annual report 2012 Availability of this report in other formats

Copies of this report are available from our website westernpower.com.au or you can call us on 13 10 87 to request it in an alternative format. CONTENTS Western power GOVERNANCE & Annual Report 2012 FINANCIAL REPORTS 2012

Corporate snapshot 02 governance & 50 About this report 02 financial reports Chairman’s review 04 Directors’ report 52 CEO’s review 06 Corporate governance statement 65 Our profile 10 Financial statements 78 Who we are 10 GRI content index 123 Our purpose 10 Our network 10 Our vision 13 Our values 13 Our customers and other stakeholders 14 Key material issues 16 Our place in the electricity supply chain 16 How the price stacks up 17 Our board 18 Our executive team 19 Corporate performance 22

Operational performance 26 Putting safety first 26 Workforce safety and health 26 Winter safety campaign 27 Summer safety campaign 27 Customer focus 28 Complaints 29 Responding to emergencies 29 State Underground Power Project 30 Mid West Energy Project (Southern Section) 30 Managing the network 32 Safety 32 Reliability 32 Capacity 33 Investing in the network 34 People and culture 36 Organisational health (Pulse) 36 Employee statistics 38 Employee reward and recognition 39 Community and environment 40 Community engagement 40 Investing in our community 40 Environmental management 41 Key environmental challenges 42 Climate change 42 Environmental performance data 43 Regulation and compliance 44 Access Arrangement revisions process 44 Compliance report results 45 Future planning 46 Sustainability – renewable energy 46 Perth Solar City 47 Edge-of-grid communities 49 Future Energy Alliance 49

WESTERN POWER ANNUAL REPORT 2012 1 CORPORATE ABOUT THIS SNAPSHOT REPORT

This report covers Western Power’s Global Reporting Indicators (GRI) financial performance, statutory indicators identified as most relevant to obligations and sustainability our industry. The GRI guidelines performance for the period 1 July version 3.1 influence the content of this 2011 to 30 June 2012. report, including the Electricity Utility Sector Supplement. A summary GRI It reports on a broad range of content index is provided. business issues complementary to The report aims to provide a snapshot those defined in the Statement of of Western Power’s business, insight Corporate Intent agreed annually with into our operational performance and the Minister for Energy, consistent with a full account of our finances. All the Electricity Corporations Act 2005 information provided, including data (WA) and the Electricity Industry Act and statistics is at 30 June 2012, 2004 (WA). unless stated otherwise. Western Power is a signatory to the To help us continue to improve our Sustainability Practice Framework corporate reporting, we invite your (SPF) of the Energy Supply Association feedback via email to comment@ of Australia (esaa). As such we are westernpower.com.au. encouraged to report against the

2 WESTERN POWER ANNUAL REPORT 2012 WESTERN POWER ANNUAL REPORT 2012 3 CHAIRMAN’S CORPORATE SNAPSHOT REVIEW

The 2011/12 financial year was a Following Doug’s departure the Board period of rapid and significant of Directors appointed Paul Italiano, change for Western Power. General Manager Corporate Services as Acting Chief Executive Officer In January after a lengthy public (CEO). In the months that followed Paul parliamentary inquiry into Electricity clearly demonstrated a commitment to Transmission and Distribution driving efficiencies within the business management by Western Power, a while delivering a safe, compliant and Parliamentary Standing Committee reliable electricity network. After an identified a number of performance extensive executive search, Paul was concerns, in particular with asset formally appointed as CEO in August management and network reporting 2012 demonstrating the Board’s where our performance fell short of confidence in his ability to meet the community expectations. significant challenges facing Western Power in the years ahead. Western Power accepts the Committee’s findings and is committed Due to other business commitments, to address all the inquiry’s Mark Barnaba decided not to seek an recommendations including providing extension to his two year term as greater transparency on the state of Chairman of the Board and left the network through the publication of Western Power in April. On behalf of a detailed ‘State of the Infrastructure the Board I would like to thank Mark Report’ due later in 2012. for his leadership and vision. I would also like to thank Deputy Chairman In February, Doug Aberle retired as John Cahill for acting as Chairman in Managing Director after almost four the busy period between Mark’s decades with the organisation. Doug departure and my appointment as was instrumental in steering Western Chairman in August 2012. Power through the challenging disaggregation process in 2006 and it In terms of financial performance, this is appropriate that we acknowledge year Western Power recorded a net the significant contribution he made to profit after tax of $157.1 million. During Western Australia’s electricity sector the year more than five times this over his career. amount or $802.6 million was invested

4 WESTERN POWER ANNUAL REPORT 2012 in capital improvement programs. As a The onset of wild weather in June In closing, I would like to extend my consequence, net debt increased by presented significant challenges to the gratitude to Western Power’s greatest $457.7 million to $5.5 billion. community and to the network. What asset – its highly skilled and dedicated resulted from the storm was an workforce. In particular I wish to Significant investments in both capital extensive restoration program for more acknowledge workers in the field who and operating expenditure will remain an than 270,000 customers who lost power often work in very hazardous and ongoing feature of the Western Power with Western Power’s Customer Service uncomfortable conditions through business model as it addresses the Centre receiving more than 260,000 storms or fires and whose expertise, challenge of managing an aging calls in just 24 hours. These challenges dedication and reliability are respected electricity network of high value assets. were met safely with no electrical injuries by our customers, management and the Providing a roadmap of this investment to employees or the community and Board alike. for the next five years will be the Third with a sense of commitment that is Alan Mulgrew Access Arrangement (AA3). Earlier this pleasing to see and consistent with the Chairman year Western Power made its AA3 Board’s view of Western Power as a submission to the Economic Regulation responsive and professional Authority. Once finalised, AA3 will organisation. In July 2012 the Customer publicly outline Western Power’s five Service Centre was named the Best year investment plan, guide our Medium Sized Contact Centre in the performance and outline the Asia Pacific Awards, part of the World services delivered. Contact Centre Awards. The award demonstrates the priority given to While in Western Power’s view there is a customer service at Western Power. need for significant investment to maintain and reinforce the network, the The safety of employees and our business remains focused on achieving community drives everything Western the right balance between the cost of Power does. In 2011/12 the business building, maintaining and operating the again achieved a significant reduction in network and ensuring a safe, secure lost time incidents and plans are in place and reliable supply that facilitates to deliver further improvements in the growth. The CEO’s Review on the year ahead. following pages addresses this balance in greater detail.

WESTERN POWER ANNUAL REPORT 2012 5 CEO’S CORPORATE SNAPSHOT REVIEW

The release of a report by the safety. For example, from a safety and Legislative Council Standing reliability point of view it might be Committee on Public Administration desirable to replace all our assets over a in January marked a watershed certain age. This would, however, result moment in the history of Western in large increases in the cost of supply. Power. The Committee’s report, Conversely, postponing investment in titled ‘Unassisted Failure’, made it new assets might delay cost increases clear that some aspects of our but would result in increasingly long performance were not up to the power interruptions and potentially standard expected by the dangerous asset failures. Getting this community. balance right is the number one challenge for Western Power and has The report acknowledged the fact that been the focus of our business during many of our employees and contractors the financial year. are world-class professionals. It also detailed parts of our overall Affordability performance and culture, particularly in The cost of energy is a major economic the area of wood pole management, and social issue, not just in Western that fell short of what the Committee Australia but around the world. Electricity considers to be best practice. price rises in recent years have come as a shock to many Western Australian While confronting, this open consumers after a long period of frozen assessment allowed us to better tariffs. Western Power’s costs in building, understand the community’s maintaining and operating the network expectations and the areas we should constitute about 40 per cent of the total focus on to win back the confidence of cost of electricity supply. In the absence our stakeholders. of a competitive market for network To improve the way we plan, build and services, the independent Economic operate our aging electricity network Regulation Authority (ERA) scrutinises we must maintain a delicate balance our past and forecast expenditure to between affordability, reliability and ensure these costs are economically

6 WESTERN POWER ANNUAL REPORT 2012 efficient.T his year we have worked with Solar City program has been a great provided a continuous electricity supply the ERA to forecast our expenditure success in this regard. It has provided to our customers 99.88 per cent of the levels and associated network charges the data needed to plan for a more time. Notwithstanding this, we for the next five financial years balancing widespread application of advanced understand that some customers affordability with reliability and safety. We technologies to assist customers to save experience longer annual interruption will continue to work closely with the ERA on their power bills. times, particularly those in remote to deliver the best outcome for WA. The locations served by long feeder lines. Advances in technology can also help final outcome of theT hird Access We continue to implement innovative improve the efficiency of Western Arrangement will be established later this ideas to address reliability in these areas Power’s operations. This year has seen a calendar year. and make the necessary network continued improvement in our back end improvements. Helping people cope with the rising cost systems such as asset data management of electricity is also an important part of and customer information systems. This Reliability in the high voltage transmission our work. Western Power invests in will provide customer service network was also better than forecast at energy education programs to raise improvements and cost savings which 7.8 minutes interrupted compared to our awareness and change consumer limit future increases in network charges. target of nine minutes for the year. behaviours to achieve lower household Customers registered on the life support costs. One such program has been our Reliability equipment register are among our most partnership with other electrical utilities in The System Average Interruption vulnerable. They require a continuous, the Switch the Future campaign. This Duration Index (SAIDI) is our key measure uninterrupted supply of power. A range of community information program provides for the reliability of electricity supplied by regulatory protocols protect the safety of consumers with practical advice on ways our low voltage distribution network. This these customers. After some incidents to lower their energy bills and reduce year’s SAIDI target was 224 minutes, where these protocols were breached, stress on the system during which we outperformed with a result of Western Power conducted a thorough peak periods. 177 minutes. This mirrors a similar review of existing practices and performance in 2010/11 and marks a Making better use of our existing assets implemented a number of revised significant improvement in reliability over is important for the future affordability of strategies to prevent these breaches from time. This measure excludes major electricity. This reduces the need for reoccurring. Thankfully no one was environmental events and outages due to more infrastructure to support periods of harmed as a result of any of these planned interruptions. Even when peak demand for energy. Our leading role breaches. including these factors, on average we in the Australian Government’s Perth

WESTERN POWER ANNUAL REPORT 2012 7 CEO’S REVIEW CORPORATE SNAPSHOT continued

Safety the safer option of a professional – improving wood pole inspection and Electricity has the potential to be very arborist to prune their trees. It condition assessment practices and dangerous. Maintaining a network that contributed to the average number of data quality public safety incidents per month reduces the safety risks for employees, – improving productivity to reduce the being 9.9, just below our reduced contractors and the community is overall cost of delivering our wood target of less than 10. central to our purpose. The Lost Time pole management program Injury Frequency Rate (LTIFR) is one Streetlight switchwires were originally way of measuring our performance in Western Power will continue to strive installed by local councils some improving employee safety. The LTIFR to comply with the intent of the decades ago to power streetlights. trend over a number of years has been EnergySafety Order 01-2009 and Over time they have become the consistently downward. As this rate materially reduce public safety risk responsibility of Western Power. decreases, the challenge in decreasing over the next five years. The removal of obsolete streetlight it further becomes more challenging. switchwire is a major public safety Notwithstanding this significant focus, This year our target was less than or program. During the year we increased it is unlikely that Western Power will be equal to two and pleasingly our year the rate we remove these switchwires compliant with explicit terminology of end result was 1.6. and replace them with better and safer the Order. Despite this good result, a number of technologies by 700 per cent. Commercial performance very serious road accidents in 2012 The Office of EnergySafety is the involving our heavy fleet were of In 2011/2012 Western Power recorded public safety regulator for the concern. In response, we launched an total cash receipts of $1.561 billion and electricity industry. Its Order 01-2009 immediate series of road safety operating and capital outgoings of requires Western Power to improve all briefings conducted by all members of $1.924 billion including $271 million in aspects of our wood pole the Executive Team for all employees interest. This included a significant management. We are committed to and contractors. These took place in capital investment program totalling satisfying all aspects of the Order, 28 work locations from Geraldton to $802.6 million and resulted in however, EnergySafety is not yet Jerramungup, Kalgoorlie to Kewdale, additional borrowings of $457.7 million. satisfied that this has been fully Margaret River to Merredin. The Normalised profit after tax – which resolved. To resolve this situation we collective personal commitment to excludes the financial impact of continue to focus on reducing the behavioural change helped reduce the developer and customer contributions public safety risk from wood pole number of further incidents. was $61 million for 2011/12. failure as rapidly as possible by: In the course of the year we also ran a In May 2012 the State Government – increasing the rate of pole number of community safety initiatives approved the Mid West Energy Project replacement and reinforcement – in including a major winter media (Southern Section) at an estimated 2011/12 almost 39,000 poles were campaign. Its aim was to increase cost of $443 million. The project treated – based on our current awareness of the potential dangers of involves the construction of a new 330 assessment of our maximum overhead powerlines and the need to kilovolt transmission line for the Mid delivery capability, over the next five use a professional to prune trees West region. This will enable the years 364,000 of the 660,000 wood located near them. The campaign led connection of a number of significant poles in the network will be replaced to a nine per cent increase over two new mining projects in the Mid West or reinforced years in the number of people using and provide a gateway for renewable

8 WESTERN POWER ANNUAL REPORT 2012 energy projects in the region to feed remain connected to the grid but pay a does not pose a short to medium- green energy to consumers across the decreasing share of the costs term risk to safety this is not a Western Power Network. associated with maintaining the sustainable rate of replacement of this network. Over time, this is shifting the key network asset. This replacement Challenges ahead financial burden of network charges to level will need to increase and requires In addition to the challenge of balancing those who have not or cannot install increased future capital investment if affordability, reliability and safety as self-generation systems. Managing the we are to maintain a safe, efficient and outlined above, Western Power faces fair allocation of network charges reliable network. a number of other future challenges across the network in this environment The task before us to manage a including: of increasing self-generation is a progressively aging network with limited looming challenge. – Driving efficiency – It is important that resources is considerable. With the we examine all of our business and – Sustainable investment – As the progress we have made, the cultural and operational processes to drive network continues to age, the rate of operational changes we have set in improvements in efficiency in order to asset replacement will need to motion and our determination to honour minimise the impact of network costs increase in the future if we are to our commitments to improve, I believe on our customers. continue to provide the current level of we can continue to provide our service to customers. For example, the customers with a safe, reliable and – Fairly allocating network costs – In network currently includes more than affordable electricity supply. 2011 Australia led the OECD in the 97,000 kilometres of conductor and we highest level of customers choosing to Paul Italiano replaced 117 kilometres in 2011/12. install self-generation systems, such Chief Executive Officer We plan to replace 170 kilometres in as rooftop solar photovoltaic systems. 2012/13. While this rate of replacement The vast majority of these customers

WESTERN POWER ANNUAL REPORT 2012 9 OUR CORPORATE SNAPSHOT PROFILE

Who we are Our network Western Power is a State Government The Western Power Network1 covers a owned corporation that builds, very large area of 253,038 square maintains and operates the electricity kilometres. Unlike networks that cover network throughout the majority of all other major urban areas of Australia southern Western Australia. The serviced by a series of interconnected Western Power Network forms the vast networks known as the National majority of the South West Electricity Market (NEM), Western Interconnected Network (SWIN), which Power’s network is isolated and together with all of the electricity self-contained. This means that the generators, comprises the South West electricity needs of consumers within Interconnected System (SWIS). We the network must at all times be ensure the SWIS delivers a safe, secure delivered by the system itself without and reliable electricity supply to just any outside support or back up. over one million connected customers First established in the early parts of including homes, businesses, factories, the twentieth century, the Western mines, schools, hospitals and public Power Network underwent a period of transport providers. rapid growth in the 1950s and 1960s. We do not generate electricity (like Many of these assets remain in service Verve Energy for example), retail today, approaching the end of their electricity (like Synergy for example) or notional lifespan. Maintaining and operate in non-SWIS areas of Western replacing these assets remains a Australia (Horizon Power). challenge as we seek to ensure safety and reliability while containing costs. Western Power is governed by an Continued growth in population and independent Board and reports to the the proliferation of electrical appliances Minister for Energy (Hon Peter Collier such as air conditioners have seen a MLC) as the owner’s representative. rise in demand for electricity, putting We operate depots and offices further pressure on an aging network. throughout the SWIS region including Notwithstanding the high rates of our head office in Wellington Street, recent and proposed asset Perth. replacement based on Government approved levels of investment, the Our purpose average age profile of Western Power Western Power’s purpose is Network assets only marginally connecting people with energy. declines. This presents a significant challenge to future management of the network.

1 for more information on the condition of the Western Power Network, please see the 2012 State of the Infrastructure Report.

10 WESTERN POWER ANNUAL REPORT 2012 Western Power’s Operating Area

In addition to planning, building and maintaining the network, through our System Management Division we ensure that there is sufficient short term generation capacity, system integrity and an appropriate system configuration in order to meet predicted electricity usage.

WESTERN POWER ANNUAL REPORT 2012 11 OUR PROFILE CORPORATE SNAPSHOT continued

The Transmission Western Power Overhead Underground Total Network’s circuit length 7,492 52 7,544 Total (kms) Distribution 97,558 Overhead Underground Total 68,559 21,455 90,014

Poles and towers Transmission Distribution

Total 42,648 757,555 800,203

Transmission Terminal substations Zone substations Substations Total substation Streetlights 25 129 154 236,303

Combined Total capacity bulk Total capacity Number of Total capacity transformer (terminal) power sub-transmission (zone) distribution distribution capacity transformers power transformers transformers transformers

2 6,754 MVA 8,055 MVA 65,519 8,537 MVA

Total energy SWIS Energy lost during Western Power (the sum of all power station peak generation transmission and Network peak demand generated capacities as captured distribution (line losses) 25 January 2012 by the SCADA system)

3 4 19,433.8 GWH 4,068 MW 5.97% 3,698 MW

Note: In June 2012, Western Power commenced a significant data migration from its legacy asset management 2 MVA = Mega Volt Ampere systems to a suite of new asset management systems. There is potential for minor data discrepancies between 3 GWH = Gigawatt Hour the current reported figures and future reported figures for the 2011/12 financial year. 4 MW = Mega Watts

12 WESTERN POWER ANNUAL REPORT 2012 System Management also provides – Be recognised for our engagement Respect our customers centralised control and safe access with communities and for providing We stay connected to our customers to to the network for employees and a quality customer experience achieve the best energy solutions third parties authorised to work on – Be recognised for our contribution to the network. Work together energy policy for the mutual benefit of Part of System Management’s role is to the State and the business We work collaboratively to achieve consistent results that are in Western work collaboratively across the whole – achieve agreed standards in the most Power’s and the customers’ energy sector including generation, economically efficient way transmission, distribution and customers collective interests – Be recognised for our engaged, to ensure the safe operation of the committed and highly skilled people Make a positive difference network during planned and unplanned outages (power interruptions). We are focused on being innovative Our values and creative when adding value to We work hard to create a constructive Our vision customers and accept accountability culture that drives the delivery of our for delivering results We have established a clear vision: services to the communities in which we Western Power is recognised as a operate. Our values underpin everything Earn trust world-class, commercial electricity we do and are the principles that guide We work to earn the trust of others and network and system management the way we work, enabling us to achieve deliver on commitments business. our goals. Act like it’s our own business Our vision also includes five Put safety first Western Power is our business and our ‘vision elements’: In everything we do, we are committed actions will always reflect this – safely and reliably meet the needs of to putting safety first

customers and stakeholders through a quality network

WESTERN POWER ANNUAL REPORT 2012 13 OUR PROFILE CORPORATE SNAPSHOT continued

Our customers and other stakeholders

Customer Connections5 2011/12 revenue per Distribution Transmission Total customer segment

Residential Residential

920,204 0 920,205 $545m

Small to medium enterprises (SME)

Small to medium 94,183 0 94,183 enterprises (SME) + Large commercial Large commercial customers customers

$536m 19,421 54 19,475

Generators Generators 18 32 49 $111m

Distribution Total Transmission Total Total

1,033,826 1,033,912 86

5 The average number of customer connections to the Western Power Network during the 2011/12 financial year.

14 WESTERN POWER ANNUAL REPORT 2012 Our stakeholders are individuals or groups that can affect or be affected by our operations, actions and service delivery. In broad terms, our stakeholders include the following groups:

Our employees – 3,276 employees Land developers and designers – and Cabinet, Environment and plus 449 embedded contractors this group of stakeholders ranges from Conservation, Planning, Indigenous across southern WA6. small-scale residential developers (who Affairs and Regional Development subdivide a block and need two new and Lands. Residential customers – 920,205 underground connections) to large scale homes are connected to the SWIS. Australian Government authorities commercial property developers – including the Department of SME customers – 94,183 small to establishing entire new suburbs such Sustainability, Environment, Water, medium sized commercial enterprises as LandCorp. Populations and Communities and the are connected to the SWIS and tend to Contractors – including electrical and Department of Climate Change and require larger amounts of electricity network contractors whose practice Energy Efficiency. than domestic customers. Western requires interaction with the Western Power monitors the demand and Regulators and oversight Power Network, such as contractors carefully manages the network to cope authorities – including the Economic who install solar PV systems on with the growth requirements of the Regulation Authority, EnergySafety, household rooftops. SWIS required by SMEs. Worksafe and the Environmental Local governments – have a range of Protection Authority, the Independent Large commercial customers – issues that interact with Western Power Market Operator, the Energy 19,475 larger commercial enterprises including unmetered supplies (e.g. Ombudsman and the Auditor General. that tend to be industrial entities that streetlights, traffic signals, railway require significant quantities of Industry groups, associations and crossing boom gates, bus shelters and electricity. Connecting these unions – including Dial-before-you-dig, telephone boxes) and the placement of customers to the network may require National Electrical and Communications local electrical infrastructure (e.g. large scale augmentation. Association, Sustainable Energy transformers and substations). The Association, Chamber of Commerce Generators – we work with 49 Western Australian Local Government and Industry, Chamber of Minerals and generators including Verve, Worsley Authority represents local government Energy, Energy Networks Association, Alumina, West Kalgoorlie Power and is a key stakeholder. Energy Supply Association of Australia, Station and Kwinana Power Station. State Government authorities – Urban Development Institute of Retailers – we have a relationship including the Office of the Minister for Australia, Western Australian Council of with 26 retailers such as Alcoa, Alinta, Energy, the Public Utilities Office, FESA, Social Services, WA Farmers Synergy, Blair Fox and Collgar State Emergency Services, Main Roads Federation, Australian Services Union, Wind Farm. WA and the Departments of Treasury, and the Construction, Electrical and Finance, State Development, the Premier Plumbing Union.

6 For more information on employees see page 38

WESTERN POWER ANNUAL REPORT 2012 15 OUR PROFILE CORPORATE SNAPSHOT continued

Key material issues Western Power has classified – public and workforce safety stakeholder issues across the areas of Western Power endeavours to align – supplying electricity at an our operations for which we have a with best practice disclosure affordable price procedures and undertake an effective corporate responsibility and and transparent stakeholder considered them against the potential – responding to increasing demand engagement process through all facets risks associated with our business of – maintaining a customer focus of business activity. operating and maintaining a network. – sound governance and strong Material issues with a high level of Aligning our network operations with leadership importance to both Western Power customer, regulator and stakeholder and our stakeholders include: – operating in compliance with our expectations governs our operational regulatory obligations policies and ultimately determines the – minimising environmental impact direction we take as a business.

Our place in the electricity supply chain The price of electricity for residential and small business customers in Western Australia is set by the State Government. This price remains below the overall cost of supply, which is made up of many different elements including the cost of generation, transmission and distribution (i.e. networks) and retail.

GENERATION TRANSMISSION & The network or grid is made up of transmission RETAIL eg. Verve Energy DISTRIBUTION assets (high voltage infrastructure such as large eg. Synergy Western Power steel towers) and distribution assets (low Generators make voltage infrastructure such as suburban street Retailers manage the interface electricity at power power poles and conductors or wires). The between the network and plants using a variety of network allows electricity to flow from electricity consumers. They issue fuel sources including generators to consumers. accounts and collect the revenue gas, coal, diesel, the for the whole supply chain. wind and the sun.

16 WESTERN POWER ANNUAL REPORT 2012 How the price stacks up The adjacent price stack demonstrates GST the major elements that make up the GST GovernGmoeverntnment contribcuotniotnribution price of power and who pays for it. Other*Other* Retail Retail

NetworNkset†w orks†

What tWhehat the * Other* includes:Other includes: customceurstomer pays pays – Market– Market fees fees – Ancillary– Ancillary services services – Excess– Excess generation generation capacity capacity – Perm–i tsP eformr sitms afoll rs scmalael l( esgc asleo la(erg) solar) rene wareblnee obwalbligea tobionsligations GeneraGteionneration – Perm–i tsP eformr liatsrg feo rs lcaarglee scale rene warebnlee owbalbiglea toiobnlisgations

† Trans†m Tirsasniosnm &is sdioisntr i&b udtisiotnri bnuettiwono rnkset works (incl. t a (irnifcf le. qtauraiflif seaqtiuoanli)sation) What Wit hcaots itts costs Who pWahyos pays

WESTERN POWER ANNUAL REPORT 2012 17 OUR PROFILE CORPORATE SNAPSHOT continued

Our board

Alan Mulgrew Chairman (appointed August 2012) John Cahill Independent Non-Executive Director Deputy Chairman (A/Chairman as at 30 June 2012) Paul Underwood Independent Non-Executive Director Independent Non-Executive Director Member of the Finance and Chair of the Finance and Risk Committee Risk Committee Member of the People and Member of the People and Performance Committee Performance Committee

Mervyn Davies Independent Non-Executive Director Hon George Cash AM Member of the Finance and Independent Non-Executive Director Risk Committee Chair of the People and Performance Committee

18 WESTERN POWER ANNUAL REPORT 2012 Our executive team Western Power’s Executive Team is responsible for managing the business and delivering on our business priorities, ensuring we maintain our focus on providing a safe, reliable and affordable electricity supply to our customers.

The Operations areas of the business Distribution Division electricity generators to the numerous are responsible for achieving the delivery Distribution Division is responsible for the substations throughout the Western of our transmission and distribution safe and efficient delivery of a dynamic Power Network. It also manages a vast works program in partnership with our works program for the distribution (low communication network to support the key suppliers, contractors and voltage) network that connects our successful operation of both customers while adding value to their customers to the many substations transmission and distribution networks. experience. Operations is divided into throughout the Western Power Network. three divisions: They also respond to emergency Back (l-r) John Pease, General Counsel & situations, restoring power to customers Company Secretary, Legal & Governance; Customer Service Division after outages caused by events such as Stewart Hart, Chief Financial Officer; Cameron Customer Service Division is responsible storms and fires. Parrotte, General Manager, System for the delivery of quality customer Management; Leigh Sprlyan, Acting General Manager, Corporate Services; Phil Southwell, service outcomes for our distribution Transmission Division General Manager, Regulation & Sustainability. customers. Specifically, the division Transmission Division is responsible for focuses on managing an efficient the project management, contracts Front (l-r) Kevin Gaitskell, General Manager, Enterprise Solutions Partner; Ken Brown, gateway for customer enquiries, faults management, design, construction, Executive General Manager, Operations; Paul and requests; metering services and the commissioning, operation and Italiano, Chief Executive Officer (appointed end-to-end process for customer- maintenance of our transmission (high August 2012); Mark de Laeter, General Manager, initiated work. voltage) network which connects Networks.

WESTERN POWER ANNUAL REPORT 2012 19 OUR PROFILE CORPORATE SNAPSHOT continued

The remainder of the Western Power business is divided into a further seven divisions:

Networks Division Corporate Services Division Legal and Governance Division Networks Division is responsible for Corporate Services Division provides Legal and Governance Division planning the development of the support services to the rest of the provides advice and support to network, managing the condition and business in order to improve the overall Western Power’s directors and performance of existing assets and functioning of Western Power. The employees in relation to internal audit providing connection services to major division’s aim is to achieve this in a services, risk management, customers. The division also manner that adds value for internal compliance, and legal advice and contributes to realising our energy customers and assists them to more representation. In addition they provide vision through leading our smart grid efficiently perform their various roles. secretariat support and corporate development and engaging with the Services include procurement and governance for the Board, its community and key stakeholders to ensuring employees are safe, committees and the Executive. help maximise the social benefits of all connected, informed, engaged, trained our activities. and provided with the appropriate Enterprise Solutions working environment, technology and Partner Division System Management Division equipment to perform effectively. Enterprise Solutions Partner Division System Management Division ensures provides the focus, expertise and that there is sufficient short term Finance Division resources to successfully plan and generation capacity, system integrity Finance Division supports, guides and deliver key organisation-wide strategic and system configuration to meet challenges the organisation to achieve initiatives through championing ‘best demand 24 hours a day. It also our financial and commercial for business’ outcomes. provides centralised control of the objectives. The division’s key functions network which facilitates access to the include the provision of commercial wires for maintenance and support to operations; financial reinforcement purposes. planning, analysis and reporting; liaison with the Department of Treasury Regulation and including procurement of funding; debt Sustainability Division management; insurance; corporate Regulation and Sustainability Division accounting and taxation. builds regulatory excellence and sustainable practices into everything we do, delivering cost-reflective network pricing and securing an Access Arrangement that enables Western Power to deliver value to our customers and our owner.

20 WESTERN POWER ANNUAL REPORT 2012 WESTERN POWER ANNUAL REPORT 2012 21 CORPORATE CORPORATE SNAPSHOT PERFORMANCE

Corporate Performance Target Actual

Safety Lost Time Injury Frequency Rate (LTIFR) ≤ 2 1.6

Public safety incidents (monthly average) < 10 9.9

Service Standards System Average Interruption Duration Index (SAIDI) ≤ 224 177

Transmission Network System Minutes (meshed network) ≤ 9 7.8

Customer Charter Charter compliance Compliance7 ≥ 90% 94.2%

Financial Earnings Before Tax (EBT) $251m $225.4m

Net Accruals to 8 Government (NATG) $121.8m $85.5m

AA2 works delivery Total cost reductions on major projects9 ≥ 2.5% 2.3%

Major work projects delivered over schedule ≤ 5% 1.5%

Organisation Organisational health culture10 ≥ 77 74

7 Western Power is to meet the benchmarks determined in the Customer Charter, which includes providing connections and repairing faulty street lights within the prescribed time frame (as set out in the code of conduct), responding to enquiries within 10 days, closing complaints within 20 days, answering general enquiries calls within 30 seconds and answering fault calls in 30 seconds. 8 made up of dividends and current tax 9 this KPI is referred to as “Major work projects delivered on budget ≤ 97.5%” in the 2011/12 Statement of Corporate Intent 10 See section on the Pulse Survey page 36

22 WESTERN POWER ANNUAL REPORT 2012 WESTERN POWER ANNUAL REPORT 2012 23 CORPORATE CORPORATE SNAPSHOT PERFORMANCE continued

Western Power’s net profit after tax Net profit after tax (NPAT) versus return on assets (ROA) (NPAT) of $157.1 million was higher than the previous year (2010/11: NPAT ROA

$129.6 million). Profit is distributed to 200 8.00% the State Government by way of tax 157 and dividend payments, which 150 6.00% 130 increased to $85.5 million in 2011/12 126

up 35 per cent from $63.2 million 97 m 100 4.00% 86 $

56 . 7 in 2010/11. 25 2 . 03 0 . . 2 69 2 . 2 Transmission and distribution tariffs 50 1 2.00% increased by an average of 15 per cent, indicating a move towards cost 0.00% reflectivity and narrowing the gap 2008 2009 2010 2011 2012 between the cost to transport electricity and tariff revenue received by Western Power.

Return on assets, (net profit after tax divided by average total assets), was 2.25 per cent and has been relatively Total fixed assets versus total borrowings stable over the last five years. Total Fixed Assets Total Borrowings It is important to note that NPAT as a profitability measure overstates Western Power’s performance. 8,000

NPAT includes $169.6 million in gifted 6,991,283 7,000

network assets from developers and 6,311,954 other customers. As required by the 6,000 5,761,564 5,474,774 5,117,967 applicable accounting standard 5,017,064

5,000 4,680,521 (AASB Interpretation 18 - Transfers 4,290,033 4,000 3,927,497 m of Assets from Customers) these $

3,118,398 contributions are immediately 3,000 recognised as revenue. The 2,000 normalised profit measure, which 1,000 removes the impact of these contributions, was $61 million in 0 2008 2009 2010 2011 2012 2011/12. Normalised profit returned to a positive position in 2010/11 ($14 million) when tariff prices were increased to begin reflecting the true cost of maintaining and growing the network. Normalised profit therefore provides a more meaningful measure of Western Power’s profitability.

24 WESTERN POWER ANNUAL REPORT 2012 Normalised Profit

100 61 50 14

m 0 $

-10 -20 -50 -62

-100 2008 2009 2010 2011 2012

Reconciliation of Statutory Profit to Normalised Profit

2011 2012 During the reporting period, we $m $m continued to deliver our capital works program which is focused on improving Net profit after tax (NPAT) 130 157 public safety, facilitating state growth by connecting new customers, maintaining NPAT Contribution from Capital Contributions service standards and providing a secure energy supply. Investment over Revenue 196 170 the last five years has seen the total asset base grow from $3.6 billion to Less Depreciation11 30 33 $7.0 billion. In 2011/12 more than five Profit before Tax 166 137 times NPAT, or $802.6 million, was invested in capital expenditure – 14.5 Less Tax expense 50 41 per cent higher than the previous year. This required additional borrowings of Adjustment to NPAT from Capital Contributions 116 96 $457.7 million bringing total borrowings to $5.5 billion. Normalised Profit After Tax $14 $61

11 Depreciation is estimated based on all developer and customer contributions received since 1999 depreciated over 50 years.

WESTERN POWER ANNUAL REPORT 2012 25 OPERATIONAL PUTTING SAFETY PERFORMANCE FIRST

Workforce safety and health We continue to develop as a learning Safety and health12 is a value and we organisation ensuring that we capture encourage a workplace culture where and share information from incidents every member of our workforce is and, wherever possible, assess risks in empowered to lead by example. All a proactive manner. employees and contractors have the Our safety and health performance right to challenge any aspect of their continued to improve this year with a working environment which they positive progress noted across our key consider to be unsafe – if it’s not safe, indicators. Our lost time injuries for our we don’t do it. total workforce showed a slight Our aspiration is to have a culture improvement in 2011/12 totalling 16, within which great safety and health compared to 17 in 2010/11. performance is sustainable and through visible, felt leadership we are making steps towards this.

Lost Time Injury Frequency Rate13

2007/08 2008/09 2009/10 2010/11 2011/12 4.3 2.7 2.6 1.9 1.6

12 For more information on public safety see the Managing the Network section on page 32 13 Lost time incidents per million working hours

26 WESTERN POWER ANNUAL REPORT 2012 Winter safety campaign Summer safety campaign During winter, vegetation coming into Prior to summer each year, the Western contact with our network is a common Australian community prepares for cause of power failure and public safety bushfires that can damage property, issues. Talking to the community about cause significant power interruptions the safety risks associated with trees and threaten lives. coming in contact with overhead In 2011 our campaign employed a mix of powerlines is important to build radio and press announcements during necessary awareness and September and October 2011, with a understanding. focus on fire prevention – highlighting Post-campaign research indicated an the recommended safe distance increase in the number of people (from between trees and overhead powerlines 90 per cent in 2010 to 96 cent in 2011), and reminding property owners of their who now recognise having their trees responsibility to take action before trimmed away from powerlines as an summer. Suburbs in areas at higher fire important step in ensuring powerlines risk during the summer months were outside their home are not damaged specifically targeted. during storms.

Given the positive results of this campaign, we shifted the message during 2012 to inform our customers of what to do should they see a fallen powerline, an occurrence more likely during the winter months due to adverse weather conditions.

WESTERN POWER ANNUAL REPORT 2012 27 CUSTOMER operational performance FOCUS

To maintain a safe and reliable During 2011/12 we issued approximately supply of electricity, we provide a 9,500 authorisations for large or high variety of services to our large, load vehicles and more than 38,000 varied and geographically dispersed notices to customers requesting customer base, including: maintenance to vegetation on their properties. New connections Requests for electrical work We worked with the electrical We received approximately 9,700 contracting industry and EnergySafety customer applications in 2011/12 to to connect more than 20,000 new design and quote on a variety of customers to the network in 2011/1214. electrical works. Examples of these Residential solar PV systems works include providing an additional power supply for residential or business To enable customers to install solar customers, the subdivision of large photovoltaic (PV) systems, 32,848 parcels of land and other extensive meter changes were carried out works for local governments or during the reporting period. Main Roads.

Protecting network infrastructure Customer service centre To ensure a safe and reliable supply of Our customer service centre received electricity, we are required to protect more than one million customer calls powerlines and other network during 2011/12. Of these calls, 85 per infrastructure from interference. This cent were from customers who were includes facilitating the safe travel of seeking information and assistance after large and high load vehicles through losing power at their home or business, the network and preventing vegetation with the remaining 15 per cent related to from growing too close to powerlines. general customer enquiries.

14 2010/11 reporting was based on the total number of National Meter Identifiers on the Western Power Network. These figures may have included inactive meters. 2011/12 reporting has been refined to only include active exit points on the Western Power Network as defined in the Code of Conduct for the Supply of Electricity to Small Use Customers.

28 WESTERN POWER ANNUAL REPORT 2012 This year, our highly trained customer The other key categories of As a result of identifying meter reading as service centre team was recognised as complaints are: a key concern for customers, a satellite a finalist in the Contact Centre World contact centre opened in January 2012. Planned power interruptions – Awards for the Asia Pacific region and The centre is staffed by a team of failure to provide adequate information the Australian Customer Service Council metering specialists who handle queries about a planned interruption or the Annual Excellence Awards. regarding meter reads, access to the impact of a planned interruption. meter box, general queries and ways to Planned interruptions refer to situations Complaints avoid usage estimates. The centre aims where a customer’s power is turned off In 2011/12 we received 71215 complaints to resolve customer queries at the first to allow network maintenance to be from customers who were not satisfied call and support the main contact centre carried out safely with the product or service they received by taking fault calls during busy periods. from Western Power. As we continue to Metering – issues with meter reading focus on engaging with our customers and meter reading estimates Responding to emergencies and improving their experience with Two significant natural events caused Vegetation – trees growing too close Western Power, we have seen the substantial damage to the network in to powerlines number of complaints decrease. 2011/12. Significant improvements to the planned The highest complaint category in In November, bushfires destroyed nearly interruption notification process this year 2011/12 was regarding infrastructure, a hundred power poles and other more than halved the number of which includes concerns about work on network assets in the Margaret River to complaints received about this issue. network assets or asset locations. This Augusta region. Local crews were Similarly, improvements to vegetation category has increased since 2010/11, assisted by teams from other parts of the management processes and community which may be as a result of our network to rebuild the lines and restore awareness resulted in a steady decline increased works program impacting a power to more than 500 customers in in the volume of these complaints. larger number of people. less than a week. Up-to-date information was provided to the general public on the recovery effort via regular community meetings held in affected shires,

15 Excludes power quality and reliability complaints, Ministerials and ombudsman complaints as defined in the Code of Conduct for the Supply of Small Use Customers.

WESTERN POWER ANNUAL REPORT 2012 29 CUSTOMER operational performance FOCUS continued

numerous interviews on local and state The community responded extremely Mid West Energy Project radio stations as well as via well to identifying hazards and (Southern Section) our website. maintaining safe practices around The Mid West Energy Project is the them. Feedback received from the biggest powerline infrastructure project In June, two unusually strong storms in community was overwhelmingly ever undertaken in WA. The first stage two days caused extensive damage to positive and demonstrated a broad is the construction of the Southern the south west land division. More than appreciation and understanding of Section of the line which will connect 272,000 customers in total lost power what is involved in restoring power Neerabup to Three Springs with a 330 during the week across many parts of over such a large area as quickly as it kilovolt (kV) double circuit line. This will the network from Geraldton to is safe to do so. enable the connection of significant Ravensthorpe. Our crews worked new customers east of Three Springs around the clock and were assisted by State Underground Power Project and provide additional support to the crews from our delivery partners, Western Power has continued to Mid West by establishing a new contractors, ETSA in South Australia rollout the State Underground Power 330/132 kV terminal substation at and from Horizon Power. Crews Project (SUPP) that replaces existing Three Springs. Once constructed, the successfully restored power to more overhead powerlines with an line will supply significant new Mid than 160,000 affected homes in the 48 underground supply. West mining projects and provide a hours following the first storm. gateway for renewable energy projects Projects completed this year were Our call centre received more than to feed green energy to consumers Attadale South and Bentley East. 260,000 calls between 10 and 13 June across the Western Power Network. Approximately 65 kilometres of 2012 in relation to the storms, helping underground cable was installed in During the year important milestones us to identify more than 7,900 Attadale and approximately 40 such as business case approval, incidents, including more than 3,400 kilometres in Bentley East, delivering Treasury funding and the approval of hazards and more than 2,000 benefits including improved reliability the New Facilities Investment Test fallen powerlines. and enhanced streetscapes. (NFIT) with the ERA were achieved. Throughout the event, we provided 54 per cent of the metropolitan area is In late June, Ministerial approval was regular updates to the community via now serviced by underground power, granted for the line construction traditional media outlets and online via including new subdivisions. contract to Downer EDI for a value twitter and our website. of $178 million. We continue to work closely with the Due to the severity of the storm and its Public Utilities Office, local government Construction of the transmission line is impact on the network, approximately and the Department of Treasury to planned to be completed over a two 20,000 Extended Outage Payments develop a SUPP plan and review the year period. Complex terminal station were approved and paid by 30 June method by which the program is works at Neerabup and Three Springs (approximately 56,000 were approved developed and delivered. for connection of the new line have and paid in total). Payments for power also commenced. interruptions lasting longer than 48 Jointly funded by Western Power, local hours were increased to $16016 and we and State Governments, the project processed 2,896 of these by 30 aims to improve energy reliability and June 2012. safety for the community.

16 Extended Outage Payment for the June 2012 storms was increased to $160 by the Electricity Corporations June Storms Supply Payment Direction 2012, issued by the Minister for Energy under section 111 of the Electricity Corporations Act 2005 (WA)

30 WESTERN POWER ANNUAL REPORT 2012 WESTERN POWER ANNUAL REPORT 2012 31 MANAGING operational performance THE NETWORK

Safety Of the five incidents resulting in injury Improving the public safety or death, one person received an performance of the network is a electric shock and burns to his upper priority for Western Power. We gather body, three incidents involved cattle many different network related and one incident involved sheep. statistics in order to continuously We are working with the safety monitor and improve public safety regulator, EnergySafety, to enhance outcomes associated with the our public safety reporting to provide network. A key performance indicator additional public safety measures. of public safety is the number of public These include all electric shocks safety incidents occurring on caused by Western Power’s network the network. and all pole failures. Performance The Western Power assets that pose against these additional measures, the greatest public safety risk are combined with an overview of the state wood poles and overhead conductors of the network, will be published in our (powerlines). Many of these assets are 2012 State of the Infrastructure Report. located near homes in populated areas Reliability or are in regions where there is a high risk of bushfires. There is a significant Maintaining a reliable, continuous risk of injury or fire if these assets fail. supply of electricity to consumers is an important attribute of the network. We During the reporting period, we undertake a number of programs so recorded 119 public safety incidents. that the communities we serve have a This equates to an average of 9.9 reliable service. This includes trimming incidents per month compared to a vegetation along line routes, line monthly target of less than 10. washing (at times by helicopter), the The table below shows the breakdown use of insulated wires in high fire risk of the types of public safety incidents forested areas and the continued during 2011/12. replacement of overhead powerlines

Public Safety Incident Type Result Fire or explosion caused by Western Power assets 62

Vehicle, plant or equipment contact with Western Power Network 49

Injury (requiring medical treatment) or death to people and animals 5 from inadvertent contact with the Western Power Network

Injury (requiring medical treatment) from electric shock if caused by 3 the Western Power Network

Total 119

32 WESTERN POWER ANNUAL REPORT 2012 with an underground supply (see page long rural feeders. A combination Distribution Distribution 30 on SUPP). We also aim to replace of factors, particularly lightning and assets before they fail, with particular inclement weather, contributed to this network network focus on wood poles, overhead benchmark being exceeded by Total no. of No. of benchmarks benchmarks achieved conductors and transformers. 1.3 per cent.

One standard measure used as a key The two transmission benchmarks not performance indicator of reliability is the achieved were: 10 9 System Average Interruption Duration – interruption duration on radial Transmission Transmission Index (SAIDI). SAIDI is a measure of the lines17 – This target was exceeded by network network average duration of unplanned power 1.1 system minutes, due mainly to Total no. of No. of benchmarks interruptions per year per customer. summer lightning activity and pole benchmarks achieved Overall SAIDI performance for the failure on a particular circuit reporting period was 177 minutes, which is 27 per cent lower than the targeted – average outage duration – This 6 4 224 minutes. The result is also a one target was exceeded, largely due to minute improvement on the result transmission pole failures resulting interested community members about for 2010/11. from storm activity in June 2012 Western Power’s development plans in In addition to SAIDI, network reliability is Capacity response to load growth and generation characterised by a suite of benchmarks Planning the network’s continual connection requests. In discussing relating to specific contexts and development is essential for ensuring these issues and the factors considered performance parameters. Performance sufficient capacity to transport energy in addressing them, the APR provides against these is summarised in the from generators to customers in a stakeholders with an insight into table to the right. manner that is safe, reliable and Western Power’s planning activities as well as creating an opportunity for The distribution benchmark we did not cost effective. dialogue. A copy of the latest APR is achieve was the average outage Each year the Annual Planning Report available on our website. duration experienced by customers on (APR) informs market participants and

17 A radial line is where there is only a single transmission line and no alternative route to transmit electricity if the line fails. This is typically the case in supplying mining loads

WESTERN POWER ANNUAL REPORT 2012 33 MANAGING operational performance THE NETWORK continued

In terms of capacity, the Western The following table identifies the extent to which the peak utilisation18 on various Power Network has demonstrated its network elements in 2011/12 exceeded the target utilisation levels set out in the ability to meet forecast load growth. Technical Rules. There are a number of zone Percentage exceeding substations, terminal stations and Network element utilisation targets other network assets anticipated to exceed their recommended capacity Zone substations 5.1% as established by the Technical Rules. Terminal stations 0% While this does not signal an immediate inability to supply Metropolitan feeders 29% customers, it does mean that there will Rural feeders 7.6% be less spare capacity in the network to provide supply when faults occur. re-supply all customers while the fault There are more than 650,000 wood Further details will be published in our is repaired. This exposes customers to poles in the network and they were a 2012 State of the Infrastructure Report. the potential of long duration power key focus area during the reporting Feeders are powerlines that distribute interruptions while the faulted period. We predominantly use wood electricity from zone substations to conductors are repaired. poles, rather than concrete or metal, as they have proven to be the most customers. To avoid feeder overloads, Further discussion of forecast capacity cost-effective option over the expected we temporality switch load to adjacent constraints in the Western Power life of a pole. Being non-conductive, feeders and, if necessary, run Network will be published in our 2012 they are safer for both employees and emergency response generators to State of the Infrastructure Report. meet demand. the public. Pine poles meet technical requirements in terms of mechanical Investing in the network The relatively high percentage of strength and height to accommodate Western Power invests substantially in over-utilised feeders in the Perth electrical safety requirements. Many network construction and maintenance metropolitan area is a reflection of new poles come from local pine programs to improve the safety, population density and load growth in plantations (a renewable resource) and reliability and capacity of the network. the region over recent years. are treated with fire retardant paint that Approximately 29 per cent of The Approved Works Program (AWP) helps reduce their combustibility. metropolitan feeders were utilised to details the complete schedule of works During the year, the number of wood greater than 80 per cent of their rating for the year, including all capital pole inspections performed as part of during the 2011/12 summer. This does expenditure (network extension, a four to five year cycle increased by not indicate imminent network failure, augmentation and replacement to seven per cent. but does indicate a potential supply enhance capacity, safety and reliability) risk to customers in areas of the and operational expenditure Reinforcement is an industry-accepted distribution network containing (maintenance for improved safety and method of safely extending the life over-utilised feeders. If a feeder fault reliability) for both the transmission and expectancy of a wood pole as well as was to occur in these areas while distribution network. The 2011/12 AWP reducing the failure risk for those poles feeders are over-utilised, it is unlikely comprised approximately 1,355 that cannot be replaced within the that there would be sufficient spare projects. There were two main areas of required timeframe. During 2011/12, capacity in neighbouring feeders to investment: wood poles and wood pole reinforcements increased to conductors.

18 Peak utilisation is the maximum utilisation observed across the year.

34 WESTERN POWER ANNUAL REPORT 2012 24,000, an increase of 109 per cent The table below shows the major activities undertaken on the network during the compared to 2010/11. This work is reporting period19. expected to increase by a further 87 per 2009/10 2010/11 2011/12 cent in 2012/13. Distribution 184,924 162,568 173,876 There were 15,512 wood poles replaced Wood pole in 2011/12, an increase of 22 per cent Transmission 8,791 8,615 9,198 inspections compared to the previous year. Priority Total 193,715 171,183 183,074 was given to unreinforced wood poles in high and extreme fire risk zones. This Wood pole reinforcements 6,768 11,421 24,643 work is expected to increase by a further Wood pole replacements 10,828 12,633 15,512 10 per cent in 2012/13. Overhead customer service connection 36,077 42,062 56,207 In addition to wood poles, conductors replacements (twisties) (powerlines) have also been a key area of focus for the reporting period. Overhead conductor replacements 31 km 82 km 117 km Conductors enable the transfer of power Streetlight switchwire removed 50 km 159 km 1,268 km from generators to households and businesses. service connections. Customer service On 29 May 2012, in our response to the The total length of Western Power’s connections physically connect individual Economic Regulations Authority’s (ERA) overhead distribution circuit is customer properties to the low voltage draft decision on our Third Access approximately 69,000 kilometres. This distribution network, either overhead or Arrangement, Western Power highlighted infrastructure is aging and some of it is in underground. Older overhead service the need for $6.5 billion in capital a deteriorated condition rendering it connections used preformed steel wire investment in the network over the next more susceptible to failure. When helical terminations, known as ‘twisties’, five years.I t is anticipated that at least overhead conductors fail they can cause wound around the service wire and then this level of investment will be required service interruptions or impact public looped over the bracket or an insulator during the period of the Fourth Access safety through electric shocks or the attached to the bracket. This type of Arrangement, which will commence ignition of bushfires. overhead customer service connection is 1 July 2017, if we are to maintain a safe, We are steadily increasing investment in known to deteriorate over time. Of the reliable and efficient network. replacing overhead conductors. All the estimated population of overhead remaining 3,957 kilometres of streetlight customer service connections of On 5 September 2012, the ERA switchwire will be removed by 2014. In 410,000, there are 94,346 twisties released its final decision on Western addition, the Government’s underground requiring replacement. Power’s Third Access Arrangement. power project is a key contributor to the Significant investments in both capital The impact of the ERA’s decision is a proposed removal of aged overhead and operating expenditure will remain an reduction in capital investment of conductor throughout the Perth ongoing feature of the Western Power $456 million compared to the amount metropolitan region. business model as it addresses the Western Power proposed. During 2011/12, we also upgraded and challenge of managing an aging maintained 56,207 overhead customer electricity network of high value assets.

19 Reports of conductors and twisties replaced as part of targeted programs and replaced as a result of business as usual activities. Reports of wood pole inspections, reinforcements and replacements and streetlight switchwire removed are target program only and do not include those replaced as a result of day-to-day activities.

WESTERN POWER ANNUAL REPORT 2012 35 PEOPLE & operational performance CULTURE

At Western Power we recognise Organisational health (Pulse) that culture drives performance Pulse is our annual employee opinion outcomes. That is why we are survey that allows us to gauge the working to develop the right culture overall organisational health of Western to meet present and future Power. It provides employees with an challenges. This includes attracting opportunity to give feedback on how and retaining quality people who they feel about Western Power and are committed to striving for how engaged they are as an excellence. employee.

The 2012 survey was conducted We recognise that the Executive Team between May and June with 3,051 has a crucial role to play in setting the employees and embedded contractors organisational culture. The past year taking part, representing 82 per cent has been one of reflection for of our workforce, up from 74 per cent members of the Executive Team who in 2011. have been undertaking activities to improve culture at the management This year’s overall result for the level. These activities include; high Organisational Health Indicator of 74 performance team training, recruiting per cent mirrored the previous year’s new Executive Team members and result and fell short of our 2012 target undertaking greater employee of 77 per cent. engagement throughout the The highlight of the survey was the organisation. response to the question “I am committed to the success of Western Power” which reflected 85 per cent favourable responses from employees and measured 10 per cent above the External Benchmark Score for the Industrial Sector in Australia.

36 WESTERN POWER ANNUAL REPORT 2012 WESTERN POWER ANNUAL REPORT 2012 37 PEOPLE & operational performance CULTURE continued

Employee statistics 09/10 10/11 11/12 Number of employees (headcount) 2,943 3,013 3,27620

Number of new starters 367 386 581

Employee turnover 7.9% 12.05% 9.5%

Percentage of employees covered by 49% 50% 48% collective bargaining agreements

Absenteeism21 3.5% 3.85% 3.6%

Number of embedded contractors22 401 412 449

Number of employees by work stream

Business Support 404 Formal Leadership 381 Operational 1,194 Professional – Engineering 540 Professional – Other 757

Total 3,276

20 Includes casuals 21 Calculated by the amount of hours employees were available to work during the period divided by the amount of unplanned leave hours (sickness, workers comp, industrial disputes, carers leave, special leave and bereavement). 22 This figure is in addition to the number of Western Power employees.

38 WESTERN POWER ANNUAL REPORT 2012 Diversity statistics Voluntarily Voluntarily self-reported self-reported Western Power is committed to equality FTEs annualised Male Female Indigenous Disability in remuneration levels. The average Total Fixed Remuneration (TFR) for annualised Numbers on Board 4 0 0 0 FTE professional female employees to Extended Management Team 44 8 0 2 professional male employees was 93 (including A/CEO) per cent.

Managers and supervisors 272 57 1 3

Professional employees 967 330 0 14

Business support employees 89 315 4 7

Operational employees 1,184 10 16 16

Total 2,560 720 21 42 3,280

Employee reward and recognition 2010/11 Winner 2011/12 Winner Bright Sparks Award (awarded August 2011) (awarded August 2012) Recognising outstanding employee performance and service is an important Put safety first Margaret River Mark Nietrzeba part of our culture. Depot Team The Bright Sparks awards are our way Respect our customers Gavin Rose Luke Hollemans of recognising and rewarding the Work together Matt Gaunt Margaret River fire extraordinary efforts of employees Isaac Stephens Response Crew (individuals or teams) who help us reach Troy McKenna our strategic goals by displaying our six Thai Li core values.

Make a positive difference Lance Hubbard Gordon Kane The Bright Sparks awards are peer Hans Van Zyl nominated and assessed with six winners awarded every month. Each Earn trust Paul Dvorak Steve Pethick monthly winner is also eligible to win one Act like it’s our own business James Wrathall Ben Tuck of six annual Bright Sparks awards.

WESTERN POWER ANNUAL REPORT 2012 39 COMMUNITY & operational performance ENVIRONMENT

Community engagement

655members employees15 employees36 of the community trained as community attended an early attended 45 community engagement champions engagement workshop sessions

Western Power has adopted the Champions. Communities will International Association for Public ultimately benefit by having subject Participation core values as its matter experts from areas such as overarching guiding principles for property, environment, design, community engagement. We engineering and operations attend actively seek community and community sessions. stakeholder input on future project and planning options. Investing in our community We are passionate about connecting Our commitment to early engagement with the WA community. Our on all major infrastructure projects community investment programs are provides the opportunity to work with designed to benefit the community and communities to inform the design of our customers with a portfolio covering infrastructure and the decision making the arts and culture, economic process. It provides an informed development, education and young assessment of the different options people, emergency relief, the available to meet the community’s environment, health and social welfare. power needs, both now and into A key aspect of our community the future. investment strategy is regular, Our community engagement team systematic evaluation to confirm that works closely with environment, our investment is working effectively approvals, native title/heritage and for the community and Western Power. network design teams during the early As part of the evaluation process, we planning phase to address a broad commission regular independent range of considerations for each job. benchmarking via the London Benchmarking Group (LBG). Our LBG We trained a further 15 employees to reporting demonstrates that we become Community Engagement invested close to $1 million during the Champions, building on the success of reporting period towards community the program launched last year. In programs that aim to support the total, 40 employees have now been overall vision of connecting people trained as Community Engagement with energy.

40 WESTERN POWER ANNUAL REPORT 2012 Key community investments 2011/12 Charity $359,500 Education and research $345,000 Community safety, bushfire prevention $150,000

Key community investments in Executive Team through to all parts of – environmental impact assessment 2011/12 included: the business. work and strategic line route selection for the Muja to Wellstead 330 kV – royal Life Saving Society WA Consistent with our aspiration to play a transmission line creates the potential leadership role on environmental issues – volunteer Bush Fire Brigades for a future reduction of infrastructure in the electricity sector, our – scitech corridors in the area environmental achievements include: – Charity Link – participation in various policy review – a commitment to increase Green processes including: Environmental Power purchases from less than five Environmental management Protection and Biodiversity Act 1999 per cent of total business electricity On World Environment Day (5 June) we policy reform, regulations to the purchased to 20 per cent launched our new Environmental Policy. Biosecurity and Agriculture Reaffirming our commitment to – an additional 500 employees and Management Act 2007 (WA), the continually improve environmental contractors attended face to face extension of the Energy Efficiency performance, the policy acknowledges training on updated Land Access and Opportunities Act 2007 (Cth) to the unique environmental values of the Environment work practice standards electricity and gas networks south west of Western Australia. It – the implementation of improved engagement process and the review commits Western Power to show environmental assurance processes, of the Aboriginal Heritage Act leadership in environmental including risk-based environmental 1972 (WA). management from the Board and reviews of our operational activities

WESTERN POWER ANNUAL REPORT 2012 41 COMMUNITY & operational performance ENVIRONMENT continued

Key environmental challenges We continue to work with the Office of Climate change Access to land – environmental the Environmental Protection Authority, Climate change creates additional approvals DEC and the Urban Development challenges for our planning and Institute of Australia to address the operations including: In 2011 the Commonwealth challenges associated with meeting Government released the Draft – the need to measure and reduce our noise regulation obligations. Referral Guidelines for Three Species direct and indirect greenhouse gas of Black Cockatoos. We welcome the Hydrocarbons emissions additional information provided and Some of our assets contain – recognising our unique role in acknowledge the potential impact our hydrocarbons for insulation purposes. Western Australia’s transition to a activities may have on the three The leaking of hydrocarbons, usually low carbon electricity sector and species identified in the draft from transformers, is the most contributing experience and guidelines. However, in their current frequently reported environmental knowledge to technical and form, the guidelines have the potential issue. A key focus has been to train the policy solutions to significantly impact on approval workforce on spill reporting timelines and project costs. – understanding the current and procedures which is likely to increase projected impacts of climate change Noise mitigation the number of spills reported and the on our existing assets and assessing associated clean up costs. Challenges continue to balance the most effective way to incorporate climate change environmental compliance Environmentally Sensitive Areas requirements with constrained State projections into network planning When maintaining our existing assets, Government funding. This is and development we work to minimise our impact on the particularly important for distribution environment. The Environmentally Information about how Western Power transformers located on poles, public Sensitive Areas (ESA) program is a is responding to climate change is nature strips and road reserves. proactive approach to managing our detailed in the Future Planning section of this report on page 46. Our noise mitigation program for impacts. As part of our ongoing transmission transformers has been maintenance activities, the number of developed in consultation with the new sites that need to be managed as Department of Environment and an ESA is likely to increase. Conservation (DEC) and includes the successful completion of noise Cost recovery mitigation works at Margaret River The Commonwealth Government is substation. This project reduced noise considering the introduction of cost emissions to 24 - 29 decibels, well recovery for environmental approvals below regulatory levels. required under the Environmental Protection and Biodiversity Conservation Act 1999 (Cth). This will inevitably have some impact on the cost of projects.

42 WESTERN POWER ANNUAL REPORT 2012 Environmental performance data

Indicator Description 2011-12 Unit Reportable Incidents23 Notifications to or from regulatory agencies 18 number of incidents

Greenhouse Scope 1 Gas Emissions24 – fuel consumption 15,000 – Ravensthorpe power station 1,500 – sulfur hexafluoride gas 3,200 – wastewater treatment 300

(Subtotal) (20,000) tonnes, carbon dioxide Scope 2 equivalent – network losses 854,000 – purchased electricity 15,900 – streetlights 93,100 (Subtotal) (963,000) Total 983,000

Native Clearing of native vegetation Vegetation25 – areas of significant biodiversity value 30.3 – non-significant vegetation 2.6 hectares Total 32.9 Land Purchase Offset 391.7 Committed Revegetation Offsets 7.2

Contaminated Sites26 – New sites reported under 3 Contaminated Sites Act 2003 number of sites – Investigative works 17 – Site remediation works 5

23 The increase in reportable incidents in 2011/12 (from four in 2010/11) is largely attributed to broadening the scope of reporting which now includes: – incidents raised by regulatory agencies to Western Power – incidents leading to a report under the Contaminated Sites Act 2003 – from January 2012, all oil spills occurring in an Underground Water Pollution Control Area are reported to the Department of Water, regardless of size the majority of incidents reported were oil spills and their estimated average size was 70 litres. No infringements were issued. 24 Greenhouse gas emissions are preliminary figures prepared at the time of compiling this report. Streetlight emissions included as Scope 2 from 2011/12 following the application of the National Greenhouse & Energy Reporting Operational Control Scorecard and discussion with the WA Local Government Association. 25 Total area of native vegetation cleared excludes maintenance of vegetation around existing assets. Land purchase offsets include offsets for further clearing along the Pinjar - Eneabba corridor during 2012-13. Re-vegetation commenced in 2011/12 and will continue in 2012/13. 26 The five sites where remedial works were undertaken include the three new sites reported to DEC under the Contaminated Sites Act 2003.

WESTERN POWER ANNUAL REPORT 2012 43 REGULATION & operational performance COMPLIANCE

Access Arrangement In March 2012 the ERA published its revisions process Draft Decision, which supported the The 2011/12 financial year saw the safety and service outcomes proposed commencement of the propose-and- by Western Power, but advised a respond process with the Economic reduction in the level of growth-related Regulation Authority (ERA) to agree the expenditure and forecast operating Access Arrangement for 1 July 2012 to costs. The ERA also proposed 30 June 2017, referred to as the changes to the calculation of Western AA3 period. Power’s return on investment. However there was a general level of The Access Arrangement is essentially consensus on proposed service Western Power’s performance standards, access contracts and contract with our customers. It policies for the period. The ERA also determines the service customers can commented favourably on Western expect and the prices they will pay for Power’s engagement approach during network access during the relevant the development of the submission Access Arrangement period. It also and our improved governance includes terms and conditions for practices since the last Access connecting to the network. Arrangement review. In September 2011 we submitted our We submitted our revised proposal on proposed Access Arrangement 29 May 2012, taking into consideration revisions to the ERA. The submission the ERA’s feedback, market changes detailed our proposed range of and developments in the energy services, standards, investment sector. We accepted or addressed program and connection policies for more than half of the ERA’s required the AA3 period, which will allow the amendments and revised the revenue ERA to determine the appropriate requirement accordingly. amount of revenue Western Power shall collect over the next five years. The ERA is due to provide its final The proposal was founded on more decision in August 2012. Western than twelve months of research and Power is required to respond to the engagement with customers, industry Final Decision in October 2012, with bodies, government representatives the Access Arrangement expected to and other key stakeholders. be finalised shortly after. The revised terms and conditions, service targets Our submission focused on improving and prices for the AA3 period will take network safety, keeping pace with effect once the Access Arrangement growth in demand, improving security review has concluded. The current and maintaining current average Access Arrangement will remain in service standards, all balanced with effect until the process with the ERA keeping network tariffs affordable. is complete.

44 WESTERN POWER ANNUAL REPORT 2012 Compliance report results The Minister for Energy underscored his management of our Type 1 obligations Compliance with operating licences expectations that Western Power meets we developed a revised Type 1 its obligations and we made significant obligations framework to: Western Power is the holder of two enhancements to the compliance operating licences granted by the ERA: – strengthen the system, controls and program to mitigate the risk of similar the distribution licence and the procedures employed to manage breaches occurring in the future. transmission licence. It is a condition of Type 1 obligations through better each licence that we have our 2. Asset management system review documentation and communication of compliance with that licence audited responsibilities to process owners The purpose of the asset management every 24 months. system review was to assess the – limit reliance on external auditors to In September 2011, we lodged two measures we have taken for the proper identify breaches of Type 1 obligation licence audit reports with the ERA: management of assets used in the – further strengthen our compliance provision and operation of services and, monitoring framework by extending its 1. Performance audit where appropriate, the construction or reach to include management of The objective of the audit was to alteration of relevant assets. The review contractors that undertake work on evaluate the adequacy and effectiveness found that we have continued to make behalf of Western Power of controls implemented by Western progress in implementing various – review the processes that apply to Power to ensure compliance with the initiatives undertaken since the Type 1 obligations to ensure that there performance and quality standards previous review. are appropriate and robust controls in referred to in our operating licences. Notwithstanding our significant progress place to prevent, so far as is The audit found Western Power to be in the management of our physical reasonably practicable, further non-complaint with 74 out of 465 assets, the auditors identified nine contraventions obligations. Two of the non-compliances improvement opportunities. Since then, related to ‘Type 1’ obligations which To assist with the implementation of the we have been working to ensure that related to improvements in the framework, we established a Type 1 these opportunities are implemented maintenance of the life support compliance obligations program. The as planned. equipment customers register program is sponsored by the Executive disconnections performed outside of Type 1 Compliance Program General Manager Operations and aims the prescribed times. to ensure that the Type 1 framework is Since July 2011, we identified five Type 1 embedded across the relevant obligation breaches. To assist with business areas.

WESTERN POWER ANNUAL REPORT 2012 45 FUTURE operational performance PLANNING

Sustainability – renewable energy Large scale renewable energy projects As the demand for electricity within the have also increased the amount of network continues to grow, concern renewable energy capacity on the over rising electricity prices and SWIS. Situated 40 kilometres south greenhouse gas emissions has driven east of Geraldton, the Mumbida Wind a greater focus on sustainable energy Farm’s 22 turbines (rated at 2,500 kW use. This includes using energy more each) will be connected to the network efficiently and utilising renewable by a 132 kV line presently under energy sources. We continue to construction by Western Power. This support the connection of renewable facility is scheduled to enter service in energy to the network and have December 2012. contributed to government policy Also in the Mid West, the $50 million initiatives that will help achieve Greenough River Solar Farm is sustainable energy solutions. Australia’s first utility-scale solar The installation of rooftop solar project and the largest operating solar photovoltaic (PV) systems has project in the country. When Western become a significant market in Power’s connection works are Western Australia, with a combination completed early in 2012/13, this plant’s of government incentives and falling output will contribute a further 10 MW system prices driving a large number towards the State’s renewable energy of households to purchase systems. generation objectives. In support of this, we changed or In the Great Southern, we carried out reconfigured 32,848 meters during the substation works to connect the reporting period. The majority of these Grasmere Wind Farm to the network. changes were due to the installation of Generating up to 14 MW, the plant rooftop PV systems - the graph on supplies up to 80 per cent of Albany’s page 47 shows the monthly profile of electricity requirements. meter changes over the course of 2011/12.

46 WESTERN POWER ANNUAL REPORT 2012 Meter Changes / Reconfigurations Renewable Energy in the SWIS excluding rooftop solar PV

Meter Changes / Reconfigurations GWh Market Share %

7.5 9000 1,800 7 8000 7893 1,600 7.47 6.5 7000 1,400 6 6000 1,200 5.5

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The figure above right shows the – find out what barriers exist regarding capabilities), combined with customer amount of electricity generated in the energy efficiency, electricity demand education can help households to better SWIS, excluding small scale solar PV. management and the use of solar manage electricity use. We installed over technology, among businesses and 9,000 smart meters and associated Perth Solar City householders in different parts of infrastructure in Perth’s eastern region to Perth Solar City is part of the Australian Australia and test ways to deal with test and validate new services, Government’s $94 million Solar Cities these barriers including: program designed to trial new Western Power is supported by a – remote meter reading sustainable models for the supply and consortium of local industry leaders – remote disconnection and use of electricity. The Solar Cities including the Botanic Gardens and reconnection program is administered by the Federal Parks Authority, the Eastern Department of Climate Change and Metropolitan Regional Council, Mojarra, – outage notification Energy Efficiency, in partnership with Prospero Productions, Solahart, – establishment of the Home Area local and state governments, industry, SunPower and Synergy. Network (HAN) providing access to business and local communities. With more than 16,000 households real-time energy information for Perth Solar City is managed locally by participating in the Perth Solar City households Western Power, on behalf of the program, it has become WA’s most Further trials include: Australian Government. comprehensive energy efficiency – a PV saturation trial to investigate the The overall objectives of the Australian program. Perth Solar City has become a impact of a high saturation of Government’s Solar Cities program trusted educator, helping households in residential solar PV systems on the are to: Perth’s eastern region to attain their distribution network identified goals of reducing their energy – demonstrate the environmental and costs and greenhouse gas emissions. – an air-conditioner trial to research the economic effects of combining cost technical feasibility and cost In addition, as part of our Perth Solar reflective pricing with the widespread effectiveness of remotely managing City contribution, we are conducting use of solar technology, energy household air conditioners in order to trials to test how smart meters (those efficiency and smart meters reduce electricity consumption during with enhanced communications peak periods

WESTERN POWER ANNUAL REPORT 2012 47 FUTURE operational performance PLANNING continued

Interim results released in February Program Outcome 2012 show that the Perth Solar City program has achieved a broad range In Home Displays There is evidence to suggest that access to real time of positive outcomes. These are energy use data can assist in reducing electricity use by summarised in the table to the right. residential in-home display users (6.82%) and schools (25%)

A key finding at this stage of the Air-Conditioner Trial 20% reduction in electricity use at peak time during program is that technology, combined trial events with the right energy efficiency Time-of-Use Tariff 10.9% reduction in electricity use during the programs, can help households (PowerShift) ‘super peak’ period save money. Residential solar 57.9% reduction in average daily electricity use Further analysis will be conducted in PV systems (from the grid), or 11.36 kWh per day 2012/13 and the final results from the program will be made Residential solar hot 15% reduction in average daily electricity use publicly available. water systems

Behaviour change 8.5% reduction in average daily electricity use (Living Smart)

48 WESTERN POWER ANNUAL REPORT 2012 Edge-of-grid communities power station will defer network Edge-of-grid communities are those that capacity upgrades by generating “We’re looking to save over $200 exist on the geographical periphery of electricity in peak demand periods when on our yearly power costs.” the Western Power Network. Even the network is at full capacity. The power though the network delivers high levels station will also provide increased of reliability on average, we recognise electricity supply reliability to the that there are areas that experience township of Ravensthorpe, which is lower levels of reliability. located at the end of the feeder. Commissioning of the enhanced These communities are typically fed by functionality of the Ravensthorpe single lines or ‘feeders’ that are power station is expected in 2013. significantly longer than those in metropolitan areas. These long rural Future Energy Alliance feeders are more susceptible to The Future Energy Alliance (FEA) is a environmental hazards and when a fault joint initiative between Western Power, does occur, there are no alternative lines Ward family, Middle Swan Horizon Power and Synergy. Its aim is to to maintain supply. To restore power, inform the Western Australian community The Ward family took the Switch the Future Energy Challenge and made big savings on their power bill by doing little things around the home. “Because we have a Western Power crews may have to drive small house, we were really surprised at the difference we could make. We just tried about simple ways to reduce energy use, simple things, like remembering to switch off lights during the day.” – David Ward long distances and this takes more time How much could you save? Visit our website to take the Energy Challenge.

to enable people to lower their FEA0278 Part of the Future Energy Alliance than fixing faults in built up areas. household electricity bills. We continue to work with these The FEA’s advertising campaigns in early communities to address these issues January resulted in an eight per cent through a variety of solutions. increase in Western Australians who Green Town know that controlling the temperature of their air conditioning contributes to Engagement continued with the energy efficiency. The campaign also communities of Denmark and Walpole resulted in a 10 per cent increase in the for the development of new energy number of Western Australians who are management initiatives. Preparations for aware of what behaviours contribute to an In-Home Display trial are underway reducing use during peak times27. with the potential to empower people by providing near real time electricity In May, the Minister for Energy consumption data to allow customers to announced the name of the FEA’s manage their own consumption. chuditch mascot, Sparky, which will lead new FEA advertising campaigns. The Ravensthorpe name was selected as part of a public One of our edge-of-grid initiatives is the competition. June saw the launch of a integration of a diesel power station to new advertising campaign featuring real provide network support to the families saving money by taking practical Gnowangerup feeder, one of the longest steps to reduce their energy use. distribution feeders in the SWIS. This

27 Campaign research and analysis was conducted by TNS.

WESTERN POWER ANNUAL REPORT 2012 49 governance & financial reports

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 50 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 CONTENTS GOVERNANCE & FINANCIAL REPORTS 2012

Directors’ report 52 Corporate governance statement 65 Financial statements 78 Statement of comprehensive income 79 Balance sheet 80 Statement of changes in equity 82 Statement of cash flows 83 Notes to the financial statements 84 Directors’ declaration 119 Corporate directory 120 Independent auditor’s report 121 GRI Content Index 123

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 51 DIRECTORS’ GOVERNANCE & FINANCIAL REPORT REPORTS

The directors of Electricity Networks Corporation trading as Western Power (Western Power) present this report in accordance with Schedule 4, clause 6, of the Electricity Corporations Act (Act).

Western Power’s directors The following persons were directors of Western Power during the financial year ended 30 June 2012 and up to the date of this report:

NAME DURATION Alan Mulgrew From 21/08/2012 (Board Chair)

John Cahill Acting Board Chair between 21/04/2012 and 20/08/2012 (Board Deputy Chair)

George Cash

Mervyn Davies

Paul Underwood

Mark Barnaba Until 20/04/2012

Doug Aberle Until 10/02/2012 (former Managing Director)

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 52 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 Information on directors

Legend NED = Non-executive director F&RC = Finance & Risk Committee P&PC = People & Performance Committee

Committee Director Experience responsibilities Alan Mulgrew Appointed with effect from 21/08/2012, current term expires Board Chair on 20/08/2015. Appointed as Board Chair with effect from 21/08/2012. Year of birth: 1946 Experience and expertise Independent, NED Mr Mulgrew served for 30 years as a senior executive BA (UQ) heading up large capital intensive organisations, both in GAICD Australia and overseas - including Perth and Sydney airports. P/Grad (Fin/Strat) On establishing his own corporate advisory company, Justice of the Peace Mr Mulgrew has provided strategic advice to numerous major institutions; primarily in development and implementation of major infrastructure projects.

Mr Mulgrew has been a Chairman and non-executive director on a number of high profile Boards spanning transportation, energy, mining, infrastructure and government. Previous directorships include Western Carbon, WA Tourism, Australian Renewable Fuels, Western Power Corporation and Sydney Airport (interim Board).

Current directorships: Non-executive director of Doric Group Pty Ltd (since March 2004), Adelaide Airport Ltd (since September 2006) and Tesla Corporation Pty Ltd (since August 2008).

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 53 DIRECTORS’ GOVERNANCE & FINANCIAL REPORT REPORTS

Committee Director Experience responsibilities John Cahill Appointed with effect from 01/08/2009, current term expires F&RC Chair P&PC Board Deputy Chair on 31/07/2014. Appointed as Board Deputy Chair with effect member from 27/07/2010. Year of birth: 1956 Experience and expertise Independent, NED Mr Cahill has more than 25 years experience working in B.Bus the energy utility sector in the areas of finance, treasury, GradDipBus accounting and risk management. He was the Chief Executive FCPA Officer of Alinta Infrastructure Holdings Ltd between 2005 GAICD and February 2007 and prior to that, he was the Chief Financial Officer of Alinta Ltd and its predecessors from 1994.

Current directorships: Non-executive director of Emeco Holdings Ltd (since September 2008, also Chair of its Audit & Risk Committee), CPA Australia Ltd (since October 2007 - also President and Chair), a member of the Edith Cowan University (ECU) Council (since August 2011, also Chair of its Resources Committee), and a member of the ECU Foundation Board (since January 2011). Hon. George Cash AM Appointed with effect from 27/07/2010, current term expires P&PC Chair Year of birth: 1946 on 26/07/2013.

Independent, NED Experience and expertise Hon. George Cash was a member of the Western Australian LLB (Hons) Parliament for nearly 25 years. He is a former Minister for LLM Mines; Minister for Lands; Minister assisting the Minister for B.Bus Public Sector Management; Minister assisting the Minister for FCSA Resources Development, Leader of the Government in the FCIS Legislative Council and President of the Legislative Council.

He is also a former Chair of the Australian and New Zealand Minerals and Energy Council.

Current directorships: Not currently a director of any other entity.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 54 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 Committee Director Experience responsibilities Mervyn Davies Appointed with effect from 01/04/2006, current term expires F&RC member Year of birth: 1944 on 20/08/2014.

Independent, NED Experience and expertise Mr Davies has worked in all areas of electricity distribution and has B.E (Hons) extensive experience in managing both the financial and technical M.Eng.Sc performance of the business. He has held senior management B.Comm positions at Energy Australia, Australia’s largest electricity distribution company. Since leaving Energy Australia, Mr Davies has established and operated an engineering consultancy practice, specialising in electricity distribution system management. He has worked for electricity distributors in NSW and Queensland, the Independent Pricing and Regulatory Tribunal in NSW and for the ACCC. He also served as a non-executive director of the former Western Power Corporation.

Current directorships: Non-executive director of NT Power & Water Corporation (since May 2009 - also Board Deputy Chair), New World Energy Limited (since April 2010), ENERGEX Limited (since July 2012) and Aurora Energy Pty Ltd (since November 2010). Director of Anrig Pty Ltd (since March 2004 - also Board Chair), and Girna Engineering Management Services Pty Ltd (since December 1983 - also Board Chair). Paul Underwood Appointed with effect from 25/05/2009, current term expires F&RC member Year of birth: 1955 on 20/08/2015. P&PC member

Independent, NED Experience and expertise Mr Underwood is a chartered accountant with over 30 years experience B.Bus in chartered accounting, corporate advisory and oil and gas ACA exploration/production. He was the founding Managing Director and GradDipAppFin Chief Executive Officer of Tap Oil Limited, an oil and gas exploration and production company supplying gas to power generators in Western Australia and thus has considerable experience in the Western Australian energy markets. Mr Underwood was also a Board member of the Australian Petroleum Producers Association between 1998 and 2006, an industry representation group engaged with government on energy policy matters. He is currently executive Chair of Triple Energy Ltd, an oil and gas company listed on the Australian Stock Exchange.

In 2003, Mr Underwood won the Ernst and Young Entrepreneur of the Year Award for Western Australia.

Current directorships: Executive director of Triple Energy Ltd (since February 2012 - also Board Chair).

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 55 DIRECTORS’ GOVERNANCE & FINANCIAL REPORT REPORTS

Directors who resigned/retired during –– To provide ancillary services. Report no. 14 of the Standing the financial year In performing its functions, Western Committee on Public Administration The following directors retired or Power must act in accordance with On 20 January 2012 the Standing resigned during the financial year ended prudent commercial principles and Committee on Public Administration 30 June 2012: endeavour to make a profit consistent (Standing Committee) published its report no. 14 (‘Unassisted Failure’). –– Doug Aberle resigned as a director on with maximising its long-term value. The Standing Committee’s report was 10 February 2012 (appointed as a There have been no changes in the critical of Western Power’s performance in director in April 2006) nature of Western Power’s principal several respects, including with regard to activities during the financial year ended –– Mark Barnaba retired as a director and Western Power’s management of its 30 June 2012. Board Chair on 20 April 2012 wood pole network, compliance and its (appointed as a director in April 2009 relationship with key regulators, Review of operations and as Board Chair in April 2010) parliamentary accountability and its Information on the operations and organisational culture. Western Power’s principal activities financial position of Western Power and Western Power accepts the criticisms The principal continuing functions of its business strategies is presented in the in the Standing Committee’s report. Western Power are: ‘corporate snapshot’ and ‘operational performance’ sections Western Power further acknowledges –– To manage, plan, develop, expand, of this annual report. that it has a long way to go to address enhance, improve and reinforce the the many challenges identified by the electricity transmission and Western Power’s operating results Standing Committee. A detailed plan of distribution network known as the action has been implemented to address Western Power achieved a profit after South West Interconnected System the Standing Committee’s concerns and income tax of $157.131 million for the Western Power will provide quarterly –– To provide and improve electricity financial year ended 30 June 2012 (30 progress reports to the Minister. transmission and distribution services June 2011: $129.627 million).

–– To provide access to services of Matters subsequent to the end Dividends network infrastructure facilities as of the financial year required and authorised by Part 8 Western Power paid a final dividend of of the Electricity Industry Act (which $84.258 million on 30 December 2011 in Toodyay bushfire claims relates to network access) respect of the financial year ended 30 On 29 December 2009 a bushfire –– To provide services as required and June 2011 (30 June 2010: $63.237 occurred outside Toodyay. The bushfire authorised by Part 9 of the Electricity million paid on 31 March 2011). caused significant loss for a number of Toodyay residents. Industry Act (which relates to the Since the end of the reporting period the wholesale electricity market) directors have recommended, subject to In October 2010 a group of Toodyay –– To provide services that improve the the approval of the Minister for Energy residents commenced legal proceedings efficiency of electricity supply and the (Minister), the payment of against Western Power alleging that a management of demand on electricity a final dividend of $102.135 million in fallen power pole caused the bushfire. transmission and distribution systems respect of the financial year ended The proceedings have not resolved the 30 June 2012. question of liability and there remains no agreed explanation of the cause of the fire.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 56 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 Western Power has cooperated fully with arrangement for the five year period Disclosure of further details of Western all court requirements and in accordance commencing 1 July 2012. This Power’s strategy for responding to the with the court’s standard practices, decision is one of the final stages in the final decision would be likely to result engaged in a mediation process in June process for determining the revisions in unreasonable prejudice prior to that 2012. The parties attended the mediation to the access arrangement. strategy being enacted and have been in good faith and were able to agree a omitted from this report. The final decision resulted in a process to resolve the action. The reduction in revenue of $2.7 billion over –– Asset management and public safety process is ongoing. the five year period compared to Western Power has a vast electrical Western Power’s proposal. The Western Power’s third access network that impacts the general majority of the difference relates to a arrangement community. Its infrastructure crosses different view on an appropriate return The regulatory process for determining both public and private property, on investment. However, the decision Western Power’s access arrangement above and below ground. While an also indicates the ERA has determined for the five year period commencing inherent risk exists in any electrical that the forecast capital and operating 1 July 2012 will conclude after the end network, Western Power has a expenditure should be $456 million of the 2012 financial year. Further details responsibility to apply a prudent and and $327 million less respectively over in relation to this are provided in the next diligent approach to managing the the period than Western Power section of this report. public safety risk associated with its proposed. assets. No other matter or circumstance has On 18 September 2012 the Minister occurred that has significantly, or may The potential for electricity network issued a direction under section 111(1) significantly, affect: assets to ignite bushfires is one of the of the Act, instructing Western Power most significant public safety risks for –– Western Power’s operations in future not to exercise its right under section the Western Power network. financial years 130(3) of the Electricity Industry Act to Approximately 25% of its wood poles seek a review of the final decision. The –– The results of those operations are located in ‘extreme’ or ‘high’ Minister confirmed the direction on 19 in future financial years bushfire risk areas. Western Power’s September 2012 following the Board’s challenge is to ensure these –– Western Power’s state of affairs notification under section 112(1)(a) of distribution assets continue to operate in future financial years. the Act. safely and are replaced before they Likely developments and expected In light of the Minister’s direction, reach the end of their useful life. Western Power must consider the final results of operations The potential for electric shock is also decision and its impacts and decide Likely developments in the operations of inherent in distribution network assets whether to accept the amendments Western Power that were not finalised at such as overhead customer service required by the ERA. If Western Power the date of this financial report include connections. During the Access accepts the amendments, a revised the matters set out below. Arrangement 3 period, a primary access arrangement is due to be focus will be on investing in activities –– Access arrangement 3 lodged on 4 October 2012. If Western that minimise the risk of harm to the Power does not accept the On 5 September 2012, the Economic public and reduce the potential for amendments, the ERA must put in Regulation Authority (ERA) released bushfires to be initiated by Western place its own access arrangement. its final decision on Western Power’s Power’s network assets. Details of proposed revisions to its access

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 57 DIRECTORS’ GOVERNANCE & FINANCIAL REPORT REPORTS

Western Power’s proposed $6,030.400 million. This is equal to energy and infrastructure. He also has investment program to reduce the Western Power’s current forecast of substantial in-house legal practice public safety risk can be found in gross borrowings. management experience. Prior to Western Power’s access arrangement joining Western Power, Mr Pease has 3 submission to the ERA. Rounding of amounts practised as a barrister at Western Australia’s independent Bar and also Western Power is reliant on funding Amounts presented in the directors’ held various in-house, private practice from its shareholder to meet these and financial reports have been and government positions. and any additional regulatory rounded off to the nearest thousand requirements. dollars, unless otherwise stated. Environmental performance Other likely developments in the Company Secretary Full details of Western Power’s operations of Western Power are John Pease LLM, the General Counsel performance in terms of all applicable presented on pages 26 to 49 of this & Company Secretary, has been environmental legislative obligations annual report. practising law since the mid-1980s are provided in the ‘environmental due and has substantial commercial, as diligence/responsibility’ section of the Borrowing limit well as dispute resolution, experience corporate government statement The maximum amount of borrowings in a broad range of subject areas, included in this financial report. permitted by the Department of including intellectual property, banking Treasury (DoT) for the financial year and finance, debt recovery, insolvency, ended 30 June 2013 is currently trade practices, higher education and

Directors’ attendance at meetings Details of the number of meetings of the Board (and of its committees) that directors were eligible to attend and the number of meetings attended by each of the directors for the financial year ended 30 June 2012 are shown in the following table:

People & Performance Finance & Risk Board Committee Committee

Attendee Eligible# Attended Eligible Attended Eligible Attended M Barnaba 29 29 8 8 - - J Cahill 36 36 9 9 10 10 D Aberle 13 13 * 2 * 5

G Cash 36 36 9 9 * 4 M Davies 36 36 - - 10 10 P Underwood 36 35 1 1 10 10

* Mr Aberle was not a member of the People & Performance Committee or the Finance & Risk Committee, but was a standing invitee of both. Similarly, Mr Cash is not a member of the Finance & Risk Committee, but is a standing invitee to all of its meetings. # There were significantly more Board meetings convened in the 2012 financial year than in previous years. The increased workload was largely attributable to the need for special Board meetings required to consider the Mid-West Energy Project business case, the report issued by the Standing Committee on Public Administration and Western Power’s response to it and the early retirement of the former Managing Director, Mr Aberle.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 58 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 Indemnity and insurance of officers the auditor can conduct audits in the Western Power has entered into deeds manner he or she sees fit and is not of indemnity, insurance and access with subject to direction by any person about each of the persons listed as directors. the way in which those powers are The respective deeds are identical and in exercised. the following terms: Non-audit services –– Western Power indemnifies the person Refer to note 5(d) of the financial against all liabilities and costs relating statements included in this financial to proceedings that are anticipated, report for details of the non-audit threatened or commenced against services provided by the Office of the the director by reason of him or her Auditor General during the reporting being or having been a director of period (30 June 2011: nil). Western Power –– The indemnity does not extend to claims against the director by Western Power or a subsidiary, or to any liability or claim arising out of conduct involving a lack of good faith.

Western Power holds a directors’ and officers’ liability insurance policy. This cover will pay on behalf of the corporation (or its directors and officers), losses arising from a claim or claims made against them jointly or severally during the period of insurance by reason of any wrongful act (as defined by the policy) in the capacity of a director or officer of Western Power.

At the date of this report no claims have been made against the directors and officers component of the policy.

Auditor Under the Act, Auditor General for Western Australia has been appointed as Western Power’s independent auditor. The Auditor General Act provides that

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 59 DIRECTORS’ GOVERNANCE & FINANCIAL REPORT REPORTS Remuneration

Remuneration remuneration framework for non- The fixed remuneration component executive directors incorporates a includes a base salary, superannuation and Principles used to determine the fixed remuneration and superannuation benefits to reflect the level of work, nature and amount of remuneration component. responsibility and personal competency in Western Power’s remuneration policy the role. This component may be delivered is to: Chief Executive Officer and as a combination of cash and prescribed executives –– Provide market competitive non-financial benefits at theindividual’s remuneration to employees having Subject to the concurrence of the Minister, discretion. Fixed remuneration is reviewed regard to both the level of work the Board approves the remuneration of annually on the basis of competitive market assigned and the personal the Chief Executive Officer. The People & movement and personal performance. Performance Committee (as delegate of effectiveness in its performance There are no guaranteed fixed the Board and on recommendation –– Allocate remuneration to employees remuneration increases included of the Chief Executive Officer) approves on the basis of merit and performance in any senior executives’ contracts. the remuneration of all direct reports –– Adopt individual performance to the Chief Executive Officer. Details of remuneration measures that are linked to Western The remuneration framework for the Power’s objectives. Details of the remuneration paid to Chief Executive Officer consists of directors and other key management Non-executive directors a fixed remuneration component personnel for the 2011 and 2012 financial administered as total fixed remuneration. The Minister approves the remuneration years ended 30 June are set out in the The same applies in the case of of all non-executive directors. The following tables. remuneration for executives.

Short- Post Other Salary term non- employment long- Financial & incentive monetary super. term Termination Total NAME year fees payments benefits benefits benefits benefits benefits $’000 $’000 $’000 $’000 $’000 $’000 $’000 A Mulgrew 2012 ------(from 21/08/2012) 2011 ------J Cahill 2012 75 - - 7 - - 82 2011 74 - - 7 - - 81 G Cash 2012 46 - - 22 - - 68 2011 33 - - 24 - - 57 M Davies 2012 24 - - 36 - - 60 2011 35 - - 26 - - 61 P Underwood 2012 39 - - 21 - - 60 2011 55 - - 5 - - 60 M Barnaba 2012 97 - - 9 - - 106 (retired 20/04/2012) 2011 120 - - 11 - - 131 D Aberle1 2012 339 - 10 235 12 479 1,075 (retired 29/02/2012) 2011 377 - 29 81 11 - 498 2012 620 - 10 330 12 479 1,451 2011 694 - 29 154 11 - 888

1 Mr Aberle’s termination benefit is made up of accrued entitlements, including annual leave and long service leave not taken since 2000 ($0.294 million), a payment in lieu of three months notice and contributions on account of transitional assistance and financial advice ($0.185 million). Mr Aberle’s termination benefit is subject to taxation deductions required by law. The termination benefit did not include any bonus on termination.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 60 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 Short- Post Salary term Non- employment Other Financial & incentive monetary super. long-term Termination Total NAME year fees payments# benefits benefits benefits benefits benefits $’000 $’000 $’000 $’000 $’000 $’000 $’000 Chief Executive Officer P Italiano1 2012 373 - 17 26 10 - 426 2011 267 - - 21 7 - 295 Key management personnel K Brown2 2012 164 - 13 315 11 - 503 2011 134 - 21 173 7 - 335 A-M Clark 2012 98 - 4 7 2 110 221 (resigned 16/09/2011) 2011 344 - 34 25 9 - 412 M de Laeter 2012 378 - 20 40 10 - 448 2011 305 - 1 32 8 - 346 S Duryea3 2012 188 - - 17 5 - 210 (acting 04/07/2011 - 2011 ------08/04/2012) K Gaitskell 2012 170 - 16 208 9 - 403 2011 198 - 6 96 7 - 307 S Hart 2012 275 - 1 25 7 - 308 (from 24/10/2011) 2011 ------D Kennedy4 2012 66 - - 6 7 - 79 (acting 04/07/2011 2011 ------23/10/2011) C Parrotte 2012 72 - - 10 2 - 84 (from 09/04/2012) 2011 ------J Pease 2012 311 - 29 25 8 - 373 2011 236 - 18 25 6 - 285 P Southwell 2012 166 - - 261 10 - 437 2011 169 - 27 136 7 - 339 L Sprlyan5 2012 117 - 12 21 3 - 153 (acting from 06/02/2012) 2011 ------2012 2,378 - 112 961 84 110 3,645 2011 1,653 - 107 508 51 - 2,319

# The Board terminated Western Power’s short-term incentive plan with effect from the 2012 financial year. In doing so, it relied on legal advice indicating that the plan could be terminated unilaterally only by converting the ‘at risk’ component of affected managers’ remuneration to total fixed remuneration. 1 Mr Italiano was employed as Western Power’s General Manager Corporate Services from August 2010. From February 2012 Mr Italiano was the Acting Chief Executive Officer (following Mr Aberle’s retirement) and remunerated accordingly until permanently appointed in August 2012. 2 Mr Brown was employed as Western Power’s General Manager System Management until July 2011. From August 2011 Mr Brown was the Acting Executive General Manager Operations (following Ms Clark’s resignation) and remunerated accordingly until permanently appointed in November 2011. 3 Mr Duryea is employed as Western Power’s Manager Network Operations. He was Acting General Manager System Management from July 2011 to April 2012 (replacing Mr Brown) until Mr Parrotte’s appointment on 9 April 2012. 4 Mr Kennedy is employed as Western Power’s Manager Business Planning & Analysis. He was Acting Chief Financial Officer from July 2011 to October 2011 until Mr Hart’s appointment on 24 October 2011. 5 Mr Sprlyan is employed as Western Power’s Chief Information Officer. He has been Acting General Manager Corporate Services since February 2012 (while Mr Italiano was Acting Chief Executive Officer).

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 61 DIRECTORS’ GOVERNANCE & FINANCIAL REPORT REPORTS Remuneration

Employment agreements Non-executive directors are subject to the duties and obligations prescribed by the Act. Under the Act, the Minister determines their remuneration.

The remuneration and other terms of employment for:

–– The General Manager Enterprise Solutions Partner is formalised in a fixed term employment agreement –– The Chief Executive Officer and all other senior executives are formalised in ongoing employment agreements. The terms of these agreements relating to remuneration are set out in the following table.

Directors’ appointments

Position Term of agreement A Mulgrew, Appointed by the Governor for a term commencing on 21/08/2012 Board Chair & non-executive director and expiring on 20/08/2015. J Cahill, Appointed by the Governor for a term commencing on 01/08/2009 Board Deputy Chair & non-executive director and reappointed for a further term expiring on 31/07/2014. G Cash Appointed by the Governor for a term commencing on 27/07/2010 Non-executive director and expiring on 26/07/2013. M Davies Appointed by the Governor for a term commencing on 01/04/2006 Non-executive director and reappointed for a further term expiring on 20/08/2014. P Underwood, Appointed by the Governor for a term commencing on 25/05/2009 Non-executive director and reappointed for a further term expiring on 20/08/2015. M Barnaba, Appointed by the Governor for a term commencing on 21/04/2009 Board Chair & non-executive director and expiring on 20/04/2012. Mr Barnaba retired with effect from 20/04/2012. D Aberle, On 23/08/2011 the Governor reappointed Mr Aberle as a director for a Managing Director two-year term expiring on 22/08/2013.

Mr Aberle was also employed as Western Power’s Managing Director pursuant to an ongoing employment agreement.

Mr Aberle resigned as a director with effect from 10/02/2012 and retired as an employee of Western Power with effect from 29/02/2012.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 62 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 Executives’ employment agreements (as at 30 June 2012)

Position Term of agreement K Brown, Ongoing employment agreement commencing from 01/04/2006. Executive General Manager Operations M de Laeter, Ongoing employment agreement commencing from 01/04/2006. General Manager Networks K Gaitskell, Fixed term employment agreement commencing from 28/07/2008 General Manager Enterprise Solutions Partner1 and expiring on 28/07/2013. S Hart, Ongoing employment agreement commencing from 24/10/2011. Chief Financial Officer P Italiano, Ongoing employment agreement commencing from 09/08/2010. General Manager Corporate Services2 C Parrotte, Ongoing employment agreement commencing from 09/04/2012. General Manager System Management J Pease, Ongoing employment agreement commencing from 01/04/2006. General Counsel & Company Secretary P Southwell, Ongoing employment agreement commencing from 01/04/2006. General Manager Regulation & Sustainability

1 Mr Gaitskell resigned as General Manager Enterprise Solutions Partner with effect from 21/09/2012. 2 Mr Italiano was permanently appointed Chief Executive Officer pursuant to an ongoing employment agreement executed on 27/08/2012.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 63 DIRECTORS’ GOVERNANCE & FINANCIAL REPORT REPORTS CONFIRMATION

This directors’ report is made in accordance with a resolution of the directors made on 28/09/2012.

Signed in Perth on: 28 September 2012

A Mulgrew J Cahill Board Chair Board Deputy Chair

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 64 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 CORPORATE GOVERNANCE STATEMENT

1. Corporate governance 2. Board of directors Responsibility for the management of at Western Power 2.1 Board role and responsibilities Western Power’s day-to-day operations Western Power is committed to a high (ASX Principle 1.1) is delegated to the CEO, who is accountable to the Board. The Board level of corporate governance and As a statutory corporation, the respective has also delegated a number of fostering a culture that values safety, duties and responsibilities of the Board responsibilities to its committees. The ethical behaviour, integrity, diversity and senior executives are substantially set responsibilities of these committees are and respect. out in the Act. Further details are provided detailed in section 3 of this statement. This statement reports on Western below. 2.2 Board composition Power’s key governance principles and Subject to the provisions of the Act, the (ASX Principles 2.1, 2.2, 2.3 & 2.6) practices. These principles are reviewed Board has overall responsibility for regularly and revised as appropriate to performing the functions, determining the The Act provides that the Board must reflect changes in law and industry best policies and controlling the affairs of comprise not less than four and not practice. Western Power. The Board’s core role is more than six directors. Directors are appointed by the Governor of Western Western Power must comply with the to set Western Power’s strategic direction Australia on the nomination of the Act and other Australian laws. While and to oversee its management and Minister. In making nominations, the Western Power is not listed on the commercial activities. Minister is required to consult with the Australian Securities Exchange (ASX), it The Board has approved a Board charter Board. The Board may also recommend seeks to comply with the ASX Corporate (a copy of which is available in the new directors to the Minister if a Board Governance Principles and corporate governance section of Western vacancy occurs. Recommendations released by the ASX Power’s website) detailing its role, Corporate Governance Council (second powers, duties and functions. In addition The Board considers that all of the edition, with 2010 amendments) (ASX to matters required by law to be approved non-executive directors collectively Principles) to the extent that they are by the Board, the following matters are bring the range of skills, knowledge and applicable and not inconsistent with the also reserved to the Board: experience necessary to direct Western requirements of the Act. Power. In assessing the composition of –– Appointments to the position of the the Board, the directors have regard to The ASX Principles require the Board to Chief Executive Officer( CEO) - subject the following criteria: consider the development and adoption to the Minister’s endorsement - and of appropriate governance policies and oversight of appointments of the CEO’s –– The Chair and the Deputy Chair must practices that are founded on the direct reports be independent, non-executive principles set out therein. Details of directors –– Providing strategic direction, approving Western Power’s compliance with the policies and reviewing major decisions, –– The role of the Chair and the CEO ASX Principles are set out below and in including capital expenditure proposals cannot be filled by the same person the compliance checklist found on pages 75 to 77 of this financial report. Details –– Approving budgets and financial –– The CEO is to be resident in, or near, are also published in the corporate performance the town in which Western Power’s head office is located governance section of Western Power’s –– Monitoring senior executives’ website (www.westernpower.com.au). performance –– The majority of the Board should comprise independent directors –– Overseeing compliance with internal processes and regulatory requirements –– The Board should have an appropriate blend of skills, experience, expertise –– Assessing Board performance to and diversity. ensure the Board’s effectiveness.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 65 CORPORATE GOVERNANCE & FINANCIAL GOVERNANCE REPORTS STATEMENT

Further details of the process for perspective of the director. The Board 2.5 Board succession planning evaluating the range of skills, experience, considers that a customer or supplier is The People & Performance Committee expertise and diversity that will best material where the amount receivable or (P&PC) assists the Board with complement Board effectiveness, with a payable, respectively, by Western Power succession planning. The P&PC reviews view to ensuring that it has a proper in any 12 month period exceeds $1.5 the size and composition of the Board understanding of, and the competence million. This threshold is not conclusive and the mix of existing and desired to deal with, the current and emerging and the Board will examine both the competencies and diversity across issues of Western Power’s business are qualitative and quantitative nature of a members and reports its conclusions to available in the corporate governance director’s relationship with any particular the Board annually. section of Western Power’s website. customer or supplier when assessing director independence. If the threshold is Non-executive directors are appointed for 2.3 Director independence exceeded, the Board will consider a period of up to three years and are (ASX Principle 2.1, 2.2 and 2.6) whether or not that materially affects the eligible for reappointment, but may be The structure and composition of the impartiality of the director’s judgment. removed from office by the Governor at Board is prescribed by the Act. The any time. independence of directors is therefore not The Board has considered the When a non-executive director position is a matter entirely within control of the independence of each of the directors in vacant, the Governor appoints a Board, however, the Board charter office at the date of this report and its replacement on the nomination of the provides that in nominating candidate determination is set out in the director Minister, who must consult with the directors to the Minister, the Board will profiles on pages 53 to 55 of this financial Board. The Minister is not bound by any have regard to the independence of report. None of the non-executive Board recommendation. Prior to making prospective directors. directors are considered to have a business, or other relationship that could a recommendation, the Board (via the The Board charter further outlines the materially interfere, or could reasonably P&PC) assesses the range of skills, criteria to be considered in assessing be perceived to interfere, with the exercise expertise, competencies and diversity director independence, which are based of the director’s unfettered and represented (and required) in the Board’s on the premise that a director must be independent judgment. composition and seeks to identify independent of management and free of candidates who best complement the any business or other relationship that 2.4 Conflicts of interest Board’s composition. could materially interfere, or could Directors must keep the Board advised, Criteria considered by the P&PC when reasonably be perceived to interfere, with on an ongoing basis, of any interest that evaluating prospective candidates are the exercise of the director’s unfettered could potentially conflict with Western contained in the Board charter, which is and independent judgment. Power’s interests. The Board has available in the corporate governance developed procedures to assist directors The test of whether a business, or other section of Western Power’s website. on disclosing potential conflicts of relationship is material is based on the interest1. 2.6 Terms of appointment, induction nature of the relevant relationship and on training and continuing education the circumstances of the individual A director with an actual or potential (ASX Principles 1.1) director. Materiality is considered from the conflict of interest in relation to a matter perspective of Western Power, the before the Board is required to withdraw Under the Act, a director holds office for persons or organisations with which the from the meeting while the matter is such period, not exceeding three years, director has an association and from the considered. as is specified in the instrument of his or

1 The relevant policies and procedures include Western Power’s conflict of interest policy and an outline of the duties and obligations of directors and executive officers that is provided to all directors on appointment. Further, the agenda for all Board and committee meetings includes a standing item for declarations of material personal interests to be made.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 66 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 her appointment, and is eligible for against the requirements of their The Board reviews the performance reappointment. Periods of appointment respective charters. In addition, the of its committees annually, at its last will be structured to ensure that individual performance of the Board meeting for each calendar year. In this approximately one-third of directors retire Chair and the directors is also reviewed. reporting period, the Board reviewed each calendar year. The P&PC determines the evaluation reports from each of its committees in process for the Board and individual December 2011. The reports included the All current non-executive directors directors. respective committee’s: have been provided with a letter of appointment detailing the terms of their The performance evaluation of the Board –– Assessment of its performance against appointment, as well as providing all of as a whole and individual directors was the requirements of its charter the information recommended by the conducted in November 2011 and –– Goals and objectives for the ASX Principles (including duties, rights comprised: coming year and responsibilities, the time commitment –– An online evaluation survey of the envisaged and the Board’s expectations –– Recommendations for any Board’s effectiveness as a whole and regarding involvement with improvements to its charter of its members individually, completed committee work). deemed necessary or desirable. by each member of the Board The P&PC oversees establishment and The Board also informally reviews its –– An online self-evaluation survey implementation of an effective induction performance on an ongoing basis, by way completed by individual directors process for new directors and reviews of a meeting critique conducted by a that process regularly. The induction –– An online evaluation survey of the member of the Board at the close of each process includes discussions with the Board’s effectiveness as a whole and Board and Board committee meeting. CEO, senior management and the of it members individually, completed The P&PC reviews and makes external and internal auditors, and by members of the senior recommendations to the Board on the provision of information on key corporate management team who are invited to process for reviewing the performance of and Board policies and strategic plans. attend all meetings of the Board and its the CEO. The CEO’s performance is committees All directors are expected to undertake judged against the approved strategic professional development to maintain the –– A confidential report provided to the plan, and the corporate and personal key skills required to discharge their duties. Board Chair detailing the results for the performance indicators established for Where this involves industry seminars and Board as a whole and of its individual the CEO on an annual basis. The same approved education courses, Western members, as well as a briefing process is adopted in the case of other Power pays the cost, subject to the provided by the external facilitator senior executives. During July and August Chair’s approval. In addition, where skill regarding the collective and individual of each year the performance of the CEO gaps are identified, directors will be results and other senior executives is evaluated provided with appropriate resources in accordance with the approved process. –– A confidential report provided to each and training. director detailing the results for the Further details of the process for 2.7 Performance evaluation Board as a whole and for that specific performance evaluation of the Board, its (ASX Principle 1.2, 1.3 & 2.5) director, as well as an invitation to committees, individual directors and The performance of the Board as a whole discuss the results with either the Western Power’s senior executives and each of its committees are reviewed Board Chair or the external facilitator. appears in the corporate governance on a regular basis (at least annually) section of Western Power’s website.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 67 CORPORATE GOVERNANCE & FINANCIAL GOVERNANCE REPORTS STATEMENT

2.8 Board access to information 2.10 Chair (ASX Principles 2.2 & 2.3) The Company Secretary is responsible and professional advice The Board Chair, Mr A Mulgrew, is an for ensuring that Board procedures are (ASX Principle 2.6) independent non-executive director. complied with and that governance Directors have direct access to members Under the Act, the Governor appoints matters are addressed. All directors have of Western Power’s management and the Chair and Deputy Chair from the access to the Company Secretary’s information. non-executive directors on the advice and services. nomination of the Minister. Directors may, in carrying out their duties 2.12 Board meetings owed to Western Power, seek external In compliance with the Act, the Board (ASX Principle 2.6) professional advice. They are entitled to Chair and the CEO are not the same The Board meets at least 10 times per reimbursement of all reasonable costs person. calendar year to address strategic issues where a request for advice is approved The Chair is responsible for leadership and as needed to address urgent issues. by the Chair. Where the Chair proposes of the Board, for the efficient organisation During the financial year ended 30 June to seek external advice, he or she will and conduct of the Board’s function, and 2012, the Board held 36 meetings. consult the Chair of the P&PC. for the promotion of relations between Details of directors’ attendance at these 2.9 Directors’ remuneration Board members and between the Board meetings are set out on page 58 of this (ASX Principle 8.2) and management that are open, cordial financial report. The P&PC is responsible for, among and conducive to productive co- The Board has adopted rules and other matters, assisting the Board in operation. The Chair’s responsibilities are procedures which govern the proceedings establishing remuneration policies and set out in more detail in the Board charter. of Board meetings in addition to the reviewing their effectiveness. The Mr Mulgrew is also director of the provisions in Schedule 1 of the Act. In remuneration of non-executive directors companies described on page 53 of this summary the procedure is as follows: is determined by the Minister. financial report. The Board considers –– The Chair sets the agenda for each Western Power has a remuneration policy that his directorship commitments as meeting in consultation with the CEO that distinguishes between the structure listed do not interfere with the discharge –– Any director may request additional of non-executive and executive directors’ of his duties to Western Power. The matters to be placed on the agenda remuneration. Details of remuneration Board is satisfied that he commits the policy, together with details of the time necessary to discharge his role –– Members of senior management remuneration paid to Western Power’s effectively. attend meetings of the Board by invitation, but sessions are also directors (executive and non-executive) 2.11 Company Secretary scheduled at each formal Board and all executive officers are set out on (ASX Principle 2.5) pages 59 to 63 of this financial report. meeting for non-executive directors to The Company Secretary is Mr J Pease, meet without management present There are no schemes for retirement who is also its General Counsel. His –– Copies of Board papers are circulated benefits, other than superannuation, qualifications and experience are set out electronically in advance of meetings provided for any non-executive director. on page 58 of this financial report. The appointment and removal of the –– Directors are entitled to request Company Secretary is a matter for additional information where they decision by the Board. consider the information is necessary to support informed decision-making.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 68 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 3. Board committees compliance systems and the internal and practices, review Board composition and external audit function. In doing so, the succession planning for the Board and 3.1 Committees, membership and committee is to maintain free and open CEO, and assist the Board in establishing charters (ASX Principles 1.1, 2.4, communication with the Auditor General remuneration, incentives and human 2.6, 4.1 - 4.4, 8.1, 8.2 & 8.4) for Western Australia (Auditor General), resources policies and a performance The Board has established two the internal auditors and management of review framework. committees to assist in the discharge Western Power. of its responsibilities. These are: The committee’s terms of reference The committee’s terms of reference specify that the P&PC will be comprised of –– The Finance & Risk Committee specify that the F&RC will be comprised of a minimum of three members, all of (F&RC) a minimum of three members, all of whom whom will be non-executive directors and –– The People & Performance will be non-executive directors and a a majority of whom will be independent Committee (P&PC). majority of whom will be independent directors. The terms of reference also directors. The terms of reference also specify that the P&PC will be chaired by Each of the committees has its own specify that the F&RC will be chaired by an independent director. A copy of the terms of reference that describe its role an independent director, who is not the terms of reference, detailing the and duties. The Company Secretary Board Chair. A copy of the terms of committee’s duties, are available in the provides secretariat services for each reference detailing the F&RC’s duties, is corporate governance section of Western committee. available in the corporate governance Power’s website. Minutes of all committee meetings are section of Western Power’s website. The members of the P&PC are the Hon. provided to the Board and the The members of the F&RC are Mr J Cahill George Cash (Chair), Mr J Cahill and Mr P proceedings of each meeting are (Chair), Mr M Davies and Mr P Underwood. All decisions of the P&PC are reported by the respective committee Underwood. All decisions of the F&RC are reported to the full Board. chair at the next Board meeting. A reported to the full Board. Following the director may attend committee meetings The CEO, General Manager Corporate retirement of Mr M Barnaba on even if he or she is not a member of Services and General Counsel & 20 April 2012, Mr J Cahill became the the committee. Company Secretary attend committee Acting Board Chair. He continued to Chair meetings by invitation. The number of committee meetings the F&RC pending the appointment of Mr held during the financial year ended A Mulgrew permanent Board Chair. 4. Promoting responsible 30 June 2012, and members’ A representative of the Office of the and ethical behaviour attendances at these meetings, are set Auditor General, the CEO, Chief Financial out on page 58 of this financial report. 4.1 Code of conduct and Officer( CFO), Manager whistleblower policy Risk Assurance & Audit and General 3.2 Finance & Risk Committee (ASX Principles 3.1 & 3.3) (ASXPrinciples 4.1 - 4.4) Counsel & Company Secretary attend The Board has approved: The role of the F&RC is to assist the committee meetings by invitation. Board to meet its oversight –– A code of conduct that applies to 3.3 People & Performance Committee responsibilities in relation to Western directors, officers and all employees of (ASX Principles 2.4, 2.6, 8.1, Power’s financial reporting, application Western Power 8.2 & 8.4) of accounting policies, financial –– A legislative and regulatory The role of the P&PC is to assist the management and treasury function, compliance policy Board to meet its oversight responsibilities internal control, risk management and in relation to Western Power’s governance –– A conflict of interest policy.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 69 CORPORATE GOVERNANCE & FINANCIAL GOVERNANCE REPORTS STATEMENT

Collectively, the code of conduct A copy of the code of conduct and In support of this recognition, Western and respective policies: respective policies is available in the Power has established a diversity policy, corporate governance section of a copy of which is available in the –– Promote ethical and responsible Western Power’s website. corporate governance section of decision-making and outline the Western Power’s website. minimum standards of conduct for all In accordance with the Act, the Board directors, officers and employees of has also adopted minimum standards of Western Power is committed to having a Western Power merit, equity and probity applicable to diverse workforce in which appointment and advancement are merit-based. In –– Outline Western Power’s position management of Western Power’s staff, support of this commitment, the Board on a range of ethical and legal issues, and a joint policy on staff transfers. established diversity objectives for the and summarise its policies on matters 4.2 Diversity at Western Power 2012 financial year, including with regard such as compliance with laws, (ASX Principle 3.2 - 3.5) to gender. The following table provides a occupational health and safety, Western Power recognises the value and summary of those objectives and the corporate opportunity, confidentiality, unique contribution that all people make protection of corporate assets, respective outcomes as at 30 June due to their individual skills, experiences diversity in the workplace and 2012: and perspectives in fostering a responsibility for the environment constructive and inclusive work culture. –– Guide compliance with Western Power’s legal and other obligations to its stakeholders, including the Minister Objective Target Outcome and the Government, employees, customers, the community, unions Women in tiers 2 and 3 of management 22.0% 13.5% and regulatory authorities Tier 2 = Reports directly to CEO Tier 3 = Reports to tier 2 –– Are designed to reflect Western Power’s commitment to appropriate Indigenous Australians 1.2% 0.7% corporate practices. People from culturally and linguistically 23.0% 23.4% Compliance with the principles diverse backgrounds contained within these documents People with disabilities 2.2% 1.3% assists Western Power in effectively managing risks, and meeting its legal Youth (less than 25 years old) 9.5% 5.8% and compliance obligations.

Western Power also has a policy on The proportion of female employees as at 30 June 2012 on the Board, and whistleblowing. The purpose of the in senior executive positions and the whole corporation is as follows: policy is to help detect and address misconduct, help provide an Board 0.0% environment in which persons feel able Senior management 13.5% (namely employees at CEO, General Manager and to raise issues of concern to them and Branch Manager level) Western Power, and help protect people who report misconduct in good faith. Whole workforce 21.9%

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 70 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 5. shareholder communication with the Minister and the 6. Financial reporting Minister’s office. The protocol reflects the (ASX Principles 4.1 & 7.3) 5.1 Shareholder communication (ASX particular relationship between Western Principles 5 & 6) The Act requires the Board to declare Power (being a statutory corporation) annually that Western Power’s financial Western Power does not have any and the Government, and recognises statements give, in all material respects, issued shares. As Western Power’s that the Minister must receive information a true and fair view of its financial governing body, the Board is responsible to enable him to discharge his ministerial position, and that its financial condition to the Minister for its performance. The duties. and operating results are in accordance Minister has various rights set out in the with relevant accounting standards. Act in relation to certain aspects of 5.2 Continuous disclosure and market Western Power, such as Board communications (ASX Principles 5) The CEO and the CFO have assured nominations, approvals for certain Western Power is not a listed company the Board that Western Power’s transactions and access to information and is not subject to disclosure financial report presents a true and fair about the corporation. obligations under the ASX Listing Rules. view, in all material respects, of its financial condition and operational The Act also imposes certain reporting However, the Act imposes requirements results, and is in accordance with obligations on Western Power. It must on Western Power to report on a range relevant accounting standards, and produce a strategic development plan of matters to the Minister. that such declaration is founded on a (SDP) and a statement of corporate The F&RC monitors Western Power’s sound system of risk management and intent (SCI) each year. The SDP sets out systems and processes to achieve internal control, and that the system is Western Power’s five-year economic and compliance with, among other matters, operating effectively in all material financial objectives, strategic result areas its reporting requirements. In December respects in relation to financial and associated performance targets, as 2006 the Board approved a legislative reporting risks. well as strategies. The SCI sets out and regulatory compliance policy that is Western Power’s scope of activities, designed to ensure that all Western 7. External auditor relationship objectives and performance targets for Power employees are aware of its (ASX Principle 4.4 & 6) the coming financial year, and is various legislative obligations, including The Act requires that Western Power’s consistent with the SDP. The SCI is those relating to disclosure and financial statements are audited by the tabled in parliament after it has been reporting. The policy establishes a Auditor General by 30 September agreed with the Minister and has framework that: received the Treasurer’s endorsement. each year. The Auditor General also –– Identifies the relevant obligations and reports to the Minister on whether he In addition, Western Power provides allocates responsibility for compliance or she is of the opinion that the quarterly and annual written reports to financial report is in accordance with –– Provides education for all affected staff the Minister detailing its performance the Act. to ensure that there is an awareness of and progress made in fulfilling the the compliance requirement agreed targets detailed in the SCI. The F&RC oversees communications The Minister and the Board must, at the –– Ensures that compliance breaches are between the Board, senior financial request of either, consult on any aspect reported and remedial action management, Risk Assurance & Audit of Western Power’s operations. monitored and the Auditor General in order to ensure that all assistance that is –– Provides a regular basis of review to Western Power has established necessary to complete the audit by the ensure that it remains effective. a formal protocol to ensure Auditor General is provided. comprehensive and effective

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 71 CORPORATE GOVERNANCE & FINANCIAL GOVERNANCE REPORTS STATEMENT

Western Power does not have control In accordance with the Act, the Treasury transmission and distribution systems over the appointment (or selection) of the Branch makes recommendations to the in the licence area covered by the external auditor because this is a matter Board on the appropriate level of South West Interconnected System. prescribed by the Act. insurance cover for Western Power. Particular requirements of the licences Financial risk issues are managed include performance auditing, an asset 8. Risk management through a treasury policy statement that management system and auditing, (ASX Principles 7.1 & 7.2) requires regular reporting to the F&RC on reporting and provision of information. Western Power has a comprehensive treasury activities. framework to manage its strategic, 9.3 Observance of Western Power’s operational, regulatory and reporting 9. Corporate compliance disclosures code of conduct risks. The corporate risk management 9.1 Freedom of information Section 33 of the Act requires the policy sets out a methodology and Subject to certain exceptions, the Board to report to the Minister on the process for identification of risks, Freedom of Information Act (FOI Act) observance of Western Power’s code of outlines the accountabilities of requires Western Power to provide conduct by members of staff. This report management and contains procedures access to its documents where an is required at the same time as delivering for reporting on risk issues throughout application for access is made. The Western Power’s annual report. Western Power. A description of the FOI Act also requires Western Power corporate risk management policy and The Board confirms that consistent to publish an up-to-date information internal control systems is available in the with section 31 of the Act, the code of statement about the corporation. An corporate governance section of conduct was developed after consultation up-to-date information statement, as Western Power’s website. with the Commissioner for Public Sector well as a guide on how to make an Standards and was adopted by the Divisional general managers are application under the FOI Act are Board at its meeting on 24 March 2006. responsible for identifying risks and published on Western Power’s website The code of conduct has been amended implementing strategies to mitigate and can be inspected free of cost at from time to time. them. The F&RC oversees the risk any time. The website address is management framework and reviews www.westernpower.com.au. The code of conduct has been circulated the effectiveness of key mitigation to Western Power’s employees and is strategies. Risk reviews are conducted 9.2 Electricity licences available on its website for employee at least annually to ensure emerging The licensing framework under the reference. risks, such as those from changes in Electricity Industry Act came into As permitted by the Act, the Board has market structure and design, operation on 1 January 2005, and delegated accountability through the CEO organisational restructures and consequently an electricity supply to formal leaders in the corporation to operational issues are identified and licence is required for participants in ensure observance of the standards responses developed. the electricity industry who generate, of conduct and integrity by members transmit, distribute or sell electricity. The CEO and the CFO have assured of staff. the Board that Western Power’s The Economic Regulation Authority 9.4 Record-keeping management of its material business has granted Western Power separate risks is effective. transmission and distribution licences Western Power maintains and supports for the construction and operation of quality record keeping practices in its day-to-day business activities. All

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 72 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 records are managed according to the for new employees. The Manager Risk the clearing of native vegetation. An requirements of the State Records Act Assurance & Audit and the General audit conducted as a condition of the and Western Power’s approved Counsel & Company Secretary have operating licence identified potential record-keeping plan. Regular reviews been appointed as Western Power’s compliance failures which have been are conducted of Western Power’s Public Interest Disclosure Officers. communicated to the Department of record-keeping systems and practices Environment and Conservation (DEC). to ensure their efficiency and 9.6 Environmental due diligence/ Corrective actions have been identified effectiveness. responsibility (Schedule 4, and are being implemented. The clause 11(1)(f) of the Act) purpose (clearing) permit is subject to New staff and contractors are provided Western Power’s environment policy annual reporting and auditing with information on the record-keeping encompasses environmental conditions imposed by the DEC. systems, both at induction and at management principles including compulsory training in the use of the The DEC and the Environment compliance, minimising impact, system. The training programs are Protection Authority (EPA) issued the community consultation, planning, reviewed on an ongoing basis to Environmental Protection (Western and continuous improvement objectives. ensure they reflect any new business Power Transmission Substation Noise Its sites are subject to State and requirements. Emissions) Approval Amendment 2012 Commonwealth environmental on 17 July 2012 which addresses legislation and regulations. Some are 9.5 Public interest disclosure identified transmission substation also covered by specific Ministerial The Public Interest Disclosure Act compliance issues with the conditions, and environmental licences (PID Act) facilitates the disclosure Environmental Protection (Noise) and permits issued by the State. of public interest information, and Regulations. Discussions are ongoing provides protection for those who During this financial year, steps were with DEC and the EPA to address noise make disclosures and those who taken to strengthen Western Power’s compliance issues with distribution are the subject of disclosures. compliance controls and assurance transformers. processes. This included three Western Power is committed to the Western Power is required to report detailed environmental audits of its aims and objectives of the PID Act. environmental incidents to the operational activities which have The Board has approved a policy regulators. As described in this annual identified potential compliance failures. implementing the requirements of the report, Western Power has discussed All have been reported to the relevant PID Act and internal procedures have 18 environmental incidents with regulator and the Board (via the F&RC). been developed that outline the regulators during the past financial year. Corrective actions have been identified manner in which Western Power will and are being progressively Appropriate qualifications have been comply with its obligations under the implemented. made in internal quarterly compliance PID Act. A copy of the policy and assurance reporting reflecting identified internal procedures are published on Under the Environmental Protection weaknesses in the control framework, Western Power’s intranet for staff to Act, Western Power holds one potential compliance failures with licence review and information is provided operating licence for a metropolitan requirements and regulatory obligations. about public interest disclosure as part depot and one purpose permit to allow of Western Power’s induction program self assessment for projects requiring

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 73 CORPORATE GOVERNANCE & FINANCIAL GOVERNANCE REPORTS STATEMENT

9.7 Electoral Act (section 175ZE) In accordance with section 175ZE of the Electoral Act, the following information in respect to expenditure incurred by Western Power during the financial year ended 30 June 2012 is presented. This expenditure includes costs associated with public safety campaigns, the Future Energy Alliance, planned outage notifications, self-read meter mail outs and recruiting.

Category Amount ($) Recipient Advertising agencies 752,959 Adcorp Australia Limited 187,309 Workhouse Advertising 121,086 Marketforce 119,457 303 Advertising Group 10,287 Cogent Advertising Total 1,191,0981 Market research 236,374 Synovate 98,200 Taylor Nelson Sofres Australia Pty Ltd Total 334,574 Polling organisations Nil Not applicable Direct mail organisations 628,832 Bing Technologies Pty Ltd 580,212 Salmat 34,620 Mailforce Document Solutions Total 1,243,664 Media research 538,203 OMD WA 59,299 Mitchell & Partners Total 597,502 Total expenditure 3,366,838

1 Advertising agency expenditure includes $668,970 of recruitment advertising costs.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 74 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 10. ASX Principles checklist The following table reports on the extent to which Western Power has complied with the ASX Principles and provides reasons for any non-compliance.

ASX Principle Reference Comply Principle 1 Lay solid foundations for management and oversight 1.1 Establish the functions reserved to the Board and those delegated to senior executives and disclose those functions. 2.1, 2.6, 3.1 ü 1.2 Disclose the process for evaluating the performance of senior executives. 2.7 ü 1.3 Provide the information indicated in the guide to reporting on ASX Principle 1. 2.7 ü Principle 2 Structure the Board to add value 2.1 A majority of the Board should be independent directors. 2.2, 2.3 ü 2.2 The Board Chair should be an independent director. 2.2, 2.3, 2.10 ü 2.3 The roles of the Board Chair and CEO should not be exercised by the same individual. 2.2, 2.10 ü 2.4 The Board should establish a nomination committee. 3.1, 3.3 Note 1 2.5 Disclose the process for evaluating the performance of the Board, its committees and individual directors. 2.7 ü 2.6 Provide the information indicated in the guide to reporting 2.2, 2.3, 2.5, 2.8. on ASX Principle 2. 2.12, 3.1, 3.3 ü Principle 3 Promote ethical and responsible decision-making 3.1 Establish a code of conduct and disclose the code or a summary of the code as to: 3.1.1 The practices necessary to maintain confidence in the company’s integrity 3.1.2 The practices necessary to take into account Western Power’s legal obligations and the reasonable expectations of its stakeholders 3.1.3 The responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 4.1 ü 3.2 Establish a policy concerning diversity and disclose the policy or a summary of the policy. 4.2 3.3 Disclose in each annual report the measurable objectives for achieving gender diversity set by the Board and progress towards achieving them. 4.2 3.4 Disclose in each annual report the proportion of female employees in the whole organisation, in senior executive positions and on the Board. 4.2 3.5 Provide the information indicated in the guide to reporting on ASX Principle 3. 4.1, 4.2 ü

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 75 CORPORATE GOVERNANCE & FINANCIAL GOVERNANCE REPORTS STATEMENT

ASX Principle Reference Comply Principle 4 Safeguard integrity in financial reporting 4.1 The Board should establish an audit committee. 3.1, 3.2 ü 4.2 Structure the audit committee so that it consists of: (i) only non- executive directors; (ii) a majority of independent directors; (iii) an independent Chair, who is not the Board Chair; and (iv) at least three members. 3.1, 3.2 ü 4.3 The audit committee should have a formal charter. 3.1, 3.2 ü 4.4 Provide the information indicated in the guide to reporting on 3.1, 3.2, 7, ASX Principle 4. Note 2 ü Principle 5 Make timely and balanced disclosure 5.1 Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. 5.1, 5.2 Note 3 5.2 Provide the information indicated in the guide to reporting on ASX Principle 5. 5.1, 5.2 Note 3 Principle 6 Respect the rights of shareholders 6.1 Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose the policy or a summary of the policy. 5.1, 7, Note 4 ü 6.2 Provide the information indicated in the guide to reporting on ASX Principle 6. 5.1, 7, Note 4 ü Principle 7 Recognise and manage risk 7.1 Establish policies for the oversight and management of material business risks and disclose a summary of those policies. 8  ü 7.2 The Board should require management to design and implement the risk management and internal control system to manage Western Power’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of Western Power’s management of its material business risks. 7.3 The Board should disclose whether it has received assurance from the CEO and the CFO that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 6, 8  ü 7.4 Provide the information indicated in the guide to reporting on ASX Principle 7. 8 ü

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 76 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 ASX Principle Reference Comply Principle 8 Encourage enhanced performance 8.1 The Board should establish a remuneration committee. 3.1, 3.3 Note 1 8.2 Structure the remuneration committee so that it consists of: (i) a majority of independent directors; (ii) an independent Chair; and (iii) at least three members. 3.1, 3.3 Note 2 8.3 Clearly distinguish the structure of non-executive directors’ remuneration Remuneration from that of executive directors and senior executives. report ü 8.4 Provide the information indicated in the guide to reporting on 3.1, 3.3, ASX Principle 8. Remuneration report ü

Notes: 1. Parts of recommendation 2.4 of the ASX Principles are not applicable to Western Power to the extent that the composition of the Board is ultimately determined by the Governor (on recommendation from the Minister). The P&PC, which serves as the Board’s nominations and remuneration committee, is comprised of three independent, non-executive directors and is chaired by someone other than the Board Chair. 2. The independence of committee members is influenced by the process of appointment of Western Power’s directors, namely by the Governor on the recommendation of the Minister and therefore the committee may not always have a majority of independent members. However, it currently does have the required majority. Under the Act, Western Power’s external auditor is the Auditor General. Therefore, recommendations in the ASX Principles as to independence and evaluation of the external auditor are not applicable. 3. ASX Principle 5 has no relevance to Western Power as it is not a publicly listed entity and therefore is not subject to the ASX Listing Rules (see section 5.2 of the corporate governance statement). 4. Western Power does not hold annual general meetings. However, the Auditor General reports directly to the Minister in respect of the audit of Western Power’s annual financial statements.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 77 financial GOVERNANCE & FINANCIAL statements REPORTS

FINANCIAL STATEMENTS

CONTENTS Statement of comprehensive income 79 Balance sheet 80 Statement of changes in equity 82 Statement of cash flows 83 Notes to the financial statements 1 Corporate information 84 2 Summary of significant accounting policies 84 3 Financial risk management 92 4 Revenue and other income 98 5 Expenses 99 6 Income tax expense 101 7 Cash and cash equivalents 102 8 Trade and other receivables 102 9 Inventories 104 10 Derivative financial instruments 105 11 Property, plant and equipment, and intangible assets 106 12 Trade and other payables 108 13 Provisions 109 14 Deferred income 110 15 Borrowings 110 16 Deferred tax 111 17 Retirement benefit obligations 113 18 Contingencies 116 19 Commitments 116 20 Events occurring after the reporting date 117 21 Reconciliation of profit to net cash inflows from operating activities 118 22 Non-cash investing and financing activities 118 Directors’ declaration 119 Corporate directory 120 Independent auditor’s report 121 GRI Content Index 123

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 78 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 FINANCIAL STATEMENTS STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 June 2012

CONTENTS 2012 2011 Statement of comprehensive income 79 Notes $’000 $’000 Balance sheet 80 Revenue and other income Statement of changes in equity 82 Rendering of services 4(a) 1,478,837 1,372,247 Statement of cash flows 83 Notes to the financial statements Other income 4(c) 6,634 3,697 1 Corporate information 84 Total revenue and other income 1,485,471 1,375,944 2 Summary of significant accounting policies 84 3 Financial risk management 92 4 Revenue and other income 98 Expenses 5 Expenses 99 Raw materials and consumables used (354,638) (283,576) 6 Income tax expense 101 Employee related expenses 5(a) (215,885) (201,820) 7 Cash and cash equivalents 102 8 Trade and other receivables 102 Depreciation and amortisation expense 5(b) (204,893) (220,847) 9 Inventories 104 Other expenses 5(c) (205,939) (209,145) 10 Derivative financial instruments 105 11 Property, plant and equipment, and intangible assets 106 Borrowing costs 5(e) (278,750) (277,627) 12 Trade and other payables 108 Total expenses (1,260,105) (1,193,015) 13 Provisions 109 14 Deferred income 110 Profit before income tax expense 225,366 182,929 15 Borrowings 110 16 Deferred tax 111 Income tax expense 6 (68,235) (53,302) 17 Retirement benefit obligations 113 Profit for the reporting year 157,131 129,627 18 Contingencies 116 19 Commitments 116 Other comprehensive income 20 Events occurring after the reporting date 117 21 Reconciliation of profit to net cash inflows from operating activities 118 Net gains on cash flow hedges 205 2,155 22 Non-cash investing and financing activities 118 Net actuarial losses on retirement benefit obligations (359) (221) Directors’ declaration 119 Corporate directory 120 Total other comprehensive income for the reporting year, net of tax (154) 1,934 Independent auditor’s report 121 GRI Content Index 123 Total comprehensive income for the reporting year 156,977 131,561

The above statement of comprehensive income should be read in conjunction with the accompanying notes.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 79 financial GOVERNANCE & FINANCIAL statements REPORTS

BALANCE SHEET as at 30 June 2012

2012 2011 Notes $’000 $’000

Assets Current assets Cash and cash equivalents 7 22,928 26,174 Trade and other receivables 8 201,861 178,743 Inventories 9 115,400 93,793 Derivative financial instruments 10 60 - Total current assets 340,249 298,710

Non-current assets Trade and other receivables 8 202 200 Derivative financial instruments 10 50 - Property, plant and equipment 11 6,893,678 6,234,810 Intangible assets 11 97,605 77,144 Total non-current assets 6,991,535 6,312,154

Total assets 7,331,784 6,610,864

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 80 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 BALANCE SHEET (CONTINUED) as at 30 June 2012

2012 2011 Notes $’000 $’000

Liabilities Current liabilities Trade and other payables 12 257,304 198,914 Derivative financial instruments 10 - 294 Provisions 13 37,205 34,172 Deferred income 14 110,165 69,952 Total current liabilities 404,674 303,332

Non-current liabilities Trade and other payables 12 31,084 8,985 Borrowings 15 5,474,774 5,017,064 Deferred tax liabilities 16 190,309 122,083 Provisions 13 16,967 11,786 Retirement benefit obligations 17 667 597 Deferred income 14 12,010 19,073 Total non-current liabilities 5,725,811 5,179,588

Total liabilities 6,130,485 5,482,920

Net assets 1,201,299 1,127,944

Equity Contributed equity 821,239 820,603 Reserve 118 (87) Retained earnings 379,942 307,428 Total equity 1,201,299 1,127,944

The above balance sheet should be read in conjunction with the accompanying notes.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 81 financial GOVERNANCE & FINANCIAL statements REPORTS

STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2012

Contributed Hedging Retained Total equity reserve earnings equity $’000 $’000 $’000 $’000

At 1 July 2010 820,022 (2,242) 241,259 1,059,039

Comprehensive income Profit - - 129,627 129,627 Other - 2,155 (221) 1,934 Total comprehensive income - 2,155 129,406 131,561

Transactions with owners in their capacity as owners Contributions of equity 581 - - 581 Dividends provided for or paid - - (63,237) (63,237) Total transactions with owners 581 - (63,237) (62,656)

At 30 June 2011 820,603 (87) 307,428 1,127,944

At 1 July 2011 820,603 (87) 307,428 1,127,944

Comprehensive income Profit - - 157,131 157,131 Other - 205 (359) (154) Total comprehensive income - 205 156,772 156,977

Transactions with owners in their capacity as owners Contributions of equity 636 - - 636 Dividends provided for or paid - - (84,258) (84,258) Total transactions with owners 636 - (84,258) (83,622)

At 30 June 2012 821,239 118 379,942 1,201,299

The above statement of changes in equity should be read in conjunction with the accompanying notes.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 82 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 STATEMENT OF CASH FLOWS for the year ended 30 June 2012

2012 2011 Notes $’000 $’000 Cash flows from operating activities Receipts from customers (inclusive of Goods and Services Tax) 1,545,957 1,419,136 Payments to suppliers and employees (inclusive of Goods and Services Tax) (850,232) (770,814) Other revenue 5,433 3,202 Income taxes received - 1,878 Net cash inflows from operating activities 21 701,158 653,402

Cash flows from investing activities Payments for property, plant and equipment, and intangible assets (802,611) (700,906) Proceeds on disposal of property, plant and equipment, and intangible assets 8,066 4,955 Net cash outflows from investing activities (794,545) (695,951)

Cash flows from financing activities Proceeds from borrowings 4,164,150 2,656,940 Repayments of borrowings (3,720,257) (2,336,261)

Interest received 1,309 1,581 Interest paid (271,439) (270,958)

Proceeds from contributed equity 636 581 Distribution to equity holder (84,258) (106,135)

Net cash inflows/(outflows) from financing activities 90,141 (54,252)

Net decrease in cash and cash equivalents (3,246) (96,801) Cash and cash equivalents at beginning of the reporting year 26,174 122,975

Cash and cash equivalents at end of the reporting year 7 22,928 26,174

Non-cash investing and financing activities 22

The above statement of cash flows should be read in conjunction with the accompanying notes.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 83 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

1 Corporate information 2 Summary of significant Accrual accounting and historical Electricity Networks Corporation trading accounting policies cost convention as Western Power (Western Power) The principal accounting policies These financial statements are prepared is incorporated under the Electricity adopted in the preparation of these on the accrual accounting basis and in Corporations Act 2005 (WA) (Act) and financial statements are set out below. accordance with the historical cost domiciled in Australia. The registered These policies have been consistently convention, except for derivative financial office and principal place of business applied to the reporting years presented, instruments that are measured at fair is 363 Wellington Street, Perth, Western unless otherwise stated. value, and certain non-current financial Australia 6000. assets and financial liabilities that are (a) Basis of preparation measured at amortised cost. Western Power is primarily involved in These financial statements are general the maintenance and development of purpose financial statements that have Comparatives the electricity transmission and distribution been prepared in accordance with Where appropriate, comparative amounts network in the south west of Western Australian accounting standards, other have been re-presented and re-classified Australia. (For a more detailed description authoritative pronouncements of the to ensure comparability with the current of Western Power’s operations and Australian Accounting Standards reporting year. principal activities refer to the ‘our profile’ Board (AASB) (including Australian section of this annual report and the interpretations) and Schedule 4 of the Going concern ‘principal activities’ section of the directors’ Act. On operation of the Act, Schedule These financial statements are prepared report included in this financial report). 4 was aligned and cross referenced to on the going concern basis. Western These financial statements cover the relevant sections of the Corporations Power has reasonable grounds to Western Power as an individual entity Act 2001. believe it is able to pay its debts as and and were authorised for issue by the when they become due and payable, Western Power has been classified to directors on 28 September 2012. The considering the unused portion of the be a not-for-profit entity and accordingly directors’ have the power to amend and available facility agreement (refer to note applies the not-for-profit elections available reissue the financial report. 3(e)(iii)) and the forecasted net profits and in the Australian accounting standards positive operating cash flows in 2013. Through the use of the internet Western where applicable. Power has ensured that corporate Working capital reporting is timely, complete and New and amended accounting At 30 June 2012, Western Power available globally at minimum cost standards adopted reported a working capital deficit of to Western Power. All press releases, None of the new standards and/or $64.425 million (30 June 2011: $4.622 financial reports and other information amendments mandatory for first time million deficit). Current liabilities include are available by request at the above reporting in the current reporting year deferred income relating to developer address and at the website have affected the amounts recognised and customer contributions to the value www.westernpower.com.au. in these financial statements, and nor are of $110.165 million (30 June 2011: they likely to affect future years. $69.952 million) which usually do not require an outflow of cash resources. When these amounts are excluded, working capital shows current assets exceeding current liabilities by $45.740 million (30 June 2011: $65.330 million).

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 84 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 (b) Critical accounting estimates –– Property, plant and equipment and (d) revenue recognition and judgments intangible assets (impairment and Revenues are recognised to the extent it The preparation of financial statements useful lives): Notes 2(g), 2(l), 2(m) is probable that future economic benefits in conformity with Australian accounting and 11 property, plant and equipment will flow to Western Power and the standards requires management to and intangible assets revenue can be measured reliably. make judgements, estimates and –– Provisions (employee benefits and It is measured at the fair value of the assumptions that affect the application retirement benefit obligations): Notes consideration received or receivable, of accounting policies and the reported 2(q), 2(r), 13 provisions and 17 net of the amount of goods and services amounts of revenue, expenses, assets retirement benefit obligations tax. The following specific recognition and liabilities. Actual results may differ criteria must also be met before from these estimates. (c) foreign currency translation revenues are recognised: Functional and presentation currency Estimates, judgements and underlying Network services revenue assumptions are continually evaluated This financial report is presented Western Power receives network services and are based on historical experience in Australian dollars, which is the revenue from the transmission and and other factors, including expectations functional and presentation currency distribution of electricity, and provision of future events that may have a financial of Western Power. of related services. Network services impact on Western Power and that are revenue is recognised when the service believed to be reasonable under the Transactions and balances is provided. As at each reporting date, circumstances. Revisions to accounting Transactions in currency other than the network services revenue and trade estimates are recognised in the year in functional currency of Western Power receivables include amounts attributable which the estimate is revised and any are translated into the functional currency to ‘unbilled tariff revenue’. Unbilled tariff future years affected. at the rates of exchange prevailing on revenue is an estimate of electricity the dates of the transactions. At each The areas where estimates and transported to customers that has reporting date, monetary assets and assumptions are significant to the not been billed at the reporting date. liabilities that are denominated in foreign financial statements, or a higher degree currencies are retranslated at closing Western Power is subject to a regulatory of judgement or complexity is involved exchange rates. All foreign currency agreement, which determines the are referenced in the following notes: translation differences are recognised revenues receivable for its network tariff –– Revenue (unbilled network tariff in profit or loss, except when deferred services. No liabilities are recognised revenue): Notes 2(d), 4 revenue and in equity for translation differences of when revenues received or receivable other income, and 8 trade and other qualifying cash flow hedges. exceed the maximum amount permitted receivables by regulatory agreement and adjustments will be made to future prices to reflect –– Trade and other receivables this over-recovery. Similarly, no assets (impairment): Notes 2(i) and 8 trade are recognised when a regulatory and other receivables agreement permits adjustments to be made to future prices in respect of an under-recovery of permitted revenues.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 85 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

Developer and customer contributions The income tax expense for the reporting (f) leases Western Power receives developer year comprises current and deferred tax. Leases where the lessee retains and customer contributions toward the Income tax is recognised in profit or loss, substantially all the risks and benefits extension of electricity infrastructure to except to the extent that it relates to of ownership of the asset are classified facilitate network connection. items recognised in other comprehensive as finance leases. As at 30 June 2012 Contributions can be in the form of income or directly in equity. Western Power does not have any either cash contributions or gifted Current tax is the expected tax finance leases. network assets. Cash contributions receivable/payable on the taxable Leases where the lessor retains received are initially deferred and income for the reporting year, using tax substantially all the risks and benefits of subsequently recognised as revenue rates enacted or substantially enacted at ownership of the asset are classified as when the developers or customers are the reporting date, and any adjustment operating leases. Payments made under connected to the network in accordance to tax in respect of previous years. operating leases are expensed to profit with the terms of the contributions. or loss on a straight-line basis over the Gifted network assets are recognised Deferred tax is provided using the term of the lease. as revenue at the point the assets are liability method, providing for temporary differences between the carrying energised and are measured at their (g) impairment of assets fair value. The network assets resulting amounts of assets and liabilities for At each reporting date, Western Power from contributions received or gifted financial reporting purposes and the considers any indicators of impairment to are recognised as property, plant and amounts used for taxation purposes. its assets. Impairments are calculated as equipment and depreciated over their Deferred tax is measured at the tax the difference between the carrying value expected useful life. rates expected to be applied to the temporary differences when they of each individual asset and its Other income reverse, based on the laws that have recoverable amount, if lower. The recoverable amount of an asset is the Western Power receives other income been enacted or substantially enacted greater of its value in use and its fair value from the provision of activities incidental at the reporting date. less costs to sell. Value in use is to the core activities of the business. A deferred tax asset is recognised only determined using the depreciated Other income is recognised when the to the extent that it is probable that replacement cost of the asset. activity is provided. future taxable profits will be available Impairment losses are recognised in against which the asset can be utilised. (e) income tax profit or loss and, where material, are Deferred tax assets are reviewed at the disclosed separately. Western Power is exempt from the end of each reporting year and are Commonwealth of Australia’s Income reduced to the extent it is no longer Where applicable, further information Tax Assessment Acts but makes income probable that the related tax benefit regarding indicators of impairment is tax equivalent payments to the Western will be realised. disclosed in the policy note specific to Australian State Government. The the asset. calculation of the liability in respect of Current and deferred tax assets and these taxes is governed by the Income liabilities are offset when there is a (h) cash and cash equivalents Tax Administration Acts and the National legally enforceable right to offset current Cash and cash equivalents comprise Taxation Equivalent Regime guidelines. tax assets and liabilities, and when the cash at bank and other short-term tax balances relate to the same taxation deposits that have an original maturity of authority. three months or less, net of outstanding bank overdrafts.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 86 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 (i) trade and other receivables costs of completion and the estimated income and accumulated in the hedging Trade and other receivables are selling costs. reserve. The ineffective portion is recognised in profit or loss immediately. non-interest bearing, unsecured and are A provision to allow for the expected When the cash flows occur, the amount initially recognised at the fair value and diminution in the value of inventory due that has been deferred to equity is subsequently measured at amortised to obsolescence is determined by transferred either to the carrying value of cost less provision for impairment. They periodic review. are usually settled on 14 or 30 day the asset, in the case of non-financial payment terms, unless contractually (k) Derivative and hedging activities assets, or reclassified to profit or loss as agreed otherwise. appropriate. Derivative financial instruments Hedge accounting is discontinued when Impairment Derivative financial instruments are the hedging instrument expires or is used to hedge exposures to movements Trade and other receivables are sold, terminated or exercised, or no in interest rates, exchange rates and determined to be impaired when longer qualifies for hedge accounting. commodity prices. Western Power objective evidence exists that Western Any cumulative gain or loss recognised uses derivative financial instruments Power will not be able to collect all in equity is immediately reclassified to in accordance with Board approved amounts due. Objective evidence profit or loss. includes known financial difficulties of policy. Speculative trading of derivatives the debtor and default or delinquency in is strictly prohibited. (l) property, plant and equipment payments (more than 30 days overdue). Derivative financial instruments are Cost The amount impaired is the difference initially recognised at fair value on the Property, plant and equipment represent between the carrying value of the date a derivative contract is entered into the capital works and plant required for receivable and the net present value of and are subsequently remeasured to the operation of the business, and is estimated future cash flows discounted their fair value at each reporting date. recognised at historical cost less at the original effective interest rate. Changes in the fair value of derivative accumulated depreciation and any Amounts impaired are recognised in financial instruments are included in impairment losses. Historical cost profit or loss. profit or loss to the extent that hedge includes all expenditure directly accounting is not applied. Fair value is When a trade receivable for which an attributable to the acquisition or based on quoted market prices at the impairment provision has been construction of the asset. Cost may reporting date. recognised becomes uncollectible in a also include transfers from equity of any subsequent reporting year it is written off Financial instruments are derecognised gains or losses on qualifying cash flow against the provision account. when Western Power no longer controls hedges of foreign currency purchases Subsequent recoveries of amounts the contractual rights that comprise the of property, plant and equipment. written off are credited to profit or loss. financial instrument. The cost of self-constructed assets (j) inventories Hedge accounting includes the cost of materials and labour, and any other costs, directly attributable Inventories are stated at the lower of For all derivative transactions designated to bringing the asset to a working weighted average cost and net realisable as a cash flow hedge, the portion of gain condition for its intended use. Gifted value. Net realisable value is the or loss on the hedging instrument that is network assets are recognised estimated selling price in the ordinary determined to be an effective hedge is at fair value at the point the assets are course of business, less the estimated recognised in other comprehensive energised.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 87 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

Subsequent costs are included in depreciation is provided on freehold Amortisation property, plant and equipment only land, easements and assets in the Amortisation is calculated using the when it is probable the item associated course of construction. straight-line method over the estimated with the cost will generate future useful economic lives presented below: economic benefits and the cost can be Rehabilitation costs measured reliably. The carrying amounts Upon recognition of an item of property, Amortisation periods for categories of items replaced are derecognised. All plant and equipment, the cost of the of intangible assets other repairs and maintenance plus minor item includes the anticipated costs of Intellectual property 25 years capital assets less than $5,000 are rehabilitating the site on which it is expensed to profit and loss during the located. Software (major 10 years reporting year in which they are incurred. developments/ Impairment enhancements) Depreciation The residual value and useful lives of Software (minor 2.5 years Depreciation is calculated using the property, plant and equipment are purchases/enhancements) straight-line method over the estimated reviewed, and adjusted as appropriate, useful economic lives presented below. at the end of each reporting year. Impairment

Disposals The residual value and useful lives Depreciation periods for categories of intangible assets are reviewed, and An item of property, plant and equipment of property, plant and equipment adjusted as appropriate, at the end is derecognised upon disposal. Gains and of each reporting year. Substations, transformers, 45-50 years losses on disposal are determined by poles & cables comparing proceeds with carrying amount Disposals and are recognised in profit or loss. Buildings 40 years An intangible asset is derecognised Meters, streetlights 20-25 years (m) Intangible assets upon disposal. Gains and losses on disposal are determined by comparing Pole reinforcements, 15 years Cost proceeds with carrying amount and smart-meters Intangible assets represent identifiable are recognised in profit or loss. Furniture & fittings, 10 years capitalised software costs and intellectual refurbishments property, and are recognised at historical (n) trade and other payables Other plant & equipment 10 years cost less accumulated amortisation and Trade and other payables are typically any provision for impairment. non-interest bearing, unsecured and Communications 6.5-10 years are initially recognised at fair value and Internally generated intangible assets are Fleet 5-10 years subsequently measured at amortised recognised only if an asset is created that cost. They are usually settled within Computer hardware 4 years can be identified; it is probable that the 30 days of recognition. Low value pool 3 years asset created will generate future economic benefits; and that the (o) borrowings Leasehold improvements life of lease development cost of the asset can be Borrowings are initially recognised measured reliably. Where no internally Property, plant and equipment received at fair value net of transaction costs generated asset can be recognised the on disaggregation of Western Power incurred and subsequently measured development expenditure is expensed Corporation is depreciated over their at amortised cost using the effective to profit or loss. residual useful economic lives. No interest method.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 88 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 Borrowings are classified as current Rehabilitation costs most closely match the terms of the liabilities unless Western Power has an A provision for site rehabilitation costs is related liabilities. Actuarial valuations agreement with the lender that allows recognised when there is either a legal or are carried out at each reporting date. refinancing of the liability for at least constructive obligation to rehabilitate a Retirement benefit obligations 12 months after the reporting date. This site; the land is contaminated; it is includes where a forward borrowing probable a rehabilitation expense will be Defined contribution plans commitment exists that replaces the incurred; and the costs can be reliably A defined contribution plan is a post- existing borrowing on the date of maturity, estimated. employment benefit plan under which an and where this extends the maturity of entity pays fixed contributions into the original borrowing to greater than The amount of the provision for future a separate entity and will have no legal or 12 months after the reporting date. rehabilitation costs is capitalised into the cost of the related plant, property and constructive obligation to pay further (p) borrowings costs equipment, and depreciated over the amounts. Contributions to defined contribution plans are recognised as Borrowing costs directly attributable expected useful life. an expense as they become payable. to the acquisition, construction or (r) employee benefits production of qualifying assets (being Defined benefit plans assets that necessarily take a substantial Wages and salaries, annual leave A defined benefit plan is a post- period of time to get ready for their Liabilities arising in respect of employee employment benefit other than a defined intended use) are added to their cost. benefits that are expected to be settled contribution plan. A liability or asset in Such additions cease when the assets within 12 months of the reporting date respect of defined benefit superannuation are substantially ready for their intended are measured at their nominal amount plans is recognised in the balance sheet use. All other borrowing costs are based on remuneration rates that are and is measured as the present value of expensed when incurred. expected to be paid when the liabilities the defined benefit obligation in respect Capitalised borrowings costs are are settled. The liability for wages, salaries of services provided by employees up included in interest paid in the statement and annual leave is recognised in other to the reporting date, adjusted for of cash flows. payables. The liability for all other unrecognised actuarial gains/losses, the short-term employee benefits is recognised fair value of any fund assets at that date (q) provisions in the provision for employee benefits. and any unrecognised past service cost. Provisions are recognised when Western Long service leave The present value of the defined benefit Power has a present legal or constructive superannuation plans is based upon obligation as a result of past events; it is The liability for unconditional long service expected future payments and is probable that an outflow of resources will leave is recognised in the provision for calculated using discounted cash flows be required to settle the obligation; and employee benefits, and measured as the consistent with the projected unit credit a reliable estimate can be made of the present value of expected future method. Consideration is given to factors amount of the obligation. Provisions are payments to be made in respect of including the expected future wages and measured at the present value of services provided by employees up to salaries level, experience of employee management’s best estimate of the the reporting date using the projected departures and periods of service. expenditure required to settle the present unit credit method. Consideration is Expected future payments are obligation at the reporting date. The given to factors including the expected discounted using the Commonwealth discount rate used to determine the future wages and salaries levels and Bond rates whose terms most closely present value reflects the market settlement dates. Expected future match the terms of the related liabilities. assessments of the time value of money payments are discounted using the Actuarial valuations are carried out at and the risks specific to the liability. Commonwealth Bond rates whose terms each reporting date.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 89 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

Current service cost is recognised in full (u) goods and Services Tax (GST) in profit or loss in the reporting year in Revenue, expenses and assets are which the obligation increases as a recognised net of the amount of result of employee services. Actuarial associated GST, unless the GST gains and losses arising from experience incurred is not recoverable from the adjustments and changes in actuarial taxation authority. In this case it is adjustments are recognised directly in recognised as part of the cost other comprehensive income. acquisition of the asset or as part of the expense. (s) contributed equity and reserves Receivables and payables are stated Contributed equity inclusive of the amount of GST Contributed equity represents the initial receivable or payable. The net amount and subsequent contributions made by of GST recoverable from, or payable to, Western Power’s owner, the Western the taxation authority is included in Australian State Government. The other receivables or payables in the owner’s initial contribution comprised balance sheet. the assets of Western Power Corporation, after deducting liabilities, Cash flows are presented on a gross transferred to Western Power on 1 April basis. The GST components of cash 2006. The owner has made subsequent flows arising from investing or financing contributions for the edge of grid and activities which are recoverable from, or regional power investment programs. payable to the taxation authority, are No shares have been allotted. presented as operating cash flows.

Hedging reserve (v) new accounting standards and interpretations not yet adopted The hedging reserve represents the effective portion of the cumulative net The following accounting standards and changes in fair value of cash flow interpretations are not mandatory (or hedging instruments related to hedged applied) in the 30 June 2012 reporting transactions that have not yet matured. year, but have been identified as those which may impact Western Power in the (t) Dividends reporting year of initial application. Dividends are provided for in the reporting year in which the dividends recommended by the Board are accepted by the Minister for Energy, with the concurrence of the Treasurer.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 90 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 Impact to Western Effective Power date to in 2012 Western reporting Title and topic Issued Power year AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian December 1 July No impact Accounting Standards (AAS) arising from AASB 9 and AASB 2010-7 2009 2013* Amendments to AAS arising from AASB 9 (December 2010) –– Addresses the classification, measurement and derecognition of financial assets and financial liabilities. –– The standard is not applicable to Western Power until the reporting year ended 30 June 2014*. The full impact, if any, is still to be assessed. *The AASB is expected to delay the application date of AASB 9 to 1 January 2015. This is in line with International Accounting Standards. AASB 2011-9 Amendments to AAS - Presentation of Items in Other September 1 July No impact Comprehensive Income 2011 2012 –– Requires items of other comprehensive income to be disclosed into two groups based on whether they are recycled to profit or loss in the future or not. –– The standard is not applicable to Western Power until the reporting year ended 30 June 2013. The impact is to disclosures only. AASB 13 Fair Value Measurement and AASB 2011-8 Amendments September 1 July No impact to AAS arising from AASB 113 2011 2013 –– Explains how to measure fair value and aims to enhance fair value disclosures. –– The standard is not applicable to Western Power until the reporting year ended 30 June 2014. The full impact, if any, is still to be assessed. Revised AASB 119 Employee Benefits, AASB 2011-10 Amendments September 1 July No impact to AAS arising from AASB 119 (September 2011) and AASB 2011-11 Amendments 2011 2013 to AASB 119 (September 2011) arising from Reduced Disclosure Requirements –– Requires: i. The recognition of all remeasurements of defined benefit liabilities/assets immediately in other comprehensive income. This replaces the previous options of deferring or immediate recognition in profit or loss. ii. The calculation of a net interest expense or income by applying the discount rate to the net defined benefit liability or asset. This replaces the expected return on plan assets that is currently included in profit or loss. iii. Additional disclosures for defined benefit liabilities/assets, and could affect the: a. timing of the recognition of termination benefits; and b. distinction between short-term and long-term employee benefits.

–– The standard is not applicable to Western Power until the reporting year ended 30 June 2014. The full impact, if any, is still to be assessed.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 91 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

3 Financial risk management (b) Financial assets and liabilities payments at the same interest rates used to value domestic currency loans. (a) Overview Western Power uses a range of financial instruments to support the operations of The principal risks arising from The fair value of derivative financial the business. The carrying amounts Western Power’s operations are: instruments is determined as the recognised at the reporting date are amount at which the instrument could (i) market risk (including interest rate risk, presented below. be exchanged, or liability settled in a currency risk and commodity risk); current transaction between willing (c) Determination of fair value (ii) credit risk; and parties, after allowing for transaction The fair values of Western Power’s costs. It is based on quoted market (iii) liquidity risk. financial assets and financial liabilities at prices at the reporting date. the reporting date are assumed to Management of these risks is carried approximate the above carrying amounts out in accordance with Board approved except for the contributory extension policies that are reviewed annually. scheme payables which are recorded at The details regarding Western Power’s amortised cost. The fair value of these exposure to the above risks, including non-interest bearing liabilities at 30 June the objectives, policies and processes 2012 is $15.688 million (30 June 2011: for measuring and managing the risks, $17.133 million). This is calculated by and the quantitative disclosures are discounting the expected future further presented in this note.

2012 2011

Non- Non- Current current Current current Notes $’000 $’000 $’000 $’000 Financial assets Cash and cash equivalents 7 22,928 - 26,174 - Trade and other receivables (excluding prepayments) 8 194,336 202 170,829 200 Derivative financial instruments 10 60 50 - - Total financial assets 217,324 252 197,003 200

Financial liabilities Trade and other payables 12 257,304 31,084 198,914 8,985 Trade payables and accruals 189,475 - 135,225 - Other payables 62,991 22,760 58,541 - Contributory extension scheme 4,838 8,324 5,148 8,985 Borrowings 15 - 5,474,774 - 5,017,064 Derivative financial instruments 10 - - 294 - Total financial liabilities 257,304 5,505,858 199,208 5,026,049

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 92 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 (d) Fair value hierarchy (e) Financial risk factors Western Power has an interest rate risk management strategy which aims to The assets and liabilities of Western Power (i) Market risk measured and recognised at fair value as mitigate the significant exposures to Market risk is the risk to Western Power at the reporting date are presented in the interest rate risk through the active that the fair value of future cash flows of following table, by their valuation method. management of interest rate related a financial instrument will fluctuate The different levels are defined as: risks. Debt portfolio structure guidelines because of changes in market prices. are set to manage the interest rate risks Level 1: quoted prices (unadjusted) Western Power has exposures to arising from Western Power’s regulatory in active markets for identical assets movements in interest rate, exchange environment. Debt maturity guidelines or liabilities. rate and commodity markets. are set to ensure that Western Power is Level 2: inputs other than quoted prices Interest rate risk not exposed to excess risk from interest included within level 1 that are observable rate volatility. Interest rate forecasts are Interest rate risk is the risk to Western for the asset or liability, either directly continuously monitored and, where Power that the fair value of future cash (i.e. as prices) or indirectly (i.e. derived appropriate, exposures to interest rates flows of a financial instrument will from prices). are managed through the use of fluctuate because of changes in market Board-approved hedging instruments. Level 3: inputs for the asset or liability interest rates. Interest rate risk in that are not based on observable market Western Power primarily arises from data (unobservable inputs). borrowing obligations.

2012 2011

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Financial assets Derivative financial instruments - 110 - 110 - - - - Financial liabilities Derivative financial instruments - - - - - 294 - 294

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 93 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

Currency risk Commodity risk Sensitivity analysis

Currency risk is the risk to Western Commodity risk is the risk to Western The table on page 95 summarises the Power that the fair value of future cash Power that the fair value of future cash potential impact on financial assets and flows of a financial instrument will flows of a financial instrument will financial liabilities of Western Power to fluctuate because of changes in foreign fluctuate because of changes in movements in interest rate risk and foreign exchange rates. Currency risk in Western commodity prices. Commodity risk currency risk. The assumptions used are Power arises from future commercial in Western Power arises from variability based on management’s best estimate of transactions expressed in foreign in commodity prices contained in a reasonably possible movement given currency, principally the purchase of commercial transactions and is capital equipment. managed through the use of forward contracts. Western Power’s foreign exchange risk management strategy aims to mitigate Western Power has not entered into any significant exposures to foreign currency commodity swaps in the current movements. Foreign currency exposures reporting year (2011: nil). are managed through the use of forward exchange contracts.

Western Power’s exposure to foreign currency risk at the reporting date is presented below:

2012 2011 US Dollars US DollArs $’000 $’000 Forward exchange contracts maturing within one year 1,563 1,707 later than one year but within five years 1,608 -

The weighted average exchange rate is 1.0153 (30 June 2011: 0.8965).

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 94 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 Interest rate risk Foreign currency risk

CARRYING IMPACT ON IMPACT ON IMPACT ON IMPACT ON AMOUNT POST-TAX PROFIT OTHER EQUITY POST-TAX OTHER EQUITY +/- 1% +/- 1% PROFIT +/- 10% +/- 10%

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 At 30 June 2012 Total financial assets Cash and cash equivalents 22,928 235 (235) ------Trade and other receivables 194,538 ------Derivatives-FX contracts2 110 ------(282) 344 Total financial liabilities Trade and other payables 288,388 ------Borrowings1 5,474,774 (5,600) 5,600 ------Derivatives-FX contracts2 ------Derivatives-interest rate swaps3 ------

At 30 June 2011 Total financial assets Cash and cash equivalents 26,174 284 (284) ------Trade and other receivables 171,029 ------Derivatives-FX contracts2 ------Total financial liabilities Trade and other payables 207,899 ------Borrowings1 5,017,064 (8,550) 8,550 ------Derivatives-FX contracts2 246 ------(130) 159 Derivatives-interest rate swaps3 48 18 (18) 10 (10) - - - -

1 The sensitivity analysis of interest rate risk is based on Western Power’s floating rate borrowings of $560.0 million (30 June 2011: $855.0 million). The majority of Western Power’s borrowings are at fixed interest rates, in line with the Board-approved treasury management framework. 2 Derivatives - Foreign exchange (FX) contracts are all designated as cash flow hedges and used to hedge against foreign exchange risk arising from the future purchase of capital equipment in foreign currencies. There is no profit or loss sensitivity as the hedges are 100 per cent effective. 3 Derivatives - Interest rate swaps are all designated as cash flow hedges and used to hedge against floating interest rate exposures. All interest rate swaps remained 100 per cent effective throughout the previous reporting year. As at 30 June 2012 Western Power did not have any interest rate swaps.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 95 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

(ii) Credit risk Western Power uses a formalised Financing arrangements process to manage the collection of Credit risk is the risk of financial loss to Western Power has a borrowing facility debts which allows appropriate legal Western Power if a customer or with the Western Australian Treasury action to be taken where necessary. counterparty to a financial instrument Corporation (WATC) with a limit of Where there is objective evidence trade fails to discharge its contractual $7,000.000 million (30 June 2011: receivables will not be collectable, a obligation. The maximum exposure to $7,000.000 million). As at 30 June 2012 provision for impairment is recognised. credit risk for Western Power is best the unused portion of this facility was represented by the carrying amounts of (iii) Liquidity Risk $1,572.364 million (30 June 2011: financial assets recognised in the $2,032.707 million). The planned usage Liquidity risk is the risk Western Power balance sheet as at the reporting date. of this facility is governed by the Strategic will encounter difficulty in meeting Development Plan (SDP) agreed with the Western Power generally provides credit obligations associated with financial Minister for Energy. The maximum on 14 or 30 day payment terms, unless liabilities as they fall due. Western Power amount of borrowings permitted by the contractually agreed otherwise. Credit is governed by the treasury management Department of Treasury (DoT) for the risk is actively managed through the use framework which requires active year to 30 June 2013 is currently of credit ratings, approved policies and management of cash and ensures $6,030.400 million (30 June 2012: monthly reporting to the Board. Western adequate facilities are in place to satisfy $5,427.600 million). Actual borrowings Power manages the quality of financial ongoing funding requirements. assets and its concentrations of credit at 30 June 2012 equalled the formal risk by reference to external credit DoT borrowing limit (30 June 2011: ratings, where available, or to historic $69.707 million below). information on counterparty default rates. Unconditional bank guarantees or cash deposits are also obtained as security where necessary.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 96 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 Maturities of financial liabilities

Weighted Later Total average Within Between than contractual interest one one and five cash flows Carrying rate year five years years (undiscounted) amount

% $’000 $’000 $’000 $’000 $’000 At 30 June 2012 Trade and other payables 256,396 28,817 8,968 294,181 288,388 Trade payables and accruals - 189,475 - - 189,475 189,475 Other payables (current) - 62,991 - - 62,991 62,991 Other payables (non-current) 5.2% - 22,760 - 22,760 22,760 Contributory extension scheme 13.3% 3,930 6,057 8,968 18,955 13,162 Borrowings 1,698,386 2,876,720 2,410,207 6,985,313 5,474,774 Fixed rate borrowings 5.4% 1,058,148 2,246,717 980,075 4,284,940 3,581,251 Floating rate notes 3.6% 466,234 33,123 117,181 616,538 560,000 CPI linked debt 2.7% 115,678 525,350 896,281 1,537,309 1,286,385 Forward borrowing commitments 3.7% 11,188 71,530 416,670 499,388 - Accrued interest 5.2% 47,138 - - 47,138 47,138

Derivatives ------Total financial liabilities 1,954,782 2,905,537 2,419,175 7,279,494 5,763,162

At 30 June 2011 Trade and other payables 197,910 6,825 10,136 214,871 207,899 Trade payables and accruals - 135,225 - - 135,225 135,225 Other payables (current) - 58,541 - - 58,541 58,541 Contributory extension scheme 13.5% 4,144 6,825 10,136 21,105 14,133 Borrowings 1,247,583 3,291,765 1,575,076 6,114,424 5,017,064 Fixed rate borrowings 6.1% 842,046 2,143,713 874,117 3,859,876 3,192,358 Floating rate notes 5.0% 327,924 531,553 94,090 953,567 855,000 CPI linked debt 6.3% 27,842 616,499 606,869 1,251,210 919,935 Forward borrowing commitments ------Accrued interest 5.9% 49,771 - - 49,771 49,771 Derivatives - 89 - - 89 294 Total financial liabilities 1,445,582 3,298,590 1,585,212 6,329,384 5,225,257

Borrowing facilities are in Australian dollars. Funds may be drawn at any time with an average maturity of 3.0 years (30 June 2011: 3.4 years).

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 97 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

4 Revenue and other income

(a) Rendering of services

2012 2011 Notes $’000 $’000 Network services revenue Transmission services (tariff) 4(b) 387,876 345,421

Distribution services (tariff) 4(b) 804,783 711,271

Other services 116,532 119,351 1,309,191 1,176,043

Developer and customer contributions 169,646 196,204 Total rendering of services 1,478,837 1,372,247

(b) Unbilled network tariff revenue

Transmission and distribution network tariff revenue includes $153.492 million for unbilled services (30 June 2011: $132.290 million). This is consistent with the revenue recognition methodology adopted in prior years and reflects the billing profile of Western Power customers. The unbilled network tariff revenue is calculated using projected revenue assumptions for unread, and as such unbilled meters as at the end of the reporting year.

(c) Other income

2012 2011 $’000 $’000 Net gain on disposal of property, plant and equipment, and intangible assets 3,065 526 Rent 1,546 1,568

Interest 1,309 1,506

Other 714 97 6,634 3,697

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 98 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 5 Expenses

Profit before income tax includes the following specific expenses:

(a) Employee related expenses

2012 2011 Note $’000 $’000 Wages, salaries and other employee benefits (185,703) (173,759) Superannuation

Defined contribution plans expense (30,069) (27,670)

Defined benefit plans expense 17(d) (113) (391) (30,182) (28,061)

Total employee related expenses (215,885) (201,820)

(b) Depreciation and amortisation expense

2012 2011 $’000 $’000 Depreciation expense Buildings (3,125) (3,139)

Plant and equipment (188,037) (203,850)

Capitalised depreciation 2,974 2,805 (188,188) (204,184)

Amortisation expense Computer software (15,493) (15,878) Intellectual property (1,212) (785) (16,705) (16,663)

Total depreciation and amortisation expense (204,893) (220,847)

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 99 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

(c) Other expenses

2012 2011 Notes $’000 $’000 Tariff equalisation fund1 19(c) (181,200) (175,700) Insurance (19,922) (25,474) Operating lease costs (6,362) (6,328) Impairment of trade receivables 8(b) 1,917 (1,246) Remuneration of auditors (360) (333) Other (12) (64) (205,939) (209,145) 1 In previous reporting years, contributions to the tariff equalisation fund were disclosed in ‘raw materials and consumables used’. For 2012 reporting, the 2011 comparative has been re-classified in ‘other expenses’ to ensure comparability.

(d) Remuneration of auditors (audit services) Total fees paid or due and payable to the Office of the Auditor General at the reporting date are presented below:

2012 2011 $’000 $’000 Fees for annual audit/review of financial statements (406) (370) (406) (370)

Non-audit services During the year ended 30 June 2012, Western Power paid $4,400 to the Office of the Auditor General for non-audit services (30 June 2011: nil). These services related to the certification of the regional distribution headworks refund scheme administered by Western Power on behalf of the Western Australian State Government, with funding from the Department of Regional Development and Lands. Completion of the non-audit services formed part of the funding requirement.

(e) Borrowing costs

2012 2011 Note $’000 $’000 Domestic currency loans (284,049) (285,257) Unwinding of discount on contributory extension scheme (1,180) (1,321)

Other 15 (14)

Currency and interest rate swaps 68 208 Capitalised borrowing costs 5(f) 6,396 8,757

(278,750) (277,627)

(f) Capitalised borrowing costs

Interest charges on borrowings incurred on qualifying projects are capitalised. The capitalisation rate used is a weighted average interest rate of 5.9 per cent (30 June 2011: 5.7 per cent).

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 100 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 6 Income tax expense

(a) Income tax expense recognised in statement of comprehensive income

2012 2011 Notes $’000 $’000 Deferred tax 68,341 53,762 Adjustment for deferred tax of prior years (106) (460)

68,235 53,302 Income tax expense is attributable to: Profit for the reporting year 68,235 53,302

Deferred income tax (revenue)/expense included in income tax expense comprises: Increase in deferred tax assets 16 (7,991) (3,140) Increase in deferred tax liabilities 16 76,226 56,442 68,235 53,302

(b) Numerical reconciliation of income tax expense to prima facie tax payable

2012 2011 Note $’000 $’000 Profit before income tax 225,366 182,929 Tax at the Australian tax rate of 30% (30 June 2011: 30%) 67,610 54,879 Tax effect of amounts not deductible/(taxable) in calculating taxable income: Non deductable expenses 731 490 Research and development incentives - (601) Investment allowance 6(c) - (1,006) Current income tax expense 68,341 53,762 Adjustment for deferred tax of prior years (106) (460) Total income tax expense 68,235 53,302

(c) Investment allowance On 22 May 2009 the Parliament of the Commonwealth of Australia introduced a temporary bonus income tax deduction for new investment in tangible depreciating assets undertaken between 13 December 2008 and 31 December 2009. The one-off tax deduction, equal to either 10 per cent or 30 per cent of the cost of the eligible capital expenditure, is a permanent difference that reduces income tax payable and current tax expense.

(d) Tax expense recognised directly in equity

2012 2011 $’000 $’000 Other temporary differences 16 52 16 52

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 101 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

(e) Tax expense relating to items of other comprehensive income

2012 2011 $’000 $’000 Valuation adjustment on cash flow hedges 88 924 Actuarial adjustment on retirement benefit obligations (113) (95) (25) 829

7 Cash and cash equivalents

2012 2011 $’000 $’000 Cash at bank 22,928 26,174 22,928 26,174

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 Western Power and earn interest at the respective short-term deposit rates. As at 30 June 2012 Western Power did not have any short-term deposits.

(a) Risk exposure Western Power’s exposure to market risk is presented in note 3(e)(i).

(b) Fair value The fair values of cash and cash equivalents equal the above carrying amounts (refer to note 3(c)).

8 Trade and other receivables

2012 2011 NOTES $’000 $’000 Current Trade receivables 8(a) 194,586 174,256 Provision for impairment of trade receivables 8(b) (1,130) (4,459) 193,456 169,797

Prepayments 7,525 7,914 Other receivables 880 1,032 201,861 178,743

Non-current Other receivables 202 200 202 200

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 102 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 (a) Unbilled trade receivables Trade receivables include unbilled network tariff revenue of $153.492 million (30 June 2011: $132.290 million).

(b) Impaired trade receivables As at 30 June 2012 trade receivables with a nominal value of $1.412 million (30 June 2011: $0.891 million) were recognised as impaired. The amount of the provision was $1.130 million (30 June 2011: $4.459 million), with the creation and release of this provision recognised in ‘other expenses’. Amounts charged to the provision are generally written off when there is no expectation of recovering additional cash.

Movements in the provision for impairment of trade receivables during the reporting year are presented below:

2012 2011 $’000 $’000 At 1 July 4,459 4,104 Charged in the reporting year Provision for impairment recognised during the reporting year 151 2,962 Provision for impairment reversed (2,068) (1,716) (1,917) 1,246

Receivables previously provided for and written off during the reporting year as uncollectable (1,412) (891) At 30 June 1,130 4,459 There is no collateral security in place in respect of these amounts.

(c) Trade receivables past due but not impaired

As at 30 June 2012 trade receivables of $10.000 million (30 June 2011: $7.737 million) were past due but not impaired. These receivables relate to a number of independent customers to whom there is no recent history of default and hence, no provision of impairment is deemed necessary.

The ageing analysis of trade receivables past due but not impaired is presented below:

2012 2011 $’000 $’000 between 1-59 days 6,420 3,580 between 60-89 days 988 349 more than 90 days 2,592 3,808 10,000 7,737

(d) Risk exposure Western Power’s exposure to market and credit risks is presented in note 3(e)(i) and 3(e)(ii) respectively.

(e) Fair value Due to the short-term nature of trade and other receivables (excluding prepayments), the fair value is assumed to approximate the above carrying amounts (refer to note 3(c)).

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 103 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

9 Inventories

2012 2011 $’000 $’000 Current Raw materials and stores 115,400 93,793 115,400 93,793

Inventory expense Inventories recognised as expense during the year ended 30 June 2012 amounted to $63.126 million (30 June 2011: $52.052 million).

The write-down of inventory to net realisable value recognised as expense during the year ended 30 June 2012 amounted to $0.913 million (30 June 2011: $1.213 million). The expense has been recognised in ‘raw materials and consumables used’.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 104 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 10 Derivative financial instruments

2012 2011 NOTES $’000 $’000 Current assets Forward exchange contracts 10(a) 60 - 60 -

Non-current assets Forward exchange contracts 10(a) 50 -

50 -

Current liabilities Forward exchange contracts 10(a) - 246 Interest rate swaps 10(b) - 48 - 294

(a) Forward exchange contracts - cash flow hedges Western Power has entered into forward exchange contracts in order to hedge against the foreign exchange risk arising from the future purchase of capital equipment in foreign currencies. There is no profit or loss sensitivity in the current or prior reporting years. This is because the hedges are 100 per cent effective.

(b) Interest rate swaps - cash flow hedges Western Power enters into interest rate swaps in order to hedge against floating interest rate exposures. Western Power has not entered into any interest rate swaps in the current reporting year. There is no profit or loss sensitivity in the prior reporting year because all hedges were 100 per cent effective.

(c) Commodity swaps - cash flow hedges Western Power enters into commodity swaps in order to hedge against the variability of commodity prices in commercial transactions. Western Power has not entered into any commodity swaps in the current reporting year (2011: nil).

(d) Risk exposure Western Power’s exposure to market and liquidity risks is presented in note 3(e)(i) and 3(e)(iii) respectively.

(e) Fair value Derivative financial instruments are recognised at their fair value (refer to note 3(c)).

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 105 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

11 Property, plant and equipment, and intangible assets

Freehold Plant and Works under Total plant Computer Intellectual Total intangible land Buildings equipment construction and equipment software property assets $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 At 30 June 2012 Cost 123,916 83,716 7,077,790 555,605 7,841,027 183,500 11,646 195,146 Accumulated depreciation and amortisation - (22,431) (924,918) - (947,349) (95,308) (2,233) (97,541) 123,916 61,285 6,152,872 555,605 6,893,678 88,192 9,413 97,605 At 30 June 2011 Cost 123,595 97,955 6,337,623 453,745 7,012,918 149,485 8,479 157,964 Accumulated depreciation and amortisation - (21,035) (757,073) - (778,108) (79,815) (1,005) (80,820) 123,595 76,920 5,580,550 453,745 6,234,810 69,670 7,474 77,144

(a) Movements in each class of property, plant and equipment, and intangible assets during the reporting year are presented below:

At 30 June 2011 Opening carrying amount 123,595 76,920 5,580,550 453,745 6,234,810 69,670 7,474 77,144 Cost Addition (notes (b),(c)) - - 1,447 911,130 912,577 - - - Cost of transfer to inventory - - - (20,014) (20,014) - - - Cost of transfer in/(out) 354 (14,239) 765,959 (789,256) (37,182) 34,015 3,167 37,182 Cost on issue (strategic spares) - - (374) - (374) - - - Cost on disposal (33) - (26,865) - (26,898) - - - Accumulated depreciation and amortisation Accumulated depreciation and amortisation on transfer (in)/out - 1,729 (1,713) - 16 - (16) (16) Accumulated depreciation on issue (strategic spares) - - 8 - 8 - - - Accumulated depreciation and amortisation on disposal - - 21,897 - 21,897 - - - Depreciation and amortisation (note (d)) - (3,125) (188,037) - (191,162) (15,493) (1,212) (16,705) Carrying amount at 30 June 2012 123,916 61,285 6,152,872 555,605 6,893,678 88,192 9,413 97,605 At 30 June 2010 Opening carrying amount 123,526 75,885 4,971,555 519,781 5,690,747 62,558 8,259 70,817 Cost Addition (notes (b),(c)) - - - 787,572 787,572 - - - Cost of transfer to inventory - - (7,871) - (7,871) - - - Cost of transfer in/(out) 579 4,702 825,337 (853,608) (22,990) 22,990 - 22,990 Cost on issue (strategic spares) - - (1,386) - (1,386) - - - Cost on disposal (510) (16) (23,448) - (23,974) (2,593) - (2,593) Accumulated depreciation and amortisation Accumulated depreciation and amortisation on transfer (in)/out - (513) 513 - - - - - Accumulated depreciation on issue (strategic spares) - - 156 - 156 - - - Accumulated depreciation and amortisation on disposal - 1 19,544 - 19,545 2,593 - 2,593 Depreciation and amortisation (note (d)) - (3,139) (203,850) - (206,989) (15,878) (785) (16,663) Carrying amount at 30 June 2011 123,595 76,920 5,580,550 453,745 6,234,810 69,670 7,474 77,144

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 106 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 (b) Contributed assets Freehold Plant and Works under Total plant Computer Intellectual Total intangible land Buildings equipment construction and equipment software property assets Western Power receives non-cash $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 capital contributions in the form of gifted At 30 June 2012 network assets. The fair value of the Cost 123,916 83,716 7,077,790 555,605 7,841,027 183,500 11,646 195,146 non-cash capital contributions included Accumulated depreciation and amortisation - (22,431) (924,918) - (947,349) (95,308) (2,233) (97,541) in additions to works under construction 123,916 61,285 6,152,872 555,605 6,893,678 88,192 9,413 97,605 in the reporting year was $66.651 million (30 June 2011: $53.951 million). At 30 June 2011 Cost 123,595 97,955 6,337,623 453,745 7,012,918 149,485 8,479 157,964 (c) Capitalised borrowing costs Accumulated depreciation and amortisation - (21,035) (757,073) - (778,108) (79,815) (1,005) (80,820) Additions include borrowing costs of 123,595 76,920 5,580,550 453,745 6,234,810 69,670 7,474 77,144 $6.396 million (30 June 2011: $8.757 million) attributable to assets (a) Movements in each class of property, plant and equipment, and intangible assets during the reporting year are presented below: in the course of construction and At 30 June 2011 capitalised in the reporting year at Opening carrying amount 123,595 76,920 5,580,550 453,745 6,234,810 69,670 7,474 77,144 a weighted average interest rate of 5.9 per cent (30 June 2011: 5.7 per cent). Cost Addition (notes (b),(c)) - - 1,447 911,130 912,577 - - - (d) Depreciation and amortisation Cost of transfer to inventory - - - (20,014) (20,014) - - - Depreciation and amortisation represent Cost of transfer in/(out) 354 (14,239) 765,959 (789,256) (37,182) 34,015 3,167 37,182 charges to operating expenses of $204.893 million (30 June 2011: $220.847 Cost on issue (strategic spares) - - (374) - (374) - - - million) together with capitalised Cost on disposal (33) - (26,865) - (26,898) - - - depreciation charges of $2.974 million Accumulated depreciation and amortisation (30 June 2011: $2.805 million). Accumulated depreciation and amortisation on transfer (in)/out - 1,729 (1,713) - 16 - (16) (16) Accumulated depreciation on issue (strategic spares) - - 8 - 8 - - - Accumulated depreciation and amortisation on disposal - - 21,897 - 21,897 - - - Depreciation and amortisation (note (d)) - (3,125) (188,037) - (191,162) (15,493) (1,212) (16,705) Carrying amount at 30 June 2012 123,916 61,285 6,152,872 555,605 6,893,678 88,192 9,413 97,605 At 30 June 2010 Opening carrying amount 123,526 75,885 4,971,555 519,781 5,690,747 62,558 8,259 70,817 Cost Addition (notes (b),(c)) - - - 787,572 787,572 - - - Cost of transfer to inventory - - (7,871) - (7,871) - - - Cost of transfer in/(out) 579 4,702 825,337 (853,608) (22,990) 22,990 - 22,990 Cost on issue (strategic spares) - - (1,386) - (1,386) - - - Cost on disposal (510) (16) (23,448) - (23,974) (2,593) - (2,593) Accumulated depreciation and amortisation Accumulated depreciation and amortisation on transfer (in)/out - (513) 513 - - - - - Accumulated depreciation on issue (strategic spares) - - 156 - 156 - - - Accumulated depreciation and amortisation on disposal - 1 19,544 - 19,545 2,593 - 2,593 Depreciation and amortisation (note (d)) - (3,139) (203,850) - (206,989) (15,878) (785) (16,663) Carrying amount at 30 June 2011 123,595 76,920 5,580,550 453,745 6,234,810 69,670 7,474 77,144

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 107 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

(e) Changes in estimates and capitalisation policy From 1 July 2011 Western Power revised the estimated useful lives for meters and streetlights from three years to 25 and 20 years respectively, and pole reinforcements from 50 years to 15 years. This is to more accurately reflect the total useful lives of these assets. In addition, the threshold for the recognition of minor capital assets was revised from $1 to $5,000 in line with the materiality clause of AASB 116 Property, Plant and Equipment. The effect of this change in capitalisation threshold is not material in respect of prior years.

The estimated effect of these revisions, recognised in expenses, in current and future years is as follows:

2012 2013 2014 2015 2016 Later $’000 $’000 $’000 $’000 $’000 $’000 Increase/(decrease) in depreciation expense (13,484) (6,567) (4,960) 2,375 5,544 17,092 Increase in other operational expenses 1,806 1,256 1,287 1,319 1,352 n/a (minor capital assets <$5,000)

12 Trade and other payables

2012 2011 NOTES $’000 $’000 Current

Trade payables and accruals 189,475 135,225

Other payables 62,991 58,541

Contributory extension scheme 12(a) 4,838 5,148

257,304 198,914 Non-current

Other payables 12(b) 22,760 -

Contributory extension scheme 12(a) 8,324 8,985

31,084 8,985

(a) Contributory extension scheme Contributory extension scheme payables represent contributions received from customers to extend specific electricity supplies. These non-interest bearing deposits are refunded at the end of the contribution period unless other customers connect to the extensions. By 2023, when the scheme finishes, all scheme members will have had their contributions refunded.

(b) Other payables (non-current) Other non-current payables represent the amount Western Power is contractually obliged to repay for transmission customer funded work. This interest bearing payable is expected to be settled in 2014.

(c) Risk exposure Western Power’s exposure to market and liquidity risks is presented in note 3(e)(i) and 3(e)(iii) respectively.

(d) Fair value Unlike trade and other payables, the fair value of the contributory extension scheme payables are not assumed to approximate the above carrying amount (refer to note 3(c)).

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 108 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 13 Provisions

2012 2011 NOTES $’000 $’000 Current

Employee benefits 35,687 33,352

Rehabilitation costs 13(a) 643 -

Environmental 13(b) 875 820

37,205 34,172

Non-current

Employee benefits 15,751 10,515

Rehabilitation costs 13(a) 1,216 -

Environmental 13(b) - 1,271

16,967 11,786

(a) Rehabilitation costs Rehabilitation costs relate to estimated costs on site rehabilitation required after the construction of an asset. The assessment of these costs is subject to periodic reviews that may result in the amount being revised.

(b) Environmental provisions Environmental provisions relate to estimated costs on essential safety expenditure. The assessment of these costs is subject to periodic reviews that may result in the amount being revised.

(c) Movements in provisions Movements in each class of provision during the reporting year, other than employee benefits, are presented below:

Rehabilitation Costs Environmental $’000 $’000 At 30 June 2011 - 2,091

Provided for in the reporting year 1,859 -

Charged in the reporting year - (1,216)

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 109 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

14 Deferred income

2012 2011 $’000 $’000 Current

Deferred income 110,165 69,952

110,165 69,952

Non-current

Deferred income 12,010 19,073

12,010 19,073

Deferred income relates to contributions received in advance from developers and customers (refer to note 2(d)).

(a) Movements in deferred income Movements in deferred income during the reporting year are presented below:

2012 2011 $’000 $’000 At 1 July 89,025 113,657

Contributions in the reporting year 141,234 117,621

Earned in the reporting year (108,084) (142,253)

At 30 June 122,175 89,025

15 Borrowings

2012 2011 NOTe $’000 $’000 Non-current

Domestic currency loans 15(a) 5,427,636 4,967,293

Accrued interest 47,138 49,771

5,474,774 5,017,064

Non-current domestic currency loans of $5,427.636 million (30 June 2011: $4,967.293 million) includes an amount of $1,427.813 million (30 June 2011: $980.257 million) that will become due and payable during the 2013 reporting year. It is Western Power’s expectation and discretion that this amount will be refinanced under the master lending agreement rather than repaid, and therefore has been classified as non-current. This is supported by: i. A master lending agreement with the WATC, an entity owned by the Western Australian State Government, that allows Western Power to refinance all or any part of maturing debt at regular intervals. ii. The approval of Western Power’s forecast borrowing requirements for the next four years, including no repayment of amounts classified as non-current above, within the Western Australian State Budget handed down in May 2012.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 110 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 (a) Domestic currency loans Western Power’s domestic currency loans are all provided by the WATC. The financial liabilities incurred or assumed by the WATC are guaranteed by the Treasurer on behalf of the state.

(b) Forward borrowings Western Power is able to enter into forward borrowing agreements with the WATC to manage liquidity and interest rate risks. Forward borrowing agreements can be either fixed or floating, depending on the risk being managed. As at 30 June 2012 Western Power had nine forward borrowing commitments with an aggregate book value of $410.0 million (30 June 2011: nil).

(c) Risk exposure Western Power’s exposure to market and liquidity risks is presented in note 3(e)(i) and 3(e)(iii) respectively.

(d) Fair value The fair value of borrowings is assumed to approximate the above carrying amount (refer to note 3(c)).

16 Deferred tax (a) Deferred tax assets The balance of deferred tax assets comprises temporary differences attributable to:

2012 2011 $’000 $’000 Provisions for employee benefits 26,418 23,694

Other temporary differences 4,547 3,810

Actuarial adjustment on retirement benefit obligations 208 177

Tax losses 24,329 19,717

Total deferred tax assets 55,502 47,398

Set-off deferred tax assets pursuant to set-off provisions (55,502) (47,398)

Net deferred tax assets - -

Deferred tax assets expected to be recovered within 12 months 25,400 23,486

Deferred tax assets expected to be recovered after more than 12 months 30,102 23,912

55,502 47,398

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 111 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

Movements in deferred tax assets Movements in deferred tax assets during the reporting year are presented below:

2012 2011 $’000 $’000 At 1 July 47,398 44,163

Charged to profit or loss 8,656 4,137

Charged to other comprehensive income 113 95

Adjustment to income tax provided in prior years (665) (997)

At 30 June 55,502 47,398

(b) Deferred tax liabilities The balance of deferred tax liabilities comprises temporary differences attributable to:

2012 2011 $’000 $’000 Property, plant and equipment, and intangible assets 244,073 167,389

Contributory extension scheme 1,738 2,092

Total deferred tax liabilities 245,811 169,481

Set-off deferred tax assets pursuant to set-off provisions (55,502) (47,398)

Net deferred tax liabilities 190,309 122,083

Deferred tax liabilities expected to be recovered within 12 months 194 -

Deferred tax liabilities expected to be recovered after more than 12 months 245,617 169,481

245,811 169,481

Movements in deferred tax liabilities Movements in deferred tax liabilities during the reporting year are presented below:

2012 2011 $’000 $’000 At 1 July 169,481 112,063

Charged to profit or loss 76,997 57,899

Charged to other comprehensive income 88 924

Adjustment to income tax provided in prior years (771) (1,457)

Charged directly to equity 16 52

At 30 June 245,811 169,481

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 112 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 17 Retirement benefit obligations

2012 2011 $’000 $’000 Present value of unfunded defined benefit obligations 525 637

Present value of funded defined benefit obligations 1,799 1,346

Fair value of plan assets (1,657) (1,386)

Recognised liability for defined benefit obligations 667 597

(a) Defined benefit obligations

Unfunded Western Power contributes to the defined benefit sections of the following state plans: the Pension Scheme and the Gold State Superannuation Scheme. These sections provide either a pension or lump sum benefit based upon years of service and final average salary, averaged over a number of years in accordance with the relevant governing rules. The benefits are wholly unfunded with Western Power meeting the costs of the benefits when the employee leaves the service of Western Power.

The defined benefit sections of the Pension Scheme and the Gold State Superannuation Scheme are closed to new members. Western Power has settled its liability in respect of past service entitlements to members of these funds with total contributions of $37.410 million to the Government Employees Superannuation Board (30 June 2011: $37.026 million). The only remaining obligation in relation to these funds is in respect of current service entitlements earned by members after 30 June 2011.

Funded Western Power also funds a defined benefit scheme for seven members administered by AustralianSuper (30 June 2011: six members). At 30 June 2012 the present obligations of the scheme attributable to these members exceeded the plan assets by $0.142 million (30 June 2011: $0.040 surplus). The assets of this scheme are presented below:

2012 2011 $’000 $’000 Equity securities 1,061 804

Property 182 166

Bonds 149 152

Other securities 232 194

Cash 33 70

1,657 1,386

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 113 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

(b) Movements in liability for defined benefit obligations Changes in the present value of the defined benefit obligations during the reporting year are presented below:

Unfunded Plans Funded Plans

2012 2011 2012 2011 $’000 $’000 $’000 $’000 At 1 July 637 - 1,346 1,352 Amounts transferred in - - 184 - Current service cost 128 298 - -

Interest cost 20 66 71 67 Actuarial movement for the reporting year 111 286 231 37 Benefits paid (371) (13) (33) (110)

Net liability at 30 June 525 637 1,799 1,346

(c) Movements in plan assets Movements in the plan assets during the reporting year are presented below:

Unfunded Plans Funded Plans

2012 2011 2012 2011 $’000 $’000 $’000 $’000 At 1 July - - 1,386 1,204 Employer contributions 371 13 144 244 Amounts transferred in - - 184 -

Benefits paid by the plan (371) (13) (33) (110) Expected return on plan assets - - 106 40 Actuarial movement for the reporting year - - (130) 8

Fair value of plan assets at 30 June - - 1,657 1,386

(d) Amounts recognised in profit or loss

The amounts recognised in profit or loss are presented below:

2012 2011 $’000 $’000 Current service cost 128 298

Interest cost 91 133

Expected return on plan assets (106) (40)

Total included in employee related expenses 113 391

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 114 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 (e) Amounts recognised in other comprehensive income

2012 2011 $’000 $’000 Actuarial losses recognised in the reporting year 472 315

472 315

Cumulative actuarial losses recognised 4,973 4,501

4,973 4,501

(f) Principal actuarial assumptions The principal actuarial assumptions used, expressed as weighted averages, are presented below:

Unfunded Plans Funded Plans

2012 2011 2012 2011 Discount rate 2.8% 5.3% 3.1% 5.2% Expected return on plan assets n/a n/a 7.0% 7.0% Expected future salary increases 5.5% 4.5% 4.5% 4.5%

Expected future pension increases 2.5% 2.5% 2.5% 2.5%

(g) Historic summary

2012 2011 2010 2009 2008 $’000 $’000 $’000 $’000 $’000 Present value of defined benefit obligations 2,324 1,983 1,352 2,012 1,611 Fair value of plan assets 1,657 1,386 1,204 1,260 1,808

Deficit/(surplus) in scheme 667 597 148 752 (197)

Experience adjustments on scheme liabilities 133 203 122 162 (2,674) Experience adjustments on scheme assets 130 (8) 140 763 n/a

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 115 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

18 Contingencies Western Power’s policy is to disclose details of contingencies where the probability of future receipts/payments is not considered remote, as well as details of contingencies, which although considered remote, the directors consider should be disclosed.

(a) Contingent assets Western Power did not have any contingent assets at 30 June 2012.

(b) Contingent liabilities

Contaminated sites Western Power has reported approximately 80 sites to the Department of Environment and Conservation (DEC) as either known or suspected to be contaminated under the Contaminated Sites Act 2003. Until Western Power conducts an investigation in accordance with the DEC requirements, to determine the presence and scope of contamination, assess the risk, and agree with the DEC the need and criteria for remediation, Western Power is unable to accurately quantify its clean-up liabilities for all known or suspected contaminated sites.

Other Western Power is currently party to, or is potentially affected by a number of legal claims. Until proceedings relating to these claims are finalised uncertainty exists regarding the impact, if any, on the operations of Western Power. This includes legal proceedings commenced against Western Power by a group of Toodyay residents alleging a fallen power pole caused a bushfire on 29 December 2009. An agreed process to resolve this action is ongoing.

In the opinion of the directors, provisions or further disclosures are not required in respect of these contingencies, as it is not probable a future sacrifice of economic benefits will be required, or the amount is not capable of reliable measurement.

19 Commitments

(a) Lease commitments

Non-cancellable operating leases Total commitments to minimum lease payments, including properties, information technology equipment and motor vehicles, in relation to non cancellable operating leases are presented below:

2012 2011 $’000 $’000 Payable within one year 6,851 6,252

Payable later than one year but not later than five years 9,036 10,354

Payable later than five years 1,324 1,494

17,211 18,100

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 116 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 (b) Capital commitments Total capital commitments contracted for at the reporting date, including major transmission and distribution capital expenditure associated with the Mid-West Energy Project, asset replacements, regulatory compliance upgrades and the state underground power project, but not recognised as liabilities are presented below:

2012 2011 $’000 $’000 Payable within one year 447,611 175,165

Payable later than one year but not later than five years 6,607 5,750

Payable later than five years - 393

454,218 181,308

(c) Other expenditure commitments The State Government requires Western Power, by notice published in the gazette, to make the following annual payments into the tariff equalisation fund for the benefit of the Regional Power Corporation. The 2012 commitments were gazetted on 7 August 2012.

2012 2011 $’000 $’000 Payable within one year 54,000 181,200

Payable later than one year but not later than five years 628,000 -

782,000 181,200

20 Events occurring after the reporting date Other than the matters disclosed in note 18 of these financial statements and the ‘likely developments and expected results of operations’ section of the directors’ report included in this financial report, there are no matters or circumstances that have arisen in the interval between the end of the reporting year and the date of this report that are likely, in the opinion of the directors, to affect significantly the operations of Western Power, the results of those operations, or the state of affairs of Western Power in subsequent financial years.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 117 NOTES TO GOVERNANCE & FINANCIAL THE FINANCIAL REPORTS STATEMENTS

21 Reconciliation of profit to net cash inflows from operating activities

2012 2011 $’000 $’000 Profit for the reporting year 157,131 129,627

Non-cash items

Depreciation and amortisation expense 204,893 220,847

Net gain on disposal of property, plant and equipment, and intangible assets (3,065) (526)

Non-cash capital contributions (66,651) (53,951)

Non-cash employee related expenses (472) (315)

Items classified as financing activities

Interest income (1,309) (1,506)

Borrowing costs 278,750 277,627

Movements in operating assets and liabilities

Movement in trade and other receivables (23,120) 8,005

Movement in inventories (21,607) (2,129)

Movement in trade and other payables 66,939 41,342

Movement in provisions 8,284 3,833

Movement in deferred income 33,150 (24,632)

Movement in income taxes payable 68,235 55,180

Net cash inflows from operating activities 701,158 653,402

22 Non-cash investing and financing activities

2012 2011 $’000 $’000

Gifted network assets 66,651 53,951

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 118 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 DIRECTORS’ DECLARATION

In the directors’ opinion:

(a) The financial statements and notes comply with Australian accounting standards, other authoritative pronouncements and Schedule 4 of the Electricity Corporations Act 2005.

(b) The financial statements and notes give a true and fair view of the financial position of Western Power as at 30 June 2012 and of its performance for the financial year ended on that date.

(c) There are reasonable grounds to believe that Western Power will be able to pay its debts as and when they become due and payable.

The directors’ have been given the declaration by the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2012 pursuant to sections 6 and 8 of Western Power’s corporate governance statement.

This declaration is made in accordance with a resolution of the directors.

A Mulgrew J Cahill Board Chair Board Deputy Chair

28 September 2012

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 119 Corporate GOVERNANCE & FINANCIAL Directory REPORTS

Directors Alan Mulgrew, Board Chair

John Cahill

Hon. George Cash A.M.

Mervyn Davies

Paul Underwood

Chief Executive Officer Paul Italiano

General Counsel & Company Secretary john Pease

Divisional General Managers Ken Brown, Executive General Manager Operations

Mark de Laeter, General Manager Networks

Stewart Hart, Chief Financial Officer

Cameron Parrotte, General Manager System Management

Phil Southwell, General Manager Regulation & Sustainability

Leigh Sprlyan, General Manager Corporate Services (acting)

Principal registered office in Australia 363 Wellington Street Perth, Western Australia 6000 Telephone 13 10 87 (general enquiries)

Auditor The Auditor General for Western Australia 469 Wellington Street, Perth, Western Australia 6000

Bankers Commonwealth Bank of Australia 150 St Georges Terrace Perth, Western Australia 6000

Website address www.westernpower.com.au

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 120 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 INDEPENDENT AUDITOR’S REPORT

To the Parliament of Western Australia

Electricity Networks Corporation (Trading as Western Power) I have audited the financial report of the Electricity Networks Corporation. The financial report comprises the Balance Sheet as at 30 June 2012, the Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended, Notes comprising a summary of significant accounting policies and other explanatory information, and the Directors’ Declaration.

Directors’ Responsibility for the Financial Report The directors of the Electricity Networks Corporation are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Electricity Corporations Act 2005, and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility As required by the Electricity Corporations Act 2005, my responsibility is to express an opinion on the financial report based on my audit. The audit was conducted in accordance with Australian Auditing Standards. Those Standards require compliance with relevant ethical requirements relating to audit engagements and that the audit be 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 Corporation’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 Corporation’s internal control. An audit also includes evaluating the appropriateness of the 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 In conducting this audit, I have complied with the independence requirements of the Auditor General Act 2006 and Australian Auditing Standards, and other relevant ethical requirements.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 121 INDEPENDENT GOVERNANCE & FINANCIAL AUDITOR’S REPORTS REPORT

Opinion In my opinion, the financial report of the Electricity Networks Corporation is in accordance with schedule 4 of the Electricity Corporations Act 2005, including:

(a) giving a true and fair view of the Corporations financial position as at 30 June 2012 and of its performance for the year ended on that date; and

(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.

Matters Relating to the Electronic Publication of the Audited Financial Report This auditor’s report relates to the financial report of the Electricity Networks Corporation for the year ended 30 June 2012 included on the Corporation’s website. The Corporation’s management is responsible for the integrity of the Corporation’s website. This audit does not provide assurance on the integrity of the Corporation’s website. The auditor’s report refers only to the financial report described above. It does not provide an opinion on any other information which may have been hyperlinked to/from this financial report. If users of the financial report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial report to confirm the information contained in this website version of the financial report

Colin Murphy Auditor General for Western Australia

Perth, Western Australia 28 September 2012

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 122 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 gri content index

Global Reporting Initiative – Content Index The table below summarises how the content of this report addresses the Global Reporting Initiative (GRI) guidelines for best practice sustainability reporting. It provides a cross reference from the annual report section to the relevant GRI indicator(s). For more about the Global Reporting Initiative, please visit http://www.globalreporting.org. GRI indicators marked with an asterix (e.g. 4.1*) are those indicators that have been selected by the Energy Supply Association of Australia (esaa) for inclusion in the Sustainability Practice Framework (SPF). Western Power, as a signatory to the SPF, is encouraged to publically report against these indicators.

For more about the esaa SPF, please visit http://www.esaa.com.au

Section Full disclosure Partial disclosure CORPORATE SNAPSHOT About this report 3.1, 3.3, 3.4, 3.6, 3.7 3.5 Chairman’s review 1.1, EC1* CEO’s review 2.8, 2.9, EU6*, EU29 DMA - Economic, 1.2, EC1*, EC8*, EC9, EU24 ,PR2, PR4 Our profile Who we are 2.2, 2.3, 2.4, 2.6 Our purpose Our network 2.7, 2.8, 3.11 EU4, EU12* Our vision Our values Our customers and other stakeholders 2.7, 2.8, EU3, 4.14 Key material issues DMA - Product Responsibility, 4.17* Our place in the electricity supply chain 2.2, 2.6 DMA - Economic, EC9 Our board 4.1*, 4.2*, 4.3* Our executive team Corporate performance EC1*, EU29

OPERATIONAL PERFORMANCE Putting safety first Workforce safety and health DMA - Product Responsibility, EU16 Winter safety campaign DMA - Product Responsibility, EU24 Summer safety campaign DMA - Product Responsibility, EU24 Customer focus 2.10 Complaints PR5 Responding to emergencies EU21, PR4 State Underground Power Project 2.9 EC8* Mid West Energy Project (Southern Section) 2.9 EC8* Managing the network Safety PR1, PR2, EU25* Reliability EU29 PR4 Capacity EU6* Investing in the network EU6*, PR01 EC8*

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER GOVERNANCE AND financial REPORTs for the year ended 30 june 2012 123 gri content GOVERNANCE & FINANCIAL index REPORTS

People and culture Organisational health (Pulse) LA4 Employee statistics LA1, LA13 Employee reward and recognition EU14* Community and environment Community engagement 4.16*, EU14*, SO1* Investing in our community EC8* Environmental management DMA - Environment, EN7, EN18, EN14*, EU14*, SO5 Key environmental challenges EU8, EN12*, EN14*, EN26 Climate change EC2* Environmental performance data EN28 EN13, EN16 Regulation and compliance Access Arrangement revisions process DMA - Economic Compliance report results DMA - Society, EU14* Future planning Sustainability – renewable energy EC2* Perth Solar City EU8, EU16, EN5, EN6* EN18, EC2*, EC4, EC8*, EC9, EU7 Edge-of-grid communities EU23, DMA - Society Future Energy Alliance EN6*, EN28 DMA - Product Responsibility, EU8

Governance and financial reports Directors’ report 4.1*, 4.2*, 4.3*, 4.4 Corporate governance statement 4.1*, 4.2*, 4.6*, 4.7* 4.8*, 4.9*, 4.12*, DMA - Labour Financial statements 2.1, 2.4, EC1* DMA - Economic, EC3 GRI content index 3.12

Key: DMA Disclosure of Management Approach *This GRI indicator is included in the Energy Supply Association of Australia’s (esaa) Sustainability Practice Framework (SPF) for voluntary reporting by signatories.

GRI indicators not referenced esaa SPF (applicable to Networks businesses): 3.13*, 4.5*, 4.10*, 4.15*, EN22*, LA2*, LA6*, LA7*, LA10*, LA14*, EU18*, EU19*, HR4*, SO8*

Other: 3.2, 4.11, 4.13, EC5, EC6, EC7, EN1, EN2, EN3, EN4, EN8, EN9, EN10, EN11, EN15, EN19, EN20, EN23, EN24, EN27, EN29, EN30, EU10 EU13, EU15, EU17, EU20, EU22, EU26, EU28, HR1, HR2, HR3, HR5, HR6, HR7, HR8, HR9, HR11, LA3, LA5, LA8, LA9, LA15, LA11, LA12, PR3, PR6, PR7, PR8, PR9, SO2, SO3, SO4, SO7, SO9

GRI Indicators not applicable: 2.5, 2.9, 3.8, 3.9, 3.10, 3.11, EN21, EN25, EU1, EU2, EU5, EU9, EU11, EU27, EU30, SO6, HR10

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 124 GOVERNANCE AND financial REPORTs for the year ended 30 june 2012