2015-2016 Annual Report
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ESSENTIAL ENERGY Annual Report 2015–16 2 Submission letter 31 OctoberOctober 20120164 TThehe HHon.on. AndrewGladys Berejiklian,Constance, MPMP The HTheon. Hon.Dominic Dominic Perrottet Perrottet, MP MP TTreasurer,reasurer and Minister for Industrial RelationsMi nisMinisterter for F ifornan Finance,ce and S Serviceservices and Property GMemberoverno rfor M aWilloughbycquarie To wer GoveMemberrnor Mac forqu aHawkesburyrie Tower 1GPO Far rBoxer P l5341ace 1 FarGPOrer P lBoxace 5341 SSYDNEYydney N SNSWW 200 20010 SydnSYDNEYey NSW 200 NSW0 2001 Dear Ministers Dear Ministers ESSENTIAL ENERGY ANNUAL REPORT 2013 –14 SUBMISSION OF ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 We are pleased to submit for presentation to Parliament, Essential Energy’s Annual Report coveringWe are pleased performance, to submit operations Essential and Energy’s financial annual results report for thedetailing year ended performance, 30 June operations 2014. and fi nancial results for the year ended 30 June 2016. The report was prepared in accordance with section 24A of the State Owned Corporations AThisct 198 report9 and has the been Annua preparedl Repo rints accordance(Statutory B odwithies the) A cAnnualt 1984. Reports (Statutory Bodies) Act (1984) and is submitted for tabling in NSW Parliament. Copies of the report will be sent to the Premier of New South Wales and the Auditor General, asA copy well aswill made be sent available to the Premier to key customers of New South and Wales,other interest the Auditor groups. General, the Minister for Industry, Resources and Energy, and other signifi cant stakeholders. The report is available on our website essentialenergy.com.au Once tabled, the report will be available on our website – essentialenergy.com.au Yours sincerely Yours sincerely Roger Massy-Greene Vince Graham Patricia McKenzie John Cleland CChairhairm an ChChiefief E xecExecutiveutive O Offiffice cerr Table of contents 3 About this report Contents Essential Energy’s Annual Report details our safety, financial and About us 4 operational performance for the 2015-2016 financial year and has Year in review 5 been approved by our Board of Directors. Our plans and priorities 7 The contents of this report are guided by: Performance 8 > The State Owned Key Priority Action 1 – Put our safety systems into action 8 Corporations Act (1989); Key Priority Action 2 – Improve customer service and engagement 12 > The Annual Reports (Statutory Bodies) Act 1984. Key Priority Action 3 – Implement our Transformation Program 15 Assurance Key Priority Action 4 – Develop our employee capability and commitment 17 The financial statements contained within this document have been Our Network 19 audited by the Audit Office of NSW – the Independent Auditor’s certified Our People 24 report is on page 36. Corporate Governance 26 Cost for report production The external cost for the Finance Report 32 production of this report was Financial statements 34 $16,390 excluding GST. © Essential Energy 2016 Appendices 86 This work is copyright. Material Index 92 contained in this document may be reproduced for personal, in-house or non-commercial use without formal permission or charge, provided there is due acknowledgement of Essential Energy as the source. Requests and enquiries concerning reproduction and rights for a purpose other than personal, in-house or non-commercial use should be addressed to: General Manager Customer and Stakeholder Engagement Essential Energy PO Box 5730 Port Macquarie NSW 2444 Cover image: 1. Broken Hill 2. Ballina 3. Jindabyne 4. Luke Cox ABN: 37 428 185 226 4 About us About us With more than 200,000 kilometres of powerlines spanning 95 per cent of New South Wales and serving more than 830,000 customers, Essential Energy – a State Owned Corporation – is responsible for managing and operating Australia’s most extensive electricity distribution network. Essential Water, an operating administered by the Australian Energy AER determination continued to be division of Essential Energy, currently Regulator (AER). Every five years, the subject of further legal review. services approximately 9,500 water under the Rules, the AER determines services customers in Broken Hill, the maximum allowable annual Regional operating structure Menindee, Sunset Strip and Silverton revenue required by Essential Energy Essential Energy’s field operations and 9,000 sewerage services to recover the efficient costs of are divided into three regions, customers in Broken Hill. network investments and operations reflecting the environmental and for the coming five-year period. Essential Energy continues to geographic diversity of our network support regional development and Essential Energy’s last regulatory footprint. This includes sub-tropical economies through its almost 3,200 period ended on 30 June 2014 but, areas in mid to northern NSW, the locally based employees. with impending substantial Rule alpine highlands of the Snowy changes on the horizon, the first year Mountains, and dry arid conditions in Regulatory environment (2014-15 financial year) of the the western centres of Broken Hill and Wentworth. Essential Energy is bound by current 2014-19 regulatory period obligations imposed by the National was managed through a transitional These three regions – North Coast, Electricity Rules (the Rules), which are determination. At the time of Northern and Southern – are detailed below. compiling this report, a final 2014-19 North Coast, Northern and Southern regions Year in review 5 Year in review In FY2015-16, Essential Energy achieved its best-ever recorded safety performance results. This is a testament to the company’s focus on continuous safety improvement and the dedication and focus of our employees who maintained safety as their number one priority during a period of ongoing change. One of the most significant challenges our business experienced was the continued uncertainty surrounding our regulated revenue for the 2014-19 period. The three NSW energy distributors contested elements of the Australian Energy Regulator’s (AER) 2014-19 determination before the Australian Competition Tribunal (ACT) and the AER was directed to remake its determination. Subsequently, the AER appealed the ACT’s decision and a judicial review before the Federal Court is currently pending. This uncertainty extends to our financial results for the year. Ongoing advances in solar and battery technology, distributed generation and metering technology will fundamentally shift the role energy distributors play in coming years and it’s vital we adapt our business to respond to customer driven demands, while maintaining sustainable and efficient operations. The business has continued along its path of reform to ensure costs are minimised and efficiency is improved, while operating within the constraints of its workplace agreements. Commitment to safety The customer suffered no ill-effects as Following the dissolution of Networks a result of the breach. NSW and effective from 1 January Essential Energy delivered its best ever 2016, Essential Energy operated as a safety performance results, with our Essential Energy maintains a strong stand-alone business with its own Lost Time Injury Frequency Rate (LTIFR) ongoing commitment to improving Board, under the responsibility of an recording 0.74 for the financial year customer service levels and, more Acting Chief Executive Officer. – 45 per cent ahead of the 1.35 target. importantly, customer safety as defined by the NECF obligations. This achievement is a direct result of our Australian Energy Regulator employees taking personal responsibility In response to operational issues and (AER) determination and for safety, coupled with organisational ongoing work, during 2015-16 we impact on customer pricing safety programs like the Network Fatal focussed our primary NECF efforts on The AER’s final determination on the Risk Rules We Live By and our Safety life support customers. By partnering revenue, operating expenditure (OPEX), Leadership Program, in which nearly 440 with energy retailers, we reconciled life capital expenditure (CAPEX) and the safety leaders participated. support customer information on a Weighted Average Cost of Capital (WACC) regular basis, ensuring these vulnerable A 22 per cent increase in Near Miss for Essential Energy for the five year customers continue to be notified in reporting gives us further assurance regulatory period from 1 July 2014 to 30 advance of planned interruptions and that employees are comfortable June 2019, imposed significant reductions are prioritised to be contacted during reporting close calls and that we are in revenue and operating expenditure. major unplanned outages. using lessons from these incidents to In its Revised Regulatory Proposal, improve future safety systems. As part of this initiative, we Essential Energy had proposed to communicated with our life support Employees should be proud of these continue reducing its workforce via customers to remind them to keep their efforts. As an organisation, we will natural attrition over the four years to contact information up to date and have continue to reinvigorate our health and June 2019. However, the AER a back-up plan in place should an safety programs to create a workplace determined a similar reduction was outage occur. Importantly, while NECF that strives to be free of incidents and required immediately, without any ensures that life support customers are injuries, where safety is integrated into provision for redundancy costs. given appropriate