Examination of Witnesses (Question Numbers
220-228)
MR STEVE
SMITH
9 JANUARY 2008
Q220 Joan Walley: Will that apply
to all advertising, for example? Under the voluntary arrangements
where would you expect the labelling—
Mr Smith: Given where we are in
the process, I do not think I can honestly answer that because
we have not flushed it down to that level of detail. At the moment
we have simply said that will be the principle, that is what they
have got to do, and the next phase of work, once we have decided
all of this, will be for suppliers to come forward and say: "This
is how we are going to do that". Then we will have a look
at it.
Q221 Joan Walley: So you are going
to wait for them to tell you what to do?
Mr Smith: No, no, not tell us
what to do; we are going to ask them to come forward with how
they will do it and then we will take a look and decide whether
we think that meets the principle or not—whether that is
good enough. We are not going to sit here and say to the suppliers:
"This is how you have got to meet it"; we are going
to let them have a go at coming up with the best way of doing
it. However, as I said, if we are not satisfied then, clearly,
we can say: "No, that's not good enough; we don't think that
will meet the guidelines".
Q222 Joan Walley: In respect of this
label, when we finally get it, and depending on where it is going
to be displayed, where do you think it will drive the greatest
change? Do you think it will be in respect of consumer choices,
or in the tariffs and energy mix offered by the suppliers? Where
is the drive for this agenda coming from?
Mr Smith: I hope it will be both.
I hope it will give more customers the confidence to take up these
tariffs, but I hope that will create a virtuous circle because
the more customers do that the more you would hope that suppliers
will innovate. As I said, what has emerged from our work and the
NCC's work is that there are different customers who have different
concerns and different interests. So suppliers should be offering
a multitude of tariffs to basically access those different customer
groups. So for customer groups for whom renewables is the primary
importance you would want to see tariffs being delivered that
are close to 100 per cent renewables, as we have at the moment.
If there is a large number of customers who are more interested
in low carbon you would want to see low carbon tariffs as well.
I would hope it would be both, but it is probably the customer
confidence that needs to come first.
Q223 Joan Walley: You were talking
about a voluntary self-regulated scheme. The National Consumer
Council, I think, are on record in the past as having expressed
some concerns as to how much guidelines and voluntary arrangements
can ensure good practice. How confident are you that you will
get good practice across suppliers with this voluntary scheme?
Mr Smith: We have the powers to
make this a mandatory scheme, albeit we have to get a proportion
of the suppliers—about 75%—to agree to it, and if
they did not we would have to then take the matter to the Competition
Commission. We also have a duty to better regulation and to think
about the better regulation principles. When we went and talked
to customer groups and suppliers all of the suppliers—so
not just the big six domestic retailers but also a lot of the
small suppliers, including the green suppliers—basically
said: "We are up for the challenge of this; we think this
would be a good thing for the market and therefore we want to
participate in this". That convinced us, given our better
regulation duty, that we should go for self-regulation first.
Clearly, if, at some point in the future, that fails it remains
open to us, we have the powers, to make this a mandatory scheme,
but as we have the suppliers telling us they wanted to do this
on a self-regulatory basis we thought it was right to try that
first. As I said, if it does not work or if we decided in the
future, on the basis of experience, we needed to make it mandatory
then we have the powers to do that.
Q224 Joan Walley: How will you know
if it is not working? Should your first and foremost priority
not be to the customers and making sure that that information
is there?
Mr Smith: It absolutely is. Again,
that is another reason why going down the self-regulatory approach,
which we felt would be faster than having to do things on a mandatory
basis and push through licence changes, because suppliers were
saying they were up for the challenge, would get us there quicker
than a mandatory move.
Q225 Joan Walley: Can I just stop
you there? When you say "the suppliers are up for the challenge",
is that all of them? Have you approached all of them and they
have all indicated that they are?
Mr Smith: Yes, and they have all
been deeply involved. We have had a series of workshops which
have involved customer groups, the NCC, the big suppliers and
the smaller renewable suppliers. As I said, they have all put
a lot of effort and resource into this. So all of the suppliers
said: "Yes, we can see that this is something that customers
want and that will help build confidence in this market, and so
we're willing to play along." The suppliers trade body, the
Energy Retail Association, which represents the big six suppliers
have also put a lot of effort into this in working out the practical
details.
Q226 Joan Walley: How long do you
think it will take before you know—when you get to that
stage of a voluntary arrangement working—whether or not
you need to be, under the best regulation procedures, going down
the route of making it more mandatory?
Mr Smith: Whenever we have done
things like this in the past what we have tended to do is give
it 12 to 18 months and then do a thorough review, go and talk
to customers and work with customer interest groups. Clearly,
if not all suppliers sign up to the voluntary guidelines then
we would have to think about that; that would be an obvious trigger
where we would have to say how comfortable are we, but as I said
at the moment they have all said that they intend to sign up and
on the basis of the consultation they are all saying there are
issues to work out in the detail, but they are signed up to the
principle of this sort of approach. Also, we would have to look
at it practically, are the guidelines actually delivering, are
customers finding this information useful and valuable and, if
not, are the guidelines under a voluntary approach capable of
being changed? Dealing with issues that emerge in terms of customers
saying they are finding this difficult to understand, under a
self-regulatory approach you would want them to say we need to
change them and we need to produce something better.
Q227 Joan Walley: Finally, if I may,
Chairman, I am just thinking about how, for example, this Committee
on an on-going basis might be looking into this at the stage you
have got to and your sharing with us your understanding of how
on target it is and whether or not there are any triggers that
might make anything less than a voluntary way of doing it not
necessary.
Mr Smith: I am sorry, I am not
sure I understand the question.
Q228 Joan Walley: My question is
when you look at that stage of the review in terms of Ofgem and
where it sits and what it has responsibility to do, what provision
is there for a Parliamentary select committee to be kept informed
of your assessment of whether or not the voluntary arrangements
are working or whether or not there are sufficient triggers to
maybe lead you to be looking at making it more compulsory?
Mr Smith: We would be perfectly
happy when we launch the scheme to write to the Chairman and provide
you with our assessment of where we stand and then to say that
inevitably we will do a review somewhere between 12 and 18 months
after it has been implemented, and then again we could write or
appear in front of you if you wanted at that time and tell you
what we think.
Chairman: Thank you very much for your
evidence. I am sorry about the interruption and the delay. Thank
you.
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