ENERGY MARKETS – Pivotal To ouR energy fuTure annual report 2011 our Mission We plan, develop and operate markets that are responsive to energy sector needs and support long-term investment in Australia. our Vision To be pivotal to markets that secure Australia’s energy needs. OUR Values Every Voice AEMO is engaged and receptive. We listen openly and respectfully. Our Stakeholders AEMO is stakeholder-focused and responsive. We are committed to delivering on the expectations of our stakeholders. One Team AEMO is united and coherent. We work collaboratively and speak as one. Commitment and Delivery AEMO’s people are dedicated and accountable. We are motivated to perform at our best. Contents IFC Our mission, vision, values and focus 02 Chairman’s Report 03 Chief Executive Officer’s Report 04 What AEMO does 06 Strategic drivers: – External Stakeholders – People – Markets – Commercial Management – Productivity 14 AEMO Organisation Structure 15 AEMO Members 16 Board of Directors 18 Corporate Governance 24 Financial Report 64 Abbreviations IBC Directory STRATEGiC DRIVERs 2011–12 1. eXTERNAL stakeholders Understanding – to listen and learn more about the specific needs and expectations of all our stakeholders. > Page 06 2. PEOPLE Accountability – to make our people fully and openly accountable for our performance as the operator of Australian energy markets. > Page 08 3. MARKETS Efficiency – to drive coordination, consolidation and integration of systems and processes wherever possible to achieve increased operational efficiencies and effectiveness. > Page 10 4. CoMMERCIAL ManaGeMENT Discipline – establishing clarity and certainty around our operating costs and fees in a true commercial manner. > Page 12 5. PRODUCTIVITY Transparency – to clearly explain and communicate the specific role that we play and the means that we employ to create value for the energy sector as a whole. > Page 13 AEMO AnnuAl rEpOrt 2011 01 ThE wAy fOrwArD If those words seem familiar, they are. They form the basis of the mission statement contained in AEMO’s Statement of Corporate Intent 2010–11. 2010–11 was a year of The past 12 months were marked by the transition of AEMO moving from an establishment and integration stage to a more mature organisation delivering intense focus for AEMO tangible benefits for all stakeholders. and highlighted the We are creating a culture of leadership and performance within AEMO ensuring greater importance of a strong accountability to our stakeholders through prescriptive and transparent measures. organisation that will Our Statement of Corporate Intent outlines how we will deliver on our mission through engaging with our stakeholders, empowering AEMO employees, plan, develop and operating efficient markets, building our brand and delivering value. operate markets that One area AEMO is expected to add considerable value is in the area of independent advice to government and stakeholders on the impacts of key are responsive to energy policies such as the Clean Energy Future Plan. sector needs and support The changing mix of energy generation is a factor in most of AEMO’s planning long-term investment reports and this will become an increasingly important element in future years. in Australia. AEMO has established a series of Gas, Electricity and Network Leadership Forums to provide a vehicle for frank industry discussion on key issues. This year those forums have given industry representatives the chance to discuss the impact of the Clean Energy Future Plan, particularly the role gas generators will play. The government has indicated AEMO has a role to play in ensuring that network reliability is maintained as we move to more renewable energy sources in the future. Stakeholder engagement has been a key focus in 2010–11 with a major project underway to develop streamlined and cost effective processes for connecting generators and loads to Victoria’s shared electricity network. The Victorian Connections Industry Reference Group (VCIRG) was formed and is working in partnership with AEMO to address issues and introduce change. The project, which continues in 2011–12, aims to develop a common understanding and look at future terminal station requirements. The next year will be a challenging one with the further development of the gas industry Short Term Trading Market (STTM). A new Queensland hub will to be bedded down and the expanding market will no doubt encounter opportunities and challenges. AEMO will continue to improve operational efficiencies, building on the successful negotiation of a comprehensive Enterprise Agreement and the consolidation of key functions. We will continue to encourage transparency and ChairMan’s accountability with the introduction of a single help desk for our stakeholders and continue to facilitate industry Leadership Forums. report To manage the challenging year ahead we will require strong leadership and our Board has been fortunate to attract such strong and experienced members. Ms Patricia McKenzie and Ms Kate Spargo resigned from the AEMO Board this year and I thank them both for their significant contributions and wish them both well for the future. We also welcome the appointments of Dr Anthony (Tony) Marxsen and Ms Jane Tongs to the Board, effective 1 July 2011. Dr Marxsen has extensive expertise in electricity grids and information technology, and Ms Tongs has previously chaired multiple audit and risk committees and has Dr Thomas Parry AM a strong knowledge of capital markets. Their skills and experience complement Chairman those of existing Board members and will improve Board’s capacity to continue delivering on AEMO’s Statement of Corporate Intent. On behalf of the AEMO Board, I express my gratitude to AEMO’s members and stakeholders for your input and contributions to the company as we continue to consolidate and strengthen. We look forward another exciting and successful year, to continued industry engagement and playing our part in securing Australia’s energy future. I would also like to thank Matt Zema for his continued commitment and vision, and all AEMO employees for their hard work and support. Our people are at the core of everything we do and are instrumental in delivering quality services which continue to meet the expectations of our stakeholders. 02 EnErgy MArkEts – pivOtAl tO Our EnErgy FuturE Chief eXeCutiVe offiCer’s report Matt Zema Managing Director and Chief Executive Officer ThE yEAr IN rEVIEw moves towards a less carbon-intense The 2010–11 budget provided a economy. We have applied stakeholder consolidated overview of our operating feedback and further developed our expenditure over the 12 months and in its second year of suite of planning documents to provide the fees associated with each of the operation, AEMO has a valuable tool to industry seeking to market functions and services. Fees make informed investment decisions. and charges have been ring fenced matured and is now firmly to provide greater transparency for our The STTM also matured over 2010–11. stakeholders. AEMO’s budgeted net focused on delivering The STTM was the first new gas revenue for 2010–11 is $161.9 million, wholesale market to be launched since value to our stakeholders. a $28.1 million (21 per cent) increase the Victorian Declared Wholesale Gas on the previous year. During the past 12 months AEMO Market (DWGM) was revised in 2007. has consolidated many of the Hubs are now operating in New South Much of the last 12 months has been functions delivered by its predecessor Wales and South Australia with a third spent making sure we have our own organisations and identified synergies hub coming online in Queensland late house in order to deliver optimum throughout our business. AEMO is in 2011. organisational performance. In 2011 AEMO successfully negotiated its first now better positioned to address the There has been considerable industry Enterprise Agreement, consolidating challenges presented by the dynamic input into the successful operation a number of previous employment political and economic environment we of STTM hubs and the development agreements. The costs associated are operating within and this is reflected of the Brisbane hub. in our Statement of Corporate Intent. with this combined agreement, which Stakeholder participation was also covers the majority of employees, “Asecure,reliable,andsustainable vital to the success of a new project have been accommodated within energysupplyisthecornerstone underway to provide streamlined and our approved budget and will not ofAustralia’scontinuedprosperity. cost effective processes for connecting be passed on to AEMO’s members. Theenergyindustrydoes,however, generators and loads to Victoria’s This new agreement supports AEMO’s operatewithinarapidlychanging shared electricity network. drive to recruit and retain the best environment,andthatposesmany people who will in turn help us The Connection Initiatives Project challengestotheindustryasawhole. deliver the maximum benefit to has been a key focus for the business our stakeholders. Foremostamongthesearethe in the past 12 months and industry sometimes-conflictingobjectives representatives working in partnership We have consolidated accommodation ofmaintainingcompetitiveenergy with AEMO have been extremely in several centres with new premises prices,pricingcarbonemissions,and supportive and involved despite in Melbourne and Adelaide, deliveringappropriateinvestment tight time frames. once again maximising the use of intheenergysector.Meetingthese common resources and ensuring This project