AER takes action against Snowy Hydro Limited for alleged failure to comply with AEMO dispatch instructions

The Australian Energy Regulator (AER) has instituted proceedings in the Federal Court of Australia against Snowy Hydro Limited (Snowy Hydro) for alleged contraventions of the National Electricity Rules.

The AER alleges that Snowy Hydro failed to follow dispatch instructions issued by the Australian Energy Market Operator (AEMO) on nine occasions in 2012 and 2013, in breach of the National Electricity Rules which require generators to comply with AEMO dispatch instructions. The AER alleges that, on each occasion, Snowy Hydro generated substantially more power than the dispatch instruction required it to generate, and earned a greater trading amount from each transaction than it would have earned if it had complied with the dispatch instruction.

Compliance with dispatch instructions is mandatory to ensure the power system remains secure. AEMO relies upon conformance with dispatch instructions to ensure it can effectively perform its functions as both power system operator and market operator for the National Electricity Market (NEM).

“The AER has commenced these proceedings against Snowy Hydro because of the potentially serious implications of failures to follow AEMO dispatch instructions” AER Chairman Andrew Reeves said.

“A failure to follow dispatch instructions can allow generators to lift their revenue at the expense of power system security and, if widespread, may ultimately result in increased prices for consumers.”

The AER is seeking declarations, injunctions, penalties and costs.

Snowy Hydro is an electricity generator owned by the New South Wales, Victorian and Commonwealth Governments.

Background

The National Electricity Market (NEM) is a wholesale market in which generators sell electricity in eastern and southern Australia. Registered generators make offers into the market to produce particular quantities of electricity at various prices for each of the five minute dispatch periods in a day. The main customers are energy retailers, which bundle electricity with network services for sale to residential, commercial and industrial energy users. The Australian Energy Market Operator (AEMO) is responsible for operating the NEM.

AEMO determines which generators are dispatched and issues dispatch instructions to registered participants. It dispatches the cheapest generator offer first, then progressively more expensive offers until enough electricity is dispatched to meet demand. The highest priced offer needed to meet demand sets the dispatch price. The wholesale spot price paid to generators is the average price over 30 minutes; all generators are paid at this price, regardless of the price that they offer.

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 (cl 4.9.8(a), which is a civil penalty provision).

Compliance with dispatch instructions is necessary to maintain power system security. AEMO relies upon conformance with dispatch instructions to ensure it can effectively perform its functions as both power system operator and market operator for the NEM. Market outcomes may also be distorted by failures to follow instructions. One or more registered participants will suffer a loss where a generator obtains financial advantage from not following dispatch instructions.

Sector: 
Segment: 
Issued date: 
3 July 2014
AER reference: 
NR 012/14