Ontario Energy Board Fines Summitt Energy Management $299,000 for Consumer Protection
Violations Email This Story November 19, 2010
The Ontario Energy Board has issued an
administrative penalty and costs totaling up to $299,000 against Summitt Energy Management
related to sales agent activities that the Board found contravened the Ontario Energy
Board Act, 1998 (all dollar amounts Canadian).
The case against Summitt involved allegations that five of its sales agents had engaged
in unfair practices while signing customers onto energy contracts.
A Panel of the Board ruled on the case following an extensive hearing, and determined
that Summitt and its sales agents contravened the requirements of the applicable
legislation, regulation, and Codes of Conduct.
An administrative penalty of $234,000 is intended to address the contraventions and
is in accordance with Ontario Regulation 331/03, which sets out the criteria for
determining the amount of the penalty set by the Board. The balance of the penalty
represents costs of the Board's investigation.
The Board also ordered Summitt to procure an independent review and audit of the
revised sales practices used by its retail salespersons, and ordered Summitt to file
the result of the review and audit with the Board by January 15, 2011.
In cases where the Board made a finding of non-compliance, Summitt must cancel, without
penalty or cost, the electricity or natural gas supply contracts entered into by
each of the complainants, and must compensate them.
The Board did not believe that suspending Summitt's door-to-door sales activities
was the appropriate approach at this time, but the Board could reconsider this issue
if it is not satisfied with the result of the review and audit.
The Board's order cited a number of concerns regarding Summitt's marketing practices.
For example, the Board found that, "[i]t was clear from the testimony of Summitt's
salespersons that a few hours of training was not an adequate foundation for someone
who is expected to go into homes to sell these very significant contracts to relatively
uninformed consumers on the basis of price comparisons or promises of lower prices."
In particular, the Board expressed concern with Summitt's "two part" contract which
included a "Registration Form," and a "Customer Agreement with Terms and Conditions."
"The initial contractual document was curiously entitled 'Registration Form,'" the
Board said. "This is the document that was signed by the prospective customer at
the doorstep. In Summitt's view, the execution of this 'Registration Form' creates
a complete contractual nexus with the customer once the separate Customer Agreement
with Terms and Conditions document was delivered. It is noteworthy that this initial
document is ambiguous as to its status as a binding contractual document. Certainly
the title of the document seems to create an impression that the prospective customer
is merely registering for a program, or signing up to receive further information,
rather than entering into a long-term fixed-price contract for the provision of electricity,
natural gas, or both," the Board said.
Additionally, the Board said that the "Customer Agreement with Terms and Conditions"
which the Registration Form references, "is also presented in a very ambiguous manner."
"The document looks like a promotional brochure intended to encourage parties to
enter into a contractual relationship, and not as an integral, indeed critical, element
of an existing contractual relationship," the Board said.
"From the evidence before the Board, it appears that the retail salespersons did
not refer to the Registration Form as a binding contractual document when selling
to customers and instead referred to it as an 'application' or 'registration'. The
Board heard repeatedly that the retail salesperson would fill in all of the information
on the form, often in advance of the door-to-door visit. In many cases, customers
clearly had no appreciation of the impact of signing the Registration Form until
well after their interaction with the retail salesperson was over. Moreover, the
retail salespersons repeatedly described the document containing the terms and conditions
as a 'brochure' during their evidence and appear to have used that term when speaking
with the customers. Most tellingly, none of the retail salespersons specifically
referred the prospective customers to any of the specific terms or conditions contained
in the 'Customer Agreement with Terms and Conditions' even though it contained important
details of the contractual arrangement, including terms relating to liquidated damages
and termination of the contract that strongly favoured Summitt," the Board said.
The Board also had "serious concerns" with the price representations contained in
Summitt's brochures. "The trendlines in these brochures typically misrepresented
the actual market price of the respective commodities at the time the sale was being
made and illustrated a fixed price that was lower than what the customer was actually
being offered under Summitt's program," the Board said.
"Another shortcoming of Summitt's comparative pricing information is that it did
not take into account the Provincial Benefit," the Board added.
The Board also said that the required reaffirmation call was, "rarely described as
what it was intended to be - an opportunity for the consumer to review the contractual
terms and reaffirm or not reaffirm a long term fixed price contract for the supply
of electricity and/or natural gas."
Instead, the Board found that agents described the call as, "a confirmation that
the retail salespersons had in fact attended at the house of the prospective customer
... [or] [i]n other instances it was described as a quality assurance kind of exercise
where the performance of the agent would be vetted by the head office."
"It appears to the Board that the effectiveness of the reaffirmation call as a genuine
cooling off device was fatally undermined by the fundamental misunderstanding created
by the retail salesperson during the sale," the Board said.
Accordingly, "[t]he Board does not find this is to be a case of five rogue agents.
As detailed above, a substantial contributor to the misunderstanding of prospective
customers about the true nature of the contractual arrangement they were entering
was not rooted in the actions of the retail salespersons, but rather directly in
the organization of the sale devised and designed by Summitt itself. Further, the
Board finds that while Summitt may have had, on paper, a compliance program, in all
of the circumstances it fell far short of any reasonable standard in its operation,"
the Board said.
The Board's 56-page order, which examines agent behavior in more depth and also addresses
legal questions such as absolute versus strict liability and a defense of due diligence,
can be found here, or in docket EB-2010-0221.