ERM Power Limited | Annual Report 2011

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ERM Power Limited | Annual Report 2011 ERM Power Limited | ERM Power Annual Report 2011 ERM Power Limited Annual Report 2011 Vision Statement ERM Power aspires to be the electricity supplier of choice to Australia’s large business customers. Contents About ERM Power 2 Directors’ Report 22 Chairman’s and Managing Director’s Report 4 Remuneration Report 31 ERM Sales 8 Corporate Governance Statement 40 ERM Generation Assets 11 Auditor’s Independence Declaration 45 ERM Generation and Operations 13 Annual Financial Statements 46 ERM Gas 16 Directors’ Declaration 105 Carbon Tax 18 Independent Auditor’s Report 106 Environment 19 Share and Shareholder Information 108 People and Safety 20 Glossary 110 Community 21 Corporate Directory Inside Back Cover About ERM Power ERM Power is an integrated energy company long-term off-take contracts, have long-term, limited-recourse which operates electricity sales, generation project debt facilities in place and are expected to have a significant useful operating life after current off-take and gas procurement businesses. arrangements end. Founded in 1980 as a specialist energy advisory firm, the Oakey power station Company grew through deregulation and privatisation to become one of Australia’s largest private energy sector Oakey is a 332 MW two unit peaking power station with companies before listing on the Australian Securities dual fuel capability (gas and distillate) that is located at Exchange (ASX) on 10 December 2010. Oakey, about 150 km west of Brisbane. ERM Power has four key business units – ERM Sales, ERM Power led the development of Oakey, which was ERM Generation Assets, ERM Generation Development commissioned in December 1999. and Operations, and ERM Gas. Oakey has a long-term power purchase agreement (PPA) ERM Power aspires to be the electricity supplier of choice to with AGL that runs until the end of 2014 when the current Australia’s large business customers through a differentiated project debt is scheduled to have been repaid. Most of the service offering tailored to the specific needs of the customer. power station’s operation has been fuelled by natural gas supplied by AGL under an agreement that expires at the ERM Sales same time as the PPA. ERM Power’s electricity sales business, ERM Sales, was The off-take contract has been structured such that the plant established in 2007. is usually dispatched at times of peak electricity demand and high prices, such as on the hottest days of summer. ERM Sales sells electricity to large business customers which typically spend more than $75,000 per annum on electricity Neerabup power station and, on average, spend about $1.5 million per annum. Neerabup is a 330 MW two unit peaking power station at The business provides large corporate and industrial energy Neerabup, about 40 km north of Perth and incorporates a users with tailored energy solutions. 30 km high-pressure gas pipeline and gas compressor station that provides a connection to the Dampier to Bunbury ERM Sales’ customers operate in a wide range of industries Natural Gas Pipeline and linepack storage of gas to allow for including manufacturing, mining, education, healthcare, generation at peak price periods. infrastructure, retailing, government and consumer staples. Neerabup was commissioned in October 2009 with a ERM Sales is one of the largest electricity providers (by load) long-term, 20 year off-take contract with Synergy, a to business customers in Queensland and has a growing Western Australian State Government-owned corporation. business in New South Wales, the Australian Capital Territory, Victoria, Tasmania, South Australia and Western Australia. The off-take contract is structured so that the plant is mostly dispatched in times of peak electricity demand ERM Generation Assets and high prices. The ERM Generation Assets business consists of ERM ERM Generation Development and Operations Power’s interests in low emission gas-fired peaking power stations at Oakey in Queensland and Neerabup in Western ERM Generation Development and Operations is responsible Australia. for delivering power generation solutions, from the initial concept stage through to development and operations. These power stations are strategically located close to energy resources and infrastructure in regions that are ERM Power has managed the development of six power forecast to experience high growth in electricity demand. stations with a capacity of 2,669 MW since 1999. ERM Power owns a 62.5% effective interest in the Oakey power station and a 50% interest in the Neerabup power station. The power stations are fully contracted through 2 ERM POWER ANNUAL REPORT 2011 During that time, the Company has raised almost $1 billion in The business has development approval for 1,210 MW limited-recourse project finance and brought into operation of generation in the proposed Braemar 3 and Wellington more than 290 km of high pressure gas pipelines, 18 km 1 power station projects in Queensland and New South of high voltage power transmission lines, a major electrical Wales, along with environmental approval for the 330 MW sub-station and two gas compression plants. Three Springs Project in Western Australia. ERM Power is ready to commit to a development when it is required by the In the six years to 30 June 2011, ERM Power led the electricity sales market. development of five major gas-fired power stations in three states (Braemar 1 and 2 in Queensland, Uranquinty in ERM Gas New South Wales and Kwinana and Neerabup in Western Australia) and in two different electricity markets (National ERM Gas was established in 2007 and focuses on procuring Electricity Market in the eastern states and the Wholesale long-term gas supplies for future ERM Power projects through Electricity Market in Western Australia). commercial gas supply contracts and exploration. ERM Generation Development and Operations partners with More than $3 billion of gas has been procured across all of industry-leading companies to implement its development ERM Power’s generation developments. strategy. The business provides services to partnerships ERM Gas has joint venture equity interests in more than where ERM Power is a partner, and also to third parties where 10,400 km2 of gas exploration acreage in Western ERM Power has divested its interest for strategic reasons. Australia’s on-shore Perth Basin. It has evolved from a The business is also responsible for the management and small, complementary and developing business into an operation of electricity generation and gas pipelines for the emerging business with the potential to deliver profits in its Neerabup and Kwinana power stations. own right over the next few years following two consecutive exploration successes. ERM Power has a land bank around key energy hubs in Australia’s high-growth regions and is targeting development The Red Gully-1 gas and condensate discovery in of more than 4,500 MW of additional generation capacity exploration permit EP 389 in the on-shore Perth Basin of and more than 1,300 km of gas pipelines. Western Australia in March 2011 followed the success of the nearby Gingin West-1 well in the same permit in April 2010. ERM POWER ANNUAL REPORT 2011 Neerabup power station Chairman’s and Managing Director’s Report Almost 12 months ago new investors were Fortunately ERM Power is on track to exceed its prospectus invited to join us, our fellow directors, senior forecasts and remains focused on value creation for shareholders. We are confident this value will be recognised management and other employees as in the market in time as the Company pursues its vision of shareholders of ERM Power Limited, a being the electricity supplier of choice to Australia’s large company with 30 years of operating history, business customers. through an initial public offer (IPO) and listing FY2011 results on the ASX. We are pleased to report that ERM Power exceeded prospectus forecasts for revenue, EBITDAIF¹ and Our new investors gained direct exposure to the forecast Underlying Net Profit After Tax (Underlying NPAT²) growth of the Australian electricity industry through ERM for the financial year ending 30 June 2011 (FY2011). Power’s businesses spanning electricity sales, generation and gas procurement. Revenue of $549.8 million, including other income and asset sales, was 15% higher than the prospectus forecast of Over the past year, our management and employees have $478.9 million and 32% higher than revenue of $418.4 million worked hard through turbulent times to achieve and exceed in FY2010. the goals and forecasts we set for ourselves. EBITDAIF¹ of $46.4 million was 2% higher than the Outlook prospectus forecast of $45.7 million and 32% lower than EBITDAIF¹ of $68.7 million in FY2010, which included a ERM Power is tracking well for FY2012 and increased its profit of $36.4 million from an asset sale. forecasts for FY2012 by 34% for EBITDAIF1 and 7% for Underlying NPAT2. Underlying NPAT² was $6.3 million, 80% higher than the prospectus forecast of $3.5 million (FY2010: $10.3 million). The EBITDAIF1 forecast for FY2012 is $83.5 million, compared with the prospectus forecast of $62.4 million. Financial FY2011 Underlying NPAT2 for FY2012 is forecast to be $27 million, Highlights FY2011 Prospectus ($ million) Actual Forecast Change compared with the prospectus forecast of $25.2 million. Revenue 549.8 478.9 15% Highlights since the start of FY2012 include: EBITDAIF1 46.4 45.7 2% • Upgraded FY2012 Revenue forecast; 2 • acquiring an additional 50% of the Oakey power Underlying NPAT 6.3 3.5 80% station, which settled on 1 July 2011; Statutory NPAT 16.2 26.5 -39% • starting the electricity supply contract with the Underlying EPS³ 4.5 2.2 106% Commonwealth Government in New South Wales and the Australian Capital Territory. Dividend per share 3.5 3.5 - • signing a Gas Sale Agreement with Alcoa in Western Australia for gas supply from the EP 389 These results were achieved despite extreme weather including floods and cyclones in Queensland and discoveries; and heatwaves in the southern states, which affected the • receiving promising seismic results from the Charger Company’s electricity sales business, ERM Sales.
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