CONSUMER ___________ LAW ___________ CENTRE ___________ VIC LTD
AN INDEPENDENT NON-PROFIT PUBLIC INTEREST LEGAL CENTRE Level 9/91 William Street, Melbourne 3000 Telephone (613) 9629 6300 Facsimile (613) 9629 6898 info@clcv.net.au www.clcv.net.au
ACN: 056 362 059 ABN: 13 056 362 059
28 August 2006 By email: wendy.heath@esc.vic.gov.au Ms Wendy Heath Senior Regulatory Manager Essential Services Commission Level 2, 35 Spring Street MELBOURNE VIC 3000
Dear Ms Heath Early Termination Fees Compliance Review – Draft Decision We welcome the opportunity to comment on the Early Termination Fees Compliance Review – Draft Decision (the Draft Decision), released the Essential Services Commission (the Commission) on 30 July 2006. We refer, additionally, to the submission provided by us in response to the Early Termination Fees Compliance Review – Preliminary Findings (our Initial Submission) dated 21 April 2006. Attached is a detailed submission on the Draft Decision. In Part 4 of our submission, we detail a number of case studies which raise issues with the existence of explicit informed consent. We would be pleased to meet with you further to discuss these issues. This submission has been generously funded by the Consumer Utilities Advocacy Centre (CUAC), and we would like to thank it for supporting the production of this submission. Should you have any questions in relation to this submission, please contact Gerard Brody on 03 9629 6300 or at gerard@clcv.net.au. Yours sincerely CONSUMER LAW CENTRE VICTORIA LTD
Catriona Lowe Executive Director
SUBMISSION TO THE ESSENTIAL SERVICES COMMISSION ON THE EARLY TERMINATION FEES COMPLIANCE REVIEW – DRAFT DECISION 1. Background on the CLCV The CLCV is one of Australia's leading consumer and public interest organisations. A not-for-profit, independent organisation, we undertake research, policy development, advocacy and education. The CLCV's work is focussed on advancing the interests of consumers, particularly low-income and vulnerable consumers. The CLCV is currently working on a range of issues, including utilities, competition and consumer protection policies, financial services, telecommunications, exploitative credit and access to justice. The CLCV also operates a large consumer legal practice assisting over one thousand low-income consumers each year with free legal advice and representation. 2. Overview of CLCV’s position The CLCV is broadly supportive of the Draft Decision. The Commission’s finding that an early termination fee (ETF) charged to any customer should not be greater than 2 per cent for electricity or 2.5 per cent for gas of the annual bill of the customer for the remaining period of the contract is overall a reasonable finding. However, the CLCV would like to make a number of comments in relation to the Draft Decision. These comments are separated in Part 3 and Part 4 of this submission. Part 3 deals with issues raised primarily in our Initial Submission which we believe require further consideration by the Commission. Part 4 of this submission deals with issues relating to explicit informed consent, which is required under clause 19.2 of the Energy Retail Code (the Code) for a market contract to be valid. Part 4 details a number of cases studies of consumers who have entered into market contracts, where the existence of explicit informed consent is questionable. We believe the case studies in Part 4 raise important concerns about the appropriateness of charging ETFs for these consumers, and the marketing and obtaining of market contracts more generally. We ask the Commission to investigate issues relating to the existence of explicit informed consent in more detail. 3. 3.1 Issues raised in Initial Submission ETFs in existing market contracts On page 9 of the Draft Decision, the Commission provides a summary of ETFs that are currently charged by a range of energy retailers. These range from nil (Red Energy, Origin Energy) to $250 (Energy Australia). Furthermore, the Commission states that none of the existing ETFs charged by energy retailers are non-compliant with the Draft Decision. We fail to understand how this is possible, when the Commission finds that an ETF should not be greater than 2 per cent for electricity or 2.5 per cent for gas of the annual bill of the customer for the remaining period for the contract. Below is reproduced Table 2 from the Draft Decision, where the Commission sets out estimated ETFs by year of termination for a ‘typical’ customer, using approximately 8,000 kWh of peak electricity and 40 GJ of gas per year.
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Year of termination Year 1 Electricity Gas Dual fuel Up to $96 Up to $42 Up to $138 Year 2 Up to $64 Up to $28 Up to $92 Year 3 Up to $32 Up to $14 Up to $46
While we accept the levels of ‘typical usage’, the percentages in the Draft Decision are applied to bills charged on a standing offer tariff, implying an annual electricity bill of around $1,600 and annual natural gas bill of $550. Market contracts should, at least in theory, amount to a lesser total bill than the standing offer tariff. As such, we are concerned that the ‘acceptable’ ETFs in the above table may be overstated. Furthermore, many of the market contracts currently marketed by energy retailers include ETFs that are far above the ‘typical’ ETFs in the above table. Indeed, many existing dual fuel market contracts include terms with ETFs up to double the acceptable ETF for terminating in the first year of a three-year term (see Energy Australia). We seek to confirm that the Commission will be seeking amendment to the terms of these current contracts so that ETFs are in accordance with the Draft Decision, and that the Commission will act to prevent energy retailers from marketing energy contracts which include ETFs that are above that in the Draft Decision. 3.2 Energy retail competition In our Initial Submission, we noted a report by the UK National Consumers Council which identifies a number of barriers to effective competitive markets. 1 The Report notes the imposition of early exit charges by existing providers as a barrier to competition and recommends that regulators act to remove the imposition of early exit fees on consumers. We note that one of the Commission’s stated goal in its Work Program 2006/07 is to “facilitate competition where possible and protect consumers”. We strongly support this goal. Although the Commission considers Victoria a “hot market”, we are not convinced that this alone indicates effective competition. The discussion in Part 4 of this submission raises concerns about the effectiveness of competition in the Victorian energy market. In our view ETFs do act to impede competition, especially where energy market contracts are marketed in the ways described in the case studies in Part 4. As such, we would encourage the Commission to act to remove the imposition of ETFs so as to facilitate competition in accordance with the Commission’s goal. We note that clause 24.1(d) of the Code infers that it is open to the Commission to make a guideline prohibiting or limiting the use of ETFs. Clause 24.1(d) states that: “a retailer may impose an early termination fee on the customer if: their energy contract includes details of the amount or manner of calculating the early termination fee; and
1
National Consumers Council, Switched on Switching: A Survey of Consumer Behaviour and Attitudes, 2000-2005, November 2005, available at: http://www.ncc.org.uk/access/switching_findings.pdf.
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the imposition of an early termination fee in the circumstances is not prohibited by any relevant guideline.” In implementing its Draft Decision, we would encourage the Commission to make a guideline that limits the imposition of ETFs. 3.3 Unfair contract terms In the Draft Decision, the Commission does not make any reference to the discussion in our Initial Submission of the applicability of the unfair contract terms provisions in Part 2B of the Fair Trading Act 1999 (Vic) (the FTA) to ETFs in energy market contracts. In our view, where an ETF acts as a disincentive to cancellation by imposing an exorbitant fee for cancellation, the ETF may be an unfair contract term within the meaning of section 32W of the FTA. We refer particularly to section 32X(c) of the FTA which provides that terms which penalise a supplier but not a consumer for breach or termination of a contract may be unfair contract terms. Where an ETF is not a reasonable pre-estimate of the loss of the imposing retailer, it may be an unlawful penalty, also breaching section 32X(c). We re-affirm our recommendation that in the context of the current review, the Commission should ensure that ETFs in energy market contracts do not contravene Part 2B of the FTA. 4. 4.1. Explicit informed consent Introduction As noted in the overview of this submission, CLCV is broadly supportive of the Draft Decision. However, CLCV is concerned by the growing evidence that many consumers have entered into market contracts in circumstances that suggest an absence of explicit informed consent as required by Clause 19.2 of the Energy Retail Code (the Code). CLCV submits that it is clearly inappropriate to apply ETFs of any level where there is a question as to whether a consumer has provided the requisite explicit informed consent to enter into a contract that purports to permit ETFs. As such, the CLCV requests the Commission to consider the appropriateness of ETFs within the context of compliance with Clause 19.2 of the Code and the provisions of the Marketing Code of Conduct as well as Clauses 24.1 and 32(b) of the Code. This section of the submission provides evidence from a number of sources of the ongoing and widespread failure to comply with the requirement to obtain explicit informed consent as set out in the Retail Energy Code. 4.2. Systematic Breaches of Clause 19.2 There are a number of sources for evidence of systematic breaches of Clause 19.2 of the Code. These include published details of enforceable undertakings made by energy retailers in Victoria and New South Wales in relation to the systematic marketing breaches in the Victorian and New South Wales energy markets; recent comments on behaviour of Utility Connection Services published by EWOV; and the compliance workshop conducted by the Commission for Utility Connection Service providers in April 2005.
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4.2.1
Enforceable Undertakings During 2005 and 2006 two retailers operating in the Victorian energy market entered into enforceable undertakings with regulatory authorities to discontinue inappropriate marketing practices. In January 2005, Energy Australia Ltd entered into an enforceable undertaking with the Director of Consumer Affairs Victoria in relation to conduct which occurred between July and November 2004. The Undertaking included admissions that the company or its agents had: • made claims to consumers regarding terms and conditions that did not exist in the contract; • advised consumers that termination fees were lower than they actually were; • incorrectly asserted to consumers that rebates applied to individual bills; • made sales pitches to consumers on the basis of bill payment systems that were not available; and • refused to leave consumers’ premises when asked, and/ or behaved in an overbearing manner. The Company provided undertakings to: • to offer redress to identified consumers in a form agreed with the Director of Consumer Affairs; • to conduct compliance programs and product training as agreed with the Director of Consumer Affairs; • to review training and/or materials used; • to adhere to and enforce the terms of contracts with its independent contractors; • to introduce additional payment methods for consumers; and • to strengthen and improve its internal dispute resolution processes. In June 2006, Jackgreen (International) Pty Ltd entered into enforceable undertakings with the Independent Pricing and Regulatory Tribunal (IPART) in NSW in relation to conduct which occurred between December 2005 and March 2006. The retailer admitted that it had transferred customers without their consent and agreed to: • undertake an enhancement of its compliance systems and procedures; • undertake further independent assessment by auditors of its compliance systems and procedures; • undertake training and supervision of its marketing staff/ contractors; • enable Jackgreen customers adversely affected by the conduct of the telemarketing agent to transfer back to their original electricity supplier without cost to them; and • apologise in writing to all affected customers. The full details of these undertakings are available on the websites of Consumer Affairs Victoria and IPART. CLCV acknowledges that the undertakings by Jackgreen (International) Pty Ltd relate only to activity in NSW. However that marketing was conducted by a contracted telemarketer and it is highly likely that similar activities were undertaken within the Victorian market on behalf of the same retailer. The undertakings are evidence of ongoing systematic breaches of the Code and the Marketing Code of Conduct in Victoria during the last two years. CLCV believes that only a small proportion of adversely effected consumers complain to Industry Ombudsman, consumer affairs agencies or regulators. Even after the undertakings,
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CLCV asserts that it is reasonable to assume that both retailers would have retained a significant number of customers signed up without explicit informed consent. 4.2.2 Utility Connection Services A number of new service providers, known as Utility Connection Services, have been established to provide connections for tenants moving into rented premises for services such as energy, telephone and Pay TV. The Commission has acknowledged concerns by EWOV, community agencies and consumers, regarding the failure of these organisations to ensure that tenants were given sufficient information to make an informed choice and give explicit informed consent when entering into market energy contracts. In April 2005 the Commission held a Workshop for retailers and Utility Connection Services to encourage compliance by those organisations in dealing with tenants and the energy market. The program referred to the following requirements: • Provide all relevant information necessary for the consumer to make an informed decision prior to entering into contract, including: o that the consumer has a choice of retailer; o that the consumer is entering into a contract; o tariffs and key terms and conditions (such as early termination fees); and o whether the marketing rep will earn a commission or fee if the customer accepts a contract with the retailer In the recent publication, Resolution 21, covering the period July to December 2005, EWOV commented on recent complaints about Utility Connection Services. It said that “A number of cases have related to transfers where it was hard to conclude that the customer was giving their explicit informed consent — customers have reported being given no choice of retailer, of being connected to a different retailer from the one they were expecting, and of receiving wrong information.” CLCV again asserts that only a small number of consumers will register a complaint about Code breaches. It is again reasonable to assume that retailers have retained customers signed where there was no choice of retailer or explicit informed consent. 4.3 Case Studies and Statistics – Failure to obtain Explicit Informed Consent There is further evidence of failure to obtain explicit informed consent in the statistical information published by EWOV in recent Annual Reports and electronic newsletters, and in case studies from EWOV and financial counsellors. The case studies suggest that there are a wide range of circumstances in which consumers switch energy providers and/or enter market contracts without any knowledge of the fact and where it is unlikely that the consumer can be said to have given explicit informed consent. 4.3.1 EWOV Statistics The 2005 EWOV Annual Report noted that 11% (1,506) of electricity cases were about transfer problems with 43% of those being about transfer error and 14% being about information provision.
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Resolution 20, the EWOV electronic newsletter for Jan-June 2005, reported on market conduct statistics. EWOV said “Market Conduct is about retailers’ sales or advertising activities. A customer might, for example, claim they’ve been misled by a retailer (or a sales representative), that they’ve been given undertakings that couldn’t be fulfilled, or be concerned with the behaviour of a sales representative who has contacted them. The most common sub-issues are door-to-door and phone sales. • 446 Market Conduct cases were received, up 2% (7 cases) on last period’s 439. • 201 cases (45%) concerned door-to-door sales — 144 (72%) electricity, 34 (17%) gas, 23 (11%) dual fuel (Figure 15). • 157 cases (35%) were about phone sales — 117 (75%) electricity, 20 (13%) gas, 20 (13%) dual fuel (Figure 16)”. The EWOV statistics suggest significant numbers of actual complaints and the likelihood of far more unreported marketing and transfer complaints. CLCV acknowledges that retailers have responded appropriately to the complaints to EWOV by releasing consumers from contracts and waiving termination fees. However CLCV also believes that retailers have retained significant numbers of customers where there has been no explicit informed consent. 4.3.2 No Consent Case Study 1 (EWOV C/2004/9410) - Account transferred, but not by the account holder Ms T had been with her electricity retailer for some 14 years. Last year her carer, approached by a door-to-door sales representative of another retailer and without Ms T’s knowledge, signed a contract to switch her electricity account. The carer doesn’t live with Ms T, nor was the original electricity account in his name. Ms T believed she shouldn’t be held to a contract she didn’t agree to and which was signed by a non-account holder. In addition, following the transfer of her account, she’d received high bills, when she’d expected her usage to decrease — there were fewer people living in the house than the previous year and she hadn’t bought any new appliances. Ms T also said the new retailer didn’t appear to have received her $35 fortnightly payment, or a lump sum payment of $220. She wanted to be returned to her original retailer, but was told by the retailer that she’d have to wait until the next bill and then there would be an exit penalty. Responding to EWOV’s investigation, the new retailer advised that the person who signed the contract had told the sales representative the account was in joint names. It apologised if this had not been the case. It said it had billed Ms T on actual meter reads, so it appeared Ms T had used the electricity she’d been charged for. The retailer provided a record of all payments credited to Ms T’s account and asked her to identify any missing payments. She confirmed the retailer’s records were correct. The retailer cancelled her contract without penalty and transferred her account back to her original retailer. It gave her time to pay the outstanding balance, and provided a direct management level contact should she have any difficulty in meeting the agreed payment arrangement. Ms T’s case highlights the importance of ensuring that explicit informed consent is obtained from the account holder before a contract is confirmed.
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In this case the retailer acknowledged that there had been no explicit informed consent and cancelled the contract without penalties. In this instance, the consumer objected to the transfer and complained to EWOV. Other consumers may not have objected to the transfer, disputed the lack of explicit informed consent or been aware of the possibility of an early termination fee. 4.3.3 Portability & Explicit Informed Consent Case Study 2 (Financial Counsellor) Joe is a Disability Support Pensioner living in a rural town in South Gippsland. He lives alone in Public Housing. In 2004 Joe moved from Public Housing into a private rental property. He moved back to Public Housing in September 2005. Each time Joe moved, he called his Electricity Retailer (Retailer A) and simply advised them of his change of address and his access to electricity continued. Joe prefers to pay his electricity on a fortnightly basis and on each occasion he requested a payment card. In November 2005, Joe was visited at home by a representative of another Electricity Retailer. (Retailer B) The representative informed Joe that Retailer B had taken over electricity supply in his area. The representative completed a form to supply electricity which Joe signed as he believed he had no choice. Retailer B agreed to supply Joe with a payment card but Joe did not receive the payment card and as a result did not start payments to Retailer B. Joe contacted my Financial Counselling service when he received a larger than normal bill from Retailer A. The bill was a final bill and included an exit fee of $90 for termination of an agreement in its first year. Joe had no idea Retailer A had placed him on a contract when he moved to his current property. He does not recall any discussion about a contract. As far as he was concerned he was simply changing his address and Retailer A was supplying his electricity. Following discussion with Retailer A, it was confirmed that Retailer A had placed Joe on a contract when he moved to his current property and that his current electricity supply was from Retailer B. Joe was unsure of how to proceed as he was unhappy with Retailer A for putting him on contract without his consent and with Retailer B for misleading him into signing with them. Joe sought the assistance of the Energy and Water Ombudsman (EWOV) and following a discussion decided he would stay with Retailer A (providing they reissued him with a payment card so he could pay his account fortnightly and that they waived the $90 exit fee.) EWOV facilitated the transfer of Joe’s electricity account from Retailer B back to Retailer A and my Financial Counselling service organised a payment card and the exit fee waiver. Case Study 3 (EWOV C/2005/2938 + C/2005/8327 Mr and Mrs P requested energisation from Company A at their new address. The property was connected. While they were moving, they were approached by a representative of Company B who said to them that they may have entered into a three year contract with Company A, but that they could cancel within the cooling-off period and transfer to Company B. Mr - and Mrs P rang Company A, found that they had entered into a three year contract and cancelled it.
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EWOV’s investigation found that both Company A and Company B had been deficient in the information supplied to the customers; Company A in not advising of the consequences of cancelling the contract and Company B in not advising the customers to contact it after cancelling the contract to ensure that it took responsibility for supply. Case Study 4 (EWOV C/2005/10437) Mr F, who had an electricity contract with Company A, was moving to a different property. He phoned Company A in January 2005 and asked for it to be his supplier at his new address. He received a final bill for the old address but no bill for the new address. He phoned Company A on a number of occasions and was told that the transfer was in process. He received a letter from Company A apologising for the delay and asking for his National Metering Identifier (NMI). He also received a ‘to the occupier’ letter and bill from Company B and was able to provide the NMI to Company A from that bill. Company A told him that the transfer would take a further three to six months. Because of the delay Mr F decided he wanted his electricity to be with Company B. He did not consider it fair to have to pay Company A’s contract exit fee. Company A agreed to waive its exit fee. These case studies illustrate the fact that many consumers have transferred their account for reasons of portability – that is, to retain the same supplier at a new address without any awareness that their actions constituted switching, a transfer or a conscious choice or intent to change supplier and/or to enter into a market contract. The financial counselling client in case study 2 was aware of the purpose of the visit by the door to door salesman yet had no knowledge of having switched to a market contract or being subject to an early termination fee at the time of the visit. The consumer in case study three had transferred supply to a new address but was unaware that the transfer had involved entry into a three year market contract. The consumer in case study four requested supply at a new address but was not necessarily aware that the transfer involved switching to a new supplier or a requirement for a new contract. CLCV acknowledges the benefits of portability of supplier within a contestable market. However, switching for purposes of profitability and convenience should not be regarded as evidence of participation or choice in a contestable market and can clearly occur without the requisite explicit informed consent. 4.3.4 Portable Contracts – Is Consent Informed? Case Study 5 (EWOV C/2004/3193) - Misleading sales approach leaves customer powerless In April 2004, shortly before she moved house, Mrs L was approached by a door-todoor sales representative from an electricity retailer. She was told that if she established a contract with it for her electricity at her (then) property, it would
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transfer her account to her new property when she moved. On this basis, Mrs L signed a contract with the retailer. A couple of days before she moved, Mrs L called the retailer to advise of her new address and to arrange for the electricity to be connected. When she moved in, the power was on and she subsequently received confirmation in writing from the retailer about the terms of her contract. Two weeks after moving in, Mrs L’s electricity was disconnected. Ringing the retailer to arrange for reconnection, she was told she wasn’t its customer, and that she had to call the retailer who previously supplied the property. Mrs L contacted EWOV when, after several calls to the retailer with whom she had the contract, her concerns were still unresolved and her electricity had not been reconnected. EWOV investigated Mrs L’s concerns and arranged for the reconnection of her supply. We confirmed that market contracts cannot be transferred from one property to another. The retailer concerned addressed this issue with its sales representatives, including the representative that had met with Mrs L, to ensure the problem would not re-occur. It cancelled Mrs L’s contract at her request and apologised. It also sent her a cheque for $150 as a gesture of goodwill in recognition of the inconvenience. Mrs L subsequently entered into a contract with another retailer. It’s critical that sales representatives understand the ‘rules’ of the contracts they are selling and the implications of those contracts for customers. Case Study 6 (EWOV G/2004/907) - Customer’s right to transfer contract upheld Shortly after Mr R, a small business owner, entered into a three-year contract, he sold his business. He said he had been told by the retailer that the contract would be transferable to the new owner. However, after making further enquiries, he was told that only residential customers could transfer contract rights to third parties, and further, that he would have to pay a termination fee of some $300. Mr R disputed the termination fee on the grounds that transferring an account into another name was not listed as a method of termination. He also felt that it was in the best interests of the retailer to continue on with the contract, since the new owner was making use of the same electrical appliances and keeping substantially the same business hours and operating times. Mr R had also been trying to arrange a final meter reading, but this had been unsuccessful. EWOV’s investigation confirmed that under Clause 13 (General Provisions) of the supply contract, Mr R could assign or create an interest in his/her rights under the contract with the written consent of the retailer. The retailer agreed to transfer the contract, provided that the new owner agreed to accept the transfer. Upon receipt of the form signed by Mr R and the new owner, and the expiration of the cooling-off period, the retailer would arrange for the contract to be transferred. A date was also arranged for a special meter reading, so that a final bill could be issued to Mr R. Customers can be at a disadvantage in their dealings with providers if they are not aware of their rights under their contracts. In this case, EWOV’s independent review of the contract helped the customer enforce rights he believed he had, but which the retailer was slow to acknowledge.
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These Case Studies indicate that even when customers choose to switch, their capacity to make an informed choice is dependant on the accuracy and reliability of the information provided by the retailer or their representative. The consumer in Case Study 5 sought to take advantage of a market offer at her new address. However, the marketing representative, in good faith, provided incorrect information about the portability of the contract. The retailer acknowledged the need to address the issue with all the sales representatives. The small businessman in Case Study 6 also intended to take advantage of a market offer after being advised that the contract was portable between business owners. The retailer initially disputed the portability and sought a $300 termination fee. The demand for the fee was dropped after a complaint to EWOV. However, CLCV is concerned that too many consumers in similar situations to those in the case studies may have accepted contracts that included early termination fees despite the lack of an effective explicit informed consent or a legitimate right to collect the fee on the part of the retailer. 4.3.5 Incorrect or Misleading Information Case Study 7 (EWOV G/2004/3890) - Enforcing a sales representative’s undertaking Three days after agreeing to transfer his gas supply to one retailer, Mr Y was approached by a sales representative for a second retailer. Mr Y told EWOV he advised the sales representative that he’d recently entered into a contract with another retailer. He said that the sales representative told him that he could cancel that contract within the cooling-off period and that the retailer he was representing would attend to this cancellation. Three months later, Mr Y received a gas bill from the first retailer. The retailer subsequently advised Mr Y that there had been no contact made, in relation to cancelling the contract, by the retailer the salesperson represented. When Mr Y rang this retailer to check what it had (or hadn’t) done, he was told that it was his responsibility to contact the first retailer if he wanted to cancel his contract. Mr Y wanted the retailer to honour the undertaking given by its salesperson. After contact by EWOV, the retailer arranged for a retrospective transfer of Mr Y’s gas supply and also agreed to reimburse any termination fees associated with that.Energy retailers’ sales representatives must understand the implications of making undertakings to customers. In addition, retailers need to have some means of checking that their representatives are providing customers with accurate sales and contract information. Case Study 8 (EWOV F/2005/82) - Customer accepts a market offer that wasn’t available to him Mr S was dissatisfied that he hadn’t received the rebate on his dual fuel account in accordance with the terms of his contract. He’d entered into a three-year dual fuel contract and understood that the terms of the agreement included his receiving a $150 concession, as well as a $50 annual concession spread over each bill. He was concerned that the rebate hadn’t appeared on his first bill.
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EWOV’s investigation found that there had been an error in the market offer made to Mr S — the retailer advised that the customer service representative incorrectly sold him a dual fuel offer available for gas in his distribution area, but not for electricity. In recognition of the error and the fact that Mr S had signed the contract on the basis of the offer, the retailer issued him with a cheque for $300 representing the benefit he would have received from the market contract. It also confirmed that Mr S would be contacted so that a correct market offer for his electricity account could be set up. Energy retailers must ensure their sales representatives are well trained and informed. They should also monitor new market contracts to ensure customers are not signing them on the basis of misleading information. These case studies further illustrate the reliance of the consumer on the accuracy and reliability of the advice of the representative. The consumer in Case Study 7 had intended to take advantage of a market offer, but relied upon advice that the sales representative could cancel the earlier contract. That advice could never be correct and any contract signed on the basis of incorrect information could not be said to have explicit informed consent. In Case Study 8, the retailer acknowledged that the representative had made an error in the contract offered to the consumer. As noted earlier, CLCV have concerns that many consumers have signed contracts on the basis of misleading or incorrect information but allow the contract and/or transfer to proceed despite the lack of explicit informed consent or the unfairness of the imposition of an early termination fee in these circumstances. 4.4 Appropriateness of ETFs This section of the submission has presented compelling evidence that large numbers of consumers have switched suppliers and entered into market contracts without an awareness of that fact or the capacity to give explicit informed consent to the transaction. The Draft Decision has determined that losses attributed to early termination of contracts are limited to 2-2.5% of the contract sum. As stated above, CLCV would like the Commission to confirm that it will seek amendment to the terms of current contracts so that ETFs are in accordance with the Draft Decision. CLCV also requests the Commission to consider whether losses attributed to early termination of contracts should be offset by profits from contracts entered into in error, or without explicit informed consent, but allowed to proceed by the consumer and ‘super’ profits obtained by the fact that ETFs have been recovered above the amount of losses identified by the Draft Decision. CLCV suggests that such a set off could mean that the decision to allow 2-2.5% fee could be reduced by a percentage to allow for the inappropriate contracts that have been entered into since the introduction of market contracts in Victoria in 2002. This would reduce the fee by a further 0.5-1%. Such a reduction could be reconsidered in five years time, an equivalent time period since market contracts that allowed ETFs have been in the Victorian energy market. At the very least, the Commission should investigate the extent of contracts entered into without the required explicit informed consent and the effect such contracts have on effective competition in the marketplace.
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5.
Retailer Responses CLCV notes that Origin Energy does not charge termination fees (See table, Pg 9, Draft Decision). CLCV understands from Origin that the company believes that a contestable market works best when the contracts are evergreen and there are no fees for early termination. This view is anecdotal but consistent with a no early termination fee position. A second retailer has advised that its sales force have been advised not to sell to a customer on a market contract. This position also indicates industry concern that customers may not appreciate the significance of terminating a market contract. A contact can be provided to support this view. The Commission may wish to question whether there is a genuine need for compensation for early termination of contracts if a retailer such as Origin can adopt a no fee position.
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