06 February 2015
Practice Group(s):
Energy, Infrastructure
and Resources
Antitrust,
Competition, and
Trade Regulation
Australia's Federal Court Mandates Greater Care
When Offering Discounts on Energy Usage
Charges
Australia Energy, Infrastructure and Resources Alert
By Jenny Mee, Murray Deakin and Jemimah Roberts
The Federal Court of Australia has found that AGL South Australia Pty Ltd (AGL) made
false or misleading representations and engaged in misleading or deceptive conduct,
concerning the level of discount that residential customers in South Australia would
receive under AGL’s energy plans.
The case has implications for energy retailers in how they construct energy plans and
how they communicate discounts on energy usage charges payable under different retail
contracts.
In the proceedings, the Australian Competition and Consumer Commission (ACCC)
essentially alleged that having induced certain residential customers to contract with it for
the supply of their electricity on the basis that they would receive a certain percentage
discount off their energy usage charges, AGL increased the rates applicable to those
particular customers with the consequence that the effect of the discounts was reduced
or eliminated.
Background
During 2012, AGL supplied electricity to residential customers in South Australia under
two forms of contract:
•
Standing contracts – which contained prices fixed by the Essential Services
Commission of South Australia and contract terms and conditions set out in the
Energy Retail Code.
•
Market contracts – under which retailers were free to set their own prices, and
which were required to have the minimum terms and conditions set out in the Energy
Retail Code but which could also include other terms and conditions agreed between
the retailer and the customer.
During the period 1 January 2012 to 6 December 2012 (the Relevant Period), numerous
customers accepted AGL's offer to enter into an 'energy plan'. The principle features of
the plans were that the customers committed to obtain their electricity from AGL for a
fixed period, usually two years, in exchange for an identified percentage discount in their
electricity usage charges. This case concerned AGL's statements to customers, who
entered into energy plans with AGL, following a telephone call made by those customers
to an AGL Customer Service Representative (CSR) in the Relevant Period. Customers
who agreed on an energy plan with AGL entered into a market contract.
Following the commencement of the National Energy Customer Framework (NECF) in
South Australia on 1 February 2013, retail price regulation ceased. Consequently, AGL
Australia's Federal Court Mandates Greater Care When Offering
Discounts on Energy Usage Charges
could determine the price of electricity supplied under either type of contract, known
under the NECF as 'standard retail contracts' and market contracts. (For the purposes of
this Legal Insight, the abbreviation 'SRC' refers to both 'standing contracts' under the
former regime and 'standard retail contracts' under the NECF.)
1. Rate Categories
AGL had developed several different categories of rates governing the amount charged
in a given market customer's case (before any specified discounts were applied).
Relevantly:
a. First Period (Jan to Jul 2012): Rate Category 3: Customers commencing on
market contracts under energy plans in the period 1 January 2012 to 18 July 2012
(First Period) were assigned to AGL's Rate Category 3.
b. Second Period (Jul to Dec 2012): Rate Category 5: Customers commencing on
market contracts under energy plans between 19 July 2012 and 6 December 2012
(Second Period) were assigned to AGL's Rate Category 5.
Exceptions to the above categories were customers who were employees of AGL or one
of its related entities, and multi-site customers. In the First Period, these customers were
assigned to Rate Category 7, and in the Second Period, to Rate Category 12. (AGL later
consolidated Rate Category 12 into Rate Category 7.)
The discounts to which Rate Category 3 and 5 customers were entitled depended upon
the particular energy plan which they had agreed with AGL. Those plans provided for
discounts which ranged between 3-15%. Employee and multi-site customers (in Rate
Categories 7 and 12) received a higher discount.
2. Rate Increases
In the First Period, the rates in Category 3 (by reference to which the percentage
discount was calculated) matched both the SRC rates and the Category 7 rates.
However, in July 2012 AGL increased the rates in Rate Category 3 (the Mid-2012 Rate
Increase). Around this time:
•
The SRC rates and Category 7 rates were also increased, but not as much as the
Category 3 rates.
•
AGL introduced new Categories 5 and 12, with rates that matched the new SRC
and Category 7 rates, but which were less than the new Category 3 rates.
The effect was that AGL fixed higher rates in respect of those with whom it had already
agreed an energy plan (on Category 3 rates), but lower rates in respect of new
customers with whom it wished to negotiate an energy plan or have enter into an SRC.
AGL again increased both Category 3 and Category 5 rates in about July and August
2013 (the Mid-2013 Rate Increase). After 1 August 2013, the rates in Categories 3 and 5
were higher than both AGL's 2013 SRC rates and its Category 7 rates.
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Australia's Federal Court Mandates Greater Care When Offering
Discounts on Energy Usage Charges
False or Misleading Statements Alleged
AGL informed the Category 3 customers of the Mid-2012 Rate Increase by letters sent in
July and August 2012 (the Mid-2012 Rate Increase Letters). The letters were in the form
of two pro forma letters, and included the following statements: "Sites that have Energy
Plans with discounts or rebates will continue to receive these" and "Any discounts or
rebates you currently receive on your energy usage charges will continue to apply". As
noted by the Court, both letters told customers that they would "continue" to receive their
discounts.
The ACCC alleged that in combination with statements to the Category 3 customers at
the time they entered into their market contracts (both in oral statements of the CSRs and
in written statements in 'Welcome Packs'), both forms of the Mid-2012 Rate Increase
Letters contained a representation by AGL to Category 3 customers to the effect that
they would continue to receive their percentage discount off:
a. AGL's energy usage charges that would apply to them if they were supplied
electricity by AGL not under an energy plan
or
b. the energy usage charges for the supply of electricity by AGL to residential
customers in South Australia,
for the duration of their energy plan (the Mid-2012 Discount Representation).
The ACCC alleged that the Mid-2012 Discount Representation was therefore false or
misleading for Category 3 customers because, contrary to the true position following the
Mid-2012 Rate Increase, they would not continue to receive a discount from the charges
which would apply in their case, if they were not party to an energy plan, or from the
charges applicable to residential customers generally.
By contrast, AGL used one form of pro forma letter to inform both Category 3 and
Category 5 customers of the Mid-2013 Rate Increase. Relevantly, these letters did not
include counterparts to the statements in the two Mid-2012 Rate Increase Letters
concerning the continuance of the discounts to which the customers were entitled.
Nevertheless, the ACCC also alleged that the Mid-2013 Rate Increase Letter contained a
representation (the Mid-2013 Discount Representation) that there had been no change to
the discounts which the customers were receiving, and that this representation was made
to both Category 3 and Category 5 customers.
Decision
1. Initial Representation
The ACCC contended that, by AGL referring in general terms in its marketing
communications to discounts off energy usage charges, AGL had promoted, offered and
entered into energy plans with Category 3 customers on the basis of a representation
(the Initial Representation) that, for the duration of their energy plans, they would receive
a percentage discount off:
a. AGL's energy usage charges that would apply to them if they were supplied
electricity by AGL not under an energy plan
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Australia's Federal Court Mandates Greater Care When Offering
Discounts on Energy Usage Charges
or
b. the energy usage charges for the supply of electricity by AGL to residential
customers in South Australia.
The ACCC identified three sub-classes of Category 3 customers to whom AGL had
allegedly made the representation:
"(i) Customers who were aware that AGL could supply electricity to them whether
or not they agreed on an energy plan
(ii) Customers, being a subset of (i), who were aware in addition that the entry
into a standing contract (whether or not they knew it by name) was the means by
which AGL could supply electricity to them if they did not agree on an energy plan
(iii) Customers who were not aware that AGL could still supply electricity to them
in the event that they did not enter into an energy plan. These customers thought
that they had to enter into an energy plan if they wished AGL to supply electricity
to them."
AGL disputed the above formulation of the Initial Representation, and Justice White
considered this issue at length. After dismissing numerous counter-arguments raised by
AGL, Justice White held that:
•
the Initial Representation to the sub-class (i) and (ii) customers was that they
would receive a discount from the prices AGL would otherwise charge without an
agreed energy plan in place
•
the Initial Representation to the sub-class (iii) customers was that they would
receive a discount from their energy usage charges calculated by reference to
rates which were generally applicable to residential customers like themselves.
2. Were the Mid-2012 and Mid-2013 Discount Representations false or
misleading?
Having established the correct formulation of the Initial Representation, Justice White
then considered whether the Mid-2012 and Mid-2013 Discount Representations were
misleading or deceptive.
a. Mid-2012 Discount Representation
His Honour held that the Mid-2012 Discount Representation was misleading in
relation to sub-class (i) and (ii) customers. This was because they were told that the
discount that they were then receiving would continue to apply, however this was not
the case as the discount was no longer from the amount they would be charged if
they were not on an energy plan.
Similarly, the Mid-2012 Discount Representation to the sub-class (iii) Category 3
customers was held to be a misrepresentation, as these customers would no longer
receive the agreed discount from charges calculated by reference to rates AGL
applied generally to customers like themselves, but from charges calculated by
reference to a category of rates which AGL itself assigned to these customers and
then increased selectively. Those rates were higher than those which applied to
otherwise similar customers who entered into energy plans with AGL following the
Mid-2012 Rate Increase.
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Australia's Federal Court Mandates Greater Care When Offering
Discounts on Energy Usage Charges
The effect of this was that it reduced the benefits of the discounts represented to the
customers when they agreed on their energy plan.
The Mid-2012 Discount Representation was also held to be misleading or deceptive
in contravention of section 18 of the Australian Consumer Law (i.e., misleading or
deceptive conduct) for the same reasons regarding the false or misleading
representations issue.
b. Mid-2013 Representation
The ACCC further claimed that by sending the Mid-2013 Rate Increase Letter after
earlier making the Initial Representation and the Mid-2012 Discount Representation,
AGL represented to the Category 3 customers that there had been "no change" to the
discount they were receiving and would continue to receive for the duration of their
energy plan. However, the Court noted that the Mid-2013 Rate Increase Letters were
materially different from the Mid-2012 Rate Increase Letters because they did not
contain any statements to the effect that the customers would "continue" to receive
their discounts. As such, it was held that the Mid-2013 Discount Representation was
not a misrepresentation, as "[a]n absence of an indication of change is not equivalent
to a positive or implied representation that there has been no change".
3. Misrepresentation by silence?
The ACCC's additional claim that AGL had a positive obligation to disclose certain
information to these customers at the time of both the Mid-2012 and Mid-2013 Rate
Increases, and by failing to do so engaged in misleading or deceptive conduct, was
rejected. The Court considered that the ACCC had shown no basis for a conclusion that
the customers had an interest in being informed of the particularised details.
Penalty Hearing
A hearing will be held in the Federal Court of Australia in Adelaide at a later date in
relation to the relief sought by the ACCC, as well as redress for the customers affected
by AGL's conduct.
Implications
The decision has implications for other energy retailers in Australia, as it demonstrates
the need to consider carefully how discount offers should be communicated when made
to customers who are exposed to different categories of energy usage rates, particularly
when the level of discounts enjoyed by those customers depends upon their particular
energy plans. The principles articulated in this case are also relevant to other industries
when making discount offers in complex pricing environments.
The risks of misrepresentation associated with general discount offers increases
substantially when made in complex pricing environments where customers are subject
to different contracts, different energy usage rates, different energy plans, and/or different
levels of discounts.
This case also highlights the potential for discounts to be construed by reference to a
standard not necessarily contemplated by the energy retailer in the first instance. The
case is a further reminder that marketing communications can be held to be misleading
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Australia's Federal Court Mandates Greater Care When Offering
Discounts on Energy Usage Charges
or deceptive even if the contract and all other regulatory disclosure requirements are
complied with.
Authors:
Jenny Mee
jenny.mee@klgates.com
+61.2.9513.2555
Murray Deakin
murray.deakin@klgates.com
+61.2.9513.2335
Jemimah Roberts
jemimah.roberts@klgates.com
+61.2.9513.2406
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