ANNUAL STAKEHOLDER REPORT 2012/13

Customer Service 13 10 46 7.00am – 6.30pm, Monday to Friday

Faults Only 13 22 96 24 hours a day, 7 days a week

Life-Threatening Emergencies Only Triple zero (000) or 13 16 70 24 hours a day, 7 days a week ERGON ENERGY Customer Advocate PO Box 264 Fortitude Valley QLD 4406 [email protected] Annual Stakeholder

Ergon Energy Corporation Limited ABN 50 087 646 062 Ergon Energy Queensland Pty Ltd ABN 11 121 177 802 Report 2012/13 ergon.com.au ABBREVIATIONS

A&TSI Aboriginal and Torres Strait ISO International Organisation for Islander Standards AER Australian Energy Regulator KPI Key Performance Indicator ASX Australian Stock Exchange LEP Long-Term Energy Procurement CONTENTS CMC Crime and Misconduct Commission MSS Minimum Service Standards CPI Cost Performance Index NIRC Network Investment Review CPI Consumer Price Index Committee ABOUT OUR REPORT 2 CSI Comprehensive Safety Indicator NPAT Net Profi t After Tax CSO Community Service Obligation QCA Queensland Competition Authority ERGON ENERGY IN PROFILE 3 DEEs Dangerous Electrical Events RAP Reconciliation Action Plan EBIT Earnings Before Interest and Tax RECs Renewable Energy Certifi cates THE YEAR IN SUMMARY 6 ENA Energy Networks Association ROAMES Remote Observation Advanced EV Electric Vehicle Modelling Economic Simulation CHAIRMAN’S MESSAGE 8 FTE Full Time Equivalent SCADA Supervisory Control and Data GECs Gas Electricity Certifi cates Acquisition system CHIEF EXECUTIVE’S REPORT 9 GFC Global Financial Crisis SCI Statement of Corporate Intent GPS Global Positioning System SHADO Sexual Harassment and Anti-Discrimination Offi cer REVIEW OF OPERATIONS 11 GRI Global Reporting Initiative SPI Scheduled Performance Index GSLs Guaranteed Service Levels STPIS Service Target Performance GUSS Grid Utility Support Systems Incentive Scheme 12 ICT Information and Communications CUSTOMER DRIVEN SWER Single Wire Earth Return Technology Details what we’re doing to address electricity IRC Investment Review Committee affordability and meet service expectations, and the many ways we are engaging with the community.

ASSET MANAGEMENT EXCELLENCE 20 Showcases how our strengthening asset management capability is enabling us to better utilise the network and deliver more reliable, effi cient and sustainable energy supply solutions.

HIGH-PERFORMANCE ORGANISATION 25 Outlines how we’re responding to our changing operating environment and supporting our people, as well as our focus on safety and environment. KEY SERVICE CENTRES

Cairns 109 Lake Street CAIRNS QLD 4870 OUR ECONOMIC AND FINANCIAL PERFORMANCE 36 Townsville (Registered Offi ce) 22 Walker Street TOWNSVILLE QLD 4810 OUR CORPORATE GOVERNANCE STATEMENT 40 Mackay 23 Cemetery Road LOOKING FOR MORE INFORMATION? WEST MACKAY QLD 4740

This Annual Stakeholder Report and the Annual Financial Statements for Rockhampton Ergon Energy Corporation Limited and its Controlled Entities (including Cnr Fitzroy and Alma Streets the Directors’ Report and our Financial Statements), as well as previous ROCKHAMPTON QLD 4700 years’ reports, are available online at www.ergon.com.au/annualreport Maryborough 97-99 Adelaide Street Additional statistics, industry measures and abbreviations are provided MARYBOROUGH QLD 4650 from page 51. Toowoomba Cnr South and Hampton Streets TOOWOOMBA QLD 4350

Brisbane 825 Anne Street FORTITUDE VALLEY QLD 4006 Ergon Energy recognises that the rising price of electricity is a concern for our customers. Addressing this issue remains at the core of our strategic plan, as well as the achievements and challenges highlighted in this report.

We are committed to doing everything in our power to positively affect the price our customers pay for electricity – whether this is by reducing our operating costs through greater efficiency and effectiveness or by improving the management of electricity demand to avoid costly investment in the network.

At the same time, we know that we have to continue to meet our customers’ expectations for a safe and reliable electricity supply.

It’s about finding the right balance – and working together to find smarter, more sustainable ways to create a bright future for regional Queensland. ABOUT OUR REPORT

Our Annual Stakeholder Report 2012/13 presents a holistic insight into the organisation’s overall performance for the financial year and demonstrates the contribution that Ergon Energy is making towards the broader sustainability challenges facing regional Queensland. It covers Ergon Energy Corporation Limited and its subsidiary Ergon Energy Queensland Pty Ltd, in addition to providing commentary on our other subsidiaries and joint venture. p4

Publishing performance Enhances understanding of against set goals builds the sustainability challenges confidence in the we can contribute to, and organisation’s governance. WHY WE the role we play. REPORT WHAT Reporting transparently builds Ensures we meet stakeholder understanding and trust, and WE DO expectations of our corporate supports greater stakeholder reporting standards and our participation. legislative requirements.

SHARED SUSTAINABILITY Many of the challenges facing regional The full details of GRI indicators covered CHALLENGES Queensland are inextricably linked to the in this report are indexed online at Ergon Energy is active in assessing future of our business. Our most www.ergon.com.au/annualreport significant sustainability contribution is stakeholder needs and expectations The content of this report has also been around our response to the affordability and maintaining an understanding of guided by the Australasian Reporting of electricity. We’re focused on regional Queensland’s broader Awards criteria for best-practice contributing meaningfully to a sustainability challenges and feeding reporting, as well as the Energy Supply sustainable energy future and to this into our decision-making, both Association of Australia’s Sustainable adopting responsible and sustainable at a strategic and an operational level; Practices Framework. To assist us to business practices. these insights have been used to continually improve our reporting, we assess the materiality of our reporting. This report also addresses the other invite your feedback through our online Our stakeholders are our customers, the sustainability concerns listed below. feedback form, or you can contact our communities we work in and serve, our This summary reflects the aspects of the Community Engagement and Advocacy government shareholders and industry Global Reporting Initiative’s (GRI) G4 team on 13 10 46. regulators, our employees (including Principles of Sustainability Reporting their representative unions), and our seen as material to our stakeholders. suppliers and industry associates.

STAKEHOLDER SUSTAINABILITY CONCERN

Customers Electricity affordability p 5, 6, 8, 9-10, 13-14, 18, 24, 26, 36, 45 Reliability and security of supply p 10, 15-16, 20-24 Infrastructure costs / timeliness p 16-17 Energy conservation / control over energy use p 8, 9, 14, 18, 22-23, 23-24 Communities Infrastructure for economic development p 16-17, 21-22, 23-24, 36 Capability for a strong disaster response p 8, 9-10, 15, 17, 23 Community impact and participation p 2, 3, 18-19, 36, 38 Community electrical safety p 19 Response to climate change p 24, 32-34 Environmental protection p 34-35 Energy / resource conservation p 22-23, 23-24, 27, 32-34 Government shareholders Electricity affordability* p 5, 6, 8, 9-10, 13-14, 18, 24, 26, 36, 45 and industry regulators State debt and the budget deficit p 37-38 Employees and Employment opportunities p 26, 38, 29, 31-32 representative unions Workplace health and safety p 28-30 Workplace diversity and social inclusion p 31-32 Industry associates and suppliers Sustainable industry outcomes p 6, 8, 9-10, 13-14, 16-17, 21-24, 26-27, 32-35, 36, 45, 50 Local procurement opportunities p 16, 23, 38

* While addressing electricity affordability is the primary objective of the industry reform agenda, service standards and the broader customer and community concerns listed are also shared by our government shareholders and regulators.

2 ABOUT OUR REPORT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 ERGON ENERGY IN PROFILE

Ergon Energy supplies electricity across a service area of more than one million square kilometres – 97% of the state of Queensland.

Boigu Is. Saibai Is. Dauan Is. Stephens Is. Yorke Is. Darnley Is. Mabuiag Is. TORRES STRAIT Yam Is. Murray Is. Badu Is. Coconut Is. Bamaga Warraber Is. Kubin, Moa Is. Hammond Is. Mapoon Thursday Wasaga, Horn Is. Lockhart Is. Napranum River TORRES STRAIT

Aurukun

Coen

Pormpuraaw

Kowanyama Cooktown Key Administration Centre Gununa, Mornington Is. Mossman Distribution Network Cairns Mareeba Depot/Workshop Burketown Atherton Normanton Innisfail Barcaldine Power Station Doomadgee Ravenshoe Tully Georgetown Isolated Supply Ingham Palm Island Townsville Home Hill Camooweal Julia Creek Charters Towers Bowen Mt Isa Cloncurry Richmond Hughenden Proserpine

Pinnacle Mackay NORTHERN Sarina Winton Moranbah St Lawrence Clermont CENTRAL Boulia Middlemount Yeppoon Rockhampton Emerald Longreach Barcaldine Blackwater Gladstone Springsure Bedourie Biloela Miriam Vale Jundah Blackall Monto Moura Gin Gin Bundaberg Theodore Childers Windorah Biggenden Hervey Bay Mundubbera Birdsville Gayndah Maryborough Charleville Proston Kilkivan Quilpie Wandoan Murgon Roma Kingaroy Chinchilla Yarraman SOUTHERN Tara Toowoomba Dalby Cunnamulla St George Millmerran Brisbane Warwick Stanthorpe

ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 3 ERGON ENERGY IN PROFILE

OUR BUSINESS Ergon Energy’s retailer is only permitted, Ergon Energy’s other subsidiary is Ergon Ergon Energy is a Queensland by legislation, to sell electricity at the Energy Telecommunications Pty Ltd, Government-owned corporation. Our Queensland Government’s Notified trading as Nexium Telecommunications. principal operating companies are Ergon Prices. The Queensland Competition This business services Ergon Energy’s Energy Corporation Limited, responsible Authority (QCA) oversees these tariffs. communications needs and, as a licensed for the distribution business, and the This enables Queenslanders to access telecommunications carrier, offers the subsidiary Ergon Energy Queensland Pty the same uniform electricity tariffs, Queensland marketplace wholesale Ltd, an electricity retailer. wherever they live, even though the cost high-speed data services. to supply may be different. Some Ergon Energy is also a shareholder of The distribution business – the ‘poles and customers in regional Queensland have SPARQ Solutions Pty Ltd, a joint venture wires’ – is regulated by the Australian chosen to purchase their electricity from with Energex Limited (Energex is our Energy Regulator (AER). The AER sets another retailer in the competitive market south-east Queensland counterpart), the revenue Ergon Energy is allowed to – at a price set by that retailer – however, which provides information and collect for the use of the network. These they are still supplied from Ergon communications technology solutions charges are just one of the components Energy’s distribution network. that make up the price of electricity. and services to both organisations.

ELECTRICITY INDUSTRY SUPPLY CHAIN

GENERATION Although not a major generator, Ergon Energy operates a 55MW gas-fired power station at A range of energy sources Barcaldine. It supplies power into the electricity (coal-fired, biomass, gas, hydro and grid. We also have 33 stand-alone power stations wind) is used by private and that supply communities isolated from the main grid in Western Queensland, the Gulf of government-owned operators to Carpentaria, Cape York, various Torres Strait generate Queensland’s electricity. Islands and Palm Island.

TRANSMISSION Powerlink Queensland, as a government-owned The transmission network consists of corporation, operates the high-voltage transmission network that extends along the lines that carry electricity from the Queensland coastline. Ergon Energy’s regional point of generation over long capability is used to help operate these assets cost-effectively. Ergon Energy also has its own distances and feed it into the 220kV network in the Mount Isa region. distribution network.

Electricity is delivered across regional Queensland DISTRIBUTION through Ergon Energy’s network of ‘poles and Distribution lines then carry wires’. Around 70% of our powerlines run through rural Queensland. Much of this part of our network, electricity directly to Queensland’s around 65,000 kilometres of line, uses the homes and businesses. electricity distribution technology known as SWER (Single Wire Earth Return).

A number of electricity retailers operate in regional RETAIL Queensland – they buy electricity from the generators and on-sell it to customers. While Ergon Electricity is purchased through the Energy only offers the government-set tariffs, retailers, who also provide a range of other retailers provide contestable market offers. Our retail business has specialist expertise in other customer services. energy trading, billing and customer service, to name a few key areas.

4 ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 CUSTOMER DENSITY ON THE NETWORK OUR VISION RANKED SECOND LOWEST To be a high-performance, customer-driven energy business. 50.0

OUR PURPOSE

To provide safe, reliable, efficient and 34.4 33.2 sustainable energy solutions to support our customers and the Queensland economy. 25.7 22.3

OUR VALUES 10.7 9.8 Success is built on our SPIRIT values of: 4.4 4.2

• Safety • Respect CUSTOMERS PER NETWORK KILOMETRE • Professionalism • Innovation The customer density of Ergon Energy’s network ranked second lowest in an independent assessment of nine different distribution • Integrity • Teamwork companies across Australia and New Zealand. p15

4,600 710,000 employees customers

$11.5 billion 2,380MW asset base peak demand

$872 million 6,811kWh capital investment average household energy use

1 million 2.8 power poles power outages per customer 160,000km 1.8 million of powerlines customer calls

WHAT MAKES UP THE PRICE OF ELECTRICITY? 20.0% 16.7%

ELECTRICITY GENERATION 16.7% SOLAR BONUS 4.1% 7.5% Wholesale Energy Feed-in Tariff-Scheme

CARBON TAX 7.5% TRANSMISSION AND DISTRIBUTION 48.2% 3.5% Price of Carbon Poles and Wires

4.1% GREEN SCHEMES 3.5% RETAIL 20.0% Renewable Energy Target Metering, Billing and Customer Service 48.2%

Cost components and percentages are based on the Queensland Competition Authority’s 2013/14 determination for residential tariffs. http://www.qca.org.au/files/ER-QCA-FactSheet-ChangeResElecPrice1Jul2013-0213.pdf

ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 5 THE YEAR IN SUMMARY

PERFORMANCE HIGHLIGHTS

Efficiency efforts achieved in excess of $100 million in benefits, in line with a 20% reduction in the operational and capital expenditure program for the five-year period to 2015.

Overall network reliability continued to improve this year – since 2005/06 the duration of outages has been reduced by 36% and the frequency by 37%.

Demand management success continued as an alternative to network investment – with a substantial 47MVA in reductions.

Delivered an above target $434 million profit – allowing a $326 million dividend, partly offsetting the Queensland Government’s $596 million Community Service Obligation payment.

GOVERNMENT ANNOUNCEMENT On 16 June 2013, the Queensland Government announced in-principle approval of a recommendation to establish a new holding company for Ergon Energy Corporation Limited and Energex Limited, as the two government-owned distributors. This change, and a range of other proposed reforms, are about addressing the rising electricity costs. The reforms are part of a suite of recommendations to come from the Interdepartmental Committee on Electricity Reform. This committee was formed in mid-2012 to scrutinise cost pressures on electricity prices, network costs, electricity supply and retail competition. It was supported by an Independent Review Panel, which looked specifically at the impact of Queensland’s electricity network on prices and solutions for a secure, cost-effective network. Ergon Energy is committed to working with the government as it implements the recommendations from these reviews. For more information go to www.dews.qld.gov.au/policies-initiatives/ electricity-sector-reform

FINANCIAL SUMMARY

2012/13 2011/12 2010/11 2009/10 2008/09

Total Assets ($million) 11,460 10,600 9,975 8,698 8,011

Total Capital Investment ($million) 872 870 831 806 844

Net Profit After Tax ($million) 434 320 322 167 130

Dividends Provided For ($million) 326 256 253 138 117

Community Service Obligation Payment ($million) 596 415 399 252 446

Return on Average Assets 8.9% 7.6% 8.0% 5.7% 5.3%

Return on Average Equity 12.4% 9.7% 10.8% 6.4% 5.1%

Gearing (including reserves) 57.3% 59.3% 56.6% 59.8% 59.1%

EBITDA to Interest Cover (times) 3.7x 3.6x 3.6x 3.2x 3.1x

FOR MORE ON OUR FINANCIAL PERFORMANCE SEE PAGES 36.

6 THE YEAR IN SUMMARY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 PERFORMANCE OVERVIEW Ergon Energy’s performance targets for 2012/13 are detailed in our Statement of Corporate Intent (SCI). As our performance agreement with our shareholding Ministers, the SCI is tabled in Parliament with this corresponding report. Our performance results, shown here against our strategic themes, are discussed in more detail throughout this report.

TARGETS RESULTS

’Value to Customer’ survey Better than peer average Ratio score 5 points above CUSTOMER parity at 105 DRIVEN Supply Reliability Indicators: P12 Duration (SAIDI): - Urban ≤147 135 - Short Rural ≤412 341 - Long Rural ≤932 952 Frequency (SAIFI) - Urban ≤1.9 1.5 - Short Rural ≤3.9 3.0 - Long Rural ≤7.2 6.2

Guaranteed Service Levels – ≤3,000 claims accepted 3,928 claims paid, Network Reliability ≤$310,000 claims paid valued at $408,512

Guaranteed Service Levels – ≤7,200 claims accepted 4,059 claims paid, Other ≤$270,000 claims paid valued at $164,203

Actual capital expenditure ≤44% 44% of five-year allowance ASSET within regulatory allowance MANAGEMENT Network Maintenance Costs/ ≤2.4% 2.7% EXCELLENCE Regulated Asset Base P20 Demand management ≥25MW 40MW reductions

Annualised Staff Turnover n/a 14.3% HIGH- Actual operating expenditure ≤59% 60% of five-year allowance PERFORMANCE within regulatory allowance ORGANISATION Operational Expenditure per ≤$2,216 $2,364 Route Kilometre P24 Scheduled Performance Index ≥1 for delivery of the UbiNet project – and Cost Performance Index UbiNet project SPI 1.0 (SPI and CPI) CPI 0.8 Safety Indicators: All Injuries Frequency Rate – ≤12.0 7.8 Employees Compensation Claims ≤3.3 2.3 Frequency Rate – Employees Lost Time Injuries Frequency ≤2.3 2.6 Rate – Employees Lost Time Injuries Frequency ≤3.0 2.2 Rate – Contractors Environmental Protection Nil breaches Nil breaches Agency Breaches – Class 1

Net Profit After Tax ≥$315 million $434 million ECONOMIC Dividends Provided For ≥$252 million $326 million AND FINANCIAL Customer Service Obligation ≤$608 million $596 million PERFORMANCE Payment P36 Return on Average Assets ≥7.5% 8.9% Return on Average Equity ≥9.0% 12.4%

THE YEAR IN SUMMARY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 7 CHAIRMAN’S MESSAGE

EXPERTS IN DISASTER The feedback given through the MANAGEMENT review process has emphasised the With the extreme weather events need for market reform to improve over the last few seasons, the Ergon future asset utilisation through new Energy team is recognised by its peers market-based tariffs. in the energy field as leaders in disaster Over the last year Ergon Energy was able recovery. I was fortunate enough to to reduce its capital and operating costs see first-hand the dedication of our by a total of approximately $1.5 billion people working tirelessly after the over the forward estimates. This was devastating floods in the Burnett Region. achieved, after careful consideration to This recognition is well deserved. maintaining both safety and reliability Congratulations to the men and women standards, in line with a strong in the field, to those in support roles commitment to cost constraint. during these times and to the leadership of our management team. Future cost savings will be dependent on a number of factors, including pricing THE CHALLENGE AHEAD WITH reform aimed at supporting future UNEXPECTED COMPETITORS demand management and consequent capital expenditure needs. With increasing prices for energy, the industry is inviting the providers of I see encouraging efficient network alternative solutions into the market. utilisation as one of Ergon Energy’s, and I was surprised to learn that there may the other energy distributors’, biggest be as many as 700 people working in challenges. With appropriate customer the alternative energy field in far north engagement and innovative pricing it Queensland. Initially this innovation may be possible to review our capital started from necessity, then the investment decisions further, and attractive solar incentive schemes ultimately reduce the pressure on prices. assisted, but more recently it may have been further encouraged by Another critical area of reform in future retail electricity price increases. involves productivity improvements through improved work processes. Will we see a time in the next decade where renewables and battery storage During the year Ergon Energy welcomed will be cheaper than grid power for two new directors, John Love and John the domestic consumer? Queensland’s Gardner after the resignations of John current uniform tariff may delay some Bird and Susan Forrester. On behalf of “I see encouraging efficient alternatives but innovation is definitely the Board, I would like to thank John and Susan for their services to the Board. network utilisation as one of accelerating in the renewable market. Ergon Energy’s biggest IMPROVING MARKET AND challenges” OPERATIONAL EFFICIENCY Over the last year the government has undertaken a number of reviews of the energy sector in Queensland. These have provided Ergon Energy with an excellent opportunity to showcase the unique position it holds in the energy market MALCOLM HALL-BROWN in regional Queensland. CHAIRMAN

8 CHAIR MESSAGE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 CHIEF EXECUTIVE’S REPORT

Like Bob Dylan’s immortal classic At the same time, to further reduce costs ‘The Times They Are a-Changin’ and reduce the pressure on electricity so is the purpose of the electricity prices, we need to optimise our current distribution network. assets and investments by developing a more efficient load profile through TRANSITIONING TO A appropriate tariff and price signals to our MARKET ENABLER customers. To do this we are engaging with our customers, representative With the increasing take up of solar bodies, regulators and government on energy by our domestic customers, a program of market and tariff reform. fuelled initially by government rebates and high feed-in-tariffs, the network’s Our focus is finding the smartest, most role is transitioning from a transporter efficient ways to operate, and to deliver of electricity to a market enabler. Our a sustainable and efficient market to customers are increasingly becoming drive increased productivity and positive producers selling energy into the grid economic outcomes for Queensland. while changing their consumption behaviours to maximise their return on OUR ROLE IN RISING investment – 14% of households in ELECTRICITY PRICES regional Queensland now have solar. As an industry we have experienced many challenges, with an unprecedented Even with the drop in the solar feed-in mix of factors converging – most notably tariff from 44 cents to eight, we are still the impact of global and domestic seeing connections associated with the economic concerns, greater and more new scheme trending upwards as stringent regulatory requirements, and customers look for certainty and control the increase in product substitution that of their electricity costs in an I have already mentioned. This has led environment where notified prices have to increases across all of the major increased significantly (up to 22.6% for components that make up the price 2013/14). our customers pay for electricity. Capital investment and technology is While the price increases related to now flowing downstream into the generation, solar, the federal government customer installations – from traditional ‘green’ initiatives and electricity retailing regulated infrastructure funded by Ergon have been largely outside our control, Energy to unregulated solutions funded we recognise that our decisions as an by customers or third parties. It is electricity distributor have had a therefore incumbent on Ergon Energy significant impact. “... we’re continuing to focus as a distributor to build our customer intelligence and mitigate the risk of Around half the cost of electricity in on finding innovative ways parallel investment into the supply chain. Queensland is associated with investing to reduce expenditure and For this reason, along with the broader in and operating the electricity increase efficiency and fall in electricity consumption and the transmission and distribution network – effectiveness across all of reduced demand for network the ‘poles and wires’. connections, we have been reducing our the facets of our business” The pre-Global Financial Crisis (GFC) works program and consequently the economic boom, sea change and size of our workforce. record immigration resulted in significant Alternative energy solutions will set a growth in peak electricity demand. market-based benchmark in pricing as This, combined with an ageing asset they become increasingly technically and and higher security and reliability commercially viable. In this environment standards (as a result of higher customer the network is no longer a monopoly as expectations at the time of the 2004 it delivers a single commodity that can Somerville Inquiry), led to record growth and is already being supplied via other in our investment in the network. means. This change means our value This investment was recognised under proposition needs to shift to enable our regulatory regime as we moved into a strong market for energy, storage the current five-year regulatory control and demand management solutions, period in 2010 and, along with the higher while still providing a safe, secure and post GFC funding costs (which we are reliable supply. still experiencing), put significant upward pressure on electricity prices.

CHIEF EXECUTIVE’S REPORT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 9 CHIEF EXECUTIVE’S REPORT (CONTINUED)

Since the summer of 2010/11, however, This thinking is not only focused on how We are continuing to look for our customers have been using less we meet critical peak demand, but how opportunities, especially in the electricity for the first time in Ergon we best utilise the asset base across the technology area, to lower the cost of Energy’s history. This slowdown is partly whole load profile. To support this, we service, while focusing on service levels. a response to the higher prices and the have begun a review of our network economic conditions, and partly due to tariff strategy and the market reform On the positive, disconnection for debt a greater awareness of energy efficiency discussions already mentioned. Managed outcomes improve dramatically this year and the availability of technologies, like carefully, I believe effective tariff and – dropping a significant 33% – thanks to solar. In addition, peak demand has been market reform will deliver the best improvements in the way we support well below forecast for the past three outcomes for our customers, our customers in financial hardship, as well as years for various reasons and, due to the shareholder, and our business. changes to processes and systems at the economic conditions, customer network pre-disconnection stage. connections have remained suppressed. Through these and other initiatives we’re This has impacted the unit price of continuing to focus on finding innovative While not related, I am also pleased to electricity. ways to reduce expenditure and increase report that Ergon Energy’s safety efficiency and effectiveness across all of performance has continued to improve So how are we responding? the facets of our business. The benefits and is currently second quartile when from these efforts will flow in to network compared in the Energy Networks WE HAVE STRENGTHENED prices in the next regulatory control Australia annual benchmarking for both OUR RESOLVE period from 2015. lost time injury frequency rate and For a number of years, we have had compensable claims frequency rate a strategic goal to limit increases in MAINTAINING CUSTOMER SERVICE STANDARDS measures. I must, however, sadly average network charges to less than acknowledge here the fatality of an CPI over the longer term; this year we While our focus is squarely on electricity Ergon Energy employee during the year. brought this forward, and we are now affordability, we also remain committed Last November Andrew Vaughan lost his on track to deliver this goal from 2015. to maintaining customer service levels. life to a snake bite while in the field in In late 2012, in line with the slowdown, Most importantly, our ability to respond Yeppoon. News of his death shocked us we made a decision to cut our five-year in times of natural disasters. This year all – it also reconfirmed my resolve in capital and operating expenditure we faced the effects of Cyclone Oswald, striving for a workplace free from harm. program up to 2015 by $1.5 billion. which started out as a small, category-one cyclone on Cape York, SUPPORTING FURTHER REFORM This is being supported by an ongoing but became a significant weather system In closing, I would like to point out efficiency and effectiveness program that saw tens of thousands of that we are not alone in our efforts that aligns with the government’s Queenslanders grappling with the industry reform agenda. This year aftermath as it moved down the coast. to tackle rising prices and the impact we have been driving a business-wide on our customers. focus on overhead cost reduction, Yet again, I was proud to see our people delivering over $100 million in benefits rise to the challenge. Despite torrential The Queensland Government has through workforce optimisation, rain, flattened infrastructure and, initially, released its response to the overtime reduction and strategic the failure of public telecommunications Interdepartmental Committee on sourcing, as well as improvements in in the northern half of the state, crews Electricity Sector Reform, announcing contract management, administration and support staff worked quickly and a number of reforms relating to the and reporting. safely to get the lights back on to over future structure and operation of the 90,000 customers. Our customer electricity sector in Queensland. This is We have also undertaken significant service teams, control centres and the culmination of a number of external organisational restructuring to improve communications personnel also worked industry reviews, which we have our performance and better manage hard to keep the power restoration participated in, that aim to ease the cost operational risks, as well as continued information flowing to our customers burden associated with the supply of to explore ways to use technology throughout the response. investment to deliver information- electricity in Queensland. enabled efficiencies. This capability also supported ongoing We are committed to working with day-to-day improvement in network the government on the implementation Together, commensurate with the revised reliability. Since 2005/06 the duration of these reforms, and to building on programs of work, these have allowed a of outages has been reduced by 36% the significant progress we have made workforce adjustment (employees and and the frequency by 37%, a reflection to improve the efficiency of our contractors) of over 600 positions. of the significant investment and organisation. Our focus on demand management priority we have placed over this has also continued to optimise period on achieving the regulated I would like to thank our customers our infrastructure investment – an Minimum Service Standards in line and other stakeholders for their above target 47MVA of peak demand with regulatory requirements. support during the year. I would also reductions have been achieved. We have Our customer research is showing like to praise the people of Ergon Energy our customers are now generally also enhanced our ability to integrate for the professionalism and dedication, satisfied with the reliability levels. our demand management and demand through what has been a challenging, response alternatives into our network Our main service challenge this year uncertain year. augmentation plans – to better target was our Contact Centre’s general enquiry these lower cost alternatives. ‘grade of service’. While trying to address our cost to serve we experienced unprecedented increases in call volumes, largely as a result of the growth in solar energy connections and payment difficulties brought on by the increasing cost of electricity. IAN McLEOD CHIEF EXECUTIVE

10 CHIEF EXECUTIVE’S REPORT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 REVIEW OF OPERATIONS

The Review of Operations covers our three strategic themes.

OUR STRATEGIC THEMES

ASSET CUSTOMER MANAGEMENT DRIVEN EXCELLENCE

HIGH-PERFORMANCE ORGANISATION

OUR STRATEGIC GOAL To limit increases to average network charges to less than the CPI over the medium term.

REVIEW OF OPERATIONS ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 11 • ADDRESSING REVIEW OF OPERATIONS: AFFORDABILITY 13

• SERVICE DELIVERY CUSTOMER DRIVEN SCORECARD 15

• ENGAGING WITH THE COMMUNITY  18

Ergon Energy understands that Ongoing Achieved Partial Not Achieved rising electricity prices are of significant concern to our customers. We recognise that STRATEGIC INITIATIVE ACHIEVEMENT network capital and operating Better place the customer at the Developed a distribution customer strategy costs are a contributing factor in centre of decision-making, using that maps each customer segment’s core the electricity price increases and greater segmentation to help value drivers to better target an effective create optimum customer and response. p13 we are taking action to address business value. this. We believe tariff or market reform is also part of the solution, Deliver business-wide operational The first wave of initiatives in the program savings through a formal efficiency delivered savings in excess of $100 million along with our targeted demand and effectiveness program. this year. p13 related activities. Participate in the tariff reform A review of our network tariff strategy was We are doing all we can to help process to ensure future pricing initiated. Significant system and process our customers save on their bills, structures deliver benefits for our preparations were also made to support customers and Ergon Energy. the government’s retail tariff reforms. p13 especially those in hardship. Ergon Energy’s 710,000 customers Outwork the Reliability This suite of operational and asset-focused are geographically dispersed and Improvement Plan to ensure initiatives has network reliability meeting delivery against regulated service service expectations. p15, 23 diverse. This diversity sees us standards for 2010-2015. working hard to get the right balance of service quality, cost Improve our service delivery Improvements were made to the and responsiveness to meet the management of major connections, and choice. expectations of major customers. significantly increasing customer satisfaction. p16 Above: Ergon Energy power worker Joe Torrisi talking with White Cabinetmaking’s John White about his local electricity supply arrangements and how tariff reform could deliver benefits for our customers.

12 REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 The program is part of a broader ADDRESSING RESEARCH CONFIRMS FOCUS strategic enablement program under AFFORDABILITY ON AFFORDABILITY way to increase the overall productivity and efficiency. It has built on a LISTENING TO OUR CUSTOMERS corporate-wide focus on operational efficiency for a number of years, both Ergon Energy has a significant customer 7.0 6.9 6.8 insights program, including direct 6.5 6.5 in the lead up to and delivery of our engagement, customer research and operational plans for the 2010-2015 complaints analysis. Through all of these regulatory control period. channels our customers are continuing These reductions follow a decision in to express their concerns over rising COR E S 2012 to cut our five-year capital and electricity prices. Our commitment to ER operating expenditure program up to responding to these concerns and being 2015 by $1.5 billion from what had been TO M a responsible provider is demonstrated originally allowed for by our regulator. by the strategic initiatives highlighted

O CU S p22 throughout this report. T E

U * The average residential bill is based on Ergon Energy Our ‘value to customer’ research Queensland Pty Ltd accounts on a combination of

VA L regulated tariffs, excluding households with solar program, which commenced in 2001, systems installed. provides a metric that allows us to 0 2011 2012 20 1 2013 monitor how our customers judge value 2009 TARIFF REFORM, PART OF THE in terms of what they receive versus the While the overall value score from our SOLUTION price they pay. While this year’s overall residential customers is reasonably positive, To help address affordability-related value score from our residential recovering slightly to 6.8 out of 10, perceptions issues we have also begun a significant customers is reasonably positive, around cost and affordability remain the lowest performing area. review into ‘how’ we charge for the use recovering ground to 6.8 out of 10, of our electricity network. To initiate the perceptions around cost and affordability network tariff strategy review, a range remain the lowest performing area. of proposals was developed, aimed at Ergon Energy’s comparison to the peer DRIVING GREATER EFFICIENCY delivering benefits for our customers suppliers is positive at 105 (where 100 is AND EFFECTIVENESS and Ergon Energy. parity). The overall value to business While Ergon Energy does not set retail score is stable and is sitting at 6.1 out of electricity prices, we recognise that the We are seeking to establish a strategy 10 compared to 6.0 in 2011/12. cost of distributing electricity is a major which clearly maps out a pathway for contributing factor in increases in the network tariffs that will be sustainable, Our Customer Council continued to retail price of electricity. as well as being transparent and able to develop as an important vehicle to build guide customers in making informed our stakeholders’ capacity to understand For 2012/13 a typical quarterly bill for decisions about their energy use. the issues, processes and potential Ergon Energy’s residential customers impacts of the decisions that are being was $406.* We see great opportunity in moving from made as we progress tariff and industry charging largely based on the amount of reform and take positions on our future To help address electricity affordability electricity used to mechanisms that look investment priorities. Established in 2011, concerns, we have progressed a range at the capacity a customer requires from the consultative forum brings together of initiatives this year aimed at limiting the network at any given time. The representatives from Ergon Energy and future increases in average network proposals include mechanisms such as nine peak organisations from across charges to Consumer Price Index (CPI) time-of-use tariffs, kVA denominated regional Queensland. These community or less by 2015/16. demand charges and critical peak service, environmental management and Central to this is our ongoing efficiency pricing. These pricing options provide business sector organisations are and effectiveness program. This has seen greater visibility of the cost of supplying informing and influencing Ergon Energy’s a business-wide focus on overhead cost power, and in turn will improve the business decisions and helping to reduction in the areas of workforce utilisation of the network. Our aim is to facilitate wider community consultation. optimisation, overtime, strategic spread the electricity load more evenly, manage growth in peak demand and Our insights program has supported the sourcing, contract management, avoid spending millions of dollars in asset development of a comprehensive administration and reporting. In excess augmentation or reinforcement; which distribution customer strategy that of $100 million in benefits have been would ultimately have been paid for by outlines the necessary steps to maximise achieved against an initial target of our customers through their bills. the value delivered to and derived from $50 million; supported by organisational our different customer segments. For restructuring and an adjustment to the This review, which is not examining the each customer segment, the core value workforce. p26 overall quantum of the revenue that we drivers and how products and services The next wave of this program will are allowed to recover (p36), or how are to be delivered more effectively move from business efficiency to network tariffs are used in setting against these have been mapped. The business excellence, expanding efforts regulated retail tariffs, is nearing the end strategy will now enable us to better into the areas of capital optimisation, of the stakeholder consultation phase. target business improvement throughout non-core asset optimisation, outsourcing There will then be significant analysis to the customer value chain. and improving data and information in undertake on the economic and order to meet future reductions in implementation barriers associated with operating budgets. the proposals that are to be taken forward, including the cost-benefit of rolling-out more advanced meters.

REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 13 Increasing the cost reflectivity of HELPING OUR CUSTOMERS SAVE ASSISTANCE FOR THOSE IN electricity tariffs has also been a During the year we continued to help HARDSHIP consideration of the Queensland customers manage their electricity bills Ergon Energy has a dedicated Customer Government’s retail tariff reform agenda. by educating them on how to save Assist program to support customers In May 2013, the QCA, as delegated energy and ultimately cut costs. The who are in financial hardship and unable by the government, announced new activity centred on a revamp of the to pay their electricity bills. During the regulated retail tariff structures, as information provided on our website, year, the program’s approach was well as the prices for 2013/14. Significant structured around the seven typical increasingly segmented, with the system and process preparations were high-energy consuming appliance tailoring of products and services to made internally to implement the categories. This new content also whether the customer is facing short, changes for 1 July. includes seven infomercial style videos medium or long-term hardship. designed to enhance the customer The wide-ranging reforms included This saw the revamp of our payment plan experience on our website and help changes to tariff pricing, the introduction product to better match payments with us play our role as part of the solution. of a new residential tariff – Tariff 13 – the customer’s anticipated future energy The videos will also be the cornerstone designed to support PeakSmart air use. Front-line staff were also up-skilled of a new Customer Assist initiative aimed conditioners and the phasing out of to enable them to better manage more at helping those customers who are most some tariffs. The most significant price in-depth conversations with customers at risk of not being able to pay their rise was an overall 22.6% increase to regarding their payment difficulties. This power bills. Tariff 11 – the continuous-supply has meant that customers experiencing residential tariff. We also continued to promote direct short-term hardship can now be debit as a useful tool to assist in supported at their first point of contact managing high bills, especially for with us. Ergon Energy will continue those in lower socio-economic areas Other improvements have included more or with medium-to-high electricity use. to be actively involved in both defined entry and exit criteria for the retail and network tariff, The website, yourpowerqld.com.au, program; clearer communication of the as well as broader market a joint initiative with Energex, continued customers’ responsibilities, including SMS reform. to be promoted as a single reference instalment reminders; electricity bill point for accurate, reliable and impartial assessments to look at ways to reduce information on energy conservation power bills; and more assistance in To take advantage of the Tariff 13, the for new home builders. applying for the government’s Home customer must have an appropriately- Energy Emergency Assistance Scheme. sized PeakSmart air conditioner fitted To help customers save on their pool with a signal receiver. Ergon Energy is running costs, we continued to Our aim is to continue to increase the offering up to $100 cash back to assist incentivise them to use Tariff 33, our number of customers graduating from with the cost of connecting the signal economy off-peak tariff for pool the program with the financial capability receiver to encourage the take up of this equipment and to purchase energy and energy usage knowledge to meet new offer. Tariff 13 is a time-of-use tariff efficient pool pumps. We also introduced their energy debts on a sustainable and that provides a continuous supply of a program to encourage customers to independent basis. This focus has seen electricity with different pricing change their electric water heater to a the number of participants in the depending on the time of day that cheaper economy tariff. These initiatives hardship program return to 2010/11 levels electricity is used. During the peak are delivering immediate savings to our (to 4,000 from a peak of 5,600 in period between 4pm and 8pm on customers, while helping improve the 2011/12), which equates to approximately weekdays, Tariff 13 is priced higher utilisation of our assets and reduce what 0.6% of our customer base. than the shoulder and off-peak periods. we need to invest in the network. p22 These efforts, as well as changes to The QCA is implementing transitional A greater emphasis was also placed on processes and systems at the periods for customers on most of the assisting business and corporate pre-disconnection stage, saw obsolete tariffs. After the determination customers to manage their consumption disconnection for debt outcomes was made, the government passed and costs. A broad range of new improve dramatically – dropping a legislation that limits increases to these activities provided these customers with significant 33% compared to 2011/12. obsolete tariffs, including the agricultural information on energy efficiency, We also continued to engage with tariffs, to 10% per annum. electricity tariffs and payment options. community groups to enlist their support As the electricity usage behaviours of a in promoting the program to vulnerable Ergon Energy will continue to be actively business’s employees are often a customers. Improvement to our reporting involved in both retail and network tariff, significant contributor to high on hardship is also allowing us to more as well as broader market reform. consumption, this year we developed a proactively identify issues and assist competition-based program consisting vulnerable and disadvantaged of stickers, posters, a DVD and suggested customers. messaging to assist employers in engaging with their staff to change their Future improvements will include the use energy usage habits. of real time usage monitoring to help customers know when they are using The isolated communities’ energy saving more electricity than they can afford. program, known as powersavvy, also We are also trialling monthly billing in continued to support energy usage Townsville as a means to support a group behavioural change. p18 of customers in hardship. Our focus is on closing the gap between energy usage and financial capacity.

14 REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 SERVICE DELIVERY SCORECARD

NETWORK RELIABILITY The wind and flooding associated Summary performance reporting of these CONTINUED TO IMPROVE with the system saw more than 90,000 is available in our Distribution Annual customer power outages recorded – the Planning Report, to be published on our Network reliability continued to improve largest number of customers without web page at the end of September 2013. overall this year – since 2005/06 the supply at one time was 22,800 on Ergon Energy has very few peer networks duration of outages has been reduced 27 January 2013. This included customers to provide comparisons of our network’s by 36% and the frequency by 37%. who had their power disconnected for reliability performance. The Huegin This improvement in network reliability safety reasons due to rising flood waters. Consulting Group’s Electricity reflects the significant investment and The system also raised the need for Distribution Business Benchmarking priority Ergon Energy has had over additional inspection and maintenance Study 2012 found that we share similar this period to achieving the regulated work in the months that followed. p23 Minimum Service Standards (MSS). geographical sparsity and customer Our customer service monitoring Outage performance in the South consumption patterns with Power and research now indicates our customers West and Wide Bay was also impacted Water Corporation, and similar customer are generally satisfied with the by heavy storms late in 2012; and the Far density with Essential Energy, but we are reliability levels. North and Central supply regions were mostly unique when compared to other impacted by a number of bushfire network service providers. The customer For 2012/13, performance remained related events. density of Ergon Energy’s network positive for five of the six MSS limits set ranked second lowest compared to the Favourable performance was also by the QCA under the Electricity Industry nine different distribution companies delivered against five out of the six Code of Queensland. The long rural across Australia and New Zealand in the reliability targets set by the AER’s outage duration index (SAIDI) result was independent assessment. the only measure that did not perform Service Target Performance Incentive better than the minimum standards. Scheme (STPIS). This framework provides The reliability performance data reported an incentive to achieve performance here and to our regulators is audited These long rural parts of the network better than the STPIS targets for annually by independent auditors. include a significant proportion of our unplanned outages and customer service radial distribution network and SWER performance (capped at 2% of total lines and, therefore, the result for this regulated annual revenue across the category was impacted more severely STPIS parameters). The strength of the by the extended aftermath of Cyclone improvement in unplanned outage Oswald – including the extensive flooding performance for this financial year led experienced in Ergon Energy’s Central to a significant financial reward. p36 and Southern regions. A lesser number of long rural customers were affected In addition to monitoring the duration compared to the last storm season by and frequency of outages compared to unfavourable weather conditions but they MSS limits and STPIS, we also monitor were impacted by much longer outage the worst performing feeders in our duration due to the floods and lack of distribution network. safe accessibility of the asset for a quicker restoration.

PROFILE OF DISTRIBUTION DURATION OF OUTAGES FREQUENCY OF OUTAGES NETWORK (FEEDER LINES) TRENDING DOWN MAINTAINS IMPROVEMENT 08 5 4.2 4.1 485 2 4 8 7 3.2 3 3 3.1 341 2.8 I D I IFI A A

Isolated 8% S

S l l a Long Rural 12% a t t o Short Rural 51% o T T Urban 29% 2011 2011 2012 2012 2010 2013 2010 2013 2009 2009

Ergon Energy operates the longest distribution The improving trend in the average duration of Our customers are experiencing on average network in Australia with only 4.4 customers outages reflects the significant investment and 2.8 outages per year. Ergon Energy considers per kilometre of line. Our reliability challenges the operational priority placed on achieving that overall network reliability is now generally are both common to the industry and unique the regulated standards. Consolidation of this delivering the level of service our customers – with fewer than a third of our customers living improvement will come from the use of expect. We are now looking to ensure in urban areas, the majority are supplied technology to help monitor and control expenditure in this area continues to through radial lines with limited redundancy the network. deliver customer value. in the event of a fault.

REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 15 SERVICE DELIVERY SCORECARD (CONTINUED)

THE STATISTICS

MEETING EXPECTATIONS NETWORK RELIABILITY 2012/13 2011/12 2010/11 2009/10 2008/09 2012/13 FOR CONNECTIONS PERFORMANCE MSS Result Result Result Result Result Duration Index (SAIDI) The establishment of the Major Projects business unit in 2012 has led to increased • Urban Distribution ≤147 135 136 149 222 217 customer communications and better • Short Rural Distribution ≤412 341 393 426 544 609 management of the demand for major • Long Rural Distribution ≤932 952 1,042 828 999 1,108 customer connections, which has been fuelled in large part by activity in Frequency Index (SAIFI) Queensland’s resources sector. Changes • Urban Distribution ≤1.9 1.5 1.4 1.6 2.3 2.3 to processes and procedures are continuing to be implemented to improve • Short Rural Distribution 3.9 3.0 3.6 3.5 4.6 4.9 ≤ response times and customer service. • Long Rural Distribution ≤7.2 6.2 7.0 5.3 7.2 7.7 As a result, overall customer satisfaction in the major connection space has * Reporting based on the MSS exclusion criteria outlined in the Electricity Industry Code significantly increased – in June 2013, http://www.qca.org.au/files/ER-Industry-Code-DME-EICV13-0213.pdf 55% of customers were either satisfied or very satisfied with the service (compared THE STATISTICS to 25% in the benchmark wave).

The pricing model and service 2011/12 SERVICE 2012/13 classification introduced in 2010 is FAILURE now providing large customers with a CLAIMS PAYMENTS CLAIMS PAYMENTS real choice between Ergon Energy or Network Reliability GSLs 3,928 $408,512 2,942 $305,916 other approved suppliers to construct customer-specific assets. Some Notification Planned 3,594 $104,403 6,635 $203,827 Interruption GSLs customers have already elected to invoke the ‘approved supplier’ option; generally Other GSLs 465 $59,800 543 $67,154 to enable increased control of their delivery and cost risks. This has TOTAL 7,987 $572,715 10,120 $576,897 supported process improvements and greater responsiveness on our side of this arrangement. Our preference is for customers to own and operate sole We have continued to maintain a DELIVERING ON OUR connection assets or to alternatively consistently low level of Energy and CUSTOMER CHARTER build and transfer connection assets Water Ombudsman Queensland to us. The expectation is that this will Ergon Energy operates under a range of escalated complaints. Ergon Energy drive the creation of an increasingly Guaranteed Service Levels (GSLs) as part accounts for a low 3% of all of competitive market for these works. of the Electricity Industry Code, including Queensland’s energy related complaints the notification of planned interruptions despite serving a third of Queensland and network reliability standards. They households. These results reflect well SOLAR ENERGY SYSTEMS also include new connections and on Ergon Energy’s internal complaint reconnections timeframes, wrongful management staff and processes. CONNECTED DOUBLES disconnections, the resolution of hot water supply matters and appointments. Parallel to the organisational changes under way, most notably to a single Our performance in these areas saw 78,018 point accountability for our retail arm, a 21% drop in the overall number of we commenced a review into the way payments made to customers as complaints are currently being managed compensation for performance failure. across the business. The aim is to ensure Performance improvement around the the business has the capability to resolve notification of planned interruptions saw complaints at the first point of contact 46,018 the number of these payments almost or, where this is not possible, to find the halved, thanks to a renewed focus and best resolution pathways and options. greater staff awareness. The 3,594 Overall satisfaction with our complaints 22,087 payments made were as a result of data management process was down slightly integrity issues, notification calculation to 57%, from 58% in 2011/12. errors and works program priorities. 6,481

Reliability payments, however, increased Our complaints are mainly around solar 1,868 due largely to the impact of an unplanned power issues, electricity account related, SOLAR ENERGY SYSTEMS

field activity, meter reading and quality of 2011 outage in December 2012 where supply 2012 2010 2013 2009 was not restored to 1,088 customers supply. This customer feedback remains within the required timeframe. core to continuous improvement. Meter Managing a surge in solar connections was a reading is one area that is continuing to major focus of our service delivery during the receive management attention after year – with 32,000 new connections made. contract resourcing and weather related access issues caused an increase in complaints in this area.

16 REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 SERVICE DELIVERY SCORECARD (CONTINUED)

Operational improvements have also Since the feed-in-tariff was lowered, The Contact Centres ‘grade of service’ supported improved service delivery we have still received an average of for general enquiries, however, for our non-complex customer-initiated 1,200 new applications per month, unfortunately finished the year below connection and augmentation projects. trending upwards towards the end target with 47% calls answered in Our target for a three-month rolling of 2012/13. This is a clear indication 30 seconds. The performance challenge average delivery time from contract that even without the generous tariff, around general enquiries was related acceptance to construction was customers still see solar as a prudent to efforts to reduce the cost to serve, surpassed at the end of June, with a financial, as well as environmentally coupled with unprecedented jump (over strong 155 day result compared to the responsible decision. p24 20%) in call demand as a result of the 170 day target. The most challenging growth in the installation of solar energy region continues to be the Central region, CONTACT CENTRE DELIVERS systems and payment difficulties brought which is seeing greater demand due to DURING DISASTER on by the increasing cost of electricity. activity in the resources sector. The Improvements to staff rostering have positive overall result has been achieved Customer satisfaction with our telephone since increased our resourcing flexibility, through improved planning and service improved this year to 92% (from however, maintaining our ability to collaboration and the active management an average of 86% in 2011/12). respond to spikes in call volume while of resources and work priorities; despite The Contact Centre consistently increasing staff utilisation in the centre the significant challenges presented by delivered a monthly ‘grade of service’ remains a major challenge. the widespread flooding experienced result above target for faults and For the coming 12 months, further earlier this year. emergency contacts, despite significant changes are being proposed to During 2012/13, 32,000 new solar energy weather-related network events. lower the cost of service, improve (photovoltaic) systems were connected This supported positive customer customer satisfaction and lift the ‘grade to the network (up from the 24,000 sentiment and our efforts to restore of service’, including going to market for solar-connections and the associated supply as fast and safely as possible replacement Contact Centre technology. meters installed in 2011/12). We saw a during our response to the extended The improvements in technology will rush of applications following the impact of Cyclone Oswald. At the provide benefits such as self-service Queensland Government’s beginning of the response, however, and a multi-channel environment for announcement that it was going to Telstra lost connectivity to central and our customers. reduce the feed-in-tariff associated northern Queensland for 24 hours, with the Solar Bonus Scheme (from preventing customers calling our 44 cents to eight) in July 2012 – more Contact Centre. This led to a review of than 30,000 applications were received our telecommunications arrangements, in the two weeks prior to the cut-off date. PABX configuration and related scenario The management of these applications, planning. During the height of the event the technical assessments required the Contact Centre was supported by to provide approvals and the metering online communications – over 80,000 installations required extensive resources people visited our web page and throughout the year. Ongoing Facebook page ‘likes’ and ‘posts’ engagement with the industry has reached 173,000 people. also been required to support positive outcomes for our customers.

THE STATISTICS

CUSTOMER SERVICE DELIVERY 2012/13 2011/12 2010/11 2009/10 2008/09 Value to Customer – Target 100 ≥ 105 105 103 109 100 Residential Research Parity (peer average)

Value to Customer – 6.8 6.5 6.5 6.9 7.1 Residential Research Score

Value to Business – Research Score 6.1 6.0 6.1 6.5 na

Call Volumes to Contact Centre 1.76 million 1.46 million 1.67 million 1.55 million 1.45 million

Contact Centre – Target 85% 92% 86% 88% 91% 90% Customer Satisfaction ≥

General Enquiries – 70% 47% 72% 64% 71% 71% Calls Answered in 30 Seconds ≥

New Connections – Average Time from Contract to Target ≤170 days 155 days 170 days 218 days 162 days 165 days Construction

REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 17 Our efforts are around increasing our The current prepayment metering ENGAGING THE employment of Aboriginal and Torres system was introduced with the COMMUNITY Strait Islanders as an under-represented electrification of the Torres Strait islands group in our workforce (p31) and in the early 1990s. We now have over We consider our stakeholders (p2) to be building these communities’ capacity to 4,000 customers across these the groups or individuals who could reduce their energy consumption and communities using the Amply magnetic potentially be impacted by our activities better manage their electricity bills. card operated repayment meter for their or could affect our ability to achieve our electricity supply. However, these objectives and serve our customers. The latter is being delivered through the ‘magnetic’ meters are being phased out The principles of our Stakeholder energy saving program known as by the external provider, necessitating a Engagement Policy are around being powersavvy. The community and people- new solution to be selected and inclusive, engaging on material matters centred program, which was created in deployed in the near future. and being responsive. By clearly 2009 to target residential, school and understanding our stakeholders’ needs commercial electricity use in Feedback from the three geographically and expectations, we are better able to Queensland’s isolated communities, dispersed communities participating in ensure the right level of engagement and continued to maintain and sustain the the research has provided Ergon Energy make appropriately informed decisions; energy usage behavioural changes with valuable insights into the preferred and ultimately deliver on our business across the Torres Strait and Gulf prepayment meter replacement options, priorities and maintain our ‘licence’ communities. At the same time, the as well as preferred community to operate. program was extended into other remote engagement methods to be used in communities in western Queensland and the roll out of a new electricity This is particularly important in managing on Cape York. metering system. the impacts of our infrastructure program on the community. For all of Customers are making real savings CONNECTING THROUGH our new major infrastructure projects, through the program, and it is helping us COMMUNITY PARTNERSHIPS a community impact assessment is to reduce the fuel costs associated with undertaken by community engagement the diesel-fired generation that is used to Ergon Energy’s Community Partnership specialists. Then formal engagement supply these communities. p32 program continued to deliver significant guidelines and responsibilities dictate Throughout the year 112 home energy community value, as well as long-term actions throughout the concept consultations, 18 school visits, and commercial benefits to Ergon Energy. development, planning and delivery 135 commercial audits were conducted. Our sponsorship investment helps us to phases. Appropriate community The commercial projects delivered meet our corporate responsibilities, as participation in the decision making ranged from designing a major well as support the engagement needed in this area builds trust and credibility for upgrade to the refrigeration systems at to inform our decision making and the process and enables us to be community stores at Pormpuraaw and support our ability to operate effectively responsive to community concerns and Doomadgee to installing 25kW of solar at the local level. suggestions. Efforts to further embed photovoltaic panels and lighting changes A key focus area this year has been the process into business practices this at Birdsville Hotel. on building community awareness of year saw consideration given to how In addition, we have continued to look energy efficient behaviours. We believe we best measure our performance in for other ways to cost effectively addressing energy affordability, and the this area. maintain open communication channels associated network utilisation challenge, In this and many other areas, we with these communities. This is seeing can be supported by educating the continued to work closely with local us participate in the regular Managers community about energy efficiency government to ensure we best deliver on of Aboriginal Shire Councils Forum and helping them in adopting efficient our respective obligations to the hosted by the Local Government energy choices. community – from energy conservation Manager Australia. This position is central to our Community to disaster response planning and We also undertook a major community Fund. The grant program is providing activities, to street lighting and consultation and qualitative research community organisations funding to streetscape beautification. exercise to learn more about these bring their energy conservation and communities’ electricity payment electrical projects to life. One of the SUPPORTING OUR INDIGENOUS projects to benefit was an upgrade to the COMMUNITIES practices. The card operated meters used in our isolated, largely Indigenous power distribution at a local Men’s Shed. Ergon Energy supplies the majority communities enable customers to The Gladstone Men’s Shed, which offers of regional Queensland’s Indigenous manage electricity expenses as they are vital support to men who often grapple communities. They are part of one of incurred, through prepayment and also with life’s challenges in silence, was one the most disadvantaged consumer allow costs to be shared among of the 12 applicants from across groups in Australia with lower incomes, household members rather than placing Queensland to be awarded a grant. high welfare dependency, higher costs financial pressure on a single individual. of living and poor health outcomes. Providing services to these communities is both challenging and costly, with the majority being remote and supplied by stand-alone diesel power stations. During the year, in addition to contributing to the Queensland Government’s Reconciliation Action Plan 2012-2015 (RAP), we continued to work towards establishing our own RAP to ensure we best support these communities and focus our efforts in the areas where we can promote reconciliation.

18 REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 Ergon Energy’s customers also continued Targeting major ‘at risk’ industries CONCERNING RISE IN to show outstanding generosity, having We know that changing safety attitudes COMMUNITY NETWORK now donated a total of $7 million to the is facilitated through sharing information. Royal Flying Doctor Service through their RELATED SAFETY INCIDENTS power bills. The milestone came as the Our community safety team, and iconic RFDS celebrated its 85-year employees based at our offices and anniversary in providing vital medical depots across the state, work tirelessly

439 services to remote communities across to deliver electrical safety messages and Australia. As part of the 13-year donation highlight the very real consequences of scheme, customers can contribute the wrong attitude to electrical safety. 323 310 through their quarterly bill, or make 303 We again collaborated with a range of 284 larger one-off donations. external organisations, such as Cotton COMMUNITY ELECTRICAL Australia, Energex, Dial Before You Dig SAFETY AWARENESS and the Building Services Authority, to share strategies for reducing electrical Ergon Energy launched its first safety incidents. During the year we also Community Electrical Safety Awareness participated in major industry events, Plan in 2007 with the aim of raising distributing more than 100,000 individual electrical safety awareness in the items of ‘Look Up and Live’ campaign INCIDENTS community and changing behaviours 2011 2012

material. Safety presentations were also 2010 2013 2009 and attitudes. delivered in 65 different locations to In the past 12 months we have been approximately 11,000 people. While the year saw an increase in safety incidents involving the electricity network buoyed by the degree of ownership These efforts were supported by a new overall, a new safety campaign in the second stakeholders have taken, both of our half of the year appears to have reignited advertising campaign targeting the awareness and helped arrest the upward trend. community safety program and electrical cotton, road transport and sugar safety in general. Numerous industry industries, as well a new community body members have made proactive engagement program: ‘Working together INDUSTRIES AT RISK FROM requests for safety advice and material to make this summer the best it can be’. ELECTRICITY NETWORK and have shared innovative ways in which The mass market campaign was RELATED INCIDENTS they believe their workplaces can be developed to address the challenges of made safer. summer, including preparing for and the Despite this, however, incidents safety risks associated with storms, increased. In 2012/13, 323 incidents were cyclones and floods. This platform was recorded, a 13% increase from last year, also further extended for our home breaking a run of five years of decreasing electrical safety communications, incident rates. In addition, there were including safety around service wires, several serious electrical incidents, ‘don’t do it yourself’ and general home although fortunately no fatalities. electrical wiring messaging. The major increase came as a result of These programs achieved outstanding motor vehicle accidents, being up 27% results in audience awareness and to 104 incidents. Increases were also behavioural change. We also saw seen in earthmoving, up by nine incidents network incidents improve in the last to 47 in total, and building construction, quarter of 2012/13 – and June recorded an increase of 11 incidents to 16 in total, one of the lowest monthly incident rates Road Transport 59% Building/Construction/ mainly related to cranes contacting Demolition 5% in what is traditionally one of the highest Agriculture 18% Vegetation Management 2% our assets. months of the year for network-related Earthmoving 15% Aviation 1% While protecting community wellbeing is accidents. the overwhelming priority of our efforts, The increase in safety incidents this year was largely as a result of an increase in motor contact with overhead powerlines can vehicle accidents; incidents associated with also cause power outages, inconvenience Earthmoving and Building Construction customers and add costs to operating also increased. the network through repairing the damage and increases to customer minutes without electricity supply. In 2012/13, over 11 million customer minutes were lost and 92,000 customers affected by these types on incidents.

REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 19 • RESPONDING REVIEW OF OPERATIONS: TO PEAK DEMAND  21

• RELIABILITY ASSET MANAGEMENT IMPROVEMENT CONTINUES  23 EXCELLENCE • LOOKING TO THE FUTURE  23

Our strategic focus on asset Ongoing Achieved Partial Not Achieved management excellence is about finding the right balance between ‘investing in’ and ‘driving value STRATEGIC INITIATIVE ACHIEVEMENT from’ the asset base to ensure we Deliver the Energy Conservation and A demand reduction of 47MVA has been deliver a reliable, efficient and Demand Management program of achieved during 2012/13, placing us on sustainable electricity supply for non-traditional solutions to address track to deliver our target for the our customers. areas of network constraint. 2010-2015 period. p22 Outwork recommendations of the Distribution Annual Planning Report In response to the slowdown in National Framework for Electricity and Demand Side Engagement Strategy demand for electricity, we’ve Distribution Planning and Expansion. have been developed. Engagement process piloted as per the future RIT-D scaled back our works program. requirement. p23 At the same time, we’ve continued Advance our asset risk assessment Quantitative risk assessments have been to develop an increasingly capability to better prioritise network completed, including the risk of climate integrated, risk-based asset maintenance and augmentation. change impacts, and incorporated into the management approach to improve investment optimisation tool. p24 our efficiency and effectiveness. Continue the Joint Workings with Drove benefits in the area of All of the initiatives highlighted Energex to deliver efficiencies, conditions-based monitoring and in the here are part of our commitment as well as improved safety and implementation of aluminium cabling. p24 compliance outcomes. to limiting future increases in Implement a Distribution While much of the requirements for these network charges. Management System, and invest in technology solutions have been scoped, our network monitoring and analytic progress on these will be dependent on our capability to support productivity investment prioritisation. p24 and performance standards. Pilot a range of smart technologies A range of ‘smart asset management’ and Above: Executive General Manager Asset through the Energy Sense ‘network of the future’ initiatives are being Management, Tony Pfeiffer, discussing the Communities program in Townsville, implemented. p24 14% of homes now have challenges associated with our asset investment planning with Program of Works Delivery and manage the take up of solar and solar, with 32,000 new systems connected Manager, Tracey Tuxworth. other technologies across this year. p24 the network.

20 REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 However, it was also partly due to the Maximum or peak demand, however, is RESPONDING TO transfer of load from two mines in the still forecast to increase steadily into the PEAK DEMAND Mackay region off Ergon Energy’s future. To best inform our forecast we are distribution network, as well as the continuing to build on our understanding DEMAND REMAINS STEADY effects of the weather system associated of how tariff reform and other Ergon Energy’s aggregate peak in with Cyclone Oswald which occurred in demand-related matters are best network demand has remained steady; January 2013; during our peak demand incorporated into our aggregate demand significantly less than anticipated. This period. p23 modelling. The highest maximum demand experienced to date for the year’s peak of 2,380MW in December The most significant slowdown has been whole of Ergon Energy’s grid-connected was down slightly on the previous in average household use – this year the network was 2,584MW during the summer. downward trend saw a 5% fall from summer of 2006/07. This reflects the slowdown in 2011/12. Overall energy distributed was consumption growth generally. down slightly to 15,097GWh, and again well below forecast.

OUR NETWORK FORECAST AVERAGE HOUSEHOLD ELECTRICITY USE

4,000 High Growth Scenario

10,000

Low Growth Scenario

Sourced only from the network 2,000 Sourced from solar 5,000 a Wh p er k 0 0 7 5 3 25 0 2011 1995 2015 2010 2013 2 2020 2005 20 0 2000 20 0 20 0 2009

Peak demand on the network is remaining relatively level – with a peak of 2,380MW in December 2012. Energy consumption in households across Ergon Energy monitors the major influences of peak demand to best formulate the five-year capital regional Queensland is falling and is well below works program. what was forecast, prior to the GFC, for the five-year regulatory control period that we are currently in. This drop, which is being exaggerated by the households who are sourcing their electricity from solar energy systems, is pushing up the unit cost of electricity. p24

THE STATISTICS

ENERGY USAGE SNAPSHOT 2012/13 2011/12 2010/11 2009/10 2008/09

Population of Ergon Energy’s Service Area1 1.49 million 1.48 million 1.45 million 1.44 million 1.43 million

No. of Distribution Customers 712,634 700,989 690,708 680,095 667,502

Average Electricity Use per Household 6,811kWh 7,166kWh 7,242kWh 7,623kWh 7,978kWh

Maximum Coincident ‘Peak’ Demand 2,380MW 2,417MW 2,349MW 2,542MW 2,406MW

Electricity Distributed 15,097GWh 15,212GWh 14,544GWh 15,678GWh 15,722GWh

Electricity Generated by Ergon Energy 114GWh 118GWh 117GWh 114GWh 112GWh

1. 2012/13 estimate only. Other years are based on most recent Census.

REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 21 MAKING NECESSARY • the $28 million capital program DEMAND MANAGEMENT INVESTMENTS for our isolated communities, OUTCOMES STRONG As result of peak demand being well which included the replacement A major element of our strategy to below forecast and demand for new of ageing generation equipment reduce pressure on electricity prices is to customer-requested network at Coen and Boigu Island and the engage the community in the way connections remaining suppressed, a installation of a solar power station electricity is used to improve the load detailed review of our works program at Doomadgee. p32 profile of our network and increase the was undertaken. This led to scaling back • progress on the $140 million UbiNet utilisation of our assets. This allows for our capital works program in September project, which will provide us a the deferral of costly investment as has 2012 (incorporated into a revised SCI p7). secure communication network been achieved this year. This saw our capital investment this year for key infrastructure. p27 For our region, daily peak demand is remain in line with the previous year at generally between 4pm to 8pm. The $872 million. We are now expecting our more ‘critical’ annual peak demand five-year capital investment program NETWORK INVESTMENT occurs in most areas during the summer up to 2015 to be $1.3 billion below what PLAN SCALED BACK months, lasting for only short intervals had been originally allowed for prior to and fluctuating from year to year. the GFC. The delivery of our demand management The capital expenditure to date for this program is performing strongly. More

regulatory control period, which relates $820 than 47MVA or 40MW of targeted peak $817 $798 to Standard Control Services, is 44% of $791 demand reductions have been achieved what was allowed for (totalling $798 from non-network alternative initiatives million in this financial year as shown in for 2012/13 (against a SCI target of the graph), even though we are three 37 4 25MW). Since 2010, the program has years into the five-year period. delivered 107MVA of peak demand reductions – placing us on track to reach The projects Ergon Energy initiated – 122MVA by 2015. This success is enabling an investment of $664 million – saw us to defer millions of dollars in costly

us undertake significant replacement 2010 Distribution Determination Capital Allowance network augmentations. of ageing assets, targeted network augmentation or reinforcement A significant proportion of this has come works, and the delivery of reliability from further improvements to the improvements and other initiatives. operation of the load management An additional $208 million was invested technology that supports off-peak water into network connections and heating in North Queensland. Changes to augmentation works initiated by the switching times for electricity supply our customers. MILLION to hot water systems in the region has 2011

2012 seen a further 22.4MVA reduction in peak 2010 Key Ergon Energy-initiated capital 2013 demand. projects included: If peak demand remains steady, we will be able We have also continued to have success • continuation of both our Reliability to maintain the works program at these levels, well below the allowance in our current with our mass-market initiatives. The take (p23) and SWER Improvement five-year regulatory determination. This graph up of our ‘Save a Bomb’ pool program’s Programs, with over $25 million and shows all capital related to our Standard Control cash back offers – of between $150 and $14 million invested respectively. Services only, with aged asset replacement (54%) and augmentation or reinforcement $250 – for either changing to off-peak Reliability improvement is also being works (28%) the main components. tariffs or purchasing energy efficient supported by the $17 million invested pumps has this year helped reduce peak this year in air break switch demand by a further 1.5MVA. We are also refurbishment. CUSTOMER-INITIATED promoting the economy tariffs to new customers, supporting a 5.3MVA benefit. • establishment of new and upgrades WORKS REMAIN SUPPRESSED to the existing 11kV powerline network Part of this success has come through to augment supply to high growth engagement with electrical contractors.

townships of Mackay, Gladstone and $289 The remaining demand management Rockhampton, valued in excess of reductions were achieved through $12 million. commercial and industrial customer

$4 million installation of a second $221 participation in the program to address • $208 specific network capacity limitations. $190

transformer at Tanby zone substation $188 Central Queensland and $6 million to This included an embedded generation progress the new zone substation at agreement with AGL in Moranbah Broadlea inland from Mackay. (9.4MVA); additional contributions from the Townsville commercial and industrial • $4 million in works completed this year customer demand management pilot at the Point Vernon zone substation in (5.2MVA); delivery of a chilled water the Wide Bay-Burnett region, as part plant and power factor correction of an increase of 37MVA of installed measures with James Cook University in transformer capacity.

MILLION Cairns (1.2MVA); additional power factor • commissioning of the $37 million correction gains in Toowoomba 2011 2012 2010 2013 redevelopment of the Dalby Central 2009 (1.3MVA); and customer demand zone substation adding an additional response capacity across Mt Isa and the 20MVA of capacity. The $208 million investment in network Bohle industrial estate in Townsville connections and augmentation works initiated (1.8MVA). by our customers remained suppressed in line with the post GFC levels. Future investment in this area is dependent largely on economic growth, and mining and construction activity.

22 REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 This year also saw Ergon Energy’s The category one system moved Townsville Solar City project on Magnetic on to Cape York Peninsula on LOOKING TO THE FUTURE Island come to a close, in line with the 21 January 2013 and travelled overland end of the funding contracted to the to become a serious weather event INTEGRATING A DEMAND seven Australian Government projects. for Queensland’s north. SIDE RESPONSE This project has made a significant Ergon Energy’s investment plans have The storm system then moved down the contribution to the delivery of our historically been based largely on coast, impacting 40% of the Ergon five-year demand management target. traditional poles and wires solutions, Energy distribution area, only dissipating The project reduced peak demand on however, we’re increasingly looking for after crossing the state’s border after a the island by 16%, down to 2005 levels, the best ‘capacity solution’ including week of destruction. Around 640 deferring the need to build a costly third modular traditional network and smart employees were involved submarine cable to the island by at least network solutions and demand side in the $20 million plus response effort. eight years. The project demonstrated participation. The aim is to optimise our that a comprehensive community Over the longer term, further reliability investment and efficiently meet our engagement program can drive real improvement will be realised from contingency supply and reliability needs, change to the benefit of customers, asset-focused initiatives largely centred while increasing network utilisation. electricity utilities and the environment. on expanding the functionality of the We are already integrating low-capacity Despite ending, trials at the heart of the network. This has included outworking skid-mounted zone substations and project around solar and hot water load the replacement of a large number of standby generation as economic control will continue as part of other defective switching devices, including modular solutions, rather than initiating sustainable energy initiatives being air break switches. an immediate traditional full-scale undertaken. p24 The accelerated upgrade of Ergon infrastructure build. This staged Energy’s network monitoring and approach to meeting a gradual increase RELIABILITY control capability, through the installation in load and responding to security criteria IMPROVEMENT CONTINUES of SCADA (Supervisory Control and thresholds, removes the impost of relying Data Acquisition) technology into completely on forecasting to make Delivering customer value has also 56 zone substations, was completed. decisions and allows risk to be managed been central to our Reliability This investment, and the developing more efficiently and effectively. Improvement Plan. The implementation UbiNet telecommunications network The small staged approach is also of an integrated, whole-of-business (p27), provides the foundation for the allowing us to better integrate demand plan has been critical to delivering on Distribution Management System management and demand response our regulated reliability standards. This capability planned. Asset replacement alternatives into our network suite of operational and asset-focused programs are also being targeted at the augmentation plans – to provide lower initiatives, which are now being delivered worst-performing feeder lines. as a business-as-usual program of works, cost alternatives and optimise our have supported ongoing improvements A continuous improvement focus has infrastructure investment. also remained around information and in network reliability. This approach is providing greater technology. This has included deploying flexibility in the timing of decisions The improved operational response and trialling a range of ‘smart’ around larger network investments. has focused on planned and unplanned technologies identified for the network, The purpose of our longer term plans outage management, including such as intelligent remote controlled is to avoid work being scheduled too improvements to works scheduling switches and line fault indicators. These early, resulting in resources being and packaging, reporting processes devices will increasingly assist the field directed away from areas of greatest and tools and the use of back-up crews in identifying a fault in a section need, or too late, ultimately risking a mobile generators. An emphasis is of the network during the investigation reduction in reliability of supply. also being placed on returning key phase immediately following an out-of-service plant to service and unplanned supply interruption. Leading the way is our response to the reducing network risk. high-growth industrial area supplied Collectively these efforts have addressed from the South Mackay zone substation. Our storm season preparedness activities the network performance concerns that Here we are introducing a more efficient also remain critical to our emergency we were facing a number of years ago delivery model for demand-side response capability. These range from and we are now in a strong position to participation that invites customers and preventative maintenance to our specific meet our current regulatory obligations. the third-party market to provide disaster scenario planning activities. Performance outcomes, however, will solutions. The invitation to participate is continue to be dictated primarily by the Vegetation management is one of the being presented as an online demand severity of the weather conditions during key outage prevention programs. Due reduction incentive map that specifies the storm season. to a range of efficiency measures, the the problem to be solved (including the investment in this area this year has To ensure expenditure in this area time of day or year that demand peaks), been reduced to $70 million, after being continues to deliver customer value, the boundaries of the area, the financial escalated over recent years to address we support the recommendation by incentive we can pay customers in that a backlog in rural vegetation clearing. the Industry Review Panel, accepted area for demand reduction and the rules Information on vegetation clearances by the Queensland Government, that around participation. is now being provided by our remote the current prescriptive security and The intention is to eventually deploy this observation capability. p27 reliability standards be replaced with model more broadly. However, even a more economically derived, During the past summer, weather where this model will not be rolled out outcomes-based approach. Any notable forecasting services were also being used immediately, we are piloting other ways matters relating to our network security to predict storm activity and prepare to consult with interested parties to policy that results if this recommendation additional resources to respond to faults. identify the most prudent solution or is outworked will be published in future alternatives as network constraint or Last storm season’s challenge was annual reports. capability issues emerge, in line with the Cyclone Oswald. future RIT-D requirement. More detail on this is available in our Demand Side Engagement Strategy document available online.

REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 23 This will also be supported by the This direction includes the roll out of Among the other technical interventions publication of our first Distribution the UbiNet project, and its cellular being used to support our customers in Annual Planning Report (p49) as per data network. p27 We are also planning using solar, we are progressing the requirements in the National Electricity to implement a Distribution Management implementation of reactive power Rules (following on from the Australian System, and target investment in control-capable inverters to moderate Energy Market Commissions review of our network monitoring and analytic voltage fluctuations and minimise the the National Framework for Electricity capability. These will allow us to remotely network impact. More sophisticated Distribution Planning and Expansion). monitor, analyse, and manage the inverter control characteristics promise network, to cost-effectively improve to be particularly important to minimising MOVING TO A network performance and enable the impact of solar on our SWER and RISK-BASED APPROACH initiatives to better manage demand isolated networks, where the issues Our network investment planning is on the network. around voltage regulation and intermittency are magnified. also increasingly taking a risk-based In addition to the challenges discussed approach. This is being supported by a so far, our customers are also increasingly Electric Vehicles (EVs) could bring similar growing understanding of how our assets looking for greater choice and even challenges in the future. To provide a are performing and their requirement ‘energy independence’. This is being better picture of what these challenges for corrective action, replacement or stimulated by the fall in prices for solar, could be if EV sales suddenly escalated, augmentation. As the proportion of batteries and other technologies. In this we conducted an 18-month real-life trial. assets approaching the end of their changing environment, it is becoming As one of the first research projects of viable lives grows, this approach will increasingly cost prohibitive to use its kind in Queensland, a fleet of five be critical to achieving targeted security traditional technologies and Mitsubishi i-MiEVs was driven by two and reliability of supply outcomes and management tools. groups of customers in Townsville avoiding spiralling costs. (during separate eight-month trial Leading the way in this area is our Energy periods) so we could compare the This year network maintenance costs Sense Communities program, which is different driving patterns of households increased largely due to the corrective part of a joint smart grid trial program close to the CBD to those further away. maintenance work related to Cyclone with Energex. The integrated program, The insights gained are now informing Oswald – these costs were 2.7% of the initially focused in Townsville, includes discussions on future tariffs. The right regulated asset base compared to a 33 ‘smart asset management’ and tariffs will be needed to manage the target of 2.4%. Asset replacement costs ‘network of the future’ initiatives with potential demand from EVs so that we were also escalated this year, as funds an objective to trial new technologies can both meet our customer re-charging were reprioritised to cover higher costs and/or deliver specific capital deferral needs while directing as much load as per defect and the required scale of the outcomes related to reduced demand. possible to off peak periods to avoid the asset replacement program. The initiatives relate to demand need for costly upgrades of the management, solar energy systems, Quantitative risk assessments at the electricity network. The EVs were electric vehicles, energy storage, network substation level across standard risk economical compared to other popular automation, smart customer appliances categories have been incorporated cars with an average ‘fuel’ cost of $4.81 and community engagement programs. during the year into a new business per 100km – a small petrol car costs case tool, which will allow consistent around $11.54. comparative assessment of risk in SOLAR AND OTHER investment decisions and allow TECHNOLOGIES In another initiative, we are trialling consideration of risk when optimising the The rate that our customers are taking automated demand reduction in large portfolio. The new capability is also being up solar remains a significant challenge. commercial premises. This technology extended to other areas of the network. In 2012/13, we supported the connection involves an interactive system that of 32,000 new solar photovoltaic combines building automation and This work complements joint working systems to the network – taking the dynamic messaging that asks customers activity with Energex around embedding proportion of our homes with systems in advance to reduce electricity on a condition-based maintenance installed to 14%. p17 forecast peak demand days. framework. This is delivering efficiencies in the substation maintenance area. The total capacity of the systems We are also benefiting from the lessons We are currently progressing a installed is now 255MW – this has learnt through the development of our risk-based approach reviewing pole contributed to a drop in overall successful Grid Utility Support Systems inspection cycles. Risk assessment is household energy consumption (p21) (GUSS) – these specialised battery also continuing to be used to prioritise and impacted the per unit or kilowatt systems are now being rolled out to initiatives in the Network Adaption Plan, hour price of electricity. The other the more remote sections of our developed jointly with Energex, which financial impact is the Queensland SWER network where power quality outlines our response to the risks Government’s Solar Bonus Scheme. p33 performance is an issue - in a new associated with climate change. The government is currently considering trial to improve supply to individual options put forward by the QCA to residences. Through this ResStor Collaboration has also seen more reduce the future impact of the solar project, we are trialling advanced and savings through the continued use feed-in-tariff. smart network enabled lithium ion of less costly aluminium based cables batteries connected to nine different at various voltage levels. We have The main technical impacts related to households to investigate the been collaborating with Energex on solar arise from it causing an increase effectiveness of smart energy storage a range of joint working initiatives in network voltage, exacerbated by systems in reducing peak demand, since 2007 – this will continue under solar systems with voltage regulation improving customer power quality the new asset management joint not set correctly. Historically, the network and reliability in cyclone prone regions. business practice model. was not designed for electricity to flow intermittently in both directions. INCREASING CONTROL To enable the effective operation of AND AUTOMATION these systems requires considerable To respond to the challenges of issue investigation, as well as network powering a modern world, we have adjustments or upgrades were necessary, begun developing in an increasingly to minimise voltage and other issues. intelligent network – one with greater connectivity and automation.

24 REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 • RESPONDING REVIEW OF OPERATIONS: TO CHANGE  26

• A SKILLED, SAFE HIGH-PERFORMANCE WORKFORCE  28 ORGANISATION • PROTECTING THE ENVIRONMENT  32

Being a high-performance Ongoing Achieved Partial Not Achieved organisation is vital to delivering on our purpose – of providing safe, reliable, efficient and sustainable STRATEGIC INITIATIVE ACHIEVEMENT energy solutions for the benefit of Queensland. Undertake organisational review Single point accountability created for to respond to the new environment both our retail business and our isolated Our strategic initiatives in this area and adjust the workforce in line with community supply area. A 9% reduction in are all about being responsive to the reduced works program. employees. p26 the changes taking place in our Implement a Works Delivery Improvements have been achieved in operating environment and being Improvement Program to support program estimating, asset inspection more effective across all areas of resource optimisation and works and defect management, business case our delivery. To do this, we’re delivery outcomes. preparation and program management. ensuring our workforce has the p26. skills, information and technology Deliver a program to better understand Preparations have been made to support support required, as well as the the cost to serve in order to provide the transition from the current service personal engagement needed improved service delivery, while also order dispatch model to a field force to carry out their work safely, improving cost effectiveness. automation model. p26 efficiently and effectively. Progress the Information and A revised ‘2015 Future State Blueprint’ Our people strategy is focused Communications Technology investment plan is being progressed. p26 on our values, a safety culture, investment plan required to sustain the reward and recognition, career business through the next regulatory period. opportunities, and employee development. We also have a Develop our remote observation, The operationalisation of the new capability strong focus on our environmental automated modelling, and economic is being continued, with data collection simulation capabilities (ROAMES). progressing across the network. performance. p27 Develop our property strategies to lift Employees in Brisbane were co-located to Above: We are continuing to place a priority on improving our works delivery capability, by the efficiencies of accommodation and support collaboration and reduce costs. addressing obstacles throughout the end-to-end facilities delivery to support high The Townsville master plan also continued delivery process, helping employees, like Raj performance outcomes. to be rolled out. p27 Prasad, meet our customers’ expectations through their various roles.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 25 The newly integrated Isolated Systems Asset management productivity RESPONDING TO CHANGE group now incorporates the Generation measures will also be reviewed to ensure Services, Generation Assets and labour efficiency. OUR WORKFORCE AND powersavvy teams under a single This program is already delivering ORGANISATIONAL CHANGE general manager with the aim of benefits – a highlight being a $5 million As a result of scaling back the works delivering better outcomes for the reduction in our asset inspection and program (p22) and the efficiency and generation and supply of electricity to defect management costs. As these effectiveness achievements made our remote and isolated communities. deliverables are rolled out to the throughout the year (p13), we are The improved transparency of our business, further value will be realised currently re-sizing our workforce. performance in this area of our business through the improved investment This is being undertaken in line an will help inform the government in its decision making capability, greater organisational review aimed at improving consideration of the recommendation visibility and understanding of delivery accountability, targeting performance of the Independent Review Panel; to performance and increased effectiveness improvement and reducing costs. ascertain interest from the private of the program’s management. Throughout this process the focus has sector to operate and maintain the In addition to savings, these efforts been on maximising customer value – on isolated supply assets in Queensland will further enhance network security maintaining front line services to meet as an independent power producer. and reliability over the long term. customer service, operational and The program supports the Strategic regulatory requirements – without DRIVING WORKS DELIVERY Asset Management model, by helping compromising the safety of employees, IMPROVEMENTS to streamline the interfaces between the community or the network. In addition to scaling back the works service provider (or Operations), the While much of the review has been program, we are continuing to place asset owner and the asset manager. completed, the process of finalising a priority on improving our works Efforts have also been focused on structures and implementing the delivery capability to help drive customer service delivery in the required changes is still continuing. greater efficiencies through our distribution business, on aligning the Further organisational and workforce operations. Along with our broader delivery approach across the different changes are also expected as we efficiency and effectiveness efforts, regions to drive cost and process continue to implement effectiveness and this has arrested the recent growth efficiencies and ensure a consistently efficiency opportunities and outwork any in operational expenditure. positive customer experience. This will implications of the government’s enable us to realise the full benefits of in-principle support for the establishment For 2012/13 operational expenditure the technology investment planned as of a holding company over Ergon Energy was $635 million, down $47 million we transition from the current service and Energex progresses. p6 and positive to budget – illustrated on page 37. Regulated expenditure was, order dispatch model to a field force The 9% reduction in employees has taken however, slightly above expectations, automation model. p27 This program us back to 2010 levels prior to resourcing largely as a result of the scale of the of work will give greater visibility to the up for the anticipated growth in demand. response to Cyclone Oswald and the costs of the different customer touch Ergon Energy now has a workforce of associated flooding.p23 Regulated points in the distribution business and in 4,614, including casual employees, down operational expenditure per route turn help build a service improvement from 5,060 in June 2012 (4,435 full time kilometre was $2,364, also slightly program and boost effectiveness. equivalent (FTE), down from 4,869 FTE). above target. p7 Cumulative operational Additionally there has been a significant expenditure to date for this regulatory AN INFORMATION ENABLED reduction in the use of field-based control period is at 60% of what was ORGANISATION contractor hours. allowed for. This is a significant recovery We have continued to progress a suite of The organisational review has seen from the costs associated with technology investments core to changes to the structure of our retail responding to three cyclones in the first delivering the efficiencies targeted by operations and the establishment of year of the current five-year regulatory our strategic plan. Our aim is become an Ergon Energy Queensland Pty Ltd as a control period, including Cyclone Yasi in increasingly information-enabled separate stand-alone business with single February 2011, for which a pass through organisation, one that is readily able to point executive accountability. The aim was not sought to increase the revenue provide the business information has been to improve performance and allowed by the regulator. We are now required by our employees at all levels of efficiency and to better manage three years into the five-year regulatory the organisation to enhance decision operational risks. period, with operational expenditure making, business processes and almost in line with the target of 59% organisational performance. The Queensland Government recently of the full allowance. indicated it was committed to increased Delivering on the blueprint retail competition. In its reform Addressing expenditure remains the focus of our strategic enablement During the year, the implementation of announcements, in conjunction with a our Information and Communications longer-term structural reform objective program, which includes our Works Delivery Improvement Program. Technology (ICT) program – the 2015 for Ergon Energy Queensland Pty Ltd, Future State Blueprint – continued. the government is also considering This program is addressing existing The blueprint for the current regulatory options to align Ergon Energy’s retail delays and removing potential period was developed in 2011 with business with a government-owned bottlenecks throughout the end-to-end Energex, as well as our ICT service generator. The organisational changes delivery of the works program. This has partner SPARQ Solutions, to best we have made to date are in line with the seen improvements in program support our collective priorities and potential for these reforms. estimating, asset inspection and defect manage delivery dependencies, as well A single point of accountability has also management, business case preparation as enable greater convergence between been created to provide whole-of- and program management. Future our respective structures, processes and business oversight of the generation and program deliverables include a works systems. The investment plans mapped supply of electricity to remote and simulation tool and further development out under this blueprint have continued isolated communities. of the portfolio optimisation tool to to be assessed to ensure prudency, and ensure the prioritisation of the right revised where appropriate. projects in the capital works program.

26 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 The most significant initiative progressed It is our intention to aerial survey the PROPERTY STRATEGY FOCUSED this year has been Field Force entire network each year, with the ON OUTCOMES Automation, which is currently at the final data to then provide three-dimensional Ergon Energy’s long-term property approval stage. This will be central to geo-spatial images through strategy is underpinned by the need to delivering organisational transformation Google Earth. deliver consistency, economies, and achieving the targeted efficiencies Early in 2013, ROAMES also provided continuous improvement in design, and service outcomes across our core valuable support to the Bundaberg operational effectiveness and excellence distribution activities. Regional Council in its flood recovery in site functionality. The strategy aims to We have also scoped our requirements efforts, helping to pinpoint flood and drive the efficiencies needed in our new for a Distribution Management System. building footprints for micro modelling operating environment by rationalising This investment is about ensuring we are of the North Bundaberg floodplain. the number of sites, particularly at the well placed to manage the network ROAMES was recognised through the major centres, co-locating field and effectively into the future. p24 esaa 2012 Industry Innovation Award for office-based employees where feasible its innovative approach to efficiently and reducing the number of owned and Enhancements to our enterprise resource managing and protecting network assets leased properties. planning system are also being made to and its potential applicability across drive efficiency savings in logistics and As part of this strategy, in March of this other industries. External divestment works delivery, as well as to support year, employees from our Brisbane opportunities are now being explored improved financial management. offices in Mary Street, Eagle Farm office to allow commercial expansion of this and other locations were relocated to In 2012/13, the foundation project for our capability while securing operational facilities in Ann Street, Fortitude Valley. business intelligence and visualisation benefits for Ergon Energy. The new open planned office space, and program was also completed. This The information enablement strategy is the co-location of our operations is now allowed the first deployment of the also being supported by the roll out of supporting greater workplace revised approach in the area of network an all-encompassing telecommunications collaboration. In addition, moving out of reliability reporting. This ongoing network, known as ‘UbiNet’, which will the CBD to the new office has reduced program is improving access to support a range of network monitoring leasing costs. performance information and also and control technologies critical to reducing the cost of management Our Townsville property master plan also delivering asset management reporting. continued to be rolled out. This will see efficiencies, including our developing employees currently located in At the same time, the establishment of an demand management strategy and five-leased accommodation sites, and information governance framework has providing the operational efficiencies white collared workers from our Garbutt introduced greater data custodianship through connectivity for fixed and mobile site, brought into one leased CBD in order to increase the quality of field communications. location in Flinders Street. We are also information. A clearer separation of The $140 million investment in phase one continuing to look at the redevelopment data between the retail and distribution of the UbiNet project, which is opportunities for the Garbutt site. The businesses is also being progressed. establishing the telecommunications planned redevelopment of these facilities The system requirements for this are backbone that will link 40 depots and aims to address core capacity issues; currently being assessed. 90 substations and provide us with a age-related building conditions; safety cellular data network, is expected to be risks associated with increased traffic Understanding the state flows; and inadequate inventory storage. of the network completed by December 2013. The project’s delivery is on schedule for this We are also considering our To better inform network asset year (delivering a Scheduled Rockhampton property arrangements. management and operational decisions, Performance Index of 1.0), however, is All new and redeveloped facilities are we are continuing to incorporate spatial over budget due to unforseen foundation being designed and built with greater visualisation of the state of the network costs, the requirement for additional efficiency in mind; through increasing into business practices from outage sites, contractor issues and weather workforce collaboration; better space management to network planning. related access delays (the Cost utilisation, standardisation, avoiding The use of Google’s spatial viewing Performance Index was 0.8). The second unnecessary travel through increased technology for outage management will phase of this project, an $18 million video conferencing, and reducing even revolutionise the way customers investment in the replacement of the now energy use. interact with us. During the year we obsolete analogue two way radio established a new online capability that network with a digital P25 two way radio will enable customers to see where network has been completed, covering outages are occurring or planned across the area west of Toowoomba, extending the network. The Outage Finder maps, to St George and Roma and south to expected to be available during this Stanthorpe. This is providing greater summer storm season, will not only serve capability and utilises GPS technology to to empower customers, but also take our field crews to help improve customer pressure off the contact centre. response times and safety risk assessments. It played a crucial role in This work is under way in parallel with the Ergon Energy’s ability to communicate operationalisation of our ROAMES during the recent Cyclone Oswald (Remote Observation Advanced weather event. Modelling Economic Simulation) initiative. ROAMES continued the process this year of capturing network-related condition data, with a focus on clearances from vegetation using aircraft with specially designed LiDAR distance measurement equipment and digital photography.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 27 Ongoing Achieved Partial Not Achieved

STRATEGIC INITIATIVE ACHIEVEMENT Continue towards zero harm to put Ergon Energy amongst the Built on our safety culture by focussing on the use of lead and top quartile for health and safety performance against our peer lag indicators and targeting high risk activities. Implemented groups in Australia. a health and wellbeing portal to support fitness for work. p28

Determine Ergon Energy’s future workforce requirements, The organisational review has supported an adjustment to including a detailed forecast of the specific skills capability. the workforce in line with revised works program, and helped define our future skills requirements.p29

Review and continuously improve talent management, Further developed our leadership competencies and succession planning, and the performance management behaviours required to support a rapidly changing business framework. environment. Embedded the performance management framework as a key cultural enabler. p29

Our Comprehensive Safety Indicator Communications supporting the A SAFE, SKILLED (CSI) initiative is now in its third year of over-arching ‘Always Safe’ campaign WORKPLACE operation. This year we continued to continues to foster a health and safety make improvements to its use of lead conscious workforce. Our ‘No One Gets WORKPLACE SAFETY A PRIORITY (proactive) and lag (reactive) indicators Hurt Today’ campaign which featured a to drive teams’ safety performance. series of posters and electronic Leading Electricity Industry Examples of these indicators include the messages of employees demonstrating Performance All Injuries Frequency Rate (AIFR) and why they value safety in their personal Ergon Energy is committed to ensuring management activity, such as completion lives continues to resonate. the health and safety of employees and of safety management plans, site Communications also promoted safety the community. Our Health Safety and visitation, identification and elimination of around higher risk activities involving Environment Improvement Plan hazards and improvements arising from vehicle operations, such as securing 2012-2017 details the strategies for taking investigations. The CSI puts line loads, towing, reversing and fatigue. the organisation’s safety performance management responsibility and into the top quartile of the electricity employee engagement proactively in the Information Management Systems distribution industry’s recognised safety management system, as opposed Inform Decision Making benchmarks. Ergon Energy’s safety to reactively after an incident or injury Technologically enabled and integrated performance against the Energy has occurred. This has been supported systems are also further enabling better Networks Association (ENA) annual by a significant investment in safety decision making and sustainable safety benching (2011/12) has continued to leadership training. Using the CSI outcomes. Centralised reporting has seen improve and is currently second quartile measures to recognise and reward improvements in incident investigation, for both lost time injury frequency rate employees’ achievements, for both field management validation and the and compensable claims frequency and office-based employees, is also a key development of quick reference guide rate measures. driver of safety engagement. The materials accessed from eSafe. This initiative was used once more to select Health, Safety and Environment Learning Organisation Key to the crews to compete in Ergon Energy’s Integrated Management System Safety Culture annual Field Safety Day Champions continues to provide a robust We have continued to invest in building a competition held in Townsville. governance framework to ensure sustainable positive safety culture where Other initiatives are also being used to employees comply with policies, meet safety is inherent in everything we do. embed a safety culture and develop obligations and stay safe. It has been To ensure we operate as a learning future safety behaviours. The developed in accordance with Australian organisation, we have an inclusive, participatory ergonomics for manual and International Health and Safety multi-tiered safety committee structure handling initiative, known as PErforM, standards. that promotes consultation and involves uses the skills and experience of Ergon Energy has continued to maintain all levels of management and employees, employees to develop effective controls accreditation against the AS4801 and including union representatives and/or around manual handling which will ISO 18001 Standards following delegates. These various committees are reduce the risk of injury. Following on independent certification audits. working to establish a work environment from the success of the first PErforM free of harm by developing and workshop for dunnage (inflatable bags Ensuring our employees’ wellbeing implementing policies and initiatives used to secure plant and equipment at Ensuring employees are physically, while monitoring health and safety site), the focus went to the use of mentally and emotionally well remains a performance. In addition, we have portable earthing devices. More manual priority. To support this from a holistic operational forums that are key supports tasks are also being identified as PErforM perspective, late in 2012 we launched for the decision making within the continues to be implemented. Health Matters, an online health and company. Forums exist for high-voltage wellbeing portal where employees can live work, overhead and underground access informative health-related articles, standards and practices, switching and look for healthy recipe ideas and access access, and personal protective physical training programs. Employees equipment and clothing. Ergon Energy is can also use the site to obtain an also represented on a number of external individual health risk assessment, and safety related forums, such as Dial Before suggestions to improve any health risk You Dig. areas identified.

28 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 Random drug and alcohol testing DEVELOPING OUR WORKFORCE The new framework differentiates continued this year. This initiative remains employee performance through a central to educating our employees on Our future skills capability five-point rating scale that considers the impact that drugs and alcohol can Ergon Energy’s workforce is highly both the business objectives achieved have on being ‘fit for work’. We also skilled, encompassing specialist and demonstrated behaviours (SPIRIT continued the free flu vaccination fields from electrical engineering values). The review process, which has program to protect employees and to administration, and numerous now gone through its first cycle, is support our ability to maintain services technical trades. contributing to performance and talent throughout the flu season; 1,709 field and profiles across the organisation – and Our future capabilities requirement office-based employees participated. supporting reward and recognition. (skills, knowledge and behaviours) was Employees are being asked to set Ergon Energy’s strategy to actively assist considered throughout the organisational challenging goals and to strive to achieve employees to return to work continued review undertaken this year. This has them. This process is already helping to to gain momentum. We are implementing helped progress the development of prioritise our employee development an early intervention and return to work an organisational capability framework, investment by maximising and targeting program to lessen the impact of injuries enabling an increasingly integrated development experience, exposure and on our people and also on the business. approach to shaping the organisation, education in the business and externally. The Employee Assistance Program also developing talent and fostering continued to provide employees and communication. Training continues to be vital family members access to professional Understanding how we are evolving as counselling services. Ergon Energy continued to deliver a a business and how we need to adapt diverse range of technical and Improving network and asset safety to meet our customers’ and the non-technical training from regulations business’s requirements means we are training, such as pole top rescue and Safety remains a major consideration in able to better target employee resuscitation, to other essential training, works planning, infrastructure design, development for increased productivity such as advanced high voltage switching. construction and maintenance. This is and greater performance. This focus A significant investment was made in supported by a risk framework that on ‘future skills’ is also helping us plan re-training field workers around the new informs the decision making process effectively for the transfer of knowledge, instructions for low voltage connection. at all levels. skills and experience as employees Approximately 6,000 training sessions An area of network investment that has approach retirement age and were delivered to more than 19,000 been prioritised to deliver safety benefits organisational change progresses. participants. In addition, more than 2,600 online training programs were this year has been the staged Our increasingly technology-enabled completed, covering a broad range of replacement of aged open wire service operating environment is one of the topics from asbestos awareness to lines; $12 million was invested across major elements defining the future diversity awareness. the state through this ongoing program. skills set. p26 From a works practices perspective, Our apprentice, trainee and graduates the focus has been on lead times and Integrating talent management programs, despite some adjustments, the quality of applications for work on Ergon Energy’s Talent Management continued to deliver our future the network, as well as switching Strategy is about developing an tradespeople and professionals. communication protocols. appropriate level of talent within the 2013 saw the commencement of 58 new As a result of an increase in dangerous organisation to ensure current and future apprentices, five of whom were female, electrical events, a review was also success. Our focus is on developing and 15 new trainees. We continue to have undertaken into the security in place effective leaders, who are flexible and a mix of mature-aged apprentices and to prevent public access to high voltage agile, able to inspire and support our school leavers in the program and a plant. New instructions for low voltage people in delivering business results. 97% completion rate. The Australian connections, refreshed polarity training Skills Quality Authority conducted a During the year we continued to and new test instruments are also compliance audit endorsing our role integrate our talent management continuing to be rolled out. as a Registered Training Organisation. approach through a program of regular As part of defect management, graffiti workshops with the senior leadership removal also continued to be prioritised team to more actively identify and where it impacted the visibility of safety develop our talent as the business’s signage or was offensive; when not requirements change. The leadership classed as a risk, it is attended to as part development model also evolved with of our routine maintenance cycles. the changing environment to deliver more cost effective options to embed Asbestos management also remains an lessons learnt and to strengthen linkages asset safety priority. Our Asbestos with desired business outcomes. Management Plan ensures we are effectively managing and minimising Our aim is to maximise organisational asbestos related health risks either at performance by creating career an Ergon Energy site, or from work opportunities for the best talent to be undertaken by Ergon Energy. Customers challenged, developed and grown into are also being alerted to potential our leaders of the future. Our emerging dangers in their meter boxes thanks leaders are also required to demonstrate to Ergon Energy’s support of an our corporate values (p5) in their daily Australia-wide push to identify and decisions and behaviours to help create manage asbestos hazards. The program our desired corporate culture. involves labelling switchboards which are We also continued to embed the suspected of containing asbestos with performance management framework high visibility warning stickers. established in 2011/12.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 29 SAFETY SCORECARD

In November 2012, a fellow Ergon Energy employee based at Yeppoon lost SAFETY CULTURE TIME LOST TO his life as a result of a Taipan snake bite DELIVERING RESULTS INJURIES STEADY while in the field. The tragic nature of his

death not only impacted his family and 6.1 14.1 friends, it was felt widely across the 13.7 business and in the local community. 11.8 Following his passing steps were taken to review the control measures for snake 9.8

4.1 bites and employees were asked to take a fresh look at the many and diverse 7.8 risks associated with their work and the 3.2

actions needed to mitigate them. 2.6 2.6

More broadly, Ergon Energy’s workplace health and safety performance continued to improve, evidenced by a 20% improvement in our All Injuries Frequency Rate (AIFR) for employees. AIFR The improvement exceeded our LTIFR 2011 2012 2010 2013

corporate target of 12.0 – with the 2011 2009 2012 2010 2013 AIFR result moving from 9.8 in 2011/12 2009 to 7.8. This indicator includes both Lost The frequency of workplace injuries was down Lost time injuries remained steady this year, Time Injury Frequency Rate (LTIFR), as 20%, reflecting progress towards our goal of however, improvement was seen through a the more common industry measure, industry best practice. drop in compensable claims. and the frequency rate for medical treatment injuries. We were just outside our target of less THE STATISTICS than or equal to 2.3 injuries per million labour hours, achieving a 2012/13 LTIFR SAFETY PERFORMANCE 2012/13 2011/121 2010/11 2009/10 2008/09 result of 2.6 per one million labour hours, All Injuries Frequency Rate – Target 7.8 9.8 13.7 14.1 11.8 steady against the previous year. Employees ≤12.0 Compensable Claims Target However, our Compensable Claim 2.3 3.0 2.9 4.3 3.2 Frequency Rate (CCFR) improved Frequency Rate ≤3.3 Lost Time Injuries Frequency Target within target by 23% to 2.3. 2.6 2.6 3.2 6.1 4.1 Rate – Employees ≤2.3 Performance declined against the Lost Time Injuries Frequency Target 2.2 1.8 2.2 0.6 1.6 Dangerous Electrical Event Frequency Rate – Contractors ≤3.0 Rate (DEEFR) for employees measure Total Dangerous Electrical 1,024 1,051 885 894 1,037 – from 2.5 in 2011/12 to 4.4. Contractors Events (DEEs) safety also declined slightly with the – Unassisted Asset Failure 323 360 374 394 342 LTIFR at 2.2, although this was within the (within Ergon Energy's control) target of less than or equal to 3.0. These – Assisted Asset Failure remain areas of management focus. (outside Ergon Energy's 701 691 511 500 695 control) Ergon Energy incorporates the AIFR, Dangerous Electrical Events Target 4.4 2.5 4.9 5.3 3.2 along with other lag and lead indicators, Frequency Rate – Employees ≤2.5 into a Comprehensive Safety Indicator Community Electrical 323 284 303 310 439 to give our people at the work group Safety Incidents level a meaningful score of how they are performing from a holistic safety 1. 2012 results adjusted due to changes in the status of a number of injuries since the previous reporting period. perspective. The organisation overall is performing at the silver benchmark, with 455 total points allocated against a range of areas, out of a possible 600.

Our commitment to improving our performance against all these measures aligns with our goal to take the organisation’s safety performance into the top quartile of the electricity distribution industry-recognised benchmarks and our aspirational goal to achieve zero injuries in our workplace.

FOR MORE ON COMMUNITY ELECTRICAL SAFETY SEE PAGE 19.

30 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 Employee engagement For us, diversity is about making the Attracting a diverse applicant pool Employee engagement remains critical. workplace more inclusive. This includes Through our recruitment strategy, we This is seeing engagement plans, increasing the representation of women continued to focus on the diversity of shaped by the results of the previous in leadership, as well as in the technical our applicant pool, in order to create year’s employee Have Your Say Survey areas. Support for gender diversity has a workforce that is increasingly (this survey is being undertaken again been incorporated into our integrated representative of our customer base. in 2014), being outworked. A particular talent model, aimed at building leaders The recruitment of A&TSI, as an under focus has been on recognising and of the future. represented group, continued to be a appreciating individuals and teams in We have developed professional target area. This recruitment process for order to ensure that we continue to development programs, leadership our A&TSI Apprenticeship Intake has engage and retain our high performers conferences and mentoring programs commenced, for placements in January during the current period of to advance our female talent. Our flexible 2014, with 10% of these business entry transformational change. working options are also helping positions earmarked for A&TSI candidates. These efforts are being supported by employees to balance their professional This is being supported by, for the first a robust, cost-efficient internal and personal commitments. time, an A&TSI Pre Employment Program. communication program which keeps Our aim is to build a stronger Ergon The aim is to provide participants with employees and teams well informed Energy by enhancing awareness, open the skills and confidence needed to about priorities, reinforces how people’s mindedness, knowledge, tolerance, and successfully complete an apprenticeship roles and efforts support the bigger respect for others regardless of their sex, with us in the future. picture, and promotes a sense of culture or background. Our apprentice, trainee and graduates connectedness. The flagship channel programs recognise the importance of is DailyMail, an email bulletin capturing With this in mind this year we became a our youth – who are our future – and key announcements, safety alerts and sponsor of an Indigenous Student Intern provide both training and mentoring operational updates, all drawn from the Scholarship, through our successful to equip our young people for a bright online ‘newsroom’. Ergon Energy’s other partnership with the Queensland and successful future. major internal communication asset is a University of Technology. Annie-May bimonthly Team Brief DVD. This ensures Martin became the successful Indigenous scholarship holder and she has Managing an intergenerational that every employee, wherever they live, workplace whether office or field based, shares completed her first 15-week intake with the same opportunity to get the latest us earlier this year. Annie-May is currently With the age composition of our information, to ask questions and enrolled in a Bachelor of Business workforce changing, we are facing provide feedback. majoring in Management. Ergon Energy significant intergenerational challenges. is proud to be contributing to the Ergon Energy’s workforce currently DIVERSITY IN THE WORKPLACE academic and career success of has five different generational groups. Aboriginal and Torres Strait Islanders These include a material number of Through our Diversity Program 2010-15 (A&TSI) students. employees moving towards retirement, we are creating a workforce diverse in some in business critical roles. skills, experiences and perspectives. To make Ergon Energy a better Our program is about ensuring the place to work for all, we also have By better understanding our talent attitudes and behaviours of our a SHADO (Sexual Harassment and profile and potential pipeline and employees support an inclusive work Anti-Discrimination Officer) Network responding to our age and tenure environment, a workplace where who voluntarily come together for profiles, we are responding to a rapidly everyone has an opportunity to fully networking, mentoring, community changing business environment and participate and be valued for their outreach and other activities – and changing workforce needs by working contribution. support employees experiencing with our people and introducing discrimination, harassment, bullying, innovations, such as our Transition victimisation or vilification. to Retirement program. The age profile of our workforce is provided below.

OUR WORKFORCE OUR WORKFORCE OUR WORKFORCE BY AGE BY REGION BY GENDER 1,265 1,216

1,118

644 325 46

Northern 40% Central 28%

Female 26% <25 65 + Southern 23% Male 74% 25 – 35 55 – 65 45 – 55 Brisbane 9% 35 – 45

Our workforce is based across the Queensland, Being predominantly field-based, in a male A voluntary redundancy program has seen a from the northern and western reaches to the dominated industry, around three quarters of proportionally higher number of employees in population centres along the coast and in the the workforce is male. the under 25 year old group and the over 65 south-east. year old group take advantage of the package offered. Despite this, 15% of the workforce remains fifty-five years or older.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 31 THE STATISTICS

OUR PEOPLE 2012/13 2011/12 2010/11 2009/10 2008/09 2007/08

Number of Employees 4,614 5,060 4,752 4,630 4,634 4,489

Full Time Equivalent 4,435 4,869 4,624 4,513 4,581 4,399

Staff Turnover (annualised) 14.3% 8.1% 6.8% 7.2% 6.6% 8.5%

Women in the Workforce 1,204 1,337 1,197 1,132 1,138 1,071

Women in Upper Management 16% 17% 20% 21% 13% 12%

Women in Middle Management 21% 21% 21% 19% 20% 21%

A&TSI in Entry Level Positions 58 67 77 66 57 41

We are currently investigating practical MITIGATING GREENHOUSE To achieve this, we are continuing to intergenerational and career transition GAS EMISSIONS increase our capacity to generate initiatives, including leave management, renewable energy. During the year, as knowledge continuity plan for Reducing our electricity use part of this strategy, a new solar farm generational transfer and in some cases As an organisation, we are focused was constructed at Doomadgee. The flexible work options, which aim to both on reducing electricity use across our new 264kW system of fixed flat plate support our employees and mitigate operations – this is both reducing costs solar panels will supplement the existing future resourcing risks. and helping to address indirect diesel generation plant without adversely greenhouse gas emissions. affecting stability and is expandable in PROMOTING CONSTRUCTIVE the future; it is located on a site that can Our new buildings are being designed WORKPLACE RELATIONS accommodate up to 2MW of panels. and built with energy efficiency features. Considerable industry union engagement Over the past 12 months, three of our new On Thursday Island, which currently has and consultation was undertaken buildings have exceeded their designed diesel generation and two wind turbines, during the year in relation to strategic energy efficiency by successfully we are in the process of confirming land operational issues and organisational attaining 5 star NABERS ratings, and availability following a feasibility study changes to enable the workforce another achieved a design rating of into the opportunities for increased wind adjustments needed to respond to 4.5 stars. The new leased building in generation. We are also continuing to the reduced works program and our Brisbane is targeting a 5 star NABERS explore funding and technical options to efficiency and effectiveness goals. rating, and the Townsville CBD building cost-effectively replace our ageing To foster reasonable and effective when complete is aiming for 4.5 stars. p27 geothermal power station at Birdsville, the only wet geothermal power station in relationship, representative unions have In addition, across our existing buildings, Australia. Renewable energy is also the opportunity to escalate concerns and the implementation of a range of energy continuing to be generated through five outwork solutions through the Ergon conservation initiatives has achieved a solar concentrator dishes at Windorah. Energy Consultative Committee, the marked reduction in electricity usage. Regional Consultative Committee and These initiatives included an investment Throughout the year, we used biodiesel other consultative mechanisms as in energy efficient lighting and control B5 blend (5% biodiesel and 95% diesel) applicable. The frequency that these systems and the end of life replacement at five of our diesel power stations – committees meet varies from monthly of air conditioning plant with high Boulia, Bedourie, Birdsville, Jundah to quarterly. efficiency plant and associated and Windorah. However, after review, The wages and conditions for the control systems. due to the cost of transporting the biodiesel to these sites, this practice majority our employees (98%) are Our energy conservation efforts are not has been discontinued. set through Ergon Energy’s Union limited to our own operations. We are Collective Agreement, which extends also supporting our customers to reduce We are also investigating energy to October 2014. their electricity use. Leveraging other efficiency opportunities within our diesel business imperatives – such as our power stations to further reduce diesel PROTECTING THE demand management objectives (p22) usage. A formal energy efficiency ENVIRONMENT and our cost-driven diesel reduction assessment is planned for Saibai Island strategy – we are achieving positive power station, with the recommendations A high standard of environmental environmental outcomes. to be extrapolated to our operations performance is central to being a in the other isolated communities. high-performing organisation. We believe Reducing our reliance on diesel The assessment will be completed in we have a corporate responsibility to play Diesel fuel accounts for more than line with Energy Efficiency Opportunities a role in conserving the world’s resources half of electricity generation costs in Act 2006 (Cth) requirements and in (whether materials or energy) through our isolated communities, so reducing the coming months a public report the adoption of efficiency and waste our reliance is critical to managing summarising the findings will be minimisation initiatives or, more broadly, operating costs and the risk of published on our web site. through operational improvements and fluctuating diesel prices. Reducing Our isolated communities’ energy saving better asset investment decisions. our diesel use also delivers significant program, powersavvy, also continued to environmental benefits. as an important strategy to achieving the targeted reductions in diesel use for generation. p18

32 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 ENERGY SCORECARD

OUR CARBON FOOTPRINT estimated to be responsible for 7% of our total footprint. Electricity used in our Our emissions inventory, defined by the OUR CARBON FOOTPRINT 108 plus buildings across our operations, National Greenhouse and Energy including 83 depots, represents about 3%. Reporting Act 2007 (Cth) scopes: Indirect Emissions (Scope 3) – these are Direct Emissions (Scope 1) – the associated with other entities, including operation of the 33 diesel-fired electricity the operations of joint venture SPARQ generation plants, which we use to Solutions. This category also includes air supply our communities isolated from travel, however, this only represents about the main grid, accounts for about 69% 0.3% of our emissions inventory. Air travel, of our direct, or Scope 1, greenhouse while remaining necessary as a regionally gas emissions, the rest being mostly dispersed organisation, has been reduced from vehicle fleet fuel use. in line with our efficiency targets. Emissions associated with the use of The total emissions across these electricity (Scope 2) – these emissions categories is 887,000 tonnes of carbon are largely unavoidable network energy dioxide equivalent, based on available losses, comprising around 77% of our 2011/12 data. Network losses 77% Operational electricity total emissions inventory. Street lighting Electricity generation 9% use 3% is another significant contributor to Electricity used by Vehicle transport street lights 8% fleet 2% emissions associated with electricity use, Other 1%

RENEWABLE ENERGY THE STATISTICS We are continuing to support the ISOLATED GENERATION 2012/13 2011/12 2010/11 2009/10 2008/09 establishment and growth of renewable Energy used in the generation sources, in line with the production of electricity: (GJ) Australian Government’s Renewable Energy target of ‘20% by 2020’. • Diesel generation 712,658 696,929 714,281 720,035 716,697

For our grid connected customers, • Renewable generation 671 634 762 1,212 864 we purchase just over 7% of our energy requirements directly from Related Emissions (tCO2-e) 75,046 73,393 75,258 76,711 76,295 renewable sources.

During 2012/13, as part of the Solar Bonus Scheme, primarily through the RENEWABLE ENERGY IN RENEWABLE ENERGY 44 cent feed-in-tariff, Ergon Energy ISOLATED COMMUNITIES FOR THE GRID credited almost $75 million to eligible customers’ accounts for the renewable energy their systems exported back into the grid (up from $28 million).

To meet our liability under the federal and state renewable energy targets, we also bought additional Renewable Energy and Gas Electricity Certificates (RECs and GECs).

Our GEC compliance requirements were equivalent to the purchase of 15.00% of our customers’ energy requirements from Queensland gas-fired generation. For

RECs, our Large-scale Generation Biodiesel 22% Bagasse 73% Certificate requirements for 2012 were Geothermal 20% Wind and Hydro 4% equivalent to sourcing 9.15% of our Solar 8% Solar 23% customers’ energy requirements from Wind 50% renewable generation. This rises to We are continuing to increase our capacity Ergon Energy purchases just over 7% of the 10.65% for 2013. We also have a RECs to generate renewable energy for our isolated electricity it on-sells to its customers supplied liability under the Small-scale Renewable networks. While these do not all contribute from the main grid directly from renewable Energy Scheme for Small-scale to our renewable energy liability, they are sources, a large portion of which supports reducing our diesel costs and delivering the local sugar industry through purchase of Technology Certificates equivalent to environmental benefits. electricity fuelled by bagasse. The remaining sourcing 23.96% of our customers’ 92.6% of the electricity required comes from energy requirements. This will drop to the national electricity ‘pool’. 19.70% for 2013.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 33 Network losses strategy finalised We are currently reviewing the Independent Review Panel’s During the year, informed by a ENVIRONMENTAL INCIDENTS comprehensive engineering study that recommendation to divest these sought to identify economically viable sustainable pole forest property assets. opportunities for minimising network We are also continuing to investigate new losses, Ergon Energy finalised its network ways of recycling timber power poles losses strategy. Network losses are a that have been decommissioned in a largely unavoidable consequence of number of regions, rather than discarding distributing electricity that results them as waste to landfill, and to work from heat loss from the powerlines with Forest and Wood Products Australia and other electrical equipment. and the Queensland Government to test the suitability of different plantation Given that the cost of network hardwood species for power poles. augmentation works cannot be justified based on the reduction in network Improving waste management losses alone, the strategy has confirmed Ergon Energy manages both industry opportunities to improve the power factor specific and general waste as part of of large customers in constrained network our day-to-day activities. During the areas. This approach was reinforced by Fauna related 45% Threatened species 2% year, we started implementing a new the Australian Government’s decision to Fuel and oil spills 29% Other 22% Waste Reduction and Recycling Plan. Gas emissions 3% indefinitely defer regulating network New initiatives in the recycling area losses under the Energy Efficiency include considering the reuse of materials (Cth). Opportunities Act 2006 that are left over after construction Fauna related incidents, involving birds, bats and small animals contacting the powerlines, While 2012/13 network losses data and maintenance activities. With the are our most frequent environmental incident. was not available at the time of printing, increased focus on recycling materials, During 2012/13 we recorded 147 incidents. in 2011/12 5.2% of energy entering this year we recovered more than the network was not accounted for. 1,431 tonnes of scrap metal including This is consistent with the previous copper, aluminium and steel for recycling During 2012/13, Ergon Energy had year. This figure includes not only real (which is significantly greater than no major environmental incidents network losses but also other unmetered 890 tonnes in 2011/12), and 1,119 tonnes (Class 1 or 2 incidents) or breaches supplies, such as streetlights. of old transformers for recycling of the Environmental Protection Act 1994 (470 tonnes in 2011/12). We also (Qld). We also continued to maintain BEST PRACTICE USE OF MATERIALS recovered 335,000 litres of oil certification of our Environmental The scale of our capital infrastructure (101,700 litres in 2011/12) from our Management System to program largely dictates the use assets for processing for disposal AS/NZS ISO 14001. or reuse through licensed facilities. of resources, making our demand Ergon Energy has continued to management efforts and the drive Practicing water conservation maintain a focus on contaminated to defer network investment (discussed land management. A high-level Throughout our property portfolio elsewhere in the report) as central contaminated land assessment of we aim to minimise water use. In all new to improving resource utilisation as 900 of Ergon Energy’s sites has been properties, rainwater tanks are installed it is to minimising cost pressures for undertaken. This will allow us to progress for supplying toilets and gardens. our customers. detailed site-specific reviews, on a risk We also manage water use in the wash basis, to capture the current and historic Ensuring a sustainable supply of down bays at our depots. The other area uses and extract local knowledge to power poles where we undertake water management further define the profile for each site. This year the works program saw the is in our stand-alone generation plant. In purchase of around 10,800 new poles Birdsville, we operate a small geothermal Weed control activities sustained (compared to 12,160 in 2011/12), along power station that draws from a with around 3,068 transformers free-flowing bore, which has existed for Ergon Energy’s weed management (compared to 2,890 in 2011/12). more than 75 years. After the water’s strategy aims to limit the introduction of heat is used for generation, it is directed declared plants and priority weeds into To ensure a sustainable supply of power into the town’s water supply and lagoon. new areas of the network and prevent poles, Ergon Energy is growing its own Any development of this site will consider the spread of existing infestations renewable supply of poles on a number ongoing water requirements. In our solar through effective risk assessment, the of native forested properties. Over the farm in Windorah, we use water from a deployment of site-specific past 12 months, detailed forestry dam filled with non-potable water from environmental management plans and management plans have been prepared a nearby creek for evaporative cooling. ensuring compliance with vehicle for the properties at Boomerang wash-down protocols. During 2012/13, (near Bundaberg), Gundiah (south of PROTECTING OUR LOCAL weeds remained a key area of Maryborough) and Eagle Rock (near ENVIRONS environmental concern. This has seen a Esk). Planning is still underway for sustained focus on the control activities the Mt Marsh pole forest property in Environmental incidents undertaken as part of our construction northern New South Wales. The plans Ergon Energy’s incident management and maintenance programs and a review detail how the properties will be framework classifies incidents using of the wash-down facilities at our depots, managed to promote the growth of a four-level scale. For environment with a number of new wash-down suitable trees from for harvesting power or cultural heritage impacts, a Class 1 facilities built or temporary facilities poles. Essential property maintenance, incident is a major impact involving constructed. This year, these facilities including the removal of invasive weeds a sensitive environment or a breach of have been added to our spatial data like lantana, erosion control along creek cultural heritage legislation resulting systems so workgroups can quickly banks, maintenance of fencing and in significant financial penalties. identify the most appropriate facility some thinning of trees, is now being On the other end of the scale is a when planning work or when weed cost-effectively undertaken under Class 4 incident – one with a minor wash-downs are required. an external contract. localised impact, requiring minimal or no remediation.

34 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 Targeting bushfire mitigation We are continuing to improve our Although the risk of bushfires in vegetation management practices. Queensland is lower than in the southern To maintain appropriate aesthetics in states, it has remained a significant issue urban areas, we have shortened cycle from a reliability perspective. While the times, so we can continue with less frequency of fire related Dangerous invasive cutting. Further improvements to the data available on sections where Electrical Events (p30) has returned to historical averages, more than 250 poles vegetation is at risk of contacting were lost through fire during the year. powerlines will allow us to minimise Almost all were lost through grass or unnecessary vegetation removal as bushfires. Ergon Energy continues to we move from a cyclic-based program promote awareness in the community to a risk-based approach and ensure of the importance of protecting the locations with special environmental electrical network when conducting values are managed appropriately. p24 controlled burns, and has developed Building cultural heritage awareness a good working relationship with the Queensland Fire and Rescue Service, Ergon Energy remains committed to which issues fire permits. Trials of fire minimising the impact of our works retardant paint on pole bases continue program and protecting the diverse and installation of steel-butted poles cultural heritage artefacts found in our is being pursued in some areas of the region. A considerable investment was network to mitigate external fire risk. made during the year to build employee awareness of the importance of cultural Working sensitively to heritage, largely through training and protect biodiversity embedding up to date data into our In addition to our bushfire mitigation systems. and weed control activities, we have All new starters, as well as contractors, also continued specific biodiversity now undergo a mandatory cultural protection initiatives. We have continued heritage awareness training module our powerline corridor mapping program following a revamp of the training suite to ensure minimal impact from the this year. Access to cultural heritage operation of our infrastructure located data was also made easier through a in environmentally sensitive areas, new agreement with the Queensland including national parks, state forests Government that allows us to incorporate and world heritage areas. Through the their Queensland Indigenous Registered program, which has been under way Heritage datasets into our Google Earth since 2006, we have completed environment. This spatial data has been ecological surveys of 1,322 kilometres of expanded to a two kilometre buffer powerlines across 277 protected areas. around our existing infrastructure from As part of protecting biodiversity, we the previous 500 metres. continue to take measures to minimise We have also improved the process the impact when planning our work. This for enlisting Indigenous representatives to year, proposed line routes were modified support local cultural heritage assessment. when a number of threatened species, Cultural heritage matters are now a including the ooline tree, yakka skink, standard consideration in our Indigenous golden tailed gecko, border thick tailed Land Use Agreements and with our gecko, king bluegrass, wallum froglet and encouragement have been incorporated the glossy black cockatoo were found into the Energy Network Associations during field investigations. Innovative Land Management Guidelines. cable design was also proposed for one of our projects on Magnetic Island, where a power cable is to be contained within a secure conduit run at a metre above steep ground to avoid the need for either an overhead powerline or burial of the cable in rocky terrain which would substantially increase the potential for erosion of the infrastructure.

As this report was being finalised, we were commissioning the new solar farm at Doomadgee, in the Gulf – it will operate in parallel with the diesel power plant that supplies the isolated community.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 35 OUR ECONOMIC AND FINANCIAL PERFORMANCE

Ongoing Achieved Partial Not Achieved

Ergon Energy is delivering economic value to Queensland STRATEGIC INITIATIVE ACHIEVEMENT through its core services and Develop a proposal to the Australian Energy Forecasting methodology well infrastructure, as well as our Regulator for our revenue requirement progressed and using a portfolio financial performance. We also for 2015-20 with clear objectives around approach for investment plans. contribute economically through affordability, customer value, and prudent Stakeholder engagement program local employment and purchasing. investment. under way.

DELIVERING Limiting increases to our revenue The Retail Business requirements is dependent on us ECONOMIC VALUE Our retailer, Ergon Energy Queensland maintaining capital and operating Pty Ltd, delivered an NPAT of $85 million. expenditure forecasts for the end of AN ECONOMICALLY This was $31 million favourable to budget this period. It is also dependent on future SUSTAINABLE PATH primarily due to a strong performance financing costs being lower than what in the renewable energy portfolio Ergon Energy’s overarching strategic was forecast for the current regulatory contributing $18 million and the impact goal, to limit increases on average control period. If market expectations of anticipated changes to the Long network charges (and the pressure on of lower financing costs eventuate, the Term Energy Procurement component electricity prices) to less than the CPI revenue requirement is expected to be of the Community Service Obligation over the medium term, is at the heart of lower than the revenue requirement for Deed. The latter resulted in a change to delivering our economic contribution to the current regulatory control period. Queensland. This is about finding an the accounting treatment of forward economically sustainable path for DELIVERING ON OUR financial instruments the result of which supplying electricity to regional FINANCIAL TARGETS was that movements in the market Queensland. value of hedges now impact the results. Our commitment to delivering on this These hedges are entered into to manage In line with this goal, Ergon Energy’s year’s financial targets, agreed with our future purchase price risk and as such capital and operating expenditure plans shareholding Ministers, saw sound results will be offset by movements in electricity over the current five-year regulatory across all of our key measures. Ergon purchase costs in the forward years they control period to 2015 have been Energy represents a significant investment relate to. However, until these positions reduced by $1.5 billion. This reduction for the Queensland Government and are realised, changes in their market of 20% has been supported by a range we recognise that the return on this value are incorporated into the results of efficiency measures (p13) and investment needs to be maximised. as unrealised movements but are workforce reductions commensurate Ergon Energy delivered a consolidated excluded from dividends calculations with the revised program of works. p26 group Net Profit After Tax (NPAT) due to their non-cash nature. of $434 million – significantly above We have begun the process of preparing Contributing commercial value a proposal for the Australian Energy the $315 million target agreed in our Regulator to determine our revenue SCI (p7) – and an Earnings Before Our subsidiary Ergon Energy allowance for the next regulatory Interest and Tax (EBIT) of $980 million Telecommunications Pty Ltd (trading as control period from 2015 with very (target of $815 million). Nexium), contributed a $3 million NPAT clear objectives around affordability, to the 2012/13 financial results. Nexium This has allowed for a $326 million customer value, and prudent investment. continued to provide wholesale and retail dividend that, together with the An extensive stakeholder engagement high-speed fibre-optic connectivity to $53 million competitive neutrality program has also been developed to the resource, transport, energy and fee paid, partly offsets the government’s ensure these objectives are best informed government sectors, as well as internal $596 million Community Service by our customers’ requirements. support to our own operations. With the Obligation payment. Our focus to date has been on ensuring potential for the government to leverage our approach to forecasting future The strength of this result has been Ergon Energy’s fibre communications investment needs is consistent with achieved through our efforts to arrest network to reduce their overall these needs. We have also begun our the recent upward trend in expenditure, telecommunications spend recognised engagement with the regulator on the coupled with increasing revenue levels. by the Independent Review Panel, framework and approach to setting The efficiency-related benefits of in we are anticipating further business prices for 2015 to 2020. The formal excess of $100 million achieved this year growth in this sector. proposal regarding our revenue will assist in reducing network prices in Ergon Energy’s manufacturing requirements for the next period will the next regulatory period. workshops have also had another be submitted in October 2014. The above target component of this successful year – delivering modular The revenue allowance set by the result was due largely to an increase in data centres to telecommunications regulator (which dictates the network revenue from a change in the accounting infrastructure providers, as well using charges we pass on to our customers) treatment for solar feed-in-tariff payments, new, innovative techniques to better allows us to recover the costs of which brought $100 million in revenue to service our clients in the electricity providing regulated network services. account, and a substantial STPIS reward industry. We are currently benchmarking An appropriate revenue allowance is (accounting for $26 million). p15 the internal provision of the workshops’ central to the economic sustainability core services against the market to These results were achieved while of our business and long-term price ensure lowest cost. delivering an $872 million capital stability for customers. investment program. p22, 38

36 OUR ECONOMIC AND FINANCIAL PERFORMANCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 REVENUE GROWTH STRONG EFFICIENCIES ARREST GROWTH PROFIT WELL ABOVE BUDGET IN OPERATIONAL EXPENDITURE $3.0 $434 $682 $2.7 $634 $635 $2.5 $556 $2.3 $322 $320 $509 $2.2 $167 $129 BILLION MILLION MILLION 0 0 0 2011 2011 2011 2012 2012 2012 20 1 2013 20 1 20 1 2013 2013 2009 2009 2009

Revenue growth has been strong, due to both Our efficiency and effectiveness efforts have The above budget profit allows for a dividend increases in sales revenue and the Community arrested the recent growth in operational to Queensland Government of $326 million, Service Obligation payment. expenditure, in line with the revised works partly offsetting their $596 million Community program. Service Obligation payment.

ASSET VALUE GROWS WITH RETURN ON ASSETS BOOSTED SCALED BACK PROGRAM NETWORK INVESTMENT MITIGATES LIABILITIES 6 . .9% .6 3 7 $11.5 . 8 .0 7 $ $ $1 0 8.0% $6.9 .6% 0 $1 0 . 7 6 $ $8.7 $5.5 7% $8.0 . 5 .3% 5 BILLION BILLION RETURN 0 0 0 2011 2011 2011 2012 2012 2012 20 1 2013 20 1 2013 20 1 2013 2009 2009 2009

The $798 million network investment this year The strength of the profit result, created a Scaling back the capital program has reduced was well below what was forecast for this one off jump to the return on investment. our funding requirement (enabling a debt regulatory period, due to suppressed demand. repayment plan and a reduction to this year’s Total asset value shown. funds draw down); mitigating total liabilities.

OUR ECONOMIC AND FINANCIAL PERFORMANCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 37 FINANCIAL STATEMENTS EXPLAINED

This section explains the key line items from our financial statements and provides the definitions and trends for our financial performance ratios. This commentary is not intended to be a comprehensive. For full disclosures please refer to the full Annual Financial Statements for Ergon Energy Corporation Limited and its controlled Entities available online at www.ergon.com.au/annualreport

A. WHERE DOES OUR REVENUE COME FROM? D. WHAT DO WE OWE (OUR LIABILITIES)?

Ergon Energy’s revenue and other income for the year Ergon Energy’s total liabilities increased to $7,745 million this totalled $3,012 million, an increase of $319 million compared year with funds drawn down used for our capital works to 2011/12. Our revenue sources include retail electricity sales programs and cash flow requirements. Prudent gearing of $1,715 million, distribution revenue of $320 million from ratios are being maintained. The reduction in capital our non-retail customers and customer contributions expenditure is reducing Ergon Energy’s debt requirements; towards the electricity distribution network of $132 million. combined with a debt repayment plan, this has reduced this year’s draw down. Ergon Energy also received $596 million on Community Service Obligation (CSO) payment from the Queensland Our largest individual liability is the interest bearing loan Government for 2012/13. The CSO is paid to Ergon Energy with Queensland Treasury Corporation of $4,979 million. Queensland Pty Ltd, our retailer, to meet the difference The second largest liability is the net deferred income tax between the efficient cost of supply and the government’s liability of $1,758 million. Some of our other key liabilities regulated tariffs. The Uniform Tariff Policy and the CSO include current payables due to trade creditors ($116 million) ensure that most Queenslanders have access to the same and current employee benefits ($131 million). cost of electricity regardless of where they live. Ergon Energy’s long-term corporate credit rating has been Ergon Energy’s regulated revenue, for the use of our maintained with a public rating of AA. This credit rating is electricity distribution network, is determined by the AER, influenced by the global economic environment. and is recovered via network charges. The charges are billed to both our retail business and the retailers of customers who have entered the contestable market in regional E. WHAT WAS OUR CAPITAL INVESTMENT? Queensland. The AER also regulates certain payments by Ergon Energy delivered an $872 million total capital our customers for capital contributions towards network investment program. The regulated component of our extensions and other services. capital works program was within the five-year regulatory control period allowance – this $798 million investment, B. WHAT ARE OUR MAIN EXPENDITURES? associated with our Standard Control Services, included providing new connections, increasing the capacity of the Ergon Energy’s operating expenses provide a significant network and improving reliability. p22 economic contribution to Queensland. We’re employing 4,614 people directly – with total payroll costs of $580 million – in addition to engaging a large contractor base – F. WHAT RETURN DO WE GIVE TO OUR OWNERS? with contract payments totalling $146 million. Ergon Energy The strength of Ergon Energy’s profit result will enable adheres to the State Procurement Policy and encourages dividends of $326 million to be paid to our shareholding local sourcing. Operating expenses totalled $635 million – Ministers, and through them to the Queensland Government, down $47 million on 2011/12 (despite regulated operational in 2013/14. This payment, ultimately, benefits the people expenditure being slightly above budget). To supply our of Queensland. customers with electricity, we incur a number of major expenses – for 2012/13 electricity purchases totalled Dividend Policy – Ergon Energy’s dividend policy requires $689 million and the transmission network charges paid the Board to recommend, taking into account the to Powerlink Queensland totalled $302 million. investment return its shareholders expect, a dividend of 80% of profit adjusted for unrealised fair value gains or losses on financial instruments (as has occurred this yearp36 ). This is C. WHAT ASSETS DO WE OWN? paid on the basis of its shareholders agreeing to provide the necessary funding for approved projects, the maintenance In 2012/13, Ergon Energy’s total asset base increased in of Ergon Energy’s approved capital structure and the value by $860 million to $11,460 million. Property, plant and organisation’s operational viability. equipment are the major components of our asset base, at $10,011 million, which includes mostly regulated electricity network assets. Ergon Energy revalued its property, plant and equipment assets as at 30 June 2013, resulting in an increase of $330 million. The directors approved valuations performed by management of all asset categories. At the end of June 2013, $196 million was held as cash, consistent with normal business operations.

38 OUR ECONOMIC AND FINANCIAL PERFORMANCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 FINANCIAL SUMMARY FOR ERGON ENERGY CORPORATION LIMITED (CONSOLIDATED)

2012/13 2011/12 2010/11 2009/10 2008/09 $million $million $million $million $million

A. OUR REVENUE

Revenue and Other Income 3,012 2,693 2,539 2,204 2,279

B. OUR EXPENDITURE Network/Electricity Purchases (995) (853) (846) (926) (1,038)

Operating Expenses (635) (682) (634) (509) (556)

Depreciation Expense (402) (380) (314) (291) (278)

Finance Charges (369) (321) (294) (243) (223)

OUR PROFIT

Earnings Before Tax 611 457 451 235 184

Tax Expense (177) (137) (129) (68) (55)

Net Profit After Tax 434 320 322 167 129

C. OUR ASSETS Current Assets 1,086 1,144 1,012 1,128 1,031

Non Current Assets 10,374 9,456 8,963 7,570 6,980

Total Assets 11,460 10,600 9,975 8,698 8,011

D. OUR LIABILITIES Current Liabilities 1,282 1,179 967 1,035 778

Non Current Liabilities 6,463 6,124 5,693 5,002 4,682

Total Liabilities 7,745 7,303 6,660 6,037 5,460

Net Assets 3,715 3,297 3,315 2,661 2,551

E. OUR INVESTMENT Total Capital Investment 872 870 831 806 844

F. DIVIDENDS Dividends Provided For 326 256 253 138 117

Dividends to Net Profit After Tax 75% 80% 79% 83% 90%

FINANCIAL RATIOS 2012/13 2011/12 2010/11 2009/10 2008/09 Return on Average Assets Reflects the efficiency of our assets to generate earnings. 8.9% 7.6% 8.0% 5.7% 5.3% = Earnings Before Interest & Tax / Average of opening & closing asset balances x 100. Return on Average Equity This represents the returns generated on the money the Queensland 12.4% 9.7% 10.8% 6.4% 5.1% Government, as our shareholder, has invested in Ergon Energy. = Net Profit After Tax / Average of opening & closing equity x 100. Gearing (including reserves) Our gearing demonstrates the prudential level to which our activities 57.3% 59.3% 56.6% 59.8% 59.1% are funded by owner’s funds versus borrowed funds. = Debt / Debt + Equity x 100. EBITDA to Interest Cover (times) Shows our ability to adequately meet the interest on current 3.7x 3.6x 3.6x 3.2x 3.1x borrowings. = Earnings Before Interest & Tax, Depreciation and Amortisation / Finance charges.

OUR ECONOMIC AND FINANCIAL PERFORMANCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 39 OUR CORPORATE GOVERNANCE STATEMENT

Ergon Energy’s corporate Board committees The IRC operates at a business-wide, governance practices are in line To assist with the discharge of directors’ strategic level to ensure an appropriate with the Australian Stock Exchange duties, the Board has four committees balance between asset investments, (ASX) Corporate Governance to consider and respond to particular customer service, product and asset Principles and Recommendations, issues faced by Ergon Energy, many of research and development and business where applicable, as well as the which are linked intrinsically to regional change within the investment portfolio. The NIRC facilitates the efficient and Queensland Government’s Queensland sustainability challenges, effective management of all network Corporate Governance Guidelines such as electricity affordability; workplace health and safety, community asset-related capital and operating for Government Owned expenditure. During the year, our Corporations. safety, environmental matters, disaster management and other people issues, developing portfolio optimisation capability was increasingly being used Additional information is available including Equal Employment to prioritise Ergon Energy’s capital online at www.ergon.com.au/about-us/ Opportunities. investment program. p24 company-information/ The membership of each committee, corporategovernance the committee charters, along with PRINCIPLE 2 – STRUCTURE THE their key focus areas during 2012/13 are BOARD TO ADD VALUE PRINCIPLE 1 – LAY SOLID summarised in the table on page 47. FOUNDATIONS FOR Independence of directors Refer to the Directors’ Report online MANAGEMENT AND OVERSIGHT in the Annual Financial Statements Ergon Energy Corporation Limited’s Our companies for committee meeting attendance. Board consists of seven non-executive directors. Two resigned during the year Ergon Energy Corporation Limited has Executive Leadership Team (John Bird and Susan Forrester) and two operating subsidiaries, Ergon Energy two replacements were appointed Queensland Pty Ltd and Ergon Energy The Executive Leadership Team (John Gardener and John Love). p42 Telecommunications Pty Ltd, as well as comprises the Chief Executive and a joint venture with Energex Limited – ten executives, including the CEO All of the directors are considered to be SPARQ Solutions Pty Ltd. p4 of SPARQ Solutions. independent. This assessment is made by the Board on a case-by-case basis Ergon Energy Corporation Limited, a The performance of the team is against the five criteria listed in the ASX wholly government-owned corporation, evaluated annually. The Board sets the Corporate Governance Principles and is governed by the provisions of the key performance measures for the Chief Recommendations that reference (Cth), except as Executive for the year in line with the SCI Corporations Act 2001 relationship materiality. otherwise provided by the Government (p7) and reviews the performance of the Owned Corporations Act 1993 (Qld). Chief Executive and the Ergon Energy The directors of Ergon Energy The company’s electricity distribution group based on these agreements. Queensland Pty Ltd and Ergon Energy responsibilities are outlined under its This process then cascades through Telecommunications Pty Ltd are Distribution Authority and the Electricity the Chief Executive to the Executive. executives of the Ergon Energy group Act 1994 (Qld). During the year, the most substantial and as such are not independent. While the Board has a number of committees, Since the end of the financial year, change to the team has been the discussed in detail in this statement, it ROAMES Asset Services Pty Ltd was Executive General Manager Customer does not have a nomination committee incorporated as a new non-operational Service’s shift from a whole of business as the directors are appointed for a set subsidiary. This entity has been customer service focus to a single point term of office by Queensland’s established to support the future of accountability for the efficiency and Governor-in-Council, in accordance with potential for divestment and external the broader evolution of our Retail the Government Owned Corporations Act commercialisation of ROAMES. p27 business (as Executive General Manager Retail). This saw the shift in 1993 (Qld). This acts as a review mechanism for enhancing Board Board charters accountability for the distribution customer strategy to the Executive performance, allowing new members to The responsibilities of the Ergon General Manager Customer and be selected on a regular basis for their Energy Corporation Limited Board Stakeholder Engagement. expertise and ability to contribute on are outlined in the Board Charter behalf of our regional Queensland (summarised p47). The Board delegates The accountabilities of the Executive customer base. functions to management, however, General Manager Energy Sustainability certain matters are reserved for the and Market Development were also Assessing Board performance Board – as detailed in the Charter and extended to provide single Ergon Energy’s governance framework a policy document; Delegation of Power. whole-of-business oversight of the requires that the Board reviews its own These documents are available online. generation and supply of electricity to performance and that of the Board remote and isolated communities. p26 The activities of the subsidiary Committees on a regular basis to ensure they are working effectively. This includes companies are overseen by their Investment review functions own boards, which consist of senior overall board performance, roles, executives of the parent company. The For the development and prioritisation functions, relationships, process and Board of SPARQ Solutions Pty Ltd has of investment programs, the Executive continuing improvement, as well as the detailed shareholder agreements that is supported by internal approval role of the Board in setting direction and guide the governance of this company processes, including the Investment monitoring achievement of strategic with its board, comprising of executives Review Committee (IRC) and the objectives. from both Ergon Energy Corporation Network Investment Review Committee Limited and Energex Limited. (NIRC) and a range of assessment tools.

40 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 The Board has been focused on a Each director is expected to have regard Supporting diversity at board level continuous improvement of their for these practices and policies in the and in the workplace processes following the recent change performance of their duties as a director As part of the board appointment in composition. At each Board meeting, of the company. process, shareholding Ministers consider the Board has also been evaluating the The Corporations Act 2001 (Cth) applies diversity when reviewing the register of effectiveness of the meeting. The next to all of the companies in the Ergon suitable board candidates. full performance review is scheduled to Energy group; accordingly, the statutory commence in January 2014, pending In the workplace, Ergon Energy has a duties of directors apply. The Board further government industry reform Diversity Policy, which is implemented follows normal procedures for the announcements. through the diversity program as a part disclosure of directors’ standing interests of Ergon Energy’s People Strategy, to Access to information and and material personal interests, and support an inclusive workplace culture. quality advice how to deal with them. These include Details on the measures and our reviewing the register of directors’ The directors have unfettered access achievements related to diversity interests at each meeting. All new can be found on page 32. to the information and records relevant declarations of interest are brought to to the Board in effectively discharging the attention of the other directors. their duties in accordance with the PRINCIPLE 4 – requirements under the Government Ergon Energy’s employees are expected SAFEGUARD INTEGRITY IN Owned Corporations Act 1993 (Qld) to act appropriately and practice ethical FINANCIAL REPORTING and the Corporations Act 2001 (Cth). behaviour. This expectation is outworked Ergon Energy has a robust structure to The appropriateness of Board agendas through the Code of Conduct Standards. independently verify and safeguard the and papers are reviewed on an ongoing Our code, which applies to all employees, integrity of our financial reporting, as well basis with a formal review annually. is available on the intranet and is as a comprehensive internal and external Directors also have access to the reinforced regularly through our audit process, of which the Audit and Company Secretary on any matter learning and development programs, Financial Risk Committee has oversight. relevant to their role. and employee engagement. The committee’s charter and focus for 2012/13 is provided on page 44. As necessary in the performance of its Reporting breaches of conduct duties, the Board has the authority to The Chief Executive provides initiate investigations or retain services, Ergon Energy continues to operate the representation, through the Audit and such as legal or accounting services, FairCall Service, established in 2003, Financial Risk Committee, to the Board from time to time at the company’s as a means by which staff, contractors that the Financial Statements and expense. Individual directors’ Code of and members of the public can report Directors’ Report are a true and fair Conduct also provides for each director unethical conduct, breach of corporate view and in compliance with reporting to have the right to seek independent policy – such as the Code of Conduct – standards. professional advice at the company’s or suspected fraud. The service is As per the provisions of the expense, subject to the approval of independently operated and reflects the Auditor-General Act 2009 (Qld), the the Chairman. principles embodied in the Public Interest Disclosure Act 2010 (Qld), and various Queensland Auditor-General is the A Deed of Access and Indemnity with whistleblowers’ protection standards, external auditor for Ergon Energy each director gives them right of access ensuring fairness to all concerned. Corporation Limited and its subsidiaries. to all documents that were provided to The Audit and Financial Risk Committee them during their term in office, for a All allegations lodged using the FairCall review the performance of the external period of 10 years after ceasing to be Service are referred to the Senior Internal audit annually. a director and to indemnify them to Auditor for investigation and, where the extent allowed by law in respect of these are substantiated, appropriate PRINCIPLE 5 – MAKE TIMELY certain liabilities that they may incur as a disciplinary measures are applied. During AND BALANCED DISCLOSURE result of, or by reason of, being a director. the year, six allegations were received, but as after investigation they were Disclosure to shareholders PRINCIPLE 3 – PROMOTE unable to be substantiated, no The Board has reporting and disclosure ETHICAL AND RESPONSIBLE disciplinary measures were required. obligations to the shareholding Ministers DECISION-MAKING The Senior Internal Auditor is also under the Government Owned (Qld) and It is a fundamental principle of the liaison officer for referring any Corporations Act 1993 (Cth). These Ergon Energy to conduct all business suspicions of official misconduct to Corporations Act 2001 obligations are outworked through activities legally, ethically and with strict the Crime and Misconduct Commission Disclosure to Shareholders Policy and observance of the highest standards of (CMC) as required of government-owned a Communications Strategy Guideline integrity and propriety. corporations by the Integrity Act ensuring the Queensland Government 2009 (Qld), as well as overseeing any Code of conduct and disclosure investigations and reporting of the is kept informed of material matters. of interests findings/outcomes. Ergon Energy’s Ergon Energy also has established This principle is implemented through Fraud and Official Misconduct Policy, policies and practices that specifically the Ergon Energy Corporation Limited Employees’ Code of Conduct Policy, cover our government communication Board Charter and Directors’ Code of Employees’ Code of Conduct Standards obligations around performance targets, Conduct and Conflict of Interest Procedure and Reportable Conduct public safety, probity, occupational Guidelines. The subsidiary boards have Guidelines support the CMC’s legislative health and safety, employment practices, adopted the Directors Code of Conduct power to investigate suspicions of privacy and environmental protection. applicable to the Ergon Energy official misconduct. Continued on page 49 Corporation Limited Board. The Board of SPARQ Solutions Pty Ltd has a Corporate Governance Manual, which includes a Code of Conduct based on those approved by its shareholders.

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 41 THE BOARD OF DIRECTORS

MALCOLM HALL-BROWN GARY HUMPHRYS ANNABEL DOLPHIN JOHN GARDNER BEcon BCom FCPA CA GAICD BBus Mgt AAICD CAHRI FAIM MAICD Grad Dip (Mgmt) Harvard CHAIRMAN DEPUTY CHAIRMAN INDEPENDENT INDEPENDENT Independent Non-Executive Independent Non-Executive NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR Director Director

First appointed May 2012 First appointed October 2009 First appointed October 2011 First appointed December 2012 Term in office 15 months Term in office 4 years Term in office 23 months Term in office 9 months

As Chairman, Malcolm Gary Humphrys brings more Annabel Dolphin is a qualified John has extensive experience Hall-Brown brings to Ergon than 35 years of experience business management in both the private and public Energy a strong, proven in the energy and mining practitioner with both private sectors, covering finance, track record in public industries to the Board. and public sector experience governance, information practice accounting and A chartered accountant, in mining, energy, technology, utilities, commercially-oriented he has held senior executive manufacturing, engineering business services and enterprises. He has had roles in both the private and and travel industries across economic development, extensive practical, commercial public sectors across a range Queensland. She is currently through executive and senior experience across a diverse of disciplines, including finance a Director of Miles Dolphin technical management roles range of fields – including and accounting, treasury, Consulting Group who are in the Northern Territory, marina, resort and other taxation, information and committed to improving the Queensland and Victoria. commercial developments – technology, procurement, productivity and profitability He has also undertaken and a deep understanding risk management and audit. of regional Queensland overseas work assignments of Ergon Energy’s regional In recent years, Gary has businesses by focusing on in Canada and the USA and Queensland operating undertaken Board and related business strategy, finance and received formal training in environment. Malcolm is the committee roles in the water, people solutions. Annabel is Management at Harvard foundation director of the Port energy, mining and health also a member of the Regional University. His is currently Binnli group of companies, industries. He is currently Committee for the Australian involved in residential property with a development portfolio a director of St Vincent’s Institute of Company development and public that includes the Raby Bay Health Australia Ltd, Directors. sector consulting. Previous and Mackay marinas, as well Electricity Supply Industry Board appointments include as Mackay’s Clarion Hotel. Superannuation (Qld) Ltd treasury, superannuation, He has also served on and an alternate Director utility services and gas supply, several prominent industry of Guildford Coal Ltd. as well as research related development boards, functions. He is a Life Member including Brisbane Marketing. and former non-executive Director of the Charles Darwin University Foundation.

42 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 JOHN LOVE ROWENA MCNALLY HELEN STANTON MAICD FIAMA LLB AFAIM MAICD BE MAICD CHANGES TO THE BOARD DURING 2011/12 INDEPENDENT INDEPENDENT INDEPENDENT NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR The following Board members resigned during the 2012/13 reporting period. First appointed December 2012 First appointed November 2011 First appointed July 2005 Their full profiles are Term in office 9 months Term in office 22 months Term in office 8 years provided in the Directors’ Report available online. John Love is a licensed Rowena McNally is an Helen Stanton lives in Ingham electrical contractor with experienced company director. and has a background in John Bird brought extensive experience in the She has served on a number of mining and industrial considerable auditing fields of electrical contracting water infrastructure boards processing and currently expertise and financial and reticulation, as well as (Mount Isa, Gladstone and consults in strategy oversight to Ergon Energy in the management of Burnett Water) and hospital implementation, business as Deputy Chairman of the large-scale commercial boards (Brisbane, Toowoomba process analysis, risk and Board, Chairman of the and industrial construction and North-west Queensland). change management. She Board’s Audit and Financial projects. He was the founding She is the Chair of the Mount is a non-executive director Risk Committee and through director of John Love Electrical, Isa Water Board, the National of Townsville Mackay Medicare his directorship on the Board which grew to be one of Chair of the Institute of Local and Ingham Disability of Ergon Energy Queensland’s largest Arbitrators and Mediators Services and Townsville Telecommunications Pty privately-owned electrical Australia, Chair of Catholic Enterprise Limited. contracting companies. Health Australia, a Trustee Ltd. He was first appointed of Mary Aikenhead Ministries in November 2006 and John is currently the Managing and the Chair of the Ministerial resigned in December 2012. Director of Steppe Pty Ltd, Advisory Committee on a residential, commercial Susan Forrester, as an Flood Manuals. She has experienced company and industrial development previously served on the director, brought more company, and is also involved, boards of WorkCover than 20 years of commercial as business advisor to Autres Queensland and Cerebral management experience Pty Ltd, in pharmaceutical Palsy Australia. Originally a research and patent litigation, intellectual property in the legal, governance development. He is also and corporate lawyer, she is and human resource areas active in humanitarian a member of the Queensland experience to the Board organisations locally Law Society and Law Council and to her role as Chair and overseas. of Australia (Business Law of Ergon Energy’s Board Section). Establishment and People Committee. She was first appointed in October 2008 and resigned in December 2012.

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 43 OUR GOVERNANCE FRAMEWORK

Queensland Government Shareholding Ministers Hon. Tim Nicholls, Treasurer and Minister for Trade Hon. Mark McArdle, Minister for Energy and Water Supply

Boards of the Ergon Energy Group

Ergon Energy Corporation Limited

Operating Subsidiaries • Ergon Energy Queensland Pty Ltd • Ergon Energy Telecommunications Pty Ltd (Nexium Telecommunications)

Incorporated Joint Ventures • SPARQ Solutions Pty Ltd (50% owned)

Board Committees • Audit & Financial Risk Committee • Operational Risk Committee • Establishment & People Committee • Regulatory Committee

Chief Executive POLICIES AND PROCEDURES

Executive Leadership Team

Business units

Finance & Strategic Asset Management Operations FUNCTIONS REVIEW / INVESTMENT RISK MANAGEMENT Services

Energy REPORTING INDEPENDENT Sustainability Employee & Major Projects & Market Shared Services Development

Customer & Corporate Retail Stakeholder Governance Engagement

SPARQ Solutions Internal Audit, Business (Office of the Chief Risk & Compliance Information Officer)

44 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 FOCUS OF THE BOARD AND THE BOARD COMMITTEES

MEMBERSHIP SUMMARY OF CHARTER FOCUS IN 2012/13

Ergon Energy Corporation Limited Board

M Hall-BrownCB • Responsible for the strategic direction of the • Ensuring the strategic direction had strong response to G Humphrys organisation. addressing electricity affordability. A Dolphin • Ensures the corporate governance required to • Driving operational efficiency through the business. J Gardner monitor operational, safety, environmental, • Ensuring a focus on delivering major customer connections. J Love social and financial performance and reports to the shareholding Ministers R McNally • Supporting the industry review and reform agenda. H Stanton • Delegates authority to the Chief Executive, management and employees. Audit & Financial Risk Committee G HumphrysCC • Approves and monitors Ergon Energy’s in-house • Oversaw the implementation of a new co-sourced audit and M Hall-BrownCB internal audit program. assurance framework to focus on strategic risk and end-to-end processes. A Dolphin • Provides ongoing assurances to the Board that J Gardner its obligations are being met in relation to: • Reviewed the external audit report and recommendations.

-- financial integrity • Recommended to the Board that it adopt the Annual Financial -- financial risks Statements and Directors’ Report. -- regulatory reporting • Oversaw compliance with the conditions of the Australian -- compliance issues. Financial Services Licence.

• Received reports on debt management and other treasury functions.

• Endorsed the Regulatory Information Notice return submitted to the Australian Energy Regulator. Regulatory Committee J GardnerCC • Assists the Board to fulfil its corporate • Developed responses and submission in relation to regulatory M Hall-BrownCB governance and oversight responsibilities by compliance issues and tariff reform impacts. reviewing and reporting on the due diligence G Humphrys Oversaw progress in the preparation of the submission to the process conducted in relation to the preparation • H Stanton AER for the 2015-2020 distribution determination. and outcomes of regulatory proposals. • Received reports on key issues, including matters around the significant regulatory changes associated with the next distribution determination and the broader regulatory framework. Operational Risk Committee H StantonCC • Assists the Board in its response to business and • Oversaw the introduction of a new corporate risk capability M Hall-BrownCB operational risks and oversight responsibilities in and management maturity framework. relation to: J Love • Ongoing monitoring and management of health and safety R McNally -- health and safety, including community safety, and network risk associated with internal organisational -- environmental risks change and external industry reform agendas -- risk exposure • Reviewed changes to the corporate risk profile in response to -- insurance and claims management. emerging issues and regular reports from management on health, safety and environmental issues.

• Validated the risk appetite statements for health and safety, and for procurement, as well as the insurance program for the transfer of risk.

• Oversaw the ongoing development of the organisational resilience framework. Establishment & People Committee A DolphinCC • Assists in developing a strategic, long-term and • Monitored the establishment resizing efforts to ensure delivery M Hall-BrownCB sustainable approach on issues relating to of improved efficiencies. people working for Ergon Energy. J Love • Monitored key talent and succession planning risks. R McNally • Fulfils the Board’s oversight responsibilities in Endorsed the Employment and Industrial Relations Plan. relation to: • • Received regular management reports on human resource --remuneration; performance management; and diversity issues. industrial relations; employee engagement; organisational culture; and learning and • Recommended executive remuneration arrangements development. to the Board.

CB = Chairman of the Board CC = Committee Chairman

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 45 OUR EXECUTIVE LEADERSHIP TEAM

IAN McLEOD JOHN HOOPER TONY PFEIFFER PETER BILLING FAIM GAICD BEcon (Accounting) FCPA BEng FIEAust CPEng RPEQ GAICD FAIM NPER GAICD

CHIEF EXECUTIVE CHIEF FINANCIAL EXECUTIVE GENERAL EXECUTIVE GENERAL OFFICER MANAGER, ASSET MANAGER, OPERATIONS MANAGEMENT (ACTING)

Ian McLeod is responsible for John Hooper is responsible for Tony is responsible for the Peter Billing is responsible for the business’s overall direction managing the profitability and efficiency and effectiveness the operational effectiveness and, ultimately, for meeting the sustainability of all aspects of of Ergon Energy’s asset of the distribution business, service delivery expectations the business; as the asset strategy and for defining including the delivery of the and requirements of our owner, and through the the distribution business’s program of work that brings customers, the community provision of finance and program of work. He brings Ergon Energy’s asset and regulators, as well as strategy development. 30 years of industry management planning to the business and financial John has significant experience in business fruition. He brings a wealth objectives of our shareholders. accomplishments in financial strategy, economic regulation, of industry, leadership and Ian brings extensive electricity and general management and operation, construction, asset change management industry experience to Ergon has worked for a diverse range management and business experience from trade roles Energy: experience gained of businesses, including large performance in the electricity to management. Peter was through management roles public corporations and utility industry. Tony was directly involved in the in the private contracting private businesses. John is a intimately involved in the transformation of the industry, in Powercor director of Ergon Energy formation of the National electricity industry in South Australia, the State Electricity Queensland Pty Ltd, SPARQ Electricity Market and Australia through the period Commission of Victoria and Solutions Pty Ltd and Ergon development of the original of deregulation in the 1990s. Ergon Energy. Ian is a director Energy Telecommunications National Electricity Code. Peter is on the board of of Energy Supply Association Pty Ltd. Tony is on the Board of the Mackay Whitsunday Regional of Australia and is Chairman Australian Power Institute, as Development Corporation of Ergon Energy Queensland well as Green Cross Australia. Ltd, as well as Energy Skills Pty Ltd, SPARQ Solutions Queensland. Pty Ltd and Ergon Energy Telecommunications Pty Ltd.

46 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 PHILIP KEOGAN BRIAN IWASZCZYN MAL LEECH ROSLYN BAKER BA(Hons) and GradDipAppFin BEng(Hons) BEng GradDipBusAdmin BCom(Accounting) MBA Dip.FM FFin GAICD

EXECUTIVE GENERAL EXECUTIVE GENERAL EXECUTIVE GENERAL EXECUTIVE GENERAL MANAGER, ENERGY MANAGER, MAJOR MANAGER, EMPLOYEE MANAGER, RETAIL SUSTAINABILITY AND PROJECTS AND SHARED SERVICES MARKET DEVELOPMENT Philip Keogan is responsible Brian Iwaszczyn is responsible Mal Leech is responsible for Roslyn Baker is responsible for for leading the development of for the delivery of Ergon shared services and Ergon Energy’s franchise retail Ergon Energy’s non-traditional Energy’s major ‘people-related’ functions business, including strategy, energy solutions with the aim corporation-initiated and including health, safety, and energy trading, community of finding sustainable ways to customer-initiated capital environment, administration, service obligations and provide our customers with a projects. His team works property, human resources, customer billing. Roslyn is dependable, affordable closely with Asset industrial relations, training also responsible for customer electricity supply into the Management and Operations and development, service processes and delivery future. Philip brings to ensure Ergon Energy’s organisational development, through the Contact Centre. considerable product overall program of works is change management and Throughout her career, she development and strategic delivered efficiently and program management of has been Chief Executive investment experience to cost-effectively. Brian brings business improvement Officer of the Australian Ergon Energy’s management his professional electrical initiatives. Mal Leech has more Technical College NQ, held team, gained from a career engineering expertise backed than 15 years’ industry senior positions with the with senior positions in a by a wealth of experience in experience following a career Chamber of Commerce and number of leading project management, in management consulting, Industry Queensland and infrastructure service operations and maintenance human resources and been involved in establishing providers, including Jemena in heavy industry and mining, engineering. franchise networks within and Optus. infrastructure, manufacturing the dairy industry and retail and transport to Ergon management in the petroleum Energy’s executive. industry. Roslyn has been granted AFMA Accredited Individual status.

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 47 OUR EXECUTIVE LEADERSHIP TEAM (CONTINUED)

JUSTIN FITZGERALD GRAEME FINLAYSON PETER EFFENEY MComm GradDipStats BBus BA(Hons)/LLB(Hons) MBA BEng(Hons) BSc MBA GAICD MAMI (MAICD) Grad Dip Applied Corp Gov EXECUTIVE GENERAL GENERAL COUNSEL AND CEO SPARQ SOLUTIONS MANAGER, CUSTOMER COMPANY SECRETARY AND STAKEHOLDER ENGAGEMENT Justin Fitzgerald is responsible Graeme Finlayson is Peter Effeney is the Chief for customer and other responsible for Board Executive Officer of SPARQ stakeholder engagement and secretariat services, risk Solutions, Ergon Energy’s the broader distribution management, regulatory Information and customer strategy; promoting strategy, network pricing and Communications Technology business understanding of key legal services and Ergon (ICT) joint venture with customer concerns, as well as Energy’s high level compliance Energex. As the Chief other stakeholder insights; and functions. He brings to Ergon Information Officer his championing the brand and Energy broad-ranging private responsibility on the executive corporate reputation. Justin and public sector experience leadership team is to ensure brings extensive industry – having held senior in-house that Ergon Energy’s ICT knowledge and a strong commercial legal roles in some strategy, architecture and appreciation of stakeholder of Australia’s top national law investment, and SPARQ expectations to Ergon firms, and executive positions Solutions’ ICT services, are Energy’s strategic challenges and directorships in some of aligned with the business’s and social responsibility Australia’s largest and fastest strategic priorities and agenda, particularly in the growing organisations, deliver maximum value. area of disaster management. including Queensland Rail Prior to leading the formation Justin is a director of Ergon and the Gold Coast City of SPARQ Solutions, Peter Energy Queensland Pty Ltd Council. Graeme is the held various management, and SPARQ Solutions Pty Ltd. Company Secretary for engineering and ICT roles each board in the Ergon within Ergon Energy. Energy group.

48 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 ANNUAL STRATEGIC PLANNING AND REPORTING CYCLE

STRATEGIC PLAN CORPORATE STATEMENT OF FORECAST QUARTERLY INTERIM REPORT PLAN CORPORATE REPORT REPORTS INTENT

Articulates our Outlines our Our performance agreement with our Report Published online stakeholder’s priorities and shareholder Ministers. A summary performance in the third expectations, the performance of the SCI is published as a Forecast across key result quarter. challenges, and measures for the Report, then the actual SCI is tabled areas to our our longer-term next five years. in Parliament with the corresponding government response. Annual Report. shareholders. ANNUAL REPORT

Tabled in DISTRIBUTION ANNUAL parliament and PLANNING REPORT used to publicly A public document, which communicate our ASSET performance and NETWORK supersedes the Network MANAGEMENT future challenges. VISION Management Plan, to provide PLANS visibility of our investment plans.

PUBLIC DOCUMENTS DEMAND DEMAND MANAGEMENT MANAGEMENT PLAN OUTCOMES REPORT

Details our demands management Presented to the Queensland plan and its objectives. Government and published online.

Strategic planning and To protect any personal information This ensures the operation and strategic reporting cycle collected from misuse, loss, unauthorised direction of the business is consistent access, modification or disclosure strict with the Queensland Government’s Ergon Energy documents its corporate data security systems and procedures energy policy and broader objectives performance commitment for each are in place around the access/use of and generally meets the expectations of financial year within the SCI (see the repositories that hold personal our shareholders. summary p7). These commitments form information. During 2012/13, Ergon the basis of quarterly reporting to our We also have a comprehensive reporting Energy received fourteen complaints shareholder Ministers. regime, prescribed by the Government relating to customer privacy matters: Owned Corporations Act 1993 (Qld), and Our strategic planning framework eleven were not substantiated and GOC Amendment Regulation (No. 2) is illustrated here as it relates to the the remaining three were resolved. (2009), as well as other mechanisms. SCI and the key public documents Ergon Energy manages applications This is supported by teams dedicated to that support transparent public for information and the publication managing the business’s government and disclosure of Ergon Energy’s of non-personal information, which is regulatory relationships and to performance commitments and considered to be of significant interest responding to reporting requests. outcomes. Ergon Energy longer-term to the wider public, in accordance with strategic planning cycle aligns with The content of Ergon Energy’s annual the Right to Information Act 2009 (Qld) five-year regulatory control periods. reporting suite is one of many reports and the Information Privacy Act 2009 2012/13 was the third year in the current that are required to meet statutory and (Qld). The process for individuals to period under the AER’s Queensland specific government requirements. It apply for information and summary Distribution Determination. We are endeavours to enable our government information of documents released is currently preparing the regulatory shareholders to have an informed found at www.ergon.com.au/about-us/ proposal to present to the AER for assessment of our operations, including right-to-information. 2015 to 2020 p36. the organisation’s overall efficiency and effectiveness. The first Distribution Annual Planning PRINCIPLE 6 – RESPECT THE RIGHTS OF SHAREHOLDERS Report, which supersedes the Network Directions and notifications Management Plan, was being finalised in Ergon Energy respects the rights of Under the line with this report. It details our rolling shareholding Ministers, as the ultimate Government Owned (Qld), the reserve five-year asset management plan. owners of the business, and commits Corporations Act 1993 powers of the shareholding Ministers Published online annually, it details to work in a collaborative fashion with provide that they may in the public how Ergon Energy is managing and the government to deliver the best interest notify Ergon Energy (as a developing its network with the objective outcomes for our customers and government-owned corporation) of a of delivering an adequate, economical, the Queensland economy. reliable and safe connection of electricity public sector policy that is to apply to supply to our customers. It provides Government shareholder the corporation (section 114) and may also further analysis of the network’s communications give a written direction to Ergon Energy (section 115) or a direction to amend the performance for 2012/13. The Chairman has regular meetings SCI (section 108). Directions can also be with shareholding Ministers and their Privacy and right to information given under the Electricity Act 1994 (Qld). representatives, as part of a broader Ergon Energy has an obligation to government engagement program, protect the personal information of to ensure there is active dialogue individuals collected and used during throughout the year. its operations in accordance with the Privacy Act 1988 (Cth).

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 49 During 2012/13, the following directions To give effect to its risk management and • Risk Appetite and Risk Assurance: were given: compliance commitments, Ergon Energy Work continued on developing risk has established policies on these and appetite statements which will set the In February 2013, a direction was • other areas (eg. Health, Safety and level of risk Ergon Energy is prepared received removing the requirement to Environment) and implemented a risk to accept in pursuing its corporate purchase carbon offsets as per the management framework based on the objectives. Risk assurance maps were Queensland Government Air Travel Joint Australia/New Zealand Risk also developed to show the assurance Policy, QFleet Climatesmart Action Management Standard: AS/NZS ISO activities performed in relation to key Policy and the Sport and Recreation 31000:2009, and a compliance program corporate risks and also to assist with Policy. This enables annual savings of based on the Australian Compliance the development of a three-year approximately $33,600. Standard AS 3806:2006. internal audit plan. In May 2013, a direction under the • Ergon Energy also has a Standard for The key compliance matters for 2012/13, Electricity Act 1994 (Qld) was given Corporate Risk Management, Corporate which are discussed elsewhere in the to implement new wholesale electricity Risk Management Guideline and report, network service standards (p15); supply arrangements for Ergon Corporate Risk Assessment Tables. Guaranteed Service Levels (p16); Energy’s retail electricity load. The standard sets out the principles that network planning (p23-24); safety The new market-based wholesale Ergon Energy must follow to achieve performance (p30); renewable energy energy procurement arrangements effective risk management and provides targets (p33); and environmental have been implemented for a term guidance on how risk management incidents (p35). of up to four years from 2013/14, should be implemented and integrated however, the precise financial impact into Ergon Energy. The guideline Certainty reduces trading risk of the direction is considered to be supports the standard by providing commercially sensitive information. As part of an ongoing review of practical guidance on how to implement energy purchasing arrangements, the the risk management process referred Previous directions that have impacted Queensland Government announced to in the standard. The tables, used in 2012/13 include: changes this year to improve the conjunction, provide uniform risk efficiency of the government’s energy • A direction, given in February 2012, management criteria to support portfolio. This will mean, from 2013/14, not to seek revenue associated with consistent risk-based assessments. energy purchased by our retailer will the expected reduction in capital be supplied predominantly through expenditure, arising from the Risk management activities state-owned electricity generators; implementation of the and compliance CS Energy and Stanwell. The new recommendations of the Electricity During 2012/13, the following risk market-based wholesale energy Network Capital Review, by excluding management and compliance activities procurement arrangements have it from our annual network pricing were undertaken by Ergon Energy: been implemented for a term of up to proposal. Over the period to 2014/15, four years from 2013/14, supplementing Risk Management Framework: this revenue would have been • rather than replacing existing supply A review of the framework for approximately $99 million. arrangements. The new contracting managing material business risks arrangements will support energy • A direction was received under the was undertaken. This supported purchasing price certainty for the retail Electricity Act 1994 (Qld), in February assurances to the Board by the Chief load. This will build on the significant 2012, to transfer the ownership and the Executive and Chief Financial Officer, turnaround in trading results achieved operation of ‘B’ Switchyard at Mica in accordance with section 295A of the over the past year through effort in the Creek power station from Stanwell Corporations Act 2001 (Cth), that the trading area’s front and middle office to Corporation Limited to Ergon Energy framework is founded on a system of understand our revenue and risk. Corporation Limited in order to meet risk management and internal control the long term energy needs of the Mt and that it is operating effectively External and internal audit Isa region. This transaction was in all material respects in relation to completed in 2012/13 with a purchase financial reporting risks. Ergon Energy submits to a number of price from Stanwell Corporation external audits in pursuit of world-class Limited of $164,000. • Insurance Program: The review and practice and, in some cases, to gain or renewal of Ergon Energy’s 2012/13 retain the certification we need to do PRINCIPLE 7 – RECOGNISE Insurance Program was undertaken business, such as Quality Assurance ISO AND MANAGE RISK to ensure cost-effective coverage of 9001 certification for our Transmission the organisation’s insurable risks. and Project Services. Other audits we Our risk management framework regularly undergo include Australian • Risk Profiles: Ergon Energy’s Ergon Energy recognises that effective Standard 4801 Occupational Health Corporate Risk Profile and Business risk management and compliance and Safety, Electrical Safety Legislation, Unit Risk Profiles were reviewed and frameworks are necessary to meet the International Customer Service updated. As part of this process a expectations of its shareholding Standards and Environmental Standard review of the profiles against Ergon Ministers, customers, the community and ISO 14001. These audits provide external Energy’s Corporate Plan and Business other stakeholders. Fundamental to this assurance of the performance Unit Plans was performed to ensure is that our directors and management statements made in this report. alignment. are able to demonstrate an understanding of the business risks and Ergon Energy’s annual accounts and compliance obligations and that these financial statements are audited by are being efficiently and effectively Deloitte Touche Tohmatsu (Deloitte), managed. All board committees play a as delegate of the Auditor-General role in assisting the directors in fulfilling of Queensland. their oversight responsibilities in respect to business risks.

50 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 The scope of our internal audit function Non-executive directors are remunerated covers all of Ergon Energy’s operations, separately from the executive. Directors’ either directly or through auditors emoluments, as a board or committee contracted by the organisation or its member, are set by the Queensland subsidiaries. Our internal audit function Government. Reimbursement is made for helps us accomplish our objectives expenditure incurred in performing their by bringing a systematic, disciplined roles as directors of the company. approach to evaluate and improve Non-executive directors of the company the effectiveness of risk management, do not participate in any variable reward control and governance processes. or at-risk plan and are not eligible for The Ergon Energy Internal Audit retirement or other benefits other than Charter is established by the authority for statutory superannuation. Executive of the Ergon Energy Audit and Financial directors do not receive additional Risk Committee. payment for their role as director of any of our subsidiary companies. This year’s plan included audits of corporate card, relocation expenses, The Board’s Establishment and People consultants and professional services Committee assists in developing a resources, warehousing and inventory, strategic, long-term and sustainable depot administration, procurement to approach on issues relating to people pay, forced and planned maintenance, working for Ergon Energy. p44 and contractor management. These Details of remuneration to non-executive reviews focused on documenting and directors and executives, and at-risk testing key management controls. payments are reported in the Annual Other audit reviews covered specific Financial Statements (available online), risk areas such as reportable gifts and consistent with the requirements of the at risk performance process for Australian Accounting Standard AASB 124. senior executives. The Group Manager Risk and Assurance reports for administrative purposes to the ADDITIONAL INFORMATION General Counsel/Company Secretary but retains unrestricted access to the Chief ENTERTAINMENT AND HOSPITALITY Executive to discuss any matter relating In furthering Ergon Energy’s business interests and working to achieve its corporate to the finances or operations of Ergon goals, from time to time entertainment and hospitality is provided to employees, Energy. Internal Audit also ensures its clients, customers and community groups. Reasonable limits have been observed independence by reporting to the Audit during 2012/13 for aggregate event expenditure and expenditure per head, taking and Financial Risk Committee on progress into account the nature of the event. At the request of shareholding Ministers, the against the Internal Audit Plan and SCI includes information on Corporate Entertainment and Hospitality. For 2012/13, resolution of issues raised in reports. the following entertainment and hospitality expenses over $5,000 were: The Group Manager Risk and Assurance also has access to the Board through the Event Name Investment Audit and Financial Risk Committee Chair. Southern Employee Christmas Party - Toowoomba $8,680 PRINCIPLE 8 – REMUNERATE Brisbane Employee Christmas Party - Brisbane $6,748 FAIRLY AND RESPONSIBLY Central Employee Christmas Party - Rockhampton $8,792 Ergon Energy recognises that to attract Far North Employee Christmas Party - Cairns $6,300 and retain the personnel necessary to North Employee Christmas Party - Townsville $6,335 deliver on the company’s strategic plan and achieve its vision, salaries and salary packaging must be competitive, flexible NETWORK STATISTICS and performance orientated. Total Customers Served 712,634 As part of our Human Resources Policy, Network Area Serviced 1.7 million km2 we have a total employment offering Employees 4,614 considered to be attractive by both prospective and current employees and Power Stations (grid connected & isolated) 34 representative of the expectations of our Bulk Supply Points 22 community. This policy is designed to Zone Substations 363 attract high calibre employees, retain Major Power Transformers (33kV to 132kV) 650 employees, incorporate current Distribution Transformers 94,500 industry benchmarks and ensure Power Poles 1 million employees are aware of what they Overhead Powerline need to do to contribute to team - Sub-transmission 16,000km and organisational goals. - High Voltage Distribution 117,000km Performance agreements are based - Low Voltage: Distribution1 20-25,000km on the strategic objectives of the Underground Power Cable 8,000km organisation as per the SCI agreed with our shareholding Ministers. Executive 1. Estimate of length only. compensation, including at-risk payments, is disclosed in the Annual FOR FURTHER DETAILS ON OUR REGULATED ASSETS, AS WELL AS OUR Financial Statements, along the ASSET MANAGEMENT POLICIES, STRATEGIES AND SPECIFIC INITIATIVES performance payments made to other REFER TO ERGON ENERGY’S DISTRIBUTION ANNUAL PLANNING REPORT employees (Note 29). AVAILABLE ONLINE.

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 51 COMMON INDUSTRY UNITS OF MEASURE

SAIDI System Average interruption Duration Index. Network reliability performance index, indicating the total minutes, on average, that customers are without electricity during the relevant period (minutes).

SAIFI System Average Interruption Frequency Index. Network reliability performance index, indicating the average number of occasions each customer is interrupted during the relevant period (interruptions).

Customer Minutes Customer minutes is a measure of the number of customers interrupted multiplied by the duration of a power outage or outages, incorporating any staged restoration.

AIFR All Injury Frequency Rate – measured as number of injuries per million hours worked. Lost Time Injuries (LTI) + Medical Treatment Injuries (MTI) x 1, 000, 000 / Exposure Hours

��LTIFR Lost Time Injury Frequency Rate. Number of lost-time injuries per million hours worked over the 12 month reporting period. Lost Time Injuries (LTI) x 1, 000, 000 / Exposure Hours

LTIDR Lost Time Injury Duration Rate. Total days lost due to injuries per million hours worked over the 12 month reporting period. Lost Time Injuries Progressive Days Lost x 1, 000, 000 / Exposure Hours

DEEFR Dangerous Electrical Event Frequency Rate. A safe work practice measure that tracks Dangerous Electrical Events (DEEs) associated with work done by our employees (DEEs x million / exposure hours). Dangerous Electrical Events (DEE) x 1, 000, 000 / Exposure Hours

V v o lt the : unit of potential or electrical pressure

VA volt ampere: volt amperes are the ‘apparent power’ and are the product of the voltage applied to the equipment times the current drawn by the equipment. The VA rating is limited by the maximum permissible current, and the watt rating by the power-handling capacity of the device kVA kilovolt ampere: one kVA equals 1,000VA

MVA megavolt ampere: one MVA equals 1,000kVA kV kilovolt: one kV equals 1,000 volts

W w a t:t a measure of the power present when a current of one ampere flows under a pressure of one volt kW k i l o w a t tone : kW equals 1,000 watts

MW m e g a w a tt one : MW equals 1,000 kilowatts kWh kilowatt hour: the standard ‘unit’ of electricity which represents the consumption of electrical energy at the rate of one kilowatt over a period of one hour

MWh megawatt hour: one MWh equals 1,000 kilowatt hours

GWh gigawatt hour: one GWh equals 1,000 megawatt hours or one million kilowatt hours

HV high voltage: alternating current above 1,000V

LV low voltage: alternating current above 32V and not exceeding 1,000V

GJ gigajoule: a measure of energy, one million joules

52 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2012/13 ABBREVIATIONS

A&TSI Aboriginal and Torres Strait ISO International Organisation for Islander Standards AER Australian Energy Regulator KPI Key Performance Indicator ASX Australian Stock Exchange LEP Long-Term Energy Procurement CONTENTS CMC Crime and Misconduct Commission MSS Minimum Service Standards CPI Cost Performance Index NIRC Network Investment Review CPI Consumer Price Index Committee ABOUT OUR REPORT 2 CSI Comprehensive Safety Indicator NPAT Net Profi t After Tax CSO Community Service Obligation QCA Queensland Competition Authority ERGON ENERGY IN PROFILE 3 DEEs Dangerous Electrical Events RAP Reconciliation Action Plan EBIT Earnings Before Interest and Tax RECs Renewable Energy Certifi cates THE YEAR IN SUMMARY 6 ENA Energy Networks Association ROAMES Remote Observation Advanced EV Electric Vehicle Modelling Economic Simulation CHAIRMAN’S MESSAGE 8 FTE Full Time Equivalent SCADA Supervisory Control and Data GECs Gas Electricity Certifi cates Acquisition system CHIEF EXECUTIVE’S REPORT 9 GFC Global Financial Crisis SCI Statement of Corporate Intent GPS Global Positioning System SHADO Sexual Harassment and Anti-Discrimination Offi cer REVIEW OF OPERATIONS 11 GRI Global Reporting Initiative SPI Scheduled Performance Index GSLs Guaranteed Service Levels STPIS Service Target Performance GUSS Grid Utility Support Systems Incentive Scheme 12 ICT Information and Communications CUSTOMER DRIVEN SWER Single Wire Earth Return Technology Details what we’re doing to address electricity IRC Investment Review Committee affordability and meet service expectations, and the many ways we are engaging with the community.

ASSET MANAGEMENT EXCELLENCE 20 Showcases how our strengthening asset management capability is enabling us to better utilise the network and deliver more reliable, effi cient and sustainable energy supply solutions.

HIGH-PERFORMANCE ORGANISATION 25 Outlines how we’re responding to our changing operating environment and supporting our people, as well as our focus on safety and environment. KEY SERVICE CENTRES

Cairns 109 Lake Street CAIRNS QLD 4870 OUR ECONOMIC AND FINANCIAL PERFORMANCE 36 Townsville (Registered Offi ce) 22 Walker Street TOWNSVILLE QLD 4810 OUR CORPORATE GOVERNANCE STATEMENT 40 Mackay 23 Cemetery Road LOOKING FOR MORE INFORMATION? WEST MACKAY QLD 4740

This Annual Stakeholder Report and the Annual Financial Statements for Rockhampton Ergon Energy Corporation Limited and its Controlled Entities (including Cnr Fitzroy and Alma Streets the Directors’ Report and our Financial Statements), as well as previous ROCKHAMPTON QLD 4700 years’ reports, are available online at www.ergon.com.au/annualreport Maryborough 97-99 Adelaide Street Additional statistics, industry measures and abbreviations are provided MARYBOROUGH QLD 4650 from page 51. Toowoomba Cnr South and Hampton Streets TOOWOOMBA QLD 4350

Brisbane 825 Anne Street FORTITUDE VALLEY QLD 4006 ANNUAL STAKEHOLDER REPORT 2012/13

Customer Service 13 10 46 7.00am – 6.30pm, Monday to Friday

Faults Only 13 22 96 24 hours a day, 7 days a week

Life-Threatening Emergencies Only Triple zero (000) or 13 16 70 24 hours a day, 7 days a week ERGON ENERGY Customer Advocate PO Box 264 Fortitude Valley QLD 4406 [email protected] Annual Stakeholder

Ergon Energy Corporation Limited ABN 50 087 646 062 Ergon Energy Queensland Pty Ltd ABN 11 121 177 802 Report 2012/13 ergon.com.au