EnergyAustralia ordered to pay a pecuniary penalty of 12 million dollars in respect of contraventions relating to customers who reside at premises where life support equipment is required.

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On 3 June 2022, the Honourable Justice Colvin of the Federal Court of Australia published reasons for judgment in proceedings commenced by the Australian Energy Regulator against EnergyAustralia alleging numerous contraventions of provisions in the National Energy Retail Rules concerned with procedures to protect customers who depend upon electricity supply for the operation of life support equipment.  All energy retailers and exempt sellers should carefully review the reasons given by Justice Colvin and ensure that they will not repeat the mistakes made by EnergyAustralia.

In commenting on the hardship provisions, Justice Colvin noted that “delay in registration deprives a customer of these important protections which obviously may have consequences that jeopardise, potentially, the life of the customer.”  The penalty that was imposed was based on the civil penalty regime at the time of the contraventions.  At that time, the legislation provided for a civil penalty to be imposed in an amount not exceeding $100,000.00 for each contravention and an amount not exceeding $10,000.00 for every day during which the breach continued.  The orders that were made by the Justice Colvin were made by consent.  Nonetheless, it is always the responsibility of the Court to determine an appropriate penalty i.e., regardless of whether or not there is consent between the parties as to what that penalty should be.  In determining the quantum of the penalty, Justice Colvin had regard to principles set out in a number of cases that related to regulatory penalties including those approved by the High Court in Commonwealth of Australia the Director of the Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482.  Determining a penalty is not an exact science.  Within a permissible range, Courts have acknowledged that a particular figure cannot necessarily be said to be more appropriate than another.

The Honourable Justice Colvin noted that there have been “thousands of occasions on which the relevant rules have been contravened by reason of the failure of the policy and systems of EnergyAustralia.” It was agreed that there were more than 14,000 contraventions over the period from July 2018 to July 2022.  Further, as noted by Justice Colvin “of particular concern is the extent to which, in some instances, there were very significant delays in providing the required information and registering in the required way, those persons dependent upon life support equipment after they had notified EnergyAustralia of their circumstances.”

The judgment notes that EnergyAustralia has now made significant changes to support and improve its processes in order to comply with the relevant rules.  It has, as reported in the judgment, made an investment of $6.5 million in system automation to reduce the potential for error.  It also has dedicated support teams and has enhanced the training of its employees.  Justice Colvin noted that the contraventions were “serious in terms of number, duration, and particularly the life-threatening risk to which thousands of vulnerable customers were exposed.  The conduct continued for a considerable period.  The breaches themselves were not deliberate, but the issues took a long time to resolve.”

Lesson: From this statement, retailers and exempt sellers should understand the critical importance of identifying issues in systems and processes as quickly as possible.

In terms of reporting the non-compliances to the regulator, Justice Colvin noted that “while EnergyAustralia has cooperated in notifying contraventions and taking steps to address the problem, the process of resolution has been unduly extended.  Indeed, the cooperation has been necessary because investigations by the regulator after self-reporting by EnergyAustralia were hampered by the lack of access to data on the part of EnergyAustralia.  Therefore, although it is the case that EnergyAustralia disclosed its conduct by a process of self-reporting, that disclosure itself was delayed for a considerable period of time, although not deliberately, and the prices of redressing the issue has been extended.”

Lesson: From this statement, energy retailers and energy sellers should take away the importance of providing full and complete information and data to regulatory bodies when required to do so such as in response to reporting on a potential breach.

Lesson:  Further, energy retailers and exempt sellers should ensure that remediation of non-compliance is comprehensive, swift, and effective.

While it was noted that there were no wrongful disconnections of customers who required life support, and there was no identifiable financial or other loss or injury to customers, Justice Colvin noted that “it must be said that the failure to implement the required systems did mean that for a significant period, there was a substantial cost that ought to have been incurred in order to meet its obligations that was avoided by EnergyAustralia.”

Lesson:  From this particular statement, energy retailers and exempt sellers should understand the importance of investing in compliance personnel, systems, and processes so as to reduce the risk of non-compliance.  It is clearly the expectation of regulatory bodies and, on this occasion, the Court, that energy retailers not seek to avoid costs when it comes to compliance.  This is understandable given the very serious ramifications that non-compliance can have.

In commenting on senior management, the Justice Colvin noted that “it is apparent that senior management did not give sufficient care and attention to the issue of compliance with the life support equipment provisions, and as I have said, there was delay in taking the necessary steps to deal with the problem.  In particular, the period from 1 February 2018 until April 2019, on the admitted facts, was one during which the contraventions continued without decisive steps being taken to remedy the problem.”

Lesson: From this statement, senior leadership of energy retailers and exempt sellers need to take away the importance of their responsibility to oversee and implement effective compliance programs.  In our experience, the adequacy or otherwise of a compliance program is more often than not a function of the attitudes and culture promoted by senior leadership.

Ultimately, the Honourable Justice Colvin was satisfied that there should be orders made in the terms proposed.  As noted above, this decision serves as a timely reminder to all authorised retailers and exempt sellers of the critical importance of compliance, particularly in those areas where there may be a risk of consumer detriment and indeed harm or death.

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