ANNUAL REPORT 2O17 AURORA ENERGY Contents 4 21 22 TREND STATEMENT STATEMENT OF SERVICE CHAIRMAN AND CHIEF PERFORMANCE EXECUTIVE’S REPORT 25 26 27 NETWORK OVERVIEW NETWORK PERFORMANCE DIRECTORS’ REPORT 31 33 34 INFORMATION ON FINANCIAL CONTENTS FINANCIAL STATEMENTS THE DIRECTORS 40 64 68 NOTES TO THE FINANCIAL INDEPENDENT AUDITOR’S COMPANY DIRECTORY STATEMENTS REPORT WANAKA UPGRADE The lakeside town of Wanaka is The project includes building a The Wanaka Upgrade is part of increasingly popular as a place to new substation on the corner of Aurora Energy’s overall network live and visit. To meet the increasing Riverbank and Ballantyne Roads, development programme that energy demand, now and into the new underground cabling to will see us invest more than $230 future, Aurora Energy is making connect to the existing Wanaka million on major network renewal capacity improvements to the substation and upgrading the projects in the Queenstown Lakes network. The upgrade will ensure overhead line along Riverbank and Central Otago regions over the continued reliable electricity supply Road. As part of the upgrade, next 10 years to enhance reliability to all customers and connect supply the overhead power lines along and cater for growth. to new residential housing and the west side of Riverbank Road businesses. between Ballantyne Road and State Highway 6 will be upgraded from 33kV to 66kV (or 33,000 to 66,000 volts) while the existing 16 poles are proposed to be replaced by nine taller poles. 2017 ANNUAL REPORT 1 What We Do Aurora Energy’s principal activities are the ownership and strategic management of electricity distribution network assets in Dunedin, Central Otago and Queenstown Lakes. Our function is to transport electricity from the national grid to the end-use consumer. Our role is to ensure the resilience of the network, supplying reliable electricity supply to more than 88,000 homes, farms and businesses through our Central Otago, Dunedin and Queenstown Lakes region. Customers are local generators and New Zealand’s electricity retailers. Aurora Energy Limited is a subsidiary company of Dunedin City Holdings Limited owned by Dunedin City Council. 2 AURORA ENERGY 2017 highlights for the year ended 30 June 2017 Financial Highlights • Total revenue increased by • Managed the transition to $2.8 million to $102.9 million standalone electricity network company, directly employing • Network operating expenses asset management and increased by $8.2 million to operations functions $82.7 million • Planned for $721 million in • Equivalent dividends of network investment over the next $1.5 million paid to the decade in updated long term shareholder, Dunedin City asset management plan Holdings Limited • Invested $45.2 million in capital • Assets increased in value by projects 8 per cent to $472.6 million • Replaced or newly installed Network 1,580 power poles, double last year’s total • Energy received into the network was 1,441 gigawatt hours for the • Initiated Fast Track pole year programme and achieved half way milestone • Customer connections increased by 2 per cent to 88,144 • Completed detailed designs for two major substation projects • Network capacity increased by – a new switching substation in 0.6 per cent to 953 megavolt Wanaka and a zone substation at amperes Carisbrook, Dunedin • Completed next phase of Glenorchy power supply upgrade with installation of a new 33kV line near Queenstown 2017 ANNUAL REPORT 3 Results At A Glance Years ended 30 June ENERGY RECEIVED INTO TOTAL REVENUE TOTAL ASSETS NETWORK ($m) ($m) (gigawatt hours) 1,441 $472.6 $436.5 $102.9 $413.9 $383.3 $390.9 1,408 $99.5 $100.0 1,398 1,373 $92.9 $90.6 1,351 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Network Performance Years ended 31 March INTERRUPTIONS MINUTES OFF (average interruptions per consumer per annum, SAIFI) (average duration per consumer per annum, SAIDI) 221 2.1 139 1.4 1.4 130 1.2 1.1 94 76 2013 2014 2015 2016 2017 2013 2014 2015* 2016** 2017 KEY Reliability Limit * restated after prior period adjustment ** minutes off and reliability limit include 50% minutes off / interruptions attributed to de-weighting of planned outages in accordance extreme weather events or significant with regulation third party damage 4 AURORA ENERGY CHAIRMAN AND CHIEF EXECUTIVE ’ S REPORT for the year ended 30 June 2017 It was a defining year for This year, we achieved a significant Aurora Energy as we made the uplift in network maintenance and transition to a standalone asset renewal, improving the risk organisation, committed to a profile of our infrastructure assets network investment goal of while catering for future growth in $721 million over the next decade electricity demand. and accelerated our pole renewal As we deliver increased levels of programme. network maintenance and asset Aurora Energy is in a major phase renewal, these investments exceed of investment to modernise, the levels at which Aurora Energy maintain and expand its network, is compensated under default much of which was built in the price-quality regulation. Aurora 1960s and 70s. In our latest asset Energy has therefore confirmed its management plan, we signalled intention to apply to the regulator plans to invest almost three quarters to switch to a customised price- of a billion dollars from 2017- quality path from 2020 to fund 2027 to maintain the distribution future investment. This move will network and upgrade substations be subject to extensive customer and transformers, switchgear and consultation and Commerce other assets. Commission approval. 2017 ANNUAL REPORT 5 6 AURORA ENERGY 2017 FINANCIAL RESULTS For the financial year ended 30 June Aurora Energy’s financial position Dividends 2017 (FY17), total revenue increased remains sound as the company by 2.8 per cent to $102.9 million continues to plan for further Aurora Energy paid a dividend (FY16: $100.0 million). The increase investments into network asset of $1.5 million to its shareholder, reflects a combination of growth renewals and additions. Capital Dunedin City Holdings Limited, in consumer connections and the expenditure during FY17 increased for the year under review recovery of higher transmission by 21.4 per cent to $45.2 million (FY16 equivalent dividend: charges throughout the year. (FY16: $37.2 million) and FY17 $8.2 million). year-end term borrowings Trading profit before tax and As a regulated business, Aurora increased by 12.3 per cent to subvention payments was Energy has a responsibility to $191.4 million (FY16: $170.5 million). $11.3 million (FY16: $16.3 million). its customers to provide safe, The increases in capital expenditure Transmission costs increased reliable electricity infrastructure. and borrowings reflect the higher to $36.7 million (FY16: $33.8 To maintain a reliable network and level of asset investment signalled million) and network maintenance cater for growth, we are planning to in Aurora Energy’s ten-year asset costs increased to $15.9 million spend $721 million on the network management plan. (FY16: $14.0 million) for the year. over the next decade to be funded Total assets increased by by increased revenue, increased Net profit after tax and subvention 8.3 per cent to $472.6 million borrowings, lower profit and payments was $7.3 million, (FY16: $436.5 million). reduced dividends. Accordingly, the up on last year’s $6.5 million Board anticipates that no dividend due to a reduction in subvention will be paid for the next five years of payments within the group. The this reinvestment phase. company paid a $1.4 million post-tax subvention to Dunedin The Board assesses that foregoing Stadium Properties Limited in dividends in favour of network FY17 compared to a $7.2 million pre- investment is a prudent decision tax subvention payment in the prior and in the long term interest of the year. shareholder. Lindis Crossing Substation 2017 ANNUAL REPORT 7 COMPANY REVIEW In October 2016, concerns were Margaret Devlin is a professional We would also like to thank raised in the media regarding director operating predominantly Mr Kempton and Mr Wood for the safety of the Aurora in the infrastructure and service their contributions to the Board of Energy network, particularly in sector. She was previously chair Aurora Energy. relation to pole condition and of WEL Networks and is currently Effective 1 July 2017 Grady pole identification systems.a director of City Care, Waikato Cameron was appointed Aurora Subsequently, our shareholder, Regional Airport and Watercare Energy chief executive to provide Dunedin City Holdings Limited, Services, among others. Brenden continuity during the transition to engaged Deloitte to carry out an Hall is a professional director the new company structure and independent review. and business advisor with over oversee the completion of the 25 years of experience across The Board supported the findings accelerated pole programme to multiple industries including of the independent report that December 2017. electricity, information technology found that the Aurora Energy and agricultural export. He is a Aurora Energy now directly Board and management were director of ETEL, Unison Networks employs its own asset aware of the concerns raised and and Unison Fibre. management, engineering, had been making progress in network operation and corporate the five areas where the report The appointments bring the services functions, and is recommended change. These Aurora Energy Board to the full contracted to provide shared include Board diversity, long term complement of directors: Stephen services support to Delta for planning, organisational structure, Thompson (Chair), Margaret another year. Around 100 staff asset management planning and Devlin, Dave Frow and Brenden transferred from Delta to Aurora health and safety. Hall, following the retirements of Energy on 1 July 2017. former Chair, Dr Ian Parton and Following the shareholder review, Stuart McLauchlan in December Delta continues to provide Aurora Aurora Energy has implemented 2016, and Trevor Kempton and Energy’s core maintenance and many of the recommendations Brian Wood in June 2017.