Insights / April 3rd, 2017

Electricity Supply Emergencies – the power of direction

In support of the State Government’s “Our Energy Plan” released on 14 March 2017, the Emergency Management (Electricity Supply Emergency) Amendment Bill (Bill) aims to provide South Australia with control and security over its electricity supply in times of an electricity supply emergency

In very basic terms, the Australian Energy Market Operator (AEMO) schedules and dispatches generators to satisfy demand on the basis of ‘offers to supply’ from the National Electricity Market (NEM) generators. AEMO has the power under the National Electricity Law and National Electricity Rules to direct registered generators into production when a supply shortfall is expected. AEMO can also enter into separate demand side participation agreements with some large energy consumers to enable AEMO to direct those consumers to withdraw from the market in times of a supply shortfall. An example of how this works was recently seen in New South Wales when AEMO ordered the Tomago Aluminium plant to shut down to ensure the State had adequate supply. This is how AEMO manages the NEM.

Under the Bill, the Minister for Energy will have the power to direct AEMO to direct market participants in the NEM. Presumably this is intended to avoid a repeat of the February 2017 load shedding situation which saw large parts of South Australia without power for extended periods because, as some suggest, AEMO did not order the Pelican Point generation plant to run at full capacity. Under the Bill the Minister will have the power to direct AEMO to in turn direct a market participant to generate, restrict or suspend the supply of electricity, giving ultimate control for the State’s energy security to the State Minister rather than relying on AEMO to act.

Declaring an Electricity Supply Emergency

Under the Bill, the existing definition of a ‘disaster’ in the Emergency Management Act will be expanded to include an electricity supply emergency. Under proposed new section 27B, an electricity supply emergency will be any circumstance where it appears to the Minister (on reasonable grounds) that:

  • the supply of electricity to all or a part of South Australia will be disrupted to a significant degree; or
  • there is a real risk that the supply of electricity may be disrupted to a significant degree

In the above circumstances, the Minister may declare an electricity supply emergency.

The Minister’s Power of Direction

Once the Minister has declared an electricity supply emergency under section 27B, he or she can require:

  • AEMO to restrict electricity flow on an interconnector;
  • AEMO to give a direction to any other market participant;
  • AEMO to suspend the Spot Market in South Australia; and
  • any specified person who engages in generation of electricity to generate electricity in accordance with the requirements in the direction.

The Minister may consult with the market participant the subject of the direction and must take steps to avoid unduly interfering with the NEM, the National Electricity Law and National Electricity Rules where it is reasonably practicable to do so.

Significantly, the power to make a direction creates a mandatory duty for any generator the subject of a direction to comply with it notwithstanding any other act or law including the National Electricity (South Australia) Act.

Failing to comply with a direction will be an offence subject to a fine of up to $250,000 and may, if prosecuted, be considered an indictable or summary offence.

How long does a direction last and who is a market participant

A direction issued under section 27B remains in force for a maximum period of 14 days unless the Governor extends the direction for a further period not exceeding (an additional) 14 days. The Minister has the power to revoke the declaration at any time.

The Minister’s powers apply to any market participant. A market participant is:

  • AEMO;
  • anyone who engages in generation of electricity; and
  • anyone who engages in retailing of electricity.

Minister may compel a person to provide information and documents

Under proposed section 27D, the Minister will be able to compel a person to provide information and documents which are reasonably required to enable the Minister to:

  • determine whether there is or is likely to be an electricity supply emergency;
  • plan for the future exercise of powers; or
  • otherwise administer the electricity supply emergency provisions under the Bill.

The requirement to provide information and documents must be complied with even if the material would incriminate that person. However, the material provided will not be admissible in evidence.

Failing to comply with a request for information or documents is an offence subject to a fine of up to $100,000 and may, if prosecuted, be an indictable or summary offence.

What does the Bill mean for the NEM?

The NEM is the world’s longest interconnected power system. To balance the demand and supply of electricity from NEM generators requires, by its nature, a centralised operator. A Bill which seeks to introduce a State based mechanism to direct that centralised operator will not be without its challenges.

At its heart, the Bill aims to give control and direction of the State’s electricity supply, in an electricity supply emergency, to the State’s Energy Minister. While this is a laudable aim, the Bill leaves many questions unanswered. For example:

  • how will powers as expansive as those proposed operate in the context of undefined subjective terms like “significant degree”, “reasonably required” and “reasonably practicable”;
  • are the Ministers powers under section 90 of the National Electricity (South Australian) Act sufficient to enable the Minister to direct the NEM and power system operators, generators and retailers regardless of whether such direction impacts any other act or law;
  • under the Bill, the intention of Parliament is to have a direction apply within and outside of the State to the full extent of the extra-territorial legislative capacity of Parliament. Will this mean that a direction to AEMO can impact on other States and if so, will it (and can it) require market withdrawal from large consumers from other States under demand participation agreements;
  • how will the Minister exercise his or her broad powers to obtain commercial sensitive information and documents to “plan for the future exercise of powers” under section 27D; and
  • what will happen to the NEM if other states introduce legislation along the same lines, how will conflicting directions be managed.

These questions, along with many more, will require careful consideration before the Bill can proceed further.

Stay tuned for more information on the passage of the Bill.