An energy company has pleaded guilty to breaching the Fair Trading Act and has been fined $17,000 in the Tauranga District Court on Wednesday. TrustPower, an electricity generator and retailer, was fined for misleading its customers about the nature of a power bill review service.

In May 2005 TrustPower announced on its website that it would carry out a review of all its customers' power bills and recommend the cheapest price option for each customer's individual needs. Between August 2005 and July 2007 TrustPower then wrote to its customers advising that a review had been carried out, which price options were likely to suit, and whether the customer could save money by changing price options. The letter made tailored recommendations to the customer based on the review.

However, TrustPower excluded consumption based options from both the review and the recommendations. Information about the review on Trustpower's website did not explain that the scope of the review excluded a low use option and the letters sent to customers were not sufficiently clear that some customers may have been eligible for the low fixed charge tariff option (LFCTO). The LFCTO may have provided savings over and above TrustPower's recommendation.

Electricity retailers are required by the Electricity (Low Fixed Charge Tariff Option For Domestic Consumers) Regulations 2004 to make a low fixed charge tariff option available to customers who use less than 8000 units of electricity per year at their primary place of residence. Under the regulations, electricity distributors are required to offer a wholesale LFCTO rate to retailers. The regulations also require retailers such as TrustPower to write to their customers annually telling them of the amount of electricity that they have used and, if this use is less than 8000 units of electricity over a year, that there may be some benefit to them of being on the LFCTO.

Although TrustPower complied with the regulations by sending a newsletter to their customers outlining the benefits of the LFCTO at least annually, the letters containing the tailored recommendation did not disclose sufficiently prominently that some customers may have been eligible and could have made potential savings by taking up the LFCTO.

"Without clear information about the scope of the review, the ability of TrustPower's customers to make an informed decision about their electricity plans was affected. This may have meant some customers missed out on the potential benefits associated with subscription to a low use option," said Adrian Sparrow, Commerce Commission Director of Fair Trading. "In order to avoid contravening the Fair Trading Act, businesses must ensure that they clearly disclose all relevant information to consumers."

"One concern to the Commission in deciding to prosecute this case was that in some circumstances TrustPower was able to purchase the cheaper LFCTO from distributors even though TrustPower was charging the residential customer at standard rates. The Commission was concerned that TrustPower stood to benefit financially in some cases where eligible customers did not take up the LFCTO," said Mr Sparrow.

In sentencing, Judge Harding categorised the offending as careless commercial conduct rather than conduct designed to obtain commercial advantage or to misinform.

"This case highlights that businesses need to take their compliance obligations under the Fair Trading Act seriously. Businesses can be found to be breaking the law where their conduct is liable or likely to deceive or mislead, even if they did not intend to deceive or mislead. The Commission encourages businesses to develop robust compliance programmes and has resources on its website to assist businesses in setting up a compliance programme."

Background

TrustPower is New Zealand's fourth largest electricity retailer and fifth largest electricity generator. TrustPower supplies power to homes and businesses throughout the North and South Island.

Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations 2004

Regulations under the Electricity Act require retailers to offer to eligible domestic consumers a low fixed charge tariff options of no more than 30c per day (excluding GST but after any prompt payment discount is subtracted).

Eligible customers are those who use less than 8000 units of electricity a year at their primary place of residence.

The Regulations require that, at least once every 12 months, TrustPower (and other electricity retailers) must promote the LFCTO by notifying each domestic consumer to whom it sold delivered electricity, or a component of delivered electricity in respect of a home, during the previous 12 months about:

 § the amount of electricity it sold to the consumer's home in the previous 12 months; and

 § that there may be benefits for the consumer in being on the option if the amount of electricity used per year is below 8000kWh; and

 § the main features of each of the current options that the electricity retailer makes available to homes in the supply area in which the home is located.

The regulations also require distribution companies to offer low fixed charge distributor tariff options (to retailers or direct to consumers) at a maximum of 15 cents per day.

More information on the LFCTO is available on the Ministry of Economic Development's website www.med.govt.nz

TrustPower sent out review letters to 208,199 customers. TrustPower sent out approximately 57,400 letters where the customer may have been eligible for a low use option which may have provided additional benefits.

The Fair Trading Act. Court penalties for breaching the Fair Trading Act can include fines of up to $200,000 for a company and $60,000 for an individual. Only the courts can decide if a representation has breached the Act.