Power company Mercury NZ is facing seven charges under the Fair Trading Act alleging it made false or misleading representations to customers over an early termination fee.

The Commerce Commission alleges some residential energy customers were incorrectly told a fee would be charged if customers wanted to switch providers.

Mercury changed its terms and conditions in 2016 so that customers on a renewed term could end their plan without paying a fee.

The commission said some customers on automatically renewed fixed term plans were told both verbally and in writing between 2017 and 2020 that Mercury was entitled to charge a $150 termination fee.

Vanessa Horne, general manager fair trading at the commission, said Mercury had an obligation to ensure its relevant staff were fully aware of the contract terms, including changes to those terms, and that the terms were adhered to, so that customers were not misled.

"In our view, the complaint and our investigation revealed systemic problems inside Mercury that resulted in harm to customers. A number of customers were likely to have been misled and potentially out-of-pocket, because there were not robust systems in place."

Horne said almost all customers who were incorrectly charged and paid an early termination fee had been refunded by Mercury.

"However, there may well be a number of other people who have remained customers of Mercury to avoid the early termination fee – which is not fair on them or potential competitors in the retail energy market."

Horne said the case was an important reminder of the need for businesses to ensure they had appropriate systems in place to meet their obligations under the Fair Trading Act.

"We saw this case as a critical one to take because it is about businesses needing to put the right systems in place. Things like thorough staff training and robust billing processes are imperative to assist in avoiding these situations in the future."

A Mercury spokeswoman said it had co-operated fully with the Commerce Commission throughout its investigation and was working to ensure the matter was resolved as efficiently as possible for all concerned.

She said the matter impacted 2055 customers between September 21, 2016 and November 30, 2020.

"We have focused on making this right with impacted customers by sincerely apologising to them, refunding the early termination fee and making a small additional payment in acknowledgment of our error [completed in early 2021].

"In a small number of cases in which we have been unable to locate an impacted customer, we have set aside their unclaimed credit balance, and at the same time donated the equivalent of their unclaimed credit balance to the Starship Foundation."

The spokeswoman said as the matter was before the court, it was unable to comment further at this stage.

The first court appearance is scheduled for August 16.