On Wednesday 4th December, 2024, Justice Sarah C Derrington handed down her verdict on Stillwater Pastoral Company Pty Ltd v Stanwell Corporation Ltd & Anor, more commonly known as the Queensland Energy Class Action. Frontier Economics’ Managing Director Danny Price acted as an expert witness in the matter, and yesterday’s judgement is a momentous end to a long pre-trial and trial process.
About the matter
The Queensland Energy Class Action claim was filed in January 2021 by solicitors Piper Alderman acting for a class of around 50,000 electricity consumers[1] in Queensland. The action was funded by litigation funder Litigation Capital Management (LCM).
The claim alleged that two government owned generators, Stanwell and CS Energy, had taken advantage of their substantial market power by rebidding into the National Electricity Market (NEM) in a manner that prevented or deterred competing generators from responding. The alleged conduct period was between January 2012 and June 2017.
Specifically, the alleged conduct involved a “late rebidding” strategy, whereby the Respondents made rebids up to fifteen minutes prior to a particular dispatch interval in which they repriced capacity offered from low price bands to high price bands. The alleged effect of these rebids was to increase the wholesale electricity market price in the “affected” dispatch interval, because competing generators were unable to act in response to the impugned rebids on account of the rebids’ lateness.
The National Electricity Market
The NEM was established in 1998 and incorporates the eastern states of Australia. Each five minutes, prices are set for each region (state) based on offers to supply (bids) made by generators competing in the market. Each state is connected to one or more other states by notional interconnectors which allow the flow of electricity from one region to another – hence the ‘national’ label of the market[2].
The NEM is an ‘energy only’ market, meaning that generators only receive a single revenue stream for supplying electricity into the market in the form of the energy (market) price. This payment needs to cover fixed costs (e.g. paying off the cost of building a power station) as well as variable costs (e.g. the cost of fuel burned in producing electricity). This contrasts with ‘capacity’ markets, where generators are paid separate capacity and energy payments designed to recover fixed and variable costs respectively.
A sustainable energy-only market requires a market price cap above the variable costs of any individual generator. The Australian Electricity Market Commission (AEMC) sets the market price cap for the NEM, which is currently $17,500/MWh[3]. Consequently, market prices in the NEM can be volatile, and it is the periods of volatility which help generators recover the fixed costs of their investments.
Rebidding – the ability to change the price[4] at which electricity is offered – is an important and sometimes controversial feature of the NEM. Rebidding enables generators to respond to changes in market conditions as and when they arise. Rebids can be made hours in advance all the way up to right before the start of a dispatch interval (in which a new market price is determined). The market rule maker, the AEMC, says the following of rebidding:
"The role of rebidding in facilitating efficient wholesale prices and investment outcomes should not be underestimated. The rebidding process allows market participants to respond to changing market conditions and is integral to the daily operation of the power system. It also, in the longer term, signals the market need for new generation including the type of generation needed (such as fast start technology) and where it is best located."
The initial trial
The aforementioned trial was concerned with questions relating to a contravention of section 46 of the CCA (hence the ‘initial’ trial). Common questions to be determined included those of market definition, substantial market power, conduct, take advantage, purpose (of preventing or deterring competition), and contravention.
The alleged conduct took place over 353 30-minute periods between January 2012 and June 2017[5]. However, due to the complexity of examining outcomes in the NEM in detail, it was determined that a subset – selected by the Applicant and/or its experts – of these intervals would be used in the initial trial to examine questions of conduct. Thirteen ‘Affected Trading Intervals’ (ATIs) were selected, and a substantial component of the trial was dedicated to examining outcomes in and around these 13 short periods.
Frontier Economics' role in the class action
Danny Price, our Managing Director, was retained by CS Energy's lawyers Herbert Smith Freehills, and provided expert evidence to assist the court. His evidence focused on the market design of the NEM, market power and conduct. To assist with examining issues around conduct, he developed a visualisation tool “NEM-vis” that made it relatively easy to interrogate the voluminous data associated with the day-to-day operation of the NEM.
This matter had a strong focus on expert evidence, and Danny’s evidence is referred to frequently throughout the judgement, along with that of the other experts involved.
The judgement
In summary, Her Honour’s judgement determined the following:
- The relevant market for this purpose was the supply of wholesale electricity to the Queensland region of the NEM including electricity supplied over the interconnectors.
- CS Energy and/or Stanwell did not have a substantial degree of market power in the conduct period.
- CS Energy and/or Stanwell did not engage in the aforementioned late-rebidding strategy in any of the ATIs.
In response to questions of take advantage, purpose, and contravention, Her Honour determined the answer to be “unnecessary to answer but no”. Ultimately, Her Honour dismissed the case, although we understand an appeal may be forthcoming.
Noteworthy observations for energy economists and expert witnesses
While the judgement still requires time to digest, we draw attention to several notable aspects of interest to energy economists:
First, there is further exploration of the notion of ‘transient’ market power as raised by French J in AGL v ACCC 2003.
The statistical insignificance of the number of occasions on which it is alleged that Stanwell and/or CS Energy were successful in spiking the price is overwhelming evidence that the price spikes were transient in nature and are incapable of supporting an inference that either Stanwell or CS Energy had substantial market power during the Conduct Period.
Second, the judgement highlights the perils of focussing on individual outcomes in a market rather than assessing performance of the market as a whole – or as Danny likes to say, the folly of “looking at the world through a straw”. Her Honour finds importance in both the context surrounding the ATIs, as well as assessing the market against a long-term competitive benchmark such as Long Run Marginal Cost (LRMC).
Third, the case was expert-evidence heavy and the expert evidence featured prominently in the trial and in the judgement. Seasoned and aspiring expert witnesses should read Her Honour’s opinion with great interest. A key difference between the opinions of Danny and the Applicant’s expert, Dr Shaun Ledgerwood, Principle of The Brattle Group, related to the perceived “obnoxiousness” of the impugned conduct in the context of the NEM.
As Danny 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.
Her Honour’s judgement is available here:
[1] Over the course of the proceeding, this was expanded to all electricity consumers in Queensland.
[2] With apologies to Western Australia and the Northern Territory.
[3] For reference, average electricity prices are currently around $65-100/MWh.
[4] Technically, generators need to specify 10 different prices at which they may offer energy in advance. On the day, capacity can be re-allocated between these prices.
[5] There were around 95,000 30-minute periods in total in the conduct period
