Federal Court of Australia

Australian Energy Regulator v Jemena Eastern Gas Pipeline (1) Pty Ltd [2025] FCA 338

ORDERS

THE COURT DECLARES THAT:

National Gas Rules, r 653(1)(a)

1.    During the period from 1 March 2019 to 22 February 2022, the First Respondent contravened r 653(1)(a) of the National Gas Rules (NGR) on 949 gas days on which Auction Quantity Limits (AQLs) for the Eastern Gas Pipeline were affected by one or more of the categories of error identified in Annexure A to these orders (except for the errors referred to in row 2A of Annexure A).

2.    During the period from 1 March 2019 to 22 February 2022, the Second Respondent contravened r 653(1)(a) of the NGR on 1,090 gas days on which AQLs for the Queensland Gas Pipeline were affected by one or more of the categories of error identified at paragraph 1 above.

3.    During the period from 1 March 2019 to 16 December 2021, the Third Respondent contravened r 653(1)(a) of the NGR on 653 gas days on which AQLs for the VicHub Pipeline were affected by one or more of the categories of error identified at paragraph 1 above.

4.    During the period from 1 March 2019 to 19 August 2021, the Fourth Respondent contravened r 653(1)(a) of the NGR on 327 gas days on which AQLs for the Darling Downs Pipeline were affected by one or more of the categories of error identified at paragraph 1 above.

National Gas Rules, r 649(1)

5.    During the period from 1 March 2019 to 22 February 2022, in circumstances where:

(a)    the First Respondent contravened r 653(1)(a) of the NGR (as declared in paragraph 1 above);

(b)    the system used by each Respondent to determine AQLs was affected by 14 categories of error identified in Annexure A (except for the errors referred to in row 2A of Annexure A), which existed for the applicable time periods described in paragraph 1 of Annexure B; and

(i)    13 of those categories of error affected the design and/or implementation of the algorithm used to calculate AQLs, or arose from modifications or updates to the PypIT system over an extended period (being the categories of error identified at rows 1, 2 and 4 to 14 of Annexure A); and

(ii)    the applicable time periods for certain of those categories of error exceeded six months (being the categories of error identified at rows 2, 10, 11, 12, 13 and 14 of Annexure A);

(c)    the Respondents’ practices, methods and acts relating to the calculation of AQLs comprised those in paragraph 2 of Annexure B;

(d)    the Respondents’ policies, procedures and training for staff comprised those in paragraph 3 of Annexure B; and

(e)    by reason of the matters referred to in sub-paragraphs 5(a) to 5(d) above, the First Respondent did not calculate, in accordance with the Part 24 information standard, those AQLs affected by the errors referred to in sub-paragraph 5(b)(i) above which related to the Eastern Gas Pipeline,

the First Respondent contravened r 649(1) of the NGR on 805 gas days on which AQLs for the Eastern Gas Pipeline were affected by the errors identified in sub-paragraph 5(b)(i) above.

6.    During the period from 1 March 2019 to 22 February 2022, in circumstances where:

(a)    the Second Respondent contravened r 653(1)(a) of the NGR (as declared in paragraph 2 above);

(b)    the circumstances set out in sub-paragraphs 5(b) to 5(d) above arose; and

(c)    by reason of the matters referred to in sub-paragraphs 6(a) and 6(b) above, the Second Respondent did not calculate, in accordance with the Part 24 information standard, those AQLs affected by the errors referred to in sub-paragraph 5(b)(i) above which related to the Queensland Gas Pipeline,

the Second Respondent contravened r 649(1) of the NGR on 1,082 gas days on which AQLs for the Queensland Gas Pipeline were affected by the errors identified in sub-paragraph 5(b)(i) above.

7.    During the period from 1 March 2019 to 16 December 2021, in circumstances where:

(a)    the Third Respondent contravened r 653(1)(a) of the NGR (as declared in paragraph 3 above);

(b)    the circumstances set out in sub-paragraphs 5(b) to 5(d) above arose; and

(c)    by reason of the matters referred to in sub-paragraphs 7(a) and 7(b) above, the Third Respondent did not calculate, in accordance with the Part 24 information standard, those AQLs affected by the errors referred to in sub-paragraph 5(b)(i) above which related to the VicHub Gas Pipeline,

the Third Respondent contravened r 649(1) on 556 gas days on which AQLs for the VicHub Pipeline were affected by the errors identified in sub-paragraph 5(b)(i) above.

8.    During the period from 1 March 2019 to 19 August 2021, in circumstances where:

(a)    the Fourth Respondent contravened r 653(1)(a) of the NGR (as declared in paragraph 4 above);

(b)    the circumstances set out in sub-paragraphs 5(b) to 5(d) above; and

(c)    by reason of the matters referred to in sub-paragraphs 8(a) and 8(b) above, the Fourth Respondent did not calculate, in accordance with the Part 24 information standard, those AQLs affected by the errors referred to in sub-paragraph 5(b)(i) above which related to the Darling Downs Gas Pipeline,

the Fourth Respondent contravened r 649(1) of the NGR on 161 gas days on which AQLs for the Darling Downs Pipeline were affected by the errors identified in sub-paragraph 5(b)(i) above.

AND THE COURT ORDERS THAT:

9.    Pursuant to s 44AAG(2)(a) of the Competition and Consumer Act 2010 (Cth), within 30 days, each Respondent pay a civil penalty of the following amount in respect of that Respondent’s conduct declared to be contraventions of r 649(1) of the NGR:

(a)    First Respondent: $1,700,269;

(b)    Second Respondent: $2,285,330;

(c)    Third Respondent: $1,174,347; and

(d)    Fourth Respondent: $340,054.

10.    Pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth), within 30 days, the Respondents collectively pay a contribution of $300,000 towards the Australian Energy Regulator’s costs of and incidental to the proceeding.

11.    Pursuant to s 44AAG(2)(c) of the Competition and Consumer Act 2010 (Cth):

(a)    within 30 days of the making of this order or such other time as agreed between the AER and the Respondents, the Respondents engage an Independent Expert, with the identity of the Independent Expert to be agreed between the AER and the Respondents, or failing agreement, as proposed by each of them and determined by the Court;

(b)    within 15 days of the engagement of the Independent Expert, the Respondents instruct the Independent Expert to conduct a risk-based compliance review which addresses the following matters:

(i)    identification of the areas where the Respondents are at risk of breaching rr 653(1)(a) and 649(1) of the NGR;

(ii)    a qualitative assessment of the likelihood of those risks occurring;

(iii)    identification of any gaps in the Respondents’ existing procedures for managing those risks; and

(iv)    written recommendations to the Respondents for any actions to be taken having regard to the above assessments in sub-paragraphs (i) to (iii) above;

(c)    within twelve months from the date of this order, or such other time as agreed between the AER and the Respondents the Respondents are to provide to the AER:

(i)    a written report, signed by the Independent Expert, that:

A.    describes the expertise of the Independent Expert and confirms his or her independence;

B.    states precisely how each of the steps described in subparagraphs (b)(i) to (b)(iv) above have been completed; and

C.    annexes a copy of the Independent Expert’s recommendations to the Respondents;

(ii)    a written report signed by the Chief Executive Officer (or equivalent) of the Respondents that:

A.    states precisely what steps the Respondents have taken in response to the Independent Expert’s recommendations; and

B.    states any of the Independent Expert’s recommendations that were not implemented by the Respondents, and the reasons for doing so.

12.    In these orders:

(a)    Independent Expert means a third party who is not a Related Body Corporate of the Respondents. The third party carrying out the Independent Review must:

(i)    be able to act without bias and without any actual or potential conflicts of interests with reference to following criteria:

A.    is not a present or past staff member or director of the Respondents;

B.    has not acted and does not act for, and does not consult and has not consulted to, the Respondents or Related Body Corporate in any matters relating to compliance with Part 25 of the NGR or relating to systems controls, processes or training for the calculation or submission of auction quantity limits to the Australian Energy Market Operator (AEMO); and

C.    has no shareholding or other interests in the Respondents’ or any of its Related Body Corporates;

(ii)    have professional competence to apply established standards and techniques to carry out the compliance review to a high standard; and

(iii)    have a system of quality controls to ensure the Independent Expert’s written report is of a professional standard.

(b)    Independent Review means the risk-based compliance review described in paragraph 11(b) of this order.

(c)    Related Body Corporate has the meaning given in s 50 of the Corporations Act 2001 (Cth).

ANNEXURE A – CATEGORIES OF ERRORS

ANNEXURE B – EXTRACTS OF AMENDED STATEMENT OF AGREED FACTS REGARDING LIABILITY (SoAF)

1.    (Paragraph 62, SoAF) The applicable time periods for each of the 14 categories of error were as follows:

(a)    the Orbost Receipt Point error commenced on 13 August 2020, was identified on 1December 2020, and was rectified on 2 December 2020;

(b)    the Authorised Overrun System error commenced on 2 March 2019, was identified on 19 May 2021, manually rectified on 20 May 2021, and permanently rectified on 3 June 2021;

(c)    the Contract Configuration Data Entry error commenced on 2 March 2019, and was identified on 15 March 2019, with each individual error requiring manual rectification in PypIT as each error was identified through periodic contract configuration data audits and day-to-day service priority checks;

(d)    the Incorrect Calculation of Backhaul AQLs error was identified on 24 November 2021 and rectified on the same day, but impacted services on only the 25 November 2021 gas day;

(e)    the Incorrect Zone AQL Calculation error commenced on 8 March 2019, was identified on 29 July 2019, and was rectified on 14 August 2019;

(f)    the Incorrect Treatment of Park Services in AQL Calculation error commenced on 7 March 2019, was identified around May 2019, and was rectified by way of updates to the PypIT algorithm on each of 15 May 2019 and 25 June 2019;

(g)    the Backhaul AQL Misconfiguration error first impacted the 2 March 2019 gas day, was identified on 1 March 2019, and was rectified on 4 and 5 March 2019 with a further rectification update made on 22 March 2019;

(h)    the Transitional Firm Services Included in MDQ error commenced on 2 March 2019, was identified on 18 March 2019, and was rectified on 19 March 2019;

(i)    the Incorrect Rounding of Physical Capacity error commenced on 2 March 2019, and was identified on 5 March 2019, after an update to the PypIT algorithm on 4 March 2019 which rectified this error;

(j)    the Capacity Constraint Not Respected error commenced on 12 March 2019, was identified on 23 March 2022 and was rectified on 25 November 2021, noting that the system change on this date was not designed to rectify this error;

(k)    the Inadvertent Application of Pipeline Capacity Assessment Tool Under Development error commenced on 24 November 2019, was identified on 23 March 2022 and was rectified on the same day;

(l)    the Incorrect Calculation of Pipeline Capacity Coding error commenced on 2 March 2019, was identified on 4 June 2021 and was rectified on the same day;

(m)    the Incorrect Handling of Segments with Multiple Receipt/Delivery Zones error commenced on 2 March 2019, was identified on 17 August 2020 and rectified on 19 August 2020; and

(n)    the Backhaul Service Point Record error commenced on 14 August 2020, was rectified on 25 November 2021 (noting that the system change on this date was not designed to rectify this error), and was identified on 20 April 2022.

2.    (Paragraph 67, SoAF) The Respondents’ practices, methods and acts relating to the calculation of the AQLs, and making the record or preparing and submitting the AQLs to AEMO during the Relevant Periods were the following categories of practices, methods and acts:

(a)    AQL spot checks: Spot checks were undertaken by the Respondents’ Commercial Operations team (who are responsible for scheduling) approximately quarterly since the commencement of the capacity auction on random gas days to check: (1) AQL calculations for service points, zones and segments; and (2) that firm services were included in AQL calculations. The following spot checks commenced following the identification of the Authorised Overrun System error on 19 May 2021 until the Authorised Overrun System error was permanently rectified on 3 June 2021: (3) that lower tier services were not included in AQL calculations; and (4) that overruns were not included against firm services. The Respondents did not maintain records of the exact dates these spot checks were undertaken.

(b)    AQL limit checks: From 17 December 2020, a daily AQL review process was implemented whereby AQLs for zones, segments and service points were emailed to members of the Commercial Operations team as part of the capacity auction process. The purpose of this email was to flag instances where data exceeded certain parameters, namely where any of the following circumstances existed: (1) on the Eastern Gas Pipeline, the calculated AQL was below 30 TJ; (2) the contractual maximum daily quantity for “firm” services (MDQ) exceeded throughput (operational) capacity; or (3) the scheduled quantity exceeded throughput (operational) capacity or MDQ. Where any one or more of these conditions were triggered, a manual check of AQLs was undertaken by the Commercial Operations team to assess the issue and rectify any error that existed in the calculation.

(c)    PypIT system audits: An audit was performed for the First Respondent, Second Respondent and Third Respondent (but not the Fourth Respondent) over the period December 2020 to April 2021. The audit involved reviewing contract and service configuration data contained in the PypIT system (entered during the contract setup process) against gas transportation agreements (GTAs) to ensure the information matched. The items cross-checked included, but were not limited to: (1) service start and end dates; (2) MDQs for services; (3) MDQ start and end dates (contracts for some services specify different MDQs which apply during different periods of time); and (4) “GMRG Flag” (explained below) selection. The primary focus of these audits was on ensuring that shipper service configuration in the PypIT system was aligned with GTAs.

(d)    Part 25 compliance reviews: The Respondents undertook compliance reviews which considered Part 25 of the NGR in June 2020 and February 2021. The process varied according to each rule, but relevantly, in relation to AQLs, involved developing a model which allowed for sample testing of a selected day of data within the PypIT system. The following areas were considered as part of these reviews: (1) the setup of all receipt and delivery service points, and the zone and segments against AEMO’s Transportation Service Point Register; (2) the consistency of AQL calculations for zones, service points and segments with the Capacity Transfer and Auction Procedures (CTA Procedures); (3) that all firm services were included in AQL calculations; (4) that no lower tier services were included in AQL calculations.

(e)    Contract configuration data audit: The Respondents undertook an audit in February 2021 which focussed solely on the configuration data associated with firm services to ensure “GMRG Flags” were correctly applied. GMRG Flags were used in the PypIT system to identify whether a service was a firm service for the purposes of calculating AQLs. The audit involved manual checks of contract data in the PypIT system to ensure that the GMRG Flags were present for firm services.

(f)    Internal Audit review of pipelines gas market reform management: In August 2019, as part of the “CY19 SGSPAA Internal Audit Plan”, the Respondents’ Internal Audit team undertook a review of the design and operating effectiveness of key controls relating to new regulatory obligations introduced through the Gas Market Reform process, including the capacity auction. Insofar as it related to the calculation of AQLs, this review included an assessment of the processes and controls relating to the calculation and provision of AQLs to AEMO, as well as some sample testing of AQL data.

(g)    Review of contract handover process: A new procedure incorporating a data review step in the Respondents’ contract setup process was established from 21 May 2021. The Respondents’ contract handover process refers to the steps involved in the handover of a new (or amended) GTA or other customer contract from the Commercial team, which is responsible for negotiating and executing agreements with customers, to the Commercial Operations team. This process occurred each time a contract was executed. As part of this process, the Commercial Operations team is responsible for “setting up” (establishing and configuring) each new or amended contract/service in the PypIT system. The Respondents undertook a review of its contract handover process in May 2021 to ensure that process documentation incorporated checks required to improve the accuracy of data entry when setting up GTAs in the PypIT system, particularly in relation to data which was used in the calculation of AQLs. This review resulted in the inclusion of a checklist item relating to the GMRG Flag field (which, as noted above, is used in the PypIT system to determine whether a service should be included in AQL calculations).

(h)    Service priority checks supported by dashboard: Since 23 September 2021, the Commercial Operations team has undertaken daily monitoring of key indicators to monitor for potential issues with the calculation of AQLs in relation to service priorities. This is supported by a dashboard on which data is refreshed every 35 minutes, designed to highlight any of the following conditions: (1) firm services not included in AQL calculation (no GMRG Flag on service); (2) a firm service was active in the PypIT system but there were issues with its setup within the system (e.g., firm service start and end dates do not match the GMRG Flag start and end dates); and (3) lower tier services being included in AQL calculations.

3.    (Paragraph 68, SoAF) The Respondents’ policies, procedures and training for staff that applied during the Relevant Periods were:

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

ANDERSON J:

1    The applicant, the Australian Energy Regulator, by a further amended originating application filed 27 March 2024, seeks declaratory relief, orders for civil penalties, orders for the implementation of a specified program for compliance with the law, and other orders pursuant to the Competition and Consumer Act 2010 (Cth) and the Federal Court of Australia Act 1976 (Cth).

2    The respondents’ conduct complained of relates to the “capacity auction” established and operated by the Australian Energy Market Operator under the National Gas Rules. The NGR are made under the National Gas Law (NGL).

3    The respondents are:

(a)    Jemena Eastern Gas Pipeline (1) Pty Ltd (EGP);

(b)    Jemena Queensland Gas Pipeline (1) Pty Ltd (QGP);

(c)    Jemena VicHub Pipeline Pty Ltd; and

(d)    Jemena Darling Downs Pipeline (3) Pty Ltd (DDP).

4    Each respondent is a wholly owned subsidiary of SGSP (Australia) Assets Pty Ltd and part of SGSP’s Jemena group of companies (Jemena). Jemena owns and operates a diverse portfolio of energy assets including gas and electricity distribution networks, gas transmission pipelines and gas processing facilities. Jemena provides gas transportation services on a number of gas pipelines pursuant to contracts for services it has with gas shippers. The respondents are the respective registered facility operators for the Eastern Gas Pipeline, the Queensland Gas Pipeline, the VicHub Pipeline, and the Darling Downs Pipeline (together, the Auction Facilities).

5    The “Relevant Periods” for each respondent are different and are set out below:

(a)    for EGP, 1 March 2019 to 22 February 2022;

(b)    for QGP, 1 March 2019 to 22 February 2022;

(c)    for VicHub, 1 March 2019 to 16 December 2021; and

(d)    for DDP, 1 March 2019 to 19 August 2019.

6    During the Relevant Periods, the day-to-day operation of the Auction Facilities in relation to the capacity auction was managed by Jemena’s Commercial Operations team.

7    The objective of the capacity auction is to improve the efficiency with which transportation capacity is allocated and foster the development of a more liquid secondary market for transportation capacity. Increased participation in the capacity auction enhances access to transportation capacity and facilitates efficient gas transportation.

8    The respondents have admitted contraventions of rr 653(1)(a) and 649(1) of the NGR in connection with the failure to determine Auction Quantity Limits (AQLs) in accordance with the Capacity Transfer and Auction Procedures (CTA Procedures) and in accordance with the Part 24 information standard (as those terms are defined under r 593 of the NGR).

9    The respondents’ contravening conduct:

(a)    impacted on the accuracy of information provided to AEMO for the operation of the capacity auction;

(b)    had the potential in some instances to result in missed auction capacity, being capacity for which at least some demand existed but which was not made available through the capacity auction;

(c)    had the potential in some instances to result in auction participants paying above what they otherwise would have paid; and

(d)    had the potential in some instances to result in some participants bidding differently to what they otherwise would have bid.

10    The degree of potential harm arising from the entirety of the respondents’ contravening conduct is not possible to accurately quantify as it is not possible to accurately anticipate how auction participants would have bid had correct AQLs been provided to AEMO.

11    The parties reached agreement as to the terms on which they seek the resolution of this proceeding. To assist the Court in arriving at its own assessment as to the orders that ought to be made, including as to the quantum of the civil penalty that the Court considers appropriate to impose for the admitted contraventions, the parties jointly rely upon:

(a)    joint written submissions dated 1 April 2025;

(b)    a Statement of Agreed Facts dated 15 August 2024 (SoAF) setting out the facts agreed between the parties regarding liability pursuant to s 191 of the Evidence Act 1995 (Cth) (EA), amended on 1 April 2025 (Amended SoAF);

(c)    a Statement of Admissions and Further Agreed Facts dated 1 April 2025 (SAFAF) setting out the admissions made by the respondents for the purposes of the proceeding and additional facts relevant to penalty as agreed between the parties pursuant to s 191 of the EA; and

(d)    proposed minutes of orders (Agreed Proposed Orders), setting out the relief which the parties submit is appropriate.

background and contraventions

Legislative Framework

12    The NGR are made under the NGL and have the force of law pursuant to s 26 of the NGL. The NGL is set out in the Schedule to the National Gas (South Australia) Act 2008 (SA). To the extent the conduct concerns pipelines located in New South Wales, Queensland, and Victoria, each is a relevant jurisdiction and the NGL applies as law in each of these jurisdictions: See National Gas (Queensland) Act 2008 (Qld), s 7; National Gas (Victoria) Act 2008 (Vic), s 7 and National Gas (New South Wales) Act 2008 (NSW), s 7.

Facility operators and auction facilities

13    At all relevant times, each of the four Auction Facilities operated by the respondents was an “auction facility” within the meaning of r 647(2) of the NGR, being a transportation facility providing transportation services in relation to natural gas.

14    During the respective Relevant Periods, each respondent was a “facility operator” of an “auction facility” within the meaning of r 647(2) of the NGR, being the “transportation service provider” registered under Part 24 of the NGR as the facility operator for the auction facility.

15    As “facility operators”, each respondent was required to provide information to AEMO for the purposes of the “capacity auction”.

The capacity auction and auction quantity limits

16    The “capacity auction” is an auction (established by AEMO under Part 25 of the NGL) for contracted but unnominated (CBU) transportation capacity on a pipeline. CBU transportation capacity is a quantity of transportation capacity held by a shipper pursuant to a contract for use on a gas day but that has not been nominated for firm services.

17    In the context of this proceeding:

(a)    An “auction service” is a transportation service provided on a pipeline (or “auction facility”) by a facility operator, being one or more of “forward haul”, or “backhaul” auction services. It is available between certain “receipt points” and “delivery points” along the pipeline. Each combination of receipt point, delivery point and auction service on an “auction facility” comprises a separate “auction product”.

(b)    An “auction product” is the transportation capacity available between two points, used to provide auction services by means of an auction facility and in respect of which a bid may be submitted in the “capacity auction” (NGR, r 647(2)).

(c)    “Firm services” are transportation capacity for use of a transportation service that is reserved capacity (NGR, r 647(2)(a)); and in normal operating conditions and even if a transportation facility is fully contracted for a gas day on a firm basis, to the extent consistent with accepted good industry practice:

(i)    nominations made by other shippers do not affect the quantity of reserved capacity or the scheduling of a nomination for use of the reserved capacity; and

(ii)    a nomination made before the nomination cut-off time for use of a transportation service on a gas day up to the quantity of a shipper's reserved capacity will be scheduled for the quantity nominated (NGR, r 647(2)(b)).

18    Amongst other things, the capacity auction is expected to overcome the co-ordination failures that can otherwise be associated with procuring day-ahead capacity, and is expected to:

(a)    reduce the search and transaction costs associated with procuring day-ahead capacity and aid the price discovery process for day-ahead capacity; and

(b)    instil confidence in the capacity auction through the use of robust delivery, settlement, credit, curtailment and other risk management processes and governance arrangements.

19    The capacity auction is conducted each “gas day” pursuant to a particular timetable that commences the day before, which is set out in Schedule 2 to the CTA Procedures made under s 91BRO of the NGL.

20    The capacity auction takes place on the day prior (D-1) to a given gas day (D). The respondents’ process of receiving nominations and scheduling transportation capacity, together with the daily capacity auction process, can be summarised as follows:

(a)    By 3pm on D-1, the respondents receive day-ahead nominations for transportation services from shippers.

(b)    By no later than 4.30pm on D-1, the respondents provide AEMO with AQLs calculated for D for “product components” associated with “auction products” on their auction facilities. The AQLs for product components on the respondents’ Auction Facilities were automatically calculated using the respondents’ PypIT system. The PypIT system, which is explained in further detail later in these reasons, was ultimately the cause of the relevant contraventions.

(c)    By no later than 5pm on D-1, shippers submit bids for auction products to AEMO.

(d)    By no later than 5.30pm on D-1, AEMO determines the results of the capacity auction.

(e)    At 5.32pm, AEMO provides the auction results to the respondents and, by no later than 6.30pm on D-1, the respondents give effect to the auction results.

21    The amount of transportation capacity available through the capacity auction is determined by an AQL for each “product component” associated with each “auction product” on an auction facility.

22    The AQL for a product component is determined in accordance with cl 19 of the CTA Procedures. In brief, the AQL for a product component is the lesser of:

(a)    the difference (if any) between the physical capacity of the auction facility and amount of firm capacity nominated; and

(b)    the difference (if any) between the capacity that is the subject of contracts for “firm services” and the amount of firm capacity nominated.

23    The capacity auction determines both the auction clearing price and the allocation of auction products to successful bidders. The auction clearing price is the (one) price which all successful bidders for an auction product pay. If the total bid quantity is greater than the capacity available at the auction, then the clearing price is set by the lowest priced accepted bid. If the total bid quantity is less than the auction capacity available, the clearing price will be $0 per GJ.

24    The capacity auction commenced on 1 March 2019.

The respondents’ obligations under the NGR

25    As facility operators, each respondent was required to determine and update the AQLs for each product component associated with its pipeline for each gas day in accordance with the CTA Procedures: NGR, r 653(1)(a).

26    Each respondent, as a transportation service provider that is required by a provision of Part 25 of the NGR to make a record or give information or data to AEMO, including information resulting from calculations, was also required to make the record or prepare and submit that information or data and perform those calculations in accordance with the Part 24 information standard: NGR, r 649(1).

27    The Part 24 information standard is defined as the practices, methods and acts that would reasonably be expected from an experienced and competent person engaged in the ownership, operation or control of a transportation facility of the applicable type acting with all due diligence, prudence and foresight and in compliance with all applicable legislation (including the NGR), authorisations and industry codes of practice: NGR, r 593.

Circumstances giving rise to and comprising the respondents’ contraventions

28    The circumstances giving rise to the respondents’ contraventions of r 653(1)(a) of the NGR are that, during the Relevant Periods:

(a)    each respondent used an information technology system called the PypIT system to calculate and determine AQLs provided to AEMO within the context of the capacity auction. The PypIT system was a system which had existed prior to the capacity auction, and which the respondents had opted to retrofit with new functionality to it to calculate and determine AQLs in the context of the capacity auction. The calculation of AQLs via the PypIT system was largely automated;

(b)    the PypIT system and the information relied upon and contained in it was affected by 14 categories of error (as described in Annexure A of the orders). The 14 categories of errors can be classified into the following three types of error:

(i)    nine errors in the design and/or implementation of the algorithm used to calculate AQLs, including in some instances because of misinterpretation of the requirements of the NGR and/or the CTA Procedures;

(ii)    one human error in data entry, including undetected data inaccuracies that pre-dated the commencement of the capacity auction; and

(iii)    four errors that arose from modifications or updates to the PypIT system which impacted the AQL algorithm and its interaction with other underlying data held in the PypIT system;

(c)    Annexure A to the orders sets out the respects in which the parties agree as to:

(iv)    a summary of the nature of each category of error;

(v)    the pipeline affected; and

(vi)    the number of gas days on which AQLs for one or more product components on a relevant pipeline were affected;

(d)    the applicable time periods for each of the 14 categories of error have been identified and agreed between the parties. They are set out in paragraph 62 of the Amended SoAF, which is extracted in paragraph 1 of Annexure B to the orders. It suffices for current purposes to note that the applicable time period for each category of error varies, with the errors commencing on different dates, having been identified on different dates, and then rectified on different dates. The errors commenced as early as March 2019;

(e)    by reason of the errors in Annexure A to the orders (except for the errors in row 2A), the number of erroneous AQLs provided to AEMO for each of the respondent’s respective facilities was:

(vii)    16,847 AQLs on the Eastern Gas Pipeline;

(viii)    16,738 AQLs on the Queensland Gas Pipeline;

(ix)    3,360 AQLs on the VicHub Pipeline; and

(x)    1,341 AQLs on the Darling Downs Pipeline.

(f)    by reason of the errors in Annexure A to the orders (except for the errors in row 2A), the number of gas days on which one or more erroneous AQLs were provided to AEMO, by means of a single data file for all respondents per gas day, for each of the respondents’ respective facilities was:

(xi)    949 on the Eastern Gas Pipeline;

(xii)    1,090 on the Queensland Gas Pipeline;

(xiii)    653 on the VicHub Pipeline; and

(xiv)    327 on the Darling Downs Pipeline.

29    The circumstances giving rise to the respondents’ contraventions of r 649(1) of the NGR are that, during the Relevant Periods:

(a)    the circumstances set out in paragraph 28 above occurred, including that:

(xv)    13 categories of error affected the design and/or implementation of the algorithm used to calculate AQLs, or arose from modifications or updates to the PypIT system over an extended period;

(xvi)    the applicable time periods for certain categories of error exceeded six months; and

(xvii)    the applicable time periods for certain categories of error were less than six months;

(b)    each respondent contravened r 653(1)(a) of the NGR as described above;

(c)    the respondents’ practices, methods and acts relating to the calculation of the AQLs comprised the categories of practices, methods and acts set out in paragraph 67 of the Amended SoAF, which is extracted in paragraph 2 of Annexure B to the orders;

(d)    the respondents’ policies, procedures and training for staff that applied comprised those policies, procedures and training set out in detail at paragraph 68 of the Amended SoAF, which is extracted in paragraph 3 of Annexure B to the orders;

(e)    by reason of the matters referred to in sub-paragraphs (a) to (d) above, the respondents did not calculate the AQLs in accordance with the Part 24 information standard;

(f)    the number of gas days on which one or more erroneous AQLs were provided to AEMO by reason of the errors in Annexure A to the orders (except for the errors referred to in rows 2A and 3), by means of a single data file for all respondents per gas day, for each of the respondents’ respective facilities was:

(xviii)    805 on the Eastern Gas Pipeline;

(xix)    1,082 on the Queensland Gas Pipeline;

(xx)    556 on the VicHub Pipeline; and

(xxi)    161 on the Darling Downs Pipeline.

30    By reason of the conduct summarised above, during its respective Relevant Period each respondent contravened:

(a)    r 653(1)(a) of the NGR on each of the gas days where AQLs for its respective facility were affected by one or more of the errors identified in Annexure A to my orders (except for the errors referred to in row 2A); and

(b)    r 649(1) of the NGR on each of the gas days where AQLs for its respective facility were affected by one or more of the errors identified in Annexure A to my orders (except for the errors referred to in rows 2A and 3).

declaratory relief

31    Pursuant to s 44AAG(1) of the CCA and s 21 of the FCA Act, the Court may declare, on application by the AER, that a person is in breach of a uniform energy law that is applied as a law of the Commonwealth or a State/Territory energy law. Pursuant to s 4(1) of the CCA, the provisions of the NGL, including the NGR, are uniform energy laws.

32    The parties seek declarations regarding the respondents’ contraventions of r 653(1)(a) and 649(1) of the NGR.

33    Notwithstanding the agreement reached between the parties as to the terms of the proposed declarations, it is for the Court to determine whether it has the power to make the declarations, and whether it is in all the circumstances appropriate to make the declarations: Australian Securities and Investments Commission v MLC Nominees Pty Ltd (2020) 147 ACSR 266; [2020] FCA 1306 at [109] (Yates J); Australian Energy Regulator v Santos Direct Pty Ltd [2024] FCA 579 at [42] (Neskovcin J), citing Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; 254 FCR 68 at [90] (Dowsett, Greenwood and Wigney JJ).

34    The Court is not bound by the form of the declarations proposed by the parties and must determine for itself whether the form is appropriate: Australian Competition and Consumer Commission v Uber B.V. [2022] FCA 1466 at [134] (O’Bryan J).

35    The parties submit that it is appropriate to make the declarations in the form they have proposed because:

(a)    it is in the public interest for the AER to seek to have the declarations made and for the declarations to be made. They submit the declarations will serve as a formal record of the contraventions, serve the public purpose of expressing the Court’s disapproval of the respondents’ contravening conduct, form part of the community’s censure of the respondents’ contravening conduct and serve an educative purpose in indicating to other facility operators of auction facilities how and why the contraventions occurred. They submit the AER has the role of applying to the Court for orders in respect of breaches of the NGR, and has a real interest in seeking the declaratory relief;

(b)    the respondents, as the entities declared to have contravened the law, have an interest in opposing the relief. They submit this remains the case notwithstanding their admissions and agreement;

(c)    the facts and admissions in the Amended SoAF and the SAFAF provide a sufficient factual foundation for the making of the declarations; and

(d)    the proposed declarations relate to conduct that contravenes the NGR and contain sufficient indication of how and why the relevant conduct amounts to contraventions of the NGR.

36    Having considered the facts and admissions set out in the Amended SoAF and SAFAF and the submissions referred to above, I am satisfied in the circumstances, that it is appropriate to make the declarations sought by the parties. I am also satisfied that the form in which the declarations have been proposed are appropriate, noting the detail in which the declarations outline the relevant conduct, the circumstances of the respondents, how the respondents engaged in the relevant contraventions, and the extent of the respondents’ contraventions. This is however subject to one minor change. The declarations proposed by the parties included cross-references to paragraphs of the Amended SoAF. In the circumstances, I consider it more appropriate to include extracts of the relevant paragraphs of the Amended SoAF as Annexure B to the orders, and replace the references to the Amended SoAF to the relevant paragraphs of Annexure B.

civil penalties

37    Pursuant to s 44AAG(2)(a) of the CCA, the Court may impose a civil penalty on a person who is declared to be in breach of a civil penalty provision of a uniform energy law or a State/Territory energy law, which includes the NGR.

38    Section 3(b) of the NGL relevantly identifies that a civil penalty provision is a provision of the NGR that is prescribed by the National Gas (South Australia) Regulations (SA) to be a civil penalty provision. Regulation 6(1) states that for the purposes of s 3(b) of the NGL, a provision listed in Schedule 3 of the Regulations is prescribed to be a civil penalty provision.

Rule 649(1) of the NGR

39    At all times during the Relevant Periods, r 649(1) of the NGR was a civil penalty provision.

40    From the commencement of the Relevant Periods (1 March 2019) to 28 January 2021 (inclusive), the maximum penalty for a contravention of r 649(1) of the NGR by a body corporate was $100,000 per contravention and an amount not exceeding $10,000 for every day during which that contravention continued.

41    By amendments that commenced on 29 January 2021, to the end of the Relevant Periods (22 February 2022), r 649(1) of the NGR has been classified as a “tier 2” civil penalty provision, in respect of which the maximum penalty for a contravention by a body corporate is an amount not exceeding $1,435,000 plus an amount not exceeding $71,800 for every day during which that contravention continues.

42    Under both the previous penalty regime and the new penalty regime, pursuant to s 234 of the NGL, every civil penalty ordered to be paid by a person declared to have breached a provision of the NGR must be determined having regard to all relevant matters, including:

(a)    the nature and extent of the breach (s 234(a));

(b)    the nature and extent of any loss or damage suffered as a result of the breach (s 234(b));

(c)    the value of any benefit reasonably attributable to the breach that the person or, in the case of a body corporate, any related body corporate, has obtained, directly or indirectly (s 234(ba), noting that this factor was included from 29 January 2021));

(d)    the circumstances in which the breach took place (s 234(c));

(e)    whether the person has engaged in any similar conduct and been found to have breached a provision of the NGL, the Regulations or the NGR in respect of that conduct (s 234(d)); and

(f)    whether the service provider had in place a compliance program approved by the AER or required under the NGR, and if so, whether the service provider had been complying with that program (s 234(e)).

Rule 653(1)(a) of the NGR

43    Rule 653(1)(a) of the NGR is not, and was not during any part of the Relevant Periods, a civil penalty provision. Accordingly, no civil penalties are sought in relation to contraventions of r 653(1)(a).

44    Nevertheless, the parties submit that the facts that gave rise to the contraventions of r 653(1)(a) may be taken into account when considering the penalty for the contraventions of r 649(1) insofar as they are a feature of that contravening conduct, which informs the nature and seriousness of the contraventions.

45    The parties submit that the facts that gave rise to the contraventions of r 653(1)(a) ought to be taken into account when considering the penalties for the contraventions of r 649(1).

Orders by agreement

46    It is in the public interest for parties to jointly agree on civil regulatory penalty orders and the Court may act on the parties’ joint penalty submissions in determining an appropriate civil penalty.

47    In Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482; [2015] HCA 46 (FWBII), the High Court explained the proper approach to civil regulatory orders which are sought on an agreed basis and reaffirmed the practice established in NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285; [1996] FCA 1134 and Ministry for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993; [2004] FCAFC 72.

48    Specifically, the plurality in FWBII stated at [46] (French CJ, Kiefel, Bell, Nettle and Gordon JJ):

[T]here is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers. As was recognised in Allied Mills and authoritatively determined in NW Frozen Foods, such predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention.

49    Their Honours further stated at [58]:

Subject to the court being sufficiently persuaded of the accuracy of the parties’ agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and for the reasons identified in Allied Mills, highly desirable in practice for the court to accept the parties’ proposal and therefore impose the proposed penalty. …

50    Their Honours went on to observe the propriety of a court receiving joint submissions as to facts and penalty and imposing the proposed penalty if persuaded that it is appropriate in circumstances where one party is the regulator in a civil penalty proceeding: FWBII at [60]. This is in large part because agreed penalty submissions advanced by specialist regulators, such as the AER, are able to offer “informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance”: FWBII at [60]– [61]. The Court may adopt an agreed penalty if it considers it to be an appropriate amount, even if it “might otherwise have been disposed to select some other figure”: FWBII at [47], citing NW Frozen Foods at 29; see also Uber B.V. at [9].

penalty principles

51    The Court has the power to order a person who has contravened a civil penalty provision to pay a civil penalty that the Court considers is appropriate. Parliament has left it to the Court to decide what penalty is “appropriate” in all the circumstances, having regard to the Court’s own independent opinion: MLC Nominees at [117] (Yates J); Santos at [54] (Neskovcin J).

52    The parties jointly submit that, in the circumstances of this case, a total civil penalty of $5.5 million is appropriate for the respondents’ admitted contraventions of r 649(1) of the NGR, and concomitantly, the following civil penalty amounts are appropriate for each individual respondent’s admitted contraventions of r 649(1), by reference to the number of individual contraventions of r 649(1) by each respondent:

(a)    EGP: $1,700,269;

(b)    QGP: $2,285,330;

(c)    VicHub: $1,174,347; and

(d)    DDP: $340,054.

Deterrence

53    It is well established that deterrence, both specific and general, is the primary purpose of civil penalties, and that they are “primarily if not wholly protective in promoting the public interest in compliance”: FBII at [55]. In Australian Building and Construction Commissioner v Pattinson (2022) 274 CLR 450; [2022] HCA 13, the High Court reiterated that the primary, if not sole, purpose of civil penalties is to secure deterrence: at [14]–[19] (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ).

54    Deterrence, both specific and general, is the primary objective of the imposition of civil penalties under s 44AAG(2) of the CCA in relation to contraventions of the NGR: Santos at [55]. The financial disincentive involved in the imposition of a civil penalty will encourage compliance with the law by ensuring that contraventions are viewed by the contravener and others as an economically irrational choice: Pattinson at [66].

55    To achieve the purpose of deterring further contraventions of a like kind by a respondent or by others, the penalty must be fixed with a view to ensuring that the penalty is not such as to be regarded by the offender or others as an “acceptable cost of doing business”: Uber B.V. at [12], citing SingTel Optus v Australian Competition and Consumer Commission (2012) 287 ALR 249; [2012] FCAFC 20 at [62]–[63] (Keane CJ, Finn and Gilmour JJ); Pattinson at [17]; Australian Securities and Investments Commission v Firstmac Limited (Penalty Hearing) [2025] FCA 12 at [8(3)] (Downes J).

56    A civil penalty can only achieve specific and general deterrence if it is set at an appropriate level. As the High Court observed in Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157 at 195-196 (Keane, Nettle and Gordon JJ):

[I]f a penalty is devoid of sting or burden, it may not have much, if any, specific or general deterrent effect, and so it will be unlikely, or at least less likely, to achieve the specific and general deterrent effects that are the raison d'être of its imposition.

57    While a civil penalty must not be so high that it is oppressive, it should be sufficiently high that market participants in the gas markets are financially incentivised to comply. Keane CJ, Finn and Gilmour JJ observed in Singtel at [63] that:

Generally speaking, those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention.

58    In Australian Securities and Investment Commission v Westpac Banking Corporation (No 3) (2019) 131 ACSR 585; [2018] FCA 170, Beach J said at [120]:

The penalty must be at a level that a potentially-offending corporation will see as eliminating any prospect of gain. …It is in this way that the statutory object of ensuring that contravention is not regarded as a mere cost of doing business is achieved.

59    The question that therefore arises in determining a civil penalty is what is required to achieve deterrence in the specific circumstances of the case.

60    The parties submit that the total civil penalty of $5.5 million is, in the specific circumstances of the case, of a level required to achieve deterrence and, concomitantly, a total civil penalty of the following amounts for each individual respondent:

(a)    EGP: $1,700,269;

(b)    QGP: $2,285,330;

(c)    VicHub: $1,174,347; and

(d)    DDP: $340,054.

Maximum penalties

61    In Pattinson, the majority affirmed (at [54]) that the maximum penalty must ordinarily be treated as one of a number of relevant factors. Further, a contravention that is objectively in the mid-range of objective seriousness may not, for that reason alone, transpose into a penalty range somewhere in the middle between zero and the maximum penalty. Similarly, just because a contravention is towards either end of the spectrum of contraventions of its kind does not mean that the penalty must be towards the bottom or top of the range respectively.

62    In cases where there are very many contraventions arising out of the same conduct, it may not be helpful to seek to calculate a maximum aggregate penalty by reference to such a number. In Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540; [2015] FCA 330 at [18], Allsop CJ summarised the position:

Put simply, the position of the parties was that there were so many contraventions it was not helpful to seek to make a finding as to the precise number or to calculate a maximum aggregate penalty by reference to such a number. Rather, the better approach was to determine the penalty assisted by understanding the extent to which there was a certain number of courses of conduct leading to potentially a huge number of contraventions. The instinctive synthesis endorsed by the High Court in Markarian should then be conducted by reference to a recognition of the multiplicity of breaches, a broad view of the course or courses of conduct, and an assessment of the overall extent and seriousness of offending, together with all other relevant considerations, in particular deterrence. The comments of the Full Court in Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; 287 ALR 249 at 262-263 [52]-[55] support this approach.

63    The maximum penalty for contraventions of r 649(1) of the NGR in the period from 1 March 2019 to 28 January 2021 was $100,000. For contraventions of r 649(1) of the NGR in the period from 29 January 2021, the maximum penalty was $1,435,000. These maxima apply to each of the contraventions of the respondents of r 649(1) of the NGR, notwithstanding that the parties agree that the “course of conduct” principle is an appropriate tool of analysis in this case. The consequence is that the maximum theoretical penalty for the respondents’ contraventions during the Relevant Periods exceeds $1 billion. The parties submit, and I agree, that this is far beyond what should be imposed in the circumstances of the contraventions. In cases where the maximum theoretical penalty is so high as not to be meaningful, the focus should instead be on the conduct itself and determining a penalty to match that conduct: Santos at [71], citing Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25 at [157] (Jagot, Yates and Bromwich JJ).

Imposing penalties for multiple contraventions and the course of conduct principle

64    Across the Relevant Periods, the contravening conduct for which penalties are sought gave rise to a large number of legally distinct contraventions by each respondent.

65    The parties disagree as to whether the respondents’ conduct should be characterised as 13 courses of conduct or one. This is, in effect, the only area of disagreement between the parties.

66    The AER’s position is that the contravening conduct giving rise to those legally distinct contraventions resulted from 13 separate categories of error.

67    In addition, the applicable time periods for those categories of error spanned from one day to two years and 11 months. That is, each of those categories of error existed for different time periods.

68    The respondents’ position is that, in each case, those contraventions arose because of a singular system (PypIT) used by each of the respondents via a single centralised team, that contained various errors during the Relevant Periods. A single error within the PypIT system could lead to multiple AQLs being erroneously calculated on a single day.

69    The assessment of an appropriate penalty should adhere to the principles for determining penalties where there are multiple contraventions arising out of the same conduct or course of conduct. However, the parties agree and submit that whether the Court regards the respondents’ conduct as 13 courses of conduct, or one, that ought not affect the appropriate penalty in this case. The parties submit that to take such an approach is not to downplay the seriousness of the wrongdoing.

70    Separate contraventions arising from separate acts or omissions ordinarily attract separate penalties. However, a different principle may be applied where separate acts or omissions are nonetheless so inextricably interrelated that they should be viewed as one multi-faceted ‘course of conduct’: Australian Energy Regulator v Snowy Hydro Ltd (No 2) [2015] FCA 58 at [118] (Beach J) citing Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1; [2010] FCAFC 39 at [39], [41]-[42] (Middleton and Gordon JJ). This provides one way of avoiding double punishment for those parts of the legally distinct contraventions which involve overlap in wrongdoing.

71    The question of whether certain contraventions should be treated as being truly a single course of conduct is a factual enquiry to be made having regard to the circumstances of the case. It is a tool of analysis, the exercise of which in any given case is ultimately a discretionary matter for the Court. The course of conduct principle does not convert many separate contraventions into a limited number of contraventions, nor does it constrain the available maximum penalty or otherwise displace the imposition of a significant penalty.

72    As summarised by Downes J in Firstmac at [12]:

The ‘course of conduct’ principle provides that consideration should be given to whether multiple contraventions arise out of the same course of conduct or the one transaction, to determine whether it is appropriate that a concurrent or single penalty be imposed: Australian Competition and Consumer Commission v Yazaki Corporation (2018) 262 FCR 243; [2018] FCAFC 73 at [234] (Allsop CJ, Middleton and Robertson JJ). This operates to ensure that where there is an interrelationship between the legal and factual elements of two or more offences, the offender is not punished twice for what is essentially the same criminality: see Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1; [2010] FCAFC 39 at [39] (Middleton and Gordon JJ), cited with approval in Yazaki at [234]; see also Australian Building and Construction Cmr v Construction, Forestry, Mining and Energy Union (2017) 254 FCR 68; [2017] FCAFC 113 at [148] (Dowsett, Greenwood and Wigney JJ). The application of the ‘course of conduct’ principle requires “an evaluative judgment in respect of the relevant circumstances”: see Australian Competition and Consumer Commission v Cement Australia Pty Ltd (2017) 258 FCR 312; [2017] FCAFC 159 at [425] (Middleton, Beach and Moshinsky JJ).

73    The AER’s position is that the relevant “act” is each separate category of error described in Annexure A to my orders (except for the errors in rows 2A and 3). The AER submits that this is because evaluation of the relevant circumstances results in the conclusion that each category of error was of a factually distinct nature.

74    The AER submits that, specifically, each category of error:

(a)    caused a separate and factually unique type of error in the calculation of AQLs;

(b)    affected different pipelines for a different number of gas days during the respective Relevant Periods; and

(c)    existed for different time periods.

75    The AER submits that each respondent should be viewed as having engaged in a separate course of conduct in relation to each of the 13 categories of error constituting a contravention of the civil penalty provision in which it engaged.

76    In contrast, the respondents submit that the relevant “act” is submitting the AQLs to AEMO. The AQLs were calculated each gas day and submitted as a single data file on behalf of the respondents. The generation and production of each erroneous AQL to AEMO occurred via procedures within the PypIT system without any manual steps required to be performed by the respondents' operational staff. That is, there were no conscious steps taken by the respondents when each act occurred which could be said to have created or contributed to the error. The respondents submit that the erroneous AQLs arose as an output from a system in a manner where it was generally not possible to observe the error from the output of the system alone. These erroneous outcomes continued until the systems/data errors were corrected.

77    The respondents submit that:

(a)    the contraventions of r 649(1) of the NGR arose from the PypIT system containing multiple inadvertent errors during each of the Relevant Periods;

(b)    the categories of error giving rise to the contraventions affected the design and/or implementation of the algorithm used to calculate AQLs, or arose from modifications or updates to the PypIT system over an extended period; and

(c)    the “applicable time periods” for a number of the categories of error exceeded six months.

78    The respondents submit that each respondent should be viewed as having engaged in a single course of conduct in relation to its respective Auction Facility.

79    Considering the authorities and the submissions of the parties, I consider that the better view is to characterise the respondents’ conduct as involving 13 separate courses of conduct. While it may be accepted that the errors arose from the singular PypIT system which contained multiple errors, as the AER have submitted, each category of error is factually distinct. Each category of error affected different pipelines for a different number of days, and existed for different time periods.

80    Ultimately, the parties agree that notwithstanding which view is taken in relation to the course of conduct analysis, it remains critical to ensure that the penalties imposed are of appropriate deterrent value, and that it ought not to affect the appropriate penalty in this case. I accept the parties’ submission that my view as to there being 13 separate courses of conduct does not impact the appropriateness of the total penalty proposed by the parties.

The totality principle

81    The totality principle requires that “the total penalty for related offences not exceed what is proper for the entire contravening conduct involved taking into account all factors”: Australian Competition and Consumer Commission v Hillside (Australia New Media) Pty Ltd (t/a Bet365) (No 2) [2016] FCA 698 at [22] (Beach J). The principle operates as a “final check” to ensure that the penalty to be imposed, considered as a whole, is “just and appropriate”: Uber B.V. at [79]; Firstmac at [14]. In cases where the Court believes that the cumulative total of the penalties to be imposed would be too low or too high, the Court should alter the final penalties to ensure that they are “just and appropriate”: Australian Competition and Consumer Commission v EnergyAustralia Pty Ltd (2014) 234 FCR 343 at 357; [2014] FCA 336 at [101]–[102] (Middleton J).

Relevant Factors

82    Section 234 of the NGL requires the Court to have regard to “all relevant matters” in determining the appropriate penalty and identifies various specific factors.

83    Numerous other relevant factors have been identified and applied by courts when undertaking an assessment of an appropriate penalty. For the most part these have their genesis in the “French factors” set out in Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 and referred to with approval in Pattinson at [18]. These other factors include the size of the contravener, whether the wrongdoing was deliberate or covert, the involvement (or not) of senior management, whether the contravener has a culture of compliance and any relevant prior conduct.

84    However, such lists are not to be treated as a rigid catalogue of matters for attention. Accordingly, the critical requirement is that all relevant matters are in fact addressed, in substance and transparently.

85    Previous penalty decisions are usually of limited, if any, guidance to a Court in determining the appropriate penalty on the facts of a subsequent case: Australian Securities and Investments Commission v Westpac Banking Corp (Omnibus) (2022) 159 ACSR 381 at 407 (Beach J). This is because the process to set a penalty is fact specific, taking account of the character of the particular contravening conduct, the circumstances surrounding it and the character of the particular contravener. That said, a penalty imposed in a case concerning cognate contravening conduct may have some utility in ensuring the consistent application of principle.

Synthesising the factors

86    The reasoning process in deriving a penalty figure having regard to the various relevant factors is conventionally described as one of ‘instinctive synthesis’, as explained by the High Court in Markarian v The Queen (2005) 228 CLR 357; [2005] HCA 25 at [37]. The High Court there held that the process requires a weighing together of all relevant factors, rather than a sequential, mathematical process (such as starting from some pre-determined figure and making incremental additions or subtractions for each separate factor). It emphasised further the importance of ensuring that the reasoning process is transparent.: Markarian at [31]–[37] (Gleeson CJ, Gummow, Hayne and Callinan JJ) and cases cited therein.

87    This approach has been applied consistently in the civil penalty context. In Australian Competition and Consumer Commission v BlueScope Steel Ltd (No 6) [2023] FCA 1029 at [32], O’Bryan J observed:

in common with criminal sentencing, determining a civil penalty usually involves multi-factorial decision-making, identifying and balancing all the factors relevant to the contravention, and where the result is arrived at by a process of “instinctive synthesis” of the relevant factors: Reckitt Benckiser at [44].

penalty analysis

88    The parties submit, in respect of the circumstances of the respondents’ contraventions of r 649(1) of the NGR, the proposed total penalty of $5.5 million is appropriate and, concomitantly, a total civil penalty of the following amounts is appropriate for each individual respondent:

(a)    EGP: $1,700,269;

(b)    QGP: $2,285,330;

(c)    VicHub: $1,174,347; and

(d)    DDP: $340,054.

Nature and extent of the breach (s 234(a) of the NGL)

89    The nature and extent of the contravening conduct includes consideration of whether the offending conduct was systematic, deliberate or covert and the period over which it extended.

90    Within the context of the matters set out below, the contravening conduct resulted in incorrect AQLs being provided to AEMO and had the potential to result, in some instances, in auction participants paying above what they otherwise would have paid. The operation of the capacity auction relies on the quality, accuracy and timeliness of participant reporting in order to achieve its objective of enhancing access to capacity on a more flexible and efficient basis.

91    The contravening conduct resulted from 13 separate categories of error. During the Relevant Periods, the total number of erroneous AQLs provided to AEMO by all of the respondents collectively exceeded 38,000.

92    The respondents’ conduct arose from inadvertent errors in the design and implementation of the IT system used by the respondents to correctly calculate AQLs, as well as errors that arose from modifications or updates to the PypIT system which impacted the AQL algorithm and its interaction with other underlying data held in the system.

93    The respondents took steps to rectify errors. The applicable time periods from the commencement to rectification of each individual error varied. For certain errors, the applicable time period was short, and in some cases a number of days between commencement and rectification. For other errors, the applicable time period was long. At least one category of error affected the calculation of AQLs over a period of over two years and 11 months in respect of the first and second respondent, over two years and nine months in respect of the third respondent and over two years and five months in respect of the fourth respondent.

94    The conduct involved contraventions by each respondent of r 649(1) of the NGR on 805 gas days (for EGP), 1,082 gas days (for the QGP), 556 gas days (for the VicHub) and 161 gas days (for the DDP).

95    The conduct was neither deliberate, nor covert. The respondents took steps to ensure that their systems and method of calculating AQLs were compliant with the CTA Procedures, although they accept that the practices and procedures were inadequate to ensure that the AQLs were calculated in accordance with the Part 24 information standard.

Nature and extent of any loss or damage suffered as a result of the breach (s 234(b) of the NGL)

96    The respondents’ contravening conduct resulted in incorrect AQLs being provided to AEMO and, in some instances, had the potential to result in auction participants paying above what they otherwise would have paid.

97    During the following periods, no shipper had contracted with the respondents to participate in the capacity auction and, accordingly, no shipper was able to participate in the capacity auction in respect of the Auction Facilities:

(a)    in relation to EGP, 1 March 2019 to 8 April 2019;

(b)    in relation to QGP, 1 March 2019 to 16 September 2020;

(c)    in relation to VicHub, 1 March 2019 to 21 March 2021; and

(d)     in relation to DDP, for the entirety of the Relevant Period.

98    For a given level of demand for services in the capacity auction, higher capacity auction clearing prices could only result if, as a result of an error in calculating the AQL, the AQL reported to AEMO is lower than the actual AQL would have been had the error not existed (Understated AQLs). Higher capacity auction clearing prices could not result if AQLs higher than the actual AQLs were reported to AEMO (Overstated AQLs).

99    Of the 14 categories of error:

(a)    five of the errors could only have resulted in Overstated AQLs;

(b)    seven of the errors could have resulted in Understated AQLs. However, three of those errors did not understate AQLs on pipeline segments used by shippers in the capacity auction. One error occurred when no shipper had an auction service in place. Therefore, only three of these errors had the potential to result in higher auction clearing prices;

(c)    two of the errors could have led to Overstated AQLs or Understated AQLs depending on the circumstances, but one of these errors occurred when no shipper had an auction service in place. Therefore, only one of these errors had the potential to result in higher auction clearing prices.

100    In circumstances where an Understated AQL was reported to AEMO, there was potentially “missed” auction capacity, being capacity for which at least some demand existed but which was not made available through the capacity auction, auction participants may have potentially been overcharged on the actual cleared auction volumes, and some participants may have bid differently.

101    The degree of potential harm arising from the entirety of the contravening conduct is not possible to accurately quantify as it is not possible to accurately anticipate how auction participants would have bid had correct AQLs been provided to AEMO.

102    The AER has identified using confidential bidding data unavailable to Jemena that on the Eastern Gas Pipeline, there were a total of 53 gas days, and on the Queensland Gas Pipeline, there were a total of two gas days, where incorrect AQLs were submitted as a consequence of one or more of the categories of identified error and:

(a)    the AQL provided to AEMO was understated;

(b)    for segments and zones relevant to active auction services, the auction quantity bid for by participants was equal or more than the minimum of the reported AQLs, suggesting that there may potentially have been unmet demand for auction capacity; and

(c)    the capacity auction clearing price was greater than zero; and

in consequence:

(d)    there potentially was “missed” auction capacity, being capacity for which at least some demand existed but which was not made available through the capacity auction;

(e)    auction participants were potentially overcharged on the actual cleared auction volumes; and

(f)    if correct AQLs had been provided, on some occasions some participants might have bid differently.

103    Following identification of the Authorised Overrun System error, identified in row 2 of Annexure A to my orders, the respondents undertook analysis in May and June 2021 of shippers potentially affected by that error. That analysis identified gas days in April and May 2021 with the following features:

(a)    first, certain identified authorised overruns affected an AQL for a segment on the auction facility on which the shipper held an auction service;

(b)    second, the capacity auction clearing price was greater than zero; and

(c)    third, the AQL provided to AEMO and the transportation capacity won at the capacity auction were the same (meaning the capacity auction was fully subscribed).

104    The analysis identified 11 gas days in respect of the Eastern Gas Pipeline on which the above conditions were met, and the error may have impacted prices paid by five shippers.

105    In around July 2021, the respondents voluntarily paid $43,645 (by way of credit notes) to those five customers in respect of those 11 gas days for the amounts paid for capacity through the capacity auction on those days.

106    Following the identification of additional errors in AQL calculations, the respondents subsequently undertook further analysis to identify gas days on which:

(a)    first, for segments and zones relevant to active auction services, as a result of an error in AQL calculations, an understated AQL was reported to AEMO;

(b)    second, for segments and zones relevant to active auction services, the auction quantity won was equal to the minimum of the reported AQLs, suggesting that there may potentially have been unmet demand for auction capacity; and

(c)    third, the capacity auction clearing price was greater than zero.

107    The respondents identified 33 gas days (including the 11 gas days already identified) in respect of the Eastern Gas Pipeline on which the above conditions were met.

108    The respondents’ analysis did not identify any gas days for the Queensland Gas Pipeline, the VicHub Pipeline or the Darling Down Pipeline where the above conditions were met.

109    In June 2022, the respondents voluntarily paid a further $262,600 in remediation payments (by way of credit notes) to six customers in respect of the 22 additional gas days. A further $31.75 was refunded for imbalance charges accrued against applicable auction services on the impacted gas days.

110    The respondents have made a total of $306,277 in repayments to customers potentially affected by the errors. These amounts represent all of the respondents’ capacity auction derived revenue in respect of the 33 gas days they identified.

111    Further to the remediation payments, in December 2021, the respondents identified two customers whose ability to use the capacity auction for gas day 25 November 2021 was impacted by the Incorrect Calculation of Backhaul AQLs error (identified at row 4 of Annexure A to my orders) which resulted in the AQLs being reported to AEMO as zero. In respect of any ‘as-available’ transportation services purchased by those two customers for gas day 25 November 2021, the respondents credited $463.20 to those customers.

112    The amount voluntarily remediated by the respondents exceeds the AER’s internal estimate of the potential overcharge that may have arisen as a result of the conduct. Following the remediation payments described above, the respondents obtained no quantifiable benefit from the conduct affecting the capacity auction and no customers suffered any reported actual loss or damage.

The value of any benefit reasonably attributable to the breach (s 234(ba) of the NGL—from 29 January 2021)

113    For the reasons set out above, the respondents did not receive any quantifiable benefit as a result of the contraventions of r 649(1). On days where the respondents reported Overstated AQLs to AEMO, higher auction clearing prices could not have resulted and auction clearing prices may have been lower than would have been the case had the contravening conduct not occurred.

The circumstances in which the breach took place (s 234(c) of the NGL)

114    The respondents opted to retrofit the existing PypIT system with new functionality to enable it to calculate and determine AQLs in the context of the capacity auction. The respondents could not finalise the retrofitting of the PypIT system until the final CTA Procedures were published. There was an approximately three-month period (including Christmas) from when the AEMO published the CTA Procedures, on 23 November 2018, to when the capacity auction commenced on 1 March 2019.

115    The respondents dedicated resources to updating their systems to implement the capacity auction, in compliance with the NGR and NGL. In 2018 and 2019, SGSP’s transportation service providers, including the respondents, reported, pursuant to r 634 of the NGR, operational expenditure of greater than $1 million and IT system capital expenditure of greater than $500,000 in standardisation costs. Those costs were incurred in respect of complying with obligations under Part 24 and Part 25 of the NGR, including incremental expenditure associated with establishing systems and processes to comply with the capacity auction.

116    The respondents also established a dedicated project team for the implementation of the reforms associated with the Gas Market Reform Group, including the introduction of the capacity auction.

117    The practices, methods and acts relating to the respondents’ calculation of the AQLs during the Relevant Period (extracted in paragraph 2 of Annexure B to the orders), and the policies, procedures and training for staff that applied during the Relevant Periods (extracted in paragraph 3 of Annexure B to the orders) were ultimately inadequate to ensure that AQLs were calculated in accordance with the Part 24 information standard.

118    In respect of each of the 13 categories of error giving rise to a contravention of r 649(1) of the NGR, the applicable time periods from the commencement to rectification of each individual error varied.

No prior similar contravening conduct (s 234(d) of the NGL)

119    The respondents have not previously been found by a court to have contravened the NGR or the NGL.

No compliance program approved or required (s 234(e) of the NGL)

120    In relation to the mandatory consideration referred to in s 234(e) of the NGL, each respondent was not required to, and did not, have an AER approved compliance program in place at the relevant time or now, nor was or is it required to have one in place under the NGR.

Size and financial position of the respondents (additional factors)

121    The contravener’s size and financial position is a relevant consideration in determining whether a civil penalty will achieve deterrence. In Pattinson, the High Court said (at [60]) a greater financial incentive will be “necessary to persuade a well-resourced contravener to abide by the law rather than to adhere to its preferred policy”. Similarly, the Full Court observed in Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission (2021) 284 FCR 24; [2021] FCAFC 49 at [154] (Wigney, Beach, O’Bryan JJ):

The sum required to achieve that object [of deterrence] will generally be larger where the company has vast resources …. It follows that it may be appropriate to impose a higher penalty on a very large corporation than would be the case if the corporation was small and had limited resources, irrespective of the profit derived from the contravention.

122    Each respondent is a wholly owned subsidiary of SGSP. SGSP owns or has an interest in energy infrastructure assets and related businesses (operated under three brands, being Jemena, Ovida and Zinfra).

123    The respondents are corporate entities within the Jemena group of companies. SGSP, through the Jemena group of companies, owns and operates a portfolio of energy assets including gas and electricity distribution networks, gas transmission pipelines and gas processing facilities.

124    In this case, it is accepted that the size and financial position of SGSP is relevant, both because:

(a)    SGSP bears some responsibility for the conduct of the respondents because the day-to-day operation of the respondents’ Auction Facilities in relation to the capacity auction was managed by a single team; and

(b)    SGSP’s financial position is relevant to the respondents’ ability to meet a substantial civil penalty.

125    SGSP’s approximate revenue from its gas transmission services for the relevant calendar years is as follows:

(a)    2019 – $304 million

(b)    2020 – $304 million

(c)    2021 – $304 million

(d)    2022 – $338 million

126    In respect of its gas transmission activities, SGSP reported a net profit of approximately $39.4 million for FY19, $38.1 million for FY20, $46.9 million for FY21, and $65.9 million for FY22.

Profitability of respondents’ pipeline services

127    The approximate revenue (AUD; ‘000) from pipeline services for each respondent’s Auction Facility for the relevant calendar years is as follows.

Deliberateness of the contraventions (s 234(a) and (c) and additional factors)

128    The AER does not allege that the respondents deliberately or covertly engaged in the relevant conduct. The contraventions were the result of inadvertent errors in AQL calculations within the PypIT system.

Senior management (additional factor)

129    The AER does not allege that the respondents’ senior management were involved in the contraventions of the NGR that are the subject of the proceeding.

130    While senior management were involved in overseeing the implementation of capacity auctions reforms and ensuring compliance, due to the complex and technical nature of the software specific changes required, these senior managers relied on operational staff with technical expertise to ensure that design and upgrades to the PypIT system were implemented in compliance with applicable rules.

131    Senior management delegated operation of the capacity auction to operational staff and were informed of issues identified by operational staff in the course of operating the capacity auction by around July 2019. At this time, senior management were informed of rectification and remediation efforts in respect of such errors.

132    There was no other automated error reporting in place during the relevant period that would have identified the admitted errors other than by way of the “AQL limit check”, from 17 December 2020 and the “Service priority checks supported by dashboard” from 23 September 2021. This is because the errors were latent and generally only identifiable by a review of the system design and inputs. These checks formed part of the respondents’ practices and methods relating to the calculation of the AQLs during the Relevant Periods and are outlined in further detail in paragraph 2 of Annexure B to the orders.

Cooperation with the AER (additional factor)

133    The respondents voluntarily self-reported conduct to the AER and have cooperated with the AER during the course of the AER’s investigation and this proceeding.

134    The respondents’ engagement with the AER in the course of this proceeding, and during the AER’s earlier investigations comprises:

(a)    initiating discussions with the AER in relation to AQL reporting errors in December 2020 and self-reporting on four occasions throughout 2021, including voluntarily providing information in respect of these self-reports;

(b)    providing fulsome information and documents to the AER in response to compulsory information gathering notices issued under s 42(1) of the NGL on two occasions;

(c)    responding fulsomely and in good faith to the AER’s requests for information;

(d)    attending mediation before the AER filed any lay or expert evidence;

(e)    engaging meaningfully with the AER in respect of negotiating and filing a detailed joint SoAF containing concessions; and

(f)    agreeing to resolve proceedings before the AER filed lay or expert evidence.

Compliance practices and culture

135    During the Relevant Periods, the respondents’ compliance practices relating to the calculation of AQLs, which are outlined in detail at paragraph 67 of the Amended SoAF (and extracted in paragraph 2 of Annexure B to the orders), were:

(a)    AQL spot checks;

(b)    AQL limit checks;

(c)    PypIT system audits;

(d)    Part 25 compliance reviews;

(e)    contract configuration data audit;

(f)    Internal Audit review of pipelines gas market reform management;

(g)    review of the contract handover process; and

(h)    service priority check supported by dashboard.

136    During the Relevant Periods, the respondents’ policies, procedures and training for staff, which are outlined in detail at paragraph 68 of the Amended SoAF (and extracted in paragraph 3 of Annexure B to the orders), were:

(a)    the performance of daily and other procedural tasks required as a result of the capacity auction as set out in the GMR ComOps Manual;

(b)    staff training regarding Parts 24 and 25 of the NGR (although, ultimately, the training module was not delivered to staff as it was superseded by a more detailed training session focussing on AQLs in August 2021 following the identification of the Authorised Overrun System error);

(c)    protocols regarding additional time constraints to be applied to team members’ activities when undertaking pipeline scheduling activities, including in relation to the calculation and reporting of AQLs;

(d)    staff training regarding regulatory obligations for outages and capacity;

(e)    providing staff with the Daily Cadence document which set out key activity steps and timing associated with the capacity auction, including the calculation and submission of AQLs; and

(f)    a standard operating procedure for setting up new contracts and services for clients in the PypIT system, which included a checklist to ensure correct services were included in relation to the AQL calculation.

137    It is accepted that these practices and processes were inadequate to ensure that AQLs were calculated in accordance with the Part 24 information standard. While they did assist the respondents in identifying and rectifying errors in the calculation of AQLs, the respondents accept that several of the categories of error subsisted for periods spanning over six months before they were identified and rectified.

138    The respondents have implemented the following further processes to detect errors relating to AQL reporting after they identified errors in AQL calculations:

(a)    further process improvement and automation to reduce the risk of human error within key operational processes;

(b)    recruitment of an additional compliance analyst role created within the Commercial Operations team; and

(c)    undertaking a strategic review of the PypIT system and associated vendor support arrangements.

139    These processes guard against recurrence of the contraventions and further stand in mitigation of the respondents’ conduct.

Consideration

140    I am satisfied, in all the circumstances referred to above, that the proposed total civil penalty of $5.5 million is an appropriate remedy having regard to the matters required to be taken into account by s 234 of the NGL and the additional factors referred to above to achieve the objectives of general and specific deterrence.

141    I am satisfied a total civil penalty of the following amounts is also appropriate for each individual respondent (for the same reasons):

(a)    EGP: $1,700,269;

(b)    QGP: $2,285,330;

(c)    VicHub: $1,174,347; and

(d)    DDP: $340,054.

142    As has been noted earlier in these reasons, there is an important public policy in the Court promoting predictability of outcome in civil penalty proceedings, by receiving and accepting (in cases where it is appropriate, such as this one) agreed penalty submissions. Doing so assists in avoiding lengthy and complex litigation, and encourages corporations to acknowledge their contraventions.

143    Consistent with this important public policy, I am satisfied that the $5.5 million penalty proposed by the parties is an appropriate penalty in this case, taking into account the principal object of deterrence as well as the number of the additional considerations discussed above such as:

(a)    the criticality of accurate gas auction reporting to achieving the objective of the capacity auction;

(b)    the significant number of erroneous AQLs which each respondent provided to AEMO;

(c)    the significant number of gas days on which each respondent provided erroneous AQLs to AEMO;

(d)    the period of time over which the contraventions occurred;

(e)    that the respondents’ contravening conduct impacted the accuracy of information provided to AEMO for the operation of the capacity auction; and

(f)    that the practices, methods and acts (extracted in paragraph 2 of Annexure B to the orders), and the policies, procedures and training (extracted in paragraph 3 of Annexure B to the orders), of the respondents during the Relevant Periods were inadequate to ensure that AQLs were calculated in accordance with the Part 24 information standard.

144    I am satisfied that a penalty of $5.5 million reflects the seriousness of the respondents’ conduct and provides an incentive to the respondents and other facility operators to have appropriate measures in place to ensure compliance with r 649(1) of the NGR.

145    I am also satisfied that the penalty of $5.5 million takes into account and makes proper allowance for the following mitigating factors:

(a)    the respondents self-reported conduct and have cooperated with the AER throughout its investigation and this proceeding;

(b)    the respondents made certain admissions about their conduct at an early stage of the proceeding and agreed to resolve the proceeding prior to the AER filing evidence or submissions;

(c)    the conduct was not deliberate or covert, and the respondents took steps to rectify the errors;

(d)    the respondents have made remediation payments to customers and have not received any quantifiable benefit as a result of the contraventions; and

(e)    the conduct did not involve senior management.

costs

146    The Court has a general discretion to award costs under s 43 of the FCA Act. The respondents have agreed to pay the AER’s costs of and incidental to the proceeding in the amount of $300,000. I am satisfied, in all the circumstances, that an award of $300,000 in costs is appropriate.

compliance order

147    The parties agree that it is appropriate that the respondents be ordered to engage an Independent Expert to conduct a risk-based compliance review, pursuant to section 44AAG(2)(c) of the CCA.

148    I am satisfied that a compliance order is, in all the circumstances, appropriate and I will make the compliance order proposed by the parties.

disposition

149    The Court will make the declarations and orders proposed by the parties, subject only to the minor change noted in paragraph 36 of these reasons.

Associate:

Dated:    10 April 2025

SCHEDULE OF PARTIES