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4 May 2015

Fixed-term deals not fair

Energy contracts may bring unwelcome surprises.

If you’ve signed up for a fixed-term contract with your energy company and think it will come to an end when the term’s up, you may get an unwelcome surprise.

Some contracts allow power companies to automatically renew fixed-term deals, making it hard for consumers to switch providers without incurring early termination fees. Unless customers opt out, they’ll be stuck on a new contract.

On Mercury Energy’s fixed-term plans, the company can automatically renew your contract simply by sending you notice of its new prices before the end of the term. If you don’t want to sign for another term, you have to advise the company in writing. If you do nothing, your plan will be renewed and the only way to escape the deal is by paying a $150 early termination fee.

Similarly, on Meridian Energy’s fixed-rate plan you’ll be signed up for another term unless you contact the company saying you want to opt out. If you want to switch provider after Meridian has renewed the term, it can charge an early termination fee of about $100 (the amount varies depending on which plan you’re on).

We think it’s unfair to sign customers to fixed-term contracts without their express consent and then charge them a fee to break the contract.

We wrote to Mercury and Meridian suggesting their renewal practices may breach the unfair term provisions of the Fair Trading Act and asked them to consider amending their contracts. Both companies told us they believe their automatic renewals comply with the Act.

We’re not convinced. In the UK, the Office of Gas and Electricity Markets has banned suppliers from automatically renewing fixed-term contracts. If a customer takes no action before the end of a fixed-term contract, the supplier is required to put the customer on to the cheapest open-term contract available.

Telecommunication providers in Australia and the UK have also been told to ditch automatic renewal clauses.

The Commerce Commission has said it will be “paying careful attention to terms that limit competition, such as automatic ‘rollover’ or renewal terms and terms that lock consumers into contracts that they wish to exit, preventing them switching to a competitor”.

We’ll be asking the Commerce Commission to take a closer look at these terms. Rollover clauses result in unintentional contract renewals, decreased switching and increased switching costs.

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