annual report 2007 - western power31 august 2007 peter mansell board chair on behalf of western...

> The Emerging Business

ANNUAL REPORT

Contents>

OPERATIONS REVIEW 2007

Chairman’s rEviEw 3

managing DirECTor’s rEviEw 4

how arE wE TraCking 6

our CorporaTE oBjECTivEs 7

our BusinEss sTruCTurE 10

our sTraTEgiC DirECTion To 2016 11

our BusinEss pErformanCE 13

our CusTomEr foCus 18

our soCial CommiTmEnT 20

working wiTh ThE CommuniTy 25

our EnvironmEnTal CommiTmEnT 26

our EConomiC pErformanCE 30

kEy pErformanCE inDiCaTors 35

CorporaTE ComplianCE DisClosurEs 36

glossary 38

FINANcIAl REVIEW 2007

DirECTors’ rEporT 41

CorporaTE govErnanCE sTaTEmEnT 48

finanCial sTaTEmEnTs 58

inComE sTaTEmEnT 59

sTaTEmEnT of rECognisED inComE anD ExpEnsE 59

BalanCE shEET 60

Cash flow sTaTEmEnT 61

noTEs To ThE aCCounTs 62

summary of signifiCanT aCCounTing poliCiEs 74

DirECTors’ DEClaraTion 79

CorporaTE DirECTory 80

inDEpEnDEnT auDiT rEporT 81

ElECTriCiTy nETworks CorporaTion TraDing as wEsTErn powEr. aBn 18 540 492 861

ElECTriCiTy nETworks CorporaTion TraDing as wEsTErn powEr 30 junE 2007

Chairman’s review>

/ 3

The newly formed Board, together with Western Power’s Executive Committee, have laid a solid foundation during the year to create a business that can successfully meet new market demands, as well as become much more responsive to the needs of the community and stakeholders.

As part of reform to the electricity sector in Western Australia, two important milestones were reached in 2006/07. The Wholesale Electricity Market was launched, signifying formal commencement of competition in the energy market. Further, the Economic Regulation Authority approved Western Power’s Access Arrangement, which clearly defines what is expected of Western Power in providing new capacity to meet ever-increasing demand and preserving the integrity of the network. It also sets down expectations in safety and reliability performance.

Building and maintaining a robust network for the safe, reliable and efficient transmission and distribution of electricity remains our primary focus. It is, therefore, pleasing to be assured of funding of $3.5 billion over the next four years (2008–2011) to upgrade and expand the South West Interconnected System. A significant portion of this expenditure will contribute to the development of the network for future growth.

Safety performance improved markedly during the year resulting from a 100-Day Safety Plan that galvanised the organisation into action. I commend the management team and all employees for their commitment to improve safety and for bringing about a shift in our safety culture.

A highlight for the Board has been the development of a new strategic direction for Western Power. This was done in partnership with the organisation’s Executive team, leaders across the business, and industry representatives. This proved to be an exciting process.

We have developed strategies to position the business for the future; to be able to meet changing community expectations; and to contribute positively to future energy solutions in Western Australia. We have set a strategic direction until 2016 with plans for what will be achieved, what it will take to get there and how success will be measured. This process has challenged all of us to be open-minded and to look beyond the company’s immediate priorities without losing sight of them.

Our journey has begun. The Western Power of today is more outwardly focused and willing to listen. We are more able to shape energy solutions to match customer needs. We are consulting and engaging with communities and our broader stakeholders and have a sustainability focus across our major projects. In the future we will improve in all respects.

I would like to acknowledge the efforts of my fellow Directors, for their ongoing commitment and support in our first challenging year of operations. I would like to thank our Managing Director, Doug Aberle, and the management team, for overseeing an enormous work program to better position the business for the future.

Most importantly, I wish to acknowledge the dedication, enthusiasm and support of all Western Power employees.

With our new strategic direction in place, the company is emerging as an energy solutions business committed to a bright and sustainable future.

Peter Mansell BOARD CHAIR

31 August 2007

Peter Mansell BOARD CHAIR

On behalf of Western Power’s Board of Directors, I am pleased to present the organisation’s first full Annual Report since its formation in April 2006. We have called this report ‘The Emerging Business’, as this aptly describes the energy, optimism and focus of the new Western Power.


managing Director’s review>

/ 4

All this occurred in a time of rising labour and material costs resulting from the economic boom.

As a new company solely focused on the safe, reliable and efficient distribution and transmission of electricity, we established a new organisational structure, positioning us for the future and recognising that we are no longer a subset of a larger organisation.

SAfETy

Lifting safety performance was a major focus. Compared with similar businesses it was clear our performance was not leading edge and that we needed to begin a new on our

approach to safety and the safety culture of our business.

International safety expert, Shaw Energy was commissioned to conduct a thorough review of safety. An outcome of the review was the implementation of our 100-Day Safety Plan, the starting point on a path towards significant improvement. I am pleased to report we not only achieved, but also exceeded our stretch performance target for the year, and this is how we intend to continue. While the rate of improvement will get exponentially harder as we reduce safety incidents, we are absolutely committed to continual improvement and our ultimate goal of zero harm. Our safety performance was our greatest focus and our biggest achievement in our first year.

HigHLigHTS fOR 2006/07

In this, our first full year of operating, our highlights included:

• Safety:ouremployees’LostTimeInjuryFrequencyRate(LTIFR) of 3.7 (against a target of <5) and All Medical FrequencyRate(AMFR)of14.5(againstatargetof<20)were at their lowest levels ever.

• Operationalexcellence:wereachedasignificantmilestoneof45percentofpropertiesinthePerthmetropolitanareabeing connected to underground power, under the State Underground Power Program.

• Customerfocus:wehaveimprovedourcomplaintandenquiryhandlingtimes;simplifiedourquotes,invoices and online application forms; and introduced flexible payment options.

• Communityengagement:wehaverecentlyenhancedourstakeholder management focus by adopting a new approach to community consultation, encouraging communities to participate in the decision process in determining the route of transmission lines.

• Environmentalcommitment:thisyearwecommitted to planting 93,000 native seedlings to offset carbon

emissions through the Carbon Neutral Program. A further initiative, branded ‘Beat the Peak’, ran over the summer period to support more efficient energy use.

• Economicperformance:forthe12monthsto30June2007, we announced:

- Profit before tax of $99.3 million; -Netprofitaftertaxof$69.4million; - Revenue of $802.2 million; - Interim dividend of $17.1 million and an expected final dividend of $17.6 million; and -Capitalinvestmentof$727.4million.

Despite challenging operating conditions, revenues remained in line with Access Arrangement forecasts but overall, financial performance fell short of expectations due to cost inflation. We recognise we are not alone here with cost pressures being felt across the board in this ‘boom State’.

• Businessefficiencies:wegained$19.3millionincumulative savings from our successful ‘One Step Ahead’ program that have offset, to an extent, higher costs within the work program.

Doug Aberle MAnAgIng DIReCtOR

It has been an extremely demanding and productive 12 months for Western Power. With the support of the new Board and Executive Committee, we faced the challenges of our usual business activities as well as undertaking major project work to meet accelerated growth and address many years of underinvestment in the network.


/ 5

LONg-TERM STRATEgy

Despite the level of activity already going on in the business, we realised the importance of taking time to look at the future and develop a long term strategy. The Board and management team, together with many people in the business and industry, contributed to the thinking that resulted in our new direction.

The strategy incorporates the changing expectations around us, positions us to meet the codes and regulations set in the new regulated market and allows us to meet the uniquechallengeswefaceinthecurrentandfutureeconomic climate.

Our new strategic plan acknowledges the roots of our business under a theme of operational excellence, and introduces three new themes: transform the customer experience; engage with our community; and the green edge.

The plan supports our need to continue to maintain our focus on safety, improve reliability performance and attend efficiently to our ever-increasing workload. It also addresses how we engage with the community, the service we provide our customers and our environmental performance.

Next year we will measure our progress against these themes, ensuring we continue to be more innovative in our approach.

A great deal of effort has already gone into enhancing how we interact with people and how people experience Western Power. Western Power people are working

together to make this organisation stronger today and for the future. As an outcome of this work, it is pleasing to report an improvement in our measure of corporate reputation. (See Key Performance Indicators on page 35).

OUR PEOPLE

Throughout this extraordinary year, the business has been asked to do so much more. Both operational and non-operational teams have gone the extra mile to deliver on our business’s expectations.

Our crews once again demonstrated their tenacity and commitment in emergency situations, working tirelessly to restore power to communities in the bushfire affected towns of Toodyay and Dwellingup.

I would like to acknowledge their efforts and thank all Western Power people for contributing to our first full year of operations, helping to create a business with a new energy and set the scene for our transformation into an energy solutions business for a sustainable future.

Doug Aberle Managing Director

31 August 2007

“The plan supports our need to continue to maintain our focus on safety, improve reliability performance and attend efficiently to our ever-increasing workload.”

Doug aberleM a n a g i n g D i r e c t o r

/ 6


how are we tracking?>

> Efficiency - EBITDA (Earnings before interest, tax, depreciation and amortisation)

In our first year we’ve achieved a lot: a great improvement in safety as reflected in our LTIFR trend and we’ve managed our finances well, despite increased cost pressures throughout our business. Network reliability and work program performancearetwoareasrequiringattention.

> Network reliability - SAIDI (System average interruption duration index)

jul 06 nov 06 mar 07 jun 07

2 9 0

2 7 0

2 5 0

2 3 0

actual

Target

> Safety -LTIFR (Lost time injury frequency rate)


8

6

4

2

actual

Target


4 0 0

actuals accumulated budget

2 0 0

0

$ m


Power generation Step-uptransformer and terminal substation

Transmission line

Transmission line

Substation

Industrial/commercialcustomers

Residentialcustomers

Terminalsubstation

Low voltageunderground cables

Low voltageunderground cables

Distributiontransformer

Distributiontransformer

our corporate objectives>

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OUR vALUES

We will:

• putsafetyfirst

• respectourcustomers

• worktogether

• makeapositivedifference

• earntrust

• actlikeit’sourownbusiness

OUR fOcUS AREAS

• safetyandhealth

• ourcustomers

• ourstakeholders

• thenetwork

• businessefficiencyandimprovement

• ourpeople

• ourcommunity

OUR bUSiNESS - wHAT wE DO

Western Power is responsible for the safe, reliable and efficient distribution and transmission of electricity in the south west of Western Australia. This encompasses the Perth metropolitan area, connecting electricity to homes, offices and factories, and maintaining the electricity network.

Our electricity network is the largest ‘interconnected’ network in Western Australia. It is called the South West Interconnected System and consists of nearly 88,000 kilometres of powerlines stretching from Kalbarri in the north, to Kalgoorlie in the east and south to Albany.

Western Power is an electricity networks corporation. Our sole shareholder is the Western Australian Government but, as a corporation, we make commercial decisions within a regulatory framework. These cover almost all aspects of our operations, from our performance targets and how much revenue we can earn, to the proper disposal of waste and the safety of our employees, contractors and the public.

Throughout our operations, we focus on meeting the needs of our customers, while engaging with our stakeholders and the communities around us.

Perth

Bunbury

Geraldton

ThreeSprings

Boddington

Kondinin

Kalgoorlie

Manjimup

Bounty

SouthernCross

Merredin

Cunderdin

Northam

Narrogin

Wagin

Katanning

Kojonup

Muja

Collie

Bridgetown

Beenup

MargaretRiver

Mandurah

Kwinana

Indian Ocean

Southern Ocean

Kalbarri

GoldenGrove

Albany

Ravensthorpe Western Australia

Areaserviced by

WesternPower

Pinjar

MooraCataby

N

a growing network>

DiSTRibUTiON LiNES

In addition to the transmission lines in the South West Interconnected System, a network of distribution lines (not shown) supplies power to morethan840,000properties(residentialandbusinesses)and150,000 streetlights.

ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 30 JUNE 2007

/ 8

Fremantle

Rockingham

Yanchep

Pinjar

Northam

transMission powerlines

330 kv

220 kv

132 kv

66 kv


/ 9

ELEcTRiciTy MARkET REfORM

In April 2006, Western Power became an independent network business. The then Western Power Corporation was separated into four stand-alone companies, with only the network business retaining the Western Power name. The change was part of the State Government’s reform to the way electricity is generated, distributed and retailed in Western Australia.

from April 2006

How Western Australia’s Wholesale Electricity Market operates in the SWIS.

(operator of the network)

Energy Ombudsman and codes protect the interests of customers.

Residential prices set by Minister for Energy.

Business prices determined by the market.

Networks distribution system regulated by the Economic Regulatory

Authority (ERA).

Wholesale electricity market regulated by Independent Market

Operator (IMO).

Residential customers

Business customers

Verve Energy (max. capacity 3,000 MW)

Other Generator

Other Generator

Existing Potential

gEnEraTion DisTriBuTion rETailErs CusTomErs

Other existing retailers

SYNERGY

Future retailers

Business and Residential


our business structure>

/ 10

InJune2007,WesternPowerlaunchedanewbusinessstructuretorealignourprocessesand activities to our new strategic direction.

Mark de LaeterGeneral Manager Customer Services

Gino GiudiceManager Customer Services

Mike LuManager Customer Solutions

Mehdi ToufanGroup Manager Engineering

Peter Brazendale**Manager Distribution Design

Cameron Parrotte**Manager Transmission Primary Engineering

Al Edgar**Manager Secondary Systems Engineering

Syd McDowellManager Network Performance

Laurie CurroManager Network Planning and Development

Mark WilshunsenManager Standards, Policy and Data Quality

Nyrie Anderson*Business Improvement Manager

Rudy Teh*Environment and Land Management Manager

Steve Hughes*Expenditure Optimisation Manager

Anne-Marie ClarkGeneral Manager Service Delivery

Rod SmithManager Program Delivery

Duncan WhitfieldManager Program Enablement

Rob WalkerManager Business Services

Kevin CollyerManager Metro

Dennis SmithManager Country

Rob AtkinManager Substations

Graham RoweManager Field Engineering and Works

Jim KafanelisManager Business Improvement

Ken BrownGeneral Manager System Management

Phil KellowayManager Planning and Market Operations

Shane DuryeaManager Network Operations

Murray CastonManager System Operation Controls

Rod NewtonManager SCADA and Information Systems

Malcom PeacockChief Financial Officer

Gair LandsboroughManager Business Analisys

Guy BurnettManager Corporate Accounting and Taxation

Leigh SprlyanChief Information Officer

Ann HughesManager Risk Management

Jane WedgwoodManager Treasury

Andre WinartoManager Group Commercial

Phil SouthwellGeneral Manager Strategy and Corporate Affairs

Peter MattnerManager Regulation, Pricing and Access Development

Gavin ForrestManager Strategy

Joanne WheelerManager Corporate Affairs

Miriam BorthwickMedia Advisor

Steve BlakeManager Business Transformation

TBABusiness Development

TBASustainability

Greg MonkhouseGeneral Manager Human Resources

Marissa ConnollyManager Workforce Capability

Kathleen SoumanisManager Employment Relations

Geoff WeaverManager HR Operations and Organisational Development

Frank LossManager Safety and Health

Lionel Barnett*Administrative Services

John PeaseGeneral Counsel and Company Secretary Legal and Governance

Margaret PyrchlaManager Compliance

John TregonningSenior Legal Counsel

Sam BarbaroSenior Legal Counsel (Network Access and WEM)

Lilianna KovacevicAssistant Company Secretary

Brendan Carvalho ◆Manager Risk Assurance & Audit

Doug AberleManaging Director

*Direct reports to General Managers. **Direct reports to Mehdi Toufan


our strategic direction to 2016>

/ 11

We have reviewed the way we go about our business and have embarked on an exciting new direction.

Expectations of the energy sector are changing. Sustainability, climate change, energy solutions and the impact of organisations such as Western Power are the focus of national and international discussion.

Many more individuals are taking personal responsibility for energy use while communities and other stakeholders expect to be consulted, listened to and informed on the future plans and actions of their energy providers. In addition, the Western Australian economy is booming and the Western Power network has had to expand exponentially to keep pace. Similar growth is expected to continue for the foreseeable future.

It is a pivotal moment in our organisation’s history, and through careful planning, an opportunity to position the business for a strong and sustainable future.

InJune2007,welaunchedanewstrategicdirection. Our new direction is focused around four strategic themes:

• operationalexcellence

• transformthecustomerexperience

• engagewithourcommunity

• thegreenedge

The ’tree’ is a diagrammatical representation of Western Power’s strategic plan, showing the connection of the four strategic themes.

The base of the tree is Western Power’s foundation, a continued focus on embedding operational excellence and continuously improving. It is essential to continue to focus on safety, better reliability and greater efficiency.


/ 12

Investing for the future is about developing our people and capabilities along with our financial position. These values are the essence of our work.

Operational excellence provides a platform for us to have valuable interaction with our customers, where we listen to our customers’ perspectives and enable them to see what is involved in running the Western Power business.

The three aspirational themes, represented as branches - transform the customer experience, engage the community and the green edge - are outwardly focused.

Theyrequireustobecreativeandconnectedinthewaywe approach our work. It involves creating dialogue with our stakeholders and customers and meeting expectations.

The green edge component of our new strategy will enable us to respond to climate change; raise awareness of energy consumption patterns; play a leading role in the state’s sustainability debate; and enhance future energy systems through electricity networks.

The strategic outcomes we will work to achieve by 2016 are:

• ashiftincultureandmindsetbuiltupondevelopingenergy solutions within and beyond ‘poles and wires’

• integrationofsustainabilitycriteriaintoall decision-making and activity that is strongly linked to commercial reality and community responsibility

• arobustandpositiveconnectionwithourcustomers,our community, industry and chosen markets

• acommercialfocus

• nationalrecognitionandrespectinourchosenmarkets

• co-operative(partnershipbased)andcompetitiveapproaches to business

• flexibility

• aglobalconsciousness–weareoperatinginaglobalmarket and our decisions are felt globally

• havingsuccessfullycreatedourownfuture

At each stage of the strategic plan we have set down what we are going to achieve, what it will take to get there and how we will measure our success.

“investing for the future is about developing our people and capabilities along with our financial position. These values are the essence of our work.”


our business performance>

/ 13

SAfETy AND HEALTH

Western Power’s ‘100-Day Safety Plan’, completed on 5 October 2006, saw the organisation focus on 25 initiatives designed to reinforce safety as a core value and establish a vision where people are free from injury and harm. The organisation’s renewed commitment to safety and health is detailed more fully under ‘Our social commitment: our people’ (on page 20).

THE wHOLESALE ELEcTRiciTy MARkET

Western Power reached an important milestone on 21 September 2006, with the launch of the Wholesale Electricity Market (WEM). In the South West Interconnected System, the Independent Market Operator (IMO) administers the WEM, which was implemented as part of the State Government’s reform of the electricity sector in Western Australia.

In simple terms, the new market provides a means for industry participants to trade electricity in a competitive environment.

THE AccESS ARRANgEMENT

On 26 April, the Economic Regulation Authority (ERA) approved Western Power’s first Access Arrangement under the Electricity Networks Access Code. The Access Arrangement is the agreed ‘business rules’ for how Western Power goes about providing access and network services to the South West Interconnected System.

The Access Arrangement is approved by the ERA, after public consultation. It includes tariffs, capital contributions policy, reliability standards, asset values, forecast expenditures, and revenue and pricing models. Western Power’s first Access Arrangement covers the period1July2007to1July2009.

OUR NETwORk PROjEcTS

Western Power provides an essential service that is fundamental to the daily life of the community, business and industry. We are working to improve the performance of the existing network and upgrading its capacity to meet the ever-increasing demand for electricity.

Presently, Western Power is upgrading substations in eight suburbs throughout Perth’s metropolitan area which are Bentley, Cottesloe, Kewdale, Rivervale, South Perth, Neerabup, Waikiki and Gosnells.

Substations ‘step down’ high voltage power that is carried by transmission lines and convert it to a lower voltage suitable for distribution to residences and businesses.

We have 11 transmission line projects underway. Transmission lines are used to transmit high-voltage power from various generators (such as power stations and wind farms)tomorethan140majorsubstations.Currenttransmission line projects include:

• AlbanytoWellstead

• BibraLaketoCannington

• CollietoWellstead

• EneabbatoMoonyoonooka

• KojonuptoAlbany

• KwinanatoSouthFremantle

• MargaretRivertoBusselton

• Midland

• PinjartoWanneroo

• GugeriStreet,Claremont(powerlinerelocation)


/ 14

STAkEHOLDER MANAgEMENT STRATEgy

Our work impacts a range of stakeholders, including our sole shareholder – the Western Australian State Government - regulatory bodies, other government agencies, local governments, communities and interest groups. We work with stakeholders to understand their expectations and to ensure that their interests are considered in the delivery of our work.

We have recently enhanced our stakeholder management focus by adopting a new approach to community consultation, encouraging communities to participate in the end-to-end decision process in determining the route of transmission lines.

This new approach includes an adoption of robust sustainability principles to ensure that social, cultural, economic, technical and environmental issues are considered during the route selection process. These sustainability principles were developed in conjunction with government, industry and specialist groups.

The Eneabba to Moonyoonooka transmission line project is our first example of this new approach and has received positive feedback from impacted stakeholders (see case study in ‘Our environmental commitment’ on page 27).

MANAgiNg AND iMPROviNg OUR NETwORk

Western Power has undertaken a four-year expenditure program to improve the safety, reliability and capacity of electricity supplies to all our customers.

This program can be divided into four main areas:

• investmentandplanning-toensurewecancontinue to meet future demand for electricity

• reliabilityandcapacityimprovements-toimprovethereliability and capacity of power supplies, such as our Edge of Grid program

• theRuralPowerImprovementProgram

• bushfirereadiness-forasafernetwork

Record $3.5 billion network investment

Western Power will undertake its largest ever works program, investing $3.5 billion, over the next four years to upgrade and expand the South West Interconnected System. Major projects in the program include:

• $54.8milliontoupgradetheSouthernTerminaltoimprove capacity and reliability across the southern suburbs from Riverton and Canning Vale in the north, to Cockburn Cement in the west and Armadale, Gosnells and Byford in the south;

• $39milliontobuildanewterminalsubstationatNeerabup to meet the demand for electricity from the growing northern suburbs;

• $24.9millionupgradeofBusselton-MargaretRivertransmission line; and

• upgradeorbuildnewsubstationsatThornlie, Willetton,Joondalup,Warwick,Cottesloe,HenleyBrook,Wangara,Kewdale,Joondanna,BibraLake and Bentley.

223259

307 314

433

646

890844

769

905

966

wESTERN POwER TOTAL NETwORk ExPENDiTURE

0

network operating expenditure

200

400

600

800

1000

1200

Capital expenditure

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

finanCial yEar Capital expenditure

$6.6 billion investment 2001 to 2011

$3.5 billion investment over next 4 years

$ m

illi

on


/ 15

Edge of Grid project

In late 2006, Western Power formed an Edge of Grid project taskforce to look at ways to resolve power capacity issues in high-growth towns located at the edge of the South West Interconnected System. Its first priorities are the towns of Ravensthorpe, Denmark, Walpole, BremarBayandJurienBay.Themainobjectiveofthetaskforceistodevelopanequitable,cost-reflectivecapitalcontributions policy so developments can proceed as quicklyaspossible.

Until recently, some developments have been stalled by delaysinobtainingaquotetoconnectandobtainingapproval to proceed. The second objective of the taskforce will be to clear this application backlog.

The Rural Power Improvement Program

As part of the Rural Power Improvement Program, in early March 2007 we announced further planned network improvements, with the start of construction of the Dongara to Rudds Gully distribution line. The new three-phase line will improve capacity, reliability and security of power supply to more than 2000 properties between Dongara and Rudds Gully. The project is expected to be complete by November 2007.

The $60 million, five-year Rural Power Improvement Programwaslaunchedin2004toimprovereliability forapproximately43,000ruralcustomersbyreducing thefrequencyanddurationofpowerinterruptions.

Bushfire Management Plan and summer fires

On 10 December 2006, we launched our Bushfire Management Plan for summer 2006/07. A record $128 million will be committed over three years, with $37.5 million spent in 2006/07.

The plan incorporates a comprehensive vegetation management program, risk reduction strategies for public safety and aerial network inspections by helicopter. Under the plan, network upgrades using new technology are being considered, including steel poles designed to withstand bushfires and storms.

Summer Preparedness Program

Extreme weather conditions, including three days of temperaturesabove40degreesCelsius,sawthelargestever amount of power drawn from the South West Interconnected System on 7 March 2007. A new peak record was reached at 3575 megawatts (MW), 10% greater than the 2005/06 summer figure of 3256 MW.

The whole power system held up extremely well, with approximately400MWofreservegenerationstillavailableat the system’s peak.

In the six months to December 2006, through the Summer Preparedness Program, we:

• upgraded147transformers–16underground and 131 overhead

• installedandcommissioned54kmof underground cable

• upgraded35kmofoverheadmains(totalling105km of conductor) in various areas across the network. Work included:

- replacing conductors

- replacing one in every four poles for the 35 km of overhead mains (including all hardware and two cross arms)

• constructed12newreclosers

• ensuredmobiletransformersandgeneratorswereavailableifrequired

• successfullycompletedamockcrisismanagementexercise, conducted in early December 2006

Completing the bulk of the organisation’s 2006/07 networks capital works and summer preparedness programs was key to maintaining operation of the power system with minimal disruption to our customers and the community.


/ 16

Beat the Peak: managing increasing peak demand

Western Power, together with the Office of Energy, Synergy and Verve Energy jointly supported a public education advertising campaign during the 2006/07 summer, to encourage a more efficient use of energy.

Branded ‘Beat the Peak’, the campaign ran from early Januarytomid-March2007.Thecampaignwasasimplecall to action, asking people to reduce electricity use between 3pm and 6pm. Market research results for the Beat the Peak campaign showed an overwhelming majority – more than 80% of respondents - acknowledged the importance of the campaign’s message.

Nearly a third of respondents said that they made changes to their energy use behaviour as a result.

State Underground Power Program

The State Underground Power Program reached a milestoneinmid-January2007,with45%ofpropertiesinthe metropolitan area connected to underground power. We are on track to have 50% of power supplies to metropolitan properties placed underground by 2010.

We are retrospectively placing overhead distribution powerlines underground faster than any other energy provider in Australia.

bUSiNESS EfficiENcy AND iMPROvEMENT

One Step Ahead

Our change program, known as One Step Ahead (OSA), was launched in March 2005 to make Western Power a more efficient, performance-driven and customer-focused stand-alone business. As part of our Access Arrangement with the ERA, we committed to meeting an efficiency target of $20 million in 2006/07. OSA helped the business to meet this target by:

• creatingabetterworkingenvironment

• creatingnewcapacity

• increasingcapabilityandconfidence

The program was completed in December 2006 and by theendofJune2007haddelivered$19.3millioninbenefits to Western Power. Most of this was due to savings in the cost of services and materials.

UNPREcEDENTED cUSTOMER cONNEcTiON gROwTH

35,000

30,000

25,000

20,0001997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Number of new customer connectionsthe number of new homes and businesses being connected to the South West Interconnected System has been steadily rising since 2001, and significantly jumped in the past year. the increase reflects Western Australia’s strong economic growth and is expected to continue.

Source: Western Australian economic Summary, Summer Autumn 2006, Department of treasury and Finance


/ 17

IT systems review

Our suite of Information Technology (IT) systems will be simplified and rejuvenated under our IT strategic program of work, launched in September 2006. Initial projects will include:

• NetCIS-anewreliableandefficientbillingandcustomer information system that will improve service for all industrial and retail customers of Western Power

• workforcemanagement-anintegratedjobplanningand management system to support safe and efficient construction, maintenance, and collection of field data using mobile communications by field crews

• assetsystemrationalisation-willconsolidateandsimplify our asset data stores, creating a more reliable and accurate record of the assets used within the network

Under the new IT strategic plan, key operating principles are being adopted including the use of best-practice processes,improvingdataquality,eliminatingduplicationand minimising changes to industry-standard software packages.

Energy efficiency forum with universities

Western Power, in partnership with the Perth business newspaper, WA Business News, invited 12 of the state’s brightest university postgraduates and undergraduates in engineering, economics, energy management and policy toaforuminJune2007.

The forum was designed to encourage dialogue with students on the future direction of the state’s energy infrastructure and consumption. The participants from The University of Western Australia, Murdoch University and Curtin University of Technology, were asked to consider acceptable levels of change to increase responsible electricity use.

Discussions focused on energy trends at the consumer level; policy development at the State Government level; and the operation of Western Australia’s electricity market.

Western Power General Manager, Strategy and Corporate Affairs, Phil Southwell said he was hugely encouraged by the feedback from the students. “I got two key messages from the session,” he said. “One was around consumer information. The other was focused on smart technology”.

Western Power is keen to facilitate these dialogues to seek community, customer and stakeholder input in the discussion of how the organisation can continually contribute to energy efficiency.

In June 2007, attendees of the energy efficiency forum discussed the future direction of Western Australia’s energy infrastructure and consumption. The forum was a joint initiative of Western Power and WA Business News.


our customer focus>

/ 18

We are committed to working with our customers to identify and understand their needs and expectations, develop optimal solutions and deliver excellent service.

To do this we have:

• improvedcomplaintandenquiryhandlingtimes

• simplifiedquotesandinvoices

• simplifiedonlineapplicationforms

• introducedflexiblepaymentoptions

Western Power’s performance in customer service has progressedwellwithresponsetocomplaintsandenquiriesachieving close to target performance.

NETciS - A NEw cUSTOMER biLLiNg AND iNfORMATiON SySTEM

In Western Australia, electricity-billing data has historically been held within the Customer Information System (CIS), which is now owned by energy retail company Synergy. This system processed meter information, generated bills, managed credit, and provided for new and changed connections.

Western Power has embarked on a project to install a new customer billing and information system, called NetCIS. The system will be operational in 2008 and streamline our customer processes and systems. The system will allow Western Power to build a database providing a comprehensive ‘view’ of customer information that will be used to improve customer service.

METERiNg bUSiNESS SySTEM (MbS)

During 2006/07, we introduced our new Metering Business System (MBS), which will provide a single database of metering information. MBS will facilitate Western Power’s provision and management of metering services to all participants in the new electricity market. Further system enhancements to improve service standards will be implemented in February 2008.

NEw ENERgiSATiON PROcESS

The current property boom has created an unprecedented rise in Western Power’s workload to install underground power in new subdivisions.

Western Power is working closely with developers and the development industry’s peak body, the Urban Development Institute of Australia (UDIA), to implement a new system that will improve the energisation process of new subdivisions and help reduce waiting times. Presently, developers can choose to have Western Power install underground power in a new subdivision or manage the process themselves.

From1July2007,WesternPowerwillwithdrawfromsubdivision work and developers will undertake the construction of electrical infrastructure. This will ensure that developers and their consultants have greater control over completion dates.

Our business provides an extensive range of products and services to a wide range of customers, from individuals and small business operators to large corporations.


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URbAN DEvELOPMENT iNDUSTRy Of AUSTRALiA

Western Power has built on its growing relationship with the land development industry by participating in the UDIA’s National Congress held in Perth, March 2007.

The congress attracted more than 800 industry representatives from around the country and gave Western Power an opportunity to forge stronger links with key players in the land development industry.

Western Power sponsored the Best Residential Subdivision Award at the National Awards for Excellence and participated in the trade exhibition, which was part of the three-day event.

ELEcTRiciTy NETwORk MANAgEMENT AND cONTROL (ENMAc) cOUNTRy TAkE-UP

ENMAC is a new network management system, which allows Western Power operators to remotely view and manage the distribution network from the East Perth Control Centre.

The system provides operators with visibility of all operations and faults on the network and enables faults toberestoredquickly.

The take-up of ENMAC in the metropolitan area has been completed and the rollout to country areas continues to progress. By the end of the 2006/07 financial year, 82% of country substations were operating with ENMAC.

xA/21 ENERgy MANAgEMENT SySTEM

XA/21 is a new energy management system which allows System Management Operators to view and dispatch generation and manage and operate remote controlled equipmentfromtheEastPerthControlCentre.Itisakeycomponent in the management of the wholesale electricity market. The system, a replacement for the aging SCADA master station is closely coupled to the ENMAC system and provides real time operational information to system management, other corporate users and third party users such as the IMO and Verve Energy. The system takes advantage of the latest web technologies while maintaining the highest levels of data redundancy and security.

cUSTOMER iNfORMATiON vAN

Western Power has a new mobile customer information van that is used for events around the state.

At the van, customers can access a range of information about the electricity network. It can also be used in emergencies such as at Dwellingup in 2007 when bushfires destroyed nearly 200 power poles cutting the town’s connection to the electricity grid. The van is also used for events such as country ‘field days’ and Perth’s Garden Week, which was held at Perry Lakes in mid-April 2007.

Manager Customer Services, Gino Giudice presents the Western Power sponsored award for the ‘Best Residential Subdivision’ to Fiona Roche from the Estates Development Company.


our social commitment>

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OUR PEOPLE

Western Power has more than 2200 employees and more than 1000 contractors over 29 sites within the South West Interconnected System.

We recognise that our greatest asset is our people, and we are committed to ensuring they are safe, motivated and engaged. We achieve this by identifying and scoping training and development needs and recognising and rewarding high performance.

We put safety first at all times for our employees, our contractors, the public and our assets.

SAfETy AND HEALTH

To meet our obligations, we have embraced a Safety and HealthVisionthroughouttheorganisation.Workmustcease if safety cannot be assured. No activity is permitted to come before the safety and health of people. The potentialhazardsofourindustryrequirethehigheststandards of safety and health.

We are committed to the prevention of injury and harm, and strive to continuously improve our safety and health performance.InimplementingourSafetyandHealthPolicy we continue to:

• identify,assessandmanagerisksthattheworkforce,customers and the public face due to our activity

• meetand,whereappropriate,exceedlegalandindustrysafety and health standards

• requirethesamestandardsofcompliancefromallcontractors, partners and suppliers

• developandsupportWesternPoweremployees,andprovideresourcestomeetourSafetyandHealthVision

• communicatewithandengageallinterestedpeopleonsafety and health matters in an open, transparent and timely manner

• systematicallyaddressdeficienciesanddeliveropportunities for improvement, through the application ofourSafetyandHealthManagementSystem

OUR SAfETy PERfORMANcE

Ouremployees’LostTimeInjuryFrequencyRate(LTIFR)andAllMedicalFrequencyRate(AMFR),twoimportantmeasures of safety performance, were at their lowest levels ever this financial year. This means that we have had fewer incidents resulting in injuries to our people (see Key Performance Indicators on page 35).

People have been proactive, with an increase in the number of reported hazards or near hits, which have been analysed and addressed to prevent injury or harm.

These positive results are attributed to multiple initiatives from the organisation’s renewed commitment to safety and health and the 100-Day Safety Plan.

100-DAy SAfETy PLAN, THE jOURNEy TO SAfETy ExcELLENcE bEgiNS

In mid-2006, Western Power launched a 100-Day Safety Plan aimed at establishing safety as a core value for the organisation, our employees and contractors. A range of priority safety and health initiatives were introduced to all employees and contractors including driver training, correct glove use, safety kits in all vehicles, fatigue management, comprehensive job briefings and improved training for contractors.

Stay alert, stay safe

Mental and physicalfatigue is a common factor in many worksite incidents. To work safely, we must remain alert, well rested and focussed on what we are doing

and how we are doing it.

Drowsiness at workcan affect concentration and impact on our safety and health. Even working with computers can contribute to fatigue and result in a serious workplace incident.

We have an obligationto each other, our families, and the community to perform our work safely, to ensure everyone is free from injury or harm.

Fatigue causes accidents


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Under this plan, ‘Safety LifeSavers’, a revised set of essential safe work practices, was developed and rolled out across the organisation.

The plan complements ongoing safety campaigns such as ‘Switch On Mate’ and ‘Safety First Every Second’, which encourage teams to promote a culture of safety and personal responsibility.

Some of the key programs introduced under the 100-Day Safety Plan include:

• anewglovestrategy,implementingguidelinesonusingappropriate gloves for different types of work and correct storage, resulting in a significant reduction in the number of hand injuries and electric shocks (see case study)

• newfatiguemanagementstandardsforWesternPowerstaff and contractors, designed to eliminate or minimise risks associated with fatigue in the workplace

• arevisedSafetyManualcontainingessentialsafetyandhealth standards as a reference source for all field and office-based staff and contractors

• fleetsafetyinitiatives,featuringarevisedroadsafetypolicyand a vehicle training program aimed at improving the safety of Western Power’s workers and other road users

• in-fieldassessors,anewapproachtoeliminatingriskofharm or injury in the field through identifying at-risk behaviours in operational areas and providing coaching to eliminate these risks

• theSafetyLeadershipProgram–whichwasoneof the most important factors contributing to safety performance through a series of one-day workshops facilitated by the Executive Committee, in November 2006 and February 2007. The workshops provide our formal leaders with the shared vision to build a safety excellent organisation and explain the following safety and health leadership principles:

- always put safety first

- apply one rule for all

- lead by example

- coach, train and support our people

- hold ourselves and others accountable for actions rather than intentions

- recognise and reward our safety champions

- provide a job or career only for people who live our commitment to safety

- look at ourselves first when things go wrong

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gLOvE USE

A review of how gloves were used, cared for, inspected and tested in Western Power resulted in a new glove policy being applied throughout the organisation. The strategy was introduced as part of the 100-Day Safety Plan in response to an unacceptable number of hand and finger injuries and electric shocks. It has resulted in significant reductions in the number of hand injuries and electric shocks.

Number of hand injuries and electric shocks

2005/06 2006/07 % (decrease/increase)

Handinjuries 27 7 74%decreaseElectric shocks 11 3 73% decrease

PUbLic SAfETy

Western Power developed three public safety projects in 2006/07, an Electricity Safety Case, a Public Safety Management Plan and a public safety awareness campaign.

Western Power’s Electricity Safety Case is a new management system that will ensure network safety risks areidentifiedandadequatestrategiesareinplaceandoperating to address these risks. We aim to have the Electricity Safety Case approved by EnergySafety and operatingbyJune2008.

The Public Safety Management Plan is a comprehensive framework for managing the public safety risk posed by Western Power’s business. The plan contributes to a best practice approach to the management of Western Power’s

Training and Development Officer Dave Matthews demonstrates the correct use of gloves in a low voltage environment.


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network (including planning, design, construction, maintenance and operation), and aims to reduce the risk of public injury, minimise damage to third party and network assets and to maintain compliance with relevant legislation.

We also launched a Public Safety Awareness Plan in late May 2007 to increase the public’s awareness and understanding of the risks from electricity and our network.

In addition, Western Power has a number of plans, systems and policies in place to manage public safety, including:

• Safetyandhealthpolicyandmanagementsystem: to manage safety and health issues in the business, including public safety

• AnnualAssetManagementReport:amanagementplanaddressing the public safety risk for our network assets

• BushfireManagementandImplementationPlan: to lessen the risk and impact of bushfires

• CrisisManagementPlan:toidentifypotentialcrisesandcontrol measures. The plan provides a framework that enables Western Power to respond rapidly and appropriately to crisis events and hazardous situations

SAfETy AND HEALTH SURvEy

During February and March 2007, our people were invited to participate in a safety and health survey, to measure the organisation’s culture with respect to safety excellence. During April 2007, action plans for each division were developed from feedback received from the survey, with support from internal safety and health professionals.

iNciDENT REPORTiNg AND iNvESTigATiON

A new incident reporting and investigation process was rolled out across the business in April 2007. It includes the adoption of new standards and timelines, reporting forms and root-cause analysis training for all formal leaders.

LEADERSHiP DEvELOPMENT

Western Power recognises that it is crucial to continue developing our leadership skills throughout the business, to engage our people and inspire them to achieve our strategic objectives.

Highlightsfor2006/07included:

• WesternPower’sformalleadersattendingleadershipworkshops to improve leadership capability and safety performance across the business

• formalleadersaccessinganonlineleadershipsupporttool,developedbytheHarvardBusinessSchool

• seniorleadersundertakinga360degreefeedbackprocess to help create targeted development plans

• employeeperformancemanagementsystemrefined to better plan for the performance and development of every employee; and our leaders trained in effective use of the system

REcRUiTMENT iNiTiATivES

The unprecedented growth in Western Australia has put pressure on the labour market at the same time as increasing demand for electricity. Outlined below is the range of recruitment methods that we have adopted to attractqualifiedpeople.

Centralised recruitment function Recruitment is centrally coordinated by our resourcing team to provide effective and efficient recruitment solutions to the business. Our selection methodology is being reviewed to reflect commercial practices and we are introducing assessment tools for a range of key roles (behavioural, safety, aptitude and leadership assessment).

International recruitment and relocation ‘Cultural integration’ focus groups have been conducted with international candidates to provide data to drive improvements around pre and post-commencement support.


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Employer branding project

An employer value proposition is being developed to market externally. This will include a new advertising style, careers website, and promotional material for attraction at international, national and local levels. Marketing communications will be based on feedback and insight from Western Power’s present employees and the external market.

National and international recruitment

Our first steps were taken in establishing an international and national presence and, over time, a pipeline of qualifiedandassessedengineersandtradespeople. This has been achieved by building strategic relationships with nationally and internationally based providers, and having a presence at various career expos. Upcoming international careers expos include New Zealand, London, Manchester and potentially Ireland in early 2008 with a campaign being run in South Africa to attract trades people.

Activities designed to complement the recruitment process include vacation work experience by university students and various scholarship programs.

EDUcATiON

Western Power provides a range of scholarships, traineeships, apprenticeships and university prizes to support young Western Australians.

Bruce Kirkwood Memorial Scholarship

Western Power offers a scholarship each year to a student enrolled in an electrical power engineering course at a Western Australian university who wishes to pursue a career in the power industry. Open to full-time students currently enrolled in the second year of a Bachelor of Engineering course or a combined degrees course that includes electrical power engineering, the 2006 Bruce Kirkwood Memorial Scholarship was awarded to Luke Nofal.

TheScholarshiphonoursthelateJB(Bruce)KirkwoodAO,a past Commissioner and Chief Executive of Western Australia’s energy utility.

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STUDENTS wiN TERTiARy ScHOLARSHiP

Timothy Blackford (19) and Nicholas Travers (18) from Margaret River and Bridgetown have jointly won the 2007 Western Power Stuart Morgan Scholarship to support them through their university studies. It is the first time Western Power has awarded a joint scholarship.

Awarded annually by Western Power, the prestigious scholarship honours the former Chairman of the State Energy Commission of Western Australia and supports country students studying engineering or commerce at a Western Australian university.

Western Power General Manager, Mark de Laeter said both applicants were of such a high standard it was impossible to separate them and provide the annual scholarship to just one. “Timothy and Nicholas had both achieved excellent academic results and were outstanding recipients of the award”, he said.

The scholarships provide Timothy and Nicholas with the opportunity for vacation work experience with WesternPowerandmorethan$4,500eachyeartoward their university degrees.

The Stuart Morgan Scholarship winners with their families at the presentation. (L-R) Peter Blackford, Timothy Blackford, Nicholas Travers, Jeff and Christine Travers and Dylan Travers.


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UWA – Western Power Electrical Engineering Scholarships

Western Power is playing its part to combat the skills shortage in Western Australia by partnering with The University of Western Australia to provide scholarships to 20 electrical engineering students each year over the next five years. The scholarships are available to second year electrical engineering students specialising in power engineering within the School of Electrical, Electronic and Computer Engineering.

APPRENTicES, TRAiNEES AND gRADUATES

Western Power employs apprentices, trainees and graduate engineers to maintain the skills needed for electricity transmission in the state. Our workforce currently includes 127 trainees, 50 apprentices and 70 graduate engineers.

Graduate engineer program

Western Power’s graduate engineer program provides opportunities for engineering graduates wanting to work in the power sector.

The three-year program involves two six-month placements each year, featuring work experience and projects, technical presentations and field visits, along withteambuildingactivities.Atotalof42graduates,sourced mainly from The University of Western Australia and Curtin University of Technology are paired with mentors across the business.

As an indication of the program’s success, Western Power received a total of 160 applications for 2008, with 20 places available.


working with the community>

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SPONSORSHiPS AND THE cOMMUNiTy

Western Power is proud of the support given each year to a range of community, environmental, sporting and cultural activities and events throughout the state. Our sponsorship program reaches across the community, focusing on activities that support the arts; encourage health and fitness; strengthen communities; educate and build skills; and promote safety. In 2006/07 we invested more than $1 million in community and environmental sponsorships, and charitable donations.

Some of the community partnerships and sponsorships that Western Power has supported:

Solar Model Challenge

Western Power’s Solar Model Challenge includes:

• asolarmodelboatraceforprimaryschools;and• asolarmodelcarraceforsecondaryschools.

During the last 15 years, more than 3800 secondary school students have participated in this hands-on science program.

Regional Junior Cricket Program

Approaching its 10th year, the Western Power Regional JuniorCricketprogram,inconjunctionwiththeWesternAustralian Cricket Association (WACA), boosts cricket in towns in the wheatbelt, southwest, midwest, great southern, goldfields and central districts regions by not onlyspottingtalentedplayersbutalsobringingqualitycoaching to young country cricketers.

Netball WA

We sponsor the Regional Academy Program, which fosters the talent of junior netball players. This program gives young players the chance to get involved in the game, improve their basic skills and experience the fun of playing. It also enables WA Netball to monitor the development of netball in Western Australia and foster the development of future champions.

Charity Link winter and Christmas appeals

Western Power is a major sponsor of Charity Link, contributing $70,000 to the winter appeal and $30,000 to the Christmas appeal. Last Christmas, thanks to the generosity of WA businesses, community groups, schools and individuals, Charity Link distributed almost $700,000 worth of aid to disadvantaged Western Australians.

Kalgoorlie-Boulder Urban Landcare Group

Western Power is a core sponsor of this Landcare Group, which has conserved and established vegetation in the goldfields region for nearly 30 years.

Western Power also sponsors the following organisations:

• Scitech• PerthZoo• RoyalLifeSaving• Artrage• FireandEmergencyServicesAuthorityofWA• DepartmentofEnvironmentandConservation

(DEC) - water bomber aircraft

We have also taken up sponsorship of three new environmental programs. Please refer to ‘Our environmental commitment’ on page 27.

wORLD Of ENERgy

Our hands-on education centre in Fremantle, World of Energy continues to offer a range of curriculum-based programs for primary and secondary students as well as school holiday activities.

In2006/07weheld444classes,withmorethan 12,000 students, who attended the centre’s programs as well as 10,000 members of the public who visited the centre, most during school holidays.

World of Energy’s ShockProof! program informed 56,580 primary and secondary children in 192 schools about electricity safety.

Western Power is a key contributor to the Western Australian community on a number of levels. We aim to be a responsible corporate citizen that develops innovative partnerships with community organisations, and which supports the local communities that we impact.


our environmental commitment>

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Western Power’s Environmental Policy includes a range of strategies and actions, many of which go beyond standard environmental compliance, and our Environmental Governance Framework provides a systematic and responsible approach to environmental management.

ENviRONMENTAL POLicy

Western Power is the principal electricity transmission and distribution business in Western Australia. We are committed to operating the network safely, reliably and efficiently; delivering electricity in a manner that meets community needs and expectations.

Accordingly, business activities will be planned and conducted to minimise and, where possible, avoid adverse effects on the natural environment and social surroundings for the benefit of current and future generations.

In implementing this policy we will:

• ensurethatenvironmentalconsiderationsformpartofour business planning and decision-making processes

• promoteacultureofresponsibleenvironmentalmanagement

• protectthenaturalenvironmentandsocialsurroundings, preserve biodiversity, prevent pollution and minimise waste

• complywithapplicableenvironmentallawsandaspireto higher standards within the business

• continuallyimproveourenvironmentalperformance

• communicateopenlyandtransparentlywithstakeholders on environmental matters

• engagethecommunityinenvironmentalinitiativesaligned with our business values

Environmental leadership and adherence to the Western Power Environmental Policy is the responsibility of all Western Power employees and its contractors, suppliers and vendors.

NEw APPROAcH TO cOMMUNiTy cONSULTATiON

Western Power’s new community consultation focus enables communities to collaborate with Western Power to select the optimal locations for powerlines, substations and otherpowerrelatedequipment.Thisfocusempowerscommunity groups, local governments and peak industry bodies to provide input to the process as we work together to find suitable locations for network infrastructure.

The first step in the community consultation process was a series of workshops with stakeholders such as the Mid-West Chamber of Commerce and Industry, Landcare groups, the WA Farmers’ Federation, local and state government agencies and potentially affected landowners. These workshops helped to assess and define the weightings of each sustainability value and determine the potential broad corridors for the transmission line.

Our field officers continue to meet with interested and potentially affected landowners and engage in ongoing dialogue on relevant local criteria that has been fed into the process.

Western Power also involved indigenous representatives in a series of workshops and meetings. Other such projects underway are the Albany to Wellstead 220 kV line and the Kojonup to Albany 220 kV powerline.

Our network traverses many diverse natural environments and we are committed to working with community groups and stakeholders including environmental regulators to ensure that we design, construct and operate our network in a way that is sustainable and meets environmental standards.


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ENEAbbA TO MOONyOONOOkA 330 kv TRANSMiSSiON LiNE PROjEcT

Community members and local industry groups participated in identifying the preferred corridor for Western Power’s new 330 kV transmission line between Eneabba and a new terminal substation, to be constructed at Moonyoonooka, to help reinforce the transmission network in the mid-west. Landowners within this corridor will now be consulted in order to determine the most suitable line route, within this corridor.

This is the largest transmission project that Western Power has embarked on in 20 years.

“This is the first time we have gone to a community and said we need to connect power from point A to point B, and we want the community to tell us which path we should take,” said Western Power Major Projects Coordinator Ian Buchanan.

ENviRONMENTAL PARTNERSHiPS

Western Power is proud to be involved in a range of environmental partnerships, which engage the community in environmental initiatives aligned with business values and that assist in promoting a culture of environmental awareness throughout the organisation.

Carbon Neutral Program

During 2006/07, Western Power committed to planting 93,000 native seedlings in the state’s southwest to offset carbon emissions produced by its fleet vehicles and mobile generating facilities.

The seedlings planted for the Carbon Neutral Program will help absorb carbon emissions and directly benefit the environment by restoring biodiversity and addressing the problems of salinity and land degradation.

The program will be managed by Men of the Trees, who will consult with landowners to determine the best planting sites.

The carbon rights associated with the plantings will be registered in Western Power’s name for the next 30 years.

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

Centre for Phytophthora Science and Management

InJanuary2007,WesternPowersignedanagreement for the next three years, to contribute to the important research efforts of the Centre for Phytophthora Science and Management. The Centre’s research aims to halt the spread of Phytophthora dieback, which is vital to preserving the state’s biodiversity.

Morethan40percentofnativeplantspeciesinthesouthwest of the state are susceptible to dieback with some of themostvulnerableplantsbeingJarrah,GrassTree,Dryandra and Banksia species.

To address this major biodiversity threat, Western Power regularly conducts surveys and develops management plans to avoid Phytophthora dieback infected areas and complieswithforesthygienerequirementsfornew capital works.

Policies and procedures are also in place to restrict the movement of soil and plant life during construction and maintenance activities, which minimises the risk of spreading Phytophthora dieback.

Field Officer Brian Logan (second from left) with local Farmers Jerry, Bernie and Frank Clune discussing the location of the Moonyoonooka terminal substation.


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LANDcARE PARTNERSHiP

Western Power is developing a partnership with Landcare Australia to work together with communities, landowners and stakeholders who may be impacted by the construction and operation of the South West Interconnected System.

This partnership will help Western Power to ensure that new capital works are planned, designed and constructed in a sustainable manner.

Another important component of the partnership is the Possum Power Program. The program sees wildlife carer groups and local schools working together to build possum boxes, which will provide safe havens for Ringtail and Brushtail possums.

Western Power will partner with Landcare Australia for three years.

ENviRONMENTAL PROgRAMS

Western Power is committed to continually improving its environmental performance, protecting the natural environment and social surroundings, and preserving biodiversity, for the benefit of current and future generations.

We aspire to high standards of environmental care, and work with stakeholders to conduct our business activities in a manner that minimises adverse affects on the surrounding environment.

We have embarked on a range of innovative environmental initiatives to reinforce our commitment to environmental protection.

Possums and powerlines

At present, Western Power experiences a range of problems caused by the interaction between possums and electricity infrastructure in certain areas within the South West Interconnected System.

To help better manage the impact of these interactions with possums, Western Power’s Environment and Land Management branch conducted a study in partnership with Woodman Environmental Consulting and Ninox Wildlife Consulting.

The study aimed to gain an understanding of the interaction of possums with the network in the State’s south west, and to identify practical methods to reduce these interactions. The possum assessment project began inJune2005withthefinalreportscheduledforpublicationin late 2007.

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ORgANic fARM PROgRAM gROwS

Western Power’s innovative organic farm program has more than doubled in size since inception in 2002. When it started, just 30 organic farms were involved, and now there are more than 80 registered farms in the program.

The program was initiated to address concerns from organic farmers that chemicals used to maintain power poles and other assets could affect their organic certification. Working with Australia’s biggest organic and biodynamic certifying agencies, Western Power developed a set of procedures to meet the special needs of organic farms. Around 700 Western Power peoplehavebeentrainedinorganicfarmrequirements.We are the only Australian electricity business to actively safeguard its organic farming customers.

WesternPower’sEnvironmentalOfficerOliviaHertstedsaidtherewerenolawsrequiringorganicfarms to receive special treatment from utilities during maintenance, however, Western Power believed in meeting a high standard of environmental care.

The program also ensures that threats such as weeds, diseases and pests are not introduced to organic properties by our maintenance staff.


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Waste minimisation

In support of Western Power’s Environmental Policy objective to minimise waste, a new Waste Minimisation and Recycling Program has been adopted in our head office.

The program was aimed at increasing the percentage of waste recycled to 50 per cent over the 2006/07 financial year.BytheendofJune2007WesternPowerhadsuccessfully achieved this goal.

The benefits of the Waste Minimisation and Recycling Program include:

• reducingtheenvironmentalfootprintofthebusiness;

• promotingacultureofresponsibleenvironmentalmanagement;

• improvingenvironmentalperformancewithinheadoffice; and

• aligningWesternPowerasanenvironmentallyresponsible business.

Waste minimisation and recycling programs will be established at our depot sites in 2007.

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ENDANgERED SPiDER HAbiTAT

A population of the rare and endangered Tree-Stem Trapdoor Spider (Aganippe castellum), identified near distribution lines in the eastern wheatbelt, has been included in our Environmentally Sensitive Area (ESA) program.

This small native spider, approximately the size of a ten cent piece, builds distinctive burrows against the stems of shrubs and trees. We are working closely with the Department of Environment and Conservation to develop procedures to protect the spider’s habitat.

Effective management of the area through the ESA program will ensure Western Power employees and contractors are made aware of the special environmentalrequirementsatthesite,ensuringcompliance with environmental legislation.


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fiNANciAL HigHLigHTS

Western Power faced several significant financial challenges in our first full year of operations through to 30June,2007.Whilemostofthesewerelinkedtothecurrent economic climate in Western Australia, some operational specific challenges also needed to be overcome. New connections increased to more than 23,000 this year, while the network was severely impacted by devastating bushfires in some of the regional areas across the state.

2006/07 Financial summary ($ Million)

Revenue 802.2 Earnings Before Tax - statutory 99.3 Earnings Before Tax - underlying position 122.9 NetProfitAfterTax 69.4 Net Accruals to Government 68.8 CapitalExpenditure 727.4

Return on Assets (ROA) % 6.7%

Total revenue for the year was $802.2 million, with regulated revenue for the year reported as $683.9 million - just marginally below Western Power’s Statement of Corporate Intent 2006/07 forecast levels. This full year shortfall was caused by the delay in the ERA regulatory decision and new network tariff prices arising from this. Lower tariff revenue was offset by higher capital contribution revenue due to extensive customer connection activity.

2006/07 Revenue classification ($ Million)

Network Tariff Revenue 528.0 CapitalContributions 147.5 Other Operating Revenue 59.1 External Revenue - Purchasing and Warehousing 50.5 - Fleet 9.1 - Other 0.5 Other Non-Operating Income 7.5

Total revenue 802.2

Operatingexpenditureof$427.5millionwashigherthananticipated largely due to an unforeseen increase in corrective maintenance costs on the distribution network, resulting in a total of 2500 poles and 850 transformers damaged during storms and other emergency conditions beingreplacedduringtheyear.Highermaintenance costs were offset by the realisation of $19.3 million in efficiency savings.

The Return on Assets of 6.7 per cent is lower than our regulated real pre-tax Weighted Average Cost of Capital (WACC) of 6.8 per cent due to higher operating and depreciation costs for the year being offset by unregulated activity profit. The increase in depreciation (and interest) cost is due to higher than forecast capital investment in new network assets to satisfy the increasing demand for electricity resulting from the buoyant Western Australian economic conditions.

In our price regulated environment, revenue earned and the level of investment differs from that forecast in the Access Arrangement due to variations in energy volumes, demand growth and customer connection activity. Such variations are regulated via either the annual K-factor price adjustment (energy wheeled) or the Investment Adjustment Mechanism(IAM)insubsequentregulatoryperiods(demand and customer driven investment activity). To reflect the impact of such changes and to produce a more consistent approach to measuring profitability, we have adopted an underlying position as a key financial performance indicator. We have adjusted the statutory reporting of accounting profit before tax ($99.3 million) for thelowerthanforecastregulatedrevenue($15.4million)and higher than forecast depreciation and interest costs ($8.5 million), resulting in an underlying Earnings Before Tax (EBT) of $122.9 million.


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SHAREHOLDER RETURNS

The final proposed dividend for the year is $17.6 million, which with the interim dividend of $17.1 million paid on 29June2007,takesthefullyeardividendto$34.7million.This, combined with tax contributions of $29.7 million and $4.4millionoflocalgovernmentrateequivalents,hasprovided a total year Net Accrual To Government of $68.8 million. This result is lower than the forecast Net Accrual To Government of $109.5 million due to the aforementioned lower than forecast regulated revenue and higher operating, interest and depreciation costs for the year.

THE wORk PROgRAM

The work program for Western Power includes both the maintenance and capital components of investment in our regulated network. Regulated network tariffs are determined by the ERA based on its view of the scope of this work program submission.

This year, we managed record levels of capital investment ($727.4millioncomparedto$521.1millionin2005/06),reflecting an increase state-wide in demand growth, and cost pressures resulting from the continued strong growth in the Western Australian economy, and commodity price increases due to global expansion, particularly in China. The majority of Western Power’s capital program is requiredtomeetelectricitydemandgrowthandcustomer connection activity. The balance of the capital program is used to improve the safety and condition of the existing

network assets, maintaining Western Power’s vehicle fleet and essential investment in refreshing our information technology platform.

2006/07 Capital investment ($ Million)

Capacityexpansion 194.1 Customer driven 303.2 Asset condition and reliability 50.5 IT and vehicle fleet 179.6

Capital expenditure 727.4

Western Power capital investment summary

UNDERLyiNg 2006/07 EbT POSiTiON

122.96.525.7

36.926.6

99.0

120

100

80

60

40

20

0Statuatory

2006/07 eBtnetwork

tariff revenue

Customer contribution

revenue

nonreference service revenue

IAM depreciation

IAM interest Underlying 2006/07 eBt

2.0

$ m

illi

on


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As previously mentioned, the maintenance program of work was overspent this year due to a number of factors. Therewasagreaterthan40percentincreaseinexpenditure on corrective emergency work compared to the prior year; within the Preventive Condition scope of work, pole maintenance expenditure increased almost four fold to $11.6 million, while investment in vegetation maintenance, which is strictly in line with our organisational commitment to improving safety for employees, customers and the general public alike, was above prior year levels, leading to a significant reduction in the backlog of vegetationeasementworkrelativetoJune2006.

2006/07 Maintenance investment ($ Million)

Preventivecondition 41.8 Preventive routine 37.9 Correctiveemergency 54.1 Corrective deferred 28.9 Maint optimisation and others 22.2

Maintenance expenditure 184.9

Western Power maintenance investment summary

fiNANciNg

Early in the year, a review of Western Power’s interest rate risk policy and debt management approach was undertaken to ensure that the debt management strategy wasappropriatefortherequirementsofournewbusiness.The policy and debt management guidelines were modified to provide enhanced flexibility within clearly defined limits which enabled efficient pricing to be achieved when opportunities have arisen. Consistent with the policy, the business utilised both floating and fixed rate borrowings and derivatives to meet its funding requirementsandtomanageitsinterestrateexposure.Performance against the policy and guidelines is reported on a monthly basis to the Finance and Risk Committee of the Board.

During the financial year, borrowings increased by $396.3 million to fund the capital program resulting in gross debt of $2519.9 million. The increased level of debt resulted in an increase in the organisation’s gearing ratio from 71 per cent to 75 per cent in line with long-term capacity forecasts.

Debt portfolio structure ($ Million)

Less than 1 year 630.0 1 year to 5 years 1133.9 Greater than 5 years 756.0

Total debt 2519.9

Debt portfolio structure


Debt portfolio interest rate structure ($ Million)

Floating rate notes (FRN) 173.3 Fixed rate - Short 198.0 -Long 2148.6

Total debt 2519.9

Debt portfolio interest rate structure

Grossinterestexpensewas$146.8millionwhichwasslightly above forecast. This was primarily due to variances between the actual timing of new borrowings during the year compared to the timings in the budget forecast. Theweightedaverageinterestrateat30June2007was6.3 per cent resulting in a debt portfolio priced below current market interest rates due to recent interest rate movements and advantageous pricing achieved with the Western Australian Treasury Corporation.

During the year, all funds were sourced from the Western Australian Treasury Corporation under our $3000.0 million facilitylimit.At30June2007,theCorporationwas $480.1millionwithinthelimitofthefacility.Thiswas $133 million lower than the level of debt agreed with the Department of Treasury and Finance for 2006/07. The Department of Treasury and Finance has approved a borrowinglimitof$3329.9millionfor30June2008tomeetthefundingrequirementsofthe2007/08capitalprogram, and we are currently in the process of increasing the facility limit with the Western Australian Treasury Corporation to be consistent with this increase.

wORkiNg cAPiTAL

We have placed heavy emphasis during the year on improving the organisation’s management of working capital, in particular there has been a strong focus on effective cashflow forecasting, improved reporting on accounts payable and receivables in line with negotiated terms, and inventory turnover and availability initiatives. On a monthly basis, the Finance and Risk Committee of our Board reviews detailed cashflow reporting to confirm thattheorganisationhasadequateliquiditytomeetfuturecashoutflowrequirements.Wemanageourcashbalancesat a minimum level to minimise our cost of borrowings, whilemaintainingaprudentlevelofliquidity.

At30June2006and30June2007,networkingcapitalasreportedonastatutorybasiswasnegative.However,Western Power’s Current Liabilities include deferred revenue from Developer and Customer Contributions that will be recognised as revenue in the income statement when the associated project is complete. As this element of Current Liabilities does not result in a cash outflow, it can be excluded when determining the underlying net short-termcashflowrequirementsofthebusiness.

Working Capital 30 June 2007 30 June 2006 ($ Million) ($ Million)

CurrentAssets 163.9 224.5 Current Liabilities (308.6) (278.3) NetWorkingCapital (144.8) (53.8) Add back: Deferred Income 158.6 125.7

Net Current Assets 13.9 72.0

Over the reporting period, the net current assets have shifted from $72.0 million to $13.9 million. This is primarily a reflection of a number of improvements that have been instigated including lowering of cash holdings from$50.6millionat30June2006to$5.8millionat 30June2007andimprovedmanagementofaccountsreceivable.AlsoincludedinCurrentAssetsat30June2006 was a taxation asset of $18.1 million inherited from WesternPowerCorporation,whichhassubsequentlybeen utilised to meet 2006/07 taxation obligations.

/ 33


/ 34

Summary of statement Twelve months of financial performance ending 30 June 2007 ($’000)

Most of our revenue was earned from our core electricity-related services

Revenue earned from annual service and usage charges and from developers 797,187

Revenue received from interest on our investments, miscellaneous fees and charges, rents, sale of assets 5,064

Revenue from operations 802,251

The total cost of operating our business comprised:

Operations, maintenance and administrative costs associated with providing services 427,501

Borrowing costs and other financial expenses 141,015

Depreciation and amortisation of system assets, land and buildings, plant and equipmentandcomputersoftware 134,399

Cost of operations 702,915

Revenue less costs left an operating profit before tax of 99,336

We provided for income tax expense of 29,929

Which left us a profit after income tax of 69,407

We also took off retained earnings, the value of the actuarial adjustment to Retirement Benefit Obligations of 3,099

Wemadedistributionstoequityholdersof 25,664

Leaving us with retained profits available to fund future growth 40,644

Key Performance Ratios

Earnings before interest, tax and dividends $240,351

Return on Assets 6.7%

ReturnonEquity 8.4 %

Interest Cover 1.7 x

Gearing 75.5%

Summary of statement As at of financial performance 30 June 2007 ($’000)

Our total assets are comprised of both “current” and

“non-current” as follows:

Current assets are those we expect to use in the next

12 months and include monies owed to us, inventory,

prepayments and cash on-hand. 163,872

Non-current assets are those we to realise beyond

12 months, including:

Network assets such as distribution and transmission lines,

poles,plantandequipment 2,937,780

Land and buildings 113,644

Intangible Assets 21,655

Works in progress 555,049

Trade and other receivables, future income tax benefits

and derivative instruments 24,192

Non-current assets total 3,652,320

Current assets together with non-current assets give us

total assets of 3,816,192

Liabilities are also “current” and “non current”

Current liabilities are monies we owe for goods and

services received, deferred income from developer and

customer contributions, provisions for employee

entitlements and other liabilities 308,648

Non-current liabilities include:

Long-term borrowings 2,551,980

Provisions for liabilities including employee entitlements

and restoration costs and other liabilities. 90,751

Non-current liabilities total 2,642,731

Current liabilities, together with non-current liabilities gives

us total liabilities of 2,951,379

Deducting total liabilities from total assets leaves us with

net assets of 864,813

These have been funded by:

Contributedequity,whichisthevalueofnetassetsof

Western Power Corporation transferred to Electricity

Networks Corporation 801,161

Contributions towards Network Safety received during

the period 6,000

Monies held in reserves from hedging activities (997)

Profits earned in the current prior years and retained in

the business to fund future growth. 58,649

Whichrepresentstotalequityinthebusinessof 864,813


key performance indicators>

/ 35

Our first set of performance targets produced for the new business, and detailed in the Western Power Statement of CorporateIntent2006/07,coverstheoperatingperiodfrom1July2006to30June2007.

Indicator description Strategic result area 2006/07 2006/07 Full year actual Full year target

LostTimeInjuryFrequencyRate(LTIFR)3 (LTIs / million hours worked - employees) Safety 3.7 <5

AllMedicalFrequencyRate(AMFR)4 (AMs / million hours worked - employees) Safety 14.5 <20

System Average Interruption Duration Index (SAIDI) (Total duration of interruptions / customers per year)

- South West Interconnected System (SWIS) Reliability 287 277 -Urban Reliability 241 242 - Rural Reliability 552 509

System minutes interrupted (mins) Reliability 15.6 7.8

Corporate reputation (%) (Respondents’ rating reputation as ‘good’,

‘somewhat good’ or ‘very good’) Reliability, Efficiency 60 60

Enquiriesrespondedtowithin10days(%) Reliability,Efficiency 98 96

Complaints responded to within 20 days (%) Reliability, Efficiency 93 92

Subdivision energisation rate (%) Reliability, Efficiency 69 >80

Earnings Before Interest, Tax, Depreciation andAmortisation(EBITDA)($Million) Efficiency 374.4 414.1

Net Accruals to Government ($ Million) Efficiency 68.8 109.5

3 LTIFR and AMFR data does not include statistics from Western Power contractors.

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


Corporate compliance disclosures >

/ 36

fREEDOM Of iNfORMATiON

Under the Freedom of Information Act 1992 (FOI Act) Western Power is, subject to certain exceptions in the FOI Act,requiredtoprovideaccesstoitsdocumentswhereanapplicationforaccessismade.TheFOIActalsorequiresWestern Power to publish an up-to-date Information Statement about Western Power. An up-to-date Information Statement, and a guide on how to make an application under the FOI Act for access to Western Power’s documents, are published on Western Power’s website and can be inspected on the website free of cost at any time. The website address is www.westernpower.com.au

ELEcTRiciTy LicENcES

The licensing framework in the Electricity Industry Act 2004(WA)cameintooperationon1January2005, andconsequentlyanelectricitysupplylicenceisrequiredfor participants in the electricity industry who generate, transmit, distribute or sell electricity.

On 30 March 2006 the Economic Regulation Authority granted transmission and distribution licences to the former Western Power Corporation noting that on 1 April 2006 it would disaggregate that entity into four new entities, including Western Power. The licences were transferred to Western Power on disaggregation.

The licences were issued for the construction and operation of transmission and distribution systems in the licence area covered by the South West Interconnected System.

Particularrequirementsofthelicencesincludeperformance auditing, an Asset Management System and auditing, reporting, provision of information and the development of a trouble call fault management plan.

ObSERvANcE Of THE cODE Of cONDUcT fOR wESTERN POwER

Section 33 of the Electricity Corporations Act 2005 (WA) (“Act”)requirestheBoardofWesternPower“Board”toprovide to the Minister, at the same time as delivering its Annual Report, a separate report on the observance of its Code of Conduct by members of staff.

The Board confirms that consistent with section 31 of the Act, Western Power’s Code of Conduct was developed after consultation with the Commissioner for Public Sector Standards and was adopted by the Board at its meeting on24March2006.

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

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

Asat30June2007therehasbeenonereportedincidentofastaffmemberbreachingtherequirementsoftheCodeof Conduct.

State Records Act 2000

WesternPowermaintainsandsupportsqualityrecordkeeping practices in its day-to-day business activities. Allrecordsaremanagedaccordingtotherequirementsofthe State Records Act 2000 (WA) and Western Power’s approved Record Keeping Plan. Regular reviews are conducted of the corporate record keeping systems and practices to ensure their efficiency and effectiveness.

New staff and contractors are provided with information on the record keeping systems both at induction and at compulsory training in the use of the system. The training programs are reviewed on an ongoing basis to ensure they reflectanynewbusinessrequirement.

Public Interest Disclosure Act 2003

The Public Interest Disclosure Act 2003 (WA) came into effecton1July2003.TheActfacilitatesdisclosureofpublic interest information by providing protection for those who make disclosures and those who are subject of disclosures.

Western Power is committed to the aims and objectives of the Act. In support of this, a policy approved by the Board, and internal procedures have been developed that outline the manner in which Western Power will comply with its obligations under the Act.


/ 37

The Western Power Public Interest Disclosure policy and internal procedures are published on the company’s intranet for staff to review. In addition, Public Interest Disclosure information is referenced in the Western Power induction program. The Manager Risk Assurance and Audit has been appointed as the Public Interest Disclosure Officer for Western Power.

One public interest disclosure was registered during the financialyearended30June2007.Investigationsinrelation to this disclosure are proceeding.

Western Australian Electoral Act 1907

InaccordancewiththerequirementsofSection175ZEofthe Western Australian Electoral Act 1907, the following information in respect to expenditures (excluding GST) incurred by, or on behalf of Western Power during theperiod1July2006to30June2007isdisclosed as follows:

• Advertisingagencies:$880,879.18 – 303 Advertising Pty Ltd, The Brainstrust, Cogent, Icon Illustrations, Mindfield Group Pty Ltd, TMP Worldwide Pty Ltd, Trademark Graphics

• Marketresearchorganisations:$145,733.50–Synovate

• Directmailorganisations:$349,669.34–HermesPrecisaPtyLtd

• Mediaadvertisingorganisations:$567,721.06 – Marketforce Express, Marketforce Productions and Media Decisions WA

Total expenditure was $1,944,003.08

ENviRONMENTAL DUE DiLigENcE

Western Power’s operational sites are subject to State and Federalenvironmentallegislation,andsomerequirestateenvironmental licences. Complying with all regulatory and licencerequirementsisanintegralpartofWesternPower’scommitment to practical environmental care at all times.

Environmental due diligence and continual improvement in our environmental performance is provided by a corporate Environmental Management System (EMS).

The EMS is driven by an intranet based documentation and management tool (EMISWeb) to facilitate the process of environmental governance and management in the organisation. It is used to assist in the prevention, control and reduction of pollution and environmental harm, and support the protection and management of the environment.

ENviRONMENTAL LicENcES

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

Environmental licence Total

Western Australia Department of Environmental Protection Licence 1

Department of Consumer and Employment Protection Dangerous Goods Storage Licence 3

ENviRONMENTAL iNciDENTS

Duringtheperiod1July2006to30June2007, Western Power reported four environmental incidents to regulatory bodies.

cONTAMiNATED SiTES

The Contaminated Sites Act 2003 (WA) and the associated Contaminated Sites Regulations 2006 (WA) came into effect on 1 December 2006. These legislative requirementsmandatedthatWesternPowerreportallsites that are known or suspected of being contaminated to the Department of Environment and Conservation (DEC) by 31 May 2007.

On 22 May 2007 Western Power reported all its known or suspected contaminated sites. This report was the culmination of more than three years of investigations into the contamination status and environmental sensitivity of Western Power sites.

The sites reported (or previously reported) consisted of 50 substations, eight depots, 15 combined substations and depots, two cable leak sites and two previously owned sites.

Following the DEC’s classification, Western Power will undertake a staged investigation plan for those sites requiringcontaminationstatustobeconfirmed,enablingappropriate final site classifications, and the planning of any future remediation.


glossary >

/ 38

AA Access Arrangement. The financial rules and policies submitted by Western Power to the ERA that set out the terms and conditions under which the business will facilitate access to itsnetworkduringtheregulatoryperiodfromJuly2006toJune2009.

AccESS cODE ElectricityNetworksAccessCode2004.ThecodeunderwhichaccesstotheSouthWestInterconnected Network (SWIN) is regulated by the ERA.

cAiDi Customer Average Interruption Duration Index - the total average duration of interruptions during a 12 month period.

EMS Environmental Management System.

ENERgySAfETy Part of the Department of Consumer Protection. EnergySafety licenses electrical contractors and sets technical guidelines for the electricity network in relation to safety.

ERA Economic Regulation Authority (ERA) - an independent body, which reports directly to Parliament. The ERA reviews Western Power’s budget, how we perform as a business, how the network performs and our technical standards.

iMO The Independent Market Operator controls the supply and trading of energy and electricity capacity in WA’s Wholesale Electricity Market .

kv Kilo volt – a measure of energy transfer

MARkET RULES A code of conduct relating to the operation of the WA Wholesale Electricity Market, introducedbytheMinisterforEnergyandupdated,asrequired,bytheIndependent Market Operator.

OfficE Of ENERgy This body sets the guiding rules for the ERA and sets overall energy policy for Western Australia.

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

SAifi SystemAverageInterruptionFrequencyIndex–ortheaveragenumberofinterruptions per customer over a 12 month period.

Sci Statement of Corporate Intent – Western Power’s annual strategic planning document.

SwiS South West Interconnected System.

SwiN South West Interconnected Network.

ScNRRR SteeringCommitteeonNationalReliabilityReportingRequirements.

wEM Wholesale Electricity Market, introduced on 21 September 2006.

> Financial Review

Contents>

Financial Review 2007

DiReCtoRs’ RepoRt 41

CoRpoRate GoveRnanCe statement 48

FinanCial statements 58

inCome statement 59

statement oF ReCoGniseD inCome anD expense 59

BalanCe sheet 60

Cash Flow statement 61

notes to the aCCounts 62

summaRy oF siGniFiCant aCCountinG poliCies 74

DiReCtoRs’ DeClaRation 79

CoRpoRate DiReCtoRy 80

inDepenDent auDit RepoRt 81

eleCtRiCity netwoRKs CoRpoRation tRaDinG as westeRn poweR. aBn 18 540 492 861

>

/ 41

eleCtRiCity netwoRKs CoRpoRation tRaDinG as westeRn poweR 30 June 2007

Directors’ report

The Directors of Electricity Networks Corporation (‘the Corporation’) trading as Western Power, appointed by the Governor on the nomination of the Minister for Energy (‘the Minister’) under section 8(1) of the Electricity Corporations Act 2005 (WA) (‘the Act’), present their report for the year to 30 June 2007.

Directors

The names and details of the Directors in office during the year to 30 June 2007 are:

D Aberle M Davies S Farrier K Field P Mansell J Seabrook

PrinciPal activities

The principal continuing functions of the Corporation are:

• tomanage,plan,develop,expand,enhance,improveand reinforce electricity transmission and distribution;

• toprovideandimproveelectricitytransmissionanddistribution services;

• toprovideaccesstoservicesofnetworkinfrastructurefacilities as required and authorised by the Electricity Industry Act 2004 Part 8 (which relates to network access);

• toprovideservicesasrequiredandauthorisedbytheElectricity Industry Act 2004 Part 9 (which relates to the wholesale electricity market);

• toprovideservicesthatimprovetheefficiencyofelectricity supply and the management of demand on electricity transmission and distribution systems;

• toprovideancillaryservices.

It is also the function of the Corporation to use or exploititsfixedassetsforprofitsolongastheproperperformance of its functions are not affected. The Corporation can do anything that it determines to be conducive or incidental to the performance of its function mentioned above.

The Corporation, in performing its functions, must act in accordance with prudent commercial principles and endeavourtomakeaprofitconsistentwithmaximising its long-term value.

There have been no significant changes in the nature of the principal activities in the year to 30 June 2007.

oPerating results

The Corporation achieved a net profit after income taxof$69,407,000fortheyearto30June2007 (threemonthsto30June2006:$17,067,000).

DiviDenDs

TheCorporationpaidafinaldividendof$8,533,500on 18December2006inrespectofthethreemonthsended30June2006(threemonthsto30June2006:$nil)and aninterimdividendof$17,130,000on29June2007inrespect of the year to 30 June 2007. In addition to the above dividends, since the end of the financial year the Directors have recommended, subject to the approval of the Minister, the payment of a final dividend of $17,573,500inrespectoftheyearto30June2007.

review of oPerations

Information on the operations and financial position of the Corporation and its business strategies and prospects is set out in the review of operations and activities on pages 13 to 35 of this Annual Report.

/ 42


> Directors’ report (continued)

significant changes in state of affairs

Exceptasnotedbelow,therewerenosignificantchangesin the state of affairs of the Corporation during the year.

Bright Telecommunications Pty Ltd, a wholly owned subsidiary of the Corporation, was formed to develop a broadband access network. The subsidiary has not undertaken any transactions during the period. The assets and liabilities of the company were held by the Corporation and therefore the activities of the company do not have any material impact on the financial statements of the Corporation. The Corporation sold its shareholding in BrightTelecommunicationsPtyLtdon1December2006.

Matters subsequent to the enD of the financial PerioD

Since 30 June 2007, no matter or circumstance has occurred that has significantly, or may significantly, affect:

a) The Corporation’s operations in future financial years, or

b) The results of those operations in future financial years, or

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

likely DeveloPMents anD exPecteD results of oPerations

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

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

The Directors have not included in this report any further information on the likely developments in the operations oftheCorporationandtheexpectedresultsofthoseoperations in future years as they believe it would be likely to result in unreasonable prejudice to the Corporation.

environMental regulation

The Corporation is subject to significant environmental regulations in respect of its activities, in particular, the EnvironmentalProtectionAct1986(WA)(Statelegislation)and the Environment Protection and Biodiversity Conservation Act 1999 (Commonwealth legislation). There were no breaches of regulations under these legislations in the year to 30 June 2007.

qualifications anD exPerience of Directors

Peter Mansell

Yearofbirth:1946(Boardchair,independent, non-executivedirector).Appointedwitheffect from1April2006.

Qualifications and professional memberships

- Bachelor of Commerce

- Bachelor of Laws

- Australian Institute of Company Directors

- Law Society of Western Australia

Experience and expertise

Mr Mansell has practised as a business lawyer for 34years,andhasawiderangeofexperienceincorporatematters. He was a corporate and resources partner of legal firm Freehills from 1988 to 2004 and at various times was the Freehills National Chairman (1995-2000), Managing Partner of the Perth Office (1992-2002) and a member of the firm’s National Board (1989-2002).

Other current directorships

- West Australian Newspaper Holdings Ltd (Board chair)

- Great Southern Plantations Ltd

- ZinifexLtd(Boardchair)

- Ferngrove Vineyards Ltd (Board chair)

- ThinkSmart Ltd (Board chair)

- Bunnings Property Management Ltd, the responsible entity for the Bunnings Warehouse Property Trust.

Former directorships in last three years

- Foodland Associated Ltd until November 2005

- Progressive Enterprises Holdings Ltd until November 2005

- JDV Limited until August 2005

- TethyanCopperCompanyLtduntilMay2006

- TheHoytsCorporationPtyLtduntilDecember2006

- HardmanResourcesLtduntilDecember2006

- WesternPowerCorporationuntilMarch2006.

Special responsibilities

- Chair of the Remuneration and Nominations Committee (now the People and Performance Committee) to 4August2006.

- Member of the People and Performance Committee.

/ 43



Jenny Seabrook

Year of birth: 1957 (Board deputy chair, independent, non-executivedirector).Appointedwitheffectfrom 1April2006.



- Member of the Institute of Chartered Accountants Australia

- Fellow of the Australian Institute of Company Directors

- Senior Fellow of Financial Services Institute of Australia


Ms Seabrook is an investment banker. She is also a member of the Federal Government’s Takeovers Panel and the Markets Policy Group for the Financial Services Institute of Australia. Before joining Gresham Partners in 1998, she worked with Hartley Poynton, HSBC Group and Touche Ross on a range of transactions that gave her exposuretocapitalmarkets,debtmarketsandvaluationissues. Subsequent to joining Gresham Partners she has worked on a variety of mergers, acquisitions and capital structuring advisory transactions.


- West Australian Newspapers Holdings Limited (non-executivedirector)

- GreshamAdvisoryPartnersLimited(executivedirector)

- GreshamPartnersLimited(executivedirector)


- WesternPowerCorporation-non-executivedirector anddeputychairuntilMarch2006.


- Chair of the Finance and Risk Committee.

- Member of the People and Performance Committee.

Doug Aberle

Yearofbirth:1953(ChiefExecutiveOfficerandManagingDirector).Appointedwitheffectfrom1April2006.

On 8 May 2007 the Governor reappointed Mr Aberle as a director for a three-year term commencing on 1 July 2007.


- Bachelor of Engineering (Hons)

- Master in Engineering Science

- Chartered Professional Engineer

- Fellow of the Institution of Engineers Australia

- Fellow of the Australian Institute of Company Directors

- Clinical Member of the Australian Association of Relationship Counsellors

- Member of Gestalt Australia and New Zealand


Mr Aberle has a detailed knowledge of all aspects of the electricity industry having formerly filled the positions of General Manager for Networks, Chief Operating Officer, General Manager for Generation and General Manager for Transmission within the former Western Power Corporation. He was also Chairman of Integrated Power Services, a company jointly owned by Western Power Corporation and Halliburton, and was CEO of the South WestDevelopmentCommissionduringasix-monthsecondment. He is also a clinical member of the Australian Association of Relationship Counsellors and a College Member of Gestalt Australia and New Zealand.


- South West Counselling Inc. (not for profit)

- Australian National Committee for CIGIRE.


- Bright Telecommunications Pty Ltd until December2006.

Mervyn Davies

Yearofbirth:1944(independent,non-executivedirector).Appointedwitheffectfrom1April2006.

On 8 May 2007 the Governor reappointed Mr Davies as a director for a three-year term commencing on 1 July 2007.


- Bachelor of Engineering (Hons)

- Masters in Engineering Science



Mr. Davies has worked in all areas of electricity distribution andhasextensiveexperienceinmanagingboththefinancial and technical performance of the business. He has held senior management positions at Energy Australia, Australia’s largest electricity distribution company and is formally qualified in both Engineering and Economics from the University of New South Wales and hasexperienceatthebusinesslevelinimplementingtheNational Competition Reform Agenda for electricity.

/ 44



Since leaving Energy Australia, Mr. Davies has established and operated an engineering consultancy practice, specialising in electricity distribution system management. He has worked for electricity distributors in New South Wales and Queensland, the Independent Pricing and Regulatory Tribunal in New South Wales and for the Australian Competition and Consumer Commission.


- Anrig Pty Ltd (Board chair)

- Girna Engineering Management Services Pty Ltd (Board chair).


- WesternPowerCorporation-non-executivedirector untilMarch2006.


- Member of the Finance and Risk Committee.

Sally Farrier



- Bachelor of Engineering

- Masters of Business Administration

- Post-Graduate Diploma in Finance and Investment Analysis

- Member of the Institute of Company Directors

- Fellow of the Financial Services Institute of Australia


Ms. Farrier commenced her career as a consulting engineer before moving on to general management consulting and corporate advisory specialising in the utilities sector. In recent years she has focused on design, evolution and implementation of economic regulation, risk allocation, market incentives and mechanisms, and strategic decision making, particularly in relation to infrastructure. She is a member of the Victoria Water Trust Advisory Council and a member of the Independent Panel for the Central Region Sustainable Water Strategy.

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


- Farrier Swier Consulting Pty Ltd

- Hydro Electric Corporation (Hydro Tasmania).


- Member of the Finance and Risk Committee.

Karen Field



- Bachelor of Economics


Ms Field has spent more than three decades in the mining industry and has a strong background in human resources andprojectmanagement.Shehasheldexecutiverolesina variety of mining industry sectors throughout Australia and in South America. Prior to returning to Australia to develop consultancy and directorship roles she was President of Minera Alumbrera Ltd, an Argentine based management company established to develop and operate a large scale copper/gold mining project in north western Argentina.


- Sipa Resources Ltd

- Water Corporation

- Centre for Sustainable Resource Processing

- Anglican Homes Inc.


- Chair of the People and Performance Committee.

/ 45


qualifications anD exPerience of coMPany secretaries

Company Secretary – J Pease LLM

Mr. Pease has a Master of Laws with Distinction from the University of Western Australia and prior to his appointment with the Corporation has been practising law as a barrister since the mid 1980’s and held various in-house, private practice and government positions.

Meetings of Directors

The number of meetings of the Board (including meetings of Committees) and number of meetings attended by each of the Directors for the year to 30 June 2007 are as follows:

People and Board Performance Finance and Risk Meetings Committee Committee

Attendee A B A B A B

DT Aberle 15 15 7 7 7 7MJ Davies 15 15 - - 7 7S Farrier 14 15 - - 7 7KField 15 15 6 6 - -PJ Mansell 15 15 7 7 - -JASeabrook 14 15 6 7 7 7

A Number of meetings attended.

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

reMuneration rePort

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

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

B. Details of remunerationC. Service agreements.

A. Principles Used to Determine the Nature and Amount of Remuneration

Remuneration approval protocols are as follows:

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

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

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

The Corporation’s remuneration policy is to:

• Providemarketcompetitiveremunerationtoemployeeshaving regard to both the level of work assigned and the personal effectiveness in its performance

• Allocateremunerationtoemployeesonthebasisofmerit and performance

• Adoptindividualperformancemeasuresthatarelinkedto the Corporation’s objectives.

Non-Executive Directors

Theremunerationframeworkfornon-executivedirectorsincorporatesafixedremunerationandsuperannuationcomponent.

Managing Director and Executives

TheManagingDirectorandExecutivesRemunerationFramework is based on a Total Remuneration Structure which consists of two components:

• Afixedremunerationcomponentadministeredastotalfixedremuneration

• Avariableremunerationcomponentadministeredasshort-term incentives.

Fixed Remuneration Component

This includes a base salary, superannuation and benefits to reflect the level of work, responsibility and personal competency in the role which may be delivered as a combination of cash and prescribed non-financial benefits attheindividual’sdiscretion.TotalFixedRemunerationisreviewed annually on the basis of competitive market movement and personal performance.

TherearenoguaranteedFixedRemunerationincreasesincludedinanyseniorexecutives’contracts.

Variable Remuneration Component

This component is a cash-based incentive based on a three-tier performance target (two-tier in respect of the Managing Director) designed to drive successful performance outcomes and team congruence. Incentive payments are not guaranteed and are contingent on meeting the pre-determined performance targets agreed by the Board and senior management. Qualifying incentive payments are made annually in September.

Each year the Board will assess managements’ overall performance in meeting agreed performance targets and determine the level of payment to be awarded.


/ 46



reMuneration rePort (continued)

B. Details of Remuneration

Details of the remuneration of the Directors and Key Executivesaresetoutinthefollowingtables.

Remuneration of Directors

Salary and Short-term Short-term Non- Post Other Termination Total fees incentive# incentive# monetary Employment long-term benefits Benefits 2006 2007 Superannuation benefitsName Year $ $ $ $ $ $ $ $

DTAberle 2007 298,959 14,140 110,681 31,772 49,105 - - 504,657 2006* 64,945 - - 7,432 11,669 - - 84,046MJDavies 2007 7,404 - - - 52,546 - - 59,950 2006* 13,750 - - - 1,237 - - 14,987S Farrier 2007 55,000 - - - 4,950 - - 59,950 2006* 13,750 - - - 1,237 - - 14,987KField 2007 7,404 - - - 52,546 - - 59,950 2006* 13,750 - - - 1,237 - - 14,987PJ Mansell1 2007 65,400 - - 663 64,737 - - 130,800 2006* 21,628 - - 166 26,949 - - 48,743JASeabrook 2007 73,183 - - 663 6,646 - - 80,492 2006* 18,584 - - 166 1,688 - - 20,438

2007 507,350 14,140 110.681 33,098 230,530 - - 895,799

2006* 146,407 - - 7,764 44,017 - - 198,188

1 $16,042ofTotalBenefitsin2006relatestopaymentsmadebyWesternPowerCorporation# Theshort-termincentivepaymentsfor2006areinrespectofamountspaidforthethreemonthperiodto30June2006thatweredeterminedaftertheapprovalofthe2006financial report. The short-term incentive payments for 2007 are in respect of amounts earned for the year to 30 June 2007. The amount included for Mr D T Aberle is subject to the approval of the Minister.

* forthethreemonthperiodto30June2006

Remuneration of Key Executives

Salary and Short-term Short-term Non- Post Other Termination Total fees incentive# incentive# monetary Employment long-term benefits Benefits 2006 2007 Superannuation benefitsName Year $ $ $ $ $ $ $ $

KBrown 2007 128,475 8,523 54,664 22,189 110,630 - - 324,481 2006* 50,175 - - 6,497 12,916 - - 69,588AMClark 2007 245,171 8,325 59,541 32,900 23,491 - - 369,428 2006* 60,936 - - - 8,841 - - 69,777MdeLaeter 2007 300,917 6,555 50,578 14,687 25,060 - - 397,797 2006* 48,412 - - 166 5,468 - - 54,046GJMonkhouse 2007 157,686 6,088 51,391 3,255 100,355 - - 318,775 2006* 57,095 - - 166 3,035 - - 60,296MPeacock 2007 236,757 8,055 58,817 27,485 23,548 - - 354,662 2006* 60,419 - - 632 5,495 - - 66,546JPease 2007 185,889 2,970 24,769 26,089 18,845 - - 258,562 2006* 39,712 - - 5,062 4,025 - - 48,799MSims 2007 163,434 4,325 - 3,371 26,270 - - 197,400 2006* 36,317 - - 166 6,188 - - 42,671PSouthwell 2007 201,158 8,523 55,083 33,667 29,374 - - 327,805 2006* 61,887 - - 166 6,472 - - 68,525RWhite 2007 233,787 8,955 - 2,616 21,088 - 328,565 595,011 2006* 67,766 - - 166 6,114 - - 74,046

2007 1,853,274 62,319 354,843 166,259 378,661 - 328,565 3,143,921 2006* 482,719 - 13,021 58,554 - - 554,294

# Theshort-termincentivepaymentsfor2006areinrespectofamountspaidforthethreemonthperiodto30June2006thatweredeterminedaftertheapprovalofthe2006financial report. The short-term incentive payments for 2007 are in respect of amounts earned for the year to 30 June 2007.

* forthethreemonthperiodto30June2006

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reMuneration rePort (continued)

C. Service Agreements

The remuneration and other terms of employment for the Directors, Managing Director and key management personnelareformalisedinfixedtermserviceagreements.The terms of these agreements relating to remuneration are set out below.

PJ Mansell, Board Chair and Non-Executive Director. Termofagreementcommencingon1April2006and expiringon30June2008.

JA Seabrook, Deputy Chair of the Board and Non-Executive Director. Termofagreementcommencingon1April2006and expiringon31March2008.

MJ Davies, Non-Executive Director. On 8 May 2007 the Governor reappointed Mr Davies as a director for a three-year term commencing on 1 July 2007.

S Farrier, Non-Executive Director. Termofagreementcommencingon1April2006and expiringon30June2008.

K Field, Non-Executive Director. Termofagreementcommencingon1April2006and expiringon30June2008.

D T Aberle, Managing Director. On 8 May 2007 the Governor reappointed Mr Aberle as a director for a three-year term commencing on 1 July 2007.

K Brown, General Manager System Management. M de Laeter, General Manager Asset Management. P Southwell, General Manager Strategy and Corporate Affairs. AM Clark, General Manager Field Services. GJ Monkhouse, General Manager Human Resources. M Peacock, Chief Financial Officer. R White, General Manager Works Delivery (resigned 20 April 2007) J Pease, General Counsel and Company Secretary Ongoingtermofemploymentcommencing1April2006.

M Sims, Acting General Manager Business Transformation and Acting General Manager Works Delivery (with effect from 21 April 2007) Fixedtermcontractofemploymentoperatingforthree years from 17 March 2005.

insurance of officers

The Corporation holds a Directors’ and Officers’ Liability Insurance Policy. This cover will pay on behalf of the Corporation, or Directors and Officers of the Corporation, losses arising from a claim or claims made against them jointly or severally during the period of insurance by reason of any wrongful act (as defined by the policy) in the capacity of Director or Officer of the Corporation.

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

auDitor

Under the Corporation’s enabling legislation, the Parliament has appointed the Office of the Auditor General for Western Australia as its independent auditor. The independent auditor is appointed under the Electricity Corporations Act 2005. This Act provides that the auditor can conduct audits in the manner he sees fit and is not subject to direction by any person about the way in which thosepowersareexercised.

non-auDit services

Details of the amounts paid or payable to the auditor and other audit practices engaged for audit services of the Corporation during the period are set out below. Neither of these audit firms has provided any non-audit services during period.

Year to Three months to 30 June 2007 30June2006

Audit services: Office of the Auditor GeneralAudit and review of financial reports $250,000 $220,000

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

Signed in Perth this 31st day of August 2007.

P Mansell D AberleBoard Chair Managing Director

>

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Corporate governance statement

1. corPorate governance at western Power

Western Power is committed to a high level of corporate governance and fostering a culture that values safety, ethical behaviour, integrity and respect.

This Statement reports on Western Power’s key governance principles and practices. These principles are reviewed regularly and revised as appropriate to reflect changes in law and best practice in relation to corporate governance.

Western Power must comply with the Electricity Corporations Act 2005 (WA) (the ‘Act’) and other Australian laws. While Western Power is not listed ontheAustralianSecuritiesExchange(‘ASX’),itseeks tocomply,totheextentapplicableandnotinconsistentwiththerequirementsoftheAct,withtheASX‘Principlesof Good Corporate Governance and Best Practice Recommendations’(‘ASXPrinciples’)releasedbythe ASXCorporateGovernanceCouncil.

TheASXPrinciplesrequiretheBoardtoconsiderthedevelopment and adoption of appropriate governance policiesandpracticesfoundedontheASXPrinciples. This year Western Power updated its governance policies andprocedurestobetterreflecttheASXPrinciples.DetailsofWesternPower’scompliancewiththeASXPrinciplesaresetoutbelowandintheASXPrinciplescompliancechecklist found on pages 55 to 57 of this report and are published in the corporate governance section of the corporation’s website (www.westernpower.com.au).

2. boarD of Directors

2.1 Board role and responsibilities (ASX Principle 1.1)

As a statutory corporation, the Board’s and management’s respective duties and responsibilities are substantially set out in the Act. Further details are provided below.

Subject to the provisions of the Act, the Board has overall responsibility for performing the functions, determining the policies and controlling the affairs of Western Power. Its

central role is to set Western Power’s strategic direction and to oversee its management and commercial activities.

The Board has approved a Board Charter (a copy of which is available in the corporate governance section of Western Power’s website) that details its role, powers, duties and functions. In addition to matters required by law to be approved by the Board, the following powers are reserved to the Board:

• appointmentstothepositionoftheChiefExecutiveOfficer (‘CEO’), subject to the Minister’s endorsement, and oversight of appointments of the CEO’s direct reports

• providingstrategicdirection,approvingpolicies and reviewing major decisions, including capital expenditureproposals

• approvingbudgetsandmonitoringmanagement and financial performance

• overseeingcompliancewithinternalprocessesandregulatory requirements

• assessingBoardperformancetoensurethe Board’s effectiveness.

Responsibility for the management of Western Power’s day-to-day operations is delegated to the CEO, who is accountable to the Board. The Board has also delegated a number of responsibilities to its committees. The responsibilities of these committees are detailed in section 3 of this report.

2.2 Board composition (ASX Principles 2.1, 2.2, 2.3 & 2.5)

In accordance with the Act, the Board must comprise not lessthanfourandnotmorethansixdirectors.Directorsare appointed by the Governor of Western Australia on the nomination of the Minister. In making nominations, the Minister is required to consult with the Board. The Board may also recommend new directors to the Minister if a Board vacancy occurs.

AtthedateofthisreporttheBoardhassixmembers,ofwhomfivearenon-executiveDirectors.AllofthecurrentDirectorswereappointedon1April2006followingthe

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> Corporate governance statement (continued)

disaggregation of the former Western Power Corporation. The names and biographical details of the Directors in office at the date of this report, the date they were first appointed,theirstatusasnon-executive,independent orexecutiveDirectors and whether they are retiring by rotation and seeking re-appointment are set on page 42 to 44 of this Annual Report.

TheBoardconsidersthatallofthenon-executivedirectors, including those offering themselves for reappointment, collectively bring the range of skills, knowledgeandexperiencenecessarytodirect Western Power.

In assessing the composition of the Board, the Directors have regard to the following criteria:

• theChairandtheDeputyChairmustbeindependent,non-executive,Directors

• theroleoftheChairandtheCEOcannotbefilledbythe same person

• theCEOistoberesidentin,ornear,thetowninwhichWestern Power’s head office is located

• themajorityoftheBoardshouldcompriseindependentdirectors

• theBoardshouldhavetherequiredblendofqualifications,experienceandexpertise.

Further details of the process for evaluating the range of skills,experienceandexpertisethatwillbestcomplementBoard effectiveness, with a view to ensuring that it has a proper understanding of, and the competence to deal with, the current and emerging issues of Western Power’s business are available in the corporate governance section of Western Power’s website.

2.3 Director independence (ASX Principle 2.1)

The structure and composition of the Board is prescribed by the Act. The independence of Directors is, therefore, not a matter entirely in control of the Board. However, the Board Charter provides that in nominating candidate directors to the Minister, the Board will have regard to the independence of prospective directors.

The Board Charter further outlines the criteria to be considered in assessing Director independence, which are based on the premise that a director must be independent of management and free of any business or other relationship that could materially interfere, or could reasonablybeperceivedtointerfere,withtheexerciseofthe Director’s unfettered and independent judgment.

In considering a Director’s independence, the Board also has regard to the period of time during which the director has served on the Board, and whether that period could interfere with his or her ability to act in the best interests of Western Power. In this regard, the Board notes that the ASXCorporateGovernanceCouncilproposestoamendtheASXPrinciplesby,amongotherthings,removinglength of tenure from the list of relationships affecting Director independence.

The test of whether a business, or other, relationship is material is based on the nature of the relevant relationship and on the circumstances of the individual director. Materiality is considered from the perspective of Western Power, the persons or organisations with which the director has an association and from the perspective of the director. The Board considers that a customer, or supplier, is material where the amount receivable or payable, respectively, by Western Power in any 12 month periodexceeds$1.5million.However,thisthresholdisnotconclusiveandtheBoardwillexamineboththequalitativeand quantitative nature of a director’s relationship with any particular customer or supplier when assessing director independenceifthethresholdisexceeded,theBoardwillconsider whether or not that materially affects the impartiality of the judgment of the director.

The Board has considered the independence of each of the directors in office at the date of this report and its determination is set out in director profiles on pages 42 to 44ofthisannualreport.Noneofthenon-executivedirectors is considered to have a business, or other, relationship that could materially interfere, or could reasonablybeperceivedtointerfere,withtheexerciseofthe director’s unfettered and independent judgment.

2.4 Conflicts of interest

Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with Western Power’s interests. The Board has developed procedures to assist directors on disclosing potential conflicts of interest.

A director with an actual or potential conflict of interest in relation to a matter before the Board withdraws from the meeting while the matter is considered.

2.5 Board succession planning (ASX Principle 2.5)

The People & Performance Committee (‘P&PC’) assists the Board with succession planning. The P&PC reviews thesizeandcompositionoftheBoardandthemixofexistinganddesiredcompetenciesacrossmembersandreports its conclusions to the Board annually.

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Non-executivedirectorsareappointedforaperiodofupto three years and are eligible for reappointment, but may be removed from office by the Governor at any time.

Whenanon-executivedirectorpositionisvacant,theBoard may recommend a candidate to the Minister who may then nominate the candidate to the Governor.

Criteria considered by the P&PC when evaluating prospective candidates are contained in the Board Charter, which is available in the corporate governance section of Western Power’s website.

2.6 Terms of appointment, induction training and continuing education (ASX Principles 1.1 & 8.1)

Under the Act, a director holds office for such period, not exceedingthreeyears,asisspecifiedintheinstrumentofhis or her appointment, and is eligible for reappointment. Periods of appointment will be structured to ensure that approximatelyone-thirdofdirectorsretireeachyear.

Allnon-executivedirectorsareprovidedwithaletterofappointment that sets out the terms of their appointment. For new appointments, Western Power intends that each letter of appointment will contain all of the information recommendedbytheASXPrinciples(includingduties,rights and responsibilities, the time commitment envisaged andtheBoard’sexpectationsregardinginvolvementwithcommittee work). However, not all of the letters of appointmentprovidedtotheexistingnon-executivedirectors contained all of the recommended content. This is because either:

• atthetimeofappointmentoftherelevantdirectors,WesternPower’spolicyofcompliancewiththeASXPrinciples had not been fully implemented

• beingtheinauguraldirectorsofWesternPower,theinformationdidnotexistattherelevanttime,e.g.detailsof meetings, committee work required, details of fellow directors

• asWesternPowerisastatutorycorporation,theinformation is contained in its enabling legislation, namely the Act, or is not relevant e.g. it does not have a constitution, disclosure of material person interests, powers and duties and trading policy (see part 4.2 of this governance statement).

Theexistingnon-executivedirectorshavesincebeengiven this information where it is relevant to Western Power as a statutory corporation.

The P&PC oversees establishment and implementation of an effective induction process for new directors and reviews that process regularly. The induction process includes discussions with the CEO, senior management andtheexternalandinternalauditorsandprovisionofinformation on key corporate and Board policies and strategic plans.

Alldirectorsareexpectedtoundertakeprofessionaldevelopment to maintain the skills required to discharge their duties. Where this involves industry seminars and approved education courses, Western Power pays the cost, subject to the Chair’s approval. In addition, where skill gaps are identified, directors will be provided with appropriate resources and training.

2.7 Performance evaluation (ASX Principle 8.1)

The performance of the Board as a whole and each of its committees are reviewed on a regular basis (at least annually) against the requirements of their respective charters. In addition, the individual performances of the Board Chair and the directors are also reviewed. The P&PC determines the evaluation process for the Board and individual directors.

The performance evaluation of the Board as a whole and individual directors was conducted between June and July 2007 and comprised:

• aself-evaluationsurveycompletedbyindividualdirectors

• aquestionnaire/feedbackfromseniorexecutivesinrelation to their dealings and interface with the Board

• individualdiscussionsbetweentheBoardChair and all directorsandseniorexecutives,usingthesummarisedresults of the completed surveys

• aconfidentialreporttotheBoardofthecollatedresultsof the process for discussion/consideration.

Further details of the Board and director evaluation process are available in the corporate governance section of Western Power’s website.

The Board reviews the performance of its committees annually, at its last meeting for each calendar year. In this reporting period, the Board reviewed reports from eachofitscommitteesinDecember2006.Thereportsincluded the respective committee’s:

• assessmentofitsperformanceagainsttherequirements of its charter

• goalsandobjectivesforthecomingyear

• recommendationsforanyimprovementstoitscharterdeemed necessary or desirable.

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The Board also informally reviews its performance on an ongoing basis, by way of a meeting critique conducted by a member of the Board at the close of each Board and Board committee meeting.

The P&PC reviews and makes recommendations to the Board on the process for reviewing the performance of the CEO. The CEO’s performance is judged against the approved strategic plan and the corporate and personal key performance indicators established for the CEO on an annual basis.

A description of the process for performance evaluation of the Board, its committees, individual directors and key executivesappearsinthecorporategovernancesectionofWestern Power’s website.

2.8 Board access to information and professional advice (ASX Principle 2.5)

Directors have direct access to members of Western Power’s management and information.

Directors may, in carrying out their duties owed to Western Power,seekexternalprofessionaladvice.Theyareentitledto reimbursement of all reasonable costs where a request for advice is approved by the Board Chair. Where the BoardChairproposestoseekexternaladvice,he,orshewill consult the Chair of the P&PC.

2.9 Directors’ remuneration (ASX Principle 9)

The P&PC is responsible for, among other matters, assisting the Board in establishing remuneration policies and reviewing their effectiveness. The remuneration of non-executivedirectorsisdeterminedbytheMinister.

Western Power has a remuneration policy that distinguishesbetweenthestructureofnon-executiveandexecutivedirectors’remuneration.Detailsofremunerationpolicy, together with details of the remuneration paid to directors(executiveandnon-executive)andallexecutiveofficersofWesternPowercanbefoundonpage46ofthisannual report.

2.10 Board Chair (ASX Principles 2.2 & 2.3)

The Board Chair, Mr P Mansell, is an independent non-executivedirector.UndertheAct,theGovernorappointstheBoardChairandDeputyChairfromthenon-executivedirectors on nomination of the Minister.

In compliance with the Act, the Board Chair and the CEO are not the same person.

The Board Chair is responsible for leadership of the Board, for the efficient organisation and conduct of the Board’s function and for the promotion of relations between Board members and between the Board and management that are open, cordial and conducive to productive co-operation. The Board Chair’s responsibilities are set out in more detail in the Board Charter.

Mr Mansell is also Chair/director of West Australian NewspaperHoldingsLtd,ZinifexLtd,ThinkSmartLimitedand Ferngrove Vineyards Ltd. The Board considers that neither his chairmanship of these companies, nor any of his other commitments listed on page 42 of this annual report, interfere with the discharge of his duties to Western Power. The Board is satisfied that he commits the time necessary to discharge his role effectively.

2.11 Company Secretary (ASX Principle 8.1)

Western Power’s Company Secretary is Mr J Pease who is also its General Counsel. The qualifications andexperienceofMrPeasearesetoutonpage45. The appointment and removal of the Company Secretary is a matter for decision by the Board. The Company Secretary is responsible for ensuring that Board procedures are complied with and that governance matters are addressed. All directors have access to the Company Secretary’s advice and services.

2.12 Board meetings (ASX Principle 2.5)

The Board meets at least 10 times per year to address strategic issues and as needed to address urgent issues. During the year ended 30 June 2007, the Board held 15 Board meetings. Details of directors’ attendance at these meetings are set out on page 45 of this annual report.

The Board has adopted rules and procedures that govern the proceedings of Board meetings in addition to the provisions in Schedule 1 of the Act.

In summary the procedure is as follows. The Board Chair sets the agenda for each meeting in consultation with the CEO. Any director may request additional matters to be placed on the agenda. Members of senior management attend meetings of the Board by invitation, but sessions are also scheduled at the beginning of each formal Board meetingfornon-executivedirectorstomeetwithoutmanagement present.

Copies of Board papers are circulated electronically in advance of meetings. Directors are entitled to request additional information where they consider the information is necessary to support informed decision-making.

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3. boarD coMMittees

3.1 Committees, membership and charters (ASX Principles 2.4, 2.5, 4.2, 4.3, 4.4, 4.5, 9.2 & 9.5)

The Board has established two committees to assist in the discharge of its responsibilities. These are:

• theFinance&RiskCommittee(‘F&RC’)

• thePeople&PerformanceCommittee(‘P+PC’).

Each of the committees has its own terms of reference that describe its role and duties. The Company Secretary provides secretariat services for each committee.

Minutes of all committee meetings are provided to the Board and the proceedings of each meeting are reported bytherespectivecommitteechairatthenextBoardmeeting. A director may attend committee meetings even if he or she is not a member of the committee.

The number of committee meetings held during the year, and members’ attendances at these meetings, are set out in the Director’s Report.

3.2 Finance & Risk Committee (ASX Principles 4.2, 4.3, 4.4 & 4.5)

The role of the Finance & Risk Committee is to assist the Board to meet its oversight responsibilities in relation to Western Power’s financial reporting, application of accounting policies, financial management and treasury function, internal control, risk management and compliancesystemsandtheinternalandexternalauditfunction. In doing so, the committee is to maintain free and open communication with the WA Auditor General, the internal auditors and management of Western Power.

The committee’s terms of reference, detailing its duties, are available in the corporate governance section of Western Power’s website.

The members of the Finance & Risk Committee are Ms J Seabrook (Chair), Mr M Davies and Ms S Farrier.

The Auditor General, CEO, Chief Financial Officer (‘CFO’), Manager Risk Assurance and Audit and General Counsel & Company Secretary attend committee meetings by invitation.

3.3 People & Performance Committee (ASX Principles 2.4, 2.5, 9.2 & 9.5)

The role of the People & Performance Committee is to assist the Board to meet its oversight responsibilities in relation to Western Power’s governance practices, review Board composition and succession planning for the Board and CEO and assist the Board in establishing remuneration, incentives and human resources policies and a performance review framework.

The committee’s terms of reference, detailing its duties, are available in the corporate governance section of Western Power’s website.

The members of the People & Performance Committee are Ms K Field (Chair), Mr P Mansell and Ms J Seabrook.

The CEO, General Manager Human Resources and General Counsel & Company Secretary attend committee meetings by invitation.

4. ProMoting resPonsible anD ethical behaviour

4.1 Code of conduct and whistleblower policy (ASX Principles 3.1, 3.3 & 10.1)

The Board has approved a code of conduct for directors andexecutiveofficerstopromoteethicalandresponsibledecision-making. A copy of the code is available in the corporate governance section of Western Power’s website.

The Board has also approved a code of conduct setting out minimum standards of conduct for all officers and employees of Western Power, as well as a legislative and regulatory compliance policy. The code of conduct outlines Western Power’s position on a range of ethical and legal issues and summarises its policies on matters such as compliance with laws, occupational health and safety, conflicts of interest, corporate opportunity, confidentiality, protection of corporate assets and diversity in the workplace and responsibility for the environment. A copy of the code of conduct is available in the corporate governance section of Western Power’s website.

The codes of conduct and the legislative and regulatory compliance policy:

• guidecompliancewithWesternPower’slegalandotherobligations to its stakeholders, including the Minister and the Government, employees, customers, the community, unions and regulatory authorities

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• aredesignedtoreflectWesternPower’scommitment to appropriate corporate practices.

Compliance with the principles contained within these documents will also assist Western Power in effectively managing risks and meeting its legal and compliance obligations.

Western Power also has a policy on whistleblowing. The purpose of the policy is to help detect and address misconduct, help provide an environment in which persons feel able to raise issues of concern to them and Western Power and help protect people who report misconduct in good faith.

In accordance with the Act, the Board has also adopted minimum standards of merit, equity and probity applicable to management of Western Power’s staff and a joint policy on staff transfers. The latter has been approved by the Minister and ensures that staff of Western Power and the other electricity corporations created by the Act have the opportunity to move between the corporations and their respective subsidiaries without loss of entitlements.

4.2 Ownership and dealing in securities (ASX Principles 3.2 & 3.3)

Western Power is not a listed entity and has no transferable securities. The potential for issues in relation to trading in other companies’ shares while in possession of inside information is addressed in the statutory duties containedintheActandfurtherexplainedinanoutlineofthedutiesandobligationsofdirectorsandexecutiveofficers, a copy of which is provided to all directors and officers of Western Power.

5. shareholDer

5.1 Shareholder communication (ASX Principles 6.1 & 6.2)

The Minister for Energy is the only shareholder of Western Power. As Western Power’s governing body, the Board is responsible to the Minister for its performance. The Minister has various rights set out in the Act in relation to certain aspects of Western Power, such as Board nominations, approvals for certain transactions and access to information about Western Power.

The Act also imposes certain reporting obligations on Western Power. It must produce a strategic development plan (‘SDP’) and a statement of corporate intent (‘SCI’) each year. The SDP sets out Western Power’s five-year economic and financial objectives, strategic result areas and associated performance targets, as well as strategies.

The SCI sets out Western Power’s scope of activities, objectives and performance targets for the coming financial year and is consistent with the SDP. The SCI is tabled in Parliament after it has been agreed with the Minister and has received the Treasurer’s endorsement. In addition:

• WesternPowerprovidesquarterlyandannualwrittenreports to the Minister detailing its performance and progress made in fulfilling the agreed targets set in the SCI

• theMinisterandtheBoardmust,attherequestofeither, consult on any aspect of Western Power’s operation.

Western Power has established a formal protocol to ensure comprehensive and effective communication with the Minister and the Minister’s office. The protocol reflects the particular relationship between Western Power (being a statutory corporation) and the Government and recognises that the Minister must receive information to enable the Minister to discharge the Minister’s duties.

5.2 Continuous disclosure and market communications (ASX Principles 5.1 & 5.2)

Western Power is not a listed company and is, therefore, not subject to disclosure obligations under theASXListingRules.However,theActimposesrequirements on Western Power to report on a range of matters to the Minister.

The Finance & Risk Committee monitors the systems and processes Western Power has in place to achieve compliance with, among other matters, its reporting requirements.InDecember2006theBoardapproved a legislative and regulatory compliance policy that is designed to ensure that all Western Power employees are aware of its various legislative obligations, including those relating to disclosure and reporting. The policy establishes a framework that, when fully implemented, will:

• identifytherelevantobligationsandallocateresponsibility for compliance

• provideeducationforallaffectedstafftoensurethatthere is an awareness of the compliance requirement

• ensurethatcompliancebreachesarereportedandremedial action monitored

• reviewtheeffectivenessoftheframeworkona regular basis.

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6. financial rePorting (asx PrinciPles 4.1 & 7.2)

The Act requires the Board to declare annually that Western Power’s financial statements give, in all material respects, a true and fair view of its financial position and that its financial condition and operating results are in accordance with relevant accounting standards.

The CEO and CFO have stated in writing to the Board that:

• WesternPower’sfinancialreportspresentatrueandfair view, in all material respects, of its financial condition and operational results and are in accordance with relevant accounting standards

• thestatementtheyhavegivenrelatingtotheintegrity of Western Power’s financial statements and notes is founded on a sound system of risk management and internal compliance and control which implements the policies approved by the Board

• WesternPower’sriskmanagementandinternalcomplianceandcontrolsystems,totheextenttheyrelate to financial reporting, are operating efficiently and effectively in all material respects.

7. external auDitor relationshiP (asx PrinciPle 4.5)

The Act requires that Western Power’s financial statements be audited by the Auditor General by 30 September each year. The Auditor General also reports to the Minister on whether he or she is of the opinion that the financial report is in accordance with the Act.

The Finance & Risk Committee oversees communications between the Board, senior financial management, Risk Assurance and Audit and the Auditor General in order to ensure that all assistance that is necessary to complete the audit by the Auditor General is provided.

Western Power does not have control over the appointment(orselection)oftheexternalauditor because this is a matter prescribed by the Act.

8. risk ManageMent (asx PrinciPles 7.1, 7.2 & 7.3)

Western Power has a comprehensive framework to manage its strategic, operational, regulatory and reporting risks. The corporate risk management policy sets out a methodology and process for identification of risks, outlines the accountabilities of management and contains procedures for reporting on risk issues throughout Western Power. A description of the corporate risk management policy and internal control systems is available in the Corporate Governance section of Western Power’s website.

Divisional general managers are responsible for identifying risks and implementing strategies to mitigate them. The Finance & Risk Committee oversees the risk management framework and reviews the effectiveness of key mitigation strategies. Risk reviews are conducted at least annually to ensure emerging risks, such as those from changes in market structure and design, organisational restructures and operational issues are identified and responses developed.

In accordance with the Act, Western Power’s Treasury Branch makes recommendations to the Board on the appropriate level of insurance cover for Western Power. Financial risk issues are managed through a treasury policy statement that requires regular reporting to the Finance & Risk Committee on treasury activities.

9. environMental resPonsibility

Western Power recognises that environmental management is critical to the sustainability of its business. Corporate policies and strategies are in place encompassing environmental management principles administered through a formal Environmental Management System. These principles include community consultation, planning, compliance and sustainable development with continuous improvement objectives. Adherence to environmental policies and implementation of the Environmental Management System are audited.

All of Western Power’s sites are subject to a range of environmental regulations, both State and Federal, and some are also covered by specific Ministerial conditions and environmental operating licences issued by the State. All performance obligations under these regulations, conditions and licences are monitored, audited and reported, and may be subject to Government agency audit or inspection from time to time.

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10. asx PrinciPles checklist

AsWesternPowerhaschosentocomplywiththeASXPrinciples,itwillalsoreportontheextentthatithascomplied withthem.ThefollowingtablereportsontheextenttowhichWesternPowerhascompliedwiththeASXPrinciplesandexplainsthereasonsforanynon-compliance.

ASX Principle Reference Comply

Principle 1 Lay solid foundations for management and oversight

1.1 Formalise and disclose the functions reserved to the board and those delegatedtomanagement. 2.1,2.6 Note1

Principle 2 Structure the Board to add value

2.1 A majority of the board should be independent directors. 2.2, 2.3

2.2 The board chair should be an independent director. 2.2, 2.3, 2.10

2.3 TherolesoftheboardchairandCEOshouldnotbeexercised by the same individual. 2.2, 2.10

2.4 The board should establish a nomination committee. 3.1, 3.3 Note 2

2.5 ProvidetheinformationindicatedintheguidetoreportingonASX 2.2,2.3,2.5, Principle 2. 2.8. 2.12, 3.1, 3.3

Principle 3 Promote ethical and responsible decision-making

3.1 Establish a code of conduct to guide the directors, the CEO, CFO, andanyotherkeyexecutivesasto:

3.1.1 the practices necessary to maintain confidence in the company’s integrity 4.1

3.1.2 the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

3.2 Disclose the policy concerning trading in company securities by directors, officers and employees. 4.2 Note 3

3.3 Provide the information indicated in the guide to reporting on ASXPrinciple3. 4.1,4.2

Principle 4 Safeguard integrity in financial reporting

4.1 Require the CEO and the CFO to state in writing to the board that the company’s financial reports present a true and fair view, in all material respects, of the company’s financial condition, and operational results andareinaccordancewithrelevantaccountingstandards. 6

4.2 The board should establish an audit committee. 3.1, 3.2

4.3 Structuretheauditcommitteesothatitconsistsof:(i)onlynon-executive directors; (ii) a majority of independent directors; (iii) an independent chair, who is not the board chair; and (iv) at least three members. 3.1, 3.2

4.4 The audit committee should have a formal charter. 3.1, 3.2

4.5 Provide the information indicated in the guide to reporting onASXPrinciple4. 3.1,3.2,7,Note4

Principle 5 Make timely and balanced disclosure

5.1 Establish written policies and procedures designed to ensure compliance withASXListingRuledisclosurerequirementsandtoensureaccountability at a senior management level for that compliance. 5.1, 5.2 Note 5

5.2 Provide the information indicated in the guide to reporting onASXPrinciple5. 5.1,5.2 Note5

/ 56



10. asx PrinciPles checklist (continued)

ASX Principle Reference Comply

Principle 6 Respect the rights of shareholders

6.1 Designanddiscloseacommunicationsstrategytopromoteeffective communication with shareholders and encourage effective participation atgeneralmeetings. 5.1,7,Note6

6.2 Requesttheexternalauditortoattendtheannualgeneralmeeting and be available to answer shareholder questions about the conduct oftheauditandthepreparationandcontentoftheauditor’sreport. 5.1,7,Note6

Principle 7 Recognise and manage risk

7.1 The Board or appropriate board committee should establish policies on risk oversight and management. 8

7.2 TheCEOandtheCFOshouldstatetotheboardinwritingthat: 6,8

7.2.1 the statement given in accordance with best practice recommendation 4.1 (integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board.

7.2.2 the company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

7.3 Provide the information indicated in the guide to reporting on ASXPrinciple7. 8

Principle 8 Encourage enhanced performance

8.1 Disclose the process for performance evaluation of the board, its committeesandindividualdirectors,andkeyexecutives. 2.6,2.7,2.8,2.11, Remuneration report

Principle 9 Remunerate fairly and responsibly

9.1 Provide disclosure in relation to the company’s remuneration policies to enable investors to understand: (i) the costs and benefits of those policies; and (ii) the link between remuneration paid to directorsandkeyexecutivesandcorporateperformance. Remunerationreport

9.2 The board should establish a remuneration committee. 3.1, 3.3

9.3 Clearlydistinguishthestructureofnon-executivedirectors’ remunerationfromthatofexecutives. Remunerationreport

9.4 Ensurethatthepaymentofequity-basedexecutiveremunerationismade in accordance with thresholds set in plans approved by shareholders. Note 7

9.5 Provide the information indicated in the guide to reporting on 3.1, 3.3, ASXPrinciple9. Remunerationreport

Principle 10 Recognise the legitimate interests of stakeholders

10.1 Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders. 4.1

/ 57



10. asx PrinciPles checklist (continued)

Notes

1. The letter of appointment given to the current, inaugural, directors of Western Power did not contain all of the informationrecommendedinthisASXPrinciple(seesection2.6oftheCorporateGovernanceReport).

2.Partsofrecommendation2.4oftheASXPrinciplesarenotapplicabletoWesternPowertotheextentthatthecomposition of the Board is ultimately controlled by the Governor.

3.ASXPrinciple3.2hasnorelevancetoWesternPowerasitisnotapubliclylistedentity(seesection4.2ofthecorporate governance report).

4. The independence of committee members is influenced by the process of appointment of the directors to the Board by the Governor and, therefore, the committee may not always have a majority of independent members. However,itcurrentlydoeshavetherequiredmajority.UndertheAct,WesternPower’sexternalauditoristheWAAuditorGeneral.Therefore,recommendationsintheASXPrinciplesastoindependenceandevaluationofthe externalauditorarenotrelevant.

5.ASXPrinciple5hasnorelevancetoWesternPowerasitisnotapubliclylistedentityandthereforeisnotsubject totheASXListingRules(seesection5.2oftheCorporate Governance Report).

6.WesternPowerdoesnotholdannualgeneralmeetings.However,theAuditorGeneralreportsdirectlytotheMinister in respect of the audit of Western Power’s financial reports.

7.ASXPrinciple9.4hasnorelevancetoWesternPowerasitisastatutorycorporationandthereisnoequity-basedexecutiveremunerationinplace.

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Financial statements>

contents

inCome statement 59

statement oF ReCoGniseD inCome anD expense 59

BalanCe sheet 60

Cash Flow statement 61

notes to the aCCounts 62

summaRy oF siGniFiCant aCCountinG poliCies 74

DiReCtoRs’ DeClaRation 79

Electricity Networks Corporation is incorporated and domiciled in Australia. Its registered office and principal place of business is:

363WellingtonStreet Perth WesternAustralia6000

A description of the nature of the Corporation’s operations and its principal activities is included in the review of operations and activities on pages 13 to 35 of the Annual Report and in the Directors’ Report on pages 41 to 47, neither of which are part of these financial statements.

These financial statements were authorised for issue by the Directors on 31 August 2007. The Corporation has the power to amend and reissue the financial report.

Through the use of the internet we have ensured that our corporate reporting is timely, complete and available globally at minimum cost to the Corporation. All press releases, financial reports and other information are available by request at the above address and at our website www.westernpower.com.au.

/ 59


> income statement

Year to Three months to 30 June 2007 30 June 2006

Notes $’000 $’000

Revenue 1 797,187 182,928

Other income 5,064 1,629

Total income 802,251 184,557

Raw materials and consumables used (312,736) (65,277)

Employeebenefitexpenses (78,078) (24,291)

Payments to defined contribution plans (16,558) (3,604)

Costofdefinedbenefitplans 6(c) (2,611) (665)

Operating lease payments (4,297) (1,098)

Payments for audit services (250) (220)

Impairment of inventories (2,421) -

Otherexpenses (10,550) (6,935)

Total expenses (427,501) (102,090)

Earningsbeforeinterest,taxes,depreciationandamortisation 374,750 82,467

Depreciationandamortisationexpense (134,399) (27,684)

Finance costs (141,015) (30,444)

Profit before income tax expense 99,336 24,339

Incometaxexpense 2(a) (29,929) (7,272)

Profit for the period 69,407 17,067

All activities relate to continuing operations.

> statement of recognised income and expense


Notes $’000 $’000

Net (losses)/gains taken to equity in respect of cash flow hedges 7 (1,348) 351

Actuarial (losses)/gains on retirement benefit obligations 7 (3,099) 938

Net income recognised directly in equity (4,447) 1,289

Profit for the period 69,407 17,067

Total recognised income and expense for the period 64,960 18,356

These statements should be read in conjunction with the attached notes to the accounts set out on pages 62 to 73.

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> Balance sheet

2007 2006

Notes $’000 $’000

Current assets

Cash and cash equivalents 3 5,785 50,619

Trade and other receivables 3 84,278 103,572

Inventories 66,974 61,274

Derivative financial instruments 3 193 814

Currenttaxassets 6,642 8,253

Total current assets 163,872 224,532

Non-current assets

Trade and other receivables 3 1,819 4,029

Property, plant and equipment 4 3,606,473 3,031,552

Intangible assets 4 21,655 12,663

Deferredtaxassets 2(d) 21,866 48,276


Total non-current assets 3,652,320 3,096,887

Total assets 3,816,192 3,321,419

Current liabilities

Trade and other payables 3 126,423 126,348

Provisions 5 20,988 16,890

Derivative financial instruments 3 2,604 586

Deferred income 158,633 134,471

Total current liabilities 308,648 278,295

Non-current liabilities

Borrowings 3 2,551,980 2,150,486

Retirementbenefitobligations 6 37,165 32,655

Trade and other payables 3 11,815 11,992

Provisions 5 9,795 13,321


Deferred income 31,097 14,238

Total non-current liabilities 2,642,731 2,223,607

Total liabilities 2,951,379 2,501,902

Net assets 864,813 819,517

Equity

Contributed equity 7 807,161 801,161

Reserve 7 (997) 351

Retained profits 7 58,649 18,005

Total equity 864,813 819,517

This statement should be read in conjunction with the attached notes to the accounts set out on pages 62 to 73.

/ 61


> Cash flow statement


Notes $’000 $’000

Cash flows from operating activities

Receiptsfromcustomers,inclusiveofgoodsandservicestax 649,233 105,391

Payments to employees and suppliers, inclusive of goods andservicestax (430,926) (91,700)

Other revenue 191,517 29,451

Interest received 787 233

Borrowing costs paid (142,654) (7,047)

Leasingexpenses (4,297) (1,098)

Net cash inflow from operating activities 13 263,660 35,230

Cash flows from investing activities

Payments for property, plant and equipment (695,812) (169,953)

Proceeds from sale of property, plant and equipment 6,551 1,215

Proceeds from sale of susbsidiary entity 4,000 -

Net cash outflow from investing activities (685,261) (168,738)

Cash flows from financing activities

Proceeds from borrowings 2,143,300 270,015

Repayment of borrowings (1,747,008) (135,352)

ContributoryExtensionSchemedeposits 139 8,022

Proceeds from contributed equity 6,000 6,000

Distributions to equity holder (25,664) -

Net cash inflow from financing activities 376,767 148,685

Net (decrease)/increase in cash and cash equivalents (44,834) 15,177

Cash and cash equivalents at start of period 50,619 35,442

Cash and cash equivalents at end of period 3 5,785 50,619

This statement should be read in conjunction with the attached notes to the accounts set out on pages 62 to 73.

/ 62


> notes to the accounts

1. Revenuere venue froM continuing activities Year to Three months to 30 June 2007 30 June 2006

$’000 $’000

Sales revenue

Network services revenue 648,845 143,159

Developer and customer contributions 147,509 39,542

Interest received 833 227

Total revenue 797,187 182,928

unDerlying earnings

Annual network target revenue (primarily made up of Electricity Transmission Revenue and Developer and Customer Contribution Revenue) is derived each year by the Corporation. Electricity Transmission Revenue is earned at tariff rates approved by the Economic Regulatory Authority. Variations from this target revenue can occur as a result of variations in:

• volumeofelectricitytransportedacrossthenetwork

• actualcapitalexpenditure

• actualdeveloperandcustomercontributionsreceived

The financial impacts of these variations are adjusted in future network charges.

The revenue reported in these financial statements does not include any revenue adjustments arising from variations occurring in the current financial year, as these price adjustments are included in the distribution and transmission charges to customers in future periods. These adjustments are included in the Underlying Earnings of the Corporation, which are reported in the Performance Review section of the Annual Report.

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2. Income tax( a ) incoMe ta x e xPense Year to Three months to 30 June 2007 30 June 2006

$’000 $’000

Currenttax 9,609 13,030

Deferredtax 20,320 (5,758)

29,929 7,272

(b) nuMerical reconciliation of incoMe ta x to PriMa facie ta x Payable


$’000 $’000

Profitfromcontinuingoperationsbeforeincometaxexpense 99,336 24,339

TaxattheAustralianrateof30% 29,801 7,302

Taxeffectofamountswhicharenotdeductible/(taxable)incalculatingtaxableincome:

Research costs - (66)

Sundry items 128 36

29,929 7,272

(c) aMounts recogniseD Directly in equity

Deferredtax 1,906 (2,201)

1,906 (2,201)

(D) DeferreD tax

Thebalanceindeferredtaxassetscomprisestemporarydifferencesattributableto:

2007 2006

$’000 $’000

Provisions for employee benefits 27,280 28,088

Property, plant and equipment (4,824) 15,382

ContributoryExtensionScheme (3,821) (4,283)

Other temporary differences 1,325 11,290

Amounts recognised in the income statement 19,960 50,477

Actuarial adjustment to retirement benefit obligations 1,328 (2,050)

Other temporary differences 578 (151)

Amounts recognised directly in equity 1,906 (2,201)

Total amounts recognised 21,866 48,276

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3. Financial instruments(a) financial assets anD liabilities

2007 2006

Note Current Non-current Current Non-current

$’000 $’000 $’000 $’000

Financial assets

Cash and cash equivalents 5,785 - 50,619 -

Trade and other receivables 3(b) 84,280 1,819 103,572 4,029

Derivative financial instruments 193 507 814 367

Total financial assets 90,258 2,326 155,005 4,396

Financial liabilities

Trade payables and accruals 96,271 - 96,454 -

Other payables 27,783 - 27,841 -

ContributoryExtensionScheme 3(c) 2,369 11,815 2,053 11,992

Trade and other payables 126,423 11,815 126,348 11,992

Borrowings 3(d) - 2,551,980 - 2,150,486

Derivative financial instruments 2,604 879 586 915

Total financial liabilities 129,027 2,564,674 126,934 2,163,393

(b) traDe anD other receivables

Tradeandotherreceivablesarenon-interestbearingandarestatednetofaprovisionfordoubtfuldebtsof$1,490,000(30June2006:$1,557,000)againstcurrentbalances.

(c) contributory extension scheMe

ContributoryExtensionSchemepayablesrepresentcontributionsreceivedfromcustomerstoextendspecificelectricitysupplies.Thesecontributionsareprogressivelyrefundedasothercustomersareconnectedtotheseextensions. By 2023, when the Scheme finishes, all Scheme members will have their contributions refunded.

(D) borrowings

Borrowings include accrued interest and are governed by a facility agreement that provides the Corporation with the full discretion to refinance all or any part of maturing debt. Accordingly, borrowings with a maturity date of less than 12 months have been classified as non-current borrowings. It is intended to refinance all domestic currency loans maturingoverthenext12monthsunderthefacilityagreement.

TheCorporationhasaborrowingfacilitywithWesternAustralianTreasuryCorporationwithalimitof$3000million. Asat30June2007theunusedportionofthisfacilitywas$480million(30June2006:$876million).Thiswas $134millionbelowtheforecastborrowingsintheStrategicDevelopmentPlan.Theplannedusageofthefacilityisgoverned by the Strategic Development Plan agreed with the Minister of Energy.

/ 65



3. Financial instruments (continued)(e) risk ManageMent Policy

Exposuretocredit,interestrate,currencyandcommodityrisksarisesinthenormalcourseofbusiness.TheCorporationentersintoderivativetransactionstohedgeexposurestotheserisks.

The following table summarises the fair value of derivative financial instruments used to manage these risks.

2007 2006

Current Non-current Current Non-current

$’000 $’000 $’000 $’000

Cash flow hedges

Interest rate swaps - 507 140 202

Forwardexchangecontracts 193 - 674 165

Total financial assets 193 507 814 367

Cash flow hedges

Interest rate swaps - 90 - 814

Forwardexchangecontracts 2,604 789 586 101

Total financial liabilities 2,604 879 586 915

TheCorporation’smaximumcreditriskonderivativefinancialinstrumentsistakenasthosecontractsthathaveapositivefair value at the reporting date.

Liquidity Risk

The policy of the Corporation is to ensure that adequate funding is available at all times to meet commitments as they arise through the active control of cash flows and borrowing facilities.

Interest Rate Risk

The Corporation aims to reduce volatility in the cost of borrowings through the active management of interest rate exposures.InterestrateriskmanagementisperformedthroughtheuseofBoard-approvedfinancialinstrumentsandportfolioguidelines.ThefollowingtablessummarisetheCorporation’sexposuretointerestrateriskinfinancialdepositsand borrowings.

Financial deposits

Cash at Domestic bank deposits Total

$’000 $’000 $’000

Weighted average interest rate 5.8% 6.2%

Floating interest rates maturing within one year 1,885 3,900 5,785

Cash and cash equivalents 30 June 2007 1,885 3,900 5,785

Cashandcashequivalentsat30June2006 11,019 39,600 50,619

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3. Financial instruments (continued)(e) risk ManageMent Policy (continueD)

Interest Rate Risk (continued)

Borrowings Domestic Floating Interest borrowings rate notes rate swaps Total

$’000 $’000 $’000 $’000

Weighted average interest rate 6.3% 6.3% 0.1%

Floating interest rates - 173,300 (53,300) 120,000

Fixedinterestratesmaturing:

within one year 510,209 - - 510,209

between2-5years 1,071,370 - 53,300 1,124,670

in more than 5 years 797,101 - - 797,101

Borrowings at 30 June 2007 2,378,680 173,300 - 2,551,980

Borrowingsat30June2006 2,005,252 118,300 - 2,123,552

Credit Risk

TheCorporationhasacreditpolicyinplaceinrespectofitstradereceivablesandtheexposuretocreditriskismonitoredon an ongoing basis.

Commodity Risk

TheCorporationisindirectlyexposedtocommoditypricerisks.TheCorporationisreviewingitscommoditypriceriskexposuresandriskmanagementstrategy.

The following table summarises the derivative financial instruments used to manage these risks.

Currency Risk

TheCorporationaimstoprovidecertaintyofforeignexchangebymanagingforeigncurrencyexposuresatthemostefficient cost through use of Board-approved financial instruments.

All figures are Australian dollar values

Euro US Dollar Swedish Krone Canadian Dollar Total

$’000 $’000 $’000 $’000 $’000

Weightedaverageexchangerate 0.5665 0.8331 5.4286 0.8908

Forwardexchangecontractsmaturing

withinoneyear 24,908 11,933 1,324 2,492 40,657

between 2-5 years 9,749 - - - 9,749

At 30 June 2007 34,657 11,933 1,324 2,492 50,406

At30June2006 35,650 11,841 664 409 48,564

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4. Property, plant and equipment and intangible assets

Plant and Works under Property, Plant Intangible Land Buildings equipment construction & Equipment assets

$’000 $’000 $’000 $’000 $’000 $’000

Costat1April2006 43,173 43,124 2,197,642 594,567 2,878,506 13,185

Additions - - - 181,954 181,954 -

Disposals - - (1,060) - (1,060) -

Transferredduringtheperiod 592 248 190,791 (192,786) (1,155) 1,155

Costat30June2006 43,765 43,372 2,387,373 583,735 3,058,245 14,340

Additions - - - 728,279 728,279 -

Transferredduringtheperiod 22,464 9,325 703,550 (756,965) (21,626) 21,626

Disposals (1) - (8,747) - (8,748) (33)

Costat30June2007 66,228 52,697 3,082,176 555,049 3,756,150 35,933

Accumulated depreciation at1April2006 - - - - - -

Depreciationchargefortheperiod - 1,021 25,672 - 26,693 1,677

Accumulated depreciation at30June2006 - 1,021 25,672 - 26,693 1,677

Depreciationchargefortheperiod - 4,260 120,318 - 124,578 12,601

Disposals - - (1,594) - (1,594) -

Accumulated depreciation at30June2007 - 5,281 144,396 - 149,677 14,278

Net book value at 30 June 2007 66,228 47,416 2,937,780 555,049 3,606,473 21,655

Netbookvalueat30June2006 43,765 42,351 2,361,701 583,735 3,031,552 12,663

Netbookvalueat1April2006 43,173 43,124 2,197,642 594,567 2,878,506 13,185

The Corporation is a statutory corporation subject to the requirements of the Electricity Corporations Act 2005 (‘the Act’). The electricity networks, functions, and assets of Western Power Corporation were transferred, on disaggregation, to the Corporationon1April2006atwritten-downvaluebyvirtueofatransferorderissuedbytheMinisterforEnergyundersection 147(1) of the Act.

(a) caPitaliseD borrowing costs

Additionsincludeborrowingcostsof$7,325,000(threemonthsto30June2006:$2,183,000)attributabletoassetsinthecourseofconstructionandcapitalisedintheperiodataweightedaverageinterestrateof6.3percent(threemonthsto30June2006:6.2percent).

(b) contributeD assets

The Corporation receives non-cash capital contributions in the form of gifted network assets. The fair value of the non-cashcapitalcontributionsincludedinadditionstoworksunderconstructionintheperiodwas$21,993,000 (June2006:$9,130,000).

/ 68



5. Provisions

Employee Environmental benefits provisions Total

$’000 $’000 $’000

At1April2006 25,721 4,247 29,968

Additions in period 950 - 950

Utilised in period (707) - (707)

At30June2006 25,964 4,247 30,211

Additionsinperiod 5,567 1,135 6,702

Utilisedinperiod (5,919) (211) (6,130)

At 30 June 2007 25,612 5,171 30,783

Provisions have been analysed between current and non-current as follows: 2007 2006

$’000 $’000

Current 20,988 16,890

Non-current 9,795 13,321

30,783 30,211

Theenvironmentalprovisionsrelatetoestimatecostsonessentialsafetyexpenditure.Theassessmentofthesecostsissubject to periodic reviews that may result in the amount being revised. It is currently estimated that substantially all of this provisionwillbeutilisedwithinthenexttwoyears.

6. Retirement benefit obligations(a) suPerannuation Plans

The Corporation contributes to both defined contribution and defined benefit sections of the Pension Scheme, the Gold State Superannuation Scheme and the Western Power Superannuation Fund.

ContributionstothedefinedcontributionsectionsoftheseschemesarefixedandtheCorporation’slegalandconstructiveobligation is limited to these contributions.

The defined benefit sections provide either a pension or lump sum benefit based upon years of service and final average salary, averaged over a number of years in accordance with the relevant governing rules. Each of the defined benefit sections is closed to new members and the Western Power Superannuation Fund was closed to further contributions fromitsexistingmembersfrom18May2006.Employeesnowhavethechoiceofsuperannuationfundtocontributeto.

The defined benefit sections in each scheme have both funded and unfunded liabilities. The Corporation’s only liability in respect of these defined benefits sections is in respect of the cost of unfunded benefits payable as they fall due on the retirement of plan members.

The Corporation also funds a defined benefit scheme for 15 members administered by AustralianSuper. At1June2006theschemeassetsof$3.8millionexceededitsobligationsby$1.2million.TheCorporation is currently not contributing to the plan and has no means of recovering the surplus. Accordingly no amounts have been included in the assets or liabilities of the Corporation in respect of this scheme.

/ 69



6. Retirement benefit obligations (continued)(b) MoveMents in the balance sheet aMounts

Changes in the present value of the unfunded defined benefit obligations are as follows:


$’000 $’000

Balance at the beginning of the period 32,655 -

Amounts transferred on disaggregation - 33,471

Current service cost 811 211

Interest cost 1,800 454

Actuarial losses/(gains) for the period 4,428 (1,341)

Benefits paid (2,529) (140)

Net liability in the balance sheet 37,165 32,655

(c) aMounts recogniseD in the incoMe stateMent

Current service cost 811 211

Interest cost 1,800 454

Total included in employee benefit expenses 2,611 665

(D) aMounts recogniseD Directly in equity

Net actuarial (losses)/gains recognised in the period (4,428) 1,341

Total included in employee benefits expense (4,428) 1,341

(e) PrinciPal actuarial assuMPtions

Theprincipalactuarialassumptionsused,expressedas weighted averages, were as follows:

2007 2006

$’000 $’000

Discount rate 6.1% 5.8%

Expectedfuturesalaryincreases 4.5% 4.5%

Expectedfuturepensionincreases 2.5% 2.5%

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7. Contributed equity and reserves Contributed Hedging Retained equity reserve profits Total

$’000 $’000 $’000 $’000

Contributions received on disaggregation:

At1April2006aspreviouslyreported 773,973 - - 773,973

AdjustmenttoprovisonfortaxrefundinWPC 6,391 - - 6,391

AdjustmenttoretirementbenefitobligationsinWPC 3,846 - - 3,846

Adjustmenttoreallocatecurrenttaxassets(seenote8) (9,864) - - (9,864)

AdjustmenttodeferredtaxassetsinWPC(seenote8) 20,815 - - 20,815

At1April2006asrestated 795,161 - - 795,161

Contributionsreceivedintheperiod 6,000 - - 6,000

Profitforthefinancialperiod - - 17,067 17,067

Gains/(losses) on cash flow hedges - 351 - 351

Actuarial adjustments to retirement benefit obligations - - 938 938

At30June2006 801,161 351 18,005 819,517

Profitforthefinancialperiod - - 69,407 69,407

Contributionsreceivedintheperiod 6,000 - - 6,000

Distributionstoequityholders - - (25,664) (25,664)

Gains/(losses) on cash flow hedges - (1,348) - (1,348)

Actuarial adjustments to retirement benefit obligations - - (3,099) (3,099)

At 30 June 2007 807,161 (997) 58,649 864,813

contributeD equity

Contributed equity represents contributions made by the State Government. No shares have been allotted or issued. The adjustment to Opening Equity arises from an amendment to the Disaggregation Transfer Order as a result of the reallocationofaportionoftheopeningincometaxassettotheotherdisaggregatedcorporations.

heDging reserve

The hedging reserve represents the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

retaineD Profits

Distributions to equity holders are in respect of dividends declared in the period on retained profits for the three-month periodto30June2006andaninterimdividendon29June2007inrespectoftheyearto30June2007.

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8. Restatement of prior periodcorrection of errors in the recorDing of oPening tax assets on Disaggregation

On29September2006anamendmenttotheTransferOrderrequiredthattherecoverabletaxassetsallocatedtotheCorporationondisaggregationofWesternPowerCorporationbereallocatedinaproportionof70.68percenttotheCorporationand29.32percenttotheotherentities.Theeffectofthisistoreducethevalueoftherecoverablecurrenttaxassetsandrelatedcontributedequityat30June2006and1April2006by$9,864,000.

Thetaxwrittendownvalueofassetstakenonatdisaggregationhasbeenunderstatedby$69,383,000.TheeffectofthisadjustmentistoincreasethevalueofthefuturetaxbenefitsoftheCorporationsassetsby$20,815,000andthecorrespondingvalueoftheequitycontributedat1April2006.

These errors have been corrected by restating each of the affected financial statement line items for the prior period as described above.

9. Contingenciescontingent liabilities

Black et al

This matter refers to compensation claims by landowners from whom the former Western Power Corporation resumed parts of land for the Kemerton 330 kV line in 2004. Liability has been denied in respect of the claims. An appeal has been heard against a preliminary ruling and a decision is pending. The amount of claims lodged to date is in the order of$4.6million.

Toodyay bushfire

Western Power has received a number of claims for compensation arising from a bushfire at Toodyay. An investigation report into the cause of the fire was provided to EnergySafety in late July 2007. While the report concluded that a number offactors,includingextremeweatherconditions,contributedtoclashingconductorswhich,inturn,startedthefire,therewere no findings that support a claim of negligence on Western Power’s part.

Western Power is engaged in without prejudice negotiations with claimants on the basis that there is no finding of negligence, but it acknowledges that the fire was started by its asset. Given the ongoing negotiations, it is not practicable to disclose an estimated value of the contingent liability. However, it is confirmed that:

• settlementoftherespectiveclaimswillnothaveamaterialimpactontheCorporation

• timingofthefinalresolutionofallclaimsisuncertainandwilldependontheprogressofnegotiationswithindividualclaimants

• thefinalvalueofthesettlementwitheachclaimantwillvarybasedonindividualcircumstances

• allclaimsarecoveredbyinsurance

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10. Commitmentslease coMMitMents

Operating Leases

TheCorporationleasespremisesunderanon-cancelableoperatingleaseexpiringwithinfiveyears.TheCorporation alsoleasesmotorvehiclesandequipmentundercancelableoperatingleasesrequiringnomorethansixmonthsnotice of termination.

Commitments to minimum lease payments in relation to non-cancelable operating leases are as follows:

2007 2006

$’000 $’000

Payable within one year 736 629

Payable later than one year but not later than 5 years 2,002 2,812

Payable in more than 5 years 558 -

3,296 3,441

caPital coMMitMents

CapitalexpenditureonProperty,PlantandEquipmentcontractedfor at the reporting date but not recognised as liabilities is as follows:

Payable within one year 288,018 158,099

Payable later than one year but not later than 5 years 15,864 17,200

303,882 175,299

other exPenDiture coMMitMents

The Corporation has the following commitments to pay Tariff Equalisation Contributions:

Payable within one year 71,600 -

Payable later than one year but not later than 5 years 72,000 -

143,600 -

11. Interests in controlled entitiesBright Telecommunications Pty Ltd, a wholly owned subsidiary of the Corporation, was formed to develop a broadband access network. The subsidiary has not undertaken any transactions during the period. The assets and liabilities of the company were held by the Corporation and therefore the activities of the company do not have any material impact on the financial statements of the Corporation.

TheCorporationsolditsshareholdinginBrightTelecommunicationsPtyLtdon1December2006.

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12. Events occurring after the balance sheet dateThere are no matters or circumstances that have arisen in the interval between the end of the reporting period and the date of this report that are likely, in the opinion of the Directors, to affect significantly the operations of the Corporation, the results of those operations, or the state of affairs of the Corporation, in subsequent financial years.

13. Reconciliation of net profit after income tax expense to net cash inflows from operating activities Year to Three months to 30 June 2007 30 June 2006

$’000 $’000

Profitfortheyear 69,407 17,067

Net gain on sale of non-current assets (1,242) (155)

Netexchangedifferences - (11)

Depreciationandamortisation 134,399 27,684

Fair value adjustment to derivatives 535 (148)

Non-cash capital contributions (21,993) (9,130)

Change in operating assets and liabilities:

Decrease/(increase) in trade and other receivables 17,328 (41,219)

(Decrease)/increaseintradeandotherpayables (5,836) 16,405

(Increase)ininventories (5,699) (8,909)

(Decrease)inemployeeprovisions (269) (2,011)

Increaseinotherprovisions 924 3,160

(Decrease) in other financial assets - (1)

(Increase)/decreaseinaccruedinterestreceivable (46) 5

Increase in accrued interest payable 5,202 22,951

Increase in other deferred income 41,021 2,119

Increaseinprovisionforincometaxespayable 9,609 13,030

Increase/(decrease)indeferredtaxliabilities 20,320 (5,607)

Net cash inflow from operating actvities 263,660 35,230

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> summary of significant accounting policies

The accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the reporting periods presented unless otherwise stated.

corPorate inforMation

In September 2005 legislation was passed in Parliament to allow for the disaggregation of Western Power Corporation into four separate State-ownedentities.Thenewsuccessorentitieswereestablishedon1April2006andtheassets,liabilities and operations of Western Power Corporation were transferred to these entities. The Corporation is one of these entities.

(a) basis of PreParation

The financial report is a general purpose financial report, which has been prepared in accordance with Australian Accounting Standards (‘AIFRS’) and Urgent Issue Group Interpretations adopted by the Australian Accounting Standards Board (‘AASB’) and the disclosure requirements of Schedule 4 of the Electricity Corporations Act 2005. The Corporation has been determined to be a not-for-profit entity and accordingly applies the not-for-profit elections available in the Australian Accounting Standards where applicable.

The financial statements cover the Corporation and its subsidiary entity, Bright Telecommunications Pty Ltd (‘BTPL’). BTPLisacompanywithnomaterialfinancialtransactionsto1December2006.TheCorporationsolditsentireshareholdinginBrightTelecommunicationsPtyLtd,awhollyownedsubsidiary,on1December2006.

Historical cost convention

Thesefinancialstatementshavebeenpreparedunderthehistoricalcostconventionexceptforderivativefinancialinstruments, that are measured at fair value, and certain non-current financial assets and liabilities that are measured at amortised cost.

Critical accounting estimates

The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. ItalsorequiresmanagementtoexerciseitsjudgmentintheprocessofapplyingtheCorporation’saccountingpolicies.Therearenoareasconsideredtorequireahighdegreeofjudgmentorcomplexity,orareaswhereassumptionsandestimates are significant to the financial statements.

Functional and presentation currency

This financial report is presented in Australian dollars, which is the functional and presentation currency of the Corporation.

Rounding

All financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated.

Comparative amounts

Comparativeamountsareforthethree-monthperiodfromdisaggregationon1April2006to30June2006.

Working capital

At30June2007theCorporationreportedaworkingcapitaldeficiencyof$144,776,000(30June2006:$53,763,000).Currentliabilitiesincludedeferredincomerelatingtodeveloperandcustomercontributionstothevalueof$158,633,000(30June2006:$125,730,000),whichwillnotrequireanoutflowofcashresources.Whentheseamountsareexcluded,workingcapitalshowscurrentassetsexceedingcurrentliabilitiesby$13,857,000(30June2006:$71,967,000).

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(b) foreign currencies

Transactions in currency other than the functional currency of the Corporation are translated at the rates of exchangeprevailingonthedatesofthetransactions.Ateachbalancesheetdate,monetaryassetsandliabilities thataredenominatedinforeigncurrenciesareretranslatedatclosingexchangerates.Allforeigncurrencytranslationdifferencesarerecognisedintheincomestatementexceptwhendeferredinequityfortranslationdifferencesof qualifying cash flow hedges.

(c) revenue recognition

Revenues primarily represent the sales value derived from the transmission and distribution of electricity and the provision of related services and is measured at the fair value of the consideration received or receivable.

The Corporation is subject to a regulatory agreement, which determines the revenues receivable for its services. Noliabilitiesarerecognisedwhenrevenuesreceivedorreceivableexceedthemaximumamountpermittedbyregulatoryagreement and adjustments will be made to future prices to reflect this over-recovery. Similarly, no assets are recognised when a regulatory agreement permits adjustments to be made to future prices in respect of an under-recovery of permitted revenues.

Developer and customer contributions

TheCorporationreceivesdeveloperandcustomercontributionstowardtheextensionofelectricityinfrastructure to facilitate network connection. Contributions can be in the form of either cash contributions or handover works (vested assets). Cash contributions received are initially deferred and subsequently recognised as revenue when the customers or developers are connected to the network in accordance with the terms of the contributions. Vested assets are recognised as revenue at the point of handover and are measured at their fair value. The network assets resulting from contributions received or handover works are recognised as property, plant and equipment and depreciatedovertheirexpectedusefullife.

(D) incoMe tax

Incometaxesontheprofitorlossforthereportingperiodcomprisecurrentanddeferredtax.Incometaxisrecognisedintheincomestatementexcepttotheextentthatitrelatestoitemsrecogniseddirectlyinequity.Currenttaxistheexpectedtaxpayableonthetaxableincomeforthereportingperiodandanyadjustmenttotaxpayableinrespectofpreviousyears.Deferredtaxisprovidedusingthebalancesheetliabilitymethod,providingfortemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedfortaxationpurposes.

Adeferredtaxassetisrecognisedonlytotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhich the asset can be utilised.

Currentanddeferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttooffsetcurrenttaxassetsandliabilitiesandwhenthetaxbalancesrelatetothesametaxationauthority.

(e) gst

AmountsintheincomestatementareshownexcludingGST.Amountsinthebalancesheetandcashflowstatementareshown inclusive of any related GST.

(f) leases

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease.

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(g) inventories

Inventories are stated at the lower of weighted average purchase cost and current replacement cost.

(h) ProPerty, Plant anD equiPMent

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

No depreciation is provided on freehold land and assets in the course of construction. Depreciation is calculated on all other assets at rates estimated to write off their costs over their estimated useful economic lives. Discrete assets that are notsubjecttocontinualextensionandmodificationaredepreciatedusingthestraight-linemethod.Otherassetsaredepreciated using the reducing balance method.

The depreciation periods for the principal categories of property, plant and equipment are as follows.

Depreciation periods for categories of assets Years

Buildings 40

Substation plant, overhead lines and cables 40-50

Protection, control and communication equipment 40

Plant and equipment 10

Leasehold improvements 10

Computer equipment 3

Office equipment up to 10

Motor vehicles 5

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expectedtoarisefromthecontinueduseoftheasset.Gainsandlossesondisposalarerecognisedintheincomestatement.

(i) intangible assets

Intangible assets represent identifiable internal capitalised software costs and are recorded at historic cost less accumulated amortisation and any provision for impairment.

Internally generated intangible assets are recognised only if an asset is created that can be identified; it is probable that the asset created will generate future economic benefits; and that the development cost of the asset can be measuredreliably.Wherenointernallygeneratedassetcanberecognisedthedevelopmentexpenditureisrecorded in the income statement.

Capitalised software is amortised on a straight-line basis over two and a half years. This rate is reviewed on an annual basis.

Anintangibleassetisderecognisedupondisposalorwhennofutureeconomicbenefitsareexpectedtoarisefrom the continued use of the asset. Gains and losses on disposals are recognised in the income statement.

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(j) iMPairMent of assets

At each reporting date, the Corporation considers any indicators of impairment to its assets. Impairments are calculated as the difference between the carrying value of each individual asset and its recoverable amount, if lower. Where such an asset does not generate cash flows that are independent from other assets an estimate of recoverable amount is determined for the cash-generating unit to which that asset belongs. Impairment losses are recognised in the income statement and, where material, are disclosed separately.

Recoverable amount is defined as the higher of fair value, less cost to sell, and the estimated value in use at the date the impairmentreviewisundertaken.Valueinuserepresentsthepresentvalueofexpectedfuturecashflows,discountedusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictothe asset for which the estimates of future cash flows have not been adjusted. Where the future economic benefits of an asset are not primarily dependent on the asset’s ability to generate net cash inflows and where the Corporation would, if deprived of the asset, replace its remaining future economic benefits, the value in use is deemed to be the depreciated replacement cost.

(k) financial assets anD liabilities

Cash and cash equivalents comprise cash at bank and other short-term deposits that have an original maturity of three months or less and bank overdrafts.

Trade and other receivables are unsecured and are initially recognised at fair value and subsequently measured at amortised cost less provision for doubtful debts. Collectability of trade receivables is reviewed on an ongoing basis. Bad debts are written off when identified.

A provision for doubtful debts is raised when there is objective evidence that the Corporation will not be able to collect all amounts due. The amount of the provision is the difference between the carrying value of the receivable and the net present value of estimated future cash flows discounted at the original effective interest rate. The amount of the provision is reflected in the income statement.

Trade and other payables are unsecured and are initially recognised at fair value and subsequently measured at amortised cost.

Borrowings are initially recognised at fair value net of transaction costs incurred and are then subsequently measured at amortised cost using the effective interest method.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets (being assets that necessarily take a substantial period of time to get ready for their intended use or sale) are added to their cost. Such additions cease when the assets are substantially ready for their intended use or sale. All other borrowing costs are recognisedintheincomestatementasanexpensewhenincurred.

Derivative financial instruments are initially recognised at fair value and are subsequently remeasured to their fair value at each reporting date. Changes in the fair value of derivative financial instruments are included in the income statement to theextentthathedgeaccountingisnotapplied.Fairvalueisbasedonquotedmarketpricesatthereportingdate.

Financial instruments are derecognised when the Corporation no longer controls the contractual rights that comprise the financial instrument.

(l) heDge accounting anD Derivative financial instruMents

For all derivative transactions designated as a cash flow hedge, the portion of gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. The ineffective portion is recognised in the income statement immediately. When the cash flows occur, the amount that has been deferred is released to equity or the income statement as appropriate.

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Hedgeaccountingisdiscontinuedwhenthehedginginstrumentexpiresorissold,terminatedorexercised,orno longer qualifies for hedge accounting. Any cumulative gain or loss recognised in equity is immediately transferred to the income statement.

(M) Provisions

Provisions are recognised when the Corporation has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditurerequiredtosettlethepresentobligationatthebalancesheetdate.Thediscountrateusedtodeterminethepresent value reflects the market assessments of the time value of money and the risks specific to the liability. The increaseintheprovisionduetothepassageoftimeisrecognisedasinterestexpense.

(n) eMPloyee benefits

Wages and salaries, annual leave

Liabilitiesarisinginrespectofemployeebenefitsthatareexpectedtobesettledwithin12monthsofthereportingdateare recognised in other payables and are measured at their nominal amount based on remuneration rates that are expectedtobepaidwhentheliabilitiesaresettled.

Long service leave

The liability for long service leave is recognised in the provision for employee benefits (note 5) and measured as the presentvalueofexpectedfuturepaymentstobemadeinrespectofservicesprovidedbyemployeesuptothereportingdateusingtheprojectedunitcreditmethod.ExpectedfuturepaymentsarediscountedusingtheCommonwealthBondrates whose terms most closely match the terms of the related liabilities.

Retirement benefit obligations

Contributions to defined contribution plans are recognised in the income statement as they become payable.

A liability or asset in respect of funded defined benefit superannuation plans is recognised in the balance sheet and is measured as the present value of the defined benefit obligation at the reporting date less the fair value of the funds assets at that date and any unrecognised past service cost.

The retirement benefit obligations recognised in the balance sheet represent the present value of the defined benefit obligations at the reporting date. The cost of providing benefits in respect of defined benefit superannuation plans is determined using the projected unit credit method with actuarial valuations being carried out at each balance sheet date. Current service cost is recognised in full in the income statement in the period in which the obligation increases as a result of employee services. Actuarial gains and losses are recognised directly in equity.

(o) DiviDenDs

Dividends approved but not distributed at the reporting date are recognised in the reporting period in which the dividends are authorised by the Board and are no longer at the discretion of the Corporation.

(P) new accounting stanDarDs anD interPretations

AASB 7 Financial Instruments: Disclosures (application date 1 July 2007)

No changes to accounting policy are required and therefore there is no impact other than possible disclosure changes.

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> Directors’ declaration

In the directors’ opinion:

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

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

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

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

This declaration is made in accordance with a resolution of the directors dated 31 August 2007.

Mr P Mansell Mr D AberleBoard Chair Managing Director

31 August 2007 31 August 2007

Corporate directory>

Directors

P Mansell, Board Chair

D Aberle, Managing Director

M Davies

S Farrier

K Field

J Seabrook

General Counsel and Company Secretary

J Pease

Divisional General Managers

K Brown, General Manager System Management

AM Clark, General Manager Field Services

M de Laeter, General Manager Asset Management

G Monkhouse, General Manager Human Resources

M Peacock, Chief Financial Officer

M Sims, Acting General Manager Business Transformation (and Acting General Manager Works Delivery from 21 April 2007)

P Southwell, General Manager Strategy and Corporate Affairs

R White, (resigned 20 April 2007) General Manager Works Delivery

Principal registered office in Australia

363WellingtonStreet Perth,WesternAustralia6000 (08)93264911

Auditor

Office of the Auditor General 2 Havelock Street WestPerth,WesternAustralia6000

Bankers

Commonwealth Bank of Australia 150 St Georges Terrace Perth,WesternAustralia6000

Website address

www.westernpower.com.au

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ELECTRICITY NETWORKS CORPORATION TRADING AS WESTERN POWER 30 JUNE 2007

annual report 2007 - western power31 august 2007 peter mansell board chair on behalf of western...

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