Compliance and Enforcement
Statement of Approach
i
April 2014
© Commonwealth of Australia 2014
This work is copyright. Apart from any use permitted by the Copyright Act 1968, no part may be reproduced
without permission of the Australian Competition and Consumer Commission. Requests and inquiries
concerning reproduction and rights should be addressed to the Director Publishing, Australian Competition
and Consumer Commission, GPO Box 3131, Canberra ACT 2601.
Inquiries about this report should be addressed to:
Australian Energy Regulator
GPO Box 520
Melbourne Vic 3001
Tel: (03) 9290 1444
Fax: (03) 9290 1457
Email: AERInquiry@aer.gov.au
AER reference: 53249-D14/32486
ii
Contents
1
2
Introduction ........................................................................................................... 4
1.1
AER functions and powers .................................................................................... 4
1.2
Risk Assessment ................................................................................................... 5
1.3
Culture of compliance ............................................................................................ 6
1.4
Cooperation with the ACCC .................................................................................. 6
Information gathering and monitoring .................................................................. 8
2.1
Analysis of market intelligence.............................................................................. 8
2.2 Market Monitoring .................................................................................................. 8
2.3 Targeted compliance reviews and strategic compliance projects ....................... 9
2.4 Reporting Obligations ............................................................................................ 9
2.5 Audits...................................................................................................................... 9
3
Investigations and inquiries ................................................................................ 11
4
Enforcement ........................................................................................................ 12
4.1
Objectives of enforcement................................................................................... 12
4.2 Factors for enforcement action ........................................................................... 12
4.3 Enforcement options ............................................................................................ 13
5
Reports on compliance and enforcement activities ............................................ 18
3
1
Introduction
The Australian Energy Regulator (AER) is Australia’s national energy market regulator. Among other
functions, the AER is responsible for monitoring, investigating and enforcing compliance with obligations
under the National Electricity Law, National Gas Law, National Energy Retail Law 1 and the respective Rules
and Regulations (national energy laws2).
This Statement of Approach explains our approach to monitoring compliance, how we respond to potential
breaches, and the factors we may have regard to when deciding whether to take enforcement action.
Our aim is to see businesses achieve high levels of compliance with the national energy laws.3 We seek to
demonstrate proportionality and procedural fairness (where required) in our enforcement actions.
1.1
AER functions and powers
The national energy laws give the AER powers to monitor, investigate, enforce, and report as follows:

monitor compliance with obligations under the national energy laws (refer to section 2 of this
document)

investigate and make inquiries regarding breaches or possible breaches of the national energy laws
(refer section 3). This includes powers to:

1

obtain and exercise search warrants, and

compulsorily require the production of information and documents.
take appropriate enforcement action (refer section 4), such as:
The National Energy Retail Law (Retail Law), Rules and Regulations have been progressively implemented. At the time of
publication of this document, Tasmania, the Australian Capital Territory, South Australia, New South Wales and the Commonwealth
have implemented the legislation. Queensland and Victoria are expected to adopt the legislation in the future.
2
Comprising the National Electricity (South Australia) Act 1996, National Gas (South Australia) Act 2008, National Energy Retail Law
(South Australia) 2011, National Electricity Rules, National Electricity (South Australia) Regulations, National Gas Rules, National
Gas (South Australia) Regulations, National Energy Retail Rules and National Energy Retail Regulations.
3
In this document we generally refer to ‘businesses’, however the AER can also take enforcement action against individuals.
4


issuing infringement notices

accepting voluntary or court enforceable undertakings

instituting proceedings in relation to breaches of obligations under national energy laws, and

revoking retailer authorisations.
report on compliance with obligations under the national energy laws (refer section 5).
We aim to exercise our functions and powers in a fair, consistent and transparent manner.
1.2
Risk Assessment
We undertake a risk assessment of each obligation in the national energy laws to assist us to target and
prioritise our 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, and

the probability that a breach would occur.
In assessing the impact of breaches, we draw on the objectives of the national energy laws, that is: to
promote efficient investment in and efficient operation and use of energy services for the long term interests
of consumers with respect to price, quality, safety, reliability and security of supply of energy .4
For example, some obligations, if breached, may cause significant detriment to consumers or third party
businesses, while a breach of others may undermine confidence in energy markets, with longer term
impacts on investment and the efficiency of the market.
While all obligations in the national energy laws are subject to our compliance monitoring activities, we pay
particular attention to provisions which are assessed as having a significant impact on the relevant national
energy laws objective and which are more likely to be breached. Such provisions are more likely to be
subject to vigorous and intensive monitoring. For example, provisions which ensure that customers have
4
Section 7 National Electricity Law, section 23 National Gas Law and section 13 National Energy Retail Law.
5
access to essential energy services or those which play an important role in ensuring the security and
reliability of the power system.
Other factors, such as industry information, also assist us to prioritise our activities.
Our approach is dynamic, flexible and regularly reviewed in response to new information to ensure it
remains up to date and relevant.
1.3
Culture of compliance
We consider that a culture of compliance is critical to the achievement of the national energy laws objective
and to build consumer confidence in energy markets. The prevention of contraventions of obligations under
the national energy laws is preferable to the AER taking enforcement action after a breach has occurred.
Through our work we seek to encourage a culture of compliance.
We aim to educate and inform businesses about obligations under the national energy laws by publishing
documents (for example compliance bulletins and reports, investigation reports, performance reports,
market reports, and this Statement of Approach), attending industry forums and actively engaging with
stakeholders.
Ultimately, responsibility rests with businesses to meet their obligations under the national energy laws. We
encourage businesses to continuously review the effectiveness of their compliance policies, systems and
procedures to ensure that they are complying with their obligations.
1.4
Cooperation with the ACCC
The AER and the ACCC work together to ensure that misconduct in the energy market is addressed. We
seek to avoid duplication and ensure wherever possible that we apply a consistent and coordinated
approach.
Businesses operating under the Retail Law also have obligations under the Australian Consumer
Law (ACL) that apply to their relationships with energy customers, including obligations relating to
unsolicited consumer agreements. The ACL and the Retail Law and Rules operate together, providing the
framework in which these businesses are required to operate.
6
We also observe the ACCC and AER Information Policy5 which provides guidelines on the collection, use
and disclosure of information between the two agencies. Information (including confidential information)
collected by the ACCC may be used by the AER and vice versa. In general, the AER and ACCC will not
accept conditions proposed by a business that seek to limit the use of information to a particular matter.
5
Available on the AER website.
7
2
Information gathering and monitoring
Information gathering and market monitoring allow us to assess levels of compliance and identify potential
breaches of the national energy laws. We have a wide range of information sources and monitoring tools
within the network, wholesale and retail energy markets.
We can escalate any identified potential breaches for further inquiry or investigation. While we assess all
complaints and breaches and record them in our systems, we cannot pursue enforcement action in all
cases. All matters are carefully considered, but we focus our enforcement activities on breaches where
there is a high impact (or risk of impact) to consumers or the market more generally.
Some of the mechanisms for information gathering and monitoring we use are discussed below.
2.1
Analysis of market intelligence
We may use information received from stakeholders (including consumers, 6 businesses, energy
ombudsman schemes, government agencies and consumer groups 7) to identify issues that warrant further
inquiry or investigation as they may have a material impact on customers or be of concern to the wider
market.
2.2
Market Monitoring
We continuously monitor activity in the electricity and gas wholesale markets, including bidding and
rebidding, dispatch and prices, network constraints and outages, and forecasts of demand, production and
capacity. We publish weekly reports on these markets and significant price variation and high price event
reports.
6
The ACCC/AER Infocentre and the AER inquiry email provide a service for customers and other interested parties to complain about
the conduct of energy related businesses. We record the nature and subject matter of all correspondence and monitor these records
to identify trends or patterns that may suggest underlying compliance issues.
7
We established a Customer Consultative Group to advise on issues affecting energy customers and provide advice on any emerging
issues the group considers we should direct our attention to.
8
We also monitor businesses in other ways, such as by conducting inspections of businesses’ websites
which may highlight potential areas of concern that may warrant further investigation.8
2.3
Targeted compliance reviews and strategic compliance projects
We regularly conduct targeted compliance reviews of provisions of the national energy laws. These reviews
usually involve writing to businesses to request information on their compliance with a particular obligation
or group of related obligations. This can include looking at the policies, systems and procedures that
businesses have in place to meet the targeted obligations.
We also undertake strategic compliance projects, which involve identifying a particular compliance problem,
inefficiency, harm or risk within the energy markets and working toward solving the issue or reducing its
severity or likelihood of occurring. Most of these projects have a tailored metric which assists in measuring
the AER’s and industry’s success.
2.4
Reporting Obligations
Some businesses are subject to specific reporting requirements. For example, guidelines developed under
the Retail Law impose an obligation on certain businesses to identify breaches and report them to us within
a specified period.9 The additional information we receive assists us to monitor compliance with national
energy laws.
2.5
Audits
We undertake audits to assess how businesses manage compliance with specific obligations of the national
energy laws. Audits may arise as a result of observed patterns or trends in the market that suggest a
breach or possible breach, or in response to particular conduct of a business.
8
In the retail sector this includes reviewing specific information regulated entities are required to publish on their websites including
prices, contracts, hardship policies and dispute resolution procedures.
Our Compliance Procedures and Guidelines are made under section 281 of the Retail Law.
9
9
The audits generally focus on whether appropriate and functioning internal controls are in place for
identifying, monitoring and ensuring compliance, identifying breaches or possible breaches and reporting
and correcting any such breaches. The scope and audit approach will vary depending on the nature of the
business and the issues being audited. The audits can be run internally by AER staff or external auditors
may be used.
We acknowledge that audits can be intrusive and costly. 10 We therefore consider the scope, coverage and
timing of audits on a case by case basis.
10
Where an audit is carried out by or on behalf of the AER, section 278 of the National Energy Retail Law allows the AER to recover
the costs of the audit from the relevant participant.
10
3
Investigations and inquiries
Where our monitoring activities identify breaches or possible breaches of obligations under the national
energy laws, we assess the matter to determine whether we need to undertake further inquiries and/or
commence an investigation.
If we require further information or supporting documents regarding an event, we usually seek these from
businesses on a voluntary basis in the first instance. However, where necessary we can use statutory
information gathering powers.11 These powers allow us to obtain search warrants and to compel the
production of information and documents that are relevant to our compliance and enforcement functions.
Under the national energy laws, penalties apply where a person fails to comply with a notice to provide
information and documents.
Where appropriate, we will engage with businesses throughout an investigation. We may also seek and
share information with the ACCC, the Australian Energy Market Operator (AEMO) and other agencies as
part of our investigation process. 12
11
Sections 21 and 28 National Electricity Law; sections 35 and 42 National Gas Law and sections 206 and 309 of the National
Energy Retail Law.
12
See section 1.4 above and as permitted by the Competition and Consumer Law 2010 (Cth).
11
4
Enforcement
We aim to pursue appropriate enforcement responses to breaches of the national energy laws. This section
considers our objectives in taking enforcement action, the factors we take into account in deciding an
appropriate enforcement response and an overview of our enforcement options.
4.1
Objectives of enforcement
In taking enforcement action we aim to:

ensure that the offending conduct stops

correct any damage that the breach has caused

prevent the same conduct from recurring

deter other entities from engaging in offending conduct

clarify the operation of the national energy laws, and

penalise offenders, where warranted.
4.2
Factors for enforcement action
We have discretion in deciding whether to take enforcement action and the nature of that action. We assess
each case on its merits. In determining an appropriate enforcement response we consider all relevant
circumstances which may include:

the nature and extent of the conduct that forms the breach, including the period over which the
conduct extended and the number of related breaches

the impact of the conduct, including harm or detriment to consumers (particularly disadvantaged or
vulnerable consumers) and other parties, and/or an increased risk of serious harm or detriment in
future

whether the conduct was deliberate or avoidable had reasonable compliance practices been
followed by the business
12

whether the conduct involved, or was directed/overseen by, senior management

the extent of any realised or potential future financial gain from the conduct (including compliance
costs avoided by the business)

whether action is already being taken to address the issue by another enforcement agency or other
organisation

the business’s own actions in relation to the conduct, including whether the conduct was
self-reported, the level of cooperation with the AER, and any action taken to rectify the breach and
avoid reoccurrence, and

whether the business has a corporate culture conducive to compliance, including the effectiveness
of compliance programs, and whether corrective measures have been taken in response to past
breaches.
4.3
Enforcement options
We have two enforcement responses available to us which can be broadly categorised as:

administrative

statutory.
4.3.1 Administrative action
Administrative resolutions are a more informal and less intrusive enforcement option which we use to
resolve many matters. We are 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 administratively does not indicate acceptance or approval of the
conduct, nor does it remove a business’s responsibility for the breach. In each case we reserve the right to
take statutory enforcement action in the event that information on which we based our initial assessment is
subsequently found to have been incomplete, inaccurate or misleading or if the administrative action proves
to be ineffective.
13
Administrative resolutions may include voluntary commitments to rectify non-compliance by implementing a
compliance program, improving internal operational procedures or conducting staff training. We have no
legal power to enforce voluntary commitments, but as noted above, we do reserve the right to take statutory
action.
4.3.2 Statutory enforcement action
The statutory enforcement regime includes a number of powers that enable us to enforce the national
energy laws including powers to:

issue infringement notices

accept court enforceable undertakings

initiate court proceedings, and

revoke a retailer authorisation and impose a consequent prohibition from selling energy in any
participating jurisdiction.13
Infringement notices
If the AER has reason to believe that a civil penalty provision has been breached, we have the power to
issue infringement notices.14 This must be done not later than 12 months after the date on which the AER
formed its reason to believe. The penalty payable under an infringement notice is currently $4 000 for a
natural person or $20 000 for a body corporate.
Infringement notices give the recipient the option of paying a penalty in full or electing to have the matter
heard in court. Payment of an infringement notice does not require an admission of an alleged breach or
represent acceptance of liability in respect of an alleged breach. Failure to pay the penalty under an
infringement notice is likely to result in litigation.
13
This power applies only to the retail energy sector.
14
Section 308 National Energy Retail Law, section 74 Electricity Law and section 277 Gas Law.
14
Once an infringement notice is issued, we cannot separately initiate court proceedings in relation to the act
or omission that is the subject of the notice, unless we revoke the infringement notice within a specified
period or the recipient fails to comply with the notice. We can, however, take further action if the breach
reoccurs after the payment of the infringement notice.
Court enforceable undertakings
We may accept a formal commitment (undertaking) in writing from a business in connection with any matter
for which we have a function or power under the national energy laws.15 Enforceable undertakings are
given voluntarily. We cannot compel a business to give an enforceable undertaking, nor are we required to
accept an undertaking proffered by a business.
Enforceable undertakings can provide tailored solutions to address conduct that has given rise to the
alleged breach. For example, an enforceable undertaking might include commitments to stop the behaviour
that led to the breach, take action to remedy the breach or introduce measures to help prevent future
breaches of that nature.
If we consider that a business has not complied with an enforceable undertaking we can seek orders from
the court including declarations of a breach or injunctions preventing further conduct. If the court finds an
undertaking has been breached, it can make any or all of the following orders:

an order directing the person to comply with enforceable undertaking

an order directing the person to pay the Commonwealth an amount up to any financial benefit that
the person obtained directly or indirectly and that is reasonably attributable to the breach

an order directing that person to compensate any other person who has suffered loss or damage
as a result of the breach, and

15
any other order that it considers appropriate.
Section 288 National Energy Retail Law, section 59A National Electricity Law and section 230A National Gas Law.
15
Civil proceedings
We can initiate civil proceedings for alleged breaches of civil penalty provisions of the national energy
laws.16 Proceedings may only be instituted within six years of the date on which an alleged breach
occurred.
Civil proceedings are more likely to be initiated in cases where the 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, or

involves a new or emerging market issue.
On application by the AER, if the court finds that there has been a breach of a civil penalty provision it can
make a range of orders including one or more of the following:

a declaration that a person is in breach of the provision

an order that a person pay a civil penalty

an order that a person take such action as the court requires for remedying the breach or
preventing its recurrence

an order that the person implement a specified compliance program, and

an order for an injunction restraining the person from engaging in the conduct or requiring the
person to take some positive action in relation to the conduct.
16
Section 59 National Electricity Law, section 229 National Gas Law and section 289 National Energy Retail Law.
16
The national energy laws set out the factors which the court must have regard to in determining the value of
a civil penalty to be paid, including:17

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 has engaged in any similar conduct and been found to be in breach of a
provision of the national energy laws in respect of that conduct, and

if appropriate, whether the person has established and complied with, policies, systems and
procedures required under national energy laws.
Revocation of retailer authorisation
We have powers under the Retail Law to revoke a retailer authorisation if we are satisfied that there has
been a material failure by a retailer to meet its Retail Law obligations, and there is a reasonable
apprehension 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.
We are required to provide reasons for any revocation.18 We give the retailer an opportunity to demonstrate
why its authorisation should not be revoked and to present a proposal to address our concerns.19
17
Section 64 National Electricity Law, section 234 National Gas Law and section 294 National Energy Retail Law.
18
Section 120(3) National Energy Retail Law.
19
Section 120(4) National Energy Retail Law.
17
5
Reports on compliance and enforcement activities
As noted in section 1.3 of this Statement of Approach, subject to confidentiality, we may report on the
outcomes of our monitoring, enforcement and investigation activities. By publishing this information we seek
to educate and inform businesses, customers and other stakeholders by highlighting compliance issues
and/or raising awareness of obligations.
If we consider publication appropriate, we may distribute information via various reports including
investigation reports and compliance bulletins/reports. These reports may include details of relevant
incidents, the main findings, reasoning behind those findings, and outcomes. We also have statutory
obligations to report annually on some of our compliance activities.
We will ensure that businesses are consulted where a report on an investigation is likely to include
information that has been provided by them in confidence.
18