How the NECF and the ACL are enforced
Under the National Energy Customer Framework (NECF) and the Australian Consumer Law (ACL) , compliance and enforcement powers are exercised in different ways. Each framework has its own regulators, agencies and processes to ensure consumer protection. The NECF contains civil and private enforcement remedies. In addition to these, the ACL contains civil and administrative remedies but also criminal enforcement remedies. Figure 1.7 contains more detail about these elements of compliance and enforcement.
Figure 1.7: Remedies and enforcement
Note: *The NECF does not set administrative responses/actions.
National Energy Customer Framework
Under the NECF, the Australian Energy Regulator (AER) has responsibilities for enforcement of the laws and rules relating to electricity and gas retail markets in participating jurisdictions. One of the guiding principles when introducing the national energy market was the need to achieve consistency in energy regulation. The aim of consistency is one of the reasons for the enforcement regime and remedies under the NECF (including quantum of pecuniary penalties) being similar to those on the National Electricity Law (NEL) and the National Gas Law. Many of the information, contract terms, hardship and life support requirements under the National Energy Retail Rules (NERR) are civil penalty provisions and, as such, carry a more significant consequence in case of a breach.
Enforcement functions and power of the AER
The AER is responsible for monitoring, investigating, enforcing and reporting on compliance by regulated entities under the National Energy Retail Law (NERL) and NERR. The AER has a range of enforcement responses to breaches of obligations under NECF, which can be categorised broadly as either 'administrative' or 'statutory' actions.
Administrative responses are informal enforcement options, which are not expressly provided for under the statutory framework. For example, such responses may include voluntary commitments to rectify non-compliance by implementing a compliance program, improving internal operational procedures or conducting staff training. The AER has no legal power to enforce voluntary commitments.
As stated in the AER's current Compliance and enforcement — Statement of approach, the AER is more likely to act administratively where the effect of an actual or potential contravention is limited, and the business has taken (or agreed to take) appropriate steps to end the conduct and to remedy any harm done. A decision by the AER to resolve a matter by way of an administrative response does not amount to an acceptance or approval of the conduct, nor does it remove a business’s responsibility for the breach. In each case the AER reserves the right to take statutory enforcement action in the event that information on which they based their initial assessment is subsequently found to have been incomplete, inaccurate or misleading or if the administrative action proves to be ineffective.
Statutory enforcement action involves the AER taking action under its enforcement powers under the NERL. For example, by issuing an infringement notice or initiating court proceedings.
The AER undertakes a risk assessment of each obligation in the NECF to assist in targeting and prioritising monitoring and compliance activities. The risk assessment involves an analysis and ranking of each obligation to determine its compliance risk, based on two criteria:
- the impact on businesses, consumers and other stakeholders of a breach of the obligation
- the probability that a breach would occur.
The AER is more likely to institute civil proceedings in cases where conduct:
- resulted in significant detriment
- demonstrated a blatant, ongoing or serious disregard for the law
- is widespread, such that enforcement action is likely to have a significant deterrent effect
- is that of a person, business or sector that has a history of previous breaches of energy laws
- is of significant public interest or concern
- involves a new or emerging market issue.
AER's statutory enforcement actions
The AER has certain statutory rights of action that it may take in respect of a breach (or purported breach) of the NERL and NERR prior to (or as an alternative to) initiating Court enforcement proceedings. These include the power to:
- issue infringement notices
- seek enforceable undertakings.
Under the NERL, the AER may serve an infringement notice on a person that the AER has reason to believe has breached a civil penalty provision. The AER must serve an infringement notice no later than 12 months after the date on which it forms a belief that there has been a breach of a civil penalty provision.
Infringement penalties are set at $4,000 for a breach by a natural person or $20,000 for a breach by a body corporate. In each case, this represents 20 per cent of the maximum civil penalty that may be imposed by a Court in respect of the same breach. Once the AER issues an infringement notice, it cannot subsequently start formal proceedings unless the recipient of the notice fails to comply with the notice within the time for payment specified or the AER has not otherwise withdrawn the infringement notice. If the infringement penalty is not paid, then proceedings may be instituted.
The AER may, institute civil proceedings in a Court in relation to an alleged breach of any provision of the NERL and NERR, provided the provision is not an 'offence provision'.
Where an application is made, a Court may make an order declaring that a person is in breach of a provision of the relevant NERL, NERR or regulations. The Court's order may include one or more of the following:
- civil penalty — an order that the person pay a civil penalty (provided it is a breach of a civil penalty provision)
- order to cease — an order that the person cease, within a specified period, the act, activity or practice constituting the breach
- order to remedy breach — an order that the person take such action, or adopt such practice, as the Court requires for remedying the breach or preventing a recurrence of the breach
- compliance program — an order that the person implement a program for compliance with the NERL, NERR or regulations
- other orders — an order of a kind prescribed by the Regulations.
Where the order requires payment of a civil penalty, the Court must (when determining the quantity of the penalty) have regard to:
- the nature and extent of the breach
- the nature and extent of any loss or damage suffered as a result of the breach
- the circumstances in which the breach took place, whether the person in breach has engaged in any similar conduct and whether the person had established and been complying with any compliance policies systems and procedures.
The NERL defines a civil penalty as:
- in respect of a breach by a natural person, an amount not exceeding:
- $2,000 for every day during which the breach continues
- in respect of a breach by a body corporate, an amount not exceeding:
- $10,000 for every day during which the breach continues.
In addition to the orders set out above, the Court may also, on application by the AER, grant an injunction restraining a person from engaging specific conduct or otherwise requiring the person to undertake an act.
Revocation of retailer's authorisation
The AER also has the powers under the NERL to revoke a retailer authorisation if it is satisfied that there has been a material failure by a retailer to meet its obligations under the NERL, and there is a reasonable concern that the retailer will not be able to meet its obligations in the future. Revoking a retailer authorisation prohibits a retailer from selling energy in any participating jurisdiction. The AER is required to provide reasons for any revocation and provide the retailer with an opportunity to demonstrate why its authorisation should not be revoked and to present a proposal to address the AER's concerns.
Under the NERL ‘a person other than the AER' may seek an order from a Court to recover the amount of loss or damage based resulting from a breach of a conduct provision. However, currently there are no conduct provisions nominated in the NERL.
Small compensation claims regime
Additionally, as mentioned (see section Services standards and quality ), the NERL also provides a small compensation claims regime which enables residential and small business customers to make claims for compensation from distributors. Under the regime, customers do not have to establish fault, negligence or bad faith on the part of a distributor in order to receive compensation from the distributor. However, no participating jurisdiction has opted-in to the small claims compensation framework to date.
Customer dispute resolution via energy ombudsman
As explained (see section Complaints and dispute resolution), the NERL provides for small customer complaints management by jurisdictional energy ombudsman. Ombudsman services are free to consumers. Under that framework, jurisdictional energy ombudsman:
- receives small customer complaints and disputes
- investigates those complaints and disputes
- facilitates the resolution, and resolve, those complaints and disputes
- identifies and advises on systemic issues as means of preventing complaints and disputes.
Retailers must be a member of, or subject to, an energy ombudsman scheme for each jurisdiction where it sells electricity to small customers or engages in an energy marketing activity. Distributors must also be members of, or subject to, such schemes for each jurisdiction where it has small customers connecting to their distribution system.
Coordination of the ACCC and the AER
The AER works together with the Australian Competition and Consumer Commission (ACCC) to ensure that misconduct in the energy market is addressed and that they seek to avoid duplication and ensure they apply a consistent and coordinated approach. Businesses operating under the NECF also have obligations under the ACL that apply to their relationships with energy customers, including obligations relating to unsolicited consumer agreements. The AER notes that the ACL and the NECF operate together, providing the framework in which these businesses are required to operate. There is an information policy between the AER and the ACCC which provides guidance on the collection, use and disclosure between the two agencies.
Australian Consumer Law
The ACL is administered and enforced jointly by the ACCC (national), the jurisdictional regulators and the state and territory consumer protection agencies, with the involvement of Australian Securities and Investments Commission on relevant matters. For the purposes of the application of the ACL, each state and territory regulator is independent and has its own enabling legislation and exercises its powers and functions accordingly. The ACCC has national responsibilities and can act in all states and territories.
The ACCC is the national regulator responsible for monitoring, investigating, enforcing and reporting on compliance with obligations under the ACL in respect of systemic conduct in trade or commerce at a national level and consistent with published priorities. Each state and territory regulator is responsible for the same compliance functions and powers but at a jurisdictional level. The ACCC and the jurisdictional regulators (ACL regulators) can choose how they will use their resources to pursue particular cases to achieve the most effective outcomes for both individual consumers and consumers in general.
Because ACL regulators cannot pursue every complaint received, they must consider complaints carefully and exercise discretion, directing resources to matters that can result in industry-wide change or provide the greatest overall benefit for consumers. As these discretionary matters may vary within or between jurisdictions, priorities for enforcement action differ accordingly. Each year, the ACCC sets out its compliance and enforcement priorities. In 2019, its priorities include ‘consumer and competition issues arising from opaque and complex pricing of essential services, in particular those in energy and telecommunications'.
The ACCC is not a complaint handling body, and rarely becomes involved in individual consumer or small business disputes. For example, there are certain matters that are less likely to be pursued by an ACL regulator that:
- are one-off, isolated events
- are more appropriately resolved directly between the parties under an industry code (for example, by mediation or an industry dispute resolution body such as the energy ombudsman)
- involve issues more effectively dealt with by another agency
- are best deal with between private parties.
Instead, consumers are encouraged to bring complaints related to these matters to the consumer protection agency in their state or territory. Each state and territory has its own consumer protection agency that administers the ACL in its jurisdiction. These agencies have signed a Memorandum of Understanding which sets out the way in which they will work together to administer and enforce the ACL.
ACL regulators have a range of enforcement tools and strategies to facilitate compliance with the law. In addition to those, the ACL provides private rights that consumers can enforce through federal, state and territory courts and tribunals. Each of these compliance and enforcement options are explained below.
Enforcement tools and remedies
Each ACL regulator carries out its compliance and enforcement obligations using its own framework, tailor-made for its own jurisdiction, but aimed at consistent application of the ACL across all jurisdictions. ACL regulators take a risk-based approach to enforcement. Compliance and enforcement activity targets areas of strategic priority, with a focus on incidents with evidence or likelihood of consumer detriment.
To be effective, compliance measures must be supported by a range of escalating enforcement options that can be used if a trader fails to comply or when there is a serious contravention of the ACL. The ACL regulators have a range of civil, administrative and criminal enforcement remedies at their disposal under the ACL and supporting state and territory legislation.
ACL regulators will choose the most appropriate enforcement tools to achieve these outcomes in a timely and proportionate manner. The regulators have a range of possible enforcement responses to breaches of obligations under the ACL, including both administrative style enforcement options, as well as civil and criminal enforcement remedies. Administrative tools and strategies include:
- providing education and advice to traders
- making public statements such as media releases and public warnings
- issuing formal written warnings
- encouraging dispute resolution
- issuing infringement notices.
Civil court action may result in fines, pecuniary penalties, disqualification orders, injunctions or compensation orders.
The pyramid below (Figure 1.8) summarises the general compliance approach under the ACL.
Figure 1.8: Compliance and enforcement options
Source: Commonwealth of Australia, Compliance and enforcement, How regulator enforce the Australian Consumer Law, January 2017, p. 12.
The ACL is enforced by courts and tribunals in each jurisdiction subject to the specific rules that apply to enforcement processes, courts and tribunals in each state and territory jurisdiction. Litigation is costly compared to administrative compliance and enforcement actions. Aside from compliance and enforcement by the ACL regulators, the ACL creates private rights that consumers can enforce through Commonwealth, state and territory courts and tribunals.
In order to take enforcement action in this way, consumers need to be aware of their rights and responsibilities, and how to obtain redress. Providing information and advice to consumers for this purpose is a key function of the ACL regulators. It is often recognised that there are substantial barriers to seeking redress through the formal court mechanisms discussed above, which makes it difficult for individuals to seek redress. These barriers include the intimidating nature of the legal process, lack of awareness about existing legal rights, the time and cost of seeking redress as well as the emotional stress involved. For this reason, more informal forms of redress are considered important in ensuring more effective implementation and enforcement of consumer law.
As mentioned, the ACCC does not handle individual disputes; rather it prioritises enforcement action on more widespread issues that reflect the potential for greater consumer detriment. State and territory ACL regulators therefore play an important role in resolving disputes between consumers and traders about goods and services covered by the ACL. These local regulators provide information on their websites about dispute resolution and trader engagement programs.
If a consumer has a complaint about a business, they are first encouraged to contact the business to resolve or settle the dispute informally. If the consumer cannot resolve the concern in this way, they may contact their State or Territory ACL regulator. The local ACL regulator can investigate a business when a law may have been broken, even if the complaint was resolved. Where a dispute cannot be resolved directly between the consumer and business, alternative dispute resolution schemes can help consumers to resolve issues with businesses without going to court, such as energy ombudsman schemes.
Table 1.1 contains more detail on how courts and regulators apply the enforcement tools and who is the person that can start the process (claimant) under the ACL (as contained in the Competition and Consumer Act 2010).
Tool or remedy
A Court may order a person to pay to the Commonwealth, State or Territory, as the case may be, a pecuniary penalty where it is satisfied the person has contravened or attempted to contravene a relevant provision.
However, pecuniary penalties do not apply to unfair contract term provisions (ACL, Part 2-3).
The pecuniary penalty must not exceed the amount worked out using the table set out in the ACL. If the person is a body corporate, the greatest of:
If the person is not a body corporate, $500,000.
A court may grant an injunction if satisfied that a person has engaged in conduct that would constitute a contravention of the general protections (ACL, Chapter 2). This includes unfair contract term provisions, misleading or deceptive conduct, unconscionable conduct.
The injunction may be granted on application by the regulator or any other person.
If a person suffers loss or damage because of the conduct of another person and the conduct contravened the general and specific protection under the ACL (Chapter 2 and 3), the claimant may recover the amount of the loss or damage by action against that other person.
Compensation orders for injured person
An injured person may apply to a court for an order where the person has suffered loss or damage because of the conduct of another person contravened the general and specific protection under the ACL (Chapter 2 and 3), or constitutes applying or relying on a term of a contract that has been declared under section 250 to be an unfair term.
The order must compensate the injured person or prevent or reduce the loss or damaged suffered.
A regulator may make an application for an order on behalf of one or more persons where those persons have consented in writing to the making of the application.
A court may declare that a term of a consumer contract is an unfair term, on application by a party to the contract or by the regulator. However, such an order can only be made where the contract is a standard form contract and unfair contract terms provisions apply to the contract.
Table 1.1: Tools and remedies