Examination of Witnesses (Questions 600
- 617)
TUESDAY 15 MAY 2007
MR ALISTAIR
BUCHANAN, MS
SARAH HARRISON
AND MR
CHARLES GALLACHER
Q600 Mr Davidson:
No, that is my job, but if we then say you have a role in that,
as a regulator, you surely ought to be saying, "this is something
that the companies ought to be doing in conjunction with DWP;
why is it not being done?"
Mr Buchanan: Sarah, in her defence,
has done just that.
Ms Harrison: I could not agree
with you more. We very much see our role as holding the ring sometimes
and debating these areas, and we have something we call our Social
Action Strategy Review Group, which is a group of people and ourselves,
where we bring together the energy companies and bring in DTI;
we involved the Scottish Executive in the winter initiative that
we were talking about earlier—all those key players—and
the Treasury from time to time when we were talking about financial
services and access to financial services—to try and bring
together all the agencies that have a very important part to play
here. But on Fuel Direct specifically—and this was before
my time and I take no credit—my colleagues on that social
strategy review group and its predecessor, very much led the initiative
with the industry to try and put more pressure on the DWP. Our
Chairman, John Mogg, made a number of visits to DWP ministers
to try and urge a reinvigoration of the Fuel Direct mechanism.
I am afraid it came to naught, but that was exactly an example
of where we had a strong leadership role to play and where we—
Q601 Mr Davidson:
Right, I can see that you do not have—possibly quite correctly—responsibility
for directing the DWP, but you do have a role, presumably, in
directing rather than just persuading the energy companies in
this sort of work. While you might not be able to operate a Fuel
Direct system without the cooperation of DWP, it is quite possible,
is it not, for you to lay instructions on the energy companies
to do far more in this area? The constant impression we get is
that you are not really interested in this area as much as we
would want. That, maybe, you could say is an unfair impression
but it obviously has not come out of the blue, and people have
fed back to us that that is their impression of these things.
We just get the impression that you are pretty weak when it comes
to putting pressure on the energy companies to look after the
poorest consumers. Does that seem unreasonable to you?
Mr Buchanan: I think it is unreasonable
because, as we outlined earlier in brief, we have a remit within
which we operate. We have social guidance given to us by the Secretaries
of State. We have a vulnerable customer duty. Our primary duty
under the Utilities Act is to promote and protect consumers through
market and competition, but we have these other responsibilities,
which we do take extremely seriously. What we discussed a little
while back was that when we look at our policing powers, effectively
our tough powers, what can we do? We have two sets of powers.
One is enforcement power. We threatened enforcement very successfully
to get rid of back billing and very successfully to bring an ombudsman
into place, and quite successfully—and we have not really
spoken about pre-payment metering and recalibration but I am happy
to do that—quite successfully there. We then have informal
powers—
Q602 Mr Davidson:
I am sorry, but before I lose this point, this question of enforcement
powers: how can it be, if you have enforcement powers that you
are less than totally successful? If you have enforcement powers,
you force them to do it. How is it then that in that area some
companies are not doing as you would wish?
Mr Buchanan: I did not make myself
clear then. In terms of the pre-payment meter, we are going to
put in a licence condition with the supply licence review—
Q603 Mr Davidson:
You do not have those powers just now?
Mr Buchanan: We do not, and so
we are going to put those powers in place. Where we do not have
those powers, effectively we do have the informal power as a regulator
to name and shame, which we do. If I can come back to our original
duties, in looking at the market in Scotland, two of the three
companies I think are really being quite progressive in what they
are offering by way of social tariff. The Essentials package offered
by Scottish Gas announced in February gave a price cut to the
fuel poor of £285 and a price cut to everybody else of £170.
The Energy Plus product, aimed at 30,000 customers, in the Scottish
and Southern hydro-electrics area gives them a 20% reduction on
whatever the bill is at the time. So two of the three companies
in Scotland have decided to go down what I would regard as a social
tariff route. It is for Scottish Power to answer for themselves
in this regard, but it has gone down a slightly different route,
a trust route, which appears to be aimed at households with children—a
fairly staggering figure: 46,000 households with children in Scotland
that are fuel poor, which is estimated to be 25% of children in
Scotland. That is a very uncomfortable figure. Scottish Power
has gone down that route to target their benefits there. They
have also gone down a different route in so far as they have currently
a pre-payment charge lower than the standard credit charge. They
have taken a marketing decision to go down that route.
Q604 Mr Davidson:
Without blinding me with science in the sense of the different
rates, which sometimes are as complex as mobile phone company
rates, if you have a remit to deal with the fuel poor, the social
remit and so on and so forth, do you lack the powers to set best
practice and insist that all companies in the area live by that;
or is it simply by persuasion? I am not clear about the balance
between what you can actually make people do and what you just
have to ask nicely for, and whether or not there is a deficiency
in the powers you have been given—or whether it is something
you would not want to be involved in anyway because you just want
to make the market more competitive.
Mr Buchanan: I think it is a very
good question and to a certain extent the follow-up question is:
are we asking Government, given that there is legislation going
through? This is where the PPM recalibration is a very interesting
example of where we are going to insert licence permission powers
in place, because none of us think that three of the companies
have behaved well here. Three of the companies clearly did behave
well and saw the issue and dealt with it. In December we used
our informal powers to name and shame three of the companies;
two reacted very quickly on replacing the meters and on sorting
out the level of debt with which they would effectively not pursue
individuals. Scottish Power started very quickly after our name-and-shame
in December and then, for reasons best known to themselves, stopped.
I have been asked to put on our website something that arrived
yesterday. Iberdrola has taken over Scottish Power, and Jose Luis
del Valle, the new Spanish boss of Scottish Power is basically
outlining how they are going to sort out this problem. This is
possibly the most positive response I have had from Scottish Power
for some time.
Q605 Mr Davidson:
It strikes me that you are cast in the role of supplicant to power
companies. You are pleading and cajoling and threatening to name
and shame, but you are not really prepared to do anything about
anything really.
Mr Buchanan: Unless they breach
a licence condition.
Q606 Mr Davidson:
The licence conditions then presumably are drawn in such a way
as to now allow you to set best-practice guidelines and insist
they adhere to them.
Ms Harrison: First, on licence
conditions, there are licence obligations on suppliers for them
to do the right thing by some of their most vulnerable customers.
We have just reviewed the supply licence and will be publishing
it next month. Some of the obligations, just to give you a flavour—there
are duties on suppliers to do certain things to make sure customers
who have difficulty paying their energy bills get certain help.
There is an obligation on suppliers to make sure they do not disconnect
customers over the winter period, and that will be extended to
electricity—
Q607 Mr Davidson:
I do not need the detail. When we are in a public committee we
have a limited amount of time and want to cut straight to the
chase. What I do not understand, and I seek clarification on,
is why you seem incapable of dealing with this pre-payment recalibration
adequately. Is that simply because of lack of powers that you
possess?
Mr Buchanan: The answer has to
be that because we are putting the powers in place in June, the
enforcement power was not there and therefore—
Q608 Mr Davidson:
Fine, I just wanted to find out. When you get the powers you will
do it in arrears, will you, especially for constituents of mine?
Mr Buchanan: It is quite an interesting
issue.
Ms Harrison: Can I come back on
that?
Q609 Mr Davidson:
I know it is interesting, but what is the answer? That is agreed
then?
Mr Buchanan: Nothing is agreed.
Q610 Mr Davidson:
Sorry, I thought you were agreeing with that.
Mr Buchanan: Other than—and
Sarah will shoot me down on this, or a lawyer certainly will—I
believe one of the issues in terms of penalising underenforcement,
which certainly has been one of the features of enforcement cases
we have brought in the past, is that the penalty goes to the Treasury.
Danny Alexander: Not to the customer?
Q611 Mr Davidson:
Not to the customer. Oh, well, it comes off the company anyway,
so that will teach them.
Mr Buchanan: It does. It is a
very important aspect, it goes to the Treasury.
Q612 Mr Davidson:
The point, though, about those who have not contacted the company
--
Mr Buchanan: Whatever the calculation
of the penalty is and that sits within the authority.
Q613 Mr Davidson:
Leaving aside the question of the penalty, it is a question of
if they pay back a refund to those who have approached them, that
is one thing, but are they going to refund it to everyone who
would have been eligible for a refund had they approached the
company?
Mr Buchanan: Can I come back to
you?
Mr Davidson: Yes, please. I think it
would be very helpful to have a note on that as well.
Q614 Chairman:
My question is to Charles Gallacher. What is the magic solution
to tackle fuel poverty? What are the two most significant things
the Government can do to alleviate fuel poverty?
Mr Gallacher: I think, first,
it is to make sure that the information is out there and that
the information is understandable partly by the groups which have
been identified here today. I have explained before that we have
done a lot of work in Scotland both with the Scottish Executive
and charitable organisations on energy smart campaigns and other
campaigns to make sure we target people appropriately. I would
say absolutely the offerings are there in the market, it is true
that some of them are complicated; cut through all of that, make
it straightforward and get it targeted. Secondly, I would say—we
touched on smart meters before—smart meters are important.
There is unlimited research out there which shows that they do
work when applied properly, get that show on the road.
Q615 Mr Davidson:
Can I follow up on this. Do you have powers to instruct people
to make their tariff system comprehensible? Pilkington Glass used
to have a grading of frosted glass called an "obfuscation
index" and it depended on how difficult it was to see through.
Do you have the powers to make them comprehensible?
Mr Gallacher: The companies would
argue that they are comprehensible at the moment and, to be fair,
many of them are. We do not get involved in how companies advertise,
or otherwise, their offerings.
Q616 Mr Davidson:
You have no powers to make sure their offerings are comprehensible
to people of average intelligence?
Mr Gallacher: If examples were
drawn to our attention where they were clearly not comprehensible,
we would take them up with the company.
Q617 Chairman:
Could I thank the witnesses for their attendance. Any information
which you were unable to provide during this session, please send
us, that would be very helpful to us. Thank you very much.
Mr Buchanan: Thank you, Chairman.
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