Ergon Energy Annual Stakeholder Report 2015–16 “Our industry is changing fast… so we have to Geoff McGraw, like our other be constantly thinking forward to ensure we can regional managers, takes the opportunity wherever he can to get best deliver for the community Our goal is to out into the community Here, and on the cover, he is meeting some of remain at the core of how our kids will choose the next generation as part of our to source and use electricity into the future ” Safety Heroes program Our school electrical safety education program is helping teachers, like Annette Geoff McGraw Ryan from Whitfield State School, explore the world of electricity Lines Manager Tropical North with their students p19 Contents Ergon Energy in profile 3 Year in summary 6 Chairman’s message 8 Chief Executive’s report 9 Review of operations 10 • More value and choice 10 • Evolving the network 22 • Our people, our future 28 Delivering economic value 37 Our corporate governance statement 40 Looking for more information? Our Annual Stakeholder Report is part of a suite of documents available online at www.ergon.com.au/annualreport Ergon Energy is very much part of the fabric of life in regional Queensland. We see ourselves as powering prosperity – energising the lifestyles we enjoy and most critically our local economies. To achieve this we’re delivering the ‘peace of mind’ that comes from a safe, dependable electricity service and enabling greater customer ‘choice and control’ in their energy solutions… all for the ‘best possible price’. Like many others, we’re evolving as a business to embrace change… in the way our customers are using the network with the take up of new energy-related technologies, change in the energy market itself, and change in the economic environment. This has seen us responding on a range of fronts: with lower and new tariff choices for our customers, major system changes to boost our service capability, a focus on connecting renewable energy generation and quicker network connection timeframes generally, improvements in employee engagement, and a major program to bring our costs down. We’ve focused on finding ways to do things smarter and more efficiently for our customers – a journey that will continue now as we merge with our South East Queensland counterpart, Energex Limited. About our report This report covers Ergon Energy’s overall performance for the 2015-16 financial year. It largely showcases the contribution of Ergon Energy Corporation Limited and its subsidiary Ergon Energy Queensland Pty Ltd. It is being presented as part of Energy Queensland Limited’s suite of reporting documents. Energy Queensland Limited has been created as our parent company, through the merger of Ergon Energy Corporation Limited, Energex Limited and SPARQ Solutions on 30 June 2016. Sustainability and STAKEHOLDERS’ SUSTAINABILITY MATTERS Ergon Energy OUR RETAIL AND NETWORK CUSTOMERS While our most significant contribution Electricity affordability p 10-13, 19-20, 37, 46 to our stakeholders’ sustainability Reliability and security of supply p 16, 17, 24-27 concerns for regional Queensland Infrastructure costs / connection timeframes p 18, 26, 27 remains our response to electricity Energy conservation / renewables p 14, 15, 18, 23, 34, 35 affordability (being central to addressing the cost of living and of doing business), COMMUNITY STAKEHOLDERS this report also addresses a range of Regional economic development p 14, 15, 22-25, 27 other matters material to our different Strong disaster response capability p 19 stakeholders and our purpose as an Community impact and social inclusion p 21, 31, 32 organisation. We are looking to create Community electrical safety p 19, 20 shared value across these areas. Environmental protection and climate change p 34-36 We are active in assessing our Resource (incl energy) conservation p 36 stakeholder expectations – an imperative that has been fundamental GOVERNMENT AND REGULATORS in guiding the content of this report. Electricity affordability p 10-13, 19-20, 37, 46 Our approach to reporting also Economic prosperity / employment p 14, 15, 22-25, 27, 32 continues to be guided by Global Service standards and compliance p 16-18, 26, 29, 30, 35, 36, 40, 46, 47-51 Reporting Initiative’s Principles of Financial returns / debt reduction p 6, 37-37, 49 Sustainability Reporting, as well as the Australasian Reporting Awards OUR PEOPLE criteria for best-practice reporting Employment opportunities p 31-33 (last year’s report benchmarked as Work health and safety p 29, 30 Silver). We welcome your feedback Workplace diversity and social inclusion p 21, 31 on our reporting. OUR INDUSTRY PARTNERS Sustainable industry outcomes (incl procurement p 11-15, 22-25, 33, 35, 39, 46 practices and other economic opportunities) 2 ABOUT OUR REPORT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2015–16 Ergon Energy in profile Our vision Our purpose To be a high-performance, To provide safe, reliable, efficient and customer-driven energy business sustainable energy solutions to support our customers and the Queensland economy Review of operations p10 More value and choice Evolving the network Our people, our future Delivering economic value p37 Our distribution business Our role as a distributor is to transport electricity along our ‘poles and wires’ across regional Queensland The distribution network, which is part of the National Electricity Market (NEM), is regulated by the Australian Energy Regulator (AER) The regulator determines the revenue we are allowed to collect from our customers for the use of the network These charges are just one of the components making up the price of electricity We also operate under Queensland Government electricity industry laws and regulations Our retail business Our retailer (Ergon Energy Queensland Pty Ltd) buys electricity from the generators, through the market and in direct deals, and on-sells it to our customers We sell electricity at the Queensland Government’s notified prices, which are set by the Queensland Competition Authority (QCA) This enables Queenslanders to access the same regulated electricity tariffs (with the support of the government’s Community Service Obligation payment), wherever they are, even though the supply cost may be different Our other businesses Nexium Telecommunications (Ergon Energy Telecommunications Pty Ltd) services Ergon Energy’s communications needs and, as a licensed telecommunications carrier, also sells wholesale high-speed data services to the market SPARQ Solutions Pty Ltd, our joint venture company with Energex Limited, provides each of our respective organisations with information and communications technology solutions and services ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2015–16 3 Our history In our many forms we have always played an integral part Since becoming Ergon Energy, of Queensland’s lifestyle and prosperity. we have grown to a workforce of Ergon Energy was formed in 1999 from the six former regional Queensland Government-owned electricity distributors and over 4,000 with an asset base of their subsidiary retailer. These regional ‘electricity boards’ were created in the seventies, from the earlier community- $11.8 billion. based electricity generators and small network operators, to manage the electricity grid as it expanded across our We are now serving over 740,000 vast service area. homes and businesses, up over 25% In many ways, this journey parallels the development of in the 17 years – with a peak demand electricity networks around the world where greater economies of scale have been sought through expansion of 2,518MW, up 45%. and mergers. The growth of electricity networks in Australia in the second In this time reliability has improved half of the 20th Century is considered one of the great dramatically – today we have an modern feats of engineering. Before this time there were only small, local electricity networks across Queensland. average of 2.9 power outages per Today this change continues. Our next chapter will be as customer each year. part of Energy Queensland. Bringing Ergon Energy, Energex and SPARQ Solutions together has created a truly statewide And we have connected 118,000 solar team of locals all working to deliver 24/7 for our communities. energy systems to our network. The move places us in the best possible position to adapt to the changes underway in electricity supply sector as a customer-oriented, efficient business. This will help us to deliver positive price outcomes for our local communities, as well as long-term, sustainable business returns to the Queensland Government as our owner, and ultimately to the people of Queensland. Our network Around 75% of our electricity network runs through rural Queensland, a vast service area with large distances between HOW ERGON ENERGY COMPARES TO communities. Our customer density per network kilometre is OTHER DISTRIBUTORS the second lowest in the NEM. We have a proportionately high investment in subtransmission 20% assets, compared to our urban counterparts, and one of the largest Single Wire Earth Return (SWER) networks in the world. Compared to a meshed or interconnected network, 15% the radial design of our network and the limited capacity the ‘SWER’ lines limits what we can do when responding to peaks in demand or outages. 10% ERGON Ergon Energy also has 33 stand-alone power stations ENERGY supplying communities isolated from the main grid; in western Queensland, the Gulf of Carpentaria, Cape York, various 5% Torres Strait islands, and Palm Island. Our retailer also has a gas-fired power station at Barcaldine, which supplies the main grid. PROPORTION OF NEM CUSTOMER NO. 0% 0% 10% 20% 50% 30% 40% PROPORTION OF NEM NETWORK AREA Our service area is by far the largest distribution area in the National Electricity Market (NEM) However, proportionally our customer base is small Source: Huegin Ergon Energy Expenditure Benchmarking. 4 ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2015–16 Ergon Energy supplies electricity across a vast, diverse service area of more than one million square kilometres – across 97% of the state of Queensland.