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
Parliament House Parliament House
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 Energ
y




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

($1.5 billion in 2008-09).
18



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




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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:

Generators Transmission Distribution and Retail

Macquarie Generation TransGrid EnergyAustralia
Delta Electricity Integral Energy Australia
Eraring Energy Country Energy




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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