Articles

Articles
A report on the prerequisites for nuclear energy in Australia

A report on the prerequisites for nuclear energy in Australia

AU Energy Compliance

Following a referral from the Minister for Energy and Emissions Reduction, Angus Taylor MP, the Standing Committee on Environment and Energy resolved on 6 August 2019 to conduct an inquiry into the prerequisites for nuclear energy in Australia.

The Committee will inquire into and report on the circumstances and prerequisites necessary for any future government’s consideration of nuclear energy generation including small modular reactor technologies in Australia, including:

  • waste management, transport and storage,
  • health and safety,
  • environmental impacts,
  • energy affordability and reliability,
  • economic feasibility,
  • community engagement,
  • workforce capability,
  • security implications,
  • national consensus, and
  • any other relevant matter.

The Committee is accepting written submissions, addressing one or more of the terms of reference, to be received by Monday 16 September 2019.

Read more here.

An Update on Energy Regulation

An Update on Energy Regulation

AU Energy Compliance

In this, the first of our weekly podcasts, we discuss:

a. Energy reporting obligations;

b. A new New prohibition on disconnection and reconnection charges in NSW; and

c. Third-party agent and contractor compliance risks.

 Our presenters

Connor James BSc, LLB, GDLP, LLM (Commercial Transactions)

Connor is a qualified solicitor with Science and Law degrees and significant experience in regulatory compliance. Connor has worked for a number of energy retail and network companies including Integral Energy, Redback Technologies and Next Business Energy.

Alex Silcock LLB, BIGS 

Alex Silcock is a lawyer with Law Quarter and regulatory specialist with Compliance Quarter. He recently completed a secondment with TransGrid’s Legal, Governance and Risk team. Alex works extensively with energy retailers including in the development of their compliance programs.

A summary of regulatory requirements for statements of advice

A summary of regulatory requirements for statements of advice

Financial Services

As noted in our previous article, a statement of advice is the main document that records advice provided to retail clients.

The advice process

Individuals obtain information about financial products in a variety of ways and in a variety of settings. An individual may talk to friends and family, their lawyer, their accountant and others who they trust when considering a financial product.

Where advice is sought from a financial advisor, a financial services guide (FSG) will typically be provided to a client in the first meeting between the client and advisor. A statement of advice (SoA) will then either set out the advice or record the advice that was given. If the statement of advice is not itself the means by which advice is provided, then it must be provided to the client when the advice is provided or as soon as practicable thereafter.

If the statement of advice is not given to the client when the advice is provided, the licensee or representative must inform the clients of information which would be required to be included in the statement of advice including a disclosure of remuneration or other benefits that the providing entity and its associates will receive in connection with the advice, and must disclose interests which may affect the recommendations within the advice.

Regulatory Guides

There are a number of Regulatory Guides and reports that have been published by ASIC and which assist advisors in understanding their obligations. These include:

  • Regulatory Guide 90: Example Statement of Advice: Scaled advice for a new client (RG 90).
  • Regulatory Guide 168 Disclosure: Product Disclosure Statements (and other disclosure obligations) (RG 168).
  • Regulatory Guide 175 Licensing: Financial product advisers— Conduct and disclosure (RG 175).
  • Regulatory Guide 221 Facilitating digital financial services disclosures (RG 221).
  • Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244).
  • Report 413 Review of retail life insurance advice (REP 413).

Mandatory inclusions

The statements and information in a statement of advice must be worded and presented in a clear, concise and effective manner (see s947B(6) and 947C(6) and RG 175). ASIC recognises that “the style, content, layout and length of an SoA will vary depending on various matters, including the scope and complexity of the advice.”

Section 947B of the Corporations Act 2001 sets out the required content of a statement of advice provided by an advisor. The statement of advice must include the following:

  • A statement setting out the advice (see s947B(2)(a) and 947C(2)(a));
  • Information about the basis on which the advice is or was given. This information should include an explanation of the basis on which the advice is or was given including consideration of the clients objectives, financial situation and needs and how the advice will meet those objectives, financial situation and needs (see s947B(2)(b) and 947C(2)(b));
  • A statement setting out the name and contact details of the advisor (see s947B(2)(c) and 947C(2)(c)–(d));
  • Information about remuneration, including commissions or other benefits, that the advisor, a related body corporate, a director or employee of the advisor or any related body corporate or associate will receive that might reasonably be expected to be or have been capable of influencing the advisor in providing the advice (see s947B(2)(d) and 947C(2)(e));
  • Information about any other interests, whether pecuniary or not and whether direct or indirect, of the advisor including any associate, that might reasonably be expected to be or have been capable of influencing the advisor in providing the advice (see s947B(2)(e) and 947C(2)(f));
  • A statement setting out any warnings required to be given to the client in relation to the advice pursuant to section 961H; and
  • All other information required to be provided under the regulations. Regulation 7.7.11 provides that a statement of advice given by a financial services licensee must include information about all remuneration, including commission and other benefits, that a person has received or is to receive from referring another person to the licensee.

Disclosures on fees and commissions

The obligations relating to the disclosure of information on commissions, fees, benefits or other advantages provided to an advisor or an advisor’s associate aim to help consumers identify any potential influences on the advice provided and to identify any potential conflicts of interests.

In terms of how a disclosure may be made, preference is given to an advisor stating a dollar amount received, otherwise a percentage amount or a written description must be provided, and the benefits disclosed must include all commissions, soft dollar remuneration, sales quota and volume bonuses. A financial services provider would generally not need to disclose holdings of shares in a company whose shares are recommended to an investor unless the advice provided is likely to result in a significant volume of trading in those particular shares. If there is some form of collateral benefit, i.e. an advisor or associate is a lender to the corporation in which securities are recommended, disclosure is likely to be required.

An advisor must include a reasonable level of detail in their recommendations and also in relation to the disclosure of interests that may affect the advice given.

Recommending one product to replace another

Where an advisor recommends that a client disposes of a particular product to replace it with another, additional obligations apply.

Section 947D(1) requires that a statement of advice include information as to the charges a client will or may incur with respect to that disposal, reduction, acquisition or increase, along with any pecuniary or other benefits that the client will or may lose as a result of acting on the recommendation, to the extent that the information is known or could reasonably found out by the advisor.

An introduction to Financial Product Advice

An introduction to Financial Product Advice

Financial Services

Financial advice is regulated under the Corporations Act 2001 (Cth) as financial product advice. The provision of financial product advice is a financial service and a financial planner or adviser must hold an Australian Financial Services Licence (AFS Licence) or operate under an exemption to this licensing requirement.

Financial advisors and AFS Licence holders are subject to general licensing obligations including relating to conduct and disclosure as well as additional obligations for financial advisers who provide financial product advice to retail clients.

In this post, we introduce the types of advice given, the topics typically covered by advice and the regulatory framework.

Types of financial product advice

Under the Corporations Act there are two types of financial product advice. These are:

  • personal advice which is defined as financial product advice that is given or directed to a person in circumstances where the provider of the advice has considered one or more of the person’s financial objectives, situation and needs, or a reasonable person might expect the provider to have considered one or more of these matters. Personal advice can also be further classified as either scaled advice meaning personal advice is limited in scope, relating to a specific issue or specific range of issues raised by a client or comprehensive advice providing holistic or full advice covering a client’s financial needs.
  • general advice which is financial product advice that is not personal advice. General advice covers guidance, advertising, promotional and sales material highlighting the potential financial benefits of a product.

Financial product advice generally involves a qualitative judgement, evaluation, assessment, or comparison of the features of a financial product.

Main topics covered by financial advice

The main areas covered by financial advice include the following:

  • Superannuation and retirement advice: referring to advice that seeks to help individuals plan for their retirement.
  • Loan and investment advice: advice related to the determination of the most suitable loan product and financial asset allocation for a consumer.
  • Self-managed superannuation fund advice: typically concerning advice provided to support the investment and administration’s decision is made by the trustee.
  • Tax advice: relating to financial product advice liabilities, obligations and entitlements that could arise under a taxation law.

Legal and regulatory framework

There are a number of sources of regulatory obligations for AFS licensees and their representatives. These include:

  • General common law duty of care: the adviser may be subject to an implied duty of care and can be liable in negligence.
  • Contractual: where advice is provided pursuant to a contract there will be contractual duties and an advisor may be liable for a breach of contract where it fails to abide by the terms of the contract.
  • Fiduciary duties: fiduciary duties will apply where the relationship between the parties is fiduciary in nature. Fiduciary duties include the no conflicts and no profit rules.
  • AFS licensing requirements: the AFS Licence will include a number of obligations on the licensee.
  • Corporations Act 2001 (Cth): there are various obligations in the Corporations Act 2001 (Cth) including s 912A that need to be considered. There are also obligations in relation to a licensee’s dispute resolution system and mandatory disclosures.
  • Australian Security and Investments Commission Act 2001 (Cth): including prohibitions against unfair contract terms, unconscionable conduct, misleading or deceptive conduct, and containing implied warranties.

In our next post, we will consider mandatory inclusions of a statement of advice.

 

The New Energy Tech Consumer Code

The New Energy Tech Consumer Code

AU Energy Compliance

In 2017 a Behind the Meter Working Group was established to draft a Code of Practice for the industry in relation to behind the meter products, now known as the New Energy Tech Consumer Code. The New Energy Tech Consumer Code will be a voluntary code but is likely to provide an advantage to signatories as consumers may perceive that signatories uphold better business practices and offer greater consumer protections than non-signatories.

The New Energy Tech Consumer Code sets a minimum standard of customer service for consumers (residential and small business) looking to purchase behind the meter products. The Consumer Code covers the whole ‘customer lifecycle’ and sets out a number of commitments at each stage i.e. quoting, contracting, and operating.

The Australian Competition and Consumer Commission (ACCC) published its draft determination on 1 August 2019. A number of submissions on the draft code were considered by the ACCC including submissions from consumer law advocacy centres, solar companies, energy ombudsman schemes, energy retailers, and individuals.

New energy tech products are defined to include solar panels, energy storage systems and other emerging products and services. For the purposes of the Code, relevant products, systems and services will be those that are small-scale and that generate, store or trade energy away from Australia’s main transmission and distribution energy networks or as distributed energy resources connected to an energy network. Also regulated will be services that support or are closely related to those products or systems, that monitor or manage a customer’s usage of energy whether on or off an energy network, or that the Code Administrator is satisfied it sits, apparently, within the Code. The definition in section 2.1 of the determination is broad and, in some ways, ambiguous.

The definitions and terms used in the Code do not align to definitions or terms found within National Energy Retail Law. It is unclear what the term ‘on or off an energy network’ means and whether this is the same as a ‘away from Australia’s main transmission and distribution energy networks.’ The Code is not intended to include ‘simple, low-cost or off-the-shelf new energy tech, such as might be purchased from a white goods or hardware store for self-installation.’ Again, this would be open to interpretation. The examples given of ‘new energy tech’ include: a power purchase agreement, an electric vehicle charging service, and a microgrid. The Code definitions are not intended to be exhaustive, reflective of the fact that this space changes quickly and in unexpected ways.

Signatories to the Code agree to abide by minimum standards of good practice which are intended to cover all aspects of the consumer experience. The Code Administrator has powers to monitor and sanction non-compliance including to propose to the Code Monitoring and Compliance Panel that, in the case of serious non-compliance, a signatory should be suspended or expelled. Signatories to the Code will only be able to offer deferred payment arrangements that are regulated under the National Consumer Credit Protection Act and the National Credit Code and provided by credit providers licensed under the National Consumer Credit Protection Act.

Signatories to the Code agree to make a number of commitments. These include that signatories will:

  • use language that is accessible and that avoids jargon.
  • ensure that any claims relating to performance or energy cost savings are reasonably based and where available, based on reputable sources.
  • advertise the total cost price as predominantly as any component price.
  • ensure that any disclaimers are clearly outlined and not buried in small print.
  • be clear about when any additional costs for finance or an alternative purchasing arrangement when the cost is being recovered in the overall price.
  • educate consumers of their rights i.e. that consumers can ask a salesperson to leave or end the contact at any time.
  • provide a Consumer Information Product that explains the consumer protection framework;
  • make various disclosures including about how the new energy tech operates and how to operate it.

The ACCC, in its draft determination, notes that the adoption of the Consumer Code is likely to result in greater consumer protections, i.e. in addition to those provided under existing consumer law.

The ACCC considers that the commitments made by signatories under the Consumer Code are likely to result in public benefits by providing protections to reduce the likelihood and degree of consumer harm that can arise from the kinds of practices sought to be addressed by the relevant provisions.

Interested parties are invited to make a submission on the draft determination by 23 August 2019.

The Metering ICF Package

The Metering ICF Package

AU Energy Compliance

The Australian Energy Market Operator (AEMO) has announced that it is conducting the second stage of consultation on proposed amendments to various metering procedures as a result of a number of issues across various procedures and guides raised by both proponents from industry and AEMO.

Interested parties are invited to comment on the proposed changes contained within the draft report. Submissions should be sent to AEMO by 5 PM Melbourne time on 6 August 2019.

On 20 May 2019 AEMO published the first notice stage consultation and issue paper for a package of amendments called the Metering ICF Package. Various amendments are proposed including to the following documents:

  • MSATs procedures: CATs
  • MSATs procedures: WIGS
  • Metrology procedure: Part A
  • Metrology procedure: Part B
  • Service Level Procedure: Meter Data Provider Services
  • Service Level Procedure: Meter Provider Services
  • Service Level Procedure: Embedded Network Manager Services
  • Exemption Procedure: Meter Installation Malfunctions

AEMO received 15 submissions from retailers, local network service providers, metering providers, metering data providers and intending participants. AEMO identified nine material issues from the submissions received and these include: updating MSATs about remote de-energisation and remote re-energisation, and clarifying communication for identification of incorrect NMI and metering installation.

Some of the key issues considered in the report are discussed below.

Clarifying the LNSP’s obligations in relation to creating Embedded Network Codes

The proposed amendments clarify the sections on Embedded Network Code and Rules in the MSATs Procedures: CATs and defines the timeframes for the provision of various embedded network details. AEMO noted the obligation in clause 2.9 (e) for AEMO to populate MSATs with the embedded network code provided to AEMO by the LNSP within two business days of receipt. AEMO noted that a valid Embedded Network Code and information about the appointed Embedded Network Manager is required to ensure that child NMIs are established quickly. AEMO concluded that no further changes should be made to the proposed MSATs Procedures: CATS.

Updating MSATs about remote de-energisation and remote re-energisation

The existing MSATs procedure requires the metering provider to update MSATs when a meter is remotely de-energised in remotely re-energised. However, it does not define the date to be used when updating MSATs. AEMO noted that there is a risk that different MPs may apply different logic to determine the date to use when updating MSATs which may lead to confusion within the market. The proposed amendment defines the date to be applied to remote de-energisation as the day after de-energisation.

Define timeframes for updating datastreams in MSATs

The proposed changes define the timeframe for updating data streams in MSATs Procedure: CATS as two business days. Following feedback, AEMO updated the proposed clause to reflect when the timeframe should commence and updated the clause wording to provide clarity.

There were various other changes under consideration and interested parties are advised to refer to AEMO’s website or to contact us with any questions.

The last of the misleading discount fines?

The last of the misleading discount fines?

AU Energy Compliance

Energy retailers operating in those jurisdictions which have adopted the National Energy Customer Framework offer market retail contracts, which are negotiated contracts, and standard retail contracts, which are contracts on terms substantially specified in the National Energy Retail Rules. Standing offers are pricing offers based on a retailer’s standard retail contract. They apply in a number of ‘default’ situations i.e. where a customer is no longer on a market contract and in the case of a ‘move-in’ customer.

On 18 July 2019, the Australian Competition and Consumer Commission announced that M2 Energy Pty Ltd (Dodo) and CovaU Pty Ltd had paid penalties totalling $37,800 and $12,600 respectively after the regulator issued each with infringement notices for alleged misleading claims about discounts available on the energy plans. In addition, both retailers have committed to refunding affected customers.

As was the case with Origin Energy in 2015 (and indeed with other retailers in other reported cases), the alleged contraventions related to higher market offer rates rather than standing offer rates being used in the calculation of advertised discounts. In commenting on the case, the ACCC’s Chair Rod Sims said: “energy retailers are reminded that any discount must be genuine and not based on confusing and inappropriate calculations which result in inflated percentage discount claims being advertised to consumers.”

Australian Competition and Consumer Commission v Origin Energy Limited [2015] FCA 55: This case was decided by Justice White on 9 February 2015 in the Federal Court of Australia. From 1 February to 30 June 2013 Origin’s website and contracts sent to customers contain statements that under a DailySaver energy plan, residential customers would receive a discount on the usage charges of up to 16% for electricity and up to 12% for gas. The relevant plan had a 12-month term.

Sections 29(1)(g) and (i) of the Australian Consumer Law relate to misleading and deceptive conduct with respect to goods and services and with respect to the price of goods or services. In this case, Origin Energy admitted: “that some consumers would have understood, reasonably, that the discounts would be from energy usage charges calculated by reference to rates applicable generally to consumers like themselves.” Origin Energy also made various admissions in relation to website discount representations. An agreed penalty of $325,000 was imposed.

From 1 July 2019, the Retail Electricity Code limits standing offer prices that are charged to certain consumers in New South Wales, South Australia and Southeast Queensland using a cap called the Default Market Offer. The Code also requires that retailers advertise the prices of their plans by reference to the Default Market Offer.

Retailers are reminded to comply with the Code and where the Code does not apply to ensure that they do not fall foul of the same ACL provisions.

A deeper look at the AFS licence application process

A deeper look at the AFS licence application process

Financial Services

As we noted in our previous article there are five parts to form FS01. Below we describe these in more detail.

Part A of the application requires you to provide details of the applicant as well as details of the person who will serve as a contact for the applicant during the application process. In part A you will also be asked questions about the financial services and products you would like to be authorised to provide and how your proposed business will operate. ASIC makes various references to the Corporations Act 2001. As noted in our previous article, applicants should ensure that they understand the applicable provisions of the Corporations Act and understand the controls that they will implement to ensure compliance.

Who can apply for an AFS licence

An applicant for an AFS licence can be an individual, partnership, company, trustee of a trust, or other entity. If you are applying for a company, the names and details of your directors and secretaries will be pre-filled by the online application form. If you are applying as an ‘other’ type of entity, you may be asked to provide more information in an A1 additional proof. We will explain the proofs that are required to accompany an application in an article to follow. An AFS licence cannot be held by the trust but can be held by a trustee.

The applicants’ contact person will be contacted by ASIC with any questions about the application lodged. The contact person can be the applicant, one of the applicant’s officers or employees or another person such as a lawyer or accountant.

Financial Service and Product selection

At Part A3 and A4 you will be asked to select the financial services and products that you want to be authorised to provide and your AFS licence. ASIC notes that this is one of the most important steps in the application process. The implications of a selection include that it will limit the financial services and products that can be provided under the licence and that it will determine the obligations you have as an AFS licensee. The proofs that you are required to provide include those that demonstrate that you have the competence, resources and processes in place to be able to provide the services and products that you have selected.

The financial services that you may select include those listed below:

  • provide financial product advice;
  • deal in a financial product;
  • make a market for a financial product;
  • operate a registered scheme;
  • provide a custodial or depository service;
  • provide traditional trustee company services;
  • provide a crowdfunding service.

Financial product advice may either be:

personal advice as defined in section 766B(3) of the Corporations Act 2001. You will generally be considered to be giving personal advice if you have considered, or a reasonable person might expect you to have considered, one or more of the client’s objectives, financial situations and needs; general advice as defined in section 766B(4) of the Corporations Act 2001. This covers all financial product advice that is not personal advice.

Class of product advice as defined in regs 7.6.01BA(3), 7.6.04BA(3), 7.8.12A(2), and 7.8.14B(3). This includes financial product advice about a class of products that does not include a recommendation about a specific product in the class.

In our next article, we will examine these terms in more detail.

Embedded Network Conversion- Retail Exemption Requirements

Embedded Network Conversion- Retail Exemption Requirements

AU Energy Compliance

Requirements relating to retail exemptions for the sale of electricity within embedded networks are set out in the AER Exempt Seller Guideline. Under the National Energy Retail Law any person or business who sells energy to another person for use at a premises must have either obtained a retail authorisation or operate under a retail exemption.

The AER notes that where energy selling is your main business, you are selling to a number of customers or selling in a number of states or territories, you will probably need a retail authorisation. The exempt seller regime was designed for small-scale selling activities i.e. between related entities or at a specific site.

The AER notes that energy sales do not necessarily have to be for-profit in that even passing energy on at cost to another person is a sale.

Network conversions are dealt with in section 4.4 of the Exempt Seller Guideline. A network conversion is the conversion of an existing site’s electrical wiring into an embedded network that allows the owner or operator of the site to sell electricity directly to residents or tenants of that site. Section 4.4 and the other relevant provisions of the exempt seller guideline should be read alongside the AER Network Exemption Guideline. One of the main concerns in the AER’s assessment of a retrofit is the detriment that may result to customers i.e. the loss of power of choice.

Who Holds the Retail Exemption

In terms of who should hold a retail exemption, the person or business that is selling the energy should hold the retail exemption whereas a network exemption should be held by any party that owns controls or operates the embedded network infrastructure. The AER notes that the party that should hold the retail exemption is generally the party who buys energy at the gate meter and then sells it on to the customers at the site.

In the Retail Exemption Guideline, the AER talks about agents or service providers. The AER notes that they do not generally consider that exemptions are appropriate for agents or service providers as selling energy is their core business and therefore a retail authorisation would be required.

Seeking EIC

The AER notes that the consent that you obtain to complete the network conversion under the network guideline is separate from the consent that you obtain from occupants to sell them electricity. A tenant or resident can agree to the network conversion but make separate arrangements for the purchase of energy from a third party.

In seeking informed consent from occupants, it is necessary to ensure that you have clearly, fully and adequately disclosed all matters relevant to the conversion. You must ensure that you consider a customer’s capacity to provide consent. You must also ensure that you collect evidence of consent provided including the information that you disclosed, the discussions you had, and your assessment of a customer’s capacity to consent.

If the proposed embedded network consists of wholly commercial customers and you have the consent of all affected tenants or customers, then you do not need to apply for an individual exemption and can rely on a relevant class exemption. If, however the site that you propose to make into an embedded network consists of residential customers then you must apply for an individual exemption irrespective of whether or not you have the consent of all tenants and customers.

Section 7.2.1 sets out the matters that the AER will consider in the review of an application for an individual exemption with respect to an embedded network. It is imperative that this section be read in full. This includes the following:

Mitigation of detriment regarding retail contestability and competitive offers. Customers in an embedded network can experience practical difficulties in accessing market retailers and application for an exemption involving a retrofit must attempt to remove barriers to customers purchasing energy from a retailer of their choice. The successful applicant must also limit customer detriment that may result from it potentially being a monopoly supplier. By offering an attractive product to customers as if in a more competitive market. As part of this assessment, the AER will consider whether you have sought advice from the relevant distributor on whether and how nonconsenting energy customers could be left out of the network conversion.

Customer dispute resolution services. There are a number of requirements for exempt sellers to be members of jurisdictional ombudsman schemes. Exemption sellers should examine whether they need to become a member of a jurisdictional ombudsman scheme and explain this in the application for an individual exemption. In addition, exempt sellers must have dispute resolution processes that are consistent with the Australian standard for complaints management in organisations.

Efforts to obtain explicit informed consent. Applicants must demonstrate that they have explained to potential customers implications of being in embedded network. This includes information about the benefits as well is potential detriments.

Conclusion

In conclusion, where an exempt entity is seeking to retrofit an existing building into an embedded network, it will need to consider both the network and retail exemption guidelines issued by the AER. It is important to note that there are a number of steps in the process and that the general objective is to ensure that occupants are fully aware of the consequences of the embedded network conversion.

There may be two separate approvals required from the AER. The first may relate to the network conversion itself i.e. following the provision of information in section 4.9.1 of the network guideline. Secondly, an individual exemption may be required where an embedded network consists of residential customers or where less than 100% of commercial customers have provided explicit informed consent under the retail guideline. We commonly see confusion as parties fail to understand that there are two guidelines issued by the AER, that explicit informed consent requires the disclosure of a range of matters, and that different parties may require a network exemption.

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