Increased Retailer Reporting and the CDR in NSW

AU Energy Compliance

At the end of December 2019, the Independent Pricing and Regulatory Tribunal NSW (IPART) released its final report on its Review of the Performance and Competitiveness of the NSW Retail Electricity Market for 2018-2019 (Report). We previously provided an update upon the release of the interim report here. The Report found that smaller retailers have continued to increase market share and that prices fell for those customers engaged in the market. IPART also made three recommendations to the Minister for implementation in NSW going forward. These recommendations are aligned with two significant changes in the energy sector in 2020: i) the Consumer Data Right; and ii) increased price regulation and financial reporting.

 

 

 

 

 

 

 

 

 

Recommendation 1: Interval meter data on comparison sites

IPART recommended that: “Energy Made Easy and NSW Energy Switch should allow customers to input interval meter data to make more accurate estimates of customers’ bills under different offers. This should be ready for the launch of the Consumer Data Right on 1 July 2020”.

The Report found that more than 65% of customers in the Ausgrid distribution area would benefit from moving to time of use tariffs, but noted that the current comparison websites could be more useful to customers with time of use meters. NSW Energy Switch is a NSW Government backed price comparator service which operates by analysing customer bills, while the AER’s Energy Made Easy website allows customers to input their own data.

Noting the introduction of the Consumer Data Right for the energy sector later this year, IPART was conscious of the shift towards consumers taking control of their data and it is logical that energy regulators are in step with the Consumer Data Right being introduced by the Australian Competition and Consumer Commission (ACCC).

Recommendation 2: Publication of Bill and Consumption Data

IPART recommended: “that the NSW Government publish more information on the distribution of consumption and bills for customers that have used the NSW Energy Switch website to help inform regulators on how prices actually paid by customers are changing over time. This should be broken down by network area, market vs standing offers and published each financial year to identify differences pre and post the implementation of the Default market Offer (DMO)”.

This suggestion aligns with the recent rule change proposal to require regular financial reporting by retailers to assist regulators – the Retail Market Transparency Rule discussed here. The general tenor from policymakers and regulatory agencies has been that they do not have enough information to accurately report on the state of the retail market. In IPART’s case, the information it could have regard to was limited by statute.

The rationale is that publishing this information would assist the national regulators in their annual reporting on energy markets. However, given the information will be limited to NSW and other jurisdictions will not necessarily have access to similar data, it may be of limited use to the AEMC, AER and ACCC.

Recommendation 3: Removal of Market Monitor

IPART stated that: “Market monitoring by multiple agencies increases costs for taxpayers, retailers and consumers. Rather than requiring IPART to duplicate annual market monitoring, a better use of resources would be for IPART to investigate or review NSW specific matters as required”.

The primary reason given for this change is the implementation of the ACCC’s market monitoring role for the electricity market as a whole. It will report every 6 months on the state of the market for 7 years and has similar information gathering powers to IPART, but is not limited to NSW only. ACCC reporting is in addition to the annual reports on the retail market developed by the AEMC and the Australian Energy Regulator. It was noted that “market monitoring by multiple agencies increases costs for taxpayers, retailers and consumers”.

Importantly, while the regular annual reporting function is set to be abolished, IPART will still be available to review or investigate special matters pertaining specifically to the NSW market as required. The last time this function was exercised was in respect of metering installation timeframes in 2018.

Review of Queensland Energy Legislation

AU Energy Compliance

In mid-2018, the Queensland Government carried out an initial consultation on a Review of Queensland Energy Legislation (the Review). The Review covers the operation of the Electricity Act 1994, the Gas Supply Act 2003, the Energy and Water Ombudsman Act 2006 and the Liquid Fuel Supply Act 1984. Two further documents have now been released for consultation as part of the Review. The first options paper summarises ‘regulatory impact statements’ for a range of proposed changes while a second paper goes into more significant detail with respect to those changes.

In this article we summarise the areas of proposed change, focusing on those areas that will impact on authorised retailers and/or embedded networks in Queensland.

By Dr Drew Donnelly, Compliance Quarter

Rationale for the Review

The overarching motivation for the Review is to deal with the duplication and perceived lack of alignment between Queensland state energy laws and regulations and laws and regulations that are applied national/across states and territories such as the National Electricity Law. It also considers whether the existing laws are well-calibrated to deal with new forms of energy generation and distribution. The Review does not consider the operation of the National Energy Retail Law/National Energy Retail Rules in Queensland as they are the subject of a separate review.

General Changes

The changes described below are general recommendations and options for change:

  • Update of the purpose sections of Queensland energy laws to align with the purposes of national laws;
  • Removal of duplication in demand management and energy efficiency in state/territory and national laws, while maintaining demand management reporting for standalone power systems (e.g. micro-grids);
  • Interaction between state and national laws. It is recommended that definitions across both be made more consistent. In addition, work will be carried out to support the operation of the Distributed Energy Resource (DER) Register at the state level;
  • Licensing. It is proposed that there be changes to remove duplication to authorisation and exemption processes. Standalone power systems would no longer have a blanket exemption from distribution authorisation. It is recommended that electricity and gas distribution licensing be preserved, but further aligned with national arrangements;
  • Technical requirements. Currently there are restrictions on distributors providing services via stand-alone power systems (e,g, microgrids). There may also be a need for new technical rules to help deal with the sensitivity of isolated networks to solar installations as well as clearer rules about battery installations;
  • Modernise the regional feed-in tariff, including allowing for exporting form a battery systems.
  • Ombudsman Framework. It is recommended that the Energy and Water Ombudsman Queensland (EWOQ) be retained as a statutory entity, but that it be given greater flexibility. The Ombudsman would have increased flexibility to adjust scope of complaints and cost recovery arrangements, as well as stronger review powers.
  • Complaints processes. Currently complaints by public entities are overseen by both the Department of Natural Resources, Mines and Energy (DNRME) and the Queensland Competition Authority (QCA). It is recommended that this role be assigned entirely to the QCA.
  • Modernising emergency powers. Changes to the Electricity Act 1994 are recommended to replace the rationing order provisions with powers for Minister to declare an electricity supply emergency and make emergency directions. The Electricity Act 1994 and the Liquid Fuel Supply Act 1984 would be amended to include information request powers to support emergency management planning.
  • Offences and Enforcement. Currently enforcement powers are split between ‘the Regulator’(Chief Executive of DNRME) and the Queensland Competition Authority (QCA). Feedback is sought on whether the administrative and enforcement functions should be completely separated.

Changes with specific impact on retailers, embedded networks or exempt sellers

The changes proposed below are of particular importance to authorised energy retailers, exempt sellers or anyone who owns, operates, controls or provides services to embedded electricity or gas networks.

  • Powers of entry/access. It is proposed that there be new/enhanced rights of access in embedded networks to allow works for operation, maintenance and repair to support system safety and reliability;
  • Access to Ombudsman. Following other National Energy Customer Framework jurisdictions, it is recommended that small customers in embedded networks have a right of complaint to EWOQ. It is also recommended there be no annual membership fee for ‘exempt sellers’. It is proposed, rather, that that fees for access to the ombudsman be based on a sliding scale that relates to the number of customers the embedded network ‘exempt seller’ has. This option is seen as going partway to covering the costs associated with an Ombudsman investigation while acknowledging the exempt seller’s ability to pay. It is also being recommended that the fee scheme be deferred for 12 months;
  • Customer protections. At the moment there are restrictions on accessing the energy concessions scheme as concessions are administered by retailers. It is proposed that this be altered so that all customers of exempt sellers have direct access to concessions (including those in standalone power systems/microgrids who currently have no access to the scheme).

For more information see https://www.dnrme.qld.gov.au/energy/initiatives/review-energy-legislation. If you wish to make a submission, consultation closes on 31 January 2020.

Future Directions for Compliance in the Construction and Building Industry

Future Directions for Compliance in the Construction and Building Industry

Building and Construction

On 27 April the Building Ministers’ forum (BMF) met to discuss recommendations in the final report ‘Building Confidence – Improving the effectiveness of compliance and enforcement systems for the building and construction industry across Australia’ (the Report).[1] In this article we look at some compliance and enforcement recommendations contained in the Report. This will be of interest to any business in Australia involved in construction or property development.

Compliance in Construction
Sydney Australia, 2 May 2018. Photo Connor
By Dr Drew Donnelly, Compliance Quarter.

Background to Compliance in Construction: The Report

The Report was independently commissioned by the BMF to independently assess compliance and enforcement problems within compliance in construction systems across Australia. It is aimed at strengthening implementation of the National Construction Code across jurisdictions (states and territories). A specific concern motivating the Report was the death of 71 people in the Grenfell Tower fire in London in June 2017, which has been attributed to highly combustible polyethylene cladding.[2]

The Recommendations

Some (but not all) of the key recommendations in the Report are listed below:

  • Each jurisdiction should require the following categories of registration for building practitioners:
    • Builder
    • Site or Project Manager
    • Building Surveyor
    • Building Inspector
    • Architect
    • Engineer
    • Designer/Draftsperson
    • Plumber
    • Fire Safety Practitioner.[3]
  • Requirements for registration and training should be consistent across states and territories;[4]
  • Each jurisdiction should establish formal mechanisms for collaborative partnership between regulators (whether state or local government) and private building surveyors (where they have been given and enforcement role);[5]
  • Each jurisdiction should give regulators broad monitoring powers and an ability to carry out compliance and enforcement action;[6]
  • Each jurisdiction should develop more pro-active audit strategies for the oversight of the construction of commercial buildings with annual reporting on outcomes;[7]
  • Each jurisdiction should implement measures to mitigate conflicts of interest in the responsibilities of private building surveyors. Private building surveyors often have both design and compliance responsibilities;[8]
  • Each jurisdiction should require that building approval documentation be prepared by certain types of registered practitioner in accordance with the National Construction Code;[9]
  • Independent third-party review should be introduced for certain designs and buildings;[10]
  • On-site inspections of building work should be introduced at identified notification stages.[11]

The BMF has provided in-principle support for the Report with Ministers to examine the Report’s findings and recommendations in detail and agreeing to discuss future directions at the next BMF meeting.

For more information, contact the team by clicking here.

[1] https://industry.gov.au/industry/IndustrySectors/buildingandconstruction/Documents/BMF-Communique—27-April-2018.pdf

[2] For the Report go to https://industry.gov.au/industry/IndustrySectors/buildingandconstruction/Documents/Shergold-and-Weir-Report—BMF-Expert-Assessment.pdf.

[3] The Report, p15.

[4] The Report, p17.

[5] The Report, p20.

[6] The Report, p21.

[7] The Report, p22.

[8] The Report, p25.

[9] The Report, p26.

[10] The Report, p27.

[11] The Report, p34.

Explicit Informed Consent: Energy Industry Refresher

Explicit Informed Consent: Energy Industry Refresher

AU Energy Compliance

Explicit informed consent is required to ‘switch’ a consumer from one retailer to another. Following extensive news and political coverage of energy costs, we are seeing an increase in the numbers of consumers ‘switching.’ Today we look at the elements of explicit informed consent, compliance failures, and risk factors.

Explicit informed consent is one of the most important concepts in the energy industry.

Explicit informed consent is a key protection and it is critical to ensuring that customers are confident engaging in the energy market,”…The AER takes any failure by retailers to meet this obligation very seriously, and will take enforcement action in appropriate cases.” – AER Board Member Jim Cox

Explicit Informed Consent
Photo by Clem Onojeghuo on Unsplash
By Connor James, Compliance Quarter.

Why Explicit Informed Consent (EIC) is important

Explicit Informed Consent is required for a variety of transactions in the energy market.

“Protecting vulnerable consumers and promoting confidence in the retail energy market are ongoing priorities for the AER,” – AER Chair Paula Conboy

Compliance Failures 

The Australian Energy Regulator (AER) has taken action against electricity retailers who have failed to obtain EIC.

“In 2015, the Federal Court ordered by consent that EnergyAustralia Pty Ltd (EnergyAustralia) pay penalties of $500 000 for failing to obtain the explicit informed consent of customers.

In separate concurrent proceedings brought by the ACCC, the Federal Court imposed penalties of $1 million on EnergyAustralia and $100,000 on its telemarketing agent Bright Choice, after finding that they had made false or misleading representations to consumers.

In 2017, Simply Energy paid penalties of $60 000 for failing to obtain explicit informed consent (EIC) before entering customers into new contracts. Simply Energy previously paid penalties of $80 000 in 2015 in relation to alleged breaches of the explicit informed consent obligations in 2014.”

– Source: https://www.aer.gov.au/news-release/simply-energy-fined-60000-for-alleged-failure-to-obtain-consent-before-switching-customers

The focus of the AER can be considered against their wider regulatory oversight- the below is taken from the AERs 2016-2017 report: https://www.aer.gov.au/retail-markets/performance-reporting/annual-report-on-compliance-performance-of-the-retail-energy-market-2016-17

Explicit Informed Consent

What is needed for EIC

The AER published a helpful Compliance Check back in 2015. The Compliance Checkpoints to the following three areas as key to EIC:

Explicit Informed Consent

Risk Factors

We have identified the following risk factors in relation to EIC:

Explicit Informed Consent

If you have any questions about EIC please get in touch.

AUSTRAC’s risk assessment: three areas where you may need to step up your compliance program

AUSTRAC’s risk assessment: three areas where you may need to step up your compliance program

Uncategorized

The Australian Transaction Reports and Analysis Centre (AUSTRAC) has just released a report (12 July) Securities & derivatives sector: money laundering and terrorism financing risk assessment revealing the vulnerabilities of the securities and derivatives sector with regards to financial crime.

We recently took at AUSTRAC’s advice on the risk management obligations of businesses. We have also looked at the compliance obligations of those who trade in OTC derivatives.

risk assessment

By Dr. Drew Donnelly, Compliance Quarter

Today we review AUSTRAC’s assessment with one focus; in which areas are businesses still falling short in meeting their obligations under the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) framework.

AUSTRAC’s Findings

AUSTRAC’s report used three key sources in developing its risk assessment:

  • Analysis of suspicious matter reports (SMRs), as well as other AUSTRAC intelligence
  • Reports and intelligence from other government agencies
  • Feedback from entities within the sector, industry associations and industry experts.

The key findings were:

  • The risk of criminal behaviour in the securities and derivatives sector is rated at the high end of ‘medium’.
  • Fraud, including fraud which is cyber-enabled, was the highest reported threat to the sector, with many customer emails and trading accounts being hacked.
  • Money laundering, insider trading and market manipulation were the next highest areas of criminal behaviour
  • Tax evasion (2%) and terrorism financing (1%) were the least reported threats.

Areas where improvement is needed

AUSTRAC emphasises that it expects businesses to read the report and, check that AML/CTF procedures and arrangements are compliant. AUSTRAC has committed to following (p6). Listed below are three areas where organisations have work to do.

(1) Insufficient SMR

Under section 41 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, designated organisations are required to submit ‘suspicious matter reports’ (SMRs) to AUSTRAC when certain suspicious circumstances apply.

However, over the two-year sample period used in the construction of AUSTRAC’s assessment, 60 per cent of participants did not submit an SMR to AUSTRAC.

While it is possible that there was no suspicious activity to report, this seems unlikely. It is more likely that some of the non-reporting is because organisations do not have appropriate mechanisms in place to capture the suspicious behaviour.

For further information, see our discussion of risk management programs under the AML/CTF Framework.

(2) White labelling

White labelling occurs when businesses facilitate access to a trading platform despite not being a customer. The risk here is that “Poorly developed agreements or contracts that do not clearly indicate which entities are responsible for AML/CTF obligations significantly undermine the AML/CTF framework.” (p5). Organisations need to be aware that they cannot outsource their regulatory obligations under the AML/CTF framework.

(3) Foreign-owned organisations unaware of their obligations.

45 % of the ASX market is owned by foreign entities. 31% of suspicious transactions related to the behaviour of entities in foreign jurisdictions. Any organisation operating in Australian markets need to be aware of their legal obligations when operating here.

To see other areas for improving compliance read the full report.

If you think we could be of assistance in developing appropriate risk management procedures and mechanisms, please don’t hesitate to get in contact.

Establishing an Effective Compliance Program: Five Tips

Establishing an Effective Compliance Program: Five Tips

Uncategorized

An effective corporate compliance program is essential to good governance and risk management. Many businesses have invested significantly in compliance over the last decade yet continue to experience compliance breaches.

With a number of recent well-publicised compliance breaches, it is worth considering some of the key characteristics of an effective compliance program.

Why have a compliance program?

A business that does not have an effective compliance program is at greater risk of non-compliance. Regulators around Australia are actively searching for non-compliance and are often successful in their enforcement efforts against non-compliant businesses.

During 2015–16, ASIC completed 1,441 high-intensity surveillances and 175 investigations. ASIC secured 22 criminal convictions and of those 13 resulted in a custodial sentence.

During 2015–16, the ACCC was involved in 48 consumer protection court cases (19 new proceedings) resulting in penalties totalling more than $15 million.

In many instances, the severity of a penalty imposed for non-compliance can be reduced if a business can demonstrate that it had a compliance program in place.

The potential cost of non-compliance is much greater than the cost of implementing an effective compliance program.

Five tips for establishing an effective compliance program

Tip 1. Build the compliance program on ethical foundations

An effective compliance program needs to be based on a commitment to act ethically. Shareholders and other stakeholders value businesses that act ethically.

Compliance programs that are built on ethics are said to be values-based as opposed to compliance-based. A compliance-based program might seek to explain obligations in detail whereas a values-based program will seek to explain the ethical values that underpin those obligations.

By explaining the ethics behind obligations, employees will have a greater capacity to determine if their conduct is compliant and will be more likely to understand the boundaries of acceptable conduct.

Tip 2. Ensure the compliance program is easy to understand and implement

Compliance documentation itself should be written in plain language and include real life examples where required. The relevant Australian standard (AS 3806-2006) provides principles and guidance for businesses seeking to implement a compliance program.

One way to explain what might constitute non-compliance is to ask employees to imagine the result of their actions being published on the front page of a national newspaper.

Tip 3. Develop the compliance program on an ongoing basis

A compliance program needs to evolve over time. A compliance program should be updated as a business develops and in response to new regulatory developments.

An effective compliance program should anticipate and detail plans for managing regulatory changes.

A compliance program should be reviewed often and such a review may consider the responsiveness of the program, whether employees know and understand the program, and how the program compares to those used by competitors.

Tip 4. Cover key areas

The complexity of a compliance program will typically reflect the size of a business and level of regulation in that business’ industry.

As a minimum, a compliance program should include detail on the controls in place to manage regulatory risk, training, and tools available to employees to assess and report on potential breaches.

A compliance program should include procedures for document retention, a delegations policy, and policies and procedures covering key risks.

Tip 5. Ensure management involvement

A compliance program needs the commitment of management to be effective.

A single senior manager has the capacity to derail a compliance program. Their attitude is likely to percolate throughout the business and significantly increase the risk of non-compliance.

Some steps to ensure management involvement may include having the CEO or Managing Director draft an introduction to the compliance program, ensuring that the compliance program has been certified by the board, and ensuring that the compliance officer reports to (And can only be dismissed by) the board.