Examination of Witnesses (Questions 820-827)
MR SAM
LAIDLAW, MR
IAN MARCHANT
AND MR
RUPERT STEELE
24 JUNE 2008
Q820 Chairman: Mr Laidlaw has got
to come in now!
Mr Laidlaw: As Mr Marchant has
already said, it depends what snapshot in time you are looking
at. If you look back to last year when we were the first to reduce
our prices, our prices for that group would have been lower than
anybody else's. The reality is that the internet tariff that Mr
Marchant is referring to is a tariff that very few customers are
on. The real basis of comparison is our cash and credit customers,
who are some six million accounts, and our direct debit customers
who enjoy a discount. Our Essentials tariff actually enables all
our people who qualify for that tariff to participate in the direct
debit discount tariff. That is the lowest significant tariff that
we have. The outlier is an internet tariff that we have very few
customers on.
Q821 Roger Berry: Finally, does this
not suggest therefore that there should be a clearly defined social
tariff, and that it should be mandatory so that everyone knows
precisely what the minimum amount of support you should be providing
is, and how that minimum is actually measured? A bit like the
minimum wage—we know what it is; we know how it is defined;
and it is mandatory. Why should there not be a mandatory social
tariff?
Mr Marchant: I do not believe
there should be a mandatory social tariff, because that will stifle
innovation; but I do believe there should be a mandatory definition
of what qualifies as a social tariff, which is a different point.
Q822 Roger Berry: How does it stifle
innovation? It will help it.
Mr Marchant: No, because if you
say a standard internet tariff is X pence per unit, everybody
has to charge X pence per unit. It stifles competition and it
stifles innovation.
Q823 Roger Berry: The minimum wage
does not stifle competition. You have competition for the things
that are not mandatory?
Mr Marchant: If you mandated that
a social tariff had to be the lowest that you offered, I can support
that because that allows the market to innovate on exactly what
the social tariffs are, how they are targeted, how they are structured;
and it does not distort competition in the main market. If you
fix a mandatory social tariff you will absolutely stifle innovation
in the vulnerable customer sector.
Mr Steele: Not only that, the
way the Government has agreed this with the industry in terms
of a fixed target of money that we, if you like, have a commitment
to spend, that gives us an incentive to be innovative and effective
in our marketing to go and find the people who can benefit from
these tariffs. A mandatory social tariff which said we basically
had to sell at a loss to a particular group of people would reverse
those incentives, and actually give us an incentive not to find
those people.
Q824 Mr Bailey: I just want to talk
about the consolidation of the industry, particularly with the
European dimension. Centrica in its evidence to us said that it
was very concerned with consolidation in Europe. The question
I have got is: why is consolidation of the industry okay in the
UK but not in Europe?
Mr Steele: Which consolidation
do you mean? Do you mean the consolidation that happened around
2002 when lots of companies went bankrupt, or some other consolidation?
Q825 Mr Bailey: Perhaps it would
be easier if the representative of Centrica could answer because
it was them who made the point in the submission?
Mr Laidlaw: The point we were
making in the submission is a function of the fact that the European
competitive landscape is very different. Switching rates in Europe
are still very low. To give you the most stark example—there
are 20 million customers in the UK who are supplied by French
and German suppliers in the UK; Centrica is still not able to
sell to a single retail customer in France or Germany. You have
situations where the markets have not liberalised, and clearly
continued consolidation and the capture of monopoly rates by those
business enables them to build very strong positions in which
to penetrate the UK. The UK market is very different. The UK market
has liberalised; 40% of the generation is outside the Big 6. There
are multiple different suppliers and, therefore, I think it is
a different landscape.
Mr Marchant: I think that the
structure of the industry in Europe is largely regional geographic
monopolies, and consolidation effectively is a land grab to those
regional monopolies over a larger area. That is the first thing.
Effectively it freezes more of the market if you see consolidation
in Europe. The second half of your question—what about the
UK—you said consolidation would not be (inaudible); I would
challenge that. I believe that our current generation supply markets
are fully competitive. If there was any move to consolidate either
of those markets through any transaction we absolutely need to
understand what the impacts on the issues we have been talking
about this morning are. I do not think it is a slam-dunk that
any consolidation would get off scot-free. I think there are some
serious issues that would need to be asked. That is why we have
a merger control process. That is why we have regulatory investigators
both at the UK and EU level. Absolutely right, because we need
to make sure that both our generation supply markets remain competitive.
I am not sure it is right to say that consolidation in the UK
would be okay. I think it would absolutely need to be addressed.
Q826 Mr Bailey: You have partly anticipated
my other question, which was: would you favour any further consolidation
in the UK market? I would gather that you would not?
Mr Marchant: I am not saying I
am against it. I am saying that each particular sort of consolidation
raises different questions. Some might be acceptable; some would
not be acceptable. You need to look at the specific circumstances
at the time. I think any consolidation would require those questions
to be asked.
Mr Laidlaw: I would agree with
that. I think you have to look at the circumstances at the time.
I think the OFT in the past has studied the competitive dynamics
both in generation and in supply very carefully and would scrutinise
it very carefully. I think the mechanisms are in place in this
country to ensure that there remains good competition.
Q827 Chairman: Gentlemen, it is frustrating
because there is so much more I would like to ask. I would like
to question you particularly about physical generation because
I think you trade to balance your positions not what the market
really needs, for example, an issue we might discuss subsequently.
We are where we are, and we are over time already for our next
three witnesses. Thank you very much indeed. If there are other
issues you feel we have not addressed, or issues which have arisen
you would like to clarify, further written notes are welcome but
urgently, please; we aim to get our report our quite early in
the summer.
Mr Laidlaw: I am gratefully for
the time. Thank you very much.
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