The Federal Court of Australia has ordered by consent that Snowy Hydro Limited (Snowy Hydro) pay total penalties of $400 000 for failing to comply with the Australian Energy Market Operator (AEMO) dispatch instructions in contravention of the National Electricity Rules, in proceedings brought by the Australian Energy Regulator. These are the first court ordered penalties for a breach of the National Electricity Rules.
The Court declared by consent that Snowy Hydro had breached the National Electricity Rules on nine occasions in 2012 and 2013, by failing to comply with dispatch instructions issued by AEMO. On each occasion, Snowy Hydro generated more power than the dispatch instruction required.
In his judgment Justice Beach stated that “Compliance with dispatch instructions is necessary to ensure the power system remains secure. AEMO relies upon compliance with dispatch instructions to ensure it can effectively perform its functions as both power system operator and market operator for the NEM (National Electricity Market)".
AER Chair Paula Conboy said “This is an important outcome for the national electricity market. Failures to follow dispatch instructions will usually affect other market participants, and can have serious implications for security of the power system”.
“This decision also highlights the AER’s ongoing focus on compliance with dispatch instructions, and the AER’s determination to take appropriate enforcement action to deal with non-compliance. The message to market players is clear - the obligation to follow dispatch instructions is a critical provision of the National Electricity Rules and the AER takes non-compliance very seriously,” Ms Conboy said.
The Court also ordered by consent that Snowy Hydro appoint an independent compliance expert to review the accuracy of Snowy Hydro’s internal documents relating to the compliance with dispatch instructions. Snowy Hydro was also ordered by consent to make a contribution to the AER’s costs.
In conjunction with these orders, Snowy Hydro also provided an enforceable undertaking to the AER regarding the operation of generators under certain conditions. The undertaking is the first enforceable undertaking accepted by the AER under the provisions of the National Electricity Law.
Background
The National Electricity Market is a wholesale market in which generators sell electricity in eastern and southern Australia. Registered generators make offers into the market to produce electricity at various prices in each five minute dispatch period in a day.
The Australian Energy Market Operator issues dispatch instructions to generators, based on offer prices and other market conditions. AEMO’s instructions ensure supply and demand is safely balanced every minute of the day.
There is a legal obligation upon registered participants to follow dispatch instructions issued by AEMO unless to do so would, in the participant’s reasonable opinion, be a hazard to public safety or materially risk damaging equipment. A failure to comply with a dispatch instruction constitutes a breach of the National Electricity Rules. The AER monitors these requirements and can take enforcement action when appropriate.
Compliance with dispatch instructions is essential to maintain power system security. Market outcomes may also be distorted if these instructions are not followed. Where a generator is advantaged by not following dispatch instructions, one or more other players may be financially disadvantaged.
Snowy Hydro is a major generator in the National Electricity Market with almost 5100 MW of generation assets spread across New South Wales and Victoria. Snowy Hydro also has gas and electricity retail businesses trading as Red Energy and Lumo Energy. Snowy Hydro is jointly owned by the Commonwealth, NSW and Victorian Governments.