peace of mind
choice and control
for the best possible price
Ergon Energy Annual Stakeholder Report 2014–15 Contents
About our report 2 Ergon Energy in profile 3 Year in summary 6
Chairman’s message 8
Chief Executive’s report 9 Review of operations 12
Creating fresh value and choice Details our focus on building customer value and addressing electricity affordability, and how we have delivered against our service commitments and as a responsible provider.
Evolving a smarter network Showcases how we are optimising our investment and evolving a smarter network, and building on our demand management success, to deliver more efficiently and create new value.
Embracing change and technology Highlights how we’re investing in our people and becoming increasingly technology-enabled – to be ‘future ready’ – and outlines our focus on safety and the environment.
Delivering economic value 39 Our corporate governance statement 43
Looking for more information? The Annual Financial Statements for Ergon Energy Corporation Limited and its Controlled Entities (including the Directors’ Report and our Financial Statements), as well as previous reports, are available online at www.ergon.com.au/annualreport Many of our challenges in servicing regional Queensland are unique. Our communities are spread out to the far reaches of the state, and we can experience cyclones and floods one day and bushfires the next.
To us, as an energy company, these and our other ‘shared’ challenges have a silver lining. They make us innovate, and think forward.
They spur us on to develop different, smarter ways of doing things, like using technology to help better service our customers, or renewable energy and battery storage to create more efficient solutions.
We’re guided in this by talking to our customers, and finding out what’s important to them. Then placing our commitments to them at the heart of what we do. And here, our people are our greatest asset.
Our customer commitments are about delivering the peace of mind intrinsic to a safe, dependable electricity service, and enabling greater customer choice and control by way of tariff options and how the network can be used… all for the best possible price. About our report
This report covers Ergon Energy’s overall performance for the 2014-15 financial year – highlighting the contribution of Ergon Energy Corporation Limited and its subsidiary Ergon Energy Queensland Pty Ltd. It also provides limited commentary on our other subsidiaries and our joint venture.
Reporting transparently builds Publishing performance against understanding and trust, and our goals, builds confidence in the capacity of our stakeholders WHY WE our organisation’s capability and to participate more actively. REPORT in its governance. WHAT Enhancing awareness of the role High standards in corporate WE DO we play, and the sustainability reporting ensure we meet our challenges we contribute to, stakeholders’ information needs leads to greater opportunity and our legislative requirements. for collaboration.
Sustainability and OUR STAKEHOLDERS’ SUSTAINABILITY CONCERNS Ergon Energy OUR CUSTOMERS While our most significant contribution Electricity affordability p 12-15, 19, 39, 46 to the sustainability concerns across Reliability and security of supply p 16-18, 23, 27 regional Queensland remains our Infrastructure costs / timeliness p 18, 23 response to electricity affordability, Energy conservation p 13, 15, 19, 24-25, 26, 35 this report also addresses a range of other sustainability matters relevant THE COMMUNITIES WE WORK IN AND SERVE to our stakeholders and our purpose Infrastructure for economic development p 22-24, 27 as an organisation. Capability for a strong disaster response p 10, 17, 19-20, 23, 28, 32, 35, 38 Community impact and participation p 13, 19-21 We are active in assessing our stakeholder expectations. Community electrical safety p 20 This understanding has guided the Environmental protection and climate change p 32, 35-38 content of this report. Resource conservation p 38 Our approach to reporting also OUR GOVERNMENT SHAREHOLDERS AND INDUSTRY REGULATORS continues to be guided by Global Electricity affordability p 12-15, 19, 39, 46 Reporting Initiative’s Principles of Service standards and compliance p 16-18, 23, 33-34, 36, 38, 46, 51-52 Sustainability Reporting, as well as Financial returns / debt reduction p 39-42 the Australasian Reporting Awards criteria for best-practice reporting. OUR EMPLOYEES AND THEIR REPRESENTATIVE UNIONS Employment opportunities p 28-30 We welcome your feedback on our reporting. Work health and safety p 33-34, 46 Workplace diversity and social inclusion p 30-31
OUR INDUSTRY ASSOCIATES AND SUPPLIERS Sustainable industry outcomes p 13, 15, 22-25, 31-32, 36-37, 46 Local procurement opportunities p 41
2 ABOUT OUR REPORT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Ergon Energy in profile
Our PURPOSE is to provide safe, reliable, efficient and sustainable energy solutions to support our customers and the Queensland economy.
Our distribution business Our role as a distributor is to transport electricity along our ‘poles and wires’ across regional Queensland. Our distribution business is regulated by the Australian Energy Regulator (AER), who effectively caps the revenue we are allowed to collect from our customers for the use of the network. These charges are just one of the components making up the price of electricity. We also operate under Queensland Government electricity industry laws and regulations. Ergon Energy is a Queensland Government-owned corporation.
Our retail business Our retailer (Ergon Energy Queensland Pty Ltd) buys electricity from the generators, through the market and in direct deals, and on-sells it to customers. As a non-competing retailer, we sell electricity at the Queensland Government’s Notified Prices, which are set by the Queensland Competition Authority (QCA). This enables Queenslanders to access the same regulated electricity tariffs, wherever they live, even though the supply cost may be different. Some customers in regional Queensland have chosen to purchase their electricity from other retailers in the competitive market – at a price set by that retailer. However, Ergon Energy’s distribution network is still their supplier.
Our other businesses Nexium Telecommunications (Ergon Energy Telecommunications Pty Ltd) services Ergon Energy’s communications needs and, as a licensed telecommunications carrier, also offers the open market wholesale high-speed data services. SPARQ Solutions Pty Ltd, our joint venture with Energex Limited (our south-east Queensland counterpart), provides each of our respective organisations with information and communications technology solutions and services.
ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 3 Ergon Energy supplies electricity across a vast, diverse service area of more than one million square kilometres – across 97% of the state of Queensland.
Boigu Is. Saibai Is. Dauan Is. Stephens Is. Yorke Is. Darnley Is. Mabuiag Is. TORRES STRAIT Yam Is. Murray Is. Badu Is. Coconut Is. Bamaga Warraber Is. Kubin, Moa Is. Hammond Is. Mapoon Thursday Wasaga, Horn Is. Lockhart Is. Napranum River TORRES STRAIT
Aurukun
Coen
Pormpuraaw
Kowanyama Cooktown Key Administration Centre Gununa, Mornington Is. Mossman Distribution Network (regulated by the AER)
Cairns Depot/Workshop Mareeba Burketown Atherton Barcaldine Power Station Normanton Innisfail Doomadgee Ravenshoe Georgetown Tully Isolated Supply Ingham Palm Island Townsville Home Hill Camooweal Julia Creek Charters Towers Bowen Mt Isa Cloncurry Richmond Hughenden Proserpine
Pinnacle Mackay Sarina Winton Moranbah Clermont Boulia Middlemount Yeppoon Rockhampton Emerald Longreach Barcaldine Blackwater Gladstone Springsure Bedourie Biloela Miriam Vale Jundah Blackall Monto Moura Gin Gin Bundaberg Theodore Childers Windorah Biggenden Hervey Bay Mundubbera Birdsville Gayndah Maryborough Charleville Kilkivan Quilpie Wandoan Murgon Roma Kingaroy Chinchilla Yarraman Tara Toowoomba Dalby Cunnamulla St George Millmerran Brisbane Warwick Stanthorpe
4 ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 CAPABILITY TO DELIVER 4,447 733,000 employees customers served
$11.5 billion 2,382 MW asset base peak demand met
160,000km 15,140GWh of powerlines electricity distributed
service power 69 depot 2.9 outages locations per customer network 13,300 2 control new solar systems centres connected customer 2 solutions 1.7 million centre sites calls answered
HOW ERGON ENERGY COMPARES TO Our network OTHER DISTRIBUTORS Around 70% of our electricity network runs through rural Queensland, a vast service area with large distances 20% between communities. Our customer density per network kilometre is the second lowest in the National Electricity Market. 15% We have both a high proportion of costly subtransmission assets, compared to our urban counterparts, and one of the largest Single Wire Earth Return (SWER) networks in 10% ERGON the world. Both the limited capacity ‘SWER’ lines, and the ENERGY radial design of the network generally, limit our options when responding to outages or demand; compared to an 5% interconnected network with a higher customer density. Ergon Energy also has 33 stand-alone power stations supplying communities isolated from the main grid, in
PROPORTION OF NEM CUSTOMER NO. 0% western Queensland, the Gulf of Carpentaria, Cape York,
0% various Torres Strait islands, and Palm Island. Our retailer 10% 20% 50% 30% 40% also has a gas-fired power station at Barcaldine, which PROPORTION OF NEM NETWORK AREA supplies the main grid.
Our service area is by far the largest distribution area in the National Electricity Market (NEM). However, proportionally our customer base is small.
Source: Huegin Ergon Energy Expenditure Benchmarking.
ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 5 Year in summary
Performance highlights
To help refine our network Our $162 million reliability tariff reform journey, we improvement program was engaged our customers, and completed – and our new launched industry leading, ‘battery’ Grid Utility Support voluntary demand-based System is set to deliver for tariffs. p14 rural customers. p16, 24
A major investment was We are realising greater made into our customer efficiency and effectiveness information systems with our crews now accessing as part of our response real-time information in the to changing customer field and the integration of expectations and internationally-awarded competition. p14 ‘Roames’ spatial technology into our operations. p31
We successfully responded to We presented to the AER a the two major cyclones that comprehensive proposal for hit Queensland this year – the next five years that is category five Cyclone Marcia about delivering peace of and category four Cyclone mind, choice and control, for Nathan. p19 the best possible price. p39
OUR FINANCIALS IN A SNAPSHOT
2014-15 2013-14 2012-13 2011-12 2010-11
Total Assets (million) $11,485 $10,931 $11,058 $10,354 $9,889
Total Capital Investment (million) $983 $812 $872 $870 $831
Net Profit After Tax (million) $696 $295 $308 $193 $232
Dividends Provided For (million) $1,925 $392 $326 $256 $253
Community Service Obligation $596 $519 $596 $415 $399 Payment (million)
Return on Average Assets 11.6% 7.2% 7.5% 5.9% 6.6%
Return on Average Equity 28.5% 9.1% 9.4% 6.1% 7.8%
Debt to Debt Plus Equity Gearing 74.4% 62.5% 59.2% 60.6% 57.0%
EBITDA to Interest Cover (times) 5.2x 3.3x 3.2x 2.9x 3.1x
FOR MORE ON OUR FINANCIAL PERFORMANCE SEE PAGES 39-42.
6 YEAR IN SUMMARY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Performance overview
Ergon Energy’s performance targets for 2014-15 are detailed in our Statement of Corporate Intent (SCI). As part of our performance agreement with our shareholding Ministers, the SCI is tabled in the Queensland Parliament with this corresponding report. These performance results are discussed in more detail throughout this report.
TARGETS RESULTS
‘Value to Customer’ Survey Better than peer average 991 Creating Supply Reliability Indicators: fresh value Duration (SAIDI): - Urban ≤149 145 and choice - Short Rural ≤424 357 p12 - Long Rural ≤964 1,051 Frequency (SAIFI) - Urban ≤1.98 1.3 - Short Rural ≤3.95 3.2 - Long Rural ≤7.40 6.8
Asset Related Public Shocks2 ≤253 191
Actual capital expenditure ≤71.9% 71.8% of five-year allowance Evolving within regulatory allowance3 Demand management ≥13.3MVA 13.6MVA a smarter reductions4 network p22
Actual Operating Expenditure ≤96.8% 99.8% of five-year allowance Embracing within Regulatory Allowance3 change and Employee Engagement Action Plan Complete On track
technology Safety Indicators: - Lost Time Injuries ≤2.2 1.9 p28 Frequency Rate – Employees - All Injuries Frequency Rate ≤8.5 5.0 – Employees - Lost Time Injuries ≤2.5 3.2 Frequency Rate – Contractors
Nil breaches Nil breaches Environmental Protection Agency Breaches (Class 1)
Delivering Net Profit After Tax ≥$591 million $696 million Dividends Provided For ≥$473 million $1,925 million
economic Customer Service Obligation ≤$654 million $596 million value p39 Payment Return on Average Assets ≥9.7% 11.6%
1. Result for final six months, the average score for the whole year was 101, above the peer average. 2. Original Statement of Corporate Intent 226 target was calculated incorrectly. Target corrected based on the previous five years data. 3. Standard Control Services expenditure cumulative for the five year regulatory control period. 4. Key measure, however, not in the Statement of Corporate Intent.
YEAR IN SUMMARY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 7 Chairman’s message
There is no doubt that the In this area, we have undertaken network electricity industry, both in tariff reforms, we have separated our Queensland and further afield, customer-related systems to enable is undergoing rapid, our retail and distribution business to unprecedented change. replicate the way other company’s distributor-retail relationships work, As a Board, we have been dealing and we have better aligned our service with this for a number of years, setting delivery with the national market. These and then refining Ergon Energy’s are all things that will ultimately support strategic direction. a more competitive energy market in regional Queensland, and deliver greater With more customers taking up solar value for our customers. energy, and products on the horizon that will make use of emerging energy The Board, both before and after I moved storage technologies, we took steps into the role of Chairman in March this early to put the organisation on a path year (after having been a member of the that is now seeing it move from being an Board since 2009), has been driving the essential service, to being a provider of business quite hard, so I congratulate the the essential infrastructure that connects leadership team and everyone across the buyers and sellers of energy services. organisation for their achievements. This is now not only guiding the I would also like to thank the outgoing investment priorities of our distribution Chairman and directors for their business, but also the strategic direction stewardship. of our retailer, one that is about delivering fresh value as a trusted, There is no doubt that the rate of change regional Queensland market participant. will continue to gather pace, even after the current matters of uncertainty are This year, I believe Ergon Energy has resolved. I am equally certain that the made significant progress along this effort already undertaken to reposition strategic journey. This has been achieved the business and ensure the organisation despite the challenges of operating in is agile and responsive, has placed Ergon an environment with a high level of Energy in the best possible position for uncertainty – the process of determining the future. our revenue allowance is still underway, the proposed merger with Queensland’s I look forward to seeing some really other government-owned network strong outcomes emerge for regional service providers is still to be outworked, Queensland. “… the effort already and the future of our retail operations undertaken to reposition the also remains unclear from a number business and ensure the of perspectives. organisation is agile and Over the past 12 months, Ergon Energy responsive, has placed Ergon has worked hard to truly understand the efficiency opportunities available to it, Energy in the best possible and the business will continue to deliver position for the future.” against these to achieve the targets put forward in our Regulatory Proposal for the 2015-20 period. These efficiency GARY HUMPHRYS targets will help keep the organisation’s CHAIRMAN average annual revenue requirement for the period under inflation. I would also like to recognise the milestones reached as we advocate for a more effective market. We appreciate that we need to be an enabler of new technologies. At the same time, we know this needs to be done in a way that delivers the best economic outcome for regional Queensland, and which leverages ongoing commercial value for our shareholders (and, ultimately, taxpayers).
8 CHAIRMAN’S MESSAGE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Chief Executive’s report
“I don’t think we should disrupt the way we price electricity has not things unless that disruption is kept pace with these changes. going to result in something The cross-subsidies inherent in our fundamentally better for society. current tariff structures have partially I’m not really a fan of disruption; contributed to electricity prices rising, a dynamic which is now being addressed I’m a fan of things being better.” as part of our reform pathway. Tesla founder and CEO Elon Musk shared his energy vision at the 2015 EEI Annual Convention. We have also taken giant steps to build on our capability to manage the take-up Embracing change for a of these customer technologies. We are brighter future ensuring our people have the right skills Elon Musk’s sentiment has a lot of and knowledge for this future and we are relevance for Ergon Energy. I believe we investing in the systems and processes have a significant role to play in ‘things needed, specifically to automate the being better’ – our network is the only management of the contracted demand. thing that links our energy resources, 2014-15 a milestone for our wherever they are located, to our homes, organisation farms, business and industry. So whether the cheapest resource is from the sun, I would like to take the opportunity or from the local tip or the sugar mill now in the rest of my report to reflect a or down the road from a centralised little further back than usual. In addition baseload generator or over at your to reporting on Ergon Energy’s neighbour’s place, it’s the network that performance, I’d also like to consider connects it all. It provides security, how we have positioned the organisation enables a more competitive energy over recent years to best deliver for our market, increases fuel diversity and customers into the future. enables the efficient integration of As a distribution business, Ergon Energy renewable energy resources. operates largely under a five-year Our challenge, as an organisation and regulatory control period. This report collectively as an industry, is to work covers 2014-15, the last year of the through the disruption and current regulatory period – we have just moved market upheaval to unearth the real value into the next, extending from 2015 until for our customers. In just five years, we 2020. As such, I would like to note here have seen the take-up of solar energy go the success Ergon Energy has had in delivering against our plans over the from less than 10,000 to over 110,000. “… delivering ‘peace of mind’ This, along with advances in battery past five years. by way of a safe and reliable energy storage, is revolutionising how As we entered the 2010-15 period, we manage power. We now need to it became clear that the demand electricity supply, as well as ensure this delivers the best possible growth on the network experienced greater ‘choice and control’ price for all. in earlier years was easing. This was around how our network can unprecedented and largely as a result of I am confident that we are responding be used, all for the best well to this revolution through our the impacts of the Global Financial Crisis network investment plans, through (GFC). Thankfully, we were well placed possible price.” our technology platforms and market to respond. We intensified our processes, and through the readiness investigations into alternative methods of our people. for achieving the long-term security of supply and reliability. This led to a formal I am committed to our business review of our network security planning remaining at the heart of any future obligations, resulting in a move away energy supply scenarios for regional from the deterministic N-1 planning Queensland. I even see the electricity approach. We were then able to scale grid as playing a central role in efforts back our capital investment program, to ‘decarbonise’ the transport network, and, make appropriate adjustments by supporting electric vehicles. in the organisation to achieve the We are positioning Ergon Energy to necessary efficiencies. take advantage of battery storage by At the same time, we were also integrating it with other technologies. advancing our capability to manage Our aim is to provide our customers with our customers’ demand on the network. greater choice and control around their We set ourselves a challenging demand energy use while using the technology to reduction target at the start of the help us to make our network cheaper to period, and I am pleased to say we operate in the longer term. surpassed this five-year target early, In line with this, we have made significant achieving 139MVA of demand reduction progress this year reforming tariffs. in total, which further helped to defer While we worked hard to ensure our costly augmentation. network can meet the changing needs of our customers, we recognise that
CHIEF EXECUTIVE’S REPORT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 9 Chief Executive’s report (continued)
I would also like to recognise here a As an organisation, we are also extremely We then received and reviewed number of other specific innovations. proud of the turnaround in our stakeholders’ feedback and the AER’s workplace safety over the period. Preliminary Determination. And in Firstly, the development of our Grid We have focused hard on shifting our early July, we submitted to the AER Utility Support System, aka GUSS. GUSS culture to one which is high performing, an updated proposal that includes is effectively a huge set of batteries, decisive and agile; an organisation where expenditure reductions in the order of which charge overnight when electricity safety holds the utmost priority, at every a billion dollars compared to what we use is at its lowest and discharge during level. The result has been a two-thirds spent during the 2010-15 period. the day if required when energy use reduction in the number of injuries to peaks. It is a cost-effective utility solution Shortly after this annual report is employees. While we still have some when you consider that traditional published, the AER will hand down its way to go to meet our goal to stand with augmentation on the rural networks Final Determination of Ergon Energy’s the very best in the industry, this is a where we are now deploying GUSS can revenue allowance for the five years momentous achievement, and it deepens cost in excess of $2 million. to 2020. This will allow us to confirm our commitment to seeing every person our ability to deliver against the Secondly, our increasing use of in Ergon Energy leave for home safely at service commitments we refreshed in information enabling technology. the end of each day. consultation with customers in 2014, Here our Field Force Automation and Delivering when regional and get on with the job of delivering award-wining remote observation Queensland needed us most our plans. technology represent some of the many ways that we are using what some There is no doubt that we have Once again, I would like to thank our might call disruptive technology to put demonstrated our strengthening disaster stakeholders who have engaged with downward pressure on electricity prices. response capability in recent years. us and shared their insights as we have moved through the revenue We started the 2010-15 period with Our efficiency efforts are determination process. It is crucial to a severe storm season, culminating in supporting price relief get the balance right and we can only our massive response to the devastation Collectively, our efforts led to us being do that by understanding what the Cyclone Yasi brought to Far North able to demonstrate in our October community expects today and into Queensland in February 2011. Dozens Regulatory Proposal a $1.7 billion the future. of major storms and floods hit our reduction in our total expenditure for communities and tested our restoration Ergon Energy has a big role to play the 2010-15 period, more than 22% below capability in the years that followed, – we’re about building an organisation what the regulator had allowed. working up to another category five this which, as Elon Musk puts it, delivers This enabled us to reduce our revenue year, Cyclone Marcia. I am always very something ‘fundamentally better requirements by $99 million over the last proud of the way our people respond for society’. three years of the period. It also meant following these types of events to restore I am optimistic that our talented and that when cyclones like category fives supply to impacted communities. committed people will rise to this Yasi and Marcia, and the dozens Particularly this year, I believe Cyclone challenge in the coming years; not just of smaller storms, battered regional Marcia’s 10 day power restoration through the ambitious goals we have Queensland, we were able to absorb timeframe is a record for a cyclone set for ourselves, but also through our the high costs associated with of such force, and the goodwill and response to the unanticipated issues and restoration rather passing on these overwhelmingly positive support from changes which will no doubt come our costs to customers. the affected communities left us in no way. It is an honour to work with them. doubt as to how much they appreciated The reduced level of spending in this our response. period, and the efficiency improvements now embedded in the business, have Thinking forward into the also placed us well to deliver price next five years relief as we move into our next I would also like to publicly congratulate five-year period. our people for their efforts this year in Service standards and safety developing our investment plans for IAN McLEOD have remained a priority 2015-20, and in positioning us well for the future. CHIEF EXECUTIVE Critically, our efficiency achievements have not come at the expense of safety In October 2014, Ergon Energy put to or service. the Australian Energy Regulator a comprehensive investment proposal At the start of the last five-year period, that was about delivering ‘peace of mind’ we were struggling with increasingly by way of a safe and reliable electricity stringent reliability standards and supply, as well as greater ‘choice and there was room for improvement in control’ around how our network can be meeting some customer expectations. used, ‘all for the best possible price’. In response, we implemented a $162 million reliability improvement program, which was completed in the last financial year. Overall, it has delivered a 29% reduction in the average number of planned and unplanned outages experienced by our customers. Today, in our urban areas, the average customer will experience just over one interruption per year.
10 CHIEF EXECUTIVE’S REPORT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Placing us well for the future
2005
Prior to 2010 we were focused on securing the network, being OUR VISION safe, ‘getting fit’ (on efficiency and effectiveness) and playing To be a high-performance, a leadership role in renewables. customer-driven energy business
2010
OUR ACHIEVEMENTS 2010-15
Completed a major Improved reliability by 29% – our urban customers now only $162 million reliability experience on average 1.3 power improvement program. interruptions a year.
Evolved the network, and our Over 110,000 solar energy systems are now connected to the network, business model, as a platform for benefitting our customers and the distributed energy resources. environment.
Showed industry-wide leadership We took virtually ‘a city the size of Rockhampton’ off the grid during in demand management ‘peak hour’ (139MVA), deferring surpassing our five-year target. $660 million in network investment.
Drove an organisation-wide Our total expenditure was $1.7 billion below our allowance, delivering focus on efficiency and immediate price relief and helping to effectiveness. stabilise prices in 2015-20.
Refined our disaster We were there, time and time again, after the storm – including major response, and general outage responses to category five cyclones restoration capability. Yasi and Marcia.
Embedded a new safety culture Our workplace safety improved dramatically, with our All Injuries and addressed our areas of Frequency Rate down by two thirds greatest risk. to 5.0.
Built our business intelligence Technology is now linking the office capability and enabled our and the field, in real time, in the real people with technology. and virtual worlds.
2015
Thinking forward, our plans are about enabling an effective energy market OUR SERVICE COMMITMENTS and our people to deliver an increasingly efficient service. Peace of mind Choice and control To deliver on our customer commitments we are proposing a $5.1 billion investment program – one billion dollars less than what For the best possible price we spent in 2010-15.
2020
REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 11 Review of operations: Creating fresh value and choice
Above: As part of our efforts to position ourselves for a marketplace that is becoming increasingly dynamic, with changing expectations from customers and industry participants, we made a major investment this year in our customer information systems. We are replacing a 30 plus year old system with separate systems for our retail and network businesses.
Ergon Energy’s strategic focus is Engaged our customers to help refine our network tariff reform journey, launching on building customer value and industry leading, voluntary demand-based addressing electricity affordability tariffs. These tariffs aim to give our customers – not only through our own the opportunity to save when the network is not being used. efficiencies but, importantly, by
enabling an effective market for A major investment was made into our economic energy solutions. This customer information systems, helping to section of the report also outlines reposition the business for a marketplace that is becoming increasingly dynamic, with changing how we have delivered across our expectations from customers and industry service commitments, and as a participants. responsible service provider.
Significant work was undertaken to map the impacts and implement changes required for the introduction of the National Energy Customer Framework, and a range of other regulatory reforms, to Queensland.
Continued to refine our disaster response capability, successfully responding to the two major cyclones that hit the Queensland coast during our storm season – category five Cyclone Marcia and category four Cyclone Nathan.
12 REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 An effective RESEARCH CONFIRMS NEED WORKING TO SUPPORT market key to TO GENERATE FRESH VALUE THE BEST POSSIBLE PRICE customer value 6.9 6.9 6.8 $460 6.6 6.5 An effective market will $430 deliver the best value $373 Ergon Energy is very aware that the marketplace for energy is becoming increasingly dynamic, and that the way our customers are using our network is changing rapidly with the take up of new energy options. We have been showing leadership in this industry-wide shift for
a number of years now, both as a AVERAGE BILL network business and a retail business, VALUE TO CUSTOMER SCORE 1 with our purpose being to provide 2 20 1 20 1 2013 2014 2015 2014-15
sustainable energy solutions. Our aim 2014-15 2009-10 All homes is to empower customers with greater All homes New homes ‘choice and control’ so that we are Residential customer perceptions of overall value have remained at 6.9 out of 10. With ‘cost collectively investing in the most and affordability’ the main concern, and Changes to the way our customers are using cost-effective electricity supply declining perceptions of value in the second the network, and the support that we have been solutions. half of the year, this research confirms our able to provide for this, has kept the average ongoing focus on delivering fresh value. price increase for households over the past five years to 24% (and for the households who have We see the future of the network not invested in solar to 30%), well below the rise business being about operating an open in the unit price of electricity. access platform for distributed energy For new homes, which have benefitted more Industry forums have also been initiated and other energy-related solutions – and from energy conservation measures like for the agricultural industry and the insulation and more efficient appliances, as well the future of our retail business being solar/micro generation industry (p25) as solar (p26), the average household energy about delivering fresh value through costs today are only around $58 above the to explore opportunities where we can new products and services, as a trusted average bill overall five years ago. collaborate to deliver better outcomes energy provider in what is a rapidly for our customers. We also continued changing marketplace. our real-estate developers’ reference We continued to track perceptions Understanding what our group to guide improvements to our of overall value through our ‘value to customers value new connections service (p18). customer’ research, which commenced In order to best position ourselves for To build on the insights we have gained in 2001. Our residential customer score this future we have continued to engage through these engagement efforts, remained at 6.9 out of 10 on average with our customers to better understand we also kicked off a major customer for the year – which is the same score what they value. research piece to help inform how we as achieved the previous year. This result can best meet our customers’ needs delivered a ‘better than peer average Central to this has been our peak body going forward as a distribution business. score’ of 101 (100 equals parity). engagement activities. Our Customer This will support the development of However, this benchmark was Council is our umbrella stakeholder plans for each customer segment – from deteriorating towards the end of the engagement forum. Established in 2011, end users to retailers – that will help financial year (seeing it below our SCI this consultative forum brings together ensure our end-to-end processes are target at 99 for the final six months of representatives from a range of customer-centric, with performance the year). Our business customer score community service, environmental monitoring, targeted investment and dropped to 5.8 out of 10 on average for management and business sector greater accountability. the year (compared to 6.0 the previous advocacy organisations. year). This result and again the Targeted research has also been deterioration towards the end of the The membership of the council’s undertaken to support the development Regulatory Proposal working group year is of concern. This is driving our of our retail service and products customer service improvement evolved during the year to broaden offering, in order to provide our the consumer advocacy groups programs. For both customer segments customers with greater control, we have maintained significantly participating and build on the choice and fresh value. p14 engagement capacity developed. stronger results for ‘corporate This has continued our engagement responsibility’ compared to our on our investment plans following the peer-suppliers for both residential submission of our Regulatory Proposal and business customers. in October 2014 (p39) and helped inform our tariff reform journey (p14).
REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 13 Delivering services the way WHAT MADE UP THE PRICE OF ELECTRICITY? our customers like it
21% 47% During the year we made a major investment in our customer-related systems, and we are well progressed in replacing a 30 plus year old billing system, delivering a major boost to our customer service capability. The project is improving our ability to manage our call centre enquiries, customer billing Electricity Generation Transmission and and market transactions. Wholesale Electricity Costs Distribution Poles and Wires The investment has seen the launch of new contact centre technology and 7% 3% 23% the progression of a replacement retail and distribution customer information system, dramatically improving the experience for our customers when they call Ergon Energy. We’ve simplified our Interactive Voice Recognition (IVR) system, which was Solar Bonus Green Schemes Retail designed using feedback from Feed-in Tari Scheme Renewable Energy Target Metering, Billing and Customer Service customers and employees. It is now easier for customers to get through to For 2014-15, a typical quarterly electricity bill for a residential customer in regional Queensland without a customer service representative with a solar energy system installed was $483, up 11% on 2013-14. smoother menu options, pay bills Savings from the repeal of the carbon price were passed on in July 2014, after notification from the by credit card over the phone using Queensland Government that the tariffs without the carbon price had been adopted. The annual saving for typical residential customers from the removal of the carbon price was estimated to be about $120. our self-service channel, or listen automatically to tailored messages Based on Queensland Competition Authority publication of 2014-15 residential electricity prices about an outage in their area (even www.dews.qld.gov.au/energy-water-home/electricity/prices/tariffs-explained Rounding impacts to total. request a call back once the outage is The average residential bill is based on Ergon Energy Queensland Pty Ltd accounts, excluding households with solar energy systems installed. restored, a major benefit for our life support customers). The new system also supports post call surveys to help The savings are offered when the track customer satisfaction and Fresh value and network is not being used to its full enhanced call recording for service greater choice capacity, with cost-reflective rates coaching purposes. charged when the level of demand To create fresh value, and enable greater across the network is higher and likely to Distribution systems choice and control, we have been drive costly capital investment, during support choice progressing a suite of market our ‘summer months’. This investment program will also see enablement programs that touch our distribution business move to a The modelling to support our tariff every part of the business. separate customer information system, development showed that without market solution and network billing these reforms customers in regional manager. The system is the same Network tariff reform Queensland could be paying up to a one used by Energex in south-east billion dollars more than they need to in progressed Queensland, supporting the creation of the coming decade. This is a direct result a joint Market Transaction Centre, which One of the most significant deliverables of the cross subsidies that are being will process market transactions on this year was our network tariff reforms. created by our current tariffs. These tariffs contribute to around half behalf of Ergon Energy’s network of the average electricity bill. In addition, the reforms also saw business and Energex. This continues an excess reactive power charge a joint working approach between the Ergon Energy embarked on a network introduced for our largest customers, two businesses that is about driving tariff reform journey over two years ago and the use of kVA as the basis for the consistency and efficiency across our now to deliver fairer, more equitable demand tariffs for our very large energy services for the benefit of all pricing signals and meet everyone’s users. Some tariffs were also Queenslanders. needs into the future for the best standardised to reduce complexity. possible price. This will enable our retail and distribution In parallel with this, our retailer has businesses to transact with each other This saw us introduce, as we moved been working closely with our large via the national electricity market in into July 2015, an innovative suite of customers to ensure they are accessing the same way as other retailers and voluntary demand-based seasonal time the optimal tariff for their business. distributors across Australia. This is of use tariffs for customers using less This has seen some customers, including essential given the potential for an than 40GWh of electricity a year. The the Queensland Government and some increase in competitive retailing activity new tariff structures give customers the local government organisations, saving in regional Queensland. opportunity to save, by looking at what hundreds of thousands of dollars. drives our costs and aligning our pricing signals appropriately.
14 REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 An investment has also been made in Another 33 customers in Cannonvale, systems to register metering assets, Toowoomba and Townsville are currently Regulatory manage customer complaints and testing a new Hybrid Energy Service change brings claims, and to meet the requirements which gives customers access to a of the National Energy Customer combination of renewable energy, customer benefits Framework. battery stored energy and time of use tariffs that will provide noticeable energy In September 2014 Queensland To ensure a smooth transition, a bill savings over a 12 month period. Government brought in legislation significant amount of work and training The use of an energy management introducing the National Energy of staff has occurred this year in system allows the customer to plan Customer Framework, known as NECF, preparation for the new systems. The when solar, battery or the network is into Queensland from 1 July 2015. This move will build on the roll out of Field used to maximise the benefits of means there are now a common set of Force Automation (p31), allowing a storing electricity during cost-effective rules governing the sale and supply of seamless exchange of service orders times and discharging the battery at energy, no matter which service between retailers and operational teams. peak times. provider a customer uses, and consistent service standards. Developing simple innovative We have also been developing a energy solutions Business Solar Saver offer to enable In preparation for NECF, from a retail perspective, we looked at our customer We are also striving to deliver fresh small to medium businesses to access protections, including our processes value as a retail business by providing competitively priced solar energy and for identifying and assisting customers customers with new innovative products lower their energy costs overall. The in financial hardship and finding it and services. product removes the barrier of the upfront cost of buying a solar energy difficult to pay their bills (p19), and To provide our customers with choice system and the worry of maintaining the our service offering for customers about how they interact with us, we’ve system over time. The offer, once made using card-operated meters in our developed an online self-service portal, available, will be made by assessing the isolated communities. including the introduction of e-billing, energy usage of the business to From a distribution perspective, the with over 65,000 accounts already determine the best sized solar energy focus was on the notification required registered. system and tariff arrangements to for a planned outage, the management We also launched a new customer- maximise the savings. The solution will of life support customers, our focused website in July 2014 to provide then be supported by an online portal connection services for new sites or customers with easy to find information EnergyCheck Enterprise, to give the alterations, our responsibilities in the to better understand our business and business owner a detailed view of their customer and retailer relationship, the the different services provided by retail energy use and the amount of solar classification of customers as small or and distribution. The new look site is energy being generated. large, as well as matters around the available on any device – being To support our customers’ investment in reconnection and disconnection of responsive to mobile, tablet or distributed generation we have also a customer. desktop formats. been building our expertise in battery Regulatory reforms have also seen Throughout the year we have also been technologies to ensure the best changes in our application process for working with our customers to help outcome for both our customers and connecting micro embedded generating them embrace new energy-related our business. p25 units to the network – things like solar technologies. A highlight has been energy systems, batteries and any other the development of the HomeSmart forms of inverter energy systems. p25 product, a home energy management Significant work was also required to technology that will give our customers implement changes to the way metering greater control over their electricity services are to be charged, following a consumption and ultimately reduce their decision by the AER to move to a user power bill. Expected to be rolled out pays system from July 2015. The reforms more broadly next year, to date 100 allow the electricity industry to transition residential customers in Townsville have to a fairer, more transparent way of been benefitting from the online energy billing metering costs and, in the future, consumption dashboard and the ability support greater competition in metering to remotely control major appliances, and in the electricity market. such as hot water systems, pool pumps and air conditioners. This solution will These reforms will see customers allow customers to take advantage of charged upfront when they ask to have time-of-use or solar feed-in-tariffs, or a new meter installed or upgraded. receive SMS or email alerts when using There will also be ongoing charges to One of our HomeSmart participants viewing the budget tracking function. their week’s usage, including a breakdown of recover the capital cost of the existing their air conditioning, hot water and pool pump meters and charges to cover the cost consumption. Viewing their usage in the online dashboard, customers can compare their usage of reading, maintaining and operating over a daily, weekly or monthly period, and learn each meter. Previously, these costs how to better manage their energy use and were spread across all customers and benefit from their solar energy system. wrapped up into the other charges that make up a retail bill.
REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 15 CUSTOMER SCORECARD
Customers largely satisfied with The long rural parts of the network network reliability include a significant proportion of our CUSTOMER SATISFACTION radial distribution network and SWER SUPPLY PERFORMANCE Customer satisfaction with supply lines. These sections of the network have performance improved over the last limited redundancy and were impacted 12 months, with research showing our by the severity of the storm season Residential 89% customers are largely satisfied with experienced this year. We experienced a the level of supply they receive. 70% increase in lightning strikes on the Small Business 79% Since 2009-10, prior to entering the long rural part of the network compared five-year regulatory control period that to the five-year historical average. Medium to Large 72% had just ended, network reliability has As the long rural outage result improved dramatically – 25% from a was due to the severity of the weather frequency perspective and 29% from conditions, Ergon Energy considers this a duration perspective. year’s MSS results overall to be in line Meeting customer service This reflects the $162 million invested with the regulatory requirements now expectations over the five-year period directly into incorporated into our Distribution Customer solutions satisfaction network reliability improvement and Authority. We will continue to monitor the operational priority given to performance for systemic performance The Customer Solutions Centre achieving the regulated Minimum issues. (previously known as the contact centre) manages our customer enquiries and is Service Standards (MSS), which were Running parallel with the MSS is the located across two sites in Rockhampton becoming increasingly stringent. AER’s Service Target Performance and Townsville. Customer satisfaction Incentive Scheme. This framework With regulatory changes to the with this service has remained steady provides a financial incentive for standards seeing the requirement for this year, with an average satisfaction improving unplanned outage continuous improvement removed, to rate of 91%. balance the objectives of price and performance, as well as customer reliability, our focus going forward will service standards. This year the result Performance in the general enquiries be on improving our worst performing has supported a positive financial area is measured through a grade of sections of the network, and simply outcome for the business. service of 70% of calls being answered within 120 seconds. This year, maintaining reliability levels overall. For further information on our reliability distribution general enquiries achieved improvement program, and the For 2014-15, performance was positive a service grade of 89.8%. Retail general reliability of our worst performing against five of the six MSS limits. enquiries recorded 60.3%. This result is feeders, refer to our Distribution Annual The outcome for the average duration due to the challenging summer period, Planning Report online. of the ‘long rural’ outages was the only and significantly higher call volumes measure that did not perform better following the removal of the carbon tax than the standard. from retail bills and a resourcing shortage at the same time.
OUR RELIABILITY STATISTICS
MSS 2014-15 2013-14 2012-13 2011-12 2010-11 System Average Interruption Duration Index (minutes)
• Urban Distribution ≤149 134 119 135 136 149
• Short Rural Distribution ≤424 359 292 292 393 426
• Long Rural Distribution ≤964 1,053 796 796 1,042 828
System Average Interruption Frequency Index (number of outages)
• Urban Distribution ≤1.98 1.3 1.4 1.5 1.4 1.6
• Short Rural Distribution ≤3.95 3.2 2.8 3.0 3.6 3.5
• Long Rural Distribution ≤7.40 6.8 6.1 6.2 7.0 5.3
Reporting based on the Minimum Service Standards (MSS) exclusion criteria outlined in the Electricity Industry Code.
16 REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Call centre performance for the Enhancements to outage notification scheme when comparing complaint unplanned outage enquiries and processes this year, including our ‘knock numbers on the basis of the participants’ emergency line was well above the on door’ policy and our life support customer base in Queensland. target of 77.3% with a service grade of customer connection procedures, saw a This data is a valuable mechanism 80.8%. This was supported by a strong further reduction of 26% in the number for highlighting areas of possible response following Cyclone Marcia. of claims associated with the notification improvement in customer service and of planned interruptions. There has been a significant focus this complaints management. year on improving the systems and There was, however, a significant This year, Ergon Energy Queensland Pty technology used in managing customer increase in the claims for network Ltd represented 7% of total EWOQ enquiries (p14). New contact centre reliability (restoration timeframes and cases. Like other retailers, our technology was implemented in May, the number of outages) and the complaints data indicates that credit which will make it easier for the remaining GSLs. This was due to a management issues are the biggest customer solutions team to serve and number of contributing factors, in retail complaint category, followed by interact with customers. particular the severe weather billing issues. Ergon Energy Corporation experienced in the early part of 2015 Limited outperformed other distribution Standing by our service with 75% of the reliability-duration GSLs scheme participants achieving 2.25 commitments occurring in the month of February. Our complaints per 10,000 customers, or focus during this time on the response Ergon Energy has a range of Guaranteed 2% of the total EWOQ cases. Service Level (GSL) commitments – efforts following Cyclone Marcia (p19) associated with outage restoration also saw day-to-day activities and We take complaints seriously. To ensure timeframes, the number of outages appointments missed, leading to an we continue to gather reliable and experienced, and the notification of increased number of GSL payments. comprehensive complaints data, we planned power interruptions as key Training and the use of longer-term are preparing to launch new complaints examples – where, if we don’t deliver, service contracts will help improve our management systems for our retail and we pay the customer for the service delivery in many of these areas. distribution businesses. The systems inconvenience. As part of the Electricity will improve the customer experience Industry Code, which set out the GSL Complaints management and improve efficiencies in the regime for the period of this report, Effective complaint handling is complaints process. these commitments also cover fundamental to the provision of quality appointments, new connection and service. This year Ergon Energy has reconnection timeframes, wrongful continued to perform favourably in the disconnections, and the resolution Energy and Water Ombudsman of hot-water supply matters. Queensland’s (EWOQ) complaints
PROFILE OF DISTRIBUTION DURATION OF OUTAGES FREQUENCY OF OUTAGES NETWORK (FEEDER LINES) IMPACTED BY STORM SEASON IS BEING MAINTAINED 383 3.2 373 3.1 362 2.9 341 2.8 2.7
287 IFI
Isolated 8% S A l a
Long Rural 11% t o TOTAL SAIDI Short Rural 53% T Urban 28% 1 2011 20 1 2012 2013 2014 2015 2012 2013 2014 2015
Ergon Energy operates one of the longest The duration of outages was impacted by the Overall our customers are experiencing an distribution networks in Australia, with only five severity of the storm season experienced this average of 2.9 outages per year. Ergon Energy customers per kilometre of line on the main year – the average duration of outages was 362 considers that overall network reliability is now grid. Our reliability challenges are both minutes. We are continuing to maintain an generally delivering the level of service our common to the industry and unique. With less operational priority on achieving the regulated customers expect. We are now looking to than a third of our network supplying our urban service standards. ensure reliability expenditure targets the worst communities, the topography of our network is performing sections of our network to deliver largely made up of radial rural lines with limited customer value. redundancy in the event of a fault.
REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 17 CUSTOMER SCORECARD (continued)
Improving connections 2014-15 2013-14 to the network GUARANTEED SERVICE LEVELS CLAIMS PAYMENTS CLAIMS PAYMENTS Service standards for major customer-initiated connections and Network Reliability 5,510 $572,949 2,155 $224,120 embedded generation have continued Other: to improve. • Notification Planned 2,609 $82,108 3,533 $103,870 Interruption Significant work occurred during 2013-14 to improve the application timeframes • Remaining GSLs 1,981 $151,498 645 $52,000 for major customer connections and this TOTAL 6,333 $379,990 focus has continued this year with 10,100 $806,555 formal connection offers now being made within 31 business days following OUR STATISTICS an application from a major customer for a non-complex connection – down CUSTOMER SERVICE from 43 business days in 2013-14 and DELIVERY 2014-15 2013-14 2012-13 2011-12 2010-11 well inside the 65 business days required (Annual Value to Customer – average by the national framework (p15). Major Residential Research 101 101 105 104 105 100 = peer Parity customer service satisfaction also average) continued to improve with 77% of our Value to Customer – (Annual 6.9 6.9 6.8 6.6 6.5 major customers indicating they are Residential Research Score average) likely to speak well of Ergon Energy. Value to Business – (Annual 5.8 6.0 6.1 6.0 6.1 Ergon Energy is also working more Research Score average) Call Volumes to collaboratively with customers to 1.68m 1.76m 1.76m 1.65m 1.67m Customer Solutions Centre achieve more holistic outcomes, Customer Solutions both for the customer and for Ergon Target Centre – 91% 91% 92% 86% 88% ≥85% Energy. This is seeing us to look more Customer Satisfaction proactively at connection requests and 86.4% General Enquiries – 89.8% business proposals to explore how we Dist’n Dist’n Calls Answered in ≥70% 47% 72% 64% 60.3% 69.1% can best contribute value. 30 Seconds Retail Retail An example of this is the Grasstree Unplanned Outage Mine 66kV powerline relocation Enquiries and project near Middlemount in Central Emergency Calls5 ≥77.3% 80.8% 81.3% 82.1% 84.8% 77.6% – Calls Answered Queensland. The project is a Queensland in 30 Seconds first in the management of mine related New Connections – Target ≤160 subsidence issues underneath Average Time from 124 days 128 days 155 days 170 days 218 days days powerlines and involved collaboration Contract to Construction between Ergon Energy and Anglo 5. Target as set for the Australian Energy Regulator’s Service Target Performance Incentive Scheme. American. The standard approach for this type of project is to relocate the powerline at the customer’s cost, This year has seen changes to National Connecting solar but in this case we were able to avoid Electricity Rules to help make it easier During the year, over 13,300 new solar this through a proactive approach, for large embedded generating units, energy systems were connected to the innovative engineering and like solar and wind farms, to connect to network, taking the total installations in infrastructure management. This saved the grid. The new rules, introduced in Queensland to more than 110,500 (p26). both organisations significant time October 2014, required distributors to While the rate of connections has and money. make available information packs for dropped since 2013-14, there continues prospective applicants, enquiry and We have also supported customers in to be sustained take up of this application forms for connections, and converting their waste to energy, technology – with an average of around the provision of a register of completed including Darling Downs Fresh Eggs who 260 connections per week. connections. There are currently 31 are expecting cost savings of more than major embedded generators with We have continued to deliver against $250,000 from the first year of a project connections to the grid in regional our timeframes for solar applications to capture biogas to generate heat for Queensland. with most approvals granted within one use in chicken rearing sheds and hot week for applications not requiring water for the grading floor. We have Following on from improvements made assessment and for applications also supported biogas projects for Tong to processes and productivity during requiring technical assessment a Park and Bettapork this year. These 2013-14, we have continued to deliver response is usually provided within projects offer significant opportunities for our non-complex customer-initiated five weeks. for cost-effective energy savings, connections and upgrades, achieving renewable energy generation and an average of 124 days this year for Interest in emerging technologies has carbon abatement. ‘contract acceptance to construction’ also seen approximately 145 customers – well within the 160 day target. We also applying to connect batteries to the delivered 96% of these projects within network. This is an annual figure that we the agreed target. are expecting to grow significantly over the next 12 months as the products available in the marketplace become less cost prohibitive. p25
18 REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 To support these communities we In preparation for this year’s storm Being a responsible continued our innovative powersavvy season a new operational response plan provider program. The program engages with was put in place to increase the these communities directly to help them efficiency, effectiveness and safety of We are proud to be recognised as a reduce their power consumption and our response to emergency and disaster good corporate citizen. We see we have save. It is estimated the program has to events. The plan was refined to improve responsibilities around supporting those date cut electricity use by around the consistency of our response across in financial hardship, being there after 21GWh, delivering more than $4.6 million the state and included improved the storm, community electrical safety, in savings to our customers and helping practices identified from previous local employment and apprenticeships, to reduce the Queensland Government’s events. It didn’t take long before these energy conservation and community Community Service Obligation payment plans were put into action. (p40). participation generally. In February, Cyclone Marcia crossed Our contribution in these areas this year These savings have been achieved by the coast near Shoalwater Bay, resulting are highlighted here and in the people providing advice and education on in 73,500 customers losing power, section of this report (p29-34). energy usage behaviour and by between Clairview (north of incentivising the installation of new Rockhampton) to Mundubbera in energy efficient technologies and the south and inland as far west as Assisting those equipment, and the take up of solar Springsure, at some stage during experiencing energy systems, which is cheaper the event. The system destroyed over financial hardship than the diesel generation used in 35 kilometres of powerlines as it crossed isolated communities. This year, the coast and moved inland. The heavily Ergon Energy considers disconnection after implementing powersavvy populated centres of Rockhampton for non-payment a last resort option and recommendations, both the Thursday and the Capricorn Coast were the instead works closely with customers to Island Grand Hotel and the Kowanyama worst affected areas with 100% of help them manage their electricity bills. Court House are now saving an the 13,500 customers in Yeppoon We make every attempt to contact estimated 27,000kWh of electricity and 90% of the 40,200 customers customers to discuss their options to annually. in Rockhampton losing power. avoid disconnection, providing payment plan options and our hardship program This year also saw elements of the In anticipation of the cyclone making details. In the past twelve months, there powersavvy program delivered for the landfall, crews were placed on stand-by has been a significant increase of first time to a non-isolated community. and mobile generators were customers being identified as Residents of the Aboriginal community pre-deployed to Mackay, Yeppoon, experiencing financial hardship. of Cherbourg were experiencing issues Rockhampton, Gladstone and in the with high electricity bills, and high levels Wide Bay area to minimise the risk of This has largely been due to an of debt and disconnections, and we access issues hampering the restoration extended summer (and the associated wanted to see if we could assist with a effort. We also relocated resources from high bills) and the increase in the fixed modified version of the program. This our Rockhampton control centre and component of the Notified Tariffs set saw eight local residents participate in customer solutions centre to the by the QCA, as well as higher an energy efficiency training program, Townsville equivalent centres in unemployment rates, especially in the covering energy efficiency, safety, preparation for the impact on regional Queensland centres that understanding electricity bills and our Rockhampton. support the mining sector. The increase hardship program. These ‘local experts’ Throughout the response more than also reflects a more proactive approach are now able to share the information 1,000 Ergon Energy, Energex and to identifying hardship circumstances with other members of their community third-party contractor personnel worked and contacting customers pending to help them better manage their tirelessly in difficult conditions to restore disconnection. electricity costs and reduce the number supply to impacted communities. Within of disconnections. Our hardship program, called Customer 10 days all customers who were ready to Assist, supports customers who are in We have also been active in helping be reconnected were. financial hardship and unable to pay customers with card-operated meters in During the restoration effort, we their accounts. During the year 3,502 our isolated communities, access to managed an influx of more than 55,000 customers ‘graduated’ from the program rebates and concessions, and ensuring outage-related customer calls. We also with an improved financial capability those using life support equipment have kept our customers up-to-date online and the energy usage knowledge the support they need. needed to meet their energy debts on with more than 740,000 individual page a sustainable and independent basis. Recognising our Indigenous views, 10,000 Facebook page ‘likes’ and communities as being a key customer comment posts and 550 Twitter We also continued to work with group is also important to our workforce interactions relating to Marcia. community groups to promote the diversity efforts. p30 Our online Outage Finder also proved program to vulnerable customers. to be invaluable with more than 263,000 Delivering on our views during the restoration effort – Working with our Indigenous an average of 24,000 a day. communities commitment to be Ergon Energy supplies the majority there after the storm of regional Queensland’s Indigenous We know the importance to a communities, one of the most community of Ergon Energy being disadvantaged consumer groups there as soon as possible after a storm. in Australia. Providing electricity Two major weather systems crossed the services to these communities is Queensland coast this year, category challenging, with the majority being five Cyclone Marcia and category four remote and supplied by stand-alone Cyclone Nathan. diesel power stations.
REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 19 A significant effort was put into helping The peer recognised campaign has to Analysing incident data remains central our customers most impacted by the date achieved strong message take out. to developing the effectiveness of event manage their bills, including To drive further engagement, a our community safety strategies. putting bills and notices on hold and mockumentary style advertisement was The statistics show our efforts to target delaying disconnections for debt within most recently added to the suite to build the ‘Look Up and Live’ messaging and the impacted areas. Residents who on the story of the Grim Llama and other safety advice as potentially having suffered total, severe or moderate extend its reach of the campaign within a positive impact in the number of damage to their homes were assessed the community. incidents in the agriculture, aviation to see what assistance could be and earthmoving industries over the Our ‘Working together to make this provided through flexible payment past 12 months summer the best it can be’ campaign options, our Customer Assist program also continued to build awareness of This year we also launched a new or a debt waiver. We worked with the the dangers during in the summer measure in our reporting that gives 393 customers in the impacted areas storm season. transparency to the number of incidents already recognised as being in financial of public shocks from our assets as an hardship to revise their individual School children encouraged important part of building public hardship packages and another 140 to become safety heroes awareness. In 2014-15 there were 191 customers entered our assistance asset related public shocks, pleasingly program during this time. This year Ergon Energy launched a new, Queensland first, curriculum-based below trend (see SCI target of 253 p7). Exactly one month later Cyclone Nathan school electrical safety education While community safety is the crossed the coast between Cape Melville program. Called Safety Heroes, the overwhelming priority of our efforts, and Cape Flattery in Far North primary school program focuses on network-related incidents also most Queensland. Preparations were made years five and six, providing schools with often cause inconvenience to customers early with up to 400 crew on stand-by a range of resources for teaching about and add operational costs, with outages and mobile generation pre-positioned electricity, and electrical safety. It has of approximately 12 million customer for quick deployment in Cooktown, also provided supporting materials, for minutes affecting 87,000 customers in Lakeland, Hopevale and Wujal Wujal. prep to year six, for ‘Electrical Safety 2014-15. Fortunately – being a less populated Week’ in September 2015. The program area of our network – there was limited is being offered to 800 schools across Targeting the areas of greatest risk damage and all of the 480 customers regional Queensland and has the The level of incidents continues to who were without supply due to the potential to reach 300,000 primary require sustained, collective ownership cyclone were restored the same day aged school children. through repairs or generation. and action, and drives our partnership efforts with a diverse range of external During the storm season, Ergon Energy organisations. also sent crews from Toowoomba to support Energex after a severe hail To reduce electrical safety incidents, we storm hit Brisbane in November 2014. continued to collaborate with AgForce Queensland, Dial Before You Dig, Electrical Safety Office, Energex, Local Investing in community Government Association Queensland, electrical safety awareness Master Builders and Plumbers, Queensland Building and Construction Ergon Energy continued its commitment Commission, Queensland Trucking to improving electrical safety awareness Association, Work Health and Safety within the community and better BE A SAFETY HERO Queensland, Civil Contractors understanding the community safety Association, Cotton Australia and risks associated with our infrastructure. Canegrowers. This year we launched a new home During the year we also participated in safety campaign to ensure our key major industry and community events safety messages are engaging and Network-related electrical distributing more than 100,000 items of memorable. The campaign challenges safety incidents rise ‘Look Up and Live’ campaign material the viewer to ‘Think ahead a bit’ around During the year 642 community and developed educational materials to electricity using a memorable character, electrical safety incidents relating to our help heavy vehicle operators identify the Grim Llama, who appears at the assets were recorded. While there was a electrical hazards. moment someone is about to do decrease in serious injuries, the increase something electrically unsafe. It in accidental contact with our network is Our community safety team also highlights messages for DIY home an ongoing concern. Part of the increase participated in regional agricultural renovator, reporting shocks and tingles, in incidents over recent years has come shows and delivered ‘Look Up and Live’ having a professional trim trees near from regulatory requirements expanding safety presentations to approximately powerlines, the dangers of fallen the scope of reportable incidents, and 15,000 workers in 105 different powerlines and heavy machinery associated improvements to our data locations. Our Seven Mate community operators to ‘look up and live’. collection and reporting, however, this awareness advertisements also may not fully explain the increase in continued to target our most at risk electrical incidents involving vegetation community segments. management, high loads/road transport, and general motor vehicle accidents.
20 REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 The Royal Flying Doctor Service (RFDS) COMMUNITY NETWORK- TYPES OF COMMUNITY Queensland Section continued to RELATED SAFETY INCIDENTS NETWORK-RELATED receive active support from Ergon A CONCERN SAFETY INCIDENTS Energy customers and employees, with more than 125,000 now regularly donating. This year marked 15 years of
642 partnership and the signing of another two year contract. More than $9.5 million has been raised for the lifesaving
452 service through customer electricity bills and we are on track to reach $10 million by the end of the 2015 calendar year. 323 303 284 These customer donations were central to supporting the purchase and fitting out of the new aircraft added to the RFDS fleet this year, which will be Mount Isa’s primary patient retrieval aircraft.
INCIDENTS To celebrate the new addition to the
2011 Motor vehicle Agriculture industry 13% fleet, a ‘name the new plane’ 2012 2013 2014 2015 accidents 31% Vegetation clearing 9% competition saw Maryborough customer Road transport 24% Construction/demolition 4% Earthmoving 15% Shirley Ashford win, christening the new Aviation and other 4% The rise in the total number of incidents this B200 King Air ‘Cooee’. year can be attributable to some degree to improvements in our data collection, in line with While we are concerned about the number an expanded scope for reportable incidents, and breadth of community safety incidents however, the level remains a concern. The recorded, we have seen a reduction in the improved incident data is starting to reveal the number of incidents in the agriculture, aviation causal factors and will assist us to deliver more and earthmoving industries over the past effective safety communication strategies. 12 months.
Supporting community safety by This year the projects supported improving the visibility of assets included the purchase and installation We are also looking at cost effective of energy efficient LED workshop lights ways to improve our assets to support a and sensor lights for the Men’s Shed in reduction in community safety incidents. Cooktown; replacement of multiple small Trials are currently underway to test a freezers with a larger, energy efficient number of new overhead powerline freezer at football facilities in markers for both temporary and Maryborough; and the purchase of a permanent powerlines to improve the water pump to allow a primary school in visibility of our infrastructure. We are Mackay to water their school vegetable also reviewing the use of pillar boxes gardens with water from their rain tank, and power pole stay-wire markers to teaching kids about sustainability and determine if using colour variations in energy efficiency. these assets can assist with the Sponsorship support was also provided reduction of community safety to key regional community events, such incidents. as the annual Ergon Energy Flower, Food and Wine Festival, which is part of Partnerships the Toowoomba Carnival of Flowers and connecting communities the tri-annual Beef Australia event in Rockhampton. Another highlight of this We have continued to connect with our year’s sponsorship program was our local communities, with our ‘local faces’ support for the Queensland Energy active in their local communities, Museum’s Queensland Energy Exhibition participating in business community Centre at Highfields, Toowoomba. forums and local community events. The centre, which opened in May, is the We see this as important to maintaining only museum of its kind in Australia, relationships with local communities and re-opening a door to the history of ensuring we are operating effectively at electricity in Queensland with more the local level. than 1,000 items in its collection, including popular appliances, a replica Our Community Fund continued to of an early Faraday generator and support local organisations to bring portions of the first underground their energy conservation and electricity cables used in the world, electrical projects to life, with known as the ‘Edison Tubes’. 142 applications received.
REVIEW OF OPERATIONS CREATING FRESH VALUE AND CHOICE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 21 Review of operations: Evolving a smarter network
Above: In a defining moment in the evolution of the network, the delivery of our new Grid Utility Support System units saw the start of a new era for customer reliability and quality of supply for various locations on our rural network. These units are basically ’smart’ batteries, building on the know-how seen as critical to managing the inevitable mass-market integration of batteries into the network.
Ergon Energy, like other distributors, Our five-year $162 million reliability is operating in a period of rapid improvement program has dramatically improved network performance. We are now change, in the choices we have looking to more innovative ways, like smart in how operate the network, and grid solutions, to improve power supplies to areas where the network is not performing. in the choices our customers have in meeting their electricity needs. Our nationally recognised demand This, and the unique challenge management program saw us exceed our we face in our service area, is target, and further develop our Demand Response Incentive Maps, build on our Trade driving us to develop smarter Ally Network and invest in the systems needed ways of doing things. to interact with market participants.
Here we showcase how we are Our network is increasingly acting as an open optimising our network investment, access platform for distributed energy evolving a smarter network resources with over 1GW of capacity now and building on our demand connected – including 110,000 solar energy systems – and we’re further developing our management success to deliver capabilities to support the take up of batteries. more efficiently and enable the creation of new value – integrating renewable energy and other market innovations into regional Queensland’s electricity supply solutions.
22 REVIEW OF OPERATIONS EVOLVING A SMARTER NETWORK ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Optimising the use TREND IN SYSTEM-WIDE PEAK DEMAND of the network 4,000 The way our customer are using the network is changing Over recent years the demand profile of the network, and our approach to 2,000 growth forecasts, have changed dramatically. Between 2005 and 2009 Queensland was experiencing high economic growth and as a result demand on the network peaked above our forecasts. Due to a combination of MV factors, including the impact of the GFC, 0 the rate of growth in electricity demand 2015 1995 2010 2020 2005 slowed significantly over the course of 2000 2010 and 2011. Since then demand has remained steady, with pockets of While the Queensland economy has slowed post the boom in resource investment, and this year’s localised growth. coincident system-wide peak of 2,382MW showed demand overall largely flat, we are forecasting, in our best estimate, low level growth. Going forward, in line with Australian Energy Market Operator’s forecasts, our best estimate for future electricity to minimise the impact of a major demand in regional Queensland is for natural disaster or other unplanned low level demand growth overall. While outage or even to more effectively Queensland’s economy has declined, undertake routine maintenance. post the boom in resource industry investment, growth is still expected to This ‘feeder of the future’, operating like come as LNG exports ramp up and a micro grid within the main grid, could industries outside of mining, like tourism, be achieved with the electricity supply and the housing market improve. coming solely from strategically located assets, or as the cost of ‘smart’ technologies becomes less prohibitive, We’re challenging our through our customers’ investment in network planning approach energy solutions and our investment as a utility merging as one system of supply. In this operating environment we have needed to continue to challenge our Making use of new technologies investment planning approach. This has The $38.5 million East Warwick substation rebuild project used modular solutions to Ergon Energy’s network has over been especially important this year reduce costs and allow the project to go in reducing our capital expenditure forward in phases. Here the new control 65,000 kilometres of limited capacity, building at the existing East Warwick substation limited redundancy SWER line forecasts as we developed our was being lowered into position. investment plans for 2015-20 (p39). technology. It was an ideal solution in the early years of the electrification of We are now benefitting from the Evolving a smarter network our vast state – however today, the way support we received last year from the we use electricity in our modern lives is Queensland Government to move to a Evolving a smarter network, with greater increasingly seeing these lines new network planning criteria. This has use of remote monitoring and control, overloaded and constrained. seen us review our forward plans against and ultimately automation, is allowing the new risk-based planning approach. us to operate the network in a more To address this issue, over recent years, The new planning criteria are still about dynamic way. we have developed our Grid Utility maintaining a high standard of electricity Support System, known as GUSS, supply. But they are allowing our This journey began with upgrades to culminating with the successful trial of planners to identify more innovative and our ‘SCADA’ monitoring and control three prototypes. The unit is effectively a cost effective alternatives to delivering capability, and then a significant medium scale ‘battery’ application, an appropriate level of security, and investment over a number of years which, primarily, stores power during ultimately reliability of supply. in our own all-encompassing off-peak times and puts it back on the telecommunications network, UbiNet, network during times of peak demand. We are also increasingly using staged that now links our monitoring capability approach, rather than a full-scale with our controllers. This year we have invested in 20 of the infrastructure build, and other smarter GUSS units for deployment throughout network solutions. Using modular This evolution of the network, coupled the state to both enhance the local solutions to meeting a gradual increase with the falling cost of distributed capacity of the network and manage in load, as is the case with our energy generation and energy storage, voltage issues, for a lower cost than investment in the East Warwick could in the future see us at the point traditional network solutions. Substation this year, is also allowing where it becomes viable for us to us to better integrate customer temporarily ‘island’ critical sections demand-side engagement solutions of the grid, such as supply to a into our network plans. community’s central shopping area,
REVIEW OF OPERATIONS EVOLVING A SMARTER NETWORK ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 23 This is a great example of how we have The 13.6MVA in peak demand reductions This will be especially important as worked with the market to develop new achieved this year have come from storage solutions such as batteries technological solutions. The units are a across the state with the continuation evolve, and customers become more critical first step in our grid smart of the Mackay EMPower program, sophisticated in their energy use. strategy, which will ultimately allow us operating in the high-growth area of To enable a market to develop we will to be even more proactive in working South Mackay; the delivery of key need to have the capacity for complex with our customers to achieve greater demand outcomes in Gordonvale, interactions and be able to interface asset management and operational St George and Moranbah; and good this new resource through our network efficiencies. progress with the initiatives underway management tools. in Malanda and Kingaroy. We are also preparing for the network In addition to this work, we also of the future by improving the The Mackay EMPower program is the undertook a ‘blue-printing’ exercise management and analysis of asset most significant in that its success to fully scope a holistic, umbrella condition data. This will allow for better provides the foundations for how we computer-based Distribution and utilisation of network assets and will plan to interact with the market to Outage Management System to deliver lower the risk of asset failure and continue to deliver against our demand greater asset management and unplanned outages, significantly management targets in the next operational efficiencies into the future. reducing operating costs. regulatory control period. While advancing the automation and information management capability To attract and encourage market-based used to operate the power network is demand management solutions, the fundamental, the exercise highlighted Enabling new South Mackay program continued to use the complexity in delivering a fully the Demand Reduction Incentive Map markets, new value integrated suite at this time. The benefits (DRIM), launched the previous year, with are now expected to occur over a much different types of incentives. It also longer time period with a focus on continued to build on the success of the Demand management regular incremental improvements in the Trade Ally Network, a reference list of capability beyond control rooms, switching of the network businesses with capabilities, products or expectations and how outages are managed. services to assist customers in accessing We have continued to integrate the incentives (energy consultants, Becoming an intelligent power network customer demand-side solutions into electrical contractors, air conditioning will also see an increasing population our suite of solutions, as a cost-effective specialists and finance companies). of intelligent electronic devices beyond way to respond to demand growth, and the substation within the distribution To support this market delivery defer or even avoid costly expenditure in network. All of these investments are mechanism, during the year we major electricity infrastructure. increasing our visibility of what is developed an incentive payment portal happening on the network, so that we and payment processing system. At the start of the regulatory control can operate the network closer to its These simplify the management of the period in 2010, we set ourselves a technical limits and achieve greater incentive payments used in the DRIM, significant demand reduction target network utilisation (and potentially which we are continuing to develop, of 122MVA (103MW). By working defer costly network investment). actively with our customers to better and support the mapping concept as a manage their demand, we have since communications channel to the market. surpassed the target, delivering 139MVA Solar continues to lead in Our Demand Management Plan can be in reductions in total, the equivalent customer choice found online. of removing a city the size of The take up of solar energy systems Rockhampton off the grid in peak time. Readying to harness the is leading the change to the way our This achievement delivers on a number customers use and think of the of fronts. It has helped defer over value of distributed network. This has been an important $660 million in network investment, generation consideration in evolving our business which was important in reducing our To build on this success, and enable model, and our approach to managing capital investment outcome for 2010-15 Ergon Energy to effectively manage the network. (p39). It has built confidence in our the increasing numbers of customer From a business-model perspective, our ability to manage security of supply contracts and distributed energy efforts are about changing our customer risks, and the impact of an outage, using resources, particularly in residential and value proposition from one of an demand management, which is critical small commercial premises, there is an essential service, to a provider of to our new network planning approach. increasing requirement to automate the essential infrastructure that connects It has also increased the level of asset management of the contracted demand. buyers and sellers of energy services. utilisation in the areas targeted. This will give customers greater choice Importantly, it has also delivered To respond to this, Ergon Energy and control over how they source and financial value to the participants, both invested this year in a demand response use power. the end-user involved in many of the system. This important piece in the initiatives and the service providers. operational technology puzzle will enable us to efficiently target, operate, measure, verify and control demand contracts automatically. It will allow us to interact with market participants in an automated and seamless manner with clear interface rules.
24 REVIEW OF OPERATIONS EVOLVING A SMARTER NETWORK ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 From a network perspective, operating In recent years we have put a strategic We also entered, in May 2015, into a as an open access platform for solar and focus on learning more about battery Memorandum of Understanding with other distributed energy resources does technologies from the product American-based electric car create challenges. While the network is deployment perspective, and how they manufacturer Tesla around the operating well in most instances with the could interact with our network in the introduction of their home and two-way flow now being experienced, future. This is building on our expertise industrial battery systems into the the growing number of systems in batteries developed over two decades Australian market. exporting power back into the grid has in remote area power supply solutions, These systems can be programed to implications for the operation of the and most recently through our GUSS take advantage of tariff reforms (p14), network. The challenges are around the application (p24). allowing customers to reduce their impact on the demand profile of the This has seen us undertake a ‘real life’ electricity costs and helping us to better network (p26) and the stability of customer trial of battery electricity manage peak demand and increase the voltages in the surrounding network. storage systems as part of the supply utilisation of the network during There is also a financial impact on all solution in 10 homes in Townsville. The non-peak periods. They also provide an customers through the Queensland trial evaluated six different systems, with emergency backup in times of need. Government’s Solar Bonus Scheme different energy storage capabilities and These partnerships will be invaluable as (p36) and through our current network sizes, in our Cairns research laboratory batteries and also Electric Vehicles (EVs) tariff structures (p14). before four were selected for the become more accessible. customer trial. We are testing the way To respond to these challenges we are customers interact with the technology We have a good understanding of the engaging with the solar industry, this through the energy use information sent behaviour of customers using EVs year establishing a Micro Embedded via a home energy management system through an earlier 18-month ‘real-life’ Generating Unit Industry Working and different tariff scenarios. Reports on customer trial which looked at the EVs Group. To help ensure the systems the trial, funded by the Department of themselves and the ecosystem that connected operate correctly – so that Energy and Water Supply, will be supports them, including chargers and our customers get the most value out completed once the project is finalised. electricity tariffs. This year saw one of of their system and the potential for the vehicles from this fleet of cars voltage issues is minimised – we provided to the Townsville City Council undertook a major review of our as a promotional vehicle to raise application process. This has seen the “Whatever the future brings, awareness around EVs in the city. threshold for assessment brought down we will continue to adapt to to 3.5kVA for the majority of application play our role in creating an To support the expected increase in types. We are also introducing energy future that delivers uptake of this technology, as part of mandatory reactive power control our EV strategy, we are planning to inverter settings to better manage the best for our customers.” incorporate a range of other suitable voltage rise on the network. EVs into our operational fleet. Five years ago the average household In preparation for the growth in the system size connected within the year residential battery electricity storage was 2.4kVA. In 2014-15, the average system market we also continued to system being installed had risen engage with a range of other domestic dramatically to 4.7kVA, well above the and international leaders in residential requirement to power the day-time and grid battery systems. needs of the average home. We are partnering with SunPower and We have also been targeting our storage provider Sunverge in a 12-month augmentation investment at the customer pilot of Ergon Energy’s distribution level rather than at the Residential Hybrid Energy Service subtransmission level, the ‘poles and product (p15). wires’, to deal with solar-related voltage issues. In March 2015, we entered an agreement with Japanese technology giant Batteries will be part Panasonic to cooperate on the testing of a new residential battery product. of the solution The testing is about to get underway in Batteries are tipped to boom in our research laboratory in Cairns and popularity in the future as the may then undergo field tests to gather technology becomes more accessible further ‘real world’ understanding of for our customers. We see the how batteries could benefit customers integration of energy storage solutions and interact with the network. and solar as a key opportunity, when targeted to areas where the network is constrained, for reducing customer and network costs.
REVIEW OF OPERATIONS EVOLVING A SMARTER NETWORK ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 25 OUR NETWORK SCORECARD
Energy delivered Solar energy Over recent years solar exporting into and demand met systems supported the network at the distribution level has contributed to our system-wide peak In 2014-15 we distributed 15,140GWh of Across our network, 110,552 customers shifting into the early evening. electricity through our state-wide grid have already connected solar energy Indicatively, 120MW of demand at the and isolated electricity networks. This is systems to our network – the total substation level was averted during the consistent with the stable overall trend capacity installed is now 405MW. previously typical daytime peak period in maximum ‘peak’ demand. At the This is seeing around 29,000MWh of by solar energy generation. This means same time, the trend in the amount of renewable energy exported into Ergon this demand is supplied for at the electricity being used by the average Energy’s network for distribution to distribution level, and therefore not household across regional Queensland other customers every month. recorded at the substation level. began to increase, after falling dramatically in recent years from the 2005-06 high. The system-wide peak in demand for electricity across our grid-connected FALL HOUSEHOLD ELECTRICITY USE STABILISED network was 2,382MW in January 2015 (temperature corrected). Demand in 10,000 regional Queensland peaks during the summer months, for short intervals, with Households without solar the level fluctuating from year to year. This year’s summer weather conditions, together with the general softening of the Queensland economy, saw the level Households with solar of demand overall continue to remain 5,000 relatively level. While overall demand remains steady, pockets of localised growth over recent years continue to require an investment
into subtransmission and substation Wh p er a assets in order to address the areas k 0 7 5 3 8 6 9 where the network is constrained. 4 2011 2012 2013 2014 2015 2010 20 0 20 0 20 0 20 0 20 0 20 0 20 0
THE TAKE UP OF During the year the fall in the amount of electricity being used by the average household without solar energy systems across regional Queensland has stabilised. At the same time, the electricity being used SOLAR IS CONTINUING by households with solar has continued to increase on average as the profile of the households with solar has evolved. * The average residential consumption is based on Ergon Energy Queensland Pty Ltd accounts on a combination of regulated tariffs, excluding households with solar energy systems installed. The second trend line shows households with solar energy systems installed. 110,552
96,733 OUR ELECTRICITY DELIVERED STATISTICS 79,201 2014-15 2013-14 2012-13 2011-12 2010-11 Population of Ergon Energy’s 1.54m 1.52m 1.50m 1.48m 1.45m Service Area6 46,018 No. of Distribution Customers 733,261 724,264 712,634 700,989 690,708
Average Annual Electricity 22,087 6,474kWh 6,396kWh 6,811kWh 7,166kWh 7,242kWh Use per Household Maximum Coincident Peak 2,382MW 2,441MW 2,380MW 2,417MW 2,349MW Demand SOLAR ENERGY SYSTEMS Electricity Distributed 15,140GWh 15,247GWh 15,097GWh 15,212GWh 14,544GWh 2011 2012 2013 2014 2015 Electricity Generated by 108GWh 111GWh 114GWh 118GWh 117GWh Ergon Energy Ergon Energy has seen a dramatic increase in the number of residential solar energy systems 6. 2014-15 estimate only. Other years are based on the most recent Census connected to the grid over recent years, with over 110,000 now connected, and the average inverter capacity growing to 3.7kVA. We remain optimistic that this growing resource will play a more valuable role in supporting the network in the future.
26 REVIEW OF OPERATIONS EVOLVING A SMARTER NETWORK ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Delivering on our works program Highlights of the capital program • progress on the $86 million included: Toowoomba Central substation During the year, we continued to • completion of our $162 million project. This project, which will deliver against our revised capital reliability improvement strategy. underpin growth in the city’s CBD investment plan, with the overall level The $51 million invested this year for decades to come, includes a new, of capital investment at $982.5 million included the installation of 400 fully-enclosed three-story substation (up from $812.4 million in 2013-14) this reclosers and remote controlled gas as part of a new major shopping includes both system and non-system switches across the network to centre; an upgrade at the South investment. improve our ability to detect, isolate Toowoomba substation (with the This saw the regulated capital and restore supply as quickly as latest in gas insulated switchgear expenditure associated with distribution possible when an outage occurs; delivering improved safety and cost system (Standard Control Services), at and the establishment of a 110kV outcomes); and a high reliability, dual the end of our five-year regulatory bus bar at the Warwick bulk supply circuit powerline between the two control period, at 71.8% of what was substation, which will increase the substations. originally allowed for. security of supply to the communities • the initial investment in the of Warwick and Stanthorpe. $15.5 million Grid Utility Support The system investment Ergon Energy • completion of stage one of the System initiative that is utilising initiated saw $595 million invested $38.5 million East Warwick substation battery storage to reduce the cost of (compared to $486 million in 2013-14) – rebuild program. This project will improving quality and reliability of delivering a range of outcomes including deliver long term reliability to the electricity supply on the constrained significant renewal of parts of the Warwick community, with the first areas of our rural SWER network network to maintain safety and reliability stage including the installation of a (p23). standards; targeted network new control building and transformer. augmentation to meet local growth in The second stage of this project, now demand (this was however reduced underway, will include the removal largely through the deferral of a number of the existing substation and the projects); and the delivery of reliability installation of a second new control improvements; as well as other projects. building and transformer. $162 million was invested, at the request of customers, into network connections or upgrades (this was down from the $200 million in 2013-14).
INVESTMENT IN THE CAPITAL PROGRAM DOWN OUR OPERATING COSTS NETWORK ($MILLION) FROM 2010-15 ALLOWANCE WERE REDUCED MID-PERIOD
2010-15 Allowance
$442 $417 $872 $365
$866 $360 $844
$370 $841 $739
Renewing the Reliability and other network $340M targeted investment $123M Connecting new Investing in our MILLION REAL $2014-15 customers $162M generation assets $16M BILLION Meeting growth in demand $132M 1-12 1-12 20 1 20 1 2010-11 2010-11 2012-13 2012-13 2013-14 2013-14 2014-15 2014-15
While we are now better placed to target The scaling back of the capital expenditure We have also achieved substantial efficiencies network renewal, as our understanding of the plan, against our regulated allowances, is being in our operational delivery – in line with our condition of the network has increased, this has supported by demand remaining steady overall, reduced works program – over the five years of also increased our safety-related investment in by changes to our network planning criteria, the regulatory control period that has ended asset refurbishment and replacement. This area and our demand management efforts. This with 2014-15. This has allowed us to pass on remains the largest proportion of our graph shows the investment related to our savings to our customers in recent years and investment program, followed by customer Standard Control Service for the 2010-15 placed us well to deliver further savings as we requests for new connections and then the period being significantly lower than allowed move into 2015-16. projects we initiate to keep up with growth for by the AER. in general demand.
REVIEW OF OPERATIONS EVOLVING A SMARTER NETWORK ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 27 Review of operations: Embracing change and technology
Above: Electrical Fitter Mechanic / Cablejointer, Shaun Hales, adding notes through our new ‘toughpad’ straight into our systems from the field after completing a customer’s service request. Other field crews are also using the mobile devices in even more innovative ways, including: photographing and using access to our network schematics to scope repair work following storm damage while still in the field. Image courtesy of Anna Zhu Photography and Film
This section highlights how we’re Our people are our future. Our focus remains on investing in the capability of our building the right organisational culture, supporting our leaders, developing our people, becoming increasingly upcoming talent and improving our performance technology enabled and capitalising management. We have also seen success this year in building a diverse workplace. on organisational reforms.
To us ‘high-performance’ is about Continued to realise greater efficiency and effectiveness through technology enablement being as efficient and effective as and our organisational reforms. Our crews have possible across our delivery areas real-time data in the field on hand-held devices, and our world-beating remote observation and embracing the changes taking technology has created a virtual world of place in our operating environment information for our planners. – it is about being ‘future ready’.
We also outline our work safety and Safety leadership continues to be a strategic priority with the aim of achieving an improved environmental performance. safety culture… the shared safety responsibility needed for us to see our safety performance to stand with the best in our industry.
28 REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Investing in The continued focus on employee Developing leadership, engagement has achieved real financial talent and performance our people returns for the organisation. Decreases in unscheduled absenteeism over the Supporting our leaders In a rapidly changing business and past 12 months has realised almost We recognise that leaders who are industry environment, our future success $2.5 million dollars in savings. able to inspire, engage and empower is dependent upon having the right We have also promoted a culture of our workforce are key to creating a culture and workforce capability. innovation through facilitated innovation successful organisation and delivering Our people strategy, Our People Our forums and challenges, sponsored by value to our customers. We Future, has four key pillars – culture, the Chief Executive, where employees implemented a Performance Leader leadership, talent and performance – are asked to put forward new ideas and Framework this year to define and build to ensure we enable and engage our be recognised for their achievements. the core leadership capabilities required workforce to meet the challenges of the to lead a high performing organisation. future. We know our people are our Our leaders, now and in the future, will greatest asset. “With our business landscape require a range of skills including strong shifting rapidly, building the commercial acumen, the ability to A focus on culture and right culture and the capability effectively drive change at the local and employee engagement of our people will be central to organisation level, lead performance and our future success.” develop employees with the right skills, Significant work has occurred to define knowledge and experiences needed to and shape the culture required to deliver deliver the business strategy. on our long-term organisational Constructive workplace relations objectives. We know as an organisation To achieve this we have implemented we need to be open, decisive, We approached this year’s negotiation programs such as our Change collaborative, and action-oriented to of our Enterprise Agreements for Champions initiative that has provided succeed in times of change. employees’ wages and conditions more than 160 leaders across the with the aim to support our drive to business with the foundations needed This has seen us, this year, focus on be a modern, agile and responsive to develop the mind-sets, behaviours actions developed in response to our organisation, while having an open and skills that an effective, high ‘yourView’ employee engagement and co-operative relationship with performing leader requires to succeed. survey results to address the issues our our people. Our Senior Leaders Team engagement people told us mattered most to them. forums also continue to align and focus In finalising the agreements, despite the leadership group in addressing the Although the next whole-of-business some delays, we were able to achieve strategic priorities of the business. survey is not due until later in 2015, positive outcomes, with conditions now And our Safety Citizen program (p33), results from pulse checks with our locked in for the next three years. These is another aspect of the framework senior leaders and targeted employees agreements apply to the majority of our providing a consistent set of indicate positive progress. An example employees – one for our retail business performance expectations to help of our success has been the remarkable and one for the distribution business. improvement within our retail business build our leadership capability. In our retail business, the negotiation of – the results showed the business unit To support these programs a their first ever agreement was about now in the top quartile in terms of consolidated manager information shaping an agreement that was tailored employee engagement with an overall kit and updated intranet portal was to the retail operating environment – a score of 75%. This has been a pleasing developed, providing an easy how-to key step in evolving and realising their result and demonstrates the guide and relevant information. ambition to be Australia’s most trusted commitment and desire by these Managers also received further coaching energy provider. employees to deliver on the in performance and development transformation agenda in our Finalising these agreements provides planning processes following retail business. certainty for our people as we move improvements to the performance and Our leaders have been focused on through the potential changes development framework. connecting with their teams through anticipated in the future. We are manager-led engagement action plans. committed to a respectful, engaging Our upcoming talent With an emphasis on reward and and effective relationship with our and people capability recognition the ‘Say Thanks’ initiative people and unions. Assessing the performance, leadership continued this year with more than 1,800 potential and capabilities of our talent employees personally thanked for a job is important to building a strong well done via the simple e-card or the leadership pipeline for the future. hard copy certificate. In identifying the talent profile, development plans are targeted to provide specific on-the-job experiences to build capability and provide leadership opportunities.
REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 29 Considerable work has also occurred to We also continued our graduate, Valuing diversity define the skills and capabilities required apprentice and trainee programs to for a changing business, regulatory and ‘grow our own’ talent and the and inclusion technology environment. Our five-year capabilities required now and in the A workforce which values difference Strategic Workforce Plan has been future. Our graduate and undergraduate leads to a more innovative, engaged and refreshed, identifying our future critical program is highly regarded by successful organisation. Diversity in the capabilities and the types of work that participants, with the program being workforce also demonstrates respect are likely to emerge. voted fifth from the top forty companies and connection with our customers. in the 2015 Australian Association of Creating a workplace in which all We are evolving towards greater Graduate Employers Survey. employees feel heard, valued and are integration of technologies and invited to share their ideas is at the heart information for effective and efficient These programs ensure that the relevant of our diversity and inclusion strategy. customer energy solutions and this will skills, experience and business require a shift in the mix of traditional knowledge are built through targeted To build awareness and understanding and new skill sets. Employees of the rotations within the business, including of the many aspects of a diverse and future will require the ability to analyse field placements, relevant technical inclusive workplace, key events have information for improved outcomes, training and ongoing internal mentoring. been celebrated locally across the apply critical thinking and problem organisation, including White Ribbon Our apprentice programs provide career analysis, and operate in a customer Day, inviting male champions of equality pathways to become a systems centric, commercial environment. to speak on International Women’s Day, electrician, communication technician, and NAIDOC week, promoting Ergon fitter and turner, boilermaker, Managing performance Energy’s engagement with our linesperson or sheet-metal worker. and development Indigenous communities and customers. The yearly intake continues to see a Throughout the year we continued to greater focus on system electricians The 2014-15 intake of apprentices utilise our established performance with higher order systems diagnosis demonstrates our success in attracting a management framework to support our and systems engineering skills to diverse pool of employment candidates. leaders in defining and setting clear operate on our changing network. Of the 60 new recruits, seven performance expectations, and driving Indigenous candidates secured The apprenticeship intake in February high performance outcomes. The focus apprenticeships, and we were this year has seen new apprentices was on ensuring performance reviews overwhelmed by the degree of interest located from Thursday Island to Quilpie, were effective and engaged staff from women, resulting in a record 11 demonstrating our continued appropriately. females breaking into the traditionally commitment to retaining front-line male-dominated field. There was also a focus on investing in employees in our local communities. our people via effective development The number of women in leadership plans, as part of the formal performance roles has also increased over the past management process, to actively twelve months. identify and support more meaningful development opportunities for employees. These plans target development opportunities through exposure, experience and recognising formal training/education, including mandatory training, where relevant. Ergon Energy has continued to deliver a diverse range of technical and non-technical training. In total there were over 38,000 face-to-face and online training modules completed, over 2,000 competencies achieved and 66 formal qualifications issued. New training programs were developed to meet specific needs or risks of the business, including the switching mentor program. High voltage network switching is a high risk area for our employees and this program provides those with an existing high level of skill in switching tasks with the coaching and mentoring skills needed to pass best practice techniques to their teams back at the depot. This peer-to-peer training is designed to improve how we approach switching, set a higher standard for all operators and reduce the number of incidents. A record 11 females started their careers with Ergon Energy in 2015 as part of the apprentice intake.
30 REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 OUR WORKFORCE OUR WORKFORCE OUR WORKFORCE BY AGE BY REGION BY GENDER 1,223 1,128 1,088
677 278 53
Northern 40% <25
Central 28% Female 26% 65 + 25 ≤ 35 55 ≤ 65 45 ≤ 55 Southern 22% Male 74% 35 ≤ 45 Brisbane 10%
Our workforce of 4,447 (Full Time Equivalent Being predominantly field-based, in a male The age profile of our workforce has remained 4,349) is based across Queensland, from the dominated industry, around three quarters of largely stable during the year, with some northern and western reaches, to the population the workforce is male. reduction in the categories 55 plus. centres along the coast, and in the south-east.
OUR PEOPLE STATISTICS
2014-15 2013-14 2012-13 2011-12 2010-11
Number of Employees 4,447 4,415 4,614 5,060 4,752
Full Time Equivalent 4,349 4,308 4,435 4,869 4,624
Staff Turnover (annualised) 7.6% 8.9% 14.3% 8.1% 6.8%
Women in the Workforce 1,163 1,126 1,204 1,337 1,197
Women in Upper 20% 16% 16% 17% 20% Management Women in Middle 27% 22% 21% 21% 21% Management A&TSI in Entry Level 55 58 58 67 77 Positions
This has seen over 500 hand held To achieve greater efficiency and reduce A technology ‘toughpads’ deployed to our field crews. costs associated with our system enabled workforce These devices allow the crews to receive investment, wherever possible we are jobs while on the go and record work aligning the systems and the related completion information electronically, processes between ourselves and Having information at our fingertips, with the data increasingly being updated Energex. wherever we’re working or whatever role in our host systems automatically. we play in the organisation, is seen as Manuals relating to customer service and Spatial data the way forward critical to our ability as an organisation fault response work are also available on for efficiencies to respond to the changes taking place the toughpads, allowing us to phase out The expansion of our Geographic in our operating environment and to of hard copy manuals. Our contractors Information System (GIS) capability, and continuing our efforts to deliver greater tasked with customer service work are the integration of our data with Google efficiencies for our customers. also utilising the capability. Earth, is also continuing to be supported This initiative has already improved our by the remote asset and vegetation Technology connecting our responsiveness to customer requests monitoring management technology, field crews and the consistency of delivery Roames. This year the aircraft-based Our biggest leap forward this year in standards across the state, as well as laser and imaging capture system becoming a technology and information provided for a greater level of flexibility undertook a second mapping of our enabled workforce has been the and efficiency in the field. The next entire network. The system creates a introduction of Field Force Automation. phase of this initiative will see an virtual version of the real world to allow This has seen the dispatch, to our crews expanded use of this technology, along the fast and accurate inspection and in the field, of customer service orders with the introduction of a field mapping assessment of the network and the and the work orders linked to our capability. surrounding environment, particularly unplanned faults response now vegetation, without the need to deploy During the year we have also made a field crews. coming electronically from a significant investment in our customer centralised business support function. information systems to improve our customer service delivery and cost to serve. p14
REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 31 The integration of FugroRoames data Communications playing an The reforms have delivered, with greater into Ergon Energy’s decision works day-to-day efficiency across our works planning processes is increasingly increasingly vital role program, especially in the asset design delivering productivity and efficiency To ensure communication is maintained area, and in the centralising of the improvements. The capability was also between crews around the state and scheduling and dispatch of work on used to assess damage in the wake of control centres in Rockhampton and the network. The benefits of single Cyclone Marcia (p19). This capability Townsville, Ergon Energy relies heavily point accountability for disaster was developed within Ergon Energy, on its two-way radio network. Over the management were tested and came however, was sold last year with Ergon past three years we have been steadily through with flying colours during Energy retaining access to the capability replacing the aged analogue radio Cyclone Marcia (p19). These structural on a commercial basis. system with a current technology digital reforms are working hand in hand with radio system. To provide cost effective the increasing levels of technology communications across our vast service enablement. area we have drawn on a variety of The organisational change journey we Australian radio technologies. have been on has helped us deliver The project is now 75% complete, with against our targeted reduction in the full digital transition expected by regulated operating expenditure for 2017. This investment is especially the five-year regulatory control period. critical to our field crews in enabling a With 2014-15 being the last year in the well-orchestrated emergency response. period, our expenditure is within the With normal communications methods allowance, at 96.8%, despite being often unavailable after a cyclone, or above the allowance earlier in the the impact of other natural disasters, period, due largely to costs associated Ergon Energy relies heavily on radio with major disasters (p39). communications. Being based on Looking forward we will need to emergency services standards the Ergon Energy was awarded one of the sector’s continue to drive efficiencies into the new highly resilient system can now most prestigious honours, taking out the business to meet our customers’ Edison Electric Institute 2015 international also interconnect with other first expectations around price, and deliver award in the United States for the development responder networks. of the Roames asset and vegetation monitoring the efficiencies built into the expenditure management technology. Received by Chief Executive Ian McLeod, the award was seen as a The introduction of a current generation programs that make up our revised tribute the way our people apply themselves to radio system has also enabled Regulatory Proposal for 2015-20 (p39). a challenge. productivity enhancements. To deliver these efficiencies we are now For example, the clip on extension looking largely to advancing our radios are enabling communications in technology-based capabilities. the substation or up in work platforms Complementing the Roames spatial We are also continuing to seek greater rather than just from the truck. Add in information capability, this year we also efficiencies through our property GPS tracking, overlaid with the spatial began trialling the use of Unmanned strategy. During the year the mapping of our electrical network, the Aerial Vehicles (UAV) to undertake asset redevelopment of our facilities in opportunity to achieve greater efficiency inspections on our network. This saw our Glenmore Road, Rockhampton in assigning works, for example, UAVs fly over 650 kilometres of network, progressed. This will take our becomes real. inspecting more than 1,500 poles along operational sites in Rockhampton from lines of various construction types and six properties to three, and deliver a in varying terrain. The UAVs high Approach supported by better disaster response capability, definition still photo and thermal image structural reforms improved fleet management and capability identifies existing and logistics, as well as improved traffic potential defects on our network. From an organisational perspective the safety. As part of this strategy, we have These inspections have proven to be focus in 2014-15 was on bedding down also continued the redevelopment of our up to eight times more cost effective the structural changes made in the facilities in Garbutt, Townsville. The year compared to a three-person elevated previous financial year to ensure we has seen the logistics warehouse work platform approach to pole realised the efficiency and effectiveness refurbished and work on the existing top inspections. benefits targeted. administration building commence. This investment furthers the consolidation of Future development in our UAV In the Customer Service business unit of our operations in Townsville that was capability could see autonomous our distribution business, for example, achieved in the previous year. information gathering and the we successfully completed the move of generation of work orders, as well as our field-service delivery from a regional ‘beyond visual line of sight’ operations. focus to one aligned to key functions. The technology is also expected to be This has been about delivering clear invaluable for damage assessment lines of accountability, reducing following a natural disaster, with a duplication, improving service mobile command centre currently consistency across the state and under development for operations in lowering costs. the incident zone.
32 REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Workplace safety We have enhanced our Comprehensive Our commitment Safety Indicator (p34) to better capture to employee health our priority quality information and behaviours and we continue to review identified trends, and wellbeing in both incidents and close calls, and Ensuring the physical, emotional and Ergon Energy is committed to ensuring implement health and safety initiatives the health and safety of our people. mental wellbeing of our employees to address them. These initiatives continues to be an ongoing commitment This year has seen the introduction of a include fatigue risk management, drug for Ergon Energy. This was new Health, Safety, Environment and and alcohol programs, behavioural acknowledged with Silver Recognition Cultural Heritage Policy, providing a leadership programs and vehicle from the Queensland Government’s long-term vision to manage and reduce monitoring systems. The upgrade to the Healthier. Happier. Workplaces initiative. risks, safeguard employees, and protect risk register in our eSafe system has also the environment and communities improved the consistency and quality of where the company operates. information available in order to better manage safety risks across the business. The move to the new policy demonstrates a more integrated The continuous improvement of approach to managing health, safety, our integrated health, safety and environment and cultural heritage – environment management has been and builds on our efforts to learn from recognised with the maintenance of our incidents and continuously improve certification to ISO 14001, BS OHSAS Registrations for our Health Matters our performance to be a sustainable 18001 and AS/NZS 4801 standards. portal continues to remain steady with business and to ensure the best over 1,500 employees now signed up to outcome for the business, our Addressing the risk of access the tools, resources and support customers and the community. fatigue a priority to assist them to self-manage their health and work towards their personal Safety leadership supports Travelling the distance our crews do, health and wellbeing goals. and the nature of delivering an essential improved safety culture service, makes fatigue management To support employees in the goal to quit smoking, a Health Matters Quit Smoking Safety leadership continues to be a a critical issue for us. To respond to program was launched. Employees strategic focus in achieving an improved this, we introduced a new fatigue receive resources, free confidential safety culture. management framework in December 2014 with supporting guidelines that telephone support and free nicotine As part of this we have introduced the include revised hours of work and replacement therapy products for a Safety Citizenship program this year for consecutive days of work limits. 12 week period. Registrations for the our leaders, as well as field employees. program continue to increase with 65 The program’s aim is to shift our current The review was prompted after serious people participating in the program safety culture from one of personal incidents occurred where fatigue was since it commenced in 2014. safety compliance to one of shared identified as a contributing factor, a Other ongoing initiatives have seen safety responsibility. review of how fatigue was managed during disaster response efforts and more than 1,900 employees The outcome of the program will see the introduction of new fatigue specific participating in the free flu vaccination leaders better equipped to recognise requirements through the new National program, an increase of more than and reward positive behaviours, Heavy Vehicle Regulation. 200 participants compared to last communicate effectively and support year. And following the completion of the continued improvement in how The revised framework was informed a 12 month trial of defibrillators in our we work. The benefits of the program by current fatigue science and expert largest workplaces, 53 defibrillators have are already being seen in some of our advice on industry best practice in been deployed to our larger sites and to performance indicators. consultation with our Fatigue Risk rural and remote locations with limited Management Review Reference Group. access to emergency medical services. Our annual Field Safety Day It provides a robust methodology for Championships also continued to managing the safety risk of fatigue while Drug and alcohol testing continues to be demonstrate our commitment to our accounting for our service delivery a key initiative to ensure employees are safety culture, with crews from across commitments. ‘fit for work’. the state meeting in Townsville to put Our Employee Assistance Program their technical and safety rescue skills to A personal fatigue calculator was also also continued to provide employees the test. The competition ensures plenty developed for trial to help assess an and their families free confidential of local banter between regional teams, individual’s fatigue likelihood – enabling counselling service for work and but it is serious when it comes to sleep and wake data of an on call worker personal concerns. competing and demonstrating the to be used to produce a score of the engagement the teams have with the likelihood of fatigue, and the potential work they perform. for this to impact safety at work. The tool is currently being assessed for its potential for business-wide implementation.
REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 33 Asbestos management It has also seen around 50 depots, information on any asbestos within offices and substations declared the site and the relevant risk ratings recognised as best practice asbestos free. and controls. The removal of asbestos containing New technology has also been In November 2014 Ergon Energy materials from Ergon Energy facilities introduced at every site where asbestos addressed an international conference in has continued to be a focus over the last has been identified that utilises QR Melbourne on asbestos awareness and 12 months. This has seen all asbestos codes to provide contractors and staff management best practice, and the containing pillar boxes and over 1,500 accessing any of our sites, including at Asbestos Safety and Eradication asbestos containing power pole fuses our unmanned substations and Agency selected us to be showcased in across the state removed as part of a communication sites, specific their case studies on best practice proactive identification program. asbestos management.
OUR SAFETY OUR WORK HEALTH AND SAFETY STATISTICS SCORECARD 2014-15 2013-14 2012-13 2011-12 2010-11 Lost Time Injuries Frequency Target 1.9 1.4 2.6 2.6 3.2 Rate – Employees ≤2.2 Striving to stand with the best in All Injuries Frequency Rate – Target 5.0 6.4 7.8 9.8 13.7 our industry… ALWAYS SAFE Employees ≤8.5 Lost Time Injuries Frequency Target Since 2009-10, prior to entering the 3.2 3.2 2.2 1.8 2.2 Rate – Contractors ≤2.5 five-year regulatory control period Total Dangerous Electrical 1,152 1,116 956 1,050 888 that has just ended, we have improved Events (DEEs) our workplace safety dramatically, with – Unassisted Asset Failure our All Injury Frequency Rate (AIFR) (within Ergon Energy’s 367 423 323 359 377 reduced by two thirds. This year saw a control) significant 20% reduction in our AIFR – Assisted Asset Failure from last year to 5.0. (outside Ergon Energy's 785 693 633 691 511 control) The year did, however, see a slight Dangerous Electrical Events Target 3.5 3.1 4.4 2.5 4.9 increase in the Lost Time Injuries Frequency Rate – Employees ≤2.5 Frequency Rate (LTIFR) for employees; from 1.4 in 2013-14 to 1.9 in 2014-15, although within target. The LTIFR for DRIVING SAFETY CULTURE LOST INJURIES FREQUENCY contractors has remained stable at 3.2. KEY TO RESULTS RATE UP SLIGHTLY While above the target, there has not been a contractor LTI within the last six months; a reduction in the exposure 13.7 hours for contractors has contributed to the year’s result. We continued to participate in the 9.8 3.2 annual industry workplace safety 2.6 benchmarking, now undertaken by the 2.6 7.8 Energy Supply Association of Australia. 6.4
While we are awaiting the final result, 1.9
early indications show that while we are 5.0 performing well, we need to continue 1.4 to strive for our goal for our safety performance to stand with the best in our industry. LTIFR The severe storm season this year AIFR 2011 2012 2013 2014 2015 2011 2012 2013 2014 contributed to the majority of 2015 Dangerous Electrical Events (DEEs) – Assisted Asset Failures and is the The frequency of workplace injuries has The organisation’s Lost Time Injuries Rate dominant cause of the increase to continued its downward trend with a strategic increased slightly, although no major incidents focus in achieving an improved safety culture. occurred. this indicator, with 542 storm events recorded, exceeding the annual historical average of 360. Performance of the DEEs Unassisted Programs focusing on the reduction of Ergon Energy incorporates the AIFR, Asset Failures, which are asset failures Dangerous Electrical Events Frequency along with other lag and lead indicators, within Ergon Energy’s control, has Rate – Employees (DEEFR) have into a Comprehensive Safety Indicator improved with a reduction of continued (p33) with this measure not to give our people at the work-group approximately 20% from last year to 367. meeting target at 3.5. level a meaningful score of how they are performing from a holistic safety perspective. The organisation overall is performing at the silver benchmark, with 550 total points allocated against a range of areas, out of a possible 600.
34 REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 And, we are keen to take this even Our isolated communities’ energy saving Protecting the further. Our HomeSmart energy trial is program, powersavvy, also has an environment a great example of this (p15). important diesel reduction element. To date our efforts here have reduced Following on from the success we had in greenhouse gas emissions by engaging with ‘greenfield real-estate’ Ergon Energy has a corporate approximately 15,300 tonnes. p19 responsibility to demonstrate leadership developers in Townsville last year, in protecting the environment and efficient building design guidelines are conserving the world’s resources. To us, currently under development for use Ensuring best practice a high standard of environmental across the state to foster more energy operations performance is an important element of and demand efficient communities. being a high-performing organisation. This will provide information to property Working to control weeds and developers and our customers about pests This has seen us, in February this year, how to make their homes more efficient. This year our priority has been commence a review of our existing controlling the biosecurity risk objectives and targets around Reducing our reliance on diesel associated with the Panama disease environmental performance. Our aim is We continued to focus on reducing Tropical Race 4 in the banana growing to build ownership at the operational our reliance on diesel in our isolated areas in North Queensland, which was level, so that all employees understand communities and increasing our identified between Cooktown and the part they play in identifying and capacity to generate electricity using Townsville, including Lakeland and managing our key environmental risks, renewable energy. Our aim is to take our Atherton Tablelands. ultimately helping to minimise the reliance on diesel to zero by 2050. business’s overall environmental In response to this, wash down audits footprint. A great example of this is our award occurred and additional procedures winning solar farm at Doomadgee, an were put in place for work undertaken The project is initially focusing on energy Aboriginal community located in the in the vicinity of banana plantations. usage and emissions and waste Gulf of Carpentaria. The success of the This was particularly important in our management. The review will result in 1,056 panel solar farm, commissioned response following Cyclone Nathan new objectives and targets being set in 2013, has led to the Federal (p19), due to the increased vehicle within business unit and personal Government’s Australian Renewable movement in the impacted areas. performance plans throughout the Energy Agency (ARENA) granting This saw mobile wash downs moved business. Improving our performance in funding for the expansion of the existing into strategic locations to manage the these areas has environmental benefits 264kW generation capacity by an potential impact of this biosecurity risk. and will also deliver efficiency benefits additional one megawatt. for the business in the medium and We also responded to the risk long term. The project is expected to be associated with the Cucumber Green commissioned at the end of 2016 and Mottle Mosaic Virus, identified in the Conserving energy and for the first time will integrate high Charters Towers district, as well as a penetration solar photovoltaic range of ongoing weed and pest risks. mitigating emissions generation into one of our stand-alone supply networks. Due to the costs Working sensitively to Reducing the electricity used associated with remote electricity protect biodiversity Ergon Energy has long had a focus on supply, this area of our operations is well Along with high standards of weed and energy conservation, within our own placed to take advantage of renewables. vegetation management practices, operations and by helping our Incorporating energy storage and Ergon Energy undertook a number of customers save on their usage. voltage stability technology (to smooth specific initiatives to protect the Energy efficiency remains a key focus in the ‘dips’ in solar generation caused by biodiversity of the environment this year. cloud cover), the project will allow for the management of our administration We completed revegetation and land and technical buildings. In our major the instantaneous use of 100% of the solar energy generated and, ultimately, stabilisation after erosion along an property redevelopments in electricity easement in Burrum Coast Rockhampton and Townsville (p33), cut the diesel used in providing electricity to the community by 33%. National Park. The site will now be and in the smaller refurbishment released to the Department of works undertaken this year, we have Through knowledge sharing, this project Environment and Heritage Protection incorporated many energy conservation will provide us and the electricity (EHP). technologies, including using natural industry more broadly, with the know light and ventilation and installing how to accelerate the rollout of A partnership with the Mackay Regional movement sensors that manage lighting renewable energy into isolated Council saw 50 100-year old Cycas and air conditioning. communities across Australia. media (cycads) saved and relocated to the Mackay Botanical Gardens during To support our customers, and deliver We are also actively engaged in the clearing of a high voltage powerline on other business imperatives, we implementing renewable energy route needed to connect a major also continued our long-term focus on generation in our other isolated systems customer in the Habana area. educating our customers about energy including solar, wind and geothermal. efficiency. Our efforts have supported Increasing the use of renewable energy whole communities to achieve technologies in off-grid communities will reductions (p19) and potentially even reduce the financial risk associated with supported the reduction over recent long term diesel price escalation and years in average household consumption volatility, and reduce carbon emissions. (p13, 26). Our customers have more information than ever before about how to achieve greater levels of energy efficiency.
REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 35 ENERGY SCORECARD
Our carbon footprint Emissions associated with the use of electricity (Scope 2) – these emissions OUR CARBON FOOTPRINT Ergon Energy’s greenhouse gas are largely unavoidable network energy emissions total 857,826 tonnes losses, consistently comprising around of carbon dioxide equivalent. 79% of our carbon footprint. This figure This information is based on available includes real network losses and losses 2013-14 emissions data as the most up associated with unmetered supplies. to date at the time of publishing. Street lighting is also a significant contributor to emissions associated Our emissions, as per the National with electricity use, estimated to be Greenhouse and Energy Reporting Act responsible for 8% of our footprint. The 2007 (Cth), include: electricity used across our operations in Direct Emissions (Scope 1) – electricity our 100 plus buildings represents 2%. generation through our 33 diesel-fired Although not required to be reported, power stations, which we use to supply Ergon Energy’s operations also result in electricity to our communities isolated indirect emissions (Scope 3). These are from the main grid, accounts 9% of our associated with other entities, including Network losses 79% Operational electricity total emissions. Our remaining direct the operations of joint venture SPARQ Electricity generation 9% use 2% emissions are mostly from fuel use in Transport and other 2% Solutions (p3) and air travel. Electricity used by our vehicle fleet. street lights 8%
Renewable energy OUR ISOLATED GENERATION STATISTICS
Ergon Energy continues to support the 2014-15 2013-14 2012-13 2011-12 2010-11 establishment and growth of renewable 100,774MWh 96,841MWh 93,213MWh 104,757MWh generation sources. Diesel Generation 102,753MWh
For our grid connected customers, we Renewable Generation 2,207MWh 2,283MWh 1,964MWh 1,602MWh 1,837MWh purchased just over 10.5% of our energy requirements directly from renewable Emission Reduction 1502tCO2-e 1,454 tCO2-e 1,396tCO2-e 1,139tCO2-e 1,232tCO2-e sources. Through the Solar Bonus Scheme, we credited customers more than $117 RENEWABLE ENERGY RENEWABLE ENERGY million (down slightly from $118 million in IN ISOLATED COMMUNITIES FOR THE MAIN GRID 2013-14) for the 348GWh of renewable energy their systems exported back into the grid for use by other customers. We also purchase additional Renewable Energy Certificates (RECs), to meet our liability under the Australian Government’s renewable energy targets. Our Large-scale Generation Certificate compliance requirements for 2014-15 were equivalent to sourcing 10.5% of our customers’ energy requirements from renewable generation. We also met RECs compliance under the Small-scale Renewable Energy Scheme for Small-scale Technology Certificates, Wind 57% Bagasse 57% equivalent to sourcing 11.1% of our Solar 24% Solar 38% Geothermal 19% Wind and Hydro 5% customers’ energy requirements.
We continue to increase the use of renewable Our network is increasingly operating as an energy to supply our isolated network. As part open access platform for distributed energy of our diesel reduction strategy, these efforts resources, with power purchasing agreements are reducing costs and delivering environmental renewed this year with the local sugar industry, benefits. Not all of the energy generated and solar exports now contributing 38% to the contributes to our renewable energy liability. renewable energy for the grid.
36 REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Our network is increasingly operating as an open access platform for distributed energy resources with over 1GW of capacity now connected. This year we have renewed our support for Queensland sugar industry’s generation of renewable energy, contributing $45.7 million in economic value to the industry. These, and other renewable energy sources, are now contributing over 11% of the electricity for our main grid.
Distribution network
Solar
Bagasse (sugar by-product) Wind in the Torres Strait Hydro and wind
11% of the electricity on our main grid is from renewable sources Solar farm in Doomadgee 25% of detached houses now 110,000 have solar, with solar energy systems the average are connected to the system size grid across regional now 3.7 kA Queensland
Geothermal in Birdsville
Solar dishes in Windorah
REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 37 During the year we continued work on Best practice use and an innovative works program to address a number of environmental performance recycling of materials issues identified in the operation of While the quantity of materials we use is Ergon Energy’s 33 remote power directly related to the scale of our works stations. While the majority of the programs, we undertake to maximise work is well progressed, rectifying the life of plant and equipment to make containment issues, addressing fuel the best use of these resources and bund repairs and improving bund our expenditure. waste-water treatment and storage practices on site, the full program of The impact and prolonged nature of this work will continue until 2018. year’s storm season saw a jump in the use of our core network components; Acting Curator Mackay Regional Botanic We have continued our proactive poles and pole top transformers. Gardens Ross Demuth, Ergon Energy Customer Delivery Manager Pioneer Chester Brodie and approach to managing risks associated We purchased around 11,000 new poles Ergon Energy Environmental Officer Caroline with contaminated land including (compared with 9,895 in 2013-14) and Sandral are happy that 50 Cycas media identifying sites with a higher 3,120 transformers (compared with (Cycads) similar to the ones pictured have been saved and relocated to the Mackay contamination risk within our portfolio 2,269 in 2013-14). Regional Botanic Gardens. of sites. New processes and tools were introduced to allow more effective We continue to own and manage a management of potential contaminated number of native forest properties in Ergon Energy is also supporting the EHP land issues encountered. order to ensure a sustainable pole and Bundaberg Regional Council to supply for our future infrastructure reduce the impact of street lighting on During 2014-15 Ergon Energy had no projects. We are also investigating the the nesting and hatching of sea turtles. serious environmental incidents (Class 1) possibility of outsourcing a region-wide The Woongarra coast is home to the or breaches of the Environmental program for the recycling of poles largest concentration of nesting marine Protection Act 1994 (Qld). We did have removed from service. one major environmental incident (Class turtles on the eastern Australian We continued our waste oil recycling mainland. As turtles can be disturbed 2), which involved a spill of 400-600 litres of hydrocarbon at a power station efforts – of the 423,000 litres of waste and disoriented by artificial light, we oil collected this year, almost 40% has are working on various street lighting site during fuel transferring activities. We maintained our certification of been processed through licensed solutions to be trialled for their facilities for regeneration and re-use practical application. AS/NZS ISO 14001 Environmental Management System. (70,000 litres more than last year). Protecting our cultural heritage We also recovered 893 tonnes of scrap Ergon Energy remains committed to metal including copper, aluminium, steel protecting the diverse cultural heritage and brass (down slightly on the five-year artefacts found in our region, and ENVIRONMENTAL INCIDENTS average of 1,005 tonnes). A further minimising the impact of our works 400 tonnes of scrap metal from old program. This is supported by the transformers was recycled (compared to development of a plan to raise the five year average of 626 tonnes). awareness within the business of cultural We continue to look for better solutions heritage risks. In addition, all staff are regarding the disposal of our waste. required to undertake mandatory A cost benefit analysis is underway to training in cultural heritage awareness. review recycling options for used It is also being supported by mercury vapour bulbs. improvements to our engagement with traditional land owners. We are continuing work with the Queensland Government on the new online version of the Queensland Indigenous Registered Heritage dataset.
This information will update our existing Fauna and flora related 60% spatial data and allow employees across Fuel and oil spills 29% the business to access the latest Delivery and supervision of work impact 5% information quickly and easily. Excavation/other land disturbances 4% Other 2% Minimising environmental incidents Fauna related incidents, involving birds and Ergon Energy has a robust integrated flying fox contacting powerlines are our most frequent environmental incident. management system (IMS) that ensures During 2014-15 there were 207 appropriate planning is undertaken to environmental incidents in total. help prevent environmental incidents. The IMS also ensures effective monitoring of early trends in environmental issues and incidents for continuous improvement.
38 REVIEW OF OPERATIONS EMBRACING CHANGE AND TECHNOLOGY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Delivering economic value
A prudent and efficient service remains core to the achievement of our economic contribution to Queensland. This contribution manifests itself in limiting the charges we make for the use of the network, through other areas of our service, and in the commercial return we make to our shareholder, the Queensland Government, and ultimately tax payers.
Presented to the AER a proposal for 2015-20 that is about delivering peace of mind, choice and control, for the best possible price. We’re reducing what we charge for the use of our network in 2015-16, and then targeting to stabilise charges at 2014-15 levels out to 2020.
An appropriate revenue allowance is This result is largely due to the Our financial both central to the economic $84 million favourable movement in performance sustainability of our business, and the market value of the hedges entered long-term price stability for customers. into to manage the future risk around price and volume in our electricity Developing and then revising the trading activities. This reverses the Moving to a new regulatory Regulatory Proposal has required a $123 million loss from unrealised control period significant business-wide focus revaluations in the previous financial year. throughout the year, as well as ongoing The five year regulatory control period In addition, the cost of sales has been customer and stakeholder engagement for our network related services that reduced in line with significantly lower (p13). We have provided the AER with ended with 2014-15 has been a period in wholesale electricity prices. which we have delivered significant extensive information in order to economic outcomes for our customers, support the expenditure plans proposed, Supporting the Government’s and our shareholders. including most recently benchmarking Debt Reduction Action Plan that places our efficiency up with the With changes to our demand profile in best in the industry when all relevant In formulating the Queensland 2010-11 (p23), we took prudent steps to factors are taken into account. Government’s Debt Reduction Action reduce our capital investment program Plan, our shareholding Ministers reviewed the appropriateness of Ergon Energy’s and focus further on our efficiency Delivering on our and effectiveness as an organisation. current dividend policy and capital This, along with our growing demand financial targets structure. Due to our comparatively low gearing compared to the average of our management capability (p24) supported As a significant investment for the a reduction of over 22% in our total industry peers, and revised outlook for Queensland Government, Ergon Energy capital expenditure requirements, they expenditure, when compared to the operates to a suite of agreed financial AER’s approved allowances for 2010-15. saw an opportunity to move towards targets. 2014-15 saw strong results more commercial gearing levels. As a result we were able to reduce what across all of these key measures. we charged customers for the period by In line with this, Ergon Energy has $99 million (p51) and absorb the cost of Strong group results for tax payers declared a dividend of $1,925 million, Cyclone Yasi (2011), Oswald (2013) and Ergon Energy Corporation Limited consisting of 100% of our consolidated Marcia (2015 p19), as well as position delivered a very strong consolidated Net Profit After Tax of $696 million and ourselves to deliver price relief Net Profit After Tax of $696 million – an additional amount of $1,229 million to going forward. significantly above the $591 million increase our net debt to regulated asset To ensure we manage the distribution agreed in our SCI (p7) – and an base ratio to approximately 70%, as network efficiently, Ergon Energy is Earnings Before Interest and Tax result directed by our shareholding Ministers regulated under a revenue cap by the of $1,301 million (compared to the target (p51). AER. To assist them in determining of $1,187 million). At the same time the Queensland our revenue allowance for 2015 to 2020, The result reflects a strong performance Government made a $596 million last October we provided our future by the retail business (including a Community Service Obligation (CSO) investment plans as a Regulatory favourable energy market position), payment to Ergon Energy (p40). Proposal. Following an assessment of efforts over a number of years to deliver our plans the AER released their greater organisational efficiency and Contributing commercial value Preliminary Determination in April 2015, effectiveness, as well as improvements Our subsidiary Ergon Energy which we have since responded to. to our financing costs and depreciation. Telecommunications Pty Ltd (trading Our revised plans remain about as Nexium), continued to provide These results were achieved while delivering peace of mind, choice and commercial value through the provision delivering an $983 million capital control, for the best possible price. of wholesale and retail high-speed investment program. p27 After reducing charges for the use of fibre-optic connectivity to the resource, our network in 2015-16, in line with our transport, energy and government An above budget retail requirement to pass on the AER’s sectors. Highlights for the year included business performance Preliminary Determination we are the implementation of a new high targeting to keep charges overall at Our retail business, Ergon Energy capacity route between Brisbane and 2014-15 levels for the remaining four Queensland Pty Ltd, delivered a Net Cairns (additional services to Queensland years out to 2020. Profit After Tax of $204 million – Health), a new service for Queensland significantly above the target of Police and the connection of a number In October 2015, following an $95 million. of private schools to high speed internet assessment of this information, the links. Nexium contributed $1.8 million in AER will make their final determination. profit for 2014-15. continued on page 42
DELIVERING ECONOMIC VALUE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 39 Our Annual Major expenses included electricity D. WHAT DO WE OWE purchases totalling $529 million, and (OUR LIABILITIES)? Financial Statements transmission charges paid to Powerlink Queensland, totalling $319 million. Ergon Energy’s total liabilities increased to $9,669 million this year, this was both explained The Uniform Tariff Policy, and the due to the normal funds drawn down associated Community Service used for our capital works programs and This section explains the key line items Obligation (CSO) payment, ensures that cash flow requirements, and changes from our financial statements and most Queenslanders have access to the that have come from the Queensland provides the definitions and trends same cost of electricity, regardless of Government’s debt reduction plan for our financial performance ratios. where they live. The CSO payment is the (p39). This commentary is not intended to difference between the costs to supply be comprehensive – for full disclosures energy in metropolitan Brisbane and Our largest individual liability is the please refer to the Annual Financial surrounding districts, and the costs to interest-bearing loan with Queensland Statements for Ergon Energy supply regional Queensland customers. Treasury Corporation of $5,273 million. Corporation Limited and its controlled Effectively the payment allows Ergon Our debt-repayment plan, which has Entities, available online at www.ergon. Energy Queensland Pty Ltd to sell reduced the year’s net draw down com.au/annualreport electricity to its customers for the of this loan, was supported by the same prices that are charged in the reduction in our capital expenditure A. WHERE DOES OUR south-east. Hence, its reimbursement program (compared to our allowance), REVENUE COME FROM? is treated as an offset to the network as well as other actions. charges to customers, rather than as Our second largest liability is the $1,925 Ergon Energy’s revenue for the financial revenue for the retail business (as it was dividend declared to shareholding year totalled $2,627 million, an increase prior to 2013-14). Ministers. Some of our other key of $187 million compared to the prior The Community Service Obligation liabilities include net deferred income financial year. (CSO) payment – $596 million for tax liability of $1,687 million, current Our revenue includes increases in retail 2014-15 – reduced the overall cost of payables due to trade creditors electricity sales (to $2,036 million) and in network charges (Network Charges/ ($337 million) and current employee distribution revenue from our non-retail Electricity Purchases). benefits ($163 million). customers (to $406 million); with a Ergon Energy’s long-term corporate decline in customer contributions C. WHAT ASSETS DO credit rating has been maintained with a towards the electricity distribution WE OWN? public rating of AA. This credit rating is network (to $70 million). The increase in influenced by the global economic retail electricity sales is primarily due to In 2014-15, our total asset base environment. the increase in regulated retail prices, maintained value at $11,485 million. which are set each year by the QCA. Property, plant and equipment are the E. WHAT WAS OUR The revenue collected from customers major components of our asset base, at for the use of our electricity distribution $10,183 million, which includes mostly CAPITAL INVESTMENT? regulated electricity network assets. network (network charges) is regulated Ergon Energy delivered an $983 million by the AER. These charges are billed to Ergon Energy devalued its property, total capital investment program. both our retail business and the retailers plant and equipment assets as at The regulated component of our capital of customers, who entered the 30 June 2015, resulting in a decrease works program was within the five-year contestable market in regional of $40 million. The directors approved regulatory control period allowance – Queensland. The AER also regulates the valuations, following a review by this $866 million investment, associated certain payments by our customers for management of the net present value with our Standard Control Services, capital contributions towards network of all asset categories. At the end of included providing new connections, extensions and other services. June 2015, $324 million was held as increasing the capacity of the network cash, consistent with normal business and improving reliability. p27 B. WHAT ARE OUR MAIN operations. EXPENDITURES? During the year, Ergon Energy changed F. WHAT RETURN DO WE its accounting policy to remove the Our operating expenses for the GIVE TO OUR OWNERS? recognition of under or over recovered year totalled $620 million, down regulated revenues and solar On 30 June 2015, Ergon Energy by $58 million. feed-in-tariff pass through revenue. declared a dividend of $1,925 million to Operating costs have continued to This change reduced assets by the be paid in 2015-16 to our shareholding decline with our efficiency and $557 million receivables recognised Ministers, and through them to the effectiveness efforts. Payroll costs at 30 June 2014. Queensland Government, ultimately were contained at $613 million (both benefiting the people of Queensland allocated as operating expenses and and enabling a reduction in general capitalised) through efforts to right government debt. The dividend consists size the organisation, and we delivered of 100% of consolidated Net Profit $18 million in procurement savings, while After Tax and an additional amount still adhering to procurement policy and to increase Ergon Energy’s net debt encouraging local sourcing. to regulated asset base ratio up to almost 70%.
40 DELIVERING ECONOMIC VALUE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 FINANCIAL SUMMARY FOR ERGON ENERGY CORPORATION LIMITED (CONSOLIDATED)
2014-15 2013-14 2012-13 2011-12 2010-11 A. OUR REVENUE $million $million $million $million $million Revenue and Other Income 2,627 2,440 2,839 2,511 2,411
B. OUR EXPENDITURE
Network Charges/Electricity Purchases (252) (481) (995) (853) (846)
Operating Expenses (620) (678) (615) (682) (634)
Depreciation Expense (454) (488) (430) (380) (314)
Finance Charges (310) (372) (369) (321) (294)
p39 OUR PROFIT
Earnings Before Tax 991 421 430 275 323
Tax Expense (295) (126) (122) (82) (91)
Net Profit After Tax 696 295 308 193 232
C. OUR ASSETS
Current Assets 1,043 897 928 1,048 1,012
Non-current Assets 10,442 10,034 10,130 9,306 8,877
Total Assets 11,485 10,931 11,058 10,354 9,889
D. OUR LIABILITIES
Current Liabilities 2,686 1,345 1,290 1,192 967
Non-current Liabilities 6,983 6,517 6,335 6,044 5,667
Total Liabilities 9,669 7,862 7,625 7,236 6,634
Net Assets 1,816 3,069 3,433 3,118 3,255
E. OUR INVESTMENT
Total Capital Investment 983 812 872 870 831
F. DIVIDENDS
Dividends Provided For 1,925 392 326 256 253
Dividends to Net Profit After Tax 277% 133% 106% 133% 109%
Note: Due to changes to our accounting policy for regulated revenue, all years prior to 2014-15 have been restated to ensure consistency.
FINANCIAL RATIOS 2014-15 2013-14 2012-13 2011-12 2010-11 Return on Average Assets Reflects the efficiency of our assets to generate 11.6% 7.2% 7.5% 5.9% 6.6% earnings. = Earnings Before Interest and Tax / Average of opening and closing asset balances. Return on Average Equity This represents the returns generated on the money the Queensland Government, as our shareholder, has 28.5% 9.1% 9.4% 6.1% 7.8% invested in Ergon Energy. = Net Profit After Tax / Average of opening and closing equity. Debt to Debt Plus Equity Our debt / (debt plus equity) demonstrates the prudential level to which our activities are funded by 74.4% 62.5% 59.2% 60.6% 57.0% owner’s funds versus borrowed funds. = Debt / (Debt + Equity). EBITDA to Interest Cover (times) Shows our ability to adequately meet the interest on current borrowings. = Earnings Before Interest 5.2x 3.3x 3.2x 2.9x 3.1x and Tax, Depreciation and Amortisation / (Finance charges + Capitalised Interest).
DELIVERING ECONOMIC VALUE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 41 continued from page 39
Our Energy Solutions team The team has developed a reputation also continued to realise sound in the utilities sector as a forward commercial returns as a provider thinking business partner with their of electrical and data infrastructure innovative and cost effective solutions and associated services. – positioning them well in the rapidly evolving utilities market
REVENUE REMAINS EFFICIENCY EFFORTS CONTRIBUTE PROFIT REFLECTS A STABLE FOR FINAL YEAR TO REDUCED EXPENSES FAVOURABLE ENERGY MARKET OF REGULATORY PERIOD AND COST REDUCTIONS $2.8 $696 $682 $678 $2.6 $2.5 $634 $620 $2.4 $2.4 $615 $308 $295 $232 $193 MILLION MILLION BILLION 1 1 1 20 1 2012 2013 20 1 2014 2015 2012 2013 2014 2015 20 1 2012 2013 2014 2015
Our revenue has remained stable – the Our efficiency and effectiveness efforts have Our profit result this year has been boosted by increases in revenue (largely due to an continued to deliver results, supporting a a favourable $84 million movement in the increase in the regulated retail price for decline in our operating expenses. market value of the hedges entered into to electricity) were countered by a decline in manage the future risk in our electricity customer contributions towards the electricity trading activities (compared to a $123 million distribution network. loss the previous year) and by interest, depreciation and operational savings.
TOTAL ASSET RETURN ON ASSETS DEBT INCREASED TO VALUE STABILISES REFLECTS PROFIT RESULT ENABLE GOVERNMENT’S DEBT ACTION PLAN $9.7 $11.5 11.6% $11.1 $10.9 $10.4 $9.9 $7.9 $7.6 $7.2 $6.6 7.5% 7.2% 6.6% 5.9% BILLION MILLION RETURN 1 1 1 20 1 20 1 2012 2012 2013 2013 2014 2014 2015 2015 20 1 2012 2013 2014 2015
The value of Ergon Energy’s total asset was The above-budget profit result saw the return In line with the Queensland Government’s maintained. The value of property, plant and on average assets increase to 11.3%, and the Fiscal Strategy and Debt Reduction Action equipment was again devalued following the return on average equity increase to 26.4% Plan, Ergon Energy has moved towards more annual review of the network’s net present – both above the targets set in our Statement commercial gearing levels with the $1,992 value. of Corporate Intent (p7). dividend declared lifting our liabilities.
Note: Due to changes to our accounting policy for regulated revenue, all years prior to 2014-15 have been restated to ensure consistency.
42 DELIVERING ECONOMIC VALUE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Our corporate governance statement
Ergon Energy’s corporate Board committees Investment review functions governance practices are in line To assist with the discharge of directors’ For the development and prioritisation with the Australian Stock Exchange duties, the Board has four committees of investment programs, the Board and (ASX) Corporate Governance to consider, and respond to specific the Executive Leadership Team are Principles and Recommendations, governance and organisational supported by various internal approval where applicable, as well as the performance matters or risks, many of processes, including the Investment Queensland Government’s which are linked intrinsically to regional Review Committee (IRC) and the Corporate Governance Guidelines Queensland sustainability challenges Network Investment Review Committee for Government Owned (such as electricity affordability, future (NIRC), and a range of assessment tools. infrastructure investment, community Corporations. The IRC is Ergon Energy’s peak safety, environmental matters, investment governance committee workplace health and safety and Additional information is available providing strategic oversight and other people-related issues). online at www.ergon.com.au/about-us/ stewardship of Ergon Energy’s entire who-we-are/our-company/ The membership of each committee and capital and operating investment corporate-governance the committee charters, along with their portfolio. The committee ensures the key focus areas during 2014-15, are appropriate balance, within the overall Principle 1 – Lay solid summarised in the table on page 46. enterprise investment portfolio, between foundations for The Directors’ Report, online in the network asset-related investments, management and oversight Annual Financial Statements, provides customer service improvement, product the committee meeting attendance. and asset research and development The subsidiary company boards also and business transformation. Our companies utilise sub-committees, such as the The IRC delegates part of its oversight Ergon Energy Corporation Limited has Ergon Energy Queensland Pty Ltd responsibilities to the NIRC, as its two operating subsidiaries, Ergon Board Risk Management Committee. Energy Queensland Pty Ltd and Ergon sub-committee, for advice on issues Energy Telecommunications Pty Ltd, as Executive Leadership Team identified through engineering due well as a joint venture with Energex diligence and technical review The Executive Leadership Team Limited – SPARQ Solutions Pty Ltd. p3 associated with our network comprises the Chief Executive and asset-related capital investment, and Ergon Energy Corporation Limited, a seven other executives, including the for the prioritisation of this investment. wholly government-owned corporation, Chief Executive of SPARQ Solutions. The NIRC scrutinises all elements of our is governed by the provisions of the The team is based in two locations, network investment to ensure individual Corporations Act 2001 (Cth), except as Townsville and Brisbane. components adequately address risk otherwise provided by the Government With Gordon Taylor and Mal Leech management, purpose and performance Owned Corporations Act 1993 (Qld). leaving the business late in the financial outcomes, sustainability, and efficiency. The company’s electricity distribution year, Graeme Finlayson is currently responsibilities are outlined under its During the year, our governance acting in the role of Executive Strategy Distribution Authority and the Electricity processes were central to prioritising Revenue and Transformation, and Act 1994 (Qld). our investment programs within our Belinda Watton and Bev Rose have Regulatory Proposal. p39 taken acting responsibility for the Board Charters different accountabilities within the role The responsibilities of the Ergon Energy of Executive General Manager, People Corporation Limited Board are outlined and Shared Services. Given decisions in the Board Charter (summarised p46). pending by the shareholding Ministers’ The Board delegates functions to around the details of the government’s management. However, certain matters proposal to merge Queensland’s are reserved for the Board, as detailed in network service providers, the the Charter, and a policy document, permanent appointment of these Delegation of Powers. These documents positions will not be made at this stage. are available online. Mike Hutchens was appointed to the The activities of the subsidiary position of Chief Financial Officer in companies are overseen by their July 2015, after acting in the role since own boards, which consist of senior April 2014. executives of the parent company. The Board of SPARQ Solutions Pty Ltd has The performance of the team is detailed shareholder agreements that evaluated annually. The Board sets guide the governance of this company the key performance measures for with its board, comprising of executives the Chief Executive for the year, in line from both Ergon Energy Corporation with the SCI (p7), and reviews the Limited and Energex Limited. performance of the Chief Executive and the Ergon Energy group based on these agreements. This process then cascades through the Chief Executive to the Executive Leadership Team.
OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 43 Our governance framework
Queensland Government Shareholding Ministers Hon. Curtis Pitt, Treasurer, Minister for Employment and Industrial Relations and Minister for Aboriginal and Torres Strait Islander Partnerships Hon. Mark Bailey, Minister for Main Roads, Road Safety and Ports and Minister for Energy and Water Supply
Boards of the Ergon Energy Group
Ergon Energy Corporation Limited
Subsidiaries • Ergon Energy Queensland Pty Ltd • Ergon Energy Telecommunications Pty Ltd (Nexium Telecommunications)
Incorporated Joint Ventures • SPARQ Solutions Pty Ltd (50% owned)
Board Committees • Audit & Financial Risk Committee • Operational Risk Committee • Establishment & People Committee • Regulatory Committee
POLICIES AND PROCEDURES Chief Executive
Executive Leadership Team
Business units REVIEW FUNCTIONS / INVESTMENT RISK MANAGEMENT
Network Optimisation Strategy, Revenue & (incl Nexium Transformation Telecommunications) INDEPENDENT REPORTING INDEPENDENT
People & Shared Services Retail
Customer Service Finance & Corporate Services (Distribution)
SPARQ Solutions Internal Audit, Business (Office of the Chief Risk & Compliance Information Officer)
44 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 The Board of Directors
GARY HUMPHRYS JOHN GARDNER JOHN LOVE GARY STANFORD CA GAICD FAIM FAICD Grad Dip (Mgmt) GAICD MAppFin DipAppFin BCom Harvard GAICD CHAIRMAN DEPUTY CHAIRMAN INDEPENDENT INDEPENDENT Independent Independent NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR Non-Executive Director Non-Executive Director
First appointed October 2009 First appointed December 2012 First appointed December 2012 First appointed in December 2014 Term in office 6 years Term in office 2 years Term in office 2 years Term in office 10 months
Gary Humphrys brings more John has an extensive John Love is a licensed electrical Gary Stanford has had a wealth than 35 years of experience in background in both private and contractor with extensive of management experience in the the energy and mining industries public sectors, covering banking, experience in electrical energy industry gained through to Ergon Energy’s Board. finance, governance, technology, contracting and reticulation, as numerous senior and executive A chartered accountant, he has utilities, business services and well as in the management of level roles in Boral Ltd, Origin held senior executive roles in both economic development, in the large-scale commercial and Energy Ltd and, more recently, the private and public sectors Northern Territory, Queensland industrial construction projects. Alinta Energy Sales Pty Ltd. across a range of disciplines, and Victoria. As well as executive He was the founding director of Over his career he has held including finance and accounting, and senior technical John Love Electrical, which grew responsibilities in wholesale treasury, taxation, information and appointments in Australia, he has to be one of Queensland’s largest energy trading, gas and electricity technology, procurement, risk completed overseas assignments privately-owned electrical contracts, retail pricing, risk management and audit. In recent in Canada and the USA, where he contracting companies. John is management, acquisitions, years, Gary held board and studied at Harvard University. currently the Managing Director government relations and related committee roles in the John is currently involved in of Steppe Pty Ltd, a residential, stakeholder communications. water, energy, mining, health and corporate governance and public commercial and industrial He has also previously been on superannuation industries. He is sector consulting. His previous development company. He sits the board of a number of energy currently a director of St Vincent’s state and federal board and on the Queensland Government’s companies, including Retail Health Australia Ltd, Electricity committee roles have been in Electrical License Committee. Energy Market Company Pty Ltd Supply Industry Superannuation treasury, superannuation, utility He is also involved, as business (REMco) and South East Australia (Qld) Ltd and HESTA services, gas supply and research advisor to Autres Pty Ltd, in Gas Pty Ltd (Seagas). Superannuation. related areas. He is a founding pharmaceutical development Life Member and former and is active in humanitarian non-executive Director of the organisations locally and Charles Darwin University overseas. Foundation.
OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 45 CHANGES TO THE MALCOLM HALL-BROWN management to Ergon Energy’s HELEN STANTON brought her brought to his role as Chairman Board and to her role as Chair of expertise in strategy, risk and BOARD DURING 2014-15 of Ergon Energy’s Board a strong, the Establishment and People governance, gained through a
proven track record in public Committee. Annabel was first career in the mining industry, and Gary Humphrys, previously a practice accounting and appointed October 2011 and more recently as a consultant, to director on the Board, was commercially-oriented resigned in September 2014. Ergon Energy’s Board and to her appointed as the Chairman of the enterprises, and a deep role as Chair of the Operational Board in April 2015. understanding of Ergon Energy’s ROWENA MCNALLY, as an Risk Committee. Helen was first experienced company director, The following directors resigned regional operating environment. appointed July 2005 and brought her background in during the 2014-15 reporting He was first appointed in resigned in September 2014. litigation, intellectual property period. Their full profiles are May 2012 and resigned in and corporate law to the provided in the Directors’ Report 31 March 2015. considerations of both the Board available online. ANNABEL DOLPHIN brought and to her roles on various Board extensive experience in business committees. Rowena was first strategy, organisational design, appointed in November 2011 and culture and change management, resigned in September 2014. leadership and talent
Focus of the Board and the Board Committees
MEMBERSHIP SUMMARY OF CHARTER FOCUS IN 2014-15
Ergon Energy Corporation Limited Board Current Members • Responsible for the strategic direction of the • Maintain the focus of the strategic direction on members: during year: organisation. addressing electricity affordability, and its impact on G HumphrysC M Hall-BrownC • Ensures the corporate governance required to the long-term viability of the business. J Gardner G Humphrys monitor operational, safety, environmental, social • Driving operational efficiencies through the business J Love A Dolphin and financial performance and reports to the and overseeing ongoing organisational reforms G Stanford J Gardner Shareholding Ministers. in an operating environment with a high level of uncertainty. J Love • Delegates authority to the Chief Executive, management and employees. • Continuing to support the Queensland Government’s R McNally industry and evolving market reform agenda. H Stanton Audit and Financial Risk Committee Current members: Members • Approves and monitors Ergon Energy’s in-house • Reviewed reports re solvency and the integrity of J GardnerC during year: internal audit program. financial systems/controls. G Humphrys G HumphrysC • Provides ongoing assurances to the Board that its • Reviewed reports from external and internal audit. G Stanford M Hall-Brown obligations are being met in relation to: • Reviewed and recommended approval of the A Dolphin • financial integrity Annual Financial Statements. J Gardner • financial risks • Reviewed and recommended approval of the • regulatory reporting annual Internal Audit Plan. • compliance issues. • Endorsed and recommended approval of the Direct Costing Policy. • Oversaw compliance with the conditions of the Australian Financial Services Licence. Regulatory Committee Current members: Members • Assists the Board to fulfil its corporate • Reviewed the AER’s Preliminary Determination of J GardnerC during year: governance and oversight responsibilities by the revenue cap for the distribution business. G Humphrys J GardnerC reviewing and reporting on the due diligence • Oversaw progress in the preparation of the G Stanford M Hall-Brown process conducted in relation to the Regulatory Proposal, 2015-20 incl recommending G Humphrys preparation and outcomes of regulatory the rate of return strategy for approval by the Board, proposals. H Stanton endorsing other submissions and reviewing reports against project plan. • Made recommendations in relation to the Reset Regulatory Information Notice 2015-20. Operational Risk Committee Current members: Members • Assists the Board in its response to business and • Reviewed and recommended approval of J LoveC during year: operational risks and oversight responsibilities in amendments to the Corporate Information Systems G Humphrys H StantonC relation to: Security Policy. J Gardner M Hall-Brown • health and safety, including community safety • Reviewed updates on Health, Safety & Environment J Love • environmental risks organisational risks. R McNally • risk exposure • Reviewed and recommended approval of • insurance and claims management. amendments to the Corporate Risk Profile. • Endorsed and recommended approval of the insurance program for 2014-15. • Discussed research on organisational approaches to crisis management. Establishment and People Committee Current members: Members during • Assists in developing a strategic, long-term • Oversaw negotiations and endorsed Ergon Energy’s J LoveC year: and sustainable approach on issues relating to Union Collective Agreement. G Humphrys A DolphinC people working for Ergon Energy. • Endorsed the Employee & Industrial Relations Plan J Gardner M Hall-Brown • Fulfils the Board’s oversight responsibilities in for 2014-15 for submission to the Queensland J Love relation to remuneration; performance Government. R McNally management; industrial relations; employee • Recommended annual remuneration increases/at engagement; organisational culture; and risk payments for executives and employees on learning and development. employment contracts.
• Oversaw executive appointments. • Reviewed succession planning, performance management and professional development programs.
C = Chair of Committee
46 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Our Executive Leadership Team
IAN McLEOD DAVID EDMUNDS PETER BILLING ROSLYN BAKER FAIM GAICD BEng(Electrical) BCom(Accounting) MBA Dip.FM GAICD
CHIEF EXECUTIVE EXECUTIVE GENERAL EXECUTIVE GENERAL EXECUTIVE GENERAL MANAGER, NETWORK MANAGER, CUSTOMER MANAGER, RETAIL OPTIMISATION SERVICE
Ian McLeod is responsible for David Edmunds is responsible Peter Billing is responsible for the Roslyn Baker is responsible for the business’ overall direction for the safe, efficient and customer service elements of our Ergon Energy’s franchise retail and, ultimately, for meeting the effective utilisation of Ergon distribution business and for the business and oversees retail service delivery expectations and Energy’s electricity distribution safe, efficient operation and strategy, energy procurement, requirements of our customers, and associated communications maintenance of the network. He is retail corporate services, retail the community and regulators, as networks and, where necessary, also responsible for supply to our operations and customer service. well as the business and financial the delivery of new major isolated communities, and the She has 18 years’ experience in objectives of our shareholders. infrastructure projects or other commercial delivery of modular managing transformational Ian brings extensive electricity non-traditional solutions. He infrastructure and generation change across a diverse range of industry experience to Ergon brings experience in both the solutions. He brings a wealth of industries. During her career, Energy; experience gained corporate and public sector to industry, leadership and change Roslyn has held senior through management roles in the executive, including executive management experience to the management and board positions the private contracting industry, management, engineering, executive, from trade roles to within the education, dairy and in Powercor Australia, the State operations, and contracting, management. Peter was directly petroleum sectors. She currently Electricity Commission of Victoria, as well as proven leadership involved in the deregulation of holds a position on the Committee and Ergon Energy. Ian is a director capabilities. David has held the electricity industry in for Regional Development of Energy Supply Association senior roles in the electricity and South Australia in the 1990s. Australia (Townsville and North of Australia and is Chairman gas industries of New Zealand, He is on the board of Energy West Queensland) and is Chair of of Ergon Energy Queensland as well as in local government. Skills Queensland. the Risk Management Committee Pty Ltd, SPARQ Solutions for the Board of Ergon Energy Pty Ltd, and Ergon Energy Queensland Pty Ltd. Telecommunications Pty Ltd.
OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 47 GRAEME MIKE HUTCHENS BELINDA WATTON BEV ROSE PETER EFFENEY FINLAYSON BA(Hons)/LLB(Hons) BBus(Accounting) CA B.Com, M App Law, Grad BBus (Accounting) BEng(Hons) BSc MBA MBA GAICD Cert App Fin, MAICD GAICD HonDBus CQU FAICD
EXECUTIVE GENERAL CHIEF FINANCIAL EXECUTIVE GENERAL MANAGER, CHIEF EXECUTIVE MANAGER, STRATEGY OFFICER (ACTING) PEOPLE AND SHARED SERVICES (ACTING) SPARQ SOLUTIONS REVENUE AND TRANSFORMATION (ACTING)
This role is responsible for Mike Hutchens is This role is responsible for ‘people-relations’ and Peter Effeney is the developing corporate responsible for managing the shared services functions of the organisation. Chief Executive Officer of strategy, regulatory affairs the financial and Since the departure of Mal Leech in June 2015, the SPARQ Solutions Pty Ltd, and our organisational commercial aspects of the responsibilities of this role have been shared in an Ergon Energy’s transformation initiatives. business, including acting capacity by Belinda Watton and Bev Rose. Information and Graeme’s focus prior to strategic procurements, as Communications and since moving to act well as the business’ legal Belinda brings to her Bev Rose is responsible Technology (ICT) joint in this role in June 2015 counsel, and risk and responsibilities (for for the management and venture with Energex. has been to drive the assurance program. human resources, delivery of Ergon As the Chief Information development of our Mike has significant customer and external Energy’s shared services Officer, his responsibility is expenditure proposals accomplishments in stakeholder engagement functions, incorporating to ensure Ergon Energy’s for consideration by the financial and general and employee health, safety and ICT strategy, architecture AER, to secure the management and has communications) her environment, property and investment and organisation’s revenue worked for a diverse range experience from executive services including SPARQ Solutions’ ICT for 2015-20. Previously of businesses, including roles in various public, facilities management services are aligned with Graeme was Ergon publicly listed multinational private and not for profit and property the business’ strategic Energy’s General Counsel corporations, organisations. Belinda’s construction, priorities, and deliver and Company Secretary. predominantly in the expertise in human and administration maximum value. Prior to Prior to joining the mining industry, as well resource solutions includes services. Bev has gained leading the formation of organisation in 2008, as large professional organisational, leadership her extensive experience SPARQ Solutions, Peter he held directorships, services firms. and talent development, and management held various management, executive positions, developing and leading expertise in senior roles engineering and ICT roles and senior in-house high performing teams, throughout her career within Ergon Energy. commercial legal roles in a as well as industrial in finance, corporate range of private and public relations and remuneration and shared services organisations, including management. She also in a diverse range Queensland Rail and the has expertise in corporate of businesses in the Gold Coast City Council. communications and corporate and stakeholder relations public sector.
48 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Principle 2 – Structure the Access to information and The Corporations Act 2001 (Cth) applies Board to add value quality advice to all of the companies in the Ergon The directors have unfettered access Energy group; accordingly, the statutory duties of directors apply. The Boards Independence of directors to the information and records relevant to the Board, in effectively discharging follow normal procedures for the Ergon Energy Corporation Limited’s their duties in accordance with the disclosure of directors’ standing Board consists of four non-executive requirements under the Government interests and material personal interests, directors. p45 Owned Corporations Act 1993 (Qld) and and how to deal with them. All new All the directors are considered to be the Corporations Act 2001 (Cth). The declarations of interest are brought to independent. This assessment is made appropriateness of Board agendas and the attention of the other directors. by the Board on a case-by-case basis papers are reviewed on an ongoing basis Ergon Energy’s employees are expected against the five criteria listed in the ASX with a formal annual review. Directors to act appropriately and practice ethical Corporate Governance Principles and also have access to the Company behaviour. This expectation is Recommendations that reference Secretary on any matter relevant to outworked through the Code of relationship materiality. their role. Conduct Standards. Our Code, which The directors of Ergon Energy As necessary in the performance of its applies to all employees, is available on Queensland Pty Ltd and Ergon Energy duties, the Board has the authority to the intranet and is reinforced regularly Telecommunications Pty Ltd are initiate investigations or retain services, through our learning and development executives of the Ergon Energy group, such as legal or accounting services, programs, and employee engagement. and as such are not independent. from time to time, at the company’s While the Board has a number of expense. Individual directors’ Code of Reporting breaches of conduct committees, discussed in detail in this Conduct also provides for each director Ergon Energy continues to operate the statement, it does not have a nomination to have the right to seek independent FairCall Service, established in 2003, committee, as the directors are professional advice at the company’s as a means by which staff, contractors appointed for a set term of office by expense, subject to the approval of and members of the public can report Queensland’s Governor-in-Council, in the Chairman. unethical conduct, breach of corporate accordance with the Government policy – such as the Code of Conduct A Deed of Access and Indemnity with Owned Corporations Act 1993 (Qld). – or suspected fraud. The service is each director gives them right of access This acts as a review mechanism for independently operated and reflects to all documents that were provided to enhancing Board performance, allowing the principles embodied in the Public them during their term in office, for a new members to be selected on a Interest Disclosure Act 2010 (Qld), period of 10 years after ceasing to be a regular basis, for their expertise and and various whistleblowers’ protection director, and to indemnify them to the ability to contribute on behalf of our standards, ensuring fairness to extent allowed by law, in respect of regional Queensland customer base. all concerned. certain liabilities that they may incur All allegations lodged using the Assessing Board performance as a result of, or by reason of, being a director. FairCall Service are referred to the Ergon Energy’s governance framework Senior Internal Auditor for investigation requires that the Board reviews its own and, where these are substantiated, performance, and that of the Board Principle 3 – Act ethically appropriate disciplinary measures committees, on a regular basis, to ensure and responsibly are applied. During the year, three they are working effectively. The focus allegations were received, but after It is a fundamental principle of Ergon of the directors has been on the success investigation only two were Energy to conduct all business activities of the Board in setting the corporate substantiated and required legally, ethically and with strict direction and monitoring achievement disciplinary action. of strategic objectives, as well as on observance of the highest standards ensuring the effectiveness of of integrity and propriety. The Senior Internal Auditor is also the committee roles, key relationships liaison officer for referring any suspicions and governance processes. Code of conduct and disclosure of corrupt conduct to the Crime and of interests Corruption Commission, as required of The Board has operated effectively, and This principle is implemented through government-owned corporations by the managed the uncertainty associated the Ergon Energy Corporation Limited Integrity Act 2009 (Qld), as well as with the change in government and Board Charter and Directors’ Code of overseeing any investigations and considerations underway by the Conduct, and Conflict of Interest reporting of the findings/outcomes. shareholder Ministers into their proposal Guidelines. The subsidiary boards have Ergon Energy’s Fraud and Corrupt to merge the Queensland adopted the Directors Code of Conduct Conduct Policy, Employees’ Code of Government-owned transmission and applicable to the Ergon Energy Conduct Policy, Employees’ Code of distribution companies and into the Corporation Limited Board. The Board Conduct Standards Procedure and future operations of the retailer. of SPARQ Solutions Pty Ltd has a Reportable Conduct Guidelines In light of the ongoing uncertainty, and Corporate Governance Manual, which support the commission’s legislative the fact the membership of the Board includes a Code of Conduct based on power to investigate suspicions of was reduced as the terms of those approved by its shareholders. corrupt conduct. directorships expired, the Board did Each director is expected to have regard not undergo an external review of its for these practices and policies in the performance during the year. performance of their duties as a director The effectiveness of the Board of Ergon of the company. Energy Pty Ltd, our retail business, is also being internally monitored.
OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 49 Supporting diversity at board level As per the provisions of the Strategic planning and and in the workplace Auditor-General Act 2009 (Qld), the reporting cycle As part of the board-appointment Queensland Auditor-General is the Ergon Energy documents its corporate process, shareholding Ministers consider external auditor for Ergon Energy performance commitment for each diversity when reviewing the register of Corporation Limited and its subsidiaries. financial year within the SCI (see suitable board candidates. The Audit and Financial Risk Committee summary p7). These commitments form review the performance of the external the basis of quarterly reporting to our In the workplace, Ergon Energy has a audit annually. shareholding Ministers. diversity policy, which is implemented through the diversity program as a part Principle 5 – Make timely Our strategic planning framework is of Ergon Energy’s people strategy, to illustrated here, as it relates to the SCI support an inclusive workplace culture. and balanced disclosure and the key public documents that p30. support transparent public disclosure Disclosure to shareholders of Ergon Energy’s performance Principle 4 – Safeguard The Board has reporting and disclosure commitments and outcomes. Ergon obligations to the shareholding Ministers Energy’s longer-term strategic planning integrity in corporate under the Government Owned cycle aligns with the distribution reporting Corporations Act 1993 (Qld) and business’ five-year regulatory control Corporations Act 2001 (Cth). These period. The year in review was the final Ergon Energy has a robust structure to obligations are outworked through year of the AER’s Queensland independently verify and safeguard the Disclosure to Shareholders Policy, and a Distribution Determination 2010. We are integrity of our financial reporting, as Communications Strategy Guideline, currently waiting for the AER to make its well as a comprehensive internal and ensuring the Queensland Government is final determination of our revenue external audit process, of which the kept informed of material matters. allowance for 2015 to 2020 (p39). Audit and Financial Risk Committee has oversight. The Committee’s charter Ergon Energy also has established Our Distribution Annual Planning and focus for 2014-15 is provided on policies and practices that specifically Report, which is published at the same page 46. cover our government communication time as this report, details our rolling obligations around performance five-year asset management plan. The Chief Executive provides targets, public safety, probity, Published online, it details how representation, through the Audit and occupational health and safety, Ergon Energy is managing and Financial Risk Committee, to the Board employment practices, privacy developing its network, with the that the Financial Statements and and environmental protection. objective of delivering an adequate, Directors’ Report are a true and fair economical, reliable and safe connection view and in compliance with of electricity supply to our customers. reporting standards. It provides further analysis of the performance of the network.
ANNUAL STRATEGIC PLANNING AND REPORTING CYCLE
STRATEGIC PLAN CORPORATE STATEMENT FORECAST QUARTERLY ANNUAL REPORT PLAN OF CORPORATE REPORT REPORTS INTENT Articulates our Outlines our Our performance agreement with our Performance Tabled in stakeholders’ priorities and shareholding Ministers. A Forecast across our key parliament and expectations, the performance Report is published, as a summary of result areas is used to publicly challenges, and measures for the the SCI, then the actual SCI is tabled reported to our communicate our our longer-term next five years. in Parliament with the corresponding shareholding performance and response. Annual Report. Ministers. future challenges.
DISTRIBUTION ANNUAL PLANNING REPORT
A public document that ASSET NETWORK provides visibility of our MANAGEMENT VISION network investment plans PLANS and network constraints.
PUBLIC DOCUMENTS DEMAND DEMAND MANAGEMENT MANAGEMENT PLAN OUTCOMES REPORT
Details our demand management Presented to the Queensland program and its objectives. Government and published online.
50 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Privacy and right to information It endeavours to enable our government • a direction, given in February 2012, Ergon Energy has an obligation to shareholders to have an informed not to seek revenue associated with protect the personal information of assessment of our operations, the expected reduction in capital individuals collected and used during its including the organisation’s overall expenditure, arising from the operations, in accordance with the efficiency and effectiveness. implementation of the Privacy Act 1988 (Cth). To prevent recommendations of the Electricity misuse, interference, loss, unauthorised Directions and notifications Network Capital Review, by excluding access, modification or disclosure, strict Under the Government Owned it from our annual network pricing data security systems and procedures Corporations Act 1993 (Qld), the reserve proposal. Over the period up to the are in place around the collection, powers of the shareholding Ministers end of 2014-15, this revenue would access, use, disclosure and storage of provide that they may, in the public have been approximately $99 million. personal information. interest, notify Ergon Energy of a public sector policy that is to apply to the Principle 7 – Recognise and Ergon Energy manages applications for corporation. In addition, under that manage risk access to documents in accordance with Act the shareholding Ministers may the Right to Information Act 2009 (Qld) request information, and issue directions Our risk management framework and the Information Privacy Act 2009 including directions to amend the SCI Ergon Energy recognises that effective (Qld). Also, in accordance with the Right and directions to pay a specified risk management and compliance to Information Act 2009 (Qld), Ergon dividend. Directions can also be given frameworks are necessary to meet the Energy publishes on its website under the Electricity Act 1994 (Qld). expectations of its shareholding disclosure log access decisions, which Ministers, customers, the community are considered to be of significant In September 2014, we received a and other stakeholders. Fundamental interest to the wider public and do not direction under the Electricity Act 1994 to this is that our directors and contain personal information. The (Qld) to provide information to help management are able to demonstrate an process for individuals to apply for investigate alternative ways of funding understanding of the business risks and information and summary information of the future expansion of our distribution compliance obligations and that these documents released is found at www. infrastructure. In November 2014, are being efficiently and effectively ergon.com.au/ about-us/contact-us/ we received a direction to provide managed. All board committees perform right-to-information information to help investigate additional alternative funding options. a role in assisting the directors in fulfilling their oversight responsibilities Principle 6 – Respect the Directions dated 30 April 2015 were also in relation to business risks. rights of security holders given pursuant to the Electricity Act 1994 (Qld) for Ergon Energy to provide To give effect to its risk management Ergon Energy respects the rights of its all necessary information and assistance and compliance commitments, Ergon shareholding Ministers, as the ultimate in relation to the Electricity Mergers Energy has established policies on these owners of the business, and commits Working Group’s program of work in and other areas (eg. Health, Safety and to work in collaboration with the relation to the potential consolidation Environment) and implemented a risk government to deliver the best of electricity network businesses. management framework based on the outcomes for our customers and Joint Australia/New Zealand Risk the Queensland economy. In June 2015, a direction was issued Management Standard: AS/NZS ISO pursuant to the Government Owned 31000:2009, and a compliance program Government shareholder Corporations Act 1993 (Qld) (section based on the Australian Compliance communications 131) for Ergon Energy to pay a dividend Standard AS 3806:2006. comprising 100% of profits for 2014-15, The Chairman has regular meetings and an additional amount to increase Ergon Energy also has a Standard for with shareholding Ministers and their Ergon Energy’s net debt to regulated Corporate Risk Management, Corporate representatives, as part of a broader asset base ratio to not more than Risk Management Guidelines and government engagement program, 70%. This arrangement will be closely Corporate Risk Assessment Tables. to ensure there is active dialogue monitored to ensure our ongoing The standard sets out the principles that throughout the year. This ensures the financial position supports our ability Ergon Energy must follow to achieve operation and strategic direction of to service borrowings/pay creditors. effective risk management and provides the business is consistent with the guidance on how risk management Queensland Government’s energy policy The earlier directions relevant to the should be implemented and integrated and broader objectives, and generally financial results of the corporation in into Ergon Energy. The tables, used meets shareholder expectations. 2014-15 include: in conjunction, provide uniform risk management criteria to support We also have a comprehensive reporting • a direction given in May 2013, under consistent risk-based assessments. regime, prescribed by the Government the Electricity Act 1994 (Qld), to The standard, guidelines and tables are Owned Corporations Act 1993 (Qld), implement new wholesale electricity reviewed annually to ensure they remain and GOC Amendment Regulation (No. supply arrangements for Ergon appropriate to the needs of the business. 2) (2009), as well as other mechanisms. Energy’s retail electricity load. This is supported by teams dedicated The new market-based wholesale to managing the business’ government energy procurement arrangements and regulatory relationships, and to were implemented for a term of up to responding to reporting requests. four years from 2013-14. The precise financial impact of the direction is The content of Ergon Energy’s annual considered to be commercially reporting suite is one of many reports sensitive information. required to meet statutory and specific government requirements.
OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 51 Risk management activities and Further, Ergon Energy Queensland Pty The Group Manager Risk, Assurance and compliance Ltd complied with the risk appetite of Investment also has access to the Board During 2014-15, the following risk the Board, as detailed in the energy through the Audit and Financial Risk management and compliance activities commodity risk management policy. Committee Chair. were undertaken by Ergon Energy: External and internal audit Principle 8 – Remunerate • Organisational Resilience Framework: Ergon Energy submits to a number of fairly and responsibly The company’s organisational external audits in pursuit of world-class resilience framework was reviewed practice and, in some cases, to gain or Ergon Energy recognises that to attract and updated to reflect an increased retain the certification we need to do and retain the personnel necessary to focus on standards relating to business, such as Quality Assurance ISO deliver on the company’s strategic plan organisational resilience and 9001 certification for our Transmission and achieve its vision, salaries and salary crisis management. and Project Services. Other audits we packaging must be competitive, flexible • Risk Management Framework: a regularly undergo include Australian and performance orientated. review of the framework for Standard 4801 Occupational Health managing material business risks and Safety, Electrical Safety Legislation, As part of our human resources policy, was undertaken. This supported International Customer Service we have a total employment offering assurances to the Board by the Chief Standards and Environmental Standard considered to be attractive by both Executive and Chief Financial Officer, ISO 14001. These audits provide external prospective and current employees in accordance with section 295A assurance of the performance and representative of the expectations of the Corporations Act 2001 (Cth), statements made in this report. of our community. This policy is that the framework is founded on designed to attract high calibre a system of risk management and Ergon Energy’s annual accounts and employees, retain employees, internal control and that it is financial statements are audited by the incorporate current industry operating effectively in all material Auditor-General of Queensland. benchmarks and ensure employees are aware of what they need to do respects in relation to financial The scope of our internal audit function to contribute to team and reporting risks. covers all of Ergon Energy’s operations, organisational goals. • Insurance Program: the review and either directly or through the co-sourced renewal of Ergon Energy’s 2014-15 internal audit provider contracted by Performance agreements are based Insurance Program was undertaken the organisation or its subsidiaries. on the strategic objectives of the to ensure cost-effective coverage of Our internal audit function helps us organisation. Executive compensation, the organisation’s insurable risks. accomplish our objectives by bringing including at-risk payments, is disclosed As part of this work, the Board a systematic, disciplined approach to in the Annual Financial Statements, approved the purchase of a network evaluate and improve the effectiveness along with the performance payments security and privacy insurance of risk management, control and made to other employees (Note 26). policy to mitigate the financial governance processes. The Ergon consequences of ‘cyber attacks’ and Energy Internal Audit Charter is Non-executive directors are other unauthorised access of Ergon established by the authority of the remunerated separately from the Energy’s corporate Information, Ergon Energy Audit and Financial executive. Directors’ emoluments, as a Communications and Technology Risk Committee. board or committee member, are set (ICT) and operational technology by the Queensland Government. networks. This year’s plan included audits of Reimbursement is made for expenditure major projects, process control systems, incurred in performing their roles as • Risk Profiles: Ergon Energy’s vegetation management, retail credit directors of the company. Non-executive Corporate Risk Profile and Business management, data analytics, contractor directors of the company do not Unit Risk Profiles were reviewed management, executive-at-risk payment participate in any variable reward or and updated. As part of this process process, travel group’s corporate card at-risk plan and are not eligible for a review of the profiles against use, depot administrative processes, retirement or other benefits other than Ergon Energy’s Corporate Plan management information system, for statutory superannuation. Executive and business unit plans was purchasing, contract tender process, directors do not receive additional performed to ensure alignment. consultants and professional services payment for their role as director of • Risk Appetite and Risk Assurance: contractors and the single incident any of our subsidiary companies. work continued on developing risk management framework. These reviews appetite statements, broadening our focused on documenting and testing key The Board’s Establishment and People understanding of the level of risk management controls. Committee assists in developing a Ergon Energy is prepared to accept strategic, long-term and sustainable in pursuing its corporate objectives. The Group Manager Risk, Assurance and approach on issues relating to people Risk assurance maps were also used Investment reports for administrative working for Ergon Energy. p46 to show the assurance activities purposes to the Chief Financial Officer Details of remuneration to non-executive performed in relation to key but retains unrestricted access to the directors and executives, and at-risk corporate risks and also to assist with Chief Executive to discuss any matter payments are reported in the Annual the three-year internal audit plan. relating to the finances or operations of Ergon Energy. Internal Audit also Financial Statements (available online), The key compliance matters for 2014-15, ensures its independence by reporting consistent with the requirements of which are discussed elsewhere in the to the Audit and Financial Risk Australian Accounting Standard report, include network service Committee on progress against the AASB 124. standards (p16); Guaranteed Service Internal Audit Plan and resolution of Levels (p17); network planning (p23); issues raised in reports. safety performance (p33); renewable energy targets (p36); and environmental incidents (p38).
52 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2014–15 Additional information
Entertainment and hospitality In furthering Ergon Energy’s business interests, and working to achieve its corporate goals, from time to time entertainment and hospitality is provided to employees, clients, customers and community groups. Reasonable limits have been observed during 2014-15 for aggregate event expenditure and expenditure per head, taking into account the nature of the event. At the request of shareholding Ministers, the SCI includes information on Corporate Entertainment and Hospitality. For 2014-15, the following entertainment and hospitality expenses over $5,000 were:
Event Investment Central Employee Christmas Party – Rockhampton $7,784 Far North Employee Christmas Party – Cairns $6,804 Brisbane Employee Christmas Party – Brisbane $6,552 North Employee Christmas Party – Townsville $5,292
Our network statistics Total Customers Served 733,261 Network Area Serviced 1.7 million km2 * Employees 4,447 Power Stations (grid connected & isolated) 34 Bulk Supply Points 30 Zone Substations 327 Major Power Transformers (33kV to 132kV) 610 Distribution Transformers 100,000 Power Poles 1 million Overhead Powerline - Sub-transmission 15,400km - High Voltage Distribution 118,300km - Low Voltage: Distribution1 20-25,000km Underground Power Cable 8,900km
* Estimate of length only.
FOR FURTHER DETAILS ON OUR REGULATED ASSETS, AS WELL AS OUR ASSET MANAGEMENT POLICIES, STRATEGIES AND SPECIFIC INITIATIVES REFER TO ERGON ENERGY’S DISTRIBUTION ANNUAL PLANNING REPORT, AVAILABLE ONLINE.
Common industry units of measure
Reliability Electricity related SAIDI System Average interruption Duration Index. Network reliability V volt: the unit of potential or electrical pressure performance index, indicating the total minutes, on average, that customers are without electricity during the relevant VA volt ampere: volt amperes are the ‘apparent power’ and are the period (minutes). product of the voltage applied to the equipment times the current drawn by the equipment. The VA rating is limited by the maximum SAIFI System Average Interruption Frequency Index. Network reliability permissible current, and the watt rating by the power-handling performance index, indicating the average number of occasions capacity of the device each customer is interrupted during the relevant period (interruptions). kVA kilovolt ampere: one kVA equals 1,000VA
Customer Customer minutes is a measure of the number of customers MVA megavolt ampere: one MVA equals 1,000kVA interrupted multiplied by the duration of a power outage or Minutes kilovolt: one kV equals 1,000 volts outages, incorporating any staged restoration. kV W watt: a measure of the power present when a current of Safety one ampere flows under a pressure of one volt AIFR All Injury Frequency Rate – measured as number of injuries kW kilowatt: one kW equals 1,000 watts per million hours worked. Lost Time Injuries (LTI) + Medical megawatt: one MW equals 1,000 kilowatts Treatment Injuries (MTI) x 1, 000, 000 / Exposure Hours MW kWh kilowatt hour: the standard ‘unit’ of electricity which represents LTIFR Lost Time Injury Frequency Rate. Number of lost-time injuries the consumption of electrical energy at the rate of one kilowatt per million hours worked over the 12 month reporting period. over a period of one hour Lost Time Injuries (LTI) x 1, 000, 000 / Exposure Hours MWh megawatt hour: one MWh equals 1,000 kilowatt hours LTIDR Lost Time Injury Duration Rate. Total days lost due to injuries per million hours worked over the 12 month reporting period. GWh gigawatt hour: one GWh equals 1,000 megawatt hours or Lost Time Injuries Progressive Days Lost x 1, 000, 000 / Exposure one million kilowatt hours Hours HV high voltage: alternating current above 1,000V DEEFR Dangerous Electrical Event Frequency Rate. A safe work practice measure that tracks Dangerous Electrical Events (DEEs) LV low voltage: alternating current above 32V and not associated with work done by our employees (DEEs x million / exceeding 1,000V exposure hours). Dangerous Electrical Events (DEE) x 1, 000, 000 / Exposure Hours GJ gigajoule: a measure of energy, one million joules Key service centres
Cairns 109 Lake Street CAIRNS QLD 4870
Townsville (Registered Office) 420 Flinders Street TOWNSVILLE QLD 4810
Mackay 23 Cemetery Road WEST MACKAY QLD 4740
Rockhampton Cnr Fitzroy and Alma Streets ROCKHAMPTON QLD 4700
Maryborough 97-99 Adelaide Street MARYBOROUGH QLD 4650
Toowoomba Cnr South and Hampton Streets TOOWOOMBA QLD 4350
Brisbane 825 Ann Street FORTITUDE VALLEY QLD 4006
Annual Stakeholder Report 2014–15
Customer Service 13 10 46 7.00am – 6.30pm, Monday to Friday
Faults Only 13 22 96 24 hours a day, 7 days a week
Life-threatening Emergencies Only Triple zero (000) or 13 16 70 24 hours a day, 7 days a week
Ergon Energy Corporation Limited ABN 50 087 646 062 Ergon Energy Queensland Pty Ltd ABN 11 121 177 802 ergon.com.au