Marketing and offers
Under the National Energy Customer Framework (NECF), retailers and retail marketers must comply with legal requirements in terms of information and marketing of retail contracts. In contrast, under the Australian Consumer Law (ACL) there are no requirements specifically for retailers or retail marketers but there are broadly applicable consumer protections including:
- core consumer general protections prohibiting misleading or deceptive conduct, unconscionable conduct
- specific protections against unfair practices, including (amongst others):
- false or misleading representations about goods or services
- misleading or deceptive conduct as to the nature of goods or services
- offers and unsolicited supplies of goods and services.
Figure 1.2 below compares key consumer protections for marketing and offerings under both the NECF and the ACL frameworks.
Figure 1.2: Marketing and offer consumer protections
National Energy Customer Framework
The NECF sets a specific framework to regulate energy marketing activities and what any person who carries out these activities must comply with. Under the NECF, energy marketing activities are any activities that market, advertise or promote consumer connection services or customer retail services. These activities are regulated not only by the energy marketing rules set out in the National Energy Retail Rules (NERR) but also by the ACL.
The NECF includes pre-contractual information and marketing rules as follows:
- Pre-contractual information: under the NECF retailers and retailer marketers have some pre-contractual obligations in terms of the information provided to small customers. If the retailer is the designated retailer (local area retailer) it has to inform the customer about their available standing offer, if it is not the designated retailer it must refer the customer to its relevant distributor and the distributor must advise the customer which retailer has an obligation to make a standing offer. These first requirements are not part of the energy marketing rules defined under the National Energy Retail Law (NERL) but are related to information requirements before the contract is formed and when retailers or retail marketers are offering retail services.
- Marketing rules: there are two provisions under the energy-specific marketing regulation defined under the NERL.
- No contact list: energy marketing rules retailers must create and maintain a 'no-contact list' for retail marketers, whether by the retailer itself or by a person or organisation on behalf of the retailer. Small customers may indicate they wish to be placed on the list and a retail marketer must not make contact with a small customer whose name is on the relevant contact list.
- Canvassing and advertising signs: additionally, under the NECF retailers and retail marketers must comply with any signs at a person's premises indicating canvassing is not permitted or no advertising or similar material, is to be left at the premises or letterbox. The protection is intended to stop any undesired marketing activities.
In terms of specific regulation for retail contract (standard and market retail contracts), the NECF sets additional marketing requirements as follows.
Standard retail contract
As mentioned, a designated retailer cannot decline to enter into a standard retail contract if the consumer makes the request and complies with the pre-conditions set out in the NERR. Additionally, a designated retailer cannot refuse the sale of energy to a residential customer under a standard retail contract on the grounds that the customer owes the retailer outstanding amounts from an unpaid account. These pre-contractual obligations are part of many other NECF provisions to guarantee the supply of energy.
Market retail contract
For market contracts, there is minimum information that must be provided to consumers before the formation of the market retail contract or as soon as practicable once the contract is formed, as follows:
- Pre-contractual information: the NECF intends that a consumer is well-informed about the contract terms and conditions that will be accepting. Therefore, a retail marketer are required to provide a small customer with the information related to:
- all applicable prices, charges and benefits to the customer (to the extent both are not otherwise part of prices), early termination payments and penalties, security deposits, service levels, concessions or rebates, billing and payment arrangements and how any of these matters may be changed (including, where relevant, when changes to prices will be notified by the retailer to the customer)
- the commencement date and duration of the contract, the availability of extensions, and the termination of the contract if the customer moves out during the term of the contract
- any requirement that is to be or may be complied with by an electronic transaction—how the transaction operates and, if appropriate, an indication that the customer will be bound by the electronic transaction or will be recognised as having received the information contained in the electronic transaction
- the rights that a customer has to withdraw from the contract during the cooling-off period, including how to exercise those rights
- the customer’s right to complain to the retailer in respect of any energy marketing activity of the retail marketer conducted on behalf of the retailer and, if the complaint is not satisfactorily resolved by the retailer, of the customer’s right to complain to the energy ombudsman.
Australian Consumer Law
Under the ACL, there are general consumer protections, as well as more specific protections to prohibit certain conduct. These include:
- Misleading and deceptive conduct: any person (including retailers, distributors, retail marketers, in general any energy market participant) must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
- Unconscionable conduct: the ACL includes provisions prohibiting a person from engaging in unconscionable conduct towards consumers or businesses. The term “unconscionable conduct” is not defined in the ACL, as its meaning has been developed by the courts. Conduct may be unconscionable if it is particularly harsh or oppressive such that it goes against good conscience, and to be considered unconscionable, the conduct must be more than simply unfair. In considering whether conduct to which a contract relates is unconscionable, a court may, non-exhaustively, consider the terms of the contract and the manner in which, and the extent to which, the contract is carried out, and is not limited to consideration of the circumstances relating to formation of the contract. The ACL sets a number of matters a court may consider when assessing whether certain conduct is unconscionable, which include:
- the relative strengths of the bargaining positions of the supplier and the customer
- whether the customer was able to understand any documents relating to the supply of goods
- whether any undue influence or pressure was exerted on the customer or any unfair tactics were used against the customer
- the amount the customer could have acquired identical or equivalent goods from a person other than the supplier.
- Unfair practices: additionally, the ACL also provides specific protections for unfair practices which could relate to marketing and offering activities in the energy sector.
- False or misleading representations:under this framework, a person cannot, in trade or commerce, in connection with the supply or possible supply of goods or services, make false or misleading statements. For example, a person must not make a false or misleading representation with respect to the price of goods or services. This provision, and the ACL's unfair practices provisions more generally, can apply to price competition practices in relation to energy contracts and advertisement in the NEM. The Australian Competition and Consumer Commission's retail pricing inquiry raised a concern that retailers have made pricing structures confusing and have developed a practice of discounting which is opaque and not comparable across the market.
- Offering rebates, gifts, prizes: additionally, the ACL also limits the offer of any rebate, gift, prize or other free item with the intention of not providing it or of not providing it as offered. Consumers are protected of unfair commercial practices that will not deliver what the customer is expecting from the offer.
- Bait advertising: the ACL contains a specific prohibition for bait advertising which takes place when an advertisement promotes certain (usually ‘sale’) prices on products that are not available or available only in very limited quantities. This provision considers the specified offer price, the quantities and the nature of the advertising.
- Referral selling: a person must not induce a consumer to buy goods or services by representing that the consumer will receive some benefit, such as a rebate or commission, in return for helping the business supply goods or services to other customers.
When a consumer receives unsolicited supplies of goods or services, the ACL protects them by providing that in such case, the consumer is not liable to make any payment for the goods or services and is not liable for loss or damage as a result of the supply of the goods or services. Energy consumers will be covered by these provisions for the supply of electricity or gas (goods for the purposes of the ACL) and for the supply of any other goods or services such as other energy products or services (i.e. batteries, solar panel, etc.).
Additionally, the ACL includes limitations on marketing practices when suppliers or sales persons approach or call a consumer without requesting it or being invited (unsolicited consumer agreements). Situations that can lead to unsolicited agreements are (amongst others):
- door-knocking and calls to offer the sale of products or services or invitations to switch to a different service provider
- personal approaches at any public place (i.e. shopping centre) with the mentioned purposes
- messages left on answering machines for the customer to respond.
These provisions and the ACL's unfair practices provisions more generally, compliment the consumer protections under the NECF and are applicable to price competition practices in relation to energy contracts and retail advertising in the NEM. For example, on 9 July 2018 the Australian Competition and Consumer Commission (ACCC) announced it was taking action against Click Energy for false or misleading marketing claims under the ACL. In March 2019, the Federal Court ordered penalties of $900,000 against Click Energy for making false or misleading marketing claims by offering discounts 'off-rates' that were higher than Click Energy's standing offer rates available to all consumers. This means that the effective discounts offered by Click Energy were smaller than what was advertised and, in some cases, consumers effectively received no discount at all. Of note, this amount nearly double the amount civil penalties the Australian Energy Regulator (AER) issued to retailers and DNSPs from 2018 for alleged breaches of the NECF, which totalled $460,000 for allegedly breaching the NECF.
The Click Energy case also demonstrates the overlapping nature of the ACL and NECF in some instances. On 20 March 2018, the Commission received a rule change request from the then Hon. Minister Josh Frydenberg MP, Minister for the Environment and Energy on behalf of the Australian Government, to restrict retailers from similar pricing practices. On 15 May 2018, the Commission made a rule to prohibit confusing retail discounting practices where retailers increase the base rate of a market offer to above the level of its standing offer to advertise a larger discount.
As mentioned, there are other retail pricing practices that raise consumer protection issues. For example, Choice states that in late 2018, Sumo Power allegedly increased some of its customers' prices by over 50 per cent within weeks of signing the customer up with the offered rate. Further, this original lower priced offer was still available to new customers who wanted to switch to Sumo Power. The ACCC has announced through its Compliance and Enforcement Priorities that in 2019 a focus will be on opaque and complex pricing practices of essential services, in particular energy and telecommunications. Within this framework, the practice of retailers significantly raising prices soon after a customer transfers on a variable priced contract is likely to be a focus.