The Federal Court has ordered Santos to pay a $2,750,000 penalty for violations of the National Gas Rules.

The company was found to have breached rules concerning critical record-keeping obligations related to the Day Ahead Auction for gas pipeline capacity.

The Australian Energy Regulator (AER) initiated the proceedings, during which Santos admitted to breaching rule 666(1) of the National Gas Rules 4,701 times between March 2019 and June 2021. 

These breaches involved failing to maintain required records of material renominations across six different gas auction facilities.

The Day Ahead Auction, which commenced in 2019, is designed to enhance competition in the gas market by allowing access to contracted but unused pipeline capacity. 

The AER says accurate record-keeping is essential for monitoring compliance with the auction's rules and investigating potential violations, such as making false or misleading day-ahead nominations.

“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,” Justice Neskovcin said in her judgement. 

She said the penalty should serve as a deterrent to Santos and other gas market participants against similar future conduct.

AER chair Clare Savage welcomed the Court’s decision.

“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.

Beyond the financial penalty, the Court mandated the appointment of an independent reviewer to assess Santos’ compliance processes and provide recommendations for ensuring adherence to rule 666(1).

The AER and Santos had previously filed a Statement of Agreed Facts and joint submissions on penalty before the judgement. 

Additionally, Santos was ordered to pay $100,000 towards the AER’s legal costs.

The complete judgement is accessible on the Federal Court's official website.