The Sumo Fines: Important lesson for all electricity sellers

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The recent fines issued to Sumo Power by the Essential Services Commission of Victoria (not to mention the negative PR they received) should serve as a warning and reminder to all electricity retailers, not just in Victoria, about the most cost-effective way of dealing with customers who are struggling with their electricity bills.

Electricity retailers are acutely aware of the hardship provisions in legislation and their own requirements for the drafting and adherence to their own hardship schemes and policies. The most cost-effective strategy for any electricity retailer is to identify hardship customers quickly, move such customers to a hardship scheme and establish payment plans as soon as practicable. Whilst disconnection should always be a ‘last resort’ there are times when disconnection would be justifiable and commercially pragmatic, providing the regulatory framework has been followed meticulously to avoid disciplinary action from the various regulatory authorities.

It is a difficult space for retailers, particularly when customers have an existing debt and are struggling to pay their ongoing electricity needs. However, following the legislative guidelines and applying some ‘understanding’ (and being reasonable and fair) may well be the most cost- effective way of preventing debt escalation and not falling into a situation akin to that of Sumo Power.

The Sumo Fines

On 30 November 2021, the Essential Services Commission (ESC) of Victoria issued Sumo Power Pty Ltd with 100 penalty notices for wrongful disconnection under section 54H of the Essential Services Commission Act 2001.  The fines totalled $500,000. Sumo allegedly wrongfully disconnected 143 customers. The simple maths of the fines equates to $3,4960.50 per customer. Of the 143 disconnected customers, 142 were cut off before the required six-day warning and one was cut off without warning.

The ESC’s press release of 7 February 2022, stated:

Commission Chair Kate Symons says there are clear rules energy businesses must follow before disconnecting a residential or small business customer’s energy supply. 

Under Victoria’s energy rules, energy retailers must give a customer who has missed a bill and a reminder notice, a warning period of six full business days before a disconnection can occur. Victorian retailers must also act fairly and reasonably towards their customers before arranging a disconnection.

Commissioner Symons says the evidence showed 142 customers were cut-off before the required six-day warning period had expired.  Sumo failed to act fairly and reasonably towards its customers during the disconnection process as required by the rules.

Commissioner Symons said another customer was cut-off without warning, despite them actively participating in a payment plan.  

“Electricity and gas are essential services and customers should only ever be disconnected by an energy retailer as a last resort and by following the correct procedure,” she said.

Commissioner Symons said the commission had issued a statement of expectations to industry which sought to keep customers connected during the stay-at-home orders of the pandemic.

“When those orders were lifted in November 2020, it appeared from the evidence that Sumo had been keen to resume disconnections,” she said.

“This included Sumo setting themselves a target of disconnecting more than 1500 customers between the start of November and Christmas 2020.

“Sumo’s board and executive management were involved in and aware of Sumo’s approach to disconnecting customers.

“This raises concerns for the commission in relation to Sumo’s compliance culture and its understanding of the essential nature of energy.

(emphasis added)

Had Sumo disconnected the 1500 customers, as the ESC press release suggested, we can only surmise that the fines would have been in excess of $5m.

The Wall of Shame

It was reported in various media outlets (such as the Sydney Morning Herald 7/2/22), that Sumo Power staff had allegedly taped the names of 1500 customers to a wall which had been dubbed ‘the wall of shame’. The ESC’s press release made no mention of this feature but their ‘concerns’ in relation to Sumo Power’s compliance culture would no doubt cause the company to review its practices and processes as a matter of urgency.

Compliance Culture

The ESC and other regulatory authorities are not asking retailers to give a customer a ‘free ride’. The acknowledgment above, that electricity retailers must have an ‘understanding of the essential nature of energy’, summarises the regulator’s position. A compliance culture that provides ‘understanding’ and is agile and adaptive will ensure that losses are kept to a minimum and the public perception and public relations of the company remain positive. Establishing a ‘wall of shame’ might not be such a good idea in pursuance of a good compliance culture.

Best Practices

Compliance Quarter can assist your company in streamlining your compliance obligations in relation to customers experiencing financial difficulty. As the old adage goes, ‘an ounce of prevention is better than a pound of cure’.

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