A wave of recent enforcement activity

Last week, the Australian Energy Regulator (AER) released its compliance and enforcement priorities for 2023-24, covering the retail, electricity wholesale and gas markets. The new priorities announcement coincides with a wave of recent enforcement activity related to the AER’s current 2022-23 compliance and enforcement priorities totaling $1,164,800 in infringement notices across FY23. In the past month alone, the AER has issued 4 infringement notices totaling over $893,600 in fines as well as instituted civil proceedings over a failure to submit accurate Auction Quantity Limits to the Australian Energy Market Operator (AEMO).

The infringement notices include two retailers facing over half a million dollars’ worth of combined fines for alleged breaches of the National Gas Rules related to gas demand forecasting in short-term trading markets. Another faces $263,400 worth of fines related to alleged breaches of not meeting generator performance standards to maintain continuous uninterrupted operation in accordance with the National Electricity Rules. Lastly, just this past week an electricity retailer was fined $67,500 worth of infringement notices for allegedly failing to present standing offer prices on its website for 2 years. It subsequently provided a court-enforceable undertaking to address the AER’s compliance concerns.

Setting the expectation

The rise of compliance related activities and infringement penalties is not a surprise, as the energy and gas industries continue to see massive amounts of regulatory change to accommodate the National Electricity Market’s (NEM) transition to renewable energy. Couple this changing regulatory landscape with higher costs of living, rapid grid transitioning, and unprecedented amounts of volatility in the market and the result is regulatory bodies taking every action they can to incentivise compliance in the industry to protect consumers and ensure a smoother overall transition.

AER’s Chair, Clare Savage, called this effort out in her speech last week at Australian Energy Week, making clear that despite the AER’s inability to right every wrong, it can create conditions “where industry participants understand what is required of them” by deterring “bad behaviour through demonstrating what can happen to those who fail to meet these requirements.” She backed this statement up with some striking numbers:

• Prior to 2021, the highest penalty imposed by a court for a breach of the National Energy Retail Law was $1.5 million.
• Since 2021, penalties have reached historic heights. In June 2022, the Federal Court handed down $17 million in penalties to Origin Energy due to its failure to comply with its obligations to protect customers experiencing hardship and payment difficulties. This is the largest penalty ever imposed for breaches of the National Energy Retail Law and Rules.
• In the past two financial years alone, total penalties across AER issued infringement notices and penalties have totaled more than $39 million – a shocking increase compared to the total penalties of just over $3.5 million across the 14 preceding financial years.

AER’s 2023-24 Compliance and Enforcement Priorities

While regulatory and operational compliance are always front of mind for efficiently operating businesses, the AER’s 2023-24 Compliance and Enforcement Priorities should be used as key areas of focus for upcoming risk and compliance reviews and audits within your own business. The AER’s updated priorities aim to:

1. Improve outcomes for customers experiencing vulnerability, including by improving access to retailer hardship and payment plan protections. This builds on the AER’s 2022-23 priority to improve retailers’ systems and abilities to identify potential hardship customers.
2. Make it easier for consumers to understand their plan and engage in the market by focusing on compliance with billing and pricing information obligations including the Better Bills Guideline. This is a new retail compliance and enforcement priority, most likely due to the upcoming commencement of the Better Bills Guideline on 30 September 2023 as well as the AER’s concern with the frequency of billing related complaints reported to the Ombudsman.
3. Support power system security and an efficient wholesale electricity market by focusing on generators’ compliance with offers, dispatch instructions, bidding behaviour obligations and providing accurate and timely capability information to AEMO. This priority is consistent with the AER’s wholesale compliance and enforcement focus in 2022-23.
4. Improve market participants’ compliance with performance standards and standards for critical infrastructure. This is an additional wholesale priority introduced for 2023-24 due to the increase in number and complexity of new connections arising as part of the energy sector’s transition to renewables and rising non-compliance with performance standards during COVID-19.
5. Clarify obligations and monitor compliance with reporting requirements under the new Gas Market Transparency Measures. This builds on the AER’s two gas related priorities in 2022-23, with a new focus on coordination with the Australian Energy Market Operator (AEMO) and industry to support reporting obligations stemming from the commencement of the Gas Market Transparency Measures in March 2023 and the new Part 27 measures known as the East Coast Gas System reforms with stage 1 commencing on 4 July 2023.

How Energy Global Co. can support your business

With increased regulatory scrutiny and higher operating costs, now is the time for energy businesses to review the effectiveness of their existing policies, systems, processes, and overarching compliance frameworks to identify operational efficiencies and address potential compliance gaps. Energy Global Company (EGC) is dedicated to helping retailers stay competitive and deliver the best value to their customers. We do this through our specialised services, which include strategy, risk and compliance, technology transformation, back-office support and revenue assurance services. We deliver cost reduction, compliance, and efficiency through automation.

For further information or regulatory and compliance support, contact Hannah Heath to discuss how we can help your business transition to the future.