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 This is trial version www.adultpdf.com 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. This is trial version www.adultpdf.com 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 This is trial version www.adultpdf.com This is trial version www.adultpdf.com 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 This is trial version www.adultpdf.com This is trial version www.adultpdf.com Section One 1 Electricity Industry Overview This is trial version www.adultpdf.com This is trial version www.adultpdf.com 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. This is trial version www.adultpdf.com . AUDITOR-GENERAL’S REPORT FINANCIAL AUDITS Volume Three 2009 focusing on Electricity The Legislative Assembly The Legislative. 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. ELECTRICITY CORPORATIONS AND AUDIT OPINIONS There are seven State owned corporations involved in the production and distribution of electricity: Generators Transmission Distribution