Transgrid’s bid to recover an more than $1 billion in transmission cost blowouts it claims were “entirely” out of its control have stumbled at the first hurdle, with the regulator this week suggesting that it will not allow a re-do on the New South Wales network giant’s revenue determination.
Transgrid in February applied to the Australian Energy Regulator (AER) to resubmit its 2023-28 revenue determination to recover $1.2 billion of an extra $1.5 billion in costs incurred through the delivery of Project EnergyConnect.
Project EnergyConnect is a 900 km transmission link connecting South Australia and NSW and Victoria that is considered “nation-critical” for its role unlocking up to 3.5 gigawatts of new renewables capacity in south-west NSW, and to help South Australia get to 100 per cent net renewables by 2027.
The 206 km portion of the project in South Australia was completed in December 2023, by ElectraNet, on time and on budget.
But, the NSW side – a 700 km line from the border to Wagga Wagga and two new substations at Buronga and Dinawan – has faced a series of issues that have blown out total project costs from $1.8 billion to $3.6 billion and delayed delivery.
Transgrid says these have been caused by what it describes as a “contract failure” with the project’s engineering, procurement and construction partner.
“This application is necessary because significant external factors outside Transgrid’s control impacted the contractor’s ability to deliver the project in accordance with the competitively determined contractual terms and conditions,” Transgrid CEO Brett Redman said in a cover letter to the AER.
In March the AER launched consultation on Transgrid’s request, which – if approved – would see an increase of $173 million in revenue to be recovered from consumers in 2027-28 – pushing up residential customer bills by an estimated $18 for that financial year.
Some of the feedback has been fairly direct, including a submission from AGL Energy that argued Transgrid’s claim relies on “an artificial framing of events that misapplies the rules,” and urged the AER to deny the application.
In a new consultation paper published on Tuesday, the AER puts forward its “preliminary position” on the matter, which is that Transgrid has not met all the criteria necessary to reopen a revenue determination, falling short on two of the seven proof points.
“Our preliminary position is that Transgrid has not met all the criteria in clause 6A.7.1(a) of the National Electricity Rules (NER) (reopener criteria),” the consultation paper says.
“Based on the information before us, we are currently not satisfied that Transgrid has met clauses 6A.7.1(a)(1) (Criterion 1) and 6A.7.1(a)(6) (Criterion 6) of the NER.”
But the regulator also notes that this position, if made final, will not prevent Transgrid from recovering “prudent and efficient” Project EnergyConnect (PEC) expenditure, but rather close off that particular avenue of cost recovery.
“All overspent capital expenditure will … be subject to the ex-post review process as part of Transgrid’s upcoming 2028–33 revenue determination,” the AER said on Tuesday.
“Through that process, we can decide whether the overspend amount, or a portion of the overspend amount, should be included in the regulatory asset base.
“Transgrid may also propose to reduce any capital expenditure sharing scheme penalty for PEC under our new capital expenditure incentive guidelines.”
The AER is now inviting submissions on its “preliminary views” and reminds stakeholders that the consultation document should not be seen as a draft or final decision.
“Our preliminary positions are based on the information currently available, including Transgrid’s application and stakeholder submissions received to date,” it says.
“We are open to reassessing and changing our preliminary views after considering further submissions from stakeholders including Transgrid.”
In a statement emailed to Renew Economy on Wednesday, Transgrid said it acknowledges the regulator’s preliminary position on the matter and “respects its independent role” in the process.
“We will carefully consider the issues raised in the consultation paper and continue to participate constructively in the process,” a spokesperson said.
“We note that this is not the final determination and the consultation paper relates to a specific regulatory cost recovery mechanism, rather than the merits of EnergyConnect itself, which remains a critical part of the National Electricity Market.
“The preliminary position does not determine whether prudent and efficient project costs may ultimately be assessed through existing regulatory mechanisms,” the spokesperson said.
“EnergyConnect is a nation-critical project that is already strengthening interconnection between states and will provide long-term benefits for consumers through improved energy sharing, increased access to renewable generation and lower wholesale electricity costs. The paper recognises the substantial benefits the project is expected to deliver.
“Our focus remains on delivering value for consumers, maintaining a safe and reliable network and delivering the governments’ vision for a clean energy future.”
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