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Empower fined $30,000

Media Release
Issued 4 May 2004-05 /126

Empower fined $30,000 : businesses reminded that they are responsible for the actions of contracted agents

Empower Ltd, a wholly owned subsidiary of Contact Energy Ltd, has been fined $30,000 after pleading guilty to breaching the Fair Trading Act in relation to misleading potential customers about Empower's prices and the need for services, and false or misleading representation that customers had agreed to acquire electricity from Empower. In the Auckland District Court, Judge O'Donovan fined Empower $6,000 and $130 court costs on each of the five charges.

Commission Chair Paula Rebstock said this case served as a valuable reminder to all businesses that they are responsible for representations made by their staff, including agents or contractors. She added that it also sends a warning to the electricity retail industry and other minded retailers who use telemarketing and door-to-door sales techniques that representations must be accurate and not misleading.

"While the switching of consumers from one supplier to another is a natural outcome in a competitive market, the use of false or misleading representations to entice customers away from competitors is not," said Ms Rebstock. "In a situation where a business may have contracted out the actual sales activity, businesses need to remember they are responsible for the actions of their staff or agents."

The Commission began an investigation in February 2002 into Empower and Salesco (its telesales arm subcontracted by Remco, Empower's management service) following complaints from On Energy on behalf of its residential customers and independent complaints from customers.

It was alleged that telemarketers and door-to-door sales agents employed by Salesco had made misleading representations, such as Empower's rates being "cheaper than" or the "same as" On Energy's rates, even before taking into account a 10% discount for payment within 10 days.

In fact, Empower's rates were higher than On Energy's or would only be "the same as" if the 10% discount was utilised by prompt payment. Some of the complainants stated that, but for the representations about price, they would not have switched to Empower, as they were satisfied with their current service.

Reasons given for the need to switch to Empower included misrepresentations that they would be without power as On Energy had "gone bust" and/or that Empower had taken over On Energy. (On Energy had in fact, following financial difficulties, entered into arrangements with Genesis and Meridian to sell its customers to them and there would have been a seamless transfer of services.)

Ms Rebstock added that misleading representations used by Empower's agents relating to prices can be highly effective in influencing consumers to consider changing their supplier. Similarly, false representations about a competitor's ability to continue to supply the service is likely to prompt people to switch for fear of being left without electricity.

"Misleading practices undermine competition in the retail electricity market. Ultimately, consumers suffer as a result of these practices," Ms Rebstock said.

"It is imperative that compliance with the Fair Trading Act within the retail and electricity industry as a whole is improved. The Commission has previously settled with three energy companies and has further investigations underway. It is our view that the energy sector has been very slow to understand their obligations under the Fair Trading Act."

Background

Empower is 100% owned by Contact Energy. Remco is the management company that was established at the time of Contact's purchase in 2000 to undertake the management of Empower for a period of three years. Salesco was a company set up by Remco to handle the telesales aspects of Remco's management contract. This work was subcontracted by Remco to Salesco, with Salesco then in turn subcontracting independent telemarketers and door-to-door sales people to sign up customers with Empower.

During the Commission's investigation, a number of complainants stated that the first they knew of having been switched to Empower was when they received a "welcome" letter and/or first monthly electricity account from Empower or a final invoice or call from their previous supplier, to whom the "switch" had been conveyed. They had not agreed to switch, or had cancelled an earlier agreement to switch when they became aware of untrue representations, or had refused to make a decision until they had further information by post.

Contact with a "verifier", following the sales call, was supposed to confirm that the customer had agreed to switch and their details taken. In fact, not all calls were verified by Salesco and even if they were, consumers were not asked if they had agreed to switch but were simply asked to give or confirm contact details.

In 2001, Empower made an admission of liability for similar conduct involving unauthorised switches and/or misrepresentations about the service provided by the existing supplier. In that instance, Empower entered into a settlement with the Commission to put in place measures that all sales agents were fully aware of their liabilities under the Act and to ensure that all agents were appropriately monitored.

The Commission has previously reached settlements with Meridian Energy, TrustPower and Contact Energy. The Commission has prosecuted Mighty River Power for misleading television advertising that promised monthly meter readings.

ENDS

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