We have published a consultation paper and draft code of practice on 13 September, inviting stakeholders to make submissions by 25 October.
Tuesday 5 October 2021
Please note, this is a summary and not a verbatim transcript.
Good morning everyone and welcome to today’s information session.
To start, I’d like to acknowledge the Traditional Owners of all the lands we’re meeting on today - for me that is the land of the Bunurong people of the Kulin nations.
I also acknowledge the Traditional Owners of the various lands you are on today, and the Aboriginal and Torres Strait Islander peoples participating today.
I pay my respects to Elders past, present and emerging, and acknowledge the connection that Indigenous Australians hold to country and culture.
Today’s session marks the beginning of the discussion on how the commission will be approaching proposed changes to its energy enforcement function that are currently before parliament.
Today we are also here to talk about plans to remake one of our most important regulatory instruments – the Energy Retail Code – into a code of practice to align with a new enforcement framework that the Victorian Government is proposing to introduce as well as the recently passed Energy Fairness Plan legislation.
We are also here to talk about proposed updates to our Compliance and Performance Reporting Guideline – the information energy retailers and distributors need to report to us on how they are performing and whether they are complying with their obligations.
However, before we get to the details of those reforms, we wanted to start a broader discussion with you about how we are proposing to respond to changes to the enforcement framework currently before the Victorian parliament.
In starting this discussion, we are in no way foreshadowing parliament’s decision.
However, we know that many of you want to know more about the proposed changes and what you can expect from us.
As you are aware, as part of its Energy Fairness Plan commitments, the Victorian Government is proposing reforms to the enforcement framework that the commission operates under.
This legislation proposes a significant reform to the way we enforce compliance with Victoria’s energy laws. As I mentioned at our recent energy sector roundtable on 2 September, my fellow commissioners and I feel it is important you hear directly from us about how we plan to put these changes into action should the bill be passed.
Today is an important next step in engaging directly with you on these proposed changes and we are keen to hear your feedback.
Context for proposed changes
Many of you will be aware of a proposed bill being considered by the Victorian Government – the Essential Services Commission (Compliance and Enforcement Powers) Bill 2021.
Sitting alongside the Energy Fairness Plan legislation passed in August, this bill enhances the commission’s enforcement powers and proposes a framework within which our energy codes are remade as codes of practice.
We do not expect the process of remaking our energy codes as codes of practice will make any policy changes – we see this as a technical process to turn the code into a subordinate instrument.
Today we are here to talk about plans to remake the current Energy Retail Code as a code of practice and proposed changes to the Compliance and Performance Reporting Guideline.
Today is however just the latest step in a journey we have been on for some time – and to stress that in our view, this is an incremental step and not a monumental shift.
As I flagged at the roundtable, because the proposed bill foreshadows greater enforcement tools, we want to ensure there is a better understanding about how we will use these powers.
Over the past few years, the commission has been taking steps to increase its focus on enforcement and compliance activities in the energy sector.
Since October 2018, we have taken a number of enforcement actions and utilised the enforcement tools that have been available to us.
In my involvement in enforcement matters, first as a commissioner then as chairperson, I can assure you, these decisions are not taken lightly.
The commission gives serious consideration to the appropriate regulatory response for each and every matter before it.
In addition to taking enforcement action, we have also undertaken a range of compliance activities from developing education materials and holding workshops, to providing warning notices to energy businesses.
At its core, we issue penalties to deter non-compliance with the energy rules and protect the interests of Victorian energy consumers.
Today our focus is on how the commission will approach the implementation of the new framework if it is passed by parliament.
We want to provide as much clarity as we can on what that this new enforcement framework will look like in action – but please also appreciate this will be an iterative process.
Our first step is to consult on what the Energy Retail Code of Practice will look like, should the bill be passed, and in light of the recently passed Energy Fairness Plan Act.
We hope, that by consulting on this now, we are assisting industry in understanding how a new enforcement framework for energy would be operationalised, should the legislation pass in parliament.
This is a first step, but it reflects a commitment to being transparent and consulting with you as part of implementing changes arising from the Energy Fairness Plan.
We are not materially altering the obligations that licensees and exempt persons are currently required to follow.
In our view, today is one more step for the commission on its journey as a fully modern regulator with the right tools in place to promote the long-term interests of consumers.
If the bill is passed, one of the next steps after consulting on the Energy Retail Code of Practice will be commencing consultation on the distribution code next year. I’ve heard directly from some distributors that they would like to review parts of the Electricity Distribution Code and certain regulatory guidelines. While, again, the intention is that this be primarily an administrative process we agree that there could be an opportunity for a tidy up of older or redundant obligations to make way for a clearer regulatory framework.
Now, to touch on what you can expect in terms of new guidance and education materials to the sector to enhance a better understanding about how we will use these powers.
We would publish a revised compliance and enforcement policy should the bill pass parliament. Sitesh will touch on a number of those matters that would be covered in the new policy to reflect the compliance and enforcement reforms if the bill is passed. They may include how we would exercise any investigatory powers and in what circumstances the commission would use the pathway of civil litigation or criminal prosecution, if the bill was passed.
We are committed to providing education and guidance on any new powers and enforcement options next year, if the bill is passed. If there are certain matters the industry is keen to have the commission provide guidance on to support and encourage compliance, we would be interested to hear from you.
On that note, I will now handover to my fellow commissioner Sitesh Bhojani.
Our compliance and enforcement program
As Chairperson Symons has indicated, today’s focus in the first part of this forum is on how the commission, as an independent statutory authority, would approach implementation of the new compliance and enforcement framework, if it is passed by the parliament.
I will make some observations on the role of compliance and enforcement in a regulatory context.
In particular, I will speak about investigative powers, civil penalties, the choice between civil litigation and criminal prosecutions, and enforcement objectives from a regulatory perspective.
However, the commission is also keen to hear feedback from Victorian energy sector businesses about any other issues or concerns about the likely implementation of any new investigative powers or enforcement options – if they are provided by the parliament to the commission.
Legislative reforms constituted by the Energy Legislation (Energy Fairness) Act 2021 (Vic) and the Essential Services Commission (Compliance and Enforcement Powers) Bill 2021 (Vic), if passed by the Victorian parliament, will substantially strengthen the commission’s information gathering and investigative powers and enforcement options.
The proposal as set out in the bill currently before parliament is that the commission’s strengthened investigative powers and enforcement options will be comparable to the strengthened investigative powers and enforcement options given to the Australian Energy Regulator from January this year.
With the knowledge of those strengthened investigative powers and enforcement options available to the Australian Energy Regulator, energy businesses operating outside Victoria in the Australian Energy Regulator jurisdictions have already had to factor in and prioritise compliance with the national energy laws administered and enforced by the Australian Energy Regulator.
Those enhanced compliance systems and compliance cultures for energy businesses would have taken into account any change in risk assessment resulting from the Australian Energy Regulator’s strengthened investigative powers and increased enforcement options and penalties.
Energy businesses operating within Victoria would also have factored into their compliance systems many years ago, the strong investigative powers and enforcement options available to Consumer Affairs Victoria and the Australian Competition and Consumer Commission in respect of the Australian Consumer Law.
The broader enforcement options proposed for the commission – including the choice of taking either criminal prosecutions or civil proceedings for alleged contraventions or offences – are not novel options for regulators in Victoria or elsewhere around Australia. For example, these choices or options are available to Consumer Affairs Victoria and the Environment Protection Authority Victoria.
The High Court of Australia has acknowledged the practice of governments incorporating civil penalty provisions in statutory regimes involving a specialist industry or activity regulator with the statutory function of securing compliance with provisions of the regime that have the statutory purpose of protecting or advancing particular aspects of the public interest.
The High Court noted that typically the legislation provides for a range of enforcement mechanisms, including injunctions, compensation orders, disqualification orders, civil penalties and sometimes criminal offences.
That necessitates the regulator choosing the enforcement mechanism or mechanisms which the regulator considers to be most conducive to securing compliance with the regulatory regime.
In turn, that requires the regulator to balance the competing considerations of compensation, prevention and deterrence.
Courts have, over the years, also recognised the importance of regulators undertaking litigation as part of their core activities in securing compliance with a regulatory regime in the public interest.
Hopefully, this context shows that the strengthened compliance and enforcement powers proposed for the commission are not novel or unusual either in Victoria or elsewhere around Australia.
Investigation powers and search and seizure powers
The compulsory information, document and evidence gathering powers proposed for the commission are based on and comparable to the investigative powers of the Australian Energy Regulator, Consumer Affairs Victoria and the Australian Competition and Consumer Commission.
As the business community around Australia may be aware, and certainly their legal advisers would be aware, there are already many decades of case law on the use of such compulsory powers.
The search warrant and seizure powers proposed for the commission are also not novel to regulators. They are comparable to powers that Consumer Affairs Victoria and the Australian Competition and Consumer Commission have.
As with other regulators, it is important to note that the proposal in the bill is that the commission’s inspector would have to apply to a Magistrate for the issuing of a search warrant. Search warrants would not be issued by the commission.
Energy businesses operating outside Victoria in the Australian Energy Regulator’s jurisdictions have since January 2021 been subject to a maximum possible civil penalty for a contravention of various provisions of the National Energy Laws (a “Tier 1” contravention) of $10 million per contravention or three times the benefit obtained from the contravention if this can be determined, or 10 per cent of annual turnover – whichever is the greater.
By way of example, these maximum penalties apply for obligations under the National Energy Retail Law like the requirement for obtaining explicit informed consent, the need for customer hardship policies and the need for retailers to offer and apply payment plans for hardship customers.
The maximum possible penalties proposed for some contraventions of the Victorian energy laws will be 60,000 penalty units (or $10,860,000) per contravention, or three times the benefit obtained from the contravention if this can be determined, or 10 per cent of annual turnover – whichever is the greater.
It is also noteworthy that all energy businesses in Victoria and around Australia have been for many years, and still are, covered by and subject to the Australian Consumer Law. The Australian Consumer Law and the corresponding Australian Consumer Laws of the States and Territories, such as the Australian Consumer Law (Victoria) also have similar maximum civil penalties.
We expect that most energy businesses will have put in place effective compliance systems to cater for the risks associated with such level of penalties.
Civil litigation or criminal prosecution?
The proposed expanded enforcement options for the commission include the choice, in respect of some limited conduct, of whether to pursue a matter by way of civil litigation for an alleged contravention or as a criminal prosecution for an alleged offence. Many regulators are given such options – for example, Consumer Affairs Victoria, the Environment Protection Authority Victoria, the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission.
As with other regulators, the commission in such matters and instances would be asked to exercise sensible judgment in the public interest.
As with other regulators, a range of factors would be relevant to the exercise of the commission’s discretion between pursuing alleged misconduct by civil litigation or criminal prosecution. This includes whether the misconduct involved any fraud or dishonesty, whether the misconduct was intentional or covert, the potential for death or injury from the misconduct, whether the misconduct caused, or could have caused large scale or serious economic harm, whether the misconduct caused, or could have caused, significant detriment to the public or a class of the public, whether the misconduct caused, or could have caused significant loss or harm to a customer or customers, whether the misconduct occurred over a long period of time, whether senior representatives of the energy business were involved in, authorised or participated in the misconduct, and the previous compliance history of the relevant energy business.
If any serious criminal charges were being contemplated, advice from the Victorian Office of Public Prosecutions would be sought. The Office of Public Prosecutions would conduct the prosecution in accordance with their test for conducting prosecutions. That test is that a prosecution may only proceed if there is a reasonable prospect of a conviction, and a prosecution is in the public interest.
The commission cannot pursue all matters that may come to its attention by way of litigation enforcement action. In view of that obvious reality, the commission will seek to maximise the impact of any litigation it pursues and also use the outcomes to achieve any necessary behavioural change across the energy industry.
In pursuing enforcement action by way of public interest litigation the commission’s enforcement objectives would likely include one or more of the following: establishing and stopping the unlawful conduct, rectifying the harm caused by the unlawful conduct, preventing future unlawful conduct, clarifying the law, deterring future unlawful conduct (by the alleged wrongdoer or others in the energy sector), and punishing the wrongdoer.
Commission guidance on use of such powers
If the current bill before the Victorian parliament is passed, the commission plans to revise its Compliance and Enforcement Policy to reflect all the compliance and enforcement reforms provided to the commission by the Victorian parliament.
In addition, the commission is interested in hearing from Victorian energy sector businesses on what other education and guidance you consider is necessary on the new powers and reforms.
Parliament is currently considering providing the commission with additional investigative powers and enforcement options comparable to those of other regulators.
The commission does, and will continue to, use its compliance and enforcement powers in the public interest to protect consumers, especially those experiencing vulnerability, ensure non-compliant businesses do not gain market share unfairly, and build greater trust in the Victorian energy market.
Energy businesses in Victoria investing in or upgrading their compliance systems can have some confidence that other energy businesses will not be able to gain market share by non-compliant conduct.
The commission would prefer all energy businesses in Victoria to be proactive in complying with their obligations under Victoria’s energy laws voluntarily. My recommendation is for all energy businesses operating in Victoria to refocus their efforts on enhancing their compliance systems and compliance culture.
Thank you Sitesh. I want to reiterate that our goal is to be transparent with industry along this process and we welcome any questions you have about the changes brought about by the Energy Fairness Plan legislation. I look forward to our conversation at the next energy sector roundtable which we are planning for early 2022.
Update on the Energy Retail Code of Practice and the Compliance and Performance Reporting Guideline
Executive director of energy, Sarah Sheppard and Cherie Canning, principal legal counsel for the energy division provided an update on key elements of the Energy Retail Code consultation.
Camille Seldon, manager, compliance provided an update on the proposed changes to the compliance and performance reporting guideline.
A question-and-answer session was held for each update.
In closing – Sarah Sheppard
Thank you to everyone here today. The conversation has been very helpful for us, and I hope for you too.
To remind you, today is only one of many of the ways you can contribute to this conversation. You can contribute via Engage Victoria by providing general comments, completing a short survey, or making a formal submission until 25 October.
As always, we are here to listen and learn. But for now, stay well and take care.