ERGON ENERGY Statement of Corporate Intent ERGON ENERGY … · 3.1 Financials..... 23 3.1.1 Group...

‐ 1 ‐ Ergon Energy Corporation Limited Statement of Corporate Intent 2011/12

Commercial in Confidence Copyright © 2011 Ergon Energy Corporation Limited ABN 50 087 646 062

ERGON ENERGY Statement of Corporate Intent 2011/12

ERGON ENERGY Statement of Corporate Intent 2011/12 DRAFT March 2011

Ergon Energy Statement of Corporate Intent 2011/12 June 2011



NOTE:

This document contains highly confidential material relating to the business affairs of Ergon Energy. Release of its contents is subject to the provisions of the Right to Information Act 2009. Any unauthorised disclosure of material contained in this statement may diminish the commercial value of that information and would have an adverse effect on the business, commercial and financial affairs of Ergon Energy.



TABLE OF CONTENTS

1. SCOPE ................................................................................................................................ 5

1.1 Main Undertakings ................................................................................................................................................. 5

1.2 Corporate & Operational Objectives ....................................................................................................................... 6

1.3 Corporate & Operational Tactics ............................................................................................................................. 8

1.4 Corporate Performance Measures ........................................................................................................................... 9

1.5 Performance Drivers ............................................................................................................................................. 10

1.6 Strategic Expectations ........................................................................................................................................... 15

2. MANDATORY MATTERS ................................................................................................. 16

2.1 Financial Key Performance Indicators .................................................................................................................... 16

2.2 Non‐Financial Key Performance Indicators ............................................................................................................ 18

2.3 Assumptions ......................................................................................................................................................... 20

2.4 Community Service Obligations ............................................................................................................................. 21

2.5 Employment And Industrial Relations (E&IR) Plan ................................................................................................. 21

3. ADDITIONAL MATTERS .................................................................................................. 23

3.1 Financials .............................................................................................................................................................. 23

3.1.1 Group ................................................................................................................................................................ 23

3.1.2 Financials: Selected Subsidiaries ......................................................................................................................... 26

3.1.3 Financial Contributions: Selected Subsidiaries .................................................................................................... 29

3.1.4 Financial Contributions: Major Business Divisions .............................................................................................. 29

3.2 Main Undertakings And Business .......................................................................................................................... 29

3.3 Capital Expenditure Program ................................................................................................................................ 30

3.3.1 Assets Under Construction ................................................................................................................................. 30

3.3.2 Capital Expenditure Planned To Commence In SCI Year ...................................................................................... 33

3.3.3 Business Development ....................................................................................................................................... 35

3.3.4 Total Capital Expenditure ................................................................................................................................... 36

3.4 Other Significant Expenses .................................................................................................................................... 36



3.5 Major Initiatives Being Undertaken By Ergon Energy ............................................................................................. 37

3.5.1 National Broadband Network (NBN) .................................................................................................................. 37

3.5.2 Ubinet ............................................................................................................................................................... 37

3.5.3 Demand Management ....................................................................................................................................... 38

3.5.4 Joint Workings ................................................................................................................................................... 39

3.5.5 Long Term Energy Supply for North West Queensland ........................................................................................ 42

3.6 Sponsorship, Advertising, Corporate Entertainment, Donations and Other Arrangements ..................................... 43

3.7 Other .................................................................................................................................................................... 44

3.7.1 Prudent Financial Information ............................................................................................................................ 44

3.7.2 Capital Structure ................................................................................................................................................ 44

3.7.3 Weighted Average Cost of Capital (WACC) .......................................................................................................... 44

3.7.4 Dividend Policy and Payment ............................................................................................................................. 45

3.7.5 Corporate Governance ....................................................................................................................................... 46

3.7.6 Risk Management .............................................................................................................................................. 46

3.7.7 Compliance with Government Policies ............................................................................................................... 47

4. PERFORMANCE AGREEMENT ....................................................................................... 48

5. ATTACHMENTS .............................................................................................................. 49

ATTACHMENT 1: Definitions Of Financial Ratios .......................................................................................................... 49

ATTACHMENT 2: Employment And Industrial Relations Plan ....................................................................................... 50 ERGON ENERGY CORPORATION LIMITED, EMPLOYMENT AND INDUSTRIAL RELATIONS PLAN ............................................ 50 SPARQ SOLUTIONS EMPLOYMENT AND INDUSTRIAL RELATIONS PLAN ................................................................................ 67

ATTACHMENT 3: Sponsorship, Advertising, Corporate Entertainment, Donations And Other Arrangements ................ 81

ATTACHMENT 4: WACC Calculations ........................................................................................................................... 87

ATTACHMENT 5: Corporate Governance Guidelines For Government Owned Corporations ......................................... 88

ATTACHMENT 6: Compliance With Government Policies ............................................................................................. 89

ATTACHMENT 7: Minimum Employment, Industrial Relations and Job Security Principles for Government Owned Corporations (GOC) Employees ................................................................................................................................... 90



1. SCOPE This Statement of Corporate Intent outlines the strategies that will be implemented in 2011/12, the first year of the five year strategic direction described in the Ergon Energy Corporate Plan.

The summer storm season of 2010/11 was especially severe in its impact on regional Queensland and on the Ergon Energy network. A string of major weather events; flooding in December/January and cyclones Tasha, Anthony and Yasi caused significant damage. While Ergon Energy responded rapidly and demonstrated its capability to restore supply to customers as soon as was possible, the impact of these weather events is expected to be felt into 2011/12. In particular, Ergon Energy expects that there will be ongoing impacts on the program of works, and around the Service Target Performance Incentive Scheme (STPIS). There is also expected to be ongoing economic hardship for our customers, especially in regional communities hit by Cyclone Yasi, which will have implications for Ergon Energy. These issues are addressed in this SCI.

1.1 MAIN UNDERTAKINGS Ergon Energy’s purpose is to enhance the economic and lifestyle aspirations of our customers through sustainable energy solutions. The core business of Ergon Energy is to operate as a regional electricity distribution entity and as a non‐competitive electricity retailer within its franchise area of regional Queensland (as defined in the Electricity Act (1994)).

The main operating companies within the Ergon Energy Group and their activities are: − Ergon Energy Corporation Limited (EECL). As a distribution entity, the principal function is to operate, maintain

(including repair and replace), develop and protect its electricity supply network to ensure the adequate, economic and safe supply of electricity to its geographically dispersed customers.

− Ergon Energy Queensland Pty Ltd (EEQ), a 100% subsidiary to EECL, acts as the non‐competitive retailer serving over 690,000 customers in the supply area.

− EECL is also a 100% shareholder in Ergon Energy Telecommunications Pty Ltd (EET). EET trading as Nexium Telecommunications is a licensed telecommunications carrier who provides high‐speed data services to entities outside of the Ergon Energy Group on a commercial basis from spare telecommunications capacity generated from the provision of telecommunications services to the Ergon Energy Group.

− EECL is a 50% shareholder in SPARQ Pty Ltd (SPARQ). SPARQ is a company jointly owned with Energex that offers Information and Communications Technology (ICT) and telecommunication support functions.

The Ergon Energy Group services customers across 97% of Queensland – around 1.7 million square kilometres – with an electricity network consisting of approximately 150,000 kilometres of powerlines and one million power poles, along with associated infrastructure such as major substations and power transformers.

Ergon Energy also owns and operates a 55MW gas‐fired power station in Barcaldine, which supplies power to the state‐wide electricity grid, along with 33 stand‐alone power stations that provide supply to isolated communities across Queensland that are not connected to the grid.

The Group’s assets are valued at over $9 billion, which includes telecommunication assets of approximately $3 million, held within EET, and assets of approximately $784 million (which are predominantly financial instruments) held by EEQ. Ergon Energy is also a 50% shareholder in SPARQ, whose total assets are approximately $283 million.



1.2 CORPORATE AND OPERATIONAL OBJECTIVES The overarching objectives for Ergon Energy are to increase shareholder value and to be more efficient in the delivery of its services.

The year 2011/12 is the second year of the current five year regulatory control period for Ergon Energy. Within this control period, Ergon Energy will deliver shareholder value by operating within the Distribution Determination set by the Australian Energy Regulator (AER), and achieve its regulated financial targets in a sustainable manner. To this end, Ergon Energy has established the following strategic themes to describe its longer‐term strategy. These are:

Financial Each of the strategic themes below contributes to a set of umbrella aspirational goals that help drive increasing shareholder value and the efficiency of our service delivery.

Customer Driven Increasing customer value; working with our customers to better understand and anticipate their needs while providing them with an electricity service that is cost efficient and dependable.

Asset Management Excellence

Improving our asset management practices as a basis for providing a more cost efficient and dependable service for our customers. Mitigating and adapting to climate change impacts by developing a smarter network using technologies that extend our ability to remotely control the network.

Leverage Climate Change Response

Working with our customers and other stakeholders as part of climate change response to achieve the dual objectives of reducing greenhouse gas emissions and decreasing the cost of electricity by reducing the growth in peak demand.

A Leader in Safety Improving our safety leadership at all levels within Ergon Energy. Working to ensure the safety of our communities by assisting them to interact safely with our assets.

High Performance Organisation

Ensuring our people have the knowledge, information, tools, skills and leadership they require to carry out their work effectively and efficiently.

The long‐term aspirational goals that relate to these strategic themes are described further in the following table. To ensure we achieve these aspirational goals, over the longer‐term, the key strategic priorities for Ergon Energy over the coming year are:

• To be a high performing and commercially focussed organisation delivering economic value within a sound corporate governance framework.

• Reduce unplanned and planned outages.

• Improve our performance in works delivery by delivering the works plan on time and within cost.

• Improve safety performance by promoting and supporting a work environment that delivers improved safety leadership at all levels within Ergon Energy.



2015 Aspirational Goals

FINANCIAL

• Network Charges ‐ Drive network charges down towards CPI over the long term.

• Financial Targets ‐ Consistently achieve financial targets that meet or better our AER Distribution Determination. Achieve a commercial return on assets.

• Unregulated Business ‐Increase unregulated revenue while improving core business.

CUSTOMER DRIVEN

• Service ‐ Deliver quality, cost, value and choice by customer segment. • Customer Satisfaction ‐ Maintain strong customer relationships and work with them to identify and

meet their future needs.

ASSET MANAGEMENT EXCELLENCE

• Reliability ‐ Meet minimum service standards and secure optimal STPIS result. • Prudent & Efficient ‐ Prudently invest and efficiently deliver the capital expenditure and operating

expenditure programs.

LEVERAGE CLIMATE CHANGE RESPONSE

• Demand Management ‐ Reduce peak load growth to defer capital expenditure on our network. • Emissions Reduction‐ Reduce fleet, property, travel and isolated generation emissions to meet

government and internal targets.

A LEADER IN SAFETY

• Safety ‐ Make sustained progress towards "no one gets hurt today" in ensuring a safe workplace for our people.

HIGH PERFORMANCE ORGANISATION

• Information ‐ Integrate a spatial model into business processes to enable our people to improve work practices and efficiency.

• Skills and Culture ‐ Build and foster a resilient and adaptable organisation with the skills and culture

required to manage increasingly sophisticated networks, information systems and renewable energy solutions.



1.3 CORPORATE & OPERATIONAL TACTICS Over the 2011/12 year Ergon Energy will deliver on its strategic priorities (see the performance measures Table 1.4) and work towards the achievement of the longer‐term aspirational goals by implementing the tactics shown in the tables below:

STRATEGIC THEME:

Financial

2011/12 KEY STRATEGIC TACTICS:

Asset ManagementExcellence

CustomerDriven

A Leader inSafety

Leverage Climate Change Response

HighPerformance Organisation

Reliability Plan Distribution Management

System

Non‐Network Alternatives Remote Observation,

Automated Modelling and Economic Simulation (ROAMES)

Work Improvement Program Smart Network of the Future

National Energy Customer Framework

Community Safety Safety Management Plan

2011/12 KEY STRATEGIC

TACTICS DESCRIPTION

Reliability Plan

Reducing the number and duration of outages that impact on customers and improving performance over the current Distribution Determination period. This initiative is key to achieving Minimum Service Standards (MSS) and Service Performance Target Incentive Scheme (STPIS) targets.

Distribution Management System

Automation of many of the manual processes currently used to operate the distribution network. This system will also support Smart Grid technologies.

Non‐Network Alternatives Implementation of the Asset Management Alternative Energy Solutions to delay/defer network upgrades by providing cost effective non‐network solutions.

ROAMESThe 3D observation, modelling and simulation of infrastructure and environment. It is expected to significantly improve the efficiency of asset management and operations activities in Ergon Energy.

Work Improvement Program Implementation of delivery improvements across the whole of the Works Program from concept to implementation.

Smart Network of the Future Developing a Smart Grid that will suit the nature of Ergon Energy’s distribution network and deliver improved customer and shareholder outcomes.

National Energy Customer Framework (NECF) Implementation of the requirements of the new NECF requirements.

Community Safety Continuation of existing community safety programmes.

Safety Management Plan A range of programmes to support improved safety outcomes.



1.4 CORPORATE PERFORMANCE MEASURES

Ergon Energy is seeking to achieve the following performance outcomes for 2011/12:

2011/12 KEY STRATEGIC PRIORITIES 2011/12 PERFORMANCE OUTCOMES

To be a high performing and commercially focussed organisation delivering economic value within a sound corporate governance framework.

See Table 2.1.

Reduce unplanned and planned outages.

We will achieve the best possible level of network reliability performance as measured by the achievement SAIDI and SAIFI levels at or better than the Minimum Service Standards (MSS) targets in Table 2.2.

Improve our performance in works delivery by delivering the works plan on time and within cost.

We will work within the allowances set by our Distribution Determination for both operating and capital expenditure as set out in Table 2.2.

Improve safety performance by promoting and supporting a work environment that delivers improved safety leadership at all levels within Ergon Energy.

We will achieve a measurable improvement in our work safety culture that results in our CCFR, AIFR and LTIFR for employees decreasing in a sustainable way to achieve the targets in Table 2.2.



1.5 PERFORMANCE DRIVERS

The key issues which are expected to impact on the performance of Ergon Energy over the 2011/12 year are: − Affordability

− Network Reliability and Security

− 2010/11 Storm Season Impacts

− Delivering the Capital Works Program

− National Energy Customer Framework

− Efficiency Saving Targets

− Safety Performance.

These issues are discussed in turn below.

Affordability − Our customers continue to expect that Ergon Energy will operate in a manner that assists all customers to have a

cost efficient electricity supply that meets their needs.

− Increases in the price of electricity from the point of view of the distribution network are being driven by rising customer demand for electricity at peak times as this is the primary driver of network augmentation costs.

− Ergon Energy is seeking to moderate price rises for customers over the longer term by expanding the functionality of the network, and by encouraging customers to use less electricity at peak times. This work with customers forms part of the demand management program which is explained in further detail in Section 3.5 of this Statement of Corporate Intent (SCI).

Network Reliability and Security − Improving the reliability and security of our network remains a priority for Ergon Energy. Since 2005/06 reliability

performance has improved significantly; however, the minimum service standard targets set by the Queensland Competition authority have become more onerous over the same time period. Since 2005/06 the duration of unplanned outages has been reduced by 19% and the frequency by 16%. The overall frequency and duration of outages in this period has also improved by 9%, despite operational restrictions for safety being in place for a large part of 2009/10.

− As at the end of March 2011 network performance as measured by overall SAIDI and SAIFI for the year to date had improved by 21% and 25% compared to the same period in 2010. Ergon Energy expects to achieve 5 of the 6 Minimum Service Standards for the 2010/11 year, a sound result in a year with significant weather conditions, including flooding across regional Queensland, where supply restoration timeframes were adversely affected by flooding of access routes and significant infrastructure damage resulting from numerous cyclones.

− A whole‐of‐business reliability plan has been developed and is being implemented to address network performance requirements for the 2010‐15 regulatory control period for both Minimum Service Standards (MSS) and the Service Target Performance Incentive Scheme (STPIS). This plan involves assessing and analysing network performance; capital investment strategies on remote control of the network; management of planned outages; management of response to unplanned outages; and focus on operational measures.



− For planned outages the focus is on reducing events, reducing impact and improving response, while for unplanned outages the focus is on reducing events, reducing impact and minimising duration.

− Ergon Energy expects that its continuing focus on network performance will not only improve the achievement of MSS and STPIS targets, but will also improve the perception of service levels by customers, as well as their broader satisfaction with their electricity supply.

− Ergon Energy continues to address security of supply matters by introducing redundancy in zone substations, subtransmission lines and distribution lines, in line with the agreed security of supply criteria as total customer loads increase. This network redundancy provides the ability to promptly restore supply to customers following single points of failure in the distribution system.

2010/11 Storm Season Impacts While the summer storm season of 2010/11 has allowed Ergon Energy to demonstrate its capabilities, the string of major weather events from the December/January floods through cyclones Tasha, Anthony and lastly Yasi (the largest system in living memory) – will challenge some aspects of our future performance going forward.

Severe Tropical Cyclone Yasi (Cyclone Yasi) − Cyclone Yasi crossed the Queensland coast at Mission Beach as a Category 5 cyclone on the third of February 2011.

It was over 600 kilometres wide, and had wind speeds of 295 kilometres per hour at its greatest intensity and was the largest system in living memory. It took out power supplies to nearly a third of Ergon Energy’s customer base with extensive damage to the network from Cooktown to Sarina and west to Mt Isa. In total Cyclone Yasi interrupted the power to over 220,000 (estimate as at 1 March 2011) homes and businesses and at least 50 major substations were off supply in the initial impact.

− On Friday, 25 February 2011, the restoration of supply was completed for all properties that were able to be safely connected, after 23 days of crews working long hours in what were extremely difficult operating conditions. The scale of the restoration effort was immense. This event triggered what is believed to be the largest ever deployment of electrical field staff in Australia’s history. At its peak there were around 1,340 personnel and support staff on the ground during the response effort, and many more involved from across the organisation plus support from Energex and interstate Distributors and supplier. During the three week operation Ergon Energy acquired and/or used for repairs or rebuilds around 600km of cable and conductor line, almost 2,300 poles and cross arms, 25,000 fuses and lightning arrestors, 6,754 insulators and 350,000 hardware items like bolts, screws, brackets and clamps.

− Ergon Energy also deployed a fleet of mobile generators throughout the communities hardest hit by Cyclone Yasi. Through a combination of Ergon Energy’s own inventory and external providers there was a total of 70,000kVA in generating capacity, available for deployment. At the peak, to meet requirements, 155 units were deployed in the field – with 109 running concurrently at one point while others were in transit or on standby. This meant that many communities were able to maintain basic services while repairs to the power network continued.

− The diversion of resources and the depletion of stores will have a significant impact on the delivery of the capital and maintenance programs (the asset inspection cycle, defects repairs and the GSL for streetlights in particular). There will also be a short‐term impact on customer requested works, which may extend into the 2011/12 financial year, however, due to the overall sluggish economy the impact on overall cycle times for customer‐initiated construction projects is not expected to be significant.

− The current expectations are that the total cost of the Cyclone Yasi will be between $80 to $120 million but this may change as more detailed information becomes available. Ergon Energy has now received a direction from shareholding Ministers under section 115 of the Government Owned Corporations Act 1993 not to make a cost pass‐through application to the AER in respect of the costs incurred in relation to natural disasters in the 2010/11 financial year which will include Cyclone Yasi.



Flooding − There was significant flooding in regional Queensland from December 2010 to January 2011 covering

approximately 600,000 square kilometres of our supply area. Damage to Ergon Energy assets was relatively low and less than 0.05% of Ergon Energy assets were damaged as a result of flooding.

− Large numbers of customers within the flood areas experienced disconnection due to the floods for safety reasons. However, the assets remained in working order and customers were reconnected as soon as floodwaters receded and electrical wiring was confirmed as safe.

− Customer impacts: customer debt liability increased as bills were not processed for disaster declared areas within standard timeframes which resulted in customers receiving bills later than usual. Debt processing was also delayed as a result.

Flooding and Cyclone Impacts − The flooding and cyclones from late December 2011 will have implications for 2010/11 network performance

statistics. Prior to December 2010, all six Minimum Service Standards (MSS) measures were forecast to meet the year end targets. Analysis of the impact of weather events on network performance outcomes is continuing, this will also confirm the precise number of customers impacted (outage management records are being checked for any duplications). As well as performance against the MSS targets, there will also be a potential financial risk associated with the Service Target and Performance Incentive Scheme (STPIS).

− The flooding and cyclones have also impacted on billing and meter reading. Meter reading was not able to be carried out and the dispatch of bills was also delayed in the areas hardest hit by the floods and cyclone. It is likely that customer hardship in these areas to be a significant ongoing issue. These customers will have the option of flexible bill payment arrangements and, for those in financial difficulty, access to our Customer Assistance Program (formally known as the Keeping Customers Connected program) or hardship provisions.

− An internal review of Ergon Energy’s emergency management plans is being undertaken to identify opportunities for improvement. The results of this review and any other reviews that Ergon Energy may participate in as a result of Cyclone Yasi and the floods, will inform any refinement to emergency management plans as well as existing asset management and operational plans and practices.

Delivering the Capital Works Program − Growth is expected to vary between regions, and be driven positively by strength in the resources industry;

however this is expected to be offset by weakness in commercial property investment and construction delays from recent floods and cyclones. The level of Customer Initiated Capital Works (CICW) is expected to remain subdued with only modest growth in 2011‐12.

National Energy Customer Framework The National Energy Customer Framework (NECF) is a national framework for the non‐economic aspects of energy retail sale and distribution connection and supply, including consumer protection, to be regulated by the AER. NECF is expected to provide efficiencies and reduce the regulatory burden for energy businesses, particularly retailers operating across jurisdictions and fuels.

NECF implementation includes:

− A national retailer authorisation (licensing) regime

− Consumer protections

− Obligations on distributors to connect and retailers to sell to certain customers

− A standard retail contract



− Arrangements for new customer connections

− Retail support obligations between distributors and retailers

− National Retailer of Last Resort (ROLR) arrangements

− Performance and compliance monitoring and enforcement regimes

− Bill Benchmarking

− A connections framework for new and altered connections.

The following elements will remain the responsibility of Queensland Government:

− Community Service Obligations

− Land use, planning and environmental approvals or policies

− Distributor technical and safety authorisations

− Small customer dispute resolution (e.g. ombudsman schemes)

− Network service reliability standards

− Metering policy

− Specification of distribution and retail service areas

− Retail price regulation.

Impact and Ergon Energy Response NECF involves the creation of a new National Energy Retail Law, National Energy Retail Rules, National Regulations and amendments to the National Electricity Rules. These instruments will replace many of the state‐based obligations contained in the Queensland Electricity Industry Code, Electricity Act 1994 (Qld) and Electricity Regulation 2006 (Qld).

Movement to a harmonised national framework will involve changes to Ergon Energy’s existing systems and processes and require significant resources to ensure full and timely implementation. At this time, the total implementation cost is not known with certainty, but could be as high as $10 million over the 2011/12 year. Ergon Energy will work closely with government to ensure a timely and efficient transition to the new regime.

Implementation Timing The legislation to give effect to NECF was introduced to the South Australian Parliament on 27 October 2010. State and territory Ministerial Council of Energy Ministers have agreed to work towards a commencement date of 1 July 2012 in their jurisdictions.

Ergon Energy will continue, throughout 2011/12, to:

− Identify the system, process and resource impacts of NECF and the activities that will be required to ensure compliance with NECF’s detailed obligations;

− Assess impacts of the NECF package on customer service provision and communicate changes as necessary; and

− Work closely with the Department of Employment, Economic Development and Innovation (DEEDI) to develop the legislative and regulatory changes, including transitional arrangements, required to support NECF’s introduction in Queensland.

− Communicate the changes resulting from the implementation of the NECF package as required to customers and other stakeholders.



Efficiency Savings Targets − Ergon Energy continues to have a strong focus on delivering reliable, efficient and cost‐effective services to our

customers while building shareholder value. In line with its commitment to operate within the Distribution Determination set by the AER, Ergon Energy is committed to achieving the efficiency savings targets set by the Queensland Government.

− For the 2011/12 year, Ergon Energy will continue to further improve efficiency and productivity in its operations consistent with the parameters of its Distribution Determination. These are expected to include savings from the Joint Workings program with Energex both from the successes of phase one and the new opportunities to be identified in phase two (see Section 3.5). Continuing operational efficiency savings in vegetation management are also expected as a result of the review of vegetation management practices (such as a revised cutting profile) and the introduction of the Remote Observation, Automated Modelling and Economic Simulation initiative (ROAMES), which will result in reduced asset inspection costs.

− Further efficiency savings in the form of reduced overtime and increased productivity continue to be realised as a result of management actions including the Depot 3PR project. As a result, Ergon Energy is forecasting that it will meet the efficiency target for the 2011/12 year.

Safety Performance − Ergon Energy is committed to improving its safety performance. During 2011/12 the focus will be on continuing to

improve the safety culture, through improvements in safety leadership at all levels and improvements in behavioural safety. This work aims to deliver a safety culture that is always safe; “No job is so important, no task so urgent. The safety of our people and the community must always come first” (Ergon Energy Always Safe Handbook).

− Ergon Energy will also seek to continue to improve community electrical safety through implementing targeted behavioural and industry programs.



1.6 STRATEGIC EXPECTATIONS Shareholding Ministers have set a number of expectations for Ergon Energy for the 2011/12 year and the table below indicates where each of these expectations has been addressed in this SCI:

EXPECTATION WHERE ADDRESSED

Ergon Energy will progress whole of business reliability improvement strategy to achieve Minimum Service Standards for 2010/11 and beyond.

Sections 1.2‐1.4 Table 2.1

Ergon Energy will meet performance targets for reliability of supply, quality of supply and customer service to maximise potential benefits of the STPIS and ensure Ergon Energy is not penalised.

Sections 1.2‐1.5 Table 2.1

Ergon Energy will deliver its extensive capital program within the parameters established by the regulatory allowance over the regulatory period. Ergon Energy will manage the considerable growth in its capital program to ensure network assets are delivered on time, efficiently and at minimal cost.

Section 1.2 Table 2.1 Table 2.2

Ergon Energy will work within the allowances provided by the regulatory determination and will strive towards continued improvements in operational efficiency at every level of the organisation.

Section 1.5 Table 2.1

Ergon Energy will work in conjunction with Energex Limited and the Queensland Government to develop refined network security standards that utilise both network and non‐network solutions and over time will assist with optimising capital investment. Ergon will also work with ENERGEX and the Queensland Government to provide advice and input into national reviews and reforms relating to reliability and security standards appropriate for Queensland.

Section 3.5

Ergon Energy will develop a property strategy that is cost effective and fits within the allowance provided under the regulatory determination. Ergon Energy is to keep shareholding ministers informed throughout the process.

Section 3.7.5

Ergon Energy will consult shareholding Ministers for any agreements that are sought to be established in support of the long term energy supply solution for North West Queensland and the broader roll out of the National Broadband Network beyond the first and second release sites, irrespective of how these arrangements are captured under the Investment Guidelines for Government Owned Corporations.

Section 3.5

Ergon Energy will only consider involvement in unregulated projects and initiatives outside the core business focus when there is sufficient commercial merit and a clear benefit to the distribution business.

Section 3.7.5

Ergon Energy will enthusiastically pursue joint workings initiatives with Energex Limited and will work actively with shareholders in identifying, investigation and implementing initiatives and reforms where agreed.

Section 3.5

Ergon Energy will manage the risk associated with the implementation of the National Energy Customer Framework. Section 1.5

Ergon Energy will undertake negotiations leading up to the expiry of the current Ergon Energy Union Collective Agreement in October 2011 consistent with relevant legislation, Government Policies and the Ergon Energy Employment and Industrial Relations Plan. The negotiations will need to provide an outcome which is acceptable to Ergon Energy and the State.

Section 2.5 & Attachment 2

Ergon Energy’s business will be managed in a prudential manner in accordance with its commercial charter to ensure business performance meets expectations and the returns on the Government’s investment are maximised.

Sections 1.2‐1.5Table 2.1 & Table 2.2 Section 3.7.5

Ergon Energy will exercise continued diligence in the attainment of operational efficiencies as detailed in the Mid Year Review outcomes letter of 9 December 2008, generating EBIT improvements of $21 million from 2011/12 ongoing.

Section 1.5

Ergon Energy will only hold corporate entertainment and hospitality activities where there is a clear benefit for Ergon Energy and all activities will be in accordance with approved guidelines.

Section 3.6



2. MANDATORY MATTERS

2.1 FINANCIAL KEY PERFORMANCE INDICATORS Performance Targets

QUARTER 2011/12 PERFORMANCE TARGETS 2009/10

ACTUAL 2010/11 BUDGET

2010/11 EST

ACTUAL

2011/12BUDGET

SEP DEC MAR JUN EBITDA ($M)

213.7 256.2 279.9 246.8 Group excluding EEQ 704.1 987.2 991.3 996.617.9 19.1 19.4 17.2 EEQ 60.0 62.6 87.5 73.6

EBIT ($M) 147.1 189.0 211.3 174.4 Consolidated 478.0 743.6 770.4 721.8 NPAT ($M) 49.6 75.7 89.8 62.4 Consolidated 166.5 300.7 329.9 277.6 Return on Assets (%)

‐ ‐ ‐ ‐ Consolidated 5.7% 8.2% 8.3% 7.0%‐ ‐ ‐ ‐ Regulated 6.5% 9.0% 9.0% 7.7%‐ ‐ ‐ ‐ Non‐Regulated 41.5% 26.8% 22.2% 10.0%‐ ‐ ‐ ‐ Group excluding EEQ 5.4% 8.2% 8.0% 6.8%

Return on Equity (%) ‐ ‐ ‐ ‐ Consolidated 6.4% 11.1% 11.3% 8.5%

NOTE: On 19 May 2011 the Australian Competition Tribunal (ACT), in response to an application made by Ergon Energy, Energex and ETSA Utilities, decided that the level of regulated revenue should be higher as a result of the value for gamma of 0.25 being applied to the current distribution determination period. For the 2011/12 year this change in gamma would result in the Ergon Energy recovering additional revenue of $40.9 million. However, in accordance with the direction received from shareholding Ministers under section 108(4) of the Government Owned Corporations Act 1993, on 30 May 2011, Ergon Energy will not seek to recover this additional revenue and the financial information contained in this SCI excludes the additional regulated revenue that would have resulted from the implementation of the ACT decision. The shareholding Ministers have indicated that they accept the lower rate of return in 2011/12 to the State as a result of the direction due to the benefits that will flow to electricity customers.

NOTE: The financial measures in section 2.1 of this SCI were revised in December 2011 to reflect an updated asset valuation. These revisions were agreed by shareholding Ministers and are presented here.



Performance Indicators

QUARTER 2011/12 PERFORMANCE INDICATORS 2009/10

ACTUAL 2010/11 BUDGET

2010/11 EST

ACTUAL

2011/12BUDGET

SEP DEC MAR JUN Cost Recovery Ratio 2.8 2.9 2.9 3.0 Consolidated 2.2 2.7 2.7 2.9

Operating Sales Margin (%) 22.9% 26.8% 29.4% 27.3% Consolidated 21.2% 28.8% 29.6% 26.7%3.48% 3.38% 3.42% 3.41% EEQ 3.06% 2.66% 4.14% 3.42% Profit Margin (%) 8.5% 11.7% 13.5% 10.8% Consolidated 7.9% 12.8% 13.9% 11.2%

Gearing Ratio (%) (including reserves)

57.4% 58.8% 58.1% 59.1% Consolidated 59.8% 61.2% 57.7% 59.1%

Debt to Regulated Asset Base (RAB) (%)

48.5% 52.6% 52.6% 53.9% Consolidated 55.5% 53.8% 53.6% 53.9% Economic Profit

‐ ‐ ‐ ‐ Consolidated ‐ 271.2 ‐ 223.3 Current Ratio (times) 1.0 1.4 1.3 1.1 Consolidated 1.07 1.01 1.05 1.12

Quick Ratio 0.9 1.2 1.2 1.0 Consolidated 1.0 0.9 0.9 1.0

Interest Cover (EBIT Times) 1.9 2.3 2.5 2.0 Consolidated 2.0 2.4 2.6 2.2

Interest Cover (EBITDA Times)

3.0 3.4 3.6 3.1 Consolidated 3.2 3.3 3.6 3.3

Funds from Operation (FFO) interest cover (times)

2.8 3.2 3.7 3.5 Consolidated 3.2 3.3 3.2 3.3 Fixed Asset Turnover

‐ ‐ ‐ ‐ Consolidated 0.3 0.3 0.3 0.2 Capital Ratio 0.7 0.7 0.7 0.7 Consolidated 0.7 0.7 0.7 0.7



2.2 NON-FINANCIAL KEY PERFORMANCE INDICATORS

QUARTER 2011/12 PERFORMANCE INDICATORS 2009/10 ACTUAL

2010/11 BUDGET

2010/11EST

ACTUAL

2011/12BUDGET

SEP DEC MAR JUN

SUPPLY RELIABILITY1 32.45 77.62 121.9 148 Urban SAIDI 222 ≤149 145.6 ≤14888.78 206.69 333.4 418 Short Rural SAIDI 544 ≤424 448.5 ≤418172.14 504.26 784.82 948 Long Rural SAIDI 999 ≤964 860.2 ≤948

0.4 1.01 1.62 1.96 Urban SAIFI 2.25 ≤1.98 1.64 ≤1.960.78 1.95 3.09 3.9 Short Rural SAIFI 4.58 ≤3.95 3.67 ≤3.91.38 3.87 5.89 7.3 Long Rural SAIFI 7.19 ≤7.4 5.74 ≤7.3

GUARANTEED SERVICE LEVELS2

35 326 431 641 GSL Incidents – Reliability – Number of Claims Accepted & Paid 42 6,423 1,404 1,433

$3,607 $33,946 $44,766 $66,661 GSL Incidents – Reliability – Amount Paid ($) $3,360 $667,880 $146,058 $148,979

899 538 617 906 GSL Incidents – Other ‐ Number of Claims Accepted & Paid 758 21,097 2,904 2,961

$39,682 $24,942 $24,025 $41,985 GSL Incidents – Other ‐ Amount Paid ($) $43,870 $796,793 $128,072 $130,635

OPERATIONAL PERFORMANCE3 583 583 583 583 Opex per Route Kilometre n/a 2,410 2,380 2,331

24% 29% 34% 39% Actual Opex with Regulatory Allowance (%)3a

n/a n/a 20% 39%

18% 22% 26% 30% Actual Capex with Regulatory Allowance (%)3a

n/a n/a 14% 30%

0.78% 0.78% 0.78% 0.78% Network Maintenance Costs/RAB n/a 3.2% 3.51% 3.11%

ENVIRONMENT

‐ ‐ ‐ ‐ Environment – EPA breaches (number of Class 1) 0 0 0 0

SAFETY ‐ ‐ ‐ ‐ AIFR ‐ Employees 14.78 13.74 13.7 13.33

‐ ‐ ‐ ‐ CCFR – Employees4 4.54 n/a 4.01 3.68‐ ‐ ‐ ‐ LTIFR – Employees 6.13 7.58 3.98 2.59‐ ‐ ‐ ‐ LTIFR – Contractors 0.55 1 1.72 1.00

PEOPLE5 ‐ ‐ ‐ ‐ Staff Turnover (annualised) 7.3% n/a 5.62% n/a‐ ‐ ‐ ‐ Net FTE Staff Numbers 4,509.61 n/a 4,583.33 n/a

FOR CAPITAL PROJECTS > $75M (REGULATED) & > $60M (UNREGULATED)

‐ ‐ ‐ ‐ Cost Performance Index – Ubinet n/a ≤1 1.0 1.0‐ ‐ ‐ ‐ Scheduled Performance Index – Ubinet n/a On time 1.06 1.0

OTHER

‐ ‐ ‐ ‐ Timely compliance with government & shareholder data submission & reporting requirements

100% 100% 100% 100%



Notes to Table 2.2:

1. The SAIDI and SAIFI targets are the Minimum Service Standards as set in the QCA final decision of April 2009. The

2010/11 estimated actuals are based on data to the end of March 2011. 2. The variance between 2009/10 year figures and the 2010/11 year figures is due to changes in the legislation

governing Guaranteed Service Levels. Prior to 1 July 2010 most GSLs were only paid if a customer raised a (verified) claim against Ergon Energy. The GSL forecasts are extrapolated from expected GSL payments in 2010/11 with an allowance for customer growth over the period. The difference between the 2010/11 budget and estimated actuals is due to increased scrutiny of potential GSL failures and operational improvements associated with business functions that may attract a GSL failure.

3. The opex and capex numbers are for standard control services only and are drawn from the regulated accounts.

The 2010/11 figures are based on data up to the end of March 2011. The Regulated Asset Base (RAB) has not been adjusted and therefore is the same as set out in the current AER Distribution Determination. 3a) These measures are calculated on a cumulative basis over the whole of the current AER distribution determination period to 2014/15. Ergon Energy is committed to managing its opex and capex expenditure during this period within the parameters of the AER’s final determination.

4. CCFR is the number of accepted employee compensation claims per 100 employees. CCFR= (Compensable Claims x 100)/ (Total Personnel)

5. Ergon Energy does not forecast these measures, so no targets are provided.



2.3 ASSUMPTIONS

ASSUMPTIONS 2009/10 ACTUAL

2010/11 BUDGET

2010/11 EST

ACTUAL

2011/12 BUDGET

Economic Indices:

Consumer Price Index (CPI)1 2.30% 2.52% 2.60% 2.75%

Wages Growth 3.5% + 1 3.5% + 1 3.5% + 1 4%

Long Term Interest Rates 6.30% 7.48% 7.34% 7.30%

Dividend Payout Ratio2 80% 80% 80% 80%

Distribution – Regulated Electricity

Maximum Demand (MW) 3 2,575 2,778 2,349 2,826

Number of Customers 679,928 684,469 698,888 712,983

Tariff Escalation4 11.82% 13.83% 13.29% 5.83%

Load Growth 5 6.49% 2.73% ‐8.78% 20.31%

Notes to Table 2.3: 1) CPI actual is from the Australian Bureau of Statistics. The 2011/12 figure is from the RBA Statement of Monetary

Policy released in February 2011. 2) The dividend is calculated as 80% of consolidated profit after tax adjusted for unrealised net movement from the

revaluation of financial instruments. 3) These maximum demands are for the Ergon Total as forecast and delivered to Powerlink Planning each year and as

submitted to the AER. The forecast is built up from linear regression analysis of historic Transmission Connection Point (TCP) recorded seasonal peak demands with adjustments of forward trends by inclusion of future proposals of addition large loads (outside of historic trends), both increases and decreases. It is the diversified summation of Ergon TCP with any Transmission Network Connection Point (TNCP) sites (e.g. QR, Burton Downs) that were TCPs prior to 2004. Mt Isa is not included, and embedded generation is not included.

4) These figures reflect the change in prices from a customer perspective and are the actual and expected changes in

the QCA Benchmark Retail Cost Index. 5) Load Growth is defined as the percentage change in the maximum demand.



2.4 COMMUNITY SERVICE OBLIGATIONS

Legislation allows for GOCs to undertake Community Service Obligations (CSOs) where the Government requires them to provide a service or undertake an activity which would not be provided or undertaken on a commercial basis. Ergon Energy provides two CSOs as follows: 1. Tariffs applying to non‐market customers are set by the Queensland Competition Authority (QCA) under a

delegation from the Minister for Energy and Water Utilities under the Electricity Act (1994) and are uniform throughout the state for a given type of customer. This gives rise to CSO payments in three ways: • The Queensland Government has committed to a Uniform Tariff Policy that provides for parity of pricing for all

non‐market electricity consumers, regardless of their geographic location in the State. For customers outside of the south east corner of the state, the cost of supply of electricity generally exceeds the price paid under the uniform tariff arrangement;

• More remote customers that are connected to the National Electricity Market require proportionally more

transmission and distribution infrastructure to supply them and therefore incur higher network use of system charges than the state‐wide average charges allowed for in the standard tariffs; and

• Isolated customers must be provided electricity from isolated networks, with the largest isolated system being

the Mt Isa‐Cloncurry system, where the underlying cost of supplying electricity is generally significantly greater than the price paid under the uniform tariff arrangement.

To compensate for these effects, the Queensland Government pays a CSO to Ergon Energy Queensland. The actual CSO paid can vary materially from the CSO forecast due to changes in the forecast assumptions such as customer load, customer numbers, retail tariff prices, network tariff prices, and wholesale electricity prices. As at March 2011:

• The CSO estimate for 2010/11 is expected to be around $390 million. This is a substantial increase compared to

2009/10 (of approximately $140 million). The predominate reason for the increase is the commencement of the 2010‐15 distribution regulatory determination, which increased network charges to Ergon Energy Queensland’s non‐market customers. Secondary drivers are the introduction of the federal government’s enhanced Renewable Energy Target (RET) and increases to EEQ’s Cost to Serve and Net Retail Margin allowances; and

• The CSO forecast for 2011/12 is currently expected to be in the vicinity of $410 million, although the actual CSO

could be higher as not all factors can be quantified at this stage. As the Deed which currently governs this CSO arrangement expires on 30 June 2012, a review is currently being undertaken to identify the terms of replacement arrangements.

2. Pensioners are entitled as per Government policy to a rebate on their electricity bills of $0.57 per day (exclusive of GST) which is expected to total approximately $33 million in 2011/12. The rebate scheme is administered by Ergon Energy as a CSO and is funded by the Department of Community Services and Housing.

Ergon Energy is committed to working with the government to minimise the cost to government arising from CSO payments within the agreed risk parameters while achieving the best outcomes for our customers and shareholders. The initiatives to reduce the CSO payments are medium to long term focused strategies.



2.5 EMPLOYMENT AND INDUSTRIAL RELATIONS (E&IR) PLAN

An Employment and Industrial Relations Plan meeting the requirements of Section 149 of the GOC Act and the Guidelines for the Development of Employment and Industrial Relations Plans in Government Owned Corporations (E&IR Plan Guidelines) is provided to shareholding Ministers as Attachment 2 to this SCI. The remuneration arrangements for Directors, Chief Executive Officer and all senior executives of Ergon Energy in line with the E&IR Plan Guidelines are also detailed in the Employment and Industrial Relations Plan provided as Attachment 2 to this SCI.



3. ADDITIONAL MATTERS

3.1 FINANCIALS

3.1.1 GROUP

Statement of Comprehensive Income Actual SCI Est. Actual Budget

Sept Dec Mar Jun Ergon Energy Group 2009/10 2010/11 2010/11 2011/12$'000s $'000s $'000s $'000s $'000s $'000s $'000s $'000s

ENERGY RELATED REVENUE371,121 420,753 439,967 380,865 Energy Sales 1,461,486 1,728,380 1,512,483 1,612,706

- - - - Unbilled Energy Sales 12,455 5,945 29,636 - 96 96 96 96 Guarantee Deficiencies 382 355 421 384

103,791 108,223 110,308 88,591 CSO Revenue 251,608 342,615 387,663 410,913 - - - - Trading Contract Revenue 99,824 - 1,346- - - - - - Renewable Energy Revenue 107 6,859 - - - - - - Mark to Market Revenue 8,172- - 52,710- -

1,330 1,897 1,555 1,495 Meter Cards Revenue 5,423 5,948 5,990 6,278 84,342 94,975 98,937 86,044 DUOS 172,337 187,341 343,647 364,298 (2,706) (3,915) (4,535) (4,774) Solar Bonus - - - 15,930-

2,888 2,888 3,013 2,874 Diesel Fuel Rebate 12,058 12,450 12,079 11,663 - - - - Mark to Market Net Sales - - 66,190 -

560,863 624,918 649,341 555,191 TOTAL ENERGY RELATED REVENUE 2,007,507 2,289,893 2,304,054 2,390,313

COST OF SALES105,081 118,038 114,676 83,880 Energy Purchases 370,295 571,338 434,088 421,675

- - - - Energy Brokerage Fees 177 608 79 - - - - - Hedge Costs Realised 245,174 - 100,827 - - - - - Hedge Costs Unrealised - - - -

19,585 22,179 28,241 24,402 Certificate Compliance Expenses 27,674 5,487 42,400 94,407 - - - - Renewable Energy Expense - - 13,146 - - - - - Contestable Charges Recoverable 2- - 40 - - - - - Inter-Company Contestable Charges Recoverable 240 - - -

73,375 74,803 77,365 77,877 Transmission Charges 234,861 279,303 279,303 303,419 814 884 925 823 Market Charges 3,395 2,883 1,737 3,447 751 851 910 786 Ancillary Charges 3,594 3,393 1,660 3,298

- - - - Inter-Company Meter Charges Non-Recoverable 240- - - - 21 21 21 21 Metering Charges Non-Recoverable 2,451- 85 37 84

648 657 685 712 Tariff Rebate 2,477 2,005 2,351 2,702 4,643 4,197 2,471 1,045 Embedded Energy 16,194 - 10,230 12,356 8,814 9,064 10,134 10,188 Isolated Energy 24,555 52,034 27,665 38,200

- - - - Inter-Company Compensation Retail - - - - 213,732 230,694 235,428 199,734 TOTAL COST OF SALES 925,945 917,136 913,561 879,587 347,131 394,224 413,913 355,457 ELECTRICITY GROSS MARGIN 1,081,563 1,372,757 1,390,493 1,510,726

OTHER PRODUCT REVENUE22,892 22,064 17,630 23,650 Sales Revenue 98,376 93,601 119,631 86,237

1,328 1,343 1,322 1,343 Non-Energy Purchases 4,704 14,228 26,019 5,336 21,564 20,721 16,308 22,308 NON ENERGY RELATED GROSS MARGIN 93,672 79,373 93,612 80,901

MISCELLANEOUS REVENUE3,451 4,186 3,002 4,823 Interest 10,575 20,345 13,731 15,462 1,799 1,862 1,895 1,948 Interest on MOFA 6,992 - 7,022 7,505

363 353 335 359 Government Grants - Solar cities 1,767 3,030 1,616 1,410 899 899 899 899 Government Grants - Demand Management 4,232 10,568 5,795 3,594 161 147 161 147 Rent 1,102 631 658 615

- - - - Bad Debts Recovered - 60 - - 270 270 270 270 Gain on Sale of Assets 6,525 3,000 4,011 1,080

9,725 9,725 9,725 9,725 Capital Contributions - Cash 44,900 111,800 38,900 38,900 3,825 3,825 3,825 3,825 Capital Contributions - Non-Cash - - 11,300 15,300

15,400 15,400 15,400 15,400 Capital Contributions - AARR Alignment - - 61,600 61,600 4,374 4,374 4,374 4,378 Alternative Control 3,901 2,153 1,369 17,500

- - - - Inter-Company Alternative Control 1,132- - 895 - 844 844 844 844 Corporate Service Fees 2,444 3,022 3,021 3,375

- - - - Discounts Received - - 578 - - - - - Insurance Claims 116 - - - - - - - SLA Revenue 757 - - -

241 64 (110) 187 CAC Revenue 825 482 504 382 917 884 1,553 613 Other Revenue 6,801 6,168 5,823 3,968

42,267 42,833 42,172 43,418 TOTAL MISCELLANEOUS REVENUE 89,805 161,259 156,823 170,690 410,963 457,778 472,393 421,183 GROSS MARGIN & OTHER REVENUE 1,265,039 1,613,389 1,640,929 1,762,317

179,358 182,526 173,123 157,193 Opex 500,905 563,588 562,062 692,199 Opex - Additional Items

179,358 182,526 173,123 157,193 TOTAL OPERATING EXPENSES 500,905 563,588 562,062 692,199

OTHER OPERATING EXPENDITURE84,002 85,805 87,480 89,154 Depreciation 273,329 302,287 299,679 346,441

476 476 476 476 Amortisation 12,847 3,949 8,797 1,904 - - - - Decrements Valuation - - - -

84,478 86,282 87,956 89,629 TOTAL OTHER OPERATING EXPENDITURE 286,176 306,236 308,476 348,345

147,126 188,970 211,314 174,361 EARNINGS BEFORE INTEREST & TAXES (EB 477,958 743,565 770,391 721,772 76,271 80,795 82,990 85,188 Finance Charges 243,071 313,969 299,065 325,244

- - - - Inter-Company Finance Charges - - - - 70,855 108,176 128,324 89,173 EARNINGS BEFORE TAXES (EBT) 234,887 429,596 471,327 396,528 21,257 32,453 38,497 26,752 Income Tax 68,351 128,879 141,398 118,959 49,599 75,723 89,827 62,421 NET PROFIT AFTER TAXES (NPAT) 166,536 300,717 329,929 277,570

9,576 59,175 134,898 224,725 OPENING RETAINED EARNINGS 412,158 436,637 441,202 507,188 59,175 134,898 224,725 287,146 TOTAL AVAILABLE FOR APPROPRIATION 578,695 737,354 771,131 784,758

- - - - Inter-Company Dividends Provided For - - - - - - - 222,056 Dividends Provided For 137,492 240,574 263,943 222,056 - - - 222,056 TOTAL DIVIDENDS 137,492 240,574 263,943 222,056

59,175 134,898 224,725 65,090 CLOSING RETAINED EARNINGS 441,203 496,780 507,188 562,702

Quarter 2011/12

NOTE: The financial tables in section 3.1.1 and section 3.1.2 of this SCI were revised in December 2011 to reflect an updated asset valuation. These revisions were agreed by shareholding Ministers and are presented here.



Statement of Financial Position Actual SCI Est. Actual BudgetSept Dec Mar Jun Ergon Energy Group 2009/10 2010/11 2010/11 2011/12

$'000s $'000s $'000s $'000s $'000s $'000s $'000s $'000s

216,077 256,355 371,918 344,442 Cash & Cash Equivalents 284,198 215,051 312,444 344,442477,743 528,069 480,028 468,580 Current Receivables 392,658 422,231 442,969 468,58093,843 95,277 97,677 96,677 Inventories 95,743 100,623 98,950 96,677

279,595 279,595 279,595 279,595 Financial Assets Current 314,583 368,117 279,595 279,59552,251 61,979 45,207 53,842 Other Current Assets 20,026 24,819 44,503 53,842

1,119,509 1,221,275 1,274,425 1,243,136 CURRENT ASSETS 1,107,208 1,130,841 1,178,461 1,243,136

52,858 54,210 57,959 58,396 Long Term Receivables 59,778 53,747 51,419 58,3962,238 2,798 3,732 3,919 Non-Current Inventories 1,527 1,383 1,677 3,919

8,728,022 8,878,192 9,124,754 9,323,078 Property, Plant & Equipment 7,520,207 8,246,611 8,576,049 9,323,07868,862 68,385 67,592 67,433 Intangible Non-Current 9,253 2,218 107,238 67,433

- - - - Superannuation Surplus - - - -- - - - Other Non Current Assets - - - -

8,851,979 9,003,585 9,254,037 9,452,826 NON-CURRENT ASSETS 7,590,765 8,303,959 8,736,383 9,452,826

9,971,489 10,224,860 10,528,461 10,695,962 ASSETS 8,697,973 9,434,800 9,914,844 10,695,962

274,845 296,809 296,685 306,709 Current Payables 299,618 347,121 293,598 306,70918,097 18,707 19,767 19,978 Interest Bearing Liabilities Current 17,316 19,132 17,370 19,978

289,914 289,914 289,914 289,914 Financial Liabilities Current 308,726 272,760 289,914 289,91421,057 21,753 18,169 22,504 Current Provisions 59,720 23,962 20,819 22,504

135,531 146,014 147,672 153,436 Employee Benefits Current 138,321 144,229 146,710 153,436263,943 (0) (0) 222,056 Dividends 137,492 240,574 263,943 222,056103,569 118,972 111,126 99,425 Other Current Liabilities 73,632 71,939 88,700 99,425

1,106,956 892,169 883,334 1,114,022 CURRENT LIABILITIES 1,034,825 1,119,717 1,121,054 1,114,022

38,160 38,160 38,160 22,328 Employee Benefits Non-Current 53,848 47,200 38,160 22,328- - - - Payables Non-Current 1,128 - - -

4,314,799 4,674,799 4,794,799 4,794,799 Interest Bearing Liabilities Non-Current 3,962,907 4,331,290 4,314,799 4,794,799- - - - Financial Liabilities Non-Current - - - -

1,287,894 1,320,346 1,378,062 1,430,467 Deferred Tax Equivalent Liabilities 967,367 1,119,762 1,266,637 1,430,4673,911 3,941 3,991 4,010 Non-Current Provisions 15,985 75,134 3,881 4,0101,148 1,101 1,101 1,101 Other Non Current Liabilities 761 191 1,291 1,101

5,645,912 6,038,347 6,216,113 6,252,705 NON-CURRENT LIABILITIES 5,001,996 5,573,577 5,624,768 6,252,705

6,752,868 6,930,517 7,099,447 7,366,727 LIABILITIES 6,036,821 6,693,294 6,745,822 7,366,727

2,294,582 2,294,582 2,294,582 2,294,582 Share Capital 2,294,582 2,294,582 2,294,582 2,294,582(1,352,190) (1,352,190) (1,352,190) (1,352,190) Unissued Capital (1,352,190) (1,352,190) (1,352,190) (1,352,190)

942,392 942,392 942,392 942,392 Contributed Equity 942,392 942,392 942,392 942,392

1,730,014 1,730,014 1,730,014 1,834,713 Asset Revaluation 1,288,128 1,312,906 1,730,014 1,834,713(10,572) (10,572) (10,572) (10,572) Government Contribution Reserve (10,572) (10,572) (10,572) (10,572)

1,719,442 1,719,442 1,719,442 1,824,141 Reserves 1,277,556 1,302,334 1,719,442 1,824,141

591,117 591,117 591,117 591,117 Retained Profits 496,088 529,305 525,132 591,11749,599 125,322 259,992 55,514 Current Year Profit 29,044 60,143 65,986 55,514

(83,930) (83,930) (83,930) (83,930) Ret Earn DB Super Surplus/Deficit (83,930) (92,668) (83,930) (83,930)556,786 632,509 767,180 562,702 Retained Earnings 441,202 496,780 507,188 562,702

3,218,620 3,294,343 3,429,014 3,329,235 EQUITY 2,661,150 2,741,506 3,169,022 3,329,235

Quarter 2011/12



Cash Flow Actual SCI Est. Actual BudgetSept Dec Mar Jun Ergon Energy Group 2009/10 2010/11 2010/11 2011/12

$'000s $'000s $'000s $'000s $'000s $'000s $'000s $'000s

CASH FLOWS FROM TRADING ACTIVITIES337,024 372,822 461,478 459,624 Receipts from Customers 1,972,479 2,198,864 2,135,509 1,630,948

(240,908) (236,708) (278,594) (266,122) Payments to Suppliers & Employees (1,472,133) (1,640,068) (1,638,663) (1,022,332)5,249 6,048 4,897 6,771 Interest Received 24,300 20,345 20,753 22,967

(76,271) (80,795) (82,990) (85,188) Interest and Other Costs of Financing (242,772) (313,969) (299,065) (325,244)9,725 9,725 9,725 9,725 Capital Contributions - 111,800 38,900 38,900

103,791 108,223 110,308 88,591 Community Service Obligations 251,608 342,615 387,663 410,913- - - - Dividends Received - - (0) -

138,611 179,316 224,824 213,402 NET CASH PROVIDED BY OPERATING ACTIVITIES 533,483 719,586 645,097 756,153

CASH FLOWS FROM INVESTING ACTIVITIES270 270 270 270 Gain on Sale of Assets 11,557 3,000 4,011 1,080

(235,975) (235,975) (235,975) (235,975) Land and Property Plant & Equipment (778,086) (953,712) (832,370) (943,900)0 0 - - Intangibles - Software (9,952) (500) (3,000) 0

(235,705) (235,705) (235,705) (235,705) NET CASH USED IN INVESTING ACTIVITIES (776,482) (951,212) (831,359) (942,820)

CASH FLOWS FROM FINANCING ACTIVITIES0 360,000 - 120,000 Proceeds from Borrowings 274,857 352,000 352,000 480,000- - - - Repay Borrowings (1,942) - - -

727 610 635 636 Repayable Deposits 314 257 0 2,608- (263,943) - - Dividends Paid (116,633) (114,854) (137,492) (263,943)- - - - Issue of Shares - - - -

727 96,667 635 120,636 NET CASH PROVIDED BY FINANCING ACTIVITIES 156,596 237,403 214,508 218,665

(96,367) 40,278 (10,246) 98,333 NET INCREASE/(DECREASE) IN CASH HELD (86,403) 5,777 28,246 31,998

312,444 216,077 256,355 246,109 CASH HELD BEGINNING OF PERIOD 370,600 209,274 284,198 312,444

216,077 256,355 246,109 344,442 CASH HELD AT END OF PERIOD 284,197 215,051 312,444 344,442

Quarter 2011/12

Equity Injections/Withdrawals Actual SCI Est. Actual Budget

2009/10 2010/11 2010/11 2011/12

$'000s $'000s $'000s $'000s Equity Injections ‐ ‐ ‐ ‐ Equity Withdrawals ‐ ‐ ‐ ‐ Net Equity ‐ ‐ ‐ ‐

Dividends, Tax Equivalent Payments (TEPs) and Community Service Obligations (CSOs) Actual SCI Est. Actual Budget

2009/10 2010/11 2010/11 2011/12

$'000s $'000s $'000s $'000s Dividends Provided for 137,492 240,574 263,943 222,056CSO's 251,608 342,615 387,663 410,913Tax Provided for 68,351 128,879 141,398 118,959



3.1.2 FINANCIALS: SELECTED SUBSIDIARIES

Statement of Comprehensive Income Actual SCI Est. Actual BudgetSept Dec Mar Jun Ergon Energy Corporation Limited 2009/10 2010/11 2010/11 2011/12

$'000s $'000s $'000s $'000s $'000s $'000s $'000s $'000sENERGY RELATED REVENUE

- - - - Renewable Energy Revenue 24 - - -- - - - Mark to Market Revenue - - - -- - - - Meter Cards Revenue - - - -

84,342 94,975 98,937 86,044 DUOS 172,337 187,341 343,647 364,298264,301 299,320 312,368 269,906 Inter-Company DUOS 948,434 1,230,749 1,070,593 1,145,895

- - - - Inter-Company Solar Bonus (1,233) - - -- - - - GUOS - - - -

35,256 36,257 40,536 40,751 Inter-Company GUOS 87,956 111,849 103,849 152,8002,888 2,888 3,013 2,874 Diesel Fuel Rebate 12,058 12,450 12,079 11,663

- - - - Mark to Market Net Sales - - - -386,788 433,441 454,853 399,575 TOTAL ENERGY RELATED REVENUE 1,219,575 1,542,389 1,530,168 1,674,657

COST OF SALES60 60 60 60 Inter-Company Contestable Charges Recoverable 240 - - 240

- - - - Network Charges Non-Rec - - - -73,375 74,803 77,365 77,877 Transmission Charges 234,861 279,303 279,303 303,419

- - - - Inter-Company Meter Charges Non-Recoverable - 240 246 -- - - - Embedded Energy 428 - 364 -

30 30 30 30 Inter-Company Compensation Retail 284 - - 12073,465 74,893 77,455 77,967 TOTAL COST OF SALES 235,813 279,543 279,912 303,779

313,324 358,548 377,399 321,608 ELECTRICITY GROSS MARGIN 983,762 1,262,846 1,250,256 1,370,878

OTHER PRODUCT REVENUE21,305 20,476 16,057 22,059 Sales Revenue 95,544 90,115 119,486 79,897

- - - - InterestDistrict Sales 294 - - -- - - - Non-Energy Purchases - 8,736 21,405 -

21,305 20,476 16,057 22,059 NON ENERGY RELATED GROSS MARGIN 95,838 81,379 98,081 79,897

MISCELLANEOUS REVENUE2,352 3,287 2,746 3,964 Interest 7,193 14,807 7,341 12,3501,799 1,862 1,895 1,948 Interest on MOFA 6,992 - 7,022 7,505

- - - 51,737 Inter-Company Dividends 48,616 43,825 62,384 51,737363 353 335 359 Government Grants - Solar Cities 1,767 3,030 1,616 1,410899 899 899 899 Government Grants - Demand Management 4,232 10,568 5,795 3,594161 147 161 147 Rent 1,102 631 658 615

- - - - Bad Debts Recovered - - - -270 270 270 270 Gain on Sale of Assets 6,500 3,000 4,000 1,080

9,725 9,725 9,725 9,725 Capital Contributions - Cash 44,900 111,800 38,900 38,9003,825 3,825 3,825 3,825 Capital Contributions - Non-Cash - - 11,300 15,300

15,400 15,400 15,400 15,400 Capital Contributions - AARR Alignment - - 61,600 61,6004,074 4,074 4,074 4,078 Alternative Control 2,940 1,313 1,369 16,300

300 300 300 300 Inter-Company Alternative Control - - 1,143 1,200- - - - Gain on Foreign Exchange - - - -

844 844 844 844 Corporate Service Fees 2,444 3,022 3,021 3,375- - - - Discounts Received 0 - 578 -- - - - Insurance Claims 116 - - -- - - - Inter-Company SLA Revenue - 1,199 45,827 -

15,308 15,298 15,310 15,289 Inter-Company SLA Revenue EEQ 36,386 44,747 - 61,205692 692 691 691 Inter-Company SLA Revenue EETL 1,383 1,980 - 2,766

- - - - SLA Revenue 757 - - -537 302 368 327 Other Revenue 2,305 2,835 2,503 1,534

56,549 57,277 56,843 109,802 TOTAL MISCELLANEOUS REVENUE 167,635 242,757 255,058 280,471391,177 436,302 450,299 453,469 GROSS MARGIN & OTHER REVENUE 1,247,235 1,586,982 1,603,395 1,731,246

178,112 180,714 171,024 155,543 Opex 497,191 558,525 552,446 685,393Opex - Additional Items

178,112 180,714 171,024 155,543 TOTAL OPERATING EXPENSES 497,191 558,525 552,446 685,393

OTHER OPERATING EXPENDITURE83,943 85,705 87,337 88,969 Depreciation 273,255 301,656 299,656 345,955

235 235 235 235 Amortisation 12,154 3,045 8,291 940- - - - Decrements Valuation - - - -

84,178 85,940 87,572 89,204 TOTAL OTHER OPERATING EXPENDITURE 285,409 304,701 307,947 346,895

128,887 169,648 191,702 208,722 EARNINGS BEFORE INTEREST & TAXES (EBIT) 464,636 723,757 743,002 698,958

76,111 80,634 82,830 85,028 Finance Charges - Additional Items 242,564 312,943 298,412 324,603- - - - Inter-Company Finance Charges - - - -

52,775 89,013 108,873 123,694 EARNINGS BEFORE TAXES (EBT) 222,072 410,814 444,590 374,35615,833 26,704 32,662 21,587 Income Tax 50,207 110,097 114,662 96,78636,943 62,309 76,211 102,107 NET PROFIT AFTER TAXES (NPAT) 171,865 300,717 329,929 277,570

398,771 435,714 498,023 574,234 OPENING RETAINED EARNINGS 298,413 322,891 332,786 398,771435,714 498,023 574,234 676,341 TOTAL AVAILABLE FOR APPROPRIATION 470,278 623,608 662,714 676,341

- - - - Inter-Company Dividends Provided For - - - -- - - 222,056 Dividends Provided For 137,492 240,574 263,943 222,056- - - 222,056 TOTAL DIVIDENDS 137,492 240,574 263,943 222,056

435,714 498,023 574,234 454,285 CLOSING RETAINED EARNINGS 332,786 383,034 398,771 454,285

Quarter 2011/12



Statement of Financial Position Actual SCI Est. Actual BudgetSept Dec Mar Jun Ergon Energy Corporation Limited 2009/10 2010/11 2010/11 2011/12

$'000s $'000s $'000s $'000s $'000s $'000s $'000s $'000s

142,878 243,600 204,059 273,642 Cash & Cash Equivalents 218,778 148,263 207,383 273,642298,598 250,085 249,446 279,522 Current Receivables 222,031 262,580 298,975 279,522

93,843 95,277 99,677 96,677 Inventories 95,743 100,623 98,950 96,67765 65 65 65 Other Current Assets 61.6 78.0 65.0 65.0

535,384 589,027 553,247 649,906 CURRENT ASSETS 536,613 511,544 605,373 649,906

52,858 54,210 55,481 58,396 Long Term Receivables 82,627 103,111 51,419 58,3962,498 2,498 2,498 2,498 Non-Current Investments 2,498 2,498 2,498 2,4982,238 2,798 3,358 3,919 Non-Current Inventories 1,527 1,383 1,677 3,919

8,725,649 8,875,044 9,022,807 9,318,508 Property, Plant & Equipment 7,515,526 8,238,971 8,574,493 9,318,50863,110 62,875 62,640 62,405 Intangible Non-Current 7,418 471 101,245 62,405

- - - - Superannuation Surplus - - - -- - - - Other Non Current Assets - - - -

8,846,353 8,997,425 9,146,785 9,445,725 NON-CURRENT ASSETS 7,609,596 8,346,434 8,731,332 9,445,725

9,381,737 9,586,453 9,700,032 10,095,631 ASSETS 8,146,210 8,857,978 9,336,705 10,095,631

180,689 183,554 190,005 187,488 Current Payables 234,345 210,884 184,448 187,48895 56 43 30 Interest Bearing Liabilities Current 1,905 4,502 17 30

20,717 21,413 21,785 22,164 Current Provisions 59,298 23,095 20,589 22,164135,531 146,014 138,184 153,436 Employee Benefits Current 138,321 144,229 146,710 153,436263,943 (0) (0) 222,056 Dividends 137,492 240,574 263,943 222,056

60,862 60,771 60,632 60,493 Other Current Liabilities 54,905 58,687 59,183 60,493661,837 411,808 410,648 645,667 CURRENT LIABILITIES 626,266 681,970 674,891 645,667

38,160 38,160 38,160 22,328 Employee Benefits Non-Current 53,848 47,200 38,160 22,328(0) (0) (0) (0) Payables Non-Current 1,128 - - -

232 232 232 232 Tax Related Intercompany Payable 262 262 232 2324,314,799 4,674,799 4,674,799 4,794,799 Interest Bearing Liabilities Non-Current 3,962,907 4,331,290 4,314,799 4,794,7991,257,114 1,289,566 1,328,064 1,399,687 Deferred Tax Equivalent Liabilities 925,329 1,086,775 1,235,857 1,399,687

1,437 1,467 1,497 1,536 Non-Current Provisions 13,511 73,067 1,407 1,5361,148 1,101 1,101 1,101 Other Non-Current Liabilities 761 191 1,291 1,101

5,612,890 6,005,326 6,043,853 6,219,683 NON-CURRENT LIABILITIES 4,957,747 5,538,785 5,591,747 6,219,683

6,274,727 6,417,133 6,454,501 6,865,350 LIABILITIES 5,584,013 6,220,755 6,266,637 6,865,350

2,294,582 2,294,582 2,294,582 2,294,582 Share Capital 2,294,582 2,294,582 2,294,582 2,294,582(1,352,190) (1,352,190) (1,352,190) (1,352,190) Unissued Capital (1,352,190) (1,352,190) (1,352,190) (1,352,190)

942,392 942,392 942,392 942,392 Contributed Equity 942,392 942,392 942,392 942,392

1,730,014 1,730,014 1,730,014 1,834,713 Asset Revaluation 1,288,128 1,312,906 1,730,014 1,834,713(1,110) (1,110) (1,110) (1,110) Government Contribution Reserve (1,110) (1,110) (1,110) (1,110)

1,728,904 1,728,904 1,728,904 1,833,603 Reserves 1,287,019 1,311,796 1,728,904 1,833,603

482,799 482,799 482,799 482,799 Retained Profits 382,440 415,657 416,813 482,79936,943 99,252 175,463 55,514 Current Year Profit 34,373 60,143 65,986 55,514

(84,028) (84,028) (84,028) (84,028) Ret Earn DB Super Surplus/Deficit (84,028) (92,766) (84,028) (84,028)435,714 498,023 574,234 454,285 Retained Earnings 332,786 383,034 398,771 454,285

3,107,010 3,169,320 3,245,530 3,230,281 EQUITY 2,562,197 2,637,223 3,070,068 3,230,281

Quarter 2011/12



Cash Flow Actual SCI Est. Actual BudgetSept Dec Mar Jun Ergon Energy Corporation Limited 2009/10 2010/11 2010/11 2011/12

$'000s $'000s $'000s $'000s $'000s $'000s $'000s $'000s

CASH FLOWS FROM TRADING ACTIVITIES410,926 441,244 473,319 412,465 Receipts from Customers 1,423,965 1,617,166 1,628,672 1,737,954

(178,444) (198,335) (209,554) (185,386) Payments to Suppliers & Employees (765,047) (771,951) (829,173) (771,718)4,151 5,150 4,641 5,913 Interest Received 61,767 14,807 14,363 19,855

(76,111) (80,634) (82,830) (85,028) Interest and Other Costs of Financing (241,613) (312,943) (298,412) (324,603)9,725 9,725 9,725 9,725 Capital Contributions 0 111,800 38,900 38,900

- 62,384 - - Dividends Received 29,013 39,261 48,616 62,384170,247 239,534 195,302 184,426 NET CASH PROVIDED BY OPERATING ACTIVITIES 508,086 698,140 602,967 789,508

CASH FLOWS FROM INVESTING ACTIVITIES270 270 270 270 Gain on Sale of Assets 11,557 3,000 4,000 1,080

(235,100) (235,100) (235,100) (235,100) Land and Property Plant & Equipment (774,957) (948,712) (832,370) (940,400)0 0 0 0 Intangibles - Software (9,848) (500) (500) 0- - - - Other Investments - - - -

(234,830) (234,830) (234,830) (234,830) NET CASH USED IN INVESTING ACTIVITIES (773,248) (946,212) (828,870) (939,320)

CASH FLOWS FROM FINANCING ACTIVITIES0 360,000 - 120,000 Proceeds from Borrowings 274,857 352,000 352,000 480,000- - - - Repay Borrowings (1,824) - - -

78 (39) (13) (13) Repayable Deposits - 257 - 13- (263,943) - - Dividends Paid (116,633) (114,854) (137,492) (263,943)- - - - Issue of Shares - - - -

78 96,018 13- 119,987 NET CASH PROVIDED BY FINANCING ACTIVITIES 156,400 237,403 214,508 216,070

(64,505) 100,722 (39,541) 69,583 NET INCREASE/(DECREASE) IN CASH HELD (108,763) (10,669) (11,395) 66,258

207,383 142,878 243,600 204,059 CASH HELD BEGINNING OF PERIOD 327,541 158,931 218,778 207,383

142,878 243,600 204,059 273,642 CASH HELD AT END OF PERIOD 218,778 148,263 207,383 273,642

Quarter 2011/12



3.1.3 FINANCIAL CONTRIBUTIONS: SELECTED SUBSIDIARIES Subsidiary Ownership Nature of Business Est Actual Budget

2010/11 2011/12$'000s $'000s

Ergon Energy Queensland (EEQ) 100% 87,018,414 72,110,522

Ergon Energy Telecommunciations (EET) 100% 2,755,246 2,439,986

Retail Franchise Business

Ergon Energy Telecommunications Pty Ltd (EET). EET Trading as Nexium Telecommunications is a licensed carrier offering wholesale high‐speed data capacity in regional Queensland.

3.1.4 FINANCIAL CONTRIBUTIONS: MAJOR BUSINESS DIVISIONS Business Division Nature of Business EBIT Contribution to Group

Financial Outcome 2010/11 (Est Actual)

EBIT Contribution to Group Financial Outcome 2011/12

$'000 $'000EECL Network Supply & Maintenance and Business Development 743,002,047 731,870,736EEQ Electricity Franchise Retailer 87,018,414 72,110,522EET Telecom Subsidiary 2,755,246 2,439,986Eliminations Eliminations ‐62,384,271 ‐51,736,656ERGON GROUP EBIT 770,391,437 754,684,587

3.2 MAIN UNDERTAKINGS AND BUSINESS For the 2011/12 year Ergon Energy intends to acquire and dispose of the following main undertakings detailed below. The following main undertakings may be disposed of by Ergon Energy in the 2011/12 year subject to approval where required: N/A The following main undertakings may be acquired of by Ergon Energy in the 2011/12 year subject to approval where required: N/A



3.3 CAPITAL EXPENDITURE PROGRAM

3.3.1 ASSETS UNDER CONSTRUCTION

PROJECT Project Total

Cost of Project

Pre 2010/11

Est. Actual 2010/11

Budget 2011/12

Reinforce Supply to Gayndah (66kV Network) 60,432,000 2,576,518 225,482 2,705,000Childers Gayndah Supply Upgrade 6,280,415 2,576,518 117,897 760,000Dallarnil ‐ Establish new 66kV switching station 10,118,585 0 107,585 1,945,000SPD WB AT ISIS ‐ New 37km 132kV SCCP 18,422,263 0 0 0T131 Isis new 66kV feeder bay 1,672,786 0 0 0Dallarnil ‐Degilbo. Re‐build existing 66kV Line 4,139,424 0 0 0Degilbo‐Gayndah. ReBuild 66kV Line 535,584 0 0 0Spend > 2015/16 19,262,943 (0) 0Reinforce Supply to Mt Isa (Sunset) 37,289,919 ‐ 28,832 433,300Sunset Sub Site & Line Route Acquisition 464,232 0 28,832 433,300New Sunset ZS ‐ 5 feeders out of new Sunset 132/11kV 1,884,687 0 0

Sunset‐ Establish a new 132/11kV 2 x 32MVA zone 34,941,000 0 0 0Reinforce Supply to Hervey Bay (Toogoom) 36,858,000 899,940 1,774,060 5,835,000Toogoom ‐ Acquire Toogoom 66/11kV ZS site 843,939 737,570 106,369 0Toogoom ‐ Future 66kV line route 1,747,451 162,370 1,585,081 0Toogoom ‐ Establish ZS6‐20 Zone Sub @ Toogoom Site 19,122,610 0 82,610 2,741,000

Construct DCCP to Toogoom 66/11kV ZS 11,374,000 0 0 2,937,000WB DP, TOGM, create 5 new feeders from new ZS (re‐arrange existing network) 3,770,000 0 0 157,000

Reinforce Supply to Hervey Bay (Scarness) 35,546,000 72,515 1,971,485 394,000Subtransmission Line rebuild 2,136,984 42,092 1,700,892 394,000Scarness Ln Route acquisition 301,016 30,423 270,593 0Scarness 66kV line construction 7,575,980 0 0 Scarness‐Establish New Z6‐32 66/11kVSub 19,973,435 0 0 0WB DP, Scarness, create 6 new feeders from new ZS re‐arrange existing network 5,558,585 0 0

Reinforce Supply at Planella ZS 28,756,169 50,169 199,831 10,791,000Planella ‐ Line route acquisition ‐ 2nd (66kV) subtransmission feeder 11,050,000 50,169 199,831 10,791,000

Planella ‐ Convert to 66/11kV. Design and re‐construct 5,129,997 0 0 0

Glenella ‐Install 2 x 66kV fdr bays for Planella 2,625,995 0 0 0Glenella ‐ Planella 66KV line 9,950,177 0 0 0Reinforce Supply to Toowoomba (Westbrook) 27,306,000 ‐ 151,157 5,195,000Westbrook Substation Site Acquisition 5,398,159 0 151,157 5,173,742Westbrook 110/11kV Zone Sub 17,932,517 0 0 21,258Est Dist Sub sys out of new Westbrook ZS 3,975,324 0 0 0Reinforce Supply to Bundaberg (Avoca) 26,871,000 227,122 1,110,878 6,487,000Avoca zone substation ‐ Site Acquisition, investigation & acquisition 1,467,094 227,122 881,972 358,000

Establish Avoca 66/11kV Zone Substation 20,773,158 0 228,906 5,871,000Avoca ZS 66kV connection 520,748 0 0 87,000




Cost of Project

Pre 2010/11

Est. Actual 2010/11

Budget 2011/12

WB DP, AVOCA, create 4 new feeders from new ZS re‐arrange existing network 4,110,000 0 0 171,000

Maryborough North ZS site acquisition 24,115,000 1,147,782 226,649 85,498Maryborough North ZS site acquisition 1,514,431 1,147,782 226,649 21,000Maryborough North 66/11kV ZS 18,819,366 0 0 57,862T59‐Maryborough North 66kV Line 503,203 0 0 6,636WB DP, MBough Nt, create 4 new feeders from new zone substation 3,278,000 0 0 0

Reinforce Supply to Gladstone (Briffney) 23,184,000 74,576 51,424 33,000Briffney Creek Substation Site Acquisition 82,416 30,992 51,424 0CA ‐ 66KV Rebuild T19 to Briffney Ck 402,000 0 0 17,000Briffney ‐ Establish new 66/11kV Sub 20,086,584 43,584 0 16,000CA DP BRIF New ZS FDR Exits‐STG1 2,613,000 0 0 Reinforce Supply to Toowoomba (Charlton) 20,550,000 8,939 250,459 15,000Charlton Zone Sub.Stn Site Rezoning 259,398 8,939 250,459 0Establish new 33/11kV zone substation in Charlton 16,000,000 0 0 15,000Distribution system out of new Charlton ZSS 4,290,602 0 0 0Circuit Breaker Replacement Program 21,969,000 558,220 2,728,780 9,009,906Replace Mount Morgan 1x 66kV Circuit Breakers 737,038 305,915 431,123 0 Moranbah Replace 66kV CBs & Dist Relays on Utah No.2 & Coppabella Feeders 590,996 227,801 363,195 0

TV MA CD TPA Subs 705 & 706 11kV Sw Gear 1,236,982 24,504 1,212,224 254 Replace 1 x 33kV CBs at Farleigh 884,238 0 722,238 162,000 Replace CB3646 Brigalow 33kV Fdr 129,000 0 0 129,000 Replace Rywung 33kV CB MILE Miles sub 304,000 0 0 304,000 Replace 2 x 66kV CBs at PINN Substation 420,000 0 0 420,000 Replace 3 x 66kV CBs at MORA Substation 1,052,000 0 0 1,052,000 Replace 3 x 66kV CBs at SAGE Substation 631,458 0 0 631,458 Replace 2 x 66kV CBs at CUNN Substation 420,978 0 0 420,978 Replace 3 * 66kV CB at CHAR Substation 839,829 0 0 839,829 Replace 3 x 33kV CBs at CHIN Substation 708,123 0 0 708,123 Replace 2 x 33kV CBs at ETON Substation 551,098 0 0 534,593 Replace 3 x 33kV CBs at TEST Substation 728,269 0 0 706,457 Replace 1 x 66kV CB at SOKO Substation 216,474 0 0 209,991 Replace 3 x 66kV CBs at WEBU Substation 649,431 0 0 629,981 Replace 66kV CB at MURG Substation 216,474 0 0 209,991 Replace 2 x 66kv ASEA HLC CBs 551,097 0 0 534,592 STTO: Replace T3 ABS 11140 & CB 3860 306,000 0 0 306,000 Replace 1 x 33kV Ferguson ROP CB 281,000 0 0 231,000 Replace 6 x 66kV CB's at HOWA Substation 1,688,396 0 0 345,608 ARI NQ TV AARP TOPO Refurb 66kV 561,868 0 0 266,550 ARI SW AARP PECR Refurb 33kV 842,802 0 0 133,585 ARI SW RA AARP ROMA Refurb 33kV 1,123,732 0 0 126,194 ARI NQ TV AARP ROPL Refurb 66kV 561,872 0 0 43,658 ARI FN AARP DIMB Refurb 66kV 561,868 0 0 43,658 ARI CA AARP MOUR Refurb 66kV 313,961 0 0 20,406 ARI CA AARP CALL Refurb 66kV 561,868 0 0 0




Cost of Project

Pre 2010/11

Est. Actual 2010/11

Budget 2011/12

ARI FN AARP EVEL Refurb 66kV 561,868 0 0 0 ARI CA AARP GLSO Refurb 66kV 280,936 0 0 0 ARI CA RO AARP PARK Refurb 66kV 561,868 0 0 0 Replace 2 x 66kV CBs at EABU Substation 450,243 0 0 0 PIAL ‐ Refurbish Pialba 66/11kV Substation CBs 2,443,233 0 0 0

Reinforce Supply to Bowen Basin (Goonyella Rd) 16,855,000 677,587 490,413 851,000

Goonyella Rd ZS site & 66kV line route investigation & acquisition 1,168,000 677,587 490,413 0

Establish Goonyella Road ZS ‐ Design & build 66/11kV ZS 8,161,000 0 0 851,000

MK DP MOTO New ZS FDR Exits 4,311,193 0 0 0 Moranbah‐Goonyella Rd. Design and Construct DCCP 66kV Line 3,214,807 0 0

Reinforce Supply to Bowen Basin (Broadlea) 31,109,200 121,000 2,660,000 17,697,056

Broadlea‐Coppabella Fdr ‐ Construct 4km 66kV DCCP line 4,891,200 0 160,000 3,697,056

Broadlea ‐ Establish 132/66kV BSP. Establish new 132/66kV substation 26,218,000 121,000 2,500,000 14,000,000

T083 Roma Substation Transformer Augmentation 40,320 18,168 8,410 10,256

Redevelop zone substation ‐ MC1 Central Dalby 8,604 11,624 7,655 4,803

Reinforce Supply to Townsville (Bohle Plains) 29,926,439 767,043 99,127 ‐Bohle Plains Substation Site acquisition 866,170 767,043 99,127 0Bohle Plains Zone Substation ‐ Establish new Z6‐32 sub 25,844,462 0 0 0

New 11kV 5 feeders out of new Bohle Plains ZS. 3,215,807 0 0 0Reinforce Supply to Townsville (Townsville Central) 4,388,291 144,296 4,135,995 0Flinders St Sub Site ‐ Townsville 4,280,291 144,296 4,135,995 Establish new Townsville Central ZoneSub 108,000 0 0 Reinforce Supply to Highfields (Cawdor) 29,068,868 7,174,270 2,537,564 0Establish Cawdor (Highfields) 33/11kV Zone Sub 9,711,834 7,174,270 2,537,564 0 Cawdor 2 x 32MVA 33/11kV Zone Sub 19,357,034 0 0 0Dev 11kv NW out of new 66/11kv Cawdow ZS ‐ 0 0 0Reinforce Supply to Malanda 18,320,209 215,209 0 0 Atherton ‐ Malanda 66kV line route acquisition 215,209 215,209 0 Malanda ‐ Establish Zone Sub. Construct 66/22kV ZS 10,983,000 0 0 0

Atherton‐Malanda 66kV line construction 7,122,000 0 0 0

Powerstation ‐ Birdsville Geothermal 13,000,000 25,346 230,654 4,088,000

Cyclone Area Reliability Enhancement Program (CARE) 70,092,000 49,785,000 8,669,000 11,000,000

Ubinet ‐ Stage one 134,600,000 27,000,000 59,600,000 41,700,000

Subtotal Listed Projects 690,286,021 91,555,327 87,157,855 116,334,819



3.3.2 CAPITAL EXPENDITURE PLANNED TO COMMENCE IN SCI YEAR


Budget 2011/12

Reinforce Supply at Central Toowoomba ZS 51,241,095 1,120,447South‐Central Toowoomba ‐ Obtain 2x110kV line routes 4,000,000 1,053,200Herries St Sub Site Acquisition in central Toowoomba 2,001,530 67,247Construct a new Tmba Central 110/11kVSub 23,000,000 0South Toowoomba ‐ Establish 110kV bus & bays for 2 x CETO 8,172,983 01st 110kV line for New SSub Toowoomba city centre ‐ Herries St 3,000,000 02nd 110kV line for New SSub Toowoomba city centre ‐ Herries St 6,000,000 011kV dist sys out of rebuild Tmb Cen ZSS 5,066,582 0 Subtransmission Line rebuild 40,723,582 2,837,501 Relocation of 66kV line from Ravenshoe 11,053,524 228,060Refurb KAIM 33kV Feeder 76,860 76,860Egans Hill ‐ Raglan 66kv line rebuild Stage 2 3,237,552 271,248Rebuild 66kV ‐ Rebuild 28.5km of Calliope to Littlemore 8,256,000 340,000Childers To Givelda Ln Route ‐ Investigate existing Ln and confirm 641,058 439,126TRG 33‐DALB‐DACE‐1 reliable 7km 30MVA 1,350,000 45,00033kV Carmila feeder rebuild 2,010,834 113,540RBUILD_S 2.7km 66kV Proserpine ‐ Merinda 676,800 270,000TRG 33‐KAIM‐DALB reliable OH line stage3 6,231,908 1,053,667RBUILD_S 9.6km Givelda Tee to Farnsfield 3,109,167 0RBUILD_S 10.3km Childers to Farnsfield 3,335,879 0Spend prior to project approval 744,000 0 Reinforce Supply to Capricorn Coast (Keppell BSP) 38,062,000 6,423,000Pandoin to Keppell DC 132kV Line 19,990,000 5,028,000Keppell New Bulk Supply Sub 18,025,000 1,395,000Spend prior to project approval 47,000 0 Reinforce Warwick to Stanthorpe 110kV Line 47,650,000 496,000Acquire line route from T58 WARW ‐> T60 STAN 496,000 496,000TRG: WARW ‐ STAN Est 110Kv Line 47,154,000 0Spend prior to project approval 258,000 Open Wire Service Replacement Program 34,996,819 18,510,819NQ Open Wire Service Replacement 858,701 696,701FN Open Wire Service Replacement 3,651,825 2,413,825CA Open Wire Service Replacement 1,471,012 973,012SW Open Wire Service Replacement 17,470,454 11,549,454WB Open Wire Service Replacement 4,353,827 2,877,827Spend prior to 11/12 7,191,000 0 Reinforce Supply to Gracemere 28,645,000 72,000 Gracemere ‐ Acquire site & 66kV line easement 1,978,000 72,000Gracemere ‐ new 66/11kV Zone Sub just outside of Rockhampton 26,645,000 0Spend prior to project approval 22,000 0 Reinforce Supply to Airlie Beach (Jubilee Pocket) 27,532,000 4,278,000MK DP JUPO Main St ‐ New Feeder 1,197,000 1,197,000Cannonvale Sub 66kV sw‐yard 9,853,000 2,640,000Jubilee Pocket ZS ‐ Install 2nd TF to meet Security Criteria 441,000 441,000Cannonvale to Jubilee pocket 66kV feeder 15,000,000 0

Cannonvale to Jubilee Pocket 66kV Ln Augment 165,000 0




Budget 2011/12

Spend prior to project approval 876,000 0 Reinforce Emerald to Blackwater 66kV Line 29,350,000 2,488,000Blackwater‐Emerald 66kV Land Acquisition 2,614,000 2,488,000Blackwater ‐ Emerald ‐ Rebuild 66kV line 23,900,000 0Spend prior to 11/12 2,836,000 0 Reinforce Supply to Airlie Beach (Riordanvale) 23,566,000 3,670,000T39 Pros‐Riordanvale 66kV Line route 21,922,000 3,670,000Spend prior to 11/12 1,644,000 0 Reinforce Supply at West Toowoomba ZS 29,492,000 369,000RSW TO AST WETO Site Acquire WETO Rebuild 492,000 369,000Construct a new ToowoombaWest110/11kVsub 1,456,000 0Spend prior to project approval and beyond 2015/16 0 Reinforce Supply at Broxburn ZS 20,060,000 3,076,000 Broxburn Sub ‐Rebuild as 110/11kV 20,014,000 3,076,000Spend prior to project approval 46,000 0 Reinforce Supply to Hervey Bay (Booral) 18,028,000 3,486,000WB,Booral (New Substation),New,11kV augm 3,486,000 3,486,000Booral ZS ‐ Establish new ZS to supply River Heads 9,126,000 0Nikenbah‐Booral 66kV line construction 553,834 0Spend prior to project approval and beyond 2015/16 0 Prog ‐ UbiNet Stage 2 17,912,000 8,616,600 P25 Trunked Mobile Radio Network SW ‐ Replace Analog Mobile Radio 17,762,000 8,616,600Spend prior to project approval 150,000 0 Reinforce Supply at Yarranlea BSP 15,002,000 1,587,000Yara‐Refurbish Yarranlea 110/33KV 982,000 106,000Construct new Yarranlea 110/66kV Substation 14,002,000 1,481,000Spend prior to project approval 18,000 0 Reinforce supply to Hervey Bay (Nikenbah) 43,344,451 0Nikenbah ‐ Establish 132/66kV 20,590,000 0Aramara ‐ Maryborough. Design & construct DCCP 132kV Line 19,353,643 0Establish Nikenbah 66/11kV Zone Sub 3,104,270 0Nikenbah ‐ Connect lines to BSP 296,538 0 Reinforce Supply to Smithfield 40,301,731 0Smithfield Zone Substation Site Land Assessment and Acquisition ‐ 0Smithfield 132/2 ZS Site Use Approvals Ministerial Designation 50,000 0Kamerunga‐Smithfield 132kV Dual cct Underground 17,004,227 0Smithfield‐Establish 132/22kV ZS 23,247,504 0 Reinforce Supply to Warwick 25,747,855 0Middle Ridge to Warwick Fdr 735 Rebuild 25,747,855 0 Reinforce Supply to Townsville (Serene Valley) 29,556,765 0Serene Valley Substation ‐ Establish new 132/11kV sub 29,556,765 0 Reinforce Supply to Rockhampton (Wandal) 0Rockhampton City New Zone Sub ‐ Install Z6‐32 on Ergon site Dennison St 23,898,396 0Wandal Sub 66kV Line Works ‐ Cut Rocky City sub into Canning St feeder 2,178,192 0 Reinforce Supply at Pampas ZS 21,999,578 0Pampas Sub Rebuild as 66/11kV sub 20,000,000 0Dev 11kV dist sys out of Pampas ZSS 1,999,578 0




Budget 2011/12

Subtotal Listed Projects 609,287,464 57,030,367

Other Capital Works ‐ System 623,606,894

Other Capital Works ‐ Non System 146,927,651

Total 827,564,912

3.3.3 BUSINESS DEVELOPMENT (Material expenses on projects being considered) Below is a list of possible investment opportunities where there is a material expense on the project being considered. Their presence in this Statement of Corporate Intent should not be considered as an indication of definitive intent to proceed. The timing of these projects is unknown at this stage. All of these investments will be subject to detailed financial analysis, formal business cases, Board approval, and where applicable shareholder approval. For non regulated analysis Ergon Energy derives a project specific Weighted Average Cost of Capital (WACC) using the Government Owned Corporation guidelines. It is anticipated that funding for these investments will be sourced through borrowings.

Strategic Investment Source of Funding

Investment $M

Status

Customer and Unregulated Network Assets

Delivery of programs in accordance with the Demand Management Plan, aimed at deferring Network Peak Demand and hence Network Capital Investment

AER NNA Opex $13M

Individual projects at differing stages, the Program is progressing in accordance with the Demand Management Plan.

Telecommunications ‐ Ubinet Phase 2/3

Phase 2 and 3 will enable wide‐scale secure wireless communications in regional Queensland that will enable increased monitoring and automation of assets to deliver improved network performance.

Borrowing $55

Business case currently under review by Queensland Treasury Corporation before being presented for Board approval.

Green Energy and Renewable Generation (Including Remote Area Power Supply (RAPS) )

RAPS systems are an environmental sustainable stand alone or network connected combination of diesel generation, wind generation, solar photovoltaics and batteries. Business cases will be developed to use RAPS as a viable power supply options for SWER lines

Borrowing $40

Some business cases have been approved and projects underway.



and remote generation sites.

Total $108

3.3.4 TOTAL CAPITAL EXPENDITURE

3.4 OTHER SIGNIFICANT EXPENSES

Repairs, Maintenance and Renewals

Description TotalBudgeted Cost

2011/12 Purpose & ObjectiveProject Status

$000Regulated Opex n/a 405,734,038 Maintenance on the regulated Asset Base Ongoing n/a

Non Regulated Opex n/a 685,973Maintenance on Non‐Regulated Assets including mine site equipment Ongoing n/a

Isolated Generation Opex n/a 123,249,977 Maintenance on Isolated diesel generator assets Ongoing n/a

Expected Completion

Date

Project Cost of Project Est. Actual BudgetTotal Pre 2010/11 2010/11 2011/12

Total Assets under construction 690,286,021 91,555,327 87,157,855 116,334,819Total Capex planned to Commence 827,564,912Total Capex 943,899,731



3.5 Major Initiatives Being Undertaken by Ergon Energy Ergon Energy intends to undertake the following major initiatives in 2011/12:

⎯ National Broadband Network

⎯ Ubinet

⎯ Demand Management

⎯ Joint Workings

⎯ Long Term Energy Supply for North West Queensland

3.5.1 National Broadband Network (NBN) National Broadband Network Company (NBNCo) has recognised that electricity utilities like Ergon Energy and Energex in Queensland and their interstate equivalents can significantly assist with the rollout of the NBN across the nation. In 2010 rollout commenced in five first release sites across mainland Australia. The Queensland first release site is Aitkenvale and Mundingburra located in Townsville. Ergon Energy has provided the NBNCo with an access licence which allows NBN fibre to be installed on Ergon Energy distribution poles within this first release site and is in discussions to extend this to the remainder of Ergon Energy's distribution area. Further, Ergon Energy has also been engaged by NBNCo to construct and install the NBN in this first release site. The parties are working together to investigate opportunities which may be leveraged. Ergon Energy and Energex are currently considering how they can effectively collaborate with the NBNCo so that any long term agreements support both an enduring energy solution for Queensland and the broader roll out of the NBN. Ergon Energy recognises that its involvement with NBNCo needs to be on a commercial basis and support its core business of electricity distribution. Ergon Energy will continue to keep shareholding Ministers informed in regard to its involvement with NBNCo and will seek shareholding Minister approval as required.

3.5.2 Ubinet The purpose of the UbiNet project is to provide a modern telecommunications network that will underpin the future information and data traffic that will be transported accurately and rapidly to and from electricity assets across Ergon Energy’s network, to our depots and people and to and from customer premises to the network and vice versa. Future projects will rely on UbiNet to deliver enhanced monitoring and control of the Ergon Energy distribution network. The overall timeframe for the project (phase one) is approximately three years from the project approval date of February 2009 with commissioning now expected to be completed in September 2012. The major milestones for the project are as follows:

MILESTONE SCHEDULED DATE ACTUAL DATE

Supply of equipment commenced 1 April 2010 February 2010 Construction commenced 1 May 2010 April 2010 Commissioning commenced 10 August 2010 Supply of equipment completed 30 November 2011 Construction completed 31 January 2012 Commissioning completed 29 August 2012



The estimated capital cost of phase one of the project is $134.6 million. Of this, expenditure in 2010/11 is forecast to be $59.6 million. Estimated expenditure in 2011/12 is forecast to be $41.7 million. Regular updates on the progress of the project will continue to be provided to shareholding Ministers as the project continues.

3.5.3 Demand Management Ergon Energy is focused on addressing the challenges and maximising the opportunities associated with climate change awareness and policy to add value to shareholders and customers. This focus extends across its entire business and includes an active role in understanding and managing peak demand, improving network utilisation and reliability, and investigating opportunities for value‐adding services for customers “beyond the meter”. The tools to manage peak demand fall within the term demand management which Ergon Energy defines as: • the modification of consumer demand for energy through various methods such as financial incentives and

education; and • a raft of technical solutions including standby or embedded generation, power factor correction, load shifting and

interruption, energy efficient technologies, fuel switching, network support and capacity building.

Ergon Energy’s long‐term demand management strategy is to reduce peak load growth to defer capital expenditure on our network through: • Invest in research and development into demand management technologies which best suit the circumstances of

our customers including through customer trials and demonstration initiatives; • Empowering our customers by helping them recognise the importance and benefits of demand management and

how they can play their part; and • Aided by the experience, knowledge and customer support gained through customer trials and demonstration

initiatives, implement broad based, robust, demand management solutions across our distribution area, where these provide a greater, measurable net benefit compared to traditional network solutions.

Ergon Energy’s demand management initiatives for 2011/12 consist of:

INITIATIVE OPERATING EXPENDITURE

($’000)

CAPITAL EXPENDITURE

($’000)

TOTAL EXPENDITURE

($’000)

Program Management 4,054 4,054

Townsville Energy Sense Community 3,310 3,310

Townsville Queensland Solar City Project 2,119 3,917 6,036

Powersavvy 6,700 6,700

Large Customers Peak Demand Initiative 6,909 6,909

Residential Customers 4,173 5,500 9,673

Embedded Generation 728 728

Pricing Signals and Public Information 1,741 1,741

DMIA 1,000 1,000

Total 30,733 9,417 40,150



3.5.4 Joint Workings In response to the shareholding Ministers request that Energex and Ergon Energy (the QEDB) further explore joint workings initiatives, our respective executive management teams have been tasked with reviewing the Stage 2 initiatives and developing a more detailed program. In progressing this task, QEDB management have also been requested to prioritise the joint initiatives identified against individual business improvement opportunities to ensure an optimum “hybrid” of both business specific and joint improvement opportunities.

This range of initiatives has been initially scoped and defined with the objective of providing an optimised hybrid investment and development model with a number of lower value initiatives deferred until other intra company activities are completed.

The key elements of the second phase of Joint Workings include: • Joint Integrated Asset Management enabled through an appropriate joint vehicle, • An integrated works management approach including systems alignment and replication where appropriate, • Joint trades and technical resource capability, planning and development, • Alignment of ICT Systems and associated processes where prudent and efficient, • Strategic Sourcing and Logistics management (including strategic spares), • Smart Network trials and implementation planning, and • Alignment of financial and performance reporting and support services.

The joint workings model is detailed in Figure 1 and the mix of business specific and joint improvement opportunities are detailed in the table below.

Figure 1 ‐ Joint Workings Model

Benefits to the QEDB and Shareholders

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Systems and Process Alignment

The QEDB have identified a number of potential Joint Workings initiatives that will be assessed, prioritised and progressed to business case development over the next three to four years.



INITIATIVE IMPLEMENTATION TIMING AND BENEFITS

INTEGRATED ASSET MANAGEMENT

Strategic Asset Management

• Strategic Asset Management alliance to deliver shared and coordinated Asset Management Policies, Standards and Network Architecture. Will require the approval of the Boards of Energex and Ergon Energy.

• Business Case by November 2011. • Strategic Asset Management alliance

established and operational by July 2012.

Strategic Sourcing and Logistics

• Completion of standardisation of specifications for electrical plant and high volume/cost items procured by Energex and Ergon Energy to optimise benefits of joint procurement and sourcing.

• Further assessment to be completed of the types and quantities of strategic spares (re plant and equipment spares for critical or rare items of plant and equipment) to rationalise the store holding.

• Program of specification standardisation complete by July 2011.

• All strategic contracts and procurement mechanisms reviewed for alignment by January 2013.

• Strategic Spares review completed by January 2012 and plan in place for efficient disposal of surplus spares.

• Joint assessment of Service Contracts opportunities by January 2012.

JOINT WORKS MANAGEMENT PLANNING

Integrated Works Management

• High Level Executive Joint Works Management Steering Committee to consider customer demand and the impact on investment and works plan sculpting.

• Interim resource balancing/sharing protocols will be implemented through Joint Works Planning Coordination to manage prioritised regional development initiatives.

• Energex will complete POWIP implementation during 2011.

• Ergon Energy assessment of Energex model and supporting systems and processes with implementation linked to positive business case.

• Interim Disaster Recovery capability is currently in place but will be reviewed as part of the current disaster response reviews.

• Steering Committee to commence by July 11 and meet twice a year.

• Joint Works Planning Coordination Protocols developed and implemented by October 2011.

• Energex POWIP Implementation complete by July 2011 with post implementation review complete by January 2012.

• Ergon Energy assessment of Energex’s POWIP implementation complete by January 2012 with Business case due by July 2012.

• Disaster Recovery Review in progress to conclude by December 2011.

Joint Resource Development

• Technical and Trades capability planning and development to be reviewed to ensure capacity and capability to meet future POW and market demands. This will most likely be coordinated with Skills Management Queensland.

• Business Case/Project Scope to be led by Energex for completion by July 2011.

• Review completed and proposals to be submitted to Energex and Ergon Energy by September 2011.

Geographic Boundary Review

• A Geographic Boundary review, although included in the October QEDB Submission is regarded as being inferior to the Integrated Works Management initiatives in delivering against a two speed economy risk.

• Requirement for Geographic Boundary Review to be revisited in September 2012 after a review of integrated works management effectiveness.



INITIATIVE IMPLEMENTATION TIMING AND BENEFITS

ALIGNED PROCESSES & ERP SYSTEMS

Systems and Process Alignment

• SPARQ is coordinating a Joint ICT Blueprinting initiative leading to the initiation of the next set of projects in the ICT Programs for Energex and Ergon Energy.

• Blueprinting will take as input, business decisions on the degree of alignment/Jointness of key systems: ERP; GIS; DMS; FFA for implementation by 2015.

• Blueprinting will require the identification

and exploration of joint systems and process benefits arising from common or coordinated ICT architecture and applications.

• The outcomes will then be incorporated into the ERP solution and IT architecture.

• Initial Blueprinting to commence in March 2011 and conclude by August 2011.

• Recommendations to be made to Energex and Ergon Energy for approval of Project Scopes and Business Cases for core systems upgrades by November 2011.

• Implementation planned for 2012 & 2013. • Opportunities for additional business

efficiencies arising from aligned/joint solutions will be included in 2012/13 SCI/CP.

• QEDB will assess individual opportunities in the short to medium term.

• A Joint Back Office Business Model and Resource Efficiency Review to commence following implementation of Blueprinting.

SMART NETWORKS

Smart Networks

Architecture & Knowledge Sharing

• Development of a coordinated Smart Network assessment framework including pilot architecture, plant and equipment field trials, customer interfaces and knowledge database. This initiative will also include coordination with the Smart Grid Smart City program hosted by AusGrid in New South Wales and alignment with the NBN Program.

• Joint Smart Network initiative is underway. • Joint knowledge management database to be

established by July 2011. • Joint Smart Network architecture finalised for

inclusion in 2014 Regulatory Proposal.

Smart Network Trials

• Undertake Co‐ordinated Smart Network trials.

• Smart Network Trials initiated by Ergon Energy and Energex by 2011.

• Assessment of benefits in 2013. • Inclusion in the QEDB 2015‐2020 Regulatory

Proposal.

The outcomes of the initiatives and activities that will be deployed in 2011/12 as part of this Operational Excellence operational strategy will be measured through the KPIs detailed in the table below. Critical success factors that underpin the effective deployment of the strategy are also detailed in the table below.

Table – Critical Success Factors, KPIs and Targets

2011/12 CRITICAL SUCCESS FACTOR

KPI KPI MEASURE TARGET

Deliver Joint Workings initiatives to plan

Projects developed and implemented per project plan

Milestones in project plan

100% of milestones delivered



3.5.5 Long Term Energy Supply for North West Queensland There is a need to secure the long‐term supply needs of customers in North West Queensland. The initial term of the Ergon Energy Power Purchase Agreement (PPA) over Mica Creek Power Station with CS Energy expires in May 2013 and Ergon Energy has now given notice of its intent to extend this PPA to December 2014. At the same time, Ergon Energy is currently assessing alternative options to secure a long‐term supply of electricity to North West Queensland. Ergon Energy will seek shareholding Minister's approval of any agreement it seeks to enter in relation to this matter.



3.6 Sponsorship, Advertising, Corporate Entertainment, Donations and Other Arrangements Table: Sponsorship, Advertising, Corporate Entertainment, Donations and Other Activities: Total for ALL Expenditure Items (over and under $5,000)1

Activity 2010‐11 SCI BUDGET ($)

2010‐11 EST. ACTUAL ($)

2011‐12 BUDGET ($)

Community Partnership 1,074,000 1,125,753 1,137,770 Advertising (and other marketing channels) 3,840,480 4,063,169 4,280,000

Corporate Entertainment 180,000 128,316 152,000 Donations 261,434 92,086 225,175 Other Related Activities 2,161,366 2,187,825 2,495,624

TOTAL 7,517,281 7,597,149 8,290,569 1All expenditure to be GST exclusive * A breakdown of this expenditure is included in Attachment 3 of this SCI. Ergon Energy has approximately 690,000 customers who are dispersed over a wide geographic area covering 97% of the state. As a Retailer and Distributor, the purpose of Ergon Energy’s marketing expenditure is to engage with customers on a range of important issues including electrical safety, storm response, management of their electricity consumption, advice on energy conservation and supporting local communities. Ergon Energy also researches the perceptions, needs and expectations of customers and uses this information to improve the delivery of electricity to its customers and to improve customer service. Within the marketing program there is a strong focus on efficiency and ensuring that expenditure assists in improving customer and shareholder value. Community Partnerships Our Community Partnership sponsorship continues to be an important tool for Ergon Energy to engage with communities and customers with the objective of building customer advocacy. Ergon Energy’s sponsorship policy is regularly reviewed and updated to ensure compatibility with OGOC guidelines. Advertising and other Related Activities Ergon Energy uses advertising and other marketing channels to engage with customers with a view to building customer advocacy. It is an essential tool in building community awareness and engendering behavioural change to raise levels of energy conservation, raising awareness of network issues including public safety and preparedness for summer storms. The response of Ergon Energy’s customers to its operations, customer service and communications is measured using regular customer research to assess and improve performance and effectiveness. Customer Research Ergon Energy maintains a comprehensive customer research program, consisting of various monitors and ad hoc projects with different levels of strategic importance. This research program operates within a strategic framework with its core aim to inform and measure the effectiveness of Ergon Energy’s response to its strategic imperatives and act as the primary source of customer insights to support customer‐driven decision making across the organisation.



Corporate Entertainment Ergon Energy’s corporate entertainment budget delivers an informal channel for engagement with key stakeholders to enable interaction and dialogue regarding opportunities and risks within the many communities served by the Corporation. For the 2011/12 year no individual events with total expenses of greater than $5,000 are currently planned. Ergon Energy has entered into a community partnership with the NQ Cowboys to assist in delivering energy conservation messages to our customers and have retained a corporate box.

3.7 Other As part of its performance agreement with its shareholding Ministers, Ergon Energy provides the following additional undertakings.

3.7.1 Prudent Financial Information The Board will ensure Ergon Energy takes full responsibility to ensure that prudent financial practices will be applied both within the Corporation and within its subsidiaries (whether fully controlled or otherwise). Without limiting the obligations imposed on the Board and the CEO by the GOC Act and, where applicable, the Corporations Act 2001, this includes a commitment to:

− Abide with the Code of Practice for Government Owned Corporations’ Financial Arrangements as issued by the Queensland Government.

− Establish, maintain and implement appropriate financial risk management practices and policies required and as specified in the Code of Practice.

3.7.2 Capital Structure The Board will prudently manage the financing of Ergon Energy’s existing business and new business developments. As an integral part of the financing of the Corporation, the overall debt will be managed to ensure that Ergon Energy maintains the appropriate credit rating or other rating as directed by shareholding Ministers. Ergon Energy’s Board will ensure Ergon Energy complies with this. Equity contributions will be sought from shareholders if required to maintain Ergon Energy's current stand alone investment grade credit rating as provided by Standard and Poors in their rating report of November 2010. As of the current date, forecasting indicates that Ergon Energy will not require an equity injection from its shareholding Ministers within the current Distribution Determination period which extends to 2014/15. However, the Board of Ergon Energy will continue to monitor the stand‐alone credit rating of the company and will seek shareholder support for an equity injection if future forecasts indicate that it is required to maintain an investment grade credit rating.

3.7.3 Weighted Average Cost of Capital (WACC) The Board will ensure Ergon Energy reviews its WACC on an annual basis. As part of the SCI negotiation process, Ergon Energy’s beta and optimal capital structure have been determined in consultation with shareholder representatives. Separate WACCs have been calculated for those parts of Ergon Energy’s operations that face differing business risk profiles. Other than the annual review process, in the event Ergon Energy encounters a significant change to the risk profile of its business, its WACC will be recalculated in consultation with shareholder representatives.

Details of Ergon Energy’s WACC calculations are provided in Attachment 4 to the SCI.



3.7.4 Dividend Policy and Payment While the dividend process is governed by the Government Owned Corporations Act 1993 and the Corporations Act 2001 (Cth), the board will also ensure that Ergon Energy’s dividend policy takes into account the return its shareholders expect on their investments. Ergon Energy’s policy is to recommend and pay a dividend amount equivalent to 80% (or the percentage approved by shareholding Ministers, if different) of Ergon Energy’s adjusted consolidated profit for 2011/12. The board adopts such a policy on the basis of its shareholders agreeing to provide the necessary funding for projects which have received board and shareholding Ministers’ approval or for the maintenance of Ergon Energy’s approved capital structure or for ensuring the operational viability of Ergon Energy, Ergon Energy’s board undertakes to adhere to the dividend policy. The dividend letter provided by the board to shareholding Ministers in May 2012, will provide an estimate of the dividend for the financial year ending 30 June noting the potential for adjustment and recommend a dividend as a percentage of adjusted consolidated profit for the financial year. ’Adjusted profit’ is defined as: a) the total of income less expenses (including income tax equivalent expense), excluding the components of other

comprehensive income*; and b) adjusted for material non‐cash items including any associated tax credit or expense. Ergon Energy commits to providing information in its dividend letter to shareholding Ministers for 2011/12 that includes, but is not limited to, the following: • a statement that:

o the legal and accounting requirements for payment of the dividend under the o Corporations Act 2001 have been taken into account at the time of providing the board’s

recommendation in the dividend letter; o compliance by the board with the requirements of section 254T (and any other o applicable requirements) of the Corporations Act 2001 at the time of dividend payment will be necessary

before the dividend is paid; • the current estimated amount of consolidated profit for the financial year (excluding components of other

comprehensive income); • the current estimated amount of ’adjusted consolidated profit’ for the financial year; • details of adjustments made to determine the ’adjusted consolidated profit’ from the estimated consolidated

profit and a statement providing a breakdown of the value and reason for each adjustment; • a statement that adjustment items or further adjustment items may be identified during the audited financial

statement preparation; • Ergon Energy’s recommended dividend as a percentage of the estimated ’adjusted consolidated profit’; • the current estimated dollar amount of the proposed dividend for the financial year ending 30 June; • a statement that the dividend is to be declared out of profits; • a statement that the dividend payment will be the dividend approved or directed as a percentage of adjusted

audited consolidated profit; • a statement that any material differences between the estimated dollar amount of the dividend and the actual

dividend to be paid for 2011/12 will be advised by Ergon Energy as soon as identified. When determining the actual dividend to be paid based on the audited financial results, the board will ensure shareholding Ministers are consulted through their Departments and that written agreement is received for any material changes to the adjustment items previously identified in May and for any subsequent new adjustment items identified. This written agreement is to be obtained by Ergon Energy prior to payment of the final dividend by the board. [note: *Other comprehensive income comprises items of income and expense that are not recognised in profit or loss as required or permitted by Australian Accounting Standards.]



3.7.5 Corporate Governance The Board of Ergon Energy undertakes to continually monitor and review its corporate governance arrangements to reflect good practice, having regard to the Corporate Governance Guidelines for Government Owned Corporations (Corporate Governance Guidelines). Ergon Energy has adopted all the recommendations in the Corporate Governance Guidelines. Ergon Energy’s investment goal is to obtain the greatest customer and shareholder value through prudent and efficient capital investment and ongoing operating and maintenance expenditure. Ergon Energy has established an internal Investment Review Committee (IRC) to support management and Board level decision‐making in this area, ensure any necessary regulatory investment tests are carried out and to ensure that shareholder and stakeholder returns are optimised through judicious use of the resources and opportunities available. The IRC decides which of the many opportunities to pursue with the available capacity. All proposed regulatory investment is considered in the context of our regulatory determination and non‐regulated investment is considered in the context of SCI expectations, benefit to our core business and commercial returns. The authority of the IRC is limited to recommending a portfolio, endorsement of elements of the portfolio and advising of any issues identified through its oversight and scrutiny function. The Chief Executive and/or the Board/ shareholding Ministers (depending on financial delegation thresholds, requirements of the Investment Guidelines or specific requests from shareholding Ministers) are the approval authorities. All investments greater than $20 million are to be endorsed by all applicable investment review committees prior to Board submission, or if greater than $75 million, shareholding Ministers. Investment decisions requiring the Chief Executive and/or Board and/or shareholding Ministers approval are managed through IRC governance. The schedule of delegated authority for investment approval is listed in the Ergon Energy Delegation of Financial Authority Policy. Ergon Energy is progressing the implementation of its corporate property strategy which was approved by the Board in 2006. The Australian Competition Tribunal (ACT) Merits Review accepted Ergon Energy's estimates of the non‐system property capital expenditure for the redevelopment of Townsville and Rockhampton and so the revenue allowance for these two assets has been recovered. These two sites form key hubs in the development of the hub and spoke model adopted in the property strategy. In implementing its corporate property strategy Ergon Energy will ensure that the program developed is cost effective and within the parameters of the (revised) Distribution Determination. Ergon Energy will keep shareholding Ministers informed at all stages and will discuss the proposed programme with shareholding representatives prior to implementation.

3.7.6 Risk Management The Board of Ergon Energy has ultimate responsibility for the management of all potential internal and external risks for the Corporation. The Corporation’s risk identification and management process is monitored by the Audit and Financial Risk Committee (AFRC) and the Operational Risk Committee (ORC) which are subcommittees of the Board and that report to the Board on a regular basis. The risk management framework is designed to ensure that all potential financial, operational and other risks are regularly identified, assessed, monitored and reported to the AFRC and the ORC and to the Ergon Energy Board, along with appropriate risk mitigation and management plans. In particular, potential security risks have been considered and identified and a framework to respond to security threats has been developed. The Board will continually monitor security risks and update Ergon Energy’s response framework as necessary. Risk management plans have been incorporated in Ergon Energy’s budgetary and strategic planning process.



3.7.7 Compliance with Government Policies Ergon Energy will comply with relevant government policies and guidelines as set out in Attachment 6. In particular, Ergon Energy and its subsidiaries will comply with the approval, notification, reporting and other requirements of those policies and guidelines.



4. PERFORMANCE AGREEMENT



5. ATTACHMENTS ATTACHMENT 1: DEFINITIONS OF FINANCIAL RATIOS

DEFINITIONS OF FINANCIAL RATIOS

Return on Assets (%)

Consolidated [EBIT/Average of opening & closing assets]. (Assets = "Total Assets")

Regulated [EBIT/Average of opening & closing assets]. (Assets = "Net PPE inc computer intangibles")

Non Regulated [EBIT/Average of opening & closing assets]. (Assets = "Net PPE inc computer intangibles")

Return on Equity (%) Consolidated [NPAT/Average of opening & closing equity]

Cost Recovery Ratio Consolidated [Revenue from operations/Expenses from operations (excluding abnormals, investment income & finance charges) ]

Operating Sales Margin (%) Consolidated [EBIT less investment income/Total revenue less investment

income]

EEQ [EBIT less investment income/Total revenue less investment income]

Profit Margin (%) Consolidated [NPAT/energy related revenue + CSOs+ DUOS +non‐energy gross margin]

Gearing Ratio (%) (incl. reserves) Consolidated [Debt/Debt + equity (including reserves) ]

Current Ratio (times) Consolidated [Current assets/Current liabilities] Quick Ratio Consolidated [Cash + debtors + financial assets/Current liabilities] Interest Cover (EBIT times) Consolidated [EBIT/Finance charges] Interest Cover (EBITDA times) Consolidated [EBITDA/Finance charges] Funds from Operations interest cover (times) Consolidated [Funds from Operations + interest expense paid/ interest

expense paid] Fixed Asset Turnover Consolidated [Sales + grid services revenue/Average PP&E] Capital Ratio Consolidated [Liabilities/Assets] Debt to RAB % Consolidated [Debt/Regulated Asset Base] Economic Profit Consolidated



ATTACHMENT 2: EMPLOYMENT AND INDUSTRIAL RELATIONS PLAN ERGON ENERGY CORPORATION LIMITED, EMPLOYMENT AND INDUSTRIAL RELATIONS PLAN Shareholder Information 1. Employment and Industrial Relations Philosophy and Direction

Ergon Energy’s vision for people is to continue to work towards building a high performance organisation to achieve Ergon Energy Strategic Business Plans and Objectives. For the period 2010‐2015 Ergon Energy introduced five strategic themes to provide direction and clarity about what needs to be done so that Ergon Energy can meet its long term strategic challenges and ensure a sustainable future. The key elements of this strategy are to be Customer Driven, a Leader in Safety, Leverage Climate Change Response, Asset Management Excellence and High Performing Organisation.

The People Strategy, which is a subset of the overall Ergon Energy strategy defines the ‘people’ elements critical to the delivery of organisational objectives. It also defines the resources, skills and culture required to execute the corporate strategy, including the competencies needed to support strategic priorities. Ergon Energy’s vision is to be a world class, customer driven energy business. This vision will be achieved by enhancing the economic and lifestyle aspirations of our customers through sustainable energy solutions. Our success in achieving our vision is underpinned by an organisation culture built on our values of Safety, Professionalism, Integrity, Respect, Innovation and Teamwork. Our desired culture will be visible when our values are an inherent element of how we do things within Ergon Energy, resulting in a high level of job pride and employees whom are committed to work with others to continually improve. Our desired culture will be achieved via Ergon Energy’s continuous focus on high performance and through the embedding of behavioural expectations into all performance agreements and reviews. Our strategic employee relations goal is to foster effective and productive working relationships with our internal and external stakeholders, including unions, thereby developing a workplace reputation that contributes to our customers, general public and which meets our social obligations. To support this vision there will a continuing focus to further improve operational efficiency to deliver against the Australian Energy Regulatory (AER) determination outcomes and meet customer regulatory standards and codes. The AER outcome will require a continuing focus on workforce productivity. This will require a change on a number of current work practices through meaningful engagement and consultation or negotiations with the relevant industry unions. 2. Significant and Emerging Issues From an employee and industrial relations perspective, Ergon Energy faces ongoing challenges in meeting its significant commitments to customers and shareholders within the constraints of the AER determination. Ensuring overheads are prudent and efficient while maintaining industry relevant employment conditions is an ongoing challenge for Ergon Energy. This issue will draw particular attention during the 2011 Certified Agreement negotiation round. Over the next two to three years, the previously anticipated negative impact from the Global Financial Crisis on employment markets appears to have been largely mitigated by an upturn in forecast economic growth in Queensland. This underlying forecast growth in the resources sector coupled with a material lift in planned major infrastructure rebuilding projects following the Queensland disasters from December 2010 through March 2011, is expected to create an employment environment over the next three years similar to the 2008 period when the last EUCA was negotiated. Strategically, to balance potentially higher employment market conditions with a need to control costs and hence underlying energy costs, Ergon Energy will continue to provide employment offerings based on a broad range of attributes rather than



attempt to take a high market position on wages alone. The balanced use of culture, flexibility, diversity, health and safety, employment security and other benefits of working within Ergon Energy will continue to be key to the employment and industrial relations approach during 2011 and beyond. Ergon Energy continues to enhance its strategic workforce planning capability to better enable it to respond to identified issues such as the ageing workforce, the requirement for new and flexible skill mixes and the need to improve overall workforce flexibility to adopt and benefit from new technology. Meeting changing customer and market demands will also continue to challenge the traditional resourcing model under which Ergon Energy and the industry currently operates. Increasing our commitment to trainee and apprentice numbers will address some of the medium to longer term impacts from the anticipated economic upswing combined with a higher number of employee retirements, however training and logistical constraints in increasing these numbers above current planned levels are a barrier. Ergon Energy also has established policy and guidelines for attraction and retention of technical and engineering skilled roles across the business which have proven successful in managing previous high demand situations for specialist skills. These policies will be continually reviewed and where deemed necessary modified to align with contemporary skills attraction and retention practices. Within this environment, Ergon Energy will be negotiating with the industry unions for a replacement Enterprise Agreement during 2011. The current agreement expires on 22 September 2011 with negotiations scheduled to begin in May/June 2011. Given the political background, and the projected skills shortage and potential resultant claims for wage increases that may emerge, this year’s negotiation has the potential to be protracted and complex. Ergon Energy will approach its negotiation with positive commercial, shareholder and customer outcomes in mind and will seek to conclude the negotiation as expeditiously as possible under the circumstances. Ergon Energy is also obligated to negotiate within the parameters of GOC Wages Policy. Ergon Energy is subject to the Fair Work Act 2009. The Act has not caused any significant impact to or departure from existing employment conditions and entitlements that already exist by way of employment policy or within the Ergon Energy Union Collective Agreement 2008 (EEUCA 2008) and Power Industry Award 2010 sector, effective from 1 January 2010. However, this may well change during the planned agreement negotiations as there is expected flow on from the new Modern Award provisions that currently exceed EEUCA payments. The nominal expiry date of the Agreement is 22 September 2011.



3. Directors/Senior Executive Remuneration Ergon Energy Corporation Limited (EECL): Non‐Executive Director Fees

Board Member Director Fees

Committee Fees Superannuation Other Total

Annual Fees

Ralph Craven* 74,999 16,664 8,250 0 99,913

John Bird 29,166 15,278 4,000 0 48,444

Anthony Mooney 29,166 0 2,625 0 31,791

Wayne Myers 29,166 13,888 3,875 0 46,929

Susan Forrester 29,166 8,332 3,375 0 40,873

Helen Stanton 29,166 9,722 3,500 0 42,388

Gary Humphrys 29,166 8,332 3,375 0 40,873 Notes: 1. Fees noted above are current as at January 2011and assume no changes to Directors’ appointments and Committee

memberships during the 10/11 year. 2. Director’s Fees are set at the time of appointment with provision for review according to movements in the Consumer

Price Index. 3. Specific fees are payable for being a member of a Committee, with a higher fee payable for being a Committee

Chairman. 4. The actual superannuation total contribution will need to be confirmed based on contributions during 10/11. 5. Amounts do not include potential reimbursement for costs associated with telecommunication and other incidental

expenses. 6. * Denotes Chairman of Ergon Energy Board



Ergon Energy Corporation Limited (EECL): Senior Executive Remuneration as at 1 January 2011

CEO / Senior Executives Base Salary

Employer Superannuation Contributions

Motor Vehicle

Car Park

Other personal benefits

Total Fixed

Remuneration

Other non‐

personal benefits

Ian McLeod Chief Executive 663,467 15,199 0 0 0 678,666 0

Vacant * Executive General Manager Energy Sustainability & Market Development

0 0 0 0

Peter Billing Executive General Manager Operations

340,252 15,199 0 0 0 355,451 0

Justin Fitzgerald Executive General Manager Customer & Stakeholder Engagement

253,849 25,385 0 0 0 279,234 0

Mal Leech Executive General Manager Employee & Shared Services

296,436 26,690 0 0 0 323,126 0

John Hooper Chief Financial Officer 331,301 15,199 0 0 0 346,500 0

Graeme Finlayson General Counsel/Company Secretary

290,224 15,199 0 0 0 305,423 0

Roslyn Baker Executive General Manager Customer Service

257,801 15,199 0 0 0 273,000 0

Neil Lowry Executive General Manager Asset Management

289,423 28,943 0 0 0 318,366 0

Notes: • Jim Chisholm resigned effective 12 November 2010 and the recruitment process is currently underway.

NOTE: In the SCI as agreed with shareholding Ministers, the final column of the table below was accidentally omitted. As it should have been included, it is presented here for completeness.



ERGON ENERGY EMPLOYMENT AND INDUSTRIAL RELATIONS PLAN Except for any construction work where compliance with existing Federal National Construction Code and Guidelines is required, the following will be applied: 4. Employment Conditions Ergon Energy will continue to meet its obligations and commitments to implementing employment and industrial relations arrangements consistent with the guidelines provided by the Queensland Government, and the Federal Governments Fair Work Act 2009. Ergon Energy employees are employed under the following industrial instrument and identified arrangements as applicable: The EEUCA 2008 incorporates applicable terms of the former Electricity, Generation, Transmission and Supply Award ‐

State 2002 and Family Leave Award – State 2003 (No. AR10 of 2003); This is the only industrial instrument that is applicable to Ergon Energy Award/Agreement covered employees and has an expiry date of 22 September 2011;

Individual Employment Arrangements (IEA’s) operating within relevant EEUCA 2008 parameters; and Total Employment Cost (TEC) or Total Fixed Remuneration (TFR) contracts for outside the application of the EEUCA 2008. As at January 2011 there were 74 employees on IEA’s (agreement covered), 101 on TEC or TFR contracts and 4493 covered by the EEUCA 2008. Through the EEUCA 2008, Ergon Energy offers to specific classifications of employees the option of 10 Day Fortnight (40 Hour Week) working arrangements with an applicable loading over base salary of 13 percent, 15 percent or 20 percent subject to the level of additional overtime hours agreed to be worked over and above the base 36.25 hour week. Such arrangements are offered on a mutually agreed basis where there is a confirmed business need. Under the EEUCA 2008, the hours of work arrangements and work patterns for employees with coverage under the EEUCA consist of a standard 36.25 hours per week (Monday to Friday) over a nine day fortnight and over a daily spread of hours for ordinary day working employees from 6.00am to 6.30pm, Monday to Friday. Under the IEA, a 10 Day Fortnight 40 Hour week is offered to applicants for roles identified as business critical from an attraction and retention perspective within the scope of the EEUCA 2008. These arrangements can be advertised and applied as a condition of employment for classifications above Salary Point 11.0 of the EEUCA 2008 Classification Framework. The arrangements have a list of entitlement exemptions within the scope of the EEUCA 2008 that are offset by a range of other benefit options available at the discretion of Ergon Energy. TEC/TFR employees operate under common law employment contracts (i.e. a 10‐day fortnight with no loading entitlements). These employees may also have an ‘at risk’ component of up to 15 per cent of TEC/TFR attached to their salary package. The attached Schedule of Minimum Employment, Industrial Relations and Job Security Principles for Employees – September 2010 (the Schedule of Minimum Standards and Entitlements) forms part of this Plan. Ergon Energy will also adhere to the requirements of government policy in Guidance for Chief Executive Officers ‐ Agreement Making and Industrial Relations in Government Owned Corporations – February 2010 (the Guidance for Chief Executive Officers), as per the Guidelines for the Development of Employment and Industrial Relations Plans in GOCs (the Guidelines), subject to any applicable enterprise agreement provisions. The primary mechanism for determining wage increases for the majority of Ergon Energy's employees is through the enterprise bargaining process. Ergon Energy is required to follow the GOC Wages Policy which specifically details the parameters of future wage increases. Wage increases in the current Certified Agreement are set until September 2011. Salary increases for TEC/TFR employees are set each year by the Ergon Energy Board and considers factors such as market data, shareholder expectations and individual performance, etc. Where there are differences between the conditions contained in the Corporation’s industrial instrument (as at January 2011) and those contained in either the Schedule of Minimum Standards and Entitlements or the Guidance for Chief



Executive Officers, the relevant provisions from the Corporation’s industrial instruments or policies will prevail. If gaps are identified, Ergon Energy will ensure an equivalent or more beneficial outcome will apply to impacted employees. 5. Enterprise Bargaining and Productivity Initiatives Enterprise Bargaining Through consultation with our stakeholders, the enterprise bargaining process is the process adopted to develop employment conditions for Agreement covered employees. The EEUCA 2008 was negotiated with the combined industry unions and implemented on 22 September 2008 for a period of three years. The EEUCA 2008 applies to employees of Ergon Energy, except those employees paid a salary for the purposes of superannuation which exceeds 115 percent of salary point 16.5. The EEUCA 2008 meets the Government’s policy requirements and conforms to the Guidance for Chief Executive Officers – Agreement Making and Industrial Relations in Government Owned Corporations (February 2010). The nominal expiry date of the EEUCA 2008 is 22 September 2011 and it shall remain in force until either terminated by the parties or replaced by a new agreement. Given the pending expiration of the EEUCA 2008 Ergon Energy is currently in the process of finalising the Cabinet Budget Review Submission. This submission details the proposed negotiation framework and associated productivity initiatives for inclusion in the next enterprise bargaining agreement. It is Ergon Energy’s preferred outcome that a replacement agreement be negotiated prior to the expiration of the current EEUCA 2008. Failing this, the terms and conditions of the EEUCA 2008 will continue to apply until such time that either a replacement agreement is finalised or a formal termination of the existing agreement occurs. Agreement Productivity Initiatives The EEUCA 2008 provided for productivity and efficiency outcomes over the life of the Agreement as follows: 1. Implementation of agreed single person tasks listed in EEUCA 2008 involving technical stream employees (See attached

table for status). 2. Broad based contribution of all employee classifications covered by the EEUCA 2008 in delivering the efficiency benefits

in Ergon Energy’s Strategic and Business Plans. 3. Implementation of Contractor High Voltage Switching on Single Wire Earth Return systems in rural and remote locations

(See attached table for status). 4. A review of the job classification structure to ensure relevance to existing work functions and requirements. This was a

non‐binding obligation to review the documentation in conjunction with the signatory unions, still expected to be outworked over 2010 and any agreed changes incorporated into a replacement Union Collective Agreement in 2011.

5. Implementation, where operationally suitable, of a customer dispatch and work scheduling system (Field Force Automation) into Ergon Energy vehicles to improve field resources utilisation. The current strategy is to trial the technology in Ergon from July 2012, followed by complete roll‐out across the relevant work groups. This is the only initiative that was not completed as a result of delays encountered during the Energex trials and therefore not implemented operationally within Ergon, this may require aspects of any roll out to be renegotiated in any replacement agreement.



The following table provides the status of the specific single person task productivity initiatives as per item 1.and 3. above.

Productivity Program Source of

Productivity Initiative

Target Achievement to Date

Single Person Tasks

Disconnects and reconnects where there is no exposure to live parts EEUCA Field Deployment

From March 2010 Implemented

Asset inspection EEUCA March 2009 Implemented

Layout investigations EEUCA Field Deployment March 2009 Implemented

Work that does not require the employee to work above 1.8 metres and/or is not associated with live electrical work

EEUCA Field Deployment March 2010 Implemented

Low Voltage isolation/connections utilising a telescopic link stick from the ground EEUCA Field Deployment

From March 2010 Implemented

Polarity – ground based EEUCA Field Deployment 4th

Qtr 2009 Implemented

Low Voltage testing in accordance with the Electrical Safety Act 2002 EEUCA Field Deployment

March 2010 Implemented

Meter changes where the supply has been isolated EEUCA Field Deployment


Changing plug in meters where the meter base has been pre‐wired EEUCA Field Deployment


External Service Providers

High Voltage Switching and Isolation of all Single Wire Earth Return (SWER) transformers for the sole purpose of the repair, maintenance and replacement of the SWER earthing grid

EEUCA 4th Qtr 2009 Implemented

Act as Switching Operator Assistants (SOA’s) for all High Voltage access and isolation procedures as required

EEUCA 4th Qtr 2009 Implemented



6. Employee Flexibility The implementation of flexible work practices and arrangements is managed through Ergon Energy policy or consultative processes and provisions established within the EEUCA 2008. Work practices are tailored wherever possible to enable employee flexibility and adherence to Government guidelines. A summary of current flexible work practices is below: Part‐time Arrangements Yes

Flexible Work Hours Yes ‐ this includes a nine day fortnight, Rostered Day Off (RDO) and Time off in Lieu (TOIL).

Reduced Working Year Yes ‐ employees may purchase up to four weeks additional leave per year with salary payment averaged over the whole year.

Paid Maternity/ Adoption/ Paternity Leave

Yes ‐ paid Maternity and Adoption Leave ex‐gratia payment of 14 weeks and paid Paternity Leave of one week for employees with at least 12 months continuous service. Employees can request an additional 12 months unpaid maternity leave.

Telecommuting (work from home)

Yes ‐ a Working From Home Policy is in place.

List any Other Policies/Practices - Job Share ‐ a full time position shared by two employees to enable a balance between work and home.

- Transition to Retirement ‐ an employment option for employees nearing retirement by reducing their working hours to extend their working life, to mentor and utilise their experience for business benefit and prepare for full time retirement at the same time.

- Cultural Diversity Leave ‐ leave provided over and above other leave options for relevant employees to attend special events aligned to their cultural or ethnic back ground.

- Leave without pay for up to 12 months ‐ an enhanced leave option for employees to access a sabbatical work break or seek other work experiences beneficial either to the employee or Ergon Energy.



7. Type of Employment and Workforce Planning (the following tables reflect preliminary workforce planning and should not be read as firm commitments to employment numbers. Changes will occur in these forecasts as customer demand, the economic environment and other external factors are taken into consideration and more detailed, cyclical planning occurs. The provision of the Ergon Energy Certified Agreement underpins the way in which Ergon Energy responds to any such external pressures on resource planning.)

Employment Category: 01 Jan 2011 June 2011 June 2012 June 2013 June 2014

Permanent Full Time 1 4028 4066 4075 4100 4145

Permanent Part‐time 140 139 140 141 142

Other Contract 2 100 101 101 101 101

Senior Executive Contract 3 9 9 9 9 9

Apprentices (In House) 4 194 211 234 251 255

Trainees (In House) 5 63 63 85 97 104

Casual Employees 6 60 60 60 60 60

Total Directly Employed Workforce: 4594 4649 4704 4759 4816

Apprentices (Group) 0 0 0 0 0

Trainees (Group) 0 0 0 0 0

Contractor Employees (Trade/Technical) 7 716 750 775 800 825

Contractor Employees (Prof/Admin/Clerical) 8 45 42 39 39 39

Labour Hire (Trade/Technical) 9 38 38 38 38 38

Labour Hire (Prof/Admin/Clerical) 10 213 172 168 166 164

s457 Temporary Visa (excluded from total) 11 4 3 3 3 3

Number of employees engaged on AWAs with contractors 0 0 0 0 0

Total Workforce: 5606 5651 5724 5802 5882

Notes: • All figures are total directly employee numbers, not FTE. • Information correct as at 31 December 2010

Ergon Energy employs all apprentices directly and where possible offers graduating apprentices permanent appointments, subject to availability of vacant positions. Where permanent appointments are not possible, a fixed term appointment of 12 months may be offered, which allows additional time for the apprentice concerned to secure a permanent position. In addition if the graduating apprentice agrees to two year rotation in an identified rural or

1 Permanent Full Time includes Permanent Full Time employees and Sponsored Apprentices (55 Sponsored Apprentices included in this figure). The projection of FTEs over the years 2012 through to 2014 is based on current funded network work programs and budgeted establishment and is subject to variation based on prevailing economic conditions within regional Queensland. 2 Other Contract employees include Fixed Term Full Time, Fixed Term Part Time and Vacation Students. 3 Senior Executive Contract employees include the Chief Executive and the Executive Leadership Team. 4 Apprentices (In House) include all other apprentices (classified as Internal New at Ergon). 5 Trainees (In House) include all trainees under the scope of the Technical Trainee Program (including an additional three Business Admin Trainees. 6 Casual employees include all employees who work at Ergon on a casual basis, mainly as Power Station Attendants. 7 Contractor (Trade/Technical) employees include all core tendered contractors provided by the Works and Contract Management Group, three field classified Professional Services Contractors and one field classified Consultant. 8 Contractor (Professional/Administrative/Clerical) employees include Professional Services Contractors, Project Resources and Consultants with an office based classification. 9 Labour Hire (Trade/Technical) includes external Labour Hire Full Time and Part Time resources with a field classification. 10 Labour Hire (Professional/Administrative/Clerical) includes external Labour Hire Full Time and Part Time resources with an office classification. 11 S457 Temporary Visa employees are already counted in one of the categories that make up the Total Directly Employed Workforce total and are on temporary visa while their permanent residency visas are being processed.



isolated region, the corporation will engage the apprentice on a permanent basis with placement back to a dept/region on a mutually agreed basis. Ergon Energy notes the Government’s 2009 election commitment to maintain 5,000 public sector apprenticeships and trainee positions over four years to April 2013 across the Queensland public sector agencies, GOCs, government departments and statutory authorities. Ergon Energy’s workforce planning and employment policies are underpinned by a clear recognition of the need for a skilled and viable workforce which takes into account the need for on‐going renewal and appropriate training to ensure there is sufficient capacity within the organisation to replace retiring or departing employees. Apprentices and trainees are an important part of this forward planning and Ergon Energy therefore supports the Government's commitment. Ergon Energy will continue to make available apprenticeship and trainee opportunities consistent with its workforce planning, training programs and business needs. 457 Visa numbers are expected to remain unchanged during 2011 but maybe subject to any upswing in economic activity and operational demand for critical technical or engineering skill sets, that cannot be engaged through normal recruitment sources within Australia. Workforce Planning capability has been implemented into the business with a rolling forward detailed five year plan backed by longer high level forecasts. The current Workforce Plan is primarily based on projected work demand and age demographics over a ten year period. Significant focus has been placed on securing a future pool of suitably skilled employees (apprentices/trainees) through normal recruitment and selection procedures in the external market as required. Notably, natural attrition is still greater than the planned demand and this should provide flexibility to manage any position reductions through natural attrition in the first instance and ensure that the commitments made in this document to job security are met. There is no immediate strategy to reduce the current establishment levels during the course of the current plan.

8. Workplace Health & Safety The Ergon Energy Safety Management Plan provides the framework for Ergon Energy to consolidate and improve upon its overall safety performance through a single coordinated three year rolling plan. As outlined in the table below, while Ergon Energy’s safety goal during 2009 was Be Safe, the 2015 future state vision is to be a Leader in Safety.



Horizon Time Outcome Focus

1 2011 Be Safe • Believe, own and reflect “Be Safe” in the way we behave.

• Ensure our approach encompasses all aspects of safety, using consistent messages, from our operational approach through to behavioural change, teamwork and leadership.

• Continue investment in community education, awareness and ownership of electrical safety.

• Continue to monitor our performance primarily against the number of Dangerous Electrical Events (DEEs) and the All Injuries Frequency Rate (AIFR).

2 2015 Leader in Safety • Continue to focus heavily on safety.

• Achieve a degree of safety performance which will attract recognition as an industry leader in safety practice and management, both for our people and for the people in the communities in which we operate.

3 2020 World’s Best Safety Practices

• Embed the world’s best safety practices in the business.

• Reinforce safety messaging with practical and achievable goals.

• Monitor and improve safe work practices to lead the industry in safety performance.

• Achieve World Class performance

Ergon Energy will realise this future when the following is evidenced:

We target zero injuries and are the safest utility in Australia. We are experts in the safety area, and believe that we can continue to achieve zero injuries. Employees are empowered and accountable for safety as part of the way they work. Our safety culture does not

accept unsafe behaviours. Our distribution network is built and maintained in a manner that assists our customers to interact safely with

electricity. The Hazard Analysis and Operability (HAZOP) framework is incorporated into our processes and analysis of our network; and

We work with ‘high‐risk’ community groups to reduce the likelihood of injuries from our assets.

As part of an Organisation Design Review (ODR) in 2009 all of Ergon Energy’s safety resources were combined into a single group. This restructure will assist with ensuring there is an uncompromising stance and priority for safety within Ergon Energy and will allow more consistent provision of safety services. During 2010 the Health and Safety Group will also undertake a services review to ensure the organisational structure and governance is positioned to further improve the health and safety services provided to Ergon Energy.

During 2010 the Ergon Energy Safety Management Plan will be further reviewed and updated to detail the initiatives and actions for Horizon Two. The revision will also consider the organisational impacts from ODR.

Policy and Commitment

Ergon Energy’s Workplace Health and Safety Policy commits the Corporation to: • Continually reinforcing that working safely is a mandatory condition of employment for all employees and

contractors. • Implement a Health and Safety Management System (HSMS) that not only meets all statutory and industry

health and safety requirements, but also aims to achieve Best Practice. • Ensure all levels of management demonstrate commitment to, and are accountable for, community and

workplace health and safety.



• Continue to deliver comprehensive safety leadership programs. • Integrate community and workplace health and safety requirements into all relevant business processes and

decisions. • Consult and involve employees in the development and implementation of workplace health and safety

programs that strive for continuous improvement towards zero injuries. • Develop and implement procedures and work practices that manage exposure to workplace hazards and risks

to as low as reasonably practicable. • Ensure all employees and contractors have the information, training and equipment required to competently

and safely perform their work. • Manage the rehabilitation of injured/ill employees. • Recognise, reward and promote employees who demonstrate positive safety behaviours and take personal

responsibility for their safety and those around them. • Ensure adequate resources are assigned to fulfil the aims of this policy; and • Monitor and report compliance with statutory, industry and corporate health and safety requirements. Ergon Energy will continue to appoint a qualified person as workplace health and safety officer in its workplace(s) where 30 or more workers are normally employed at the workplace. Initiatives Health and Safety During 2009 Ergon Energy committed to reviewing and integrating its health and safety management system with its environmental management system. The Integrated Management System (IMS) was completed in December 2010. The IMS now provides a framework for Ergon Energy to continuously improve its health, safety and environment program, thus improving its overall performance. The IMS will incorporate improved quality elements which will enable enhanced governance structures and improved business reaction times to not only manage immediate risk, but combat emerging risk trends. Ergon Energy is progressing with the three horizons strategy set by the business in 2008 and updated during 2010. During 2010 a Five Point Plan was implemented as a foundation to continually improve the health and safety performance into Horizon Two. The key actions from the plan are detailed below: • Action 1: Upgrade Safety Leadership Capability Development. • Action 2: Improve eSafe Data Capture and Analysis. • Action 3: Implement the Next Evolution of Behavioural Safety. • Action 4: Refocus the Process and Communications Functions to Better Support Safety; and • Action 5: Implement a Drugs and Alcohol Policy and Testing Regime. Several of the foundation initiatives for the Leader in Safety objective are also well advanced including the enhancements to Ergon Energy’s SPIRIT Values. The values were relaunched in 2010 to include Safety as the first Value. Ergon Energy’s Drug & Alcohol Policy and associated business rules have been deployed. Following the deployment of self test drugs and alcohol kits post incident testing is now in place for Class One and Class Two incidents. An education program was commenced in 2010 prior to random testing commencing on 1 June 2010. Safety Risk Management Ergon Energy through its Health and Safety Management System has a comprehensive risk management methodology. Recent Legislative changes by the Electrical Safety Office (commencement of the Electrical Safety Code of Practice 2010 – Risk Management) have reinforced that the risk management process is the key to systematically managing safety in the workplace. Ergon Energy recognises the importance of risk management and has committed to reviewing and revising the risk governance structure to improve its effectiveness in 2011.



External Audit Performance The Ergon Energy approach to health and safety ensures that the organisation meets all current statutory and industry health and safety requirements and is prepared to meet and manage future statutory requirements. Over the past year Ergon Energy has continued to be accredited against AS/NZS 4801, the Australian Standard for Health and Safety Management Systems and was successfully re‐accredited against AS/NZS 14001 for Environmental Management Systems. In October 2009 Ergon Energy successfully achieved external accreditation to the internationally recognised standard OHSAS 18001:2007 Occupational Health and Safety Management Systems – Requirements. During 2009 Ergon Energy changed its external certification body as a strategy to bring in fresh perspective to further assist Ergon Energy to improve it Safety Management System. Ergon Energy was externally independently audited in: • Surveillance audit to AS/NZS 4801 and AS/NZS 14001 in April 2010. This audit resulted in one major non‐

conformance and eight minor non‐conformances which were immediately actioned with subsequent audits confirming compliance; and

• Surveillance audit of AS/NZS 4801, AS/NZS 14001 and OHSAS 18001 in October 2010. This audit resulted one major and two minor non‐conformances. The major was closed out in December 2010 and detailed action plans have been developed and agreed to by the external auditors. Ergon Energy is presently working on these initiatives which will be assessed at the next surveillance audit in 2011.

A Surveillance audit of AS/NZS 4801, AS/NZS 14001 and OHSAS 18001 is planned for April and October 2011. Plans are in place to facilitate these already. Health and Safety Performance Under our whole‐of‐business Health and Safety Strategy, our safety performance continues to be monitored. Ergon Energy’s Lost Time Injury Frequency Rate (LTIFR) has unfortunately deteriorated from 3.91 in December 2008 to 4.79 in December 2009. All Injury Frequency Rate also has deteriorated from 10.15 in December 2008 to 13.16 in December 2009. Ergon Energy is investigating the utilisation of more leading indicators in the health and safety area, again in line with a maturing health and safety environment. The foundation of the current Five Point Safety Plan coupled with an updated five year Safety Management Plan will ensure that Ergon Energy meets its Horizon Two objective of targeting zero injuries and position itself as a leader as the safest utility in Australia.

9. Equal Employment Opportunity and Anti‐Discrimination

Ergon Energy’s diversity goals are: • A commitment to attract and recruit a workforce that is representative of Queensland’s overall

population/Ergon Energy’s customer base through increasing the diversity of the applicant pool and creating a recruitment strategy that is attractive to more applicants from under represented groups;

• A commitment to retain a workforce which is representative of Queensland’s overall population and Ergon Energy’s customer base by creating an inclusive culture which supports staff and includes flexible work choices;

• To address strategic workforce predictions with practical intergenerational and career transition initiatives that mitigates identified risk and potential gaps in staffing; and

• A commitment to work with community and business, building a workplace reputation that provides a strong positive public perception through the diversity program.

Ergon Energy has existing diversity and anti‐discrimination policies in place. Diversity training is provided to all new employees at induction and existing employees are required to complete refresher training every two years. Employees are trained regarding equity in recruitment through attendance at the ‘Recruiting and Selecting Employees’ training program.



Ergon Energy ensures the principles of merit and equity are upheld in its processes associated with recruitment, selection and promotion of employees. Ergon Energy is required to submit its Equal Employment Opportunity plan to the Public Service Commission.

10. Interstate Acquisitions/Operations

There are no interstate acquisitions or operations to report.

11. Joint Ventures

SPARQ Solutions is a subsidiary company which provides information technology services to both Ergon Energy and ENERGEX (SPARQ Solutions provides a separate E&IR Plan). Ergon Energy continues to support and work through a range of initiatives identified in collaboration with Energex as a part of the respective corporations Joint Working Project. The union’s signatory to the EEUCA 2008 will continue to be consulted on progress and or any identified employee impacts to ensure any concerns that may arise are satisfactorily addressed.

12. Management of the Relationship between GOCs and Unions

Ergon Energy continues its commitment to developing and maintaining harmonious industrial relations with key industry unions, consistent with government policy and EEUCA 2008 provisions. A comprehensive arrangement of consultative forums has been established across the business involving the unions to ensure ongoing and effective communication and consultation. The consultative forums are the main source of discussion between the parties including input into specific strategic initiatives and policy. Matters of dispute are resolved through workplace level negotiation or through the use of the Dispute Settling provisions in the EEUCA 2008. Ergon Energy recognises that the industry unions are key stakeholders and represent the interests of employees. While the consultative arrangements provide a more structured forum to raise and progress change and other issues, there is frequent engagement with key union officials and workplace delegates with all levels of Ergon Energy management on a day to day basis. This relationship, while robust at times due to its nature, has continued to deliver mutually beneficial outcomes. The next round of enterprise agreement negotiations is not expected to prove any more or less challenging than previous negotiations.

13. Redundancy Provisions

Notwithstanding the commitment to no forced redundancy, the redundancy provisions contained in Schedule 3 of the EEUCA 2008 are as follows: • Employees and their unions are to be given at least six months notice before a position is identified as being

redundant. • An employee can apply for a Voluntary Redundancy, but approval is at Ergon Energy’s discretion; • Where a position has been declared redundant, suitable alternative redeployment opportunities will be explored

and a dedicated career support service is available when required. • Redundancy/Retrenchment will not be offered or occur without prior consultation with the Department of

Justice and Attorney‐General and unions. • Among other benefits, an employee who is retrenched is entitled to receive a retrenchment payment of three

weeks per year of service, with a maximum payment of 75 weeks or where applicable, paid in accordance with the NES Redundancy Provisions whichever is the greater.



• Payment for recreation leave includes an employee’s accumulated balance as well as the pro‐rata balance. Pro‐rata recreation leave is paid to the date of termination.

• A long service leave payment of 1.3 weeks for each completed year of service will be made. Pro‐rata Long Service Leave (LSL) will be paid for an incomplete year of service up to the date of termination; and

• All balances of accrued Time Off In Lieu will be paid out. These will be paid at the ordinary rate applicable at the date of termination.

14. Job Security

Ergon Energy is committed to Clause 1.10 of the current EEUCA 2008 and Minimum Employment, Industrial Relations and Job Security Principles for GOC Employees which collectively state that there will be no forced redundancies for the life of the Agreement unless formally approved by the Shareholding Ministers. This is dependent on employees accepting reasonable retraining and redeployment to suitable alternative employment within their current locality.

15. Contracting Out

Ergon Energy is committed to orderly and sustainable practice in relation to the use of contractors, the use of labour hire arrangements and the employment of skilled overseas staff to cover labour shortages through employer sponsored Temporary Long Stay Subclass 457 Visas, though this latter option has limited application (except for highly specialised and business‐critical roles unattainable in Australia) in the foreseeable future. Where Ergon Energy engages labour hire employees under 457 Visa arrangements, such arrangements will be in accordance with prevailing legislation. Ergon Energy will continue with the approach that all contractors will be engaged through a competitive tender process that will require all contractors to demonstrate their ability to meet and comply with legislative and regulatory requirements that apply to the Queensland Electrical Industry. Such compliance will focus on ensuring that the contractor's operating policies and procedures in respect of Workplace Health and Safety plans, Industrial Relations, Work Practices and Risk Management Plans are aligned with the policies and procedures that apply to Ergon Energy and our employees where appropriate and lawful. Through these arrangements, Ergon Energy ensures that any contractors or external resources engaged in electrical work on our assets are appropriately licensed to perform the work and meet Ergon Energy’s safety obligations. Ergon Energy will, as a part of our Contractor Management System, undertake regular compliance audits (including joint Ergon Energy/union safety audits) to ensure that all contractors are operating within these documented parameters and that risks are being adequately managed professionally and in a timely manner to eliminate or minimise liability. Ergon Energy will ensure that the relevant industry unions are consulted prior to the outsourcing of any significant work functions, that contract labour is utilised within the scope of the applicable industrial framework and that the risk of industrial disputation is minimised. Ergon Energy and the relevant industry unions recognise that circumstances may arise where the use of contractors is either desirable or essential. These circumstances are seen to be within the following guidelines: • The work volume is beyond the capacity of the resources or staff of Ergon Energy; • It is in the public interest to undertake such work. Public interest includes issues of cost effectiveness; • The type of work or specialisation required is beyond the capacity of the resources or staff of Ergon Energy; and • The security and tenure of employment of additional staff required to meet work peaks cannot be guaranteed. Ergon Energy sponsors a small number of international employees on 457 visas with the intent to convert them to Permanent Residency status as soon as possible. This approach ensures their skill sets and the training invested in them remains within the organisation and regional Queensland. In addition, the majority of these international recruits are employed in supervisory/management and/or mentoring positions, with the requirement that they train/mentor others within the organisation, so that these skills will be developed locally.



Ergon Energy employs international employees under the same terms and conditions as other employees covered by the EEUCA 2008.

16. Superannuation

All Ergon Energy employees who are employed under the EEUCA 2008 must be members of the Electricity Supply Industry (ESI) Superannuation Fund. Choice of super fund is only available to employees who are employed on common law contractual terms. There are employees in both the Defined Benefit and the Defined Contribution parts of the ESI Super Fund. The ESI Defined Benefits section is closed to new employees of Ergon Energy (ie all new employees join the ESI Defined Contribution part of the Fund). Defined Benefit members contribute five per cent to the fund and Ergon Energy contributes at the rate as recommended by the ESI Super Fund actuary. From 1 July 2009 the employer Defined Benefit rate increased to 29 percent for the next four years ending 30 June 2013. The fund actuary recommended the 29 percent employer rate as the contribution required to return the sub plan (Ergon Energy) assets to a satisfactory financial position by 30 June 2013. The expected Vested Benefits Index is projected to be 102 percent by 30 June 2013. In addition, a lump sum payment of $8.9 million was paid in June 2009 to top up the Defined Benefit assets as a result of the shortfall created by a higher crediting rate in the Smoothed Investment Fund option. Defined Contribution members receive either the statutory contribution of nine percent from Ergon Energy or, should they decide to contribute five percent to the fund themselves, then Ergon Energy will contribute 10 percent. As at 14 January 2011, Ergon Energy has the following numbers in each of the funds:

• Defined Contribution – 3,250 employees; and • Defined Benefit – 1,346 employees

Casual employees receive the statutory Government contribution of nine per cent of their ordinary times earnings. Ergon Energy also contributes to the following superannuation companies on behalf of a further 17 employees:

• ING Group • MLC • Superwrap • BT Financial Group • Colonial First State • Westpac Financial Services • QSuper • Woden Super Fund • Telstra Super Scheme • AMP; and • Sunsuper

17. Consultation

Ergon Energy will undertake consultation on various aspects of this plan with the Department of Employment, Economic Development and Innovation, the Office of Government Owned Corporations (OGOC), the Department of the Premier and Cabinet and the Department of Justice and Attorney General. Consultation on this E&IR Plan will also occur at Ergon Energy’s consultative committee where unions are represented and issues raised will be recorded and where appropriate incorporated into the plan or relevant policy, procedure as applicable to the circumstances.



18. Reporting Ergon Energy will provide a brief report on performance against the Plan to OGOC highlighting any significant divergences from the Plan and the background for these variances.



SPARQ SOLUTIONS EMPLOYMENT AND INDUSTRIAL RELATIONS PLAN Shareholder Information

1. E&IR Philosophy/Direction SPARQ Solutions is a client focussed, cost‐effective Information and Communications Technology (ICT) shared service provider to ENERGEX Limited (ENERGEX) and Ergon Energy Corporation Limited (Ergon Energy). SPARQ Solutions works as an integral part of both Ergon Energy and ENERGEX to achieve their business goals by developing, implementing and operating ICT solutions to enable business capability and growth. SPARQ Solutions purpose is to provide value to ENERGEX, Ergon Energy and their customers, through the provision of solutions and services for the Electricity Industry. Jointly owned by ENERGEX and Ergon Energy, the company was established in July 2004 through the amalgamation of the ICT Services of its shareholders. While not a subsidiary in Corporations Law terms due to the joint ownership structure, SPARQ Solutions was declared a subsidiary of ENERGEX and Ergon Energy for the purposes of the Government Owned Corporations Act 1993 by Regulation in March 2006. As SPARQ Solutions is a subsidiary of Ergon Energy and ENERGEX, the SPARQ Solutions Employment and Industrial Relations Plan (E&IR Plan) forms part of the E&IR Plans of its shareholders. However, as a separate legal entity with its own operational requirements and business drivers, the SPARQ Solutions E&IR Plan stands in its own right, and to the extent of any inconsistency between its E&IR Plan and the E&IR Plans of its shareholders, the SPARQ Solutions E&IR Plan will prevail. SPARQ Solutions people vision is to focus on the long term goal of creating a nationally recognised constructive culture based on the core values of Professionalism, Teamwork and Improvement. The development of a constructive culture is a fundamental enabler of SPARQ Solutions achieving its corporate vision of being the leading provider of shared solutions to our clients and supports our ability to attract, retain and develop existing and new employees and position the organisation as an “employer of choice”. Ergon Energy provides employment and industrial relations services to SPARQ Solutions under a corporate services arrangement, while ENERGEX, through its shareholding and close association with the company, is a key stakeholder in employment and industrial relations matters. However, SPARQ Solutions has its own enterprise bargaining agreement covering its award based employees.

The salient characteristics which define SPARQ Solutions desired culture and “employer of choice” vision are:

• Leaders will implement employment polices and practices within approved guidelines, and will apply contemporary leadership skills to engage employees for commitment, personal fulfilment and achievement in the workplace.

• SPARQ Solutions will be characterised by high performance through the ongoing development of an achievement

focussed culture, whilst being open to creativity through fostering improvement, flexibility and adaptability. Through this, SPARQ Solutions will deliver client expectations and build employee engagement. SPARQ Solutions will be a “learning organisation” where individuals will be actively encouraged and supported in achieving professional growth and improving the way they work.

• SPARQ Solutions will be a leading employer in the Queensland ICT industry and provide employees with the

opportunities associated with working in a respected client‐focused and achievement‐oriented company. • SPARQ Solutions will continue its commitment to maintaining an appropriate industrial framework which facilitates

productivity improvements, increases staff engagement and flexibility whilst maintaining industrial harmony.

• Employees will enjoy working for SPARQ Solutions and promote the company as a great place to work, where they can appropriately balance their lives and fulfil both work and personal goals. This will be evidenced by employees representing SPARQ Solutions in the community, which will help to establish the company as a responsible and committed corporate citizen.



• Diversity amongst employees will be seen as an area of strength and will be characterised by high levels of employee

engagement.

• SPARQ Solutions will have a direct relationship with its employees, supported by a balanced relationship with third party representatives. The right of employees to affiliate with Unions will continue to be recognised and relationships with relevant Unions will be productive and encompass working together to achieve shared goals to the benefit of both employees and the company.

• There will be a genuinely effective relationship between employees and their managers. This will be evidenced

through employees being fully engaged, exhibiting high levels of loyalty towards the company and enjoying a sense of community, caring and trust. Strong leadership will be evident through the promotion of a shared vision, collaboration and commitment to people.

• SPARQ Solutions will achieve its target of zero injuries and be a place where health, safety and the environment are

seen as integral to the way it does business and to the way employees live their lives. It will create an environment where people take personal responsibility for their own health and safety and that of their workmates, and for the environment.

• In order to support the achievement of the Philosophy and Direction as outlined above, the focus of SPARQ

Solutions Employment and Industrial Relations direction and goals for 20011/12 are:

• The successful negotiation and implementation of the replacement agreement for the SPARQ Solutions Union Collective Agreement 2009 (UCA) 2009 which expires in January 2012. The replacement industrial agreement will continue to provide the underpinning framework for effectively supporting the achievement of SPARQ Solutions overall business plan initiatives;

• Maintaining a harmonious industrial environment which emphasises employee participation and engagement as a

standard feature of SPARQ Solutions culture; and

• Continuing to strive to live the SPARQ Solutions values of working together (teamwork) to deliver on our promises (professionalism) whilst striving to continually improve (improvement). The underpinning of these corporate values is the development and growth of a constructive culture, at all levels of the organisation.

2. Significant and Emerging Issues

Negotiation of Replacement Agreement – SPARQ Solutions Union Collective Agreement 2009 The current UCA 2009 nominally expires on 30 January 2012. Subject to any limitations of the Fair Work Act 2009, it is anticipated that any collective agreement between SPARQ Solutions and its employees will remain substantially aligned with the collective agreements that will be negotiated by Ergon Energy and ENERGEX in 2011. However, in order to meet the differing requirements of SPARQ Solutions’ business model and workforce, SPARQ Solutions may wish to seek additional flexibility in its UCA in relation to issues such as flexible working conditions, on‐call arrangements and the use of contractors. The Government Owned Corporations (GOC) Wages Policy will form a central part of SPARQ Solutions’ Enterprise Agreement Bargaining Framework and SPARQ Solutions is committed to identifying genuine and tangible productivity initiatives in order to fund wage increases above the base wage increase of 2.5% per annum as per the GOC Wages Policy. SPARQ Solutions intends to take an interest‐based bargaining approach to negotiations, to allow all parties to focus on developing mutually beneficial “win‐win” solutions. This approach will be critical in identifying appropriate productivity initiatives. Due to the respective expiry dates of the UCA of each of the parent Corporations, their negotiations are likely to commence and be conducted around similar timeframes. As SPARQ Solutions Agreement expires after both Ergon and ENERGEX’s



agreements, it is proposed that as part of its negotiation strategy, SPARQ Solutions will commence negotiations after Ergon Energy and ENERGEX, probably by July 2011. Notwithstanding the above, SPARQ Solutions will continue to provide and maintain all existing employment conditions and entitlements to Agreement‐covered employees as per UCA 2009. SPARQ Solutions will continue to observe and apply relevant policies in accordance with shareholder direction and any applicable Government policy relevant to Government Owned Corporations, including the commitment to apply the attached Minimum Employment, Industrial Relations and Job Security Principles for GOC Employees (September 2010).

3. Directors/Senior Executive Remuneration SPARQ Solutions Pty Ltd Directors are Executives of the Shareholding Companies and do not receive any remuneration for their role as SPARQ Solutions Directors.

Board Member Director Fees Committee Fees Superannuation Other Total

Annual Fees

Ian McLeod (Chair) – Chief Executive – Ergon Energy Nil Nil Nil Nil Nil

Terry Effeney – Chief Executive Officer – ENERGEX Nil Nil Nil Nil Nil

Peter Weaver – Executive General Manager – Customer Services ‐ ENERGEX

Nil Nil Nil Nil Nil

Darren Busine – Chief Financial Officer – ENERGEX Nil Nil Nil Nil Nil

Justin Fitzgerald – Executive General Manager – Customer & Stakeholder Engagement – Ergon Energy *

Nil Nil Nil Nil Nil

John Hooper – Chief Financial Officer – Ergon Energy Nil Nil Nil Nil Nil



SPARQ Solutions has adopted the shareholding Minister approved Ergon Energy “Guidelines for Executive Remuneration” as the basis for remunerating and appointment of Senior Executives. Details of SPARQ Solutions Senior Executives’ remuneration are set out in the table below.

CEO and Senior Executives

CEO/Senior Executives

Base Salary1 Employer Superannuation Contributions2

Motor Vehicle3

Car Park4 Other personal benefits5

P. Effeney – Chief Executive Officer $324,800 $32,480 0 0 0

B. Maskey –Project Delivery Manager $211,937 $19,074 0 0 0

P. Cockburn – Service Delivery Manager $214,300 $19,287 0 0 0

C. Hanley – Applications Capability Manager

$207,665 $20,767 0 0 0

P. Poncini – Client Solutions Manager $221,667 $22,167 0 0 0

J. Thompson – Chief Financial Officer $232,156 $23,216 0 0 0

CEO/Senior Executives Total Fixed

Remuneration 6 Other non‐personal

benefits 7 Performance Payment

Made 8 P. Effeney – Chief Executive Officer $357,280 0 $44,195

B. Maskey –Project Delivery Manager $231,011 0 $28,947

P. Cockburn – Service Delivery Manager $233,587 0 $30,346

C. Hanley – Applications Capability Manager

$228,432 0 $25,981

P. Poncini – Client Solutions Manager $243,834 0 $27,819

J. Thompson – Chief Financial Officer $255,372 0 $29,799

Notes: 1. Includes salary sacrifice items plus cash salary 2. Employer contributions to superannuation (other than by salary sacrifice) 3. Value of a motor vehicle for business and personal use (other than by salary sacrifice) 4. Value of car park if car park is a personal benefit to the Executive (other than by salary sacrifice) 5. Includes but is not limited to, general/expense allowances, subscriptions, and home telephones/communication expenses. FBT

not elsewhere included, etc (other than by salary sacrifice) 6. Sum of columns 1 – 5 7. Include the value of non‐personal benefits provided to the Executive to assist in the performance of their duties 8. This is the actual payment made in the year immediately preceding the plan year relating to performance in the financial year two

years prior to the plan period.



SPARQ SOLUTIONS EMPLOYMENT AND INDUSTRIAL RELATIONS PLAN

4. Employment Conditions SPARQ Solutions will continue to be committed wherever possible to implementing employment and industrial relations arrangements consistent with the guidelines provided by the Queensland Government, and amendments made under the current Federal Government’s Fair Work Act 2009. Current employment arrangements reflect commitment to using the dispute settlement provisions of the UCA 2009 through Fair Work Australia, or by utilising the Queensland Industrial Relations Commission for any disputed matters. The successful negotiation of the UCA 2009 demonstrates SPARQ Solutions preference for collective agreements. SPARQ Solutions has a standard 9 Day fortnight for employees covered by the UCA 2009 (72.5 hour fortnight). The hours of work arrangements and work patterns for these employees consist of a standard 36.25 hour week (Monday to Friday) with a daily spread of hours for ordinary day working employees from 6.00am to 6.30pm, Monday to Friday. The UCA 2009 provides specific classifications of employees the option of 10 Day Fortnight (80 hour fortnight) working arrangements. These have a loading over base salary of 13 per cent, 15 percent or 20 per cent subject to the level of additional hours agreed to be worked over and above the standard 36.25 hour week. These arrangements are offered on a mutually agreed basis dependent upon business need. Employees covered by the SPARQ Solutions UCA 2009 received the final wage increase available under the agreement in February 2011. The increase consists of a 3.5 per cent wage adjustment and 1 per cent productivity payment which applied from the first full pay period following the anniversary of the Agreement being lodged (30 January 2009). The UCA 2009 will be in force for a period of three years from the date of lodgement and the nominal expiry date for the agreement is 30 January 2012. SPARQ Solutions employees are employed under the following arrangements as applicable:

• SPARQ Solutions UCA 2009 (a transitional instrument under the Federal Fair Work Act 2009), which incorporates applicable terms of the former Electricity, Generation, Transmission and Supply Award ‐ State 2002 and Family Leave Award – State 2003 (No. AR10 of 2003) (368 employees);

• Individual Employment Arrangements (IEA) operating within relevant UCA 2009 parameters (3 employees); and • Total Employment Cost (TEC) or Total Fixed Reward (TFR) contracts for employees outside the scope of UCA 2009

(10 employees). IEA’s are based on a 10 Day Fortnight 40 hour week and are offered for identified roles within the scope of the UCA 2009 that are considered business critical from an attraction and retention perspective. These arrangements can be advertised and applied as a condition of employment for classifications above Salary Point 11.0 of the UCA 2009 Classification Framework. The arrangements have a list of claims and entitlement exemptions within the scope of the UCA 2009 that are offset by a range of other benefit options available at the discretion of SPARQ Solutions. TEC/TFR employees operate under a common law employment contract (i.e. a 10‐day fortnight with no loading entitlements). These employees may also have an ‘at risk’ component of up to 15 per cent of TEC/TFR attached to their salary package. All Senior Executives are employed on a TFR basis. SPARQ Solutions complies with the attached Schedule of Minimum Employment, Industrial Relations and Job Security Principles for GOC Employees – September 2010 (the Schedule of Minimum Standards & Entitlements). The Schedule forms part of this Plan and the agreement with shareholding Ministers it represents. SPARQ Solutions will also adhere to the requirements of the government policy directive in Agreement Making in Government Owned Corporations – Guidance for Chief Executive Officers (the Guidance for Chief Executive Officers), as per the Guidelines for the Development of Employment and Industrial Relations Plans in GOCs (the Guidelines), subject to any applicable enterprise agreement provisions. SPARQ Solutions maintains an industrial instrument, that is the UCA and employment policies that are equal to or more beneficial than those outlined in the Schedule of Minimum Employment Conditions. Where there are differences between the conditions contained in SPARQ Solutions industrial instrument (as at March 2011), and those contained in either the



Schedule of Minimum Standards & Entitlements or the Guidance for Chief Executive Officers, the relevant provisions from the company’s instruments or policies will prevail. SPARQ Solutions employees covered by the UCA 2009 are also eligible to participate in the SPARQ Solutions Performance Payment Scheme. The SPARQ Solutions scheme is based on the ENERGEX Performance Payment Scheme and was approved by Government in 2004, following SPARQ Solutions formation as part of the commitment to maintaining comparable employment conditions for employees of Ergon Energy and ENERGEX transferring to the new entity. Funding of the Performance Payment Scheme is dependent on the achievement of SPARQ Solutions Balanced Scorecard of Key Results Areas as set out in the company’s annual Business Plan. The Board of SPARQ Solutions approves the size of the pool to be made available to employees as performance payments. Payments are made on a bi‐annual basis and the pool is set at a maximum of 6% of eligible employee’s salaries.

5. Enterprise Bargaining and Productivity Initiatives Enterprise Bargaining Through consultation with our primary stakeholders, the enterprise bargaining process is the process adopted to develop employment conditions for Agreement covered employees. The UCA 2009 was negotiated with the combined industry unions and lodged with the Federal Workplace Authority on 30 January 2009. Its nominal expiry date is 30 January 2012 and it shall remain in force until either terminated by the parties or replaced by a new agreement. The UCA 2009 applies to all UCA 2009 covered employees (371) of SPARQ Solutions Pty Limited, except those employees who are paid a salary for the purposes of superannuation which exceeds 115% of salary point 16.5 ($146,600). The UCA 2009 meets the Government’s policy requirements and conforms to the Queensland Government Guidelines for the Development of Employment and Industrial Relations Plans in Government Owned Corporations. As outlined in the Significant and Emerging Issues section of this plan, the UCA 2009 expires in January 2012 and the negotiation of a replacement agreement will be a primary focus for SPARQ Solutions during 2011/12. Productivity Initiatives The current Agreement provides for productivity and efficiency outcomes as follows:‐

• Broad based contribution of all employee classifications covered by the Agreement in delivering the efficiency benefits from SPARQ Solutions Strategic and Business Plans.

• Commitment to flexibility in working arrangements such as greater office space density, working from home, telecommuting as an accepted working practice (subject to role requirements, practical working arrangements and management agreement) and use of shared facilities where positions do not require a permanent workstation.

• Increase in the minimum notice period for resignation purposes from one (1) week to three (3) weeks for employees in the Professional and Managerial Stream.



The following table provides an overview of progress with achieving productivity initiatives agreed as part of the UCA 2009.




SPARQ Solutions Union Collective Agreement

Increase in minimum notice period for resignation from one week to three weeks for employees classified in the Professional and Managerial Stream.

UCA • Three week notice period to be implemented following lodgement of UCA.

• Complete ‐ Implemented 30/1/2009 upon lodgement of UCA.

• Three week notice period is now applied for all separating employees.

Commitment to flexibility in working arrangements which will contribute to greater office space density through initiatives such as working from home and telecommuting practices.

UCA

• Up to 10 FTE in Approved Working from Home Arrangements by 30 June 2010.

• Complete ‐ SPARQ Solutions Working From Home Guidelines and Processes were reviewed in 2009 with amended processes being introduced.

• Ten employees have been engaged in formally approved working from home arrangements as at 23 December 2010.

• A number of other employees have been working under various other short term flexible working arrangements.

• An organisational review of positions was completed to determine roles that may be suitable for remote working arrangements.

SPARQ Solutions to have discretion to offer all new appointments as 10 day fortnight for all Professional and Managerial and Administration Stream employees above SP11.0.

UCA • Arrangements in place


SPARQ Solutions to have discretion for all new or vacant nine day fortnight positions RDO’s to be scheduled on any day (Monday to Friday).

UCA • Arrangements in place


SPARQ Solutions Property Strategy • • Achieving a reduced CBD office accommodation footprint

Property Strategy

• Reduced accommodation costs of $146,000 p.a from 2009/10.

• Complete ‐ SPARQ Solutions relocated the majority of Brisbane based employees and contractors (300) to new premises in Newstead in September 2009.

• The new location provides significantly reduced accommodation costs and has allowed SPARQ to






maintain close proximity to ENERGEX which moved to new Newstead offices in November 2010.

The finalisation of the UCA 2009 was achieved in January 2009 after reaching in principle agreement between the parties in December 2008. The UCA 2009 meets the specific requirements of SPARQ Solutions business model by maintaining employment arrangements that promote flexible working conditions including telecommuting, working from home, transition to retirement and the refinement of after hours and on call arrangements which are applicable to ICT operations. Negotiations with Industry Unions were carried out in a constructive manner and no industrial action was taken during the period of negotiations. SPARQ Solutions continues to maintain a constructive working relationship with Industry Unions.

6. Employee Flexibility The implementation of flexible work practices and arrangements are managed through consultative processes and provisions established within UCA 2009. Work practices are tailored wherever possible to enable employee flexibility and adherence to Government guidelines. There is an underlying commitment to the implementation of policies consistent with the Government guidelines for GOCs. SPARQ Solutions offers a variety of initiatives aimed at providing flexible work arrangements for its employees. These initiatives include:

Flexibility Initiative Detail Part Time Arrangements Establishment of part time working arrangements and

varying work roster arrangements is provided for under the provisions of the UCA 2009.

Flexible work hours Time Off In Lieu provisions and practices are provided for under the provisions of the UCA 2009.

Reduced working year The UCA 2009 entitles employees to purchase up to four (4) weeks additional leave each year.

Paid maternity/paternity/adoption leave The UCA 2009, provides entitlements to employees with twelve (12) months continuous service to:

Fourteen (14) weeks paid Maternity leave Fourteen (14) weeks paid Adoption Leave One (1) week paid Paternity Leave.

Telecommuting (work from home) SPARQ Solutions provides telecommuting opportunities for staff through the provision of remote user access to SPARQ Solutions applications to support emergency call out and after hours support functions, avoiding the necessity for on‐call staff to attend SPARQ Solutions premises outside working hours. In addition, SPARQ Solutions has established and implemented Working From Home Guidelines to enable formalised working from home arrangements to be implemented where the position requirements meet established criteria.

Transition to retirement Transition to retirement arrangements are provided for under the UCA 2009. Guidelines have been developed and agreed following extensive



Flexibility Initiative Detail consultation with nominated employee representatives.

Job Sharing Opportunities Job Sharing arrangements are provided for under the UCA 2009.

Leave Without Pay Leave without pay for up to 12 months is available for employees to access a sabbatical work break or seek other work experiences beneficial to either the employee or SPARQ Solutions.

Cultural or Religious Leave Is provided over and above other leave options for employees to attend special events aligned to their cultural or religious background.

SPARQ Solutions expects to continue the development of these initiatives and practices as a feature of our standard working conditions and practices.



7. Type of Employment and Workforce Planning

30 June 2010

30 June 2011

30 June 2012

30 June 2013

30 June 2014

Employment Category: Permanent Full Time 342 369 369 369 369Permanent Part‐time (FTE) 3 3 3 3 3Other Contract ‐ ‐ ‐ ‐ ‐Senior Executive Contract 6 6 6 6 6Apprentices (In House) ‐ ‐ ‐ ‐ ‐Trainees (In House) ‐ ‐ ‐ ‐ ‐Casual Employees (FTE) ‐ ‐ ‐ ‐ ‐Total Directly EmployedWorkforce:

351 378 378 378 378

Apprentices (Group) ‐ ‐ ‐ ‐ ‐Trainees (Group) ‐ ‐ ‐ ‐ ‐Contractors (Trade/Technical) ‐ ‐ ‐ ‐ ‐Contractors (Professional/Administrative/ Clerical) 127 120 120 120 120 Labour Hire (Trade/Technical FTE)

‐ ‐ ‐ ‐ ‐

Labour Hire(Professional/Administrative/Clerical ‐ FTE) 21 21 21 21 21 s457 Temporary Visa ‐ ‐ ‐ ‐ ‐ Total Workforce: 499 519 519 519 519

Notes: • The figures provided for 2011/12 and onwards are estimates only and are based upon the assumption that the

current level of expenditure on ICT will be maintained by Ergon Energy & ENERGEX (this is outside of SPARQ Solutions control).

Existing workforce planning processes will continue to be developed during 2011/12 consistent with the SPARQ Solutions business plan. The focus of workforce planning initiatives will be to continue to support the development of strategies to ensure SPARQ Solutions ability to continue to provide value to Ergon Energy, ENERGEX and their customers. In relation to the composition of the workforce, SPARQ Solutions has a relatively small component of employees in the 55‐65 year age bracket. Transition to Retirement Guidelines have been developed and are in the process of being implemented to support the management of ageing workforce issues. A small number of employees have taken advantage of flexible working arrangements to suit retirement plans. SPARQ Solutions notes the Government’s 2009 election commitment to maintain 5,000 public sector apprenticeships and trainee positions over four years to April 2013 across the Queensland public sector agencies, GOCs, government departments and statutory authorities. SPARQ Solutions workforce planning and employment policies are underpinned by a clear recognition of the need for a skilled and viable workforce which takes into account the need for on‐going renewal and appropriate training to ensure there is sufficient capacity within the organisation to replace retiring or departing employees. Apprentices and trainees are an important part of this forward planning and SPARQ Solutions therefore supports the Government's commitment. SPARQ Solutions will continue to make available apprenticeship and trainee opportunities consistent with its workforce planning, training programs and business needs. At the present time, SPARQ Solutions does not engage trainees or apprentices due to the specialised professional nature of ICT work undertaken. SPARQ Solutions recruitment strategy is to target new and recent graduates where possible as a means of introducing new skill sets to the organisation and to continue to develop organisational capability. Should the nature or scope of the services provided by



SPARQ Solutions change and this gave opportunity for engagement of trainees or apprentices, this would be actively supported.

8. Workplace Health & Safety SPARQ Solutions continues to focus on the primary objective of moving health and safety from a systems‐based, intensive focus to a fully operational, behaviourally‐based part of normal day‐to‐day operations. Throughout 2011/12, SPARQ will continue to implement a range of key health and safety initiatives through the business. The WH&S initiatives will focus on behavioural safety, health programs and legislative requirements as well as actively managing SPARQ’s safety risk profile. SPARQ Solutions develops an annual Workplace Health and Safety Program. Behavioural safety and health programs will continue to be a feature of the Workplace Health and Safety Program along with the standard activities for risk management and safety monitoring, such as:

• Monthly reporting of safety performance indicators including Lost Time Injury Frequency Rate, All Injuries Frequency Rate (which are lag indicators) and the SPARQ Solutions Poweraid Index (which is a lead indicator).

• Monthly workplace inspection cycles; • Further improvements to the safety reporting and tracking system (eSafe) for the monitoring and reporting of safety

hazards, risks and incidents; • Escalation of improvement actions and hazards to regional and Peak Workplace Health & Safety Committees for

monitoring and review; • Annual review of SPARQ Solutions Hazard & Risk Register with adoption of appropriate controls; and • Conducting comprehensive internal and external auditing of the operations of the Safety Management System and

associated processes. SPARQ Solutions achieved certification of its safety management system under AS4801 in June 2010. As part of the continuous improvement of the safety management system, SPARQ Solutions successfully established and implemented appropriate internal auditing systems during 2010. SPARQ Solutions will continue to appoint a qualified person as workplace health and safety officer in its workplace(s) where 30 or more workers are normally employed at the workplace. The next scheduled external surveillance audit of the Safety Management System is in June 2011. SPARQ Solutions has an Environmental Management System (EMS) in place and obtained certification to the Australian Standard ISO 14001: 2004 Environment in June 2006. SPARQ Solutions maintains this certification by conducting six monthly surveillance audits of the Environmental Management System. The most recent surveillance audit was conducted in December 2010. No significant items of concern were identified from external audits of either the Safety or Environmental systems in 2010/11. A small number of observations were provided by external auditors as continuous improvement opportunities through further alignment both systems. Appropriate actions will be incorporated into the Safety and Environment Programs for 2011/12 A copy of the SPARQ’s Safety Performance for 2010/11 is included as an attachment to this Plan.

9. Equal Employment Opportunity and Anti‐Discrimination SPARQ Solutions has appropriate equal employment opportunity (EEO), anti‐discrimination and recruitment policies in place to provide a workplace free from discrimination, harassment and bullying. Appropriate training is provided to all new employees and contractors at induction and regular communications are provided to staff to remind them of the existence of these policies and their obligations. These communications are provided through a range of internal mechanisms including regular staff communications via electronic noticeboards, through leadership programs and initiatives and through our network of Sexual Harassment and Anti Discrimination Officer’s (SHADO’s). Relevant training regarding equity in recruitment is also available for employees involved in recruitment and selection activities.



SPARQ Solutions ensures the principles of merit and equity are upheld in its processes for recruitment, selection and promotion of employees.

10. Interstate Acquisitions/Operations SPARQ Solutions has no current or planned interstate acquisitions or operations.

11. Joint Venture Projects SPARQ Solutions has no current or planned Joint Venture projects.

12. Management of the Relationship between GOCs and Unions SPARQ Solutions is committed to developing and maintaining harmonious industrial relations with relevant industry Unions. The primary mechanism used for engaging the Unions is through regular Employee Consultative Meetings which are comprised of union delegates and management representatives from SPARQ Solutions. Arrangements are in place to ensure ongoing and effective communication and consultation through these monthly consultative meetings. Matters of dispute are resolved through negotiation or through more formal dispute settlement processes if necessary. SPARQ will continue to comply with the Union Encouragement provisions within the Queensland Government Guidelines for the Development of Employment and Industrial Relations Plans in Government Owned Corporations.

13. Redundancy Provisions Notwithstanding the commitment to no forced redundancies, the redundancy provisions contained in the UCA 2009 are as follows:

• Employees and their unions are to be given at least 6 months notice before a position is identified as being

redundant; • An employee can apply for a Voluntary Redundancy, but approval is at SPARQ Solutions discretion; • Where a position is declared redundant, suitable alternative redeployment opportunities will be explored and career

support services made available when required; • Among other benefits, an employee who is retrenched is entitled to receive a retrenchment payment of three (3)

weeks per year of service, with a maximum payment of 75 weeks; • Payment for recreation leave includes an employee’s accumulated balance as well as the pro‐rata balance. Pro‐rata

recreation leave is paid to the date of termination; • A long service leave payment of 1.3 weeks for each completed year of service will be made. Pro‐rata LSL will be paid

for an incomplete year of service up to the date of termination. Any LSL already taken will be deducted; and • All balances of accrued Time Off In Lieu will be paid out. These are paid at the ordinary rate applicable at the date of

termination. There will be no forced redundancies without the explicit and written sanction of relevant Shareholding Ministers. Voluntary redundancies will not occur unless all other options are exhausted and consultation has occurred with the shareholding Ministers, Department of Justice and Attorney‐General and unions.



14. Job Security SPARQ Solutions is committed to Clause 1.10 of the current UCA 2009 which states there will be no forced retrenchments for the life of the Agreement.

15. Contracting Out SPARQ Solutions is committed to orderly and sustainable best practices in relation to the use of contractors, the use of labour hire arrangements and the employment of skilled overseas staff to cover labour shortages through employer sponsored Temporary Long Stay Subclass 457 Visas. SPARQ Solutions recognises that circumstances may arise in SPARQ Solutions where the use of contractors is either desirable or essential. These circumstances are seen to be within the following guidelines:

• The work volume is beyond the capacity of the resources or staff of SPARQ Solutions; • It is in the public interest to undertake such work. Public Interest includes issues of cost effectiveness; • The type of work or specialisation required is beyond the capacity of the resources or staff of SPARQ Solutions; • The security and tenure of employment of additional staff required to meet work peaks cannot be guaranteed.

As indicated in Part 7 of this plan, contractors are used by SPARQ Solutions to undertake projects delivering new ICT capability projects commissioned by the clients of SPARQ Solutions where the skill sets required are not needed on a long term basis. These arrangements are typically labour hire in nature with the contractors working under the supervision of SPARQ Solutions employees. Contractors are sourced through a panel of preferred suppliers to ensure maximisation of the value of contractor engagements. Membership of this panel requires that providers comply with SPARQ Solution’s requirements for workplace health and safety in the engagement of contractor resources. Structured recruitment and engagement processes are in place to manage the engagement of contract resources within SPARQ. This includes validation of skills and qualifications against established criteria. SPARQ Solutions will ensure that the relevant industry Unions are consulted prior to the outsourcing of any significant work functions in accordance with our industrial instruments. We will ensure contract labour is utilised within the scope of the industrial framework applicable to SPARQ Solutions and that the risk of industrial disputation is minimised. Should there be changes to current government policy or guidelines for the engagement of contractors, such changes will be considered in the process of engaging contractors and implemented within the scope of any applicable law. SPARQ Solutions presently has no staff engaged under s457 visa arrangements.

16. Superannuation SPARQ Solutions employees are predominately members of the Electricity Supply Industry Superannuation Fund (ESI Super). Those employees who are members of ESI Superannuation Fund, and are permanent employees, are members of the Defined Benefits Fund or the Defined Contributions Fund. The ESI Defined Benefits Fund has been closed to new employees of SPARQ Solutions (i.e. only the Defined Contribution Fund is available). Members of the Defined Benefits Fund contribute 5% of salary to the fund and SPARQ Solutions contributes at the rate as recommended by the fund actuary (currently 34% in view of the Fund’s asset position, discussed later). Members of the Defined Contributions Fund receive either the statutory Government contribution of 9% from SPARQ Solutions or, should they decide to contribute 5% to the fund themselves, then SPARQ Solutions will contribute 10%.



To meet the requirements of the Australian Prudential Regulation Authority (APRA), the defined benefit part of the fund has to have Fund Assets greater than Vested Benefits. While the most recent Actuarial Review of the Defined Benefits Fund confirmed the Fund was in surplus at 30 June 200812, advice provided by the Actuary is that due to the impact of the Global Financial Crisis, the value of Vested Benefits is now greater than Fund Assets. Following recommendations by the Actuary, SPARQ Solutions has increased company contributions to 34% of eligible employees’ salaries until such time as a positive net asset position is reached. When this occurs, levels of company contribution will be reviewed. Actions taken to address the situation satisfy APRA requirements. As at 23rd December 2010, SPARQ Solutions has the following numbers in each of the funds:

• Defined Contribution – 301 employees • Defined Benefit – 72 employees

While SPARQ Solutions currently has no casual employees, employees engaged on a casual basis would receive the statutory Government contribution of 9% from SPARQ Solutions. Currently, SPARQ Solutions also contributes to the following four superannuation companies:

• AMP Flexible Super • BT Lifetime Super • Colonial First State Super • Sun Super

17. Consultation SPARQ Solutions will undertake consultation on the draft Plan with relevant Unions, as well as making the draft Plan available to employees for comment and where appropriate, consequential changes will be incorporated. In accordance with section 149(7) of the GOC Act 1993 and the Guidelines for Development of an E&IR Plan, the Office of Government Owned Corporations (OGOC), Department of Justice and Attorney General, Department of the Premier and Cabinet, and Department of Employment, Economic Development and Innovation have been consulted on this document. This section of the Plan will be updated following consultations with these parties and will provide the information specified in the Guidelines.

18. Reporting

SPARQ Solutions will provide a brief report annually to OGOC covering the following matters:

• confirming the implementation of the current E&IR Plan; • outlining if there have been any events or matters that have occurred or due to occur that vary to the E&IR Plan

provisions for that cycle and explanations for those variations; and • detailing any contentious issues that have arisen or are expected to arise during the current E&IR Plan cycle.

12 Actuarial Reviews are conducted every three years.



ATTACHMENT 3: SPONSORSHIP, ADVERTISING, CORPORATE ENTERTAINMENT, DONATIONS AND OTHER ARRANGEMENTS1,2

Activity 3 Description / Benefit 2010‐11

SCI Budget ($)

2010‐11 Est.

Actuals ($)

2011‐12 Budget ($)

Quarter (SCI Year) 4,5

(SCI Year) Per Head Budget

$ Sep Dec Mar Jun

COMMUNITY PARTNERSHIP Envirofund A grant program

that provides funding for community groups and not‐for‐profit organisations to undertake energy conservation and environmental initiatives in their local community. 100,000

135,138

150,000

Netball Queensland

Netball Qld has 10,000 members in Regional Qld & 80 associations throughout the state. Naming rights partnership of the Ergon Energy Netball Academy and the Ergon Energy Equipment Grant allows access to members to assist our customers to manage electricity affordability and support Regional Queensland activities. 110,000

110,000

110,000

QLD Energy Museum

A comprehensive archive collection and resource library funded by Ergon Energy, Energex and Powerlink. 100,000

100,000

100,000

Townsville Enterprise

Providing a forum for the corporation to interface with key stakeholders on regional development 120,000

110,226

70,000




SCI Budget ($)

2010‐11 Est.

Actuals ($)

2011‐12 Budget ($)



$ Sep Dec Mar Jun

issues.

Keep Australia Beautiful

Partnering with the organisation and the Tidy Towns and the Green and Healthy Schools program

50,000

Local Government Members promote their services, products and community involvement for the benefit of our local government communities. 70,000

70,000

50,000

Carnival of Flowers Access to key stakeholders and business leaders in the community through associated events and activities. 50,000

50,000

50,000

General Sponsorship

0

50,400

50,000

North Queensland Cowboys

Community partnerships to promote energy efficiency messages and delivery of Townsville Engagement Strategy

40,000

Capricorn Tourism and Economic Development

$30,000 included in memberships

30,000

QUT Business Leaders forum

The events bring together key members of the Qld business and political community to explore the trends, issues and ideas that are shaping the economy and politics of the nation. 22,000

22,000

22,000




SCI Budget ($)

2010‐11 Est.

Actuals ($)

2011‐12 Budget ($)



$ Sep Dec Mar Jun

Urban Development Inst of Aust

Liaison and network opportunity with local development industry leaders creating an infrastructure and network benefit 25,000

20,000

20,000

Agforce For delivery of safety initiatives and educational campaigns 20,000

20,000

20,000

Mackay Regional Economic Development Corporation


20,000

Advance Cairns $16,000 included in memberships

16,000

Schools program An influential education tool used to drive Ergon Energy's energy efficiency strategy into schools. 45,000

45,000

15,000

Technology Challenge

Promotion and education of energy efficiency and alternative energy sources to the local community in particular high school students 15,000

15,000

10,000

Tourism Tropical North Queensland


8,100

Electrical Users Association Australia


7,270

Tidy Towns Community‐based environment program open to all Qld local governments and Aboriginal and Torres Strait Island community councils, town residents, school groups, community groups and environment and 120,000

55,989

‐




SCI Budget ($)

2010‐11 Est.

Actuals ($)

2011‐12 Budget ($)



$ Sep Dec Mar Jun

conservation groups.

Festival Cairns Community engagement with local stakeholders and community in Far North Queensland. 25,000

25,000

‐

Opera QLD 0

‐

Total over $5,000 822,000 828,753 838,370 0 0 0 0 Tactical Local Managed by local

Corporate Communications Managers and linked to specific stakeholder and network issues 252,000 297,000 299,400

TOTAL (1) 1,074,000 1,125,753 1,137,770 0 0 0 0ADVERTISING (and other marketing channels)

Energy Conservation/Affordability

Educate customers on energy efficiency

1,848,712 1,633,050 1,830,000

Community Safety and Internal Communications

Promote safe use of electricity around Ergon Energy assets 802,542 993,725 1,050,000

Community Engagement

Community communication 80,000 54,308 100,000

General Communications (Clean Energy, Employer of Choice, The Wire, Collateral etc)

General marketing

1,109,227 1,190,157 1,300,000

Total over $5,000 3,840,480 3,871,240 4,280,000 0 0 0 0 Other (total) below $5,000

191,929

TOTAL (2) 3,840,480 4,063,169 4,280,000 0 0 0 0 CORPORATE ENTERTAINMENT

Staff Christmas Function

22,000 41,212 22,000

Total over $5,000 22,000 41,212 22,000 0 0 0 0Staff Christmas Function below

48,000 24,260 48,000




SCI Budget ($)

2010‐11 Est.

Actuals ($)

2011‐12 Budget ($)



$ Sep Dec Mar Jun

$5,000

Anniversary Functions below $5,000

0 0 0

Townsville Crocodiles

0 0 0

Brisbane Mining Club

10,000 12,000 12,000

North Queensland Cowboys Corporate Box

$20,000 included in Hospitality and Events 20,000

Hospitality / Events for Stakeholder Engagement and Business Development

100,000 81,977 50,000

Other (total) below $5,000

158,000 118,237 130,000 0 0 0 0

TOTAL (3) 180,000 159,449 152,000 0 0 0 0 DONATIONS

Individual entity over $5,000

Total over $5,000 ‐

‐

‐

‐

‐

‐

‐


261,434

92,086

225,175

TOTAL (4)

261,434

92,086

225,175

‐ ‐

‐

‐

OTHER RELATED ACTIVITIES

Customer Research and Segmentation

Market research data analysis

883,751

1,115,195

1,500,000

Internet Internet build and enhancements

450,952

270,040

280,000

Bill related communications

Bill newsletter & other billing related communications

592,352

512,732

510,000

Corporate Memberships

Memberships of local development & industry associations

80,461

87,136

88,000

Corporate Reporting

Production of annual report

91,000

68,853

92,624

Conferences Community and




SCI Budget ($)

2010‐11 Est.

Actuals ($)

2011‐12 Budget ($)



$ Sep Dec Mar Jun

Stakeholder Engagements

47,770 38,244 25,000

Total over $5,000 2,146,286

2,092,202

2,495,624

‐

‐

‐

‐


15,080

95,623

TOTAL (5)

2,161,366

2,187,825

2,495,624

‐ ‐

‐

‐

TOTAL (1)+(2)+(3)+(4)+(5)

7,517,281

7,597,149

8,290,569

‐

‐

‐

‐

Notes: 1All expenditure to be GST exclusive 2Cells shaded in dark grey do not need to be populated 3Add other rows as required to include all entities/campaigns/events/commitments over $5,000 in each category 4These figures are not cumulative 5If expenditure planned for during the year but quarter not finalised, insert N/A in quarter columns

Table 2: Corporate Entertainment: Details of Total Budgeted Expenditure under $5,000 6,7

Activity 3 2010‐11 Budget ($)

2010‐11 Est.

Actuals ($)

2011‐12No. of

Activities ($)

2011‐12 Budget ($)


Sep Dec Mar JunCORPORATE ENTERTAINMENT Staff Functions 48,000 0 48,000 Business Development 36,128 30,865 26,932 Stakeholder & Community Engagement 73,872 63,112 55,068 TOTAL UNDER $5,000 158,000 93,977 130,000

Notes: 6All expenditure to be GST exclusive 7Cells shaded in dark grey do not need to be populated 8These figures are not cumulative



ATTACHMENT 4: WACC CALCULATIONS Ergon Energy’s WACC for its regulated business is set by the Australian Energy Regulator (AER) final Distribution Determination for the 2010‐2015 period. The WACC Parameters as per the final Distribution Determination from the AER are as follows:

PARAMETER AER DETERMINATION

Nominal Risk‐Free Rate (%) (A) 5.64%

Real Risk‐Free Rate (%) 3.04%

Expected Inflation Rate (%) 2.52%

Gearing Level (Debt:Equity) 60:40

Market Risk Premium 6.5%

Equity Beta 0.8

Debt Risk Premium 3.33%

Nominal pre‐tax return on debt (%) 8.98%

Nominal pre‐tax return on equity (%) 10.84%

Nominal vanilla WACC (%) 9.72%

For non regulated investments Ergon Energy derives a project specific WACC using the GOC guidelines. These project specific WACC rates are higher than the WACC established by the Distribution Determination. Investments are only considered if they are expected to have a rate of return in excess of the project specific WACC.



ATTACHMENT 5: CORPORATE GOVERNANCE GUIDELINES FOR GOVERNMENT OWNED CORPORATIONS This section is intentionally blank.



ATTACHMENT 6: COMPLIANCE WITH GOVERNMENT POLICIES EECL will observe and comply with Policies and Guidelines issued by the Queensland Government including: • Biannual Reporting: Guidelines for the Preparation of Interim Reports (2009) • Code of Practice for Government Owned Corporations’ Financial Arrangements (2009) • Community Service Obligations – A Policy Framework (1999) • Corporate Entertainment and Hospitality Guidelines (2008) • Corporate Governance Guidelines for Government Owned Corporations (2009) • Cost of Capital Principles – Government Owned Corporations (2006) • Government Owned Corporations Air Travel Policy (2009) • Government Owned Corporations Bargaining Guidelines (2010) • Government Owned Corporations Governance Arrangements for Chief and Senior Executives (2009) • Government Owned Corporations Guidelines for the Preparation of Statements of Corporate Intent and

Corporate Plans (2010) • Government Owned Corporations Release of Information Arrangements (2009) • Government Owned Corporation Subsidiaries ‐ Key Shareholder Requirements for Constitutions (2006) • Government Owned Corporations Wages Policy (2010) • Guidance for Chief Executive Officers ‐ Agreement Making and Industrial Relations in Government Owned

Corporations (2010) • Guidelines for the Development of Employment and Industrial Relations Plans in Government Owned

Corporations (2009) • Guidelines for Export of Services by Government Owned Corporations (2001) • Investment Guidelines for Government Owned Corporations (2009) • Local Industry Policy: A Fair Go for Local Industry (2008) • Minimum Disclosure Requirements for Directors and Chief and Senior Executives of Government Owned

Corporations (2009) • Minimum Employment, Industrial Relations and Job Security Principles for Government Owned Corporation

Employees (2009) • Purchasing Carbon Offsets for Queensland Government Air Travel (2008) • Queensland Code of Practice for the Building and Construction Industry (2009) • Sport and Recreation Sponsorship Policy (2009) • State Procurement Policy (2010) The Board and Chief Executive (CE) of Ergon Energy take full responsibility to ensure that prudent financial practices will be applied both within the Corporation and within its subsidiaries (whether fully controlled or otherwise). Without limiting the obligations imposed on the Board and the CE by the GOC Act and where applicable the Corporation’s Law, this includes a commitment to: • Abide by the Code of Practice for Government Owned Corporation’s Financial Arrangements (2004) as issued by

the Queensland Government. • Establish, maintain and implement appropriate financial risk management practices and policies required and as

specified in the Code of Practice. EECL and EEQ will make best endeavours to comply with the following Policies and Guidelines issued by the Queensland Government: • QFleet ClimateSmart Policy (2008) • Guidelines for Frequent Flyer Schemes (1999) • 2% for Public Art Policy (2004). Further in relation to the commitment above to the Guidelines for CEOs on Agreement Making in GOCs, in the conduct of enterprise bargaining by the corporation, it will adhere to the framework for negotiations approved by the Cabinet Budget Review Committee.



ATTACHMENT 7

Minimum Employment, Industrial Relations and Job Security Principles for Government Owned

Corporation (GOC) Employees

September 2010



Minimum Employment, Industrial Relations and Job Security Principles for Government Owned Corporation (GOC) Employees

Context The Queensland Government through shareholding Ministers holds the principal financial interest in Government Owned Corporations (GOCs). Consequently Government is an important stakeholder in GOCs, which operate in the national marketplace. Government also has a leadership role setting minimum employment standards and providing an example of a model employer.

Rationale The Government is committed to ensuring employment conditions are maintained, and that standards within GOCs reflect community and Government sector standards (i.e. GOC employment and industrial relations policies). These principles were introduced in order to ensure that there is some certainty regarding minimum employment standards, industrial relations practices and job security, especially with GOCs operating in the federal industrial relations jurisdiction.

Objective The principles set out below, which have been endorsed by Government, confirm the Government’s position on minimum employment conditions and industrial relations practices in GOCs. These principles should be read in conjunction with all relevant legislation, policies and procedures that apply to GOCs.

As a general principle, GOCs, including any GOC subsidiaries within Queensland, should maintain employment arrangements and policies without reduction in entitlements or protections, unless otherwise agreed with unions. GOCs should also work cooperatively with unions to resolve issues using services available at the State level where possible.

Application GOC shareholding Ministers request that GOCs put in place available safeguards to maintain standard employment conditions, industrial relations practices and job security through the provisions of GOC Employment and Industrial Relations Plans (E&IR Plans). E&IR Plans form part of the annual Statements of Corporate Intent which are considered and approved by the shareholding Ministers by 30 June each year in accordance with the Government Owned Corporations Act 1993. Departure from this approach should only be undertaken where there is a legal requirement to do so.



Principles

1. Consultative Arrangements

GOCs shall endeavour to deal with industrial relations matters cooperatively through consultative arrangements with employees and union delegates at the workplace level and through employees and/or delegates and union representatives or officials at the organisation level. Paid involvement of delegates and relevant employees shall be considered in relation to such consultative arrangements. This should be the case where their involvement facilitates the resolution of industrial relations issues or assists the employer in developing and implementing new initiatives, provided they are not involved in industrial action. Where paid union meetings have been available as a result of an award/enterprise agreement or alternatively existing custom and practice, such arrangements shall be continued.

2. No Disadvantage

It is the position of the Government that GOCs must ensure the rates of pay and conditions of employment in an industrial instrument will meet the federal legislation approval requirements. Additionally, conditions of employment in existing GOC industrial instruments are not to be reduced, except as required by relevant federal legislation or as agreed between the relevant industrial parties.

3. Enterprise Agreements

GOCs must comply with the relevant legislation and Government policies and principles for bargaining, such as the Government Wages Policy.

The following conditions of employment and practices shall continue.

a) Enterprise agreements, with unions as parties to the agreement, shall be the preferred means of industrial regulation of rates of pay and conditions of employment. Enterprise agreements can include a broad range of matters such as:

• rates of pay; • employment conditions e.g. hours of work, meal breaks and overtime; • consultative mechanisms; • dispute resolution procedures; and • deductions from wages for any purpose authorised by an employee.

Enterprise Agreements should not include unlawful content (such as discriminatory or objectionable terms).



GOCs may use flexibility terms, including existing alternative employment arrangements, as a mechanism for providing additional or different terms and conditions to individual employees. These will not result in terms and conditions which undercut legislated minima or minimum conditions as set by the Government. For example, GOCs must not provide less than the minimum entitlement to annual leave in exchange for additional remuneration. Parties should be better off overall under the resulting arrangement. GOCs are required to provide the Government Department responsible for Industrial Relations with details on the number and terms of individual flexibility or alternative employment arrangements entered into, as requested from time to time.

b) New individual common law contracts may only be made for enterprise agreement covered employees where the total fixed remuneration equates to or exceeds:

(i) the respective GOC enterprise agreement remuneration envelope (top rate from the agreement plus applicable superannuation and annual leave components); and/or (ii) the equivalent of the Queensland Public Service AO8 level per annum plus

12.75 per cent plus the equivalent of annual leave loading plus any overtime component;

unless otherwise negotiated within an enterprise agreement.

4. Union Encouragement

GOCs will facilitate access for their employees to union representatives in a fair and reasonable way. Arrangements should take into account the specific circumstances of the GOC to support the efficient operation of, or service provision by the GOC.

At the point of engagement, employees are to be provided with a document indicating that the corporation encourages employees to join and maintain financial membership of an organisation of employees that has the right to represent their industrial interests.

Union delegates and job representatives have a role to play within a workplace, including during the agreement making process.

The existence of accredited union delegates and/or job representatives is to be encouraged. Accredited union delegates and/or job representatives shall not be unnecessarily hindered in the reasonable and responsible performance of their duties.



5. Right of Entry of Union Officers to the Workplace

The rights and obligations that may be exercised by officials and employers in relation to right of entry are provided for under the relevant legislation.

Written notice may be required to be given by the official before entering a workplace and should be provided in accordance with the requirements outlined under the relevant legislation. Further, the legislation provides the conditions upon which the permit holders must abide, including complying with reasonable occupational health and safety requests, acting in a proper manner and not interrupting the normal continuity of work.

An employer will not unreasonably refuse, delay or obstruct a permit holder from exercising their rights. However, it should be noted that by law, entry to certain operations subject to national/state security initiatives can only occur under escort unless the necessary authorities are held. It is recommended that union officials make contact with GOCs beforehand to ensure necessary compliance before entering workplaces where this might be the case e.g. ports, airports and other essential infrastructure installations.

6. Industrial Relations Education Leave

Unless an award/enterprise agreement and/or custom and practice provides otherwise, paid time off not exceeding five days per union in any one year non-cumulative, is to be made available to a duly elected or appointed union representative or delegate. A written application shall be made by the union at least 6 weeks in advance (or such lesser period as provided for in an award/enterprise agreement or custom or practice or as is mutually agreed by the union and the GOC), to attend courses or seminars conducted by the union or specific training courses approved and accredited by the union.

The GOC shall give consideration to the special requirements of any regionally based workplaces in applying the limits on paid time off referred to above. The granting of such leave is subject to it not unreasonably interfering with the GOC’s operations. The scope, content and level of such courses or seminars shall be such as to contribute to a better understanding of industrial relations within the GOC’s operations.

7. Payroll Deductions of Union Fees

Requests from employees for payroll deduction of union fees are to be accommodated where the service has previously been provided. It is noted that Government agencies provide this facility without charge to relevant unions.



8. Job Security

In any situation of redundancy, options for redeployment and retraining of staff shall be exhausted before the offer of voluntary redundancy arrangements is considered. The Government Department responsible for Industrial Relations should be consulted prior to the offer of voluntary redundancy arrangements. There shall be no forced redundancies of award or agreement staff, or contract employees who would ordinarily be subject to awards or agreements, at GOCs without the explicit and written sanction of relevant shareholding Ministers.

Enterprise agreements and/or workplace arrangements should contain provisions relating to redeployment, retraining and last resort redundancy for excess employees. In general, existing redundancy entitlements should not be enhanced unless it is necessary to do so in order to comply with the minimum redundancy entitlements contained within the relevant legislation.

9. Use of Contractors

The following general principles should be followed when using contractors.

(a) Contractors and/or labour on-hire arrangements are to be utilised in an orderly and responsible manner, such that there is not a detrimental effect on the State’s or public interest (e.g. causing disruption to services to the public or causing damage to the economy or standing of the State). (b) It is recognised that circumstances arise where the use of contractors is either desirable or essential. These circumstances are seen to be within the following guidelines:

(i) the work volume, type of work or specialisation required is beyond the capacity of resources or staff; (ii) it is in the public interest to undertake such work. Public interest includes issues of cost effectiveness; or (iii)the security and tenure of employment of additional staff required to meet work peaks cannot be guaranteed.

(c) The use of contractors is not to be exercised to avoid training for existing staff or employing new staff to cater for emerging areas of work. “Emerging areas of work” does not include one-off works or temporary work peaks. (d) In addition, contractors and/or their employees are not to be appointed to any position as permanent employees unless normal advertising and selection processes have been followed.



10. Termination of Employment

Responsible and defensible policies and procedures regarding the management of performance, conduct and capacity of staff should be in place and adhered to, except where situations arise warranting summary dismissal under common law.

a) If an employee’s conduct, capacity or performance is deficient:

(i) ensure the employee is given an opportunity to respond formally to any allegation about their conduct, capacity or performance; and (ii) ensure the employee is formally warned about the conduct, capacity or performance and is given reasonable opportunity to rectify any deficiency; and (iii) ensure the employee has a right to be represented through all parts of the process.

b) If dismissal is subsequently determined:

(i) provide the employee with a clear reason for dismissal, detailing the process followed to seek improvement as referred to above; and (ii) ensure clarity as to whether the dismissal is related to the employee’s conduct, capacity or performance.

c) If an employee is in their probationary period the legislative provisions and GOC policy relevant to probation are to apply.

11. Resolution of Disputes

Dispute resolution is the process by which disputes within the workplace are finalised between, or for the parties, and is separate to the processes that deal with industrial action during bargaining.

Enterprise agreements are required to contain a dispute resolution clause which details the procedure for dealing with disputes. Disputes should be resolved following the same principles as the good faith bargaining requirements.

The Dispute Resolution Procedure should:

• provide a consistent and clear approach for the parties to deal with and resolve disputes early on;

• list the nominated parties to assist in resolving disputes; and • detail the range of functions and conditions agreed between the parties to

determine, on a case by case basis, the best way to deal with particular disputes (eg. through a negotiated, mediated, arbitrated or adjudicated outcome).



Under the Fair Work Act 2009 (Cth) the dispute resolution provision of an enterprise agreement must include a procedure that requires or allows Fair Work Australia (FWA), or another person who is independent of the employer, employees or employee organisations covered by the agreement to settle disputes.

The parties to the enterprise agreement are to reach agreement about the dispute resolution provider. If agreement can not be reached about the dispute resolution provider the default provider should be FWA.

The Industrial Relations Act 1999 (IR Act) was amended in 2007 to provide for parties in the federal industrial relations jurisdiction to have access to the Queensland Industrial Relations Commission (QIRC), by mutual agreement, to conciliate and/or arbitrate matters in dispute. The QIRC is still available as an option for parties to agree to be the dispute resolution provider under an enterprise agreement.

A party to a dispute can then refer the matter to the FWA tribunal, QIRC or the relevant agreed dispute resolution provider if discussions at the workplace level do not achieve a resolution.

The procedure must provide for dealing with disputes about any matters arising under the agreement or in relation to National Employment Standards. The procedure must also allow for the representation of employees covered by the agreement for the purposes of dispute resolution. Where the legislation provides a model dispute resolution procedure the GOC must ensure their procedure as a minimum covers all matters provided for in the model procedure.

GOCs are reminded of the requirement to liaise with and inform the Government Department responsible for Industrial Relations matters in accordance with the policy, 'Guidance for Chief Executive Officers - Agreement Making and Industrial Relations in Government Owned Corporations'. Due to the sensitive nature of industrial disputes and the potential impact of industrial action threatened or taken, GOCs are expected to advise and inform the Government Department responsible for Industrial Relations as a priority.



ATTACHMENT

GUIDELINES: Establishing a Dispute Resolution Procedure

The GOC and Union/s shall have regard to the following principles in establishing a disputes resolution procedure.

Step 1 Resolution at the Workplace Level

Involves genuine attempt to resolve the issue using consultative arrangements with employees and union delegates and if necessary, with union officers.

If there is no resolution at the work place level, proceed to next level (Step 2).

Step 2 Dispute Resolution Process [including QIRC assistance if relevant]

Who The disputes procedure shall list the nominated tribunal or person(s) agreed between the parties to assist in resolving disputes. Tribunals or person/s may include Fair Work Australia, the Queensland Industrial Relations Commission (QIRC) or, alternatively a person who is independent of the employers, employees and industrial organisation(s) covered by the agreement.

How The parties may determine the appropriate approach to disputes generally and must agree in their enterprise agreement how the dispute is to be resolved. If the parties agree to utilise the QIRC, the parties must submit a referral agreement to the QIRC as to how disputes are to be resolved by the QIRC [refer to section 273A (1)(b) under the Industrial Relations Act 1999].

What General Provisions

Provisions covered in the disputes resolution procedure must be agreed between the parties. Such provisions can include:

(i) commitment from parties to follow agreed process; (ii) determine appropriate timeframes to deal the dispute;

(iii) the allocation of any costs associated with a dispute process will be as agreed between the parties on a case-by-case basis, or if no agreement can be reached each party shall meet its own costs;

(iv) work as directed unless the employee has a reasonable concern



about an imminent risk to their health or safety; and

(v) at any time industrial action is threatened or taken during the process, either party may directly proceed to Fair Work Australia for assistance.

Any time industrial action is threatened or taken, the GOC must inform the Government Department Responsible for Industrial Relations as a priority.

Functions of QIRC

The following provisions are consistent with the functions available under section 273A (4) of the Industrial Relations Act 1999:

(a) conciliating; (b) arbitrating; (c) granting a remedy or other relief; and/or (d) deciding any other issue or question.

Furthermore, a decision by the QIRC in performing the dispute resolution functions does not bind the parties unless the referral agreement provides for the decision to bind the parties.

eDocs : 386454



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