The Australian Energy Regulator Gets A Much Bigger Stick.

Legal News & Analysis - Asia Pacific - Australia - Energy & Project Finance

The Australian Energy Regulator Gets A Much Bigger Stick.

 

9 February 2021

 

Asia Pacific Legal Updates
 

What you need to know
 

  • On 29 January 2021, the Statutes Amendment (National Energy Laws) (Penalties and Enforcement) Act 2020 (SA) (PEA) came into force by proclamation.
     

  • The PEA changes the civil penalty regime under Australia's energy laws introducing a new tiered penalty system with significantly higher penalties for "Tier 1" provisions that match competition and consumer law penalties, and gives the Australian Energy Regulator (AER) a new oral examination power.
     

  • The amended civil penalty regime applies to energy market participants' conduct from 29 January 2021.
     

What you need to do 
 

  • Rarely are new powers granted to a regulator without it using them: market participants should be prepared for potentially stronger enforcement action.
     

  • Market participants should familiarise themselves with the penalty provision tier classifications to understand their risk profile and potential liability and update internal compliance systems.
     

  • Market participants should read the AER's Compulsory Notice Guidelines and think about having a process in place to deal with an examination notice.
     

On 29 January 2021, the PEA introduced an amended penalty regime under the National Energy Laws (comprising the National Electricity Law (NEL), National Energy Retail Law (NERL), the National Gas Law (NGL) and associated Rules).  PEA includes the following key features: 
 

  • increased maximum penalties that attach to the breach of a civil penalty provision and an infringement notice, covering all 800 penalty provisions in those laws;
     

  • classifying those penalty provisions into three new tiers: Tier 1, Tier 2, and a catch-all Tier 3;
     

  • a Decision Matrix and Concepts table which acts as an aid for the classification of penalty provisions; 
     

  • expanded remedial orders that the AER can seek from a court; and
     

  • a new compulsory information-gathering power that enables the AER to compel a person to give evidence, orally or in writing, and produce documents.
     

Amended penalty regime
 

The penalty tiers align the penalty provisions in the National Energy Laws with other legislation, such as the Competition and Consumer Act 2010 and Australian Consumer Law.  From 1 July 2023, the maximum penalties under the National Energy Laws will be subject to consumer price indexation every three years.
 

Civil penalty provision tiers 
 

Before 29 January 2021, the majority of penalty provisions under the National Energy Laws provided for a maximum penalty for a corporation was $100,000 per contravention plus $10,000 for every day the breach continued for corporations, and $20,000 plus $2,000 for individuals, except for rebidding provisions, which carried a maximum penalty of $1,000,000 and $50,000 each day.
 

The amended civil penalty regime contains three tiers of penalty provisions, reflecting the severity of each type of contravention, with significant increases in each tier, but especially for Tier 1, as summarised in the following table.
 

Tier 

Maximum penalty for a body corporate

Maximum penalty for an individual

The greater of:

(1) $10,000,000;

(2) three times the value of the benefit received; or

(3) 10% of annual turnover in preceding 12 months, if court cannot determine benefit obtained from the breach.

 

$500,000

2

 $1,435,000 plus $71,800 for every day during which the breach continues.

$287,000 plus $14,400 for every day during which the breach continues.

3

 $170,000 plus $14,400 for every day during which the breach continues.

$33,900 plus $3,390 for every day during which the breach continues.

 

Infringement penalty tiers 
 

The AER may serve an infringement notice on a person if it has reason to believe that the person has breached a penalty provision in the National Energy Laws.  If a person has paid an infringement penalty for an alleged breach, the AER may not bring civil proceedings against that person.  
 

Before 29 January 2021, if the AER issued an infringement notice, the infringement penalty for contravening the energy laws was a maximum of $20,000 for a corporation or $4,000 for an individual.
 

The PEA provides that infringement penalties will also apply to penalty provisions in each penalty tier.  The infringement penalties associated with each penalty tier are summarised in the following table.
 

Tier

Infringement penalty for a body corporate

Infringement penalty for an individual

1&2

 $67,800 or any lesser amount prescribed by the Regulations.

$13,600 or any lesser amount prescribed by the Regulations.

 3

$33,900 or any lesser amount prescribed by the Regulations.

For unlisted corporations or related body corporates, if the AER makes a determination under the NEL or the NGL, $6,790 or any lesser amount prescribed by the Regulations.

$6,790 or any lesser amount prescribed by the Regulations.

 

 

Classification of penalty provisions within the National Energy Laws 
 

On 29 January 2021, each of the over 800 penalty provisions contained within the National Energy Laws were assigned to its respective penalty tier by amendments to the National Electricity, Gas and Energy Retail Regulations.  The COAG Energy Council has helpfully released a suite of tables that explain how each of these penalty provisions are classified according to their respective penalty tier, found here.  
 

The following table provides an overview how each penalty provisions have been allocated to each Tier across the National Energy Laws.
 

Tier

Type of conduct

Explanation

Consumer Harm (Type 1)

Consumer Harm (Type 1) is concerned with promoting efficient operation of energy services for the long term interest of consumers.  This captures the most severe types of consumer harm, including where a breach may result in a risk to public safety, serious injury, death, financial harm or economic loss for consumers.

 1

Adverse Market Impact

Adverse Market Impact is concerned with promoting efficient investment  and the efficient operation of energy services for the long term interests of consumers, with regard to price, quality and security of supply.  This captures penalty provision breaches involving distortion of a market and adverse impact on the integrity of the wholesale market. 

 1

Supply Security and Reliability

Supply Security and Reliability is concerned with the long term interests of consumers.  This captures penalty provisions where compliance is necessary to ensure effective operation and reliability of the system and service.  It is aimed at mitigating large scale events, such as black systems and enabling the Australian Energy Market Operator to plan and operate the power system efficiently. 

 1

Unacceptable Market Participant Behaviour

Unacceptable Market Participant Behaviour is concerned with deterring conduct that prevents the efficient investment in, and the efficient operation of energy services for the long term interest of consumers. This captures improper financial gain, deliberate or reckless conduct and failure to comply with specific notices or requests from a regulator. 

 2

Consumer Harm (Type 2)

This covers provisions where consumer harm is less serious than Tier 1, including consumers not being informed of their rights, failure to provide consumers with supplementary services, inappropriate data disclosure and failure to comply with various rules under the National Electricity Rules and National Energy Retail Rules and pre-contractual duties. 

 2

Market Administration 

Market Administration is concerned with the long term interests of consumers.  This includes failure to retain adequate records and inadequate administrative processes.

Inappropriate Market Participant Behaviour

Inappropriate (as opposed to unacceptable) Market Participant Behaviour captures conduct that regulators seek to deter, regardless of whether it directly results in consumer harm.  This includes failure to comply with general reporting obligations to a regulator.

 3

All remaining penalty provisions

Tier 3 captures all other penalty provisions, which are not classified as Tier 1 or Tier 2.  These penalty provisions include obligations that are administrative in nature and where non-compliance can be readily remedied without causing harm to consumers or the market.

 

Key changes to the AER's powers
 

The AER can seek additional non-pecuniary court orders
 

Where a court has found that a person has breached a civil penalty provision, in addition to the existing court orders that are available, under the PEA, the AER may seek a court order requiring the person to: 
 

  • implement a compliance program for up to three years; 
     

  • perform a community service, which relates to the breach; or
     

  • publish an advertisement about the breach.
     

New oral examination power 
 

The PEA also introduces a new compulsory information-gathering power, which entitles the AER to issue a notice and require a recipient to appear before the AER Board or a senior AER employee to give evidence, orally or in writing, and produce documents.  
 

According to the AER's Compulsory Notice Guidelines, the AER may require an oral examination where the contravention involves a mental element or it is seeking to test the accuracy of documentary evidence. 
 

This new oral examination power is in addition to the AER's existing powers to compel a person to provide information or produce documents.  
 

Changes to compulsory notice compliance
 

The PEA also introduces changes to ensure compliance with compulsory notices issued by the AER. These include:
 

  • an increase in the maximum criminal penalty that attaches to non-compliance of a compulsory notice to $31,500 for corporations and $6,300 for individuals;
     

  • the enactment of a number of new offences to ensure compliance with compulsory notices; and
     

  • if a person refuses or fails to comply with a compulsory notice, the AER may seek a court order compelling compliance.
     

The AER's Compulsory Notice Guidelines also provides information to assist market participants with understanding their rights and obligations if served with a compulsory notice.  The Compulsory Notice Guidelines suggest that the AER will conduct regulatory investigations in a manner that is consistent with the approach adopted by other regulators, such as the Australian Competition and Consumer Commission.
 

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For further information, please contact:

 

Alyssa Phillips, Partner, Ashurst
[email protected]