Commercial Case Update - Australian Energy Regulator obtains first civil penalty

Commercial Law
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On 12 February 2015, the Federal Court imposed civil penalties of $400,000 and compliance orders on Snowy Hydro Ltd for its failure to comply with dispatch instructions issued by the Australian Energy Market Operator (AEMO), in contravention of the National Electricity Rules.  The penalties and other relief were proposed jointly by the AER and Snowy Hydro, following a mediation of the proceeding.

This is the first time that the AER has obtained civil penalty orders from a court under any of the uniform national energy laws.  The outcome is also timely for the regulated energy market as a whole, as COAG’s Energy Market Reform Working Group is close to completing a review of the full suite of enforcement regimes under the national energy laws.

The proceeding raised a number of technical issues regarding the operation of hydroelectric and gas-fired generating units under the National Electricity Rules, which had not previously been considered by the courts.  These included the ambit of the public safety/equipment damage defence, how a generator is expected to balance compliance with an immediate dispatch instruction against its ability to meet expected future dispatch targets, and the consequences of a generator’s rebidding of its ramp rates.

During the proceeding, Snowy Hydro raised (but later withdrew) a claim that the relevant provision of the National Electricity Rules was void for unreasonableness and uncertainty.  That claim was directed to uncertainty as to what, if any, margin of error is allowed to a generator for failing to comply exactly with the target output level specified in a dispatch instruction.  Snowy Hydro has indicated that it proposes to submit a rule change proposal to the Australian Energy Market Commission to seek greater clarity on that issue.

Tom Clarke appeared for the AER in the proceeding, led by Peter Gray QC.

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Tom Clarke practises in commercial, regulatory and public law, particularly in energy, commercial arbitration and financial services

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