EIT KWINANA PARTNER PTY LTD -v- ELECTRICITY GENERATION AND RETAIL CORPORATION TRADING AS SYNERGY [2020] WASC 238 (24 June 2020) - WASC 2020 case summary — Zoe

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EIT KWINANA PARTNER PTY LTD -v- ELECTRICITY GENERATION AND RETAIL CORPORATION TRADING AS SYNERGY [2020] WASC 238 (24 June 2020)

[2020] WASC 238

Supreme Court of WA|2020-06-24|Before: Hill J

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At a glance

Source facts

Court

Supreme Court of WA

Decision date

2020-06-24

Before

Hill J

Source

Original judgment source is linked above.

Judgment (222 paragraphs)

[1]

The issue in this case concerns whether Electricity Generation and Retail Corporation trading as Synergy (EGRC) is obliged to pay a 'Spinning Reserve Capacity Payment' to the plaintiffs under the terms of a Tradable Purchase Agreement (TPA).[1] This turns on the proper construction of the obligations of the parties under cl 7 of the TPA.
The Wholesale Electricity Market covers the operation of the South West Interconnected System (SWIS), the electricity grid which supplies power to Perth and most of the south-western region of Western Australia. It covers sales between sellers (generators including the plaintiffs) and buyers (retailers and large users including EGRC).
In order to manage the security of the SWIS, sufficient generation capacity, known as spinning reserve, is held in reserve. This reserve can be dispatched and injected into the SWIS quickly in the event of an outage of a generator or transmission equipment, so that electricity supply can be managed and the frequency of the system does not drop too significantly.
EIT Kwinana Partner Pty Ltd and Summit Kwinana Power Pty Ltd carrying on business as NewGen Power Kwinana Partnership (IPP) contend in their originating summons (CIV 2877 of 2018) that EGRC is required to pay a 'Spinning Reserve Capacity Payment' irrespective of whether or not the IPP has provided a spinning reserve service to EGRC. EGRC, in its originating summons (CIV 1235 of 2019), contends that the obligation to pay the IPP a 'Spinning Reserve Capacity Payment' under cl 7 only arises when the IPP has provided a spinning reserve service. It contends that this requires the IPP to hold WP Slices for the purposes of providing a spinning reserve service, by notifying EGRC that WP Slices are available to be nominated for spinning reserve and for those slices to be, in fact, nominated by EGRC.
If EGRC does not succeed on its construction of cl 7 of the TPA, it seeks two alternative declarations: first, that the liabilities under cl 7 of the TPA were not assigned to it on the disaggregation of Western Power Corporation, and second, that the calculation of the formula in cl 7.2 is either not capable of calculation or results in the 'Spinning Reserve Capacity Rate' being zero.

[14]

The Market Rules govern both the market and the operation of the SWIS including the wholesale market for the sale and purchase of electricity, the electricity capacity required in the SWIS to ensure the forecast peak demand can be met, and ancillary services.
The objectives of the Wholesale Electricity Market (WEM) are set out in cl 1.2 of the Market Rules. These objectives include to promote the economically efficient, safe and reliable production and supply of electricity and electricity related services in the SWIS.
The WEM includes procedures for ensuring there is sufficient generation capacity available to satisfy forecast demand for electricity in the SWIS (the Reserve Capacity Mechanism)[16] and the provision of Ancillary Services.[17] The Reserve Capacity Mechanism in ch 4 of the Market Rules seeks to ensure that each year there is adequate generation capacity available and that the demand side is managed to meet peak system requirements. This includes the provision of a reserve margin. The Market Rules operate so that there is an incentive for generators to underwrite investment in capacity by paying generators to make capacity available even if the generator is not required to deliver or inject electricity into the SWIS.
Chapter 3 of the Market Rules deals with the provision of 'Ancillary Services'. The specific definition of Ancillary Services in the Market Rules has changed over time. However, at all times, Ancillary Services have been services which regulate voltage and frequency quality, and respond to contingency events. These services are essential for maintaining the security and reliability of the SWIS.
Each Market Customer is required to contract for 'Capacity Credits'. A Capacity Credit is a notional unit of capacity (equivalent to 1 Megawatt (MW)) associated with a generation facility during a Capacity Year (being a 12 month period which commences on 1 October each year).
Capacity Credits are issued to suppliers of registered capacity. Suppliers or generators, such as the IPP, are obliged to make capacity available to the market and to participate in centralised outage planning. Market Customers who do not procure sufficient Capacity Credits bilaterally are required to fund the capacity which is procured by IMO/AEMO.
Following an assessment by IMO/AEMO of a facility's capability to provide Reserve Capacity, a generator is allocated a quantity of Capacity Credits equal to the Certified Reserve Capacity it commits to provide in its Certified Reserve Capacity application.[18]
The power station the subject of the TPA is a 320MW combined cycle, natural gas-fired power station located in Kwinana (Kwinana Power Station).[19] The Kwinana Power Station is a Scheduled Generator which has been assigned Capacity Credits equivalent to 327.8MW of capacity.[20] As a Scheduled Generator, the IPP is obliged, under the Market Rules, to make 327.8MW of capacity available to be dispatched in the WEM.[21] The IPP is paid a Monthly Reserve Capacity Price for each Capacity Credit it holds.[22] The IPP is also required to submit to tests of availability of capacity and inspections to prove that the facility can provide the level of capacity equivalent to its Capacity Credits.[23]
Under the Market Rules, an electricity retailer or Market Customer (such as EGRC) is required to purchase Capacity Credits from a Market Generator or the IMO/AEMO. The TPA is a bilateral contract between the IPP, as a Market Generator, and EGRC, as a Market Customer or retailer.
At the time of entry into the TPA, the energy market under the Market Rules consisted of the Short Term Energy Market (STEM). The STEM is a daily forward market which allows Market Participants to trade around their bilateral contract positions. It was described by Le Miere J in Bluewaters Power 2 Pty Ltd v Australian Energy Market Operator Ltd in the following terms:[24]

[37]

On 5 November 2005, the IPP and Western Power Corporation (defined as Western Power) entered into a series of agreements for the construction and operation of the Kwinana Power Station, a greenfields development.[42] The first and second plaintiffs, in partnership and operating under the business name of 'NewGen Power Kwinana Partnership' (IPP), own and operate the Kwinana Power Station. The third plaintiff has been appointed by the IPP as its agent.
IPP financed the construction of the Kwinana Power Station through financiers to the IPP.[43]
The TPA is a long term contract between the IPP, as generator, and Western Power (now EGRC), as customer. The term of the contract is 25 years from the earlier of either the completion of the construction of the Kwinana Power Station, or 30 November 2008.[44] For the purposes of the TPA, the total energy generation capacity of the Kwinana Power Station of 310MW is divided into a number of 'Slices' of 1MW energy generating capacity.[45]
Clause 2 of the TPA deals with the primary purpose of the agreement, namely the bilateral trade of energy between the IPP and Western Power or EGRC. The structure of cl 2 is broadly similar to cl 7 although, for reasons which I set out below, there are some important differences.
Pursuant to cl 2.1, each WP Slice (namely a Slice that has not been on-sold by EGRC to third party off-takers) is deemed to be available for each Trading Period. Not less than two hours prior to the time the IPP is required to provide a Bilateral Submission to the IMO for the relevant Trading Day, that is, prior to 6.30 am on the Scheduling Day, the IPP may declare that a WP Slice is unavailable.[46] Unless a WP Slice has been declared unavailable, prior to 7.30 am on the Scheduling Day, Western Power may make an Energy Nomination in respect of each WP Slice[47] and is deemed to make an Energy Nomination for Slices 1 ‑ 151.[48] Under the TPA, an Energy Nomination is defined to be a nomination requiring a Bilateral Submission to be made in respect of that WP Slice during a Trading Period.[49]
The IPP is required to make a valid and binding Bilateral Submission to the IMO for each Trading Day in accordance with the procedures set out in the Market Rules.[50]
EGRC is required, pursuant to cl 2.6, to make Capacity Payments to the IPP. All WP Slices are eligible for a Capacity Payment other than:

[50]

'Available for Spinning' is defined in cl 35 of the TPA as having the meaning in cl 7.1(a), and 'Spinning Reserve Services' is defined as having the meaning given in the Market Rules. The November 2005 Market Rules did not contain a specific definition of Spinning Reserve Services. Spinning Reserve Services were described in cl 3.9.2 of the Market Rules as set out at [31].
No later than two hours prior to the time the IPP is required to provide a Bilateral Submission to the IMO for the relevant Trading Day, that is, by 6.30 am on the Scheduling Day, the IPP may declare that any of the Original FC Slices are unavailable for spinning for a Trading Period.[51]
No later than 30 minutes prior to the time the IPP is required to provide a Bilateral Submission to the IMO for the relevant Trading Day, that is, by 8.00 am on the Scheduling Day, the IPP 'must' notify Western Power of the number of Original FC Slices that are Available for Spinning that have not been the subject of an Energy Nomination by Western Power or an Off‑taker.[52] Within 10 minutes of receiving this notification, Western Power 'may' nominate a number of Original FC Slices up to the number notified by the IPP to be held as a Spinning Reserve Slice for that Trading Period.[53] 'Spinning Reserve Slice' is defined in cl 35 as meaning with respect to a Trading Period, an FC Slice nominated as such by Western Power under cl 7.1(d). I accept the submission of EGRC that the reference to cl 7.1(d) in this sub-clause is an error and should be construed as being a reference to sub‑cls 7.1(e) or 7.1(f).[54]
If an Original FC Slice is nominated by Western Power as a Spinning Reserve Slice, the IPP must hold that slice for the purposes of providing Spinning Reserve Services.[55]
Where an Original FC Slice has been nominated a Spinning Reserve Slice, 'Western Power or System Management' may direct the IPP to provide the Spinning Reserve Service[56] and the IPP 'must' provide it,[57] unless it would be contrary to a Dispatch Instruction received from System Management which could not have been lawfully avoided by the IPP.[58] System Management is defined in cl 35 of the TPA as meaning the body carrying out the functions defined as System Management in the Market Rules.
Clause 7.1(j) of the TPA provides that:

[64]

The principles of construction that I am to apply in considering the obligations that arise under cl 7 of the TPA are well established and are not in dispute between the parties.
The TPA must be construed objectively by determining what a reasonable businessperson would have understood its terms to mean.[62] This is determined 'by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose'.[63] The background and purpose are to be identified by the terms of the TPA,[64] the statutory context in which the TPA was entered into[65] and may include matters of law.[66]
It requires consideration of the language used by the parties in the contract, the circumstances which the contract addresses and its commercial purpose or object.[67]
The TPA, as a commercial contract, should be construed in a manner that makes commercial sense[68] or, '[p]ut another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.[69] It must, however, be kept in mind that 'business commonsense may be a topic on which minds may differ'.[70]
The TPA must be considered as a whole and any apparent inconsistency should be avoided.[71] If there is an apparent inconsistency, it should be resolved on the basis that one provision qualifies the other.[72]
In considering particular phrases and clauses, it is necessary to construe individual words in the context of the relevant phrase or sentence because the unit of communication is the sentence and not the parts of which it is composed.[73] Where an agreement uses definitions, the words of the definition should be read into the operative text (unless the context requires otherwise).[74] However, where the definition does not fit comfortably into the operative text, 'the exercise of construction will need to address any logical or grammatical infelicities that arise and further analysis will be necessary to ascertain its legal meaning'.[75] Whether the literal meaning of the language of a defined term should be applied or departed from depends on the context in which the term is used. Unless the context requires otherwise, the literal meaning should be applied.[76]
A court may not use the words of a defined term to contradict its definition nor use the defined term to cut down or expand the meaning of the definition, unless the context and purpose of the contract taken as a whole requires that course. However, in an appropriate case, the court may have regard to a defined term in giving meaning to its definition.[77]
A contract can only have one correct meaning. The task this court is required to do is to identify the single legal meaning of cl 7.3 by identifying the imputed intention of the parties by reference to the text of the contract construed in light of its context and purpose.[78] The court is entitled, subject to the requirements of procedural fairness, to reach its own conclusion as to the true construction of the agreement.[79]
There are a number of other principles of construction which assist in ascertaining the meaning of the TPA. First, in construing a contract, where possible, all parts of it must be given effect and no part treated as inoperative or surplus. Second, prima facie all words must be given some meaning and effect. Third, words are assumed to be used consistently. Where a draftsperson could have used the same word but used a different word, it is assumed that the intention was to change the meaning.[80]
Three issues are raised on the originating summonses filed by the parties. First, the proper construction of cl 7.3 of the TPA and what the payment contemplated by this sub-clause applies to. Second, whether the obligations under cl 7 were assigned to Synergy and subsequently to EGRC on the disaggregation of Western Power. Third, the proper construction of the formula contained in cl 7.2 of the TPA.
I turn now to consider the first of these issues.

[73]

The IPP submitted that the first payment obligation under cl 7 arises under cl 7.1(j). On their construction, cl 7.1(j) requires that a payment be made for each FC Slice that provides a Spinning Reserve Service for a relevant Trading Period calculated as the rate (the Spinning Reserve Capacity Rate in $ per FC Slice) multiplied by the number of applicable FC Slices. Senior counsel for the IPP acknowledged that cl 7.1(j) does not expressly refer to a 'Trading Period' but submitted that the Trading Period for which the payment was required to be made was incorporated in the clause by the definition of 'Available for Spinning'. This was on the basis that the definition of 'Available for Spinning' in cl 7.1(a) should be construed as meaning 'deemed to be Available for each Trading Period for Western Power to nominate for Spinning Reserve Services'.
In support of this construction, senior counsel for the IPP emphasised the words in the proviso in cl 7.3 - namely that the payment for which cl 7.3 provides is in addition to any payment to the IPP for 'the provision of Spinning Reserve Services by the IPP in accordance with cl 7.1(h)'.[82] Initially, the IPP submitted that the payment contemplated by the proviso was the payment for Category 3 Slices.[83] However, in submissions in reply as well as oral submissions, senior counsel for the IPP contended that the payment provided for in cl 7.1(j) was for both Category 2 and Category 3 Slices.[84]
The submission that cl 7.1(j) covered payments for both Category 2 and Category 3 Slices was advanced on the following grounds. First, at the time the TPA was executed, the Market Rules contemplated that payment for the provision of Spinning Reserve Services (and in fact all Ancillary Services) would occur outside the Market Rules. Further, an Ancillary Services Contract could be entered into with any person, whether or not they were a Rule Participant. The IPP submitted that there was no express provision within the Market Rules at that time for payment to a party who was not a Market Participant for the provision of Ancillary Services, including the provision of Spinning Reserve Services. For that reason, to give effect and meaning to the proviso, the payment must be contained within the TPA and the only alternative was cl 7.1(j).
Second, the only mechanism by which a Market Participant could receive payment for the provision of Ancillary Services was through the Balancing Mechanism settlement process. This process only applied if System Management issued a Dispatch Instruction. However, the TPA contemplated that Dispatch Instructions could be provided by either Western Power or System Management. If the Dispatch Instruction was provided by Western Power, the provision of Ancillary Services would not be covered by the Market Rules.
Third, the IPP relied on amendments to the Market Rules after the TPA was entered into as supporting its construction.[85] In particular, the IPP referred to the amendments in January 2006 which introduced first, a positive component for payment for the provision of Ancillary Services and second, a requirement that an Ancillary Services Contract could only be entered into with a Rule Participant.[86] The IPP submitted that these amendments illustrated that payment for provision of Ancillary Services pursuant to an Ancillary Services Contract was outside the scope of the Market Rules prior to the amendments and left open the question as to which category or categories of Slices cl 7.3 was addressing.
Senior counsel for the IPP submitted that the word 'deemed' in the definition of 'Available for Spinning' needed to be given meaning in the construction of cl 7.1(a). As was noted by Windeyer J in Hunter Douglas Australia Pty Ltd v Perma Blinds:[87]

[79]

EGRC emphasised that under the Market Rules the provision of Spinning Reserve Services required more than generation capacity; it required a generator to quarantine generation capacity capable of responding, if required, to stabilise system frequency.[92]
EGRC submitted that the definition of 'Available for Spinning' in cl 7.1(a) comprised three elements: first, Original FC Slices that were deemed to be available; second, for Western Power to nominate; and third; for Spinning Reserve Services. On this basis, EGRC contended that the reference to Western Power's ability to nominate the FC Slices for Spinning Reserve Services (as provided in cl 7.1(e)) was an integral part of the definition of 'Available for Spinning'.[93]
Senior counsel for EGRC submitted that, on its proper construction, cl 7.1(j) did not require EGRC to make any separate payment to the IPP for any category of FC Slices. EGRC contended that cl 7.1(j) requires Western Power to pay a specific rate (the Spinning Reserve Capacity Rate) for Spinning Reserve for each FC Slice provided by the IPP. In this regard, EGRC submitted that, on the proper construction of cl 7.1(j), the payment obligation only arises in respect of those FC Slices which are nominated by Western Power and held by the IPP as Spinning Reserve and does not extend to all FC Slices that are deemed to be available.[94]
In support of its contention that cl 7.1(j) does not contain a separate payment obligation, senior counsel emphasised that cl 7.1(j) does not provide how the rate is to be applied. On EGRC's construction, cl 7.1(j) has to be read with cl 7.2 (which describes the rate) and cl 7.3 (which sets out how the rate is to be applied).[95]
EGRC submitted that the proviso in cl 7.3 makes plain that the IPP is entitled to a further payment if generation capacity, which is nominated as Spinning Reserve and quarantined for Spinning Reserve, is actually dispatched and injected into the SWIS.[96]
EGRC submitted that the construction of cl 7 contended for by the IPP requires the court to ignore the nomination process for Spinning Reserve Services set out in cl 7.1(d) and cl 7.1(e) of the TPA, effectively rendering these clauses of no operational or other effect.[97]
EGRC also relied on cl 7.1(k) and cl 7.1(l) in support of its construction. Clause 7.1(k) provides that the obligations under cl 7.1 and cl 7.3 can be separately novated. Clause 7.1(l) requires the parties to meet and negotiate to consider whether any additional procedures were required to ensure that a nomination for Spinning Reserve Services by Western Power is effective to allow the provision of the Spinning Reserve Services. EGRC submitted that the inclusion of these provisions within the TPA indicates that they were different to the obligations in the remainder of the TPA and that the nomination of Spinning Reserve Services was an important element.
Senior counsel for EGRC contended that if the parties had objectively intended that Western Power pay for all deemed available generation capacity, it would not be necessary for the parties to negotiate what, if any, additional procedures were required.[98]

[93]

The definition of Spinning Reserve Capacity Rate, in the context of the TPA, is capable of more than one meaning. In these circumstances, consistent with the principles of construction summarised above, the defined term can properly be used to ascertain the meaning of the definition.
The Oxford Dictionary defines 'capacity' as the 'ability to receive, contain, hold, produce, or carry' or 'the maximum amount or number that can be contained, produced, etc'.[104] The Macquarie Dictionary defines 'capacity' as 'the power of receiving or containing', or 'power, ability, or possibility of doing something', or 'the most that a factory, mine, etc, can produce' or in respect of electricity 'a measure of output performance'.[105]
In my view, the use of the word 'capacity' draws a distinction between the capacity of the Slices to provide Spinning Reserve Services and the use of the Slices for Spinning Reserve Services. This supports the construction that the payment obligation arises in relation to the maximum number of FC Slices that are available to provide Spinning Reserve Services as opposed to the FC Slices that are providing the Spinning Reserve Service.
This construction of the word 'capacity' is consistent with the November 2005 Market Rules which, in determining the cost of Spinning Reserve for each Market Participant, included as elements of its formula, the capacity required to cover the Ancillary Services Requirement (including for Spinning Reserve) for both peak and off‑peak Trading Intervals.[106]
Senior counsel for EGRC emphasised that the November 2005 Market Rules did not provide for payment to a Market Participant for the potential ability to provide Spinning Reserve Services. For this reason, it was contended that the TPA should be construed in a manner which was consistent with the Market Rules - namely that payment obligations only arose where generation capacity was either held or quarantined for Spinning Reserve Services or where generation capacity was injected in accordance with a dispatch instruction from System Management. At the time of entry into the TPA, the November 2005 Market Rules only provided for payment for Ancillary Services where electricity had been dispatched and injected into the SWIS. Any other payment was governed by the contractual arrangements between System Management and that 'person'.[107] For this reason, I do not consider that this submission assists the construction contended for by EGRC.
Second, cl 7 of the TPA distinguishes between three types of Original FC Slices and defines them differently:

[97]

EGRC submitted that the definition of Original FC Slices nominated to be held for providing Spinning Reserve Services as Spinning Reserve Slices was not relevant to the 'true effect of cl 7.1(j) and cl 7.3'.[108] This is because the defined term 'Spinning Reserve Slice' is not used in either clause. While it is clear that 'Spinning Reserve Slice' is not used in either cl 7.1(j) or cl 7.3, I do not accept that the absence of this defined term is not relevant to the proper construction of these clauses. The draftsperson could have used the phrase 'Spinning Reserve Slices' in cl 7.3 if the intention was to limit payment to FC Slices which were nominated and held or quarantined to provide Spinning Reserve Services, but did not. Instead, the draftsperson used the phrase 'Available for Spinning'. Adopting the principles of construction summarised above, it is assumed that the objective intention of the parties was to not limit payment to only those Original FC Slices which were nominated by EGRC to provide Spinning Reserve Services.
Third, the context in which 'Spinning Reserve Capacity Rate' is used in cl 7.3 reflects the objective intention of the parties to incorporate the numerical rate (calculated in accordance with cl 7.2) and not the text of this definition in cl 35 (emphasis added). If the numerical rate is inserted into cl 7.3 rather than the definition, no constructional choice is required.
Fourth, the text of the sub-clauses within cl 7 dealing with payment (cl 7.1(j), cl 7.2 and cl 7.3) refer to payments being made 'with respect to each FC Slice that is Available for Spinning'. Save for cl 7.1(j), which I address below, the text of these clauses refer to payment to be made with respect to each FC Slice that is deemed to be available to be nominated for Spinning Reserve Services. The text of these clauses do not require the FC Slices to have been held nor provided as a Spinning Reserve. This construction is supported by the proviso in cl 7.3 that states 'For the avoidance of doubt, the IPP will also be entitled to receive any payment in relation to the provision of Spinning Reserve Services by the IPP in accordance with cl 7.1(h).' I accept that the use of these words assume that the relevant obligation, for payment of the provision of Spinning Reserve Services, is to be found elsewhere.[109] As set out above, the payment for the provision of FC Slices which have been dispatched or injected into the SWIS is contained in the Market Rules.
Fifth, other provisions of the TPA confirm this construction. The TPA distinguishes between capacity to provide services and the provision of services. Pursuant to the express terms of the TPA, EGRC agreed to pay the IPP for both the capacity to provide services as well as the provision of services. Clause 2 and cl 3 of the TPA set out the obligations of EGRC to pay to the IPP Energy Payments and Capacity Payments. These clauses distinguish between Nominated WP Slices (those which have been the subject of an Energy Nomination pursuant to cl 2.2 of the TPA) and Eligible Slices (all other WP Slices unless declared unavailable, a WP Load Shedding Slice or, in the case of a NFC, where the Trading Period Temperature exceeds the Maximum Temperature). EGRC is required to pay Energy Payments to the IPP for Nominated WP Slices and Capacity Payments in respect of each Eligible Slice.
Clause 2 of the TPA contains a deemed nomination provision for a minimum number of Slices, which is not mirrored in cl 7. Senior counsel for EGRC submitted that this supported their construction of cl 7. I do not accept this submission. The deemed nomination provision in cl 2.2 must be read in the context of cl 2.11. Under cl 2.11 of the TPA, the IPP is not required to generate any energy from the power station. The deemed nomination provision means that the IPP is guaranteed to receive the higher Energy Payment in respect of a minimum number of Slices for each Trading Period. In the context of a greenfields development of a power station, the EGRC agreeing to pay to the IPP a guaranteed minimum income for each Trading Period is a sensible commercial agreement.
The provisions of cl 7 concern the nomination of Slices to provide a Spinning Reserve Service. That is, this clause concerns the delivery or potential delivery of energy as opposed to the guarantee of a minimum payment. The obligation of EGRC to pay the IPP for both capacity and use is mirrored in cl 7.3. Clause 7.3 expressly provides for the payment of capacity to provide Spinning Reserve Services and, in the proviso, acknowledges the entitlement of the IPP to be paid separately and in addition for the provision of Spinning Reserve Services.
Clause 19.1 requires the IPP to give EGRC, within five business days of the end of each month, an invoice setting out, inter alia, the aggregate amount of Spinning Reserve Payments in respect of all FC Slices that are Available for Spinning. Spinning Reserve Payments is not a defined term in the TPA. In my view, on a proper construction of the TPA, this is a reference to Spinning Reserve Capacity Payments. Once again, the text of this clause refers to FC Slices that are deemed to be available to be nominated for Spinning Reserve Services as opposed to Spinning Reserve Slices or FC Slices that have been held as a Spinning Reserve, or FC Slices that have been provided for Spinning Reserve Services.
Turning then to cl 7.1(j), on inserting the relevant definitions (apart from FC Slice), cl 7.1(j) reads as follows:

[99]

In my view, cl 7.1(j) does not give rise to a separate payment obligation to that in cl 7.3. I accept the submission by EGRC that each of cl 7.1(j), cl 7.2 and cl 7.3 must be read together. It is clear from the terms of the TPA as well as the Market Rules that the generation and supply of, as well as the payment for electricity, occurs over 30 minute Trading Periods over the course of a Trading Day. Different requirements are needed over each of these Trading Periods. Accordingly, in calculating any payments to be made to the IPP, I consider that Trading Period is a critical element. Clause 7.1(j) does not refer to or include this element.
Senior counsel for the IPP contended that Trading Period was incorporated within the sub‑clause by the definition of 'Available for Spinning'. In my view, the use of Trading Period in this definition is not for the purpose of calculating payment but to identify the FC Slices that are available or are deemed to be available over the course of a Trading Day.
This construction is also consistent with the payment obligations in cl 3 which sets out formulas for the calculation of both Energy Payments and Capacity Payments, both of which include Trading Period as one element.
The IPP also emphasised the different wording in cl 7.1(j) (referring to Spinning Reserve Capacity Rate) and cl 7.3 (referring to Spinning Reserve Capacity Payment) as supporting its contention there were two different payment obligations within cl 7. I do not accept this submission. Clause 7.3 of the TPA expressly incorporates the reference to Spinning Reserve Capacity Rate but includes the other elements which are required to calculate the payment due to the IPP, namely the capacity of the Slice and the fraction of the Trading Period.
In cl 7.1(j), the obligation on Western Power to pay the Spinning Reserve Capacity Rate arises 'with respect to each FC Slice that is Available for Spinning provided by the IPP in accordance with this cl 7.1' (emphasis added). This raises a constructional choice: do the words in italics impose an additional requirement and require the FC Slice to have been provided by the IPP as Spinning Reserve Services or are the words in italics, in effect, surplus? In submissions before me, the parties ultimately agreed that the obligation in this sub-clause concerned Category 2 Slices, namely those FC Slices that were nominated for Spinning Reserve Services.[110] Despite this agreement, in my view, for the following reasons, the words in italics are unnecessary and do not impose any additional requirement or require the FC Slice to have been provided for Spinning Reserve Services.
First, if the parties had objectively intended to impose this additional requirement, the text of the clause would include the specific defined term 'Spinning Reserve Slices' instead of 'FC Slice that is Available for Spinning' or would specifically refer to the obligation to provide Spinning Reserve Services in cl 7.1(h). Second, in the context of cl 7 read as a whole, all FC Slices are available for nomination for Spinning Reserve Services, unless they have been the subject of an energy nomination or on-sold and subject to an energy nomination by an off‑taker. By using the more general text of 'provided by the IPP in accordance with this cl 7.1', in my view, these words refer to the deemed obligation by the IPP to provide to EGRC all FC Slices to be nominated for Spinning Reserve Services.
EGRC submitted that this construction of the agreement would require the court to ignore cl 7.1(d) and cl 7.1(e) and give them no operational effect. I do not accept this submission. The purpose of cl 7 is to set out the terms on which the IPP will provide Spinning Reserve Services, what must be done for the IPP to be required to dispatch Spinning Reserve Services, and the payment terms for such services. Unless Original FC Slices that were deemed to be Available for Spinning were nominated and held as Spinning Reserve Slices, the IPP could not be directed to provide a Spinning Reserve nor receive any additional payment for the provision of a Spinning Reserve. For this reason, I consider that these sub‑clauses have operational effect even though they do not impact on the payment obligation arising under cl 7.
Finally, I consider that this construction has a commercial rationale, acknowledging that this is a topic on which minds may differ. Subject to the proper construction of the formula in cl 7.2, which I deal with below, I consider that it is commercially sensible for the parties to agree that the IPP recover from the EGRC the charge imposed on the IPP for Spinning Reserve. This charge arises as a consequence of the generation and supply of electricity by the IPP for EGRC and is not otherwise recoverable under the TPA.
Having found in favour of the IPP's construction of cl 7.3 of the TPA, although for different reasons than initially contended for by the IPP, it is necessary for me to consider the other grounds raised by EGRC in its originating summons.

[106]

In support of its construction of cl 7 of the TPA, EGRC emphasised that at the time the TPA was executed, the parties knew of the existence and function of the business unit within Western Power known as System Management.
EGRC drew a distinction between cl 7 of the TPA and the other provisions of the TPA. EGRC accepted that, viewed objectively, the TPA (apart from cl 7) concerned the sale of electricity by the IPP, as generator, to Western Power as customer and the terms by which capacity would be bilaterally traded in accordance with the Market Rules. In this regard, EGRC accepted that the references to Western Power in the remaining provisions of the TPA were references to EGRC.[116]
However, EGRC contended that cl 7 of the TPA did not concern the sale of electricity but the provision of Spinning Reserve Services. On the disaggregation of Western Power, the obligations for Spinning Reserve Services were allocated to either System Management (as a business unit of Electricity Networks Corporation) or Electricity Generation Corporation.[117] Electricity Retail Corporation did not have any role in the provision of Spinning Reserve Services. In support of the submission that the obligations of cl 7 could be dealt with separately, senior counsel relied on cl 7.1(k) which expressly provides that the benefits and obligations under cl 7.1 to cl 7.3 can be dealt with separately to the remainder of the TPA. For these reasons, EGRC submitted that the context of the references to Western Power in the TPA 'otherwise required' these references to be construed as a reference to System Management.
EGRC submitted that this position was not affected by the re‑merger of Electricity Retail Corporation and Electricity Generation Corporation. Senior counsel contended that because Electricity Retail Corporation did not have any rights or obligations under cl 7 of the TPA, no rights or obligations were vested in the EGRC on the merger of Electricity Retail Corporation and Electricity Generation Corporation.
Senior counsel for EGRC emphasised that references are made in cl 7 to both Western Power (in cls 7.1(a), 7.1(d), 7.1(e), 7.1(g), 7.1(j), 7.1(k), 7.1(l), 7.2, 7.3 and 7.4) and System Management (in cls 7.1(a)(ii), 7.1(g), 7.1(i) and 7.2) and that it was necessary to consider each of these references to determine whether the context of the reference to Western Power meant that it should not be deemed to be a reference to Electricity Retail Corporation and subsequently EGRC.
By way of example, in cl 7.1(e) 'Western Power' is required to notify the IPP within 10 minutes of receiving a notification under cl 7.1(d) of the number of Original FC Slices to be held as Spinning Reserve Slices for the relevant Trading Period. EGRC submitted that in the context of this clause, the reference to 'Western Power' should not be deemed to be a reference to EGRC. EGRC contended that in the context of this clause, this was a reference to System Management as the obligation to maintain frequency standards in the SWIS is an obligation of System Management under cl 2.2.1 of the Market Rules.
EGRC submitted that the reference to Western Power in cl 7.1(g) is also a reference to Western Power as System Management. In this regard, senior counsel for EGRC referred to the Market Rules which, at the relevant time, provided that only System Management could issue a dispatch instruction to a Market Participant to provide Spinning Reserve.[118] For this reason, it was submitted that, on its proper construction, this clause was not referring to two separate entities, as contended by the IPP, but alternative terms for the same entity.[119]
For these reasons, EGRC submitted that, in the context, the references to Western Power in cl 7 of the TPA are references to the business unit of System Management and not its retail function. As such, the references to Western Power should not be deemed to be a reference to Electricity Retail Corporation.
Senior counsel for EGRC noted that at present, 'System Management' does not impose charges for the provision of Spinning Reserve Services in the SWIS; these charges are now imposed by AEMO. On this basis, EGRC contended that any obligations that arise under cl 7 of the TPA are obligations of AEMO and not EGRC.

[108]

Both the TPA and the November 2005 Market Rules refer to 'Western Power' and 'System Management'. While EGRC contends that these terms are used interchangeably in cl 7 of the TPA, I do not accept this is the case.
This view is supported by the November 2005 Market Rules. In respect of the provision of Ancillary Services, including Spinning Reserve Services, cl 3.11 and cl 7.6 of the Market Rules distinguish between the roles of System Management (to procure sufficient Ancillary Services and manage their dispatch) and Western Power (to provide the Registered Facilities).
In respect of instructions to dispatch electricity into the SWIS, cl 7.6.6 and cl 7.7 of the Market Rules provide for System Management to issue a Dispatch Instruction to a Market Participant 'other than Western Power'. The Market Rules do not specifically provide how System Management was to schedule and dispatch the Registered Facilities of Western Power and whether it was by direct instruction to the facility or via Western Power. For this reason, I do not accept that cl 7.1(g) of the TPA is referring only to System Management. This construction is also supported by cl 7.1(i) of the TPA which provides that the IPP is not obliged to provide Spinning Reserve Services if it would be contrary to a Dispatch Instruction received from System Management. Reading each of these clauses together, cl 7.1(i) addresses the position where the IPP has received contradictory instructions from System Management and Western Power.
For the reasons that follow, I do not accept that that the reference to Western Power in cl 7.3 of the TPA is a reference to System Management. As a consequence, I accept that by reason of the Transfer Order and s 35 of the Electricity Corporations Amendment Act, the obligations under cl 7 of the TPA have been statutorily assigned to EGRC. Accordingly, EGRC is liable for any payments required to be made to the IPP under this sub‑clause.
First, under s 44(d) of the Electricity Corporations Act, it was a primary function of EGRC to provide ancillary services. Under the Electricity Corporations Act, ancillary services are defined to mean services that are necessary or expedient for the security or reliability of an electricity system. I consider that, consistent with the definition in the Market Rules, the provision of Spinning Reserve Services is an ancillary service under the Act. That is, in the context that the Electricity Retail Corporation had a statutory function to provide Ancillary Services, there is nothing in the context of cl 7 of the TPA which means that the references to Western Power should be read as referring to System Management or another corporation.
Second, as noted above, cl 7 refers to both Western Power and System Management. Both are defined in the TPA; Western Power as the party to the agreement and System Management, in cl 35 of the TPA, as the body carrying out the functions of System Management as defined in the Market Rules. In my view, adopting the principles of construction summarised above, the draftsperson has made a deliberate choice within cl 7 to refer to either Western Power or System Management. I do not accept that in using the term 'Western Power', the parties objectively intended to refer to System Management.
Third, while the express terms of cl 7(1)(k) enabled the rights and obligations under cl 7 to be separately assigned, this did not occur. The TPA was assigned from Western Power to Synergy (and then to EGRC on the re‑merger of Synergy and Verve). The Transfer Order does not separately assign the obligations under cl 7 of the TPA to any other body or corporation.
Fourth, cl 7.1(k) required the consent of the IPP to be sought to any assignment of the benefits and obligations of cl 7.1 to cl 7.3. Where assignment occurred as part of disaggregation or privatisation, the entity was deemed to be financially and technically capable for the purposes of this sub‑clause. There is no evidence before me that, as a consequence of disaggregation, the IPP's consent was sought or obtained to an assignment of these clauses to any entity other than Synergy. The evidence before me is that this did not occur.[122] In my view, in order to assign the rights and obligations under cl 7 (including the payment obligations under cl 7.3), it was necessary for the benefits and obligations to be specifically assigned (either by legislation or agreement between the relevant parties).
Fifth, it is well‑established that a party cannot assign obligations under a contract without the consent of the other party; the law requires the original contract to be novated.[123] This position is reflected in cl 7.1(k) of the TPA. Dealing specifically with cl 7.3, this sub-clause concerns the obligation of 'Western Power' to pay the IPP a 'Spinning Reserve Capacity Payment'. Accordingly, without the IPP's consent, the obligations under this clause could not be assigned to another party.
If I am wrong in respect of these matters and it was possible to assign the obligations under cl 7 without an express transfer order or the consent of the IPP, I consider that in any event, the obligations under cl 7.3 of the TPA are obligations of EGRC.
Clause 2.2 of the Market Rules as at November 2005 is headed 'System Management' and governed the role of this business unit. Relevantly, cl 2.2 provided that:[124]