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ASSETS

ETSA Utilities

Review of Operations

ETSA UTILITIES IS THE MONOPOLY OPERATOR OF SOUTH AUSTRALIA'S ELECTRICITY DISTRIBUTION NETWORK, SUPPLYING ABOUT 803,000 RESIDENTIAL AND BUSINESS CUSTOMERS IN ALL REGIONS AND THE MAJOR POPULATION CENTRES, INCLUDING THE CAPITAL CITY, ADELAIDE. DESPITE THE CHALLENGE OF MANAGING AN EXTENSIVE NETWORK IN DIFFICULT TERRAIN AND CHALLENGING WEATHER CONDITIONS, THE ETSA UTILITIES NETWORK IS ONE OF THE MOST RELIABLE IN AUSTRALIA, WITH 99.97% NETWORK AVAILABILITY.

ETSA UTILITIES OPERATES ITS DISTRIBUTION NETWORK UNDER A 200 YEAR LEASE FROM THE SOUTH AUSTRALIAN GOVERNMENT, WHICH COMMENCED IN JANUARY 2000. THE BUSINESS'S CORE ACTIVITIES ARE REGULATED BY THE ESSENTIAL SERVICES COMMISSION OF SOUTH AUSTRALIA, HOWEVER, ITS NEXT PRICE RESET DUE IN 2010 WILL BE CARRIED OUT BY THE AUSTRALIAN ENERGY REGULATOR.

The past year has again been a very successful one of balanced performance for ETSA Utilities, with the achievement of key financial and non-financial targets. Strong economic and customer connections activity has contributed to particularly strong profit outcomes and it has also exceeded its reliability and other customer service targets.

In 2008, the business continued to enjoy growth in customer numbers and volume usage in its electricity distribution network, and its role as a leading provider of unregulated business services to companies in the energy and resources sectors has continued to flourish. In 2009, the Australian Energy Regulator will consider ETSA Utilities' final proposal for the 2010-15 Regulatory period. The submission reflects the need for significant increases in network infrastructure work to safeguard the efficiency and reliability of the South Australian distribution system and to provide for future growth.

TOTAL REVENUE

5.6%

ABOVE 2007

ETSA Utilities continues to grow its regulated revenue through growth in customer numbers. Customer numbers have grown from 792,792 in 2007 to 803,251. Volume of sales has grown marginally, by 0.7% from the previous year to 11,379 GWh. This consists of underlying sales growth of 1.1% and a negative weather impact of -0.4%. Adelaide experienced the most severe heatwave recorded for an Australian capital city, up to that time, in March 2008. Good network and customer service performance throughout this challenging weather event were widely recognised by the public and key stakeholders.

More recently, amidst the extreme high temperatures experienced in January and February 2009, the network was forced to implement a load shedding program on direction from the national market operator. ETSA Utilities continued to perform very well under these trying conditions due in large part to the competence and dedication of its employees.

99.97%

NETWORK AVAILABILITY RATING

Total regulated electricity distribution revenue for 2008 (net of transmission charges) was $511.6 million, an increase of 4.3% from 2007, primarily due to tariff increases.

Capital expenditure on network infrastructure is a key indicator of future revenues and network growth. In 2008, net capital expenditure totalled $153.4 million, an increase of 16.7% over the $131.4 million invested in 2007.

ETSA Utilities has built a strong reputation as a provider of electricity infrastructure construction, operation and maintenance services, and has built on its performance in 2007 by strengthening its relationships with its existing customers. In 2008, revenue from non-prescribed business activities, excluding customer contributions, was $173.2 million.

Underpinning a substantial portion of ETSA Utilities' unregulated business are two separate agreements with ElectraNet, South Australia's sole electricity transmission company. The first is for the provision of capital construction and network upgrade work, worth $125 million over five years, and the other is to provide maintenance services worth $60 million over five years. These contracts commenced in 2006.

In addition, ETSA Utilities holds a State Government contract to manage the off-grid electricity networks for three Aboriginal lands which comprise around 20% of the State's geographic area. The contract runs to 2011.

EBITDA

6.8%

ABOVE 2007

The demand for ETSA Utilities' services from the resources sector also continued to grow. The successful completion of contracts such as the Oxiana Prominent Hill contract in 2008 (with revenue valued in excess of $90 million) may provide the impetus for securing further contracts in 2009.

To ensure ETSA Utilities continues to service its business requirements in its regulated and unregulated areas, the workforce has grown from 1,685 employees in 2007 to 1,781 employees in 2008. Meeting the growing demand for skilled workers remains a key challenge for the business and one of the key strategies for meeting these needs is to continue investing in apprentices. In 2008, ETSA Utilities employed 53 new apprentices and 2009 will see an additional 54 apprenticeships which will take apprentice numbers to over 190.

ETSA Utilities' retention and development strategies continue to sustain a low rate of workforce turnover. The development of a new Technical Training Centre at Davenport (near Port Augusta) is a major initiative. The facility will complement the Adelaide training centre and provide apprentice and refresher training for the northern based workforce. It will also provide training opportunities in the electrical field for local Year 11-12 students, increase trade training opportunities for Aboriginal people, and improve services in the northern part of South Australia. The Training Centre will be opened in May 2009.

In terms of safety, ETSA Utilities recorded solid lost time injury and medical treatment injury outcomes, and also received the major award from SafeWork SA for the Best Safety Management System in the State.

 

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