The Environment Agency and other regulators of the UK Energy Savings Opportunity Scheme (“ESOS”) have confirmed that they are investigating 1,700 organisations who they believe may have been required to participate in ESOS (by late last/early this year) but did not do so/in time.
The regulators have set up a dedicated “ESOS Enforcement Team” to investigate these potentially non-compliant organisations and initially, the enforcement investigations will focus on those organisations which are, in the regulators’ view, “highest risk”. It may be prudent for any organisations which are unsure of their compliance status under ESOS to assess their position and consider carefully their obligations and potential liability under ESOS.
The Environment Agency has also been carrying out compliance audits of the energy efficiency audits submitted by organisations – happily so far it has determined that all audits reviewed were generally acceptable, although 65% required “remedial actions” to be fully compliant. The Environment Agency will continue this audit process through to March 2017.
The Environment Agency will also shortly update its public dataset of organisations which submitted notifications of compliance by 29 January 2016, to include those organisations which attained ISO 50001 by 30 June 2016.
ESOS - a reminder:
In the first phase of ESOS, any undertaking (including overseas undertakings with a UK establishment) which as at 31 December 2014 met one or more of the following criteria was a “qualifying undertaking” and had to assess its energy audit obligations:
1) ≥ 250 employees; and/or
2) a turnover of > EUR 50m and a balance sheet of > EUR 43m; or
3) part of a corporate group which met either 1) or 2).
Criteria 3) in particular caught organisations by surprise at it extended beyond large undertakings themselves to entire (global) corporate groups – this was known as “one in, all in”. Where complex corporate structures were involved, defining exactly the extent of an undertaking’s corporate group was not always straightforward.
Enforcement and penalties for non-compliance
There are civil penalties for specified breaches of ESOS. Amongst others, failure to undertake an energy audit may attract an initial penalty of up to £50,000, a daily penalty of up to a maximum of 80 working days and publication of the penalty. Separately, failure to notify, can attract an initial penalty of up to £5,000, a daily penalty of £500 up to a maximum of 80 working days and publication. There is also a penalty of up to £50,000 (and publication) for the making of false or misleading statements.
Given the potentially highly complex corporate structures which are often adopted for tax and other reasons by sophisticated corporate groups, and the somewhat nebulous company and accounting law provisions which are brought in by ESOS (and its parent European legislation – the Energy Efficiency Directive), we anticipate that it will take little time for the regulators to fully investigate and determine the compliance situation of the organisations being investigated.
It is not entirely clear what a “high risk” organisation means, but it is expected that the regulators may draw on past experience of non-compliance situations under CRC, which used similar participation tests, to identify and investigate these high risk organisations and situations.
Having identified a potentially non-compliant organisation, from an enforcement perspective, we expect the regulators’ minds will be more focussed on identifying what they may see as more serious “intentional” breach of or “wilful blindness” to ESOS requirements. However, the regulators have in communications indicated that in their view, there has been enough awareness-raising of ESOS and the requirement to undertake fully compliant mandatory energy audits. The regulators have also used their discretion in allowing a number of grace periods and what might be called “enforcement amnesties” for late notifications, and/or completion of audits or achieving compliance with ESOS by other routes (e.g. ISO 50001). We expect therefore that the regulators' view of non-compliance will only harden over time.
Organisations who are only coming to consider ESOS very late, or who are in doubt as to their compliance, should consider carefully their position and if potential non-compliance is identified, the next steps to address this including mitigation strategies.
More broadly, organisations with an international presence should consider what are their obligations under mandatory energy audits laws in other Member States – some of these laws are only just being implemented (and/or guidance issued) so the position should be kept under review. A high level interactive tool is available here which shows the situation in a number of Member States for comparison.
For more detail on ESOS see our earlier LawNow articles including here for an overview of the scheme.