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Council demands at least $5 million in compensation from LGA

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EXCLUSIVE | The under-fire Coober Pedy council is demanding at least $5 million in compensation from the Local Government Association over the involvement of a former LGA director in the outback town's controversial electricity deal.

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Coober Pedy District Council has hired high-profile Adelaide lawyer Greg Griffin to take up its concerns about the power deal, with one of his first actions a letter to the LGA giving notice of an intended claim, sent last week.

If the LGA doesn’t agree to an interim settlement of $5 million, the council is threatening to take the representative body to the Supreme Court to recover damages for the losses it believes it will incur from the 20-year electricity agreement with energy giant EDL.

Critics of the deal have raised comparisons with the Gillman debacle, due to the fact that EDL was awarded the contract without it going to tender. Griffin was involved in one chapter of the Gillman saga, representing two waste companies in a High Court challenge to the Government’s arrangement with Adelaide Capital Partners.

InDaily has seen a copy of the council’s letter of demand, in which the argument hinges on the brief tenure of former LGA director David Hitchcock as interim chief executive of the Coober Pedy council in 2016.

The letter alleges Hitchcock insisted mayor Michelle Provatidis sign the Power Purchase Agreement (PPA) at short notice.

Hitchcock, who no longer works for the LGA, refused to comment on the allegations.

“I have no comment and any questions should be referred to the LGA,” he told InDaily today.

The LGA flatly rejected the accusations.

“The allegations against the LGA and David Hitchcock are completely without merit and will be vigorously defended,” said LGA chief executive officer Matt Pinnegar.

The background to the confrontation is complex, as detailed extensively in a series of exclusive InDaily reports earlier this year.

The dispute relates to a $192 million contract for a state and federal government-backed new hybrid-renewable electricity system for Coober Pedy, which was granted to EDL without going to tender.

Coober Pedy council essentially acts as the energy retailer for the town, with the South Australian taxpayer exposed via subsidies the State Government provides to the council to ensure electricity prices are kept on par with those in the city.

EDL, which ran the town’s old diesel generation, has upgraded the infrastructure to include a greater mix of renewables and battery storage. After the system was switched on in July, EDL argues it has passed several significant milestones, including running entirely off renewable energy for more than 24 hours.

The council, though, remains unhappy with the scope of the deal and its cost.

The Coober Pedy council agreed to execute a power agreement with EDL at a confidential meeting in January last year, despite having previously raised concerns with EDL and the State Government about the potential cost to the community and the lack of a transparent tender process.

A consultant, engineer Graham Davies from Resonant Solutions, who is now a Xenophon candidate for the state seat of Waite, advised the council that the deal would cost $85 million more than it should and lacked probity.

Council members later said they felt pressured at the January meeting to approve the deal or an $18 million grant to the project from the Federal Government’s renewable energy agency, ARENA, would be withdrawn. Members have also contended they felt pressured by the State Government to approve the deal – a claim refuted by the Government.

The chief executive at the time of the January meeting, Tony Renshaw, was subsequently dismissed for reasons unrelated to the proposed EDL deal, to be replaced by then LGA director Hitchcock as an interim measure at the suggestion of the LGA, the letter of claim says.

In its letter to the LGA, the council says the January decision was made after advice from Renshaw that if they failed to sign the PPA the ARENA grant was under threat, the State Government would also abandon its energy subsidies to the town, and councillors would be financially liable for any losses.

The letter contends that councillors did not view a draft PPA, nor were they presented with the Resonant report.

As a result, all that could be contended from the meeting’s decision was that the council had resolved to executive the PPA as it stood on the day of the meeting – January 19, 2016. It could not bind the council to sign a changed PPA.

Therefore, the letter argues, Hitchcock “should have had regard to the vague and non-binding nature” of the January 19 resolution and the “ongoing changes and amendments between that date and when he was appointed CEO”.

It is alleged that Hitchcock called Provatidis at her Coober Pedy shop on March 30, 2016, and insisted she come to the council chambers and sign the new PPA, which she did despite her reservations about the deal.

The council’s legal argument is that the LGA is vicariously liable for Hitchcock’s actions.

The council’s letter argues the new PPA with EDL has had a detrimental financial impact on the council’s financial position, primarily because it did not have the opportunity to sign an agreement with another provider, such as locally-owned Zen Energy or global giant Siemens, at a lower cost.

The letter says while “it is extraordinarily difficult for us at this time to quantify the loss our client will suffer over the life of the PPSA (the agreement with EDL),” an expert report was being compiled.

The EDL electricity system was switched on earlier this year. While the company says it has been an outstanding success, the council believes it is paying too much and is also concerned about restrictions in the agreement on the amount of solar power that third parties can feed back into the grid. In addition, the council is prohibited from purchasing such power.

In response to questioning from InDaily today, council spokesman Justin Freytag said the council believed the financial cost to the town would be far greater than $5 million over the course of the agreement.

Freytag, who said he was desperately worried about rising power costs in the town leading into summer, argued the deal with EDL prevented the council from exploring potentially cheaper options, including the council itself owning and running its own electricity infrastructure.

The councillor, who joined the council after the PPA had been signed, said he believed the council’s decision in January last year was made without full information.

“They were never presented with a PPA at that meeting – none of the councillors had seen one, and some of the alterations to the PPA were dated after January 19,” he said.

He would not discuss the council’s potential legal action and said he could not legally reveal the difference in price being charged under the new PPA compared to the previous one.

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