The proposed penalty
56 By s 44AAG(2)(a) of the CC Act, the Court may impose a civil penalty on a person who is declared to be in breach of a civil penalty provision of a uniform energy law or a State/Territory energy law.
57 Section 2AA(1)(c) of the NEL specifies that a civil penalty provision is a provision of the NER prescribed by the National Electricity (South Australia) Regulations (the Regulations) to be a civil penalty provision. Regulation 6(1) of the Regulations provides that, for the purposes of s 2AA(1)(c), a provision of the NER listed in Schedule 1 of the Regulations is a civil penalty provision. Schedule 1 lists NER 4.4.3 as a civil penalty provision.
58 By s 2 of the NEL, the maximum penalty applicable throughout the whole of the relevant period for a contravention of NER 4.4.3 was an amount not exceeding $100,000 in addition to an amount not exceeding $10,000 for each day that the contravention continued. This means that the maximum penalty which may be imposed for HWF1's continuing contravention of NER 4.4.3 in the period from 2 June 2016 to 10 October 2016 is $1.4 million (being $100,000 plus $10,000 for each of the 130 days during which the contravention continued).
59 The parties have agreed that a civil penalty of $550,000 is appropriate for HWF1's contravention.
60 The Court may act on the parties' agreement in determining an appropriate civil penalty: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 (Cth v FWBII). In that case, the plurality said:
[46] [T]here is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and … the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers…
61 Later, the plurality said:
[58] … Subject to the court being sufficiently persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and … highly desirable in practice for the court to accept the parties' proposal and therefore impose the proposed penalty. To do so is no different in principle or practice from approving an infant's compromise, a custody or property compromise, a group proceeding settlement or a scheme of arrangement.
(Emphasis in the original and citation omitted)
62 A number of matters of principle bearing upon the fixation of an appropriate civil penalty are settled. The principal (and perhaps only) object of the imposition of a civil penalty is to achieve deterrence, both general and specific: Cth v FWBII at [55]. Thus it has been said that a civil penalty should put a price on contraventions which is sufficiently high to deter repetition by the contravenor and by others who may be tempted to contravene the Act in a similar way: Trade Practices Commission v CSR Ltd [1990] FCA 762; [1991] ATPR 41-076 at 52,152 in a passage approved in Cth v FWBII at [55]. A civil penalty should not be so high as to be oppressive, but should be such as to deter participants in the relevant industry "from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contraventions": Singtel Optus Pty Ltd v Australian Competition and Consumer Commissioner [2012] FCAFC 20: (2012) 287 ALR 249 at [63].
63 Section 64 of the NEL requires the Court when fixing a civil penalty to have regard to all relevant matters, including:
(a) the nature and extent of the breach; and
(b) the nature and extent of any loss or damage suffered as a result of the breach; and
(c) the circumstances in which the breach took place; and
(d) whether the person has engaged in any similar conduct and been found to be in breach of a provision of [the NEL], the Rules or the Regulations in respect of that conduct; and
(e) whether the service provider had in place a compliance program approved by the AER or required under the Rules, and if so, whether the service provider has been complying with that program.
64 As is apparent, the listed matters are not an exhaustive statement of the matters which may be relevant. Matters which may, depending on the circumstances of the given case, be relevant include those discussed by French J in CSR at 52,152-3. In addition to those to which s 64 directs attention, these include the size and resources of the contravenor; the degree of power of the contravenor; the deliberateness of the conduct; the length of time over which the conduct occurred; the degree of involvement of senior management; the culture of the organisation as to compliance or contravention; any cooperation; and any evidence of contrition - see Construction, Forestry, Maritime, Mining and Energy Union v Australian Building and Construction Commissioner (The Non-Indemnification Personal Payment Case) [2018] FCAFC 97; (2018) 264 FCR 155 at [20].
65 It is also established that the Court is to determine an appropriate penalty by a process of instinctive synthesis after taking into account all relevant factors, similar to the manner discussed in Markarian v The Queen [2005] HCA 25; (2005) 228 CLR 357 at [37], [39] - see Pattinson v Australian Building and Construction Commissioner [2020] FCAFC 177; (2020) 299 IR 404 at [90], [112].
66 The nature and circumstances of HWF1's contravention have been set out above and need not be repeated.
67 HWF1 engaged Siemens Ltd, an internationally recognised wind turbine supplier, to install and operate the wind turbines at the Hornsdale Wind Farm. It was not aware until after 28 September 2016 that Repeat LVRT Protection Systems had been applied on the wind turbines at the Hornsdale Wind Farm and accordingly that non-approved settings had been applied. The circumstance that its contravention was not intentional or reckless is an important matter of context bearing upon the fixation of penalty.
68 Shortly after 28 September 2016, HWF1 engaged Siemens to make an assessment. The Repeat LVRT Protection Systems were then modified (by 10 October 2016) so that they would be activated only if the LVRT capability was utilised more than 20 times within a 120 minute period. It can therefore be concluded that HWF1's contravention was not only not deliberate, it took prompt action to rectify the situation.
69 Nevertheless, HWF1's contravention was serious. It continued for over four months. When negotiating its performance standards, HWF1 did not identify to either ElectraNet or AEMO that the LVRT Capability of the turbines was subject to the settings in the Repeat LVRT Protection Systems, or that the turbines would shut down if there were six low voltage disturbances within 30 minutes. During the Relevant Period, HWF1 did not make any assessment of the wind turbines which may have led to the presence of the Repeat LVRT Protection System installed by Siemens being identified.
70 The seriousness of HWF1's contravention in applying non-approved settings is underlined by its potential consequences. As noted earlier in these reasons, AEMO's ability to achieve and maintain security in the power system depended, amongst other things, on Generators such as HWF1 providing, both at the time of the connection and subsequently, accurate and complete information concerning their ability to operate in accordance with the agreed performance standards. The rigorous regime summarised earlier and in particular cl S5.2.2, is directed, amongst other things, to the achievement and maintenance of power system security, this being an important public purpose. HWF1's use of non-approved settings in the present case compromised AEMO's ability to discharge its responsibility because it meant that it was making important decisions concerning the secure operating limits of the power system on the basis of incomplete information. As the events of 28 September 2016 indicate, a compromise of the security of the power system can have extensive and serious consequences.
71 It is, however, appropriate to note the absence of some aggravating features as well as matters which mitigate the seriousness of the contravention. Apart from the fact that HWF1's contravention was not deliberate, it has not previously been found by a court to be in breach of a provision in the NEL or in the NER; it had during the Relevant Period sought to ensure that it complied with its obligations under the NEL by implementing its own compliance program, as required by NER 4.15(b); and it did not obtain any financial benefit by reason of its contravention. The AER does not allege that the involvement of HWF1's senior management made the contravention more serious.
72 The AER accepts that HWF1 cooperated with it in the investigations which occurred after 28 September 2016, that it worked with Siemens to identify the reasons for the loss of active power output and that, in consultation with AEMO, it modified promptly the settings on the Repeat LVRT Protection Systems.
73 The AER also accepts that HWF1 has demonstrated a level of cooperation with it in the proceedings. While HWF1 did not move with the same promptness as did the respondent in the Snowtown Wind Farm proceedings, it did initiate settlement negotiations (albeit after the AER had settled the Snowtown Wind Farm proceeding) and it did so while two of the other proceedings commenced by the AER remained on foot. Moreover, HWF1 did not wait to see the strength of the evidence to be presented by AER, as it negotiated the settlement before the AER had filed its expert evidence. Some reduction in the penalty which would otherwise be imposed is appropriate on this account.
74 In their joint submissions, the parties referred to four authorities in which penalties have been imposed under the NER, or under their predecessor, the National Electricity Code:
(a) in National Electricity Code Administrator v NRG Flinders Operating Services Pty Ltd No 1 of 2005, the National Electricity Tribunal imposed, in accordance with the parties' agreement, the maximum pecuniary penalty of $300,000 for three contraventions by a Generator of its obligation to comply with its performance standards relating to voltage disturbance ride-through, of which $150,000 was suspended for a period of 12 months;
(b) in National Electricity Code Administrator v Pelican Power Point Ltd No 2 of 2005, the National Electricity Tribunal on 8 September 2005 imposed, in accordance with the parties' agreement, the maximum pecuniary penalty of $100,000 for a single contravention by a Generator of its obligation to comply with its performance standards relating to frequency disturbance ride-through, of which $80,000 was suspended for a period of 12 months;
(c) in Australian Energy Regulator v Snowy Hydro Ltd (No 2) [2015] FCA 58, Beach J imposed, in accordance with the parties' agreement, total pecuniary penalties of $400,000 (out of a potential maximum of $900,000) for nine contraventions committed by a Generator in failing to comply with dispatch instructions given by AEMO as to the required level of generation output; and
(d) in Snowtown Stage 2, the Court imposed, in accordance with the parties' agreement, a pecuniary penalty of $1 million (out of an available maximum of $11,360,000) for a contravention of NER 4.4.3 which had continued for a period of approximately three years.
75 The parties accepted that, in accordance with the parity principle, it is appropriate for the Court to have regard in particular to the penalty imposed in Snowtown Stage 2. They submitted that a significantly lower penalty than that imposed in Snowtown Stage 2 is appropriate in this case because the contravention had continued for only 130 days in comparison with the 1,126 days of the contravention under consideration in that proceeding. I accept that this a relevant point of distinction. It is also pertinent that during the Relevant Period, the Snowtown 2 Wind Farm comprised 90 wind turbines whereas the Hornsdale Wind Farm comprised 32 wind turbines. I accept that the significantly lower penalty on which the parties have agreed in this case is consistent with application of the parity principle so as to take account of these differences.
76 As previously indicated, account should be taken of HWF1's size and capacity to pay. In this respect, the parties agreed that HWF1 had reported total revenue of $18,763,319 in the 2016 calendar year and a net profit after tax in the same year of $16,422,467.
77 In summary, I consider that HWF1's contravention is to be regarded seriously. It had the potential to result in drastic consequences, even if those consequences were not in fact realised on 28 September 2016. Although the contravention did not continue for nearly as long as did the contravention dealt with in Snowtown Stage 2, it did continue for over four months.
78 Nevertheless, as indicated above, there are mitigating circumstances. When all these matters are balanced out, I consider that the agreed penalty of $550,000 is an appropriate penalty and that it is appropriate for the Court to give effect to the parties' agreement.