AUDITOR-GENERAL’S REPORT FINANCIAL AUDITS Volume Three 2009 focusing on Electricity _part1 doc

AUDITOR-GENERAL’S REPORT FINANCIAL AUDITS Volume Three 2009 focusing on Electricity The Legislative Assembly The Legislative Council Sydney NSW 2000 Sydney NSW 2000 Pursuant to section

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AUDITOR-GENERAL’S REPORT

FINANCIAL AUDITS Volume Three 2009

focusing on Electricity

The Legislative Assembly The Legislative Council

Sydney NSW 2000 Sydney NSW 2000

Pursuant to section 52A of the Public Finance and Audit Act 1983, I present

Volume Three of my 2009 Report

Peter Achterstraat

Auditor-General

October 2009

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GUIDE TO USING THIS VOLUME

This Volume summarises the results of a number of our financial audits

We have attempted to adopt a ‘plain English’ style of writing This is not always easy when describing technical issues, but we recognise the diversity of our readership and their needs

This Volume has two sections Section One contains an overview of the findings for this Volume’s focus agencies Section Two provides comments on financial audits of government agencies It is divided into ministerial portfolios, each containing one or more government agencies

Each agency’s comment begins with a summary of our Audit Opinion This is a key result of each

audit An ‘unqualified Independent Auditor’s Report’ means we are satisfied that the agency has prepared its financial report in accordance with Australian Accounting Standards (and other mandatory requirements) It also means we believe the report has no material misstatements and the scope of our audit has not been limited If any of these aspects are not met we issue a

‘qualified Independent Auditor’s Report’ and explain why we did this

The next part of the comment outlines any Key Issues we identified during the audit These are

matters such as:

 recommendations to Parliament

 significant findings or outcomes of the audit

 any major developments impacting on the agency’s role or activities

 key repeat findings

The Audit Opinion and the Key Issues represent the more important findings By targeting these,

readers can quickly understand the major issues facing a particular agency, or glance through a number of reports to assess the financial health of a portfolio

Performance Information covers key financial and operational statistics we have identified that

help understand how well the agency is performing Wherever possible we include comparisons with similar agencies interstate

The next two parts of the comment contain analysis of issues we identified during our audit While many of these will include suggestions for improvement, these are not as significant as the issues outlined in the first two parts of the agency comment

Other Information summarises any other matters noted during the audit of the agency that warrant

inclusion in this Report

Financial Information summarises the essential information from each agency’s financial report

While this is sufficient for a broad understanding of the agency’s financial position, readers can access more detailed financial statements in the agency's annual report or website

Agency Activities summarises the agency’s purpose, services, structure, relevant legislation, and

its web address

While some ‘agency comments’ in this Volume will have all of the headings outlined here, this will vary depending on the size of the organisation and the findings of our audit

The Agency Response appears where the head of an agency does not believe that the commentary

in our Report adequately reflects the agency's position or actions taken As we discuss our proposed comments with agency staff during the drafting process, few agencies ask for a formal response to

be included

Appendix 1 contains the names of agencies not reported elsewhere in this Volume These agencies

received unqualified audit opinions and have no significant issues to report

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i

Contents

Significant Items iii

SECTION ONE – Overview Electricity Industry Overview 3

SECTION TWO – Commentary on Government Agencies Minister for Energy 25

Electricity Generators: Delta Electricity 27

Eraring Energy 33

Macquarie Generation 38

Electricity Distributors: Country Energy 43

EnergyAustralia 47

Integral Energy Australia 52

TransGrid 57

Minister for Planning 61

Minister for Primary Industries 63

Minister for Sport and Recreation 65

Treasurer 67

Residual Business Management Corporation 69

APPENDIX Appendix 1 – Agencies not reported elsewhere in this Volume 73

INDEX 75

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iii

Significant Items

Page Electricity Industry Overview

Restructure of the Electricity Industry

In September 2009 the Government released its approach to implementing

transactions for reforming the electricity industry Expressions of Interest from

potential bidders for the purchase of assets close on 18 November 2009

4

New Coal Mine

A new coal mine in the Central West of New South Wales is being developed to

provide some certainty over coal supplies and costs for the State owned

generators

5

Renewable Energy

Approximately six per cent of New South Wales’ electricity is sourced from

renewable energy sources The Council of Australian Governments has set a

target for 20 per cent of energy production in Australia to come from renewable

sources by 2020

8

Supply and Demand Outlook

The Australian Energy Market Operator has indicated that projected electricity

demand in New South Wales will exceed supply in 2015-16 11

Distribution to Government

Electricity entities accrued distributions to the Government of $1.0 billion

Increase in Debt

External debt for electricity entities increased from $12.1 billion to $14.8 billion

to largely fund significant capital works programs Capital works expenditure

totalled $3.6 billion in 2008-09

18

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Section One

1

Electricity Industry Overview

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Auditor-General’s Report to Parliament 2009 Volume Three 3

Electricity Industry Overview

ELECTRICITY CORPORATIONS AND AUDIT OPINIONS

There are seven State owned corporations involved in the production and distribution of electricity:

Macquarie Generation TransGrid EnergyAustralia

The audits of these corporations’ financial reports for the year ended 30 June 2009 resulted in unqualified Independent Auditor’s Reports The Independent Auditor’s Reports for the three generators drew attention to significant uncertainty in the value of power station assets due to the unknown impacts of the Federal Government’s proposed Carbon Pollution Reduction Scheme

KEY ISSUES

Restructure of Electricity Industry

In September 2009, the Government announced further details on the restructure of the New South Wales electricity industry when it released the ‘New South Wales Energy Reform Strategy: Approach to transaction implementation’ (the Strategy) and outlined the framework for the restructure

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