annual report 2005 - western power
TRANSCRIPT
Western Power Annual Report 2005
financial review
operations review
Year in revieW
Chairman’s and managing direCtor’s Year in revieW 2netWorKs Business unit 6generation Business unit 12retaiL Business unit 19regionaL Business unit 22revieW of finanCiaL PerformanCe 27eLeCtriCitY reform 29
our ComPanY
our ComPanY in 2005 31areas serviCed BY Western PoWer 32statement of CorPorate Priorities 33our organisationaL struCture 34
KeY resuLt areas
CorPorate resuLt areas 35CorPorate faCts and figures 38gLossarY 41eLeCtriCitY CorPoration aCt 1994 42
statistiCaL summarY 44direCtors’ rePort 45statement of finanCiaL PerformanCe 64statement of finanCiaL Position 65statement of Cash fLoWs 66notes to and forming Part of the finanCiaL statements for the Year ended 30 June 2005 67direCtors’ deCLaration 117indePendent audit rePort 118
�Western Power Annual Report �005
Chairman’s and Managing Director’s Year In Review
neil hamilton Chairman tony iannello Managing Director
The WA energy industry has undergone
revolutionary change over the past 1� months. At
the centre of that change, Western Power has been
challenged to deliver safe, reliable and efficient
energy services while positioning the organisation
for a competitive and dynamic market. We have
needed to respond quickly and positively to energy
reforms while working towards restoring confidence
among our customers and the Western Australian
community.
In response we have:
• moved to a new level of commercial behaviour with
our business units taking a more assertive role to
achieve the best outcome;
• continued to build trust by becoming more open
and transparent, sharing our position publicly within
legal and commercial sensitivities, delivering on
expectations and being more proactive with all our
stakeholders;
• driven many initiatives that will improve performance
and make each of our businesses a competitive force;
• improved services to customers and are continuing to
do so;
• strengthened understanding of accountabilities, we
will deliver what we promise; and
• made a commitment to build our capabilities, both
people and systems.
With these changes and challenges, Western Power has
continued to perform strongly, achieving solid profits for
the eleventh consecutive year and delivering significant
dividends to our shareholder, the State of Western
Australia. We have approached the challenges set by
the events of the previous year with enthusiasm and
commitment and have successfully shown that we are able
to improve our performance.
It is particularly pleasing to note that this financial
performance has been maintained whilst electricity tariffs
have remained unchanged. In fact our customers have
enjoyed reductions, in real terms, in electricity charges over
the period.
Throughout the year the people of Western Power have
worked extraordinarily hard to provide our customers with
the reliable and efficient service they expect from
Western Power. Summer demand peaks, storms and
bushfires provided further challenges in addition to
the great changes occurring in the industry and the
corporation. Our people have worked tirelessly to
minimise disruption and improve reliability in the system
for our customers.
�Western Power Annual Report �005
PREPARING For Disaggregation
In August 2004, significant structural changes were
implemented at Western Power in preparation for
the anticipated disaggregation of the corporation.
The split of Western Power into four businesses is
one of the key steps in the reform process – and the
beginning of a new business direction.
Whilst still operating as one integrated business,
Western Power is now made up of four ‘strengthened’ and
independent business units – Generation, Networks, Retail
and Regional. Each business unit has been structured and
allocated functions according to the recommendations of
the Electricity Reform Task Force.
A transformation of each business unit is occurring:
Networks to a customer-focused, best-in-class regulated
network service and infrastructure provider.
Regional to a customer-focused commercial entity
supporting and facilitating regional development with
efficient energy services.
Generation to an optimal supplier of reliable, low-cost energy.
Retail to a competitive retailer of multi-sourced energy,
differentiated on customer service.
For reform to benefit customers, Western Power must
compete for market share. Half of Western Power’s
revenue base is now contestable and new entrants are
vigorously entering the market and providing very real
competition. Western Power welcomes this competition
and its new business units are preparing to participate in
this new market. In particular, our Retail and Generation
business units are bringing a renewed commercial vigour
to the way they do business.
A number of projects and changes are underway including
organisational structural reviews, financial management
system planning and branding exercises for each new
business. This will ensure that each new business is best
positioned to capitalise on the opportunities in the new
competitive marketplace.
mervyn davies Director
alan mulgrew Director
harvey Collins DirectorJenny seabrook Deputy Chairperson
John o’Connor Director Charlotte stockwell Director sue Wilson Director
Chairman’s and Managing Director’s Year In Review continued...
�Western Power Annual Report �005
BOARD Changes
Significant change occurred during the year at both
Board and senior management level. In September
State Cabinet formally ratified two new Board
appointments. The Board welcomed Mr Mervyn
Davies, the former General Manager Networks
with EnergyAustralia who has more than �0 years
experience in the electricity industry, and welcomed
back Mr Harvey Collins, the former Chief Financial
Officer of Challenge Bank, Chairman of HBF, Director
of the Government Employees Superannuation
Board and former interim Chief Executive Officer at
Western Power.
With regret the company farewelled Ms Sue Wilson at the
end of June 2005. We would like to thank Ms Wilson,
who joined the Board in September 2003, for her support
for Western Power and contribution to the Board during a
period of considerable change and challenge and wish her
well in her future endeavours.
Mr Collins came to Western Power in February 2004.
During his short-term contract from February 2004
Western Power regained its focus on its core role of
providing safe and reliable electricity supplies to our
customers. Mr Collins finished his term as Chief Executive
Officer in late-July 2004 with the thanks of the Board and
people of Western Power.
Mr Tony Iannello took up the position of Managing
Director in mid-July 2004 after a notable career at
BankWest where he was most recently General Manager,
Finance and Corporate Services. As Managing Director,
Mr Iannello saw an opportunity to work with staff to
meet the many challenges that the corporation faced
and to rebuild Western Power’s reputation and drive the
corporation to success.
A new business model was established which enabled
the business units to be semi-autonomous and paved the
way forward for disaggregation. Vital to this new model
was the formation of the Business Leaders Council (BLC),
which replaced the Executive Committee and empowered
the businesses to operate in an efficient and competitive
manner. The BLC welcomed several new members
including Ms Libby Lyons as Executive Manager Corporate
Relations, Mr Greg Denton as Executive Manager Strategy,
Reform and Strategic Projects and Mr Greg Monkhouse as
Executive Manager of Human Resources and Organisation
Development. Each brings to Western Power a wealth of
experience and expertise in their respective fields.
Chairman’s and Managing Director’s Year In Review continued...
5Western Power Annual Report �005
We are committed to facing the challenges of the new
reformed electricity markets in Western Australia and have
progressed towards being able to do so in a commercially
responsible manner.
LOOKING Forward
The situation as we have known it to date – of
operating largely as the dominant generator and
retailer of electricity – is changing and will continue
to do so for many years. We believe that this is a
good thing for the State and for the community of
Western Australia. Western Power will continue to
support the Government’s decisions on changes to
the electricity sector in Western Australia but we will
also work towards being a competitive participant in
this new market place.
The expectations of Western Power are clear. We must
deliver safe, reliable and efficient electricity services to all
Western Australians, operate in a manner that maximises
the return to the State and nurture the development of a
competitive market. Western Power is finding the right
balance between these competing forces to meet the
needs of our stakeholders.
Tony Iannello
Managing Director
Neil Hamilton
Chairman
“Western Power is finding the
right balance between these
competing forces to meet the
needs of our stakeholders.”
Chairman’s and Managing Director’s Year In Review continued...
�Western Power Annual Report �005
�00�/05 Highlights
• ‘Summer Ready’ program delivers performance
improvements
• Launched ‘Switch on Mate’ safety program
• Planning criteria for Network upgrades reviewed and
updated
• Customer service to land developers upgraded
• Recruitment and training of linesmen, technicians,
draftsmen and engineers boosted
• Top Up and Spill market introduction supported
• Rural Power Improvement Program commenced
• Obtained Government commitment to funding
$2.3 billion of OPEX and CAPEX over the next four years
Outlook for �005/0�
• Improved reliability
• Access Agreement completed with Economic
Regulation Authority (ERA)
• Strategic outsourcing of large capital works
• Customer service improvements continue
• New organisation and KPI framework established
• OPEX and CAPEX capital and operating productivity
improvements
• Bushfire Mitigation Initiative continues
ACHIEVEMENTS
We were summer ready!
In the lead up to summer �00�/05, the Networks
business worked hard to ensure that Western Power
was in a position to meet Western Australia’s peak
summer electricity demand. Since February �00�
Western Power has instituted a ‘Summer Ready’
network program that has reduced the number of
overload-related network faults by 90 per cent and
instituted a pole-top fire mitigation strategy that will
see a marked reduction in pole-top fires.
This was tested in February 2005 when Perth electricity
demand hit a record 3059 MW. The previous year we
experienced around 55 transformer overloads causing
disruptions to power supplies. This year that number was
reduced to five - a figure we will continue to improve upon.
With a $10 million upgrade to the network information
systems, we are able to deal with network faults faster
than ever before. The improved system also helps to
identify faults more quickly and allows us to be more
prepared for problems that are likely to occur.
Networks have invested in emergency response vehicles
to allow us to reach hazardous situations more quickly
and safely. Line crews have been increased, with further
increases planned each year for the next four years. More
than half the extra staff will be located in the country.
NETWORKS Business Unit
�Western Power Annual Report �005
Long-term planning is currently underway to enable
Networks to meet changing customer expectations,
increase safety standards and manage a continually
growing network in a new regulatory framework. To
meet these demands and with the need to replace ageing
infrastructure, Networks will invest $1.6 billion in capital
works associated with transmission and distribution
networks over the next four years.
An additional $630 million has been allocated to ongoing
maintenance costs for the next four years, from which we
expect a 25 per cent improvement in the reliability of the
South West Interconnected System.
Pole-top fires are often the cause of network faults,
which is not unusual especially given the climatic and
environmental conditions that Perth experiences. This
was the second year of an extensive four-year program
to reduce the risk of pole-top fires. The program will
see insulators on 40,000 power poles in high-risk areas
of Perth and the Geraldton/Dongara region coated with
silicone. Additional steps taken to reduce the number of
faults include the replacement of wooden power poles
with cement power poles and a continuation of the
Underground Power Program.
One Step Ahead
Networks is embarking on a transformational change
program to greatly enhance the customer experience
around safety, service, reliability and value for money.
Launched in April 2005, the One Step Ahead program is
a major organisational initiative that will review how the
Networks business is currently operating and develop a
framework to transform Networks into a highly efficient,
externally regulated, performance driven and customer-
focused business.
The program is about challenging what we do and how we
do it. It is about moving from average to best practice.
The program is expected to have made significant
changes to the business by the end of 2005 with full
implementation in 2006.
“The program is about challenging
what we do and how we do it. It is
about moving from average to best
practice .”
NETWORKS Business Unit continued...
�Western Power Annual Report �005
Tenterden bushfire
The Tenterden bushfire in 2003 was a tragedy and
one the corporation deeply regrets. We are doing
everything we can to ensure that such a tragedy is
not repeated.
As well as making significant changes in the way
Western Power manages the risk of bushfires throughout
the State, we have made major inroads into a number of
findings raised during the Coronial Inquiry into the tragic
deaths of Ms Judith Ward and Ms Lorraine Melia in the
bushfire.
Western Power has developed a Bushfire Mitigation
Strategy, reinforced measures which ensure that the
corporation investigates and reports any notifiable
incidents to the Directorate of Energy Safety and will
continue to work with all investigative bodies, including
the Coroner’s Office, to ensure the safe operation of the
electricity network and associated infrastructure.
Following the prosecution of Western Power by the
Directorate of Energy Safety in March 2005 over the
tragic deaths of two children in Wyndham in 2003,
Western Power made several changes to its work practices
and commenced an extensive replacement program
of overhead service connections. In addition, all new
connections in the metropolitan area and an increasing
number of regional areas are being placed underground.
BENCHMARKS
Reliability Performance
The provision of a safe, reliable and efficient energy
service with first-rate customer service is at the very
heart of everything we do.
Our reliability performance is similar to Australian averages,
unfortunately in 2004/05 we did not meet all of our
self-determined targets. However with an overhead
distribution network, weather conditions will continue to
affect electricity services from time to time and in these
situations we will continue to aim to restore power as
quickly as possible.
To achieve this we have embarked on a transformation
program in Networks to greatly enhance the customer
experience around safety, service, reliability and value
for money. In line with this our capital works program
is targeted at continuing to ensure reliability of supply to
customers across the state as well as reducing costs.
“ . .we wil l continue to aim to
restore power as quickly as
possible.”
NETWORKS Business Unit continued...
9Western Power Annual Report �005
* A new, more rigorous system was used to calculate the SWIS Reliability and Quality figures for 2004/05. For comparison purposes, the system was applied to the 2003/04 figures for this Annual Report. The Reliability and Quality figures exclude Major Event Days – as per SCNRRR Guidelines and IEEE Std 1366 (Guide for Electric Power Distribution Reliability Indices).
** CBD Area is the area supplied by the Hay Street and Milligan Street zone substations.
*** Urban Area are those components of the SWIS network that supply the following areas:
• the Perth Metropolitan area but excluding the CBD Area
• the local government district of Mandurah
• the local government district of Murray
• the town sites of Albany, Bunbury, Geraldton and Kalgoorlie.
**** Rural and Country Area is the SWIS network other than the CBD and Urban areas.
Performance Indicators2004/05 2003/04
Actual Target Target
reliability and Quality *
CBd area **
SAIDI – Outage duration (minutes)(Total duration of interruptions / customers per year)
10 22.7 23
CAIDI – average duration of incident(Total minutes / average number of customers)
68 68 66
SAIFI – average number of incidents(Total customers interrupted / average number of customers)
0.14 0.33 0.34
urban area ***
SAIDI – Outage duration (minutes)(Total duration of interruptions / customers per year)
244 256 260
CAIDI – average duration of incident(Total minutes / average number of customers)
82 72 72
SAIFI – average number of incidents(Total customers interrupted / average number of customers)
2.97 3.56 3.61
rural & Country area ****
SAIDI – Outage duration (minutes)(Total duration of interruptions / customers per year)
520 539 547
CAIDI – average duration of incident(Total minutes / average number of customers)
132 123 124
SAIFI – average number of incidents(Total customers interrupted / average number of customers)
3.93 4.36 4.43
sWis total
SAIDI – Outage duration (minutes)(Total duration of interruptions / customers per year)
281 294 298
CAIDI – average duration of incident(Total minutes / average number of customers)
91 81 81
SAIFI – average number of incidents(Total customers interrupted / average number of customers)
3.09 3.64 3.70
NETWORKS Business Unit continued...
10Western Power Annual Report �005
Customer Service Charter
The Customer Service Charter was introduced in 199� to demonstrate Western Power’s public commitment to the
service standards we offer customers. Networks developed its customer service measures based on advice from
customers about the service standards of greatest importance to them.
Customer Service Charter 2004/05 2003/04 2002/03
Actual Target Actual Actual
Restoration of unplanned outages within four hours - metro and major regional (%). 93.0 85.0 96.0 96.5
Restoration of unplanned outages within four hours - rural and remote (%). 90.8 85.0 93.0 91.5
Providing at least two working days’ notice of scheduled power interruptions, including metro, regional, rural and remote (%).
100.0 100.0 100.0 100.0
Completing new connections within three working days for metro and major regional, and within five days for rural and remote (%).
93.9 95.0 93.0 91.3
Replacing faulty street lights within five working days - metro and major regional (%). 95.2 100.0 98.0 97.6
Replacing faulty street lights within nine working days - rural and remote areas (%). 94.1 100.0 96.0 93.0
NETWORKS Business Unit continued...
11Western Power Annual Report �005
FACTS AND FIGURES
Assets Overhead Underground
south West interconnected system transmission Lines
330 kV (km) 775
220 kV (km) 655
132 kV (km) 4,005 16
66 kV (km) 1,130 42
south West interconnected system distribution network
High voltage mains (km) 58,956 3,635
Low voltage mains (km) 9,727 8,830
Total transformer capacity (MVA) 5,389
Street lights 192,643
south West interconnected system - distribution & transmission
Sent out - GWh 14,058.3 13,140.5
Line loss - GWh 1,084.4 785.4
Sold to customers - GWh 12,973.9 12,355.1
Environmental Licenses
A summary of licences held by Networks facilities is provided below.
Total
Western Australia Department of Environmental Protection Licence 1
Department of Industry and Resources Licence to Store Dangerous Goods 3
Water and Rivers Commission Underground Water Pollution Control Area Permit 2
NETWORKS Business Unit continued...
1�Western Power Annual Report �005
�00�/05 Highlights
• New gas transport contract with Dampier to Bunbury
Natural Gas Pipeline
• Installed new wind/diesel system at Bremer Bay and
Rottnest Island
• Reinstated oil firing at Kwinana power station to
improve reliability of supply
• Installed low pressure turbine blades on Muja C
yielding an extra 200 MW capacity
• Installed inlet air cooling at Pinjar gas turbines
• Established CollTech Australia collagen extraction
facility at Collie power station
• Upgraded the Shotts bore water system servicing
Muja and Collie power stations
• Generation plant performed reliably to meet high
demand for energy
Outlook for �005/0�
• Uprate of Muja D 50 MW and life extension
• Implement new control and instrumentation system
of Muja C and D
• Benefits of the new coal supply arrangements
become apparent
• Installation of new wind/diesel system at Coral Bay
• Facilitation of Water Corporation’s sea water
desalination plant at Kwinana power station
• Biomass project to be commissioned at Muja power
station, in liaison with Pinetec
ACHIEVEMENTS
The Generation business significantly improved
capacity through the enhancement of generation
equipment and fuel availability and flexibility. Steps
taken to boost capacity included the installation
of the Pinjar cooling sprays and the Parkeston
interconnector. The measures undertaken to either
free up or create extra generation capacity resulted
in Western Power being able to deliver up to an
additional �00 MW of peaking capacity.
We put in place extra fuel arrangements, including
restoring oil firing at Kwinana power station and the
capability to purchase gas from Wesfarmers if required.
The availability of increased quantities of fuels and, even
more importantly, the greater flexibility in the mix of
fuels meant that Generation was in a better position to
maximise supply when required.
Our ability to meet record demand for electricity was tested
in February 2005 when Perth’s temperature soared to 42oC
and demand reached 3,059 MW - 55 MW higher than the
previous summer’s peak demand. We were pleased that
the strategies put in place after the power restrictions in
February 2004 enabled us to meet this demand.
Continued planning for future summers includes ‘uprating’
Muja Stage D by 10 per cent during the 2006 winter.
For the summer of 2005/06, the 240 MW Kemerton
GENERATION Business Unit
1�Western Power Annual Report �005
power station, which is a peaking dual-fuel plant, will be
ready in the third-quarter of 2005 plus the maintenance
programs during the off-summer period will ensure that all
generating plant is available for the peak summer demand.
Securing access to gas supplies
Generation achieved a significant result from negotiations
with the bidding consortium that went on to become
the new owner of the Dampier to Bunbury Natural Gas
Pipeline.
At stake were the long-term gas shipping capacity for
Western Power, the price of that capacity and the impact
the new ownership of the pipeline will have on
Western Power’s long term competitive position – a
significant point given Western Power is now facing major
competition from one of the new owners.
At the core of Western Power’s approach to negotiations
was the understanding that the outcome will present
significant issues for the Western Australian energy
industry and have an enormous bearing on the price
consumers will pay for electricity in the future.
Western Power achieved a positive commercial outcome in
terms of the cost of gas transport and a major commitment
from the owners of the pipeline on a planned expansion of
the pipeline’s capacity and Western Power’s access to the
expanded capacity.
Coal Supply Contracts
Western Power coal supply contracts expire in 2010.
Generation undertook a process to reduce the price of coal
by replacing existing long-term coal contracts with more
sustainable agreements. The coal Request for Proposal
(RFP) process invited coal companies to submit proposals to
supply coal post-2010. The proposals were assessed with
a view to negotiating the best commercial outcome for
Western Power and its customers in the new competitive
environment. It was announced on 16 August 2005 that
Wesfarmers Premier Coal was the successful bidder to
supply low-ash coal for the Muja C and D and Collie power
stations until 2030.
Peaking Plant
The peaking power station, being constructed by Transfield
Services Kemerton Pty Ltd at Kemerton north of Bunbury,
is on schedule for commissioning in October 2005, in time
for the 2005/06 summer.
Generation will use the dual-fuelled Kemerton power
station at times of peak power demand such as the height
of summer. This power station can burn gas or distillate
GENERATION Business Unit continued...
1�Western Power Annual Report �005
and is similar to peaking plant Western Power owns and
operates at Pinjar.
Until the new power station is connected to the Dampier
to Bunbury Natural Gas Pipeline by a lateral pipeline in the
second quarter of 2006, it will be fired on distillate. As a
peaking plant, the Kemerton power station is expected to
be used infrequently during summer.
New Renewable Energy Projects
Replacing ageing diesel power plant in regional areas with
more reliable, quality power stations was a significant
focus for Generation. Projects underway include the
completion and commissioning of a highly advanced wind-
diesel system at Hopetoun and the construction of a similar
system at Bremer Bay. The system combines a single wind
turbine with new diesel generator and control system
technology and would supply approximately 40 per cent
of each town’s energy needs over the year. The Hopetoun
system is expected to result in a saving of approximately
400,000 litres of distillate and replaces 1,100 tonnes of
greenhouse gas emissions (the equivalent of taking 300
cars off the road each year).
BENCHMARKS
Working for a better environment
Western Power’s customers expect a quality, reliable,
electricity supply that is delivered in a manner that
respects the environment. Their concern for the
environment mirrors our own. Western Power
recognises that our innovative programs and on-
going management procedures must protect the
rights of future generations to a sustainable and
diverse natural environment.
Our environmental performance is tracked annually
utilising a number of performance indicators. Our main
environmental performance indicators are our greenhouse
response and renewable energy use. Measuring
performance against targets is an integral element of
Western Power’s continuous improvement process,
assisting the efficient allocation of resources and helping to
identify areas of weakness.
GENERATION Business Unit continued...
15Western Power Annual Report �005
Performance Indicators2004/05 2004/05 2003/04 2002/03
Actual Target Actual Actual
greenhouse response
Carbon Intensity (kgCO2e/kWh electricity sold) 0.90 0.91 0.91 0.95
renewable energy
REC obligation compliance (% of obligations acquired) (based on calendar years) 152 133 - -
Greenhouse Response
Western Power’s total electricity sales increased by 5.3
per cent to a total of 13,677 GWh in 2004/05. Direct
greenhouse gas emissions associated with the electricity
supplied by Western Power amounted to 12.36 million
tonnes of carbon dioxide equivalent (CO2e). 11.74 million
tonnes of this was emitted directly from Western Power
operations and another 0.62 million tonnes from other
entities from whom we purchased electricity to on-sell to
Western Power customers.
Renewable energy generation has led to the offset of an
estimated 0.072 million tonnes of CO2e during 2004/05. A
further emissions offset of 0.13 million tonnes of CO2e is
estimated to have been absorbed by Western Power’s tree
plantation activities in 2004/05.
The net greenhouse gas emissions associated with the
corporation’s electricity sales in 2004/05 was 12.34 million
tonnes of CO2e.
Renewable Energy Certificates
Western Power continues to develop renewable energy
generation using wind and bio-energy technologies,
while maintaining an interest in solar technologies. We
are also joining new partners to meet our renewable
energy obligations and to encourage the development of
renewable energy resources in Western Australia.
Our Renewable Energy Certificate (REC) obligation was
met and surpassed. The performance indicator measuring
this is based on the number of RECs acquitted to satisfy
Mandatory Renewable Energy Target REC liability and our
Natural Power REC liability and only includes RECs created
up to 2004.
In 2004/05 Western Power generated enough renewable
energy from our own renewable energy generators
including the Albany, Denham, Esperance (Ten Mile
Lagoon and Nine Mile Beach), Hopetoun and Exmouth
wind farms to create over 72,000 RECs. We also sourced
106,000 RECs from other renewable energy generators.
GENERATION Business Unit continued...
1�Western Power Annual Report �005
FACTS AND FIGURES
Generating Plant Fuel Capacity (kW)Acquired or
CommissionedEnergy Generated
2004/05 (GWh)
south West interconnected system
Collie Coal 330,000 1999 2,457.0
Cockburn Gas 240,000 2003 1,415.7
Muja A & B Coal & Heavy Fuel Oil 240,000 1965 1,080.7
Muja C Coal & Heavy Fuel Oil 400,000 1981 2,489.6
Muja D Coal & Heavy Fuel Oil 400,000 1985 - 86 2,674.8
Kwinana A & C Coal, Gas & Fuel Oil 640,000 1970 - 78 1,858.2
Kwinana B Gas & Fuel Oil 240,000 1970 - 73 220.9
Kwinana Gas Turbine Gas & Distillate 21,000 1972 0.7
Geraldton Gas Turbine Gas & Distillate 21,000 1973 0.7
Kalgoorlie Gas Turbines Distillate 62,000 1984 - 90 6.4
Mungarra Gas Turbines Gas 112,000 1990 - 91 269.0
Pinjar Gas Turbines Gas & Distillate 586,000 1990 - 96 474.7
Wellington Dam Hydro 2,000 1992 -
Worsley (50% Joint Venture Share) Gas 60,000 2000 521.3
Tiwest Gas 36,000 1999 147.2
Albany Wind Farm Wind 22,000 2002 62.1
Bremer Bay Wind 600 2005 -
3,412,600 13,679.2
GENERATION Business Unit continued...
1�Western Power Annual Report �005
Production and Distr ibution 2004/05 2003/04
electricity generation
Generation (thermal, diesel, wind) - GWh 13,875.10 13,310.0
Used in works - GWh 839.1 943.5
Purchased - GWh 1782.5 1,425.4
Sent out - GWh 14,818.2 13,791.9
Cold weather maximum demand - MW generated 2,586 2,406
Hot weather maximum demand - MW generated 3,059 3,004
Peak load interconnected system - MW generated 3,059 3,004
Interconnected generation capacity - Winter capability MW 3,518 3,412
Thermal efficiency for kWh generated - % 32.2 32.0
fuel Consumption used for generation
Coal - ‘000 tonnes 4,914 4,747
Distillate and other fuel oils - tonnes 86,008 62,982
Gas - TJ 43,684 41,870
Environmental Licence
A summary of licences held by Generation facilities is provided below.
Total
Western Australia Department of Environmental Protection Licence 13
Department of Industry and Resources Licence to Store Dangerous Goods 9
Water and Rivers Commission Groundwater Well Licence 5
GENERATION Business Unit continued...
1�Western Power Annual Report �005
Atmospheric Emissions
Western Power’s emission details are provided annually to the National Pollutant Inventory (NPI). This information can be
accessed via http://www.npi.gov.au. The following tables provide information on the main atmospheric emissions from our
major power stations
SULFUR DIOXIDE EMISSIONS (Kgs emitted per MWh of electricity sent out)
2004/05 2003/04 2002/03 2001/02
Collie 5.3 5.2 5.3 5.3
Muja 6.0 6.1 6.0 6.0
Kwinana 2.8 2.7 2.1 1.4
Pinjar Gas Turbines 0.0 0.0 0.0 0.0
Mungarra Gas Turbines 0.0 0.0 0.0 0.0
Cockburn 0.0 0.0 - -
NITROGEN OXIDES EMISSIONS (Kgs emitted per MWh of electricity sent out)
2004/05 2003/04 2002/03 2001/02
Collie 3.1 3.2 3.3 3.2
Muja 3.8 3.9 3.9 3.8
Kwinana 3.5 3.4 3.2 3.1
Pinjar Gas Turbines* 4.0 1.9 2.1 2.1
Mungarra Gas Turbines 1.9 1.9 2.2 2.2
Cockburn 0.1 0.3 - -
* Increase in NOx emissions for Pinjar due to increase use of distillate.
PARTICULATE (COAL ONLY) EMISSIONS (Kgs emitted per MWh of electricity sent out)
2004/05 2003/04 2002/03 2001/02
Collie 0.2 0.2 0.2 0.2
Muja 7.7 7.8 9.0 6.9
Kwinana 0.1 0.1 0.1 0.0
Pinjar Gas Turbines - - - -
Mungarra Gas Turbines - - - -
GENERATION Business Unit continued...
19Western Power Annual Report �005
�00�/05 Highlights
• Finalisation of the Renewable Energy Certificate
(1 and 2) programs
• Successful roll-out of the Peak Demand Saver
Program during summer
• New organisational structure for Retail business
with improved focus on the customer
• HOA signed with Simcoa - States largest
customer
• Successful penetration of the WA gas market
Outlook for �005/0�
• Launch of new Retail corporation
• Enhance customer services
• Develop strategic alliances to provide better and
broader services
• Participate in the new electricity wholesale
market
• Develop business case for new customer
management system
• Develop wholesale market capabilities
ACHIEVEMENTS
Peak Demand Saver Program
A Retail business initiative significantly contributed
to Western Power’s ability to meet the peak summer
electricity demand. Further emphasis was placed on
the Peak Demand Saver program, which encourages
large business customers to reduce electricity
consumption during periods of high demand in
the South West Interconnected System in return
for payments for participating in the program and
reducing load when required.
Western Power had 61 customers on the Peak Demand
Saver program, providing 81 MW of additional reserve
capacity - double the 40 MW target. The program
significantly contributed to peak demand management
over the 2004/05 summer and reduced the risk of power
interruptions to customers. We are continuing this
initiative.
Communication
Another key change in getting ready for summer was the
way Western Power communicated with its customers.
From the beginning of November 2004 through to early
March 2005, Western Power published weekly supply and
demand graphs in the press and on our website. These
graphs were aimed at keeping our customers and the
RETAIL Business Unit
�0Western Power Annual Report �005
wider community up-to-date with the expected electricity
demand and available supply for the coming week as well
as a six-month outlook.
This information helped provide customers with the means
to manage their power needs and to encourage demand
management in periods of high demand or limited supply.
All business units contributed to the complex process
required to produce these graphs.
Power procurement
Western Power’s SWIS Power Procurement Process Stage
Two being for 300-330 MW of baseload capacity short-
listed three of the companies which submitted proposals.
The bids included both gas-fired and coal-fired proposals.
These were evaluated against a range of criteria with the
intention of selecting the bid that minimises the total
delivered cost of electricity, while maintaining the safety
and reliability of electricity.
Wambo Power Ventures Pty Ltd was declared the
successful bidder on 16 August 2005 and will construct
a 320 MW gas-fire combined-cycle power station in
Kwinana, expected to be in operation by December 2008.
Dual fuel success
Western Power has continued to establish itself as a
strong competitor in the Western Australian gas market
since entering the market in 2003. Western Power is
able to offer gas services to customers with a need
greater than one terajoule per annum. We have secured
large commercial customers against tough competition,
exceeding customer numbers and sales targets and look
forward to being able to provide dual fuel options to the
broader energy market in the future.
RETAIL Business Unit continued...
�1Western Power Annual Report �005
“We have secured large
commercial customers against
tough competition, exceeding
customer numbers...”
BENCHMARKS
Customer Service Charter
These customer service measures are based on the service standards most important to customers.
Customer Service Charter2004/05 2003/04 2002/03
Actual Target Actual Actual
Answering phone calls to our Customer Service Centre within 30 seconds (%). 82.8 100.0 89.0 92.2
Acknowledging the receipt of, or replying to, letters within five working days (%). 100.0 100.0 100.0 100.0
Acknowledging the receipt of, or replying to, e-mails within two working days (hrs). 52.5 48.0 31.0 30.2
FACTS AND FIGURES
2004/05 2003/04
Customer Accounts at 30 June 888,103 867,067
RETAIL Business Unit continued...
��Western Power Annual Report �005
�00�/05 Highlights
• Launched new Regional business model
• Funding agreed for the Aboriginal and Remote
Communities Power Supply Project
• Commenced Town Reserves Regularisation Project
• Extension of the State Underground Power Project
to Port Hedland
• Commenced undergrounding of Roebourne
• 12 months free of Lost Time Injuries
Outlook for �005/0�
• Creation of the new Regional business and
achieving integrated power supply license
• Commencement of work to normalise Coral Bay
and upgrade power infrastructure in the town
• Identification of preferred bidder for the
Carnarvon Power Purchase Agreement (PPA)
• PPA and commercial operation of Exmouth power
station
• Start of construction on power stations in five
West Kimberley towns as part of the West
Kimberley Power Procurement Project
• Completion of $500,000 Kununurra Network
Reinforcement and Upgrade Projects
ACHIEVEMENTS
Supporting regional development
As we work towards improving our operations
across Western Australia and in preparation for
the disaggregation of Western Power in �00�, our
regional operations were restructured. A new
Regional business unit confirmed its structure
in March �005 with a vision to provide excellent
customer service and help facilitate development and
economic growth within regional Western Australia.
To achieve this, the Regional business has taken steps to
increase its presence in regional areas and will continue to
maintain a strong customer and operational presence in
the Pilbara in recognition of that region’s importance to the
State’s economy.
The new Regional business brings together the previous
Regional, Pilbara and Business Development branches.
It will pursue cost effective management strategies,
leverage its existing commercial arrangements and develop
programs to ensure it retains and expands its workforce to
deliver the right outcomes.
Improving infrastructure
Almost $250 million in improvements to electricity
infrastructure in regional areas will be made through
partnerships and commercial arrangements, with a key
goal being to replace ageing diesel power plant with more
reliable, quality power stations.
REGIONAL Business Unit
��Western Power Annual Report �005
Projects already underway include:
• Five new power stations in Marble Bar, Nullagine,
Menzies, Laverton and Gascoyne Junction.
StateWest Power Pty Ltd, in a $20 million agreement
with Western Power will build, own and operate the
new power stations which will use modern diesel
generating technology which is cleaner, quieter and
more fuel efficient. The power stations are due for
completion by the end of 2005. Western Power
will upgrade the networks in each of these towns to
connect to the new power stations.
• Five new power stations in Broome, Derby, Fitzroy
Crossing, Halls Creek and Camballin/Looma, to be
constructed and operated by Energy Developments
Limited. These power stations will also be
significantly more efficient, cleaner and quieter than
the current diesel facilities. The power stations are
due for completion in late 2006/ early 2007.
• Work has been carried out in Derby, Camballin/
Looma and Fitzroy Crossing to upgrade the network
in preparation for the new power stations and to
improve the reliability of the power system.
• A new power station, to be built and operated by
Burns and Roe Worley, in Exmouth is expected to
start operation in mid-2006.
• Expressions of interest were called for in December
2004 to build, own and operate a new power
station in Carnarvon. The network in the town will
also be upgraded before connection to the new power
station, which is scheduled to be operational in early
2007. With the expectation that the power station
will be gas-fired, it will be more efficient, reliable and
environmentally-friendly than the current power station.
• The completion and commissioning of a high
advanced wind/diesel system at Hopetoun and the
start of construction of a similar system at Bremer Bay.
REGIONAL Business Unit continued...
��Western Power Annual Report �005
BENCHMARKS
Reliability Performance
Performance Indicators2004/05 2003/04
Actual Target Actual
regional
SAIDI - Outage duration (minutes) (Total duration of interruptions / customers per year) 289 264 304.2
CAIDI - average duration of incident (Total minutes / average number of customers) 33.8 48 44
SAIFI - average number of incidents (Total customers interrupted / average number of customers) 8.5 5.5 6.9
Pilbara
SAIDI - Outage duration (minutes) (Total duration of interruptions / customers per year) 95 172 43
CAIDI - average duration of incident (Total minutes / average number of customers) 61 101 93
SAIFI - average number of incidents (Total customers interrupted / average number of customers) 1.6 1.7 0.4
FACTS AND FIGURES
Non-Interconnected System* Fuel Capacity (kW)Acquired or
CommissionedEnergy Generated
2004/05 (GWh)
Broome Distillate 18,060 1976 59.1
Camballin Distillate 888 1976 2.2
Carnarvon Gas or Distillate 15,265 1981 43.0
Denham Wind 690 1998 1.6
Denham Distillate 1,994 1973 3.1
Derby Distillate 10,180 1973 32.1
Esperance Wind 5,625 1993,2003 1.8
Exmouth Wind 60 2002 0.0
REGIONAL Business Unit continued...
�5Western Power Annual Report �005
Non-Interconnected System* Fuel Capacity (kW)Acquired or
CommissionedEnergy Generated
2004/05 (GWh)
Exmouth Distillate 6,984 1977 19.0
Fitzroy Crossing Distillate 2,856 1976 11.5
Gascoyne Junction Distillate 280 1973 0.6
Halls Creek Distillate 3,204 1970 9.7
Hopetoun Wind 600 2005 0.6
Hopetoun Distillate 1,176 1976 2.8
Kununurra Distillate 12,400 1970 0.1
Lake Argyle Distillate 180 1985 0.0
Laverton Distillate 1,724 1994 3.4
Marble Bar Distillate 1,168 1973 2.2
Menzies Distillate 350 1977 0.5
Nullagine Distillate 643 1973 1.2
Wittenoom Distillate 228 1975 0.1
Wyndham** Distillate 1,920 2000 0.0
Total 86,475 195.1
* Western Power purchases electricity from independent power producers in Esperance, Cue, Meekatharra, Mt Magnet, Leonora, Onslow, Sandstone, Wiluna and Yalgoo and the NWIS.
** Wyndham stand-by generating capacity provided with hire plant.
Non Interconnected System and Pilbara - Distribution & Transmission 2004/05 2003/04
Sent out - GWh 760.0 651.4
Line loss - GWh 33.9 19.1
Sold to customers - GWh 726.1 632.3
Regional power stations
(Kgs emitted per MWh of electricity sent out) 2004/05 2003/04 2002/03 2001/02
Nitrogen Oxides Emissions 18.1 15.8 15.7 15.9
Sulphur Dioxide Emissions 1.2 1.2 1.2 1.3
REGIONAL Business Unit continued...
��Western Power Annual Report �005
Pilbara interconnected system transmission Lines Overhead Underground
220 kV (km) 200 -
132 kV (km) 71 -
66 kV (km) 149 -
33 kV (km) 26 -
Pilbara distribution system
High voltage mains (km) 352 49
Low voltage mains (km) 169 104
Total transformer capacity (MVA) 158 -
Street lights 3,774 -
regional distribution system
High voltage mains (km) 4,376 94
Low voltage mains (km) 536 162
Total transformer capacity (MVA) 256 -
Street lights 7,498 -
Environmental Licences
A summary of licences held by Regional facilities is provided below.
Total
Western Australia Department of Environmental Protection Licence 3
Department of Industry and Resources Licence to Store Dangerous Goods 16
REGIONAL Business Unit continued...
��Western Power Annual Report �005
Western Power’s net profit after tax for the year
to �0 June �005 was $�0�.1 million, which is $�5.�
million lower than last year. Net profit is expected
to continue to fall in �005/0�, as we experience the
impact of increased competition, higher fuel prices
and greater expenditure on the network.
Total revenue was $1,874.6 million, representing growth
of 5.7 per cent above last year. Increased revenue from
the sales of electricity was a major driver of this result.
Unit sales were 5.5 per cent above the previous year. This
is mainly because of strong growth in all sectors and the
favorable impact of weather conditions. The year again set
new highs for both summer and winter peak demand for
energy.
Other revenue was also significantly higher than the
previous year, mainly in the areas of developer and
customer contributions, State Government tariff
migration reimbursements, and external chargeable
works. During the year enhanced information systems
enabled the corporation to more accurately estimate the
actual percentage of completion for the developer and
customer funded activity in the electricity distribution
network and resulted in $30.1 million of revenue being
deferred to future accounting periods to be matched with
construction progress. This has had an impact on financial
performance, and is contrast to previous years where
all developer and customer funded capital activity was
estimated to be completed within a financial year.
Total expenditure excluding interest and income tax was
$1,430.9 million. Increased energy demand resulted in
higher costs for fuel and electricity purchases. Higher fuel
prices compared to last year are a major contributing factor
and in the last quarter there was a significant increase
in consumption of more expensive liquid fuel due to a
shortage of gas capacity and unavailability of coal plant.
Labour and materials were higher than last year.
Significant materials expenditure was incurred to ensure
the company was in the best position for the 2004/05
summer period. Increased external works and large
overhaul programs also contributed to the increase.
Review of Financial Performance
��Western Power Annual Report �005
Total debt has increased by $124.7 million from the prior
year as a result of increased capital expenditure. Capital
expenditure was $430.0 million for the year, an increase of
$119.7 million from the previous year. Major components
of this year’s program included summer ready initiatives,
increased system reinforcement to upgrade transformers
to prevent customer outages, and customer funded works.
Gross payments to the State Government for the 2004/05
year totalled $215.7 million.
FINANCIALS AT A GLANCE
30/06/05
Sales Revenue 1,615,888
other revenue
Developer and Customer Contributions
109,839
State Government Tariff Migration Reimbursements
8,620
External Chargeable Works 38,525
Total Revenue 1,874,626
fuel Purchases
Coal 269,719
Gas 158,624
Fuel Oils 75,406
Capital Expenditure 430,000
Total Debt 2,450,569
Payments to Government 215,652
*Unit - $’000
“Major components of this year’s
program included summer ready
initiatives . . .”
Review of Financial Performance continued...
�9Western Power Annual Report �005
Market reforms are aimed at establishing a new market
framework and structure, to support new entrants
into the industry and to create more competition to
lead to better services and lower prices.
These include:
• An independently regulated and operated wholesale
market where retailers and generators can buy and
sell electricity due to start on 1 July 2006;
• A new Independent Market Operator will be
appointed to run this market and ensure we have
sufficient capacity – Western Power generation will
retain this role for the next two summers
(till 2006/07);
• A code of conduct to protect small retail customers
has been introduced;
• An electricity ombudsman to be set up in August
2005.
One of the key changes in the new market is that the
economic regulator will be responsible for regulating the
services and standards delivered by the networks business.
This is a big change and one we strongly support.
Western Power’s capital and operational expenditure
programs will be subject to external scrutiny and challenge,
Electricity Reform
and standards will be set for which the Networks business
will be accountable.
Contestability thresholds have been lowered. Some
12,000 electricity customers with a power bill of around
$8,000 or more per year are now able to choose their
supplier of electricity.
The disaggregation of Western Power is vital to the reform
process. The separation of Generation, Networks and
Retail is a key part of the Government’s reform agenda.
Western Power currently has almost 60 per cent of
generating capacity in the State or about 80 per cent
of total capacity on the SWIS. However in April 2005,
Western Power was directed to reduce, with planned
retirements, and hold its generating capacity to 3,000 MW
as a means of encouraging new private sector entrants into
the generation market (a copy of the Ministerial Direction
can be found on page 23).
The State Government renewed its commitment to
disaggregate Western Power as part of its overall electricity
reform program by introducing the Electricity Corporations
Bill 2005 into State Parliament, which passed through the
lower house in June 2005.
The bill is the last piece of legislation in the State
Government’s reform package. The Opposition’s decision
�0Western Power Annual Report �005
to support the bill has created a level of confidence that
the legislation will be enacted to create four separate,
stand-alone businesses by 2006, these being: Networks,
Generation, Retail and Regional Power.
In anticipation of the passing of the legislation, a
comprehensive reform business program has been
initiated by Western Power to ensure that each of the new
businesses is ready to operate as independent entities by a
target date of 31 March 2006.
This program has included a review of current business
and operational processes as part of developing new
frameworks and organisational structures for each new
business.
Much has happened in the past twelve months in relation
to the future structure of Western Power and this has
provided a much needed clarity and focus for all staff. The
corporation is committed to fulfilling the Government’s
aim to create a competitive electricity market by ensuring
that the four new businesses are equipped to be more
performance-driven and customer-focused for the
electricity market of the future.
“The corporation is committed to
fulfilling the government’s aim to create a competitive electricity market...”
Electricity Reform continued...
�1Western Power Annual Report �005
Western Power is Western Australia’s leading energy
company and has traded as a corporatised entity
since 1995, following our establishment under
the Electricity Corporation Act 1994. The Board of
Directors is the governing body, reporting to the
Minister for Energy, while the Managing Director
is responsible for the Corporation’s day-to-day
operations.
With operations across the State, Western Power owns five
major power stations and 23 smaller power stations with a
total generating capacity of nearly 3,500 MW. Included in
this generation portfolio are seven wind farms, owned and
operated by Western Power.
We operate and maintain all except one of our major
power stations. Collie Power Station is operated and
maintained by a private company.
Western Power’s 888,103 industrial, commercial and
residential customers are supplied with electricity
via two major interconnected networks, the South
West Interconnected System (SWIS) and North West
Interconnected System (NWIS). Smaller distribution
networks supply power to customers in 28 regional towns.
Western Power owns and operates power stations in
15 of these towns and purchases power in the others.
In addition, Western Power purchases electricity from
Independent Power Producers in the Pilbara.
Western Power owns about 56 per cent of electricity
generation capacity in Western Australia with the
remaining 44 per cent owned by private industry.
Western Power is a valuable State asset with an equity
level of $1.70 billion, assets of $4.84 billion and an annual
revenue of $1.87 billion.
Western Power pays to the State Government dividends,
local government rates and charges and the equivalent of
Commonwealth income tax.
Cash payments to government have totalled more than
$1,475 million since 1995.
Electricity prices have fallen by an average of nearly 20
per cent in real terms over the past decade, with further
assurances by the Government at the start of 2005 that
there would be no increase in tariff charges for the next
four years.
The corporation is focused on the future and that focus
includes a strong commitment to sustainable practices and
to the development of renewable energy sources.
Our Company in 2005
��Western Power Annual Report �005
South West Interconnected System
North West Interconnected System
Regional Non-Interconnected System(Western Power owned generation)
Regional Non-Interconnected System(Non-Western Power owned generation)
Thermal Generating Station
Hydro Electric Generating Station
Wind Farm
Gas Turbine Generating Station
Solar (Photovoltaic) Generating Station
legend
Areas serviced by Western Power
��Western Power Annual Report �005
Our Statement of Strategic Intent was revised early in the year in line with the new direction and the pending
disaggregation of Western Power. Our new Statement of Corporate Priorities provides a focus for our efforts in the
immediate future and assists in setting priorities for programs.
Our Seven Corporate Priorities:
1. Demonstrate Operational Strength
− Improve the reliability, safety and quality of electricity.− Ensure there is adequate generation capacity to minimise risk of supply interruptions.
�. Deliver Solid Financial Returns
�. Be Competitive and Customer Focused
�. Provide full support for Reform
− Deliver satisfactory financial return to the shareholder, in line with agreed projections, and which incorporate impacting factors such as the extent of market reform and the agreed supply risk position.− Invest in the future of our new businesses
− Develop capabilities to trade successfully in the new market.− Resolve the commercial issues affecting competitiveness and develop strategies to enhance customer position.
− Support the Government in the implementation of its electricity reform program and the development of a competitive electricity market in WA.
5. Nurture an environment for opportunity and success
− Shape the organisational structure and business model to allow fast and positive response to the electricity reform program.− Develop the people capability to tackle a competitive market.− Ingrain a proactive business culture based on achievement, customer focus and responsibility.
�. Build market and community respect
− Build the reputation of Western Power and develop quality relationships with all its key stakeholders.
�. Maintain strong corporate practices
− Enhance governance and risk management practices with the new business model.
Statement of Corporate Priorities
��Western Power Annual Report �005
John Lillywhite
General Manager Generation
Ken Bowron
General Manager Regional Power
Doug Aberle
General Manager Networks
Nenad Ninkov
General Manager Finance, Risk Management & Service Delivery
Mark Hands
Executive Manager Governance & Audit & General Counsel.
as at �0 June �005
Libby Lyons
Executive Manager Corporate Relations
Greg Denton
Executive Manager Strategy & Reform
Greg Monkhouse Executive Manager Human Resources & Organisational Development
Tony IannelloManaging Director
Office of the Managing Director
Operational Business Units
Trevor James
General Manager Retail
Our Organisational Structure
�5Western Power Annual Report �005
Performance Indicators2004/05 2003/04 2002/03
Actual Target Actual Actual
Benchmark Performance *
Average unit cost (cents) (Total expenditure before tax / kWh sold) 11.5 10.9 10.7 10.8
Return on assets (%) (EBITDA / average non-current assets) 15.6 14.8 17.4 17.2
Debt to Equity Ratio (Capital structure geared to debt) 59/41 60/40 59/41 62/38
Return on equity (Net profit after income tax / total equity) 12.1 11.2 15.1 15.3
* Performance measures are inclusive of significant items which impact on financial results.
Western Power measures its performance against the
targets set out in its Statement of Corporate Intent,
which is tabled in State Parliament each year.
The targets, while taking into account the company’s
commitments, are deliberately set higher than expected
performance levels to challenge Western Power’s people.
Increasing efficiency
Western Power has undergone a period of continued
change and significant challenge in the past 12 months
including increased competition and restructure in the
State’s electricity market and the implementation of major
changes to the corporation’s internal structure.
Electricity tariffs remain unchanged again this year, with
average electricity prices reducing by nearly 20 per cent in
real terms since 1995.
We have continued to perform well financially, with return
on assets, return on equity and our debt to equity ratio all
meeting targets set for the year.
Innovative customer service
Listening to our customers is the key to being effectively
responsive. Our ultimate success depends upon the
enthusiasm and dedication of our own team of people and
our people remain the “key ingredient” of our customer
Corporate Result Areas
��Western Power Annual Report �005
service. Every day we service an average of 14,000 of our
888,000 customers across Western Australia, whether by
phone, fax, internet or self-service. We also have account
managers in daily contact with our larger customers
making sure that we satisfy their energy needs.
Listening to our community
Western Power touches the lives of thousands of people
every day in communities throughout the State.
We believe we should have more than one role in these
communities. Clearly we have our business role, but we
have also chosen to contribute where we educate our
young people about science, energy and the environment,
work with landcare groups to preserve our environment,
cultivate the development of sports, and support the arts.
Some of our major community partnerships include:
• Western Power Parkland
• Starlight Children’s Foundation
• The Royal Life Saving Society Australia
• Regional Junior Cricket and Netball Programs
• West Australian Symphony Orchestra
• Charity Link
A key education initiative that Western Power has
supported since its inception in 1996 is the World of
Energy. The World of Energy is an education centre based
in Fremantle that provides information about all aspects
of Western Australia’s energy industry, through the use of
interactive displays and multimedia.
The centre offers a range of hands-on, curriculum-based
educational programs for primary and secondary students,
and has a strong focus on promoting an awareness and
understanding of a variety or energy and environmental
issues. These programs are offered on-site at the World
of Energy and also on request at schools throughout the
metropolitan and regional areas.
Corporate Result Areas continued...
Performance Indicator2004/05 2003/04
Actual Target Actual
World Class Customer satisfaction
Average customer satisfaction (score out of five) 3.55 3.95 3.8
��Western Power Annual Report �005
Caring for our people
The welfare of our people is paramount and we
integrate safety in all we do. We manage the
risks inherent in the generation, transmission and
distribution of electricity to provide a safe and
healthy working environment for all our people.
We have more than 2,700 people working for us around
the state, including small depots in remote locations,
power stations in country towns and head office in the
city. To improve the quality of working life and business
performance, reduce the risks of illness and injury and to
boost well-being, we drive a number of programs and
initiatives.
Consistent with safety as our core value, in everything we
do we first consider the safety of our people, contractors
and the public. Our safety performance is reflected in our
Lost Time Injury Frequency Rate, which is 4.5, against a
target of <5.0. It has been a year of consolidation with the
number of medical treatment incidents holding steady,
despite additional workloads and pressures placed upon
the corporation.
Following the tragic electrocution of a Networks employee
in August 2004, safety procedures around the job risk
assessment process have been reviewed and strengthened.
The SWITCH ON MATE education program, which focuses
on the key aspects of safety communication and keeping
minds focused on the job, has been delivered to all
employees in Networks.
During the year business units have participated in safety
audit programs, including an external assessment of
Western Power’s safety management systems conducted
by minRISK Pty Ltd. The four strengthened business units
have been working to improve their safety management
systems in readiness for disaggregation. Generation has
established an integrated Health, Safety, Security and
Environment Management System as part of this process.
Corporate Result Areas continued...
Performance Indicator2004/05 2003/04 2002/03
Actual Target Actual Actual
Lost Time Injury Frequency Rate (LTIs / million hours worked) 4.5 <5.0 4.1 5.2
��Western Power Annual Report �005
State Records Act �000
Western Power maintains and supports quality
recordkeeping practices in its day-to-day business activities.
All records are managed according to the requirements
of the State Records Act 2000 and Western Power’s
approved Recordkeeping Plan. Regular reviews are
conducted of the corporate recordkeeping systems and
practices to ensure their efficiency and effectiveness. New
employees and contractors are provided with information
on the recordkeeping systems both at induction and at
compulsory training in the use of the system. The training
programs are reviewed on an ongoing basis to ensure they
reflect any new business requirements.
Western Australian Electoral Act 1907
In accordance with the requirements of Section 175ZE of
the Western Australian Electoral Act 1907, the following
information in respect to expenditures (excluding GST)
incurred by, or on behalf of Western Power Corporation
during the financial year ended 30 June 2005 is disclosed
as follows:
Advertising Agencies: $1,305,788.68 – 303 Advertising,
The Brand Agency Pty Ltd, Marketforce Productions,
Shearman Communications (WA) Pty Ltd, Hermes Precisa
Pty Ltd and TMP Worldwide Pty Ltd.
Market Research Organisations: $1,319,268.71 - Data
Analysis Aust. Pty Ltd, Market Equity Pty Ltd and Neo
Knowledge.
Media Advertising Organisations: $2,418,428.56 -
Marketforce Productions and Media Decisions WA
Total expenditure was $5,0��,��5.��
Corporate Facts and Figures
�9Western Power Annual Report �005
Western Power Workforce
At 30 June 2005 At 30 June 2004 At 30 June 2003
Generation 523 N/A* N/A*
Networks 1,565 N/A N/A
Regional Power 149 N/A N/A
Retail 211 N/A N/A
Shared Services 139 N/A N/A
Corporate Services 187 N/A N/A
total 2,774 2616 2590
Environmental Due Diligence
Western Power’s operational sites are subject to State and
Federal environmental legislation, and some require State
environmental licences. Complying with all regulatory and
licence requirements is an integral part of Western Power’s
value of practical environmental care at all times.
Environmental due diligence in Western Power is provided
by a corporate Environmental Management System (EMS)
which is driven by an intranet based documentation and
management tool (EMISWeb) to facilitate the process
of environmental governance and management in the
corporation.
Although the EMISWeb has been split to independently
service each new entity (after 31 March, 2006),
Western Power’s environmental due diligence will be
maintained up to that point through corporate EMS
documentation and reporting to ascertain overall
environmental performance.
Environmental due diligence audits were undertaken by
internal and external accredited auditors to assess the
effectiveness of processes that manage environmental
compliance and identify potential liabilities or gaps in
these processes. The results of this work revealed that
overall environmental performance was high in terms
of implementation of specific elements of the EMS and
compliance with environmental licences and permit
conditions.
ESAA Code audit
As a signatory to the Energy Supply Association of
Australia’s (ESAA) Environmental Code of Practice,
Western Power is committed to the promotion of
sustainable development, social responsibility and
environmental and resource management in the
production and delivery of electricity.
* Changes in Western Power’s organisation structure required to facilitate the disaggregation of the corporation in 2006 has meant that we are unable to compare yearly employee numbers for each business unit accurately. We have included a comparison of total numbers.
Corporate Facts and Figures continued...
�0Western Power Annual Report �005
Internal auditors completed the biennial audit of our
performance in November 2004. The company’s overall
score was 4.3 (based on a scale of 0 to 5) compared to the
national average score across the industry of 3.8.
Our results indicate that on average, environmental
management practices in Western Power have improved
to a point where aspects of the corporation’s performance
demonstrate leadership or industry best practice
implementation and functioning of Code actions.
Policy ESAA overall average score 2004
Western Power Score 2004
Western Power Score 2002
A - Sustainable Development 3.9 4.4 4.2
B - Social Responsibility 3.8 4.5 4.3
C - Environmental Responsibility 3.7 4.2 4.1
D - Resource Management 3.6 4.2 4.2
All Policies 3.8 4.3 4.2
Environmental incidents
To enable effective corrective and preventative action to
be taken, all environmental incidents in Western Power
are recorded in our Environmental Management System.
In 2004/05, there were no environmental incidents
that caused pollution or any significant environmental
harm. However six incidents, including three minor
licence departures, were reported to the Department of
Environment in accordance with the conditions of the
operating licences.
Corporate Facts and Figures continued...
�1Western Power Annual Report �005
CAIDI Total outage duration minutes / average number of customers.
CO2Carbon Dioxide.
CO2eCarbon Dioxide equivalent The amount of carbon dioxide that has the same global warming effect as a mixture of greenhouse gases.
EMS Environmental Management System.
EMISWeb Electronic environmental management information system.
GW Gigawatt. A measure of electrical power. Equivalent to one million kilowatts.
GWh Gigawatt-hour. One GWh = 1000 MWh or one million kilowatt-hours.
ISO 14001International Standards Organisation 14001. The international standard for environmental management systems.
IEEE The Institute of Electrical and Electronic Engineers, Inc.
kV Kilovolt. One kV = 1000 volts. A volt is the unit of potential of electric pressure.
kW Kilowatt. One kW = 1000 watts. A watt is the rate at which electrical energy is produced or used.
kWhKilowatt-hour.The standard unit of energy, equivalent to the consumption rate of one kilowatt for one hour. Commonly used as the ‘unit’ of electrical energy.
MVAMegavolts-ampere. The product of the voltage rating (kV) and the current rating (kA).Used to represent the rating of electrical equipment such as transformers.
MW Megawatt. One MW = 1000 kW or one million watts.
MWh Megawatt-hour. One MWh = 1000 kWh.
NOXNitrogen Oxides. A term used for a mixture of nitrogen oxides.
SAIFI Total customers interrupted / average number of customers.
SO2Sulfur Dioxide
Spinning Reserve
The amount of instantly available spare generation capacity on the system at any one moment.
SWIS South West Interconnected System
SCNRRR Steering Committee on National Reliability Reporting Requirements
TJ Terajoule. One TJ = one million, million joules, or 1012 joules. Used to indicate the energy content of gas.
Glossary
��Western Power Annual Report �005
MINISTERIAL DIRECTION
I, Alan Carpenter MLA, acting in accordance with section 66 of the Electricity Corporation Act 1994, direct that the
corporation must:
(a) not establish any new or additional generating works (as defined in section 3 of the Electricity Industry Act 2004)
if those new or additional generating works will cause the aggregate maximum electricity generation capacity (as
specified by the manufacturer of each generating works and taking into account any capacity upgrades to those
generating works) of all generating works owned by the corporation for the provision of electricity to the South West
interconnected system, to exceed, or be likely to exceed, 3000 megawatts in any year, other than:
(i) upgrades to existing generating works which are scheduled to commence operations before 1 January 2007;
(ii) generating works that generate electricity solely using renewable energy sources; or
(iii) generating works which will provide electricity capacity to an electricity system other than the South West
interconnected system (as defined in section 3 of the Electricity Industry Act 2004); and
(b) apply for a generation licence (as defined in section 3 of the Electricity Industry Act 2004) for each of the Muja A/B
generating works, the Kwinana A generating works and the Kwinana B generating works, the duration of
which is not to exceed the date of the planned retirement of each generating works (in accordance with a
retirement program to be determined by the corporation prior to the date that the corporation applies
for a generation licence for the relevant generating works).
Alan Carpenter MLA
MINISTER FOR ENERGY
7 April 2005
Electricity Corporation ACT 1994
finanCiaL revieW 2005
statistiCaL summarY 44direCtors’ rePort 45statement of finanCiaL PerformanCe 64statement of finanCiaL Position 65statement of Cash fLoWs 66notes to and forming Part of the finanCiaL statements for the Year ended 30 June 2005 67direCtors’ deCLaration 117indePendent audit rePort 118
financial review 2005
��Western Power Annual Report �005
five Year financial summary
UNIT 30/06/05 30/06/04 30/06/03 30/06/02 30/06/01
Sales Revenue $’000 1,615,888 1,542,806 1,482,099 1,433,760 1,415,685
Total Revenue $’000 1,874,626 1,773,207 1,697,900 1,601,236 1,573,833
Total Expenditure $’000 1,430,949 1,273,858 1,234,597 1,148,083 1,126,464
Borrowing Costs $’000 146,745 148,164 144,337 154,089 161,057
Income Tax Expense $’000 90,797 109,604 96,901 91,342 98,121
EBIT $’000 443,677 499,349 463,303 453,153 447,369
EBITDA $’000 673,100 728,133 691,396 673,509 658,540
Net Profit after Income Tax Expense $’000 206,135 241,581 222,065 207,722 188,191
Current Assets $’000 416,068 366,693 347,239 332,937 345,749
Non-Current Assets $’000 4,422,672 4,222,747 4,131,499 3,906,638 3,764,311
Total Assets $’000 4,838,740 4,589,440 4,478,738 4,239,575 4,110,060
Current Liabilities $’000 345,342 334,096 309,001 283,174 261,056
Non-Current Liabilities $’000 2,794,594 2,663,904 2,717,596 2,609,220 2,593,586
Total Liabilities $’000 3,139,936 2,998,000 3,026,597 2,892,394 2,854,642
Total Debt $’000 2,450,569 2,325,855 2,416,341 2,332,777 2,363,884
Total Equity $’000 1,698,804 1,591,440 1,452,141 1,347,181 1,255,418
Return on Assets (EBITDA/average non-current assets)
% 15.6 17.4 17.2 17.6 17.6
Return on Equity (Net profit after income tax/total equity)
% 12.1 15.2 15.3 15.4 15.0
Debt to Equity Ratio (Capital structure geared to debt)
59/41 59/41 62/38 63/37 65/35
Returns to Government $’000 181,824 211,873 203,669 203,278 184,422
Where necessary, comparative information has been reclassified to achieve consistency in disclosure with current financial year
statistics.
STATISTICAL SUMMARY
�5Western Power Annual Report �005
DIRECTORS’ REPORT
TABLE OF CONTENTS
1. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
1.1 Company Secretary . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
2. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3. Directors’ Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4. Corporate Governance Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.1 Board of Directors . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
4.2 Role of the Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
4.3 Remuneration Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.4 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
4.5 Internal Control Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
4.6 Ethical Standards.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
4.7 Environment. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
4.8 Communication with Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
4.9 Other Accountability Measures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5. Principal Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6. Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7. Dividends Paid or Recommended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8. Review of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9. Change in State of Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
10. Events Subsequent to Balance Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
11. Likely Developments and Expected Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12. Directors’ Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
13. Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
14. Auditor Independence and Non-Audit Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
15. Rounding of Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
��Western Power Annual Report �005
The Board of Directors of Western Power Corporation (“the Corporation”) present their report for the financial year ended 30 June
2005.
1.DirectorsThe names and details of the Directors in office at any time during the year or at the date of this Report are:
Neil Douglas Hamilton LLB - Chairman (Age 53)Mr Hamilton was appointed to the Board as a Non-Executive Director in May 2002, Deputy Chair in February 2003 and
as Chairman in February 2004. Mr Hamilton holds several chairman and director positions in both public and private
companies, and the AFL Players Association Advisory Board. Mr Hamilton’s term expires on 31 December 2007.
During the past three years, Mr Hamilton has served as a director of the following listed companies:
• Integrated Group Limited *
• Iress Market Technology Ltd *
• Insurance Australia Group Ltd *
• Chieftain Securities Limited
• Sons of Gwalia Limited
* denotes current directorship
Jennifer Anne Seabrook BComm, CA - Deputy Chair (Age 48)Ms Seabrook was appointed to the Board as a Non-Executive Director in September 2001 and Deputy Chair in March 2004.
Ms Seabrook is a member of the Federal Government’s Takeovers Panel and the Western Australian Government’s Pearling
Industry Advisory Committee. Ms Seabrook’s term expires on 30 June 2007.
Antonino (Tony) Mario Iannello BComm, FCPA, FAICD – Managing Director (Age 47)Mr Iannello was appointed as Managing Director in July 2004. Mr Iannello had a distinguished career at BankWest holding
many senior positions, with most recently General Manager Finance and Corporate Services. Mr Iannello’s term concludes on
30 June 2007.
Alan James Mulgrew BA - Director (Age 58)Mr Mulgrew was appointed to the Board as a Non-Executive Director in September 2003. Mr Mulgrew is Chairman of
Western Australian Tourism Commission and Western Carbon Pty Ltd. He is also Director of Strategic Solutions Pty Ltd,
BAC Holdco Pty Ltd and Doric Group Pty Ltd. Mr Mulgrew also held a number of senior executive positions in airport
management both in Australia and overseas. Mr Mulgrew’s term expires on 30 June 2006.
John Joseph O’Connor - Director (Age 67)Mr O’Connor was appointed to the Board as a Non-Executive Director in December 2003. Mr O’Connor served as a
Commissioner on the Australian Industrial Relations for eight years and is also a Director of Fremantle Port Authority. Mr
O’Connor’s term expires on 31 December 2006.
Charlotte Ellen Stockwell BA, B.Ed (Hons), MLM - Director (Age 44)Ms Stockwell was appointed to the Board as a Non-Executive Director in December 2003. Ms Stockwell until June 2005 was
Chief Executive Officer Town of Kwinana and until November 2004 a Director of Daughters of Charity Ltd. Ms Stockwell’s
term expires on 31 December 2006.
DIRECTORS’ REPORT
��Western Power Annual Report �005
Harvey Russell Collins BBus, FCPA, FAICD, FSIA - Director (Age 56)Mr Collins was appointed to the Board as a Non-Executive Director in September 2004. He was also Interim Managing
Director for five months concluding on 21 July 2004. Mr Collins is Chairman of HBF, a Director of the Government
Employees Superannuation Board and holds directorship in both public and private companies. Mr Collins’ term expires on
30 June 2007.
During the past three years, Mr Collins has served as a director of the following listed companies:
• IBT Education Limited *
• Abra Mining Limited *
• Chieftain Securities Limited
• iiNet Limited.
* denotes current directorship
Mervyn J Davies BE (Hons), M Eng Sc, B Comm - Director (Age 61)Mr Davies was appointed to the Board as a Non-Executive Director in September 2004. Mr Davies has more than 40 years
experience working in engineering and senior management positions within the Electricity Supply Industry in NSW. Mr
Davies’ term expires on 30 June 2007.
Sue Alison Wilson LLB - Director (Age 45)Ms Wilson was appointed to the Board as a Non-Executive Director in September 2003. Ms Wilson is General Counsel and
Company Secretary for the HBOS Australia Group which includes BankWest having previously worked as a partner in a
major Western Australian law firm. Ms Wilson resigned from Western Power with effect from 30 June 2005.
1.1 Company Secretary Ian Gilbert Paterson (Age 55)
Mr Paterson was appointed Company Secretary in February 2003. Prior to holding this position, Mr Paterson held
the role of Executive Officer Management for nineteen years.
2.CommitteesThe Corporation has the Governance and Remuneration Committee and the Audit and Risk Management Committee
consisting of the following Directors:
Governance and Remuneration: ND Hamilton (Chairman), JJ O’Connor and AJ Mulgrew.*
Audit and Risk Management: JA Seabrook (Chair), CE Stockwell, HR Collins** and MJ Davies**.
* AJ Mulgrew was a member of the Audit and Risk Committee until October 2004.
** HR Collins and MJ Davies were appointed on 14 September 2004.
DIRECTORS’ REPORT continued
��Western Power Annual Report �005
3.Directors’ MeetingsThe number of meetings of the Board (including meetings of committees) and number of meetings attended by each of
the Directors during the financial year ended 30 June 2005 are as follows:
A Number of meetings attended.
B Number of meetings eligible to attend during the time the Director held office during the year.
1 HR Collins: Managing Director until 21 July 2004 and Director since 14 September 2004; 2 MJ Davies: Director since 14 September 2004. 3 AM Iannello: Managing Director since 19 July 2004;
4. Corporate Governance StatementThis statement outlines the principle corporate governance practices that were followed during the 2004/05 financial
year. These practices form the framework that ensure that the business acts with high standards of corporate behaviour
and in the best interests of its stakeholders.
On 31 March 2003 the ASX Corporate Governance Council issued “Ten Principles of Good Corporate Governance and
Best Practice Recommendations”. The Corporation, whilst not obliged to follow the ASX guidelines, seeks to adopt
recognised best practice for publicly listed companies where it is relevant to do so and therefore acknowledges the
recommendations and has included details of progress towards compliance with the ASX Best Practice Principles, as
detailed below.
The Corporation complies with all the 10 ASX Principles and is currently developing a web presence to disclose its
corporate governance information.
Board meetingsgovernance & remuneration
Committee meetings
audit and risk management
Committee meetings
a B a B a B
ND Hamilton 22 24 4 4 - -
JA Seabrook 22 23 - - 11 11
AJ Mulgrew 22 22 2 3 3 3
SA Wilson 13 22 4 4 - -
JJ O’Connor 20 22 4 4 - -
CE Stockwell 19 22 - - 8 11
HR Collins1 17 21 - - 8 8
MJ Davies2 18 20 - - 7 8
AM Iannello3 23 24 - - - -
DIRECTORS’ REPORT continued
�9Western Power Annual Report �005
ASX Corporate Governance Principles
Best Practice Recommendation
Western Power Governance Practices
1. Lay solid foundations for management and oversight
· The role and responsibilities of the Board and Committees of the Board are clearly defined in Charters for each body.
· A comprehensive Corporate Governance Framework defines the system by which the Corporation is directed and managed. It influences how objectives are set and achieved, how risk is monitored and assessed and performance optimised. It supports directors and senior managers in undertaking their governance responsibilities.
· Management’s responsibilities are well defined and documented through formal position descriptions, performance agreements and Board-approved delegation of authority policies.
2. Structure the Board to add value
· All Non-Executive Directors (including the Chairman) are considered to be independent.· Details of Director’s experience, expertise and attendance at Board and Committee meetings
are disclosed in the Annual Report.· Each director has access to all relevant company information and personnel. Subject to prior
consultation with the Chairman, directors may seek independent professional advice on any matter, at the Corporation’s expense. A copy of the independent advice received is available to all other members of the Board.
3. Promote ethical and responsible decision-making
· The Corporation has a set of behavioural standards incorporating leadership principles and minimum standards applicable to the management of its personnel as well as a Code of Conduct setting out minimum standards of conduct for all personnel.
4. Safeguard integrity in financial reporting
· The Managing Director and General Manager Finance, Risk Management and Service Delivery certify that the financial statements give a true and fair view to the Board.
· The Board has an Audit and Risk Management Committee that operates under a formal Charter. The committee comprises of only independent directors with a Chair who is not the Chairman of the Board. Membership and attendance of the Audit and Risk Management Committee is disclosed in the Annual Report.
· The Risk Assurance and Audit branch performs the internal audit function.· The Office of the Auditor General performs the external audit function.
5. Make timely and balanced disclosure
· Western Power is a statutory corporation. As such, the ASX Listing Rules do not apply.· Nonetheless, an extensive continuous reporting regime is in place in relation to the
Corporation’s shareholder, the Minister for Energy (including quarterly reporting in relation to the Statement of Corporate Intent which is negotiated and completed with the Minister on an annual basis). The Minister tables the Statement of Corporate Intent in both Houses of Parliament within 14 days of its approval.
6. Respect the rights of shareholders
· The Corporation has developed a formal protocol to ensure that a comprehensive level of governance applies to all communications with the Minister and his Office.
· Legislation requires the Corporation to consult the Minister on major initiatives or courses of action that are likely to be of significant public interest. The Corporation must obtain the approval of the Minister for major strategic initiatives and any project involving expenditure greater than one per cent of the written down value of the Corporation’s fixed assets.
7. Recognise and manage risk
· The Board Audit and Risk Management Committee oversees risk related issues. The committee oversees the Risk Management Framework and its implementation plan.
· The Managing Director and General Manager Finance, Risk Management and Service Delivery certify to the Board that the financial statements are founded on a sound system of risk management and internal compliance and control, which implements the policies adopted by the Board.
8. Encourage enhanced performance
· A performance framework is established and overseen by the Board’s Governance and Remuneration Committee (as reflected in its Charter).
· Board has an induction process in place for directors and on-going education.· Board has a comprehensive performance evaluation regime in place that covers the
evaluation of the Board, its Committees, Business Units and members of staff.· During 2005 the Board undertook a formal performance assessment evaluation of the Board,
its Committees and associated processes.
DIRECTORS’ REPORT continued
50Western Power Annual Report �005
4.1 Board of Directors
Role of the BoardThe Board of Directors is the governing body of the Corporation and is responsible to the Minister for Energy
(“the Minister”) for the performance of the Corporation. Subject to the Electricity Corporation Act 1994 (“the
Act”), the Board has the authority to perform the functions, determine policies and control the affairs of the
Corporation.
The Corporation’s operating activities focus on ensuring safe, reliable and secure supplies of electricity,
delivering consistently high levels of customer service and increasing the value of the Corporation. In
undertaking these activities, an acceptable balance will be sought between the Corporation’s three
fundamental priorities:
• Commercial requirements: The Act requires the Corporation to act in accordance with prudent
commercial principles and endeavour to make a profit consistent with maximising its long-term value.
• Reliability and safety requirements: The Act, related legislation and regulations require the
Corporation to supply electricity in a safe and reliable manner. Since it was established, the
Corporation has placed the safety of the public and its employees as its overarching value and has
consistently sought to maximise reliability and security of supply consistent with its other obligations.
• Government policy: As a State-owned enterprise, the Corporation is mindful and supportive
of Government policies that will impact on the Company’s business operations. Accordingly, the
Corporation assists the Government to implement its polices and acts in accordance with the policies to
the maximum extent possible, subject to other legislated requirements.
Composition of the BoardLegislation passed through Parliament in 2003 increased the maximum number of non-executive directors by
two. The Corporation’s Board of Directors now comprises:
• The Managing Director;
• No less than four and no more than eight non-executive directors appointed by the Governor of
Western Australia (“the Governor”) on the nomination of the Minister;
• The Governor appoints the Chairman and Deputy Chairman, appointments in each case are made on
the nomination of the Minister; and
• The Managing Director may not hold the positions of Chairman or Deputy Chair.
DIRECTORS’ REPORT continued
Best Practice Recommendation
Western Power Governance Practices
9. Remunerate fairly and responsibly
· The Minister for Energy approves the remuneration of all non-executive directors.· The Board subject to the concurrence of the Minister for Energy approves the remuneration
of the Managing Director.· The Board on recommendation of the Managing Director approves the remuneration of all
Executive Officers.· The directors and senior executive remuneration is disclosed in the Annual Report.
10. Recognised the legitimate interests of stakeholders
· The Corporation has a clear view of its wider group of stakeholders (including but not limited to the Minister and Government, employees, customers, the community, unions and regulatory authorities).
51Western Power Annual Report �005
The Board is scheduled to meet at least ten times per year to address the strategic issues of the business and as
needed special meetings are held to address urgent issues that are encountered during the year.
When a non-executive director position is vacant, the Board may recommend a candidate to the Minister. If the
Minister chooses to make a nomination to the Governor, the Minister must ensure that:
• Each nomination is made only after consultation with the Board (except where the nominee was
recommended by the Board); and
• The nominee is not a member of the Corporation's staff.
Non-executive directors are appointed for periods of up to three years and are eligible for reappointment. The
Governor may, at any time, remove a director from office. The Governor need not give any reason for doing so.
A director may resign from office by notice in writing delivered to the Minister.
The Act prohibits directors from:
• Making improper use of information or their position;
• Voting in matters where they have a material personal interest; and
• Furnishing false information.
The Act also prevents directors and their relations from receiving loans from the Corporation.
4.2 Role of the Committees
Governance and Remuneration Committee
The Governance and Remuneration Committee’s role is to:
• Develop and review the Corporation’s corporate governance framework and policies;
• Quality assurance relating to the integrity and probity of the Corporation’s remuneration policies and
practices;
• Power to determine the remuneration and other terms and conditions of service for Western Power
staff;
• Succession planning and nomination of directors and the Managing Director in accordance with Section
7(3) and Section 13(2)(b) of the Act; and
• Review the performance of the Board and its Committees and the Managing Director.
The Governance and Remuneration Committee is authorised by the Board to evaluate different remuneration
methods and philosophies, and investigate any activity within its terms of reference. The Governance and
Remuneration Committee is a non-executive Committee. It has unrestricted access to personnel records and
senior management as appropriate. The Governance and Remuneration Committee is authorised to obtain
outside independent professional advice and if it considers it necessary, to secure the attendance of outsiders
with relevant experience and expertise.
The Governance and Remuneration Committee consist of not less than two and up to four non-executive
directors. The Chairman of Western Power will be the Chairman of the Governance and Remuneration
Committee.
DIRECTORS’ REPORT continued
5�Western Power Annual Report �005
Audit and Risk Management CommitteeThe purpose of the Audit and Risk Management Committee is to assist the Board to fulfil its corporate
governance and oversight responsibilities in relation to financial reporting, capital investment, internal control
structure, risk management systems, compliance framework and the internal and external audit function.
The Audit and Risk Management Committee is authorised by the Board to investigate any activity within its
terms of reference. The Audit and Risk Management Committee is a non-executive Committee and is tasked
with recommending to Western Power appropriate actions emanating from these investigations. The Audit
and Risk Management Committee shall have unrestricted access to personnel, records, external auditors,
risk assessment and assurance and senior management as appropriate. The Audit and Risk Management
Committee is authorised by the Board to obtain outside legal or other independent professional advice and to
secure the attendance of outsiders with relevant experience and expertise if it considers this necessary.
The Audit and Risk Management Committee consist of not less than two and up to four independent non-
executive Directors, each of whom is financially literate.
4.3 Remuneration Report
A. Principles Used to Determine the Nature and Amount of RemunerationRemuneration approval protocols are as follows:
Specified Non-Executive Directors:
The Minister for Energy approves the remuneration of all Non-Executive Directors.Minister for Energy approves the remuneration of all Non-Executive Directors.
Managing Director:The Board subject to the concurrence of the Minister for Energy approves the remuneration of the Managing Director (also referred to as the CEO).
Specified Executive Officers:
The Board on recommendation of the Managing Director approves the remuneration of alln recommendation of the Managing Director approves the remuneration of allapproves the remuneration of all Specified Executive Officers.
The Remuneration Policy is to:
• remunerate individuals in accordance with performance and responsibility;
• ensure consistent decision making on individual remuneration adjustments;
• establish flexible remuneration arrangements; and
• establish and maintain salary ranges comparable to other companies of similar size and industry.
Specified Non-Executive DirectorsPayment to Specified Non-Executive Directors consists of Base Remuneration, a Committee Fee and
superannuation.
Managing Director and Specified ExecutivesThe Managing Director and Specified Executives remuneration framework is based upon:
Total Target Remuneration that includes:
• Total Fixed Remuneration structured with:
• Cash;
• Selection of prescribed non-financial benefits;
• Superannuation; and
• Cost of the fringe benefit tax.
• An annual at risk remuneration element
DIRECTORS’ REPORT continued
5�Western Power Annual Report �005
Total Fixed RemunerationThe remuneration framework is market competitive, performance based with flexibility for the package to be
structured at the executive’s discretion upon a combination of cash, a selection of prescribed non-financial
benefits, superannuation and cost of the fringe benefit tax.
External remuneration consultants provide analysis and advice to ensure remuneration is set to reflect the
market for a comparable role. Remuneration for executives is reviewed annually to ensure the level is market
competitive. There are no guaranteed remuneration increases included in any executive contracts.
Non-financial Benefits – selection available: cost of novated or associated leasing of selected motor vehicle,
electricity (to a maximum tax allowable figure), laptop computer, salary continuance insurance, life insurance,
health checkup and the cost of the fringe benefits tax.
Superannuation - is paid at not less than the amount that is required under the Superannuation Guarantee
(Administration) Act 1992 (Cth), on the Executive’s behalf to a superannuation fund which is a Complying
Superannuation Fund within the meaning of that Act.
Annual At Risk Remuneration Element - At the Board’s absolute discretion with the concurrence of the
Minister, the Managing Director is eligible for up to 10% of remuneration for the achievement of specific
performance targets in the following areas: Strategic Leadership, Operational Management, Team Building and
Leadership, Commercial Acumen and Customer Management, Strong Financial Analysis Ability, Media and
Public Relations and Shareholder Relationship.
Review of Remuneration ArrangementsA review of remuneration strategies was undertaken during 2005 and the Board has adopted effective for
2005/06 a more strategic, performance based remuneration program to underpin a high performance work
culture, and assist attraction and retention of a talented workforce.
DIRECTORS’ REPORT continued
5�Western Power Annual Report �005
B. Details of RemunerationDetails of the nature and amount of each element of the emolument for Specified Directors(1) during
2004/05 are detailed below:
Primary Benefits Post Employment
Benefits Other
BenefitsTotal Benefits
Salary & Fees
$
Bonus
$
Non- Monetary a
$
Superannuation b
$
Retirement & Termi-nation Benefits
$
Total
$
non-executive specified directors
ND Hamilton Chairman
2004/05 104,006 - 666 9,147 - 113,819
2003/04 63,719 - 668 5,866 - 70,253
JA Seabrook Deputy Chair
2004/05 66,813 - 666 5,829 - 73,308
2003/04 45,915 - 668 4,206 - 50,789
AJ Mulgrew Director
2004/05 51,868 - - 4,395 - 56,263
2003/04 40,152 - - 3,429 - 43,581
SA Wilson Director
2004/05 16,441 - - 37,815 - 54,256
2003/04 33,157 - - 9,590 - 42,747
Mr JJ O’Connor Director
2004/05 30,272 - - 22,365 - 52,637
2003/04 19,869 - - 6,867 - 26,736
Ms CE Stockwell Director
2004/05 48,290 - - 4,347 - 52,637
2003/04 24,563 - - 2,173 - 26,736
HR Collins Director (Appointed 14 September 2004)
2004/05 37,619 - 528 3,436 - 41,583
MJ Davies Director (Appointed 14 September 2004)
2004/05 38,146 - - 3,436 - 41,582
Others reported in2003/04 113,737 - 556 10,288 - 124,581
executive specified directors
AM Iannello Chief Executive Officer (Appointed 19 July 2004)
2004/05 400,093 584 32,209 432,886
Mr HR Collins Chief Executive Officer (Resigned 21 July 2004)
2004/05 19,431 - 187 1,709 10,382 31,709
2004/03 120,523 - 743 10,598 - 131,864
Others reported in 003/04 230,898 - 41,181 32,421 - 304,500
total specified directors
2004/05 812,979 - 2,631 124,688 10,382 950,680
2003/04 692,533 - 43,816 85,438 - 821,787
a Non-monetary benefits represent motor vehicle benefits and electricity benefits.b Superannuation represents employer and employee contributed superannuation.
(1) Specified Executive means a person who who was, at any time during the reporting period, a director of the Corporation.
DIRECTORS’ REPORT continued
55Western Power Annual Report �005
DIRECTORS’ REPORT continued
Details of the nature and amount of each element of the emolument for Specified Executives(2) during 2004/05
are detailed below:
Primary Benefits Post Employment
Benefits Other
BenefitsTotal Benefits
Salary & Fees
$Bonus
$
Non- Monetary a
$
Superannuation b
$
Retirement & Termi-nation Benefits
$Total
$
specified executives
DT Aberle General Manager Networks
2004/05 264,328 - 30,326 39,156 - 333,810
2003/04 211,567 6,850 21,604 36,077 - 276,098
JE Lillywhite General Manager Generation
2004/05 230,766 - 19,498 44,354 - 294,618
2003/04 196,651 6,850 25,689 42,186 - 271,376
N Ninkov General Manager Finance, Risk Management and Service Delivery
2004/05 233,177 - 25,695 30,020 - 288,892
2003/04 221,949 6,850 29,361 26,824 - 284,984
TH James General Manager Retail
2004/05 187,849 - 20,626 35,196 - 243,671
2003/04 148,356 6,850 19,090 31,356 - 205,652
KD Bowron General Manager Regional
2004/05 192,247 - 16,931 32,537 - 241,715
2003/04 145,795 6,850 16,872 30,379 - 199,896
Others reported in 2003/04
576,153 32,400 111,705 118,631 562,360 1,401,249
total specified executives
2004/05 1,108,367 - 113,076 181,263 - 1,402,706
2003/04 1,500,471 66,650 224,321 285,453 562,360 2,639,255
a Non-monetary benefits represent motor vehicle benefits and electricity benefits.b Superannuation represents employer and employee contributed superannuation.
(2 ) Specified Executive means one of the five or more executives who:a. have the highest emoluments/greatest authority for managing the economic entity;b. are employed at any time during the reporting period by the entity; andc. are not specified directors.Executive means a person who is directly accountable and responsible for the strategic direction and operational management of the entity.
5�Western Power Annual Report �005
4.4 Risk Management
Processes and systems are in place to manage the Corporation’s business, environmental and operational
risks. This process was formalized during the year with the endorsement of the Risk Management
Framework and implementation plan. The Framework, which is consistent with Australian Standard
“AS4360 Risk Management”, provides a methodology and process for the identification, allocation and
management of risk throughout the Corporation. Business Unit managers are responsible for implementing
strategies to mitigate risks that have been classified as extreme or high. The Audit and Risk Management
Committee oversees the Framework and reviews the effectiveness of key mitigation strategies. Risk reviews
are conducted at least annually to ensure emerging risks, such as those from changes in market structure
and design, organizational restructures, and operational issues are identified and responses developed.
The Risk Management Branch provides advice to business unit management and coordinates the findings
of the various risk reviews undertaken.
The Treasury Branch makes recommendations to the Board on the appropriate level of insurance cover
for the Corporation. Financial risk issues are managed through a Treasury Policy Statement that requires
regular reporting to the Audit and Risk Management Committee on treasury activities.
4.5 Internal Control Framework
The Board is responsible for the overall internal control framework. While recognising that no cost
effective internal control system can preclude all errors and irregularities, the rigour of regular assessment
ensures performance is kept under review.
To monitor the performance and management of the Corporation, the Board has instigated an internal
control framework covering financial reporting, quality of personnel, business unit controls and
expenditure guidelines.
The Corporation’s internal control system is based on:
• Written procedures, policies and guidelines;
• Organisational structures that provide an appropriate division of responsibility;
• A program of internal audit; and
• The careful selection and training of qualified personnel.
Financial ReportingActual financial results are reviewed against budget each month. Reports on performance, including
financial statements, are produced quarterly and submitted to the Minister. Revised forecasts for the year
are also prepared each quarter.
A five-year budget is produced annually from a comprehensive budgeting system and approved by
directors. This is included in the Strategic Development Plan (SDP) produced by the Corporation each year.
Management is required to sign-off on a detailed questionnaire that covers: management of risks,
overall control environment, regulatory areas and financial reporting. These support the sign-off by
the Managing Director and General Manager Finance, Risk Management and Service Delivery in the
assurances provided to the Board for the half-year and full-year results.
DIRECTORS’ REPORT continued
5�Western Power Annual Report �005
Business Unit ControlsOn a quarterly basis, business unit finance managers confirm the reasonableness and accuracy of their financial
records. Half yearly, business unit finance managers confirm compliance with financial controls and procedures
to support the Board’s certification of the accounts.
Expenditure GuidelinesThe Corporation has clearly defined guidelines for operating and capital expenditure. These include annual
budgets, detailed appraisal and review procedures as well as formally stated levels of delegated financial
authority approved by the Board. The Corporation must obtain the approval of the Minister for major strategic
initiatives and any project involving expenditure greater than one per cent of the written down value of the
Corporation’s fixed assets.
Internal and External AuditThe internal audit function of the Corporation reports directly to the Executive Manager Governance and
Audit and pursuant to a second reporting line, reports are made available to the Audit and Risk Management
Committee, so that the internal audit objectives, plans and resources provide for adequate support of the
Committee’s own goals and objectives. The internal audit function is independent of the external audit and has
full access to the Audit and Risk Management Committee, and to the staff and records of the Corporation.
The Act requires the Auditor General to complete an audit of the Corporation by 30 September each year.
If this is not undertaken, an interim report is to be submitted to the Minister setting out the reasons for his
inability to complete the audit by that date.
Quality of PersonnelThe Corporation has a formal employee appraisal framework designed to see the cascading of the company’s
vision and goals – its strategic plan, linked into individual’s achievement plans so ensuring the corporate goals
are translated into action.
Special attention has been given to identifying skill gaps, ensuring appropriate resourcing and succession-
planning processes are implemented via the Workforce Planning project, which is currently being implemented.
This process will assist in attracting and retaining employees within some specific skill areas.
4.6 Ethical Standards
The Corporation is mindful of its duties outlined in the Act and has developed a set of behavioural standards
incorporating leadership principles and minimum standards applicable to the management of the staff as well
as a Code of Conduct setting out minimum standards of conduct for all staff.
Conflicts of InterestDirectors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those
of the Corporation. The Board has developed procedures to assist directors to disclose potential conflicts of interest.
Where the Board believes that any conflict exists for a director on a board matter being considered, the director
concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered.
DIRECTORS’ REPORT continued
5�Western Power Annual Report �005
4.7 Environment
Environmental StandardsThe Corporation recognises that rigorous environmental management is critical to the sustainability of the
business. Corporate policies and strategies are in place encompassing environmental management principles
administered through a formal Environmental Management System (EMS). These principles include community
consultation, planning, compliance and sustainable development with continuous improvement objectives.
Adherence to environmental policies and implementation of the EMS are audited. A steady decline in the
greenhouse intensity of energy supplied and enhancement of environmental reputation are included in the
Corporation’s corporate performance targets.
Environmental Regulation PerformanceAll Corporation sites are subject to a range of environmental regulations, both State and Federal, and some
are also covered by specific Ministerial conditions and environmental operating licences issued by the State. All
performance obligations under these regulations, conditions and licences are monitored, audited and reported,
and may be subject to Government agency audit or inspection from time to time. No actions have been taken
against the Corporation by any Government agency for any breaches of environmental regulation, Ministerial
condition or licence conditions in the financial year ended 30 June 2005.
4.8 Communication with ShareholdersThe Corporation’s key stakeholder is the company’s shareholder, the Minister, and therefore the Government
of the day. A formal protocol has been developed to ensure that the most comprehensive levels of governance
apply to communications with the Minister and his Office. The protocol specifically reflects the particular
relationship that exists between a corporatised Government Trading Enterprise and the Government.
Overall, the protocol recognises that the Minister must receive information to enable him to discharge his
duties. It seeks to ensure that this will be factual, timely and reflect the best available information at the time.
4.9 Other Accountability MeasuresIt is a requirement under the Act that the Corporation produces, annually, both a Statement of Corporate
Intent, a one-year plan and a Strategic Development Plan, a five-year plan. These are to be agreed between the
Minister and the Board with the concurrence of the Treasurer.
Strategic Development PlanThe Strategic Development Plan (SDP) is a confidential document. It sets out the Corporation’s five-year
economic and financial objectives, Strategic Result Areas and associated performance targets as well as
strategies. The 2005/06 SDP has been submitted to the Minister.
Statement of Corporate IntentThe Statement of Corporate Intent (SCI) sets out the Corporation’s scope of activities, objectives and performance
targets for the financial year ahead and is consistent with the SDP. The SCI is tabled in Parliament after agreement
with the Minister and the Treasurer’s concurrence. The 2005/06 SCI has been submitted to the Minister.
In addition, the Corporation provides written quarterly and annual reports to the Minister detailing its
performance and progress made in fulfilling the agreed targets set in the SCI.
DIRECTORS’ REPORT continued
59Western Power Annual Report �005
5.Principal ActivitiesThe functions of the Corporation are:
• to generate, acquire, exchange, transport, distribute, market and otherwise supply electricity to
commercial, industrial and residential customers throughout Western Australia;
• to undertake, maintain and operate any works, systems, facilities, apparatus or equipment required for
such purposes;
• to use its expertise and resources to provide consultative, advisory or other services for profit;
• to develop and turn to account any technology, software or other intellectual property that relates to
activities referred to above; and
• to manufacture and market any product that relates to these activities including the retailing of gas.
It is also the function of the Corporation to use or exploit its fixed assets for profit so long as the proper performance of
its functions are not affected. The Corporation can do anything that it determines to be conducive or incidental to the
performance of its function mentioned above.
The Corporation in performing its functions must act in accordance with prudent commercial principles and endeavour to
make a profit, consistently with maximizing its long term value.
There have been no significant changes in the nature of the principal activities during the financial year.
6.Operating ResultsFor the financial year ended 30 June 2005, the Corporation achieved a net profit after income tax of $206.1 million.
7.Dividends Paid or RecommendedDividends paid or recommended by the Corporation since the end of the previous financial year were:
• An interim dividend of $ 54.2 million in respect of the period ended 31 December 2004, paid on 30
June 2005.
• A final dividend of a further $ 51.6 million in respect of the financial year ended 30 June 2005,
recommended to be paid during December 2005.
8.Review of OperationsThe operations of the Corporation during the financial year and the result of those operations are discussed in the Chairman’s
and Managing Director’s Review, Financial Review section and Review of Operations section of the Annual Report.
9.Change in State of AffairsThere were no significant changes in the state of affairs of the Corporation during the financial year, except as noted below:
• In July 2004, Tony Iannello was appointed Managing Director of Western Power. In August, Mr
Iannello instituted significant structural changes to Western Power in preparation for the eventual
disaggregation of the company. As part of the re-structure, four Strengthened Business Units were
created, representing the four operational arms of the business.
• In August 2004, Western Power announced StateWest Power was the successful bidder in the
MidWest Power Procurement program and would build power stations in five remote towns. Similar
procurement programs are delivering efficient, modern generation solutions helping Western Power
to meet customer expectations, comply with environmental licensing provisions and reduce losses in
regional areas of the State.
DIRECTORS’ REPORT continued
�0Western Power Annual Report �005
• In early October 2004, an innovative way of achieving renewable energy certificated (RECs) targets was
formalized with the signing of a biomass agreement with Western Australian pallet manufacturer Pinetec
Ltd. In displacing some 45,000 tonnes of coal each year, with a corresponding reduction of greenhouse gas
emissions, this agreement will produce more than 70,000 RECs a year. The agreement runs until 2010.
• In October 2004, Western Power signed a gas transportation agreement with the eventual new owners
of the Dampier to Bunbury Natural Gas Pipeline. The agreement sealed a gas transportation price and
an agreed mechanism for access to future expansion of gas pipeline capacity.
• Industrial action by the workforce of the Western Power maintenance contractor at Muja Power
Station caused considerable delay to the completion of the company’s generation portfolio
maintenance schedule.
• In the lead-up to summer, Western Power initiated a number of programs to increase generation
capacity and improve fuel flexibility in order to safeguard power supplies over the high demand
summer period. This included installing cooling sprays at Pinjar Power Station to offset the effect of
hot weather and provide 40-50 MW additional capacity, repairs of the two Muja Stage C units, which
were damaged during 2003 and the rental of four mobile distillate-fuelled turbines. Together these
projects realised a 185-205MW increase in generating capacity over the previous summer.
• On completion of a $7 million, 132,000-volt transmission link between the Parkestone Power Station and
the State’s main power grid in Kalgoorlie-Boulder, Western Power signed a power purchase agreement
with the Parkeston Power Station in December 2004 increasing available capacity by 35MW.
• Western Power has increased its oil stocks to achieve greater flexibility and security in fuel arrangements
and to offset occasional constraints on the Dampier to Bunbury Natural Gas Pipeline. The impact of these
measures, in the short-term, has been that higher fuel costs have been experienced.
• Deregulation to 5.7kW of the retail electricity market in WA on 1 January 2005 resulting in 60% of
Western Power sales being able to change supplier.
• In early March 2005, the State Coroner handed down findings in relation to the death of two women
in the Tenterden bushfire of 2003. The findings included a comprehensive set of recommendations
for Western Power to implement regarding network operation and bushfire risk mitigation. Western
Power has made major inroads into a number of the areas raised by the Coroner and has given an
undertaking to report to the Coroner on steps taken to action the recommendations.
• Western Power also faced prosecution in the Perth Magistrate’s Court in April 2005 over a series of
safety incidents that occurred in 2002 and 2003. Western Power pleaded guilty to these offences and
was fined a total of $80,500. Actions to remedy this situation have been put in place.
• As part of preparation for the disaggregation of Western Power and a future as stand- alone
businesses, the Networks Business Unit recognised the need to move from being internally regulated
to being externally regulated with a strong desire to improve customer experience and many of
the business unit’s operational activities. To achieve this, Networks has embarked on an integrated
program of major change related initiatives known as the One Step Ahead Implementation Program.
• The Electricity Corporations Bill 2005 has been amended to give the Minister powers to give
directions to the Corporation either generally or in relation to a particular matter, with respect to the
performance of its functions.
10.Events Subsequent to Balance DateOther than as disclosed below, there has not arisen in the interval between the end of the financial year and the date of
this report any matter or circumstance likely, in the opinion of the Directors, to affect significantly the operations of the
Corporation, the results of those operations, or the state of affairs of the Corporation in subsequent financial years.
DIRECTORS’ REPORT continued
�1Western Power Annual Report �005
• On 9 August 2005, the Corporation announced an unconditional agreement with Energy
Developments Limited to construct five new power stations in the West Kimberley. The West
Kimberley Power Procurement program will deliver new power stations in the towns of Broome,
Derby, Fitzroy Crossing, Halls Creek and Camballin-Looma. The Corporation has agreed a new
schedule for construction of the power stations. The Corporation will continue to supply power
to the five towns until the new plants are commissioned. The expected dates for the commercial
operation are as follows: Broome – March/April 2007, Looma – April 2007, Derby – May 2007,
Fitzroy Crossing – June 2007 and Halls Creek – July 2007.
• On 16 August 2005, the Corporation announced, following approval of the Western Power Board
and State Cabinet, that the successful bidder to construct a new baseload power station for the
SWIS was Wambo Power Ventures Pty Ltd (Wambo). Under the proposal, Wambo will provide an
additional 320 megawatts of power to the SWIS from a new gas-fired combined-cycle power station
to be built adjacent to Western Power’s Cockburn Power Station, which will enter commercial service
by end of November 2008.
• On 16 August 2005, the Corporation also announced, following approval of the Western Power
Board and State Cabinet, details of a 25-year contract to supply coal to the Corporation’s existing
power stations. Wesfarmers Premier Coal was the successful bidder to supply low-ash coal for the
Muja C and D and Collie Power Stations until 2030. Supply arrangements with Griffin Coal will
remain in place until 2010. Current arrangements with Wesfarmers Premier Coal are incorporated in
the new arrangements.
11.Likely Developments and Expected Results of OperationsThe most significant future developments for the Corporation are noted below:
• The Minister for Energy has signalled a clear intention for Western Power to be disaggregated by
31 March 2006. Disaggregation will result in the formation of four new state-owned businesses,
each with their own brand and Board of Directors. A networks business, a generation business and
a retail business will carry out the functions currently carried out by Western Power in the SWIS. A
regional power business will be formed to provide integrated energy services in the NWIS and 28
non-interconnected towns in regional WA.
• The Independent Market Operator (IMO) will conduct the first capacity auctions in 2006. While
Western Power will retain responsibility for ensuring adequate system capacity, the IMO will take on
this responsibility in 2007 with the capacity auctions the first step in this process. Western Power has
been directed by the Minister to cap its generation capacity at 3,000MW.
• Kemerton Power Station is expected to be commissioned during 2005 providing an additional
260MW of peaking capacity for the summer of 2005/06.
• An upgrade of the Dampier to Bunbury Natural Gas Pipeline for the summer of 2005/06 is expected
to provide an additional 23tj/day of firm gas transport.
• In 2005/06, Western Power’s total capital works program will increase $135 million to almost
$600 million – a 29 per cent increase on the estimated outturn for 2004/05. Western Power’s total
capital works program amounts to $2.1 billion over the 2005/06 to 2008/09 budget period. The
Government has approved a significant increase in capital works for the State’s electricity system,
with $488 million of additional capital works being approved for Western Power over the four-year
budget period.
• The Certified Agreement 2002 concludes in 2005. The new agreement is expected to be signed in
2005/06.
DIRECTORS’ REPORT continued
��Western Power Annual Report �005
• The Corporation is embarking on a comprehensive Information Technology (IT) plan that has been
developed with independent external assistance that will support the planned disaggregation of
Western Power. The plan is aimed at meeting the requirements of the electricity reform process and
the future strategic direction of the successor entities in a competitive market. In response to the IT
plan, the Government had approved additional funding of $66 million over the next four years.
• The Electricity Networks Access Code, which came into force on 30 November 2004, requires
Western Power to prepare a proposed Access Arrangement under the Code for an initial 3 year
period, and submit (by 24 August 2005) to the Economic Regulation Authority for approval. The
Authority will review Western Power’s proposal in detail, including a formal process for public
consultation, with a view to approving an Access Arrangement for commencement on 1 July 2006.
Existing arrangements and conditions for network access remain in effect until then.
• The Government has given a commitment that small business and domestic tariffs will remain
unchanged until 2009.
The Directors have not included in this report any further information on the likely developments in the operations of the
Corporation, the carrying value of the Corporation assets and the expected results of those operations in future years due
to the uncertainty surrounding the potential impact of the electricity reform program discussed above.
12.Directors’ BenefitsDuring the financial year, no Director (other than those disclosed above) has received or become entitled to receive a
benefit, other than benefits disclosed in the financial statements as emoluments or the fixed salary of a full-time employee
of the Corporation, by reason of a contract made by the Corporation with the Director or with a firm of which he/she is a
member, or with an entity in which he/she has a substantial financial interest.
13.Indemnification of Directors and OfficersDuring the financial year the Directors’ and Officers’ Liability Insurance Policy was renewed to ensure that the Directors
and Officers of the Corporation had adequate coverage. The cover will pay on behalf of the Corporation, or Directors and
Officers of the Corporation, losses arising from a claim or claims made against them jointly or severally during the period of
insurance by reason of any wrongful act (as defined by the policy) in the capacity of Director or Officer of the Corporation.
The Directors’ and Officers’ Liability Insurance Policy forms part of the Corporation’s Third Party Liability Policy, and it is
therefore not possible to determine the premium applicable.
At the date of this Report no claims have been made against the Directors and Officers component of the policy.
14.Auditor Independence and Non-Audit ServicesUnder the Corporation’s enabling legislation, the Parliament has appointed the Auditor General for Western Australia as
its Independent Auditor.
The Auditor General is appointed under the Financial Administration and Audit Act 1985, which provides for the
independence of the position. This Act provides that the Auditor General can conduct audits in the manner he sees fit
and is not subject to direction by any person about the way in which those powers are exercised.
The Auditor General does not perform non-audit services.
DIRECTORS’ REPORT continued
��Western Power Annual Report �005
15.Rounding of AmountsThe Corporation satisfies the requirements of clause 32 of Schedule 3 contained in the Electricity Corporation Act 1994 and
accordingly, amounts in the financial statements and Directors’ Report have been rounded to the nearest thousand dollars
unless specifically stated to be otherwise.
Signed in accordance with a resolution of the Board of Directors.
Mr ND HAMILTON
Chairman
22 August 2005
DIRECTORS’ REPORT continued
Mr AM IANNELLO
Managing Director
��Western Power Annual Report �005
for the Year ended 30 June 2005
notes 30/06/05 30/06/04
$’000 $’000
Sales of Electricity 1,615,888 1,542,806
Less: Cost of Sales � 1,258,249 1,077,060
gross Profit 357,639 465,746
Plus: Other Revenue from Ordinary Activities � 258,738 230,401
Less: Other Expenditure from Ordinary Activities � 172,700 196,798
Less: Borrowing Costs 5 146,745 148,164
Profit from ordinary activities Before income tax expense � 296,932 351,185
Less: Income Tax Expense � 90,797 109,604
net Profit 206,135 241,581
This Statement should be read in conjunction with the attached Notes to the Financial Statements set out on the following pages.
For ease of use the numbers in the above ’notes’ column are hyperlinked to the relevant notes pages.
STATEMENT OF FINANCIAL PERFORMANCE
�5Western Power Annual Report �005
STATEMENT OF FINANCIAL POSITION
as at 30 June 2005
notes 30/06/05 30/06/04
$’000 $’000
Current assets
Cash Assets 9 18,743 29,549
Receivables 10 238,150 216,722
Inventories 11 145,931 103,416
Other 12 13,244 17,006
total Current assets 416,068 366,693
non-Current assets
Property, Plant and Equipment 13 4,335,605 4,130,296
Future Income Tax Benefit 74,523 76,497
Other Financial Assets 14 752 1,342
Other 12 11,792 14,612
Total Non-Current Assets 4,222,672 4,222,747
total assets 4,838,740 4,589,440
Current LiaBiLities
Payables 15 162,458 124,590
Tax Liabilities 17 7,105 56,696
Provisions 18 107,164 112,462
Other 19 68,615 40,348
total Current Liabilities 345,342 334,096
non-Current LiaBiLities
Payables 15 31,272 32,783
Interest Bearing Liabilities 16 2,450,569 2,325,855
Tax Liabilities 17 157,778 144,096
Provisions 18 154,951 149,984
Other 19 24 11,186
total non-Current Liabilities 2,794,594 2,663,904
total Liabilities 3,139,936 2,998,000
net assets 1,698,804 1,591,440
eQuitY
Contributed Equity 20 17,769 10,757
Retained Profits 20 1,681,035 1,580,683
totaL eQuitY 1,698,804 1,591,440
This Statement should be read in conjunction with the attached Notes to the Financial Statements set out on the following pages.
For ease of use the numbers in the above ’notes’ column are hyperlinked to the relevant notes pages.
��Western Power Annual Report �005
STATEMENT OF CASH FLOWS
for the Year ended 30 June 2005
notes 30/06/05 30/06/04
$’000 $’000
Cash fLoWs from oPerating aCtivities
Receipts in the Course of Operations 1,787,898 1,705,058
Other Operating Revenue from Ordinary Activities 124,018 145,690
Interest Received 1,338 1,447
Payments to Employees and Suppliers (1,326,891) (1,065,108)
Borrowing Costs Paid (150,933) (191,677)
Lease Expenses (15,714) (6,482)
Income Tax Paid (120,257) (93,638)
Goods & Services Tax Paid (47,131) (66,938)
net Cash infLoWs from oPerating aCtivities 25 248,328 428,352
Cash fLoWs from investing aCtivities
Proceeds from Investments in Other Entities (15) 1,773
Payment for Property, Plant and Equipment (422,906) (315,947)
Proceeds from Sale of Property, Plant and Equipment 7,874 13,316
net Cash outfLoWs from investing aCtivities (415,047) (300,858)
Cash fLoWs from finanCing aCtivities
Dividends Paid (95,395) (117,900)
Proceeds from Interest Bearing Liabilities 1,317,304 1,014,612
Repayment of Interest Bearing Liabilities (1,188,589) (1,101,365)
CES, Customers’ and Contractors’ Deposits (1,038) (1,104)
Developer and Customer Contributions to Capital Works 116,516 77,618
Proceeds from Contributed Equity 7,013 1,231
net Cash infLoWs/(outfLoWs) from finanCing aCtivities 155,811 (126,908)
net inCrease in Cash assets heLd (10,908) 586
Cash assets at Beginning of finanCiaL Year 29,549 29,101
Effects of Exchange Rate Changes on Cash Assets 102 (138)
Cash at end of the finanCiaL Year 25 18,743 29,549
This Statement should be read in conjunction with the attached Notes to the Financial Statements set out on the following pages.
For ease of use the numbers in the above ’notes’ column are hyperlinked to the relevant notes pages.
��Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1 Basis of Preparation
The financial statements are a general purpose financial report which has been prepared in accordance
with relevant Australian Accounting Standards, Urgent Issues Group (UIG) Consensus Views and the
disclosure requirements of Schedule 3 of the Electricity Corporation Act 1994.
These financial statements have been prepared on the basis of historical costs and, except where stated,
do not take into account changing money values or current valuations of non-current assets.
1.2 Revenue Recognition
1.2.1 Sales of Electricity
Sales of electricity comprises revenue earned from the provision of electricity to entities outside
the economic entity and is recognised when the electricity is provided. As at each reporting
date, sales and trade debtors incorporate amounts attributable to ‘unread sales’, which are an
estimate of electricity delivered to customers, which has not been billed at the reporting date.
1.2.2 Developer and Customer Contributions
The Corporation receives developer and customer contributions toward the extension of electricity
infrastructure to facilitate network connection. Contributions can be in the form of either cash or
assets and consist of:
• Work Performed for Developers – developers make cash contributions to the
Corporation for the construction of electricity infrastructure within a subdivision;
• Handover Works – developers have the option to independently construct electricity
infrastructure within a subdivision. Upon approval by the Corporation of the
completed work these network assets are vested to the Corporation;
• Upgrade and New Connections – customers (including generators) make cash
contributions for the upgrade or extension of electricity infrastructure to existing lots,
or for the construction of electricity infrastructure to new lots in existing areas.
Cash contributions received are recognised as revenue consistent with the percentage
completion of the asset construction being funded. Vested assets are recognised as revenue at
the point of handover and are measured at their fair value. The network assets resulting from
contributions received are recognised as property, plant and equipment and depreciated over
their useful life.
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005
��Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
1.2 Revenue Recognition continued
1.2.3 Other Revenue from Ordinary ActivitiesRevenue is recognised to the extent it is probable the economic benefits will flow to the
Corporation and that it can be reliably measured. It is valued at the fair value of the consideration
received, or to be received net of the amount of goods and services tax.
Other revenue from ordinary activities includes:
• Account Fees
• Business Ventures
• External Chargeable Works
• Generation Fuel Sales
• Grant Received
• Interest
• Lease Renewal Incentive
• Network Access Charges
• Proceeds on Sale of Non-Current Assets
• Property Rent
• Renewable Energy Certificates, and
• Tariff Migration Reimbursement.
1.3 Goods and Services Tax
Revenues, expenses and assets are recognised net of amount of goods and services tax (GST), except where the
amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances the
GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense.
Receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in
the statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows
arising from investing and financing activities which are recovered from, or paid to, the ATO are classified as
operating cash flows.
1.4 Receivables
Trade debtors to be settled within 30 days are carried at amounts due. A provision for doubtful debts is
raised where some doubt as to collection exists. The provision for doubtful debts is based on an analysis of
bad debts experience and current economic conditions.
Collectability of trade debtors is reviewed on an ongoing basis. Debts, which are known to be irrecoverable,
are written off.
NOTES TO THE FINANCIAL STATEMENTS continued
�9Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
1.5 Cost of Sales
Cost of sales represents the costs attributable to the integrated manufacturing process involved in the
generation and transformation of electricity into a saleable good.
1.5.1 Fuel Costs
Costs for coal and liquid fuels are assigned on the basis of weighted average cost. Gas costs
comprise payments made under the sale and purchase agreement and the drawdown of
prepaid gas. Prepaid gas is assigned at its holding cost.
1.6 Borrowing Costs
Borrowing costs are recognised as expenses in the reporting period in which they are incurred, except where
they are included in the costs of qualifying assets as described in Note 1.9.1.
Borrowing costs are capitalised at the weighted average interest rate applicable to the Corporation’s
outstanding borrowings during the period of capitalisation. The weighted average interest rate used during
the reporting period was 6.4% (June 04: 6.5%). Capitalisation ceases when the activities necessary to
prepare the asset for use are substantially completed.
Borrowing costs include:
• Interest on bank overdrafts, short-term and long-term borrowings
• Amortisation of discounts relating to borrowings
• Amortisation of ancillary costs incurred in connection with the arrangement of borrowings
• Finance lease charges
• Exchange differences arising from foreign currency borrowings
• Unrealised and realised gains and losses on bond futures contracts, and
• Amortisation of realised gains and losses on forward rate agreements.
1.7 Current Assets and Current Liabilities
Current assets and current liabilities are recognised on the basis of assets expected to be realised or
consumed and liabilities expected to be settled within the next twelve months.
1.8 Cash Assets
For purposes of the statement of cash flows, cash assets include deposits at call which are readily convertible
to cash on hand and which are used in the cash management function on a day-to-day basis, net of any
outstanding bank overdraft.
NOTES TO THE FINANCIAL STATEMENTS continued
�0Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
1.9 Property, Plant and Equipment
1.9.1 Capitalisation of Borrowing Costs
Borrowing costs are capitalised during the construction of major capital projects that have
construction periods extending beyond one year. Capitalised borrowing costs are broadly
determined as the amount of borrowing costs that would have been avoided, but for the
construction of the asset.
1.9.2 Acquisition of Assets
The cost method of accounting is used for all acquisitions of assets. Cost is determined as the fair
value of the asset given at the date of acquisition plus costs incidental to the acquisition.
The Corporation is a statutory corporation subject to the requirements of the Electricity
Corporation Act 1994 and came into existence on 1 January 1995. The electricity functions and
assets of the State Energy Commission of Western Australia (SECWA) were transferred to the
Corporation on this date. The assets acquired were brought to account at their written down
accounting value in the books as at 31 December 1994.
Direct costs together with associated indirect costs in respect of assets being constructed, are
capitalised.
1.9.3 Recoverable Amount of Non-Current Assets
The carrying amounts of non-current assets are reviewed annually to determine whether they are
in excess of their recoverable amount. If the carrying amounts of non-current assets exceed the
recoverable amount, the assets are written down to the lower amount. The recoverable amount
of an asset is the net amount expected to be recovered through the net cash inflows arising from
its continued use and subsequent disposal.
In assessing recoverable amount of non-current assets the relevant cash flows are based on
projected financial results and an assumed terminal value. These cashflows are discounted to their
present value using rates that reflect asset specific risk. The range used is from a minimum of
6.4% to a maximum of 10.3%.
NOTES TO THE FINANCIAL STATEMENTS continued
�1Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
1.9 Property, Plant and Equipment continued
1.9.4 Depreciation
Discrete assets that are not subject to continual extension and modification are depreciated using
the straight-line method. Such assets include power stations, gas turbines, the transmission
network, buildings and motor vehicles.
Other assets, primarily the electricity distribution network, which are continually extended and
modified, are depreciated using the reducing balance method.
The useful lives of the Corporation’s major asset classes are as follows:
Plant and Equipment 240-540 months
Buildings 480 months
Leasehold Improvements 120 months
Depreciation rates are reviewed annually, and if necessary adjusted so they reflect the most recent
assessment of the useful lives of the assets.
1.9.5 Leased Assets
Leases of plant and equipment under which the Corporation assumes substantially all the
risks and benefits of ownership are classified as finance leases. Other leases are classified as
operating leases.
Finance leases are brought to account by recording an initial asset and liability equal to the
present value of the minimum lease payments including any guaranteed residual values. Leased
assets are amortised over their expected useful lives. Lease payments are allocated between
interest expense in the statement of financial performance and reduction of lease liability in the
statement of financial position.
Operating lease payments are representative of the pattern of benefits derived from the leased
assets and accordingly are charged to the statement of financial performance in the reporting
periods in which they are incurred.
1.10 Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is assigned on the basis of
weighted average cost. A provision is maintained to allow for the diminution in value of inventories due to
obsolescence and items being surplus to requirements.
NOTES TO THE FINANCIAL STATEMENTS continued
��Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
1.11 Controlled Entities
1.11.1 Joint Venture Operations
The Corporation’s interests in unincorporated joint ventures are brought to account by including
amounts in the following categories in the statement of financial performance and the
statement of financial position:
• Each of the individual assets employed in the joint ventures
• Liabilities incurred by the Corporation in relation to the joint ventures
• Expenses incurred in relation to the joint ventures, and
• Revenue from the sale of output.
1.11.2 Joint Venture Entities
The investment in joint venture entities is carried at the lower of cost and recoverable amount.
1.11.3 Associate Entities
The investment in associates is carried at the lower of cost and recoverable amount. Dividend
income is brought to account at the time it is declared.
1.12 Trade and Other Creditors
These amounts represent liabilities for goods and services provided to the Corporation prior to the end of the
reporting period that are unpaid. The amounts are unsecured and are settled within prescribed periods.
1.13 Provisions
A provision is recognised when there is a legal, equitable or constructive obligation as a result of a past event
and it is probable that an outflow of economic benefits will be required to settle the obligation.
1.13.1 Dividends
A provision for dividends payable is recognised in the reporting period in which they are
declared, for the entire amount declared but undistributed, regardless of the extent to which
they will be paid in cash.
1.13.2 Employee Entitlements
Provision is made for employee entitlements accumulated as a result of employees rendering
services up to the reporting date. These entitlements include annual leave and long service
leave including relevant on-costs.
NOTES TO THE FINANCIAL STATEMENTS continued
��Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
1.13 Provisions continued
1.13.2 Employee Entitlements continued
Liabilities arising in respect of annual leave, long service leave and any other employee
entitlements expected to be settled within twelve months of the reporting date are measured
at their nominal amount based on remuneration rates which are expected to be paid when the
liability is settled. All other employee entitlement liabilities are measured at the present value of
the estimated future cash outflow to be made in respect of services provided by employees up
to the reporting date. In determining the present value of future cash outflows, the market yield
as at the reporting date on selected commonwealth government securities, which have terms to
maturity approximating the terms of the related liability, are used.
1.13.3 Superannuation
The Corporation has a liability in respect to employees who are members of the Superannuation
and Family Benefits Act Scheme. This scheme is closed to new members. The Corporation’s
liability is in respect of the employer portion of any amounts that are payable to scheme
members in their retirement.
The balance of the provision is actuarially reviewed at the conclusion of each financial year;
PriceWaterhouseCoopers performed an actuarial review as at 30 June 2005.
1.13.4 Decommissioning Costs
As generation plant nears the end of its useful life a provision is made for anticipated costs of
restoration and rehabilitation. Restoration and rehabilitation costs are calculated and spread
over the remaining life of the asset on a straight-line method.
1.14 Foreign Exchange
As a policy objective, the Corporation has eliminated its exposure to foreign currencies, except for minor
exposures arising through the normal course of business.
Foreign exchange transactions are brought to account to conform to Accounting Standard AASB 1012
“Foreign Currency Translation”. Specific treatment of these transactions is stated below:
1.14.1 Transactions
Foreign currency transactions are initially translated into Australian currency at the rate of
exchange at the date of the transaction. At the reporting date, amounts payable and receivable
in foreign currencies are translated into Australian currency at rates of exchange current at that
date and the resulting exchange differences are brought to account in determining the profit or
loss for the reporting period.
NOTES TO THE FINANCIAL STATEMENTS continued
��Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
1.14 Foreign Exchange continued
1.14.2 Specific Commitments
Gains or losses arising upon entry into a hedging transaction intended to hedge the purchase
or sale of goods or services, together with subsequent exchange gains or losses resulting from
those transactions are deferred and included in the measurement of the purchase or sale. In
the case of hedges of monetary items, exchange gains or losses are brought to account in the
reporting period in which the exchange rate changes.
1.14.3 General Commitments
Exchange gains or losses on hedge transactions, other than those covered above, are brought
to account in the statement of financial performance in the reporting period in which
exchange rates change.
1.14.4 Speculative Commitments
The Corporation does not undertake speculative transactions.
1.15 Derivative Financial Instruments
Through its operations, the Corporation is exposed to changes in foreign exchange rates, interest rates and
commodity prices. These risks are managed with the prudent use of derivative products. The Corporation
only uses derivatives in highly liquid markets and all hedge activities are conducted within Board approved
policy. Comprehensive systems are in place and compliance is monitored closely. The Corporation uses
derivatives solely for hedging and not for speculative purposes.
Gains and losses on derivatives used as hedges are accounted for on the same basis as the underlying
physical exposures they are hedging. Accordingly, hedge gains and losses are included in the statement of
financial performance when the gains and losses arising on the related primary exposures are recognised.
Gains and losses related to hedges for qualifying assets in respect of firm commitments are deferred and
recognised as adjustments of carrying amounts when the hedged transaction occurs.
The Corporation uses the following derivative financial instruments to hedge risks - interest rate swaps, cross
currency swaps, commodity swaps, forward foreign exchange contracts, forward rate agreements, foreign
currency and commodity options, and bond futures contracts.
1.15.1 Interest Rate SwapsInterest payments and receipts under interest rate swap contracts are recognised on an accrual
basis in the statement of financial performance as an adjustment to borrowing costs during the
reporting period.
NOTES TO THE FINANCIAL STATEMENTS continued
�5Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
1.15 Derivative Financial Instruments continued
1.15.2 Cross Currency SwapsInterest payments and receipts under cross currency swaps are recognised on an accrual
basis in the statement of financial performance. The carrying amounts of cross currency
swaps, which comprise net receivables and payables are included in the statement of financial
position.
1.15.3 Commodity SwapsGains or losses arising upon entering into commodity swaps intended to hedge the purchase
of commodities are recognised as adjustments to the carrying amount of the asset.
1.15.4 Forward Foreign Exchange ContractsThe accounting for forward foreign exchange contracts is set out in Note 1.14.
1.15.5 Forward Rate AgreementsRealised gains or losses on forward rate agreements are deferred in the statement of financial
position and amortised to the statement of financial performance over the underlying term of
the agreement.
1.15.6 Foreign Currency and Commodity Options
The premium paid on foreign currency and commodity options is amortised over the period
of the contracts and together with any realised gains or losses on exercising the options, is
included in the measurement of the purchase.
1.15.7 Bond Futures Contracts
Unrealised and realised gains and losses arising from entering into bond futures contracts are
recognised in the statement of financial performance as an adjustment to borrowing costs in
the reporting period they arise.
1.16 National Taxation Equivalent Regime
The Corporation entered into the National Taxation Equivalent Regime (NTER) environment on 1 July
2001 having previously operated under the state-based Taxation Equivalent Regime. While tax equivalent
payments will continue to be remitted to State Treasury, the Corporation’s tax is subject to Australian
Taxation Office administration. The calculation of the liability in respect of these taxes is governed by the
Income Tax Assessment Acts and the NTER guidelines as agreed by the State Government.
The Corporation has adopted the liability method of tax effect accounting procedures whereby the income
tax expense shown in the statement of financial performance is based on the net profit before income tax
adjusted for permanent differences.
NOTES TO THE FINANCIAL STATEMENTS continued
��Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
1.16 National Taxation Equivalent Regime continued
Timing differences, which arise due to the different accounting periods in which items of revenue and
expense are included in the determination of net profit before income tax and taxable income, are brought to
account as either a provision for deferred income tax or as an asset described as future income tax benefit at
the rate of income tax applicable to the reporting period in which the benefit will be received or the liability
will become payable.
Future income tax benefits are not brought to account unless realisation of the asset is assured beyond
reasonable doubt. Future tax benefits in relation to tax losses are not brought to account unless the benefit
can be regarded as being virtually certain of realisation.
1.17 Prepayments
Current and non-current prepayments comprise fuel for generation, lease and other payments. Prepaid
expenses are charged to the statement of financial performance in the reporting period in which the
associated benefit is consumed.
1.18 Community Service Obligations
Community Service Obligations (CSO’s) are obligations to perform functions, on behalf of the State
Government, that it is not in the commercial interests of the Corporation to perform. Where the Government
agrees to reimburse the Corporation for the cost of CSO’s, the entitlement to reimbursement is recognised
in the statement of financial performance on a basis consistent with the associated CSO expenses. As at 30
June 2005 the Corporation recognised an entitlement of $42.7 million (June 2004: $34.7 million) for the
reimbursement of CSO’s including:
• Supply charge rebates
• Tariff migration reimbursement
• Interval Electricity Meter subsidy
• Caravan park rebates, and
• Air conditioning subsidy for seniors.
1.19 Repairs and Maintenance
Maintenance, repair costs and minor renewals are charged as expenses as incurred.
1.20 Comparatives
Where necessary, comparative information has been reclassified to achieve consistency in disclosure with
current reporting period amounts and other disclosures.
NOTES TO THE FINANCIAL STATEMENTS continued
��Western Power Annual Report �005
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
1.21 Renewable Energy Certificates
The Renewable Energy (Electricity) Act which took effect on 1 April 2001, requires electricity wholesale
purchasers to source specified amounts of electricity from Renewable Energy (RE) sources. The Act imposes
an annual liability, on a calender year basis, by applying the specified Renewable Power Percentage to
relevant wholesale acquisitions.
The RE liability is extinguished by annual surrender of an equivalent number of Renewable Energy
Certificates (RECs), with a penalty applying for any shortfall. The Corporation’s liability is recognised at
a value equivalent to the REC penalty. For the financial year ended 30 June 2005, $7.7 million (June
2004: $4.9 million) has been recognised as an expense in relation to the Corporation’s renewable energy
obligation.
The Corporation extinguishes its REC liability by the surrender of RECs that are either self produced or
purchased in the open market. Self-produced RECs are recognised as an asset at a value equivalent to its
net realisable value. RECs purchased from external sources are recognised as an asset at their purchase
price.
1.22 Revision of Accounting Estimate
At the beginning of the financial year all developer and customer funded capital activity in the electricity
distribution network was estimated to be complete. This was based on a historically short completion
period for such capital work. Increased capital activity on the electricity distribution network is however
leading to increases in the time taken to complete capital jobs and in the number of jobs incomplete at
period end. Through enhanced information systems the Corporation can now more accurately estimate the
actual percentage of completion for the large volume of jobs involved. For the financial year ended 30 June
2005 this has resulted in an additional $30.1 million of developer and customer contributions revenue being
deferred to future accounting periods to be matched with construction progress on the related electricity
distribution network assets. The size of the amount deferred may vary in future periods subject to the level
of customer and developer demand for capital work, the scope of works, and the lead time and duration of
those works.
NOTES TO THE FINANCIAL STATEMENTS continued
��Western Power Annual Report �005
2.COST OF SALES30/06/05 30/06/04
$’000 $’000
Fuel and Electricity Purchases 636,323 524,809
Labour, Materials and Services 386,119 321,386
Depreciation 223,161 220,415
Other 12,646 10,450
1,258,249 1,077,060
3.OTHER REVENUE FROM ORDINARY ACTIVITIES
Revenue from Operating Activities
Developer and Customer Contributions* 109,839 87,727
External Chargeable Works 38,525 32,793
Network Access Charges 16,936 17,050
Account Fees 11,871 11,500
Revenue from Non-Operating Activities
Generation Fuel Sales 32,467 26,588
Tariff Migration Reimbursement ** 8,620 -
Business Ventures 8,078 8,891
Proceeds on Sale of Non-Current Assets 7,874 13,522
Grant Received 3,474 2,164
Renewable Energy Certificates 2,372 2,459
Lease Renewal Incentive 2,023 2,838
Interest 1,110 1,659
Property Rent 425 422
Other 15,124 22,788
258,738 230,401
* Developer and Customer Contributions revenue recognised is in respect of electricity network assets vested to
the Corporation or constructed using cash contributions. As at 30 June 2005 cash contributions of $58.9 million
(comprising of $34.8 million for Distribution and $24.1 million for Transmission) have also been recognised as
Deferred Income in the balance sheet and will be recognised as revenue in future reporting periods as construction
of the related electricity network asset progresses. Contributions are taxable in the period they are recognised as
revenue. In future reporting periods the Corporation will incur depreciation and interest costs in relation to the assets
constructed.
The Corporation’s Developer and Customer Contributions accounting policy is disclosed in Note 1.2.2. This should be
read in conjunction with Note 1.22.
** New revenue item representing reimbursement by the State Government of revenue losses resulting from the transfer
of selected State Government agencies, conducting commercial activities in the Pilbara and remote areas, to the
general business tariff.
NOTES TO THE FINANCIAL STATEMENTS continued
�9Western Power Annual Report �005
4.OTHER EXPENDITURE FROM ORDINARY ACTIVITIES30/06/05 30/06/04
$’000 $’000
Labour, Materials and Services 102,559 105,081
Generation Fuel Costs 29,843 19,857
Operating Lease Rentals 15,714 6,482
Renewable Energy Certificates 7,686 4,919
Depreciation 6,262 8,369
Written Down Value on Sale of Non-Current Assets 4,360 9,826
Bad Debts Written Off 2,351 1,968
Write Down of Other Financial Assets 609 1,646
Write Down of Plant and Equipment to Recoverable Amount - 23,081
(Write Up)/Write down of Power Station Fuel Inventory (2,035) 5,825
Other 5,351 9,744
172,700 196,798
5.BORROWING COSTS
Domestic Currency Loans 147,078 151,038
Currency and Interest Rate Swaps (675) (3)
Forward Rate Agreements 289 (291)
Finance Lease Interest 150 -
Other 68 406
146,910 151,150
Government Loan Guarantee Charge 3,854 4,046
150,764 155,196
Less: Capitalised Borrowing Costs 4,019 7,032
146,745 148,164
NOTES TO THE FINANCIAL STATEMENTS continued
�0Western Power Annual Report �005
6.PROFIT FROM ORDINARY ACTIVITIES BEFORE INCOME TAX EXPENSE
30/06/05 30/06/04
$’000 $’000
Profit Before Income Tax Expense is Arrived at After:
Crediting the following items
Net Profit/(Loss) on Sale of Non-Current Assets
- Property, Plant and Equipment 3,514 3,712
- Investments - (16)
Charging the following items
Bad Debts
- Written off to the Statement of Financial Performance 2,351 1,968
- (Decrease)/Increase in Provision for Doubtful Debts (146) 315
Depreciation and Amortisation
- Plant and Equipment 219,686 219,775
- Buildings 11,465 10,639
- Capitalised (2,162) (1,676)
- Leasehold Improvements 46 46
- Leased Assets 388 -
Leasing Costs
- Operating Lease Rentals 15,714 6,482
Auditors’ Remuneration
Audit Services for Annual Accounts
- External Auditors of the Corporation 247 230
Significant Items
�00�/�005As at the reporting date there are no significant items.
�00�/�00�
Fuel Price Renegotiation
During the financial year ended 30 June 2004 fuel and electricity purchases increased from $522.3 million to
$524.3 million. This increase was less than proportional to the rate of increase in sales, due mainly to renegotiated
contracts, some of which related to the prior year. The financial impact was brought to account in 2003/2004.
NOTES TO THE FINANCIAL STATEMENTS continued
�1Western Power Annual Report �005
6.PROFIT FROM ORDINARY ACTIVITIES BEFORE INCOME TAX EXPENSE continued
Significant Items continued
�00�/�00� continued
Write-Down of Plant and Equipment to Recoverable Amount Since late 1999 the Corporation has been trialling a telecommunications initiative under the name “Bright Telecommunications”. The aim of the pilot project was to develop a new broadband access network providing customers with fully independent telephony services, affordable high-speed internet access and other advanced services. The pilot project involved the deployment of a broadband access network in conjunction with the undergrounding of low voltage distribution assets. This included conducting service trials in the suburbs of South Perth and Como. In addition, a low visibility aerial deployment trial was completed in the suburb of Victoria Park.
The pilot phase of this project was completed during 2003/2004 and the results assessed, including the requirements to progress to a full commercial operation. On 21 July 2004 the Directors decided to close the project. Directors subsequently assessed the disposal value of the assets as up to $1 million, but because the costs associated with an orderly wind up of operations were anticipated to exceed the sale proceeds, the recoverable amount of these assets was assessed as zero. Based on this assessment the Directors wrote down the assets by $23.1 million to their recoverable amount.
The financial impact for the year ended 30 June 2004 was a $23.1 million increase in other expenditure from ordinary activities.
A detailed assessment of disposal options was conducted during 2004/2005 from which it was concluded that a sale of the Bright business as a going concern may yield a higher return than a sale of the assets of the project. As at 30 June 2005 a
sale of the Bright Telecommuniciations project is in progress.
7.INCOME TAX EXPENSE30/06/05 30/06/04
$’000 $’000
The Prima Facie Tax on Profit is Reconciled to Income Tax Provided in the Accounts as follows:
Profit Before Income Tax Expense 296,932 351,185
Income Tax Calculated at 30% 89,080 105,356
Tax Effect of Permanent Differences
- Provision for Decommissioning Costs 2,669 3,238
- Non-Assessable Profit on Sale of Non-Current Assets (551) (424)
- Research and Developments Costs (451) (450)
- Non-Deductible Depreciation of Buildings 576 580
- Non-Deductible Depn/Amortn/Bright/Other 197 579
- Other (723) 725
Total Tax Effect of Permanent Differences 1,717 4,248
Income Tax Expense 90,797 109,604
Total Income Tax Expense Comprises the Following:
Additions to: Provision for Income Tax 75,141 106,871
Provision for Deferred Income Tax 13,682 15,940
Future Income Tax Benefit - (13,207)
Reduction to: Future Income Tax Benefit 1,974 -
90,797 109,604
NOTES TO THE FINANCIAL STATEMENTS continued
GENERATION NETWORKS RETAIL PILBARA REGIONAL POWER UNALLOCATED CONSOLIDATED30/06/05 30/06/04 30/06/05 30/06/04 30/06/05 30/06/04 30/06/05 30/06/04 30/06/05 30/06/04 30/06/05 30/06/04 30/06/05 30/06/04
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
STATEMENT OF FINANCIAL PERFORMANCE
External Revenue 69,063 60,376 170,155 152,572 1,512,572 1,445,418 51,555 43,040 70,320 66,185 828 5,616 1,874,626 1,773,207
Inter-Segment Revenue 851,091 803,549 483,716 474,580 5,093 4,887 143 1,716 66 449 25,859 36,937 1,365,968 1,322,118
Total Revenue 920,154 863,925 653,871 627,152 1,517,798 1,450,305 51,698 44,756 70,386 66,634 26,687 42,553 3,240,594 3,095,325
External Expenditure (800,392) (696,633) (306,035) (253,947) (119,112) (107,385) (23,356) (20,240) (116,246) (99,270) (65,808) (96,383) (1,430,949) (1,273,858)
Inter-Segment Expenditure (48,497) (45,503) (24,177) (37,218) (1,270,819) (1,207,468) (8,740) (11,152) (9,155) (10,639) (4,580) (10,138) (1,365,968) (1,322,118)
Total Expenditure (848,889) (742,136) (330,212) (291,165) (1,389,931) (1,314,853) (32,096) (31,392) (125,401) (109,909) (70,388) (106,521) (2,796,917) (2,595,976)
Segment Results 71,265 121,789 323,659 335,987 127,867 135,452 19,602 13,364 (55,015) (43,275) (43,701) (63,968) 443.677 499.349
Borrowing Costs (146,745) (148,164)
Profit from Ordinary Activities before Income Tax Expense 296,932 351,185
Income Tax Expense (90,797) (109,604)
NET PROFIT 206,135 241,581
Depreciation 124,937 128,819 88,711 83,013 969 2,752 3,396 3,354 7,417 7,440 3,993 3,406 229,423 228,784
8. Segment Information
82Western Power Annual Report 2005
NOTES TO THE FINANCIAL STATEMENTS continued
83Western Power Annual Report 2005
GENERATION NETWORKS RETAIL PILBARA REGIONAL POWER UNALLOCATED CONSOLIDATED30/06/05 30/06/04 30/06/05 30/06/04 30/06/05 30/06/04 30/06/05 30/06/04 30/06/05 30/06/04 30/06/05 30/06/04 30/06/05 30/06/04
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
STATEMENT OF FINANCIAL POSITION
Segment Assets 1,699,507 1,762,704 2,675,941 2,368,004 201,290 187,259 108,233 104,198 125,964 114,614 27,805 52,661 4,838,740 4,589,440
Segment Liabilities (292,419) (285,879) (292,913) (265,249) (58,667) (67,486) (6,532) (5,879) (28,636) (25,211) (10,200) (22,441) (689,367) (672,145)
Net Assets Before Borrowings 1,407,088 1,476,825 2,383,028 2,102,755 142,623 119,733 101,701 98,319 97,328 89,403 17,605 30,220 4,149,373 3,917,295
Borrowings (2,450,569) (2,325,855)
NET ASSETS 1,698,804 1,591,440
Acquisitions of Non-Current Assets 29,543 36,280 373,678 256,982 1,630 1,102 6,691 4,737 8,347 12,784 10,072 (1,595) 429,961 310,290
Segment ReportingSegment revenues, expenditures, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise corporate office and Information Technology Group revenues, expenditures, assets and liabilities.
Western Power Corporation operates as a vertically integrated business, but in accordance with the disclosure requirements of the Electricity Corporation Act 1994 the following segments are presented -Industry SegmentThe major products/services from which the above segments derive revenue are:Generation - Generates and sells electricity to the Retail segment;Networks - Transports and distributes electricity from generators to the Retail segment and third party users of the network.Retail - Purchases and sells electricity to customers in the South West Interconnected System. Pilbara Power - Purchases, transports, distributes and sells electricity in Western Australia’s Pilbara System; andRegional Power - Generates, purchases, distributes and sells electricity in Western Australia’s remote areas.
Geographical SegmentsThe Corporation operates entirely in Australia.
Significant inter-segment revenues are earned by the Generation and Network segments. Inter-segment Generation revenues are based on an internal pricing mechanism and inter-segment Network revenues are based on published network access price schedules. The result of the Retail segment is significantly influenced by inter-segment expenditure in respect of electricity purchases from the Generation segment and access charges from the Network segment.
The State Government has announced a plan to separate Western Power Corporation into four new corporations from 1 April 2006. The process of establishing these new entities will require the allocation of the Corporation’s assets, liabilities, revenues, expenses, and contracts. The resulting financial arrangements may differ significantly from those presented above as arrangements such as vesting contracts, tariff equalisation funds, service level agreements and other such mechanisms will be finalised during the course of 2005/06.
NOTES TO THE FINANCIAL STATEMENTS continued
8. Segment Information continued
��Western Power Annual Report �005
9.CASH ASSETS30/06/05 30/06/04
$’000 $’000
Cash at Bank 13,686 26,390
Domestic Currency Deposits 5,000 3,000
Foreign Currency Deposits 57 159
18,743 29,549
10.RECEIVABLES
Trade Debtors 233,391 208,368
Less: Provision for Doubtful Debts 3,259 3,405
230,132 204,963
Other Debtors 8,018 11,759
238,150 216,722
11.INVENTORIES
Power Station Fuels - at Cost 62,493 38,550
Power Station Fuels - at Net Realisable Value * - 9,684
Material Stores - at Cost 79,659 53,184
Less: Provision for Obsolete Stock 272 884
79,387 52,300
Work in Progress - at Cost 575 363
Renewable Energy Certificates 3,394 2,519
Other 82 -
145,931 103,416
*In the financial years ended 30 June 2003 and 30 June 2004 coal stocks held for delivery against firm sales contracts were written down to their net realisable value. These sale contracts expired on 30 June 2005. The unsold quantity of coal has been restated back to cost of $5.2 million. This has resulted in a write up of $2.0 million.
NOTES TO THE FINANCIAL STATEMENTS continued
�5Western Power Annual Report �005
12.OTHER ASSETS30/06/05 30/06/04
$’000 $’000
Current
Prepayments 13,244 17,006
non-Current
Prepayments 8,086 13,936
Other 3,706 676
11,792 14,612
13.PROPERTY, PLANT AND EQUIPMENT
Plant and equipment
Plant and Equipment - at Cost 6,139,933 5,818,396
Less: Accumulated Depreciation 2,551,971 2,340,982
Plant and Equipment - at Cost 3,587,962 3,477,414
Plant and Equipment - at Recoverable Amount 8,077 8,077
Less: Accumulated Depreciation 1,775 731
Plant and Equipment - at Recoverable Amount 6,302 7,346
Plant and equipment - net Book value 3,594,264 3,484,760
Land - net Book value 48,160 39,554
Buildings
Buildings 309,648 308,100
Less: Accumulated Depreciation 133,860 122,847
Buildings - net Book value 175,788 185,253
Leasehold improvements
Leasehold Improvements 458 458
Less: Accumulated Depreciation 161 115
Leasehold improvements - net Book value 297 343
Works under Construction - net Book value 517,096 420,386
totaL ProPertY, PLant and eQuiPment 4,335,605 4,130,296
valuationsDuring the financial year ended 30 June 2004 an independent valuation of land and buildings on the basis of current use for land and market value for buildings was conducted. The independent valuation valued land and buildings at $426.0 million as at 30 June 2004.
NOTES TO THE FINANCIAL STATEMENTS continued
��Western Power Annual Report �005
reconciliation
Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:
30/06/05 30/06/04
$’000 $’000
Plant and equipment
Opening Balance 3,484,760 3,283,172
Additions 333,159 435,076
Disposals (3,969) (7,239)
Depreciation (219,686) (219,775)
Write Down to Recoverable Amount - (6,474)
Plant and equipment - net Book value 3,594,264 3,484,760
Land
Opening Balance 39,554 27,478
Additions 8,699 12,686
Disposals (93) (610)
Land - net Book value 48,160 39,554
Buildings
Opening Balance 185,253 127,843
Additions 2,298 68,236
Disposals (298) (187)
Depreciation (11,465) (10,639)
Buildings - net Book value 175,788 185,253
Leasehold improvements
Opening Balance 343 389
Amortisation (46) (46)
Leasehold improvements - net Book value 297 343
Works under Construction
Opening Balance 420,386 602,900
Additions 96,710 (165,907)
Write Down to Recoverable Amount - (16,607)
Works under Construction - net Book value 517,096 420,386
totaL ProPertY, PLant and eQuiPment 4,335,605 4,130,296
NOTES TO THE FINANCIAL STATEMENTS continued
13.PROPERTY, PLANT AND EQUIPMENT continued
��Western Power Annual Report �005
14.OTHER FINANCIAL ASSETS
30/06/05 30/06/04
$’000 $’000
non-Current
Other * 752 1,342
* In the financial year ended 30 June 2005 the investment shares in Ceramic Fuel Cells Limited were written down by
$0.6 million (June 2004 $1.0 million) to its market share price of $0.56.
15.PAYABLES
Current
Trade Creditors 141,040 113,107
Other Creditors 21,418 11,483
162,458 124,590
non-Current
Contributory Extension Scheme (CES) * 31,272 32,783
* This represents contributions received from customers to extend specific electricity supplies. These deposits are
progressively refunded as other customers are connected to existing supply extension schemes. By 2022, when the
scheme finishes, all scheme members will have their contributions refunded.
16.INTEREST BEARING LIABILITIES
non-Current
Domestic Currency Loans 2,40,569 2,325,855
The above liabilities are ultimately secured by Government Guarantee.
All domestic currency loans are governed by a facility agreement, which provides the Corporation with the full
discretion to refinance all or any part of maturing debt. Therefore the amount of any current domestic currency
loans represents the total debt expected to be repaid within twelve months, with all remaining debt classified
as non-current. For domestic currency loans maturing over the next twelve months it is the intention of the
Corporation to refinance all maturing debt under the facility agreement.
NOTES TO THE FINANCIAL STATEMENTS continued
��Western Power Annual Report �005
17.TAX LIABILITIES30/06/05 30/06/04
$’000 $’000
Current
Income Tax Provision (2,939) 42,177
Goods and Services Tax 9,609 13,357
Other 435 1,162
7,105 56,696
non-Current
Deferred Income Tax 157,778 144,096
18.PROVISIONS
Current
Provision for:
Dividends
Opening Balance 41,213 55,600
Provisions
Final Dividend 51,601 41,213
Interim Dividend 54,182 62,300
Payments (95,395) (117,900)
Closing Balance 51,601 41,213
Employee Entitlements 51,615 58,356
Decommissioning Costs *
Opening Balance 11,839 7,273
Provisions 113 5,149
Payments (8,378) (583)
Closing Balance 3,574 11,839
Other
Opening Balance 1,054 -
Provisions 330 1,318
Payments (1,010) (264)
Closing Balance 374 1,054
107,164 112,462
* This item represents estimated costs of rehabilitation and disposal of the decommissioned East Perth, Bunbury
and South Fremantle Power Stations; and an estimate for the decommissioning costs of Kwinana Stage B and
specific Regional generating assets.
NOTES TO THE FINANCIAL STATEMENTS continued
�9Western Power Annual Report �005
30/06/05 30/06/04
$’000 $’000
non-Current
Provision for:
Employee Entitlements 19,603 19,342
Superannuation
Opening Balance 54,676 51,045
Provisions 24,548 21,633
Payments (19,834) (18,002)
Closing Balance 59,390 54,676
Decommissioning Costs *
Opening Balance 71,965 55,814
Provisions 256 16,151
Payments - -
Closing Balance 72,221 71,965
Other
Opening Balance 4,001 4,529
Provisions (264) (528)
Payments - -
Closing Balance 3,737 4,001
154,951 149,984
* This item represents estimated costs of rehabilitation and disposal of the decommissioned South Fremantle Power
Station; an estimate for the decommissioning costs of Kwinana Stages A and B, Muja Stages A and B and specific
Pilbara and Regional generating assets.
19. OTHER LIABILITIES
Current
Deferred Income - Developer & Cust. Contributions 58,854 28,841
Deferred Income - Other 5,167 4,543
Accrued Interest 2,342 2,479
Lease Renewal Incentive - 2,830
Other 2,252 1,655
68,615 40,348
non-Current
Deferred Income - Developer & Cust. Contributions - 4,790
Lease Renewal Incentive - 2,765
Other 24 3,631
24 11,186
NOTES TO THE FINANCIAL STATEMENTS continued
18.PROVISIONS continued
90Western Power Annual Report �005
20.EQUITY30/06/05 30/06/04
$’000 $’000
Retained Profits at the Beginning of the Financial Year 1,580,683 1,442,615
Net Profit After Income Tax Expense 206,135 241,581
Less: Dividends Provided for or Paid 105,783 103,513
retained Profits at the end of the financial Year 1,681,035 1,580,683
Contributed Equity * 17,769 10,757
total equity 1,698,804 1,591,440
* This amount represents the State Government’s equity contribution to the Corporation in support of the Mid West
Gas Lateral and Tubridgi to Onslow Gas Pipeline projects, the Rural Power Improvement Program, the undergrounding
of a 132kV transmission line to Burswood and the Esperance nine mile beach wind farm. No shares have been
allotted or issued for the equity contribution.
21.LEASE LIABILITY AND LEASE COMMITMENTS
Future Lease Commitments
Operating Leases:
Not later than one year 3,300 6,342
Later than one year and not later than five years 5,722 6,745
Later than five years 652 1,082
9,674 14,169
22.CAPITAL EXPENDITURE COMMITMENTS
Total capital commitments contracted for at balance date, including the retrospective underground project and other major capital expenditure programs, but not provided for in the accounts is as follows:
Future Capital Commitments
Not later than one year 140,046 78,754
Later than one year and not later than five years 4,310 5,596
Later than five years - -
144,356 84,350
NOTES TO THE FINANCIAL STATEMENTS continued
91Western Power Annual Report �005
23.CONTINGENT LIABILITIES AND CONTINGENT ASSETS
The Corporation’s policy is to disclose details of contingent liabilities and contingent assets where the probability of
future payments/receipts is not considered remote, as well as details of contingent liabilities and contingent assets,
which although considered remote, the Directors of the Corporation consider should be disclosed. The Directors are of
the opinion that provisions are not required in respect of these matters as it is unlikely that a future sacrifice/inflow of
economic benefits will be required.
Contingent liabilities
General and Civil (Australia) Pty Ltd (in liquidation)
An action is to be commenced against the Corporation by General and Civil (Australia) Pty Ltd (in liquidation). It is alleged
the Corporation is in breach of contract as a result of the Corporation terminating its contract with General and Civil
(Australia) Pty Ltd. The claim is for $7,000,000 and also relates to services provided under the contract. The allegation is
denied and the action will be defended.
Pacific Western Pty Ltd
Pacific Western Pty Ltd have lodged a claim for $2,470,000 against the Corporation. Pacific Western Pty Ltd claim this
is money owed for work completed under the operation and maintenance agreement for Collie Power Station. The
Corporation has also made a claim against Pacific Western Pty Ltd. Refer to the contingent assets section.
Ericsson Australia Pty Ltd
Ericsson Australia Pty Ltd have lodged a claim for approximately $310,000 against the Corporation. The claim relates to a
dispute with Bright Telecommunications over services and equipment.
Contractual Breach
An action against the Corporation has been undertaken by the former Chief Executive Officer, Dr WS van der Mye
seeking additional employment payments of $462,011 and unquantified amounts for breach of contract, interest and
legal costs. The allegation is denied and the action is being defended.
Newmont Power Pty Ltd
An action against the Corporation as fifth defendant has been undertaken by Newmont Power Pty Ltd for damage to a
power station as a result of alleged breach of the Interim Access Agreement. At the time of making this statement we are
unable to ascertain the quantum.
Bush Fires
Two actions against the Corporation have been undertaken for losses and damages as a result of bush fires in the
Serpentine (2 February 2002) and Gingin (20 December 2002) areas. It is alleged the bush fires were the result of the
Corporation’s negligence. Both allegations are denied and the actions are being defended.
On 2 December 2004 bush fires occurred in Esperance and Badjebup. The Corporation’s liability cannot be determined
until all investigations, including those by insurers, are complete. Insurance arrangements provide for a cap on the
Corporation’s liability in respect of each event.
NOTES TO THE FINANCIAL STATEMENTS continued
9�Western Power Annual Report �005
23.CONTINGENT LIABILITIES AND CONTINGENT ASSETS continued
Contingent Assets
Pacific Western Pty Ltd
On 24 March 2005 Pacific Western terminated the operations and maintenance contract in respect of Collie A Power
Station. The Corporation has lodged a claim against Pacific Western Pty Limited for $4,992,000 being for the amount of
loss or damage directly attributable to the early termination.
24.REMUNERATION OF DIRECTORS AND EXECUTIVE DISCLOSURES
Principles Used to Determine the Nature and Amount of Remuneration
Remuneration approval protocols are as follows:
Specified Non-Executive Directors: The Minister for Energy approves the remuneration of all Non-Executive Directors.Minister for Energy approves the remuneration of all Non-Executive Directors.
Managing Director:The Board subject to the concurrence of the Minister for Energy approves the remuneration of the Managing Director (also referred to as the CEO)..
Specified Executive Officers:The Board on recommendation of the Managing Director approves the remuneration of all Specified Executive Officers.
The Remuneration Policy is to:
• remunerate individuals in accordance with performance and responsibility;
• ensure consistent decision making on individual remuneration adjustments;
• establish flexible remuneration arrangements; and
• establish and maintain salary ranges comparable to other companies of similar size and industry.
Specified Non-Executive Directors
Payment to Specified Non Executive Directors consists of a Base Fee, a Committee Fee and superannuation of 9% of the
Base Fee. The fees must be approved by the Minister for Energy annually.
Managing Director and Specified Executives
The Managing Director and Specified Executives pay and reward framework has three components:
• Base pay and benefits;
• Superannuation; and
• Performance incentive (for the Managing Director only).
Performance Incentive
At the Board’s absolute discretion with the concurrence of the Minister, the Managing Director is eligible for up to 10% of
Remuneration for the achievement of specific performance targets in the following areas: Strategic Leadership, Operational
Management, Team Building and Leadership, Commercial Acumen and Customer Management, Strong Financial Analysis
Ability, Media and Public Relations and Shareholder Relationship.
NOTES TO THE FINANCIAL STATEMENTS continued
9�Western Power Annual Report �005
24.REMUNERATION OF DIRECTORS AND EXECUTIVE DISCLOSURES continued
Details of the nature and amount of each element of the emolument for Specified Directors(1) during 2004/05 are detailed below:
Primary Benefits Post employment
Benefits other
BenefitsTotal Benefits
salary & fees
$
Bonus
$
non- monetarya
$
superannuationb
$
retirement & ter-mination Benefits
$
total
$
non-executive specified directors
ND Hamilton Chairman
2004/05 104,006 - 666 9,147 - 113,819
2003/04 63,719 - 668 5,866 - 70,253
JA Seabrook Deputy Chair
2004/05 66,813 - 666 5,829 - 73,308
2003/04 45,915 - 668 4,206 - 50,789
AJ Mulgrew Director
2004/05 51,868 - - 4,395 - 56,263
2003/04 40,152 - - 3,429 - 43,581
SA Wilson Director
2004/05 16,441 - - 37,815 - 54,256
2003/04 33,157 - - 9,590 - 42,747
JJ O’Connor Director
2004/05 30,272 - - 22,365 - 52,637
2003/04 19,869 - - 6,867 - 26,736
CE Stockwell Director
2004/05 48,290 - - 4,347 - 52,637
2003/04 24,563 - - 2,173 - 26,736
HR Collins Director (Appointed 14 September 2004)
2004/05 37,619 - 528 3,436 - 41,583
MJ Davies Director (Appointed 14 September 2004)
2004/05 38,146 - - 3,436 - 41,582
Others Reported in 2003/04 113,737 - 556 10,288 - 124,581
executive specified directors
AM Iannello Chief Executive Officer (Appointed 19 July 2004)
2004/05 400,093 584 32,209 432,886
HR Collins Chief Executive Officer (Resigned 21 July 2004)
2004/05 19,431 - 187 1,709 10,382 31,709
2003/04 120,523 - 743 10,598 - 131,864
Others Reported in 2003/04 230,898 - 41,181 32,421 - 304,500
total specified directors
2004/05 812,979 - 2,631 124,688 10,382 950,680
2003/04 692,533 - 43,816 85,438 - 821,787
a Non-monetary benefits represent motor vehicle benefits and electricity benefits.
b Superannuation represents employer and employee contributed superannuation.
(1) Specified Director means a person who was, at any time during the reporting period, a director of the Corporation.
NOTES TO THE FINANCIAL STATEMENTS continued
9�Western Power Annual Report �005
24.REMUNERATION OF DIRECTORS AND EXECUTIVE DISCLOSURES continued
Details of the nature and amount of each element of the emolument for Specified Executives(2) during 2004/05 are
detailed below:
Primary Benefits Post employment
Benefits other
BenefitsTotal Benefits
salary & fees
$
Bonus
$
non- monetarya
$
superannuationb
$
retirement & ter-mination Benefits
$
total
$
specified executives
DT Aberle General Manager Networks
2004/05 264,328 - 30,326 39,156 - 333,810
2003/04 211,567 6,850 21,604 36,077 - 276,098
JE Lillywhite General Manager Generation
2004/05 230,766 - 19,498 44,354 - 294,618
2003/04 196,651 6,850 25,689 42,186 - 271,376
N Ninkov General Manager Finance, Risk Management and Service Delivery
2004/05 233,177 - 25,695 30,020 - 288,892
2003/04 221,949 6,850 29,361 26,824 - 284,984
TH James General Manager Retail
2004/05 187,849 - 20,626 35,196 - 243,671
2003/04 148,356 6,850 19,090 31,356 - 205,652
KD Bowron General Manager Regional
2004/05 192,247 - 16,931 32,537 - 241,715
2003/04 145,795 6,850 16,872 30,379 - 199,896
Others reported in 2003/04 576,153 32,400 111,705 118,631 562,360 1,401,249
total specified executives
2004/05 1,108,367 - 113,076 181,263 - 1,402,706
2003/04 1,500,471 66,650 224,321 285,453 562,360 2,639,255
a Non-monetary benefits represent motor vehicle benefits and electricity benefits.
b Superannuation represents employer and employee contributed superannuation.
(2) Specified Executive means one of the five or more executives who:
a. have the highest emoluments/greatest authority for managing the economic entity;
b. are employed at any time during the reporting period by the entity; and
c. are not specified directors.
Executive means a person who is directly accountable and responsible for the strategic direction and operational management of the entity.
NOTES TO THE FINANCIAL STATEMENTS continued
95Western Power Annual Report �005
25.RECONCILIATION OF NET PROFIT AFTER INCOME TAX TO NET CASH PROVIDED BY OPERATING ACTIVITIES
30/06/05 30/06/04
$’000 $’000
net Profit 206,135 241,581
Add/(less) items classified as investing/financing activities:
Proceeds on Sale of Non-Current Assets (7,874) (13,522)
Written Down Value on Sale of Non-Current Assets 4,360 9,826
Share of Associates Net Loss - 225
Developer and Customer Contributions (93,411) (74,501)
Foreign Exchange (Gains)/Losses (84) 3,446
Capitalised Borrowing Costs (4,019) (7,032)
Add/(less) non-cash items:
Depreciation 228,989 228,738
Amortisation - Leased Assets 434 46
Write down of Other Financial Assets and PP&E 609 24,727
Write up of Inventory (2,035) -
Contributed Assets (16,185) (13,031)
Change in assets and liabilities:
(Increase)/Decrease in Debtors (21,790) (7,987)
(Increase)/Decrease in Prepayments 9,611 (5,107)
Increase/(Decrease) in Accounts Payable 28,921 16,847
(Increase)/Decrease in Inventories (40,480) 2,386
Increase/(Decrease) in Employee Provisions (1,450) 14,830
Increase/(Decrease) in Other Provisions (8,952) 13
(Increase)/Decrease in Accrued Interest Receivable 228 (212)
Increase/(Decrease) in Accrued Interest Payable (137) (31,240)
Increase/(Decrease) in Deferred Income (5,081) 22,353
Increase/(Decrease) in Income Taxes Payable (29,461) 15,966
net Cash Provided by operating activities 248,328 428,352
reconciliation of Cash assets at the end of the financial Year
Cash at Bank 13,686 26,390
Domestic Currency Deposits 5,000 3,000
Foreign Currency Deposits 57 159
Cash assets at end of the financial Year 18,743 29,549
Credit standby facilities
The Corporation has in place two borrowing facilities with Western Australian Treasury Corporation, a AUD fixed rate facility with
a limit of $3,100 million, and a short term US facility with a limit of $205 million USD. As at 30 June 2005 the unused portion of
the AUD facility was $649.5 million and the USD facility was undrawn.
The planned usage of the facilities is governed by the Corporation’s Strategic Development Plan agreed with the Minister of Energy.
The Corporation has an intraday credit arrangement of $6.0 million with its bankers. As at 30 June 2005 the credit facility was undrawn.
In addition to the above the Corporation has arranged a stand-by overdraft facility of $2.0 million with its bankers. As at 30 June
2005 the overdraft facility was undrawn.
NOTES TO THE FINANCIAL STATEMENTS continued
9�Western Power Annual Report �005
26.FINANCIAL INSTRUMENTS
(a) Interest Rate Risk
The Corporation is exposed to interest rate risk through primary financial assets and liabilities, modified through derivative
financial instruments such as interest rate swaps, forward rate agreements, bond futures contracts and cross currency
swaps.
Interest rate swap contracts are used to manage interest rate exposures. Under an interest rate swap contract, the
Corporation agrees to exchange at specified intervals, the differences between fixed rate and floating rate interest
amounts calculated by reference to an agreed notional principal amount. These contracts convert a portion of floating
interest rate exposures to fixed interest rate exposures to reduce the volatility of interest costs between reporting dates.
Forward rate agreements are used to manage interest rate exposures on domestic currency loans. Under a forward rate
agreement, the Corporation agrees to exchange on a specified settlement date, the difference between an agreed interest
rate and a floating interest rate calculated by reference to an agreed notional principal amount. These agreements
fix interest rates on domestic currency loans to provide protection against increasing interest rates. No forward rate
agreements were outstanding as at 30 June 2005 (June 04: nil).
Bond futures contracts are used to manage the strategic positioning of the domestic currency loans portfolio. Under a
bond futures transaction, the Corporation agrees to buy or sell a specific quantity of bond futures contracts at an agreed
price on a fixed settlement date. The Corporation only transacts in financial bond futures through the Sydney Futures
Exchange. These contracts allow a physical debt position to be replicated at a lower cost than is possible by buying and
selling physical bonds. No bond futures contracts were outstanding as at 30 June 2005 (June 04: nil).
Cross currency swap contracts are used to hedge foreign currency loans. Under cross currency swaps, the Corporation
initially exchanges a principal amount in foreign currency for a principal amount in Australian dollars. At specified
intervals the Corporation pays interest amounts in Australian dollars and receives interest in foreign currency. The
principal and interest exchanges are matched to the exchanges on foreign currency loans. Cross currency swaps allow the
Corporation to borrow offshore and minimise exposure to foreign interest rates and exchange rate fluctuations. Cross
currency swaps are normally arranged for a period of three years. No cross currency swaps were outstanding as at 30
June 2005 (June 04: nil).
The subsequent tables summarise the Corporation’s exposure to interest rate risk, and the weighted average interest rates
on financial instruments at the reporting date. The following financial instruments, where they are not interest bearing,
are omitted: receivables, accounts payable, dividends payable and annual leave employee entitlements.
.
NOTES TO THE FINANCIAL STATEMENTS continued
9�Western Power Annual Report �005
26.FINANCIAL INSTRUMENTS continued
(a) Interest Rate Risk continued
Weightedaverage in-terest rate1
floatinginterest rate
$’000
fixed interest rate maturing
total$’000
30/06/05Within
one Year$’000
one to five Years$’000
overfive Years
$’000
financial assets
Cash at Bank 5.25% 13,686 - - - 13,686
Domestic Currency Deposits 5.40% 5,000 - - - 5,000
Foreign Currency Deposits - 57 - - - 57
Interest Rate Swaps2 5.78% 229,700 - - - 229,700
totaL assets 248,443 - - - 248,443
financial Liabilities
Employee Entitlements
Long Service Leave 5.03% 39,333 - - - 39,333
Domestic Currency Loans
Short Term 5.59% - 80,000 - - 80,000
Long Term3 6.46% - 361,118 1,486,151 345,000 2,192,269
Floating Rate Notes4 5.70% 178,300 - - - 178,300
Interest Rate Swaps2 5.35% - 60,000 159,700 10,000 229,700
totaL LiaBiLities 217,633 501,118 1,645,851 355,000 2,719,602
Weightedaverage interest
rate1
floatinginterest rate
$’000
fixed interest rate maturing
total$’000
30/06/04Within
one Year$’000
one to five Years$’000
overfive Years
$’000
financial assets
Cash at Bank 5.00% 26,390 - - - 26,390
Domestic Currency Deposits 5.17% 3,000 - - - 3,000
Foreign Currency Deposits - 159 - - - 159
Interest Rate Swaps2 5.66% 245,400 - - - 245,400
totaL assets 274,949 - - - 274,949
financial Liabilities
Employee Entitlements
Long Service Leave 5.47% 37,794 - - - 37,794
Domestic Currency Loans
Short Term 5.50% 215,300 - - - 215,300
Long Term3 6.61% - 308,286 1,206,268 596.001 2,100,555
Interest Rate Swaps2 5.14% - 67,1000 135,000 43,300 245,400
totaL LiaBiLities 253,094 375,386 1,341,268 639,301 2,609,049
1 For floating interest rates this represents the most recent determined rate converted to the effective annual rate. The frequency of renegotiation for floating rates varies from daily to half yearly depending on the instrument. For fixed interest rates this represents the effective annual interest rate.
2 Notional principal.3 Long term debt has an initial maturity period of greater than one year.4 A Floating Rate Note facility has replaced short term borrowings previously rolled every quarter.
NOTES TO THE FINANCIAL STATEMENTS continued
9�Western Power Annual Report �005
26.FINANCIAL INSTRUMENTS continued
(b) Foreign Exchange Risk
The Corporation is exposed to foreign exchange risk through foreign currency loans and anticipated future transactions.
Foreign Currency Loans
Foreign currency loans are used by the Corporation as an additional source of finance. Cross currency swaps are used to
manage foreign currency exposure on foreign currency loans. No foreign currency loans were outstanding as at 30 June
2005 (June 04: nil).
Hedges of Anticipated Future Transactions
The purpose of the Corporation’s foreign currency hedging activities is to protect against the risk that the eventual
Australian dollar outflows for purchases of equipment and services will be adversely affected by changes in exchange
rates.
The Corporation hedges this risk by purchasing foreign currency and holding it on deposit or by entering into forward
foreign exchange agreements and foreign currency options.
The following table summarises the foreign currency amounts held on deposit, in Australian dollar equivalents using
rates current at the reporting date.
30/06/05 30/06/04
$’000 $’000
Currency
Europe Euro 57 110
United States Dollar - 49
total foreign Currency deposits 57 159
The foreign currency deposits are utilised to pay invoices from foreign suppliers. The deposits are replenished when
a firm order has been placed with the supplier or the future commitment can be reliably measured. In line with Note
1.14.2, any gain or loss on these hedges has been deferred and will be recognised in the financial statements at the time
the underlying transaction occurs. No hedges were outstanding as at 30 June 2005 (June 04: nil).
The following tables summarise, by currency, the Australian dollar value of forward foreign exchange agreements.
Foreign currency amounts are translated at rates current at the reporting date. The ‘Buy’ amount represents the
Australian dollar equivalent of commitments to purchase foreign currencies, and the ‘Sell’ amount represents the
Australian dollar equivalent of commitments to sell foreign currencies.
NOTES TO THE FINANCIAL STATEMENTS continued
99Western Power Annual Report �005
26.FINANCIAL INSTRUMENTS continued
(b) Foreign Exchange Risk continued
30/06/05Weighted average exchange rate Buy
$’000sell
$’000Buy sell
Within one year:
Canadian Dollars 0.9259 - 3,723 -
Swiss Franc 0.8592 - 1,684 -
Europe Euro 0.5824 - 16,568 -
British Pounds 0.3888 - 277 -
Swedish Kroner 5.4605 - 1,536 -
United States Dollar 0.7074 - 9,606 -
Japanese Yen 79.710 - 5,926 -
Within two years
Japanese Yen 79.710 - 12,764 -
total 52,084 -
30/06/04Weighted average exchange rate Buy
$’000sell
$’000Buy sell
Within one year:
Swiss Franc 0.9770 - 362 -
Europe Euro 0.5954 - 2,052 -
United States Dollar 0.6006 - 2,635 -
Japanese Yen 0.4114 - 2,238 -
total 7,287 -
In line with Note 1.14.2, any gain or loss on these hedges has been deferred and will be recognised in the financial
statements at the time the underlying transaction occurs. The net deferred loss on these hedges as at 30 June 2005 was
$3.7 million (June 04: loss of $0.5 million).
No foreign currency options were outstanding as at 30 June 2005 (June 04: nil).
NOTES TO THE FINANCIAL STATEMENTS continued
100Western Power Annual Report �005
26.FINANCIAL INSTRUMENTS continued
(b) Foreign Exchange Risk continued
Commodity Price Exposures
The Corporation is exposed to fluctuations in the price of commodities associated with the purchase of materials. In
addition, as these commodities are priced in United States dollars, a foreign exchange risk also exists.
The Corporation manages these risks by the use of commodity swaps and commodity options. Where these derivatives
are settled in United States dollars the foreign currency risk is managed by entering into forward foreign exchange
contracts and foreign currency options.
The notional amounts and maturity dates for the commodity hedge contracts are as follows:
30/06/05 30/06/04
$’000 $’000
hedging of Commodity Purchases
3 months or less - 10,590
Over 3 to 12 months - 4,348
total - 14,938
In line with note 1.14.2, any gain or loss on these hedges has been deferred and will be recognised in the financial
statements at the time the underlying transaction occurs. The Corporation did not have any commodity hedges, and
therefore no net deferred gain or loss on commodity hedges as at 30 June 2005. (June 04: gain of $3.4 million).
(c) Credit Risk
Credit risk represents the extent of credit related losses that the Corporation may be subject to on amounts to be
received from financial assets or exchanged under derivative financial instruments.
Financial Assets
The Corporation’s maximum credit risk on current receivables is the carrying amount net of the provision for doubtful
debts. The Corporation’s electricity customer base consists of customers who are billed on a tariff based system, and
customers billed under specific contract terms. Tariff customers include both domestic and commercial customers who
are billed either monthly or every two months, and are required to settle accounts within 21 days. Contract customers
are billed monthly and are required to settle their accounts in the time period specified by the individual contract, with
most customers on 14 day terms.
To minimise credit risk on large contract customers, collateral in the form of a bank guarantee or a security deposit
equivalent to one electricity consumption period is obtained. Due to the Corporation’s large customer base of over
888,000 customers, the Corporation is not materially exposed to any individual customer or group of customers.
In respect of investments, credit risk is minimised by the Corporation’s practice to deal only with major banks that are highly
rated by Standard & Poor’s or Moody’s Investor Services and are regulated by the Australian Prudential Regulation Authority.
NOTES TO THE FINANCIAL STATEMENTS continued
101Western Power Annual Report �005
26.FINANCIAL INSTRUMENTS continued
(c) Credit Risk continued
Derivative Financial Instruments
The credit risk on derivative financial instruments is represented by the net fair value of contracts with a positive fair value at
the reporting date. The notional amounts of derivatives are not a measure of this exposure.
The following table summarises the Corporation’s credit risk on derivative financial instruments at the reporting date.
30/06/05 30/06/04
$’000 $’000
derivative financial instruments
Commodity Swaps - 3,409
Foreign Exchange Contracts 46 307
Bond Futures Contracts - -
Interest Rate Swaps 1,350 3,320
total 1,396 7,036
1 The credit risk associated with bond futures contracts is negligible as contracts are collateralised by cash, with any changes in the market value of contracts being settled on a daily basis with the clearing house.
The Corporation does not expect any counterparty to fail given the policy to deal in derivatives only with counterparties
that are recognised financial intermediaries and possess a credit rating of A (Standard & Poor’s) or A2 (Moody’s Investor
Services) or better.
(d) Net Fair Value of Financial Instruments
The net fair value of a financial asset or a financial liability is the amount at which the asset could be exchanged, or liability
settled in a current transaction between willing parties after allowing for transaction costs. The carrying amounts and
estimated net fair values of financial assets and financial liabilities, including derivative contracts, held at the reporting
date are provided in the next table. The following financial instruments, where carrying amounts approximate net fair
values, are omitted: cash at bank, domestic and foreign currency deposits, receivables, accounts payable and employee
entitlements.
NOTES TO THE FINANCIAL STATEMENTS continued
10�Western Power Annual Report �005
26.FINANCIAL INSTRUMENTS continued
(d) Net Fair Value of Financial Instruments continued
Carrying amount 30/06/05
$’000
net fair value30/06/05
$’000
Carrying amount30/06/04
$’000
net fair value30/06/04
$’000
financial assets
Interest Rate Swaps - 1,350 - 3,320
Commodity Swaps - - 3,423 3,409
Foreign Exchange Contracts 24 46 208 307
totaL assets 3,631 7,036 3,631 7,036
financial Liabilities
Contributory Extension Scheme 32,483 20,492 33,357 18,911
Foreign Exchange Contracts 3,706 2,914 677 399
Domestic Currency Loans
Short Term 80,000 80,002 215,300 217,732
Long Term 2,192,269 2,279,396 2,110,555 2,180,240
Floating Rate notes 178,300 180,191 - -
Interest Rate Swaps - 2,082 - 1,360
Commodity Swaps - - - -
Commodity Options - - - -
totaL LiaBiLities 2,486,758 2,565,077 2,359,889 2,418,642
The Corporation has not written its financial liabilities up or financial assets down, to their estimated fair value as it expects
to realise the carrying amount fully, by holding them to maturity.
Net fair values of financial instruments are determined on the following basis:
• Foreign exchange contracts are valued at quoted market prices.
• The net fair value of interest rate swaps and commodity swaps has been calculated by discounting future cash
flows at market rates applicable at the reporting date.
• The contributory extension scheme consists of a large number of non-interest bearing 30 year refundable deposits,
the last of which is due to expire in 2022. The net fair value of the scheme has been calculated by discounting the
expected future payment at the same interest rates used to value domestic currency loans.
• Domestic currency loans are arranged through Western Australian Treasury Corporation. The net fair value of these
loans has been calculated by discounting future cash flows using interest rates currently offered to the Corporation
for debt of the same remaining maturities plus costs expected to be incurred were the liability to be settled.
NOTES TO THE FINANCIAL STATEMENTS continued
10�Western Power Annual Report �005
26.FINANCIAL INSTRUMENTS continued
(e) Miscellaneous
Put option
Uecomm Operations Pty Ltd has a put option to the Corporation. The option can be exercised up to 23 April 2008 should
a significant change in the control environment of Uecomm Limited occur. If the option is exercised, the Corporation will
be required to purchase customer contracts from Uecomm Operations Pty Ltd.
If the option was exercised on the 30 June 2005 it would not have a material value.
27.INTERESTS IN JOINT VENTURES
The South West Cogeneration Joint Venture is a joint venture between Origin Energy SWC Ltd and the Corporation, who
own, as equal tenants-in-common, a 120MW cogeneration facility on the site of the Worsley Alumina Refinery in the
South West of Western Australia. Within the terms of the joint venture agreement a pre-emption right exists in regard to
the disposal of either parties’ interest. The output of the facility, thermal energy and electricity, is sold to the refinery and
other energy customers.
APT Pipelines (WA) Pty Ltd and the Corporation, own as equal tenants-in-common, and share in output (29.2%
WPC/70.8% APT) a gas pipeline taking gas from the Dampier Bunbury Natural Gas Pipeline (DBNGP) to the power station
at Vanadium Australia Pty Ltd’s (VAPL) mine at Windimurra and other nearby destinations. AGL Power Generation (Mid
West) Pty Ltd and the Corporation own and operate the power station at Windimurra, as equal tenants-in-common. The
power station is currently in care and maintenance mode. AGL Gas Trading Pty Ltd and the Corporation formed a joint
venture as equal tenants-in-common to facilitate the transportation of gas via the DBNGP to the Mid West pipeline, then
sell the gas to VAPL. Within the terms of the joint venture agreements a pre-emption right exists in regard to the disposal
of either parties’ interest.
Included in the assets and liabilities of the Corporation are the following items which represent the Corporation’s interest
in the assets and liabilities employed in the joint ventures, recorded in accordance with the accounting policies described
in Note 1.11.1.
NOTES TO THE FINANCIAL STATEMENTS continued
10�Western Power Annual Report �005
27.INTERESTS IN JOINT VENTURES continued
30/06/05 30/06/04
$’000 $’000
Current assets
Cash Assets 171 88
Trade Debtors 1,180 1,298
Less: Provision for Doubtful Debts - -
1,180 1,298
Inventories 286 266
Prepayments - -
total Current assets 1,637 1,652
non-Current assets
Works Under Construction 87 78
Plant and Equipment - at Cost 65,015 65,015
Less: Accumulated Depreciation 37,597 34,900
27,418 30,115
Plant and Equipment - at Recoverable Amount 8,077 8,077
Less: Accumulated Depreciation 1,775 731
6.302 7,346
total non-Current assets 33,807 37,539
totaL assets 35,444 39,191
Current Liabilities
Payables 1,242 1,178
total Current Liabilities 1,242 1,178
totaL LiaBiLities 1,242 1,178
There are no contingent liabilities and capital expenditure commitments relating to the joint ventures as at 30 June 2005.
NOTES TO THE FINANCIAL STATEMENTS continued
105Western Power Annual Report �005
28.ASSOCIATE AND JOINT VENTURE ENTITIES
Halliburton Australia Pty Ltd and the Corporation each held a 50% ownership interest in Integrated Power Services Pty
Ltd (IPS). The company was formed in February 1998, as a provider of energy services to the mining process industry, and
utilities service sector. During the financial year ended 30 June 2004 the Corporation sold its 50% ownership interest in
IPS.
The information relating to IPS is set out below.
30/06/05 30/06/04
$ $
share of associate’s results
Share of Net Profit/(Loss) Before Income Tax Expense - (36,058)
Share of Income Tax Expense - -
share of net Profit/(Loss) after income tax expense - (36,058)
30/06/05 30/06/04
$ $
summary of Performance and financial summary of associate
Total Assets - -
Total Liabilities - -
Net Profit/(Loss) After Income Tax Expense - (72,115)
Enercon Power Corporation and the Corporation each hold a 50% ownership in Wind Energy Corporation. Within the
terms of the shareholder agreement a pre-emption right exists in regard to the disposal of either parties’ interest. The
company was formed in August 2000 to focus on business opportunities relating to large-scale wind farms operating in
parallel with an interconnected electricity grid, and hybrid power systems for remote and regional applications that utilise
renewable energy technologies.
In June 2004 the Directors of the Corporation re-assessed the recoverable amount of Wind Energy Corporation and based
on the assessment wrote down the investment by $675,000 to its recoverable amount of zero.
United KG Pty Ltd and the Corporation jointly agreed in June 2004 to provide design and construction services of high
voltage electrical equipment to Electranet Transmission Services Pty Ltd for the Mannum Substation upgrade in South
Australia. The equity method has not been adopted as at 30 June 2005 because the Corporation’s interest in the joint
venture entity was immaterial in the context of the Corporation’s operations.
NOTES TO THE FINANCIAL STATEMENTS continued
10�Western Power Annual Report �005
29.INTERESTS IN CONTROLLED ENTITIES
The Corporation formed a wholly owned subsidiary Western Carbon Pty Ltd in July 2002 to pursue the development of
new and existing technologies associated with a demonstration integrated wood processing plant. Commissioning of the
demonstration plant is expected to occur in September 2005. When complete the plant will process plantation grown
mallee trees to produce activated carbon, eucalyptus oil and electricity.
As at 30 June 2005 the assets and liabilities of the integrated wood processing plant project are held by the Corporation.
The subsidiary has undertaken no transactions and therefore there is no impact on the financial statements of the
Corporation.
The Corporation formed a wholly owned subsidiary Bright Telecommunications Pty Ltd in December 2002 to develop a
broadband access network, subject to the successful completion of a pilot project being conducted by the Corporation.
The pilot phase of this project was completed during 2003/2004 and the results assessed, including the requirements to
progress to a full commercial operation. On 21 July 2004 the Directors of the Corporation decided to close the project
and write the assets down to their assessed recoverable amount of zero. For further details refer to the 30 June 2004
Annual Report.
A detailed assessment of disposal options was conducted during 2004/2005 from which it was concluded that a sale of
the Bright business as a going concern may yield a higher return than a sale of the assets of the project. As at 30 June
2005 a sale of the Bright Telecommuniciations project is in progress.
As at 30 June 2005 the assets and liabilities of the “Bright Project” are held by the Corporation. The subsidiary has
undertaken no transactions and therefore has no impact on the financial statements of the Corporation.
30.RELATED PARTY DISCLOSURES
Transactions with Related Parties
For the purposes of these financial statements the following entity is deemed to be a related party:
- Wind Energy Corporation
The value of transactions between the Corporation and Wind Energy Corporation during the financial year to 30 June
2005 is $18,000 (June 2004 nil). Trading between the Corporation and the related party is undertaken on an arm’s length
basis, on commercial terms and conditions.
31.ECONOMIC DEPENDENCY
The Corporation has a significant economic dependency on gas supply and transportation capacity from North West Shelf
Joint Ventures and Duet Alinta Alcoa Consortium respectively. In addition, the Corporation is solely dependent on coal
supplies from Wesfarmers Premier Coal Ltd and Griffin Coal Mining Company Pty Ltd.
NOTES TO THE FINANCIAL STATEMENTS continued
10�Western Power Annual Report �005
32.EVENTS SUBSEQUENT TO BALANCE DATE
Other than as disclosed below, there has not arisen in the interval between the end of the financial year and the date of
this report any matter or circumstance likely, in the opinion of the Directors, to affect significantly the operations of the
Corporation, the results of those operations, or the state of affairs of the Corporation in subsequent financial years.
Construction of new power stations
On 9 August 2005, the Corporation announced an unconditional agreement with Energy Developments Limited to
construct five new power stations in the West Kimberley. The West Kimberley Power Procurement program will deliver new
power stations in the towns of Broome, Derby, Fitzroy Crossing, Halls Creek and Camballin-Looma. The Corporation has
agreed a new schedule for construction of the power stations. The Corporation will continue to supply power to the five
towns until the new plants are commissioned. The expected dates for the commercial operation are as follows: Broome
– March/April 2007, Looma – April 2007, Derby – May 2007, Fitzroy Crossing – June 2007 and Halls Creek – July 2007.
On 16 August 2005, the Corporation announced, following approval of the Western Power Board and State Cabinet,
that the successful bidder to construct a new baseload power station for the SWIS was Wambo Power Ventures Pty Ltd
(Wambo). Under the proposal, Wambo will provide an additional 320 megawatts of power to the SWIS from a new gas-
fired combined-cycle power station to be built adjacent to Western Power’s Cockburn power station, which will enter
commercial service by end of November 2008.
On 16 August 2005, the Corporation also announced, following approval of the Western Power Board and State
Cabinet, details of a 25-year contract to supply coal to the Corporation’s existing power stations. Wesfarmers Premier
Coal was the successful bidder to supply low-ash coal for the Muja C and D and Collie power stations until 2030. Supply
arrangements with Griffin Coal will remain in place until 2010. Current arrangements with Wesfarmers Premier Coal are
incorporated into the new arrangements.
The financial impact for the above transactions have not been recognised in the financial statements for the year ended
30 June 2005.
33.IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB STANDARDS
The Corporation is in the process of transitioning its accounting policies and financial reporting from Australian Generally
Accepted Accounting Principles (AGAAP) to Australian equivalents to International Financial Reporting Standards (AIFRS).
The Corporation will prepare its first fully AIFRS compliant financial statements for the financial year ended 30 June
2006. This includes the restatement of the AGAAP 2004/2005 comparatives to comply with AIFRS. To facilitate this,
priority has been given to the preparation of the Corporation’s 1 July 2004 AIFRS compliant opening balance sheet,
the Corporation’s transition date to AIFRS. This will form the basis of accounting for AIFRS in the future. In preparing
the AIFRS compliant opening balance sheet, it is evident the adjustments required to retrospectively apply AIFRS will be
reflected as either a reclassification of assets or liabilities or an adjustment to retained earnings.
NOTES TO THE FINANCIAL STATEMENTS continued
10�Western Power Annual Report �005
33.IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB STANDARDS continued
The transitional adjustments relating to the standards for which 2004/2005 comparatives are not required will be made
on 1 July 2005. Comparatives are not required for AASB 132 “Financial Instruments: Disclosure and Presentation” and
AASB 139 “Financial Instruments: Recognition and Measurement”.
In 2004, the Corporation commenced a project to achieve transition to AIFRS reporting. Internal resources were
allocated and expert consultants engaged to perform diagnostics and conduct impact assessments to isolate key areas
impacted by the transition to AIFRS. As a result of this work, the Corporation graded the impact areas as either high,
medium or low and established work streams to address each of the areas in order of their priority. An AIFRS project
team was established to manage the progress of these work streams. To date, the team has largely completed the
diagnostic, design and planning and solution development phases and is progressing with implementation.
Set out overleaf are the key areas where the Corporation’s accounting policies are expected to change on adoption of
AIFRS and the best estimate of the quantitative impact of the changes on total equity as at the date of transition and 30
June 2005, and on net profit for the year ended 30 June 2005.
The figures disclosed are management’s best estimate of the quantitative impact of the changes as at the date of
preparing the 30 June 2005 financial statements. The actual effects of transition to AIFRS may differ from the estimates
disclosed due to:
- ongoing AIFRS work being undertaken by the project team;
- potential amendments to AIFRSs and interpretations thereof being issued by the standard-setters and
the International Financial Reporting Interpretations Committee (IFRIC); and
- emerging accepted practice in the interpretation and application of AIFRS and UIG Interpretations.
For the purposes of applying AIFRS to the financial statements the Corporation has adopted a not-for-profit
classification. This is as a result of the Corporation’s principal objective, per the “Function and Powers” requirements
of the Electricity Corporation Act 1994, being the provision of electricity services and not the generation of profit.
Therefore, although the generation of profit is important to the Corporation and decisions are predominantly made on
this basis, it is not the primary objective.
For the purposes of applying AIFRS to the financial statements the Corporation has determined the assets of the
Corporation are principally not cash flow dependant. This is a result of the service orientation of the Corporation’s
principal objective. It is the Corporation’s view that the future economic benefits of its assets are not primarily
dependent on their ability to generate net cash inflows, and if deprived of an asset, the Corporation would replace that
assets remaining service potential.
NOTES TO THE FINANCIAL STATEMENTS continued
109Western Power Annual Report �005
33.IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB STANDARDS continued(a) Reconciliation of Equity as Presented under AGAAP to that under AIFRS
30/06/05 01/07/04
Notes $’000 $’000
total equity under agaaP 1,698,804 1,591,440
adjustments to retained Profits
Derecognition of Internally Generated Renewable Energy Certificates 1 (1,143) (1,654)
Derecognition of Provision for Final Dividend 2 51,601 41,213
Derecognition of AGAAP Provision for Decommissioning Costs 3 9,943 9,574
Recognition of AIFRS Provision for Decommissioning Costs 3 522 -
Derecognition of Amortisation of AGAAP Decommissioning Costs 3 52,295 43,397
Recognition of Borrowing Costs (Decommissioning Provision) 3 (106,493) (98,553)
Recognition of Depreciation of AIFRS Decommissioning Costs 3 (12,259) (12,435)
Recognition of Impairment of Collie Power Station (CPS) 4 (30,530) (30,530)
Tax Effect of Impairment of CPS 4 9,159 9,159
Derecognition of Depreciation for CPS Impairment 4 1,517 -
Tax Effect of Derecognition of Depreciation for CPS Impairment 4 (455) -
Recognition of Contributions from the Contributory Extension Scheme 5 32,428 32,509
Recognition of Borrowing Costs (Contributory Extension Scheme) 5 (15,270) (13,702)
Tax Effect of Contributory Extension Scheme Payables 5 (5,147) (5,642)
Derecognition of Developer & Customer Contributions 6 (74,390) (50,737)
Tax Effect of Derecognition of Developer & Customer Contributions 6 22,317 15,221
Recognition of Grant Income 7 - 1,600
Recognition of Net Defined Benefit Superannuation Expense 8 169 -
(65,736) (60,580)
total equity under aifrs 1,633,068 1,530,860
Reconciliation of Net Profit as Presented under AGAAP to that under AIFRS
net Profit under agaaP 206,135
adjustments to net Profit
Derecognition of Internally Generated Renewable Energy Certificates 1 511
Derecognition of AGAAP Provision for Decommissioning Costs 3 369
Recognition of AIFRS Provision for Decommissioning Costs 3 522
Derecognition of Amortisation of AGAAP Decommissioning Costs 3 8,898
Recognition of Borrowing Costs (Decommissioning Provision) 3 (7,940)
Recognition of Depreciation of AIFRS Decommissioning Costs 3 176
Derecognition of Depreciation for CPS Impairment 4 1,517
Tax Effect of Derecognition of Depreciation for CPS Impairment 4 (455)
Recognition of Contributions from the Contributory Extension Scheme 5 (81)
Recognition of Borrowing Costs (Contributory Extension Scheme) 5 (1,568)
Tax Effect of Contributory Extension Scheme Payables 5 495
Derecognition of Developer & Customer Contributions 6 (23,653)
Tax Effect of Derecognition of Developer & Customer Contributions 6 7,096
Recognition of Grant Income 7 (1,600)
Recognition of Net Defined Benefit Superannuation Expense 8 169
(15,544)
net Profit under aifrs 190,591
NOTES TO THE FINANCIAL STATEMENTS continued
110Western Power Annual Report �005
33.IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB STANDARDS continued
(a) Reconciliation of Equity and Net Profit as Presented under AGAAP to that under AIFRS continued
1 Renewable Energy Certificates
Under AASB 138 “Intangible Assets”, the value inherent in internally generated Renewable Energy Certificates (RECs) is
not recognised until the RECs are sold or surrendered. This results in a change to the Corporation’s current accounting
policy that allows for the immediate recognition of internally generated RECs in the balance sheet (ie inventory) and profit
and loss statement (ie RECs).
Therefore, on adoption of AIFRS, the Corporation is required to derecognise internally generated RECs reported in the
balance sheet (ie inventory) and profit and loss statement (ie RECs) until they are sold or surrendered.
� Dividends
Under AASB 110 “Events After the Balance Sheet Date”, a provision is recognised for a dividend when it is appropriately
authorised as at the reporting date and no longer at the discretion of the entity. This results in a change to the
Corporation’s current accounting policy that allows for the recognition of a provision if there is a public recommendation
for the dividend as at the reporting date despite the amount not being appropriately authorised.
Therefore, on adoption of AIFRS, the Corporation is required to derecognise dividends provided for in the financial
statements where the dividend was approved by the Board after the reporting date.
� Decommissioning Costs
Provision
Under AASB 137 “Provisions, Contingent Assets and Contingent Liabilities”, a provision for decommissioning costs is recognised
when a legal or constructive obligation arises. Based on the Corporation’s past payment practices in relation to power
generating facilities this is typically when the asset is commissioned. The provision is measured as the present value of the
expenditure required to settle the obligation. This results in a change to the Corporation’s current accounting policy that allows
for the recognition of a provision for decommissioning costs only as the generating plant nears the end of its useful life.
Therefore, on adoption of AIFRS, the Corporation is required to recognise a provision for decommissioning costs when
there exists a legal or constructive obligation, and not simply when the asset nears the end of its useful life. The provision
is measured as the present value of the expenditure required to settle the obligation. Any subsequent movement in the
present value over time is expensed to the income statement (ie borrowing costs).
Property, Plant and Equipment
Under AASB 116 “Property, Plant and Equipment”, the original cost of an item of property, plant and equipment is to
include the cost of dismantling and removing the asset, and restoring the site on which it is located, to the extent that
these costs are also recognised as a provision under AASB 137 “Provisions, Contingent Assets and Contingent Liabilities”.
This results in a change to the Corporation’s current accounting policy that allows for the recognition of decommissioning
costs only as the generating plant nears the end of its useful life.
Therefore, on adoption of AIFRS, the Corporation is required to derecognise decommissioning costs previously provided
for when the generating plant nears the end of its useful life and recognise, in the asset’s original capital cost the
decommissioning costs recognised as a provision under AASB 137. The impact of any subsequent changes in the
assumptions used to provide for these costs must be prospectively recognised in the asset’s original capital cost. The
Corporation is also required to derecognise decommissioning costs previously amortised to the profit and loss statement
and expense to the income statement (ie depreciation) the systematic allocation of the decommissioning costs recognised
in the asset’s original capital cost over the useful life of the asset.
NOTES TO THE FINANCIAL STATEMENTS continued
111Western Power Annual Report �005
33.IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB STANDARDS continued
(a) Reconciliation of Equity and Net Profit as Presented under AGAAP to that under AIFRS continued
� Impairment of Assets
Under AASB 136 “Impairment of Assets”, the recoverable amount of current and non-current assets is determined as
the higher of the depreciable replacement amount and the net selling price. This results in a change to the Corporation’s
current accounting policy that allows for the recoverable amount of non-current assets to be determined on the basis of
discounted cash flows.
Therefore, on adoption of AIFRS, the Corporation is required to recognise an impairment loss for Collie Power Station of
$30.5 million. This is because the carrying amount exceeds the depreciable replacement amount. This in turn results in a
reduction to the Corporation’s deferred tax liability on adoption of AIFRS.
5 Contributory Extension Scheme (CES)
Under AASB 1004 “Contributions”, non-reciprocal contributions are recognised in the income statement (ie other revenue).
(A non-reciprocal contribution is a transfer in which an entity receives assets or services or has liabilities extinguished without
directly giving approximately equal value in exchange to the other party or parties to the transfer). The requirements of
AASB 1004 “Contributions” result in a change to the Corporation’s current accounting policy that allows for the recognition
of a customer’s non-reciprocal contribution for the extension of specific electricity supplies in the balance sheet (ie other
payables).
Therefore, on adoption of AIFRS, the Corporation is required to reclassify from the balance sheet (ie CES payables) to
the income statement (ie other revenue) the CES contributions that, at the customers’ payment dates, represented non-
reciprocal contributions. The impact of any subsequent changes in the assumptions used to calculate these contributions
must be prospectively recognised in the income statement (ie other revenue). The Corporation is also required to expense to
the income statement (ie borrowing costs) the movement in the present value over time of the CES payables.
A deferred tax liability arises on adoption of AIFRS due to the timing difference as a result of the above contributory
extension scheme adjustments.
� Developer & Customer Contributions
Under UIG 1017 “Developer and Customer Contributions for Connection to a Price-Regulated Network”, contributions
received in advance are deferred to the balance sheet (ie other liabilities) until the developer or customer is connected to the
service delivery network in accordance with the terms of the contributions. On connection, the contributions are recognised
in the income statement (ie other revenue). This results in a change to the Corporation’s current accounting policy that allows
for the recognition of developer and customer contributions in the profit and loss statement in line with the estimated actual
percentage of completion of the developer/customer funded jobs.
Therefore, on adoption of AIFRS, the Corporation is required to defer to the balance sheet (ie other liabilities) any developer
and customer contributions recognised in the profit and loss statement for which the developer/customer has not been
connected to the network.
A deferred tax asset arises on adoption of AIFRS due to the timing difference as a result of the above developer and
customer contributions adjustment.
NOTES TO THE FINANCIAL STATEMENTS continued
11�Western Power Annual Report �005
33.IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB STANDARDS continued
(a) Reconciliation of Equity and Net Profit as Presented under AGAAP to that under AIFRS continued
� Grant Income
Under AASB “Contributions”, grant income is recognised immediately in the income statement (ie other revenue) when the
Corporation gains control of, or has the right to receive the contribution; it is probable the economic benefits comprising
the contribution will flow to the Corporation; and the amount of the contribution can be reliably measured. This results in
a change to the Corporation’s current accounting policy that allows for grants received to be recognised over the reporting
periods in which the related costs the grant was intended to compensate are incurred.
Therefore, on adoption of AIFRS, the Corporation is required to recognise in the income statement (ie other income) the
grant income previously deferred to the balance sheet (ie other liabilities) for the Narrogin Demonstration Integrated Wood
Project.
� Superannuation
Under AASB 119 “Employee Benefits”, employee sponsors are required to recognise the net surplus or deficit in any
employer sponsored defined benefit superannuation fund as an asset or liability in the balance sheet. This results in a
change to the Corporation’s current accounting policy that does not seek to recognise the net assets or liabilities of a
defined benefit superannuation fund.
Therefore, on adoption of AIFRS, the Corporation is required to recognise in the balance sheet the net defined
superannuation benefit in the Western Power Superannuation Fund. Any movements in the net benefit are recognised in
the income statement. As at 30 June 2004 the value of the plan assets in the Western Power Superannuation Fund was
immaterial.
(b) Restated AIFRS Statement to Cash Flows for the Year Ended �0 June �005
No material impacts are expected to the cash flows presented under AGAAP on adoption of AIFRS.
(c) Other Impacts of Adopting AIFRS
Other key areas where accounting policies are expected to change on adoption of AIFRS but for which there is no
quantitative impact to total equity and net profit as at 30 June 2005 are set out below.
Income Taxes
Under AASB 112 “Income Taxes”, the balance sheet liability method is used to calculate the tax effect balances. This
method recognises deferred tax balances when there is a difference between the carrying value of an asset or liability and
its tax base. This results in a change to the Corporation’s current accounting policy that allows for the calculation of the tax
effect balances using the profit and loss liability method.
AASB 112 “Income Taxes” also permits conditions in which the deferred tax liabilities can be disclosed on the face of
the balance sheet net of deferred tax assets. The application of this as at 1 July 2004 and 30 June 2005 results in the
reclassification of $76.5 million and $74.5 million respectively from future income tax benefits in the balance sheet to
deferred tax liabilities.
NOTES TO THE FINANCIAL STATEMENTS continued
11�Western Power Annual Report �005
33.IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB STANDARDS continued
(c) Other Impacts of Adopting AIFRS continued
Employee Benefits
Leave Entitlements
Under AASB 101 “Presentation of Financial Statements”, unconditional leave entitlements due within one year from the
reporting date are disclosed in the balance sheet (ie provisions) as current. This results in a change to the Corporation’s
current accounting policy that allows for the recognition of only those unconditional long service leave entitlements due and
to be settled within one year from the reporting date as current. The application of this standard as at 1 July 2004 and 30
June 2005 results in the reclassification of $3.1 million and $4.4 million respectively from non-current leave entitlements in
the balance sheet (ie provisions) to current leave entitlements.
Employment On-Costs
Under AASB 119 “Employee Benefits”, where the settlement of employee entitlements gives rise to the payment of
employment on-costs, such as payroll tax and workers’ compensation insurance, a provision is recognised for the on-costs
separate to the provision for the employee entitlements. This results in a change to the Corporation’s current accounting
policy that allows for the recognition of employment on-costs in the same provision as the employee entitlements. The
application of this standard as at 1 July 2004 and 30 June 2005 results in the reclassification of the following from employee
entitlements to other provisions in the balance sheet:
- $3.3 million and $3.7 million respectively of current employment on-costs; and
- $1.1 million and $1.0 million respectively of non-current employment on-costs.
Intangible Assets
Under AASB 138 “Intangible Assets”, the recognition, measurement and disclosure requirements for identifiable non-
monetary assets without physical substance are prescribed. This provides a specific criteria against which the Corporation
can identify and recognise intangible assets. The application of this standard as at 1 July 2004 and 30 June 2005 results in
the reclassification of the following to intangible assets in the balance sheet:
- $1.9 million and $3.4 million respectively of externally purchased renewable energy certificates previously reported in
inventory (ie current); and
- $4.0 million and $7.4 million respectively of computer software and exclusive rights previously reported in plant and
equipment (ie non-current).
Despite this reclassification, the Corporation is to continue expensing to the income statement (ie depreciation) the
systematic allocation of the depreciable amount over the useful lives of the intangible assets.
NOTES TO THE FINANCIAL STATEMENTS continued
11�Western Power Annual Report �005
33.IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB STANDARDS continued
(d) Future Impacts of Adopting AIFRS
Financial Instruments
The requirements of AASB 132 “Financial Instruments: Disclosure and Presentation” and AASB 139 “Financial Instruments:
Recognition and Measurement” are first mandatory in the financial year ended 30 June 2006. As a result of this delayed
application date the Corporation’s comparative financial year ended 30 June 2005 does not require compliance with AASB
132 and AASB 139. Despite this, a narrative of the expected impact to the Corporation on adoption of these standards, ie 1
July 2005 is provided below.
Classification of Financial Instruments
Under AASB 139 “Financial Instruments: Recognition and Measurement”, financial instruments are required to be classified
into one of five categories which, in turn, determines the accounting treatment of the item. The classifications are:
- loans and receivables (measured at amortised cost);
- held to maturity (measured at amortised cost);
- held for trading (measured at fair value with fair value changes charged to net profit or loss);
- available for sale (measured at fair value with fair value changes taken to equity); and
- non-trading liabilities (measured at amortised cost).
All derivatives contracts, whether used as hedging instruments or otherwise, are carried at fair value on the balance sheet.
This results in a change to the Corporation’s current accounting policy that does not seek to classify financial instruments.
Current measurement is at amortised cost, with certain derivative financial instruments not recognised in the balance sheet.
Hedge Accounting
Under AASB 139 “Financial Instruments: Recognition and Measurement” in order to achieve a qualifying hedge, the entity is
required to meet the following criteria:
- identify the type of hedge (fair value or cash flow);
- identify the hedged item or transaction;
- identify the nature of the risk being hedged;
- identify the hedging instrument;
- demonstrate that the hedge has and will continue to be highly effective; and
- document the hedging relationship, including the risk management objectives and strategy for undertaking the hedge and
how effectiveness will be tested.
AIFRS recognises cash flow hedge accounting, fair value hedge accounting and hedges of investments in foreign operations.
Cash flow and fair value hedge accounting can only be considered where effectiveness tests are met and stringent
documentation and identification requirements under AASB 139 have been satisfied. Ineffectiveness resulting from hedge
accounting can result in volatility in the income statement.
Cash flow hedge accounting
Where a derivative qualifies for cash flow hedge accounting the standard requires the hedging instruments to be measured
and reported on the balance sheet at fair value, with the effective portion of fair value movements in derivatives deferred
to equity, and any ineffective portions and the fair value of risks excluded from hedge assessment to be recognised in the
income statement. Deferred gains and losses held in equity will affect the profit and loss at the time that the hedged item
effects earnings.
NOTES TO THE FINANCIAL STATEMENTS continued
115Western Power Annual Report �005
33.IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB STANDARDS continued
(d) Future Impacts of Adopting AIFRS continued
Financial Instruments continued
Hedge Accounting continued
Fair value hedge accounting
Where a derivative qualifies for fair value hedge accounting the standard requires the hedging instruments to be measured
at fair value, with any fair value changes recognised in the income statement. The carrying value of the corresponding
hedged asset or liability is also adjusted by the change in the fair value of the hedging instrument, with this adjustment
being recognised in the income statement to offset the effect of the gain or loss on the hedging instrument. There is no
impact on equity reserves.
Where a derivative does not qualify for hedge accounting at all the entire change in fair value of the derivative will impact
on profit and loss. Where a derivative ceases to be effective under the hedge accounting rules, the changes in fair value
from that point forward will also impact on profit and loss.
The Corporation expects to account for the majority of its interest rate, foreign exchange risk and commodity derivatives as
cash flow hedges and is reviewing its processes to ensure that they meet the enhanced requirements for hedge accounting.
Ineffectiveness will result from oil commodity derivatives (due to basis risk), and also foreign exchange derivatives in limited
circumstances. Ineffectiveness is not expected for interest rate risk derivatives. Excluded risks, which include the time value
component of option valuations and forward point movements on oil commodity contracts will impact the profit and loss.
Embedded Derivatives
Under AASB 139 “Financial Instruments: Recognition and Measurement”, embedded derivatives not closely related to the
host contract are required to be disclosed separately in the balance sheet with any changes in the fair value recognised
in the income statement. In most instances an embedded derivative exists when the price of the commodity in the host
contract is not directly linked to the commodity. Likely indications of embedded derivatives include fluctuations in the
commodity price based on the occurrence of an unrelated event or for which there is a sliding scale or index.
The Corporation is currently reviewing contractual arrangements to determine the extent of any embedded derivatives. In
the event such derivatives are identified, this will result in a change to the Corporation’s current accounting policy that does
not seek to recognise embedded derivatives.
Leases
The requirements of UIG Interpretation 4 “Determining Whether an Arrangement Contains a Lease” are first mandatory
from the financial year ended 30 June 2007. Despite this, a narrative of the expected impact on adoption of this
interpretation, ie 1 July 2006 is provided below.
Under UIG Interpretation 4 “Determining Whether an Arrangement Contains a Lease”, arrangements that do not take
the legal form of a lease but convey a right to the use of an item for an agreed period of time in return for a payment or
series of payments is an indication that the substance of the arrangement is, or contains a lease and must be accounted for
accordingly. This results in a change to the Corporation’s current accounting policy that does not seek to recognise these
arrangements as leases.
NOTES TO THE FINANCIAL STATEMENTS continued
11�Western Power Annual Report �005
33.IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB STANDARDS continued
(d) Future Impacts of Adopting AIFRS continued
Leases continued
Finance Leases
For arrangements deemed a finance lease, the Corporation is required, on adoption of AIFRS, to recognise an asset and
liability in the balance sheet equal to the present value of the minimum lease payments including any guaranteed residual
values. In addition the Corporation is required to recognise in the income statement:
- the amortisation of the leased asset over the expected useful life of the asset (ie depreciation); and
- the interest allocation of the lease payments (ie borrowing costs). (The remainder of the lease payments are recognised as
a reduction against the lease liability in the balance sheet).
Operating Leases
For arrangements deemed an operating lease, the Corporation is required, on adoption of AIFRS, to recognise in the income
statement the lease payments in a pattern representative of the benefits derived from the leased assets (ie operating lease
rentals).
The Corporation is currently reviewing contractual arrangements to determine the extent of any deemed to be leases under
the requirements of UIG Interpretation 4 “Determining Whether an Arrangement Contains a Lease”
NOTES TO THE FINANCIAL STATEMENTS continued
11�Western Power Annual Report �005
DIRECTORS’ DECLARATION
In accordance with a resolution of the Directors of Western Power Corporation, we declare that -
In the opinion of the Directors:
(a) the financial statements and associated notes comply with the accounting standards and Urgent Issues Group
Consensus Views;
(b) the statement of financial performance is drawn up so as to give a true and fair view of the net profit of the
Corporation for the financial year ended 30 June 2005;
(c) the statement of financial position is drawn up so as to give a true and fair view of the state of affairs of the
Corporation as at 30 June 2005, and;
(d) at the date of this statement there are reasonable grounds to believe that the Corporation will be able to pay its
debts as and when they fall due, in accordance with the structure of the Corporation existing at 30 June 2005.
The Directors have received a declaration by the Managing Director and Chief Financial Officer that is consistent with the
requirements for a Public Company under section 295A of the Corporations Act 2001.
For and on behalf of the Board,
Mr ND HAMILTON
Chairman
22 August 2005
Mr AM IANNELLO
Managing Director
11�Western Power Annual Report �005
INDEPENDENT AUDIT REPORT
AUDITOR GENERAL
4th Floor Dumas House 2 Havelock Street West Perth 6005 Western Australia Tel: 08 9222 7500 Fax: 08 9322 5664
INDEPENDENT AUDIT REPORT ON WESTERN POWER CORPORATION
To the Parliament of Western Australia
Audit Opinion In my opinion, the financial report of Western Power Corporation is in accordance with: (a) schedule 3 of the Electricity Corporation Act 1994, including: (i) giving a true and fair view of the Corporation’s financial position at
30 June 2005 and of its performance for the financial year ended on that date; and
(ii) complying with Accounting Standards in Australia ; and (b) other mandatory professional reporting requirements in Australia.
ScopeThe Board’s Role The Board of Directors is responsible for the financial report.
The financial report consists of the Statement of Financial Performance, Statement of Financial Position, Statement of Cash Flows, accompanying Notes and Directors’ Declaration.
Summary of my Role As required by the Electricity Corporation Act 1994, I have independently audited the financial report to express an opinion on it. This was done by looking at a sample of the evidence.
An audit does not guarantee that every amount and disclosure in the financial report is error free, nor does it examine all evidence and every transaction. However, my audit procedures should identify errors or omissions significant enough to adversely affect the decisions of users of the financial report.
D D R PEARSON AUDITOR GENERAL 26 August 2005