The Australian Infrastructure Network

THE AUSTRALIAN INFRASTRUCTURE NETWORK SPECIALISTS SHAREHOLDER REVIEW 2016 AGM CONTENTS 11:30am, Tuesday, 23 May 2017 About Us 1 Marble Room Strategy 2 Radisson Blu Plaza Hotel 27 O’Connell Street Financial Highlights 4 Sydney NSW Strategic and Operational Highlights 6 Chair’s Message 8 Managing Director’s Message 12 Board of Directors 16 Management Team 18 Assets Overview 20 SA Power Networks 24 Victoria Power Networks 27 TransGrid 33 Corporate Contact Details 38

Spark Infrastructure takes a long term view of its investments. The priority is to generate consistently robust cashflows and deliver reliable distribution growth over time.

SPARK INFRASTRUCTURE ABOUT US

Sustainable growth Spark Infrastructure values sustainable growth in distributions to Securityholders over time. Financial discipline and This commitment shapes the way prudent diversification we look at all matters of strategy, Our consistent approach operations and capital management. is to apply rigorous financial We take the same disciplined Operational capability and operational oversight to the approach to our assessment of any portfolio of assets with a view opportunities to further grow and Spark Infrastructure has a proven diversify the portfolio of assets. track record of prudent, disciplined to achieving long‑term growth At the same time we are focused on and transparent management and profitability in a measured promoting continuous improvement of its investments and brings way. The emphasis is always on in the operational performance of Regulatory know-how this accumulated knowledge and prudent financial management, the businesses in our investment An understanding of the experience to the table when assessing efficient operations, a safe and portfolio – in cost management, regulation of energy infrastructure new opportunities and improving the engaged workforce and the effective service planning, customer in Australia, with its various quality of its investment portfolio. management of all business risks. constraints and opportunities, SA Power Networks and service, employee safety and Our in-house team possesses capital management. is the key to making good financial a deep understanding of regulated Victoria Power Networks We also recognise that the business and operational decisions that will network assets and how to make (SAPN and VPN respectively) environment is changing and deliver results now and into the them deliver the best possible consistently outperform regulatory network businesses must respond future. It is this expertise which results for consumers, employees benchmarks while TransGrid energetically to new technologies stands Spark Infrastructure out and Securityholders. possesses significant growth from the crowd. opportunities in both the regulated and evolving customer expectations. Spark Infrastructure’s consistent and non-prescribed parts of Spark Infrastructure is ideally The regulatory regime remains performance and returns from its business. Each business in placed to grow the businesses incentive based with a range of its investments are founded on Spark Infrastructure’s investment in its investment portfolio in opportunities for out-performance business plans which are robust portfolio targets a solid investment new and exciting directions over and various in-built protections. and sufficiently flexible to deliver grade credit rating. the coming years. Importantly, it provides inflation growing cashflows under a variety of protection of revenues and different business circumstances and the Regulated Asset Base and regulatory outcomes. pass-throughs for operating and capital costs.

SHAREHOLDER REVIEW 2016 | 1 STRATEGY

2 | SPARK INFRASTRUCTURE Growth in assets delivering Active Sustainable Long-term Quality sustainable management yield growth returns growth in distributions Organic growth in the existing External growth and diversification investment portfolio is a core part opportunities will be considered that: of the investment proposition and • Offer predictable earnings and an enduring priority, including: reliable cashflows • Active management of quality assets • Offer scope for active management and • Regulator approved capital performance improvement expenditure in accordance with • Are subject to independent and business requirements and priorities transparent regulation or are supported • Continual focus on improving by long-term contractual arrangements efficiency, productivity • Are value accretive over the long term and managing costs • Are yield accretive, either immediately or • Maintenance of high standards of within a relatively short time frame safety and reliability • Provide long-term growth in the • Agile response to changing business equity of investments conditions and new technology • Display a similar risk profile to the assets • Incentivised management teams at in the existing portfolio both the fund and asset levels • Offer the opportunity for strategic diversification by asset class, geography, regulatory regime, timing and/or partners

SHAREHOLDER REVIEW 2016 | 3 FINANCIAL HIGHLIGHTS

Spark Infrastructure delivered another solid financial performance in 2016. Our 2016 standalone operating cashflows were 47.4% higher than 2015 at $305.6 million with each portfolio business delivering increased distributions to Spark Infrastructure.

4 | SPARK INFRASTRUCTURE Guidance of 5% CAGR 2017-18

4.9% 5.2% Spark Infrastructure’s 20.8% track record 4.3% 4.5% 4.8% 5.0% Spark Infrastructure takes an active management approach with respect to its entire investment portfolio. We bring a range of value-adding 10.5 11.0 11.5 12.0 14.5 15.25 16.0 capabilities to the businesses, which help them to achieve their defined business, operational and financial goals each year.

Our primary focus is to ensure 12 13 14 15 16 17 18 robust stewardship of the portfolio businesses and to Distribution guidance reaffirmed deliver sustainable growth in distributions over time, Final distribution of 7.25 cps paid on 15 March 2017, based on profitable growth total distributions for 2016 of 14.5 cps. in the asset base. The Directors have reaffirmed distribution guidance of: • 2017 15.25 cps (~5% higher than 2016) % • 2018 16.0 cps (~5% higher than 2017) 20.8 Guidance based on expected distributions from asset portfolio Spark Infrastructure’s distributions to Securityholders and subject to business conditions. rose by 20.8% in 2016

SHAREHOLDER REVIEW 2016 | 5 STRATEGIC AND OPERATIONAL HIGHLIGHTS

Investment portfolio demonstrating Top efficiency of investment Standalone operating strong cash generation capacity portfolio confirmed again cashflows grew by 47.4% Our investment portfolio continues The businesses in Spark Infrastructure’s in 2016 based on organic to demonstrate strong cashflow investment portfolio rank among the generating capacity, delivering growth most efficient in the sector. The AER has growth and portfolio of 47.4% in standalone operating once again confirmed this in its 2016 cashflows in 2016. This includes the Performance Reports. diversification. first full year of distributions from The Distribution Performance Report, TransGrid and a significant step-up in released in November 2016, confirmed distributions from VPN. the high rankings of CitiPower, Powercor This is a tremendous performance and and SAPN amongst their electricity attests to the hard work of the people distribution peers. They each ranked in the investment portfolio businesses among the top-5 networks in terms of – VPN, comprising the CitiPower operating expenditure efficiency from and Powercor networks, SAPN and a peer set of 13 networks. TransGrid – in combination with the The Transmission Performance Report, active management approach taken by released at the same time, ranked Spark Infrastructure. TransGrid second from a peer set of five in relation to operating expenditure efficiency. It underscores the solid foundation we have to further improve the TransGrid business and share those benefits with customers. For more detail, go to aer.gov.au/ networks-pipelines/network-performance

6 | SPARK INFRASTRUCTURE VPN and SAPN are reaping TransGrid is well placed Innovation at the core substantial efficiency dividends for growth of business planning The efficiency performance of VPN The infrastructure connections Each of the businesses in through its World CLASS program opportunities for TransGrid, based Spark Infrastructure’s portfolio have is widely regarded as the “best practice” on connecting new renewable energy embraced new technologies and focused standard for electricity network generation to the grid, are significantly on innovative solutions to emerging providers, with many seeking to emulate larger than we had originally envisaged business challenges. Their central aim their rigorous and innovative approach. and they are progressing more quickly is to further enhance a culture of agile This enabled the achievement of total than originally expected. This presents and empowered business leadership; identified savings of approximately the business with a rich source of value to improve understanding of customers’ $167 million per annum (versus accretive growth. needs and preferences; and to enshrine a 2013 baseline) with $139 million a flexible and innovative approach to In addition, the opportunities for delivered by the end of 2016. asset planning and investment decisions. TransGrid to provide increased SAPN is using technology to reduce network interconnection across the SAPN’s Network Innovation Centre, costs as well as to grow revenues. National Electricity Market (NEM) are the BEON Energy Solutions Business This includes the increased use of drones real and meaningful and we believe these associated with VPN, and TransGrid’s for inspection of infrastructure and the would benefit consumers across the active facilitation of the growth use of virtual planning assessments eastern states by delivering a reliable in renewable generation of of new projects. The latter involves supply of energy from both traditional electricity through its infrastructure using three-dimensional models to and renewable sources. connections business are important conduct virtual planning assessments examples of the priority placed on by superimposing proposed construction this crucial area by the businesses plans on existing sites; allowing review in Spark Infrastructure’s portfolio. teams to assess placement, clearances and neighbourhood impact prior to installation.

SHAREHOLDER REVIEW 2016 | 7 CHAIR’S MESSAGE Dear Securityholder, This is a tremendous performance and Spark Infrastructure’s attests to the hard work of the people I am pleased to report that in the investment portfolio businesses Total Shareholder Return Spark Infrastructure enjoyed – VPN, comprising the CitiPower another strong year in 2016. Spark in 2016 was 31%, a multiple and Powercor networks, SAPN and Infrastructure’s Total Shareholder TransGrid; in combination with the of the return delivered Return in 2016 was 31%, a multiple of active management approach taken by the return delivered by the broader Spark Infrastructure. by the broader market. market. The Directors declared a final distribution for 2016 of 7.25 cents per Spark Infrastructure’s investment security (cps), in line with our guidance approach is based on active asset of a total distribution of 14.5 cps for 2016, management of a concentrated portfolio an increase of 20.8% on 2015. The final of significant interests that provide us distribution was paid to Securityholders with the scope to influence outcomes on 15 March 2017. These distributions are and drive performance in the underlying fully covered by operational cashflows on assets. We add value by applying our both a standalone and look-through basis. industry and regulatory expertise to the investment businesses’ strategy and We were also pleased to reaffirm the operations. We also have representation forward distribution guidance of 15.25 cps on the boards of the investment for 2017, which is 5.2% above 2016, and companies enabling a two-way flow of then growing by 4.9% to 16 cps in 2018. information and the ability to ensure This forward guidance is based on the robust governance. distributions that we expect to receive from our investment portfolio and VPN and SAPN are ranked in the top is subject to business conditions. quartile of efficiency amongst their peers by the AER and are industry leaders in Our investment portfolio continues terms of safety, reliability and customer to demonstrate strong cashflow service. We are actively managing generating capacity, delivering growth our interest in TransGrid to move the of 47.4% in standalone operating business to the ‘efficient frontier’ of cashflows in 2016. This includes the performance, much like our investments first full year of distributions from in VPN and SAPN. TransGrid and a significant step-up in distributions from VPN.

8 | SPARK INFRASTRUCTURE Distributions in 2016 planned process, we were able to successfully divest all of our derivative % instruments in DUET by 30 June. The 20.8 divestment was completed at a surplus on exit, and also produced an overall profit to Spark Infrastructure over the two years or so in which we held the investment. A little more than 12 months have passed since we acquired a 15% stake Security of supply for electricity across in TransGrid and the diversification the NEM, particularly in South Australia, benefits this acquisition is bringing is an important issue that has been to Spark Infrastructure are now occupying industry and governments alike being demonstrated. given the recent outages. The business continues to deliver In response, the Federal Government against the acquisition business plan. launched the Independent Review into the TransGrid remains focused on cultural Future Security of the National Electricity transformation, efficiency improvements Market, chaired by the Chief Scientist and growing non-regulated business Dr Alan Finkel and otherwise known as revenues. There is enormous potential the “Finkel Review”. to grow the infrastructure connections This Review is seen nationally as a critical business in TransGrid. We can now examination of recent events designed see this being realised and we expect to crystallise the changes required it to continue. to provide a reliable energy source to In the first half of 2016 we completed the consumers, in an affordable manner, strategic review of our economic interest while transitioning to a low-emissions in DUET Group. Ultimately, our decision economy. Spark Infrastructure to divest was based on the change in is participating in the Review and has DUET’s risk profile resulting from their lodged its submission, which can be acquisition of Energy Developments found on the Australian Government Limited, and also from our increasing Department of the Environment and focus on electricity transmission and Energy website. distribution assets. Through a carefully

SHAREHOLDER REVIEW 2016 | 9 CHAIR’S MESSAGE

Our starting premise is that future Expanding into niche areas associated reliance on renewable energy generation with “behind the meter” customer is both desirable and inevitable. solutions, battery storage and consulting However, the electricity system and services to the energy industry are the regulation that supports it has opportunities that Spark Infrastructure not been designed for this scenario. is determined to explore through its Networks have a key This places the NEM in a state of electricity distribution businesses to transition that poses some difficult but enhance Securityholder value. role in facilitating the not insurmountable challenges. The existing portfolio continues to process of transition to Networks have a key role in offer a variety of opportunities to grow facilitating the process of transition to revenues and generate incremental a low-emissions economy, a low-emissions economy, by providing cashflows. Nevertheless, we will expanded interconnection and access and also remain alert to opportunities to by providing expanded greater reliability and stability to the grid. balance this type of innovative organic interconnection and access Moreover, we believe we are best placed growth with opportunities for external to provide these services most affordably. growth that create value and grow and greater reliability and cashflows over time. The potential for increased grid stability to the grid.” interconnectivity as a potential solution The Board believes that orderly represents a significant opportunity succession and renewal is achieved as for TransGrid in particular. Greater a result of careful long-term planning, interconnectivity of the NEM has the where the appropriate composition ability to improve reliability and security of the Board is continually under of supply to customers and thereby review. This is necessary to ensure facilitate the growth of renewable your Board has the required diversity generation in a cost effective manner. and depth of skills, experience, independence and knowledge to govern Spark Infrastructure effectively now and in the future. This process has led to further changes to our Board in 2016.

10 | SPARK INFRASTRUCTURE Investment Following the announcement of the financial services industry; an portfolio Dr Keith Turner’s intention to retire understanding of health, safety and % from the Board as part of the board’s environmental issues; regulatory and 47.4 renewal process, Spark Infrastructure corporate governance experience; appointed Mr Greg Martin to the Board experience in managing people in standalone as of 1 January 2017. Dr Turner will and remuneration; and a robust The existing operating cashflows remain on the Board until the end of the understanding of risk management. in 2016. Annual General Meeting on 23 May 2017, Your Board believes that the overall portfolio continues and Mr Martin will stand for election composition of the Board, as it currently as a new Independent Non-Executive to offer a variety stands, enables it to effectively govern Director. I am delighted that Dr Turner Spark Infrastructure on behalf of of opportunities will continue to serve as a Director on Securityholders in the best long-term the Boards of the portfolio businesses interests of the Company. to grow revenues where he can continue to apply his expert domain knowledge. Finally, I would like to thank the staff of and generate Spark Infrastructure for their effort and Mr Martin’s experience includes 35 years incremental commitment over the past year. in the energy, utility and infrastructure cashflows.” sectors, having spent 25 years with I look forward to keeping you updated on The Australian Gas Light Company our progress in the future. (AGL), including five years as CEO and Managing Director. He possesses Yours faithfully, a wealth of commercial experience and I have no doubts he will make a valuable contribution to the Board. Together, your directors contribute executive leadership experience; Dr Doug McTaggart deep domain knowledge; infrastructure Chair industry and sector experience; Spark Infrastructure experience in financial analysis and

SHAREHOLDER REVIEW 2016 | 11 MANAGING DIRECTOR’S MESSAGE The efficiency performance of VPN through Our 2016 standalone operating cashflows its World CLASS program is widely were up 47.4% on 2015 to $305.6 million regarded as the highest industry (“best practice”) standard for electricity network with distributions from the investment providers, with many seeking to emulate portfolio up across the board. their rigorous and innovative approach. SAPN also performed strongly in 2016. This was highlighted in September 2016 by the successful renewal of the Dear Securityholder, of revenue for VPN, over their five-year ElectraNet maintenance contract by the regulatory periods, which is now CaMS (Construction and Maintenance) Spark Infrastructure delivered another being recovered. business unit, for a minimum of five solid financial performance in 2016. Our years. This is a fresh endorsement of the 2016 standalone operating cashflows were Spark Infrastructure’s Profit After Tax technical capabilities and geographic up 47.4% on 2015 to $305.6 million with incorporates positive variances relative reach across South Australia possessed by distributions from the investment portfolio to 2015, including the first full year of SAPN. SAPN continued its efficient delivery up across the board. contribution from TransGrid, which of the NBN rollout in South Australia and was acquired on 16 December 2015. SAPN and VPN have been operating has now achieved $200 million of revenue VPN contributed a $17.4 million increase to under the revenue allowances provided since the inception of this contract. Profit After Tax and TransGrid contributed in their Preliminary Determinations for $11.9 million, which offset a fall in the first year of their new regulatory contribution from SAPN of $33.6 million. periods. This contributed to a lower Spark Infrastructure statutory 2016 2015 Variance equity accounted share of profits, with Performance summary financial performance ($m) ($m) (%) Profit before Loan Note Interest and VPN enjoyed significant improvements Standalone operating cashflows1 305.6 207.4 47.4 Tax for the year decreasing by 14.1% to in productivity with a variety of efficiency Total income2 243.9 280.6 (13.1) $225.8 million compared to the previous gains realised through its World corresponding year. CLASS program. This enabled the Profit before Loan Note 225.8 262.8 (14.1) Interest and Tax Importantly, the Final Determinations achievement of total identified savings of subsequently received by both SAPN and approximately $167 million per annum Net Profit After Tax 81.1 88.0 (7.9) VPN allow for an additional $626 million (versus a 2013 baseline) with $139 million delivered by the end of the year. This is split 1. Includes $65.0 million of distributions from VPN received by way of of revenue for SAPN and $180 million repayments of shareholder loans and classified in investing activities for approximately evenly across both capital statutory reporting purposes. expenditure and operating expenditure. 2. Includes interest income from associates, Spark Infrastructure’s share of equity accounted profits, gains from derivative contracts and other income.

12 | SPARK INFRASTRUCTURE South Australia is the state at the vanguard TransGrid submitted its regulatory VPN’s World CLASS of reliance on renewable generation and proposal for the 2018–2023 regulatory efficiency program has also been impacted by a series of period to the AER in January 2017. The delivering severe storm events putting the system proposal includes additional capital at risk and causing widespread outages expenditure designed to cater for $ M for customers. The most significant of population growth and improved security 167 these extreme storm events occurred in of supply to customers in NSW and the savings per annum December 2016 and left 185,000 customers Sydney CBD. At the same time, TransGrid’s without power. SAPN’s workers have regulatory proposal would deliver a price performed admirably under dangerous reduction to consumers of 2.5%, in addition conditions to restore electricity to to the reduction of 7% delivered over the customers. They should be congratulated current regulatory period. for these efforts. Asset portfolio benchmarking TransGrid continues to deliver against well against peers the acquisition business plan and is well The sector leading efficiency of our positioned for growth. It has continued its investment portfolio has once again cultural transformation that commenced been confirmed by the AER in its 2016 when the new CEO, Paul Italiano, took the Performance Reports. helm in April 2016. Paul has appointed a number of fresh faces to his executive The Distribution Performance Report, team who will bring valuable expertise released in November of last year, to key areas such as unregulated reconfirmed the high rankings of business development. CitiPower, Powercor and SAPN amongst their electricity distribution peers. Each The opportunities for TransGrid to provide of them ranked in the top-5 networks increased network interconnection across from a peer set of 13. The Transmission the NEM are real and meaningful and we Performance Report, released at the believe these would benefit consumers same time, ranked TransGrid in second across the eastern states by delivering place from a peer set of five in relation a reliable supply of energy from both to operating expenditure efficiency. traditional and renewable sources. This underscores the solid foundation we have to further improve the TransGrid business and share those benefits with consumers.

SHAREHOLDER REVIEW 2016 | 13 MANAGING DIRECTOR’S MESSAGE

2015 Total user cost per 2015 Opex partial AER ranking for opex efficiency MWh of energy transported factor productivity No.1 CitiPower 25 No.3 Powercor 1.4 1.4 21.2 1.3 No.5 SAPN 1.2 1.1 15 16.3 1.0 1.0 1.0 Innovation and unregulated 0.9 business growth 13.0 0.8 0.8 0.7 Innovation also remains top of mind 10.3 0.6 8.3 for Spark Infrastructure and for the businesses in our portfolio. Technology 5 is moving rapidly and each of the businesses is responding intelligently

1 2 3 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 and energetically to the new services being demanded by customers. Both VPN 1 Ausnet Services 1 CitiPower 6 Jemena 11 Ergon Energy and SAPN are developing a range of 2 TransGrid 2 TasNetworks 7 Energex 12 ActewAGL innovative services that will benefit both 3 TasNetworks 3 Powercor 8 Endeavour Energy 13 Ausgrid 4 Powerlink 4 United Energy 9 AusNet Services the regulated and unregulated parts of 5 Electranet 5 SAPN 10 Essential Energy their businesses. VPN is classed as a tier 1 contractor for the delivery of capital expenditure programs and continues to provide TransGrid’s maintenance services to Victorian regulatory proposal July 2016 Framework And Approach Paper electricity transmission business reflects the current state AusNet Services. Late last year, VPN of infrastructure, the January 2017 Initial Proposal rebranded and relaunched its Energy more complex operating Solutions business unit as a standalone environment and the September 2017 Preliminary AER Determination business called BEON Energy Solutions. challenges of evolving With the rebranding VPN is able to services to increase December 2017 Revised Proposal satisfy the AER’s Ring-fencing Guideline renewables in the national released in November of last year. We see energy mix and adapt to April 2018 Final AER Determination a bright future filled with opportunity for technological innovation. BEON Energy Solutions.

14 | SPARK INFRASTRUCTURE Contracts won At SAPN, technology is also being used to We expect distributions to continue to by TransGrid reduce costs as well as to grow revenues. grow at around 5% per annum in 2017 This includes the increased use of drones and 2018 based on expected distributions for inspection of infrastructure and the from the investment portfolio and subject 07 use of virtual planning assessments to business conditions. This continues In 2016, TransGrid of new projects. The latter involves Spark Infrastructure’s long record of TransGrid’s won seven new using 3-dimensional models to conduct delivering reliable growth in distributions. contracts to virtual planning assessments by Looking ahead, the team at regulatory proposal connect renewable superimposing proposed construction energy generation Spark Infrastructure remains firmly plans on existing sites. This allows review includes significant projects to the grid. focused on generating growth from teams to assess placement, clearances the investment portfolio, which underpins capital expenditure and neighbourhood impact prior to the growth in our distributions to physical installation. Securityholders. While we are more for security of The infrastructure connections than satisfied with the organic growth supply projects in opportunities for TransGrid are opportunities available in our existing significantly larger than we had originally portfolio, we will always remain alert to the Sydney CBD.” envisaged and they are materialising other opportunities that may arise from more quickly than originally expected. time to time to grow and diversify our This presents the business with a rich investment portfolio. source of value accretive growth. Due to Our investment horizon is long term – the capital investment required, we are it can be measured in decades – and currently considering the best methods our management style is similar. of funding this growth. The construction Our objectives and management decisions phase for these projects varies between are all about delivering sustainable and 12 and 24 months with revenue from growing cashflows and long-term value recently signed contracts expected to accretion over time. start flowing from late 2017. I look forward to keeping you updated on Distributions and outlook our progress in 2017 and beyond. As noted by the Chairman, in 2016 Spark Infrastructure delivered a total distribution of 14.5 cps, up 20.8% on the distributions paid in 2015. These distributions to Securityholders are fully covered by both stand-alone and look- Rick Francis through cashflows. Managing Director and Chief Executive Officer SHAREHOLDER REVIEW 2016 | 15 BOARD OF DIRECTORS

1 Dr Doug McTaggart 2 Mr Andrew Fay 3 Mr Greg Martin PhD, MA(Econ), BEc(Hons), BAgEc (Hons), AFin BEc, LLB, FAIM, MAICD DUniv, FAICD, SF Fin Independent Director Independent Director Independent Director (since December (since March 2010) (since January 2017) 2015) and Chair (since May 2016) Mr Fay is a director of BT Investment Mr Martin is Chair of Iluka Resources Dr McTaggart is a director of the Management Limited, J O Hambro Limited, a director of Santos Limited, Suncorp Group and Chair of its Audit Capital Management Holdings Limited Deputy Board Chair of Western Power Committee, a director of the QIMR and Gateway Lifestyle Group. He was and Chair of Sydney Desalination Berghofer Medical Research Institute previously Chair of Tasman Lifestyle Plant. Mr Martin is a member of Council and a director of Suncentral Continuum Ltd and Deutsche Managed the COAG Energy Council Energy Maroochydore Pty Ltd. He is a member Investments Limited. Mr Fay was Chair of Appointments Selection Panel. of the Economic Development Advisory Deutsche Asset Management (Australia) Mr Martin has over 35 years’ experience Panel for the NSW Government and the Limited and associated companies until in the energy, utility and infrastructure Australian National University Council. 2010 following a 20-year career in the sectors in Australia, New Zealand and Dr McTaggart has extensive experience financial services sector and has served internationally, having spent 25 years in financial markets, having been Chief on industry representative bodies. with The Australian Gas Light Company Executive of QIC Limited (1998–2012). Mr Fay is a director of Victoria Power (“AGL”), including five years as CEO and Prior to QIC, he was Under Treasurer Networks, CitiPower and Powercor, and Managing Director. After AGL, Mr Martin and Under Secretary of the Queensland of SA Power Networks, is a member was CEO of the infrastructure division Department of Treasury and had of the Remuneration Committee of of Challenger Financial Services Group a distinguished academic career. He has each business and is Chair of the and, subsequently, CEO and Managing served in various expert advisory roles SA Power Networks Audit Committee Director of Murchison Metals Limited. to government and on several industry and a member of its Risk and representative bodies. Compliance Committee. Dr McTaggart is a member of the Mr Fay is a member of the Audit Risk and Nomination and Remuneration Compliance Committee. Committee.

16 | SPARK INFRASTRUCTURE 4 Ms Anne McDonald 5 Dr Keith Turner 6 Ms Christine McLoughlin 7 Ms Karen Penrose BEc, FCA, GAICD BE (Hons) ME, PhD Elec Eng BA LLB (Hons), FAICD BCom, CPA, FAICD Independent Director Independent Director Independent Director Independent Director (since January 2009) (since March 2009) (since March 2009) (since October 2014) Ms McDonald is the Chair of WaterNSW, Dr Turner is Chair of Fisher & Paykel Ms McLoughlin is a director of nib Ms Penrose is a director of Bank of a director of Link Administration Appliances Limited, Chair of Damwatch Holdings Ltd, Suncorp Group Limited Queensland Limited, Vicinity Centres, Holdings Ltd (“Link Group”), and co-chair Holding Ltd and a director of Chorus and Whitehaven Coal Limited. AWE Limited, Future Generation of Specialty Fashion Group Limited NZ Limited. He was previously Deputy Ms McLoughlin is Chair of Stadium Global Investment Company Limited, and is Chair of its Audit Committee. Chair of Auckland International Australia, a director of the McGrath UrbanGrowth NSW and Marshall Ms McDonald’s previous directorships Airport Limited. Foundation and is a member of ASIC’s Investments Pty Limited. include GPT Group, Sydney Water Dr Turner possesses extensive Director Advisory Panel. Ms McLoughlin Ms Penrose has extensive experience Corporation and Westpac’s life insurance experience in the New Zealand energy was formerly a director of Westpac’s in business, finance and investment and general insurance businesses. sector. He was CEO of Meridian Energy insurance businesses, the Victorian banking in the banking and corporate Ms McDonald was a partner of Ernst Limited from 1999 to 2008. He has Transport Accident Commission, sectors and is an experienced & Young for 15 years and was a Board advised a range of large corporate the Australian Nuclear Science and audit chair and member of due member of Ernst & Young Australia for clients and government and served Technology Organisation and Deputy diligence committees. 7 years. She has broad based business in a number of senior roles in the Chair of The Smith Family. She was Her executive career includes 20 years and financial experience, working with New Zealand electricity industry and as also the inaugural Chair of Australian with Commonwealth Bank and HSBC international and local companies well as many industry reform roles. Payments Council. and over eight years’ experience as Chief on audit, transaction due diligence, Dr Turner is a director of SA Power Ms McLoughlin has over 25 years’ Financial Officer and Chief Operating regulatory and accounting requirements. Networks, Victoria Power Networks, experience in financial services, Officer for two ASX listed companies. Ms McDonald is a director of CitiPower and Powercor. He telecommunications and professional Ms Penrose was a Council member Victoria Power Networks, CitiPower is also a director of TransGrid and services industries in Australia, of Chief Executive Women for six and Powercor and is Chair of is Chair of its Health, Safety and the UK and Asia. years and is a member of the advisory Victoria Power Networks’ Audit Environment Committee. Ms McLoughlin is Chair of the Nomination panel for the Chief Executive Women Committee and a member of its Risk and Dr Turner is a member of the Nomination and Remuneration Committee. Leaders Program. Compliance Committee. and Remuneration Committee. Ms Penrose is a member of the Audit Ms McDonald is Chair of the Audit Risk and Compliance Committee. Risk and Compliance Committee and a member of the Nomination and Remuneration Committee. SHAREHOLDER REVIEW 2016 | 17 MANAGEMENT TEAM

Spark Infrastructure is run Richard (Rick) Francis BCom, MBA, CA, GAICD by a team of experienced Managing Director and professionals with specialist Chief Executive Officer knowledge of the management Rick Francis commenced as Managing Rick has been a Non-Executive Director Director and Chief Executive Officer of of SA Power Networks and Victoria Power of infrastructure businesses Spark Infrastructure in 2012. He originally Networks since 2009. He was appointed joined Spark Infrastructure in 2009 as as Chairman of NSW Electricity across multiple sectors. the Chief Financial Officer and served in Networks Operations (TransGrid) in that role for three and a half years prior to December 2015 and has served as his appointment as Managing Director. Deputy Chair since June 2016. He also sits on a number of Board Sub-Committees Rick has 20 years’ experience in for Spark Infrastructure’s the Australian energy and energy investments, including Audit, Risk infrastructure industries. Prior to Management, Regulatory, HS&E and Spark Infrastructure he was employed Remuneration committees. by the ASX-listed gas transmission and energy infrastructure business APA Group, where he was Chief Financial Officer for four years, and by Origin Energy Limited for over eight years in a number of senior management roles in the corporate and operational areas. Rick is also a Chartered Accountant.

18 | SPARK INFRASTRUCTURE Greg Botham* Alexandra Finley Mario Falchoni BBus, MAppFin, CA DipLaw, MLM BEc, MPA, GradDipCom Chief Financial Officer General Counsel and Company Secretary General Manager, Investor Relations and Corporate Affairs Greg Botham has extensive experience Alexandra Finley has extensive experience Mario Falchoni has extensive experience in in senior financial roles in energy and in the financial services sector having held investor relations, regulation, government transport infrastructure businesses in strategic, operational and management and industry relations and corporate Australia. As a Chartered Accountant, roles. Alexandra is an experienced communications. Immediately prior to Greg has previously worked in a number corporate governance professional with joining Spark Infrastructure he was part of of senior finance and planning roles over 16 years’ legal and commercial the senior management team at ASX-listed at Sydney Airport, having commenced experience gained in private GrainCorp Limited. He has also managed his career at Qantas. practice and in-house. policy, government relations and corporate affairs for a peak business lobby group and Greg is responsible for corporate planning Prior to joining Spark Infrastructure, served in senior advisory roles in state and and analysis, project evaluation and she spent almost 10 years with National federal governments. risk management, financial accounting Australia Bank/MLC in various senior legal and reporting, capital and treasury and commercial roles. Mario is responsible for investor relations, management and taxation. regulatory affairs, stakeholder and Her responsibilities include corporate issues management and corporate Greg was appointed to the position of governance, legal and regulatory communications. Chief Financial Officer in May 2012 after compliance, risk management, serving as Group Financial Controller corporate transactions and advising on Mario was appointed to the position of for three years. general legal matters. General Manager, Investor Relations and Corporate Affairs in July 2006. * Greg Botham resigned from his role on Alexandra was appointed to the position of 21 February 2017. General Counsel and Company Secretary in September 2008.

SHAREHOLDER REVIEW 2016 | 19 ASSETS OVERVIEW

Spark Infrastructure owns equity interests in four quality Australian electricity networks across South Australia, Victoria and New South Wales.

20 | SPARK INFRASTRUCTURE CitiPower Powercor SAPN TransGrid 49% 49% 49% 15% interest interest interest interest

CitiPower operates the distribution Powercor is the largest distributor SAPN is the sole operator of South TransGrid is the largest network that supplies electricity of electricity in Victoria, operating Australia’s electricity distribution high-voltage electricity to around 328,000 customers a network that serves around network, supplying around 856,000 transmission network in the in Melbourne’s CBD and 780,000 customers in central and residential and commercial NEM by electricity transmitted. inner suburbs. western Victoria and the western customers in all regions and It connects generators, suburbs of Melbourne. the major population centres. distributors and major end users in New South Wales and the Australian Capital Territory and forms the backbone of the NEM connecting QLD, NSW, VIC and the ACT.

SHAREHOLDER REVIEW 2016 | 21 ASSETS OVERVIEW

Ownership Structure

Securityholders Spark Infrastructure

Spark Infrastructure takes an active management approach to its entire investment % % % 49 49 15 portfolio. We bring a range of value-adding SA Power Victoria Power TransGrid Networks Networks capabilities to the businesses, which 51% 51% help them to achieve their defined business, Cheung Kong Infrastructure/ operational and financial Power Assets Holdings goals each year.”

22.50% 22.50% 19.99% 19.99%

Tawreed Wren Hastings CDPQ Investments House

22 | SPARK INFRASTRUCTURE SA Power CitiPower Powercor Networks TransGrid

Number of customers 328,208 779,875 856,095 –

Number of employees 1,881 (reported jointly) 2,073 1,012

Network size (km length of all lines) 7,536 87,178 88,920 12,957

Network size (km2 of area) 157 145,651 178,200 803,664

Electricity sales volume (GWh) 5,877 10,656 10,188 –

Network availability (%) 99.99 99.97 99.91 98.28

Number of distribution transformers 4,797 84,378 75,408 –

Number of zone substation transformers 104 140 428 –

Number of poles 58,092 566,883 745,696 –

Percentage of lines underground (%) 42.8 13.1 19.8 0.6

Peak demand (MW) 1,358 2,397 2,634 11,578

Network reliability (%) – – – 99.9998

Number of transmission structures – – – 37,414

SHAREHOLDER REVIEW 2016 | 23 SA POWER NETWORKS SA Power Networks manages Operational summary SAPN’s 2016 net capital expenditure (after SAPN continued to perform strongly in 2016. contributions from customers) totalled South Australia’s electricity $285.7 million, a decrease of $29.8 million SAPN achieved Total Distribution revenue (or 9.4%) from 2015 due to $35 million distribution network, supplying for 2016 (net of transmission charges) of lower core network expenditure and around 856,000 residential $739.7 million, a decrease of $91.9 million $4 million reduced expenditure on vehicles. (11.0%) from 2015. This decrease largely This was partially offset by increased and business customers in resulted from a one-off timing impact of expenditure on information technology, Adelaide and all regions across the regulatory determinations. property and other various projects. SAPN operated under the revenue A key highlight in 2016 was SAPN’s South Australia. allowances provided in its Preliminary Construction and Maintenance Services Determination from 1 July 2015 to (CaMS) being awarded the ElectraNet The network is one of the most 30 June 2016, which was the first year of its Transmission Asset Maintenance Services five-year regulatory period. SAPN’s Final contract for a further five years, retaining reliable in Australia, with Determination provides for significantly an important revenue stream and providing higher revenues than the Preliminary job security for over 100 people. 99.91% network availability Determination with the additional revenues achieved across a State that (plus interest) to be recovered over years This is a fresh endorsement of the technical 2-5 of the regulatory period (i.e. from capabilities and geographic reach across is characterised by widely 1 July 2016) under a ‘no disadvantage true South Australia possessed by SAPN. varied and challenging terrain up’ mechanism. In 2016, SAPN continued its efficient SAPN will recover an additional delivery of the NBN rollout in and extreme weather. $626 million of revenue, relative to its South Australia and has now achieved Preliminary Determination, over the $200 million of revenue since the inception remaining years of its current regulatory of this contract. period. The introduction of a revenue Customer service performance cap ensures stable revenues across South Australia possesses one of the the remainder of the 2016 to 2020 highest penetrations of renewable regulatory period. generation in the world, which can lead to Other revenue generated by SAPN in intermittency of supply. It has also suffered 2016 amounted to $247.1 million, up the impacts of a series of severe storm 8.1% on 2015, largely due to higher events that caused widespread outages semi-regulated revenue. for customers.

24 | SPARK INFRASTRUCTURE Port Augusta Ceduna

Whyalla Streaky Bay Port Pirie

Clare

Barmera Marleston Port Lincoln St Marys Murray Bridge Victor Harbour

Mount Gambier

% $ B 2020 Network coverage 99.91 3.95 2,073 JULY Depot locations Network Regulated Number of Next regulatory Office and depot locations availability Asset Base employees reset

SHAREHOLDER REVIEW 2016 | 25 SA POWER NETWORKS

The most significant of these extreme SAPN continues to focus on delivering There are currently 79 apprentices SAPN will recover storm events occurred in December significant productivity and efficiency in training, of which 21 are women, an additional 2016 and left 185,000 customers without initiatives. The AER’s third annual and a further 10 engineering and IT $626 million of power. SAPN’s workers have performed benchmarking report was published graduates participating in a three-year revenue, relative admirably under dangerous conditions in November 2016 and showed, on development program. to its Preliminary Determination, to restore electricity to customers. a state-by-state basis, that SAPN retains Innovation over the remaining This demonstrates SAPN’s commitment its position as the most efficient state-wide years of its current to meet and continually improve its distributor in the country. In 2016, SAPN made considerable progress regulatory period reliability standards and customer in implementing its Advanced Distribution service performance. Safety and workforce Management System (ADMS) which will $ M SAPN maintained its work, health and provide it with a network management 626 SAPN maintained its record of reliability safety certifications against AS/NZS system that controls, monitors and allows in 2016 with total annual minutes without 4801 and OHSAS 18001 in 2016. It also for advanced analysis, planning and supply per customer, as measured by maintained its accreditation under the optimisation of the distribution network. System Average Interruption Duration Federal Government Building and ADMS involves the importing of geospatial Index (SAIDI) of 163 minutes (excluding Construction Occupational Health and data to build a sophisticated, real-time Major Event Days), compared to the annual Safety Scheme and has been rated model of the interconnected high-voltage target of 168 minutes. a low-risk business. network. This electrical model will SAPN’s Service Target Performance SAPN achieved a five-year renewal simulate energy flows across the network Incentive Scheme (STPIS) achieved (highest possible renewal period under through advanced engineering calculations a positive outcome of $26 million for the scheme) of its Self Insurance Status and establish a foundation for network 2015/16, the first year of this five-year after a stringent audit by ReturnToWorkSA automation solutions in the future. regulatory period. Over the last five-year against the Self Insurer Standards in The advantages that the ADMS project regulatory period, SAPN has achieved South Australia. a $48 million favourable outcome. brings to SAPN include the consolidation The result for the 2016/17 regulatory year In 2016, SAPN also received special of a number of disparate applications into is expected to be impacted by severe storm commendation in the Occupational a single user interface; improved visibility events in July, September and December. Health and Safety category by Engineers of unplanned outages; and establishing Australia for a Safety Application developed a foundation for future network automation In 2016, SAPN achieved a telephone to protect workers entering substations and smart technologies. Grade of Service of 78.1% (of faults and at the 2016 Australian Engineers The ADMS project is a key strategic project emergency calls answered within 30 Excellence Awards, SA. seconds) against a target of 67.8%. for SAPN and is in the final stages of SAPN maintains a strong focus on testing, ready for implementation. nationally-recognised accredited training and an apprenticeship program that surpasses industry requirements.

26 | SPARK INFRASTRUCTURE VICTORIA POWER NETWORKS CitiPower and Powercor They are managed by a joint Operational summary management team and workforce VPN performed strongly in 2016 in Australia own and and together they are known as a changing environment for network operate two of the five Victoria Power Networks (VPN). infrastructure businesses. It delivered CitiPower owns and operates the strong distribution revenues largely fully regulated electricity distribution network that supplies driven by increased customer numbers, electricity to more than 328,000 which offset the effects of a mild distribution networks customers in Melbourne’s CBD and inner winter and spring. in Victoria under the suburbs. These customers include some CitiPower generated total regulated of Australia’s largest companies, public revenue in 2016 of $310.3 million, slightly regulatory supervision transport systems and sporting venues. down on 2015, including all metering of the Australian CitiPower operates with a reliability revenue and excluding pass-through rating of 99.99% network availability. transmission revenue. Electricity sales Energy Regulator. Powercor is the largest distributor volume for CitiPower was 5,876.7 GWh, of electricity in Victoria, owning and in line with volumes achieved in 2015. operating a network that serves Total regulated revenue for the Powercor around 780,000 customers in central network was $698.0 million, down 4.9% and western Victoria and the western on 2015 including all metering revenue suburbs of Melbourne. Powercor and excluding pass-through transmission possesses one of the highest reliability revenue. Electricity sales volume for ratings for rural electricity distribution Powercor was 10,656.6 GWh, also in line networks in Australia at 99.97% with volumes achieved in 2015. network availability.

SHAREHOLDER REVIEW 2016 | 27 VICTORIA POWER NETWORKS Dundas Moreland Road Road

Darebin Moonee Northcote Creek Ponds Brunswick Creek

METROPOLITAN Yarra MELBOURNE River

North Balwyn Fitzroy

Carlton Smithfield Road Kew Collingwood North Balwyn Melbourne CBD Richmond Yarra River Hawthorn

Port South Camberwell Melbourne Melbourne Toorak

Prahran Warrigal Toorak Road Road

Port Armadale Phillip Bay St Kilda Caulfield

Balaclava Road

Distribution area CITIPOWER 99.99% $1.94B 1,881 JAN2016 Network Regulated Number of Next regulatory availability Asset Base employees reset (reported jointly with Powercor) 28 | SPARK INFRASTRUCTURE Mildura

Echuca

Shepparton

Horsham Bendigo

VICTORIA Kyneton Ballarat Melbourne

Ardeer Werribee

Geelong Colac Warrnambool

% $ B 2016 POWERCOR 99.97 3.79 1,881 JAN Distribution area Network Regulated Number of Next regulatory Locations availability Asset Base employees reset Local service agents (reported jointly with CitiPower) SHAREHOLDER REVIEW 2016 | 29 VICTORIA POWER NETWORKS

These decreases largely resulted The AER ranks CitiPower as the most from a one-off timing impact of their efficient network in Australia, with regulatory determinations. CitiPower and Powercor also ranked in the top three VPN will recover an Powercor operated under the revenue networks for efficiency. VPN is building allowances provided in their Preliminary on this success through a range of additional $180 million Determinations from 1 January to continuous improvement initiatives 31 December 2016, which was the first designed to build on its sector-leading of revenue, relative year of their five-year regulatory periods. levels of efficiency. With benchmarking to its Preliminary an increasingly influential part of the Their Final Determinations, published regulatory environment, the delivery of Determination, over the by the AER in May 2016, provide for excellent performance is a key driver of significantly higher revenues than the sustained value to Spark Infrastructure’s remaining years of its Preliminary Determinations with the Securityholders. additional revenues (plus interest) to be current regulatory period. recovered over years 2-5 of the regulatory VPN enjoyed significant improvements period (i.e. from 1 January 2017) under in productivity in 2016 with a variety of a “no disadvantage true up” mechanism. efficiency gains realised through its The efficiency World CLASS program. This enabled VPN will recover an additional $180 million performance of VPN the achievement of total identified of revenue, relative to its Preliminary savings of approximately $167 million through its World CLASS Determination, over the remaining years per annum (versus a 2013 baseline) with of its current regulatory period. The $139 million delivered by the end of the program is widely introduction of a revenue cap ensures year. This is split approximately evenly stable revenues across the remainder of regarded as the highest across both capital expenditure and the 2016 to 2020 regulatory period. operating expenditure. industry standard for Distribution tariffs charged by CitiPower The efficiency performance of VPN electricity network and Powercor reduced on average by 2% through its World CLASS program and 7% respectively in 2016. This is in is widely regarded as the highest providers, with many line with that approved by the AER. VPN’s industry (“best practice”) standard for contribution to its average residential seeking to emulate its electricity network providers, with many customer’s retail electricity bill is around seeking to emulate its rigorous and rigorous and innovative 25% of the total. innovative approach. approach.”

30 | SPARK INFRASTRUCTURE VPN’s 2016 net capital expenditure Whilst the preferred method of contact Satisfaction among electricity retailers CitiPower and (excluding customer contributions) totalled for most customers remains the remained high for VPN with a rating of Powercor had $406.6 million, a decrease of $59.7 million telephone, increasing use of the Internet, 74% achieved in 2016. a combined (or 12.8%) from 2015, largely due to the SMS alerts, email and other advancing customer VPN’s STPIS achieved a positive outcome substantial efficiencies that are being digital technologies mean customers satisfaction of $17.9 million for 2016, the first year rating of delivered through the World CLASS can now connect with VPN using the of this five-year regulatory period. The program in relation to capital expenditure. channel of their choice. In response result for the 2016 regulatory year will be % to customers’ growing preference for Customer service performance recovered in revenue in the 2018 pricing 85 digital tools, CitiPower and Powercor year, in accordance with the AER’s audit CitiPower and Powercor had a combined launched a number of new platforms and approval processes. customer satisfaction rating of 85% to make it easy for their customers by in 2016. These very high levels of enabling self-service. satisfaction are unprecedented and customers appear to be recognising the These tools include: company’s commitment to its core value • The myEnergy dashboard, which of “Make it easy for your customer”. provides customers with insights into how they use electricity over time and In addition, CitiPower and Powercor helps them take greater control of continue to outperform other Victorian their energy bill. Customers with solar distribution businesses. In the panels can also track the amount of 2015–2016 Energy Water Ombudsman electricity they are exporting to the Victoria annual reports, they reported grid. In an industry first, themyEnergy the lowest number of complaints of platform was officially linked to the any Victorian distributor for the fourth Victorian Government’s Victorian consecutive year. Energy Compare website, giving VPN continues to deliver high customer customers the ability to quickly and service satisfaction. The Customer Contact objectively compare retailer offers Centres take around 841,000 calls annually, using their actual consumption data. with 87.6% and 83.1% of fault calls for • The eConnect portal, which has made CitiPower and Powercor respectively it easier and faster for customers to answered within 30 seconds in 2016. get solar pre-approval, reducing the time taken by the former paper-based process from two weeks to just minutes with eConnect.

SHAREHOLDER REVIEW 2016 | 31 VICTORIA POWER NETWORKS

Safety and workforce Expo was well received by employees Solar and wind power are increasingly VPN’s Health and Safety Management and supported by the Victorian Transport being integrated into the CitiPower Systems are certified to the AS/NZS Accident Commission. and Powercor networks. More than 110,000 Powercor customers and 4801-Occupational Health and Safety VPN continued to invest heavily in nearly 9,500 CitiPower customers have Management Systems Standard and also 2016 in training and development for its installed solar panels since 2009, with the Australian Government Building and employees, with a focus on leadership, a combined capacity of almost 364,512 Construction WHS Accreditation Scheme. mentoring and career development. and 28,031 kilowatts respectively. The Health and Safety Management In 2016, CitiPower and Powercor VPN continues to invest in the System is supported by a governance welcomed five new apprentices into development of a smarter network structure that was further strengthened the business. It currently employs incorporating advanced technologies in 2016. New Regional Health, Safety 87 apprentices and trainees. and Environment Committees support that enable more efficient capital all locations. These in turn feed A Diversity and Inclusion Council investment, improved safety and into a Leadership and Consultative and Working Group was launched to reliability as well as widespread Committee chaired by the Chief Executive ensure VPN continues to embrace new integration of renewable energy sources Officer with representatives drawn perspectives and different ways of as more customers choose to invest in from senior management and the working that ultimately deliver better small-scale generation. business and customer outcomes. regional committees. The governance In 2016, VPN’s energy solutions team The Committee and Working Group structure has a balanced focus on emerged as a separate, stand-alone will set, lead and drive initiatives developing initiatives that improve VPN’s business known as BEON Energy aligned to three focus areas – gender, performance and on resolving any issues Solutions. In 2016, this business generation and ethnicity. that require escalation. successfully delivered a range of In 2016, the implementation of the Innovation energy solutions to its customers with improved governance structure was The energy sector has changed more in more than 3MW of solar panels sold measured as a component of VPN’s the last five-to-ten years than it has in in less than 12 months. BEON Energy Health and Safety Management System the past century. Customers are choosing Solutions is emerging as a leader Performance System Index KPI. new ways to access their electricity in the deployment of large-scale It scored 100%. needs while demanding more reliable renewable energy and infrastructure electricity supplies. The challenge for projects, working with some of the In 2016, VPN launched a Stop, Think & VPN is to provide Victorians with the largest electricity utilities, developers, Drive Expo for employees to promote most reliable electricity to power their commercial and industrial companies and driver safety and raise awareness that homes and businesses while helping telecommunications network owners in safety is everyone’s responsibility. The them connect to electricity services in Australia and overseas. the ways they prefer, all while providing value for money.

32 | SPARK INFRASTRUCTURE TRANSGRID

TransGrid is the operator and TransGrid provides its services Operational summary through 13,000 kilometres TransGrid continues to deliver against manager of the high-voltage of high-voltage transmission the acquisition business plan and lines, underground cables and is positioned well for growth. In 2016, electricity transmission substations. It enables more TransGrid continued its cultural network in NSW and the ACT. than 3 million homes, businesses transformation which commenced when and communities to access new CEO, Paul Italiano, took the helm It forms the backbone of the a reliable, efficient and safe supply last April. Since then, he has made National Electricity Market, of electricity. a number of appointments to his executive TransGrid continued to invest in team who will bring valuable expertise connecting generators, non-regulated infrastructure to key areas such as unregulated distributors and major connections in 2016, negotiating business development. seven new connection agreements TransGrid’s regulated revenue was end users across the representing a total investment of $784.6 million. Non-prescribed revenue eastern states. $155 million (real 2016). Together was $51.2 million and this included with achieving network reliability a contribution from telco services of exceeding 99.99%, as measured $6.4 million, property at $4.7 million by SAIDI, TransGrid delivered and $40.1 million of infrastructure both strong commercial and services. The majority of infrastructure service performance. services revenues are from transmission connection contracts for various wind farms, solar farms and mines. Operating expenditure for 2016 was just under $183 million. This included both regulated and unregulated operating expenditure. Net capital expenditure was $206.4 million for 2016 and included efficiencies on the regulated side that have been a big focus for the business.

SHAREHOLDER REVIEW 2016 | 33 TRANSGRID

White Rock Wind Farm

Sapphire Wind Farm

Maules Creek Coal Mine

Broken Hill Solar Farm Boggabri Coal Mine

Silverton Wind Farm

Griffith Solar Farm

Crookwell 2 Wind Farm

Taralga Wind Farm

Parkes Solar Farm Gullen Range Wind Farm

Capital Wind Farm

Deer Park Terminal Station (VIC)

99.9998% $6.3B 1,012 JULY 2018 Network Regulated Number of Next regulatory Under development reliability Asset Base employees reset Existing connections

34 | SPARK INFRASTRUCTURE Over 85% of capital expenditure was security of supply to customers in NSW • the TransGrid Advisory Council, regulated. Regulated capital expenditure and the Sydney CBD. At the same time, an executive-level forum providing is predominantly for replacement and not TransGrid’s regulatory proposal would ongoing advice to the business; for augmentation. deliver a price reduction to consumers • the Revenue Proposal Working Group, of 2.5%, in addition to the reduction A key focus for TransGrid in 2016 a dedicated forum to ensure that of 7% delivered over the current and beyond is to continue to grow its customers, consumers and interested regulatory period. non-prescribed business. In 2016, parties have an opportunity to discuss revenue achieved in this business was Customer service performance and influence TransGrid’s approach to the upcoming revenue proposal; and ahead of schedule and performance was TransGrid works closely with its ahead of target. TransGrid has a very customers to plan, develop and manage • the NSW Energy Forum, to explore strong pipeline of new opportunities the network and customer projects to priorities for NSW, including how the to generate non-prescribed revenues ensure it meets their service expectations business can support a low-carbon and a strong competitive advantage in now and into the future. future and explore ways to shape the this space. Non-prescribed business future of the grid. is being buoyed by a significant increase In line with previous years, TransGrid’s in grid connection applications, driven transmission network reliability in Safety and workforce mainly by large-scale renewable energy 2016 continued to exceed 99.9998%. TransGrid promotes a positive culture generation projects in NSW. TransGrid’s ability to maintain and of safety that encourages all employees operate its network, in addition to and contractors to be active managers The closure of the Hazelwood improvements to design standards and of their own safety and the safety of coal-fired generator in Victoria will equipment procurement practices, others. The risks associated with a high see a profound change in that market contributed to this outcome. This reflects voltage electricity network and large with Victoria to emerge as a net energy the ability of the business to make infrastructure projects make it critical importer. This in turn will change the prudent planning decisions in line with to deliver on the safety commitment. role of the source of generation by NSW international best practice. in the national electricity market. The TransGrid’s employee Lost Time Injury opportunity to accommodate this growth TransGrid’s STPIS achieved a positive Frequency Rate (LTIFR) for 2016 was 2.5 in demand, the changing generation mix outcome of $12.5 million in 2016. (excluding contractors), which compares and maintaining security of supply across TransGrid expects to recover $15.5 million favourably to industry peers. TransGrid’s the NEM represent real and meaningful in relation to the 2014/15 regulatory year strong safety performance attests to its growth opportunities for TransGrid. from July 2017. highly skilled and experienced workforce comprised of 1,012 qualified tradespeople, TransGrid’s customer engagement TransGrid submitted its regulatory engineers, technicians, substation initiatives in 2016 focused proposal for the 2018–2023 to the AER and transmission line designers, on a number of new areas: in January 2017. The proposal includes apprentices and cadets, administrators, additional capital expenditure designed to professionals and managers. cater for population growth and improved SHAREHOLDER REVIEW 2016 | 35 TRANSGRID

In December 2016, TransGrid introduced thought-provoking. The day also provided Groups such as the UNSW Faculty of a new long term safety strategy called the organisation with meaningful access Engineering and the Australian Energy ‘Heads Up’. Heads Up is challenging to the CEO, Paul Italiano, the Executive Research Institute (AERI) will use the people to change their mind set on team, senior leaders, the Safety Working installation to study how to improve the safety, by asking what drives us all to Group and their focus areas, as well as to utilisation of the batteries. be safe at work. The campaign is also the health, safety and environment (HSE) A similar installation is scheduled to raising the visibility of safety by engaging team. Safety Day 2017 was another step commence in 2017 at the City of Sydney’s all staff to contribute to TransGrid’s in TransGrid working safer and better Alexandra Canal Works Depot. safety performance. Staff have been together as an organisation. very proactive with offering advice back Automated Demand Response (ADR) Innovation to TransGrid’s Safety Working Group, TransGrid is procuring an ADR system Innovation remains a core focus and which already has identified five key that will allow the dispatch of demand driving force at TransGrid. Technology areas to improve safety performance. response in commercial and industrial continues to evolve rapidly and TransGrid These areas are focused around system buildings, and is capable of triggering is making an intelligent and energetic improvements, leadership development, energy storage backup devices located response to the new services that attitudes to safety, resource readiness behind the meter. Open Automated customers are demanding. and knowledge transfer. Heads Up Demand Response (OpenADR) provides combines the wisdom of all in TransGrid, Battery storage an open demand response interface to deliver a safer workplace for everyone. In November 2016, TransGrid signed that allows utilities to communicate To reinforce this launch, during February a Memorandum of Understanding (MOU) demand response signals directly to and March 2017, seven Safety Days with The University of NSW (UNSW) to customers using a common language were conducted at locations across install large-scale on-campus battery via the Internet. TransGrid. The purpose of Safety Day was storage, which will allow for exploration Geospatial mapping of constraints to inspire people with renewed energy of non-network demand management, TransGrid is a partner in the Network and awareness around the importance and cost savings for directly Opportunity Maps project alongside of safety. It provided TransGrid’s connected customers. people with an opportunity to approach the Institute for Sustainable Futures, safety from a fresh perspective, and Battery storage is increasingly important funded by ARENA. The purpose of the communicated how safety was everyone’s in the changing electricity market. project is to develop online maps of responsibility across the organisation. TransGrid continues to take a leading network constraints that are freely A blended facilitation approach (activity, role in deploying large-scale battery available and updated annually. The discussion, examples, stories, content) installations. The recent MOU will maps include planned investment, was employed to ensure the Safety Day see installation of a 250kW/500kWh the potential for renewable energy, remained interactive, energetic and battery system. and demand management.

36 | SPARK INFRASTRUCTURE IMPORTANT INFORMATION AND DISCLAIMER

This information has been prepared by General Information only Spark Infrastructure Spark Infrastructure for information purposes This pack is prepared for your general information RE Limited (ABN 36 only, to assist analysts in their own review of only. It is not intended to be a recommendation by 114 940 984) as the Spark Infrastructure’s financial results for the Spark Infrastructure, its related bodies corporate responsible entity for financial period ended 31 December 2016. The or any of their representatives, officers, employees, Spark Infrastructure Trust information in this pack has not been audited and agents or advisors to invest in securities. This pack (ARSN 116 870 725) is not intended to replace the audited financial does not take into account the investment objectives, statements of Spark Infrastructure, which it This document is not financial situation or needs of any particular investor. an offer or invitation for is important that you review. This material Before making any investment decision regarding is provided to you as a person who holds subscription or purchase Spark Infrastructure, an investor should consider of or a recommendation an Australian financial services licence or the suitability in view of their financial position and is a representative of a licence holder, or as to purchase securities or investment objectives and needs and should seek a financial product. a person who is a wholesale client within the advice before making an investment decision. meaning of section 761G or 761GA of the This document contains Corporations Act 2001 (Cwlth). No liability general information only No representation or warranty, express or implied, and does not take into Do not rely on this information is made as to the fairness, accuracy or completeness account the investment Do not rely on this information to make an of this pack, or any information, opinions and objectives, financial investment decision. This information is a high conclusions it contains. To the maximum extent situation and particular level summary only – information, opinions and permitted by law, each of Spark Infrastructure, needs of individual conclusions in this pack are intended as a guide only all of its related bodies corporate and their investors. It is not financial and do not constitute representations or forecasts of representatives, officers, employees, agents and product advice. Investors Spark Infrastructure or any other person or entity. advisers exclude responsibility or liability for any should obtain their own You must form your own judgement in relation to such information, opinions and conclusions or for independent advice from information, opinions and conclusions in this pack any action taken by you on the basis of this pack, a qualified financial having regard to the audited financial results for the including without limitation any liability arising from advisor having regard to financial period ended 31 December 2016. This pack negligence on the part of any person. their objectives, financial does not set out the underlying assumptions, situation and needs. circumstances or risks which may affect the Past performance is not a reliable indicator of performance of Spark Infrastructure. future performance. Spark Infrastructure does not accept any obligation to correct or update this pack or to notify you that any correction or change is required, except to the extent otherwise required by law.

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SHAREHOLDER REVIEW 2016 | 37 CORPORATE CONTACT DETAILS

Registered Office Security Registry Spark Infrastructure BoardRoom Pty Limited Level 25, 259 George Street ABN 14 003 209 836 Sydney NSW 2000 GPO Box 3993 T: +61 2 9086 3600 Sydney NSW 2001 F: +61 2 9086 3666 Tel: 1300 664 446 (within Australia) E: [email protected] Tel: + 61 2 9290 9600 (outside Australia) W: sparkinfrastructure.com Fax: + 61 2 9279 0664 Managing Director www.boardroomlimited.com.au Rick Francis [email protected] Company Secretary Alexandra Finley

Investor Relations Mario Falchoni