EIT Kwinana Partner Pty Ltd v Electricity Generation and Retail Corporation Trading as Synergy - [2020] WASC 238

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   EIT KWINANA PARTNER PTY LTD -v- ELECTRICITY GENERATION AND RETAIL CORPORATION TRADING AS SYNERGY [2020] WASC 238
CORAM:   HILL J
HEARD:   24 & 25 JULY 2019 & WRITTEN SUBMISSIONS, 9 JUNE 2020
DELIVERED          :   24 JUNE 2020
FILE NO/S:   CIV 2877 of 2018
BETWEEN:   EIT KWINANA PARTNER PTY LTD
First Plaintiff
SUMMIT KWINANA POWER PTY LTD
Second Plaintiff
NEWGEN POWER KWINANA PTY LTD
Third Plaintiff
AND
ELECTRICITY GENERATION AND RETAIL CORPORATION TRADING AS SYNERGY
Defendant

FILE NO/S: CIV 1235 of 2019
BETWEEN: ELECTRICITY GENERATION AND RETAIL CORPORATION TRADING AS SYNERGY
Plaintiff
AND
EIT KWINANA PARTNER PTY LTD
First Defendant
SUMMIT KWINANA POWER PTY LTD
Second Defendant
NEWGEN POWER KWINANA PTY LTD
Third Defendant

Catchwords:

Contract - Tradable Purchase Agreement - Spinning Reserve Service - Proper construction - Electricity Market Rules - Whether obligation to pay - Turns on own facts

Legislation:

Electricity Corporations Act2005 (WA)
Electricity Corporations Amendment Act 2013 (WA)
Electricity Industry Act 2004 (WA)
Electricity Industry (Wholesale Electricity Market) Regulations 2004 (WA)

Result:

Declaration in terms of originating summons (CIV 2877 of 2018)
Originating summons (CIV 1235 of 2019) dismissed

Category: B

Representation:

CIV 2877 of 2018

Counsel:

First Plaintiff	:	Mr S K Dharmananda SC & Mr E M Heenan
Second Plaintiff	:	Mr S K Dharmananda SC & Mr E M Heenan
Third Plaintiff	:	Mr S K Dharmananda SC & Mr E M Heenan
Defendant	:	Mr B Dharmananda SC & Mr M J Sims

Solicitors:

First Plaintiff	:	Johnson Winter & Slattery - Perth
Second Plaintiff	:	Johnson Winter & Slattery - Perth
Third Plaintiff	:	Johnson Winter & Slattery - Perth
Defendant	:	Squire Patton Boggs

CIV 1235 of 2019

Counsel:

Plaintiff	:	Mr B Dharmananda SC & Mr M J Sims
First Defendant	:	Mr S K Dharmananda SC & Mr E M Heenan
Second Defendant	:	Mr S K Dharmananda SC & Mr E M Heenan
Third Defendant	:	Mr S K Dharmananda SC & Mr E M Heenan

Solicitors:

Plaintiff	:	Squire Patton Boggs
First Defendant	:	Johnson Winter & Slattery - Perth
Second Defendant	:	Johnson Winter & Slattery - Perth
Third Defendant	:	Johnson Winter & Slattery - Perth

Case(s) referred to in decision(s):

Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99
Australian Communication Exchange Ltd v Deputy Commissioner of Taxation [2003] HCA 55; (2003) ALR 271
Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219
Bluewaters Power 2 Pty Ltd v Australian Energy Market Operator Ltd [2017] WASC 98
Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389
CSR Ltd v Adecco (Australia) Pty Ltd [2017] NSWCA 121
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420
George 218 Pty Ltd v Bank of Queensland Limited [No 2] [2016] WASCA 182
Hunter Douglas Australia Pty Ltd v Perma Blinds (1970) 122 CLR 49
International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181
Metcash Ltd v Jardim [2010] NSWSC 1096; (2010) 273 ALR 407
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92
Re Media Entertainment and Arts Alliance; Ex Parte The Hoyts Corporation Pty Ltd [1993] HCA 40; (1993) 178 CLR 379
Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; (2019) 17 ASTLR 397
TerraVision Pty Ltd v Black Box Control Pty Ltd [No 3] [2016] WASC 95
Woodside Energy Ltd v Electricity Generation and Retail Corporation [2015] WASC 397
Yara Australia Pty Ltd v Oswal [No 2] [2013] WASCA 187

TABLE OF CONTENTS

Introduction

Legislative context to the TPA

Wholesale Electricity Market

Capacity and the Wholesale Electricity Market

Tradable Purchase Agreement

Principles of construction

Proper Construction of Spinning Reserve Capacity Payment

IPP's interpretation

EGRC's interpretation

Disposition

Were the obligations under cl 7 transferred to EGRC?

EGRC's submissions

The IPP's submissions

Disposition

Proper Construction of the Formula in cl 7.2 of the TPA

EGRC's submissions

The IPP's submissions

Disposition

Conclusion

HILL J:

Introduction

The issue in this case concerns whether Electricity Generation and Retail Corporation trading as Synergy (EGRC) is obliged to pay a 'Spinning Reserve Capacity Payment' to the plaintiffs under the terms of a Tradable Purchase Agreement (TPA).[1] This turns on the proper construction of the obligations of the parties under cl 7 of the TPA.
[1] Affidavit of Andrew Clive Sutherland filed 30 October 2018, 'ACS-1'.
The Wholesale Electricity Market covers the operation of the South West Interconnected System (SWIS), the electricity grid which supplies power to Perth and most of the south-western region of Western Australia. It covers sales between sellers (generators including the plaintiffs) and buyers (retailers and large users including EGRC).
In order to manage the security of the SWIS, sufficient generation capacity, known as spinning reserve, is held in reserve. This reserve can be dispatched and injected into the SWIS quickly in the event of an outage of a generator or transmission equipment, so that electricity supply can be managed and the frequency of the system does not drop too significantly.
EIT Kwinana Partner Pty Ltd and Summit Kwinana Power Pty Ltd carrying on business as NewGen Power Kwinana Partnership (IPP) contend in their originating summons (CIV 2877 of 2018) that EGRC is required to pay a 'Spinning Reserve Capacity Payment' irrespective of whether or not the IPP has provided a spinning reserve service to EGRC. EGRC, in its originating summons (CIV 1235 of 2019), contends that the obligation to pay the IPP a 'Spinning Reserve Capacity Payment' under cl 7 only arises when the IPP has provided a spinning reserve service. It contends that this requires the IPP to hold WP Slices for the purposes of providing a spinning reserve service, by notifying EGRC that WP Slices are available to be nominated for spinning reserve and for those slices to be, in fact, nominated by EGRC.
If EGRC does not succeed on its construction of cl 7 of the TPA, it seeks two alternative declarations: first, that the liabilities under cl 7 of the TPA were not assigned to it on the disaggregation of Western Power Corporation, and second, that the calculation of the formula in cl 7.2 is either not capable of calculation or results in the 'Spinning Reserve Capacity Rate' being zero.
For the reasons set out below, I consider that on a proper construction of cl 7.3 of the TPA, EGRC is liable to pay to the IPP an amount for each FC Slice that is deemed to be Available for Spinning calculated in accordance with cl 7.2 of the TPA. The payment obligation is not limited to FC Slices nominated and held for Spinning Reserve Services. In my view, the obligation to pay the Spinning Reserve Capacity Payment was assigned to Synergy on the disaggregation of Western Power and subsequently to EGRC on the re‑merger of Synergy and Verve and is capable of being calculated.

Legislative context to the TPA

Wholesale Electricity Market

The wholesale electricity market in the SWIS is established by regulations made pursuant to the Electricity Industry Act 2004 (WA) s 122. It is governed by rules, known as the Market Rules, which are made pursuant to these regulations.[2]
[2] Electricity Industry (Wholesale Electricity Market) Regulations 2004 (WA).
The TPA was executed prior to the existence of the wholesale electricity market and the disaggregation of Western Power. That is, at the time the parties entered into the TPA, Western Power Corporation was the generator, distributor and retailer of electricity in Western Australia. It is clear from the terms of the TPA that both the disaggregation of Western Power Corporation and the commencement of the wholesale energy market and the rules which govern it, were in the contemplation of the parties at the time the TPA was entered into.[3] It is also clear from the terms of the TPA that the parties intended that the operation of the TPA would occur within the wholesale electricity market to be established by the Electricity Industry Act and the Electricity Industry (Wholesale Electricity Market) Regulations 2004 (WA),[4] and in the context of the Wholesale Electricity Market Rules as they were at the date of entry into the TPA on 5 November 2005 (November 2005 Market Rules).
[3] TPA, Recitals.
[4] TPA, cl 17 and cl 8.
On 1 April 2006, Western Power Corporation was disaggregated. As and from that date, Western Power Corporation was succeeded by four separate corporations: the Electricity Generation Corporation (Verve); the Electricity Networks Corporation (Western Power); the Electricity Retail Corporation (Synergy); and the Regional Power Corporation (Horizon). Part 3 of the Electricity Corporations Act 2005 (WA) sets out the functions and powers of each of the corporations. It is a principal function of each of Verve, Western Power and Synergy (amongst other matters) to provide ancillary services.[5]
[5] Electricity Corporations Act 2005 (WA), ss 35(d), 41(e) and 44(d).
Part 9 of the Electricity Corporations Act sets out the transitional provisions for the succession from Western Power Corporation to these corporations. Relevantly:
(a)the Minister was required, as soon as was practicable, to make orders to be published in the Government Gazette specifying how the assets, rights and liabilities of Western Power Corporation were to be allocated among the new corporations;[6]
(b)after 1 April 2006, all references to Western Power in agreements were substituted with a reference to the relevant new corporation except to the extent that the relevant context otherwise requires.[7]
[6] Electricity Corporations Act 2005 (WA), s 147(1)(a).
[7] Electricity Corporations Act 2005 (WA), s 154(4).
The relevant Government Gazette, published on 31 March 2006, allocated the TPA to Electricity Retail Corporation (Synergy).[8]
[8] Western Australia, Government Gazette, No 57 (31 March 2006) 1249, 1252.
As and from 1 January 2014, Electricity Retail Corporation (Synergy) and Electricity Generation Corporation (Verve) merged and were renamed the Electricity Generation and Retail Corporation trading as Synergy, the defendant in CIV 2877 of 2018.[9] Pursuant to the transitional provisions that governed the re‑merger, on the re‑merger:
(a)all assets and rights of Synergy vested in EGRC;[10]
(b)all liabilities of Synergy became the liabilities of EGRC;[11]
(c)all references to Electricity Retail Corporation (Synergy) or Electricity Generation Corporation in any agreement, including the TPA, were deemed to be a reference to EGRC unless the context otherwise required.[12]
[9] Electricity Corporations Amendment Act 2013 (WA), s 5.
[10] Electricity Corporations Amendment Act 2013 (WA), s 35; Electricity Corporations Act 2005 (WA), s 200(1)(a).
[11] Electricity Corporations Amendment Act 2013 (WA), s 35; Electricity Corporations Act 2005 (WA), s 200(1)(b).
[12] Electricity Corporations Amendment Act 2013 (WA), s 35; Electricity Corporations Act 2005 (WA), s 218(2).
Under the November 2005 Market Rules:^[13]
(a)the Independent Market Operator (IMO) was responsible for, among other things, administering the Market Rules;
(b)a business unit of Western Power Corporation known as 'System Management' was responsible for operating the SWIS in a secure and reliable manner.
[13] Electricity Industry (Wholesale Electricity Market) Regulations 2004 (WA), rr 12, 13(1) and (2).
With effect from 30 November 2015, the Market Rules were amended to transfer a number of IMO's responsibilities to the Australian Energy Market Operator Ltd (AEMO). These responsibilities included responsibility for 'settlement' under ch 9 of the Market Rules.[14]
[14] Wholesale Electricity Market Amending Rules 2015 (WA). Published in Western Australia, Government Gazette, No 179 (27 November 2015) 4781.
With effect from 1 July 2016, the Market Rules were amended to confer the function of operating the SWIS in a secure and reliable manner on AEMO.[15]
[15] Wholesale Electricity Market Amending Rules 2016 (WA). Published in Western Australia, Government Gazette, No 89 (31 May 2016) 1661.
I will come back to the detail of some of these specific provisions in considering the matters raised by the parties in their respective originating summonses.

Capacity and the Wholesale Electricity Market

The Market Rules govern both the market and the operation of the SWIS including the wholesale market for the sale and purchase of electricity, the electricity capacity required in the SWIS to ensure the forecast peak demand can be met, and ancillary services.
The objectives of the Wholesale Electricity Market (WEM) are set out in cl 1.2 of the Market Rules. These objectives include to promote the economically efficient, safe and reliable production and supply of electricity and electricity related services in the SWIS.
The WEM includes procedures for ensuring there is sufficient generation capacity available to satisfy forecast demand for electricity in the SWIS (the Reserve Capacity Mechanism)[16] and the provision of Ancillary Services.[17] The Reserve Capacity Mechanism in ch 4 of the Market Rules seeks to ensure that each year there is adequate generation capacity available and that the demand side is managed to meet peak system requirements. This includes the provision of a reserve margin. The Market Rules operate so that there is an incentive for generators to underwrite investment in capacity by paying generators to make capacity available even if the generator is not required to deliver or inject electricity into the SWIS.
[16] Market Rules, ch 4.
[17] Market Rules, cl 3.11.
Chapter 3 of the Market Rules deals with the provision of 'Ancillary Services'. The specific definition of Ancillary Services in the Market Rules has changed over time. However, at all times, Ancillary Services have been services which regulate voltage and frequency quality, and respond to contingency events. These services are essential for maintaining the security and reliability of the SWIS.
Each Market Customer is required to contract for 'Capacity Credits'. A Capacity Credit is a notional unit of capacity (equivalent to 1 Megawatt (MW)) associated with a generation facility during a Capacity Year (being a 12 month period which commences on 1 October each year).
Capacity Credits are issued to suppliers of registered capacity. Suppliers or generators, such as the IPP, are obliged to make capacity available to the market and to participate in centralised outage planning. Market Customers who do not procure sufficient Capacity Credits bilaterally are required to fund the capacity which is procured by IMO/AEMO.
Following an assessment by IMO/AEMO of a facility's capability to provide Reserve Capacity, a generator is allocated a quantity of Capacity Credits equal to the Certified Reserve Capacity it commits to provide in its Certified Reserve Capacity application.[18]
[18] Market Rules, cl 4.12.3 and cl 4.12.4.
The power station the subject of the TPA is a 320MW combined cycle, natural gas-fired power station located in Kwinana (Kwinana Power Station).[19] The Kwinana Power Station is a Scheduled Generator which has been assigned Capacity Credits equivalent to 327.8MW of capacity.[20] As a Scheduled Generator, the IPP is obliged, under the Market Rules, to make 327.8MW of capacity available to be dispatched in the WEM.[21] The IPP is paid a Monthly Reserve Capacity Price for each Capacity Credit it holds.[22] The IPP is also required to submit to tests of availability of capacity and inspections to prove that the facility can provide the level of capacity equivalent to its Capacity Credits.[23]
[19] Affidavit of Andrew Clive Sutherland filed 30 October 2018 [6].
[20] Affidavit of Andrew Clive Sutherland filed 30 October 2018, 'ACS7'.
[21] Market Rules, cl 4.13.
[22] Market Rules, cl 4.29 and cl 9.7.1.
[23] Market Rules, cl 4.12.2(b).
Under the Market Rules, an electricity retailer or Market Customer (such as EGRC) is required to purchase Capacity Credits from a Market Generator or the IMO/AEMO. The TPA is a bilateral contract between the IPP, as a Market Generator, and EGRC, as a Market Customer or retailer.
At the time of entry into the TPA, the energy market under the Market Rules consisted of the Short Term Energy Market (STEM). The STEM is a daily forward market which allows Market Participants to trade around their bilateral contract positions. It was described by Le Miere J in Bluewaters Power 2 Pty Ltd v Australian Energy Market Operator Ltd in the following terms:[24]
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 STEM is] 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.
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.
[24] Bluewaters Power 2 Pty Ltd v Australian Energy Market Operator Ltd [2017] WASC 98 [13] - [14].
Chapter 6 of the Market Rules specifies the timetable and process for energy scheduling. Under the Market Rules, a Trading Day is the period of 24 hours commencing at 8.00 am, and the Scheduling Day is the 24‑hour period immediately prior to the Trading Day. The Market Rules require a bilateral submission for a Trading Day to be submitted to IMO/AEMO by 8.30 am on the Scheduling Day. The STEM auction occurs between 10.00 am and 10.30 am on the Scheduling Day. By 10.45 am on the Scheduling Day, each Market Participant is notified of:
(a)its quantities scheduled for each Trading Interval in the Trading Day; and
(b)its Net Contract Position in each Trading Interval.
The Market Rules require System Management to procure and dispatch Ancillary Services.[25] System Management is entitled to enter into an Ancillary Service Contract with another 'person' where:
(a)it does not consider that it can meet the Ancillary Service Requirements with Western Power's Registered Facilities; or
(b)the Ancillary Services Contract provides a less expensive alternative.[26]
[25] Market Rules, cl 3.12.1.
[26] Market Rules, cl 3.11.8.
Five types of Ancillary Services are defined in the Market Rules:
(a)Load Following Services - the frequent adjustment of the output of generators to match total system generation to total system load in real time to correct any SWIS frequency variations;[27]
(b)Spinning Reserve Service - capacity which is held in reserve that can respond rapidly if a Registered Facility experiences a sudden and unexpected loss of electricity supply;[28]
(c)Load Rejection Reserve Service - holding generation capacity or variable load in reserve so that the generator can reduce output rapidly or the load can increase consumption rapidly in response to a sudden decrease in SWIS load;[29]
(d)System Restart Service - the ability of a generator to start without requiring energy to be supplied from the network to assist in the re-energisation of the SWIS in the event of a system shut-down;[30] and
(e)Dispatch Support Service - any other form of ancillary service which is not within the above categories but is required to maintain security and reliability of the SWIS.[31]
[27] Market Rules, cl 3.9.1.
[28] Market Rules, cl 3.9.2.
[29] Market Rules, cl 3.9.6.
[30] Market Rules, cl 3.9.8.
[31] Market Rules, cl 3.9.9.

The issues in this case concern spinning reserves. The term 'Spinning Reserve' is defined in the 2004 Market Rules as:[32]
Supply capacity held in reserve from synchronised Scheduled Generators, Dispatchable Loads or Interruptible Loads, so as to be available to support the system frequency in the event of an outage of a generating works or transmission equipment or to be dispatched to provide energy as allowed under these Market Rules.
[32] Market Rules, ch 11 (Glossary).
The Market Rules also define 'Spinning Reserve Service' as:[33]
[T]he service of holding capacity associated with a synchronised Schedule Generator, Dispatchable Load or Interruptible Load in reserve so that the relevant Facility is able to respond appropriately in any of the following situations:
(a) to retard frequency drops following the failure of one or more Registered Facilities;
(b) to supply electricity if no Fifteen Minute Reserve is available and the alternative is to trigger involuntary load curtailment; and
(c) to avoid the need to start and stop a Scheduled Generator over a short period during the peak system load.
[33] Market Rules, cl 3.9.2, amended by Electricity Industry (Wholesale Electricity Market) Regulations Amending Rules, cl 16. Published in Western Australia, Government Gazette, No 61 (31 March 2006) 1375.
A provider of a Spinning Reserve Service must be able to ensure its facility responds in one of three time periods, being: [34]
(a)a response within 6 seconds with the ability to sustain or exceed the required response for at least 60 seconds;
(b)a response within 60 seconds with the ability to sustain or exceed the required response for at least 6 minutes; or
(c)a response within 6 minutes with the ability to sustain or exceed the required response for at least 15 minutes.
[34] Market Rules, cl 3.9.3.
Spinning Reserve is required to manage the security of the electricity system and enable generation of electricity and demand to be matched at all times. It ensures that if there is a sudden or unexpected loss of the supply of electricity, there is sufficient generation held in reserve that can be ramped up quickly to manage and restore the supply-demand balance.[35]
[35] Affidavit of Andrew John Everett filed 8 February 2019 [6] - [7].
Under the Market Rules, IMO is required to pay the System Manager for Ancillary Services, which includes the provision of Spinning Reserve Services.[36] These costs are recovered from Market Participants who are generators.[37] Where Ancillary Services are actually used, which in the case of Spinning Reserve Services is where electricity is injected or dispatched into the SWIS, the IMO does not make any additional payment to System Management or the generator.[38] Where this occurs, payment is made to the generator through the balancing mechanism settlement process.[39]
[36] Market Rules, cl 3.13.
[37] Market Rules, cl 3.14.
[38] Market Rules, cl 3.13.2.
[39] Market Rules, cl 9.8.
A share of the cost of System Management providing Spinning Reserve Services is allocated to each Market Participant who is a generator and, in the November 2005 Market Rules, is calculated by reference to the output of each Market Participant's facility in the relevant Trading Interval.[40] This calculation forms part of the Ancillary Service Settlement Calculation for each trading month[41] and is debited at settlement.
[40] Market Rules, Appendix 2. (See Electricity Industry (Wholesale Electricity Market) Regulations 2004 Amending Rules, cl 77. Published in Western Australia, Government Gazette, No 171 (9 September 2005) 4237).
[41] Market Rules, cl 9.9.
In the context of this legislative regime, I now turn to consider the TPA.

Tradable Purchase Agreement

On 5 November 2005, the IPP and Western Power Corporation (defined as Western Power) entered into a series of agreements for the construction and operation of the Kwinana Power Station, a greenfields development.[42] The first and second plaintiffs, in partnership and operating under the business name of 'NewGen Power Kwinana Partnership' (IPP), own and operate the Kwinana Power Station. The third plaintiff has been appointed by the IPP as its agent.
[42] TPA, Recitals.
IPP financed the construction of the Kwinana Power Station through financiers to the IPP.[43]
[43] Affidavit of Andrew Clive Sutherland filed 30 October 2018, 'ACS-2'.
The TPA is a long term contract between the IPP, as generator, and Western Power (now EGRC), as customer. The term of the contract is 25 years from the earlier of either the completion of the construction of the Kwinana Power Station, or 30 November 2008.[44] For the purposes of the TPA, the total energy generation capacity of the Kwinana Power Station of 310MW is divided into a number of 'Slices' of 1MW energy generating capacity.[45]
[44] TPA, cl 1(a).
[45] TPA, Schedule 1.
Clause 2 of the TPA deals with the primary purpose of the agreement, namely the bilateral trade of energy between the IPP and Western Power or EGRC. The structure of cl 2 is broadly similar to cl 7 although, for reasons which I set out below, there are some important differences.
Pursuant to cl 2.1, each WP Slice (namely a Slice that has not been on-sold by EGRC to third party off-takers) is deemed to be available for each Trading Period. Not less than two hours prior to the time the IPP is required to provide a Bilateral Submission to the IMO for the relevant Trading Day, that is, prior to 6.30 am on the Scheduling Day, the IPP may declare that a WP Slice is unavailable.[46] Unless a WP Slice has been declared unavailable, prior to 7.30 am on the Scheduling Day, Western Power may make an Energy Nomination in respect of each WP Slice[47] and is deemed to make an Energy Nomination for Slices 1 ‑ 151.[48] Under the TPA, an Energy Nomination is defined to be a nomination requiring a Bilateral Submission to be made in respect of that WP Slice during a Trading Period.[49]
[46] TPA, cl 2.1(b) and (c). On specified grounds which are not relevant for the purposes of this judgment.
[47] TPA, cl 2.2(a).
[48] TPA, cl 2.2(a)(iii).
[49] TPA, cl 35.
The IPP is required to make a valid and binding Bilateral Submission to the IMO for each Trading Day in accordance with the procedures set out in the Market Rules.[50]
[50] TPA, cl 2.4(a).
EGRC is required, pursuant to cl 2.6, to make Capacity Payments to the IPP. All WP Slices are eligible for a Capacity Payment other than:
(a) those declared by the IPP to be Unavailable because the IPP has been prevented from dispatching the Kwinana Power Station by reason of an event of Force Majeure;
(b) WP Load Shedding Slices; and
(c) Slices 309 and 310 where the temperature exceeds the maximum prescribed by the TPA.
Clauses 2.7 to 2.10 deal with limitations and constraints on transmissions and permissible outages which are not relevant to the matters before me.
The parties allocate market risks in cl 2.11 of the TPA. In this clause, the parties specifically acknowledge that:
(a)the IPP is not required to generate and dispatch energy from the Kwinana Power Station to meet its obligations under the TPA;
(b)the IPP bears the costs and risks under the Market Rules of any failure to dispatch energy as required;
(c)EGRC bears the costs and risks under the Market Rules in relation to taking energy other than in accordance with the Market Rules.
Clause 3 of the TPA sets out two payments that are required to be made by EGRC to the IPP, being Energy Payments (cl 3.1) and Capacity Payments (cl 3.2). Where a WP Slice is the subject of an Energy Nomination by EGRC, EGRC 'must pay' to the IPP an Energy Payment in respect of each Nominated WP Slice calculated in accordance with the following formula:
Energy Payment = Slice Capacity x IPP Loss Factor x (Energy Rate for that WP Slice + all Additional Energy Rates for that WP Slice) x Trading Period Fraction
EGRC is also required to make Capacity Payments to the IPP in respect of each Slice (other than those set out in [43]). A slightly different formula applies for the Capacity Payment for MSC Slices and FC Slices as compared to the two NFC Slices. For the MSC Slices and FC Slices, the Capacity Payment is calculated in accordance with the following formula:
Capacity Payment = (Capacity Rate for that WP Slice + all Additional Capacity Rates for that WP Slice) x Trading Period Fraction x Slice Capacity
For the NFC Slices, the first element of this formula is the Capacity Rate for that Slice.
That is, both the Energy Payment and Capacity Payment require the formula to be calculated in respect of each WP Slice and each Trading Period Fraction.
Clause 4 sets out the energy rate for each WP Slice for the first 15 years of the TPA and an adjustment mechanism which will apply for years 16 to 25 of the TPA. Clause 5 imposes an obligation on the IPP to hold Capacity Credits and to allocate these credits to EGRC. Clause 6 allocates priority to the Slices and the consequences of this.
Clause 7 is entitled 'System matters'. It specifically addresses Spinning Reserve (in cl 7.1 to cl 7.3) and, in broad terms, addresses other Ancillary Services (in cl 7.4).
Clause 7.1 is headed Spinning Reserve. Pursuant to cl 7.1(a), subject to certain exceptions (which do not relevantly apply in this case):
[E]ach Original FC Slice [defined in the TPA as Slices 175 - 308] will be deemed to be Available for each Trading Period for Western Power to nominate for Spinning Reserve Services (Available for Spinning) in accordance with this clause 7.1.
'Available for Spinning' is defined in cl 35 of the TPA as having the meaning in cl 7.1(a), and 'Spinning Reserve Services' is defined as having the meaning given in the Market Rules. The November 2005 Market Rules did not contain a specific definition of Spinning Reserve Services. Spinning Reserve Services were described in cl 3.9.2 of the Market Rules as set out at [31].
No later than two hours prior to the time the IPP is required to provide a Bilateral Submission to the IMO for the relevant Trading Day, that is, by 6.30 am on the Scheduling Day, the IPP may declare that any of the Original FC Slices are unavailable for spinning for a Trading Period.[51]
[51] TPA, cl 7.1(b) and (c).
No later than 30 minutes prior to the time the IPP is required to provide a Bilateral Submission to the IMO for the relevant Trading Day, that is, by 8.00 am on the Scheduling Day, the IPP 'must' notify Western Power of the number of Original FC Slices that are Available for Spinning that have not been the subject of an Energy Nomination by Western Power or an Off‑taker.[52] Within 10 minutes of receiving this notification, Western Power 'may' nominate a number of Original FC Slices up to the number notified by the IPP to be held as a Spinning Reserve Slice for that Trading Period.[53] 'Spinning Reserve Slice' is defined in cl 35 as meaning with respect to a Trading Period, an FC Slice nominated as such by Western Power under cl 7.1(d). I accept the submission of EGRC that the reference to cl 7.1(d) in this sub-clause is an error and should be construed as being a reference to sub‑cls 7.1(e) or 7.1(f).[54]
[52] TPA, cl 7.1(d).
[53] TPA, cl 7.1(e).
[54] Synergy's Submissions [62].
If an Original FC Slice is nominated by Western Power as a Spinning Reserve Slice, the IPP must hold that slice for the purposes of providing Spinning Reserve Services.[55]
[55] TPA, cl 7.1(f).
Where an Original FC Slice has been nominated a Spinning Reserve Slice, 'Western Power or System Management' may direct the IPP to provide the Spinning Reserve Service[56] and the IPP 'must' provide it,[57] unless it would be contrary to a Dispatch Instruction received from System Management which could not have been lawfully avoided by the IPP.[58] System Management is defined in cl 35 of the TPA as meaning the body carrying out the functions defined as System Management in the Market Rules.
[56] TPA, cl 7.1(g).
[57] TPA, cl 7.1(h).
[58] TPA, cl 7.1(i).
Clause 7.1(j) of the TPA provides that:
Western Power will pay the Spinning Reserve Capacity Rate to the IPP with respect to each FC Slice that is Available for Spinning provided by the IPP in accordance with this clause 7.1.
Pursuant to cl 7.1(k) of the TPA, the parties agreed that the obligations under cl 7.1 to cl 7.3 could be assigned by Western Power separately to the remainder of the Agreement with the consent of the IPP, such consent not to be unreasonably withheld. The clause provides that it would be unreasonable for the IPP to withhold its consent if the proposed assignee is financially and technically capable of performing the obligations under cl 7. In respect of an assignment that occurs as part of disaggregation or privatisation, an entity which meets the criteria in cl 10.4 (dealing with disaggregation) or cl 10.5 (dealing with privatisation) is deemed to be financially and technically capable.
The final sub‑clause of 7.1, cl 7.1(l), provides that the parties agree to meet and negotiate any additional procedures required to ensure that a nomination by Western Power 'pursuant to clause 7.1(b)' is effective to allow provision of the Spinning Reserve Services. It is apparent that the reference to cl 7.1(b) is a mistake and should be construed as being a reference to cl 7.1(e).[59]
[59] As set out at [54], cl 7.1(b) relates to the IPP declaring generation capacity as unavailable for spinning.
Clause 7.2 sets out the calculation of the Spinning Reserve Capacity Rate in the following terms:
The Spinning Reserve Capacity Rate payable by Western Power in respect of each FC Slice that is Available for Spinning is calculated using the following formula:
Spinning Reserve Capacity Rate _n= Actual Spinning Reserve Costs _(n-1)
A
Where:
nis the number of the relevant Quarter with Quarter 1 being the Quarter in which the Commencement Date occurs;
Actual Spinning Reserve Costs _(n-1) are the average charges imposed by System Management on the IPP's spinning reserve in respect of the Power Station in the Quarter prior to the relevant Quarter expressed in $ per hour; and
A is the greater of:
(a)the number of FC Slices _(n-1); and
(b)one.
Clause 7.3, which is headed Spinning Reserve Capacity Payment, provides that:
Western Power must pay to the IPP a Spinning Reserve Capacity Payment in respect of each FC Slice that is Available for Spinning calculated in accordance with the following formula for each Trading Period:
Spinning Reserve Capacity Payment = Slice Capacity ´ Spinning Reserve Capacity Rate ´ Trading Period Fraction.
For the avoidance of doubt, the IPP will also be entitled to receive any payment relating to the provision of Spinning Reserve Services by the IPP in accordance with clause 7.1(h).
Clause 7.3 contains a significant number of defined terms. Clause 35 of the TPA relevantly defines the following terms:
Slice Capacity means the capacity of a PSC Slice, being 1MW of energy.
Spinning Reserve Capacity Payment has the meaning given in clause 7.3.
Spinning Reserve Capacity Rate means a rate (specific in $/MWh) calculated in accordance with clause 7.2 that will be paid by Western Power to the IPP for each Slice that is providing Spinning Reserve Services in accordance with clause 7.
Trading Period means a period of 30 minutes and if a Market provides for the trading in capacity and energy for a different period, that different period.
Trading Period Fraction means the fraction of an hour that a Trading Period represents measured in hours.
It is not in dispute that the IPP did not provide the notification to EGRC required under cl 7.1(d) and that EGRC has not nominated any Original FC Slices to be held as Spinning Reserve Slices under cl 7.1(e). The issue for my determination is whether the payment obligation under cl 7.3 arises for all FC Slices or whether it is limited to those FC Slices that have been held or quarantined for Spinning Reserve Services.
Much of the remainder of the TPA contains provisions that are standard in these types of commercial agreements including force majeure (cl 8), defaults (cl 9), and assignment and security interests (cl 10). The only other notable provisions are cl 11, cl 17 (which imposes a requirement on the IPP to adhere to the Market Rules), cl 18 and cl 19.
Pursuant to cl 11, EGRC is entitled to on-sell the WP Slices (including the FC Slices) to a third party without the consent of the IPP, subject to the qualifications set out in that clause. Where this occurs, the IPP releases EGRC from any obligations under the TPA in respect of the on-sold slices (apart from any existing obligations).[60]
[60] TPA, cl 11.8.
Clause 18 sets out the requirements of the parties in the event that the Market does not start or is discontinued, or the Market Rules are amended. Where the Market Rules are amended and this has a material adverse effect on the IPP, the parties are obliged to meet to negotiate the minimum necessary amendments to ensure the agreement continues to have the same commercial effect.[61]
[61] TPA, cl 18.2.
Clause 19 sets out the procedures for billing and payment. Under cl 19.1, the IPP is required to invoice EGRC monthly. The invoice is required to set out for all Trading Periods for the month:
(a)the aggregate amount of Capacity Payments in respect of all Eligible Slices;
(b)the aggregate amount of Energy Payments in respect of all WP Slices the subject of Energy Nominations; and
(c)the aggregate amount of Spinning Reserve Payments payable by Western Power to the IPP in respect of all FC Slices that are Available for Spinning.

Principles of construction

The principles of construction that I am to apply in considering the obligations that arise under cl 7 of the TPA are well established and are not in dispute between the parties.
The TPA must be construed objectively by determining what a reasonable businessperson would have understood its terms to mean.[62] This is determined 'by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose'.[63] The background and purpose are to be identified by the terms of the TPA,[64] the statutory context in which the TPA was entered into[65] and may include matters of law.[66]
[62] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35] (French CJ, Hayne, Crennan & Kiefel JJ); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 [46] ‑ [47] (French CJ, Nettle & Gordon JJ).
[63] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [46] (French CJ, Nettle & Gordon JJ).
[64] Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; (2019) 17 ASTLR 397 [26] (Kiefel CJ, Gageler, Nettle & Gordon JJ).
[65] See for example, International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151.
[66] Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 [11] (Gleeson CJ, Gummow & Hayne JJ).
It requires consideration of the language used by the parties in the contract, the circumstances which the contract addresses and its commercial purpose or object.[67]
[67] Electricity Generation Corporation v Woodside Energy Ltd [35] (French CJ, Hayne, Crennan & Kiefel JJ); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [47] (French CJ, Nettle & Gordon JJ).
The TPA, as a commercial contract, should be construed in a manner that makes commercial sense[68] or, '[p]ut another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.[69] It must, however, be kept in mind that 'business commonsense may be a topic on which minds may differ'.[70]
[68] Electricity Generation Corporation v Woodside Energy Ltd [35] (French CJ, Hayne, Crennan & Kiefel JJ).
[69] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [51] (French CJ, Nettle & Gordon JJ).
[70] Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92 [86]; Maggbury Pty Ltd v Hafele Australia Pty Ltd [43]; Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219 [42(9)].

The TPA must be considered as a whole and any apparent inconsistency should be avoided.[71] If there is an apparent inconsistency, it should be resolved on the basis that one provision qualifies the other.[72]
[71] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 437 (McTiernan, Webb & Taylor JJ); Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99, 109 (Gibbs J).
[72] Re Media Entertainment and Arts Alliance; Ex Parte The Hoyts Corporation Pty Ltd [1993] HCA 40; (1993) 178 CLR 379, 386 ‑ 387 (Mason CJ, Brennan, Dawson, Toohey, Gaudron & McHugh JJ).
In considering particular phrases and clauses, it is necessary to construe individual words in the context of the relevant phrase or sentence because the unit of communication is the sentence and not the parts of which it is composed.[73] Where an agreement uses definitions, the words of the definition should be read into the operative text (unless the context requires otherwise).[74] However, where the definition does not fit comfortably into the operative text, 'the exercise of construction will need to address any logical or grammatical infelicities that arise and further analysis will be necessary to ascertain its legal meaning'.[75] Whether the literal meaning of the language of a defined term should be applied or departed from depends on the context in which the term is used. Unless the context requires otherwise, the literal meaning should be applied.[76]
[73] Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389, 396 ‑ 397 (Brennan CJ, Dawson, Toohey, Gaudron & McHugh JJ).
[74] George 218 Pty Ltd v Bank of Queensland Limited [No 2] [2016] WASCA 182 [82].
[75] TerraVision Pty Ltd v Black Box Control Pty Ltd [No 3] [2016] WASC 95 [42] and the cases cited therein.
[76] Black Box Control Pty Ltd v TerraVision Pty Ltd [72].
A court may not use the words of a defined term to contradict its definition nor use the defined term to cut down or expand the meaning of the definition, unless the context and purpose of the contract taken as a whole requires that course. However, in an appropriate case, the court may have regard to a defined term in giving meaning to its definition.[77]
[77] Woodside Energy Ltd v Electricity Generation and Retail Corporation [2015] WASC 397 [38].
A contract can only have one correct meaning. The task this court is required to do is to identify the single legal meaning of cl 7.3 by identifying the imputed intention of the parties by reference to the text of the contract construed in light of its context and purpose.[78] The court is entitled, subject to the requirements of procedural fairness, to reach its own conclusion as to the true construction of the agreement.[79]
[78] CSR Ltd v Adecco (Australia) Pty Ltd [2017] NSWCA 121 [158].
[79] Pilbara Iron Ore Pty Ltd v Ammon, [162]; Australian Communication Exchange Ltd v Deputy Commissioner of Taxation [2003] HCA 55; (2003) ALR 271 [7], [51], [101].
There are a number of other principles of construction which assist in ascertaining the meaning of the TPA. First, in construing a contract, where possible, all parts of it must be given effect and no part treated as inoperative or surplus. Second, prima facie all words must be given some meaning and effect. Third, words are assumed to be used consistently. Where a draftsperson could have used the same word but used a different word, it is assumed that the intention was to change the meaning.[80]
[80] TerraVision Pty Ltd v Black Box Control Pty Ltd [No 3] [43].
Three issues are raised on the originating summonses filed by the parties. First, the proper construction of cl 7.3 of the TPA and what the payment contemplated by this sub-clause applies to. Second, whether the obligations under cl 7 were assigned to Synergy and subsequently to EGRC on the disaggregation of Western Power. Third, the proper construction of the formula contained in cl 7.2 of the TPA.
I turn now to consider the first of these issues.

Proper Construction of Spinning Reserve Capacity Payment

The parties agree that three different categories of FC Slices are identified in cl 7.1 of the TPA, namely:
(a)FC Slices deemed to be Available for Western Power to nominate for Spinning Reserve Services (pursuant to cl 7.1(a)) but which were not nominated (Category 1);
(b)FC Slices nominated by Western Power and held or quarantined by the IPP for the purposes of providing Spinning Reserve Services (pursuant to cls 7.1(e) and (f)) (Category 2); and
(c)FC Slices which the IPP has provided for Spinning Reserve Services and been directed to dispatch or inject into the SWIS (pursuant to cls 7.1(g) and (h)) (Category 3).
As noted above at [64], it is not in dispute that, as a matter of fact, there have been no Category 2 or Category 3 Slices held or provided by the IPP for any Trading Period. Accordingly, the primary issue is whether, on the proper construction of cl 7, the parties agreed that the IPP should receive any payment for Category 1 Slices.
The IPP contends that cl 7 of the TPA requires EGRC to pay for Category 1 Slices. The IPP says that on a proper construction of cl 7, two types of payments are contemplated to be made by EGRC to the IPP. First, a payment under cl 7.1(j) for each FC Slice that has provided a Spinning Reserve Service (Categories 2 and 3) and second, a payment under cl 7.3 irrespective of whether the IPP has provided a Spinning Reserve Service (Category 1).
EGRC agrees that cl 7 contemplates that the IPP will receive two different payments for Spinning Reserves but says that neither payment is for Category 1 Slices or, to use the words of EGRC's senior counsel, 'unnotified, unnominated slices not used as Spinning Reserve'.[81] EGRC submits that:
(a)a 'Spinning Reserve Capacity Payment' is only paid where the WP Slices are nominated and quarantined to provide Spinning Reserve Services pursuant to the process set out in cl 7.1 of the TPA (Category 2). EGRC contends that this is the payment provided for in cl 7.3;
(b)where nominated slices are used to generate electricity which is dispatched and injected into the SWIS (Category 3), payment occurs under the Market Rules and not the TPA.

IPP's interpretation

[81] ts 101, 166.

The IPP submitted that the first payment obligation under cl 7 arises under cl 7.1(j). On their construction, cl 7.1(j) requires that a payment be made for each FC Slice that provides a Spinning Reserve Service for a relevant Trading Period calculated as the rate (the Spinning Reserve Capacity Rate in $ per FC Slice) multiplied by the number of applicable FC Slices. Senior counsel for the IPP acknowledged that cl 7.1(j) does not expressly refer to a 'Trading Period' but submitted that the Trading Period for which the payment was required to be made was incorporated in the clause by the definition of 'Available for Spinning'. This was on the basis that the definition of 'Available for Spinning' in cl 7.1(a) should be construed as meaning 'deemed to be Available for each Trading Period for Western Power to nominate for Spinning Reserve Services'.
In support of this construction, senior counsel for the IPP emphasised the words in the proviso in cl 7.3 – namely that the payment for which cl 7.3 provides is in addition to any payment to the IPP for 'the provision of Spinning Reserve Services by the IPP in accordance with cl 7.1(h)'.[82] Initially, the IPP submitted that the payment contemplated by the proviso was the payment for Category 3 Slices.[83] However, in submissions in reply as well as oral submissions, senior counsel for the IPP contended that the payment provided for in cl 7.1(j) was for both Category 2 and Category 3 Slices.[84]
[82] IPP's Submissions [132].
[83] IPP's Submissions [132], [143], ts 49, 69.
[84] IPP's Reply Submissions [4], [30] - [31]; ts 47 - 48.
The submission that cl 7.1(j) covered payments for both Category 2 and Category 3 Slices was advanced on the following grounds. First, at the time the TPA was executed, the Market Rules contemplated that payment for the provision of Spinning Reserve Services (and in fact all Ancillary Services) would occur outside the Market Rules. Further, an Ancillary Services Contract could be entered into with any person, whether or not they were a Rule Participant. The IPP submitted that there was no express provision within the Market Rules at that time for payment to a party who was not a Market Participant for the provision of Ancillary Services, including the provision of Spinning Reserve Services. For that reason, to give effect and meaning to the proviso, the payment must be contained within the TPA and the only alternative was cl 7.1(j).
Second, the only mechanism by which a Market Participant could receive payment for the provision of Ancillary Services was through the Balancing Mechanism settlement process. This process only applied if System Management issued a Dispatch Instruction. However, the TPA contemplated that Dispatch Instructions could be provided by either Western Power or System Management. If the Dispatch Instruction was provided by Western Power, the provision of Ancillary Services would not be covered by the Market Rules.
Third, the IPP relied on amendments to the Market Rules after the TPA was entered into as supporting its construction.[85] In particular, the IPP referred to the amendments in January 2006 which introduced first, a positive component for payment for the provision of Ancillary Services and second, a requirement that an Ancillary Services Contract could only be entered into with a Rule Participant.[86] The IPP submitted that these amendments illustrated that payment for provision of Ancillary Services pursuant to an Ancillary Services Contract was outside the scope of the Market Rules prior to the amendments and left open the question as to which category or categories of Slices cl 7.3 was addressing.
[85] IPP's Reply Submissions in reply [23].
[86] IPP's Reply Submissions [24].
Senior counsel for the IPP submitted that the word 'deemed' in the definition of 'Available for Spinning' needed to be given meaning in the construction of cl 7.1(a). As was noted by Windeyer J in Hunter Douglas Australia Pty Ltd v Perma Blinds:[87]
In Muller v Dalgety & Co Ltd (1909) 9 CLR 693, at p 696, Griffith CJ said that 'deemed' is commonly used 'for the purpose of creating . . . a “statutory fiction” . . . that is, for the purpose of extending the meaning of some term to a subject matter which it does not properly designate. When used in that sense it becomes very important to consider the purpose for which the statutory fiction is introduced'. This passage has been often quoted in Australian courts. It is a recognition that the verb 'deem', or derivatives of it, can be used in statutory definitions to extend the denotation of the defined term to things it would not in ordinary parlance denote. This is often a convenient device for reducing the verbiage of an enactment. But that the word can be used in that way and for that purpose does not mean that whenever it is used it has that effect. After all, to deem means simply to judge or reach a conclusion about something.
[87] Hunter Douglas Australia Pty Ltd v Perma Blinds (1970) 122 CLR 49, 65.
In the context of cl 7, the IPP contended that the word 'deemed' meant that the situation (that the FC Slices are Available for Spinning) is to be regarded as described.[88]
[88] IPP's Reply Submissions [37].
The IPP submitted that its construction of cl 7.1(j) and cl 7.3 of the TPA was supported by two additional matters. First, this construction mirrors the scheme for Energy Payments and Capacity Payments in cl 3 of the TPA. These clauses require the EGRC to pay for both the provision of electricity as well as capacity. Accordingly, it was consistent with these provisions that, in relation to Spinning Reserve Services, EGRC pay for both the capacity to provide the service and the provision of the service.
Second, the IPP contended that this construction makes commercial sense. The effect of the IPP's construction is to enable the IPP, under cl 7.3, to recover from EGRC charges imposed by System Management for Spinning Reserve in respect of the Kwinana Power Station. These costs are not factored into the rates that EGRC pays the IPP for energy and capacity[89] nor is there any provision in the TPA for EGRC to make any payment to the IPP to cover this expense. The construction contended for by the IPP would result in EGRC reimbursing the IPP for a charge which is imposed as a result of the generation and supply of electricity by the IPP for EGRC. The IPP submitted that it was commercially sensible for the parties to agree that EGRC bear these costs, particularly in circumstances where there was no provision in the TPA for a fixed periodical payment to cover this expense.

EGRC's interpretation

[89] IPP's Submissions [141].

EGRC submitted that the only payment obligation that arises under cl 7.3 is a payment for FC Slices which are nominated by EGRC and held or quarantined by the IPP for the purposes of providing Spinning Reserve Services; that is, for Category 2 Slices. Senior counsel for EGRC submitted that this construction was consistent with the Market Rules at the date of entry into the TPA which:
(a)contemplated payment to a Market Participant with an Ancillary Service Contract;[90]
(b)provided for a separate payment if quarantined capacity was dispatched and injected into the SWIS on the instructions of System Management.[91]
[90] Market Rules (as at November 2005), cls 3.11.8 - 3.11.10.
[91] Market Rules (as at November 2005), cls 6.17.6(b)(ii), 7.6.6(a).
EGRC emphasised that under the Market Rules the provision of Spinning Reserve Services required more than generation capacity; it required a generator to quarantine generation capacity capable of responding, if required, to stabilise system frequency.[92]
[92] EGRC's Submissions [46].
EGRC submitted that the definition of 'Available for Spinning' in cl 7.1(a) comprised three elements: first, Original FC Slices that were deemed to be available; second, for Western Power to nominate; and third; for Spinning Reserve Services. On this basis, EGRC contended that the reference to Western Power's ability to nominate the FC Slices for Spinning Reserve Services (as provided in cl 7.1(e)) was an integral part of the definition of 'Available for Spinning'.[93]
[93] EGRC's Submissions [50].
Senior counsel for EGRC submitted that, on its proper construction, cl 7.1(j) did not require EGRC to make any separate payment to the IPP for any category of FC Slices. EGRC contended that cl 7.1(j) requires Western Power to pay a specific rate (the Spinning Reserve Capacity Rate) for Spinning Reserve for each FC Slice provided by the IPP. In this regard, EGRC submitted that, on the proper construction of cl 7.1(j), the payment obligation only arises in respect of those FC Slices which are nominated by Western Power and held by the IPP as Spinning Reserve and does not extend to all FC Slices that are deemed to be available.[94]
[94] EGRC's Submissions [84].
In support of its contention that cl 7.1(j) does not contain a separate payment obligation, senior counsel emphasised that cl 7.1(j) does not provide how the rate is to be applied. On EGRC's construction, cl 7.1(j) has to be read with cl 7.2 (which describes the rate) and cl 7.3 (which sets out how the rate is to be applied).[95]
[95] EGRC's Submissions [24(f)].
EGRC submitted that the proviso in cl 7.3 makes plain that the IPP is entitled to a further payment if generation capacity, which is nominated as Spinning Reserve and quarantined for Spinning Reserve, is actually dispatched and injected into the SWIS.[96]
[96] EGRC's Submissions [24(j)].
EGRC submitted that the construction of cl 7 contended for by the IPP requires the court to ignore the nomination process for Spinning Reserve Services set out in cl 7.1(d) and cl 7.1(e) of the TPA, effectively rendering these clauses of no operational or other effect.[97]
[97] EGRC's Submissions [26], [66].
EGRC also relied on cl 7.1(k) and cl 7.1(l) in support of its construction. Clause 7.1(k) provides that the obligations under cl 7.1 and cl 7.3 can be separately novated. Clause 7.1(l) requires the parties to meet and negotiate to consider whether any additional procedures were required to ensure that a nomination for Spinning Reserve Services by Western Power is effective to allow the provision of the Spinning Reserve Services. EGRC submitted that the inclusion of these provisions within the TPA indicates that they were different to the obligations in the remainder of the TPA and that the nomination of Spinning Reserve Services was an important element.
Senior counsel for EGRC contended that if the parties had objectively intended that Western Power pay for all deemed available generation capacity, it would not be necessary for the parties to negotiate what, if any, additional procedures were required.[98]

Disposition

[98] EGRC's Submissions [104].

In considering the proper construction of cl 7 of the TPA, I have taken into account the background and context in which this clause is to be construed. This context includes the following:
(a)the TPA was entered into in contemplation of the disaggregation of Western Power and the establishment of the Wholesale Electricity Market;
(b)the Market Rules that had been proclaimed at the date of entry into the TPA are the Market Rules as of 1 October 2004,[99] as amended on 9 September 2005[100] and 25 October 2005;[101]
(c)System Management was a business unit of Western Power and was responsible for ensuring the maintenance of system security and reliability within the SWIS, including Spinning Reserve;
(d)at that time, the IMO was responsible for administering the Market Rules and scheduling;
(e)the TPA governed the sale from a Market Generator to a Market Customer of electricity to be produced from a greenfields power station although on its express terms, the TPA did not require the Kwinana Power Station to produce any electricity.
[99] Western Australia, Government Gazette, No 177 (5 October 2004).
[100] Western Australia, Government Gazette, No 171 (9 September 2005).
[101] Western Australia, Government Gazette, No 197 (25 October 2005).
I also take account of the fact that the TPA is a commercial contract which is required to be given a commercial interpretation in accordance with the authorities which I have summarised above. In broad terms, the commercial purpose and object of the TPA is to set out the terms on which electricity to be produced by the IPP, as generator, was bilaterally traded to EGRC, as customer, under the Market Rules over the life of the TPA, which was envisaged to be 25 years. That is, the TPA provided for long-term supply of electricity to EGRC.
A difficulty in interpreting the TPA arises from its extensive use of definitions - some of which appear in cl 35 as defined terms, some of which are defined in the operative provisions and some of which refer back to the Market Rules. Inserting the definitions into the substantive clauses in which they appear is not a straightforward exercise nor does it produce a construction which is immediately obvious. As set out in detail below, the insertion of the definitions produces some results which cannot be readily understood. In these circumstances, the court is required to construe the relevant contractual provisions in a manner which gives effect to the intention of the parties as ascertained from the text, context and commercial objectives and purpose of the TPA.
The starting point is to consider the language used in the relevant sub-clauses of cl 7 of the TPA once the relevant definitions have been inserted.
The first issue between the parties was the meaning of the phrase 'Available for Spinning' in cl 7.1(a) of the TPA.

The effect of cl 7.1(a) of the TPA is that each Original FC Slice is deemed to be Available for Spinning unless:
(a)it has been declared unavailable by the IPP;
(b)the IPP is already obliged to provide Spinning Reserve Services to the IMO or System Management; or
(c)the IPP is already obliged to provide energy to the Market which cannot be lawfully avoided.
In my view, for the following reasons, the phrase 'Available for Spinning' means each Original FC Slice, other than those which have been declared unavailable under cl 7.1(b), and is not restricted to those FC Slices that have been nominated by EGRC to be held for Spinning Reserve under cl 7.1(e). First, this construction is supported by the text of cl 7.1(a) where the reference to the nomination process contained in the words 'in accordance with this clause 7.1' appear after the definition 'Available for Spinning'. Second, the FC Slices nominated by the EGRC and held by the IPP to provide Spinning Reserve Services are separately defined in the TPA as 'Spinning Reserve Slices'. Consistent with the principles I have summarised above, where the draftsperson could have used the same definition but has used a different definition, it is assumed that the objective intention of the parties was to change the meaning. Third, I consider that the use of the word 'deem' in the clause means that each Original FC Slice is available for Western Power to nominate for Spinning Reserve Services.
The second issue concerns the meaning of cl 7.1(j) and cl 7.3 and whether they refer to the same or different payment obligations and, if so, which one(s).
Starting with cl 7.3, on inserting the defined terms into the text of this sub-clause, cl 7.3 provides:
Western Power must pay to the IPP a Spinning Reserve Capacity Payment [which has the meaning given in cl 7.3] in respect of each FC Slice that is [deemed to be Available for each Trading Period to nominate for Spinning Reserve Services] calculated in accordance with the following formula for each [period of 30 minutes]:
Spinning Reserve Capacity Payment = [1MW of energy] ´ rate (specified in $/MWh) calculated in accordance with clause 7.2 that will be paid by Western Power to the IPP for each FC Slice that is providing [the service of holding capacity associated with a synchronised Schedule Generator, Dispatchable Load or Interruptible Load in reserve so that the relevant Facility is able to respond appropriately in any of the following situations:
(a) to retard frequency drops following the failure of one or more Registered Facilities;
(b) to supply electricity if no Fifteen Minute Reserve is available and the alternative is to trigger involuntary load curtailment; and
(c) to avoid the need to start and stop a Schedule Generator over a short period during the peak system load]
in accordance with clause 7] ´ [the fraction of an hour that a Trading Period represents measured in hours].[102]
For the avoidance of doubt, the IPP will also be entitled to receive any payment relating to the provision of [the service of holding capacity associated with a synchronised Schedule Generator, Dispatchable Load or Interruptible Load in reserve so that the relevant Facility is able to respond appropriately in any of the following situations:
(a) to retard frequency drops following the failure of one or more Registered Facilities;
(b) to supply electricity if no Fifteen Minute Reserve is available and the alternative is to trigger involuntary load curtailment; and
(c) to avoid the need to start and stop a Schedule Generator over a short period during the peak system load]
by the IPP in accordance with clause 7.1(h).
[102] This equates to 0.5 because Trading Period is defined to be a period of 30 minutes.
That is, on inserting the definitions into cl 7.3, it is necessary to make a constructional choice. The clause requires a payment to be made in respect of each FC Slice that is deemed to be available to nominate for Spinning Reserve Services, or Category 1 Slices. However, the rate refers to each FC Slice that is providing Spinning Reserve Services. I note that the qualification (that the FC Slices be provided by the IPP) occurs by reference to the rate to be paid and not in relation to which FC Slices the payment is required to be made. The rate to be paid by EGRC is the subject matter of the second declaration sought by EGRC which I deal with below.
In my view, cl 7.3 requires a payment to be made in respect of each FC Slice that is deemed to be available or Category 1 Slices. This construction of cl 7 is supported by the following matters.
First, the payment to the IPP provided in cl 7 is the Spinning Reserve Capacity Rate (emphasis added). As was noted by Bell and Gageler JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:[103]
In the absence of the background circumstances indicating some reason to think otherwise, it is therefore appropriate to proceed on the assumption that the words chosen as the label for the defined term were not chosen arbitrarily but as 'a distillation of … a concept intended to be more precisely stated in the definition'.
[103] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [121].
The definition of Spinning Reserve Capacity Rate, in the context of the TPA, is capable of more than one meaning. In these circumstances, consistent with the principles of construction summarised above, the defined term can properly be used to ascertain the meaning of the definition.
The Oxford Dictionary defines 'capacity' as the 'ability to receive, contain, hold, produce, or carry' or 'the maximum amount or number that can be contained, produced, etc'.[104] The Macquarie Dictionary defines 'capacity' as 'the power of receiving or containing', or 'power, ability, or possibility of doing something', or 'the most that a factory, mine, etc, can produce' or in respect of electricity 'a measure of output performance'.[105]
[104] The New Shorter Oxford English Dictionary, 4^th edition, 1991.
[105] Macquarie Dictionary, 7^th edition, 2017.
In my view, the use of the word 'capacity' draws a distinction between the capacity of the Slices to provide Spinning Reserve Services and the use of the Slices for Spinning Reserve Services. This supports the construction that the payment obligation arises in relation to the maximum number of FC Slices that are available to provide Spinning Reserve Services as opposed to the FC Slices that are providing the Spinning Reserve Service.
This construction of the word 'capacity' is consistent with the November 2005 Market Rules which, in determining the cost of Spinning Reserve for each Market Participant, included as elements of its formula, the capacity required to cover the Ancillary Services Requirement (including for Spinning Reserve) for both peak and off‑peak Trading Intervals.[106]
[106] Western Australia, Government Gazette, No 171 (9 September 2005), cl 70, 4231.
Senior counsel for EGRC emphasised that the November 2005 Market Rules did not provide for payment to a Market Participant for the potential ability to provide Spinning Reserve Services. For this reason, it was contended that the TPA should be construed in a manner which was consistent with the Market Rules – namely that payment obligations only arose where generation capacity was either held or quarantined for Spinning Reserve Services or where generation capacity was injected in accordance with a dispatch instruction from System Management. At the time of entry into the TPA, the November 2005 Market Rules only provided for payment for Ancillary Services where electricity had been dispatched and injected into the SWIS. Any other payment was governed by the contractual arrangements between System Management and that 'person'.[107] For this reason, I do not consider that this submission assists the construction contended for by EGRC.
[107] Market Rules (as at November 2005), cls 3.11.8 - 3.11.10.
Second, cl 7 of the TPA distinguishes between three types of Original FC Slices and defines them differently:
(a)Original FC Slices that are deemed to be available to be nominated for Spinning Reserve Services, defined as 'Available for Spinning' (cl 7.1(a));
(b)Original FC Slices that are nominated by EGRC to be held for the purposes of providing Spinning Reserve Services, which are specifically defined as 'Spinning Reserve Slices' (cl 7.1(e), cl 7.1(f), cl 7.1(g) and cl 35) (emphasis added); and
(c)Original FC Slices nominated by EGRC to be held for the purposes of providing Spinning Reserve Services and provided as Spinning Reserve Service in accordance with a direction from Western Power or System Management (cl 7.1(g) and cl 7.1(h)) (emphasis added).
EGRC submitted that the definition of Original FC Slices nominated to be held for providing Spinning Reserve Services as Spinning Reserve Slices was not relevant to the 'true effect of cl 7.1(j) and cl 7.3'.[108] This is because the defined term 'Spinning Reserve Slice' is not used in either clause. While it is clear that 'Spinning Reserve Slice' is not used in either cl 7.1(j) or cl 7.3, I do not accept that the absence of this defined term is not relevant to the proper construction of these clauses. The draftsperson could have used the phrase 'Spinning Reserve Slices' in cl 7.3 if the intention was to limit payment to FC Slices which were nominated and held or quarantined to provide Spinning Reserve Services, but did not. Instead, the draftsperson used the phrase 'Available for Spinning'. Adopting the principles of construction summarised above, it is assumed that the objective intention of the parties was to not limit payment to only those Original FC Slices which were nominated by EGRC to provide Spinning Reserve Services.
[108] EGRC's Submissions (9 June 2020) [12].
Third, the context in which 'Spinning Reserve Capacity Rate' is used in cl 7.3 reflects the objective intention of the parties to incorporate the numerical rate (calculated in accordance with cl 7.2) and not the text of this definition in cl 35 (emphasis added). If the numerical rate is inserted into cl 7.3 rather than the definition, no constructional choice is required.
Fourth, the text of the sub-clauses within cl 7 dealing with payment (cl 7.1(j), cl 7.2 and cl 7.3) refer to payments being made 'with respect to each FC Slice that is Available for Spinning'. Save for cl 7.1(j), which I address below, the text of these clauses refer to payment to be made with respect to each FC Slice that is deemed to be available to be nominated for Spinning Reserve Services. The text of these clauses do not require the FC Slices to have been held nor provided as a Spinning Reserve. This construction is supported by the proviso in cl 7.3 that states 'For the avoidance of doubt, the IPP will also be entitled to receive any payment in relation to the provision of Spinning Reserve Services by the IPP in accordance with cl 7.1(h).' I accept that the use of these words assume that the relevant obligation, for payment of the provision of Spinning Reserve Services, is to be found elsewhere.[109] As set out above, the payment for the provision of FC Slices which have been dispatched or injected into the SWIS is contained in the Market Rules.
[109] Metcash Ltd v Jardim [2010] NSWSC 1096; (2010) 273 ALR 407 [34].
Fifth, other provisions of the TPA confirm this construction. The TPA distinguishes between capacity to provide services and the provision of services. Pursuant to the express terms of the TPA, EGRC agreed to pay the IPP for both the capacity to provide services as well as the provision of services. Clause 2 and cl 3 of the TPA set out the obligations of EGRC to pay to the IPP Energy Payments and Capacity Payments. These clauses distinguish between Nominated WP Slices (those which have been the subject of an Energy Nomination pursuant to cl 2.2 of the TPA) and Eligible Slices (all other WP Slices unless declared unavailable, a WP Load Shedding Slice or, in the case of a NFC, where the Trading Period Temperature exceeds the Maximum Temperature). EGRC is required to pay Energy Payments to the IPP for Nominated WP Slices and Capacity Payments in respect of each Eligible Slice.
Clause 2 of the TPA contains a deemed nomination provision for a minimum number of Slices, which is not mirrored in cl 7. Senior counsel for EGRC submitted that this supported their construction of cl 7. I do not accept this submission. The deemed nomination provision in cl 2.2 must be read in the context of cl 2.11. Under cl 2.11 of the TPA, the IPP is not required to generate any energy from the power station. The deemed nomination provision means that the IPP is guaranteed to receive the higher Energy Payment in respect of a minimum number of Slices for each Trading Period. In the context of a greenfields development of a power station, the EGRC agreeing to pay to the IPP a guaranteed minimum income for each Trading Period is a sensible commercial agreement.
The provisions of cl 7 concern the nomination of Slices to provide a Spinning Reserve Service. That is, this clause concerns the delivery or potential delivery of energy as opposed to the guarantee of a minimum payment. The obligation of EGRC to pay the IPP for both capacity and use is mirrored in cl 7.3. Clause 7.3 expressly provides for the payment of capacity to provide Spinning Reserve Services and, in the proviso, acknowledges the entitlement of the IPP to be paid separately and in addition for the provision of Spinning Reserve Services.
Clause 19.1 requires the IPP to give EGRC, within five business days of the end of each month, an invoice setting out, inter alia, the aggregate amount of Spinning Reserve Payments in respect of all FC Slices that are Available for Spinning. Spinning Reserve Payments is not a defined term in the TPA. In my view, on a proper construction of the TPA, this is a reference to Spinning Reserve Capacity Payments. Once again, the text of this clause refers to FC Slices that are deemed to be available to be nominated for Spinning Reserve Services as opposed to Spinning Reserve Slices or FC Slices that have been held as a Spinning Reserve, or FC Slices that have been provided for Spinning Reserve Services.
Turning then to cl 7.1(j), on inserting the relevant definitions (apart from FC Slice), cl 7.1(j) reads as follows:
Western Power will pay the [rate (specified in $/MWh) calculated in accordance with clause 7.2 that will be paid by Western Power to the IPP for each FC Slice that is providing [the service of holding capacity associated with a synchronised Schedule Generator, Dispatchable Load or Interruptible Load in reserve so that the relevant Facility is able to respond appropriately in any of the following situations:
(a) to retard frequency drops following the failure of one or more Registered Facilities;
(b) to supply electricity if no Fifteen Minute Reserve is available and the alternative is to trigger involuntary load curtailment; and
(c) to avoid the need to start and stop a Schedule Generator over a short period during the peak system load]
in accordance with clause 7] to the IPP with respect to each FC Slice [WP Slice that is classified as FC in schedule 1 to this agreement] that is [deemed to be Available for each Trading Period to nominate for Spinning Reserve Services] provided by the IPP in accordance with this clause 7.1.
In my view, cl 7.1(j) does not give rise to a separate payment obligation to that in cl 7.3. I accept the submission by EGRC that each of cl 7.1(j), cl 7.2 and cl 7.3 must be read together. It is clear from the terms of the TPA as well as the Market Rules that the generation and supply of, as well as the payment for electricity, occurs over 30 minute Trading Periods over the course of a Trading Day. Different requirements are needed over each of these Trading Periods. Accordingly, in calculating any payments to be made to the IPP, I consider that Trading Period is a critical element. Clause 7.1(j) does not refer to or include this element.
Senior counsel for the IPP contended that Trading Period was incorporated within the sub‑clause by the definition of 'Available for Spinning'. In my view, the use of Trading Period in this definition is not for the purpose of calculating payment but to identify the FC Slices that are available or are deemed to be available over the course of a Trading Day.
This construction is also consistent with the payment obligations in cl 3 which sets out formulas for the calculation of both Energy Payments and Capacity Payments, both of which include Trading Period as one element.
The IPP also emphasised the different wording in cl 7.1(j) (referring to Spinning Reserve Capacity Rate) and cl 7.3 (referring to Spinning Reserve Capacity Payment) as supporting its contention there were two different payment obligations within cl 7. I do not accept this submission. Clause 7.3 of the TPA expressly incorporates the reference to Spinning Reserve Capacity Rate but includes the other elements which are required to calculate the payment due to the IPP, namely the capacity of the Slice and the fraction of the Trading Period.
In cl 7.1(j), the obligation on Western Power to pay the Spinning Reserve Capacity Rate arises 'with respect to each FC Slice that is Available for Spinning provided by the IPP in accordance with this cl 7.1' (emphasis added). This raises a constructional choice: do the words in italics impose an additional requirement and require the FC Slice to have been provided by the IPP as Spinning Reserve Services or are the words in italics, in effect, surplus? In submissions before me, the parties ultimately agreed that the obligation in this sub-clause concerned Category 2 Slices, namely those FC Slices that were nominated for Spinning Reserve Services.[110] Despite this agreement, in my view, for the following reasons, the words in italics are unnecessary and do not impose any additional requirement or require the FC Slice to have been provided for Spinning Reserve Services.
[110] IPP's Reply Submissions [32]; EGRC's Submissions [90] - [91].
First, if the parties had objectively intended to impose this additional requirement, the text of the clause would include the specific defined term 'Spinning Reserve Slices' instead of 'FC Slice that is Available for Spinning' or would specifically refer to the obligation to provide Spinning Reserve Services in cl 7.1(h). Second, in the context of cl 7 read as a whole, all FC Slices are available for nomination for Spinning Reserve Services, unless they have been the subject of an energy nomination or on-sold and subject to an energy nomination by an off‑taker. By using the more general text of 'provided by the IPP in accordance with this cl 7.1', in my view, these words refer to the deemed obligation by the IPP to provide to EGRC all FC Slices to be nominated for Spinning Reserve Services.
EGRC submitted that this construction of the agreement would require the court to ignore cl 7.1(d) and cl 7.1(e) and give them no operational effect. I do not accept this submission. The purpose of cl 7 is to set out the terms on which the IPP will provide Spinning Reserve Services, what must be done for the IPP to be required to dispatch Spinning Reserve Services, and the payment terms for such services. Unless Original FC Slices that were deemed to be Available for Spinning were nominated and held as Spinning Reserve Slices, the IPP could not be directed to provide a Spinning Reserve nor receive any additional payment for the provision of a Spinning Reserve. For this reason, I consider that these sub‑clauses have operational effect even though they do not impact on the payment obligation arising under cl 7.
Finally, I consider that this construction has a commercial rationale, acknowledging that this is a topic on which minds may differ. Subject to the proper construction of the formula in cl 7.2, which I deal with below, I consider that it is commercially sensible for the parties to agree that the IPP recover from the EGRC the charge imposed on the IPP for Spinning Reserve. This charge arises as a consequence of the generation and supply of electricity by the IPP for EGRC and is not otherwise recoverable under the TPA.

Having found in favour of the IPP's construction of cl 7.3 of the TPA, although for different reasons than initially contended for by the IPP, it is necessary for me to consider the other grounds raised by EGRC in its originating summons.

Were the obligations under cl 7 transferred to EGRC?

It is not in dispute that as at 1 April 2006, on the disaggregation of Western Power Corporation, pursuant to s 154 of the Electricity Corporations Act and the Transfer Order of the Minister made pursuant to s 147(1) of the Electricity Corporations Act,[111] the TPA was allocated to EGRC. As a consequence, under s 154(1) of the Electricity Corporations Act:
(a)the assets and rights under the TPA vested in EGRC;[112]
(b)the liabilities under the TPA became liabilities of EGRC;[113] and
(c)all references to Western Power in the TPA were substituted with a reference to Electricity Retail Corporation (Synergy) 'except to the extent that the relevant context otherwise requires'.[114]
[111] Western Australia, Government Gazette, No 57 (31 March 2006) 1249, 1251; Schedule 2, Affidavit of Andrew John Everett filed 8 February 2019, 'AJE16' p 404 (Western Australia, Government Gazette, No 57 (31 March 2006) Part C, Record No 1149).
[112] Electricity Corporations Act 2005 (WA), s 154(2).
[113] Electricity Corporations Act 2005 (WA), s 154(3).
[114] Electricity Corporations Act 2005 (WA), s 154(4).
As and from 1 January 2014, pursuant to the Electricity Corporations Amendment Act, on the merger of Electricity Retail Corporation (Synergy) and Electricity General Corporation (Verve), all references to Electricity Retail Corporation (Synergy) in the TPA were deemed to be a reference to EGRC unless the context otherwise requires.[115]
[115] Electricity Corporations Act 2005 (WA), s 4(2A); Electricity Corporations Amendment Act 2013 (WA), s 6 and s 196.
EGRC contends that the references to Western Power in cl 7 are all references to System Management and that, on this basis, EGRC is not liable for any payments to the IPP under cl 7.3 of the TPA.
The IPP rejects this construction and says that, as a minimum, the payment obligations under cl 7.3 of the TPA were assigned to EGRC.
Accordingly, the issue for my determination is whether the reference to Western Power in cl 7.3 of the TPA is deemed to be a reference to EGRC or whether the context of this reference leads to a different construction.

EGRC's submissions

In support of its construction of cl 7 of the TPA, EGRC emphasised that at the time the TPA was executed, the parties knew of the existence and function of the business unit within Western Power known as System Management.
EGRC drew a distinction between cl 7 of the TPA and the other provisions of the TPA. EGRC accepted that, viewed objectively, the TPA (apart from cl 7) concerned the sale of electricity by the IPP, as generator, to Western Power as customer and the terms by which capacity would be bilaterally traded in accordance with the Market Rules. In this regard, EGRC accepted that the references to Western Power in the remaining provisions of the TPA were references to EGRC.[116]
[116] EGRC's Submissions [64].
However, EGRC contended that cl 7 of the TPA did not concern the sale of electricity but the provision of Spinning Reserve Services. On the disaggregation of Western Power, the obligations for Spinning Reserve Services were allocated to either System Management (as a business unit of Electricity Networks Corporation) or Electricity Generation Corporation.[117] Electricity Retail Corporation did not have any role in the provision of Spinning Reserve Services. In support of the submission that the obligations of cl 7 could be dealt with separately, senior counsel relied on cl 7.1(k) which expressly provides that the benefits and obligations under cl 7.1 to cl 7.3 can be dealt with separately to the remainder of the TPA. For these reasons, EGRC submitted that the context of the references to Western Power in the TPA 'otherwise required' these references to be construed as a reference to System Management.
[117] EGRC's Submissions [171] - [180]; Western Australia, Government Gazette, No 61 (31 March 2006) cl 2, 1373.
EGRC submitted that this position was not affected by the re‑merger of Electricity Retail Corporation and Electricity Generation Corporation. Senior counsel contended that because Electricity Retail Corporation did not have any rights or obligations under cl 7 of the TPA, no rights or obligations were vested in the EGRC on the merger of Electricity Retail Corporation and Electricity Generation Corporation.
Senior counsel for EGRC emphasised that references are made in cl 7 to both Western Power (in cls 7.1(a), 7.1(d), 7.1(e), 7.1(g), 7.1(j), 7.1(k), 7.1(l), 7.2, 7.3 and 7.4) and System Management (in cls 7.1(a)(ii), 7.1(g), 7.1(i) and 7.2) and that it was necessary to consider each of these references to determine whether the context of the reference to Western Power meant that it should not be deemed to be a reference to Electricity Retail Corporation and subsequently EGRC.
By way of example, in cl 7.1(e) 'Western Power' is required to notify the IPP within 10 minutes of receiving a notification under cl 7.1(d) of the number of Original FC Slices to be held as Spinning Reserve Slices for the relevant Trading Period. EGRC submitted that in the context of this clause, the reference to 'Western Power' should not be deemed to be a reference to EGRC. EGRC contended that in the context of this clause, this was a reference to System Management as the obligation to maintain frequency standards in the SWIS is an obligation of System Management under cl 2.2.1 of the Market Rules.
EGRC submitted that the reference to Western Power in cl 7.1(g) is also a reference to Western Power as System Management. In this regard, senior counsel for EGRC referred to the Market Rules which, at the relevant time, provided that only System Management could issue a dispatch instruction to a Market Participant to provide Spinning Reserve.[118] For this reason, it was submitted that, on its proper construction, this clause was not referring to two separate entities, as contended by the IPP, but alternative terms for the same entity.[119]
[118] EGRC's Submissions [69]; Market Rules (as at November 2015) cl 3.12.1 and cl 7.6; Western Australia, Government Gazette, No 177 (5 October 2004) 4421, 4565.
[119] EGRC's Submissions [70].
For these reasons, EGRC submitted that, in the context, the references to Western Power in cl 7 of the TPA are references to the business unit of System Management and not its retail function. As such, the references to Western Power should not be deemed to be a reference to Electricity Retail Corporation.
Senior counsel for EGRC noted that at present, 'System Management' does not impose charges for the provision of Spinning Reserve Services in the SWIS; these charges are now imposed by AEMO. On this basis, EGRC contended that any obligations that arise under cl 7 of the TPA are obligations of AEMO and not EGRC.

The IPP's submissions

The IPP rejected the contention that the obligations under cl 7 of the TPA and, in particular, the payment obligations under cl 7.3 had not been statutorily assigned to EGRC.
Senior counsel for the IPP submitted that the EGRC's construction of cl 7, was 'parasitic'.[120] The IPP contend that in order for EGRC to be correct on its assertion that any reference to Western Power within cl 7 should be read as a reference to System Management, EGRC must first be right on the question of construction of cl 7 of the TPA.
[120] IPP's Reply Submissions [3], [58]; ts 86 - 87.
Counsel for the IPP submitted that this was for the following three reasons.[121] First, the IPP submitted that under the relevant transfer order made pursuant to s 147(1) of the Electricity Corporations Act, the assets, rights and liabilities of Western Power arising from or in connection with the TPA were expressly statutorily assigned to Synergy. That is, on the re-merger of Synergy and Verve to become EGRC, the assets, rights and liabilities of Synergy were statutorily assigned to EGRC.
[121] ts 88 - 89.
Senior counsel emphasised that under s 154(3) of the Electricity Corporations Act, the liabilities under the TPA became liabilities of EGRC. Section 154(3) of the Electricity Corporations Act concerns how references to Western Power should be interpreted and not the assignment of liabilities under the TPA.
Second, cl 7.3 of the TPA concerned obligations and not rights; that is, cl 7.3 concerned payment obligations and not the nomination and dispatch of Spinning Reserve Services. The IPP contended that while a third party, such as System Management or another of the Western Power entities, could be given rights under the TPA, it could not be given obligations.
Third, even if some of the references in cl 7.1 should be construed as meaning 'System Management', this did not mean that the reference to 'Western Power' in cl 7.3 should be read as referring to System Management.

Disposition

Both the TPA and the November 2005 Market Rules refer to 'Western Power' and 'System Management'. While EGRC contends that these terms are used interchangeably in cl 7 of the TPA, I do not accept this is the case.
This view is supported by the November 2005 Market Rules. In respect of the provision of Ancillary Services, including Spinning Reserve Services, cl 3.11 and cl 7.6 of the Market Rules distinguish between the roles of System Management (to procure sufficient Ancillary Services and manage their dispatch) and Western Power (to provide the Registered Facilities).
In respect of instructions to dispatch electricity into the SWIS, cl 7.6.6 and cl 7.7 of the Market Rules provide for System Management to issue a Dispatch Instruction to a Market Participant 'other than Western Power'. The Market Rules do not specifically provide how System Management was to schedule and dispatch the Registered Facilities of Western Power and whether it was by direct instruction to the facility or via Western Power. For this reason, I do not accept that cl 7.1(g) of the TPA is referring only to System Management. This construction is also supported by cl 7.1(i) of the TPA which provides that the IPP is not obliged to provide Spinning Reserve Services if it would be contrary to a Dispatch Instruction received from System Management. Reading each of these clauses together, cl 7.1(i) addresses the position where the IPP has received contradictory instructions from System Management and Western Power.
For the reasons that follow, I do not accept that that the reference to Western Power in cl 7.3 of the TPA is a reference to System Management. As a consequence, I accept that by reason of the Transfer Order and s 35 of the Electricity Corporations Amendment Act, the obligations under cl 7 of the TPA have been statutorily assigned to EGRC. Accordingly, EGRC is liable for any payments required to be made to the IPP under this sub‑clause.
First, under s 44(d) of the Electricity Corporations Act, it was a primary function of EGRC to provide ancillary services. Under the Electricity Corporations Act, ancillary services are defined to mean services that are necessary or expedient for the security or reliability of an electricity system. I consider that, consistent with the definition in the Market Rules, the provision of Spinning Reserve Services is an ancillary service under the Act. That is, in the context that the Electricity Retail Corporation had a statutory function to provide Ancillary Services, there is nothing in the context of cl 7 of the TPA which means that the references to Western Power should be read as referring to System Management or another corporation.
Second, as noted above, cl 7 refers to both Western Power and System Management. Both are defined in the TPA; Western Power as the party to the agreement and System Management, in cl 35 of the TPA, as the body carrying out the functions of System Management as defined in the Market Rules. In my view, adopting the principles of construction summarised above, the draftsperson has made a deliberate choice within cl 7 to refer to either Western Power or System Management. I do not accept that in using the term 'Western Power', the parties objectively intended to refer to System Management.
Third, while the express terms of cl 7(1)(k) enabled the rights and obligations under cl 7 to be separately assigned, this did not occur. The TPA was assigned from Western Power to Synergy (and then to EGRC on the re‑merger of Synergy and Verve). The Transfer Order does not separately assign the obligations under cl 7 of the TPA to any other body or corporation.
Fourth, cl 7.1(k) required the consent of the IPP to be sought to any assignment of the benefits and obligations of cl 7.1 to cl 7.3. Where assignment occurred as part of disaggregation or privatisation, the entity was deemed to be financially and technically capable for the purposes of this sub‑clause. There is no evidence before me that, as a consequence of disaggregation, the IPP's consent was sought or obtained to an assignment of these clauses to any entity other than Synergy. The evidence before me is that this did not occur.[122] In my view, in order to assign the rights and obligations under cl 7 (including the payment obligations under cl 7.3), it was necessary for the benefits and obligations to be specifically assigned (either by legislation or agreement between the relevant parties).
[122] Affidavit of Andrew Clive Sutherland filed 30 October 2018, 'ACS10'.
Fifth, it is well‑established that a party cannot assign obligations under a contract without the consent of the other party; the law requires the original contract to be novated.[123] This position is reflected in cl 7.1(k) of the TPA. Dealing specifically with cl 7.3, this sub-clause concerns the obligation of 'Western Power' to pay the IPP a 'Spinning Reserve Capacity Payment'. Accordingly, without the IPP's consent, the obligations under this clause could not be assigned to another party.
[123] Yara Australia Pty Ltd v Oswal [No 2] [2013] WASCA 187[96].
If I am wrong in respect of these matters and it was possible to assign the obligations under cl 7 without an express transfer order or the consent of the IPP, I consider that in any event, the obligations under cl 7.3 of the TPA are obligations of EGRC.
Clause 2.2 of the Market Rules as at November 2005 is headed 'System Management' and governed the role of this business unit. Relevantly, cl 2.2 provided that:[124]
2.2.1Western Power, acting through the segregated business unit known as System Management, has the function of operating the SWIS in a secure and reliable manner for the purposes of regulation 13(1) of the Regulations.
2.2.2The other functions of System Management in relation to the Wholesale Energy Market are:
(a) to procure adequate Ancillary Services where Western Power cannot meet the Ancillary Service Requirements;
[124] Western Australia, Government Gazette, No 177 (5 October 2004) 4339.
On the disaggregation of Western Power as at 1 April 2006, cl 2.2 was amended to delete these sub‑clauses and replace them with the following:[125]
2.2.1The Electricity Networks Corporation, acting through the segregated business unit known as System Management, has the function of operating the SWIS in a secure and reliable manner for the purposes of regulation 13(1) of the Regulations.
2.2.2The other functions of System Management in relation to the Wholesale Energy Market are:
(a)to procure adequate Ancillary Services where the Electricity Generation Corporation cannot meet the Ancillary Service Requirements.
[125] Western Australia, Government Gazette, No 61 (31 March 2006) 1373.
From 1 July 2016, the obligation of System Management to operate the SWIS in a secure and reliable manner was conferred on AEMO.[126]
[126] Wholesale Electricity Market Amending Rules 2016 (WA). Published in Western Australia, Government Gazette, No 89 (31 May 2016) cl 2(2), 1661.
Under the current Market Rules, cl 2.2 provides that:
2.2.1. The function of ensuring that the SWIS operates in a secure and reliable manner for the purposes of regulation 13(1) of the WEM Regulations is conferred on AEMO.
2.2.2. The other functions of System Management in relation to the Wholesale Electricity Market are:
(a)to procure adequate Ancillary Services where Synergy cannot meet the Ancillary Service Requirements.
At all times, cl 2.2 of the Market Rules has provided that the primary obligation to meet Ancillary Service Requirements (including the provision of Spinning Reserve Services) is on the generator. It is only where the generator cannot meet Ancillary Service Requirements that System Management can procure Ancillary Services. The amendments to the Market Rules on the disaggregation of Western Power specified that the obligation to provide Ancillary Services was on System Management if Electricity Generation Corporation could not meet the requirements (emphasis added). The current Market Rules continue to draw a distinction between System Management and Synergy (or EGRC).
In my view, if the benefits and obligations under cl 7 can be assigned by reason of the context in which Western Power is used in this clause, the references to Western Power in cl 7 are not references to Western Power as System Management, but are references to Western Power as generator. If this is correct, any benefits and obligations under cl 7 were passed to Electricity Generation Corporation on disaggregation and have been subsequently assumed by EGRC by reason of s 35 of the Electricity Corporations Amendment Act.
For this reason, even if I am wrong in my view that it was necessary for there to be an express assignment of the rights and obligations under cl 7 of the TPA, I consider that EGRC remains liable to the IPP for the obligations under cl 7.3.
I now turn to the final issue of the proper construction of the formula in cl 7.2 of the TPA.

Proper Construction of the Formula in cl 7.2 of the TPA

Clause 7.2 of the TPA sets out a formula for the calculation of the Spinning Reserve Capacity Rate. Spinning Reserve Capacity Rate is itself a defined term and defined as meaning 'a rate (specified in $/MWh) calculated in accordance with cl 7.2 that will be paid by Western Power to the IPP for each Slice that is providing Spinning Reserve Services in accordance with cl 7'.[127]
[127] TPA, cl 35.
Specifically, it provides that the rate is to be calculated using the following formula:
Spinning Reserve Capacity Rate_n = Actual Spinning Reserve Costs _(n-1)
A
Where:
nis the number of the relevant Quarter with Quarter 1 being the Quarter in which the Commencement Date occurs;
Actual Spinning Reserve Costs _(n-1) are the average charges imposed by System Management on the IPP's spinning reserve in respect of the Power Station in the Quarter prior to the relevant Quarter expressed in $ per hour; and
A is the greater of:
(a)the number of FC Slices _(n-1); and
(b)one.
EGRC submits that the calculation of this formula results in the Spinning Reserve Capacity Rate being zero as no charges are imposed by System Management. Any charges that are imposed in respect of Spinning Reserve are imposed by the IMO and subsequently AEMO. In the alternative, EGRC contends that it is not possible to calculate this formula as no charges have been imposed on any entity with respect to the 'IPP's spinning reserve', as the IPP has never provided Spinning Reserve Services.
The IPP accepts that at the time the TPA was executed, no charges were imposed by System Management on Spinning Reserve Services. However, the IPP contends that on the proper construction of this clause, it refers to the payment which is recovered from the IPP and paid to IMO at settlement for the costs of, inter alia, Spinning Reserves. In relation to EGRC's alternative argument, the IPP submits that the words 'IPP's spinning reserve' in cl 7.2 concern the charges which are imposed on the IPP for the capacity which is held by other Market Participants to be used in the event of an outage at the Kwinana Power Station. The IPP contends that this charge is a component of the Ancillary Service settlement amount, which is its share of the cost identified at cl 3.13.1 and cl 3.14.2 of the Market Rules. Counsel for the IPP emphasised that the 'cost' is not an assessment of the actual cost of providing Ancillary Services but a theoretical calculation of opportunity cost and efficiency loss.[128] The Market Rules do not impose any charge on Market Participants for the provision of Ancillary Services, including Spinning Reserve Services, by other Market Participants.
[128] ts 76 - 77.

The issue for my determination is the proper construction of the formula in cl 7.2 and, in particular, the meaning of 'the average charges imposed by System Management on the IPP's spinning reserve in respect of the Power Station'.

EGRC's submissions

EGRC submitted that for two separate reasons, it was not possible to calculate the numerator of the formula in cl 7.2 of the TPA, and that as a consequence, no rate could be calculated.
First, under the Market Rules as at the date of entry into the TPA, no charges were imposed by System Management on the IPP's spinning reserve (emphasis added). At that time, the IMO (and now AEMO) imposed spinning reserve charges on Market Participants. On the IPP's construction, the IPP was seeking to recover the amounts paid by the IMO to System Management for Spinning Reserve (emphasis added).
Second, the IPP did not provide any Spinning Reserve Services to maintain the integrity of the SWIS. As a consequence, there was no charge imposed on other Market Participants for the provision of the IPP's spinning reserve.
Senior counsel for EGRC submitted that in considering the proper construction of the formula in cl 7.2, it is important to note that this clause is not an operational provision; the operational provisions are cl 7.1(j) and cl 7.3.[129] For this reason, cl 7.2 had to be read harmoniously with these other provisions.
[129] EGRC's Submissions [110].
EGRC emphasised that the definition of Spinning Reserve Capacity Rate in cl 35 provided that it was a rate payable for each Slice 'that is providing Spinning Reserve Services in accordance with cl 7' (emphasis added). As no Spinning Reserve Services were being provided by the IPP, the rate was not capable of calculation.
EGRC submitted that the construction contended for by the IPP was 'unbusinesslike and uncommercial.'[130] On the IPP's construction, the IPP was seeking to pass-through costs it was required to pay to the IMO (and now AEMO) for its share of the costs of the provision of Spinning Reserve Services. EGRC submitted that the formula in cl 7.2 is not drafted as a costs pass-through mechanism, but as the amount which is payable on the provision by the IPP of Spinning Reserve Services.

The IPP's submissions

[130] EGRC's Submissions [119].

The IPP accepts that at the time the TPA was executed, there were no charges imposed by System Management on Spinning Reserve Services. At that time, the Market Rules required a payment to be made by IMO to System Management for the costs of, inter alia, Spinning Reserves. This payment was recovered from Market Generators, such as the IPP, who were and are required to pay to the IMO at settlement an amount for the provision of Spinning Reserves that were procured in respect of each Market Generator's generating facility to maintain security and reliability of the SWIS. The IPP contends that this payment is the charge referred to in the definition of Actual Spinning Reserve Costs in cl 7.2 of the TPA.
The IPP contended that it was logical that the Spinning Reserve Capacity Rate reflect the charges imposed on the IPP by the IMO on behalf of System Management for the provision of Spinning Reserve, as these charges reflect the payments made to EGRC for Spinning Reserve Services.[131]
[131] IPP's Submissions [142].
In considering the proper construction of the clause, the IPP referred to the specific words used in the definition, namely the use of 'spinning reserve' as opposed to 'Spinning Reserve Service'. The IPP contends that by using the words 'spinning reserve' in the formula, this is a reference to the charges imposed in respect of the capacity held in reserve by other Market Participants which can be used as Spinning Reserve, if and when required, in respect of any outage at the Kwinana Power Station.[132]

Disposition

[132] IPP's Reply Submissions [48].

In considering the proper construction of cl 7.2 of the TPA, I turn first to the question of what is meant by the words 'the IPP's spinning reserve in respect of the Power Station'. There are two possible ways of construing this phrase:
(a)first, the spinning reserve that is provided by other participants to cover possible outages at the Kwinana Power Station; or
(b)second, the spinning reserve services provided by the IPP from the Kwinana Power Station.
For the following reasons, I prefer the first construction.
First, in the TPA where the parties refer to spinning reserve services to be provided by the IPP, the parties use the defined term Spinning Reserve Services. In my view, the draftsperson's use of the phrase without capitals suggests that the parties objectively intended to refer to something else.
Second, the phrase uses a possessive apostrophe and the connecting words 'in respect of'. That is, the phrase refers to the spinning reserve (of the IPP) concerning, with reference to or relating to the Kwinana Power Station. In my view, these matters support a construction that this phrase does not refer to services to be provided by the Kwinana Power Station, but spinning reserve that is required in relation to it (emphasis added).
Given this construction, it is unnecessary for me to make any findings or observations on whether it is possible to calculate the charge that would have been imposed on other Market Participants had Spinning Reserve Services been provided by the IPP.
The final issue for determination is the proper construction of the phrase 'charges imposed by System Management'. There are two possible ways of construing these words:
(a)first, charges that were imposed by System Management on the IPP's spinning reserve;
(b)second, charges imposed on the IPP's spinning reserve.
As noted above, EGRC asserts that the first interpretation ought to be accepted. This interpretation evinces the literal meaning of the words. The problem with this interpretation is that it is not in dispute that at the time the parties entered into the TPA, no charges were imposed by System Management on the IPP for spinning reserve; the charges were imposed by the IMO. I note that even if I am wrong in my construction of the phrase 'the IPP's spinning reserve', this would not alter this position.
It does not make commercial sense that the parties objectively agreed to a formula which was not capable of assessment. As noted above, this is a relevant matter in construing a commercial contract. Accordingly, I prefer the second interpretation.
At the time of entry into the TPA, cl 3.13 of the Market Rules, which is headed Payment for Ancillary Services, provided that:[133]
[133] Western Australia, Government Gazette, No 171 (9 September 2005) cl 18, 4204.
3.13.1The total payments by the IMO to the System Management business unit of Western Power for Ancillary Services in accordance with Chapter 9 comprise:
…
(b)an amount Availability_Cost_R(m), for Spinning Reserve and Fifteen Minute Reserve for each Trading Month, which is calculated in accordance with clause 9.9.2(c) for that Trading Month.
…
3.13.2Payments for usage of Ancillary Services are achieved through the operation of the Balancing mechanism settlement process, and no additional payments will be due by the IMO to System Management for use of Ancillary Services.
Clause 9.9.1 and cl 9.9.2 of the Market Rules contain the relevant formulas by which each Market Participant's payment for Ancillary Services is calculated. Relevantly:
(a)the formula is calculated by reference to the output of each Market Participant for the relevant trading interval;
(b)components of the amount payable for Ancillary Services are for a share of Spinning Reserve Costs[134] and Spinning Reserve availability payment costs.[135]
[134] Market Rules (as at November 2005), cls 9.9.1 (Reserve_Cost_Share(p,m)) and 9.9.2(b) (which contains the formula for Reserve_Cost_Share(p,m) which is also described as the Spinning Reserve Cost Share) (Western Australia, Government Gazette, No 171 (9 September 2005) cl 70, 4231).
[135] Market Rules (as at November 2005, cls 9.9.1(Availability_Cost_R(m)) and 9.9.2(c) (which contains the formula for calculating Availability_Cost_R(m)) (Western Australia, Government Gazette, No 171 (9 September 2005) cl 70, 4231).
Clause 3.14 of the Market Rules sets out the basis upon which the costs of Ancillary Services, including Spinning Reserve, were recovered from Market Participants. Clause 3.14.2 relevantly provided that:[136]
3.14.2 Market Participant p's share of the Spinning Reserve and Fifteen Minute Reserve services payment costs in each Trading Interval t is Reserve_Share (p,t) which equals the amount determined in Appendix 2.
[136] Western Australia, Government Gazette, No 171 (9 September 2005) cl 19, 4204.
Appendix 2 sets out the basis on which the Reserve_Share (p,t) value was calculated for Scheduled Generators and intermittent generators with an output of at least 10MW. In respect of a Scheduled Generator, such as the Kwinana Power Station, this calculation was done by reference to the interval meter reading, namely what had actually been generated and injected into the network by the particular power station. That is, the share of costs varied according to the output of the facility and not its capacity (emphasis added).
The Market Rules at the time of entry into the TPA required the IPP to pay its share of Spinning Reserve calculated by reference to the risk presented by the Kwinana Power Station. In my view, it is this change that is the subject of the formula in cl 7.2 of the TPA. That is, I consider that 'Actual Spinning Reserve Costs' in cl 7.2 of the TPA should be construed as meaning the average charges imposed on the IPP for Spinning Reserve in relation to the Kwinana Power Station calculated by reference to the Market Rules.

Conclusion

It follows that EGRC is liable to pay to the IPP an amount for each FC Slice that is deemed to be Available for Spinning calculated in accordance with cl 7.2 of the TPA. I would make declarations in terms of the Originating Summons filed by the IPP and dismiss the Originating Summons filed by EGRC.
I will hear the parties on the precise terms of the orders and on the question of costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ME
Associate to the Honourable Justice Hill
23 JUNE 2020