Review of Enforcement Regimes under the National Energy

Laws

A Report Prepared for the Standing Council on Energy and Resources

November 2013

NERADarling Park Tower 3

201 Sussex StreetSydney NSW 2000

Tel +61 2 8864 6500Fax +61 2 88646549

www.nera.com.au

Allens 101 Collins Street Melbourne VIC 3000 Tel +61 3 9614 1011 Fax +61 3 9614 4661 www.allens.com.au

Allens, Australia 2013

http://www.allens/http://www.nera.com.au/

PROJECT TEAM

Allens

Paul Kenny, Partner

Ben Strate, Lawyer

Amelia Hanscombe, Lawyer

Danielle Atkin, Law Graduate

NERA Economic Consulting

Adrian Kemp, Director

pjkm A0125744819v9 120361249 8.11.2013 Allens is an independent partnership operating in alliance with Linklaters LLP.

Contents

1 Overview 7

1.1 Introduction 7

1.2 Methodology and approach 7

1.3 Key findings 7

1.4 Structure of this report 10

2 Background and Purpose 11

2.1 SCER commitment to the review 11

2.2 Terms of reference for the review 11

2.3 Impetus and key drivers for the review 12

2.4 Scope of the review 13

2.5 Stakeholder consultation 15

3 Policy Framework for the Review 16

3.1 Introduction 16

3.2 Objectives for the enforcement regimes 16

3.3 Policy principles for regulatory design of enforcement regimes 16

3.4 Reference documents 19

3.5 Reference regulatory regimes 20

3.6 Best practice in contemporary regulation 24

4 Enforcement Functions and Powers of the Regulator 26

4.1 Introduction 26

4.2 Administrative enforcement options 27

4.3 Statutory enforcement action (other than civil proceedings) 30

4.4 Civil proceedings 39

5 Private enforcement 48

5.1 Introduction 48

5.2 Theory of private enforcement 49

5.3 The conduct provisions regime 50

5.4 Third party rights to seek monetary compensation 63

6 Civil Penalty Regime 67

6.1 Introduction 67

6.2 Nature and purpose of civil penalties 67

6.3 National energy laws civil penalty regime 69

6.4 Comparative regimes 76

6.5 Who should have the power to impose a civil penalty? 80

6.6 Who should have the power to seek civil penalties? 82

6.7 Are the current civil penalty levels appropriate? 83

6.8 Infringement notices 96

6.9 Additional civil penalty issues 98

6.10 Criminal offences 99

7 Legal Architecture and Procedural Matters 102

7.1 Introduction 102

7.2 Regulatory Powers (Standard Provisions) Bill 2012 (Cth) 102

7.3 Arrangements for court proceedings 103

7.4 Civil penalty regime 104

7.5 Infringement notice regime 106

7.6 Corporate liability provisions 109

page 3

pjkm A0125744819v9 120361249 8.11.2013 Page 4

7.7 Evidentiary matters 112

7.8 Search warrant provisions 114

7.9 AER ability to interview witnesses 116

Appendix 1 : Terms of Reference 122

Appendix 2 : Consultation Process 124

Appendix 3 : Summary of Reference Regulatory Regimes 126

Appendix 4 : Conduct Provisions in the National Energy Laws and Rules 145

Appendix 5 : Comparison of NGL/NGR and NEL/NER Conduct Provisions 150

Appendix 6 : Proposed Additional Conduct Provisions in NEL/NER 152

Appendix 7 : Civil Penalty Provisions in the NEL, NGL and NERL 154

Appendix 8 : Civil Penalty Provisions in the NER, NGR and NERR 157

Appendix 9 : Summary of civil penalties under the ACL 166

Appendix 10 : Criminal Offences under the NEL, NGL and NERL 170

Appendix 11 : Summary of Issues, Conclusions and Recommendations 173

Abbreviations

ACCC Australian Competition and Consumer Commission

ACL or Australian

Consumer Law

Schedule 2 to the Competition and Consumer Act 2010 (Cth)

ACMA Australian Communications and Media Authority

AEMC Australian Energy Market Commission

AEMO Australian Energy Market Operator

AER Australian Energy Regulator. References in this Report to the AER include the

ERA where the reference relates to the NGL or NGR

ALRC Australian Law Reform Commission

ALRC Report or

Principled Regulation

Report

The Australian Law Reform Commission, Principled Regulation: Federal Civil

and Administrative Penalties in Australia, ALRC Report 95 (2002)

ASIC Australian Securities and Investments Commission

ASIC Act The Australian Securities and Investments Commission Act 2001 (Cth)

Broadcasting Services

Act or BSA

The Broadcasting Services Act 1992 (Cth)

COAG Council of Australian Governments

Competition and

Consumer Act or CCA

The Competition and Consumer Act 2010 (Cth)

Corporations Act or

CA

The Corporations Act 2001 (Cth)

Discussion Paper The discussion paper entitled 'Review of Enforcement Regimes under

National Energy Laws' developed and approved through the SCER Energy

Market Reform Working Group

EMRWG The Energy Market Reform Working Group of the Standing Council on Energy

and Resources

ERA Economic Regulation Authority of Western Australia

FERC Federal Energy Regulatory Commission of the United States of America

GEMA Gas and Electricity Markets Authority of the United Kingdom

Guide to Framing

Commonwealth

Offences

The Federal Attorney-General's Department, Guide to Framing

Commonwealth Offences, Infringement Notices and Enforcement Powers,

September 2011 edition

IMO Independent Market Operator of Western Australia

MCE Ministerial Council on Energy (the predecessor to the SCER)

National Energy Laws

or National Laws

The National Electricity Law, National Gas Law and National Energy Retail

Law

National Energy Rules

or Rules

The National Electricity Rules, National Gas Rules and National Energy Retail

Rules

pjkm A0125744819v9 120361249 8.11.2013 Page 5

NEC The National Electricity Code

NECF The National Energy Customer Framework, comprising the NERL and the

NERR

National Electricity

Law or NEL

The National Electricity Law set out in the Schedule to the National Electricity

(South Australia) Act 1996 (SA)

NEM National Electricity Market

NER The National Electricity Rules

National Energy Retail The National Electricity Retail Law set out in the Schedule to the National

Law or NERL Energy Retail Law (South Australia) Act 2011 (SA)

NERR The National Energy Retail Rules

National Gas Law or

NGL

The National Gas Law set out in the Schedule to the National Gas (South

Australia) Act 2008 (SA)

NGR The National Gas Rules

Ofgem Office of Gas and Electricity Markets of the United Kingdom

Procedures The Wholesale Market Procedures, STTM Procedures and Retail Market

Procedures made by AEMO under the NGL

Productivity

Commission Report

The Productivity Commission's Review of Australia's Consumer Policy

Framework, Report No 45, (2008)

Regulatory Powers Bill

or BillThe Regulatory Powers (Standard Provisions) Bill 2012 (Cth)

SCER Standing Council on Energy and Resources

STTM The Short Term Trading Market

Telecommunications

Act

The Telecommunications Act 1997 (Cth)

WEM Wholesale Electricity Market

pjkm A0125744819v9 120361249 8.11.2013 Page 6

1 Overview

1.1 Introduction

This Report sets out the findings of an independent review by Allens and NERA Economic

Consulting of the effectiveness of the enforcement regimes operating within the national energy

regulatory framework comprising the National Electricity Law, National Gas Law and National

Energy Retail Law (National Energy Laws).

The review has been undertaken in accordance with Terms of Reference and a Discussion Paper

prepared by the Energy Market Reform Working Group (EMRWG) of the Standing Council on

Energy and Resources (SCER).

The Discussion Paper poses a series of specific questions relating to the effectiveness of the

current enforcement regimes, and the extent to which they reflect current legal and regulatory

norms and best practice. The questions for review are organised under four broad headings:

Enforcement functions and powers of the regulator;

Private enforcement;

Civil penalty regime; and

Legal architecture and procedural matters.

1.2 Methodology and approach

The policy framework for the review comprises a number of high level policy principles identified

by the EMRWG and reflected in the Terms of Reference for the review. These policy principles

include that:

the regulator is to have the primary role in enforcement of energy rules;

there should be consistency of enforcement regimes across the energy laws;

the regulator has the primary role of enforcing compliance by industry participants;

there should nevertheless be a role for private enforcement where one industry participant suffers loss as a result of a breach of the energy rules by another;

an appropriate civil penalty regime should form part of the enforcement regimes; and

the enforcement regimes should reflect current best practice regulation.

These principles are informed and supplemented by a number of reference documents and

regulatory regimes identified in the Terms of Reference, including the Australian Consumer Law

and the Australian Law Reform Commission's report on Federal, Civ