annual report 2006 - western power · 4 electricity networks corporation trading as western power...

1

Annual Report ‘06

2

ContentsOPERATIONS REVIEW 2006

CHAIRPERSON’S AND MANAGING DIRECTOR’S REVIEW 3

BOARD OF DIRECTORS 7

ORGANISATION CHART 8

ORGANISATIONAL STRUCTURE 9

MAP OF THE SOUTH WEST INTERCONNECTED SYSTEM 11

OVERVIEW OF BUSINESS OPERATIONS 13

MANAGING AND IMPROVING THE NETWORK 15

CARING FOR THE ENVIRONMENT 18

WORKING WITH THE COMMUNITY 19

KEY PERFORMANCE INDICATORS 22

REVIEW OF FINANCIAL PERFORMANCE 25

CORPORATE COMPLIANCE DISCLOSURES 29

GLOSSARY 31

FINANCIAL REVIEW 2006

CORPORATE DIRECTORY 34

DIRECTORS’ REPORT 35

CORPORATE GOVERNANCE STATEMENT 43

FINANCIAL REPORT 49

INCOME STATEMENT 49

BALANCE SHEET 50

STATEMENT OF RECOGNISED INCOME AND EXPENSE 51

CASH FLOW STATEMENT 51

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 52

DIRECTORS’ DECLARATION 86

INDEPENDENT AUDIT REPORT 87

ELECTRICITY NETWORKS CORPORATION, TRADING AS WESTERN POWER ABN 18 540 492 861

3

Looking forward

The essence of our business is to safely transport and distribute electricity in Western Australia’s south west to meet the needs of our customers, communities and stakeholders in a way that engages and enriches our people.

The creation of Western Power was the result of a major undertaking to separate the former Western Power Corporation into four independent businesses. While we have been able to use the strong foundation of our predecessor, we are on a journey of creating a strong and confident business that can meet dynamic market demands, without compromising the delivery of the essential service we provide.

Our separation from the Western Power Corporation provides a great opportunity; no longer are we part of a bigger business with competing demands for dollars and effort. We are on our own with a sole focus on the safe, reliable and efficient distribution and transmission of electricity.

The formation of the business was almost seamless, and is testament to the enormous effort of our people over the past few years, both those directly involved in the changeover, but also their colleagues who took on extra responsibility so that business as usual activities could be maintained.

For a business that is only three months old, and which was created amidst concurrent significant external changes, we have already made great achievements in

identifying what we need to do to meet the needs of our customers and stakeholders, and putting the measures in place to ensure that we can meet, and if possible exceed, these expectations.

PEOPLE

We have welcomed new people to the executive team and to many other areas of the business, who each bring new ways of thinking, new skills and knowledge. Together with our existing staff, with their experience and talent, we have a formidable combination that will be able to drive the business into the future.

One of the early hallmarks of our business has been the level of enthusiasm and energy of our people. After years of uncertainty, the business has a clear direction. Our people have welcomed the certainty that this clarity of role has created and have warmed to the challenge to create a strong and vibrant business of which they can be proud.

NEW OPERATING ENVIRONMENT

The transition to a ‘new’ Western Power coincided with a major reform of the Western Australian energy market. The most significant change for Western Power has been the establishment of the Economic Regulation Authority (ERA), which is responsible for overseeing our operations in a new regulated environment. In a similar vein, the Independent Market Operator (IMO) has been created to manage the operation of the new Wholesale Electricity Market (WEM).

We are pleased to present the first Annual Report for Western Power, Western Australia’s new electricity transmission and distribution business. It is Western Power’s responsibility to maintain the integrity of the power system and provide network access services to generators, retailers and other users.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 30 JUNE 2006CHAIRPERSON’S AND MANAGING DIRECTOR’S REVIEW

Peter Mansell Chairperson Doug Aberle Managing Director

4

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 30 JUNE 2006CHAIRPERSON’S AND MANAGING DIRECTOR’S REVIEW

A notable milestone in our short history was the submission, in May 2006, of a proposed new Access Arrangement, which the ERA is expected to approve by late 2006. This arrangement, which was created in a spirit of cooperation between Western Power and the ERA, clearly outlines our work plans, budgets and the terms and conditions under which all generation and retail businesses must operate to access the network. We welcome the certainty the arrangement provides in knowing what we are expected to deliver and the agreed investment to achieve this.

The arrangement also sets out exactly what is expected of Western Power in respect to safety and reliability performance, as well as providing new capacity to meet the ever-increasing demand for electricity, and preserving the integrity of the network, currently valued at about $3 billion.

The advent of the new WEM was the trigger to restructure Western Power’s System Management division and for it to be financially ‘ring fenced’ so that it can fulfil its responsibility under the new market rules.

LOOKING TO THE FUTURE

The introduction of the One Step Ahead program is a clear demonstration of our reinvigorated approach to business performance. The One Step Ahead program is a business transformation project that is reviewing the way we conduct all aspects of our business to improve efficiency, performance and customer service. Through better purchasing and contracting strategies, we are already achieving considerable savings and freeing-up valuable resources to attend to more business-critical work.

By improving the way we communicate with customers and process customer requests, we have reached new standards in customer service. A new system for work and resource scheduling will make it possible to complete an unprecedented volume of work while containing costs.

We have renewed our commitment to safety with a new vision and action plan that will entrench safety as a core business value. This recommitment to safety involves more than reviewing processes; it involves creating a cultural mind shift to ensure that the safety of our people, our contractors and the community we serve is paramount in every business decision.

We are continuing the work started in 2004-05 to

upgrade the electricity network. A record investment of

$2.23 billion over the four-year period to 2008-09 will help

us to meet new reliability targets and improve the safety and

quality of power across the South West Interconnected

System (SWIS).

A significant proportion of this capital expenditure will

contribute to the development of the network to cater for

future growth.

A fresh, new logo and corporate colours have been

introduced, which capture the spirit and energy of our

new business and clearly position Western Power as a new

entity. We have also bolstered our communications efforts

to strengthen our relationship with stakeholders. This has

included embarking on a more proactive media campaign

and consultative process with the communities in which

we work to improve the understanding of the nature of

our work.

Finally, we welcome our new Board of Directors, whose

breadth of experience will help guide Western Power in

the new market environment. Like us, they are excited

about the future of the business. The Board is confident

that we will cement our credibility as a high-performing

business that delivers on its expectations and which

positions itself to meet the challenges of the future.

Peter Mansell

Chairperson

Doug Aberle

Managing Director

25 September 2006

5

“Our separation from the Western Power Corporation provides a great opportunity; we are on our own with a sole focus on the safe, reliable and efficient distribution and transmission of electricity.”

Peter MansellC H A I R P E R S O N

Doug Aberle M A N A G I N G D I R E C T O R

6

BEFORE APRIL 2006

How Western Power operated prior to April 2006 in the South West Interconnected System (SWIS).

FROM APRIL 2006

How the four new businesses operate from April 2006 in the SWIS.

Changes to Western Power

6

The ‘new’ Western Power (operator of the network)

generation

Western Power Generation Business

distribution retailers customers

Western Power Networks Business

Western Power Retail Business Residential customers

Business customers

generation distribution retailers customers

Energy Ombudsman and codes protect the interests of customers.

Residential prices set by Minister for Energy.

Business prices determined by the market.

Networks distribution system regulated by the Economic Regulatory

Authority (ERA).

Wholesale electricity market regulated by Independent Market

Operator (IMO).

Residential customers

Business customers

Verve Energy (max. capacity 3,000 MW)

Other Generator

Other Generator

Other existing retailers

SYNERGY

Future retailers

Business and Residential

Existing Potential

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 30 JUNE 2006

Board of directors


7

Peter MansellChairperson

Jenny SeabrookDeputy Chairperson

Doug AberleMangaging Director

Mervyn DaviesNon-Executive Director

Karen FieldNon-Executive Director

Sally FarrierNon-Executive Director

8

Organisation chart as at 25 September 2006


E X E C U T I V E M A N A G E R S

Doug Aberle Managing Director

Mark de Laeter General Manager Asset Management

Laurie Curro Manager System Planning

Syd McDowell Manager Network Performance

Mike Lu Manager Customer Solutions

Mark Wilshusen Manager Standards, Policy and Data Quality

Nyrie Anderson* Business Improvement Manager

Steve Hughes* Expenditure Optimisation Manager

Rod White General Manager Works Delivery

Duncan Whitfield Manager Program Enablement

Gino Giudice Manager Customer Services

Brett Hartman Manager Commercial

Mehdi Toufan Executive Manager Engineering

Rod Smith Manager Program Delivery

Anne-Marie Clark General Manager Field Services

Rob Walker Manager Business Services

Kevin Collyer Manager Metro

Dennis Smith Manager Country

Rob Atkin Manager Substations

Graham Rowe Manager Field Engineering and Works

Jim Kafanelis Manager Business Improvement

Ken Brown General Manager System Management

Phil Kelloway Manager Planning and Market Operations

Shane Duryea Manager Network Operations

Murray Caston Manager System Operation Control

Rod Newton Manager SCADA and Information Systems

Malcolm Peacock Chief Financial Officer

Guy Burnett Manager Corporate Accounting and Taxation

Gair Landsborough Manager Business Analysis

Ann Hughes Manager Risk Management

Jane Wedgwood Manager Treasury

Leigh Sprlyan Chief Information Officer

Phil Southwell General Manager Strategy and Corporate Affairs

Gavin Forrest Manager Strategy

Peter Mattner Manager Regulation, Pricing and Access Development

John Pease# General Counsel, Company Secretary

Brendan Carvalho Manager Risk Assurance and Audit

Jennifer Heron Manager Corporate Affairs

Miriam Borthwick* Media Advisor

Greg Monkhouse General Manager Human Resources

Marissa Connolly Manager Workforce Capability

Kathleen Drimatis Manager Employment Relations

Frank Loss Manager Safety and Health

Lionel Barnett* Administrative Services

Geoff Weaver Manager HR Operations and Organisational Development

Martin Sims A/General Manager Business Transformation

Steve Blake Manager Consulting

TBA Executive Analyst

* direct reports to General Managers # direct reports to Board and Managing Director

9

Organisational structure

Our eight divisions, their purpose and functions:

ASSET MANAGEMENT

Asset Management determines the work necessary to optimise the performance of the SWIS. The division develops maintenance and network improvement strategies, and plans electricity infrastructure extensions to accommodate future growth. It is also responsible for standards, policies and safety compliance.

Asset Management is the main interface with Western Power’s major customers – the independent generators and retailers, who require access to the network.

WORKS DELIVERY

While Asset Management determines what work needs to be done and when, Works Delivery arranges the resources and contracts to make it possible. This includes land acquisition, project and contract management, transmission and distribution design, procurement of materials and equipment, and customer support.

FIELD SERVICES

Field Services carries out the extensive work program – safely, reliably and efficiently.

The division provides network construction, communication and maintenance services, as well as operational support and training for both Western Power and external customers.

Field Services employs more than 1,130 staff in 26 operational depots across the SWIS.

These three divisions make up the Western Power Works Engine, described on page 16.

SYSTEM MANAGEMENT

System Management operates the transmission and distribution network by centralised control to dispatch available generation capacity to meet demand; to ensure the network is correctly configured to meet security criteria; to manage power restoration in the event of an outage; and to carry out its responsibilities in the WEM.

FINANCE

Finance delivers the financial, commercial and information services necessary for Western Power to carry out its work. This includes corporate accounting, business analysis, risk management, treasury and information technology.

STRATEGY AND CORPORATE AFFAIRS

Strategy and Corporate Affairs is responsible for internal and external communications including staff, government, media and stakeholder liaison, and community partnerships; Western Power’s strategy planning process; and leading the pricing and economic regulatory management process. It also delivers core legal, company secretariat, risk assurance and audit functions across Western Power.

HUMAN RESOURCES

The Human Resources division develops strategies and systems to attract, develop and retain people with the skills and capabilities to achieve Western Power’s business goals. Its functions include managing workforce capability, employment relations and providing a full range of human resource services, including payroll and health services.

BUSINESS TRANSFORMATION

Western Power needs to develop innovative ways of operating if it is to meet the challenges of the new commercial and regulatory environment and a larger work program. Business Transformation coordinates and supports change initiatives aimed at developing greater capability and capacity in the organisation. This innovation helps improve safety, efficiency, reliability and customer service.

Western Power’s organisational structure and business model have been developed to provide a concentrated focus on priority areas and to promote a culture based on achievement, customer awareness and responsibility.


10

Clinton PerryNETWORKS ENGINEER,

DISTRIBUTION DESIGN ENGINEERING

“I recently completed my three-year graduate rotation program at Western Power, where I gained a wealth of experience across the business. This allowed me to attain my chartered status with Engineers Australia. Since completing the program I’ve been working in Distribution Design and enjoying the many challenges that it presents.”


Perth

Bunbury

Geraldton

ThreeSprings

Boddington

Kondinin

Kalgoorlie

Manjimup

Bounty

SouthernCross

Merredin

Cunderdin

Northam

Narrogin

Wagin

Katanning

Kojonup

Muja

Collie

Bridgetown

Beenup

MargaretRiver

Mandurah

Kwinana

Indian Ocean

Southern Ocean

Kalbarri

GoldenGrove

Albany

Power generation

Step-uptransformer and

terminal substation

Transmission line

Transmission line

Substation

Industrial/commercialcustomers

Residentialcustomers

Terminalsubstation

Low voltageunderground cables


Ravensthorpe

Western Australia

Areaserviced by

WesternPower

Transmission powerlines 330 kV 220 kV 132 kV 66 kV

Pinjar

Fremantle

Rockingham

Yanchep

Pinjar

Northam

MooraCataby

N

Distributiontransformer


South West Interconnected System

11

Distribution lines In addition to the transmission lines in the South West Interconnected System, a network of distribution lines (not shown) supplies power to more than 840,000 properties (residential and businesses) and 150,000 streetlights.


How is power distributed? Generators create electricity at power stations owned by energy companies and supply this electricity to transformers. Transformers convert the electricity from low to high voltage for efficient transport using the transmission system. A substation converts the high voltage electricity to a lower voltage for transport via distribution lines to properties (residential and businesses). Western Power is responsible for the ‘poles and wires’ and underground power infrastructure. Retailers purchase energy from energy companies and sell this to customers in the South West Interconnected System.

‘Poles and wires’Perth

Bunbury

Geraldton

ThreeSprings

Boddington

Kondinin

Kalgoorlie

Manjimup

Bounty

SouthernCross

Merredin

Cunderdin

Northam

Narrogin

Wagin

Katanning

Kojonup

Muja

Collie

Bridgetown

Beenup

MargaretRiver

Mandurah

Kwinana

Indian Ocean

Southern Ocean

Kalbarri

GoldenGrove

Albany

Power generation

Step-uptransformer and

terminal substation

Transmission line

Transmission line

Substation

Industrial/commercialcustomers

Residentialcustomers

Terminalsubstation



Ravensthorpe

Western Australia

Areaserviced by

WesternPower

Transmission powerlines 330 kV 220 kV 132 kV 66 kV

Pinjar

Fremantle

Rockingham

Yanchep

Pinjar

Northam

MooraCataby

N



12

13

THE NEW ACCESS ARRANGEMENT AND

WHOLESALE ELECTRICITY MARKET

The introduction of a new economic regulatory regime represents the single biggest shift in the business environment for Western Power. A proposed Access Arrangement (AA) was submitted to the Economic Regulation Authority (ERA) in May 2006. Final approval is expected by late 2006.

The AA is a comprehensive access regime, approved by the ERA, under which Western Power will facilitate access to its network during the three-year period to 2009. It provides approved network tariffs, revenue projections, and the levels of capital and operating expenditure aimed at meeting prescribed performance standards over the three years.

Throughout the term of the AA, the ERA will continue to assess large transmission and distribution project proposals to ensure they achieve the best long-term economic solutions for customers.

Western Power also completed preparations for the start of the Western Australian Wholesale Electricity Market (WEM) on 21 September 2006. The System Management division assisted in the development of the market rules and procedures and will continue its involvement by being represented on relevant committees and working groups. A financial ring fence was created to enable the team to fulfil its responsibilities under the Market Rules, which include outage planning, load forecasting and the future assessment of system adequacy. All of this required us to install new information technology systems, including a communications interface with the Independent Market Operator (IMO), to write new operating procedures and to provide appropriate staff training.

From April to end June 2006, Western Power also renegotiated existing access contracts to bring them in line with the requirements of the AA and WEM.

A NEW STRATEGY

Western Power’s strategic intent is represented as a set of defining characteristics – safe, reliable, efficient. These three words define the way Western Power will operate and measure its success.

Further, these characteristics have been incorporated into Western Power’s organisational structure and business model and will continue to be intrinsic to every plan, project and program.


Western Power crews are switched onto safety.

Overview ofbusiness operations

14

SafeTHE 100 DAY PLAN

In June 2006, a 100 Day Plan on safety was launched to help establish a culture where safety is a core value, both for the organisation and for each of us individually.

The plan was divided into three phases - analysing the issues, identifying the solutions and implementing the changes. It also included a review of safety leadership training, incident reporting and investigation, contractor safety management and public safety issues. Five short-term safety projects were approved for implementation across the organisation and significant progress was made on 16 longer-term workstream projects.

These projects will complement ongoing safety initiatives such as Switch On Mate, which is aimed primarily at line-based teams. Both promote a culture of safety in all workplace behaviour and personal responsibility for identifying and acting on potential hazards.

ReliableIMPROVING NETWORK PERFORMANCE, LISTENING

AND RESPONDING TO OUR CUSTOMERS

In 2005-06, Western Power embarked on a four-year program to achieve a 25 per cent improvement in reliability, through targeted maintenance and asset replacement programs. These are described in more detail later in this report.

Along with this we embarked on major recruitment programs, both in Australia and overseas, to ensure we had the resources to carry out both network improvements and customer-driven work. We also made progress in improving our reputation with customers and stakeholders and introduced technology to increase our ability to give customers timely and accurate information during network events.

EfficientONE STEP AHEAD

An analysis of its business and operations by the former Western Power Networks Business Unit identified several opportunities to increase efficiency and performance. A change program, known as One Step Ahead (OSA), was started so these efficiencies and other benefits could be realised. The program is made up of a number of projects that aim to:

• improve customer service;

• improve the way work is planned, prioritised, scheduled and resourced;

• improve the methods and standards for undertaking operational, maintenance and capital works; and

• make the purchasing and procurement strategies for materials and services more cost effective.

We will seek efficiency benefits in both capital and operating expenditure. A range of business cases has been developed and is being implemented. By the end of 2005-06, efficiencies had been achieved in the areas of procurement services, resource planning and work scheduling, and customer complaints handling.

An efficiency target of $20 million was built into the Access Agreement for 2006-07 and the OSA Program is assisting the business achieve this target. Efficiency benefits, once achieved, are expected to continue in subsequent financial years.


Western Power’s new look.

15

Following the Government’s announcement of a $2.23 billion networks expenditure program in 2004, Western Power started a comprehensive program to improve network safety and reliability and target poor performing areas of the network. The program also includes developing our infrastructure to accommodate the State’s rapid growth.

We developed a broad range of programs to achieve these objectives, including:

SafeBUSHFIRE MANAGEMENT PLAN

This ongoing plan includes strategies to address all aspects of bushfire management in both the short and long-term. Among these are improved vegetation control and additional, targeted maintenance. The holistic approach also covers planning, design, standards, data management, environment, training and community education.

The benefits of this approach are already evident, with no significant bushfires during the 2005-06 financial year and a significant reduction in vegetation-related faults.

REPLACEMENT OF CUSTOMER

SERVICE CONNECTIONS

Western Power completed the first stage of a program to replace older, overhead customer service connections with a modern, safer attachment. This stage represented a trial of the process and replacement of about 2,500 service connections. In stage two, starting in October 2006, a further 45,000 connections will be replaced, followed by remaining, older connections throughout the SWIS.

Reliable40 WORST FEEDERS PROGRAM

This program, which targets feeders with the poorest reliability performance, is now in its second year. Feeders are high-voltage distribution lines, and associated ‘spur’ lines, that make sure power is available to properties. A number of suburbs can be ‘fed’ by one feeder, and a number of feeders can ‘feed’ power into one suburb or town.

Of the more than 700 feeders throughout the SWIS, 40 feeders were identified with 70 per cent of these lines undergoing comprehensive inspections. Work to rectify the problems identified will be completed in 2006-07 and, at the same time, a new set of 40 feeders will be added to the program.

AUTOMATION PROJECT

Western Power has embarked on a $2.4 million project to install automated field protection devices on the overhead distribution network to reduce both the impact of faults on customers and the time it takes to restore power.

RURAL POWER IMPROVEMENT PROGRAM

Western Power continued to target poor reliability in rural areas of the distribution network during the third year of the $48 million Rural Power Improvement Program. In 2005-06 the program focused on upgrading specific rural lines by providing additional capacity and backup capability to the areas they serve. Customers in Dongara, Kalbarri, Merredin, Dandaragan, Watheroo, Narrogin and Collie benefited. The program will continue for a further year.

STATE UNDERGROUND POWER PROGRAM

The State Underground Power Program was introduced in 1996 to improve network reliability by converting overhead powerlines to underground power. In 2005-06, Western Power completed projects


Managing and improving the networkOne of the objectives of the State Government’s reform process was to improve the reliability and capacity of Western Australia’s electricity networks. The new regulatory measures, and the establishment of Western Power as a dedicated networks business, provide greater focus on network investment and service standards.

16

in Victoria Park South, Gosnells North and Shenton Park. Significantly, the program budget for the 2006-07 financial year has been doubled, allowing current projects in Round Three to be completed and work to start on the seven new projects which make up Round Four.

SUMMER PREPAREDNESS

Western Power continued with this program to ensure the network is ready for summer by identifying distribution transformers and low-voltage lines which may be prone to overloads and upgrading them.

EfficientNEW CONTROL CENTRE MANAGEMENT SYSTEM

The introduction of a new network management system in the Western Power Control Centre is already improving the collection of fault data and fault job management. ENMAC (Electricity Network Management and Control) has been introduced gradually over the past three years and is now being extended to country areas. We are currently trialling new software to complement this system and replace the Trouble Call Management System, developed by Western Power in the 1990s. The new trouble call system, also an ENMAC product, will further improve fault response times and allow us to provide more accurate information to customers about faults and restoration times.

Work is also in progress to provide a new Energy Management system for the Control Centre to dispatch generation and to operate the transmission network. The XA/21 system was commissioned in August 2006 in time for the start up of the Wholesale Electricity Market.

Technology is also improving the efficiency of line inspections with the use of Thermal and Corona Cameras in helicopter patrols of the distribution and transmission networks. These cameras register infra-red and ultra-violet rays to detect potential problems on pole-top equipment which could not otherwise be detected.

RECRUITMENT PROGRAM

The unprecedented growth in Western Australia has put pressure on the labour market and increased demand for electricity. Western Power took steps to solve its labour shortages by completing a successful overseas recruitment drive for trainee line workers and electrical apprentices. In 2006-07, 33 new trainee line workers and

12 electrical apprentices relocated to Western Australia to take up positions with Western Power. Other initiatives, such as the development of a partnership with Skilled Engineering to fast-track apprenticeships, helped boost the number of skilled technicians.

GETTING THE JOB DONE -

THE WESTERN POWER WORKS ENGINE

With the new business came the development of a new operating model, known as the Works Engine. The term is used to describe the combined effort and energy of more than 2,000 people from the Asset Management, Works Delivery and Field Services divisions.

These three divisions are working together to deliver the three-year work program covered in the Access Arrangement. This includes maintaining and upgrading existing network infrastructure, as well as extending the network to new industrial and residential developments.

The model enables each division to focus on its specific area of expertise and meet its responsibilities while working closely with other divisions towards our common goal of delivering the work on time. Essentially, Asset Management decides what work needs to be done, Works Delivery plans how the work will be executed and resourced, and Field Services is responsible for carrying it out – safely, reliably and efficiently.

This collaboration will help Western Power make clear investment decisions, plan work more efficiently and deliver effective solutions for our customers.


Asset Management Works Delivery

Field Services

What should be done, why and by when

Plans the execution of the work

Delivers the agreed work plans and responds to faults

and network emergencies

17

“We are on a journey of creating a strong and confident business that can meet dynamic market demands, without compromising the delivery of the essential service we provide.”

Peter MansellC H A I R P E R S O N

Doug Aberle M A N A G I N G D I R E C T O R

18

Caring for the environment

It builds on the successes of previous policies and establishes a range of strategies and actions, many of which go beyond standard environmental compliance.

The Board of Directors also endorsed an Environmental Governance Framework, which provides a systematic and responsible approach to environmental management and establishes environmental due diligence across the business.

Two notable initiatives were also revealed. Firstly, a new strategic approach to possum management aims to reduce the incidence of possums coming into contact with live conductors and pole-top equipment, resulting in

network outages. Secondly, the Organic Farm Program demonstrates environmental leadership in business and the community. It aims to ensure that no synthetic chemicals are used on or around Western Power assets, located on organic produce farms, during maintenance.

Western Power laid the foundations for three new environmental partnerships which, as well as supporting community environmental initiatives such as tree planting, fauna conservation and education, will assist in promoting a culture of environmental awareness within the organisation.

Western Power is committed to protecting the environment and continuing to improve its environmental performance. To coincide with the launch of the new business, Western Power developed, and has adopted, a new Environmental Policy, which sets the level of environmental responsibility and performance.


The white-bellied frog, Geocrinia alba, is so special that the route of an important Western Power distribution line was changed to protect its habitat.

This tiny creature is significant because there are so few white-bellied frogs in the world and their population is declining.

It is 25 millimetres long and lives in a small part of the south west between Karridale and Witchcliffe, south of Margaret River.

When Western Power became aware of the white-bellied frog’s habitat close to a proposed distribution line in Karridale, a kilometre section of the line was redesigned and moved away from the wetland area.

The line was completed in May, well away from the frog community which, we hope, will prosper.

Helping to protect the white-bellied frog is one of several ways Western Power is caring for the environment.

E N V I R O N M E N TA L C A S E S T U D Y N o . 1 S A V I N G T H E W H I T E - B E L L I E D F R O G

The white-bellied frog Geocrinia alba

Photograph courtesy of Marion Anstis

19

STAKEHOLDER AND COMMUNITY

COMMUNICATIONS

The formation of a new electricity transmission and

distribution business, along with the increasing complexity

of the Western Australian energy market, make the need

for clear corporate communications essential.

Our stakeholder relations team is working actively

with community groups, local governments, media

and peak industry bodies to seek their input, and

keep them informed, as we plan and implement

network improvements.

SPONSORSHIP AND THE COMMUNITY

Western Power continued to support a range of

community, environmental, sporting and cultural activities

and events throughout Western Australia.

Our sponsorship program focuses on ‘grass roots’

activities that promote health, fitness and the arts;

strengthen communities; educate and build skills; or

promote safety. In 2005-06 we invested some $670,000

in community sponsorships and charitable donations.

Western Power’s ever-popular energy and environmental

education centre, World of Energy, had another busy year.

During 2005-06 more than 72,000 students and adults

visited the centre or participated in education programs –

an increase of 26.5 per cent on the previous year.

The education program includes visits to primary and

secondary schools across the State to teach students

about electrical safety. Teachers from both Western

Australia and overseas bring their students to the facility

to extend classroom learning.


Working with the community

Western Power’s ever-popular Shock Proof! Program was extended to include kindergarten children, a move much appreciated by teachers and parents.

One parent wrote to Western Power’s World of Energy to congratulate it on the program.

“Our daughter Charlotte identified the 10 electrical hazards in one of the handouts. We found this amazing, as she is only three years old. She did an excellent job at identifying and explaining why they were electrical hazards.”

The Shock Proof! Program messages have been simplified for the younger audience and the talks are designed to be fun and interactive.

C O M M U N I T Y C A S E S T U D Y N o . 1 S A F E T Y A N D T H E C O M M U N I T Y

Shock Proof! student Charlotte.

20


In May 2006 a fault at the Clarence Street Substation in South Perth left about 10,000 customers without power. It was an unusual fault, the likes of which have occurred only four times in the past 25 years.

The damage required us to feed power to customers from neighbouring substations, however our ability to do this was limited because South Perth is bound on two sides by the Swan River.

In spite of these circumstances, Western Power people responded quickly and enthusiastically, many of them working tirelessly through the night to minimise the impact on customers. These included field crews, switching operators, control centre teams and asset management and planning staff.

Western Power’s Rapid Response Transformer was deployed as backup and 15 portable generators were placed in strategic locations around South Perth while major equipment was repaired.

The incident gave us an opportunity to test our crisis and contingency planning, including the use of a customer response team, whose members called on affected residents and businesses during the incident to keep them informed and address particular concerns. At the same time a proactive media campaign kept the broader public informed.

This tremendous team effort resulted in power being restored safely and as quickly as possible in the circumstances and an overwhelmingly positive response from the community.

C O M M U N I T Y C A S E S T U D Y N o . 2 W O R K I N G W I T H T H E C O M M U N I T Y

Restoring power after the Clarence Street Substation fault.

21

Natasha LamGRADUATE ELECTRICAL ENGINEER,

TRANSMISSION PRIMARY

ENGINEERING

“While working at Western Power I’ve developed a range of technical and managerial skills, especially in areas such as self-management and demonstrating a responsible attitude to safety and the environment. The training and mentoring from senior engineers has been excellent.”

22

Key performance indicators


We have identified a range of measures to track the business’s operations and to drive ongoing improvements in Western Power’s performance.

In accordance with the Electricity Corporations Act 2005, our performance targets are set out in our Statement of Corporate Intent, which will be tabled in State Parliament each year. Our first set of performance targets produced for the new business took effect from 1 July 2006 (beyond the timeframe of this document) and will be reported against in the Western Power Annual Report 2007.

The Western Power Corporation Statement of Corporate Intent 2005-06 and the performance targets detailed within were produced specifically for the former company. As such, it is not appropriate to track the new Western Power networks business against targets set for the former Western Power Corporation.

* Corporate reputation is an annual performance measure and will be tracked next in late 2006.

P E R F O R M A N C E I N D I C AT O R S

Financial performance Actual 01/04/06 to 30/06/06

Average unit cost (cents) / (Total expenditure before tax /kWh sold) 5.7

Return on capital employed (%) / (EBITDA / average non-current assets) 2.8

Debt to equity ratio / (Capital structure geared to debt) 73/27

Return on equity / (Net profit after income tax / total equity) 2.1

Profit after tax ($m) $17.07

Revenue ($m) $184.56

Earnings before interest and tax (EBIT $m) $54.78

Corporate reputation performance Actual 01/07/05 to 31/03/06

Corporate reputation (% viewed as positive)* -

Safety performance Actual 01/07/05 to 30/06/06

Safety - Lost time injury frequency rate (LTIs / million hours worked) 4.7

Safety – All medical frequency rate (AMFs / million hours worked) 19

23

RELIABILITY AND QUALITY

PERFORMANCE INDICATORS

In analysing the reliability and quality performance indicators detailed below, it is important to note that the 12-month reporting period reflects nine months of operations under the former Western Power Corporation, with the remaining three months reflecting performance of the new Western Power business.

Western Power’s network performance is measured against Major Event Days (MED) Exclusion Target figures – in accordance with guidelines set by the Steering Committee on National Regulatory Reporting Requirements and the Institution of Electrical and

Electronic Engineers, Standard 1366 (Guide for Electric Power Distribution Reliability Indices).

MED targets are equivalent to the performance targets included in the former Western Power Corporation’s Statement of Corporate Intent 2005-06, minus the impact of major event days on the business’s network performance.

The CAIDI performance figures detailed below can be attributed to less outages occurring on the network, but with the average duration of each outage lasting longer. This is due to a range of factors including time-consuming underground cable repair work in the central business district (CBD); and in other areas of the SWIS, the availability of staff to respond to the faults, the location of the faults and the nature of the fault.


1 CBD area is the area supplied by the Hay Street and Milligan Street zone substations.2 Urban area includes those components of the SWIS that supply the following areas: - Perth Metropolitan area but excluding the CBD area; - local government district of Mandurah; - local government district of Murray; and - town sites of Albany, Bunbury, Geraldton and Kalgoorlie.3 Rural and country area is the SWIS other than the CBD and Urban areas.

R E L I A B I L I T Y A N D Q U A L I T Y P E R F O R M A N C E I N D I C AT O R S

12 months to June 2006

CBD area1 Actual with MED Exclusion MEDs Excluded Target

SAIDI – total duration of outages per customer (minutes) 11 22CAIDI – average duration of incidents (minutes) 218 68SAIFI – average number of incidents 0.05 0.33

Urban area2

SAIDI 221 252CAIDI 119 72SAIFI 2.73 3.50

Rural and country area3


SWIS total


24


SAIDISystem Average Interruption Duration Indicator

CAIDICustomer Average Interruption Duration Indicator

SAIFISystem Average Interruption Frequency Indicator

The total duration of interruptions per customer for the year

Total duration of interruptions for one yearSAIDI = Average number of customers per year

Average duration of interruptions for the year

Total duration of interruptions for one yearCAIDI = Total customers interrupted for one year

Average number of interruptions per customer for the year

Total customers interrupted for one yearSAIFI = Average number of customers per year

25


As required by the Electricity Corporation’s Act 2005 (Part 5, Division 3, Section 108) Electricity Networks Corporation (the Corporation) is required to prepare an Annual Report for the period 1 April 2006 to 30 June 2006. The comments below form a brief overview of the financial results of the Corporation for the three-month period.

INCOME STATEMENT

Total revenue was in line with the Corporation’s expectations. Expenditure, particularly on materials and maintenance, was higher than expected. This is due to increased demand as a result of the sustained high growth in the local economy, an increased commitment to service reliability and the added emphasis on safety. Interest costs were in line with the anticipated amount. Net profit after interest and tax is $17.1 million.

BALANCE SHEET

The balance sheet is dominated by revenue generating assets and borrowings. Our assets ($3,032.0 million) are primarily made up of electricity distribution and transmission lines. Borrowings ($2,150.0 million) are made up of loans from Western Australian Treasury Corporation and are to fund capital expenditure.

Current assets ($234.4 million) are primarily made up of cash, receivables and inventory. Current liabilities ($278.3 million) include trade and other payables, provisions and other liabilities. Current liabilities include deferred revenue, which will not require future cash outflows. In assessing the Corporation’s working capital requirements deferred revenue should be excluded. Based on this approach, the Corporation has an excess of current assets over current liabilities to the value of $81.8 million.

The Corporation has an obligation to support past pension and superannuation scheme liabilities ($32.7 million) where the Corporation is obliged to pay a pre-determined retirement value to individuals under those schemes.

Equity is primarily made up of Contributed Equity ($774.0 million), being the net value of the Corporation’s assets and liabilities taken on at 1 April 2006 from Western Power Corporation.

CASH FLOW STATEMENT

The cash flow statement demonstrates the underlying strength of the Corporation’s asset base with a positive flow from operations of $35.2 million. Cash flows in investing activities (principally assets such as transmission lines) of $169.9 million demonstrate the Corporation’s commitment to upgrading and extending its network. Borrowings support the shortfall between cash generated from operations and invested in infrastructure.

Review offinancial performance

26


Summary of statement of financial performance

Three months ending 30 June 2006 $’000 Most of our revenue was earned from our core electricity-related services

Revenue earned from annual service and usage charges and from developers 161,730

Revenue received from interest on our investments, miscellaneous fees and charges, rents and sale of assets 22,827

Revenue from Operations 184,557

The total cost of operating our business comprised:

Operations, maintenance and administrative costs associated with providing services 102,090

Borrowing costs and other financial expenses 30,444

Depreciation and amortisation of system assets, land and buildings, plant 27,684 and equipment and computer software.

Cost of Operations 160,218

Revenue less costs left an operating profit before tax of 24,339

We provided for income tax expense of 7,272

Which left us a profit after income tax of 17,067

We also added back to retained earnings, the value of the actuarial adjustment to Retirement Benefit Obligations of 938

Leaving us with retained profits available to fund future growth of 18,005

27


Summary of statement of financial performance

as at 30 June 2006 $’000 Our total assets are divided between ‘current’ and ‘non-current’ as follows:

Current assets are those we expect to use in the next 12 months and include monies owed to us, inventory, prepayments and cash on-hand. 234,396

Non-current assets are those we do not intend to realise within 12 months, including:

System assets such as distribution and transmission lines 2,361,438

Land and buildings 86,116

Leasehold improvements and intangible assets 12,926

Works in progress 583,735

Trade and other receivables, future income tax benefits and derivative instruments 31,857

Non-current assets total 3,076,072

Current assets together with non-current assets give us total assets of 3,310,468

Liabilities are also ‘current’ and ‘non current’

Current liabilities are monies we owe for goods and services received, deferred income from developer and customer contributions, provisions for employee entitlements and other liabilities 278,295

Non-current liabilities include:

Long-term borrowings 2,150,486

Provisions for liabilities including employee entitlements and restoration costs and other liabilities 73,121

Non-current liabilities total 2,223,607

Current liabilities, together with non-current liabilities gives us total liabilities of 2,501,902

Deducting total liabilities from total assets leaves us with net assets of 808,566

These have been funded by:

The contributed equity, which is the value of net assets of Western Power Corporation transferred to Electricity Networks Corporation 773,973

Equity adjustments 10,237

Contributions received during the period 6,000

Monies held in reserves from hedging activities 351

Profits earned in the current prior years and retained in the business to fund future growth 18,005

Which represents total equity in the business of 808,566

28

Glenn Dillion-SmithTRAINEE LINE WORKER

“Western Power has given me the opportunity to forge a career in the electricity industry starting as a trainee line worker. I install, repair and maintain overhead powerlines and cables, so I usually spend most of my day working outdoors on live powerlines. Safety is paramount in everything I do on the job, in training and with my peers.”

29

Corporate compliance disclosures


ELECTRICITY LICENCES

The licensing framework in the Electricity Industry Act

2004 (WA) came into operation on 1 January 2005.

As consequence an electricity supply licence is required

for participants in the electricity industry who generate,

transmit, distribute or sell electricity.

On 30 March 2006 the Economic Regulation Authority

granted transmission and distribution licences to Western

Power Corporation, noting that on 1 April 2006 it would

disaggregate into the Electricity Networks Corporation

(the Licensee).

The licences were issued for the construction and

operation of transmission and distribution systems in

the licence area covered by the South West

Interconnected System.

Particular requirements of the licences include

performance auditing, an Asset Management System and

auditing thereof, reporting, provision of information and

the development of a trouble call fault management plan.

OBSERVANCE OF THE CODE OF CONDUCT

FOR WESTERN POWER

Section 33 of the Electricity Corporations Act 2005

(‘the Act’) requires the Board of Electricity Networks

Corporation (the Board) to provide to the Minister,

at the same time as delivering its Annual Report, a separate report on the observance of its Code of Conduct by members of staff.

The Board confirms that consistent with Section 31 of ‘the Act’, the Western Power Code of Conduct was developed after consultation with the Commissioner for Public Sector Standards and was adopted by the Board at its meeting on 24 March 2006.

The Code of Conduct has been circulated to employees of Western Power and is available on the Western Power website for employee reference.

The Board and the Chief Executive Officer, under delegated authority, assign accountability to formal leaders in the organisation to ensure observance of the standards of conduct and integrity by members of staff.

As at 30 June 2006 there have been two reported incidents of staff breaching the requirements of the Code of Conduct:

• one incident of inappropriate internet usage resulting in termination of employment of the offending employee; and

• one incident of a breach of company policy in the use of a company credit card resulting in formal disciplinary action being taken.

ENVIRONMENTAL LICENCES

A summary of licences held by Western Power’s facilities is provided below.

E N V I R O N M E N TA L L I C E N C E S

Total

Western Australian Department of Environmental Protection Licence 1Department of Consumer and Employment Protection Dangerous Goods Storage Licence 3Water and Rivers Commission Underground Water Pollution Control Area Permit 1

30


STATE RECORDS ACT 2000

Western Power maintains and supports quality record keeping 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 Record Keeping Plan. Regular reviews are conducted of the corporate record keeping systems and practices to ensure their efficiency and effectiveness. New staff and contractors are provided with information on the record keeping 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.

PUBLIC INTEREST DISCLOSURE ACT 2003

The Public Interest Disclosure Act came into effect on 1 July 2003. The Act facilitates disclosure of public interest information by providing protection for those who make disclosures and those who are subject of disclosures.

Western Power is committed to the aims and objectives of the Act. These recognise the value and importance of contributions by staff to enhance administrative and management practices and strongly supports disclosures being made by staff regarding corrupt or other improper conduct. In support of this a set of procedures was developed that outlines the manner in which Western Power will comply with its obligations under the Act. The Manager Risk Assurance and Audit was appointed as the Public Interest Disclosure Officer for Western Power.

There were no public interest disclosures made in the three months ended 30 June 2006.

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 during the period 1 April 2006 to 30 June 2006 is disclosed as follows:

Advertising Agencies: $208,710.97 303 Advertising Pty Ltd, Hermes Precisa Pty Ltd, Marketforce Advertising Ltd, Mindfield Group Pty Ltd and TMP Worldwide Pty Ltd.

Market Research Organisations: $25,167.50 Synovate (new trading name of Market Equity).

Media Advertising Organisations: $12,440.69 Media Decisions WA

Total expenditure was $246,319.16

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 company.

ENVIRONMENTAL INCIDENTS

During the period 1 April 2006 to 30 June 2006, there were no environmental incidents or regulatory breaches requiring formal reporting to regulatory bodies.

31

Glossary


TERM DEFINITION

AA Access Arrangement. The financial rules and policies submitted by Western Power to the ERA that set out the terms and conditions under which the business will facilitate access to its network during the regulatory period from July 2006 to June 2009.

ACCESS CODE Electricity Networks Access Code 2004. The code under which access to the South West Interconnected Network (SWIN) is regulated by the ERA.

CAIDI Total average duration of interruptions during a 12-month period.

EMS Environmental Management System.

ERA Economic Regulatory Authority.

IMO Independent Market Operator, responsible for ensuring there is sufficient generation capacity in the wholesale electricity market - previously a function of the former Western Power.

KPI Key Performance Indicator.

MARKET RULES A code of conduct relating to the operation of the WA Wholesale Electricity Market, introduced by the Minister for Energy and updated, as required, by the Independent Market Operator.

SAIDI System Average Interruption Duration Index - or the total duration of interruptions per customer over a 12-month period.

SAIFI System Average Interruption Frequency Index - or the average number of interruptions per customer over a 12-month period.

SCI Statement of Corporate Intent.

SCNRRR Steering Committee on National Reliability Reporting Requirements.

SDP Strategic Development Plan - in which the approved budget is defined.

SWIN South West Interconnected Network.

SWIS South West Interconnected System.

WEM Wholesale Electricity Market, introduced on 21 September 2006.

32

Financial Review ‘06for the period from 1 April to 30 June 2006

ContentsCORPORATE DIRECTORY 34

DIRECTORS’ REPORT 35

CORPORATE GOVERNANCE STATEMENT 43

FINANCIAL REPORT 49

INCOME STATEMENT 49

BALANCE SHEET 50

STATEMENT OF RECOGNISED INCOME AND EXPENSE 51

CASH FLOW STATEMENT 51

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 52

DIRECTORS’ DECLARATION 86

INDEPENDENT AUDIT REPORT 87

ELECTRICITY NETWORKS CORPORATION, TRADING AS WESTERN POWER ABN 18 540 492 861

34

Corporate directoryDIRECTORS P J MANSELL Chairperson

D ABERLE Managing Director

M DAVIES S FARRIER K FIELD J A SEABROOK

GENERAL COUNSEL AND COMPANY SECRETARY J PEASE

DIVISIONAL GENERAL MANAGERS GENERAL MANAGER SYSTEM MANAGEMENT K BROWN

GENERAL MANAGER FIELD SERVICES A M CLARK

GENERAL MANAGER ASSET MANAGEMENT M DE LAETER

GENERAL MANAGER HUMAN RESOURCES G MONKHOUSE

CHIEF FINANCIAL OFFICER M PEACOCK

ACTING GENERAL MANAGER BUSINESS TRANSFORMATION M SIMS

GENERAL MANAGER STRATEGY AND CORPORATE AFFAIRS P SOUTHWELL

GENERAL MANAGER WORKS DELIVERY R WHITE

PRINCIPAL REGISTERED OFFICE IN AUSTRALIA 363 WELLINGTON STREET PERTH, WESTERN AUSTRALIA 6000 (08) 9326 4911

AUDITOR OFFICE OF THE AUDITOR GENERAL 2 HAVELOCK STREET WEST PERTH, WESTERN AUSTRALIA 6005

BANKERS COMMONWEALTH BANK OF AUSTRALIA 150 ST GEORGES TERRACE PERTH, WESTERN AUSTRALIA 6000

WEB ADDRESS www.westernpower.com.au

35

Directors’ report


The Board of Directors of Electricity Networks Corporation (‘the Corporation’) trading as Western Power, appointed by the Governor on the nomination of the Minister for Energy (‘the Minister’) under section 8(1) of the Electricity Corporations Act 2005 (WA) (‘the Act’), present this report for the three months to 30 June 2006.

DIRECTORS

The names and details of the Directors in office during the entire three months to 30 June 2006 are:

D AberleM DaviesS FarrierK FieldP J MansellJ A Seabrook

PRINCIPAL ACTIVITIES

The principal continuing functions of the Corporation are to:

• manage, plan, develop, expand, enhance, improve and reinforce electricity transmission and distribution;

• provide and improve electricity transmission and distribution services;

• provide access to services of network infrastructure facilities as required and authorised by the Electricity Industry Act 2004 Part 8 and any regulations or market rules made under that Part (which relates to network access);

• provide services in relation to the wholesale electricity market as required and authorised by the Electricity Industry Act 2004 Part 9 and any regulations or market rules made under that Part;

• provide services that improve the efficiency of electricity supply and the management of demand on electricity transmission and distribution systems; and

• provide services ancillary to the above principal activities.

There have been no significant changes in the nature of the principal activities during the three months to 30 June 2006.

DIVIDENDS

There were no dividends paid by the Corporation during the three months ended 30 June 2006.

OPERATING RESULTS

For the three months to 30 June 2006, the Corporation achieved a net profit after income tax of $17.1 million.

REVIEW OF OPERATIONS

The operations of the Corporation during the three months to 30 June 2006 and the result of those operations are discussed in the Operations Review section of the Annual Report.

CHANGE IN STATE OF AFFAIRS

There were no significant changes in the state of affairs of the Corporation during the three months to 30 June 2006, except as noted below:

• On 1 April 2006 the assets, liabilities and operations of Western Power Corporation were transferred to four separate state-owned entities. The Corporation is one of those entities. The new Board was selected to provide the commercial and industry expertise required for the Corporation’s areas of operation, as well as strong experience in customer-focused organisations.

MATTERS SUBSEQUENT TO THE

END OF THE FINANCIAL YEAR

The Wholesale Electricity Market (WEM) was due to commence operations on 1 July 2006. However, the Independent Market Operator has since confirmed that the WEM commenced in September 2006.

Since 30 June 2006, no other matter or circumstance has occurred that has significantly, or may significantly, affect the:

a) Corporation’s operations in future financial years; or

b) results of those operations in future financial years; or

c) Corporation’s state of affairs in future financial years.

36

LIKELY DEVELOPMENTS AND

EXPECTED RESULTS OF OPERATIONS

Likely developments in the operations of the Corporation that were not finalised at the date of this report included:

• The Economic Regulation Authority (ERA) is yet to deliver its final determination in relation to the Corporation’s proposed Access Arrangement (AA) for the purposes of the Electricity Networks Access Code 2004. When approved, this initial AA will regulate the Corporation’s affairs for a three-year period. The AA was submitted to the ERA on 19 May 2006. The long-term viability of the Corporation is similarly subject to price setting by the ERA.

• The Corporation has committed to a significant capital investment program in order to meet its safety, reliability and efficiency requirements. The Corporation is reliant on debt funding from the shareholder in order to meet these and any additional regulatory requirements.

The Directors have not included in this report any further information on the likely developments in the operations of the Corporation and the expected results of those operations in future years as they believe it would be likely to disadvantage the Corporation.

ENVIRONMENTAL REGULATION

The Corporation is subject to significant environmental regulations in respect of its activities. In particular, the Environmental Protection Act 1986 (WA) (State regulation) and the Environment Protection and Biodiversity Conservation Act 1999 (Commonwealth regulation).

During the three-month period these regulations were complied with.

INFORMATION ON DIRECTORS

D Aberle Age 52

Experience and expertise

Mr Aberle was appointed to the Board as Managing Director on 1 April 2006. He has a detailed knowledge of all aspects of the electricity industry having formerly filled the positions of General Manager for Networks, Chief Operating Officer, General Manager for Generation and General Manager for Transmission within Western Power Corporation. He was also Chairperson of Integrated Power Services, a company jointly owned by Western Power Corporation and Halliburton, and was Chief Executive Officer of the South West Development Commission during a six-month secondment.

He has a Masters in Engineering Science and a Bachelor of Engineering with honours in Power Systems from the University of Western Australia, and is a graduate of the Advanced Management Program at Harvard University. He is a Fellow of the Institution of Engineers Australia and a Chartered Professional Engineer and is also a clinical member of the Australian Association of Relationship Councillors, is a College Member of Gestalt Australia and New Zealand, and a Fellow of the Australian Institute of Company Directors.

Other current directorships

South West Counselling Incorporated

Special responsibilities

Managing Director

M Davies Age 62


Mr Davies was appointed to the Board as a Non-Executive Director on 1 April 2006. He has worked in all areas of electricity distribution and has extensive experience in managing both the financial and technical performance of the business. He has held senior management positions at Energy Australia, Australia’s largest electricity distribution company. Mr Davies is formally qualified in both Engineering and Economics (UNSW), and has experience at the business level in implementing the National Competitive Reform Agenda for electricity.

Since leaving Energy Australia, Mr Davies has established and operated an engineering consultancy practice, specialising in electricity distribution system management. He has worked for electricity distributors in New South


Directors’ report (continued)

37

Wales and Queensland, for the Independent Pricing and Regulatory Tribunal in New South Wales and for the Australian Competition and Consumer Commission.

Other current directorships

Chairperson for Anrig Pty Ltd and for Girna Engineering Management Services Pty Ltd.

Former directorships in last three years

Mr Davies was a Non-Executive Director of Western Power Corporation until March 2006.

Special responsibilities

Member of the Finance and Risk Committee.

S Farrier Age 42


Ms Farrier was appointed to the Board as a Non-Executive Director on 1 April 2006. She commenced her career as a consulting engineer before moving on to general management consulting and corporate advisory, specialising in utilities industries. In recent years, she has focused on economic regulation, risk allocation and market incentives.

Ms Farrier is a member of the Victoria Water Trust Advisory Council, and a member of the Independent Panel for the Central Region Sustainable Water Strategy.

Ms Farrier has a Bachelor of Chemical and Process Engineering, a Masters of Business Administration and a Post Graduate Diploma in Finance and Investment Analysis.

Other current directorshipsMs Farrier is a Director of Farrier Swier Consulting and a Director of Hydro Tasmania.

Special responsibilitiesMember of the Finance and Risk Committee.

K Field Age 58

Experience and expertiseMs Field was appointed as a Non-Executive Director on 1 April 2006. She spent more than three decades in the mining industry and has a strong background in human resources and project management.

She has held executive roles in a variety of mining industry sectors throughout Australia and in South America. Prior to returning to Australia to develop consultancy and directorship roles, Ms Field was President of Minera Alumbrera Ltd, an Argentine based management company established to develop and operate a large scale copper/gold mining project in north western Argentina.

Other current directorshipsMs Field is a Non-Executive Director of Sipa Resources Ltd, the Water Corporation and the Centre for Sustainable Resource Processing. She is also involved with a number of community organisations and is a voluntary director of Anglican Homes Inc, a member of the WA Advisory Board of Starlight Children’s Foundation and on the WA Council of the Australian Air Force Cadets.

Special responsibilitiesChairperson of the People and Performance Committee.

P J Mansell Age 59

Experience and expertiseMr Mansell was appointed to the Board as a Non-Executive Director and as Chairperson on 1 April 2006.

Mr Mansell has practiced as a business lawyer for 34 years, and has a wide range of experience in corporate matters. He was a corporate and resources partner of legal firm Freehills from 1988 to 2004 and at various times was the Freehills National Chairman (1995-2000), Managing Partner of the Perth Office (1992-2002) and a member of the firm’s National Board (1989-2002). He is a Fellow of the Australian Institute of Company Directors.

Mr Mansell has had extensive experience in the corporate/commercial sector.

Other current directorshipsMr Mansell is currently a Director of West Australian Newspaper Holdings Ltd, The Hoyts Corporation Pty Ltd, Great Southern Plantations Ltd, Hardman Resources Ltd, Zinifex Ltd, Ferngrove Vineyards Ltd and Bunnings Property Management Ltd, the responsible entity for the Bunnings Warehouse Property Trust.

Former directorships in last three yearsMr Mansell was a Non-Executive Director of Western Power Corporation until March 2006 and was a director of Foodland Associated Ltd, Progressive Enterprises Holdings Ltd, JDV Ltd and Tethyan Copper Company Ltd.

Special responsibilitiesChairperson;

Chairperson of the Remuneration and Nominations Committee; and

Member of the People and Performance Committee.



38

J A Seabrook Age 49

Experience and expertiseMs Seabrook was appointed to the Board as a Non-Executive Director and Deputy Chairperson on 1 April 2006. She has a Bachelor of Commerce and is a Member of the Institute of Chartered Accountants, a Fellow of the Australian Institute of Company Directors and a Fellow of the Financial Services Institute of Australasia (FINSIA).

Other current directorshipsMs Seabrook is an Executive Director of Gresham Advisory Partners Limited, a Non-Executive Director of West Australian Newspapers Holdings Limited, a member of the Federal Government’s Takeovers Panel and the Markets Policy Group for FINSIA.

Former directorships in last three yearsMs Seabrook was a Non-Executive Director and Deputy Chair of Western Power Corporation until March 2006.

Special responsibilitiesDeputy Chairperson;

Chairperson of Finance and Risk Committee; and

Member of Remuneration and Nominations Committee.

COMPANY SECRETARY

J Pease Age 45

Mr Pease was appointed General Counsel and Company Secretary on 1 April 2006. He obtained a Master of Laws with distinction from the University of Western Australia. He has been practicing law since the mid 1980’s as a barrister and solicitor and held various in-house, private practice and government positions prior to his appointment with the Corporation.

M E E T I N G S O F D I R E C T O R S

Attendees Board Meetings Remuneration Finance and Risk People and and Nominations Performance

A B A B A B A B

D Aberle 6 8 2* 2* 3* 3* 2* 2*

M Davies 8 8 - - 3 3 - -

S Farrier 7 8 - - 2 3 - -

K Field 8 8 - - - - 2 2

P J Mansell 8 8 2 2 - - 2 2

J A Seabrook 8 8 2 2 3 3 - -

A Number of meetings attended.

B Number of meetings eligible to attend during the time the Director held office.

* Attended by invitation.

MEETINGS OF DIRECTORS

The number of meetings of the Board (including meetings of Committees) and number of meetings attended by each of the Directors for the three months to 30 June 2006 are as follows:



39

The Corporation’s remuneration policy is to:

• provide market competitive remuneration to employees having regard to both the level of work assigned and the employees’ performance;

• allocate remuneration to employees on the basis of merit and performance; and

• adopt individual performance measures that are linked to the Corporation’s objectives.

Non-Executive Directors

The remuneration framework for Non-Executive Directors incorporates a fixed remuneration and superannuation component.

Managing Director and Executives

The Managing Director and Executives’ Remuneration Framework is based on a Total Remuneration Structure, which consists of two components:

1. a fixed remuneration component administered as Total Fixed Remuneration (TFR); and

2. a variable remuneration component administered as Short-Term Incentive (STI).

Total Fixed Remuneration

TFR includes a base salary plus the value of superannuation, company motor vehicle and other benefits and includes fringe benefits tax. Employee TFR reflects the level of work responsibility and personal competency. TFR is reviewed annually on the basis of competitive market movement and personal performance.

Short-Term Incentive

STI is the Corporation’s short-term incentive plan and is a cash-based incentive designed to drive successful performance outcomes and team congruence. STI payments are not guaranteed; they are contingent on meeting performance targets agreed by the Board and Senior Management. Qualifying STI payments are made annually in September.

STI for the three month period to 30 June 2006

The Board has assessed management’s overall performance in the period to 30 June 2006 taking into account corporate performance against key operational KPI’s and progress in establishing the new Western Power business. It has determined to award a proportional payment under the Corporation’s Short-Term Incentive Plan. At the date of this report, the STI award values were not determined.

STI for the period commencing 1 July 2006

The STI is based on a three-tier performance target and assessment. Performance will be assessed at three levels in determining qualification for STI payments. These include:

• corporate performance;

• division performance; and

• individual performance.


REMUNERATION REPORT

The remuneration report is set out under the following main headings:

A. Principles used to determine the nature and amount of remuneration;

B. Details of remuneration; and

C. Service agreements.

A. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION

Remuneration approval protocols are as follows:

Non-Executive Directors The Minister approves the remuneration of all Non-Executive Directors.

Managing Director The Board, subject to the concurrence of the Minister, approves the remuneration of the Managing Director.

General Managers and The Board, on recommendation of the Managing Director, approves the Chief Financial Officer remuneration of all General Managers and the Chief Financial Officer.


40



Other Post Long- Short-Term Employment Term Termination Total01/04/06-30/06/06 Benefits Benefits Benefits Benefits Benefits

Salary Non- Super- and Fees STI monetary annuationName and Position $ $ $ $ $ $ $

D Aberle Managing Director 64,945 - 7,432 11,669 - - 84,046

M Davies Non-Executive Director 13,750 - - 1,237 - - 14,987

S Farrier Non-Executive Director 13,750 - - 1,237 - - 14,987

K Field Non-Executive Director 13,750 - - 1,237 - - 14,987

P J Mansell 1 Chairperson 21,628 - 166 26,949 - - 48,743

J A Seabrook Deputy Chairperson 18,584 - 166 1,688 - - 20,438

Total Directors 146,407 - 7,764 44,017 - - 198,188

1 $16,042 of the total are payments relating to Western Power Corporation.

B . D E TA I L S O F R E M U N E R A T I O N

Details of the remuneration of the Directors are set out in the following table.

41



Other Post Long- Short-Term Employment Term Termination Total01/04/06-30/06/06 Benefits Benefits Benefits Benefits Benefits

Salary Non- Super- and Fees STI monetary annuationName and Position $ $ $ $ $ $ $

K Brown 2 General Manager System Management 50,175 - 6,497 12,916 - - 69,588

A M Clark 3 General Manager Field Services 60,936 - - 8,841 - - 69,777

M de Laeter General Manager Asset Management 48,412 - 166 5,468 - - 54,046

G Monkhouse General Manager Human Resources 57,095 - 166 3,035 - - 60,296

M Peacock Chief Financial Officer 60,419 - 632 5,495 - - 66,546

J Pease General Counsel and Company Secretary 39,712 - 5,062 4,025 - - 48,799

M Sims Acting General Manager Business Transformation 36,317 - 166 6,188 - - 42,671

P Southwell 4 General Manager Strategy and Corporate Affairs 61,887 - 166 6,472 - - 68,525

R White General Manager Works Delivery 67,766 - 166 6,114 - - 74,046

Total Executive 482,719 - 13,021 58,554 - - 554,294

2 $9,292 of the total are payments relating to Western Power Corporation.3 $3,358 of the total are payments relating to Western Power Corporation. 4 $8,230 of the total are payments relating to Western Power Corporation.

B . D E TA I L S O F R E M U N E R A T I O N ( C O N T I N U E D )

Details of the remuneration of Executives are set out in the following table.

42

C. SERVICE AGREEMENTS

Remuneration and other terms of employment for the Directors, Managing Director and the other Executives are formalised in service agreements. The terms of the agreements relating to remuneration are set out below.

P J Mansell, Chairperson and Non-Executive Director

Term of agreement commencing on 1 April 2006 and expiring on 30 June 2008.

J A Seabrook, Deputy Chairperson and Non-Executive Director

Term of agreement commencing on 1 April 2006 and expiring on 31 March 2008.

M Davies, Non-Executive Director


S Farrier, Non-Executive Director


K Field, Non-Executive Director


D Aberle, Managing Director

Fixed term contract of employment operating for five years, commencing 1 April 2006.

K Brown, General Manager System Management

M de Laeter, General Manager Asset Management

P Southwell, General Manager Strategy and Corporate Affairs

A M Clark, General Manager Field Services

G Monkhouse, General Manager Human Resources

M Peacock, Chief Financial Officer

R White, General Manager Works Delivery

J Pease, General Counsel and Company Secretary

Ongoing term of employment commencing 1 April 2006.

M Sims, Acting General Manager Business Transformation

Fixed term contract of employment operating for three years from 17 March 2005.

Loans to Directors and Executives

No loans or advances to or from Directors and Executive Officers were made during the three months to 30 June 2006.

Insurance of officers

The Directors’ and Officers’ Liability Insurance policy commenced on 31 March 2006. This 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.

At the date of this report no claims have been made against the Directors and Officers component of the policy.

Non-audit services

Under 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 Electricity Corporations Act 2005. 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.

During the three months ended 30 June 2006, the following fees were paid or payable for services provided by the Office of the Auditor General.

Audit services $

Office of the Auditor GeneralAudit and review of financial report 220,000

This report is made in accordance with a resolution of the Board of Directors.

Signed in Perth this 22nd day of September 2006.

Peter Mansell, Chairperson of the Board

Doug Aberle, Managing Director



43


On 31 March 2003 the Australian Stock Exchange (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, is adopting recognised best practice principles for publicly listed companies where it is relevant to do so and therefore acknowledges the recommendations.

The following practices form part of the framework that ensures the business acts with high standards of corporate behaviour and in the best interests of its stakeholders.

BOARD OF DIRECTORS

Role of the Board

The Board of Directors is the governing body of the Corporation and is responsible to the Minister for the performance of the Corporation. Subject to the provisions of 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 transmission and distribution 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:

• Reliability and safety requirements: The Act, related legislation and regulations require the Corporation to transmit and distribute 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 electricity transmission and distribution 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 Corporation’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.

• Commercial requirements: Subject to the following, 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. In relation to the Corporation’s function in terms of the WEM, the Act requires the Corporation to ensure, so far as practicable, that the reasonable cost of performing the function does not exceed its revenue from doing so.

Composition of the Board

In accordance with the Act, the Corporation’s Board of Directors must comprise not less than four, and not more than six persons appointed by the Governor of Western Australia, on the nomination of the Minister. In making the appointments, the Governor also nominates a Board Chairperson and Deputy Chairperson.

During the three months since the Corporation’s inception, at all times the Board has been constituted by six persons, including the Managing Director. The latter is not eligible to be appointed Chairperson or Deputy Chairperson.

Corporate Governance Statement

44


Corporate Governance Statement (continued)

BOARD OF DIRECTORS (cont inued)

Composition of the Board (cont inued)

The Board is scheduled to meet at least ten times per year to address the strategic issues of the Corporation and as needed, special meetings are held to address urgent issues.

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 requires all Directors to act honestly, and to exercise reasonable care and diligence, in the performance of their functions. 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.

ROLE OF THE COMMIT TEES

The Corporation’s Board has established three Committees, namely the:

• Finance and Risk Committee;

• People and Performance Committee; and

• Remuneration and Nominations Committee.

The roles of the respective Committees are detailed in their terms of reference.

Finance and Risk Committee

The purpose of the Finance and Risk Committee is to assist the Board to fulfil its corporate governance and oversight responsibilities in relation to the Corporation’s financial reporting, treasury management, policies and procedures for ensuring compliance with relevant regulatory requirements, risk management systems, compliance framework and the internal and external audit functions.

The Finance and Risk Committee:

• is authorised by the Board to investigate any activity within its terms of reference;

• is a non-executive committee and is tasked with recommending to the Board appropriate actions emanating from these investigations;

• has unrestricted access to personnel, records, internal and external auditors, risk assessment and assurance and senior management as appropriate; and

• 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.

Membership of the Finance and Risk Committee consists of not less than two and up to three independent Non-Executive Directors, at least one of whom must be a financial ‘expert’.

45



ROLE OF THE COMMIT TEES (cont inued)

People and Performance Committee

The purpose of the People and Performance Committee is to assist the Board to fulfil its corporate governance and oversight responsibilities in relation to the Corporation’s corporate governance framework and policies; the determination of the remuneration and other terms and conditions of service of the Corporation’s staff, other than in relation to the Managing Director and his or her direct reports; and quality assurance relating to the integrity and probity of the Corporation’s remuneration and human resources management policies, strategies and practices.

The People and Performance Committee:

• is authorised by the Board to investigate any activity within its terms of reference, and also to evaluate different human resources management policies and strategies, including in relation to remuneration methods and philosophies;


• has unrestricted access to senior management as appropriate; and


Membership of the People and Performance Committee consists of not less than two and up to three independent Non-Executive Directors.

Remuneration and Nominations Committee

The purpose of the Remuneration and Nominations Committee is to assist the Board to fulfil its corporate governance and oversight responsibilities in relation to remuneration and terms and conditions of employment for the Managing Director; remuneration for Non-Executive Directors and the direct reports of the Managing Director; succession planning and nomination of Directors and the Managing Director in accordance with sub-sections 8(5) and 14(2) of the Act, as well as succession planning in relation to the Managing Director’s direct reports; and performance evaluation of the Board, its Committees and the Managing Director.

The Remuneration and Nominations Committee:

• is authorised by the Board to investigate any activity within its terms of reference, and also to evaluate different remuneration methods and philosophies;


• has unrestricted access to senior management as appropriate; and


Membership of the Remuneration and Nominations Committee consists of not less than two and up to three independent Non-Executive Directors. The Board Chairperson also chairs this committee.

On 4 August 2006 the Board resolved to merge the functions of the People and Performance Committee and the Remuneration and Nominations Committee in to a single People and Performance Committee.

46



R ISK MANAGEMENT

Processes and systems are in place to manage the Corporation’s strategic, operational, regulatory and reporting risks in accordance with the principles of the Corporate Risk Management Policy and Framework. Consistent with Australian Standard “AS4360 Risk Management”, the Framework provides a methodology and process for the identification of risks and outlines the accountability for the management and reporting of risk throughout the Corporation. General Managers are responsible for identifying risks and implementing strategies to mitigate risks. The Finance and Risk Committee oversees the Framework and reviews the effectiveness of key mitigation strategies. Risk reviews will be conducted at least annually to ensure emerging risks, such as those from changes in market structure and design, organisational restructures, and operational issues are identified and responses developed.

Financial risk issues are managed through a Treasury Policy Statement that requires regular reporting to the Finance and Risk Committee on treasury activities.

INTERNAL CONTROL FR AMEWORK

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, expenditure guidelines, internal and external audit and quality of personnel.

The Corporation’s internal control system is based on:

• written procedures, policies and guidelines;

• organisational structures that provide an appropriate level of responsibility;

• a program of internal audit; and

• the careful selection and training of qualified personnel.

Financial reporting

Actual financial results are reviewed against budget each month. Reports on performance 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 the Directors. This is included in the Strategic Development Plan produced by the Corporation each year and submitted to the Minister.

General Managers, Manager Treasury, Manager Corporate Accounting and Tax, Taxation Manager and Manager Risk Assurance and Audit are 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 Chief Financial Officer in the assurances provided to the Board for the annual results.

Expenditure guidelines

The Corporation has clearly defined guidelines and policies 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 before entering into transactions with a value greater than the sum of one per cent of the written down value of the Corporation’s fixed assets or twenty million dollars.

47



INTERNAL CONTROL FR AMEWORK (cont inued)

Internal and external audit

The Manager Risk Assurance and Audit is accountable to the Finance and Risk Committee but administratively reports to the General Manager Strategy and Corporate Affairs. The Manager Risk Assurance and Audit also has a direct line of communication to the Chairperson of the Finance and Risk Committee, the Managing Director and other Board Members. Internal audit reports are made available to the Finance and Risk Committee, so that the internal audit objectives, plans and resources provide for adequate support to the Committee’s objectives. The internal audit function is independent of the external audit and has full access to the personnel 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 personnel

The Corporation has a formal employee appraisal framework designed to see the cascading of the Corporation’s vision and goals, its strategic plan, linked into individuals’ achievement plans with the objective of ensuring that 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.

ETHICAL STANDARDS

The Corporation is mindful of its duties outlined in the Act and has adopted the set of behavioural standards, incorporating leadership principles and minimum standards applicable to the management of the staff, previously developed by Western Power Corporation. The Corporation has also developed a Code of Conduct setting out minimum standards of conduct for all staff.

Conflicts of interest

Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Corporation. Directors are provided with a register of all disclosed material personal interests as part of the agenda for every meeting. Disclosure of material personal interests is also a standing agenda item for every Board and committee meeting.

Where the Board believes that any conflict exists for a Director on a Board matter being considered, the Director concerned must not be present during the Board’s consideration of the matter, nor exercise any vote in respect of it.

ENVIRONMENT

Environmental standards

The 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.

48



ENVIRONMENT (cont inued)

Environmental regulation performance

All 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 Government. 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.

COMMUNICATION WITH SHAREHOLDERS

The Corporation’s key stakeholder is the company’s shareholder, the Minister, and therefore the Government. 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.

OTHER ACCOUNTABILIT Y MEASURES

It 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). After endorsement by the Board, these documents are subject to approval by the Minister with the concurrence of the Treasurer.

Strategic Development Plan

The 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.

Statement of Corporate Intent

The 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.

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.

49

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWERFINANCIAL REPORT FOR THE THREE MONTHS ENDED 30 JUNE 2006

Income statementfor the three months ended 30 June 2006

30/06/06 NOTES $’000

Revenue from continuing operations 2 182,928 Other income 3 1,629 Expenses excluding finance costs 4 (129,774)Finance costs 4 (30,444)

Profit before income tax expense 24,339 Income tax expense 5 (7,272)

Profit for the period 17,067

This statement should be read in conjunction with the attached Notes to the Financial Statements

Financial report

50


Balance sheetas at 30 June 2006

30/06/06 NOTES $’000

ASSETS Current assets

Cash and cash equivalents 6 50,619Trade and other receivables 7 95,568Inventories 8 61,274Derivative financial instruments 9 814Current tax assets 18,117Other current assets 10 8,004

Total current assets 1 (a) 234,396

Non-current assetsTrade and other receivables 7 4,029Property, plant and equipment 11 3,031,552Intangible assets 12 12,663Deferred tax assets 15 27,461Derivative financial instruments 9 367

Total non-current assets 3,076,072

Total assets 3,310,468

LIABILITIES

Current liabilitiesTrade and other payables 13 126,348Provisions 16 16,890Derivative financial instruments 9 586Other liabilities 17 134,471

Total current liabilities 1 (a) 278,295

Non-current liabilitiesOther payables 13 11,992Borrowings 14 2,150,486Provisions 16 13,321Retirement benefit obligations 18 32,655Derivative financial instruments 9 915Other liabilities 17 14,238

Total non-current liabilities 2,223,607

Total liabilities 2,501,902

Net assets 808,566

EQUITY

Contributed equity 19 790,210Reserves 20 351Retained profits 20 18,005

Total equity 808,566


51


Cash flow statementfor the three months ended 30 June 2006

Statement of recognised income and expensefor the three months ended 30 June 2006

30/06/06 NOTES $’000

Changes in the fair value of cash flow hedges, net of tax 20 351

Actuarial adjustment to Retirement Benefit Obligations, net of tax 20 938

Net income recognised directly in equity 1,289 Profit for the period 17,067

Total recognised income and expense for the period 18,356


30/06/06 NOTES $’000

CASH FLOWS FROM OPERATING ACTIVITIES

Receipts from customers (inclusive of goods and services tax) 105,391 Payments to employees and suppliers (inclusive of goods and services tax) (91,700)Other revenue 29,451 Interest received 233 Borrowing costs paid (7,047)Lease expenses (1,098)

Net cash flow from operating activities 25 35,230

CASH FLOWS FROM INVESTING ACTIVITIES

Payments for property, plant and equipment (169,953)Proceeds from sale of property, plant and equipment 1,215

Net cash outflow from investing activities (168,738)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from borrowings 270,015 Repayment of borrowings (135,352)Contributory Extension Scheme, customers’ and contractors’ deposits 8,022 Proceeds from contributed equity 6,000

Net cash inflow from financing activities 148,685

NET INCREASE IN CASH AND CASH EQUIVALENTS 15,177

Cash contribution 35,442

Cash and cash equivalents at end of period 6 50,619


52

Contents - NotesCONTENTS OF THE NOTES TO THE FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 53

2. REVENUE FROM CONTINUING OPERATIONS 65

3. OTHER INCOME 65

4. EXPENSES 66

5. INCOME TAX EXPENSE 67

6. CURRENT ASSETS - CASH AND CASH EQUIVALENTS 68

7. TRADE AND OTHER RECEIVABLES 68

8. CURRENT ASSETS - INVENTORIES 68

9. DERIVATIVE FINANCIAL INSTRUMENTS 69

10. CURRENT ASSETS - OTHER CURRENT ASSETS 69

11. NON-CURRENT ASSETS - PROPERTY, PLANT AND EQUIPMENT 70

12. NON-CURRENT ASSETS - INTANGIBLE ASSETS 71

13. TRADE AND OTHER PAYABLES 71

14. BORROWINGS 72

15. NON-CURRENT ASSETS - DEFERRED TAX ASSETS 72

16. PROVISIONS 73

17. OTHER LIABILITIES 73

18. RETIREMENT BENEFIT OBLIGATIONS 74

19. CONTRIBUTED EQUITY 75

20. RESERVES AND RETAINED PROFITS 76

21. REMUNERATION OF AUDITORS 76

22. COMMITMENTS 77

23. CONTINGENCIES 78

24. FINANCIAL INSTRUMENTS 79

25. RECONCILIATION OF NET PROFIT AFTER INCOME TAX EXPENSE TO NET CASH INFLOWS FROM OPERATING ACTIVITIES 83

26. INTERESTS IN CONTROLLED ENTITIES 83

27. EVENTS SUBSEQUENT TO BALANCE DATE 83

28. CONTRIBUTION FROM OWNER (DISAGGREGATION) 84

53


Notes to and forming part of the financial statementsfor the three months ended 30 June 2006

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of the financial report are set out below.

Corporate information

The financial report of the Corporation for the three months ended 30 June 2006 was authorised for issue by the Board on 23rd September 2006. The Corporation is domiciled in the country of incorporation, being Australia.

In September 2005 legislation was passed in Parliament to allow for the disaggregation of Western Power Corporation into four separate state-owned entities. The new successor entities were established on 1 April 2006 and the assets, liabilities and operations of Western Power Corporation were transferred to the four separate state-owned entities. The Corporation is one of those entities.

(a) Basis of preparation

The financial statements are a general purpose financial report prepared in accordance with the requirements of Australian Accounting Standards, Urgent Issues Group Interpretations, the disclosure requirements of Schedule 4 of the Electricity Corporations Act 2005 and other authoritative pronouncements of the Australian Accounting Standards Board. The Corporation has been determined to be a not-for-profit entity and accordingly applies the not-for-profit elections available in the Australian Accounting Standards, where applicable. The financial statements cover the Corporation and its subsidiary, Bright Telecommunications Pty Ltd. Bright Telecommunications Pty Ltd is a dormant company with no financial transactions at 30 June 2006.

The financial statements for the three months ended 30 June 2006 have been prepared on a historical cost basis except for derivative financial instruments carried at fair value and certain non-current financial assets and liabilities that have been measured at amortised cost.

The financial statements are presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated.

Critical accounting estimates

The preparation of financial statements in conformity with Australian equivalents to International Financial Reporting Standards (AIFRS) requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Corporation’s accounting policies. There are no areas considered to require a high degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements.

Working capital

Current liabilities include deferred revenue to the value of $125.7 million, which will not require an outflow of cash resources. Excluding this value from a working capital analysis will show current assets exceeding current liabilities by $81.8 million.

54



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED )

(b) Statement of compliance

The financial statements comply with Australian Accounting Standards.

The following amendments and Australian Accounting Standards are available for early adoption but have not been applied to the Corporation’s financial statements for the three months ended 30 June 2006.

The Corporation’s assessment of the impact of these new standards and interpretations is set out below:

AASB Affected Standards Nature of Change Application Amendment to Accounting Date of Policy Standard *

2005-10 AASB 132 “Financial Instruments: Disclosure No change to 01/01/07 and Presentation”, AASB 101 “Presentation of accounting policy Financial Statements”, AASB 114 “Segment required. Therefore Reporting”, AASB 117 “Leases”, AASB 133 no impact. “Earnings per Share”, AASB 139 “Financial Instruments: Recognition and Measurement”, AASB 1 “First-time Adoption of AIFRS”, AASB 4 “Insurance Contracts”, AASB 1023 “General Insurance Contracts”, AASB 1038 “Life Insurance Contracts”

2006-1 AASB 121 “The Effects of Changes in Foreign No change to 31/12/06 Exchange Rates” accounting policy required. Therefore no impact.

New AASB 7 “Financial Instruments: Disclosures” No change to 01/01/07 standard accounting policy required. Therefore no impact other than possible disclosure changes.

2006-2 AASB 1 “First-time Adoption of AIFRS” No change to 30/06/06 accounting policy required. Therefore no impact.

* Application date is for the annual reporting period beginning on or after the date shown in the above table.

(c) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Corporation and the revenue 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. The following specific recognition criteria must also be met before revenue is recognised:

55




(c) Revenue recognition (continued)

(i) Rendering of services

Revenue is recognised when the service is provided unless otherwise stated below.

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 when the customers/developers are connected to the network in accordance with the terms of the contributions. 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.

(ii) Network access charges

The Corporation earns income by allowing regulated access to the South West Interconnected System (SWIS) networks. Revenue is recognised based on actual access provided.

(iii) External chargeable works

There are two types of external chargeable works. Under the first type, contract revenue and expenses are recognised on an individual contract basis using the percentage of completion method when the stage of completion can be reliably determined, the costs to date can be clearly identified and total contract revenue and costs to complete can be reliability estimated. The stage of completion is based on actual expenditure to date as a percentage of the budgeted project costs, being the best reliable estimate of stage of completion.

Under the second type of external chargeable works, income is earned based on service level agreements which are contracts between the Corporation and the three other separate state-owned entities that were formed on disaggregation of Western Power Corporation. Revenue is recognised when the services are provided.

(iv) Other income

Other revenue comprises revenue earned from the provision of activities incidental to the core activities of the Corporation and includes:

• Change in fair value of derivatives;• Net gain on sale of non-current assets; and• Property rent.

Revenue is recognised when the activity is provided.

(v) Interest income

Interest income is recognised on a time proportion basis using the effective interest method.

56




(d) Community service obligations

Community Service Obligations (CSO) are obligations to perform functions, on behalf of the State Government, that are not in the commercial interests of the Corporation to perform. Where the Government agrees to reimburse the Corporation for the cost of CSO, the entitlement to reimbursement is netted off against the associated CSO expenses.

(e) Repairs and maintenance

Maintenance, repair costs and minor renewals are recognised as expenses in the income statement as incurred.

(f) Borrowing costs

Borrowing costs are recognised in the income statement as an expense when incurred, except where they are included in the costs of qualifying assets as described in Note 1 (l). Borrowing costs are capitalised where they relate to the financing of projects under construction up to the date of commissioning or sale.

Borrowing costs are capitalised at the weighted average interest rate applicable to the Corporation’s outstanding borrowings during the period of capitalisation.

Borrowing costs may include:

• amortisation of ancillary costs incurred in connection with the arrangement of borrowings;

• amortisation of discounts or premiums relating to borrowings;

• discount rate adjustment for the movement in present value over time in connection with the contributory extension scheme payables and decommissioning costs;

• exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs;

• finance charges in respect of finance leases recognised; and

• interest on bank overdrafts, short-term and long-term borrowings.

(g) Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank, deposits held at call with financial institutions, other short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash, and bank overdrafts. Bank overdrafts are shown within interest bearing liabilities in current liabilities on the balance sheet.

For the purposes of the cash flow statement, cash assets consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(h) Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less a provision for doubtful debts.

Trade and other receivables generally have 14 day terms for contract customers.

Collectability of trade receivables is reviewed on an ongoing basis. Bad debts are written off when identified. A provision for doubtful receivables is raised when there is objective evidence that the Corporation will not be able to collect all amounts due. The amount of the provision is the difference between the carrying value of the receivable and the net present value of estimated future cash flows discounted at the original effective interest rate. The amount of the provision is reflected in the income statement.

57




(i) Inventories

Inventories are valued at the lower of cost and current replacement cost. The cost incurred in bringing inventories to their present location and condition is based on the purchase cost on a first-in, first-out basis.

A provision to allow for the expected diminution in value of materials inventory, due to obsolescence and items being surplus to requirements, has been determined by periodic review.

(j) Intangible assets

Intangible assets acquired separately are capitalised at cost at the date of acquisition. Following initial recognition they are stated at cost less accumulated depreciation and accumulated impairment losses.

Amortisation

The useful lives of intangible assets are assessed to be either finite or infinite. For intangible assets with finite useful lives an amortisation expense is recognised in the income statement over the useful lives of the assets.

Certain computer software is classified as an intangible asset and has a finite useful life. Amortisation is calculated using the straight-line method.

The useful life of computer software is deemed to be 30 months.

Amortisation rates are reviewed annually, and if necessary adjusted to reflect the most recent assessment of the useful lives of the assets.

Research and development costs

Research costs are recognised in the income statement when incurred. Development expenditure (expenditure where research findings are applied to a plan or design for the production of new or substantially improved products) incurred on an individual project is carried forward if the product or process is technically and commercially feasible and the Corporation has sufficient resources to complete the development.

Following the initial recognition of development expenditure, the asset is stated at cost less accumulated amortisation and accumulated impairment losses.

Disposal of assets

An intangible asset is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising from the derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised in the income statement when the asset is derecognised.

(k) Prepayments

Current prepayments include insurance and other payments. Prepaid expenses are recognised in the income statement in the reporting period in which the associated benefit is consumed.

58




(l) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

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.

Direct costs together with associated indirect costs in respect of assets being constructed are capitalised.

Works Under Construction assets are transferred to property, plant and equipment when they are in the location and condition necessary for them to be capable of operating in the manner intended by management.

The Corporation is a statutory corporation subject to the requirements of the Electricity Corporation Act 2005 and came into existence on 1 April 2006. The electricity networks functions and assets of Western Power Corporation were transferred to the Corporation on this date. The assets transferred were brought to account at their written down accounting value from Western Power Corporation at 31 March 2006 by virtue of a transfer order issued by the Minister for Energy under sub-section 147(1) of the Electricity Corporations Act 2005 (WA).

Capitalisation of borrowing costs

Borrowing costs are capitalised during the construction of capital projects that have construction periods extending beyond one year and budgeted costs greater than $5 million. Capitalised borrowing costs are determined as the amount of borrowing costs that would have been avoided but for the construction of the asset.

Depreciation

Discrete assets that are not subject to continual extension and modification are depreciated using the straight-line method. Such assets include the transmission network, buildings and motor vehicles.

Other assets, primarily the electricity distribution network that are continually extended and modified are depreciated using the reducing balance method. Land is not depreciated.

The useful lives of the Corporation’s major property, plant and equipment classes are as follows:

Buildings 40 yearsPlant and Equipment 20 - 45 yearsLeasehold Improvements 10 yearsMotor Vehicles 5 years

Depreciation rates are reviewed annually and, if necessary, adjusted to reflect the most recent assessment of the useful lives of the assets.

59




(l) Property, plant and equipment (continued)

Disposal of assets

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising from the derecognition of an asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and is recognised in the income statement when the asset is derecognised.

(m) Impairment of assets

At each reporting date the Corporation assesses whether there is any indication that an asset may be impaired, that is, events or changes in circumstances that indicate the carrying value may not be fully recoverable. Where an indicator of impairment exists, the Corporation makes a formal estimate of the recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the income statement.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the individual asset’s value in use cannot be estimated to be close to its fair value less costs to sell, and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Where the future economic benefits of an asset are not primarily dependent on the asset’s ability to generate net cash inflows and where the Corporation would, if deprived of the asset, replace its remaining future economic benefits, the value in use is the depreciated replacement cost.

(n) 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.

The liability for contributory extension schemes 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.

Other payables include annual leave benefits accumulated as a result of employees rendering services up to the reporting date.

Liabilities arising in respect of employee benefits due within twelve months from the reporting date are measured at their nominal amount based on remuneration rates that are expected to be paid when the liability is settled.

(o) Interest-bearing liabilities

All interest-bearing liabilities are initially recognised at fair value net of transaction costs incurred. Subsequent to initial recognition interest-bearing liabilities are measured at amortised cost using the effect interest method. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement.

Any difference between the cost and the redemption amount is recognised in the income statement over the period of the interest bearing liabilities using the effective interest method.

60




(p) Leases

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. The Corporation’s operating lease payments are representative of the pattern of benefits derived from the leased assets and accordingly are recognised in the income statement in the reporting periods in which they are incurred.

(q) National Taxation Equivalent Regime

The Corporation’s taxation liability is assessed according to the National Taxation Equivalent Regime (NTER). While tax equivalent payments continue to be remitted to State Treasury, the Corporation’s tax is subject to Australian Taxation Office (ATO) administration. The calculation of the liability in respect of these taxes is governed by the Income Tax Administration Acts and the NTER guidelines as agreed by the State Government.

Income tax on the profit or loss for the reporting period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the reporting period using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantially enacted at the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

(r) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except where the GST incurred on a purchase of goods and services is not recoverable from the ATO. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable.

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 current liability in the balance sheet.

Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the ATO, are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the ATO.

61




(s) Provisions

Provisions are recognised when the Corporation:

• has a present obligation (legal or constructive) as a result of a past event;

• it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

• a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects the market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

Dividends

A provision for dividends payable is recognised in the reporting period in which the dividends are appropriately authorised by the Board and no longer at the discretion of the Corporation, but which are not yet distributed.

Employee Benefits

Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. This benefit relates to long service leave.

Liabilities arising in respect of long service leave due within 12 months from the reporting date are measured at their nominal amount based on remuneration rates that are expected to be paid when the liability is settled. Long service leave due after 12 months is 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 at the reporting date on selected Commonwealth government securities, which have terms to maturity approximating the terms of the related liability, are used.

62




(t) Retirement benefit obligations

All employees of the Corporation are entitled to benefits upon retirement, disablement or death from one of many superannuation plans, which may include a defined contribution section, a defined benefit section, or both.

Defined contribution superannuation plans

Obligations for contributions to defined contribution plans are recognised in the income statement as incurred.

Defined benefit superannuation plans

A provision in respect of the defined benefit superannuation plans is recognised in the balance sheet and is measured at the present value of the defined benefit obligations, based upon services provided up to the reporting date, plus/less unrecognised actuarial gains/losses less the fair value of the superannuation plans’ assets at that date and any unrecognised past service cost.

The present value of the defined benefit obligations is based upon expected future payments and is calculated using discounted cashflows consistent with the Projected Unit Credit method. Consideration is given to the expected future wages and salaries level, experience of employee departures and periods of service.

Expected future payments are discounted using the market yield, as at the reporting date, on selected Commonwealth government securities with terms to maturity approximating the terms of the related liability.

The defined benefits obligations are wholly unfunded. The Corporation meets the cost of these benefits when the employee leaves the service of the Corporation.

Actuarial gains and losses arising from experience adjustments and changes in actuarial adjustments are recognised directly in equity.

Future taxes are not met by the Corporation (as the benefit is paid as an untaxed amount to the employee) and so no allowance has been made for future taxes in measuring the net asset or liability.

The balance of the retirement benefit obligations provision is actuarially reviewed annually. An actuary review was performed as at 30 June 2006 that confirmed the Corporation’s provision for retirement benefit obligations was adequate.

(u) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The functional and presentation currency of the Corporation is Australian dollars (A$).

(ii) Translation and balances

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and monetary liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All currency translation differences in the financial statements are recognised in the income statement.

63




(v) Derivative financial instruments

Through its operations, the Corporation is exposed to changes in interest rates, foreign exchange rates and commodity prices. These risks are managed with the prudent use of derivative financial instruments such as interest rate swaps and forward foreign exchange contracts. The Corporation only uses derivatives in liquid markets and all hedge activities are conducted within the Corporation’s 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.

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to fair value. The fair value of interest rate swap contracts is measured by discounting the expected future cash flows based on market forward interest rates. The fair value of forward foreign exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.

The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Corporation designates certain derivatives as either:

• fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or recognised liability; or

• cash flow hedges when they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or recognised liability or a forecasted transaction.

The Corporation documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Corporation also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative financial instruments used for hedging purposes are disclosed in Note 9. Movements in the hedging reserve in equity are shown in Note 20.

Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the income statement, together with any changes in the fair value of the hedged asset or hedged liability that are attributable to the hedged risk. There is no impact on the equity reserves.

The Corporation has not accounted for any derivative financial instruments that qualify for hedge accounting as fair value hedges.

Cash flow hedges

The effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gains or losses relating to the ineffective portion are recognised immediately in the income statement.

Amounts accumulated in equity are recycled in the income statement in the period when the forecast purchase that is hedged takes place. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (ie qualifying assets) or non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the acquisition cost or carrying amount of the asset or liability.

64




(v) Derivative financial instruments (continued)

Cash flow hedges (continuted)

When a hedging instrument expires, is sold, is terminated or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the net cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

The Corporation has accounted for derivative financial instruments that qualify for hedge accounting as cash flow hedges.

Derivatives that do not qualify for hedge accounting

For derivatives that do not qualify for hedge accounting, any changes in fair value are recognised immediately in the income statement.

Embedded derivatives

Derivatives embedded in contracts that change the nature of the host contract’s risk are separately recorded at fair value with movements recorded in the income statement.

There are no derivatives embedded in contracts entered into by the Corporation that require separation and valuation from the host contract at 30 June 2006.

(w) Derecognition of financial instruments

The derecognition of a financial instrument takes place when the Corporation no longer controls the contractual rights that comprise the financial instrument. This is normally when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party.

(x) Contributed equity

Contributed equity is in respect of contributions made by the State Government. No shares have been allotted or issued.

65



30/06/06 $’000

2 . REVENUE FROM CONTINUING OPER ATIONS

Developer and customer contributions 39,542 Network access charges - Distribution 47,600 Network access charges - Transmission 74,588

161,730

Other revenue External chargeable works (including sale of scrap and materials) 20,926 Interest income 227 Network access charges - unregulated 45

21,198

Total Revenue from continuing operations 182,928

3 . OTHER INCOME

Foreign exchange gain 11 Net gain on sale of non-current assets 155 Property rent 912 Other 551

1,629

66



30/06/06 $’000

4. EXPENSES

Expenses, excluding finance costs:

Labour expense Wages and salaries 23,589 Workers’ compensation costs 702 Superannuation costs (Defined Contribution) 3,604

Materials and services 65,277

Research and Development costs 520

Leasing costs Operating lease rentals 1,098

Bad debts Increase in provision for doubtful debts 926

Other 6,374

102,090

Depreciation Plant and equipment 25,660 Buildings 1,021 Capitalised (686)

Total Depreciation 25,995

Amortisation Intangible assets 1,677 Leasehold improvements 12

Total Amortisation 1,689

Total Expenses, excluding finance costs 129,774

Finance costs

Interest on borrowings 30,999 Change in fair value of receivables 422 Net loss on derivatives not qualifying as hedges 25 Change in fair value of Contributory Extension Scheme 370 Capitalised interest on Work in Progress (2,183)Government loan guarantee charge 811

Total Finance costs 30,444

Total Expenses 160,218

67



30/06/06 $’000

5. INCOME TA X EXPENSE

(a) Income tax expense

Current tax 13,030 Deferred tax (5,758)

7,272

Deferred income tax (revenue)/expense included in income tax expense comprises: Increase in deferred tax assets (Note 15) (6,195)Increase in deferred tax liabilities (Note 15) 437

(5,758)

(b) Numerical reconciliation of income tax to prima facie tax payable (continuing operations):

Profit from continuing operations before income tax expense 24,339

Tax at the Australian tax rate of 30% 7,302

Tax effect of amounts which are not deductible/(taxable) in calculating taxable income

Research and Development Costs (66)Sundry items 36

(30)

Income tax expense 7,272

(c) Amounts recognised directly in equity

Aggregate current and deferred tax arising in the reporting period and not recognised in the net profit or loss but directly debited or credited to equity Net deferred tax-debited directly to equity (Note 15) 2,201

2,201

68



30/06/06 $’000

6. CURRENT ASSETS - CASH AND CASH EQUIVALENTS

Cash at bank 11,019 Deposits at call 39,600

50,619

(a) Reconciliation to cash at the end of the year

Balance per statement of cash flows 50,619

(b) Cash at bank and on hand

Cash at bank earns interest at floating rates based on daily bank deposit rates.

(c) Deposits at call

Short-term domestic and foreign currency deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Corporation, and earn interest at the respective short-term deposit rates.

7. TR ADE AND OTHER RECEIVABLES

Current assets

Trade receivables 95,467Provision for doubtful debts (1,557)

93,910

Other receivables 1,658

95,568

Non-current assets

Trade receivables 4,029

Trade receivables are non-interest bearing and are generally on 14 day terms for open access customers. Other receivables are non-interest bearing and are generally on 30 day terms.

8. CURRENT ASSETS - INVENTORIES

Material stores - at cost 61,125Provision for obsolete stock (178)

60,947

Work in progress - at cost 327

61,274

69



30/06/06 $’000

9. DERIVATIVE FINANCIAL INSTRUMENTS

Current assets

Interest rate swaps - cash flow hedges 140Forward exchange contracts - cash flow hedges 674Total current derivative financial instrument assets 814

Non-current assets

Interest rate swaps - cash flow hedges 202Forward exchange contracts - cash flow hedges 165Total non-current derivative financial instrument assets 367

Current liabilities

Forward exchange contracts - cash flow hedges 586Total current derivative financial instrument liabilities 586

Non-current liabilities

Interest rate swaps - cash flow hedges 814Forward exchange contracts - cash flow hedges 101Total non-current derivative financial instrument liabilities 915

For further information on Derivative Financial Instruments refer to Note 1 (v) and Note 24.

10 CURRENT ASSETS - OTHER CURRENT ASSETS

Prepayments 8,004

70



30/06/06 $’000

11. NON-CURRENT ASSETS - PROPERT Y, PL ANT AND EQUIPMENT

Plant and equipment

Cost 2,387,052 Accumulated depreciation (25,614)

Net book amount 2,361,438

Land - at cost 43,765

Buildings

Cost 43,372 Accumulated depreciation (1,021)Net book amount 42,351

Leasehold improvements

Cost 275 Accumulated depreciation (12)Net book amount 263

Works under construction - at cost 583,735

3,031,552

Plant and equipment

Transfer from Western Power Corporation (WPC) at 1 April 2006 2,197,367 Additions 190,791 Disposals (1,060)Depreciation charge (25,660)

Carrying amount at 30 June 2006 2,361,438

Land

Transfer from WPC at 1 April 2006 43,173 Additions 592 Carrying amount at 30 June 2006 43,765

Buildings

Transfer from WPC at 1 April 2006 43,124 Additions 248 Depreciation charge (1,021)Carrying amount at 30 June 2006 42,351

Leasehold improvements

Transfer from WPC at 1 April 2006 275Amortisation charge (12)Carrying amount at 30 June 2006 263

71



30/06/06 $’000

11. NON-CURRENT ASSETS - PROPERT Y, PL ANT AND EQUIPMENT (CONTINUED )

Works under construction

Transfer from WPC at 1 April 2006 594,567 Additions 179,771 Capitalised interest 2,183 Transferred to property, plant, equipment and intangible assets (192,786)

Carrying amount at 30 June 2006 583,735

3,031,552

12 . NON-CURRENT ASSETS - INTANGIBLE ASSETS

Computer software

Cost 14,340 Accumulated amortisation (1,677)

Net book amount 12,663

Computer software

Transfer from WPC at 1 April 2006 13,185Additions 1,155 Amortisation charge (1,677)Carrying amount at 30 June 2006 12,663

13. TR ADE AND OTHER PAYABLES

Current

Trade payables and accruals 96,454 Other payables 27,841Contributory Extension Scheme (CES) 2,053

126,348

Trade payables are non-interest bearing and are generally settled on 30 day terms. Other payables are non-interest bearing and generally have settlement terms between seven and 30 days. Current contributory extension scheme payables have an average term of six months (refer to the non-current payables note for more details).

Non-Current

Contributory Extension Scheme (CES) 11,992

Contributory Extension Scheme payables represent contributions received from customers to extend specific electricity supplies. These are progressively refunded as other customers are connected to existing supply extension schemes. By 2023, when the scheme finishes, all scheme members will have their contributions refunded.

72



30/06/06 $’000

14. BORROWINGS

Non-Current

Domestic currency borrowings 2,150,486

Total secured non-current borrowings 2,150,486

All domestic currency loans are governed by a facility agreement that provides the Corporation with the full discretion to refinance all or any part of maturing debt. Accordingly, borrowings with a maturity date of less than 12 months have been classified as non-current borrowings. For domestic currency loans maturing over the next 12 months it is the intention to refinance all maturing debt under the facility agreement.

The Corporation has a A$ fixed rate borrowing facility with Western Australian Treasury Corporation with a limit of $3,000 million. As at 30 June 2006 the unused portion of the A$ facility was $876.4 million. The planned usage of the facility is governed by the Strategic Development Plan agreed with the Minister of Energy.

Refer to Note 24 for additional disclosure on financial instruments.

15. NON-CURRENT ASSETS - DEFERRED TA X ASSETS

The balance comprises temporary differences attributable to:

Amounts recognised in the income statement Property, plant and equipment (5,433) Contributory Extension Scheme (4,283) Provisions for employee benefits 28,088 Provision for doubtful debts 468 Provision for obsolete stock 54 Provision for interest payable 8,081 Deferred Income 2,346 Other 341 29,662 Amounts recognised directly in equity Actuarial adjustment to Retirement Benefit Obligations (2,050) Hedging reserve (151)

Net deferred tax assets 27,461

Movements:

Transfer from WPC at 1 April 2006 23,904 Credited to Income Statement (Note 5) - deferred tax assets 6,195 Credited to Income Statement (Note 5) - deferred tax liabilities (437)Credited to Equity (Note 5) (2,201)

Closing balance at 30 June 2006 27,461

73



30/06/06 $’000

16. PROVISIONS

Current

Employee benefits 16,165 Restoration costs 725

16,890

Non-Current

Employee benefits 9,799 Restoration costs 3,522

13,321

The restoration costs provision relates to committed safety expenditure and is expected to be incurred over the forthcoming three years.

Reconciliation

Movements in provisions Movements in each class of provisions during the financial year, other than employee benefits, are set out below:

Current

Restoration costs Carrying amount at start of period 725

Carrying amount at end of period 725

Non-Current

Restoration costs Carrying amount at start of period 3,522

Carrying amount at end of period 3,522

17. OTHER LIABILITIES

Current

Deferred income - developer and customer contributions 117,648Deferred income - other 8,082Sundry 8,741

134,471

Non-Current

Deferred income - developer and customer contributions 14,238

14,238

74



30/06/06 $’000

18. RETIREMENT BENEFIT OBLIGATIONS

(a) Superannuation plans

The defined contribution sections of the Corporation’s superannuation plans, being the main portions of the Gold State Superannuation Scheme and the Western Power Superannuation Fund, receive fixed contributions and the Corporation’s legal and constructive obligation is limited to these contributions.

The defined benefit sections provide either a pension or lump sum benefit based upon years of service and final salary, averaged over a number of years in accordance with the relevant governing rules. Each of the defined benefit sections, being the Pension Scheme and a portion of each of the Gold State Superannuation Scheme and the Western Power Superannuation Fund, is closed to new members. Additionally, the Western Power Superannuation Fund was closed to further contributions from its existing members from 18 May 2006. Thereafter, contributions for these members were made to either Superannuation Trust of Australia (STA) or the relevant fund for those employees who have elected to exercise their choice under the new superannuation legislation.

The Pension Scheme and Gold State Superannuation Scheme are State plans and are wholly unfunded. The Corporation meets the cost of these benefits when the employee leaves the service of the Corporation.

A provision in respect of the defined benefit superannuation plans is recognised in the balance sheet and is measured at the present value of the defined benefit obligations, based upon services provided up to the reporting date, plus/less unrecognised actuarial gains/losses less the fair value of the superannuation plans’ assets at that date and any unrecognised past service cost.

The following sets out details in respect of the defined benefit section only.

(b) Balance sheet amounts

The amounts recognised in the balance sheet are determined as follows: Present value of the defined benefit obligation 32,655

Net liability in the balance sheet 32,655

(c) Reconciliations

Reconciliation of the present value of the unfunded defined benefit obligations:

Transfer from WPC at 1 April 2006 38,965 Opening balance adjustment (5,494) Current service cost 211 Interest cost 454 Actuarial (gains) for the period (1,341) Benefits paid (140)

Closing balance at the end of the year 32,655

Expected Contributions

Employer contributions are made to meet the cost of the retirement benefit obligations as they fall due. For more detail regarding the policy in respect of provision for retirement benefit obligations refer to Note 1 (t).

75



30/06/06 $’000

18. RETIREMENT BENEFIT OBLIGATIONS (CONTINUED )

(d) Amounts recognised in the income statement

The amounts recognised in the income statement are as follows: Current service cost 211 Interest cost 454

Total included in employee benefits expense 665

(e) Amounts recognised in equity

Net actuarial gains recognised in the period (1,341)

(f) Principal actuarial assumptions

The principal actuarial assumptions used (expressed as weighted averages) were as follows: Discount rate 5.81% Expected future salary increases 4.50% Expected future pension increases 2.50%

19. CONTRIBUTED EQUIT Y

Movements in contributed equity

Contributed equity at beginning of period -Contributions received on 1 April 2006 (refer Note 28) 773,973Adjustment to provision for tax refund in WPC 6,391Actuarial adjustment to Retirement Benefit Obligation in WPC 3,846Contributions received 6,000

Contributed equity as at 30 June 2006 790,210

Contributed equity is in respect of contributions made by the State Government. No shares have been allotted or issued.

76



30/06/06 $’000

20. RESERVES AND RETAINED PROFITS

(a) Reserves

Hedging reserve - cash flow hedges Balance as at 1 April 2006 - Revaluation-gross 502 Deferred tax (Note 15) (151)

Reserves as at 30 June 2006 351

Nature and purpose of reserves

Hedging reserve - cash flow hedges

The hedging reserve is used to recognise the change in fair value (ie gains or losses) for the effective portion of derivatives that are designated and qualify as cash flow hedges as described in Note 1 (v).

(b) Retained profits

Movements in retained profits were as follows: Balance 1 April 2006 - Net profit after income tax expense 17,067Actuarial adjustment to Retirement Benefit Obligations (net of tax) 938

Balance as at 30 June 2006 18,005

21 REMUNER ATION OF AUDITORS

(a) Assurance services

Audit services Office of the Auditor General Audit of financial reports under the Electricity Corporations Act 2005 220

Total remuneration for audit services 220

77



30/06/06 $’000

22 . COMMITMENTS

(a) Lease commitments

Operating leases

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

Within one year 3,056 Later than one year and not later than five years 7,272 Later than five years 791

11,119

The Corporation leases computers and minor technology equipment. The lease rental is paid quarterly in arrears.

The Corporation leases a property containing a warehouse, offices and yard space. The lease rental comprises a base value plus an escalation factor equal to the average Australian consumer price index (per annum) and a component for rates and taxes. The lease rental is paid monthly. The lease renewal is five years with at least three to six months notice of termination required.

(b) Capital commitments

Total capital commitments contracted for at the reporting date but not recognised as liabilities are as follows:

Property, plant and equipment Within one year 158,099 Later than one year and not later than five years 17,200

175,299

78



23. CONTINGENCIES

The Corporation’s policy is to disclose details of contingent liabilities and contingent assets where there is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

Contingent Liabilities

Black and Others This matter relates to compensation claims by owners of land where the former Western Power Corporation resumed parts of land for the Kemerton 330kV line. Claims lodged to date are in the order of $4.6 million. These claims are being challenged on appeal.

With regards to the following two classes of claims, given the ongoing negotiations, it is not practicable to disclose an estimated value of the following contingent liabilities. However, it is confirmed that:

• settlement of the respective claims will not have a material impact on the Corporation;

• timing of the final resolution of all claims is uncertain and will depend on the progress of negotiations with individual claimants;

• the final value of the settlement with each claimant will vary based on individual circumstances. In the case of the Bridgetown bushfire claims, it will also vary based the allocation of responsibility between Western Power and the other two parties; and

• all claims are covered by insurance.

Tenterden bushfire claimants Claimants are seeking compensation for damages sustained in a bushfire allegedly started by a clashing conductor. In two cases, litigation has been commenced. However, resolution of all claims is being negotiated (of the original 98 claimants, 17 remain under negotiation).

Bridgetown bushfire claimants Claimants are seeking compensation for damages sustained in a bushfire at Bridgetown. Western Power is one of three parties allegedly responsible for the claims. Resolution of the claims, including Western Power’s ultimate contribution to each, is being negotiated without recourse to litigation (of the original 85 claimants, 17 remain under negotiation).

79



24. FINANCIAL INSTRUMENTS

Risk management objectives and policies

The Corporation’s financial risk management objective is to act in accordance with prudent commercial principles and deliver outcomes consistent with maximising its long-term value. Financial risk management is undertaken by the Treasury Branch, which is governed by a Treasury Policy approved by the Board. The principal financial risks arising from the normal course of the Corporation’s activities are interest rate risk, liquidity risk, currency risk and credit risk.

The Corporation’s principal financial instruments are short-term deposits, debt (both fixed and floating), interest rate swaps and forward foreign exchange contracts.

The Corporation enters into derivative transactions, principally interest rate swaps and forward exchange contracts, to manage exposures arising from the Corporation’s operations. Speculative trading of derivatives is prohibited under the Corporation’s Treasury Policy.

Foreign currency risk

The Corporation’s exposure to foreign currency risk results from the forward purchase of equipment and services in foreign currencies. These purchases are hedged using external forward exchange contracts to fix a future price and cash flow at a fixed future date. When a mismatch of payment dates occur, the forward exchange contracts are pre-delivered or extended to match the timing of the cash flows in the underlying exposure.

Forward exchange contracts - cash flow hedges

The following table summarises, by currency, the Australian dollar value of forward foreign exchange contracts designated as cash flow hedges. The amounts disclosed below represent the currencies purchased, measured at the contract rate and the periods in which the contracts settle. The amounts represent the Australian dollar equivalent of commitments to purchase or sell foreign currencies.

Weighted Average Less than 30/06/06 Exchange 1 Year 1-2 Years 2-3 Years Total Currencies Rate $’000 $’000 $’000 $’000

Canadian Dollars 0.8961 409 - - 409

Euro 0.5745 12,943 20,001 2,706 35,650

Swedish Kroner 5.6612 664 - - 664

United States Dollar 0.7110 11,841 - - 11,841

Total 25,857 20,001 2,706 48,564

The portion of the gain or loss on the forward exchange contracts that is determined to be an effective hedge is recognised directly in equity. Ineffective portions are taken directly to the income statement.

When the cash flows occur, the Corporation accounts for the amount deferred to equity in the same manner as the underlying exposure. Ineffective portions are taken directly to the income statement.

Foreign currency bank accounts

The Corporation established foreign currency bank accounts on 30 June 2006. At 30 June 2006, no transactions had occurred in the accounts.

80



24. FINANCIAL INSTRUMENTS (CONTINUED )

Risk management objectives and policies (continued)

Liquidity risk

It is the Corporation’s policy to ensure adequate funding is available, at all times, to meet the commitments of the Corporation, as they arise, through the active control of cash flows, and ensuring facilities are in place that will satisfy the ongoing funding requirements of the Corporation.

Borrowing instruments maturing within one year have been classified as non-current liabilities as the Corporation has the expectation and the discretion to refinance these obligations for at least twelve months after the reporting date under the existing loan facility.

Interest rate risk

The Corporation’s objective is to minimise the cost of the Corporation’s borrowings, through the active management of interest rate exposures. Floating rate notes and interest rate swaps are utilised to reduce the cost of fixed rate borrowings.

The subsequent table summarises the Corporation’s exposure to interest rate risk, and the effective weighted average interest rates on financial instruments at the reporting date. The following financial instruments, where they are not interest bearing, are omitted: receivables, payables and Contributory Extension Scheme.

Weighted Floating Fixed Interest Rate Maturing Average Interest Within 1-2 2-3 3-4 4-5 Over 5 Interest Rate 1 Year Years Years Years Years Years Total

30/06/06 Rate1 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

FINANCIAL ASSETS

Cash at Bank 5.56% 11,019 - - - - - - 11,019

Domestic Currency

Deposits 5.65% 39,600 - - - - - - 39,600

Total Assets 50,619 - - - - - - 50,619

FINANCIAL LIABILITIES

Domestic Currency

Borrowings 6.22% - 476,675 260,106 316,651 241,502 92,961 617,357 2,005,252

Floating Rate Notes1 5.81% 118,300 - - - - - - 118,300

Interest Rate Swaps2 -0.22% (118,300) 65,000 - 10,000 25,000 8,300 10,000 -

Total Liabilities - 541,675 260,106 326,651 266,502 101,261 627,357 2,123,552

1 For floating interest rates, this represents the most recently 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.

2 The interest rate is determined using notional principal. The weighted average interest rate represents the net position of both sides of the swap. It is shown as above to indicate the reduction in interest costs as a result of hedging. The notional principal included in the floating interest column indicates the floating leg of the swaps, whilst the fixed leg is shown in the fixed interest columns.

81




Risk management objectives and policies (continued)

Interest rate risk (continued)

The majority of the Corporation’s interest rate swaps qualify as cash flow hedges. The portion of the gain or loss on the interest rate swaps that is determined to be an effective hedge is recognised directly in equity. Ineffective portions are taken directly to the income statement.

Commodity risk

The Corporation is indirectly exposed to commodity price risk for aluminium and copper. Due to the significant difficulty in ascertaining future aluminium and copper exposures, the current policy is to allow these exposures to remain unhedged.

Credit risk

The Corporation has implemented credit review procedures to minimise the risk of counterparty default.

Financial assets

In respect of investments, credit risk is minimised by the Corporation’s practice to deal only with major banks that are rated AA- and above by Standard and Poor’s or Moody’s Investor Services and are regulated by the Australian Prudential Regulation Authority.

The Corporation is exposed to credit risk on trade receivables. This is managed through a rigorous debt collection procedure.

Derivative financial instruments

The Corporation’s Treasury Policy limits dealing in derivatives to only those counterparties that are recognised financial intermediaries and possess a credit rating of A (Standard and Poor’s) or A2 (Moody’s Investor Services) or better. The policy also specifies counterparty limits based on these ratings, which are reviewed regularly.

The following table summarises the Corporation’s credit risk on derivative financial instruments at the reporting date. The maximum credit risk on derivative financial instruments is represented by the fair value of contracts with a positive fair value at the reporting date.

30/06/06 Derivative Financial Instruments $’000

Interest Rate Swaps 342 Forward Exchange Contracts 839

Total 1,181

82




Fair values

The 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 fair values of financial assets and financial liabilities, including derivative contracts, held at the reporting date are provided in the next table.

Carrying Amount Net Fair Value 30/06/06 30/06/06 $’000 $’000

Financial Assets Cash at Bank 11,019 11,019 Domestic Currency Deposits 39,600 39,600 Receivables 99,597 99,597 Cash Flow Hedges Interest Rate Swaps 342 342 Forward Exchange Contracts 839 839

Total Assets 151,397 151,397

Financial Liabilities Payables 124,295 124,295 Contributory Extension Scheme 14,045 19,313 Domestic Currency Loans Long Term 2,005,252 2,004,317 Interest on principal 26,934 26,934 Floating Rate Notes Long Term 118,300 119,842 Cash Flow Hedges Interest Rate Swaps 814 814 Forward Exchange Contracts 687 687

Total Assets 2,290,327 2,296,202

Fair values of financial instruments are determined on the following basis:

• Forward exchange contracts are valued at prevailing market prices.

• The fair value of interest rate swaps and commodity swaps has been calculated by discounting future cash flows at prevailing 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 2023. 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 fair value of these loans has been calculated by discounting future cash flows using prevailing interest rates currently offered to the Corporation for debt of the same remaining maturities plus costs expected to be incurred when the liability is settled.

83



30/06/06 $’000

25. RECONCILIATION OF NET PROFIT AFTER INCOME TA X EXPENSE TO

NET CASH INFLOWS FROM OPER ATING ACTIVITIES

Profit for the year 17,067 Net gain on sale of non-current assets (155) Net exchange differences (11) Depreciation and amortisation 27,684 Fair value adjustment to derivatives (148)Contributed assets (9,130)

Change in operating assets and liabilities: Increase in receivables (44,986) Decrease in prepayments 3,767 Increase in trade payables 16,405 Increase in inventories (8,909) Decrease in employee provisions (2,011) Increase in other provisions 3,160 Increase in other financial assets (1) Decrease in accrued interest receivable 5 Increase in accrued interest payable 22,951 Increase in other deferred income 2,119 Increase in income taxes payable 7,423

Net cash inflow from operating activities 35,230

26. INTERESTS IN CONTROLLED ENTITIES

Bright Telecommunications Pty Ltd, a wholly owned subsidiary of the Corporation, was formed to develop a broadband access network. As at 30 June 2006 a process for the sale of the Bright Telecommunications project is in progress.

As at 30 June 2006, the assets and liabilities of Bright Telecommunications Pty Ltd are held by the Corporation. The subsidiary has undertaken no transactions and therefore has no impact on the financial statements of the Corporation.

27. EVENTS SUBSEQUENT TO BAL ANCE DATE

The Wholesale Electricity Market (WEM) was due to commence operations on 1 July 2006. However, the Independent Market Operator has since confirmed that the WEM commenced in September 2006.

There is no other matter or circumstance that has arisen in the interval between the end of the reporting period and the date of this report that is 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.

84



28. CONTRIBUTION FROM OWNER ( DISAGGREGATION )

Transfer order

In September 2005 legislation was passed in Parliament to allow for the disaggregation of WPC into four separate state owned entities. These entities were created under the Electricity Corporations Act 2005 and established on 1 April 2006. The entities are:

• Electricity Generation Corporation (Verve Energy); • Electricity Networks Corporation (Western Power);• Regional Power Corporation (Horizon Power); and• Electricity Retail Corporation (Synergy Energy).

On disaggregation the assets, rights and liabilities of WPC were contributed to the Minister for Energy. The Minister for Energy, under a Transfer Order prepared under Section 147 (1) of the Electricity Corporations Act 2005 (Gazetted on 31 March 2006), specified the subsequent allocation of these assets, rights and liabilities among the four separate state owned entities.

The Transfer Order designated the allocation described above as a contribution by the owner of WPC to the four separate state owned entities and that the contribution form part of the entities contributed equity. The transfer of the opening balances of assets and liabilities from WPC to the four successor entities has been reported in the WPC financial statements as at 30 June 2006. The WPC financial statements include a reconciliation of the WPC 31 March 2006 closing balances to the opening balances allocated to the four successor entities on 1 April 2006.

The Transfer Order specified that the values of the assets, rights and liabilities of WPC vested in the Corporation at the transferor’s valuation (‘book value’).

Taxation treatment

WPC, and the four separate state owned entities are subject to the NTER administered by the ATO. Under agreement with the ATO the disaggregation of WPC was completed on a tax neutral basis. Hence there was no NTER tax consequence for WPC. Instead the four separate state owned entities inherited the tax attributes of WPC in relation to the assets, rights and liabilities allocated on disaggregation.

85



28. CONTRIBUTION FROM OWNER ( DISAGGREGATION ) (CONTINUED )

Reconciliation: 31/03/06 Western Power Corporation Net Assets to 01/04/06

Contribution by Owner (Disaggregation)

Other AIFRS Revised Contribution Reclass- Contribution by Owner ifications Adjustments by Owner 01/04/06 01/04/06 01/04/06 01/04/06 $’000 $’000 $’000 $’000

CURRENT ASSETS

Cash and cash equivalents 35,442 - - 35,442 Trade and other receivables 47,470 - - 47,470 Inventories 52,363 - - 52,363 Derivative financial instruments 937 - - 937 Current tax assets a) - 26,104 6,391 32,495 Other current assets 11,769 - - 11,769 Total current assets 147,981 26,104 6,391 180,476 NON-CURRENT ASSETS Property, plant and equipment 2,878,506 - - 2,878,506 Intangible assets 13,185 - - 13,185 Deferred tax assets b) - 23,905 (1,648) 22,257 Derivative financial instruments 380 - - 380 Total non-current assets 2,892,071 23,905 (1,648) 2,914,328 Total assets 3,040,052 50,009 4,743 3,094,804 CURRENT LIABILITIES Trade and other payables 87,067 - - 87,067 Tax liabilities a) (26,104) 26,104 - - Provisions 41,873 - - 41,873 Derivative financial instruments 630 - - 630 Other liabilities 132,434 - - 132,434 Total current liabilities 235,900 26,104 - 262,004 NON-CURRENT LIABILITIES Other payables 12,096 - - 12,096 Borrowings 1,988,901 - - 1,988,901 Deferred tax liabilities b) (23,905) 23,905 - - Provisions c) 51,582 (38,965) - 12,617 Retirement benefit obligations c) - 38,965 (5,494) 33,471 Derivative financial instruments 1,505 - - 1,505 Total non-current liabilities 2,030,179 23,905 (5,494) 2,048,590 Total liabilities 2,266,079 50,009 (5,494) 2,310,594 NET ASSETS (REFER NOTE 19 ) 773,973 - 10,237 784,210

a) Reclassification of the tax receivable from Current Liabilities to Current Assets: $26.104m and adjustment to provision for tax refund: $6.391m.

b) Reclassification of the deferred tax asset from Non-Current Liabilities to Non-Current Assets: $23.905m and tax effect of actuarial adjustment to retirement benefit obligations: $1.648m.

c) Reclassification of the retirement benefit obligation from Provisions to Retirement Benefit Obligations: $38.965m and the actuarial adjustment to retirement benefit obligations: $5.494m.

86

Directors’ declaration


In the directors’ opinion:

(a) the financial statements and notes comply with the accounting standards; and

(b) the financial statements and notes give a true and fair view; and

(c) there are reasonable grounds to believe that the Corporation will be able to pay its debts as and when they become due and payable; and

(d) the financial statements comply with Schedule 4 of the Electricity Corporations Act 2005.

This declaration is made in accordance with a resolution of the directors dated 22 September 2006.

Peter Mansell Chairperson

Doug Aberle Managing Director

22 September 2006

annual report 2006 - western power · 4 electricity networks corporation trading as western power...

Documents