Stillwater Pastoral Company Pty Ltd v Stanwell Corporation Ltd
[2024] FCA 1382
•4 December 2024
FEDERAL COURT OF AUSTRALIA
Stillwater Pastoral Company Pty Ltd v Stanwell Corporation Ltd [2024] FCA 1382
File number: QUD 19 of 2021 Judgment of: SARAH C DERRINGTON J Date of judgment: 4 December 2024 Catchwords: COMPETITION – misuse of market power – where applicant alleges respondents took advantage of substantial market power in the National Electricity Market (NEM) – where respondents engaged in late rebidding in the NEM – whether respondents took advantage of substantial market power to spike the spot price of electricity with the expectation or intention that other market participants would be unable or unlikely to respond competitively (Short-notice Rebidding) – whether respondents’ conduct contravened s 46 of the Competition and Consumer Act 2010 (Cth) (CCA)
COMPETITION – misuse of market power – defining the relevant market for purposes of s 46 of the CCA – design of the NEM – whether relevant market wider than Queensland region of the NEM
COMPETITION – misuse of market power – whether respondents had a substantial degree of market power within meaning of s 46 of the CCA – competing economic approaches to assessment of substantial market power –nature of constraints within the NEM on substantial market power – “aggregated” market power – whether respondents together had a substantial degree of market power within meaning of s 46(2) of the CCA
COMPETITION – misuse of market power – whether respondents took advantage of their market power – where applicant alleges respondents engaged in Short-notice Rebidding in reliance on trading strategy with the purpose of deterring or preventing other market participants from engaging in competitive conduct – where applicant relied on thirteen examples of alleged Short-notice Rebidding to prove its case (Sample Intervals) – whether respondents engaged in Short-notice Rebidding in any of the Sample Intervals – whether alleged purpose established on the evidence
CROWN – immunity – where respondents government owned corporations within meaning of Government Owned Corporations Act 1993 (Qld) (GOCA) – whether respondents “related” within meaning of s 4A of the CCA – whether State of Queensland a “company” within s 4A(4) of the CCA – whether respondents “emanations of the Crown” – whether GOCA confers on the shareholding ministers or the State of Queensland control of the respondents
EVIDENCE – inferential reasoning in civil cases – where one respondent called no witnesses on issue of alleged conduct – whether Jones v Dunkel inference ought be drawn – where relevant possible witnesses former employees
Legislation: Acts Interpretation Act 1901 (Cth) ss 22, 22(1)
Competition and Consumer Act 2010 (Cth) ss 2, 2A, 2B, 4, 4A, 4A(1), 4A(3), 4A(4), 4A(5), 9, 45(8AA), 46(1), 46(1A), 46(1AA), 46(2), 46(3), 46(3A), 46(3B), 46(3C), 46(4), 46(6A), 46(7)
Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth) Sch 1
Competition Policy Reform Act 1995 (Cth) s 81
Corporations Act 2001 (Cth) s 9
Evidence Act 1995 (Cth) s 140(2)
Hydro-Electric Commission Act 1944 (Cth) s 15
National Electricity Law
Trade Practices Act 1974 (Cth) ss 4A(4), 4A(5), 46(3), 50
Competition Policy Reform (Queensland) Act 1996 (Qld) Pt IV
Electricity Act 1994 (Qld) s 257
Government Owned Corporations Act 1993 (Qld) ss 13(c), 16(b), 75, 76, 77, 78, 80(2), 83, 84, 88, 114, 115, 117, 154
National Electricity (South Australia) Act 1996 (SA)
Federal Court Rules 2011 (Cth) r 22.06
National Electricity Rules Chs 3, 10, cll 3.1.4, 3.4.1, 3.8, 3.8.1, 3.8.3A, 3.8.6, 3.8.7A, 3.8.19, 3.8.22, 3.8.22A, 3.8.22A, 3.9.1, 3.9.4, 3.9.6, 3.13.4
Government Owned Corporations (Generator Restructure) Regulation 2011 (Qld)
Explanatory Memorandum, Competition and Consumer Act (Competition Policy Review) Bill 2017 (Cth)
Explanatory Memorandum, Trade Practices Legislation Amendment Bill 2008 (Cth)
Explanatory Memorandum, Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth)
Sherman Act 15 USC §§ 1, 2
Cases cited: Air New Zealand Ltd v Australian Competition and Consumer Commission [2017] HCA 21; 262 CLR 207
Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd [2015] FCAFC 103; 236 FCR 78
Australian Competition and Consumer Commission v Australian Egg Corp Ltd [2016] FCA 69; 337 ALR 573
Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2013] FCA 909; 310 ALR 165
Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 4) [2017] FCA 1590; 353 ALR 460
Australian Competition and Consumer Commission v Flight Centre Travel Group [2016] HCA 49; 261 CLR 203
Australian Competition and Consumer Commission v Olex Australia Pty Ltd [2017] FCA 222
Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2018] FCAFC 78; 356 ALR 582
Australian Competition and Consumer Commissioner v Baxter Healthcare Pty Ltd (No 2) [2008] FCAFC 141; 170 FCR 16
Australian Competition and Consumer Commissioner v Metcash Trading Ltd [2011] FCA 967; 198 FCR 297
Australian Gas Light Companyv Australian Competition and Consumer Commission [2003] FCA 1525; 137 FCR 317
Australian Securities and Investments Commission v Australian Lending Centre (No 3) [2012] FCA 43; 213 FCR 380
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 345
Bass v Permanent Trustee Co Ltd [1999] HCA 9; 198 CLR 334
Boral Besser Masonry Ltd (now Boral Masonry Ltd) v Australian Competition and Consumer Commission [2003] HCA 5; 215 CLR 374
Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 366
BrisConnections Finance Pty Ltd (recs and mgrs apptd) v Arup Pty Ltd [2017] FCA 1268; 252 FCR 450
Chief Executive Officer, Aboriginal Areas Protection Authority v Director of National Parks [2024] HCA 16; 98 ALJR 655
Claremont Petroleum NL v Cummings [1992] FCA 446; 110 ALR 239
CMIC Group Ltd v AIG Group Ltd [2022] NSWSC 999
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; 162 FCR 466
Dowling v Dalgety Australia Ltd [1992] FCA 27; 34 FCR 109
Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) 30 FCR 385
Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43
Europemballage and Continental Can v Commission [1973] 1 ECR 215
Henderson v Queensland [2014] HCA 52; 255 CLR 1
Jones v Dunkel [1959] HCA 8; 101 CLR 298
Kuhl v Zurich Financial Services Australia [2011] HCA 11; 243 CLR 361
Launceston Corporation v The Hydro-Electric Commission [1959] HCA 12; 100 CLR 654
Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141
Mason v MWREDC Ltd [2011] FCA 1512; 199 FCR 151
Masters Home Improvement Pty Ltd v North East Solution Pty Ltd [2017] VSCA 88; 372 ALR 440
McFarlane v Insignia Financial Ltd [2023] FCA 1628
Melway Publishing Pty v Robert Hicks Pty Ltd [2001] HCA 13; 205 CLR 1
Natwest Australia Bank Ltd v Boral Gerrard Strapping Systems Pty Ltd (1992) 111 ALR 631
New Aim Pty Ltd v Leung [2023] FCAFC 67; 410 ALR 190
NT Power Generation Pty Ltd v Power & Water Authority [2002] FCAFC 302; 122 FCR 399
Paul Dainty Corporation Pty Ltd v National Tennis Centre Trust (1990) 22 FCR 495
Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd [1989] HCA 6; 167 CLR 177
Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481
Re Tooth & Co Ltd and Tooheys Ltd (1979) 39 FLR 1
Rural Press Ltd v Australian Competition and Consumer Commission [2003] HCA 75; 216 CLR 53
Seven Network Ltd v News Ltd [2009] FCAFC 166; 182 FCR 160
Singapore Airlines Ltd v Tapobrane Tours WA Pty Ltd [1991] FCA 808; 33 FCR 158
Sita Qld Pty Ltd v State of Queensland [1999] FCA 793; 164 ALR 18
Stanwell Corporation Ltd v LCM Funding Pty Ltd [2021] FCA 1430; 157 ACSR 401
Superannuation Fund Investment Trust v Commissioner of Stamps (SA) [1979] HCA 34; 145 CLR 330
Townsville Hospitals Board v Townsville City Council [1982] HCA 48; 149 CLR 282
Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193; 131 FCR 529
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Economic Regulator, Competition and Access Number of paragraphs: 766 Date of hearing: 3-7 June 2024, 10-14 June 2024, 24-28 June 2024, 1-5 July 2024, 8-11 July 2024, 15-19 July 2024, 22 July 2024, 12-13 August 2024, 15-16 August 2024 Counsel for the Applicant: Mr L W L Armstrong KC with Ms D M Bampton, Mr J R Green, Mr B O’Connor and Mr S H Snow Solicitor for the Applicant: Piper Alderman Counsel for the First Respondent: Mr S Doyle KC with Mr P Franco KC, Ms M Y Barnes, Ms J Menzies and Mr M Paterson Solicitor for the First Respondent: MinterEllison Counsel for the Second Respondent: Mr M Hodge KC with Mr D Roche SC, Ms F Y Lubett, Ms C Schneider and Ms S Marsh Solicitor for the Second Respondent: Herbert Smith Freehills ORDERS
QUD 19 of 2021 BETWEEN: STILLWATER PASTORAL COMPANY PTY LTD ACN 101 400 668
Applicant
AND: STANWELL CORPORATION LTD ACN 078 848 674
First Respondent
CS ENERGY LTD ACN 078 848 745
Second Respondent
ORDER MADE BY:
SARAH C DERRINGTON J
DATE OF ORDER:
4 DECEMBER 2024
THE COURT ORDERS THAT:
1.The Common Questions to be determined at the Initial Trial be answered as follows:
Common Question 1
At all times during the Conduct Period, was the relevant market for the purposes of s46 of the Competition and Consumer Act 2010 (Cth) (CCA) the market as pleaded in paragraph 22 of the Statement of Claim (Market)?
Yes.
Common Question 2
During the Conduct Period, did Stanwell have a substantial degree of power in the Market within the meaning of s 46(1) of the CCA?
No.
Common Question 3
During the Conduct Period, did CS Energy have a substantial degree of power in the Market within the meaning of s 46(1) of the CCA?
No.
Common Question 4
During the Conduct Period, for the purposes of s 46(2) of the CCA, did Stanwell and CS Energy together have a substantial degree of power in the Market?
No.
Common Question 5
During the Conduct Period, did each of Stanwell and CS Energy engage in Short-notice Rebidding in relation to the electricity they offered for dispatch in the Queensland Region of the National Electricity Market in any and if so in which of the alleged ATIs?
No.
Common Question 7
If the answer to Common Questions 2, 3 or 4 and to Question 5, is yes, did Stanwell and/or CS Energy, by engaging in the Short-notice Rebidding, take advantage of their market power?
Unnecessary to answer but No.
Common Question 8
If the answer to Common Question 7 is yes, did Stanwell and/or CS Energy take advantage of their market power for the purpose of deterring or preventing a person from engaging in competitive conduct in the Market?
Unnecessary to answer but No.
Common Question 11
If the answer to Common Question 8 is yes, did this constitute a contravention of s 46 of the CCA?
Unnecessary to answer but No.
2.The proceeding be dismissed.
3.The matter be adjourned to a date in March 2025 for the determination of costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
SARAH C DERRINGTON J:
INTRODUCTION
[1]
THE LIST OF COMMON ISSUES OF LAW OR FACT
[12]
THE EXPERT EVIDENCE
[14]
THE SAMPLE INTERVALS
[36]
Sample intervals which include Callide C – a preliminary issue
[36]
The pleadings
[40]
Findings on the basis of assumptions
[43]
The evidence
[48]
Methodology for choosing the ATIs
[59]
The Profiles
[82]
DESIGN OF THE NATIONAL ENERGY MARKET
[96]
The National Electricity Market
[98]
Particular Features
[98]
Key market events during the Conduct Period
[110]
Undisputed facts relating to dispatch
[116]
The National Electricity Rules
[142]
SECTION 46 OF THE CCA
[159]
WHAT IS THE RELEVANT “MARKET”?
[166]
DID STANWELL AND CS ENERGY HAVE A SUBSTANTIAL DEGREE OF MARKET POWER IN THE MARKET WITHIN THE MEANING OF SECTION 46(1) OF THE CCA?
[199]
Economic and legal principles pertaining to substantial market power
[200]
Barriers to entry
[225]
Market power - heft
[228]
Ability to set a high price
[247]
Ability and incentive
[270]
Other constraints
[285]
DID STANWELL AND CS ENERGY TOGETHER HAVE A SUBSTANTIAL DEGREE OF POWER IN THE MARKET WITHIN THE MEANING OF S 46(2)?
[304]
Were Stanwell and CS Energy related within the meaning of s 4A?
[304]
Is section 4A enlivened?
[308]
The State as a holding company or body corporate
[311]
The GOCA
[327]
THE IMPUGNED CONDUCT
[348]
Did the alleged trading strategy exist?
[352]
Inferential reasoning
[357]
Components of the alleged strategy
[364]
Initial timing of rebid
[365]
“Lateness”, “expecting or intending” certain consequences
[368]
The documentary evidence
[416]
Stanwell’s strategy documents
[419]
CS Energy’s strategy documents
[437]
Stanwell’s training documents
[452]
CS Energy’s training documents
[468]
Miscellaneous CS Energy documents
[474]
The lay witnesses
[476]
Did Stanwell and CS Energy engage in the conduct in any and if so which of the alleged ATIs?
[487]
An overview of NEM-vis
[491]
Profile 1
[516]
Sample Intervals 1, 2, 3
[517]
Sample Interval 1
[517]
Sample Interval 2
[543]
Sample Interval 3
[560]
Profile 1 and Profile 4
[574]
Sample Intervals 4 and Sample Intervals 10 &11
[574]
Sample Intervals 4 & 10
[574]
Sample Interval 11
[594]
Profile 2
[607]
Sample Intervals 5 & 6
[607]
Sample Interval 5
[607]
Sample Interval 6
[616]
Profile 3
[629]
Sample Intervals 7, 8 & 9
[629]
Sample Interval 7
[629]
Sample Interval 8
[645]
Sample Interval 9
[657]
Profile 5
[665]
Sample Interval 12
[665]
Profile 6
[682]
Sample Interval 13
[682]
The strategy is not established
[705]
DID STANWELL AND/OR CS ENERGY TAKE ADVANTAGE OF SUBSTANTIAL MARKET POWER?
[713]
The legal and economic principles
[715]
The evidence
[731]
PURPOSE
[748]
DISPOSITION
[764]
SCHEDULE: GLOSSARY OF TERMS
INTRODUCTION
Queensland summers are hot and sultry. Demand for electricity is high and tends to peak in the afternoons when many Queenslanders turn on air-conditioners to make the late afternoon heat tolerable. Summer is the season during which Queensland electricity-generating firms (Generators) can maximise gross revenue. For that reason, at least two Generators, Stanwell Corporation Ltd ACN 078 848 674 and CS Energy Ltd ACN 078 848 745, the Respondents, have developed trading strategies to maximise gross revenue during the summer months. In broad terms, the strategies employed by Stanwell and CS Energy encourage their electricity traders to cause the electricity price to spike when the traders observe certain trends in the course of each Spot Market Trading Day. Those trends include forecast high temperatures, higher than forecast demand, low flow from interstate interconnectors, price volatility, and aggressive bidding by competitor firms. A Trading Day is a 24-hour period commencing at 04:00 and finishing at 04:00 the following day. Price spikes may be caused by Generators changing the quantity of electricity available for dispatch within ten pre-determined price bands, within one or more of the forty-eight 30-minute Trading Intervals (TI) by which a Trading Day is divided (Rebidding). If a Generator is able to cause a price spike in a TI, the effect will be to increase the Spot Price for that TI – being the time weighted average of the dispatch prices for each of the six five-minute Dispatch Intervals (DI) within the TI. The Generator that causes the price spike may, but not always, benefit from the price spike through a significant increase to its own revenue, at least for so long as the price spike endures, which is typically very short-lived. All Generators who have been dispatched in a given TI within their geographic region are paid the Spot Price. Those who make the very cheapest offers benefit from an elevated Spot Price.
Thursday 18 February 2016 was a typical summer day in Queensland. Traders were provided with information throughout the day by the Australian Energy Market Operator (AEMO), particularly in relation to forecast demand, pre-dispatch forecast prices, and actual prices for prior TIs. At 15:00, the 30-minute pre-dispatch price forecast for the 30-minute TI ending at 15:30 was $55.20MWh. For the TI ending at 16:00, the AEMO forecast was $299.95MWh. Having noticed the significant change in the pre-dispatch price forecast, CS Energy “rebid” at 15:26 to move 250MW previously offered from one of its generating units (referred to in some evidence as Dispatchable Unit Identifiers, or DUIDs) from the $299.95 price band to the $13,800 price band. In the next DI (being DI1 in the TI ending 16:00), CS Energy moved 250MW from the $13,800 price band to the $0 price band for DI2 of that TI. The effect of the rebid was to reduce supply in the mid-tier price bands and force the National Energy Market Distributor Equation (NEMDE) to look for additional supply in the higher price bands. In DI1, being the DI ending at 15:35, the price spiked to $12,700.30MWh. That elevated price was therefore the dispatch price for DI1, as compared with the pre-dispatch forecast of $299.95MWh. That had the consequence of causing the Spot Price (or Trading Price) for the TI ending at 16:00 to be $2,143.40, as compared with $172.93 in the previous TI.
The foregoing is a high-level overview of the conduct about which the Applicant complains. Stillwater Pastoral Company Pty Ltd ACN 101 400 668, the Applicant, sues on its own behalf and on behalf of a group comprising the various categories of consumers of electricity in the Queensland Region of the National Energy Market (QRNEM) during the period between 20 January 2015 and 20 January 2021 (Claim Period). In broad terms, the Court was asked to interrogate 13 examples, similar in many respects to the rebid scenario just described, and which are referred to as Affected Trading Intervals #1 - #13 (ATIs). The 13 ATIs (together, the Sample Intervals) were, it seems, chosen by Stillwater’s expert, Dr Shaun Ledgerwood. The Sample Intervals are a subset of 353 ATIs, identified by Dr Ledgerwood, during which the impugned conduct was said both to have taken place and to have had a quantum effect on the Spot Price in the relevant ATI. The 353 ATIs were identified from amongst the 571,392 DIs during the period from 1 January 2012 to 6 June 2017 (Conduct Period), the latter date being when a Ministerial Direction under s 257 of the Electricity Act 1994 (Qld) was issued to Stanwell, restricting the maximum price of its rebids.
At the heart of the claim is the allegation that the two largest Generators in the QRNEM, being the State-owned corporations, Stanwell and CS Energy, contravened s 46 of the Competition and Consumer Act 2010 (Cth) (CCA). Stillwater contends that each of Stanwell and CS Energy enjoyed advantages, relative to other potential suppliers of wholesale electricity in or into the QRNEM, that translated to a substantial degree of market power for each of them. The other Generators offering supply into the QRNEM during the Conduct Period included AGL, Alinta Energy, Arrow Energy, Callide Power Trading (CPT), Ergon Energy Queensland, InterGen, Origin Energy, Rio Tinto and Shell. Stillwater alleges that, during the Conduct Period, the Respondents took advantage of that market power, for the purpose of deterring or preventing other Generators from engaging in competitive conduct, by their conduct comprised of two elements, which is described as Short-notice Rebidding. The two elements said to comprise Short-notice Rebidding are:
(i)the placing by the Respondents of rebids that repriced, to very high prices, volumes of electricity that formerly had been offered at much lower prices – “economic withholding”; and
(ii)the delaying of placing rebids until just before a bidding “window” closed (gate closure – on average 67 seconds prior to commencement of the next DI), such that other Generators had either no opportunity to respond, or insufficient opportunity to adjust their own generation rates and rebids in such a way as would have prevented the Respondents from achieving very substantial net revenue gains from their rebidding conduct.
The scope of this trial (Initial Trial) was confined to the question of whether either, or both, of the Respondents contravened s 46 of the CCA. Questions of causation or quantification of loss have been deferred. Central to the issue of whether the Respondents contravened s 46 is an understanding of what it means to “engage in competitive conduct” in the National Electricity Market (NEM), or a relevant subset thereof, the QRNEM. The word “competition” is not defined in the CCA, but is well understood (as used throughout the CCA) in a commercial or economic sense best described by reference to its aim, mechanism, and effect. The views of the Trade Practices Tribunal, expressed in 1976 in Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481 (Re QCMA), remain important to understanding what is meant by “competition” in the context of Australian competition law. The Tribunal said, at 511:
… “[C]ompetition” is such a very rich concept (containing within it numbers of ideas) that we should not wish to attempt any final definition which might, in some market settings, prove misleading or which might, in respect to some future application, be unduly restrictive. Instead we explore some of the connotations of the term.
The Tribunal continued:
Competition may be valued for many reasons as serving economic, social and political goals. But in identifying the existence of competition in particular industries or markets, we must focus upon its economic role as a device for controlling the disposition of society’s resources. Thus, we think of competition as a mechanism for discovery of market information and for enforcement of business decisions in the light of this information. It is a mechanism, first, for firms discovering the kinds of goods and services the community wants and the manner in which these may be supplied in the cheapest possible way. Prices and profits are the signals which register the play of these forces of demand and supply. At the same time, competition is a mechanism of enforcement: firms disregard these signals at their peril, being fully aware that there are other firms, whether currently in existence or as yet unborn, which would be only too willing to encroach upon their market share and ultimately supplant them.
(Emphasis added.)
In Rural Press Ltd v Australian Competition and Consumer Commission [2003] HCA 75; 216 CLR 53 at 73, Gummow, Hayne, and Heydon JJ drew attention to the importance of the views and practice of those within a particular industry, “not only on the question of achieving a realistic definition of the market, but also on the question of assessing the quality of particular competitive conduct in relation to the level of competition”.
There was no dispute that the NEM is an “energy-only” market. There is no separate “capacity market” to ensure that Generators’ fixed costs and investments in capacity are remunerated. Thus, the only source of remuneration for costs associated with generation is the revenue earned from the dispatch of electricity or the provision of ancillary services. Accordingly, transiently high spot prices are required to ensure that Generators can recover both their variable and fixed costs, including higher costs generation that is primarily used during peak periods of demand. This feature of the NEM was expressly acknowledged by the Australian Energy Market Commission (AEMC) in 2012 when considering whether major Generators were exercising substantial market power with the purpose or effect of increasing wholesale spot and contract prices such that a change to the National Electricity Rules (NER) was warranted. The AEMC said (AEMC, Draft Rule Determination – Potential Generator Market Power in the NEM, 7 June 2012, at i) (AEMC Draft Determination 2012):
Efficient wholesale prices, averaged over time, can be expected to be at the level required to recover the cost of building new generation or transmission capacity to satisfy growth in consumer demand. The Commission acknowledges that prices above this level for a sustained period of time may be more than is necessary to compensate for the various costs and risks borne by generators. If a generator(s) is able to increase average wholesale spot or contract prices above an efficient level for a sustained period of time, those prices are likely to flow through to retail prices and increase the costs to electricity consumers.
However, wholesale prices will not reflect an efficient level at every moment in time and variations in price are an outcome of the dynamic conditions of supply and demand in the NEM. In order to be useful in a real world setting, particularly in the context of a sector like electricity that requires ‘lumpy’ non-divisible capital investments, a time dimension needs to be recognised.
In addition, for short periods of time, transient but significant increases in the wholesale price of electricity may occur. A generator’s transient ability to significantly increase prices for short periods should not be considered a basis for a rule change unless that power is exercised to such an extent or with sufficient frequency that it causes long term average prices to be above the efficient level for a sustained period of time.
(Emphasis added. Citations omitted.)
This is the broad context in which the present proceeding arises.
By Order of the Court dated 29 April 2024, a List of Common Issues articulates the questions of facts or law that are common to the claims of Stillwater (as lead applicant) and the group members, and which were to be determined at the Initial Trial.
The scope of the Initial Trial was narrowed further by Order of the Court dated 19 December 2022 which directed that Stillwater nominate the Sample Intervals from amongst the 353 ATIs. The Sample Intervals were examined during this Initial Trial.
THE LIST OF COMMON ISSUES OF LAW OR FACT
The List of Common Issues was settled by the parties. With cross references to the Third Further Amended Statement of Claim (3FASOC), that list is as follows:
The relevant “Market” for the purposes of s 46
1.Common Question 1: At all times during the Conduct Period, was the relevant market for the purposes of s 46 of the CCA the market as pleaded in paragraph 22 of the SOC (Market)? [SOC, [22]]
Substantial degree of power in the Market
Market power of each Respondent
2.Common Question 2: During the Conduct Period, did Stanwell have a substantial degree of power in the Market within the meaning of section 46(1) of the CCA? [SOC, [34]]
3.Common Question 3: During the Conduct Period, did CS Energy have a substantial degree of power in the Market within the meaning of section 46(1) of the CCA? [SOC, [41]]
Market power of each Respondent by reason of s 46(2)
4.During the Conduct Period, were Stanwell and CS Energy “related” within the meaning of s 4A of the CCA? [SOC, [7], [42(a)]]
5.Common Question 4: During the Conduct Period, for the purposes of s 46(2) of the CCA, did Stanwell and CS Energy together have a substantial degree of power in the Market? [SOC, [42(b)], [43]]
6.During the Conduct Period, did each of Stanwell and CS Energy, individually, by reason of s 46(2) of the CCA, have a substantial degree of market power in the Market? [SOC, [43]]
The Conduct
Common Question 5: During the Conduct Period, did each of Stanwell and CS Energy engage in Short-notice Rebidding in relation to the electricity they offered for dispatch in the QRNEM in any and if so in which of the alleged ATIs?
7 – 21.In relation to each Sample Interval did Stanwell and/or CS Energy as the case may be
a.submit a Short-notice Rebid? [SOC, [44(a)]]
b.time the Short-notice Rebid expecting and intending, or in circumstances where Stanwell and/or CS Energy can reasonably be inferred to have expected and intended, that by reason of the lateness of the rebid, competing Generators would be impacted in any of the ways pleaded in paragraphs 44(b)(i),(ii) or (iii) of the SOC? [SOC, [44(b)]]
c.submit the Short-notice Rebid in circumstances not materially different from:
i.the circumstances existing when Stanwell and/or CS Energy’s Timely Offer was made; or
ii.the circumstances existing when a Timely Offer could have been but was not made? [SOC, [44(c)]]
Taking advantage of market power
Common Question 7:
22. If question 20 above is answered in the affirmative, did Stanwell, by engaging in Short-notice Rebidding in relation to any and if so which of the Sample Intervals relating to it, take advantage of its substantial degree of power in the Market? [SOC, [51]]
23. If question 20 above is answered in the affirmative, did CS Energy, by engaging in the Short-notice Rebidding in relation to any and if so which of the Sample Intervals relating to it, take advantage of its substantial degree of power in the Market? [SOC, [51]]
Proscribed purpose
Common Question 8:
24. If the answer to question 22 above is affirmative, did Stanwell, in any and if so which of the Sample Intervals, take advantage of its substantial degree of power in the Market for the purpose of deterring or preventing competing Generators from engaging in competitive conduct in the Market (Proscribed Purpose)? [SOC, [53(a)]]
25. If the answer to question 23 above is affirmative, did CS Energy, in any and if so which of the Sample Intervals, take advantage of its substantial degree of power in the Market for the Proscribed Purpose? [SOC, [53(b)]]
Contravention of s 46
Common Question 11:
26. If the answer to question 24 above is in the affirmative, did Stanwell contravene s 46 of the CCA? [SOC, [53(a)]]
27. If the answer to question 25 above is in the affirmative, did CS Energy contravene s 46 of the CCA? [SOC, [53(b)]]
On 2 November 2023, the parties filed an extensive Statement of Agreed Facts (SAF).
THE EXPERT EVIDENCE
The Court was assisted in answering these questions by five experts, who gave evidence in two “hot tubs”, following the preparation of joint expert reports in two expert conclaves facilitated by Counsel appointed by the Court. The first conclave focussed on the economic theory and principles relevant to the issues in the case (Economic Conclave). It produced the Joint Experts’ Report Conclave No 1 – Economic Experts dated 26 April 2024 (JtEcER). The second conclave focussed on the structure and operation of the electricity market, particularly the NEM (Electricity Market Conclave). It produced the Joint Experts’ Report Conclave No 2 – Electricity Market Experts dated 29 April 2024 (JtEMER).
Stillwater engaged Dr Ledgerwood, a Principal of the economic consulting firm, The Brattle Group. Dr Ledgerwood holds a Doctor of Philosophy, Master of Arts, and Bachelor of Arts, all in Economics, from the University of Oklahoma and a Juris Doctor from the University of Texas. Prior to joining The Brattle Group, he worked as an economist and attorney in the Office of Enforcement for the Federal Energy Regulatory Commission (FERC). His more than 30-year career has focussed on issues related to regulation and competition in energy markets. Dr Ledgerwood has had wide experience testifying as an expert witness in the Federal Courts of the United States and in Canadian Courts. As an Adjunct Professor at the University of Oklahoma Department of Economics, College of Law, and Price College of Business, he has taught undergraduate and graduate courses in microeconomic theory, law and economics, regulation, anti-trust, and contractual and tortious remedies. He also served as an Affiliated Faculty member at the Georgetown University Public Policy Institute. Dr Ledgerwood is widely published.
In these proceedings, Dr Ledgerwood has provided the following reports:
(a)the First Ledgerwood Report dated 4 October 2022 (1LedgerwoodR);
(b)the Second Ledgerwood Report dated 21 November 2023, updated by a Report dated 20 March 2024 (2LedgerwoodR);
(c)an analysis of the Hypothetical Monopolist test dated 28 March 2024 entitled, “Brattle note – Ledgerwood Figures for the Conclave Questions”; and
(d)the Fourth Ledgerwood Report dated 13 June 2024 (4LedgerwoodR).
Dr Ledgerwood participated in both the Economic Conclave and the Electricity Market Conclave and contributed to both the JtEMER and the JtEcER.
The two other participants in the Economic Conclave were Mr Euan Morton and Mr Derek Holt.
Mr Morton was engaged by Stanwell. He is a Principal at Synergies Economic Consulting and holds a Bachelor of Economics (Hons I), Bachelor of Commerce, and Bachelor of Laws (Hons) from the University of Queensland. He was admitted as a Solicitor of the Supreme Court of Queensland in 1991. Mr Morton has been appointed as an expert and to numerous expert panels including: the Expert Panel for the COAG Energy Council, 2015 Review of Governance Arrangements for Australian Energy Markets; the Expert Panel for Ministerial Council on Energy 2005 Report on Energy Access Pricing; and as an Independent Expert for NER, 2001. He has been a Member of the Competition and Consumer Law Committee of the Law Council of Australia. Mr Morton has had over 30-years’ experience preparing expert reports relating to competition matters, particularly in the energy sector, and in providing expert evidence.
In these proceedings, Mr Morton has provided the following Reports:
(a)Report of Euan Morton dated 28 February 2024 (1MortonR); and
(b)Supplementary Report of Euan Morton dated 6 June 2024 (SuppMortonR).
Mr Holt is a Partner of AlixPartners UK LLP. He holds a Master of Science with Distinction from the London School of Economics, an honours degree in economics and finance from McGill University in Montreal, Canada, and a postgraduate Diploma with Merit in Competition Economics from King’s College London. Mr Holt has practised as an economist for over 28 years, acting as an expert and economic advisor in the fields of competition litigation and economic regulation. He has appeared as an expert witness before the High Court of England and Wales, the Competition Appeal Tribunal, the Competition and Markets Authority of the United Kingdom, the Swedish Patent Court, the South African Competition Tribunal, the Hong Kong Competition Tribunal, and the European Commission.
In these proceedings, Mr Holt has provided the Expert Report of Derek Holt dated 23 February 2024 (Holt Report).
Dr Ledgerwood has had an extensive and impressive career as an economist. He has been particularly focussed throughout his career on issues of anti-competitive conduct and market manipulation. In his 2015 co-authored book, Gary Taylor, Shaun Ledgerwood, Romkaew Broehm and Peter Fox-Penner, Market Power and Market Manipulation in Energy Markets: From the California Crisis to the Present (Public Utilities Reports, Inc. 2010) at 8, Dr Ledgerwood et al, “build on the seminal work of … [Ledgerwood], creating a framework that helps categorize different types of market manipulation …”: see, Ledgerwood, Shaun D, “Screens for the Detection of Manipulative Intent (SSRN, December 2010). Chapter 9 of Market Power and Market Manipulation (at 189) proposes a diagnostic framework to expand “the traditional physical-goods market power conceptual model into one that more naturally incorporates the role of short-term information and financial products”. The authors (at 189) posit that the framework “helps to resolve a tension in the literature, often noted by economist experts such as Professor Pirrong [Bauer College of Business, University of Houston], between market power-based and fraud-based manipulations”. In his 2010 paper (at 2), Dr Ledgerwood attributed to Professor Pirrong what he referred to as “[e]ntrenchment in the literature of the perception that the execution of a ‘market-based manipulation’ requires traditional market power”. This apparent difficulty was picked up, and expanded upon, in Market Power and Market Manipulation (at 196), where in the context of an act of economic withholding by a seller, the authors say:
A successful market-power-triggered manipulation therefore requires that the seller must have the ability to thwart [competitive pressures to return the price to competitive levels] to prevent this participation from occurring, such as by taking advantage of size, entry barriers, or through implementing other restraints of trade – the hallmarks of traditional monopoly power.
Contrast this with the seller who dumps uneconomic volumes of product into the market at sub-competitive prices. Absent arbitrage opportunities … other sellers are not positioned to stop this behaviour and may be driven out of business if it is allowed to persist. Whereas the exercise of market power requires (and is in part defined by) the ability to prevent other sellers from participating in the market and thus thwart the effect of the exercise on the price, the reaction of other sellers to uneconomic trading faces no such immediate resistance. This means that successful manipulations triggered by uneconomic trading can be executed by firms with much smaller market concentrations than traditional anti-trust economics would deem relevant. The ability to make such sales profitably is not a function of market power, but rather of the willingness of the actor to absorb losses in the primary market …
(Emphasis added.)
More recently, in Shaun D Ledgerwood, James A Keyte, Jeremy A Verlinda, and Guy Ben-Ishai, “The Intersection of Market Manipulation Law and Monopolization under the Sherman Act: Does it Make Economic Sense?” (2019) 40 Energy Law Journal 47 (2019 ELJ article), Dr Ledgerwood and his co-authors (at 65), drew a distinction between “traditional market power acquired through some form of market dominance or through some ephemeral market power acquired circumstantially, such as when a generator is ‘pivotal’ in hours when system constraints bind”. As the authors explain, the Sherman Act (15 USC §§ 1-7) is often the source of private causes of action for manipulative acts. The Sherman Act is a close analogue of s 46 of the CCA although it is by no means in identical terms. Section 1, however, requires proof of collusion, whereas s 2 does not (at 49). Section 2 requires proof of “market dominance within a well-defined product and geographic market” in order to establish an abuse of monopoly power (at 56). The authors observe, consequently, that “the ephemeral nature of the distortions that are typically produced by such behaviour seems less suited to causes of action under Section 2 of the Sherman Act” (at 66).
The reason for setting out in some detail these features of Dr Ledgerwood’s academic writings is to attempt to shed light on some of the economic opinions expressed by Dr Ledgerwood during the Initial Trial which appeared both contrary to economic orthodoxy and contrary to his own previously expressed statements of economic principle. It is tolerably clear that, from about 2010, Dr Ledgerwood has felt unease with his perception that competition law, at least in the United States, does not deal adequately with cases of the type with which we are presently concerned, and which he described continually throughout the Initial Trial as “conduct cases”. He has posited a new approach to the detection of market-manipulation cases and has advocated for courts, and legislators, to adopt his approach. That has not yet happened. It is unfortunate that he did not clearly articulate his theory and debate it with the other economic experts. Rather, he strained existing orthodoxy by commencing with the result he wished to achieve and then constructed a theoretical framework by which that result would be achieved. This was most obvious when Dr Ledgerwood disavowed the appropriateness in this case of the “classic” test for substantial market power, which he and his co-authors had adopted in Market Power and Market Manipulation (at 13), because “it loses all meaning” in what he described as a “conduct case”.
That led Dr Ledgerwood to a theory that the competitive process compels Generators to increase output to sell at higher prices and that a responsive Rebid was “competitive” only if it might thwart, abate or mitigate a price spike. This was not through any malicious intent. It is clear that Dr Ledgerwood considered the behaviour of Stanwell and CS Energy to be obnoxious – as to which reasonable minds may differ. But, as Senior Counsel for Stanwell put it, Dr Ledgerwood’s approach emerged as one more akin to that of a prophet or an evangelist than that of an independent expert economist.
For these reasons, there are many instances where I have been compelled to reject Dr Ledgerwood’s opinion and have generally preferred the orthodox opinions expressed by Messrs Morton and Holt. Both gave considered and thoughtful evidence. Their reports were thorough and compelling. Both were prepared to make concessions where appropriate and to explain the limits of their evidence and of their expertise.
The participants in the Electricity Market Conclave, in addition to Dr Ledgerwood, were Dr Ian Rose and Mr Daniel Price.
Dr Rose is an Associate Partner at Ernst & Young. He holds a Bachelor of Electrical Engineering (Hons), Master of Engineering Science in Electrical Engineering from the University of Queensland, a Doctor of Philosophy in Electrical Engineering from the University of Waterloo, Canada, and a Graduate Certificate in Management from the Mount Eliza Business Management School in Victoria. Dr Rose is a Fellow of the Institution of Engineers Australia; a Life Member of the Institute of Electrical and Electronic Engineers, New York; a Member of the International Council on Large Electric Systems (CIGRÉ), Paris; and was a Member of CIGRÉ Australian Panel APC5 Committee – Electricity Markets and Regulation from 2000 to 2022. Dr Rose spent the first half of his career working primarily for the Queensland Electricity Commission, commencing in 1972, then for Queensland Generation Corporation (Aust Electric) from 1995 to 1999, before embarking on his consulting career. Dr Rose was involved in developing an energy management system for Queensland to manage the Queensland electricity grid from a new control centre in Brisbane. That centre became the Northern Control Centre for the NEM. Dr Rose has had extensive experience providing expert advice on a range of large electrical projects across Australia and has given expert evidence in disputes concerning transmission upgrades, marginal loss factors, bidding rules, transmission constraints, coal supplies, and power station operation.
In these proceedings, Dr Rose provided the following reports:
(i)Response to the First Ledgerwood Report dated 28 February 2023 (1RoseR);
(ii)Second Expert Report of Dr Ian Rose dated 26 February 2024 (2RoseR); and
(iii)Supplementary Report of Dr Ian Rose dated 28 May 2024 (SuppRoseR).
Mr Price was engaged by CS Energy. He is the co-owner and Managing Director of Frontier Economics Pty Ltd based in Melbourne, a position he has held since 1999. Mr Price holds a Bachelor of Agricultural Economics from the University of Sydney. Prior to commencing his consulting career, Mr Price had over 30 years’ experience in Australian energy reform design and implementation, including: as a principal economist at the New South Wales Electricity Commission (in which role he worked on the development and reform of the NEM Rules from 1988 until 1992); as a senior economics consultant at London Economics (advising on fundamental energy market design and reform in several countries, and reviewing the early trial of the NEM); as lead advisor to the Queensland Electricity Reform Unit (overseeing the entry of Queensland into the NEM); and as a consultant with Frontier Economics, to the NSW Market Implementation Group. He has provided advice to the Tasmanian, Western Australian, and South Australian governments on a variety of energy issues within those States.
In these proceedings, Mr Price has provided the following reports:
(i)Response to Ledgerwood Report dated 28 February 2023 (1PriceR);
(ii)Second Report of Daniel Price dated 26 February 2024 (2PriceRiceR); and
(iii)Supplementary Report of Daniel Price dated 25 March 2024 (SuppPriceR).
Despite Dr Ledgerwood’s primary field of expertise being economics, he also gave evidence as an expert in the operation of electricity markets, and more particularly, in relation to the operation of the NEM as relevant to the issues in these proceedings. His knowledge of electricity markets has been acquired largely in the context of his involvement in matters involving anticompetitive and manipulative market behaviour, including in relation to regulatory issues. The vast majority of his experience relates to energy markets in the United States, of which he readily agreed most are “capacity” markets rather than “energy-only” markets. His prior Australian experience was in assisting the Western Australian electric regulator with the development of screens to detect anticompetitive behaviour in its future capacity market design.
Dr Ledgerwood conceded that, prior to these proceedings, he had had no experience with the operational aspects of the NEM. Despite his obvious diligence in attempting to get across the minutiae of this extremely complex market, he was at a significant disadvantage as compared with Dr Rose and Mr Price, both of whom had been intimately involved with the NEM since its creation. As an example, Dr Ledgerwood sought to identify the impugned rebids as exercises in economic withholding creating what he referred to as an “artificial scarcity”, whereby no capacity is in fact withheld, merely repriced. As Stanwell submitted, in one sense, every price band above the lowest is an economic withholding in one sense, but the design of the NEM is that this can and should occur. As Mr Price put it, when asked about the difference between his opinions and those of Dr Ledgerwood:
It's not a dispute between me and Dr Ledgerwood. It’s a dispute between the whole National Electricity Market design and the agencies and governments whose market it is and Dr Ledgerwood. All I’m doing is reflecting the design of the market as it has been operating for 30 years. The market Dr Ledgerwood is talking about is not ours.
(Emphasis added.)
Where Dr Ledgerwood’s opinions were based on assumptions about matters material to the operation of the NEM, both in relation to the physical aspects of the market and in relation to the operation of the Spot Market, which differed from those of Dr Rose and Mr Price, I had much greater confidence in the opinions of the latter and accept their evidence.
THE SAMPLE INTERVALS
Sample intervals which include Callide C – a preliminary issue
The methodology used by Dr Ledgerwood to identify the ATIs, from which Stillwater selected the Sample Intervals will be discussed shortly. Ultimately, in the First Ledgerwood Report, and the Second Ledgerwood Report, Dr Ledgerwood identified 352 ATIs. This number was revised in his later Report to 353, with 113 attributed to Stanwell and 311 to CS Energy, less the number of ATIs in which both Respondents were implicated (2LedgerwoodR at [1433]).
There is, however, a preliminary issue which concerns how many of the ATIs should in fact be attributed to CS Energy. This issue arises from the circumstances relating to the ownership and control of the Callide C power station. By the 3FASOC, Stillwater asserts that, during the Conduct Period, CS Energy owned or controlled the output of the Callide C. That contention is relied upon by Stillwater in support of its allegation that CS Energy (and CS Energy together with Stanwell) had a substantial degree of market power (3FASOC at [35]).
CS Energy submitted that when the rebids wrongly attributed to it are removed, the number of ATIs which concern CS Energy is reduced from 311 to 200. In relation to ADIs attributed to CS Energy, the number reduces from 363 to 235.
Callide C is located in Biloela, south-west of Gladstone, Queensland. It is one of two power plants that comprise Callide Power Station (Callide B and Callide C). Each of Callide B and Callide C have two generating units (referred to as CALL_B1 and CALL_B2, and CPP_3 and CPP_4, respectively).
The pleadings
CS Energy disputed that it owned or controlled Callide C. By its Amended Defence and Further Amended Defence (CSE FAD), it maintains Callide C is owned and operated by an unincorporated joint venture company between a wholly owned subsidiary of CS Energy (Callide Energy Pty Ltd) and another, entity, IG Power (Callide) Ltd (IGPC), the latter being a subsidiary of InterGen. It also asserts that, during the Conduct Period, electricity generated by Callide C was traded by another joint venture company, CPT, via separate bidding processes by each owner.
In response to the 3FASOC, CSE FAD pleads the arrangement of entities involved in the ownership structure of Callide C in the following way:
[35] As to paragraph 35 of the Statement of Claim, the Second Respondent:
(a) denies the allegations in subparagraph (a) and says further that:
(i)during the Conduct Period the Second Respondent directly or indirectly owned or controlled some or all of the Nameplate Capacity of the following Generating Systems:
CSE
Generating SystemGenerating units DUID 2012 2013 2014 2015 2016 2017 Scheduled and Semi-Scheduled Generating Systems (MW) Callide C CPP 3
CPP 4950 900 900 900 900 900 Callide B CALL B 1
CALL B 2… … … … … … … …
(iii) during the Conduct Period:
(1)Callide Energy Pty Ltd (Callide Energy), a wholly owned subsidiary of the Second Respondent, and IG Power (Callide) Ltd (IGP) were 50/50 participants in an unincorporated joint venture which owned and operated Callide C (including the two generating units CCP_3 and CPP_4;
(2)Callide Power Trading Pty Limited (CPT) was a 50/50 joint venture company owned by Callide Energy and IGP;
(3)CPT was (and is) the Registered Participant for CPP_3 and CPP_4; and
(4)CPT traded the electricity generated from Callide C on the basis of bids submitted by each owner;
…
(Emphasis in original.)
Relevantly, in its Reply to CSE FAD, Stillwater admits, at [8], that CPT was a joint venture company owned by Callide Energy and IGPC, and that it was the Registered Participant for the two Callide C generating units CPP_3 and CPP_4 throughout the Conduct Period, but otherwise denies CS Energy’s plea of the joint ownership of Callide C and joins issue with respect to the structure of ownership and control of Callide C pleaded by CS Energy. It has not pleaded an alternative structure, but alleges that CS Energy was the operator of Callide C during the Conduct Period.
Findings on the basis of assumptions
For the purpose of preparing the First and Second Ledgerwood Reports, Stillwater instructed Dr Ledgerwood to assume that CS Energy owned or controlled Callide C. However, for the purpose of the Economic and Electricity Market Conclaves, Stillwater instructed him to adopt an alternative assumption, namely that Callide C was, in fact, owned and operated in the manner articulated by CS Energy. In the Fourth Ledgerwood Report (4LedgerwoodR at [80]), Dr Ledgerwood corrected Figure SDL9, noting:
The First Callide C Assumption assumes that CS Energy owned or controlled the output of Callide C.
The Alternative Callide C Assumption assumes that CS Energy was responsible only for the offers identified in Exhibit SB-3 as being triggered by instructions submitted by Callide Energy; and owned or controlled 50% of the capacity of Callide C.
*InterGen owns both Millmerran Energy trader and IG Power (Callide) (IGPC).
In its oral opening submissions, Stillwater submitted that it was unnecessary for the Court to make findings in relation to the ownership and control of Callide C as part of the Initial Trial. Senior Counsel for Stillwater submitted that it “[did] not consider that [it was] a useful deployment of [the Court’s] time for this trial to be taxed with the issues about how to treat Callide C”, and that the Court should assume that the structure of ownership or control of Callide C is as set out in the evidence tendered by CS Energy. This submission was put on the basis that “there’s a wider issue that we would need to deal with down the track” and so Stillwater “wishes to reserve its rights”. The nature and import of the “wider issue” were not explained. To the extent that Stillwater submitted there is “another round of factual problems” that have been identified, these were not elaborated upon either in oral or written submissions. It is relevant to observe that Stillwater has been on notice of CS Energy’s position since the filing of the Second Further Amended Statement of Claim on 20 March 2023 and cannot be said to have been taken by surprise by CS Energy’s position. Discovery and particulars have been provided, on 14 April 2023 and 28 June 2023 respectively, and interrogatories have been answered, on 21 February 2024. Two affidavits of Mr Stephen Beauchamp, affirmed on 22 February 2024 (First Beauchamp Affidavit) and 1 March 2024 (Second Beauchamp Affidavit), attesting to the manner in which Callide C’s output was traded as between Callide Energy and IGPC, have been filed and served. Mr Beauchamp was not required for cross-examination. A Notice to Admit Facts in relation to Callide C was served on 25 March 2024. Stillwater disputed all but two of the facts in the Notice to Admit.
CS Energy addressed the issue at some length in its written closing submissions and in closing addresses. As CS Energy submitted, Stillwater’s proposal to proceed on the basis of an assumption was unsatisfactory, not least because, as I have already said, the ownership and control of Callide C is one of the material facts pleaded by Stillwater in support of its allegation that CS Energy had a substantial degree of market power throughout the Conduct Period. It is basal to Common Question 3. There is also a plea of aggregated market power between the Respondents, the success or otherwise of which depends on their respective degrees of individual market power.
Further, the Court has been invited (3FASOC at [44(b)]) to infer from, inter alia, the “frequency” of the rebids made by CS Energy, that CS Energy timed the Short-notice Rebids “intending” to prevent or deter competing Generators from responding in a timely way. Absent a finding as to whether CS Energy, or in fact some other entity, made the several rebids on which that plea was founded, the Court is not in a position to draw any inference as to the frequency of those rebids. As CS Energy submitted, the effect of the impugned analysis in the Second Ledgerwood Report (the allegedly erroneously attribution of rebids) is understood as follows:
(a)for the 45 ATIs identified in Annexure A, 61 ATIs in Annexure B and 10 ATIs in Annexure B1 to CSE FAD, the impugned rebids of CS Energy include rebids of Callide C generating units that were made by InterGen, not CS Energy;
(b)when rebids wrongly attributed to CS Energy are omitted, then:
(i)the total number of ATIs involving CS Energy reduces from 311 to 200 (a difference of 111 ATIs); and
(ii)the total number of ADIs alleged against CS Energy is reduced from 363 to 235 (a difference of 128 ADIs).
It would be an astonishing proposition for the Court to proceed to make critical findings of fact, upon which significant aspects of Stillwater’s case rest, based on no more than an assumption that the structure of ownership and control of Callide C is as set out in the evidence tendered by CS Energy. Were the Court to do so, there would be nothing to prevent Stillwater from re-running significant components of the Initial Trial. There would be no issue estoppel.
The evidence
Stillwater admits that CPT was a 50/50 joint venture company owned by Callide Energy and IGPC and that CPT was (and is) the Registered Participant for CPP_3 and CPP_4.
Despite [289] of the SAF, which states, as pleaded in [35(a)(iii)(1)] of CS Energy’s Amended Defence, “Callide Energy Pty Ltd (Callide Energy), a wholly owned subsidiary of CS Energy, and IG Power (Callide) Ltd (IGPC) were 50/50 participants in an unincorporated joint venture which owned and operated Callide C”, Stillwater has denied that plea. It did not apply for leave to withdraw the admission (Federal Court Rules 2011 (Cth) r 22.06). Nevertheless, Stillwater pleads that during the Conduct Period, CS Energy was the operator of Callide C on behalf of the joint venture.
As to that allegation, the evidence demonstrates first, that Callide Energy, IGPC and Callide Power Management Pty Limited (CPM) entered into a Joint Venture Agreement dated 11 May 1998 (as amended) (CPP Joint Venture). It did not appear to be controversial that IGPC was part of the InterGen Group of companies. The recent spate of decisions in this Court concerning the administration of IGPC makes that proposition unarguable.
Secondly, Callide Energy and IGPC appointed two main corporate vehicles in relation to the CPP Joint Venture, one of which was CPM. The rights of Callide Energy, IGPC, and CPM are set out in the CPP Joint Venture. Relevantly for present purposes, pursuant to the CPP Joint Venture:
(a)each of CS Energy and IGPC held a 50% interest (cl 2.4);
(b)each of CS Energy and IGPC had an undivided entitlement to use a proportion of the generation of the capacity of the Power Station, in the proportion of that Participant’s interest (cl 2.8);
(c)CPM was appointed the Manager of the CPP Joint Venture to manage “Joint Venture Activities”, which included the operation of Callide C (cl 3.1);
(d)an Operation and Maintenance Agreement dated 11 May 1998 (as amended) was entered into (cl 3.4) pursuant to which CPM, as agent for the joint venture Participants, engaged CS Energy as the Operator to operate and maintain Callide C; and
(e)a Station Services Agreement dated 11 May 1998 (as amended) was entered into (cl 3.5) between CS Energy and CPM (also as agent for the joint venture Participants) to provide certain station services required for, inter alia, the operation of Callide C. Pursuant to cl 62, Sch 2 specified the services to be supplied, which included the transport of coal, procurement of ignition oil, the supply of water for various purposes, the provision of various chemicals, the provision of various facilities, and disposal and removal of waste.
Pursuant to the Operation and Maintenance Agreement the subject of cl 3.4, relevantly:
(a)“Station Owners” are defined to mean Callide Energy Pty Limited ACN 082 468 746 and IG Power (Callide) Ltd ABN 53 082 413 885 together, and each of them is a “Station Owner”;
(b)“InterGen Australia” means IG Power (Callide) Ltd ABN 53 082 413 885 a Station Owner;
(c)the Operator (CS Energy) was prohibited, inter alia, from describing itself as agent or representative of the Manager or the Station Owners (cl 2.5);
(d)provision was made for liaison with and flow of information between the Operator and InterGen Australia at all times (cl 16.5);
(e)the services provided under the Operation and Maintenance Agreement pursuant to cl 6.3, as set out in Schedule 3, included:
(i)operating, maintaining, and repairing the Facility in accordance with the standards and requirements of the Operation and Maintenance Agreement;
(ii)providing the skills and resources necessary for the provision of the Services;
(iii)optimising the effective life of the Facility;
(iv)undertaking reviews of and (where appropriate) updating the methods of operation and maintenance employed having regard to, inter alia, world best practice;
(v)performing routine maintenance and testing of plant and equipment;
(vi)co-operating with the Manager, the Station Owners and Callide Power Trading Pty LTD ACN 082 468 710 and all Authorities;
(vii)maintaining operating and maintenance records for plant and equipment;
(viii)reporting on the performance of the Facility and providing forward projections on operations and maintenance;
(ix)providing all engineering required to operate and maintain the Facility including long term asset management; and
(x)maintaining sufficient personnel, expertise, and resources and using best endeavours to maximise returns to the Station Owners.
Although CS Energy was the contractual operator of Callide C, having been engaged by the Manager of the CPP Joint Venture, it was the “operator” only within the confines of the Operation and Maintenance Agreement. None of the services specified within the scope of that agreement, or the Station Services Agreement, resemble the functions to be carried out by CPT and by which the Station Owners were able to bid their generation into the NEM. For these reasons, CS Energy did not control the whole of the generating capacity of Callide C as alleged in [24] and [35] of the 3FASOC.
The other corporate entity was CPT which, pursuant to cl 6.1 of a Shareholder Agreement between Callide Energy and IGPC dated 11 May 1998 (as amended) (CPP Shareholder Agreement), was appointed the exclusive agent for Callide Energy and IGPC (at the time, named Shell Coal Power (Callide) Ltd), in accordance with the terms of a Market Trader Agreement (Sch 8 to the CPP Shareholder Agreement), entered into by each Participant with CPT (see Recital D of the Market Trader Agreement) to sell each of their shares of electricity in accordance with the terms of that agreement. The requirement for trading guidelines was established pursuant to the Market Trader Agreement (cl 5.2). Clause 5.3 provided that such guidelines must, inter alia, “state whether the Station Owner has adopted a Common Trading Strategy or a Differential Trading Strategy”. Relevantly, cl 7.2 of the Market Trading Guidelines provided:
There are two trading regime options available to the owners, Common Trading and Differential Trading.
Differential Trading
Differential Trading is the default trading option. The Owners bid their generation into the NEM on different terms through the Bidding System, where neither Owner is permitted to see the other Owner’s bid. Further, the Owners agree that Available Plant Capacity is to be dispatched into the NEM based on Differential Trading as the normal trading condition, except for those instances where Common Trading is implemented as described below.
Under differential trading the revenue for each owner is split according to the following rules:
1.When the Power station is operating at or below minimum load, 50% for each owner;
2.When the power station plant capacity is bid inflexible, for example where a fixed load is required for testing, 50% for each owner.
3.When the unit is above minimum load the portion for each owner is determined by the individual owner’s bids. (refer to settlements section for detail)
Common Trading
Where both owners agree that Common Trading is to be implemented, CPT will offer bids to AEMO directly through the AEMO web-portal in accordance with pre-agreed templates as detailed in attachment 1. The Common Trading regime has not been used to date and is not expected to be used under normal circumstances. Under Common Trading revenue will be apportioned 50% to each owner.
(Emphasis added.)
The manner in which the Market Trader Agreement and the Trading Guidelines were operationalised in practice was explained by systems engineer, Mr Beauchamp, in his two affidavits. Between approximately 2004 and 2012, Mr Beauchamp held various IT roles with InterGen (Australia) Pty Ltd (First Beauchamp Affidavit at [7]). In around 2009, he was seconded from InterGen to CPT on a full-time basis to develop the CPT Offer System (COS) (First Beauchamp Affidavit at [7]). As described by Mr Beauchamp, at [10]:
COS is an automated system utilised by CPT for submitting energy offers to AEMO. In the usual course, each offer to AEMO requires the following inputs:
(a)an “Owner offer” submitted by Callide Energy to CPT through COS in relation to Callide Energy’s share of Callide C;
(b)an “Owner offer” submitted by IGPC to CPT through COS in relation to IGPC’s share of Callide C; and
(c)an “availability profile” submitted by either CPT personnel or unit operators which contain the unit limits of each of the generating units of the Callide C power station (CPP_3 and CPP_4).
Mr Beauchamp deposed that, on or about 18 August 2022, he accessed the COS production database and extracted the historical data relevant to the Conduct Period (at [13]). That data showed whether CS Energy or IGPC issued CPT with instructions for any given rebid at a particular point in time (at [19](e)). As explained in the Second Beauchamp Affidavit, at [7], some “[o]perator availability” rebids were triggered by CPT personnel or unit operators.
The COS data was used, together with other public data, to assist Mr Price to compile the Nem-vis visualisation tool (2PriceR at [76]-[77]), which is discussed further below. In Nem-vis, rebids submitted by CS Energy to CPT through COS are shown with a green border. Rebids submitted by IGPC to CPT through COS have a purple border. Operator availability rebids have an orange border (2PriceR at [93](d)).
As I have already observed, Mr Beauchamp’s evidence was unchallenged. I accept that CPT traded the electricity generated from Callide C on the basis of bids submitted by each owner and that, consequently, for the purpose of this proceeding, the number of ATIs referable to CS Energy is 200 and the number of ADIs referable to it is 235.
Methodology for choosing the ATIs
A significant attack was mounted by Stanwell and CS Energy on the manner in which Dr Ledgerwood selected the ATIs as described in the First Ledgerwood Report. That report responded to a Letter of Instructions (Ledgerwood Instructions) from the solicitors for Stillwater dated 19 September 2022. Dr Ledgerwood was first briefed on 3 February 2022 with, inter alia, Stillwater’s Further and Better Particulars of the Statement of Claim dated 25 August 2021, the data referred to in those Particulars, and the Amended Statement of Claim dated 27 September 2021 (ASOC) as background information, pending the provision of “the scope of your assignment and your specific instructions in due course”. The Ledgerwood Instructions noted that the Court-ordered timetable required his report to be filed 4 days later, by 4:00pm on 23 September 2022 but that an extension until 14 October 2022 had been requested from the Court.
I pause to observe that I was troubled about the approach to soliciting Dr Ledgerwood’s opinion, given the sequencing of the various letters of instructions, his ultimate approach to the selection of the ATIs, and the theory he adopted in impugning the conduct. Nevertheless, all parties adopted what has been accepted by the Full Court as the provision of “a final letter of instructions, containing the final form of the questions to be answered by an expert, to be prepared shortly before an expert report is finalised”: New Aim Pty Ltd v Leung [2023] FCAFC 67; 410 ALR 190 at [87] (Kenny, Moshinsky, Banks-Smith, Thawley and Cheeseman JJ). In what was a novel case, however, the process skirted very close to what the Full Court identified as an inversion of the process – using the expert’s specialised knowledge in order to identify the questions that should have been asked and the assumptions that should have been given. As Lee J said in BrisConnections Finance Pty Ltd (recs and mgrs apptd) v Arup Pty Ltd [2017] FCA 1268; 252 FCR 450 at [71], and with which the Full Court agreed, at [89]:
The integrity of the expert evidence process and the independence of experts is best facilitated by transparency in what is being asked of experts prior to, or at the time, they are forming their opinions and, if the questions need to change because they are misdirected, a record being made by way of supplementary instructions as to what has changed.
I do not say it occurred in this case, but attempts to shield the actual instructions given to an expert witness, and perhaps also to shield draft opinions, give little comfort to a Court which expects to be able to rely on expert evidence given honestly, dispassionately, and impartially.
The Ledgerwood Instructions sought Dr Ledgerwood’s expert opinion on three questions:
Q1.In your opinion, what is the appropriate methodology for assessing whether the Respondents (or either of them) engaged, during the Conduct Period, in conduct of the kinds described in the ASOC as Late Rebidding and Early Spiking:
(a)at all; and
(b)if it occurred (and subject to paragraph 15 below) – in a manner indicating an exercise of market power residing in the Respondents or either of them?
Q2.Having regard to your answer to Question 1, what is your opinion as to whether the Respondents (or either of them) did engage, during the Conduct Period, in conduct of the kinds described in the ASOC as Late Rebidding and Early Spiking:
(a)at all; and
(b)if they did (and subject to paragraph 15 below) – in a manner indicating an exercise of market power residing in the Respondents or either of them?
Q3.If the Respondents (or either of them) did engage in conduct of the kinds described in the ASOC as Late Rebidding and Early Spiking, please identify, for each Respondent, the Trading Intervals in which such conduct occurred.
(Emphasis added.)
Paragraph 15 of the Ledgerwood Instructions relevantly reads:
We note that the three questions above concern only your assessment of the Trading Intervals that in your opinion suggest conduct of the kinds described in the ASOC as Late Rebidding or Early Spiking that warrant further investigation as potential exercises of market power … we expect that we will later make a request for a further expert report or reports opining on whether any conduct identified in this first report:
15.1has had any and if so what impact on Spot Prices (or other ‘downstream’ prices) in the market; and
15.2reflects the exercise of market power by either Respondent.
(Emphasis added.)
Relevantly, the ASOC pleaded, at [30], that during the Conduct Period, each of Stanwell and CS Energy engaged in a trading strategy, described as Late Rebidding, which had certain features. Amongst those features were that “shortly prior the commencement of either the … fifth or sixth” DI of the “Targeted Trading Interval”, Stanwell or CS Energy made a withholding rebid (ASOC at [30](e)). The ASOC pleaded that “by reason of the late submission of the Rebid” competing Generators could not respond quickly enough to be instructed to dispatch electricity (ASOC at [30](f)).
In response to a request for particulars of Stillwater’s methodology used to identify the impugned TIs, by letter dated 25 August 2021 (Particulars of ASOC), Stillwater said, inter alia, that:
(a)with respect to Late Rebidding – “a screen was performed to identify the Trading Intervals in which a Rebid was made by Stanwell and/or CS Energy withholding large volumes of generation capacity to higher price bands, within 5 minutes of Dispatch Interval 6”; and
(b)with respect to Early Spiking - “a screen was preformed to identify the Trading Intervals in which a Rebid was made by Stanwell and/or CS Energy withholding large volumes of generation capacity to higher price bands, within 5 minutes of Dispatch Interval 1”.
(Emphasis added.)
The screens applied to the data set were described Part IIC of the First Ledgerwood Report. Dr Ledgerwood identified “two essential elements common to both the Late Rebidding and the Early Spiking strategies”. These were described at [45]:
(a)First, on the occasions when these trading strategies were put into effect, one or other or both of the Respondents submitted one or more bids that withheld capacity (that is, caused capacity that had previously been offered at a low price to be offered at a high price).
(b)Second, the Respondents submitted the withholding bid close to the start of the dispatch interval for which the withholding bid caused the dispatch price to be elevated, thereby limiting the ability of competing generators to mount a competitive response to the withholding.
(Emphasis added.)
It is observed that Dr Ledgerwood apparently broadened the scope of Stillwater’s methodology as described in the Particulars of ASOC beyond a period of “within 5 minutes” of DI6 or DI1 to a period described by him as “close to the start of the dispatch interval for which the withholding bid caused the dispatch price to be elevated”, a period which he considered to be 15 minutes (1LedgerwoodR at [36(c)]).
In order to test for the conduct described in the ASOC, Dr Ledgerwood applied eight screens to a data set sourced from publicly available data from the AEMO Market Management System Data Model comprised of all bids submitted by the Respondents during the Conduct Period (1LedgerwoodR at [19], [24]). The screens removed:
(1)all rebids not associated with Stanwell and/or CS Energy (at [50]);
(2)all rebids for TIs where the Trading Price was greater than or equal to $8,000MWh and all rebids for the first and last DIs of a TI where the Trading Price was greater than or equal to $8,000MWh in the prior and subsequent TI respectively (at [51]);
(3)all rebids and DI combinations in which the Queensland dispatch price was less than twice the New South Wales dispatch price (at [52]);
(4)all rebids that were not either D-5, D-10 or D-15 rebids for at least one DI (at [53]);
(5)all combinations of rebids and DIs that, aggregated over all Stanwell D-5 bids for the DI did not withhold a positive quantity and all Stanwell D-10 and D-15 rebids for the DI, and to CS Energy D-5, D-10, and D-15 rebids for the DI (at [54]);
(6)all DIs where the dispatch price in the preceding DI was less than $0MWh (at [55]);
(7)all combinations of rebids and DIs for which the dispatch price elevation was less than $600MWh (at [56]); and
(8)all combinations of rebids and DIs for which the dispatch price elevation is greater than the dispatch price (at [57]).
It is important to observe that Dr Ledgerwood was asked only about the conduct of Stanwell and CS Energy. As he said during cross-examination, he had not been asked to assess the conduct of any other market participant during the Conduct Period. It is therefore not possible to know whether, had these screens been applied to any other market participant, the extent to which similar conduct attributable to those others may have been similarly impugned.
By the screens applied to all rebids in the Conduct Period by Stanwell and CS Energy, Dr Ledgerwood identified 2,006 rebids that were not eliminated by any of the screens. From those 2,006 rebids, Dr Ledgerwood identified 352 TIs for which the rebids were effective (at [60]). The number was subsequently amended to 353. It was from those 353 TIs that the 13 Sample Intervals were chosen.
I consider it more probable than not that Dr Ledgerwood himself chose the Sample Intervals. He equivocated on that question over the course of his cross-examination. On one occasion, he said that he had chosen the Sample Intervals as “good examples of the behaviour … that we have picked up in the screens”. On another occasion he said, “we did not select the sample intervals”. On yet another occasion, Dr Ledgerwood said he “made recommendations with respect to the sample intervals”. Nothing of any great moment turns on these contradictory statements, except to the extent that no clear explanation for why these particular 13 intervals were chosen ever really emerged. Dr Ledgerwood denied that they were intended to be statistically representative of the ATIs, saying they were “just … representative examples”. I infer that they were the “best” examples of the application of Dr Ledgerwood’s theory to the conduct of which he disapproves.
Dr Ledgerwood opined (1LedgerwoodR at [14]) that:
Each of the 352 trading intervals had elevated dispatch prices that were influenced by withholding bids submitted by the Respondents. The fact that I was able to identify these intervals using the screens described in Section II of my report suggests that Respondents engaged in the conduct of the kinds described in the ASoC in a manner indicating an exercise of market power.
In cross-examination, Dr Ledgerwood was careful to maintain that, at the stage when the First Ledgerwood Report was written, he was not asserting that the withholding bids identified by the screens caused the subsequent price spike, merely that the latter was proximate to the former. Dr Rose made the point that in some years within the Conduct Period, “there is up to eight months between two five-minute intervals that have been identified. So it’s a very long period to sit waiting, if you have got market power”.
Stanwell criticised Dr Ledgerwood’s approach on the basis that, inter alia, he did not identify conduct satisfying the pleaded conduct by scrutinising Stanwell’s rebid reasons in the context of the NEM and the applicable regulations. Rather, any rebid that passed the screens has been identified as having been made with the alleged state of mind and in the absence of a timely material change in circumstances. Mr Price said (1PriceR at [17]):
The approach Ledgerwood uses to come to his conclusions involves focussing on bidding in the spot market, which is just one aspect of market behaviour. He considers only snapshots in time and does not consider the way the market actually operates and the rules that govern the market.
CS Energy’s criticisms were similar. It was put to Dr Ledgerwood in cross-examination that the majority of the screens did not, and could not, identify the behaviour that had been pleaded, rather they were directed at identifying an outcome. Dr Ledgerwood agreed that only screens 1, 5, and 6 were concerned with behaviour.
Both Dr Rose and Mr Price pointed out that the screens could not accommodate circumstances leading up to the rebid, nor could they have regard to the rebidding activities of other market participants, who were engaged in similar conduct. Being applied ex post facto, the screens rather assumed that a trader would know when the rebid would become effective, that there would be price elevation of above $600MWh, and that price separation from New South Wales would occur. None of these factors could be known to a trader at the time of submitting a rebid.
Further, as was observed by Dr Rose, six of the eight Sample Intervals which concern Stanwell were during the period when the carbon tax was in force. Stanwell had to recover that impost. He also observed that all of the Sample Intervals occurred in the Queensland summer in Queensland’s peak period. Many were outliers, occurring for example, on 29, 30 and 31 December, when several generating units are typically offline for maintenance, and it is a period of “drought and record temperatures”. Similarly, Mr Price observed that 73% of the impugned TIs occurred in the top decile of demand for the relevant calendar year (1PriceR at [16]). Dr Ledgerwood was clear that, by Screen 2, he did not screen for periods of “actual scarcity” by reference to very high demand, as may be created by such environmental conditions, although he opined that “it doesn’t seem correct to impugn a rebid that is made in that environment”.
Ultimately, what became clear in the course of Dr Ledgerwood’s evidence was that he had designed the screens in such a way as to capture the conduct that he considered to be egregious. That was made clear by Dr Ledgerwood where he said (2LedgerwoodR at [1101]):
The screens used in the First Ledgerwood Report were designed to focus only on instances when the Respondents submitted successful withholding rebids (i.e., ones which produced an elevated price) in such a way as to limit the opportunity of other market participants to rebid in response to the withholding. The screens did this by capturing only withholding rebids submitted approximately 15 minutes [FN 492: That is, in the last three gate closure windows before dispatch] or less before dispatch in a DI that resolved with an elevated dispatch price. The screens excluded any rebids that were submitted more than 15 minutes before dispatch.
What is, or is not, a legitimate business reason will necessarily be market specific; in this case, specific to the NEM.
The evidence
Messrs Morton and Holt agreed that the following factors were relevant to an assessment of whether Stanwell and CS Energy (separately) used their substantial power to make the impugned rebids in the ATIs (JtEcER at [309]-[317]):
(a)whether Stanwell and CS Energy were able to sustain higher Spot Prices for sustained periods through Short-notice Rebids (price-cost test);
(b)whether there was evidence of Stanwell and CS Energy earning supra-competitive profits (profitability);
(c)whether Stanwell and CS Energy had the ability to act independently of other Generators in the market (independence);
(d)whether any other market participants other than Stanwell and CS Energy successfully engaged in similar behaviour with non-trivial frequency (similar conduct by others);
(e)whether Short-notice Rebids foreclosed firms from the market (foreclosure of others);
(f)whether there are other contextual reasons unrelated to substantial market power for the conduct (for example, demand and supply, information available to each Generator, changes in expectations regarding rivals Generator bids, costs of increasing output) (market context).
As to the price-cost factor, Mr Holt’s analysis discussed earlier shows that no Queensland Generators, including Stanwell and CS Energy, have been able to sustain prices above competitive levels during the Conduct Period, nor even to sustain prices that would enable recovery of forward-looking capital and operating costs (JtEcER at [349]). It was Mr Holt’s opinion, albeit with which Dr Ledgerwood disagreed, that it was not relevant to focus on transitory price increases, whether or not attributable to Short-notice Rebids, in the context of an energy-only market, and where volume weighted spot prices over the Conduct Period fell below LRMC (JtEcER at [349]).
As to profitability, and as I have already observed, Dr Ledgerwood did not consider whether Short-notice Rebidding would be profitable absent substantial market power. What evidence there was as to the profitability of CS Energy (and by analogy, Stanwell) was inconsistent with any hypothesis that prices are high relative to costs during the Conduct Period (JtEcER at [350]). In respect of CS Energy, Dr Holt’s evidence was that its return on underlying capital employed was either negative or below 8% (JtEcER at [350]). Similarly, Mr Morton’s evidence was that Stanwell’s actual revenue over the Conduct Period was materially below its assessed efficient cost. He opined (JtEcER at [273]),
[t]he difference between notional spot market revenue and assessed efficient cost was greater still. In combination with the assumption that Stanwell is a profit maximising entity, this provides support for the proposition that Stanwell did not have or use substantial market power over that period.
Messrs Morton and Holt agreed that, if Stanwell and CS Energy had substantial market power, and it was profitable to exercise it by Short-notice Rebidding, they would have engaged in it more frequently. Mr Holt said:
… if they did have substantial market power, and they were in a position to exercise that through short-notice rebids frequently to the point where that led to profitable increases in prices above the benchmark, then I can’t see any potential reason that would be credible as to why you would not do that and the only one that I think I have heard is sort of a notional link to, you know, volatility in the longer-term and contract pricing.
But that doesn’t provide any basis to say you would prefer not to exercise substantial market power when you could otherwise have profitably done so in order to avoid a price spike on the basis that avoiding price spikes would somehow give you long-term benefit in terms of contract pricing. If anything, it’s the reverse. More volatility and higher average expected future prices would tend to increase your future contract position. So the only potential argument I’ve heard that sort of tries to say, “Well, why is the substantial market power not being exercised in the short-term due to a long-term consideration?” It actually goes the other direction.
The issue of frequency was explored by a document prepared by Stanwell (J58) (set out below, with cross-references to the underlying data omitted), which analyses the data underlying Dr Ledgerwood’s Figure 16 and his Tables 4 and 6 – the pivotal Generator analyses.
ATI#
DI applicable to making the rebid or its asserted effect
Stanwell only
(Figure 16)
Stanwell only
(Table 4)
Stanwell only
(Table 6)
ATI#2 (rebid)
12:55 on 29/12/2013
No
No
No
ATI#2 (affected)
13:00 on 29/12/2013
No
No (CSE was)
No (CSE was)
ATI#3 (rebid)
16:20 on 25/10/2013
No
No
No
ATI#3 (affected)
16:25 on 25/10/2013
No
No
No
ATI#4 (rebid)
16:25 on 13/12/2014
No
No
No
ATI#4 (affected)
16:30 on 13/12/2014
No (CSE and CPT together were)
Yes (as were 4 others)
Yes (as were 4 others)
ATI#5 (rebid)
16:20 on 23/10/2013
No
No
No
ATI#5 (affected 1)
16:25 on 23/10/2013
No
No (but 3 others were)
No (but 3 others were)
ATI#5 (affected 2)
16:30 on 23/10/2013
No
No (but 2 others were)
No (but 2 others were)
ATI#9 (rebid)
15:15 on 22/01/2014
No
No
No
ATI#9 (affected)
15:25 on 22/01/2014
No
Yes (as were 4 others)
Yes (as were 4 others)
ATI#11 (rebid)
17:15 on 30/12/2013
No
No
No
ATI#11 (affected 1)
17:25 on 30/12/2013
No
No (CSE was)
No (CSE was)
ATI#11 (affected 2)
17:30 on 30/12/2013
No (CSE and CPT together were)
No (CSE was)
No (CSE was)
ATI#12 (rebid)
13:20 on 31/12/2016
No
No
No
ATI#12 (affected)
13:35 on 31/12/2016
Yes
No
No
ATI#13 (rebid)
16:45 on 09/03/2015 (in the gate closure period for 16:50)
No
Yes (as were 3 others)
Yes (as were 4 others)
16:50 on 09/03/2015
No
Yes (as were 6 others)
Yes (as were 7 others)
ATI#13 (affected)
17:05 on 09/03/2015
No
No
No
The table was shown to Dr Ledgerwood during cross-examination. He did not dispute its accuracy. As set out in the table, the data showed that Stanwell was only said to have the ability to set a high price because of its substantial market power three times in the eight Sample Intervals: in the ADIs for ATI#4 and ATI#9, and in the DIs in which the rebid for ATI#13 was made and which it affected. On each occasion, three or more other competing Generators were also able to set a high price (in ATI#4 and ATI#9 – four; in ATI#13 – 11). Stanwell submitted this was not consistent with the conduct having been “materially facilitated”, by Stanwell’s substantial market power. Stanwell submitted that, if it did not have substantial market power at the time it engaged in the impugned conduct, or at the time it is said to have affected the dispatch price, it cannot be said to have taken advantage of that market power.
As to independence, Mr Price’s analysis of ATI#1, ATI#7, and ATI#10 shows the number of Generators who made pile-in rebids following the price spikes (2PriceR at [141], [284], [209]). His analysis of ATI#6 shows a rebids by Arrow and Alinta (2PriceR at [265]). Mr Holt’s opinion, based on this analysis, was that the price spikes were transitory and often reverted to very low prices in the next TI (JtEcER at [352]). This, he opined, was consistent with rivals “being able to respond to market conditions and defeat any attempt to raise prices persistently over a sustained period of time” (JtEcER at [352]). Similarly, Mr Morton observed that any Short-notice Rebidding was met with a swift and effective competitive response by Stanwell’s competitors (JtEcER at [360(b)]; 1MortonR at [11.4]). This meant, he opined, “that Stanwell was unable to sustain high prices for sustained periods” (JtEcER at [360(b)]). The ability of Stanwell to engage in Short-notice Rebidding was, therefore, unrelated to substantial market power (JtEcER at [360]).
Similar conduct was engaged in by almost every other Generator. The evidence showed that, of the eleven Generators that competed against Stanwell and CS Energy (including one another), nine engaged in high-priced rebidding causing price spikes (2RoseR at Table 8, [9.14]). Figures 34 to 47 in the Supplementary Morton Report demonstrate the absence of correlation between the making of high-priced rebids and the features pointed to by Dr Ledgerwood – ramp down percentage and registered generation capacity, share of registered generation capacity, registered generation capacity over last 18 months of the Conduct Period, ramp down capacity, portion of ramp down capacity across the Conduct Period, and portion of QENEM average ramp down capacity – as advantages for Stanwell and CS Energy. For example, Figure 42 demonstrates, inter alia, that InterGen has more sole participant high-priced rebids than Stanwell, despite having less than one-third of its registered generation capacity and less than one-third of Stanwell’s ramp down capacity (SuppMortonR at [3.6.6]). Similarly, Figure 44 shows that InterGen had more sole participant high-priced rebids in the final 18 months of the Conduct Period than Stanwell and CS Energy combined (SuppMortonR at [3.6.10]). Mr Morton observed further that InterGen had only around 5% of ramp down capacity, which “clearly shows that ramp down capacity was not a requirement to engage in Short-notice Rebidding” (SuppMortonR at [3.6.12]).
Dr Rose’s analysis in fact demonstrated that Stanwell was one of the “less successful” Short-notice rebidding participants. Table 13 of the Second Rose Report presented the number of TIs after removing the dispatch price elevation filter (1LedgerwoodR at [56]) and including all bids from all Generators (2RoseR at [9.12]). He observed that, once the price elevation screen was removed, Stanwell’s Short-notice Rebidding caused a price elevation for 16% of the occasions that met the criteria for Table 13. This compared with 24% for CS Energy, 31% for CPT, 10% for Alinta, 11.5% for Arrow, 13% for ERM, 24% for InterGen, and 21.4% for Origin (2RoseR at [9.14]). Dr Rose said, “[t]his shows that SCL did not generally cause price elevation associated with a Short-Notice Rebid” (2RoseR at [9.14]).
Mr Morton and Dr Holt agreed that the pervasiveness of the impugned conduct by Generators other than Stanwell and CS Energy, none of which was alleged to also have substantial market power, indicates that the conduct cannot be causally related to substantial market power (JtEcER at [353] and [360(a)]).
I accept Stanwell’s submission that it is the antithesis of substantial market power that an entity said to have it is unable to exercise it to its own advantage, in absolute or proportionate terms, as much as its smaller competitors. In Melway, the fact that Melway had adopted its segmented distribution system before it had secured its position of market dominance was fatal to the argument that it had taken advantage of its market power by maintaining this distribution system (Melway at [68]). Similarly, the fact that all Generators, regardless of type or size, engaged in the same conduct as is alleged against Stanwell and CS Energy is fatal to the contention that the impugned conduct constituted taking advantage of market power.
The pervasiveness of other Generators’ engagement in the impugned conduct also supports the proposition that the Respondents’ substantial market power did not foreclose firms from the relevant market. There was, in any event, no evidence that competitors suffered harm such as lower sale volume, loss of market share or profits due to the conduct.
I have already drawn attention to the importance of market context when assessing whether or not substantial market power has been used (Eastern Express (FC)). Mr Holt opined that, in order to assess whether the Short-notice Rebids represent the exercise of substantial market power, “one would have to account for the complexity of the market, developments in the demand and supply balance, expectations of market participants based on observations of bidding behaviour” (JtEcER at [356]). Mr Price’s and Dr Rose’s observations and explanations of the context relevant to each ATI have been discussed earlier in relation to each of the Sample Intervals.
On the basis of Mr Price’s analysis, it was Mr Holt’s opinion that there was no evidence that CS Energy used its substantial market power to make the Short-notice Rebids in the ATIs (JtEcER at [357]). Mr Morton reached the same conclusion in respect of Stanwell (JtEcER at [362]).
Dr Ledgerwood concluded, in respect of each of the ATIs, that there was no economic rationale for any of the rebids made by Stanwell and CS Energy. Stillwater submitted that, far from being economically efficient, “the Respondents’ Short-notice Rebidding significantly increased the price paid by purchasers of wholesale electricity, whether they purchased electricity on the Spot Market or entered into hedging arrangements”. Not only was there no evidence led to support this submission. The evidence of the economic experts was to the contrary.
The evidence does not establish that either Stanwell or CS Energy took advantage of any market power they were contended to have, either in the QRNEM as a whole, or in the subset 9,211 DIs that were analysed by Dr Ledgerwood.
The answer to Common Question 7 is “No”. Even if I had been satisfied that Stanwell and CS Energy had substantial power in the Market and had engaged in Short-notice Rebidding, Stanwell and CS Energy, in engaging in Short-notice Rebidding, did not take advantage of their market power.
PURPOSE
Section 46(1)(c) proscribes taking advantage for the purpose of deterring or preventing a person from engaging in competitive conduct in any market. As has already been explained, Stillwater contended that a responsive Rebid was one that would abate a price spike and which was likely to result in a net loss in spot revenue for Stanwell and/or CS Energy. That was the only response that Stillwater considered to be competitive.
In Australian Competition and Consumer Commissioner v Baxter Healthcare Pty Ltd (No 2) [2008] FCAFC 141; 170 FCR 16 at [317], Dowsett J, albeit in dissent in the result, considered the phrase “deterring or preventing” and concluded that the combined effect of the words included “persuading a person to decide to withdraw from, not to enter or not to compete in a market, as well as making it difficult or impossible for that person to do so”. The Full Court adopted this formulation in Pfizer at [475].
There was no suggestion that Short-notice Rebidding would persuade a competing Generator to withdraw from, or not to enter, the market. At its highest, Stillwater’s case was Stanwell and CS Energy are said to have taken advantage of their substantial market power to engage in Short-notice Rebidding (being the alleged trading strategy) for the substantial purpose of deterring or preventing other Generators from submitting a responsive Rebid – that is, making it difficult or impossible for a competitor to submit a rebid that might abate a forecast price spike within a 5-minute period within one TI – that is, a rebid likely to result in a price-volume offset involving a net loss of revenue for Stanwell and/or CS Energy.
Stillwater acknowledged that it had no direct evidence of the proscribed purpose. It asked the Court, instead, to infer the purpose from the “nature”, “frequency” and “effect” of the implementation of the alleged trading strategy (3FASOC at [52(b)]). The proscribed purpose pleaded in [52] is more limited than the trading strategy as pleaded in [44(b)]. By [52], Stillwater alleges the Respondents engaged in Short-notice Rebidding for the substantial purpose of deterring or preventing a responsive Rebid, rather than also that of preventing or deterring other Generators from switching on, synchronising, or ramping up in sufficient time to offer total or partial substitution as pleaded in [44(b)(ii)] and [44(b)(iii)]. The infelicity in the pleading is of no consequence in the present case, where the evidence is insufficient to establish that Stanwell and/or CS Energy had the proscribed purpose of preventing other Generators from submitting a responsive Rebid, or indeed of preventing any other type of competitive response.
The “nature” of the Short-notice Rebidding was said to be as pleaded in [44(b]) of the FASC (3FASOC at [52]). As against the inference Stillwater asked the Court to draw was the direct testimony from Mr Branson and Mr Jenkins that the rebids were not made for the alleged purpose, coupled with contemporaneous records explaining the reasons for the rebids. That evidence has been discussed above (see [380] above). As I have already found, Stillwater has been unable to prove the existence of the alleged trading strategy (see [705] above). The allegation of the proscribed purpose, therefore, fails at the first hurdle.
Further, and has been discussed in the context of whether the Respondents took advantage of any substantial market power, the “frequency” of the rebids does not support Stillwater’s case (see, eg, [735] above). Stillwater was unable to prove the frequency of the impugned conduct across the Conduct Period – it did no more than identify, through Dr Ledgerwood’s screens, categories of rebids for investigation. As Dr Ledgerwood said, “[t]here is not an analysis of what actually went on in these different screen trips”. Further, as emerged during the Initial Trial, some of those screens identified rebids made for plant and financial rebids, which were irrelevant to the case sought to be made against the Respondents. Their inclusion casts doubt on the reliability of the numbers put forward by Stillwater from which any inference is sought to be drawn.
The “effect” of the Short-notice Rebidding was pleaded, somewhat circuitously, to have been that the dispatch price for the ADIs was higher than it would have been but for the Short-notice Rebidding, as was the Spot Price paid in the ATIs (3FASOC [45] as particularised in [64] (and assuming the reference in [64] to [45(b)] should read [45(a)]) and [65] as particularised in [45(b)]).
Stillwater submitted that the inference as to “effect” can be drawn from the fact of the timing of the rebids, considered with the “inadequacy of … reasons” for the rebids, relative to the alleged price spikes. That inference is not open. As CS Energy submitted, Dr Ledgerwood’s screens selected only for proximity to a price spike. They could not, and did not purport to, select for intention.
Stillwater led some evidence of a counterfactual price, which it submitted was relevant to purpose, for the reason that it identifies that the Respondents had the incentive to engage in the impugned conduct. In Figure 51 of the Second Ledgerwood Report, Dr Ledgerwood compared the price spikes in the ADIs with a counterfactual proxy price calculated in NEMPY.
Dr Ledgerwood explains (2LedgerwoodR at [1279]) that
Figure 51 shows that, on average across the 16 ADIs in the Sample Intervals, the dispatch price was $7,567/MWh higher than the most reliable proxy for the price that AEMO would have calculated in the ADIs without Short-notice Rebidding. I therefore conclude that the Impact of Short-notice Rebidding on the dispatch prices of the ADIs was an increase of $7,567/MWh on average.
As Stanwell submitted, however, this evidence is of little assistance. First, it adopts a “no transaction” approach, where no rebids were made at all, rather than a scenario where they were made earlier in time. Secondly, in ADIs where rebids were made by both Respondents, it removed the rebids made by each of the Respondents. It was therefore not possible to assess the consequence of a rebid made by one of the Respondents alone in those particular ATIs.
I readily accept that Stanwell and CS Energy traders “hoped” that they would be able to cause price spikes over the summer period in accordance with their respective strategies, in order to improve price-volume trade-offs and increase contract prices. That was their purpose in engaging in “late” rebidding. But a hope is not the same as an intention or an expectation. Still less does it equate with a purpose of making it “difficult or impossible” for other Generators to compete in the NEM. Engaging in profit-maximising behaviour is not a proscribed purpose. The evidence is that other Generators did compete, just not necessarily in the way that Dr Ledgerwood considered to be the only legitimate form of competitive conduct.
Section 46(7) of the CCA also does not assist Stillwater. Although it provides that an inference as to purpose may be drawn from the conduct itself, the alleged conduct in this case is not capable of supporting the inference.
The evidence established that, throughout the Conduct Period, price spikes were an intended and ubiquitous feature of the NEM, anticipated and expected by traders, Generators, retailers, and the AER. Although rebids were submitted by Stanwell and CS Energy “late”, in the sense that they were submitted 15 minutes before the conclusion of a TI, such rebids were neither prohibited by the NER, nor was there any evidence that they were targeted at deterring particular responses by competitors. The spread of the timing of the rebids across the Sample Intervals is sufficient to dispel such an assertion. Further, as was conceded by Dr Ledgerwood, at the time of rebidding, a trader does not know whether another Generator has already made its own rebid, or might make such a rebid within the same 5-minute period as its own rebid. The trader cannot know, therefore, whether it is the “first mover”.
Nor can a trader have any insight into another Generator’s economic incentives for responding in any particular way to a high-priced rebid. It may be in that Generator’s interests to do nothing; it may be unable to do anything; it may decide to pile-in. It is, therefore, difficult, if not impossible, to attribute to a trader an intention to thwart the effect of a competitor’s rebid when he is flying blind as to his competitor’s position in any event. Moreover, at the time of rebidding, the trader is unaware of the precise manner in which the NEMDE will dispatch the bid stack, the actual demand required for the particular DI, or any other unforeseen constraint that may arise for that DI. There is a compelling reason for traders to wait to make withholding bids until shortly before the rebid was to take effect – to minimise the risk involved in the rebid being unprofitable. The closer it comes to the time of a rebid taking effect, the more confidence a trader has in the forecasts. Consequently, the trader can do no more than engage in what French J described in AGL (Loy Yang) at [456] as “moderately well informed betting”.
The answer to Common Question 8 is “No”. Even if the Court had been persuaded that Stanwell and CS Energy had engaged in the strategy pleaded in [44] of the 3FASOC and took advantage of their substantial degree of power in the Market, it has not been proved that, by engaging in Short-notice Rebidding, Stanwell and CS Energy had the proscribed purpose of deterring or preventing other Generators from engaging in competitive conduct.
DISPOSITION
For the reasons given, the answers to the Common Questions to be determined at this Initial Trial are as follows:
Common Question 1: At all times during the Conduct Period, was the relevant market for the purposes of s 46 of the CCA the market as pleaded in paragraph 22 of the SOC (Market)?
Yes.
Common Question 2: During the Conduct Period, did Stanwell have a substantial degree of power in the Market within the meaning of section 46(1) of the CCA?
No.
Common Question 3: During the Conduct Period, did CS Energy have a substantial degree of power in the Market within the meaning of section 46(1) of the CCA?
No.
Common Question 4: During the Conduct Period, for the purposes of s 46(2) of the CCA, did Stanwell and CS Energy together have a substantial degree of power in the Market?
No.
Common Question 5: During the Conduct Period, did each of Stanwell and CS Energy engage in Short-notice Rebidding in relation to the electricity they offered for dispatch in the QRNEM in any and if so in which of the alleged ATIs?
No.
Common Question 7: If the answer to Common Questions 2, 3 or 4 and to Question 5, is yes, did Stanwell and/or CS Energy, by engaging in the Short-notice Rebidding, take advantage of their market power?
Unnecessary to answer but No.
Common Question 8: If the answer to Common Question 7 is yes, did Stanwell and/or CS Energy take advantage of their market power for the purpose of deterring or preventing a person from engaging in competitive conduct in the Market?
Unnecessary to answer but No.
Common Question 11: If the answer to Common Question 8 is yes, did this constitute a contravention of section 46 of the CCA?
Unnecessary to answer but No.
Given the answers to the Common Questions, the proceeding must be dismissed.
The parties seek to be heard on the question of costs. The matter will be adjourned until March 2025 for a hearing on costs, unless the parties are able to agree orders.
I certify that the preceding seven hundred and sixty-six (766) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Sarah C Derrington. Associate:
Dated: 4 December 2024
Schedule – Glossary of Terms
Term Definition AEMC Australian Energy Market Commission AEMO Australian Energy Market Operator ATI Affected Trading Interval Claim Period 20 January 2015 to 20 January 2021 Conduct Period 1 January 2012 to 6 June 2017 DI Dispatch Interval Dispatch price Price for electricity in a wholesale electricity market that is necessary to provide the energy capacity needed to match demand in a five-minute 'dispatch period' Dispatch price forecast The forecasted dispatch outcomes for a Trading Day in terms of estimated dispatch price, based on the AEMO based on the Dispatch Algorithm DUID Dispatch Unit Identifier FCAS Frequency Control Ancillary Services, used to manage reductions or injections of energy into the grid, when required LRMC Long-run marginal cost of production MW Megawatts MWh Megawatts per hour NEM National Energy Market NEMDE Complex algorithm used by the AEMO to assist in its balancing of supply and demand NEMPY Publicly available open-source model of AEMO’s dispatch process, designed for modelling the dispatch procedure of the NEM, and co-optimising energy and FCAS markets NEM-vis An interactive software platform developed by the parties to the proceeding to demonstrate the circumstances and effect of the conduct in question in the context of the Affected Dispatch Intervals NSWRNEM New South Wales Region of the National Energy Market QRNEM Queensland Region of the National Energy Market Ramp down How quickly dispatchable generation from power plants can decrease whilst still remaining operational (not shutting down) Ramp rate Common metric in power generation that expresses how quickly power output changes over time Ramp up How quickly dispatchable generation from power plants can increase Spot Price Price at which electricity can be bought or sold for immediate delivery SRMC Short-run marginal cost of production TIs Trading Intervals
2
5
20