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* Editor's note: Essential Energy has questioned the writer's family relationship with one of its former employees. This relationship has had no influence over the accuracy of the Port News' reporting in this Big Issue series.
This Big Issue series was triggered when Networks NSW announced it may slash more than 1400 jobs from Essential Energy, one of the largest employers in Port Macquarie.
Networks NSW boss Vince Graham said the potential job losses were because of the Australian Energy Regulator's determination for the five years from July 2014 that Essential Energy needed to cut about a third of its operating costs.
Essential Energy made its first costs submission to the AER ahead of the regulatory period commencing in July 2009. Unlike when the company had previously submitted to IPART, this submission was approved with no major changes. This meant power prices went up 42 per cent so the company could fund $6 billion worth of infrastructure projects.
Numerous projects funded in the determination, however, were not delivered and as a result the regulator this year determined Essential Energy's operating costs needed to be reduced.
As a consequence, many people in the Hastings now face an uncertain future.
The conclusion to this series focuses on a project that was not delivered. It's another Mid-North Coast zone substation, this time to the north in Coffs Harbour. As Ben Cooper reports, this deal involved land being purchased above valuation. The electricity provider also gave additional money outside of the purchase price to the land's original owners. All of this was reported internally, handed to the Independent Commission Against Corruption and no action was taken by the commission.
In November 2004 the Coffs Harbour Aboriginal Land Council, also known as the Coffs Harbour and District Aboriginal Land Council, appointed Herron Todd White to value nearly six hectares of land near the town's botanic gardens. The valuer reported it was worth $1.58 million dollars.
Nearly six years later, in June 2010, Essential Energy independently appointed another company to value the space. The idea was to build a zone substation because of predicted demand.
Taylor Byrne returned with the figure of $365,000. Three months later this was revised to $450,000 and an offer was made to the Lands Council, which was refused.
The next month the Land Council had Herron Todd White again value the land, which turned out the figure of $1.06 million due to the potential for subdivision.
An internal Essential Energy group, the Transmission Lines Routes Strategy Committee, ordered further examination because it was not satisfied with the valuation differences as of December that year.
One month later, Taylor Byrne advised it was satisfied with its valuation of $450,000.
In March 2011, the same valuers indicated the land could be worth more if subdivision was possible so Daryl Anderson Consulting were commissioned by Essential Energy to prepare a town planning report.
That report, which was delivered a month later, green lit subdivision which led Taylor Byrne to deliver a new value for the land of $850,000 in May 2011.
This information comes from an Essential Energy commercial-in-confidence Network Capital Expenditure Submission, prepared by Marcus Brockhouse on June 27, 2011.
In July 2011 Mr Brookhouse's committee recommended an offer of $1.06 million be made to the Land Council. Yesterday, Essential Energy's chief operating officer Gary Humphreys wrote in an email to the Port News that the total cost of land acquisition was $1.409 million.
The submission report provides no data or evidence on why this amount, which is significantly greater than Taylor Byrne's valuation from the previous month, is appropriate. It states the offer acknowledged 'the sensitivity of the owner, the legal superiority of the Aboriginal Land Rights Act (1983) and both EE's and CHLALC's valuation reports'.
Mr Humphreys stated the final amount was paid after "multiple valuations" by "external and internal specialists".
As part of the process, an offer of additional funds in the form of a scholarship was allocated.
A Country Energy document from August 2010 titled 'Briefing: Sponsorship opportunity in Coffs Harbour' reveals the background of the situation.
The Port News recently became aware of this document, which proposes the general manager of subtransmission services, Brian Glawson, approve 'fact finding' the interest and costs of two proposals.
The first proposal was sponsorship of a Bush Tucker Track on the adjoining land to where the substation was to be built. The second was sponsoring a museum at Granny Ferguson's Cottage by obtaining naming rights, with a clause that sponsorship money would only be paid when it opened.
The briefing's recommendations are dated August 13 and signed by Mr Brockhouse, Mark Swan and Jack Pike. It notes that 'not all the community may approve of the sponsorship in times of rising bills'.
It also acknowledges 'these proposals are outside of the projects but would clearly identify us as listening, caring and promoting a positive indigenous message. It may help when we are stood before a community meeting to negotiate the purchase of land, if we can show we have listened, engaged and indirectly created jobs for their community.'
It concludes 'I accept this would normally be outside the Transmission Lines normal function and expenditure. I am trying to achieve an effective negotiating strategy for the purchase of the land and building on our relationship with CHLALC'.
The briefing notes Mr Glawson approved the proposal five days later.
The network capital expenditure submission from the following June has a table of costs totalling $1.409 million, which includes $60,657 for community consultation.
By way of explanation, this community consultation is stated to include $50,000 "set aside for potential use as a commitment to Coffs Harbour Aboriginal Land Council and will take the form of sponsorship opportunities that exist. This was previously agreed on 18 August 2010".
In December a presentation was prepared for the Land Council. Port News has been made aware slide seven offered $50,000 in sponsorship. This included $10,000 for new interpretive signs on the "Bush tucker Walk and $40,000 for refurbishment of Granny Fergusson's cottage". The document states "Both of these sponsorships are intended as indirect ways of helping create jobs and/or skills". Those with questions were instructed to contact Mr Brookehouse.
The Port News has been made aware of an email from legal counsel Shannon Dawson on February 27, 2012 which she sent to Marcus Ludriks from the engineering services property division. In the email Ms Dawson states "I strongly caution against taking the incentive approach as suggested". Further down, she foreshadows potential problems by writing "It is not unreasonable to anticipate that concerns may result in a complaint to the ICAC or Energy Ombudsman in relation to the incentive on offer".
On Thursday, Mr Humphreys wrote that the sponsorship "was paid to the CHLALC as an appropriate and necessary component of the negotiation process. This payment was reported openly and transparently to the appropriate management at Essential Energy at the time".
When asked if he was aware his own company's legal counsel had cautioned against taking the incentive approach, Mr Humphreys replied: "Advice received by the Essential Energy legal team was reviewed in the context of all other commercial considerations and the sensitivity of the landowner prior to the final offer being deemed appropriate".
The company has previously stated an allegation of corruption was referred to the ICAC in 2012.
It wasn't investigated by the ICAC because the commission determined the matter "was neither serious nor systemic," Mr Humphreys stated yesterday.
He stated that the investigation was conducted by the Internal Audit Bureau, a company which used to be administrated by the state government. It is now no longer state funded and handles investigations into the public sector. The IAB's finding were delivered to Mr Graham or his representative and then presented to the ICAC.
A spokesman for the IAB said they were "unable to comment" on enquiries about the investigation and its findings and suggested "contacting the appropriate representatives from the organisations mentioned".
In a letter last week, Mr Humphreys acknowledged 'similar allegations were raised in 2012 against a number of senior Essential Energy executives and fully investigated by the Internal Audit Bureau for ICAC - without substantiation. These were subsequently fully reported back to ICAC'.
When asked if Mr Graham or one of his representatives had reviewed the investigation's findings before delivering them to ICAC, Mr Humphreys replied: "Essential Energy's Executive team and Board assisted IAB fully with the investigation and full respect was given to IAB's independence to ensure a thorough and comprehensive review of the unsubstantiated allegations by a former employee".
On Thursday, Mr Humphreys stated the land purchasing deal had gone ahead and the $50,000 sponsorship was paid to the Land Council.
The Land Council's CEO Chris Spencer would not comment on the land sale or the scholarship this week.
The site itself does not have a zone substation on it. A resident of the street it borders said it is in almost exactly the same condition as when it was purchased.
Essential Energy continues to reinforce that the project will go ahead when demand is sufficient.
Mr Humphreys stated yesterday that the "capital project is currently under review following the AER's recent determination".
This Coffs Harbour story is an example of how the regulator's determination meant power prices rose to fund infrastructure, and the project which was to be created with the funds gathered from the revenue raised has yet to be delivered.
Essential Energy is one of three companies appealing against the proposed cuts to operating costs within the regulator's recent determination.
Mr Graham said last week that the companies will appeal against the average cuts of $324 million to operating expenditure "due to the impact on vegetation and bush fire mitigation programs across the state and the AER's decision not to provide a workable transition plan to implement continuing efficiency improvements".
Legal appeals were lodged with the Australian Competition Tribunal last Thursday, and were submitted to the Federal Court yesterday.
Decisions are expected in coming months.
June 2, 2008 - Essential Energy, then known as Country Energy, submits regulatory proposal to the Australian Energy Regulator for the period from July 1, 2009 until June 30, 2014.
November 21, 2008 - AER makes its draft decision.
January 16, 2009 - Essential Energy submits its revised proposal.
April 28, 2009 - AER hands down final decision.
November 25, 2009 - Essential Energy appeals the decision.
December 13, 2011 - AER begins process of regulatory determination for the period of July 2014 until June 2019.
December 6, 2013 - Essential Energy submits its proposal.
November 27, 2014 - AER makes its draft decision.
January 14, 2015 - Essential Energy submits its revised proposal.
April 30 - AER delivers determination for period from July 2014 until June 2019. Networks NSW boss Vince Graham said he is "distressed" at the proposed cuts to operating costs.
May 7 - Parliamentary inquiry into leasing of poles and wires announced.
May 8 - Mr Graham meets with union representatives.
May 11, 15 and 18 - Inquiry hears from stakeholders.
May 21 - Networks NSW announces it will appeal cuts to operating costs. Legal appeals lodged with the Australian Competition Tribunal.
Yesterday - Legal appeals lodged with the Federal Court.