PURPOSE OF THIS REPORT
Jacana Energy’s Annual Report outlines our operations and achievements for the 2015–2016 financial year.
Pursuant to section 44 of the Government Owned Corporations Act, the report informs the Northern Territory Parliament, Territorians and other stakeholders of:
• Jacana Energy’s primary services and responsibilities
• Significant activities of the year, highlighting major projects, key achievements and outcomes.
• Financial management and performance in compliance with the Government Owned Corporations Act.
The Annual Report is tabled in the Northern Territory Legislative Assembly as a reporting mechanism for Jacana Energy’s Shareholding Minister and Northern Territory Parliament. It provides a statement of income and expenditure for the 2015–2016 financial year.
The Annual Report also includes information for others, including the wider public, who have an interest in the provision of electricity services in the Northern Territory.
LETTER TO OUR SHAREHOLDER 3
OVERVIEW FROM THE CHAIR AND CEO 4
PERFORMANCE TARGETS 6
WHO WE ARE 7
EXECUTIVE LEADERSHIP TEAM 14
FINANCIAL STATEMENTS 16
DIRECTORS REPORT 17
DIRECTORS DECLARATION 19
AUDITORS REPORT 20
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 22
STATEMENT OF FINANCIAL POSITION 23
STATEMENT OF CHANGES IN EQUITY 24
STATEMENT OF CASH FLOWS 25
NOTES TO THE FINANCIAL STATEMENTS 26
LETTER TO OUR SHAREHOLDER
Hon Nicole Manison MLA Treasurer
Northern Territory Government DARWIN 0800
On behalf of Jacana Energy, it gives us great pleasure to present the Corporations Annual Report for the year ended 30 June 2016 in accordance with the provisions of section 44 of the Government Owned Corporations Act.
This report details the non-financial and financial performance of Jacana Energy for the year ended 30 June 2016.
We are pleased to report that during this year our key achievements have included:
• a profit before tax of $7.2 million
• a declared post year-end dividend of $2.5 million
• further improvements in customer service capability
• retention and winning back commercial and industrial contract customers
• supporting vulnerable Territorians through financial hardship funding programs We look forward to continuing our support for Territorians in 2016-2017.
Noel Faulkner Stuart Pearce
Chair Chief Executive Officer
30 September 2016
In just our second year of operations,
Jacana Energy has delivered strong financial results, transitioned key customer service functions in-house, remained focused on efficient business operations and further strengthened our position as an integral part of the Territory community.
SOUND FINANCIAL RESULTS
Our Earnings Before Interest and Tax (EBIT) for 2015–2016 was $7.2 million which was well above our Statement of Corporate Intent target of $5.5 million. We achieved this result despite increased competition, lower retail prices and upward pressure on costs.
A contributing factor to our favourable EBIT was better than forecast sales and our ability to retain and win-back a number of important Commercial and Industrial customers.
On 1 January 2016, we passed through the Government’s 5 per cent price reduction to our mass market customers.
Over the course of 2015–2016 Jacana Energy, like other energy retailers, saw a near doubling in the market price for Large- scale Generation Certificates which added $6.9 million to our costs for the year.
Jacana Energy also incurred a number of one off costs during the year driven by the commencement of a number of key projects including the implementation of a Financial Management System and a Retail Operating System. These projects will deliver on-going efficiencies to the business but require initial expenditure for their establishment.
We are serious about customer service and delivering on this promise is at the centre of everything we do.
Two significant operational achievements in the year were the successful transition of the Contact Centre and Credit Management functions from Power and Water Corporation to Jacana Energy.
We became responsible for our Contact Centre operations in January 2016. From this date to the end of the reporting year the Contact Centre achieved a Grade of Service of 67.1 per cent and an Abandonment Rate of 4.6 per cent. These are very pleasing results for a newly established Contact Centre.
OVERVIEW FROM THE CHAIR AND CEO
NOEL FAULKNER STUART PEARCE
By managing customer care from within our own business, we are able to better manage the level of service and the quality of interactions with our customers. Training our people is key to this. With our own staff, we can also embed our own culture and values, further enhancing their ability to deliver excellent customer service.
The transition of Credit Management from Power and Water Corporation to Jacana Energy commenced in December 2015 with our people moving into our new office in Alice Springs. We are committed to meeting our customers service expectations and the transition of both the Contact Centre and Credit Management functions were key steps toward this objective.
A key challenge for our business is that we have limited direct control over our major costs such as generation and network costs which represent 91 per cent of all our costs.
In fact, we only have a direct impact on our own operational expenditure, which represents just 3 per cent of our costs.
Notwithstanding this, it is critical that we operate as efficiently as possible. The transition of key functions from Power and Water Corporation to Jacana Energy and the implementation of our new Financial and Retail Operating Systems will enable us to drive greater efficiency out of the business while maintaining a high level of customer service.
PART OF THE COMMUNITY
Jacana Energy is very proud to be part of the Territory community and provides financial assistance to Territorians in need as well as participating in iconic Territory community events.
In 2015–2016 we provided $175,000 in funding to organisations such as Anglicare, St Vincent De Paul, Somerville Community Services, the Salvation Army and Catholic Care. These funds were used to assist more than 1,000 Territorians with their electricity bills.
In December 2015 we launched our Public Benevolent Institution tariff to assist registered organisations with their electricity costs.
As we look forward to the coming year, we are confident that we can continue to deliver a level of service that Territorians can be proud of. In closing, we would like to thank our shareholder, the Northern Territory Government, people and stakeholders for their support throughout the year. It has been a year of change and their efforts have helped make that transition a smooth one while continuing to deliver for Territorians.
Noel Faulkner Chair
Stuart Pearce Chief Executive Officer
Jacana Energy delivered an EBIT of
$7.2 million compared to a target of
$5.5 million. This result was largely due to a better than forecast Gross Margin.
Jacana Energy’s actual Gross Margin percentage across all customer segments was 4.8 per cent of revenue compared to its target of 4.3 per cent. A key driver of this performance was our ability to retain and win back a number of important commercial and industrial customers.
The better than anticipated earnings performance enabled Jacana Energy to deliver a Return on Equity of 7.8 per cent compared to a target of 6.5 per cent.
Jacana Energy did not achieve its Cost to Serve target in 2015–2016, largely due to higher than anticipated costs associated with establishment of our own customer service capability and other factors unique to the start-up phase of the business. If you exclude these one-off costs, which were not anticipated in the budget, the Cost to Serve would be
$173, which was in line with our target for the year.
In 2015–2016 Jacana Energy transitioned the Contact Centre and Credit Management functions in-house from Power and Water Corporation. We also commenced two key projects.
The first was to implement our own Financial Management System and the second was to implement a modern and efficient Retail Operating System which will further improve our service offering and deliver more efficient operations.
Jacana Energy’s Contact Centre Grade of Service and Abandonment Rate for 2015–2016 averaged 58.6 and 5.3 respectively. The service varied significantly
pre and post transition. In the first seven months of 2015–2016 Contact Centre services were provided by Power and Water Corporation with a Grade of Service and Abandonment Rate of 54.1 per cent and 5.9 per cent respectively. The service level increased significantly when Jacana Energy brought the Contact Centre function in- house in January 2016 and for the balance of the reporting period we achieved a Grade of Service of 67.1 per cent and an Abandonment Rate of 4.6 per cent compared to targets of 70.0 per cent and 5.0 per cent respectively.
KEY PERFORMANCE INDICATOR UNIT
ACTUAL 2015–2016 SCI
Gross Margin % Revenue 4.8 4.3
Cost to Serve A$/customer 189 173
EBIT A$ million 7.2 5.5
Return on Equity % 7.8 6.5
Grade of Service % 58.6 70.0
Abandonment Rate % 5.3 5.0
GROSS MARGIN: Gross Margin (percentage) is calculated by dividing the gross margin by the total revenue.
COST TO SERVE: Cost-to-Serve is calculated by dividing Operating Costs (less bad and doubtful debts) by average account numbers.
EBIT: EBIT is Earnings Before Interest and Tax.
RETURN ON EQUITY: Return on Equity is calculated by dividing the Net Profit After Tax by the average equity balance for the year.
GRADE OF SERVICE: Grade of Service measures the percentage of customer calls to the Contact Centre answered within 30 seconds.
ABANDONMENT RATE: Abandonment Rate
measures the percentage of calls to the Contact
Centre ended before any conversation occurs.
At Jacana Energy we are committed to delivering a superior experience to our customers. We’re a start-up business and we are excited about our journey to deliver customer focused and forward thinking energy solutions for more than 80,000 customers across the Northern Territory.
As the NT’s largest electricity retailer, we provide electricity retail services for residential, and business customers throughout the urban, rural and remote areas. We are owned by the NT Government and were created as part of the structural separation of Power and Water Corporation.
To create value now and into the future by delivering
seamless energy related solutions to achieve the needs of our customers, stakeholders and shareholder.
WHAT WE DO
Our role is to look after our customers electricity needs and to act as first point of contact for electricity matters. We purchase electricity in bulk from generators and turn this into a range of retail products to meet customer needs.
We arrange connection of electricity to our customers properties, deliver timely and accurate bills and provide customer services as well as developing products and convenient payment options to help customers manage their electricity costs.
As an electricity retailer, we don’t generate, transmit electricity or manage the poles and wires.
We create value for our customers by:
• Providing electricity services to more than 80,000 business and residential customers
• Facilitating competition between generators to drive down wholesale energy costs
• Purchasing wholesale energy and renewable energy certificates, managing the risks associated with this and passing the benefit on to customers
• Acting as the consumer advocate to make it easier to deal with other industry participants
• Using customer insight to develop a range of retail energy products and services to meet different customer needs
• Supporting larger customers with personalised local account management services
• Providing customers with timely and accurate billing with a variety of payment options across a range of convenient channels
• Delivering high quality, efficient customer service to solve customer queries and problems.
We look after 80,000 customers in urban, regional and remote centres across the Northern Territory, including:
OUR CORE VALUES
• We operate with integrity
• We drive innovation for our business
• We embrace diversity
• We deliver as a team
• We are passionate about our employees wellbeing
• Adelaide River
• Alice Springs
• Daly Waters
• Kings Canyon
• Newcastle Waters
• Pine Creek
• Tennant Creek
• Ti Tree
• Timber Creek
• Rural areas surrounding cities and towns
WHO WE ARE
OUR STRATEGIC OBJECTIVES ARE TO:
• Deliver superior customer experience
• Become a valued and trusted brand
• Develop an engaged, motivated team with opportunities to grow
• Maximise value.
The following section provides an overview of the strategies and initiatives to address each of these objectives and ultimately improve financial performance while providing excellent customer service.
DELIVER SUPERIOR CUSTOMER EXPERIENCE
Deliver a consistent and positive customer experience
• Develop and implement efficient and customer friendly business processes
• Automate processes, provide online customer service and a broader range of customer payment solutions
Understand customer needs • Introduce new customer feedback methods and techniques, such as the Net Promoter Score, to drive improvement initiatives
• Establish a Customer and Community Reference Council to obtain feedback and assist in understanding customer needs
Get the fundamentals right • Benchmark key business processes and Key Performance Indicators against best practice
Develop and provide alternative solutions • Introduce customer consumption analysis and develop customer energy management tools
• Identify and assess non-grid energy solutions Provide transparency in key processes e.g.
• Develop a new, customer friendly website
• Provide greater self-service capability and leverage social media to improve the customer experience
BECOME A VALUED AND TRUSTED BRAND
Ensure Jacana Energy’s services improves outcomes for vulnerable customers
• Develop and promote flexible payment plans and the option of more frequent billing
• Develop a strategy to assist vulnerable customers
• Leverage relationships with key partners to deliver improved outcomes Embed a customer centric culture in Jacana
• Recognise and reward the provision of exceptional customer service
• Develop and implement a cultural programme to ensure core values and brand values are aligned
DEVELOP AN ENGAGED, MOTIVATED TEAM WITH OPPORTUNITIES FOR GROWTH
Attract and retain the best people • Undertake a skills inventory and resource analysis
• Refine resource and recruitment planning
• Implement a succession and retention plan Ensure professional development aligned
• Identify and source efficient and effective cross organisation training
• Develop a detailed training program Right culture: customer centric, innovative,
• Design a series of culture development workshops to create a culture aligned with the strategic objectives
• Develop and implement a detailed communications plan that supports the cultural change
• Create a culture which recognises and rewards product and service innovation
Flexibility in how Jacana Energy deals across the supply chain
• Promote wholesale market reform
• Develop a long-term and sustainable wholesale procurement plan Minimise costs to serve • Develop low cost options such as online and customer self service
• Deliver reduced operating costs, and improved debt recovery by bringing the credit management function in-house
• Minimise rework by automating business processes and focussing on quality assurance
Define the non-financial value drivers • Consult with key stakeholders such as the Customer and Community Reference Council and others to develop improved non-financial performance indicators
Develop strong commercial acumen • Continue to focus on embedding a strong commercial decision making framework
• Build commercial acumen into recruitment process and plans Grow the profitable revenue base • Improve management of Jacana Energy costs and market segment
profitability reporting by bringing the accounting and finance function in- house
• Develop a highly efficient and professional account management capability
Jacana Energy is a Government Owned Corporation. As at the date of this
publication Jacana Energy’s Shareholding Minister is the Hon Nicole Manison MLA, the Treasurer, and the Portfolio Minister is the Hon Gerry McCarthy MLA, Minister for Essential Services.
The Jacana Energy Board sets the organisation’s strategic direction. It also ensures appropriate corporate governance arrangements and shareholder performance reporting are in place.
The members of the Board are:
• Noel Faulkner – Chair
• Clare Milikins – Deputy Chair
• Caryle Demarte
The Board delegates certain authorities to the Chief Executive Officer, management and employees through the Instruments of Delegation and other policies.
THE AUDIT AND RISK COMMITTEE
The members of the Audit and Risk Committee are:
• Clare Milikins – Chair
• Noel Faulkner
• Caryle Demarte
The Audit and Risk Committee assists the Board in the corporation’s governance by providing advice and specific oversight in relation to financial reporting, application of accounting policies, business policies and practices, legal and regulatory compliance and internal control and risk management systems.
EXECUTIVE LEADERSHIP TEAM
The Executive Leadership Team comprises the Chief Executive Officer and four other senior executives. The Chief Executive Officer is responsible for the day-to-day management of Jacana Energy and takes direction from the Board.
The Board sets annual performance targets for the CEO based on the key performance indicators and other targets in the Statement of Corporate Intent. These targets are cascaded down through the organisation. The CEO’s and Jacana Energy’s performance are regularly monitored against these targets, and is formally reviewed on an annual basis.
Biographies of the Executive Leadership Team as at 30 June 2016 are set out on page 14–15.
Risk management is fundamental to our success and sustainability. We aim to have risk management practices embedded and integrated into our business processes, with engagement at all levels to minimise risks. Some specific risks are covered by insurance.
Control systems have been developed to identify, assess, address and monitor strategic, operational, legal, commercial and financial risks.
Our Risk Management Framework is designed to proactively and systematically identify, assess, monitor and manage material risks. The Board has ultimate responsibility to regularly and effectively review and manage the Risk Management Framework with the support of the Audit and Risk Committee.
Key components of the Risk Management Framework are our Risk Appetite Statements which define the nature and level of risk that the business is willing to accept in relation to the key components of service delivery and enabling activities in the pursuit of its strategic objectives. These Statements provide a means of ensuring the Board, Leadership Team and employees are in alignment with regard to the level of risk considered acceptable in undertaking business operations and risk-assessed judgements.
Through the Risk Appetite Statements, we define the risk parameters associated with conducting our business in a commercial manner and acting with financial prudence and efficiency. The Statements reflect our focus on customer and stakeholder services and define our aspiration to implement a long-term financial strategy that provides a sustainable return to the government and is averse to actions that may impact on projected targets and outcomes.
Our Risk Management Framework operates alongside internal controls. Controls exist at the Board, executive and management level and are designed to safeguard our business interests which include compliance with authority
limits, work health and safety, employment, competition and consumer law and other legislation.
Control systems continue to be developed to ensure that material risks including strategic, operational, legal, commercial, technological, financial and regulatory risks are identified, assessed, addressed and monitored.
The Risk Management Framework is collaborative and involves our employees, contractors and management conducting their activities in a manner that complies both with the law and delegated limits of authority.
The Audit and Risk Committee has oversight of the risk management process and oversees policies and procedures in relation to risk management. The Committee provides reports to our Board and regularly reviews the effectiveness of the risk management framework and key mitigation strategies. Executives and management are responsible for identifying risks and implementing strategies to mitigate them. Management reports to the Committee on how the risks are being managed.
In 2015 we appointed an Audit firm as our independent internal auditor. The internal auditor provides an objective assessment to the Committee and Board regarding the adequacy, effectiveness and efficiency of Jacana Energy’s risk management, control and governance processes. The internal auditor and internal audit function have direct access to the Committee Chair.
Noel has 36 years experience in utilities predominantly in electricity entities, combined with 8 years in government.
He has directed the integration of a number of large businesses in Queensland and Victoria including the establishment of competitive retail undertakings in Victoria. Noel has also recently been involved in South East Queensland’s regional water reforms, including leading the establishment of the distributor/retailer Queensland Urban Utilities.
Noel is the Chairman of the Mackay Water Advisory Board and Chairman of Redland City Council Advisory Panel.
Noel has held the position of Chief Executive Officer of Queensland Urban Utilities, Powercor Australia Ltd, United Energy Ltd and Capricornia Electricity, as well as holding senior executive roles with Brisbane City Council.
Noel has also held Chairman and Director roles at South East Queensland Bulk Water Supply Authority and Unitywater.
Noel has a Bachelor of Engineering, a Graduate Diploma in Management and is also a Graduate of the Australian Institute of Company Directors.
Non-Executive, Deputy Chair
Clare is a Northern Territory based senior finance and governance professional. She has held executive positions in the public sector, establishing effective organisational systems and leading reform agendas.
Clare also owns a successful retail business. Clare has widely diversified skills both in the public sector and private enterprise and has a sound track record of success in the roles undertaken and outcomes achieved.
In May 2014 Clare was appointed Deputy Chair of the Corporation and is also the Chair of the Audit and Risk Committee. Clare has held a number of voluntary directorships and is currently Treasurer for Victims of Crime NT.
Clare is a Certified Practicing Accountant, with a Bachelor of Commerce (Accounting) and a Post Graduate Certificate in Public Sector Management. She is also a Graduate of the Australian Institute of Company Directors. She has formally held senior executive positions within the NT Government, including Executive Director Finance and Governance at the Department of Natural Resources, Environment and the Arts as well as roles in Treasury and Department of Transport and Works. Clare was born and raised in Darwin.
Caryle has an extensive background in both the public and private sectors of the energy industry including General Manager of TXU Retail and TXU Corporate Relations. She has also held positions with the Victorian Government owned retailer, Kinetik Energy.
Caryle is presently the Chair of Aurora Energy, Tasmania and Chair of the Local Government Infrastructure Assistance Fund for the Victorian Government.
Caryle has held directorships at Yarra Valley Water, Synergy, Victorian Energy and Water Industry Ombudsman and VENCorp.
Caryle has a Bachelor of Business and, in 2000, was awarded a Public Service Medal for services to the Victorian community. She is a Fellow of the Australian Institute of Company Directors.
Chief Executive Officer
Stuart is a senior energy industry executive with more than 20 years experience within the electricity supply chain across Australia, New Zealand and South East Asia.
Stuart’s key strengths include strategy, leadership, innovation and building business capability. Stuart has led the development and introduction of a range of new energy pricing structures, the management of the retail component of the federal government- funded Smart Grid, Smart City Project, the introduction of value-adding energy and home services, the management of mass market and commercial solar PV, and the introduction of broad based energy usage programs.
Stuart’s formal qualifications include a Master of Business (Marketing), Bachelor of Economics and Diploma of Education. He is a Graduate of the Australian Institute of Company Directors, A Fellow of the Australian Marketing Institute and a Certified Practicing Marketer
Chief Financial Officer
Michael is an experienced executive and has held executive positions in Insurance, Banking and most recently the Energy Industry. He has over 20 years experience in financial, executive operational and Board Member roles.
Michael holds a Bachelor of Arts degree in Accounting, is a Fellow of the Australian Society of Certified Practising Accountants and Australian Institute of Company Directors. Michael leads Jacana Energy’s Finance and Corporate Services functions.
Executive Manager Sales and Strategy
Danny has ten years experience in energy retailing having worked in a variety of project, marketing and operational leadership roles for the top three retailers within the National Electricity Market (NEM).
With direct experience in transformation programs at AGL, Origin and Energy Australia, Danny has led business transition to the National Energy Consumer Framework regulatory environment, the retail project in the Australian Government’s
$100m Smart Grid, Smart City project, as well as senior leadership of large operational groups and key stakeholder relationships such as the Ombudsman.
Danny holds a Bachelor of Arts degree in IT & Marketing, Postgraduate Diploma in Marketing and is a graduate of the Institute of Company Directors.
EXECUTIVE LEADERSHIP TEAM
Acting Executive Manager Operation and Transitional Services
David has 35 years experience in the electricity and gas industry having worked for TXU, TRUenergy, Energy Australia, and consulting into various energy companies through DB Results.
Specifically David has managed TXU’s Call Centre operations, TRUenergy’s Billing, Customer Transfer, and Credit functions, including 4 years in India managing these functions via an outsourced arrangement.
Recently David has been involved in three major customer data migration projects, having led teams responsible for Customer Experience and capabilities supporting Customer Operations. Ten years working in electricity distributions roles has also provided David with deep insights into the operational mechanisms of electricity Networks.
David’s formal qualifications include a Masters of Applied Science (Innovation and Service Management) and an Associate Diploma, Electrical.
General Counsel and Company Secretary
Will was admitted to practice law in 1998 and is an experienced general counsel and company secretary. He has broad corporate governance experience in the Australian insurance and finance sector. Prior to joining Jacana Energy Will served on the TIO executive team for seven years in roles including general counsel and company secretary.
Prior to this Will was a partner in a national law firm. Will is experienced in providing strategic legal and commercial advice to boards and executive management. He is passionate about developing sound risk and compliance frameworks and embedding a strong enterprise-wide risk culture. Will leads the Jacana Energy Legal and Governance team.
Will has a Diploma of Law from the NSW Legal Practitioners Admission Board and a Bachelor of Arts from the University of Sydney.
FINANCIAL STATEMENTS 30 JUNE 2016
The Directors present their report together with the financial report of Power Retail Corporation trading as Jacana Energy for the year ended 30 June 2016 and the Auditors report thereon. This report is to be read in conjunction with the financial statements of the Corporation.
The Directors of the corporation during or since the end of the financial year are:
Mr Noel Faulkner Chair Ms Clare Milikins Deputy Chair Ms Caryle Demarte Director
Details of Directors, their directorships/experience are set out in the Governance section of the Annual Report.
The principal business activity of the Corporation is the buying and selling of electricity and the provision of energy retail services to the people of the Northern Territory. There were no significant changes in the nature of activities conducted by the Corporation during the year.
REVIEW OF OPERATIONS
The Corporation recorded a net profit before tax for the year of $7.2 million. The annual results are discussed in detail below.
Total revenue for the year was $516.1 million. This included Community Service Obligation funding of
$59.4 million. Electricity sales included the effect of a decrease to pricing order tariffs on 1 January 2016 of 5%.
Overall expenses excluding tax were $508.9 million for the year. The majority of these expenses related to cost of goods sold expenditure, being network and system control charges and generation costs, of $168.5 million and $298.4 million respectively. Cost of goods sold also included energy purchased for resale of $4.3 million from customers usage of solar panels and $18.8 million in renewable energy certificates to meet the Clean Energy Regulator requirements.
Operating expenditure totalled $17.7 million for the year. Included in operating expenditure were external service agreements of $5.6 million which related to contracts held by third parties. Included in the external service agreements is the $4.8 million Transitional Services Agreement with Power and Water Corporation which covers operational and systems services.
The Corporation’s cash balance at the end of June
There has not been any matter or circumstance occurring subsequent to the end of the financial year and before the date of this report that has significantly affected, or may significantly affect, the operations of the Corporation, the results of those operations, or the state of affairs of the Corporation in future financial years.
It is anticipated that by the end of the next financial year, the services performed under the current Transitional Services Agreement will be performed or managed internally.
The Corporation’s operations are subject to statutory responsibilities under Commonwealth and Northern Territory legislation. The Corporation met its responsibilities in this area.
Since the end of the financial year, the Directors have declared a dividend of $2.5 million.
INDEMNIFICATION OF OFFICERS AND AUDITORS
The Northern Territory Government has indemnified the Directors of the Corporation from and against all liabilities incurred or arising out of conduct as a Director of the Corporation, acting in good faith in compliance with any direction made by the Shareholding Minister to the Corporation or the Board of the Corporation pursuant to the Deed of Indemnity executed by the Northern Territory Government.
Liability for costs and expenses incurred by the Directors in defending a proceeding, whether civil or criminal, is covered by the Corporation where judgement is given in favour of the Directors or the Directors are acquitted.
During the financial year a premium was paid to purchase the following insurance policies to cover the Directors and Officers of the Corporation:
• Personal Accident Insurance
• Directors and Officers Liability
BOARD OF DIRECTORS AUDIT AND RISK COMMITTEE MEETINGS HELD MEETINGS ATTENDED MEETINGS HELD MEETINGS ATTENDED
Noel Faulkner 13 13 7 7
Clare Milikins 13 13 7 7
Caryle Demarte 13 13 7 7
The following table sets out the number of Directors meetings (including meetings of committees of Directors) held during the year ended 30 June 2016 and the number of meetings attended by each Director (while they were a Director or Committee Member).
Noel Faulkner Chairman
Darwin, 30 September 2016
The Directors declare that:
a) in the Directors opinion, there are reasonable grounds to believe that the Corporation will be able to pay its debts as and when they become due and payable;
b) in the Directors opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 2 to the financial statements; and
c) in the Directors opinion, the attached financial statements and notes thereto are in accordance with the Government Owned Corporations Act, including compliance with accounting standards and give a true and fair view of the financial position and performance of the Corporation.
On behalf of the Directors
Noel Faulkner Chairman
Darwin, 30 September 2016
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2016
Revenue 4(a) 454,990 454,195
Community service obligation 4(b) 59,365 57,835
Interest revenue 4(c) 1,750 434
Energy cost of sales 5(a) (491,202) (481,917)
Employee benefits expense 5(b) (5,740) (2,483)
External service agreements 5(c) (5,623) (6,788)
Structural separation expenses 5(d) - (406)
Depreciation expense 5(e) (6) -
Other expenses 5(f) (6,360) (5,903)
Profit before tax 7,174 14,967
Income tax expense 6(a) 2,153 4,489
Profit for the year 5,021 10,478
Other comprehensive income
Other comprehensive income for the year, net of income tax - -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 5,021 10,478
The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the notes to the financial statements.
STATEMENT OF FINANCIAL POSITION As at 30 June 2016
Cash and cash equivalents 7 55,078 61,220
Trade and other receivables 8 69,899 97,008
Other current assets 9 14,406 4,848
Total Current Assets 139,383 163,076
Property, plant and equipment 10 1,025 -
Deferred tax assets 6(d) 3,020 3,022
Total Non-Current Assets 4,045 3,022
Total Assets 143,428 166,098
Trade and other payables 11 62,995 88,311
Current tax liabilities 6(c) 2,151 6,876
Provisions 13(a) 8,056 7,216
Other current liabilities 12 6,966 5,503
Total Current Liabilities 80,168 107,906
Provisions 13(b) 95 48
Total Non-Current Liabilities 95 48
Total Liabilities 80,263 107,954
Net Assets 63,165 58,144
Contributed equity 14 47,666 47,666
Reserves 15 15,499 10,478
EQUITY 63,165 58,144
The above Statement of Financial Position should be read in conjunction with the notes to the financial statements.
STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2016
Balance at 1 July 2014 - - -
Contributed equity 47,666 - 47,666
Profit for the year - 10,478 10,478
Other comprehensive income for the year, net
of income tax - - -
Total comprehensive income for the year - 10,478 10,478
Dividends paid or provided for - - -
Balance at 30 June 2015 47,666 10,478 58,144
Balance at 1 July 2015 47,666 10,478 58,144
Profit for the year - 5,021 5,021
Other comprehensive income for the year, net
of income tax - - -
Total comprehensive income for the year - 5,021 5,021
Dividends paid or provided for - - -
Contributed equity - - -
BALANCE AT 30 JUNE 2016 47,666 15,499 63,165
The above Statement of Changes in Equity should be read in conjunction with the notes to the financial statements.
$’000Cash Flow from Operating Activities
Receipts from customers 483,574 452,833
Payments to suppliers and employees* (515,197) (456,995)
Payment of income tax (6,876) -
Payments for Renewable Energy Certificates (27,727) (10,928)
Community Service Obligation received 59,365 35,876
Interest received 1,750 434
Net Cash Used in Operating Activities 20 (5,111) 21,220
Cash Flow from Investing Activities
Payments for property, plant and equipment (1,031) -
Net Cash Used in Investing Activities (1,031) -
Cash Flow from Financing Activities
Contributed equity - 40,000
Net Cash provided by Financing Activities - 40,000
Net (decrease) / increase in cash and cash equivalents (6,142) 61,220
Cash and cash equivalents at the beginning of the period 61,220 -
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 7 55,078 61,220
*Included in the 2016 total is $18.5 million which relates to the settlement of the 2015 intercompany loan with Power and Water Corporation associated with structural separation. Excluding the $18.5 million settlement, cash flow generated by operating activities would have been $13.3 million.
The above Statement of Cash Flows should be read in conjunction with the notes to the financial statements.
STATEMENT OF CASH FLOWS
For the year ended 30 June 2016
1 CORPORATE INFORMATION
Power Retail Corporation trading as Jacana Energy (the Corporation) is a Government Owned Corporation under the Power Retail Corporation Act.
The addresses of its registered office and principal place of business are as follows:
Level 3, 24 Mitchell Street Darwin NT 0800
Principal place of business Level 3, 24 Mitchell Street Darwin NT 0800
The principal business activity of the Corporation is the buying and selling of electricity and the provision of energy retail services to the people of the Northern Territory.
The Corporation was incorporated on 29 May 2014.
2 SIGNIFICANT ACCOUNTING POLICIES (a) Statement of compliance
These financial statements are general purpose financial statements which have been prepared in accordance with the Government Owned Corporations Act, Australian Accounting Standards and Interpretations, and comply with other requirements of the law.
For the purposes of preparing the financial statements, the Corporation is a for-profit entity.
These financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
The financial statements were authorised for issue by the Directors on 27 September 2016.
(b) Basis of preparation
The financial statements have been prepared on the basis of historical cost convention.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
All amounts are presented in Australian dollars, which is the Corporation’s functional and presentation currency.
Amounts in the financial report have been rounded to the nearest thousand dollars, unless otherwise stated.
The Corporation has adopted all new and revised accounting Standards issued by the Australian Accounting Standards Board that are relevant to its operations and effective for the current reporting period.
Any new, revised or amending accounting standards or intepretations that are not yet mandatory have not been early adopted.
Application of new and revised Accounting Standards AASB 2015-3 ‘Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality’
The standard completes the AASB’s project to remove Australian Guidance on materiality from Australian Accounting Standards.
AASB 2013-9 ‘Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments’
The standard contains three main parts and makes amendments to a number of standards and interpretations. Part A of AASB 2013-9 makes consequential amendments arising from the issuance of AASB CF 2013-1. Part B makes amendments to particular Australian Accounting Standards to delete references to AASB 1031 and also makes minor editorial amendments to various other standards. Part C makes amendments to a number of Australian Accounting Standards, including incorporating Chapter 6 Hedge Accounting into AASB 9 Financial Instruments.
The application of these amendments does not have any material impact on the disclosures in the Corporation’s financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2016
EFFECTIVE FOR ANNUAL REPORTING PERIODS BEGINNING ON OR AFTER
EXPECTED TO BE INITIALLY APPLIED IN THE FINANCIAL YEAR ENDING
AASB 9 ‘Financial Instruments’, and the relevant amending standard AASB 2014-7
1 January 2018 30 June 2019
AASB 15 ‘ Revenue from Contracts with Customers’ and the relevant amending standard AASB 2014-5
1 January 2018 30 June 2019
AASB 2015-2 ‘ Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101’
1 January 2016 30 June 2017
AASB 16 ‘Leases’, and the relevant amending standards 1 January 2019 30 June 2020 AASB 1057 Application of Australian Accounting Standards 1 January 2016 30 June 2017
AASB 119 ‘Employee Benefits’ 1 January 2016 30 June 2017
The application of these standards and interpretations would not have any material impact on the disclosures in the Corporation’s financial statements.
Standards and Interpretations issued but not yet effective At the date of authorisation of the financial statements, the Standards and Interpretations that were issued but not yet effective are listed below.
(c) Revenue recognition
Electricity sales and unbilled electricity sales
Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Corporation and the revenue can be reliably measured.
Revenue from the sale of electricity to retail customers is recognised at the time of the provision of the electricity to the customer. Income from the sale of retail electricity is the value of electricity units supplied to customers during the year. Included in this income is unbilled electricity. Unbilled electricity sales is an estimate of the value of electricity units supplied to customers between the date of the last meter reading and the year end, and is included in electricity sales.
Community service obligation
Revenue in the form of Community Service Obligations (CSO) is received from the Northern Territory Government where the Corporation is required to carry out activities on a non-commercial basis. CSO revenue is recognised when there is reasonable assurance that the revenue will be received and all attached conditions have been complied with.
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Corporation and the amount of revenue can be measured reliably. Interest income is accrued on a time
basis, by reference to the principal outstanding at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.
(d) Income tax
The Corporation is required to make income tax equivalent payments to the Northern Territory Government based on taxable income.
Income tax equivalent payments are made pursuant to section 33 of the Government Owned Corporations Act and are based on rulings set out in the National Tax Equivalent Regime’s manual. The manual gives rise to obligations which reflect in all material respects those obligations for taxation which would be imposed by the Income Tax Assessment Acts 1936 and 1997.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the Statement of Profit or Loss and Other Comprehensive Income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Corporation’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised for all
taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Corporation expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Corporation intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively.
(e) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, deposits held at call with financial institutions and other short term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash.
Trade receivables, which generally have 21 day terms for mass market customers and 14 day terms for contracted customers, are recognised and carried at original invoice amount less an allowance for any impaired receivables.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly.
An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Corporation will not be able to collect all amounts due according to the original terms of the receivables.
Significant financial difficulties of the debtors, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired.
The amount of the impairment loss is recognised in profit or loss within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account.
(g) Renewable energy certificates
Under the Renewable Energy (Electricity) Act 2000, parties on grids of more than 100 MW making wholesale acquisitions of electricity (relevant acquisitions) are required to demonstrate that they are supporting the generation of renewable electricity by purchasing renewable energy certificates (RECs). The Act imposes an annual liability, on a calendar year basis, by applying the specified renewable power percentage and small- scale technology percentage to relevant volume sales of electricity. These parties demonstrate compliance by surrendering RECs to the Clean Energy Regulator (CER).
Large-scale generation certificates are surrendered annually between 1 January and 14 February for the previous calendar year (compliance year). Small-scale technology certificates are surrendered on a quarterly basis.
RECs purchased are recognised as an asset at their purchase price until they are surrendered.
The RECs liability is extinguished by surrendering an equivalent number of RECs with a penalty applying for any shortfall. The Corporation’s liability is based on actual volume sales of electricity for the last calendar year multiplied by the CER specified renewable power percentage for that year.
The REC liability per certificate is reflective of the average cost of REC purchases.
(h) Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight line method over their useful lives, and is generally recognised in profit or loss.
The estimated useful lives of property, plant and equipment are as follows:
• Office equipment 2-10 years
• Fixtures and fittings 2-10 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
Any item of property, plant and equipment is
derecognised upon disposal or when there is no future economic benefit to the Corporation. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss.
Intangible assets with finite lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses.
Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognised in profit or loss when the asset is derecognised.
Significant costs associated with software are amortised on a straight-line basis over their estimated useful lives.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.
(j) Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
(k) Employee benefits
Short-term and employee benefits
Liabilities in respect of wages and salaries, non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities and measured at their nominal values using the remuneration rate expected to apply at the time of settlement.
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments, discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
Provisions are recognised when the Corporation has a present obligation (legal or constructive) as a result of a past event, it is probable that the Corporation will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
(m) Financial instruments
Financial assets and financial liabilities are recognised when the Corporation becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Other financial liabilities
Other financial liabilities, including borrowings and trade and other payables, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
The Northern Territory Government’s dividend policy requires the Corporation to declare a dividend, generally at a rate of 50% of net profit after tax.
(o) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
(i) where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or
(ii) for receivables and payables which are recognised inclusive of GST.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.
Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows.
3 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In applying the Corporation’s accounting policies, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Refer below for a discussion of key sources of estimation uncertainty.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Unbilled electricity sales and cost of sales
Unbilled electricity sales is an estimate of the value of electricity units supplied to customers between the date of the last meter reading and the year end, and is included in electricity sales. Therefore, the Corporation estimates the amount of electricity consumed at reporting date that is yet to be billed.
Unbilled cost of sales, specifically, generation, networks and system control is also estimated as these charges are billed monthly in arrears. Therefore, the Corporation estimates the charges at reporting date that are yet to be invoiced.
Provision for doubtful debts
The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtor’s financial position
NOTE 4 REVENUE
Sale of goods 452,268 452,311
Other revenue 2,722 1,884
(b) Community Service Obligation 59,365 57,835
(c) Interest revenue 1,750 434
TOTAL REVENUE 516,105 512,464
NOTE 5 EXPENSES
$’000(a) Energy costs of sales
Generation (298,449) (321,830)
Networks and system control (168,474) (144,824)
Renewable energy certificates (18,847) (11,915)
Energy purchased for resale (4,335) (3,348)
Alternative control charges (1,097) -
(b) Employee benefits expense
Salary and wages (4,854) (2,189)
Superannuation expense (316) (136)
Fringe benefits expense tax (23) (23)
Payroll tax (238) (123)
Contract labour (309) (12)
(c) External service agreements (5,623) (6,788)
(d) Structural separation expenses - (406)
(e) Depreciation expense (6) -
(f) Other expenses
Grants and subsidies (267) (268)
Bad and doubtful debts expense (1,905) (2,573)
Auditors’ remuneration (74) (82)
Rental expenses (163) (69)
Other expenses (3,951) (2,911)
NOTE 6.a INCOME TAX RECOGNISED IN PROFIT OR LOSS
In respect of the current year 2,151 6,876
In respect of the current year 2 (2,387)
TOTAL INCOME TAX RECOGNISED IN THE CURRENT YEAR 2,153 4,489
NOTE 6.b THE INCOME TAX FOR THE YEAR CAN BE RECONCILED TO ACCOUNTING PROFIT
Profit before tax 7,174 14,967
Income tax expense calculated at 30% 2,153 4,489
TOTAL INCOME TAX RECOGNISED IN THE CURRENT YEAR 2,153 4,489
The tax rate used for the reconciliation above is the corporate tax rate of 30% payable by Government Owned Corporations on taxable profits under the National Tax Equivalent Regime.
NOTE 6.c CURRENT TAX ASSETS AND LIABILITIES
$’000Current tax liabilities
Income tax payable 2,151 6,876
TOTAL INCOME TAX PAYABLE 2,151 6,876
NOTE 6.d DEFERRED TAX BALANCES
$’000Deferred tax balances are presented in the statement of financial
position as follows:
Deferred tax assets 3,046 3,053
Deferred tax liabilities (26) (31)
RECOGNISED IN PROFIT OR LOSS
RECOGNISED IN OTHER COMPREHENSIVE INCOME
CONTRIBUTION FROM OWNER
entitlements 123 63 - - 186
Doubtful debts 835 (268) - - 567
Provisions 2,056 203 - - 2,259
Accrued revenue (31) 5 - - (26)
Accrued expenses 33 (4) - - 29
Other 6 (1) - - 5
3,022 (2) - - 3,020
RECOGNISED IN PROFIT OR LOSS
RECOGNISED IN OTHER COMPREHENSIVE INCOME
CONTRIBUTION FROM OWNER
entitlements - 123 - - 123
Doubtful debts - 620 - 215 835
Provisions - 1,697 - 358 2,055
Accrued revenue - (31) - - (31)
Accrued expenses - 33 - - 33
Other - (55) - 62 7
- 2,387 - 635 3,022