The Federal Court has today ordered that Santos Direct Pty Ltd (Santos) pay a penalty of $2,750,000 for breaches of important record keeping obligations in the National Gas Rules relating to the Day Ahead Auction for gas pipeline capacity.
In proceedings brought by the Australian Energy Regulator (AER), Santos admitted that between March 2019 and June 2021, it contravened rule 666(1) of the National Gas Rules on 4,701 occasions by failing to keep the required records of its material renominations for the Day Ahead Auction across six different gas auction facilities. The Day Ahead Auction commenced in 2019 and is designed to improve competition in the gas market by providing access to contracted but unused capacity on gas pipelines.
Timely and accurate record keeping is crucial in allowing the AER to effectively monitor the compliance of participants in the capacity auction. In particular, the AER’s role of investigating and enforcing provisions like rule 663 of the National Gas Rules, which prohibits participants from making false or misleading day ahead nominations, may be significantly hampered without the benefit of compliant records of material renominations.
In her judgment, Justice Neskovcin said that “[t]he failure to comply with r 666(1), which has a substantive role in protecting the proper functioning of the capacity auction, heightens the need for deterrence in respect of this conduct.”
Separately, Her Honour stated that the penalty imposed “should operate as a deterrent against such conduct being engaged in by Santos or other participants in the gas markets in the future.”
AER Chair Ms Clare Savage said the Court’s decision reinforced the importance of accurate record-keeping for gas market participants.
“The Day Ahead Auction is vital to moving gas between markets on the east coast and relies on companies both keeping accurate records and providing pipeline operators, and ultimately AEMO with the information it needs to operate the Auction.
“It is crucial that trust and confidence in the Day Ahead Auction is maintained for it to continue to deliver benefits to consumers,” Ms Savage said.
In addition to the penalty, the Court ordered the appointment of an independent reviewer to review Santos’ processes to ensure compliance with rule 666(1) and provide a report containing recommendations for any action to be taken by Santos.
The AER and Santos filed a Statement of Agreed Facts and joint submissions on penalty prior to today’s judgment.
Notes to Editors
Day Ahead Auction – nominations and renominations
To facilitate the Day Ahead Auction, companies that have existing entitlements to capacity make a nomination a day in advance of when they intend to move gas from one location to another, specifying how much capacity they intend to use the next day. Any spare capacity is then made available in the auction.
A renomination is a request made, after the nomination cut-off time, to vary an earlier nomination for the use of transportation capacity. Renominations can only be made in limited circumstances and transportation facility users, such as Santos, are required to make contemporaneous records of material renominations in order to clearly state the reason for each renomination, when the event giving rise to each renomination occurred and when the transportation facility user became aware of this event.
Court proceedings
The AER commenced proceedings in the Federal Court against Santos Direct Pty Ltd on 19 October 2023.
Judgment
The judgment was handed down on 4 June 2024. A copy of the decision can be found on the Federal Court website.
Costs
As part of the judgment, Santos was ordered by the Court to pay $100,000 towards the AER’s costs.
Compliance in downstream gas markets
Today’s judgment follows separate action the AER has taken against EnergyAustralia, Incitec Pivot and Jemena for alleged breaches of the National Gas Rules.