Energy Online pays $1 million for misleading price freeze
16 October 2006
Electricity retailer Energy Online broke the law when it claimed Hawke's Bay and Waitemata customers were on a "price freeze," but still increased prices, the District Court has found.
In the District Court in Napier, Judge Rea found Energy Online guilty of ten charges of breaching the Fair Trading Act, and fined the company $140,000 in the District Court in Napier.
A total of $860,981 either has been or will be refunded to Energy Online customers. Costs of $6,300 bring Energy Online's total payout to just over a million dollars.
During 2003 and 2004, Energy Online marketed a price freeze to potential customers. It told them that the 'energy portion' of their bill would not go up during the period of the freeze.
The company later did increase customers' bills during the price freeze period, to pass on increased electricity distribution charges, and also increased its own overhead charges to most Hawke's Bay customers by 70 per cent.
The Court found that the overall impression created by the price freeze offer was that prices would not go up at all, and this impression was misleading.
Judge Rea commented that Energy Online had misrepresented the nature of the offer to try and get as many new customers as possible, and had not properly explained to customers exactly what the price freeze would mean.
Commerce Commission General Manager Geoff Thorn said that the price freeze campaign had achieved its goal of attracting new customers to Energy Online, with the company substantially increasing its customer base as a result of the promotion.
"The success of the campaign shows that consumers will change their behaviour based on what they are told about prices," Mr Thorn said. "That is why consumers must be given clear, correct information.
"When consumers have accurate information they will choose the best deals, which in turn drives competition and brings prices down," says Mr Thorn.
"When they are given misleading information they may become cynical about future offers, and less likely to shop around for a good price."
Mr Thorn said the Commission was pleased that consumers would receive refunds from Energy Online for the money they paid when price rises occurred during the 'freeze'. Some customers have already been compensated; others have refunds still to come.
New Zealand's electricity industry has four main parts: generation, transmission, distribution, and retail. The Commerce Commission regulates the prices charged by transmission company Transpower, and by the 28 electricity distribution companies. Electricity retailers like Energy Online face competition and are not regulated, but are still covered by the Fair Trading Act.
The Waitemata 'price freeze' offer ran from February 2003 to February 2004. In March 2004 Energy Online wrote to Hawke's Bay customers telling them about a price rise that would take effect on 1 April 2004.
The Hawke's Bay campaign ran from October 2003 to March 2004. In February 2004 Energy Online wrote to Hawke's Bay customers telling them about a price rise that would take effect on 1 March 2004. The offer to Hawke's Bay consumers read: "Electricity prices frozen till June 2005. Energy Online guarantees that we will fix the energy portion on your Electricity Account through to June 2005."