Issue date
AER reference
NR 28/23

The Federal Court has ordered that AGL Energy Ltd subsidiaries, AGL Macquarie Pty Ltd (AGLM) and AGL Loy Yang Marketing Pty Ltd (AGLL), operators of AGL’s Bayswater and Loy Yang power stations, pay penalties totalling $6 million for breaches of the National Electricity Rules.

In proceedings brought by the Australian Energy Regulator (AER), the Federal Court found in periods between September 2018 and August 2020 the AGL subsidiaries did not comply with dispatch instructions given to them by the Australian Energy Market Operator (AEMO) in relation to frequency control ancillary services (FCAS) they had offered, and were paid, to provide. The court found that “the contraventions arose from a combination of insufficient processes and practices and inadvertence, which resulted in contraventions over periods of almost two years (in respect of AGLM) and four or five months (in respect of AGLL)”.

Her Honour Justice Button ordered that AGLM pay $3.2 million and AGLL pay $2.8 million for the breaches. Her Honour noted,

“The penalties reflect the duration of the contravening conduct, the financial standing and size of the respondents (and their parent company) and the importance of power generators being in a position to supply contingency in accordance with their offers, which is of vital importance to the maintenance of a secure and stable power network.

“…the contraventions did result in there being less contingency FCAS available to respond to any significant frequency deviations and so raised the risk that power system security would be compromised in the event of a frequency disturbance. This factor heightens the need for deterrence in respect of the respondents’ conduct. It is, of course, vitally important that power generators in fact be able to provide the contingency to which they commit.”

The penalties also reflected the respondents’ cooperation with the AER’s investigation, and their admission of the alleged breaches before the AER commenced proceedings.

AER Chair Ms Clare Savage welcomed the outcome and said it was a timely reminder for generators as the market transitions to renewables. Ensuring compliance with offers and dispatch instructions is an ongoing and active responsibility for all participants in the National Electricity Market, and this outcome sends a message to all generators of the importance of providing accurate and timely information about their capability and availability to AEMO.

“FCAS services are essential to keep the lights on following a power disturbance in the grid and these services are critical during the rapid transition to renewable energy generation.

AEMO relies on compliance with dispatch instructions and offers to keep the energy market stable. Generators must be prepared to provide the back-up services they have committed to so AEMO can keep the National Electricity Market stable and secure,” Ms Savage said.

As part of our compliance and enforcement priorities, the AER is committed to making sure generators meet their obligations to provide power system security and efficient outcomes in the wholesale electricity market. Ensuring compliance with offers and dispatch instructions is an ongoing and active responsibility for all participants in the National Electricity Market.

Note to Editors

Provision of contingency services

Under the National Electricity Rules, electricity generators can offer to be on standby to provide market ancillary services to stabilise network frequency when there is a power system disturbance.

Contingency FCAS is a type of market ancillary service and is essential to keeping the lights on following a frequency disturbance in the power system. In 2022 the AER released guidance for electricity market participants on their obligations when offering and delivering contingency FCAS.

The AER’s instituting of proceedings against AGL subsidiaries follows penalties imposed on Hornsdale Power Reserve (Hornsdale) last year for breaches of the National Electricity Rules related to providing back up contingency services. This action resulted in the court ordering Hornsdale to pay a penalty of $900,000. In 2021 CS Energy paid $200,000 in infringement notice penalties for allegedly failing to ensure it could provide FCAS it had offered to the market.

Supporting power system security

Supporting power system security and an efficient wholesale electricity market is one of the AER’s Compliance and Enforcement Priorities for 2023–24.

The AER will do this by focusing on generators’ compliance with offers, dispatch instructions, bidding behaviour obligations and providing accurate and timely capability information to AEMO.