Managing the Risks of Modern Slavery in the Resources and Energy Sectors

Managing the Risks of Modern Slavery in the Resources and Energy Sectors

Energy Law

On 7 December 2021, the Australian Human Rights Commission (AHRC) released a new guide to assist stakeholders in the energy and resource sectors with their compliance obligations arising under the Modern Slavery Act 2018 (Cth.)

The Guide is the fourth in a series that are industry-specific. The AHRC has previously released three such guides for the construction and property industry, financial services industry, and the health services industry.

The Guide is a 49-page document and is a useful tool for energy/ resource compliance managers to assist them with their compliance obligations in relation to modern slavery. This article will provide a summary of the Guide. The full document can be found at:

https://humanrights.gov.au/sites/default/files/document/publication/ahrc_kpmg_modern_slavery_energy_2021.pdf

This article will summarise the following:

  • What is Modern Slavery:
  • What does the Modern Slavery Act 2018 (the Act) Require?
  • What are the Seven Mandatory Reporting Criteria?
  • What Risks are Identified in the Resources and Energy Sector?
  • What Risks are Identified (specifically) in the Resources Sector?
  • What Risks are Identified (specifically) in the Energy Sector?

What is Modern Slavery?

Modern slavery is a term is used to describe situations where coercion, threats or deception are used to exploit people and deprive people of their freedom. These violations are crimes in Australia.

Modern slavery includes trafficking in persons, slavery, servitude, forced marriage, forced labour, debt bondage, the worst forms of child labour and deceptive recruiting for labour or services. The Guide acknowledges that the economic and labour market shocks accompanying the COVID-19 pandemic have exacerbated the risks of modern slavery globally, especially for women, children and migrant workers

The Guide noted the changing ground in relation to the mining of fossil fuels and energy supply:

Relationships between the traditionally distinct sectors of mining, oil and gas, and power generators and retailers, are rapidly shifting with the global shift towards decarbonisation and sustainability. This has added complexity to the supply chains of companies in these sectors, creating new modern slavery risks that must be considered and addressed under the Modern Slavery Act 2018 (Cth.)

What does the Modern Slavery Act 2018 (the Act) Require?

The Act requires entities with a consolidated revenue of $100m or more to submit a modern slavery statement. The statement must disclose what the entity is doing to identify and manage modern slavery risks in both their operations and supply chains. The statement must be approved by the entities board and signed off by a director or a responsible member of the entity. The statement is then published on a central online Australian Government register.

NB: It is important to note that there are also state laws in this space. For example, NSW has the Modern Slavery Act 2018 (NSW) relating to entities with consolidated revenue of $50m or more. The penalties in the NSW Act include fines of up to $1.1m.

What are the Seven Mandatory Reporting Criteria?

There are seven mandatory criteria that your entity must respond to under the Modern Slavery Act 2018 (Cth.) requiring descriptions of:

1. The reporting entity.

2.  Your structure, operations and supply chains.

3. The risks of modern slavery practices in your operations and supply chains and any entities owned or controlled by a parent entity.

4. Actions taken to assess and address those risks, including modern slavery due diligence and remediation processes.

5. How your entity assesses the effectiveness of the actions taken.

6. The process of consultation with entities owned and/or controlled by you.

7. Any other information that you consider relevant.

What Risks are Identified in the Resources and Energy Sector?

The AHRC research shows that there are four key factors that elevate the risk of modern slavery: vulnerable populations, high-risk business models, high-risk procurement categories, and high-risk geographies. Where multiple high-risk factors co-exist, there is a greater likelihood that actual harm is being experienced, and additional controls are required to ensure that risk does not become harm.

The Guide highlighted the common modern slavery practices connected to the resources and energy sectors as human trafficking, bonded labour, forced or unpaid work and the worst forms of child labour. The reasons given for the resource and energy sectors being high risk included:

  • High-risk geographies in operations and supply chains such as the presence of militias, criminal organisations and corrupt governments in countries that are conflict affected or prone to instability;
  • Alleged forced labour in developing countries is a supply chain risk for several renewable energy technologies;
  • Demand for base-skill workers in construction of infrastructure; frequent outsourcing of labour to third party contractors; and
  • Low visibility over multi-tiered supply chains.

The key trends giving rise to these risks were identified as:

  • Profound shift towards decarbonisation means rapidly changing procurement strategies and increasingly complex supply chains;
  • Increase in scrutiny and reporting requirements from markets, exchanges, lenders and investors on environmental, social and governance (ESG) issues;
  • Increase in scrutiny and minimum supplier standards from downstream customers regarding ESG issues; and
  • Increase in scrutiny from civil society on ESG issues, including shareholder action.

What Risks are Identified (specifically) in the Resources Sector?

In determining the resources sector as ‘high risk’, the AHRC cited the following reasons:

  • demand for migrant and base-skill workers;
  • the short-term and temporary nature of some work, such as construction;
  • high-risk business models, including labour hire and sourcing;
  • frequently operating in high-risk geographies; and
  • chartering and contracting sea transport, which is a known high-risk sector.

(As discussed above) in identifying the complex context-specific issues relating to certain countries, the AHRC cited the presence of militias, criminal organisations and corrupt governments in countries that are conflict-affected or prone to instability. The AHRC noted that these contextual factors, coupled with certain supply chain and operational complexities, increase modern slavery risk and require resource companies to proactively identify and manage that risk.

The Guide gave an example provided by Andrew ‘Twiggy’ Forrest who when investigating his corporations supply chain found an instance where workers were being forced to work after having their passports confiscated. He stated:

…it is now widely accepted that inaction, and hiding our head in the sand, are no longer options.

Resource companies are also exposed to risks associated with their corporate operations. These include risks relating to building management and other functional services, such as catering and cleaning, which have elevated risks of forced labour and trafficking practices.

What Risks are Identified (specifically) in the Energy Sector?

The AHRC clearly cite the procurement of goods in the construction of power infrastructure as the greatest source of risk for energy entities. This is largely due to the massive expansion of renewables in recent times. Traditional supply chains in the energy sector are as changed as the source of energy itself.  The procurement risks relate to:

  • Personal Protective Equipment (PPE) and uniforms;
  • Solar panels;
  • Electrical parts and electronic equipment, including metering equipment;
  • Mechanical parts; and
  • Processed metals.

The reasons that the AHRC give for risks in the procurement of goods in the energy sector include:

  • The high demand for migrant and base-skill workers in construction of infrastructure;
  • The supply chains that include high -risk geographies in the context of both manufacturing and resource extraction;
  • The short-term and temporary nature of some work, such as construction; and
  • The use of labour hire and outsourcing of construction and maintenance to third-party contractors.

Energy retailers are also increasingly purchasing renewable energy directly from third-party generators, such as wind and solar farms, to on-sell to customers. Adoption of PPAs has increased as companies offset their carbon emissions and even look to achieve neutrality. This exposes those energy companies purchasing renewable power to modern slavery risks in the manufacturing of renewable plant-sourced by generators from whom they purchase power.

Like resource companies, energy companies are also exposed to risks associated with their corporate operations. These include risks relating to building management and other functional services, such as catering and cleaning, which have elevated risks of forced labor and trafficking practices.

Summary:

The Guide gives a series of case studies and provides resource and energy sector entities with practical guidance in identifying risk, reporting of risk, and processes that assist with minimising risk. It is a clear indication of how serious the Commonwealth (and the States and Territories) consider the issue of modern slavery in relation to domestic industry.

As general investors are becoming more aware and increasingly concerned with unethical practices in supply chains generally, ensuring your entity’s compliance in this space is not just a matter of legal obligation it is a matter of financial survival. The carrot is being able to inform shareholders of the progress of this critical compliance obligation and the strident steps being taken to ensure that no one is harmed in the business itself and the associated supply chains. The stick is the turning away of ethical investors, the serious legal ramifications for failing in compliance and the reputational (and ultimately financial) damage for compliance failure in this space.

As the AHRC states in the Guide:“When companies fail to take their human rights responsibilities seriously, they expose people to harm and themselves to business risk”.

Energy Law Case Note: Miller v Lifestyle SA Pty Ltd [2021] SACAT 35 (7 April 2021)

Energy Law Case Note: Miller v Lifestyle SA Pty Ltd [2021] SACAT 35 (7 April 2021)

Energy Law

This case note concerns a decision of the South Australian Civil and Administrative Tribunal (the Tribunal).

The applicant in the matter, Mr Miller, entered into a residency agreement in March 2010 whereunder he resided in a retirement village in South Australia. Electricity supply within the village was initially managed by Lifestyle Utilities (LU), a related entity of the respondent.

The Tribunal decision notes that LU decided that it did not have the capacity to operate the embedded network at the village, as it was under the impression that it needed to demonstrate to the AER ‘experience as an electricity retailer, establishing business plans, putting into place customer service protocols, arranging for financial audits to be performed of the business and quarterly reports to be provided to the regulator.’ LU appears to have formed the view that it required a retail authorisation and that it was unable to operate under an exemption as energy selling was its main business activity.

LU thereafter appointed a private embedded network operator (ENO) at the Village pursuant to a contract commencing on 1 July 2015. The term of the contract was 5 years with an automatic renewal period of 5 years provided that there were no more than 5 complaints to the AER or state ombudsman scheme within the initial period. As there were no more than 5 such complaints, the renewal occurred and the contract will continue until July 2025. Pursuant to the contract with the ENO, LU agreed to either assign any existing agreements between LU and residents or to have new agreements signed between the ENO and residents.

The solar and usage tariffs

At the time of installing a solar PV system, Mr. Miller was paid for excess generation at between 34-36c per kwh. The ENO continued to pay that amount to Mr. Miller. The contract between Mr Miller and LU further provided for a 10 percent discount on energy tariffs (from the [sic] ‘SA Regulator approved energy tariffs’). The terms of supply from the ENO did not provide for the same discount and rather provided for:

  • a 10% pay on time discount for residents without solar power;
  • a 4% pay on time discount for residents who are ‘new solar users;’ or
  • no discount for ‘residents on the old solar tariff.’

Mr. Miller’s complaint was lodged against the village operator and was essentially that he was being financially disadvantaged and further had no ‘freedom of choice of provider’ having been informed that no other provider will take on the role of retailer unless they were also the operator of the embedded network.

The decision noted that in substance part of Mr Miller’s dispute arose by virtue of the contract between him and the ENO and that: ‘Under the RVA, the Tribunal only has power to deal with disputes between an Administering Authority and a resident. The Tribunal does not have the power to deal with disputes arising from contracts between a resident and any other entity – even if that entity is a related entity to the Administering Authority – and even if the dispute is about the provision of a service within the retirement village.’

The contract between the ENO and resident

The Tribunal then went on to review the ‘effectiveness of the contractual arrangement’ with the ENO finding that there was an effective contract between the ENO and LU. The Tribunal then went on to examine whether there was a contract between the ENO and Mr. Miller finding that:

  • The ENO wrote to Mr Miller on 10 August 2015 setting out the terms and conditions that would apply to his electricity supply and noting that if Mr Miller did not challenge those terms, then the ENO was entitled to assume that he consented to those terms.
  • In the terms and conditions within the letter, cl 3 allowed either party to terminate the arrangement on 20 days’ written notice.

The Tribunal found that ‘If Mr Miller did not want to continue with that arrangement, then he could have terminated it by providing 20 days’ notice.’  ENOs should not accept this finding as reflective of the current state of the law and should consult with a lawyer when determining how to contract with embedded network occupants.

The findings

The Tribunal then went on to consider whether the appointment of the ENO was:

  • in breach of the operator’s obligations under their residence agreement with Mr Miller;
  • in breach of the relevant provisions under the Retirement Villages Act 2016; or
  • harsh or unconscionable conduct within the meaning of the Retirement Villages Act 2016.

The Tribunal found that the respondent did not adequately consult on the proposed appointment of the ENO and was in breach of the regulations under the RVA 1987 (which is not technically a breach of the Act), and also in breach of an obligation under Mr Miller’s residence agreement because they have failed to comply with a term of the Code of Conduct. The Tribunal did not find that the appointment process was harsh or unconscionable conduct within the meaning of the Retirement Villages Act 2016.

The ultimate order of the Tribunal was as follows ‘The respondent (Lifestyle) will undertake appropriate consultation with residents prior to making any decision as to the appointment of an operator of the embedded power network in the Village, and such consultation will occur prior to the expiry of the current contract for that service.

Lessons for ENOs

Embedded Network Operators can take two lessons away from this decision. These are that:

  1. ENOs should have individual agreements with residents and comply with any obligations relating to contracting within the applicable exemption category or otherwise under applicable laws; and
  2. ENOs must consider not only requirements under energy laws when taking over a goldfield site but also those applicable to the particular type of customer, site, or development.
Pause on Construction until 30 July 2021: Implications for Energy Businesses

Pause on Construction until 30 July 2021: Implications for Energy Businesses

Energy Law

Yesterday, the NSW Government announced that all construction in Greater Sydney would be paused until 30 July 2021. The new measures were gazetted on 17 July 2021 in the 8th Public Health Order, the Public Health (COVID-19 Temporary Movement and Gathering Restrictions) Amendment (No 8) Order 2021, which has the effect of amending the prior Orders. The construction related measure is in response to delta variant cases that have emerged from construction sites.

Where does this leave those in the construction industry and those businesses who carry out ‘works’ such as the installation of solar panels?

This means that work will halt on a number of construction sites. Construction site means a place at which work, including related excavation, is being carried out to erect, demolish, extend or alter a building or structure but not work carried out in relation to a dwelling in which a person is residing.

The prohibition is set out in clause 24AB:

There are exceptions to the prohibition including where work is required to ensure the safety or security of a construction site and to maintain critical plant. This may encompass work carried out by solar installers required to ensure that panels are secure on site but would not cover the installation of new systems or new components.

The exception of ‘mainlining public utilities’ clearly covers work by entities such as Essential Energy. While the supply of electricity within embedded networks involves a private party carrying out some of the functions of a public utility supplier, works carried out by that entity are unlikely to be exempt unless they are required to ensure the continuity of supply or the safe operation of the embedded network.

What about residential premises?

Looking at the definition of construction site alone (which does not include …work carried out in relation to a dwelling in which a person is residing) may lead you to think that residential energy related works are not prohibited. That is not the case.

When it comes to visiting ‘places of residence’ i.e. going to a residential premises, clause 22A applies.

What this means is that unless work is urgently required, as set out in sub-clause (4B) your business is not able to visit residential sites.

Contractual implications

Many energy businesses are under contractual obligations to deliver and complete work over the next two weeks. Energy businesses need to consider what the contractual implications of the new measures will be. To do this, they should consult with their in-house legal team or external lawyers and should do so as soon as possible.

The Electricity Retail Code

The Electricity Retail Code

Energy Law

The Competition and Consumer (Industry Code—Electricity Retail) Regulations 2019 (the Code) applies to all electricity retailers that supply to small customers in the applicable distribution regions of New South Wales, South Australia and south-east Queensland.

The Code sets a cap on standing offer prices and specifies how prices and discounts must be advertised, published or offered.

I. Introduction

The Code is an instrument made under the Competition and Consumer Act 2010. The Code:

Places a cap on standing offer prices: standing offer prices must be set such that, were a small customer to be supplied in a financial year at those prices with the amount of electricity determined by the AER for the financial year under Part 3 (the model annual usage), the total amount the customer would have to pay for the supply would not exceed the price determined by the AER under that Part (the reference price) (see section 10); and

Regulates the advertising of offers by requiring prices to be compared to the reference price: small customers must be told how prices for supplying electricity compare with the reference price (see section 12); and

Regulates the advertising of discounts:  an advertisement for supplying electricity to small customers must not have a discount as its most conspicuous price‑related matter, and must state any conditions on discounts clearly (see section 14).

II. Operation alongside NECF

The Code, unlike the NERL and NERR, is a Commonwealth instrument. It is enforced by the ACCC rather than the AER and defines terms differently. In NECF jurisdictions, retail pricing is also regulated by the AER’s Retail Pricing Information Guidelines.

For example, a small customer is defined in the Code to be a customer with or without controlled load who uses electricity principally for personal, household or domestic use. A small customer is also defined to include a small business who uses less than 100 MWh per annum who is not charged a controlled load tariff or a flexible tariff.

The Code does not apply to embedded network customers, those with pre-paid meters or those whose supply includes a demand tariff. Further, solar Feed-in Tariffs are to be ignored for the purposes of calculations under the Code.

III. Subdivision A: Caps on Standing Offers

Where there is a reference price and model annual usage in force, a retailer must ensure that its standing offer is at or below that reference price.

The Code says that: ‘The standing offer prices comply with the price cap if the total amount a representative customer, who was a small customer of that type, would be charged for the supply of electricity in the region in the year at the standing offer prices would not exceed the reference price.’

IV. Subdivision B: Advertising 

There are two ‘options’ for advertising, publications and offers that are subject to the Code.

Option 1: Advertising, publications and offers that are subject to the Code must:

a. Include the difference between the reference price and the unconditional price as a percentage of the reference price;

b. For each proportional conditional discount mentioned in the advertisement, publication or offer, include the difference between the unconditional price and the conditional price for the discount as a percentage of the reference price; and

c. Include the lowest possible price.

Option 2: The alternative to Option 1 is for a retailer to ‘state the total amount the electricity retailer estimates the small customer would be charged for the supply of electricity in the region in the year, assuming that the conditions on all conditional discounts (if any) mentioned in the offer were met.’

V. Advertising Conditional Discounts

Additional requirements apply to the advertising of conditional discounts. These are that:

a. The conditional discount must not be the price‑related matter that is mentioned most conspicuously in the advertisement; and

b. The advertisement must state the conditions on the conditional discount clearly and conspicuously.

VI. Key Terms

To understand these obligations, it is necessary to review the definitions of key terms used in the Code:

conditional price for a proportional conditional discount means the total amount a representative customer would be charged for the supply of electricity in the financial year at the offered prices, assuming that the conditions on the discount were met and disregarding any other conditional discounts.

lowest possible price means the total amount a representative customer would be charged for the supply of electricity in the financial year at the offered prices, assuming that the conditions on all conditional discounts (if any) mentioned in the advertisement, publication or offer were met.

proportional conditional discount means a conditional discount that is calculated as a proportion of all or part of the amount a small customer is charged for the supply of electricity at the offered prices.

unconditional price means the total amount a representative customer would be charged for the supply of electricity in the financial year at the offered prices, disregarding any conditional discounts.

AEMC issue paper on the uptake of electric vehicles in Australia

AEMC issue paper on the uptake of electric vehicles in Australia

Energy Law

The Australian Energy Market Commission (AEMC) has published a new issues paper examining the impact of the uptake in electric vehicles in Australia on the energy market.

The issues paper examines a variety of aspects of the uptake including the potential for new electric vehicle products and services, charging stations and their impact on the grid, and the benefits provided by electric vehicles in promoting more efficient use of existing infrastructure.

The AEMC has recognised that: “if we get ahead of the curve, we can make sure this technology makes a positive contribution to our future power system and doesn’t become another cost driver.”

The Numbers

Between 2018 and 2019 the sales of electric vehicles increased by more than 200%. In 2009, 6700 electric vehicles were sold in Australia. There are currently over 1930 public vehicle charging stations in Australia. The primary driver of the uptake of electric vehicles has been cost.

Australia currently has 22 battery and plug-in hybrid electric vehicle models available and it is expected that that number will increase by at least nine during 2020. The AEMC notes that while the global uptake of electric vehicles is expected to continue to increase substantially over the coming decade, the actual rate of increase is uncertain.

Electric vehicle charging stations

The number of public charging stations in Australia increased by 143% between June 2018 in July 2019. There are three categories of recognised electric charging stations:

  • Level one being charging via an existing standard power point;
  • Level two being a dedicated electric vehicle charger: typically found in homes, shopping centres, hotels and workplaces; and
  • Level three being fast charging units: typically found in commercial premises or en-route highway locations.

Interestingly, the AEMC considers the application of s 88 of the National Energy Retail Law in the context of the sale of energy from an electric vehicle charging station. Section 88 provides that any person who sells energy to a person for premises in the NEM is required to have a retail authorisation or hold an exemption.

The AEMC notes that the Australian Energy Regulator considers that the sale of energy to a person for premises captures electric vehicle charges at home or at a small business but does not apply to commercial electric vehicle charging stations.

The Role of the Retailer

In its paper, the AEMC examines the role of an energy retailer with respect to the electric vehicle market. The AEMC notes that electric vehicle charging habits will be primarily shaped by convenience.

The electrification of Australia’s passenger vehicle fleet is expected to materially increase electricity consumption in Australia and will change markets underlying residential demand profile. The AEMC notes that this presents an opportunity for retailers to develop innovative products for electric vehicle consumers who are likely to have greater consumption than non-electric vehicle consumers.

One limitation of the existing market framework is that a consumer is only able to have a single financially responsible market participant (FRMP) at each connection point. This limitation is familiar to those market participants who are registered as small generation aggregators (SGAs). Should the limitation be removed, it may be possible, for example, for a single customer to engage with separate service providers with different responsibilities i.e. for air-conditioning load, hot water, pool pumps and electric vehicle charging.

The question of multiple FRMPs was examined in the 2015 review of a proposed AEMO rule change conducted by the Commission where it was found that it would be uneconomical to enable multiple FRMPs at the one connection point. The commission has recognised that this question warrants further examination given evolutions in the market.

Submissions on the issues paper are invited until 19 March 2020 using the AEMC’s website under the project reference code RPR0012.

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.