Examination of Witnesses (Questions 140-159)
22 JUNE 2004
Mr John Neilson, Mr Dave Barnes
Q140 Mr Clapham: You are happy that the
companies are making progress in actually adopting the guidelines,
are you?
Mr Neilson: We have not done the
full evaluation. The full evaluation will be done at the end of
the year, so I will be better placed to say at the end of the
year.
Q141 Mr Clapham: That is fine; but you
did hear what National Energy Action and Help the Aged had to
say. I asked a similar question about the guidelines, and they
were aware that the guidelines were already available and being
implemented. They thought that they could be helpful, but they
did not see any positive progress as a result of the guidelines
yet. It may well be, as you say, that we need time to look at
them, more time to evaluate them, but certainly they did not feel
that there were indications at the present time that they were
positive responses to them.
Mr Neilson: I think I would say
two things. One is that one of the reasons for launching this
in 2002 was that a lot of the companies had recently been reorganised
at that point; they had new management teams, there had been mergers,
and therefore we thought it was very important that the senior
managers who were now responsible were refocused on these particular
issues. It is not so much that the regulatory rules that underlie
the regime— like the one that says you can only demand payment
at the level that the customer can afford— are inadequate;
what is really important is that the companies actually deliver
on what the commitments are. When there has been so much change
in the industry we thought it was very valuable to refocus the
senior management on what good practice was. The second challenge
is: are the companies getting it right consistently in their application
week by week with thousands and millions of customers? That is
a continuing management challenge. We are certainly not satisfied
about that. We hear terrible examples of individual instances
where companies have done things that are clearly stupid, and
the right challenge—it has been challenged this afternoon—is
to what extent do we as a regulator proceed by encouragement,
by issuing good practice guidelines, and to what extent do we
use the formal regulatory tools? Clearly we have a mixture of
both at Ofgem. In a whole number of instances in the last two
years we have issued financial penalties where companies have
done things that were seriously wrong. We have done that for mis-selling;
we have done it where companies have objected inappropriately
to customers transferring, we have done it when people have run
a business that offers a very low quality of service; so I think
our approach has to incorporate both.
Q142 Mr Clapham: Given that at the end
of the year you will be in a position to analyse the guidelines,
is it likely that if you feel the guidelines are not being taken
up as well as you would like to see them taken up, that you may
move to suggesting a more wholesome strategy for the industry?
Mr Neilson: If we were not satisfied
with progress I am sure we would want to find the right way of
challenging them to do better, and there are a mixture of formal
and informal ways of doing that.
Q143 Mr Clapham: Finally could I ask
you about the Fuel Direct scheme. Why is it not made more use
of, can you say?
Mr Neilson: I share the opinion
of many witnesses that that is very disappointing, because we
think that for many customers who find it difficult to manage
their affairs, who are on benefits, the Fuel Direct scheme is
potentially a very useful way of helping them meet their obligations.
The reality is that the present scheme is extremely expensive
to administer. We think that the constructive way forward, especially
with automatic credit payment of many benefits now, should be
that those responsible for those systems need to invest in the
technology so that more electronic systems are available in future,
so that this kind of deduction, which goes wider than gas and
electricity, to some other bills as well, can be operated more
cost effectively. But as witnesses have said, that requires collaboration
of all the relevant parts of government to achieve. We have pressed
ministers on that subject several times in recent years, and we
are involved in a new range of meetings shortly with all the parties
who could contribute to that.
Q144 Mr Clapham: Could you tell us when
that meeting is?
Mr Barnes: We have undertaken
in our Social Action Plan that we are planning to have a seminar
bringing together the relevant parties— and that would include
the DWP, obviously, the Post Office, representatives from the
water industry, who obviously have an interest in making direct
payments work better— to look at what the options are for
a better scheme, and what the costs and benefits are.
Q145 Mr Clapham: Next couple of months?
Mr Barnes: Yes, certainly in the
next couple of months.
Q146 Mr Evans: You cannot be particularly
happy with the way it is going, though, can you, with the new
guidelines? Even with them, the number of disconnections has been
fluctuating, I understand has gone up, with electricity. So something
is not going right, is it?
Mr Neilson: The wide context is
a very big one, as some people have explained. About 1.2 million
customers in gas and electricity are in debt at any one time;
that is about five per cent of the total. Because disconnection
is the very last resort, the number of disconnections is about
one in every 1,000 gas customers each year, and about one in 25,000
electricity customers every year. The tricky issue that I think
people have been wrestling with this afternoon is if you have
that last-resort approach, what impact does that have on the overall
levels of bad debt in the industry? British Gas explained they
had a £62 million provision for bad debt, and the question
is, if you remove that last approach, what proportion of customers
would feel they had less incentive to pay their bill on time,
what multiple of £62 million would the bad debt provision
be in a few years' time? Those are the difficult questions, and
you would balance that, clearly, against the difficulties for
individual households.
Q147 Mr Evans: So they have convinced
you sufficiently that to ban disconnection completely, you would
never ban that?
Mr Neilson: We think the industry
needs to have very substantial safeguards to demonstrate that
it is responsible for them to have this approach of disconnection
as the last resort, and that is part of what all this exercise
is about, which is about making them be much more careful. In
particular they have promised not to use it for a sensible category
of vulnerable customers who are at risk. The industry have to
demonstrate that they can run their processes well enough that
it is justified to have this sanction; but if that is the case,
our view is that customers will be best served because the vast
majority of customers who pay their bills on time will end up
funding the bad debt provision; therefore the concern is that
if there is less incentive to pay, the proportion who are in debt
goes up from the five per cent at the moment, and those numbers
are an enormous multiple of the one in 1,000 or one in 25,000
who end up being disconnected.
Q148 Mr Evans: Do you agree that they
ought to be doing more?
Mr Neilson: Absolutely.
Q149 Mr Evans: Being more careful, being
more responsible, before anybody gets cut off?
Mr Neilson: Yes.
Q150 Mr Evans: You heard energywatch,
as I did. I am staggered to hear that six per cent, if that is
the right figure, of people who had already paid in one way or
another still got cut off.
Mr Neilson: Absolutely.
Q151 Mr Evans: Have you fined them because
of that?
Mr Neilson: No; but what I have
done is that I wrote to energywatch a little while ago and I asked
for the actual cases in the last six months which they had for
erroneous disconnections, because clearly if the companies are
getting that wrong in any substantial way we ought to investigate
that formally, and you would expect us to penalise them. What
we have done is we have asked energywatch for the hard evidence,
and we will clearly follow that up.
Q152 Mr Evans: So these companies may
well be on the end of fines?
Mr Neilson: Clearly we have to
have a proper process; we have to establish that these cases exist,
and find out what has happened. We have to find out whether or
not there is a systematic problem. We are committed to doing all
that; that is why we have written to energywatch to ask for the
evidence.
Q153 Mr Evans: What else do you think
could be done to help with all this? It is self-disconnections
as well which worry me.
Mr Neilson: Absolutely.
Q154 Mr Evans: That one is a real bad
one, because it never shows up until you discover two people dead
in their house.
Mr Neilson: The two people dead
in their house, that is the sad case why we are all here today.
I think the issue on ultimate disconnections is much more on gas
than electricity, as has been explained, and we think one of the
challenges for the industry is to be much smarter about what happens
on the day that they have the warrant and they go into the premises,
because the reason that they disconnect rather than fit the pre-payment
meter is this issue to do with having to check that all the appliances
are safe. That is quite intrusive into somebody's house. On electricity
it is simple; it is a five- or ten-minute job to switch the meter
over to a pre-payment meter; but to go into every room to check
that you have identified every gas appliance is potentially quite
a big task. We think the industry could be smarter at making sure
that, for example, the customer is there when this visit happens,
in which case it would be much easier to switch to a pre-payment
meter and avoid disconnection in the first place.
Q155 Chairman: How many of these gas
appliances are there? I am just trying to think: if I were to
go into my local Currys or Dixons and say "I would like a
gas appliance, please", apart from the central heating boiler
and the cooker you have to look hell of hard to find a gas fridge.
Not every room will have a gas fire, and the kind of households
we are talking about—you are not talking about Buckingham
Palace, you are talking about something fairly small. So do you
not think the gas company is actually kidding us, because the
number of gas appliances are not very many?
Mr Neilson: I agree; that is why
I specifically said we think a challenge to the industry is to
fit pre-payment meters rather than disconnecting more of these
gas cases. Some of these houses may well be old and have gas fires
in odd rooms, and the safety responsibilities on the people are
such that they do actually have to check what appliances exist.
Q156 Chairman: I am sorry, I have to
say that the degree of intrusion that you are talking about, in
my humble view, seems to be grossly exaggerated. You are not going
to be trailing through some mansion; and if you are, there are
other ways of dealing with the problem. I think really this idea
that somehow—the gas companies are not very slow to kick
people's doors in if they need to switch it off. Why do they become
all coy and—
Mr Neilson: I share some of your
concerns, and that is precisely why I said I think this is an
area that we can challenge the companies to do better.
Q157 Sir Robert Smith: Surely if it is
a choice of coming home to find someone has checked round your
house and fitted a pre-payment meter rather than disconnected
you completely—
Mr Neilson: You think you might
know which choice they would make. Absolutely.
Q158 Mr Nigel Evans: Do you want any
more powers?
Mr Neilson: Do we want any more
powers?
Q159 Chairman: You note there is a Conservative
member asking you if you want more regulation!
Mr Neilson: No, I do not think
we need more powers. What we do need is the help of all sorts
of bodies to solve this problem. That is not only the industry
to get their act together; we are also very reliant on the organisations
who deal with individual consumer cases to actually explain to
us what is going wrong, because under the way that the system
operates we do actually need hard evidence of problems to be able
to use our enforcement powers. So I think we need both the industry
to fulfil the commitments that they have given, and we need the
help of energywatch and consumer groups to give us the hard evidence
when things are not going right.
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