Annual Performance Report 2012/13

Includes Energex Annual Financial Report

positive energy Balanced outcomes

A safe and reliable power supply 2012/13 Highlights

The investment in building our network’s capability to Our customers – we aim to deliver on our ensure a safe and reliable power supply to South East commitments and provide value to our customers Queensland was again demonstrated through our record- During the aftermath of ex-Tropical Cyclone Oswald, we breaking power restoration following ex-Tropical Cyclone restored power to more than half a million customers – Oswald. a restoration effort eclipsing even that of the 2011 flood event. The expertise of our staff and resilience of our Our company has a strong track record of delivering network was clearly demonstrated by restoring power to positive customer outcomes. Our ongoing efforts to be 95 per cent of customers within 48 hours. a progressive and adaptive service provider to meet our customers’ changing expectations will continue to be a Our work to provide customers with choices continued business priority. through the development of new tariff options.

We continued our partnership with Queensland energy retailers for an improved customer experience. Together, we made changes to make the customer connection process more efficient.

Our financial stability – to deliver returns and operate the business from a strong financial platform As part of our long-term commitment to help ease the cost of living burden for South East Queenslanders by reducing the impact of the network component of electricity bills, we launched and implemented our Business Efficiency Program (BEP). FINANCIAL RIIK IUITAINAIIIUTY MANAGl!lll!NT Managing our risk – to deliver network performance to meet expectations Diagram 1: Balanced commercial outcomes framework We closely monitored the impact on the electricity Our strategic objective is to achieve balanced commercial network from the continued surge in installation of outcomes by understanding and effectively managing solar photovoltaic (PV) panels, with more than 74,000 the customer, risk and financial elements of our business additional connections in 2012/13. as shown in the diagram above. In 2012/13, we made significant changes to implement operational efficiencies, The implementation of network security standards while continuing to maintain our role as a respected identified by the 2011 Electricity Network Capital community partner and to deliver our standards in the (ENCAP) review reduced expenditure on reliability areas of safety, security, quality, reliability and availability. improvements without significantly impacting continuity of supply to customers.

The theme of this report - to deliver balanced results - Our work to improve our business continuity framework is one of our six company values guiding the way we to ensure our systems and processes operate operate. This is represented by the scales icon featured on effectively during times of stress or crisis underpinned the front cover of this Annual Performance Report. our response to ex-Tropical Cyclone Oswald.

Feedback Energex Limited Feedback can be provided via 26 Reddacliff Street, Newstead, Queensland 4006 [email protected]. This Annual Performance GPO Box 1461, Brisbane, Queensland 4001 Report and previous reports can also be accessed at energex.com.au. © Energex Limited 2013 ® Energex and Energex Positive Energy are registered Enquiries trade marks of Energex Limited Telephone: 13 12 53 Hours: 8:00am – 6:30pm Monday to Friday Energex Limited ABN 40 078 849 055 Email: [email protected] Contents

Part A – 2012/13 Energex Annual Performance Report

1 Key information 1.1 About us 2 Our history, our values, our vision and our companies. 1.2 Five year summary 3 A snapshot of our performance in figures across the past five years. 1.3 Statement of Corporate Intent report 4 Our actual performance results measured against our targets. 1.4 Chairman’s review 5 The Chairman’s comments on the business for 2012/13. 1.5 Board profiles 6 Information about our Board of Directors. 1.6 Chief Executive Officer’s report 8 The Chief Executive Officer’s (CEO’s) report on our performance for 2012/13.

2 Corporate Governance 2.1 Framework and organisational structure 9 A diagram and description of our new structure. 2.2 Principles 10 An explanation of how we comply with the Corporate Governance Guidelines for Government Owned Corporations (GOCs).

3 Performance 3.1 Safety 14 Reporting on the safety performance of our staff, contractors and in the community. Includes performance during severe weather. 3.2 Business expenditure review 16 Our strategies and results to review and rationalise our expenditure. 3.3 Network management and operations 18 Reports on our management of the network and operational activities completed throughout 2012/13. Includes our reliability performance, Program of Work (PoW), solar PV, energy demand and changing energy patterns, industry input and more. 3.4 Our people 22 Developing our people, our restructure and resourcing. 3.5 Our community 23 Our sponsorship, community education and awareness programs and channels of communication. 3.6 Customer service delivery 24 Our work to understand our customers and deliver on our customer promise, changes to electricity tariffs and our service performance. 3.7 Environment 26 Delivering better environmental outcomes through business as usual activities and partnerships.

4 Additional corporate reporting 27

5 Glossary and abbreviations 29

Part B – 2012/13 Energex Annual Financial Report

2012/13 Energex Annual Performance Report 1 1 Key information

1.1 About us

Our vision is to deliver energy services for a sustainable future. We will achieve balanced commercial outcomes and support the long-term sustainability of electricity distribution in South East Queensland. To achieve this vision, our purpose is to provide choice and affordability to meet our customers’ evolving energy needs.

Energex Limited (Energex) and its predecessor We conduct our day-to-day activities in accordance with organisations have provided electricity to homes and our values: businesses in South East Queensland since the late 19th • Put safety first – think safe, work safe, home safe. We Century. Energex itself was formed in 1997 to replace the are committed to achieving an injury free workplace. South East Queensland Electricity Board (SEQEB) and • Deliver on our customer promise – we are clear in until 2007 the company not only distributed electricity but what we promise customers and we deliver on our also reticulated and sold gas and electricity products. The promise. gas and electricity retail businesses and gas reticulation • Be a team player – we operate as a team and network were sold in 2006/07 prior to the commencement leverage and learn from each other. of full retail gas and electricity contestability in July 2007. • Respect and support each other – we value each other’s views. Together we create success. We distribute electricity to more than 1.3 million residential, • Set a great example – we ‘live’ our corporate values commercial and industrial customers across a population every day. We create an environment that encourages base of around 3.1 million in South East Queensland. people to grow and achieve and show courage in making changes for the better. At the core of the business are high performing total assets • Deliver balanced results – we are passionate and worth more than $11.9 billion, the expertise of our people disciplined about achieving our performance targets. and a drive to provide customers with energy solutions that We deliver sustainable performance. are economically, socially and environmentally acceptable and sustainable.

This is underpinned by technological innovation and advanced management systems which drive efficiency, quality and safety.

We have a strong reputation for our network asset management capabilities including specialised engineering • Noosa services and metering applications.

Our stakeholders • Nam!1°J!roochydore As a Government Owned Corporation (GOC), we have • Caloundra

two shareholding Ministers, The Honourable Tim Nicholls, • Kilcoy • Woodford Treasurer and Minister for Trade and The Honourable • Toogoolawah • Caboolture Mark McArdle, Minister for Energy and Water Supply. • Esk • Redcliffe

Other stakeholders include: • Fernvale • our customers and community e BRISBANE • Gatton • our employees and employee unions • Ipswich • the Queensland Government • Beenleigh • electricity retailers

• electricity transmission distributor Surfers • Boonah • Beau desert • • electricity generators Pa radise • regulators • suppliers.

Diagram 2: Energex’s distribution area The Energex electricity distribution network spans approximately 25,000 square kilometres, including greater Brisbane, Ipswich, the Gold Coast and the Sunshine Coast.

2 2012/13 Energex Annual Performance Report 1 Key information

1.2 Five year summary Table 1: Five year summary As at 30 June 2009 2010 2011 2012 2013 Profit and Loss ($M)1 Total revenue 1,336.2 1,467.9 1,736.4 2,005.0 2,286.0 Materials and consumables2 (59.9) (57.4) (50.0) (47.8) (49.6) Solar photovoltaic feed-in tariff expense2 (0.4) (2.3) (19.3) (73.9) (167.1) Transmission use of system charges2 (246.6) (286.0) (343.7) (390.0) (394.3) Employee expenses3 (206.5) (211.4) (202.2) (197.8) (188.3) Termination benefits3 (1.6) (0.7) (0.8) (9.7) (51.0) Depreciation, amortisation and impairment (235.4) (242.5) (286.3) (329.5) (352.6) Contractors and consultants4 (144.1) (135.4) (155.7) (183.5) (147.8) Borrowing costs (212.5) (224.7) (294.3) (327.8) (365.8) Other operating expenses4 (53.5) (47.0) (52.4) (41.8) (53.0) Total operating expenses (1,160.5) (1,207.4) (1,404.7) (1,601.8) (1,769.5) Operating profit before income tax 175.7 260.5 331.7 403.2 516.5 Income tax equivalent (47.2) (75.3) (97.0) (120.8) (155.1) Net profit 128.5 185.2 234.7 282.4 361.4 Earnings before interest and tax (EBIT) 388.2 485.2 626.0 731.0 882.3 Earnings before interest and tax and depreciation adjusted 623.6 727.7 912.3 1,060.5 1,234.9 (EBITDA)5 Capitalised interest 12.1 17.3 27.6 29.5 26.4 Balance Sheet ($M) Total assets 8,011.0 8,671.1 9,811.9 11,020.5 11,908.3 Total debt 3,872.5 4,094.2 4,769.8 5,464.6 6,000.8 Total shareholders' equity 2,293.1 2,574.9 2,922.4 3,117.3 3,336.5 Capital Expenditure ($M) Corporate initiated augmentation 393.7 480.0 483.1 422.0 340.0 Asset replacement 109.1 159.3 144.6 191.1 245.2 Customer initiated capital works 247.2 217.6 186.2 184.5 183.9 Other 121.0 169.5 172.1 198.3 167.7 Total Capital Expenditure 871.0 1,026.4 986.0 995.9 936.8 Share Information Dividends per share (¢) 11.7 16.9 21.4 25.8 33.6 Dividends ($M) 102.8 148.2 187.8 225.9 294.1 Dividends/Net profit (%) 80.0 80.0 80.0 80.0 81.4 Ratios Earnings per share (¢) 14.7 21.2 26.8 32.3 41.3 Return on average shareholders' equity (%)6 5.6 7.6 8.5 9.4 11.2 Debt/(Debt + Equity) (%) 62.8 61.4 62.0 63.7 64.3 Return on average total assets (%)7 5.0 5.8 6.8 7.0 7.7 Current ratio (%)8 183.4 118.0 110.6 121.2 94.8 EBITDA interest cover (times)9 2.8 3.0 2.8 3.0 3.1 Statistical Information Maximum Demand (MW) 4,499 4,768 4,687 4,447 4,475 Energy Delivered (GWh) 23,175 23,365 22,565 22,144 22,105 Number of employees at year end10 3,733 3,784 3,835 3,804 3,433

1A change in the categorisation of expenses was made in the current year to provide 5Adjusted for total Depreciation and Amortisation and Impairment. more relevant information. All comparatives have been restated for consistency. The 6Net Profit / Average of Opening and Closing Shareholders Equity. change impacts disclosure only with no impact on total expenditure or profit. 7EBIT / Average of Opening and Closing Total Assets. 2In prior years, these figures were aggregated and reported as Cost of Sales. 8Current Ratio = Current Assets / Current Liabilities. 3In prior years, these figures were aggregated and reported as Employee Expenses. 9EBITDA / (Borrowing Costs + Capitalised Interest). 4In prior years, these figures were aggregated and reported as Other Operating 10Active full time equivalents (FTEs) as at last pay run in June. Expenses. 2012/13 Energex Annual Performance Report 3 1 Key information

1.3 Statement of Corporate Intent (SCI) report

Table 2: Statement of Corporate Intent performance targets and outcomes for 2012/13 We achieved our 2012/13 financial targets with a strong operational performance, delivering efficiencies and improved cost effective services. Business changes and associated challenges reflected in our staff engagement results. Our safety performance for the year declined across most measures and we fell short of our company safety target for Lost Time Injuries (LTIs). We continued to be viewed favourably by the community as demonstrated by our high customer and community scores.

KRA Measures Actual performance Target performance Safety Lost Time Injury Frequency 4.01 <1.5 Rate (LTIFR) Compensable Claims 2.91 <3.0 Frequency Severity Rate (CCFRS) Business Financial Operating Profit after Tax $361.4M >$320.6M Performance (OPAT) Statutory Return on Assets 7.7 per cent >7.5 per cent (ROA) Standard Control Services $430.9M <$462.6M (SCS) Indirect Costs (excl. restructure costs) 1 FTEs 3,433 FTEs Total FTEs 3,470 101.3 Executive FTEs1 Executive FTEs<100

Operational Excellence Capital Expenditure Plan 100 per cent >95 per cent physicals Operating Expenditure Plan 100 per cent >95 per cent physicals Key Projects physicals 94.3 per cent >95 per cent SCS System CAPEX $806.0M $869.3M (5 per cent) SCS System OPEX $271.9M <$284.8M Compliance Effectiveness 98.6 per cent 80 per cent Index People Employee Engagement Index 53 per cent Maintain High Performer Rating Network Performance Minimum Service Standards Favourable to target Targets achieved Favourable Performance STPIS Reliability Total $31.7M2 $9.5M Cumulative Monthly Revenue/Reward Penalty Customer Service Performance Index 85.2 per cent 80 per cent Community Community Regard Index 69.5 per cent 63 per cent Environment Carbon Reduction Tracking to plan Tracking to plan

1Active full time equivalents (FTEs) as at last pay of June 2013. A further reduction of 97 active FTEs including 2 Executive FTEs were confirmed as at first pay in July 2013 (see Part B, p.3). 2Our network performance for 2012/13 entitled Energex to the maximum allowable reward, $34.8 million, under the Service Target Performance Incentive Scheme (STPIS). The equivalent discounted figure is $31.7 million. The Board chose to forego this revenue except for $11.2 million in incremental costs associated with ex-Tropical Cyclone Oswald.

4 2012/13 Energex Annual Performance Report 1 Key information

1.4 Chairman’s review It is a salient reminder that service levels including In March 2012, the Newman Government was elected with the restoration of power quickly and safely comes at a a mandate for reform and change. cost. Having first class infrastructure that services the community comes at a cost. Keeping the Queensland Energex was challenged with certain goals including community and families safe comes at a cost. improved pricing of power for Queenslanders, continuing prudent investment and sensible reduction of expenditure During 2012/13, Energex continued to support the and overheads. Queensland community through our sponsorship program. We build partnerships and promote safety, education and I took over as Chairman at the end of the 2011/12 financial sustainability as part of our charter. Energex gives back to year and the new Board was constituted in July 2012. I many community groups and organisations that benefit all. am pleased to report that the Board comprises a wide skill set and all are clearly focused on doing what is best for Safety continues to be Energex’s ‘top of mind’ driver, Queenslanders. underpinning decisions affecting the whole of business and daily operations. Our record last year demonstrates Together, with the Management team led by CEO Terry the challenge we continue to face. The Board fully Effeney, the Board moved quickly to pick up the threads supports the renewed direction deployed to achieve our of what had been committed to the electorate by the goal of zero safety incidents. Energex is a family, electricity Newman Government - concern at the cost of living a potentially dangerous commodity and we take very impacts of electricity prices. One of the primary focuses of seriously the welfare and safety of all our workers. the new Board was reducing costs. As we progress towards incentives to contain the cost I’m pleased to say that we have significantly reduced of power and promote clean energy, we continue to total capital and operating expenditure programs affecting contribute to reform through the introduction of new tariffs. electricity prices from the May 2012 forecasts of These are designed to provide options for customers to $1,499 million for the 2012/13 year and $1,499 million for have more control over their electricity costs and also the 2013/14 year. Energex’s total capital and operating focus on investigations into infrastructure requirements to expenditure in 2012/13 was $1,248 million and the ensure further growth of the energy sector is consistent forecast for 2013/14 is $1,278 million. with community and industry requirements. We want to play our part in growing the Queensland economy, and This reduction in Energex’s total annual expenditure could creating jobs for Queenslanders. not have been achieved without the ongoing efforts of all Energex staff. We await the results of the State Government’s review of the electricity industry and look forward to implementing That is not to say we have been able to immediately recommendations. reduce power bills but rather we have moved to lay the ground work for more affordable power in the time ahead. While Energex has reached significant milestones over Our objective is to minimise controllable costs and the the last year, the company has only just embarked on impact of these on electricity prices for our customers. We its voyage of change. I thank the staff for their diligence aim to stabilise our contribution to electricity prices in real in understanding our mandate and not only adopting terms in the 2015-20 Distribution Determination. change, but actively engaging to deliver end benefits to our shareholders and citizens of South East Queensland. This will be quite a challenge. Changing consumer They, like us, have power bills so we are all well motivated behaviour is continuing to have a detrimental effect on to do what is right by the community. prices. Due to a combination of influences including the significant rise in prices in the last few years and the increasing use of solar energy, there is reduced consumption of electricity which in turn means the mostly fixed costs Energex faces have to be spread over a smaller chargeable base.

Notwithstanding these reforms, which are ongoing, the company has continued to earn its reputation as a safe The Honourable Shane Stone AC, PGDK, QC and reliable electricity distributor, particularly during times Chairman of severe weather. The coordinated response following the weather event in January 2013 delivered a record- breaking power restoration effort and was testimony to the standard of performance the community has come to expect from Energex over the years.

2012/13 Energex Annual Performance Report 5 1 Key information

1.5 Board profiles Sandra Deane B.Com, LLB (Hons), Grad Dip CSP, GAICD Director Directors Sandra Deane was appointed as a non-executive Director of the Energex Limited Board on 20 December 2012. She is a member of the Remuneration Committee and The Honourable Shane Stone AC, QC, PGDK (Sabah), the Network and Technical Committee. Sandra is an B.A (ANU), LL.B (Melbourne), Grad Dip Ed Admin independent energy consultant with extensive private and (Adelaide), Dip Teaching (Sturt), TPTC (Vic), FACE, FAIM, public sector experience in highly regulated environments, FAICD including the energy and infrastructure sectors. Chairman Shane Stone was appointed as Chairman of the Energex Sandra has almost 20 years in corporate and private Limited Board on 31 May 2012. Shane is a director of legal practice roles and brings professional expertise in public and private companies in the mining and resources, contract management and negotiation, dispute resolution construction and finance sectors. He is a former teacher and compliance to the Energex Board. She was a member and a barrister by profession. Shane formerly served as of the Southbank Institute of Technology Board and a Chief Minister of the Northern Territory, Attorney General, Chairman of that board’s Audit Finance Risk and Facilities and in a number of other senior portfolios in the Northern committee. Sandra is also a sessional member of the Territory, including Mines and Energy. Queensland Civil and Administrative Tribunal. Major General (Retired) Peter Arnison AC, CVO, BEc, John Geldard B.Com, BE, CPA FAICD D Laws UQ, D Univ QUT, D Univ Griffith, D Letters USQ, Director D Univ SCU John Geldard was appointed a non-executive Director of Director the Energex Limited Board on 1 July 2005. He is Chairman Peter Arnison was appointed a non-executive Director of the Audit and Risk Committee and is a member of the of the Energex Limited Board on 2 December 2004. He Network and Technical Committee. John has extensive is a member of the Network and Technical Committee, experience within the private and public sectors in the the Remuneration Committee and the Establishment manufacturing, mining and energy industries and has been Committee. Peter served for 37 years in the Australian involved with electricity industry reform in Queensland Army in a variety of Infantry command appointments, and Western Australia. Previously, he has held executive retiring as Land Commander, Australia, in June 1996. He positions at Energex, including Chief Executive Officer and was appointed Queensland’s 23rd Governor, serving from Chief Financial Officer. He is a Director of Energy Super July 1997 to July 2003. He held the position of Chancellor (formerly ESI Super). of Queensland University of Technology for eight years (until September 2012) and has held a number of Linda Mackenzie B.Com (Hons), CA company and organisation board memberships. Director Linda Mackenzie was appointed a non-executive Director Ken Clarke B.Com (Hons) Grad Dip (Mgt) of the Energex Limited Board on 5 July 2012. She is Director Chairman of the Establishment Committee and is a Ken Clarke was appointed a non-executive Director of the member of the Remuneration Committee and the Audit Energex Limited Board on 5 July 2012. He is a member and Risk Committee. Linda has a number of current of the Audit and Risk Committee and the Establishment and former directorships and has worked extensively in Committee. Ken has an extensive career in public commercial and government finance, including as Northern administration, with particular experience in public finance Territory Assistant Under Treasurer (Commercial). and governance, including as Northern Territory Under Treasurer. He has had various public and private sector Kerryn Newton LLM, MBA, MA, Grad Dip (Applied board appointments during his career. Finance and Investment), FAICD, FAIM Director Mervyn Davies BE (Hons), M.Eng.SC, B.Comm Kerryn Newton was appointed as a non-executive Director Director of the Energex Limited Board on 1 October 2008. She is Mervyn Davies was appointed a non-executive Director of Chairman of the Remuneration Committee and a member the Energex Limited Board on 5 July 2012. He is Chairman of the Establishment Committee, and Network and of the Network and Technical Committee and is a member Technical Committee. Kerryn has worked in various legal of the Audit and Risk Committee and the Establishment and management roles in the private and public sectors Committee. Mervyn has extensive experience in the and consults nationally in corporate governance. Kerryn electricity distribution industry and has served on many has held various board positions. state and private company boards.

Further details of current Directors and their qualifications and experience can be found on the Energex website at energex.com.au/about-us/we-are-energex/board- members.

6 2012/13 Energex Annual Performance Report 1 Key information

Chief Executive Officer

Terry Effeney BE (Hons), BEcon, MEng, FAICD, RPEQ, FIEAust Chief Executive Officer Terry Effeney was appointed Chief Executive Officer of Energex in January 2007. Terry has extensive electricity industry experience with senior engineering and management roles with Ergon Energy and its predecessors prior to joining Energex.

Company Secretaries

Michael Russell BE, MBA, Grad Dip AppCorpGov, GAICD, ACIS, ACSA, MIEAust, CPEng Director Corporate Governance and Company Secretary Michael Russell has been a company secretary for the Energex Group Companies since 2004. Michael has held various engineering and management positions since he joined the organisation in 1984, developing particular experience in corporate governance since the late 1990s.

Marnie White BA, LLB, Grad Dip LP, Grad Dip AppCorpGov, ACIS, ACSA Corporate Governance Manager and Company Secretary Marnie White was admitted as a solicitor in July 2000 and practiced in a national law firm before joining Energex as Legal Counsel Network in 2005. She was appointed as Secretariat and Governance Manager (now Corporate Governance Manager) in December 2007.

Further details of the Secretaries and their qualifications and experience can be found on the Energex website at energex.com.au/about-us/we-are-energex/board- members.

2012/13 Energex Annual Performance Report 7 1 Key information

1.6 Chief Executive Officer’s Report Significant work to manage the ongoing challenge of peak demand continued in 2012/13. Residential and commercial 2012/13 was a milestone year in achieving balanced customers across South East Queensland have again outcomes. We focussed on delivering the Program of responded positively to a range of peak demand initiatives, Work in a safe and efficient manner while reviewing and which are being transitioned into business as usual rationalising planned expenditure and operations to ensure operations. prudent investment and cost effective services. With a demonstrated 50 per cent improvement in our While our investments over the last decade have network reliability over the last decade, a change in been realised in significant improvements in safety, customers’ energy use and a refinement in Energex’s reliability of supply, and severe weather response, we network security requirements, we were able to are now accelerating plans to meet changing customer significantly economise on our planned network expectations around cost of living pressures and how investment through reducing our five year Program of customers interact with our network. Work.

Our emergency response capability was particularly A restructure of the organisation was carried out during challenged in the aftermath of ex-Tropical Cyclone the year to streamline operations and more closely align Oswald. In this, the biggest single storm event in the our workforce with the revised Program of Work. This new history of Energex, we restored power to a record more structure will deliver efficiency gains and cost reductions, than half a million customers - 95 per cent within 48 hours. and position Energex for expected industry and consumer The event highlighted the expertise of our staff and the changes in relation to energy use patterns. reliability that has been engineered into our network over the years. The company continued to accommodate customer and technology trends through more than 74,000 new solar Safety continues to be our number one value and our connections in the last year. ability to work safely was demonstrated through our incident-free response during the adverse conditions We also continued to develop energy management following the storm event. solutions for our customers through a reform of electricity tariffs providing options for customers to manage their Unfortunately, it is during business as usual where electricity use and save on costs. Work will continue with improvement in our safety performance is needed, with the Government, customers and stakeholders on electricity three of our staff seriously injured during the year. We are tariff reforms planned for implementation in 2013/14. committed to delivering an improved safety performance through continuous improvement of safety management Energex has a strong track record of delivering beyond systems and through a series of initiatives to drive a expectations in service performance. However, electricity positive safety culture. prices are driving a change in what is expected from distributors. As we prepare our next Program of Work We continued to deliver on our obligation to provide a safe for the 2015-20 Distribution Determination period, we and reliable power supply through our capital investment will take the opportunity to build on existing practices to and maintenance programs. The completion of major deliver more balanced outcomes for our shareholders and projects injected another 445 MVA into the network, now at customers. a total capacity of more than 19,000 MVA. Throughout the year, our staff have managed to deliver We also met our financial obligations to our shareholders on the job at hand during a period of significant change. by delivering an Operating Profit After Tax of I would like to extend my sincere appreciation for the $361.4 million. understanding and dedication of staff, contractors and suppliers. I also thank our customers for their continued A strong focus in 2012/13 was our ongoing efforts to support as we drive towards more sustainable outcomes. reduce Energex’s impact on the network component of electricity prices.

To deliver on this goal, we progressed a number of initiatives to reduce costs, increase operational efficiency and further rationalise our capital expenditure program to ensure prudent and efficient expenditure. Terry Effeney Chief Executive Officer

8 2012/13 Energex Annual Performance Report 2 Corporate Governance

2.1 Framework and organisational structure

Diagram 3: Framework and organisational structure During 2012/13 we restructured and reorganised our divisions as part of BEP.

The Hon. The Hon. Shareholding Ministers Tim Nicholls Mark McArdle

Network and Audit and Risk Establishment Remuneration Technical Energex Limited Board Committee Committee Committee Committee

Delegation to management

Chief Executive Officer

Assurance and accountability from management

Subsidiary Audit and Risk Committee has oversight of unregulated business Boards

Procurement Corporate Customer & SPARQ Executive Management Asset Service People & Finance & Corporate Solutions Pty Management Delivery Team Services Performance Relations Ltd1

Shareholders Subsidiary Boards Energex is a public, unlisted company, with two The subsidiary Boards are comprised of executive shareholding Ministers who hold the shares on behalf of directors as appointed by the shareholding Ministers. the State of Queensland. Management structure Our shareholding Ministers, as at 30 June 2013 were: The Board has delegated certain aspects of its authority to • The Hon. Tim Nicholls MP, Treasurer and Minister for the CEO, through a control framework including financial Trade, holding 50 per cent of the A class voting shares limitations, to operate the business on a day to day basis. and 100 per cent of the B class non-voting shares. • The Hon. Mark McArdle MP, Minister for Energy and The CEO and Executive General Managers from each Water Supply, holding the remaining 50 per cent of the division comprise the Executive Management Team voting shares. (EMT). The EMT implements the Board’s strategies and policies through the Delegation of Authority Framework Board of Directors and Business Plan. The Board has reporting and continuous disclosure obligations to the shareholding Ministers under the Divisions Government Owned Corporations Act 1993 (Qld) The divisions were restructured during 2012/13, reducing (GOC Act) and Corporations Act 2001 (Cth). from seven to five, with a focus on achieving efficiencies. Each division has a business plan with defined Key Result Board Committees Areas (KRAs) and Key Performance Indicators (KPIs) The Board has established four committees to provide which link to the Energex business plan. Individual staff oversight of specific matters on its behalf. Each Committee roles are defined in Job Profiles and goals are set out in is governed by a Charter and reports to the Board Performance Agreements. following Committee meetings. Summaries of the Charters are provided at energex.com.au/about-us/right-to- information/publication-scheme. 1 SPARQ Solutions Pty Ltd is a joint venture company, providing IT services to Energex and Ergon Energy Corporation Limited (Ergon).

2012/13 Energex Annual Performance Report 9 2 Corporate Governance

2.2 Principles Directors’ induction New directors attend a structured induction session to As a GOC, we report against the Corporate Governance provide them with an overview of our operations and Guidelines for Government Owned Corporations (the information on the Board and Committee functions. The guidelines) issued by the Queensland Government. induction assists the Directors to understand their role and responsibilities and our business and corporate The guidelines provide the framework for all GOCs, expectations. including Energex, to develop, implement, review and report on their corporate governance arrangements under Assessing senior management performance eight principles. Power to Perform is the comprehensive and formal performance management program for all employees, Principle 1 – Foundations of management and including senior management. The program includes oversight individual executive performance agreements based on the achievement of well-defined KRAs and KPIs involving Board Charter corporate, commercial and personal goals. For further Our Board Charter provides a clear delineation between information on Power to Perform, see Principle 8. the roles and responsibilities of the Board and individual directors and the matters which are delegated to During the year, the Board (with oversight by the management. Management’s responsibilities are well Remuneration Committee) assessed the performance defined through job profiles, performance agreements and of the CEO and had oversight of the performance the Board approved Delegation of Authority framework. assessments of Senior Executives undertaken by the The Board reviewed and updated its Charter during the CEO. year to ensure that it continues to remain effective and accurate. Principle 2 – Structure the Board to add value

A copy of our Board Charter is available at Our Directors energex.com.au/about-us/right-to-information/publication- Our Board of Directors, including the Chairman, are all scheme. independent, non-executive directors. Our Directors are appointed by the Governor-in-Council in accordance with Board Committees the GOC Act. As such, the Board does not play a formal The Board has established four Committees to oversee a role in selecting Directors or the size of the Board. range of specialist issues on its behalf: • Audit & Risk Committee - financial integrity, risk Our Board continually assesses the ongoing management, effectiveness of control framework, independence of each Director, with reference to ethics, integrity and assurance over business the materiality thresholds (relationships affecting operations. independence status) in the ASX Corporate Governance • Establishment Committee - management of Principles and Recommendations Energex’s staff establishment levels and oversight of (2nd edition, with 2010 amendments). organisational structure. In 2013/14, the Committee will transition into a ‘Regulatory Committee’ to oversee Where a Director has an interest or a material personal Energex’s Regulatory Proposal to be submitted to the interest in a matter being considered by the Board, the Australian Energy Regulator (AER) and will continue Director will declare that interest in accordance with to oversee staff establishment and structure matters. directors’ obligations under the Corporations Act 2001 • Network and Technical Committee - maintaining and the Energex Limited Constitution. The Constitution and improving technical and network standards for provides that a Director must absent themselves from a the delivery of electricity in a manner that meets meeting, including all deliberations and voting on a matter, the reasonable expectations of the community where they have declared a material personal interest in and complies with Energex’s legal and regulatory the matter. obligations. • Remuneration Committee - assist the Board in setting Details of Directors’ skills, experience and expertise the strategic direction for Energex’s remuneration relevant to their position are included in this report and employment policies and to review and make (see p.7). The terms of office held by each Director at recommendations to the Board on remuneration and the date of this report, including the date each Director’s employment matters. appointment expires, as well as Directors’ attendances at Board and Committee meetings, are set out in the 2012/13 Board Handbook Energex Annual Financial Report (see Part B). Our Directors’ and Officers’ Handbook is distributed to Energex Directors and the EMT and is used as an integral A formal performance evaluation of the Board was not held part of their induction process. The Handbook defines the in 2012/13 but will be considered in 2013/14. Board governance systems and supports directors in their governance responsibilities.

10 2012/13 Energex Annual Performance Report 2 Corporate Governance

Directors’ access to advice and training Principle 4 – Safeguard integrity in financial reporting The Board Charter provides that Directors may seek independent professional advice, at the company’s Audit and Risk Committee expense, to assist them to carry out their duties as On 30 July 2012, the Board reorganised its Committees, a Director. The Board also has access to continuing combining the Audit Committee and the Risk and education and training, to maintain, update and enhance Compliance Committee into the Audit and Risk Committee their skills, knowledge and experience. (the former Risk and Compliance Committee was transitioned to the Establishment Committee). Principle 3 – Promote ethical and responsible decision making The role of the Audit and Risk Committee, comprised of independent Directors, is to oversee matters of financial Key governance policies integrity, risk management, effectiveness of the control We are committed to ethical and responsible decision framework, ethics and integrity and assurance over making and have in place a suite of governance policies business operations. Its duties and responsibilities are set to establish this framework. These include the Code out in its Charter, a summary of which is available on our of Conduct, Compliance Policy, Fraud Control Policy, website at energex.com.au/about-us/right-to-information/ Delegation of Authority Policy, Conflict of Interest Policy, publication-scheme. Public Interest Disclosure Policy, Lobbying Policy, Reportable Gifts Policy, Procurement Policy and the The role of Chairman of the Committee is not held by the Energex Purchasing Manual. Chairman of the Board. Details of members’ qualifications are included in this report (see p.7). Attendance at During the year, the revised Code of Conduct was meetings is disclosed in the 2012/13 Energex Annual rolled out to staff who attended training sessions on the Financial Report (see Part B). expected standards of workplace behaviour. The Code of Conduct applies to Energex Directors, management, Principle 5 – Make timely and balanced disclosure staff and contractors. A copy of the Code of Conduct was provided to all employees and is readily available on the We adopt a broad approach to disclosure to our staff intranet. New employees receive a copy of the Code shareholders. We take into consideration the obligations of Conduct and induction training on ethical business set out in the GOC Act, relevant policies and other practices including the Code of Conduct. legislation in order to ensure accountability to the shareholding Ministers, who are in turn accountable to Our advisers, consultants and contractors are expected Parliament. Our shareholding Ministers have access to to comply with high ethical standards aligned with the material information concerning our company including Code of Conduct. Our contracts with suppliers outline the our operations, financial performance, financial position expectations of the Code of Conduct. A copy of the Code and governance of our company and its subsidiaries. of Conduct is available at energex.com.au/about-us/right- This requirement is similar to the continuous disclosure to-information/publication-scheme. obligations which apply to listed companies under the ASX Listing Rules. Directors have additional obligations as set out in the Energex Board Charter (which includes a Directors’ Code In addition to submissions on specific matters, including of Conduct) and the Directors’ and Officers’ Handbook. regular briefing notes, we provide a quarterly report to the shareholding Ministers. Trading policy As our company is government owned, no director or employee holds or trades securities in any Energex Group Company.

Our Conflict of Interest Policy includes a Share Trading Policy, which supplements the legal duties which apply to directors, officers and employees relating to the misuse of information or position and insider trading laws. A summary of this policy is available on our Publication Scheme website under ‘Our Policies’ at energex.com.au/ about-us/right-to-information/publication-scheme.

2012/13 Energex Annual Performance Report 11 2 Corporate Governance

Principle 6 – Respect the rights of shareholders Business areas also maintained strong compliance practices and processes to achieve balanced commercial Reporting to our shareholders outcomes and to ensure no significant non-compliance We report in a timely manner on all issues likely to have a matters arose over the year. significant financial, operational, social or environmental impact in accordance with our obligations under legislation Risk management systems and government guidelines. We work cooperatively with Throughout 2012/13, we continued to operate using the the shareholding Ministers on these issues. Our Chairman principles of AS/NZS ISO 31000:2009 (Risk management– is the principal liaison officer with the shareholding Principles and Guidelines) for managing risk. We utilise Ministers, both on a formal and informal basis. The this Standard (together with other relevant Australian CEO and certain managers and employees liaise with Standards1) to manage a diverse and complex range representatives of shareholder departments on a regular of significant risks through the use of enterprise-based basis. and specialised risk management and compliance management frameworks. AS/NZS ISO 31000:2009 has A summary of our Government and Shareholder been adopted throughout the organisation to ensure Disclosure Policy is available’ at energex.com.au/about-us/ material risks and compliance obligations are consistently right-to-information/publication-scheme. identified and appropriately managed to achieve balanced commercial outcomes. Our dividend policy A final dividend of $294.1 million for the 2012/13 year The range of risks we manage includes network, financial, was declared and provided for on the basis of 80 per operational, people and strategic risks. Details of these cent of operating profit after income tax equivalent plus risks and mitigation strategies and controls are set out in the remaining 20 per cent of the post-tax component of risk registers managed by each division. the Community Service Obligation (CSO) received as additional distribution use of system (DUOS) revenue. This Responsibilities within the Enterprise Risk Management results in all of the post-tax CSO payments being returned (ERM) Framework include: to the government as reflected in the 2012/13 SCI in • Board oversight of the ERM Framework’s consultation with the shareholding Ministers. effectiveness through its Audit and Risk Committee. (The Audit and Risk Committee assists the Board in Principle 7 – Recognise and manage risk discharging its corporate governance and oversight responsibilities in relation to financial integrity, risk Our risk management practices recognise and manage management, effectiveness of control framework, all material risks in delivering balanced commercial ethics and integrity and assurance over business outcomes. operations). • Board oversight of the internal control framework Corporate Risk Profiles have been developed and within Energex, which is designed to provide maintained for both long term strategic risks and those reasonable assurance regarding the achievement with a more operational focus. Risk management activities of the organisation’s objectives. The internal control are integrated with business planning to ensure that the framework is comprised of policies and procedures, context of risk management is retained throughout the including compliance training and assurance course of all business decisions. processes, to ensure the affairs of the organisation are being conducted in accordance with relevant Risk management involves not only making certain that legislation, regulations and codes of practice. These the distribution network is managed in an efficient and procedures also ensure that the Board and the EMT cost effective manner but also ensuring that Energex’s are made aware, in a timely manner, of any material systems and processes operate effectively, including matters affecting our operations and the effectiveness during times of stress or crisis. Over a number of of management of those risks. years, Energex has been improving its formal Business • The EMT has active risk management responsibilities Continuity Management (BCM) Framework and, as part of in ensuring material business risks and compliance this focus, ensuring the currency of Business Continuity matters, and the effectiveness of risk management, Plans (BCPs) for those areas where continued operation are continuously monitored and reported to the Board in times of disruptions is regarded as crucial to Energex’s on a monthly basis. core functions.

Due to the size of the impacts on Energex, a number of these BCPs were activated during the ex-Tropical Cyclone Oswald aftermath and at other times over the 2012/13 year. They enabled critical services to continue to be provided during those difficult times.

1 For example, AS 3806–2006 Compliance programs; AS/NZS 4804:2001 – Occupational health and safety management systems – General guidelines on principles, systems and supporting techniques; AS/NZS ISO 14001:2004 Environmental management systems –Requirements with guidance for use.

12 2012/13 Energex Annual Performance Report 2 Corporate Governance

Fraud risk management We are committed to the prevention of fraud, including corruption. To provide an effective fraud control framework that is closely integrated with the broader ERM Framework, a suite of strategies and initiatives has been established comprising: • The Code of Conduct deployment and relevant policy which actively discourages fraudulent activity and drives an ethical culture. • Fraud Registers to identify and document all fraud related risks and the internal controls that currently exist to mitigate each identified fraud risk. • Internal control measures embedded into business practices and processes. • Fraud investigation capabilities, standards and protocols. • The independently operated 24 hour Disclosure Line. • Fraud Risk Management Plan.

Principle 8 – Remunerate fairly and responsibly

Remuneration Committee The Remuneration Committee oversees employee remuneration and performance policy. Membership of the Committee is disclosed in the 2012/13 Energex Annual Financial Report (see Part B). The Committee’s Charter sets out the roles and responsibilities of committee members. A summary is available on our Publication Scheme website under ‘About Us’ at www.energex.com. au/about-us/right-to-information/publication-scheme.

Remuneration policy Our remuneration strategy and practices are aimed at ensuring we attract, retain and motivate high calibre employees at all levels by providing an appropriate combination of competitive, fixed and variable remuneration components. We comply with Government guidelines in relation to remuneration for executives to achieve a balance between public accountability and transparency and our need to attract and retain high calibre staff from competitive labour markets.

Assessing performance To reinforce our performance-based culture, we offer an annual performance pay scheme which is linked to our KRAs and KPIs. During 2012/13, we measured progress towards the achievement of our vision and purpose through success against our KRAs and KPIs.

Our performance management program, Power to Perform, aims to improve performance management processes and practices across our business and strives towards a performance focussed culture which is critical to our people and safety strategy. The framework promotes continual performance and development conversations between the employee and their leader.

2012/13 Energex Annual Performance Report 13 3 Performance

3.1 Safety

What we delivered Introduced a new strategy to improve safety performance. Introduced a new measure to benchmark our performance. Continued the implementation of our Community Safety Plan. Safely responded to severe weather events.

Safety at Energex Community safety We continued to meet the Australian and New Zealand The Energex Community Safety Plan drives Energex’s Standard (AS/NZS4801) and the Electrical Safety Office approach to community safety by drawing together the requirements for safety. However, we recorded three safety strategies, programs and activities undertaken serious staff injuries. across the business with the following objectives: • Increase electrical safety awareness and As a result, we developed a new safety vision and strategy understanding in the community (see p.23). with aligned performance measures and improved • Monitor community safety issues to provide targeted our ability to benchmark our safety performance. We programs. introduced the Total Recordable Injury Frequency Rate • Encourage the community to regard Energex as (TRIFR) as an additional measure to be implemented in a recognised expert and the point of contact for 2013/14 along with lead measures in all staff performance electrical safety. agreements to encourage positive safety behaviours.

Table 3: Key safety performance indicators The table below compares our safety performance over the past three years. In 2012/13, safety performance declined across most measures.

Performance indicators 2010/11 2011/12 2012/13 LTIFR (Lost Time Injury Frequency Rate) 2.43 3.73 4.01 LTISR (Lost Time Injury Severity Rate) 35.81 64.45 155.12 CCFRS (Compensable Claims Frequency Rate Severity) 2.99 3.08 2.91 LTIs (Lost Time Injuries) 17 26 25 Days lost to LTIs 250 449 967

Table 4: Key safety performance indicators of contractors The table below is a comparison of the safety performance of our contractors.

Performance indicators 2010/11 2011/12 2012/13 LTIs for contractors 8 10 14

14 2012/13 Energex Annual Performance Report 3 Performance

Zero safety incidents in severe weather response Record achievements During January 2013, we restored power to more than half Groups within our business have set new safety records of a million customers with no major incidents or injuries to time without LTIs: customers or staff in the aftermath of ex-Tropical Cyclone • Staff at our Esk depot achieved 15 years in Oswald. November 2012. • Telecommunications staff celebrated 27 years in Our management of the crisis focussed on safety as December 2012. our priority through a specific program and processes • Southport’s Underground Work Group achieved six including: years in March 2013. • Safety staff assisting with the storm room operation and responding to crisis management requests. • A roster involving 14 operational Safety Advisors deployed during the term of the event. • The Safety Management team conducting field inspections across our network area.

Looking forward Continue to improve our safety performance. Understand our safety needs and build the safety culture roadmap. Review our investigation process, develop an improved methodology for incident investigations and reintroduce peer reviews of significant incidents. Review the safety governance frameworks. Develop and deploy an improved risk management methodology. Revise the Community Safety Plan, expanding on deliverables to meet new targets and measures.

2012/13 Energex Annual Performance Report 15 3 Performance

3.2 Business expenditure review

What we delivered Delivered our revised PoW in an efficient and prudent manner while maintaining operational performance and standards. Reviewed and rationalised expenditure on corporate services. Reduced total expenditure by greater than 20 per cent compared to the 2010-15 Distribution Determination. Achieved more cost effective services through assessment of workforce capability and review of operational staffing levels. Delivered operational savings following a review of capital expenditure.

Our network approach Our business review With our network performance consistently favourable to BEP was the major change strategy we implemented minimum service standards (MSS), we adopted a staged in 2012/13 as part of our ongoing commitment to approach to review our network requirements to deliver delivering balanced outcomes. Through this program, we more balanced outcomes based on the following: reviewed our services, activities and structure to deliver • Responding to the outcomes of the 2011 ENCAP efficiencies across the business. More than 30 initiatives review, which highlighted significant improvements in were launched in 2012/13 to remove duplication and reliability and therefore varied the security standards, inefficiencies and identify activities, roles and functions flat-lined the MSS targets and reduced expenditure on that can be streamlined or are no longer required. customer and corporate-initiated works. • Further assessment of the capital expenditure Our changing company profile program during 2012/13 to take into account the The changes to our network and business operations are prudent and efficient expenditure necessary to meet part of a broader business direction to ensure the revised peak demand forecast. long-term commercial sustainability. To reflect the reduced • Offsetting some of this reduction in expenditure – an work levels and our future direction, we commenced the increase required to maintain and operate a safe and realignment of our resourcing through managed staff reliable network through timely refurbishment and reductions (see p.25). replacement of ageing assets.

Graph 1: Expenditure reduction for 2012/13 The graph below illustrates the progress made in reducing expenditure compared to the 2010-15 Distribution Determination in response to the ENCAP review and the revised peak demand forecast. Our 2012/13 SCI represented a 15.6% reduction in expenditure compared to 2012/13 expenditure stated in the 2010-15 Distribution Determination. In 2012/13, our actual expenditure was a 21.7% reduction compared to the 2010-15 Distribution Determination.

1,700

1,594 1,600

1,500

1,400 1,346 $M 1,300 1,248

1,200

1,100

1,000 Distribution SCI Target Actual Determination

16 2012/13 Energex Annual Performance Report 3 Performance

Performance management program Future reforms The Energex Performance Management (EPM) program In May 2012, the Queensland Government established the was developed over the last three years to improve our Interdepartmental Committee (IDC) on Electricity Sector performance reporting. EPM provides access to timely and Reform with the following aims: accurate data, increases our analytical capability to identify • electricity in Queensland is delivered in a cost- relevant performance drivers and ensures performance effective manner for customers measures were clear and concise. EPM assists us • Queensland has a viable, sustainable and competitive to make better planning decisions and deliver on our electricity industry efficiency targets. • electricity is delivered in a financially-sustainable manner from the Queensland Government’s Our impact on electricity prices perspective. The cost savings realised as a result of lower capital expenditure, staff numbers and BEP initiatives will The IDC led a substantial review of the electricity sector, progressively reduce the impact of the network component in consultation with industry and supported by the of electricity tariffs in future years. Independent Review Panel (IRP) which provided expert advice and analysis on network issues. We are prepared To provide the foundations for further reductions in relation to implement recommendations in 2013/14. to investment decisions, we commenced research to assess our customers’ value of network reliability, and initiated work in other areas to reduce corporate costs including Grade of Service (GoS) measurement, MSS, National Energy Customer Framework (NECF), duplicate reporting and assessment of business constraints.

Looking forward Continue working to balance stakeholder and customer expectations against business and network requirements. Seek to implement electricity sector reform to deliver efficiencies. Continue to prepare for the transition to the 2015-20 regulatory control period. Continue to reduce corporate costs.

2012/13 Energex Annual Performance Report 17 3 Performance

3.3 Network management and operations

What we delivered Delivered a record-breaking power restoration effort in the wake of ex-Tropical Cyclone Oswald. Maintained our MSS for network reliability and security. Delivered our PoW to reflect a reduction in demand forecasts and State Government initiated review recommendations. Achieved national incentive-based performance targets. Embedded new practices to reduce peak demand. Continued to deliver efficiencies through Joint Workings with Ergon. Provided input into regulatory reviews affecting network service providers.

Planning and responding to weather events Our customer complaints in this area reduced by more Severe weather, especially storms, strong winds and than 50 per cent and customer compliments now extreme heat, can impact adversely on network supplies. outnumber complaints. To mitigate these impacts as much as possible, a comprehensive risk assessment and maintenance Improving our reliability upgrade program was undertaken prior to summer. Our 2012/13 Network Management Plan defined 145 11 kV feeders as Worst Performing Feeders, of which 80 This response, which also includes customer and public were urban and 65 were rural. In 2012/13, the three year communications and operational emergency management average performance of the urban feeders improved by processes, was detailed in the Summer Preparedness two per cent from 248 mins to 244 mins while the three Plan released in September 2012. During 2012/13, year average performance of the rural feeders improved reviews were also undertaken of the company’s Flood by nine per cent from 415 mins to 377 mins. A complete Plan and Bushfire Plan. report on this program, initiated in response to the IRP report, can be found in the Distribution Annual Planning Our response to the aftermath of ex-Tropical Cyclone Report. Oswald highlighted the success of our planning for severe weather and demonstrated the resilience built into our STPIS network over the years. Up to 439 crews were deployed at 2012/13 was our third year of STPIS, introduced by any one time to restore power to more than half a million the AER to apply during the 2010-15 Distribution customers – eclipsing the flood event in January 2011. Determination period. STPIS operates concurrently to our MSS obligations and is intended to encourage distributors Our capital program to maintain and improve service performance for Implementation of the ENCAP review recommendations customers, focussing on unplanned outages. In 2012/13 together with a lower than forecast network demand we achieved all of our six reliability STPIS targets. resulted in continued reductions of the current five year capital work program. In 2012/13, we invested Improved field communications $839.5 million1 in building our network program and An upgrade to infield computing systems means our crews meeting our customers’ needs. are able to operate with increased capability accessing the most up to date data, corporate information and email, Our maintenance program similar to an office based user. We spent $266.9 million2 in maintaining a safe and reliable electricity supply, including maintaining more than As a result of this upgrade more than 150 outdated 50,000 km of overhead and underground powerlines and computers (Toughbooks) were donated to the Cathy more than 650,000 power poles. Freeman Foundation following refurbishment by Queensland IT Systems Integration Company, TLC ITS. Vegetation management We maintain vegetation around our network in accordance with statutory safety clearances.

In 2012/13, we continued to deliver better outcomes with minimal reliability issues resulting from vegetation growing into powerlines.

1 $839.5 million includes SCS capital expenditure (CAPEX) & Alternative Control Services (ACS) CAPEX and overheads. 2 $266.9 million includes SCS but excludes Network Demand Management & ACS, operational expenditure (OPEX) and overheads.

18 2012/13 Energex Annual Performance Report 3 Performance

Changing network demand patterns The main factors for the slight decline in overall energy We continue to manage our PoW and deliver initiatives to use were: sustainably provide a reliable electricity supply to meet our • Increased solar PV penetration reducing daytime peak customers’ energy needs, particularly on days where high load and energy usage. temperatures drive peak demand. • Comparatively mild winter and summer temperatures. • Slowing commercial and industrial energy growth. During 2012/13, for the first time in recent history, our • Continued improvement of energy efficient maximum network demand occurred in the first month of appliances. summer. On 4 December 2012, the hottest day of summer, • The impact on usage due to rising cost of electricity1. our maximum network demand registered at 4,475 MW. Solar and the future Analysis showed the impact of the number of solar PV The rapidly evolving energy industry, changing energy use panels connected to the network shifted our usual time patterns and rising electricity prices are resulting in a trend of system peak network demand several hours later to toward energy management options for customers. between 4pm and 5pm. The number of residential customers with solar PV We continue to focus our network investment program in generation systems in South East Queensland increased areas where the local peak demand is increasing, leading from less than 2,000 in 2009 to more than 221,000 at the to constraints at the local substation level. end of June 2013. We made more than 74,000 new solar connections in 2012/13. Peak demand Our demand management initiatives transitioned to As energy management options such as smart appliances, business as usual and we are on track to achieve the energy management software, in-home generation and target of removing 144 MVA from demand forecasts during battery storage become more available and affordable, we the 2010-15 Distribution Determination period. expect to see a significant change in the way customers use energy and our network. This will have wide-ranging In September 2012, the Peaksmart air-conditioning implications for the way the distribution network is planned, program was launched and now has more than 4,000 built and operated, as well as for our ongoing business participating customers. sustainability.

PeakSmart air conditioners have a small receiver installed Managed appropriately, distributed energy resources which allows us to cap the energy consumption without in some cases provide the opportunity to improve the impacting on customer comfort levels on occasions when reliability and/or quality of electricity supply without the the network reaches peak demand. need for network infrastructure upgrades.

A standard for this technology, known as Demand The trend to connect solar PV has raised issues on the Response Enabled Devices (DREDs), is a direct result of impact of embedded generation in the network, including: collaborative work with the air-conditioning industry, major • Managing network voltage to ensure customers manufacturers, Energy Networks Association, Standards receive a safe and acceptable quality of supply. Australia, appliance retailers and a number of other • Potential shortfalls in revenue from reduced energy electricity networks. consumption driving prices upwards. • A challenge to the traditional method of network cost Energy consumption recovery, with many households operating at ‘zero net Overall energy use continued to flatten with total energy energy’, accessing electricity network services without consumption decreasing less than one per cent compared contributing to network costs. to the 2011/12 year. We are working with stakeholders on options to address The decline in total energy differs between the residential the technical, cost and social issues associated with and non-residential sectors, with residential energy changing customer energy requirements and embedded declining by 3.8% in the 2012/13 year. Non-residential generation. This includes monitoring customer trends and energy grew by 1.1% in the same period. This trend in adopting appropriate strategies. reducing residential energy consumption has resulted in a downturn in this sector of 10.4%2 since 2008/09.

1Results from the 2012 Queensland Household Energy Survey show that 61% of respondents were concerned or very concerned about their ongoing ability to pay their electricity bill, and 70% of respondents have actively attempted to reduce electricity consumption to reduce their bills. 2Reducing residential energy consumption was calculated using domestic sales from 2008/2009 and 2012/2013 and excludes energy generated and used in-house by Solar PV systems. 2012/13 Energex Annual Performance Report 19 3 Performance

Table 5: Reliability performance This table shows our System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI) performance since 2007/08 and compares our 2012/13 performance against MSS. These figures include planned and unplanned outages, with exclusion events removed. Our 2012/13 performance for both CBD and Rural results improved from 2011/12. We achieved all measures to maintain our MSS for network reliability and security and will be eligible for an incentive reward of two per cent ($31.7 million) from the national STPIS for reliability. For the 2012/13 year, power was restored following an unplanned interruption in under two hours for 86 per cent of customers.

Normalised reliability 2008/09 2009/10 2010/11 2011/12 2012/13 2012/13 performance MSS actual actual actual actual actual MSS (planned and unplanned) SAIDI CBD 3.1 1.2 6.05 8.030 1.41 15

(mins) Urban 91.2 88.5 79.7 64.7 71.8 102 Short rural 228 215.7 201.6 198 156.72 216 SAIFI CBD 0.06 0.08 0.01 0.035 0.013 0.15

(events) Urban 1.050 1.2 0.92 0.747 0.791 1.22 Short rural 2.56 2.41 2.05 1.73 1.416 2.42

Graph 2: System SAIDI (12 months) This graph shows our overall system SAIDI since 2007/08 and demonstrates the significant impact of the Major Event Days on our 2010/11 and 2012/13 results which were impacted by the January 2011 floods and ex-Tropical Cyclone Oswald weekend weather events respectively. System SAIDI (12 Month)

■ Non-Storm ■ Storm □ Planned □ Exclusions Total 600

500

400

300

Minutes 200

100

0 2008/09 2009/10 2010/11 2011/12 2012/13 Total 243.7 163.9 561.0 104.1 564.8 □ Exclusions 115.2 22.0 449.1 3.8 471.3 □ Planned 27.2 33.9 31.5 36.3 29.6 ■ Storm 22.0 35.4 9.8 14.6 8.9 ■ Non-Storm 79.3 72.7 70.5 49.4 55.0

20 2012/13 Energex Annual Performance Report 3 Performance

Metering Dynamics Our industry input Metering Dynamics is a registered business of Energex With the focus on delivering balanced outcomes for our and provides a range of metering and information solutions customers, we provided input to a number of national and to our business as well as to commercial and industrial state regulatory reviews affecting electricity distribution customers across Australia. networks.

In our role as a provider of both metering and metering At a State level, we provided input into the Queensland data, we increased our number of contestable metering Commission of Audit, the IDC and the IRP on network points by more than 10 per cent. costs. Further, we actively sought a change to the Queensland Electricity Code in regard to disconnection In 2012/13, we serviced more than 50,000 metering points service orders to promote more efficient use of electricity and exceeded our financial target contributing to the services for the long-term interests of our customers. company earnings. At the national level, we contributed to a number of We also introduced auto-commissioning of metering industry reviews and rule changes, including: on new distribution transformers, which improves the • The Economic Regulation of Network Service information we receive about our network and helps to Providers which sought to improve customer deliver operational efficiencies. engagement and provide a flexible rate of return framework. Working with Ergon • The Limited Merits Review regime which provides a Projects under the Joint Workings Program, established mechanism for regulated networks to seek reviews of with Queensland energy distributor Ergon Energy regulatory decisions. to deliver savings and benefits through a shared • The Review of a National Framework for Distribution approach, were embedded with benefits realised in both Reliability to deliver more efficient and effective organisations. reliability outcomes. • The Power of Choice Review on reforms to meet the Procurement Joint Business Practice (JBP), established community’s demand for energy services with the in 2011/12, continued to operate effectively in 2012/13, lowest cost combination of demand and supply side delivering financial and non-financial benefits through joint options. procurement and logistics solutions to support the end to • The Distribution Network Planning and Expansion end supply chain. This same approach was also applied in Framework, including development of the Regulatory our asset management delivery. Investment Test for Distribution (RIT-D) and new demand side obligations with the aim of facilitating the Industry representation efficient development of distribution networks. Our executives and senior staff contribute to a number • The Productivity Commission’s review of Electricity of industry bodies through various roles. Our CEO is the Network Regulation. current Chairman of Energy Networks Australia while • The Senate Select Committee on Electricity Prices. the company contributes through a number of national forums to provide a Queensland viewpoint on issues and opportunities.

Looking forward We aim to maintain our service standards for network reliability and security and achieve all STPIS targets and MSS reliability targets while seeking efficiencies. Prepare our first Distribution Annual Planning Report to replace the Network Management Plan and deliver the reduced network expenditure in accordance with the ENCAP report. Continue to advance towards our peak demand reductions target of 144 MVA from current demand forecasts. Implement the RIT-D and constructively participate in the development of the AER’s Better Regulation Reform Program focussed on promoting the long-term interests of customers. Prepare for the implementation of the Power of Choice Review and the NECF in Queensland as required. Develop our metering strategies to maximise opportunities from the introduction of competition for metering for small customers. We will work with the Federal Government Equipment Energy Efficiency Committee which is investigating ‘smart appliances’ opportunities for air-conditioners, hot water and pool pumps.

2012/13 Energex Annual Performance Report 21 3 Performance

3.4 Our people

What we delivered Implemented a balanced approach to ensure a sustainable workforce against the revised forecast expenditure required to maintain a safe and reliable power supply. Enhanced skills and developed roles of leaders throughout the organisation with an emphasis on managing change. Improved alignment between remuneration and reward with corporate performance outcomes.

Developing leaders During the year, we set business structure targets to align In 2012/13, we commenced a review of the leadership with the revised expenditure requirements. As part of our development framework to further align leadership commitment to our staff, we established the Employee capability with current and future needs. A greater Transition Plan to provide structure to manage the emphasis was given to our leaders’ role in driving change. redeployment of employees.

Throughout the year, our leaders facilitated conversations Management rotation with staff promoting our company values and were also at Our Executive General Managers commenced rotations the forefront of restructuring and consultation on change heading up the new divisions to further refresh the initiatives. business structure (see p.10).

Our realignment The major challenge in 2012/13 was to manage the organisation’s realignment while continuing to deliver a safe and reliable power supply.

Table 6: Our staff As part of the realignment of our business to reflect the reducing PoW, our staffing levels reduced from 3,804 active FTEs in June 2012 to 3,433 active FTEs in June 2013. Employee figures have been reported on a full time equivalent (active) basis.

Our staff 30 June 2013 Administrative 588 Apprentice 305 Electrical Systems Design Adviser 72.2 Executive Contract 101.3 Para-professional 329.4 Power Worker 148.7 Professional and Managerial 514.8 Supervisor 329.6 System Operator 74 Technical Serviceperson 970 Total 3,433

Looking forward Ensure our business and workforce continues to align with our future PoW requirements. Deliver business efficiencies to support delivery of business outcomes. Undertake targeted initiatives to support leadership development capability in order to deliver outcomes relevant to current and future business needs. During 2013/14 we will commence discussions with staff and relevant representative bodies regarding the next workplace agreement with the aim of achieving a fair and balanced outcome for our employees, our company and the broader community.

22 2012/13 Energex Annual Performance Report 3 Performance

3.5 Our community

What we delivered Continued to support the community in a range of partnerships including reinvestment of over $150,000 from our materials recycling program to support more than 45 community initiatives. Increased awareness of electrical safety in the community. Kept the community informed around the clock during severe weather events. Achieved a strong community regard result.

Our sponsorship programs Keeping the community informed We are advocates of positive energy and consider it a Our staff are on call around the clock to respond to power privilege to support community initiatives through our interruptions and events and keep the community informed sponsorship program. In 2012/13, we provided $875,000 with proactive communications. across three programs: • Corporate Sponsorship – supports initiatives During the severe weather of ex-Tropical Cyclone Oswald, demonstrating a commitment to safety, community, we worked with a range of media outlets to keep the education, environment and sustainability. Funding community informed about electrical safety and power went to many groups, including the Queensland Rural restoration. Fire Service, Volunteer Marine Rescue and Sunshine Coast Helicopter Rescue Service We registered around 600,000 website visits during the • Energex Community and Sustainability Fund (ECSF) event and our Twitter followers rose 27 per cent, while – funded by our recycling program for scrap material Facebook followers rose by almost 150 per cent from • Queensland Museum and Queensland Energy around 4,000 to more than 10,000. Museum (QEM) – Energex together with Ergon and Powerlink Queensland has funded the QEM for On the ground, we deployed our mobile communications the purpose of retaining the Queensland electricity centre to support community members in the affected industry history. A new facility, Energy for Life areas of Maleny, Mt Glorious and the Bundaberg region. Discovery Centre within the Cobb & Co Museum, opened in Toowoomba in June 2013. Energex in social and digital media One of our newest methods of communication is through We continue to be a member of the London Benchmarking social media channels. In 2012/13, we launched our new Group (LBG) which sets the international standard for strategy to meet customers’ expectations of our company measuring, benchmarking and reporting on a company’s when operating in these channels. We are seeing the community contributions and achievements. Our results greatest engagement from social media channels in times compare positively with other organisations around the of crisis, where members of the community are seeking world in delivering benefits to communities. more information about specific events and constant updates on our activities. Our education and awareness programs Throughout the year, we continued to deliver on our Our website received about two million visits during reputation as being a trusted expert in safety. We 2012/13 - a new record. continued to educate the community about the dangers of electricity with a strong awareness among our customers. Community regard Recall of our fallen powerlines campaign increased by We assess how the community feels about our company 17 per cent from 2011/12 to 2012/131. using our Community Regard Index. We recorded our highest ever score of 71 (out of 100) in November 2012. We surveyed teachers and found there was a need for We exceeded our overall target by more than teaching resources on the subject of electricity. In 2012/13, 5 points, achieving 69.5 for 2012/13. This score continues we designed and launched resources relevant to the to position us as one of the top performing utilities in Queensland Education curriculum to help students from Australia. Prep through to Year Five learn about electrical safety, energy efficiency and how electricity works.

Looking forward Continue to support our community through our sponsorship programs. Continue to educate on electrical safety and grow our communication channels to ensure we provide relevant and timely information.

1Average recall of the fallen powerlines television advertisement over November, December and January in 2011/12 was 62.6 per cent and for the same months in 2012/13 was 79.6 per cent.

2012/13 Energex Annual Performance Report 23 3 Performance

3.6 Customer service delivery

What we delivered Delivered on our customer service performance target. Launched a project to further understand and meet our customers’ expectations. Introduced a new tariff to improve customer energy management choices. Revised customer service standards to deliver balanced outcomes. Effectively responded to a significant increase in customer enquiries. Significantly decreased our Customer Service Guaranteed Service Levels (GSLs) payments through targeted improvements.

Connected customers Contact Centre During 2012/13 around 18,000 additional customers were We responded to over 1.277 million customer enquiries in connected to the network, 16,500 of these being domestic 2012/13 – an increase of almost 60 per cent on 2011/12. and 1,560 being commercial connections. At the end of We answered over 66 per cent of calls to our general June 2013 we supplied electricity to 1.36 million customers enquiries number within 20 seconds. (1.24 million domestic and 120,000 commercial and industrial) across South East Queensland. Almost a third of these enquiries were received over a six day period during the severe weather of ex-Tropical In 2012/13, new connection numbers were slightly less Cyclone Oswald. Over 260 Energex and Agency staff than in 2011/12 when we connected almost 20,000 responded to customer calls. additional customers and are less than half the number connected 10 years ago when a total of 36,866 new The average number of phone call enquiries almost connections were made in 2002/03. doubled in the month of July 2012 following the announcement of changes to the Solar Bonus scheme. However, we had a significant increase in solar Daily call volumes more than doubled between applications and connections in 2012/13 (see p.19). 2 July and 9 July 2012 as the end to the 44c feed in tariff approached.

Table 7: GSLs claims by category and entity source The overall volume of GSLs paid in 2012/13 increased marginally from 2011/12. Damage caused by the severe weather event of 24 March lead to almost 2,800 reliability-interruption duration GSL payments to eligible customers. With the exception of this increase to reliability-interruption duration and a minor increase of hot water complaints, all other GSL categories decreased. GSLs relating to non-notification of planned interruptions almost halved compared to 2011/12 through an increased focus within the organisation.

GSL event Total GSL claims paid Energex related Retailer related 2011/12 2012/13 2011/12 2012/13 2011/12 2012/13 Reliability Reliability - interruption duration 410 2,910 410 2,910 0 0 Reliability - interruption frequency 0 0 0 0 0 0 Total Reliability 410 2,910 410 2,910 0 0 Customer service New connection - failure to complete 62 21 61 21 1 0 Wrongful disconnection 358 201 256 152 102 49 Failure to reconnect 193 177 153 113 40 64 Hot water complaint - failure to attend 0 2 0 2 0 0 Missed scheduled appointment 910 805 910 805 0 0 Non-notification planned interruptions 231 164 231 164 0 0 - business Non-notification planned interruptions 4,222 2,161 4,222 2,161 0 0 - residential Total customer service 5,976 3,531 5,833 3,418 143 113 GSL Total 6,386 6,441 6,243 6,328 143 113

24 2012/13 Energex Annual Performance Report 3 Performance

Our customer service standards Tariff reform We introduced the Customer Service Standards Program In 2012/13, we worked with external stakeholders to two years ago with the aim to review our customer introduce a domestic Time of Use (ToU) tariff with the interactions to ensure we deliver the right services at the opportunity to shift electricity consumption out of peak right standard and in a cost effective manner. The program times and save on energy costs. delivered around $1.74 million in savings for 2012/13 and will end in October 2013. We continually review our network tariffs for how they affect customers and customers’ responses to the tariff What our customers think incentives. To assist this, and to gain better understanding, We continuously survey our customers to assess our we updated our electricity price models to deliver service performance in terms of efficiency, quality and enhanced tariff options. timeliness and track this result as our Service Performance Index. In 2012/13, we exceeded our target by 5 points and In 2013/14, for business customers transitioning between achieved a score of 85.2 – a high to excellent performance energy-based and demand-based tariffs, prices have been result. smoothed to minimise price volatility for customers.

Understanding our customers Our Positive Payback Program delivered tangible results In 2012/13, we initiated a project aimed at increasing our by rewarding customers for connecting certain appliances understanding of our customers and their expectations to economy tariffs or installing technologies that make their of Energex. Developing this understanding is part of appliances operate more efficiently during peak demand our strategic direction to further align our services and times. operations with customer expectations. The results will be incorporated into our 2015-20 Distribution Determination In 2013/14, we will take the next step towards a more Proposal with the aim of delivering more balanced sustainable solution by providing a second ToU tariff to customer outcomes while maintaining a safe and reliable reward residential customers for installing and activating electricity supply. appliances with the technology and capability to assist in managing peak demand.

Looking forward Continued delivery of our Service Performance Index. Increased knowledge of customer expectations incorporated into our planning for better customer outcomes. Launch of a second ToU tariff rewarding residential customers for installing and activating appliances with the technology and capability to assist in managing peak demand.

2012/13 Energex Annual Performance Report 25 3 Performance

3.7 Environment

What we delivered Commenced the implementation of our Environmental Offset Strategy through partnerships in South East Queensland. Continued to seek efficiencies resulting in positive environmental and financial outcomes, most notably through the development of our Waste Reduction and Recycling Plan. Sought opportunities to exceed Environmental Management System requirements. Continued to further develop awareness of environmental issues and best practice across the organisation through training and communication.

Working together Environmental efficiencies We partner with SEQ Catchments and Seqwater, We increased our environmental efficiencies through the regional councils, catchment and landcare groups across following activities: South East Queensland to balance our impacts on the • Continued consolidation of workplaces to reduce the environment when native trees are unavoidably removed overall portfolio footprint by increasing office utilisation to make way for electricity infrastructure. rates and sub-leasing surplus space. • Improvements in energy efficiencies for corporate We aim to ensure our environmental offset investments buildings through efficient lighting and air-conditioning result in meaningful environmental outcomes that benefit systems with an overall portfolio energy efficiency biodiversity, waterways and the community of South improvement of 32 per cent compared to the East Queensland. In 2012/13, we commenced offset 2005/06 baseline year. investments at Warrill Creek, Lockyer Creek, North Pine • Further reduction of our landfill quantity through Dam, Wivenhoe Dam, Homestead Park and London Creek recycling of 10,747 tonnes of waste, including and planted more than 84,650 trees across South East 3,509 tonnes of scrap metal, 2,503 tonnes of Queensland. used transformers, 4,460 tonnes of timber and 621,588 litres of oil. Better environmental outcomes A surveillance audit performed in 2013 on our Raising awareness in our staff Environmental Management System reported our We created diverse opportunities through training and continued compliance with the Australian and New communication for our staff to learn about our company’s Zealand Standard Environmental Systems – Requirements environmental practices, as well as highlighting the with Guidance for Use (ISO 14001). We use this as the opportunities staff have to help reduce negative minimum standard and seek to capitalise on opportunities environmental impacts and deliver better outcomes. and find efficiencies for greater outcomes.

Our carbon story In July 2012, we adopted a new carbon management framework which focusses on achieving carbon savings through our business as usual activities.

In 2012/13 we achieved a 34 per cent reduction in carbon emissions from our light vehicle fleet compared to the 2007/08 baseline year.

Looking forward Focus on building and maintaining strategic partnerships for environmental offset investments. Continue to seek environmental efficiencies in relation to our day-to-day operations including our property portfolio and implementation of our Waste Reduction and Recycling Plan. Continue to monitor and manage our carbon emissions through business efficiencies. Continue to promote environmental awareness and best practices within the business. Continue to work with the community to seek optimum financial, social and environmental outcomes for South East Queensland.

26 2012/13 Energex Annual Performance Report 4 Additional corporate reporting

Table 8: Corporate entertainment and hospitality

Events over $5,000 Date Total cost including GST ($) Energex Supplier Quality Awards 22 March 2013 6,104 Energex Excellence Awards 31 May 2013 14,425 Energex Apprenticeship Awards 17 May 2013 6,472 Staff Recognition - 25 Years of Service 12 July 2012 5,696 Total 32,697

Table 9: International travel expenditure 2012/13

Region County / Purpose Number Expenditure Subtotal location of visits ($) per region ($) Europe United To attend Conference and meetings with Willis, Aegis, 1 34,592 34,592 Kingdom QBE, Ace, Arch, CV Starr & CAN. London To provide the key insurance stakeholders with information regarding the Energex insurance renewal to enable beneficial commercial outcomes in relating to the cost of premiums. Total 34,592

Table 10: Changes to our key assets since 2008/09

Assets 2008/09 2009/10 2010/11 2011/12 2012/13 Total overhead and underground (km) 49,513 50,205 50,863 51,434 51,879 Lines – length of overhead (km) Total 34,788 34,837 34,959 35,051 35,094 LV 14,306 14,294 14,287 14,274 14,262 11 kV 17,357 17,404 17,451 17,502 17,529 33 kV 1,999 1,999 2,080 2,098 2,130 132/110 kV 1,126 1,140 1,141 1,177 1,173 Cables – length of underground (km) Total 14,725 15,368 15,904 16,383 16,785 LV 9,362 9,711 9,990 10,262 10,457 11 kV 4,465 4,722 4,938 5,122 5,290 33 kV 781 815 843 866 892 132/110 kV 117 120 133 133 146 Other equipment (Qty) Bulk Supply Substations 37 38 40 41 41 Zone Substations 219 223 227 235 238 Poles1 630,259 638,982 647,648 653,741 658,886 Distribution Transformers 44,613 45,456 46,083 46,792 47,436 Street lights2 314,008 324,111 333,797 340,248 345,807

1 All poles including customer and streetlight poles. 2 All streetlights including rate 3 streetlights.

2012/13 Energex Annual Performance Report 27 4 Additional corporate reporting

Ministerial Directions There were no Ministerial Directions issued by the shareholding Ministers during the year.

Ministerial Notifications On 19 February 2013, the shareholding Ministers advised that the previous Notifications that applied to the “Purchasing Carbon Offsets for Queensland Government Air Travel”, “Qfleet ClimateSmart Action” and “Sport and Recreation Sponsorships” Policies to Energex and its subsidiaries, are revoked, in accordance with section 114 of the GOC Act. On 1 March 2013, the section 114 notification was published in the Queensland Government Gazette.

28 2012/13 Energex Annual Performance Report 5 Glossary and abbreviations

Australian Energy Market Operator (AEMO) Government Owned Corporation (GOC) From 1 July 2009, AEMO replaced National Electricity An entity created by a government to undertake Market Management Company (NEMMCO) with a broader commercial activities on behalf of an owner government. national focus on delivering an array of electricity and gas market, operational, development and planning functions. Guaranteed Service Level (GSL) These functions incorporate management of the National Defined by the Queensland Electricity Industry Code, Electricity Market (NEM) electricity grid system. distributors and retailers must adhere to stipulations including the timing of reconnecting and disconnecting Australian Energy Regulator (AER) supply to the electricity network. From 1 July 2010, the AER is responsible for our economic regulation under the provisions of the National Electricity Key Result Area (KRA) Rules (NER). Performance against Energex’s corporate and operational objectives is measured against a targeted set of Key Business expenditure Result Areas (KRAs). There are eight KRAs covering Business expenditure includes both CAPEX and Operating safety, financial performance, operational excellence, Expenditure (OPEX) expenses. network performance, people, customer, community and environment. Business Efficiency Program (BEP) The company program which included a review of Key Performance Indicator (KPI) services, activities and structure and subsequent Key Performance Indicator - a type of performance implementation of initiatives to deliver efficiencies across measure. the business. kV Compensable Cliams Frequency Rate Severity Kilovolts (1,000 volts). (CCFRS) CCFRS measures the number of workers’ compensation Lost Time Injury (LTI) claims in the reporting period (excluding all claims that Instances where permanent staff suffered a physical injury were of 14 days or less duration, unless they were as a result of a safety incident, which resulted in time off associated with LTIs and excluding journey injuries) ex- work. pressed as a percentage of the workforce. Lost Time Injury Frequency Rate (LTIFR) Capital Expenditure (CAPEX) Calculated as the number of lost time occurrences of injury Funds used to acquire or upgrade physical assets related or disease for every one million hours worked over a to the electricity network including property. 12 month progressive period.

Capital Program of Work (Capital PoW) LV Investment in new network infrastructure or improving Low voltage. existing network infrastructure. Major event day Customer A day in which a major event causes a significant number A party that consumes services or electricity and has a of customers to experience a sustained power interruption retail contract with a retailer and a connection contract with during a 24 hour period. These events are typically a distributor. extreme weather events, such as thunderstorms, cyclones and floods. Interruptions occurring on major event days Distributor are excluded from reliability measurement and reporting. A party who manages an electricity distribution network (e.g. Energex). Regulations define a distribution entity as Megavolt amperes (MVA) the party who provides customer connection services to a The product of voltage and current multiplied by customer at an electrical installation or premise. The term one million. Distributor may also be used interchangeably with the term Network. A Distributor is also known as a ‘Network Service Minimum Service Standards (MSS) Provider’. The Queensland Electricity Industry Code outlines the network reliability minimum service standards (MSS) for Embedded generation Queensland electricity distributors Energex and Ergon According to the NER, embedded generators refer to Energy. generators connected to the distribution network, not the transmission network. Such generators currently include solar PV.

2012/13 Energex Annual Performance Report 29 5 Glossary and abbreviations

Peak Demand Time of Use (ToU) tariff The maximum amount of electricity used at one time. Each ToU tariffs are voluntary and aim to benefit energy users day, electricity peaks in the early evening, as people start who manage their demand and move their usage outside returning home and activity in the home starts. Once or of peak times or reduce their peak demand by adding a twice a year, electricity peaks during summer and winter. controlled load tariff. A ToU tariff comprises of three rates: Peak, Shoulder, Off-Peak and requires an electronic meter Program of Work (PoW) to measure three sets of consumption. Taking plans for new network investments and plans for ongoing network maintenance from the concept stage (design) through to delivery, ensuring the projects are delivered on time and within budget by achieving best practice in the project management.

Queensland Competition Authority (QCA) An independent statutory authority charged with implementing competition policy and funding approval for electricity companies in Queensland.

Electricity Industry Code The Electricity Industry Code sets out rules for Queensland electricity retailers and distributors including service obligations to customers, marketing conduct and the provision of information to customers. The Code also provides rules on the management of distribution businesses, metering practices and the services between retailers and distributors.

Retailer The party from which a consumer has contracted to purchase electricity.

Service Target Performance Incentive Scheme (STPIS) Introduced by the AER, STPIS is intended to encourage distributors to maintain and improve service performance for customers and operates concurrently with MSS obligations focusing on unplanned performance.

Solar Photovoltaic (PV) system A Solar PV system includes a Solar PV Inverter and Solar PV panels which when connected have the capacity to export energy to Energex’s distribution network.

Social media Media disseminated through social interaction using various forms of technology and transforms people from content consumers into content producers. Energex social media channels include Facebook, YouTube, Twitter and LinkedIn, as well as online forums such as whirlpool.

Statement of Corporate Intent (SCI) Energex’s annual strategic planning document.

System Average Interruption Duration Index (SAIDI) The average duration (in minutes) of the long duration (more than one minute) outages.

System Average Interruption Frequency Index (SAIFI) The average number of long duration (more than one minute) outage events experienced by a customer over a period of time.

30 2012/13 Energex Annual Performance Report PART B Annual Financial Report for the year ended 30 June 2013

Energex Limited ABN 40 078 849 055 and consolidated entity

2012/13 Energex Annual Financial Report 1 Contents

Directors’ report ...... 3 Auditor's independence declaration ...... 12 Income statements ...... 13 Statements of comprehensive income ...... 14 Balance sheets ...... 15 Statements of changes in equity ...... 16 Cash flow statements ...... 17 Notes to and forming part of the financial statements ...... 18 1 Summary of significant accounting policies ...... 18 2 Profit from operations...... 30 3 Income tax ...... 31 4 Earnings per share...... 34 5 Cash and cash equivalents ...... 34 6 Trade and other receivables...... 35 7 Inventories ...... 37 8 Property, plant and equipment ...... 37 9 Intangible assets...... 40 10 Other assets ...... 40 11 Trade and other payables ...... 41 12 Long-term borrowings ...... 41 13 Provisions ...... 41 14 Other liabilities ...... 42 15 Contributed equity...... 43 16 Reserves ...... 43 17 Retained earnings...... 43 18 Dividends...... 43 19 Financial risk management objectives and policies ...... 44 20 Financial instruments ...... 46 21 Commitments for expenditure ...... 49 22 Defined benefit fund...... 50 23 Investment in jointly controlled entity...... 53 24 Investment in controlled entities ...... 54 25 Key management personnel ...... 56 26 Related parties...... 61 27 Contingent assets and liabilities ...... 63 28 Auditor’s remuneration...... 64 29 Events after the reporting period ...... 64 Directors' declaration ...... 65 Independent auditor’s report...... 66

2 2012/13 Energex Annual Financial Report Directors’ report

The Board of Directors of Energex Limited (Energex) is pleased to submit this annual financial report of Energex and the consolidated entity (the Group) for the financial year ended 30 June 2013. In compliance with the provisions of the Corporations Act 2001, the Directors present the following:

Directors

The names of the Directors in office at any time during or since the end of the year are:

Appointment date  Shane Leslie Stone – Chairman 31 May 2012  Peter Maurice Arnison 2 December 2004  Kenneth Bruce Clarke 5 July 2012  Mervyn John Davies 5 July 2012  Sandra Gai Deane 20 December 2012  John Andrew Geldard 1 July 2005  Linda Ruth Mackenzie 5 July 2012  Kerryn Lee Newton 1 October 2008

Please refer to the ‘Board profiles’ section of the Energex Annual Performance Report 2012/13 for details of Directors’ qualifications, experience and special responsibilities.

Company Secretaries

 Michael Wayne Russell  Marnie Maree White

Please refer to the ‘Board profiles’ section of the Energex Annual Performance Report 2012/13 for details of the Company Secretaries’ qualifications, experience and special responsibilities.

Registered office

26 Reddacliff Street, Newstead QLD 4006 (GPO Box 1461, Brisbane QLD 4001).

Principal activities

The principal activities of the Group during the financial year were the design, construction, operation, maintenance and management of the South East Queensland electricity distribution network.

Operating and financial review

The Group continued its review of work practices and organisational structure to align the business with the Group’s latest energy consumption and demand forecasts and to respond to stakeholder expectations for improved business efficiency. Its formal Business Efficiency Program (BEP) yielded tangible results and sustainable cost savings. The business also responded strongly to the restoration challenges following ex-Tropical Cyclone Oswald and maintained a strong customer focus during the year.

In addition to an organisational restructure to reduce duplication of activities, the fixed cost base was reduced by aligning roles and employee numbers with operational requirements. The number of employees reduced from 3,804 active full time equivalents at 30 June 2012 to 3,433 active full time equivalents at the end of the current period, with a further reduction of 97 active full time equivalents, resulting in 3,336 active full time equivalents as at the end of the first pay period in July 2013.

The Group continued its focus on delivering balanced commercial outcomes. This included implementing reductions to total expenditure programs and passing savings arising from lower budgeted capital expenditure to customers through reduced tariff increases. At the same time the Group delivered returns to shareholders, continued to maintain and operate the network in a safe and reliable manner and undertook prudent investment for a sustainable future.

2012/13 Energex Annual Financial Report 3 Directors’ report

Summary of financial performance

2013 2012 $ M $ M

Total revenue 2,286.0 2,005.0 Total expenses (1,769.5) (1,601.8) Profit before income tax equivalent 516.5 403.2 Income tax equivalent (155.1) (120.8) Profit for the year attributable to owners of Energex Limited 361.4 282.4

The Group generated profit before income tax equivalent of $516.5 million (2012: $403.2 million) of which $294.1 million (2012: $225.9 million) will be returned to the Queensland State Government as dividends. Under the National Tax Equivalent Regime (NTER), income tax payments are also made to the Queensland State Government.

 Revenue Total revenue by function:

Regulated standard control services: Distribution use of system 1,415.9 1,250.3 Community service obligation 35.8 - Transmission use of system 394.3 390.0 Solar photovoltaic feed-in tariff pass through 161.5 67.7 Service target performance incentive scheme 11.2 30.5 Total network use of system 2,018.7 1,738.5 Non-refundable contributions for capital works 72.0 71.3 Other 2.9 14.3 Total regulated standard control services (SCS) 2,093.6 1,824.1 Regulated alternative control services (ACS) 69.3 58.2 Non-regulated services 123.1 122.7 Total revenue 2,286.0 2,005.0

Revenue from regulated standard control services (SCS) represents a significant contribution to the Group’s revenue stream, being 91.6 per cent (2012: 91.0 per cent).

The main component of SCS revenue is distribution use of system (DUOS) revenue, which represents regulated revenues related to the regulated asset base as determined by the Australian Energy Regulator (AER) for the 2010-15 regulatory determination period. The AER is Australia’s national energy market regulator, which administers and enforces the National Electricity Law, National Electricity Rules and other guidelines established by the Australian Energy Market Commission. The revenue is determined through application of the building block approach which comprises a return on the Group’s regulated asset base, a return of the regulated asset base (recovery of depreciation), and a recovery of operating expenditure incurred in the fulfilment of its obligations as a distribution network service provider (DNSP). Refer to Note 1.5 of the financial statements for disclosure of the revenue related regulation and mechanisms and the accounting policy applied in the recognition of revenue.

The current year DUOS and CSO revenue of $1,451.7 million comprises approximately 74 per cent return on and return of capital and 26 per cent operating expenditure recovery. However, mainly due to a decline in the volume of sales of electricity to residential customers, cash receipts were well below the revenue cap set by the AER. In accordance with the AER Regulatory Determination, this shortfall in cash receipts in 2012/13 will be recovered through the pricing mechanism in future periods as outlined in the discussion of regulated revenue receivables below. If the volume of consumption in 2013/14 declines further from that used in establishing prices for the year, then a similar outcome would arise in 2013/14. This under recovery of cash from electricity charges does not affect the AER set DUOS revenue which is recognised on an accrual basis. This DUOS revenue has been set for the 2010-15 period. Consequently, the Group’s core revenue up to 2014/15 is expected to remain largely aligned with this determination less amounts voluntarily foregone.

In compliance with a ministerial direction notice issued under section 115(1) of the Government Owned Corporations Act 1993 (GOC Act) dated 28 June 2012, the network charges applied to Tariff 11 for the 2012/13 year were maintained at 2011/12 levels and did not reflect the outcome of the calculated price determined by Energex in compliance with the regulatory determination and approved by the AER. The direction notice qualified as a community service obligation (CSO) under section 112 of the GOC Act and the Group has been compensated by the State Government for the revenue not recovered from customers through the established pricing mechanism. The amount of the CSO recognised for the year was $35.8 million (2012: nil). The nature of revenue is considered in the determination of dividends. Refer to the “Dividends” section for a discussion of the treatment of the CSO in the dividend calculation. No direction notices have been issued regarding 2013/14 network charges.

4 2012/13 Energex Annual Financial Report Directors’ report

Transmission use of system (TUOS) revenue represents a recovery of transmission charges paid to the transmission network service providers (predominantly Queensland Electricity Transmission Corporation Limited trading as Powerlink Queensland). The revenue from these charges is passed directly through to the transmission service providers.

The Group’s revenue as regulated by the AER in compliance with the regulatory determination includes recovery of payments to customers for electricity fed into the network from solar photovoltaic (PV) systems. The amount allowed in the current determination and included in the 2012/13 DUOS revenue is $7.1 million (2012: $5.9 million). The energy fed into the network by customers continues to significantly exceed the amount allowed in the determination. The Group is reimbursed for this shortfall which is recovered in future periods through the pricing mechanism. In 2012/13, this solar PV feed-in tariff pass through of $161.5 million (2012: $67.7 million) was recognised as revenue.

The Group earned its full entitlement to the bonus under the Service Target Performance Incentive Scheme (STPIS) in 2012/13 due to strong reliability as measured by the frequency and duration of service interruptions to our customers. The scheme excludes significant events such as those experienced during ex-Tropical Cyclone Oswald. Under this scheme, the Group is entitled to the maximum of $34.8 million to be recovered in future periods. In recognition of its obligation towards the community, its commitment to contain future price increases and considering customers’ service experience during ex-Tropical Cyclone Oswald, the Board of Directors of Energex elected to largely forego its entitlement to revenues arising under this scheme and to only take up a partial entitlement to offset the unforeseen incremental costs related to network restoration following the severe weather events associated with ex-Tropical Cyclone Oswald. These incremental costs exclude planned maintenance and other committed expenditure brought forward as a result of the occurrence, and totalled $11.2 million.

Total network use of system revenue represents the regulated revenue earned by the Group as determined by the AER in compliance with the National Electricity Rules less amounts voluntarily foregone.

Non-refundable contributions for capital works represent physical assets contributed to the Group or cash contributions by customers to the Group for expenditure incurred in the construction of capital works.

Regulated alternative control services (ACS) revenue is earned from the provision of other electricity related services ancillary to the ownership of the distribution network. These services include those requested by electricity retailers on behalf of customers, small rearrangements of electrical services requested directly by customers, operation and maintenance of streetlighting services and various other miscellaneous services regulated by the AER.

Non-regulated services are those which are not regulated by the AER and are conducted in an open market. These services relate predominantly to the provision of contestable meters and equipment related services such as the testing, inspection and calibration of equipment. In 2012/13, the Group also provided services to Ergon Energy Corporation Limited (Ergon) to assist with flood restoration work.

 Expenses Total expenses by function:

2013 2012 $ M $ M

Regulated standard control services: Transmission use of system charges 394.3 390.0 Finance costs 359.2 323.4 Depreciation, amortisation and impairment 327.8 312.0 Solar photovoltaic feed-in tariff payments 167.1 73.9 Planned maintenance and vegetation 144.3 141.2 Network operating and support costs 102.0 98.4 Termination benefits 51.0 9.7 Corrective repair 42.5 44.1 Emergency response/storms 24.2 4.7 Customer services and call centre 18.1 19.6 Inspection 14.8 46.5 Total regulated standard control services (SCS) 1,645.3 1,463.5 Regulated alternative control services (ACS) 53.5 56.3 Non-regulated services 70.7 82.0 Total expenses 1,769.5 1,601.8

Regulated SCS represent the costs of operating and maintaining Energex’s distribution business. Inspection, repair, maintenance, vegetation management, response to emergency situations and associated customer service functions represent the core functions of the Group as a distribution network service provider.

On 25 June 2012, the State Government announced changes to the Solar Bonus Scheme whereby the 44 cents feed-in tariff was reduced to eight cents for all applications received after 9 July 2012. For applications received by 9 July 2012, installations had to be completed by 30 June 2013 in order to retain the 44 cents feed-in tariff. This announcement led to a significant increase in the number of installations during the year as more customers lodged solar PV applications and

2012/13 Energex Annual Financial Report 5 Directors’ report

completed installations to take advantage of the higher feed-in tariff. As at 30 June 2013, approximately 222,257 customers had solar panels connected to the electricity grid (2012: 148,311), representing 675.0 MW of generation capacity (2012: 384.9 MW). 389,625.3 MWh (2012: 168,056.8 MWh) of electricity was fed into the grid at a cost of $167.1 million (2012: $73.9 million) in feed-in tariff payments under the requirements of the Queensland Government Solar Bonus Scheme. This increases the cost of electricity for network users.

Savings were achieved in ongoing network operating and support costs as the Group continued its internal review of work practices and organisational structure to realign its structure with current demand forecasts and associated operational and maintenance requirements. These savings were offset by expenses resulting from the discontinuing of projects in response to changing energy demand and consumption patterns. Network operating and support costs relate to costs necessarily incurred in support of the network, such as network monitoring, meter reading, demand management, regulatory levies and corporate support functions such as legal and other compliance functions.

The first stage of corporate restructuring arising from BEP is substantially complete. Termination benefit expenses of $51.0 million were incurred in the reduction of employee numbers. Future restructuring costs would be subject to the scope and nature of future developments as discussed below.

Emergency response/storm costs are a normal part of maintaining the network and subject to cyclical fluctuations based on annual weather events. The current year costs reflect the severe weather events during the past storm season, particularly those arising from ex-Tropical Cyclone Oswald as compared to a relatively mild storm season experienced in the 2011/12 financial year.

An inspection program initiated in the prior year in response to the premature deterioration of cable insulation is substantially complete. A portion of the provision raised in the prior year to cover the cost of these inspections was not utilised and was reversed in the current year. Refer to Note 13.1 of the financial statements for disclosures related to movements in the carrying amounts of provisions.

2013 2012 $ M $ M

Summary of financial position

Property, plant and equipment 10,760.2 10,048.7 Regulated revenue receivables 557.2 233.9 Other assets 590.9 737.9 Total assets 11,908.3 11,020.5

Long-term borrowings (6,000.8) (5,464.6) Other liabilities (2,571.0) (2,438.6) Total liabilities (8,571.8) (7,903.2)

Total equity 3,336.5 3,117.3

 Assets The primary asset of the Group, the supply system, is carried at a fair value of $10.0 billion (2012: $9.2 billion). The Group is committed to responsible capital expenditure in fulfilling its obligation to provide a safe and reliable distribution network to South East Queensland.

Total capital expenditure by function:

Regulated standard control services: Corporate initiated network augmentation 340.0 422.0 Asset replacement 245.2 191.1 Customer initiated capital works 183.9 184.5 Other supply system capital works 38.5 61.1 Total distribution network 807.6 858.7 Non-network 92.6 101.5 Total regulated standard control services (SCS) 900.2 960.2 Regulated alternate control services (ACS) 31.9 31.9 Non-regulated services 4.7 3.8 Total capital expenditure 936.8 995.9

As the main driver of revenues, and consequently future pricing impacts to our customers, a key focus of the Group is the ongoing monitoring and management of capital spend to ensure all spend is prudent and efficient. The Group reduced total capital expenditure by $59.1 million compared with the prior year. This reduction was achieved by realigning network augmentation activities to revised energy and geographical growth forecasts and continuing to seek out opportunities to achieve capacity expansion in more efficient ways. The Group also continued to implement the outcomes of the Electricity Network Capital (ENCAP) review performed in 2011. The review highlighted that significant

6 2012/13 Energex Annual Financial Report Directors’ report

improvements had been made to network reliability since the 2004 State Government review which enabled further reductions in capital expenditure.

The efficiency focus extends beyond the supply system, with outcomes from BEP yielding opportunities to reduce future capital spend on non-network assets such as the vehicle fleet. The Group is pursuing potential opportunities to dispose of assets no longer required and so reduce ongoing management and maintenance expenditure.

Concurrent with the reduction in the level of investment in transmission equipment and network augmentation, refurbishment and replacement activities related to distribution assets are increasing to maintain the existing network.

Capital expenditure on ACS and non-regulated services bear a direct correlation to market demand in those two areas.

The Group’s regulated revenue receivables comprise:

Recoverable Recoverable within after 12 months 12 months Total $ M $ M $ M

Under-recoveries arising in 2011/12 23.3 75.8 99.1 Under-recoveries arising in 2012/13 - 175.1 175.1 Total regulated under-recoveries 23.3 250.9 274.2

2011/12 solar photovoltaic feed-in tariff pass through 78.6 - 78.6 2012/13 solar photovoltaic feed-in tariff pass through - 161.5 161.5 Total solar photovoltaic feed-in tariff pass throughs 78.6 161.5 240.1

2011/12 service target performance incentive scheme 0.3 31.4 31.7 2012/13 service target performance incentive scheme - 11.2 11.2 Total service target performance incentive scheme 0.3 42.6 42.9

Total regulated revenue receivables 102.2 455.0 557.2

Regulated revenue entitlements not recovered through pricing in the period during which the Group becomes entitled to that revenue and proposed pass through costs are carried as regulated revenue receivables and recovered in future periods within guidelines established by the AER. Conversely, over-recoveries of regulated revenue entitlements are carried as liabilities and returned to customers within those guidelines. The current year saw under-recoveries of allowed revenue as prescribed by the current determination of $175.1 million arising primarily as a result of lower energy consumption than forecast in the 2012/13 price determination. The lower consumption is ascribed to a range of factors, predominantly lower new connections than anticipated, increased solar PV penetration, milder temperatures compared to long-term averages, slowing commercial and industrial energy growth and continued focus on reducing peak energy demand and energy efficiency improvements.

A further contributing factor to total revenue under-recoveries is the level of solar PV activity. The Group’s inflation adjusted under-recovery of $161.5 million for meeting its prescribed obligations is to be recovered in future periods. The amount to be recovered is calculated in accordance with the AER’s methodology which includes an adjustment based on the actual consumer price index (CPI). The levels of solar PV under-recoveries are expected to continue at current levels for this determination period as actual solar PV activity continues to exceed the levels anticipated in the regulatory determination.

The timing of the recovery of regulated revenue receivables is subject to AER approval as part of the annual pricing approval process. The 2013/14 pricing proposal was approved by the AER on 31 May 2013 and incorporates a recovery of $102.2 million regulated revenue receivables which arose in 2011/12.

 Liabilities The total liabilities of $8.6 billion largely reflect the Group’s funding strategy, with reasonable levels of long-term borrowings employed as an efficient form of financing. The financial statements contain comprehensive discussion of the funding arrangements with Queensland Treasury Corporation.

In addition to the long-term borrowings, the Group carries a net deferred tax liability of $1.9 billion (2012: $1.7 billion) which relates primarily to the difference between the book and tax values of the supply system asset.

Changes in state of affairs

The Group implemented a ministerial direction stipulating the level of network charges to be applied to Tariff 11 for the 2012/13 year. This direction did not impact the profit results or operations of the Group as the direction qualified as a CSO under section 112 of the GOC Act, and the Group was compensated accordingly by the State Government through a CSO payment of $35.8 million.

2012/13 Energex Annual Financial Report 7 Directors’ report

As a DNSP, the Group’s levels of capital investment and operational activity are subject to cyclical fluctuations in energy demand and consumption. Refer to the operating and financial review for a discussion of the financial impacts of fluctuations in energy demand and consumption. Refer to the ‘Performance’ section of the Energex Annual Performance Report 2012/13 for a general discussion of energy demand and consumption.

The Group continued its internal review of work practices and organisational structure and has continued to improve efficiencies through the realignment of its structure with current demand forecasts and associated operational and maintenance requirements. The Group will continue to ensure that it responds appropriately to changing patterns of demand and consumption through appropriate investment and operational plans.

No other significant changes in the Group’s state of affairs occurred during the financial year.

Events after the reporting period

The Group continues to work with the Queensland Government to facilitate the full implementation of proposed reforms to the electricity sector and distribution network as discussed in the future developments section of this Directors’ report. The full scope and details of these proposals and any consequential impact on the results or operations of the Group are not yet known at the date of this financial report.

Other than the matter discussed above, there are no matters, transactions or events that have arisen in the interval between the end of the financial year and the date of this report of a material nature likely, in the opinion of the Directors of the company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.

Future developments

The Group will continue its activities, including the design, construction, operation, maintenance and management of the South East Queensland electricity distribution network.

In May 2012, the Queensland Government established an Interdepartmental Committee (IDC) on Electricity Sector Reform to review all aspects of the sector that impact on electricity costs. The IDC engaged an independent review panel (IRP) to investigate the impact of Queensland’s electricity network on prices. On 16 June 2013, the Queensland Government released its response to the IDC recommendations which included its acceptance or acceptance in principle of 42 out of the 45 IRP recommendations.

The IDC recommendations relevant to the Group which were accepted by the Queensland Government are broad ranging and include demand side response strategies, metering reform, electricity planning and tariff reform and customer engagement. The Group will continue to work with all stakeholders and incorporate relevant information and guidance into its planning and decision making processes.

The IRP recommendations which deal more specifically with the distribution network included recommendations related to planning and reliability standards, efficiency of direct and indirect cost activities, structures for the distribution businesses, network regulation, network planning, demand forecasting and peak demand management.

Recommendation 30 proposes a common holding company to be established for Ergon and the Group, with corporate and strategic leadership to be located within the holding company. This work is ongoing and the final outcome is not yet known.

Concurrently with these reviews, the Group continues its internal review of work practices and organisational structure which has already led to substantial improvements in business efficiency.

Environmental regulations

The Group’s operations are subject to environmental regulations under both Commonwealth and State legislation.

The Energex Board maintains oversight of key environmental risks and obligations and is committed to achieving a high standard of environmental performance. The Board has appropriate governance arrangements in relation to environmental matters, which includes an Environment Council, consisting of management representatives and the Corporate Environment Group, each of which regularly reviews and reports on environmental issues to the Audit and Risk Committee and the Board.

The Group’s Environment Council and Corporate Environment Group are responsible for the regular monitoring of environmental exposures, review of incident trends, environmental initiatives, endorsement of recommendations for environmental improvement policies, programs and investments, as well as compliance with environmental regulations.

To meet its responsibilities, the Environment Council meets monthly to receive progress reports on approved environmental action plans and environmental status reports via the Corporate Environment Group. Based on the results

8 2012/13 Energex Annual Financial Report Directors’ report

of enquiries made, the Board is not aware of any significant breaches of environmental regulations during the period covered by this report.

For further environmental performance information, refer to the ‘Environment’ section of the Energex Annual Performance Report 2012/13.

Dividends

Dividends paid or declared by Energex since the end of the 2011/12 financial year were:

Type of Cents per Total amount Franked/ Date of payment shares share $ M unfranked Final 2012/13 dividend – operating profits Ordinary 33.59 294.1 Unfranked Declared and unpaid Final 2011/12 dividend – operating profits Ordinary 25.81 225.9 Unfranked 31 December 2012

The dividend ratio for the 2012/13 year was adjusted for the post-tax component of the CSO, which results in all of the post-tax CSO revenue being returned to the government. Refer to Note 18 of the financial statements for further disclosure of the dividend calculation.

Share options

There are no share options in existence at this time.

Directors' shareholdings

At the time of publication, no Director held any beneficial interest in the shares of Energex. The shareholding Ministers, on behalf of the State of Queensland, hold all issued shares.

Directors' benefits and interests in contracts

Between 1 July 2012 and 30 June 2013, no Director has received or become entitled to receive a benefit, other than those benefits disclosed in Note 25 of the financial statements.

Indemnification of Directors and Officers

Indemnification of Directors and Officers of Energex

Energex has agreed to indemnify current Directors and Officers of Energex, and former Directors and Officers of Energex, against all liabilities to another person (other than Energex or a related body corporate) that may arise from their position as a Director or an Officer of Energex and its controlled entities, except where the liability arises out of conduct involving a lack of good faith or liability against which Energex is not permitted by law to exempt or indemnify the Director or the Officer in accordance with the Constitution of Energex. The Energex Limited Constitution stipulates that, subject to its terms and the exceptions above, Energex will meet the full amount of any such liabilities, including costs and expenses.

Indemnification of Directors and Officers of the Energex controlled entities

Energex has agreed to indemnify Terence Effeney, Darren Busine and Peter Weaver, being current Directors of the Energex controlled entities, and former Directors of the Energex controlled entities, against all liabilities to another person (other than Energex or a related body corporate) that may arise from their position as a Director of the Energex controlled entities, except where the liability arises out of conduct involving a lack of good faith or liability against which Energex is not permitted by law to exempt or indemnify the Director. The deed of indemnity stipulates that, subject to its terms and the exceptions above, Energex will meet the full amount of any such liabilities, including costs and expenses.

Energex has also agreed to indemnify Christopher Arnold, Darryl Bell, Jennifer Hocking, Kevin Kehl, David Martin, Peter Price, Darryl Rowell, Michael Russell, Jane Smith and Marnie White, being Officers of the Energex controlled entities during the reporting period, against all liabilities to another person (other than Energex or a related body corporate) that may arise from their position as an Officer of the Energex controlled entities, except where the liability arises out of conduct involving a lack of good faith or liability against which Energex is not permitted by law to exempt or indemnify the Officer. The deed of indemnity stipulates that, subject to its terms and the exceptions above, Energex will meet the full amount of any such liabilities, including costs and expenses.

2012/13 Energex Annual Financial Report 9 Directors’ report

Indemnification of Energex Directors and Officers appointed to external boards and committees

Energex has agreed to indemnify any Directors or Officers who are nominated by the Energex Board to represent Energex on external boards and committees as follows:

 Indemnities provided to former Energex representative Directors continue following their resignation from that position, in accordance with the terms of the deed of indemnity.  Other Officers appointed to represent Energex on external boards and committees are indemnified in accordance with the terms of the Energex Directors’ and Officers’ liability insurance policy.

Insurance premiums

Premiums have been paid on policies of insurance for former and current Directors and Officers. Disclosure of the nature of the liability covered by and premiums paid under these contracts of insurance is prohibited by the terms of the insurance contracts.

Directors' meetings

The number of meetings of the Energex Board of Directors and of each Board Committee held and attended by each Director during the year ended 30 June 2013 were:

Network and Audit and Risk Establishment Remuneration Energex Limited Board 1 1 Technical Committee Committee Committee Committee Directors Attended Held2 Attended Held2 Attended Held2 Attended Held2 Attended Held2 Shane Stone 3,4 10 11 1 4 n/a n/a n/a n/a n/a n/a (Chairman) Peter Arnison5,6 10 11 n/a n/a 8 10 4 4 6 6 Kenneth 3,5,7 9 10 5 5 8 10 n/a n/a n/a n/a Clarke Mervyn 3,5,6,7 9 10 4 5 8 10 4 4 n/a n/a Davies Sandra Deane8,9,10 5 5 n/a n/a n/a n/a 2 2 2 2 John Geldard3,6 11 11 5 5 n/a n/a 4 4 n/a n/a Linda 3,5,7,11 9 10 5 5 10 10 n/a n/a 5 5 Mackenzie Kerryn Newton5,9 10 11 n/a n/a 9 10 2 2 6 6 1 On 30 July 2012, the Board reorganised its Committees, combining the responsibilities of the Audit Committee and the Risk and Compliance Committee into the Audit and Risk Committee. The former Risk and Compliance Committee was transitioned to the Establishment Committee. 2 The number of meetings held represents the number of meetings held during the period the Director was in office. 3 Appointed as a member of the Audit and Risk Committee on 30 July 2012. Mr John Geldard remained as Chairman. 4 Resigned from the Audit and Risk Committee on 26 May 2013. 5 Appointed as a member of the Establishment Committee on 30 July 2012. Mrs Linda Mackenzie was appointed as Chairman. 6 Appointed as a member of the Network and Technical Committee on 30 July 2012. Mr Mervyn Davies was appointed as Chairman. 7 Appointed as a Board Director on 5 July 2012. 8 Appointed as a Board Director on 20 December 2012. 9 Appointed as a member of the Network and Technical Committee on 25 February 2013. 10Appointed as a member of the Remuneration Committee on 25 February 2013. 11Appointed as a member of the Remuneration Committee on 30 July 2012.

Remuneration of Directors and Executives

Refer to Note 25 of the financial statements for details of Directors' and Executives' remuneration.

Rounding of amounts

The Group and Energex are of the kind specified in Class Order 98/100 dated 10 July 1998, issued by the Australian Securities & Investments Commission. In accordance with that class order, amounts in the financial report and Directors’ report have been rounded to the nearest hundred thousand dollars, unless otherwise stated.

10 2012/13 Energex Annual Financial Report Directors’ report

Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 12.

This report is made in accordance with a resolution of the Directors.

The Honourable Shane Stone, AC PGDK QC

Chairman Energex Limited 26 August 2013 Brisbane, Queensland

2012/13 Energex Annual Financial Report 11 Auditor’s independence declaration

To the Directors of Energex Limited

This auditor's independence declaration has been provided pursuant to section 307C of the Corporations Act 2001 .

Independence Declaration

As lead auditor for the audit of Energex Limited for the year ended 30 June 2013, I declare that, to the best of my knowledge and belief, there have been - a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit.

N GEORGE CPA Queensland Audit Office (as Delegate of the Auditor-General of Queensland) Brisbane

12 2012/13 Energex Annual Financial Report Income statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

Revenue from rendering of services 2.1 2,109.4 1,821.1 2,105.2 1,816.6 Revenue from sale of goods 2.1 24.9 30.3 24.9 30.3 Government grant revenue 2.1,26.4 4.1 9.6 4.1 9.6 Other revenue 2.1 147.6 144.0 147.6 172.1 Total revenue 2,286.0 2,005.0 2,281.8 2,028.6

Materials and consumables (49.6) (47.8) (49.0) (47.4) Solar photovoltaic feed-in tariff expense (167.1) (73.9) (167.1) (73.9) Transmission use of system charges (394.3) (390.0) (394.3) (390.0) Employee benefits expense (188.3) (197.8) (186.9) (196.1) Termination benefits (51.0) (9.7) (51.0) (9.7) Depreciation, amortisation and impairment expense 2.2,5.2 (352.6) (329.5) (351.7) (328.7) Contractors and consultants (147.8) (183.5) (146.9) (179.2) Finance costs 2.2 (365.8) (327.8) (365.9) (329.2) Other operating expenses (53.0) (41.8) (53.6) (41.1) Total expenses (1,769.5) (1,601.8) (1,766.4) (1,595.3)

Profit before income tax equivalent 516.5 403.2 515.4 433.3 Income tax equivalent 3.1 (155.1) (120.8) (154.8) (120.2) Profit for the year attributable to owners of Energex Limited 5.2,17 361.4 282.4 360.6 313.1

The accompanying notes form part of these financial statements. 2012/13 Energex Annual Financial Report 13 Statements of comprehensive income for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

Profit for the year 361.4 282.4 360.6 313.1

Other comprehensive income Items that will not be reclassified to profit or loss: Gain on revaluation of property, plant and equipment, net of tax 16 96.3 224.6 96.3 224.6 Actuarial gains/(losses) on defined benefit plans, net of tax 17 55.6 (86.2) 55.6 (86.2) Total items that will not be reclassified to profit or loss 151.9 138.4 151.9 138.4 Total items that may be reclassified subsequently to profit or loss - - - - Other comprehensive income for the year, net of tax 151.9 138.4 151.9 138.4 Total comprehensive income for the year 513.3 420.8 512.5 451.5

The accompanying notes form part of these financial statements. 14 2012/13 Energex Annual Financial Report Balance sheets as at 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

ASSETS Current assets: Cash and cash equivalents 5 49.8 205.4 49.8 205.4 Trade and other receivables 6 416.7 339.2 415.6 338.1 Inventories 7 74.8 87.8 74.8 87.8 Other current assets 10 18.6 20.9 18.6 20.9 Total current assets 559.9 653.3 558.8 652.2 Non-current assets: Trade and other receivables 6 583.6 311.6 583.6 311.6 Property, plant and equipment 8 10,760.2 10,048.7 10,748.1 10,035.9 Intangible assets 9 4.6 6.9 4.6 6.9 Total non-current assets 11,348.4 10,367.2 11,336.3 10,354.4 TOTAL ASSETS 11,908.3 11,020.5 11,895.1 11,006.6

LIABILITIES Current liabilities: Trade and other payables 11 184.7 204.9 183.5 203.8 Current tax payable 9.7 3.1 9.7 3.1 Provisions 13 366.4 293.9 366.4 293.9 Other current liabilities 14 30.1 37.3 30.1 37.3 Total current liabilities 590.9 539.2 589.7 538.1 Non-current liabilities: Trade and other payables 11 0.1 - 2.6 0.8 Long-term borrowings 12 6,000.8 5,464.6 6,000.8 5,464.6 Defined benefit fund deficit 22.3 15.7 100.3 15.7 100.3 Net deferred tax liabilities 3.3 1,868.8 1,670.8 1,870.5 1,672.6 Provisions 13 91.7 123.9 91.7 123.9 Other non-current liabilities 14 3.8 4.4 3.8 4.4 Total non-current liabilities 7,980.9 7,364.0 7,985.1 7,366.6 TOTAL LIABILITIES 8,571.8 7,903.2 8,574.8 7,904.7

NET ASSETS 3,336.5 3,117.3 3,320.3 3,101.9

EQUITY Contributed equity 15 746.4 746.4 746.4 746.4 Reserves 16 1,896.4 1,803.9 1,896.4 1,803.9 Retained earnings 17 693.7 567.0 677.5 551.6 Parent interest 3,336.5 3,117.3 3,320.3 3,101.9 TOTAL EQUITY 3,336.5 3,117.3 3,320.3 3,101.9

The accompanying notes form part of these financial statements. 2012/13 Energex Annual Financial Report 15 Statements of changes in equity for the year ended 30 June 2013

Attributable to owners of Energex Limited Contributed Reserves Retained Total equity earnings equity Consolidated $ M $ M $ M $ M

Balance at 1 July 2011 746.4 1,586.8 589.2 2,922.4

Profit for the year - - 282.4 282.4 Other comprehensive income - 224.6 (86.2) 138.4 Transfer from reserves to retained earnings on asset disposal - (7.5) 7.5 - Total comprehensive income for the year - 217.1 203.7 420.8 Transactions with owners in their capacity as owners: Dividends provided for or paid - - (225.9) (225.9) Balance at 30 June 2012 746.4 1,803.9 567.0 3,117.3

Balance at 1 July 2012 746.4 1,803.9 567.0 3,117.3

Profit for the year - - 361.4 361.4 Other comprehensive income - 96.3 55.6 151.9 Transfer from reserves to retained earnings on asset disposal - (3.8) 3.8 - Total comprehensive income for the year - 92.5 420.8 513.3 Transactions with owners in their capacity as owners: Dividends provided for or paid - - (294.1) (294.1) Balance at 30 June 2013 746.4 1,896.4 693.7 3,336.5

Energex Limited

Balance at 1 July 2011 746.4 1,586.8 543.1 2,876.3

Profit for the year - - 313.1 313.1 Other comprehensive income - 224.6 (86.2) 138.4 Transfer from reserves to retained earnings on asset disposal - (7.5) 7.5 - Total comprehensive income for the year - 217.1 234.4 451.5 Transactions with owners in their capacity as owners: Dividends provided for or paid - - (225.9) (225.9) Balance at 30 June 2012 746.4 1,803.9 551.6 3,101.9

Balance at 1 July 2012 746.4 1,803.9 551.6 3,101.9

Profit for the year - - 360.6 360.6 Other comprehensive income - 96.3 55.6 151.9 Transfer from reserves to retained earnings on asset disposal - (3.8) 3.8 - Total comprehensive income for the year - 92.5 420.0 512.5 Transactions with owners in their capacity as owners: Dividends provided for or paid - - (294.1) (294.1) Balance at 30 June 2013 746.4 1,896.4 677.5 3,320.3

The accompanying notes form part of these financial statements. 16 2012/13 Energex Annual Financial Report Cash flow statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

Cash flows from operating activities: Receipts from customers (inclusive of goods and services tax) 1,894.8 1,723.5 1,890.7 1,716.6 Payments to suppliers and employees (inclusive of goods and services tax) (1,091.0) (935.7) (1,088.7) (929.1) 803.8 787.8 802.0 787.5 Finance costs paid (362.1) (317.9) (362.2) (319.2) Income taxes paid (15.5) - (15.3) (0.6) Net cash provided by operating activities 5.2 426.2 469.9 424.5 467.7 Cash flows from investing activities: Payment for property, plant and equipment, and intangibles (878.9) (932.3) (878.8) (932.0) Payments for capitalised interest (27.2) (29.5) (27.2) (29.5) Loan to related parties (17.0) (25.8) (17.0) (25.8) Proceeds from sale of property, plant and equipment 13.0 14.2 13.0 10.2 Interest received 5.2 18.2 22.1 18.2 22.0 Net cash used in investing activities (891.9) (951.3) (891.8) (955.1) Cash flows from financing activities: Proceeds from borrowings 536.2 718.4 536.2 718.4 Loan from related parties - - 1.6 10.6 Repayable deposits paid (0.2) (0.6) (0.2) (0.6) Dividends paid to owners of Energex Limited 18 (225.9) (187.8) (225.9) (187.8) Net cash provided by financing activities 310.1 530.0 311.7 540.6 Net increase/(decrease) in cash and cash equivalents (155.6) 48.6 (155.6) 53.2 Cash and cash equivalents at start of year 205.4 156.8 205.4 152.2 Cash and cash equivalents at end of year 5.1 49.8 205.4 49.8 205.4

The accompanying notes form part of these financial statements. 2012/13 Energex Annual Financial Report 17 Notes to and forming part of the financial statements for the year ended 30 June 2013

1 Summary of significant accounting policies

1.1 General information

Energex Limited (Energex) is a company domiciled in Australia. The consolidated financial report for the year ended 30 June 2013 comprises the parent (Energex) and its subsidiaries (together referred to as the Group) and the Group’s interest in a jointly controlled entity.

The financial report was authorised for issue by the Directors on 26 August 2013.

1.2 Statement of compliance

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards issued by the Australian Accounting Standards Board, the Corporations Act 2001 and the provisions of the Government Owned Corporations Act 1993 (GOC Act).

The accounting policies have been consistently applied, unless otherwise stated.

The financial report includes the consolidated financial statements of the Group and Energex in accordance with the Australian Securities & Investments Commission (ASIC) Class Order 10/654, issued on 26 July 2010.

The Group is a for-profit entity for the purpose of preparing financial statements.

Early adoption of Australian Accounting Standards

The Group has considered the Australian Accounting Standards issued or amended but not yet effective for the annual reporting period ended 30 June 2013 and elected not to early adopt any standards under section 334(5) of the Corporations Act 2001.

Australian Accounting Standards not yet applicable and not early adopted

The Australian Accounting Standards issued or amended that are not yet effective and not elected to be early adopted relevant to the Group are shown below (those Australian Accounting Standards that have been assessed to result in no or minimal impact are not included below):

 AASB 9 Financial Instruments AASB 9 (2012) introduces new requirements for the classification and measurement of financial assets and financial liabilities. Under AASB 9 (2012), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The International Accounting Standards Board (IASB) currently has an active project that may result in limited amendments to the classification and measurement requirements of AASB 9 and add new requirements to address the impairment of financial assets and hedge accounting.

AASB 9 (2012) is effective for annual periods beginning on or after 1 January 2015 with early adoption permitted.

The extent of the impact on the Group has not yet been quantified.

 AASB 11 Joint Arrangements Under AASB 11, the structure of the joint arrangement, although still an important consideration, is no longer the main factor in determining the type of joint arrangement and therefore the subsequent accounting.

The Group’s interest in a joint operation, which is an arrangement in which the parties have rights to the assets and obligations for the liabilities, will be accounted for on the basis of the Group’s interest in those assets and liabilities.

The Group’s interest in a joint venture, which is an arrangement in which the parties have rights to the net assets, will be equity accounted.

The Group will need to reclassify its joint arrangement relating to SPARQ Solutions Pty Ltd (SPARQ), which will lead to changes in current accounting for these interests.

AASB 11 is effective for annual periods beginning on or after 1 January 2013 with early adoption permitted.

The adoption of AASB 11 is not expected to have a significant impact on the Group’s financial position and results of operations.

18 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

 AASB 13 Fair Value Measurement AASB 13 provides a single source of guidance on how fair value is measured, and replaces the fair value measurement guidance that is currently dispersed throughout Australian Accounting Standards. Subject to limited exceptions, AASB 13 is applied when fair value measurements or disclosures are required or permitted by other AASBs. The Group is currently reviewing its methodologies in determining fair values and the extent of the impact on the Group has not yet been quantified. AASB 13 is effective for annual periods beginning on or after 1 January 2013 with early adoption permitted.

 AASB 119 Employee Benefits AASB 119 (2011) changes the definition of short-term and other long-term employee benefits to clarify the distinction between the two. For defined benefit plans, removal of the accounting policy choice for recognition of actuarial gains and losses is not expected to have any impact on the Group. The Group has assessed the impact of the change in measurement principles of expected return on plan assets and this change will not have a significant impact on the Group. AASB 119 (2011) is effective for annual periods beginning on or after 1 January 2013 with early adoption permitted.

1.3 Basis of preparation

Historical cost convention

The consolidated financial report has been prepared on the basis of historical cost, except where stated for certain financial assets and liabilities and supply system assets that are carried at their fair value.

Functional and presentation currency

The consolidated financial report is presented in Australian dollars, which is Energex’s functional currency and the functional currency of entities in the Group.

Critical accounting estimates and judgements

The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in relevant future periods affected.

The estimates and assumptions that have a potential significant effect are discussed below.

 Future recovery of regulated revenue under-recoveries Under the current framework imposed by the National Electricity Rules, the Group is entitled to recover regulated revenue under-recoveries and the solar photovoltaic (PV) feed-in tariff rebate through future distribution use of system (DUOS) charges. On this basis, the regulated revenue under-recoveries are considered to be fully recoverable.

At the date of this report, independent reviews of all aspects of the electricity sector that impact on electricity costs as discussed in the Directors’ report have not led to any decisions that would impact the recovery of revenue under- recoveries.

 Regulated revenue Various assumptions are used in the recognition of the Group’s regulated revenue and associated assets and obligations. These estimates and assumptions are described in Notes 1.5, 1.12, 1.20, 6 and 13.

 Impairment of property, plant and equipment, and intangible assets The Group assesses impairment at the end of each reporting period by evaluating conditions specific to the Group that may indicate potential impairment of assets. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units or CGUs). Key estimates and assumptions made in determining the recoverable amount of assets, in the absence of quoted market prices are discussed in Note 8.1.

 Supply system assets valuation Supply system assets, including associated land and buildings, are carried at fair value. Fair value is estimated using an income approach based on discounted future cash flows. Key estimates and assumptions made in assessing fair value are discussed in Note 8.

2012/13 Energex Annual Financial Report 19 Notes to and forming part of the financial statements for the year ended 30 June 2013

 Depreciation Depreciation is calculated on a straight-line basis using the estimated useful life and estimated residual value of an asset. These estimates and assumptions are further discussed in Note 1.15.

 Dismantled assets valuation The unit rates used to estimate the value of dismantled assets are determined with reference to the estimated fair value of the supply system (refer Note 8).

 Defined benefit superannuation fund obligations Actuarial assumptions used in the calculation of the Group’s defined benefit superannuation fund obligations are described in Note 22.

 Employee benefits The Group recognises a long service leave liability based on accrued employee benefits. The liability recognised for employee benefits is based on assumptions described in Note 1.19.

Changes in accounting policies

From 1 July 2012, the Group applied amendments to AASB 101 Presentation of Financial Statements outlined in AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income. The change in accounting policy only relates to disclosures and has had no impact on consolidated earnings per share or net income. The changes have been applied retrospectively and require the Group to separately present those items of other comprehensive income that may be reclassified to profit or loss in the future from those that will never be reclassified to profit or loss. These changes are included in the statement of comprehensive income.

1.4 Principles of consolidation

The consolidated financial statements of the Group include the financial statements of Energex and all entities in which it had a controlling interest during the year ended 30 June 2013.

Subsidiaries

Subsidiaries are entities controlled by Energex. Control exists when Energex has the power, directly or indirectly, to govern the financial and operating policies of an entity to obtain benefits from its activities.

The balances and effects of transactions between entities are eliminated in preparing the consolidated financial statements.

Where control of an entity commences or ceases during a financial year, the profits or losses are included in the consolidated income statements from the date control commenced to the date control ceased. Investments in controlled entities are carried in the financial statements at the lower of cost and recoverable amount.

Jointly controlled entities

The Group has a 50 per cent interest in the jointly controlled entity, SPARQ. This investment is accounted for in the financial statements using the equity method. Under this method, the Group's share of the post-acquisition profits or losses of the jointly controlled entity is recognised in the consolidated income statements, and its share of post- acquisition movements in reserves is recognised in the consolidated reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Refer to Note 23 for further details.

1.5 Revenue

Revenue is measured at the fair value of the consideration received or receivable net of goods and services tax (GST). Revenue is recognised when the amount can be reliably measured and it is probable that future economic benefits will flow to the Group or benefits have already flowed to the Group.

Revenue is recognised for the major business activities as follows:

20 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Rendering of services

 Regulated revenue Energex is subject to regulation under the National Electricity (Queensland) Law, the National Electricity Rules, and other rules established by the Australian Energy Market Commission as administered and enforced by the Australian Energy Regulator (AER). There are two categories of distribution services, being Standard Control Services (SCS) and Alternative Control Services (ACS). SCS comprise network services, connection services and metering services. ACS includes streetlighting services, quoted services and fee-based services. These two categories of distribution services earn revenue under two revenue models known as a revenue cap and a price cap. The revenue cap applies to SCS activities and comprises a pre-determined allowance for DUOS charges net of capital contributions to the supply system assets. The price cap applies to certain ancillary distribution services (refer to the service charges section below) and is determined as a price per unit of service.

SCS assets form part of the Regulated Asset Base (RAB) and earn a regulated return over their life under the revenue cap. ACS assets are generally subject to the price cap with the revenue recognised at the commencement of their life and, therefore, do generally not earn a regulated return over their life. SCS and ACS assets are measured at fair value.

DUOS is billed to customers based on a combination of energy consumption, demand, capacity and fixed charges at AER approved prices which are expected to recover the revenue cap for the financial year.

Regulated network use of system (NUOS) revenue is determined based on the allowed revenue cap for DUOS services plus a pass through of regulated transmission use of system (TUOS, also referred to as designated pricing proposal charges - DPPC) charges levied by transmission network service providers (predominantly Queensland Electricity Transmission Corporation Limited trading as Powerlink Queensland).

Under the current regulatory determination, Energex is entitled to recovery of the solar PV feed-in tariff payments in future periods. This recovery is also included in NUOS revenue.

Any current period under or over-recovery is recovered from or returned to customers in future periods through an adjustment to prices. Where over-recoveries result in an obligation, they are brought to account as a liability in the period in which they are over-recovered. Where there is sufficient certainty regarding the recoverability of under-recoveries, they are brought to account as an asset in the period in which they are under-recovered.

When circumstances arise which, in the opinion of the Directors, significantly change the assumptions on which the revenue cap is based, the AER is advised and the adjustments are reflected against the revenue cap and the resulting prices.

The AER introduced a Service Target Performance Incentive Scheme (STPIS) from 1 July 2010 that applies to electricity Distribution Network Service Providers (DNSPs). The purpose of the scheme is to provide financial incentives for DNSPs to maintain and improve service performance levels. The scheme enables Energex to earn a reward or incur a penalty capped at ±2.0 per cent of allowed revenue as set by the AER. The STPIS performance for 2012/13 resulted in a reward entitlement of $34.8 million. The Directors of Energex have resolved to permanently forego $22.5 million of this entitlement resulting in an undiscounted amount of $12.3 million being included in the Group’s income statement. Refer to the Directors report for further discussion of the background to the STPIS performance and related decisions.

 Community service obligation Direction notices that are issued by the shareholding Ministers which result in the non-recovery of AER approved revenue from customers may qualify as a community service obligation (CSO) under section 112 of the GOC Act. Where a direction notice qualifies as a CSO, Energex has an entitlement to recover any such revenue shortfalls from the State Government. CSO revenue is recognised when the Group becomes entitled to submit a claim to the State Government for foregone revenue.

 Service charges Revenue is earned for the provision of other electricity-related services, including additions and alterations to meters and service connections, ancillary metering services and temporary supply services. These are known as fee-based services and are subject to the price cap determined by the AER. However, the price charged for some of these services is capped under Schedule 8 of Queensland’s Electricity Regulation 2006 which overrides the AER price caps. Where applicable, revenue is recognised when the service is provided.

ACS revenue is also earned for the construction and maintenance of streetlighting and for other quoted services which represent customer requested works and recoveries for damage to Energex property. This revenue is recognised when the work has been completed or with reference to the stage of completion of the works.

2012/13 Energex Annual Financial Report 21 Notes to and forming part of the financial statements for the year ended 30 June 2013

Non-refundable contributions for capital works

The Group finances part of its capital works program through non-refundable contributions from customers which are applied to the cost of these works. The contributions to capital works are categorised either as revenue relating to SCS or ACS. SCS comprise network services, connection services and metering services with the associated assets forming part of the RAB. ACS include services such as streetlighting and large customer connections with the associated assets excluded from the RAB. Refer to the ‘Regulated revenue’ section above.

Contributions towards assets which form part of the RAB are included in regulated revenue for the electricity network at the fair value of the contribution. In-kind contributions of assets which are regulated under the price cap are recognised at the rates allowed by the AER.

All non-refundable contributions, in-kind and in-cash, are initially recognised as unearned revenue in the balance sheet. These contributions are subsequently recognised as revenue from ordinary activities when the associated assets are brought into commercial operation. Contributions of fully constructed non-current assets are recognised at the fair value of the contributed asset on the date when control passes to Energex and the assets are ready for use.

Sale of goods

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods, and effective control over the goods, have been passed to the buyer and the amount can be measured reliably.

Interest revenue

Interest revenue is recognised as it is earned using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset.

Government grants

When there is reasonable assurance the Group will comply with all conditions attached to government grants and that the grants will be received, they are recognised in the balance sheet as unearned revenue. Grants that compensate the Group for expenses incurred are recognised as revenue in the income statements. This occurs on a systematic basis as the conditions of the grants are fulfilled.

1.6 Goods and services tax

Revenues, expenses and assets are recognised net of GST except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Receivables, payables and commitments in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statements on a gross basis where major classes of cash receipts and cash payments are disclosed inclusive of GST. The GST component of cash flows arising from investing and financing activities that is recoverable from, or payable to, the taxation authority is classified as operating cash flows on the basis that the GST receivable or payable is operating in nature.

1.7 Finance costs

Finance costs charged by the lender include administration fees, capital market fees, a competitive neutrality fee and interest on the principal (refer Note 1.21).

Interest costs are calculated by Queensland Treasury Corporation (QTC) in accordance with its book rate methodology, which equates to amortised cost using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument.

Finance costs directly attributable to the construction of assets that take more than 12 months to prepare for their intended use are added to the cost of those assets (refer Note 8.2).

Finance costs which are not directly attributable to qualifying assets are expensed in the period in which they arise.

Where the present value of a provision in the balance sheet differs materially from its future expected settlement value, the provision is recorded at its present value. The increase in the provision due to the passage of time is recorded as a finance cost and is referred to as the unwinding of the discount (refer Notes 1.20 and 2.2).

All other finance costs are recognised as expenses in the period in which they are incurred (refer Note 2.2).

22 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

1.8 Income tax

Income tax equivalents

The Group is required to make income tax equivalent payments to the Queensland Government pursuant to subsection 129(4) of the GOC Act. These payments are administered by the ATO under the National Tax Equivalent Regime (NTER).

The NTER broadly utilises the provisions of the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and associated legislation, as well as rulings and other pronouncements by the ATO to determine the tax payable by the Group. The Group entities are not required to maintain a franking account.

Income tax equivalent accounting

The current income tax expense is based on the profit for the year adjusted for any items that are non-assessable or non- deductible in relation to the current tax year. It is calculated using the tax rates that have been enacted or substantively enacted by the end of the reporting period.

Current tax payable is the expected tax payable on the taxable profit for the year, at tax rates applicable to the income tax year, less instalments paid.

Deferred tax assets and liabilities are calculated by comparing the carrying amounts of assets and liabilities in the balance sheets with the tax bases of assets and liabilities determined in accordance with the relevant taxation legislation.

Deferred tax is calculated at the tax rates expected to apply when the temporary differences between accounting carrying amounts and tax bases of assets and liabilities reverse.

Deferred tax is recognised as an income or expense in the income statements with the exception of those items that may be credited or charged directly to equity. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. Capital losses are not recognised as a deferred tax asset as it is not considered probable they can be utilised in the future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset deferred tax balances, those balances relate to the same taxation authority and the intention is to settle on a net basis or realise the asset and settle the liability simultaneously.

The amount of deferred tax benefits brought to account, or which may be realised in the future, is based on the assumption that no adverse change will occur in income taxation legislation. It is also anticipated that the Group will derive sufficient future assessable income to enable the benefit to be realised and will comply with the conditions of deductibility imposed by the law.

Income tax consolidation

The Group has implemented the tax consolidation legislation and is, therefore, taxed as a single entity. Energex is the ‘head-entity’ in the tax-consolidated group and makes income tax payments on behalf of wholly-owned subsidiaries. However, in accordance with UIG Interpretation 1052 Tax Consolidation Accounting (UIG 1052), wholly-owned Australian subsidiaries in the tax-consolidated group continue to account for their own current and deferred tax amounts. These amounts are measured as if the subsidiary continued to be a stand-alone taxpayer in its own right.

Tax funding agreement

Entities within the Energex tax-consolidated group have signed a tax funding agreement designed to bind all entities within the tax-consolidated group. Under the terms of the tax funding agreement, each of the subsidiary entities in the tax-consolidated group have agreed to pay or receive a tax equivalent payment to or from the head entity, based on the current tax payable liability or current tax receivable asset of the subsidiary entity. Such amounts are reflected in amounts receivable from, or payable to, the head company in the tax-consolidated group. Energex has elected the ‘stand-alone taxpayer approach’ under UIG 1052 in accounting for the tax effect balances of reporting entities within the Group. Under this approach, each entity in the tax-consolidated group measures its current and deferred taxes as if it continued to be a separate taxable entity in its own right.

2012/13 Energex Annual Financial Report 23 Notes to and forming part of the financial statements for the year ended 30 June 2013

1.9 Earnings per share

Basic earnings per share is determined by dividing profit after tax attributable to members of Energex by the weighted average number of ordinary shares on issue during the financial year.

The weighted average number of shares on issue during the financial year is calculated by applying a time weighting factor to shares issued or redeemed throughout the year (refer Note 4).

1.10 Dividends

A provision is made for the amount of any dividend declared by the Board on or before the end of the financial year but not distributed at the end of the reporting period. The provision is recognised in the reporting period in which the dividends are declared for the entire undistributed amount (refer Note 18).

1.11 Cash and cash equivalents

Cash and cash equivalents include cash on hand, cash at bank, call deposits and other short-term highly liquid investments with original maturities of three months or less (refer Note 5).

1.12 Trade and other receivables

Trade and other receivables are recognised when the Group has a legal right to receive cash, cash equivalents or economic benefits and are measured at amounts due at the time of sale or service delivery. Trade receivables are due for settlement within 10 to 30 days of the customer being billed. Other receivables are due in accordance with their contractual terms.

Collectibility of trade receivables is reviewed on an ongoing basis. A provision for impairment of receivables is raised when the collection of the full amount of the debt is no longer probable. Bad debts are written off when it has been identified that there is no reasonable prospect of recovery. Movements in the provision are recognised in the income statements (refer Note 6).

Regulated revenue under-recoveries

A current asset is recognised for the net balance of regulated revenue under-recoveries to be recovered over the next 12 months where the net balance is an asset. A non-current asset is recognised for any remaining under-recovery of regulated revenue if there is sufficient certainty over its recoverability in future years but the timing of the recovery is yet to be approved by the AER.

The non-current asset is escalated by the weighted average cost of capital (WACC) as determined by the AER and discounted at the same rate to reflect the discounted present value of the amount expected to be recovered at the end of the reporting period (refer Note 6).

1.13 Financial instruments

Initial recognition and measurement

Financial instruments are initially measured at fair value when the related contractual rights or obligations arise (refer Note 20).

Subsequent measurement

Financial instruments classified as fair value through profit and loss are measured at fair value at the end of each reporting period subsequent to their initial recognition. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the profit or loss when incurred unless hedge accounting is applied.

Financial instruments classified as loans and receivables are measured at amortised cost subsequent to their initial recognition, using the effective interest method less provision for impairment. The effective interest rate is the rate that discounts estimated future cash flows over the life of the asset.

Other non-derivative financial assets and liabilities are recognised at amortised cost subsequent to their initial recognition. For borrowings, this comprises original debt less principal payments and amortisation.

24 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

1.14 Inventories

The majority of Energex inventories are used in the maintenance and construction of supply system assets. Some inventories are sold to contractors for the development of subdivisions. Inventories are measured at the lower of cost and net realisable value (refer Note 7).

1.15 Property, plant and equipment

Each class of property, plant and equipment is carried at fair value or cost less any accumulated depreciation and impairment losses where applicable. Fair value is defined as the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.

Supply system assets are measured at fair value using an income approach based on discounted future cash flows. Valuations are undertaken annually to ensure that the carrying value of the assets does not differ materially from that which would be determined using fair value at the end of the reporting period.

The supply system includes land and building assets which are utilised for warehousing and logistics purposes, training and pole depot facilities, and field response activities. These properties are equipped with specialised facilities to meet the specific needs of the network field operations. These land and building assets are integral in supporting the operation of the electricity network and form part of the regulated asset portfolio subject to the same revenue cap form of regulation.

Other property, plant and equipment, and work in progress are carried at cost less accumulated depreciation where applicable. The carrying amount for these assets should not materially differ from their fair value (refer Note 8).

Acquisition of assets

All assets acquired are recorded at their cost of acquisition plus incidental costs directly attributable to the acquisition.

Asset recognition threshold

Individual items with a purchase price of $1,000 or greater are recorded in the financial statements as property, plant and equipment. Items between $100 and $999 in value which have a life greater than 12 months are recorded as pooled assets. All other items are expensed.

Non-current assets constructed by the Group

The cost of non-current assets constructed by the Group includes the cost of materials, direct labour, other costs directly attributable to the assets and, where appropriate, finance costs. Finance costs that are directly attributable to the construction of assets are capitalised as part of the cost of those assets. The current interest rate is applied to the outstanding work in progress (WIP) balance once the project life exceeds 12 months and the WIP project balance exceeds $200,000 (refer Note 1.7).

Contributed assets

Contributed assets are those that are funded by customers and either constructed by the Group or constructed by an external party and then gifted to the Group by the customer. Contributed assets are recognised at fair value on the date when control passes to the Group and the assets are ready for use.

Repairs and maintenance

Items of property, plant and equipment are maintained on a regular basis and these costs are expensed as incurred. Where the costs extend the useful life of the asset, or upgrade the asset beyond its originally designed function or capacity, such costs are capitalised.

Gains and losses on disposal

A gain or loss on disposal is recognised in the income statement and is the difference between the net sale proceeds and the carrying amount of the asset at the time of disposal.

2012/13 Energex Annual Financial Report 25 Notes to and forming part of the financial statements for the year ended 30 June 2013

Depreciation

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. Depreciation is calculated on a straight-line basis using the estimated useful life of specific classes of property, plant and equipment. Depreciation is provided for from the time units of property, plant and equipment commence operation. Estimates of the remaining useful lives and residual values of property, plant and equipment are reviewed annually. The useful life estimate is determined with consideration of expected usage based on the asset’s capacity, expected physical wear and tear, and expected technical or commercial obsolescence. When changes are made, adjustments are reflected prospectively in current and future periods only. Energex determines an asset’s residual value based on the amount expected to be obtained on disposal.

The estimated useful lives used for each class of depreciable assets are:

Supply system 10 – 70 years Other property, plant and equipment 3 – 35 years

The supply system is treated as a complex asset. A complex asset is a physical asset capable of disaggregation into identifiable components that are subject to regular replacement. These components are assigned useful lives distinct from the asset to which they relate and are depreciated accordingly.

Asset revaluation reserve

If an item of property, plant and equipment is revalued, the entire class to which that asset belongs is revalued on a consistent basis. The supply system is treated as a complex asset for the purposes of revaluation increments and decrements, such that increments and decrements can be offset.

Revaluation increments, net of tax, are recognised in the asset revaluation reserve except for amounts reversing a decrement previously recognised as an expense, which are recognised in the income statement. Revaluation decrements are only offset against revaluation increments applying to the supply system, and any excess is recognised as an expense.

Where an asset is sold, dismantled or scrapped, any remaining revaluation amount held in the asset revaluation reserve, after any impairment loss has been recognised, is transferred directly to retained earnings.

1.16 Intangible assets

Computer software

The cost of internally generated computer software includes the cost of all materials and direct labour used during development of the software and other costs directly attributable to the asset. Capitalisation includes costs incurred from the point of Board approval until the software is available for use. Other computer software is carried at cost (refer Note 9).

Research and development

Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and the expenditure can be measured reliably. Development costs have a finite life and are amortised on a straight-line basis over the useful life of the asset.

Amortisation

Intangible assets are amortised on a straight-line basis over their estimated useful lives. Energex determines an asset’s residual value based on the amount expected to be recovered on disposal.

The estimated useful lives for intangible assets with finite lives are as follows:

Computer software 2.5 – 7 years

The useful lives of intangible assets are reviewed annually and are altered if estimates have changed significantly.

Acquisition of intangible assets

All intangible assets acquired are recorded at their cost of acquisition plus incidental costs directly attributable to the acquisition.

26 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Derecognising intangible assets

Intangible assets are derecognised on disposal or when no future economic benefits are expected to arise from continued use of the assets. Gains and losses on the disposal of intangible assets are determined as the difference between the net disposal proceeds and the carrying amount of assets, and are recognised in the income statements.

1.17 Impairment

Each period, the Group reviews the carrying amount of the assets of its CGUs to determine whether there is any indication of impairment.

An impairment loss is recognised whenever the carrying amount of a CGU exceeds its recoverable amount. The recoverable amount is the higher of a CGU’s fair value less costs to sell and its value-in-use.

Fair value less costs to sell is best determined by reference to a price in a binding sales agreement. However, where there is no binding sales agreement and an asset is traded in an active market, fair value is a CGU’s market price. Where neither of these valuations exists, the net selling price is based on the best information available to reflect the amount that an enterprise could obtain in an arm’s length transaction.

Value-in-use is the present value of future cash flows expected to be derived from a CGU.

Impairment losses are recognised in the income statements, unless an asset has previously been revalued. In this case the impairment loss is treated as an adjustment to the asset revaluation reserve (refer Note 8.1).

Impairment losses are reversed when there is an indication the impairment loss may no longer exist and there has been a change in the estimated recoverable amount. An impairment loss is reversed only to the extent that a CGU’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

1.18 Trade and other payables

Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year where payment has not been made. Trade and other payables are recognised when the Group has a legal or constructive obligation to pay. Trade and other payables are recognised at cost, which approximates their fair value. Trade payables are unsecured and payment is normally made by the end of the month following the Group’s receipt of the supplier’s invoice. Other payables are settled in accordance with their contractual terms (refer Note 11).

1.19 Employee benefits

A liability is recognised for benefits accruing to employees for wages and salaries, annual leave, long service leave and, in some cases, vesting sick leave when it is probable that settlement will be required and they are capable of being measured reliably.

Liabilities recognised for employee benefits expected to be settled within 12 months are measured at their nominal value using remuneration rates expected to apply at the time of settlement and include related on-costs.

Liabilities recognised for employee benefits which are not expected to be settled within 12 months are measured at the present value of the estimated future cash flows to be made by the Group for services provided by employees up to the end of the reporting period. These cash flows are discounted using rates attaching to government bonds at the end of the reporting period which most closely match the terms of maturity of the related liabilities.

Superannuation plans

 Defined contribution plans Contributions to defined contribution plans are expensed when incurred.

 Defined benefit plans The cost of providing benefits under defined benefit plans is determined using the projected unit credit method. The Projected Unit Credit Method (sometimes known as the accrued benefit method pro-rated on service or as the benefit/years of service method) sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. Defined lump sum benefits based on years of service and final average salary are provided in Note 22.

2012/13 Energex Annual Financial Report 27 Notes to and forming part of the financial statements for the year ended 30 June 2013

Post-employment benefit obligations are discounted using market yields at the end of the reporting period on government bonds, with terms to maturity and currency of the bonds that match, as closely as possible, to the estimated term of the benefit obligations.

Any defined benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation, net of the fair value of the plan assets. Any asset resulting from this calculation is limited to past service costs, plus the present value of available refunds and reductions in future contributions to the plan. The present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund to the end of the reporting period, calculated by an independent actuary.

Actuarial valuations are carried out at each reporting period. Actuarial gains and losses are recognised in full, directly in retained earnings, in the period in which they occur and are presented in the statements of comprehensive income. Consideration is given to future wage and salary levels, experience of employee departures and periods of service.

Past service cost is recognised immediately in the income statements to the extent that benefits are already vested, and otherwise amortised on a straight-line basis over the average period until the benefits become vested.

1.20 Provisions

Provisions are recognised when the Group has a legal or constructive present obligation, as a result of past events, where it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Refer to Note 13 for further details.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account risks and uncertainties. Where a provision is measured using the cash flows estimated to settle the present obligation, the carrying amount is the present value of those cash flows.

Provisions are reviewed on an annual basis and adjustments made where appropriate. Where the adjustment relates to a change in an estimate, the amount is recognised in the income statements prospectively. Only expenditures that relate to the original provision are offset against it.

A provision which is not expected to be settled within 12 months is discounted to present value where the impact of discounting is material. The discount rate used reflects the risks specific to the liability.

Provision for site restoration/rehabilitation

A provision is raised for the obligation to restore property sites in the future on expiration of associated contracts or when the obligation arises in the course of business. The provision is determined with reference to an independent estimate of the cost to restore, repair, dismantle or rehabilitate the site.

Provision for public liability insurance

A non-current provision is raised to cover the Group’s excess of $1.0 million on any public liability insurance claim over $1.0 million. Where the cumulative claim value per incident is more than $0.1 million but less than $1.0 million, a non- current provision is raised for the full amount as these are settled by the Group. The provision is maintained for up to six years as public liability claims typically have a statutory limitation period of six years for non-personal injury claims, and three years for personal injury claims. This provision is based on an independent actuarial valuation obtained for each insurance year, and is also internally assessed annually at the end of each reporting period for sufficiency and appropriateness. Due to the inability to obtain a reliable estimate of the appropriate split between the current and non- current portions, the entire provision is classified as non-current.

Provision for environmental offsets

A provision is raised where there is a legal obligation to provide environmental offsets to counterbalance unavoidable, negative impacts on the natural environment resulting from an activity or development. The estimated costs required to settle the obligation are attributed to the specific capital project to which the environmental offsets relate.

Provision for service line inspections

A provision has been raised for the obligation to conduct inspections of overhead service lines as the result of identifying that the black insulation covering of some overhead service lines has deteriorated earlier than expected. The provision has been determined through management estimation of the remaining cost of the inspection program and related community awareness marketing costs. The inspection costs are based on the number of poles known to be in the relevant areas and the designated cost of inspecting the poles.

28 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Provision for redundancies

A provision has been raised for the obligation to provide termination payments to employees where Energex has committed to the decision without realistic possibility of withdrawal.

1.21 Borrowings

Borrowings are initially recognised at fair value net of transaction costs incurred and are subsequently measured at amortised cost, using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument.

Principal repayments are not required for the long-term debt funding with QTC under the terms and conditions of the loans. The working capital facility is short-term in nature with the outstanding balance paid down regularly. Refer to Notes 12, 20.1 and 20.6 for further details.

Forward starting loans

The Group enters into forward starting loans with QTC where it agrees to borrow specified amounts in the future at a pre- determined interest rate. The forward starting loans are entered into with the objective of minimising interest rate volatility.

It is the Group’s policy to recognise forward starting loans at fair value when the loan is drawn down.

1.22 Leases

Lease payments for operating leases, where substantially all of the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.

The Group is not subject to any finance lease payment obligations but is entitled to receive amounts under finance lease receivable arrangements.

Finance lease receivables are recognised as receivables at the present value of minimum lease payments receivable, plus the present value of any residual expected to accrue to the benefit of the Group at the end of the lease term. The asset is reduced by the principal component of lease receipts. The interest component is credited to profit from operations. Refer to Note 21.3.

1.23 Share capital

Ordinary shares are classified as equity (refer Note 15).

1.24 Rounding of amounts

The Group has applied the relief available to it under ASIC Class Order 98/100 dated 10 July 1998. Therefore amounts in the financial report, including the Directors’ report, have been rounded to the nearest hundred thousand dollars, unless otherwise stated.

1.25 Comparatives

During the year, the methodology applied in the classification of certain overheads in individual line items presented in the income statements was revised. This did not result in any changes in total expenses or the profit of the Group in the current or prior year.

Certain line items in the income statements were disaggregated to provide enhanced disclosure.

Comparative figures have been adjusted where necessary to conform to changes in presentation for the current financial year.

2012/13 Energex Annual Financial Report 29 Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

2 Profit from operations

2.1 Revenue

Revenue from operations consisted of the following items:

Revenue from rendering of services: Network use of system 1,982.9 1,738.5 1,982.9 1,738.5 Community service obligation 26.4 35.8 - 35.8 - Service charges 90.7 82.6 86.5 78.1 2,109.4 1,821.1 2,105.2 1,816.6 Revenue from sale of goods 24.9 30.3 24.9 30.3 Government grant revenue 26.4 4.1 9.6 4.1 9.6 Other revenue: Non-refundable contributions for capital works 90.8 82.4 90.8 82.4 Distribution from subsidiary 5.2,26.1 - - - 32.1 Interest revenue – related parties 26.2 12.8 11.4 12.8 11.4 Interest revenue – other parties 30.7 26.1 30.7 26.1 Gain on disposal of property, plant and equipment 5.2 0.6 5.3 0.6 1.3 Sundry revenue 12.7 18.8 12.7 18.8 147.6 144.0 147.6 172.1 Total revenue 2,286.0 2,005.0 2,281.8 2,028.6

2.2 Expenses

Expenses consisted of the following significant items:

Finance costs: Related parties 26.1 - - 0.1 1.4 Other parties – QTC 26.4 344.9 309.8 344.9 309.8 Competitive neutrality fee 26.4 47.1 42.0 47.1 42.0 Finance charges – unwinding of discount 13.1 0.2 5.5 0.2 5.5 Less: capitalised financing costs 8.1,8.2 (26.4) (29.5) (26.4) (29.5) Total finance costs 365.8 327.8 365.9 329.2

Depreciation, amortisation and impairment expense: Depreciation: Supply system assets 8.1 299.0 273.3 299.0 273.3 Other property, plant and equipment 8.1 45.2 46.4 44.3 45.6 Total depreciation expense 344.2 319.7 343.3 318.9 Amortisation: Computer software 9.1 3.3 2.6 3.3 2.6 Total amortisation expense 3.3 2.6 3.3 2.6 Impairment loss: Supply system dismantled assets 8.1 5.1 7.2 5.1 7.2 Total impairment loss 5.1 7.2 5.1 7.2 Total depreciation, amortisation and impairment loss 5.2 352.6 329.5 351.7 328.7

30 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

Other major expenses included: Provision for impairment of receivables 5.2 1.4 0.9 1.4 0.9 Impairment of finance lease receivables 5.2 2.2 - 2.2 - Provision for inventory obsolescence 5.2 4.8 (0.5) 4.8 (0.5) Cost of inventory sold 16.1 18.7 16.1 18.7 Operating lease rental expense 24.4 20.4 24.3 20.4 Superannuation defined benefit plan expense 22.2 8.4 9.0 8.4 9.0 Superannuation defined contribution plan expense 23.7 23.9 23.7 23.9

3 Income tax

3.1 Income tax reported in the income statements

Current income tax: Current income tax charge 24.8 3.1 24.8 3.8 Adjustments for current income tax of previous years (2.7) 0.4 (2.7) 0.3 Deferred income tax: Relating to origination and reversal of temporary differences 131.0 118.0 130.7 116.8 Adjustments for deferred income tax of previous years 2.0 (0.7) 2.0 (0.7) Income tax equivalent reported in the income statements 155.1 120.8 154.8 120.2

The aggregate amount of income tax equivalent attributable to the financial year differs from the amount calculated on the operating profit. The differences are reconciled as follows:

Profit before income tax equivalent 516.5 403.2 515.4 433.3 Income tax equivalent calculated at 30% (2012: 30%) 154.9 121.0 154.6 130.0

Equivalent tax effect on non-temporary differences: Current year losses for which no deferred tax asset was recognised 0.7 - 0.7 - Distribution from subsidiary - - - (9.6) Other non-deductible expenses 0.2 0.2 0.2 0.1 Income tax equivalent adjusted for non- temporary differences: 155.8 121.2 155.5 120.5 Over provision of prior year (0.7) (0.4) (0.7) (0.3) Income tax equivalent reported in the income statements 155.1 120.8 154.8 120.2

2012/13 Energex Annual Financial Report 31 Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

3.2 Income tax equivalent reported in the statements of comprehensive income

Deferred income tax related to items charged or credited directly to equity: Property, plant and equipment revaluations 3.3,16 41.2 96.3 41.2 96.3 Actuarial movements on defined benefit plans 3.3,17 23.9 (36.9) 23.9 (36.9) Income tax equivalent reported directly in equity 65.1 59.4 65.1 59.4

3.3 Deferred tax balances

Deferred tax assets

The balance comprises temporary differences attributable to:

Amounts recognised in the income statements: Provisions and accrued expenditure not currently deductible 54.6 60.7 54.3 60.4 Unearned revenue in relation to government grant 1.4 2.5 1.4 2.5 Unearned revenue in relation to capital contributions 2.1 3.5 2.1 3.5 Amounts recognised directly in equity: Defined benefit fund deficit 4.7 30.1 4.7 30.1 Reclassification from deferred tax liabilities 1.4 1.6 - - Gross deferred income tax assets 64.2 98.4 62.5 96.5

Set-off of deferred tax liabilities pursuant to set-off provisions (64.2) (98.4) (62.5) (96.5) Net deferred tax assets - - - -

Movements in deferred tax assets: Balance at start of year 98.4 115.5 96.5 112.5 Charged to the income statements (8.6) (26.6) (8.6) (26.7) Credited/(charged) to equity 3.2,17 (23.9) 36.9 (23.9) 36.9 Over provision of prior year (1.5) (0.2) (1.5) (0.2) Unused tax losses for which deferred tax asset has been recognised/(recouped) - (26.0) - (26.0) Reclassification from deferred tax liabilities (0.2) (1.2) - - Balance at end of year 64.2 98.4 62.5 96.5

Set-off of deferred tax liabilities pursuant to set-off provisions (64.2) (98.4) (62.5) (96.5) Net deferred tax assets - - - -

32 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

Deferred tax liabilities

The balance comprises temporary differences attributable to:

Amounts recognised in the income statements: Difference in capitalisation, depreciation and amortisation of property, plant and equipment for accounting and tax purposes 938.9 912.0 940.3 913.6 Expenditure currently deductible for tax but deferred and amortised for accounting purposes 12.8 12.3 12.8 12.2 Income not yet assessable for tax but recognised for accounting purposes 167.2 70.2 167.2 70.2 Amounts recognised directly in equity: Revaluation of property, plant and equipment 812.7 773.1 812.7 773.1 Reclassification to deferred tax assets 1.4 1.6 - - Gross deferred income tax liabilities 1,933.0 1,769.2 1,933.0 1,769.1

Set-off of deferred tax assets pursuant to set- off provisions (64.2) (98.4) (62.5) (96.5) Net deferred tax liabilities 1,868.8 1,670.8 1,870.5 1,672.6

Movements in deferred tax liabilities: Balance at start of year 1,769.2 1,609.3 1,769.1 1,609.3 Charged to the income statements 124.4 65.4 124.3 64.1 Charged to equity 3.2,16 41.2 96.3 41.2 96.3 Over/(under) provision of prior year (1.6) (0.6) (1.6) (0.6) Reclassification to deferred tax assets (0.2) (1.2) - - Balance at end of year 1,933.0 1,769.2 1,933.0 1,769.1

Set-off of deferred tax assets pursuant to set- off provisions (64.2) (98.4) (62.5) (96.5) Net deferred tax liabilities 1,868.8 1,670.8 1,870.5 1,672.6

2012/13 Energex Annual Financial Report 33 Notes to and forming part of the financial statements for the year ended 30 June 2013

4 Earnings per share

4.1 Operations

Consolidated

Note 2013 2012

Total basic earnings per share (cents) 41.28 32.25

$ M $ M The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: Profit attributable to members of Energex Limited 5.2,17 361.4 282.4

Number Number Weighted average number of ordinary shares used in the calculation of basic earnings per share 4.2 875,532,774 875,532,774

4.2 Calculation of weighted average number of ordinary shares used in the calculation of basic earnings per share

Weighted Number of Number of Number of average shares on days shares days in number of Note issue issued year shares 2013 1 July 2012 – 30 June 2013 875,532,774 365 365 875,532,774 Total shares for 2013 4.1,15 875,532,774 875,532,774

2012 1 July 2011 – 30 June 2012 875,532,774 366 366 875,532,774 Total shares for 2012 4.1,15 875,532,774 875,532,774

5 Cash and cash equivalents

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

Cash on hand and at bank 20.5 49.6 139.0 49.6 139.0 Short-term deposits 20.5,26.4 0.2 66.4 0.2 66.4 Total cash and cash equivalents 49.8 205.4 49.8 205.4

Cash at bank earns interest at floating rates based on daily bank deposit rates.

Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group. The average effective interest rate on short-term bank deposits was 4.2 per cent (2012: 5.1 per cent) inclusive of fees charged.

5.1 Reconciliation of cash

Cash at the end of the financial year as shown in the cash flow statements is reconciled to items in the balance sheet as follows: Cash and cash equivalents 49.8 205.4 49.8 205.4 Cash and cash equivalents 49.8 205.4 49.8 205.4

34 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

5.2 Reconciliation of net profit after tax to net cash flows from operations

Profit after income tax 4.1,17 361.4 282.4 360.6 313.1 Adjustments for non-cash and other income and expense items: Depreciation, amortisation and impairment 2.2 352.6 329.5 351.7 328.7 Gain on sale of property, plant and equipment 2.1 (0.6) (5.3) (0.6) (1.3) Provision for impairment of receivables 2.2 1.4 0.9 1.4 0.9 Impairment of finance lease receivables 2.2 2.2 - 2.2 - Provision for inventory obsolescence 2.2 4.8 (0.5) 4.8 (0.5) Interest revenue classified as investing activities (18.2) (22.1) (18.2) (22.0) Unwinding discount on regulated revenue recoveries and provision (25.0) (9.9) (25.0) (9.9) Distribution from subsidiary 2.1,26.1 - - - (32.1)

Changes in operating assets and liabilities1: (Increase)/decrease in trade and other receivables (340.3) (172.0) (340.2) (174.6) (Increase)/decrease in inventories 8.3 (7.4) 8.3 (8.0) (Increase)/decrease in other current assets 2.3 19.6 2.3 19.5 (Decrease)/increase in trade and other payables (19.1) 4.9 (19.1) 5.2 (Decrease)/increase in current tax payable 6.6 3.1 6.6 3.1 (Decrease)/increase in provisions (30.2) 20.0 (30.2) 20.0 (Decrease)/increase in net deferred tax liabilities 156.8 80.7 156.7 79.6 (Decrease)/increase in other liabilities (36.8) (54.0) (36.8) (54.0) Net cash provided by operating activities 426.2 469.9 424.5 467.7 1 Excludes the impact of items in investing and financing activities.

6 Trade and other receivables

Current: Trade receivables 231.1 222.9 231.1 222.9 Provision for impairment of receivables (1.9) (1.5) (1.9) (1.5) Finance lease receivables 6.2 - 0.1 - 0.1 Regulated revenue recoveries – net 102.2 48.7 102.2 48.7 Other receivables 35.0 29.9 33.9 28.8 Amounts receivable from jointly controlled entities 26.2 50.3 39.1 50.3 39.1 Total current trade and other receivables 416.7 339.2 415.6 338.1

Non-current: Finance lease receivables 6.2 - 2.2 - 2.2 Regulated revenue recoveries 455.0 185.2 455.0 185.2 Other receivables 0.5 0.6 0.5 0.6 Amounts receivable from jointly controlled entities 26.2 128.1 123.6 128.1 123.6 Total non-current trade and other receivables 583.6 311.6 583.6 311.6

2012/13 Energex Annual Financial Report 35 Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

6.1 Finance lease receivables are reconciled to the investment in finance leases as follows:

Aggregate of minimum lease payments and unguaranteed residual values: Not later than one year - 0.3 - 0.3 Later than one year and not later than five years - 1.1 - 1.1 Later than five years - 2.4 - 2.4 Total - 3.8 - 3.8

6.2 Future finance lease revenue

Not later than one year - (0.2) - (0.2) Later than one year and not later than five years - (0.6) - (0.6) Later than five years - (0.7) - (0.7) Total - (1.5) - (1.5)

Net finance lease receivables - 2.3 - 2.3 Reconciled to: Current receivables 6 - 0.1 - 0.1 Non-current receivables 6 - 2.2 - 2.2 Total finance lease receivables - 2.3 - 2.3

The Group has a finance lease arrangement as lessor as part of its non-regulated activities. The finance lease receivable was fully impaired in the 2012/13 financial year following an assessment of the recoverability of the receivable.

6.3 Past due but not impaired

As at 30 June 2013, trade and other receivables of $6.9 million (2012: $4.7 million) were past due but not impaired. The ageing analysis of these trade and other receivables is as follows:

Up to 30 days 3.0 1.5 3.0 1.5 31 to 60 days 1.5 1.0 1.5 1.0 Later than 60 days 2.4 2.2 2.4 2.2 Total past due but not impaired 6.9 4.7 6.9 4.7

The method of calculating any impairment for risk is based on past experience, current and expected changes in economic conditions and changes in client ratings.

6.4 Impaired trade and other receivables

As at 30 June 2013, current trade and other receivables of the Group with a nominal value of $2.5 million (2012: $2.1 million) were past due and impaired. The amount of the provision for impairment of trade and other receivables is $1.9 million (2012: $1.5 million). In 2012/13 there were no individually impaired debtors included in the provision which had been placed under voluntary administration (2012: nil). The impairment recognised represents the difference between the carrying amount of these trade and other receivables and the present value of expected proceeds. Trade and other receivables have been impaired based on historical recovery trends, a percentage being applied to the outstanding amount to calculate the provision amount. The Group does not hold any collateral over these balances.

In determining the recoverability of trade and other receivables, the Group considers any change in the credit quality of the trade and other receivable from the date credit was initially granted up to the end of the reporting period.

36 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 $ M $ M $ M $ M

The ageing analysis of these trade and other receivables is as follows:

One to three months 0.2 0.1 0.2 0.1 Three to six months 0.3 - 0.3 - Over six months 2.0 2.0 2.0 2.0 Total nominal value of impaired trade and other receivables 2.5 2.1 2.5 2.1

Movements in the provision for impairment of trade and other receivables are as follows:

Carrying amount at the start of the year (1.5) (4.7) (1.5) (4.7) Increases in provision for impairment losses recognised during the year (1.4) (0.6) (1.4) (0.6) Amounts written off during the year as uncollectible 1.0 3.8 1.0 3.8 Carrying amount at the end of the year (1.9) (1.5) (1.9) (1.5)

The creation and release of the provision for impaired trade and other receivables has been included in other operating expenses in the income statements. Amounts charged to the provision account are generally written off when there is no expectation of recovering additional cash.

7 Inventories

Maintenance and construction stocks 72.4 85.8 72.4 85.8 Work in progress 2.4 2.0 2.4 2.0 Total inventories 74.8 87.8 74.8 87.8

Maintenance and construction stocks include a provision for inventory obsolescence which increased to $5.3 million (2012: $0.5 million) as a result of a review undertaken in line with a reduction in the future program of work. This review assessed the net realisable value of inventory and identified items that were subject to factors such as technological obsolescence or loss of service potential. The cost of this provision is included in other expenses (refer Notes 2.2 and 5.2).

8 Property, plant and equipment

Supply system At Directors’ valuation 14,923.6 13,837.1 14,923.6 13,837.1 Less: accumulated depreciation (4,928.2) (4,642.3) (4,928.2) (4,642.3) 9,995.4 9,194.8 9,995.4 9,194.8 Other property, plant and equipment At cost 471.0 460.0 441.2 430.5 Less: accumulated depreciation (219.0) (204.8) (211.2) (197.9) Less: accumulated impairment losses (10.2) (10.2) - - 241.8 245.0 230.0 232.6 Work in progress At cost 523.0 608.9 522.7 608.5 Total property, plant and equipment 10,760.2 10,048.7 10,748.1 10,035.9

Supply system assets

Energex’s supply system assets are carried at fair value. A valuation using the income approach was undertaken by Energex as at 30 June 2013 using the following key assumptions and approach:

 Energex’s supply system assets are subject to regulation in the form of a revenue cap and it is assumed that they will continue to be subject to regulation in the future.  Cash flows have been projected based on forecasts of prudent and efficient operating costs and revenue consistent with:  The building block methodology outlined in Chapter 6 of the National Electricity Rules;  The AER’s May 2010 Final Decision on Queensland Distribution Determination 2010-11 to 2014-15 (Final Determination); and

2012/13 Energex Annual Financial Report 37 Notes to and forming part of the financial statements for the year ended 30 June 2013

 Energex management forecasts of operating costs and revenue for the 2015/16, 2016/17 and 2017/18 years based on the AER building block methodology.  Revenue cash flows for the 2010-15 regulatory period assume a rate of return of 9.72 per cent which is consistent with the WACC determined by the AER in its Final Determination.  Any voluntary adjustments to revenue as agreed with the AER have not been taken into account on the basis that a benchmark purchaser would not be subject to specific shareholder directives such as those following the ENCAP Review.  Future capital expenditure has been included in the cash flows as it is assumed that future capital expenditure is required to ensure the security and reliability of the electricity network.  Post-tax cash flows have been projected over a five year term on a basis consistent with the AER’s approach, whereby the tax deductibility of debt, capital raising costs and imputation credits are reflected in the projected cash flows, rather than the discount rate. The projected cash flows have been discounted at a rate of 6.75 per cent (2012: 8.22 per cent). This rate is based on the AER’s methodology for determining WACC, updated for current variables at the date of valuation.  The terminal value at 30 June 2018 has been determined using the best information available to estimate future cash flows.

Fully written-down assets still in use

Energex has property, plant and equipment with a gross carrying amount of $706.9 million (2012: $762.4 million) and a written down value of nil that is still in the asset register. These assets have been confirmed to be still in use at the end of the reporting period.

Asset retirements

During 2012/13, Energex performed a detailed assessment of assets and retired assets with a carrying amount of $12.5 million (2012: $8.8 million) that were no longer in use. The impact of these retirements has been a transfer of $3.8 million (2012: $7.5 million) from the asset revaluation reserve to retained earnings (refer Notes 16 and 17) and the remainder recognised in the income statement.

8.1 Movements in carrying amounts

Other plant Capital Supply and works in system equipment progress Total Note $ M $ M $ M $ M

Consolidated

Year ended 30 June 2013 Carrying amount at start of year 9,194.8 245.0 608.9 10,048.7 Additions - - 910.0 910.0 Capitalised interest 2.2,8.2 - - 26.4 26.4 Disposals (0.8) (11.7) - (12.5) Depreciation 2.2 (299.0) (45.2) - (344.2) Revaluation increment (net) 16 137.5 - - 137.5 Transfer between classes (0.4) 0.4 - - Transfer to intangible assets 9.1 - - (0.6) (0.6) Transfer from work in progress 968.4 53.3 (1,021.7) - Impairment losses on dismantled assets 2.2 (5.1) - - (5.1) Carrying amount at 30 June 2013 9,995.4 241.8 523.0 10,760.2

Year ended 30 June 2012 Carrying amount at start of year 8,128.7 242.4 696.5 9,067.6 Additions - - 966.4 966.4 Capitalised interest 2.2,8.2 - - 29.5 29.5 Disposals/dismantled - (8.8) - (8.8) Depreciation 2.2 (273.3) (46.4) - (319.7) Revaluation increment (net) 16 320.9 - - 320.9 Transfer between classes (2.8) 2.8 - - Transfer from work in progress 1,028.5 55.0 (1,083.5) - Impairment losses on dismantled assets 2.2 (7.2) - - (7.2) Carrying amount at 30 June 2012 9,194.8 245.0 608.9 10,048.7

38 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Other plant Capital Supply and works in system equipment progress Total Note $ M $ M $ M $ M

Energex Limited

Year ended 30 June 2013 Carrying amount at start of year 9,194.8 232.6 608.5 10,035.9 Additions - - 909.8 909.8 Capitalised interest 2.2,8.2 - - 26.4 26.4 Disposals (0.8) (11.7) - (12.5) Depreciation 2.2 (299.0) (44.3) - (343.3) Revaluation increment (net) 16 137.5 - - 137.5 Transfer between classes (0.4) 0.4 - - Transfer to intangible assets 9.1 - - (0.6) (0.6) Transfer from work in progress 968.4 53.0 (1,021.4) - Impairment losses on dismantled assets 2.2 (5.1) - - (5.1) Carrying amount at 30 June 2013 9,995.4 230.0 522.7 10,748.1

Year ended 30 June 2012 Carrying amount at start of year 8,128.7 229.2 696.3 9,054.2 Additions - - 966.2 966.2 Capitalised interest 2.2,8.2 - - 29.5 29.5 Disposals/dismantled - (8.8) - (8.8) Depreciation 2.2 (273.3) (45.6) - (318.9) Revaluation increment (net) 16 320.9 - - 320.9 Transfer between classes (2.8) 2.8 - - Transfer from work in progress 1,028.5 55.0 (1,083.5) - Impairment losses on dismantled assets 2.2 (7.2) - - (7.2) Carrying amount at 30 June 2012 9,194.8 232.6 608.5 10,035.9

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

If property, plant and equipment were stated on a historical cost basis, the carrying amount at the end of the reporting period would have been:

Supply system 7,471.2 6,718.6 7,471.2 6,718.6

Property, plant and equipment and impairment

An impairment trigger review across the Group’s CGUs has resulted in property, plant and equipment impairment losses of nil (2012: nil) for the Group, and nil (2012: nil) for Energex. There were no reversals of prior year impairment losses in 2012/13 (2012: nil) for the Group, nor Energex (2012: nil). Dismantled supply system assets are removed from the relevant CGU and impaired once the decision is made to dismantle. The resulting impairment loss is treated as a revaluation decrement and recorded directly in equity to the extent of any credit balance existing in the revaluation reserve in respect of that asset, with the remainder recognised in the income statement.

8.2 Capitalised finance costs

Finance costs capitalised during the financial year 2.2,8.1 26.4 29.5 26.4 29.5 Weighted average interest rate on funds borrowed generally 6.80% 6.82% 6.80% 6.82%

2012/13 Energex Annual Financial Report 39 Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 $ M $ M $ M $ M

9 Intangible assets

Computer software At cost 54.6 52.4 54.6 52.4 Less: accumulated amortisation (50.5) (47.2) (50.5) (47.2) Software work in progress 0.5 1.7 0.5 1.7 Total intangible assets 4.6 6.9 4.6 6.9

9.1 Movements in carrying amounts

Software Computer work in software progress Total Note $ M $ M $ M

Consolidated

Year ended 30 June 2013 Carrying amount at start of year 5.2 1.7 6.9 Additions/(disposals) (0.1) 0.5 0.4 Transfer from property, plant and equipment 8.1 - 0.6 0.6 Amortisation 2.2 (3.3) - (3.3) Transfer from work in progress 2.3 (2.3) - Carrying amount at 30 June 2013 4.1 0.5 4.6

Year ended 30 June 2012 Carrying amount at start of year 4.1 2.8 6.9 Additions/(disposals) - 2.6 2.6 Amortisation 2.2 (2.6) - (2.6) Transfer from work in progress 3.7 (3.7) - Carrying amount at 30 June 2012 5.2 1.7 6.9

Energex Limited

Year ended 30 June 2013 Carrying amount at start of year 5.2 1.7 6.9 Additions/(disposals) (0.1) 0.5 0.4 Transfers from property, plant and equipment 8.1 - 0.6 0.6 Amortisation 2.2 (3.3) - (3.3) Transfer from work in progress 2.3 (2.3) - Carrying amount at 30 June 2013 4.1 0.5 4.6

Year ended 30 June 2012 Carrying amount at start of year 4.1 2.8 6.9 Additions/(disposals) - 2.6 2.6 Amortisation 2.2 (2.6) - (2.6) Transfer from work in progress 3.7 (3.7) - Carrying amount at 30 June 2012 5.2 1.7 6.9

Consolidated Energex Limited

2013 2012 2013 2012 $ M $ M $ M $ M

10 Other assets

Prepayments 18.6 20.9 18.6 20.9

40 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

11 Trade and other payables

Current: Trade payables 108.9 129.1 107.7 128.0 Accrued wages and salaries 30.2 32.8 30.2 32.8 Accrued interest and charges 26.4 29.3 26.8 29.3 26.8 Refundable deposits 2.6 2.1 2.6 2.1 Amount payable to jointly controlled entity 26.2 13.7 14.1 13.7 14.1 Total current trade and other payables 184.7 204.9 183.5 203.8

Non-current: Refundable deposits 0.1 - 0.1 - Amount payable to related parties 26.1 - - 2.5 0.8 Total non-current trade and other payables 0.1 - 2.6 0.8

12 Long-term borrowings

Non-current: QTC loans – unsecured 20.4,26.4 6,000.8 5,464.6 6,000.8 5,464.6 Total non-current borrowings 6,000.8 5,464.6 6,000.8 5,464.6

13 Provisions

Current: Dividends 18 294.1 225.9 294.1 225.9 Employee benefits 40.4 36.3 40.4 36.3 Site restoration/rehabilitation 9.6 19.9 9.6 19.9 Redundancies 12.4 - 12.4 - Service line inspections 4.5 11.5 4.5 11.5 Environmental offsets 1.9 - 1.9 - Other provisions 3.5 0.3 3.5 0.3 Total current provisions 366.4 293.9 366.4 293.9

Non-current: Site restoration/rehabilitation 1.4 1.1 1.4 1.1 Public liability insurance 2.8 3.2 2.8 3.2 Employee benefits 87.0 106.1 87.0 106.1 Regulated revenue recoveries - 0.6 - 0.6 Service line inspections - 5.7 - 5.7 Environmental offsets 0.5 5.4 0.5 5.4 Other provisions - 1.8 - 1.8 Total non-current provisions 91.7 123.9 91.7 123.9

Total provisions 458.1 417.8 458.1 417.8

Also refer to Notes 1.5, 1.10, 1.19 and 1.20 for further information in relation to each class of provision.

2012/13 Energex Annual Financial Report 41 Notes to and forming part of the financial statements for the year ended 30 June 2013

13.1 Movements in carrying amounts

Carrying Carrying amount at Unwind- amount at start of ing of end of year Additions Utilised Reversal discount Transfers year $ M $ M $ M $ M $M $ M $ M

Consolidated Dividends 225.9 294.1 (225.9) - - - 294.1 Regulated revenue recoveries1 0.6 - - - - (0.6) - Site restoration 21.0 1.5 (11.5) - - - 11.0 Redundancies - 12.4 - - - - 12.4 Public liability insurance 3.2 1.0 (1.0) (0.4) - - 2.8 Employee benefits 142.4 29.9 (44.8) (0.1) - - 127.4 Service line inspections 17.2 - (7.4) (5.3) - - 4.5 Environmental offsets 5.4 0.8 (2.6) (1.2) - - 2.4 Other 2.1 1.3 (0.1) - 0.2 - 3.5 Total 417.8 341.0 (293.3) (7.0) 0.2 (0.6) 458.1

Energex Limited Dividends 225.9 294.1 (225.9) - - - 294.1 Regulated revenue recoveries1 0.6 - - - - (0.6) - Site restoration 21.0 1.5 (11.5) - - - 11.0 Redundancies - 12.4 - - - - 12.4 Public liability insurance 3.2 1.0 (1.0) (0.4) - - 2.8 Employee benefits 142.4 29.9 (44.8) (0.1) - - 127.4 Service line inspections 17.2 - (7.4) (5.3) - - 4.5 Environmental offsets 5.4 0.8 (2.6) (1.2) - - 2.4 Other 2.1 1.3 (0.1) - 0.2 - 3.5 Total 417.8 341.0 (293.3) (7.0) 0.2 (0.6) 458.1 1 Prior year DUOS revenue over-recoveries of $0.6 million have been transferred to Trade and other receivables – current (Note 6) to offset the 2011/12 under-recoveries. The current net under-recoveries classified as current in Note 6 will be recovered in the 2013/14 year.

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

14 Other liabilities

Current: Unearned revenue – government grant 26.4 2.6 6.3 2.6 6.3 Unearned revenue – unbilled receipts 14.2 11.6 14.2 11.6 Unearned revenue – capital contributions 7.7 16.0 7.7 16.0 Unearned revenue – other 5.6 3.4 5.6 3.4 Total current other liabilities 30.1 37.3 30.1 37.3

Non-current: Unearned revenue – government grant 26.4 2.2 1.9 2.2 1.9 Unearned revenue – other 1.6 2.5 1.6 2.5 Total non-current other liabilities 3.8 4.4 3.8 4.4

42 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

15 Contributed equity

Consolidated and Energex Limited

2013 2012 2013 2012 Note Number Number $ M $ M

A Class ordinary shares – voting1 122,600,006 122,600,006 122.6 122.6 B Class ordinary shares – non-voting1 752,932,768 752,932,768 623.8 623.8 Total contributed equity 4.1,4.2 875,532,774 875,532,774 746.4 746.4 1 There was no movement in the number of shares during the financial year.

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

16 Reserves

The asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets, as described in Note 1.15.

Balance at start of year 1,803.9 1,586.8 1,803.9 1,586.8 Revaluation of supply system (net) 8.1 137.5 320.9 137.5 320.9 Deferred tax effect on revaluations 3.2 (41.2) (96.3) (41.2) (96.3) Transfer ARR to retained earnings for disposed/dismantled assets 8,17 (3.8) (7.5) (3.8) (7.5) Balance at end of year 1,896.4 1,803.9 1,896.4 1,803.9

17 Retained earnings

Retained earnings at start of year 567.0 589.2 551.6 543.1 Gross actuarial gains/(losses) on defined benefit plans 79.5 (123.1) 79.5 (123.1) Deferred tax on actuarial gains/(losses) on defined benefit plans 3.2 (23.9) 36.9 (23.9) 36.9 Transfer from asset revaluation reserve – net of tax 16 3.8 7.5 3.8 7.5 Net profit attributable to members of Energex Limited 4.1,5.2 361.4 282.4 360.6 313.1 Total available for appropriation 987.8 792.9 971.6 777.5 Dividends provided at 30 June 2012 18 - (225.9) - (225.9) Dividends provided at 30 June 2013 18 (294.1) - (294.1) - Retained earnings at end of year 693.7 567.0 677.5 551.6

18 Dividends

Consolidated and Energex Limited

2013 2012 2013 2012 Cents per Cents per share share $ M $ M

Dividends on ordinary shares Dividends declared during the year: Final unfranked dividend 33.59 25.81 294.1 225.9 Total dividends declared during the year 33.59 25.81 294.1 225.9

Dividends paid during the year: Final unfranked dividend declared in prior financial year and paid in current financial year 25.81 21.45 225.9 187.8 Total dividends paid during the year 25.81 21.45 225.9 187.8

2012/13 Energex Annual Financial Report 43 Notes to and forming part of the financial statements for the year ended 30 June 2013

A final dividend of $294.1 million for the 2012/13 year was declared and provided for on the basis of 80 per cent of operating profit after income tax equivalent plus the remaining 20 per cent of the post-tax component of the CSO received as additional DUOS revenue. This results in all of the post-tax CSO payments being returned to the government as reflected in the 2012/13 Statement of Corporate Intent in consultation with the shareholding Ministers. The 2011/12 dividend of $225.9 million was based on 80 per cent of 2011/12 net profit after income tax equivalent and was paid in the 2012/13 year (refer Note 26.4).

During 2011/12 a dividend of $187.8 million was paid on the basis of 80 per cent of 2010/11 net profit after income tax equivalent.

Energex operates under the NTER where income tax equivalent payments are made to the Queensland Government. As Energex is a Queensland government owned corporation, with all shares owned by the shareholding Ministers on behalf of the Queensland Government, dividend payments are unfranked.

19 Financial risk management objectives and policies

Financial risk management is carried out by Energex’s Treasury Department (Energex Treasury) under policies approved by the Board of Directors. Energex Treasury manages the cash flow needs of the Group on a net basis and ensures a consistent approach to managing financial arrangements and their associated risk across the business. The Energex Treasury Policy applies to all of the entities within the Group and its intention is to ensure compliance with the Code of Practice for Government-Owned Corporations’ Financial Arrangements issued by Queensland Treasury and Trade.

The Group’s principal financial instruments comprise QTC loans. The main purpose of these financial instruments is to provide finance for the Group's operations. It is the Group’s policy that financial instruments are not to be used for speculative purposes.

Other financial assets and liabilities include trade receivables, trade payables and short-term deposits which arise directly from the Group’s operations.

Details of the significant accounting policies and methods adopted, including criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised for each class of financial asset, financial liability and equity instrument are disclosed in Note 1.13.

The Group is exposed to the following financial risks:

 credit risk: the risk of a financial loss if a counterparty to a transaction does not fulfil its financial obligations (also called default risk).  commodity and foreign exchange risk: the risk that contract prices will move as a result of adverse movements in market prices.  funding risk: the risk that the Group will be unable to refinance existing debt or raise additional debt.  interest rate risk: the risk that actual financing costs are greater than that allowed for by Energex’s regulator.  liquidity risk: the risk of insufficient funds to fulfil the Group’s cash flow obligations on a timely basis.  operational risk: the risk resulting from inadequate internal processes and systems or from external events.  capital structure risk: the risk of the Group ineffectively structuring its balance sheet resulting in suboptimal returns to the shareholders.

Credit risk

The Group seeks to minimise credit risk by actively managing its credit exposure within the context of its operating environment.

The most significant credit risk exposure is the risk of a retailer defaulting on its obligations. The Group operates in accordance with the Credit Support Guidelines (Guidelines) issued by the Queensland Competition Authority (QCA). The Guidelines align with the National Energy Customer Framework credit support arrangements anticipated to be implemented in the future. Credit support arrangements refer to commercial arrangements between retailers and the Group, which impacts the Group’s ability to manage the risk of non-payment of network charges by the retailer. Under the Guidelines, the Group’s ability to seek credit support is based on an assessment of the retailer’s network charge liability compared to their credit allowance and payment history. The Group is unable to seek credit support from retailers outside the constraints of the Guidelines. The Group employs a combination of alternative mitigation strategies against retailer failure. In the event of a significant retailer failure, the Group would consider the appropriateness of an application to pass through such losses under the provisions applicable to general nominated pass through events available through the AER. To further mitigate the risk of retailer default, trade credit insurance (TCI) is taken out for all qualifying retailers. In addition, Energex exercises operational risk management through relationship management and close monitoring of retailer payments.

44 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Other credit risks across the business are managed in accordance with the Energex Treasury Policy. This requires that a bank guarantee from an investment grade bank, cash deposit or prepayment be taken as security where significant credit exposure exists.

Commodity and foreign currency risk

The Group is exposed to commodity price risk and foreign currency risk in the normal course of its operations through its procurement contracts. The Group reviews new large contracts and large contracts that are to be extended, prior to Energex being irrevocably committed to any arrangements to determine whether any risk mitigation strategies can be applied to minimise this risk. There were no financial assets or liabilities at 30 June 2013 (2012: nil) with a material exposure to foreign currency or commodity price risk.

Funding risk

The Group’s term debt, provided exclusively by QTC, is interest only in perpetuity with no set repayment date. The debt portfolio is comprised of a notional pool of QTC bonds which is structured by QTC in accordance with instructions given by the Energex Board of Directors. This portfolio is structured to reflect a fixed-term loan that correlates with the term of the regulatory period. This current structure was established during the 2009/10 financial year in advance of the current regulatory period which commenced on 1 July 2010. Energex is currently reviewing the structure of the portfolio ahead of the next regulatory control period which commences on 1 July 2015.

QTC actively manages the portfolio, including issuing new debt in advance of requirements, to ensure it can meet its funding commitments to the Group.

Interest rate risk

The Group is responsible for managing interest rate risk.

The cost of the Group’s debt comprises a competitive neutrality fee (CNF), administration fee, capital market fee and a book interest rate. The book interest rate is calculated periodically by QTC based on bonds held by QTC that have been notionally allocated to the Group’s portfolio of debt.

The CNF is charged by the State of Queensland to ensure the Group does not obtain an economic benefit from funding at a lower cost through QTC than could be achieved by a private sector operator. The CNF was reset effective 1 July 2010 for a period of five years.

The Group’s cost of debt is subject to repricing following reviews of the book interest rate undertaken by QTC. The Group is exposed to book interest rate movements on a periodic basis that reflect the cost of new debt, which is obtained at the prevailing interest rate as well as forward starting loans. A forward starting loan is an agreement to borrow specified amounts in the future at a pre-determined interest rate which allows the Group to manage interest rate risk on future known borrowings, thereby providing greater certainty of future borrowing costs.

The Group is also exposed to book rate movements when the notional pool of bonds in the debt portfolio changes, which generally occurs every five years to align with the new regulatory determination. The Group aims to reduce interest rate risk by aligning its interest rate risk management strategy with the methodology adopted by the regulator for its determination of the benchmark cost of debt used in the calculation of the weighted average cost of capital.

The Group may incur market value realisation charges if the Group makes repayments of borrowings to QTC as part of its strategy to manage surplus cash balances. Such market value realisation charges will be included as an adjustment to finance charges in the income statement. The Group does not foresee making repayments in the foreseeable future.

On 28 June 2013, the Group executed a new loan agreement with QTC. This agreement requires that the Group complies with debt covenants that include an earnings before interest, tax, depreciation and amortisation (EBITDA) interest cover ratio and a total debt to fixed assets cover ratio. Failure to meet specific ratios may result in the Group being charged a line fee by QTC on the total debt outstanding. The line fee is set in accordance with a pricing matrix based on these ratios. A sensitivity analysis has been carried out and it is unlikely that the Group will be required to pay a line fee in the medium term.

Liquidity risk

To manage the Group’s liquidity risk, a daily cash flow forecast is maintained for a rolling 12 month period. The Group had a $300.0 million (2012: $200.0 million) working capital facility with QTC which operates as an overdraft arrangement and is used to cover temporary funding deficits, and is fully fluctuating. The working capital facility is a come and go facility and is reviewed by QTC in July of each year to ensure that the facility is operated in a manner consistent with the terms of the agreement.

2012/13 Energex Annual Financial Report 45 Notes to and forming part of the financial statements for the year ended 30 June 2013

Operational risk

Operational risk refers to the extent that settlement, technology, compliance or fraud matters could impact the financial risk profile. This includes consideration of the integrity of information used to make decisions and business continuity. The Group recognises operational risk as a separate risk category and manages it within acceptable levels through continuous development and improvement of its guidelines, standards, methodologies and systems to identify and address this risk.

Capital structure risk

The Board’s policy is to maintain a strong capital base so as to preserve investor, creditor and market confidence and to sustain future development of the business. The Group monitors the return on capital, which is defined as net operating income divided by total shareholders’ equity. The Group also monitors the level of dividends to ordinary shareholders.

The Group seeks to maintain a balance between the higher return on equity that might be possible with higher levels of borrowings, and the advantages and security offered by a sound capital position. The weighted average interest expense on interest-bearing borrowings in 2012/13 was 6.73 per cent (2012: 6.79 per cent).

20 Financial instruments

20.1 Fair value of financial assets and liabilities

The fair values of financial assets and financial liabilities, other than derivative financial instruments, are determined as follows:

 the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and  the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The Group considers the carrying amount of financial assets and financial liabilities recorded in the financial statements to approximate their fair value, excluding borrowings. Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with any difference between cost and the redemption amount being recognised in the income statements over the period of the borrowings on an effective interest basis (refer to Note 1.21). The fair value of borrowings at 30 June 2013 is disclosed in Note 20.4.

The Group has not designated any financial instruments at fair value through profit or loss.

20.2 Derivative financial instruments

As at 30 June 2013, the Group has not entered into any derivative financial instruments (2012: nil).

20.3 Credit risk exposure

The credit risk on financial assets of the Group which have been recognised on the balance sheet is generally equal to the carrying amount net of any provisions for impairment of receivables. Refer to Note 19 for related risk management policies and procedures that are in place to minimise credit risk. At 30 June 2013, three customers represented 80.4 per cent of trade receivables (2012: three customers represented 90.2 per cent).

46 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

20.4 Liquidity risk exposure

The Group’s exposure to liquidity risk is set out in the following table:

Carrying Contractual 1 year or 1 to More than amount cash flows less 5 years 5 years Note $ M $ M $ M $ M $ M

Consolidated

As at 30 June 2013 Non-derivative financial liabilities Trade and other payables 11 182.1 (182.1) (182.1) - - Refundable deposits 11 2.7 (2.7) (2.6) - (0.1) Borrowings – QTC unsecured1 12,26.4 6,000.8 (7,734.2) (412.5) (1,650.9) (5,670.8) Total financial liabilities 6,185.6 (7,919.0) (597.2) (1,650.9) (5,670.9) 1 Market value of the borrowings as at 30 June 2013 as advised by QTC was $6,338.4 million.

As at 30 June 2012 Non-derivative financial liabilities Trade and other payables 11 202.8 (202.8) (202.8) - - Refundable deposits 11 2.1 (2.1) (2.1) - - Borrowings – QTC unsecured1 12,26.4 5,464.6 (7,189.9) (371.6) (1,487.3) (5,331.0) Total financial liabilities 5,669.5 (7,394.8) (576.5) (1,487.3) (5,331.0) 1 Market value of the borrowings as at 30 June 2012 as advised by QTC was $5,855.0 million.

Energex Limited

As at 30 June 2013 Non-derivative financial liabilities Trade and other payables 11 180.9 (180.9) (180.9) - - Trade and other payables – related parties, controlled 11 2.5 (2.5) - (2.5) - Refundable deposits 11 2.7 (2.7) (2.6) - (0.1) Borrowings – QTC unsecured1 12,26.4 6,000.8 (7,734.2) (412.5) (1,650.9) (5,670.8) Total financial liabilities 6,186.9 (7,920.3) (596.0) (1,653.4) (5,670.9) 1 Market value of the borrowings as at 30 June 2013 as advised by QTC was $6,338.4 million.

As at 30 June 2012 Non-derivative financial liabilities Trade and other payables 11 201.7 (201.7) (201.7) - - Trade and other payables – related parties, controlled 11 0.8 (0.8) - (0.8) - Refundable deposits 11 2.1 (2.1) (2.1) - - Borrowings – QTC unsecured1 12,26.4 5,464.6 (7,189.9) (371.6) (1,487.3) (5,331.0) Total financial liabilities 5,669.2 (7,394.5) (575.4) (1,488.1) (5,331.0) 1 Market value of the borrowings as at 30 June 2012 as advised by QTC was $5,855.0 million.

2012/13 Energex Annual Financial Report 47 Notes to and forming part of the financial statements for the year ended 30 June 2013

20.5 Interest rate risk exposure

Sensitivity analysis

The following interest rate sensitivity analysis depicts the impact on profit and loss (excluding tax) if interest rates change by ±1.0 per cent for cash funds (2012: ±1.0 per cent) from the year-end rates. With all other variables held constant, the Group would have a surplus/(deficit) of $0.5 million (2012: $2.1 million).

(1.0)% (1.0)% 1.0% 1.0% Carrying Profit Equity Profit Equity amount (pre-tax) (pre-tax) Note $ M $ M $ M $ M $ M 2013 interest rate risk Cash on hand and at bank 5 49.6 (0.5) - 0.5 - Short-term deposits 5 0.2 - - - -

2012 interest rate risk Cash on hand and at bank 5 139.0 (1.4) - 1.4 - Short-term deposits 5 66.4 (0.7) - 0.7 -

The above sensitivity percentages were determined based on consideration of official cash rate movements.

20.6 Financing arrangements

Consolidated Energex Limited

2013 2012 2013 2012 $ M $ M $ M $ M

The Group has access to the following lines of credit: Total facilities available – unsecured loans 6,310.8 5,674.6 6,310.8 5,674.6 Facilities used at the end of the reporting period – unsecured loans 6,001.5 5,465.7 6,001.5 5,465.7 Facilities not used at the end of the reporting period – unsecured loans 309.3 208.9 309.3 208.9

Approved borrowings under the State Borrowing Program (SBP) for 2012/13 were $684.8 million (2012: $875.4 million), which includes a $100.0 million increase in the working capital facility. The amount drawn by the end of the year was $536.2 million (2012: $718.4 million), with $148.6 million (2012: $157.0 million) unused. Of the total unused funds, $48.6 million (2012: $157.0 million) expired on 30 June 2013 and therefore, the Group no longer has access to them. The 2012/13 borrowings drawn under the SBP were funded through Energex’s loan account with QTC.

Energex has final approval under the SBP for the 2013/14 year of $564.7 million, which includes another $100.0 million increase to the existing working capital facility.

Forward starting loans

Energex has future loan commitments represented by undrawn forward starting loans of $354.9 million with QTC as at 30 June 2013. At the time of drawdown the future loan commitment will be classified as a borrowing and measured at fair value. The 2012/13 future loan commitments with QTC are set out below.

Book 1 year 1 to 5 More than value or less years 5 years Total $ M $ M $ M $ M $ M

Contractual undiscounted cash flows as at: 30 June 2013 Future loan commitments 354.9 17.8 112.6 354.9 485.3

30 June 2012 Future loan commitments 891.1 18.5 262.3 891.1 1,171.9

48 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

The above table represents the future undiscounted cash flows relating to future loan commitments. For 2012/13, the future loan commitment book value of $354.9 million (2012: $891.1 million) represents the principal value of total undrawn forward starting loans. The total of $485.3 million (2012: $1,171.9 million) represents total undiscounted cash flows being the sum of interest in the one year or less category, interest in the one to five years category and principal cash flows in the more than five years category. The actual repayment profile of long-term debt is interest only with no fixed repayment date for the principal component. The above simulation presents the estimate of the total amount of outstanding debt beyond five years.

20.7 Guarantees

Guarantees held

Energex holds bank guarantees from customers and suppliers totalling $37.9 million (2012: $27.9 million), relating to subdivision works and construction of assets for customers and procurement guarantees from suppliers.

Guarantees issued

There are no guarantees issued on behalf of the parent entity in respect of trading activities as at 30 June 2013 (2012: nil).

Guarantees issued to controlled entities

Energex warrants that unlimited sufficient financial support will be provided to Queensland Energy Services Team Pty Ltd (QEST) to ensure it is able to pay its debts as and when they fall due. Energex warrants that sufficient financial support up to a limit of $10,000 will be provided to Metering Dynamics Business Support Pty Ltd to ensure that the business is able to pay its debts as and when they fall due.

In 2011/12, in consideration of the forgiveness of the intercompany loans, Energex issued an unlimited indemnity to Energy Impact Pty Ltd. Energex also issued limited indemnities of $15.0 million for general claims and unlimited indemnities for specific claims to both Varnsdorf Pty Ltd and VH Operations Pty Ltd.

20.8 Forgiveness of loans

There was no intercompany loan forgiveness in 2012/13. However, in 2011/12, following due consideration of the current Group structure, various intercompany loans were forgiven between various entities in the Group. At the time of forgiveness, the net loan balance between Energex and its controlled entities was a loan payable of $32.1 million to those entities.

21 Commitments for expenditure

21.1 Capital expenditure commitments

Consolidated Energex Limited

2013 2012 2013 2012 $ M $ M $ M $ M

Commitments for capital expenditure contracted for at the end of the reporting period but not recognised as liabilities payable: Not later than one year 107.4 140.0 107.4 140.0 Later than one year and not later than five years 22.5 36.4 22.5 36.4 Total capital expenditure commitments 129.9 176.4 129.9 176.4

These commitments consist of open purchase orders and are valued at price levels and foreign currency exchange rates as at the end of the reporting period.

2012/13 Energex Annual Financial Report 49 Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 $ M $ M $ M $ M

21.2 Other expenditure commitments

Commitments for other expenditure contracted for at the end of the reporting period but not recognised as liabilities payable: Not later than one year 117.1 103.0 116.2 102.2 Later than one year and not later than five years 39.9 12.5 39.9 12.5 Total other expenditure commitments 157.0 115.5 156.1 114.7

21.3 Operating lease commitments

Commitments in relation to non-cancellable operating leases contracted for at the end of the reporting period but not recognised as liabilities payable: Not later than one year 28.3 23.7 28.3 23.7 Later than one year and not later than five years 130.8 100.2 130.8 100.2 Later than five years 201.6 232.7 201.6 232.7 Total operating lease commitments 360.7 356.6 360.7 356.6

The Group leases various corporate premises, depots and storage sites under non-cancellable operating leases expiring within one to 15 years. The leases have varying terms, escalation clauses and renewal rights. On or prior to renewal, the terms of the leases are renegotiated.

22 Defined benefit fund

The Group contributes to an industry multiple employer superannuation plan, the Energy Super Fund. Members are entitled to benefits from this fund on retirement, resignation, retrenchment, disability or death. The defined benefit account of this fund is a funded plan which provides defined lump sum benefits based on years of service and final average salary. Employee contributions to the fund are based on a percentage of their gross salaries.

22.1 Key assumptions used

Consolidated Energex Limited

2013 2012 2013 2012 % % % %

Discount rate (post-tax) 3.2 2.6 3.2 2.6 Expected return on plan assets 6.0 6.0 6.0 6.0 Future salary increases 3.5 3.5 3.5 3.5

The expected return on plan assets has been calculated based on the current asset allocation to each of the major asset classes and the expected future investment return for each of the asset classes.

50 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

22.2 Reconciliation of amounts recognised in the income statements

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

Current service cost 20.4 16.8 20.4 16.8 Interest cost 12.8 18.1 12.8 18.1 Expected return on plan assets (24.8) (25.9) (24.8) (25.9) Net expense recognised in year 8.4 9.0 8.4 9.0 Past service cost - - - - Total included in employee benefits expense 8.4 9.0 8.4 9.0

22.3 Reconciliation of amounts recognised in the balance sheet

Present value of funded obligations (436.3) (510.4) (436.3) (510.4) Fair value of plan assets 423.0 425.1 423.0 425.1 Deficit (13.3) (85.3) (13.3) (85.3) Provision for contributions tax (2.4) (15.0) (2.4) (15.0) Net liability in the balance sheet 22.4 (15.7) (100.3) (15.7) (100.3)

22.4 Historical analysis of the defined benefit fund of the consolidated and parent entities

2013 2012 2011 2010 2009 Note $ M $ M $ M $ M $ M

Present value of defined benefit obligation 22.5 (438.7) (525.4) (428.4) (453.3) (405.4) Fair value of plan assets 22.6 423.0 425.1 444.8 383.0 332.3 Surplus/(deficit) of the fund 22.3 (15.7) (100.3) 16.4 (70.3) (73.1)

Experience adjustments arising on plan assets1 33.6 (24.7) 10.5 15.9 (46.9) Experience adjustments arising on plan liabilities1 45.9 (11.9) 7.8 (5.5) (20.3) 1 Experience adjustments are the effects of differences between previous actuarial assumptions and what has actually occurred.

22.5 Reconciliation of movements in the defined benefit obligation

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

Opening defined benefit obligation 525.4 428.4 525.4 428.4 Current service cost 20.4 16.8 20.4 16.8 Interest cost 12.8 18.1 12.8 18.1 Contributions by fund participants 4.8 5.0 4.8 5.0 Actuarial losses/(gains) (45.9) 98.5 (45.9) 98.5 Benefits payments and tax (78.8) (41.4) (78.8) (41.4) Closing defined benefit obligation 22.4 438.7 525.4 438.7 525.4

2012/13 Energex Annual Financial Report 51 Notes to and forming part of the financial statements for the year ended 30 June 2013

Consolidated Energex Limited

2013 2012 2013 2012 Note $ M $ M $ M $ M

22.6 Reconciliation of movements in the fair value of plan assets

Opening fair value of plan assets 425.1 444.8 425.1 444.8 Expected return on plan assets 24.8 25.9 24.8 25.9 Actuarial (losses)/gains 33.6 (24.7) 33.6 (24.7) Contributions by the employer 13.5 15.5 13.5 15.5 Contributions by fund participants 4.8 5.0 4.8 5.0 Benefits payments and tax (78.8) (41.4) (78.8) (41.4) Closing fair value of plan assets 22.4 423.0 425.1 423.0 425.1

22.7 Cumulative amount recognised in the statements of comprehensive income

Cumulative amount of actuarial losses at beginning of year 144.7 21.6 144.7 21.6 Loss/(gain) in year (79.5) 123.1 (79.5) 123.1 Cumulative amount of actuarial losses at end of year 65.2 144.7 65.2 144.7

22.8 The major categories of plan assets as a percentage of total plan assets are as follows:

Consolidated Energex Limited

2013 2012 2013 2012 % % % %

Cash 10.0 10.0 10.0 10.0 Fixed interest 10.0 10.0 10.0 10.0 Australian shares 28.0 28.0 28.0 28.0 Alternatives 20.0 20.0 20.0 20.0 International shares 22.0 22.0 22.0 22.0 Property 10.0 10.0 10.0 10.0 Total plan assets as a percentage 100.0 100.0 100.0 100.0

The actual return on plan assets for 2012/13 was a profit of $58.4 million (2012: $1.2 million).

22.9 Net financial position of plan

The superannuation plan computes its obligations in accordance with AAS 25 Financial Reporting by Superannuation Plans (AAS 25) which prescribes a different measurement basis to that applied in this financial report, pursuant to AASB 119 Employee Entitlements. Under AAS 25, and in accordance with the Occupational Superannuation Standards Regulation, the Energy Super Fund is required to undertake actuarial investigations at least every three years. The last reporting period for the Energy Super Fund Actuarial Report for Energex was 30 June 2010. The next Actuarial Report as at 30 June 2013 will be completed in the 2013/14 financial year.

Surplus/(deficit)

The following is a summary of the most recent financial position of the Energy Super Fund (with respect to both defined benefit and accumulation members for the Group’s participation in the Fund) calculated in accordance with AAS 25:

Last reporting period $ M

Accrued benefits 30/06/2010 (612.4) Net market value of plan assets 30/06/2010 591.4 Net deficit 30/06/2010 (21.0)

52 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Contribution recommendations

For the financial year ended 30 June 2013, the Group contributed 13 per cent (2012: 13 per cent) of defined benefit members’ salaries. The Group expects to retain a contribution rate of 13 per cent to the defined benefit plan during the next financial year. Accordingly, the Group expects to contribute $11.0 million (2012: $13.6 million) to its defined benefit plan in 2013/14. Funding recommendations are made by the actuaries based on their forecast of various matters including: future plan assets performance, interest rates and salary increases. Energex will assess this contribution rate in the future to ensure it remains appropriate.

Funding method

The method used to determine the employer contribution recommendations at the last actuarial review was the aggregate method. The method adopted affects the timing of the cost to the employer. Under the aggregate method, the future contribution rates are determined, and are expected to be sufficient to fund the difference between the value of the future benefits for existing defined benefit members, and the value of plan assets attributable to defined benefit members, over the future working lifetime of existing defined benefit members.

An aggregate financing method can be expected to produce a higher level of volatility in recommended employer contribution rates, particularly as the defined benefit membership ages and reduces in size. Variations between actual and expected experience have a greater financial effect on future employer contribution rates as the future working lifetime of the existing defined benefit members reduces.

Principal economic assumptions adopted for the last actuarial review (as at 30 June 2010) of the Fund include:

%

Expected rate of return on plan assets in year one 10.0 Expected rate of return on plan assets thereafter 7.0 Expected salary increase rate 5.0

Nature of asset/liability

The Energy Super Fund does not impose a legal liability on the Group to cover any deficit that exists in the Fund. If the Fund was wound up, there would be no legal obligation on the Group to make good any shortfall. The Trust Deed of the Fund states that if the Fund winds up, after the payment of all costs and member benefits for the period up to the date of termination, any remaining assets are to be distributed by the Trustee of the Fund, acting on the advice of the actuary, to participating employers.

The Group may at any time by notice to the Trustee terminate its contributions. The employer has a liability to pay the monthly contributions due prior to the effective date of the notice, but there is no requirement for an employer to pay any further contributions, irrespective of the financial condition of the Fund.

The Group may benefit from any surplus in the Fund in the form of a contribution reduction or contribution holiday. Any reduction in contributions would normally be implemented only after advice from the Fund’s actuary.

Energex is committed under the terms of its union collective agreement to keep the Defined Benefit Fund open for the current fund members for the life of the agreement. The union collective agreement has an expiry date of 21 November 2014 but will continue after its nominal expiry until such time as it is replaced or terminated. The Board has resolved that Energex will make additional contributions when necessary to meet its obligations in relation to the Defined Benefit Fund.

23 Investment in jointly controlled entity

Investments in jointly controlled entities are currently accounted for in the consolidated financial statements using the equity method of accounting (refer Note 1.4). Information relating to the jointly controlled entity is set out below:

Country of Name of entity Principal activities incorporation Ownership interest

2013 2012 % %

SPARQ Solutions Pty Ltd Information technology services provider Australia 50.0 50.0

SPARQ is engaged as the information and communication technology provider of the Group and Ergon Energy Corporation Limited (Ergon). Refer to Note 26.2 for transactions with this entity.

2012/13 Energex Annual Financial Report 53 Notes to and forming part of the financial statements for the year ended 30 June 2013

2013 2012 $ M $ M

Summarised presentation of share of aggregate assets, liabilities and performance of jointly controlled entity: Assets 144.2 143.8 Liabilities 144.9 146.8 Net assets/(liabilities) (0.7) (3.0) Share of net assets/(liabilities) equity accounted - - Revenues 90.1 88.7 Profit from ordinary activities after tax - -

Movements in net assets/(liabilities) of jointly controlled entity: Balance at start of year (3.0) 0.1 Share of profit from ordinary activities after tax - - Net revenue/(expense) directly recognised in equity – defined benefit plan 2.3 (3.1) Balance at end of year (0.7) (3.0)

The Group has not recognised actuarial gains on defined benefit plans relating to SPARQ amounting to $3.3 million for the 2012/13 year (2012: $3.1 million loss).

Share of jointly controlled entity’s expenditure commitments: Operating lease commitments Not later than one year 1.3 1.3 Later than one year and not later than five years 2.3 3.5 Capital commitments Estimated capital expenditure contracted for at the end of the financial year 2.6 5.6 Total operating lease and capital commitments 6.2 10.4

No contingent liabilities or accumulated unrecognised losses exist in relation to the jointly controlled entity at 30 June 2013 (2012: nil).

24 Investments in controlled entities

Interests are held in the following controlled companies:

Country of Name Note incorporation Ownership interest

2013 2012 % %

Queensland Energy Services Team Pty Ltd 24.1,24.3 Australia 100.0 100.0 Energy Impact Pty Ltd 24.1,24.2,24.3 Australia 100.0 100.0 Metering Dynamics Business Support Pty Ltd 24.3 Australia 100.0 100.0 Varnsdorf Pty Ltd 24.1,24.2,24.3 Australia 100.0 100.0 VH Energy Holdings Pty Ltd 24.1,24.2,24.3 Australia 100.0 100.0 VH Operations Pty Ltd 24.1,24.2,24.3 Australia 100.0 100.0 VH Finance Pty Ltd 24.1,24.2,24.3 Australia 100.0 100.0

24.1 These companies are parties to a Deed of Cross Guarantee (DOCG) dated 13 March 2003. The DOCG provides that QEST will guarantee the payment in full to each creditor, of any debt of these companies, on the winding up of any company within the DOCG. Deeds of Revocation of the DOCG were executed on 21 February 2013 and lodged with ASIC on 15 March 2013. The entities gave notice to any potential creditors via public advertising in The Australian newspaper on 22 March 2013. The revocation becomes effective six months after lodgement of the Deeds of Revocation with ASIC, being 15 September 2013.

24.2 Class Order 98/1418 would provide ASIC reporting relief in the event these companies were classified as large proprietary companies.

24.3 The entities are small proprietary companies and are therefore relieved from the requirement for preparation, audit and lodgement of annual financial statements with ASIC.

54 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Subsidiary name Purpose of entity Total Total Total Profit/(loss) assets liabilities revenue before tax $ 000 $ 000 $ 000 $ 000

30 June 2013 Queensland Energy Services Consolidated Group 17,329 1,132 5,477 1,041 Team Pty Ltd (Consolidated) Queensland Energy Services Parent entity of Energy Impact Pty - - - - Team Pty Ltd1 Ltd and Metering Dynamics Business Support Pty Ltd Energy Impact Pty Ltd1 Provides generation services and 17,329 1,117 5,477 1,041 operates landfill gas sites Metering Dynamics Business Dormant entity - - - - Support Pty Ltd1 Varnsdorf Pty Ltd1 Operations have been wound - - - - down and is no longer trading VH Energy Holdings Pty Ltd1 Operations have been wound 1 - - - down and is no longer trading VH Operations Pty Ltd1 Operations have been wound - - - - down and is no longer trading VH Finance Pty Ltd1 Operations have been wound - - - - down and is no longer trading 1 These entities form the QEST Consolidated Group.

30 June 2012 Queensland Energy Services Consolidated Group 16,556 1,087 12,740 2,017 Team Pty Ltd (Consolidated) Queensland Energy Services Parent entity of Energy Impact Pty - - 32,093 32,093 Team Pty Ltd1,2 Ltd and Metering Dynamics Business Support Pty Ltd Energy Impact Pty Ltd1,2 Provides generation services and 16,556 1,073 49,866 39,171 operates landfill gas sites Metering Dynamics Business Dormant entity - - - - Support Pty Ltd1 Varnsdorf Pty Ltd1 Operations have been wound - - 767 767 down and is no longer trading VH Energy Holdings Pty Ltd1,2 Operations have been wound 1 - 5,952 5,952 down and is no longer trading VH Operations Pty Ltd1 Operations have been wound - - 199 170 down and is no longer trading VH Finance Pty Ltd1,2 Operations have been wound - - 3,986 3,966 down and is no longer trading 1 These entities form the QEST Consolidated Group. 2 These amounts include the impact of debt forgiveness in 2011/12. Refer Note 20.8.

2012/13 Energex Annual Financial Report 55 Notes to and forming part of the financial statements for the year ended 30 June 2013

25 Key management personnel

The following disclosure is provided pursuant to Queensland Treasury Policy “The Minimum Disclosure Requirements for Directors and Chief and Senior Executives of Government Owned Corporations”.

25.1 Compensation principles

Directors

All remuneration of Directors, including Directors’ fees and Board committee fees, is established by the shareholding Ministers. Directors do not receive any performance-related remuneration.

Term of appointment Appointment expiry date Directors as at 30 June 2013 Shane Stone 3 years 4 months 30 September 2015 Peter Arnison 3 years 30 September 2013 Kenneth Clarke 3 years 3 months 30 September 2015 Mervyn Davies 3 years 3 months 30 September 2015 Sandra Deane 2 years 9 months 30 September 2015 John Geldard 3 years 30 September 2013 Linda Mackenzie 3 years 3 months 30 September 2015 Kerryn Newton 3 years 30 September 2014

Senior executives

The following are Directors of controlled entities and received no remuneration from their roles as executive Directors:

 Terence Effeney  Darren Busine  Peter Weaver

The senior executive remuneration strategy and practices of the Group are designed to assist Energex to attract, retain and motivate high calibre individuals in senior executive positions. This is achieved by providing an appropriate combination of competitive fixed and variable remuneration components. Shareholder guidelines and policies on executive remuneration are followed.

The fixed component of remuneration is linked to an assessment of the job size and value based on independent market evaluation. The fixed remuneration on appointment is up to market median for the position size in accordance with the Office of Government Owned Corporations guidelines. Annual increases are in accordance with recommendations approved by the Board in line with the governance arrangements for chief and senior executives provided by the government. A variable component of remuneration is provided to members of the senior executive as described in Note 25.5.

Senior executive employment contracts

Remuneration and other terms of employment for each senior executive are formalised in executive employment contracts. Each of these contracts makes a provision for fixed remuneration and performance pay.

Application to Executive General Manager Service Delivery

Where employment is terminated by the employer due to the employer’s operational requirement and no other suitable position for redeployment is able to be identified, the executive is entitled to a severance payment of three weeks per year of service, together with a proportionate amount for an incomplete year of service. The minimum and maximum payment will be three weeks and 75 weeks respectively. An early separation incentive payment of 13 weeks may be paid where applicable, as well as a long service leave payment of 1.3 weeks for each completed year of service and pro-rata for an incomplete year of service up to the date of termination. Accumulated annual leave as well as any pro-rata balance of annual leave to the date of termination is also payable.

The Executive General Manager Service Delivery is engaged on a tenured agreement.

56 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

Application to the Chief Financial Officer, Executive General Manager Customer and Corporate Relations, Executive General Manager Asset Management and Executive General Manager Procurement, People and Services

Where Energex terminates the executive’s employment prior to the termination date for reasons other than serious misconduct (or other reasons leading to termination by Energex without notice), unsatisfactory performance in accordance with any policy of Energex relating to performance management or incapacity, Energex will pay to the executive a service payment equal to the greater of 12 weeks total fixed remuneration or two weeks total fixed remuneration per year of continuous service up to a maximum 52 weeks total fixed remuneration and a separation payment equal to 20 per cent of the total fixed remuneration that the executive would have earned had the employment continued from the day after the notice period ceased until the termination date.

These Executive General Managers are engaged on fixed term contracts that provide for three months notice or equivalent payment on termination.

Application to the Chief Executive Officer (CEO)

Where Energex terminates the executive’s employment prior to the termination date for reasons other than serious misconduct (or other reasons leading to termination by Energex without notice), unsatisfactory performance in accordance with any policy of Energex relating to performance management or incapacity, Energex will pay to the executive a service payment equal to the greater of 13 weeks total fixed remuneration or two weeks total fixed remuneration per year of continuous service up to a maximum 52 weeks total fixed remuneration and a separation payment equal to the greater of 13 weeks total fixed remuneration or a sum equal to 20 per cent of the total fixed remuneration that the executive would have earned had the employment continued from the day after the notice period ceased until the termination date.

The CEO is engaged on a fixed term contract that provides for six months notice or equivalent payment on termination.

All remuneration component amounts are reviewed annually by the Remuneration Committee and the Board. All amendments to the remuneration policy for senior executives are reviewed by the Remuneration Committee for endorsement prior to submission to the Board and shareholding Ministers.

Other major provisions of the agreements relating to remuneration are as follows:

Position Term of contract Contract expiry date Chief Executive Officer 2 years fixed term 1 July 2014 Executive General Manager Asset Management 3 years fixed term 28 February 2015 Executive General Manager Procurement, People and 3 years fixed term 28 February 2015 Services Chief Financial Officer 3 years fixed term 28 October 2015 Executive General Manager Service Delivery Tenured Executive General Manager Customer and Corporate 2 years fixed term 30 August 2014 Relations

25.2 Compensation disclosures by category – Directors and Executives

2013 2012 $ $

Short-term employee benefits 3,058,141 3,704,427 Non-monetary benefits 42,479 42,257 Post-employment benefits 263,820 269,450 Other long-term benefits 64,987 81,378 Termination benefits 531,935 - Total compensation 3,961,362 4,097,512

2012/13 Energex Annual Financial Report 57 Notes to and forming part of the financial statements for the year ended 30 June 2013

25.3 Compensation - Directors Post- Short-term Non-monetary employment Name benefits benefits1 benefits2 Total $ $ $ $

20133 Shane Stone 81,060 2,988 7,295 91,343 Peter Arnison 43,156 2,988 3,884 50,028 Kenneth Clarke 38,017 2,956 3,196 44,169 Mervyn Davies 43,277 2,956 3,669 49,902 Sandra Deane 19,007 1,586 1,711 22,304 John Geldard 40,170 2,988 3,615 46,773 Linda Mackenzie 43,277 2,956 3,669 49,902 Kerryn Newton 42,014 2,988 3,781 48,783 Total 349,978 22,406 30,820 403,204

20123 John Dempsey 78,907 2,647 7,102 88,656 Shane Stone 6,664 248 581 7,493 Peter Arnison 41,604 2,911 3,744 48,259 John Battams 29,050 2,192 2,615 33,857 Mary Boydell 39,054 2,831 3,615 45,500 Mat Darveniza 24,629 1,591 - 26,220 John Geldard 40,170 2,911 3,615 46,696 Ronald Monaghan 10,042 727 904 11,673 Kerryn Newton 41,245 2,911 3,712 47,868 Total 311,365 18,969 25,888 356,222 1 Non-monetary benefits represent the value of car parking provided to the Directors. 2 Post-employment benefits represent superannuation contributions made by the Group to a superannuation fund. 3 Refer to the Directors’ report for details of appointment and resignation dates.

The service and performance criteria set to determine remuneration are included in Note 25.1.

58 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

25.4 Compensation – Executives

Short-term benefits Post- Non- employ- Other Salary Cash monetary ment long-term Termination and fees1 bonus2 benefits3 benefits4 benefits5 benefits6 Total $ $ $ $ $ $ $

2013 Chief Executive Officer 562,487 24,393 2,988 59,088 16,257 - 665,213 Executive General Manager Asset Management7 351,153 14,558 2,988 35,688 9,819 - 414,206 Executive General Manager Service Delivery8 357,133 15,185 2,988 36,102 9,933 - 421,341 Executive General Manager Customer Services9 148,821 13,729 1,015 6,308 - 264,134 434,007 Executive General Manager Procurement, People and Services10 343,406 14,709 2,988 35,688 9,819 - 406,610 Chief Financial Officer 398,525 15,625 2,988 16,443 10,220 - 443,801 Executive General Manager Human Resources11 98,110 11,293 1,130 11,214 - 267,801 389,548 Executive General Manager Customer and Corporate Relations12 324,786 14,250 2,988 32,469 8,939 - 383,432 Total 2,584,421 123,742 20,073 233,000 64,987 531,935 3,558,158

2012 Chief Executive Officer 581,611 76,074 2,911 58,246 16,048 - 734,890 Executive General Manager Network - Performance 364,134 46,639 2,911 35,206 9,693 458,583 Executive General Manager Energy - Delivery 370,194 45,703 2,911 15,775 9,693 444,276 Executive General Manager Programming, Procurement and - Services 352,658 45,890 2,911 35,206 9,693 446,358 Chief Financial Officer 371,189 49,716 2,911 15,775 10,089 - 449,680 Executive General Manager Human - Resources 301,046 35,906 2,911 16,212 7,678 363,753 Executive General Manager Customer - Services 347,967 47,600 2,911 35,621 9,806 443,905 Executive General Manager Strategy and - Regulation 313,133 43,602 2,911 31,521 8,678 399,845 Total 3,001,932 391,130 23,288 243,562 81,378 - 3,741,290 1 Short-term benefits – salary and fees include all payments made to the executive (total fixed remuneration excluding superannuation) during the year adjusted for the following:  Deducting annual leave and long service leave taken; and  Including the annual leave entitlement accrued during the year; thus  If leave taken exceeds leave accrued in the same year, the excess is deducted from short-term benefits as this is not an expense recognised by Energex in the current year; and  If leave taken is less than leave accrued in the same year, the excess is added to short-term benefits as this is an expense recognised by Energex in the current year. 2 Short-term benefits – cash bonus represents individual at-risk performance payments made to the executive. 3 Non-monetary benefits represent the value of car parking provided to the executive.

2012/13 Energex Annual Financial Report 59 Notes to and forming part of the financial statements for the year ended 30 June 2013

4 Post-employment benefits represent superannuation contributions made by the employer to the superannuation fund at the rates prescribed in the executives’ employment contracts. Some executives are members of the defined benefit superannuation fund to which Energex made contributions at a rate of 13 per cent of defined benefit members’ salaries during the 2012/13 financial year (2012: 13 per cent). An additional three per cent employer contribution has been made at the recommendation of the actuary and is not reflected in the post-employment benefits reported above. Refer to Note 22 for further information on the defined benefit obligations of the Group. 5 Other long-term benefits represent long service leave benefits accrued during the year. Long service leave may be taken when an employee has completed ten or more years of continuous service with a Queensland electricity corporation. Pro-rata long service leave may be taken or paid on termination, after seven calendar years of continuous service, when certain conditions are met in accordance with Electricity Regulation 2006 and the Energex Union Collective Agreement 2011. Long service leave will be paid where an employee is made redundant at a rate of 1.3 weeks per year with a pro-rata amount for an incomplete year of service. 6 Termination benefits include all payments made to the executive on termination of employment excluding any entitlements relating to annual leave or long service leave (as these are included in short-term benefits or other long-term benefits where applicable). 7 Position title changed from Executive General Manager Network Performance to Executive General Manager Asset Management effective January 2013. 8 Position title changed from Executive General Manager Energy Delivery to Executive General Manager Service Delivery effective January 2013. 9 The position of Executive General Manager Customer Services was discontinued effective 10 January 2013. This executive’s duties were reallocated to the remaining executives. 10 Position title changed from Executive General Manager Programming, Procurement and Services to Executive General Manager Procurement, People and Services effective January 2013. 11 The position of Executive General Manager Human Resources was discontinued effective 16 November 2012. This executive’s duties were allocated to the Executive General Manager Programming, Procurement and Services. 12 Position title changed from Executive General Manager Strategy and Regulation to Executive General Manager Customer and Corporate Relations effective January 2013.

The service and performance criteria set to determine remuneration are included in Note 25.1. 25.5 At-risk performance compensation

Performance payments to employees Aggregate at-risk Total fixed salaries Number of employees performance and receiving performance Financial year remuneration1 wages payments2 payments $ $ 2013 11,949,741 418,395,265 3,879 2012 17,604,440 418,532,721 3,893 1 The aggregate at-risk performance remuneration each year represents the annual actual payment granted in September for prior year’s performance for award, non-executive contract, individual employment agreements, executive contract and senior executive contract employees. 2 Amounts shown above include capitalised employee benefits not shown in the income statements. The amount represents remuneration paid to employees which includes performance payments but excludes termination payments.

Key management personnel and other executives

A variable component of remuneration is provided to members of the executive team through an annual performance payment scheme. This scheme is designed to effectively reward a combination of key behaviours, capability and performance aligned with business goals and targets of the Group. The maximum funds made available for such payments are 15 per cent of total fixed remuneration. Actual performance payments are based on performance measured against predetermined key performance indicators, as detailed in the annual statement of corporate intent (which is approved by the shareholding Ministers) and the senior executive’s performance agreement. Senior executive performance agreements comply with the format approved by the shareholding Ministers. Senior executive performance payments recommended by the CEO are submitted to the Remuneration Committee for endorsement and are recommended to the Board for approval. Performance payments made to the CEO during 2012/13 were based on a formal review led by the Chairman, submitted to the Remuneration Committee for endorsement and recommended to the Board for approval. The shareholding Ministers are advised of the actual performance payment within one month of payment. The payment date for both senior executives and executives’ performance payment made in the 2012/13 financial year for 2011/12 performance outcomes was 20 September 2012 (2012: 22 September 2011).

Non-executive contract employees and employees covered by awards

The Group’s performance pay scheme provides for the establishment of action plans and performance indicators against which performance is assessed for performance pay purposes. Employees develop performance agreements with their managers for a performance pay period (normally 12 months), with assessments for performance payments being conducted on completion of the assessment period.

All full-time and part-time employees are eligible to participate in the scheme (including permanent and fixed term). Participation in the scheme is voluntary.

60 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

To be eligible for payment, the employee and the manager have a discussion to develop agreed targets which must be documented in the performance agreement. This agreement must be signed by both parties. The employee must also be employed at the end of the performance pay period to be eligible.

The size of the pool available for performance pays is at the discretion of the CEO and reflects performance outcomes of the Group and shareholder expectations for the year ended 30 June 2013. There is a maximum pool of six per cent of remuneration for award employees.

The payment date for the performance payment made in the 2012/13 financial year for 2011/12 performance outcomes was 20 September 2012 (2012: 22 September 2011).

25.6 Transactions with related parties of key management personnel

A number of key management persons (that is Directors and senior executives), or their related parties, hold positions in other entities that may result in them having control or significant influence over the financial or operating policies of those entities. The terms and conditions of the transactions with management persons and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-related entities on an arm’s length basis.

Transactions with related parties of key management personnel that occurred during the financial year are noted below. The related party disclosures are those in connection with Energex and the related parties of Energex Directors and senior executives, as follows:

 John Geldard is a Director of Energy Super. Energex contributed to the Energy Super Fund based on actuarial advice and the total payments for the year were $49,422,837 (2012: $57,552,272).  Darren Busine is a key management personnel of Energex and is the Deputy Chair of Queensland Music Festival Pty Ltd (QMF). During the year, a sponsorship payment of $20,000 was made by Energex to QMF (2012: nil).

Related party transactions between Energex and its wholly-owned entities and jointly controlled entities are disclosed in Notes 26.1 and 26.2.

26 Related parties

26.1 Wholly-owned Group

The ultimate parent entity within the Group is Energex.

The wholly-owned Group consists of Energex and its wholly-owned controlled entities as set out in Note 24. Transactions between Energex and other entities in the wholly-owned Group consist mainly of intragroup loans and interest charges.

Aggregate amounts included in the determination of the Energex operating profit before income tax equivalent that resulted from transactions with entities in the wholly-owned Group:

2013 2012 Note $ M $ M

Revenues/(expenses) Distribution from subsidiary 2.1 - 32.1 Interest expense 2.2 (0.1) (1.4) Standby generation charges paid to Energy Impact Pty Ltd (1.2) (1.1)

Aggregate amounts of the Energex payable to other entities in the wholly-owned Group at the end of the reporting period:

Non-current trade payables 11 2.5 0.8

2012/13 Energex Annual Financial Report 61 Notes to and forming part of the financial statements for the year ended 30 June 2013

2013 2012 Note $ M $ M

26.2 Other related parties

Transactions and balances between Energex and other related jointly controlled entities consisted of the following:

Revenues/(expenses) Contractor charges paid to SPARQ (51.0) (50.9) IT service charges (asset usage fee) paid to SPARQ (56.4) (46.8) Interest received from SPARQ 2.1 12.8 11.4 Cost recovery charges from Energex to SPARQ 12.3 11.2

Aggregate amounts receivable from/(payable to) related jointly controlled entities at the end of the reporting period:

Assets/(liabilities) Current receivables from SPARQ 6 50.3 39.1 Non-current receivables from SPARQ 6 128.1 123.6 Current trade payable to SPARQ 11 (13.7) (14.1)

Energex has agreed to cover its share of obligations of SPARQ to protect against insolvency. Darren Busine, Terence Effeney and Peter Weaver were executives of Energex and Directors of SPARQ, a jointly controlled entity during the financial year. They did not receive any remuneration for their positions as Directors of this entity.

Energex is in the process of negotiating a sub-lease of office space to SPARQ. Sub-lease payments of $1.9 million (2012: nil) are expected to be received during 2013/14.

26.3 Key management personnel

Disclosures relating to key management personnel are set out in Note 25.

26.4 State-owned parties

Energex is a Queensland Government owned corporation, with shares held by the shareholding Ministers on behalf of the State of Queensland. All State of Queensland controlled entities meet the definition of a related party of Energex.

The following relates to transactions with state-owned entities:

Revenues/(expenses) TUOS expense (392.6) (389.0) Interest expense – QTC 2.2 (344.9) (309.8) Competitive neutrality fee expense 2.2 (47.1) (42.0) Other expenses (58.5) (55.2) Government grant revenue 2.1 4.1 9.6 Community service obligation revenue 2.1 35.8 - Other revenue 17.7 27.9

Aggregate amounts receivable from state-owned entities at the end of the reporting period:

Short term deposits 5,20.5 0.2 66.4 Community service obligation receivable 4.9 - Other assets 2.9 -

Aggregate amounts payable to state-owned entities at the end of the reporting period:

Current tax payable 9.7 3.1 Current trade payables 35.2 30.1 Government grant unearned revenue liability 14 4.8 8.2 Dividend 18 294.1 225.9 Accrued interest and charges – QTC 11 29.3 26.8 Long-term borrowings – QTC 12,20.4 6,000.8 5,464.6

No provision for impairment of receivables was raised for any outstanding balances and no expense was recognised for bad or impaired debts due from state-owned entities.

62 2012/13 Energex Annual Financial Report Notes to and forming part of the financial statements for the year ended 30 June 2013

26.5 Guarantees

Other than the financial support provided to wholly-owned subsidiaries (refer Note 20.7) and SPARQ (refer Note 26.2), there are no other guarantees with other related parties at the end of the reporting period.

26.6 Terms and conditions

Intragroup loans are available from Energex in a rolling facility and reviewed on a regular basis. The loans are interest- bearing at the 30 day bank bill swap rate plus two per cent. Intragroup loans made to Energex are interest bearing at the QTC cash fund rate. There are no fixed terms for the repayment of loans between the parties.

The terms of the tax funding agreement are set out in Note 1.8.

Transactions with other state-owned electricity entities were made in accordance with the National Electricity Rules for TUOS charges. Other transactions are based on normal commercial terms and conditions and at market rates.

Outstanding balances are unsecured and are repayable in cash.

27 Contingent assets and liabilities

27.1 Insurance claims

The group has lodged insurance claims for property damage and related losses of $0.4 million (2012: $0.4 million).

27.2 Legal proceedings

A number of common law claims are pending against the Group. In each case a writ has been served and the Group is at various stages of defending the actions. Liability is not admitted and all claims will be defended. The known amount of claims due to litigation and associated legal fees is $0.1 million (2012: $0.1 million).

27.3 Other possible claims

From time to time the Group receives formal notifications from third parties which might indicate intention to lodge formal claims against the Group. The Group investigates these matters and responds appropriately to such communications in order to minimise potential future claims. Energex carries third party liability insurance to cover valid liability claims over $1.0 million. Third party liability settlements less than the excess of $1.0 million are self-funded.

From time to time the Group becomes involved in disputes with its suppliers as to the quality or timeliness of the provision of goods and services. Where the Group suffers financial loss due to failure by a supplier to deliver on agreed goods or services to explicit or implicitly agreed standards, the Group seeks to recover these losses from suppliers through negotiation and formal legal processes where necessary. The Group is currently involved in negotiations with a key supplier for the recovery of financial loss. Due to the critical stage of negotiations with the supplier, additional disclosure is not provided as it is likely to seriously prejudice the position of the Group.

27.4 Environmental remediation

The Group provides for all known environmental liabilities. The Group estimates that current provisions for environmental remediation are adequate based upon current information. However, there can be no assurance that new material provisions will not be required as a result of new information or regulatory requirements with respect to known sites or identification of new remedial obligations at other sites.

2012/13 Energex Annual Financial Report 63 Notes to and forming part of the financial statements

for the year ended 30 June 2013

28 Auditor’s remuneration

Consolidated Energex Limited

2013 2012 2013 2012 $ $ $ $

Remuneration for audit of the financial statements of Energex or any entity in the Group: Audit services: Annual financial statements 480,700 500,000 475,000 480,000 Regulatory reporting statements 82,000 80,000 82,000 80,000 562,700 580,000 557,000 560,000 Non-audit services: Taxation compliance services - 9,000 - 9,000 Employee hotline services 9,900 12,600 9,900 12,600 Other non-audit services - 20,000 - 20,000 9,900 41,600 9,900 41,600 Total auditor’s remuneration 572,600 621,600 566,900 601,600

The 2011/12 comparatives have been updated for actual audit costs incurred.

The audit of the 2012/13 financial statements of the Group is conducted by KPMG as Delegate of the Auditor-General of Queensland. 2012/13 amounts include payments to the Auditor-General of Queensland (for audit services) and to KPMG directly (non-audit services). While assigned as the contract auditor, engagement of KPMG for non-audit services is at the discretion of the Auditor-General of Queensland.

29 Events after the reporting period

There are no matters or occurrences that have come to the Group’s attention up to the time of signing which would materially affect the results disclosed in the financial report.

Industry reviews

In May 2012, the Queensland Government established an Interdepartmental Committee (IDC) on Electricity Sector Reform to review all aspects of the sector that impact on electricity costs. The IDC engaged an independent review panel (IRP) to investigate the impact of Queensland’s electricity network on prices. On 16 June 2013, the Queensland Government released its response to the IDC recommendations which included its acceptance or acceptance in principle of 42 out of the 45 IRP recommendations.

The IDC recommendations relevant to the Group which were accepted by the Queensland Government are broad ranging and include demand side response strategies, metering reform, electricity planning and tariff reform and customer engagement. These findings represent strategic matters under routine consideration and consultation by the Group. The Group will continue to work with all stakeholders and incorporate relevant information and guidance into its planning and decision making processes.

The IRP recommendations which deal more specifically with the distribution network included recommendations related to planning and reliability standards, efficiency of direct and indirect cost activities, structures for the distribution businesses, network regulation, network planning, demand forecasting and peak demand management.

Recommendation 30 proposes a common holding company to be established for Ergon and the Group, with corporate and strategic leadership to be located within the holding company. This work is ongoing and the final outcome and any consequential impact on the results or operations of the Group are not yet known at the date of this financial report.

64 2012/13 Energex Annual Financial Report Directors’ declaration

for the year ended 30 June 2013

The Directors declare that the financial statements and notes:

(a) comply with Australian Accounting Standards, the Corporations Regulations 2001, the Government Owned Corporations Act 1993, and

(b) give a true and fair view of En erg ex and the Group's financial position as at 30 June 2013 and of their performance for the financial year ended on that date.

In the Directors' opinion:

(a) the financial statements and notes are in accordance with the Corporations Act 2001;

(b) there are reasonable grounds to believe that Energex and its controlled entities will be able to pay their debts as and when they become due and payable; and

(c) as at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in Note 24 will be able to meet any obligations or liabilities to which they are, or may become, subject to by virtue of the Deed of Cross Guarantee as described in Note 24.

The declaration is made in accordance with a resolution of the Directors.

THE HONOURABLE SHANE STONE, AC PGDK QC Chairman Energex Limited 26 August 2013 Brisbane, Queensland

2012/13 Energex Annual Financial Report 65 Independent auditor’s report

To the Members of Energex Limited

Report on the Financial Report

I have audited the accompanying financial report of Energex Limited, which comprises the balance sheets as at 30 June 2013, the income statements, statements of comprehensive income, statements of changes in equity and cash flow statements for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the company and the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001, and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

My responsibility is to express an opinion on the financial report based on the audit. The audit was conducted in accordance with the Auditor-General of Queensland Auditing Standards, which incorporate the Australian Auditing Standards. Those standards require compliance with relevant ethical requirements relating to audit engagements and that the audit is planned and performed to obtain reasonable assurance about whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion.

Independence

The Auditor-General Act 2009 promotes the independence of the Auditor-General and all authorised auditors. The Auditor-General is the auditor of all Queensland public sector entities and can be removed only by Parliament.

The Auditor-General may conduct an audit in any way considered appropriate and is not subject to direction by any person about the way in which audit powers are to be exercised. The Auditor-General has for the purposes of conducting an audit, access to all documents and property and can report to Parliament matters which in the Auditor- General’s opinion are significant.

In conducting the audit, the independence requirements of the Corporations Act 2001 have been complied with. I confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Energex Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

Opinion

In my opinion the financial report of Energex Limited is in accordance with the Corporations Act 2001, including – (i) giving a true and fair view of the company’s and the consolidated entity’s financial position as at 30 June 2013 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.

66 2012/13 Energex Annual Financial Report Independent auditor’s report

Other Matters - Electronic Presentation of the Audited Financial Report

Those viewing an electronic presentation of these financial statements should note that audit does not provide assurance on the integrity of the information presented electronically and does not provide an opinion on any information which may be hyperlinked to or from the financial statements. If users of the financial statements are concerned with the inherent risks arising from electronic presentation of information, they are advised to refer to the printed copy of the audited financial statements to confirm the accuracy of this electronically presented information.

N GEORGE CPA Queensland Audit Office (as Delegate of the Auditor-General of Queensland) Brisbane

2012/13 Energex Annual Financial Report 67