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Shades of Gillman in outback power deal

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The State Government was warned that its “enthusiastic” push for a $192 million renewable energy project had echoes of its disastrous Gillman deal, according to a key player in the complex negotiations.

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As reported by InDaily last week, the hybrid renewable energy project for Coober Pedy was awarded to energy company EDL without going to tender, despite warnings from an independent consultant that the project was going to cost $85 million more than it would if it had been exposed to competition.

The former interim CEO of the council, who oversaw the in-principle approval of the deal, has now revealed that the council had deep concerns about the commercial arrangement, which he raised repeatedly with the State Government.

Tony Renshaw, whose contract was terminated by the council in March 2016, told InDaily the State Government was “overtly enthusiastic” about the 20-year deal and the council, which felt it did not have the skills to assess the project’s merits, only agreed to the deal because it had been guaranteed government subsidies.

The State Government provides subsidies for electricity prices in Coober Pedy, which is moving from its own grid powered by diesel, to a hybrid of diesel, wind and solar power.

The council will pay EDL a sizeable monthly set fee over the 20 years of the contract, with the State Government providing a subsidy to the council under the Remote Areas Energy Supplies scheme (RAES) to make sure consumers and businesses are charged prices similar to Adelaide (although in reality they are higher).

However, InDaily can reveal that the council does not believe it has an iron-clad guarantee from the Government and, if prices blow out – as warned by an independent consultant – then the town will be left with potentially catastrophically high energy prices. This, the council and the government have been warned, could lead to “grid defection” – individuals installing solar and batteries and abandoning the power system altogether.

Locals fear this could spell the end of the town.

When asked if the State Government had guaranteed subsidies over the 20-year life of the project, the Department of State Development responded: “The District Council of Coober Pedy sought support from the SA Government to continue providing support under the RAES scheme for a 20 year period to provide continuity of support to Coober Pedy.

“The SA Government provided that support on the basis that the project would not adversely impact future subsidy payments under the RAES scheme.”

Under questioning from InDaily, the department said neither the Coober Pedy council nor residents would pay more if electricity costs spiralled under the deal – it appears that cost would be borne by taxpayers.

“This was not a contract the State Government entered into, it was a contract entered into by the District Council of Coober Pedy,” the department said.

“A legally binding letter of support and deed of grant was provided because it was forecast to save $5.4 million in State Government RAES subsidies over the life of the contract between the council and the company.

“Under the RAES scheme, which was provided for in the 2014-15 State Budget, residents pay the same as on-grid electricity prices, and the State Government pays a subsidy to the council for the difference. If the project costs more than forecast, council will not be impacted regardless of what that difference is.”

In contrast to the Government’s prediction of reduced costs, an independent consultant engaged by the council in 2015/16, Adelaide-based Resonant Solutions, warned the council and the government that not going to tender meant the 20-year project could cost double the price it should. Resonant also warned the project “has had minimal or no transparency, probity and competitive tension”.

InDaily can now reveal new details about the complex machinations behind the deal, including deep misgivings by the council about the plan in the months before it signed off on it – misgivings that apparently evaporated following meetings with the State Government, EDL and the federal renewable energy agency, ARENA, which has put $18 million of taxpayers’ dollars into the scheme.

According to internal council documents obtained by InDaily, in late 2015 the council was deeply concerned about the project, which had been developed by EDL and spruiked publicly, in glowing terms, by ARENA well before the council had signed off on the deal.

The documents, which include correspondence from then CEO Renshaw, show that council administration had raised serious misgivings about the project with the State Government, including warning that it would potentially breach the Local Government Act.

According to the documents obtained by InDaily, in late December 2015, Renshaw drafted a note to a senior public servant in the Department of State Development, Nick Smith, highlighting concerns about the council’s liability should it sign the proposed 20-year power purchase agreement (PPA) with EDL.

“More importantly we ask that you specifically note the Council is positioned and poised to execute the PPA with EDL. We note that we require the State’s permission to proceed and we are seeking your immediate instructions in relation to this matter,” the correspondence, marked DRAFT, says.

“In executing the PPA the Council is fully aware that it will breach the Local Government Act and commit the offences of Mal-practice and Mal-administration by creating a recurring operating expense that is beyond the financial operating capacity of the Council and will crystallise a contingent liability, of up to $50m, that the Council will never have the capacity to satisfy.

“The Council’s legal remedy to this Mal-practice and Mal-administration is a reliance on the State’s Deed of Grant [ RAES Funding ].

“The Council is fully aware that the State’s proposed Letter of Comfort proposes to relieve the Council of any concern for the financial defects created by the PPA.

“It is universally understood that the proposed Letter of Comfort has no currency nor offers any reliance for the Council what so ever.

“As mentioned previously we understand the State has a rich appetite and enthusiasm for the project to proceed and accordingly the Council encourages the State to confirm this rich appetite and enthusiasm in a Deed of Grant.”

Without a watertight agreement that the Government would continue to provide the RAES funding, to match Adelaide prices as per the current agreement, the council feared it would be open to huge liabilities.

Coober Pedy has struggled with huge electricity charges.

Coober Pedy has struggled with huge electricity charges.

The council, according to Renshaw, was so worried that he raised the Gillman debacle in his discussions with departmental officials.

“The State Government had a lot of enthusiasm – overt enthusiasm – for the project,” Renshaw told InDaily.

In response to this enthusiasm, and given the council’s fears about liabilities, Renshaw says he suggested the Government sign the PPA with EDL  – a notion rejected by the Government.

Renshaw also met with Energy Minister Tom Koutsantonis in December 2015 to convey the council’s concerns.

Koustantonis says he advised the council not to sign the deal if it was worried.

“At the request of the Acting CEO the Minister and representatives from the Department of State Development met with the Council once, in December 2015, to discuss the RAES scheme and the project generally,” a departmental spokesperson said.

“At that meeting the Minister indicated to the Acting CEO that if the council was dissatisfied with any aspect of the project then it should not enter into the project.”

InDaily asked Renshaw what happened next to ease the council’s misgivings about the deal, which they approved in principle at a meeting in January and signed off later that year.

He said that at a meeting in a government office on Waymouth Street on January 13, involving council representatives, the council’s then independent consultant (Resonant’s Graham Davies), EDL , the Department of State Development and ARENA, it became clear that no-one agreed with Resonant’s criticism of the procurement process, nor the modelling which showed a potential cost blowout.

The department believed the EDL plan would reduce costs to the council and ARENA said the EDL concept was the most compelling submission it had ever received.

The meeting, according to Renshaw’s account, left Resonant isolated in its disquiet about the deal.

Nevertheless, Resonant continued to work for the council, producing a comprehensive report in February 2016, with modelling showing the project costs could blow out over the course of the 20-year deal, among other risks.

Resonant’s contract with the council was terminated that month, after delivering the report.

The current council CEO, Fiona Hogan, appointed later in 2016, said the council remained concerned about the project and was in a legal dispute with EDL.

She said there was no record of Resonant’s February 2016 report being tabled at a council meeting.

“The then acting CEO of the council was advised in a report prior to contract execution that the project was excessively expensive, could lead to ‘grid defection’ and that the provision of electricity never went to tender,” Hogan said. “This report was not tabled by the then acting CEO to the council for discussion.

“Without this advice, council agreed to proceed with the contract.”

Renshaw strongly rejected any suggestion that he did not provide council with all of the relevant information to make its decision, but would not say whether Resonant’s February 2016 report, specifically, had been provided by him to the council.

“The council was fully informed of any and all information that Graham Davies (from Resonant) provided to the council,” he said. “The council received every bit of information relative to proceeding with the project.”

Renshaw also rejected any suggestion that he or the council had acted without proper regard to probity, saying the process it had followed was “beyond reproach”.

How the local newspaper reported the termination of Tony Renshaw's contract.

How the local newspaper reported the termination of Tony Renshaw’s contract.

However, Renshaw was less than certain about whether the deal ultimately signed by the council would offer value for money to the local community or the South Australian taxpayer.

When asked if the council had signed up to a poor deal, he said: “That notion is as reasonable as any other,” adding that renewable energy projects are incredibly complex and the council relied on the expertise of the State Government and ARENA in assessing the deal.

He said the council ultimately agreed to the deal because of a 20-year subsidy guarantee from the State Government – a guarantee which now seems in doubt.

The similarities to the Gillman deal are clear: a project awarded without going to tender;  enthusiastic government bodies encouraging the decision-making body to support the deal; and concerns about probity, process and potential risks to the taxpayer being dismissed.

There are also questions remaining to be asked about the role of the Coober Pedy council, which is regarded with outright disdain by the State Government.

Renshaw says the council did not have the skills or knowledge to effectively assess a deal of this magnitude, a view supported by current CEO Fiona Hogan who says the “council has consistently expressed concern over the project, and also noted that the project was outside their knowledge base”.

In January 2016, less than a week after the council met with the players in Adelaide, a confidential meeting was held with a bare quorum of councillors in attendance.

The minutes of this confidential meeting, only recently released publicly, show a motion to approve execution of the PPA was moved by Councillor Boro Rapaic and seconded by Paul Reynolds.

Another motion passed, to the following effect: “The determination of the Council shall remain confidential until a joint announoed (sic) between the South Australian Government, District Council of Coober Pedy and EDL is developed and agreed that includes a photograph of the South Australian Govemment (sic) Treasurer and the Principal Member of the Council and supporting story in published in the Adelaide Advertiser, the Australian and The Coober Pedy Times newspapers.”

Just over a year later, there hasn’t been a photo opportunity, the council’s CEO says it regrets its decision and has engaged lawyers to seek more information from EDL, and many local residents are up in arms.

“The community of Coober Pedy has raised concerns bout a hybrid renewable energy project which is currently being constructed,” Hogan said in a statement.

“Of major concern is the cost for electricity generation under the contract which is forecast to commence at approximately 50c/kWh and escalate to 115c/kWh over the 20 year life of the contract.”

The State Opposition has asked the Auditor-General to investigate.

Construction of the EDL project is nearly complete.

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