Red Energy Pty Ltd- ABN 60 107 479 372 2 William Street

East Richmond, VIC 3121

T 131 806

F 03 9425 0589

w redenergy.com.au gth September 2013

SCER Secretariat GPO Box 1564 CANBERRA ACT 2601

By email: scer@ret.gov.au

Dear Sir/Madam,

RE: Review of Enforcement Regimes under the National Energy laws

Red Energy welcomes the opportunity to provide input to the Review of Enforcement Regimes under the National Energy Laws Draft Report (the Draft Report).

In reviewing the Draft Report, Red Energy has focussed on a number of key factors it feels are

particularly important to note in this review.

Introduction

Red Energy does not believe that substantive changes are warranted in the National Energy laws. Given that the National Energy Customer Framework (NECF) has only been in operation in the ACT, Tasmania, South Australia, and New South Wales since July 2012, Red Energy considers a review into the AER's enforcement powers to be premature.

To further illustrate this, the NECF is yet to enter two major energy markets in Victoria and Queensland . The EMRWG has previously stated that a review into the enforcement regimes would not be appropriate until the NECF was introduced. Based upon this fact, a review into the effectiveness of the NECF's enforcement regime at this time is unlikely to take into account all the relevant and requisite factors of such a review. Once the NECF is active across all of Australia's energy markets and the AER has been given some time for procedural and regulatory development, the SCER will be better placed to determine what changes, if any, are required for efficient operation of the market as a whole.

Red Energy notes that the energy market as a whole is unlike any compared in the Draft Report. Energy retailers are subject to a large number of regulatory obligations by a number of different codes and guidelines, including those stipulated in the ACl. Red Energy does not see any evidence in the Draft Report to warrant significant changes to the current enforcement regimes, nor does it feel the market has suffered any substantive failures in AER regulation necessitating an early review.

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Outlined below are comments in relation to specific recommendations.

Issue 4: Are the enforcement orders that can be sought by the AER in proceedings before a court adequate against current regulatory norms for equivalent regulatory environments?

The Draft Report recommends an additional three types of enforcement orders that can be made by a court on application by the AER. These are as follows:

• Community service orders {CSO}

o Red Energy does not believe the power to apply a CSO gives any regulatory benefit to the AER. A decision by a court to enforce such an order is likely to increase costs, while providing no discernible benefit to the operation of the market or the welfare of the community. AEMC and SCER are currently working towards achieving policy objectives to increase consumer engagement in the energy market and it seems to rebut this intent in allowing a court to impose such an order. It is also likely such an enforceable regime would unnecessarily increase the cost for an end consumer without achieving the intent of the initial law makers.

o Red Energy believes there are other enforcement options to better serve the purpose and desires of the AER from both a punitive and social welfare perspective.

• Probation order (PO}

o Red Energy sees greater regulatory impact in the introduction of a PO than a CSO.

o A PO encourages a regulated entity to continue ongoing remedial action to ensure the breach does not continue. This has an obvious social and regulatory benefit in that a regulated entity cannot further breach the provision in question for an additional period.

o Despite this recommendation, Red Energy does not agree with the advice in the report for the PO to cover a period of 3 years. Red Energy believes that a period of up to one year would provide sufficient detrimental impact on an entity in this market given the current changing regulatory framework.

• Adverse publicity order (APO}

o Red Energy notes that APO's currently impact the energy market with some effect regarding breaches of the Australian Consumer Law (ACL} and the Competition and Consumer Act {CCA} . Red Energy believes that in considering the provisions of the laws in question, there is unlikely to be any social benefit to a court imposing an APO. Given the derogation of the energy market, the market participants whom can be affected by an APO are unlikely to have committed a breach to warrant such an order being imposed and thus further increasing participant costs overall, which could be passed onto consumers without the desired benefit.

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Red Energy believes a compliance order/ remedial direction discussed in issue 2 may be of more use to the AER and enable efficient operation of the market to continue. The above listed enforcement measures seem to minimise the effective operation of the market in that they don't meet the relevant objectives of their imposition.

A compliance order issued by the AER following an investigation could include provisions that would empower a court in the event of non- compliance to the notice to issue further breach penalties, which may include the PO detailed above. Red Energy does however note that given that the AER would be empowered to both investigate and penalise the regulated entity, there would need to be adequate assurance that the direction would only be given in an instance when a higher burden of proof had been determined. Red Energy notes a strict requirement for consultation with a regulated entity prior to publishing of the notice is essential to the transparent operation of the enforcement regime.

Issue 5: Does the AER have appropriate powers to seek remedies from a court? In particular, should the AER be given a general power to seek compensation or damages, including on behalf of affected consumers, following any successful enforcement action?

The Draft Report indicates support for a court order directing a regulated entity to pay compensation to a third party including, inter alia, retail consumers.

Red Energy feels this additional power is unnecessary to be extended to consumers in the current energy market given the market participants already involved. The presence in all jurisdictions of an active Energy Ombudsman enables a consumer significant recourse and an avenue of alternative dispute resolution free of charge to them. The imposition on a regulated entity a further possibility of action by way of a consumer for the breach of a national energy provision seems to go against the initial intent of the laws. There is also a possibility that this additional power would lessen the ability of the relevant Ombudsman schemes to resolve complaints effectively with consumers by way of merely providing additional avenues to achieve similar redress.

In looking further at any additional powers in the legislation, SCER needs to consider if there is currently a shortfall in the consumer protections available to end users. Red Energy does not believe there is such a shortfall and feels currently available options of ADR adequately represent the needs of these consumers. Should further powers be implemented, Red Energy strongly feels the potential compensation to be granted needs to be limited so as to ensure a consumer does not take advantage of a situation in which they incurred minimal loss.

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Civil penalty regime

Issue 14: Are the existing civil penalty rates set at a level which is sufficient to act as a deterrent? How should the quantum of a civil penalty be determined in line with current norms?

Red Energy considers that the Draft Report does not demonstrate that existing civil penalty rates are insufficient, and therefore we do not support a general increase beyond their current range. Increasing the penalties will increase the financial risks, and hence the costs, for a retailer operating in this already highly-regulated industry. This could in turn increase the costs for an end consumer.

The Draft Report recommends adding to the list of contraventions that attract a maximum civil penalty by implementing a tiered infringement framework in the energy laws. Red Energy do not support this recommendation as no evidence has been provided showing that there is a problem with the current retail framework. Unlike the ACL, which covers largely unregulated industries, the energy industry is highly regulated. For this reason, the multiple tiers of penalty available in the ACL do not correlate to energy regulation . Red Energy believes implementing this recommendation would unnecessarily add to the complexity of the energy regime, for no demonstrated benefit.

Issue 19: Is the current design of the infringement notice regime in accordance with other comparable regimes?

The Draft Report suggests the majority of procedural matters and legal architecture to be sufficient when compared with other regulatory schemes. There is however a recommendation in the report to modify the laws slightly with regard to limitation of time in which the AER can impose an infringement notice, and also with regard to the burden of evidence required by the AER to determine a breach.

Red Energy supports both of these changes in order to bring the national laws into line with other relevant regulations. The increase of burden on the AER to change from "reason to believe an offence has occurred" to "reasonable grounds to believe an offence has occurred" seems to be an important change in the interests of procedural fairness.

Issue 23: Should the AER have the power to compel the provision of oral evidence under oath?

The Draft Report discusses a recommendation to increase the powers of the AER to include the ability to require an individual in a regulated entity to give evidence under oath with regard to certain investigations. The report indicates that given most other compared entities have this power, that this shortfall significantly lessens the ability of the AER to enforce the energy laws.

Red Energy does not believe this to be the case. The AER has developed with regulated entities a strong relationship encouraging transparency in all dealings. This enables entities and the AER to efficiently and effectively minimise issues and concerns occurring in the industry with the least public detriment. This relationship would be adversely hampered should the AER's enforcement power be altered in this manner.

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In looking into this recommendation, Red Energy feels it important for SCER to compare the investigative regime of the AER with that of the ACCC.

• ACCC investigations utilising s155 powers are generally very longwinded, involving frequent legal intervention.

• These investigations can take months/ years to complete even without involvement of the courts.

• Based on its history since 2005, the AER has been able to successfully investigate and clarify all breaches incurring in the market, with only one matter being referred to the courts for intervention. This shows that the current non- adversarial nature of the AER's regulation is an effective tool in the market to resolve infringement concerns.

Red Energy believes based on the above comparison that the implementation of an enforceable power to give evidence under oath would significantly affect the ability of the AER to resolve concerns quickly and with minimal market impact. The difference in historical breaches between the energy industry and those breaching the ACL and CCA seem substantively different to not warrant this change.

Should this change be implemented by the SCER, Red Energy strongly feels the power needs to be limited to certain provisions in the laws with maximum potential for detrimental impact. This could be limited to the potential second tier penalties discussed in issue 14.

We welcome the opportunity to comment further, if any further elaboration or explanation is required.

Yours sincerely

Stephen Grant Manager-Quality and Compliance Red Energy Pty Ltd

Ben Barnes Quality and Compliance Advisor Red Energy Pty Ltd

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