Federal Court of Australia

Australian Energy Regulator v HWF 1 Pty Ltd [2021] FCA 732

ORDERS

THE COURT DECLARES THAT:

1.    The Respondent contravened r 4.4.3 and cl S5.2.2 of the National Electricity Rules (NER) between 2 June 2016 and 10 October 2016 by operating the generating units of the Hornsdale Wind Farm 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.

THE COURT ORDERS THAT:

2.    Pursuant to s 44AAG(2) of the Competition and Consumer Act 2010 (Cth) (the CC Act), the Respondent:

(a)    within 15 days of the making of this order, engage a suitably independent compliance professional with expertise in compliance with Generator Performance Standards (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)    within 15 days of the making of this order, instruct the Compliance Expert to:

(i)    review the Respondent’s compliance program under NER 4.15(b) in respect of the Hornsdale wind farm 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 a Chief Executive Officer (or equivalent) 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.

3.    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 $550,000 in respect of the contravention of NER 4.4.3 referred to in the Declaration.

4.    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 $175,000.

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

6.    There be liberty to the parties to apply with respect to the identification of the Compliance Expert referred to in Order 2(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    On 6 August 2019, the Australian Energy Regulator (the AER) commenced separate proceedings against four operators of windfarms in South Australia. The proceeding against one, Snowtown Wind Farm Stage 2 Pty Ltd (Action SAD171/2019), was resolved on 22 December 2020 when the Court imposed a civil penalty on it (upon which the parties themselves had agreed) and made ancillary orders: Australian Energy Regulator v Snowtown Wind Farm Stage 2 Pty Ltd [2020] FCA 1845 (Snowtown Stage 2).

2    This judgment concerns Action SAD172/2019, being the proceeding against HWF 1 Pty Ltd (HWF1) which is the operator of the wind farm at Hornsdale, north of Jamestown.

3    The Court will deliver a judgment immediately after this judgment in Action SAD169/2019, being the proceeding against Pacific Hydro Clements Gap Pty Ltd, the operator of the wind farm at Clements Gap in the Barunga Range south of Port Pirie.

4    The fourth proceeding (Action SAD170/2019) in which AGL HP 1 Pty Ltd and two other AGL entities are the respondents is being case managed by Besanko J.

5    The AER and HWF1 have reached agreement on the terms on which they request the Court to resolve Action SAD172/2019. Those terms include admissions by HWF1 of a contravention by it of r 4.4.3 and cl S5.2.2 of the National Energy Rules (the NER) in the period between 2 June 2016 and 10 October 2016 (the Relevant Period) and agreement on the orders which should be made in consequence of those admissions. In particular, they are agreed that the Court should make a declaration pursuant to s 44AAG(1) of the Competition and Consumer Act 2010 (Cth) (the CC Act) with respect to the contravention of HWF1, impose a civil penalty of $550,000 pursuant to s 44AAG(2)(a) of the CC Act, require HWF1 to implement a compliance program pursuant to s 44AAG(2)(d) of the CC Act, and require HWF1 to pay the AER’s costs of the proceeding, fixed in the sum of $175,000.

6    The parties have filed a Statement of Agreed Facts (the SOAF), agreed minutes of order, and joint submissions. In addition, the parties made oral submissions on 25 May 2021.

7    The documents and submissions indicate that the circumstances of the admitted contravention of HWF1 are very similar to those which were the subject of the Snowtown Stage 2 proceeding. Moreover, the matters agreed in the SOAF have substantial similarity with those agreed by the parties in Snowtown Stage 2. The joint submissions of the parties in the two sets of proceedings also have much in common.

8    In these circumstances, I consider it appropriate to repeat in these reasons much of my reasons in Snowtown Stage 2 in explaining why I consider it appropriate to give effect to the parties’ agreement. I do so, however, with some adaptions so as, amongst other things, to take account of the different facts and circumstances disclosed by the parties’ SOAF and joint submissions.

Factual setting and overview

9    The National Electricity Market (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”.

10    The Australian Energy Market Operator (AEMO) is the independent market and system operator for the NEM. It has the primary (but not sole) responsibility for maintaining power system security.

11    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, as well as the institution and conduct of proceedings against persons under s 44AAG of the CC Act.

12    ElectraNet is the “Network Service Provider” of the transmission network within South Australia. The electricity generated by the Hornsdale Wind Farm is supplied, via ElectraNet’s transmission network, to the NEM.

13    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 during the Relevant Period. 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 in these reasons I will refer to the content of Version 82 in the present tense.

14    HWF1 operated the Hornsdale Wind Farm throughout the Relevant Period. It has, from 2 June 2016, been a “Registered Participant” in the NEM.

15    During the Relevant Period, the Hornsdale Wind Farm comprised 32 wind turbine generating units, each with a generation capacity of 2.3 MW, together with associated electrical equipment. As indicated, HWF1 supplies the electricity generated by the Hornsdale Wind Farm to the NEM via the transmission network of ElectraNet.

16    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 is accordingly important to the ability of AEMO to maintain “power system security” and, in particular, to avoid blackouts.

17    For this reason, each wind turbine at the Hornsdale Wind Farm had “low voltage ride-through capability” (LVRT Capability). LVRT Capability is a control system which, during the Relevant Period, was activated when the voltage at the generating unit terminals dipped below 90% of the normal voltage level. LVRT Capability enables a wind turbine to “ride through” under voltage disturbances of particular depths for particular durations. A protection system on each wind turbine at the Hornsdale Wind Farm known as a “repeat low voltage ride-through protection system” (the Repeat LVRT Protection System) was (and is) an element of the LVRT Capability. During the Relevant Period, the Repeat LVRT Protection Systems at Hornsdale were set so as to be triggered if the LVRT Capability was activated six times within a 30 minute period.

18    When the Repeat LVRT Protection System was triggered it caused:

(a)    the rotational speed of the blades of the turbine to slow;

(b)    the turbine to cease generating active power; and

(c)    a circuit breaker within the turbine to open, preventing the flow of active power from the turbine to the generating system’s connection point with the power system.

19    In that way, the Repeat LVRT Protection System prevented the LVRT Capability in each generating unit from operating in the event that six or more low-voltage disturbances occurred within a 30 minute period.

20    In the Relevant Period, none of the settings in the Repeat LVRT Protection Systems on the generating units had been approved by ElectraNet or by AEMO. By operating the turbines with the non-approved settings, and supplying the electricity which they generated to the national grid, HWF1 contravened r 4.4.3 and cl S5.2.2 of the NER. Its contravention continued throughout the Relevant Period. It is this contravention which the parties have agreed should be subject to the declaration and the other proposed orders.

21    AER no longer presses the balance of the allegations contained in its Amended Concise Statement, including allegations that:

(a)    by ceasing to supply active power as a result of the activation of the Repeat LVRT Protection Systems, the generating units did not meet or exceed, and were not operated to comply with, the NER or relevant performance standards; and

(b)    the activation of the Repeat LVRT Protection Systems which caused the generating units to cease generating active power was a contributing cause of the widespread electricity blackout which occurred in South Australia on 28 September 2016.

Connection to the National Grid

22    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 contain detailed prescriptions concerning the manner in which a Generator of electricity may connect, and supply electricity, to the national grid.

23    In order to make such a connection, a Generator of electricity 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 Schs 5.2, 5.3 and 5.3a and each performance standard must have been established in accordance with the relevant technical requirement (NER 5.3.7(b)).

24    The evident purpose of these prescriptions is to have the standards of performance in connection agreements established at levels at or above the minimum access standards set out in Schs 5.1, 5.2, 5.3 and 5.3a, 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.

25    Each performance standard required by a connection agreement will be either “an automatic access standard”, as specified in the provisions of Sch 5.2, or “a negotiated access standard”. The latter must be no less onerous than the minimum access standard specified in the relevant provision of Sch 5.2 and must be at a level which will not affect adversely power system security (NER 5.1.3(c)-(d)).

26    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.

27    Each automatic access standard and each negotiated access standard in 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)).

28    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)).

29    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”.

30    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)).

31    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)).

32    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.

33    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

34    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. Their purpose 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.

35    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.

36    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)

37    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 the 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.

38    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.

39    HWF1 and ElectraNet, in consultation with AEMO, negotiated performance standards for the Hornsdale Wind Farm.

40    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.

41    In relation to cl S5.2.5.4, the negotiated performance standard required that the generating system, and each of its generating units, be capable of continuous uninterrupted operation within the following ranges of voltages at the connection point:

(i)    voltages from 120% to 130% for 0.15 seconds;

(ii)    voltages from 110% to 120% for 1.0 seconds;

(iii)    90% to 110% of the normal voltage, continuously;

(iv)    80% to 90% of the normal voltage for a period of at least 10 seconds; and

(v)    70% to 80% of normal voltage for a period of 2.0 seconds.

42    In relation to cl S5.2.5.5, the negotiated performance standard required each of HWF1’s generating units to remain in continuous uninterrupted operation for disturbances caused by specified events, as well as other actions which it is not necessary to mention.

HWF1’s contravention

43    As a Generator of electricity supplied to the national grid, HWF1 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 Hornsdale 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).

44    The effect of NER 4.4.3 was that HWF1 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.

45    The NER and the applicable performance standards did not contain an explicit threshold for the number of disturbances which the Hornsdale Wind Farm would be required to ride through. However, cl S5.2.2 had the effect that HWF1 was only permitted to apply settings to a control or protection system that 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. That is to say, if there were to be settings applied to the Repeat LVRT Protection Systems which limited the generating units’ ability to ride through a number of low-voltage disturbances in a specified period of time, cl S5.2.2 required HWF1 to obtain approval in writing for the application of those settings. Clause S5.2.2 also precluded HWF1 from supplying electricity generated by the Hornsdale Wind Farm to the power system if the protection system settings had not been approved by ElectraNet and AEMO.

46    As noted at the commencement of these reasons, the turbines at the Hornsdale Wind Farm did have LVRT Capability. However, the settings of the Repeat LVRT Protection Systems fixed the maximum number of low-voltage disturbances that the LVRT Capability would enable the generating units to ride through within a specified time interval before the turbine blades slowed and the turbines ceased generating active power. In particular, they prevented the LVRT Capability from operating in the event that it was activated six times within a 30 minute period. This was so despite the agreed performance standards not containing any reference to the Repeat LVRT Protection System or to its settings. More particularly, the settings in the Repeat LVRT Protection System during the Relevant Period had not been approved by ElectraNet or by AEMO, as required by cl S5.2.2.

47    This was a contravention of NER 4.4.3 which meant that HWF1 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 Sch 5.2 and Ch 5. HWF1 supplied the electricity generated by the Hornsdale Wind Farm to the power system despite not having the requisite approval. This non-compliance occurred throughout the relevant period.

48    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 Systems were activated on 28 of the 29 turbines then in service, with the consequence that they shut down and ceased to supply active power to the power system. Shortly afterwards, the widespread electricity blackout which occurred in South Australia on 28 September 2016 commenced. As previously noted, the AER has not pressed its pleaded allegation that the activation of the Repeat LVRT Protection Systems at the Hornsdale Wind Farm was a contributing cause of that blackout.

The proposed declaration

49    In addition to s 21 of the Federal Court of Australia Act 1976 (Cth), s 44AAG(1) of the CC Act specifically authorises the Court to issue a declaration that a person has breached a “uniform energy law that is applied as a law of the Commonwealth”. By s 4(1) of the CC Act, the provisions of the NEL, including the NER, are “uniform energy laws”.

50    The parties propose a declaration in the following terms:

The Respondent contravened NER 4.4.3 and cl S5.2.2 of the [NER] between 2 June 2016 and 10 October 2016 by operating the generating units of the Hornsdale Wind Farm 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 by [the AEMO].

51    Although the parties have reached agreement on the terms of the proposed declaration, it is for the Court to determine whether it is appropriate for it to be made: 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.

52    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.

53    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 a declaration 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.

54    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.

55    Accordingly, I am satisfied that it is appropriate for the Court to issue the declaration in the terms upon which the parties have agreed.

The proposed penalty

56    By s 44AAG(2)(a) of the CC Act, the Court may impose a civil penalty on a person who is declared to be in breach of a civil penalty provision of a uniform energy law or a State/Territory energy law.

57    Section 2AA(1)(c) of the NEL specifies that a civil penalty provision is a provision of the NER prescribed by the National Electricity (South Australia) Regulations (the Regulations) to be a civil penalty provision. Regulation 6(1) of the Regulations provides that, for the purposes of s 2AA(1)(c), a provision of the NER listed in Schedule 1 of the Regulations is a civil penalty provision. Schedule 1 lists NER 4.4.3 as a civil penalty provision.

58    By s 2 of the NEL, the maximum penalty applicable throughout the whole of the relevant period for a contravention of NER 4.4.3 was an amount not exceeding $100,000 in addition to an amount not exceeding $10,000 for each day that the contravention continued. This means that the maximum penalty which may be imposed for HWF1’s continuing contravention of NER 4.4.3 in the period from 2 June 2016 to 10 October 2016 is $1.4 million (being $100,000 plus $10,000 for each of the 130 days during which the contravention continued).

59    The parties have agreed that a civil penalty of $550,000 is appropriate for HWF1’s contravention.

60    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:

[46]    [T]here is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and … the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers…

61    Later, the plurality said:

[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)

62    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].

63    Section 64 of the NEL requires the Court when fixing a civil penalty to have regard to all 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 been found to 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.

64    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].

65    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].

66    The nature and circumstances of HWF1’s contravention have been set out above and need not be repeated.

67    HWF1 engaged Siemens Ltd, an internationally recognised wind turbine supplier, to install and operate the wind turbines at the Hornsdale Wind Farm. It was not aware until after 28 September 2016 that Repeat LVRT Protection Systems had been applied on the wind turbines at the Hornsdale Wind Farm and accordingly that non-approved settings had been applied. The circumstance that its contravention was not intentional or reckless is an important matter of context bearing upon the fixation of penalty.

68    Shortly after 28 September 2016, HWF1 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. It can therefore be concluded that HWF1’s contravention was not only not deliberate, it took prompt action to rectify the situation.

69    Nevertheless, HWF1’s contravention was serious. It continued for over four months. When negotiating its performance standards, HWF1 did not identify to either ElectraNet or AEMO that the LVRT Capability of the turbines was subject to the settings in the Repeat LVRT Protection Systems, or that the turbines would shut down if there were six low voltage disturbances within 30 minutes. During the Relevant Period, HWF1 did not make any assessment of the wind turbines which may have led to the presence of the Repeat LVRT Protection System installed by Siemens being identified.

70    The seriousness of HWF1’s contravention in applying non-approved settings is underlined by its potential consequences. As noted earlier in these reasons, AEMO’s ability to achieve and maintain security in the power system depended, amongst other things, on Generators such as HWF1 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. The rigorous regime summarised earlier and in particular cl S5.2.2, is directed, amongst other things, to the achievement and maintenance of power system security, this being an important public purpose. HWF1’s use of non-approved settings in the present case compromised AEMO’s ability to discharge its responsibility because it meant that it was making important decisions concerning the secure operating limits of the power system on the basis of incomplete information. As the events of 28 September 2016 indicate, a compromise of the security of the power system can have extensive and serious consequences.

71    It is, however, appropriate to note the absence of some aggravating features as well as matters which mitigate the seriousness of the contravention. Apart from the fact that HWF1’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 implementing its own compliance program, as required by NER 4.15(b); and it did not obtain any financial benefit by reason of its contravention. The AER does not allege that the involvement of HWF1’s senior management made the contravention more serious.

72    The AER accepts that HWF1 cooperated with it in the investigations which occurred after 28 September 2016, that it worked with Siemens to identify the reasons for the loss of active power output and that, in consultation with AEMO, it modified promptly the settings on the Repeat LVRT Protection Systems.

73    The AER also accepts that HWF1 has demonstrated a level of cooperation with it in the proceedings. While HWF1 did not move with the same promptness as did the respondent in the Snowtown Wind Farm proceedings, it did initiate settlement negotiations (albeit after the AER had settled the Snowtown Wind Farm proceeding) and it did so while two of the other proceedings commenced by the AER remained on foot. Moreover, HWF1 did not wait to see the strength of the evidence to be presented by AER, as it negotiated the settlement before the AER had filed its expert evidence. Some reduction in the penalty which would otherwise be imposed is appropriate on this account.

74    In their joint submissions, the parties referred to four authorities in which penalties have been imposed under the NER, or under their predecessor, the National Electricity Code:

(a)    in National Electricity Code Administrator v NRG Flinders Operating Services Pty Ltd No 1 of 2005, the National Electricity Tribunal imposed, in accordance with the parties’ agreement, the maximum pecuniary penalty of $300,000 for three contraventions by a Generator of its obligation to comply with its performance standards relating to voltage disturbance ride-through, of which $150,000 was suspended for a period of 12 months;

(b)    in National Electricity Code Administrator v Pelican Power Point Ltd No 2 of 2005, the National Electricity Tribunal on 8 September 2005 imposed, in accordance with the parties’ agreement, the maximum pecuniary penalty of $100,000 for a single contravention by a Generator of its obligation to comply with its performance standards relating to frequency disturbance ride-through, of which $80,000 was suspended for a period of 12 months;

(c)    in Australian Energy Regulator v Snowy Hydro Ltd (No 2) [2015] FCA 58, Beach J imposed, in accordance with the parties’ agreement, total pecuniary penalties of $400,000 (out of a potential maximum of $900,000) for nine contraventions committed by a Generator in failing to comply with dispatch instructions given by AEMO as to the required level of generation output; and

(d)    in Snowtown Stage 2, the Court imposed, in accordance with the parties’ agreement, a pecuniary penalty of $1 million (out of an available maximum of $11,360,000) for a contravention of NER 4.4.3 which had continued for a period of approximately three years.

75    The parties accepted that, in accordance with the parity principle, it is appropriate for the Court to have regard in particular to the penalty imposed in Snowtown Stage 2. They submitted that a significantly lower penalty than that imposed in Snowtown Stage 2 is appropriate in this case because the contravention had continued for only 130 days in comparison with the 1,126 days of the contravention under consideration in that proceeding. I accept that this a relevant point of distinction. It is also pertinent that during the Relevant Period, the Snowtown 2 Wind Farm comprised 90 wind turbines whereas the Hornsdale Wind Farm comprised 32 wind turbines. I accept that the significantly lower penalty on which the parties have agreed in this case is consistent with application of the parity principle so as to take account of these differences.

76    As previously indicated, account should be taken of HWF1’s size and capacity to pay. In this respect, the parties agreed that HWF1 had reported total revenue of $18,763,319 in the 2016 calendar year and a net profit after tax in the same year of $16,422,467.

77    In summary, I consider that HWF1’s contravention is to be regarded seriously. It had the potential to result in drastic consequences, even if those consequences were not in fact realised on 28 September 2016. Although the contravention did not continue for nearly as long as did the contravention dealt with in Snowtown Stage 2, it did continue for over four months.

78    Nevertheless, as indicated above, there are mitigating circumstances. When all these matters are balanced out, I consider that the agreed penalty of $550,000 is an appropriate penalty and that it is appropriate for the Court to give effect to the parties’ agreement.

Compliance program

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

80    The compliance program on which the parties have agreed will require HWF1 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 the AER.

81    An order to this effect is appropriate because it will enhance the compliance by HWF1 with the performance standards applicable to it and assist in avoiding any further contraventions.

Costs

82    HWF1 has agreed to pay the AER’s costs in the sum of $175,000. It is appropriate in the circumstances that HWF1 do pay the 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

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

Associate:

Dated:    1 July 2021