New Standard in Energy Contracts

07 November 2016

Unfair contract terms provisions were introduced in March 2015 as part of changes to the Fair Trading Act. The provisions are designed to protect consumers from contract terms that create a significant imbalance of rights or obligations between the company and the consumer.

Energy Contracts in New Zealand

The Commerce Commission has now completed its review of retail energy contracts (including retailer feedback) to ensure that they meet minimum standards required by the fair trading act. While focused heavily around the consumer market the results of the review will have an impact on commercial customers.

This is mainly in the area of liability and automatic renewals with opt out clauses along with contract termination fees that are applied to auto renewed contract terms. A review of these clauses has been long overdue, as an adviser and consultant this is an area that we have always held a negative view and retailers have been at times very stubborn when proposed changes are requested. For our customers, clauses such as this have always been highlighted and further contextual information requested especially around liability.

Commissioner Anna Rawlings 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 terms were common across the contracts, particularly those that limited the liability of the company, allowed the company to unilaterally vary the contract or automatically renewed fixed term contracts unless the customer opted out.

The commission ruled on these areas as follows:

  • Liability needs to be balanced between the retailer, customer and distribution provider.
  • “Opt Out” contract renewals are not unfair per se but the commission does not look fondly on them.
  • Termination fees cannot be charged on auto renewal agreements given that the customers have not signed a new contract term.

Of the retailers that had auto renewal terms in their small commercial contracts, some have dispensed with opt out renewals completely whereas others have agreed not charge termination fees.

Regarding the wider terms that were highlighted, in some instances the companies were able to provide information to the Commission to show that the term was necessary to protect the legitimate business interests of the company. In all other cases, the companies accepted the Commission view and have amended or agreed to amend the terms concerned.

Rawlings further commented,

We are pleased that the energy retail companies constructively engaged with us and were receptive to our concerns, avoiding the need for the Commission to consider court action. Most New Zealanders have a standard form consumer contract with an energy retail company or live in a house that is covered by one. Our review covered 90% of the energy retail market in New Zealand and New Zealanders can now be more confident about the fairness of those contracts, which is a great outcome.

With the review of telecommunication contracts in February and energy contracts now complete, the commission is now investigating gym membership and credit contracts.

Total Utilities reviews all contract terms and conditions prior to submission of recommended contracts to customers, this includes comments where applicable around required quantities, assignment, termination and force majeure along with project-specific needs.