The electricity supply industry is comprised of a number of discrete functions, namely:
Distribution
Generation
Retail
Transmission.
To provide an understanding, and to assist with readability, this section of the Report has been structured in the abovementioned sequence with an Overview provided to indicate the evolution of the entities that have made up the electricity supply industry in South Australia. Discussion and comment is included under the relevant function for the main entities existing at 30 June 2000.
In February 1998 the South Australian Government announced its intention to sell its electricity assets and, at the same time, proposed reforms for the South Australian electricity supply industry, including the restructure of the existing government-owned electricity businesses.
To facilitate both the completion of the reform process, and prepare the State's electricity supply industry assets for a potential sale, on 30 June 1998 the Government announced plans for the restructure of the State's electricity supply industry. This included the 'disaggregation' of the electricity businesses, including:
subdivision of the generation function into three competing businesses;
creation of a company to manage the existing gas contracts and to trade in gas;
establishing the transmission function as an autonomous trading entity;
establishing the distribution and retail functions as separate subsidiary entities.
In October 1998 the Treasurer approved the establishment of seven Corporations Law companies as subsidiaries under section 23 of the Public Corporations Act 1993. While these companies were created as subsidiaries of public corporations, the Minister issued a Direction pursuant to section 6 of the Public Corporations Act 1993 that required the parent corporations ‘... not to exercise any power of direction ... so as to create or maintain an impediment to the autonomous trading activities’ of the subsidiaries.
In June 1999, the Electricity Corporations (Restructuring and Disposal) Act 1999 was passed by Parliament allowing the long-term lease of the State's distribution, generation, retail and transmission assets.
The structure of the electricity supply industry entities as at 1 July 1999 was as follows:
During 1999-2000 further changes in the organisational structures and functions of the government-owned electricity entities took place. Significant events were as follows:
July 1999 |
ETSA Capital (No 2) Pty Ltd, Distribution Lessor Corporation and Generation Lessor Corporation were established as subsidiaries of the Treasurer. Shares held by ETSA Capital Pty Ltd in its subsidiaries (ETSA Utilities Pty Ltd and ETSA Power Pty Ltd) were transferred to ETSA Capital (No 2) Pty Ltd. |
December 1999 |
Assets, including those defined as prescribed electricity distribution assets by the Electricity Corporations (Restructuring and Disposal) Act 1999, were transferred from ETSA Utilities Pty Ltd to Distribution Lessor Corporation. Prescribed distribution assets held by Distribution Lessor Corporation were leased to external parties. Assets (net of liabilities) of both ETSA Utilities Pty Ltd and ETSA Power Pty Ltd were sold. ETSA Power Corporation (Victoria) Pty Ltd was sold. |
February 2000 |
All references to ‘ETSA’ in the names of government owned electricity businesses were changed to ‘RESI’. The name of ETSA Transmission Corporation was changed to Transmission Lessor Corporation. |
March 2000 |
Shares held by SA Generation Corporation in its subsidiaries (Flinders Power Pty Ltd, Optima Energy Pty Ltd, Synergen Pty Ltd and Terra Gas Trader Pty Ltd) were transferred to the Treasurer. SA Generation Corporation, a public corporation established pursuant to the Public Corporations Act 1993, was ‘converted’ to a Corporations Law company entitled Flinders Coal Pty Ltd. |
May 2000 |
Assets, including those defined as prescribed electricity generation assets by the Electricity Corporations (Restructuring and Disposal) Act 1999, were transferred from Optima Energy Pty Ltd and Synergen Pty Ltd to Generation Lessor Corporation. Prescribed generation assets held by Generation Lessor Corporation were leased to external parties. Assets (net of liabilities) of both Optima Energy Pty Ltd and Synergen Pty Ltd were sold. |
June 2000 |
The names of Optima Energy Pty Ltd and Synergen Pty Ltd were changed to RESI OE Pty Ltd and RESI SYN Pty Ltd respectively. |
As a result of these changes the structure of the government-owned electricity supply industry entities as at 30 June 2000 was as follows:
The Government has announced that on 3 August 2000 an agreement was signed with NRG Energy for the disposal of the assets and liabilities of Flinders Power Pty Ltd for a total consideration of $313 million. Although settlement of the transaction did not occur until 8 September 2000, the benefits and risks associated with the business were transferred as at the date of the agreement, ie 3 August 2000.
Under the Government's electricity business disposal program, Final Bids for the disposal of the assets and liabilities of Terra Gas Trader Pty Ltd were received on 17 July 2000. As at the date of the preparation of this Report, no announcement had been made with respect to the outcome of the disposal process of that entity.
Under the Government's electricity businesses disposal program, Final Bids for the disposal of the assets and liabilities of the Government's transmission business (ElectraNet SA) were received 4 September 2000. As at the date of the preparation of this Report, no announcement had been made with respect to the outcome of the disposal process for ElectraNet SA.
Audit understands that, following the finalisation of the electricity businesses disposal process, the Government proposes to dissolve or deregister a number of the existing non-trading electricity entities.
Given the extent of restructuring that has taken place, the overall impact of the electricity businesses on the State's finances over time is not readily evident.
However, the electricity businesses have been a significant source of revenue to the State over a number of years. This revenue has comprised dividends from the various businesses, payments representing taxation equivalents, a statutory sales levy as required by clause 11 of Schedule 4 of the Electricity Corporations Act 1994, (which expired in October 1997) and interest on funds borrowed from the South Australian Government Financing Authority (SAFA).
The following diagram presents the actual payments (excluding those relating to the disposal of the electricity businesses) for the past six years. The decline in the payments in 1999-2000 reflects the progressive disposal of the electricity businesses during the year.
The disposal of the electricity businesses throughout the year has impacted on the State's finances through the receipt of sale and lease proceeds. These proceeds are, in terms of the Electricity Corporations (Restructuring and Disposal) Act 1999, to be used to reduce the level of State Debt. The main component of cash received by the State for the electricity businesses as at 30 June 2000 represents a prepayment of the distribution network lease payments. The following summary shows the proceeds received with respect to each of the businesses, together with a comparison of the book value of the assets (net of liabilities) sold and leased.
|
|
Book Value of |
|
|
|
Net Assets |
Book Profit on |
|
Proceeds |
(Liabilities) |
Disposal |
Entity |
$ millions |
$ millions |
$ millions |
RESI Utilities Pty Ltd |
184.4 |
148.1 |
36.3 |
Distribution Lessor Corporation |
2 704.3 |
2 069.6 |
634.7 |
RESI Power Pty Ltd |
161.7 |
(5.7) |
167.4 |
RESI OE Pty Ltd |
7.5 |
(2.2) |
9.7 |
RESI SYN Pty Ltd |
(0.2) |
(2.0) |
1.8 |
Generation Lessor Corporation |
315.1 |
116.9 |
198.2 |
|
3 372.8 |
2 324.7 |
1 048.1 |
In addition, proceeds of $276.2 million were received with respect to future operating lease rentals relating to land with a book value of $30.8 million.
Further commentary on the impact of the electricity businesses disposal on the State’s finances can be found in Part A of this Report.
The following commentary details the operations of government owned electricity industry entities. Thereafter, financial statements and commentary follows detailing the main entities within the respective functions of the electricity industry.