$20,000 penalty imposed on AGL Hydro

The Australian Energy Regulator has imposed a civil penalty of $20,000 on AGL Hydro Partnership over its use of the inflexibility and rebidding provisions of the National Electricity Rules with respect to its MCKAY1 generating unit on 22 March 2006.

The AER issued an infringement notice alleging that AGL Hydro breached clause 3.8.22(c)(2)(i) of the rules by failing to provide a verifiable and specific reason for declaring the MCKAY1 generating unit as inflexible. As AGL Hydro has paid the infringement penalty, the AER's investigation of this matter is now closed.

"Physical operating conditions can prevent generators from increasing or decreasing output", AER Chairman, Mr Steve Edwell, said today. "The rules allow generators to notify the system operator, the National Electricity Market Management Company, of such circumstances using the inflexibility provisions. A generator that declares itself 'inflexible' is treated outside the normal market arrangements and must be dispatched by NEMMCO at the volume notified regardless of the price the generator offers that capacity. 'Bidding inflexible' may also afford a commercial advantage to a generator over its competitors.

"This means it is critical that the inflexibility provisions are used only where abnormal operating conditions exist. If generators inappropriately declare themselves inflexible it has the potential to impact on the efficient dispatch of the market and threaten the safe and secure operation of the power system.

"For these reasons, the AER carefully monitors and rigorously enforces this area of the rules to ensure that bidding inflexible is used only exceptionally and in response to genuine technical operating requirements. The AER's enforcement tools range from the infringement notice used in this case, to legal action seeking penalties of up to $100,000.

"In this instance, AGL Hydro used a rebid to declare its generator inflexible when abnormal operating conditions did not exist. This was reflected in the reason given by AGL Hydro for this rebid. In this case the AER has opted to issue an infringement notice rather than seek higher penalties from the Federal Court. This decision was made having regard to the nature of the breach (including the fact that this was an isolated event rather than a pattern of behaviour) and the fact that AGL Hydro has co-operated fully with the AER investigation. AGL Hydro has since retrained all relevant personnel to avoid any repetition of the event".


The relevant provisions of the National Electricity Rules dealing with dispatch inflexibilities and rebidding are clauses 3.8.19 and 3.8.22 respectively.

Clause 3.8.19 provides that generators may bid or rebid dispatch inflexibilities in circumstances when they are unable to follow dispatch instructions 'due to abnormal plant conditions or other abnormal operating requirements in respect of the scheduled generating unit'.

Clause 3.8.22 allows generators to rebid dispatch inflexibilities to specify a fixed loading level at which a unit must be operated. The provision requires the rebid to include a brief verifiable and specific reason.

The AER issued an infringement notice pursuant to section 74 of the National electricity Law alleging that AGL breached clause 3.8.22(c)(2)(i) of the National Electricity Rules by failing to provide a verifiable and specific reason after declaring the generating unit MCKAY1 as inflexible. Clause 3.8.22(c)(2)(i) is a relevant civil penalty provision within the meaning of section 73 of the Law. The infringement penalty for a breach of this clause is $20,000.

Issued date: 
31 August 2006
AER reference: 
NR 006/06
Steve Edwell, AER Chairman 03 9290 1421 0423 047 554
Lin Enright, Media 02 6243 1108 0414 613 520