Consumers on the hook for $1b powerline cost blowout

Some construction activities on Project EnergyConnect have taken up to five times longer than forecast. (Supplied: Elecnor Australia) Link copiedShareShare articleAs Christmas approached in 2022, Brett Redman must have struggled to feel particularly merry. He had barely been in the boss of New South Wales transmission company Transgrid for a year and problems were mounting. Chief among them was the company's flagship Project EnergyConnect, a 900-kilometre high-voltage powerline linking Wagga Wagga to Robertstown in South Australia. Transgrid was responsible for building 700km of the line but things had not been going well for a while. Clough, the Australian junior partner in an engineering joint venture that was building the line for Transgrid, was teetering. It was a major blow in a series of setbacks that have blighted a project, which is only just being completed, years behind schedule and at almost double the planned cost. Those setbacks and Transgrid's handling of them are the subject of intense scrutiny as the Australian Energy Regulator weighs an extraordinary proposal. Transgrid wants consumers, rather than its own shareholders, to pay for $1.14 billion of the blowouts for its part of the project, which is now expected to cost $3.6 billion. Brett Redman has been running Transgrid for four and a half years. (AAP: Dan Himbrechts) In its push, the company has thrust into the spotlight difficult questions about who should bear the risks — and pick up the tab — in the energy transition. Justice and Equity Centre energy consumer advocate Craig Memery says "two things are really on the line here" and "they both have far-reaching impacts". "The first of those is there's a billion-odd dollars at stake here which would be, if it's approved, recovered from households," he says. "The bigger thing that is at stake is what signal this sends Transgrid and, potentially, other regulated businesses. "If the regulator sees fit to bend the rules enough to allow this proposal to be approved, that opens the door for a very, very broad interpretation of the rules that are intended to provide … cost certainty for consumers." To understand the hullabaloo, it's necessary to know how the rules governing poles-and-wires companies such as Transgrid work. Importantly, they work very differently to the normal rules of a free market because they are what economists call natural monopolies. Many large-scale renewable energy projects are reliant on transmission network upgrades. (ABC News: Michael Franchi) Poles-and-wires companies do not have to compete with rivals on price in order to make money, unlike the generators producing the power and the retailers that sell it. Networks, as they're known, are guaranteed the revenue they can make from customers and the profits they can earn. The providers of that guarantee are regulators such as the Australian Energy Regulator (AER), which in turn are required to vet the spending plans of networks to ensure they are reasonable and efficient. Projects that pass the regulatory test earn guaranteed revenues for decades. Acclaimed energy writer Daniel Yergin says this is all part of a "bargain" aimed at balancing the needs of the networks with the interests of consumers. It is the safety of this bargain that appeals so much to long-term investors, such as superannuation and sovereign wealth funds, which own Transgrid and other companies like it. But it is this bargain which Transgrid is now seeking to reopen. Earlier this year, Transgrid formally asked the AER to scrap its existing five-year spending plan and replace it with a new one that included much more generous allowances for Project EnergyConnect. When the spending plan was first approved by the regulator, the project was expected to cost about $2.3 billion. Of this, Transgrid's share amounted to almost $1.9 billion, with its South Australian counterpart ElectraNet given $457 million. South Australia finished its part on time and on budget, but it's a different story in NSW. (Supplied: ElectraNet) ElectraNet finished its part of the project in December 2023, on time and on budget. In its application, Transgrid said it could not have foreseen the failure of its contract with Clough and Spanish engineering giant Elecnor. Transgrid blamed a rollcall of setbacks it claimed were outside its reasonable control from flooding to COVID-19, labour shortages and extreme inflation. The company argued the combination of these shocks meant the project could not be delivered under the fixed-price model it had agreed. Therefore, Transgrid said the contract "could not be completed" and had to be renegotiated, meaning any new spending was also necessary. In December 2024, Transgrid signed a new contract with Elecnor to finish the project. "At every stage of the process Transgrid has acted to protect the interests of consumers and deliver PEC [Project EnergyConnect] at the lowest cost and with minimal delay," Mr Redman wr

Consumers on the hook for $1b powerline cost blowout

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