In January 2025, our clients were advised of Ergon Energy’s commencement of proceedings in the Federal Court seeking to set aside a notice it received from the Australian Energy Regulator (AER). This notice, issued on 7 November 2024 under section 206(1) of the National Energy Retail Law, called for the production of information and documents relevant to the AER’s regulatory functions.
We have followed this matter with interest because it also relates to the application of Rule 31 of the National Energy Retail Rules (NERR) which regulates how retailers must deal with overcharging. At the heart of the dispute was the AER’s ongoing investigation into possible breaches by Ergon Energy of Rule 31 of the NERR and section 273 of the National Energy Retail Law. These alleged breaches relate to Ergon’s handling of Centrepay payments received from former customers: a matter that has prompted close regulatory attention across the energy sector.
This recent decision is useful as it considers circumstances where a retailer receives an overpayment or other amount which has not been invoiced and whether the retailer has overcharged the customer in those circumstances.
Context: Rule 31 and the AGL Precedent
For context, Rule 31 establishes obligations regarding overcharging. The key sections from rule 31 is copied below:
31 Overcharging (SRC and MRC)
(1) Where a small customer has been overcharged by an amount equal to or above the overcharge threshold, the retailer must inform the customer accordingly within 10 business days after the retailer becomes aware of the overcharging.
Note
This subrule is classified as a tier 2 civil penalty provision under the National Energy Retail Regulations. (See clause 6 and Schedule 1 of the National Energy Retail Regulations.)
(2) If the amount overcharged is equal to or above the overcharge threshold, the retailer must:
(a) repay that amount as reasonably directed by the small customer; or
(b) if there is no such reasonable direction, credit that amount to the next bill; or
(c) if there is no such reasonable direction and the small customer has ceased to obtain customer retail services from the retailer, use its best endeavours to refund that amount within 10 business days.
Note:
Money not claimed is to be dealt with by the retailer in accordance with the relevant unclaimed money legislation.
Note
This subrule is classified as a tier 2 civil penalty provision under the National Energy Retail Regulations. (See clause 6 and Schedule 1 of the National Energy Retail Regulations.)
If the amount overcharged is less than the overcharge threshold, the retailer must:
(a) credit that amount to the next bill; or
(b) if the small customer has ceased to obtain customer retail services from the retailer, use its best endeavours to refund that amount within 10 business days.
Note
This subrule is classified as a tier 2 civil penalty provision under the National Energy Retail Regulations. (See clause 6 and Schedule 1 of the National Energy Retail Regulations.)
(3) No interest is payable on an amount overcharged.
(4) If the small customer was overcharged as a result of the customer’s unlawful act or omission, the retailer is only required to repay, credit or refund the customer the amount the customer was overcharged in the 12 months before the error was discovered.
(5) The overcharge threshold is $50 or such other amount as the AER determines
Ergon’s court action follows the last year’s AGL decisions, where the Federal Court imposed a $25 million penalty in December 2024 after AGL was found to have breached Rule 31 in circumstances involving receipt of Centrepay payments for former customers.
The Federal Court’s Reasoning in AGL
The Federal Court in the AGL matter held that a customer has been overcharged where, “a retailer has received, processed and retained a payment of an amount of money from a customer that exceeds the amount that the retailer is in fact entitled to charge under any contract which it has with that customer.” The Court applied an economic substance test, examining whether the retailer has received and is in possession of a sum of money that belongs to the customer and which the retailer does not have any contractual entitlement to retain.
One feature of the AGL case was that it considered evidence of the overcharging itself, whereas the Ergon decision was decided in the absence of evidence of a contravention focusing simply on the notice.
The Federal Court Decision in Ergon
On 27 May 2025, the Federal Court of Australia published its decision in the Ergon matter, which provides further clarity to retailers who are obliged to comply with Rule 31 of the NERR. The Ergon decision is useful as part of it focuses on a situation where a retailer receives payment (in the absence of a demand for payment) that is in excess of what it is entitled to receive.
From the Ergon decision, we learned that Ergon advanced two main arguments. Both were unsuccessful.
Argument 1: Definition of “Customer”
The first was that former customers, i.e. those who have ceased receiving retail services from a retailer are not “customers” as defined by the National Energy Retail Rules.
In support of its first argument, Ergon contended that the term “customer” in Rule 31 does not include any persons who previously acquired energy from Ergon but who no longer do. Ergon proposed that “customer” under Rule 31 should be interpreted to mean:
- a person who has a present relationship with a retailer by purchasing electricity, as defined under section 5(1)(a) of the National Energy Retail Law;
- a person who proposes to purchase electricity from a retailer, under section 5(1)(b); and
- a person who may prospectively purchase energy, under section 2(3) of the National Energy Retail Law.
If Ergon were successful with this argument, then Rule 31 could not apply to former customers as Rule 31 uses the defined term “customer”. Ergon attempted to apply a temporal (time based) limitation on the term “customer”, i.e., to limit the definition to those individuals who were proposing to enter into a contract or who presently were in a contract, being either a market retail contract or a standard retail contract, for the provision of energy services.
Justice Moore rejected Ergon’s first argument, finding that the proper construction of Rule 31 follows its ordinary meaning. A retailer can overcharge a customer even after the cessation of services. For example, a retailer could overcharge by sending an unwarranted invoice after the customer has switched to another provider.
Argument 2: Interpretation of “Overcharge”
The second argument that the AGL decision was incorrectly decided and that a different meaning of the “overcharge” should be adopted.
Ergon contended that the term “overcharge” is built on the concept of some action by a supplier in charging for services: such as debiting an account, sending a bill, or otherwise asserting an entitlement to payment, in contrast to the mere receipt of a mistaken payment.
Ergon further contended that the mere holding of an overpayment where a customer’s account is in credit was not an express or implied assertion of entitlement, as it is consistent with the retailer intending to return the overpayment to the customer.
In reply, the AER asserted that the decision in AGL was correct. However, importantly, Senior Counsel for the AER acknowledged that mere overpayment alone is insufficient to amount to an overcharge—such as where a customer accidentally transfers funds to a retailer’s account in excess of what is owed—without some further conduct by the retailer.
The Court’s View on Additional Conduct
The debate in the Ergon case therefore turned to the nature of such additional conduct, including inaction or delay i.e. what actions a retailer takes or fails to take when it knows that it has received more money than it is entitled to. The Court observed that overcharging could arise from various forms of conduct such as processing payments, crediting or failing to credit customer accounts, holding money without taking steps to return it, expressing (explicitly or implicitly) an entitlement to the funds, or failing to prevent continued payments by individuals no longer receiving services.
Justice Moore’s Findings
When examining the meaning of “overcharge,” Justice Moore decided that overcharging in the circumstances of overpayment requires some form of conduct by the retailer in circumstances where action is called for: such as failing to return an overpayment. Mere overpayment, in isolation, does not constitute an overcharge.
We can illustrate this with a hypothetical example discussed in the decision: a customer at a coffee shop leaves $20 for a $10 item and walks out. The customer is unlikely to have been overcharged unless the retailer is aware of the mistake and fails to rectify it—since the extra payment could be a tip or gift.
The Court further accepted that if a retailer’s conduct indicates an intention to promptly return an overpayment, it is unlikely to constitute an overcharge. However, retaining the overpayment for an unnecessarily long period may suggest the retailer is gaining an economic benefit at the customer’s expense, which could constitute overcharging.
Examination of the Term “Retained”
In examining the AGL decision, Justice Moore noted that the word “retained”, used in the phrase “where a retailer has received, processed and retained a payment”, is a broad term. If an overpayment is held in a manner that is inconsistent with the prompt return to the customer, for example, if the retailer fails to take any reasonable steps to refund, then the retention of funds might amount to overcharging.
In the Ergon matter, the court found, by contrast, the overpayment is held for a period, even potentially a lengthy period, because the retailer is experiencing unavoidable difficulties in contacting customers or in ascertaining a bank account into which monies can be deposited, then it might be more difficult to conclude that there has been overcharging, because the retailer may be using reasonable endeavours to return the funds.
Emphasis on Conduct Over System Design
Justice Moore noted that conduct falling short of an assertion of entitlement to be paid might result in a customer being overcharged. In this respect, when compared to the AGL decision, there was less focus on the design of the payment processing system and more focus on the actions of a retailer where it is aware of an overpayment.
The decision in this regard should not be read to extend to assertions made by amounts that were invoiced incorrectly but rather is limited to payments that have been made by a customer in circumstances such as an overpayment or a payment where a customer has ceased to receive retail services.
Justice Moore noted: It is unnecessary, undesirable, and indeed impracticable to seek to define in advance the boundaries of circumstances that will or will not give rise to overcharging.
Final Judgment and Implications
The ultimate decision of Justice Moore was that Ergon was not entitled to the relief that it sought in its amended originating application dated 24 January 2025, and that the proceeding should be dismissed with costs.
It follows that Ergon will or has therefore produced the documents required by the AER, and we can expect further updates with regard to the AER’s enforcement investigation into Ergon if it proceeds beyond this stage.
Lessons for retailers
Both the AGL and Ergon decisions should prompt all energy retailers to carefully examine the systems and processes they have in place to manage the various circumstances in which a customer may be over-charged. This starts at the system design or review phase and that requires consideration of mechanisms to prevent over-charges and to detect over-charges and act upon them in accordance with Rule 31.
Additionally, both decisions highlight the importance of retailers promptly taking action in accordance with Rule 31 as soon as they are aware of a potential over-charge. Including where a customer has simply paid more than they are required to pay, for example paying twice the amount on their final bill or failing to cancel a direct deposit arrangement.
