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Contact Energy admits misleading customers

Issued 14 September 2004-05/030

Contact Energy admits misleading customers
about price increases

Contact Energy Limited has acknowledged it breached the Fair Trading Act by providing misleading explanations to customers for electricity price changes earlier this year. In a settlement with the Commerce Commission, Contact Energy has agreed to apologise to affected consumers and network lines companies, publish public apology notices, make a $30,000 donation to the Citizens’ Advice Bureaux and overhaul its compliance systems.

Between February and May 2004, Contact Energy and its wholly-owned subsidiary Empower Limited sent out over 250,000 notifications to its customers explaining price changes that would affect their electricity bills.

The Commission’s investigation established that approximately 8,250 customers in the Thames Valley, Tauranga, Eastland Networks and Central Otago areas were advised that changes in their electricity bills were due wholly or in part to increases in the network charges for use of electricity lines when in fact the lines charges had decreased.

“These customers were therefore provided with misleading explanations for the price changes, which incorrectly and unfairly inferred that changes were due to increases imposed by network lines companies,” said Commission Chair Paula Rebstock.

Ms Rebstock said this case differed from similar settlements with Meridian Energy and Trustpower last year, in that Contact Energy’s customers did not suffer direct financial loss as a result of the misrepresentations.

“The Commission’s main concern was that Contact Energy’s customers may have been discouraged from switching to another electricity retailer by believing that it was a lines charge increase not Contact Energy that was primarily responsible for an increase in electricity costs.

“The Commission considers that any breach of the Fair Trading Act by a major corporate is serious. In this case Contact Energy’s behaviour has the potential to be harmful to competition in the electricity sector. For competition to be effective, consumers must be prepared to switch in response to reliable information about charges. The Commission views any misleading and therefore anti-competitive behaviour that is likely to discourage switching very seriously,” Ms Rebstock said.

“Although individual customers did not suffer direct financial loss as a result of Contact Energy’s conduct, the Commission is concerned to ensure that consumers as a whole receive redress from Contact Energy. Contact Energy offered to do this by providing a donation to a consumer oriented organisation. In this case the Commission considered that was appropriate and agreed to a donation by Contact Energy to the Citizens Advice Bureaux.”

Background In September 2003, TrustPower Limited admitted breaching the Fair Trading Act in a settlement with the Commerce Commission and agreed to refund approximately 200 customers who may have been misled about electricity price increases.

The previous September, TrustPower had written to approximately 600 customers in the Wairoa region whose connections had been reclassified by Eastland Network Limited, the local lines company. The letter implied that the reclassification by Eastland was entirely responsible for price rises passed on to customers in the supply of electricity, when in fact TrustPower had also increased its portion of the fixed charge for nearly a third of these customers.

An additional 85 customers were sent letters that implied that although their connections had been reclassified and that Eastland was increasing its charges to TrustPower, TrustPower would not pass this increase on to customers. In fact, Eastland’s charges had not increased as a result of the reclassification.

In January 2003, Meridian Energy Limited admitted breaching the Fair Trading Act in a letter sent to customers notifying them of changes in tariffs, and agreed, in a settlement with the Commission, to compensate approximately 120 affected customers. It also made a public apology to both Network Tasman and its customers.

In August 2001, Meridian Energy had sent a letter to customers in the Network Tasman region, which incorrectly implied to some customers that their tariff rates would increase due to a corresponding increase in charges by the local network company, Network Tasman Limited. Network Tasman had in fact reduced its rates by an average of 5 percent.

The tariff increase affected 175 of Meridian Energy’s customers who were previously on a special promotional rate. The reason for the increase was because the promotional period had expired.


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