ERGON ENERGY Annual Stakeholder Report 2011/12 CONTENTS

ABOUT OUR REPORT 2

ERGON ENERGY IN PROFILE 3

THE YEAR IN SUMMARY 6

CHAIRMAN’S MESSAGE 10

CHIEF EXECUTIVE’S REPORT 11

REVIEW OF OPERATIONS 13

CUSTOMER-DRIVEN 14 Details the emphasis we’re placing on being customer-driven, on being more cost-efficient and delivering increasing customer value and choice.

ASSET MANAGEMENT EXCELLENCE 22 Showcases how we’re lifting our asset management capability to deliver more reliable, efficient and sustainable energy supply solutions.

HIGH-PERFORMANCE ORGANISATION 28 Outlines our success in realising greater efficiencies and effectiveness, and the role information technology will increasingly play in supporting our people.

OUR ECONOMIC AND FINANCIAL PERFORMANCE 39

OUR CORPORATE GOVERNANCE STATEMENT 43

LOOKING FOR MORE INFORMATION?

This Annual Stakeholder Report and 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 year’s reports, are available online at www.ergon.com.au/annualreport Additional statistics, abbreviations and industry measures are provided on page 56. Ergon Energy recognises that the rising price of electricity is a concern for our customers. Addressing this issue is at the core of our strategic plan, as well as the achievements and challenges highlighted in this report.

We are committed to doing everything we can to positively affect the price our customers pay for electricity – whether this is by managing electricity demand during peak times to make better use of our assets or reducing our own costs through business efficiency and improvements.

At the same time we know we have to keep pace with the growing demand for electricity and that our customers expect to have a safe and reliable electricity supply.

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

Our Annual Stakeholder Report 2011/12 presents a holistic insight into the organisation’s overall performance for the financial year and demonstrates the contribution that Ergon Energy is making towards the broader sustainability challenges facing regional Queensland. The report covers Ergon Energy Corporation Limited and its subsidiary Ergon Energy Queensland Pty Ltd, as well as commentary on our other subsidiaries and joint venture. p43

Publishing performance Enhances readers’ against set goals builds understanding of the confidence in the sustainability challenges organisation’s governance. why we we can contribute to. report what Ensures we meet our Reporting transparently we do stakeholders’ expectations builds understanding, of our corporate reporting trust and our reputation. standards.

WHY WE REPORT WHAT WE DO At Ergon Energy we believe that To assist us to continually improve It is our aim through this report to reporting from both a financial and our reporting we invite your feedback demonstrate to our stakeholders non-financial perspective helps us through our online Feedback Form, that Ergon Energy is a professional, develop a shared understanding of also found at accountable, outcomes-driven our common objectives, and our www.ergon.com.au/annualreport, organisation. broader challenges. This in turn or you can contact our Community encourages the adoption of more Engagement and Advocacy team Our stakeholders are our customers, the appropriate, sustainable practices on 13 10 46. communities we work in and serve, our and actions by our employees, and by employees (including their representative our industry, and by our stakeholders unions), our government shareholders, more broadly. the industry’s regulators, our suppliers and industry associates. p53 The content of this report has also been guided by the Australasian Reporting Ergon Energy is active in assessing our Awards criteria for best-practice stakeholders’ needs and expectations, reporting, as well as the Energy Supply and feeding this understanding into Association of Australia’s Sustainable business decision-making both at an Practices Framework. The Global operational and strategic level; these Reporting Initiative’s (GRI) G3 Principles insights have been used to reassess of Sustainability Reporting have also the materiality of the information been used to enhance the comparability provided in this report. We are of our reporting. To easily locate committed to continuously improving information about specific GRI indicators the transparency and relevance of in this report, refer to the index online at our stakeholder communications. www.ergon.com.au/annualreport

2 ABOUT OUR REPORT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 ERGON ENERGY IN PROFILE

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

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

Aurukun

Coen

Pormpuraaw

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

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

ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 3 ERGON ENERGY IN PROFILE

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

ELECTRICITY INDUSTRY SUPPLY CHAIN

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

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

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

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

4 ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 OUR VISION OUR VALUES To be a high-performance, Success is built on our SPIRIT values of: customer-driven energy business. • Safety • Professionalism OUR PURPOSE • Integrity • Respect To provide safe, reliable, efficient and sustainable energy solutions to support our • Innovation customers and the Queensland economy. • Teamwork

5,000 employees 700,000 customers $10.6 billion asset base 2,417MW peak demand $742.5 million network investment in 2011/12 7,166kWh average household energy use 1 million power poles 1.5 million customer calls in 2011/12 150,000km of powerlines

OUR STRATEGIC GOAL ELECTRICITY SUPPLY COSTS

At the pinnacle of Ergon Energy’s strategic plan is the goal to limit increases to network charges (the main component of the price customers pay for electricity) to less than the Consumer Price GENERATION Index (CPI) over the longer term.

Our aim is to mitigate further pressure on the end RETAIL price. In regional Queensland during 2011/12 the typical household quarterly electricity bill was around $372. TRANSMISSION + DISTRIBUTION = NETWORK CHARGES

ERGON ENERGY IN PROFILE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 5 the year in summary

OUR HIGHLIGHTS

Helped our customers save on their electricity bills – more than 8,000 pool owners took up our ‘Save a Bomb’ offer, and our isolated community powersavvy schools are saving up to 60%. p16

Advanced our ability to manage network demand with non-network solutions – enabling the deferral of $428 million in network investment – placing us on track to reach more than 100MW in reductions by 2015. p24

Continued to deliver improved reliability performance – despite significant flooding and bushfire impacts throughout the summer season.p27

Made real savings across our operations, $40 million above the savings already built into our five-year plan, with further efficiency and effectiveness initiatives on the way.p28

Began mobilising a blueprint for an information-enabled future, including the advancement of our remote observation advanced modelling economic simulation (ROAMES) capability. p30

Delivered a strong 28% improvement in our All Injuries Frequency Rate for employees, through a continued focus on workplace health and safety. p33

Reduced our revenue requirement for the next three years by $99.2 million – through targeted reductions in planned capital expenditure in line with reduced demand. p39

Exceeded our financial commitments with a Net Profit After Tax of $319.8 million, delivering a Return on Assets of 7.6%. p39

6 THE YEAR IN SUMMARY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 THE SUSTAINABILITY CHALLENGE

Our contribution to sustainability Ergon Energy also has other • protecting the environment in regional Queensland is in two important corporate responsibilities • providing local employment primary areas: around: opportunities • addressing the cost of living • reliability and security of supply • supporting workplace diversity through a focus on electricity • our role in disaster response and social inclusion. affordability • workforce and community safety • supporting economic development through the • energy and resource conservation efficient and timely delivery of • responding to climate change critical electricity infrastructure.

2011/12 2010/11 2009/10 2008/09 2007/08

Net Profit After Tax ($million) 319.8 321.6 166.5 129.3 162.9

Total Assets ($million) 10,603.1 9,974.9 8,698.3 8,011.3 7,100.5

Total Capital Investment ($million) 869.8 830.5 806.1 844.3 841.4

Dividends Provided For ($million) 255.9 252.6 137.5 116.6 118.4

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

Return on Average Equity 9.7% 10.8% 6.4% 5.1% 6.6%

Gearing (including reserves) 59.3% 56.6% 59.8% 59.1% 54.3%

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

FOR MORE ON OUR FINANCIAL PERFORMANCE SEE PAGES 39–42.

THE YEAR IN SUMMARY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 7 OUR PERFORMANCE OVERVIEW Ergon Energy’s performance targets for 2011/12 are detailed in our Statement of Corporate Intent (SCI). This document, our annual performance agreement with our shareholding Ministers, is tabled in Parliament with this corresponding report. The performance targets, shown here against our strategic themes, are discussed in more detail throughout this report. This section also provides an overview of our challenges and aspirational goals for the 2010-2015 planning period.

STRATEGIC THEMES 2010-2015 PERFORMANCE TARGETS 2011/12 PERFORMANCE RESULTS 2011/12 FUTURE CHALLENGES AND GOALS 2010-2015

Increase customer value: by working Better than peer average as measured by ‘Value to Customer’ ratio score five points above parity Service – deliver quality, cost, value and choice as appropriate CUSTOMER-DRIVEN with our customers to better ’Value to Customer’ survey1 with a score of 1051 to each customer segment. understand and anticipate their p14 needs while providing them with an Guaranteed Service Levels – Network Reliability ≤ 1,433 Guaranteed Service Levels – Network Reliability Customer Satisfaction – maintain strong customer relationships electricity service that is cost-efficient claims accepted ≤ $148,979 claims paid 2,942 claims paid, valued at $305,916 and work together to identify and meet their future needs. and dependable. Guaranteed Service Levels – Other ≤ 2,961 claims Guaranteed Service Levels – Other accepted ≤ $130,635 claims paid 7,178 claims paid, valued at $270,981

Improve our asset management Supply Reliability Indicators: Supply Reliability Indicators: Reliability – meet Minimum Service Standards and secure optimal ASSET MANAGEMENT practices as a basis for providing Service target Performance Incentive Scheme results. a more cost-efficient and reliable Duration (SAIDI): Duration (SAIDI): EXCELLENCE service. This will see us using - Urban ≤ 148 - Urban 136 Demand Management – reduce peak load growth to defer capital p22 technologies that extend our ability - Short Rural ≤ 418 - Short Rural 393 expenditure on our network. to remotely control the network, - Long Rural ≤ 948 - Long Rural 1,042 which will also help us to mitigate Frequency (SAIFI) Frequency (SAIFI) and adapt to climate change impacts. - Urban ≤ 2.0 - Urban 1.4 - Short Rural ≤ 3.9 - Short Rural 3.6 - Long Rural ≤ 7.3 - Long Rural 7.0 Demand management reductions of ≥ 25MW1 Realised peak demand reductions of 36MW1

Ensure our people have the Operational Expenditure per Route Kilometre ≤ $2,331 Operational Expenditure per Route Kilometre $2,6392 Prudent and Efficient – prudently invest and efficiently deliver HIGH-PERFORMANCE knowledge, information, tools, the capital expenditure and operating expenditure programs. skills and leadership they require Network Maintenance Costs/Regulated Asset Base ≤ 3.1% Network Maintenance Costs/Regulated Asset Base 3.3% ORGANISATION to carry out their work safely, Information – integrate a spatial model into business processes Scheduled Performance Index and Cost Performance UbiNet project – Scheduled Performance Index 1.00 effectively and efficiently. to enable our people to improve work practices and efficiency. p28 Index ≥ 1 for capital projects >$75m regulated and Cost Performance Index 0.96 $60m unregulated. Skills and Culture – build and foster a resilient and adaptable organisation with the skills and culture required to manage Employee ‘Have Your Say’ survey – Employee Employee ‘Have Your Say’ survey – increasingly sophisticated networks, information systems and 1 Engagement ≥ 70% Employee Engagement 71%1 renewable energy solutions. Annualised Staff Turnover 8.1% Safety – make sustained progress towards ‘no one gets hurt today’ in ensuring a safe workplace for our people and the broader community.

All Injuries Frequency Rate – Employees ≤ 13.3 All Injuries Frequency Rate – Employees 9.9 Compensation Claims Frequency Rate – Employees ≤ 3.7 Compensation Claims Frequency Rate – Employees 2.0 Lost Time Injuries Frequency Rate – Employees ≤ 2.6 Lost Time Injuries Frequency Rate – Employees 2.7 Lost Time Injuries Frequency Rate – Contractors ≤ 1.0 Lost Time Injuries Frequency Rate – Contractors 1.8

Environment – Nil Class 1 EPA Breaches Nil Class 1 breaches AS/NZS ISO14001 Environment Standard and AS4801/ISO 18001 Safety Standards maintained1

Drive increasing economic value Net Profit After Tax≥ $277.6 million3 Net Profit After Tax $319.8 million Network Charges – drive network charges to less than the ECONOMIC through the efficiency of our service CPI over the long term. 3 delivery within a sound corporate Return on Average Assets ≥ 7.0% Return on Average Assets 7.6% AND FINANCIAL governance framework. Financial Targets – consistently achieve financial targets that Return on Average Equity ≥ 8.5%3 Return on Average Equity 9.7% PERFORMANCE meet or better our regulatory allowance and achieve a commercial Actual operating expenditure within Regulated operating expenditure was slightly ahead return on assets. p39 regulatory allowance ≤ 39% of target, at 42% of five-year allowance Unregulated Business – increase unregulated revenue while

Actual capital expenditure within Regulated capital expenditure was within the target improving core business. regulatory allowance ≤ 30% range, at 29% of five year allowance

1. An additional corporate (non-SCI) measures and results.

2. To allow comparison, the same base route kilometre used in the target was used to calculate the result. Total actual route kilometres have reduced with data improvements.

3. The financial performance measures in our Statement of Corporate Intent 2011/12 were revised in December 2011 to reflect the asset valuation.

8 THE YEAR IN SUMMARY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 STRATEGIC THEMES 2010-2015 PERFORMANCE TARGETS 2011/12 PERFORMANCE RESULTS 2011/12 FUTURE CHALLENGES AND GOALS 2010-2015

Environment – Nil Class 1 EPA Breaches Nil Class 1 breaches AS/NZS ISO14001 Environment Standard and AS4801/ISO 18001 Safety Standards maintained1

Actual capital expenditure within Regulated capital expenditure was within the target improving core business. regulatory allowance ≤ 30% range, at 29% of five year allowance

1. An additional corporate (non-SCI) measures and results.

2. To allow comparison, the same base route kilometre used in the target was used to calculate the result. Total actual route kilometres have reduced with data improvements.

3. The financial performance measures in our Statement of Corporate Intent 2011/12 were revised in December 2011 to reflect the asset valuation.

THE YEAR IN SUMMARY ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 9 CHAIRman’s MESSAGE

The people of Queensland voted I’m delighted to report that the Ergon for significant change in March Energy team is well advanced in this 2012. This warrants, I believe, a area, having developed a major demand completely fresh approach to the management program aimed at driving management and governance of significant capital investment deferrals. Ergon Energy. With smart metering, extensive customer engagement and the appropriate Our clear focus now is to stamp out incentives the organisation will continue wasteful practices, focus on core to develop this approach for the benefit business, continue to encourage of regional Queenslanders. cost-saving innovations, maintain security of supply and keep safety funding the uniform tariff as a top priority. We need to Ergon Energy faces some unique provide safe, reliable, competitively challenges servicing its remote areas priced power to the people and in that the cost of providing power businesses of regional Queensland. greatly exceeds the price under the uniform tariff in place across the Since joining Ergon Energy at the end state. Whilst Ergon Energy meets the of May 2012, I can assure you that the prudential requirements of a public Board and the executive management company, it does so with the financial team have been committed to driving support of all Queenslanders. efficiencies and reducing costs wherever possible. Many members of the broader For the year ended 30 June 2012 the management team have also made Queensland Government provided valuable suggestions to assist with $415.2 million to the company by way significant cost reductions and of a ‘Community Service Obligation’ process improvements. payment to primarily assist Ergon Energy meet the costs of supply. However, meeting the demand this was offset in part by the Ergon challenge Energy dividend payment provided for The energy sector faces significant of $255.9 million. It is also worth noting challenges, not the least of which is that the company borrowed an additional to provide adequate reliable power $480.0 million to fund its capital in extreme conditions. programs. So, in total, Ergon Energy’s operations required $639.3 million in Ergon Energy’s network is designed to supplementary funding in 2011/12. cope with peak demand on the hottest “As the Chair, I am focused on six or so days of the year. These peaks I must also point out that, although cost delivering greater efficiency, are sometimes 90% above normal reduction is centre stage today, it will be and a prudent investment summer peaks, and have risen over important to keep innovation, research, safety and training high on the agenda. approach.” the past decade at a greater rate than energy use overall. As a result, the Ergon Energy aims to be a network is being under utilised for much high-performance, customer-driven, of the year and as a direct result pricing sustainable energy business. has increased. To address this challenge, we need to work closely with our Finally, I would like to acknowledge and customers to find innovative solutions. thank Dr Ralph Craven for his dedication and efforts during his chairmanship.

MALCOLM HALL-BROWN CHAIRMAN

10 CHAIR MESSAGE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 CHIEF EXECUTIVE’S REPORT

I trust this report provides the The reform path is seeing tariffs become confidence that Ergon Energy is, more cost reflective – Ergon Energy as an organisation, focusing on considers that the transparency that the dimensions that our many this will provide will ultimately encourage stakeholders value and expect. customers to use electricity more appropriately, and allow market forces to As Ergon Energy’s Chief Executive support more efficient outcomes overall. I can reassure you that we’re doing It has been Ergon Energy’s aim through everything possible to keep electricity this reform process to ensure future affordable. That we are striving to give pricing structures best support our our customers the service they expect, regional Queensland customers and especially in terms of connecting to positive economic outcomes. the network, as well as the energy advice, support and solutions they need We also put in a significant effort this generally. We are focused on delivering year into driving improved customer value for money, being there for regional service outcomes in line with the Queensland in times of natural disaster, proposed introduction of a National and ultimately on providing a reliable Energy Customer Framework. and safe power supply day in day out. PRUDENCY IN INVESTMENT ELECTRICITY PRICES A is A PRIORITY CHALLENGE AUSTRALIA WIDE As a result of a combination of economic As an industry, we face significant and other mitigating factors, during challenges associated with escalating the year Ergon Energy was able to put electricity prices and the impact on forward a $709 million reduction in our the cost of living. 2010-2015 capital works program, which with government support is now seeing Recent rises have been largely due $99.2 million of savings being passed on to the cost of the capital investment to customers through a reduction in our required to respond to rapid increases revenue requirement from electricity in peak demand (largely due to the take sales over the next three years. up of air conditioning and other lifestyle appliances) and growing regulatory The factors which allowed this included; standards around service connection the success of our energy conservation and reliability of supply, and increases and demand management programs in the cost of debt. and support for the use of more cost-effective alternatives (to duplicating “Our strategic plan is built In response, Ergon Energy has at the assets for redundancy) to achieving core of its strategic plan an overarching appropriate levels of security of up around a commitment to goal to limit increases to network charges supply, as well as a slower than do what we can to address to less than the CPI over the longer term. anticipated recovery in connections rising electricity prices.” These charges make up around half of and electricity consumption. the cost of our customers’ bill – so this is the area where Ergon Energy has In the alternative energy solutions the greatest influence. The strategic areas, initiatives like the Townsville: initiatives that we are progressing to Solar City project, which came to the achieve this range from implementing end of its operational phase this year, tariff reform, and other demand have helped deliver 53MW of peak management related projects, to demand reductions – putting us well driving efficiencies through our ahead of this year’s target and on track operational and capital programs. to reach a reduction in peak demand of 103MW by 2015. This success has allowed Reform is at the centre of us to defer $428 million in proposed affordability long term network augmentations to date. During the year we were actively involved in the Queensland Government’s review of its gazetted retail tariff. This saw us engaging with the government and dedicating significant resources to the activities required to enable us to be ready for the government’s move to a new tariff structure on July 1.

CHIEF EXECUTIVE’S REPORT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 11 CHIEF EXECUTIVE’S REPORT (continued)

We are currently exploring the potential DELIVERING AS A HIGH A highlight this year is the continued for further reductions in the scale of our PERFORMANCE ORGANISATION development of our ‘ROAMES’ initiative, works program, where prudent to do Another pleasing performance outcome which is now seeing purpose built so, in line with the current slow down in this year has been our safety result – observation aircraft in the air capturing demand. This will depend on the pace a 28% improvement in our All Injuries precision network-related condition data. of economic recovery, particularly in the Frequency Rate for our employees, This will enable us to drive efficiencies energy resources sector. Where savings which incorporates a 15% improvement across the asset management program. are possible, this will help to ease in our Lost Time Injury Frequency Rate. THE REVIEW INTO OUR INDUSTRY electricity prices further. This builds on the turnaround achieved the previous year and takes us one step As this report was being finalised Excellence in asset management further towards our goal of being in the Ergon Energy was participating in recognised top quartile of the electricity distribution an industry review into Queensland In the Queensland Government’s industry’s safety performance. Government-owned electricity entities. Electricity Network Capital Program The objectives of the review are aligned Review 2011, which assessed the It is an outcome that has only come with the clear message we have been network performance and capital about through the priority placed on hearing from our stakeholders for works programs of Ergon Energy, building a safety culture across the sometime – find ways to improve service as well as Energex and Powerlink, we business – and the commitment and levels and at the same time reduce costs. were seen to have achieved significant professionalism shown by our employees. Ergon Energy has a lot to contribute improvements in a range of areas to these priorities, particularly around including network management planning, Improved efficiencies and effectiveness addressing our customers’ cost of living. network control and improved outage This focus is not new – it’s already at response times. The review also found While challenging we are also having the heart of our vision, our purpose broad improvements in preventative success around our efficiency and statements and our strategic plan. maintenance, demand management and effectiveness goals. In addition to the in the operation of our contact centres. savings built into our current plans, I believe Ergon Energy has a strong through a strong sense of responsibility foundation from which we can drive The review panel also recognised to our customers and shareholders, further improved customer outcomes, significant improvements in the reliability we have also delivered an additional efficiency and cost savings. and robustness of Ergon Energy’s $40 million in operational savings network over recent years. This trend for 2011/12. THANK YOU FOR YOUR SUPPORT has been maintained in this year’s final network performance frequency and This has supported a Net Profit After In closing, I would like to thank our duration supply interruption outcomes, Tax of $319.8 million – which will enable customers and other stakeholders which are outlined in this report. dividends of $255.9 million to be paid to for their support throughout the year. the Queensland Government in 2012/13. I would also like to thank the people of These results were supported by the Ergon Energy for their professionalism effort that went into restoring supply We intend to take our ‘cost saving’ and the passion they show towards the to the communities across regional agenda even further during 2012/13 communities who depend on us. Queensland that were impacted by this with a formal efficiency and year’s floods and bushfires, as well as effectiveness program now in to the suburbs in Townsville that were place to drive specific outcomes. devastated by the extreme tornado Longer-term, I am also confident, that like weather event. the investment we are making now Although the storm season was not towards becoming an information- as dramatic as 2010/11, I am proud of enabled organisation will become IAN McLEOD the way our people once again rose to increasingly central to ensuring the CHIEF EXECUTIVE the challenges Mother Nature sent our services we deliver are economically way, doing everything in their power to sustainable. help get the communities impacted back on track.

12 CHIEF EXECUTIVE’S REPORT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 REVIEW OF OPERATIONS

The following Review of Operations is divided into our three strategic themes.

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

OUR STRATEGIC THEMES

CUSTOMER-DRIVEN ASSET MANAGEMENT Understanding customers’ needs EXCELLENCE and offering the right balance To limit increases to network of products, service, cost and charges over the long term quality is considered core to we’re focusing on our asset addressing affordability concerns management capability. This is and delivering service delivery about realising greater value excellence; and to reducing from the existing assets, and peak demand and growing our delivering new assets prudently unregulated revenue. and efficiently while maintaining network health and reliability.

HIGH-PERFORMANCE ORGANISATION Being a high-performance organisation is about ensuring our people have the personal engagement, skills, information, technology and leadership support they need to carry out their work safely, effectively and efficiently, and to achieve the strategic objectives.

REVIEW OF OPERATIONS ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 13 ADDRESSING REVIEW OF OPERATIONS: AFFORDABILITY 14

CUSTOMER SERVICE CUSTOMER-DRIVEN IMPROVEMENTS 17

ENGAGING WITH THE COMMUNITY 20

Our focus on being ‘customer- Above: During the year our powersavvy initiative driven’ has put electricity ADDRESSING was expanded to help more customers reduce AFFORDABILITY their electricity use and save money. Residential affordability at the centre of Program Coordinator Michael Miller is shown here our strategic plan. It has seen a conducting a home consultation in Mapoon, one focus on ensuring reforms support LISTENING TO OUR CUSTOMERS of the communities now being targeted with the help of a partnership with the local council. sustainable outcomes for regional Since 2001, we have been using a ‘value Queensland’s electricity supply to customer’ research program as the In addition, a comprehensive piece of arrangements. And us working primary tool to track what is important research was undertaken to help develop together with our customers to to our customers. This year’s research again clearly highlighted rising electricity actionable strategies to address the help them save on their bills and prices as the key issue for our customers. challenges of affordability among improve our demand management customers in, or at risk of, hardship. capability. It is also driving an This research provides a metric that organisation-wide focus on our allows us to monitor how both our We also began to develop our customer efficiency and effectiveness. residential and business customers segmentation capability to help us better judge value in terms of what they place the customer at the centre of Ergon Energy’s 700,000 customers receive versus the price they pay. decision-making and ensure that the range from ‘mums and dads’ to While the overall value score from allocation of resources delivers optimum large industrial energy users. our residential customers remained customer and business value. This work is ongoing. They are not only geographically low at 6.5 out of 10 (the same as in the previous year and again as a result dispersed, they have different The role of our Customer Council also of customers’ perceptions around cost expectations regarding ‘service continued to develop, allowing us to keep and affordability), Ergon Energy has abreast of the issues of potential concern levels’. This diversity, coupled benchmarked slightly up on where to our customers. Established in 2011, it with the different way they use we were last year (at 105 where 100 operates as a consultative forum for electricity, means we need to work is parity compared to 103 in 2010/11) customer-related challenges and hard to achieve the right balance when compared to the peer suppliers opportunities by bringing together of service quality, cost and choice we review. The overall value to business representatives from Ergon Energy and for all of our customers. score, is sitting at 6.0 out of 10 compared nine peak organisations from across to 6.1 in 2010/11. p18 regional Queensland.

14 REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 Ongoing Achieved Partial Not Achieved

STRATEGIC INITIATIVE ACHIEVEMENT Develop our customer segmentation capability to better place Segments have been identified and data enhancements have the customer at the centre of decision-making and ensure that been scoped. Research will now be used to determine, by the allocation of resources delivers optimum customer and segment, customer priorities, service performance targets, business value. product/service requirements, and the value of differentiated service offerings. p14

Participate in the Queensland Government’s retail tariff review A significant system build was delivered to enable the to ensure future pricing structures best support regional introduction of the new tariffs by July 2012, and the Queensland and our customers. government’s tariff decisions have been implemented. Government engagement is expected to continue as further reforms progress. p15

Build the capability to deliver on the requirements of the Despite the introduction of NECF being postponed, the National Energy Customer Framework (NECF) and improve system investment and the supporting training and process service standards around connections, supply interruptions, changes have improved service standards in a number of key life support, billing and support for those in hardship. areas. p17

Deliver a program to better understand the cost to serve Progress has been made in benchmarking our service delivery our customers in order to provide improved service delivery, activities. Due to competing priorities (tariff reform and while also improving cost effectiveness. NECF) this program will be delivered in the coming year. p17

These community service, environmental This is needed to encourage customers management and business sector “Addressing customer to use electricity more appropriately, organisations are informing and and allow market forces to support influencing Ergon Energy’s business concerns around affordability more efficient outcomes. decisions, and helping to facilitate wider and value is central to our Ergon Energy also expressed its view community consultation. strategic plan – from our that the pace of change proposed for Our commitment to placing the customer customer service initiatives some of the tariffs presented significant at the centre of our decision making and to our longer-term challenges to specific customer being a responsible provider is reflected segments, notably large energy users in the strategic initiatives highlighted efficiency targets.” and the farming sector. Our aim was to throughout this report. seek a transitional period that allowed During the year we have been actively time for customers to understand and involved in the Queensland Government’s adjust to the new price signals. Many of RESEARCH CONFIRMS FOCUS retail tariff review, where our aim was the issues raised by Ergon Energy were ON AFFORDABILITY to ensure future pricing structures resolved in the final determination. best support regional Queensland In addition to the above, the new 3 . and our customers.

7 Queensland Government, with the aim 7.1 5 5 6.9 . . of relieving cost of living pressures, made

6 This review led to the outcomes in the 6 QCA’s Final Price Determination on a commitment to freeze the residential Regulated Retail Electricity Prices for Tariff 11. The means the new inclining 2012/13. This determination replaces the block tariff for residential customers, which had been proposed as part of COR E previous Benchmark Retail Cost Index S approach to adjusting regulated retail the draft determination, has not been ER electricity prices. introduced. Tariff 11 will continue to be

TO M charged at the 2011/12 flat rate plus the To support the review, including the Australian Government’s carbon price

O CU S government’s modelling requirements, of 2.4 cents per kWh. T

E and manage the significant system U build that was required to deliver A new voluntary time-of-use tariff

VA L the introduction of the new tariffs was made available from 1 July, 2012.

12 on 1 July 2012, a project team Under this tariff, customers pay more 2011 2010 2 0 2008 2009 was established with significant for electricity during the specified dedicated resources. peak period, and less during off-peak Our overall value score from our residential or shoulder periods. This allows high customers remained low at 6.5 out of 10. This is Ergon Energy provided submissions in a direct result of customers’ perceptions around energy using customers, who can cost and affordability, and is the reason for our response to the QCA’s November 2011 choose when they use power, to strategic focus on efficiency. Draft Methodology Paper for the potentially achieve the lowest cost proposed regulated retail electricity option. This tariff is expected to be tariff changes and the March 2012 attractive to customers in future years. SUPPORTING TARIFF REFORM Draft Determination. Ergon Energy is expecting engagement Ergon Energy is seeking greater cost Throughout this process Ergon Energy with the government to continue as reflectivity of electricity tariffs, as part strongly advocated the need for reform further reform of both residential and of our efforts to ensure the efficient and supported the general direction network tariffs progress. and sustainable supply of electricity. in which the reform had progressed. Separating the network (N) and retail (R) components, introducing time-of-use price signals and removing obsolete tariffs will enhance the cost reflectivity of electricity prices.

REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 15 HELPING OUR CUSTOMERS SAVE In response to the growing difficulty During the year we continued our our customers are experiencing in ‘energy sense’ campaign to help making ends meet, we have expanded educate customers on how to save our capacity to deliver the hardship energy, and ultimately cut the cost program and, through products and of their power bills. services, improved our ability to assist and educate customers on how to The campaign consisted of a number manage their electricity costs and of elements including television, radio avoid debt-related disconnection. and press advertisements, outdoor advertisements, website promotion The success of these efforts has and our Energy Sense guide; with seen the number of customers energy saving tips and helpful being disconnected for debt drop information on appliance running by 11% compared with last year, to costs and tariff options. a five-year low. We also continued to promote direct Our Customer Assistance Program debit as a useful tool to help manage gives general advice on how to reduce high bills, especially for those in lower electricity consumption, organises socio-economic areas or medium-to- payment plans and alternative payment high electricity users. methods, and provides direct referral to Lifeline Community Care Queensland In a joint initiative with Energex, we if counselling is needed to build a also developed the content for a customer’s long-term capacity to pay. new website which now provides all Queenslanders with a single reference The team has also worked with a point for accurate, reliable, and impartial number of other community groups Our advertising campaign – You don’t pay information on energy conservation to help promote the Customer quarterly for milk or petrol. So why pay quarterly Assistance Program to ‘vulnerable’ and demand management. The site, for electricity? – encouraged customers to yourpowerqld.com.au provides consider if direct debit was right for them. or ‘at risk’ customers and to improve our residential customers with tips, their energy literacy so they can also checklists, calculators as well as a directly support their clients to better At the same time powersavvy is helping single source for all rebates and manage electricity bills. us to reduce the fuel costs associated rewards across Queensland. with the diesel-fired generation that We have also lifted the rigour around To help customers save on their pool is used to supply these communities the program’s reporting framework, as running costs we rolled out a major p36. The education element of the part of preparations for the introduction incentive program to encourage program, which uses E-learning and of the National Electricity Customer customers to use Tariff 33, our economy, a range of other tools, continues to be Framework p17; which will allow us to off-peak tariff, for pool equipment and the stand-out success, with school more proactively assist vulnerable and to purchase energy efficient pool pumps campuses realising significant reductions disadvantaged customers. We have p24. Initiatives like this deliver immediate in electricity use – in the order of also been looking at how we can extend savings to our customers, while helping 50-60% for a number of schools over hardship provisions appropriately to us improve the utilisation of our assets a three-month period (compared with customers who are using prepayment and reduce what we need to invest in the same period the previous year). meters and to our small business the network, which longer term takes customers. Customers are also making savings pressure off prices. through a range of other initiatives in our In addition, we are reviewing the way Another highlight in this space was the demand management program. p24 we manage our customers’ credit path ongoing success of the isolated in line with the implementation of communities’ energy saving program, ASSISTANCE FOR THOSE system improvements. Together with known as powersavvy. Created in IN HARDSHIP an increased focus on proactively identifying customers at risk and the 2009 to target residential, school The number of customers benefiting development of targeted products, and commercial electricity use in from our Customer Assistance Program services and channels, these measures Queensland’s isolated communities, has increased to 5,600 (from 3,900 in will help us better provide sustainable the initiative was expanded this year into June 2011). This equates to approximately access to electricity. the remaining communities across the 0.8% of our customer base. Torres Strait and Cape York Peninsula, as well as to Palm Island. It also continued in the initial pilot communities to help sustain the energy usage behavioural changes achieved to date.

16 REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 It also reinforced the priority already BENCHMARKING SERVICE LEVELS CUSTOMER SERVICE being placed on streamlining our AND COSTS IMPROVEMENTS processes to make it easier for customers During the year we began using to arrange new connections to the 2011/12 has been about finding advanced external benchmarking network. The improvements will see to better target service delivery ways to do what we do better, and customers better informed when more efficiently. enhancements and improve the cost making an application, which will help of serving our customers. These results ensure we receive everything we need NATIONAL ELECTRICITY have provided insight into opportunities at application time to reduce processing CUSTOMER FRAMEWORK to maintain or improve service levels timeframes. The management of the at best practice cost. The associated Significant resources were dedicated timeframes for making an offer and transformation plan will see us continue to introducing service improvements for customers to accept the offer has to improve our access to information in line with the proposed July 2012 also been improved through better about our customers, which will in introduction of the National Electricity monitoring and communication turn provide us with the ability to tailor Customer Framework (NECF). mechanisms (see Scorecard). service levels to our customers’ needs. Developed by the then Ministerial Council on Energy, NECF aims to provide With the work achieved to date, Ergon Improvements to the service related a single, consistent set of rules for Energy is well placed for when NECF element of our distribution business, interactions between energy customers formally commences in Queensland. such as the management of power and their retailer and the distributor that interruptions (both planned and FOCUS ON MAJOR NETWORK supplies them, including a range of unplanned) and service order dispatch CONNECTIONS energy-specific consumer protections. practices, are being realised through To ensure we deliver for our large a focus on our service culture, While the introduction of the framework customers we established a Major performance measurement, cost to was delayed in May 2012, where there Projects business unit in late 2011, serve and resourcing. This work is already were strong customer benefits and to better manage the demand for addressing the lack of consistency in consistency with our Electricity Industry major customer connections, fuelled practices and service delivery across Code obligations, we continued with in large part by activity in Queensland’s the different regions. In the future it will the implementation of the key service resources sector. This team is driving enable us to realise the full benefits of improvements in line with the significant changes to the way we the technology investment planned as original timeline. approach large customer connections we transition from the service order NECF presented an opportunity to to provide better customer service, dispatch model, introduced this year, improve services to our Life Support increased communication with the to a field force automation modelp30 . customers. It also saw us redesign the customer and a better understanding bill our customers receive by adding of their operations p51. Customer additional information and making it satisfaction research is being used to easier to understand. benchmark our service in this area, and to track and evaluate any changes that are implemented.

Electricity Account We have also introduced a new pricing

TAX INVOICE 1234 5678 model and service classification that Account Number 12345678901 National Metering Identifier (NMI) 15/10/12 Issue Date (91 days) 01/07/12 - 30/09/12 Billing Period NIL provides large customers with the choice Security Deposit Held MR A SAMPLE 1 SAMPLE ST SAMPLETOWN QLD 1234 as to whether they want Ergon Energy

Total Due $372.40 Pay By 02 NOV 2012 or another approved supplier to Account Summary $264.20 Previous Account $264.20 CR construct customer-specific assets. Payments Received $0.00 Supply Details Opening Balance of this Account 1 SAMPLE ST $412.52 Premises Address SAMPLETOWN QLD 1234 CR Standard Asset Customer Electricity Charges $54.12 Tariff Class Description Small (‹100MWH pa) - East SS1234 Queensland Solar Scheme $14.00 Substation EVST2 Other Charges & Credits $372.40 Primary Network Tariff 31 DEC 2012 Total New Charges Next Meter Read (approx)

$372.40 Total Amount Due Compare Your Usage

Total Usage (kWh) Important Average daily cost $4.09 2000 for Queensland customers (inc. GST) From 1 July 2012, the notified tariffs bon Price. For meter 1600 Average daily usage 1200 changed. The new prices include llthe will Car be calculated pro rata (kWh) 19.4 reads after 30 June 2012, your bi . For more information, This account 800 21.0 based on the new schedule of tariffs Same time last year 400

please visit ergon.com.au JUN SEP SEP DEC MAR 2012 2012 2011 2011 2012

service fees and Electricity tariff rates, including minimum charges,u or by phoning 13 10 46. conditions of supply, are available at ergon.com.a

Contact Us e Customer Servic Mon-Fri) Tariff changes from 1 July 2012 10 46 (7am-6:30pm losed 13 Faults Don’t miss the latest issue of THE WIRE enc days) 13 22 96 (24 hrs, 7 with this bill. It contains important information ing emergencies Life-threaten 7 days) 13 16 70 (24 hrs, about changes to residential tariffs from 1 July 2012. Triple Zero (000) or ergon.com.au customerservice@ ergon.com.au

ABN 11 121 177 802 Ergon Energy Queensland Pty Ltd

REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 17 CUSTOMER EXPERIENCE SCORECARD

CONTACT CENTRE GRADE OF MEETING DEMAND FOR SERVICE SOUND SOLAR CONNECTIONS SOLAR ENERGY SYSTEMS Throughout the year Ergon Energy’s Over the past year applications to CONNECTED DOUBLES Contact Centre consistently delivered connect solar photovoltaic systems to a monthly ‘grade of service’ result above Ergon Energy’s network continued to

the targeted 70% of calls answered in escalate. More than 10,000 applications ,01 8 6

30 seconds. This helped maintain a arrived in June alone in the lead up 4 high level of overall customer to the reductions in the Australian satisfaction – averaging 86%. Government’s Solar Credits multiplier and the Queensland Government’s 7

While the summer storm season was

feed-in tariff. S largely uneventful from a call volume

perspective, day-to-day the centre was Early in the year, we established a 22 ,0 8 STE M Y

challenged by the continued growth dedicated team to manage applications S in customers experiencing energy and assist both customers and the solar 1 RGY

hardship, as well as the significant industry, and we reallocated resources E N ,4 8 E

increase in customers applying to to maximise our ability to install the 6 R 0

connect solar energy systems. required meters. A significant focus 0 1, 86 8 2 OL A

was also placed on educating the solar S To address the centre’s resourcing

industry sales consultants and installers 12

challenges, we recruited additional 2011 2010 2 0 2008 on Ergon Energy’s business and network 2009 part-time and casual employees requirements so they could advise their who now make up 65% of all phone customers appropriately. By the end of June there were more than answering staff. This flexibility, together 46,000 systems feeding electricity into with the ‘Ergon Mates’ program, which Customers have increasingly opted for Ergon Energy’s network – helping Queensland surpass New South Wales as allows skilled staff from other areas of larger systems, as system prices have the state with the most solar energy systems the business to be called on in times of fallen, with 2.6kW the average system with a total generation capacity of more than 122MW, a third of which was added need, enables the centre to operate at size now installed. Through the in the last six months. 140% of its normal capacity during Queensland Government’s Solar Bonus major events, like the weather events Scheme – the 44 cent feed-in-tariff – we experienced in 2010/11. credited almost $28 million to eligible customers’ accounts for the renewable energy their systems exported back into the grid during 2011/12.

CUSTOMER SERVICE DELIVERY 2011/12 2010/11 2009/10 2008/09 2007/08

Value to Customer – Target 100 (peer average) 105 104* 106* 103* 103 Residential Research Parity ≥

Value to Customer – 6.5 6.5 6.9* 7.1 7.3 Residential Research Score

Value to Business (research score) 6.0 6.1* 6.5 na na

1.46 1.67 1.55 1.45 1.39 Call Volumes to Contact Centre million million million million million

Contact Centre – Target 85% 86% 88% 91% 90% 89% Customer Satisfaction ≥

Contact Centre – Calls Target 70% 72% 64% 71% 71% 74% Answered in 30 Seconds ≥

New Connections – Average Time Target 170 days 170 days 218 days 162 days 165 days 173 days from Contract to Commissioning ≤

*Corrections from previous reports..

18 REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 CUSTOMER EXPERIENCE SCORECARD

DELIVERING ON OUR COMPLAINTS CUSTOMER CHARTER MANAGEMENT STRONG As part of our Customer Charter, During the year we continued to Ergon Energy has a range of Guaranteed improve our complaints handling Service Levels (GSLs). These cover the practices, strengthening our position distribution GSLs around the notification regarding complaints escalated to of planned interruptions and network the Energy and Water Ombudsman – reliability standards, as well as new Ergon Energy now only accounts for connections and reconnections approximately 3% of all of Queensland’s timeframes, wrongful disconnections, energy retail and distribution escalated the resolution of hot water supply complaints (down from an already low matters and appointments, as well 6% in 2010/11) despite serving a third as the retail GSL for billing errors. of Queensland households. These performance commitments During 2011/12 Ergon Energy also allow payments to be made to our achieved a high level of conformance customers as compensation for in an independent review against the performance failure. The increase International Standard on Complaints in payments during 2011/12 has been (AS ISO 10002). At the same time, largely attributable to reliability however, in our own customer research, performance (2,942 payments) overall satisfaction with the complaints and failure to notify of planned management process was down interruptions in the appropriate timeframe slightly to 58% (from 62%). This is (6,635 payments) as a result of data being monitored. integrity issues, notification calculation errors (partly relating to public holidays) and works program priorities.

2010/11* SERVICE 2011/12 FAILURE CLAIMS PAYMENTS CLAIMS PAYMENTS

Network Reliability GSLs 2,942 $305,916 1,099 $114,296

Notification Planned 6,635 $203,827 3,216 $107,283 Interruption GSLs

Other GSLs 543 $67,154 486 $58,178

TOTAL 10,120 $576,897 4,801 $279,757

*2010/11 figures have been adjusted to be consistent with 2011/12 disclosures.

SERVICE LEVEL PAYMENTS FOCUS EFFORTS

2,000

1,500

1,000

500

0 JUL SEP FEB JUN JAN APR DEC OCT AUG MAY MAR NOV

Reliability GSL Payments Notification Planned Interruption GSL Payments Other GSL Payments

During the year we experienced a number of spikes in payments for the ‘notification of planned interruption’ GSLs. Recent system enhancements are now providing an alert when the notification times allowed do not meet requirements to reduce customer inconvenience and payments in this category.

REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 19 The accountability actions to which Through our Community Powerline ENGAGING WITH Ergon Energy has committed in the Project fund we continued to support THE COMMUNITY Queensland Government’s RAP will community-owned streetscape form the foundation for Ergon beautification projects, with progress OUR COMMITMENT TO OUR Energy’s own RAP. They are aligned on projects to relocate or underground INDIGENOUS COMMUNITIES to Reconciliation Australia’s action existing overhead powerlines in Airlie Ergon Energy supplies the majority themes of opportunities, relationships Beach, Yeppoon, Richmond and Biloela. of regional Queensland’s Indigenous and respect. Reconciliation Australia will We also worked with local governments communities with electricity, either now assist us to formalise our own RAP through our ongoing Cyclone Area through the grid via stand-alone over the coming year, with the aim of Reliability Enhancement (CARE) power stations and local distribution developing a plan with clear performance program p26. targets that we can report on publicly. networks, or through small stand-alone This commitment to engaging with power supply systems. Our aim is to In addition, we are engaging directly the community is in line with our contribute to the economic and social with our Indigenous communities and over-arching stakeholder engagement well-being of these communities through undertaking formal research to map policy and framework p53. both our service delivery and our the expectations of our customers engagement efforts. and other stakeholders. This information COMMUNITY PARTNERSHIP To deliver our Aboriginal and Torres will be crucial to progressing the RAP, OFFERING REAL VALUE Strait Islander (A&TSI) Community as well as specific matters, such as Ergon Energy’s Community Partnership Engagement Strategy we have a strong future metering changes. program is aimed at forming active and governance structure that provides the mutually beneficial relationships across executive leadership to drive appropriate ENGAGING ON OUR MAJOR the communities we serve. The program’s service delivery. The strategy coordinates PROJECTS AND WITH LOCAL partnership activities range from small and supports service delivery and the GOVERNMENT school projects and local environment active engagement of our most remote With communities increasingly initiatives, to community festivals and and isolated communities. wanting more of a say on the impact major engagement programs. These of infrastructure development, Ergon partnerships are not merely about We have continued to progress the Energy strengthened its commitment to financial support, they also allow us to development of a Reconciliation Action foster community understanding of the contribute and transfer skills, expertise Plan (RAP), pulling together all of the need for its major capital works program. and knowledge, to both deliver on our current activities across the business corporate social responsibility and into a draft plan and gaining Board realise commercial value. endorsement. “Ergon Energy is committed A key area of its focus is on building A RAP is an initiative of Reconciliation community awareness of energy Australia, the peak national organisation to playing a role in closing efficient behaviours. This both empowers building and promoting reconciliation the opportunity gap between our customers to save on their energy between Indigenous and non-Indigenous Indigenous and non-Indigenous bills and provides valuable support to Australians. It documents publicly what our demand management activities, an organisation is doing to further Queenslanders.” such as the Energy Sense Communities reconciliation, within its realm of initiative p25. influence, and holds the organisation accountable for the commitments Four community engagement subject made with a requirement to report matter experts were appointed in FOCUS OF OUR COMMUNITY progress annually. locations across the state to work PARTNERSHIP PROGRAM The initial development of our draft with existing specialists in areas such plan has allowed us to contribute to as property, environment, cultural the Queensland Government’s RAP heritage and design. These subject 2012-2015 with specific commitments matter experts help the business assess in four broad areas: the potential community impact of major infrastructure, such as substations and • Employment: to employ, develop powerline routes, and manage the and promote Indigenous people engagement with those communities to help create a workforce that is to mitigate the impact. representative of the communities in which we live, work and operate. Processes were also embedded into business practices to integrate • Cultural recognition and capability: community impact assessment and by improving our understanding of engagement ‘always and early’ during Indigenous culture, and the issues the project planning and design phases. facing Indigenous Australians, we The community engagement team Environment 27% Arts and culture 10% hope to better respond to their needs. is currently working on more than Education/young people 26% Aid/emergency relief 7% Economic development 19% Other 11% • Energy efficiency and education: to 50 projects, valued at more than continue and expand the assistance $250 million. we provide our Indigenous customers The London Benchmarking Group’s 2011 In this and many other areas – from report captured our main community to reduce their energy consumption energy conservation to disaster response investment activities and enabled us to and improve financial capability. planning and activities, to street lighting benchmark these investments against other companies in the energy sector, as well as • Capacity building: to build skills, – we continued to work closely with more broadly. Our environment and education through education and training, and local government to ensure we best investment is largely targeted at achieving deliver on our respective obligations our energy conservation and demand support development programs that management objectives. enhances local community capacity. to the community.

20 REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 Our Envirofund, first launched in May Community related incidents have WireAlert monitors for danger 2009, continued to provide benefits this wide-ranging impacts. They can have Another significant community safety year with 22 community-based groups tragic consequences for the individuals initiative this year was the provision of bringing their energy conservation and involved and their families; they can WireAlert devices for use in the homes environmental vision to life. Funding cause significant power supply disruption of our employees. This pilot, which saw grants totalling $150,000 were awarded and financial strain on employers and over 4,000 WireAlert devices distributed to widely diverse projects across the the broader community; and they are across regional Queensland, is helping state from the Hampden State School a significant cost to Ergon Energy as us to assess whether the device is a Sustainability Education Program to a business. viable solution to help reduce public the Brigalow-Jimbour Floodplain In 2011/12, more than 64,000 customers shocks and tingles that could result in Group Solar Project. had their supply interrupted due to equipment damage or injury. Our PowerAid program reached a incidents where members of the The use of the device by employees has milestone with $2 million donated to community had come in contact with been positive – to date one potentially not-for-profit organisations since its the electricity network, which equated dangerous electrical issue on the inception eight years ago. This initiative to eight million customer power supply network and two premise-related safety is a simple concept that involves work minutes lost. issues have been detected. The program teams accruing points for safe work supplements our existing asset Targeting major ‘at risk’ industries practices, which are then converted into monitoring and inspections. donation dollars by Ergon Energy and In response, we have again targeted donated to charities of our employees’ the road transport industry and the choice. Since 2004, the program has building/construction industry, COMMUNITY SAFETY aided causes such as Angel Flight, Blue developing new fact sheets focused INCIDENTS REMAIN DOWN Care, Meals on Wheels, Camp Quality on the transportation of high loads, as and Cancer Council Queensland p32. well as high risk activities undertaken by plumbers, carpenters and painters. Ergon Energy’s customers also continued 58 8 to show outstanding generosity, having Efforts have also continued in the now donated a total of $6.3 million to agricultural industry with a major focus on educating cotton and sugar workers. the Royal Flying Doctor Service through 43 9 their power bills. As part of the scheme, Ergon Energy collaborated with a 3 customers can contribute via regular 0 range of external organisations such 1 0 3 donations through their quarterly bill, 3

as AgForce, Canegrowers, Farmsafe, 28 4 or make larger one-off donations. the Local Government Association of Since it began in 2000, more than Queensland, Workplace Health and 100,000 customers have chosen to Safety, Cotton Australia, the Electrical S donate. These funds are vital to Safety Office, Energex, Dial Before You T N keeping the doctors flying, helping Dig and the Building Services Authority E to purchase life-saving aircraft and to share strategies for reducing electrical vital medical equipment. safety incidents. We also developed a INCI D 12

community safety video in conjunction 2011 2010 Ergon Energy continued to gauge 2 0 2008 2009 the effectiveness of our community with New South Wales distributors, investments through the London Essential Energy, Endeavour Energy Electrical safety incidents in the community Benchmarking Group’s modelling tool. and Ausgrid, with versions targeted halved over recent years – by maintaining our at rural, urban and emergency investment in electrical safety awareness we This allows us to benchmark against are endeavouring to continue the positive trend. more than 100 companies across services audiences. Australia and New Zealand to improve We have also participated in major the management of our community industry events, distributing more than INDUSTRIES AT RISK FROM involvement. 90,000 individual items of ‘Look Up ELECTRICITY NETWORK and Live’ campaign material. ‘Look RELATED INCIDENTS COMMUNITY ELECTRICAL Up and Live’ safety presentations have SAFETY AWARENESS been delivered in 50 different locations Ergon Energy’s Community Electrical to approximately 10,000 people. Safety Awareness Plan has evolved These efforts have been supported each year to address the most frequent by our mass market and targeted community electrical incidents, identified advertising campaigns. by analysing annual incident data, Direct mail pieces were sent to with awareness campaigns targeted at 3,500 members of the risk industry industry sectors or extreme risk activities. groups, including aviation, agriculture, This has seen community electrical tradespeople, road transport and crane safety incidents halved in the past five companies. This included tips to help years – an achievement our community identify the electrical hazards in each safety team is extremely proud of. specific industry and the control There is no room for complacency, measures available. however, when it comes to community Road Transport 57% Vegetation Management 4% It is noteworthy that approximately Agriculture 17% Building/Construction/Demolition 2% health and safety. While there were 25% of all our community safety Earthmoving 13% Other 3% no fatalities in 2011/12, there were incidents were motor vehicle accident Aviation 4% two serious electrical incidents. related. Our strategy in this area is to promote that ‘the safest place to be is The major ‘at risk’ industries from a community safety perspective are road/transport, in the vehicle’ and ‘how to safely escape’ agriculture and earth moving. This is where if there is no other option, such as the we are targeting our awareness campaigns, in vehicle being on fire, to ensure we do collaboration with the industries’ peak bodies. not have secondary fatalities (rescuers).

REVIEW OF OPERATIONS CUSTOMER DRIVEN ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 21 REVIEW OF OPERATIONS: MEETING PEAK DEMAND 22 NETWORK RELIABILITY 26 ASSET MANAGEMENT EXCELLENCE

Ergon Energy is committed to Above: We are expanding our remote control MEETING PEAK DEMAND of the network to allow us to operate more limiting future increases in network efficiently and effectively. This functionality is charges – and ultimately reducing DEMAND REMAINS increasingly allowing our operational control centre teams, including Network Operations the pressure on the price of RELATIVELY STABLE electricity. This is driving our Officer Kelly James, shown here at work, to monitor the system and provide a more timely strategic focus on asset Peak demand on the network was up 2.9% on the previous summer to response to outages and, in some cases, avoid management excellence. an outage entirely. 2,417MW – however, both 2011/12 and We’re endeavouring to find the 2010/11 were lower than the maximum recorded for the previous summer. Ergon Energy is continuing to analyse right balance between ‘investing in’ While this year’s peak was less than major influences of peak demand, and ‘driving value from’ our asset anticipated, maximum demand is still including regional Queensland’s base to ensure we deliver a reliable, forecast to increase steadily into the economic drivers (especially in the efficient and sustainable electricity future. The highest maximum demand areas being stimulated by increased supply for our customers, wherever experienced to date for the whole of mining activity), climatic conditions and they are in regional Queensland. Ergon Energy’s grid-connected any changes to energy usage behaviour network was 2,584MW during the as a result of electricity prices/energy We are also delivering new assets summer of 2006/07. conservation awareness. This will help more prudently and efficiently, and us to understand the potential impacts making the network smarter so we While not at historical highs the total on future network augmentation and can better monitor and control energy distributed was also up – to develop strategies to manage and 15,212GWh – despite the average supply parameters to meet reduce peak demand into the future. household use continuing to fall. changing demands.

22 REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 Ongoing Achieved Partial Not Achieved

STRATEGIC INITIATIVE ACHIEVEMENT Deliver the Energy Conservation and Demand Management A demand reduction of 36MW has been achieved during program of non-traditional solutions to address areas of 2010/11, in addition to 17MW delivered in 2009/10, taking us network constraint. halfway to the overall 103MW reduction target for the 2010-15 period. p24

Pilot a range of demand management techniques and A range of ‘smart asset management’ and ‘network of the technologies through the Energy Sense Communities program future’ initiatives have commenced, building on the demand in Townsville. management successes to date. p25

Outwork the Reliability Improvement Plan to ensure Ergon The focus has been on both operational practices and Energy is able to deliver against the network performance investing in the functionality of the network. Priority is being service standards for 2010-2015. placed on the areas of greatest benefit.p26

Advance our asset risk assessment capability to better prioritise Risk categories and assessment methodologies have been network maintenance and augmentation. developed. Once data gathering is complete this will provide both a quantitative and visual view of network risks. p26

Implement a Distribution Management System to extend the Implementation has been postponed to 2013/14 due to network’s connectivity and automation. competing information technology priorities and the pre-work required.

MAKING THE OUR NETWORK DEMAND FORECAST NECESSARY INVESTMENT To meet the rate that peak demand MW was growing dramatically only a few 5,000 years ago, we have been investing at High Growth Scenario record levels in our asset base. While this significant investment has been vital to meeting higher security, reliability and safety standards, the situation is not sustainable. Together with the drop in average household energy use, this is the primary reason for the rising per unit 2,500 Low Growth Scenario price of electricity. In response to the challenge to reduce electricity costs for our customers, Ergon Energy put forward a $709 million reduction in our 2010-2015 capital works program, which is being passed on to customers through reduced network

0 prices p39. This included $450 million 6 0 in capital savings achieved by approved 2 0 1 2 0 1 0 000 2 2 1992 1988 1996 2 2008 2004 2 changes to network security standards; implementing alternative energy solutions; and developing an enhanced Peak demand on the network during 2011/12 was below forecast at 2,417MW. Ergon Energy monitors the major influences of peak demand, including Queensland’s economic drivers, climatic conditions forecasting capability. and changing energy usage behaviour, to assist with developing our five-year capital works plans. At present we are anticipating a low growth scenario and reviewing our works program accordingly. We are also strengthening the governance discipline around our capital investment program to improve the prioritisation and optimisation of ENERGY USAGE Ergon Energy’s capital investment 2010/11 2009/10 2008/09 2007/08 SNAPSHOT 2011/12 program p51. This, and the inclusion of Population of Ergon econometric methods and temperature 1.541 million 1.52 million 1.50 million 1.47 million 1.44 million Energy’s Service Area corrected values in our forecasting, is currently supporting a further review No. of Customers 700,989 690,708 680,095 667,502 653,640 of the capital works program. Average Electricity Use 7,166kWh 7,242kWh 7,623kWh 7,978kWh 7,893kWh Despite this, during 2011/12 the per Household network-related capital works program Household Air saw $742.5 million investment into the Conditioning 79% 79% 79% 71% 67% Penetration2 network, up 12% on the previous year. Ergon Energy-initiated projects totalled Maximum Coincident 2,417MW 2,349MW 2,542MW 2,406MW 2,333MW ‘Peak’ Demand $526.1 million – 18% ($79.7 million) higher than 2010/11 – with a significant Electricity Distributed 15,212GWh 14,544GWh 15,678GWh 15,722GWh 15,547GWh investment made in replacing ageing assets, network augmentation works Electricity Generated by 118GWh 117GWh 114GWh 112GWh 178GWh (although below budget) and reliability Ergon Energy improvement. 1. Estimate based on trend. 2. Queensland Household Energy Survey

REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 23 Key Ergon Energy initiated capital In the Toowoomba region this pilot projects included: CUSTOMER-INITIATED has delivered 4.1MVA of peak demand WORKS REMAIN DOWN reductions and helped us build our extension of our remote control • understanding of costs and benefits capability further into the network of implementing demand management with the latest Supervisory Control solutions. $29 5

and Data Acquisition (SCADA) system $28 9 established in 16 zone substations. This year also saw engagement begin This investment is part of an accelerated around the development of a district 8 $22 1 program that is enabling our operational 0 cooling project in Townsville. This has the control centres to monitor loads and potential to take significant pressure off $1 8 $1 9 other system parameters and to carry the network, by supplying chilled water out remote switching. for the air conditioning requirements of a number of the city’s CBD buildings. establishment of new 11kV powerlines • It will build on the success of James to augment supply to the townships of Cook University’s central cooling system Springsure in Central Queensland (an that has been servicing its campus investment of $8 million) and Seaforth since 2009. in the Mackay area ($2.4 million). Another highlight has been the an increase of 35MVA of installed MILLIO N • Townsville: Solar City project, which transformer capacity with $8.9 million 12 2011 2010 2 0 came to the end of its operational 2008 in works at the Kelsey Creek zone 2009 phase this year. Since 2007, this project substation, near Proserpine, and has been actively trialling customer $1.7 million at the Mundubbera While demand for new network connections by our customers lifted slightly to $190.1 million, energy efficiency engagement and load zone substation, in the Wide the level of investment has remained at its management interventions, distributed Bay-Burnett region. post Global Financial Crisis levels due to the prevailing economic conditions across solar technology, smart meters and cost • commissioning of the $5 million regional Queensland. reflective pricing in Magnetic Island’s redevelopment of the Lannercost zone grid-connected urban environment. substation at Ingham, and progress on The success of the project has: the $37 million redevelopment of the DEMAND MANAGEMENT • reduced peak demand by 12% from Dalby Central zone substation and the PROVING SUCCESSFUL the 2008 maximum. The daily peak $37 million Roma Bulk Supply Point, A major element of our strategy to demand is currently back to 2005 which are both nearing completion. reduce the pressure on electricity prices levels; 44% below the forecast prior Together this investment will provide is to engage the community on the way to the project’s intervention. an additional 23.5MVA of capacity. electricity is used to improve the load profile of our network. • deferred the requirement for a replacement of ageing generation • third $17 million underwater equipment at Pormpuraaw, Gununa, For our region, daily peak demand electricity supply cable by eight Camooweal, Bedourie, Birdsville, is generally between 4pm to 8pm. years. The deferral equates to an Dauan Island and Stephens Island. Annual peak demand occurs mostly interest saving of $1.65 million per during the summer months, lasting for Network connections initiated by annum, or the equivalent of $7,000 only short intervals and fluctuating our customers saw an additional per customer on Magnetic Island from year to year. $190.1 million invested into the network. over the eight-year period. While this is comparable to 2010/11, Peak demand is a key driver of network • reduced the island’s overall electricity the scale of the program was lower infrastructure upgrades and associated consumption by 16% – back to than anticipated due to the economic increases in electricity prices. Around 2005 levels – despite ongoing island conditions across regional Queensland. 10% of the money we have invested in development. This has seen savings our assets is there solely to meet demand of more than $925,000 on our for only a few days each year. In response customers’ bills. NETWORK INVESTMENT to this reality, we are focusing on REMAINS VITAL improving the utilisation of our assets We have also had success with our through alternative energy solutions. mass-market initiatives. Since the launch

3 in September 2011 of our ‘Save a Bomb’ 4

7 Since 2010, our Energy Conservation and pool program more than 8,000 pool $ $74 1

$71 4 Demand Management Plan has delivered owners have taken advantage of the $67 5 $66 1 53MW (62MVA) of peak demand program’s cash back offers – of between reductions from non-network alternative $150 to $250 – by either changing to initiatives – 36MW (42MVA) in 2011/12, off-peak tariffs or purchasing energy against a target of 25MW – placing us on efficient pumps. This initiative is saving track to reach 103MW (121MVA) by 2015. pool owners, on average, between $250 This success in implementing alternative and $300 a year, and has helped reduce energy solutions has allowed us to defer peak demand by more than 3.7MW. $428 million in proposed network augmentations, which is supporting the We are also working with air conditioner reduction in network prices that is now suppliers to manufacture systems flowing on to our customers p39. incorporating sophisticated demand

MILLIO N management technology for Ergon Commercial and industrial customer Energy to access – this is seen as an 12

2011 participation in our demand 2010 2 0 2008 2009 important step in addressing the management programs has been impact residential air conditioning To ensure we continue to meet demand and critical to the success of these initiatives. has on peak demand. our customer’s electricity supply expectations, We have continued to broaden their $742.5 million was invested into the network participation this year, notably through this year. Despite being at record levels, this was below forecast largely due to lower than the power factor correction pilot. forecast customer demand for new connections.

24 REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 Improvements have also been made to Leading the way in this area is our Ergon Energy has more than 65,000 our load management capability, which Energy Sense Communities program, kilometres of SWER lines across our rural is supported by the off-peak economy which is part of a joint smart grid network. These are single wire powerlines tariffs, by changing the way we operate program with Energex. The integrated with limited capacity that radiate out this technology in North Queensland. program includes 33 ‘smart asset over long distances and, subsequently, Changes to the switching times for management’ and ‘network of the have a greater likelihood of reliability and electricity supply to hot water systems future’ initiatives with either an objective quality of supply issues. We are currently in the region has seen a 15MW reduction to deliver specific capital deferral upgrading some of the more obsolete in peak demand, and plans to extend outcomes or to trial new technologies. SWER networks to new technology the switching regime over the coming ‘isolated’ systems, and we are working The program, which is a global months will deliver further reductions. with a number of universities to help demonstration site in the Electric develop and trial intelligent solutions. To support our demand management Power Research Institute smart grid objectives, and the take up of the demonstration program, is about The integration of new technologies has economy tariffs, we also engaged with finding sustainable solutions to also included extending the Distribution more than 600 electrical contractors deliver the community’s future energy System Automation program into the and representatives from the industry requirement. The initiatives include SWER network, to improve monitoring through a series of Residential Electrical demand management techniques, and control, as well as the ongoing roll Contractor Engagement Sessions, solar power, energy storage, network out of over 1,000 advanced low voltage ‘RECESS’. These sessions, which were automation, smart customer appliances regulators to improve power quality. held across the state, also covered and community engagement programs. Our Grid Utility Support Systems regulatory matters, emerging Initially focused in Townsville, the (GUSS) prototypes, featured in last technologies and connection issues. program is placing a significant year’s report, have been operationalised importance on knowledge management and moved into areas of the SWER to help support the rollout of similar network where significant power quality solutions in other areas of the state. issues need to be addressed. These units One of the most visible initiatives is are designed to provide a more efficient the electric vehicle (EV) trial, which upgrade option for reducing overloaded is providing a real life picture of the SWER systems. challenges we would face if EV sales These initiatives have been progressed suddenly took off. In addition to the through an end-to-end process that five vehicles in the trial, we are using is now being used formally for the hi-tech lithium-ion batteries to simulate integration of new and developing what it might be like if 60% of the technologies into the network. It allows homes in an area had an EV plugged ideas to move from concept to business in at the same time. The trial is being as usual with modifications made based undertaken in areas with different types on the lessons learnt. of infrastructure and different proximities to the CBD. The households involved in the first location, typically drove about 360 kilometres a week, recharged the car for two to three hours per night at a total cost of around $13 in electricity Magnetic Island residents John Kuit and Danielle each week. Ryan have reduced the cost associated with running their pool pump, and saved money on This is just one area where new their electricity bill in the process, by participating technologies will change demand in our demand management program. patterns. We are currently managing They are part of our Solar City Project, which has tested a community-based energy behavioural the take up of solar energy systems, change model, as well as specific innovative which is already having a significant customer engagement techniques, that are now being used to influence energy usage behaviour network impact p18. in other areas of Ergon Energy’s operations. In another initiative, we are asking businesses to collaboratively work with us to reduce electricity during peak BUILDING THE NETWORK periods. This trial is the first commercial OF THE FUTURE trial in Australia of the technology being used for automated demand reduction. In addition to engaging with our It involves an interactive system that customers, we are also developing combines building automation and technology solutions to meet our dynamic messaging that asks customers asset management challenges. in advance to reduce electricity on Like most electricity distribution forecast peak demand days. During the companies, Ergon Energy is finding demand response events to date, the it challenging and increasingly cost maximum peak demand reduction prohibitive to power a modern world recorded across the sites participating using networks, technologies, and was about 20%. management tools from the last Technology advancement is also central century. This is not sustainable and is to our Single Wire Earth Return (SWER) consequently driving our investment Improvement Plan. towards an increasingly intelligent network – one with greater connectivity and automation.

REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 25 Managing planned outages In monitoring this investment, we are NETWORK RELIABILITY The Reliability Improvement Plan is also constantly reviewing the benefits to focused on improving the management ensure that the reliability improvement ADDRESSING FUTURE provides real customer value, and the RELIABILITY of planned outage events through efficient work scheduling to optimise cost for each ‘power interruption minute’ In order to meet reliability targets for the outcomes and minimise the impact saved is consistent with the expectations the current regulatory control period on our customers. of our regulators on this matter. to 2015, Ergon Energy is deploying a coordinated, whole-of-business Since the reinstatement of live-line ADOPTING A RISK BASED Reliability Improvement Plan. work practices – following a ban for APPROACH safety reasons from February to To ensure we allocate expenditure for This has seen a continued focus on November 2009 – we have delivered optimum security and reliability of supply operational practices around unplanned continual improvement in the area outcomes, we are continuing to move outages to improve the response times. of planned outage performance. towards a more risk-based approach. The results have been achieved Responding to unplanned outages despite the challenges associated During the year, further joint work Our unplanned outage response has with addressing the outstanding has occurred with Energex to establish included improvements to reporting planned works that were deferred a common maintenance asset processes and tools, reviewing fault crew due to remediation works post management framework. This will result resourcing and comparing restoration Cyclone Yasi in 2010/11. in significant changes to the established performance by location to identify routine substation inspection and improvement opportunities. A greater Our ability to manage the customer maintenance program. Concurrently, emphasis has also been placed on impact from planned outages is also a risk-based asset renewal methodology returning key out-of-service plant to being addressed by the progressive has been delivered through another joint service and responding to network risk. replacement of defective line and workings initiative to support future asset substation air break switches (see below). renewal decisions, with the initial focus Weather forecasting services are also At present the operating restrictions on the replacement and refurbishment being used increasingly to support fault in place, due to the in-service failures programs for substation equipment. response preparedness and aerial patrols of certain models of this device, are are being used to speed up restoration. continuing to reduce our ability to isolate These programs are being supported sections of the network to carry out by the use of a mobile computing in We have also continued our planned work, and fault restoration. the field, to improve efficiency, data flow preventative maintenance program. and quality, and the configuration of the A major component of this is our We have also been dedicating additional Enterprise Resource Planning system. $94 million vegetation management field resources and expenditure to use program. This year we completed the temporary generation to mitigate the These initiatives are significantly accelerated clearing and treatment customer impact of planned outages. enhancing our understanding of how program that was addressing a backlog assets perform and their requirement in rural vegetation identified in 2008. Investing in reliability improvement for refurbishment or replacement; ultimately this will enable us to achieve In future years we are expecting the rural Ergon Energy is also progressing future network performance in the program to be more stable. Our ability to reliability improvement strategies most cost-effective way. This approach accurately measure both corridor widths through the capital works program. and tree heights and identify trees at is critical to managing the growth in risk of in-fall to the line going forward We are currently working to replace the expenditure on replacing assets that are through the ‘ROAMES’ project will potentially defective air break switches approaching the end of their viable lives. also help us apply risk management in 65 substations and in 1,500 locations We have also developed our risk techniques with greater certainty p30. across the state. We are anticipating assessment capability through the further improvements to the reliability development of standard risk categories From an unplanned outage perspective of supply as this is achieved. the most challenging period for us is the and assessment methodologies. This will summer storm season. In response, we We are also nearing completion of an help confirm the initiatives prioritised for undertake a dedicated planning process accelerated program to extend our implementation in the Network Adaption pre-summer each year. As in previous remote control capability, through the Plan, developed jointly with Energex, years, our Summer Preparedness Plan Supervisory Control and Data Acquisition which outlines our response to the risks for 2011/12 focused on: (SCADA) system, into 55 regional associated with climate change. substations – with 51 now complete with By way of example, the potential for • investing in the network to minimise this functionality. We are also expanding more frequent extreme weather events the potential for outages, and enable a the auto reclose functionality at our is being addressed by our ongoing more effective response. This includes zone substations, initially in the North Cyclone Area Reliability Enhancement the deployment of well developed asset Queensland region before extending (CARE) program. This program has inspection and defect maintenance and the strategy to other regions. preventative maintenance programs. continued to progressively underground The remote control functionality on key distribution assets in the • enhancing our emergency response the thousands of existing automatic cyclone-prone areas of northern capability. This ranges from our specific circuit reclosers across the distribution Queensland. Over the past decade, scenario planning activities to ensuring supply network is also being expanded. $65 million has been invested through contingency plant and equipment Additional automatic circuit reclosers are this program, with projects completed is available. also being installed on the distribution this year in Cooktown, Cairns North, • keeping our customers and feeders that are not performing. Kirwan and Cranbrook in Townsville, East Ayr and West Mackay. communities informed of the We are also deploying new and emerging challenges experienced over the technologies that have the potential to For further details on our asset summer period. This drives much improve reliability performance, such management policies, strategies of our safety communications p21, as as intelligent remote controlled gas and specific initiatives refer to Ergon well as our customer and stakeholder switches, communications capable line Energy’s Network Management Plan communications during a response fault indicators and fuse savers. available online. to major disasters.

26 REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 NETWORK PERFORMANCE SCORECARD

Network reliability has remained steady this year, consolidating the significant PROFILE OF DISTRIBUTION QUALITY OF SUPPLY improvement achieved since the NETWORK (FEEDER LINES) CONCERNS CONTINUE Queensland Government’s Electricity DOWNWARD TREND Distribution and Service Delivery review in 2004. Since 2005/06 the overall duration of outages has been reduced 36. 9 1 . 8 1 by 28% and the frequency by 31%. 5 3 7 4 28 . This trend has seen performance for 28 . 25 . 2011/12 positive for five of the six 25 . Minimum Service Standards (MSS) 000 C US TOMER S R 10 ,

limits set by the Electricity Industry E Code of Queensland, overseen by the P

QCA. These limits have become more IRIE S stringent over recent years. U

Isolated 8% EN Q This year’s results have been achieved Long Rural 11% 12

Short Rural 52% 2011 2010 2 0 2007 2008 despite significant weather related 2009 impacts and a dramatic increase in the Urban 29% number of bushfire related incidents. Ergon Energy operates the longest distribution The compound effect of these were As an indicator of improvement, the number network in Australia. Our reliability challenges of customers expressing concern about quality most visible in the long rural System are both common to the industry and unique of supply has continued the downward trend. Average Interruption Duration Index – with less than a third of our customers living in These relate to issues such as low and high urban areas, the majority are supplied through supply voltage, voltage dips, voltage swell, (SAIDI) result – which was unfavourable radial lines with limited redundancy in the event voltage spike, wave form distortion or to the MSS limit. This category of of a fault. Our network has around 0.4 customer unbalance, TV or radio interference or connections per square kilometre compared to unbalance and noise from appliances. the network includes a significant the national weighted average of 3.1. proportion of our SWER lines. The impact of early monsoon season flooding, with access issues causing extended interruption durations, saw DURATION OF OUTAGES FREQUENCY OF OUTAGES this category experience its worst DOWN DESPITE FLOODING MAINTAINS IMPROVEMENT December performance for the past 8 2 .

five years. 0 . 4 5 4 48 5 During 2011/12, three extreme weather 1 1 2

days resulted in Major Event Days . 1 4 .

3. 2 3 3 being recorded. In October 2011 there 38 2 37 4 were extensive storms, hailstorms and bushfires across all regions. In March there was heavy rain, damaging winds ID I and flash flooding in the southern A S l ID I a

region. On 20 March 2012 a mini t A o S T tornado hit Townsville. l a t o 12 T 2011 2010 Running parallel with the MSS is 2 0 2008 2009 the AER’s Service Target Performance 12 2011 2010 2 0 2008 Incentive Scheme (STPIS). This 2009 framework provides a financial incentive Both a focus on operational practices The frequency of outages is being addressed for improved unplanned outage and ongoing investment in the network’s by reducing planned outages, through live-line performance, as well as delivery against functionality is supporting an improving work or the use of temporary generation, as trend overall in the duration of outages. well as preventative maintenance. customer service targets (capped at 2% of total regulated revenue across the STPIS parameters). While the impact of the summer season saw RELIABILITY 2011/12 2011/12 2010/11 2009/10 2008/09 2007/08 PERFORMANCE MSS Result Result Result Result only three out of six of these reliability Result targets achieved, due to the strength Duration Index (SAIDI) of our customer service Ergon Energy - Urban Distribution will benefit from an increase in its ≤148 136 149 222 217 179 revenue allowance for 2013/14. - Short Rural Distribution ≤418 393 426 544 609 457 Our reported reliability performance - Long Rural Distribution ≤948 1,042 828 999 1,108 1,030 data to the regulators is reviewed annually by independent auditors. Frequency Index (SAIFI)

- Urban Distribution ≤2.0 1.4 1.6 2.3 2.3 1.9

- Short Rural Distribution ≤3.9 3.6 3.5 4.6 4.9 3.5

- Long Rural Distribution ≤7.3 7.0 5.3 7.2 7.7 6.4

* Reporting based on the Minimum Service Standard (MSS) exclusion criteria outlined in the Electricity Industry Code http://www.qca.org.au/files/ER-Industry-Code-DME-EICV12-0612.pdf

REVIEW OF OPERATIONS ASSET MANAGEMENT EXCELLENCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 27 EFFICIENCY AND REVIEW OF OPERATIONS: EFFECTIVENESS 28

A SKILLED, SAFE HIGH-PERFORMANCE WORKFORCE 31 ORGANISATION PROTECTING THE ENVIRONMENT 36

Being a high-performance EFFICIENCY AND Above: To maintain a highly skilled workforce, organisation is vital to delivering across the technical trades to the managerial on our purpose – to providing safe, EFFECTIVENESS professions, Ergon Energy makes a significant reliable, efficient and sustainable investment in learning and development. DELIVERING REAL SAVINGS This has seen around 600 qualified tradespersons energy solutions for the benefit complete their apprenticeship with Ergon Energy of Queensland. To respond to our role in rising electricity in cities and towns across the state over the past prices, Ergon Energy has had a corporate decade. Here system electrical apprentice Our strategic initiatives in this wide focus on operational efficiency for Alexander Romeo is taking guidance from area are all about ensuring our a number of years, both in the lead up Vocational Programs Field Officer Brett Olsen. people have the personal to, and through the delivery of, our engagement, skills, information, operational plans for the 2010-2015 Over the past year, during phase three, technology support and leadership regulatory control period. 10 initiatives have been progressed, they need to carry out their work ranging from a review of the optimum Working jointly electricity network topology to the safely, effectively and efficiently. Since 2007, we have been development of shared standards Our goal is to be an organisation collaborating with Energex on a including underground cables, protection, switchgear and substation that is responsive, resourceful and range of joint working initiatives to design utilising modular buildings, ready to adapt and thrive in a deliver efficiency and effectiveness benefits. The program started with along with the ongoing development changing world – one that is a a wide range of deliverables and then and implementation of a common preferred employer, with a moved into phase two with a focus on asset maintenance framework p26. professional, values-based culture, the areas of strategic procurement, This program is expected to deliver achieving best-practice outcomes logistics and asset management. across our key performance areas. significant ongoing savings, which were included in our regulatory submission.

28 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 Ongoing Achieved Partial Not Achieved

STRATEGIC INITIATIVE ACHIEVEMENT Continue the Joint Workings program of activities with Energex The Joint Workings program moved into Phase 3; this program to deliver economies of scale and other efficiencies, as well as is expected to deliver significant ongoing benefits.p28 improved safety and compliance outcomes.

Initiate a formal Efficiency and Effectiveness Program by The first wave of initiatives has been designed and identifying and developing business wide options for more implementation has commenced. Savings will be realised effective and efficient resources management. in the coming year. p29

Implement a Works Delivery Improvement Program, using a Significant governance improvements have been achieved works management solution to support resource optimisation through an end-to-end view of the program. Our estimating and works delivery outcomes. and resource planning capability has also been improved. p29

Initiate an Information and Communications Technology (ICT) The ‘2015 Future State Blueprint’ investments plan (across our investment plan, aligned with both Ergon Energy and Energex’s assets, works, operations and customer management systems) business strategies, which will sustain the business through the was formalised in December 2011, and is now mobilising. p30 next regulatory period.

Develop our remote observation, automated modelling, and Since February, the program has been capturing high precision economic simulation capabilities (ROAMES) to drive efficiencies data to, initially, support efficiencies in our vegetation across our asset management activities. management program. p30

Develop our property strategies to lift the efficiencies of Progress has been made across the property portfolio, most accommodation and facilities delivery to support high notably around our workplace facilities arrangements in performance outcomes. Townsville and Brisbane. p30

Through a range of other business The first wave of initiatives is around: Driving works delivery decisions, we have also delivered an improvements Overhead optimisation: simplifying additional $40 million in operational • reporting processes across the The Works Delivery Improvement savings for 2011/12 (excluding the organisation, aligning support Program is having success in developing financial impact of a Voluntary staffing levels with industry and implementing an end-to-end view of Separation Program undertaken benchmarks, reducing external the works program across the business at the close of the financial year to resource spend, and reviewing spans that identifies the full set of processes, help reduce future staffing costs of control and organisational layers interfaces and technology we use. in the non-field, non-customer facing areas of the business). • Labour optimisation: establishing It is also identifying corporate-level a strategic approach to resource risks to the network, creating efficiencies This has supported delivery against planning and management including in performing analysis, improving our targets for Operational Expenditure the development of a strategic community engagement p20 and per Route Kilometre, with a result forecasting model, and aligning providing a better understanding of of $2,639 (to allow comparison the asset management with industry our resource requirements. same base route kilometre used in benchmark levels the target was used to calculate the The first phase of the program’s result), and for Network Maintenance • Improved productivity management: estimating capability initiative has been Costs/Regulated Asset Base, with a developing and implementing an completed, with the system interfaces result of 3.3%. The targets are on page enhanced suite of productivity and the business case tools finalised. 8 and further expenditure detail is metrics and associated management Over the next six month this initiative will provided on page 40. reporting and intervention fully transition the business to a new way of estimating our major projects, increase At the same time, however, as the scale • Strategic sourcing: developing a the accuracy and reliability of estimates of the capital works program going strategic approach to sourcing and improve planning for the delivery of forward is expected to reduce p23 it is arrangements and building this the major capital works. necessary to make further cuts to our capability to improve procurement operating costs. To ensure we deliver and sourcing practice A significant review has also been value for money it is critical our costs undertaken of our asset management align with the reduction in the works • Contracts management: developing standards. program and the associated impact on a strategic approach to contractor While there is still more to be done to our revenue p39. management, identifying how to strengthen contractor management help address bottlenecks and ensure Targeting efficiency and skills and establish an optimal contract the delivery of the works program, these effectiveness management operating model. efforts have seen connection times for new connections improve dramatically to Amongst other initiatives, this is The Efficiency and Effectiveness an on target three-month rolling average being driven by a formal Efficiency Program is part of a broader strategic of 170 days (compared to 218 in 2010/11) and Effectiveness Program. The initial enablement program that comprises p18. This has been achieved despite scoping of the program took place 27 initiatives identified as critical to the ‘wet’ summer and record levels of in October 2011, followed by the achieving Ergon Energy’s Strategic Plan. defect remediation work, particularly identification and testing of a range of The program includes work underway in Central Queensland. options for more effective and efficient to increase the overall productivity and resource management and reduced efficiency around the delivery of the support costs. capital works program.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 29 INFORMATION AS AN ENABLER Spatial technology to support Our strategic enablement program efficiencies includes a suite of technology In order to streamline business processes investments that are core to delivering and make better informed network asset the efficiencies targeted by our strategic management decisions, we are also plan. This investment will see us become deploying a business intelligence and an increasingly information-enabled spatial visualisation program, which organisation, one that is able to provide includes the use of Google’s spatial ready access to the business information technology, as well as distribution required by our employees at all levels monitoring and analytics. of the organisation to enhance decision This will complement the ROAMES making, business processes and (Remote Observation Advanced organisational performance. Modelling Economic Simulation) Blueprint now in place initiative, which is using purpose built observation aircraft to capture precision This is being progressed under the network-related condition data using 2015 Future State Blueprint, developed laser scanners, digital cameras and in collaboration with Energex, which a flight assist system. The data will maps out the joint major Information enable a more strategic approach to and Communications Technology (ICT) Ergon Energy is rolling out an all-encompassing our $94 million vegetation management telecommunications network, known as projects for the current regulatory program. This is expected to drive ‘UbiNet’, that will link 40 of our depots and 90 period. The endorsement of the plan efficiencies across the program, both substations, including the Bundaberg substation in late 2011 was supported by decisions site where Installation Deliver Manager Wayne on the ground and at the desktop, with Carr is inspecting the installation of the new around the organisations’ collective the most immediate benefit being the telecommunications equipment. priorities, the potential for convergence reduction in costs of scoping and between the organisations’ structures, auditing activities. It will also deliver processes and systems, as well as the safety and network reliability benefits PROPERTY STRATEGY FOCUSED appropriateness of the delivery methods, with the data improving the prioritisation ON OUTCOMES sequencing and dependency. of vegetation works, with other benefits Ergon Energy’s long-term property This framework, and the significant flowing into the asset inspection and strategy is aiming to co-locate field and focus being placed on its program access track maintenance programs p38. office-based employees where possible and improve workplace facilities to management, aims to mitigate delivery The information enablement strategy is deliver ongoing operational efficiencies risks and ensure maximum value also being supported by the roll out of and lift our service delivery capability. from our ICT investment over the an all-encompassing telecommunications coming years. network, known as ‘UbiNet’ that will This year saw the move to the Through enhancements to our common enable the future connection of Mackay building, constructed last core asset, works, finance, HR and information technologies to our year, consolidating staff into one logistics technology platform this electricity assets. The $135 million central location. investment will allow further synergies investment in phase one of the project, which is establishing the A property master plan was also between our respective organisations; progressed for our Townsville delivering efficiencies in our works telecommunications backbone that will link 40 depots and 90 substations, operations, with concept designs for programming and progress around our the redevelopment of the Garbutt shared asset management framework. is well progressed with construction complete at 110 of the 128 new sites, facilities underway, which will facilitate In parallel, the blueprint proposes a and the necessary telecommunications the necessary investment approvals. transition from the ageing customer equipment installed at over half of the The redevelopment will address core management and metering platform, 208 sites involved. The project is on capacity issues; age-related building known as ‘FACOM’ (and associated schedule (with a Scheduled Performance conditions; safety risks and associated systems) to a current-generation Index of 1.00 for 2011/12). Although increased traffic flows; and inadequate Customer Information System (CIS) slightly over budget for 2011/12 (with inventory storage. It will also help platform. The existing system is complex, a Cost Performance Index of 0.96) it alleviate the sub-optimal arrangement costly to upgrade and requires significant is under budget for the total project where our contact centre, depot and manual intervention throughout our to date. control centre are not co-located and customer, metering and billing processes remove the inefficiencies associated – increasing the cost to serve and rework. The second phase of this project began with current site fragmentation. We are this year, with work now well underway also changing our lease arrangements Following these priorities, we then to replace the now obsolete analogue for our other Townsville offices to bring anticipate we will move to implement mobile radio network used by our staff from five leased office buildings more holistic Field Force Automation employees during normal operations in different locations together into and Distribution Management and during a disaster response. This is one leased location. System capabilities. seeing GPS technology made available Plans are also underway to relocate our To support the expanding use of to our field crews in their vehicles to help improve customer response times Brisbane office to facilities out of the electronic ‘smart’ devices across the CBD in Ann Street, Fortitude Valley. network, we are also modernising and safety risk assessments. The initial $17.9 million stage of this project The new buildings are being designed our core network asset modelling and built with efficiency in mind. and management systems, which will has moved into operational mode in Toowoomba and the Darling Downs. They will incorporate additional video include an upgrade of Ergon Energy’s conferencing facilities to reduce travel ‘Smallworld’ GIS system. and support greater collaboration between staff.

30 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 Ongoing Achieved Partial Not Achieved

STRATEGIC INITIATIVE ACHIEVEMENT Determine Ergon Energy’s future workforce requirements, A capability matrix has been formulated with a pilot group including a detailed forecast of the specific skills capability. testing the implementation and development strategies. p31

Continue to drive improved safety outcomes through a review Ergon Energy was compliant with the new legislative of our systems and procedures against the harmonised health regulatory regime on 1 January 2012 following operational and safety legislation. and system changes. p32

Implement and continuously improve existing talent The existing talent management, peer review and succession management, peer review and succession planning, tailored planning approaches were reviewed with work underway to pull through leaders with key capabilities for the future. to implement changes. This is being supported by a new performance management framework. p34

Continue to drive energy efficiency outcomes across the A comprehensive network study is underway to inform the business, and extend the focus to reducing network losses development of the Network Losses Strategy by the end of as a corporate responsibility. 2012. p36

ENGAGING OUR EMPLOYEES The newsroom provides more depth A SKILLED, SAFE One of Ergon Energy’s challenges is to and context around news and events, WORKFORCE foster a sense of shared direction and encouraging employee interaction and purpose among employees from dozens facilitating a deeper understanding of MAINTAINING A SKILLED of disciplines, dispersed throughout our important issues. WORKFORCE vast service area. Our other major internal communication Ergon Energy has around 5,000 asset is Team Brief DVD, a bimonthly employees (5,060 as at 30 June – The key corporate feedback tool we use to measure employee engagement channel that features an update from including casual staff) who live and the Chief Executive, safety news, work across the breadth of Queensland. is our employee ‘Have Your Say Survey’. The survey provides an opportunity for project updates and highlighted business Our workforce is highly skilled, activities. The DVD is played at bimonthly encompassing specialist fields from employees to say where they believe things are working well and to identify team meetings across the state, and is electrical engineering to administration, also available online, ensuring every and across the technical trades. areas for improvement. It also allows Ergon Energy to gauge whether, from employee, whether office or field based, The strategies we have in place to the employees’ perspective, we are has the opportunity to stay informed manage our people reflect our changing making progress towards our strategic about what’s happening in the industry, business landscape – one of rising goals and vision. within the company, and for the benefit concern around electricity prices, of our customers. shifting energy consumption patterns, This year’s results indicate employee economic instability (strengthening in engagement is positive and stable at WORKPLACE SAFETY the resource sector but inconsistent 71%. Engagement is measured through A PRIORITY how ‘empowered’, ‘appreciated’ and in other markets) and changing Building a safety culture technologies, to name just a few of ‘committed’ employees feel. Ergon Energy is committed to ensuring the challenges. In this environment Employee commitment to Ergon we appreciate that we will need to be the health and safety of our people and Energy remains an area of strength the community. A significant investment increasingly innovative and agile to with employees indicating they be a high-performing organisation. continues to be made in building a understand the link between the work sustainable safety culture across In response we are building an they do and the direction of Ergon Ergon Energy – a culture where safety increasingly skilled workforce that Energy. Although improving, there is inherent in everything we do. is personally engaged, along with a is room for improvement when it high performance, productivity-focused comes to rewarding and appreciating Our Safety Management Plan for 2010-15 culture, in order to achieve best-practice individuals and teams. is about taking the organisation’s safety performance into the top quartile of the performance, safety and customer Action planning to respond to service outcomes. electricity distribution industry’s feedback and the results of the survey recognised benchmarks. In order to do this, we have engaged is well underway. This work, which with management across the includes efforts to build on the To help drive positive safety behaviours, organisation to clearly articulate understanding of and engagement in the second year of this plan, we have the future skills, competencies and with our strategic priorities, takes continued to embed the Comprehensive capabilities of all job roles in the place at all levels of the organisation. Safety Indicator (CSI) launched in business and begun forecasting 2010/11. The CSI initiative uses a series This is supported by a robust, of lead (proactive) and lag (reactive) the future skills capability requirement. cost-efficient internal communication This long-term planning has seen indicators to measure a team’s safety program that keeps employees and performance, including, as examples, the progress around the development teams informed about priorities and of a capability matrix which All Injuries Frequency Rate (AIFR) and their role in the bigger picture, and also important management activity such addresses future skill and encourages a sense of connectedness. development requirement. as completion of safety management This includes a daily email bulletin, plans, site visitation, identification and DailyMail, sent each afternoon to elimination of hazards and improvements every employee, that captures the from investigations. The aim of the CSI is day’s news, announcements, safety to focus line management responsibility alerts and operational updates, all and employee engagement proactively drawn from the online newsroom. in the safety management system as opposed to reactively after an incident or injury has occurred.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 31 The CSI has been extended from the Driving improvement in line with Our free flu vaccinations continued, field teams to incorporate office staff. harmonised workplace safety laws along with other proactive health To help drive engagement, this measure Throughout the year we have driven initiatives for our employees. To protect is increasingly being used to reward improved safety outcomes through our people and support our ability safety achievement. All teams achieving an ongoing review of systems and to maintain services to customers Gold, Silver or Bronze performance were procedures in accordance with Australia’s throughout the flu season, 1,737 field recognised for their efforts. It was new nationally harmonised workplace and office employees accessed the also again used to select the crews to health and safety laws. The new Work voluntary vaccinations. compete in Ergon Energy’s annual Field Health and Safety Act 2011, which came Our Employee Assistance Program Safety Day Champions competition. into effect on 1 January 2012, replaced also continued to give our employees, Communication campaigns also the previous Workplace Health and and their family members, access to continue to be used to foster a health Safety Act 1995 and gave rise to revised professional counselling services. and safety conscious workforce. work health and safety regulations and This service is about ensuring our Under the over-aching umbrella of the Codes of Practice. employees can perform their roles Always Safe campaign message, our Prior to the 1 January 2012 introduction, effectively, safely and to the best of their ‘No One Gets Hurt Today’ campaign Ergon Energy undertook a number abilities. During the year we also looked continued. It featured a series of posters of actions including assessing a large for other ways to assist our employees and electronic messages of employees number of documents and completing access information to help them self in their personal lives demonstrating all necessary updates; implementing manage their own health. why they value safety eliciting a sense the necessary information technology of ownership from employees. systems changes; and standardising Communications also included a focus on the Daily Task Risk Management Plans a range of higher risk activities. By way across our operations. We also formally of example, vehicle safety featured as a communicated with all our panel quarterly theme, with the aim of reducing contractors advising them of the road and vehicle related incidents. The new legislation and of Ergon topics included securing loads, towing, Energy’s expectation of compliance. reversing and fatigue. Employee health Contractors who did not confirm and well-being was also highlighted compliance in writing have had their through various communications. services suspended. Our Always Safe campaign continues Improvements to asbestos to resonate with employees, with management nine in ten employees having a good Ergon Energy’s annual Field Safety Day Ergon Energy manages a range of Champions competition was eagerly contested understanding of the associated guiding facilities that contain asbestos in a by crews from across the state, completing set of safety-related behaviours wide variety of types and applications. critical safety activities, from field risk rewarded through this program. management and CPR. Our Comprehensive Following the introduction of the new Safety Indicator was used for the second time legislative requirements, our Asbestos to select teams to compete; the growing We also again supported the Workplace commitment to safe work practices is evidenced Health and Safety Queensland’s annual Management Plan was reviewed to by the high calibre of crews participating in the ‘Safe Work Australia Week’, building on ensure we were effectively managing annual event. The Substation Operations team and minimising asbestos related health from Cairns, shown here, was crowned the 2012 the success of the previous year. The aim Field Safety Day champion. Team members of the 2011 celebrations was to drive risks either at an Ergon Energy site, or Matthew Eaton, Jurgen Bell, Shaun Gardiner proactive discussions at peer-to-peer from work undertaken by Ergon Energy. and Rhett Blayney attributed their win to leadership and mateship. level about key health and safety issues A dedicated Asbestos Manager was and to continue to develop a safety appointed to provide regulative and culture that is not simply managed from practical asbestos management advice, the ‘top down’, but instead is built on the and to oversee the whole-of-business values of personal accountability and asbestos audit program and site register. proactive collaboration. Ergon Energy Improvements are in the process of being was honoured to be short listed for the made to the identification and recording 2011 Safe Work Australia national Safety of suspect customer switchboards, and Ambassador of the Year award. to works procedures to help ensure These engagement initiatives continued appropriate safety precautions are taken. to be supported by the PowerAid program. This program awards points Ensuring employee wellbeing to employees for their work group’s Ensuring our people are physically, positive safety behaviours, which are mentally and emotionally ‘fit for work’ then converted to charity dollars p20. remains a priority. One of our most important ‘fit for work’ initiatives is our Ergon Energy’s Health, Safety and ongoing comprehensive drug and Environment Integrated Management alcohol-testing regime. System provides a robust governance framework to ensure employees Ergon Energy also put significant comply with policies, meet obligations resources towards supporting and stay safe. The system has been employees’ returning to work after developed in accordance with Australian injury – 60% of the rehabilitation and International Health and Safety cases we are supporting are due to standards. Ergon Energy has continued non-work related injuries. to maintain accreditation against these standards – the AS4801 and ISO 18001 Safety Standard – following independent certification audits this year.

32 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 OUR SAFETY SCORECARD

Ergon Energy continued to improve workplace health and BEHAVIOURAL CHANGE TIME LOST TO INJURIES safety performance, evidenced by a IS DELIVERING RESULTS CONTINUES TO FALL 28% improvement in our All Injuries 1 1 . Frequency Rate (AIFR) for employees. . 4 6 1

The improvement exceeded our 13. 7 8 . 2 corporate target of 13.3 – with the 1 1

AIFR result moving from 13.7 in 2010/11 11 . 9 . 4. 3 9 to 9.9. This indicator includes both Lost 4. 1

Time Injury Frequency Rate (LTIFR), as 2 . 3 7

the more common industry measure, . and the frequency rate for medical 2 treatment injuries.

While we were just outside our target p8, our LTIFR for employees improved by 15% – a drop from 3.2 injuries per IF R LTIFR one million labour hours in 2010/11 to A 12 12 2011 2010 2 0

2.7 per one million hours – and our 2011 2008 2009 2010 2 0 2008 Compensable Claim Frequency Rate 2009 improved within target by 33% to 2.0. Our investment in building a sustainable safety Our commitment to take the organisation’s culture across Ergon Energy – one where safety performance into the top quartile of the Our Dangerous Electrical Event safety is inherent in everything we do – has electricity distribution industry-recognised Frequency Rate (DEEFR) for employees delivered a 28% improvement in our All Injuries benchmarks has supported a 15% improvement also improved – from 4.9 in 2010/11 Frequency Rate. in the Lost Time Injury Rate. to 2.4. Our LTIFR for contractors improved slightly to 1.8, although not to the degree we were targeting p8. FOCUS ON ‘GOING FOR GOLD’ GROWS Ergon Energy incorporates the AIFR, along with other lag and lead indicators, into a Comprehensive Safety Indicator to give our people, at the work group level, a meaningful score of how they are performing from a safety perspective. From its launch in the previous year, the number of field-based teams operating at the gold benchmark has improved by 20%. The organisation overall is performing at the silver benchmark, with 455 total points allocated against a range of areas, out of a possible 600. OFFICE AWARDS FIELD AWARDS Our commitment to improving our Gold 62% Gold 26% performance against all these Silver 26% Silver 53% measures aligns with our goal to take Bronze 4% Bronze 12% Below Benchmark 8% Below Benchmark 10% the organisation’s safety performance into the top quartile of the electricity distribution industry-recognised Our employees are increasingly demonstrating safe behaviours, with more than 61% of our office-based teams and almost 26% of the field-based teams now operating at the gold benchmark benchmarks and our aspirational goal of our Comprehensive Safety Indicator. to achieve zero injuries in our workplace.

In the Energy Networks Association’s (ENA) benchmarking report, based on SAFETY PERFORMANCE 2011/12 2010/11 2009/101 2008/09 2007/08 their definitions, Ergon Energy’s LTIFR All Injuries Frequency Rate Target 9.9 13.7 14.1 11.8 11.2 was 3.7 for 2010/11, above the industry – Employees ≤13.3 average of 3.1. This placed Ergon Energy Compensable Claims Target 2.0 2.9 4.3 3.2 na sixth out of the 11 participating entities; Frequency Rate ≤3.7 however, our performance is stronger Lost Time Injuries Frequency Target 2.7 3.2 6.1 4.1 4.3 when comparing this year’s results Rate – Employees ≤2.6 Lost Time Injuries Frequency Target to historical statistics. The report 1.8 2.2 0.6 1.6 0.5 also showed Ergon Energy’s 2010/11 Rate – Contractors ≤1.0 Total Dangerous Compensable Claim Frequency Rate of 885 894 1,037 1,143 Electrical Events (DEEs) 1,168 4.18 as better than the industry average – Unassisted Asset Failure of 5.17 with an improvement of one 358 374 394 342 363 place, to fourth place. (within Ergon Energy's control) – Assisted Asset Failure (outside 810 511 500 695 780 FOR INFORMATION ON COMMUNITY Ergon Energy's control) ELECTRICAL SAFETY SEE PAGE 21. Dangerous Electrical Events Target 2.4 4.9 5.3 3.2 3.6 Frequency Rate – Employees ≤2.9

1. 2010 result adjusted due to changes in the status of a number of injuries since the previous report.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 33 LEARNING AND CAPABILITY Training continues to be vital Our graduate program is continuing to DEVELOPMENT Ergon Energy continued to deliver a develop high quality employees through a three-year program that provides Developing our talent pool diverse range of high quality technical and non-technical training and mentoring, ongoing training and To ensure we continue to be an employer development from regulations training, exposure to a variety of relevant of choice across regional Queensland, such as pole top rescue, resuscitation disciplines through rotational placements during the year, our talent management and first aid, to advanced leadership across the business. We are currently approaches were reviewed and refined development; with an increased focus supporting 22 bachelor degree resulting in a fully developed talent on efficiency and value for money. graduates in the disciplines of electrical strategy. Our aim is to maximise Approximately 10,000 training courses and civil engineering and customer organisational performance by creating were delivered during the year to more service. In addition, we are currently opportunities for the best talent to be than 36,000 participants. In addition, supporting 11 full time students in their challenged, developed and grown into more than 22,000 online training studies through our scholarship program. our leaders of the future – and in return programs were completed, covering a DIVERSITY IN THE WORKPLACE deliver a high standard of performance in broad range of topics from fire safety a way that honours our values. awareness to risk management. Through our Diversity Program In support of our high performance 2010-15 we are seeking to create a Our apprentice and trainee program workforce diverse in skills, experiences focus, we also rolled out a personal continues to successfully grow and development framework for our and perspectives – one where this develop our future tradespeople. 2012 diversity is contributing positively to frontline leaders, and built our leadership saw the commencement of 81 new capability through 360 degree surveys our performance as an organisation. apprentices, 12 of which were female, The program is about ensuring the and targeted development. At the same and 18 new trainees. This intake brought time we continued to deliver a range attitudes and behaviours of our our total numbers to 292 apprentices employees support an inclusive work of leadership development programs. and 87 trainees. A review of our leadership development environment, a workplace where framework has also commenced, which Four of the female apprentices are everyone has an opportunity to fully is looking at refining our leadership leading the way as the first females to participate and be valued for their capability priorities and ensuring commence a Distribution Linesperson contribution. This commitment has cost-effective development strategies. Apprenticeship with Ergon Energy. We seen significant changes to our have a mix of mature-aged apprentices workforce profile over the past We also developed a new performance and school-leavers in the program, which five years (see table). management framework to drive historically achieves a 97% completion Attracting a diverse application pool high-performance outcomes. Through rate. 79 apprentices and 11 trainees building an understanding of the completed their training this year and Through a recruitment strategy that performance standards and deliverable have continued in the business. aims to increase the diversity of our that an employee is accountable for applicant pool, the diversity program is we are increasingly driving commitment, creating a workforce that is increasingly effort and job fit. With development work representative of our customer base. completed, the new framework can be embedded during 2012/13.

WORKFORCE BY OUR PEOPLE 2010/11 2009/10 2008/09 2007/08 2006/07 2010/11 2011/12 POSITION 2011/12

Number of Employees 5,060 4,752 4,630 4,634 4,489 4,192 Power Worker 313 291

Technical Employee ‘Have 1,293 1,268 Target Service-person Your Say Survey’ – 71% 71% 67% na na na 70% Employee Engagement ≥ Supervisor 378 367 Staff Turnover 8.1% 6.8% 7.2% 6.6% 8.5% 13.3% Electrical System (annualised) 110 98 Designer/Advisor

��Women in the 1,337 1,197 1,132 1,138 1.071 899 Para-Professional 620 574 Workforce

System Operator Women in Upper 69 63 17% 20% 21% 13% 12% 11% or Controller Management Administrative 1,143 1,071 Employee Women in Middle 21% 21% 19% 20% 21% 18% Management Professional and 1,081 962 Managerial Aboriginal & Torres Strait Islanders in 67 77 66 57 41 24 Senior Manager 55 56 Entry Level Positions

2011/12 has seen employee growth in our traditional technical asset management and works delivery areas to deliver the works program, as well as in our developing alternative energy solutions area (largely in Professional and Managerial positions) to enable us to deliver more cost-effective solutions to the demand challenge and defer capital expenditure p24. There was also a significant shift to casual employees in our Contact Centre to provide a more cost efficient and flexible customer service model – shown in the increase in the Administrative Employee area and in the five-year total workforce trend. Ergon Energy’s Full Time Equivalent human resource measure increased this year to a lesser degree from 4,624 to 4,869.

34 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 The recruitment of Aboriginal and Torres Our Women in Leadership program PROMOTING CONSTRUCTIVE Strait Islanders (A&TSI), as an under also continued during the year with WORKPLACE RELATIONS represented group, continued to be a 11 employees from across the business Ergon Energy continues to encourage target area. This saw us participate in participating in regular ‘community of and promote constructive workplace the Former Origin Greats program to practice’ sessions, a formal leadership relations with our industry unions. gain access to the latest information development program and mentoring, as This saw the successful negotiation of on Indigenous employment and training well as taking part in valuable networking Ergon Energy’s new Union Collective incentives and other state education opportunities across the business. Agreement during the year – the new initiatives, as well as other benefits. The program aims to enable women Federal Workplace Agreement, which We also participated in National with leadership potential to develop their covers the majority our employees (98%), Aboriginal and Islander Day of leadership skills, which in turn supports now sets out employees’ wages and Celebration (NAIDOC) activities to retention and builds a pipeline for future conditions up to October 2014. At the help celebrate their history, culture female senior managers. It also assists in bargaining table for the agreement there and achievements. attracting women to the business. were both union representatives and To help encourage A&TSI candidates We continued to monitor workplace nominated employee representatives. into our apprentice intake in future years, flexibility, with the number of part-time To help keep all employees up to date during the year we began liaising with roles seen as indication of our managers as negotiations progressed, regular our industry unions, aiming to establish appreciating our employees’ needs newsletter updates were provided a pre-employment program initially outside their work role. along with a dedicated intranet site. targeting potential electrical apprentices. While our female employees are mainly Ergon Energy’s employees are It is our intention to extend this into in administrative roles, since last year we represented by: the Together non-technical disciplines, such as call have had some success in increasing the Queensland, Industrial Union of centre traineeships. These activities are number of women in non-traditional roles Employees (ASU); the Services supported by our A&TSI employment (from 2.9% in 2010/11 to 3.6% in 2011/12). Union (QSU); the Automotive, Food, specialist and A&TSI community Metals, Engineering, Printing and engagement specialist, as well as other Managing an intergenerational Kindred Industries Union Queensland members of the business, who are workplace (AMWU); the Association of Professional progressing the development of our With the age composition of our Engineers, Scientists and Managers, Reconciliation Action Plan p20. This is Australia (APESMA); and the part of our corporate social responsibility workforce changing we are facing significant intergenerational issues. These Communications, Electrical, commitment to regional community Electronic, Energy, Information, engagement and support. include a ‘bubble’ of employees moving into retirement or wanting to work Postal, Plumbing and Allied Services Union of Australia (ETU Division). Retaining a representative part-time, many in critical business roles, To foster a reasonable and effective workforce to comparatively higher separation rates for staff with one to three years’ tenure. relationship, these unions have the The diversity program aims to assist opportunity to escalate concerns and the retention of a representative To support our ageing workforce, our outwork solutions through the Ergon workforce, by creating an inclusive Future Focus program is targeting our Energy Consultative Committee, the supportive culture that offers flexible Operations unit. The program includes Regional Consultative Committee and work choices. To support this, in April practical intergenerational and career other consultative mechanisms as 2012, the inaugural Ergon Energy and transition initiatives, including leave applicable. The frequency that these Union Bullying and Harassment Forum management, knowledge transfer and committees meet varies from monthly took place as a means of identifying in some cases flexible work options, to quarterly. All of the matters of strategies to minimise and respond which aim to both support our dispute this year were resolved through to bullying and harassment. employees and mitigate future workplace level negotiation, the resourcing risks. The age profile grievance and disputes settlement of our workforce is provided above. procedure and Fair Work Australia.

OUR WORKFORCE BY AGE OUR WORKFORCE OUR WORKFORCE BY GENDER BY REGION 33 7 32 2 7 , , 1 1 0 2 , 1 6 1 7 41 4 4 6

Female 26% Northern 40% 5 5 5 5 Central 27% 5 3 6 4

Male 74% <2 5 65 + ≤ ≤ ≤ ≤

Southern 23% 5 5 5 5 2 5 4 3 Brisbane 10%

Ergon Energy has an intergenerational Being predominantly field-based, in a male- Ergon Energy has employees based across workforce with employees both starting their dominated industry, around three quarters of Queensland, from the northern and western careers and approaching retirement. 28% of the workforce is male. reaches of the state to the population centres the workforce is aged 50 years and over. along the coast and in the south-east.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 35 Our climate change response, however, A biodiesel B5 blend (5% biodiesel and PROTECTING THE is not limited to our own operations and 95% diesel) is being used at five of our ENVIRONMENT we are also considering the emissions diesel power stations – we are currently associated with our customers’ electricity reviewing this strategy to determine the Ergon Energy sees environmental use. This is seeing action taken where we future use of biodiesel, including the use performance as a key corporate can leverage other business imperatives of higher blends, such as B20 (20% responsibility, as well as critical to – such as our demand management biodiesel and 80% diesel), and the being a high-performing organisation. objectives p24 and our cost-driven diesel appropriate locations. reduction strategy – to achieve positive We are committed to playing our role In addition, our isolated communities’ in conserving the world’s resources environmental outcomes. energy saving program, powersavvy, (whether materials or energy) through Reducing our reliance on diesel was expanded this year to continue its the adoption of efficiency and waste success in achieving reductions in diesel minimisation initiatives or, more broadly, To reduce our reliance on diesel for the used for generation p16. through operational improvements and generation of electricity in our isolated better asset investment decisions. communities we are increasing our During the year we also made capacity to generate renewable energy. progress in examining economically REDUCING ELECTRICITY USE Diesel fuel accounts for more than viable options for minimising energy MITIGATES EMISSIONS half of our isolated generation costs, losses across the network through a As an organisation we are continuing so reducing our reliance on it is comprehensive network study. to focus on reducing electricity use critical to managing operating costs. This work will inform development across our operations – which is saving Reducing diesel reliance also mitigates of a Network Losses Strategy. the risk of fluctuating diesel prices. dollars and helping to address indirect Network losses are a largely greenhouse gas emissions. We have two wind turbines on Thursday unavoidable consequence of the supply Our new buildings have been Island and are currently carrying out a of electricity and describes the process designed and built with energy feasibility study into the opportunities where energy is lost, in the form of heat, efficiency in mind, and are currently for increased wind generation on the from powerlines and other electrical performing above the design criteria island. We also have five solar equipment. While 2011/12 network for electricity usage. These buildings concentrator dishes at Windorah and losses data was not available at the time feature building/energy management a geothermal generator at Birdsville – of printing, in 2010/11 5.2% of the energy systems (controlling lighting, cooling possible expansion plans for this site entering our network was not accounted and air ventilation), double-glazed could provide in excess of 720MWh for (compared to 5.3% in 2009/10); this windows, energy efficient appliances of renewable energy and save up to includes both real losses and electricity and on-site solar generation p30. 500 tonnes of greenhouse gas emissions used by street lights and other each year p37. Ergon Energy is also unmetered supply services (excluding In addition, across our existing buildings, investing in a large solar photovoltaic an estimate for streetlights losses the we have commenced implementing a field at Doomadgee to cost effectively figure would be in the order of 4.7%). range of energy conservation initiatives. support our supply arrangements to By reducing energy consumption, the community. these initiatives are both mitigating the associated emissions and realising ongoing operational cost savings.

OUR CARBON FOOTPRINT

Our emissions inventory, defined by Electricity used in our 108 plus OUR CARBON FOOTPRINT the National Greenhouse and Energy buildings across our operations, Reporting Act 2007 scopes: including 83 depots, represents about 2.2% of our emissions inventory. Direct Emissions (Scope 1) – the operation of the 33 diesel-fired Indirect Emissions (Scope 3) – street electricity generation plants, which lighting is significant contributor to we use to supply our communities our indirect emissions, estimated to isolated from the main grid, accounts be responsible for about 7.3% of our for about 72% of our direct, or Scope 1, emissions inventory. As a regional greenhouse gas emissions, the rest distributor air travel is a critical part being mostly from vehicle fleet fuel use. of our business, however, it only represents about 0.3% of our Emissions associated with the use of emissions inventory. electricity (Scope 2) – emissions from largely unavoidable network energy Total emissions across the three scope losses comprise around 77% of our areas is approximately 880,000 tonnes total emissions inventory. of carbon dioxide equivalent. Electricity generation 9% Vehicle transport fleet 2% Network losses 77% Operational electricity use 3% Electricity used by street lights 7% Other 2%

36 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 Meeting legislative requirements Through sustainable logging and PROTECTING OUR We also undertook a review of the revegetation, this initiative is seeing LOCAL ENVIRONS impacts of the Carbon Price Mechanism both sound business and positive Ergon Energy promotes compliant (CPM or ‘carbon price’) and the environmental benefits. To diversify our and responsible environment and associated Clean Energy Futures ‘pole’ farm portfolio, we are continuing cultural heritage operating principles legislation, which commenced in July with plans to obtain additional properties. and practices. 2012. While Ergon Energy is not a liable We are now recycling timber power entity under the Australian Government’s poles that have been decommissioned Environmental incidents Clean Energy Act 2011 and associated in a number of regions, rather than Ergon Energy’s incident management legislation, therefore not required to discarding them as waste to landfill. framework classifies incidents using a directly purchase CPM permits, We are also continuing to work with four-level scale. For environment or additional costs will arise, including an Forest and Wood Products Australia cultural heritage impacts, a Class 1 estimated $1.7 million per annum from and the Queensland Government to incident is a major impact involving a the loss of diesel fuel tax credit for test the suitability of different plantation sensitive environment or a breach of generation and other legitimate hardwood species for power poles. cultural heritage legislation resulting pass-through costs from suppliers. in significant financial penalties. Improving waste management Ergon Energy met its liability for On the other end of the scale is a Renewable Energy and Gas Electricity Ergon Energy manages both industry Class 4 incident – one with a minor Certificates (RECs and GECs). Our GEC specific and general waste as part of localised impact, requiring minimal compliance requirements are equivalent our day-to-day activities. During the or no remediation. to the purchase of 15.00% of our year we reviewed our Waste Reduction During 2011/12 Ergon Energy had customers’ energy requirements from and Recycling Plan – in line with new no major environmental incidents Queensland gas-fired generation. requirements under the Waste Reduction (Class 1 incidents) or breaches of the As RECs, our Large-scale Generation and Recycling Act 2011. The plan outlines Environmental Protection Act 1994. Certificate requirements for 2011 were how we are managing various waste There was one Class 2 incident equivalent to sourcing 5.62% of our streams and contains various targets associated with building without the customers’ energy requirements from that will help monitor improvement in permit required under the Queensland renewable generation. This rises to 9.15% the reduction of overall waste. Forestry Act 1959 at Ravenshoe. for 2012. We are also liable under the Across our business this year, we Small-scale Renewable Energy Scheme During 2011/12 Ergon Energy recovered more than 890 tonnes of for Small-scale Technology Certificates. continued to maintain certification scrap metal including copper, aluminium These requirements have both been met of its Environmental Management and steel for recycling (compared to from our own renewable energy plant System to AS/NZS ISO 14001. 870 tonnes in 2010/12), and more than and the traded market. 470 tonnes of old transformers for Ergon Energy has continued to maintain recycling (315 tonnes in 20010/11). a focus on sites contaminated through BEST PRACTICE USE We also recovered 335,000 litres of past operations. We are deploying OF MATERIALS oil (369,000 litres in 2010/11) from our a comprehensive program that has The scale of our capital infrastructure assets for processing for disposal or prioritised affected sites for evaluation program largely dictates the use reuse through licensed facilities. and remediation, with remediation of resources, making our demand work under way at several locations. management efforts and the drive to Practicing water conservation defer network investment (discussed Throughout our property portfolio we elsewhere in the report) as central aim to minimise water use. In all of our ENVIRONMENTAL INCIDENTS to improving resource utilisation as new properties, rainwater collection it is to minimising cost pressures tanks are being installed to provide for our customers. water for toilets and gardens and in our depots we also consider the water Ensuring a sustainable supply of power poles used for wash down purposes. This year the works program saw the The other area where we undertake purchase of around 12,160 new poles water management is in our stand-alone (compared to 10,300 in 2010/11), along generation plant. In Birdsville, we operate with around 2,890 transformers a small geothermal power station – one (compared to 2,120 in 2010/11). of the few low-temperature geothermal power stations in the world. It draws To ensure a sustainable supply of power from a free-flowing bore into the Great poles, Ergon Energy is growing its own Artesian Basin, which has existed for renewable supply of poles in the 6,000 more than 75 years. After the water’s hectares of native forest that we currently heat is used for generation, it is directed have under management. This year saw into the town’s water supply and lagoon. Fauna Management 51% Waste management 3% us harvest power poles and other timber During the year we have continued to Oil & Fuel Management 30% Air emissions 3% products for the first time. The poles Soil Management 3% Other 8% work through possible expansion plans Vegetation Management 2% came from thinning operations on two for the site, and any development will of our properties that aim to increase consider ongoing water requirements. the potential of the remaining stand Fauna related incidents, involving birds, bats In our solar farm in Windorah we and small animals contacting the powerlines, to provide poles at the right size and are our most frequent environmental incident. strength rating to meet our future needs. use water from a dam filled with During 2011/12 we had 125 incidents. non-potable water from a nearby creek for evaporative cooling.

REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 37 Vegetation management Working sensitively to Building cultural heritage awareness We are continuing to improve our protect biodiversity Due to our statewide presence, Ergon vegetation management practices. In addition to our bushfire mitigation Energy dedicates significant resources To maintain appropriate aesthetics in and weed control activities we have to understanding the diverse cultural urban areas we have shortened cycle also continued specific biodiversity heritage artefacts found in our region, times, so we can continue with less protection initiatives. as well as to consulting with Indigenous invasive cutting. Further improvements representatives generally, which We have continued our powerline to the data available on sections where ultimately minimises the impact of corridor mapping program to ensure vegetation is at risk of contacting our works. minimal impact from the operation of our powerlines will allow us to minimise infrastructure located in environmentally Throughout 2011/12, we continued to unnecessary vegetation removal as sensitive areas, including national parks, build an awareness of the importance we move from a cyclic-based program state forests, nature refuges and world of cultural heritage across the business. to a risk-based approach p30. heritage areas. Through the program, We revised the face-to-face elements Weed control activities sustained which has been underway since 2006, of our cultural heritage training and we have completed ecological surveys developed a cultural heritage Ergon Energy’s weed management of 240 kilometres of powerlines pocketbook to enhance field recognition strategy aims to limit the introduction of containing 61 protected sites – less than of tangible heritage sites and objects. declared plants and priority weeds into 10% of these sensitive areas are still to Regularly viewed cultural heritage new areas of the network and prevent be mapped. This has seen management datasets have also been migrated to the the spread of existing infestations measures captured in specific national Google Earth environment, and specific through effective risk assessment, park environmental management layers created, to give employees easy the deployment of site-specific plans submitted to the Department access to the data. environmental management plans of Environment and Heritage Protection and ensuring compliance with for approval. We have also simplified our cultural vehicle wash-down protocols. heritage risk assessment reference material, and created new positions in the During 2011/12, weeds remained a key cultural heritage team, to enhance the area of environmental concern, due “Our aim is to be a leader way the business delivers on its cultural to growth rates across Queensland in environmental and cultural heritage commitments. accelerating as a result of favourable growing seasons and in response to heritage management – with a landholder concerns about weed focus on conserving resources infestations. This has seen a sustained and on protecting the focus on the control activities undertaken environments we operate in.” as part of our construction and maintenance programs and a review of the wash-down facilities at our Operationally, we secured 55 hectares depots, with a number of new of protected vegetation to offset the wash-down facilities built. clearing required for Isis to Dallarnil, Woolooga to Curra and Aramara to Targeting bushfire mitigation Maryborough projects and currently Although the risk of bushfires in have a contract to offset the impacts Queensland is lower than in the southern of four hectares of clearing associated states, it has been a significant issue this with the Maryborough to Nikenbah year from a reliability perspective. This is project. These biodiversity offsets will due to the build up of fuel load in the protect endangered and of-concern landscape as result of favourable growing vegetation, essential habitat for koalas seasons p27. and the vulnerable Wallum Froglet. To help us better position ourselves to As part of protecting biodiversity, respond to bushfires and reduce the we also take measures to minimise likelihood of our assets initiating fires in the impact when planning our work. the future, we have reviewed our overall This year, line routes have been modified bushfire strategy. This is seeing us to avoid impacts on a number of increasingly use data on bushfire hazards threatened species including the Ooline obtained from the Queensland Fire and tree, Kogan Waxflower, Glossy Black Rescue Service and other web-based Cockatoo, Goodwood Gum and sources, and historical fire scar mapping Melaleuca cheelii. One new line to target both our maintenance efforts route could not avoid the habitat and the practices applied. of two fauna species with Australian Government status of ‘endangered’, however, after seeking expert fauna advice we were able to minimise impact on one species and enhance the habitat of the second species by use of a particular cross-arm design.

38 REVIEW OF OPERATIONS HIGH-PERFORMANCE ORGANISATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 OUR ECONOMIC AND FINANCIAL PERFORMANCE

Ongoing Achieved Partial Not Achieved

Ergon Energy is delivering economic value, within a sound STRATEGIC INITIATIVE ACHIEVEMENT corporate governance framework, Undertake the financial modelling Modelling has been refined to ensure both through the core services needed to assess investment plans future investments are in line with our we deliver and our commercial against our commitments around commitment to limiting increases to achievements. We also contribute ‘price’ and 'network performance’ network charges. p39 economically through local in the 2015-2020 regulatory period. employment and purchasing, Continue to develop unregulated Commercial successes are being and through the support of local revenue in areas that are aligned achieved in our telecommunications economic development initiatives with our core business. business, Nexium, and through our modular electrical and vital to regional Queensland. communication solutions. p39

DELIVERING Ergon Energy is also committed to The financial results for our retailer, Ergon ECONOMIC VALUE maintaining operational expenditure Energy Queensland Pty Ltd, were above within our regulatory allowance. expectations with NPAT of $56.3 million, ADDRESSING While this year we are slightly ahead primarily due to favourable performance ELECTRICITY PRICES of our regulated expenditure forecast relative to the industry benchmarked for the five year period at 42% (due retail cost to serve. Ergon Energy’s overarching strategic mainly to increases in vegetation and We are also growing non-regulated goal, to limit increases to network asset inspection costs associated with revenue through activities that support charges (and the pressure on efforts to recover the works program our core business. electricity prices) to less than the post Cyclone Yasi and costs associated CPI over the longer term, is at the with the take up of solar energy systems), Our subsidiary Ergon Energy heart of delivering our economic we are confident our efficiency focus Telecommunications Pty Ltd, Nexium, contribution to the Queensland. p28 will allow us to deliver on this has continued to grow its wholesale By finding better ways to respond to commitment. and retail telecommunications services peak demand and avoiding unnecessary with the supply of high-speed data investment – which has contributed to RETURN ON INVESTMENT SOUND connectivity to the mining, energy and the reduction in our 2010-2015 capital Ergon Energy is committed to government sectors. Nexium has also works program discussed earlier p23 delivering on the financial targets delivered a range of internal services – we have reduced our revenue agreed with our shareholding Ministers. for Ergon Energy’s operational requirement from electricity sales for We recognise Ergon Energy represents communications network, SCADA the next three years by $99.2 million. a significant investment for the network and corporate connections. Opportunities to further reduce Queensland Government. Our aim Ergon Energy’s manufacturing expenditure over the remainder of is to ensure business performance meets workshops have also had a successful the current regulatory period to 2015 expectations and return on investment year – delivering modular data centres are also being investigated. is maximised. to Emerson, a global provider of As part of preliminary preparations for Ergon Energy delivered above target telecommunications infrastructure the next regulatory revenue proposal, financial results with a consolidated solutions, as well as accelerating the we have also further refined our group Net Profit After Tax (NPAT) of use of innovative diagnostic techniques, investment modelling to ensure the $319.8 million – above the $277.6 million through high-speed cameras, to capital works program that we submit revised target agreed with the better service our clients in the to the regulator, the AER, for 2015-2020 Queensland Government in our electricity industry. can deliver on our commitment to Statement of Corporate Intent p8 – limiting increases to network charges. and an Earnings Before Interest and Tax This submission process is central to (EBIT) of $777.8 million (compared to the the economic sustainability of our revised target of $721.8 million). This was business. Capital expenditure to date supported by our efficiency efforts. for this regulatory period is within target These results were achieved while at 29% of the five year allowance. delivering an $869.8 million capital works program, $742.5 million of which was to increase the capacity and improve the reliability of the network p23.

OUR ECONOMIC AND FINANCIAL PERFORMANCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 39 FINANCIAL STATEMENTS EXPLAINED

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

A. where does our revenue come from? D. what do we owe (our liabilities)?

Ergon Energy’s total revenue and other income for the year Ergon Energy’s total liabilities increased to $7,306.1 million was $2,692.9 million, an increase of $154.4 million compared this year with funds drawn down used for our capital works to 2010/11. programs and cash flow requirements. Prudent gearing ratios are being maintained. Our revenue sources include electricity sales of $1,598.1 million, distribution revenue of $277.0 million from our Our largest individual liability is the interest bearing loan non-retail customers and customer contributions towards with Queensland Treasury Corporation of $4,794.7 million. the electricity distribution network of $126.1 million. The second largest liability is the net deferred income tax Ergon Energy also received a $415.2 million Community liability of $1,447.2 million. Some of our other key liabilities Service Obligation (CSO) payment for 2011/12. This is include current payables due to trade creditors ($110.4 compensation from the Queensland Government for the million), current employee benefits ($162.9 million) and cost of servicing our electricity customers that is not the defined benefit superannuation deficit ($97.2 million). covered by the revenue collected from customers through Ergon Energy’s long-term corporate credit rating has been the state’s uniform electricity tariff schedule. maintained with a public rating of AA and stand-alone Ergon Energy’s regulated revenue, for the use of our rating of BBB+. This credit rating is influenced by the global electricity distribution network, is determined by the AER, economic environment and its impact on the Queensland and is recovered via the application of network charges to Government’s expected revenue. customers and embedded generators connected to the network. The charges are billed to both our retail business and the retailers of customers who have entered the E. what was our capital investment? contestable market in regional Queensland. The AER Ergon Energy delivered an $869.8 million capital works also regulates certain payments by our customers for program. The regulated component of our capital works capital contributions towards network extensions and program was within the five-year regulatory control other services. period allowance – this included the $742.5 million invested in increasing the capacity and improving the reliability of b. what are our main expenditures? the network p23.

Ergon Energy’s operating expenses provide a significant economic contribution to Queensland. We employ F. what return do we give to our owners? a 5,000 Queenslander strong workforce – with total The strength of Ergon Energy’s profit result will enable payroll costs of $576.4 million – in addition to a large dividends of $255.9 million to be paid to our shareholding contractor base – with contract payments totalling Ministers, and through them to the Queensland Government, $181.7 million. Ergon Energy adheres to the State in 2012/13. This payment, ultimately, benefits the people Procurement Policy and encourages local sourcing. of Queensland. Operating expenses totalled $682.2 million – 2.3% below Dividend Policy – Ergon Energy’s dividend policy requires budget (despite regulated operational expenditure being the Board to recommend, taking into account the slightly above budget p29). To supply our customers with investment return its shareholders expect, a dividend of electricity we incur a number of major expenses – for 80% of profit adjusted for unrealised fair value gains or 2011/12 electricity purchases totalled $547.4 million and losses on financial instruments. This is paid on the basis of the transmission network charges paid to Powerlink its shareholders agreeing to provide the necessary funding Queensland totalled $306.0 million. for approved projects, the maintenance of Ergon Energy’s approved capital structure and the organisation’s c. what assets do we own? operational viability.

In 2011/12, Ergon Energy’s total asset base increased in value by $628.2 million to $10,603.1 million. Property, plant and equipment are the major components of our asset base, at $9,219.3 million, which includes mostly regulated electricity network assets. Ergon Energy revalued its property, plant and equipment assets as at 30 June 2012, resulting in an increase of $66.7 million. The directors approved an income-based valuation performed by management of all asset categories with the exception of the isolated generation and distribution assets which was revalued based on an independent valuation performed by Sinclair Knight Merz. At the end of June 2012, $437.9 million was held as cash, consistent with normal business operations.

40 OUR ECONOMIC AND FINANCIAL PERFORMANCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 FINANCIAL SUMMARY FOR ERGON ENERGY CORPORATION LIMITED (CONSOLIDATED)

2011/12 2010/11 2009/10 2008/09 2007/08 $million $million $million $million $million

A. OUR REVENUE

Revenue and Other Income 2,692.9 2,538.5 2,203.7 2,279.1 2,598.3

B. OUR EXPENDITURE Network/Electricity Purchases (853.4) (846.2) (925.9) (1,037.7) (1,419.1)

Operating Expenses (682.2) (634.0) (508.6) (555.7) (521.1)

Depreciation Expense (379.5) (314.2) (290.9) (277.8) (248.0)

Finance Charges (321.2) (293.7) (243.4) (223.4) (180.1)

OUR PROFIT

Earnings Before Tax 456.6 450.4 234.9 185.5 230.0

Tax Expense (136.8) (128.8) (68.4) (55.2) (67.1)

Net Profit After Tax 319.8 321.6 166.5 129.3 162.9

C. OUR ASSETS Current Assets 1,145.0 1,011.7 1,128.2 1,030.9 779.2

Non Current Assets 9,458.1 8,963.2 7,570.1 6,980.4 6,321.3

Total Assets 10,603.1 9,974.9 8,698.3 8,011.3 7,100.5

D. OUR LIABILITIES Current Liabilities 1,182.5 967.1 1,035.0 777.9 659.9

Non Current Liabilities 6,123.6 5,692.9 5,001.9 4,682.2 3,916.8

Total Liabilities 7,306.1 6,660.0 6,036.9 5,460.1 4,576.7

Net Assets 3,297.0 3,314.9 2,661.4 2,551.2 2,523.8

E. OUR INVESTMENT Total Capital Investment 869.8 830.5 806.1 844.3 841.4

F. DIVIDENDS Dividends Provided For 255.9 252.6 137.5 116.6 118.4

Dividends to Net Profit After Tax 80% 79% 83% 90% 73%

FINANCIAL RATIOS 2011/12 2010/11 2009/10 2008/09 2007/08 Return on Average Assets Reflects the efficiency of our assets to generate earnings. 7.6% 8.0% 5.7% 5.3% 5.7% = Earnings Before Interest & Tax/Average of opening & closing asset balances x 100. Return on Average Equity This represents the returns generated on the money the Queensland 9.7% 10.8% 6.4% 5.1% 6.6% Government, as our shareholder, has invested in Ergon Energy. = Net Profit After Tax/Average of opening & closing equity x 100. Gearing (including reserves) Our gearing demonstrates the prudential level to which our activities 59.3% 56.6% 59.8% 59.1% 54.3% are funded by owner’s funds versus borrowed funds. = Debt/Debt + Equity x 100. EBITDA to Interest Cover (times) Shows our ability to adequately meet the interest on current 3.6x 3.6x 3.2x 3.1x 3.7x borrowings. = Earnings Before Interest & Tax, Depreciation and Amortisation/Finance charges.

OUR ECONOMIC AND FINANCIAL PERFORMANCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 41 ASSET VALUE GROWS WITH RETURN ON ASSETS SOUND EXPENDITURE REFLECTS NETWORK INVESTMENT WORKS RECOVERY % 0 % . 6 0 8 68 2 . . $ 7 0 $10. 6 1 $63 4 $ % % $55 6 7 7 $8. 7 % . . $52 1 8. 0 $50 9 3 5 5 1 . $ . 5 7 $ N R U T E R MILLIO N BILLIO N 12 12 2011 12 2011 2010 2 0 2010 2 0 2008 2009 2008 2009 2011 2010 2 0 2008 2009

This year saw a record $742.5 million into The slight drop in return to 7.6% largely Total expenditure was 2.3% below budget, the network to meet demand and deliver reflects the significant revaluation of the despite regulated expenditure being slightly reliability standards, lifting the total asset asset in 2010/11. over budget (due mainly to increases base to $10.6 billion. associated with recovering the works program).

PROFIT RECOGNISES REVENUE INCREASED WITH LIABILITY GROWS IN LINE ASSET INVESTMENT ENERGY SALES WITH ASSET VALUE 6 6 0 8 . . 3 , 9 69 3 7 1 , 7 $ 3 2 3 $32 1 $ $6,94 0 $ $2,59 8 $2,53 9 46 0 2,27 9 , $6, 0 2,20 4 $ 5 $ $ 5 9 $4, 57 7 3 $1 66 . $1 62 . $1 29 . MILLIO N MILLIO N MILLIO N 12 12 12 2011 2011 2010 2 0 2008 2009 2010 2011 2 0 2008 2009 2010 2 0 2008 2009

Revenue increased across all of our sources, The profit (NPAT) result has allowed for a Ergon Energy’s total liabilities have increased including electricity sales, distribution revenue $255.9 million dividend to the Queensland this year, primarily driven by borrowings from non-retail customers and customer Government, partly offsetting the $415.2 million required for asset investment. Gearing contributions towards augmentation of Community Service Obligation payment. remains prudent. the electricity network.

42 OUR ECONOMIC AND FINANCIAL PERFORMANCE ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 OUR CORPORATE GOVERNANCE STATEMENT

Ongoing Achieved Partial Not Achieved

Ergon Energy operates within a corporate governance framework STRATEGIC INITIATIVE ACHIEVEMENT that provides a comprehensive Develop a portfolio capability approach Strategic alignment and business value process for managing the business to improve the prioritisation and criteria have been incorporated into with integrity and in the best optimisation of Ergon Energy’s the business case tools used to assess interests of our stakeholders. capital investment program. new investment proposals. A proof It encompasses decision-making of concept dashboard has also been and implementation, performance developed and is being utilised. Its use will now be extended across the and investment value optimisation network portfolio. p51 and how the organisation is held to account. This is supported by Participate in the Australian Energy We are continuing to engage on Market Commission’s development of the proposed framework and draft ethical leadership, risk assessment a National Framework for Distribution rule changes. Preliminary work and performance management. Network Planning and Expansion and was undertaken, in advance of the outwork the recommendations. draft, to develop a Demand Side Ergon Energy’s corporate governance Engagement Strategy and scope the practices are in line with the Australian implementation requirements for a Stock Exchange (ASX) Corporate Regulatory Investment Test Governance Principles and for Distribution. p54 Recommendations, where applicable, as well as the Queensland Government’s Ergon Energy’s other subsidiary is Ergon Ergon Energy Corporation Corporate Governance Guidelines for Energy Telecommunications Pty Ltd, Limited Board Government Owned Corporations. trading as Nexium Telecommunications The responsibilities of the Ergon Where we have not followed a specific – this business services Ergon Energy’s Energy Corporation Limited Board, ASX recommendation we explain our communications needs and as a licensed as summarised in the table over, are position and how our practices accord telecommunications carrier offers the outlined in the Board Charter. The Board with the ‘spirit’ of the relevant principle. Queensland marketplace wholesale can delegate functions to management, Additional information is available online high-capacity data services. however, certain matters are reserved for at www.ergon.com.au/annualreport The activities of the subsidiary the Board – as detailed in the Charter and www.ergon.com.au/about-us/ companies are overseen by their and a policy document; Delegation of company-information/corporate- own boards, which in the case of Power. These documents are available governance Ergon Energy Queensland Pty Ltd on our website. consists of senior executives of the PRINCIPLE 1 – LAY SOLID parent company and for Ergon Our Board Committees FOUNDATIONS FOR Energy Telecommunications Pty Ltd To assist with the discharge of directors’ MANAGEMENT AND OVERSIGHT directors of the parent company. duties, a number of board committees Our company structure These subsidiary boards, which meet have been established to consider and regularly, have adopted the Directors respond to particular issues faced by Ergon Energy Corporation Limited, a Code of Conduct applicable to the Ergon Energy, many of which are wholly Government-owned corporation, Ergon Energy Corporation Limited linked intrinsically to regional Queensland is governed by the provisions of the Board and applicable Ergon Energy sustainability challenges, such as Corporations Act 2001, except as management and governance policies workplace health and safety, community otherwise provided by the Government as amended from time to time. safety, environmental matters, disaster Owned Corporations Act 1993. management and other people issues, Ergon Energy Corporation Limited is such as Equal Employment Opportunities. Ergon Energy Corporation Limited’s also a shareholder in a joint venture responsibilities under its Distribution with Energex Limited – SPARQ Solutions The committees’ charters are Authority and the Electricity Act 1994 Pty Ltd, which provides Information summarised, along with the key (Qld) are to allow, as far as practical, and Communications Technology (ICT) activities undertaken by each committee connection to its supply network on solutions and services to both Ergon during 2011/12, the membership of each fair and reasonable terms and to operate, Energy and Energex. The Board of committee and the number of meetings maintain and protect its supply network SPARQ Solutions Pty Ltd has a attended by each director, while in office, to ensure the adequate, economic, Corporate Governance Manual, which in the table following. During 2011/12 the reliable and safe connection and includes a Code of Conduct based on AER 2010 Due Diligence Committee supply of electricity to its customers. those approved by its shareholders. evolved into the Regulatory Committee Ergon Energy Queensland Pty Ltd Detailed shareholder agreements guide with a new broader charter. provides electricity retail services to the governance of this company with Continued on page 51. customers in Ergon Energy’s retail its board, comprising of executives from area. As a Government-owned both Ergon Energy Corporation Limited ‘non-competing’ electricity retailer, and Energex Limited, who meet on a Ergon Energy Queensland Pty Ltd can quarterly basis. only offer customers the government-set electricity tariffs (notified prices) as determined by the QCA.

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 43 THE BOARD OF DIRECTORS

MALCOLM HALL-BROWN JOHN BIRD ANNABEL DOLPHIN SUSAN FORRESTER BEcon BCom FCPA FCPA FAICD FTIA FAIST BBus Mgt AAICD CAHRI BA LLB(Hons) EMBA FAICD

CHAIRMAN DEPUTY CHAIRMAN Independent Independent Independent Non-Executive Independent Non-Executive Non-Executive Director Non-Executive Director Director Director

First appointed May 2012 First appointed November 2006 First appointed October 2011 First appointed October 2008 Term in office 3 months Term in office 6 years Term in office 11 months Term in office 4 years

As Chairman, Malcolm As a Registered Company As a qualified business Originally trained as a Hall-Brown brings to Auditor, John Bird provides management practitioner banking and finance lawyer, Ergon Energy a strong, considerable experience and with 15 years experience Susan Forrester is an proven track record in public direction to Ergon Energy gained through leadership experienced company director practice accounting and as Deputy Chairman of the and human resources roles bringing to the Board more commercially-oriented Board, Chairman of the in the mining and training than 20 years of commercial enterprises. He has had Board’s Audit and Financial industries, Annabel Dolphin management experience in the extensive practical, Risk Committee and a member brings a wealth of knowledge legal, governance and human commercial experience of the Regulatory Committee. to Ergon Energy’s Board. resource areas. across a diverse range of He was formerly a Managing She is currently the Managing This experience was gathered fields – including marina, Partner in Brown and Director of Dolphin whilst in executive roles in resort and other commercial Bird Certified Practising Management Consulting, the public and private sectors developments – and a deep Accountants in Mackay. where she leads a team during which time she understanding of Ergon John is Chair of the who specialise in a range of completed an EMBA with Energy’s regional Queensland Queensland Labor Group management applications, Melbourne Business School, operating environment. of Companies and of ESI including business strategy specialising in change Malcolm is the foundation Financial Services Pty Ltd and planning, organisational management and strategy. director of the Port Binnli and is Deputy Chairman of design, culture and change Susan also serves as a group of companies, with a Electricity Supply Industry management, leadership and chairman of Oncore development portfolio that Superannuation (QLD) Ltd. talent management. Annabel Group Holdings and as a includes the Raby Bay and John is also a director of Ergon is a certified member of the non-executive director Mackay marinas, as well as Energy Telecommunications Australian Human Resources of Shine Lawyers Ltd, G8 Mackay’s Clarion Hotel. Pty Ltd. He previously served Institute and the Mackay Area Education Limited, National He has also served on as Deputy Chairman of the Industry Network. She is a Health Call Centre Network several prominent industry electricity retailer Ergon member of Ergon Energy’s Limited, the Brisbane development boards, Energy Pty Ltd for a period Board Audit and Financial Risk Festival Pty Ltd and including Brisbane Marketing. of seven years. Committee, as well as the Children’s Health Foundation People Committee. Queensland. Susan is a Chair of Ergon Energy’s Board People Committee and a member of the Operational Risk Committee.

44 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 CHANGES TO THE BOARD DURING 2011/12 GARY HUMPHRYS ROWENA MCNALLY HELEN STANTON CA GAICD FIAMA LLB AFAIM MAICD BE MAICD The following Board members resigned during Independent Independent Independent the 2011/12 reporting period. Non-Executive Director Non-Executive Director Non-Executive Director Their full profiles are provided in the Directors’ Report available online. First appointed October 2009 First appointed November 2011 First appointed July 2005 Term in office 3 years Term in office 10 months Term in office 7 years Ralph Craven was the Chairman of the Board. Gary Humphrys brings more Rowena McNally is an Ingham based engineer Ralph brought to Ergon than 35 years of experience experienced company director, Helen Stanton has a Energy a professional in the energy and mining having previously served on background in mining and background that industries to the Board. the boards of various industrial processing and encompassed the energy A chartered accountant, he infrastructure projects currently consults in strategy and resources sector, has held senior executive roles (including Paradise Dam near implementation, business commodity trading and in both the private and public Bundaberg and a number process analysis and change regulatory complexities. sectors across a of hospital construction management. She is a range of disciplines, including projects) and on the boards of non-executive director of He was first appointed to finance and accounting, Gladstone Water and Cerebral Townsville Mackay Medicare the Board 1 October 2008 treasury, taxation, information Palsy Australia, amongst Local and Ingham Disability and resigned 30 May 2012. and technology, procurement, others. She is currently the Services. Helen chairs Ergon Tony Mooney brought risk management and audit. Chair of the Mount Isa Water Energy’s Board Operational extensive experience in In recent years, Gary has Board, the National Chair of Risk Committee, is a member infrastructure management, undertaken Board and related the Institute of Arbitrators and of the Board’s Regulatory economic development, committee roles in the water, Mediators Australia, Deputy Committee, and is also Ergon energy, mining and health Chair of Catholic Health Energy’s representative on the community engagement industries. He is currently Australia, and a Trustee of Board of Townsville Enterprise and regional government Chairman of the SEQ Water Mary Aikenhead Ministries. Limited. to Ergon Energy’s Board. Grid Manager and a director of Originally a litigation, He was first appointed to the St Vincent’s Health Australia intellectual property and Board 1 October 2008 and Ltd. Gary chairs Ergon corporate lawyer, she is a resigned 30 September 2011. Energy’s Board Regulatory member of the Law Council of Wayne Myers brought Committee and Australia (Business Law). She extensive experience from is a member of the Audit and is a member of the Ergon Financial Risk Committee. Energy Board’s Operational the Information Technology Risk and People Committees. and Telecommunications industry to the Board, as well as general business management expertise. He was first appointed to the Board 5 July 2001 and resigned 30 September 2011.

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 45 OUR GOVERNANCE FRAMEWORK

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

Boards of the Ergon Energy Group

Ergon Energy Corporation Limited (EECL)

Subsidiaries • Ergon Energy Queensland Pty Ltd (EEQ) • 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 • People Committee • Regulatory Committee

Chief Executive D URES POLICIES AN D PROCE

Executive Leadership Team RISK MANAGEMENT FUNCTIONS D IT AN RISK MANAGEMENT AU Business units

Finance & Strategic Asset Management Operations Services

Energy Sustainability REPORTING INDEPENDENT & Market Employee & Major Projects Development Shared Services (incl Nexium)

Customer & Customer Service Stakeholder Corporate (incl EEQ) Engagement Governance

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

46 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 FOCUS OF THE BOARD AND THE BOARD COMMITTEES

MEMBERSHIP MEETINGS SUMMARY OF CHARTER FOCUS IN 2011/12

Attended Held

Ergon Energy Corporation Limited Board

R CravenCB 19 19 • Responsible for the strategic direction of • Ensuring the strategic direction had strong focus in response the organisation. to rising electricity prices. CB M Hall-Brown 2 2 • Ensures the corporate governance required • Driving operational efficiency through the business. J Bird 24 24 to monitor operational, safety, environmental, • Ensuring a focus on delivering major customer connections. social and financial performance and reports A Dolphin 15 16 to the shareholding Ministers. S Forrester 24 24 • Delegates authority to the Chief Executive, G Humphrys 23 24 management and employees. R McNally 11 13 H Stanton 24 24 T Mooney 6 6 W Myers 8 8

Audit & Financial Risk Committee R Craven 4 4 • Approves and monitors Ergon Energy’s • Reviewed the external audit report and recommendations. in-house internal audit program. M Hall-Brown 1 1 • Recommended to the Board that it adopt the Annual • Provides ongoing assurances to the Board that Financial Statements and Directors’ Report. J BirdCC 5 5 its obligations are being met in relation to: • Oversaw compliance with the conditions of the Australian A Dolphin 4 4 -- financial integrity Financial Services Licence. S Forrester 1 1 -- financial risks • Received reports on debt management and other -- regulatory reporting G Humphrys 5 5 treasury functions. -- compliance issues. • Endorsed the Regulatory Information Notice return submitted to the Australian Energy Regulator. • Engaged consultants to conduct a business-wide fraud risk assessment. • Recommended to the Board the basis for valuation of assets. Regulatory Committee R Craven 4 4 • Assists the Board to fulfil its corporate • Reviewed reports on lessons learnt from the 2010-15 governance and oversight responsibilities regulatory submission. M Hall-Brown - - by reviewing and reporting on the due • Endorsed the approach and work plan for preparation J Bird 4 4 diligence process conducted in relation of the submission to the AER for the 2015-20 distribution to the preparation and outcomes of G HumphrysCC 3 3 determination. regulatory proposals. H Stanton 4 4 • Endorsed the program of work to be done by external consultants to prepare the submission for the 2015-20 W Myers 1 1 distribution determination. • Received reports on key issues, including proposals by the AER for rule changes for the next distribution determination. Operational Risk Committee R Craven 3 3 • Assists the Board in its response to business • Oversaw the project to implement changes resulting from and operational risks and oversight the harmonisation of workplace health and safety laws. M Hall-Brown 1 1 responsibilities in relation to: • Reviewed regular reports from management on health, J Bird 1 1 -- health and safety, including community safety, safety and environmental issues and endorsed the waste S Forrester 3 3 -- environmental risks reduction and recycling plan. -- risk exposure R McNally 1 2 • Reviewed changes to the corporate risk profile in response -- insurance and claims management. to emerging issues. H StantonCC 4 4 • Endorsed risk appetite statements for health and safety, T Mooney 0 1 and for procurement, as well as the insurance program for the transfer of risk. W Myers 0 1 • Received a report from external consultants on Ergon Energy’s response to Cyclone Yasi. • Oversaw the development of the organisational resilience framework. • Received the privacy impact assessment on the implementation of the Drug and Alcohol Policy. People Committee R Craven 4 4 • Assists in developing a strategic, long-term • Oversaw negotiations for the Union Collective Agreement. and sustainable approach on issues relating to M Hall-Brown 1 1 • Endorsed the People and Talent Management Strategy people working for Ergon Energy. and the Employment and Industrial Relations Plan. A Dolphin 3 3 • Fulfils the Boards’ oversight responsibilities • Received regular management reports on human S ForresterCC 4 5 in relation to: resource and diversity issues. R McNally 1 2 -- remuneration; performance management; • Recommended executive remuneration arrangements industrial relations; employee engagement; to the Board. G Humphrys 3 3 organisational culture; and learning and Received a report from providers of the executive W MyersCC 1 2 development. • health program. • Reviewed the results from the employees Have Your Say Survey. CB = Chairman of the Board CC = Committee Chairman

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 47 OUR EXECUTIVE LEADERSHIP TEAM

IAN McLEOD JOHN HOOPER NEIL LOWRY PETER BILLING FAIM BEcon (Accounting) FCPA BEng GradDipMgmt RPEQ GAICD FAIM

CHIEF EXECUTIVE CHIEF FINANCIAL EXECUTIVE GENERAL EXECUTIVE GENERAL OFFICER MANAGER, ASSET MANAGER, OPERATIONS MANAGEMENT

Ian McLeod is responsible for John Hooper is responsible Neil Lowry is responsible Peter Billing is responsible for the business’s overall direction for managing the profitability for Ergon Energy’s asset the operational effectiveness and, ultimately, for meeting and sustainability of all management strategy and of the distribution business, the financial and service aspects of the business; as network performance, as well including the delivery of the delivery expectations of our the asset owner, and through as for defining the program of program of work that brings customers, the community the provision of finance work across the distribution Ergon Energy’s asset and our shareholders. Ian and strategy development. business to maximise the management planning to brings extensive electricity John has significant efficient and effective fruition. He brings a wealth industry experience to Ergon accomplishments in financial management of its assets. of industry, leadership and Energy: experience gained and general management and Neil has extensive engineering, change management through management roles has worked for a diverse range operational, retail, customer experience from trade roles in the private contracting of businesses, including large service and management to management. Peter was industry, in Powercor Australia public corporations and experience, having worked directly involved in the and the State Electricity private businesses. John is in the Queensland electricity transformation of the Commission of Victoria. Ian is a director of Ergon Energy industry for more than electricity industry in South a director of Energy Supply Queensland Pty Ltd and 38 years. Neil is active in Australia through the period Association of Australia and is SPARQ Solutions Pty Ltd. the Central Queensland of deregulation in the 1990s. Chairman of Ergon Energy community with a long Peter is on the board of Queensland Pty Ltd and involvement in engineering Mackay Whitsunday Regional SPARQ Solutions Pty Ltd. development, training Development Corporation and education. Ltd, as well as Energy Skills Queensland.

48 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 PHILIP KEOGAN BRIAN IWASZCZYN MAL LEECH ROSLYN BAKER BA(Hons) and GradDipAppFin BEng(Hons) GradDipBusAdmin BEng BCom(Accounting) MBA GAICD FFin

EXECUTIVE GENERAL EXECUTIVE GENERAL EXECUTIVE GENERAL EXECUTIVE GENERAL MANAGER, ENERGY MANAGER, MAJOR MANAGER, EMPLOYEE AND MANAGER, CUSTOMER SUSTAINABILITY AND PROJECTS SHARED SERVICES SERVICE MARKET DEVELOPMENT Philip Keogan is responsible Brian Iwaszczyn is Mal Leech is responsible Roslyn Baker is responsible for for leading the development of responsible for the delivery for shared services and customer service strategy, as Ergon Energy’s non-traditional of Ergon Energy’s major ‘people-related’ functions well as service processes and ‘smart’ network and ‘beyond corporation-initiated and including health, safety, delivery through the National the meter’ energy solutions customer-initiated capital administration, and Contact Centre. Roslyn is also with the aim of finding projects. His team works environment, human responsible for Ergon Energy’s sustainable ways to provide closely with Asset resources, industrial relations, franchise retail operations our customers with a Management and Operations training and development, including strategy, energy dependable, affordable to ensure Ergon Energy’s organisational development, trading and customer billing. electricity supply into overall program of works change management and Throughout her career she the future. Philip brings is delivered efficiently and program management of has been Chief Executive considerable product cost-effectively. Brian brings business improvement Officer of the Australian development and strategic his professional electrical initiatives. Mal Leech has Technical College NQ, investment experience to engineering expertise backed more than 12 years’ industry held senior positions with Ergon Energy’s management by a wealth of experience experience following a career the Chamber of Commerce team, gained from a career in project management, in management consulting, and Industry Queensland with senior positions in a operations and maintenance human resources and and been involved in number of leading in heavy industry and mining, engineering. establishing franchise infrastructure service infrastructure, manufacturing networks within the providers, including and transport to Ergon dairy industry and retail Jemena and Optus. Energy’s executive. management in the petroleum industry.

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 49 OUR EXECUTIVE LEADERSHIP TEAM (CONTINUED)

JUSTIN FITZGERALD GRAEME FINLAYSON PETER EFFENEY MComm GradDipStats BBus BA(Hons)/LLB(Hons) MBA BEng(Hons) BSc MBA GAICD MAMI

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

50 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 The Executive Leadership Team During 2011/12 we commenced the Assessing Board performance During the year a dedicated Major development of a portfolio capability The appointment of a new Chairman Projects group was established, with approach to improve the prioritisation will see a chair-led review of the board’s representation on the Executive and optimisation of Ergon Energy’s effectiveness in the coming months. Leadership Team (ELT). The intent is to capital investment program with the first Ergon Energy’s governance framework ensure a more holistic, executive-level step being the incorporation of strategic requires that the Board reviews its focus on the management of major alignment and business value criteria into own performance and that of the corporation-initiated and customer- our business case tool. This is supporting Board Committees on a regular basis initiated capital projects. This focus is the development of an optimisation to ensure they are working effectively. seen as critical to meeting the forecast in capability that has already been used This includes overall board performance, demand fuelled largely by Queensland’s to provide proof of concept over the roles, functions, relationships, process resources industry. The responsibilities in Strategic Enablement Program p29. and continuing improvement, as well the group were previously in different This capability will allow the concepts as the role of the Board in setting areas of the business. of value, resource capability and risk to be explored further initially for the direction and monitoring achievement The other notable change in 2011/12 network investment portfolios, and then of strategic objectives. was the formation of an Office of the to all investment portfolios, facilitating The performance review of the Board, Chief Information Officer within SPARQ the optimisation of each portfolio. commenced in 2009 and completed Solutions. This office now supports in 2010, endorsed the systems in place the Chief Executive Officer of SPARQ PRINCIPLE 2 – STRUCTURE THE to ensure that the Board is delivering Solutions, who is included as a member BOARD TO ADD VALUE best practice outcomes for the business. of the ELT. The role of the Chief Appointment of directors The report by the consultants engaged Information Officer is to ensure any to facilitate the review concluded that technology proposals developed are fully Ergon Energy Corporation Limited’s “the Ergon Board appears to be a integrated with Ergon Energy’s strategic directors are appointed by Queensland’s functioning group of individuals all imperatives. This change stems from Governor-in-Council, in accordance with of whom have experience, expertise the developing business partnership the Government Owned Corporations Act and talents to bring to bear on the model and the need to build capacity 1993, for a set term of office. This acts as decision-making processes at Ergon.” to implement the Information and a review mechanism for enhancing Board The report also detailed other areas Communications Technology performance, allowing new members to of strengths and listed some key areas blueprint p30. be selected on a regular basis for their expertise and ability to contribute on for improvement that have been Assessing senior management behalf of our regional Queensland implemented. Following changes to performance customer base. the board membership the consultants conducted a further independent follow The Board sets Key Performance Independence of directors up with a close out workshop conducted Indicators (KPIs) for the Chief Executive, in 2011. which link to the strategic objectives of All of the directors of the parent the organisation; these are formulated company, Ergon Energy Corporation Access to information and based on the Statement of Corporate Limited, and Ergon Energy quality advice Intent p8. The Board then reviews the Telecommunications Pty Ltd, including The ongoing provision of timely and performance of the Chief Executive and the Chairman, are non-executive relevant information to the Board is the Ergon Energy group based on the directors. The independence of of critical importance in enabling the achievement of these KPIs. During the directors is assessed by the Board directors to effectively discharge reporting period, a performance against the five criteria listed in the their duties in accordance with the evaluation of senior executives was ASX Corporate Governance Principles requirements under the Government conducted in accordance with this and Recommendations. When making Owned Corporations Act 1993 and the process. This process cascades the assessment, materiality is judged Corporations Act 2001. The structure, through the organisation. on a case-by-case basis by reference to each director’s individual circumstances. format and content of the board Investment review functions All of the directors are considered by agendas presented to the directors the Board to be independent. for consideration and decision, and For the development and prioritisation the board paper format, quality, content of investment programs the ELT is The directors of Ergon Energy and timeliness of issue is reviewed on supported by internal approval Queensland Pty Ltd are executives an ongoing basis with a formal review processes, including the Investment of the Ergon Energy group and are conducted on an annual basis. Review Committee (IRC) and the not independent as assessed against Network Investment Review Committee ASX Best Practice Recommendation 2.1. When required, the directors’ Code of (NIRC) and a range of assessment tools. Further, the role of the Chairman of Conduct provides for each director to Ergon Energy Pty Ltd and the Chief have the right to seek independent The IRC operates at a business-wide, professional advice at the company’s strategic level to ensure an appropriate Executive Officer of the Ergon Energy group is exercised by the same individual. expense, subject to the prior approval balance between asset investments, of the Chairman. The Board has the customer service, product and asset While the Board has a number of authority to conduct or direct any research and development and business committees, discussed in detail in this investigation required to fulfil its change within the investment portfolio. statement, it does not have a nomination responsibilities and has the ability The NIRC facilitates the efficient and committee as the directors are appointed to retain, at the company’s expense, effective management of all network by Queensland’s Governor-in-Council, such legal, accounting or other services, asset-related capital and operating in accordance with the Government consultants or experts from time to expenditure in accordance with the Owned Corporations Act 1993. time as it considers necessary in the Asset Management Plan. performance of its duties.

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 51 The company has entered into a Deed Reporting breaches of conduct REPRESENTATIONS OF of Access and Indemnity with each Ergon Energy continues to operate the FINANCIAL STATEMENTS director, giving them right of access to FairCall Service, established in 2003, all documents that were provided to as a means by which staff, contractors them during their term in office, for a and members of the public can report Auditor Boards of Directors period of 10 years after ceasing to be unethical conduct, breach of corporate a director and to indemnify them to policy – such as the Code of Conduct – the extent allowed by law in respect of or suspected fraud. The service is certain liabilities that they may incur as a Audit and Financial Risk Committee independently operated and reflects representation to the Boards result of, or by reason of, being a director. the principles embodied in the Public Interest Disclosure Act 2010, and various PRINCIPLE 3 – PROMOTE whistleblowers’ protection standards, ETHICAL AND RESPONSIBLE Chief Executive and Chief Financial ensuring fairness to all concerned. Officer representation to the AFRC, DECISION-MAKING the Boards and the Auditor Ergon Energy embraces ethical business All allegations lodged using the FairCall practice as a fundamental part of the Service are referred to the Manager organisation’s culture. It is critical to Internal Audit for investigation and, Management representation to supporting our corporate values and, where these are substantiated, the Chief Financial Officer therefore, to realising our strategic plans appropriate disciplinary measures are and, ultimately, our vision. The Board applied. During the year, five allegations and management are committed to were received, but after investigation, The hierarchy of representations, conducting all business activities legally, no disciplinary measures were required. as part of the process to adopt ethically and with strict observance of these statements, is shown in the The Manager Internal Audit is also the above diagram. the highest standards of integrity and liaison officer for referring any suspicions propriety. To meet this commitment, of official misconduct to the Crime As per the provisions of the sound corporate governance practices and Misconduct Commission (CMC) Auditor-General Act 2009, the and policies have been adopted by the as required of government-owned Queensland Auditor-General is the Board and implemented at board level corporations by the Integrity Act 2009, external auditor for Ergon Energy and through the organisation. as well as overseeing any investigations Corporation Limited and its subsidiaries. and reporting of the findings/outcomes. The Audit and Financial Risk Code of conduct and disclosure Ergon Energy’s Fraud and Official Committee review the performance of interests Misconduct Policy, Employees Code of the external audit annually. At the board level these include the of Conduct Policy, Employees Code Board Charter and Directors’ Code of Conduct Standards Procedure and PRINCIPLE 5 – MAKE TIMELY AND of Conduct and Conflict of Interest Reportable Conduct Guidelines support BALANCED DISCLOSURE Guidelines. Each director is expected the CMC’s legislative power to investigate Disclosure to shareholders to have regard for these practices and suspicions of official misconduct. policies in the performance of their Ergon Energy is committed to not duties as a director of the company. Supporting diversity at board level only complying with legislative and in the workplace requirements and policies as determined The Corporations Act 2001 applies to by the Queensland Government but to As part of the board appointment all of the companies in the Ergon Energy demonstrating our commitment to go process shareholding Ministers consult group; accordingly, the statutory duties beyond them through the application broadly across government, including of directors apply. The Board follows of contemporary disclosure practices. the Queensland Government Office of normal procedures for the disclosure Ergon Energy has a board approved Women, which maintains a register of of directors’ standing interests and Disclosure to Shareholders Policy and women as suitable board candidates. material personal interests, and how a Communications Strategy Guideline to deal with them. These include In the workplace, Ergon Energy has a which embodies these commitments. reviewing the register of directors’ Diversity Policy, which is implemented In line with the continuous disclosure interests at each meeting. All new through the diversity program as a part obligations that apply to listed declarations of interest are brought to of Ergon Energy’s People Strategy, to companies under the ASX Listing the attention of the other directors. support an inclusive workplace culture. Rules, we ensure that our shareholding Details on the measures and our Ergon Energy’s employees are expected Ministers are kept informed regarding achievements related to diversity to act appropriately and practice ethical any information concerning the business can be found on pages 34–35. behaviour. This expectation comes that may be material in nature. directly from the Board and is supported by our continuing focus on embedding PRINCIPLE 4 – Ergon Energy also has established corporate values in the employee Code SAFEGUARD INTEGRITY IN policies and practices that specifically of Conduct Standards. Our code, which FINANCIAL REPORTING cover our government communication applies to all employees, is available on Ergon Energy has a robust structure to obligations around performance targets, the intranet and is reinforced regularly. independently verify and safeguard the public safety, probity, occupational It is intrinsic to our learning and integrity of our financial reporting, as health and safety, employment practices, development programs, such as the well as a comprehensive internal and privacy and environmental protection. Management Foundations and other external audit process, of which the leadership development programs, as Audit and Financial Risk Committee has well as the Leadership Capability Centre oversight. The committee’s charter and that was established to objectively assess focus for 2011/12 is provided on page 47. the behaviour of developing managers. The Chief Executive provides representation, through the Audit and Financial Risk Committee, to the Board that the Financial Statements and Directors’ Report are a true and fair view and in compliance with reporting standards.

52 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 ANNUAL STRATEGIC PLANNING AND REPORTING CYCLE

STRATEGIC PLAN CORPORATE BUSINESS UNIT PERFORMANCE QUARTERLY ANNUAL PUBLIC PLAN PLANS REPORTS REPORTS REPORTING SUITE

Articulates our Outlines our These plans These reports Report Tabled in stakeholder’s priorities and support the monitor for performance parliament and expectations, the performance delivery of the performance across key result used to publicly challenges, and measures for the Corporate Plan, issues to enable areas to our communicate our longer-term next five years. both short and a management government our performance response. medium term. response. shareholders. and future challenges.

Statement of Corporate Intent

A one-year performance agreement with our shareholder Ministers. This document is tabled in Parliament with the corresponding Annual Report. Network Management Plan

Drives Numerous Plans: A public document – Network – Asset Management Plan published annually – Vision – Network Augmentation Plans to provide visibility of – Summer Preparedness Plan our five-year network – Network Adaptation Plan, etc. investment plans.

Stakeholder engagement in By clearly understanding our Our Strategic Plan, which is reviewed decision-making stakeholders’ needs and expectations annually, aligns with our other long-term Broadly, our stakeholders are our we are better able to make informed planning documents, including the customers, the communities we work decisions, deliver on our business Network Vision. The plan provides an in and serve, our employees (including priorities, grow our business and maintain overarching framework to guide the representative unions p35), our our ‘licence’ to operate. It also helps business and the formulation of its government shareholders, the industry’s us better define our corporate social annual performance commitment regulators, our suppliers and industry responsibility and support our and network plans. Ergon Energy associates. These groups are broken stakeholders’ social, economic and uses a strategic planning model that down further, as part of our corporate environmental goals. corresponds to its regulatory control periods. 2011/12 was year two in the stakeholder engagement framework It is this understanding that has helped current five-year regulatory control and within specific engagement plans, define the sustainability matters where period under the AER’s Queensland into specific subgroups or individuals we can best contribute and the content Distribution Determination. who could potentially be impacted by of this report p7. The prominence that our activities or could affect our ability electricity affordability has in our Ergon Energy documents its corporate to serve our customers. strategic plan p14, the establishment performance commitment for each This process helps us to assess new of a Major Projects group p17 & 51, financial year within its Statement of issues and their implications in the and the energy conservation/demand Corporate Intent (SCI – see summary p8). context of the different groups and management customer partnerships As a government-owned corporation, to ensure an appropriate level of that we are developing p24 are all this document is in effect our engagement. The principle of our examples that demonstrate how our performance agreement, which outlines Stakeholder Engagement Policy is that customers and other stakeholders our corporate objectives, strategies and all our stakeholders have a right to be are shaping business decisions. targets for our shareholding Ministers. informed about our activities in a timely These commitments form the basis of Strategic planning and and balanced manner. our quarterly shareholder reporting. reporting cycle The Network Management Plan (NMP) Our Customer and Stakeholder Our strategic planning framework is Engagement business unit has been is a rolling five-year plan, prepared in covered here particularly as it relates accordance with section 2.3 of the restructured in 2011/12 to better improve to the Statement of Corporate Intent alignment with our key stakeholder Queensland Electricity Code. It is a and the Network Management Plan, public document that is published online groups. This will better allow the as the key documents that cover Ergon accountability principles, contained in the annually to detail how Ergon Energy Energy’s performance commitments will manage and develop its network with global AA1000 Stakeholder Engagement to its stakeholders. Standard, namely inclusivity, materiality the objective of delivering an adequate, and responsiveness, to be practiced economical, reliable and safe connection appropriately by the business. of electricity supply to our customers.

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 53 The NMP also reports on the previous This ensures the operation and strategic The direction made and reported year’s network performance to our direction of the business is consistent in 2010/11, relating to the Australian stakeholders in more detailed analysis with the government’s energy policy and Competition Tribunal decision on than this report. broader objectives and generally meets gamma of May 2011, impacted the the expectations of our shareholder. recovery of revenue in this financial year. Throughout the year we have been in consultation with the Australian We also have a comprehensive reporting Modifications to the Statement Energy Market Commission around the regime, prescribed by the Government of Corporate Intent development of a National Framework Owned Corporations Act 1993, and GOC for Distribution Network Planning and Amendment Regulation (No. 2) (2009), Our shareholding Ministers formally Expansion. The draft rule changes, as well as other mechanisms. This is agreed to revisions to the financial released in June, propose the adoption supported by teams dedicated to performance measures in our Statement of nationally-standardised Distribution managing the business’ government of Corporate Intent 2011/12, in December Annual Planning Reports, a requirement and regulatory relationships and to 2011, to reflect an asset valuation for distributors to have a Demand respond to reporting requests. undertaken by Ernst and Young. Side Engagement Strategy and the These modifications are shown as The content of Ergon Energy’s annual introduction of the new Regulatory edits to Section 2.1 and Section 3.1 in reporting suite is one of many reports Investment Test for Distribution. the version of the statement tabled in that are required to meet statutory In advance of the release of the draft Parliament with this report. and specific government requirements. recommendations, preliminary work It endeavours to enable the government PRINCIPLE 7 – RECOGNISE was undertaken to develop a Demand to have an informed assessment of our AND MANAGE RISK Side Engagement Strategy and scope operations, including the organisation’s the implementation requirements Our risk management framework overall efficiency and effectiveness. for a Regulatory Investment Test Ergon Energy recognises that effective for Distribution. Directions and notifications risk management and compliance Privacy and right to information Under the Government Owned frameworks are necessary to meet Corporations Act 1993 the reserve the expectations of its shareholding Ergon Energy has an obligation to powers of the shareholding Ministers Ministers, customers, the community protect the personal information of provide that they may in the public and other stakeholders. Fundamental individuals collected and used during interest notify Ergon Energy (as a to this is that our directors and its operations in accordance with government-owned corporation) of a management are able to demonstrate the Privacy Act 1988 (Cth). To protect public sector policy that is to apply to an understanding of the business risks any personal information collected in the corporation (section 114) and may and compliance obligations and that normal business operations from misuse, also give a written direction to Ergon these are being efficiently and effectively loss, unauthorised access, modification Energy (section 115) or a direction to managed. All board committees play a or disclosure strict data security systems amend the Statement of Corporate role in assisting the directors in fulfilling and procedures are in place around the Intent (section 108). During 2011/12, their oversight responsibilities in respect access/use of the repositories that hold the following directions were given: to business risks. personal information. During 2011/12, Ergon Energy received nine complaints • In September 2011, we were notified The primary objectives of Ergon Energy’s relating to customer privacy matters: that the Public Interest Disclosure risk management and compliance seven were unfounded and the remaining Standard No. 1 is to now apply to frameworks are to: two were resolved. Ergon Energy, and its subsidiaries, • facilitate the achievement of the as far as practicable. There are no Ergon Energy manages applications organisation’s corporate objectives commercial implications related to for information and the publication and strategies this advice, only increased reporting of non-personal information, which is obligations. • validate and confirm that the overall considered to be of significant interest strategic direction of the business to the wider public, in accordance • In February 2012, a direction was is appropriate with the Right to Information Act 2009 given not to seek to recover the and the Information Privacy Act 2009. revenue associated with the expected • identify business priorities and allocate The process to apply for information reduction in capital expenditure, resources effectively and efficiently and summary information of documents arising from the implementation of assist in discharging legal and released are logged at www.ergon.com. • the recommendations of the Electricity regulatory requirements and meeting au/about-us/right-to-information. Network Capital Review, by excluding the expectations of stakeholders it from our annual network pricing PRINCIPLE 6 – RESPECT THE proposal. Over the period to 2014/15, • identify and maximise opportunities RIGHTS OF SHAREHOLDERS this revenue would have been for growth and diversification. Ergon Energy respects the rights of approximately $99 million. To give effect to its risk management shareholding Ministers, as the ultimate In addition, a direction was received and compliance commitments, Ergon owners of the business, and commits to • under the Electricity Act 1994, in Energy has established policies on these work in a collaborative fashion with the February 2012, to transfer the and other areas (e.g. Health, Safety and government to deliver the best outcomes ownership and the operation of ‘B’ Environment) and implemented a risk for our customers in regional Queensland Switchyard at Mica Creek Powerstation management framework based on the and the Queensland economy. from Stanwell Corporation Limited Joint Australia/New Zealand Risk Government shareholder to Ergon Energy Corporation Limited Management Standard: AS/NZS ISO communications in order to meet the long term energy 31000:2009, and a compliance program needs of the Mount Isa region. based on the Australian Compliance The Chairman and Chief Executive This financial impact of this will Standard AS 3806:2006. have regular meetings with shareholding be agreed and incurred in 2012/13. Ministers and their representatives, as part of a broader government engagement program, to ensure there is active dialogue throughout the year.

54 OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 Ergon Energy also has a Standard for The key compliance matters for 2011/12, Internal Audit also ensures its Corporate Risk Management, Corporate which are discussed elsewhere in the independence by reporting to the Risk Management Guideline and report, include the introduction of a Audit and Financial Risk Committee on Corporate Risk Assessment Tables. National Energy Customer Framework progress against the Internal Audit Plan The standard sets out the principles p17; the network’s reliability performance and resolution of issues raised in reports. that Ergon Energy must follow to achieve p27; the harmonisation of workplace The Manager Internal Audit also has effective risk management and provides health and safety laws p32; our access to the Board through the Audit guidance on how risk management environmental performance p37 and Financial Risk Committee Chair. should be implemented and integrated and our energy trading liability p37. into Ergon Energy through the creation PRINCIPLE 8 – REMUNERATE and continuous improvement of a External and internal audit FAIRLY AND RESPONSIBLY framework. It also describes the process Ergon Energy submits to a number of Ergon Energy recognises that to attract for managing risk. The guideline supports external audits in pursuit of world-class and retain the people necessary to the standard by providing practical practice and, in some cases, to gain or deliver on the company’s strategic plan guidance on how to implement the retain the certification we need to do and achieve its vision, salaries and salary risk management process referred to business, such as Quality Assurance ISO packaging must be competitive, flexible in the standard. The tables provide 9001 certification for our Transmission and performance orientated. uniform risk management criteria to and Project Services. Other audits we As part of our Human Resources Policy, support consistent risk-based regularly undergo include Australian we have a remuneration framework assessments in Ergon Energy and Standard 4801 Occupational Health considered to be attractive by both are to be used in conjunction with and Safety, Electrical Safety Legislation, prospective and current employees. the Standard and Guideline. International Customer Service This policy is designed to attract high Standards and Environmental Standard calibre employees, retain employees, Risk management activities ISO 14001. These audits provide external incorporate current industry benchmarks and compliance assurance of the performance and ensure employees are aware of what During 2011/12, the following risk statements made in this report. they need to do to contribute to team management and compliance activities and organisational goals. were undertaken by Ergon Energy : Ergon Energy’s annual accounts and financial statements are audited by The Board’s People Committee assists • Risk Management Framework: Deloitte Touche Tohmatsu (Deloitte), in developing a strategic, long-term and A review of Ergon Energy’s risk as delegate of the Auditor-General of sustainable approach on issues relating management framework for managing Queensland, to meet government and to people working for Ergon Energy p47. its material business risks was regulatory reporting requirements. undertaken. This supported The scope of our internal audit function The remuneration strategy involves the assurances to the Board by the covers all of Ergon Energy’s operations, allocation of at-risk payments based on Chief Executive Officer and Chief either directly or through auditors performance at the company, business Financial Officer, in accordance with contracted by the organisation or unit and individual level. Details of section 295A of the Corporations Act its subsidiaries. remuneration to non-executive directors 2001, that the framework is founded and executives are reported in the Our internal audit function helps us on a system of risk management and Annual Financial Report (available accomplish our objectives by bringing internal control and that it is operating online), consistent with the requirements a systematic, disciplined approach to effectively in all material respects in of Australian Accounting Standard AASB evaluate and improve the effectiveness relation to financial reporting risks. 124. The eligibility of executives for an of risk management, control and at-risk or variable component is directly • Insurance Program: The review and governance processes. The Ergon Energy linked to both the overall performance renewal of Ergon Energy’s 2011/12 Internal Audit Charter is established of the company and their individual Insurance Program was undertaken by the authority of the Ergon Energy efforts against a range of key indicators. to ensure cost-effective coverage of Audit and Financial Risk Committee. This is in line with the performance the organisation’s insurable risks. In addition, we conduct a number of agreement with the shareholding operational audits to assess the risks Risk Profiles: Ergon Energy’s Ministers made through our Statement of • and adequacy of processes and controls Corporate Risk Profile and Business Corporate Intent. Any at-risk payment is over assets, systems and activities. Unit Risk Profiles were reviewed contingent upon the Board’s assessment and updated. As part of this process This year’s plan included audits of of the company’s overall performance a review of the profiles against Fleet Management, Mixed Assets, and the Board’s approval, consistent Ergon Energy’s Corporate Plan and Accounts Payable, Payroll, and Depot with the provisions of Ergon Energy’s Business Unit Plans was performed Administration. These reviews focused Executive Remuneration Guidelines. to ensure alignment. on documenting and testing key controls Directors are remunerated separately including management and approval Risk Appetite and Risk Assurance: from the executive. Directors’ • processes. Other audit reviews covered Work continued on developing risk emoluments, as a board or committee specific risk areas such as Marketing appetite statements for key risks which member, are set by the Queensland Communication Sign-Off Process, will set the level of risk Ergon Energy Government, while reimbursement Contract Tender Process, and the is prepared to accept in pursuing its was made for expenditure incurred in At Risk Performance Process for corporate objectives and strategies. performing their roles as directors of senior executives The work on risk assurance focused the company. Executive directors do on developing the risk assurance The Manager Internal Audit reports not receive additional payment for map to show the assurance for administrative purposes to the their role as director of a company. activities performed in relation to General Counsel/Company Secretary Non-executive directors of the company key corporate risks and also assist but retains unrestricted access to the do not participate in any variable reward with the development of a three-year Chief Executive to discuss any matter or at-risk plan and are not eligible for internal audit plan. relating to the finances or operations retirement or other benefits other of Ergon Energy. than for statutory superannuation.

OUR CORPORATE GOVERNANCE STATEMENT ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 55 ADDITIONAL INFORMATION

NETWORK STATISTICS

Total Customers Served 700,898 Network Area Serviced 1.7 million km2 Employees 5,060 Power Stations 34 Bulk Supply Points 24 Zone Substations 365 Major Power Transformers (33kV to 132kV) 738 Distribution Transformers 92,300 Power Poles 1 million Overhead Powerline - Sub-transmission 15,400km - High Voltage Distribution 112,200km - Low Voltage: Distribution1 20-25,000km Underground Power Cable 7,150km

1. Estimate of length only.

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 2011/12 for aggregate event expenditure and expenditure per head, taking into account the nature of the event. At the request of shareholding Ministers, the Statement of Corporate Intent includes information on Corporate Entertainment and Hospitality. For 2011/12, the following entertainment and hospitality expenses over $5,000 were:

Event Name Investment

Southern Employee Christmas Party – Toowoomba $7,000

Brisbane Employee Christmas Party – Brisbane $7,028

Central Employee Christmas Party – Rockhampton $14,168

Far North Employee Christmas Party – Cairns $7,084

North Employee Christmas Party – Townsville $5,489

ABBREVIATIONS

A&TSI Aboriginal and Torres Strait Islander ICT Information and Communications Technology AER Australian Energy Regulator ISO International Organisation for ASX Australian Stock Exchange Standards CARE Cyclone Area Reliability IRC Investment Review Committee Enhancement program KPIs Key Performance Indicators CBD Central Business District LEP Long-Term Energy Procurement CIS Customer Information System MSS Minimum Service Standards CSO Community Service Obligation NAIDOC National Aboriginal and Islander Day CPI Consumer Price Index of Celebration CPM Carbon Price Mechanism NECF National Energy Customer CSI Comprehensive Safety Indicator Framework DEEs Dangerous Electrical Events NIRC Network Investment Review Committee EBIT Earnings Before Interest and Tax NPAT Net Profit After Tax EBITDA Earnings Before Interest Tax Depreciation and Amortisation QCA Queensland Competition Authority ELT Executive Leadership Team RAP Reconciliation Action Plan ENA Energy Networks Association RECs Renewable Energy Certificates EV Electric Vehicle ROAMES Remote Observation Advanced Modelling Economic Simulation GECs Gas Electricity Certificates SCADA Supervisory Control and Data GUSS Grid Utility Support Systems Acquisition system GRI Global Reporting Initiative SCI Statement of Corporate Intent GSLs Guaranteed Service Levels STPIS Service Target Performance HSEIMS Health, Safety and Environment Incentive Scheme Integrated Management System SWER Single Wire Earth Return

56 ADDITIONAL INFORMATION ERGON ENERGY ANNUAL STAKEHOLDER REPORT 2011/12 COMMON INDUSTRY UNITS OF MEASURE

SAIDI System Average interruption Duration Index. Network reliability performance index, indicating the total minutes, on average, that customers are without electricity during the relevant period (minutes). SAIFI System Average Interruption Frequency Index. Network reliability performance index, indicating the average number of occasions each customer is interrupted during the relevant period (interruptions). Customer Minutes Customer minutes is a measure of the number of customers interrupted multiplied by the duration of a power outage or outages, incorporating any staged restoration. AIFR All Injury Frequency Rate – measured as number of injuries per million hours worked. Lost Time Injuries (LTI) + Medical Treatment Injuries (MTI) x 1,000,000/Exposure Hours ��LTIFR Lost Time Injury Frequency Rate. Number of lost-time injuries per million hours worked over the 12 month reporting period. Lost Time Injuries (LTI) x 1,000,000/Exposure Hours LTIDR Lost Time Injury Duration Rate. Total days lost due to injuries per million hours worked over the 12 month reporting period. Lost Time Injuries Progressive Days Lost x 1,000,000/Exposure Hours DEEFR Dangerous Electrical Event Frequency Rate. A safe work practice measure that tracks Dangerous Electrical Events (DEEs) associated with work done by our employees (DEEs x million/exposure hours). Dangerous Electrical Events (DEE) x 1,000,000/Exposure Hours V v o l t : the unit of potential or electrical pressure VA volt ampere: volt amperes are the ‘apparent power’ and are the product of the voltage applied to the equipment times the current drawn by the equipment. The VA rating is limited by the maximum permissible current, and the watt rating by the power-handling capacity of the device kVA kilovolt ampere: one kVA equals 1,000VA MVA megavolt ampere: one MVA equals 1,000kVA kV kilovolt: one kV equals 1,000 volts W w a t t : a measure of the power present when a current of one ampere flows under a pressure of one volt k W k i l o w a t t : one kW equals 1,000 watts MW m e g a w a t t : one MW equals 1,000 kilowatts kWh kilowatt hour: the standard ‘unit’ of electricity which represents the consumption of electrical energy at the rate of one kilowatt over a period of one hour MWh megawatt hour: one MWh equals 1,000 kilowatt hours GWh gigawatt hour: one GWh equals 1,000 megawatt hours or one million kilowatt hours HV high voltage: alternating current above 1,000V LV low voltage: alternating current above 32V and not exceeding 1,000V

KEY SERVICE CENTRES

Ergon Energy's Annual Stakeholder Cairns Report 2010/11 was awarded Gold 109 Lake Street in the Australasian Reporting Awards. CAIRNS QLD 4870 Townsville (Registered Office) 22 Walker 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 61 Mary Street BRISBANE QLD 4000 ANNUAL STAKEHOLDER REPORT 2011/12

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

Customer Advocate PO Box 15107 Brisbane QLD 4002 [email protected]

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