EnergyAustralia Pty Ltd (EnergyAustralia) and Incitec Pivot Limited (Incitec) have paid infringement notices issued by the Australian Energy Regulator (AER) totalling $630,200 for alleged breaches of the National Gas Rules related to gas demand forecasting in short-term trading markets. EnergyAustralia has paid $406,800 in penalties arising from six infringement notices and Incitec has paid $223,400 across four infringement notices.
It’s alleged that both companies breached section 410(1) of the National Gas Rules, which contains important obligations on participants in the short-term trading markets to provide best estimates of quantities of gas they expect to supply or withdraw at particular times. This obligation is critical to ensure gas is sold at the most efficient price.
The AER had concerns that, between July 2020 and December 2021, EnergyAustralia failed to submit 376 bids in both the Adelaide and Sydney short-term trading markets to buy gas two and/or three days out from the relevant gas trading day (the day gas is bought). This indicated that EnergyAustralia didn’t intend to buy any gas on the relevant trading days when in fact it did purchase gas on those days.
As a result, the movement of gas between centres may have been impacted by poor price signals in Adelaide and Sydney. The AER issued six infringement notices related to six of those days.
The AER also had concerns that, between January and October 2021, Incitec failed to submit 64 bids ‘in good faith’ to buy gas in the Brisbane short-term trading market for its Gibson Island plant.
Across this period, Incitec undertook six periods of plant maintenance during which gas usage was significantly lower than its bids. The AER alleged that Incitec’s bids to buy gas did not accurately reflect the company’s best estimate the day before the relevant gas trading day. The AER has issued four infringement notices related to four of those days.
AER Board Member Justin Oliver said the issuing of infringement notices reflected the significance of the alleged breaches and the importance of demand forecasting to the equity and integrity of gas short-term trading markets.
“Fair, efficient market outcomes rely on compliance by all market participants. Accurate demand forecasting is central to the proper functioning of the short-term trading market, allowing the gas market to produce price outcomes that benefit all gas consumers,” Mr Oliver said.
Following the recent exit of Incitec from the Brisbane short-term trading market, Mr Oliver also noted that market participants can’t escape their responsibilities.
“The penalties issued to both EnergyAustralia and Incitec for their alleged non-compliance should remind participants that we take these matters seriously and that they remain accountable for their conduct in these markets regardless of whether they currently trade in them or not.”
Note to Editors
The AER’s role in gas markets
The AER has a wide role in regulating and reporting on gas markets. This includes market conduct obligations in short-term trading markets (SA, QLD, NSW), the Declared Wholesale Gas Market (VIC), the Day Ahead Auction process, the Gas Supply Hub, transmission and distribution pipelines and gas retail markets (SA, QLD, NSW, VIC).
Short-term trading markets
A short-term trading market is a wholesale gas market that supports short-term trading between gas shippers (who deliver gas via transmission pipelines, storage facilities and production facilities), retailers and large customers at a defined hub.
Demand forecasts
A gas market participant who expects to withdraw a quantity of gas from a hub on a gas trading day must submit to AEMO, in good faith, a bid reflecting its best estimate of the quantity it expects to withdraw on that gas trading day at each specified time in the three days leading up to the gas day.
AER’s compliance and enforcement priorities
The AER published its Gas Markets Demand Forecasting Compliance Bulletin on 30 November 2022, putting gas market participants on notice that it would be monitoring demand forecasting compliance and would take enforcement action if non-compliance was detected.
Liability
The payment of infringement notices does not constitute an admission of liability by EnergyAustralia Pty Ltd or Incitec Pivot Limited.
The AER can issue infringement notices when it believes on reasonable grounds that a person or business has contravened certain provisions of the National Gas Rules.