Annual Report 2011-12 - EnergexEnergex Annual Performance Report 2011/12 5 Key result area Key...

Energex Annual Performance Report 2011/12

Who we areEnergex provides network services and infrastructure to distribute electricity to the homes and businesses of 3.1 million people in South East Queensland. We are a Government Owned Corporation (GOC) with two shareholding Ministers, the Treasurer and Minister for Trade, The Honourable Tim Nicholls MP; and the Minister for Energy and Water Supply, The Honourable Mark McArdle MP.

Our VisionOur vision delivering energy services for a sustainable future provides a picture of where Energex intends to be in the future with a focus on safety, reliability and cost effectiveness.

Our PurposeTo achieve our vision, our purpose is to provide choice and affordability to meet our customers’ evolving energy needs.

The vision and purpose underpin our ability to achieve balanced commercial outcomes and support the long-term sustainability of electricity distribution in South East Queensland.

Our business ethicsWe maintain a long-standing commitment to the community to conduct and report on the affairs of the business transparently and honestly while maintaining processes that ensure our staff, at all levels, understand these responsibilities. These responsibilities are at the forefront of our business decisions, to ensure they take into account social, economic and environmental sensitivities, and are set out in our Code of Conduct. Our business operations are also monitored and scrutinised by the Energex Board. The Board works to ensure our commitments to stakeholders and the community are carried out within strict governance frameworks.

FeedbackFeedback can be provided via [email protected]. This Annual Performance Report and previous reports are available at energex.com.au or via the Corporate Communications team on 13 12 53. Energex Limited26 Reddacliff Street, Newstead 4006 GPO Box 1461 BRISBANE QLD AUSTRALIA 4001Telephone: +61 7 3664 4000Facsimile: +61 7 3025 8301Energex Limited: ABN 40 078 849 055

Telephone: 13 12 53Hours: 8.00am – 5.30pm Monday to FridayEmail: [email protected]

Thank you to all staff who contributed to this Annual Performance Report.

© Energex Limited 2012® Energex and Energex Positive Energy are registered trade marks of Energex Limited.

http://www.energex.com.au

Energex Annual Performance Report 2011/12 3

Our values 3 Responding to customer expectations 19

Financial five year summary 4 Delivering sustainable outcomes 21

Statement of Corporate Intent performance targets and outcomes 5 Engaging our community 23

Chairman’s report 2011/12 6 Supporting our people 24

Board profiles 8 Maintaining South East Queensland’s network 25

Chief Executive Officer’s report 2011/12 11 Measuring operational success 28

Corporate Governance framework 13 Additional corporate reporting 30

Corporate Governance 14 Glossary and abbreviations 32

Putting safety first 18

Contents

We aim to live our corporate values every day. They underpin everything we do as a company and articulate what we see as most important. Our values express who we are and all that we aspire to be. They are the foundation for our reputation and success.

We recently adjusted our value ‘Impress our customers’ to ‘Deliver on our customer promise’. We believe this adjustment better aligns with our service delivery promises of providing core services by consistently, professionally and accurately managing customer and community concerns at a reasonable cost.

Our values

Deliver on our customer promise

Respect and support each other

Set a great example

Put safety FIRST

Be a team player

Deliver balanced results

4 Energex Annual Performance Report 2011/12

Financial five year summary

Energex LimitedFive Year SummaryFor the year ended

ROUNDED

As at 30 June 2012 2011 2010 2009 2008Profit and Loss ($M)Total revenue 2,005.0 1,736.4 1,467.9 1,336.2 1,403.0Cost of sales(1) (471.0) (390.7) (345.7) (306.9) (303.6)Employee expenses (232.8) (218.6) (212.1) (208.1) (232.5)Depreciation (319.7) (284.1) (236.0) (232.2) (220.6)Amortisation (2.6) (2.2) (2.7) (4.5) (20.9)Impairment (7.2) (0.0) (3.8) 1.3 (14.2)Borrowing costs (327.8) (294.3) (224.7) (212.5) (196.2)Other operating expenses (240.7) (214.8) (182.4) (197.6) (215.9)Operating profit before income tax 403.2 331.7 260.5 175.7 199.1Income tax equivalent (120.8) (97.0) (75.3) (47.2) (58.3)Net profit 282.4 234.7 185.2 128.5 140.8Earnings before interest and tax 731.0 626.0 485.2 388.2 395.3Earnings before interest and tax and depreciation adjusted (EBITDA)(2) 1,060.5 912.3 727.7 623.6 651.0Capitalised interest 29.5 27.6 17.3 12.1 6.6Balance Sheet ($M)Total assets 11,020.5 9,811.9 8,671.1 8,011.0 7,400.5Total debt 5,464.6 4,769.8 4,094.2 3,872.5 3,344.9Total shareholders' equity 3,117.3 2,922.4 2,574.9 2,293.1 2,315.1Capital Expenditure ($M)Property, plant and equipment and intangibles 995.9 986.0 1,026.4 871.0 722.3Share InformationNumber of shares on issue at year end 875,532,774 875,532,774 875,532,774 875,532,773 875,532,773 Dividends per share (¢) 25.8 21.4 16.9 11.7 108.2Dividends ($M)(3) 225.9 187.8 148.2 102.8 946.9Dividends/Net profit (%) 80.0 80.0 80.0 80.0 672.5RatiosEarnings per share (¢) 32.3 26.8 21.2 14.7 16.1Weighted average shares on issue 875,532,774 875,532,774 875,532,773 875,532,773 875,532,773 Return on total operating revenue (%)(4) 14.1 13.5 12.6 9.6 10.0Return on average shareholders' equity (%)(5) 9.4 8.5 7.6 5.6 5.3Debt/Equity (%) 175.3 163.2 159.0 168.9 144.5Debt/(Debt + Equity) (%) 63.7 62.0 61.4 62.8 59.1Return on average total assets (%)(6) 7.0 6.8 5.8 5.0 5.2Current ratio (%)(7) 121.2 110.6 118.0 183.4 155.2EBITDA interest cover (times)(8) 3.0 2.8 3.0 2.8 3.2 Statistical InformationMaximum Demand (MW) 4,447 4,687 4,768 4,499 4,142 Energy Delivered (GWh) 22,144 22,565 23,365 23,175 22,210 Number of employees at year end(9) 3,804 3,835 3,784 3,733 3,794

Notes(1) Cost of sales refers to Transmission use of system charges and materials and consumables(2) Adjusted for total Depreciation and Amortisation and Impairment(3) Dividends shown represent amounts provided for in the year and also include dividends that have been provided and paid in the same year(4) Net Profit / Total Revenue.(5) Net Profit / Average of Opening and Closing Shareholders Equity.(6) EBIT / Average of Opening and Closing Total Assets.(7) Current Ratio = Current Assets / Current Liabilities(8) EBITDA / (Borrowing Costs + Capitalised Interest)

Notes(1) Cost of sales refers to Transmission use of system charges and materials and consumables(2) Adjusted for total Depreciation and Amortisation and Impairment(3) Dividends shown represent amounts provided for in the year and also include dividends that have been provided and paid in the same year(4) Net Profit / Total Revenue(5) Net Profit / Average of Opening and Closing Shareholders’ Equity(6) EBIT / Average of Opening and Closing Total Assets(7) Current Ratio = Current Assets / Current Liabilities(8) EBITDA / (Borrowing Costs + Capitalised Interest)(9) Full time equivalents

Energex LimitedFive Year SummaryFor the year ended

ROUNDED

As at 30 June 2012 2011 2010 2009 2008Profit and Loss ($M)Total revenue 2,005.0 1,736.4 1,467.9 1,336.2 1,403.0Cost of sales(1) (471.0) (390.7) (345.7) (306.9) (303.6)Employee expenses (232.8) (218.6) (212.1) (208.1) (232.5)Depreciation (319.7) (284.1) (236.0) (232.2) (220.6)Amortisation (2.6) (2.2) (2.7) (4.5) (20.9)Impairment (7.2) (0.0) (3.8) 1.3 (14.2)Borrowing costs (327.8) (294.3) (224.7) (212.5) (196.2)Other operating expenses (240.7) (214.8) (182.4) (197.6) (215.9)Operating profit before income tax 403.2 331.7 260.5 175.7 199.1Income tax equivalent (120.8) (97.0) (75.3) (47.2) (58.3)Net profit 282.4 234.7 185.2 128.5 140.8Earnings before interest and tax 731.0 626.0 485.2 388.2 395.3Earnings before interest and tax and depreciation adjusted (EBITDA)(2) 1,060.5 912.3 727.7 623.6 651.0Capitalised interest 29.5 27.6 17.3 12.1 6.6Balance Sheet ($M)Total assets 11,020.5 9,811.9 8,671.1 8,011.0 7,400.5Total debt 5,464.6 4,769.8 4,094.2 3,872.5 3,344.9Total shareholders' equity 3,117.3 2,922.4 2,574.9 2,293.1 2,315.1Capital Expenditure ($M)Property, plant and equipment and intangibles 995.9 986.0 1,026.4 871.0 722.3Share InformationNumber of shares on issue at year end 875,532,774 875,532,774 875,532,774 875,532,773 875,532,773 Dividends per share (¢) 25.8 21.4 16.9 11.7 108.2Dividends ($M)(3) 225.9 187.8 148.2 102.8 946.9Dividends/Net profit (%) 80.0 80.0 80.0 80.0 672.5RatiosEarnings per share (¢) 32.3 26.8 21.2 14.7 16.1Weighted average shares on issue 875,532,774 875,532,774 875,532,773 875,532,773 875,532,773 Return on total operating revenue (%)(4) 14.1 13.5 12.6 9.6 10.0Return on average shareholders' equity (%)(5) 9.4 8.5 7.6 5.6 5.3Debt/Equity (%) 175.3 163.2 159.0 168.9 144.5Debt/(Debt + Equity) (%) 63.7 62.0 61.4 62.8 59.1Return on average total assets (%)(6) 7.0 6.8 5.8 5.0 5.2Current ratio (%)(7) 121.2 110.6 118.0 183.4 155.2EBITDA interest cover (times)(8) 3.0 2.8 3.0 2.8 3.2 Statistical InformationMaximum Demand (MW) 4,447 4,687 4,768 4,499 4,142 Energy Delivered (GWh) 22,144 22,565 23,365 23,175 22,210 Number of employees at year end(9) 3,804 3,835 3,784 3,733 3,794

Notes(1) Cost of sales refers to Transmission use of system charges and materials and consumables(2) Adjusted for total Depreciation and Amortisation and Impairment(3) Dividends shown represent amounts provided for in the year and also include dividends that have been provided and paid in the same year(4) Net Profit / Total Revenue.(5) Net Profit / Average of Opening and Closing Shareholders Equity.(6) EBIT / Average of Opening and Closing Total Assets.(7) Current Ratio = Current Assets / Current Liabilities(8) EBITDA / (Borrowing Costs + Capitalised Interest)


Key result area Key ActualPerformance

Target Performance

Safety Lost Time Injury Frequency Rate (LTIFR) 3.73 1.0 – 1.5

Compensable Claims Injury Frequency Rate Severity (CCFRS)

3.08 3.1

People Staff Engagement 64.7 66.11Financial Performance

Operating Profit after Tax $282.4 million $223.2 millionStatutory Return on Assets (ROA)

7.0% 6.5%

Operational Excellence

Capital Expenditure Plan 96% Key physicals delivered

to Network Management

Plan (NMP)Operating Expenditure Plan 100% Key physicals

delivered to NMP

Key Projects 88% Delivered as per NMP

Compliance Improvement 89% Tracking to Plan

Network performance

Minimum Service StandardsSystem Average Interruption Duration Index (SAIDI) – • Central Business District (CBD)

8.16 minutes 15 minutes

SAIDI - Urban• 66.65 minutes 102 minutesSAIDI - Rural• 201.81 minutes 216 minutesSystem Average Interruption Frequency Index (SAIFI) • - CBD

0.04 events 0.15 events

SAIFI - Urban• 0.74 events 1.22 eventsSAIFI - Rural• 1.73 events 2.42 events

Service Target Performance Incentive Scheme (STPIS) Total Cumulative Monthly Reward/Penalty

$63.2 million(capped at

$30.48 million)

$0 million

Customers Service Performance Index 85% >80%Community Community Regard Index 69% >63%Environment Carbon Reduction per Carbon Management Plan Scope 1

emissions reduced by 6.8%

Scope 1 emissions

reduced by

5% from 2010/11 baseline

Statement of corporate intent performance targets and outcomes


Chairman’s report 2011/12

Earlier this year the Newman Government was elected with an overwhelming mandate for reform and change. Ministers Tim Nicholls (Treasurer) and Mark McArdle (Energy) were appointed as Energex’s shareholder Ministers.

After being appointed as Chairman of Energex Limited on 31 May 2012, I was provided with a letter Premier Newman had given to Minister McArdle which sets out a charter-styled series of Ministerial Deliverables.

In part the letter stated: “Our electoral success was achieved with a strong cohesive CanDo team committed to real change, and your contribution to the team played a significant part”.

Further: “Queenslanders have voted for change, and it is critical that we respect the trust bestowed on us by delivering on our commitments to grow a four pillar economy, lower the cost of living by cutting waste, deliver better infrastructure and better planning, revitalise front line services for families, restore accountability in Government and work towards our goal of achieving four per cent unemployment in six years and to address soaring electricity bills as part of cost of living relief”.

Tasks identified in the Ministerial Deliverables I have paraphrased and included below insofar as they relate directly to Energex (they are not intended as an exclusive list):

Identify wasteful expenditure;•

Create a strong future for Energy in Queensland with a stable, clear legislative framework for industry;•

Investigate and identify infrastructure requirements to ensure the further growth of the Energy sector;•

Develop and foster the creation of clean energy alternatives;•

Work with the electricity industry to deliver initiatives that incentivise customers to reduce electricity • consumption and thereby lower their cost of living; and

Establish the Office of Best Practice Regulation within the Queensland Competition Authority to cut red tape • and regulation by 20 per cent.

Themes outlined in the Ministerial Deliverables will underpin the direction of Energex going forward. It will be incumbent on the Board and the Energex management team to work closely with the Government to deliver on its election commitments and their longer-term targets.

During 2011/12 the shareholding Ministers accepted the resignation of the former Chairman and two continuing directors. The Board positions have been filled and we now go forward into the next year with a clear and unequivocal understanding of the expectations of the shareholder balanced against our duties to act in the best interest of Energex.

As a director of a Government Owned Corporation in Queensland my duties and liabilities and those of my fellow directors are governed by the Government Owned Corporations Act 1993 (Qld) and the Corporations Act 2001 (Cth).

As this Report shows, Energex has delivered some strong outcomes for our customers, our community and our shareholders across 2011/12. The Report also identifies areas for focus and improvement in the year ahead.

Paramount to the Energex Board is safety – in our workforce and in the wider community. Energex has performed well in the face of past major disasters in Queensland including the devastating 2011 floods and assisting after Cyclone Yasi. The story of the dedication of all staff and employees during the floods to restore electricity supply and keep people safe is inspirational and not forgotten.

In the time ahead among the challenges we as a Board must confront are in understanding our real costs and targeting reductions that will give meaning to the aspirations set out above. All citizens of Queensland not unreasonably aspire to a reduction in the cost of living.


As a Board, in conjunction with Energex management, we have embarked on a strategy that will give effect to reducing the cost of electricity and thereby contribute to a reduction in the cost of living. Energex will also participate fully with the various Government initiated reviews into the electricity sector. We will step-up and play our part.

Energex has a unique opportunity to lead in undertaking major reform in the time ahead consistent with the Premier’s charge to his Cabinet colleagues. Energex going forward will be a very different organisation from what it is at present. These are challenging and uncertain times and we all have a role to play.

I want to thank all Energex employees for the very important role they play in keeping Queenslanders safe; for maintaining a commendably high standard of service and enduring commitment to excellence.

The Honourable Shane L. Stone AC PGDK QCChairmanEnergex


Board profiles

Directors Who Served on the Energex Limited Board During 2011/12

The Honourable Shane Stone AC, QC, PGDK (Sabah), B.A (ANU), LL.B (Melbourne), Grad Dip Ed Admin (Adelaide), Dip Teaching (Sturt), TPTC (Vic), FACE, FAIM, FAICDChairman

Shane Stone was appointed as Chairman of the Energex Limited Board on 31 May 2012. He is a member of the Audit and Risk Committee. Shane is a director of public and private companies in the mining and resources, construction and finance sectors. He is a former teacher and a barrister by profession. Shane formerly served as Chief Minister of the Northern Territory, Attorney General, and in a number of other senior portfolios including Mines and Energy.

John Dempsey ACIS, FIPA, Grad Dip Acctg and Fin Mangt, Grad Dip Ag Econ, GAICDFormer Chairman (Chairman from 22 May 2008 – 28 May 2012)

John Dempsey was first appointed as a non-executive Director of the Energex Limited Board in July 1999. In May 2008, John was appointed Chairman after acting in the position since 1 January 2007. During 2011/12, he was a member of the Audit Committee and the Network and Technical Committee. John has a number of current and former directorships. Until recently John conducted a public accountancy practice in Brisbane. John resigned from the Energex Board on 28 May 2012.

Major General (Retired) Peter Arnison AC, CVO, BEc, D Laws UQ, D Univ QUT, D Univ Griffith, D Letters USQ, D Univ SCUDirector

Peter Arnison was appointed a non-executive Director of the Energex Limited Board in December 2004. He is a member of the Network and Technical Committee, the Remuneration Committee and the Establishment Committee. During 2011/12 he chaired the Network and Technical Committee and was also a member of the Risk and Compliance Committee. Peter served for 37 years in the Australian Army in a variety of Infantry command appointments, retiring as Land Commander, Australia, in June 1996. He was appointed Queensland’s 23rd Governor, serving from July 1997 to July 2003. He held the position of Chancellor of Queensland University of Technology for eight years (until September 2012) and has held a number of company and organisation board memberships.

John Battams Bec, DipEdFormer Director (1 October 2011 – 30 June 2012)

John Battams was appointed as a non-executive Director of the Energex Limited Board in October 2011. During 2011/12 he was a member of the Audit Committee and the Remuneration Committee. John has a number of current and former directorships and has worked in education and is the President of the Queensland Council of Unions. John resigned from the Energex Board on 30 June 2012.

Mary Boydell BCom, FCA, MAICDFormer Director (1 July 2005 – 20 June 2012)

Mary Boydell was appointed a non-executive Director of the Energex Limited Board in July 2005. During 2011/12 she chaired the Risk and Compliance Committee and was a member of the Audit Committee. Mary has extensive board experience in the private and public sectors, combined with senior management roles in commerce and the accounting and legal professions. Mary resigned from the Energex Board on 20 June 2012.


Emeritus Professor Mat Darveniza AO, FTSE, BE, PhD, DEng, Hon DSc, FIEAust, FIEEE, LIVAFormer Director (2 December 2004 – 17 January 2012)

Mat Darveniza was appointed a non-executive Director of the Energex Limited Board in December 2004. During 2011/12 he was a member of the Network and Technical Committee and the Remuneration Committee. Mat has had a distinguished career in electrical engineering and has served on a number of boards and expert committees. Mat resigned from the Energex Board on 17 January 2012.

John Geldard BCom, BE, CPA FAICDDirector

John Geldard was appointed a non-executive Director of the Energex Limited Board in July 2005. He is Chairman of the Audit and Risk Committee and is a member of the Network and Technical Committee. John has extensive experience within the private and public sectors in the manufacturing, mining and energy industries and has been involved with electricity industry reform in Queensland and Western Australia. Previously, he has held executive positions at Energex, including Chief Executive Officer and Chief Financial Officer. He is a Director of Energy Super (formerly ESI Super).

Ron Monaghan BAFormer Director (22 May 2008 – 30 September 2011)

Ron Monaghan was appointed a non-executive Director of the Energex Limited Board in May 2008. Ron was Chairman of the Remuneration Committee and a member of the Audit Committee. Ron has extensive experience in industrial relations and is the General Secretary of the Queensland Council of Unions. Ron has experience as a director on several boards and is a member of the Queensland Council of Unions Executive. Ron did not seek to renew his appointment on the Energex Limited Board at the conclusion of his term on 30 September 2011.

Kerryn Newton LLM, MBA, MA, Grad Dip (Applied Finance and Investment), FAICD, AFAIM Director

Kerryn Newton was appointed as a non-executive Director of the Energex Limited Board in October 2008. She is Chairman of the Remuneration Committee and a member of the Establishment Committee. Kerryn has worked in various legal and management roles in the private and public sectors and consults nationally in corporate governance. Kerryn has chaired the boards of numerous not-for-profit companies in the child care, aged care and housing sectors and is a Commissioner of the Queensland Liquor and Gaming Commission.

New Directors who joined the Energex Limited Board since the end of 2011/12 financial year

Ken Clarke B Com (Hons) Grad Dip (Mgt)Director

Ken Clarke was appointed a non-executive Director of the Energex Limited Board on 5 July 2012. He is a member of the Audit and Risk Committee and the Establishment Committee. Ken has an extensive career in public administration, with particular experience in public finance and governance, including as Northern Territory Under Treasurer. He has had various board appointments during his career.


Mervyn Davies BE (Hons), M.Eng.SC, B.Comm, Director

Mervyn Davies was appointed a non-executive Director of the Energex Limited Board on 5 July 2012. He is Chairman of the Network and Technical Committee and is a member of the Audit and Risk Committee and the Establishment Committee. Mervyn has extensive experience in the electricity distribution industry and has served on numerous federal, state and private company boards.

Linda Mackenzie B Com (Hons), CA Director

Linda Mackenzie was appointed a non-executive Director of the Energex Limited Board on 5 July 2012. She is Chairman of the Establishment Committee and is a member of the Remuneration Committee and the Audit and Risk Committee. Linda has a number of current and former directorships and has worked extensively in commercial and government finance, including as Northern Territory Assistant Under Treasurer (Commercial).

Further details of current Directors and their qualifications and experience can be found on the Energex website at energex.com.au/about-us/we-are-energex/board-members.

Chief Executive Officer

Terry Effeney BE (Hons), BEcon, MEng, GAICD, RPEQ, FIEAustChief Executive Officer

Terry Effeney was appointed Chief Executive Officer of Energex in January 2007. Terry has extensive electricity industry experience with senior engineering and management roles with Ergon Energy and its predecessors prior to joining Energex.

Company Secretaries

Michael Russell BE, MBA, Grad Dip AppCorpGov, GAICD, ACIS, ACSA, MIEAust, CPEngDirector Corporate Governance and Company Secretary

Michael Russell has been a company secretary for the Energex Group Companies since 2004. Michael has held various engineering and management positions since he joined the organisation in 1984, with activities since the late 1990s developing particular experience in corporate governance.

Marnie White BA, LLB, Grad Dip LP, Grad Dip App Corp Gov, ACIS, ACSACorporate Governance ManagerCompany Secretary

Marnie White was admitted as a solicitor in July 2000 and practiced in a national law firm before joining Energex as Legal Counsel Network in 2005. She was appointed as Secretariat and Governance Manager (now Corporate Governance Manager) in December 2007.

Further details of the Secretaries and their qualifications and experience can be found on the Energex website at energex.com.au/about-us/we-are-energex/board-members.

http://www.energex.com.au/about-us/we-are-energex/board-members

http://www.energex.com.au/about-us/we-are-energex/board-members


2011/12 has been a strong year for delivering on our core commitments to our customers – the residents and businesses of South East Queensland (SEQ).

At the heart of our business is a promise to provide a safe, reliable and affordable power supply to meet the evolving energy needs of our customers.

During 2011/12 there was again a focus on delivering capital programs designed to ensure the safe and reliable supply of power to the broader community. Overall the company invested $859 million to improve the capacity and reliability of the network in SEQ.

Significant and targeted network augmentation over time has resulted in better than ever reliability which has undoubtedly contributed to the achievement of our strongest ever corporate reputation rating.

This strong customer sentiment is testament to our overall business performance, and our ability to meet our customers’ needs.

As with any government owned business there is a need to deliver solid customer and community service outcomes, as well as ensure value for money and financial return for the shareholders. In 2011/12, the company’s Operating Profit After Tax (OPAT) was $282.4 million. This solid financial performance means Energex remains in a good financial position to deliver positive community outcomes for the years ahead.

But the world as we know it is changing. Electricity consumption patterns and customer expectations for choice and affordability are drivers for significant industry-wide transformation.

Much of our focus over the past year has been on working to keep pace with these changes and plan for the future, while continuing to achieve sustainable outcomes for our business, our stakeholders and the broader community.

To help achieve this, our shareholders have initiated several independent reviews to evaluate the operations of our business and the Queensland electricity industry.

During 2011/12 we began to implement recommendations resulting from the Electricity Network Capital Program (ENCAP) Review, which was a significant step towards finding the right balance between network outcomes, such as security and reliability, and network prices.

Separately, findings from the Independent Review Panel (IRP) and Inter-Departmental Committee (IDC) will be finalised in early 2013, and we will continue to fully cooperate with the review bodies to seek opportunities that benefit our customers.

We have already made progress towards a business model for the future that ensures we deliver network performance that meets customer expectations, with the ENCAP Review and lower demand forecasts resulting in amendments being made to our forward capital program.

Importantly, we must balance this capital investment review with the need to continue to provide a reliable electricity supply at all times, including during hot summer days when electricity demand peaks.

Significant work to manage the ongoing challenge of peak demand continued in 2011/12, and customers across South East Queensland have again responded positively to a range of peak demand initiatives.

Pleasingly, we are on target to achieve peak demand reductions of 187 megawatts from current demand forecasts through better utilisation of network assets and changes in customer energy use patterns.

We also worked with customers and industry to facilitate the rapid uptake of small scale solar photovoltaic power in our region. Around one in every six South East Queensland homes now has solar panels on their roof, doubling the figure from the previous year and sending a clear message to our industry that sustainable energy supply is a focus for our customer base.

Chief Executive Officer’s report 2011/12


In line with this focus, our vision of delivering energy services for a sustainable future underpins the 2012/13 business priorities, to ensure we continue to achieve positive results for our customers.

2012/13 business priorities

1. Safety – Last year’s safety record was below expectations and, as our first corporate value, it is imperative that we improve our safety performance. We will continue to assess risks, educate our staff and community, and implement initiatives to improve in this area.

2. Core business commitments – We acknowledge the cost of living issues, and will continue to deliver on the promises we have made as the electricity distributor in South East Queensland, providing sustainable and cost effective outcomes for our customers.

3. ENCAP recommendations – As outlined earlier, significant work has been done to optimise our capital investment program to reflect the ENCAP recommendations and this work will continue to ensure we maintain an appropriate balance between network requirements and prices.

4. Business efficiency – The ongoing business efficiency of our operations will be a key focus, with work continuing on a number of cost saving initiatives including Joint Workings projects, the Corporate Property Strategy, improved business performance management, and other initiatives as developed with the IRP and IDC.

5. Intelligent and capable network – Work will continue to improve the intelligence and capability of the network to meet the future energy needs of our customers through managing demand, integrating technology, and providing customers with choices.

6. Regulatory environment – To ensure our future business model can be sustained, it is imperative that we continue the strong financial performance we achieved last year, deliver financial performance consistent with the current regulatory determination, and prepare for the transition to the 2015-2020 regulatory control period.

I am confident that as a business we are well positioned to deliver on these priorities, and ultimately achieve our purpose to provide choice and affordability to meet our customers’ evolving energy needs.

This performance is only achieved through the dedication of our staff, and I would like to thank the Energex team for their ongoing commitment and encourage them to keep focused on the task of continuing to deliver exceptional outcomes for the South East Queensland community.

Terry EffeneyChief Executive OfficerEnergex


Corporate Governance Framework

Corporate Governance Framework and Organisational Structure

Shareholding Ministers

Energex Limited Board

Board Committees

SHAREHOLDING MINISTERS

AUDIT AND RISK COMMITTEE**

ESTABLISHMENT COMMITTEE**

REMUNERATION COMMITTEE

NETWORK AND TECHNICAL COMMITTEE

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Management StructureThe subsidiary Boards are comprised of executive directors as approved by the shareholding Ministers.

EXECUTIVE MANAGEMENT

TEAM

Energex is a public, unlisted company, with two shareholding Ministers who hold the shares on behalf of the State of Queensland. Our shareholding Ministers, as at 30 June 2012 are:

The Hon. Tim Nicholls MP, Treasurer and Minister • for Trade, holding 50 per cent of the A class voting shares and 100 per cent of the B class non-voting shares; andThe Hon. Mark McArdle MP, Minister for Energy and • Water Supply, holding the remaining 50 per cent of the voting shares.

The Board has delegated its authority to the CEO and management, through a control framework including financial limitations, to operate the business on a day to day basis.

The CEO, Executive General Managers from each division and the Director Corporate Governance attend the Executive Management Team (EMT) meetings. The EMT implements the Board’s strategies and policies through the delegation of authority framework.

The Board has reporting and continuous disclosure obligations to the shareholding Ministers under the Government Owned Corporations Act 1993 (Qld) and Corporations Act 2001 (Cth).

The Board has established four Committees to provide oversight of specific matters on its behalf. Each Committee is governed by a Charter and reports to the Board following Committee meetings. Refer to the Register of Board Committees for further details.

NetworkPerformance

Programming, Procurement and Services

Energy Delivery

Customer Services

SPARQ Solutions Pty Ltd*

(ICT)

Corporate Finance and Performance

(CFO)

Strategy and

Regulation

Human Resources

Each division has a business plan with defined Key Result Areas (KRAs) and Key Performance Indicators (KPIs) which link to the corporate Energex business plan. Individual staff roles are defined in Job Profiles and goals are set out in Individual Performance Agreements.

* SPARQ Solutions Pty Ltd is a joint venture company, providing IT services and the Office of the Chief Information Officer (OCIO) function to Energex and Ergon Energy.** On 30 July 2012 the Board approved the reorganisation of the Board Committees to replace the Audit Committee and the Risk and Compliance Committee with an Audit and Risk Committee and an Establishment Committee.

Corporate Governance

Operational Corporate functions


As a Government Owned Corporation (GOC), we report against the Corporate Governance Guidelines for Government Owned Corporations (the guidelines) issued by the Queensland Government.

The guidelines provide the framework for all GOCs, including Energex, to develop, implement, review and report on their corporate governance arrangements under eight principles.

Principle 1 – Foundations of management and oversight

Board CharterOur Board Charter, available on our website, provides a clear delineation between the roles and responsibilities of the Board and individual directors and the matters which are delegated to management. Management’s responsibilities are well defined through job profiles, performance agreements and the Board approved Delegation of Authority framework. The Board reviewed and updated its Charter during the year to ensure that it continues to remain effective and accurate.

Board CommitteesThe Board has established four committees to oversee a range of specialist issues on its behalf.

Board HandbookOur Directors’ and Officers’ Handbook is distributed to new directors and is used as an integral part of their induction process. The Handbook defines the Board governance systems and supports directors and senior managers in their governance responsibilities.

Directors’ inductionNew directors attend a structured induction session to provide them with an overview of our operations and information on the Board and Committee functions. The induction assists the directors to understand their roles and responsibilities as an Energex Director and understand our business and corporate expectations.

Assessing senior management performancePower to Perform is the comprehensive and formal performance management program for all employees. The program includes individual executive performance agreements based on the achievement of well-defined Key Result Areas (KRAs) and Key Performance Indicators (KPIs) involving corporate, commercial and personal goals. For further information on Power to Perform, see Principle 8.

During the year, the Board assessed the performance of the Chief Executive Officer and had oversight of the performance assessments of Senior Executives undertaken by the Chief Executive Officer.

Principle 2 – Structure the Board to add value

Our DirectorsOur Board of Directors, including the Chairman, are all independent, non-executive directors. Our Directors are appointed by the Governor-in-Council in accordance with the Government Owned Corporations Act 1993 (GOC Act). As such, the Board does not play a formal role in selecting Directors or the size of the Board.

Our Board continually assesses the ongoing independence of each Director, with reference to the materiality thresholds (relationships affecting independence status) in the ASX Corporate Governance Principles and Recommendations (2nd edition, with 2010 amendments).

Where a Director has an interest or a material personal interest in a matter being considered by the Board, the Director will declare that interest in accordance with directors’ obligations under the Corporations Act 2001 and the Energex Limited Constitution. The Constitution provides that a Director must absent themselves from a meeting, including all deliberations and voting on a matter, where they have declared a material personal interest in the matter.

Details of Directors’ skills, experience and expertise relevant to their position are set out on pages 8 – 10. The terms

Corporate Governance


of office held by each Director at the date of this report, including the date each Director’s appointment expires, are set out in the Energex Annual Financial Report 2011/12. Their attendances at Board and Committee meetings are also set out in the Energex Annual Financial Report 2011/12.

During 2011/12 the former Board Chairman conducted reviews of the Board and its performance through meetings with each Director. A formal Board performance review was not conducted during 2011/12.

Directors’ access to advice and trainingThe Board Charter provides that directors may seek independent professional advice, at the company’s expense, to assist them to carry out their duties as a director. The Board also has access to continuing education and training, to maintain, update and enhance their skills, knowledge and experience.

Principle 3 – Promote ethical and responsible decision making

Key governance policiesWe are committed to ethical and responsible decision making and have in place a suite of governance policies to establish this framework. These include the Code of Conduct, Compliance Policy, Fraud Control Policy, Delegation of Authority Policy, Conflict of Interest Policy, Public Interest Disclosure Policy, Lobbying Policy, Reportable Gifts Policy, Procurement Policy and the Energex Purchasing Manual.

During the year, we reviewed our Code of Conduct and supporting governance policies to reinforce the standards of behaviour expected by Energex Directors, management, staff and contractors. A copy of the Code of Conduct is provided to all existing and new employees and is readily available on the staff intranet. New employees receive induction training on ethical business practices including the Code of Conduct.

Our advisers, consultants and contractors are expected to comply with high ethical standards aligned with the Code of Conduct. Our contracts with suppliers outline the expectations of the Code of Conduct. A summary of the main provisions of the Code of Conduct is available at energex.com.au/about-us/we-are-energex/our-code-of-conduct.

The governance policies apply to our Board and all personnel and are advocated through a top-down approach by our Board and senior management. Additional obligations of directors are set out in the Energex Board Charter (which includes a Directors’ Code of Conduct) and the Directors’ and Officers’ Handbook.

Trading policyOur company is government owned, therefore, no director or employee holds or trades securities in any Energex Group Company. Our Conflict of Interest Policy includes a Restricted Trading Register, which supplements the legal duties which apply to directors, officers and employees relating to the misuse of information or position and insider trading laws. A summary of this policy is available on our Publication Scheme website under ‘Policies’ at energex.com.au/about-us/right-to-information/publication-scheme.

Principle 4 – Safeguard integrity in financial reporting

Audit CommitteeDuring 2011/12 our Board had in place an Audit Committee comprised of independent directors, to oversee matters of financial integrity and assurance over business operations. Its duties and responsibilities are set out in its charter which is available on our Publication Scheme website under ‘About Us’ at energex.com.au/about-us/right-to-information/publication-scheme.

The role of Chairman of the Committee was not held by the Chairman of the Board. Membership of the Committee is disclosed on pages 8 – 10. Details of members’ qualifications are included in profiles on pages 8 – 10. Attendance at meetings is disclosed in the Energex Annual Financial Report 2011/12.

On 30 July 2012 the Board reorganised its Committees and incorporated the Audit Committee’s responsibilities into an Audit and Risk Committee.

http://www.energex.com.au/about-us/we-are-energex/our-code-of-conduct

http://www.energex.com.au/about-us/right-to-information/publication-scheme





Principle 5 – Make timely and balanced disclosure

We adopt a broad approach to disclosure. We take into consideration the obligations set out in the GOC Act, relevant policies and other legislation in order to ensure accountability to the shareholding Ministers, who are in turn accountable to Parliament. Our shareholding Ministers have access to material information concerning our company including our operations, financial performance, financial position and governance of our company and its subsidiaries. This requirement is similar to the continuous disclosure obligations which apply to listed companies under the ASX Listing Rules.

In addition to submissions on specific matters, including regular briefing notes, we provide a quarterly report to the shareholding Ministers.

Principle 6 – Respect the rights of shareholders

Reporting to our shareholdersWe report in a timely manner on all issues likely to have a significant financial, operational, social or environmental impact in accordance with our obligations under legislation and government guidelines. We work cooperatively with the shareholding Ministers on these issues. Our Chairman is the principal liaison officer with the shareholding Ministers, both on a formal and informal basis, and during 2011/12 met regularly with the Portfolio Minister, along with our CEO. The CEO and certain managers and employees liaise with representatives of shareholder departments on a regular basis. Management seeks the approval of our shareholding Ministers for projects in accordance with the GOC Act and GOC policy guidelines.

A summary of our Government and Shareholder Disclosure Policy is available on our Publication Scheme website under ‘Policies’ at energex.com.au/about-us/right-to-information/publication-scheme.

Our dividend policyBetween 1 and 16 May each financial year, our Board makes a dividend recommendation to our shareholding Ministers in accordance with section 131 of the GOC Act. The 2011/12 dividend recommendation was 80 per cent of Operating Profit After Tax (OPAT) and is payable by 31 December 2012. The Energex Limited Constitution aligns our dividend procedure to the dividend rule in the Corporations Act 2001.

Principle 7 – Recognise and manage risk

Our risk management practices recognise and manage all risks in delivering balanced commercial outcomes.

Corporate Risk Profiles have been developed and maintained for both long term strategic risks and those with a more operational focus. Risk management activities are fully integrated with business planning to ensure that the context of risk management is retained throughout the course of all business decisions.

Risk management systemsThroughout the 2011/12 year, we continued to operate using the principles of AS/NZS ISO: 31000 2009 as the guiding framework for managing risk. We utilise this Standard (together with Australian Standard AS 3806) to manage a diverse and complex range of significant risks through the use of enterprise-based risk management and compliance management frameworks. This standard has been adopted throughout the organisation to ensure material risks and compliance obligations are identified and appropriately managed.

The multitude of risks we manage include network, financial, operational, people, strategic and commercial risks. Details of these risks and the type of controls in place are set out in risk registers managed by each division. Accountabilities within the Enterprise Risk Management (ERM) Framework are:

Our Board maintained oversight of the ERM Framework’s effectiveness through its Risk and Compliance • Committee.



The Audit Committee (now Audit and Risk Committee) oversees assurance that the corporation is properly • meeting its obligations in relation to financial integrity, assurance over business operations and compliance, effectiveness of control frameworks and ethics and integrity.Our Executive Management Team has active risk management responsibilities. Material business risks and • compliance matters and the effectiveness of their management, are continuously monitored and reported to the Board on a monthly basis.

Our Board is responsible for the internal control framework within Energex, which is designed to provide reasonable assurance regarding the achievement of the organisation’s objectives. The internal control framework is comprised of policies and procedures including compliance training and assurance processes to ensure the affairs of the organisation are being conducted in accordance with relevant legislation, regulations and codes of practice. These procedures also ensure that Executive Management and the Board are made aware, in a timely manner, of any material matters affecting our operations and the effectiveness of management of those risks.

Fraud controlWe are committed to the prevention of fraud, including corruption. To provide an effective fraud control framework that is closely integrated with the broader ERM Framework, a suite of strategies and initiatives has been established comprising:

the Code of Conduct deployment and relevant policy which actively discourages fraudulent activity and drives an • ethical cultureFraud Registers to identify and document all fraud related risks, and for each fraud risk document the internal • controls that currently exist to mitigate the riskInternal control measures embedded into business practices and processes • Fraud investigation capabilities, standards and protocols• The independently operated 24 hour Disclosure Line.•

Principle 8 – Remunerate fairly and responsibly

Remuneration CommitteeThe Remuneration Committee of the Board oversees employee remuneration and performance policy. Membership of the committee is set out on pages 8 – 10. The committee’s charter sets out the roles and responsibilities of committee members. A summary is available on our website under ‘About Us’ at energex.com.au/about-us/right-to-information/publication-scheme.

Remuneration policyOur remuneration strategy and practices are aimed at ensuring we attract, retain and motivate high calibre employees at all levels by providing an appropriate combination of competitive, fixed and variable remuneration components. We comply with the Government Owned Corporations Governance Arrangements for Chief and Senior Executives to achieve a balance between public accountability and transparency and our need to attract and retain high calibre staff from competitive labour markets.

Assessing performanceTo reinforce our performance-based culture, we offer an annual performance pay scheme which is linked to our KRAs and KPIs. During 2011/12, we measured progress towards the achievement of our vision and purpose through success against our KRAs and KPIs.

Our performance management program, Power to Perform, aims to improve performance management processes and practices across our business and strives towards a performance focused culture which is critical to our people and safety strategy. The framework promotes continual performance and development conversations between the employee and their leader.




Putting safety first

What we set out to achieve in 2011/12 How we performed

Continue implementing Zero Incident Process (ZIP). Achieved.Integration of ZIP principles into standard business operations across the organisation.

Deploy our Management of Alcohol and Other Drugs Standard.

Achieved.Random alcohol and drugs testing commenced in August 2011.

Retain our external accreditation to AS/NZS4801 and the Electrical Safety Office requirements.

Achieved.Retained our safety accreditation.

Develop and assess our Employee Wellness Program. Achieved.Launched several new initiatives and continued successful programs.

Continue implementing community safety strategy. Achieved.Updated and continued implementing our Community Safety Plan.

Table 1: Key safety performance indicatorsPerformance Indicators 2009/10 2010/11 2011/12Lost Time Injury Frequency Rate (LTIFR) – total number of lost time injuries per million hours worked during the year

1.00 2.43 3.73

Lost Time Injury Severity Rate (LTISR) – days lost per million hours worked in the year

9.81 35.81 64.45

Compensable Claims Frequency Rate Severity (CCFRS) 2.99 2.99 3.08Lost Time Injuries (LTIs) – number of work-related injuries with: defined onset, a medical certificate of incapacity, one or more whole days lost and an accepted WorkCover claim, in the year

7.00 17.00 26.00

Days lost to LTIs 69.00 250.00 449.00Table 1: Results of our 2011/12 key safety performance indicators.

Table 2: Safety performance of Energex contractors 2008/09 2009/10 2010/11 2011/12

LTIs for Contractors 34 17 8 10

Table 2: results of our contractors’ safety performance over a four year period.

What we want to achieve in 2012/13• Continue to focus on reducing LTIs and LTIFR.• Implement a range of new Occupational Health and Safety lead indicators.• Seek to retain external accreditation to AS/NZS4801 and Electrical Safety Office requirements.• Further develop and reinforce programs such as the ZIP Program, the Employee Wellness Program and

community safety strategies.

In 2011/12, our safety performance declined across all measures. However, the types of injuries were less severe than in the past and many of the days lost to injuries can be attributed to staff with existing injuries requiring additional medical treatment. Energex will continue to strive for our ultimate goal of zero injuries and we are making excellent progress towards achieving significant safety milestones.


Responding to customer expectations


Undertake joint project with Ergon Energy to develop a new website as a single reference point for customers to access energy information.

Achieved.Launched yourpowerqld.com.au on 1 July 2012.

Continue tracking customer attitude and behaviour. Achieved.Top ten per cent of utilities for corporate reputation.

Continue to develop and implement our Customer Service Standards.

Achieved.Standards developed and implemented to deliver on Energex’s customer promise.

Improve the meter reading program. Achieved.Percentage of unread meters reduced from 3.5 per cent to 2.8 per cent.

Continue to provide information on energy efficiency initiatives.

Achieved.Completed through targeted programs for both the residential and business sectors.

Review existing network tariffs to align with the proposed Queensland Government tariff changes.

Achieved.Network tariffs now map one to one with the regulated retail tariffs.

Introduce capability to support a domestic Time of Use Tariff.

Achieved.In 2011/12 we participated in the Queensland Competition Authority’s (QCA) Retail Tariff review.

Establish Electrical Partners online Portal. Achieved.Portal released externally in March 2012, allowing over 6000 Electrical Partners, including Solar Installers, to process applications online. This resulted in a 70 per cent automation of Solar PV applications, and a 60 per cent reduction in manually handling more than 30,000 applications monthly within the Customer Contact Group.

Guaranteed Service Levels The Queensland Electricity Industry Code specifies Guaranteed Service Levels (GSLs) that we must provide in relation to the timeliness of service received by small customers. We are required to pay a financial rebate to the customer if service standards are not maintained, as explained in Table 3 on page 20.

Continued excellence in customer serviceIn total, we responded to 803,399 customer enquiries via telephone, email, letter and fax (2010/11: 1,136,777 enquiries). We answered almost 75 per cent of calls to our general enquiries number within 20 seconds.

Queensland Retail Tariff reviewIn 2011/12 we participated in the Queensland Competition Authority’s (QCA) Retail Tariff review. From 1 July 2012, residential customers will be able to choose to move onto a Time of Use (ToU) tariff, a new tariff option. Other changes include the removal of obsolete tariffs from the Annual Gazette and minimum service charges for Energex’s economy (tariff 11) and super economy (tariff 33) tariffs.

We remain committed to delivering network tariffs that support customer choice and provide options for customers to manage their consumption and therefore cost. These changes are another way to help reduce customer demand during peak times.


What we want to achieve in 2012/13• Continue tracking customer attitudes towards Energex and behaviour towards electricity usage.• Continue to provide information on demand management initiatives.

Wrongful disconnection 317 358 226 256 91 102Failure to reconnect 183 193 147 153 36 40Hot water complaint - failure to attend 1 0 0 0 1 0Missed schedule appointment 1303 910 1301 910 2 0Planned interruptions - business 404 231 404 231 0 0Planned interruptions - residential 4264 4222 4264 4222 0 0Total Customer Service 6712 5976 6582 5833 130 143GSL Total 7077 6386 6947 6243 130 143

Table 3: provides a summary of GSL claims paid by category and entity source.

GSL Event Total GSL Claims Paid

Energex Related Retailer related

2010/11 2011/12 2010/11 2011/12 2010/11 2011/12

ReliabilityReliability – interruption duration 365 410 365 410 0 0Reliability – interruption frequency 0 0 0 0 0 0Total Reliability 365 410 365 410 0 0Customer ServiceNew connection 240 62 240 61 0 1

Table 3: Guaranteed Service Levels (GSLs)



Deliver and implement the revised Carbon Management Plan.

Achieved.Overall 30.3 per cent decrease in Scope 1 emissions compared to 2006/07 baseline.

Support embedded renewable energy sources including an expansion of the solar photovoltaic (PV) program.

Achieved.Facilitated 72,545 meter connections for solar PV.

Continue Environmental Awareness Training sessions throughout the organisation.

Achieved.Environment Awareness Training course completed by 92 per cent of staff.

Maintain certification of our Environmental Management System against the Australian New Zealand Standard Environmental Systems – Requirements with Guidance for Use (ISO 14001).

Achieved.Recertified in December 2011.

Operate within best practice environmental management, particularly for infrastructure projects.

Achieved. Through minimising potential environmental impacts and developing partnerships to deliver environmental offsets.

Continue the 2010-2015 Corporate Property Strategy, aimed at reducing future operating costs and improving environmental efficiencies through the consolidation of workplaces.

Achieved.Opening of the new four star by design Distribution • Centre at Eagle FarmLaunch of the replacement pole and cable storage • facility at Larapinta Relocation of staff to Southern Metropolitan Office • (SMO) at Upper Mount GravattExpansion of facilities at Landsborough• Property purchases at Yandina, Narangba and Lytton • for future Depot requirements.

Table 4: Total carbon footprint 2008 – 2011 (tonnes CO2-e)Emission source 2008/09 2009/10 2010/11

Scope 1 – Direct emissions 112,604 144,057 28,913Scope 2 – Emissions associated with the use of electricity 1,338,264 1,315,254 1,149,619Scope 3 – Indirect emissions 22,833 16,164 3,923Reduction measure 25,293 26,131 34,531Total carbon footprint 1,448,408 1,449,344 1,147,924

Delivering sustainable outcomes

Carbon managementWe voluntarily offset our Scope 1 and air travel 2010/11 emissions, by purchasing a total of 29,000 tonnes of CO2-e at a total cost of $201,550. We also secured a total of 35,000 tonnes CO2-e at a cost of $66,500 to offset the Scope 1 and air travel emissions for 2011/12. Scope 1 emissions occur from sources owned and controlled by Energex including fleet, generators, switchgear and refrigerators.

Energex has developed a Waste Reduction and Recycling Plan which aims to reduce waste sent to landfill. In 2011/12 we continued to recycle our waste products and decommissioned assets, including metal, cables, oil, timber, paper, cardboard and commingled waste. A portion of the funds raised through recycling initiatives was used to support community environmental organisations.

Table 4: provides a breakdown of our total carbon footprint.


What we want to achieve in 2012/13• Continue to manage our carbon emissions through operational efficiencies and business needs.

• Continue implementing our Environmental Strategy, with particular focus on our Environmental Offset partnerships.

• Continue work on our Corporate Property Strategy through the delivery of the Northern Metropolitan Office and Geebung Redevelopment.

• Further develop and implement our Waste Reduction and Recycling Plan.

• Work with the Queensland Government and other industry professionals to develop a sustainable solution to meet increased demand for solar PV installations.

In 2011/12, Energex consumed a total of approximately 14,100,000 kWh of electricity across our Corporate Property Portfolio. This represents a 17.4 per cent decrease in consumption compared to the baseline year in 2005/06. Of the 2011/12 total, 40 per cent was sourced from Green Power.

Energex is committed to improving the efficiency of our vehicle fleet. In 2011/12, we achieved a 28 per cent reduction of carbon emissions from our light vehicle fleet compared to the 2007/08 baseline year.


Educating the community Our community education programs address the electrical safety risks that are most relevant to customers. These include:

severe weather • fallen powerline safety• Look Up and Live and Dial Before You Dig• home electrical safety• kids safety• service line safety• rural safety• recreation and aviation activities• boating safety.•

Supporting the communityThroughout 2011/12, our sponsorship program continued to provide funding and support to South East Queensland communities with an investment of approximately $1.039 million. Our sponsorship policy reflects our commitment both to the community and sustainability. We focus our investments towards targeted initiatives around local communities, safety, education, the environment and energy efficiency. The policy is closely governed by our Sponsorship Committee led by our Chief Executive Officer and consisting of senior managers from across the business.

Engaging our community


Continue supporting the community through sponsorship.

Achieved.Provided more than $1 million in support of local community groups in South East Queensland.

Commission London Benchmarking Group Australia New Zealand to review our community partnership portfolio.

Achieved.Our results compared strongly with other organisations across a range of categories. We intend to use this data to make improvements to our programs.

Continue monitoring and updating our stakeholder management strategy to reflect changing business requirements.

Achieved.Continued stakeholder engagement and consultation activities.

Continue trialling our new Community Partnerships Fund which focuses on investing in communities which may be impacted by specific major projects.

Achieved.Contributions made to community groups in major capital works project areas.

Maintain our commitment to transparent corporate reporting through the Corporate Responsibility Index (CRI).

Achieved.Achieved CRI score of 86 per cent.

What we want to achieve in 2012/13• Continue supporting the community through our 2012/13 sponsorship program, focusing on local community

initiatives, safety, education and sustainability.• Continue to develop social communication channels to provide quick and easy information for customers.• Continue to improve our community engagement by reviewing processes, projects and outcomes.


Supporting our people


Finalise our Enterprise Bargaining Agreement 2011. Achieved.Delivered with no industrial action and within Government Owned Corporations – Wages Policy (2010) parameters.

Continue implementing our Power to Perform pilot program.

Achieved.Successfully implemented second year of pilot program.

Continue implementing the Energex Workforce Planning framework.

Achieved.Workforce planning framework and methodology was used to develop Energex’s five year people plan (2012 – 2017).

Table 5: Our staffCategory Employees as at 30 June 2011 Employees as at 30 June 2012

Administrative 664.2 624.0Apprentice 363.0 352.0Electrical Systems Design Advisers 92.0 84.5Executive Contract 146.5 136.3Para-professional 342.3 355.0Power Worker 187.0 177.0Professional & Managerial 630.7 656.5Supervisor 378.0 357.6System Operator 71.0 94.0Technical Serviceperson 961.0 968.0Grand Total 3835.7 3804.9*

Table 5: employee figures have been reported on a Full Time Equivalent (Active) basis.* (Energex Full Time Equivalent (Active) numbers peaked at 3877.9 at 31July 2011 following the intake of 40 new apprentices).

2011 Energex Union Collective AgreementThe signing of a new 2011 Energex Union Collective Agreement was a major achievement in 2011/12. The new agreement, which applies to approximately 95 per cent of our workforce, offers improved pay and conditions as well as greater workplace flexibility and business benefits. Energex employees from across the organisation and industry unions were actively involved in the negotiation. This agreement provides a fair and balanced outcome for our employees, our company and the community of South East Queensland.

What we want to achieve in 2012/13• Apply a targeted right sizing approach to ensure our workforce better matches our future Program of Work

requirements.• Place a greater emphasis on our leaders’ role to lead and drive culture change.• Achieve a greater alignment between remuneration and reward with responsibilities and performance.


Maintaining South East Queensland’s network


Improve our Minimum Service Standards (MSS) for network reliability and security.

Achieved.Achieved better than minimum service standards.

Report against the new Service Target Performance Incentive Scheme (STPIS).

On track.Introduced and reported against new STPIS standards and achieved four of the six reliability measures.

Undertake our planned vegetation management program. Achieved.Continued planned vegetation management program with total expenditure of $79.2 million.

Develop and release 2011/12 Summer Preparedness Plan.

Achieved.Delivered a $425 million Summer Preparedness Plan to improve the resilience of the network and our response to severe weather events.

Preparing for summer 2011/12Severe weather events including storms, floods, extended periods of high temperatures and high winds can cause significant damage to our electricity network. In preparation for the 2011/12 summer season, we invested more than $425 million through our Summer Preparedness Plan to improve the resilience of the network and our response to severe weather events.

Network demandThe maximum network demand measured during the 2011/12 summer occurred on Monday 9 January 2012. The load of 4,447 MW was 240 MW less than the peak demand registered during summer 2010/11. Energy delivered was 22,144 GWh in 2011/12, down from the peak in 2009/10 of 23,365 GWh.

South East Queensland Peak Demand is GrowingGraph 1: Energex Energy Purchases and Temperature Adjusted Peak Demand Comparison

Graph 1: shows energy delivered to South East Queensland customers and the recorded peak demand totals across our network between the 2001/02 and 2011/12 financial years.

Energex Energy Purchases and Temperature Adjusted Peak Demand Comparison

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Our target is to achieve real peak demand reductions over the next five years totalling 187 megawatts from current demand forecasts. By improving utilisation of network assets, the benefits can ultimately be passed to electricity consumers through modified network prices.

Network reliabilityThe Minimum Service Standard (MSS) System SAIDI over the last five years with a breakdown by non-storm, storm, planned outages and exclusion events (Major Event Days) is displayed in Graph 2. Weather conditions in 2011/12 were again favourable, with minimal storm contribution. There was one Major Event Day on 21 February 2012 where significant network damage occurred in the North Coast region, centred on Cooroy. This storm generated destructive winds, considerable rainfall and minor flooding across the distribution area.

Graph 2: System SAIDI (12 month)

Table 6: records and compares our network reliability performance since 2007/08 and demonstrates how our 2011/12 Actual performance compared to MSS targets.

Table 6: Reliability Performance Normalised Reliability Performance MSS (Planned & Unplanned)

2007/08

Actual

2008/09

Actual

2009/10

Actual

2010/11

Actual

2011/12

Actual

2011/12

MSSSAIDI (mins)

CBD 4.000 3.100 1.200 6.050 8.160 15.000Urban 85.000 91.200 88.500 79.700 66.650 102.000Short rural 242.000 228.000 215.700 201.600 201.810 216.000

Graph 2: tracks our system SAIDI minutes since 2007/08 and demonstrates the significant impact of the Major Event Days on our 2010/11 results, impacted by the January 2011 floods.

The MSS System SAIDI and SAIFI performance figures for 2011/12 are compared in Table 6. These figures include planned and unplanned outages, with exclusion events removed. All feeder categories are favourable to the MSS and have improved from the 2010/11 figures, except for the number of substation interruptions, including a flooded basement, and cable failure.

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12Non-Storm 73.9 74.4 70.6 60.0 48.0

Storm 36.6 26.9 17.6 18.7 16.0Planned 21.3 27.2 33.6 31.7 36.2

Exclusion Events 0.0 115.2 20.2 447.1 3.7Total 131.8 243.7 141.9 557.5 103.8

0

100

200

300

400

500

600Non-Storm Storm Planned Exclusion Events

Total 131.8 243.7 141.9 557.5 103.8

Exclusion Events 0.0 115.2 20.2 447.1 3.7

Planned 21.3 27.2 33.6 31.7 36.2

Storm 36.6 26.9 17.6 18.7 16.0

Non-Storm 73.9 74.4 70.6 60.0 48.0

2007/08 2008/09 2009/10 2010/11 2011/12


2011/12 was the second year of our Service Target Performance Incentive Scheme (STPIS), introduced by the Australian Energy Regulator (AER) for the five-year regulatory period between 2010 and 2015. STPIS is intended to encourage distributors to maintain and improve service performance for customers and operates concurrently with our MSS obligations focusing on unplanned performance. We achieved four of our six reliability STPIS targets, as set out in Table 7.

Managing flood risksFollowing the January 2011 flood events, Energex developed an Improvement Action Plan. The Plan identified areas for improvement of our current systems and processes. Some of these relate to our internal processes while others relate to issues affecting the wider community, including the location of Central Business District (CBD) electricity distribution assets.

What we want to achieve in 2012/13• Improve our service standards for network reliability and security.• Achieve the six STPIS targets.• Achieve the six MSS reliability targets.• Deliver against our Network Management and Summer Preparedness Plans.

Table 7: Reliability Performance – STPIS Reliability Performance (Unplanned)Normalised Reliability Performance MSS (Planned & Unplanned)

2010/11

Actual

2011/12

Actual

2011/12

TargetsSAIDI (mins)

CBD 6.400 8.030 3.300Urban 57.000 43.108 67.700Short rural 142.300 143.360 164.400

SAIFI (events)

CBD 0.011 0.042 0.032Urban 0.840 0.647 1.032Short rural 1.800 1.544 2.201

Table 7: records our STIPIS performance in 2011/12.


Measuring operational success


Deliver the 2011/12 Program of Work (PoW) on time and within budget.

Further action required.$859 million was invested in our network system Capital Program.

Invest $234 million on network maintenance to improve reliability and complete customer requested work.

Achieved.Invested $274.9 million into operating and maintaining our network.

Develop and release Network Management Plan. Achieved.Delivered the 2011/12 to 2015/16 Network Management Plan.

Adjust operations according to Electricity Network Capital Program (ENCAP) Review results.

Achieved.Reduced our five-year capital works program in accordance with the Review’s findings.

Continue into our third year of the Community Powerline Enhancement Program (CPEP).

Achieved.22 project proposals received, eight projects are now complete, six projects are underway, three are proposed for 2012/13 and five have been cancelled or deferred.

Continue to deliver energy conservation and demand management initiatives as part of our Demand Management Strategy.

Achieved.Continued to trial home and business initiatives to reduce energy demand.

Continue the Joint Workings Asset Management project.

Achieved.Delivered efficiencies and cost savings through Joint Workings Asset Management initiatives in collaboration with Ergon Energy. Proposed to continue with six Asset Management projects in 2012/13.

Our Capital and maintenance programEnergex invested $859 million in our network system Capital Program, resulting in significant network improvements and increased capacity through South East Queensland. Similarly, more than $274.9 million was invested in our network maintenance program to improve reliability.

In 2011, the Queensland State Government reconvened the committee which had reviewed the Queensland electricity distribution network in 2004. The new review, known as the Electricity Network Capital Program (ENCAP) Review highlighted a significant improvement in urban reliability (the vast majority of our customer base) which had improved by 40 per cent since the initial Electricity Distribution and Service Delivery (EDSD) Review, while the number of electricity supply complaints had fallen by 66 per cent since 2002.

As a result of the ENCAP Review, which was endorsed by the State Government in December 2011, we have made significant downward adjustments to our current five-year capital works program to reduce network expenditure.


Table 8: Total Capital Expenditure

What we want to achieve in 2012/13• Deliver internal cost efficiencies.• Operate the network efficiently, effectively and safely.• Deliver the reduced network expenditure in accordance with the ENCAP Review.

Capital Expenditure ($M) 2012 2011Corporate initiated network augmentation 422.0 483.1Customer initiated capital works 184.5 186.2Asset replacement 191.1 144.6Other supply system capital works 61.1 45.7Network system capital 858.7 859.6Non supply system capital expenditure 101.5 101.9Regulated Standard Control Services Total 960.2 961.5Regulated Alternate Control Services 31.9 20.5Non-Regulated Services 3.8 4.0Total Capital Expenditure 995.9 986.0

Table 8: breakdown of total Capital Expenditure.


Additional corporate reporting

Ministerial DirectionsOn 11 February 2012, the shareholding Ministers issued a Direction under section 115(1) of the Government Owned Corporations Act 1993, in relation to implementing the findings of the 2011 Electricity Network Capital Program (ENCAP) Review. On 17 February 2012, the Direction was published in the Queensland Government Gazette.

On 28 June 2012, the shareholding Ministers issued a Direction under section 115(1) of the Government Owned Corporations Act 1993, in relation to implementing a freeze on the network charges contributing to maintaining no increase to Tariff 11 in 2012/13. On 6 July 2012, the Direction was published in the Queensland Government Gazette.

Ministerial NotificationsOn 18 September 2011, the shareholding Ministers advised that the Public Interest Disclosure Standard is to apply to Energex Limited and its subsidiaries, in accordance with section 114 of the GOC Act. On 30 September 2011, the section 114 notification was published in the Queensland Government Gazette.

Table 9: Changes to our key assets since 2007/08Assets 2007/08 2008/09 2009/10 2010/11 2011/12Total Overhead and Underground (km)2 48,568 49,513 50,205 50,863 51,434Lines - Length of Overhead (km)2

Total 34,714 34,788 34,837 34,959 35,051 LV 14,319 14,306 14,294 14,287 14,274 11 kV 17,291 17,357 17,404 17,451 17,502 33 kV 1,978 1,999 1,999 2,080 2,098 132/110 kV 1,126 1,126 1,140 1,141 1,177Cables - Length of Underground (km)2

Total 13,854 14,725 15,368 15,904 16,383 LV 8,860 9,362 9,710 9,990 10,261 11 kV 4,154 4,465 4,722 4,938 5,122 33 kV 723 781 815 843 866 132/110 kV 117 117 120 133 133Other Equipment (Qty) Bulk Supply Substations 37 37 38 40 41 Zone Substations 213 219 223 227 235 Poles 622,064 630,259 638,982 647,648 653,741 Distribution Transformers 43,420 44,613 45,456 46,083 46,792 Street Lights 306,892 314,008 324,111 333,797 340,248Customers Residential 1,148,270 1,167,890 1,187,770 1,204,190 1,220,430 Other 1 110,670 110,310 111,305 111,950 113,185 Total 1,258,940 1,278,200 1,299,075 1,316,140 1,333,615

Note 1 – since implementation of a new customer information system in mid 2008, customer type information is no longer readily available.Note 2 – the line length data for 2007/08 to 2010/11 differs from data previously published. All line lengths have been adjusted due to detection of a database error that double counted some line length segments.


Table 10: Corporate entertainment and hospitality Events over $5,000 Date Total Cost ($)Energex Supplier Quality Awards 15 March 2012 31,428Energex Customercare Awards 11 May 2012 58,761Energex Apprenticeship Awards 29 June 2012 20,434TOTAL 110,623

Table 11: International travel expenditure 2011/12 Summarised below is the international travel expenditure costs incurred by the Energex Group of companies for 2011/12.

Region Country / Location

Purpose No. of

visits

Expenditure ($)

Subtotal per region

($)Pacific Rim

New Zealand To attend conference and facilitation of a workshop on maximising field worker productivity through the introduction of field force automation.

1 1,107

To investigate and witness specific tests and findings as part of the ongoing investigation into the failure mode of suspect ring main units.

1 1,220

To attend the International Electricity Infrastructure Assurance (IEIA) Forum.

1 1,515

To attend EL-002 Electrical Committee Meeting organised by Standards New Zealand as an Energex committee representative.

1 1,384

To witness switchgear testing of ABB ring main units. 1 1,440Attendance at Special Joint Meeting Australasian Power System Operator in Wellington, NZ.

1 2,120 8,786

Asia South Korea, Hong Kong and Singapore

Visit various groups at CLP Holdings Limited.Visit Hyosung, Hyundai, ILJIN Electric and Shinsung Industrial Electric Factories.To meet with EDMI (supplier of the meters)

2 20,316

Seoul, South Korea

To witness Cable Tests and Inspect Cable Factory at ILJIN Electric Company.

1 5,699 26,015

Europe United Kingdom

To learn from Smart Utility Conference and UK Utilities in order to formulate Energex’s metering strategies and policies which assist Energex in transition to an intelligent, capable and connective network that meets future requirements.

2 30,293

United Kingdom, London and Conventry

As part of the insurance renewal program, Energex in conjunction with our insurance brokers, Willis, presented to Aegis, QBE and other current and prospective Underwriters. The aim was to ensure as favourable terms as possible in a tightening market. Energex also met with several UK based utility organisations.

3 41,381

Spain and Switzerland

To attend the PRIME Utility summit and visit various utilities and suppliers.

1 14,122 85,796

USA New York, Washington, San Diego

Attendance at Gridwise Conference as guest speaker and panel member and visits with utilities.

1 15,023

To attend Ventyx Mindshare user Conference and participate in workshops planned for voting on future product enhancements.

2 44,413 59,436

TOTAL $180,033Table 11: summary of international travel expenditure in 2011/12.

Table 10: provides a breakdown of corporate entertainment and hospitality expenditure.


Glossary and abbreviations

Australian Energy Regulator (AER): From 1 July 2010, the Australian Energy Regulator is responsible for our economic regulation under the provisions of the National Electricity Rules (NER).

Capital Expenditure (CAPEX) Plan: A measure of how effectively Energex is completing the program that is identified in the Network Management Plan.

Capital Program of Work (Capital PoW): Investment in new network infrastructure or improving existing network infrastructure.

CO2-e: CO2-e is a measurement to express the relative effect to Carbon dioxide a specific amount of greenhouse gases has. It is calculated by multiplying the amount of tonnes of the greenhouse gas by its global warming potential.

Corporate Responsibility Index (CRI): An index used to measure our corporate responsibility and sustainability performance across environment, community/social, workplace, marketplace and business conduct, and ethical governance.

Customer: A party that consumes services or electricity and has a retail contract with a retailer and a connection contract with a distributor. A customer can be categorised in the market as follows:Large Customer > 100MWh consumption per annumSmall Customer < 100MWh consumption per annum.

Distributor: A party who manages an electricity distribution network (e.g. Energex). Regulations define a distribution entity as the party who provides customer connection services to a customer at an electrical installation or premise. The term Distributor may also be used interchangeably with the term Network. A Distributor is also known as a ‘Network Service Provider’.

Electricity Industry Code (EIC or the Code): Under the authority of the Electricity Act 1994, the Regulator issued the code to prescribe requirements relating to industry planning, reporting and service standards.

Government Owned Corporation (GOC): An entity created by a government to undertake commercial activities on behalf of an owner government.

Guaranteed Service Level (GSL): Defined by the Code distributors and retailers must adhere to stipulations regarding the timing of reconnecting and disconnecting supply to the electricity network.

Key Result Area (KRA): Key Result Areas are organisation wide objectives that measure business performance. Our current KRAs cover Safety, People, Financial Performance, Network Performance, Operational Excellence, Customers and Community.

KPI: Key Performance Indicator

kV: Kilovolts (1000 volts)

Lost Time Injury (LTI): Instances where permanent staff suffered a physical injury as a result of a safety incident, which resulted in those staff taking time off work.

Lost Time Injury Frequency Rate (LTIFR): Calculated as the number of lost time occurrences of injury or disease for every one million hours worked over a 12 month progressive period.

LV: Low voltage

Major event day: Is a statistically low probability event which is calculated using network performance data from the previous five years.

Megavolt amperes (MV.A): The product of voltage and current multiplied by one million.


Network Management Plan (NMP): The plan is prepared annually to explain how Energex is managing the network to meet customer and shareholder aspirations. The NMP is a requirement of the state government’s Electricity Industry Code (EIC or the Code).

Operational Expenditure (OPEX) Plan: A measure of how effectively Energex is completing its maintenance program as identified within the Network Management Plan.

Peak Demand: The maximum amount of electricity used at one time. Each day, electricity peaks in the early evening, as people return home and switch on electrical appliances. Once or twice a year, electricity peaks at summertime and winter.

Program of Work (PoW): Taking plans for new network investments and plans for ongoing network maintenance from the concept stage (design) through to delivery, ensuring the projects are delivered on time and within budget by achieving best practice in the project management.

Queensland Competition Authority (QCA): An independent statutory authority charged with implementing competition policy for electricity companies in Queensland.

Retailer: The party from which a consumer has contracted to purchase electricity.

Service Target Performance Incentive Scheme (STPIS): Introduced by the AER, STPIS is intended to encourage distributors to maintain and improve service performance for customers and operates concurrently with our MSS obligations focusing on unplanned performance.

Social media: Media disseminated through social interaction using various forms of technology and transforms people from content consumers into content producers. Forms can include, but are not limited to, internet forums, weblogs, social blogs, wikis, podcasts, pictures, instant messaging and social media services including Facebook, YouTube, Twitter, MySpace and LinkedIn.

Statement of Corporate Intent (SCI): Energex’s annual strategic planning document which is an agreement between Energex and our shareholding Ministers.

System Average Interruption Duration Index (SAIDI): The average duration (in minutes) of the long duration (more than one minute) outages.

System Average Interruption Frequency Index (SAIFI): The average number of long duration (more than one minute) outage events experienced by a customer over a period of time.

Zero Incident Process (ZIP): Energex’s workplace safety awareness program that focuses on the ‘person’ component of the Safety Culture Model. It gives participants an insight into the way their brain works, their thinking, their attitudes and how this drives their behaviour. It is designed to empower people to take control of their personal safety by becoming more effective within the systems they work in. Energex uses ZIP under licence from Sentis Pty Ltd.

Energex Annual Financial Report

Energex LimitedABN 40 078 849 055

and consolidated entity

ABN 40 078 849 055

Annual financial reportfor the year ended 30 June 2012

Contents Page

Directors’ report.................................................................................................................................................. 3

Auditor's independence declaration ................................................................................................................... 8

Income statements............................................................................................................................................. 9

Statements of comprehensive income............................................................................................................. 10

Balance sheets ................................................................................................................................................ 11

Statements of changes in equity ...................................................................................................................... 12

Cash flow statements....................................................................................................................................... 13

Notes to and forming part of the financial statements1 Summary of significant accounting policies ........................................................................................................................................142 Profit from operations ..........................................................................................................................................................................263 Income tax ...........................................................................................................................................................................................274 Discontinued operations ......................................................................................................................................................................315 Earnings per share (EPS)....................................................................................................................................................................316 Cash and cash equivalents .................................................................................................................................................................327 Trade and other receivables................................................................................................................................................................338 Inventories ...........................................................................................................................................................................................349 Property, plant and equipment ............................................................................................................................................................3510 Intangible assets..................................................................................................................................................................................3811 Other assets ........................................................................................................................................................................................3912 Trade and other payables....................................................................................................................................................................3913 Long-term borrowings..........................................................................................................................................................................3914 Provisions ............................................................................................................................................................................................4015 Other liabilities .....................................................................................................................................................................................4116 Contributed equity................................................................................................................................................................................4117 Reserves..............................................................................................................................................................................................4218 Retained earnings................................................................................................................................................................................4219 Dividends .............................................................................................................................................................................................4320 Financial risk management objectives and policies ............................................................................................................................4321 Financial instruments...........................................................................................................................................................................4622 Commitments for expenditure .............................................................................................................................................................4923 Defined benefit obligations ..................................................................................................................................................................5024 Investment in jointly controlled entity...................................................................................................................................................5325 Investment in controlled entities ..........................................................................................................................................................5426 Key management personnel................................................................................................................................................................5627 Related parties.....................................................................................................................................................................................6128 Contingent assets and liabilities ..........................................................................................................................................................6329 Auditor’s remuneration ........................................................................................................................................................................6330 Events after the reporting period .........................................................................................................................................................63

Directors' declaration ....................................................................................................................................... 64

Independent auditor’s report ............................................................................................................................ 65

3 Energex Annual Financial Report 2011/12

Directors’ report ABN 40 078 849 055

Page 3 of 66

The Board of Directors of Energex Limited (Energex) is pleased to submit this annual financial report of Energex and the consolidatedentity (the Group) for the financial year ended 30 June 2012. In compliance with the provisions of the Corporations Act 2001, the Directors report is as follows:

Directors

The names of the Directors in office at any time during, or since the end of, the year are:

John Patrick Dempsey – (Chairman resigned 28 May 2012) Shane Leslie Stone – Chairman (appointed Chairman 31 May 2012) Peter Maurice Arnison John Charles Battams (appointed 1 October 2011, resigned 30 June 2012) Mary Stuart Boydell (resigned 20 June 2012) Kenneth Bruce Clarke (appointed 5 July 2012) Mat Darveniza (resigned 17 January 2012) Mervyn John Davies (appointed 5 July 2012) John Geldard Linda Ruth Mackenzie (appointed 5 July 2012) Ronald William Monaghan (resigned 30 September 2011) Kerryn Lee Newton

These Directors have been in office since the start of the financial year to the date of this report, unless otherwise stated.

Please refer to the ‘Board Profiles’ section of the Energex Annual Performance Report 2011/12 for details of Directors’ qualifications,experience and special responsibilities.

Company Secretary

Michael Wayne Russell Marnie Maree White

Please refer to the ‘Board Profiles’ section of the Energex Annual Performance Report 2011/12 for details of the Company Secretaries’ qualifications, experience and special responsibilities.

Registered office

26 Reddacliff Street, Newstead QLD 4006 (GPO Box 1461, Brisbane QLD 4001).

Principal activities

The principal activities of the Group during the financial year were the design, construction, operation, maintenance and management of the South East Queensland electricity distribution network.

Operating results

The consolidated profit of the Group, after providing for income tax, amounted to $282.4 million (2011: $234.7 million).

Review of operations

A review of the Group's operations during the financial year and the results of those operations are contained in the ‘Chief Executive Officer’s report 2011/12’ section of the Energex Annual Performance Report 2011/12.

Energex Annual Financial Report 2011/12 4


Page 4 of 66

Changes in state of affairs

During the year, two ministerial directions were issued under section 115(1) of the Government Owned Corporations (GOC) Act 1993:

• A direction to implement the findings of the 2011 Electricity Network Capital Program (ENCAP) Review has led to a reduction in planned capital spend and associated future revenue recoveries.

• A direction stipulating the level of network charges to be applied to Tariff 11 for the 2012/13 year. This direction is not expected to impact the results of operations or financial position of Energex as the direction is considered to qualify as a Community Service Obligation (CSO) under section 112 of the GOC Act, and Energex expects that it will be compensated accordingly by the State Government.

Both these directions were published in the Queensland Government Gazette.

No other significant changes in the Group’s state of affairs occurred during the financial year.

Events after the reporting period

There are no matters or occurrences that have come to the Group’s attention up to the time of signing which would materially affectthe results disclosed in the financial report.

Current reviews of the industry the Group operates in and specific organisational reviews are underway as discussed in the future developments section of this Directors’ report. The results of these reviews and any consequential impact on the results or operations of the Group are not yet known at the date of this financial report.

Future developments

The Group will continue its activities, including the design, construction, operation, maintenance and management of the South EastQueensland electricity distribution network.

In May 2012, the Queensland Government established an Interdepartmental Committee (IDC) on Electricity Sector Reform to review all aspects of the sector that impact on electricity costs. It is expected that the IDC will deliver a final report to the QueenslandGovernment in early 2013.

The Queensland Government has also initiated broader reviews of all government related activities and entities, including Government Owned Corporations. Concurrently with these reviews, the Group has embarked on an internal review of work practices and organisational structure. These reviews are ongoing and the final outcome is not yet known.

Further information about other likely developments in the operations of the Group and the expected results of those operations in future years have not been included in this report as it is likely to result in unreasonable prejudice to the Group.

Environmental regulations

The Group’s operations are subject to environmental regulations under both Commonwealth and State legislation.

The Energex Board maintains oversight of key environmental risks and obligations and is committed to achieving a high standard ofenvironmental performance. The Board has appropriate governance arrangements in relation to environmental matters, which includes an Environment Council, consisting of management representatives and the Corporate Environment Group, who regularly reviews and reports on environmental issues to the Risk and Compliance Committee and the Board.

The Group’s Environment Council and Corporate Environment Group are responsible for the regular monitoring of environmental exposures, review of incident trends, environmental initiatives, endorsement of recommendations for environmental improvement policies, programs and investments, as well as compliance with environmental regulations.

To meet its responsibilities, the Environment Council meets monthly to receive progress reports on approved environmental actionplans and environmental status reports via the Corporate Environment Group. Based on the results of enquiries made, the Board isnot aware of any significant breaches of environmental regulations during the period covered by this report.

For further environmental performance information, refer to the ‘Delivering sustainable outcomes’ section of the Energex AnnualPerformance Report 2011/12.



Page 5 of 66

Dividends

Dividends paid or declared by Energex since the end of the 2010/11 financial year were:

Type of shares

Cents per share

Total amount $ M

Franked/unfranked Date of payment

Final 2012 dividend – operating profits Ordinary 25.81 225.9 Unfranked Declared and unpaid Final 2011 dividend – operating profits Ordinary 21.45 187.8 Unfranked 31 December 2011

Share options

There are no share options in existence at this time.

Directors' shareholdings

At the time of publication, no Director held any beneficial interest in the shares of Energex. The shareholding Ministers, on behalf of the State of Queensland, hold all issued shares.

Directors' benefits and interests in contracts

Between 30 June 2011 and 30 June 2012, no Director has received or become entitled to receive a benefit, other than those benefitsdisclosed in Note 26 of the financial statements.

Indemnification of Directors and Officers

Indemnification of Directors and Officers of Energex

Energex has agreed to indemnify current Directors and Officers of Energex, and former Directors and Officers of Energex, against all liabilities to another person (other than Energex or a related body corporate) that may arise from their position as a Director or an Officer of Energex and its controlled entities, except where the liability arises out of conduct involving a lack of good faith or liability against which Energex is not permitted by law to exempt or indemnify the Director or the Officer in accordance with the Constitution of Energex. The Energex Limited Constitution stipulates that, subject to its terms and the exceptions above, Energex will meet the full amount of any such liabilities, including costs and expenses.

Indemnification of Directors and Officers of the Energex controlled entities

Energex has agreed to indemnify Terence Effeney, Darren Busine and Peter Weaver, being current Directors of the Energex controlled entities, and former Directors of the Energex controlled entities, against all liabilities to another person (other than Energex or a related body corporate) that may arise from their position as a Director of the Energex controlled entities, except where the liability arises out of conduct involving a lack of good faith or liability against which Energex is not permitted by law to exempt or indemnify the Director. The deed of indemnity stipulates that, subject to its terms and the exceptions above, Energex will meet the full amount of any such liabilities, including costs and expenses.

Energex has also agreed to indemnify Christopher Arnold, Jennifer Hocking, Kevin Kehl, David Martin, Peter Price, Darryl Rowell,Michael Russell and Marnie White, being current Officers of the Energex controlled entities against all liabilities to another person (other than Energex or a related body corporate) that may arise from their position as an Officer of the Energex controlled entities, except where the liability arises out of conduct involving a lack of good faith or liability against which Energex is not permitted by law to exempt or indemnify the Officer. The deed of indemnity stipulates that, subject to its terms and the exceptions above, Energex will meet the full amount of any such liabilities, including costs and expenses.



Page 6 of 66

Indemnification of Energex Directors and Officers appointed to external boards and committees

Energex has agreed to indemnify any Directors or Officers who are nominated by the Energex Board to represent Energex on external boards and committees to the extent as follows:

Indemnities provided to former Energex representative Directors continue following their resignation from that position, in accordance with the terms of the deed of indemnity.

Other Officers appointed to external boards and committees are indemnified in accordance with the terms of the Energex Directors’ and Officers’ liability insurance policy.

Insurance premiums

Premiums have been paid on policies of insurance for former and current Directors and Officers. Disclosure of the nature of theliability covered by and premiums paid under these contracts of insurance is prohibited by the terms of the insurance contracts.

Directors' meetings

The numbers of meetings of the Energex Board of Directors and of each Board Committee held and attended by each Director duringthe year ended 30 June 2012 were:

Board meetings Committee meeting

Energex Limited Audit Risk and Compliance

Network and Technical Remuneration

Directors Attended Held1 Attended Held1 Attended Held1 Attended Held1 Attended Held1

Shane Stone (Chairman)2 0 0 n/a n/a n/a n/a n/a n/a n/a n/a

John Dempsey (Chairman)3 10 10 5 5 n/a n/a 3 3 n/a n/a

Peter Arnison4,5 10 11 n/a n/a 4 4 4 4 2 2

John Battams6,7,8 7 8 2 3 n/a n/a n/a n/a 3 3

Mary Boydell9,10 10 11 5 5 4 4 n/a n/a n/a n/a

Mat Darveniza11 6 6 n/a n/a n/a n/a 2 2 3 3

John Geldard12 11 11 4 5 4 4 n/a n/a n/a n/a

Ronald Monaghan13 3 3 2 2 n/a n/a n/a n/a 3 3

Kerryn Newton14,15 11 11 n/a n/a 4 4 2 2 6 6 1 The number of meetings held represents the number of meetings held during the period the Director was in office. 2 The Hon Shane Stone was appointed as Energex Chairman on 31 May 2012. 3 Mr John Dempsey resigned from the Energex Limited Board effective 28 May 2012. 4 Major General Peter Arnison was Chair of the Network and Technical Committee during 2011/12. 5 Major General Peter Arnison was appointed to the Remuneration Committee on 27 February 2012. 6 Mr John Battams was appointed as an Energex Limited Director on 1 October 2011. 7 Mr John Battams was appointed to the Remuneration & Audit Committees on 31 October 2011. 8 Mr John Battams resigned from the Energex Limited Board effective 30 June 2012. 9 Ms Mary Boydell was Chair of the Risk and Compliance Committee during 2011/12. 10 Ms Mary Boydell resigned from the Energex Limited Board effective 20 June 2012. 11 Professor Mat Darveniza retired from the Energex Limited Board effective 17 January 2012. 12 Mr John Geldard was Chair of the Audit Committee during 2011/12.13 Mr Ronald Monaghan was Chair of the Remuneration Committee until his term on the Energex Limited Board concluded on 30 September 2011, at which time he did not seek re-appointment. 14 Ms Kerryn Newton was appointed as Chair of the Remuneration Committee on 31 October 2011. 15 Ms Kerryn Newton was appointed to the Network and Technical Committee on 27 February 2012.



Page 7 of 66

Remuneration of Directors and Executives

Refer to Note 26 of the financial statements for details of Directors' and Executives' remuneration.

Rounding of amounts

Energex Limited is a company of the kind specified in Class Order 98/100 dated 10 July 1998, issued by the Australian Securities & Investments Commission. In accordance with that class order, amounts in the financial report and Directors’ report have been rounded to the nearest hundred thousand dollars, unless otherwise stated.

Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 8.

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

The Honourable Shane Stone, AC PGDK QC

ChairmanEnergex Limited 22 August 2012 Brisbane, Queensland


Auditor’s independence declaration

Page 8 of 66

To the Directors of Energex Limited

This auditor’s independence declaration has been provided pursuant to section 307C of the Corporations Act 2001.

Independence Declaration

As lead auditor for the audit of Energex Limited for the year ended 30 June 2012, I declare that, to the best of my knowledge andbelief, there have been –

a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

b) no contraventions of any applicable code of professional conduct in relation to the audit.

N GEORGE CPA (as Delegate of the Auditor-General of Queensland)

Queensland Audit Office Brisbane


Income statements ABN 40 078 849 055

for the year ended 30 June 2012

The accompanying notes form part of these financial statements. Page 9 of 66

Consolidated Energex Limited

2012 2011 2012 2011 Note $ M $ M $ M $ M

Revenue from rendering of services 2.1 1,821.1 1,598.4 1,816.6 1,589.2Revenue from sale of goods 2.1 30.3 27.3 30.3 27.3Government grant revenue 2.1 9.6 9.5 9.6 9.5Other revenue 2.1 144.0 101.2 172.1 101.0Total revenue 2,005.0 1,736.4 2,028.6 1,727.0

Materials and consumables (81.0) (47.0) (80.6) (47.2)Transmission use of system charges (390.0) (343.7) (390.0) (343.8)Employee benefits expense (232.8) (218.6) (231.1) (217.1)Depreciation, amortisation and impairment expense 2.2 (329.5) (286.3) (328.7) (285.5)Contractors and consultants (179.5) (150.4) (175.2) (144.3)Finance costs 2.2 (327.8) (294.3) (329.2) (295.5)Forgiveness of related party receivable 2.2 - - - (1.1)Other operating expenses (61.2) (64.4) (60.5) (63.6)Total expenses 2.2 (1,601.8) (1,404.7) (1,595.3) (1,398.1)Profit before income tax equivalent 403.2 331.7 433.3 328.9Income tax equivalent 3.1 (120.8) (97.0) (120.2) (96.0)Profit for the year attributable to owners of Energex Limited 6.2,18 282.4 234.7 313.1 232.9

The accompanying notes form part of these financial statements.


Statements of comprehensive income ABN 40 078 849 055




2012 2011 2012 2011 Note $ M $ M $ M $ M

Profit for the year 282.4 234.7 313.1 232.9

Other comprehensive income Gain on revaluation of property, plant and

equipment, net of tax 17.1 224.6 256.9 224.6 256.9Actuarial gains/(losses) on defined benefit plans,

net of tax 18 (86.2) 43.7 (86.2) 43.7Other comprehensive income for the year, net

of tax 138.4 300.6 138.4 300.6Total comprehensive income for the year 420.8 535.3 451.5 533.5



Balance sheets ABN 40 078 849 055

as at 30 June 2012



2012 2011 2012 2011 Note $ M $ M $ M $ M ASSETSCurrent assets Cash and cash equivalents 6 205.4 156.8 205.4 152.2Trade and other receivables 7 339.2 284.0 338.1 280.5Inventories 8 87.8 80.0 87.8 79.3Other current assets 11 20.9 24.1 20.9 24.1Total current assets 653.3 544.9 652.2 536.1Non-current assets Trade and other receivables 7 311.6 176.1 311.6 176.1Property, plant and equipment 9 10,048.7 9,067.6 10,035.9 9,054.2Defined benefit fund surplus 23.3 - 16.4 - 16.4Intangible assets 10 6.9 6.9 6.9 6.9Total non-current assets 10,367.2 9,267.0 10,354.4 9,253.6TOTAL ASSETS 11,020.5 9,811.9 11,006.6 9,789.7LIABILITIES Current liabilities Trade and other payables 12 204.9 167.3 203.8 165.9Current tax payable 3.2 3.1 - 3.1 -Provisions 14 293.9 221.3 293.9 221.3Other current liabilities 15 37.3 104.1 37.3 104.1Total current liabilities 539.2 492.7 538.1 491.3Non-current liabilities Trade and other payables 12 - - 0.8 22.3Long-term borrowings 13 5,464.6 4,769.8 5,464.6 4,769.8Defined benefit fund deficit 23.3 100.3 - 100.3 -Net deferred tax liabilities 3.4 1,670.8 1,493.8 1,672.6 1,496.8Provisions 14 123.9 127.4 123.9 127.4Other non-current liabilities 15 4.4 5.8 4.4 5.8Total non-current liabilities 7,364.0 6,396.8 7,366.6 6,422.1TOTAL LIABILITIES 7,903.2 6,889.5 7,904.7 6,913.4NET ASSETS 3,117.3 2,922.4 3,101.9 2,876.3

EQUITY Contributed equity 16 746.4 746.4 746.4 746.4Reserves 17 1,803.9 1,586.8 1,803.9 1,586.8Retained earnings 18 567.0 589.2 551.6 543.1Parent interest 3,117.3 2,922.4 3,101.9 2,876.3TOTAL EQUITY 3,117.3 2,922.4 3,101.9 2,876.3



Statements of changes in equity ABN 40 078 849 055



Attributable to owners of Energex Limited Contributed

equityReserves Retained

earnings Total equity

Consolidated $ M $ M $ M $ M

Balance at 1 July 2010 746.4 1,339.9 488.6 2,574.9

Profit for the year - - 234.7 234.7 Other comprehensive income - 256.9 43.7 300.6 Transfer from reserves to retained earnings on asset disposal - (10.0) 10.0 - Total comprehensive income for the year - 246.9 288.4 535.3 Transactions with owners in their capacity as owners: Dividends provided for or paid - - (187.8) (187.8) Balance at 30 June 2011 746.4 1,586.8 589.2 2,922.4

Balance at 1 July 2011 746.4 1,586.8 589.2 2,922.4 Profit for the year - - 282.4 282.4 Other comprehensive income - 224.6 (86.2) 138.4 Transfer from reserves to retained earnings on asset disposal - (7.5) 7.5 - Total comprehensive income for the year - 217.1 203.7 420.8 Transactions with owners in their capacity as owners: Dividends provided for or paid - - (225.9) (225.9) Balance at 30 June 2012 746.4 1,803.9 567.0 3,117.3

Contributedequity

Reserves Retained earnings

Total

Energex Limited $ M $ M $ M $ M

Balance at 1 July 2010 746.4 1,339.9 444.3 2,530.6

Profit for the year - - 232.9 232.9 Other comprehensive income - 256.9 43.7 300.6 Transfer from reserves to retained earnings on asset disposal - (10.0) 10.0 - Total comprehensive income for the year - 246.9 286.6 533.5 Transactions with owners in their capacity as owners: Dividends provided for or paid - - (187.8) (187.8) Balance at 30 June 2011 746.4 1,586.8 543.1 2,876.3 Balance at 1 July 2011 746.4 1,586.8 543.1 2,876.3 Profit for the year - - 313.1 313.1 Other comprehensive income - 224.6 (86.2) 138.4 Transfer from reserves to retained earnings on asset disposal - (7.5) 7.5 - Total comprehensive income for the year - 217.1 234.4 451.5 Transactions with owners in their capacity as owners: Dividends provided for or paid - - (225.9) (225.9) Balance at 30 June 2012 746.4 1,803.9 551.6 3,101.9




Cash flow statements ABN 40 078 849 055




2012 2011 2012 2011 Note $ M $ M $ M $ M Cash flows from operating activities: Receipts from customers (inclusive of goods and

services tax) 1,723.5 1,581.3 1,716.6 1,569.1Payments to suppliers and employees (inclusive of

goods and services tax) (935.7) (891.5) (929.1) (878.9)787.8 689.8 787.5 690.2

Finance costs paid (317.9) (273.3) (319.2) (274.6)Income taxes paid - - (0.6) (0.4)Net cash provided by operating activities 6.2 469.9 416.5 467.7 415.2Cash flows from investing activities: Payment for property, plant and equipment, and

intangibles (932.3) (928.7) (932.0) (925.9)Payments for capitalised interest (29.5) (27.7) (29.5) (27.7)Loan to related parties (25.8) (20.6) (25.8) (20.6)Proceeds from sale of property, plant and equipment 14.2 9.4 10.2 9.4Interest received 6.2 22.1 19.6 22.0 19.4Net cash used in investing activities (951.3) (948.0) (955.1) (945.4)Cash flows from financing activities: Proceeds from borrowings 718.4 675.7 718.4 675.7Loan from related parties - - 10.6 -Repayable deposits paid (0.6) (0.6) (0.6) (0.6)Dividends paid to owners of Energex Limited 19 (187.8) (148.2) (187.8) (148.2)Net cash provided by financing activities 530.0 526.9 540.6 526.9Net increase/(decrease) in cash and cash

equivalents 48.6 (4.6) 53.2 (3.3)Cash and cash equivalents at start of year 156.8 162.0 152.2 156.1Queensland Treasury Corporation working capital

facility - (0.6) - (0.6)Cash and cash equivalents at end of year 6.1 205.4 156.8 205.4 152.2


Notes to and forming part of the financial statements ABN 40 078 849 055


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1 Summary of significant accounting policies

1.1 General information

Energex Limited (Energex) is a company domiciled in Australia. The consolidated financial report for the year ended 30 June 2012comprises the parent (Energex) and its subsidiaries (together referred to as the Group) and the Group’s interest in a jointly controlled entity.

The financial report was authorised for issue by the Directors on 22 August 2012. 1.2 Statement of compliance

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards issued by the Australian Accounting Standards Board, the Corporations Act 2001 and the provisions of the Government OwnedCorporations Act 1993 (GOC Act).

The accounting policies have been consistently applied, unless otherwise stated.

The financial report includes the consolidated financial statements of the Group and Energex in accordance with the Australian Securities & Investments Commission (ASIC) Class Order 10/654, issued on 26 July 2010.

The Group is a for-profit entity for the purpose of preparing financial statements.

Early adoption of Australian Accounting Standards

The Group has considered the Australian Accounting Standards issued or amended but not yet effective for the annual reporting period ended 30 June 2012 and elected not to early adopt any standards under section 334(5) of the Corporations Act 2001.

Australian Accounting Standards not yet applicable and not early adopted

The Australian Accounting Standards issued or amended that are not yet effective and not elected to be early adopted relevant to the Group are shown below (those Australian Accounting Standards that have been assessed to result in no, or minimal, impact are notincluded in the table):Reference Title Issued Application

date of standard

Impact on the Group’s financial report Application date for the

Group AASB 9 Financial Instruments December 2010 1 January 2013 The classification of financial assets will be based on the characteristics

of the cash flows supporting the financial asset and the entity’s business model. Financial assets will be classified as either at fair value or at amortised cost. The extent of the impact has not yet been quantified.

1 July 2013

AASB 11 Joint Arrangements August 2011 1 January 2013 Under the new AASB 11, if the parties have rights to and obligations for underlying assets and liabilities, the joint arrangement is considered a joint operation and partial consolidation is applied. Otherwise the joint arrangement is considered a joint venture and they must use the equity method to account for their interest. Management is currently reviewing the impact of this on its investment in SPARQ Solutions Pty Ltd. The extent of the impact has not yet been quantified.

1 July 2013

AASB 13 Fair Value Measurement September 2011 1 January 2013 The new standard explains how to measure fair value when required byother Australian Accounting Standards. It does not introduce new fair value measurements, nor does it eliminate the practicability exceptions to fair value that currently exist in certain standards. Although no material change is anticipated, current valuation methods will be reviewed. The extent of the impact has not yet been quantified.

1 July 2013

AASB 119 Employee Benefits September 2011 1 January 2013 AASB 119 is amended focussing on, but not limited to, the accounting for defined benefit plans. In addition, it changes the definition of short-term and other long-term employee benefits and some disclosure requirements. The extent of the impact has not yet been quantified.

1 July 2013

1.3 Basis of preparation

Historical cost convention

The consolidated financial report has been prepared on the basis of historical cost, except where stated for certain financial assetsand liabilities and supply system assets that are carried at their fair value.




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Functional and presentation currency

The consolidated financial report is presented in Australian dollars, which is Energex’s functional currency and the functional currency of entities in the Group.

Critical accounting estimates and judgements

The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associatedassumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from theseestimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in relevant future periods affected.

The estimates and assumptions that have a potential significant effect are discussed below.

Future recovery of regulated revenue under-recoveries

Under the current framework imposed by the National Electricity Rules, the Group is entitled to recover regulated revenue under-recoveries and the solar photovoltaic feed-in tariff rebate through future “distribution use of system” charges. On this basis theregulated revenue under-recoveries are considered to be fully recoverable. As at 30 June 2012, $48.7 million has been approved for recovery in the 2012/13 year. The non-current amount of $154.8 million is expected to be recovered under future price determinations(refer to Note 7).

At the date of this report, reviews of all aspects of the electricity sector that impact on electricity costs as discussed in the Directors’ report have not led to any decisions that would impact the recovery of revenue under-recoveries.

Regulated revenue

Various assumptions are used in the recognition of the Group’s regulated revenue and associated assets and obligations. These estimates and assumptions are described in Notes 1.5, 1.12, 1.20, 7, 14 and 15.

Impairment of property, plant and equipment, and intangible assets

The Group assesses impairment at the end of each reporting period by evaluating conditions specific to the Group that may indicatepotential impairment of assets. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units or CGUs). Key estimates and assumptions made in determining the recoverable amount of assets, in the absence of quoted market prices are discussed in Note 9.1.

Supply system assets valuation

Supply system assets, including associated land and buildings, are carried at fair value. Fair value is estimated using an incomeapproach based on discounted future cash flows. Key estimates and assumptions made in assessing fair value are discussed in Note 9.

Depreciation

Depreciation is calculated on a straight-line basis using the estimated useful life and estimated residual value of an asset. Theseestimates and assumptions are further discussed in Notes 1.15 and 2.2.

Dismantled assets valuation

The unit rates used to estimate the value of dismantled assets are aligned with the supply system assets income-based valuationapproach (refer Note 9).




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Defined benefit superannuation fund obligations

Actuarial assumptions used in the calculation of the Group’s defined benefit superannuation fund obligations are described in Note 23.

Employee benefits

The Group recognises a long service leave liability based on accrued employee benefits. The liability recognised for employee benefitsis based on assumptions described in Note 1.19.

1.4 Principles of consolidation

The consolidated financial statements of the Group include the financial statements of Energex and all entities in which it had a controlling interest during the year ended 30 June 2012.

Subsidiaries

Subsidiaries are entities controlled by Energex. Control exists when Energex has the power, directly or indirectly, to govern thefinancial and operating policies of an entity to obtain benefits from its activities.

The balances and effects of transactions between entities are eliminated in preparing the consolidated financial statements.

Where control of an entity commences or ceases during a financial year, the profits or losses are included in the consolidated incomestatements from the date control commenced to the date control ceased. Investments in controlled entities are carried in the financialstatements at the lower of cost and recoverable amount.

Jointly controlled entities

The Group has a 50 per cent interest in the jointly controlled entity, SPARQ Solutions Pty Ltd. This investment is accounted for in the financial statements using the equity method. Under this method, the Group's share of the post-acquisition profits or losses of the jointly controlled entity is recognised in the consolidated income statements, and its share of post-acquisition movements in reserves is recognised in the consolidated reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Refer to Note 24 for further details.

1.5 Revenue

Revenue is measured at the fair value of the consideration received or receivable net of goods and services tax (GST). Revenue isrecognised when the amount can be reliably measured and it is probable that future economic benefits will flow to the Group or benefits have already flowed to the Group.

Revenue is recognised for the major business activities as follows:

Rendering of services

Regulated revenue

Energex is subject to regulation under the National Electricity (Queensland) Law, the National Electricity Rules, and other rules established by the Australian Energy Market Commission as administered and enforced by the Australian Energy Regulator (AER). Activities performed by the Group which are governed by regulation fall into two revenue categories known as a revenue cap or a price cap. The revenue cap comprises of a pre-determined allowance for distribution use of system (DUOS) charges and capital contributions to the supply system assets. The revenue cap applies to activities undertaken in the use of the electricity distributionsystem as defined by regulation (known as Standard Control Services). The price cap applies to certain ancillary distribution services (refer to the service charges section below) and is determined as a price per unit of service.

Regulated revenue under the revenue cap is billed to customers based on energy consumption at AER approved prices which are expected to recover the revenue cap for the financial year.

Regulated network use of system (NUOS) revenue is determined based on the allowed revenue cap for DUOS services plus a pass through of regulated transmission use of system (TUOS) charges levied by transmission network service providers (predominantly Queensland Electricity Transmission Corporation Limited trading as Powerlink Queensland).




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Under the current regulatory determination, Energex is entitled to a recovery of the solar photovoltaic feed-in tariff rebate paid. This recovery is also included in NUOS revenue.

Any current period under or over-recovery is recovered from or returned to customers in the succeeding periods through an adjustment to prices. Where over-recoveries result in an obligation, they are brought to account as a liability in the period in which they are over-recovered. Where there is sufficient certainty regarding the recoverability of under-recoveries, they are brought to account as an asset in the period in which they are under-recovered. It is assumed that, similar to the direction related to Tariff 11 networkcharges as discussed in the Directors’ report, future directions which would lead to charges below the AER approved prices wouldqualify as Community Service Obligations (CSO’s) under section 112 of the GOC Act and Energex would have the ability to recoverany revenue shortfalls from the State Government.

When circumstances arise which, in the opinion of the Directors, significantly change the assumptions on which the revenue cap is based, the AER is advised and the adjustments are reflected against the revenue cap and the resulting prices.

The AER introduced a Service Target Performance Incentive Scheme (STPIS) from 1 July 2010 that applies to electricity DistributionNetwork Service Providers (DNSPs). The purpose of the scheme is to provide financial incentives for DNSPs to maintain and improve service performance levels. The scheme enables Energex to earn a reward or penalty capped at ±2.0% of allowed revenue at risk as set by the AER.

Energex has forgone the 2010/11 STPIS reward of $29.4 million permanently and has reflected this in the 2012/13 Pricing Proposalwhich was approved by the AER on 1 June 2012. The STPIS performance for 2011/12 resulted in a reward of $30.5 million which has been recognised as revenue in the 2011/12 year.

During the 2010/11 year, there was a change in the AER regulatory determination resulting from an Australian Competition Tribunaldecision which entitled Energex to recover further revenue amounts in the remaining years of the 2010-2015 regulatory control period, including the year commencing 1 July 2011. However, under a direction issued by the shareholding Ministers in May 2011,Energex did not recover the additional DUOS revenue amount of $52.3 million for the 2011/12 year and has forgone this revenue permanently.

Service charges

Revenue is earned for the provision of other electricity-related services including additions and alterations to meters and service connections, ancillary metering services and temporary supply services. These are known as fee-based services and are subject to a price cap determined by the AER. However, the price charged for some of these services is capped under Schedule 8 of Queensland’s Electricity Regulation 2006 which overrides the AER price caps. Revenue is recognised when the service is provided.

Revenue is also earned for the construction and maintenance of street lighting and for other quoted services which represent customer requested works and recoveries for damage to Energex property. This revenue is recognised when the work has been completed or with reference to the stage of completion of the works.

Classification of revenue

There are two categories of distribution services, being Standard Control Services (SCS) and Alternative Control Services (ACS).SCS comprise network services, connection services and metering services on which a revenue cap is applied. ACS include street lighting services, quoted services and fee-based services which are regulated under a price cap.

SCS assets form part of the Regulated Asset Base (RAB) and earn a return over their life under the revenue cap. ACS assets are subject to a price cap with the revenue recognised at the commencement of their life and, therefore, do not earn a return over their life. SCS and ACS assets are measured at fair value.

Non-refundable contributions for capital works

The Group finances part of its capital works program through non-refundable contributions from customers which are applied to thecost of these works. Under the AER regulatory regime, the contributions to capital works are categorised either as revenue relating to SCS or ACS. SCS comprise network services, connection services and metering services with the associated assets forming part ofthe RAB. ACS include services such as street lighting and large customer connections with the associated assets excluded from the RAB. Refer to the ‘Classification of revenue’ section above.




Page 18 of 66

Contributions towards assets which form part of the RAB are included in regulated revenue for the electricity network at the fair value of the contribution. Contributions towards assets which are regulated under the price cap are recognised at the rates allowed by the AER.

All non-refundable contributions, in-kind and in-cash, are initially recognised as unearned revenue in the balance sheet. Thesecontributions are subsequently recognised as revenue from ordinary activities when the associated assets are brought into commercial operation. Contributions of fully constructed non-current assets are recognised at the fair value of the contributed asset on the date when control passes to Energex and the assets are ready for use.

Sale of goods

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods, and effective control over the goods, have been passed to the buyer and the amount can be measured reliably.

Interest revenue

Interest revenue is recognised as it is earned using the effective interest method.

Government grants

When there is reasonable assurance the Group will comply with all conditions attached to government grants and the grants will bereceived, they are recognised in the balance sheet as unearned revenue. Grants that compensate the Group for expenses incurred are recognised as revenue in the income statements. This occurs on a systematic basis as the conditions of the grants are fulfilled.

1.6 Goods and services tax

Revenues, expenses and assets are recognised net of GST except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statements on a gross basis where major classes of cash receipts and cash payments aredisclosed inclusive of GST. The GST component of cash flows arising from investing and financing activities that is recoverable from, or payable to, the taxation authority is classified as operating cash flows on the basis that the GST receivable or payable is operating in nature.

1.7 Finance costs

Finance costs charged by the lender include administration fees, capital market fees, a competitive neutrality fee and interest on the principal (refer Note 1.21).

Interest costs are calculated by Queensland Treasury Corporation (QTC) in accordance with its book rate methodology, which equates to amortised cost using the effective interest rate method. The effective interest rate is the rate that exactly discountsestimated future cash payments or receipts over the expected life of the financial instrument.

Finance costs which are not directly attributable to qualifying assets are expensed in the period in which they arise.

Finance costs directly attributable to the construction of assets that take more than 12 months to prepare for their intended use are added to the cost of those assets (refer Note 9.2).

Where the present value of a provision in the balance sheet differs materially to its future expected settlement value, the provision is recorded at its present value. The increase in the provision due to the passage of time is recorded as a finance cost and is referred to as the unwinding of the discount (refer Notes 1.20 and 2.2).

All other finance costs are recognised as expenses in the period in which they are incurred (refer Note 2.2).




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1.8 Income tax

Income tax equivalents

The Group is required to make income tax equivalent payments to the Queensland Government pursuant to subsection 129(4) of theGOC Act. These payments are administered by the ATO under the National Tax Equivalent Regime (NTER).

The NTER broadly utilises the provisions of the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 andassociated legislation, as well as rulings and other pronouncements by the ATO, to determine the tax payable by the Group (referNote 3.2). The Group entities are not required to maintain a franking account.

Income tax equivalent accounting

The current income tax expense is based on the profit for the year adjusted for any items that are non-assessable or non-deductible in relation to the current tax year. It is calculated using the tax rates that have been enacted or substantively enacted by the end of the reporting period.

Current tax payable is the expected tax payable on the taxable profit for the year, at tax rates applicable to the income tax year, less any instalments paid.

Deferred tax assets and liabilities are calculated by comparing the carrying amounts of assets and liabilities in the balance sheets with the tax bases of assets and liabilities determined in accordance with the relevant taxation legislation.

Deferred tax is calculated at the tax rates expected to apply when the temporary differences between accounting carrying amountsand tax bases of assets and liabilities reverse.

Deferred tax is recognised as an income or expense in the income statements with the exception of those items that may be creditedor charged directly to equity. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset deferred tax balances, those balances relate to the same taxation authority and the intention is to settle on a net basis or realise the asset and settle the liability simultaneously.

The amount of deferred tax benefits brought to account, or which may be realised in the future, is based on the assumption that no adverse change will occur in income taxation legislation. It is also anticipated that the Group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

Income tax consolidation

The Group has implemented the tax consolidation legislation and is, therefore, taxed as a single entity. Energex Limited is the ‘head-entity’ in the tax-consolidated group and makes income tax payments on behalf of wholly-owned subsidiaries. However, in accordance with UIG Interpretation 1052 Tax Consolidation Accounting (UIG 1052), wholly-owned Australian subsidiaries in the tax-consolidated group continue to account for their own current and deferred tax amounts. These amounts are measured as if the subsidiary continued to be a stand-alone taxpayer in its own right.

Tax funding agreement

Entities within the Energex tax-consolidated group have signed a tax funding agreement designed to bind all entities within the tax-consolidated group. Under the terms of the tax funding agreement, each of the subsidiary entities in the tax-consolidated group have agreed to pay or receive a tax equivalent payment to or from the head entity, based on the current tax payable liability or current tax receivable asset of the subsidiary entity. Such amounts are reflected in amounts receivable from, or payable to, the head companyin the tax-consolidated group. Energex has elected the ‘stand-alone taxpayer approach’ under UIG 1052 in accounting for the taxeffect balances of reporting entities within the Group. Under this approach, each entity in the tax-consolidated group measures its current and deferred taxes as if it continued to be a separate taxable entity in its own right.




Page 20 of 66

1.9 Earnings per share

Basic earnings per share is determined by dividing profit after tax attributable to members of Energex by the weighted average number of ordinary shares on issue during the financial year.

The weighted average number of shares on issue during the financial year is calculated by applying a time weighting factor to shares issued or redeemed throughout the year.

1.10 Dividends

A provision is made for the amount of any dividend declared by the Board on or before the end of the financial year but not distributed at the end of the reporting period. The provision is recognised in the reporting period in which the dividends are declared for the entire undistributed amount.

1.11 Cash and cash equivalents

Cash and cash equivalents include cash on hand, cash at bank, call deposits and other short-term highly liquid investments withoriginal maturities of three months or less.

1.12 Trade and other receivables

Trade and other receivables are recognised when the Group has a legal right to receive cash, cash equivalents or economic benefitsand are measured at amounts due at the time of sale or service delivery. Trade receivables are due for settlement within 10 to 30days of the customer being billed. Other receivables are due in accordance with their contractual terms.

Collectibility of trade receivables is reviewed on an ongoing basis. A provision for impairment of receivables is raised when thecollection of the full amount of the debt is no longer probable. Bad debts are written off when identified. Movements in the provision are recognised in the income statements.

Regulated revenue under-recoveries

A current asset is recognised for the net balance of regulated revenue under-recoveries to be recovered over the next 12 months where the net balance is an asset. A non-current asset is provided for any current year under-recovery of regulated revenue if there is sufficient certainty over its recoverability in future years but the timing of the recovery is yet to be approved by the AER.

The non-current asset is escalated by the weighted average cost of capital (WACC) as determined by the AER and discounted at thesame rate to reflect the discounted present value of the amount expected to be recovered at the end of the reporting period (refer Note 7).

1.13 Financial instruments

Initial recognition and measurement

Financial instruments are initially measured at fair value when the related contractual rights or obligations exist.

Subsequent measurement

Financial instruments classified as fair value through profit and loss are measured at fair value at the end of each reporting period subsequent to their initial recognition. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the profit or loss when incurred unless hedge accounting is applied.

Financial instruments classified as loans and receivables are measured at amortised cost subsequent to their initial recognition, using the effective interest method less provision for impairment. The effective interest rate is the rate that discounts estimated future cash flows over the life of the asset.

Other non-derivative financial assets and liabilities are recognised at amortised cost subsequent to their initial recognition, comprising original debt less principal payments and amortisation.




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Forgiveness of intra-group loans

The forgiveness of loans between entities and their shareholders or ultimate shareholders on non-arms' length terms are deemed tobe transactions with shareholders in their capacity as shareholders and are recognised directly in equity.

1.14 Inventories

The majority of Energex inventories are used in the maintenance and construction of supply system assets. Some inventories are sold to contractors for the development of subdivisions. Inventories are measured at the lower of cost and net realisable value.

1.15 Property, plant and equipment

Each class of property, plant and equipment is carried at fair value or cost less, where applicable, any accumulated depreciation and impairment losses. Fair value is defined as the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.

Supply system assets are measured at fair value using an income approach based on discounted future cash flows. Valuations are undertaken annually to ensure that the carrying value of the assets does not differ materially from that which would be determinedusing fair value at the end of the reporting period.

The supply system includes land and building assets which are utilised for warehousing and logistics purposes, training and poledepot facilities, and field response activities. These properties are equipped with specialised facilities to meet the specific needs of the network field operations. These land and building assets are integral in supporting the operation of the electricity network and form part of the regulated asset portfolio subject to the same revenue cap form of regulation.

Other property, plant and equipment, and work in progress are carried at cost less accumulated depreciation where applicable. Thecarrying amount for these assets at cost should not materially differ from their fair value.

Acquisition of assets

All assets acquired are recorded at their cost of acquisition plus incidental costs directly attributable to the acquisition.

Asset recognition threshold

Individual items with a purchase price of $1,000 or greater are recorded in the financial statements as property, plant and equipment.Items between $100 and $999 in value which have a life greater than 12 months are recorded as pooled assets. All other items areexpensed.

Non-current assets constructed by the Group

The cost of non-current assets constructed by the Group includes the cost of materials, direct labour, other costs directly attributable to the assets and, where appropriate, finance costs. Finance costs that are directly attributable to the construction of assets are capitalised as part of the cost of those assets. The current interest rate will be applied to the outstanding work in progress (WIP) balance where the project life exceeds 12 months and the WIP project balance exceeds $200,000. Refer to Note 1.7 for further details.

Contributed assets

Contributed assets are those that are funded by customers and either constructed by the Group or constructed by an external partyand then gifted to the Group by the customer. Contributed assets are recognised at fair value on the date when control passes to the Group and the assets are ready for use.

Repairs and maintenance

Items of property, plant and equipment are maintained on a regular basis and these costs are expensed as incurred. Where the costs extend the useful life of the asset, or upgrade the asset beyond its originally designed function or capacity, such costs are capitalised.




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Gains and losses on disposal

A gain or loss on disposal is recognised in the income statement and is the difference between the net sale proceeds and the carrying amount of the asset at the time of disposal.

Depreciation

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. Depreciation is calculated on a straight-line basis using the estimated useful life of specific classes of property, plant and equipment. Depreciation is provided for from the time units of property, plant and equipment commence operation. Estimates of the remaining useful lives and residual values of property, plant and equipment are reviewed annually. The useful life estimate is determined with consideration of expectedusage based on the asset’s capacity, expected physical wear and tear, and expected technical or commercial obsolescence. When changes are made, adjustments are reflected prospectively in current and future periods only. Energex determines an asset’s residual value based on the amount expected to be obtained on disposal.

The supply system is treated as a complex asset. A complex asset is a physical asset capable of disaggregation into identifiablecomponents that are subject to regular replacement. These components are assigned useful lives distinct from the asset to whichthey relate and are depreciated accordingly.

The estimated useful lives used for each class of depreciable assets are:

Supply system 12 – 70 years Other property, plant and equipment 3 – 35 years

Asset revaluation reserve

If an item of property, plant and equipment is revalued, the entire class to which that asset belongs is revalued on a consistent basis. The supply system is treated as a complex asset for the purposes of revaluation increments and decrements, such that incrementsand decrements can be offset.

Revaluation increments, net of tax, are recognised in the asset revaluation reserve except for amounts reversing a decrement previously recognised as an expense, which are recognised in the income statement. Revaluation decrements are only offset againstrevaluation increments applying to the supply system, and any excess is recognised as an expense.

Where an asset is sold, dismantled or scrapped, any remaining revaluation amount held in the asset revaluation reserve, after anyimpairment loss has been recognised, is transferred directly to retained earnings.

1.16 Intangible assets

Computer software

The cost of internally generated computer software includes the cost of all materials and direct labour used during development of the software and other costs directly attributable to the asset. Capitalisation includes costs incurred from the point of Board approval until the software is available for use. Other computer software is carried at cost.

Research and development

Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalisedonly when technical feasibility studies identify that the project will deliver future economic benefits and the expenditure can be measured reliably. Development costs have a finite life and are amortised on a straight-line basis over the useful life of the asset.

Amortisation

Intangible assets are amortised on a straight-line basis over their estimated useful lives. Energex determines an asset’s residual value based on the amount expected to be recovered on disposal.

The estimated useful lives for intangible assets with finite lives are as follows:

Computer software 2.5 – 7 years

The useful lives of intangible assets are reviewed annually and are altered if estimates have changed significantly.




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Acquisition of intangible assets

All intangible assets acquired are recorded at their cost of acquisition plus incidental costs directly attributable to the acquisition.

Derecognising intangible assets

Intangible assets are derecognised on disposal or when no future economic benefits are expected to arise from continued use of theassets. Gains and losses on the disposal of intangible assets are determined as the difference between the net disposal proceeds and the carrying amount of assets, and are recognised in the income statements.

1.17 Impairment

At the end of each reporting period, the Group reviews the carrying value of the assets of its cash generating units (CGUs) to determine whether there is any indication of impairment.

An impairment loss is recognised whenever the carrying amount of a CGU exceeds its recoverable amount. The recoverable amount is the higher of a CGU’s fair value less costs to sell and its value-in-use.

Fair value less costs to sell is best determined by reference to a price in a binding sales agreement. However, where there is nobinding sales agreement and an asset is traded in an active market, fair value is a CGU’s market price. Where neither of these valuations exist, the net selling price is based on the best information available to reflect the amount that an enterprise could obtain in an arm’s length transaction.

Value-in-use is the present value of future cash flows expected to be derived from a CGU.

Impairment losses are recognised in the income statements, unless an asset has previously been revalued. In this case the impairment loss is treated as an adjustment to the asset revaluation reserve (refer Note 9.1).

Impairment losses are reversed when there is an indication the impairment loss may no longer exist and there has been a change inthe estimate used to determine the recoverable amount. An impairment loss is reversed only to the extent that a CGU’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairmentloss had been recognised.

1.18 Trade and other payables

Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year where payment has not been made. Trade and other payables are recognised when the Group has a legal or constructive obligation to pay.Trade and other payables are recognised at cost, which approximates their fair value. Trade payables are unsecured and payment isnormally made by the end of the month following the Group’s receipt of the supplier’s invoice. Other payables are settled in accordance with their contractual terms.

1.19 Employee benefits

A liability is recognised for benefits accruing to employees for wages and salaries, annual leave, long service leave and vesting sick leave when it is probable that settlement will be required and they are capable of being measured reliably.

Liabilities recognised for employee benefits expected to be settled within 12 months are measured at their nominal value using remuneration rates expected to apply at the time of settlement and include related on-costs.

Liabilities recognised for employee benefits which are not expected to be settled within 12 months are measured at the present value of the estimated future cash flows to be made by the Group for services provided by employees up to the end of the reporting period.These cash flows are discounted using rates attaching to government bonds at the end of the reporting period which most closelymatch the terms of maturity of the related liabilities.

Superannuation plans

Defined contribution plans

Contributions to defined contribution superannuation plans are expensed when incurred.




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Defined benefit plans

The cost of providing benefits for defined benefit plans is determined using the projected unit credit method. Defined lump sumbenefits based on years of service and final average salary are provided in Note 23.

Post-employment benefit obligations are discounted using market yields at the end of the reporting period on government bonds, withterms to maturity and currency of the bonds that match, as closely as possible, to the estimated term of the benefit obligations.

Any defined benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation, net of the fair value of the plan assets. Any asset resulting from this calculation is limited to past service costs, plus the present value of available refunds and reductions in future contributions to the plan. The present value of the defined benefit obligation is based on expectedfuture payments which arise from membership of the fund to the end of the reporting period, calculated by an independent actuary.

Actuarial valuations are carried out at each reporting period. Actuarial gains and losses are recognised in full, directly in retained earnings, in the period in which they occur and are presented in the statements of comprehensive income. Consideration is given to future wage and salary levels, experience of employee departures and periods of service.

Past service cost is recognised immediately in the income statements to the extent that benefits are already vested, and otherwise amortised on a straight-line basis over the average period until the benefits become vested.

1.20 Provisions

Provisions are recognised when the Group has a legal or constructive present obligation, as a result of past events, where it isprobable that an outflow of economic benefits will result and that outflow can be reliably measured. Refer to Note 14 for further details.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account risks and uncertainties. Where a provision is measured using the cash flows estimated to settle the present obligation, the carrying amount is the present value of those cash flows.

Provisions are reviewed on an annual basis and adjustments made where appropriate. Where the adjustment relates to a change in an estimate, the amount is recognised in the income statements prospectively. Only expenditures that relate to the original provision are offset against it.

A provision which is not expected to be settled within 12 months is discounted to present value where the impact of discounting is material. The discount rate used reflects the risks specific to the liability.

Provision for regulated revenue over-recoveries

A non-current provision is recognised for the over-recovery of regulated revenue where there is sufficient certainty over its release in future years, but the timing of the release is yet to be approved by the AER and the release will occur in a period beyond 12 months.The over-recovery of regulated revenue to be released over the next 12 months is recognised as a current liability.

The non-current provision is escalated by the weighted average cost of capital (WACC) as determined by the AER and discounted atthe same rate to reflect the present value of the amount required to settle the obligation at the end of the reporting period (refer Note 14).

Provision for site restoration/rehabilitation

A provision is raised for the obligation to restore property sites in the future on expiration of associated contracts or when the obligation arises in the course of business. The provision is determined with reference to an independent estimate of the cost to restore, repair, dismantle or rehabilitate the site.

Provision for public liability insurance

A non-current provision is raised to cover the Group’s excess on any public liability insurance claim where the cumulative claim value per incident is more than $0.1 million and less than $1 million. Any amount more than $1 million is paid by Energex’s liability insurers if Energex is deemed legally liable. The provision is maintained for up to six years as public liability claims have a statutory limit of six years for property claims, and three years for personal injury claims. This provision is based on an independent actuarial valuationobtained for each insurance year, and is also internally assessed annually at the end of each reporting period for sufficiency andappropriateness. Due to the inability to obtain a reliable estimate of the appropriate split between the current and non-current portions, the entire provision is classified as non-current.




Page 25 of 66

Provision for environmental offsets

A provision is raised where there is a legal obligation to provide environmental offsets to counterbalance unavoidable, negative impacts resulting from an activity or development on the natural environment. The estimated costs required to settle the obligation are attributed to the specific capital project to which the environmental offsets relate.

Provision for service line inspections

A provision has been raised for the obligation to conduct inspections of overhead service lines as the result of recent inspections that have identified that the black insulation covering of some overhead service lines has deteriorated earlier than normal. The provision has been determined through a management estimation of the cost of the inspection programme based on the number of poles known to bein the relevant areas and the designated cost of inspecting the poles.

1.21 Borrowings

Borrowings are initially recognised at fair value net of transaction costs incurred and are subsequently measured at amortised cost, using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument.

Principal repayments are not required for the long-term debt funding with QTC under the terms and conditions of the loans. The working capital facility is short-term in nature with the outstanding balance paid down regularly.

Forward starting loans

The Group enters into forward starting loans with QTC where it agrees to borrow specified amounts in the future at a pre-determinedinterest rate. The forward starting loans are entered into with the objective of minimising interest rate volatility.

It is the Group’s policy to recognise forward starting loans at fair value when the loan is drawn down.

1.22 Leases

Lease payments for operating leases, where substantially all of the risks and benefits remain with the lessor, are charged as expensesin the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.

The Group is not subject to any finance lease payment obligations but is entitled to receive amounts under finance lease receivable arrangements.

Finance lease receivables are recognised as receivables at the present value of minimum lease payments receivable, plus the present value of any unguaranteed residual expected to accrue to the benefit of the Group at the end of the lease term. The asset is reduced by the principal component of lease receipts. The interest component is credited to profit from operations.

1.23 Share capital

Ordinary shares are classified as equity.

1.24 Rounding of amounts

The Group has applied the relief available to it under ASIC Class Order 98/100 dated 10 July 1998. Therefore amounts in the financial report, including the Directors’ report, have been rounded to the nearest hundred thousand dollars, unless otherwise stated.

1.25 Comparatives

Comparative figures have been adjusted where necessary to conform to changes in presentation for the current financial year.




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2012 2011 2012 2011 Note $ M $ M $ M $ M

2 Profit from operations

2.1 Revenue

Revenue from operations consisted of the following items:

Revenue from rendering of services Network use of system (NUOS) 1,738.5 1,493.2 1,738.5 1,493.2Service charges 82.6 105.2 78.1 96.0

1,821.1 1,598.4 1,816.6 1,589.2Revenue from sale of goods 30.3 27.3 30.3 27.3Government grant revenue1 27.4 9.6 9.5 9.6 9.5Other revenue Non-refundable contributions for capital works 82.4 71.2 82.4 71.2Distribution from subsidiary2 6.2,27.1 - - 32.1 -Interest revenue – related parties 27.2 11.4 10.1 11.4 10.1Interest revenue – other parties 26.1 9.4 26.1 9.2Gain on disposal of property, plant and equipment 6.2 5.3 - 1.3 -Sundry revenue 18.8 10.5 18.8 10.5

144.0 101.2 172.1 101.0Total revenue 2,005.0 1,736.4 2,028.6 1,727.01 State government grants of $9.6 million (2011: $9.5 million) were recognised as income by the Group during the year. The nature of the grants represent reimbursement for expenses associated with demand management initiatives and government trainee subsidies. 2 The distribution from the subsidiary comprises loans forgiven by certain subsidiaries of Energex Limited and is eliminated on consolidation. Certain guarantees were issued pursuant to this transaction - refer Note 21.7 and 21.8.

2.2 Expenses

Expenses consisted of the following significant items:

Finance costs: Related parties 27.1 - - 1.4 1.2Other related parties – QTC 27.4 309.8 272.2 309.8 272.2Competitive neutrality fee 27.4 42.0 36.1 42.0 36.1Finance charges – unwinding of discount 14.1 5.5 13.6 5.5 13.6Less: capitalised financing costs 9.1,9.2 (29.5) (27.6) (29.5) (27.6)Total finance costs 327.8 294.3 329.2 295.5 Depreciation, amortisation and impairment

expense:Depreciation Supply system assets 9.1 273.3 240.0 273.3 240.0Other property, plant and equipment 9.1 46.4 44.1 45.6 43.3Total depreciation expense 319.7 284.1 318.9 283.3Amortisation Computer software 10.1 2.6 2.2 2.6 2.2Total amortisation expense 2.6 2.2 2.6 2.2Impairment loss Supply system dismantled assets 9.1 7.2 - 7.2 -Total impairment loss 7.2 - 7.2 -Total depreciation, amortisation and impairment

loss 6.2 329.5 286.3 328.7 285.5




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2012 2011 2012 2011 Note $ M $ M $ M $ M

Other major expenses included: Loss on disposal of property, plant and equipment 6.2 - 13.8 - 13.8Provision for impairment of receivables 6.2 0.9 2.3 0.9 2.3Provision for impairment of related party receivables 6.2 - - - (1.1)Provision for inventory obsolescence 6.2 (0.5) - (0.5) 0.5Forgiveness of related party receivable 6.2,27.1 - - - 1.1Operating lease rental expense 20.4 23.3 20.4 21.7Superannuation defined contribution plan expense 23.9 21.7 23.9 21.7

Total expenses by function:

Regulated standard control services: Finance costs, depreciation, amortisation and

impairment 627.1 562.5 627.1 562.5Transmission use of system charges 390.0 343.8 390.0 343.8Inspection and maintenance 236.5 220.2 236.5 220.2Other network operating and support costs 108.2 107.9 108.2 107.9Solar photovoltaic feed-in tariff payments 73.9 19.4 73.9 19.4Customer services and call centre 19.6 17.4 19.6 17.4Total regulated standard control services 1,455.3 1,271.2 1,455.3 1,271.2

Regulated alternative control services: Fee based, quoted services and streetlighting 41.7 50.4 41.7 50.4Finance costs, depreciation, amortisation and

impairment 14.4 13.8 14.4 13.8Total regulated alternative control services 56.1 64.2 56.1 64.2

Non-regulated services: Non-regulated services 74.6 65.0 67.5 58.0Finance costs, depreciation, amortisation and

impairment 15.8 4.3 16.4 4.7Total non-regulated services 90.4 69.3 83.9 62.7

Total expenses 1,601.8 1,404.7 1,595.3 1,398.1

3 Income tax

3.1 Income tax reported in the income statements

Current income tax: Current income tax charge/(benefit) 3.1 (38.3) 3.8 (37.7)Adjustments for current income tax of previous years 0.4 7.8 0.3 7.5Deferred income tax: Relating to origination and reversal of temporary

differences 118.0 138.0 116.8 136.4Adjustments for deferred income tax of previous years (0.7) (10.5) (0.7) (10.2)Income tax equivalent reported in the income

statements 120.8 97.0 120.2 96.0




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2012 2011 2012 2011 Note $ M $ M $ M $ M

The aggregate amount of income tax equivalent attributable to the financial year differs from the amount calculated on the operatingprofit. The differences are reconciled as follows:

Profit before income tax equivalent 403.2 331.7 433.3 328.9Income tax equivalent calculated at 30% (2011:

30%) 121.0 99.5 130.0 98.7

Equivalent tax effect on non-temporary differences: Bad debts - 0.3 - -Distribution from subsidiary - - (9.6) -Other non-assessable income - (0.3) - -Other non-deductible expenses 0.2 0.2 0.1 -Income tax equivalent adjusted for non-temporary

differences: 121.2 99.7 120.5 98.7Over provision of prior year (0.4) (2.7) (0.3) (2.7)Income tax equivalent reported in the income

statements 120.8 97.0 120.2 96.0

3.2 Current tax balances

Current tax payable/(receivable) 29.1 (24.3) 29.1 (24.3)Less: unused tax losses for which deferred tax asset

has been recognised/(recouped) (26.0) 24.3 (26.0) 24.3Total current tax payable/(receivable) 3.1 - 3.1 -

Income tax equivalent attributable to: Energex Limited 3.1 - 3.1 -Total current tax payable/(receivable) 3.1 - 3.1 -

3.3 Income tax equivalent reported in the statements of comprehensive income

Deferred income tax related to items charged or credited directly to equity:

Property, plant and equipment revaluations 17.1 96.3 110.1 96.3 110.1Actuarial movements on defined benefit plans 18 (36.9) 18.7 (36.9) 18.7Income tax equivalent reported directly in equity 59.4 128.8 59.4 128.8




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2012 2011 2012 2011 Note $ M $ M $ M $ M

3.4 Deferred tax balances

Deferred tax assets

The balance comprises temporary differences attributable to:

Amounts recognised in the income statements: Provisions and accrued expenditure not currently

deductible 60.7 76.6 60.4 76.4Unearned revenue in relation to government grant 2.5 2.8 2.5 2.8Unearned revenue in relation to capital contributions 3.5 6.9 3.5 6.9Unused tax losses for which deferred tax asset has

been recognised - 26.4 - 26.4Reclassification from deferred tax liabilities 1.6 2.8 - -Amounts recognised directly in equity: Defined benefit fund deficit 30.1 - 30.1 -Gross deferred income tax assets 98.4 115.5 96.5 112.5

Set-off of deferred tax liabilities pursuant to set-off provisions (98.4) (115.5) (96.5) (112.5)

Net deferred tax assets - - - -

Movements in deferred tax assets: Balance at start of year 115.5 126.6 112.5 122.2Charged to the income statements (26.6) (20.2) (26.7) (18.9)Credited/(charged) to equity 36.9 (18.7) 36.9 (18.7)(Over)/under provision of prior year (0.2) 3.6 (0.2) 3.6Unused tax losses for which deferred tax asset has

been recognised/(recouped) (26.0) 24.3 (26.0) 24.3Reclassification from deferred tax liabilities (1.2) (0.1) - -Balance at end of year 98.4 115.5 96.5 112.5

Set-off of deferred tax liabilities pursuant to set-off provisions (98.4) (115.5) (96.5) (112.5)

Net deferred tax assets - - - -




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2012 2011 2012 2011 Note $ M $ M $ M $ M

Deferred tax liabilities

The balance comprises temporary differences attributable to:

Amounts recognised in the income statements: Difference in depreciation and amortisation of property,

plant and equipment for accounting and tax purposes 1,588.8 1,456.1 1,590.4 1,459.0

Expenditure currently deductible for tax but deferred and amortised for accounting purposes 12.3 12.4 12.2 12.3

Income not yet assessable for tax but recognised for accounting purposes 70.2 23.0 70.2 23.0

Reclassification to deferred tax assets 1.6 2.8 - -Amounts recognised directly in equity: Revaluation of property, plant and equipment 17.1 96.3 110.1 96.3 110.1Defined benefit fund surplus - 4.9 - 4.9Gross deferred income tax liabilities 1,769.2 1,609.3 1,769.1 1,609.3

Set-off of deferred tax assets pursuant to set-off provisions (98.4) (115.5) (96.5) (112.5)

Net deferred tax liabilities 1,670.8 1,493.8 1,672.6 1,496.8

Movements in deferred tax liabilities: Balance at start of year 1,609.3 1,394.6 1,609.3 1,394.6Charged to the income statements 65.4 103.9 64.1 103.6Charged to equity 96.3 110.1 96.3 110.1Over/(under) provision of prior year (0.6) 0.8 (0.6) 1.0Reclassification to deferred tax assets (1.2) (0.1) - -Balance at end of year 1,769.2 1,609.3 1,769.1 1,609.3

Set-off of deferred tax assets pursuant to set-off provisions (98.4) (115.5) (96.5) (112.5)

Net deferred tax liabilities 1,670.8 1,493.8 1,672.6 1,496.8




Page 31 of 66

4 Discontinued operations

At 30 June 2011, sale agreements had been executed for two landfill gas power generation sites. However, as there were conditionsprecedent outstanding, the sales were not recorded in 2010/11. The completion of these sales occurred in 2012 with sale proceedstotalling $3.9 million.

5 Earnings per share (EPS)

5.1 Operations Consolidated

Note 2012 2011

Total basic earnings per share (cents) 32.25 26.81

$ M $ M The earnings and weighted average number of ordinary shares used in the

calculation of basic earnings per share are as follows: Profit attributable to members of Energex Limited 18 282.4 234.7

Number Number Weighted average number of ordinary shares used in the calculation of basic

earnings per share 5.2 875,532,774 875,532,774

5.2 Calculation of weighted average number of ordinary shares used in the calculation of basic earnings per share

Note

Number of shares on

issue

Number of days shares

issuedNumber of

days in year

Weightedaverage

number of shares

20121 July 2011 – 30 June 2012 875,532,774 366 366 875,532,774Total shares for 2012 16 875,532,774 875,532,774

2011 1 July 2010 – 30 June 2011 875,532,774 365 365 875,532,774 Total shares for 2011 16 875,532,774 875,532,774




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2012 2011 2012 2011 Note $ M $ M $ M $ M 6 Cash and cash equivalents

Cash on hand and at bank 21.5 139.0 74.9 139.0 70.3Short-term deposits 21.5,27.4 66.4 81.9 66.4 81.9Total cash and cash equivalents 205.4 156.8 205.4 152.2

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

Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group. The average effective interest rate on short-term bank deposits was 5.1 per cent (2011: 5.6 per cent)inclusive of fees charged.

6.1 Reconciliation of cash

Cash at the end of the financial year as shown in the cash flow statements is reconciled to items in the balance sheet as follows:

Cash and cash equivalents 205.4 156.8 205.4 152.2Cash and cash equivalents 205.4 156.8 205.4 152.2

6.2 Reconciliation of net profit after tax to net cash flows from operations

Profit after income tax 18 282.4 234.7 313.1 232.9Adjustments for non-cash and other income and

expense items: Depreciation, amortisation and impairment 2.2 329.5 286.3 328.7 285.5(Gain)/loss on sale of property, plant and equipment 2.1,2.2 (5.3) 13.8 (1.3) 13.8Provision for impairment of receivables 2.2 0.9 2.3 0.9 2.3Provision for impairment of related party receivables 2.2 - - - (1.1)Provision for inventory obsolescence 2.2 (0.5) - (0.5) 0.5Interest revenue classified as investing activities (22.1) (19.6) (22.0) (19.4)Unwinding discount on regulated revenue recoveries (9.9) 13.6 (9.9) 13.6Forgiveness of related party receivable 2.2 - - - 1.1Reversal of revaluation decrement - (0.4) - (0.4)Distribution from subsidiary 2.1 - - (32.1) -

Changes in operating assets and liabilities1:(Increase)/decrease in trade and other receivables (172.0) (110.4) (174.6) (113.1)(Increase)/decrease in inventories (7.4) 9.4 (8.0) 8.4(Increase)/decrease in other current assets 19.6 (15.4) 19.5 (15.6)(Decrease)/increase in trade and other payables 4.9 (9.8) 5.2 (7.9)(Decrease)/increase in current tax payable 3.1 - 3.1 -(Decrease)/increase in provisions 20.0 (51.1) 20.0 (47.1)(Decrease)/increase in net deferred tax liabilities 80.7 115.7 79.6 114.3(Decrease)/increase in other liabilities (54.0) (52.6) (54.0) (52.6)Net cash provided by operating activities 469.9 416.5 467.7 415.21 Excludes the impact of items in investing and financing activities.




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2012 2011 2012 2011 Note $ M $ M $ M $ M

7 Trade and other receivables

CurrentTrade receivables 222.9 220.0 222.9 220.0Provision for impairment of receivables (1.5) (4.7) (1.5) (4.7)Finance lease receivables 7.2 0.1 0.1 0.1 0.1Other receivables 29.9 32.4 28.8 28.8Regulated revenue recoveries – net 48.7 - 48.7 -Amounts receivable from jointly controlled entities 27.2 39.1 36.2 39.1 36.3Total current trade and other receivables 339.2 284.0 338.1 280.5

Non-currentFinance lease receivables 7.2 2.2 2.3 2.2 2.3Other receivables 31.0 0.8 31.0 0.8Regulated revenue recoveries 154.8 76.6 154.8 76.6Amounts receivable from jointly controlled entity 27.2 123.6 96.4 123.6 96.4Total non-current trade and other receivables 311.6 176.1 311.6 176.1

7.1 Finance lease receivables are reconciled to the investment in finance leases as follows:

Aggregate of minimum lease payments and unguaranteed residual values:

Not later than one year 0.3 0.3 0.3 0.3Later than one year and not later than five years 1.1 1.1 1.1 1.1Later than five years 2.4 2.7 2.4 2.7Total 3.8 4.1 3.8 4.1

7.2 Future finance revenue

Not later than one year (0.2) (0.2) (0.2) (0.2)Later than one year and not later than five years (0.6) (0.7) (0.6) (0.7)Later than five years (0.7) (0.8) (0.7) (0.8)Total (1.5) (1.7) (1.5) (1.7)

Net finance lease receivables 2.3 2.4 2.3 2.4Reconciled to:Current receivables 7 0.1 0.1 0.1 0.1Non-current receivables 7 2.2 2.3 2.2 2.3Total finance lease receivables 2.3 2.4 2.3 2.4

The Group has entered into a finance lease arrangement as lessor as part of its commercial activities.




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2012 2011 2012 2011 $ M $ M $ M $ M

7.3 Past due but not impaired

As at 30 June 2012, trade and other receivables of $4.7 million (2011: $6.4 million) were past due but not impaired. The ageinganalysis of these trade and other receivables is as follows:

Up to 30 days 1.5 2.8 1.5 2.831 to 60 days 1.0 1.1 1.0 1.1Later than 60 days 2.2 2.5 2.2 2.5Total past due but not impaired 4.7 6.4 4.7 6.4

The method of calculating any provisional impairment for risk is based on past experience, current and expected changes in economicconditions and changes in client ratings.

7.4 Impaired trade receivables

As at 30 June 2012, current trade receivables of the Group with a nominal value of $2.1 million (2011: $5.1 million) were past due and impaired. The amount of the provision for impairment of trade receivables is $1.5 million (2011: $4.7 million). In 2011/12 there were no individually impaired debtors included in the provision which had been placed under voluntary administration (2011: $3.3 million). The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value ofexpected liquidation proceeds. Other trade receivables have been impaired based on historical recovery trends, a percentage beingapplied to the outstanding amount to calculate the provision amount. The Group does not hold any collateral over these balances.

In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting period.

The ageing analysis of these trade receivables is as follows:

One to three months 0.1 - 0.1 -Three to six months - 0.1 - 0.1Over six months 2.0 5.0 2.0 5.0Total nominal value of impaired trade receivables 2.1 5.1 2.1 5.1

Movements in the provision for impairment of trade receivables is as follows:

Carrying amount at the start of the year (4.7) (3.9) (4.7) (3.9)Increases in provision for impairment losses

recognised during the year (0.6) (2.5) (0.6) (2.5)Amounts written off during the year as uncollectible 3.8 1.7 3.8 1.7Carrying amount at the end of the year (1.5) (4.7) (1.5) (4.7)

The creation and release of the provision for impaired trade receivables has been included in other operating expenses in the incomestatements. Amounts charged to the provision account are generally written off when there is no expectation of recovering additionalcash.

8 Inventories

Maintenance and construction stocks 85.8 78.3 85.8 78.2Work in progress 2.0 1.7 2.0 1.1Total inventories 87.8 80.0 87.8 79.3




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2012 2011 2012 2011 $ M $ M $ M $ M 9 Property, plant and equipment

Supply systemAt Directors’ valuation 13,837.1 12,433.1 13,837.1 12,433.1Less: accumulated depreciation (4,642.3) (4,304.4) (4,642.3) (4,304.4)

9,194.8 8,128.7 9,194.8 8,128.7Other property, plant and equipmentAt cost 460.0 441.1 430.5 405.0Less: accumulated depreciation (204.8) (183.0) (197.9) (175.8)Less: accumulated impairment losses (10.2) (15.7) - -

245.0 242.4 232.6 229.2Work in progressAt cost 608.9 696.5 608.5 696.3Total property, plant and equipment 10,048.7 9,067.6 10,035.9 9,054.2

Supply system assets

Energex’s supply system assets are carried at fair value. A valuation on the income approach was undertaken by Energex at 30 June 2012 using the following key assumptions and approach:

Energex’s supply system assets are subject to regulation in the form of a revenue cap and it is assumed that they will continue to be subject to regulation in the future. Cash flows have been projected based on forecasts of prudent and efficient operating costs and revenue consistent with:

The building block methodology outlined in Chapter 6 of the National Electricity Rules; The Australian Energy Regulator’s (AER) May 2010 Final Decision on Queensland Distribution Determination 2010-11 to 2014-15 (Final Determination); and Energex management forecasts of operating costs and revenue for the 2015/16 and 2016/17 years based on the AER building block methodology.

Revenue cash flows for the 2010-15 regulatory period assume a rate of return of 9.72 per cent which is consistent with the WACC determined by the AER in its Final Determination. Any voluntary adjustments to revenue as agreed with the AER have not been taken into account on the basis that a benchmark purchaser would not be subject to specific shareholder directives such as those following the Electricity Network Capital Program(ENCAP) Review. No reduction has been allowed in the revenue cash flows for the Tariff 11 price freeze on the basis the Group is eligible for aCSO payment under the GOC Act as referred to in the Directors’ report. Future capital expenditure has been included in the cash flows as it is assumed that future capital expenditure is required to ensure the security and reliability of the electricity network. Post-tax cash flows have been projected over a five year term on a basis consistent with the AER’s approach, whereby the tax deductibility of debt, capital raising costs and imputation credits are reflected in the projected cash flows, rather than the discount rate. The projected cash flows have been discounted at a rate of 8.22 per cent. The terminal value at 30 June 2017 has been determined using the best information available to estimate future cash flows.

Fully written-down assets still in use

Energex has plant and equipment with a gross carrying amount of $762.4 million (2011: $770.8 million) and a written down value of nil that is still in the asset register. These assets have been confirmed to be still in use at the end of the reporting period.




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Asset retirements

During 2011/12, Energex performed a detailed assessment of assets and retired assets with a carrying amount of $20.1 million (2011:$26.0 million) that were no longer in use. The impact of these retirements has been a transfer of $7.5 million (2011: $10.0 million) from the asset revaluation reserve to retained earnings (refer Note 17.1) and the remainder recognised in the income statement.

9.1 Movements in carrying amounts

Supplysystem

Other plant and

equipment

Capitalworks in progress Total

Note $ M $ M $ M $ MConsolidated Year ended 30 June 2012 Carrying amount at start of year 8,128.7 242.4 696.5 9,067.6 Additions - - 966.4 966.4 Capitalised interest 2.2 - - 29.5 29.5 Disposals - (8.8) - (8.8) Depreciation 2.2 (273.3) (46.4) - (319.7) Revaluation increment (net) 17.1 320.9 - - 320.9 Transfer between classes (2.8) 2.8 - - Transfer from work in progress 1,028.5 55.0 (1,083.5) - Impairment losses on dismantled assets 2.2 (7.2) - - (7.2) Carrying amount at 30 June 2012 9,194.8 245.0 608.9 10,048.7

SupplySystem

Other plant and

equipment


$ M $ M $ M $ M

Year ended 30 June 2011 Carrying amount at start of year 7,206.6 188.0 627.2 8,021.8 Additions - 2.8 959.0 961.8 Capitalised interest 2.2 - - 27.6 27.6 Disposals/dismantled (16.9) (9.2) - (26.1) Depreciation 2.2 (240.0) (44.1) - (284.1) Revaluation increment 17.1 367.0 - - 367.0 Transfer between classes - (0.2) (0.6) (0.8) Transfer from work in progress 811.6 105.1 (916.7) - Reversal of asset write-down 0.4 - - 0.4 Carrying amount at 30 June 2011 8,128.7 242.4 696.5 9,067.6




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SupplySystem

Other plant and

equipment


Note $ M $ M $ M $ MEnergex Limited Year ended 30 June 2012 Carrying amount at start of year 8,128.7 229.2 696.3 9,054.2 Additions - - 966.2 966.2 Capitalised interest 2.2 - - 29.5 29.5 Disposals - (8.8) - (8.8) Depreciation 2.2 (273.3) (45.6) - (318.9) Revaluation increment (net) 17.1 320.9 - - 320.9 Transfer between classes (2.8) 2.8 - - Transfer from work in progress 1,028.5 55.0 (1,083.5) - Impairment losses on dismantled assets 2.2 (7.2) - - (7.2) Carrying amount at 30 June 2012 9,194.8 232.6 608.5 10,035.9

SupplySystem

Other plant and

equipment


$ M $ M $ M $ M Year ended 30 June 2011 Carrying amount at start of year 7,206.6 176.6 627.2 8,010.4Additions - - 958.9 958.9 Capitalised interest 2.2 - - 27.6 27.6 Disposals/dismantled (16.9) (9.1) - (26.0) Depreciation 2.2 (240.0) (43.3) - (283.3) Revaluation increment 17.1 367.0 - - 367.0 Transfer between classes - (0.1) (0.7) (0.8) Transfer from work in progress 811.6 105.1 (916.7) - Reversal of asset write-down 0.4 - - 0.4 Carrying amount at 30 June 2011 8,128.7 229.2 696.3 9,054.2

If property, plant and equipment were stated on a historical cost basis, the carrying amount at the end of the reporting period would have been:


2012 2011 2012 2011 $ M $ M $ M $ M

Supply system 6,718.6 5,891.0 6,718.6 5,891.0

Property, plant and equipment and impairment

An impairment review across the Group’s CGUs has resulted in property, plant and equipment impairment losses of nil (2011: nil) for the Group, and nil (2011: nil) for Energex. There were no reversals of prior year impairment losses in 2011/12 (2011: nil) for the Group, nor Energex (2011: nil). The impairment reviews were conducted using management approved forecast cash flows, and discount rates thatreflect market assessments of the time value of money and the risks specific to the asset. However, dismantled supply system assets are removed from the relevant CGU and impaired once the decision is made to dismantle. The resulting impairment loss is treated as a revaluation decrease and recorded directly in equity to the extent of any credit balance existing in the revaluation reserve in respect of that asset, with the remainder recognised in the income statement.




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2012 2011 2012 2011 Note $ M $ M $ M $ M

9.2 Capitalised finance costs

Finance costs capitalised during the financial year 2.2 29.5 27.6 29.5 27.6Weighted average interest rate on funds borrowed

generally 6.82% 6.93% 6.82% 6.93%

10 Intangible assets

Computer software At cost 52.4 48.7 52.4 48.7Less: accumulated amortisation (47.2) (44.6) (47.2) (44.6)Software work in progress 1.7 2.8 1.7 2.8Total intangible assets 6.9 6.9 6.9 6.9

10.1 Movements in carrying amounts

Computer software


$ M $ M $ MConsolidatedYear ended 30 June 2012Carrying amount at start of year 4.1 2.8 6.9 Additions/(disposals) - 2.6 2.6 Amortisation 2.2 (2.6) - (2.6) Transfer from work in progress 3.7 (3.7) - Carrying amount at 30 June 2012 5.2 1.7 6.9

Year ended 30 June 2011Carrying amount at start of year 5.4 4.0 9.4Additions/(disposals) - (0.5) (0.5)Amortisation 2.2 (2.2) - (2.2)Transfer between classes 0.2 - 0.2Transfer from work in progress 0.7 (0.7) - Carrying amount at 30 June 2011 4.1 2.8 6.9




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Computer software


$M $M $MEnergex LimitedYear ended 30 June 2012Carrying amount at start of year 4.1 2.8 6.9 Additions/(disposals) - 2.6 2.6Amortisation 2.2 (2.6) - (2.6)Transfer from work in progress 3.7 (3.7) - Carrying amount at 30 June 2012 5.2 1.7 6.9

Year ended 30 June 2011Carrying amount at start of year 5.4 4.0 9.4Additions/(disposals) - (0.5) (0.5)Amortisation 2.2 (2.2) - (2.2)Transfer between classes 0.2 - 0.2Transfer from work in progress 0.7 (0.7) - Carrying amount at 30 June 2011 4.1 2.8 6.9


2012 2011 2012 2011 Note $ M $ M $ M $ M 11 Other assets

Prepayments 20.9 24.1 20.9 24.1

12 Trade and other payables

CurrentTrade payables 129.1 113.1 128.0 111.7Accrued wages and salaries 32.8 38.7 32.8 38.7Accrued interest and charges1 27.4 26.8 - 26.8 -Refundable deposits 2.1 3.4 2.1 3.4Amount payable to jointly controlled entity 27.2 14.1 12.1 14.1 12.1Total current trade and other payables 204.9 167.3 203.8 165.91 Accrued interest and charges were included in Long-term borrowings in 2010/11.

Non-current Amount payable to related parties1 27.1 - - 0.8 22.3Total non-current trade and other payables - - 0.8 22.31 Related party payable was forgiven during 2011/12 which resulted in the recognition of a distribution from subsidiary (refer Note 2.1)

13 Long-term borrowings

Non-current QTC loans – unsecured 21.4,27.4 5,464.6 4,769.8 5,464.6 4,769.8Total non-current borrowings 5,464.6 4,769.8 5,464.6 4,769.8




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2012 2011 2012 2011 Note $ M $ M $ M $ M

14 Provisions CurrentDividends 19 225.9 187.8 225.9 187.8Employee benefits 36.3 32.1 36.3 32.1Site restoration/rehabilitation 19.9 0.3 19.9 0.3Redundancy provision - 0.4 - 0.4Service line inspections 11.5 - 11.5 -Other provisions 0.3 0.7 0.3 0.7Total current provisions 14.2 293.9 221.3 293.9 221.3

Non-current Site restoration/rehabilitation 1.1 - 1.1 -Public liability insurance 3.2 3.3 3.2 3.3Employee benefits 106.1 81.0 106.1 81.0Regulated revenue recoveries 0.6 41.5 0.6 41.5Service line inspections 5.7 - 5.7 -Environmental offsets 5.4 - 5.4 -Other provisions 1.8 1.6 1.8 1.6Total non-current provisions 14.2 123.9 127.4 123.9 127.4

Also refer to Notes 1.10, 1.19 and 1.20 for further information in relation to dividends, employee benefits and provisions.

14.1 Movements in carrying amounts Carrying

amount at start of

year Additions Utilised Reversal

Unwinding of

discount Transfers

Carryingamount at

end of year

$ M $ M $ M $ M $ M $ M $ M Consolidated Dividends 187.8 225.9 (187.8) - - - 225.9Regulated revenue recoveries1 41.5 - - - 5.3 (46.2) 0.6Site restoration 0.3 21.6 (0.7) (0.2) - - 21.0Public liability insurance 3.3 1.0 (0.5) (0.6) - - 3.2Employee benefits 113.1 66.0 (36.4) (0.3) - - 142.4Redundancy 0.4 - - (0.4) - - -Service line inspections - 17.2 - - - - 17.2Environmental offsets - 5.4 - - - - 5.4Other 2.3 0.2 (0.2) (0.4) 0.2 - 2.1Total 348.7 337.3 (225.6) (1.9) 5.5 (46.2) 417.8Energex LimitedDividends 187.8 225.9 (187.8) - - - 225.9Regulated revenue recoveries1 41.5 - - - 5.3 (46.2) 0.6Site restoration 0.3 21.6 (0.7) (0.2) - - 21.0Public liability insurance 3.3 1.0 (0.5) (0.6) - - 3.2Employee benefits 113.1 66.0 (36.4) (0.3) - - 142.4Redundancy 0.4 - - (0.4) - - -Service line inspections - 17.2 - - - - 17.2Environmental offsets - 5.4 - - - - 5.4Other 2.3 0.2 (0.2) (0.4) 0.2 - 2.1Total 348.7 337.3 (225.6) (1.9) 5.5 (46.2) 417.81 Prior year DUOS revenue over-recoveries of $46.2 million have been transferred to Trade and other receivables – current (Note 7) to offset the 2010/11 under-recoveries. The net under-recovery in Trade and other receivables – current will be recovered in the 2012/13 year.




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2012 2011 2012 2011 Note $ M $ M $ M $ M 14.2 Analysis of total provisions

Current 14 293.9 221.3 293.9 221.3 Non-current 14 123.9 127.4 123.9 127.4 Total provisions 417.8 348.7 417.8 348.7

15 Other liabilities

CurrentRegulated revenue recoveries – net - 62.6 - 62.6Unearned revenue – government grant 27.4 6.3 4.4 6.3 4.4Unearned revenue – other 31.0 37.1 31.0 37.1Total current other liabilities 37.3 104.1 37.3 104.1

Non-current Unearned revenue – government grant 27.4 1.9 5.1 1.9 5.1Unearned revenue – other 2.5 0.7 2.5 0.7Total non-current other liabilities 4.4 5.8 4.4 5.8

Consolidated and Energex Limited

2012 2011 2012 2011 Note Number Number $ M $ M 16 Contributed equity

A Class ordinary shares – voting1 122,600,006 122,600,006 122.6 122.6B Class ordinary shares – non-voting1 752,932,768 752,932,768 623.8 623.8Total contributed equity 5.2 875,532,774 875,532,774 746.4 746.41 There was no movement in the number of shares during the financial year.




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2012 2011 2012 2011 Note $ M $ M $ M $ M

17 Reserves

Asset revaluation reserve 17.1 1,803.9 1,586.8 1,803.9 1,586.8Total reserves 1,803.9 1,586.8 1,803.9 1,586.8

17.1 Asset revaluation reserve (ARR)

Balance at start of year 1,586.8 1,339.9 1,586.8 1,339.9Revaluation of supply system (net) 9.1 320.9 367.0 320.9 367.0Deferred tax effect on revaluations 3.3 (96.3) (110.1) (96.3) (110.1)Transfer ARR to retained earnings for disposed assets 9,18 (7.5) (10.0) (7.5) (10.0)Balance at end of year 1,803.9 1,586.8 1,803.9 1,586.8

17.2 Nature and purpose of reserves

Asset revaluation reserve

The asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets, as described in Note 1.15.

18 Retained earnings

Retained earnings at start of year 589.2 488.6 543.1 444.3Gross actuarial gains/(losses) on defined benefit plans (123.1) 62.4 (123.1) 62.4Deferred tax on actuarial gains/(losses) on defined

benefit plans 3.3 36.9 (18.7) 36.9 (18.7)Transfer from asset revaluation reserve – net of tax 17.1 7.5 10.0 7.5 10.0Net profit attributable to members of Energex Limited 6.2 282.4 234.7 313.1 232.9Total available for appropriation 792.9 777.0 777.5 730.9Dividends provided at 30 June 2011 19 - (187.8) - (187.8)Dividends provided at 30 June 2012 19 (225.9) - (225.9) -Retained earnings at end of year 567.0 589.2 551.6 543.1




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Consolidated and Energex Limited

2012 2011 2012 2011 Cents per

shareCents per

share $ M $ M

19 Dividends

Dividends on ordinary shares Dividends declared during the year: Final unfranked dividend 25.81 21.45 225.9 187.8Total dividends declared during the year 25.81 21.45 225.9 187.8

Dividends paid during the year: Final unfranked dividend declared in prior financial year and

paid in current financial year 21.45 16.93 187.8 148.2Total dividends paid during the year 21.45 16.93 187.8 148.2

A final dividend of $225.9 million for the 2011/12 year (2011: $187.8 million) was declared and provided for on the basis of 80 per cent of net profit after income tax equivalent in consultation with the shareholding Ministers. The 2010/11 dividend of $187.8 million was paid in the 2011/12 year (refer Note 27.4).

During 2010/11 a dividend of $148.2 million was paid on the basis of 80 per cent of 2009/10 net profit after income tax equivalent.

Energex operates under the National Tax Equivalent Regime where income tax equivalent payments are made to the Queensland Government. As Energex is a Queensland government owned corporation, with all shares owned by the shareholding Ministers on behalf of the Queensland Government, dividend payments are unfranked.

20 Financial risk management objectives and policies

Financial risk management is carried out by Energex’s Treasury Department (Energex Treasury) under policies approved by the Board of Directors. Energex Treasury manages the cash flow needs of the Group on a net basis and ensures a consistent approach to managing the financial arrangements and their associated risk across the business. The Energex Treasury Policy applies to all of the entities within the Group and its intention is to ensure compliance with the Code of Practice for Government-Owned Corporations’ Financial Arrangements.

The Group’s principal financial instruments comprise QTC loans. The main purpose of these financial instruments is to raise finance for the Group's operations. It is the Group’s policy that financial instruments are not to be used for speculative purposes.

Other financial assets and liabilities include trade receivables, trade payables, provisions, short-term deposits and unearned revenue which arise directly from the Group’s operations.

Details of the significant accounting policies and methods adopted, including criteria for recognition, the basis of measurement andthe basis on which income and expenses are recognised, for each class of financial asset, financial liability and equity instrument are disclosed in Note 1.13.




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The Group is exposed to the following financial risks:

credit risk: the risk of a financial loss if a counterparty to a transaction does not fulfil its financial obligations (also called defaultrisk).commodity and foreign exchange risk: the risk that contract prices will move as a result of adverse movements in market prices. funding risk: the risk that the Group will be unable to refinance existing debt or raise additional debt.interest rate risk: the risk that actual financing costs are greater than that allowed for by Energex’s regulator. liquidity risk: the risk of insufficient funds to fulfil the Group’s cash flow obligations on a timely basis. operational risk: the risk resulting from inadequate internal processes and systems or from external events. capital structure risk: the risk of the Group ineffectively structuring its balance sheet resulting in suboptimal returns to the shareholders.

Credit risk

The Group seeks to minimise credit risk by actively managing its credit exposure within the context of its operating environment.

The most significant credit risk exposure is the risk of a Retailer defaulting on its obligations. On 1 February 2011, Credit Support Guidelines (Guidelines) issued by the Queensland Competition Authority (QCA) took effect. Credit support arrangements refer to commercial arrangements between Retailers and Energex, to manage the risk to Energex of the non-payment of network charges by the Retailer. Under the Guidelines the credit support calculations are based on an assessment of the retailer’s network chargeliability compared to their credit allowance and payment history.

Energex’s credit risk management procedures have been reviewed to ensure all available actions are taken to mitigate credit riskexposure within the confines of the Guidelines. The Guidelines align with the National Energy Customer Framework credit supportarrangements to be implemented in the future.

Other credit risks across the business are managed in accordance with the Energex Treasury Policy. This requires that a bank guarantee from an investment grade bank or a cash deposit be taken as security where significant credit exposure exists.

Commodity and foreign currency risk

The Group is also exposed to commodity price risk and foreign currency risk in the normal course of its operations through its procurement contracts. The Group reviews new large contracts and large contracts that are to be extended, prior to Energex beingirrevocably committed to any arrangements to determine whether any risk mitigation strategies can be entered into to minimise thisrisk. There were no financial assets or liabilities at 30 June 2012 (2011: nil) with a material exposure to foreign currency or commodity price risk.

Funding risk

Energex's term debt, provided exclusively by QTC, is interest only in perpetuity with no set repayment date. This debt portfolio is structured to reflect a fixed-term loan to correlate with the regulatory period and, as such, was last refinanced during the 2009/10financial year in advance of the current regulatory period which commenced on 1 July 2010. QTC was responsible for refinancing theGroup’s debt when it became due.

QTC borrows in advance of requirements to ensure Energex is able to meet its debt funding obligations as and when they fall due.




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Interest rate risk

The cost of Energex's debt is comprised of a competitive neutrality fee (CNF), administration fee, capital market fee and a bookinterest rate on the debt portfolio calculated periodically by QTC.

The CNF is charged by the State of Queensland to ensure Energex does not obtain an economic benefit from funding at a lower costthrough QTC than could be achieved by a private sector operator. The CNF was reset effective 1 July 2010 for a period of five years.

Energex’s debt is subject to annual repricing following a book rate review of the debt portfolio undertaken by QTC. The Group isexposed to book interest rate movements on an annual basis that reflect the cost of new borrowings made throughout the year, aswell as the impact from hedging or derivatives entered into by QTC to manage interest rate risk in accordance with instructions issued by the Energex Board. Energex is also exposed to book rate movements when it refinances its existing debt, which generally occursevery five years to align to the new regulatory interest rate determination.

The Group manages interest rate risk by entering into forward starting loans. The benefit of the forward starting loans is that the Group is able to effectively lock-in the interest rate on all or part of a known future borrowing requirement which provides greater certainty of the borrowing costs on known future borrowing requirements.

For expected new borrowings at the commencement of the current regulatory period, Energex entered into a series of forward startingloans to manage interest rate risk. When drawn, the new borrowings will have a minimal impact on the weighted average book rate. In 2011/12, Energex drew an insignificant level of variable rate funding, when compared to the overall value of debt. Therefore anyinterest rate movements applied to these drawings have had an immaterial effect on the book rate.

Forward starting loans have been effective in minimising the risk of rising interest rate volatility. As at 30 June 2012, this difference was unfavourable to the Group by $2.5 million (2011: favourable $32.8 million). This value of $2.5 million represents the difference between the sum of the forward starting loans measured at book value compared against the sum of the forward starting loans measured at market value.

Liquidity risk

To manage the Group’s liquidity risk, a daily cash flow forecast on a rolling 12 month period is maintained. The Group has a $200million working capital facility with QTC which operates as an overdraft arrangement and is used to cover temporary funding deficits, and is fully fluctuating. The facility is repayable on demand.

Operational risk

The Group recognises operational risk, inclusive of information risk and business continuity, as a significant risk category andmanages it within acceptable levels. The Group continues to develop and improve its guidelines, standards, methodologies and systems to enhance the management of operational risk.

Capital risk

The Board’s policy is to maintain a strong capital base so as to preserve investor, creditor and market confidence and to sustain future development of the business. Part of this process is ensuring the right quantitative and qualitative factors exist to support at a minimum a BBB+ credit rating. The Group monitors the return on capital, which is defined as net operating income divided by totalshareholders’ equity. The Group also monitors the level of dividends to ordinary shareholders.

The Group seeks to maintain a balance between the higher return on equity that might be possible with higher levels of borrowings,and the advantages and security offered by a sound capital position through appropriate injections of equity from time to time tobalance the funding sources of the Group. The weighted average interest expense on interest-bearing borrowings in 2011/12 was 6.79 per cent (2011: 6.88 per cent).




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21 Financial instruments

21.1 Fair value of financial assets and liabilities

The fair values of financial assets and financial liabilities, other than derivative financial instruments, are determined as follows:

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets isdetermined with reference to quoted market prices; andthe fair value of other financial assets and financial liabilities is determined in accordance with generally accepted pricing modelsbased on discounted cash flow analysis.

The Group considers the carrying amount of financial assets and financial liabilities recorded in the financial statements to approximate their fair value, excluding borrowings. Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with any difference between cost and the redemption amount being recognised in the incomestatements over the period of the borrowings on an effective interest basis. The fair value of borrowings at 30 June 2012 is disclosed in Note 21.4.

The Group has not designated any financial instruments as at fair value through profit or loss.

21.2 Derivative financial instruments

As at 30 June 2012, the Group has not entered into any derivative financial instruments (2011: nil).

21.3 Credit risk exposure

The credit risk on financial assets of the Group, which have been recognised on the balance sheet, is generally equal to the carrying amount net of any provisions for impairment of receivables. Refer to Note 20 for related risk management policies and procedures that are in place to minimise credit risk. At 30 June 2012, three customers represented 90.2 percent of trade receivables invoiced (2011:three customers represented 85.6 percent).




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21.4 Liquidity risk exposure

The Group’s exposure to liquidity risk is set out in the following table:

Carryingamount

Contractualcash flows

1 year or less

1 to 5 years

More than 5 years

Note $ M $ M $ M $ M $ M Consolidated As at 30 June 2012 Non-derivative financial

liabilities

Trade and other payables 12 202.8 (202.8) (202.8) - - Refundable deposits 12 2.1 (2.1) (2.1) - - Borrowings – QTC

unsecured1 13,27.4 5,464.6 (7,189.9) (371.6) (1,487.3) (5,331.0) Total financial liabilities 5,669.5 (7,394.8) (576.5) (1,487.3) (5,331.0) 1 Market value of the borrowings as at 30 June 2012 as advised by QTC was $5,855.0 million.

As at 30 June 2011 Non-derivative financial

liabilities

Trade and other payables 12 163.9 (163.9) (163.9) - - Refundable deposits 12 3.4 (3.4) (3.4) - - Borrowings – QTC


Energex Limited As at 30 June 2012 Non-derivative financial

liabilities

Trade and other payables 12 201.7 (201.7) (201.7) - - Trade and other payables –

related parties, controlled 12 0.8 (0.8) - (0.8) -Refundable deposits 12 2.1 (2.1) (2.1) - - Borrowings – QTC


As at 30 June 2011 Non-derivative financial

liabilities

Trade and other payables 12 162.5 (162.5) (162.5) - - Trade and other payables –

related parties, controlled 12 22.3 (22.3) - (22.3) -Refundable deposits 12 3.4 (3.4) (3.4) - - Borrowings – QTC





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21.5 Interest rate risk exposure

Sensitivity analysis

The following interest rate sensitivity analysis depicts the outcome to profit and loss (excluding tax) if interest rates change by +/- 1.0 per cent for cash funds (2011: +/- 1.0 per cent) from the year-end rates. With all other variables held constant, the Group would have a surplus/(deficit) of $2.1 million (2011: $1.5 million).

Note

Carryingamount

$ M

(1.0)% Profit

(pre-tax)$ M

(1.0)% Equity

$ M

1.0%Profit

(pre-tax)$ M

1.0%Equity

$ M 2012 interest rate risk Cash on hand and at bank 6 139.0 (1.4) - 1.4 - Short-term deposits 6 66.4 (0.7) - 0.7 -

2011 interest rate risk Cash on hand and at bank 6 74.9 (0.7) - 0.7 - Short-term deposits 6 81.9 (0.8) - 0.8 -

The above sensitivity percentages were based on a review of official cash rate movements. Consolidated Energex Limited

2012 2011 2012 2011 21.6 Financing arrangements Note $ M $ M $ M $ M

The Group has access to the following lines of credit: Total facilities available – unsecured loans 5,674.6 4,979.8 5,674.6 4,979.8Facilities used at the end of the reporting period –

unsecured loans 5,465.7 4,771.0 5,465.7 4,771.0Facilities not used at the end of the reporting period –

unsecured loans 208.9 208.8 208.9 208.8

Approved borrowings under the State Borrowing Program (SBP) for 2011/12 were $875.4 million (2011: $775.9 million), of which $718.4 million was drawn during the year (2011: $670.4 million). The unused funds of $157.0 million (2011: $105.5 million) expired on 30 June 2012. The 2011/12 borrowings drawn under the SBP were funded through Energex’s loan account with QTC.

Energex has interim approval under the SBP for the 2012/13 year of $684.8 million, which includes a $100.0 million increase to theexisting working capital facility.

Forward starting loans

Energex had future loan commitments represented by undrawn forward starting loans of $891.1 million with QTC as at 30 June 2012. At the time of draw down the future loan commitment will be classified as a borrowing and measured at fair value. The 2011/12 future loan commitments with QTC are set out below.

Contractual undiscounted cash flows as at: Book value

$ M

1 year or less

$ M

1 to 5 years

$ M

More than 5 years

$ M Total

$ M

30 June 2012 Future loan commitments 891.1 18.5 262.3 891.1 1,171.9 30 June 2011 Future loan commitments 1,559.5 21.8 402.1 1,559.5 1,983.4

The above table represents the future undiscounted cash flows relating to future loan commitments. For 2011/12, the future loancommitment book value of $891.1 million (2011: $1,559.5 million) represents the principal value of total undrawn forward startingloans. The total of $1,171.9 million (2011: $1,983.4 million) represents total undiscounted cash flows being the sum of interest in the one year or less category, interest in the one to five years category and principal cash flows in the more than five years category. The actual repayment profile of long-term debt is interest only with no fixed repayment date for the principal component. The abovesimulation presents the estimate of the total amount of outstanding debt beyond 5 years.




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21.7 Guarantees

Guarantees held

Energex holds bank guarantees from customers and suppliers totalling $27.9 million (2011: $35.8 million), relating to subdivisionworks and construction of capital assets for customers and procurement guarantees from suppliers.

Guarantees issued to controlled entities

Energex warrants that unlimited sufficient financial support will be provided to Queensland Energy Services Team Pty Ltd to ensure it is able to pay its debts as and when they fall due. Energex warrants that sufficient financial support up to a limit of $10,000 will be provided to Metering Dynamics Business Support Pty Ltd to ensure that business is able to pay its debts as and when they fall due.

In 2011/12, in consideration of the forgiveness of the intercompany loans, Energex issued an unlimited indemnity to Energy Impact Pty Ltd and limited indemnities to Varnsdorf Pty Ltd and VH Operations Pty Ltd in relation to certain claims, for specific amounts andperiods.

21.8 Forgiveness of loans

Following due consideration of the current Group structure, various intercompany loans were forgiven between various entities in the Group. At the time of forgiveness, the net loan balance between Energex and its controlled entities was a loan payable of $32.1 million to those entities. The reduction of this liability is considered to be a return of capital from those entities to Energex. This return of capital constitutes revenue earned by Energex in the form of a deemed dividend in the absence of sufficient contributed capital of the consolidated entities. Pursuant to the principles of consolidation applied by the Group (Note 1.4), this transaction is eliminated on consolidation and thus not recognised in the Group, but only recognised by Energex in its separate financial statements. The sameaccounting principles were applied to all entities in the Group.


2012 2011 2012 2011 $ M $ M $ M $ M 22 Commitments for expenditure

22.1 Capital expenditure commitments

Commitments for capital expenditure contracted for at the end of the reporting period but not recognised as liabilities payable:

Not later than one year 140.0 129.9 140.0 129.8Later than one year and not later than five years 36.4 33.4 36.4 33.4Total capital expenditure commitments 176.4 163.3 176.4 163.2

These commitments consist of open purchase orders and are valued at price levels and foreign currency exchange rates as at the endof the reporting period.

22.2 Other expenditure commitments

Commitments for other expenditure contracted for at the end of the reporting period but not recognised as liabilities payable:

Not later than one year 103.0 60.2 102.2 57.8Later than one year and not later than five years 12.5 35.2 12.5 35.1Total other expenditure commitments 115.5 95.4 114.7 92.9




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2012 2011 2012 2011 Note $ M $ M $ M $ M

22.3 Operating lease commitments

Commitments in relation to non-cancellable operating leases contracted for at the end of the reporting period but not recognised as liabilities payable:

Not later than one year 23.7 19.5 23.7 19.5Later than one year and not later than five years 100.2 85.7 100.2 85.7Later than five years 232.7 229.9 232.7 229.9Total operating lease commitments 356.6 335.1 356.6 335.1

23 Defined benefit fund

The Group contributes to an industry multiple employer superannuation plan, the Energy Super Fund. Members are entitled to benefits from this fund on retirement, resignation, retrenchment, disability or death. The defined benefit account of this fund is a funded plan which provides defined lump sum benefits based on years of service and final average salary. Employee contributions to the fund are based on a percentage of their gross salaries.

23.1 Key assumptions used


2012 2011 2012 2011 % % % % Discount rate (post-tax) 2.6 4.4 2.6 4.4Expected return on plan assets 6.0 6.0 6.0 6.0Future salary increases 3.5 3.5 3.5 3.5

The expected return on plan assets has been calculated based on the current asset allocation to each of the major asset classes and the expected future investment return for each of the asset classes.

23.2 Reconciliation of amounts recognised in the income statements


2012 2011 2012 2011 Note $ M $ M $ M $ M

Current service cost 16.8 18.8 16.8 18.8Interest cost 18.1 18.3 18.1 18.3Expected return on plan assets (25.9) (22.8) (25.9) (22.8)Net expense recognised in year: 9.0 14.3 9.0 14.3Past service cost - - - -Total included in employee benefits expense 9.0 14.3 9.0 14.3

23.3 Reconciliation of amounts recognised in the balance sheet

Present value of funded obligations (510.4) (430.9) (510.4) (430.9)Fair value of plan assets 425.1 444.8 425.1 444.8Surplus/(deficit) (85.3) 13.9 (85.3) 13.9Provision for contributions tax (15.0) 2.5 (15.0) 2.5Net asset/(liability) in the balance sheet 23.4 (100.3) 16.4 (100.3) 16.4




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2012 2011 2010 2009 2008 Note $ M $ M $ M $ M $ M

23.4 Historical analysis of the defined benefit fund of the consolidated and parent entities

Present value of defined benefit obligation 23.5 (525.4) (428.4) (453.3) (405.4) (351.1) Fair value of plan assets 23.6 425.1 444.8 383.0 332.3 357.1 Surplus/(deficit) of the fund 23.3 (100.3) 16.4 (70.3) (73.1) 6.0

Experience adjustments arising on plan

assets1 (24.7) 10.5 15.9 (46.9) (69.5) Experience adjustments arising on plan

liabilities1 (11.9) 7.8 (5.5) (20.3) (4.9) 1 Experience adjustments are the effects of differences between previous actuarial assumptions and what has actually occurred.


2012 2011 2012 2011 Note $ M $ M $ M $ M

23.5 Reconciliation of movements in the defined benefit obligation

Opening defined benefit obligation 428.4 453.3 428.4 453.3Current service cost 16.8 18.8 16.8 18.8Interest cost 18.1 18.3 18.1 18.3Contributions by fund participants 5.0 5.1 5.0 5.1Actuarial losses/(gains) 98.5 (58.0) 98.5 (58.0)Benefits payments and tax (41.4) (9.1) (41.4) (9.1)Closing defined benefit obligation 23.4 525.4 428.4 525.4 428.4

23.6 Reconciliation of movements in the fair value of plan assets

Opening fair value of plan assets 444.8 383.0 444.8 383.0Expected return on plan assets 25.9 22.8 25.9 22.8Actuarial (losses)/gains (24.7) 10.5 (24.7) 10.5Contributions by the employer 15.5 32.5 15.5 32.5Contributions by fund participants 5.0 5.1 5.0 5.1Benefits payments and tax (41.4) (9.1) (41.4) (9.1)Closing fair value of plan assets 23.4 425.1 444.8 425.1 444.8

23.7 Cumulative amount recognised in the statements of comprehensive income

Cumulative amount of actuarial losses at beginning of year 21.6 90.0 21.6 90.0

Loss/(gain) in year 123.1 (68.4) 123.1 (68.4)Cumulative amount of actuarial losses at end of

year 144.7 21.6 144.7 21.6




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23.8 The major categories of plan assets as a percentage of total plan assets are as follows:


2012 2011 2012 2011

% % % % Cash 10 5 10 5Fixed interest 10 15 10 15Australian shares 28 28 28 28Alternatives 20 20 20 20International shares 22 22 22 22Property 10 10 10 10Total plan assets as a percentage 100 100 100 100

The actual return on plan assets for 2011/12 was a profit of $1.2 million (2011: $33.3 million).

23.9 Net financial position of plan

The superannuation plan computes its obligations in accordance with AAS 25 Financial Reporting by Superannuation Plans (AAS 25) which prescribes a different measurement basis to that applied in this financial report, pursuant to AASB 119 Employee Entitlements.Under AAS 25, and in accordance with the Occupational Superannuation Standards Regulation, the Energy Super Fund is required to undertake actuarial investigations at least every three years. The last reporting period for the Energy Super Fund Actuarial Report for Energex was 30 June 2010.

Surplus/(deficit)

The following is a summary of the most recent financial position of the Energy Super Fund (with respect to both defined benefit and accumulation members for the Group’s participation in the Fund) calculated in accordance with AAS 25:

Last reporting period $ M Accrued benefits 30/06/2010 (612.4) Net market value of plan assets 30/06/2010 591.4Net deficit 30/06/2010 (21.0)

Contribution recommendations

For the financial year ended 30 June 2012, the Group contributed 13 per cent (2011: 32 per cent) of defined benefit members’ salaries. The Group expects to retain a contribution rate of 13 per cent to the defined benefit plan during the next financial year. With reference to advice from their actuary, Energy Super, the fund administrator requested that an additional contribution of $1.3 million beyond the current contribution level be made (2011: nil). Accordingly, the Group expects to contribute $13.6 million (2011: $12.4million) to its defined benefit plan in 2012/13. Funding recommendations are made by the actuaries based on their forecast of various matters including: future plan assets performance, interest rates and salary increases. Energex will assess this contribution rate in the future to ensure it remains appropriate.

Funding method

The method used to determine the employer contribution recommendations at the last actuarial review was the aggregate method. The method adopted affects the timing of the cost to the employer. Under the aggregate method, the future contribution rates aredetermined, and are expected to be sufficient to fund the difference between the value of the future benefits for existing defined benefit members, and the value of plan assets attributable to defined benefit members, over the future working lifetime of existing definedbenefit members.

An aggregate financing method can be expected to produce a higher level of volatility in recommended employer contribution rates, particularly as the defined benefit membership ages and reduces in size. Variations between actual and expected experience have a greater financial effect on future employer contribution rates as the future working lifetime of the existing defined benefit members reduces.

Principal economic assumptions adopted for the last actuarial review (as at 30 June 2010) of the Fund include: %Expected rate of return on plan assets in year one 10.0Expected rate of return on plan assets thereafter 7.0Expected salary increase rate 5.0




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Nature of asset/liability

The Energy Super Fund does not impose a legal liability on the Group to cover any deficit that exists in the Fund. If the Fund waswound up, there would be no legal obligation on the Group to make good any shortfall. The Trust Deed of the Fund states that if the Fund winds up, after the payment of all costs and member benefits for the period up to the date of termination, any remaining assets are to be distributed by the Trustee of the Fund, acting on the advice of the actuary, to participating employers.

The Group may at any time by notice to the Trustee terminate its contributions. The employer has a liability to pay the monthlycontributions due prior to the effective date of the notice, but there is no requirement for an employer to pay any further contributions,irrespective of the financial condition of the Fund.

The Group may benefit from any surplus in the Fund in the form of a contribution reduction or contribution holiday. Any reduction in contributions would normally be implemented only after advice from the Fund’s actuary.

Energex is committed under the terms of its union collective agreement to keep the Defined Benefit Fund open for the current fundmembers for the life of the agreement. The union collective agreement has an expiry date of 21 November 2014 but will continue after its nominal expiry until such time as it is replaced or terminated. The Board has resolved that Energex will make additional contributions when necessary to meet its obligations in relation to the Defined Benefit Fund.

24 Investment in jointly controlled entity

Investments in jointly controlled entities are accounted for in the consolidated financial statements using the equity method ofaccounting (refer Note 1.4). Information relating to the jointly controlled entity is set out below:

Name of entity Principal activitiesCountry of incorporation Ownership interest

2012 2011% %

SPARQ Solutions Pty Ltd Information technology services provider Australia 50.0 50.0

2012 2011$ M $ M

Summarised presentation of share of aggregate assets, liabilities and performance of jointly controlled entity:

Assets 143.8 124.3Liabilities 146.8 124.2Net liabilities (3.0) 0.1Share of net liabilities equity accounted - -Revenues 88.7 76.6Profit from ordinary activities after tax - 0.4

Movements in net liabilities of jointly controlled entity: Balance at start of year 0.1 (2.2)Share of profit from ordinary activities after tax - 0.4Net expense directly recognised in equity – defined benefit plan (3.1) 1.9Balance at end of year (3.0) 0.1

SPARQ Solutions Pty Ltd (SPARQ Solutions) is engaged as the information and communication technology provider of the Group and Ergon Energy Corporation Limited. Refer to Note 27.2 for transactions with this entity.

The Group has not recognised actuarial losses on defined benefit plans relating to SPARQ Solutions amounting to $3.1 million for the 2011/12 year (2011: $1.9 million gain).




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2012 2011$ M $ M

Share of jointly controlled entity’s expenditure commitments:

Operating lease commitments Not later than one year 1.3 1.3Later than one year and not later than five years 3.5 4.5Capital commitments Estimated capital expenditure contracted for at the end

of the financial year 5.6 2.3Other commitmentsEstimated other expenditure contracted for at the end

of the financial year 5.7 8.9Total 16.1 17.0

No contingent liabilities or accumulated unrecognised losses exist in relation to the jointly controlled entity at 30 June 2012 (2011: nil).

25 Investments in controlled entities

Interests are held in the following controlled companies:

Name NoteCountry of

incorporation Shares Ownership interest 2012 2011

% % Energy Impact Pty Ltd 25.1 Australia Ordinary 100 100 Metering Dynamics Business Support Pty Ltd 25.2 Australia Ordinary 100 100 Queensland Energy Services Team Pty Ltd 25.3 Australia Ordinary 100 100 Varnsdorf Pty Ltd 25.1 Australia Ordinary 100 100 VH Energy Holdings Pty Ltd 25.1 Australia Ordinary 100 100 VH Finance Pty Ltd 25.1 Australia Ordinary 100 100 VH Operations Pty Ltd 25.1 Australia Ordinary 100 100

25.1 These companies entered into a deed of cross guarantee (DOCG) dated 13 March 2003 with Queensland Energy Services Team Pty Ltd (QEST). The DOCG provides that QEST will guarantee the payment in full to each creditor, of any debt of these companies, on the winding up of any company within the DOCG. They are small proprietary companies and are therefore relieved from the requirements for preparation, audit and lodgement of annual financial statements with ASIC. As these companies are parties to the DOCG, Class Order 98/1418 would also provide ASIC reporting relief in the event they were classified as large proprietary companies.

25.2 Metering Dynamics Business Support Pty Ltd is a small proprietary company and is therefore relieved from the requirement for preparation, audit and lodgement of annual financial statements with ASIC.

25.3 QEST is a small proprietary company and is therefore relieved from the requirement for preparation, audit and lodgement of annual financial statements with ASIC.




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Subsidiary name Purpose of entity Total

assets$’000

Total liabilities

$’000

Total revenue

$’000

Profit/(loss) before tax

$’00030 June 2012 Queensland Energy Services

Team Pty Ltd (Consolidated)

Consolidated Group 16,556 1,087 12,740 2,017

Queensland Energy Services Team Pty Ltd1,2

Parent entity of Energy Impact Pty Ltd and Metering Dynamics Business Support Pty Ltd

- - 32,093 32,093

Energy Impact Pty Ltd1,2 Provides generation services and operates landfill gas sites

16,556 1,073 49,866 39,171

Metering Dynamics Business Support Pty Ltd1

Dormant entity - - - -

Varnsdorf Pty Ltd1 Operations have been wound down and is no longer trading

- - 767 767

VH Energy Holdings Pty Ltd1,2

Operations have been wound down and is no longer trading

1 - 5,952 5,952

VH Operations Pty Ltd1 Operations have been wound down and is no longer trading

- - 199 170

VH Finance Pty Ltd1,2 Operations have been wound down and is no longer trading

- - 3,986 3,966

1 These entities form the QEST Consolidated Group. 2 These amounts include the impact of debt forgiveness in 2012. Refer Note 21.8

30 June 2011 Queensland Energy Services

Team Pty Ltd (Consolidated)

Consolidated Group 47,479 1,328 15,946 2,514

Queensland Energy Services Team Pty Ltd1

Parent entity of Energy Impact Pty Ltd and Metering Dynamics Business Support Pty Ltd

- - - -

Energy Impact Pty Ltd1 Provides generation services and operates landfill gas sites

28,499 19,488 12,874 718

Metering Dynamics Business Support Pty Ltd1

Dormant entity - - - -

Varnsdorf Pty Ltd1 Operations have been wound down and is no longer trading

29,334 - 2,048 1,971

VH Energy Holdings Pty Ltd1 Operations have been wound down and is no longer trading

2 2 - -

VH Operations Pty Ltd1 Operations have been wound down and is no longer trading

3,843 3,128 620 (259)

VH Finance Pty Ltd1 Operations have been wound down and is no longer trading

19,515 14,523 84 84

1 These entities form the QEST Consolidated Group.




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26 Key management personnel

The following disclosure is provided pursuant to Queensland Treasury Policy “The Minimum Disclosure Requirements for Directors andChief and Senior Executives of Government Owned Corporations”.

26.1 Compensation principles

Directors

All remuneration of Directors, including Directors’ fees and Board committee fees, is established by the shareholding Ministers.Directors do not receive any performance-related remuneration.

Directors as at 30 June 2012 Term of appointment Appointment expiry date

Resignation Dates

Shane Stone 3 years 4 months 30 September 2015 Peter Arnison 3 years 30 September 2013 John Geldard 3 years 30 September 2013 Kerryn Newton 3 years 30 September 2014

Directors who resigned during 2011/2012

Ronald Monaghan 3 years 4 months 30 September 2011 30 September 2011 Mat Darveniza 3 years1 30 September 2013 17 January 2012 John Dempsey 1 year1 30 September 2012 28 May 2012 Mary Boydell 2 years1 30 September 2013 20 June 2012 John Battams 3 years1 30 September 2014 30 June 2012 1 This represents the term of appointment, however the Director resigned prior to expiry of the term.

Senior executives

The following are Directors of controlled entities and received no remuneration from their roles as executive Directors:

Terence Effeney Darren Busine Peter Weaver

The senior executive remuneration strategy and practices of the Group are designed to assist Energex to attract, retain and motivate high calibre individuals in senior executive positions. This is achieved by providing an appropriate combination of competitive fixed and variable remuneration components. Shareholder guidelines and policies on executive remuneration are followed.

The fixed component of remuneration is linked to an assessment of the job size and value based on independent market evaluation.The fixed remuneration on appointment is up to market median for the position size in accordance with the Office of Government Owned Corporations guidelines. Annual increases are in accordance with recommendations approved by the Board in line with the governance arrangements for chief and senior executives provided by the government. A variable component of remuneration is provided to members of the senior executive as described in Note 26.5.

Senior executive employment contracts

Remuneration and other terms of employment for each senior executive are formalised in executive employment contracts. Each of these contracts makes a provision for fixed remuneration and performance pay.




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Application to Executive General Manager Customer Services

Where employment is terminated due to the employer’s operational requirement and no other suitable position for redeployment isable to be identified, the executive is entitled to a severance payment of three weeks per year of service, together with a proportionate amount for an incomplete year of service. The minimum and maximum payment will be three weeks and 75 weeks respectively. An early separation incentive payment of 13 weeks may be paid where applicable, as well as a long service leave payment of 1.3 weeks for each completed year of service and pro-rata for an incomplete year of service up to the date of termination. Accumulated annualleave as well as any pro-rata balance of annual leave to the date of termination is also payable.

The Executive General Manager Customer Services is engaged on a tenured agreement.

Application to Executive General Manager Human Resources and Executive General Manager Energy Delivery

Where Energex terminates the executive’s employment prior to the termination date for reasons other than serious misconduct (orother reasons leading to termination by Energex without notice), unsatisfactory performance in accordance with any policy of Energex relating to performance management or incapacity, Energex will pay to the executive a service payment equal to the greater of four weeks salary or two weeks salary per year of continuous service up to a maximum 52 weeks salary and a separation payment equal to 20 percent of the salary that the executive would have earned had the employment continued from the day after the notice periodceased until the termination date.

These executive general managers are engaged on fixed term contracts that provide three months written notice or equivalent payment on termination.

Application to the Chief Financial Officer, Executive General Manager Strategy and Regulation, Executive General Manager NetworkPerformance and Executive General Manager Programming, Procurement and Services

Where Energex terminates the executive’s employment prior to the termination date for reasons other than serious misconduct (orother reasons leading to termination by Energex without notice), unsatisfactory performance in accordance with any policy of Energex relating to performance management or incapacity, Energex will pay to the executive a service payment equal to the greater of 12weeks total fixed remuneration or two weeks total fixed remuneration per year of continuous service up to a maximum 52 weeks totalfixed remuneration and a separation payment equal to 20 percent of the total fixed remuneration that the executive would have earned had the employment continued from the day after the notice period ceased until the termination date.

These executive general managers are engaged on fixed term contracts that provide for three months notice or equivalent payment on termination.

Application to the Chief Executive Officer (CEO)

Where Energex terminates the executive’s employment prior to the termination date for reasons other than serious misconduct (orother reasons leading to termination by Energex without notice), unsatisfactory performance in accordance with any policy of Energex relating to performance management or incapacity, Energex will pay to the executive a service payment equal to the greater of 13weeks total fixed remuneration or two weeks total fixed remuneration per year of continuous service up to a maximum 52 weeks totalfixed remuneration and a separation payment equal to the greater of 13 weeks total fixed remuneration or a sum equal to 20 percentof the total fixed remuneration that the executive would have earned had the employment continued from the day after the noticeperiod ceased until the termination date.

The CEO is engaged on a fixed term contract that provides for six months notice or equivalent payment on termination.

All remuneration component amounts are reviewed annually by the Remuneration Committee and the Board. All amendments to the remuneration policy for senior executives are reviewed by the Remuneration Committee for endorsement prior to submission to theBoard and shareholding Ministers.




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Other major provisions of the agreements relating to remuneration are as follows:

Position Term of contract Contract expiry date Chief Executive Officer 2 years fixed term 1 July 2014 Executive General Manager Network Performance 3 years fixed term 28 February 2015 Executive General Manager Energy Delivery 3 years fixed term 28 February 2015 Executive General Manager Programming,

Procurement and Services13 years fixed term 28 February 2015

Chief Financial Officer 3 years fixed term 28 October 2015 Executive General Manager Human Resources 3 years fixed term 28 February 2015 Executive General Manager Customer Services TenuredExecutive General Manager Strategy and Regulation 2 years fixed term 30 August 2014 1 Position title changed from Executive General Manager Network Programming and Procurement to Executive General Manager Programming, Procurement and Services effective January 2012.

26.2 Compensation disclosures by category – Directors and executives

2012 2011 $ $ Short-term employee benefits 3,704,427 3,683,015Non-monetary benefits 42,257 38,683 Post-employment benefits 269,450 264,181Other long-term benefits 81,378 80,572Total compensation 4,097,512 4,066,451

26.3 Compensation – Directors

NameShort-term

benefits

Non-monetary benefits2

PostEmployment

benefits3 Total $ $ $ $

20124

John Dempsey 78,907 2,647 7,102 88,656 Shane Stone 6,664 248 581 7,493 Peter Arnison 41,604 2,911 3,744 48,259 John Battams 29,050 2,192 2,615 33,857 Mary Boydell 39,054 2,831 3,615 45,500 Mat Darveniza 24,629 1,591 - 26,220 John Geldard 40,170 2,911 3,615 46,696 Ronald Monaghan 10,042 727 904 11,673 Kerryn Newton 41,245 2,911 3,712 47,868 Total 311,365 18,969 25,888 356,222

20114 John Dempsey 83,330 3,047 7,500 93,877Peter Arnison 38,888 1,707 3,500 44,095Mary Boydell 38,888 1,707 3,500 44,095Mat Darveniza 40,873 1,707 - 42,580John Geldard 38,888 1,707 3,500 44,095Ronald Monaghan 38,898 1,707 3,500 44,105Kerryn Newton 37,498 1,707 3,375 42,580Total 317,263 13,289 24,875 355,4272 Non-monetary benefits represent the value of car parking provided to the Directors. 3 Post employment benefits represent superannuation contributions made by the Group to a superannuation fund.4 Refer to Directors’ report for details of appointment and resignation dates.

The service and performance criteria set to determine remuneration are included in Note 26.1.




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26.4 Compensation – executives

Position

Short-term benefits

Non-monetary benefits3

Postemployment

benefits4

Other long-termbenefits5 Total

Cash salary and fees1

Cashbonus2

$ $ $ $ $ $ 2012Chief Executive Officer 581,611 76,074 2,911 58,246 16,048 734,890 Executive General Manager Network

Performance 364,134 46,639 2,911 35,206 9,693 458,583 Executive General Manager Energy Delivery 370,194 45,703 2,911 15,775 9,693 444,276 Executive General Manager Programming,

Procurement and Services6 352,658 45,890 2,911 35,206 9,693 446,358 Chief Financial Officer 371,189 49,716 2,911 15,775 10,089 449,680 Executive General Manager Human

Resources 301,046 35,906 2,911 16,212 7,678 363,753 Executive General Manager Customer

Services 347,967 47,600 2,911 35,621 9,806 443,905 Executive General Manager Strategy and

Regulation 313,133 43,602 2,911 31,521 8,678 399,845 Total 3,001,932 391,130 23,288 243,562 81,378 3,741,290 2011 Chief Executive Officer 544,736 74,885 3,014 55,010 15,154 692,799 Executive General Manager Network

Performance 334,822 47,645 3,057 34,025 9,365 428,914 Executive General Manager Energy Delivery 374,248 46,917 3,046 15,176 9,365 448,752 Executive General Manager Network

Programming and Procurement 340,777 47,463 3,024 34,025 9,365 434,654 Executive General Manager Corporate

Governance and Company Secretary7 82,963 30,579 1,157 5,216 2,250 122,165 Chief Financial Officer 365,536 49,971 3,013 15,176 9,748 443,444 Executive General Manager Human

Resources 281,312 35,409 3,035 15,616 7,420 342,792 Executive General Manager Customer

Services 345,059 48,691 3,013 34,598 9,520 440,881 Executive General Manager Strategy and

Regulation 270,942 43,797 3,035 30,464 8,385 356,623 Total 2,940,395 425,357 25,394 239,306 80,572 3,711,024 1 Short-term benefits – Cash salary and fees include all payments made to the Officer (total fixed remuneration minus superannuation) during the year adjusted for the following:

Deducting annual leave and long service leave taken; Including the annual leave entitlement accrued during the year; and If leave taken exceeds leave accrued in the same year, the excess is deducted from short-term benefits as this is not an expense recognised by Energex in the current year. If leave taken is less than leave accrued in the same year, the excess is added to short-term benefits as this is an expense recognised by Energex in the current year.

2 Short-term benefits – Cash bonus represents individual at-risk performance payments made to the Officer. 3 Non-monetary benefits represent the value of car parking provided to the Officers. 4 Post employment benefits represent superannuation contributions made by the employer to the superannuation fund at the rates prescribed in the executives’ employment contracts. Some Officers are members of the defined benefit superannuation fund to which Energex made contributions at a rate of 13 percent of defined benefit members’ salaries during the 2011/12 financial year (2011: 32 percent). This additional 13 percent employer contribution has been made at the recommendation of the actuary and is not reflected in the post employment benefits reported above. Refer to Note 23 for further information on the defined benefit obligations of the Group.5 Other long-term benefits represent long service leave benefits accrued during the year. Long service leave may be taken when an employee has completed ten or more years of continuous service with a Queensland electricity corporation. Pro-rata long service leave may be taken or paid on termination, after seven calendar years of continuous service, when certain conditions are met in accordance with Electricity Regulation 2006 and the Energex Union Collective Agreement 2011. Long service leave will be paid where an employee is made redundant at a rate of 1.3 weeks per year with a pro rata amount for an incomplete year of service. 6 Position title changed from Executive General Manager Network Programming and Procurement to Executive General Manager Programming, Procurement and Services effective January 2012. 7 Key management personnel responsibilities ceased on 1 November 2010.

The service and performance criteria set to determine remuneration are included in Note 26.1.




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26.5 At-risk performance compensation

Performance payments to employees

Financial year

Aggregate at-risk performance remuneration1

Total fixed salaries and wages payments2

Number of employees receiving performance

payments$ $

2012 17,604,440 426,498,607 3,893 2011 18,509,072 399,047,190 3,757 1 The aggregate at-risk performance remuneration for 2012 represents the annual actual payment granted in September 2011 for award, non-executive contract and executive contract employees. For comparative purposes, the aggregate at-risk performance remuneration for 2011 has been restated to include half yearly actual payments granted in September 2010 and March 2010 for non-executive contract and award employees and the annual actual payment granted in September 2010 for executive contract employees. 2 Amounts shown above include capitalised employee benefits not shown in the income statements.

Key management personnel and other executives

A variable component of remuneration is provided to members of the executive team through an annual performance payment scheme. This scheme is designed to effectively reward a combination of key behaviours, capability and performance aligned with business goals and targets of the Group. The maximum funds made available for such payments are 15 percent of total fixed remuneration. Actual performance payments are based on performance measured against predetermined key performance indicators, as detailed in the annual statement of corporate intent (which is approved by the shareholding Ministers) and the senior executive’s performance agreement. Senior executive performance agreements comply with the format approved by the shareholding Ministers. Senior executive performance payments recommended by the CEO are submitted to the Remuneration Committee for endorsement and are recommended to the Board for approval. Performance payments made to the CEO during 2011/12 were based on a formal review led by the Chairman, submitted to the Remuneration Committee for endorsement and recommended to the Board for approval. The shareholding Ministers are advised of the actual performance payment within one month of payment. The grant date for both senior executives and executives 2011/12 performance pay was 22 September 2011 (2010/11: 8 September 2010).

Non-executive contract employees and employees covered by awards

The Group’s performance pay scheme provides for the establishment of action plans and performance indicators against which performance is assessed for performance pay purposes. Employees develop performance agreements with their managers for a performance pay period (normally 12 months), with assessments for performance payments being conducted on completion of the assessment period.

All full-time and part-time employees are eligible to participate in the scheme (including permanent and fixed term). Participation in the scheme is voluntary.

To be eligible for payment, the employee and the manager have a discussion to develop agreed targets which must be documented inthe performance agreement. This agreement must be signed by both parties. The employee must also be employed at the end of the performance pay period to be eligible.

The size of the pool available for performance pays was at the discretion of the CEO and reflected performance outcomes of the Group and shareholder expectations for the year ended 30 June 2012. There will be a maximum pool of six percent for award employees.

The grant date for the 2011/12 performance pay was 22 September 2011 (2010/11: 8 September 2010).

26.6 Transactions with related parties of key management personnel

A number of key management persons (that is Directors and senior executives), or their related parties, hold positions in other entities that may result in them having control or significant influence over the financial or operating policies of those entities. The terms and conditions of the transactions with management persons and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-related entities on an arm’s length basis.




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Transactions with related parties of key management personnel that occurred during the financial year are noted below. The relatedparty disclosures are those in connection with Energex and the related parties of Energex Directors, as follows:

John Geldard is a Director of Energy Super. Energex contributed to the Energy Super fund based on actuarial advice and the total payments for the year were $57,552,272 (2011: $72,229,099). John Battams is a Director of Sunsuper Pty Ltd. During the year, premiums paid by Energex to Sunsuper Pty Ltd were $5,170 (2011: $7,920). (John Battams ceased to be a Director of Energex Limited on 30 June 2012). Ronald Monaghan is a Director of WorkCover Queensland. During the year, premiums paid by Energex to WorkCover Queensland were $4,133,627 (2011: $2,856,030). (Ronald Monaghan ceased to be a Director of Energex Limited on 30 September 2011).

Related party transactions between Energex and its wholly-owned entities and jointly controlled entities are disclosed in Notes 27.1 and 27.2.

27 Related parties

27.1 Wholly-owned Group

The ultimate parent entity within the Group is Energex Limited.

The wholly-owned Group consists of Energex and its wholly-owned controlled entities as set out in Note 25. Transactions betweenEnergex and other entities in the wholly-owned Group consist mainly of intragroup loans and interest charges.

Aggregate amounts included in the determination of the Energex operating profit before income tax equivalent that resulted from transactions with entities in the wholly-owned Group:

2012 2011 Revenues/(expenses) Note $ M $ M Interest expense 2.2 (1.4) (1.2)Debt forgiveness – Service Essentials Pty Ltd 2.2 - (1.1)Distribution from subsidiary 2.1 32.1 -

Aggregate amounts of the Energex receivable/payable from other entities in the wholly-owned Group at the end of the reporting period:

Non-current trade payables1 12 0.8 22.31 Related party payable was forgiven during 2011/12 which resulted in the recognition of a distribution from subsidiary (refer Note 2.1).

27.2 Other related parties

Transactions and balances between Energex and other related entities (jointly controlled entity) consisted of the following:

Revenues/(expenses) Contractor charges paid to SPARQ Solutions (50.9) (42.1)IT service charges (asset usage fee) paid to SPARQ Solutions (46.8) (38.6)Interest received from SPARQ Solutions 2.1 11.4 10.1

Aggregate amounts receivable from/(payable to) related entities at the end of the reporting period: Assets/(liabilities) Current receivables from SPARQ Solutions 7 39.1 36.3Non-current receivables from SPARQ Solutions 7 123.6 96.4Current trade payable to SPARQ Solutions 12 (14.1) (12.1)Energex has agreed to cover its share of obligations of SPARQ Solutions to protect against insolvency. Darren Busine, Terence Effeney and Peter Weaver were executives of Energex and directors of SPARQ Solutions Pty Ltd, a jointly controlled entity during the financial year. They did not receive any remuneration for their positions as directors of this entity.




Page 62 of 66

27.3 Key management personnel

Disclosures relating to key management personnel are set out in Note 26.

27.4 State-owned parties

Energex is a Queensland Government owned corporation, with shares held by the shareholding Ministers on behalf of the State ofQueensland. All State of Queensland controlled entities meet the definition of a related party of Energex.

The following relates to transactions with state-owned entities:

2012 2011 Note $ M $ M

Revenues and expenses TUOS expense 389.0 342.2Interest expense – QTC 2.2 309.8 272.2Competitive neutrality fee expense 2.2 42.0 36.1Other expenses 55.2 63.0Government grant revenue 2.1 9.6 9.5Other revenue 27.9 33.1

Aggregate amounts receivable from state-owned entities at the end of the reporting period: Short term deposits 6,21.5 66.4 81.9

Aggregate amounts payable to state-owned entities at the end of the reporting period: Current tax payable 3.1 -Current trade payables 30.1 34.5Government grant unearned revenue liability 15 8.2 9.5Dividend provision 19 225.9 187.8Accrued interest and charges 12 26.8 -Long-term borrowings – QTC 13,21.4 5,464.6 4,769.8

No provision for impairment of receivables was raised for any outstanding balances and no expense was recognised for bad orimpaired debts due from state-owned entities.

27.5 Guarantees

Other than the financial support provided to wholly-owned subsidiaries (refer Note 21.7), and SPARQ Solutions (refer Note 27.2), there are no other guarantees with other related parties at the end of the reporting period.

27.6 Terms and conditions

Intragroup loans are available from Energex in a rolling facility and reviewed on a regular basis. The loans are interest-bearingat the 30 day bank bill swap rate plus two per cent. Intragroup loans made to Energex are interest bearing at the QTC cash rate. There are no fixed terms for the repayment of loans between the parties.

The terms of the tax funding agreement are set out in Note 1.8.

Transactions with other state-owned electricity entities were made in accordance with the National Electricity Rules for transmission use of system charges. Other transactions are based on normal commercial terms and conditions and at market rates.

Outstanding balances are unsecured and are repayable in cash.




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28 Contingent assets and liabilities

28.1 Insurance claims

The group has lodged insurance claims for property damage and industrial specific risk of $0.4 million (2011: $1.2 million).

28.2 Legal proceedings

A number of common law claims are pending against the Group. In each case a writ has been served and the Group is at variousstages of defending the actions. Liability is not admitted and all claims will be defended. The known amount of claims due to litigationand associated legal fees is $0.1 million (2011: $0.1 million).

28.3 Environmental remediation

The Group provides for all known environmental liabilities. The Group estimates that current provisions for environmental remediation are adequate based upon current information. However, there can be no assurance that new material provisions will notbe required as a result of new information or regulatory requirements with respect to known sites or identification of new remedialobligations at other sites.


2012 2011 2012 2011 $ $ $ $

29 Auditor’s remuneration

Remuneration for audit of the financial statements of Energex or any entity in the Group:

Audit services: Annual financial statements 520,000 578,200 497,000 555,000Regulatory reporting statements 78,000 85,000 78,000 85,000

598,000 663,200 575,000 640,000Non-audit services:

Taxation compliance services 9,000 - 9,000 -Employee hotline services 12,600 - 12,600 -Other non-audit services 20,000 - 20,000 -

41,600 - 41,600 -Total auditor’s remuneration 639,600 663,200 616,600 640,000

The 2010/11 figures have been updated for actual audit costs incurred. The audit of the financial statements for the year ended 30 June 2011 was performed by the Auditor-General of Queensland.

The audit and review of the 2011/12 financial statements of the Group is conducted by KPMG as Delegate of the Auditor-General ofQueensland. 2011/12 amounts include payments to the Auditor-General of Queensland (for audit services) and to KPMG directly (non-audit services). KPMG was not engaged as a contract auditor in 2010/11. While assigned as the contract auditor, engagementof KPMG for non-audit services is at the discretion of the Auditor-General of Queensland.

30 Events after the reporting period

There are no matters or occurrences that have come to the Group’s attention up to the time of signing which would materially affectthe results disclosed in the financial report. Industry Reviews In May 2012, the Queensland Government established an Interdepartmental Committee (IDC) on Electricity Sector Reform to review all aspects of the sector that impact on electricity costs specifically, energy supply, network costs and retail competition. The IDC will deliver a final report to the Queensland Government in early 2013. The results of this review and any consequential impact on theresults or operations of the Group are not yet known at the date of this financial report.


Directors’ declaration ABN 40 078 849 055


Page 64 of 66

The Directors declare that the financial statements and notes:

(a) comply with Australian Accounting Standards, the Corporations Regulations 2001, the Government Owned CorporationsAct 1993, and

(b) give a true and fair view of the Energex and the Group’s financial position as at 30 June 2012 and of their performancefor the financial year ended on that date.

In the Directors’ opinion:

(a) the financial statements and notes are in accordance with the Corporations Act 2001;

(b) there are reasonable grounds to believe that Energex Limited and its controlled entities will be able to pay their debtsas and when they become due and payable; and

(c) as at the date of this declaration, there are reasonable grounds to believe that the members of the Extended ClosedGroups identified in Note 25 will be able to meet any obligations or liabilities to which they are, or may become, subjectto by virtue of the Deed of Cross Guarantee as described in Note 25.

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

THE HONOURABLE SHANE STONE, AC PGDK QCChairmanEnergex Limited 22 August 2012 Brisbane, Queensland


Independent auditor’s report

Page 65 of 66

To the Members of Energex Limited

Report on the Financial Report

I have audited the accompanying financial report of Energex Limited, which comprises the balance sheets as at 30 June 2012, the income statements, statements of comprehensive income, statements of changes in equity and cash flow statements for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the company and the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001, and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

My responsibility is to express an opinion on the financial report based on the audit. The audit was conducted in accordance with the Auditor-General of Queensland Auditing Standards, which incorporate the Australian Auditing Standards. Those standards require compliance with relevant ethical requirements relating to audit engagements and that the audit is planned and performed to obtain reasonable assurance about whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion.

Independence

The Auditor-General Act 2009 promotes the independence of the Auditor-General and all authorised auditors. The Auditor-General is the auditor of all Queensland public sector entities and can be removed only by Parliament.

The Auditor-General may conduct an audit in any way considered appropriate and is not subject to direction by any person about the way in which audit powers are to be exercised. The Auditor-General has for the purposes of conducting an audit, access to all documents and property and can report to Parliament matters which in the Auditor-General’s opinion are significant.

In conducting the audit, the independence requirements of the Corporations Act 2001 have been complied with. I confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Energex Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

Opinion

In my opinion the financial report of Energex Limited is in accordance with the Corporations Act 2001, including –

(i) giving a true and fair view of the company’s and the consolidated entity’s financial position as at 30 June 2012 and of their performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.


Independent auditor’s report

Page 66 of 66

Other Matters - Electronic Presentation of the Audited Financial Report

This auditor’s report relates to the financial report of Energex Limited and the consolidated entity for the year ended 30 June 2012. Where the financial report is included on Energex Limited’s website the company’s directors are responsible for the integrity of Energex Limited’s website and I have not been engaged to report on the integrity of Energex Limited’s website. The auditor’s report refers only to the subject matter described above. It does not provide an opinion on any other information which may have been hyperlinked to/from these statements or otherwise included with the financial report. If users of the financial report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial report to confirm the information contained in this website version of the financial report.

These matters also relate to the presentation of the audited financial report in other electronic media including CD ROM.

N GEORGE CPA Queensland Audit Office (as Delegate of the Auditor-General of Queensland) Brisbane

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