Australian Energy Regulator v Snowy Hydro Limited [2015] FCA 58 | Case summary

Australian Energy Regulator v Snowy Hydro Limited [2015] FCA 58 | Case summary | Zoe

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NATIONAL ELECTRICITY MARKET 6 The AER is a body corporate established pursuant to s 44AE of the Competition and Consumer Act 2010 (Cth) (CCA). It is able to act as a receptacle for, inter alia, a function or power under State energy law (s 44AI). Relevantly, "a State energy law" includes "a uniform energy law that applies as a law of a State…" (s 4(1)). In particular, a "uniform energy law" includes the "South Australian Electricity legislation", which in turn is defined to mean "the National Electricity Law set out in the Schedule to the National Electricity (South Australia) Act 1996 of South Australia…and…any regulations…made under Part 4 of that Act" (s 4(1)). 7 The National Electricity (South Australia) Act 1996 (SA) (SA Act) provides that the National Electricity Law set out in the Schedule to that Act applies as a law of South Australia (s 6). The National Electricity (Victoria) Act 2005 (Vic) (Victorian Act) provides that the National Electricity Law set out in the SA Act applies as a law of Victoria, and may be referred to as the National Electricity (Victoria) Law (s 6). Thus, the National Electricity (Victoria) Law is itself a State energy law as contemplated by the CCA. The National Electricity (New South Wales) Act 1997 (NSW) (NSW Act) also provides that the National Electricity Law set out in the SA Act applies as a law of NSW, and may be referred to as the National Electricity (NSW) Law (s 6); likewise, it is a State energy law as contemplated by the CCA. For present purposes, the AER is exercising and has exercised powers and functions under the National Electricity (Victoria) Law and the National Electricity (NSW) Law. For convenience I will refer to these Laws collectively as the "National Electricity Law". The AER has brought proceedings under s 44AAG of the CCA seeking declarations and pecuniary penalties to enforce such State energy laws. 8 Under the National Electricity Law, rules governing the operation of the National Electricity Market and the participants' conduct therein can be and have been made, known as the "National Electricity Rules" (see Part 7 of the National Electricity Law). 9 The National Electricity Market (NEM) is a wholesale electricity market, which electrically connects Victoria, South Australia, Queensland, New South Wales, Tasmania and the Australian Capital Territory. It operates to facilitate the exchange of electricity between generators and retailers, who resell electricity to businesses and householders. The Australian Energy Market Operator (AEMO) operates the NEM. The Australian Energy Market Commission (AEMC) makes and amends the National Electricity Rules (s 34 and Sch 1 of the National Electricity Law), except those produced at their inception to replace the National Electricity Code that were made by the relevant minister (s 90(1) of the National Electricity Law). The AER, as provided for under s 15 of the National Electricity Law, monitors compliance by registered participants in the NEM with the National Electricity Law and the National Electricity Rules, investigates breaches of the National Electricity Law and the National Electricity Rules and institutes and conducts proceedings against registered participants for contraventions of the National Electricity Law and the National Electricity Rules. That is the capacity in which the AER acts in the present proceeding. 10 The NEM is known as an "energy only gross pool". Mandatory participation is imposed. All wholesale electricity sales must occur through the NEM. Payments to generators are based upon energy supplied rather than generator capacity or availability. Electricity generators sell their generated electricity into the NEM. Physical supply and demand is sought to be matched "instantaneously". Generators make offers for supply, with such offers "matched" to meet demand in a cost efficient way. The "matching" is implemented by the AEMO issuing dispatch instructions to the relevant generators. As part of the NEM mechanism, the NEM determines a spot price every half hour in each geographic region of the NEM of which there are five regions (the ACT is part of the NSW region). Financial transactions for all electricity traded are based on these spot prices, although there is a secondary derivatives market which is used to hedge against risk in relation to spot price movements, actual or forecast. 11 To elaborate, supply and demand in the NEM is "matched" at every point in time by a centrally coordinated dispatch process. The mechanism for setting the spot price has the following key elements. Generators specify the quantities of electricity that they are willing to produce at various prices; they do so for each of the five minute dispatch intervals in a day. They make offers/bids to the AEMO prior to each trading day specifying such quantities and price bands for each of the dispatch intervals. Bids can be varied under specified circumstances and re-bidding can occur; this becomes more restricted the closer one gets to physical dispatch. The AEMO collates all such offers/bids and produces a plan setting out the proposed energy output level of each generator. The offers of generators are ranked from lowest to highest price for the particular dispatch interval. The generator with the highest price offer is treated as being to be dispatched last or not at all if the electricity supplied from the lower price offers is sufficient to meet demand. The order is known as the "merit order"; another colloquialism is "bid stack". The AEMO determines a dispatch price for each dispatch interval (each five minutes) through a central dispatch process. This is done for each region of the NEM, including the Victorian region. The dispatch prices for the dispatch intervals are determined through the aggregation of dispatch offers/bids "matched" against the demand within the particular region, so as to represent the marginal value of supply. What that means is that the offer price for the last generator to be dispatched sets the price for all. So, for example, if the forecast demand is for, say, 1000 MW for a particular five minute interval in a particular region and you have generator bids of $50/MWh for generator A for 500 MW, $100/MWh for generator B for 300 MW, $150/MWh for generator C for 200 MW and $200/MWh for generator D for 300 MW, generators A, B and C would be dispatched (in that order) but not generator D. Moreover, as generator C would be the "last" dispatched, its price would represent the marginal value of supply. Accordingly, although generators A and B bid lower, they would, simplistically put, receive the higher price for their combined 800 MW. Generally, the wholesale spot price for a particular region paid to generators is the average dispatch price over 30 minutes (trading interval); all generators who are dispatched during this period are paid at this price regardless of their bid price. The AEMO gives dispatch instructions to the generators that accommodate the merit order and permit the NEM to operate, including instructions that may be necessary where there are regional constraints or system security or safety issues.

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THE PRESENT PROCEEDINGS 12 The AER has brought the present proceedings under s 44AAG of the CCA against Snowy Hydro alleging nine contraventions of cl 4.9.8(a) of the National Electricity Rules (versions 53, 54 and 55 at the relevant times) (the Rules). Clause 4.9.8(a) provides: (a) A Registered Participant must comply with a dispatch instruction given to it by AEMO unless to do so would, in the Registered Participant's reasonable opinion, be a hazard to public safety or materially risk damaging equipment. 13 Snowy Hydro is a registered participant in the NEM. It is an electricity generator and operates and owns hydro-electric scheduled generating units which are situated in NSW (but in the Victorian region of the NEM) and have registered generation capacities of 1,500 MW (Murray Units). The Murray Units are connected to the Murray to Dederang transmission line, allowing electricity generated by the Murray Units to be transmitted southwards for distribution and consumption within the Victorian region of the NEM. Snowy Hydro is a scheduled generator in relation to the Murray Units. It is also a scheduled generator in relation to a group of gas fired scheduled generating units, which are situated in Victoria and have registered generation capacities of 300 MW (Valley Power Units). The electricity generated from the Valley Power Units is supplied into the Victorian region of the NEM. 14 The AER alleged that on nine separate occasions Snowy Hydro contravened cl 4.9.8(a). Paragraph 1 of the originating application summarised the breaches in the following terms: …the Respondent is in breach of clause 4.9.8(a) of the Rules by failing to comply with a dispatch instruction given to it by the Australian Energy Market Operator (AEMO) when it did not hold the reasonable opinion that to comply with the dispatch instruction would be a hazard to public safety or materially risk damaging equipment in respect of each of the following dispatch intervals (the Contraventions): Generating Unit Date Dispatch interval Murray 29 November 2012 15:50:00 Murray 29 November 2012 16:15:00 Murray 21 June 2013 09:45:00 Valley Power 18 February 2013 16:35:00 Valley Power 18 February 2013 16:40:00 Valley Power 18 February 2013 16:45:00 Valley Power 18 February 2013 17:05:00 Valley Power 18 February 2013 17:10:00 Valley Power 18 February 2013 17:15:00

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STATEMENT OF AGREED FACTS 15 As I have said, the parties have now reached agreement on a resolution of these proceedings. At the outset, it ought be recorded that Snowy Hydro has cooperated with the AER during its investigation, including voluntarily providing answers to written questions sent by the AER on numerous occasions, meeting with AER staff on various occasions to discuss the events in question and to assist the AER with its enquiries, voluntarily producing data, internal documents, e-mails and voice recordings on request from the AER and making Snowy Hydro employees available for formal interview by the AER in Sydney on a voluntary basis, two of whom were based in Cooma. 16 In terms of the factual foundation that the parties have proffered as the basis for my consideration, the parties have tendered a statement of agreed facts pursuant to s 191(3)(a) of the Evidence Act 1995 (Cth). 17 It is appropriate to recite the facts that have been so agreed. 18 As I have said, Snowy Hydro is a registered participant in the NEM. It is a scheduled generator in relation to the Murray Units. Further, it is registered as the intermediary in respect of, and is considered for the purposes of the Rules to be, the scheduled generator in relation to the Valley Power Units. It earned net profit after income tax expense of $280.2 million and $495.5 million during the financial years ending 30 June 2013 and 30 June 2014 respectively. It has an aggregate generation capacity of 2,112 MW in the Victorian region of the NEM, representing approximately 18 per cent of the total generation capacity in the Victorian region. 19 As I have said, cl 4.9.8(a) of the Rules required that a registered participant must comply with a dispatch instruction given to it by AEMO unless to do so would, in the registered participant's reasonable opinion, be a hazard to public safety or materially risk damaging equipment. Compliance with dispatch instructions is necessary to ensure the power system remains secure. AEMO relies upon conformance with dispatch instructions to ensure it can effectively perform its functions as both power system operator and market operator for the NEM. 20 Snowy Hydro has acknowledged that dispatch instructions, and compliance with such instructions, are an important feature of ensuring the proper operation of the NEM. It has also acknowledged that the contraventions in the present case (other than contraventions 2 and 3) resulted from a failure by Snowy Hydro to afford sufficient importance to compliance with the dispatch instructions given by AEMO.

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(a) Internal compliance guidance regarding compliance with dispatch instructions 21 Snowy Hydro had in effect internal policies and procedures which set out Snowy Hydro's guidelines and procedures for its traders and operations staff in relation to cl 4.9.8(a). The operations staff were responsible for ensuring that the generation units were operated in accordance with applicable dispatch instructions and so as to avoid any hazard to public safety or material risk of damage to equipment. The trading staff were responsible for submitting dispatch offers for Snowy Hydro's generating units into the NEM, monitoring changes in market and network conditions, and making rebids to vary Snowy Hydro's dispatch offers from time to time, where appropriate, in order to achieve the most favourable overall dispatch outcomes for Snowy Hydro. 22 The guideline that was relevant to the contraventions admitted by Snowy Hydro in these proceedings was the then current version of the Dispatch Compliance Guideline. 23 In relation to the Dispatch Compliance Guideline: (a) The purpose of the Dispatch Compliance Guideline was to set out Snowy Hydro's guidelines and procedures relating to the operation of generating plant to meet actual and anticipated dispatch targets; (b) The 13 January 2012 version of the Dispatch Compliance Guideline was prepared by the Manager, Regulatory Compliance and approved by the Executive Officer, Production; (c) At all material times, the 13 January 2012 version of the Dispatch Compliance Guideline was in force within Snowy Hydro but, from June 2013, it was supplemented; (d) Parts of the Dispatch Compliance Guideline addressed compliance with cl 4.9.8(a). Paragraph 1.2(2)(a) addressed practical considerations relating to compliance with dispatch instructions. Paragraph 2(4) addressed general principles for compliance with dispatch instructions. Paragraphs 3.2 and 4.2 (in largely identical terms) addressed the management of specific market circumstances when operating hydroelectric and gas-fired units respectively, so as to comply with dispatch instructions during volatile market conditions. 24 Snowy Hydro has admitted that insofar as the Dispatch Compliance Guideline suggested that a generating unit's ability to comply with an expected dispatch instruction for a future dispatch interval could (of itself) lawfully excuse a failure to comply with a dispatch instruction received by Snowy Hydro, that guidance was incorrect and inconsistent with the requirements of cl 4.9.8(a). 25 Since the admitted contraventions occurred, Snowy Hydro has taken steps to avoid a repetition of the contraventions that are the subject of the proceedings, including revising the Dispatch Compliance Guideline.

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(b) Snowy Hydro's Murray Units, AGC system and Valley Power Units 26 The admitted contraventions involve the operation of Snowy Hydro's Murray Units and Valley Power Units. 27 As I have said, the Murray Units are an aggregated group of hydroelectric scheduled generating units, with a registered generation capacity of 1,500 MW. The Murray Units are situated in New South Wales, but are within the Victorian region of the NEM, and are connected to the Murray to Dederang transmission line, being the primary route via which electricity generated by the Murray Units is transmitted southwards for distribution and consumption within the Victorian region of the NEM. 28 Snowy Hydro's automatic generation control system (AGC system) controls the output of Snowy Hydro's hydroelectric generating units, including the Murray Units, Tumut 3 and Upper Tumut units. 29 Relevantly, Snowy Hydro's AGC system is set up so that, when operated in its normal mode, the output of the Murray Units may automatically increase or decrease if Snowy Hydro's Tumut 3 or Upper Tumut units are unable to meet a target output in a particular dispatch interval (and vice versa). The AGC system has operated in that way since prior to 1 July 2008, when the Murray, Tumut 3 and Upper Tumut units were juxtaposed within the former Snowy region of the NEM. 30 Since the Snowy region was abolished on 1 July 2008, the Tumut 3 and Upper Tumut units have been situated in the NSW region of the NEM, and the Murray Units have been situated in the Victorian region. However, when operated in its normal mode, Snowy Hydro's AGC system has made it possible for a unit in one region of the NEM to generate electricity as a result of a dispatch instruction issued to a unit in another region, including at times when there is a material difference in dispatch prices between the two regions. 31 At all relevant times, Snowy Hydro was aware of the risk of failing to comply with dispatch instructions when the AGC system is operated in normal mode, including at times when there is a material difference in dispatch prices between the two regions, and that this risk could be avoided by operating the AGC system in "ECON" mode. However, when the AGC system is operated in ECON mode, Snowy Hydro is unable to use the relevant units to offer services in ancillary services markets. 32 As I have said, the Valley Power Units are an aggregated group of gas-fired generating units, with a registered generation capacity of 300 MW, situated in Victoria. The Valley Power Units are peaking units, that is, they are designed to meet "peaks" in demand. Compared to base load units, they have higher operating costs, higher ramp rates and fast start up times. In times of high demand, the Valley Power Units are designed to be turned on and run, and then turned off. They are not designed to be turned on, off, and on again in quick succession.

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Contravention 1 - Murray Units - 29 November 2012, DI 15:50 33 Hugh Whish (Whish), an operations controller employed by Snowy Hydro, was responsible for controlling the output of the Murray Units at all relevant times on 29 November 2012 and was familiar with the Dispatch Compliance Guideline. 34 Prior to 15:30, Snowy Hydro expected extremely high prices during trading interval (TI) 16:00, and it bid the available capacity (1,348 MW) at the relatively low price band of $53, to maximise dispatch if high prices eventuated. 35 At 15:45, a network constraint became binding. Consequently, at around 15:45:30, Snowy Hydro received a dispatch instruction with an unexpectedly reduced target of 1,165 MW for dispatch interval (DI) 15:50. The dispatch price for DI 15:50 was $12,497.76. 36 Shortly after receiving the instruction for DI 15:50, Whish had the following telephone discussion with Marc Smith (Smith), a junior trader employed by Snowy Hydro: Whish: We're coming back down to about 1160 on Murray by the look of it. Is that a price-driven thing? Smith: Uh, definitely not. I will check it out, thanks. 37 At or around 15:46, Shaun Bradburn (Bradburn), a senior energy trader employed by Snowy Hydro, had the following telephone discussion with Whish: Bradburn: Hey we're gonna lock your Murray target at 1348, so you can just … probably keep going there cause your next target is going to be 1348 Whish: Okay 38 Following the telephone call with Bradburn at around 15:46, Whish considered that, if the output was reduced from approximately 1,348 MW at 15:45 to 1,164.74 MW at 15:50, and then increased back up to approximately 1,348 MW at 15:55, a risk of air entrainment might arise, which would potentially jeopardise the safe operation of the plant. In fact, no risk of air entrainment would have been triggered merely by reducing output to 1,164.74 MW at 15:50. 39 Whish could have sought to avoid any risk of air entrainment created by increasing output during DI 15:55 by taking steps including instructing a trader to make a rebid to reduce the up ramp rate for DI 15.55. 40 At or around 15:48, Whish deliberately adjusted the generation levels of the Murray Units in order to achieve output of approximately 1,348 MW during DI 15:50, knowing that this would result in Snowy Hydro failing to comply with the dispatch instruction for DI 15:50. Whish decided to adjust the generation levels because of his concern regarding the risk of air entrainment that might be triggered by increasing output during DI 15:55, after having reduced output during DI 15:50. 41 Snowy Hydro only reduced output to 1,328.47 MW by 15:50 exceeding the dispatch target by 163.73 MW. 42 Accordingly, Snowy Hydro admits that it failed to comply with the dispatch instruction for DI 15:50, and breached cl 4.9.8(a) (Contravention 1). 43 At 15:47, Snowy Hydro rebid the down ramp rate down to the minimum level of 3 MW/min. That rebid, although lawful, had the effect of keeping Snowy Hydro's dispatch targets for DI 15:55, and potentially DI 16:00, at higher levels than if Snowy Hydro had met its reduced target for DI 15:50 (assuming that all other market conditions remained unchanged). Apparently, so I was informed, this effect occurs because when AEMO's dispatch algorithm takes account of a generating unit's ramp rate in determining the next dispatch target for that generating unit, it applies the ramp rate as a constraint limiting the MW amount by which the next dispatch target may vary up or down from the generating unit's actual output level at the end of the current dispatch interval, regardless of whether the generating unit has met the target output specified in its dispatch interval for the current interval. The rebid thus extended the effect of Snowy Hydro's failure to meet its target for DI 15:50 into at least the 15:55 dispatch interval and permitted Snowy Hydro to generate at higher power levels during DI 15:55 than it would have if Snowy Hydro had complied with the dispatch instruction for DI 15:50. Whether the effect of the 15:47 rebid would have continued into DI 16:00 depends on a number of factors, including whether Snowy Hydro, if it had complied with the target for DI 15:50, would have submitted a further rebid in time to produce a different target in DI 16:00.

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Contravention 4 - Valley Power - 18 February 2013, DI 16:35 60 At or around 16:26 on 18 February 2013, Smith expected that very high dispatch prices would continue into TI 17:00, and intended to submit a rebid to transfer all of the available capacity of the Valley Power Units to a low price band, in order to maximise the output of the Valley Power Units. He then had the following telephone discussion with Ken Parker (Parker), an operations controller employed by Snowy Hydro who was responsible for controlling the output of the Valley Power Units at all relevant times on 18 February 2013: Smith: Can you try to do a bit - as much on Valley as you can? Because we just had a big price spike surge. Parker: As much on Valley? Smith: Yes. Parker: It's already out of - yes, okay. Yes, yes. Smith: For five minutes, yes. Parker: Okay. Righto. I will - yes. Smith: See you. Yes, as much as you can. Parker: Okay. 61 At around 16:30:30, Snowy Hydro received a dispatch instruction specifying a target of zero MW for DI 16:35. The dispatch price for DI 16:35 was $12,333.84. 62 At or around 16:31, Smith had the following telephone discussion with Parker: Smith: Um yeah, it's just hit VOLL mate, in Vic. So … Parker: Yeah, ok. Smith: What we are going to do is … we are going to bid your Valley back in Parker: Bid what? Smith: Bid the Valley back in Parker: Valley back in, and Laverton? Or … Smith: Laverton we will just leave for the next five. I think. Hang on just wait a sec. Yeah we will call you back in a sec about Laverton but Valley will bid back in. Parker: Okay. 63 At all times from that conversation until 16:35, Parker understood that Snowy Hydro would submit a rebid in order to ensure that the Valley Power Units would be dispatched at their maximum capacity during DI 16:40. 64 Parker understood that: (a) he could not simply turn off the Valley Power Units for one dispatch interval and then immediately bring them back to full capacity in the next dispatch interval, as the units were not sufficiently flexible to achieve this; and (b) if he were to turn off the Valley Power Units, then those units would be unable to meet subsequent positive dispatch targets, because it would take 14-15 minutes for the units to come back online; and (c) the Valley Power Units were in fact capable of reducing output from 260 MW to zero MW within 5 minutes, as was reflected in the down ramp rates that Snowy Hydro bid at all relevant times during TI 17:00 and TI 17:30. However, turning the units off and restarting them in less than 13 to 14 minutes causes wear and tear which, if done repeatedly, would damage the plant. 65 Parker deliberately took no action to reduce the output of the Valley Power Units during DI 16:35, knowing that this would result in Snowy Hydro failing to comply with the dispatch instruction for DI 16:35. He did so having regard, inter alia, to: (a) his expectation that the Valley Power Units would receive a target output of around 260 MW for DI 16:40; (b) his concern that if the Valley Power Units complied with the dispatch instruction for DI 16:35, they would not be in a position to comply with future expected dispatch instructions; and (c) his concern about the wear and tear on the plant if he was to switch it off rapidly and then re-start it to meet a further target, which was referred to in the Dispatch Compliance Guideline. 66 The output from the Valley Power Units at 16:35:00 was 266.36 MW. 67 Accordingly, Snowy Hydro admits that it failed to comply with the dispatch instruction for DI 16:35 and breached cl 4.9.8(a) of the Rules (Contravention 4).

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Contraventions 7 to 9 - Valley Power - 18 February 2013, DIs 17:05, 17:10 and 17:15 80 At or around 16:55 on 18 February 2013, Parker had the following telephone conversation with Smith: Parker: Right, where are we going now? Smith: Stay on your targets. I bid that gas at one south because we were being constrained off. Parker: Yes. Smith: So stay high on your gas for the, till the end of the half hour, and t hen I'm going to bid it out. Back to zero. Parker: To the rest of this half hour which is 5 minutes. Smith: Yes. Parker: And then - they've had a trip on half a unit at Valley, so we will shut it down in half an hour. Are we likely to come back on or - Smith: It's possible. It depends on, um, there are a few pot lines that have tripped ah they are coming back at random times so it is hard to predict. Parker: Yes, okay. All right. Smith: It is possible though, yes. Parker: Yes. Smith: Okay. Thanks, mate. 81 At 16:57 and 16:58, Snowy Hydro submitted rebids with the expectation that, if no subsequent rebids were made, the Valley Power Units would receive zero MW dispatch instructions during TI 17:30. 82 At around 17:00:30, Snowy Hydro received a dispatch instruction to reduce the output of the Valley Power Units to zero MW by 17:05:00. 83 Parker was uncertain what the dispatch target would be for DI 17:10 and later dispatch intervals, because of the advice he had received from Smith about the possibility of pot lines coming back on unexpectedly and because of his own observations of network frequency levels. 84 Parker deliberately took no action during DI 17:05 to reduce the output of the Valley Power Units, knowing that this would result in Snowy Hydro failing to comply with the dispatch instruction for DI 17:05. He did so having regard, inter alia, to: (a) his uncertainty about what the dispatch target would be for DI 17:10 and later dispatch intervals; (b) his concern that if the Valley Power Units complied with the dispatch instruction for DI 17:05, they would not be in a position to take advantage of any unforecast increase in demand; and (c) his concern about the wear and tear on the plant if he was to switch it off rapidly and then re-start it to meet a further target, which was referred to in the Dispatch Compliance Guideline. 85 The output from the Valley Power Units at 17:05:00 was 245.33 MW. 86 Accordingly, Snowy Hydro admits that it failed to comply with the dispatch instruction for DI 17:05 and breached cl 4.9.8(a) (Contravention 7). 87 Snowy Hydro received further zero MW targets for DI 17:10 and 17:15. During DI 17:10, Parker decided to stop the Valley Power Units, but gradually over several dispatch intervals. The output was 208.59 MW at 17:10 and was 140.10 MW at 17:15. 88 Accordingly, Snowy Hydro admits that it failed to comply with the dispatch instructions for DI 17:10 and DI 17:15 and breached cl 4.9.8(a) in each dispatch interval (Contravention 8 and Contravention 9 respectively). 89 In connection with the failure to comply with each of these dispatch instructions, Parker deliberately shut the units down gradually, rather than immediately having regard, inter alia, to: (a) his concern that if the Valley Power Units complied with the dispatch instructions for DI 17:10 and DI 17:15 respectively, they would not be in a position to take advantage of any unforecast increase in demand; and (b) his concern about the wear and tear on the plant if he was to switch it off rapidly and then re-start it to meet a further target, which was referred to in the Dispatch Compliance Guideline. 90 Snowy Hydro acknowledges that the controller could and should have shut down the units promptly so as to comply with the dispatch instruction for DIs 17:05, 17:10 and 17:15.

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92 The estimated net revenue gained for Contravention 1 and Contravention 2 set out in the above table is confined to an estimate of the additional net revenue earned by Snowy Hydro by the generation of the Murray Units during DI 15:50 and DI 16:15 only. The estimates do not include an estimate of any additional net revenue earned by Snowy Hydro during DI 15:55 and DI 16:00 and DI 16:20 and DI 16:25 by the combined effect of the 15:47 ramp rate rebid and each of Contravention 1 and Contravention 2. 93 In relation to Contravention 1, as a consequence of the 15:47 ramp rate rebid coupled with Snowy Hydro's failure to comply with the dispatch instruction for DI 15:50: (a) Snowy Hydro received higher dispatch targets for DI 15:55 and, potentially, DI 16:00; (b) the spot price for TI 16:00 was marginally higher for TI 16:00 than it would have been had the contraventions not occurred; and (c) Snowy Hydro earned greater spot revenue from its generation during DI 15:55, and potentially DI 16:00, than it would have if it had complied with the dispatch instruction for DI 15:50 (see [43]). 94 Due to Snowy Hydro's failure to comply with the dispatch instruction for DI 16:15, Snowy Hydro received higher dispatch targets for DI 16:20, and potentially DI 16:25, and therefore earned greater spot revenue from its generation during DI 16:20, and potentially DI 16:25, than it would have if it had complied with the dispatch instruction for DI 16:15 (assuming that all other market conditions remained unchanged). 95 It is difficult to quantify these additional amounts. Any attempt to do so involves speculation about the reaction of other market participants and Snowy Hydro to the market circumstances which resulted from Contravention 1 and Contravention 2 and what they might have done had Contravention 1 and Contravention 2 not occurred. Nevertheless, it is less likely that market participants would have had time to change their behaviour in response to market circumstances resulting from Contravention 1 in DI 15:55 and Contravention 2 in DI 16:20, as they would have had limited time to react to Snowy Hydro's conduct and submit rebids in respect of those intervals. The position is less clear in respect of DI 16:00 and DI 16:25, when other market participants would have had more time to react to any observable market consequences of Snowy Hydro's behaviour and Snowy Hydro, had it complied with the target for DI 15:50, may have been able to submit a further rebid in time to produce a different target in DI 16:00. Further, Snowy Hydro's generating units in the NSW region of the NEM may have received higher targets had the Murray Units received lower targets in subsequent dispatch intervals, and Snowy Hydro may have received increased revenue from inter-regional settlement residues resulting from increased flows from NSW into Victoria. Inter-regional settlement residues are created when electricity generated in one region of the NEM is sold into a neighbouring region, and represent the volume of electricity that flows between regions, valued at the price difference between the regions. Registered participants are able to buy rights to receive these settlement residues through an auction process run by AEMO. On 29 November 2014, Snowy Hydro held the rights to half of the inter-regional settlement residues that would have resulted from increased flows from NSW to Victoria in a subsequent interval.

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(b) Section 44AAG(2)(a) of the CCA and s 64 of the National Electricity Law 97 Pursuant to s 44AAG(2)(a) of the CCA, the Court may impose a pecuniary penalty on a person who is declared to be in breach of a State energy law (including the Rules and the National Electricity Law). 98 A jurisdictional issue was raised as to the Court's power to make an order for a pecuniary penalty in the present case. Written submissions were filed by the parties after the hearing on this point. I can dispose of the point shortly. Section 44AAG(2)(a) empowers the Court to make an order that a "civil penalty" be paid. But it uses the phrase "civil penalty determined in accordance with the law", which is a reference to the particular State energy law. In the present case, this is both the National Electricity (NSW) Law and the National Electricity (Victoria) Law. Both State energy laws apply, given the location of the generating units and the effect of the contravening conduct on the NEM and its participants. The NSW geographically located units would have affected the NEM in its operation in Victoria and the Victorian geographically located units would have affected the NEM in its operation in NSW. I have referred to geographical location, as despite the fact that the Murray Units in NSW are part of the Victorian region of the NEM, the legislative reach of the National Electricity (NSW) Law would in part be affected by geography rather than artificial characterizations of NEM regions, although I appreciate that s 5 of each of the Victorian Act and NSW Act (see [7]) provide for extra-territorial operation and diminish the significance of mere geography in terms of the location of the generating units. 99 Before proceeding further, it is necessary to address the National Electricity (South Australia) Law. Section 2AA(1)(c) thereof identifies a "civil penalty provision" as including "a provision of this Law (other than an offence provision) or the Rules that is prescribed by the Regulations to be a civil penalty provision". The National Electricity (South Australia) Regulations provide in reg 6(1) that: For the purposes of paragraph (i) of the definition of civil penalty provision in section 58 of the new National Electricity Law, the provisions of the Rules in Schedule 1 are civil penalty provisions. 100 Now in Sch 1 to the SA Regulations, cl 4.9.8(a) of the Rules is identified. But the difficulty is that s 58 no longer exists, and has been replaced by s 2AA (see ss 7 and 28 of the Statutes Amendment (National Energy Retail Law) Act 2011 (SA) (Statutes Amendment Act (SA)). In other words, there is a disconformity between the National Electricity (South Australia) Law and the SA Regulations. 101 But in relation to the National Electricity (Victoria) Law and the National Electricity (NSW) Law, that is of no consequence. In relation to the National Electricity (Victoria) Law, s 58 still applies. Clause 24 of Sch 3 to the National Electricity (Victoria) Law (and also the National Electricity (NSW) Law)) in effect provides that the Statutes Amendment Act (SA) does not apply to a participating jurisdiction until the National Energy Retail Law is applied in that jurisdiction. That has not occurred in Victoria. Accordingly, s 58 has not been substituted by s 2AA in relation to the National Electricity (Victoria) Law. Moreover, for NSW, that substitution only occurred on 1 July 2013 (the commencement of the National Energy Retail Law (Adoption) Act 2012 (NSW)). But the earlier version of the National Electricity (NSW) Law (including s 58) still applies to the contraventions in question (see cl 33 of Sch 2 to the National Electricity (NSW) Law). 102 In summary then, s 58 of the National Electricity (Victoria) Law and s 58 of the National Electricity (NSW) Law as in force at the time of the contraventions still apply in the present case. Both such Laws apply to all of the contraventions in question. 103 By s 58 in each case, a "civil penalty provision" is defined to include: (i) any other provision of this Law… or a provision of the Rules prescribed by the Regulations to be a civil penalty provision. 104 That picks up reg 6(1) of the SA Regulations which in turn picks up cl 4.9.8(a) of the Rules. So, cl 4.9.8(a) is a civil penalty provision. Section 58 provides for a maximum penalty for a contravention of cl 4.9.8(a) of the Rules of $100,000. And cl 4.9.8(a) and a breach thereof is then embraced by s 44AAG(2)(a) of the CCA. 105 For completeness, the inconsistency between the SA Regulations and the National Electricity (South Australia) Law could also be dealt with by other provisions providing for the usual rules of interpretation that successor provisions are taken to be embraced by references to the superseded provision (see for example cl 6(2)(b) of Sch 2 to the National Electricity (South Australia) Law which applies to the SA Regulations by operation of cl 41 of Sch 2). But I do not need to trouble myself further with that alternative given that s 58 still applies to the present contraventions under both the National Electricity (Victoria) Law and the National Electricity (NSW) Law. 106 Finally, I should also note that the Court's jurisdiction in the present case is not being exercised under s 61 of either the National Electricity (Victoria) Law or the National Electricity (NSW) Law, but under s 44AAG of the CCA. Nevertheless, s 64 of both such Laws applies in the present case, as it is picked up by the words "determined in accordance with the law" under s 44AAG(2). 107 As I have said, the maximum penalty in respect of each contravention of cl 4.9.8(a) of the Rules by a body corporate is $100,000. A person is not liable to more than one pecuniary penalty in respect of the same conduct (s 67 of the National Electricity Law). None of the present contraventions concerns "the same conduct" as any of the other contraventions. Each contravention occurred by the failure to comply with a discrete dispatch instruction for a particular dispatch interval. Even where non-compliances occur over a number of successive dispatch intervals, a separate contravention occurs by the failure in each interval to comply with the dispatch instruction for that interval. It is not "the same conduct" as any non-compliance in the immediately preceding or following dispatch interval. The "course of conduct" principle, which is distinct from the "same conduct" proviso, is addressed later. For completeness, I should also say that although in respect of each contravention, both the National Electricity (Victoria) Law and the National Electricity (NSW) Law apply, I am only applying one penalty for each contravention (subject to the grouping of contraventions 7, 8 and 9) notwithstanding such overlapping operation. 108 In determining the appropriate pecuniary penalty, s 64 of the National Electricity (Victoria) Law and the National Electricity (NSW) Law requires the Court to have regard to all relevant matters, including: (a) the nature and extent of the breach; (b) the nature and extent of any loss or damage suffered as a result of the breach; (c) the circumstances in which the breach took place; (d) whether the person has engaged in any similar conduct and been found to be in breach of a provision of the National Electricity Law, 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.

[22]

(c) The principal object - deterrence 109 The principal object of imposing a pecuniary penalty is deterrence, both the need to deter repetition of the contravening conduct by the contravener (specific deterrence) and to deter others who might be tempted to engage in similar contraventions (general deterrence) (Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at [65] per French CJ, Crennan, Bell and Keane JJ). This informs the assessment of the appropriate penalty to be imposed. 110 Deterrence, both specific and general, is also the primary object of the imposition of pecuniary penalties under s 44AAG(2) of the CCA in respect of contraventions of the Rules. 111 Such an approach has been applied to the imposition of pecuniary penalties in CCA matters and more recently in penalties imposed pursuant to s 224 of the Australian Consumer Law (ACL). It also applies in the present context. 112 In relation to both specific and general deterrence, French J (as he then was) stated in Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52,152: The principal, and I think probably the only, object of the penalties imposed by s. 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the [Trade Practices] Act. 113 The Full Federal Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (NW Frozen Foods) (1996) 71 FCR 285 at 294-295 stated: The Court should leave no room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think contravention would pay… 114 There is a need to impose penalties of a sufficient quantum to deter businesses from weighing up the risks of a penalty being ordered as a strategic business cost. In Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249; [2012] FCAFC 20 at [62], the Full Federal Court reinforced the primacy of deterrence in the setting of a penalty under s 76E of the then Trade Practices Act 1974 (Cth) (TPA): There may be room for debate as to the proper place of deterrence in the punishment of some kinds of offences, such as crimes of passion; but in relation to offences of calculation by a corporation where the only punishment is a fine, the punishment must be fixed with a view to ensuring that the penalty is not such as to be regarded by that offender or others as an acceptable cost of doing business… 115 A penalty must be of a sufficient magnitude to satisfy the object of deterrence.

[23]

(d) The Court's approach to the assessment of pecuniary penalties 116 The process to be applied in arriving at a particular penalty figure was considered in the context of criminal sentencing by the High Court in Markarian v R (2005) 228 CLR 357. This process provides guidance as to how the Court may approach the assessment of pecuniary penalties under s 64 of the National Electricity Law. In Markarian, Gleeson CJ, Gummow, Hayne and Callinan JJ held the following: (a) Assessment of the appropriate penalty is a discretionary judgment based on all relevant factors (at [27]); (b) It will rarely be appropriate to start with the maximum penalty and to proceed by making a proportional deduction from that maximum (at [31]); (c) The Court should not adopt a mathematical approach of increments or decrements from a predetermined range, or assign specific numerical or proportionate value to the various relevant factors (at [37] citing Wong v The Queen (2001) 207 CLR 584 at 611-612 per Gaudron, Gummow and Hayne JJ); (d) It is not appropriate to determine an "objective" penalty and then adjust it by some mathematical value given to one or more factors such as a plea of guilty or assistance to authorities (at [37] citing Wong v The Queen (2001) 207 CLR 584 at 611-612 per Gaudron, Gummow and Hayne JJ); and (e) The Court "may not add and subtract item by item from some apparently subliminally derived figure" to determine the penalty to be imposed (at [39]); Course of Conduct 117 Contraventions 7, 8 and 9 are interrelated and overlapping. They should be grouped into a single course of conduct. Parker, the operations controller, elected to keep the Valley Power Units running and shut down the units gradually over the three successive dispatch intervals, rather than immediately switching off and thus meeting the zero MW targets in dispatch intervals 17:05, 17:10 and 17:15. 118 The "course of conduct" principle was explained in Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1; [2010] FCAFC 39 at [39], [41] and [42] by Middleton and Gordon JJ in the following terms: The principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality. That requires careful identification of what is "the same criminality" and that is necessarily a factual specific enquiry. … In other words, where two offences arise as a result of the same or related conduct that is not a disentitling factor to the application of the single course of conduct principle but a reason why a Court may have regard to that principle, as one of the applicable sentencing principles, to guide it in the exercise of the sentencing discretion. It is a tool of analysis which a Court is not compelled to utilise. … A court is not compelled to utilise the principle because, as Owen JA said in Royer [2009] WASCA 139 at [28], "[d]iscretionary judgments require the weighing of elements, not the formulation of adjustable rules or benchmarks". The exercise of the sentencing discretion does not fall to be exercised in a vacuum. It is a matter of judgment to be exercised according to the facts of each case and having regard to conflicting sentencing objectives. For the same reasons, and contrary to the appellants' submissions, even if offences are properly characterised as arising from the one transaction or a single course of conduct, a judge is not obliged to apply concurrent terms if the resulting effective term fails to reflect the degree of criminality involved. Or, in the case of fines, a judge is not obliged to start from the premise that if there is a single course of conduct, the maximum fine is, in the present case, $110,000 for the CFMEU and $22,000 in the case of Mr Mates. 119 This approach does not convert the maximum penalty for one contravention into the maximum penalty for the course of conduct as a whole. Nonetheless, the statutory maximum of $100,000 for each separate contravention operates as a guide to the seriousness with which Parliament regards wrongdoing of that kind. Additionally, given the significant overlap in the wrongdoing, it is appropriate to look at how the proposed penalties for the course of conduct sit against the maximum for a single contravention. 120 The facts and surrounding circumstances in relation to contraventions 7, 8 and 9, justify dealing with those contraventions as a single course of conduct. But penalties in respect of contraventions 1, 2, 3, 4, 5 and 6 should be separately assessed. Parity principle 121 In imposing a penalty of sufficient deterrent value, regard should also be had to parity. Similar contraventions should incur similar penalties, ceteris paribus, albeit that other things are rarely equal. 122 In the present case, this is the first occasion that the Court has addressed the imposition of penalties in respect of conduct in this context under s 44AAG. The parity principle has little work to do other than as a check between the penalties to be imposed for each contravention in this case. 123 The penalties agreed are in the appropriate range for the conduct admitted and are appropriately adjusted to reflect any relative difference in circumstances. Totality principle 124 In determining the appropriate penalty, it is also appropriate to take account of the "totality principle". The total penalty for each offence ought not to exceed what is proper for the entire contravening conduct. The totality principle operates as final check to ensure that the penalties to be imposed on a wrongdoer, considered as a whole, are just and appropriate. Goldberg J in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36 at 53 explained: The totality principle is designed to ensure that overall an appropriate sentence or penalty is appropriate and that the sum of the penalties imposed for several contraventions does not result in the total of the penalties exceeding what is proper having regard to the totality of the contravening conduct involved. But that does not mean that a court should commence by determining an overall penalty and then dividing it among the various contraventions. Rather the totality principle involves a final overall consideration of the sum of the penalties determined… 125 The total amount of the penalties of $400,000 proposed in relation to the contravening conduct of Snowy Hydro is just and appropriate in all the circumstances of the case.

[24]

(e) The Court's approach to agreements on proposed pecuniary penalties 126 It is for the Court to determine the quantum of any pecuniary penalty and other relief that should be ordered. 127 It is in the public interest for litigation to be concluded in the shortest time frame consistent with justice being done between the parties. The Court should look favourably on negotiated settlements, provided that their terms recognise that the ultimate responsibility for making the orders to resolve the proceedings lies with the Court. 128 By reaching agreement to jointly propose agreed relief, the parties have avoided the need for a further contested hearing in this proceeding, which was anticipated to be neither short nor straight-forward. The agreement between the parties has freed both the Court and the AER to deal with other matters. 129 In addition to savings in time and costs, there is a public benefit in imposing agreed pecuniary penalties where appropriate. Parties are less likely to be disposed to reach such agreements if unpredictable risks were involved. 130 The relevant approach to civil penalties sought by agreement of the parties which is binding upon me was stated by the Full Court of this Court in NW Frozen Foods as further clarified in Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993; [2004] FCAFC 72 (Mobil). 131 The following propositions can be distilled from NW Frozen Foods, as elucidated and clarified by Mobil, at [51], [54], [58] and [70] of Mobil: (a) It is for the Court to determine the appropriate penalty. (b) Determining the quantum of a penalty is not a precise "science". (c) The view of the regulator, as a specialist body, is relevant but not determinative. Further, the views of the regulator on matters within its expertise (such as the AER's views as to the deterrent effect of a proposed penalty) will usually be given greater weight than its views on more subjective matters. (d) In determining whether the proposed penalty is appropriate, it is necessary to examine all the circumstances of the case. If I consider it necessary, I can and should request further information or evidence. Moreover, I can call for the assistance of an amicus curiae. (e) Where the parties have put forward an agreed statement of facts, that can be acted on if it is appropriate to do so. (f) Where the parties have jointly proposed a penalty, it may not be useful to investigate whether I would have arrived at that precise figure in the absence of agreement, although I am free to do so. If I start with the parties' figure, the question is whether that figure is, in my view, appropriate in the circumstances of the case. In answering that question, I should not necessarily reject the agreed figure simply because I would have been disposed to select some other figure. But it is open to me to first address the appropriate range of penalties independently of the parties' proposed figure and then, having made that judgment, determine whether the proposed penalty falls within this range. 132 In ASIC v Ingleby (2013) 275 FLR 171; [2013] VSCA 49 (Ingleby), Weinberg JA at [29] concluded that the approach applied by the Full Court in Mobil and NW Frozen Foods was not persuasive. I am not convinced that Ingleby has not interpreted NW Frozen Foods as clarified by Mobil in a fashion which is too narrow (see Mobil at [51(i), (iv), (v)], [54], [58] and [70]). Moreover, a comparison between the Ingleby approach and the NW Frozen Foods approach (as clarified in the way I have described at [131] above by Mobil) suggests that in a practical sense, the output is likely to be similar. In any event, Mobil and NW Frozen Foods are binding. 133 There is another point that I should deal with. 134 Barbaro v The Queen; Zirilli v The Queen (Barbaro) (2014) 88 ALJR 372; [2014] HCA 2 held that criminal prosecutors should not make submissions to a sentencing judge as to the "available range" of sentences. The majority held that such a submission was no more than a statement of opinion which could not properly be taken into account by a sentencing judge ([6]-[7], [22]-[23], [36]-[39], [42]-[43] and [49]). 135 In Australian Competition and Consumer Commission v EnergyAustralia Pty Ltd [2014] FCA 336, Middleton J held that Barbaro did not implicitly overrule NW Frozen Foods and the cases that have followed it (at [115]) and that he was bound by the principles propounded in NW Frozen Foods and Mobil (at [152]). I agree. Moreover, I do not consider that Barbaro applies to the present context. 136 It is difficult to see how Barbaro could be said to dictate that it is impermissible for the AER's submissions on the appropriate penalty to be taken into account. First, this is not a purely criminal proceeding. As a civil penalty case, one is dealing with a hybrid between the criminal law and the civil law. A civil process rather than a criminal process is being used. Second, no question of the liberty of the subject is involved where stricter rules may apply to filter out unnecessary, foundationally opaque, or coloured opinion material during the sentencing phase. Third, although sentencing principles from the criminal law have been transposed into civil penalty cases by analogy, that does not entail that all such principles or the Barbaro proscription are appropriately so transposed. I am dealing with a different statutory context and process involving some technical complexity. Fourth, in the present case, I have been given a detailed statement of agreed facts and joint submissions and so have a detailed foundation and basis to understand and assess the AER's submissions and its expression of opinion. Accordingly, I am in the first of the two scenarios discussed in Barbaro at [38]. But for my context, given the complexity of the NEM and the context in which and how I should assess Snowy Hydro's conduct, to say that I will have all the information necessary without the AER proffering its view causes me to hesitate. The object of deterrence in my context in setting a pecuniary penalty has a different weighting to that which it may be given in dealing with criminal custodial sentencing. Moreover, it is a difficult technical issue in my context when dealing with the deterrence of like behaviour by other generators and registered participants of a different class in the NEM. In one sense I may have all the information necessary. But the quality of my decision may be enhanced by knowing the AER's opinion, particularly as I know its foundation and the AER has specialist technical expertise. Fifth, I would not take the decision in Barbaro to have intended by a side wind to have re-written the law in the civil penalty context without clear expression or by necessary implication, particularly given the identity of two members of the majority. Sixth, I am fortified by what Warren CJ, Nettle JA (as he then was) and Redlich JA said in Matthews v The Queen; Vu v The Queen; Hashmi v The Queen [2014] VSCA 291 at [29]. 137 The implications of Barbaro in relation to the practice of the Federal Court receiving joint submissions concerning civil penalty matters are now before a Full Court of this Court in Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union (QUD 257 of 2013). Judgment is reserved, but I should not delay my decision.

[26]

(g) Application of penalty principles and consideration of relevant factors 141 The AER and Snowy Hydro have submitted that the Court should make orders pursuant to s 44AAG (2)(a) of the CCA imposing total pecuniary penalties of $400,000 on Snowy Hydro. Nature and extent of the breach (s 64(a) and (c)) 142 Snowy Hydro owns and operates the 3950 MW Snowy Mountains Hydro-electric Scheme, a network of nine power stations comprising 33 generating units in the New South Wales and Victorian regions of the NEM. It also owns and operates two gas fired power stations in Victoria with a total capacity of 620 MW. Its generation capacity represents approximately 18 per cent of total generation capacity in the Victorian region and 14 per cent of total generation capacity in the New South Wales region of the NEM. 143 Dispatch instructions, and compliance with such instructions are an important feature of ensuring the proper operation of the NEM. Compliance with dispatch instructions is necessary to ensure the power system remains secure. AEMO relies upon conformance with dispatch instructions to ensure it can effectively perform its functions as both power system operator and market operator for the NEM. 144 The admitted contraventions involve the operation of Snowy Hydro's Murray Units and Valley Power Units. 145 The conduct involved nine separate contraventions on three separate days in 2012 and 2013. In each instance, Snowy Hydro exceeded the target output specified in the dispatch instruction issued by AEMO by significant levels of between 61 and 267 MW. Nature and extent of any loss or damage suffered (s 64(b)) 146 The failure to follow dispatch instructions will usually affect one or more other registered participants in the NEM. Where a generator obtains an advantage from such conduct, there may be a related loss for one or more other registered participants. This loss could be associated with changes to a participant's revenue, distortions to the spot price or changes in energy output from participants providing ancillary services, although the extent to which other market participants will be affected by a failure to comply with a dispatch instruction will vary depending on the extent and duration of the non-compliance and the prevailing market conditions. 147 The estimated additional revenue (net of fuel costs) that Snowy Hydro earned during each of the dispatch intervals is as I have set out earlier. Similar conduct in the past (s 64(d)) 148 Snowy Hydro has not previously been found by a court to have contravened the Rules or the National Electricity Law. Size of contravener and its financial position (additional factor) 149 The Court has in the context of the CCA considered that it is important to have regard to a company's size and profitability. There is a need for pecuniary penalties to be high enough to achieve specific and general deterrence. As Goldberg J observed in Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301; [2005] FCA 265 at [39]: The penalty imposed must be substantial enough that the party realises the seriousness of its conduct and is not inclined to repeat such conduct. Obviously the sum required to achieve this object will be larger where the court is setting a penalty for a company with vast resources. 150 Snowy Hydro is a major registered participant in the NEM. As I have said, Snowy Hydro earned net profit after income tax expense of $280.2 million and $495.5 million during the financial years ending 30 June 2013 and 30 June 2014 respectively. Snowy Hydro has the financial capacity to pay the proposed pecuniary penalties. Deliberateness of the contravening conduct (s 64(a) and (c) and additional factor) 151 Seven of the contraventions resulted from a failure by Snowy Hydro to afford sufficient importance to compliance with the relevant dispatch instructions. In these seven contraventions, Snowy Hydro deliberately operated its Murray Units (contravention 1) and Valley Power Units (contraventions 4-9) in such a way that they would fail to meet dispatch instructions issued by AEMO. 152 The remaining two contraventions were inadvertent. Contravention 2 resulted from insufficient attention and importance being given to the dispatch instruction. Contravention 3 was the result of an undiagnosed control system fault in the second Tumut Unit, which resulted in a delay in this unit loading in response to a dispatch instruction. Because of the operation of Snowy Hydro's AGC system, the delay in loading the Tumut Unit resulted in the Murray Unit exceeding its dispatch target. Culture in respect of compliance (s 64(e) and additional factor) 153 Snowy Hydro had the Dispatch Compliance Guideline which was made available to its trading and operations staff. This guideline emphasised start-up and shut-down cycles over a short period of time as a source over time of material risk of damage to equipment. It suggested that avoiding short period start-up and shut-down cycles (based on expectations of dispatch targets in the following dispatch interval) was consistent with cl 4.9.8(a) on the basis that it would avoid a material risk of damage to equipment. The Dispatch Compliance Guideline was approved by senior managers at Snowy Hydro. 154 Snowy Hydro now accepts that the Dispatch Compliance Guideline was incorrect and inconsistent with the requirements of cl 4.9.8(a) of the Rules. This guideline suggested that a generating unit's ability to comply with an expected dispatch instruction for a future dispatch interval thus giving rise to a rapid shut-down and start-up context could of itself and without more lawfully excuse a failure to comply with a dispatch instruction issued by AEMO as this would avoid increased wear on plant that would result from the rapid shutting down and starting up of generating units. 155 The fact that Snowy Hydro had, and communicated internally, an incorrect view of what compliance with cl 4.9.8(a) of the Rules required is not a mitigating factor. 156 Since the admitted contraventions occurred, Snowy Hydro has taken steps to revise its internal compliance guidance documents. 157 The AER and Snowy Hydro have submitted that the Court should make an order for Snowy Hydro to employ a suitably qualified compliance expert to check the accuracy of and, if necessary, further amend all current internal documents relating to Snowy Hydro's compliance with cl 4.9.8(a) of the Rules, to avoid a repetition of the contraventions that are the subject of these proceedings. 158 In addition, Snowy Hydro's senior managers were aware that due to the operation of Snowy Hydro's AGC system, a Snowy Hydro unit in one region of the NEM could generate electricity as a result of a dispatch instruction issued to a unit in another region. The undertaking provided to the AER pursuant to s 59A of the National Electricity Law by Snowy Hydro as part of the settlement of this proceeding commits Snowy Hydro to operating the AGC system in ECON mode until this issue is resolved. Participation of senior management (s 64(c) and additional factor) 159 Senior management of Snowy Hydro did not directly participate in the contraventions. Enforceable undertaking (additional factor) 160 As I have said, Snowy Hydro has agreed to give an enforceable undertaking for the purposes of s 59A of the National Electricity Law regarding the operation of its AGC system. Pursuant to the undertaking, Snowy Hydro undertakes to assume obligations regarding the operation of the AGC system in ECON mode, and notification and reporting obligations to the AER. Disposition to cooperate (additional factor) 161 Snowy Hydro has fully cooperated with the AER's investigation as I have set out at [15]. 162 It is entitled to significant credit for cooperating with the AER during the investigation and for having admitted contravening the Rules, thereby saving the AER and the Court (and ultimately the community) the cost and burden of a trial. Snowy Hydro is entitled to a reduction from the penalty that otherwise would have been appropriate. The discount that has been applied reflects the appropriate admissions and the substantial savings which would otherwise have been incurred if these proceedings had proceeded to trial.

[29]

COMPLIANCE ORDERS 166 The AER and Snowy Hydro submit that the Court should grant an injunction requiring Snowy Hydro to undertake certain compliance related actions, the terms of which are set out in paragraph 10 of the proposed orders. 167 Section 44AAG(2)(c) and/or s 44AAG(3)(d) of the CCA empower the Court to require a respondent to take such actions or do such things as the Court considers appropriate after finding that the person is in breach of a State energy law (including the Rules and National Electricity Law). 168 The Court has not previously considered the interpretation and application of either s 44AAG(2)(c) or s 44AAG(3)(d) of the CCA. But the authorities dealing with s 80 of the CCA and s 232 of the ACL provide some guidance. 169 In discussing s 80 of the then TPA, Lockhart J, with whom French J (as he then was) agreed, said in ICI Australia Operations Ltd v Trade Practices Commission (1992) 38 FCR 248 at 256: In my opinion, subss (4) and (5) are designed to ensure that once the condition precedent to the exercise of injunctive relief has been satisfied (ie contraventions or proposed contraventions of Pt IV or V of the Act), the court should be given the widest possible injunctive powers, devoid of traditional constraints, though the power must be exercised judicially and sensibly. 170 The Court may grant an injunction whether or not there is a likelihood of the conduct being repeated. But the Court's power is subject to at least three limitations, viz: (a) the relief should be designed to prevent a repetition of the contravening conduct; (b) there must be a sufficient nexus or relationship between the contravention and the injunction; and (c) the injunction must relate to the case or controversy. 171 The injunctive relief proposed is appropriate because the relief is designed to ensure that Snowy Hydro does not promote to its staff an approach to compliance with dispatch instructions that suggests that a generating unit's ability to comply with an expected dispatch instruction for a future dispatch interval could (of itself) lawfully excuse a failure to comply with a dispatch instruction received by Snowy Hydro. The proposed injunction will assist in preventing repetition of the identified contravening conduct. The terms of the proposed injunction are framed in accordance with the admitted facts and it is appropriate to make the injunction in these circumstances. The proposed injunction is drafted in clear terms that are capable of being obeyed, are not vague or imprecise and do not require continuing supervision by the Court.

Australian Energy Regulator v Snowy Hydro Limited

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Judgment (30 paragraphs)

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