Misleading and Deceptive Conduct by energy retailers

Misleading and Deceptive Conduct by energy retailers

Commercial Law, Energy Law

There have been a number of cases of energy retailers’ non-compliance with s 18 of Australian Consumer Law. These cases are useful for retailers looking to assess the adequacy of the controls that they have in place to reduce the risk of a contravention of s 18.

Australian Competition and Consumer Commission v EnergyAustralia [2015] FCA 274 is a case that was heard in the Federal Court of Australia with a decision handed down on 27 March 2015. This case concerned conduct by a company called Bright Choice Australia Pty Ltd who were engaged as a tele-sales agent of EnergyAustralia.

From 4 April 2012 until 23 April 2013, EnergyAustralia engaged Bright Choice under a Services Agreement to sell, by way of telemarketing, plans for electricity and gas in defined sales territories. The relevant sales territories included consumer premises located in New South Wales, Queensland, Victoria, South Australia and the ACT. Pursuant to the Services Agreement, EnergyAustralia agreed to pay Bright Choice on each occasion that a consumer contracted to enter into a new plan to purchase electricity or gas from EnergyAustralia as a result of Bright Choice’s marketing. Representatives from Bright Choice where remunerated on the basis of a wage plus commission.

Obligations to comply

Within the Services Agreements were a number of obligations on Bright Choice relating to compliance. These included an obligation to exercise the standard of care, skill and judgement that would be expected of a professional contract experience in the performance of services of a similar nature, to comply with all applicable laws and standards necessary to perform the services, and to ensure that its team members conducted outbound telemarketing calls in accordance with scripting approved by EnergyAustralia. Further, Bright Choice was required to establish, implement and maintain a quality assurance and control program that was subject to EnergyAustralia’s approval.

Bright Choice was required to implement a training program that utilised training materials developed by EnergyAustralia. The relevant training materials developed by EnergyAustralia outlined the requirements for compliance with the applicable laws and standards.

The Services Agreement made reference to the requirements to obtain explicit informed consent. Bright Choice was required to make call recordings of all outbound telemarketing calls and all telephone discussions with customers in which explicit informed consent was obtained and to retain such call recordings for a minimum of two years after the applicable call was made or for a longer period as may be required by any applicable law.

In addition, Bright Choice was required to listen and evaluate a sample of call recordings made for the purposes of recording explicit informed consent with an express obligation to listen to at least 2% of the total number of call recordings that were created every calendar month.

Following the appointment of Bright choice, EnergyAustralia conducted ‘train the trainer’ sessions for Bright Choice senior sales managers in March 2012 and provided training material in March 2012 and updated material in July 2012. The relevant training material covered legal and regulatory compliance topics relating to explicit informed consent and the law of misleading and deceptive conduct. The training material also included instructions in relation to sales techniques to be used, and to be avoided by sales representatives, including ensuring that customers had a full understanding of what they were agreeing to.

EnergyAustralia provided Bright Choice with questionnaires that were designed to test the adequacy of Bright Choice’s training program and which were required to be successfully completed by personnel before they conducted any telemarketing.

The bonus commissions

On 28 March 2013, the Services Agreement was amended whereby EnergyAustralia agreed to pay an additional bonus fee to Bright Choice upon Bright Choice achieving 9,000 new sales per month for five months from 1 April 2013. The base fee for electricity sales, of $120, increased by $35.

Between August 2012 and May 2013, Bright Choice representatives contacted consumers in a number of states and did not obtain the consent of consumers to enter into an EnergyAustralia electricity or gas plan but did submit sale reports to EnergyAustralia for each consumer.

The actual misrepresentation centred on Bright Choice advising consumers that they would be sent an information pack or welcome pack and that they would be able to consider the information to decide whether or not to receive a supply of electricity and/or gas from EnergyAustralia. Consumers were told that if they wanted to accept the offer, they would need to contact EnergyAustralia and unless they did make contact, they would not be treated as having entered into a plan for the supply of electricity and/or gas.

These telephone representations were false, misleading and deceptive because following each telephone conversation, Bright Choice acted and EnergyAustralia dealt with each consumer as if they had agreed to enter into a plan with EnergyAustralia for the supply of electricity and/or gas, when in fact they had not.

Further specific instances of conduct were discussed in the case. For example, on around 18 February 2013, a representative of Bright Choice contacted a certain consumer by telephone and said words to the effect that they were calling because EnergyAustralia had a new offer of a discount of 13% off bills and that this offer was not offered by AGL. The consumer responded that the last time she had been signed up to EnergyAustralia and did not want to be with EnergyAustralia.

The investigation

On 7 December 2012, EnergyAustralia commenced an investigation into Bright Choice’s telemarketing practices. On 28 March 2013, EnergyAustralia received details of concerns with Bright Choice’s telemarketing practices including a failure to obtain explicit informed consent. In April and May 2013, EnergyAustralia identified an increased number of customer complaints and cancellations from telesales made by the Representative. EnergyAustralia commenced an investigation into Bright Choice’s conduct and the investigation included a review of sample call recordings. EnergyAustralia identified that representatives were not obtaining explicit informed consent from customers nor were they following the scripts provided to them.

On 23 September 2013, EnergyAustralia terminated the services agreement with effect from 23 October 2013. EnergyAustralia required that Bright Choice cease all marketing sales calls from 23 September 2013.

In accordance with section 274 of the National Energy Retail Law, EnergyAustralia reported the non-compliance to the Australian Energy Regulator. In or around November 2013, EnergyAustralia voluntarily implemented a consumer remedial program at its own cost of $958,085.00 under which EnergyAustralia sought to contact remaining customers of EnergyAustralia originating from Bright Choice.

EnergyAustralia also implemented a process to safeguard against new customers being transferred without explicit informed consent. This process involved EnergyAustralia sending an SMS or email to every new customer that is entered into a contract with EnergyAustralia following an unsolicited outbound telemarketing sales call. This correspondence included a mobile number or email address to confirm the customer had in fact requested the transfer to, and entered into a market retail contract with, EnergyAustralia.

The court noted that following the termination of the Services Agreement and reporting of the conduct subject to the proceedings, EnergyAustralia made significant improvements to its compliance program to align it with the principles of the Australian standard for compliance programs AS3806.

The improvements made by EnergyAustralia included:

  • undertaking a quarterly certification and risk assessment of explicit informed consent compliance across the business, including by, each quarter, reassessing the effectiveness of business practices and processes against the explicit informed consent obligations.
  • Providing regular, at least annually, practical training for directors, officers, employees, representatives and agents of EnergyAustralia whose duties could result in them being concerned with conduct that may contravene EnergyAustralia’s obligations to obtain explicit informed consent;
  • appointing a compliance officer with responsibility for ensuring compliance and for overseeing its compliance program;
  • establishing a monthly scorecard process to assess the performance of third-party vendors in relation to complaints, cancellations and compliance with EnergyAustralia’s ACL and NERL obligations; and
  • ensuring that all third-party telesales calls are recorded in their entirety with random telesales call recordings provided to EnergyAustralia for quality assurance review.

When considering sections 18 and 29(1) of Australian Consumer Law, his honour noted the well-defined applicable legal principles that conduct is likely to mislead or deceive if there is a real or remote chance that it will do so and that the conduct must be capable of leading a person into error and the error or misconception must result from the conduct.

EnergyAustralia and Bright Choice admitted that the representations that were made were made in trade or commerce and in connection with the supply or possible supply of electricity and/or gas. They further admitted that the conduct was misleading and deceptive or was likely to mislead and deceive in contravention of section 18 and that they were false and misleading representations concerning the existence, exclusion or effect of a condition or right in contravention of section 29(1)(m).

Section 38 of the National Energy Retail Law provides that a retailer must obtain the explicit informed consent of a small customer for certain transactions including the transfer of the customer to the retailer from another retailer and the entry by the customer into a market retail contract with the retailer. Section 39 of the National Energy Retail Law provides that explicit informed consent is given where the retailer, or a person acting on the retailer’s behalf, has clearly, fully and adequately disclosed all matters relevant to the consent of the customer, including the purpose or use of the consent, and the customer gives consent. Consent by the customer must be given in writing signed by the customer, verbally (provided that it is evidenced in such a way that can be verified), or by electronic communication generated by the customer.  

The penalty

In considering the appropriate penalties to be applied, the court considered the case of Ministry for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72. The relevant principles included that it is the responsibility of the court to determine the appropriate penalty to be imposed in respect of a contravention. Determining the quantum of a penalty is not an exact science. Within a permissible range, the courts acknowledge that a particular figure cannot necessarily be said to be more appropriate than another.

After considering all of the applicable principles, the court ordered that EnergyAustralia pay a penalty of $1,000,000.

Where did EnergyAustralia fall short?

In examining where EnergyAustralia fell short, the court accepted the submissions of the Australian Competition and Consumer Commission and the Australian Energy Regulator that the presence of a significant financial incentive at least increased the risk of sales calls to consumers occurring without proper processes being observed.

The court noted that there was a flaw in EnergyAustralia’s internal processes in that even though the Services Agreement provided for an audit mechanism, EnergyAustralia did not, or did not adequately, exercise its audit powers. The court concluded that “given the size of the commissions being paid by EnergyAustralia and the number of telesales made by its agent, Bright Choice, EnergyAustralia’s internal procedures were deficient.”

Clarification on installations capable of creating STCs

Clarification on installations capable of creating STCs

Energy Law

The Renewable Energy (Electricity) Act 2000 establishes the Renewable Energy Target (RET) which creates a market that aims to deliver 23.5% of electricity from renewable sources by 2020. There are two schemes within the RET and these are:

  • the large-scale renewable energy target (LRET) with a legislated target of 33,000 gigawatt hours of additional renewable electricity generation by 2020; and
  • the small-scale renewable energy scheme (SRES) which incentivises the installation of small-scale renewable energy systems such as household solar panels and solar hot water systems.

The RET scheme allows accredited renewable energy power stations and owners of eligible small-scale renewable energy systems to create certificates for each megawatt-hour of electricity that they produce or displace. Liable entities, typically electricity retailers, are then required to acquire the certificates and surrender them annually in proportion to the quantity of electricity purchased by the liable entity. Certificates are surrendered to the Clean Energy Regulator (CER). Where a liable entity fails to surrender the correct number of certificates, it must pay a shortfall charge.

STC Eligibility Clarification

The eligibility requirements for small-scale solar PV generation units were clarified in the Renewable Energy Electricity Amendment (Small-Scale Solar Eligibility and Other Measures) Regulations 2019 made under the Renewable Energy (Electricity) Act 2000 (Regulations). The Regulations commenced on 26 February 2019 and clarify how the boundary of a solar PV device should be determined when the device is made up of multiple solar PV systems.

Only those eligible solar photovoltaic small generation units with a capacity of no more than 100 kW and capable of generating no more than 250 MWh of electricity each year are eligible to create small-scale renewable energy certificates (STCs). An issue that arose in the creation of certificates under SRES was the ‘gaming’ of the scheme by the classification of larger installations as smaller systems in aggregate. By virtue of the financial advantages in STCs over LGCs in certain circumstances, there was an incentive for installations to be carried out in a way that a larger system was split, in terms of metering or geography, so that STCs could be claimed.  The Regulations seek to put a stop to this practice on the basis that it is said to be inconsistent with the purposes of the Act.

Scenarios

A number of scenarios explaining the operation of the Regulations are provided in the explanatory statement and examples of these have been replicated below.

Scenario: five stores in a retail complex, each with a 50 kW system, have commercial sub-meters and all are connected to the grid via one NMI. These systems will be considered to be separate devices and eligible to create STCs.

Scenario: five stores in a retail complex, each with 60 kW systems, and commercial sub-meters. All are connected to the grid via one NMI. Two of the stores are electrically connected behind the commercial sub-meters. The two stores that are electrically connected by a behind the commercial sub-meters will be considered to be one system and STCs will not be able to be created.

Scenario: A university is connected to grid via a single NMI with individual non-commercial sub-meters on individual buildings (the sub-meters are used to maintain building management systems).  The university precinct includes a main building with a 100kW system and two sets of housing each with a 5 kW system. Paragraph 3(2A)(a) applies as the sub-meters do not meet the definition of a commercial meter. All systems are considered to be one device >100kw so are not eligible to create STCs. The NMI defines the device boundary.

Scenario: a solar farm developer has installed 10 ground-mounted hundred kilowatts systems on 10 adjoining sites with separate NMIs that are connected to the grid via one substation installed as part of the development. STCs cannot be claimed.

If you have any questions on the above please get in touch.

The AEMC’s Final Report on updating the regulatory frameworks for embedded networks

The AEMC’s Final Report on updating the regulatory frameworks for embedded networks

Energy Law

The AEMC has published a final report that proposes a package of law and rule changes to update the regulatory frameworks for embedded networks.

In this free webinar from our sister business Compliance Quarter, Dr Drew Donnelly looks at the final report and its implications on those businesses that operate embedded electrical networks.

Register for the webinar below

Contract Clauses: Indemnity

Contract Clauses: Indemnity

Commercial Law, Energy Law

Indemnity clauses are one of the key risk allocation mechanisms within contracts. An indemnity clause seeks to reallocate the risk of loss by one party to a contract by moving that risk to the other party.

There are generally considered to be four categories of indemnity clauses and these are:

a. Bare indemnities: where a party indemnifies the other against all liabilities or loss incurred in connection with a given event or circumstances without any express limitations.

b. Reverse indemnities: where a party indemnifies another against loss or damage arising out of a contract regardless of whether the loss was caused by the other party’s own acts or omissions.

c. Proportionate or limited indemnities: where a party indemnifies another against all loss or damage except that caused by the other party either through that party’s negligence, breach of contract, or wilful misconduct.

d. Third party indemnities: where a party indemnifies another for claims made by a third party.

The lack of an indemnity

In the absence of an express indemnity in a contract there are a limited number of circumstances where an indemnity may be implied. The most common example is where a co-guarantor seeks contribution from another co-guarantor where their joint liability has been met in full. Here, there is a common law right for the co-guarantor to obtain reimbursement.

Ordinarily, the lack of an indemnity will mean that common law and relevant statutory provisions apply.

Drafting considerations

The issues to be considered when drafting or reviewing an indemnity are complex. Readers may wish to consider this paper and should obtain legal advice on the operation of any proposed indemnity.

An indemnity is only as good as the party who provides it. This means that it is crucial that the party seeking an indemnity ensures that the indemnifying party has the capacity to enter into the indemnity and the means to honour it.

Contract clauses: Nomination

Contract clauses: Nomination

Business Sale, Commercial Law, Energy Law

A benefit under a contract may be nominated to a third-party nominee under a nomination clause. Here we look at nomination clauses in contracts relating to the sale of property. Commonly you may see a contract providing for property to be transferred to the buyer or their nominee.”

Á contract of sale may provide for a buyer and allow the buyer to nominate the property to an unnamed third party. A nomination clause is to be distinguished from a novation of the agreement as it is restricted in being a right for the benefiting party to direct a transfer to the nominee.

A nomination clause does not result in the nominee becoming a party to the contract. Consequently, the nominee can reject the nomination. The courts have held that such a clause will only be effective if it’s language and intention are clear and compelling.

Interaction with privity of contract legislation

Legislation exists in Queensland, the Northern Territory, and Western Australia which operates to allow a third party, who is not a party to a contract, to enforce a contract made for their benefit. The question then arises whether such a third party can sue to seek to enforce a nomination clause. In general terms, the third party must be identifiable under a contract to be able to seek to rely on those legislative provisions. This is obviously a complex area of law and legal advice should be obtained to understand its operation.

The lack of a nomination clause

The absence of a nomination cause will not necessarily preclude a buyer from directing a seller to sign a transfer in favour of a third party. However, a nomination clause is preferable as it can deal with the process to be followed and the costs incurred.

Drafting considerations

The first concern is to ensure that the parties intend on a nomination as opposed to a novation or assignment.

As noted above, a nomination clause must be clear and compelling. Words such as substitution can indicate a novation rather than nomination, and so should be avoided. The nomination clause should specify the process to be followed to give effect to the nomination; including timelines, notice requirements, and responsibility for costs.

ACCC releases blueprint to reduce electricity prices

ACCC releases blueprint to reduce electricity prices

Energy Law

Let’s face it -both you and I, or someone close to us, have recently complained about what seems to be the unstoppable increase to our home and business energy bills.

These increasing prices affect us all – we all use electricity.

So who’s job is it to keep energy prices stable?

By Chris Dennis, Consultant- Law Quarter.

The Role of the ACCC

The ACCC plays a role in the regulation of energy markets. Specifically, the ACCC’s role in energy markets is in the context of the Competition and Consumer Ac 2010. For example, the ACCC enforces the competition and consumer protection provisions in energy markets and assesses energy mergers and authorisations.

So what is the ACCC doing about increasing energy bills?

Just this month the ACCC released their final Retail Electricity Pricing Inquiry report, or a ‘blueprint to reduce electricity prices’. The ACCC states that this blueprint is designed to ‘significantly improve electricity affordability for Australian consumers and businesses’.

The blueprint or report is the result of an inquiry, which commenced in March 2017. This inquiry began by identifying the root causes of high electricity prices across the entire electricity supply chain.

The report describes the National Energy Market as ‘largely broken and needs to be reset’. That’s a big statement from a Government regulatory agency.

As part of the process, the ACCC has admitted that ‘poor decisions have been made over the past decade creating the current electricity affordability problem’, and ‘it now falls to current Commonwealth and state governments to make the difficult decisions to fix it’.

So why have electricity prices increased?

According to the ACCC, electricity has become unaffordable because:
– Wholesale and retail markets are too concentrated;
– Regulation and poorly designed policy have added significant costs to electricity bills; and
– Retailers’ marketing of discounts is inconsistent and confusing to consumers and has left many consumers on excessively high ‘standing’ offers.

It is their view that most households are paying far too much for electricity and many are having difficulty paying their bills.

As a result, the report of the ACCC has made 56 recommendations detailing ways to fix the National Electricity Market

The ACCC’s recommendations include:

  • Abolishing the current retail ‘standing’ offers (which are not the same between retailers), and replacing them with a new ‘default’ offer consistent across all retailers, set at a price determined by the Australian Energy Regulator (AER).
  • Requiring retailers to reference any discounts to the new ‘default’ offer pricing determined by the AER, making it easier for consumers to genuinely compare offers. Conditional discounts, such as pay-on-time discounts, must not be included in any headline discount claim.
  • A mandatory code for comparator websitesbeintroduced so that offers are recommended based on customer benefit, not commissions paid.
  • Voluntary write downs of network overinvestment, including by the NSW, Queensland and Tasmanian governments (or equivalent rebates).
  • Premium solar feed-in-tariff schemes should be funded by state governments and the small scale renewable energy scheme should be phased out, saving non-solar consumers $20-$90 per year.
  • Government support to make bankable new investment by new players in generation capacity to help commercial and industrial customers and drive competition.
  • Restructuring of Queensland generators into three separately owned portfolios to improve competition.
  • Limiting companies with 20 per cent or more market share from acquiring more generation capacity.
  • Improving the transparency of over-the-counter contract trading by requiring reporting of these trades to a central registry.
  • Improving the AER’s powers to investigate and address problems in the market and increasing penalties for serious wrongdoing.

The ACCC estimates its recommendations, if adopted, will save the average household between 20 and 25 per cent on their electricity bill, or around $290-$415 per annum.

Conclusion

While the efforts of the ACCC are welcomed, a sanguine approach must be adopted. There will be no quick fix to ongoing increases in energy bills and sector reform to reduce power bills will take time.

Our Energy Experience

We have significant experience in energy law. Our experience includes working for energy retailers, energy storage, and renewable energy companies. Working on ‘both sides of the meter’ gives us a unique and unmatched perspective.

Our lawyers have written extensively for industry publications including WattClarity and RenewEconomy. Our clients include small solar installers alongside large network distribution businesses.

Our firm is a finalist in this year’s Innovator of the Year award in the 2018 Australian Law Awards. Our sister business, Compliance Quarter has applied for over 80 percent of the recent energy retail authorisations with a 100 percent success rate. Compliance Quarter was a 2018 Westpac 200 Business of Tomorrow winner.

Power Purchase Agreements in Australia- Four Key Legal Concerns

Power Purchase Agreements in Australia- Four Key Legal Concerns

Energy Law

Power Purchase Agreements (PPAs) have reached maturity in the Australian market- now in the market for more than seven years. We are reaching the point where, for those early PPAs, we can expect to see legal issues arise and PPAs examined in the courts.

In today’s article, we look at four key legal considerations when it comes to drafting a ‘behind the meter’ PPA. Correct drafting today will save you unnecessary legal costs tomorrow. This is our second post looking at PPAs in Australia.

I. Certainty

PPAs are complex due to the nature of the ‘product’ being sold i.e. energy. Some PPAs require the purchase of 100 per cent of the generated quantity whereas others require the purchase of the quantity of electricity consumed. Each variation comes with its own risks and benefits. Care must be taken to ensure that the structure of a PPA is clear and compliant with regulatory obligations.

Different considerations apply when selling a PPA to a commercial as opposed to a residential consumer. There are a range of statutory obligations you will have under Australian Consumer Law including the non-excludable guarantees. These obligations need to be considered at the drafting stage. Furthermore, your marketing collateral needs to be consistent with the terms of your PPA, and not have the potential to mislead consumers.

II. Ownership

Ownership of solar panels under a PPA may be clear in your mind but, under the law, the reality is less certain.  Where ownership of panels is to transfer to the consumer at the end of the PPA term (often 7 years), with no intention of retention by your business, it may be that the panels are in fact fixtures meaning that you have limited rights in relation to taking them back.

III. Licences, Permits and Approvals

By selling energy under a PPA you are operating an energy business. Your business will either need to be exempt from the requirements to hold an authorisation or licence or hold an authorisation or licence. The Australia Energy Regulator has jurisdiction in NSW, SA, TAS, ACT and QLD. If your business is proposing to offer a PPA in those states it may be able to rely on an R8 exemption. The R8 exemption will not be appropriate in all instances and where it is appropriate comes with conditions.

In addition to energy licence obligations, your business will also need to consider consent authority obligations including any requirement to obtain a complying development certificate or a development approval. Further, your business will also need to comply with electrical safety laws in each state and with any electrical contractor licensing obligations.

IV. Metering

Energy is sold to a consumer on the basis of meter reads. A PPA should consider a range of scenarios including a customer denying access to a meter, any need for an estimated reading, and responsibility for metering including ongoing maintenance.

When metering PPAs it is important to remember the requirements of the National Measurements Act 1960 (Cth). Pattern approval (in other countries this is sometimes called ‘type approval’) is mandatory for measuring instruments used for trade in Australia. The National Measurement Institute (NMI) evaluates measuring instruments to check they meet specific Australian standards.

Our Energy Experience

We have significant experience in energy law, including in drafting Power Purchase Agreements. Our experience includes working for energy retailers, energy storage, and renewable energy companies. Working on ‘both sides of the meter’ gives us a unique and unmatched perspective.

Our lawyers have written extensively for industry publications including WattClarity and RenewEconomy. Our clients include small solar installers alongside large network distribution businesses.

Our firm is a finalist in this year’s Innovator of the Year award in the 2018 Australian Law Awards. Our sister business, Compliance Quarter has applied for over 80 percent of the recent energy retail authorisations with a 100 percent success rate. Compliance Quarter was a 2018 Westpac 200 Business of Tomorrow winner.

In our next post, we will look at changes to the accounting standards that come into effect from 1 Jan 2019 and are relevant to businesses looking to explore Power Purchase Agreements.

If you have any questions on Power Purchase Agreements please email connor@lawquarter.com.au. Alternatively, contact us here.

A Short Guide to Power Purchase Agreements (PPA) in Australia

A Short Guide to Power Purchase Agreements (PPA) in Australia

Energy Law

Last year, the University of New South Wales announced its entry into a power purchase agreement (PPA) for the next 15 years with the goal of reaching carbon neutrality (link here). PPAs are growing in popularity in Australia as a viable alternative to ‘grid sourced’ energy.

In today’s article, we ask three questions: What is a PPA, why enter into one, and what is their legal and regulatory environment?

Power Purchase Agreements, an introduction

  1. What is a PPA?

Put simply a PPA is an agreement between an independent power generator (or vendor) and a purchaser (often called the ‘off-taker’) for the sale and supply of energy.[1] They can be used for the supply of any type of energy, but in more recent times have often been used for the supply of renewable energy such as through solar panels or wind generators.

A PPA can take on two general forms. In a physical PPA, energy is physically supplied and sold directly to the purchaser. The power generator is usually not connected to the wholesale National Energy Market (NEM). A virtual or synthetic PPA involves two distinct agreements which operate in parallel. Unlike a physical PPA, the energy is not physically supplied and sold directly from the generator to the purchaser. Instead, the generator must connect to the NEM, where the purchaser is supplied energy through a contract with an authorised market retailer. At the same time a separate agreement, often taking the form of a ‘contract-for-differences’ is agreed between the generator and the purchaser to guard against fluctuations in the spot price for electricity which will be reflected in the retail contract. This means that, in effect, the energy and relevant renewable energy certificates are provided to the purchaser at a ‘fixed price’.

A behind the meter PPA is a physical PPA with the solar generation units installed behind a customer’s meter. Behind the meter PPAs are advantageous as they allow for the sale of electricity without the need for the use of the grid. Law Quarter is able to assist you in drafting a behind the meter PPA ensuring that the contractual documentation is complete and manages all of the key risks including the management of environmental certificates, ownership of the system, access for operation and maintenance, and early termination.

Power Purchase Agreements key concerns

  1. Why enter into a PPA?

PPAs may be advantageous to any organisation, such as UNSW, which seeks to reduce its carbon footprint. Whether in its physical or synthetic forms, through a PPA with renewable energy, a purchaser can ensure that a certain amount of renewable energy is produced.

Of course, there are economic considerations that an organisation will need to take into account before entering into a PPA as well, including:

  • Wholesale price uncertainty. A PPA allows the organisation to lock in a price for electricity over an extended period. The purchaser can benefit from not being subject to the price fluctuations of the wholesale energy market. On the other hand, this may lock the organisation into a price higher than it would otherwise pay;
  • Generator failure. The purchaser needs to take into account the risk that the generator will fail and be unable to supply energy as agreed and how they might insure against such failure.
  1. What is the regulatory and legal environment for PPAs?

All energy suppliers in NECF participating jurisdictions, including independent generators that supply energy through PPAs, are subject the supervision of the Australian Energy Regulator (AER). AER requires that such suppliers hold either an exemption or a retail authorisation and must provide certain consumer protections.[2] Whether or not they are subject to the consumer protections under the National Energy Retail Law, all such vendors are subject to the Australian Consumer Law.

If the PPA involves a ‘derivative’ financial instrument (as synthetic PPAs generally do), the supplier may be required hold an Australian Financial Services (AFS) licence, and be subject to the authority of the Australian Securities & Investments Commission (ASIC). To read more go to https://compliancequarter.com.au/otc-electricity-derivatives/.

Another matter that anyone entering into a PPA may need to consider is whether a security interest should be registered on the Personal Property Securities Register (PPSR). For example, if a vendor is physically supplying a solar panel to the purchaser’s premises this can protect their legal interest in the solar panel (for general information on the PPSR see https://compliancequarter.com.au/ppsr-changes/).

If you think we could be of any further guidance in this area, please don’t hesitate to get in contact.

 

[1] For more information and a good general introduction to PPAs see the following guide produced by the United States Department of Commerce http://cldp.doc.gov/sites/default/files/Understanding_Power_Purchase_Agreements.pdf.

[2] For further information see https://www.aer.gov.au/system/files/AER%20-Alternate%20energy%20sellers%20-%20Final%20statement%20of%20approach%20-%20July%202014.PDF.

Energy Retail Law Key Definitions

Energy Retail Law Key Definitions

Energy Law, Regulatory Updates

 

There are some key definitions contained in the Energy Retail Law which need to be understood.  Chapter 10 of the National Electricity Rules (NER) contains the Glossary and it covers 114 pages. Often the definition of the word or phrase will contain words which also need to be defined.

By Anne Wardell, Law Quarter

Embedded Network

For example, the definition of an Embedded Network is:

distribution system, connected at a parent connection point to either a distribution system or transmission system that forms part of the national grid, and which is owned, controlled or operated by a person who is not a Network Service Provider.

Each of the phrases in italics has a separate definition within the Glossary. To understand all the meanings, you may watch a short presentation I created. Each phrase which is defined also has defined terms within it. You may need to go up to three steps within the definition to find the meaning of that phrase.

Distribution system

Let’s look at the phrase ‘distribution system’ which is contained in the definition of Embedded Network.

It is defined in the National Energy Retail Law as:

(a) for a distributor who is a regulated distribution system operator within the meaning of the NEL—a distribution system within the meaning of the NEL; or

(b) for a distributor who is a service provider within the meaning of the NGL who owns, operates or controls a distribution pipeline that is a covered pipeline under that law—a distribution pipeline within the meaning of the NGL; or

(c) for a nominated distributor under s 12—the nominated distribution system that is specified under that section.

Therefore, you need to determine if you are a distributor and which type of energy you are providing. The NEL is the National Electricity Law and the NGL is the National Gas Law.

Distributor

Distributor, under the National Energy Retail Law means

(a) a regulated distribution system operator within the meaning of the NEL; or

(b) a service provider within the meaning of the NGL who owns, operates or controls a distribution pipeline that is a covered pipeline under that Law; or

(c) a nominated distributor, to the extent provided by section 12.

Under the National Energy Law the definitions are contained in the NER as:

Distribution System Operator

A person who is responsible, under the Rules or otherwise, for controlling or operating any portion of a distribution system (including being responsible for directing its operations during power system emergencies) and who is registered by AEMO as a Distribution System Operator under Chapter 2.

Distribution system

A distribution network, together with the connection assets associated with the distribution network, which is connected to another transmission or distribution system. Connection assets on their own do not constitute a distribution system.

Under the NGL the phrase ‘service provider’ is defined in s 8 of the National Gas (South Australia) Act 2008 as:

Service provider

(1) A service provider is a person who—

(a) owns, controls or operates; or

(b) intends to own, control or operate, a pipeline or scheme pipeline, or any part of a pipeline or scheme pipeline.

Note— A service provider must not provide pipeline services by means of a scheme pipeline unless the service provider is a legal entity of a specified kind: see section 131, and section 169 where the scheme pipeline is an international pipeline to which a price regulation exemption applies.

(2) If AEMO controls or operates (without at the same time owning) a pipeline or scheme pipeline, or any part of a pipeline or scheme pipeline, AEMO is not for that reason to be taken to be a service provider for the purposes of this Law.

Distribution pipeline

means a pipeline that is classified in accordance with this Law or the Rules as a distribution pipeline and includes any extension to, or expansion of the capacity of, such a pipeline when it is a covered pipeline that, by operation of an applicable access arrangement or under this Law, is to be treated as part of the pipeline;

Note— See also sections 18 and 19.

Section 12 of the National Energy Retail Law provides:

12 — Nominated distributors

(1) The regulations under an application Act of a participating jurisdiction may nominate an entity (being an entity that is licensed or otherwise authorised under jurisdictional energy legislation of that jurisdiction) to provide customer connection services as a nominated distributor for the purposes of this Law.

(2) A nomination of an entity may be made for any or all of the following:

(a) the whole or a specified part of the geographical area of a jurisdiction; or

(b) the whole or a specified part of a distribution system that is owned, controlled or operated by the entity.

(3) A nomination of an entity has the effect of applying this Law and the Rules (in whole or in part as specified in the regulations and with any specified modifications) to the entity as if it were a distributor within the meaning of this Law, and references in this Law and the Rules to a distributor are accordingly taken to include references to the nominated distributor.

What to do?

As you can see there are many steps to clarify the definition of words and phrases under the National Energy Laws. To understand a phrase the first step is to determine whether it has a definition under the relevant legislation.

If there is a definition then you should take note of the italicised words. This will indicate that the word or phrase has a defined meaning under the legislation. You should therefore also check these definitions.

Words can also be defined by judges when deciding cases. The term ‘explicit informed consent’ was considered by the Federal Court in Australian Competition and Consumer Commission v EnergyAustralia Pty Ltd [2015] FCA 274 at [70]:

‘Section 39 of the NERL SA and the NERL ACT provides that “explicit informed consent” is given where the retailer, or a person acting on the retailer’s behalf, has clearly, fully and adequately disclosed all matters relevant to the consent of the customer, including the purpose or use of the consent, and the customer gives consent. Consent by the consumer must be given in writing signed by the customer, verbally (provided it is evidenced in such a way that it can be verified), or by electronic communication generated by the customer’ (emphasis added).

As further cases come before the courts, a more detailed definition will be created. It is important therefore to be aware of any decisions which may come before the courts.

We have introduced a new section on our news page which will cover cases of interest. Our first decision will be Privacy Commissioner v Telstra Corporation Limited [2017] FCAFC 4. We have selected this decision as it contains important information for all businesses which collect personal information from customers which of course includes the energy retail secto