On 27 June 2022, the Federal Court of Australia published reasons by the Honourable Justice Moshinsky in Australian Energy Regulator v Origin Energy Electricity Ltd (2020) FCA 802.
The decision contains important clarifications of sections of the Retail Law that apply where customers in NECF jurisdictions experience financial hardship. The decision should be reviewed by all energy retailers operating in different NECF jurisdictions.
Background
The period from March 2019 to 6 October 2021 in the case of the respondents other than OC Energy and in the period from September 2019 to 6 October 2021 in the case of OC Energy, Origin automated aspects of its Power On Program and by use of the automated system:
- Proposed to increase the amount of payment plan instalments of certain hardship customers within certain threshold set by the system:
- Sent an SMS to those customers advising of the change and stating that they should call Origin if the revised amount was not affordable; and
- Automatically cancel those customers existing payment plans and establish new payment plans with increased instalment amounts if the relevant customer did not call Origin three days after the SMS was sent.
The Court found that there was a breach of Section 43 (2)(c) of the Retail Law because, in respect of those customers, Origin failed to maintain and implement Paragraphs 2.2 and 3.1 of Origin’s hardship policy in effect from 12 September 2019, and Paragraphs 2.2 and 3.1 of OC Energy’s hardship policy in effect from 12 September 2019 and breached Section 50 (2) of the Retail Law and Rule 72 (1) of the Retail Rules because each new automatically established payment plan was established without having regard to the relevant customer’s capacity to pay.
In the period from January 2018 to October 2021, in respect of the respondents excluding OC Energy and in the period from September 2019 to October 2021 in the case of OC Energy, Origin, by use of the automated system, automatically cancelled the payment plans of hardship customers who did not pay at least 90% of an instalment within four business days after the due date for that instalment, and if the cancelled payment plan was the hardship customer’s first plan cancelled for non-payment in the preceding 12 months, automatically and unilaterally establish a new payment plan on the same terms as the payment plan and therefore breached:
- Section 43 (2)(c) of Retail Law as in respect of those customers, Origin failed to maintain and to implement, as required by Paragraphs 4.6 and 5.1 of Origin’s hardship policy in effect from October 2014 to 26 November 2018, and Origin’s hardship policy in effect from 26 November 2018 to 12 September 2019 and Paragraphs 2.2 and 3.1 of the OC Energy hardship policy; and
- Section 50 of the Retail Laws and Rule 72 (1) of the Retail Laws because each of the newly established payment plans was established without having regard to the relevant customer’s capacity to pay.
In the period from January 2018 to 12 September 2021, Origin (with the exception of OC Energy), by the use of an automated system:
- Proposed to increase the amounts of payment plan instalments of certain hardship customers by more than the relevant threshold amount;
- Attempted an outbound call to those customers and, if Origin was unable to speak to a customer, sent an email or letter advising the customer to contact Origin within seven business days informing the customer if they did not do so, they may be removed from the Power On Program;
- If the customer did not contact Origin within 10 days of the letter or email being sent, automatically cancel customer’s payment plan for non engagement, notwithstanding the fact that the customer may have continued to make payments towards their debt; and
- Therefore, breached Section 43 (2)(c) of the Retail Law because in respect of those customers, Origin failed to maintain and implement as relevant Paragraphs 4.6 and 5.1 of the relevant hardship policies.
Finally, in relation to 18 customers, Origin breached one or more of the following sections of the Retail Laws (depending upon the location of the customer) and the Retail Rules:
- Section 43 (2)(c) of the Retail Laws by failing to maintain an implemented hardship policy by engaging in the conduct described above;
- Section 46 of the Retail Law and Rule 71 (1) of the Retail Rules by failing to inform the hardship customer of Origin’s hardship policy;
- Sections 50 (1) and 50 (2) of the Retail Law by failing to offer and apply a payment plan to the hardship customers;
- Rule 72 (1) of the Retail Rules by failing to have regard to the customer’s capacity to pay and establishing a payment plan for the customer;
- Rules 107 (2), 111 (2) and/or 116 (1)(d) of the Retail Rules by wrongly arranging for the disconnection of the customer’s premises or residential customers experiencing payment difficulties who had not been offered two payment plans in the 12 months prior to Origin arranging for the disconnection or were adhering to a payment; and
- Section 47 of the Retail Laws by failing to give effect to the general principle that the disconnection of the premises of a hardship customer due to an inability to pay an energy bill should be a last resort option.
Importance
The decision of Justice Moshinsky contains important commentary that should be considered by all energy retailers in relation to their customer hardship and compliance programs in general. The decision is pertinent to the use of automation in retail operations and in seeking to implement compliant systems.
In the proceedings, the AER and Origin reached an agreement regarding the resolution of the proceedings. In summary, Origin admitted that it had engaged in systemic conduct and the conduct in relation to the 18 individuals set out above in contravention of the Retail Laws and the Retail Rules. The parties jointly proposed that the Court make declarations of contravention and impose civil penalties totalling 17 million dollars. The parties prepared a Statement of Agreed Facts (SOAF).
In paragraph 25, Justice Moshinsky notes that the Retail Laws and Retail Rules require retailers such as Origin to develop, maintain and implement a customer hardship policy. As stated in the second reading speech, “The purpose of a customer hardship policy is to identify residential customers experiencing payment difficulties due to hardship and to assist those customers to better manage their energy bills on an ongoing basis.” Justice Moshinsky was satisfied that contraventions of the Retail Law and Retail Rules that were established by the facts and admission set out in the SOAF. He considered it appropriate to make the declaration substantial in the terms proposed by the parties.
Penalties
Some of the relevant contraventions occurred prior to the implementation of the New Civil Penalty Regime [[See Reform of the Australian Energy Regulator Civil Penalty Regime]]. For the period up to 28 January 2021, the maximum penalty was $100,000.00 plus an amount not exceeding $10,000.00 for every day during which the breach continued.
The applicable maximum potential penalty increased on 29 January 2021. From that date, the maximum is the greater of three alternatives with the greater in this case being 10% of the annual turnover of the body corporate during the 12-month period ending at the end of the month in which the body corporate breached, or began breaching, the Civil Penalty Provision.
The material originally filed by the parties did not enable that amount to be calculated, and so Justice Moshinsky requested additional affidavit material be filed. Origin filed a second affidavit of Mr Briskin dated 27 June 2022, and on that basis, Justice Moshinsky indicated that he did not require the parties to provide any further written or oral submissions.
In examining the Civil Penalties to be applied, Justice Moshinsky noted that where there are a very large number of contraventions involved, such as in this case, the maximum penalty may rise to a number such that there is no meaningful maximum penalty citing Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (2016) 340 ALR 25 and that in such cases, the focus should be on the conduct and on determining a penalty to match the conduct.
The lessons
Justice Moshinsky (at paragraph 50) noted: “the systemic conduct referred to above arose from the automation of many of Origin’s systems in relation to its Power On Program, being a program specifically designed to address the needs and circumstances of hardship customers. It is surprising and troubling that the automated system resulted in Origin breaching its own hardship policies and provisions of the Retail Laws and Retail Rules. The material originally filed by the parties did not explain to my satisfaction how this came about. This is relevant in considering the appropriateness of the proposed penalty, as it goes to the nature and circumstances of the contravening conduct and to whether Origin has demonstrated insight into its contravening conduct. The second affidavit of Mr Briskin provides a more detailed explanation as of how the systemic conduct that is the subject of this proceeding came about. In that affidavit, Mr Briskin explains the process by which Origin automated aspects of its Power On Program and who was involved in that process. He explains how the errors in the automation system occurred in relation to the automated second payment plans (paragraphs 12 – 13) and in relation to the automation associated with the hardship payment plan reviews (at paragraphs 14 – 18). Mr Briskin states that, during the relevant period, he believed that Origin’s automated systems complied with the Retail Laws and the Retail Rules.” Justice Moshinsky then goes on to state “In my view, this case presents an important reminder of the need to ensure that automated processes are compliant with the relevant regulatory requirements and relevant corporate policies.”
The contraventions were classified as serious and occurred over a lengthy period of time. Having regard to the nature and circumstances of the contravening conduct and other relevant considerations, Justice Moshinsky considered the penalties proposed by the parties, which totalled 17 million dollars, to be appropriate. He stated that the penalties [will] have sufficient deterrent value, as regard to specific and general deterrence.
As the regulatory demands of energy sellers increase over time, there is an understandable move towards automation. When set up correctly, automation can be used to reduce regulatory burden and to improve customer’s experiences.
This decision serves as a timely reminder of the critical importance of compliance when it comes to automating such processes. A failure to properly build in compliance into automation can result in a large number of breaches occurring over a significant period of time and ultimately, significant civil penalties being paid.
