The incident happened last September during the dredging and removal of 700,000 cubic metres of harbour floor, which was taken to an "emplacement area" outside the harbour.

It came after two formal warnings issued by the Environment Protection Authority over oil spills and water monitoring issues in the harbour.

The work was to build a gas import terminal and a gas and hydrogen power station, however late last year the Mercury revealed the power station plan had been quietly shelved that August - after receiving a $30 million grant from Canberra.

On September 6 and 7, Squadron subsidiary Australian Industrial Energy (AIE) failed to operate a silt curtain properly, allowing the large visible plume of dirt in the water spread in the ocean from the Outer Harbour.

The plume was noticed by many Port Kembla residents and Squadron said it self-reported the incident to the EPA.

Announcing the $15,000 penalty, the EPA's director of regulatory operations Jason Gordon said it should be "standard practise" that ensuring environmental control measures such as silt curtains were in place to prevent water pollution incidents.

"While we did not see a serious environmental impact on this occasion, despite it being a large plume, sediment discharge does have the potential to cause harm to the local aquatic ecosystem," said Mr Gordon.

"Both the EPA and the community expect the environment, including the harbour, to be protected from the impacts of construction works.

"Ensuring the silt curtain is operating properly is crucial for reducing the potential for sediment movement outside the area of excavation.

"Licensees must comply with the requirements of their licence. We will take appropriate action where operations fail to maintain appropriate environmental controls."

The company said it had taken measures to prevent future occurrences and protect the Outer Harbour marine environment.

A Squadron spokeswoman said protection and respect for the natural environment was "a key priority for Squadron Energy and underpins every aspect of our projects".

"Australian Industrial Energy, which is owned by Squadron Energy, has fully co-operated with the EPA's investigation throughout this process from self-reporting the incident to implementing immediate action to reduce the likelihood of a recurrence," the spokeswoman said.

"While acknowledging the potential for this this incident to cause serious environmental harm, importantly, independent detailed analysis undertaken on behalf of Squadron Energy confirmed that minimal environmental harm was caused on this occasion."

AIE had earlier been given formal warnings by the EPA over two spills of hydraulic oil into the harbour.

AIE was also warned after two failures to perform the water monitoring required of it in the Port Kembla Inner Harbour, with a "communication issue between AIE and its contractor" being blamed.

"Each [spill] incident involved approximately 20 litres of hydraulic oil spilt and contained in the dredging works area within the silt curtain of the Port Kembla Inner Harbour," an EPA spokeswoman said.

"On both occasions the spills were cleaned up appropriately and promptly by AIE.

"The EPA wrote to the AIE regarding this monitoring non-compliance and did not take regulatory action after considering the corrective actions which had been put in place to prevent a reoccurrence, including toolbox talks, awareness training and a communication checklist update."

Last November it was revealed Squadron had quietly withdrawn its plans for a combined gas and hydrogen power station, two years after receiving $30 million from the federal government for what was then touted as a "critical" project for NSW.

The Mercury revealed the plans had been withdrawn in August 2023, with about $25 million of the public money gone.