Examination of Witnesses (Questions 40-59)
POSTCOMM, OFCOM
AND OFGEM
Q40 Dr Pugh: The reason I raise it
is that there appears to be very little competition in my constituency
where we are more or less bound to go to Scottish Power which
has inherited the Manweb infrastructure. It is currently holding
up a development because it demands a substantial amount upfront.
When I investigated it I found that not just in my constituency
but in other places it was demanding large sums of money before
beneficial commercial development which provided employment could
go ahead. To me that is a serious concern. I would like to believe
that they could walk away from Scottish Power and find somebody
else.
Mr Buchanan: They should be able
to. I am happy to take that case offline and pursue it.
Q41 Dr Pugh: But across the piece
is there much competition in the field of core utilities?
Mr Buchanan: Yes. Certainly, with
regard to a new factory or housing development one would expect
the opportunity for competition. I am concerned by the phrases
you have used with regard to the potential of the local company.
Q42 Dr Pugh: I am told—I cannot
vouch for it entirely—that in many parts of the South East
some of the core utilities which are different companies in this
case by and large recover some of the costs of the infrastructure
on the tariff and therefore do not ask for large sums of money
upfront. If in an area like the North West, which needs industrial
and commercial development, you find that developments are being
stymied and delayed by the demand for substantial sums or prolonged
negotiation that is an issue, is it not?
Mr Buchanan: It is. If there are
specifics here that I can follow up I should like to do that.
Q43 Dr Pugh: As to accountability
to the consumer, we know about people's bills, prices and whether
or not the electricity is on or off. There are other issues to
do with accountability with regard to problems that may be generated
and how the various utilities deal with them. That question could
apply to Ofcom as well as to Ofgem. How do you investigate these
and assess how happy people are with the problems they encounter
and how well they are dealt with?
Mr Richards: We do it in a variety
of different ways. First, every year we research across the whole
of the UK how satisfied people are with different aspects of their
communication services, looking at mobile, fixed, broadband and
so on. We ask them a range of questions and publish that.
Q44 Dr Pugh: That is random sampling?
Mr Richards: This is a statistically
reliable sampling of the whole country. By and large, the story
we have had over the past few years is that people are pretty
content. It is not perfect, but the level of satisfaction with
communication services is high.
Q45 Dr Pugh: But do they always know
who to blame? To give you an example, I endeavoured to put broadband
into my office in the House of Commons and there was an enormous
problem. Part of the rationale for it not being delivered on time
was that BT was not doing something. The other explanation was
that our own people internally were not doing something. There
seemed to be no mechanism for resolving it until a very nice BT
man arrived and did things that were way beyond his contract.
To refer to another issue relating to Ofgem, United Utilities
in my own constituency disowned any responsibility for shared
drains on domestic property installed prior to 1937; in other
words, it denied that it had the responsibility which it did.
Neither I nor my constituent in that case really knew who was
to blame and how to get assistance.
Mr Richards: As to the other half
of what we do apart from research, we have a call centre that
responds to people who communicate with us about this kind of
thing. The course of events that we advise people to take is that,
first, if they have a complaint or concern they should talk to
their service provider and try to resolve it by that means. If
they are not satisfied with that they should take it to one of
the two alternative dispute resolution mechanisms: Otelo or CICAS.
They have a right to do that. If that is not satisfactory then
ultimately they can come to us. There is a clear mechanism in
place so that can happen, and every communications provider must
be signed up to one of the dispute resolution organisations.
Q46 Dr Pugh: That is only if you
know with whom you are in dispute. What I am arguing for is a
more proactive approach to assessing what sort of service customers
get other than simply asking about satisfaction across a range
of indices. To move on, United Utilities was fined a substantial
sum some time ago for using their companies and avoiding ordinary
tendering regulations. Can you tell me what exactly was wrong
with that? How does that differ from ordinary commercial practice?
Mr Buchanan: Was this on the water
business?
Q47 Dr Pugh: Yes. It used its own
companies to do work. These were not necessarily core activities,
but nonetheless they had sub-companies which they then employed
as United Utilities and I believe you fined them quite heavily
for it.
Mr Buchanan: That may have been
Ofwat, but in terms of the relationship with companies under our
network price controls effectively we require such arrangements
to be clearly done at arm's length and are visible and that there
can be no sweetheart deal done between affiliate and parent companies.
United Utilities has a company which effectively offers operational
service products to other companies: Welsh Water, Scottish Water
and Northwest Gas where I come into it. This is very important
when looking at the costs that the consumers in the network companies
have to bear. That must be transparent. I cannot help you with
the case because I do not know the details.
Q48 Dr Pugh: There is a requirement
for absolute transparency?
Mr Buchanan: Yes.
Q49 Dr Pugh: Turning to Postcomm,
quite recently I have received a lot of indignant letters from
Royal Mail about you. It appears to suggest that if you carry
on as you do you will doom the universal service commitment; it
simply will not be able to deliver it. Obviously, negotiations
are taking place over a range of things like zonal pricing and
so on. If in the end it cannot and it turns round and says that
that is because you have regulated it in this rather than that
way will you accept responsibility, or could you be responsible?
Ms Chambers: It is our primary
statutory duty to ensure a universal service and that is what
we spend all our time doing, so it is something that we take very
seriously. The relationship between ourselves and the chief regulated
company is inevitably not always completely smooth. On zonal pricing,
for example, it felt that we ought to relax the pricing structure
that existed whereby its bulk business products were priced on
a uniform geographical basis. It applied for a system of zonal
pricing which in theory we might have thought was fine but when
we looked at it contained a number of discriminatory elements
and it was quite apparent that it had done nothing to discuss
with customers whether that new pricing structure was in anybody's
interests.
Q50 Dr Pugh: But is not the situation
now that it is genuinely struggling? A recent OFT report said
that competition was not delivering any substantial benefits at
the moment?
Ms Chambers: It was not an OFT
report but the preliminary report of the independent review panel
set up by BERR. It has said that competition has benefited big
business customers but we have yet to see much benefit from competition
for small customers, which is largely true. I think there have
been some benefits but not much yet for small customers.
Q51 Dr Pugh: It is currently struggling
and small customers are not benefiting. Does that not show that
have got the regulation wrong here?
Ms Chambers: It is struggling
for a number of reasons. I do not believe that the reason it is
struggling is regulation; the main reason is that the market is
changing and people are beginning to use the Internet instead
of the mail for certain types of communication. Other postal companies
around the world have moved on and put in quite a lot of automation,
changed their ways of working and become a lot more efficient.
Royal Mail is trying to do so but at a rather slow pace and so
its profits have come down considerably. Things need to change.
It is not regulation that is doing Royal Mail in as much as what
is happening out there in the market with customers being a little
more sensitive to rising prices. It has begun to realise that
it just cannot put up prices and expect volumes to track with
it. When it puts up prices volumes come down and that is what
causes it a problem at the moment.
Q52 Dr Pugh: The Report says that
vulnerable groups find it more difficult to switch, not least
by the choices in front of them, cannot take advantage of direct
payments and get more billing errors on things like prepayment
meters and so on.
Ms Chambers: That is energy; there
is no prepayment in the case of Postcomm.
Q53 Dr Pugh: I am not asking about
Postcomm specifically. Does it not show that the entire regulatory
regime has failed vulnerable customers?
Mr Buchanan: I would argue not.
Q54 Dr Pugh: On what basis?
Mr Buchanan: On the basis that
the national average is just short of 50% in terms of switching
and trying to pick up the benefit of typically a £100 to
£150 differential. Single parent families are at 55%, so
that element of the vulnerable community has clearly switched
to those opportunities. Sadly, only about 35%—it is a target
that we have to focus on—of the over-65 group focus on those
opportunities, and prepayment meters are just shy of 40%. To focus
on prepayment meter customers, at the moment they are the subject
of great concern and are part of our probe review. There has been
a very strange price differential growth in the past year which
we will investigate and come back to. In terms of prepayment meter
customers, we want to give them confidence when we publish our
review as to why that differential has occurred. About a year
ago we decided that we wanted a marketing campaign to seek to
promote the opportunities for switching. There was certainly a
good response from prepayment meters, so there is an element of
marketing and campaigning there which must be worked on as well.
As we announced at our fuel poverty summit a couple of weeks ago,
we are working with the Citizens Advice Bureau to make sure that
the staff at the CAB have the best information and are trained
in the way they can get the best deal in the marketplace for vulnerable
customers. We are trying to be very active in this area. Towards
the end of May the DWP and the Department for Business, Enterprise
and Regulatory Reform—I hope I do not steal their thunder—will
be announcing additional measures which will help vulnerable customers.
We held that summit during the period of purdah.
Chairman: What we see in appendix 7 on
page 60 makes for pretty depressing reading: 5% of gas customers
are not aware that they can change supplier; 40% of fixed telephony
customers could name only one or no suppliers; and 55% of customers—I
fall into this category—believe that life is too short to
worry about saving a few pounds here and there.
Q55 Mr Mitchell: Deregulation has
been a disaster, has it not? Here we have vulnerable consumers
who often do not understand what the situation is turned loose
into a pool of sharks and are dependent on gutless regulators
like yourselves occupied with statistics and an academic view
of the subject and have done all too little to protect them. What
is the benefit from all this?
Mr Buchanan: I think there are
substantial benefits for those who have switched and substantial
enhancements of the products that are available, depending on
what you want—fixed, floating, prepayments or not prepayment,
online or offline. In terms of vulnerable customers, we are concerned
about the quality of information.
Q56 Mr Mitchell: What proportion
of your customers do you recognise as vulnerable? Can you put
a figure on it?
Mr Buchanan: Typically, we look
at the fuel poor. Very worryingly, the fuel poor we believe are
between four and five million.
Q57 Mr Mitchell: In paragraph 3.23
it is said that, "A `vulnerable' consumer is one who finds
it more difficult, due to their particular circumstances, to take
advantage of a competitive market. Consumers may be vulnerable
for a variety of circumstances, for example economic status, inability
to access the internet, physical disability, a lack of knowledge",
or, in the case of our Chairman, a belief that it is all too unimportant
to bother about. What proportion of customers do you reckon are
vulnerable on that basis?
Mr Buchanan: Typically, the vulnerable
customer level would be another two or three million above the
fuel poor figure. It is a large proportion; one is looking at
between four to six million customers.
Q58 Mr Mitchell: They are paying
the cost of all this because the smart consumers—those who
believe it is important to chisel little economies out of the
system or have power in the market to get themselves a better
deal—cut their costs, which must imply that further costs
fall on the vulnerable who are left carrying the can for all this.
Mr Buchanan: One of the concerns
about a solution that is potentially the equalisation of tariffs—-
Q59 Mr Mitchell: But are vulnerable
consumers carrying the can for all this?
Mr Buchanan: There is no evidence
for that—unless you happen to be a customer who is on a
prepayment meter.
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