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Even when you’ve read the fine print…

By Don Aitkin - posted Thursday, 13 August 2020


I've come across an interesting court case in the energy area, but first I'll comment on a change in my circumstances. Now that I'm in an aged care facility I don't get mailed messages urging me to adopt solar technology on my roof. If I do, I was told, my electricity would be free! But I still see the ads on the television screen. Alan Border, of cricket fame, is still offering me, at $4691 up front, a package from the company he pitches for. At least he doesn't say that the power thus generated is free. A couple of other companies do, showing smiling couples relieved that from now on their power is free. In my view this is akin to dishonesty. You have to buy something like $5000 worth of plant first. Electricity used to cost me about a thousand dollars a year, and I had gas for hot water. The air conditioning was electric of course. So it would have taken me five years to pay off the up-front cost. Then, and only then, would I have "free" electricity.

And then come the imponderables. How long will the solar panels last? Are you expecting to make money by selling your surplus power, if any, to the grid? Will there be another huge hailstorm? Canberra gets severe hailstorms on average every five years . In South Australia there is a warning that solar arrays and rooftop solar might have to be switched off to prevent blackouts. The future is unknown. So just as you have paid for your up-front system come some possibilities that the advertisers didn't tell you about.

Back to the court case (summon it up at ACCC v Sumo Power Pty Ltd - Concise Statement.pdf). And a caveat: you are reading only one side of the case. I learned long ago that before coming to judgment on anything you should wait to hear both sides. Nonetheless, this set of allegations is clear and accessible to anyone. The ACCC investigated Sumo during what it called Relevant Periods.

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ACCC alleges that "Sumo misled consumers about prices for its services through an undisclosed predetermined pricing strategy, which involved signing up new customers to electricity plans offering low rates and large discounts and then materially increasing rates a short time later. Sumo also misled consumers with respect to the affiliation of its agents who made unsolicited sales calls to consumers, and the reasons for its rate increases".

Sumo is based in Melbourne, and offers plans of various kinds. It claims to be Australian-owned. On the face of it, it simply packages power (electricity and gas in Victoria, electricity in New South Wales) and offers its plans to consumers. Some twenty other providers do something like this too. The grid of course takes in solar and wind power, though not much of either. But the real link between Sumo and the solar rooftop people is the sheer uncertainty of what might happen in the future.

So here is what might happen, according to the ACCC, if you were a new Sumo customer. You get allocated to a different 'book' under the book system, which has a front book (FB), a mid book (MB) and a back book (BB). "Customers allocated to FB paid the lowest rates and provided low, nil or negative profit margins to Sumo. Customers allocated to MB and BB paid significantly higher rates and provided greater profit margins to Sumo".

Now what customers did not know was that Sumo had an undisclosed predetermined pricing strategy, called the Acquisition Pricing Strategy. You're in the market for a plan or want to find the lowest price? You will be offered the FB, and then you will be migrated to MB or BB, once you're in. Another device was the Cheap Price Offer: pay on time and you get a discount, up to 43 per cent, and that will be the case for the next year. Shortly after you signed on, alas, you would be migrated to MB or BB. At all material times you the new customer knew nothing of this arrangement. It would just happen.

Now, the marketing agents, companies paid to solicit customers for Sumo, announced themselves as energy consultants, and told them of Sumo's great offers along the lines set out above. The agents at no time mentioned the Acquisition Pricing Strategy or the planned migration scheme. Once you were on board, and before the migration from FB upwards, Sumo sent a letter to customers, with a similar statement on its website, advising them of the reasons for the coming price increases. It "attributed price increases to generation costs caused by factors such as climate change, the closing of Hazelwood power station, the cost of upgrading networks and the fees Sumo must pay to distributors". Nowhere was the Acquisition Pricing Strategy or the planned book migration disclosed.

Now what would you think? You've been told that the Cheap Price Offer is to last for twelve months. Suddenly you're told that climate change and other issues have made this offer null and void. You would be angry and upset. ACCC had similar feelings, and it alleges that "The Cheap Offer Representation was false, misleading or deceptive or likely to deceive in that, by reason of the undisclosed Acquisition Pricing Strategy and Planned Book Migration, Sumo did in fact plan to and did, during the Relevant Period, materially increase the rates for customers who had accepted the Cheap Price Offer and had received at least 1 to 3 (monthly) bills".

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What is more, the ACCC alleges that Sumo is responsible for the behaviour of the Marketing Agents, who it alleges plainly gave false and misleading accounts of themselves to possible customers, because they were not independent at all, and were acting on behalf of Sumo.

So there. To repeat the warning I gave at the beginning, this account is based on the case presented by the ACCC. I do not know Sumo's response, and will be fascinated to learn what it is. So let me move now to what seems to have happened over the last twenty years. First, State Governments decided that they could make some money to spend on other needed infrastructure projects if they sold off their poles and lines businesses. That was successful for them. Second, we got into rooftop solar, solar arrays and wind turbines on the basis of a forthcoming climate emergency/crisis. Third, Governments did not inspect these claims as thoroughly as they might have, partly because the Greens were pushing them, and partly because the issues were now in part the responsibility of the private sector. Fourth, for all these reasons, and an overarching lack of common sense, we now have a hugely untidy, unreliable and expensive electricity system.

What should we do about it? Whee! We need a single public utility that is responsible for maintaining a reliable, cheap and forward-looking electricity system. I'll leave gas out of it. We do not need a multitude of competing companies trying to outdo each other in providing the right 'plan'. I doubt that my dreamed-of future is at all possible, at least until there is a system-wide disaster. I do not look forward to it.

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This article was first published on Don Aitkin.



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About the Author

Don Aitkin has been an academic and vice-chancellor. His latest book, Moving On, was published in 2016.

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