The Australian Energy Regulator (AER) has rejected an application from New South Wales transmission company Transgrid seeking to recover an additional $1.2 billion in cost blowouts for its portion of Project EnergyConnect (PEC)—a $3.6 billion electricity transmission line linking South Australia with New South Wales.
The massive transmission project was initially forecast to cost $2.1 billion, however, this rose to $3.6 billion after significant budget blowouts on the New South Wales section delivered by Transgrid.
In its February 2026 application to the AER, Transgrid said the additional cost of constructing EnergyConnect was driven by “unforeseen external factors”, including flooding in 2022-23, COVID-19, increased cost of labour and materials due to unprecedented global demand, inflationary pressure, and the collapse of one of the project’s original joint venture delivery partners.
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In preliminary consultation paper, the AER said it was not satisfied Transgrid had met criteria that would allow it to recoup the additional expenditure from energy customers.
“Our preliminary position, if made final, would not prevent Transgrid from recovering prudent and efficient PEC expenditure. The outcome of this reopener assessment will have an impact on the extent of the PEC overspend amount,” the regulator said in its preliminary determination.
“All overspent capital expenditure will then be subject to the ex-post review process as part of Transgrid’s upcoming 2028–33 revenue determination. 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.”
A Transgrid spokesperson said the company acknowledged the Australian Energy Regulator’s preliminary position on the EnergyConnect reopener application.
“We will carefully consider the issues raised in the consultation paper and continue to participate constructively in the process,” the 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.
“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.
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“Our focus remains on delivering value for consumers, maintaining a safe and reliable network and delivering the governments’ vision for a clean energy future.”
The energy regulator has invited submissions on its preliminary views about Transgrid’s application, saying it would consider further information and submissions from stakeholders, including Transgrid, as part of its reopener assessment.
Written submissions should be emailed to aerinquiry@aer.gov.au.
