Do energy sales practices harm consumers?

Minimising detriment to consumers

Energy door-to-door selling has played a major role in the development of Victoria’s retail energy market. But as door-to-door selling activity has grown, so too has concern about the detriment it can cause to consumers—especially vulnerable consumers. One of CUAC’s latest research projects reviewed the policy and academic literature  on different approaches to minimising this detriment.

Detriment: definition and extent

Energy door-to-door selling can result in both financial and non-financial consumer detriment. Non-financial detriment includes the time loss and the annoyance that results when uninterested consumers are interrupted by a door-to-door sales call. While this is often fairly minor, should a sales agent conduct themselves poorly, or if the consumer is vulnerable, this non-financial detriment can be much greater.

For consumers who agree to switch at the door, the aim is typically to save money—but this aim is not necessarily achieved. In the UK, a 2008 study found that just under half of those switching at the door were actually made financially worse off by the change. This may be because door-to-door selling creates a ‘situational monopoly’: an environment in which the consumer is reliant on the information provided by only one supplier and cannot ‘shop around’ to find the best deal.

In Victoria, we know that some of the retailers with the most extensive door-to-door sales activity also tend to have the market’s more expensive offers. Nonetheless  we do not know what proportion of consumers switching door-to-door incur financial detriment. This is a major gap in our understanding of both door-to-door selling and, more broadly, the functioning of our retail energy market. CUAC has recommended that the Victorian Government commission research to fill this critical evidence gap.

Consumer law

Door-to-door selling in Victoria falls under the provisions of the Australian Consumer Law (ACL), as well as Victoria’s Code of Conduct for Marketing Retail Energy.  CUAC’s research examined the content of each of these, as well as regulators’ approaches to their enforcement.

Throughout 2012, the Australian Competition and Consumer Commission (ACCC) prioritised enforcement of the Australian Consumer Law in relation to energy door-to-door sales, filing proceedings against energy retailers and the door-to-door sales companies they had engaged. A September 2012 Federal Court ruling found that Neighbourhood Energy and its door-to-door contractor had breached the Australian Consumer Law, ordering penalties totalling $1 million.

The case demonstrated that under the new ACL, energy door-to-door sellers can face penalties for misleading and deceptive conduct and for failing to respect requests to leave – including those made via Do Not Knock stickers. It is too early to assess whether this enforcement action will lead to improved compliance, but the case was widely reported and seen as a landmark. CUAC recommended that the ACCC solidify these gains by maintaining its focus on enforcement and testing of the ACL in relation to door-to-door energy sales.

In contrast to the ACCC’s active enforcement, Victoria’s Essential Services Commission (ESC) has taken a ‘light-handed’ approach to promoting compliance with its Energy Marketing Code. Despite ongoing breaches as evidenced by retailer self-reporting and regulatory audits, the ESC has at no  point used its statutory enforcement powers to ensure compliance with requirements relating to the information that must be provided to consumers at the door.

It is crucial that consumers making switching decisions on the basis of door-to-door sales presentations are given clear, truthful and comprehensive information about the offer they are considering. CUAC’s report recommends that the ESC take stronger enforcement action should retailers fail to comply with administrative undertakings made following the most recent round of regulatory audits.

Consumer-centred approaches

CUAC’s research also examined consumer-centred approaches to minimising detriment: approaches which equip and rely upon consumers to protect themselves from any misconduct or detriment. One set of such consumer-centred policy approaches are those which allow consumers to opt-out of any interaction with door-to-door sales agents. These opt-out mechanisms include Do Not Knock stickers, No Cold Calling Zones and No Contact lists and registers.

While Do Not Knock stickers now have unambiguous legal status, CUAC is not convinced that they represent the most efficient and effective opt-out mechanism for consumers. At the Federal level, the possible introduction of a Do Not Knock Register – similar to the Do Not Call Registers already in place in Australia and around the world – has recently been debated but is unlikely to go ahead. This is disappointing. The immense popularity of Australia’s Do Not Call Register, which allows consumers to opt-out of telesales calls, shows that consumers strongly support initiatives that allow them to avoid intrusive marketing.

BothVictoria’s Energy Marketing Code and the National Energy Customer Framework require individual retailers to maintain No Contact lists to which consumers who do not wish to be marketed to can request to be added. While CUAC supports the intent of these provisions, they are unpublicised, unnecessarily complex (since a consumer must request addition to each retailer’s list separately), and probably ineffective. CUAC has recommended that the ESC develop an online tool, that would allow consumers to request addition to retailers’ No Contact lists via a single, centralised form, thereby transforming existing No Contact list provisions into a potentially effective opt-out mechanism.

Self-regulatory and voluntary approaches

Finally, CUAC’s report examines self-regulatory and voluntary approaches to minimising consumer detriment from door-to-door sales. These approaches  rely upon industry, either collectively or at the individual business level, to manage its own behaviour in the interests of consumers.

Voluntary industry codes of conduct began proliferating in the 1990s, and the report discusses two examples of their use in relation to energy door-to-door sales.Australia’s Energy Assured scheme began operation in January 2012, with aim of increasing compliance with the existing regulatory framework.

While its effectiveness has yet to be demonstrated, its design has some of the features of a potentially effective code. Consumers were not sufficiently involved in the design and development of the scheme. On the positive side, however, it does have full industry coverage. While it does not substantially exceed legislated standards, it does include failed detailed operational processes which have the potential to improve compliance with those standards. While Energy Assured does not itself include complaints handling and redress mechanisms, CUAC accepts that existing retailer and Ombudsman processes are in place and should not be duplicated. Finally, effective codes need meaningful monitoring and enforcement. Energy Assured does include a proper monitoring and sanctions regime for members, although we have some concerns about the rigour of those sanctions.

More information about the operation of Energy Assured should be made publicly available, but the information that is available suggests that the scheme is being implemented as planned.

It is too early to assess Energy Assured’s success in increasing compliance. EWOV marketing and transfer case trends since April 2011, however, are interesting. Related complaints dropped very substantially over the second half of 2011 – before Energy Assured came into operation – but have since  begun creeping upwards again. This trend is somewhat concerning, but will need to be tracked over the longer term. CUAC has recommended that the ACCC only re-authorise the Energy Assured Scheme if its effectiveness is convincingly demonstrated.

In the UK, the consumer organisation Consumer Focus in 2011 launched a successful campaign calling on energy retailers to voluntarily agree to bring an end to door-to-door selling. Citing consumer surveys showing widespread dislike of door-to-door selling, Consumer Focus argued that the practice was eroding the reputation of energy retailers, and encouraged them to replace door-to-door selling with alternative ways of providing information and advice to consumers. Consumer Focus’ campaign enjoyed strong support from consumer groups, the media and politicians, and within one year, the UK’s major ‘big six’ retailers had agreed to abandon unsolicited door-to-door sales.

In CUAC’s assessment, the different conditions inVictoriamean that a similar call on retailers to entirely abandon door-to-door sales is unlikely to be successful. Nonetheless, we have recommended that the Energy Retailers Association of Australia takes a leadership role in encouraging and supporting retailers to develop innovative marketing and sales methods that are better aligned with consumers’ preferences, and which support effective consumer decision making. Such a shift in focus would, we believe, help to improve both competition and consumers’ trust in retailers and the retail energy market.

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