FEDERAL COURT OF AUSTRALIA

Australian Energy Regulator v Snowtown Wind Farm Stage 2 Pty Ltd [2020] FCA 1845

ORDERS

BY CONSENT THE COURT DECLARES THAT:

1.    The Respondent contravened NER 4.4.3 and cl S5.2.2 of the National Electricity Rules (NER) between 10 September 2013 and 10 October 2016 by operating the generating units of the Snowtown South and Snowtown Stage 2 North wind farms (SWF2) and allowing those generating units to supply electricity to the power system when the settings for the repeat low voltage ride-through protection system applied to them had not been approved in writing by the network service provider or the Australian Energy Market Operator.

BY CONSENT THE COURT ORDERS THAT:

1.    Pursuant to s 44AAG(2) of the Competition and Consumer Act 2010 (Cth) (the CC Act), within 15 days of the making of this order, the Respondent implement a compliance program as set out in [3] of the Australian Energy Regulator’s (AER) Amended Originating Application dated 6 August 2020, which requires the Respondent to:

(a)    engage a suitably independent compliance professional with expertise in compliance with GPS (the Compliance Expert), with the identity of the Compliance Expert to be agreed between the AER and the Respondent, or failing agreement, as proposed by counsel and determined by the Court.

(b)    instruct the Compliance Expert to:

(i)    review the Respondent’s compliance program under NER 4.15(b) in respect of the SWF2 and assess whether it conforms with the requirements of NER 4.15(c).

(ii)    identify any aspect of the compliance program that does not conform, or that may be at risk of not conforming, with the requirements of NER 4.15(c).

(iii)    identify any gaps in the Respondent’s existing procedures under the compliance program, and

(iv)    provide recommendations to the Respondent to remedy any such gaps or non-conformities identified in the course of the Compliance Expert’s assessment, and

(c)    within six months from the date of this order, provide a written report, signed by the Compliance Expert and the Chief Executive Officer of the Respondent, to the AER that:

(i)    describes the expertise of the Compliance Expert and confirms his or her independence.

(ii)    states precisely how each of the steps described in Order 2(b) were completed.

(iii)    annexes a copy of the Compliance Expert’s recommendations to the Respondent.

(iv)    states precisely what steps the Respondent has taken to give effect to the Compliance Expert’s recommendations.

(v)    annexes a copy of all internal documents that were amended as a consequence of the Compliance Expert’s recommendations, and

(vi)    states any of the Compliance Expert’s recommendations that were not implemented by the Respondent.

2.    Pursuant to s 44AAG(2)(a) of the CC Act, within 28 days of the making of this order, the Respondent pay to the Commonwealth of Australia a pecuniary penalty of $1 million in respect of the contravention of NER 4.4.3 referred to in the Declaration.

3.    Pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth), within 28 days of the making of this order, the Respondent pay the Applicant’s costs of and incidental to this proceeding, agreed in the amount of $100,000.

4.    All of the remaining claims in the Amended Originating Application are dismissed.

5.    There be liberty to the parties to apply with respect to the identification of the Compliance Expert referred to in Order 1(a).

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WHITE J:

Introduction

1    The respondent, Snowtown Wind Farm Stage 2 Pty Ltd (SWF2), has since 10 September 2013 operated the Snowtown South and Snowtown Stage 2 North wind farms (together, the Snowtown 2 Wind Farm). The Snowtown 2 Wind Farm comprises two generating systems and 90 wind turbines, each with a generating capacity of 3.0 MW.

2    The electricity generated by the Snowtown 2 Wind Farm is supplied, via the transmission network of ElectraNet Pty Ltd (ElectraNet), to the National Electricity Market (the NEM). The Australian Energy Market Operator (AEMO) is the market and system operator of the NEM. SWF2 has since 10 September 2013 been a “registered participant” in the NEM.

3    The ability of wind farm turbines to continue operating (“to ride through”) periods of voltage fluctuations (within particular depths and of particular durations) is an important requirement for their connection to the power system in the NEM. That feature reduces the ability of voltage disturbances arising from faults and other occurrences to cause cascading failures in the system and thereby enhances the ability of AEMO to maintain “power system security” and, in particular, to avoid blackouts.

4    For this reason, each wind turbine at the Snowtown 2 Wind Farm had a “repeat low voltage ride-through protection system” (Repeat LVRT Protection System) in place. However, in the period between 10 September 2013 and 10 October 2016 (the relevant period), none of the settings in the Repeat LVRT Protection Systems had been approved by ElectraNet or by AEMO. By operating the turbines and supplying the electricity which they generated to the national grid with non-approved Repeat LVRT Protection Systems, SWF2 contravened NER 4.4.3 and cl S5.2.2 of the National Electricity Rules (NER). Its contravention continued throughout the relevant period.

5    In these proceedings, SWF2 admits that a declaration as to its contravention should be made, admits that it is liable to the imposition of a civil penalty pursuant to s 44AAG of the Competition and Consumer Act 2010 (Cth) (the CC Act), and admits that it is appropriate for the Court to make an order imposing a compliance program.

6    The applicant, the Australian Energy Regulator (the AER) and SWF2 have reached agreement that a civil penalty of $1 million is appropriate and on the terms of the other orders which should be made. I am satisfied that it is appropriate to give effect to the parties’ agreement. My reasons follow.

The NEM

7    In order to provide the setting for the assessment of SWF2’s contravention, it is necessary to outline some aspects of the NEM and of the obligations of participants in it.

8    The NEM is the inter-connected power system in eastern and south-eastern Australia. The network containing the infrastructure for the power system is known as the “national grid”.

9    The AEMO is the independent market and system operator for the NEM. It has the primary responsibility for maintaining power system security.

10    The AER is established by s 44AE of the CC Act. It has the functions conferred by s 15 of the National Electricity Law (the NEL), contained in the Schedule to the National Electricity (South Australia) Act 1996 (SA) (the NE (SA) Act). Those functions include the monitoring of compliance by registered participants with the NEL, the Regulations made under the NE (SA) Act and the NER, and the institution and conduct of proceedings against persons under s 44AAG of the CC Act.

11    ElectraNet is the “Network Service Provider” of the transmission network within South Australia. As indicated above, the Snowtown 2 Wind Farm is connected to the national grid by ElectraNet’s transmission network.

12    Rules, known as the NER, have been made under the NE (SA) Act – see Pt 7 of the NEL. They have the force of law in South Australia – see s 9 of the NE (SA) Act. It was Version 82 of the NER which was in force on 28 September 2016. The significance of that date will become apparent later in these reasons. Some of the rules in the NER have their own schedules, the clauses in which have the prefix “S”. There have been changes to the NER since Version 82, but I will refer to the contents of Version 82 in the present tense.

Power system security

13    NER 5.1.3(a) provides that all registered participants should have the opportunity to form a connection to a network and have access to the network services provided by the networks forming part of the national grid. However, the NER contains a detailed prescription of the manner and circumstances in which a Generator of electricity may connect, and supply electricity, to the national grid.

14    In order to connect a generating system to the power system, a Generator of electricity such as SWF2 must enter into a connection agreement with the relevant Network Service Provider, (NER 5.3.7(a)). Connection agreements must include performance standards with respect to each of the technical requirements identified in cll S5.2, S5.3 and S5.3a and each performance standard must have been established in accordance with the relevant technical requirement (NER 5.3.7(b)).

15    The evident purpose of these provisions in the NER is to have the standards of performance in connection agreements established at levels at or above the minimum access standards set out in cll S5.1, S5.2, S5.3 and S5.3a, with the object of ensuring that the power system operates securely and reliably and in accordance with the system standards set out in Sch 5.1a.

16    The performance standards in a connection agreement will be either “an automatic access standard”, as specified in the provisions of cl S5.2, or “a negotiated access standard”. The latter must be no less onerous than the minimum access standard specified in the relevant provision of cl S5.2 and must be at a level which will not affect adversely power system security (NER 5.1.3(c)-(d)).

17    When an intending Generator submits an application to the relevant Network Service Provider to connect to the national grid, it must provide a proposal for a “negotiated access standard” for any technical requirements which will not be met by the “automatic access standards” (NER 5.3.4(e)). If a proposed negotiated access standard relates to a technical requirement which is designated as an “AEMO advisory matter”, the Network Service Provider must consult with AEMO in relation to that proposed standard (NER 5.3.4A(a), (c)). NER 5.3.4A(f) obliges Network Service Providers to reject a proposed “negotiated access standard” if it would:

(a)    on AEMO’s reasonable advice, adversely affect power system security; or

(b)    in AEMO’s or the Service Provider’s reasonable opinion:

(i)    be lower than the minimum access standard for a technical requirement which is an AEMO advisory matter; or

(ii)    not meet the requirements applicable to a negotiated access standard in cl S5.2.5.

18    Each automatic access standard and each negotiated access standard which forms part of the terms and conditions of a connection agreement is taken to be the performance standard applicable to the connected plant for the relevant technical requirement (NER 5.3.4A(i)).

19    As already noted, AEMO has the primary responsibility for maintaining power system security. That responsibility requires AEMO to ensure that the power system is operated within the limits of the “technical envelope” (NER 4.3.1(f)) and to ensure that all plant and equipment under its control or co-ordination is operated within the appropriate operational or emergency limits which are advised to AEMO by the respective network service providers or registered participants (NER 4.3.1(g)).

20    The term “technical envelope” is defined in NER 4.2.5 to mean “the technical boundary limits of the power system for achieving and maintaining the secure operating state of the power system for a given demand and power system scenario”.

21    AEMO is to be informed promptly after the execution of a connection agreement and must be provided with all the relevant technical details of the proposed plant and connection, including details of all performance standards forming part of the terms and conditions of the connection agreement (NER 5.3.7(g)).

22    Once the performance standards have been established, a Generator must ensure that its facilities are planned, designed and operated to comply with the applicable performance standards (NER 4.15(a)(1) and cl S5.2.5.1(c)(1)).

23    NER 4.15(f) requires registered participants owning, controlling or operating a plant to which a performance standard applies to notify AEMO immediately if it becomes aware that the plant is breaching a performance standard applicable to it or if the registered participant reasonably believes that the plant is likely to breach a performance standard applicable to it.

24    The importance of compliance with these obligations is indicated by the fact that AEMO is required to assume, when determining the secure operating limits of the power system, that the applicable performance standards are being met, unless a registered participant has informed it that the performance standard is not being met or it otherwise becomes aware that that is the case (NER 4.2.5(d)).

Low voltage protection

25    NER 4.4.3 imposes an obligation on Generators of electricity to have protective systems in place to deal with episodes of abnormal voltage in the power system. The purpose of such systems is to ensure that the generating units remain in continuous operation during specified disturbances and thereby to assist AEMO in maintaining power system security. NER 4.4.3 provides:

Generators must, in accordance with Schedule 5.2 and Chapter 5, provide any necessary automatically initiated protective device or systems to protect their plant and associated facilities against abnormal voltage and extreme frequency excursions of the power system.

26    NER 4.4.3 is a civil penalty provision within the meaning of the NEL – see s 2AA(1)(c), the National Electricity (South Australia) Regulations, cl 6 and Schedule 1.

27    Schedule 5.2 of the NER contains the requirements and conditions to which NER 4.4.3 refers. These requirements include:

S5.2.1    

…

(d)    the equipment associated with each generating system must be designed to withstand without damage the range of operating conditions which may arise consistent with the system standards.

(e)    Generators must comply with the performance standards and any attached terms or conditions of agreement agreed with the Network Service Provider or AEMO in accordance with a relevant provision of Schedules 5.1a or 5.1.

28    Clause S5.2.2 commences with the following condition concerning the application of settings in protection systems:

A generator must only apply settings to a control system or a protection system that are necessary to comply with performance requirements of this Schedule 5.2 if the settings have been approved in writing by the relevant Network Service Provider and, if the requirement is one that would involve AEMO under clause 5.3.4A(c) of the Rules, also by AEMO. A generator must not allow its generating unit to supply electricity to the power system without such prior approval.

…

(Emphasis added)

29    The Schedules to Ch 5 of the NER contain a number of technical requirements concerning the ability of generating units to “ride through” sudden episodes of reduced voltage in the transmission network. These include:

(a)    clause S5.2.5.4(c) specifies that a negotiated access standard be as close as practicable to the automatic access standard while respecting the need to protect the plant from damage, have no material adverse impact on power system security and that the generating system be capable of continuous uninterrupted operation for under voltage disturbances;

(b)    clause S5.2.5.5(c) requires that the generating system and each of its generating units remain in continuous uninterrupted operation for a disturbance caused by a network fault (cleared within specified maximum fault clearance times); and

(c)    clause S5.2.5.8 requires that, if the generating system or any of its generating units are to be disconnected automatically from their power system in response to abnormal conditions arising from the power system, the protection system in place will not disconnect the generating system for conditions for which it must remain in continuous uninterrupted operation, or which it must withstand under the NER.

30    Each of these technical requirements is an “AEMO advisory matter”, within the meaning of NER 5.3.4A(a), to which reference was made earlier.

31    SWF2 and ElectraNet, in consultation with AEMO, negotiated performance standards for the Snowtown 2 Wind Farm.

32    In relation to the requirements of cl S5.2.5.8, the negotiated performance standards specified the voltages at which the generating units would and would not trip.

33    In relation to cl S5.2.5.4, the negotiated performance standard specified that the generating system be capable of continuous uninterrupted operation within the following range of voltages for the given duration at its connection point:

(i)    below 15% of normal voltage for up to 0.850 seconds;

(ii)    15% to 40% of normal voltage for up to 1.6 seconds;

(iii)    40% to 70% of normal voltage for up to 2.6 seconds;

(iv)    70% to 85% of normal voltage for up to 11 seconds;

(v)    85% to 90% of normal voltage for up to 200 seconds; and

(vi)    within the range 90% to 110% of normal voltage, continuously.

34    In relation to cl S5.2.5.5, the negotiated performance standard required each of SWF2’s generating units to remain in continuous uninterrupted operation for disturbances caused by specified events (which it is not necessary to detail presently). It also contained the general requirement that the “generating system has protection and voltage control systems to ensure the generating system including generating units will meet its agreed performance levels under abnormal network or generating system conditions”.

SWF2’s contravention

35    Although the evidence did not indicate when SWF2 had entered into its connection agreement with ElectraNet, it was common ground that it had operated the Snowtown 2 Wind Farm since 10 September 2013 and has been a registered participant in the NEM since that date.

36    As a Generator of electricity supplied to the national grid, SWF2 was obliged to ensure that:

(a)    its plant and equipment met the performance standards in the NER and complied with its technical requirements, (NER 4.15(a)(1));

(b)    it operated the Snowtown 2 Wind Farm in accordance with the performance standards contained in its connection agreement;

(c)    the wind turbines did not shut down in response to abnormal conditions arising from the power system in those conditions in which it was required to remain in continuous uninterrupted operation, or in conditions which it was required under the NER to withstand (cl S5.2.5.8(a)(1)); and

(d)    it had protection and voltage control systems which would ensure that it met the agreed performance standards even under abnormal network conditions (cl S5.2.5.5).

37    The effect of NER 4.4.3 was that SWF2 had to provide a protective device or system of the specified kind and had to do so in accordance with Sch 5.2 and Ch 5.

38    Clause S5.2.2 had the effect that SWF2 was permitted to apply settings to its low voltage protection system only if they were necessary to comply with the performance requirements of Sch 5.2 and, further, only if those settings had been approved in writing by ElectraNet and by AEMO. Clause S5.2.2 also precluded SWF2 from supplying electricity generated by the Snowtown 2 Wind Farm to the power system if the protection system settings had not been approved by ElectraNet and AEMO.

39    SWF2 did have a low voltage protection system fitted to each of its turbines throughout the relevant period. This was the Repeat LVRT Protection System referred to at the commencement of these reasons. The systems were set to be activated if the LVRT capability was utilised six or more times within a 30 minute period. This was a lower threshold than that required by the NER. More particularly, the settings in SWF2’s Repeat LVRT Protection System were lower than those for which the performance standards in its connection agreement provided and SWF2 had not obtained written approval from ElectraNet and AEMO for those lower settings.

40    This was a contravention of NER 4.4.3 which meant that SWF2 failed to provide automatically initiated protective systems to protect its plant and associated facilities against abnormal voltage excursions of the power system in accordance with cl S5.2 and Ch 5. SWF2 supplied the electricity generated by the Snowtown 2 Wind Farm to the power system despite not having the requisite approval. This non-compliance occurred throughout the relevant period.

41    On 28 September 2016, six under-voltage disturbances occurred on the power system within a period of approximately 90 seconds. In response to the sixth under voltage disturbance, the Repeat LVRT Protection System was activated on 34 of the 37 turbines then in service, with the consequence that they shut down and ceased to supply active power to the power system. This was associated with the widespread electricity blackout which occurred in South Australia on that day. However, in these proceedings, SWF2 has not admitted that the turbines ceasing to supply active power constituted a contravention of the NER or that that cessation was caused by the contravention which it has admitted.

The proposed declaration

42    Section 44AAG of the CC Act vests jurisdiction in this Court to make an order, on application by the AER on behalf of the Commonwealth, declaring that a person is in breach of a State or Territory energy law (of which the NE (SA) Act is one), to make an order that a person pay a civil penalty and to make an order that the person take such action as the Court requires with a view to preventing a recurrence of a breach of a State or Territory energy law.

43    Although the parties have reached agreement on the terms of the declaration they propose, it is for the Court to determine whether it is appropriate in the circumstances to make the declaration: Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc [1999] FCA 18; (1999) 161 ALR 79 at [17]. It is established that the Court should be satisfied of three matters before issuing a declaration by consent: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-8:

(a)    the question must be a real and not hypothetical or theoretical;

(b)    the applicant must have a real interest in raising it; and

(c)    there must be a proper contradictor.

44    Each of those matters is established in the present case. The proceedings have been brought by the relevant regulator; there is a contradictor; and the subject matter of the litigation involves a matter of public importance.

45    In Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352; (2011) 195 FCR 1 at [67]-[68], Gordon J said that the matters bearing upon the exercise of the discretion to grant or refuse declarations include consideration of whether the declaration would have any utility, whether the proceedings involve a matter of public interest, whether the circumstances call for the Court’s disapproval of the contravening conduct; and whether the declaration contains appropriate and adequate particulars of how and why the conduct in question is a contravention of the relevant legislation. Those considerations are pertinent in this case.

46    The declaration proposed by the parties is expressed appropriately; will serve as formal record of the contravention found established by the Court; and will accordingly form part of the community’s censure of the conduct. Further, the declaration may serve an educative purpose in indicating to others involved in the generation of electricity how and why the contravention occurred.

47    Accordingly, I will issue the declaration in the terms upon which the parties have agreed.

The proposed penalty

48    The parties have agreed that a civil penalty of $1 million is appropriate for SWF2’s contravention.

49    As already noted, NER 4.4.3 is a civil penalty provision. By s 2 of the NEL, the maximum penalty applicable throughout the whole of the relevant period was an amount not exceeding $100,000 in addition to an amount not exceeding $10,000 for each day that the contravention continued. The parties agreed that this meant that the maximum penalty which could be imposed for the continuing contravention of NER 4.4.3 in the period from 10 September 2013 to 10 October 2016 was $11,360,000 (being $100,000 plus $10,000 for each of the 1,126 days during which the contravention continued).

50    It is established that the Court may act on the parties’ agreement in determining an appropriate civil penalty: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 (Cth v FWBII). In that case, the plurality said, at [58]:

… Subject to the court being sufficiently persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and … highly desirable in practice for the court to accept the parties' proposal and therefore impose the proposed penalty. To do so is no different in principle or practice from approving an infant's compromise, a custody or property compromise, a group proceeding settlement or a scheme of arrangement.

(Emphasis in the original and citation omitted)

51    A number of matters of principle bearing upon the fixation of an appropriate civil penalty are settled. The principal (and perhaps only) object of the imposition of a civil penalty is to achieve deterrence, both general and specific: Cth v FWBII at [55]. Thus it has been said that a civil penalty should put a price on contraventions which is sufficiently high to deter repetition by the contravenor and by others who may be tempted to contravene the Act in a similar way: Trade Practices Commission v CSR Ltd [1990] FCA 762; [1991] ATPR 41-076 at 52,152 in a passage approved in Cth v FWBII at [55]. A civil penalty should not be so high as to be oppressive, but should be such as to deter participants in the relevant industry “from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contraventions”: Singtel Optus Pty Ltd v Australian Competition and Consumer Commissioner [2012] FCAFC 20: (2012) 287 ALR 249 at [63].

52    Section 64 of the NEL requires the Court when fixing a civil penalty to have regard to all the relevant matters, including:

(a)    the nature and extent of the breach; and

(b)    the nature and extent of any loss or damage suffered as a result of the breach; and

(c)    the circumstances in which the breach took place; and

(d)    whether the person has engaged in any similar conduct and be found be in breach of a provision of [the NEL], the Rules or the Regulations in respect of that conduct; and

(e)    whether the service provider had in place a compliance program approved by the AER or required under the Rules, and if so, whether the service provider has been complying with that program.

53    As is apparent, the listed matters are not an exhaustive statement of the matters which may be relevant. Matters which may, depending on the circumstances of the given case, be relevant include those discussed by French J in CSR at 52,152-3. In addition to those to which s 64 directs attention, these include the size and resources of the contravenor; the degree of power of the contravenor; the deliberateness of the conduct; the length of time over which the conduct occurred; the degree of involvement of senior management; the culture of the organisation as to compliance or contravention; any cooperation; and any evidence of contrition – see Construction, Forestry, Maritime, Mining and Energy Union v Australian Building and Construction Commissioner (The Non-Indemnification Personal Payment Case) [2018] FCAFC 97; (2018) 264 FCR 155 at [20].

54    It is also established that the Court is to determine an appropriate penalty by a process of instinctive synthesis after taking into account all relevant factors, similar to the manner discussed in Markarian v The Queen [2005] HCA 25; (2005) 228 CLR 357 at [37], [39] – see Pattinson v Australian Building and Construction Commissioner [2020] FCAFC 177; (2020) 299 IR 404 at [90], [112].

55    The nature and circumstances of SWF2’s contravention have been set out above and need not be repeated.

56    It was common ground that the Snowtown 2 Wind Farm had been designed, supplied and installed by Siemens Ltd, an internationally recognised wind turbine supplier, and that it had fixed the LVRT settings. SWF2 did not become aware that the settings made by Siemens had not been approved by ElectraNet or AEMO until after 28 September 2016.

57    The circumstance that the contravention was not intentional or reckless is an important matter bearing upon the fixation of penalty.

58    Further, very shortly after the blackout which occurred on 28 September 2016, SWF2 engaged Siemens to make an assessment. The Repeat LVRT Protection Systems were then modified (by 10 October 2016) so that they would be activated only if the LVRT capability was utilised more than 20 times within a 120 minute period. That is to say, SWF2’s contravention was not only not deliberate, it took prompt action to rectify the situation.

59    It remains, however, a significant matter that SWF2’s contravention continued for a long time, namely, a little over three years. During that period, SWF2 had not made any assessment of the Repeat LVRT Protection System installed on its wind turbines to ensure that the settings satisfied the negotiated performance standard.

60    The contravention in this case must be regarded as serious. As noted earlier in these reasons, AEMO’s ability to achieve security in the power system depends, amongst other things, on Generators such as SWF2 providing, both at the time of the connection and subsequently, accurate and complete information concerning their ability to operate in accordance with the agreed performance standards. SWF2’s use of non-approved settings in the present case comprised AEMO’s ability to discharge its responsibility. As the events of 28 September 2016 indicate, a compromise of the security of the power system can have extensive and serious consequences.

61    There are matters which mitigate the seriousness of the contravention or which at least are not of an aggravating kind. Apart from the fact that SWF2’s contravention was not deliberate, it has not previously been found by a court to be in breach of a provision in the NEL or in the NER; it had during the relevant period sought to ensure that it complied with its obligations under the NEL by putting in place its own compliance program, as required by NER 4.15(b); and it did not obtain any financial benefit by reason of its contravention. Further, AER does not allege that the involvement of SWF2’s senior management made the contravention more serious and it accepts that SWF2 has shown a “high level of cooperation” with it in the proceedings. In this respect, it is pertinent that AER’s proceeding against SWF2 has been jointly cased managed in the Court with three other proceedings in which allegations of contraventions of the NER are made, but which remain unresolved. SWF2 reached an in principle agreement with the AER for the resolution of the proceedings before the AER had filed any of its evidence, and, as indicated, did so while the respondents in the other proceedings continue to defend them. That cooperation makes it appropriate, by itself, for there to be a reduction in the penalty which would otherwise be imposed.

62    As to the size and financial position of SWF2, it is an agreed fact that SWF2 was, during the relevant period, a wholly owned subsidiary of Trustpower Limited (Trustpower), a publically listed company in New Zealand. It is also an agreed fact that, in the period between 31 March 2013 and 31 March 2017 (a timeframe which extends beyond the relevant period by approximately 5-6 months on each side), Trustpower reported approximately NZD 4.45 billion in total revenue and NZD 545 million in profit after tax. SWF2 should accordingly be dealt with on the basis that it has substantial resources available to it.

63    The parties referred to some other principles concerning the fixation of civil penalties. These included the totality, course of conduct and parity principles. For the reasons which follow, I consider that none of these principles is applicable in the present context.

64    The totality principle applies when a court is imposing two or more penalties for multiple contraventions. That is not this case. Likewise, the course of conduct principle may be applicable when a court is imposing penalties for two or more contraventions which arise out of the same or related conduct. Again, that is not this case. The parity principle applies in the criminal law when co-offenders are sentenced by the same judge for the same crime or crimes. In such cases, the sentences imposed on them should be proportionate to their respective degrees of culpability and to various personal factors aggravation and mitigation: Lowe v The Queen [1984] HCA 46, (1984) 154 CLR 606; R v MacGowan (1986) 42 SASR 580 at 582-3. The parity principle may also be applicable in civil penalty cases (Australian Securities and Investments Commission v Commonwealth Bank of Australia [2018] FCA 941; (2018) 128 ACSR 289 at [69]) but the circumstances for its application are not present in this case. The Court is not asked to impose penalties on two or more contravenors and it was not suggested that the Court has previously imposed a penalty on a person contravening NER 4.4.3 and cl S5.2.2.

65    When regard is had to all the matters to which reference was made earlier, I consider that the penalty of $1 million on which the parties have agreed is an appropriate penalty in the circumstances of this case. The contravention of SWF2 was serious and it continued over an extended period. That suggests that a substantial penalty is appropriate. On the other hand, there are matters which may appropriately be brought into account in mitigation. Balancing those factors out, I consider the agreed penalty of $1 million to be appropriate. There will be an order to that effect.

Compliance program

66    The Court may make an order requiring implementation of a compliance program if there has been a breach of the Rules (s 44AAG(2)(d)).

67    The compliance program on which the parties have agreed will require SWF2 to engage a suitably independent and qualified compliance professional to review its compliance program under NER 14.15(b), with a view to identifying any aspect of the compliance program which does not conform, or which may be at risk of not conforming, with the requirements of NER 4.15(c). The expert will provide a report which will then be reviewed by AER.

68    I am satisfied that an order to this effect is appropriate because it will enhance the compliance by SWF2 with the performance standards applicable to it and assist in identifying any further inadvertent contraventions.

Costs

69    SWF2 has agreed to pay AER’s costs in the sum of $100,000. It is appropriate in the circumstances that SWF2 do pay AER’s costs and there is no reason to doubt that the figure upon which the parties have agreed is appropriate. There will be an order to that effect.

Conclusion

70    In summary, for the reasons given above, there will be orders in the terms proposed by the parties.

Associate:

Dated:    22 December 2020