Power company contracts unfair
Power companies have had to rewrite customer contracts, after a Commerce Commission investigation found some of their terms were unfair.
A review has found unacceptable contract terms that included automatic renewals that customers were then charged to get out of, companies being allowed to hold on to customers’ credit after they had terminated their contracts and terms that made new homeowners liable for the debt of a previous owner of the property.
A 2015 change to the Fair Trading Act introduced provisions for the commission to tackle unfair contracts.
Contract terms are considered unfair when they would cause significant imbalance in the two parties’ rights and obligations, are not necessary to protect a legitimate business interest and would cause detriment to the customer.
The commission has an ongoing project to review a range of standard-form consumer contracts in various sectors for unfair terms, including gyms and credit contracts.
Its report on the energy sector is the second, after one on telecommunications.
Commissioner Anna Rawlings said the sector was chosen because it is an essential service for New Zealanders.
‘‘Almost all New Zealanders use electricity provided by an energy retail company, so the potential impact of any unfair contract terms was significant,’’ she said. ‘‘The majority of the nine energy companies included in the review had made real efforts to comply with the provisions before they were introduced. However, we did identify 59 terms that we considered potentially unfair.’’
Many of the surveyed retailers had a number of the same unfair terms identified, including clauses that limited the company and distributor’s liability to the customer, but not the customer’s liability to the power company.
Meridian and Mercury had terms that allowed them to unilaterally determine when a contract had been breached.
Automatic renewals of fixed-term contracts were also identified as problematic. Three of the companies included this in their terms.
‘‘The energy retailer had the right to automatically extend the length of the contract, on new, un-negotiated, terms, including potentially higher price.
‘‘The customer had no right to automatically renew the contract,’’ the commission said.
It said that while automatic renewal was not inherently unfair, it was not fair that a customer would then have to pay a fee to break the renewed contract.
‘‘The commission is also concerned that these terms rely on customer inertia, in that customers could be locked into extended contracts, which they did not necessarily want, because they were not sufficiently engaged to take the positive action to opt out of the contract.’’
Many also had terms that allowed them to vary the price and conditions of a fixed-price contract, but did not allow the customer any right to terminate the contract as a result.
Trustpower had terms allowing it to retain customers’ credit balance after they terminated their contract.
Pulse’s contract allowed it to reverse any credit given to customers, if they terminated their connection.
The commission wrote to all the retailers, advising which contract terms could be considered unfair.
Two of the companies will continue to automatically renew fixed-term contracts, but will now allow customers to cancel without paying a termination charge. The other company will no longer automatically renew fixed-term contracts.
They have also changed their liability clauses to make them more balanced and acknowledged that their contracts need to be reworded to make it clear that the price of fixed-term contracts would not change.