Energy for tomorrow

Annual Performance Report 2006–07

© Integral Energy 2007

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ISSN 1834‑0733

Providing energy for tomorrow is a team effort involving Integral Energy’s staff and stakeholders throughout our network franchise area and beyond.

Front cover:From our Katoomba Field Support Centre, Malcolm Fletcher (left) a Tree Management Officer, and Dale Moylan, an Electrical Fitter Mechanic, take pride in meeting the energy needs of the Blue Mountains community.

Above: Parramatta by night, supported by Integral Energy’s Parramatta Field Support Centre.

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Contents

Overview

Aboutus 2

Yearataglance 3

Year in review

ChairmanandCEO’sreport 4

Ourscorecardfor2006–07 7

Highlightsandlowlights 9

Economic performance

Didwemeetourobjectives? 11

Performanceindicators 12

Economicperformancein2006–07 12

Environmental performance

Didwemeetourobjectives? 27

Performanceindicators 28

Environmentalperformancein2006–07 29

Social performance

Didwemeetourobjectives? 37

Performanceindicators 38

Socialperformancein2006–07 39

Corporate governance

GovernanceandOperationalStructure 49

BoardofDirectors 50

Executiveteam 52

Management discussion and analysis 58

Financial Statements

Directors’Report 61

IndependentAuditReport 62

AuditedFinancialStatements 64

Appendices

Appendix1:Economic 96

Appendix2:Environment 104

Appendix3:Social 104

Appendix4:Governance 107

Glossary 119

Index 120

Annual Performance Report 2006–07

31October2007

TheHon.MichaelCostaMLC TheHon.JohnWatkinsMP

Treasurer,MinisterforInfrastructure, DeputyPremier,Ministerfor

MinisterfortheHunter Finance,MinisterforTransport

Level31,GovernorMacquarieTower Level30,GovernorMacquarieTower

1FarrerPlace 1FarrerPlace

SYDNEYNSW2000 SYDNEYNSW2000

DearMinisters

Report on performance for the year ended 30 June 2007

ThisreportcoversIntegralEnergy’sperformance,operationsandstatement

ofaccountsfortheyearended30June2007,inaccordancewiththe

provisionsoftheAnnual Reports (Statutory Bodies) Act 1984andthe

principlesoftheGlobalReportingInitiative,andissubmittedonbehalf

oftheBoardofIntegralEnergyfortablinginParliament.

CopiesarebeingsenttotheAuditor-General,theMinisterforEnergy,

MembersofParliamentandkeycustomerandstakeholdergroups.

Sincerely

Michael McLeod Richard PowisChairman ChiefExecutiveOfficer

AnnualPerformanceReport2006–07

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About usIntegralEnergyisaNewSouthWalesstate-ownedenergycorporationwithaproud50-yearhistoryservingsomeofAustralia’slargestandfastestgrowingregionaleconomies.

WeoperateintheNationalElectricityMarket,retailingenergyandprovidingmeteringanddataservicestoindustrialandcommercialcustomers.Wealsodistributeandprovidevalue-addedservicesto842,000customers,or2.1millionpeople,inhouseholdsandbusinessesacrossanetworkfranchisespanning24,500squarekilometresinGreaterWesternSydney,theIllawarra,BlueMountainsandtheSouthernHighlands.

IncorporatedundertheEnergy Services Act 1995,IntegralEnergyisafinanciallydisciplinedbusiness,committedtoachievingasustainablefutureforourstaff,ourcustomersandotherstakeholders.WeoperatewithinthetermsoftheElectricity Supply Act 1995onbehalfofourshareholder,theNSWGovernment.

Ourfocusisonprovidingasafeandreliablepowersupplytoourcustomersand,indoingso,deliveringongoingexcellenceincustomerservice.

Our vision

TobeAustralia’sleadingenergybusiness.

Our mission

Tobeasuccessfulenergycorporationwithalong-termfocusonbeingabestpracticeassetmanagerandcompetinginprofitableenergymarkets.

Our values

Safetyexcellence

Integrity

Managementbyfact

Enterprisingspirit

Customercommitment

Respectforpeople

Accountabilityandresponsibility

Sustainableoutcomes

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Integral Energy’s franchise area

IntegralEnergy’snetworkincludes28,000transmission,zoneanddistributionsubstations,305,000polesand33,000kilometresofoverheadandundergroundconductors.

Ourfieldsupportcentresarestrategicallylocatedwithinanhourofmostcustomerstomeettheenergyneedsofthecommunitiesweserve.

Transmission details

DrawingonarrangementswithgeneratorsinNSWandVictoria—

alongwithsupplygeneratedbyindependentsourcessuchascogeneration,coalbedmethaneextractionplants,windandwaterplants—IntegralEnergypurchaseswholesaleelectricityinbulkforcustomers.

SupplyistakenfromTransGrid’stransmissionnetworkateither132,000or66,000voltsandreducedto33,000,22,000or11,000voltsthroughanetworkoftransmissionandzonesubstations.Distributionsubstationsfurtherreducethesupplyto415/240voltstosuitcustomerrequirements.

Kandos

Bowenfels

Windsor

Katoomba

Penrith

Glendenning

Narellan

Bowral

CountryEnergy

EnergyAustralia

PacificOcean

Shellharbour

Nowra

Ulladulla

SpringhillConiston

Hoxton Park

Picton

Parramatta

Kings Park

Huntingwood

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Year at a glance

Items 2006–07 2005–06 % change

Economic

EBITDA(includingcapitalcontributions) $’000 466,7�9 416,851 12.0

Operatingprofitaftertax $’000 �5�,�09 138,588 10.5

Totalretailsalesofelectricity GWh 9,74� 9,439 3.2

Totalnetworkcustomerconnections 84�,��5 832,538 1.2

Reliability(unplannedinterruptionstosupply) Minuteslost/customer

94.� 95.9 (1.8)

CustomerServiceIndicator % 8�.4 81.1 2.8

Salesrevenue $’000 �,�68,075 1,259,831 8.6

Capitalexpenditure $’000 �8�,66� 336,474 13.4

Netassets* $’000 �,���,960 883,404 49.9

Returnonassets* % 9.5 9.8 (3.0)

Returnonequity* % ��.9 15.6 (11.2)

ReturnstoNSWGovernment

Dividend $’000 �07,0�� 103,866 3.0

Incometaxequivalents $’000 85,986 65,213 31.9

QualifiedcreditratingFitchRatings AA AA

Environmental

Energypurchasedfromalternativesources % �5.� 15.3 (1.5)

Transformeroilrecycled litres �6�,�8� 453,534 (19.9)

Greenhousegasemissions–Directemissions tonnesCO2e �7,�6� 27,493 (1.2)

Reportableenvironmentalincidents No. 0 3 100

Social

Socialprograms $’000 �9,7�7 20,624 (4.3)

Pensionerrebates $’000 �9,008 19,887 (4.4)

Lifesupportequipmentrebate $’000 7�9 737 (1.1)

EnergyAccountsPaymentAssistance(EAPA) $’000 �,�44 2,845 (17.6)

Totalemployees �,59� 2,457 5.5

Losttimeinjuryfrequencyrate 4.8 5.2 (7.7)

Abbreviation:EBITDA=earningsbeforeinterest,tax,depreciationandamortisation.*ImpactedbyfinancialderivativesinaccordancewithaccountingstandardAASB139.

AnnualPerformanceReport2006–07

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Chairman and CEO’s reportThe2006–07financialyearsawIntegralEnergydeliverstrongresultsagainstallitstargetsandkeyperformanceindicators,inlinewithourcorporatevisionandbusinessstrategy,whilelayingthefoundationstodeliverenergyfortomorrow.

Deliveringenergyfortomorrowmeansthatweneedtomeetthechallengesoftodaywhilebuildingcapabilitytomeettheneedsoffuturegenerations.

Inadditiontoitsnormalbusinessoperations,IntegralEnergyrespondedtoaseriesofchallengesfromchangestotheexternalenvironmentduring2006–07.Theyincluded:

theriseofclimatechangetotheforefrontofpublicdebateaboutthedeliveryofenergyforthefuture

theimpactofthedroughtontheavailabilityofgenerationcapacityintheNationalElectricityMarket,placingupwardpressureonwholesaleelectricityprices

theopeningupoftheQueenslandelectricitymarketandthesuccessfullaunchofouroperationsintothiscompetitivenewmarket

thecommencementoftheOwenInquiryintoelectricitysupplyinNSW,withpotentialchangestothecurrentownershipstructureofenergyretailing.

Ourpeoplehaverespondedtothesechallengeswithrenewedvigourandhavecapturedthisfocuswithanewcorporatevalueof‘enterprisingspirit’.Inpracticalterms,enterprisingspiritmeansweareopentofreshthinkingandnewideasandwillpursueopportunitiesforimprovementstotheperformanceofourbusinesswithrenewedvigouranda‘cando’attitude.

Thisnewvalueunderlinesourcommitmenttoactivelypursueopportunitieswhilemanagingidentifiedrisksandpursuingourjourneytobesustainableinallour

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practices.Ourpeoplearetobecongratulatedfortheiradoptionofthisvalue,whichhasdrivenyetanothersetofstrongresultsforthisyear.

Working safely

In2006–07,wecontinuedtointegratesafetyintoallaspectsofIntegralEnergy’sbusinessandmanagementprocessesandtoimprovesafetymanagement,workingtowardsthegoalofzerooccupationalincidents,injuriesandillnessesforouremployees,ourcontractorsandmembersofthepublic.

Ourcommitmentisthatwewillnottakeshortcutswhenitcomestosafety.Weaimtofosteraculturewhereweassessriskandtakepreventiveaction,andrequireallemployeesandcontractorstoendorseandpractisesafeandhealthybehaviours.

2006–07sawacontinuedfocusoninstillingasafetycultureacrossallouroperationsthatensuresallourpeoplegohomeeachdayfreefromharm.

In2005–06,weweresaddenedwhenahelicopteraccidentresultedininjuriestoseveralemployees,includingseriousinjuriestooneemployee.Learningfromthisexperience,wehaveimplementedrevisedprocessesandareusingnewtechnologytominimisefutureriskstoourpeople.

Thisyearwedeliveredourbesteversafetyresult.Whileaboveourtargetofzero,thelost-timeinjuryfrequencyratefor2006–07was4.8,animprovementonthe2005–06resultof5.2.Despitethis,werecognisewearestillsomewayfromachievingourtargetofzeroinjuriesandlosttimeincidents.

ExtensiveworkwasundertakenbyIntegralEnergyduring2006–07tohosttheseventeenthannualEnergySafetyandFieldExpo,titled‘e-safe’.‘E-safe’isthekeysafetyeventfortheenergyindustryofNSWandprovidesaninvaluableforumfortheindustrytohighlighttheimportanceofsafetyandshareideas,knowledgeandexperienceonimprovingworkplacesafetyperformance.

InitiallyplannedforJune,theeventwaspostponedtoJulyasourindustryfocusedoneffortstorepairtheextensivedamagecausedbyviolentstormsandfloodingintheHunterandCentralCoastregionsatthattime.Whileitwasdisappointingforsuchanimportanteventtobedelayed,thejointeffortsoftheindustrytoprovidegreatcustomerserviceinthefaceofadversityhasbeenoneofthemostpleasingaspectsoftheyear.

IntegralEnergyachievedexcellentresults,winningfourofninesafetychallenges—acredittoallstaffwhotookpart.

Strong financial performance

SuccessfulfinancialperformanceisessentialtoensurethatIntegralEnergysupportstheongoinggrowthandfutureprosperityofcustomers,communitiesandregionaleconomies.RigorousfinancialpracticeisahallmarkofIntegralEnergy’smanagementandthisdisciplinehasdeliveredanotherstrongfinancialresultin2006–07,markingasix-yearupwardtrendinprofitability.

In2006–07,IntegralEnergy’searningsbeforeinterest,tax,depreciationandamortisation(includingcapitalcontributions)increased12%to$466.7million,comparedtothepreviousyear’sresultof$416.9million.Thisincreasewasmorethandoublethepreviousyear-on-yearearningsgrowth,whileafter-taxprofitrose10.5%to$153.2million.

IntegralEnergyreturnedtoitsshareholder,theNSWGovernment,dividendsandtaxequivalentsof$193million,a14%increaseonthe2005–06return.Thisdividendprovidesfundstogovernmentthatwillimprovethequalityoflifeoffuturegenerationsandensurethelong-termsuccessofcommunitiesthroughexpenditureon,forexample,schools,hospitals,roadsandtheenvironment.

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Improving reliability

Wearecommittedtomanagingournetworkassetsinastructuredandsystematicmannertoensurethatwemeetourcustomers’expectations,fulfilourbusinessneedsandmeetourobligationstoourshareholder,regulatorsandthecommunity.

Networkreliabilitycontinuedtoimprovein2006–07,despitetheimpactofnumerousseverestormsonthenetwork.Themostseverestormoccurredon24September2006whenIntegralEnergy’sfranchisewasstruckbyaviolentwindstorm,resultinginsupplybeinginterruptedtoapproximately170,000customers.Despiteextensivedamageacrossthenetwork,ourresponsetothiseventledtothesuccessfulrestorationofenergytomostcustomersbytheeveningof26September2006.Wewouldliketopaytributetoallourstaff,andthecrewsofEnergyAustraliaandCountryEnergy,whoundertookthisincrediblerestorationeffort.

During2006–07,weachievedaresultof94unplannedminuteslostpercustomerperyearagainstatargetof101minutes,whichwebelievereinforcesIntegralEnergy’sstandingasoneofAustralia’sbestperformingEnergysuppliers.Thisresultwascalculatedusingamethodologydifferentfromthatusedinpreviousyears,makingdirectcomparisonwithpastresultsmoredifficult.Despitethis,theresultcontinuestheimprovingtrendinnetworkreliabilityofthepastthreeyears.Wewillcontinuetofocusstronglyonimprovingthatresultin2007–08andwilltarget,inparticular,areasofpoorperformancetobringthemclosertotheaverage.Atargetof100minuteshasbeensetfor2007–08.

Weinvestedarecord$316.6millioninnetworkcapitalexpenditure,anincreaseof26.9%onexpenditurelastyear.Thisincludeda$37millioninvestmentinthenewBellaVistazonesubstation,commissionedinearly2007,toprovideadditionalcapacitytoservicetheburgeoningNorwestBusinessParkandsurroundingcommercialandresidentialareas.Thesubstationutilisesnewgasinsulatedswitch

geartechnologywhichimprovesreliability,reducesmaintenancerequirementsandminimisestheoverallfootprintofthesubstation.

InApril2007,wecommissionedournewOutageManagementSystemtoimprovethecoordinationofourresponsetofaultsonourelectricitynetwork.TheOutageManagementSystemdeliversimprovedcustomerservicecapabilitiesbyprovidingcustomerswithanestimationtimetorestoresupplyduringinterruptions.Thesystemassistsusinrespondingtocustomersbyoptimisingthedispatchofrepaircrewsbasedontheiravailability,skillsandlocationandtheinformationprovidedbycustomers.

Movingforward,ournetworkbusinessisfocusedonimprovingreliabilitybygreaterintegrationofourassetmanagementframework,developingnewtacticalsystemsandimplementingamorestrategicapproachtomajorprojectapprovals.Wearealsoreviewingourlong-termvisionandstrategyforthenetworkbusinessasthefoundationofourapplicationtotheAustralianEnergyRegulatorforthe2009networkdetermination.

Competing successfully

TheNationalElectricityMarketremainshighlycompetitive,withmorethanamillioncustomersinNSWexercisingchoiceandmovingtonegotiatedagreementssincetheintroductionoffullretailcontestabilityinJanuary2002.Despitethetestingconditionsofthemarket,IntegralEnergycontinuedtoperformcompetitivelyandmaximisethelong-termvalueofitsretailbusinessbypositioningitforgrowthinprofitableenergymarkets.

OneofthehighlightsoftheyearwasthesuccessfullaunchofIntegralEnergyretailsalesinthenewlyopenedQueenslandcompetitivemarket.IntegralEnergyisproudtobeofferingQueenslandersourhigh-qualitycustomerservicesandrangeofcompetitivelypricedproducts.WehaveperformedstronglysinceenteringtheQueenslandmarket,withaninnovativebusinessmodeltailoredspecificallyforourpositioninthatmarket.

Withclimatechangegainingprominenceasanationalissue,webenchmarkedour‘green’

positioningagainstcompetitorsandrevisedourcorporatepolicyonsustainability.WealsoincreasedourrangeofinnovativeINgreenproductssuitedtotheneedsofourcustomers,withthenumberofcustomerspurchasingGreenPowerincreasingtomorethan24,000duringtheyear.Thesignificantadoptionofgreenenergyproductsbycustomerswillprovidelong-termsocialbenefitsandprotecttheenvironmentforfuturegenerations.GreenPowerproductsaresourcedfromarangeofaccreditedrenewablegenerators,includingwater,windandwavepower.

Inadditiontomeetingthechallengeofanincreasinglycompetitivemarket,duringthefirsthalfof2007wehadtodealwithsignificantreductionsintheavailabilityofelectricitygenerationinthemarket—reductionsthatresultedinsomeofthehighestwholesaleenergypricesseensincethestartoftheNationalElectricityMarketin1998.

FormanyregionsinsouthernandeasternAustralia,2006–07wasthedriestyearonrecord,andreductionsinwateravailabilityrestrictedelectricitygeneration

‘Weinvesteda record$316.6million innetworkcapital expenditure,an increaseof26.9% onexpenditure lastyear.’

IntegralEnergy’sChairman,MichaelMcLeod (left)andCEO,RichardPowis

AnnualPerformanceReport2006–07

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capacityintheNationalElectricityMarket.Thisreductionincapacitywasfurtherexacerbatedbyincreasesincustomerdemandoncoldwinterdaysandanumberofgeneratorsupplyissuesnotrelatedtothedrought.Collectively,thesereductionsingenerationcapacityputupwardpressureonspotandforwardmarketpricesofelectricityintheNationalElectricityMarket.Incommentingontheseoccurrences,theAustralianEnergyRegulatorindicatedthatpricesaveraged$274amegawatthourinNSWinJune2007,comparedtoanaveragepriceof$33amegawatthourinJune2006.

Thoseeventsledtothefirsteverretailer-of-last-resorteventintheNationalElectricityMarket,whenEnergyOnePtyLtdwithdrewfromtradinginlateJune2007.StafffromacrossthecompanyworkedtoensurethatEnergyOne’sformercustomershadtheiressentialelectricityservicestransferredseamlesslytoIntegralEnergy.

ChallengesofscaleandscopelieaheadforIntegralEnergy’sretailbusinessinthecomingyear.TheOwenInquiryintoelectricitysupplyinNSWhashighlightedtheneedtoreviewthecurrentownershipstructureofenergyretailingtosecuretheenergyfutureforthestate’sfamiliesandbusinesses.Throughoutthisprocess,IntegralEnergywillmaintainitsfocusonprovidingthehighestlevelsofservicetoallourcustomers.

Environment

ClimatechangeisamajorenvironmentalissuefortheenergyindustryinternationallyandinAustralia.IntegralEnergyisworkingwithourshareholderandtheindustrytoprogressthedevelopmentofanationalgreenhousepolicyframeworkthatestablishesasingle,long-termgreenhousegasemissionreductiontargetandcarbontradingscheme.

Ifwearetofulfilourcommitmenttofuturegenerations,wemustreducegreenhousegasemissionswhilesustainingourbusinessgrowth.Tomeetthisimportantobjective,in2006–07werevisedourenvironmentpositiontotakeaccountofchangingenvironmental

conditionsandtheneedsoffuturegenerations,particularlyinrelationtoclimatechange.

Asaresultoftherevision,IntegralEnergyhascommittedto:

publiclydefiningandachievingtargetstoreduceourgreenhousefootprintandmovebeyondcompliance

empoweringourcustomerstomakemoresustainablepowerchoicesbyprovidinginnovativeandattractiveproductsandservices,promotinggreaterawarenessofenergyefficiencyandbyprovidingpracticaladviceandtools

workingwithourshareholdertoshapeanddefinemarket-basedandpolicymechanismsforrespondingtoclimatechange.

Aspartofouroverallresponsetoclimatechange,IntegralEnergywasthedrivingforcebehindtheBlacktownSolarCityconsortium,thefirstNSWsolarcitylaunchedundera$75millioninitiativeoftheAustralianGovernment.AsaresultofIntegralEnergy’suniquepartnershipwithBPSolar,BlacktownCityCouncil,ANZBank,LandcomandBigSwitchProjects,theBlacktownSolarCityprojectwillshowcasearangeofsustainableenergyinitiativestoreduceenergydemandandconsumption.Theprojectisexpectedtoresultintheabatementof24,000tonnesofgreenhousegasemissionsandsavingsof$3milliontocustomersintheirelectricitybills.

Ournetworkoperationsalsodeliveredsoundenvironmentalperformancewithnoreportableincidentsduringtheyear.Thecompletionoftheacceleratedprogramtoinstallprotectivebundsaroundalltransformersintransmissionandzonesubstationsinourfranchiseareareinforcedourcommitmenttoenvironmentalperformance.

Building relationships

GoingfurtherforourcustomersencapsulatesIntegralEnergy’scustomerservicephilosophyandisthebasisonwhichwewillbuildstrongandsustainablerelationshipsinallaspectsofourbusiness.IntegralEnergyhasacomplexanddiversestakeholderbase,whichincludesgovernment,regulators,

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customers,communities,employees,suppliersandourshareholder.

Businesssustainabilitydependsonthedegreetowhichstakeholdersunderstandandsupportourstrategyandoperations.Tothisend,IntegralEnergymaintainsopenandproductiverelationshipswithstakeholders,ensuringthatweunderstandtheirexpectationsandthattheyunderstandourbusiness.

In2006–07,ourstakeholderstrategyfocusedonengaginglocalcouncils,developersandresidentsontheplanninganddeliveryofourinfrastructure.

Oneofourlargestinfrastructureprojects,theVineyardtoRouseHillelectricityupgrade,wasapprovedbytheMinisterforPlanninginSeptember2006.Publicconsultationhasbeenafeatureofthedevelopmentoftheproject.ACommunityAdvisoryGroupwithrepresentativesfromthelocalcommunity,BlacktownCityCouncilandcustomergroup,wasformedtoengagethecommunityandseekfeedbackonproposedoptionsfortheupgrade.

IntegralEnergywillcontribute$1milliontolocalcommunityinfrastructureand$500,000todemandmanagementinitiativesintheregionaspartoftheconditionsofapprovalfortheproject.

WealsocontinuedourpartnershipwiththeUrbanDevelopmentInstituteofAustralia,localcouncilsandplanningauthoritiestobetterunderstandtheneedsoflanddevelopers.Thesubdivisionofnewlandplaysasignificantroleinthefuturedevelopmentoftheelectricitynetworkandthesestakeholdersarelargelyresponsibleforthedeliveryofaffordablelandsupplythatwillhousethehomesandbusinessesoffuturecommunitieswithinournetwork.

Chairman and CEO’sReport

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Our scorecard for �006–07

Key performance indicator

Measure Target Result Comments

Staff safety Accidentfrequencyrate

0 4.8 Whilewedidnotmeetourtargetofzero,theresultof4.8wasbetterthanthe5.2achievedin2005–06.Wecontinuetofocusonsafety,forexample,safetyobservations,forongoingimprovementanddevelopedanewthree-prongedsafetystrategytodrivefurtherimprovement.

Profitability EBITDA$M(excludingcapitalcontributions)

$361.4million

$412.4million

Theresultwas14%abovetargetand$46.5millionabovethe2005–06result.

OPEX compliance

OPEX$M $328.3million

$317.2million

Theresultwas3%favourabletotarget.

Network reliability

Unplannedminuteslostpercustomer(SAIDI)

101 94 Theresultof94minuteswas7%betterthanthetargetof101minutes.

Trading breaches

Breaches 0 5 Therewerefivetechnicalbreachesreportedin2006–07.

Absenteeism Losttimeduetosickness

2.5 2.8 Theoverallresultof2.8wasslightlyoverthetargetof2.5.

Environment Numberofseriousenvironmentalincidents

0 0 Noseriousenvironmentalincidentswerereportedduring2006–07.

Customer satisfaction

Customersatisfaction

82% 83.4% Theresultwasbetterthantargetandanimprovementonthe2005–06resultof81%.

EBITDA=earningsbeforeinterest,tax,depreciationandamortisation;OPEX=operatingexpenditure;SAIDI=systemaverageinterruptiondurationindex.

Building organisational capability

ThededicationandhardworkofstaffacrossthebusinessunderpinnedoursuccessduringtheyearandtheBoardandExecutiveteamextendtheirsincerethanksandappreciationtothem.

IntegralEnergyemployedmorethan2,593staffin2006–07,anincreaseof5.5%onstaffnumbersin2005–06,andsuccessfullyretainedmostemployees,reducingstaffturnovertolessthan6%.

Thechallengeofrecruitingandretainingskilledstaffinanenvironmentoffullemploymentandongoingeconomicgrowthhasbeen,andwillremain,akeychallengeforIntegralEnergyovercomingyears.

Tomeetthelong-termneedsofournetworkcustomers,weemployed64apprenticesduringtheyear,thelargestintakeeverin

IntegralEnergy’shistory,bringingthetotalnumberofapprenticesto175.Theintakeofapprenticeswascomplementedbytheengagementof11electricalengineeringgraduatesandcadets.PlanninganddeliveryofanewtechnicaltrainingfacilitylocatedcentrallywithinourfranchiseatHoxtonParkisunderwaytocaterforthisupliftintechnicalstaffnumbers.

Weexpectthefacilitytobeoperationalinmid2008.

Wehavebeenimplementingastrategytolocatenetworkstaffinmodernfacilitieswithinlessthanonehour’straveltomostcustomerstoimproveservicedelivery.This$40millionstrategyculminatedin2006–07withtheofficialopeningofnewfieldservicecentresatGlendenning,KingsPark,HoxtonParkandPictonandacivilworkscentreatGlendenningforfacilitiesmanagementandcivil

transmissionteamswhomanagetheconstruction,maintenanceandupgradeoffieldservicecentresandmajorsubstations.ConstructionalsobeganonIntegralEnergy’snew$7millionfieldservicecentreintheSouthernHighlands,replacingtheexistingfacilityatBowral.

Significanteffortsweremadethroughouttheyeartodevelopahigh-performanceworkculturethatattractsandmotivatesstaff.In2006–07,forthefirsttime,IntegralEnergyundertooktheHewittAssociates’surveyofstaffengagementtobenchmarkourperformance.Theresultof60%placedIntegralEnergyinthehigh-performingcategory.Wewillcontinuetodevelopthisinitiativein2007–08tofurtherbuildonourperformance.

AnnualPerformanceReport2006–07

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Organisational changes

Opportunitiesweretakenthroughout2006–07toreviewthestructureofseveralIntegralEnergybusinessunitsfollowingchangestotheExecutiveteam.Thenetworkbusinesswasconsolidatedfromthreebusinessunitsintotwotoensurethatitsstructurecontinuedtodeliverthecapitalandmaintenanceprogramsinanefficientandeffectivemanner,aftertheretirementofJohnWallace,whosecareerspanned42yearsintheelectricityindustry.

RelevantpartsoftheTradingandMajorAccountsbusinessunitwerereintegratedintotheRetailandCustomerServices,FinanceandCompanySecretariatbusinessunitstobetteralignthemwithourbusinessstrategyfollowingtheresignationofStephenLoweasGeneralManager,TradinginMay2007.

Future vision

IntegralEnergyiswellpreparedtoaddressthechallengesofthefuture.

Weremaincommittedtoourcoregoalofprovidingsustainable,reliable,andaffordableenergyinafast-growingandhighlycompetitivemarketwhilecontinuingtoenhancethesafetyofourworkplaces.Weareconfidentofmeetingtheincreasedcapitalinvestmentinournetwork.Todeliverenergyfortomorrow,intheyearaheadIntegralEnergyplansto:

continueoursafetyjourneytowardsourgoalofzeroworkplaceaccidents

significantlyincreaseourcapitalinvestmentinournetworktoachieveourtargetof$362million.

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achievesustainablereturnstoourshareholder

maintainourefforttoimprovethereliabilityperformanceofournetwork

prepareforthe2009networkdetermination,ourfirstbeforetheAustralianEnergyRegulator

positionourretailbusinesstorealiseitslong-termvalue.

Thosegoalswillbeachievedwhileweincreaseourcontributionstothecommunitiesweproudlyserveandmaintainasustainableapproachtoallouroperations.

Michael McLeod Chairman

Richard PowisChiefExecutiveOfficer

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‘Weemployed64apprenticesduringtheyear,thelargest intakeeverinIntegralEnergy’shistory,bringingthetotal numberofapprenticesto175.’

Chairman and CEO’sReport

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Highlights and lowlights

Economic Environmental Social

¸ Earningsbeforeinterest,tax,depreciationandamortisation(includingcapitalcontributions)increased12%to$466.7million,comparedwith$416.9millionin2005–06.

¸ Returned$193.0millionindividendsandtaxequivalentstoourshareholder,theNSWGovernment.

¸ Exceededourtargetfornetworkreliabilityperformance,with94minuteslostpercustomer(unplanned)againstatargetof101minutes.

¸ Investedarecord$316.6millioninournetworkinfrastructure,comparedwith$249.4millionin2005–06,andexceededournetworkmaintenancetargetsfortheyear.

¸ Exceededourretailbusinessprofittargetfor2006–07,despitetestingconditionsintheNationalElectricityMarket.

¸ SuccessfullylaunchedretailoperationsinthecompetitiveQueenslandelectricitymarket.

¸ Adoptedaproactiveapproachtoclimatechangetodriveimprovementsinorganisationalperformanceandempowercustomerstomakesustainableenergychoices.

¸ WerethedrivingforcebehindtheBlacktownSolarCityconsortium,thefirstNSWSolarCitylaunchedundera$75millionAustralianGovernmentinitiative.

¸ Improvedenvironmentalperformanceacrossouroperations,withnoseriousenvironmentalincidentsreportedduring2006–07.

¸ Increasedenvironmentalexpenditureto$13.5millionin2006–07toachieveameasurablereductioninenvironmentalrisk.

¸ Completedouracceleratedprogramtoinstallprotectivebundsaroundallmajorpowertransformerstoimprovenetworkenvironmentalperformance.

˚ Continuedtoproactivelyremediatehistoricalcontaminationondepotandmajorsubstationsites.

¸ Deliveredourbesteversafetyresult,withalosttimeinjuryfrequencyrateof4.8,animprovementonthe2005–06resultof5.2.

¸ Achievedacustomersatisfactionlevelof83.4%,aboveourtargetof82%.

¸ Achievedastaffengagementscoreof60%fromHewittAssociates,ratingusinthehighperformancezoneandhigherthanourindustrybenchmarkof57%.

¸ Recruitedarecordintakeof64 apprentices.

¸Continuedtoinvestin partnershipswithlocal communitiesandinstitutions

˚ Struggledtosuccessfullyrecruitallvacanciesagainstabackdropoffullemployment.

ApprenticeGrantSmeets

AnnualPerformanceReport2006–07

Economic Performance

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Did we meet our objectives?

2006–07 objective Progress to date Status 2007–08 objective

Improvingournetworkoperatingperformance,includingincreasingreliabilityofsupply.

Exceededourtargetfornetworkreliabilityperformance,with94minuteslostpercustomer(unplanned)againstatargetof101minutes.

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Achievenetworkunplannedreliabilityoflessthan100minutespercustomer.

Continuingtobuildandmaintainvalueinournetwork.

Recordlevelofinvestmentinournetworkin2006–07of$316.6million. p

Achieveambitiouscapitalprogramtargetof$362.5millionandachieveplannedmaintenanceprogram.

Buildinguptheaccuracyandcompletenessofdataaboutassetsweownthroughthedevelopmentofacomprehensiveregisterforournetworkandnon-networkassets.

IdentifiedGeographicInformationSystem(GIS)anddataimprovementopportunitiesandagreedonanactionplanusingtheAssetInformationGovernanceCommitteetosetpriorities.

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FurtherimprovementstodatadescribedinCorporateGISConsultantsreportandIntegratedAssetInformationSystemStrategy.

Continuingtoaddressthemass-marketchallengesoffullretailcontestability,includingaddressingtheneedsofourcustomers.

EmployedanewbusinessandsystemsmodelforthelaunchofourretailbusinessinQueensland,whichsupportedouracquisitionofapproximately15,000Queenslandcustomersby1July2007.

SecuredalicensetoretailelectricityinTasmania.

p

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Continuetomaintainthelong-termvalueofourRetailbusiness.

Key

¸¸ objectiveexceeded

¸ objectiveachieved

˚ objectivenotachieved

p ongoingobjectivewithtargetsmettodateorpositiveprogressshown

q ongoingobjectivewithtargetsnotmettodate

ApprenticeDanielMyers(left)andLeadingHandCableJointer,MattLobsey,atworkinParramattaCBD.

Economic Performance AnnualPerformanceReport2006–07

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Performance indicators

Customers

Totalnetworkcustomerconnectionswere842,315attheendofJune2007,anincreaseof1.2%ontheresultfor2005–06.

Weprovidedcustomerswith$22.1millioninrebatesandpaymentassistanceunderthePensionerRebatesSchemeandtheEnergyAccountsPaymentAssistanceScheme,a5.9%decreasefromthepreviousyear.TheNSWGovernmentreimbursesthismoney.

Networkreliability(unplanneddisruptionstosupply)was94minuteslostpercustomer(excludingmajorevents)againstatargetof101minutespercustomer.Thiswasoursecondconsecutiveyearofimprovedreliabilityperformanceandmakesusastrongperformeragainstnationalbenchmarks.

Ourretailbusinesssold9,741GWhofelectricityandcontributedmorethan3.1%aboveitsprofittarget,inlinewitha3.2%increaseinthequantumofelectricitysoldin2005–06.

Supply chain

Withourcommitmenttoachievingahighlevelofcustomersatisfactionwithourservices,95%ofsupplierswerepaidontime.

Wecontinuedtoimplementinitiativestostreamlineitsprocurementprocesses;forexample,wewerethefirstNSWstate-ownedenergycorporationtointroduceanelectronictenderingsystem.

Morethan50%ofthe$400millionworthofgoodsandserviceswepurchasedduringtheyearwerecoveredbyIntegralEnergyorStateContractsControlBoardcontractsorsupplierpanels.

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Employees

Weachievedan‘engagement’scoreof60%intheHewittAssociates’staffengagementsurvey.Weratedinthe‘HighPerformer/BestEmployerZone’,andhigherthantheutilitiesbenchmarkof57%.

Providers of capital

Earningsbeforeinterest,tax,depreciationandamortisation(includingcapitalcontributions)were$466.7million,comparedwith$416.9millionin2005–06.Thisresultwas15.7%or$63.2millionfavourabletothebudgetof$403.5millionandwaspositivelyimpactedbysomeone-offunbudgeteditems.Thetargetfor2007–08is$439.7million.

Wereturnedanetprofitaftertaxof$153.2million,a10.5%increaseontheprofitfigurefor2005–06.

Wereturneda$107.0milliondividendtoourshareholder,a3%increaseonthedividendfor2005–06.

Interestondebtwas$107.2million.

Public sector

Incometaxequivalentswere$86.0million,anincreaseof31.9%onthe$65.2millionreportedin2005–06.

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Economic performance in �006–07AsoneofAustralia’sleadingenergycorporations,IntegralEnergyisadisciplinedbusinessfocusedoncreatingwealthforourshareholdersandsupportingdiverseandvibrantcommunities.

Inrecentyears,IntegralEnergyhasfocusedonachievingthreeoverarchingobjectives:

providinglong-termcustomerservicebydevelopingandoperatingasustainableandreliablenetwork

maximisingthecontributionfromtheretailbusiness

ensuringthatsupportsystemsareinplace.

ThissectionoutlinesIntegralEnergy’seconomicperformanceduring2006–07,discussingeachkeybusinessstrategyinturn.

Theorganisation’seconomicperformanceismeasuredacrossanumberofareas,includingshareholderreturns,reliabilityofsupplytocustomers,prudentinvestmentinnetworkinfrastructure,andtheabilitytomeetcustomerexpectationsandperformsuccessfullywithincompetitiveandprofitablemarkets.

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Figure � Network capital spend, �00�–0� to �006–07($million)

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Operating a sustainable and reliable network

IntegralEnergyiscommittedtomanagingitsnetworkassetsinastructuredandsystematicwaysothatwemeettheexpectationsofourstakeholders,theregulatorandthecommunity,andfulfilourorganisation’sbusinessneeds.

Thedrivetocontinuallyimprovethereliabilityofournetworkwhilecomplyingwithlicenceconditions,thehighgrowthinelectricitydemandduringpeakperiodsandtheneedtorenewourageingassetsarethemainchallengesfacingournetworkperformance.

IntegralEnergy’snetworkstrategyisdesignedtoaddressthisby:

improvingthepositionofcustomersnotcurrentlyreceivingaverageperformancestandardsforreliability

maintainingourcurrentsupplycapacityandreducingrisk

arrestingthedeterioratingtrendintheconditionofthenetworkassetbase

achievingcorporateobjectivesinsafetyperformance,environmentalmanagement,andoperationalefficiency.

ThisstrategyunderpinnedIntegralEnergy�ssubmissiontoIPART’s

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2004–09networkdeterminationandthecorporation’sapplicationforapassthroughofthecostsassociatedwiththenewlicenceconditionsforplanningandreliability.BasedonIPART’sfinaldeterminationinJune2004andthedecisiononthecostpassthroughapplication,IntegralEnergywillinvestcapitalinexcessof$1.6billionoverthe2004–09regulatoryperiod.

ThisisasubstantialinvestmentintheeconomicdevelopmentofGreaterWesternSydney,theIllawarra,theBlueMountainsandtheSouthernHighlands,positioningthoseregionstocontributetothenation’soveralleconomiccompetitiveness.

Reliability of supply

Thereliabilityoftheelectricitysupplyisanimportantcustomerservicemeasureforelectricitynetworkoperators.Acommonmeasurementofreliabilityisthesystemaverageinterruptiondurationindex(SAIDI),whichmeasuresthenumberofminutesthatcustomers,onaverage,arewithoutelectricityeachyear.

IntegralEnergy’snetworkreliabilityintermsofSAIDIshowedfurtherimprovementin2006–07,continuingtheupwardtrendsince2004–05.ThemethodforcalculatingSAIDIchangedfromtheSteeringCommitteeonNational

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Figure 4 Returns to shareholder—dividends and tax equivalents($million)

Figure � Network reliability, unplanned SAIDI(minuteslostpercustomer)

SAIDI=systemaverageinterruptiondurationindexacalculatedusing2.5Betamethodforfirsttimein2006-07

ProductionManager,TransformerWorkshop, JadrankaLandeka.

Economic Performance AnnualPerformanceReport2006–07

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RegulatoryReportingRequirementsmethodtothe2.5Betamethod,aninternationallyacceptedstandardforcalculatingelectricitynetworkreliabilitywhichexcludesextremeeventsthroughtheuseofastatisticallybasedmethod.

Althoughthisimprovementispartlyduetorelativelybenignweatherinthetraditionalsummerstormperiod,improvementinunderlyingreliabilityhasbeenachievedbyfocusingonpoorlyperformingfeeders,reinforcingnetworksecurityandaddressingtheweightedaverageremaininglifeofnetworkassets.

Manyfactorsthataffectnetworkreliabilityperformancearelargelyexternaltothenetworkitselfandbeyondmitigationthroughnetworkmanagementpractices.Supplyfailurecanresultfromadverseenvironmentalconditionssuchaswind,lightning,rainorbushfires,defectiveequipment,lossoftransmissionsupplyandcontactwithvegetationneartopowerlinesandotherassets.IntegralEnergyhaslongrecognisedtheneedtoidentifyandmanagethesefactors,particularlywheretheymaycontributetooverallpoorperformance.

Renewing ageing assets

Acrossthestate’selectricityindustry,assetscommissionedinthe1960sarenowatastagewheretheirreplacementneedstobeeitherplannedorimplemented.Anageingassetbasecontributestodecliningperformanceandincreasedoperatingexpenditure,andcanalsoleadtodetrimentalsafetyandenvironmentaloutcomes.

IntegralEnergyhastakenastrategicapproachtoassetrenewalplanningandin2006–07wecontinuedtorefineourStrategicAssetRenewalPlan.

AnalysisconductedaspartofthisstrategicplanningprocessshowsthatIntegralEnergywillneedtospendanaverageof$135millionperyearoverthenext20yearsto

renewtheexistingagedassetbaseappropriately.Whilethisaveragelevelofexpenditureishigherthanthecurrentshort–termexpenditureprojectionsforassetrenewal,planningprocessesareinplacetounderstandandimplementlongertermexpenditurerequirementsonarisk-balancedbasis.

Inadoptingthisapproach,IntegralEnergyisworkingtoensurethemaintenanceofcustomerservicestandardsbyrenewinginatimelyandstrategicmannerkeynetworkassetsthatareapproachingtheendoftheirlives.Arrestingtheageingtrendoftheexistingassetbasewillensureasustainablefutureforthenetwork.

Meeting demand

AsshowninFigure7below,thesummerpeakdemandforelectricityisforecasttogrowbyaround50%overthenext10years.

Beforeexpandingtheelectricitydistributionsystem,orthecapacityofthedistributionsystem,IntegralEnergyinvestigatesthecost-effectivenessofavoidingordeferringthisexpansionbyimplementingdemandsidemanagementstrategies.

Morethan10newprojectstomaintainreliablenetworkcapacityweredevelopedandapprovedduringtheyear(seehighlightsinTable1).

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Table 1 Highlights of projects approved in 2006–07

ProjectTotal estimated cost ($ million)

EstablishmentofMungerieParkzonesubstationtosupplythenewlyestablishedRouseHillRegionalCentre

39.1

EstablishmentofNorthEasternCreekzonesubstationtosupplynewindustriallandsatthejunctionoftheM4andM7motorways

19.2

UpgradeofDaptozonesubstationtomeetloadgrowth 14.9

UpgradeofEvansLaneswitchingstationtoenhancereliabilityofsupplytocustomersonthefarSouthCoast

7.5

RenewalofSherwoodzonesubstationtoimproveitsenvironmentalperformance 6.8

AugmentationofRussellValezonesubstationtomeetloadgrowthinnorthWollongong 6.7

UpgradeofWhalanzonesubstationtomeetloadgrowthintheMountDruittregion 6.4

UpgradeofGlossodiazonesubstationtomeetloadgrowthinGlossodia,WilberforceandEastKurrajong

3.7

ContinueddevelopmentoftheelectricitydistributionnetworkthroughoutwesternSydney,theSouthCoast,SouthernHighlandsandtheBlueMountains

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Capital program

ConsistentwithIntegralEnergy’snetworkvisionandstrategy,agreaterfocusoncapitaldeliveryhasagainseennetworkcapitalexpendituregrowfrom$102.9millionin2001–02toarecordlevelof$316.6millionin2006–07.Thissignificantlevelofcapitalexpenditurewillcontinuetogrowincomingyears,increasingin2007–08to$362.5millioninordertomeettheplansoutlinedinournetworkdeterminationandthenewplanningandreliabilitystandardsintroducedon1August2005.

Table 2 Major works in progress, 2006–07

Description Cost to date ($) Total cost ($)

Practical completion date

Comments

Before 2006–07

2006–07

LennoxZSaugmentation

2,806,388 60,437 2,866,825 Complete Thirdtransformerinstalledandtwotransformersreplaced.

33kVcircuit-breakerreplacementprogram

3,368,407 796,822 4,165,229 Ongoing Replaceageingunits.

WerringtonZSrebuild 6,380,619 585,436 6,966,055 October2007 Extendexistingbuilding,installindoor33kVandreplace11kVswitchboardandthreepowertransformers.

MtDruittTS132kVBusbar

5,721,750 (286,157) 5,435,593 Complete Installthirdtransformerandconstructnew132kVswitchyardtoimprovesystemflexibilityandreliability.

SouthWindsorZSaugmentation

3,917,042 845,516 4,762,558 Complete Installandcommissionthirdtransformer.

WetherillParkWestTS 5,769,934 4,286,163 10,056,097 June2008 Developnew132/33/11kVTS/ZS.

SeniorProductManager,HelenLaspatzis

Economic Performance AnnualPerformanceReport2006–07

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Description Cost to date ($) Total cost ($)

Practical completion date

Comments

Before 2006–07

2006–07

Tahmoorand

MaldonZSs

10,614,202 1,370,020 11,984,222 Complete Augmenttwopowertransformersandreplace11kVswitchgearatboth;rebuildthe33kVtransmissionlinebetweentheZS.

QuakersHillZSaugmentation

2,932,119 3,097,941 6,030,060 March2008 Installnew132/11kVtransformerandpreparesitetobeconvertedtofull132kVinthefuture.

HinchinbrookZS(formerlyaerodromeatHoxtonPark)

8,987,536 7,554,370 16,541,906 August2007 Developnew33/11kVZS.

GlenmoreParkZSaugmentation

2,648,572 2,294,153 4,942,725 Complete Replacetwo132/11kVtransformersandone132/33kVtransformer.

BellaVistaZSestablishment

12,913,169 16,166,956 29,080,125 Complete Constructa3x132/11kV45MVAtransformersubstationand2x132kVundergroundfeedersfromBaulkhamHillsTSandWestCastleHillZS.

BonnyriggZSaugmentation

3,837,788 2,246,870 6,084,658 November2007

Replacethree33/11kVtransformers;associated33kVbusbarwork,andinstallnew11kVfeeders.

Towerpaintingandanticlimbingguards

9,254,054 3,200,689 12,454,743 Ongoing Repaintandfitanticlimbingguardstoalltransmissiontowers.

MoorebankZSaugmentation

2,235,636 977,188 3,212,824 July2007 Replacethree33/11kV35MVAtransformers.

SpringwoodZSaugmentation

1,895,883 856,032 2,751,915 November2007

Buildanewcontrolbuildingandreplaceold11kVswitchboard.

Securityfencereplacementprogram

18,707,890 6,819,426 25,527,316 June2009 ReplaceallTS/ZSsecurityfenceswithnewhigh-securityconstruction.

Bundwallinstallationprogram

10,350,116 4,850,775 15,200,891 June2007 Constructoilcontainmentbundsaroundalltransformersintransmission/zonesubstations.

SpringhillTSrebuild 5,924,365 27,477,973 33,402,338 November2008

Constructnew132/33kVGISsubstationconsistingofeightpowertransformers,eight132kVfeedersand1433kVfeeders,andthreecapacitorbanks.

SmithfieldZSaugmentation

1,604,856 1,671,913 3,276,769 August2007 Extendcontrolbuilding,installthird33/11kVpowertransformerandassociatedswitchgear.

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Description Cost to date ($) Total cost ($)

Practical completion date

Comments

Before 2006–07

2006–07

KatoombaNorthTSaugment

1,683,320 849,985 2,533,305 August2007 Installasecond132/66/11kVpowertransformerandassociatedswitchgear.

PrestonsZSaugmentation

106,206 1,195,598 1,301,804 July2007 Installathird33/11kVpowertransformerandassociatedswitchgear.

NarellanZSaugment 938,605 4,182,277 5,120,882 May2008 Replacetwo66/11kVexistingpowertransformerswithhighercapacityunitsandinstallathirdpowertransformerandassociatedswitchgear.

Augment132kVfeeder98MShoalhaventoEvansLane

2,491,055 5,490,761 7,981,816 December2007

Rebuild132kVoverheadfeederwithnewconcrete/steelstructuresandhighercapacityconductors.

Augment132kVfeeder9JAVineyardBSPtofutureRouseHillSS

1,860,370 5,465,646 7,326,016 February2008 AugmentexistingfeederandconstructadditionalfeederwithnewsteelstructuresandhighcapacityINVARconductors.

MtOusleyZS 929,635 8,073,452 9,003,087 November2007

Developanew33/11kVZS.

EasternCreekZS 1,387,323 5,412,836 6,800,159 December2007

Developanew132/11kVZS.

LawsonTSredevelopment

843,115 3,582,481 4,425,596 December2008

Replaceexisting132/66/11kVsubstationandbuildnewcontrolbuilding,newindoor66kVGISand132kVoutdoorswitchgear.

WombarraZSredevelopment

327,350 951,287 1,278,637 September2007

Redevelopthe11kVpartofthe33/11kVZSandbuildanewcontrolbuildingand11kVindoorswitchgear.

CarlingfordTS66kVSwitchgearrenewal

671,421 39,432 710,853 December2007

Installnew66kVoutdoorswitchgear.

GuildfordTS132kVswitchgearrenewal

29,460 1,642,351 1,671,811 December2007

Installnew132kVoutdoorswitchgear.

JasperRdZSRedevelopment

28,434 1,576,765 1,605,199 June2008 Extendcontrolbuilding,installnew11kVindoorswitchboard.

PenrithTS4thtransformer

37,292 3,602,925 3,640,217 December2008

Buildanew132/33kVindoortypesubstationadjacenttotheexistingTS.

TS=transmissionsubstation;ZS=zonesubstation

Economic Performance AnnualPerformanceReport2006–07

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Maintenance program

IntegralEnergyrefineditsStrategicNetworkMaintenancePlanin2006–07.Theplan,initiatedin2005–06,analysesmaintenanceneedsagainstbusinessobjectives.

TheannualRegionalNetworkMaintenancePlansetsthetargetsforourbusinessregionbyregionandisderivedfromtheStrategicNetworkMaintenancePlan.

In2006–07,IntegralEnergyachievedarecordlevelofexpenditureonmaintenanceof$143million,comparedwithour2005–06expenditureof$130million.Duringtheyear,IntegralEnergylargelymetthecompliancelevelssetintheRegionalNetworkMaintenancePlan.Theoutcomesincluded:

100%ofpubliclightingbulklampreplacements

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113%ofdefectscorrectedacrossournetwork,exceedingourtarget.

OurmaintenanceperformancecontributedtoIntegralEnergy’scontinuedimprovementinsystemreliabilityshowninFigure3onpage13.

New connections

Workingwithaccreditedserviceprovidersandtheircustomers,IntegralEnergywasactiveinidentifyingimprovementsinthecontestableworksprocessestoensurethatourclientsareabletoworkefficientlywithusinmeetingtheirnetworkconnectionrequirements.

Duringtheyear,IntegralEnergycontinuedtoimproveitsperformanceintwoareasofimportancefornetworkconnections.Wecertified96%ofalldesigns

• within14days,aheadofourtargetof90%.Wealsoissued94%ofalldesignbriefswithin14days,againstourtargetof85%.

Thewebsite,specificallydesignedforusebyaccreditedserviceproviders,hasproventobeaveryusefultoolintheprovisionoftechnicaladvice,importantnotifications,safetyadviceandbulletins.ThefacilityisalsousedtonotifyaccreditedserviceprovidersaboutseminarsandtrainingopportunitiesofferedbyIntegralEnergy.

Duringtheyear,IntegralEnergyheldteninformationseminarsforlevels1,2and3accreditedserviceprovidersinvariouslocationsinournetworkarea.

Building substations for tomorrow—combining innovation and investment

Commissionedinearly2007,ourBellaVistazonesubstationinSydney’snorth-westisoneofthemostadvancedinAustralia.

The$37millionindoorsubstationdemonstrateshowweareplanningfortomorrow,investinginkeyinfrastructureandmaximisingnewtechnologytosupporteconomicgrowthinthearea.

North-westSydneyisexperiencingstrongresidentialandcommercialgrowth,asmanyenterprisesrelocateoperationsoutofSydney’sCBD.ThenewsubstationisakeypartofIntegralEnergy’sBaulkhamHillstoWindsornetwork,andwilldeliversafeandreliablepowerto420businessesandaround4,000homesinGlenwood,BellaVistaandKingsLangley.NorwestBusinessPark,Sydney’sfastestgrowingbusinesshub,isabeneficiaryofthecontemporarysubstation.

WeconsultedthelocalcommunityandtheRoadsandTrafficAuthoritytodevelopanoptimaldesignforthesubstation,includingthebestroutesforitspowerlines.Designedtoresembleanofficebuilding,thefacilityblendsintoitssurroundings.

Newtechnologyletsusmonitorournetworkmoreclosely,andanalyseandpredictnetworkperformanceproactively.Wecanrespondfastertosupplyinterruptionsthroughbetterdetection,isolationandswitchingaroundfaults.

BellaVistaZoneSubstationfeaturesgas-insulatedindoorswitchgearthatimprovesreliability,requireslessmaintenancethantraditionaltechnologyandminimisesthefacility’soverallfootprint.Mostoftheelectricalequipmentiswithinthebuilding,cablestoandfromthesubstationareundergroundandthetransformersarescreenedbysteellouvrestoimprovetheoverallappearance.Workonthesubstationwillcontinuein2007–08.

(Lefttoright)TechnologistsWarwickPrice,StephenAmeryandRomeoUbaldo, insideBellaVistazonesubstationwhichtheyhelpedtoconstruct.

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Tosupportourfocusonmeetingcustomerneeds,wehavedevelopedastrategytoprovideaframeworkforservicedeliverytoaccreditedserviceprovidersandtheircustomers.

Thisisbeingachievedby:

thedevelopmentandimplementationofaprojectmanagementframeworktoensuretheseamlessmovementofprojectsfromapplicationtodevelopment

betterinternalcoordinationtoensuretheeffectivemanagementofourinternalrelationshipsandsmoothprogressofourinternalinteractions

moreproactivemanagementofaccreditedserviceproviderissuesandmoreopencommunicationsothatIntegralEnergyanditsaccreditedserviceprovidersachievethebestoutcomesforourcustomers.

DuringtheyearIntegralEnergyworkedwithitsclientstoprocessmorethan3,334networkconnectionapplications.Examplesofmajorprojectsaresetoutbelow.

TRUenergy gas turbine

IntegralEnergycarriedoutthenegotiationsandreviewoftechnicalrequirementstoallowtheconnectionofa400MWcombinedcyclegenerationfacilitytoits132kVsystembetweenDaptoandSpringhill.Thenewgenerationfacility,adjacenttoLakeIllawarra,involvestheconstructionofa132kVswitchingstationand132kVlineworksaspartofthecontestableconnectionworks.

Schools

Tofacilitatetheconnectionofadditionalelectricalloadduetoairconditioninginstallationatpublicschools,IntegralEnergyappointedaprojectofficer.WorkingcloselywithschoolprincipalsandtheDepartmentofCommercetoprovidetechnicaladviceandsupport,theprojectofficerensuresthatappropriateconnectionrequirementsareidentifiedandprovided.ThesupportprovidedbyIntegralEnergyhasensuredthatallenquiriesareaddressedinatimelyandcompetentmanner.

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Sydney Water Plan

SydneyCatchmentAuthority,SydneyWaterandIntegralEnergyhavebeenworkingcloselytoaddresstherequirementsoftheSydneyWaterPlan.IntegralEnergyhasprovidedtechnicalrecommendationsandsolutionstoaddresstheelectricitysupplyneedsatthevarioussitesunderreview.ThecompletionoftheNorthWarragambazonesubstationhasprovidedthecriticalsupplytotheDeepWaterPumpingStationatWarragambaDam.InallcasestheearlyinvolvementofIntegralEnergyindeterminingarecommendedsupplyoptionhasallowedconstructionandinstallationobjectivestobeachieved.

Tullimbah Village

IntegralEnergyhasworkedcloselywiththedevelopertofacilitatetherelocationanddevelopmentofnew132kVtransmissionlinesthroughtheTullimbahVillageestate.The132kVtransmissionlinesprovideaconnectionbetweenDaptoBulkSupplyPointandMtTerrytransmissionsubstation.

Network standards

IntegralEnergyhascloseto300technicalstandardsthatgovernthedesign,constructionandmaintenanceofourelectricitydistributionnetwork.

InDecember2006,webeganareviewofmorethan180rivercrossingsinournetworkfranchisearea,two-thirdsofthemonnavigablewaterways,toensuretherewereconsistentconductorclearancesabovewaterlinesandsuitablewarningsignage.Theaimistomakerivercrossingsassafeaspossibleforthepublicwhilemaintainingareliableelectricitysupply.

Atsomelocations,considerationwasgiventoreplacingoverheadconductorswithundergroundcables,withthefirstreplacementprojectcompletedatBurrillLake,southofUlladulla.OtherlocationsforreplacementprojectsarebeingconsideredinconsultationwithNSWMaritime,environmentalauthorities,Aboriginaltraditionalownersandothergovernmentauthorities.

Maximising the contribution from our retail businessTheelectricitymarketremainshighlycompetitive,withmorethanamillioncustomersinNSWexercisingchoiceandmovingtonegotiatedagreementssincetheintroductionofretailcontestabilityforhouseholdsandsmallbusinessesinJanuary2002.

In2006–07,IntegralEnergy’sresidentialandbusinessmarketscontinuedtogrow,despitesignificantcompetitoractivityinourfranchisearea.Ourstrategyofmovingcustomersontonegotiatedagreementscontinued,withtheacquisitionandretentionofprofitablecustomersthroughdirectmarketing,outboundtelesalesanddoor-to-doorsales.

IntegralEnergycontinuedtoperformwellinthischallengingenvironment.Keyresultsforourretailareain2006–07included:

thelaunchofsalesactivityinQueensland,withIntegralEnergybeingoneofthefirstretailerstoparticipateinthenewlycontestablemarket

thesuccessfulpromotionofrenewableenergyoptions,whichresultedinasignificantlyincreaseduptakeofthoseproducts.

Inthebusinesssegmentoftheretailmarketweweresuccessfulinsecuringsignificantloadduring2006–07.Sincetheintroductionoffullretailcontestability(FRC),amajorfocusofthebusinesssalesteamhasbeentodevelopstrategiestoleverageourstrengthinthemarket.Aspartofthisapproach,IntegralEnergysecuredanumberofmajorcontractsthatwillprovidesignificantrevenueovercomingyears.

Door-to-doorsalesactivitycontinuedtobeourmosteffectivesaleschannel,withthemajorityofsalesin2006–07takingplaceintheCountryEnergyfranchisearea.IntheEnergyAustraliafranchisearea,wheredoor-to-doorsaleshadbeendeclining,wetrialledshoppingcentresalesactivity.Thissalesmethodprovedtobeextremelysuccessful,withclosetotargetnumbersofcustomerssigningonwithIntegralEnergyinshoppingcentresinthesecondhalfofthefinancialyear.

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Economic Performance AnnualPerformanceReport2006–07

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Principal marketing and sales activity

Ourmostnotablesuccessinresidentialcustomersaleswastheincreaseincustomerinterestinrenewableenergy.In2006–07,IntegralEnergy’srenewableenergycustomerbasequadrupled,increasingfrom4,389customerstomorethan24,000.ThemajorityofthosecustomerstookuptheINgreen Homeproductasaresultofourstrongdirectmarketingactivity.

Marketingcampaignslaunchedin2006–07resultedinhighcustomerresponserates.Thosecampaignsutiliseda5%SmartSaverdiscountonelectricityratesandtheINrewardsretaildiscountcard.OneofthecampaignssuccessfullytargetedIntegralEnergycustomerswhohadswitchedtootherelectricityretailers.

BusinesssalesactivityremainedhighthroughouttheyearinanincreasinglycompetitiveNSWmarket.IntegralEnergyacquiredandretainedprofitable

businesscustomersusingdirectmarketing,faxbacks,outboundtelesalesanddirectsalestechniques.

New products and services

InJanuary2007,IntegralEnergyintroducedtwonon-contract,renewableproductsforresidentialcustomersinourfranchisearea:

INgreen Power—10%GreenPoweraccreditedrenewableenergyand90%non-renewableenergy

INgreen Future—100% GreenPoweraccreditedrenewableenergy.

Weforgednewbusinessallianceswithassociationsrepresentingabroadrangeofindustriesinthesmallandmediumenterprise(SME)andlargebusinesssegmentsandbecameamajorpartneroftheNSWBusinessChamber(formerlyAustralianBusinessLimited).

Weinitiatedanumberofbusinessevents,includingtheinauguralIntegralEnergybusinessbreakfast,whereweupdated50ofourkeycustomersonbusinesstrends.OurrelationshipwiththeIllawarraBusinessChambercontinuedtobeextremelystrong,withIntegralEnergysponsoringanumberofbusinessnetworkingactivitiesintheIllawarra.

Weproducednewslettersandcompiledinformationforourcustomerstokeepthemuptodateontrendsintheelectricitymarket.

Compliance with Marketing Code of Conduct

Wereviewedallourtrainingandmarketingmaterialstoensuretheycontinuedtomeetourcustomers’needsandnewlegalandregulatoryrequirements.Regrettably,werecordedasmallnumberofMarketingCodeofConductbreachesduringtheyear.However,thosebreachesrepresentedlessthan0.4%ofallcustomercontractstakenupduringtheyear,andwereanimprovementonthe0.65%recordedin2005–06.Wethoroughlyinvestigatedandreviewedallbreachesforopportunitiestoimproveourprocesses.Weterminatedtheemploymentofdoor-to-dooragentswhereseriousbreachesofthecodewerefound.

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Retail green energy compliance

In2006–07,wemetourobligationtoreachmandatorytargetsforreducingoroffsettingtheemissionofgreenhousegasesfromtheproductionofelectricity,imposedundertheNSWandACTGreenhouseGasAbatementSchemes(GGAS).Ourcompliancewassupportedbyindependentauditsbyeachauthority.

WesuccessfullyrananenergyefficiencypromotionbetweenJulyandSeptember2006.Wegaveawayapproximately47,000energyefficientlightglobepacksacross35locationsinNSW,registeringabout113,000abatementcertificatesundertheprovisionsofNSWGGAS.Thepromotionwaswellreceivedinthecommunity,andalsohelpedraiseIntegralEnergy’sbrandawareness,particularlytoout-of-franchisecustomers.ThepromotionentitledIntegralEnergytoreceive$1.5millioninNSWgreenhouseabatementcertificates(NGACs)revenue.

Customer service improvements

IntegralEnergy’scustomerinteractioncentres(CICs)atHuntingwoodandConistonmanagetheretailandnetworkcallsfromourcustomers.In2006–07,theCICshandledmorethan1.2millioninboundcalls.

On30April2007,thenewOutageManagementSystem(OMS)wentlive.WeusetheOMStocoordinateourresponsetofaultsontheelectricitynetwork.TheOMShasimprovedourfeedbacktocustomersbyprovidingthemwithmoredetailedinformationaboutnetworkfaultsandrestorationtimes(seethecasestudyonpage25).

CICstaffattended2,884hoursoftrainingduring2006–07,60%morethanthetraininghoursattendedin2005–06.ThetrainingincludedmodulesonthenewOMSand INgreen.CICalsoassistedwithtrainingontheQueenslandmarketforIntegralEnergystaff.

IntegralEnergy’sstrongfocusonstaffdevelopmentandcommitmenttoqualitysawCICteamleaderscomplete1,308hoursofcoachingwiththeirstaff,representinganincreaseof40%onhourscompletedin2005–06.

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Switching on the Sunshine State

In2007,IntegralEnergyenteredtheQueenslandsmallretailenergymarket.

Aspartofourstrategyforstabilisingcustomernumbersandimprovingthefuturerealisablevalueofourbusiness,weassessedthefeasibilityofenteringtheQueenslandmarketatthestartoffullretailcontestabilityon1July2007.

IntegralEnergy’sobjectivesinenteringtheQueenslandmarketwerethreefold:

provideQueenslandcustomerswithchoice

growIntegralEnergy’soverallretailcustomerbaseby100,000customersoverthenextthreeyears

gainacompetitiveadvantagethroughimprovedcapabilitiesandmoreflexibleretailsolutions.

AconditionofentrytotheQueenslandmarketwasthattherewouldbenoadverseimpactonourcurrentbusinessactivities.

Innovative business model

AsweresearchedtheQueenslandmarketandplannedourentrystrategy,itbecamecleartousthatIntegralEnergy’sretailsystemscouldnotbemodifiedintimetomeetthe1July2007start-updateandthatitwouldbetoocostlytosetupoursystemstomeettheQueenslandmarketrequirements.

WeoptedforaninnovativebusinessmodelwhichseesIntegralEnergy’scoreretailingskillsunderpinningapartnershipwithaBrisbane-basedfirmprovidingbusinessprocessingsupport.

Thepartnershipgaveusthespeedandflexibilitytogetintothemarketatthestartofderegulation.Italsomeantwecouldbenefitfromourpartner’sretailsystems,whichweretailoredtoQueensland.Andournewcustomersinthestatewerebeingservicedbylocals—essentialforbusinesssuccessintheSunshineState.

Important growth opportunity

QueenslandrepresentsacriticalgrowthopportunityforIntegralEnergy’sretailarmaswedealwithintensecompetitionwithinourWesternSydney/IllawarrafranchiseandmarketsaturationinotherpartsoftheNSWmarket.

With1.3millionsmallcustomersandattractivecommercialmargins,theEnergexsupplyregioninsouth-eastQueenslandisourinitialtargetmarketinthestate.

Performance to date

Takingadvantageoftheauthorised‘pre-salesperiod’,wecommencedsalesactivityinQueenslandon14May2007.WeheldacarbonneutraleventinBrisbanetomarkourlaunchintoQueensland.OurfavourablewholesalepositionandanextremelypositiveresponsefromQueenslandcustomersmadethisaverysuccessfulsalesperiod.BytheendofJune2007,IntegralEnergyhadacquiredapproximately15,000Queenslandcustomers.

CompetitivepricingandbeingeasytodealwitharethekeystoIntegralEnergy’spropositiontoQueenslandcustomers.Thisisreflectedinseveralinitiatives,includinganonlineself-serviceportalwhichprovidesQueenslandcustomerswithaccesstonextscheduledreads,customerdetails,billingandbasiccreditcardpaymentfacilities,alongwiththeabilitytorequestservicesandlodgequeries.

AsanewentranttotheQueenslandmarket,wehaveadoptedafresh,light-heartedadvertisingcampaign.

ThesepositiveinitialresultshaveprovidedanextremelysolidplatformforIntegralEnergy’sQueenslandoperation.

In2007–08,weaimtoconsolidateourcustomerbaseinQueensland,whileusingtheflexiblebusinessmodelthatwehaveestablishedasabasisformakinginroadsintoothermarkets.

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ElectricalFitterMechanic,AmritPratap(left)andPlantOperator,StevenChand.

Our‘ShaveHeaps’campaignhasresonatedwithlocalcustomersandstronglysupportedoursalessuccessinQueensland.

‘Ourmostnotablesuccessinresidentialcustomersaleswas theincreaseincustomerinterestinrenewableenergy.’

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Thebenefitsofincreasedcoachingwereimmediatelyevidentinthe‘Retail&CustomerServices–CustomerSatisfactionIndex’resultsfor2006–07.Theoverallcustomersatisfactionrateincreasedto83.4%fromthepreviousyear’sresultof81.1%.

StaffintheCustomerCarebranchrespondedtocustomers’queriesonhowtoreduceenergyconsumptionandreducetheirbillsbyundertakingresidentialenergyaudits.Staffperformedmorethan760on-sitehomeenergyauditsand243energyassessmentsoverthephoneforIntegralEnergycustomers.

InSeptember2006,weimplementedanonlinebillfacility,whichallowsourcustomerstoreceivebillsviaemailandtostorebillinformationelectronically.Asattheendofthefinancialyear,morethan4,500customershadtakenuptheelectronicbilloption.Thenumberofpaperbillsgeneratedhasbeenreducedby18,000perannum,whichhashadapositiveenvironmentalimpact.

Retailer of last resort

AttheendofJune2007,IntegralEnergybecametheretaileroflastresortformorethan2,400customerswhenEnergyOnePtyLtdsuspendeditselffromtheNationalElectricityMarket.WewereabletoestablishongoingaccountsformostofEnergyOne’sresidentialandsmallbusinesscustomerswithinaweekofnotificationofitssuspension.AsmallnumberoflargeretailaccountsweretransferredfromEnergyOnetoIntegralEnergy,withmostofthoseretailcustomerssigningnegotiatedsupplyarrangementswithus.

Regulatory changes

Inlate2005,theMinisterforEnergyandUtilitiesestablishedaworkinggrouptorecommendadditionalmeasuresforreducingthenumberofcustomersdisconnectedbecausetheyhaddifficultypayingtheirbills.Asaresult,draftregulatorychangeswereannouncedinApril2007.ThosechangesincludedarequirementthatretailersprovideadditionalinformationondisconnectionactivitytotheDepartmentofWaterandEnergyandNSWIndependentPricingandRegulatoryTribunal,andthatthey

offerapaymentplantocustomerswhoareunabletopay.Thelegislationwaspassedandbecameeffectiveon1July2007.

Wemadeanumberofchangestoouroperationsinourretailbusinessin2006–07toensurethatwewerepreparedfortheimplementationoftheregulatorychanges.

InApril2007,draftregulatorychangestonegotiatedsupplyagreementswereannounced.Thosechangesmeanthatfrom1July2007customersareabletoacceptcontractswithoutsignature.Theretailbusinessiscurrentlyassessingtheimpactofthosechangesonexistingsalesandmarketingprocedures.

Trading

Throughout2006–07,thetradingdivision’sactivemanagementofIntegralEnergy’sportfoliominimisedourexposuretoahighlyvolatilemarket.

ThetradingareamaintainsouractivepresenceinthewholesaleNationalElectricityMarket,managingourorganisation’sexposuretospotelectricityprices.ThedroughtputpressureonIntegralEnergyandotherretailers,contributingtorecordhighwholesaleelectricitypricesacrosstheNationalElectricityMarket.Thespotpriceforelectricityusuallyaveragesbetween$30and$40perMWhandcanspikeashighas$10,000perMWh.However,althoughtheaveragepoolpriceforJulytoDecember2006was$30.60perMWh,thisrosedramaticallytoanaverageof$87.31perMWhintheJanuarytoJune2007period.

Thetradingareaalsosupportedourorganisation’sexpansionintonew,profitablemarkets.IntegralEnergywasabletowincustomersbaseduponthetradingarea’sstrategicpositioning.ForwardplanningandgoodcommunicationwithotherpartsofourorganisationenabledthetradingdivisiontoputIntegralEnergyintoastrongpositionforoursuccessfulentryintotheQueenslandretailenergymarket.

Duringthisparticularlydynamicperiodfortheenergysectortherewasalsoincreasedpublicdebateovercarbontradingandothernewenvironmentalschemes.Thisadded

totheotherchallengesalreadybeingmanagedwithinthetradingdivision.Fivetechnicaltradingbreacheswerereportedin2006–07.

ThetradingdivisioncontinuedtodirectIntegralEnergy’sobligationstotheemergingrenewableenergymarketsbyensuringcompliancewithmandatedschemes,suchastheNSWGreenhouseGasAbatementSchemeandtheAustralianGovernment’sMandatoryRenewableEnergyTarget.

Support systems

Finance

During2006–07,thefinancestructurewasalignedtothenewfinancevisionof‘pro-activelypartneringtoachievesustainablesuccess’.Proactivepartneringwillbeacriticalfactorintheongoingshiftofthefinancebusinessmodeltoensurecontinuedrelevanceasaresponsiveandproactivecontributortothecorporation’ssustainablesuccess.BestpracticefinanceteamsaresupportingtheirboardsandCEOsbydrivingcorporateperformanceaswellasperformingthetraditionalstewardshiprole.Thefinancebusinessfocuswillcontinuetobeondevelopingcapabilityinrespectofprocesses,structure,systemsandpeople.

Ourfinancialriskmanagementteamextendeditscapabilitiesduringtheyearwithadditionalresourcesandenhancedriskmetrics.TheMiddleOfficeRiskSystemcalculatescashflowatrisk,earningsatrisk,potentialcreditexposureandmark-to-market.Anin-housecreditmodelwasdesignedandbuilt,andisabletodelivertradingreportsdaily.IntegralEnergyhassolidfinancialriskinfrastructureandthetechnicalresourcestocontinuebuildingitsfinancialriskmanagementcapabilities.

TheEmailApprovalWorkflowProjectwasintroducedduring2006–07,withbenefitsofreducedpaperflow,increasedefficiency,abilitytotrackinvoicesandenhancedproceduralcompliance.Thesystemworksbysendingdailyemailalertstorelevantmanagersrequestingapprovalforpurchasesandisintegratedwiththeaccountingsystem.

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IntegralEnergychangeditsprimarybankingpartnerlatein2006,resultinginreducedbankcharges,increasedinformationavailableinthepaymentchannelusedbyourcustomers(reducingcollectioncosts)andelectronicinterfacingofadditionalcollectiondataensuringmoreefficientprocessingofcustomerpayments.

Information and communications technology

In2006–07,theinformationandcommunicationstechnology(ICT)investmentplanfocusedonsystemsandproceduresthatwoulddelivervalueandimprovementstoproductivityratherthan,asitdidinthepast,ontheautomaticrenewalofassetsandinfrastructureregardlessoftheirvaluetothebusiness.

TheOMSwascommissionedinApril2007withgreatsuccess:itquicklyproveditsabilitytohandletheoutagesresultingfromalargestorm,providingcustomerswithmoreaccuratepredictionsofsystemrecoverytimesandmanagementwithabetterunderstandingofoutageactivity(seepage25).

Improvementstotheworksmanagementsystem,enhancementoftheGISeditorandcontinuedworkonthequalityofassetdataandentryofthatdataintoourmaintenancesystemssupportedouroverallnetworkassetmanagementstrategiesanddecisionmakingprocessesduringtheyear.

ThelaunchofIntegralEnergyproductsinQueenslandinvolvedaninnovativeoutsourcedbusinessandsystemsmodel.Themodel,whichwasspeedilydeployed,provideduswiththecostflexibilitytomatchtherapidlychangingbusinessrequirementsofthenewQueenslandretailbusiness.Ournewwebsite,whichincludesanenergycalculatorandsimplifiednavigation,alsosupportedourentryintotheQueenslandmarket.

In2006–07,weinstalledatop-of-the-rangetelephonesystemandplasmascreensonthetradingfloortoensurethatallourtradersareabletoreceivemarketinformationinrealtime.

Wepreparedourtechnicalsystemsanddevelopedtacticalplansfordisasterrecoveryforawiderange

ofcriticalbusinessprocesses.Wesuccessfullytestedtradingandmeteringsystemsandincludedtheminourannualdisasterrecoverytestingprocesses.

Wefocusedonestablishingbestpracticeinformationsecurityprocessesandsystemsthatareinlinewithnationalstandards.Revisedsecuritypoliciesarenowinplaceandtheyaresupportedbyuserawarenessprogramsandenhancementstothesecuritytechnicalarchitecture.

2006–07wasthesecondyearoftheinitialfour-yearcontractwithLogicaandOptus.Ouroutsourcingrelationshipwiththosepartnerswasstabilised,andoperationalperformancewasgenerallyofahighstandard.Inthefinaltwoyearsofthecontractwewillestablishcontinuousimprovementprogramstoaddressfeedbackfromusersandtodrivedownthecostofstandardoperationalactivities,therebysupportingtheintroductionofnewtechnologies.

Supply chain

IntegralEnergyvaluesitsrelationshipwithsuppliers.Werecognisethatanefficientsupplychainisthecornerstoneofbusinessprosperityandofourabilitytodeliversafeandreliableenergytoallourcustomers.Ourapproachtoprocurementisunderpinnedbyacommitmenttopromoteopenandeffectivecompetitionandobtainthebestvalueformoney.Mostrequirementsforgoodsandservicesarecompetedforintheopenmarketviarequestsforexpressionsofinterestorrequestsfortenders.

Morethan50%ofthe$400millionwespentduringtheyearongoodsandserviceswascoveredbyIntegralEnergyorStateContracts

ControlBoard(NSWDepartmentofCommerce)contractsorsupplierpanels,thetypicaldurationofwhichisthreeyears.GoodsandservicesthatweresubjecttonewIntegralEnergycontractsorsupplierpanelsestablishedduringtheyearincludeddistributiontransformers,transmissioncable,switchgear,meters,substationbundconstruction,securityfencing,printingservices,marketresearch,debtrecovery,security,smashrepairs,anddoor-to-doorandtelesalesservices.

Weestablished94newcontractsorsupplierpanelsin2006–07.

InkeepingwithIntegralEnergy’splanstostreamlineitsprocurementprocessesandimprovethewayitinteractswithsuppliers,thefollowinginitiativeswereimplementedduringtheyear.

Weimplementedane-tenderingsolutiontostreamlinethetenderprocess,improvereportingandenhanceinformationsecurity.

WeredesignedandrelaunchedthesuppliersectionofourwebsitetocoincidewithIntegralEnergy’sentryintotheQueenslandretailenergymarket.Thesuppliersectionofthewebsitehasanewlookandfeel,easiernavigationandmoredetailedinformationforsuppliers,includingalistofkeycontacts.

OurStatement of Business Ethicswasupdatedandcanbedownloadedfromwww.integral.com.au

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IntegralEnergycontinueditscommitmenttoresearchand developmentin2006-07.MotorMechanicGaryEdmunds modifiedatrailerwinch.

Economic Performance AnnualPerformanceReport2006–07

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RegularsuppliernewslettersaresenttothesuppliercommunitytoupdatesuppliersoninitiativesunderwayatIntegralEnergy.

AnewmastersupplyagreementthatstreamlinestheengagementofkeyengineeringsupplierswasreleasedtoselectedsuppliersinJuneandwillbeprogressivelyimplementedtomajorsuppliers.

Property

Wehaveexperiencedgrowingcommercialpressuresfrommajorlandreleasesthatdemandthetransformationofourexistingruralnetworktoadenseurbanstyle.Thishasrequiredacontinuedinvestmentinadditionalengineeringandfieldstaff,alongwiththenecessaryfacilitiestoensurestaffareableto

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respondto90%ofournetworkcustomerswithinonehouroftravellingtime.

In2006–07,theGlendenningCivilWorksCentrewascompletedandnowprovidescentralisedengineeringresourcesforsubstationandfieldsupportcentres.AnewfieldsupportcentreatMossValeisunderconstructionandwillreplacetheBowraldepottoprovideimprovedcoveragetocustomersinthesouthernhighlands.Thisprojectalsoincludesadesignatedpowerpolestorageyard.Afurthertwopoleyardsarebeingcompletedin2007–08,toensureaneffectiveresponseduringstormsandbushfires.

OurnewtechnicaltrainingcentreadjacenttotherecentlycompletedHoxtonParkFieldServiceCentrewillbefinishedmid2008.Thiswillprovidecentralisedtrainingforourincreasingnumberofapprenticesandongoingtrainingforourfieldstaff.PlanningfortherefurbishmentofourexistingfieldsupportcentreatParramattaiscomplete.Constructionwillcommencein2007–08andwillallowadditionalfieldstafftobelocatedclosetotheexpandingParramattaCBD.

Strategicplanningofourpropertyportfoliohasbeenmaintainedtoensurethatcustomergrowthiscateredfor.Wehaveimplementedsustainablepracticesinournewfacilitiestoreduceourenvironmentalfootprint.Thisincludestheuseofrecycledpowerpolesforwoodenflooring,rainwaterharvestingforvehicle

washing,andpassiveandactiveenvironmentaldesign.Weareprogressivelyimplementingourenvironmentalinitiativeinexistingfacilities,forexampleintheenvironmentallysustainableupgradeofHuntingwoodoffice.

Security

IntegralEnergyhascontinuedtoupgradeitssecuritytoensurethesafetyofthecommunityandthesecurityofpowersuppliesandofourelectricalassets.

CoppertheftfromourworksitesandfacilitiesremainsanongoingchallengeforIntegralEnergyandtheelectricityindustry.Thievesriskseriousinjury,ifnotelectrocution.In2006–07,onememberofthepublicwashospitalisedwithseriousburnsafterheallegedlysawedthroughalivecableatasubstation.IntegralEnergyhasdevelopedanintegratedplantoaddressthisissue,whichincludesparticipationinautilitiestaskforce.

Figure8showstotalcostsforcoppertheftincidentsfortheperiod1July2006to30June2007.

Alarmsystemswereinstalledatseveralfieldsupportcentrestoprovideimprovedaccesscontrolandalarmstocoverbuildingsandyardareas.TheinstallationofintruderalarmsandCCTVatfourtransmissionsubstationshascommencedandplanningisunderwayformoresubstationstohavesuchsystemsinstalled.

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Figure 8Cost of copper theft �006–07

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Improving our response systems

On24September2006,awindstormstruckpartsofIntegralEnergy’snetwork,causingextensivedamageandinterruptingelectricitysuppliestomorethan170,000customers.TheworsthitareasweretheSouthernHighlandsandtheHawkesbury,whichwerelashedbywindgustsofupto120kilometresperhour.

Todealwiththeconsequences,wedrewonourexperienceofothermajorincidents,includinganevenworsewindstorminAugust2003.Thistime,IntegralEnergy’sresponseandrestorationofsupplieswerefasterandmoreefficient.

Therecoveryoperations,whichcostmorethan$2millionandrequiredresourcesfromacrosstheorganisation,werecompletedquickly,withelectricityrestoredtoallcustomerswithinthreedays.Ourcrewsreplacedmorethan40powerpoles,130cross-armsand22kilometresofconductors.IntegralEnergy’sincidentresponseteamledthework,andallstaffdisplayedcooperationandteamworktogetthejobdone.

Aftertheevent,ahigh-levelinternalreviewexaminedourresponseandidentifiedopportunitiesforfurtherimprovement,suchasgreateruseofourwebsitetokeepcustomersandotherstakeholdersinformed.

InApril2007,weintroducedthenewOutageManagementSystem(OMS)tocoordinateourresponsetofaultsonourelectricitynetwork.Stafffeedbackwasvitalintestingandrefiningthenewsystem,whichwedevelopedtoreplaceour14-year-oldEmergencyServicesResponseplatform.

TheOMShasalreadymaderestorationworkmoreefficientbygivingourcontrolroomandour‘stormcentres’abetteroverviewofoutagesandthecrewsavailabletoattend.ThesystemincorporatesmapsupdatedviaourGeographicInformationSystem(GIS),andinterfaceswiththeinformationsystemusedbyourcustomerinteractioncentres.

TheOMShasmadeitquickerandeasiertoshareinformationwithourstaffandkeyexternalstakeholders,includingthegovernment,regulatorsandthemedia.Wecannowgivecustomersanestimateofthetimeitwilltaketorestoretheirsupply,eitherthroughcustomerservicerepresentativesorthroughinteractivevoicerecordings.

Anaddedbenefitofthenewsystemhasbeenadropintheaveragecall-handlingtimefornetwork-relatedcalls.

‘IntegralEnergyhas continuedtoupgrade itssecuritytoensure thesafetyofthe communityandthe securityofpower suppliesandofour electricalassets.’

Future challenges

InMay2007,theNSWGovernmentestablishedaninquirytoseekadviceontheactionsthatarerequiredtodealwithclimatechangeandenergygenerationandsupply.IntegralEnergy’ssubmissiontotheOwenInquiryinJune2007focusedontheretailsideofitsbusinessandtheissuesandrisksassociatedwithitsretailtrade.

TheinquiryisduetoreporttotheNSWGovernmentattheendofAugust2007.Wewillassessthefindingsoftheinquirytobetterunderstandthelongertermimplicationsfortheretailbusiness.

Additionalprioritiesforusin2007–08willinclude:

reviewingIntegralEnergy’svisionandstrategicdirection

continuingtodeliversustainablereturnstoourshareholder

maintainingourefforttoimprovethereliabilityofournetwork

cateringforthegrowthneedsacrossthefranchise

exploringfurtheroptionstodeploynewtechnology

positioningourretailbusinesstorealiseitslong-termvalue,includingbuildingourQueenslandcustomerbaseandcontinuingtoidentifyopportunitiestoleverageourinnovativeretailbusinessmodelinothermarkets.

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ITPlanningandInfrastructureteammembersArtsCalub(left) andBobLintonwiththenewtradingfloortelephonesystem

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Environmental Performance

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Did we meet our objectives?

2006–07 objective Progress to date Status 2007–08 objective

Implementastrategicapproachtoenvironmentalmanagementthatalignswithenvironmentalpositionstatementsandprinciples.

Environmentstrategywasrevisedtoreflectincreasedfocusonclimatechange. ¸

Establishandimplementactionstoachieveourstrategicintent.

Translateourclimatechangecommitmentsintoaction.

BlacktownSolarCityannouncedinNovember2006andpricingtrialshavecommenced.

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Publiclydefineandachievetargetstoreduceourcarbonfootprint.

Enhanceriskmanagementpracticestominimiseenvironmentalharm.

Therisk-basedsubstationbundprogramwascompletedtogetherwiththefirstyearoftheNetworkContaminatedLandProgram.Environmentalriskassessmentcontinuestooccuronanannualbasis.

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Continuetoidentifyopportunitiestopredict,manageandpreventenvironmentalimpacts.

Achieveasustainedreductioninwastegeneration.

Althoughwastevolumesincreasedduetoimproveddatacapture,arangeofinitiativesresultedinincreasedvolumesofrecycledwaste.

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Developawasteminimisationplantodriveimprovementsinwasteminimisationandrecycling.

Driveculturalchangetoachieveperformanceimprovements.

Environmentalpositionstatementandprinciplesdevelopedinconsultationwithemployees.

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Provideemployeeswiththetoolsandknowledgetoachieveenvironmentalimprovements.

Proactivelyengagewithstakeholderstoshapeourenvironmentalresponse.

TogetherwiththeDepartmentofEnvironmentandClimateChange,apilotapproachwasdevelopedforworkinginnationalparksandreserves.

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Developaneffectiveissuesmanagementpracticetoproactivelyaddressstakeholderconcernsandopportunities.

Key

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¸ objectiveachieved

p ongoingobjectivewithtargetsmettodateorpositiveprogressshown

Manager,StrategicDevelopment,MareeZammit,withoneoftheenergy-savinglightglobes IntegralEnergyisprovidingforBlacktownCityresidentsaspartofBlacktownSolarCity.

Environmental PerformanceAnnualPerformanceReport2006–07

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Performance indicators

Compliance

TherewerenoenvironmentalincidentstobereportedundertheProtection of the Environment Operations Act 1997in2006–07—asignificantimprovementonthepreviousyear.

Expenditure

Environmentalexpenditureexceeded$13.5millionin2006–07,anincreaseofmorethan40%onthepreviousyear.Theincreasewasassociatedwiththecompletionofourmajorsubstationbundprogramandaproactivefocusontheinvestigationandremediationofcontaminatedland.

Greenhouse gas emissions

TotalgreenhousegasemissionsdirectlyattributedtoIntegralEnergyactivitiesdecreasedto27,162tonnesofCO2e,comparedto27,493tonnesofCO2ein2005–06.

Electricityconsumptiondecreasedfrom11,763MWhto10,482MWh,reflectingtherefurbishmentandreplacementofanumberofinefficientdepotfacilities.

Continuingonfromtheimprovementsmadelastyear,theIntegralEnergyFleetImprovement

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Planresultedina2%decreaseinoverallfuelconsumptionofitspetrolvehicles,savingmorethan37,000litresofpetrol.

Totalgreenhousegasemissionsrelatedtolossesfromournetworkdecreasedby9.3%in2006–07to599,538tonnesofCO2e.Thisdecreaseisduetocapitalinvestmentsresultinginarobustandsecurenetwork.

Oil regeneration

Atotalof844,904litresofoilwasremovedfromthenetworkin2006–07;43%wasrecycledforreuseandtheremainingoilwasrecycledthroughenergyrecovery.

Waste management and recycling

Totalwastedisposalincreasedconsiderablycomparedwithdisposalin2006–07,reflectingafocusontheremediationofcontaminatedlandandimproveddatacapturemethods.Weexpectthatreportedwastevolumeswillcontinuetoincrease,reflectingimprovementsindatacaptureandreporting.

Water consumption

Totalwaterconsumptiondecreasedfrom41,661kilolitresto33,944kilolitres.Since2002–03,waterconsumptionhasdecreasedbymorethan45%,despiteanetincreaseofmorethan500employees.

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DisposalAdministrator,CandiceHarris,withstocksof IntegralEnergyhardhatsrecycledinMay2007.

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Environmental performance in �006–07

Environment policy

AtIntegralEnergyweknowthatenvironmentalperformancemustcontinuetoevolveifwearetomeettheexpectationsofourstakeholdersandthewidercommunity.

In2006–07,ourenvironmentalperformancecontinuedtoimprove,reflectingthestrongcommitmentoftheorganisationandtheongoing

effortsofouremployees.Aspartofourcommitmenttoimprovingourenvironmentalperformance,werevisedbothourenvironmentalpolicyandourenvironmentalpositionduringtheyear.

Ourrevisedposition(seebox)describesourreasonforpursuingimprovementsinenvironmentalperformanceandreflectsourunderstandingthatourbusinesssuccessisintrinsicallylinkedwiththeenvironmentsandcommunitiesinwhichweoperate.Ourpositiondefinesthefuturewewillcreate

aswereflecttheneedsoffuturegenerationsinourday-to-dayoperations.

Thefollowingthreeprinciplesreflectourcoreenvironmentalbeliefs:

theenvironmentiseveryone’sresponsibility

dothingsrightthefirsttime

beproactive,notreactive.

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Figure �� Waste Reduction and Purchasing Policy (WRAPP)Majormaterialspurchased(tonnes)

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Environmental position statement

Wewillrespecttheenvironmentandcommunityinwhichweoperateandwillupholdtheneedsoffuturegenerations.

Principles

The environment is everyone’s responsibility

Inadditiontotherolethecompany’smanagementmustplay,itisincumbentuponeachemployeetosharetheresponsibilityofmanagingtheenvironmentalrisksassociatedwithouroperations.Asacompany,wewillsupportlearning,committoimprovingperformance,andworktocreateaculturewheremanagingenvironmentalissuesis‘businessasusual’.

Do things right the first time

Asanowneroflong-lifeassets,werecognisethatouractionstodaycanhaveanimpactonfuturegenerations.Wewillworktochallengeourassumptionsandgainafullerunderstandingofthelong-termimpactofourdecisions.

Be proactive, not reactive

Ouractionswillmovebeyondlegislativerequirements:wewillworkwithstakeholdersandourcustomerstoidentifyenterprisingsolutionstoexistingrisksandactprudentlywhenrisksareunclear.

Environmental PerformanceAnnualPerformanceReport2006–07

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Recycled 6,816

Landfill 5,295

Liquid/hazardous 1,267

Soil and construction landfill 25,218.02

Soil and construction recycled 4,735

Figure �� Waste, by type(tonnes)

Inrevisingourenvironmentpolicy,wetranslatedourenvironmentalpositionstatementandprinciplesintothefollowingactions:

respondingtoclimatechange

improvingourperformance

continuingtolearnanddrivingculturalchange

engagingwithstakeholders.

Responding to climate change

Asanenergycompany,webelievethatclimatechangeisoursinglegreatestenvironmentalchallengeifwearetofulfilourcommitmenttofuturegenerations.Human-inducedwarmingoftheclimatehasbeendescribedbytheIntergovernmentalPanelonClimateChangeas‘unequivocal’.Earlyaction,supportedbycleargovernmentpolicies,isimperativeifwearetoplayaroleinmanagingthisunprecedentedrisk.

Aswemoveintoafuturewherecarbonisappropriatelycosted,wewillneedtochangethewayinwhichweoperateandthestrategiesthatdirectouroperations.Whileourresponsewillcontinuetoevolveandstrengthen,ouractionstodatehavebeentargetedandproactive.Specifically,wecontinuetoworkwithourcustomerstoempowerthemtomakemoresustainablepowerchoices.

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On13November2006,BlacktownbecamethefirstSolarCityinNSW.SolarCitiesisa$75millioninitiativeannouncedinJune2004bythePrimeMinisterintheEnergyWhitePaper,Securing Australia’s Energy Future.AsaresultofIntegralEnergy’suniquepartnershipwithBPSolar,BlacktownCityCouncil,ANZBank,LandcomandBigSwitchProjects,theBlacktownSolarCityprojectwillresultintheabatementof24,000tonnesofgreenhousegasemissionsandsavingsof$3milliontocustomersintheirelectricitybills(seepage31forfurtherdetails).

Thispartnershipproject,thefunctionofwhichistoinfluencecustomerbehaviourandreduceenergydemand,willalsoenableinnovativeenergyefficiencytrialsandprogramstobeevaluated.

In2006–07wemadesignificantprogressinourdynamicpeakandseasonalpeakpricingtrials.Theaimofthetrialsistoobservechangingpatternsofenergy-usebehaviourbasedoncustomerresponsetopricingsignals.Morethan1,200customersareparticipatinginthetrials,includingacontrolgroupof340customers.Initialresultsofthedynamicpeakpricingtrialindicateapositivecustomerresponseintermsofpeakdemandreduction.Importantly,asdemonstratedbycomparisonswiththecontrolgroup,thedynamicpeakpricingtrialisalsodrivinganoveralldecreaseinenergyconsumption.

Inparallelwithourpricingtrials,weinitiatedanadvancedmeteringtrialinearly2007.Thetrial,incorporatingmorethan3,000customers,isdesignedtoreducemeteringcostsanddevelopaplatformfordemandmanagementandinnovativepricingsolutions.Thetrialwasinterruptedduetotheneedtoimprovethemeterdesign.WeexpecttheprojecttoresumeinNovember2007.

InJune2000,IntegralEnergyinitiatedanagreementwiththeNSWGovernmentandStateForeststodevelopagreenhouseforestinWesternSydney.LocatedinCecilPark,the5.8hectaresiteservestobothsequestercarbonandenhancetheCumberlandPlainsWoodlands,anendangeredforestcommunity.

ForestsNSWrecentlyestimatedthetotaltreebiomassofthesiteat90tonnesofCO2e.Overthecourseoftheproject,itisestimatedthattheforestwillsequester1,483tonnesofCO2e.

TheNSWGovernmentrequiresenergyretailerstoofferallnewcustomersandcustomersmovingaddressaminimum10%accreditedrenewableenergyproduct.In2006–07,wesuccessfullyretainedourGreenPowerretailaccreditationandexpandedourstableofGreenPowerproductstoensurethatallourcustomershaveaccesstoaGreenPowerproduct.Thecurrentproductlistincludes: INgreen Home, INgreen Pure, INgreen Business,

Oursmartmeteringtrialsareencouragingcustomers touseenergymoreefficiently.

BlacktownSolarCityisattractingstrong communityinterest.

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INgreen Power, INgreen Future andBusinessGreen.OurGreenPowercustomerbasecontinuedtogainstrength,withnumbersreachingmorethan24,000attheendofJune2007.

EnergyconsumptionassociatedwithIntegralEnergy’sactivitiesdecreasedin2006–07,reflectingourrefurbishmentandreplacementofanumberofinefficientdepotfacilities.

OurgoalofreducingourcarbonfootprintcontinuestobereportedthroughGreenhouseChallengePlus,avoluntaryagreementrunbytheAustralianGreenhouseOffice(AGO).

In2006–07,IntegralEnergyentereditseleventhyearasavoluntaryparticipantintheChallengePlus

ProgramrunbytheAGO.ThereportissuedbytheAGOprovidesuswithavaluabletoolformeasuringourprogressinreducingemissions.

IntegralEnergycontinuedtomeetitsobligationsunderthe Mandatory Renewable Energy Target Act 2000topurchaseaproportionofitsenergysupplyfromrenewableenergygenerators.Wealsoparticipatedintheconsultationprocessforthedevelopmentofstate-basedrenewableenergyschemesinNSWandVictoria.

Ourobligationsunderthenewlyestablished13%GasSchemetopurchase13%gas-firedgenerationinQueenslandwerealsometin2006–07.

Business energy efficiencyOurworkwithlargecustomerstoreducepeakdemandandincreaseefficienciescontinuedduringtheyear,withnewprogramscommencinginCampbelltownandtheUnanderraindustrialarea,andongoingprogramsinParramatta,Westmead,BlacktownandLiverpool.

LaunchedinFebruary2007,theINbusinessEnergySaversUnanderraprogramhadalreadyattracted17businessesbytheendofJune2007.IntegralEnergyandWollongongCityCouncilwanttorecruit30Unanderrabusinessestotheprogramandachievereductionsingreenhousegasemissionof21,000tonnesperyear,equivalenttotakingapproximately4,800carsofftheroad.

Blacktown Solar City—the power to change

AnnouncedinNovember2006,theBlacktownSolarCityprojectoffersnearly300,000Blacktownresidentsanopportunitytoreducegreenhousegasemissionsandsaveupto$3milliononelectricitybillseachyear.

AspartoftheAustralianGovernment’sSolarCitiesinitiative,IntegralEnergyanditsconsortiumpartners—BPSolar,BlacktownCityCouncil,ANZBank,LandcomandBigSwitchProjects—areaimingtodemonstratehowsmartmeters,solarpower,energyefficiencyandalternativepricingcanempowercustomerstomakesustainableenergychoices.

IntegralEnergy’srolefocusesonfourvoluntaryEnergySavertrials–airconditioningcycling,poolpumpcontrolandtwoalternativepricingtrials.Theseaimtoreducepowerusageduringpeakdemandperiodsbyprovidingcustomerswithsimpletoolsandincentives.Thetrialswillenableefficientuseofnetworkcapacity,ofwhich11%isusedforjust25hoursperyear,whenextremetemperaturesdriveexceptionallyhighdemand.

TheAirConditionerSavertrialinvolvesparticipants’airconditionersbeingcycledonfor40minutesandthenofffor20minuteseachhourduringselectedoccasionsofhighelectricitydemand.Apreviousstudyfoundthathouseholdtemperaturesrisebyanaverageofonly1-2ºCduringthistime,whileenergyconsumptionisreducedbyupto30%.

Similarly,participantsinPoolPumpSaverswillhavetheirpumpsturnedoffautomaticallyduringpeakdemandperiodsandturnedonlaterintheevenings.

Thepricingtrialsaimtoencourageenergyreductionandchangesinenergyusepatternsinresponsetopricesignals.AspartoftheDynamicPeakPricingtrial,apremiumtariffappliesduringalimitednumberofpeakdemandperiodswhileparticipantspayareducedtarifffortheremainderoftheyear.

IntheSeasonalSavertrial,participantsarechargedhighertariffsduringthewarmermonthswhendemandishigher,andareducedrateatothertimes.

Participationisvoluntaryandcustomersarepaid$100pertrial.

EligiblesuburbsforthetrialsincludeAcaciaGardens,Blacktown,Glenwood,KellyvilleRidge,KingsLangley,KingsPark,LalorPark,Marayong,Parklea,Prospect,QuakersHill,SevenHills,StanhopeGardensandToongabbie.

Togetherwithfreehomeenergyconsultations,energyefficiencypacks,discountedsolarproductoffersandbusinessprograms,theBlacktownSolarCityprojectisaninnovativeapproachtotacklingtheregion’senergychallenges.

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Theprograms,conductedinpartnershipwithexternalserviceprovidersandourcustomers,havereduceddemandbynearly8MVAtodate.

Improving our performance

IntegralEnergyiscommittedtotheongoingmeasurementandimprovementofourenvironmentalperformance.OurEnvironmentalManagementSystem,developedinaccordancewiththeISO4001internationalstandard,providesaframeworkfortheidentificationandmanagementofenvironmentalrisks.Aspartofthesystem,ouremployeesconsiderourenvironmentalrisksandhowwecanimproveourenvironmentalperformanceannually.Thesignificantenvironmentalrisksidentifiedbyourstaffmaybesummarisedasfollows:

greenhousegasemissions

regulatorycompliance

contaminationofland

networkcapitalprogramandpotentiallyadverseenvironmentalimpacts

managementofvegetationgrowinginproximitytonetworkassets

bushfire

resourceconsumption.

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ProgressonactionplansdevelopedtoaddressoursignificantenvironmentalrisksisreportedmonthlytotheExecutiveEnvironmentalSteeringCommittee,whichcomprisesmembersoftheExecutiveteamandischairedbytheChiefExecutiveOfficer.

Regulatory compliance

IntegralEnergy’sgoalofzeroseriousenvironmentalincidentsrequiredtobereportedundertheProtection of the Environment Operations Act 1997(NSW)wasachievedin2006–07.Ourachievementreflectsthestrongfocusandinvestmentoftheorganisationinenvironmentalcompliance.

Ourcompletionofthezoneandtransmissionsubstationbundprogramin2006–07hasnowsignificantlyreducedourriskprofile.Thislong-terminvestmentinpollutionpreventionwillminimisetheriskofoillossintheeventofatransformerfailure.Togetherwithourincidentresponseteamandextensiveemployeetrainingprogram,weremainfocusedoncontinualimprovement.

Site investigation and remediation

Recognisingthepotentialimpactsarisingfromhistoricaloperationsandactivities,ourapproachtocontaminatedlandremainsproactiveandriskbased.Inaccordancewithariskassessment

model,in2006–07webeganaprogramtoinvestigatehigh-riskzoneandtransmissionsubstations.Theprimaryobjectiveofthefive-yearprogramistoassessthepotentialforsoilandgroundwatercontaminationwithinsubstationsites.Theprogramwillallowustodetectcontaminationearlyandreduceoravoidenvironmentalharm.

Althoughdepotsiteshavebeenlargelyremediated,workcontinuedonthecleanupoftheformerMintoDepotsite.AsreportedinIntegralEnergy’s2005–06annualreport,extensiveworkswererequiredtoremoveundergroundstoragetanksandremediateaffectedsoil.Duringthepastyear,significantprogresswasachieved,withsoilremediationworkslargelycompleted.In2007–08,wewillcontinueremediatingthesiteinaccordancewithresidentiallandusecriteria,themoststringentstandard.

Waste management

Managingtheby-productsofouroperationsremainsahighpriorityfortheorganisation.Decommissionedtimber,lightglobesandusedvehicleoilsareallexamplesofby-productsthatwereonceconsideredwaste.

Inpartnershipwithoursuppliersandcontractors,weareworkingtominimisethegenerationofwasteandidentifynewopportunitiesto

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Figure �5 Environmental expenditure ($)

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reuseorrecycle.In2006–07,weconsolidatedourwastecontractsandproviders.Thisstephasstandardisedwasteservicesacrossourfranchise,andsimplifiedtheintroductionofwasteminimisationinitiatives.Inaddition,theprocesshasimprovedthecaptureofdataandperformancemonitoring.

Otherachievementsin2006–07aredescribedbelow:

Morethan1,000tonnesoftimberpoleswererecycled,with50polesreusedastimberflooringandwallpanellingintherefurbishedheadofficecafeteria(seepage34forfurtherdetails).

Inpartnershipwithoursuppliers,1,500mobilephonesand11tonnesofIThardwarewererecycled.

Thedefaultsettingonofficeprinterswaschangedtodouble-sidedprinting,withmorethan600,000sheetsofpapersavedinsixmonths.

Co-minglerecycling(plasticandmetal)wasextendedacrossthefranchise,andincludesthediversionofrecyclablematerialfromlandfill.

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Oil management

Responsiblemanagementofoilresourcesremainedapriority,withmorethan18millionlitresinserviceacrossthenetwork.

Theoilrecyclingprocess,developedin2005–06,allowsbothPCB-freeoilandPCB-contaminatedoiltoberecoveredfromequipmentandrecycled.Further,theprocessresultsinfullrecoveryofscrapmetalthroughadecontaminationprocess.In2006–07,atotalof844,904litresofoilwasremovedfromthenetwork,with43%recycledforreuse.Remainingoil,typicallyofalesserquality,isreusedforenergyrecovery.

Aspartofourrisk-basedapproachtothemanagementofoilresources,wedevelopedaprogramin2006–07tominimisetheriskofoilspillsinsensitiveenvironments.Biodegradableoilwillnowbeusedindistributiontransformersthatarelocatedadjacenttowaterstorageareas.Intheunfortunateeventofaleak,theimpactonthesurroundingenvironmentwillbeminimised.

Tree management

In2004,IntegralEnergybecamethefirstenergycompanytoendorsetheEnergySupplyAssociationofAustraliaCodeofSustainablePractice.Commitmenttothecodeisincludedinourvaluesandreflectedthroughtheoperationofasafeandreliableelectricitynetwork.Intranslatingthecodeintopractice,werecognisetheneedtoachieveabalancebetweenourobligationsasaserviceproviderandthevaluesofthecommunityandsurroundingenvironment.

Thisbalanceisakeyelementinourapproachtomanagingvegetationnearournetworkassets.Duringthepastyear,thisapproachwastranslatedintoourTreeManagementPlan.Theaimoftheplanistopubliclycommunicateourapproachtomanagingvegetationinproximitytopowerlines.Inaddition,theplandefinesourpolicyontreeremovalorreplacementandprovidesguidanceonplantingnearnetworkassets.Forexample,anewbrochuregivesourcustomersadviceonsafeplantingnearpowerlinesandrecommendssomeappropriatespecies,suchastheHarpinBanksiaandHoneyMyrtle,whichhavealowmatureheight.

Cinemaadvertisementsfromtheearlytomid1900’sareamongtheheritageitemsheldanddocumentedbyIntegralEnergy.

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‘Aswemoveintoafuturewherecarbonis appropriatelycosted,wewillneedtochange thewayinwhichweoperateandthestrategies thatdirectouroperations.’

Cutting down our largest waste stream

AsIntegralEnergycontinuestorenewandrefurbishitssupplynetwork,thedisposaloftimberpolesgeneratesasignificantwastemanagementchallenge.Byweight,itisthelargestofIntegralEnergy’swastestreams.Untilrecently,itwassenttolandfill.

Since2004,whenapartnershipwasestablishedwithalocaltimberrecycler,approximately4,500tonnesoftimberhasbeenharvestedfromdisposedpolesforreuseandrecycling.Withmorethan300,000timberpolesinserviceacrossournetwork,andnearly2,500decommissionedinanygivenyear,IntegralEnergyrecognisesasignificantopportunitytorealisethefullongoingvalueofthisassetbyadoptingamorecomprehensiveapproachtotimberpolerecycling.

In2006–07weconductedareviewtoidentifyopportunitiestoexpandtimberrecycling.Itfoundthatdecommissionedtimberfromsmall-scalepolereplacementprojectswasalmostalwayssenttolandfillbecausethelowvolumesmeantitwasnotfeasibletostore,collectandtransporttheresourcetodistantrecyclers.

Toaddressthosecostandlogisticalbarriers,apilotcollectionprogramhasbeenestablishedincollaborationwithourwastecontractorandAustralianArchitecturalHardwoods.BasedatourHoxtonParkFieldServiceCentre,theprogramisnowdeliveringtimberforrecyclingfromsmallerpolereplacementprojects.Itisestimatedthatthisprojectwillincreaseannualtimberrecoveryvolumesby25%to50%,withamatchingreductioninourdependenceonlandfilldisposal.

TherecentrefurbishmentofthecafeteriainIntegralEnergy’sheadofficeprovidedagoodopportunityforIntegralEnergyto‘closetheloop’bydirectlyreusingourtimberresources.Blackbutthardwoodtimberfrom50powerpolesremovedduringtherefurbishmentoftheNowratoEvansLanetransmissionlinewasrecycledtoprovidethecafeteria’snewflooringandwallpanelling.Inadditiontodivertingvaluableresourcesfromlandfill,theprojectreducedgreenhousegasemissionsby44tonnesCO

2e.

CorporateEnvironmentteammembersSelenaWaterford(left)andCarolynScornavacchi.

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Continuing to learn and driving cultural change

Throughsupportofformalandinformallearningopportunities,wecontinuedtoworkwithemployeestodriveculturalchangetoachieveourenvironmentalgoals.Ouremployeeinductionprogramcontinuedduring2006–07andfocusedonenvironmentalduediligenceandincidentpreventionandresponse.Trainingwillcontinuetostrengthenandevolvein2007–08,reflectinganychangestoourprocedures.

Engaging with stakeholders

Thecomplexityofouroperationsandthediverseenvironmentinwhichweoperatearereflectedinourbroadstakeholderbase.Addressingtheinterestsofourstakeholdersthroughmeaningfulengagementremainsanongoingchallengeforus.

In2006–07,IntegralEnergyapproachedtheParksandWildlifeDivisionoftheNSWDepartmentofEnvironmentandClimateChangetodevelopajointagreementoninspectionandmaintenanceworksinparks.Followingextensiveconsultation,anagreementwasimplementedonapilotbasiswithinIntegralEnergy’ssouthernregion.Theagreementestablishesclearprotocolsforconductingsuchworkandprovidesforongoingconsultationwiththedepartment.

Aspartofthenetworkcapitalprogram,environmentalassessmentscontinuedtobeconductedinconsultationwiththecommunityandkeystakeholders.Additionalinformationonthenetworkcapitalprogramisprovidedonpage15.

Heritage management

IntegralEnergy’sachievementsinheritagemanagementin2006–07includedsettingupourdraftHeritageandConservationRegister,inaccordancewiththeHeritage Act 1977.Theregisteridentifies18potentialheritagesites,mostofwhichareoflocalsignificance.

InJanuary2007,weprovidedanupdatedHeritageAssetManagementStrategytotheHeritageOffice.WealsosubmittedtwoconservationmanagementstrategiestotheHeritageOfficeforreview,foracottagesubstationinMossValeandacontrolbuildingatourFairfieldzonesubstation.IntegralEnergy’sprogressinheritagemanagementisdescribedinmoredetailinAppendix2.

Future challenges

Wewillcontinuetoworkhardtoachieveanumberofimportantenvironmentalchallenges,includingto:

achieveasustainedreductioningreenhousegasemissionsinaccordancewithpubliclydefinedtargetswhilegrowingasustainablebusiness

successfullyimplementtheBlacktownSolarCityprogramtogetherwithourconsortiumpartnersandtheBlacktowncommunity

continuetoworkwithourcustomersbyprovidinginnovativeandattractiveproductsandservices,promotinggreaterawarenessofenergyefficiencyandprovidingpracticaladviceandtools

driveperformanceimprovementsthroughstrengthenedenvironmentaltargets

developawasteminimisationplantodriveimprovementsinwasteminimisation,recyclingandperformance.

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DawninLeura,BlueMountains.

‘Throughsupportof formalandinformal learningopportunities, wecontinuedtowork withemployeestodrive culturalchangetoachieve ourenvironmentalgoals’

AnnualPerformanceReport2006–07

Social Performance

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Did we meet our objectives?

2006–07 objective Progress to date Status 2007–08 objective

ContinuingtointegratesafetyintoIntegralEnergy’sbusinessmanagementprocess,andcontinuouslyimprovesafetymanagement,workingtowardsthegoalofzeroaccidents,illnessesandinjuries.

Developedsafetystrategicplan.

ImplementedSafetyLeadershipandSafetyObservationtraining.

‘Nearmiss’reportingwasusedtounderstandtrendsandissuesintheworkplace.

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ImplementtheSafetyStrategicplantobuildoncurrentstrengths.

Focusonsafetybreakthroughsbyintegratingthesafetymessageintoourorganisation’sculture.

Continuingtocommunicatesafetymessagestostafftoraisesafetyawarenessintheworkplaceandensurethateveryoneunderstandshisorheraccountabilityandresponsibilityforsafety.

DepotSafetyDayscontinuedtopromotesafetyandeducatestaff.

Developedtargetedprogramssuchasslips,trips,fallscampaignandbackcareprogram.

WepromotedIntegralEnergy’scorevalueofsafetyexcellencebyhostingtheNSWindustrysafetyexpoforstaffandsuppliers.

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ReduceLTIsbytargetingawarenessprogramsbasedonleadingcontributorstoLTIs.

Reducesickleavebyimprovingengagementandpromotingwellbeingprograms.

Raisestaffawarenessofelectricalsafetybyhostinge-safe2008.

Beinganemployerofchoicebylisteningtotheconcernsofouremployeesandworkingconsistentlytoaddressthem.

Our2006staffattitudesurveydemonstratedstrongengagementlevelsamongstourstaffandhigherthanaverageresultswhenbenchmarkedagainstotherutilities.

p

PromoteIntegralEnergyasanemployerofchoice.

Improvecommunicationandengagementchannelsforstaff.

Buildingorganisationalcapabilitythroughourstaff,includingimprovingtheleadershipabilitiesofourfrontlinemanagersanddevelopingcareerdevelopmentplansforallstaff.

ContinuedtodevelopourManagementDevelopmentprogram.Weintroducedthe‘FieldLeadershipPlus’forfield-basedleadinghandsandteamleaders. p

ReviseIntegralEnergy’sleadershipcompetencies.

Reviserewardandrecognitionandperformanceappraisalsystems.

Developingaworkingenvironmentthatfostersahighperformanceculture.

Wecontinuedtotrainanddevelopstaffinlinewithourcompetency-basedprogressionsystemtoensuretheirskillsremainedcurrent.

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Designimprovedretentionstrategies.

Benchmarkourperformanceagainsthighperformingworkcultures.

Deliveringbetteroutcomesforcustomersexperiencingfinancialhardship.

Achieveda50%reductionindisconnectionofcustomersbyrevisingourapproachtovulnerablecustomers. p

Assessstrategicpartnershipwiththirdpartytoassistmanagementofhardshipcustomers.

Engenderingandfosteringacustomerserviceculturethroughouttheorganisation.

Achievedacustomersatisfactionratingof83.4%. ¸

Benchmarkourperformancenationally.

Engagingwithstakeholdersonmattersofmutualinterestandconcern.

Pilotedanimprovedengagementprogramforour10yearinvestmentplans.Consultedwithaffectedstakeholdersoneachmajorcapitalprogram.

Developedplanstoimproveengagementwithlocalgovernmentandplanningauthorities.

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Surveyofkeystakeholders.

Improveourstakeholderengagementbymovingfrominformingandconsultingmodeltoinvolvingandcollaborating.

Implementlocalgovernmentprogram.

Key

¸ objectiveachieved

p ongoingobjectivewithtargetsmettodateorpositiveprogressshown

q ongoingobjectivewithtargetsnotmettodate

CustomerConsultativeCommitteemember, BettyScott(left),andManager,Business Performance,DanielleManley.

Social Performance AnnualPerformanceReport2006–07

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Performance indicators

Employees

Employed2,593fulltimeequivalentstaff,anincreaseof5.5%on2005–06.

Employed64newapprenticesand11electricalengineeringgraduatesandcadets.

Maintainedalowemployeeturnoverof5.9%.

Health and safety

Thelosttimeinjuryfrequencyratewas4.8lost-timeaccidentspermillionhoursworked.Althoughthisdidnotmeetourtargetofzero,itmarksourfourthyearofimprovement.

122newworkerscompensationclaimsweresubmittedin2006–07.Theaveragecostforallopenclaimsonwhichpaymentsweremadewas$6,962.

Staff training and development

728staffundertookin-housetrainingincommunication,decisionmaking,timemanagement,interviewingtechniques,presentationandnegotiation.

155managersrefreshedandenhancedtheirskillsincommunication,mentoring,motivationandmanagingchange.

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86field-basedteamleadersundertooktrainingincommunication,conflictresolution,andleadingandmentoringapprentices.

285newstartersgainedagreaterunderstandingofourbusinessthroughtheirattendanceatOrientationDay.

Diversity and opportunity

ForthethirdconsecutiveyearweexceededtheNSWGovernmentbenchmarkof100fortheemploymentofpeoplewhosefirstlanguageisnotEnglish,achievinganindexof112.

OurWorkplaceDiversitypolicysawimprovementsintheemploymentlevelsofwomenandpeoplewithadisabilityalthoughwedidnotreachgovernmentbenchmarks.

Indigenous relations

1%ofemployeesareofAboriginalandTorresStraitIslanderdescent,includingfourapprentices.Weplantoincreasethisto2%withinthenextfiveyears.

Labour/management relations

Ourstaffendorsedanewtwo-yearIntegralEnergyConditionsofEmploymentAgreement.

Anewthree-yearworkplacearrangementforshiftworkersinourcustomerinteractioncentreswasnegotiated.Thisarrangementbrought

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consistencyinconditionsofemploymenttoallourshiftworkers.

Customers

Ouroverallcustomersatisfactionrateincreasedto83.4%fromthepreviousyear’sresultof81.1%.

Wemanaged13,829comments,complimentsandcomplaints,15%morethanin2005–06.Wealsoresolvedcomplaintsmorequicklythanin2005–06:60%within10days(56%in2005–06),73%within15days(69%in2005–06)and92%within30days(87%in2005–06).

5,166customersenrolledinourINpowerprogramin2006–07.InJune2007,3,682customerswereenrolled,comparedwith3,196inJune2006.

Weprocessed5,693disconnectionsin2006–07,comparedto11,401in2005–06,a50%reduction.

CompletedglobalbenchmarkingofIntegralEnergy’swebsiteinJuly2006.

Stakeholder engagement

Stakeholderengagementprogramswereimplementedforallmajorcapitalprograms.

Weconductedtwoengagementprogramswithlocalcouncils,developersandplanningauthorities.

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8,7747,439

7,931

13,06611,401

5,693

05–0

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06–0

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04–0

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04–0

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76.2

39.853.6

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42.9

7.87.2

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5.24.8

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Actual

Target

8,7747,439

7,931

13,06611,401

5,693

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Figure �9 Customer disconnection rates

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76.2

39.853.6

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42.9

Figure �8 Lost time injury severity rate(shiftslostperaccident)

7.87.2

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Figure �7 Lost time injury frequency rate(permillionhoursworked)

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Social performance in �006–07IntegralEnergyhasacomplexanddiversestakeholderbase,includingourshareholder(theNSWGovernment),energyandenvironmentregulators,employeesandunions,regionalchambersofcommerce,suppliers,businessandresidentialcustomers,developersandlocalcommunities.

Our2006–07stakeholderengagementstrategyplacedemphasisonimprovingstaffengagement;instillingacultureofsafetyexcellencethroughoutourworkforce;consultingwithdevelopers,residentsandlocalbusinessesabouttheimpactofouroperations;reviewingourenvironmentalpositioning;enhancingourrelationshipswithsuppliers;anddeliveringbetteroutcomesforcustomersexperiencingfinancialhardship.

Theseareasofemphasiswereunderpinnedbyextensivequalitativeandquantitativeresearchconductedasinputsintoourstrategicplanningprocess,combinedwithanalysisofspecificstakeholderfeedbackreceivedthroughouttheyear.

Eachprioritystakeholdergroupwasselectedduetoitsinfluenceandimportanceinachievingourstrategicbusinessobjectivesforsafety,reliability,networkgrowth,retailbusiness,andsocialandenvironmentaloutcomes.

Ourcorporatetagline,‘Thepowerisinyourhands’,conveysIntegralEnergy’sstrongsenseofsocialresponsibilityandongoingcommitmenttoempoweringlocalandregionalcommunitiesandpromotingeconomicgrowth.ThereispressureonIntegralEnergytorespondtothecommunity’schangingenergyneedsandexpectations.Thatiswhywemadearecordinvestmentinourcapitalprogramin2006–07.

Our people

Havingenergyfortomorrowstartswithinvestinginourpeople.Akeypartofourinvestmentinthefuturemeanssupportingthenextgenerationofelectricityworkers,whowillfillarangeoftradesandbebasedfromUlladullatowesternSydneytoLithgow.Recruiting,developingandretaininghighlyskilledstaffagainstabackdropoffullemploymentremainsoneofIntegralEnergy’sgreatestchallenges.

During2006–07,IntegralEnergyemployedmorethan2,593staff,anincreaseof5.5%on2005–06.Ouremployeeturnoverremainedlowat5.9%,largelyasaresultofretentionstrategiesthatincludedcompetitivewagesandsalaries,professionaldevelopmentprogramsandfamily-friendlyworkingconditions.

Ournewemployees,whocamefrommanycultures,wererecruitedtomeetgrowingdemandforourservices.

Tomeetthelong-termneedsofournetworkcustomers,weemployedarecord64newapprentices,agedbetween16and32years.Apprenticesinthe2007intakewillbetrainedinoneoffourtrades–systemelectrician,distributionpowerlinetechnician,instrumentfitterorheavyvehiclemechanic.Thisintakebroughtourtotalnumberofapprenticesin2006–07to175,withfurthergrowthexpectedinthenextfewyears.

Wealsoemployed11electricalengineeringgraduatesandcadetsduringtheyeartosupplementourengineeringexpertise.

Staff engagement

Weconductanemployeeopinionsurveyeverytwoyears.InOctober2006,weparticipatedintheHewittAssociatesEmployeeOpinionSurveyforthefirsttimetobenchmarkIntegralEnergy’sperformanceagainstthatofotherorganisations,toassesshowwellwearelivingourcorporatevalues,andtocollectmeasurablefeedbackonhowstafffeelaboutworkingforIntegralEnergy.

Weachievedanorganisation-wideresultof60%engagement,basedonaresponserateof73%.Thisplacedusinthe‘high-performance’zone,accordingtoHewitt’sBestEmployersinAustraliaandNewZealandratings.Italsocomparesfavourablywiththeutilitiesindustryaverageof57%andtheaverageof54%forallotherorganisations.

Employeeengagementisimportant,asresearchconductedbyHewitthasshownthatemployerswithhigherlevelsofengagementhavestrongergrowthinrevenueandprofitandtypicallyoutperformotherorganisations.Theresearchalsodemonstratesthatmaintaininghighlevelsofemployeeengagementcontributestolowerstaffturnover.

Wehaveidentifiedthreeareasofimprovementasaresult.Wewillreview:

thewaywerewardandrecogniseourpeople

ourpoliciesandbusinessdelegations

ourapproachtoperformanceappraisals.

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PictonFieldSupportCentrewasamongthosetohold safetydaysin2006-07.

Social Performance AnnualPerformanceReport2006–07

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Working safely

SafetyexcellenceisIntegralEnergy’stoppriority,andweareworkingtoachieveourtargetofzeroaccidentsintheworkplace.In2006–07,wefocusedoninstillingacultureofsafetyfirstthroughoursafetyleadershipprogram.Duringtheyear,160managersandsupervisorsweretrainedinsafetyobservationtechniques.Safetyobservationsarestructuredconversationsbetweenmanagementandstaffintendedtodriveandpromoteapositivesafetyculture.Wealsocontinuedtoimprovetheeffectivenessofsafetycommitteesinordertoensurehighlevelsoflocalstaffengagementandalocalcommitmenttosafety.

Weemphasised‘nearmiss’reportingtogiveusabetterunderstandingoftrendsandissuesintheworkplaceandtoreducethepotentialforinjuries.

In2006–07oursafetycommunicationprogramfocusedondepotsafetydays,whichcontinuedtopromotesafetyandeducatestaffonsafeworkpractices.Wedevelopedtargetedprogramstoaddressslips,tripsandfallsandmanualhandling—twoofthegreatestcausesoflost-timeincidents(LTIs)andinjuriestostaff.

Theslips,trips,fallscampaignachievedan80%awarenessratingwithstaff,andwasrefreshedin2007totargetbehavioursthatarethegreatestcontributorstoLTIs.

Safety performance

ThenumberofLTIsin2006–07was24.Safetyperformanceismeasuredprimarilythroughthelost-timeinjuryfrequencyrate,whichmeasuresthenumberofLTIsforeverymillionhoursworked.In2006–07,IntegralEnergydelivereditsbesteverresultof4.8LTIs,aheadofthepreviousyear’sresultof5.2.

Althoughthisfellshortofourtargetofzero,weremaincommittedtoachievingaworkplacewherenoharmcomestoanyemployee.

TheaveragenumberofdayslostforeachLTIin2006–07was9.0,comparedwith5.0in2005–06,duetoseverallong-terminjuriestostaffmembers.

IntegralEnergy’sBoard,managementandstaffweredeeplydistressedbyaseriousinjurysustainedbyanemployeeinahelicopteraccidentinApril2006.ThewelfareofthisemployeeandhisfamilyremainedaprimaryconcerntoIntegralEnergy,andsupportcontinuedin2006–07.

IntegralEnergyconductedanextensiveinvestigationintotheincidentandimplementedthereview’skeyrecommendationsin2006–07.Thisinvolvedimprovementstothegovernanceandmanagementofaviationcontractsandcontractors.WealsotookstepstoensurethatthisknowledgewassharedthroughouttheNSWelectricityindustry.

Implementation of outcomes from our strategic review of safety

FollowingastrategicreviewofsafetyinJuly2005toassessourcurrentsafetysystemsandsafetyculture,in2006–07wecontinuedtoimplementstrategiestoimproveoursafetyperformance.Thestrategiesincluded:

agreaterfocusbytheExecutiveOccupationalHealthandSafetyCommitteeonsafetymanagementleadership

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moredetailedconsiderationbytheOccupationalHealthandSafetyManagementCommitteeofincidentinvestigationsandthedevelopmentofsafetypolicyandprocedure.

Workers compensation

IntegralEnergyemploysspecialiststafftoworkwithinjuredemployeestoensureasmoothreturntoworkfollowinginjury.Atotalof122newworkerscompensationclaimsweresubmittedin2006–07.Theaveragecostforallopenclaimsonwhichpaymentsweremadewas$6,962.

Public electrical safety

IntegralEnergy’sannualpublicelectricalsafetyawarenessplanidentifiesthekeysafetyissues,thetargetmarketsandthecommunicationstrategywhichwillbeimplementedovera12-monthperiodtoincreasethepublic’sawarenessofsafetyhazardsassociatedwithelectricity.

In2006–07,asinpastyears,ourreviewoftheplanfocusedonfivecoreprograms:generalpublicsafety,emergencyservicessafety,workers’safety,assetmanagementsafety,andagriculturalsafety.

Ourkeymessagesinthe2006–07safetyawarenessplanwere:

‘Lookupandlive’

‘Dialbeforeyoudig’

Safetyinandaroundthehome

Safetyarounddamagedelectricalinfrastructure

Vandalismandunauthorisedentry

Electricalsafetyinvegetationmanagement.

Wecommunicatedthosemessagesinanumberofways,includinginbrochures,bydirectmail,inlocalandtrade-specificmedia,viaradioandnewspaperadvertisements,andbyin-housetrainingforemergencyservicespersonnel.

Moredetailedinformationontheplancanbeviewedonourwebsiteatwww.integral.com.au.

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Wearecommittedtohelpingourpeoplebalancetheirwork andfamilyresponsibilities.FionaPlace,BranchAdministrator, isamongourstaffassistedwiththeirreturntoworkfollowing maternityleavethroughaccesstoachildcarecentreon-siteat ourHuntingwoodoffice.

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Labour–management relations

Awards and salaries

Wenegotiatedthefollowingawardsandworkplacearrangementswithourstaffin2006–07:

anewtwo-yearIntegralEnergyconditionsofemploymentagreementcoveringmostofouremployeesandprovidingincreasedbenefits,suchas14weekspaidmaternityleaveandoneweekofpaidpaternityleave.

anewthree-yearcustomerinteractioncentreworkplacearrangementforcallcentrestaffwhoperformshiftwork.

360 degree surveys

Weundertook360degreesurveysforallcontractstaff.Thesurveysprovideanopportunityforcontractstafftoreceivefeedbackfromtheirmanagers,peersandthepeoplewhoreporttothemontheirperformanceagainstourleadershipcapabilities.

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Training, education and recruitment

IntegralEnergymustcontinuetorecruitskilledstaffandtrainanddevelopexistingstaffifitistoremainacompetitive,innovativeandresponsiveorganisation.Itremainsahighpriorityforustobuildorganisationalcapacitybyimprovingtheleadershipskillsofourmanagers,developingandupdatingtheskillsofourfront-lineandadministrativestaffandensuringthatourrecruitmentpoliciestakeintoaccountthediversityofthecommunityinwhichweoperate.

Apprentices

In2006–07,werecruited60apprenticesinthedistributionpowerlineandsystemselectriciantrades,threeheavyvehiclemechanicapprenticesandoneinstrumentfitterapprentice,bringingthetotalnumberofapprenticesintrainingto175.WetargetedAboriginalandTorresStraitIslanderapplicantsthroughadvertisinginindigenousmedia.

LongServiceAwardrecipientsin2007includedOperations ManagerDistribution,ColTyquin(left),CustomerSafety Officer,NeilRutledge,andLeadingHandElectricalFitter Mechanic,ColinHall.

Manager,CustomerCare,MerleneAdkins,wasinstrumental indevelopinganewonlineenergycalculator,launchedin2007.

Social Performance AnnualPerformanceReport2006–07

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Staffing statistics

Tables3,4and5describetrendsinourstaffestablishmentfrom2002–03to2006–07.

Table 3 Trends in the representation of equal employment opportunity groups (% of total staff, excluding casual staff)

EEO group Benchmark or targeta

2002–03 2003–04 2004–05 2005–06 2006–07

Women 50 32 33 22 22 ��

AboriginalpeopleandTorresStraitIslanders 2 1 1 0.9 1 0.9

PeoplewhosefirstlanguageisnotEnglish 20 8 8 7 8 8

Peoplewithadisability 12 2 2 5 5 4

Peoplewithadisabilityrequiringwork-relatedadjustments 7 1 1 0.6 0.5 0.5

Note:Staffnumbersareasat30Juneeachyear.aSetbytheNSWGovernment.

Table 4 Trends in the distribution of equal employment opportunity groups (distribution index)

EEO group Benchmark or targeta

2002–03 2003–04 2004–05 2005–06 2006–07

Women 100 60 55 97 98 �00

AboriginalpeopleandTorresStraitIslanders 100 26 14 91 96 96

PeoplewhosefirstlanguageisnotEnglish 100 63 76 109 110 ���

Peoplewithadisability 100 32 34 96 97 99

Peoplewithadisabilityrequiringwork-relatedadjustments 100 31 32 32 n/aa n/aa

Note:Adistributionindexof100indicatesthatthecentreofthedistributionoftheEEOgroupacrosssalarylevelsisequivalenttothatofotherstaff.Valueslessthan100meanthattheEEOgrouptendstobemoreconcentratedatlowersalarylevelsthanisthecaseforotherstaff.Themorepronouncedthistendencyis,thelowertheindexwillbe.Insomecasestheindexmaybemorethan100,indicatingthattheEEOgroupislessconcentratedatlowersalarylevels.

aThedistributionindexisnotcalculatedwheretheEEOornon-EEOgroupnumbersarelessthan20.

Table 5 Employee numbers

Employees 2002–03 2003–04 2004–05 2005–06 2006–07

Totalstaffa 2,049 2,176 2,298 2,457 �,59�

%increase 5.9 6.2 5.6 6.9 5.5

%cumulativereductionb 34.5 30.4 26.5 21.4 �7.�

Note:Severalamendmentsmadetofiguresreportedinpreviousannualreports,followingAuditOfficeadvice.

a Staffnumbersarebasedonfull-timeequivalents.Significantreductionsinstaffnumbersoccurredasaresultofvoluntaryexitprogramsin JuneandJuly1998.

b ThesefiguresrepresentthechangeinemployeenumberssincethecreationofIntegralEnergyin1995throughthemergerofProspect ElectricityandIllawarraElectricity.Atthetimeofthemerger,thetotalemployeenumberwas3,127.

CustomerInteractionCentreteammembersKirstyBrabin(left)andJasminFuimaono.

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Staff development programs

Toensurethatourmanagersarepreparedforthefuture,in2006–07weofferedtwomanagementdevelopmentprogramscoveringissuesrelevantinaconstantlychangingworkplace.Some155managersattendedtheseprograms,whichwillcontinueinto2007–08.

Field-basedteamleadershipcontinuestobeafocusinstaffdevelopment.Anewleadershipprogramcommencedin2006–07tosupplementtheprogramwhichbeganin2005.Atotalof86field-basedteamleadersattendedtheseprogramsin2006–07,ensuringthatourfieldstaffandourincreasingnumbersofapprenticesarecoachedandmentoredeffectively.

Wemadesignificantprogressonthemovetoprovideourmanagersand

leaderswithnationallyrecognisedqualificationsfortheirfrontlineleadershipcompetencies.EightoperationsmanagersbegantheCertificateIVinBusiness(FrontlineManagement)inpartnershipwithanexternalregisteredtrainingorganisation.Thiswillbeafocusofdevelopmentintothecomingyear.

Customers

Customer service philosophy

Wehaveenshrinedourcommitmenttocustomerserviceinoursetofeightcorporatevalues.OurvisiontobeAustralia’sbestperformingenergybusinessisbasedonourcommitmenttodeliveringsuperiorvaluetoourcustomersandourshareholdersnowandintothefuture.Weaimtoachievethisbytakingpersonalresponsibilityfor:

deliveringastandardofservicebeyondourcustomers’expectationsandabovethelevelofserviceprovidedbyourcompetitors

dealinginafair,openandhonestwaywithallourcustomers

reviewing,revisingandimprovingworkpracticesandprocesses

recognisingthatcustomerloyaltydependsonhowwe,asindividuals,relatetoourcustomers.

Thiscorporatevalueisbroughttolifebyourstaffthrougheachandeveryinteractionwithcustomers.Itisgivengreaterweightthroughourbrandpromise:‘Going further for you is what we do.’

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Managing hardship

IntegralEnergyrecognisesthatsomecustomersexperiencedifficultyinpayingtheirelectricityaccountfromtimetotime.In2006–07,wereducedourdisconnectionratesbymorethan50%from2005–06.Thisbetteroutcomeresultedfromourcontinuedfocusonimprovedmanagementofcustomersinfinancialhardship.

Weintroducedthefollowinginitiativesduringtheyeartoassistcustomersinhardship:

moreflexiblecriteriaforreferringcustomerstotheINpower program,allowingagreaternumberofcustomerstoaccesstheprogram

furthertrainingofallfrontlinestaff,includingdisconnectionofficers,inhowtoidentifyhardshipandbettermanagecustomersinhardship

changestoourprocessestohelpusidentifycustomersinfinancialhardshipearlier

handdeliveryofnoticestocustomerswhomwehavebeenunabletocontactaspartofthedebtfollow-upprocess(thisisinadditiontotheregulatedrequirements)

furthercustomisationofpaymentplanstosuittheindividualneedsofcustomers

establishmentofanagreementwithCentrelinktoenrolIntegralEnergycustomersinCentrepay,givingthemaccesstoafacilitytheycanusetomakeongoingpayments.

Inresponsetocustomerneeds,wealsotranslatedourINpowerbrochureintofourlanguages—Vietnamese,Chinese,ItalianandArabic.

TheINpowerprogramcontinuedtomeettheneedsofcustomersinfinancialhardship.Duringtheyear,morethan5,000newcustomerswereenrolled,bringingthetotalnumberofcustomerswhohavemovedthroughtheprogramtonearly10,500.AttheendofJune2007,3,682customerswereenrolledintheprogram.

TheINpowerteammadecommunityorganisationsawareoftheprogramthroughmorethan52visitstoindividualagencies.

WetrialledandimplementedanincentivearrangementforagroupofcustomersontheINpowerprograminSeptember2006.Underthearrangement,IntegralEnergyrewardscustomersformakingpaymentsontimebyapplyingamatchingpaymenttotheiraccounts.Thisreducesthetotalamountoutstandingforthecustomerandthedurationofthepaymentplan.

InJune2007,IntegralEnergyfundedano-interestloanschemeoperatedbyAnglicareatRootyHill.Theschemeoffersno-interestloanstocustomersinfinancialhardshipintheBlacktown,PenrithandHawkesburyareasforthepurchaseofessentialelectricalappliances.

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Social Performance AnnualPerformanceReport2006–07

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Listening and responding to customer comment

In2006–07,13,829comments,complimentsandcomplaintsweremanagedbyourCustomerCarebranchandrecordedinacentralisedsystem,anincreaseof15%fromthepreviousyear.Weattributetheincreasetotheintroductionoffullretailcontestabilityandthecomplexityitbringstothemarketplace.

Issuesthatattractedhighnumbersofcomplaintsincludedthoserelatedtothemanagementofcustomercontracts,thesizeofbills,anddoorknockingbysalespeople.Thenumberofcomplaintsrelatedtodebtrecoverydeclinedsignificantlyasaresultofourmoreeffectivemanagementofcustomersfacingfinancialhardship.

Wereceived371compliments,mainlyfortheserviceprovidedbycallcentrestaffandregionalstaffrespondingtonetwork-relatedissues.

Somecustomerslooktotheirelectedrepresentativesforassistancewithcomplexcustomerserviceissues.RepresentationsfromministersandmembersofparliamentcoverawiderangeofmattersrelevanttoIntegralEnergy,andallcasesaremanagedtoensuretimelyandappropriatecorrectiveandpreventiveaction.In2006–07,wemanaged94suchrepresentations,fourfewerthanthe98managedin2005–06.

CustomersalsohavetheoptionofreferringmatterstotheEnergyandWaterOmbudsmanNSW(EWON)foradvice.EWONisanindependentbody,establishedin1998,toinvestigateandresolvecomplaintsforcustomersofelectricity,gasandwaterproviders.

Duringtheyear,EWONhad589enquiriesand893complaintsfromIntegralEnergycustomers.Thisrepresented29%ofthetotalenquiriesand18%ofthetotalcomplaintsreceivedbyEWONfromitsmembers.IntegralEnergyisrepresentedontheBoardandCouncilofEWON.

Customer Consultative CommitteeIntegralEnergy’srepresentativeCustomerConsultativeCommitteeformsanotherimportantstakeholderengagementforum.Itsprimarypurposeistoenhancetheclimateoftrustbetweenmanagersandcustomersbyengaginginfrankdialogueonissuesofmutualconcern.Thecommittee’scontributionsinformIntegralEnergy’sbusinessplansandinitiatives.

Thecommitteemetfivetimesin2006–07andexaminedissuesrelatedtoclimatechange;demandmanagementinitiatives;greenproductsandservices;salestechniques;consumerprotectionandhardshipprograms;publicsafetyawarenessstrategies;customerservicepolicies;retailprices;communityengagementwithIntegral’scapitalprogram;businessperformance;andenvironmentalmanagement.

Theseissuesareidentifiedbycommitteemembersandcapturedinanannualworkplan.Wemakeavailableindustryexpertstodevelopthecommittee’sunderstandingandsupportitswork.

Stakeholder engagement

Prioritystakeholderprogramsarebasedonongoinganalysisofourexternaloperatingenvironment.Todeterminewhichgroupsreceiveparticularemphasis,weuseperformancebenchmarkingagainstcompetitors,corporatesocialresponsibilitybenchmarking,qualitativeresearchintoexternalstakeholderexpectationsaboutinfrastructure,andformalandinformalstakeholdersurveys.

Deeper engagement with external stakeholdersIntegralEnergyworkscloselywithlocalcommunitiestoplan,maintainandbuildvitalelectricityinfrastructure.Giventhedirectimpactofouroperationsonresidentsandbusinesses,welooktoconsulteffectivelywithdevelopers,localcouncils,planningauthorities,propertyassociationsandregulators.

Since2000,wehavehostedregionalplanningforumstooutlineour10-yearvisionandplanforthenetwork.Theplanalsoarticulatesourdemandmanagementstrategiesandforwardinvestmentplans.

In2006,wesoughttodeepenourengagementstrategytoconsultkeystakeholdersoncapital,maintenanceanddemandmanagementprojects.

Asaresult,twopilotforumswereheldinlate2006,attendedbykeyexternalstakeholderssuchasmembersofparliament,councils,developers,businesses,communityleadersandresidents.Feedbackfromtheforumswasacriticalpartofourqualitativeresearch,andwasincorporatedintothedevelopmentofournewannualplanningstatement,Network 2017.

Keyareasofinterestincludedourpositiononundergrounding,planstoaddressclimatechange,provisionofstreetlightingservices,designservices,staffingforthefuture,energyefficiencyandcommunitypartnerships.

WealsocontinuedourpartnershipwiththeUrbanDevelopmentInstituteofAustraliaNSWtoengagewithlanddevelopersonthedevelopmentoftheelectricitynetwork.DevelopersaresignificantstakeholdersinthedeliveryofaffordablelandsupplywithinIntegralEnergy’snetwork.

Community consultations and partnerships

OurcommitmenttocommunityconsultationsawstakeholderengagementprogramsdevelopedandimplementedfornewsubstationprojectsatBellaVista,EastLiverpool,Wilton,HoxtonPark,Hinchinbrook,Springhill,BaulkhamHillsandMtOusley.

CommunityconsultationontheVineyardtoRouseHilltransmissionlineupgradecontinued,withanindependentreviewcommissionedbytheMinisterforPlanning.ApprovalfortheprojectwasgrantedinSeptember2006subjectto70conditions,includinga$1millioninvestmentinacommunityenhancementprogramanda$0.5milliondemandmanagementfund.

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Table 6 Integral Energy’s community partnership program, 2006–07

Aim Examples

Economic Toencouragesustainableoutcomesinregionalbusinessinthefranchiseareathroughawardsandrecognition,andshowcasingworld’sbestpractice.

IllawarraBusinessAwards

NationalMulticulturalMarketingAwards

RegionalAchievementandCommunityAwards

WesternSydneyIndustryAwards

EnergyUsersAssociationofAustralia’sannualconference,QueenslandEnergyForum

PowerQualityandReliabilityCentreatWollongongUniversity

Environment Tofacilitateanddemonstratesoundenvironmentalpracticesbycreatingproactiveprogramsthatencourageandstimulatealternativeenergyusage.

AnnualSustainabilityConference

FutureworldEcoTechnologyCentre

SolarinSchools

SustainabilityStreetsinPenrith,BlacktownandHolroyd

WesternSydneyGreenhouseForest

Social Tosupportpositivefuturesbyprogramsthatdevelopskills,attitudesandactionsforyoungpeopleandfamiliesinIntegralEnergy’sfranchisearea.

AustraliaDaycelebrationsinParramatta,PenrithandWollongong

DepartmentofEducationandTraining’sARTEXPRESS,SchoolsSpectacular,SouthernStarsandSchoolSportFoundation

IntegralEnergyNSWRugbyLeagueDevelopmentWesternSydney

PowerhouseDiscoveryCentre:CollectionStoresatCastleHill

WestSydneyRazorbacksbasketballteam

Surflifesaving—SouthCoast

(Lefttoright):NationalRugbyLeagueChiefExecutive,DavidGallop,pupilsfromHolyFamilyCatholic School,IntegralEnergyCEO,RichardPowis,andNSWRugbyLeagueGeneralManager,GeoffCarr, atthelaunchoftheIntegralEnergyNSWRugbyLeagueDevelopmentWesternSydney.

Social Performance AnnualPerformanceReport2006–07

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‘SinceIntegralEnergy’sworkplacegivingprogram,I care! (Integral’s concerned and responsive employees), commencedinJuly2004,morethan$455,000hasbeen donatedtoourportfolioof12staff-selectedcharities.’

Safety wins at e‑safe 2007

HostedbyIntegralEnergyin2007,theannualEnergySafetyandFieldExpoisthepremiersafetyforumfortheNSWenergyindustryandoneofAustralia’spremiersafetyevents.Itsaimistohighlighttheimportanceofsafetyintheelectricalsectorandimprovesafetyperformance.

Thetwo-dayeventattractedaround2,300visitorsandparticipantsfromacrosstheenergy,infrastructureandutilitiessectors.

TheexpowasoriginallyplannedforJune,butwehadtopostponeituntilJulyafterthefloodsofthelongweekendchangedeveryone’splans.IntegralEnergyimmediatelyallocatedresourcestohelpEnergyAustraliarestorepowerto200,000peopleintheHunterandontheCentralCoast.Closeto80IntegralEnergystaffheadednorthtoworkalongsidetheircounterpartsinwhathasbeendubbed‘thebiggestpowerrestorationeventinrecentNSWhistory’.

Withplentyofcamaraderieandcompetition,wide-rangingexhibits,seminarsanddemonstrations,e-safe2007liveduptoitsbillingasoneofAustralia’spremiersafetyevents.

Thethemewas‘Developingourpeopleforasaferfuture’,aswesetouttoprovideavaluableforumforparticipantstoexchangetheirskillsandknowledgeonelectricalsafety.

TheeventwasattendedbyNSWenergydistributorsandgeneratorsandanumberofotherorganisationswithaffiliationstoourindustry,includingtheRTAandSydneyWaterandRail.Supplierstotheindustryshowcasedtheirlatestproducts,NSWenergydistributorscompetedinsafety-focusedcompetitions,andmembersoftheindustryhighlightedareasofimprovement.

Atotalof202competitorsfrom15utilitiespittedtheirskillsagainstoneanotherinfiremanagement,confinedspacerescue,firstaid,hazardandriskassessment.Othereventsincludedcompetitionsforexperiencedworkersandapprentices,alongwithpowerpoleclimbingandotherdemonstrations.

IntegralEnergytoppedthetrophytallywithfourwins,aheadofEnergyAustraliaandCountryEnergy,withtwovictoriesapiece.

Congratulationstoallofthecompetitors,notleastIntegralEnergy’s39-strongteam.

Forthefirsttime,theannualenergysafetyshowcasewascarbonneutral,asIntegralEnergyoffsettheemissionsfromstagingtheeventbypurchasingGreenPower.Indoingso,westoppedanestimated30tonnesofcarbondioxidebeingreleasedintotheatmosphere.

GeneralManager,NetworkAssetOperations,AlanFlett,presentedthirdplaceawardtoourHRA Apprenticesteam(lefttoright)KyleMalvern,KeironShort,MichaelWilliamsandSayedHasamMoussa.

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Table 7 e‑safe 2007 competition results

Event 1st 2nd 3rd

FirstAidevent1 EnergyAustralia MacquarieGeneration IntegralEnergy

FirstAidevent2 IntegralEnergy Transgrid DeltaElectricity

LineworkersHazardandRiskAssessment IntegralEnergy EnergyAustralia Energex

ApprenticesHazardandRiskAssessment CountryEnergy EnergyAustralia IntegralEnergy

FireManagementIntegralEnergy

EnergyAustralia(Apprentices) CountryEnergy

ConfinedSpaceRescueEnergyAustralia

EnergyAustralia(AssetAccess) CountryWater

Fitter/TechniciansHazardandRiskAssessment CountryEnergy RailCorp EnergyAustralia

ManualHandling IntegralEnergyteam2 IntegralEnergyteam1 RailCorp

WaterandEnergySafetyCompetition DubboCityCouncil SydneyWater HunterWaterCorporation

Thismajortransmissionlineupgrade,expectedtobecompletebyearly2008,willprovideasafeandsecureelectricitysupplytomorethan60,000newhomesinSydney’snorth-westatanestimatedcostof$23million.

Community partnershipsIntegralEnergyhasbuiltmanylong-termvaluablepartnershipswithlocalcommunitiesoverthepastdecade.Thesepartnershipspromoteandcelebratebusinesssuccess,contributetoenvironmentalandsocialinitiatives,andpromotestaffinvolvementwhereverpossible.

OurCommunityPartnershipandSponsorshipStrategysetsoutourpartnershipframework,incorporatingtriplebottomlineprinciplesforeconomic,environmentalandsocialoutcomes.

Table6showsourobjectivesineachareaandgivesexamplesofourcommunitypartnershipsin2006–07.AfuturechallengewillbeensuringthatourstrategysupportsIntegralEnergy’sexpansionintonewmarkets,suchasQueensland.

Thesocialcomponentofoursponsorshipframeworkconcentratesonthreekeyareas—charities,communityandsport—toreinforceIntegralEnergy’sresponsiblecorporatecitizenshipwithintheareaweserve.

During2006–07,IntegralEnergyintroducedtwoexcitingnewpartnerships:

The Powerhouse Discovery Centre: Collection Stores at Castle Hill.Wearetheprincipalsponsorofthecentre,astate-of-the-artstoragefacilityforaround50,000objects,designedtohonourandprotectAustralianhistorybymakingitaccessibletofuturegenerations.Thiscentreisdestinedtobecomeapopularvisitorattraction.

Integral Energy’s New South Wales Rugby League Development Western Sydney.WehavepartneredwithNSWRugbyLeagueandAustralianRugbyLeagueDevelopmenttodevelopgrassrootsRugbyLeagueandpromotehealthandfitnessamongyoungpeopleacrossGreaterWesternSydney.ThedevelopmentunitisprovidingpositiveRugbyLeagueexperiencestoboysandgirlsthroughprogramstailoredfordifferentagesandability.

IntegralEnergyhashadalong-termassociationwiththe1stRussellValeScoutsgroupintheIllawarraregionsince1974.Until2005,thegroup’sscouthallwaslocatedonlandownedbyIntegralEnergy.Afterthelandwassoldduring2006,wedonated$53,000fromtheproceedstoScoutsAustraliafortheupgradeoftheMtKeiraScoutCampandtheRussellValeScouts’homeinCorrimal.

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Wealsoworkwithlocalcouncilstomanagetheremovalofgraffitifromelectricityassetstoprotectthevisualamenityofcommunities.In2006–07,wedevelopedtargetedprogramsinPenrithandParramatta.

Staff workplace givingSinceIntegralEnergy’sworkplacegivingprogram,I care! (Integral’s concerned and responsive employees)commencedinJuly2004,morethan$455,000hasbeendonatedtoourportfolioof12staff-selectedcharities.StaffdonationsarematcheddollarfordollarbyIntegralEnergy,uptoatotalof$100,000peryear.Currently,10%ofourstaffparticipatein I care!

Future challenges

Maintainourfocusonsafetyandachievingazeroaccidentfrequencyrate

Furtherdevelopandimplementprogramstoretainanddevelopourpeople

Continuedfocusonprogramstorespondtotheneedsofvulnerablecustomers

Shiftingourlevelofstakeholderengagementfromaplatformof‘informingandconsulting’to‘involvingandcollaborating’.

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AnnualPerformanceReport2006–07

CorporateGovernance

48

49

Figure 20 Governance and Operational Structure

Parliament

Shareholding Ministers

Retail Risk Board Committee

Human Resources and Remuneration Board

Committee

Audit and Business Risk Board Committee

Chief Executive Officer

Richard PowisLeadsthemanagementteamandisresponsibleand

accountabletotheBoardfortheday-to-daymanagementandgovernanceoftheorganisation.

General Manager Network Development and Control

Rod HowardResponsibleforplanning,operatingandmonitoring

thenetwork,includingthedeliveryofitscapitalprogramtoensureitscapacity,sustainedintegrity

andlong-termvalue.

General Manager Network Asset Operations

Alan FlettResponsibleforbuildingandmaintainingnetwork

assetstoensureasafeandreliablenetwork,providingmeteringanddatamanagementservices,andmanagingnetworkconnectionsundertakenbyexternalproviders.

Chief Financial Officer

Daniel LucasResponsiblefortheorganisation’sfinancialand

procurementstrategies,financialdisciplineandcashflowmanagementandforreportingonitsfinancial

andbusinessperformancetokeystakeholders.

General Manager Regulatory and Corporate Affairs

Karen WaldmanCustodianoftheorganisation’spositioningfromabusinessstrategy,regulatoryandreputational

perspectiveandisresponsibleforIT&Tsupportservices.

General Manager Retail and Customer Services

Bruce RowleyResponsiblefordeveloping,marketingandselling

retailproductsthatmeetcustomerneedsandmaximisethevalueoftheorganisation’scustomerbase.

Board Code of Conduct

OutlinestheuniqueobligationsandresponsibilitiesfortheBoardand

expectationsastoDirectors’conduct.

Statement of Business Ethics

OutlinesIntegralEnergy’sexpectationsofprivatesectorserviceproviders

inconductingbusinesswithIntegralEnergy.

Code of Ethics

TheCodesetsouttheprinciplesandvaluesbywhichemployeesofIntegralEnergyareexpected

toact.

General Manager Human Resources

Irina White (Acting)Responsibleforensuringahealthyandsafe

environmentfortheorganisation’speopleandfordeveloping,attractingandretaininghigh-qualitystaff.

Company Secretary

Irina WhiteLeadstheSecretariat,whichsupportstheBoard

throughthereviewandimprovementoftheorganisation’scorporategovernanceframework.

Transaction Approval Committee

The Board of Directors is responsible for the overall corporate governance of Integral Energy and operates four committees.

Business UnitsTheheadofeachbusinessunitdirects,controlsandisheldtoaccountfortheorganisationalresourcesandprocessesfor

whichtheyareresponsible.Specificcommitteesbothintheexecutiveandinthebusinessunitsassisttheorganisationinitspursuitofasustainablefuture.

Portfolio Minister

Board of Directors

Integrated Suite of Ethical Principles

RegionalApprenticeCoordinator,DennisMuller

Corporate GovernanceAnnualPerformanceReport2006–07

50

Michael McLeod FAICD

MichaelMcLeodwasappointedanon-executivedirectorinMarch2000,andChairmaninMarch2002.MichaelistheChiefExecutiveOfficerofAustralianHealthManagement,Australia’sseventhlargestprivatehealthinsurancecompany.HewaspreviouslyChiefExecutiveOfficerofAustralia’slargestmedicalindemnityinsurancecompanyandtheChiefExecutiveOfficerofanAustralian-ownedriskmanagementconsultancywithoperationsinfivecountries.HeisaFellowoftheAustralianInstituteofCompanyDirectors,apastdirectoroftheNationalInsuranceBrokersAssociationofAustraliaandafoundingboardmemberoftheMedicalIndemnityInsurersAssociationofAustralia.Michaelwasre-appointedtotheBoardon1March2007.

Board of DirectorsInaccordancewiththeState Owned Corporations Act 1989,uptosevendirectorscanbeappointed,includingadirectornominatedbyUnionsNSW.Thenon-executivedirectorsaresubjecttoreappointmentbytheshareholders.

Terry Downing BComm, MMgmt, DipBusStudies (Insurance), FAICD

TerryDowningwasappointedanon-executivedirectorinMarch2000,andDeputyChairmaninMarch2002.TerryisaCertifiedPractisingAccountant,aFellowoftheAustralianInstituteofCompanyDirectors,andaconsultantwithextensiveexperienceinthefinancialservicessector.Previously,Terryheldanumberofseniorexecutivepositionsinthefinancialservicessector.

John Fahey AC DipL

JohnFaheywasappointedanon-executivedirectorinMarch2002.AformerPremierofNSWandmemberoftheNSWParliamentfor12years(1984–96),JohnwaselectedtotheCommonwealthParliamentin1996,servingasMinisterforFinanceandAdministrationintheHowardGovernmentfrom1996until2001.HebringsacommercialfocustotheBoardandacloseinsightintotheneedsandinterestsofIntegralEnergy’scustomers,gainedfromhisexperiencerepresentingresidentsinourfranchiseareaduringhisstateandfederalparliamentarycareer.JohnholdsthepositionsofChairmanandDirectoronanumberofcommercialBoards,aswellasbeinganadviserinthefinancialservicessector.JohnwasmadeaCompanionoftheOrderofAustraliainJanuary2002andwasawardedtheFederationMedalin2003.

5�

John Fletcher BSc, MBA, FAICD

JohnFletcherwasappointedanon-executivedirectorinMarch2006andisalsoanon-executivedirectorofBabcock&BrownPowerLimitedandBabcock&BrownPowerServicesLimitedasResponsibleEntityfortheBabcock&BrownPowerTrust.JohnhasheldanumberofseniorexecutivepositionsinthefinancialservicesandenergysectorsandhasworkedinSouthAfricaandEngland.JohnisaFellowoftheAustralianInstituteofCompanyDirectors.

Paul Sinclair DipIR, DipHRM

PaulSinclairwasinitiallyappointedanon-executivedirectorinJanuary1999.PaulistheAssistantSecretaryoftheElectricalTradesUnion(NSWBranch)andisalsoadirectorontheboardsoftheNationalElectricitySuperannuationScheme,ElectrotechSkillCentre,andElectroGroupTraining.PaulistheUnionsNSWnomineetotheTAFENSWConsultationCommittee.Paulwasre-appointedasanon-executivedirectorinAugust2006.

Emma Stein BSc (Hons), MBA, FAICD

EmmaSteinwasappointedanon-executivedirectorinOctober2004.Emmaisalsoanon-executivedirectorofDiversifiedEnergyandUtilityTrusts(anAMPCapitalGroupandMacquarieGroupjointventure),ArcEnergyandtheGrowthCentresCommission,amemberoftheUniversityofWesternSydneyStrategyandResourcesBoardCommitteeandtheNSWPresidentoftheNationalAssociationforPreventionofChildAbuseandNeglect.Previously,EmmahasheldthepositionofmanagingdirectorforanumberoflargemultinationalfirmsintheUnitedKingdom.EmmaisaFellowoftheAustralianInstituteofCompanyDirectors.

Richard Powis BEc, DipEd

RichardPowiswasappointedCEOandExecutiveDirectorinJanuary2000.Richard’sbiographicaldetailsaregivenintheExecutiveteamsectionoverleaf.

Corporate GovernanceAnnualPerformanceReport2006–07

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Executive team

Richard Powis BEc,DipEd

RichardPowiswasappointedCEOofIntegralEnergyinJanuary2000,beforewhichhehadworkedintheelectricitysupplyindustryinNSWformorethan15years.Hehasastrongtrackrecordinbusinessmanagementandstrategicdevelopmentacrossanumberofindustries.HewasacentralfigureinthedevelopmentoftheNationalElectricityMarket,whichincludedtheconnectionoftheQueenslandandNSWmarkets.RichardisaboardmemberoftheEnergyIndustriesSuperannuationSchemeandtheEnergyNetworksAssociation.

Alan Flett BEIndEng(Hons)

AlanFlettwasappointedGeneralManagerAssetManagementinJuly2000andGeneralManagerNetworkAssetOperationsinDecember2006.Duringhiscareer,AlanworkedwithABB,CablemakersAustraliaandCromptonParkinsoninAustralia,China,theUnitedKingdomandNewZealand.WhileworkingforABBandCablemakersAustralia,AlanmanagedmanufacturingorganisationsthatweremajorsuppliersofcriticalmaterialtotheAustralianpowerindustry.

Rod Howard BE(Hons),MEngSc,BBus,MBA,GAICD

RodHowardwasappointedGeneralManagerNetworkDevelopmentandControlinDecember2006.Rod’spreviousresponsibilitiesatIntegralEnergywerewideanddiverseandhaveincludedthegeneralmanagementrolesofCapitalSolutions,FullRetailContestability,CorporateDevelopment,CompanySecretary,BusinessDevelopmentandIntegralEnergyContracting.HeisalsoadirectorofEnergyandWaterOmbudsmanNSW(EWON).

Bruce Rowley BBus,AssDipLG

BruceRowleywasappointedGeneralManagerSalesandMarketinginFebruary2001,andGeneralManagerRetailandCustomerServicesinFebruary2004.BeforejoiningIntegralEnergy,BruceworkedforfiveyearswithAdvanceEnergy,wherehewasGeneralManagerEnergyServicesandGeneralManagerSalesandMarketing.Brucehasalsohadwideexperienceinanumberofseniormanagementrolesinmarketing,corporatecommunication,strategicplanningandcustomerservice.HeisadirectoroftheEnergyRetailersAssociationofAustraliaandisamemberoftheCouncilofEWON.

Karen Waldman BSc(Arch),BArch(Hons),MBA,GAICD

KarenWaldmanwasappointedGeneralManagerRegulatoryandCorporateAffairsinFebruary2004.Karen’spreviousresponsibilitieswithIntegralEnergyincludedGeneralManagerRegulatory,GeneralManagerCorporateDevelopment/CompanySecretary,andGeneralManagerIntegralEnergyContracting.BeforeworkingforIntegralEnergy,KarenwasemployedbySydneyWater,wheresheheldanumberofpositions,includingRegionalManagerCentralRegionandSeniorStrategicPlanner.BeforejoiningSydneyWater,shewasthemanagingdirectorofherarchitecturalandconstructioncompany,specialisinginprojectmanagement.KarenisamemberoftheAuditandRiskManagementCommitteeoftheUniversityofWesternSydney.

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Irina White DipT,GradDipCommMan,MAdmin,MAICD

IrinaWhitewasappointedCompanySecretaryinFebruary2006.BeforejoiningIntegralEnergy,Irinawasemployedinanumberofthestate’sbiggestandmostcomplexpublicutilities.Duringthattime,sheservedasCompanySecretarytotheboardsofRailServicesAustralia,RailInfrastructureCorporation,theStateRailAuthorityandRailCorp.Shewasresponsibleforoverseeingtheincorporation,mergerandamalgamationofsomeofthoseentities.AsGeneralManagerCorporateServicesinRailServicesAustraliaandRailInfrastructureCorporation,shewasresponsibleforareassuchaslegal,internalaudit,corruptionprevention,properties,riskmanagement,corporateaffairsandthebusinessmanagementsystem.HerpastexperiencehasalsoincludedseniorpolicyandmanagementpositionsintheNSWDepartmentofEducationandTraining.

Daniel Lucas BBus,CA

DanielLucaswasappointedChiefFinancialOfficerinDecember2006.Danielisacharteredaccountantwithmorethan25yearsexperienceasafinanceexecutivewithanumberofmajororganisations,includingWestpac,Deloitte,Foster’sBrewingGroup,Unilever,NationalFoodsandAustralianPharmaceuticalIndustries.HehasworkedinAustraliaandoverseasandhisseniormanagementcareerhascoveredabroadrangeofareassuchasfinancialmanagement,IT,supplychain,investorrelations,strategydevelopmentandmergersandacquisitions.

Changes to the Executive team in 2006–07JohnWallaceretiredasGeneralManagerEngineeringPerformanceinDecember2006afteracareerspanning42yearsintheelectricityindustry.Afteranextensivereview,thethreenetworkbusinessunitsweresubsequentlyrestructuredintotwo.

AlanPriestleyresignedasGeneralManagerHumanResourcesinAugust2006.Fromthistime,HumanResourcesreportedtotheCompanySecretary,IrinaWhite.HishamEl-AnsaryresignedasChiefFinancialOfficerinAugust2006.DanielLucaswasappointedChiefFinancialOfficerinDecember2006.

SteveLoweresignedasGeneralManagerTradingandMajorAccountsinMay2007.ThesefunctionsweresubsequentlytransferredtotheRetail,FinanceandCompanySecretariatbusinessunits.

Corporate governance

TheIntegralEnergyBoardandExecutivebelievethatgoodgovernanceisacriticalprerequisiteforahigh-performanceorganisationwithasustainablefuture.Goodgovernanceensuresthedeliveryofoutcomessoughtbyourshareholders;supportsourpeopleandbusinessoperations;andensuressoundfinancialandriskmanagementpracticesandeffectivecomplianceandauditingprograms.

IntegralEnergyrecognisesthatamoreholisticapproachtogovernance,riskandcomplianceminimisesduplicationandthatwhencombinedwithasoundethicalcultureenablesanincreaseinprofitability,efficiencyandeffectivenessthroughagreateralignmentofbusinessobjectives,valuesandbehaviourswiththesystemsofcontrol,supervisionandreporting.

(Lefttoright):IrinaWhite,AlanFlett, RodHoward,BruceRowley, KarenWaldman,RichardPowis, DanielLucas.

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54

Company Secretariat

2006–07wasthefirstfullyearofoperationoftheCompanySecretariat.CreatedinFebruary2006,theSecretariat,withitscombinationoflegal,compliance,ethical,andriskmanagementfunctions,demonstratesIntegralEnergy’scontinuingcommitmenttoanintegratedgovernance,riskmanagementandcomplianceapproach.

InternalauditisanotherimportantcomponentoftheSecretariat’sfunctionsbutretainsadirectreportinglinetotheAuditandBusinessRiskBoardCommitteeandtheChiefExecutiveOfficerforauditmatters.

Risk management

EffectivemanagementofriskateverylevelinIntegralEnergyisfundamentaltoachievingourbusinessobjectives.

IntegralEnergy’sstrategicriskswerereviewedbytheExecutiveteamandtheBoard.Thereviewexplicitlyconsideredtheinherentriskandtheexpectedresidualrisk.Thestrategicrisksincludepublicandworkplacesafety,networkreliability,theenvironment,programdelivery,thepositioningoftheretailbusiness,tradingactivities,stakeholders,customers,legislativecomplianceandbusinesscontinuity.

In2006–07,theAuditandBusinessRiskBoardCommitteecontinuedtoreceivebi-monthlyreportsontheprogressofmitigatingactionstomanagestrategicrisks.Tostrengthentheriskmanagementfocusoftheorganisation,theCorporatePlanwasstructuredtotakeaccountofthoserisks.

Operationalrisksatthebusinessunitlevelwerereviewedregularlythroughself-assessmentworkshopsfacilitatedbytheRiskManager,whousedprocessesbasedonAustralianStandardAS/NZS4360–RiskManagement.

IntegralEnergyrecognisesthat,astheproviderofanessentialservice,wehavearesponsibilitytothecommunityweservetohavecomprehensiveincidentmanagementandbusinesscontinuityplansinplace.Theseplanscontinuedtobereviewedandtestedregularly.

Insurance

IntegralEnergyreviewstheadequacyofitsinsurancepolicycoverageandlimitsannuallyandensuresthatallparticipatingmarketsmeetacceptableinsurersecurityrequirements.

Compliance management

IntegralEnergyiscommittedtothedevelopmentofafullyintegratedapproachtocompliancemanagementandusestheAustralianStandardAS3806–2006ComplianceProgramsasitsguide.In2006–07,we:

establishedaBusinessComplianceCommitteecomprisingrepresentativesofallbusinessunitsnominatedbythebusinessunitgeneralmanagers(thecommitteeischairedbytheCompanySecretaryandoperatesunderacharterendorsedbyexecutivemanagement)

improvedtheLegislativeObligationsListbyusingriskmanagementmethodologyinlinewiththeAustralianStandardAS4360–2004RiskManagementtoprioritisetheobligations

commencedbuildingnewintegratedrisk-basedcompliance

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plansacrossthebusinessbyengagingwithoperationalstaffandusingcurrentpractices,processesandcontrols

procuredasoftwaretooltohousecomplianceplansandriskmanagementplans,includingfraudandcorruptionrisks,inacentralrepositoryandtofacilitatereal-timeandhistoricalmonitoringandreporting

developedanewreportingregimefortheregularthree-yearreviewofpoliciesandprocedures

continuedtotrainemployeesintheirlegalobligations,includingunderprivacy,freedomofinformationandtradepracticeslegislation

becameacorporatememberoftheAustralasianComplianceInstitute.

Ethics and conduct

TheBoard’sCodeofConduct,theorganisation’sCodeofEthicsandtheStatementofBusinessEthicssendaconsistentmessageaboutappropriatebehaviourtomembersofourBoard,staff,customers,suppliersandthecommunity.

TheCodeofEthics,whichoutlinesourcorporatevaluesandprinciplesandguidesourday-to-daybehaviour,istheorganisation’sprimarydocumentonwhichallotherdocumentsandactivitiesarebased.Thecodewasrevisedin2006–07toincludeanewvalue,‘enterprisingspirit’.TheStatementofBusinessEthicsisprovidedtoallsuppliersandoutlinesourvaluesandbusinessprinciples.

TheCodeofEthicsandtheStatementofBusinessEthicsareavailableonourwebsite.Bothdocumentsprovideinformationonhowtoreportinappropriatebehaviour.

IntegralEnergyprovidesanumberofchannels,includingaconfidentialethicsline(1800ETHICS),tostaffandsuppliersforreportinginappropriatebehavioursuchasfraudorcorruption.Membersofthepubliccanuseourwebsitetoreportfraudorcorruptconduct.

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55

In2006–07weundertookthefollowingactivities:

conductedacorporate-widefraudriskassessment

draftedanewtwo-yearFraudandCorruptionControlPlantoreplacethepreviousplan,whichendedon30June2007.

Wealsoconductedourbi-annualemployeeopinionsurveyinwhichemployeeswereaskedtocommentonthestatement‘IamconfidentreportsofwrongdoingwouldbetreatedseriouslyatIntegralEnergy’.Some74%ofallemployeesmeasuredthisstatementas‘agreeorstronglyagree’.

Privacy

Asastate-ownedcorporation,IntegralEnergycomplieswiththeNationalPrivacyPrinciples.TheseprinciplesarecontainedinthePrivacy Act 1988.

Internal audit

TheBoardandtheExecutivearecommittedtosupportinganinternalauditfunctionthatoperatesasanindependent,objectiveassuranceprovider,addingvaluetotheorganisationandimprovingitsoperations.

Toensuretheindependenceoftheinternalauditfunction,theHeadofAuditandRiskhasdirectaccesstotheAuditandBusinessRiskBoardCommitteeandtheChiefExecutiveOfficer.

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TheinternalauditactivitysupportsmanagementinachievingIntegralEnergy’sstatutoryandbusinessobjectivesbybringingadisciplinedapproachtoevaluatingandimprovingtheeffectivenessofriskmanagement,controlandgovernanceprocesses.

Auditsarecarriedoutacrossarangeofoperationsandactivities,inlinewithaplanapprovedeachyearbytheAuditandBusinessRiskBoardCommittee.In2006–07,auditswerecompletedinaccordancewiththeapprovedplan.AnumberofspecialreviewsrequestedbymanagementandtheBoardwerealsocompleted.

Theannualclientsatisfactionsurveyandanexternalreviewfoundthattheinternalauditfunctionhaddischargeditsresponsibilityeffectively.

External audit

TheAuditor-GeneralofNSWprovidesindependentexternalauditservicesthroughtheAuditOfficeofNSW,andprovidesnootherservicestoIntegralEnergy.

Executive committees

IntegralEnergy’ssixexecutivecommitteesintegrateorganisationalinitiativesandprovidespecialistandindependentadvice.Theexecutivecommittees,whicharegenerallycomposedoftheExecutiveteam,operateaccordingtocharterssetdownbytheChiefExecutiveOfficer.ThecommitteesaretheOccupationalHealthandSafety

Committee,theContractReviewCommittee,theEnvironmentalSteeringCommittee,theInformationandCommunicationsTechnology(ICT)EnterprisePlanningCommittee,theCapitalGovernanceCommittee,andtheAuditandBusinessRiskCommittee.

Board committees

TheroleoftheBoardistoprovideoverallstrategicguidanceforthecompanyandeffectiveoversightofmanagement.Inundertakingthisrole,theBoardmaydelegateresponsibilitytocommitteestoconsiderissuesinfurtherdetailandtoreportbacktoit.ThedutiesandresponsibilitiesoftheboardcommitteesaredescribedinAppendix4.

TheBoardmayalsoestablishcommitteesfromtimetotimetoconsiderothermattersofspecialimportance.Nosuchcommitteeswereestablishedin2006–07.Fourboardcommitteesoperatedin2006–07.TheTransactionApprovalCommitteehasarotatingmembership.FurtherinformationaboutthedutiesofIntegralEnergy’sBoardcommitteesissetoutinAppendix4,beginningonpage107.

‘IntegralEnergyiscommittedtothedevelopmentofa fullyintegratedapproachtocompliancemanagement andusestheAustralianStandardAS3806–2006 ComplianceProgramsasitsguide.’

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Table 8 Directors’ meetings, 2006–07

Integral Energy Australia Board

Audit and Business Risk Board Committee1,2,3

Retail Risk Board Committee

Human Resources and emuneration Board Committee

Transaction Approval Committee4

Name Meetingsattended

Meetingseligibleto

attend

Meetingsattended

Meetingseligibleto

attend

Meetingsattended

Meetingseligibleto

attend

Meetingsattended

Meetingseligibleto

attend

Meetingsattended

Meetingseligibleto

attend

MichaelMcLeod5,6 12 12 9 9 11 11 6 6 4 4

TerryDowning 12 12 9 9 – – 6 6 4 4

JohnFahey 11 12 9 9 – – 5 6 1 1

JohnFletcher7 11 12 8 9 10 11 1 1 – –

PaulSinclair2,8,9 12 12 1 1 – – 6 6 – –

EmmaStein2,7 12 12 1 1 11 11 1 1 – –

RichardPowis10 12 12 8 9 11 11 6 6 4 4

Notes

1 Aspecialmeetingwasheldon6September2006fortheendorsementofthefinancialstatementsfortheyearended30June2006andtheInsuranceRenewalStrategy.

2 Aspecialmeetingwasheldon8November2006toreviewstrategicrisk.EmmaSteinandPaulSinclairattendedthemeetingasinvitees.

3 TheappointmentoftheHeadofAuditandRiskwasendorsedbycirculatingresolutionon2May2007.

4 TheTransactionApprovalCommitteemetformallyontwooccasionsin2006–07andmadetwoapprovalsbycirculatingresolution.

5 MichaelMcLeodwasre-appointedasChairmanon1March2007.

6 MichaelMcLeodattendedtheHumanResourcesandRemunerationBoardCommitteemeetingsasaninvitee.

7 JohnFletcherandEmmaSteinattendedpartoftheHumanResourcesandRemunerationBoardCommitteemeetingon7March2007asinvitees.

8 PaulSinclairattendedtheBoardmeetingsinJulyandAugust2006asaninviteependinghisre-appointmentasaDirectoron21August2006.MrSinclairwaspaidanhonorariumequivalenttotheDirectorremunerationfortheperiodasapprovedbytheBoardatthe10May2006Boardmeeting.

9 PaulSinclairattendedtheHumanResourcesandRemunerationBoardCommitteemeetinginJuly2006asaninviteependinghisre-appointmentasaDirectoron21August2006.

10RichardPowisattendedtheAuditandBusinessRiskBoardCommitteemeetingsasaninvitee.

‘OurCodeofEthicswasrevisedin2006-07 toincludeanewvalue-enterprisingspirit’

57

Term of office of Board members

AllmembersofIntegralEnergy’sBoardofDirectors,withtheexceptionoftheChiefExecutiveOfficer,areappointedbythevotingshareholdersforperiodsofuptofiveyears.Avacancyintheofficeofdirector(withtheexceptionoftheChiefExecutiveOfficerandUnionsNSWnominee)isfilledbyanomineeofthevotingshareholders.

Theremunerationofeachnon-executivedirectorispaidoutofIntegralEnergy’sfundsandisdeterminedbythevotingshareholders.TheChiefExecutiveOfficerisnotentitledtoanyadditionalremunerationforbeinganexecutivedirector.Seepage92forfurtherdetailsaboutremuneration.

ThecurrentdirectorsandtheirtermsaresetoutinTable9.

Table 9 Directors and terms of office

Name Term (including reappointments)

Position Comment

MichaelMcLeod

(Chairman)

1March2000–31August2010

Non-executivedirector

ChairmanoftheBoardfrom1March2002(reappointed1March2007)

MemberofAuditandBusinessRiskBoardCommittee

MemberofRetailRiskBoardCommittee

Invitee,HumanResourcesandRemunerationBoardCommittee

TerryDowning

(DeputyChairman)

1March2000–29February2008

Non-executivedirector

DeputyChairmanoftheBoardfrom1March2002

ChairmanofHumanResourcesandRemunerationBoardCommittee

MemberofAuditandBusinessRiskBoardCommittee

JohnFahey 1March2002–28February2009

Non-executivedirector

ChairmanofAuditandBusinessRiskBoardCommittee

MemberofHumanResourcesandRemunerationBoardCommittee

JohnFletcher 1March2006–28February2009

Non-executivedirector

MemberofRetailRiskBoardCommittee

MemberofAuditandBusinessRiskBoardCommittee

PaulSinclair 1January1999–20August2008

Non-executivedirector

Re-appointed21August2006

MemberofHumanResourcesandRemunerationBoardCommittee

EmmaStein 12October2004–11October2007

Non-executivedirector

ChairofRetailRiskBoardCommittee

RichardPowis Appointed17January2000

ChiefExecutiveOfficerandExecutiveDirector

MemberofRetailRiskBoardCommittee

MemberofHumanResourcesandRemunerationBoardCommittee

Invitee,AuditandBusinessRiskBoardCommittee

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Management discussion and analysis

Overview

IntegralEnergymaintaineditsstrongperformance,achievedthroughcontinuedfocusonbusinessfundamentals,appropriatedisciplineandcorporategovernance.

Eachfinancialyear,aspartofitsobligationsasastate-ownedcorporation,IntegralEnergyisrequiredtosubmitaStatementofCorporateIntent(SCI)toitstwovotingshareholders,theNSWTreasurerandtheMinisterforFinance.TheSCIsetsoutkeypolicies,performancetargetsandbusinessdirectionswhichhavebeenagreedtobytheBoardofIntegralEnergyanditsshareholders.

Summary

TheSCIstatesthenatureandscopeofthemaincommercialactivitiesofIntegralEnergyandthestrategicdirectionofthecorporation.Inaddition,theSCIincludesdetailsof:

theobjectivesofthecorporation

performancetargetsandprojections

socialprogramsandnon-commercialactivities

financialassetandliabilitymanagement(includingenergytradingriskmanagement)

commitmenttonetworkservicequality.

IntegralEnergy’sprofitbeforeincometaxexpensewas$239.2million,exceedingthe2006–07SCItargetof$163.1million.Totaldistribution,consistingofincometaxexpenseanddividendpayments,was$193.0million,whichwasalsohigherthanthetargetof$132.7million.

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Net profit

Operatingprofitaftertaxwas$153.2million,a10.5%increaseonthe2005–06resultof$138.6millionand51.1%higherthantheSCItarget.

Totalrevenueandotherincomeincreasedby$103.2millioncomparedtothepreviousyear.Theincreasewasduetoadditionalelectricitysalesandnetworkuseofsystemincome.Thishasbeenpartlyoffsetbyacurrentyearsuperannuationdefinedbenefitsactuariallosscomparedtoaprior-yeargain.

Expensesfromoperatingactivitiesincreasedby$57.1millioncomparedtothepreviousyear.Theincreasewasduetoadditionalretailinganddistributionofelectricitycosts,whichincreasedinlinewithrevenue,combinedwithincreaseddepreciation.

Shareholder return

IntegralEnergyiscommittedtodeliveringsustainableandattractivereturnstoitsshareholder,theNSWGovernment.

Thedirectorsdeclaredafirstandfinaldividendof$107.0million,representinganincreaseof$3.2millioncomparedtothepreviousyearandanincreaseof$36.1millioncomparedtothe2006–07SCItarget.

Dividenddistributionisbasedon70%ofprofitaftertax,adjustedfornon-cashAustralianEquivalentInternationalFinancialReportingStandards(AIFRS)adjustmentsrelatingtosuperannuationactuarialgains/lossesandfairvaluemovementsinfinancialinstruments.

Balance sheet

Workingcapitaldeficithasreducedby$324.3millionasat30June2007,primarilyduetoanetincreaseinthecurrentderivativefinancial

assetsof$236.0million,anincreaseincashheldof$44.2millionandareductionincurrentinterest-bearingloansof$37.3million.Anincreaseof$136.0millionintradeandotherreceivableswasoffsetbyanincreaseof$143.5millionintradeandotherpayables.

Non-currentassetsincreasedby$527.2millioncomparedtothepreviousyearduetoanincreaseof$322.5millioninthewritten-downvalueofproperty,plantandequipmentandanincreaseof$187.0millioninnon-currentderivativefinancialassets.

Non-currentliabilitiesincreasedby$410.9millioncomparedtothepreviousyearduetoanincreaseindeferredtaxliabilitiesof$214.5millionandanincreaseininterest-bearingloansandborrowingsof$187.1million.

Cash flows

Cashandcashequivalentsattheendofthefinancialyearincreasedby$44.2millionfrom2005–06.Netcashflowsprovidedbyoperatingactivitiesfortheyearwere$382.4million,anincreaseof$163.3millionon2005–06,duemainlytoreducedpaymentstosuppliersandemployeescombinedwithincreasedreceiptsfromcustomers.

Netcashflowsusedininvestingactivitiesfortheyearwere$374.1million,anincreaseof$44.8millionor13.6%.Thisresultisconsistentwithincreasedcapitalexpenditurelevels.

Netcashflowsprovidedbyfinancingactivitiesfortheyearwere$35.9million,adecreaseof$39.9millionor52.6%on2005–06results.Thisisduetoanetdecreaseinborrowingsandareductionindividendspaid.

Unusedcreditfacilitiesasat30June2007were$331.3million.

‘IntegralEnergyiscommittedtodelivering sustainableandattractivereturnstoits shareholder,theNSWGovernment.’

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Capital expenditure

The2006–07financialyearresultedinasignificantincreaseincapitalspend,withexpendituretotalling$381.7million,including$316.6millionspentonimprovingnetworkassets.

Thecapitalprogramcontinuestotargetassetrenewalsaswellasgrowth-relatedprojects.ThecapitalprogramisunderpinnedbyIntegralEnergy’sStrategicAssetManagementPlan(SAMP).TheSAMPreflectsplansandstrategieswhicharealignedtocustomerandtechnicaldrivers,improvelong-termnetworkassetvaluesandproduceoptimalreturnstoshareholders.Theplansetsprioritiesandsummarisestheinvestmentinthenetworkrequiredtomaintainongoingnetworkcapability,consistentwitha‘bestinclass’networkassetmanager.

Credit rating

FitchRatingshasaffirmedIntegralEnergy’slong-termforeigncurrencyIssuerDefaultRatingof‘AA’andshort-termforeigncurrencyratingof‘F1+’.

Definitionsoftheseratingsareasfollows:

AA: Veryhighcreditquality.AAratingsdenoteexpectationsofverylowcreditrisk.Theyindicateverystrongcapacityforpaymentoffinancialcommitments.Thiscapacityisnotsignificantlyvulnerabletoforeseeableevents.

F1+: Highestcreditquality.Indicatesthestrongestcapacityfortimelypaymentoffinancialcommitments;mayhaveanadded‘+’todenoteanyexceptionallystrongcreditfeature.

TheseratingsreflectNSWGovernmentownershipofIntegralEnergy.

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DistrictOperator,DanielMifsud(left),andapprenticeDanielMyers.

Annual Performance Report 2006–07

Financial Statements

60

Contents Page

Directors’ Report 61

Independent Audit Report 62

Income Statement 64

Balance Sheet 65

Statement of Changes in Equity 66

Cash Flow Statement 67

Notes to the Financial Statements 68

Statement by Directors 94

61

The Board of Directors of Integral Energy (the Corporation) have pleasure in submitting the accounts of the economic entity for the period 1 July 2006 to 30 June 2007, and the independent audit report thereon.

1. Generalinformation

(a) Directors

The names of Directors in office at any time during the year are shown on page 57.

Details of meetings and attendance by Directors are shown in the Corporate Governance section on page 56.

(b) PrincipalActivities

The principal activities of the Corporation during the course of the period ended 30 June 2007 were the purchase, distribution and sale of electricity, meter data provision and maintenance, and the construction and management of electricity distribution assets.

2. Businessreview

(a) OperatingResults

The after tax profit of the Corporation for the year was $153.2m.

3. Otheritems

(a) StateofAffairs

The Corporation operates in the New South Wales, Victoria, ACT, Queensland, South Australia and Tasmanian electricity industry in its own right under the provisions of the Electricity Supply Act 1995, and in the national electricity market.

The financial statements for the Corporation for the period ending 30 June 2007 are presented on pages 60 to 94 inclusive.

(b) EventsSubsequenttoBalanceDate

The valuation of derivatives is subject to market volatility. A review of forward market prices has been performed subsequent to year end. An analysis of forward market prices as at 31 July 2007 indicated that the value of the Corporation’s electricity derivative hedge reserve had decreased by approximately $365 million.

With the exception of electricity derivatives, there has not arisen, in the interval between the end of the financial period and the date of this report, an event of a material and unusual nature likely, in the opinion of the Directors of the Corporation, to affect significantly the operations of the economic entity, the results of those operations, or the state of affairs of the economic entity, in subsequent financial years.

(c) LikelyDevelopments

The Corporation will pursue its vision “to be Australia’s leading energy business”, by focussing on delivering superior value to our customers and our shareholders, now and into the future. The Corporation’s network business purpose is to “provide long term customer service by developing and operating a sustainable and reliable network”, while the retail business is focussed on “maximising the long term value of the retail business”.

Further information about likely developments in the operations of the Corporation and the expected results of those operations in subsequent financial years has not been included in this report, as the Directors believe, on reasonable grounds, that to include such information would be likely to result in unreasonable prejudice to the Corporation.

(d) Directors’Benefits

During the period no Director of the Corporation has received, or become entitled to receive, any benefits by reason of a contract made by the Corporation or a related body corporate with a Director, or with a firm of which a Director is a member, or with an entity in which a Director has a substantial interest.

(e) EnvironmentalRegulationPerformance

The Corporation’s environmental and waste discharge obligations are regulated under both State and Federal Law. All environmental performance obligations are monitored by the Environmental Steering Committee and subjected, from time to time, to Government agency audits and site inspections. The Corporation has a policy of at least complying, but in most cases exceeding, its environment performance obligations.

(f) Roundingofamounts

Amounts in the financial statements have been rounded to the nearest thousand dollars unless specifically stated to be otherwise.

Signed in accordance with a resolution of the Directors:

Michael McLeod Director 4 September 2007

Richard Powis Director 4 September 2007

Directors’ ReportFor the year ended 30 June 2007

Independent Audit reportFor the year ended 30 June 2007

Annual Performance Report 2006–07

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63

Notes2007

$’0002006

$’000

Revenue 4 1,387,812 1,280,455

Other income 4 149,679 153,804

Expenses excluding finance costs 5 (1,191,114) (1,134,041)

Finance costs 5 (107,182) (96,417)

Profit before income tax 239,195 203,801

Income tax expense 6 (85,986) (65,213)

Profit for the year 153,209 138,588

The above statement should be read in conjunction with the accompanying notes.

Income StatementFor the year ended 30 June 2007

StartoftheauditedFinancialStatements

Annual Performance Report 2006–07

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65

Notes2007

$’0002006

$’000

ASSETS

Current assets

Cash and cash equivalents 9 45,460 1,211

Trade and other receivables 10 309,732 173,754

Inventories 11 20,654 19,576

Derivative financial assets 22(f) 294,473 18,471

Estimated revenue from unread meters 2(g) 61,623 86,771

Emission rights 2(x) 15,447 7,235

747,389 307,018

Non‑current assets classified as held for sale 12 11,180 11,180

Total current assets 758,569 318,198

Non‑current assets

Property, plant and equipment 13 3,066,117 2,743,629

Deferred tax assets 7 82,557 73,626

Intangible assets 14 47,909 39,093

Derivative financial assets 22(f) 191,872 4,863

Total non‑current assets 3,388,455 2,861,211

TOTAL ASSETS 4,147,024 3,179,409

LIABILITIES

Current liabilities

Trade and other payables 16 330,600 187,076

Interest‑bearing loans and borrowings 18 355,890 393,164

Current tax payable 219 13,975

Provisions 19 104,206 129,521

Provision for dividend 2(w) 107,033 103,866

Derivative financial liabilities 22(f) 42,368 2,410

Other 17 33,382 27,568

Total current liabilities 973,698 857,580

Non‑current liabilities

Interest‑bearing loans and borrowings 18 1,175,567 988,451

Deferred tax liabilities 7 561,983 347,522

Derivative financial liabilities 22(f) 14,576 5,345

Provisions 19 85,010 83,051

Other 20 12,230 14,056

Total non‑current liabilities 1,849,366 1,438,425

TOTAL LIABILITIES 2,823,064 2,296,005

NET ASSETS 1,323,960 883,404

EQUITY

Contributed equity 335,046 335,046

Reserves 847,501 453,124

Retained earnings 141,413 95,234

TOTAL EQUITY 1,323,960 883,404

The above statement should be read in conjunction with the accompanying notes.

Balance SheetAs at 30 June 2007

Year ended 30 June 2007

Contributed Equity$’000

Retained Earnings

$’000

Asset Revaluation

Reserve$’000

Hedge Reserve

$’000Total

$’000

Equity as at beginning of financial year 335,046 95,234 443,378 9,746 883,404

Changes

Asset revaluation – – 29,572 – 29,572

Swap hedge revaluation – – – 533,826 533,826

Income tax on items taken directly to equity – – (8,870) (160,148) (169,018)

Transfers to and from reserves

Transfers from retained earnings – 3 (3) – –

Net income recognised directly in equity – 3 20,699 373,678 394,380

Profit for the year – 153,209 – – 153,209

Total recognised income & expense for the year – 153,212 20,699 373,678 547,589

Dividends paid or provided for – (107,033) – – (107,033)

Equity as at 30 June 2007 335,046 141,413 464,077 383,424 1,323,960

Year ended 30 June 2006

Contributed Equity$’000

Retained Earnings

$’000

Asset Revaluation

Reserve$’000

Hedge Reserve

$’000Total

$’000

Equity as at beginning of financial year 335,046 48,032 507,290 – 890,368

Capital contribution accounting error – – (464) – (464)

Changes

Asset revaluation – – 27,244 – 27,244

Asset impairment – – (117,894) – (117,894)

Swap hedge AIFRS opening balance adjustment (AASB 139) – – – 2,283 2,283

Swap hedge revaluation – – – 11,640 11,640

AIFRS opening balance adjustment relating to cash flow hedges recognised directly in equity (AASB 139) – (6,830) – – (6,830)

AASB 139 loans/discounts – 19,317 – – 19,317

Income tax on items taken directly to equity – – 27,195 (4,177) 23,018

Transfers to and from reserves

Transfers from retained earnings – (7) 7 – –

Net income recognised directly in equity – 12,480 (63,912) 9,746 (41,686)

Profit for the year – 138,588 – – 138,588

Total recognised income & expense for the year – 151,068 (63,912) 9,746 96,902

Dividends paid or provided for – (103,866) – – (103,866)

Equity as at 30 June 2006 335,046 95,234 443,378 9,746 883,404

The above statement should be read in conjunction with the accompanying notes.

Statement of Changes in EquityFor the year ended 30 June 2007

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Notes2007

$’0002006

$’000

Cash flows from operating activities:

Receipts from customers 1,506,962 1,476,755

Payments to suppliers and employees (962,408) (1,094,358)

Interest received 1,083 484

Interest paid (101,688) (90,894)

Income taxes paid (61,561) (72,868)

Net cash provided by/(used in) operating activities 8(a) 382,388 219,119

Cash flows from investing activities:

Proceeds from sale of plant and equipment 7,589 7,234

Purchase of property, plant and equipment (381,662) (336,474)

Net cash provided by/(used in) investing activities (374,073) (329,240)

Cash flows from financing activities:

Proceeds from borrowings 215,000 190,000

Repayment of borrowings (75,200) (8)

Dividends paid (103,866) (114,132)

Net cash flows from/(used in) financing activities 35,934 75,860

Net increase/(decrease) in cash and cash equivalents 44,249 (34,261)

Cash and cash equivalents at beginning of the financial year 1,211 35,472

Cash and cash equivalents at end of the financial year 9 45,460 1,211

The above statement should be read in conjunction with the accompanying notes.

Cash Flow StatementFor the year ended 30 June 2007

1 CorporateInformation

The financial report of Integral Energy Australia for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the Directors on 4 September 2007.

Integral Energy Australia is a state‑owned energy Corporation, incorporated in New South Wales under the Energy Services Corporations Act 1995. Integral Energy Australia’s registered office is 51 Huntingwood Drive, Huntingwood NSW 2148.

The nature of the operations and principal activities of the Corporation are described in the Directors’ Report.

2 StatementofSignificantAccountingPolicies

(a) BasisofPreparation

The financial report is a general‑purpose financial report, which has been prepared in accordance with the requirements of applicable Australian Accounting Standards, the State Owned Corporations Act 1989, the Public Finance and Audit Act 1983 and the Regulation 2005 and Accounting Interpretations.

This report has been prepared on a going concern basis which assumes that Integral Energy will be able to pay its debts as and when they fall due, and continue operation without any intention or necessity to liquidate or otherwise wind up its operation.

The Corporation is classified as a for‑profit entity for the purposes of the application of Australian Accounting Standards and after consideration of all factors contained in New South Wales Treasury Policy TPP 05‑4 Distinguishing For‑Profit from Not‑For‑Profit Entities.

The financial report has been prepared on a historical cost basis, except for property, plant and equipment, and derivative financial instruments which have been measured at fair value, and except where stated, does not take into account changing money values.

Amounts in the financial report are rounded to the nearest thousand dollars. The financial report is presented in Australian dollars.

(b) Statement of Compliance

The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS).

Integral Energy has assessed the new Australian Accounting Standards that have recently been issued or amended but are not yet effective or applied. It has been determined that these new accounting standards will have no material impact on the financial statements in the period of initial application.

(c) Foreign currency translation

Both the functional and presentation currency of Integral Energy Australia is Australian dollars (A$).

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 liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.

All resulting exchange differences arising on settlement or re‑statement in the financial report are recognised as income and expenses in the Income Statement.

(d) Cash and Cash Equivalents

Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand, short‑term deposits readily convertible to cash, investments for a fixed term where the maturity date is three months or less from year end balance date, and readily tradeable investments which are likely to be converted to cash within three months of year end balance date even though the maturity date may be greater

than three months from year end balance date.

Cash and cash equivalents are net of outstanding bank overdrafts. Bank overdrafts are carried at the principal amount and interest is charged as an expense as it accrues.

(e) Trade and other receivables

Trade receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. Allowance for impairment is based on an estimate of probable non‑payment. Bad debts are written off when identified.

(f) Inventories

Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows:

(i) Raw materials – purchase cost on weighted average cost; and

(ii) Finished goods and work‑in‑progress – cost of direct material, labour and a proportion of manufacturing overheads based on normal operating capacity.

(g) Unreadmeters

At reporting date, Integral Energy accrues an estimate of electricity consumed where the meter has not been read. The basis used to estimate unread meters is consistent with prior years. This calculation is recognised as revenue on unread meters in the Income Statement.

(h) Recoverableamountofassets

At each reporting date, Integral Energy assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the corporation makes a formal estimate of 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.

Notes to the Financial StatementsFor the year ended 30 June 2007

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Notes to the Financial StatementsFor the year ended 30 June 2007

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 assets’ 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 corporations of assets, in which case, the recoverable amount is determined for the cash‑generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre‑tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

(i) Property,plantandequipment

System assets have been valued at the lower of the Optimised Depreciated Replacement Cost (ODRC) or recoverable amount in accordance with Australian Accounting Standard AASB 116 Property, Plant and Equipment and NSW Treasury Policy and Guidelines Paper TPP 07‑1 Valuation of Physical Non‑Current Assets at Fair Value. The ODRC valuation approach assumes an altered electrical distribution system configuration. This is achieved by valuing the network distribution system assets on the basis that the system is built to assumed engineering standards above that required to support the maximum possible electrical load. If excess capacity remains within this optimised system configuration, such capacity is valued at zero.

System land and non‑system land and building assets are valued at the latest market valuation based on fair value of the asset.

Other property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value.

Depreciation is calculated on a straight‑line basis over the estimated useful life of the asset. Depreciation is charged on a pro‑rata basis for assets purchased or sold during the year. Depreciation rates are shown below.

Impairment

The carrying values of plant and equipment are reviewed for impairment annually when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash‑generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash‑generating units are written down to their recoverable amount.

Impairment losses are recognised in the Income Statement, where there is no corresponding entry in the Asset Revaluation Reserve.

Revaluation

Following initial recognition at cost, system and non‑system land and buildings are carried at a revalued amount which is the fair value at the date of the revaluation less any subsequent accumulated depreciation on buildings and accumulated impairment losses.

In respect of classes of assets for which there exists an active market, fair value is determined by reference to market‑based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date. In respect of classes for which there is no active market due to the specialised nature of the assets, fair value is determined as the lower of the estimated written down current replacement cost of the assets and their recoverable amount as determined using the cash generating unit test, being the discounted present value of the net cash inflows that the corporation expects to be generated from those assets, operating as a single cash generating operation over their expected useful lives.

Any revaluation increment is credited to the asset revaluation reserve included in the equity section of the Balance Sheet, unless it reverses a revaluation decrement of the same asset previously recognised in the Income Statement. Any revaluation decrement is recognised in the Income Statement unless it directly offsets a previous increment of the same asset in the asset revaluation reserve.

Valuations are undertaken in accordance with NSW Treasury Policy and Guidelines Paper TPP 07‑1 Valuation of Physical Non‑Current Assets at Fair Value.

Disposal of assets

Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. 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 on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Income Statement in the year the item is derecognised.

Independent valuations

Between independent valuations, the Directors review the carrying amount of assets at each reporting date to ensure they do not differ materially from the asset’s fair value at that date.

In June 2002, Sinclair Knight Mertz (SKM) carried out a valuation of system property, plant and equipment, which was adopted as of 1 July 2005. An impairment test was then applied as per AASB136 Impairment of Assets, and the impaired value was adopted as of 1 July 2005, with necessary entries made to asset values. The impairment decrement resulting from the recognition of the new values has been recognised in the revaluation reserve.

Notes to the Financial StatementsFor the year ended 30 June 2007

System land and non‑system land and buildings are subject to independent valuation on a cyclical basis over a three year period. The valuation of system land and non‑system land and buildings in 2006/07 was conducted by Edward Rushton Australia Pty Ltd.

Capitalisation threshold

Property, plant and equipment assets purchased below $500 are expensed in the year of acquisition.

Depreciationrates %

Buildings 2.50 – 15.00

System plant and equipment 1.67 – 14.29

EDP equipment 10.00 – 25.00

Motor vehicles, mobile plant, unregistered plant 10.00

Radio communication equipment 14.29

Other non‑system plant and equipment 4.29 – 33.33

The system asset revaluation carried out at 1 July 2005 resulted in an impairment of assets and a significant increase in the average effective lives of assets.

(j) Non-currentassetsheldforsale

Non‑current assets held for sale are measured at the lower of carrying amount and fair value less costs to sell.

(k) Intangible assets

Intangible assets acquired separately are capitalised at cost. Following initial recognition, the cost model is applied to the class of intangible assets. The useful lives of these intangible assets are assessed to be either finite or indefinite. Where amortisation is charged on assets with finite lives, this expense is taken to the Income Statement. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred.

Intangible assets are tested for impairment where an indicator of impairment exists, and in the case of indefinite lived intangibles annually, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

A summary of the policies applied to the Corporation’s intangible assets is as follows:

Software Easements

Useful lives Finite Indefinite

Amortisation method used 4 to 9 years – straight line Not depreciated or revalued

Internally generated/acquired Internally generated/acquired Acquired

Impairment test/recoverable amount testing

Annually and where an indicator of impairment exists

Annually and where an indicator of impairment exists

Easements are an interest in land allowing access for transmission lines. As no time period is attached to the easements, they are considered to have an indefinite life and are not amortised.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Income Statement when the asset is derecognised.

(l) Leases

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the Income Statement over the lease term.

(m) Financecosts

Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in connection with arrangement of borrowings and Government guarantee fee. Borrowing costs are recognised in the income statement in the period in which they are incurred.

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Notes to the Financial StatementsFor the year ended 30 June 2007

(n) Interest-bearingloansandborrowings

All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.

After initial recognition, interest‑bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

Gains and losses are recognised in the Income Statement when the liabilities are derecognised, or through the amortisation process.

(o) 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.

(p) Revenue

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. The following specific recognition criteria must also be met before revenue is recognised:

(i) Revenue from ordinary activities

Revenue from ordinary activities comprises revenue earned from the provision of energy products and other ancillary services to entities outside the Corporation. Revenue is recognised when energy products and services are provided to the consumer. Metered energy supply is recognised when the meters are read, and an estimate is brought to account where meters have not been read (refer Note 2(g)). Network use of system charges are invoiced to out‑of‑area retailers following the reading of meters of customers within the franchise area who are contracted to external

retailers. Network use of system income is recognised on an accrual basis, as revenue is accrued for consumption which is not invoiced at month end.

Interest receivable and other revenue from operating activities is brought to account as it is earned, and is recognised when goods and services are provided.

Developer or customer contributions of non‑current assets are recognised as revenue and an asset when Integral Energy gains control of such contributions. The amount recognised is the fair value of the contributed asset at the date on which control of such assets is gained. A developer or customer cash contribution is recognised as revenue when the network is extended or modified consistent with the terms of the contribution.

Other revenue, outside the provision of energy products, is recognised on an accrual basis and in accordance with the substance of the agreement covering such transactions.

Revenue recognition from rendering of services

In conjunction with the transition to Australian equivalents to International Financial Reporting Standards referred to in note 2(b), the Corporation completed a detailed review of all accounting policies.

In accordance with AASB118 Revenue, revenue from Retail electricity supply contracts is required to be recognised by reference to the stage of completion of the contract. As a result, with effect from 1 July 2005, revenue from these contracts has been recognised by reference to the stage of completion of the contract. The stage of completion is measured by reference to the proportion that costs incurred to date bear to the estimated total costs of the contract. In addition, where a loss is expected to occur it is recognised immediately and provision is made for both services performed to date and for future services under the contract.

The financial impact on the current period results in a decrease in revenue of $1.86m (2005/06 $9.07m), which increases the balance in other current liabilities to $10.93m (2005/06 $9.07m).

(ii) Other income outside ordinary activities

Surplus or deficit arising out of revaluation of the superannuation pooled funds held by Energy Industries Superannuation Scheme is recognised when notified of such event by the trustees (refer Note 2(s)(ii)).

Revenue arising from the sale of assets is recognised when the entity has passed control of the goods, and the amount of revenue can be measured reliably.

(q) IncomeTax

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Deferred income tax assets are recognised for all deductible temporary differences, carry‑forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry‑forward of unused tax assets and unused tax losses can be utilised, except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Notes to the Financial StatementsFor the year ended 30 June 2007

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the Income Statement.

Since 1 July 2001, Integral Energy has been subject to the National Taxation Equivalent Regime (NTER) based on the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. Tax equivalents are payable to the Office of State Revenue.

(r) Othertaxes

FBT, payroll tax and land tax are recognised in accordance with relevant legislation. In relation to GST, revenues, expenses and assets are recognised net of the amount of GST except:

where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

receivables and payables are stated with the amount of GST included.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

•

•

(s) EmployeeBenefits

(i) General

Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. Long service leave and maturing allowance provisions have been based on an actuarial assessment undertaken by Cumpston Sarjeant Pty Limited as at 30 April 2007 and the associated formulae provided for intervening periods between assessments.

Cumpston Sarjeant Pty Limited has based their assessment on the following assumptions:

(a) Rate of investment return (after tax and investment related expenses) 6%; and

(b) Rate of general salary increase 4%.

Liability for employee benefits (long service leave and maturing allowance) which are not expected to be settled within twelve months are discounted at 6% per annum, based on 10 year Government bond rates.

All other provisions have been calculated at nominal amounts based on expected settlement rates.

(ii) Superannuation

The Corporation’s contributions to employee superannuation are expensed at the time of payment. An actuarial assessment of funds held by the Energy Industries Superannuation Scheme on behalf of Integral Energy Australia was performed during the year by the scheme’s actuary.

The actuary adopted the following assumptions:

2005/06 %

2006/07 %

Thereafter %

Rate of investment return 17.9 14.6 7.5

Rate of salary escalation 4.0 6.0 6.0*

Rate of CPI increase 2.5 2.5 2.5

* The rate of salary escalation is assumed to be 6.0% until June 2009, and then 4.0% thereafter.

(t) Derecognitionoffinancialinstruments

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

(u) Derivativefinancialinstruments

Integral Energy uses derivative financial instruments to hedge its risks associated with National Electricity Market (NEM) pool price exposures and movements in interest rates. Such derivative financial instruments are stated at fair value. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.

For the purposes of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability, or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. In relation to fair value hedges which meet the conditions for special hedge accounting, any gain or loss from remeasuring the hedging instrument at fair value is recognised immediately in the Income Statement.

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Notes to the Financial StatementsFor the year ended 30 June 2007

Any gain or loss attributable to the hedged risk on remeasurement of the hedged item is adjusted against the carrying amount of the hedged item and recognised in the Income Statement. Where the adjustment is to the carrying amount of a hedged interest‑bearing financial instrument, the adjustment is amortised to the Income Statement such that it is fully amortised by maturity.

In relation to cash flow hedges to hedge firm commitments which meet the conditions for special hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement. When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability.

For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the Income Statement in the same period in which the hedged firm commitment affects the net profit and loss, for example when the future sale of electricity actually occurs. For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to net profit or loss for the year. Fair value has been determined at year end by performing mark to market calculations on the cash flow hedges using financial market rates available. The total amount of the change in fair value recognised was a profit of $3.6m.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction

occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the period.

(v) Workerscompensationinsurance

Integral Energy is a self‑insurer through its insurance provision for workers compensation and meets all liabilities under the Workers Compensation Act 1987.

During 2006/07 a consulting actuary, David A Zaman Pty Limited, undertook the annual investigation of Integral Energy’s estimated liability for workers compensation as at 30 June 2007. The liability is measured as the present value of future payments, and as at 30 June 2007, was estimated to be $7.0m ($5.0m in 2005/06), including the liability for dust related diseases which is estimated to be minimal.

(w) Dividend

Dividend distribution is based on 70% of profit after tax, adjusted for non‑cash AIFRS adjustments relating to superannuation actuarial gains/losses and fair value movements in financial instruments, as per correspondence received from NSW Treasury.

(x) Greenhouselegislation

The Commonwealth Renewable Energy (Electricity) Act 2000 imposes on electricity retailers the obligation to “surrender” sufficient certificates each year to meet the Commonwealth Government’s strategy to lift Australia’s use of electricity generated from renewable sources. This imposes an obligation on Integral Energy to purchase Renewable Energy Certificates (RECs) and surrender them to the Office of the Renewable Energy Regulator in discharge of Integral Energy’s renewable energy obligations. These certificates are accounted for as “other assets” and, as such, are reviewed for impairment and carried at the lower of cost or net realisable value at the close of the reporting period.

The NSW Electricity Supply Amendment (Greenhouse Gas Emission Reduction) Act 2000 imposes on electricity retailers the obligation to “surrender” sufficient certificates each year to satisfy the State Government’s strategy to reduce greenhouse gas per capita emissions from electricity purchases. This imposes an obligation on Integral Energy to purchase or produce NSW Greenhouse Abatement Certificates (NGACs) and surrender them to the Independent Pricing and Regulatory Tribunal (IPART) in discharge of Integral Energy’s greenhouse gas emission reduction obligations.

Integral Energy accounts for the certificates under AASB 102 Inventories. Certificates which are created and held for sale are recognised initially at the point of registration and measured at the registration fee paid. Certificates which are purchased and held for sale are recognised initially at the point of acquisition and measured at cost, being the fair value of the consideration paid. They are subsequently measured at the lower of cost and net realisable value. The profit on sale is recognised when the entity delivers the certificates under an agreement or sells them. The surrender of these certificates will be recognised in the underlying purchase commitment as an element of electricity purchase costs.

Notes to the Financial StatementsFor the year ended 30 June 2007

3 Segmentinformation

Business segments: The corporation operates in a single business segment, that being the distribution and retail of energy.

Geographical segments: The Corporation operates within a single geographical sector, Australia.

4 Revenue

2007$’000

2006$’000

Revenues

Metered sales of electricity 1,010,739 923,897

Estimated revenue on unread meters 61,623 86,771

Street lighting 2,653 1,992

Total electricity sales 1,075,015 1,012,660

Network use of system income 293,060 247,171

Reimbursement of community service obligations 19,737 20,624

Sales revenue 1,387,812 1,280,455

Other income 90,635 72,264

Interest income 1,083 484

Superannuation (Defined Benefits) actuarial gain – 24,343

Financial Instruments – fair value movements 3,600 5,759

Capital contributions 54,361 50,954

Other income 149,679 153,804

Total revenue and other income 1,537,491 1,434,259

Annual Performance Report 2006–07

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75

Notes to the Financial StatementsFor the year ended 30 June 2007

5 Expenses

2007$’000

2006$’000

Amount set aside to provisions

Allowance for impairment 6,936 4,310

Employee benefits 119,839 78,093

Other provisions 17,224 19,421

Total amount set aside to provisions 143,999 101,824

Other expenses relating to operating activities

Bad debts written off 5,646 6,232

Consultants 2,415 2,277

Contractors 46,667 49,201

Employee benefits 55,598 98,249

Superannuation contributions 22,832 18,580

Superannuation (Defined Benefits) actuarial loss 3,165 –

Operating lease rentals 1,341 1,880

Net loss on disposal of property, plant and equipment 1,942 3,122

Retailing and distribution of electricity and other services 787,147 736,043

Total other expenses relating to operating activities 926,753 915,584

Depreciation of non‑current assets

Buildings 3,003 2,308

System plant and equipment 83,608 80,520

EDP Equipment 5,601 5,402

Motor vehicle, mobile plant, unregistered plant 7,733 7,092

Radio communication equipment 249 85

Other non system equipment 3,665 3,253

Total depreciation of non‑current assets 103,859 98,660

Amortisation of intangible assets

Software 16,503 17,973

Total amortisation of non‑current assets 16,503 17,973

Total depreciation and amortisation expense 120,362 116,633

Total expenses from operating activities 1,191,114 1,134,041

Finance costs

Gross interest expense 86,692 72,207

Net amortisation of discounts/premiums on loans 10,042 14,214

Other interest expense 10,448 9,996

Total finance costs 107,182 96,417

Notes to the Financial StatementsFor the year ended 30 June 2007

6 IncomeTax

(a) IncometaxexpenserecognisedintheIncomeStatement

2007$’000

2006$’000

Current tax expense

Current year 47,795 64,487

Adjustments for prior years 1,676 (9,834)

49,471 54,653

Deferred tax expense

Origination and reversal of temporary differences 24,209 10,560

Under provided in prior years 12,306 –

36,515 10,560

Total income tax expense in Income Statement 85,986 65,213

(b) Numericalreconciliationbetweentaxexpenseandpre-taxnetprofit

Profit before tax 239,195 203,801

Income tax using the domestic corporation tax rate of 30% (2006: 30%) 71,758 61,140

Increase in income tax expense due to:

Non‑deductible expenses 246 267

Under/(over) provided in prior years 13,982 3,806

Income tax expense on pre‑tax net profit 85,986 65,213

(c) Deferredtaxrecogniseddirectlyinequity

Relating to Swap Hedge Revaluation Reserve (160,148) (4,177)

Relating to revaluation of property, plant and equipment (8,870) 27,195

(169,018) 23,018

Annual Performance Report 2006–07

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77

Notes to the Financial StatementsFor the year ended 30 June 2007

7 Deferredtaxassetsandliabilities

Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net

2007$’000

2006$’000

2007$’000

2006$’000

2007$’000

2006$’000

Non‑current assets (per Fixed Asset Register) – – 418,226 305,990 418,226 305,990

Assets held for resale – – 2,829 2,829 2,829 2,829

Deferred income and interest (3,959) (4,781) 3,982 – 23 (4,781)

Accrued expenses – (2,269) – – – (2,269)

EISS superannuation – – 10,457 8,495 10,457 8,495

Unread meters – – 18,487 26,031 18,487 26,031

Provisions (61,515) (66,576) – – (61,515) (66,576)

Swap Hedge Reserve (17,083) – 108,002 4,177 90,919 4,177

Gross deferred tax (assets)/liabilities (82,557) (73,626) 561,983 347,522 479,426 273,896

Movement in temporary differences

Balance 1 July 2006

$’000

Recognised in income

$’000

Recognised in equity$’000

Balance 30 June 2007

$’000

Non‑current assets (per Fixed Asset Register) 305,990 103,366 8,870 418,226

Assets held for resale 2,829 – – 2,829

Deferred income & interest (4,781) 4,804 – 23

Accrued expenses (2,269) 2,269 – –

EISS superannuation 8,495 1,962 – 10,457

Unread meters 26,031 (7,544) – 18,487

Provisions (66,576) 5,061 – (61,515)

Swap Hedge Reserve 4,177 (73,406) 160,148 90,919

Tax (assets)/liabilities 273,896 36,512 169,018 479,426

Notes to the Financial StatementsFor the year ended 30 June 2007

8 CashFlowInformation

(a) ReconciliationofCashFlowsfromOperatingActivitieswithProfitAfterTax

2007$’000

2006$’000

Profit after tax 153,209 138,588

Adjustments for:

Depreciation non‑current assets 103,860 98,660

Amortisation non‑current assets 16,503 17,973

Amortisation of discounts/premiums 10,042 14,214

Asset write‑off – 272

Non cash capital contributions (52,593) (47,963)

Net loss on disposal of property, plant and equipment 1,943 3,122

Provision for obsolete transformers (136) (977)

Defined superannuation adjustment 3,165 (24,343)

Changes in assets and liabilities

(Increase)/decrease in trade and other receivables (156,520) (22,998)

(Increase)/decrease in unread meters 25,148 7,976

(Increase)/decrease in derivative assets (63,988) (23,334)

(Increase)/decrease in inventories (1,078) (3,618)

(Increase)/decrease in other assets (8,212) (2,002)

(Increase)/decrease in deferred tax assets (8,931) 86

Increase/(decrease) in trade and other payables 298,299 18,393

Increase/(decrease) in provisions (29,706) 59,637

Increase/(decrease) in current tax balances (13,756) (16,745)

Increase/(decrease) in deferred tax liabilities 51,962 (19,063)

Increase/(decrease) in derivative liabilities 49,189 7,755

Increase/(decrease) in other liabilities 3,988 13,486

Net cash flows from operating activities 382,388 219,119

Annual Performance Report 2006–07

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79

Notes to the Financial StatementsFor the year ended 30 June 2007

8 CashFlowInformation(continued)

(b) FinancingFacilities

2007$’000

2006$’000

Total facilities available

The corporation has access to the following lines of credit:

Bank overdraft 2,000 –

T‑Corp short term accommodation 60,000 50,000

T‑Corp loans 1,800,000 1,500,000

Inscribed stock 2,505 2,713

Total facilities available 1,864,505 1,552,713

Facilities utilised at reporting date

Bank overdraft 1,746 –

T‑Corp short term accommodation – –

T‑Corp loans 1,528,952 1,378,902

Inscribed stock 2,505 2,713

Total facilities utilised at reporting date 1,533,203 1,381,615

Facilities unused at reporting date

Bank overdraft 254 –

T‑Corp short term accommodation 60,000 50,000

T‑Corp loans 271,048 121,098

Inscribed stock – –

Total facilities unused at reporting date 331,302 171,098

Bankoverdrafts

Interest on bank overdrafts is charged at prevailing market rates on any balance in excess of the approved overdraft on the Limit Facility of $2.0m. The total bank overdraft of the Corporation is unsecured. The bank overdraft is payable on demand and subject to annual review.

T-Corpshorttermaccommodation

Integral Energy Australia has approval from the Public Authorities (Financial Arrangements) Act 1987 (“PAFA Act”) to obtain a $60 million short term accommodation (Come‑and‑Go facility) from T‑Corp.

T-Corploans

Integral Energy Australia has approval from the “PAFA Act” to obtain $1,800m loan funding from T‑Corp. The loans are secured by a guarantee from the NSW Government and a government guarantee fee is payable by Integral Energy Australia to NSW Treasury. The guarantee fee payable is calculated in accordance with NSW Treasury Accounting Policy TPP04‑2 Government Guarantee Fee Policy for Government Businesses.

The loans amount in current liabilities includes the portion of the Corporation’s T‑Corp loans payable within one year of $355.9m (2005/06: $393.0m). The non‑current T‑Corp loans are payable on or before 23 October 2017, with maturity dates ranging between one and ten years from reporting date. All T‑Corp debt is fully payable on maturity with the majority being fixed rate loans.

Inscribedstock

Integral Energy Australia has borrowings by the issue of inscribed stock to private individuals, companies and various government bodies. There have been no new debt issues for this type of borrowing since November 1994.

The loans amount in current liabilities includes the Corporation’s inscribed stock principal repayments to be made within one year of $0.07m (2005/06: $0.21m). The non current inscribed stock comprises principal repayments to be made on or before 14 February 2012, with repayment dates ranging between one and five years from reporting date. All inscribed stock are fixed rate loans and fully payable on maturity, with the exception of two loans which require half yearly principal repayments.

Notes to the Financial StatementsFor the year ended 30 June 2007

9 CashandCashEquivalents

2007$’000

2006$’000

Cash on hand 32 32

Bank overdraft (3,387) (451)

Other current financial assets 48,815 1,630

Total cash and cash equivalents 45,460 1,211

10 TradeandOtherReceivables

Note2007

$’0002006

$’000

Trade receivables 137,289 116,087

Allowance for impairment (12,989) (11,779)

124,300 104,308

Other debtors 138,800 35,768

Allowance for impairment (908) (827)

137,892 34,941

Prepayments – superannuation 15(c) 34,855 28,315

Prepayments – other 12,685 6,190

Total trade and other receivables 309,732 173,754

Trade receivables are non‑interest bearing. The Days Sales Outstanding (DSO) as at 30 June 2007 is 25.0 (2006: 21.7).

11 Inventories

2007$’000

2006$’000

Stores and materials 20,313 18,991

NSW Greenhouse Gas Abatement Certificates 341 585

Total inventories 20,654 19,576

12 AssetsClassifiedasHeldforSale

2007$’000

2006$’000

Non‑current assets held for sale 11,180 11,180

Total assets classified as held for sale 11,180 11,180

Non‑current assets held for sale relate to under‑utilised non‑infrastructure land located at Schofields. A valuation of the site was performed by Rushtons as at 30 June 2005, and the asset is currently carried at the valued amount.

An agreement for deferred settlement was entered into, with instalments payable over four years. The final instalment payment is subject to a valuation process to determine the change in property value as at 30 September 2007, the final settlement date.

Annual Performance Report 2006–07

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81

Notes to the Financial StatementsFor the year ended 30 June 2007

13 PropertyPlantandEquipment

Electricity Network

$’000

Non‑System Assets$’000

Street Lighting

$’000Total

$’000

Year ended 30 June 2007

Net carrying amount at 1 July 2006 2,423,235 273,603 46,791 2,743,629

Additions 351,585 42,597 15,236 409,418

Disposals (2,916) (6,615) – (9,531)

Revaluation 10,501 15,959 – 26,460

Depreciation charge for the period (78,733) (20,251) (4,875) (103,859)

Net carrying amount at 30 June 2007 2,703,672 305,293 57,152 3,066,117

At 1 July 2006

Fair value 2,515,371 369,627 51,144 2,936,142

Accumulated depreciation and impairment (92,136) (96,024) (4,353) (192,513)

Net carrying amount at 1 July 2006 2,423,235 273,603 46,791 2,743,629

At 30 June 2007

Fair value 2,874,541 421,568 66,380 3,362,489

Accumulated depreciation and impairment (170,869) (116,275) (9,228) (296,372)

Net carrying amount at 30 June 2007 2,703,672 305,293 57,152 3,066,117

In determining value in use for each Cash Generating Unit (CGU), the cash flows were discounted at a WACC rate on a pre‑tax basis of 9.57% for the regulated network (including metering) CGU, and 9.32% for the street‑lighting CGU.

If assets were measured using the cost model, the carrying amounts would be as follows:

2007$’000

2006$’000

Electricity Network Assets

At cost 2,802,753 2,621,801

Less accumulated depreciation (674,359) (595,626)

Total electricity network assets 2,128,394 2,026,175

Street Lighting Assets

At cost 137,768 122,532

Less accumulated depreciation (78,793) (73,918)

Total street lighting assets 58,975 48,614

Non‑system Assets

At cost 376,363 330,961

Less accumulated depreciation (133,733) (104,879)

Total non‑system assets 242,630 226,082

Total property, plant and equipment 2,429,999 2,300,871

Notes to the Financial StatementsFor the year ended 30 June 2007

13 PropertyPlantandEquipment(continued)

Electricity Network

$’000

Non‑System Assets$’000

Street Lighting

$’000Total

$’000

Year ended 30 June 2006

Net carrying amount at 1 July 2005 2,287,538 214,755 57,734 2,560,027

Additions 285,100 82,827 15,631 383,558

Disposals (3,275) (7,092) – (10,367)

Impairment (95,673) – (22,221) (117,894)

Revaluation 25,716 1,528 – 27,244

Depreciation charge for the period (76,171) (18,136) (4,353) (98,660)

Transfers – (279) – (279)

Net carrying amount at 30 June 2006 2,423,235 273,603 46,791 2,743,629

At 1 July 2005

Fair value 2,908,625 306,306 125,708 3,340,639

Accumulated depreciation and impairment (621,087) (91,551) (67,974) (780,612)

Net carrying amount at 1 July 2005 2,287,538 214,755 57,734 2,560,027

At 30 June 2006

Fair value 2,515,371 369,627 51,144 2,936,142

Accumulated depreciation and impairment (92,136) (96,024) (4,353) (192,513)

Net carrying amount at 30 June 2006 2,423,235 273,603 46,791 2,743,629

14 IntangibleAssets

Software$’000

Easements$’000

Total$’000

Year ended 30 June 2007

Net carrying amount at 1 July 2006 33,619 5,474 39,093

Additions 21,613 3,706 25,319

Amortisation (16,503) – (16,503)

Net carrying amount at 30 June 2007 38,729 9,180 47,909

At 1 July 2006

Cost (gross carrying amount) 110,797 5,474 116,271

Accumulated amortisation and impairment (77,178) – (77,178)

Net carrying amount at 1 July 2006 33,619 5,474 39,093

At 30 June 2007

Cost (gross carrying amount) 132,410 9,180 141,590

Accumulated amortisation and impairment (93,681) – (93,681)

Net carrying amount at 30 June 2007 38,729 9,180 47,909

Net carrying amount at 1 July 2005 46,026 5,096 51,122

Additions 5,288 378 5,666

Transfers 279 – 279

Disposals (1) – (1)

Amortisation (17,973) – (17,973)

Net carrying amount at 30 June 2006 33,619 5,474 39,093

Annual Performance Report 2006–07

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83

Notes to the Financial StatementsFor the year ended 30 June 2007

14 IntangibleAssets(continued)

Software$’000

Easements$’000

Total$’000

At 1 July 2005

Cost (gross carrying amount) 106,953 5,096 112,049

Accumulated amortisation and impairment (60,927) – (60,927)

Net carrying amount at 1 July 2005 46,026 5,096 51,122

At 30 June 2006

Cost (gross carrying amount) 110,797 5,474 116,271

Accumulated amortisation and impairment (77,178) – (77,178)

Net carrying amount at 30 June 2006 33,619 5,474 39,093

15 EmployeeBenefits–Superannuation

(a) Superannuationplans

Integral Energy has a defined benefit superannuation plan, covering a significant number of employees, which requires contributions to be made to a separately administered fund.

The superannuation plan provides for defined benefits based on years of service and final average salary. Employees contribute to the plan at various percentages of their wages and salaries. Integral Energy also contributes to the plan, generally at the rate of twice the employees’ contributions. Contributions by Integral Energy of up to 9% of employees’ wages and salaries are legally enforceable in Australia.

The following tables summarise the components of net benefit expense recognised in the Income Statement and the funded status and amounts recognised in the Balance Sheet for the plan.

Accounting policy for recognising actuarial gains/losses

Actuarial gains and losses are recognised in profit or loss in the year they occur.

General description of the type of plan

The Energy Industries Superannuation Scheme

Division B

Division C

Division D

These Divisions are all defined benefit schemes – at least a component of the final benefit is derived from a multiple of member salary and years of membership.

All divisions are closed to new members.

(b) AmountsrecognisedintheIncomeStatement

2007$’000

2006$’000

Amounts recognised in the Income Statement are as follows:

Actuarial gains or (losses) (3,165) 24,343

Total included in employee benefits revenue/(expense) (3,165) 24,343

Assets invested in entity or in property occupied by the entityAll Scheme assets are invested by the trustee at arm’s length through independent Scheme managers.

Notes to the Financial StatementsFor the year ended 30 June 2007

15 EmployeeBenefits–Superannuation(continued)

(c) AmountsrecognisedintheBalanceSheet

2007$’000

2006$’000

Amounts recognised in the balance sheet are as follows:

Present value of funded obligations (287,875) (253,193)

Fair value of plan assets 322,730 281,508

Net asset/(liability) in the Balance Sheet 34,855 28,315

(d) Reconciliationofthepresentvalueofdefinedbenefitobligation

2007$’000

2006$’000

Present value of defined benefit obligations at beginning of the year 253,193 241,975

Current service cost 9,639 6,197

Interest cost 15,600 13,467

Contributions by scheme participants 4,277 3,778

Actuarial (gains)/losses 22,054 (68)

Benefits paid (16,888) (12,156)

Present value of defined benefit obligations at the end of the year 287,875 253,193

(e) Reconciliationofthefairvalueofschemeassets

2007$’000

2006$’000

Fair value of scheme assets at beginning of the year 281,508 237,325

Expected return on scheme assets 21,072 17,864

Actuarial gains/(losses) 23,056 26,075

Employer contributions 9,705 8,622

Contributions by scheme participants 4,277 3,788

Benefits paid (16,888) (12,156)

Fair value of scheme assets at the end of the year 322,730 281,518

(f) TotalexpenserecognisedinIncomeStatement

2007$’000

2006$’000

Current service cost 9,639 6,197

Interest on obligation 15,600 13,467

Expected return on plan assets (21,072) (17,864)

Net actuarial losses/(gains) recognised in year (1,002) (26,143)

Total included in other income 3,165 (24,343)

(g) Actualreturnonplanassets

2007$’000

2006$’000

Actual return on plan assets 41,058 42,372

41,058 42,372

Annual Performance Report 2006–07

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85

Notes to the Financial StatementsFor the year ended 30 June 2007

(h) Valuationmethodandprincipaleconomicassumptions

The Projected Unit Credit (PUC) valuation method was used to determine the present value of the defined benefit obligations and the related current service costs. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.

The principal actuarial assumptions used in determining pension and post‑employment benefit obligations for the Corporation’s plans are shown below (expressed as weighted average):

2007%

2006%

Discount rate 5.90 5.40

Anticipated return on plan assets 7.60 7.60

Expected future salary increases * 6.00 4.00

Future CPI increases 2.50 2.50

* Expected future salary increase are assumed to be 6.0% until June 2009, and then 4.0% thereafter.

(i) Arrangementsforemployercontributionsforfunding

The following is a summary of the 30 June 2007 financial position of the Scheme calculated in accordance with AAS 25 Financial Reporting by Superannuation Plans.

2007$’000

2006$’000

Accrued benefits 272,760 229,146

Net market value of Scheme assets (322,730) (281,508)

Net (surplus)/deficit (49,970) (52,362)

Recommended contribution rates for the entity are:

Div B = 1.90 x member contributions

Div C = 2.5% x salaries

Div D = 1.64 x member contributions

The method used to determine the employer contribution recommendations at the last actuarial review was the Aggregate Funding method. The method adopted affects the timing of the cost to the employer.

Under the Aggregate Funding method, the employer contribution rate is determined so that sufficient assets will be available to meet benefit payments to existing members, taking into account the current value of assets and future contributions.

(j) Natureofasset/liability

If a surplus exists in the employer’s interest in the Scheme, the employer may be able to take advantage of it in the form of a reduction in the required contribution rate, depending on the advice of the Scheme’s actuary.

Where a deficiency exists, the employer is responsible for any difference between the employer’s share of Scheme assets and the defined benefit obligation.

16 TradeandOtherPayables

2007$’000

2006$’000

Trade payables 41,013 38,327

Accruals 267,640 132,359

Other payables 21,947 16,390

Total trade and other payables 330,600 187,076

Trade and other payables are non‑interest bearing and are normally settled within 38.6 days. The net of GST payable and GST receivable is remitted to the appropriate tax body on a monthly basis.

Notes to the Financial StatementsFor the year ended 30 June 2007

17 OtherCurrentLiabilities

2007$’000

2006$’000

Deposits and retentions 19,004 14,564

Unearned income 14,378 13,004

Total other current liabilities 33,382 27,568

18 Interest‑bearingloansandborrowings

Effective interest rate

2007$’000

2006$’000

Current

Unsecured bank loans

Floating rate loans 6.5% 242,965 307,965

Fixed rate loans 6.8% 112,925 85,199

Total current interest‑bearing loans and borrowings 355,890 393,164

Non‑current

Unsecured bank loans

Fixed rate loans 6.4% 1,175,567 988,451

Total non‑current interest‑bearing loans and borrowings 1,175,567 988,451

Bank loans are unsecured and repayable in full on various maturity dates. Interest rates are based on weighted average effective rates on the entire debt.

19 Provisions

(a) Movementincarryingamounts

Employee Benefits

$’000Self Insurance

$’000Other$’000

Total$’000

Opening balance at 1 July 2006 168,827 26,190 17,555 212,572

Additional provisions 119,839 9,397 7,827 137,063

Utilised during the period (117,708) (9,569) (13,557) (140,834)

Reversed during the period – (16,604) (2,981) (19,585)

At 30 June 2007 170,958 9,414 8,844 189,216

(b) AnalysisofTotalProvisions

2007$’000

2006$’000

Current 104,206 129,521

Non‑current 85,010 83,051

Total provisions 189,216 212,572

Included within the current provision for employee benefits are amounts totalling $60.9m that are expected to be settled after more than 12 months.

Other provisions – specific other provisions are not detailed due to commercial and legal sensitivity.

Annual Performance Report 2006–07

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Notes to the Financial StatementsFor the year ended 30 June 2007

20 OtherNon‑CurrentLiabilities

2007$’000

2006$’000

Deposits and retentions 10,900 12,150

Deferred income 1,330 1,906

Total other non‑current liabilities 12,230 14,056

21 Reserves

(a) AssetRevaluationReserve

The asset revaluation reserve is used to record increments and decrements in the fair value of property, plant and equipment to the extent that they offset one another. The reserve can only be used to pay dividends in limited circumstances. Refer to the Statement of Changes in Equity for movements in the asset revaluation reserve during the period.

(b) HedgeReserve

The hedge reserve records revaluations of items designated as hedges. Refer to the Statement of Changes in Equity for movements in the hedge reserve during the period.

22 FinancialInstruments

(a) FinancialRiskManagementObjectivesandPolicies

The Corporation’s principal financial instruments, other than derivatives, comprise bank loans, cash and short‑term deposits. The main purpose of these financial instruments is to raise finance or invest surplus cash for the Corporation’s operations.

The Corporation has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. The Corporation also enters into derivative contracts for the purpose of managing exposure of the Corporation’s operations to the National Electricity Market (NEM) pool prices.

The main risks arising from the Corporation’s financial instruments are interest rate risk, liquidity risk, electricity purchase risk exposures and credit risk. The board reviews and agrees policies for managing each of these risks, as summarised below.

The Corporation also monitors the market price risk arising from all financial instruments. Accounting policies in relation to derivatives are set out in Note 2(u).

(b) InterestRateRisk

The Corporation’s exposure to market risk for changes in interest rates relates primarily to interest bearing liabilities. The Corporation’s policy is to manage its interest cost using a mix of fixed and variable rate debt.

(c) LiquidityRisk

The Corporation’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and debt. The Corporation’s policy is to manage its debt by using a duration approach. At 30 June 2007 the Corporation’s debt duration was within the policy limits approved by the Board.

(d) ElectricityPurchaseRiskExposure

Integral Energy enters into derivative contracts to manage the exposure of the Corporation to the National Electricity Market (NEM) pool prices. NEM pool exposure arises where Integral Energy requires energy purchases from the pool at the variable pool price, to meet load requirements.

Integral Energy uses a combination of swap, option and futures contracts transacted with generators and energy trading operators in its hedging strategy, to hedge customer load and control its exposure to NEM pool prices.

Notes to the Financial StatementsFor the year ended 30 June 2007

22 FinancialInstruments(continued)

(e) CreditRisk

Credit risk is the risk of financial loss arising from another party to a contract, or financial position failing to discharge a financial obligation thereunder. Integral Energy’s maximum exposure to credit risk is represented by the carrying amounts of the financial assets included in the Balance Sheet.

Credit risk on derivative contracts recognised in the Balance Sheet is minimised due to Integral Energy having policies in place which prevent excessive counterparty concentration, and limit individual counterparty exposure based on an assessment of individual counterparties credit worthiness.

Integral Energy controls risk through the use of credit ratings, limits and monitoring procedures, and does not usually require collateral or other security to support financial instruments with credit risk.

Integral Energy does not have any significant exposure to any individual customer or counterparty outside Board approved counter party limits.

(f) NetFairValue

Set out below is a comparison of net fair values and carrying amounts of financial assets and financial liabilities that are carried in the financial statements at other than fair values:

2007 2006

Carrying amount

$’000

Net Fair value

$’000

Carrying amount

$’000

Net Fair value

$’000

Financial Assets

Other financial assets (current) 48,815 48,815 1,630 1,630

Derivative financial assets – cash flow hedges 426,869 426,869 13,693 13,693

Derivative financial assets – held for trading 59,476 59,476 9,641 9,641

Total 535,160 535,160 24,964 24,964

Financial Liabilities

Interest bearing loans and borrowings:

Floating rate borrowings 242,965 245,928 307,965 310,390

Fixed rate borrowings 1,288,492 1,272,360 1,073,650 1,091,854

Derivative financial liabilities – cash flow hedges – – 2,124 2,124

Derivative financial liabilities – held for trading 56,944 56,944 5,631 5,631

Total 1,588,401 1,575,232 1,389,370 1,409,999

Annual Performance Report 2006–07

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Notes to the Financial StatementsFor the year ended 30 June 2007

(g) Interestraterisk

The following table sets out financial instruments that are exposed to interest rate risk:

<1 year$’000

>1‑<2 years$’000

>2‑<3 years$’000

>3‑<4 years$’000

>4‑<5 years$’000

>5 years$’000

Total$’000

2007

Floating rate

Assets

Other financial assets 48,815 – – – – – 48,815

Liabilities

Bank overdraft 3,387 – – – – – 3,387

Interest bearing liabilities 242,965 – – – – – 242,965

Interest rate contracts (55,000) – – – – – (55,000)

Fixed rate

Liabilities

Interest bearing liabilities 112,925 46,019 134,564 186,979 103,545 704,460 1,288,492

Interest rate contracts (10,000) – 60,000 (20,000) – 25,000 55,000

2006

Floating rate

Assets

Other financial assets 1,630 – – – – – 1,630

Liabilities

Bank overdraft 451 – – – – – 451

Interest bearing liabilities – unsecured bank loans 307,965 – – – – – 307,965

Interest rate contracts (55,000) – – – – – (55,000)

Fixed rate

Liabilities

Interest bearing liabilities – unsecured bank loans 85,199 112,780 46,019 89,564 177,365 562,723 1,073,650

Interest rate contracts – (10,000) – 60,000 (20,000) 25,000 55,000

Refer to Note 18 for disclosure of effective interest rates.

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until maturity of the investment. Other financial instruments of the Corporation not included in the above tables are non‑interest bearing and therefore not subject to interest rate risk.

(h) CashFlowHedges

At 30 June 2007 Integral Energy held derivative contracts to reduce the exposure of the Corporation to the National Electricity Market (NEM) pool prices. The cash flows are expected to occur, and will enter into the determination of profit and loss over forthcoming years ending 2010.

Notes to the Financial StatementsFor the year ended 30 June 2007

23 ContingentLiabilitiesandContingentAssets

(a) ContingentAssets

2007$’000

2006$’000

Sundry General Claims 1,200 –

1,200 –

(b) ContingentLiabilities

2007$’000

2006$’000

Self Insurance 332 522

WorkCover Authority 1,850 1,850

Sundry General Claims 229 4,732

2,411 7,104

The contingent asset relates to a contractual dispute. The contingent liabilities relate to injury claims (self insurance), possible penalties and legal costs (WorkCover Authority), and other employment related claims (sundry general claims).

The directors are not aware of any circumstances or information that would lead them to believe that the above contingent liabilities will crystallise, and consequently no provisions are included in the accounts in respect of these matters.

Annual Performance Report 2006–07

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91

Notes to the Financial StatementsFor the year ended 30 June 2007

24 ExpenditureCommitments

(a) OperatingExpenditureCommitments

2007$’000

2006$’000

Estimated operating expenditure contracted for at reporting date, but not provided for, payable:

Within one year 131,457 127,874

After one year but not more than five years 191,838 195,214

More than five years 119,445 145,187

Total operating expenditure commitments 442,740 468,275

(b) LeaseExpenditureCommitments

Operating leases (non cancellable):

Within one year 2,031 2,917

After one year but not more than five years 2,826 2,419

More than five years 526 575

Total lease expenditure commitments 5,383 5,911

(c) CapitalExpenditureCommitments

Estimated capital expenditure contracted for at reporting date, but not provided for:

Within one year 137,148 114,973

After one year but not more than five years 12,588 6,939

Total capital expenditure commitments 149,736 121,912

(d) SmithfieldEnergyPurchaseContractOperatingExpenditureCommitments

Estimated operating expenditure contracted for at reporting date, but not provided for:

Within one year 86,368 80,332

After one year but not more than five years 349,734 344,421

More than five years 1,321,210 1,415,920

Total Smithfield energy purchase contract operating expenditure commitments 1,757,312 1,840,673

The Corporation leases property under operating leases expiring from one to five years. Leases generally provide the entity with a right of renewal, at which time all terms are renegotiated. Lease payments comprise a base amount plus an incremental contingent rental. Contingent rentals are based on either movements in the Consumer Price Index or operating criteria.

Total expenditure commitments include input tax credits of $213.7m (2006: $221.2m) which are expected to be recovered from the Australian Taxation Office.

25 EventsAftertheBalanceSheetDate

The valuation of derivatives is subject to market volatility. A review of forward market prices has been performed subsequent to year end. An analysis of forward market prices as at 31 July 2007 indicated that the value of the Corporation’s electricity derivative hedge reserve had decreased by approximately $365 million.

With the exception of electricity derivatives there has not arisen, in the interval between the end of the financial period and the date of this report, an event of a material and unusual nature likely, in the opinion of the Directors of the Corporation, to affect significantly the operations of the economic entity, the results of those operations, or the state of affairs of the economic entity, in subsequent financial years.

Notes to the Financial StatementsFor the year ended 30 June 2007

26 Auditor’sRemuneration

2007$’000

2006$’000

Amounts received or due and receivable by the Auditor‑General for:

– Auditing the Financial Report 311 305

Total auditor’s remuneration 311 305

27 KeyManagementPersonnel

(a) Directors’Appointments

The following information is provided regarding appointment of Non‑Executive Directors:

Re‑appointments

Michael McLeod (re‑appointed 1 March 2007)

Paul Sinclair (re‑appointed 21 August 2006)

Continuing Directors

Terry Downing

John Fahey

John Fletcher

Richard Powis (Chief Executive Officer – Executive Director)

Emma Stein

(b) Directors’Remuneration

Salaries & Fees$’000

Superannuation Contribution

$’000Total

$’000

2007

M McLeod 110 10 120

T Downing 70 6 76

J Fahey 66 6 72

J Fletcher 64 6 70

P Sinclair 59 5 64

E Stein 64 6 70

Total 433 39 472

2006

M McLeod 108 10 118

T Downing 69 6 75

J Fahey 66 6 72

J Fletcher 21 2 23

J Reid 42 4 46

P Sinclair 48 4 52

E Stein 64 6 70

Total 418 38 456

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93

Notes to the Financial StatementsFor the year ended 30 June 2007

27 KeyManagementPersonnel(continued)

(c) ExecutiveRemuneration

Salaries & Fees$’000

Superannuation Contribution

$’000

Cash Bonus$’000

Non‑cash Benefits

$’000Total

$’000

2007

R Powis 490 42 62 8 602

A Flett 261 29 41 14 345

R Howard 268 30 48 8 354

D Lucas 159 19 – 3 181

B Rowley 255 29 40 10 334

K Waldman 256 29 41 14 340

I White 214 24 12 15 265

H El‑Ansary 28 2 – – 30

S Lowe 226 16 40 7 289

A Priestley 26 2 – 13 41

M Tweddell 55 6 – – 61

J Wallace 210 4 46 15 275

Total 2,448 232 330 107 3,117

2006

R Powis 465 35 57 8 565

C James 113 11 53 7 184

A Flett 248 26 51 10 335

R Howard 253 26 51 8 338

S Lowe 253 14 38 10 315

A Priestley 262 16 28 29 335

B Rowley 238 25 37 25 325

K Waldman 246 25 38 21 330

J Wallace 256 4 32 40 332

H El‑Ansary 83 6 – – 89

I White 77 8 – – 85

Total 2,494 196 385 158 3,233

The cash bonus for 2006/07 and 2005/06 relates to payments in relation to the 2005/06 and 2004/05 financial years respectively.

28 PrudentialRequirements

An unsecured Bank Guarantee of $325.3m (2005/06: $103.3m) is given to the National Electricity Marketing Management Co. Ltd. (NEMMCO) by way of a New South Wales Treasury Corporation guarantee. The guarantee is a condition of Integral Energy Australia’s trading licence.

29 RelatedPartyTransactions

Directors

The name of each person who held or is holding the position of director of Integral Energy during the financial period is set out in Note 27 above.

Details of directors’ remuneration is set out in Note 27 above.

There were no declared director related party transactions for the 2006/07 financial year.

End of audited Financial Statements

Pursuant to Section 41C of the Public Finance and Audit Act 1983, we state that in the opinion of the Directors of Integral Energy Australia:

(a) The accompanying financial statements and notes are a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, the State Owned Corporations Act 1989, the Public Finance and Audit Act 1983 and the Regulation 2005, and Accounting Interpretations, and give a true and fair view of the financial position of Integral Energy Australia as at 30 June 2007 and its financial performance for the year ended on that date.

(b) At the date of this statement, there are reasonable grounds to believe that the Corporation will be able to pay its debts as and when they become due and payable.

(c) We are not aware of any circumstances at the date of this statement that would render any particulars included in the financial report to be misleading or inaccurate.

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

Michael McLeod Richard Powis Director Director 4 September 2007 4 September 2007

Statement by DirectorsFor the year ended 30 June 2007

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Appendix1:Economic

Network regulatory determination 2009–2014 96

Retail regulatory determination 2007–2010 97

Form of regulation 97

Level of regulated price controls 97

Regulated retail prices 2007‑08 98

NightWatch 98

Five‑year statistical table 99

Consultants 101

Overseas travel table 101

Customer service guarantees 102

Executive management remuneration table 103

Appendix2:Environment

Heritage management 104

Appendix3:Social

Ethnic Affairs Priority Statement 104

Publications 105

Funds granted to non‑government organisations 106

Appendix4:Governance

Duties of Board committees 107

Summary of legislative changes and judicial decisions 109

Freedom of Information 113

Australian Financial Services Licence 115

Disclosure of approved exemptions 115

Code of Ethics and corporate values 117

Annual Performance Report 2006–07

Appendices

Appendices

Appendix1:Economic

NetworkRegulatoryDetermination2009–14

The current Independent Pricing and Regulatory Tribunal (IPART) Network Determination expires on 30 June 2009. A new five‑year determination, the 2009 Network Determination, takes effect from 1 July 2009.

The 2009 determination will be conducted by the Australian Energy Regulator (AER) and will be fundamental to Integral Energy’s ongoing ability to secure funding for its investment programs and achieve its commercial targets. The review will position the organisation for the five years 2009–14 and will determine the revenue/price path for the network business.

The 2009 determination will be undertaken at a time when the framework for the regulation of distribution network businesses is still being developed through the Ministerial Council on Energy and the Standing Committee of Officials. Continuing uncertainty regarding the framework will mean that transitional arrangements will be required and that the timeframe over which Integral Energy must develop its initial submission to the determination may be reduced.

The three NSW distribution network businesses and ActewAGL will be the first distribution businesses to be regulated by the AER.

The outcomes from the 2009 Network Determination are important to Integral Energy. In order to support and guide this project, governance and reporting arrangements have been established to facilitate and deliver the following:

Communication—All individuals involved in the project need to be aware of the breadth of the project, the status of work, the key issues and inter‑relationships between the various work areas.

Monitoring of project performance and outputs—Workstream leaders, the project manager, project director and the Executive must be able to monitor the project performance against the project plan, milestones, and so on.

Reviewing and developing strategy—The project sponsor, the project director and workstream leaders must have the opportunity to review and provide input on strategic issues, consider strategic options and responses, review strategic resourcing issues, and review the high‑level project plan and milestones.

Decision making—Decisions on assumptions, strategies and other matters need to be made at the appropriate level.

Three groups, with a number of supporting work groups, are responsible for the governance arrangements for the project. The three groups are the Project Steering Committee, the Project Strategy and Program Committee and the Project Team.

National Regulatory Framework

The Ministerial Council on Energy’s communiqué released on 25 May 2007 advised that the introduction of the economic regulatory package, comprising the National Electricity Law and the National Electricity Rules, will be delayed until December 2007. The introduction of the package will complete the transfer of responsibility for the economic regulation of transmission and distribution in the electricity and gas sectors to the new national governance arrangements.

Integral Energy supports the move to a national framework but notes that, as a national set of rules and guidelines will not be finalised in time for the 2009 Network Determination, a set of transitional arrangements that provide some regulatory certainty for the distribution network service providers and the AER will need to be developed.

The combination of an uncertain regulatory framework and timetable and the impending regulatory process means that the NSW distribution network service providers will need to prepare transitional arrangements for the next regulatory control period, bringing forward existing distribution arrangements, where appropriate, and adopting the new rules, where possible. A similar arrangement was successfully proposed by Powerlink in Queensland for its current regulatory process.

Integral Energy is actively participating in the development of these transitional arrangements.

Network prices 2007–08

In June 2007, IPART approved our 2007–08 pricing proposals as consistent with the regulatory requirements and other pricing principles and methodologies outlined in the 2004 determination. As part of the pricing for 2007–08, Integral Energy has introduced several important tariff reforms for non‑residential customers, as summarised below:

A seasonal peak period maximum demand price structure for all non‑residential customers on a demand tariff. Under this new structure, large non‑residential customers will pay a higher maximum demand charge during the summer and winter months of the year, when Integral’s network is more likely to be constrained

A new transitional network tariff as part of our strategy to move general supply customers consuming more than 160 MWh per annum to a more cost‑reflective tariff

A reduction in the annual consumption threshold under the general supply inclining block tariff structure from 15,000 kWh to 10,000 kWh to further encourage larger users on this tariff to reduce their consumption or to move to a time‑of‑use tariff.

•

•

•

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97

For customers on the domestic tariff, Integral Energy has maintained the current price differential between the first and second blocks of around 20% at the network level. As the network price accounts for about half of a customer’s overall bill, the 20% differential will translate to about a 10% difference between blocks at the retail level. While we remain committed to delivering a stronger price signal to those users who are placing the most strain on the network, we are also aware of the potential for reforms to create material adjustment costs for some customers. Therefore, when assessing future tariff reform options, we will consider both economic efficiency and equity outcomes.

Integral Energy is keen to pursue more innovative tariff reform, but is careful to ensure that the net economic benefits of potential reforms are understood. Understanding the price responsiveness of residential customers in our franchise area is essential when considering future tariff reform options.

To better understand customers’ price responsiveness, we are undertaking a two‑year pricing trial involving a representative sample of residential customers in western Sydney who elect to be placed on either of the following tariffs:

Dynamic peak time‑of‑use tariff —Customers on this tariff pay different prices for their energy consumption at different times of the day. They pay a significantly higher dynamic peak price for their energy consumption during a dynamic peak event. The number of dynamic peak events is limited to 12 a year.

•

Seasonal peak time‑of‑use tariff —Customers on this tariff pay different prices for their energy consumption at different times of the day and year. They pay a higher price for their energy consumption during the peak periods in summer (November to March) and winter (June to August).

The pricing trial began on 1 August 2006, with around 1,000 residential customers in western Sydney agreeing to participate. While it is too early to draw definitive insights into customer behaviour from the preliminary data, the results so far indicate that customers, in particular those on the dynamic peak time‑of‑use tariff, may be willing to change their usage patterns when given an efficient pricing signal. Integral Energy eagerly awaits the results of the second year of the trial, particularly over the 2007–08 summer period, to enable more definitive conclusions to be drawn on the price responsiveness of residential customers.

RetailRegulatoryDetermination2007–10

IPART regulates the prices that Integral Energy can charge customers whose electricity is supplied under a standard form customer supply contract.

In 2006–07, the Minister for Energy asked IPART to set regulated retail tariffs and charges for small retail customers, so that from 1 July 2007 to 30 June 2010 their reliance on regulated prices would be reduced and retail competition would be facilitated. In undertaking its review and making its determination, IPART was guided by the terms of reference provided for the Minister for Energy.

The review covered the three years of the phase‑out of the Electricity Tariff Equalisation Fund, which will expire in June 2010.

• IPART released its final report and final determination on 14 June 2007. Overall, the final determination was a positive outcome for Integral Energy, providing significant price increases relative to the 2004 determination.

Formofregulation

In deciding on the appropriate form of regulation, IPART considered that while there was sufficient competition for small retail electricity customers in the metropolitan market for it to adopt a lighter form of regulation, the less competitive non‑metropolitan market (that is, the Country Energy market) required a different approach. IPART decided to:

add the weighted average price cap for the regulated retail price controls (R values) to actual network charges (N values)

allow standard retailers discretion in increasing prices

remove the limits on price movements for Integral Energy

maintain a prohibition on introducing new regulated tariffs (except with the agreement of the tribunal)

allow the removal of regulated tariffs.

Levelofregulatedpricecontrols

Energy cost allowance

IPART has allowed market‑based energy purchase costs. The energy cost allowance includes an allowance for volatility in energy costs based on a ‘cost of working capital’ approach.

IPART has also decided to introduce annual reviews of the market‑based electricity purchase cost component of the electricity cost allowance, which recognises the difficulty in forecasting wholesale electricity prices for three years. Those reviews will commence by 1 March 2008 and 1 March 2009, and final decisions will be released by 20 May each year.

•

•

•

•

•

Appendices

Appendix1:Economic(continued)

The annual reviews will be limited to the market‑based electricity purchase cost component. In undertaking the reviews, IPART will adopt the same approach it used in making the 2007 Determination.

The reviews will not reconsider the long‑run marginal cost of electricity generation, the volatility allowance, green energy costs, National Electricity Market fees, energy losses, retail operating costs, customer acquisition costs or the retail margin.

Retail operating costs

IPART has allowed retail operating costs of $75 per customer, plus customer acquisition costs of $34 per residential customer and $42 per business customer per year. The weighted average of these costs is $35 per customer.

This means that the retail operating cost allowance, including customer acquisition costs, including adjustments for double counting, has been set at $105 per customer.

Retail margin

The tribunal allowed a retail margin of 5% (on an EBITDA basis) in its final determination.

Cost pass‑through

IPART has introduced a mechanism to allow retailers to pass through the costs of certain taxation events and regulatory change events. Regulatory events include:

meeting additional obligations related to green energy schemes (existing and future)

being a retailer of last resort

meeting additional obligations for government‑imposed energy hardship policies

meeting one‑off NEMMCO charges (such as reserve trader or direction events).

Regulatedretailprices2007–08

Based on the final retail determination, a set of regulated retail tariffs was developed and submitted to IPART on 15 June 2007. The tariffs were approved for implementation from 1 July 2007.

The annual regulated retail bill increase in nominal terms for the average residential customer using 6,000 kWh per annum is estimated to be approximately $69 (or 7.9%) in 2007–08. For the average general supply customer using 20,000 kWh per annum, the estimated increase will be $224 (or 9.2%).

Integral Energy’s regulated retail prices for residential and business customers will increase by an annual average of 8.1% in nominal terms for the next three years.

•

•

•

•

NightWatch

The Integral Energy NightWatch service continued to grow at a steady rate this year, with the service now extending to more than 3,300 lights illuminating properties for 1,700 customers. The service installs and maintains lighting on existing Integral Energy assets (wooden poles and metal columns) to illuminate a wide range of customer premises from dusk to dawn at reasonable rates.

Our customers have used our service for a wide range of applications, including security lighting at factories, promotional and car‑park lighting at licensed clubs, and security lighting for small business premises across our franchise area.

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Table 10 Five year statistics

2002–03 2003–04 2004–05 2005–06 2006–07

EFFICIENCY

Employment (full‑time equivalent staff at 30 June) 2,050 2,176 2,298 2,457 2,593

Output/employee (GWh)GWh sold per average number of employees 7.6 7.4 7.6 7.2 6.9

Sales revenue ($’000)Includes total electricity sales and network use of system income only 1,077,964 1,166,695 1,185,429 1,259,831 1,368,075

Customer/employee ratioBefore 2004–05, average retail customers per average number of employees; from 2004–05, average network customers per average number of employees 400.3 385.3 364.2 348.1 331.7

Operating cost/unit sold ($/MWh)Operating expenditure including depreciation and amortisation but excluding borrowing expenses, divided by number of units sold 29.1 26.1 27.1 26.5 26.2

Operating cost/customerOperating expenditure including depreciation and amortisation but excluding borrowing expenses, divided by the average number of customers; to 2003–04, customer numbers based on retail customer numbers; from 2004–05, number of customers based on network customers 554.0 499.1 562.6 550.7 546.1

System loss index (%)Energy imported less energy sold, divided by energy imported 5.1 5.1 5.1 5.4 5.4

Days sick leave/employeeTotal sick leave days per average number of employees 6.4 6.1 6.3 6.7 5.8

Lost‑time injury frequency rateLost‑time accidents per million hours worked 8.0 7.2 6.3 5.2 4.8

EFFECTIVENESSOutput (GWh)To 2003–04, electricity sales exclude accruals and off peak bulk transfers; from 2004–05 onwards, sales exclude accruals but include off peak bulk transfers; output for 2002–03 adjusted slightly 15,212 15,570 16,903 17,204 17,483

Supply reliability (minutes)Average minutes per customer per year without supply for unplanned outages 119.8 116.7 86.3 95.9 94.1

Nominal average priceSales revenue divided by GWh output 70.9 74.9 70.1 73.2 78.3

Customer service indicatorFactors include number of issues with EWON, percentage of complaints closed within 30 days and percentage of customer service guarantee breaches

Target 56.0% 60.0% 80.0% 80.0% 82.0%

Result 55.1% 56.0% 78.0% 81.1% 83.4%

Appendices

2002–03 2003–04 2004–05 2005–06 2006–07

FINANCIAL INDICATORS

EBIT ($m)Profit before income tax expense plus finance costs 162.2 249.7 252.2 300.2 346.4

Operating profit after tax ($m)Profit from ordinary activities after income tax expense 43.0 102.3 132.7 138.6 153.2

Revenue ($m)Includes sales revenue and other income, including capital contributions 1,219.4 1,342.0 1,353.8 1,434.3 1,537.5

Return on assets (%)*EBIT divided by the average asset base 6.1 9.2 8.8 9.8 9.5

Return on equity (%)*Operating profit after tax, divided by average equity 4.2 9.8 13.6 15.6 13.9

Asset base ($m)*Includes all current and non current assets 2,674.4 2,781.4 2,978.5 3,179.4 4,147.0

Asset sales ($m)Total proceeds from asset sales 6.4 31.0 7.6 7.2 7.6

Financial distribution ($m)Includes tax equivalent, dividend payment and payment of capital from equity 77.0 164.1 148.3 169.1 193.0

Tax equivalent ($m)Defined as income tax expense in line with NSW Treasury’s definition of ‘total distribution’ 34.0 61.8 34.2 65.2 86.0

Dividend payment ($m)Includes special dividends 43.0 102.3 114.1 103.9 107.0

Payment of capital from equity ($m)Involves a special payment to the government 0.0 0.0 0.0 0.0 0.0

Gross external debt ($m) 1,078.6 1,091.0 1,196.7 1,381.6 1,531.5

Gearing ratio*Debt divided by the asset base 40.3 39.2 40.2 43.5 36.9

Times interest earnedCalculated by adding the net interest expense to the profit before income tax, and dividing by the net interest expense 2.0 2.9 3.0 3.1 3.2

Social programs ($m)Based on reimbursement of Community Service Obligations 19.4 21.2 20.7 20.6 19.7

Note: 2004–05 and 2005–06 numbers have been restated in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS). All dollar amounts are reported in real dollars.

* Impacted by financial derivatives in accordance with accounting standard AASB 139.

Appendix1:Economic(continued)Table 10 Five year statistics (continued)

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Consultants

In 2006–07, consultancy projects cost a total of $2.42 million compared to $2.28 million in 2005–06. Major projects, costing a total of $2.40 million, are listed in Table 11.

Table 11 Major consultancy projects, 2006–07

Consultant Purpose

Retail and marketingFarrier Swier Consulting To provide advice on retail strategy projects.

Bush Atkins Pty Ltd To provide marketing services in support of Queensland market entry.

Deloitte Touche Tohmatsu To conduct a review of the credit management process and Queensland market entry.

National Economic Research Association To assist in the preparation of submission to IPART on the review of regulated retail tariffs.

Legg Limited To assist in the preparation of submission to IPART on the review of regulated retail tariffs.

Management services and organisational strategyGavin Anderson and Company To provide strategic management support for community relations and corporate affairs.

PricewaterhouseCoopers To conduct a review of the energy trading policies and assist with the establishment of an Electricity Risk Management Steering Committee.

Intergraph Corporation Pty Ltd To provide IT technical consulting services for the IAIMS program.

Langdale Consultants Pty Ltd To provide IT technical consulting services for the IAIMS program.

KPMG To conduct a review of the ICT governance and project framework.

Dupont Australia Ltd To implement a safety project.

Port Jackson Partners To review business initiatives and strategies.

The Allen Consulting Group To review the organisation’s greenhouse positioning.

Overseastravel

Table 12 Overseas travel, 2006–07

Names Dates Destination Purpose

Richard Powis 11–14 February 2007 New Zealand Overview of smart metering with Meridian Energy and Arc Innovations.

Rod Howard 1–17 September 2006 Switzerland, United States, United Kingdom

Consultation with industry and insurers.

Gary Brennan and Patrick Zhao

24–28 June 2007 Japan Witness and acceptance testing of INVAR high temperature conductors.

Gary Brennan 25 August to 1 September 2006

France Australian representative on overhead lines to the General Assembly of International Council on Large High Voltage Electric Systems (CIGRE). Travel funded by CIGRE.

Gary Brennan 21–23 March 2007 Czech Republic Australian representative at CIGRE Working Group Meeting of the Study Committee on Overhead Lines. Travel Funded by CIGRE.

Patrick Zhao and Robert Lewis

1–7 November 2006 China Type testing steel poles.

Patrick Zhao 27 May to 2 June 2007 China Type testing steel poles.

Andrew Tang 8–17 September 2006 Thailand Inspection and testing of transformers.

Andrew Tang 8–24 October 2006 Thailand Inspection and testing of transformers.

Andrew Tang 14–19 January 2007 Thailand Inspection and testing of transformers.

Andrew Tang 4–16 February 2007 Thailand Inspection and testing of transformers.

Andrew Tang 29 March to 3 April 2007 Thailand Inspection and testing of transformers.

Peter Norrie 22–29 August 2006 Thailand and Vietnam Inspection and testing of transformers.

Peter Norrie 3–13 December 2006 Thailand Inspection and testing of transformers.

Peter Norrie 25 January to 5 February 2007 Thailand Inspection and testing of transformers.

Peter Norrie 3–8 June 2007 Thailand Inspection and testing of transformers.

Appendices

Appendix1:Economic(continued)

Customerserviceguarantees

The Electricity Supply (General) Amendment Regulation, gazetted on 12 June 1998, required the standard form customer connection contracts of NSW network and/or retail electricity licence holders to contain guaranteed customer service standards. The standards included 24‑hour telephone hotlines, and introduced monetary penalties for failure to meet requirements for planned interruptions, connections and disconnections, faulty streetlights and lack of punctuality in keeping appointments.

The guarantees took effect from 12 September 1998 and were communicated to staff and customers in September and October 1998. They were included in standard form customer connection contracts from 12 December 1998.

A payment of $20 is made to a customer where:

• insufficient notice is provided to the customer of a planned outage, or

• the planned outage is for a longer period than that indicated in the notification.

During the year, customer service guarantee payments of $1,420 were made in response to complaints, mostly associated with planned outages. This compares with $3,940 paid in 2005–06.

There have been further changes in the regulatory requirements for reliability performance for all NSW distributors in the past two years. New network reliability performance licence conditions specify required performance levels at both organisation level and for individual distribution feeders in urban and rural situations. As part of the new licence conditions, new customer service guarantees for unplanned reliability were also introduced. Table 13 reports our guarantee payments for unplanned outages for the first time.

Table 13 Customer service guarantee payments for planned outages, 2006–07

No. of occasionsCustomers

affected Payments ($)

Late restoration 7 8 160

Early interruption 5 7 140

No notification 45 53 1,060

Late notification 3 3 60

Total 60 71 1,420

Table 14 Customer service guarantee payments for unplanned outages, 2006–07

Payments based on duration

Payments based on frequency Claims not paid

Metropolitan 1 0 9

Non‑metropolitan 0 0 5

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Executivemanagement

Performance pay is based on agreed objectives for each member of the Executive. These are aligned to Integral Energy’s Statement of Corporate Intent and Corporate Plan. Achievements against objectives are reviewed by the Board.

Table 15 Executive management remuneration, 2006–07

Name Performance summary

R Powis Improvement in reliability and overall financial performance above budget.

A Flett Improvement in staff engagement, reliability and maintenance.

R Howard An increased delivery in network capital from last year leading to an improvement in reliability.

K Waldman A successful bid in the Solar Cities program which would provide valuable information on energy efficiency programs.

B Rowley Successful leading Retail in difficult competitive times.

I White Ensuring Board compliance structures are in place to enable proper corporate governance.

D Lucasa Having joined the organisation in December 2006, successfully reviewing the Finance function.

M Tweddellb Having joined in April 2007, commenced a review of the Human Resources function.

S Lowec Supporting the Retail business to be successful in positioning for a net positive margin.

H El‑Ansaryd Having joined in March 2006 and left in August 2006 to join Myer, he managed some transitional issues in the Finance area.

J Wallacee Developing an overarching strategy which led to improvements in reliability.

A Priestleyf Having left in August 2006, he spent more than five years guiding a consistent approach to Human Resources issues.

a Mr Lucas commenced on 4 December 2006.

b Mr Tweddell commenced on 16 April 2007.

c Mr Lowe concluded employment on 11 May 2007. Mr Lowe received an additional payment to the above of $5,198.29 for annual leave entitlements and $32,121.91 for pay in lieu of notice on cessation of employment.

d Mr El‑Ansary concluded employment on 2 August 2006. Mr El‑Ansary received an additional payment to the above of $6,661.48 for annual leave entitlements on cessation of employment.

e Mr Wallace concluded employment on 26 June 2007. Note that Mr Wallace took four months of long service leave at half pay, which reduced his earnings compared with the previous year.

f Mr Priestley concluded employment on 4 August 2006. Mr Priestley received an additional payment to the above of $16,016.15 for annual leave entitlements on cessation of employment.

See also the Financial Statements section 27 (c) on page 93.

Table 16 Profile of Chief Executive Officer and senior executives

Positions Number atJune 2005

Number atJune 2006

Number atJune 2007

Chief Executive Officer 1 1 1

Executive officers 8 9 7

Number of executive officers with remuneration equal to or exceeding equivalent SES Level 1 at 30 June 2006

85 96 103

Number of these positions filled by women 14 16 21

Appendices

Appendix2:Environment

Heritagemanagement

Under section 170A of the Heritage Act 1977, Integral Energy is required to prepare a Heritage and Conservation Register (known as a ‘s 170 Register’) of heritage sites under its control and to report on compliance with guidelines issued by the Heritage Council of NSW.

We have produced a draft s 170 Register, which identifies 18 potential heritage sites from our asset base of around 400 freehold properties. Integral Energy holds many other sites under various other forms of tenure (easements, leases, etc.), so the completion of the draft register will take some time. Section 170 sites will be flagged in the asset register and maintenance system.

The s 170 Register is based on a version commissioned by Prospect Electricity in 1995 and on further work by consultants LFA (Pacific) Pty Ltd, whom we commissioned in 2004 to bring the register up to date.

We use conservation management strategies to manage heritage assets, and strategies will be prepared for each of the potential heritage sites to confirm their significance and make recommendations for their conservation. In 2006–07, we completed strategies for two sites. Each strategy provides a schedule of works for the site, with notes to ensure that conservation work will be done as part of normal building maintenance on the site.

In January 2007, we submitted an updated Heritage Asset Management Strategy to the Heritage Office. At the same time, we submitted the two conservation management strategies to the Heritage Office for review.

Integral Energy’s further progress in meeting the requirements of the Heritage Act is described below.

Heritage and Conservation Register

Integral Energy set up its draft s 170 Register in 2006–07. We plan to submit the register to the Heritage Office after we have developed conservation management strategies for all 18 identified potential heritage sites.

Heritage assets

In 2006–07, Integral Energy did not acquire, transfer, dispose of, relocate or rent any heritage assets.

Condition assessments

In January 2007, we submitted draft conservation management strategies, including recommended heritage management works, for the following:

a cottage substation in Argyle Street, Moss Vale

a control building at our Fairfield zone substation on the corner of Hedges and Loscoe streets, Fairfield.

The Moss Vale cottage dates from 1936; the Fairfield substation is believed to have been constructed in the 1920s.

Heritage training

Integral Energy staff attended s 170 Heritage and Conservation workshops organised by the Heritage Office. Our updated Heritage Asset Management Strategy includes a proposed training program for Integral Energy staff.

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Appendix3:Social

Ethnicaffairsprioritystatement

Integral Energy’s corporate values commit the organisation to acknowledging and valuing cultural diversity across our stakeholder base, in our delivery of customer service, in our management of employees and in our interactions with suppliers, communities and other stakeholder groups.

Customers

We strive to ensure that appropriate services are offered to our diverse multicultural customer base and that customers are not disadvantaged because of their cultural backgrounds. We aim to provide the same level of service to each of our more than 800,000 customers, who can contact the organisation 24 hours a day, seven days a week.

Data collected from the 2001 Census indicates that 30% of people living in Integral Energy’s franchise area – Sydney’s Greater West, the Blue Mountains, the Southern Highlands and the Illawarra—were born outside Australia. Approximately 27% of the population in our franchise area comes from non‑English speaking backgrounds. The three most common languages spoken in our franchise area, excluding English, are Chinese (13%), Arabic (12%) and Vietnamese (8%).

To meet the diverse needs of our customers, contracts for small retail customers are available in six community languages. Integral Energy also provides an interpreter service that allows customers to speak their own language when dealing with us. The interpreter service is supplied by the Commonwealth Department of Immigration and Multicultural Affairs. Contact numbers are printed on the back of customer bills and on the front page of the standard service contract.

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In 2006–07, for the third time, Integral Energy sponsored the Community Service Award at the National Multicultural Marketing Awards. The awards are designed to encourage and reward businesses and organisations that promote their products and services to people from culturally and linguistically diverse backgrounds. By supporting the awards, we help to recognise industries that provide services and support specific to our diverse communities.

Integral Energy’s Customer Consultative Committee considers the needs of customers of differing ethnic and cultural backgrounds. The committee provides valuable feedback and advice about the organisation’s policies and services, and helps us deliver a standard of service that meets customer expectations and exceeds the level of service provided by our competitors. Committee membership includes representatives of the Community Relations Commission and the Illawarra Aboriginal community.

All customers have access to our Customer Care unit, which deals with complaints and aims to resolve disputes as quickly as possible. Interpreter services are also available as part of the complaints handling process.

Customers who are dissatisfied with the outcome of their complaints have the right to contact the Energy and Water Ombudsman of NSW.

Employment practices

The cultural diversity and ethnic mix of our customer base are reflected in the make‑up of our staff, with employees or their families representing more than 30 overseas countries.

Integral Energy is committed to recruiting staff on the basis of merit, regardless of sex, race, religion, ethnicity or disability. This practice is intended to provide us with a highly competent, flexible and competitive workforce. We provide managers and employees with guidelines to follow for the recruitment, selection and appointment processes, so that equity and diversity are maintained.

In 2006–07, we continued the development of our Workplace Diversity Strategy to ensure that diversity is integrated into our everyday work practices. The purpose of the strategy is to provide a framework for diversity within Integral Energy that recognises and appreciates the value of our differences.

The strategy has four strategic planks:

Strategy 1—ensuring that human resource policies and procedures support a culturally and linguistically diverse workforce

Strategy 2—creating a work environment that engages, enables and empowers people to do their best at work

Strategy 3—adopting an approach to recruitment and retention that supports a sustained increase in diversity in the workforce

Strategy 4—providing appropriate support for staff throughout the work lifecycle.

Publications

In 2006–07, Integral Energy produced an extensive range of publications to keep our stakeholders informed about our ongoing operations and our new products and initiatives, such as Blacktown Solar City. We produced a suite of materials to support Integral Energy’s launch in the Queensland retail electricity market.

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Our publications are available by calling 131 002 or by visiting our website (www.integral.com.au).

Examples of recent publications are listed below.

For staff

Code of Ethics

Customer service standards

Employee assistance program

Equal employment opportunity

I care! (workplace giving brochure)

Incident response card

Inside Integral (staff newsletter)

Welcome to Integral Energy

For suppliers

Statement of Business Ethics

Supplier newsletter

For the public

Annual performance report

Assistance for users of life support machines

INhome (residential newsletter)

Appliance running costs brochure —Your guide to the operating costs of electrical appliances in the home

Customer Consultative Committee annual report

Customer Service Standards

Customer Service Charter

Customer welcome pack

Electricity concessions for pensioners

Electricity negotiated supply agreement: conditions

Energy efficiency products and services

Energy price guide

Environmental policy

Financial counselling

General terms and conditions for underground residential distribution of electricity

Appendices

Appendix3:Social(continued)

How to get your electricity connected (1 and 2)

How to keep your electricity connected

INbiz newsletter

Integral Energy easements

Keep your business in the spotlight

Making it easier to manage your electricity bill

Master billing information sheet

Network 2016 (annual planning statement)

NightWatch information sheet

Now you have the power to choose your electricity supplier (business brochure)

Queensland the power is in your hands

Safety brochures

Avoid the risk of reverse polarity

Electrical safety in vegetation management

Electrical safety for plumbers

Electrical safety for tradespeople

Electrical safety at home

Electrical safety around damaged electrical infrastructure

Safety from the ground up

Safety switches

Saving energy at home

Services and information guide

Solutions to heating problems

Standard form customer contract for electricity connection and supply

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Standard form contract: summary information

The energy efficient home

Vineyard to Rouse Hill community newsletter

Welcome to simple payment options

World of savings brochure – How to reduce your energy bill

Why you should switch to Integral Energy (residential brochure)

Blacktown Solar City

A change is in the air

Dive in and help Australia’s energy future

Save energy, money and the environment

You can help shape Australia’s energy future

Fact sheets

Cooling your home

Electric and magnetic fields

Heating your home

Hot water systems

Insulation, lighting

Solar energy systems

Fact sheets for business

Power factor correction

Downstream metering

Energy management

Pricing analysis

Quality of supply

Energy studies

Fundsgrantedtonon-governmentorganisations

Integral Energy does not grant funds to non‑government organisations. Rather, through a Board‑approved policy and annual program of community partnerships and donations, the corporation lends support to selected community organisations that meet a set of predetermined criteria outlined in our Community Partnership and Sponsorship Strategy.

Support falls into three key categories:

Economic—to encourage sustainable outcomes in regional business in the franchise area through awards and recognition, and showcasing world’s best practice

Environment—to facilitate and demonstrate sound environmental practices by creating proactive programs that encourage and stimulate alternative energy usage

Social—to support positive futures by programs that develop skills, attitudes and actions for young people and families in Integral Energy’s franchise area.

The organisation’s sponsorship criteria are available on the internet, with a self‑assessment tool for applicants to test how well their proposal fits with the requirements. This is a transparent process that treats all applications equally.

Examples of the organisations that met the criteria in 2006–07 are included in Table 6 on page 45.

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Appendix4:Governance

DutiesofBoardcommittees

The key responsibilities and objectives of Integral Energy’s board committees are outlined below.

Audit and Business Risk Board Committee

The Audit and Business Risk Board Committee ensures that audit and business risk matters are dealt with in an independent manner. The Head of Audit and Risk and the Manager Corporate Governance have responsibility for supporting the work of the committee. The committee’s responsibilities relate to the financial affairs and business risks of the company, and to internal and external audits. In addition, the committee examines any other matters referred to it by the Board.

External audit

External audit duties involve:

reviewing the client service plan and maintaining liaison with the Audit Office of NSW

reviewing key issues in external audit reports to ensure that management takes appropriate and prompt action

seeking the external auditor’s assessment of the quality and coverage of internal audit work and the competence of internal audit staff.

Internal audit

Internal audit duties involve:

reviewing and approving the Internal Audit Charter

monitoring the performance of the internal audit function

reviewing and endorsing the internal audit financial budget

approving the annual and three‑year consolidated audit plans

approving the strategic audit plan

ensuring that the internal audit function is adequately resourced and has appropriate standing

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ensuring the continued independence, objectivity and integrity of the internal audit function

monitoring progress against the consolidated audit plan

reviewing internal audit reports to ensure that management takes appropriate and prompt action to remedy identified major deficiencies or breakdowns in controls or procedures

overseeing effective coordination between the internal auditors and external auditors

initiating and supervising special investigations

receiving information and recommendations from the Head of Audit and Risk

ensuring that an independent peer review of the internal audit function is conducted at least every five years.

Financial affairs

Financial duties involve:

reviewing financial statements and other financial information distributed externally and to the Board

assessing the performance of financial management

monitoring the establishment of an appropriate internal control framework, including information systems and reports provided to the Board.

Risk

Duties in relation to risk include:

endorsing the risk management framework, strategy and policy

approving the Risk Management Charter and annual risk management plan

endorsing the outputs of the annual risk identification and assessment activity

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monitoring emerging business risk issues

monitoring progress under the annual risk management plan

reviewing risk management reports to ensure that management takes appropriate and prompt action to remedy identified major deficiencies or breakdowns in controls or procedures

reviewing management representation letters provided to the Audit Office

reviewing non‑financial management representation letters on significant risk areas (including safety and environment)

reviewing serious failures to comply with laws, regulations, industry standards or internal policy referred to its attention

reviewing results of biannual independent quality assurance audits of the risk management functions and monitoring implementation of agreed actions

endorsing the proposed insurance coverage.

Compliance

Compliance duties include:

ensuring that Integral Energy has an effective and efficient compliance management framework in place

monitoring significant transactions that are not a normal part of Integral Energy’s business

considering the processes in place to ensure compliance with laws, regulations, standards and best practice guidelines

monitoring any current or pending litigation that has a material financial risk exposure

considering Integral Energy’s corporate approach to compliance.

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Appendices

Appendix4:Governance(continued)

Probity

Probity duties involve:

fostering a culture of ethics in Integral Energy by setting a ‘tone at the top’ that contributes to a culture of healthy questioning, continuous improvement, strategic thinking and informed judgment

overseeing the level of compliance with Integral Energy’s Code of Ethics and the content of and communication strategy for the code

reviewing and approving Integral Energy’s Fraud and Corruption Control Plan and monitoring progress under the plan

reviewing reports on any major instances of misappropriation of funds, fraud and theft from Integral Energy and monitoring preventive procedures

considering reports on fraud and corruption and monitoring trends in, and the appropriateness of, preventive strategies.

Administration

Administration duties involve:

approving the nomination of the externally contracted internal auditors and ensuring that they are not used in any other consultancy without the committee’s consent

reviewing the schedules of delegations at least annually, or whenever there are major changes to the management structure

meeting in camera with the external auditor and the internal auditors at least once a year.

The committee undertook a review of its charter in 2006–07.

Details of members of the committee are provided on page 109.

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Retail Risk Board Committee

The Retail Risk Board Committee makes recommendations to the Board in relation to:

the annual retail strategy

board policies and strategies relating to the energy sales and marketing and energy portfolio management business activities

the level of risk facing retail in line with Integral Energy’s business plans and strategic objectives

reviewing the performance of retail risk activities

performance measures for energy trading and sales

counterparties and their exposure limits

the use of financial contracts and the limits associated with their use

dealer trading limits

delegation of payment limits for settlements

performance of trading‑related risk management activities

credit risk limit exposure of customers

market share targets

other risks, including retailer of last resort risks

all reports and other materials received from the Australian Financial Services Licence Governance Committee.

In addition, the committee examines any other matters referred to it by the Board.

The committee undertook a review of its charter in 2006–07.

Details of members of the committee are provided on page 109.

HumanResourcesandRemunerationBoardCommittee

The Human Resources and Remuneration Board Committee can consider and make decisions or recommendations to the Board in relation to the following areas:

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oversight of the implementation and effectiveness of the Human Resources Strategic Plan (incorporating Human Resources, Learning and Development, Remuneration, OHS, and Technical Training)

oversight of the external strategic human resources research initiatives and consideration of supporting reports from management on human resources market changes and emerging issues

review of the development, implementation and effectiveness of Board policy on human resources, including related remuneration policies, principles and guidelines

review and endorsement of changes to contract remuneration ranges in line with market data for submission to the Board

reports on the results of the annual contract remuneration review process

review and endorsement of general manager performance and remuneration reviews for submission to the Board

review of new initiatives and the impact of external influences on the need for discretionary payments in response to position volatility

review of the end‑of‑year Scorecard results and allocation of a performance rating to Integral Energy and each business unit as input to the At‑Risk Reward program

reports on the results of the annual At‑Risk Reward program

oversight of the effective operation of occupational health and safety management policies and practices, and monitoring of workers’ compensation statistics

oversight of the governance arrangements for the organisation’s remuneration and superannuation arrangements

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monitoring staff behaviour and organisational culture to ensure that they underpin effective Code of Ethics compliance

monitoring of the organisation’s compliance with awards, employment conditions and agreements.

In addition, the committee examines any other matters referred to it by the Board.

The committee undertook a review of its charter in 2006–07.

Details of members of the committee are provided below.

Transaction Approval Committee

The Transaction Approval Committee has rotating membership but requires membership of at least two, and not more than three, non‑executive directors and the Chief Executive Officer. The committee is authorised by the Board to approve urgent business expenditure or revenue up to $10 million that is required between meetings of the Board and that is outside the standing delegations to the Chief Executive Officer under Board policies.

If required, the Board may also authorise the committee to approve urgent business expenditure or revenue above $10 million.

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The minutes and papers of all committee meetings are circulated to all members of the Board.

The committee undertook a review of its charter in 2006–07.

Summaryoflegislativechangesandjudicialdecisions

Integral Energy Australia’s operations are subject to numerous state and federal laws. During the financial year ended 30 June 2007, new laws affecting Integral Energy Australia were introduced and a number of the existing laws affecting it were amended or repealed. Sections 1, 2 and 3 of this summary contain an outline of the material changes (if any) to the following Acts, their subordinate legislation and the commencement of new legislation:

Electricity (Consumer Safety) Act 2004 (NSW);

Electricity Supply Act 1995 (NSW);

Energy and Utilities Administration Act 1987 (NSW);

Energy Services Corporations Act 1995 (NSW);

Environmental Planning and Assessment Act 1979;

Financial Services Reform Act 2001 (Cth); and

Freedom of Information Act 1989 (NSW);

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Independent Commission Against Corruption Act 1988 (NSW);

Independent Pricing and Regulatory Tribunal Act 1992 (NSW);

National Electricity (South Australia) Act 1996 (SA).

Occupational Health & Safety Act 2000 (NSW);

Privacy Act 1988 (Cth);

Protection of the Environment Operations Act 1997 (NSW);

Public Authorities (Financial Arrangements) Act 1987 (NSW);

Renewable Energy (Electricity) Act 2000 (Cth);

State Owned Corporations Act 1989 (NSW);

Trade Practices Act 1974 (Cth);

Do Not Call Register Act 2006 (Cth);

Corporations Act 2001 (Cth); and

Public Finance and Audit Act 1983 (NSW).

Integral Energy Australia considers these to be amongst the principal Acts affecting it or the users or services provided by it. Section 4 of this summary concerns significant judicial decisions.

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Current Board committee membership

CommitteeMembership

AuditandBusinessRiskBoardCommittee

HumanResourcesandRemunerationBoardCommittee

RetailRiskBoardCommittee

Michael McLeod Member Attendee Member

John Fahey Chair Member

Terry Downing Member Chair

Emma Stein Chair

John Fletcher Member Member

Paul Sinclair Member

Richard Powis Invitee Member Member

Appendices

Appendix4:Governance(continued)

1.Amendmentsofcurrentacts

New South Wales

Energy and Utilities Administration Act 1987

The Energy and Utilities Administration Amendment (Climate Change Fund) Bill 2007 proposes to amend the Energy and Utilities Administration Act 1987. The Bill was introduced into the Legislative Assembly and received its second reading speech on 19 June 2007. The object of the Bill is to establish a Climate Change Fund, which would be a consolidation of the existing Energy Savings Fund and the Water Savings Fund and would have similar purposes, namely to provide funding for various activities intended to benefit the environment. Distribution network service providers would be required to make annual contributions to the existing funds.

Electricity Supply Act 1995

The Electricity Supply Amendment (Offences) Bill 2007 was introduced into the Legislative Assembly and received its second reading speech on 19 June 2007. The Bill proposes to amend the Electricity Supply Act by increasing the maximum prison term for theft of electricity from two to five years. The Bill also proposes to make theft of electricity an indictable offence if committed by an individual.

The Bill would make it an offence to enter, climb, or be on electricity works, with a maximum penalty of 10 penalty units or three months imprisonment.

Environmental Planning and Assessment Act 1979

The Environmental Planning and Assessment Act 1979 (EPA Act) was materially amended by the Environmental Planning Legislation Amendment Act 2006 (‘EPLAA’) which commenced on 4 December 2006. The purpose of the EPLAA is to clarify the amendments made previously to the EPA in relation to Part 3A Major

Infrastructure Projects, certification of development and development contributions.

Miscellaneous amendments to Part 3A Major Infrastructure Projects include extending the current power of the Minister for Planning to declare Part 3A projects by Ministerial order; potentially precluding the Minister from approving Part 3A projects that are subject to prohibitions in other environmental planning instruments by which the Minister is not currently bound and clarifying the conditions precedent to the determination of an application for approval by the Minister of the concept plan for a Part 3A project.

Further amendments to the EPA include the introduction of an objective test when determining whether to issue a construction certificate, and the time limit for ministerial consent for Crown development has been reduced to 21 days.

Commonwealth

Renewable Energy (Electricity) Act 2000

This Act was amended by the Renewable Energy (Electricity) Amendment Act 2006, which commenced on 11 September 2006.

The purpose of the Renewable Energy (Electricity) Amendment Act is to improve the administrative integrity, effectiveness and efficiency of the Renewable Energy (Electricity) Act, including by:

providing for the Regulator to grant provisional accreditation of proposed generation projects, establishing timeframes for determining the eligibility of proposed projects by the Renewable Energy Regulator and clarifying the components of a power station;

clarifying the provisions and definitions in the Act for Eligible Renewable Energy Sources and providing increased opportunities for bio‑energy;

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clarifying the provisions relating to certificates and electricity generation returns;

clarifying the provisions in relation to the eligibility of solar water heaters and expediting the process by which certificates can be claimed for new solar water heater models as they become commercially available;

allowing for recent reforms in the National Electricity Market and potential new market operators;

clarifying the provisions in relation to a relevant acquisition of electricity to ensure that only one entity is made liable in relation to the purchase of a particular quantum of electricity;

providing the Renewable Energy Regulator with the power to vary a number of assessments and determinations under the Act;

providing the Renewable Energy Regulator with information gathering powers; and

allowing for the suspension of an accredited power station under a number of circumstances.

Trade Practices Act 1974

The Trade Practices Legislation Amendment Act (No. 1) 2006 was passed in November 2006 and commenced in January 2007 and introduced some significant amendments to the Trade Practices Act 1974 (Cth) (‘TPA’) to implement some of the recommendations of the Dawson Committee in its Review of the Competition Provisions of the Trade Practices Act in January 2003. Key amendments include:

Penalties increased: Section 76 now provides for much higher penalties for contraventions of the TPA as a means of better deterring corporations or individuals from engaging in anti‑competitive behaviour. Maximum penalties for breaches of the competition law provisions (eg. boycotts, price fixing, misuse of market power) will be increased to the greatest of the following:

(a) $10 million;

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(b) if the court can determine the value of the benefit that the body corporate, and any related body corporate, have obtained directly or indirectly and that is reasonably attributable to the act or omission, the fine is three times the value of the benefit; or

(c) if the court cannot determine the value of that benefit, the maximum fine is 10% of the annual turnover of the body corporate during the 12 months ending at the end of the month in which the act or omission occurred.

Search powers of the ACCC: Part XID expands the search powers of the Australian Competition and Consumer Commission (‘ACCC’). The ACCC now has the ability to search premises and seize evidence and conduct dawn raids when backed by a warrant.

Indemnities and disqualifications for directors and officers: Section 77A extends the ban on indemnities for corporate officers under the Corporations Act. Companies will not be able to indemnify officers against liability to pay pecuniary penalties for breaches of Part IV of the TPA (i.e. the competition law provisions), or legal costs in defending or resisting proceedings in which they are found to have such a liability regardless of ‘good faith’. A corporation thus can only indemnify its officers when the officer wins the proceedings. (The TPA however allows corporations to indemnify lower level employees and agents that are not ‘officers’ for such liability and legal fees).

In addition, under section 86E, the courts are able to disqualify a person from managing a corporation if the person has contravened, attempted to contravene, or has been involved in a contravention of Part IV, and the court thinks that disqualification is justified. Relevant factors include, but are not limited to, the person’s

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conduct in relation to the management, business or property of any corporation.

Merger clearances and authorisations: Division 3 of Part VII provides for a new voluntary formal merger clearance system. Under that system, the ACCC must make a decision about whether to oppose a proposed merger or acquisition in respect of which a formal clearance has been sought, within 40 business days (although the ACCC can extend the time it has to consider applications by an additional 20 business days).

The ACCC’s decision can be reviewed by the Australian Competition Tribunal within 90 days, although this time frame can also be extended. The ACCC has standing to appear before the Australian Competition Tribunal, provide evidence, examine and cross‑examine witnesses and make submissions as determined by the ACCC.

Applications for authorisations of mergers on public benefit grounds can now go straight to the Australian Competition Tribunal.

Joint venture parties and exclusionary provisions: Joint venture parties which enter into non‑compete arrangements with the joint venture vehicle, or set uniform prices for products sold by the joint venture, now have a defence. Sections 76C and 76D provide that there is no contravention of the prohibitions on exclusionary provisions and price fixing if such arrangements are for the purposes of the joint venture, and do not have the purpose, effect or likely effect, of substantially lessening competition.

Collective bargaining for small businesses: Small businesses are able to bargain collectively, with immunity from the prohibitions on price fixing, exclusionary provisions (boycotts) and anti‑competitive arrangements, using a new notification process set out in sub‑division B of Division 2 of Part

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VII. This only applies where the total price of goods or services to be supplied to or from the ‘target’ of the collective bargaining is reasonably expected to be under $3 million in any 12 month period.

The Trade Practices Amendment (National Access Regime) Act 2006 was assented to on 18 August 2006 and introduces a range of amendments to the national access regime contained in Part IIIA of the TPA. These amendments came into effect on 1 October 2006.

2.NewLegislation

New South Wales

Renewable Energy (New South Wales) Bill 2007

The Renewable Energy (New South Wales) Bill 2007 was introduced into the Legislative Assembly and received its second reading speech on 27 June 2007.

The Bill proposes to establish a mandatory target for renewable energy in relation to all electricity consumed in New South Wales.

The Bill proposes to:

create a simplified procedure to apply to small generation units that use renewable energy;

provide for the accreditation of power stations;

prescribe procedures relating to renewable energy certificates and renewable energy certificate shortfall;

require a relevant entity that acquired electricity under a scheme during a year to lodge an audited energy acquisition statement on or before 30 April of the following year;

provide for the Scheme Administrator to maintain various registers, including registers of: registered persons, accredited power stations, renewable energy certificates and applications for accredited power stations;

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Appendices

Appendix4:Governance(continued)

specify the powers of authorised officers, including when the powers may be exercised, monitoring powers, powers to ask questions and seek production of documents and issuing of search warrants; and

create offences for the disclosure of confidential or commercially sensitive information or the use of such information to obtain a pecuniary advantage, with a maximum penalty of 120 penalty units.

Commonwealth

Do Not Call Register Act 2006 (Cth)

The object of this Act is to enable individuals to opt out of receiving unsolicited telemarketing calls, by regulating and minimising unsolicited telemarketing calls made to Australian telephone numbers that originate from overseas numbers or Australian numbers.

The main elements of the Act include:

a prohibition on making telemarketing calls to an Australian number registered on the Do Not Call Register, subject to certain exemptions;

a requirement that telemarketing agreements must require compliance with this Act;

a civil sanctions regime; and

a tiered enforcement regime of enforcement measures available to the ACMA.

3. New Subordinate Legislation, Codes and Determinations

National Electricity Rules

The National Electricity Rules (‘Rules’) govern the operation of the National Electricity Market, and are made under the National Electricity Law. The Rules took effect on 1 July 2005 replacing the National Electricity Code. The Australian Energy Market Commission is responsible for amending the Rules. Since their

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introduction the Rules have been amended by the following instruments:

In 2007:

National Electricity Amendment (Reallocations) Rule 2007 No.1

National Electricity Amendment (Technical Standards for Wind Generation and other Generator Connections) Rule 2007 No.2

National Electricity Amendment (Transmission Last Resort Planning) Rule 2007 No.3

In 2006:

National Electricity Amendment (Extension of Inter‑regional Settlements Agreement) Rule 2006 No.12

National Electricity Amendment (TransGrid Participant Derogation – Treatment of Contingent Projects (Interim Arrangements)) Rule 2006 No.13

National Electricity Amendment (Management of negative settlement residues in the Snowy Region) Rule 2006 No.14

National Electricity Amendment (Studland Bay Wind Farm)Participant Derogation (Frequency Ride Through)) Rule 2006 No.15

National Electricity Amendment (Studland Bay Wind Farm Participant Derogation (Voltage Ride Through)) Rule 2006 No.16

National Electricity Amendment (Metrology) Rule 2006 No.17

National Electricity Amendment (Economic Regulation of Transmission Services) Rule 2006 No.18

National Electricity Amendment (Reform of the Regulatory Test Principles) Rule 2006 No.19

National Electricity Amendment (NEMMCO Participant Derogation (Extension of Cost Recovery of Regulation Services in Tasmania)) Rule 2006 No.20

National Electricity Amendment (Resolution of existing generator performance standards) Rule 2006 No.21

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National Electricity Amendment (Pricing of Prescribed Transmission Services) Rule 2006 No.22.

More information about each amendment is available from the Australian Energy Market Commission website.

New South Wales

The Energy and Utilities Administration Regulation

The Energy and Utilities Administration Regulation 2006 commenced on 1 September 2006. Its main elements include:

provisions relating to the energy efficiency of electrical equipment, such as minimum standards, sale of certain electrical equipment, applications for registration of electrical equipment and requirements of registration;

the establishment of a register of electrical equipment to be maintained by the Energy Corporation of New South Wales;

energy efficiency labelling for electrical equipment; and

certain transitional provisions.

The Occupational Health and Safety Regulation 2001

The Electricity (Consumer Safety) Act 2004 has amended the Occupational Health and Safety Regulation 2001 for the purpose of defining ‘electrical article’, ‘electrical installation’, and ‘electrical supply authority’. The Occupational Health and Safety Amendment (Electrical Equipment) Regulation 2006 and the Occupational Health and Safety Amendment (Electrical Installations) Regulation 2006 further amended the Occupational Health and Safety Regulation 2001 to address risk control measures relating to electrical articles and installations.

4.Significantjudicialdecisions

Integral Energy is unaware of any significant judicial decisions during 2006–07 that may affect it in its capacity as an energy services corporation, or affect the users of its services in their capacity as customers of an energy services corporation.

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Annual Performance Report 2006–07

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Freedomofinformation

In 2006–07, Integral Energy received 12 requests pursuant to the Freedom of Information Act 1989 (NSW) (FOI Act). The FOI requests were received from members of the public, media, members of parliament, lawyers and investigators. There were no internal reviews sought during the 2006–07 financial year. The Ombudsman was not involved in any matters involving requests under the FOI Act during the financial year. There were no appeals to the Administrative Decisions Tribunal in relation to any requests under the FOI Act. Table 17 provides a summary of the responses to requests pursuant to the FOI Act.

Table 17 Freedom of information requests

Section A—FOI Requests

2006–07 2005–06

Personal Other Total Personal Other Total

New (including transferred in) 2 10 12 – 10 10

Brought forward – 2 2 – – –

Total to be processed 2 12 14 – 10 10

Completed 1 10 11 – 6 6

Transferred out – – – – – –

Withdrawn – 1 1 – 2 2

Total processed 1 10 11 – 8 8

Unfinished (carried forward) 1 1 2 – 2 2

Section B—Result of FOI Requests

2006–07 2005–06

Personal Other Personal Other

Granted in full 1 8 – 2

Granted in part – 2 – 4

Refused – – – –

Deferred – – – –

Completed 1 10 – 6

Section C—Ministerial Certificates

Ministerial Certificates Issued – – – –

Section D—Formal Consultations

Requests requiring formal consultation – 4 – 3

Section E—Result of Amendment Request

Result of amendment—agreed – – – –

Result of amendment—refused – – – –

Totals – – – –

Section F—Notation of Personal Records

Number of requests for notation – – – –

Appendices

2006–07 2005–06

Personal Other Personal Other

Section 10, 19—Incomplete application, wrongly directed – – – –

Section 22—Deposit not paid, diversion of resources – 1 – –

Section 25—Exempt – 1 – 4

Section 25—Otherwise available – – – –

Section 28—Documents not held – – – –

Section 24—Deemed refused – over 21 days – – – –

Section 31—Released to medical practitioner – – – –

Totals – 2 – 4

Section H—Costs and Fees of Requests Processed

2006–07 2005–06

Completed Requests

FOI fees received $375.00 $290.00

Assessed costs – –

Section I—Discounts Allowed

2006–07 2005–06

Personal Other Personal Other

Public interest – – – –

Financial hardship—pensioner/child – 1 – –

Financial hardship—non‑profit organisation – – – –

Totals – 1 – –

Significant correction of personal records – – – –

Section J—Days to Process Requests

Days to Process

0—21 days 1 6 – 2

22—35 days – 4a – 3

Over 35 days – – – 1

Totals 1 10 – 6

a As Integral Energy was required to obtain the views of third parties it was necessary to extend the 21 day response period by a further period of 14 days pursuant to section 59B of the FOI Act.

Section K—Processing time

Processing Hours

0—10 hours 1 4 – 4

11—20 hours – 6 – 2

24—40 hours – – – –

Over 40 hours – – – –

Totals 1 10 – 6

Appendix4:Governance(continued)

Section G—Basis of disallowing or restricting access

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Section L – Reviews and Appeals

2006–07 2005–06

Received Finalised Received Finalised

Number of internal reviews finalised N/A N/A 2 2

Number of Ombudsman reviews finalised N/A N/A N/A N/A

Number of Administrative Decisions Tribunal appeals finalised N/A N/A N/A N/A

Grounds of Internal Review Results

Upheld Varied Upheld Varied

Access refused N/A N/A N/A 2

Deferred N/A N/A N/A N/A

Exempt matter N/A N/A N/A N/A

Unreasonable charges N/A N/A N/A N/A

Charges unreasonable incurred N/A N/A N/A N/A

Amendment refused N/A N/A N/A N/A

Totals N/A N/A N/A 2

Impact of the requirements of the Freedom of Information ActThe impact of the requirements of the FOI Act on Integral Energy’s activities was minor and no major issues arose in connection with Integral Energy’s compliance with the requirements of the FOI Act.

Access to documents under the Freedom of Information ActDocuments can be requested or examined by forwarding a request to Integral Energy together with the FOI fee of $30 to the Freedom of Information Officer, Integral Energy, PO Box 6366, Blacktown NSW 2148. Please note that in addition to the FOI fee, charges may be imposed for the time spent in searching for and retrieving relevant documents, making decisions, photocopying and postage. In certain cases, a 50% reduction in fees and charges may apply. Any request must clearly identify the applicant and a return address, must be in writing and must contain sufficient information to enable the requested document(s) to be located and identified.

Statement of AffairsSection 14 of the FOI Act requires a Statement of Affairs of an agency to be published every 12 months. Integral Energy’s Statement of Affairs is incorporated within this annual report, as is a description of the corporation’s structure and functions.

NotificationstotheIndependentCommissionagainstCorruption

In 2006–07 there were nine notifications to the Independent Commission Against Corruption in accordance with the provisions of the Independent Commission Against Corruption Act 1988. Integral Energy did not receive any notifications from the commission concerning allegations of corruption, and there was no direct involvement by the commission in any of these notifications.

AustralianFinancialServicesLicenceIntegral Energy obtained an Australian Financial Services Licence effective from 1 July 2005. The licence authorises Integral Energy to provide financial advice, deal and/or make a market in financial products and miscellaneous financial products to wholesale clients.

Integral Energy must comply with the licence conditions and report to the Australian Securities and Investment Commission any potential or actual breaches of the licence conditions within five working days. There were no potential or actual breaches of the licence conditions in 2006–07.

To monitor compliance and good governance, Integral Energy formed an Australian Financial Services Licence Governance Committee in 2005–06. The committee met 11

times in 2006–07 and reported to the Retail Risk Board Committee that the obligations under the licence had been complied with as far as was reasonably practical.

Several employees have been nominated as representatives for the purpose of the Australian Financial Services Licence and have been trained extensively on the workings of the licence during the period.

Compliance with the licence conditions was also subjected to satisfactory internal and external audits and reviews in 2006–07.

DisclosureofapprovedexemptionsAfter changes to legislation, approval was granted for reporting exemptions for this annual report. The expanded list of exemptions, some with conditions attached, in Table 18 was approved by the NSW Treasury to overcome concerns of statutory state‑owned corporations about the loss of commercial confidentiality in the increasingly competitive electricity market in NSW.

Appendices

Appendix4:Governance(continued)

Table 18 Integral Energy’s reporting exemptions, 2006–07

Reference Requirement Comment

s. 41B(c) PF&AA Financial statements Exemption from preparing manufacturing, trading, and profit and loss statements. Integral Energy is required to prepare a summarised Operating Statement, summarising major categories of revenues and expenses.

Schedule 1, Part 1: PF&AA (General)

Item 2 Notes: income and expenditure amounts set aside for renewal or replacement of fixed assets

Item 4 Amounts set aside to any provision for known commitments

Item 6 Amount appropriated for repayment of loans, advances, debentures or deposits

Item 13 Material items of income and expenditure on a program or activity basis

Integral Energy is required to summarise the items of revenue and expenses on a program or activity basis.

s. 7(1)(a)(iii) ARSBA Budgets: detailed budget for the year reported on; outline budget for next year

cl. 6 ARSBR Particulars of material adjustments to detailed budget for the year reported on

s. 7(1)(a)(iv) ARSBA Summary review of operations Exemption subject to the following condition: comments and information relating to the summary review of operations are to be disclosed in a summarised form.

Schedule 1 ARSBR Management and activities Exemption subject to the following condition: comments and information relating to ‘management and activities’ are to be disclosed in a summarised form.

Schedule 1 ARSBR Research and development

Schedule 1 ARSBR Human resources

Schedule 1 ARSBR Consultants Exemption subject to the following condition: the total amount spent on consultants is to be disclosed along with a summary of the main purposes of the engagements, together with a list of single consultancies with a value exceeding $30,000.

Schedule 1 ARSBR Land disposal

Schedule 1 ARSBR Consumer response Exemption subject to the following condition: comments and information relating to consumer response are to be disclosed in a summarised form.

Schedule 1 ARSBR Payment of accounts This exemption only applies to statutory state‑owned corporations as they are not subject to the payment of accounts provisions in s. 18 of the Public Finance and Audit Regulation.

Schedule 1 ARSBR Time for payment of accounts As above.

Schedule 1 ARSBR Report on risk management and insurance activities

Exemption subject to the following condition: comments and information are to be disclosed in a summarised form.

Schedule 1 ARSBR Disclosure of controlled entities Exemption subject to the following condition: the names of the controlled entities are to be disclosed along with a summarised disclosure of the controlled entities’ objectives, operations and activities, and measures of performance.

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Reference Requirement Comment

cl. 12 ARSBR Investment performance

cl. 13 ARSBR Liability management performance

s. 7(1)(a)(ia) ARSBA Financial statement of controlled entities Exemption from preparing manufacturing and trading statements. Integral Energy is required to prepare a summarised Operating Statement (i.e. summarising major categories of revenues and expenses).

PF&AA = Public Finance and Audit Act 1983; ARSBA = Annual Reports (Statutory Bodies) Act 1984; ARSBR = Annual Reports (Statutory Bodies) Regulation 2005

CodeofEthicsandcorporatevalues

The Integral Energy Code of Ethics provides a set of principles and values designed to guide staff behaviour and business operations. In pursuit of Integral Energy’s corporate objectives, the Board, management and staff have adopted eight key statements to describe our core values.

Integral Energy’s corporate values were reassessed during 2006–07, resulting in the inclusion of a new value, Enterprising spirit, and some refinement of the Integrity and Sustainable outcomes values.

The revised corporate values are as follows.

Safety excellence

Integral Energy’s safety commitment is to zero accidents, injuries and occupational illnesses. This commitment is supported by:

making safety our first priority

a belief that all accidents are preventable

working safely as a condition of employment

not taking shortcuts

not accepting unsafe behaviour

expecting personal accountability for safety from everyone.

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We will live this value by learning how to work safely; maintaining awareness in all tasks; having an orderly work area; checking for and fixing hazards; coming to work free of drugs and alcohol that could impair performance; taking action to correct unsafe working practices; looking for opportunities to participate in and improve safety performance; and, immediately reporting all near misses, incidents, injuries and occupational illnesses.

Integrity

At all levels of the organisation and in all its business dealings, Integral Energy aims to act with honesty and to achieve the highest level of integrity. This means setting consistent policies, and maintaining soundness of moral principle and character.

We each have a responsibility to ensure that Integral Energy’s resources are used properly, and that our business dealings are free from conflicts of interest. We will take ownership and responsibility for our actions and we will demonstrate outstanding leadership as an example to others.

Management by fact

Management by fact forms the backbone of our approach to planning and decision making. It encompasses our use of all available information to make objective, impartial and confident business decisions and open and honest disclosure of relevant information to our shareholders and customers. We respect the confidentiality of certain business information and do not use this inappropriately.

Enterprising spirit

Integral Energy is committed to fostering an enterprising spirit within its people.

This pioneering ‘can do’ attitude is core to our business growth and success. It means we are open to fresh thinking and new ideas, and encourage effort and learning in our people in order to stimulate creativity. We will pursue opportunities for business change while managing risks.

In order to encourage our people to find solutions creatively, support will be provided from management for teamwork and collaborative frameworks, underpinned by the recognition of the contribution of our people and their value to the business.

Customer commitment

Integral Energy’s vision to be Australia’s best performing energy business by focusing on delivering superior value to our customers and our shareholders now and into the future. This means taking personal responsibility to deliver a standard of service that goes beyond our customers’ expectations and exceeds the service provided by our competitors.

In providing this service we have a responsibility to deal in a fair, open and honest way with all our customers; to review, challenge and improve work practices and processes which stand in the way of better standards of customer service; and to recognise that, in the end, customer loyalty depends on individual relationships with our customers.

Appendices

Appendix4:Governance(continued)

Respect for people

At Integral Energy we respect a ‘fair go for all’. This value is crucial to the personal and professional standards expected in our workplace. It means we:

respect the principles of equal employment opportunity

acknowledge and value diversity in culture and opinion

offer opportunities for promotion on merit

cultivate an environment of trust through open and honest communication

promote self‑improvement and skills development

encourage effective empowerment, teamwork and participative decision making

continually reviewing our safety standards to ensure a healthy and safe environment for our staff, our customers and the community.

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Accountability and responsibility

Complementing the value of ‘Respect for people’, and the personal and professional workplace standards it demands, we take responsibility and accountability for our actions, and maintain the integrity of performance within our area of responsibility. In all our business dealings, we will promote trust, openness, teamwork, professionalism and pride in what we do.

Sustainable outcomes

Integral Energy recognises the significant corporate responsibilities we carry as a leading energy business.

As a responsible corporate citizen, we strive for sustainable outcomes by balancing the ‘triple bottom line’ interests of financial, environmental and social responsibilities in order to ensure long‑term business success. Our commercial success ensures a sustainable economic future for all stakeholders.

We operate in a way that meets the needs of the present without compromising the ability of future generations to meet their own needs.

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ACCC Australian Competition and Consumer Commission

ACMA Australian Communications and Media Authority

AGO Australian Greenhouse Office

AIFRS Australian equivalents to International Financial Reporting Standards

ARSBA Annual Reports (Statutory Bodies) Act 1984

ARSBR Annual Reports (Statutory Bodies) Regulation 1995

bund area protected by a low wall to prevent the spread of dangerous liquids being stored or processed

CBD central business district

CEO Chief Executive Officer

CIC Customer interaction centres

CO2e (carbon dioxide equivalent)

units used to describe global warming potential of all greenhouse gases, e.g. carbon dioxide, nitrous oxide, methane, carbon monoxide

Cth Commonwealth

EBITDA earnings before interest, tax, depreciation and amortisation

EEO equal employment opportunity

EPA Act Environmental Planning and Assessment Act 1979 (NSW)

EWON Energy and Water Ombudsman NSW

FOI Act Freedom of Information Act 1989 (NSW)

GGAS Greenhouse Gas Abatement Scheme

GIS Geographic Information System

GWh gigawatt hour

ICT information and communications technology

INgreen a range of GreenPower accredited products which provide customers with information on how to reduce their reliance on coal‑generated power and how they can help protect the environment for future generations; products include INgreen Pure and INgreen Business

INpower an Integral Energy program to assist customers facing financial hardship to pay for their electricity consumption

IPART Independent Pricing and Regulatory Tribunal

ISO International Organization for Standardization

kV kilovolt

kWh kilowatt hour

LTIs lost‑time incidents

MVA megavolt ampere

MWh megawatt hour

NEMMCO National Electricity Market Management Company Limited

NSW New South Wales

OMS Outage Management System

OPEX operating expenditure

PCBs polychlorinated biphenyls

PF&AA Public Finance and Audit Act 1983

SAIDI system average interruption duration index

SCI Statement of Corporate Intent

SME small and medium enterprise

TS transmission substation

WRAPP Waste Reduction and Purchasing Policy

ZS zone substation

Glossary

Index

Aadministration 108

apprentices 7, 38–39, 41

Audit and Business Risk Board Committee 56, 107–108

Australian Financial Services Licence 115

Bbalance sheet 58

Bella Vista zone substation 5, 18

Blacktown Solar City 6, 9, 31

Board committees 55, 107–109

Board of Directors 50–51, 56–57

Ccapital expenditure 59

capital program 15–17

cash flows 58, 67

Chairman and CEO’s report 4–8

climate change 4, 5, 6, 30

code of ethics and corporate values

117–118

see also ethics and conduct

community partnerships 44–45, 47

competition 5

compliance management 54, 107

consultants 101

corporate governance 48–59, 107–118

credit rating 59

customer service guarantees 102

customers 43–44

Ddisclosure of approved exemptions 116–117

drought 4

Eeconomic performance 10–25, 96–103

environment 6

environmental performance 26–35, 104

environment policy 29–35

e‑safe 4, 47

ethics and conduct 54–55

see also code of ethics and corporate values; probity

ethnic affairs priority statement 104–105

Executive committees 55

executive team 52–53

external audit 55, 107

Ffinance 22

financial affairs 107

financial performance 4

financial statements 61–94

five‑year statistical table 99–100

franchise area 2

freedom of information 113–115

Ggovernance and operational structure 49

glossary 119

Hhardship, management of 43

heritage management 35, 104

highlights and lowlights 9

Human Resources and Remuneration Board Committee 56, 108–109

Iinsurance 54

internal audit 55, 107

Llabour management 41

legislation 109–112

Mmaintenance program 18

management discussion and analysis 58–59

mission 2

Nnet profit 58

network regulatory determination 2009–2014 96–97

network reliability 5, 13–15

network standards 19

new connections 18‑19

NightWatch 98

Oobjectives 10 economic 11 environmental 27 social 37

occupational health and safety 4, 40

organisational capability 7

organisational changes 8

Outage Management System 5

overseas travel table 101

Owen Inquiry 4, 6, 25

Pperformance indicators economic 12 environmental 28 social 38

privacy 55

probity 108

see also ethics and conduct

publications 105–106

QQueensland electricity market 4, 5, 19, 21

Rrelationships 6

response systems 25

retail business 19–22

retail regulatory determination 2007–2010 97–98

Retail Risk Board Committee 56, 108

risk management 54, 107

Sscorecard 2006–07 7

shareholder return 58

social performance 36–47, 104–106

staff 7, 12, 39–43

stakeholders 6, 44–45

support systems 22–24

Ttrading 22

training, education and recruitment 41

Transaction Approval Committee 56, 109

transmission details 2

Vvalues 2, 25, 117–118

vision 2, 8, 25

Wwaste stream 34

Yyear at a glance 3

Annual Performance Report 2006–07

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Main office

51 Huntingwood Drive Huntingwood NSW 2148

South Coast officeBridge Street, Coniston NSW 2500

Postal addressPO Box 6366, Blacktown NSW 2148

Telephone24-hour emergency service

131 003

Account inquiries, connections, disconnections

131 002 (24 hours)

General inquiries

02 9853 6666

Hot water hotline

131 003

To report streetlights out

131 003

Customer comments or complaints

1800 806 698

Ethics hotline

1800 ETHICS

1800 384 427

Interpreter service

131 450

Facsimile02 9853 6000

Emailintegral@integral.com.au

Websitewww.integral.com.au

Credit card payments

1300 361 104 (24 hours, cost of a local call)

Field support centres

Northern region

BowenfelsCooerwull Drive

GlendenningGlendenning Road

KatoombaCnr Camp and Whitton Streets

KandosCnr Davies Road and White Crescent

Kings ParkVardy’s Road

ParramattaCnr Fennell and Macarthur Streets

PenrithBlaikie Road, Jamisontown

Windsor SouthHam Street

Central Logistics Facility

GlendenningGlendenning Road

Civil Works Centre

GlendenningGlendenning Road

Central region

BowralBong Bong Street

Hoxton ParkHoxton Park Road

NarellanMcPherson Avenue, Smeaton Grange

PictonHenry Street

Southern region

NowraCnr Yalwa and Depot Roads

ShellharbourBuckley Road

SpringhillFive Islands Road

UlladullaDeering Street

Our locations

Above:From our Hoxton Park Field Support Centre, Project Manager Central, Steve Gurnett (left), and Project Officer Central Region, Frank Muscat, were part of Integral Energy’s winning Fire Management team at E‑safe 2007.

About this report

Integral Energy’s Annual Performance Report for 2006‑07 is a candid account of our organisation’s activities, highlights and challenges during the year. We printed 1,000 copies of the report on recycled paper. The report was produced at a total cost for external services of $75,000 (GST inclusive).

Integral Energy’s Annual Performance Reports are also available on our website at www.integral.com.au

Project management

Corporate and Government Affairs, Integral Energy

Design

Impress Design

Photography

Penny Clay Camilla Quiddington Neil Billington

Editing

WordsWorth Writing

Printing

Lilyfield Printing