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Supreme Court of Western Australia |
Last Updated: 13 April 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION : BLUEWATERS POWER 2 PTY LTD -v- AUSTRALIAN ENERGY MARKET OPERATOR LTD [2017] WASC 98
CORAM : LE MIERE J
HEARD : 7 MARCH 2017
DELIVERED : 13 APRIL 2017
FILE NO/S : CIV 1252 of 2017
BETWEEN : BLUEWATERS POWER 2 PTY LTD
Plaintiff
AND
AUSTRALIAN ENERGY MARKET OPERATOR LTD
First Defendant
AUSTRALIAN ENERGY MARKET OPERATOR LTD IN ITS CAPACITY AS SYSTEM MANAGEMENT
Second Defendant
Catchwords:
Wholesale electricity sales contract - Proper construction - Whether Outage Plan can be submitted in respect of an outage that has already commenced - Turns on own facts
Legislation:
Electricity
Industry (Wholesale Energy Market) Regulations 2004
(WA), reg 2, reg 5, reg 6(2), reg
6(6)
Electricity
Industry Act 2004 (WA), s 122, s
123
Interpretation
Act 1984 (WA), s 42, s 43(1) - (5), s
43(7) - (9), s 44, s 48, s 48A, s 50(1), s 53, s 55, s 56, s 58, s 59, s 75, s
76, pt VIII
Result:
Action dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr C G Colvin SC & Mr R G Lilly
First Defendant : Mr C A Moore SC & Mr N M Bender
Second Defendant : Mr C A Moore SC & Mr N M Bender
Solicitors:
Plaintiff : Johnson Winter & Slattery
First Defendant : Holman Fenwick Willan
Second Defendant : Holman Fenwick Willan
Case(s) referred to in judgment(s):
Summary1 The issue in this case is the construction of the Wholesale Electricity Market Rules (Market Rules). The Wholesale Electricity Market covers wholesale electricity sales within the South West Interconnected System (SWIS) between sellers (generators) and buyers (retailers and large users). The SWIS is the primary electricity grid in Western Australia. It supplies the bulk of the south west region. The plaintiff, Bluewaters, owns and operates a coal fired baseload power generating unit in Collie (BW2 Facility) which is capable of producing up to 217 MW of electricity for delivery into the SWIS. The defendant, AEMO, is the operator of the Wholesale Electricity Market and acts as System Management under the Market Rules. The primary function of AEMO as System Management is to ensure that the SWIS operates in a secure and reliable manner.
2 On 13 January 2017 the BW2 Facility suffered a trip (Trip Event) and has been out of service since. It will be necessary for Bluewaters to undertake substantial repairs to the facility before it can be brought back into service. The repairs are likely to take four to six months. The Market Rules distinguish between three types of outages: a Planned Outage, a Consequential Outage and a Forced Outage. A Planned Outage is an outage that is approved by System Management. A Forced Outage is any outage (or derating) that has not been approved by System Management (excluding Consequential Outages) and any part of a Planned Outage that exceeds its approved duration. A Consequential Outage is an outage which has not been approved by System Management but which was caused by a Forced Outage to another Market Participant's equipment and would not have occurred but for that Forced Outage.
3 The Market Rules provide for AEMO to approve an outage if it has been scheduled in accordance with an Outage Plan that has been approved by AEMO. An Outage Plan is a proposal submitted to System Management by a Market Participant, (relevantly a person who owns a generation system with a capacity of at least 10 MW that is connected to the SWIS) in which permission is sought from System Management for the scheduling of the removal from service (or derating) of an item of equipment.
4 After the Trip Event Bluewaters submitted plans to AEMO to cover the period when it would need to undertake repairs to the BW2 Facility (BW Plans). Bluewaters says that the BW Plans are Outage Plans which AEMO must evaluate and accept or reject. AEMO claims that it has no power to consider the BW Plans because they were submitted when the facility was already out of service and therefore are not Outage Plans.
5 Even though the BW2 Facility is out of service, Bluewaters is obliged to have generation available unless it is relieved of that obligation under the Market Rules. It is relieved of the obligation if and when the outage is a Planned Outage but not if it is a Forced Outage. If the BW2 Facility outage is a Forced Outage Bluewaters is required by the Market Rules to pay to AEMO a substantial amount which is described as Capacity Cost Refunds. The Capacity Cost Refunds are allocated and paid after a settlement process to the Market Customers (persons who buy electricity or sell electricity to customers connected to the SWIS) in proportion to their allocated Individual Reserve Capacity Requirements, which are provided for under the Market Rules. If the BW Plans are approved by AEMO and the BW2 Facility outage becomes or is classified as a Planned Outage, Bluewaters will be relieved of paying substantial amounts by way of Capacity Cost Refunds.
6 Bluewaters claims that AEMO has a duty under the Market Rules to consider any outage plan that is submitted by a Market Participant at any time that is not less than two days before the proposed outage. If the outage plan proposes an outage within six weeks of the commencement time for the proposed outage then AEMO may reject the plan if it forms the opinion that adequate time for assessment of the plan has not been allowed. Otherwise, Bluewaters says, an outage plan must be evaluated when it is received. Bluewaters seeks a declaration to that effect.
7 For the following reasons I find that a proposal submitted to System Management by a Market Participant in which permission is sought for the scheduling of the removal from service of an item of equipment is not a proposed Outage Plan as defined by cl 3.18.4A of the Market Rules if the item of equipment is out of service at the time the proposal is submitted and the Market Participant expects and intends that the item of equipment will remain out of service until the commencement of the proposed outage plan. The Market Rules do not require System Management to evaluate such a proposal as an Outage Plan.
Market Rules8 The Market Rules were made under the Electricity Industry (Wholesale Electricity Market) Regulations 2004 (WA) which in turn were made under s 122 and s 123 of the Electricity Industry Act 2004 (WA). The Market Rules govern the market and the operation of the SWIS including the wholesale sale and purchase of electricity, Reserve Capacity (basically the amount of electricity capacity required in SWIS to ensure the network can meet forecast peak demand), and ancillary services. Clause 1.2 of the Market Rules states the objectives of the market. Those objectives include to promote the economically efficient, safe and reliable production and supply of electricity and electricity related services in the SWIS and to minimise the long term cost of electricity supplied to customers from the SWIS.
The Wholesale Electricity Market9 It is necessary to outline the Wholesale Electricity Market before considering the rules relating to Outage Plans which give rise to this case. The Wholesale Electricity Market created and regulated by the Market Rules is described in an annexure to AEMO's written submissions. Bluewaters agrees that the description is correct except for some parts of the description which Bluewaters says are either incomplete or inaccurate. The following description of the Wholesale Electricity Market is drawn principally from AEMO's description of the market and the regulatory scheme except for those parts of the description which Bluewaters says are incomplete or inaccurate.
Wholesale Electricity Market mechanisms10 Electricity generating plants produce energy over a period of time measured in Megawatt hours. The maximum amount of energy a plant can produce is referred to as 'capacity' and is measured in Megawatts (MW). The Wholesale Electricity Market, referred to as WEM, comprises a wholesale electricity trading component and a capacity component. The WEM includes mechanisms for:
(a) ensuring that adequate generation capacity is available to satisfy the demand for electricity - the Reserve Capacity Mechanism (RCM) which is in chapter 4 of the Market Rules;
(b) Market Participants to adjust their contractual positions through a day ahead short term energy market (STEM) which is in chapter 6 of the Market Rules;
(c) on the day differences between contractual positions and physical outcomes to be traded through a competitive Balancing Market which is in chapter 7A of the Market Rules;
(d) the competitive supply of the Load Following Ancillary Service which is in chapter 7B of the Market Rules; and
(e) a regulated contract market for the provision of other Ancillary Services which is in cl 3.11 of the Market Rules.
11 The purpose of the RCM is to procure sufficient capacity to maintain system security and meet demand within the SWIS. The RCM pays providers of capacity, that is generators, for making capacity available even if they are not required to deliver electricity into the system. The RCM has a detailed capacity planning system, a payment for providing capacity and a payment reduction or refund system which requires generators who have contracted to provide capacity to refund capacity payments by means of Capacity Cost Refunds in relation to periods when the capacity is not available or reduced. Depending on the time of the year when the capacity is not available or is reduced the Capacity Cost Refunds may be up to six times the amount of the capacity payment.
12 The RCM provides capacity providers with the incentive that is required to underwrite investment that is not provided as part of the energy and ancillary services markets. In an energy market without a capacity mechanism, such as the National Electricity Market operating in the eastern states, this incentive is provided by allowing prices in the energy market to reach levels much higher than the average variable costs of the marginal generator.
The energy market in the WEM13 The energy market in the WEM consists of the STEM and the Balancing Market. Market Participants may also receive income through the Ancillary Services market. The STEM allows Market Participants to trade relative to their bilateral contract positions a day ahead of real time and make sure the cheapest generators will operate to provide all of their electricity forecasted to be required for that day. The Balancing Market ensures that any real time differences in electricity that occur on the day are provided by the cheapest generators available. Both markets are settled by AEMO and settlement is net of any bilateral contract positions already indicated to AEMO so Market Participants are not charged or paid for energy they have already been paid for through bilateral contracts.
14 The STEM is cleared as an auction. All quantities bought or sold in the STEM are relative to a Market Participant's stated bilateral contract position and all electricity is paid for at the STEM auction clearing price. The STEM results in each Market Participant having a 'Net Contract Position' which is generally equal to its bilateral contract position plus or minus any cleared STEM quantities.
15 The Balancing Market provisions require all Market Generators to provide AEMO with near real time information regarding their costs to provide different levels of electricity for each Trading Interval for the day. AEMO then stacks up all of these costs (the 'Balancing Merit Order') and determines where the forecasted total system demand will intersect this stack. The price of electricity at the intersection point is the 'Balancing Price' for that Trading Interval.
16 During each Trading Interval, AEMO, in its System Management function, dispatches all generation facilities with costs below the intersection of the forecasted total system demand and the Balancing Merit Order. This ensures that the cheapest combination of generators provides the required electricity in each Trading Interval.
Capacity and the WEM17 AEMO is responsible for forecasting the total generation capacity required to provide sufficient capacity, that is the annual Reserve Capacity Requirement (RCR), through projected assessments of system adequacy: cl 4.5 and 4.6 of the Market Rules. The administration of the obligations relating to capacity within the WEM is performed by AEMO in addition to its functions in administering the energy market.
18 The system adequacy assessment process requires AEMO to forecast total system demand as follows:
(a) meet the forecast peak demand supplied through the SWIS plus a reserve margin equal to the greater of:
(i) 7.6% of the forecast peak demand (including transmission losses and allowing for Intermittent Loads); and
(ii) the maximum capacity of the largest generating unit, measured at 41°C
while maintaining normal frequency control; and
(b) limit expected energy shortfalls to 0.002% of annual energy consumption (including transmission losses).
19 Each year, following the forecast of the Reserve Capacity Target, Market Participants that want to be assigned Capacity Credits apply to AEMO to have the capacity of facilities registered to them assessed for an allocation of Certified Reserve Capacity: clause 4.10 of the Market Rules.
20 A Capacity Credit represents a notional unit of Reserve Capacity provided by a facility during a Capacity Year. 'Reserve Capacity' is relevantly defined as the 'capacity of generation systems to generate electricity and send it out into a network'. The total number of Capacity Credits provided by a facility is determined in accordance with cl 4.20, cl 4.28B or cl 4.28C of the Market Rules. Each Capacity Credit is notionally equivalent to 1 MW of Reserve Capacity. The Capacity Credits to be provided by a facility are held by the Market Participant registered in respect of that facility: see definitions of 'Capacity Credit' and 'Reserve Capacity' in ch 11 of the Market Rules.
21 AEMO assesses the capability of the facilities to provide Reserve Capacity based on certain criteria in the Market Rules: cl 4.11 of the Market Rules. The assessment criteria for a Scheduled Generator (such as the BW2 Facility) specifically includes the amount of capacity that, in 'AEMO's reasonable expectation', the facility will be able to provide on Business Days during the period from 1 October to 31 July of the relevant Capacity Year: see cl 4.11.1(a) of the Market Rules.
22 In assessing the capability of a facility to provide Reserve Capacity, AEMO considers the historical Planned Outage and Forced Outage rates of the facility: that is considers the past reliability and availability of the facility. If a facility has a high Forced Outage rate, or an even higher combined Planned Outage and Forced Outage rate, AEMO may decide to assess the facility as not being able to provide any capacity, or decide it can provide a lower level of capacity than it otherwise would: cl 4.11.1(h) and cl 4.11.1A to cl 4.11.1D of the Market Rules.
23 Following AEMO's assessment of a facility's capability to provide Reserve Capacity, a capacity provider will be allocated a quantity of Capacity Credits equal to the Certified Reserve Capacity it commits to provide in its Certified Reserve Capacity application: cl 4.12.3 and cl 4.12.4. Bluewaters BW2 Facility is a Scheduled Generator which has been assigned Capacity Credits equivalent to 217 MW of capacity. As a Scheduled Generator, it is obliged under the Market Rules to make 217 MW of capacity available to be dispatched in the WEM.
24 Under the Market Rules, AEMO requires electricity retailers (Market Customers) to purchase Capacity Credits from capacity providers or AEMO, with the quantity being based on each retailer's contribution to peak demand, referred to as its Individual Reserve Capacity Requirement. Hence, capacity providers earn revenue by contracting to sell these Capacity Credits to retailers bilaterally or through transactions with AEMO. To fund payments for Capacity Credits, Market Customers are required to procure Capacity Credits. Each Market Customer must procure a quantity of Capacity Credits based on its Individual Reserve Capacity Requirement quantity. Market customers may procure Capacity Credits bilaterally from capacity providers (on commercial terms), or from AEMO via an auction process (at an administered price). For each facility that has been assigned Capacity Credits, the Market Participant to which the facility is registered will be paid the Monthly Reserve Capacity Price for each Capacity Credit it holds: cl 4.29 and cl 9.7.1 of the Market Rules.
25 Market Participants that have been assigned Capacity Credits are entitled to significant payments from other Market Participants in return for compliance with Reserve Capacity Obligations under cl 4.12 of the Market Rules.
26 The following obligations are imposed on a Market Participant that holds Capacity Credits for a facility:
27 Clause 3.18 is concerned with outages scheduled by System Management (Scheduled Outages). System Management must compile and publish a list of all equipment that is required to be subject to outage scheduling by System Management, which is basically all facilities with a capacity of more than 10 MW. System Management must maintain an outage schedule containing information on all Scheduled Outages. A Market Participant, such as Bluewaters, may submit a proposal to System Management seeking permission for the scheduling of the removal from service of an item of equipment. Such a plan is an Outage Plan. System Management evaluates Outage Plans. If System Management finds that an Outage Plan is acceptable then it must schedule the Outage Plan in System Management's outage schedule. Alternatively, System Management may find that an Outage Plan is acceptable under certain circumstances or it may find that an Outage Plan is unacceptable. Where System Management informs a Market Participant that an Outage Plan has not been scheduled or has been removed from System Management's outage schedule the Market Participant may apply to the Economic Regulation Authority to reassess the decision.
28 The acceptance of an Outage Plan and its inclusion in the outage schedule does not mean that the Market Participant is authorised to proceed with the outage as a Planned Outage. The Market Participant must obtain Outage Approval in accordance with cl 3.19. No later than two days prior to the date of commencement of any outage in System Management's outage schedule (Scheduled Outage), the Market Participant must request that System Management approve the Scheduled Outage proceeding. System Management must either approve or reject the Scheduled Outage applying criteria which are concerned with the capacity of the generation facilities remaining in service and the expected demand for electricity. Clause 3.20 provides for situations in which System Management may direct a Market Participant to return an item of equipment to service from Planned Outages.
29 Clause 3.21 is concerned with Forced Outages and Consequential Outages. A Market Participant must inform System Management of a Forced Outage and System Management must keep a record of all Forced Outages and Consequential Outages of which it is aware.
30 The outage planning provisions in cl 3.18 to cl 3.21 of the Market Rules have two distinct purposes:
31 The outage planning regime rewards scheduled maintenance by enabling a Market Participant to receive payments for Capacity Credits for a facility on a Planned Outage notwithstanding that the facility is out of service and therefore unable to deliver electricity to the network during the Planned Outage. This incentivises Market Participants to conduct maintenance at appropriate, prearranged (or scheduled) times.
32 However, in the case of unplanned outages, a Market Participant must pay 'Capacity Cost Refunds' if, at any time when it holds Capacity Credits, the facility is not available to be dispatched to its full rated capacity, including if its unavailability is a result of a Forced Outage irrespective of whether there is adequate or excess capacity available from other capacity providers for the duration of the outage. Under the Capacity Cost Refund regime, refunds are paid in proportion to the value of the capacity that is not provided, so the refunds are higher during summer, when demand is historically highest, and lowest during winter, when demand is historically lowest.
33 That the scheme created by the Market Rules expects market Participants with facilities holding Capacity Credits to plan maintenance in advance is apparent from cl 3.18.5(a) of the Market Rules. Under that provision, where an outage relates to a facility with a nameplate capacity greater than 10 MW (such as Bluewaters' BW2 Facility), and in respect of which a Market Participant holds Capacity Credits, the Market Participant must submit details of a proposed Outage Plan at least one year but not more than three years in advance of the proposed outage. Market Participants may submit an Outage Plan less than one year, but not less than two days, in advance of the proposed outage but in such instances System Management must give priority to Outage Plans received more than one year in advance of the commencement of the proposed outage: cl 3.18.5(b) and cl 3.18.5A of the Market Rules.
34 For each Market Participant holding Capacity Credits, AEMO must determine the amount of the refund (Capacity Cost Refund) to be applied for the Trading Month in accordance with cl 4.26.2F (cl 4.26.2E of the Market Rules). A Scheduled Generator such as Bluewaters on a Forced Outage for its full capacity is required to pay refunds equal to its Capacity Credits multiplied by the relevant values in the Refund Table in cl 4.26.1 of the Market Rules for each Trading Interval it remains on a Forced Outage. AEMO must apply any revenue generated from the application of cl 4.26.2E to Market Customers in accordance with cl 4.28.4 (cl 4.26.4 of the Market Rules).
35 In accordance with cl 4.25.4A, a Market Participant can request a reduction in the number of Capacity Credits associated with a facility. Unlike the prohibition against AEMO testing a facility that is undergoing an outage, this clause is not limited to facilities not experiencing an outage. This clause therefore allows Market Participants to choose not to be exposed to the refund regime in s 4.26 by agreeing not to be paid for the Capacity Credits in the first place.
Notification of unplanned outages36 If a facility suffers a Forced Outage or Consequential Outage, then the relevant Market Participant must inform System Management of the outage as soon as practicable together with the following information:
(a) the time the outage commenced;
(b) an estimate of the time the outage is expected to end;
(c) the cause of the outage;
(d) the facility or item of equipment affected; and
(e) for each affected facility or item of equipment, the expected quantity of any derating by Trading Interval, where, if the facility is a generating system, this quantity is the reduction in capacity from the relevant facility's maximum capacity
(cl 3.21.4 of the Market Rules).
37 Market Participants are required to provide outage notifications under the Market rules through AEMO's online SMMITS system (par 2.3.1 of the Facility Outages Power System Operation Procedure). In addition to a Market Participant's obligation (under cl 3.21.4 of the Market Rules) to inform System Management of a Forced Outage or Consequential Outage as soon as practicable, the relevant Market Participant must provide full and final details of the relevant Forced Outage or Consequential Outage no later than 15 calendar days following the Trading Day (cl 3.21.7 of the Market Rules).
38 If a market Participant considers that its facility has suffered a Consequential Outage, then it may provide System management with a notice signed by an Authorised Officer confirming details of the Consequential Outage no later than 15 calendar days following the Trading Day on which the Consequential Outage commenced: cl 3.21.8 of the Market Rules. If a Market Participant informs System Management of a Consequential Outage under cl 3.21.4 but does not provide a notice in accordance with cl 3.21.8 confirming details of the events which resulted in the Consequential Outage, the outage will be deemed not to be a Consequential Outage (cl 3.21.10 of the Market Rules).
Interpreting the Market Rules39 The Electricity Industry Act 2004 (WA) governs the operation and regulation of the Western Australian electricity industry. Section 122(1) provides that regulations are to be made for the purpose of establishing a market in relation to the wholesale supply of electricity in the SWIS. Section 122(2) sets out the objectives of the market. They are in the same terms as the objectives of the market stated in cl 1.2.1 of the Market Rules. Section 123(1) provides that without limiting s 122, the regulations are to provide for there to be rules (the Market Rules) relating to the market and to the operation of the SWIS setting out or dealing with such matters as are prescribed by the regulations. Section 123(2) provides that the market rules are not subsidiary legislation for the purposes of the Interpretation Act 1984 (WA) (Interpretation Act) and s 42 of that Act does not apply to them or to rules amending them or repealing and replacing them. Section 123(3) provides that the Interpretation Act s 43 (other than s 43(6)), 44, 48, 48A, 50(1), 53, 55, 56, 58, 59, 75 and 76 and pt VIII apply to the Market Rules as if they were subsidiary legislation. Regulation 2 of the Electricity Industry (Wholesale Electricity Market) Regulations 2004 provides that the regulations are made for the purpose of establishing the market described in s 122 of the Act. Regulation 5 provides that there are to be market rules as described in s 123(1) of the Act. Regulation 6(2) provides that market rules are to be made by the Minister and reg 6(6) provides that market rules made by the Minister are to be published in the Gazette and laid before each House of Parliament.
40 Notwithstanding s 123(2) of the Act, for the purposes of interpreting the relevant provisions of the Market Rules, the Market Rules should be considered as a species of subordinate or delegated legislation. The Market Rules should be interpreted by applying the general rules of statutory construction.
Principles of statutory construction41 The basic principles of statutory construction were referred to by the plurality in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27:
This court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy [47]. (footnotes omitted)
42 In Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross [2012] HCA 56; (2012) 248 CLR 378 French CJ and Hayne J, after referring to that passage in Alcan, stated:
The context and purpose of a provision are important to its proper construction because, as the plurality said in Project Blue Sky Inc v Australian Broadcasting Authority, '[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute' (emphasis added). That is, statutory construction requires deciding what is the legal meaning of the relevant provision 'by reference to the language of the instrument viewed as a whole', and 'the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed' [24]. (footnotes omitted)
French CJ and Hayne J warned against the practice of ascribing a purpose for the Act not from the text of the relevant provisions but from some other policy objective and then seeking to interpret the provisions according to that purpose:
Determination of the purpose of a statute or of particular provisions in a statute may be based upon an express statement of purpose in the statute itself, inference from its text and structure and, where appropriate, reference to extrinsic materials. The purpose of a statute resides in its text and structure.The conflicting interpretations
...
A second and not unrelated danger that must be avoided in identifying a statute's purpose is the making of some a priori assumption about its purpose. The purpose of legislation must be derived from what the legislation says, and not from any assumption about the desired or desirable reach or operation of the relevant provisions ... [25] - [26].
43 Bluewaters says that the BW Plans are Outage Plans within the meaning of cl 3.18.4A and cl 3.18.5A of the Market Rules and therefore AEMO, as System Management, must evaluate the BW Plans in accordance with cl 3.18.10 3.18.12. AEMO says that the BW Plans are not Outage Plans within the meaning of cl 3.18.4A and cl 3.18.5A and therefore are not proposed Outage Plans which may be evaluated by AEMO.
44 Clause 3.18.4A is a definition clause:
A proposal submitted to System Management in accordance with this clause 3.18 by a Market Participant or Network Operator in which permission is sought from System Management for the scheduling of the removal from service (or derating) of an item of equipment is a proposed outage plan ('Outage Plan').
45 The operative provisions under which a Market Participant must or may submit an Outage Plan are cl 3.18.5 and cl 3.18.5A. Clause 3.18.5 provides that a Market Participant:
(a) must, subject to clause 3.18.5A, submit to System Management details of a proposed Outage Plan at least one year but not more than three years in advance of the proposed outage, where:
(b) otherwise may submit an Outage Plan to System Management not more than three years and not less than two days in advance of the proposed outage.
46 Clause 3.18.5A provides for circumstances in which Market Participants may submit an Outage Plan less than one year in advance of the proposed outage:
Market Participants may submit an Outage Plan to which clause 3.18.5(a) relates to System Management less than one year, but not less than two days, in advance of the proposed outage, but in such instances:Bluewaters' interpretation
(a) System Management must give priority to Outage Plans to which clause 3.18.5(a) relate and which were received more than one year in advance of the commencement of the proposed outage;
(b) System Management must give priority to Outage Plans to which this clause 3.18.5A relates in the order they are received; and
(c) System Management must give no special priority to Outage Plans to which this clause 3.18.5A relates relative to Outage Plans to which clause 3.18.5(a) does not relate.
47 Bluewaters says that there is no provision in the Market Rules that restricts or limits the circumstances in which an Outage Plan may be submitted. In particular, Bluewaters says that there is no provision of the Market Rules which says that an Outage Plan may not be submitted for approval to undertake maintenance at a time when there is a continuing outage that started without the approval of System Management. Bluewaters says there is no provision in the Market Rules that states that equipment cannot be scheduled for removal from service for maintenance (or approved for a Planned Outage) if it is expected to be (or certain to be) out of service with the approval of System Management. Bluewaters says that the approval that is sought is to remove the equipment for maintenance. There must be a good faith intention to undertake maintenance. If there is such an intention (and there is enough capacity available from other generators to meet forecast demand) then the Market Rules provide for the approval to be given. So, when the date arrives there is an approval to remove which applies. It does not matter, Bluewaters says, that removal on that date was inevitable in any event. The only question is whether the approval is sought for maintenance.
AEMO interpretation48 AEMO says that a proposed plan submitted by a Market Participant to AEMO for an item of equipment to be out of service for a future period is not an Outage Plan if the item of equipment is out of service when the plan is submitted and the Market Participant expects and intends that the item of equipment will remain out of service until and throughout the future period to which the plan applies.
My interpretation49 I agree with AEMO's construction of the outage scheduling provisions of the Market Rules. The scheme of the Market Rules is that a facility is in service when it is available to dispatch electricity. The facility only dispatches electricity if and when it receives a Dispatch Instruction issued by System Management under cl 7.7. An item of equipment is out of service when it is not available to dispatch electricity, irrespective of whether or not it has received a Dispatch Instruction. In this context 'removal from service' means removal from being available for dispatch under a Dispatch Instruction issued under cl 7.7. A piece of equipment or facility that is out of service at the time the proposal is submitted and at the proposed start time of the outage in the plan cannot be removed from service and hence the proposal is not an Outage Plan within the meaning of cl 3.18.4A.
50 The first definition of 'removal' in the Online Oxford English Dictionary is '[t]he action of removing or taking a person or thing away or off; an instance of this'. The Online Macquarie Dictionary defines 'removal' as 'the act of removing' and defines 'remove' to mean, amongst other things, 'to move from a place or position; take away; take off' and 'to take, withdraw, or separate (from)'. The ordinary grammatical meaning of 'removal from service' of an item of equipment refers to an event occurring on a specific occasion. Removal from service occurs when an item of equipment which has previously been in service is taken out of service. An item of equipment which is out of service cannot properly be described as being removed from service when it continues to be out of service.
51 Of course, the parts of cl 3.18.4A that precede or follow the words 'removal from service' influence their meaning or effect. The surrounding words refer to a proposal by the operator of an item of equipment for permission to remove the item of equipment from service or derate it. In that context the ordinary grammatical meaning of 'removal from service' is to remove from service an item of equipment that is in service. A proposal seeking permission for an item of equipment to remain out of service does not fall within the ordinary meaning of a proposal seeking permission to remove an item of equipment from service.
52 Clause 3.18.4A defines an Outage Plan to be a proposal seeking permission for the scheduling of the removal from service an item of equipment or for the scheduling of derating an item of equipment. In the context of cl 3.18.4A derating an item of equipment means to lower the electrical capacity or capability of the item of equipment or facility. An item of equipment that has no capacity or capability because it is not capable of despatching electricity cannot be derated. An item of equipment that is out of service in the sense that it is not capable of despatching electricity cannot be derated. This suggests that an Outage Plan in cl 3.18.4A is a proposal to do something to an item of equipment that is in service in the sense of capable of despatching electricity. The reference to 'derating' supports the interpretation that a proposal seeking permission for the scheduling of the removal from service of an item of equipment is a proposal seeking permission to remove from service an item of equipment that is in service in the sense that it is capable of despatching electricity
Other provisions confirm construction53 Both parties submit that their interpretation of cl 3.18.4A is reinforced by other provisions of the Market Rules. In my opinion consideration of the Market Rules taken as a whole support the construction of cl 3.18.4A that an Outage Plan must relate to the removal from service of equipment that is expected and intended to be in service before the proposed removal from service.
54 Clauses 3.18.5 and 3.18.5A require Market Participants to submit an Outage Plan within specified periods 'in advance of the proposed outage'. The ordinary meaning of 'outage' is 'an interruption to the supply of electrical power' or 'the period of such an interruption' Macquarie Online Dictionary. In the context of cl 3.18 an outage refers to the period during which the facility is out of service, that is, not available to despatch electricity if and when required by System Management. There is one single outage which commences when the item of equipment goes out of service and finishes when the item of equipment is returned to service. That is apparent from, amongst other things, cl 3.18.6 which provides that an Outage Plan must include the proposed start and end times of the outage. A Market Participant cannot submit a proposal in advance of the proposed outage where the facility is already out of service and therefore the outage has commenced before the plan is submitted.
55 Clause 3.18.6(d) requires the information submitted in an Outage Plan to include 'the proposed start and end times of the outage'. It follows that the 'proposed start' time must be a time after the proposal is submitted.
56 Clause 3.18.7 provides that Outage Plans submitted by a Market Participant must represent the good faith intention of the Market Participant to 'remove from service' or derate the relevant facility or item of equipment for maintenance. The ordinary grammatical meaning of intention to remove from service is that the Market Participant intends to do something, that is remove the facility from service. Where the facility is already out of service and the Market Participant intends to repair it that cannot properly be described as an intention to remove the facility from service.
57 Clause 3.18.7A provides that System Management may reject an Outage Plan first submitted within six weeks of 'the commencement time of the outage' without evaluating that Outage Plan if, in the opinion of System Management, the submitting party has not allowed adequate time for the Outage Plan to be assessed. That clause is predicated on an Outage Plan being submitted in sufficient time before the commencement of the outage for System Management to assess the plan.
58 Clauses 3.18.8 and 3.18.9 provide for changes to the Market Participant's intention to remove a facility from service. The clauses are predicated on the assumption that approval is sought prior to the facility being removed from service.
59 If System Management accepts an Outage Plan it must schedule the Outage Plan in its outage schedule. Clause 3.19.1 then provides that no later than two days prior to the date of commencement of a Scheduled Outage the Market Participant must request that System Management approve the Scheduled Outage proceeding. System Management then approves or rejects the Scheduled Outage. Those provisions contemplate that approval is sought before the outage commences.
60 Bluewaters says that the terms of the Market Rules relating to Opportunistic Maintenance support its interpretation of what is, or may be, an Outage Plan. Opportunistic Maintenance means an equipment outage arranged within two days of when the outage is to take place which is approved in accordance with the outage approval provisions in cl 3.19. Bluewaters says that it is the only part of the outage provisions that deals with the effect of an approval for an outage on the liability to pay Capacity Cost Refunds. Clause 3.19.3A(c) provides that AEMO may decline to approve Opportunistic Maintenance 'where it considers that the request has been made principally to avoid exposure to Reserve Capacity Refunds ... rather than to perform maintenance'. In other words, when the real reason for seeking an approval for an Opportunistic Outage is to avoid the charges that would apply if there was a Forced Outage in a Trading Interval then the approval may be declined. Bluewaters says it is significant that it is not the mere fact that the Opportunistic Maintenance will avoid exposure to Reserve Capacity Refunds that provides a basis for refusal of Opportunistic Maintenance. If there is a genuine desire to perform Opportunistic Maintenance then it does not matter that it may mean that an imminent and urgent problem that would cause a Forced Outage (and therefore a liability to pay Reserve Capacity Refunds) is avoided. It is the use of maintenance as a cover for a different problem that is the reason why such a request may be refused. Bluewaters submits it is significant that this express provision dealing with the consequence for Reserve Capacity refunds in the context of the outage provisions of the Market Rules exists and is confined to the approval of Opportunistic Maintenance. Bluewaters says that the terms in which cl 3.19.3A are expressed show that the Market Rules are not concerned with an outage to undertake maintenance avoiding the liability to pay Reserve Capacity refunds. Rather, the Market Rules are concerned to ensure that where outages are allowed to be scheduled as Planned Outages they are truly being scheduled to undertake maintenance and not for some other purpose. A party with Capacity Credits is entitled to be relieved of its obligation to have the capacity available for each Trading Interval if it is out of service to undertake maintenance that has been scheduled and then approved and therefore is a Planned Outage.
61 The provisions relating to Opportunistic Maintenance are consistent with Bluewaters' interpretation of the Outage Scheduling rules but they are also consistent with AEMO's interpretation of those rules. The rules relating to the approval of Opportunistic Maintenance deal with the circumstance where an item of equipment is in service at the time the proposed outage plan is submitted and expected and intended to remain in service until the start of an approved Opportunistic Maintenance. Clause 3.19 prevents a Market Participant in such circumstances using the Opportunistic Maintenance provisions as a cover for an outage expected or intended to result from a cause other than a need or desire to undertake maintenance. Such a provision is unnecessary in a circumstance where the equipment is not in service when the plan is submitted and not expected or intended to resume service before the period in relation to which approval for a Planned Outage is sought because such a plan is not a proposed Outage Plan.
62 Bluewaters submitted that a number of other provisions of the Market Rules support its interpretation of the Outage Scheduling provisions of the Market Rules. Whilst the provisions referred to by Bluewaters are consistent with its interpretation, they are not inconsistent with AEMO's interpretation and do not persuade me that Bluewaters' interpretation is to be preferred to that of AEMO.
Purpose of Outage Scheduling63 An interpretation of the Market Rules that would allow a Market Participant to submit an Outage Plan in respect of an outage which has already commenced would not advance the purpose of the Market Rules concerning outage scheduling, outage approval, Capacity Credits and Capacity Credits Refunds which is to be discerned from the provisions of the Market Rules. The Market Rules ensure that generation capacity is available to be dispatched by AEMO by paying generators a fee for that capacity whether or not it is dispatched, encouraging generators to undertake preventative maintenance by permitting maintenance to occur without loss of capacity payments, by requiring a refund if a generator is unavailable because of a Forced Outage and by establishing a detailed capacity planning system. If the operator of a facility that is on a Forced Outage is able to submit an Outage Plan, which may be accepted by System Management, and thereby the Forced Outage would become a Planned Outage, that would reduce the disincentives to avoid breakdowns and other Forced Outages and would encourage generators to minimise preventative maintenance and continue to operate until a trip occurs and a Forced Outage commences, thereby undermining the system of capacity planning.
64 Generators continue to earn revenue from Capacity Credits associated with facilities which are on outage where the outage is a Planned Outage but where the outage is a Forced Outage they must pay the Capacity Cost Refund. The refund payable in respect of a Forced Outage accrues whether or not there is sufficient capacity in the network to cover for the reduction in capacity caused by the Forced Outage. Even if there is adequate or excess capacity, the Forced Outage results in a liability to pay the Capacity Cost Refund. A generator whose facility is on a Planned Outage continues to earn revenue from it without any refund obligation while a generator whose facility is on a Forced Outage must pay the refund without regard to the effect of the outage. The scheme rewards generators for scheduling maintenance in an orderly fashion and thereby encourages them to do so.
65 I accept AEMO's submission that an Outage Plan must be submitted prior to the occurrence of an outage for the important reason that AEMO is charged with the responsibility for managing the outage schedule with a view to ensuring that overall capacity in the network remains in a healthy state at all times by approving Outage Plans according to the considerations in cl 3.18.11. In doing so, AEMO is obliged to give priority to outages of longer than one week's duration involving a facility with greater than 10 MW capacity provided that the Outage Plan is submitted more than one year in advance of the proposed outage. Forced Outages interfere with the outage schedule as AEMO has no control over their timing or duration and their effect on overall network capacity.
66 Forced Outages may occur at any time irrespective of whether there is sufficient capacity to cover for it. They may occur during a period when the network has insufficient capacity. Furthermore, Forced Outages interfere with AEMO's ability to undertake proper planning of capacity requirements and to manage the outage schedule. The relevant provisions of the Market Rules discourage all Forced Outages and encourage Planned Outages. If an outage which commenced as a Forced Outage may become a Planned Outage, the generator would continue to receive Capacity Credits payments in respect of a facility that is out of service due to a breakdown. That substantially reduces the generator's incentive to avoid Forced Outages by preventative maintenance.
Maintenance67 AEMO submits that the BW Plans are not Outage Plans within the meaning of cl 3.18.4A for the further reason that cl 3.18.7 requires Outage Plans to represent the good faith intention of the Market Participant to remove from service a facility or equipment 'for maintenance'. AEMO says that maintenance does not include repairing a facility or equipment that has broken down.
68 AEMO supported its argument by reference to the definition of maintenance in the Shorter Oxford English Dictionary (6th ed) and the decision of Kunc J in NBN Co Ltd v Pipe Networks Pty Ltd (2015) 295 FLR 256 (NBN). Dictionary definitions of 'maintain' are not helpful. For example, the Online Macquarie Dictionary definitions include 'to keep in due condition, operation or force' or 'to keep in a specified state, position etc'. In NBN Kunc J said at [96] that 'maintenance' in its ordinary usage connotes keeping something in repair or in good working order rather than operating it. In this case AEMO does not seek to draw a distinction between keeping something in repair or good working order and operating it. AEMO seeks to draw a distinction between keeping equipment in good working order and restoring to good working order equipment that has ceased to be in good working order.
69 The ordinary meaning of 'maintenance' includes preventative maintenance, that is maintenance performed on equipment that is still working so that it does not break down unexpectedly. In its ordinary meaning maintenance also includes reactive or corrective maintenance, that is repairing equipment that has broken down to restore it to working order. Like any word 'maintenance' takes its meaning from its context. Power generation facilities are complex systems of equipment. Maintenance of such facilities or equipment may involve repairing or replacing items of equipment that have become faulty notwithstanding any extensive preventative maintenance programme. However, in cl 3.18.7 of the Market Rules maintenance refers to work undertaken on an item of equipment that was in working order prior to the commencement of the outage for the purpose of maintenance. That interpretation results not from the meaning of the word 'maintenance' but from cl 3.18 as a whole. In particular, when it is submitted the proposed Outage Plan must represent the intention of the generator to remove the item of equipment from service and therefore the item of equipment must have been in service immediately before the planned outage.
Necessary parties70 AEMO submits that Bluewaters has failed to join all necessary parties to the action. The Capacity Costs Refunds will, if paid by Bluewaters, be distributed to Market Customers in proportion to their allocated Individual Reserve Capacity Requirements pursuant to the operation of cl 4.26.2E, cl 4.26.4 and cl 4.28.4. AEMO says that the relief claimed by Bluewaters would alter the rights of the Market Customers by extinguishing the obligation of Bluewaters to pay AEMO and thus the obligation of AEMO to pay the Market Customers the Capacity Cost Refunds. Therefore, AEMO say, the Market Customers are necessary parties to the action.
71 In News Ltd v Australian Rugby Football League Ltd [1996] FCA 870; (1996) 64 FCR 410, Lockhart, von Doussa and Sackville JJ said at 524:
An order which directly affects a third person's rights against or liabilities to a party should not be made unless the person is also joined as a party. If made, the order will be set aside.
The Court found that certain of the orders made by the trial judge directly affected the Super League players' and coaches' rights against or liabilities to their Super League employers in that orders restricted their freedom to choose the employer for whom they would work. The Court discharged the orders of the trial judge having that effect. The court went on to say, at 525:
In our opinion, the question should be decided according to the test proposed by Lord Diplock. The test involves matters of degree, and ultimately judgment, having regard to the practical realities of the case, and the nature and value of the rights and liabilities of the third party which might be directly affected. The requirement that a third party's rights against, or liability to, any party to the proceedings be directly affected is an important qualification that recognises that many orders of a court are likely to affect other people to a greater or lesser extent. This is particularly so with remedies in the nature of an injunction: see Silktone Pty Ltd v Devreal Capital Pty Ltd (1990) 21 NSWLR 317 at 322 per Kirby P. The requirement of a direct effect on rights or liabilities differentiates the case where a person ought to be joined, from other cases where the effect of the order on nonparties can be characterised as only indirect or consequential.
In Wellington Capital Ltd v Australian Securities and Investments Commission [2014] HCA 43; (2014) 254 CLR 288 Gageler J said, at 316:
The applicable principle is that a declaration which directly affects a person's rights or liabilities should not be made under s 21 of the Federal Court of Australia Act unless that person is joined as a party. The application of that principle involves 'matters of degree, and ultimately judgment'.
72 The Market Customers' rights are not sufficiently directly affected by the relief sought by Bluewaters to make their joinder necessary. The Market Customers may be better off financially if relief is refused than if it is granted. However, the declaration sought, if made, will have only an indirect effect on the Market Customers. First, after evaluating the BW Plans AEMO may not accept them. Secondly, if the BW Plans are placed on the outage schedule Bluewaters must apply for approval to proceed with the outage. AEMO may not grant that approval. Thirdly, the Market Customers have no right to receive payment of Capacity Cost Refunds from a generator. AEMO receives the payments. AEMO will subsequently distribute the payments to the Market Customers in a settlement. A consequence of there being only an insufficient direct effect on the Market Customers is that Bluewaters has not failed to join all necessary parties.
Suitability of injunctive relief73 Bluewaters no longer presses for interlocutory relief at this stage. It is therefore unnecessary to consider the suitability of a mandatory injunction even if Bluewaters' interpretation of the relevant Market Rules was correct, which I have found it is not.
Conclusion74 Bluewaters' action should be dismissed.
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