into debt in the first place,
and then if that happens, how they best help them to manage it.
So that is a very broad subject, and about five per cent of customers
are in debt at any one time. Following the tragedy of the Bates
case our Chairman challenged the chief executives of all the energy
companies to say "This must not happen again. Come up with
a further set of proposals that deal with vulnerable customers
in these circumstances". So that is what happened, and quite
quickly in April the industry did publish their proposals to identify
and look much more proactively for vulnerable customers.
Q126 Chairman: Could I just get this
right. What is your association then with this publication? Has
it happened with your approval, or have you endorsed the document,
or is it simply the views of the electricity companies as to how
they would want to address things?
Mr Neilson: We challenged them
to do something. They produced proposals; they talked to us in
the preparation of those. We thought that those proposals represented
a valuable step forward, particularly for the first time the companies
saying that they would look at very much for these vulnerable
customers and they would find an alternative in every case to
disconnecting them. We thought that was a helpful step forward;
therefore when they were published for consultation we sent out
a letter to every interested party saying "We want to know
everybody's views and we will listen to the consultation responses".
Q127 Chairman: So it would be wrong—earlier
on I perhaps suggested that you had colluded with them, if that
is the right word, or cooperated with them, in the preparation
of it. You have merely, having received the document, said "Well,
that's an agenda. Let's hear your views on it"?
Mr Neilson: We challenged them
in the first place. They came up with the proposals. We did talk
to them and give them some comments before they published their
proposals, and, as I say, we did think that they were a valuable
step forward; but it is the industry's document.
Q128 Chairman: Given that the last time
round it was energywatch `wot did it', to coin a phrase, out of
ten who would you give most marks for, energywatch or the energy
companies? Which is the better document? Compare and contrast.
Mr Neilson: What, between the
evidence you have had today?
Q129 Chairman: The document you have
had today, the document we are discussing at the moment, or the
document that was produced two years ago in conjunction between
yourself and energywatch, which one would have thought might well
have prevented the need for your Chairman to require publication
of this document.
Mr Neilson: The 2002 document
was the beginning of a process. It followed a group involving
energywatch, us and the industry, to say what are all the elements
of good practice on debt and disconnection, as I say, across a
very wide range of issues, much wider than the narrow ones which
are the industry's proposals this year. The point of producing
good practice guidelines, you do not get very many marks out of
ten for producing good practice guidelines. What matters is whether
the industry go on and do something that is useful. We published
some indicators and we are doing a review at the end of this year
about how much those good practice guidelines have been followed;
so I think the proof we will test at the end of this year. I think
for the specific issue of the vulnerable, there were three elements
that were very useful in what came out in April. First of all
there was the new protection for the vulnerable in terms of finding
alternatives to disconnection. That was the first time that had
been said. The second element, which we had quite a part in, was
getting better definitive guidance out of the Information Commissioner
about how to solve problems of data protection so that the industry
can actually responsibly talk to charities, third parties, voluntary
organisations and social services; and I think that was a positive
step forward. Third, the industry defined quite carefully how
its safety net would work. Again, the proof of the pudding is
entirely in the eating. The challenge for the industry now is
to demonstrate that the commitment that they have made is actually
followed through, and that will require a great deal of hard work.
They will have to train all their front-line staff, retrain them,
and then they will have to demonstrate to us and to all the other
groups that have given evidence that they are getting it right
on the ground.
Q130 Linda Perham: About the proposals
for consultation and particularly about vulnerable customers,
I think we were told there had been 30 or 40 responses. Are you
aware of what the response has been to the proposals about vulnerable
customers?
Mr Neilson: Yes, we are, and I
think they are already published on our website, so that hopefully
everybody can see them. In terms of the definition of `vulnerable'
we think the most important issue that is being raised is the
issue of the household. As the ERA said, if there is a person
who is vulnerable who would be at risk in a household facing disconnection,
then it is clear that the energy companies need to take great
care about such households, and I think that the proposals that
were published in April certainly need to be clarified to make
very clear that that is the case.
Q131 Linda Perham: So that does not happen
now?
Mr Neilson: I think a lot of this
is starting to happen in practice, but what will need to happen
is the industry will need to retrain all its staff thoroughly
so that it happens systematically every time in all the thousands
of conversations they are having each week about debt, and that
is going to take a few months, and that is a big challenge for
the industry to get right.
Q132 Linda Perham: I did ask the first
set of contributors about this business of warrants, where magistrates
generally ask if there are vulnerable people in the household,
particularly children, and I am thinking—and perhaps you
are—in this case of a household where the person who is
not paying is an adult of under 65, and there might be an elderly
grandfather or somebody who might be living there. So that is
something you are saying should be taken account of now, but perhaps
is not consistently at the moment?
Mr Neilson: I do not think that
was clear enough in the April document. I think that energywatch's
comments are helpful in saying that the companies ought to have
very good processes, signed off at an appropriately senior level,
to demonstrate that a warrant is justified. I think that is a
very fair challenge to set before the industry.
Q133 Linda Perham: You talked about training
staff to identify those people. You may have heard the views of
NEA and Help the Aged about the proposals, because they were on
just before you, and one of the things they do highlight in their
evidence is about referrals to social services; what would actually
be the point of that unless social services could help with some
payment proposal, and obviously social services are considerably
overworked anyway. Is it your view that you would just really
want to facilitate getting the debt paid, or is there some other
role that could be played, other than the referral to an agency,
a charity or social services?
Mr Neilson: I think that was another
important outcome of the consultation, which is that perhaps there
was too narrow an emphasis on social services in the April document.
I think the companies need to have a wide range of partnerships
with groups who deal with vulnerable people. Many of them will
be charities or voluntary organisations as well as social services.
The sort of help they can get is identifying maybe family people
who would be able to assist the vulnerable person, who may not
live in the premises, but social services or the charity might
be aware that they are in touch with that particular household.
So I think there is quite a wide range of help. My colleague Mr
Barnes has had detailed contacts with the social services directors'
organisation to clarify the sort of help that would be available.
Q134 Linda Perham: The definition that
has come up for vulnerable customers, are you happy that that
would cover most or perhaps almost all the people that might be
identified as being at risk?
Mr Neilson: That is the intention,
that it covers all people who are genuinely at risk, be it because
of the sort of infirmity or mental capacity or disability, yes.
Again, I think if we had written the definition we would have
used slightly different words, but I think the emphasis on those
who are genuinely vulnerable because they are at risk is a sensible
emphasis.
Q135 Linda Perham: Could I go back to
something you answered in response to the Chairman, about how
much people pay back a week. I think £2.80 was the limit
for people on a benefit. Do you then have an ideal length of time
that it should be paid back in, or are you saying if someone could
only afford £1 a week that they would be paying the debt
back for a very long time?
Mr Neilson: Yes, the system does
involve potentially some people paying back for a long time. The
purpose of the £2.80 is to provide guidance for companies
about what someone who is on basic benefits can reasonably be
expected to pay back by way of debt.
Q136 Linda Perham: Do you ever write
off debts, as opposed to not being able to collect them?
Mr Neilson: That is a matter for
the companies, but I think I heard the companies saying yes, they
did in some circumstances.
Q137 Linda Perham: Sorry, I should have
said "Does that happen?".
Mr Neilson: I understand it does,
yes.
Q138 Chairman: One small point. You mentioned
the words used by ERA in their paper as a definition of the vulnerable,
and you said you would use different words. Was it different words
or more words? Do you think they are wide enough in their definition
of vulnerability?
Mr Neilson: I think the main issue
is the one we have just talked about, which is we clearly have
to get the industry to think about the whole household, not just
the consumer, and the way that the April definition is framed
it talks in the first line about "the customer", and
I think the definition ought to be clearer, that the companies
have to look at the entirety of the household who are at that
address.
Q139 Mr Clapham: Mr Neilson, in your
answer to the Chairman regarding the guidelines that you issued
in 2002, and the consultation document that has been drawn up
between yourselves and the ERA, is it correct that you are giving
the impression, I think, of the guidelines being evolutionary,
in the sense that one can add to them as information becomes available.
Would that be correct?
Mr Neilson: Yes. They are quite
an extensive document. They are under six headings, so there are
all sorts of ideas. The first one is minimising billing errors,
and there are about 20 bullet points under that, so they are best
practice guidelines. You would not expect every supplier to be
doing every one of those. What you are looking for is the suppliers
acting responsibly to have an overall approach that clearly incorporates
best practice.
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