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44 finANCE AND DIRECTORS’ REPORT > TransGrid Annual Report 2008 Finance and Directors’ Report

Charter Board Charter TransGrid was established as a State-owned Corporation on The principal objectives and functions of TransGrid and the 14 December 1998, by and under the Energy Services Corporations structure and composition of the TransGrid Board are laid out in the Act 1998. Energy Services Corporations Act 1995 No. 95; the State Owned Corporations Act 1989 No. 134 and TransGrid’s Constitution. Section 6C of the Energy Services Corporations Act gives TransGrid, as an energy transmission operator, two principal TransGrid’s Board operates in accordance with the broad principles functions, viz. set out in our Board Charter. This charter details the Board’s structure and responsibilities and is reviewed on an annual basis. a) to establish, maintain and operate facilities for the transmission In addition the Board has a Code of Conduct to which all directors of electricity and other forms of energy, and must adhere and which is also reviewed on an annual basis. b) to provide services for the transmission of electricity and other forms of energy in accordance with the relevant regulatory regime. Board Structure The Energy Services Corporations Act 1995 provides for the Board The Section also empowers TransGrid to utilise and develop our of TransGrid to consist of: electricity transmission facilities to carry out telecommunications services. a. the Managing Director The principal legislation TransGrid operates under is the Energy b. one director to be appointed by the voting shareholders on the Services Corporations Act 1995, the Electricity Supply Act 1995 recommendation of a selection committee comprising: and the State Owned Corporations Act 1998. i. two persons nominated by the Portfolio Minister; ii. two persons nominated by the Labor Council of New South Legislative Change Wales, each being a person selected by the committee from Electricity Supply Amendment (Offences) Act 2008 a panel of three persons nominated by the Labor Council; The object of this Bill is to amend the Electricity Supply Act 1995: and (a) to increase the maximum term of imprisonment for the offence of c. at least two and not more than five other directors to be theft of electricity from 2 years to 5 years and to provide for the appointed by the voting shareholders at their discretion. offence to be an indictable offence if committed by an individual, The period of appointment of Non-Executive Directors is at the and discretion of the shareholders. (b) to create a new offence of entering, climbing or being on electricity works (as defined in that Act). One director is to be appointed Chairperson of the Board. The Bill also makes a consequential amendment to the Criminal Board Responsibilities Procedure Act 1986 to provide for the summary disposal of the The responsibilities of the Board are outlined in the Board Charter. offence of theft of electricity. The main responsibilities include:

Electricity Industry Restructuring Bill 2008 > providing strategic guidance and direction to the Corporation The introduction of this Bill into parliament is a relevant legislative including contributing to the development of and approving the development which is already indirectly impacting on TransGrid. It corporate strategy. will be voted on by the NSW parliament later this year. > reviewing and approving business plans, the annual budget and financial plans including capital expenditure initiatives. The object of this Bill is to provide for the restructuring of part of the State’s electricity industry by authorising and facilitating any of the > overseeing and monitoring: following transfers of assets to the private sector: – organisational performance and achievement of strategic goals and objectives. (a) the lease of the power stations of an electricity generator and the transfer of the rest of its business, – compliance with the Corporation’s Code of Ethics and Conduct. (b) the transfer of the retail business of an electricity distributor, – progress on major capital expenditure and other significant corporate projects. (c) the transfer by initial public offer of the business of an electricity generator (including power stations). > Monitoring financial performance. > ensuring that an effective system of corporate governance exists. The Bill specifically provides that the distribution and transmission > ensuring effective management processes including executive assets (the “poles and wires”) of an electricity distributor must development and succession planning. remain in public ownership. Minister Chairman and Managing Director From 1 July 2007 to 30 June 2008, TransGrid formed part of the The Board Charter outlines the role of the Chairman and Managing portfolio of the Hon. Ian MacDonald, MLC; Minister for Primary Director. Industries, Minister for Energy, Minister for Mineral Resources, and The Chairman is to provide leadership and promote the Minister for State Development. cohesiveness and effectiveness of the Board. Key roles to be Shareholders performed by the Chairman include: TransGrid’s Board of Directors is responsible and accountable to > assisting the Board to develop good relationships with the the voting shareholders, being the New South Wales Treasurer and Shareholding Ministers and Portfolio Minister, with the Managing the Minister for Finance, who each hold one share for and on behalf Director and with other key stakeholders and interested parties. of the New South Wales Government in accordance with the State > assisting individual directors, and the Board as a whole, to Owned Corporations Act 1989. understand their role, responsibilities and accountabilities. Board of Directors > Helping directors understand their risks and liabilities as The Board is responsible for providing effective guidance individual members and as a Board. and direction; independence in decision making; an effective > ensuring a comprehensive agenda is presented to each meeting system of corporate governance; and executive development of the Board. and succession planning.

TransGrid Annual Report 2008 > FINANCE AND DIRECTORS’ REPORT 45 Finance and Directors’ Report continued

Section 20L (2) of the State Owned Corporations Act 1989 and Commitment Article 16.7 (a) of TransGrid’s Constitution provide that the Managing Eleven Board Meetings and one additional Board and Executive Director is responsible for the day to day management of operations Corporate Planning Session were held in the year ended 30 June of TransGrid in accordance with the general policies and specific 2008. Of the eleven Board Meetings, one was held at the Orange directions of the Board. Regional Office in May 2008 to coincide with the official opening of the new Regional Depot at this site. Terms of Office and Remuneration In accordance with Schedule 8, Clause 5 of the State Owned Conflict of Interest Corporations Act 1989, a Director may be appointed to hold office The Board Code of Conduct stipulates that a director must disclose for a period not exceeding five years. interests to the Board (which includes positions and pecuniary interests) in corporations, partnerships or other businesses that The remuneration of each Non-Executive Director is paid out of may be relevant to the activities of the Board or an associated TransGrid funds, and is determined by the shareholders. The total Committee. A register of such interests is maintained by TransGrid. income received, or due receivable, by all directors of TransGrid is listed in the Notes to the Financial Statements (Note 28). The There have been no conflicts of interest declared for the year ended Managing Director is not entitled to any additional remuneration for 30 June 2008. being an Executive Director. Independent Professional Advice Remuneration Paid Directors and Board Committees have the right, in connection with Non-Executive Director/Acting Chairman – Bruce Foy $75,028 their duties and responsibilities, to seek independent professional Chairman (former)# – Peter Dodd $52,150 advice at TransGrid’s expense. Non-Executive Director – Matina Papathanasiou $58,820 Non-Executive Director** – John Price $22,147 Meetings of the Board Non-Executive Director – Neville Betts $50,500 The number of meetings of the Board of Directors held during the Non-Executive Director* – Brian Langton $31,885 year ended 30 June 2008, and the number of meetings attended by each director is disclosed below. # Tenure ceased on 2 February 2008 * Tenure ceased on 14 December 2007 ** appointed on 5 February 2008

Board Committee – The Board Audit and Remuneration and Board Regulatory Name TransGrid Board Risk Committee Structure Committee Meetings Meetings Meetings Meetings Meetings Meetings Meetings Meetings Attended Entitled to Attended Entitled to Attended Entitled to Attended Entitled to Attend Attend Attend Attend Mr B E Foy 11 11 5 5 4 4 2 2 Mr K N Murray 11 11 4 5 4 4 5 5 Ms M Papathanasiou 11 11 5 5 1 1 5 5 Mr N Betts 8 11 – – – – 4 5 The Hon. J Price** 4 4 1 1 2 2 – – Dr P Dodd# 6 6 – – 2 2 3 3 The Hon B J Langton* 6 6 3 3 2 2 – – # Tenure ceased on 2 February 2008 * Tenure ceased on 14 December 2007 ** appointed on 5 February 2008

Board Committees The Board Audit Committee, the Board Committee – Remuneration To assist the Board in fulfilling its corporate governance and Structure and the Board Regulatory Committee meet on at responsibilities, the Board utilises the Executive Board Committee, least a quarterly basis or at such times as considered appropriate. the Board Audit Committee, the Board Committee – Remuneration The Executive Board Committee meets as and when required. and Structure and the Board Regulatory Committee. A charter governs these committees and the Board delegates specific powers Non Executive Directors chair the Board Committees. The and procedures. Each charter details the committee’s primary Managing Director is also a member of the Board Committees function, structure and responsibilities. Each charter is reviewed on (except the Board Audit and Risk Committee). Senior executives an annual basis. and management may be invited to attend committee meetings. A report detailing the items considered by the committee is tabled at the following Board Meeting.

46 FINANCE AND DIRECTORS’ REPORT > TransGrid Annual Report 2008 Executive Board Committee Mr C FitzGerald, General Manager/Capital Program Delivery, The Executive Board Committee consists of the following directors: was assessed by the Managing Director as having achieved all performance criteria, including the significant progress of the major Mr Bruce Foy (Chair of the Committee) capital works program for the 2004 to 2009 regulatory period Mr Kevin Murray with over 60 projects underway, more than $240 million spent in The primary function of the Executive Board Committee is to 2007/08 and $400 million committed for 2008/09, including the consider matters between Board Meetings which would otherwise critical Western 500kV project on time and to budget and with require Board approval. The matter is delegated to the Executive the final planning and commencement of the major projects in the Board Committee at the prior Board Meeting and a report is 2009-2014 period and the increased capability of the CPD Business provided to the Board at the meeting following the exercise of Unit resources to deliver this increased program of works. the delegation. Mr P McIntyre, General Manager/Network Development and Board Audit and Risk Committee Regulatory Affairs, was assessed by the Managing Director as The Board Audit Committee consists of the following directors: having achieved all performance criteria, including achievement of the transmission planning and development requirements to The Hon. John Price (Chair of the Committee) facilitate TransGrid’s significant capital program, the production Mr Bruce Foy of the 2008 Annual Planning Report and the Strategic Network Ms Matina Papathanasiou Development Plan, the implementation of the largest network The primary function of the Board Audit Committee is to assist support arrangement in the National Electricity Market, improved the Board in fulfilling its oversight responsibilities by reviewing the customer and stakeholder relationships, the effective management overall audit process of the Corporation; the system of internal of TransGrid’s input to the development of the regulatory regime control which management and the Board of Directors have for transmission in the NEM and the development of TransGrid’s established and the financial information which will be provided to 2009-14 revenue submission to the Australian Energy Regulator. the Shareholding Ministers and others. Mr V Galea, General Manager/Network Services, was assessed by the Managing Director as having achieved all key network Board Committee – Remuneration and Structure reliability, availability, maintenance and construction targets within The Board Committee – Remuneration and Structure consists of approved budgets and timeframes while maintaining high level the following directors: safety performance and environmental compliance. Delivered and Mr Bruce Foy (Chair of the Committee) commissioned all planned major projects and asset replacement The Hon. John Price programs. Developed strategies and new concepts that will improve Mr Kevin Murray (Managing Director) project delivery processes to manage future capital works objectives and reduce some operational costs. Maintained a sustainable The primary function of this Board Committee is to assist the Board strategic Human Resource Plan that includes succession plans to in determining the remuneration and employment conditions of meet future requirements. TransGrid’s executive and senior management and reviewing the organisational structure of the Corporation. Mr P Phillips, General Manager/Business Services, was assessed by the Managing Director as having achieved all Board Regulatory Committee performance criteria including property acquisition, warehouse The Board Regulatory Committee consists of the following directors: rationalisation, resource planning, implementation of the Future Ms Matina Papathanasiou (Chair of the Committee) Leaders program and development of the Senior Manager and Mr Bruce Foy Executive Development Projects, leading the Information Technology Mr Neville Betts enhancement program and TransGrid’s Safety Commitment Mr Kevin Murray (Managing Director) and maintaining certifications of TransGrid’s Information Security Management System to AS 7799, Environmental Management The primary function of this Board Committee is to assist the Board System to ISO 14001 and Quality System to ISO 9001. in managing and reviewing regulatory changes and/or regulatory decisions arising from the National Electricity Law, Rules and Mr L Smyth, General Manager/Network Performance and Regulations. During the year ended 30 June 2008, the committee’s Operations, was assessed by the Managing Director as having main focus was on oversighting the preparation of the revenue achieved all performance criteria including network reliability submission to the Australian Energy Regulator. and availability targets, improving the systems and processes across the Business Unit, producing the new 5 Year and 30 Year Executive Leadership Team Network Management Plans and providing continued leadership in Performance Summary restructuring of the business unit and refining the “Virtual Control Mr K Murray, Managing Director, was assessed by the Room”. Board as having achieved all key performance criteria set in the Mr M Gatt, Executive Manager/Corporate, was assessed Corporate Plan and the Statement of Corporate Intent with the by the Managing Director as having achieved all performance NSW Government including submission of TransGrid’s revenue criteria, including effectively addressing the needs of stakeholders, submission for the 2009/2014 period and a continuing drive for managing media and government relations activities, delivering improved efficiency, capital delivery, succession planning and corporate communications, strategic development and associated customer focus. corporate planning functions. The Corporate Business Unit also Mr J Byrne, General Manager/Commercial, was assessed by refined processes for memberships and stakeholder management the Managing Director as having achieved all performance criteria, as well as managing a number of media issues and emergency including the effective management of all TransGrid financial communications protocols. functions, conversion of mobile phone technology and successful renegotiation of fixed and mobile telephone charges, continued achievement of a significant level of non-regulated income, completed the refurbishment of Commonwealth Street offices and made cost reductions through critical assessment of on-going expenditure.

TransGrid Annual Report 2008 > FINANCE AND DIRECTORS’ REPORT 47 Finance and Directors’ Report continued

Remuneration The Board Committee/Remuneration and Structure determines Objective Executive Remuneration. Each year the Committee commissions a The objective of TransGrid’s executive remuneration framework is to report from an external executive remuneration consultant detailing ensure that reward for performance is competitive and appropriate equivalent market remuneration and a recommendation on suitable for the results delivered. The framework aligns executive reward remuneration levels for all executive officers. with the achievement of strategic objectives and the creation of All executive officers have in place a written Performance shareholder value, and it conforms to market best practice for Agreement aligned to TransGrid’s corporate goals. Performance delivery of reward. outcomes are matched to performance targets, with remuneration based on documented performance levels.

Remuneration Paid Managing Director K Murray $604,000 General Manager/Commercial J Byrne $333,000 General Manager/Capital Program Delivery C FitzGerald $295,750 General Manager/Network Development and Regulatory Affairs P McIntyre $295,250 General Manager/Network Services V Galea $278,000 General Manager/Business Services P Phillips $275,750 General Manager/Network Performance and Operations L Smyth $258,000 Executive Manager/Corporate M Gatt $230,250

Qualifications Name Position Qualifications Mr Kevin Murray Executive Director and Managing Director BE (Elec), Dip Bus Studies, FAICD Mr John Byrne General Manager/Commercial and Board Secretary Comm (Acctg Proc) Cert, Cost Acctg Post Cert, Comm Prog Cert, FCPA, FAICD Mr Chris FitzGerald General Manager/Capital Program Delivery BSc, BE (Hons), ME, Grad Dip (Bus Admin), FIE Aust, CP Eng Mr Peter McIntyre General Manager/Network Development and Regulatory Affairs BSc, BE (Hons), MBA (Technology Management), GAICD Mr Vic Galea General Manager/Network Services BE (Elec), GAICD Mr Paul Phillips General Manager/Business Services BE (Hons), BSc, MMgt Mr Lionel Smyth General Manager/Network Performance and Operations BE (Elec), Grad Mgt Qual, GAICD Mr Michael Gatt Executive Manager/Corporate Adv. Cert Electrotechnology, Dip.Elec Engineering, B.Comm (Business) FAICD – Fellow Australian Institute of Company Directors GAICD – Graduate Australian Institute of Company Directors

Guarantee of Service TransGrid’s insurance strategy is to obtain the most comprehensive TransGrid has defined service commitments with our customers insurance coverage available at the most economical cost. Each through our Connection Agreements. TransGrid’s service levels are year, TransGrid examines the risks for which it is prepared to seek monitored by the AER and the New South Wales Department of cover, the available insurance coverage or other means to meet the Water and Energy (DWE). remaining risks and the costs of covering these risks. Consultant Fees Code of Ethics and Conduct During the year, $75,830 was spent on consulting services for the TransGrid conducts its business based upon its values. These preparation of environmental impact assessments and $22,482 was values are the driving forces that ensure we continue to aim for the spent on an employee reward and recognition consultant. highest standards of integrity, honesty and fairness in the way we work. Our Board and Executive Management team are committed Risk Management and Insurance to Our Code of Ethics and Conduct and continue to support its The Executive Audit and Risk Committee is responsible for application in our working environment. Our values have been ensuring TransGrid’s risks are identified and effectively managed. developed by our staff and are now an integral part of our business Implementation of risk management strategies are the responsibility promotion and philosophy. Our staff continues to incorporate them of all levels of management within TransGrid and a framework exists into their daily work experience and also promote them amongst to ensure that all risks are proactively and explicitly managed on an our many contractors and suppliers. ongoing basis. The Corporate Audit and Risk Group provides assistance in the development and maintenance of enterprise wide risk management plans, training staff in all aspects of risk management and the ongoing verification and review of risk mitigation actions across the organisation.

48 FINANCE AND DIRECTORS’ REPORT > TransGrid Annual Report 2008 TransGrid maintains a suite of Codes; Awareness and communication is provided on the TransGrid > TransGrid Directors Code of Ethics and Conduct, which are website, our intranet and internal communication reminders about guidelines for Board Directors and Associated Committees ethical behaviour. TransGrid also maintains a 24 hour Ethics Helpline which allows easy access for staff to seek ethical advice or relay > our Code of Ethics and Conduct distributed to all staff, and concerns in a confidential manner. > Business Ethics – A Guide to Contractors, Customers and Suppliers TransGrid continued to support the St James Ethics Centre, the These codes will continue to be distributed during 2008 to all Corruption Prevention Network and education programs with a staff and associated personnel in conjunction with our revised number of staff attending seminars and events on ethical subjects Corporate Plan. and anti corruption measures. New employees continue to be introduced to TransGrid’s ethical Freedom of Information standards through an online induction program relaying the TransGrid received no Freedom of Information (FOI) applications importance of TransGrid’s image and reputation, ensuring their under the Freedom of Information Act 1989 in 2007/2008. awareness and understanding. However, TransGrid did receive two requests to provide third party consultation input in accordance with the Act. In both instances, Our commitment to our community and to our stakeholders is TransGrid advised the requesting parties that in our views, the such that we are committed to putting in place systems, processes information requested under the Act is non-exempt. and measures that allow our practices to be transparent and above reproach. TransGrid continues to monitor the standard of The following table provides an overview of responses to requests our business policies and practices by reviewing and modifying made under the Freedom of Information Act 1989. our corporate policies and procedures to ensure that ethical and community standards are upheld and embraced.

TOTAL FOI Requests 2007 – 08 2006 – 07 Numbers of requests received 0 3 Brought forward 0 0 Completed 0 3 Transferred out 0 0 Unfinished (Carried forward) 0 0 Granted in full 0 3 Partially granted 0 0 Refused 0 1 Fees received 0 $90

During the 2007/2008 year: Statement of Affairs Information required under Section 14(2) of the Act, is located > The impact of the requirements of the Act on TransGrid’s as follows: activities was minor. > no issues arose in connection with TransGrid’s compliance with > The agency’s structure and functions: About TransGrid the requirements of the Act. > The way its functions affect the public: Achievements; > no determination by TransGrid was the subject of review by Customers, Stakeholders & Community; Network Strategy. the Ombudsman, the Administrative Decisions Tribunal or the > How the public may participate in agency policy development: Supreme Court. Customers, Stakeholders & Community Privacy > The kinds of documents the agency holds: Promotion TransGrid is committed to adherence with the principles of sound > How members of the public can access and amend agency privacy practice to ensure that personal information is managed in documents: Freedom of Information accordance with the Privacy and Personal Protection Act 1998. CREDIT CARD USAGE TransGrid has a Privacy Management Plan in place to facilitate Credit Card Usage in TransGrid is in accordance with its detailed adherence to the principles of the Act and to communicate to our documented procedures. TransGrid continues to promote the employees how privacy is managed within the organisation. correct usage of its corporate credit cards and there is a continuous review of usage characteristics and authorisations. TransGrid’s Privacy Management Plan is available to all of our employees via the company intranet, Transnet. No complaints were received and TransGrid conducted no internal reviews during the reporting period.

TransGrid Annual Report 2008 > FINANCE AND DIRECTORS’ REPORT 49 Finance and Directors’ Report continued

Significant Committees Executive Environment Committee Executive Audit and Risk Committee The Executive Environment Committee sets corporate The Executive Audit and Risk Committee ensure that the environmental policy and monitors the effectiveness of effectiveness of management control is maintained. It oversees environmental management within TransGrid. the setting of policies, co-ordination and communication of risk Capital Works Program (CAPEX) Steering Committee management strategies and ensures that TransGrid’s overall risk The CAPEX Steering Committee monitors the capital works management framework operates effectively. program in TransGrid and facilitates and coordinates the delivery Executive Occupational Health and Safety Committee of the program and specific individual projects as required. The The Executive Occupational Health and Safety Committee provides Committee also monitors the efficiency and effectiveness of the direction on policies and procedures relating to occupational health capital works delivery process. and safety matters, and provides executive support to location Executive Protective Security Committee Meeting managers and Occupational Health and Safety Committees. The Executive Protective Security Committee oversees and Executive Revenue Reset Committee coordinates protective security and business continuity activities The Executive Revenue Reset Committee determines the strategy within TransGrid. and direction of the Revenue Reset. The Committee endorses the Revenue Proposal’s key messages and structure. It determines Business Unit responsibilities and provides resources for the Revenue Reset project.

Executive Team 1 2 3 4 5 6 Kevin Murray ~ ~ ~ ~ ~ ~ ~ John Byrne ~ ~ ~ ~ ~ ~ Chris FitzGerald ~ ~ ~ ~ ~ ~ Vic Galea ~ ~ ~ ~ ~ ~ ~ Peter McIntyre ~ ~ ~ ~ ~ Paul Phillips ~ ~ ~ ~ ~ ~ ~ Lionel Smyth ~ ~ ~ ~ ~ ~ ~ Michael Gatt ~ ~ ~ ~ ~ David van Beek ~ Ian Harris ~ John Robinson ~ Lyn Cooper ~ Kevin Dodds ~ Kevin Stephenson ~ Tony Meehan ~ Megan Calvert ~ Stuart Johnston ~ Danny Gittani ~ Garrie Chubb ~ Peter Holland ~ Steve Jones ~ Don Paton ~ Andrew Power ~ Peter Tanner ~ Andrew Kingsmill ~ Gordon Dunsford ~ John Howland ~

1 – Executive Audit and Risk Management Committee 2 – Executive Occupational Health and Safety Committee 3 – Executive Revenue Reset Committee 4 – Executive Environment Committee 5 – Capital Works Program (CAPEX) Steering Committee 6 – Executive Protective Security Committee

50 FINANCE AND DIRECTORS’ REPORT > TransGrid Annual Report 2008 Overseas Visits Name Title Countries Purpose of Visit G. Ebb Manager New Zealand Attend 2007 CIGRE APA2 Transformer Committee Meeting M. Grierson Engineering Officer Thailand Acceptance testing of 132kV 60MVA Transformer M. Bradbery Manager New Zealand Attend CIGRE Australian Panel No B4 Meeting J. Mouatt Professional Officer Japan & China Design review of Toshiba’s Works in Japan and China G. Ebb Manager Japan & China Design review of Toshiba’s Works in Japan and China D. Guille Engineering Officer New Zealand Design review and material inspection associated with Bayswater 500kV Project A. Klepac Professional Officer New Zealand Design review and material inspection associated with Bayswater 500kV Project E. Lamplough Professional Officer Sweden Inspection and Testing of Shunt Reactors for Tamworth Substation H. Allen Engineering Officer Finland Witness testing of reactors for Sydney North and East capacitor installations J. Mouatt Professional Officer Japan Witness testing of 500kV power transformers for the Western 500kV Project C. FitzGerald General Manager China Visit ABB China factory to review manufacturing capability for 330kV transformers G. Ebb Manager China Visit ABB China factory to review manufacturing capability for 330kV transformers P. Antuch Engineering Officer China Assembly inspection of towers to be used on the Wollar- Wellington 330kv Line D. Dempsey Professional Officer China Assembly inspection of towers to be used on the Wollar- Wellington 330kv Line R. Yazbeck Professional Officer Japan High voltage testing at NGK laboratory A. Kingsmill Manager Canada Participate in the ITOMS Results Workshop J. Howland Manager Canada Participate in the ITOMS Results Workshop L. Smyth General Manager UK, Sweden & Norway Insurance Underwriters Meetings and Benchmarking G. Ebb Manager Japan Design review of 330/132kv, 375MVA transformers M. Grierson Engineering Officer Japan Design review of 330/132kv, 375MVA transformers

A further two trips, of which the majority of costs were funded by other organisations, were undertaken by TransGrid officers. Name Position Countries Purpose of Visit S. Jones Manager Rio de Janeiro Attend CIGRE Study Committee A3 Meeting A. Manglick Manager Japan Attend AORC meetings and associated CIGRE Symposium

TransGrid Annual Report 2008 > FINANCE AND DIRECTORS’ REPORT 51 Beginning of Audited Financial Report

Income Statement For the year ended 30th June 2008

2008 2007 Note $’000 $’000 Income 3 572,987 506,655 Expenses excluding Finance Costs 4 (280,553) (264,366) Finance Costs 4 (101,882) (100,726) Profit/(Loss) Before Income Tax Expense & Superannuation Actuarial Gains/(Losses) 190,552 141,563

Income Tax Benefit/(Expense) Before Superannuation Actuarial Gains/(Losses) 6(a)(i) (58,165) (45,531) Profit/(Loss) Before Superannuation Actuarial Gains/(Losses) 132,387 96,032

Superannuation Actuarial Gains/(Losses) (39,499) 29,891 Income Tax Benefit/(Expense) on Superannuation Actuarial Gains/(Losses) 6(a)(i) 11,850 (8,967) Profit/(Loss) For The Year 104,738 116,956

The accompanying notes form an integral part of these financial statements.

52 Financial Statements > TransGrid Annual Report 2008 Balance Sheet As at 30th June 2008

2008 2007 Note $’000 $’000 Current Assets Cash and cash equivalents 7 30,571 10,403 Trade and other receivables 8 69,857 76,777 inventories 9 25,699 24,854 derivatives 10 66 2 other 11 1,331 22,336 127,524 134,372 non-current assets held for sale 12 – 1,685 Total Current Assets 127,524 136,057

Non-Current Assets available-for-sale financial assets 13 – 476 deferred tax assets 6(b) 34,504 23,156 property, plant and equipment 14 3,531,916 3,266,270 intangibles 15 523,067 503,017 other 16 3,603 – Total Non-Current Assets 4,093,090 3,792,919 Total Assets 4,220,614 3,928,976

Current Liabilities Borrowings 143,485 253,557 Trade and other payables 18 144,318 86,162 provisions 19 169,541 134,785 Current tax payable 23,564 6,105 derivatives 20 11,222 8,264 other 21 67,494 61,564 Total Current Liabilities 559,624 550,437

Non-Current Liabilities Borrowings 1,388,107 1,199,956 Trade and other payables 18 5,413 8,870 deferred tax liabilities 6(b) 506,812 462,747 provisions 19 10,440 5,447 Total Non-Current Liabilities 1,910,772 1,677,020 Total Liabilities 2,470,396 2,227,457

Net Assets 1,750,218 1,701,519

Equity Capital 22 651,967 651,967 reserves 23 986,779 933,658 retained Earnings 24 111,472 115,894 Total Equity 1,750,218 1,701,519

The accompanying notes form an integral part of these financial statements.

TransGrid Annual Report 2008 > Financial Statements 53 Cash Flow Statement For the year ended 30th June 2008

2008 2007 Note $’000 $’000 Cash Flows from Operating Activities Cash Receipts from Customers 579,981 531,938 Cash Paid to Suppliers and Employees (164,290) (151,192) Finance Costs Paid (101,279) (101,979) Interest Received 1,909 1,503 Income Tax Paid (18,905) (17,828) Net Cash Flows from Operating Activities 33(e) 297,416 262,442

Cash Flows from Investing Activities Purchase of Property, Plant and Equipment, and Intangibles (289,854) (212,361) Proceeds from the Sale of Property, Plant and Equipment 4,453 4,167 Net Cash Flows from Investing Activities (285,401) (208,194)

Cash Flows from Financing ActivITIES Proceeds from Borrowings 361,835 249,240 Repayments of Borrowings (282,200) (248,490) Dividends Paid 19(a) (71,482) (69,500) Net Cash Flows from Financing Activities 8,153 (68,750)

Net Increase / (Decrease) in Cash and cash equivalents 20,168 (14,502) Cash and cash equivalents at Beginning of the Financial Year 10,403 24,905 Cash and cash equivalents at the End of the Financial Year 33(a) 30,571 10,403

The accompanying notes form an integral part of these financial statements.

54 Financial Statements > TransGrid Annual Report 2008 Statement of Recognised Income and Expense For the year ended 30th June 2008

2008 2007 Note $’000 $’000 Asset Revaluation Reserve: Net increase/(decrease) in revaluations 23 75,958 68,663 Net Unrealised Gains/(Losses) Reserve: Net gains/(losses) taken to 23 (426) 294 equity on Available-for-sale financial assets Cash Flow Hedge Reserve: Net unrealised gains/(losses) taken to equity 23 (2,895) (8,719) Income tax on items taken directly to equity 6(a)(ii) (22,766) (17,318) Net income recognised directly in equity 49,871 42,920

Profit for the year 104,738 116,956 Total recognised income and expense for the year attributable to members of TransGrid 154,609 159,876

The accompanying notes form an integral part of these financial statements.

TransGrid Annual Report 2008 > Financial Statements 55 Notes to the Financial Statements For the year ended 30th June 2008

1. Corporate Information (i) Significant accounting judgements The financial report of TransGrid for the year ended 30 June 2008 Impairment was authorised for issue in accordance with a resolution of the TransGrid assesses impairment of all assets at each reporting Directors on 18 September 2008. date by evaluating conditions specific to TransGrid’s business as TransGrid is a Statutory State Owned Corporation under the a whole, which may lead to impairment. If an impairment trigger State Owned Corporations Act, 1989 and was corporatised exists, the recoverable amount of the value in use for the business under the Energy Services Corporations Amendment (TransGrid is determined. Further details on the value in use calculations and Corporatisation) Act, 1998. adjustment for impairment are disclosed in Note 2(h). 2. Summary of Significant Accounting Policies Recovery of Deferred Tax Assets (a) Basis of Preparation Deferred tax assets are recognised for deductible temporary The financial report is a general-purpose financial report, and has differences as management considers that it is probable that future been prepared in accordance with Australian Accounting Standards taxable profits will be available to utilise those temporary differences. including Accounting Interpretations; the requirements of the Public Finance and Audit Act, and Regulation; the State Owned Long Service Leave Provision Corporations Act, 1989; and relevant Treasury Circulars. TransGrid’s liability for employee benefits relating to long service leave is measured using the current cost approach, which Property, plant and equipment, assets classified as held for sale, approximates the present value basis. Periodic comparison is derivative financial instruments, and available-for-sale financial undertaken of the two measurement bases, in conjunction with an assets are measured at fair value. Other financial statement items independent actuarial review. Management’s judgement, based on are prepared in accordance with the historical cost convention, historical experience, is applied in determining whether the resulting except as otherwise stated in the financial report. difference materially impacts on the liability valuation recognised in Where necessary, comparative information has been reclassified to the financial report and requires an adjustment to align to present conform to the current year’s presentation. value measurement. All amounts are rounded to the nearest thousand dollars ($’000) Workers’ Compensation Provision and are expressed in Australian currency. The liability for workers’ compensation is based on an annual independent actuarial assessment, supplemented by management (b) Statement of Compliance considerations, to arrive at a best estimate of the expenditure The financial report complies with Australian Accounting Standards, required to settle present considerations at the reporting date. The which include the Australian equivalents to International Financial estimate contains uncertainty because variables used in calculations Reporting Standards (AEIFRS). The financial report also complies cannot be easily quantified or measured in advance of a possible with the International Financial Reporting Standards (IFRS). occurrence.

(c) New Australian Accounting Standards (ii) Significant accounting estimates and assumptions and Interpretations not yet adopted Allowance for impairment loss on Australian Accounting Standards and Interpretations that have receivables from trade and other debtors recently been issued or amended but are not yet effective have not Where receivables are outstanding beyond the normal trading been adopted by TransGrid in preparing this financial report. terms, the likelihood of recovery of these receivables is assessed The following standards, amendments to standards and by management. This assessment is based on supportable past interpretations have been identified as those which may impact collection history and historical write-offs of bad debts. TransGrid in the period of initial application: Estimation of useful lives of assets > aasB 101 (issued September 2007) and AASB 2007-8 relates The estimation of the useful lives of assets is based on historical to presentation of financial statements. experience, industry comparisons, as well as expected usage, > aasB 8 (issued February 2007) replaces the presentation physical wear and tear, and the rate of technical and commercial requirements of segment reporting in AASB 114. obsolescence. Further information on the estimation of useful lives is > aasB 2007-3 (issued February 2007) relates to amendments to disclosed in Note 2(f)(iv). existing Accounting Standards as a result of the new AASB 8. (e) Changes in Accounting Policies All of these pronouncements are applicable for the year commencing Accounting policies are consistent with those applied in the 1 July 2009. The new standards are concerned with disclosures previous year. and will have no direct impact on TransGrid’s financial results. (f) Property, Plant and Equipment (d) Significant Accounting Judgements, Estimates (i) Acquisition of Assets and Assumptions made by management The cost method of accounting is used for the initial recording of all In applying TransGrid’s accounting policies, management continually acquisitions of assets controlled by TransGrid. Cost is the amount evaluates judgements, estimates and assumptions based on of cash or cash equivalents paid or the fair value of the other experience and other factors, including expectations of future consideration given to acquire the asset at the time of its acquisition events that may have an impact on TransGrid. All judgements, or construction. Cost includes interest on borrowings related to estimates and assumptions made are believed to be reasonable, Qualifying Assets as detailed in 2(f)(iii). based on the most current set of circumstances available to Assets acquired at no cost, or for nominal consideration, are initially management. Actual results may differ from the judgements, recognised at their fair value at the date of acquisition. estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of (ii) Revaluations these financial statements are outlined below: Property, Plant and Equipment are valued in accordance with NSW Treasury’s Policy TPP 07-1 “Valuation of Physical Non-Current Assets at Fair Value”.

56 Notes to the Financial Statements > TransGrid Annual Report 2008 Fair value of property, plant and equipment is determined based Non-regulated Assets on the best available market evidence, including current market Non-regulated Assets comprise property, plant and equipment used selling prices for the same or similar assets. Where there is no by TransGrid to provide services other than regulated electricity available market evidence, the asset’s fair value is measured at transmission services. Non-regulated assets as disclosed in Notes its market buying price, the best indicator of which is depreciated 14(a) and (b) are: replacement cost. • System Plant and Equipment TransGrid revalues depreciable property, plant and equipment • Communication Equipment by reference to current prices for assets newer than those being • Other Assets revalued, and adjusts those amounts to reflect the present condition of the asset. The accumulated depreciation for the revalued asset is Valuation of non-regulated assets is based on relevant commercial restated proportionately with the change in the gross carrying amount agreements, which define their earning capacity. of the asset, so that the carrying amount of the asset after revaluation equals its revalued amount, in line with NSW Treasury Policy. (iii) Capitalisation Capital expenditure is defined as expenditure in relation to: Any revaluation surplus is credited to the Asset Revaluation Reserve included in the Equity section of the Balance Sheet, unless • acquisition of a new unit of plant; it reverses a revaluation decrease of the same asset previously • installation of a new unit of plant; recognised in the Income Statement. • work performed on a unit of plant, where the need for the work Any revaluation deficit is recognised in the Income Statement unless existed at the time the unit was acquired and the work was it directly offsets a previous surplus of the same asset in the Asset carried out prior to it being put into operation; Revaluation Reserve. • replacement of a unit of plant, or of a substantial part of a unit of plant; Upon disposal, any revaluation reserve relating to the particular asset • an addition or alteration to a unit of plant, which results in an or parts of asset being sold is transferred to Retained Earnings. increase in economic benefits. Property, plant and equipment comprise the following types Interest on borrowings is capitalised against Qualifying Assets in of assets: accordance with AASB 123 “Borrowing Costs”. Qualifying Assets Regulated Assets are assets which take more than 12 months to be ready for their Regulated Assets comprise property, plant and equipment used intended use. by TransGrid to provide electricity transmission services that are Expenditure is not capitalised below a minimum threshold of $1,000. regulated by the Australian Energy Regulator (AER). Regulated assets as disclosed in Notes 14(a) and (b) are: (iv) Depreciation Property, plant and equipment, excluding land, are depreciated over > network Asset their estimated useful lives. The straight-line depreciation method > other Assets is used. Assets are depreciated from the month of acquisition or in respect of constructed assets, from the time the asset reaches Network Asset is a complex infrastructure asset that works together practical completion and is ready for use. as an integrated whole to provide regulated electricity transmission services. It includes the following major parts: Asset lives are reviewed annually in accordance with AASB 116 “Property, Plant and Equipment”, and where required, adjustments > land have been made to the remaining useful lives of separately > Buildings identifiable parts of assets having regard to factors such as asset > system Plant and Equipment usage and the rate of technical and commercial obsolescence. > Communication Equipment The useful lives presently assigned to TransGrid’s assets are shown TransGrid assesses at each reporting date whether there is any in the table below: indication that an asset’s carrying amount differs materially from fair value. If any indication exists, the asset is revalued. Regulated Network Asset Buildings 30 years Assets Subject to the above, TransGrid’s valuation policy provides for a full and detailed valuation of these assets to be undertaken at five-year System Plant 40 – 50 years intervals, in conjunction with NSW Treasury Policy. In the intervening and Equipment years, a revaluation based on price index movements is undertaken. Communication 10 – 35 years Detailed valuations of system plant and equipment, buildings Equipment and communication equipment associated with optical fibres Other Assets 2 – 10 years were undertaken by TransGrid staff as at 30 June 2004. A detailed valuation of land was undertaken as at 30 June 2005 by Non-regulated System Plant 20 – 50 years independent valuers. Assets and Equipment Communication 35 years Equipment Other Assets 2 – 10 years

TransGrid Annual Report 2008 > Notes to the Financial Statements 57 Notes to the Financial Statements For the year ended 30th June 2008

(g) Intangible assets (j) Non-current assets held for sale Intangible assets comprise the following assets as disclosed in TransGrid has non-current assets classified as held for sale, where Notes 15(a) and (b): their carrying amount will be recovered principally through a sale transaction, not through continuing use. Non-current assets held for > easements; sale are recognised at the lower of carrying amount and fair value > Computer software; and less costs to sell. These assets are not depreciated while they are > airspace rights classified as held for sale.

Intangible assets are measured at cost. (k) Inventories Capital expenditure on intangible assets is defined as expenditure in Inventories of Stores and Materials are valued at the average cost relation to: of items in store automatically adjusted at time of delivery of new items, separately determined for each location. > acquisition of computer software or easements; (l) Cash and cash equivalents > installation of computer software; Cash and cash equivalents in the Balance Sheet and for purposes > an addition or alteration to computer software, which results in of the Cash Flow Statement comprise cash at bank and deposits at an increase in economic benefits. call with financial institutions. Easements are a component of TransGrid’s infrastructure assets (m) Borrowings that provide electricity transmission services that are regulated by All borrowings are measured at amortised cost using the effective the Australian Energy Regulator. Easements are not amortised. interest method. Amortised cost is calculated by taking into account Computer software is amortised over a period of 5 years using the any issue costs, and any discount or premium on settlement. straight-line depreciation method. The useful life for software is Finance costs include interest and costs incurred in connection with reviewed annually, and adjustments where applicable, are made on the arrangement of borrowings. Discount/Premium on loans is in the a prospective basis. nature of a cost/cost reduction of borrowing. Discount/Premiums Airspace rights have been recognised when the cost of the asset are amortised over the term of the loans. The amount applicable to can be measured reliably and it is probable that the asset will each year is included in the Income Statement as part of TransGrid’s generate expected future economic benefits for TransGrid. Airspace borrowing costs for the year. rights are not amortised. Discount on loans issued by NSW Treasury Corporation amounted Expenditure is not capitalised below a minimum threshold of $1,000. to $21,886,000 (2007 – Premium $4,254,000). The effective interest rate applicable for the debt portfolio is 6.2% (2007 – 6.2%). (h) Impairment TransGrid’s business as a whole represents a cash-generating Interest on borrowings is recognised as expense in the period in unit. At each reporting date, TransGrid’s specialised plant and which it is incurred unless it relates to qualifying assets. Qualifying infrastructure assets, land and buildings, and easements are tested assets are assets, which take more than 12 months to get ready for for impairment as part of the cash-generating unit. If there is any their intended use. Where funds are borrowed generally, interest on indication that the cash-generating unit may be impaired, TransGrid the borrowings is capitalised to qualifying assets in accordance with makes an estimate of the recoverable amount of the unit. AASB 123 “Borrowing Costs”. As TransGrid’s revenue from electricity transmission services The amount of interest attributed to qualifying assets during the year is determined by the Australian Energy Regulator, the risks of was $2,741,000 (2007 – $560,000) at a weighted average rate of impairment for the business as a whole during the regulatory period 6.8% (2007 – 6.7%). are considered to be extremely low. Loans are classified as current when they have a maturity of less The recoverable amount of the cash-generating unit is based on the than one year from the reporting date. TransGrid expects to roll this value in use for the business as a whole. In assessing value in use, debt upon maturity. the estimated future cash flows for the business are discounted to (n) Dividends their present value using a pre-tax discount rate that reflects the Provision is made for the amount of dividend payable in relation risks specific to the business and relevant market assessments to the current financial year, in accordance with the Dividend of the time value of money as applied by the Australian Energy Recognition Policy set out in Treasury Circular NSW TC 05-11 Regulator in determining TransGrid’s revenue cap. “Accounting for Dividends”. Accordingly, a dividend in relation If the carrying amounts of the assets exceed the recoverable to the financial year is taken to be determined before reporting amount of the business, the assets comprising the business as date, consistent with the requirements of AASB 137 “Provisions, a whole are considered to be impaired. The assets are written Contingent Liabilities and Contingent Assets”. down proportionately to ensure their carrying amounts reflect the (o) Employee Benefits recoverable amount. A calculation in accordance with AASB 119 “Employee Benefits” is (i) Investments made each year in respect of TransGrid’s liability at reporting date Investments are recognised at the fair value of the consideration for employee benefits relating to long service leave and annual given, including any acquisition charges associated with the leave, and an annual contribution is made to adjust the provision to investment, less any impairment. an amount which is considered adequate to meet that liability. Gains or losses on available-for-sale investments are recognised (i) Annual Leave as a separate component of equity until the investment is disposed The provision for employee benefits relating to annual leave of or determined to be impaired, at which time the cumulative gain represents the amount which TransGrid has a present obligation to or loss previously reported in equity is included in the pay resulting from employees’ services provided up to reporting date. Income Statement. TransGrid does not actively engage in external investment activities.

58 Notes to the Financial Statements> TransGrid Annual Report 2008 The provision has been calculated at nominal amounts based on (r) Trade and Other Receivables the remuneration rates that are expected to be paid when the leave Receivables from trade and other debtors, which generally have is taken. 20 to 30 day terms, are recognised at amounts due less an allowance for any uncollectible amounts. Collectibility of these (ii) Long Service Leave receivables is reviewed on an ongoing basis. Debts that are known The liability for employee benefits relating to long service leave to be uncollectible are written off when identified. An allowance has been calculated on the basis of current salary rates to be paid for doubtful debts is raised when there is objective evidence that by TransGrid resulting from employees’ services provided up to TransGrid will not be able to collect the debt. reporting date and includes related on-costs, in accordance with the guidelines of Treasury Circular NSW TC 07/04 “Accounting for (s) Payables Long Service Leave and Annual Leave”. Accounts payable, including accruals not yet billed, are recognised when TransGrid has an obligation to pay as a result of the (p) Superannuation completion of a work or service. Trade accounts are usually settled TransGrid contributes to four Defined Benefit Superannuation within 60 days. Schemes for which liabilities accrue. (t) Revenue The Defined Benefit Schemes comprise: Revenue is recognised to the extent that it is probable that the > energy Industries Superannuation Scheme Pool B (EISS); economic benefits will flow to TransGrid and the revenue can be > state Authorities Superannuation Scheme (SASS); reliably measured. The following specific recognition criteria must also be met before revenue is recognised: > state Authorities Non-Contributory Superannuation Scheme (SANCS); and (i) Sale of goods > state Superannuation Scheme (SSS) Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be TransGrid contributes to a number of Accumulation Superannuation measured reliably. Risks and rewards are considered passed to the Schemes for which no long-term liability accrues. buyer at the time of delivery of the goods to the customer. With the Defined Benefit Schemes, a component of the final benefit is (ii) Rendering of services derived from a multiple of member salary and years of membership. Revenue from electricity transmission services is subject to the All the Defined Benefit Schemes are closed to new members. application of an Australian Energy Regulator determined revenue The Superannuation Schemes advise the level of liability in respect cap for the financial year. The revenue caps are determined by the of TransGrid’s superannuation commitments to its employees AER at five-year intervals. TransGrid is in the fourth year of the current who are members of the various divisions of the schemes. regulatory determination which operates from July 2004 to June The calculation of the superannuation position is based upon 2009. The transmission service prices are set at the beginning of the actuarial reviews independent of TransGrid’s ongoing activities financial year to achieve the revenue cap applicable for that year. and involvement. Various actuarial assumptions underpin the Revenue from the rendering of other services is recognised when determination of TransGrid’s defined benefit obligations. These the service is provided or by reference to the stage of completion. assumptions and the related carrying amounts for EISS are Where the contract outcome cannot be measured reliably, revenue disclosed in Note 5. is recognised only to the extent of the expenses recognised that TransGrid recognises the net total of the following as an asset or a are recoverable. liability in its Balance Sheet: (iii) Interest > present value of the defined benefit obligation at reporting date; Interest revenue is recognised as it is earned, using the effective > Fair value of plan assets in the defined benefit schemes at interest method. reporting date. (iv) Contributions for Capital Works The difference between the opening and closing balances of the net Cash and non-cash capital contributions have been recognised in defined benefit asset or liability for the year, plus or minus employer accordance with Accounting Interpretation 1017 “Developer and contributions, is brought to account as revenue or expense in Customer Contributions for Connection to a Price-Regulated Network”. TransGrid’s Income Statement, depending on the direction of Contributions of non-current assets are recognised as revenue and movement in the superannuation reserve. an asset when TransGrid gains control of the asset. The amount TransGrid has determined that detailed disclosure of the Defined recognised is the fair value of the contributed asset at the date on Benefit Schemes of SASS, SANCS and SSS will not materially which control is gained. influence the users of the financial report and therefore has not Cash capital contributions are recognised as revenue when the been disclosed. network is extended or modified, consistent with the terms of (q) Insurance the contribution. TransGrid maintains a mix of external insurance policies and internal (u) Income Tax provisioning in accordance with AASB 137 “Provisions, Contingent TransGrid is subject to the National Tax Equivalent Regime (NTER) Liabilities and Contingent Assets”. The treatment of risks and administered by the Australian Taxation Office. The NTER is based associated liabilities are determined in conjunction with independent on application of federal income tax laws under which TransGrid insurance advisers and loss adjusters. The main area of self- pays income tax equivalents to NSW Treasury. insurance is Towers and Wires where it is considered cost-effective to carry the risk internally. Deferred income tax is provided on all temporary differences at reporting date between the tax bases of assets and liabilities and TransGrid is a self-insurer for Workers’ Compensation. The liability their carrying amounts for financial reporting purposes. for claims made, or to be made, against the Insurance Provision is determined by reference to the Workers’ Compensation Act, 1987 and the WorkCover Authority’s guidelines to self-insurers.

TransGrid Annual Report 2008 > Notes to the Financial Statements 59 Notes to the Financial Statements For the year ended 30th June 2008

Deferred income tax liabilities are recognised for all taxable Credit risk temporary differences except where the deferred income tax liability Credit risk is the risk that TransGrid suffers financial loss due to the arises from the initial recognition of an asset or liability, and at the inability of a counterparty to meet its financial obligations. The policy time of the transaction, affects neither the accounting profit nor objective is to ensure that TransGrid does not suffer any loss due to taxable profit or loss. credit risk.

Deferred income tax assets are recognised for all deductible Trade and other receivables temporary differences, carry-forward of unused tax assets and TransGrid’s exposure to credit risk is influenced mainly by the unused tax losses, to the extent that it is probable that taxable profit individual characteristics of each customer. The demographics of will be available against which the deductible temporary differences, TransGrid’s customer base, including the default risk of the industry and the carry-forward of unused tax assets and unused tax losses and country in which customers operate, has less of an influence on can be utilised, except where the deferred income tax asset arises credit risk. from the initial recognition of an asset or liability, and at the time of the transaction, affects neither the accounting profit nor taxable TransGrid considers a concentration of credit risk to exist when an profit or loss. individual customer’s outstanding trade receivable balance exceeds 10% of the total trade receivables balance. Approximately 66% The carrying amount of deferred income tax assets is reviewed at (2007 – 79%) of TransGrid’s trade receivables balance is attributable each reporting date and reduced to the extent that it is no longer to three distribution customers who have individual trade receivable probable that sufficient taxable profit will be available to allow all or balances in excess of 10% of the total balance. part of the deferred income tax asset to be utilised. TransGrid’s trade and other receivables balance relates mainly to Deferred income tax assets and liabilities are measured at the tax TransGrid’s distribution customers. All of TransGrid’s distribution rate that is expected to apply to the year when the asset is realised customers have been transacting with the organisation since its or the liability is settled, based on tax rate (and tax laws) that have inception, with no credit losses occurring in that period of time. been enacted or substantively enacted at reporting date. In the event that there is objective evidence that TransGrid will Income taxes relating to items recognised directly in equity (such as not be able to collect a debt, TransGrid establishes an allowance asset revaluation and cash flow hedges) are recognised in equity for doubtful debts that represents the organisation’s estimate of and not in the Income Statement. incurred losses in respect of trade and other receivables. Where receivables are outstanding beyond the normal trading terms, (v) Financial Risk Management the likelihood of recovery of these receivables is assessed by Overview management. This assessment is based on a supportable past TransGrid has exposure to the following risks from its use of collection history and historical write-offs of bad debts. financial instruments: > Credit risk; Investments TransGrid’s available-for-sale financial asset comprised listed shares > liquidity risk; and in Geodynamics Limited. This did not represent a material interest in > Market risk the entity. The investment in Geodynamics Limited was undertaken This note presents information about TransGrid’s exposure to as part of TransGrid’s research and development activities to each of the above risks, its objectives, policies and processes for sponsor investigation of sustainable green energy through the measuring and managing risk, and the management of capital. generation of electricity from hot dry rocks (geothermal energy). As Further quantitative disclosures are included throughout this TransGrid does not actively engage in external investment activities, financial report. a decision was made to dispose of the investment within the financial year. The Executive Audit and Risk Committee is responsible for ensuring TransGrid’s risks are identified and effectively managed. Liquidity risk Implementation of risk management strategies are the responsibility Liquidity risk is the risk that TransGrid will not be able to meet of all levels of management within TransGrid, and a framework its financial obligations as they fall due. TransGrid’s approach to exists to ensure that all risks are proactively and explicitly managed managing liquidity is to ensure that sufficient funds are available on an ongoing basis. to meet its financial obligations, working capital and potential investment expenditure requirements in a timely manner. It is also Risk management policies are established to identify and analyse the associated with planning for unforeseen events which may curtail risks faced by TransGrid, to set appropriate risk limits and controls, operating cash flows and cause pressure on TransGrid’s liquidity. and to monitor risks and adherence to limits. Risk management The policy objective is to ensure that TransGrid meets its financial policies and systems are reviewed regularly to reflect changes in commitments in a timely manner. TransGrid’s activities and operating environment. TransGrid, through its training and management standards and procedures, aims to Typically TransGrid ensures that it has sufficient cash on demand develop a disciplined and constructive control environment in which to meet expected operational expenses for a period of 60 days, all employees understand their roles and obligations. including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably The main objective of TransGrid’s Treasury Risk Management Policy be predicted, such as natural disasters. is to provide an overarching framework for managing the risks associated with treasury functions, and specifically to: In addition, TransGrid maintains the following lines of credit: > minimise the cost of gross debt, within prudent risk parameters; • $2.2 billion NSW Treasury Corporation loans of which $1.5 billion > identify, minimise and effectively manage all the treasury related has been drawn; risks of the organisation in a prudent manner; and • $6.0 million Overdraft Facility that is unsecured with a variable > ensure professional interaction with financial markets. interest rate as at 30 June 2008 of 11.56%. This facility was undrawn at 30 June 2008. • $4.0 million Credit Card Limit. All credit card transactions as notified by the bank were paid by due date as at 30 June 2008.

60 Notes to the Financial Statements > TransGrid Annual Report 2008 Market risk Other market price risk Market risk is the risk that changes in market prices, such as Equity price risk arises from available-for-sale equity securities. foreign exchange rates and interest rates will affect TransGrid’s Currently, TransGrid does not actively engage in external profit or loss, or the value of its holdings of financial instruments. investment activities. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while Capital management optimising the return. TransGrid has been subject to the New South Wales Government’s Financial Distribution Policy since its inception and is fully committed TransGrid enters into derivatives, and also incurs financial assets to providing an adequate return to the Shareholder. This objective and liabilities, in order to manage market risks. All such transactions must be managed within the regulatory framework provided by the are carried out within the guidelines set by TransGrid’s Treasury Risk National Electricity Rules, given that the vast majority of TransGrid’s Management Policy. revenue is subject to regulation.

Currency risk TransGrid’s return on capital is based on a Weighted Average Currency risk is the risk that TransGrid will suffer financial loss due to Cost of Capital set by the Australian Energy Regulator, as part of movements in exchange rates. The policy objective is to ensure that the revenue cap determination process at five-year intervals. The TransGrid minimises the amount of foreign exchange risk faced. regulatory rate of return is set at a level deemed sufficient to ensure the continuing viability of TransGrid’s business and to encourage TransGrid’s foreign exchange risk principally arises from supplier necessary investment in new and replacement assets. The contracts and capital equipment purchases denominated in a Weighted Average Cost of Capital applicable to TransGrid for the currency other than Australian dollars. current five-year regulatory determination period is 8.92%. The currencies in which these transactions primarily are There were no changes in TransGrid’s approach to capital denominated are the European Euro, United States Dollar, Canadian management during the year. Dollar and Japanese Yen. TransGrid is not subject to externally imposed capital requirements. All individual foreign currency exposures in excess of AUD 0.5 million equivalent are to be hedged. TransGrid uses forward foreign currency (w) Goods and Services Tax contracts to hedge its currency risk and when necessary, forward Revenues, expenses and assets are recognised net of the amount contracts are rolled over at maturity to match the underlying exposure. of Goods and Services Tax (GST), with the following exceptions: At 30 June 2008, TransGrid had forward foreign currency contracts a. Where the amount of GST incurred is not recoverable from the amounting to a net fair value of $11.2 million. Australian Taxation Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as ­Interest rate risk part of an item of the expense. Interest rate risk is the risk of a material change in earnings and b. receivables and payables are stated with the amount of GST ultimately dividend payments as a consequence of adverse included. movements in interest rates. The policy objective is to ensure that TransGrid is not exposed to interest rate movements which could The net amount of GST recoverable from, or payable to, the adversely impact on its ability to meet its financial obligations as Australian Taxation Office is included as a current asset or current they fall due. liability in the Balance Sheet. Exposure to interest rate risk arises from assets and liabilities Cash flows are included in the Cash Flow Statement on a gross bearing variable interest rates. TransGrid’s exposure is limited due basis. The GST component of cash flows arising from investing and to the majority of its financial assets and liabilities being either non- financing activities which are recoverable from, or payable to, the interest bearing or held in fixed rates. Australian Taxation Office are classified as operating cash flows. The effective weighted average interest rates for each class of (x) Derivative Financial Instruments financial asset and liability are disclosed in respective notes to the TransGrid uses derivative financial instruments such as forward financial statements. foreign currency contracts to hedge its risks associated with foreign currency fluctuations. Borrowings All TransGrid borrowings are issued by NSW Treasury Corporation For the purposes of hedge accounting, TransGrid classifies with fixed coupon payments being made on a bi-annual basis. its hedges as cash flow hedges. The hedges are undertaken to address exposure to variability in cash flows that is either Electricity Creditors attributable to a particular risk associated with a recognised asset or Electricity Creditors relate to monies received for electricity liability or a forecasted transaction. transmission services that are above the revenue cap as determined In relation to cash flow hedges to hedge firm commitments which by the Australian Energy Regulator and from the National Electricity meet the specific conditions for hedge accounting, the portion of Market settlement residues process. the gain or loss on the hedging instrument that is determined to be In the event that these residues cause the total revenue received an effective hedge is recognised directly in equity and the ineffective during the year to exceed TransGrid’s revenue cap, the excess is portion is recognised in the Income Statement. held in Electricity Creditors and is taken into account when setting When the hedged firm commitment results in the recognition of an the next period’s transmission service prices, resulting in those asset or liability, then, at the time the asset or liability is recognised, prices being lower than they would have otherwise been. the associated gains or losses that had previously been recognised Electricity Creditors includes an interest charge based on the annual in equity are included in the initial measurement of the acquisition average of the 11 a.m. daily published cash rate for the financial cost or other carrying amount of the asset or liability. year. In accordance with the requirements of the National Electricity Rules, the basis for the interest rate was approved by the Australian Energy Regulator.

TransGrid Annual Report 2008 > Notes to the Financial Statements 61 Notes to the Financial Statements For the year ended 30th June 2008

(y) Segment Reporting (z) Revenue/(Expenses) from Ongoing Activities TransGrid operates in one industry being the transmission of Revenue/(Expenses) from Ongoing Activities represent TransGrid’s electricity in New South Wales. As such, TransGrid has only financial performance on its day to day business operations, the one business segment as well as one geographical segment in activities of which TransGrid is able to exercise some degree of accordance with AASB 114 “Segment Reporting”, and this is control over the outcomes. reported in the financial statements.

3. Income 2008 2007 $’000 $’000

Revenue from Ongoing Activities Transmission of Electricity 526,620 486,535 Non-regulated Work 11,599 13,877 Capital Contributions 29,215 – Interest 1,909 1,496 Sundry 3,644 2,930 Total Revenue 572,987 504,838

Superannuation Gain, excluding actuarial gains – 1,817 Total Income 572,987 506,655

Capital Contributions relate to the transfer of transmission assets forming part of the Uranquinty Power Station project.

4. Expenses 2008 2007 $’000 $’000

Expenses from Ongoing Activities excluding Losses & Finance Costs Transmission of Electricity 261,128 254,829 Other Services 8,811 7,006 Total Expenses from Ongoing Activities excluding Losses & Finance Costs 269,939 261,835

Net Loss on Disposal of Property, Plant and Equipment 1,213 901 Net Loss on Cash Flow Hedges 223 192 Impairment Adjustment on Non-current assets held for sale – 1,438 Total Expenses from Ongoing Activities excluding Finance Costs 271,375 264,366

Net Superannuation expense, excluding actuarial losses 9,178 – Total Expenses excluding Finance Costs 280,553 264,366

Finance Costs 101,882 100,726 Total Expenses 382,435 365,092

Total Expenses above include: 2008 2007 $’000 $’000 Depreciation of Property, Plant and Equipment (refer to Note 14(b)) 138,112 131,642 Amortisation of Intangibles (refer to Note 15(b)) 3,884 3,844 Bad Debts / Doubtful Debts – 8 Inventory Expense 3,610 2,733 Employee BenefitsE xpense 80,304 75,302

Maintenance Expenses are a subset of the above total expenses: Maintenance Expenses: Transmission of Electricity employee-related maintenance expenses 23,601 23,117 other maintenance expenses 37,855 38,328 Transmission of Electricity – Maintenance Expenses 61,456 61,445 Other Services – Maintenance Expenses 251 251 Total Maintenance Expenses 61,707 61,696

62 Notes to the Financial Statements > TransGrid Annual Report 2008 5. EISS Superannuation Defined Benefit Plans The following tables summarise the components of movement in employer’s superannuation reserve recognised in the Income Statement, and the funded status and amounts recognised in the Balance Sheet for the EISS Defined Benefit Superannuation Plans. The Assets and Liabilities of TransGrid’s EISS Defined Benefit Plans are provided by the Scheme’s Actuary, Mercer Human Resource Consulting.

(a) Movements in EISS Superannuation Reserve recognised in Income Statement 2008 2007 $’000 $’000 Current service cost (15,700) (3,428) Interest cost on benefit obligation (25,443) (23,738) Expected return on plan assets 31,919 29,006 Net gains/(expense), excluding actuarial gains/(losses) (9,224) 1,840

Net actuarial gains/(losses) recognised in the year (39,429) 29,883 Net gains/(expense) (48,653) 31,723

(b) EISS Superannuation Surplus/(Liability) 2008 2007 $’000 $’000 Fair Value of Plan Assets at End of Year 385,164 430,848 Present Value of Defined Benefit Obligation at End of Year (412,716) (409,747) Net Asset /(Liability) Recognised in Balance Sheet at End of Year (27,552) 21,101

(c) Reconciliation of the present value of the EISS defined benefit obligations 2008 2007 $’000 $’000 Present value of defined benefit obligations at beginning of the year (409,747) (405,668) Current service cost (15,700) (3,428) Interest cost (25,443) (23,738) Contributions by Scheme participants (3,787) (3,936) Actuarial gains/(losses) 32,850 5,103 Benefits Paid 9,111 21,920 Present value of defined benefit obligations at the end of the year (412,716) (409,747)

(d) Reconciliation of the EISS fair value of plan assets 2008 2007 $’000 $’000 Fair value of plan assets at beginning of the year 430,848 387,067 Expected return on plan assets 31,919 29,005 Actuarial gains/(losses) (72,279) 24,779 Employer Contributions – 7,980 Contributions by plan participants 3,787 3,937 Benefits Paid (9,111) (21,920) Fair value of plan assets at the end of the year 385,164 430,848

(e) Percentage invested in each asset class at reporting date: 2008 2007 Australian equities 37.6% 38.9% Overseas equities 34.0% 36.9% Australian fixed interest securities 10.7% 7.1% Overseas fixed interest securities 6.3% 3.4% Property 3.2% 8.6% Cash 6.0% 4.2% Other 2.2% 0.9%

TransGrid Annual Report 2008 > Notes to the Financial Statements 63 Notes to the Financial Statements For the year ended 30th June 2008

(f) Fair value of EISS scheme assets All Scheme assets are invested by the Trustees at arm’s length through independent managers.

(g) Expected rate of return on assets The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the target allocation of assets to each class. The returns used for each class are net of investment tax and investment fees.

(h) Actual return on EISS plan assets 2008 2007 $’000 $’000 Actual return on plan assets (40,085) 55,093

(i) Valuation Method The Projected Unit Credit (PUC) valuation method was used to determine the present value of the defined benefit obligations and the related current service costs. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.

(j) Economic Assumptions 30 June 2008 Investment Return 7.0% Salary increase rate (excluding promotional increase) 6.0% pa until June 2009; 4.0% pa thereafter Expected rate of return on assets backing current pension liabilities 8.3% Expected rate of return on assets backing other liabilities 7.3% Rate of CPI Increase 2.5% p.a. Discount rate 6.19% p.a.

(k) Historical Information 2008 2007 $’000 $’000 Present value of defined benefit obligation (412,716) (409,747) Fair value of Fund assets 385,164 430,848 Surplus/(Deficit) in Scheme (27,552) 21,101 Experience adjustments – Scheme liabilities 32,850 5,103 Experience adjustments – Scheme assets (72,279) 24,780

(l) Funding Arrangements for Employer Contributions (i) Net Surplus/(Liability) The following is a summary of the financial position of the defined benefit superannuation schemes at reporting date calculated in accordance with AAS 25 “Financial Reporting by Superannuation Plans”.

2008 2007 $’000 $’000 Net Market Value of Scheme Assets 385,164 430,848 Accrued Benefits (379,148) (373,009) Net Surplus/(Liability) 6,016 57,839

(ii) Contribution recommendations The recommended contribution rates for TransGrid are nil.

(iii) Funding method The method used to determine the employer contribution recommendations at the last actuarial review was the Aggregate Funding method. The method adopted affects the timing of the cost to the employer. Under the Aggregate Funding method, the employer contribution rate is determined so that sufficient assets will be available to meet benefit payments to existing members, taking into account the current value of assets and future contributions.

64 Notes to the Financial Statements > TransGrid Annual Report 2008 6. Income Tax (a) Income Tax Expense Major components of income tax expense for the years ended 30 June 2008 and 2007 are:

(i) Income Statement 2008 2007 $’000 $’000

Current Income Tax Current income tax charge 36,681 16,731 Adjustments in respect of current income tax of previous years (317) 553 Deferred Income Tax before Superannuation Actuarial Gains/(Losses) Relating to origination and reversal of temporary differences 21,801 28,247 Income tax expense before Superannuation Actuarial Gains/(Losses) 58,165 45,531

Deferred Income Tax on Superannuation Actuarial Gains/(Losses) (11,850) 8,967 Total income tax expense reported in Income Statement 46,315 54,498

2008 2007 $’000 $’000 Total Deferred Income Tax Expense reported in Income Statement 9,951 37,214

(ii) Statement of Recognised Income and Expense 2008 2007 $’000 $’000

Deferred Income Tax Net tax gain on revaluation of property, plant and equipment 23,763 19,845 Net tax gain/(loss) on available-for-sale financial assets (128) 88 Net tax gain/(loss) on cash flow hedges (869) (2,615) Income tax on items taken directly to equity during the year 22,766 17,318 Adjustments to opening equity reserves – – Income tax expense/(benefit) reported in equity 22,766 17,318

(iii) Reconciliation of income tax expense on pre-tax accounting profit to income tax expense reported in the Income Statement The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the Income Statement as follows:

2008 2008 2007 2007 $’000 $’000 $’000 $’000 Profit/(Loss) Before Superannuation Actuarial Gains/(Losses) 190,552 141,563 and Income Tax Expense Income tax expense/(benefit) calculated at statutory income tax rate of 30% 57,166 42,469 Capital allowances 20 – Expenditure not allowed for income tax purposes 38 71 Reversal of temporary differences recognised in previous years 1,258 2,438 Adjustments in respect of current income tax of previous years (317) 553 Income tax expense before Superannuation Actuarial Gains/(Losses) 58,165 45,531 reported in Income Statement

Superannuation Actuarial Gains/(Losses) (39,499) 29,891 Income Tax Expense on Superannuation Actuarial (11,850) 8,967 Gains/(Losses) at 30% tax rate Total income tax expense reported in Income Statement 46,315 54,498

TransGrid Annual Report 2008 > Notes to the Financial Statements 65 Notes to the Financial Statements For the year ended 30th June 2008

(b) Deferred Income Tax Deferred Income Tax at 30 June relates to the following: Balance Sheet Income Statement 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Deferred Tax Assets Provisions 21,154 19,540 (1,614) (696) Superannuation Liability 8,266 – (8,266) 5,581 Property, plant and equipment 912 847 (65) 122 Other 4,172 2,769 (516) (208) Gross Deferred Tax Assets 34,504 23,156

Deferred Tax Liabilities Property, plant and equipment and Intangibles (505,292) (455,954) 25,576 26,690 Superannuation Surplus (31) (6,363) (6,332) 6,330 Other (1,489) (430) 1,168 (605) Gross Deferred Tax Liabilities (506,812) (462,747)

Deferred Tax Charge 9,951 37,214

7. Cash and cash equivalents 2008 2007 $’000 $’000 Cash on Hand 13 13 Deposits at Call 30,558 10,390 Total 30,571 10,403

Deposits at call bear average floating interest rates of 7.7% (2007 – 6.5%).

8. Trade and other receivables 2008 2007 $’000 $’000

Current Debtors Trade Debtors 60,777 72,714 Debtors Other Than Trade 6,640 3,978 67,417 76,692 Allowance For Doubtful Debts – – Total Debtors 67,417 76,692 Other 2,440 85 Total 69,857 76,777

9. Inventories 2008 2007 $’000 $’000 Transmission Plant Spares 25,531 24,131 Other 168 723 Total 25,699 24,854

66 Notes to the Financial Statements > TransGrid Annual Report 2008 10. Derivatives (Current asset) 2008 2007 $’000 $’000 Forward Contract 66 2

Derivatives represent forward foreign currency contracts to hedge risks associated with foreign currency fluctuations.

11. Other current assets 2008 2007 $’000 $’000 Superannuation Surplus 103 21,209 Prepayments 829 1,127 Insurance Recovery Asset 399 – Total 1,331 22,336

12. Non-current assets held for sale 2008 2007 $’000 $’000

Network Assets Land – 1,567 Buildings – 118 Total – 1,685

Non-current assets held for sale comprise land and buildings that are available for immediate sale at reporting date. No assets were identified as being available for immediate sale at 30 June 2008.

13. Available-for-sale financial assets 2008 2007 $’000 $’000 Investments – 476

TransGrid’s shares in listed Geodynamics Limited were sold during the financial year.

14. Property, plant and equipment (a) Valuation and accumulated depreciation for each class of property, plant and equipment 2008 2007 $’000 $’000

Regulated Assets Network Asset 6,592,366 6,353,399 Accumulated Depreciation (3,469,037) (3,281,422) Work in Progress 318,546 138,793 3,441,875 3,210,770

Other Assets 78,030 78,420 Accumulated Depreciation (44,481) (43,869) Work in Progress 16,439 9,258 49,988 43,809

Total Regulated Assets 3,491,863 3,254,579

TransGrid Annual Report 2008 > Notes to the Financial Statements 67 Notes to the Financial Statements For the year ended 30th June 2008

2008 2007 $’000 $’000

Non-regulated Assets System Plant and Equipment 41,035 13,128 Accumulated Depreciation (4,012) (2,751) Work in Progress 1,908 – 38,931 10,377

Communication Equipment 198 198 Accumulated Depreciation (58) (50) 140 148

Other Assets 1,265 1,474 Accumulated Depreciation (325) (309) Work in Progress 42 1 982 1,166

Total Non-regulated Assets 40,053 11,691 Total Property, Plant and Equipment 3,531,916 3,266,270

(b) Reconciliations of the carrying amounts of each class of Property, Plant and Equipment at the beginning and end of the financial year Property, Plant and Equipment is treated in accordance with the various explanations set out in Note 2. Property, Plant and Equipment are valued in accordance with NSW Treasury’s Policy TPP 07-1 “Valuation of Physical Non-Current Assets at Fair Value”.

Carrying Amount at Non-current Revaluation Carrying Beginning Assets Held Increments/ Amount at of year Additions Disposals for Sale Depreciation Impairment (Decrements) End of year 2008 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Regulated Assets: Network Asset 3,210,770 282,992 (597) 1,685 (128,933) – 75,958 3,441,875 Other Assets 43,809 17,902 (3,665) – (8,058) – – 49,988 Total Regulated 3,254,579 300,894 (4,262) 1,685 (136,991) – 75,958 3,491,863 Assets

Non-regulated Assets: System Plant 10,377 29,419 – – (865) – – 38,931 and Equipment Communication 148 – – – (8) – – 140 Equipment Other Assets 1,166 713 (649) – (248) – – 982 Total Non-regulated 11,691 30,132 (649) – (1,121) – – 40,053 Assets

Total 3,266,270 331,026 (4,911) 1,685 (138,112) – 75,958 3,531,916

68 Notes to the Financial Statements> TransGrid Annual Report 2008 Carrying Amount at Non-current Revaluation Carrying Beginning Assets Held Increments/ Amount at of year Additions Disposals for Sale Depreciation Impairment (Decrements) End of year 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Regulated Assets: Network Asset 3,095,868 168,245 (480) (100) (121,426) – 68,663 3,210,770 Other Assets 36,709 20,673 (4,221) - (9,352) – – 43,809 Total Regulated 3,132,577 188,918 (4,701) (100) (130,778) – 68,663 3,254,579 Assets

Non-regulated Assets: System Plant 10,992 (19) – – (596) – – 10,377 and Equipment Communication 156 – – – (8) – – 148 Equipment Other Assets 1,405 865 (844) – (260) – – 1,166 Total Non-regulated 12,553 846 (844) – (864) – – 11,691 Assets

Total 3,145,130 189,764 (5,545) (100) (131,642) - 68,663 3,266,270

(c) Cost Model Accumulated Cost Depreciation Net Book Value As at 30 June 2008 $’000 $’000 $’000

Regulated Assets: Network Asset 2,887,418 (702,741) 2,184,677

Accumulated Cost Depreciation Net Book Value As at 30 June 2007 $’000 $’000 $’000

Regulated Assets: Network Asset 2,787,530 (613,126) 2,174,404

15. Intangibles (a) Valuation and Accumulated Amortisation of Intangibles 2008 2007 $’000 $’000 Easements 487,139 459,439 Work in Progress 6,836 21,909 493,975 481,348

Computer software 40,240 43,477 Accumulated Amortisation (29,353) (32,387) Work in Progress 10,990 3,364 21,877 14,454 Airspace rights 7,215 7,215 Total Intangibles 523,067 503,017

TransGrid Annual Report 2008 > Notes to the Financial Statements 69 Notes to the Financial Statements For the year ended 30th June 2008

(b) Reconciliations of the carrying amounts of intangibles at the beginning and end of the financial year Carrying Amount at Carrying Beginning Amount at of year Additions Disposals Amortisation Impairment Adjustment End of year 2008 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Intangible Assets Easements 481,348 12,634 (7) – – – 493,975 Computer software 14,454 11,335 (28) (3,884) – – 21,877 Airspace rights 7,215 – – – – – 7,215 Total 503,017 23,969 (35) (3,884) – – 523,067

Carrying Amount at Carrying Beginning Amount at of year Additions Disposals Amortisation Impairment Adjustment End of year 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Intangible Assets Easements 455,031 26,317 – – – – 481,348 Computer software 16,175 2,123 – (3,844) – – 14,454 Airspace rights 7,215 – – – – – 7,215 Total 478,421 28,440 – (3,844) – – 503,017

16. Other non-current assets 2008 2007 $’000 $’000 Insurance Recovery Asset 3,603 – Total 3,603 –

17. Expenditure commitments (a) Capital expenditure commitments Commitments arising from contracts for expenditure in respect of property, plant and equipment and intangibles, to the extent not provided for in the accounts:

2008 2007 $’000 $’000 Payable Within One Year 426,407 195,321 Payable One to Five Years 106,418 95,941 Payable Later than Five Years – – Total (including GST) 532,825 291,262

Total Expenditure Commitments above include input tax credits of $48,438,000 (2007 – $26,478,000) that are expected to be recoverable from the Australian Taxation Office.

(b) Operating expenditure commitments Major commitments arising from contracts for expenditure associated with network support, to the extent not provided for in the accounts:

2008 2007 $’000 $’000 Payable Within One Year 39,663 – Payable One to Five Years 20,900 48,400 Payable Later than Five Years – – Total (including GST) 60,563 48,400

Total Expenditure Commitments above include input tax credits of $5,506,000 (2007 - $4,400,000) that are expected to be recoverable from the Australian Taxation Office.

70 Notes to the Financial Statements > TransGrid Annual Report 2008 18. Trade and other payables 2008 2007 $’000 $’000

Current Creditors 102,826 45,430 Accrued Finance Costs 41,492 40,480 Other – 252 144,318 86,162 Non-Current Creditors 5,413 8,870 Total 149,731 95,032

The weighted average effective interest rate applicable to Accrued Finance Costs is 6.8% (2007 – 6.7%).

19. Provisions 2008 2007 $’000 $’000

Current Dividend 105,910 71,482 Employees’ Accrued Benefits 62,274 62,138 Insurance 1,357 1,165 169,541 134,785 Non-Current Employees’ Accrued Benefits 2,847 2,235 Insurance 7,593 3,212 10,440 5,447

Total 179,981 140,232

(a) Dividends 2008 2007 $’000 $’000 Opening Balance 71,482 69,500 Dividend Payments (71,482) (69,500) Dividend for the year 105,910 71,482 Closing Balance 105,910 71,482

(b) Employees’ Accrued Benefits The following table shows a breakdown of the Employees’ Accrued Benefits Provision at reporting date:

2008 2007 $’000 $’000 Annual Leave 16,985 16,380 Long Service Leave 48,136 47,993 Total 65,121 64,373

The following table shows a breakdown of the Current Portion of the Employees’ Accrued Benefits Provision at reporting date, split into the period of time the benefits are expected to be settled:

2008 2007 $’000 $’000 Within one year 13,589 12,023 Later than one year 48,685 50,115 Total 62,274 62,138

All of the above liabilities have been fully provided. During the financial year, $11,411,000 (2007 - $11,983,000) was contributed to the above provisions.

TransGrid Annual Report 2008 > Notes to the Financial Statements 71 Notes to the Financial Statements For the year ended 30th June 2008

(c) Insurance In accordance with Condition 6(a)(iii) of the license granted under Section 211 of the Worker’s Compensation Act, 1987, the provision for total outstanding workers’ compensation claims liability including incurred but not reported claims and administration is $8,950,000 (2007 - $4,281,000). During the financial year, $5,914,000 (2007 - $564,868) was contributed to the provision for Workers’ Compensation. The provision includes $4,002,000 for a workers’ compensation claim that has been activated under TransGrid’s reinsurance policy. Reinsurance recoveries have commenced and future recoveries for this claim are considered to be virtually certain. TransGrid has recognised an insurance recovery asset of $4,002,000 based on independent actuary advice (refer to Notes 11 and 16). The following table details the movements in the insurance provision during the year.

Opening Balance Contributions Payments Closing Balance Class $’000 $’000 $’000 $’000 General 96 – (96) – Workers’ Compensation 4,281 5,914 (1,245) 8,950 Total 4,377 5,914 (1,341) 8,950

20. Derivatives (Current liability) 2008 2007 $’000 $’000 Forward Contract 11,222 8,264

Derivatives represent forward foreign currency contracts to hedge risks associated with foreign currency fluctuations.

21. Other current liabilities 2008 2007 $’000 $’000 Electricity Creditors 37,414 61,501 Superannuation Liability 27,552 – Other 2,528 63 Total 67,494 61,564

The weighted average effective interest rate applicable to the Electricity Creditors component is 6.8% (2007 – 6.1%).

22. Capital TransGrid commenced operations on 1 February 1995 on separation from Pacific Power under the Electricity Transmission Authority Act, 1994 at which time a series of assets and liabilities were transferred. TransGrid was corporatised as a Statutory State Owned Corporation on 14 December 1998, with share capital of two $1.00 shares. These shares were issued to the Treasurer and the Minister for Finance, as Voting Shareholders on behalf of the NSW Government, as at 30 June 2008. The $2.00 is reported as part of Capital.

2008 2007 $’000 $’000

Capital Opening Balance 651,967 651,967 Movements – – Closing Balance 651,967 651,967

72 Notes to the Financial Statements > TransGrid Annual Report 2008 23. Reserves Net unrealised Asset gains/ Cash Flow Revaluation (Losses) hedge Reserve Reserve Reserve Total Reserves $’000 $’000 $’000 $’000

At 1 July 2006 890,959 92 320 891,371 Revaluation of Property, Plant & Equipment (Note 14(b)) 68,663 – – 68,663 Tax effect of Property, Plant & Equipment Revaluation (Note 6(a)(ii)) (19,845) – – (19,845) Transfer to Retained Earnings – Revaluation Reserve (633) – – (633) for assets disposed (Note 24) Unrealised Net Gains/(Losses) on Available-for-Sale Financial Assets – 294 – 294 Tax effect: Unrealised Net Gains/(Losses) on Available-for-Sale – (88) – (88) Financial Assets (Note 6(a)(ii)) Unrealised Net Gains/(Losses) on Cash Flow Hedges – – (8,719) (8,719) Tax effect: Unrealised Net Gains/(Losses) on Cash Flow Hedges (Note 6(a)(ii)) – – 2,615 2,615

At 30 June 2007 939,144 298 (5,784) 933,658 Revaluation of Property, Plant & Equipment (Note 14(b)) 75,958 75,958 Tax effect of Property, Plant & Equipment Revaluation (Note 6(a)(ii)) (23,763) (23,763) Transfer to Retained Earnings – Revaluation Reserve 3,250 3,250 for assets disposed (Note 24) Net Gains/(Losses) on Available-for-Sale Financial Assets transferred (426) (426) to profit or loss upon sale of TransGrid’s shares in Geodynamics Limited Tax effect: Net Gains/(Losses) on Available-for-Sale Financial Assets 128 128 transferred to profit or loss (Note 6(a)(ii)) Unrealised Net Gains/(Losses) on Cash Flow Hedges (2,895) (2,895) Tax effect: Unrealised Net Gains/(Losses) on Cash Flow Hedges (Note 6(a)(ii)) 869 869

At 30 June 2008 994,589 – (7,810) 986,779

Nature and Purpose of Reserves Asset Revaluation Reserve This reserve is used to record increases in the fair value of property, plant and equipment, and decreases to the extent that such decreases relate to an increase on the same asset previously recognised in equity. Assets are revalued in accordance with NSW Treasury’s Policy TPP 07-1 “Valuation of Physical Non-Current Assets at Fair Value”.

Net Unrealised Gains/(Losses) Reserve This reserve records fair value changes on available-for-sale investments.

Cash Flow Hedge Reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be effective.

TransGrid Annual Report 2008 > Notes to the Financial Statements 73 Notes to the Financial Statements For the year ended 30th June 2008

24. Retained Earnings 2008 2007 $’000 $’000 Opening Balance 115,894 69,787 Net Profit/(Loss) Before Dividend 104,738 116,956 Dividend (105,910) (71,482) Transfer from Asset Revaluation Reserve (3,250) 633 Closing Balance 111,472 115,894

Impact of Prior Year Adjustment for Loan Guarantee Fee TransGrid has always maintained an accounting policy of recognising the Loan Guarantee Fee for a financial year based on the amount paid during the year (typically in September). Following a directive from NSW Treasury, TransGrid has changed its basis for recognition of Loan Guarantee Fee. Accordingly, Loan Guarantee Fee for the year is recognised on the basis that payment is made in arrears in the following financial year. A prior year adjustment has been undertaken to reflect the change in recognition of loan guarantee fee. Reconciliation of Retained Earnings due to prior year adjustment for loan guarantee fee:

30 June 2007 1 July 2006 $’000 $’000 Retained Earnings prior to Loan Guarantee Fee Adjustment 123,441 77,147 Loan Guarantee Fee Adjustment (7,547) (7,360) Retained Earnings after Loan Guarantee Fee Adjustment 115,894 69,787

25. Dividend and Contributions to Shareholder A dividend of $105,909,554 (2007 – $71,481,740) has been recognised for distribution to the shareholder. The dividend will be paid during the course of the 2008/09 financial year and is represented by the dividend provision.

26. Secured Liabilities At reporting date, there was no loan liability of TransGrid secured by a charge over TransGrid’s assets.

27. Audit Fees Amounts received, or due and receivable, by the auditors for:

2008 2007 $’000 $’000 Auditing the financial report 188 178

28. Compensation of Key Management Personnel 2008 2007 $’000 $’000 Short-term employee benefits 2,032 1,919 Post-employment benefits 839 770 Other long-term benefits 226 203 Total 3,097 2,892

Fees Paid to Directors Fees, including superannuation benefits paid to Directors, other than salaries paid to full-time Directors, were $316,678 (2007 - $360,709).

74 Notes to the Financial Statements > TransGrid Annual Report 2008 29. Contingent Liabilities and Contingent Assets (a) Contingent Liabilities 2008 2007 $’000 $’000 Contract Liability 40 108

Other A claim for compensation is being pursued via arbitration against TransGrid, for alleged reduction in the value of a coal mine due to the construction of a transmission tower. At this stage, it is not possible for management to form an opinion about the likely outcome of the arbitration. A common law claim for alleged personal injury damages has been filed against TransGrid. At this stage, it is not possible for management to form an opinion about the likely outcome of the claim.

(b) Contingent Assets TransGrid has initiated legal proceedings to recover damages of $16,088,000 associated with its contractor. At this stage, it is not possible for management to form an opinion on the likely outcome of the proceedings. 30. Events Occurring after Reporting date Subsequent to the Reporting Date, a development project associated with the Haymarket Substation was suspended. The commercial opportunities associated with this project are the subject of re-evaluation and may adversely impact on the carrying value of the asset during 2008/09. 31. Fair Compensation Trust Fund In accordance with the Land Acquisition (Just Terms Compensation) Act, TransGrid maintains a Trust Account. The account balance at reporting date was $298,829 (2007 - $278,914). 32. Leases TransGrid has no finance lease commitments. The following lease commitments disclosed are in the nature of operating leases.

Lessee TransGrid has operating lease commitments under commercial leases, which expire in 2008 and 2013 respectively. The lease expenditure for the financial year, GST-exclusive, was $2,048,353 (2007 - $2,030,857). Minimum rentals payable GST-inclusive, as at 30 June are as follows:

2008 2007 $’000 $’000 Within one year 1,881 2,168 Later than one year but not later than 5 years 7,489 7,517 Later than 5 years – 1,759 Total (including GST) 9,370 11,444

33. Notes to Cash Flow Statement (a) Reconciliation of Cash Cash as at the end of the financial year as shown in the Cash Flow Statement is reconciled to the related items in the Balance Sheet as follows:

2008 2007 $’000 $’000 Cash and Cash Equivalents 30,571 10,403

(b) Dividends and Taxes No dividends were received. Dividends and tax equivalents paid during the year amounted to $90,387,000 (2007 – $87,328,000).

(c) Acquisitions and Disposals of Entities No entities were acquired or disposed of during the year.

(d) Financing Arrangements TransGrid is required to borrow all new money through NSW Treasury Corporation. TransGrid has an overdraft facility of $6,000,000 with the Westpac Bank and this facility was undrawn at reporting date. TransGrid also has approval for an indemnity guarantee facility for $16,000,000 of which $5,873,000 has been drawn.

TransGrid Annual Report 2008 > Notes to the Financial Statements 75 Notes to the Financial Statements For the year ended 30th June 2008

(e) Reconciliation of Profit after Income Tax Equivalent Expense to Net Cash Provided by Operating Activities 2008 2007 $’000 $’000 Profit/(Loss) after Income Tax Equivalent Expense 104,738 116,956 Add/(Less): Items Classified as Financing/Investing Activities Loss/(Gain) on Repayment of Borrowings – 16 Loss/(Gain) on Disposal of Property, Plant and Equipment 1,213 901 Add/(Less) Non-Cash Items Depreciation and Amortisation 141,996 135,486 Amortisation of (Premium)/Discount on Loans (1,556) (2,553) Impairment Adjustment – 1,438 Allowance for Doubtful Debts – – Capitalised Interest (2,741) (560) Capital Contributions (29,215) – Accruals relating to other than operating activities (670) 626 Net Cash Provided by Operating Activities Before Change in Assets and Liabilities 213,765 252,310

Net Changes in Assets and Liabilities During the Financial Year (Increase)/Decrease in Trade Debtors & Other Receivables 6,668 (30,912) (Increase)/Decrease in Inventories (845) 1,341 (Increase)/Decrease in Other Current Assets 21,005 (22,226) (Increase)/Decrease in Other Non-Current Assets (3,603) – Increase/(Decrease) in Trade Creditors & Other Payables 21,765 13,819 Increase/(Decrease) in Provisions 5,321 2,064 Increase/(Decrease) in Income Tax & Deferred Taxes 27,410 36,670 Increase/(Decrease) in Other Current Liabilities 5,930 9,376 Net Cash Provided by Operating Activities 297,416 262,442

34. Financial Instruments Disclosure (a) Credit Risk Exposure to credit risk The carrying amount of TransGrid’s financial assets represents the maximum credit exposure. TransGrid’s maximum exposure to credit risk at the reporting date was:

2008 2007 Carrying Amount Note $’000 $’000 Available-for-sale financial assets 13 – 476 Trade and other receivables 8 69,857 76,777 Cash and cash equivalents 7 30,571 10,403 Forward exchange contracts used for hedging (Assets) 10 66 2 100,494 87,658

Impairment losses Based on historic default rates, TransGrid believes that no impairment allowance is necessary in respect of trade receivables either not past due or past due. The trade receivables balance, which includes the amounts owed by TransGrid’s three most significant customers, relates to customers that have a good credit history with TransGrid. The aging of TransGrid’s trade and other receivables at the reporting date was:

gross Impairment gross Impairment Receivables Losses Receivables Losses 2008 2008 2007 2007 $’000 $’000 $’000 $’000 Not past due 68,301 – 64,138 – Past due 0-89 days 1,556 – 12,625 – Past due 90-180 days – – 7 – More than 180 days – – 7 – 69,857 – 76,777 –

The above table defines the Gross Receivables expected to be received by TransGrid.

76 Notes to the Financial Statements > TransGrid Annual Report 2008 (b) Liquidity Risk The following are the contractual maturities of financial liabilities, including estimated interest payments:

Carrying Contractual Less than 1 year to More than Amount Cash flows 1 year 5 years 5 years 30 June 2008 $’000 $’000 $’000 $’000 $’000

Non-derivative financial liabilities Borrowings 1,531,592 2,089,759 237,153 922,213 930,393 Trade and other payables 149,731 149,731 144,318 5,413 – Other financial liabilities 37,414 37,414 37,414 – – Derivative financial liabilities Forward exchange contracts used for hedging: Net outflow 11,156 128,743 87,878 40,865 – Total 1,729,893 2,405,647 506,763 968,491 930,393

Carrying Contractual Less than 1 year to More than Amount Cash flows 1 year 5 years 5 years 30 June 2007 $’000 $’000 $’000 $’000 $’000

Non-derivative financial liabilities Borrowings 1,453,513 1,846,462 341,463 926,937 578,062 Trade and other payables 95,032 95,032 86,162 8,870 – Other financial liabilities 61,501 61,501 61,501 – – Derivative financial liabilities Forward exchange contracts used for hedging: Net outflow 8,262 76,262 21,398 54,864 – Total 1,618,308 2,079,257 510,524 990,671 578,062

(c) Currency Risk Cash Flow Hedges The cash flows arising from cash flow hedges are not expected to affect profit or loss.

Cash Flow Hedge Equity Movements Amount Carrying removed Amount Carrying Amount at Amount from equity removed Amount at beginning recognised in and included from equity end of of period equity during in Income and included period (1/7/07) the period Statement in assets (30/6/08) 2008 $’000 $’000 $’000 $’000 $’000 Equity (8,262) (4,089) – 1,195 (11,156)

Amount Carrying removed Amount Carrying Amount at Amount from equity removed Amount at beginning recognised in and included from equity end of of period equity during in Income and included period (1/7/06) the period Statement in assets (30/6/07) 2007 $’000 $’000 $’000 $’000 $’000 Equity 457 (8,798) – 79 (8,262)

TransGrid Annual Report 2008 > Notes to the Financial Statements 77 Notes to the Financial Statements For the year ended 30th June 2008

Sensitivity analysis TransGrid employs cash flow hedges to remove currency risk associated with purchase of overseas equipment. A 10 percent strengthening and weakening of the Australian dollar against the following currencies would have increased (decreased) equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2007. As these are all effective cash flow hedges, there are no profit or loss impacts.

Effect on Equity in thousands of AUD +10% -10% $’000 $’000

30 June 2008 USD (244) 74 Canadian dollar (1,241) 214 Euro (2,367) 2,346 Yen (17,994) (725)

30 June 2007 USD (97) (59) Canadian dollar (26) 36 Euro (1,433) 143 Yen (12,956) (909)

(d) Interest Rate Risk Interest rate risk is the risk of a material change in earnings and ultimately dividend payments as a consequence of adverse movements in interest rates. The policy objective is to ensure that TransGrid is not exposed to interest rate movements which could adversely impact on its ability to meet its financial obligations as they fall due.

Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2007. Profit or Loss 100bp 100bp increase decrease $’000 $’000

30 June 2008 Electricity Creditors (478) 478 Cash flow sensitivity (net) (478) 478

30 June 2007 Electricity Creditors (461) 461 Cash flow sensitivity (net) (461) 461

78 Notes to the Financial Statements > TransGrid Annual Report 2008 (e) Net Fair Value of Financial Assets and Liabilities The net fair value of financial assets and liabilities, with the exception of borrowings, is reflected by their carrying amounts in the Balance Sheet, in accordance with AASB 132 and AASB 7. The net fair value of borrowings is based on market value derived by NSW Treasury Corporation using market interest rates current at reporting date. The carrying amounts and net fair values of financial assets and liabilities at reporting date are: 2008 2007 Carrying Net Fair Carrying Net Fair Amount value Amount value $’000 $’000 $’000 $’000

Financial Assets Cash 30,571 30,571 10,403 10,403 Receivables 69,857 69,857 76,777 76,777 Available-for-sale financial asset – – 476 476 Forward contract 66 66 2 2 Total Financial Assets 100,494 100,494 87,658 87,658

Financial Liabilities Accounts payable 149,731 149,731 95,032 95,032 Borrowings 1,531,592 1,484,958 1,453,513 1,416,362 Other financial liabilities 37,414 37,414 61,501 61,501 Forward contract 11,222 11,222 8,264 8,264 Total Financial Liabilities 1,729,959 1,683,325 1,618,310 1,581,159

End of Audited Financial Report

TransGrid Annual Report 2008 > Notes to the Financial Statements 79 Statement by Members of the Board

80 Statement by Members of the Board > TransGrid Annual Report 2008 Independent Auditor’s Report

TransGrid Annual Report 2008 > Independent Auditor’s Report 81 Independent Auditor’s Report continued

82 Independent Auditor’s Report > TransGrid Annual Report 2008 Appendix

Consumer Response More than 90% of these inquiries were processed using online access facilities provided by the Central Register of Restrictions TransGrid receives Property Information Inquiries from solicitors, administered by the Department of Lands. conveyancers and the general public regarding TransGrid’s rights and interests that may affect title to land. For the year ending Cost of Annual Report 30th June 2008, TransGrid responded to 59,575 such inquiries. TransGrid’s Annual Report was produced under the guidance Response times were within designated timeframes. of TransGrid’s Communications Manager in conjunction with an external graphic design firm. The total external cost incurred in the production of the annual report was $43,808.60. The Annual Report is available on TransGrid’s website (www.transgrid.com.au).

EEO Disclosures Trends in the Representation of EEO Groups % of Total Staff (Refer Note 1) EEO Group 2002 2003 2004 2005 2006 2007 2008 Women 12 13 13.2 13 13 14 14 Aboriginal and TSI 0.73 0.73 0.62 0.52 0.64 0.63 0.59 People whose first language was not English 10 10 10.47 11 11 11 13 People with a disability 2 6 4.71 4.9 4.97 4 People with a disability requiring work-related 1 0.51 0.42 0.42 0.42 adjustment Note 1. excludes casual staff

Trends in the Distribution of EEO Groups Distribution Index (Refer Note 3) EEO Group 2002 2003 2004 2005 2006 2007 2008 Women 116 124 129 129 125 134 136 Aboriginal and TSI 7 7 6 5 6 6 5 People whose first language was not English 96 98 102 104 102 106 128 People with a disability 18 53 46 47 47 35 People with a disability requiring work-related 13 5 4 4 4 adjustment

Notes 1. Current staff numbers are as at 30 June 2008 2. excludes casual staff 3. a distribution index of 100 indicates that the centre of the distribution of the EEO group across salary levels is equivalent to that of other staff.

Electronic Service Delivery > residue of transfers from Pacific Power – Lots 4, 5 and 6 TransGrid provides electronic services to our staff and partners. in Section B of DP 3998 and Lot 1 in DP 184422 Sandford This includes facilitating the ability to securely access electronic Avenue, Lithgow. Vacant embankment land containing Rail Corp corporate applications remotely and through the internet. infrastructure. Sites transferred to Rail Corp on 14th September 2007 at nil value. Government Energy Management Policy TransGrid has provided a report for the 2006/07 period as required. > staff cottages (65 Wynella Street, Gulgong) were identified as The Government Energy Management Policy Report for 2007/08 is surplus to operational requirements and sold to the tenant at a currently being prepared. market value of $155,000 on 17th August 2007. > Mt Bootheragandra RRS formed part of the 1996 transfer of Heritage Management assets agreement to Energy South, now Country Energy. Legal TransGrid has submitted a draft Heritage Asset Management title issues have been resolved and the land was transferred to Strategy to the Department of Planning. TransGrid does not have Country Energy in accordance with the 1996 agreement. It was assets listed as heritage items as defined under the legislation. transferred on 22nd May 2008 at nil value. Industrial Relations Policies and Practices > a vacant parcel of land, Lot 66 DP 16629 approximately 480m2 TransGrid continued to consult with Unions and employees on a landlocked within the Wolli Creek Regional Park, Earlwood. The range of industrial matters. This consultative approach has resulted land was identified as being surplus to TransGrid’s operation in no time lost as a result of organisational industrial disputes during requirements. For environmental purposes, the land was the reporting period. transferred to the Department of Environment and Climate Change (DECC) on 28th May 2007 at nil value. Judicial Decisions There were no judicial decisions affecting TransGrid this year. > sale of 1.08ha of vacant land being Lot 1 DP 1126914 (formerly Part Lot 2 in DP 259306) at Scenic Drive, Doyalson, to Energy Land Disposal Australia for the purposes of a substation. The land sold at a The following surplus land was disposed of during 2007/08: market value of $430,000 with settlement on 19th June 2008.

TransGrid Annual Report 2008 > Appendix 83 Appendix

Staff Numbers – Comparison of Staff Numbers as at 30 June 2008 Total Staff No. P/T Staff Equiv. F/T of P/T Equiv. F/T Staff Senior Contract Officers 92 0 0 92 Professional Officers 211 7 4.72 208.72 Engineering Officers 254 1 0.91 253.91 Administrative Officers 151 19 11.81 143.81 Tradespersons 73 1 0.8 72.8 Power Workers 49 0 0 49 Team Leader - Network 19 0 0 19 Operator 24 0 0 24 Lineworker 38 0 0 38 Apprentice 57 0 0 52 Total 968 28 18.24 953.24

Staff Numbers – Staff by Category as at 30 June 2008 Category Description 2008 2007 2006 2005 2004 Administrative Officer 151 162 158 165 166 Apprentice 57 54 52 42 41 Engineering Officer 254 232 233 225 229 Lineworker 38 33 60 64 65 Operator 24 26 27 30 32 Professional Officer 211 174 173 175 177 Power Worker 49 52 54 59 63 Senior Contract Officer 92 94 101 106 110 Team Leader – Network 19 20 21 22 24 Tradesperson 73 95 64 65 67 Total 968 942 943 953 974

Staff numbers – Numbers of Executive Officers 30 June 2008 30 June 2007 Number of Executive Officers at SES Level 1 or above 85 87 Number of Female Executive Officers at SES Level 1 or above 7 8

Promotion > review of Environmental Factors TransGrid is committed to providing a variety of communication – Kempsey to Port Macquarie Rebuild vehicles to inform the public, customers, stakeholders, employees – Yass to Wagga 132kV Transmission Line 990 Reconstruction and suppliers. Throughout the reporting period, publications included: – Bannaby 500kV Substation – Temporary Transmission Line > annual Report Rearrangements > nsW Annual Planning Report – Bannaby 500kV Substation – Steel Structure Transmission > network Asset Management Plan Line Connections > TransTalk: Internal Newsletter – Macarthur 330kV Substation – Transmission Line Connection > Variety of Brochures and Advertisements informing stakeholders – Macksville 132kV Substation (CE) – 132kV Interconnecting about TransGrid’s projects (e.g. Fact Sheets, project newsletters) Line – nambucca 132kV Substation – Installation of 2nd Transformer, Associated Switchbays and Line Rearrangements

84 Appendix > TransGrid Annual Report 2008 Reporting Exemptions The following reporting exemptions have been granted by NSW Treasury to enable financial reporting requirements that apply, to be broadly consistent with Corporations Act reporting requirements, given that the entity operates in the competitive National Electricity Market:

Statutory Requirements Act/Regulation Comments References Budgets • detailed budget for the year reported on s.7(1)(a)(iii)ARSBA • outline budget for next year s.7(1)(a)(iii)ARSBA • particulars of material adjustments to cl 6 ARSBR detailed budget for the year reported on Report of Operations s.7(1)(a)(iv)ARSBA Exemption subject to the condition that information relating to the “Summary review of operations” is to be disclosed in a summarised form. Management and Activities Schedule 1 ARSBR Exemption subject to the condition that relevant information is to be disclosed in a summarised form. Research & Development Schedule 1 ARSBR Human Resources Schedule 1 ARSBR Consultants Schedule 1 ARSBR Exemption subject to the condition that the total amount spent on consultants is to be disclosed along with a summary of the main purposes of the engagements. Land Disposal Schedule 1 ARSBR Payment of Accounts Schedule 1 ARSBR Time for Payment of Accounts Schedule 1 ARSBR Report on Risk Management and Insurance Schedule 1 ARSBR Exemption subject to the condition that relevant information Activities is to be disclosed in a summarised form. Investment Performance cl 12 ARSBR Liability Management Performance cl 13 ARSBR

Abbreviations: ARSBa annual Reports (Statutory Bodies) Act 1984 ARSBr annual Reports (Statutory Bodies) Regulation 2005

Waste Reduction and Purchasing Policy In the operational environment, TransGrid’s WRAPP plan includes TransGrid has an ongoing commitment to incorporating the waste reduction and/or recycling initiatives for maintenance and principles of the NSW Government’s Waste Reduction and construction activities including: Purchasing Policy (WRAPP) into its operations. Since 1999, > Vegetation materials. TransGrid has aimed to support the WRAPP framework by maximising resource efficiency and reducing waste generation > Construction, demolition and excavated materials. through avoidance, reduction, reuse and recycling. During 2007, TransGrid developed a Waste Management Database to TransGrid’s WRAPP plan includes the following waste reduction facilitate the collection of waste data for TransGrid’s WRAPP reporting. initiatives for the office environment: This database was designed for easy use through the TransGrid intranet and allows waste data to be easily analysed and reported. > reduction in paper use. > an increase in paper reuse and recycling. > education programs to inform staff about environmental issues including resource consumption.

TransGrid Annual Report 2008 > Appendix 85 Index

Aboriginal Employment and Development Strategy 36 Land Disposal 83 Achievements 14 Leadership Programs 34 Appendix 83 Legislative Change 45 Apprentices 35 Letter to Shareholders Inside Front Cover Asset Management and Maintenance 30, 39 Meetings of the Board 46 Balance Sheet 53 Minister 45 Board of Directors 4, 45 National Electricity Market 19 Capital Expenditure ($Million) 16 Network Availability (%) 16 Cash Flow Statement 54 Network Reliability (System Minutes Lost) 16 Chairman and Managing Director’s Review 2 Non-Network Solutions 30 Charter 45 Notes to the Financial Statements 56 Code of Ethics and Conduct 48 Occupational Health and Safety Strategies 33 Community 26 Occupational Health and Safety Statistical Information 34 Completed Investments 40 Our Business 7 Consultant Fees 48 Our Direction 10 Consumer Response 83 Our Network 8 Cost of Annual Report 83 Overseas Visits 51 Credit Card Usage 49 Partnerships 26 Current Investments 41 Performance Review and Development 35 Customers 25 Performance Summary: Executive 47 Demand Management and Planning Project (DMPP) 30 Privacy 49 Disability Action Plan 37 Promotion 84 EEO Achievements (2007-2008) 37 Remuneration: Board of Directors 46 EEO Disclosures 83 Remuneration: Executive 48 EEO Planned Achievements (2008-2009) 37 Reporting Exemptions 85 Electronic Service Delivery 83 Research and Development 31 Environmental Award 37 Return on Assets (%) 17 Environmental Incident Notification 17 Return on Equity (%) 17 Environmental Management System 31 Risk Management and Insurance 48 Ethnic Affairs Priority Statement (EAPS) 37 Pricing 20 Executive Team 12, 47 Qualifications: Executive 48 Financial Report 52 Revenue Determination (2009 – 2014) 21 Freedom of Information 49 Safety (LTI’s) 17 Government Energy Management Policy 83 Safety Award 36 Graduate and Cadet Program 35 Shareholders 45 Guarantee of Service 48 Significant Committees 50 Heritage Management 83 Sponsorships 27 Income ($Million) 16 Staff Numbers: Comparison of Staff Numbers Income Statement 52 as at 30 June 2008 84 Independent Audit Report 81 Staff Numbers: Staff by Category as at 30 June 2008 84 Industrial Relations Policies and Practices 83 Staff Numbers: Numbers of Executive Officers 84 Information Technology 31 Stakeholders 26 Innovation 28 Statement of Recognised Income and Expense 55 Internet Contact Details Inside Back Cover Statement by Members of the Board 80 Judicial Decisions 83 Statement of Affairs 49 Key Commercial Performance Indicators TransGrid Contact Details Inside Back Cover (excluding superannuation gains/losses) 16 Waste Reduction and Purchasing POLICY (WRAPP) 85 Key Commercial Performance Indicators Western 500kV Conversion Project 41 (including superannuation gains/losses) 17 Workforce Diversity Strategy 36

86 Index > TransGrid Annual Report 2008 Glossary

Term Explanation/Comments ACCC Australian Consumer and Competition Council AER (“the regulator”) The Australian Energy Regulator AEMC The Australian Energy Market Commission Annual National Transmission Statement A document produced annually by the National Electricity Market Management Company (ANTS) (NEMMCO) that focuses on the status and options for development of Major National Transmission Flow Paths Annual Planning Report (APR 200X) A document that sets out issues and provides information to the market that is relevant to transmission planning in New South Wales. This document is the APR 2008 Annual Planning Review The annual planning process covering electricity transmission networks in New South Wales “assets” TransGrid’s ‘poles and wires’, all the substations and electricity transmission lines that form our network CBD Central Business District Constraint An inability of an electricity transmission or distribution system to supply a required amount of electricity to a required standard Customers TransGrid’s customers are those directly connected to our network. They are either Distribution Network Service Providers, directly connected generators, large industrial customers, customers connected through inter-regional connections or potential new customers DITM Department of Information Technology and Management. A NSW Government scheme facilitating the provision of leased telecommunications services DM Demand management. A set of initiatives that is put in place at the point of end-use to reduce the total and/or peak consumption of electricity DMPP Demand Management and Planning Project DNSP (Distributor) Distribution Network Service Provider. A body that owns, controls or operates a distribution system in the NEM DWE NSW Department of Water and Energy Easement An easement over a property gives TransGrid the right to construct and maintain our assets, while ownership of the property remains with the original landowner. FACTS Flexible AC Transmission Systems GWh A unit of energy consumption equal to 1,000 MWh HVDC High Voltage Direct Current Interconnection The points on an electricity transmission network that cross jurisdictional/state boundaries IPART Independent Pricing and Regulatory Tribunal of NSW IRPC The Inter-regional Planning Committee that is convened by NEMMCO and has representation from all jurisdictions of the NEM ISG Information Systems Group. The group within TransGrid who are responsible for Information Technology systems and projects Jurisdictional Planning Body (JPB) The organisation nominated by a relevant minister as having electricity transmission system planning responsibility in a jurisdiction of the NEM kV Operating voltage of electricity transmission equipment. One kilovolt is equal to one thousand volts Load The amount of electrical power that is drawn from the network Local Generation A generation or cogeneration facility that is located on the load side of a transmission constraint LTI Lost time Injury MCE Ministerial Council on Energy MRET Mandatory Renewable Energy Target MVAr A unit of reactive power. One “Mega-Var” is equal to 1,000,000 Var MWh A unit of energy consumption. One Megawatt hour is the amount of energy consumed in one hour at a rate of one Megawatt National Electricity Law Common laws across the states which comprise the NEM, which make the NER enforceable

TransGrid Annual Report 2008 > Glossary 87 Glossary continued

National Electricity Rules (NER or “the Rules”) The rules that govern the operation of the NEM NEM The National Electricity Market NEMMCO National Electricity Market Management Company. The company that administers and operates the National Electricity Market NTFP National Transmission Flow Path Network augmentation An expansion of the existing electricity transmission network New Small Transmission Network Asset An augmentation of the electricity transmission network that is expected to cost between (NSTNA) $1 Million and $10 Million New Large Transmission Network Asset An augmentation of the transmission network that is expected to cost more than (NLTNA) $10 Million Non-network solutions Alternatives to network augmentation which address a potential shortage in electricity supply in a region Outage An outage is when part of the network loses power. This can be either planned (i.e. when work needs to be done on the line) or unplanned Registered Participant A person registered with NEMMCO as an NER participant Regulatory Test A test promulgated by the AER that is required by the NER to be applied when determining the relative economic merits of options for the relief of transmission constraints RFP Request for Proposal SCADA System Control and Data Acquisition. This system allows for the remote control of the network from any of TransGrid’s control rooms SNDP Strategic Network Development Plan Statement of Opportunities (SOO) A document produced by NEMMCO that focuses on supply demand balance in the NEM SVC Static Var Compensator. A device that provides for control of reactive power Switchbay A site containing high voltage switchgear, used to connect or disconnect a section of the network the Minister The New South Wales Minister for Energy TNSP Transmission Network Service Provider. A body that owns, controls and operates an electricity transmission system in the NEM Transmission line A high-voltage power line running at 500kV, 330kV or 132kV WACC Weighted Average Cost of Capital

88 gLOSSARy > TransGrid Annual Report 2008 The Hon. Eric Roozendaal MLC The Hon. Joe Tripodi MP TransGrid Contact Details Acknowledgements Treasurer Minister for Finance Sydney Published by Parliament House Minister for Infrastructure 201 Elizabeth Street TransGrid Corporate Business Unit Macquarie Street Minister for Regulatory Reform PO Box A1000 SYDNEY NSW 2000 Minister for Ports and Waterways Sydney South NSW 1235 Designed and produced by Parliament House Equation Corporate Design Pty Ltd Macquarie Street Telephone 02 9284 3000 SYDNEY NSW 2000 Telephone 61 2 9284 3000 Photographs by: Facsimile 02 9248 3456 John Marmaras Facsimile 61 2 9284 3456 Karl Hofman 31 October 2008 Business Hours 8:00am – 6:00pm Neil Billington Jon Novakovic Metropolitan Dear Shareholders, Telephone 02 9620 0777

We have pleasure in submitting to you the TransGrid Annual Report 2008 for presentation to Parliament. The Annual Report Orange includes the Income Statement for the year ended 30 June 2008 and the Balance Sheet as at that date certified by the Auditor- Telephone 02 6360 8711 General of New South Wales. Newcastle The Annual Report was prepared in accordance with the requirements of Section 24A of the State Owned Corporations Act 1989 Telephone 02 4967 8678 and the Annual Reports (Statutory Bodies) Act 1984 and reporting regulations issued by the New South Wales Treasury. Tamworth Telephone 02 6765 1666 Yours sincerely Wagga Telephone 02 6922 0222

Yass Telephone 02 6226 9666

Mr Bruce Foy Kevin Murray TransGrid ABN: 19 622 755 774 Acting Chairman Managing Director This report is available on TransGrid’s website. www.transgrid.com.au contentscontentcontentss 2 Chairman + Managing Director’s review 28 Innovation new Ways of Doing Business 4 Our Board of Directors 32 pEOple 6 About TransGrid The Key to our Success 14 Achievements 38 Network Strategy 18 TransGrid and the External invest and Build for the Future Operating Environment 44 fINANCE and Directors’ Report Facing New Challenges 83 Appendix 24 Customers, Stakeholders, Community striving for Excellence 87 Glossary

Contents > TransGrid Annual Report 2008 TransGrid Annual Report 2008 HIGH VOLTAGE NETWORK

500kV > 330kV

330kV > 220kV

220kV > 132kV

MOVING ENERG Y 132kV > 66kV > TransGrid A nnual R epor MMovingMovingoving t 2008 EEnEnnergeergyrgyy TransGrid Annual Report 2008