Weronika Pelc: Penalties for unintentional violations may be lower
An interview with Weronika Pelc, partner in charge of the Energy Law Practice at Wardyński & Partners, on fines imposed by the energy regulator in Poland and possibilities for mitigation of penalties.
Litigation Portal: The highest fine imposed last year by the President of the Energy Regulatory Office was over PLN 17 million. That is enough to make an impression on energy companies.
Weronika Pelc: The statutory tasks of Poland’s energy regulator, the President of the Energy Regulatory Office, include assuring the security of the energy market in Poland, which is why the regulator is vested with appropriate means to discipline businesses that commit violations. And indeed some of the fines are huge. In fact, the previous year, the highest fine was over PLN 60 million. The regulator may impose a fine of up to 15% of the revenue generated by the business in the prior tax year. The penalty is supposed to function as a deterrent, so it should be imposed in an amount that will be painful to the violator. Even then, it is not the harshest penalty that may be imposed by the regulator, because the President of the Energy Regulatory Office may also withdraw the violator’s licence to operate in this area.
But not all of the penalties are so high. The single highest penalty last year accounted for 65% of the total fines imposed during the year. Considering that the regulator imposed a total of 235 fines in 2012, most of them were much lower.
What does the regulator fine companies for?
The highest fine in 2012 involved failure to comply with the requirement to purchase electricity produced through cogeneration. The company in question had not presented certificates of origin or paid the substitution fee. A similar penalty can be imposed for failure to purchase electricity generated from renewable energy sources.
Most of the penalties resulted from failure to comply with licensing conditions. In 2012, numerous penalties were imposed for marketing liquid fuels which failed to comply with applicable standards, based on findings by the Trade Inspectorate. Licensees were also punished for failure to install required equipment at their facilities, violation of fire safety regulations, or entering into contracts for purchase and sale of liquid fuels with companies that did not hold a required licence.
Fines were imposed as well for failure to comply with reporting requirements. Companies do not always realise that they are required to notify the President of the Energy Regulatory Office of any change in the company’s name or registered office and any broadening or narrowing of the type or scope of licensed activity they conduct.
Some companies were punished for failing to assure the minimum share of bio-components and other renewables in liquid fuels, failure to maintain required fuel reserves, and failure to comply with commodities trading requirements.
Are these fines imposed solely on the company, or may they also be imposed on managers?
The President of the Energy Regulatory Office may also impose a fine on a director of an energy enterprise of up to three months of the individual’s salary. The term “director of an energy enterprise” is not defined anywhere, but is understood to mean a member of the authorities of a legal person, or an individual immediately responsible for directing the activity of an energy enterprise.
What does the regulator take into consideration when determining the amount of a fine?
The President of the Energy Regulatory Office is required to consider the harmfulness of the act, i.e. its effect on the situation of consumers, competitors and the environment, the degree of fault, the previous behaviour of the entity, and its financial abilities. A fine may reduce the company’s profitability, but should not endanger its financial condition or solvency.
Companies often wonder how important an element fault is. Violation of the regulations is not always intentional, but sometimes is caused by oversight or a lack of awareness. Unfortunately, in the case of many violations, there is a minimum penalty calculated according to a formula set forth in the Energy Law, and any violation that is found will attract such penalty. Where the amount of the fine or the minimum is not directly specified by the regulations, a lack of fault may significantly reduce the amount of the fine but will not eliminate the fine altogether.
Is there any review of a decision by the regulator?
A party dissatisfied with a decision by the President of the Energy Regulatory Office may seek review by the Court of Competition and Consumer Protection (organised as a division of the Warsaw Regional Court) within two weeks after service of the decision. There is a flat fee on seeking such review of PLN 100.
Seeking review essentially means filing a statement of claim, because it is a pleading initiating an adversarial judicial proceeding at the first instance. In the proceeding, the court will consider the evidence from the administrative proceeding, but the parties may also raise new factual allegations and seek to admit new evidence.
Judicial proceedings in energy regulatory matters are conducted in two stages. Moreover, a ruling by the court of appeal may be challenged by filing a cassation appeal with the Supreme Court of Poland, regardless of the amount in dispute.
What are the chances for mitigation of fines by seeking judicial review?
For several years there has been a noticeable tendency on the part of the Court of Competition and Consumer Protection to mitigate energy fines, and it often does so when possible. The court of appeal also professes a more liberal approach to penalties, which sometimes leads to reduction of the amount of the fine. And in exceptional cases the regulator itself decides to waive the penalty, for example in light of the actions taken by the company following the violation. In 2012 there were three such cases.
It should be pointed out, however, that for several years the judicial proceedings in these cases have grown longer and longer. This is due to the increasing legal and factual complexity of the cases before the regulator. In some cases there are significant issues of legal interpretation, and in other cases specialised knowledge is required to determine the facts. Thus, increasingly often, the court turns to experts or calls for additional evidence, which can increase the time required to resolve the case.
For these reasons, although there are significant opportunities to obtain a reduction of penalties, the best approach is to avoid them by operating in compliance with the terms of the licence and the requirements of the Energy Law, including regulatory reporting requirements.
Interview conducted by Justyna Zandberg-Malec