SEQ WATER GRID MANAGER ANNUAL REPORT

2009–10

Secure and efficient water through partnership and innovation

6 September 2010

Hon Andrew Fraser MP

Treasurer of Queensland, Minister for Employment and Economic Development

GPO Box 611

Brisbane Q 4001

Hon Stephen Robertson MP

Minister for Natural Resources, Mines and Energy, and Minister for Trade

PO Box 15216

Brisbane Q 4001

Dear Sirs

I am pleased to present the Annual Report 2009–2010 for the SEQ Water Grid Manager.

I certify that this Annual Report complies with:

� the prescribed requirements of the Financial Accountability Act 2009 and the Financial and Performance Management Standard 2009, and

� the detailed requirements set out in the Annual Reporting Guidelines for Queensland Government Agencies.

A checklist outlining the annual reporting requirements is available at www.seqwgm.qld.gov.au.

Yours faithfully

Gary Humphrys Chair SEQ Water Grid Manager

Our valuesOur organisational values are:

� innovation

� delivering value

� motivation

� adaptability

� professionalism.

Our visionTo be recognised as being at the forefront of delivering innovative water services to ensure the security of supply for South East Queensland.

© SEQ Water Grid Manager SEQ Water Grid Manager Annual Report 2009–10ISSN: 18374816.

Our missionSafe, secure and efficient bulk water services for South East Queensland through partnership and innovation.

Contents

2 About this report

3 Operational highlights 2009–10

4 Our business

6 Chair and Chief Executive Officer’s overview

8 The SEQ Water Grid

12 Operational performance

15 Priority area 1Provision of water security

42 Corporate governance

25 Priority area 2Operational efficiency

47 Our people

31 Priority area 3Customer and stakeholder satisfaction

37 Priority area 4Innovative and capable culture and systems

51 Glossary

54 Financial statements 2009 –10

88 Appendix

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This Annual Report is an integral part of the SEQ Water Grid Manager’s Corporate Governance Framework. This Report records our commitment to accountability and transparency and is the primary way in which we report our achievements to the Government and the community.

This Annual Report is prepared in line with the Financial Accountability Act 2009, the Financial and Performance Management Standard 2009 and the South East Queensland Water (Restructuring) Act 2007.

Access to safe and secure drinking water is critical to community health and wellbeing and a fundamental expectation of our community. We actively manage this expectation by not only monitoring water quality and supply levels, but also through directing the strategic operation of bulk water across the region. Our role ensures the efficient and effective operations of the SEQ Water Grid, for now and the future.

This Report is one element in how we communicate to customers about their bulk water supply and how it is being managed.

About this report

Contact us For information about us, or for copies of this Report, please contact:

SEQ Water Grid Manager Level 15, 53 Albert Street Brisbane QLD 4000

PO Box 16205 City East QLD 4002

Phone: +61 7 3247 3012www.seqwgm.com.au

Translating and interpreting assistance The Queensland Government is committed to providing accessible services to Queenslanders from culturally and linguistically diverse backgrounds. If you need an interpreter, please call the Translating and Interpreting Service (TIS National) on 131 450 and have them contact our organisation on +61 7 3247 3012 between 8am and 5pm, Monday to Friday (except public holidays).

Delivering safe, secure and efficient water services with new levels of transparency and customer confidence.

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The past 12 months have seen South East Queensland come out of drought for the first time in nine years. Hence, 2009–10 allowed the SEQ Water Grid Manager to change the strategic focus of its operations from maximising security of supply to also further take into account efficient and cost effective operations of the SEQ Water Grid. This mode of operation, cost effective operational mode, began on 1 December 2009 with the introduction of permanent water conservation measures. It also coincided with the release of the Queensland Water Commission’s new South East Queensland System Operating Plan (System Operating Plan). This Plan provides the overarching rules within which we operate the SEQ Water Grid.

Through these decisions, we have been able to identify and harness operational savings, while delivering improved water security and water quality.

Some of our operational highlights for 2009–10 were:

Operational highlights 2009–10

� Shifted our operations from a focus on maximising water security to also taking into account cost, flexibility and system reliability.

� Connected the Toowoomba region as a customer of the SEQ Water Grid with the supply of raw water from Wivenhoe Dam to Cressbrook Dam.

� Introduced the monthly Customer Confidence Report (Bulk Water), providing bulk water quality testing results for 80 per cent of the water supplied through the SEQ Water Grid, providing residents and industry with added confidence in their water supply. In June 2010, 12 months of data showed a 100 per cent compliance record against the Australian Drinking Water Guidelines 2004.

� Undertook a major 48 hour emergency response exercise involving all State-owned SEQ Water Grid entities and a number of major council distributor–retailers to assess and refine the SEQ Water Grid Emergency Response Plan.

� Completed an Electricity Optimisation Study, identifying potential opportunities for future cost savings.

� Completed a study into laboratory capacity and capability in South East Queensland.

� Released the draft SEQ Water Grid Technology Strategy (Technology Strategy) for consultation with the Grid Participants.

� Completed the first SEQ Water Grid Operating Strategy (Operating Strategy), providing a framework for the operation of the SEQ Water Grid for the next 12 months.

A significant achievement in 2009–10 has been the reduction of the SEQ Water Grid’s variable operating costs by approximately $2.5 million per month (water security mode versus cost effective operational mode) since December 2009 through optimising SEQ Water Grid operations.

Our organisation operates under two core modes:

� Cost effective operational mode – when permanent water conservation restriction levels apply (during average rainfall periods). Our focus is to manage the supply of water from the available sources to meet demand, while focusing on minimising SEQ Water Grid operational costs.

� Water security mode – when medium, high or extreme water restriction levels apply (during drought conditions). Our focus is to maximise water security to local council areas and power stations, using alternative water supplies (non-dam supplies) to increase the amount of water storage in the dams.

Fast fact

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Who we areThe SEQ Water Grid Manager is a statutory body established under the South East Queensland Water (Restructuring) Act 2007. We commenced operation on 1 July 2008, when the SEQ Water Market changed substantially with the establishment of the SEQ Water Grid. We operate the SEQ Water Grid to maintain regional water security; ensuring adequate water supplies are provided efficiently, cost effectively, safely and sustainably throughout South East Queensland.

To do this, we work in partnership with Grid Participants and Queensland Government stakeholders to develop innovative ways to operate the SEQ Water Grid.

We are a not-for-profit entity and do not own infrastructure assets but hold the urban water entitlements for South East Queensland. We make strategic and operational decisions that are based on ensuring water is produced and moved to where it is needed most, at the least possible cost, rather than based on a proprietary interest in infrastructure assets.

The other three bulk water entities (Seqwater, WaterSecure and LinkWater – our SEQ Water Grid partners) are specialist asset owning entities. This disaggregated supply chain encourages

Our business

greater transparency in product specifications and monitoring of product performance, resulting in higher levels of customer service and confidence. It also means service delivery risks are allocated across the SEQ Water Grid to where they can best be managed and allows the specialist entities to take accountability in operating each part of the SEQ Water Grid supply chain.

We sell water to our customers—the three new SEQ Distributor-Retailers (from 1 July 2010), power stations and other rural and industrial entities.

We report to the Queensland Parliament through two responsible Minsters: the Treasurer and Minister for Employment and Economic Development and the Minister for Natural Resources, Mines and Energy and Minister for Trade.

Our first two yearsDuring our first year of operation, 2008–09, our focus was on establishing our organisation from the grassroots, while taking responsibility for our core business of managing the operation of the SEQ Water Grid. This included establishing governance and compliance requirements under the relevant legislation and The Market Rules SEQ Water Market (Market Rules).

During our second year, 2009–10, our focus shifted to actively optimising the operation of the SEQ Water Grid, delivering innovation and increased operational benefit across the entire urban water supply chain. We worked collaboratively with our SEQ Water Grid partners to find and implement improvements across the SEQ Water Grid. We also established and implemented a number of whole-of-Grid plans and strategies to support the efficient and effective operation of the SEQ Water Grid.

Development of our organisation also continued, with a new organisational structure and new services being offered such as the Customer Confidence Report (Bulk Water) and the whole-of-Grid communications function.

What we do Our key responsibility is to manage the operation of the SEQ Water Grid in the most efficient and effective manner, consistent with the System Operating Plan, the Market Rules and associated legislative and regulatory requirements.

Our primary accountabilities under legislation are:

� purchasing water services and selling water (South East Queensland Water (Restructuring) Act 2007)

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� ensuring desired levels of service under the System Operating Plan (Water Act 2000)

� ensuring financial and corporate governance compliance applicable to statutory bodies (Financial Accountability Act 2009, State Water Authorities Governance Framework 2008 and Statutory Bodies Financial Arrangements Act 1982)

� complying with the Market Rules (Water Act 2000).

We achieve this through the operational functions listed below:

� Strategic operations We direct the operation of the SEQ Water Grid to deliver water security across the South East Queensland region in the most cost efficient manner possible, while meeting customer demands, water quality objectives and considering system reliability risks. This entails the preparation of an Operating Strategy in line with the System Operating Plan, and the issuing of monthly Grid Instructions to direct the production and transfer of water throughout the region. It also involves providing recommendations to the Queensland Water Commission and Queensland Government on possible improvements and

innovations to increase the performance and reliability of the SEQ Water Grid, and providing advice, upon request, on planning for its future capacity and capability.

� Customer/contract management We consult customers on service compliance and improvement opportunities, inform the public in response to emergencies and manage contractual issues, as appropriate, under the Market Rules. We also liaise with customers regarding product specifications in terms of water quality and service reliability, and assess whole-of-Grid performance and risk. We undertake assessments of the market for new water products and services and consult with customers regarding their requirements. We record feedback on our performance through the use of regular surveys, data collection and liaison with Grid Customers.

� Risk management We identify, plan and mitigate whole-of-Grid risks through the development, implementation and review of the SEQ Water Grid Risk Management Plan (Risk Management Plan). We manage incidents under the SEQ Water Grid Emergency Response Plan and act as emergency managers as required.

� Financial management We manage the financial aspects and costs of the SEQ Water Grid on behalf of the Queensland Government. We forecast cash flows, set working capital requirements, negotiate borrowing with an appropriate risk profile, apply bulk charges according to contracts and monitor compliance of service provider charges within approved costs.

� Whole-of-Grid facilitation We facilitate whole-of-Grid projects in collaboration with other SEQ Water Grid entities, coordinate responses to strategic issues and provide training on whole-of-Grid functions, including emergency management. We do this through the SEQ Water Grid Skills Formation Strategy (Skills Formation Strategy), the Technology Strategy and our Customer and Stakeholder Engagement Plan.

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The past 12 months have been an exciting and productive time for the SEQ Water Grid Manager. We have consolidated the excellent working relationship with our SEQ Water Grid partners and improved our processes for the benefit of the whole of the SEQ Water Grid.

With improved dam levels following the excellent rainfall in late 2009, we shifted our operation into the cost effective operational mode. Efficient SEQ Water Grid operation became the focus of water service delivery in South East Queensland. Our team set about identifying how we could reduce the SEQ Water Grid’s operating costs, while still maintaining our commitment to ensuring water supply security to South East Queensland.

Chair and Chief Executive Officer’s overview

We have introduced new procedures to improve our organisation’s and the SEQ Water Grid’s efficiency. We have also focused on providing increased transparency of SEQ Water Grid operations and in the process, we believe, have set new standards for the rest of the water industry to follow.

We are particularly proud of the introduction of the monthly Customer Confidence Report (Bulk Water). This initiative really sets the SEQ Water Grid apart by providing our customers with a never before seen level of information about the quality of the water we are supplying. In an age of concern about the health effects of the products we consume, and with the variety of potential supply sources making up our product, this is a significant achievement.

This year we ran a major exercise on a whole-of-Grid emergency. It tested our emergency response planning and our coordination with other Grid Participants and provided further evidence that the SEQ Water Grid contributes to the security of supply by assisting in move effective responses to emergencies.

With the SEQ Water Grid all but complete, an Infrastructure Australia report released in May 2010 recognised South East Queensland as having the best water security of all Australian capital city regions. With the finalisation of the South East Queensland Water Strategy the community now has a water security guarantee backed by the SEQ Water Grid with sufficient supply capacity until at least 2017, or even as far as 2032. Efficient SEQ Water Grid operation now becomes the future focus of water service delivery in South East Queensland.

Gary Humphrys Chair

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As we enter 2010–11, we welcome the three newly formed SEQ Distributor-Retailer entities who will manage the distribution of water to the customer. We look forward to working closely with these three new entities to further improve the operation of the SEQ Water Grid and to provide even greater levels of service to our customers.

We would like to close by thanking our dedicated, highly committed team for their efforts over the past year. We are only a small organisation and rely on the input of each and every member of our team to make our vision a reality. Every person is to be congratulated for their efforts in delivering our organisation’s objectives for the year.

Barry Dennien Chief Executive Officer

Gary Humphrys Chair

Barry Dennien Chief Executive Officer

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Safe, secure, sustainableThis year ended with South East Queensland’s dams being more than 95 per cent full. This was a huge contrast to the 39 per cent level that existed when the SEQ Water Grid was established in 2008, and an even greater contrast to the record levels of below 17 per cent during the worst months of the drought in 2007.

As a result, we have moved from operating the SEQ Water Grid to maximise security of supply to also taking into account cost, flexibility and system reliability. This occurred along with the introduction of permanent water conservation measures on 1 December 2009 and the release of a new version of the System Operating Plan.

The SEQ Water Grid delivers three key commitments to the community – safe, secure and sustainable water services.

The SEQ Water Grid

SafeWater is a part of our everyday life. It is used without giving a second thought to where it has come from or how it is managed. Whether for drinking, washing, gardening or showering, the same high quality standards are expected by our customers.

The SEQ Water Grid institutional arrangements provide for greater transparency and accountability to South East Queensland residents in relation to the quality of the water being supplied.

During this financial year, we developed and launched the Customer Confidence Report (Bulk Water). This Report supports our commitment to water quality, transparency and ongoing monitoring and compliance against the Australian Drinking Water Guidelines 2004—all essential to the management of the SEQ Water Grid. June 2010 saw our first 12 months of water quality data publicly reported. We achieved 100 per cent compliance against health (microbial and chemical) and aesthetic parameters meeting the values set by the Australian Drinking Water Guidelines 2004.

The Customer Confidence Report (Bulk Water) is an important tool in helping increase public understanding of, and confidence in, our ability to supply high quality water from a variety of sources. It demonstrates how we ensure drinking water safety and supply reliability through a well managed and coordinated system.

SecureSouth East Queensland’s water security position is now stronger than ever before. Since the establishment of the SEQ Water Grid in 2008, South East Queensland’s supply capacity has increased from 350,000 megalitres of water per year to 485,000 megalitres. The Gold Coast Desalination Plant and the Western Corridor Recycled Water Scheme are capable of supplying up to 25 per cent of current demand through these climate resilient water sources.

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The SEQ Water Grid was designed to ensure continued water security across South East Queensland, protecting us from future droughts and long-term climate changes, while catering for the regions’ rapidly growing population. This security has been recognised within the Australian water industry. An independent report by Infrastructure Australia found that the annual water supply capacity in South East Queensland is now 50 per cent more than current demand, providing a security buffer of 160,000 megalitres per annum. South East Queensland now has the best water security position of all Australian capital city regions.

The SEQ Water Grid consists of a network of treatment facilities and connecting pipelines. It is capable of moving water from sources across the region to where it is needed most. The SEQ Water Grid is not used to move water from one dam to another within South East Queensland, instead it moves treated drinking water from water treatment plants directly to distribution-retail networks for supply to households.

During 2009–10, we transferred over 71,600 megalitres of water within South East Queensland.

SustainableOur environment is a key consideration in the operation of the SEQ Water Grid.

The SEQ Water Grid is a system that manages our water from various sources (catchments and manufactured water facilities) to provide safe and secure water to our customers. Through the operation of the SEQ Water Grid we are able to transfer water from areas of excess supply to areas in need. In times of plentiful dam water, we are able to use that water first. In times where dam water is low, we are able to increase supply through our climate resilient water sources such as desalinated and purified recycled water.

The Gold Coast Desalination Plant is one of the most energy efficient desalination plants in the world. In producing water, it uses less energy per household than a typical refrigerator. Further, the Gold Coast Desalination Plant fully offsets its energy usage through the purchase of renewable energy certificates.

The SEQ Water Grid also enables the longevity of our healthy and green open spaces and natural wildlife through releasing water into our local creeks and rivers to sustain environmental flows. The SEQ Water Grid supports many recreational areas around our dams, offering picnic and green spaces for our local communities; as well as greening our urban landscapes.

The SEQ Water Grid is a sustainable water supply that underpins the region’s economic prosperity and population growth, now and into the future.

This year, the introduction of the Customer Confidence Report (Bulk Water) was a major achievement for us and for the Australian water industry. It represents best practice in water quality reporting.

This Report provides results of samples taken from 19 sampling sites across South East Queensland. These sites collectively represent approximately 80 per cent of the water supplied through the SEQ Water Grid, providing residents and industry with information on the quality of their water and added confidence in their supply.

Fast fact

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Our supply chain partners The institutional arrangements for water in South East Queensland have been simplified, allowing entities to specialise in different parts of the SEQ Water Grid supply chain, ensuring focused and effective services. The 22 separate entities, which previously owned and operated the water treatment, storage and transport infrastructure, have been amalgamated into four bulk water entities and, from 1 July 2010, three council-owned SEQ Distributor-Retailer entities.

Our organisation is one of the four bulk entities and we buy services from Seqwater, WaterSecure and LinkWater.

Seqwater – provides storage and treatment of bulk water and manages the region’s dams, weirs and water treatment plants. Seqwater is also responsible for catchment management, the quality of water from these assets and the production of drinking water.

WaterSecure – operates the Gold Coast Desalination Plant and the Western Corridor Recycled Water Scheme and is responsible for the production and treatment of, desalinated and purified recycled water, respectively.

LinkWater – uses its network of bulk pipelines to move drinking water from water treatment plants and reservoirs through bulk pipelines into the distribution network.

As at 30 June 2010, we sold bulk water to the 10 regional councils in the South East Queensland region—Brisbane, Gold Coast, Ipswich, Lockyer Valley, Logan, Moreton Bay, Redland, Scenic Rim, Somerset and Sunshine Coast—as well as to power stations and other smaller wholesale customers. From 28 January 2010, we also commenced the sale of raw water from Wivenhoe Dam to Toowoomba Regional Council. This water is transported to Cressbrook Dam.

From 1 July 2010, the 10 regional council distribution and retail functions commenced operation as three combined SEQ Distributor-Retailer entities—Queensland Urban Utilities (Brisbane, Ipswich, Lockyer Valley, Scenic Rim, Somerset), Unitywater (Moreton Bay, Sunshine Coast) and Allconnex Water (Gold Coast, Logan, Redland).

In 2010–11, the SEQ Water Grid will continue to engage and educate our local communities through existing and new visitors’ centres; interactive DVDs; new and existing websites and school education. This, coupled with site visits and general information through the local media, will assist people in understanding the role of the SEQ Water Grid in supplying safe, secure and sustainable water.

Engaging our community

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Safe, secure, sustainable – the approach that defines the SEQ Water Grid.

The SEQ Water Grid Manager owns the urban water entitlements in South EastQueensland and is responsible for managingthe SEQ Water Grid. It purchases services to store, treat, produce and transport bulk water from Seqwater, LinkWater and WaterSecure. It then sells treated water to council-owned retail distribution businesses and power stations.

Seqwater supplies water from dams, weirs and borefi elds; and is responsible for the catchment, treatment and storage of bulk water for the SEQ Water Grid Manager.

WaterSecure supplies water from the Gold Coast Desalination Plant and the Western Corridor Recycled Water Scheme to the SEQ Water Grid Manager.

LinkWater moves drinking water from treatment plants and reservoirs through bulk pipelines and into the distribution networks, for the SEQ Water Grid Manager.

State-owned statutory authorities

Legend

Contractual transaction

Water and wastewater distribution/retail

Water storage and treatment

Recycling/desalination

Bulk water transport

SEQ Water Grid Manager

Customer – households and businesses

Water supply

Council-owned authorities

This is the distribution and retail business for Brisbane, Scenic Rim, Ipswich, Somerset and Lockyer Valley areas. Queensland Urban Utilities sells and delivers drinking water to customers and collects, transports and treats wastewater and sewage.

This is the distribution and retail business for Sunshine Coast and Moreton Bay areas. Unity Water sells and delivers drinking water to customers and collects, transports and treats wastewater and sewage.

This is the distribution and retail business for Gold Coast, Logan and Redlands areas. Allconnex Water sells and delivers drinking water to customers and collects, transports and treats wastewater and sewage.

Customer − households and businesses

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The SEQ Water Grid Manager uses a balanced scorecard approach to advance its strategy, combining management and measurement into an integrated quality process – measure, manage, improve and re-measure.

The balanced scorecard has a full range of efficiency and effectiveness measures. This enables assessment of indicators such as relevance of our services, operational efficiency, customer and stakeholder satisfaction and innovation and capability.

As the primary tool used to inform the SEQ Water Grid Manager Board (Board) on performance, the balanced scorecard is also essential in enabling our Executive Management Group to identify areas where resources should be focused.

Operational performance

Using the balanced scorecard approach, we have translated our vision and strategy into a comprehensive set of performance measures built on four priority areas:

� provision of water security

� operational efficiency

� customer and stakeholder satisfaction

� innovative and capable culture and systems.

The deliverables of these priority areas are essential for our core business. We are committed to monitoring and measuring our performance against these four priority areas that make up our balanced scorecard.

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The balanced scorecard provides a consistent measure of our success in meeting all strategic goals.

How efficiently does the organisation operate?

How can the organisation sustain its ability to change

and improve?

Corporate scorecard

How do customers and stakeholders see the Water Grid Manager?

What must the organisation excel at?

Mission strategy

Customers and stakeholders• Build and maintain strong

stakeholder and Grid Customer relationships.

• Understand stakeholder and Grid Customer needs to deliver professional water services.

• Proactive management of incidents and issues.

Provision of water security• Deliver water security

and system reliability by complying with the Market Rules, System Operating Plan and legislative/regulatory requirements to meet water security objectives.

• Water sold meets contractual standards.

• Manage Water Grid risk.

Operational efficiency• Manage Water Grid and Water

Grid Manager operating budget.

• Downward pressure on Water Grid short run operational costs.

• Optimise Water Grid system performance standards.

• Manage Water Grid debt profile.

Innovative and capable culture and systems• Implement technological

solutions to enable efficiencies for the Water Grid Manager’s management of the Water Grid and sharing of information.

• Ensure organisational wellbeing.• Quality assurance and

corporate governance.• Whole-of-Grid capability

strengthened.

Individual scorecard

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Priority area 1 Provision of water security

Our goals and objectivesWater security is our core business. Our objective is to effectively and efficiently operate the SEQ Water Grid to provide water security for the South East Queensland region. We must also ensure the water we sell meets the values set by the Australian Drinking Water Guidelines 2004. We constantly aim to proactively identify, manage and mitigate key operational risks and we strive to optimise the operation of the SEQ Water Grid to achieve defined performance standards and service levels to minimise the likelihood for the need to introduce water restrictions in the future.

For 2009–10, our key objective was to facilitate an efficient supply chain and enable our operations to move from a focus of maximising water security to also taking into account cost, flexibility and system reliability. We also focused on implementing open and transparent water quality monitoring and data sharing with the community.

Our activitiesWe deliver water security through:

� strategically directing the operation of the SEQ Water Grid

� performing all our obligations under the Market Rules and Grid Contract Documents

� administering and enforcing Grid Contract Documents entered into with Grid Participants

� managing the implementation and evaluation of the SEQ Water Grid Quality Management Plan and the SEQ Water Grid Quality Monitoring Plan in accordance with the Market Rules

� implementing and evaluating the Risk Management Plan

� implementing, managing, testing and evaluating the SEQ Water Grid Emergency Response Plan

� developing an optimisation model for SEQ Water Grid operations

� preparing SEQ Water Grid Performance Standards and the monthly Customer Confidence Report (Bulk Water).

Performance highlightsWe supplied 286,713 megalitres of water to our customers in 2009 –10. This included over:

� 23,000 megalitres via the Gold Coast Desalination Plant to the Gold Coast and Brisbane regions

� 14,800 megalitres via the Western Corridor Recycled Water Scheme to power stations

� 11,300 megalitres via the Northern Pipeline Interconnector from the Sunshine Coast region to the Brisbane region

� 20,200 megalitres via the Southern Regional Water Pipeline from the Gold Coast region to the Brisbane region

� 2,300 megalitres via the Eastern Pipeline Interconnector from the Redland region to the Brisbane region.

We issued Grid Instructions for the production of 242,343 megalitres of treated water from 35 individual water treatment plants, over 14,800 megalitres of purified recycled water, and directed over 33,800 megalitres of drinking water transfers to optimise regional water security.

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We prepared the first interim Operating Strategy, establishing how we will operate the SEQ Water Grid over the next 12 months and submitted it to the Rules Administrator for approval in May 2010.

We prepared SEQ Water Grid Performance Standards in consultation with Grid Participants, setting targets for the efficient operation of the SEQ Water Grid. These were approved by the Rules Administrator in May 2010.

We met all statutory deadlines for the submission of reports, plans and Grid Instructions.

We effectively managed any incidents that arose during the year.

Note 1: The Risk Management Plan was lodged with the Rules Administrator but had not been approved as at 30 June 2010.

Activities 2009–10 Key performance indicators Achieved

Strategic operation of the SEQ Water Grid

Reporting timeframes in the System Operating Plan, Market Rules and other legislative requirements met

Water security obligations met

Water quality management

Customer water quality contract parameters complied with

Grid Participant drinking water quality management plans reviewed and updated

South East Queensland bulk water quality results reported monthly

Risk management and emergency response

Risk Management Plan implemented by all Grid Participants x1

SEQ Water Grid Emergency Response Plan reviewed and updated

SEQ Water Grid Emergency Response Plan test exercise completed

Performance standards optimisation

SEQ Water Grid Performance Standards completed and approved

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Our performance

FocusDuring 2009–10, we changed our focus of operation from maximising security of supply to also taking into account cost, flexibility and system reliability. This required a concerted effort to identify measures to reduce the operational costs of the SEQ Water Grid, while still ensuring our supply obligations were achieved. As part of this, we commenced and completed a number of plans, investigations and reviews to optimise the SEQ Water Grid’s performance, achieving better than forecast operational outcomes.

ComplianceWe met our reporting requirements within the required timeframes, including those under the System Operating Plan, Market Rules and the National Water Initiative. Compliance achievements included:

� developing and submitting SEQ Water Grid Performance Standards to the Rules Administrator

� developing and submitting the annual Market Rules review to the Rules Administrator

� issuing all Grid Instructions

� submitting quarterly reports, required by the System Operating Plan, to the Queensland Water Commission within the required timeframes.

Water securityThe Enoggera Water Treatment Plant was brought online this year, adding more than 1,000 megalitres per annum to the SEQ Water Grid’s total capacity. The transfer capacity of the SEQ Water Grid’s interconnecting pipelines remained at 65,000 megalitres per annum. The construction of a new pipeline from Wivenhoe Dam to the Toowoomba region provided for the transfer of bulk water supplies to Cressbrook Dam. While this pipeline does not form part of the SEQ Water Grid, the Toowoomba Regional Council is an important customer to our organisation and demonstrates the flexibility of the SEQ Water Grid to assist neighbouring regions.

Grid Instructions are the lever we operate to give practical effect to our management role, and direct water transfers, to ensure optimal use of all water sources. Since 1 December 2009, Grid Instructions focused on achieving the efficient operation of the SEQ Water Grid.

This was a change from our first year of operation, during which dam levels were still relatively low and the focus was on achieving regional water security.

This year, in line with the cost effective operational mode, we sought to reduce the use of the higher cost water sources, including pumped regional transfers and the Gold Coast Desalination Plant. Where possible, the use of higher cost water treatment plants was also minimised if suitable supplies could be sourced from other areas. The Grid Service Providers are required to maintain their assets in an operable state and have them available when needed, to contribute to ensuring the region’s ongoing water security.

Operating the SEQ Water GridThe System Operating Plan establishes the maximum volume of water that we can contract in any one year. Based on this, we determine the sequence, quantity and choice of water source on a rolling monthly program, and issue Grid Instructions to the bulk water entities who own and operate the individual SEQ Water Grid assets. In 2009–10, the System Operating Plan allowed us to sell a maximum of 450,000 megalitres.

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Total sales for the year were 286,713 megalitres while demand was forecast to be 274,106 megalitres. The SEQ Water Grid is designed to ensure that daily

demand for water is met, while not breaching the System Operating Plan requirements. Throughout the year, the average variance between forecast demand and actual sales

was only 4.3 per cent. Table 1 shows the comparison by month, between our total water sales and our demand forecasts.

Table 1: Water sales versus demand forecasts by month

Jul 09 Aug 09 Sept 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10

5000

10000

15000

20000

25000

30000

meg

alit

res

Total sales Forecast

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Water qualityThe first SEQ Water Grid Quality Management Plan was approved on 6 November 2009. This Plan aims to ensure water quality standards and parameters are met across the SEQ Water Grid. An updated Plan will be submitted to the Rules Administrator in November 2010 for approval.

The whole-of-Grid Water Quality Technical Committee was expanded into two separate committees in 2009–10; namely the SEQ Water Grid Water Quality Technical Committee to review the outcomes of water quality testing and incident response; and the Drinking Water Quality Management Plan Technical Committee to review the management of water quality across all Grid Participants.

Key achievements for the SEQ Water Grid Water Quality Technical Committee included:

� organising an intra-Water Grid water quality information sharing arrangement

� organising a whole-of-Grid chlorate investigation for input into the review of the Australian Drinking Water Guidelines 2010

� assisting with the review of the draft Australian Drinking Water Guidelines 2010.

Key achievements for the Drinking Water Quality Management Plan Technical Committee included facilitating the alignment of Grid Participant drinking water quality management plans and the SEQ Water Grid Quality Management Plan.

Since February 2010, we have released the monthly Customer Confidence Report (Bulk Water), providing the most comprehensive, publicly available, drinking water quality reporting program for bulk water supply in Australia. The monthly reports focus on various health, taste and clarity parameters within the bulk water supply chain from key locations within the SEQ Water Grid.

This Report provides test results from nationally accredited laboratories of samples taken from 19 sampling sites across the SEQ Water Grid. This collectively represents approximately 80 per cent of the water supplied through the SEQ Water Grid. The Customer Confidence Report (Bulk Water) details:

� results of testing against key water quality parameters

� results for the previous month

� performance over the previous 12 months.

The following parameters are tested and reported on.

Health (potential impact on public health):

� copper

� E. coli

� fluoride

� lead

� manganese

� total trihalomethanes.

Aesthetic (impact on taste and clarity of the water):

� alkalinity

� aluminium

� hardness

� iron

� pH

� total dissolved solids

� true colour

� turbidity.

Every month across the SEQ Water Grid, over 18,500 laboratory tests are completed to make sure our drinking water supplies are safe. In addition, the Grid Service Providers also conduct online water quality monitoring across the whole region. This comprehensive testing program helps us to ensure our bulk water supply is safe.

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Risk managementRisk mitigation was one of the guiding principles behind the water reform in South East Queensland. These reforms involved grouping entities’ common asset types and functional processes. This enables the concentration of operational skills and experience within each entity, and increased organisational focus on the risks associated with each specific asset type and function.

As our organisation is charged with managing the SEQ Water Grid, we are responsible for:

� coordinating whole-of-Grid risk assessment, business continuity, security risk and emergency response planning

� the SEQ Water Grid Risk Register

� the Risk Management Plan

� the SEQ Water Grid Emergency Response Plan

� the SEQ Water Grid Business Continuity Plan

� facilitating engagement with State and Federal entities for risk management and critical infrastructure protection guidelines

� communicating whole-of-Grid risk issues and treatment measures to Grid Participants.

This year, we prepared and submitted the Risk Management Plan to the Rules Administrator. This Plan was required under the Market Rules and provides the foundations and organisational arrangements for the management of risk across the SEQ Water Grid. We also completed and implemented the interim SEQ Water Grid Emergency Response Plan. As at 30 June 2010, this Plan was in the final stages of completion, prior to being approved by the Minister for Natural Resources, Mines and Energy and Minister for Trade.

Risk Management Plan

The core purpose of the Risk Management Plan is to enhance the resilience of the SEQ Water Grid by strategically integrating preventative monitoring and contingent controls across its operations. This ensures the ability to prevent, prepare, respond and recover from strategic and operational risks that threaten the SEQ Water Grid’s ability to deliver a secure water supply for South East Queensland.

The Risk Management Plan addresses the essential areas of:

� strategic and operational business risk management

� business continuity planning

� critical infrastructure security

� emergency response planning.

These functions are facilitated by, and directed at, the four key functional components of the SEQ Water Grid: people, processes, systems and assets — as illustrated in Figure 1.

This year, we have achieved exceptional results in the area of water quality management. We have:

� successfully used the flexibility of the SEQ Water Grid to manage aesthetic (taste, colour and odour) water quality issues with little or no impact on customers

� delivered new levels of water quality reporting and set new industry standards through the implementation of the monthly Customer Confidence Report (Bulk Water)

� achieved compliance through stronger contractual and water quality management planning.

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Figure 1: SEQ Water Grid Risk Management Framework

Whole-of-Gridrisk management

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SEQ Water Grid Emergency Response PlanThis year, following extensive consultation with all our stakeholders, including Grid Participants, Queensland Health and Emergency Management Queensland, we updated the SEQ Water Grid Emergency Response Plan.

The updated Plan was extensively tested under the Exercise Matrix, a 48 hour emergency response exercise involving all State-owned SEQ Water Grid entities and two major council distributor-retailers (Brisbane Water and Gold Coast Water). The response during the exercise was assessed by an independent emergency management company who advised that the interim SEQ Water Grid Emergency Response Plan was appropriate for adoption. A range of measures to further enhance the Plan, and support our responses under the Plan, were also recommended. A revised Plan will be submitted to the Minister for approval in 2010–11.

As we are not the owner, operator or maintainer of any infrastructure, managing on-the-ground responses to incidents is not part of our day-to-day operational responsibilities. However, when an incident classed as Level 3 or above occurs, we lead the coordination and strategic

operational response to the issue, particularly in relation to gathering appropriate information for communication purposes and issuing Grid Instructions to manage water flows as required.

Outlook for 2010–11 In 2010–11, the SEQ Water Grid Quality Management Plan will be updated based on requirements specified by the Rules Administrator and the Office of the Water Supply Regulator, Department of Environment and Resource Management. The updated Plan will support continued improvement of water quality management across the SEQ Water Grid.

This Plan will be integrated with the drinking water quality management plans that are being prepared for specific assets by the entities that own and operate them. For example, it will specify how the entities will interact with each other and our organisation if there is a water quality incident or if there are any current or emerging water quality issues. The Plan will also outline and initiate a Coordinated Improvement Plan across the SEQ Water Grid. For example, it will include an action to undertake a study into disinfection options for the SEQ Water Grid with the aim of

making disinfection processes more standardised and cost effective.

We will continue to report to the public on water quality through the monthly Customer Confidence Report (Bulk Water).

Operating StrategyWe will continue to review and refine the Operating Strategy in 2010–11. This will include providing a more detailed framework for the optimal operation of the SEQ Water Grid, given current dam levels. Key issues that will be addressed as part of the optimisation include cost, water quality and energy use. The Operating Strategy will be integrated with the updated SEQ Water Grid Quality Management Plan. The Operating Strategy will continue to be used to develop monthly Grid Instructions.

As an input to the Operating Strategy, an even more sophisticated optimisation and modelling approach for the management of the SEQ Water Grid will be developed. This approach will provide tools and processes to further improve the efficiency and effectiveness of whole-of-Grid operations, taking into account long-term water security, water quality and cost considerations.

Under our SEQ Water Grid Emergency Response Plan, incidents are rated as Level 1 to 5 based on the impact and potential outcomes of each. A Level 3 or above incident generally involves more than one Grid Participant and requires a public interface.

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An inherent part of the SEQ Water Grid’s value, is the flexibility it provides by enabling supply to be managed and blended to address aesthetic water quality issues—issues that affect the taste, colour and odour of the water — but do not pose a risk to health.

When a water quality issue is identified in a particular supply area, we issue Grid Instructions to reduce the flow of the affected supply and redirect unaffected flows to that area. This allows the affected water to ‘mix’ with a larger volume of unaffected water, thereby diluting any taste, colour or odour impacts.

This flexibility has enabled us to better manage the quality of supplies to customers, within expected parameters, and has significantly reduced the volume and duration of complaints in relation to these types of issues.

Managing aesthetic water quality

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Priority area 2 Operational efficiency

Our goals and objectivesOur objective is to provide water security in the most efficient and cost effective manner possible.

During 2009–10, our key objective was to deliver operational efficiency through understanding the cost drivers of the SEQ Water Grid and using this information to optimise the cost of its operations. Further, we committed to managing our organisational budget and identified actions to improve our bottom line.

Our activitiesWe achieve operational efficiency through:

� matching supply to demand

� using lower cost supply options wherever possible

� investigating options to place smaller water treatment plants in standby mode

� investigating cost drivers and areas of efficiency within the SEQ Water Grid

� optimising energy management in collaboration with Grid Participants

� investigating and obtaining new water customers for different sources of water

� considering possible incentive regimes through new water supply contracts

� monitoring how the SEQ Water Market performed and assessing areas for improvement

� managing our debt profile through forecasting debt and working capital profiles and identifying opportunities to improve utilisation of existing debt facilities

� managing and monitoring our operating budget.

Performance highlightsWe commenced operating in cost effective operational mode on 1 December 2009, when permanent water conservation measures were introduced to South East Queensland. Since then, we have issued Grid Instructions that have saved up to $2.5 million per month in SEQ Water Grid operational costs compared to the operation of the SEQ Water Grid at capacity. This saving relates to the comparison of operating the SEQ Water Grid under water security mode compared to the cost of operating the SEQ Water Grid under cost effective operational mode.

During 2009–10, we sold 286,713 megalitres of water at $352,639 million. We achieved above budget sales figures and below budget expenses, resulting in a financial position that is 48 per cent better than budget. We managed our borrowings to $354.5 million, well under the approved total through the State Borrowing Program of $550 million.

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Activities 2009–10 Key performance indicators Achieved

Operational budget management

Maintain our expenditure within approved budgets

Maintain variance between forecast and actual customer demand within target levels (+/- 20%)

Activity based operational costing

Exchange of information between us and Grid Service Providers in relation to operational costs

Electricity Optimisation Study completed

Optimised performance and level of service

SEQ Water Grid Performance Model completed

SEQ Water Grid Performance Standards published within required timeframes

SEQ Water Grid debt profile management

SEQ Water Grid interest expense lower than budgeted

Our performance

FocusOur focus in 2009–10 was to use the data gathered during our inaugural year of operation to analyse the operation of the SEQ Water Grid and identify potential measures to reduce overall costs.

We further developed our processes, standards, guidelines and systems as part of our commitment to

continuous improvement of our organisation’s operation and that of the SEQ Water Grid.

We also worked collaboratively with Grid Participants to build a unified understanding of the SEQ Water Grid and each Grid Participant’s role within it. Areas of potential operational overlap were identified and actions put in place to consolidate these operations to provide improved whole-of-Grid efficiency.

Financial resultsRevenue from the sale of water was 3.31 per cent over budget ($352,639 million versus a budget of $341,353 million), due mainly to the easing of water restrictions and the increased demand this generated. This resulted in the sale of 286,713 megalitres of water compared with a forecast amount of 274,106 megalitres.

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The strong culture of water saving generated within the community during the drought continued even with the lifting of the restrictions. The average water consumption across the region was around 153 litres per person per day, well under the established target of 200 litres per person per day. During times of water restrictions, the average water consumption across the region was well under the target of 140 litres per person per day.

Additional bulk water sales were generated by Toowoomba Regional Council becoming a Grid Customer at the end of January 2010, adding 2,705 megalitres in sales to our revenue stream.

Expenses for the purchase of bulk water services were below that initially forecast by the bulk water entities ($658,013 million versus a budget of $848,166 million).

Our employee expenses were $1 million under budget due to lower than anticipated full-time equivalent employee requirements and the prudent use of contract staff for specific projects.

In conjunction with the Queensland Treasury Corporation, we explored options to effectively manage our debt and reduce our debt financing costs. This included long-term borrowing initiatives when interest rates were low. As a result of this, and the lower than anticipated expense requirements reducing the need for drawdown on approved funding, interest expenses for 2009–10 were also $11,211 million under budget.

The Queensland Government has confirmed its continued financial support of our organisation, through the provision of access to debt funding. This access to debt funding will allow us to continue to fund the immediate pricing differential between the bulk water price path and the full cost of the provision of services, until such time as the bulk water price path is fully implemented. This commitment remained in place for the 2009 –10 financial year and will continue over the duration of the pricing period.

Optimised performanceSystems and processes introduced this year to build consistent data parameters resulted in improved cost data being received from the bulk water supply entities. This enabled more effective formulation of Grid Instructions while operating the SEQ Water Grid to balance water security, water quality and system reliability objectives.

We implemented a program of monitoring to ensure we comply with the Market Rules, legislation and contract requirements. This program is monitored monthly and reported on each quarter to the Board’s Audit and Risk Management Committee.

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Stage one of our Cost Optimisation Project was completed. This involved development of a model to enable us to consider optimised operating scenarios and to select the most efficient for implementation. Stage two will be implemented in 2010–11.

We completed an Electricity Optimisation Study, identifying potential opportunities for cost savings which will be targeted in 2010–11.

Monitoring the SEQ Water MarketDuring the year, we prepared our first annual Market Rules Review Report. Required under the Market Rules, this Report provided us with an opportunity to assess the operations of the SEQ Water Market and report activity and opportunities for refinement to the Queensland Water Commission. The Report, completed in October 2009, made a number of recommendations that have been incorporated into the new version of the Market Rules, published on 1 July 2010.

Outlook for 2010–11 In 2010–11, we will partner with Queensland Treasury and the Queensland Treasury Corporation to further implement effective strategies to manage our interest rate risk. We will also work with the Queensland Water Commission to enhance the accuracy of our medium-term operational forecasts, allowing us to better manage our debt profile.

We will continue to operate the SEQ Water Grid in the cost effective operational mode until rainfall conditions require a shift back to the water security mode.

Review of the findings of the Electricity Optimisation Study will be completed and key recommendations implemented.

We will also investigate future revenue sources through attracting new wholesale water customers.

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Water treatment and transfer can be an energy intensive activity, due to the power requirements of water treatment plants and pump stations that push the water through the network of distribution pipelines. We undertook an Electricity Optimisation Study which identified the potential for operational cost savings among the Grid Service Providers.

These opportunities will be targeted in 2010 –11.

Electricity optimisation

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Priority area 3 Customer and stakeholder satisfaction

Our goals and objectivesThe SEQ Water Grid Manager’s goal is to be an effective and efficient strategic operator of the SEQ Water Grid. To do this we must deliver value to our customers and stakeholders. We must build and maintain strong relationships and effectively engage with our customers and stakeholders while understanding and, to the extent possible, exceeding their expectations. We must proactively manage incidents and issues.

In 2009–10, our key objective was to take a strategic leadership role in coordinating consistent communications regarding the operation of the SEQ Water Grid.

Our activitiesWe deliver customer and stakeholder satisfaction through:

� understanding the needs of our customers and their customers (water users) to better refine and deliver bulk water services

� implementing an internet portal accessible to all Grid Participants to share information

� implementing, monitoring and evaluating our organisation’s Communication Strategy

� negotiating and resolving Grid Contract issues between our organisation and Grid Participants

� implementing a full contracts management system

� implementing, monitoring and evaluating our organisation’s Customer and Stakeholder Engagement Plan

� managing incidents and operational issues to minimise the impact on our customers and stakeholders, and on the reputation of the SEQ Water Grid.

Performance highlightsIn conjunction with the Grid Service Providers, we successfully established the SEQ Water Grid Communications Unit to improve the timeliness and consistency of communications.

In collaboration with the Grid Service Providers, we developed communications about the operation of the SEQ Water Grid as a whole.

We introduced Product Quality Notifications, Q&As and fact sheets to inform our customers in times of water incidents.

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Our performance

SEQ Water Grid Communications UnitThis year saw the establishment of the SEQ Water Grid Communications Unit. This Unit aims to provide a consolidated approach to SEQ Water Grid communications, providing ‘one voice’ for all SEQ Water Grid communications. We led the development of the SEQ Water Grid Communications Unit, collaborating with the Grid Service Providers; Seqwater, WaterSecure and LinkWater.

Activities 2009–10 Key performance indicators Achieved

Stakeholder and customer relationship management

Customer and Stakeholder Engagement Plan completed

Grid Participant information sharing portal developed and trialled

Primary customers and stakeholders provide positive feedback on our stakeholder engagement strategy and methods

Contracts management Stakeholder workshops attended

Contractual issues negotiated with customers within required timeframes

Contract meetings held with each customer twice a year

Customer satisfaction Customers provide positive feedback on service, role and responsiveness

Reputation management Media coverage received in response to incidents is balanced

The new SEQ Water Grid Communications Unit will be the single point of contact for communications on the following issues relating to the operation of the SEQ Water Grid:

� dam levels in South East Queensland

� movement of water across the SEQ Water Grid

� quality of bulk water in South East Queensland

� operation of the Gold Coast Desalination Plant

� operation of the Western Corridor Recycled Water Scheme

� environmental performance of the SEQ Water Grid

� recreational use of dams and surrounding land

� emergency events and status.

As part of this shift to consolidating the whole-of-Grid communications efforts, we also commenced development of the SEQ Water Grid Communications Plan, which will provide direction for whole-of-Grid corporate communications. This Plan will take effect in 2010–11.

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Corporate communicationsThis year we initiated our first customer feedback survey, receiving positive results, particularly in relation to the accuracy and relevance of information provided in response to customer enquiries. This included information on the ease of contacting the most appropriate person within our organisation. Areas of improvement related to the timeliness of responses and the proactive management of whole-of-Grid issues.

A communications library of pre-prepared materials was developed, including Product Quality Notifications, Q&As and fact sheets, to support our response to incidents and emergencies under the SEQ Water Grid Emergency Response Plan. These included topics such as:

� conductivity and total dissolved solids

� colour and taste of water

� E. coli

� fluoride

� hardness

� metals

� pH and alkalinity

� taste and odour

� total trihalomethanes

� turbidity.

We also participated in a whole-of-Grid exhibition and promoted the SEQ Water Grid at OzWater ‘10, the largest water industry conference in Australia, held in Brisbane, March 2010.

Customer service and stakeholder engagementCustomer and stakeholder relations are an integral part of our business. We are focused on becoming a customer-centric business and our success will be measured through recognition of the value of our role by our customers and stakeholders. To achieve this recognition we have developed a dedicated Customer and Stakeholder Engagement Plan to provide a coordinated approach to building awareness and confidence in the performance of our organisation among our customers and stakeholders.

To improve our customers’ and stakeholders’ knowledge of how the SEQ Water Grid is managed and operated, we developed and delivered ‘SEQ Water Grid 101’ sessions. Approximately 25 participants attended across two sessions. Another four sessions are planned for 2010–11.

As the transition of the water industry into the new arrangements continued in 2009–10, we built relationships with and provided information to the three new SEQ Distributor-Retailer entities that commenced formal operation from 1 July 2010. This included providing copies of our fact sheets and Q&A documentation, as well as Product Quality Notifications to provide advice on water quality issues as they were identified. Compliance sessions were held with all three SEQ Distributor-Retailer entities to inform them of their reporting requirements to our organisation. We also held contract meetings facilitated by the Queensland Water Commission and customer service meetings as part of our regular engagement with our stakeholders.

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Media relationsA media schedule was developed in 2009–10 to guide the placement of media articles in industry publications. Several articles were placed this year, including:

� ‘Risk management as key to Australia’s largest urban drought response’ – Risk Management Magazine, April 2010. This article was based on our Chief Executive Officer, Barry Dennien’s presentation of the SEQ Water Grid’s risk management methodology at the Queensland Chapter of the Risk Management Institution of Australasia.

� ‘SEQ Water Grid strategy for skills formation’ Australian Water Association’s Water Magazine. This article was on our Organisational Change and Capability Development Manager, Sean Rhode’s, OzWater ‘10 presentation on the Skills Formation Strategy.

� ‘SEQ Water Grid Manager’ Australian Water Association’s Water Magazine. This article was on our business and the Customer Confidence Report (Bulk Water).

We continued to manage ongoing reactive media enquiries across a range of issues.

IncidentsWe successfully managed the media and communications components as part of our overall management of SEQ Water Grid incidents this year. Of note was the 2-methylisoborneol (MIB) and geosmin level in the water supply in March–April 2010. During this incident, which represented no risk to public health, we coordinated media responses while ensuring appropriate customer notification of the issues and the safety of the drinking water supply.

We participated in Exercise Matrix, a mock emergency response exercise, providing communication support in accordance with the SEQ Water Grid Emergency Response Plan. This identified a number of measures to be taken to improve communication support in emergency situations and led directly to the formation of the SEQ Water Grid Communications Unit, the Product Quality Notifications system and the establishment of a 24/7 on-call communications person.

Outlook for 2010–11 2010–11 will see a concerted effort to communicate and promote the SEQ Water Grid to stakeholders and the community. The aim of this communication will be to increase the understanding of the SEQ Water Grid, its function and management, to ensure enquiries are channelled to the correct entities and the benefits of the SEQ Water Grid become widely known and recognised. This will include a public education program as well as corporate communications.

Moving forward, the formation of the SEQ Water Grid Communications Unit will be finalised, with key positions filled, the SEQ Water Grid Communications Plan completed and the systems and processes identified as a result of Exercise Matrix implemented.

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Product Quality Notifications are issued to our customers (SEQ Distributor-Retailer entities) when there is a water quality incident that is defined as Level 3 or above under the SEQ Water Grid Emergency Response Plan. This Notification informs the customer of the incident, if it is an aesthetic (affects taste, colour or odour of the water) or a public health issue, when we became aware of it, what is being done to address the cause and what the customer is required to do.

It is distributed to customers with an information sheet on the specific incident, so they can communicate the required information and messages to the consumers of the water.

Product Quality Notifications

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Priority area 4 Innovative and capable culture and systems

Our goals and objectivesThe SEQ Water Grid Manager’s people, culture and systems underpin its operational performance. We aim to develop, implement and evaluate technological solutions to ensure we are efficient and maintain a highly engaged, motivated, empowered, healthy and skilled workforce. We need to implement and monitor our Quality Assurance Framework to ensure compliance with legislative, regulatory and corporate governance requirements and to improve our organisational capacity.

In 2009–10, our key objective was to continue embedding the mission of our organisation and values important to our staff. Further, we committed to facilitating, in collaboration with our partners, improvements in technology to provide efficiencies and deliver a more effective service to our customers.

Our activitiesWe achieve innovative and capable culture and systems through:

� developing an Information, Communication and Technology Strategy

� implementing a Performance Management Framework that aligns individual performance to the strategic and operational plans and balanced scorecard outcomes

� developing, implementing, monitoring and evaluating staff leadership skills and a development program

� implementing a quality assurance process to receive ISO 9001 accreditation

� facilitating implementation, monitoring and evaluation of a whole-of-Grid Workforce Planning and Capability Development Strategy

� reviewing the capacity and capability of laboratory services in South East Queensland for water quality assessments

� building whole-of-Grid knowledge through information sharing protocols.

Performance highlightsWe redesigned our organisational structure to enhance performance and service delivery.

We planned the implementation of a more efficiently managed desktop and network services arrangement to provide improved day-to-day technology support to our people.

We prepared the Technology Strategy and the Skills Formation Strategy.

We received AS/NZS ISO 9001: 2008 certification on 10 July 2009.

We completed and released the South East Queensland Laboratory Capacity and Capability Study.

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A new managed desktop and network services arrangement was also developed to improve day-to-day technology support for our people, including a new computer help desk and telephone support services. This initiative will increase productivity by providing reliable external access to our organisation’s information technology network, reducing ‘down time’ and operating costs.

Culture and peopleOur people are critical to our organisation’s success. Alignment of their values, needs, skills and aspirations to the organisation’s strategic and operational aspects will drive a culture of achievement and commitment to organisational objectives.

Our performance

Information technologyIn 2009 –10, we developed three draft technological documents to improve whole-of-Grid operational efficiency. These were the:

� Technology Strategy

� SEQ Water Grid Enterprise Architecture

� SEQ Water Grid Manager Enterprise Architecture.

We are currently consulting with all Grid Participants on the finalisation and implementation of these documents.

In 2009–10, our organisation’s values were refined and redeveloped in collaboration with our staff for review and approval by our Board.

We completed performance plans for all staff, aligning each person’s individual role, responsibilities and training plans to the organisation’s strategic and operational plans.

The organisational structure was redesigned to enhance performance and service delivery by adding a Risk and Technology Unit and consolidating the communication teams of each of the bulk water entities into a single SEQ Water Grid Communications Unit.

Activities 2009–10 Key performance indicators Achieved

Information, Communication and Technology Strategy

Technology options reviewed and solutions implemented

Team culture and development

Cascading balanced scorecard implemented

Individual staff performance plans developed

Leadership Development Program and other staff training initiatives implemented

(Note 1)

Quality assurance AS/NZS ISO 9001:2008 certification received

Capability planning Our Workforce Capability Development Plan implemented

South East Queensland Laboratory Capacity and Capability Study completed

Note 1: However, our June 2010 staff survey results identified the request for further staff development and training initiatives. This will be further progrssed in 2010 –11.

‘ Because we are the first Water Grid of our kind in the world, we are setting the standard and leading the way. We have space to be innovative and bold – and that is an exciting place to be.’

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Quality assurance and governanceWe successfully achieved a key objective of our strategic and operational plans at the beginning of the year, when we received AS/NZS ISO 9001:2008 accreditation for our quality assurance processes.

A number of new initiatives or enhanced processes, aimed at achieving effective corporate governance, were developed and introduced, including:

� Enhanced assessment and monitoring of the organisation’s financial risk in conjunction with the Queensland Treasury Corporation.

This includes the introduction of new debt reduction initiatives focused on forward borrowing to lock in access to funding, and favourable interest rates and cash flow management to reduce drawdowns on loan funding.

� Introduction of a document disposal and retention scheme to ensure we maintain our records in accordance with relevant legislation.

� Implementation of a new Audit Register to effectively track and monitor compliance with internal and external audit recommendations. The Audit Register operates as part of our

Risk Register and is reviewed and monitored until each audit recommendation is completed. Progress reports are provided quarterly to the Audit and Risk Management Committee.

� Implementation of our organisational SEQ Water Grid Risk Management Framework (Risk Management Framework) including monitoring and reporting on our risk mitigation strategies to the Board.

� Introduction of a Compliance Register, which assists us in managing our legislative and regulatory requirements.

Our organisation is proud to have three graduates as part of our team, contributing to the secure and efficient management and delivery of South East Queensland’s water supplies.

A well-documented issue of skills shortages is an emerging risk for the Australian water industry. The effects of a diminishing labour supply require a concerted effort and investment in the attraction, recruitment, development and retention of young, highly-skilled workers.

We are currently establishing a whole-of-Grid Skills Formation Strategy, to further attract workers to the sector and promote the development of industry practice, education and training offerings.

Graduates bring fresh perspective to water industry

Kim Marshall – Graduate AccountantChris Owens – Graduate

Water Quality Officer

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Whole-of-Grid capabilityEnhancing the capability of the SEQ Water Grid is critical to an efficient, cost effective future. A common vision, aligned goals and coordinated systems and processes are critical to achieving this. Some of the actions implemented to enhance this capability are detailed below:

� Hosting the Vision 2020 workshop to establish a 10 year operating vision for the SEQ Water Grid with the Chief Executives and Chairs of the Grid Service Providers. Key outcomes from this workshop included a confirmed commitment to a whole-of-Grid Information, Communication and Technology Strategy and Workforce Plan to improve the overall efficiency of the SEQ Water Grid operation.

� A study into the capacity and capability of laboratory services in South East Queensland to identify potential issues around future access to these services and to ensure quality assurance requirements are met.

In addition, the SEQ Water Grid CEOs’ Forum approved Phase one of the Skills Formation Strategy, analysing the current workforce skills and demographic profile of SEQ Water Grid entities and identifying the factors impacting skills requirements over the next five years. Commencement of Phase two of this Strategy was also approved. This second phase will focus on preparation of a Workforce and Capability Development Plan, involving the development of standard roles with core competencies, supported by TAFE and university courses to deliver nationally recognised training courses.

Outlook for 2010–11 As part of our ongoing focus on implementing whole-of-Grid technology outcomes, we will implement the SEQ Water Grid Emergency Management Information and Communication Technology Solution, and the SEQ Water Grid Governance, Risk and Compliance Information and Communication Technology Solution.

We will also commence the phased implementation of the Technology Strategy.

A Capability Framework for our functional areas and business will be developed and we will standardise our work practices and operating procedures within our Quality Assurance Framework.

Phase two of the Skills Formation Strategy will commence to support building the capacity and resilience of the SEQ Water Grid. Phase two will focus on the preparation of a Workforce and Capability Development Plan, involving the establishment of an ongoing workforce planning and development model, identification of whole-of-Grid Occupational Pathways and a Competency Framework. During this phase we will commence the design of the skills development initiatives including contemporary training modules in common competency areas, and a SEQ Water Grid Graduate Development Program. Some of these initiatives will be aligned to nationally recognised qualifications with the aim of delivering them in partnership with the higher education and vocational education and training sector. A SEQ Water Grid careers marketing and promotional campaign will also be initiated.

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A South East Queensland Laboratory Capacity and Capability Study was completed in 2009–10, involving a review of 13 Grid Participant organisations, 21 laboratories and 68 different types of water quality tests.

This Study found current routine laboratory testing demand is about one third of the maximum available capacity and that testing requirements over the next one to three years would rise by approximately 20 per cent. Thus, routine water quality testing demand can be catered for within existing laboratory capacity. However, microbiological testing capacity was found to be the most limited, with only 17 per cent spare capacity.

The Study recommended that Grid Participants procure laboratory services under contractual arrangements with associated service level agreements to ensure adequate response to testing needs. It also recommended that Government-owned laboratories consider rationalising their services to address staffing issues and improve knowledge sharing opportunities.

Laboratory Capacity and Capability Study

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The SEQ Water Grid Manager is a statutory authority established under the South East Queensland Water (Restructuring) Act 2007. It is governed by a Board of Directors reporting to Ministers of the Queensland Government.

In 2009–10, the responsible Ministers were:

� the Treasurer and Minister for Employment and Economic Development

� the Minister for Natural Resources, Mines and Energy and Minister for Trade.

We prepared a five year Strategic Plan and an annual Operational Plan reflecting our strategic direction and business priorities. These plans serve as a performance contract with our responsible Ministers.

Corporate governance

To ensure compliance with our statutory responsibilities, we undertake a rigorous reporting regime. We report on our operations to our stakeholders through a range of channels, including:

� this Annual Report

� the annual Market Rules review

� the quarterly System Operating Plan review

� the Quarterly Report against the strategic and operational plans

� the Quarterly Report against the State Borrowing Program

� monthly reports to the Minister.

Our BoardChair Gary Humphrys

Members Gordon Jardine Dr David Cunliffe Teresa Dyson Jamie Quinn

ResponsibilitiesUnder the Board charter, the Board’s key responsibilities and activities are to:

� approve strategic and operational plans

� provide guidance on the opportunities to strengthen the operation of the SEQ Water Grid

� ensure the establishment of an appropriate framework for the operation of the SEQ Water Grid, in particular; terms of contractual arrangements, performance and reporting obligationsAttendance

The Board met 11 times during 2009–10.

Member Number eligible to attend

Number attended

Gary Humphrys 11 11

Gordon Jardine 11 11

Dr David Cunliffe 11 11

Teresa Dyson 11 10

Jamie Quinn 11 11

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� approve and monitor the progress of major contracts and capital expenditure

� delegate authority for the operation of our organisation to the Chief Executive Officer and Executive Management Group, where appropriate

� appoint the Chief Executive Officer and Senior Executives

� review and evaluate the Chief Executive Officer’s performance

� promote an efficient and effective operation and pricing structure

� ensure the establishment of a monitoring regime for our Compliance Framework

� ensure the establishment of a monitoring regime for an appropriate Risk Management Framework

� ensure effective communications with stakeholders

� communicate results and performance outcomes to the responsible Ministers and other stakeholders.

In undertaking its responsibilities and activities, the Board promotes a culture of the highest ethical standards, has implemented a Code of Conduct and embraced the values developed by our staff.

Audit and Risk Management CommitteeChair Jamie Quinn

Members Gary Humphrys Teresa Dyson

ResponsibilitiesThe Audit and Risk Management Committee assists the Board in discharging its financial and risk governance responsibilities. It oversees the financial reporting processes that ensure the accuracy, transparency and integrity of reported financial information.

Under the Committee’s Charter, the Committee’s roles and responsibilities relate to the following:

� financial management policies and internal control system

� preparation of the annual financial statements

� audit process, undertaken by internal audit and the Queensland Audit Office

AttendanceThe Audit and Risk Management Committee met four times in 2009–10.

Member Number eligible to attend

Number attended

Jamie Quinn 4 4

Gary Humphrys 4 4

Teresa Dyson 4 4

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� effectiveness and outputs of the audit function, including reports and recommendations

� effectiveness of our organisation’s risk management system

� development of the Risk Management Framework

� our organisation’s risks and the implementation of risk mitigations

� process for monitoring compliance with laws, regulations, internal standards and policies.

In addition, the Committee oversees the development and implementation of our Risk Management Plan.

In May 2010, the Committee conducted an assessment of the achievement of its roles and responsibilities as set out in the Committee’s Charter. The Committee determined that it had successfully achieved its roles and responsibilities for 2009–10, with the exception of the process for monitoring compliance, which was under development at the time. This is due for completion in 2010–11.

Our Board members

Gary Humphrys ChairGary Humphrys was an inaugural Board member and Deputy Chair in 2008–09. On 1 July 2009, he was appointed as Chair, thus continuing to help lead our organisation in its formative years.

Gary is a Chartered Accountant and a graduate of the Australian Institute of Company Directors.

He has a strong background in finance, treasury and risk management with over 30 years experience in the mining and energy industries, both in the public and private sectors. Gary has held a number of other Board appointments to corporations in the mining, energy and health industries.

Gordon Jardine Deputy ChairGordon Jardine is the Chief Executive Oficer of Powerlink Queensland, which owns, develops and operates the high voltage electricity grid in Queensland. He has held this position since 1995, and during his tenure, Powerlink has grown its asset base from $1.3 billion to $6 billion.

Gordon is the Chairman of Grid Australia, the representative body for the owners of Australia’s electricity transmission networks, and Chairman of ElectraNet SA, the South Australian electricity transmission utility. He is also a foundation member of the System Reliability Panel of the National Electricity Market.

Gordon brings to our Board a strong background in commercial business and in implementing utility industry reforms. He holds bachelor degrees in engineering and commerce, and a masters degree in environmental science. He is a Fellow of the Australian Institute of Company Directors, Australian Institute of Management and the Australian Academy of Technological Sciences and Engineering.

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Dr David Cunliffe MemberDavid Cunliffe is the Principal Water Quality Adviser with the South Australian Department of Health. He has over 25 years experience in dealing with public health aspects of drinking water and recycled water.

David has contributed to a range of national and international guidelines including Australian and World Health Organization guidelines for drinking water quality and use of recycled water. He is a member of the World Health Organization’s Drinking Water Quality Committee, the National Health and Medical Research Council’s Water Quality Advisory Committee and the Joint Steering Committee for the Australian Guidelines for Water Recycling.

Teresa Dyson MemberTeresa Dyson is a partner with Blake Dawson. Teresa is a leading practitioner in taxation law, particularly in relation to the taxation of financial arrangements, infrastructure and public-private partnership developments, leasing, and debt/equity.

Teresa has tertiary qualifications in arts, law, taxation and applied finance, and brings to our Board a wealth of knowledge from the financial, government and not-for-profit sectors.

Jamie Quinn MemberJamie Quinn is a former Commissioner of the Queensland Water Commission and was a member of our inaugural Board. He has extensive local government experience and specialist knowledge in sustainable development, including water and transport infrastructure. For more than 30 years, he held executive positions on councils throughout Queensland. Jamie was the Chief Executive Officer of Ipswich City Council for 16 years to 2006. He is a senior associate of the Eidos Institute, a Fellow of the Australian Institute of Company Directors and a Fellow of the Local Government Managers Australia.

Jamie was the 2005 recipient of the Queensland Local Government Managers Australia Award for Excellence in Leadership and Management.

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Executive Management Group

Barry Dennien Chief Executive OfficerFormerly the Executive Director, Regional Planning and Policy for the Queensland Water Commission, Barry was responsible for the draft South East Queensland Water Strategy and system operation plans for the new SEQ Water Grid.

Barry has been instrumental in establishing our organisation, leading us during our formative phase and guiding the development of our foundation operations, processes and values.

Barry has qualifications in engineering and an MBA in International Business, together with 28 years experience in water industry operations and planning, and a successful track record of managing commercial enterprises in the tourism industry.

Susan Middleditch Director, Finance and Corporate ServicesSusan came to us from Commerce Queensland, where she was General Manager of Internal Operations. Susan is an accountancy graduate and Certified Practising Accountant.

Susan has international experience as a senior policy advisor with New Zealand Treasury, has held accounting roles for a range of businesses and worked in senior executive levels within Queensland Government, with a focus on major infrastructure projects. Susan is a graduate of the Mt Eliza Business School and is a member of the Australian Institute of Company Directors.

Scott Denner Acting Director, OperationsScott joined our team in July 2009. His previous roles, including Head of Department (Security, Risk and Compliance) for G4S in London, have seen him gain extensive knowledge across areas including risk management, business continuity management and business process improvement.

Scott is a Graduate of the Royal Military College and is a Certified Practising Risk Manager. Scott holds a Bachelor of Management and Professional Studies and an Associate Diploma of Personnel Administration.

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The SEQ Water Grid Manager’s workforce is highly skilled and professional. We are committed to delivering on our mission through our expertise in the strategic, operational and commercial aspects of water delivery.

We employ a select team of water industry professionals and other specialists to achieve our core business objectives. Where skills are required outside of our core area of focus, we contract in professionals for specific projects to ensure high quality outcomes for these projects and their role within the SEQ Water Grid.

Our people

Workforce profileWe have an established team with extensive experience in both water operations and business management.

We had provision in our 2009–10 organisational structure for 20 full-time equivalent staff. By the end of 2009–10, we had filled 16 of these positions. The remaining four positions were either recruited on a part-time basis or filled by appropriately skilled contractors.

Our core skill sets include:

� water operations

� hydraulic and hydrology modelling

� financial management

� emergency management planning

� water quality

� system reliability engineering

� risk management

� business development and contract negotiation

� communications and policy

� information technology.

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Workforce Planning FrameworkWorkforce planning forms an integral part of our organisation’s corporate planning process, to ensure our business objectives can be delivered successfully through the appropriate allocation of skilled human resources.

In 2008–09, our Executive Management Group developed a Workforce Plan to guide the establishment of our organisation’s people. Its focus was to establish a small team of specialist professionals to successfully steer the organisation

Workforce statisticsDuring 2009–10, our workforce gender balance shifted from 54 per cent female full-time equivalent staff in 2008–09, to 56 per cent male at the end of June 2010. Our permanent retention rate remained almost the same at 81 per cent compared to 85 per cent in 2008–09.

Number Percentage of workforce

Women 7 44

Men 9 56

Permanent retention rate 13 81

Permanent separation rate 3 19

through its formation and manage its ongoing operational requirements into 2009–10.

In 2009–10, our organisational structure expanded to include seven additional roles and skill sets not in existence in our first year of operation. We continue to monitor our workforce requirements at the

Executive Management Group level, recruiting new staff or engaging contractors as required by any emerging operational and business needs. It is anticipated our workforce will continue to expand throughout 2010–11, as our organisation evolves and the need for new skill sets are identified.

Workforce retention and turnoverWe have built a culture of open engagement across all levels of the organisation. We actively encourage input and innovation at all levels, and promote a team approach to our business and operations.

To achieve high-level workplace satisfaction, we reinforce our values through our leadership. Our organisation values are :

� innovation

� delivering value

� motivation

� adaptability

� professionalism.

We demonstrate and encourage innovation, professionalism and adaptability in our day-to-day operations. We continually focus on delivering value to our customers and the South East Queensland community. We encourage our people to actively and collaboratively manage the complex requirements of change within our evolving workplace.

To deliver the desired outcomes, we need to retain skilled and motivated people who want to be part of the organisation and the business of managing our water supplies. We do this, in part, through a Performance Planning and Evaluation Framework that recognises and rewards staff, and supports their ongoing learning needs and aspirations.

In 2009–10, we provided corporate training opportunities to our people in the areas of writing, editing and project management. In addition, many of our people attended

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professional and supervisory courses offered externally. Two of our people are undertaking further tertiary level study and are supported in this as required.

Key workforce polices

Employment conditions

Our people are employed under the South East Queensland Water (Restructuring) Act 2007 and remunerated under the State Government Departments Certified Agreement, to which we became a signatory in June 2010.

Our values and how we act

We value, actively support and promote a fair, safe and ethical work environment. We are committed to the highest standards of integrity, honesty, ethical behaviour and accountability.

To ensure our people understand their responsibilities and carry them out with respect and integrity, we have the following policies in place:

� Values – outlines the expected behavioural elements of our organisation’s operation.

� Team charter – further details the expected actions of our staff under our values system, including leveraging of collective wisdom, doing what we say we will, acting as one, communicating openly and honestly and providing a challenging workplace with opportunities for growth and work/life balance.

� Code of Conduct – outlines the expected manner in which staff will conduct themselves in relation to the law, other persons, conflicts of interest, resource allocation and usage, and how any breaches will be managed.

Every new staff member receives an induction on these policies and they are reinforced regularly through our day-to-day operation.

Workplace health and safety

We recognise that happy and healthy people mean better services for our customers through greater productivity and reduced absenteeism.

We promote flexible working arrangements, to allow staff to balance work and family commitments such as:

� tele-commuting

� flexible start and finish times.

Our healthy staff program includes providing staff with access to influenza vaccinations and health information.

We have established policies to ensure we have a safe workplace, and these policies include:

� a Freedom from Harassment and Violence Policy

� a Grievance Policy

� a Workplace Health and Safety Policy

� an Employee Assistance Policy.

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Alkalinity Total measure of the acid-neutralising compounds within water.

Australian Drinking Water Guidelines 2004

Developed by the National Health and Medical Research Council in collaboration with the Natural Resource Management Ministerial Council. The Australian Drinking Water Guidelines 2004 incorporates the Framework for the Management of Drinking Water Quality and provides the Australian community and the water supply industry with guidance on what constitutes good quality drinking water. The SEQ Water Grid Manager measures water quality provided to its customers against these guidelines.

Balanced scorecard Process of managing and measuring operational performance considering all aspects of service delivery, including provision of water security, operational efficiency, customer and stakeholder satisfaction and innovative and capable culture and systems.

Bulk water Water supplied from dam, desalination and recycled sources by a Grid Service Provider to the SEQ Water Grid Manager for sale to Grid Customers.

Conductivity Electrical conductivity (often shortened to ‘conductivity’) is a measurement used to approximate the concentration of total dissolved solids in water. Refer to total dissolved solids below.

Desalinated water Salt water converted to drinking water through a process involving reverse osmosis membranes.

Distribution Service Provider

A person or organisation who distributes water supplied by a declared Grid Service Provider to a customer.

E. coli ‘Escherichia coli’ – a bacterial species found in the gut of warm blooded animals that can be detected in the water supply. It is used as an indicator of faecal contamination.

Fluoride A chemical ion added to the water supply to reduce tooth decay.

Grid Customer A person or organisation that purchases water supplied by a declared water service provider from the SEQ Water Grid Manager and is registered as a Grid Customer under the Market Rules.

Grid Instructions Directions issued by the SEQ Water Grid Manager to optimise SEQ Water Grid operating performance and water supply security.

Grid Participant A Grid Service Provider, Grid Customer or Distribution Service Provider.

Glossary

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Grid Service Provider The Queensland Bulk Water Supply Authority trading as Seqwater, the Queensland Bulk Water Transport Authority trading as LinkWater and the Queensland Manufactured Water Authority trading as WaterSecure, who supply declared water services to the SEQ Water Grid Manager and are registered as Grid Service Providers under the Market Rules.

Hardness ‘Hard’ water is caused primarily by the presence of dissolved calcium and magnesium salts.

LinkWater The Queensland Government statutory authority responsible for the management, operation and maintenance of drinkable bulk water pipelines and related infrastructure throughout South East Queensland.

Metals Elements including aluminium, copper, iron, lead and manganese.

Megalitre One million litres.

pH Measures the strength of an acid or base in water.

Purified recycled water Wastewater that has been purified to a standard that is ready for consumption under the Australian Drinking Water Guidelines 2004.

Raw water Raw water that has not yet been treated by a Grid Service Provider.

Rules Administrator The Queensland Water Commission has been appointed as the Rules Administrator for the purposes of the Market Rules.

SEQ South East Queensland.

SEQ Distributor-Retailer Local government level organisations responsible for the distribution of water supplies to customers, replacing previous individual council management of this function.

Seqwater South East Queensland’s bulk water supply provider, delivering innovative and efficient management of catchments, water storages and treatment services, to ensure the quantity and quality of the region’s water supplies.

SEQ Water Grid The SEQ Water Grid is a network of treatment facilities and existing pipelines. It moves water from selected sources across the region to where it is needed most.

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SEQ Water Grid Manager The Queensland Government statutory authority responsible for managing the strategic operation of the SEQ Water Grid. The SEQ Water Grid Manager holistically manages the water supply chain and capacity to deliver water to Grid Customers while maintaining regional water security for the South East Queensland community.

Total dissolved solids Measures the combined content of all inorganic and organic substances, including salt, contained in water in molecular, ionised or micro-granular suspended form.

Total trihalomethanes Chemical compounds present in drinking water, principally as the result of disinfection using chlorination. Chlorine, when added to water, can react with naturally occurring organic material to produce trihalomethanes.

Treated water Water that has undergone a cleansing process to a standard that is ready for consumption under the Australian Drinking Water Guidelines 2004.

Turbidity Fine, suspended particles present in water, including natural matter such as clay, silt, plankton and other microscopic organisms. Can make water appear ‘cloudy’ or ‘hazy’.

WaterSecure Queensland Manufactured Water Authority, supplying a new source of water to South East Queensland through its desalination plant and water recycling scheme.

Water security Management of the water supply to meet the demands of current and future population growth and climate change across the South East Queensland region.

Water transfers Moving water around the SEQ Water Grid.

Whole-of-Grid Refers to the collaboration of the organisations with unique functions that complement each other in operating the SEQ Water Grid.

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SEQ WATER GRID MANAGER FINANCIAL STATEMENTS

2009–10

Contents

56 General information

57 Statement of comprehensive income

58 Statement of financial position

59 Statement of changes in equity

60 Statement of cash flows

61 Notes to and forming part of the financial statements

85Management certificate

86 Independent auditor’s report

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General information

These financial statements provide information on the financial activities of the SEQ Water Grid Manager.

The SEQ Water Grid Manager is a not-for-profit Queensland Government statutory body established under the South East Queensland Water (Restructuring) Act 2007.

The head office and principal place of business of the SEQ Water Grid Manager is:

Level 15, 53 Albert Street Brisbane QLD 4000

A description of the nature of the SEQ Water Grid Manager’s operations and its primary activities are included in the notes to the financial statements.

For information in relation to the SEQ Water Grid Manager’s Financial Report please call +61 7 3247 3012, email finance@seqwgm.com.au or visit www.seqwgm.com.au.

Amounts shown in these financial statements may not add to the correct sub-totals or totals due to rounding.

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Statement of comprehensive income For the year ended 30 June 2010

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Statement of financial position As at 30 June 2010

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Statement of changes in equity For the year ended 30 June 2010

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Statement of cash flows For the year ended 30 June 2010

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SEQ Water Grid Manager Statement of cash flows For the year ended 30 June 2010

Notes 2010 2009 $’000 $’000 Cash flows from operating activities Inflows: User charges 346,281 211,011 Grants and other contributions 46,131 - Interest received 406 246 GST input tax credits received 56,867 27,725 Outflows: Employee expenses (2,268) (1,675) Supplies, services and other (762,727) (525,120) GST remitted to Australian Taxation Office (1,775) (1,058) Other (265) (33) Net cash flows used in operating activities 18 (317,350) (288,904) Cash flows from investing activities Inflows: Security deposit 10 - Outflows: Payments for intangibles (49) (198) Net cash flows used in investing activities (39) (198) Cash flows from financing activities Inflows: Borrowings 328,247 290,700 Net cash flows provided by financing activities 328,247 290,700 Net increase in cash held and cash equivalents 10,858 1,598 Cash and cash equivalents at beginning of financial year

1,719 121

Cash and cash equivalents at end of financial year 9 12,577 1,719

The accompanying notes form part of these financial statements.

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Notes to and forming part of the financial statements 2009–10

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 Objectives and principal activities of the SEQ Water Grid Manager Note 1 Summary of significant accounting policies Note 2 Other revenue Note 3 Employee expenses Note 4 Supplies and services Note 5 Depreciation and amortisation Note 6 Finance/borrowing costs Note 7 Other expenses Note 8 Income tax Note 9 Cash and cash equivalents Note 10 Trade and other receivables Note 11 Other current assets Note 12 Plant and equipment Note 13 Intangible assets Note 14 Trade and other payables Note 15 Accrued employee benefits Note 16 Other financial liabilities Note 17 Other liabilities Note 18 Reconciliation of operating deficit to net cash from operating activities Note 19 Financial instruments Note 20 Commitments Note 21 Recognition of leasehold incentive Note 22 Going concern

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Notes to and forming part of the financial statements 2009–10

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 Objectives and principal activities of the SEQ Water Grid Manager The SEQ Water Grid Manager’s key objective is to manage the operation of the SEQ Water Grid in the most efficient and effective manner; consistent with the South East Queensland System Operating Plan, The Market Rules SEQ Water Market, and associated legislative and regulatory requirements. The SEQ Water Grid Manager is involved in the purchase of bulk water services and the sale of bulk water. The SEQ Water Grid Manager is a not-for-profit entity, and does not own infrastructure assets but holds the urban water entitlements for South East Queensland. The SEQ Water Grid Manager makes strategic and operational decisions that are based on ensuring water is produced and moved to where it is needed most, at the least possible cost, rather than based on a proprietary interest in infrastructure assets. 1. Summary of significant accounting policies (a) Statement of compliance The SEQ Water Grid Manager has prepared these financial statements in compliance with section 42 of the Financial and Performance Management Standard 2009. The financial statements have been prepared in accordance with Australian Accounting Standards. In addition, the financial statements comply with the Queensland Treasurer's Minimum Reporting Requirements for the year ending 30 June 2010, and other authoritative pronouncements of the Australian Accounting Standards Board. These financial statements constitute a general purpose financial report. With respect to compliance with Australian Accounting Standards and Interpretations, the SEQ Water Grid Manager has applied those requirements applicable to not-for-profit entities. Except where stated, the historical cost convention is used. (b) The reporting entity The SEQ Water Grid Manager is a not-for-profit Queensland Government statutory body established under the South East Queensland Water (Restructuring) Act 2007 and became a separate legal entity on 2 May 2008. The financial statements include the value of all revenues, expenses, assets, liabilities and equity of the SEQ Water Grid Manager. The SEQ Water Grid Manager does not control any other entity. (c) User charges User charges and fees controlled by the SEQ Water Grid Manager are recognised as revenue after services are delivered. User charges and fees are controlled by the SEQ Water Grid Manager where they can be deployed for the achievement of the SEQ Water Grid Manager’s objectives. User charges shown in these financial statements represent the revenue derived through selling bulk water to regional councils, power stations and other industrial and rural customers. (d) Grants and other contributions Grants, contributions, donations and gifts that are non-reciprocal in nature are recognised as revenue in the year in which the SEQ Water Grid Manager obtains control over them. Where grants are received that are reciprocal in nature, revenue is accrued over the term of the funding arrangements.

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Notes to and forming part of the financial statements 2009–10

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 Included in revenue for grants received in 2009–10, is $52,391,000 from Queensland Treasury. This additional ongoing revenue stream is for the return of competitive neutrality fees that have been paid by the Grid Service Providers, as Queensland Government statutory bodies to Queensland Treasury. (e) Cash and cash equivalents For the purpose of the statement of financial position and statement of cash flows, cash assets include all cash and cheques receipted but not banked as at 30 June 2010 as well as deposits at call with financial institutions. (f) Trade and other receivables Trade debtors are recognised at the nominal amounts due at the time of sale or service delivery. Settlement of these amounts is required within 20 business days from invoice date. The collectability of receivables is assessed periodically and if required a provision will be made for impairment. For 2009–10, no provision has been deemed necessary. (g) Acquisitions of assets The actual cost of the asset is used for the initial recording of all non-current physical and intangible asset acquisitions. Cost is determined as the value given as consideration plus costs incidental to the acquisition, including all other costs incurred in getting the assets ready for use. Any training costs are expensed as incurred. Assets acquired at no cost or for nominal consideration, other than from an involuntary transfer from another Queensland Government entity, are recognised at fair value at the date of acquisition in accordance with AASB 116 Property, Plant and Equipment. (h) Plant and equipment Items of plant and equipment with a cost or equivalent value in excess of $5,000 are recognised in the year of acquisition. Items with a lesser value are expensed as incurred. Items of plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost of replacing part of an item of plant and equipment is recognised in the carrying amount of the item if it is probable that future economic benefits embodied within the part will flow to the SEQ Water Grid Manager and can be reliably measured. The cost of day-to-day maintenance of plant and equipment is recognised in the statement of comprehensive income as incurred. (i) Intangibles Intangible assets with a cost or other value greater than $100,000 are recognised in the financial statements. Items with a lesser value are expensed as incurred. Each intangible asset is amortised over its estimated useful life to the SEQ Water Grid Manager, less any anticipated residual value. The residual value is zero for all the SEQ Water Grid Manager's intangible assets. It has been determined that there is no active market for any of the SEQ Water Grid Manager's intangible assets. As such, the assets are recognised and carried at cost less accumulated amortisation and accumulated impairment losses.

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Notes to and forming part of the financial statements 2009–10

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 (j) Amortisation and depreciation of intangibles and plant and equipment Plant and equipment is depreciated on a straight-line basis so as to allocate the net cost or revalued amount of each asset, less its estimated residual value, progressively over its estimated useful life to the SEQ Water Grid Manager. Intangible assets under construction (work-in-progress) are not amortised until they reach service delivery capacity. Any expenditure that increases the originally assessed capacity of the service potential of an asset is capitalised and the new depreciable amount is depreciated over the remaining useful life of the asset to the SEQ Water Grid Manager. For each class of depreciable asset the following depreciation and amortisation rates are used:

Class Rate % Plant and equipment Computers and communications 33.33 Furniture, fixtures and fittings 15 Leasehold improvements 12 Office equipment 30

Amortisation Amortisation is recognised on a straight-line basis over the estimated useful life of the asset less any anticipated residual value from the date the intangible is available for use. The residual value for the SEQ Water Grid Manager’s intangible assets is zero.

Class Rate % Intangible assets Internally generated software 20

(k) Impairment of non-current assets All non-current physical and intangible assets are assessed for indicators of impairment on an annual basis. If an indicator of possible impairment exists, the SEQ Water Grid Manager determines the asset's recoverable amount. Any amount by which the asset's carrying amount exceeds the recoverable amount is recorded as an impairment loss. The asset's recoverable amount is determined as the higher of the asset's fair value less costs to sell and depreciated replacement cost. An impairment loss is recognised immediately in the statement of comprehensive income. (l) Trade and other payables Trade creditors are recognised upon receipt of the goods and services ordered and are measured at the agreed purchase or contract price, gross of applicable trade and other discounts. Amounts owing are unsecured and are generally settled on 30 day terms.

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Notes to and forming part of the financial statements 2009–10

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 (m) Financial instruments Recognition Financial assets and financial liabilities are recognised in the statement of financial position when the SEQ Water Grid Manager becomes party to the contractual provisions of the financial instrument. Classification Financial instruments comprise cash and cash equivalents; trade and other receivables; loans and borrowings; and trade and other payables. Other Trade and other receivables, other financial liabilities, and trade and other payables are measured at amortised cost using the effective interest rate method less any impairment losses. Any borrowing costs are added to the carrying amount of the borrowing to the extent they are not settled in the period in which they arise. All interest incurred on the SEQ Water Grid Manager’s borrowings are capitalised. The SEQ Water Grid Manager does not enter into transactions for speculative purposes or hedging purposes. All disclosures relating to the measurement basis and financial risk management or other financial instruments held by the SEQ Water Grid Manager are included in note 19. Impairment A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. All impairment losses are recognised in the statement of comprehensive income. (n) Employee benefits Wages, salaries, recreation leave and sick leave Wages, salaries and recreation leave due but unpaid at the reporting date represent present obligations resulting from employees' services and are recognised in the statement of financial position at the remuneration rates expected to apply at the time of settlement. Payroll tax and workers' compensation insurance are a consequence of employing employees, but are not counted in an employee's total remuneration package. They are not employee benefits and are recognised separately as employee related expenses. Employer superannuation contributions, annual leave and long service leave accruals are regarded as employee benefits. For unpaid entitlements expected to be paid within 12 months, the liabilities are recognised at their undiscounted values. For those entitlements not expected to be paid within 12 months, the liabilities are classified as non-current liabilities and recognised at their present value, calculated using yields on Fixed Rate Commonwealth Government bonds of similar maturity.

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Notes to and forming part of the financial statements 2009–10

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 Prior history indicates that on average, sick leave taken each reporting period is less than the entitlement accrued. This is expected to continue in future periods. Accordingly, it is unlikely that existing accumulated entitlements will be used by employees and no liability for unused sick leave entitlements is recognised. As sick leave is non-vesting, an expense is recognised for this leave as it is taken. Long service leave The SEQ Water Grid Manager provides for long service leave liability for all employees on the following basis:

- Employee with 5–7 years service, long service leave is recognised at 95% of the total liability.

- Employee with greater than 7 years service, long service leave is recognised at 100% of the total liability.

The SEQ Water Grid Manager’s net obligation in respect of long service leave is the amount of future benefit that employees have earned in return for their service in the current and prior periods. For unpaid long service leave entitlements expected to be paid within 12 months, the liabilities are recognised at their undiscounted values. For those entitlements not expected to be paid within 12 months, the liabilities are classified as non-current liabilities and recognised at their present value, calculated using yields on Fixed Rate Commonwealth Government bonds of similar maturity. Superannuation Employer superannuation contributions are paid to QSuper, the superannuation plan for Queensland Government employees, at rates determined by the State Government. Contributions are expensed in the period in which they are paid or payable. The SEQ Water Grid Manager’s obligation with regard to employees is limited to its contributions to QSuper. No liability is recognised for accruing superannuation benefits in the financial statements. The liability is held on a whole-of-Government basis and reported in the financial report prepared pursuant to AASB 1049 Whole of Government and General Government Sector Financial Reporting. Board members superannuation contributions are paid to their nominated fund. Contributions are expensed in the period in which they are paid or payable. The SEQ Water Grid Manager’s obligation with regard to Board members is limited to its contributions to the nominated fund. Executive remuneration The executive remuneration disclosures in the employee expenses note (note 3) in the financial statements include:

- The aggregate remuneration of all senior executive officers (including the Chief Executive Officer) whose remuneration for the financial year is $100,000 or more.

- The number of senior executives whose total remuneration for the financial year falls within each successive $20,000 band, commencing at $100,000.

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 The remuneration disclosed is all remuneration paid or payable, directly or indirectly, by the SEQ Water Grid Manager or any related party in connection with the management of the affairs of the SEQ Water Grid Manager or any subsidiaries. For this purpose, remuneration includes:

- wages and salaries - accrued leave (that is, the increase/decrease in the amount of annual and long service

leave owed to an executive, inclusive of any increase in the value of leave balances as a result of salary rate increases or the like)

- performance pay paid in relation to the financial year, provided a liability exists (namely a determination has been made prior to the financial statements being signed), and can be reliably measured

- accrued superannuation (being the value of all employer superannuation contributions during the financial year, both paid and payable as at 30 June 2010)

- car parking benefits and the cost of motor vehicles, such as lease payments; fuel costs; registration and insurance; repairs and maintenance; and fringe benefits tax on motor vehicles incurred by the SEQ Water Grid Manager during the financial year, both paid and payable as at 30 June 2010, net of any amounts subsequently reimbursed by the executives

- housing, being the market value of the rent or rental subsidy, where rent is part-paid by the executive during the financial year, both paid and payable as at 30 June 2010

- allowances (which are included in remuneration agreements of executives, such as airfares or other travel costs paid to/for executives whose homes are situated in a location other than the location they work in)

- fringe benefits tax included in remuneration agreements.

The disclosures apply to all senior executives appointed by the Board and classified as SES1 and above, with remuneration above $100,000 in the financial year. 'Remuneration' means any money, consideration, or benefit but excludes amounts in payment of reimbursement of out-of-pocket expenses incurred for the benefit of the SEQ Water Grid Manager. In addition, separate disclosure of separation and redundancy/termination benefits payments is included. (o) Finance/borrowing costs Finance costs are recognised as an expense in the period in which they are incurred. Finance costs include interest on bank overdrafts, finance lease charges and ancillary administration charges. Borrowing costs are capitalised into the base level of the loan. Borrowing costs include long term borrowings and working capital facilities provided by the Queensland Treasury Corporation. (p) Insurance The SEQ Water Grid Manager’s non-current physical assets and other risks are insured through the private insurance market with premiums being paid on a risk assessment basis. In addition, the SEQ Water Grid Manager pays premiums to WorkCover Queensland in respect of its obligations for employee compensation and provides Directors’ and Officers’ insurance to the SEQ Water Grid Manager’s Board members and officers. (q) Leases Operating lease payments are representative of the pattern of benefits derived from the leased assets and are expensed in the period in which they are incurred.

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 (r) Taxation The SEQ Water Grid Manager pays Fringe Benefits Tax and Goods and Services Tax as required by Commonwealth legislation. i) Tax equivalents The SEQ Water Grid Manager makes tax equivalent payments on its taxable income to the Queensland Government. These taxation payments are made pursuant to Section 62 of the SEQ Water (Restructuring) Act 2007. These payments are administered by the Australian Taxation Office under the National Tax Equivalent Regime. The National Tax Equivalent Regime broadly utilises the provisions of the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and associated legislation, as well as rulings and other pronouncements by the Australian Taxation Office, in order to determine the tax payable by the SEQ Water Grid Manager. The SEQ Water Grid Manager is not required to maintain a franking account. ii) Income tax Income tax expense comprises current tax payable and deferred tax. Income tax expense is recognised in the statement of comprehensive income except to the extent that it relates to items directly in equity, in which case it is recognised in equity. Current tax equivalents is the expected tax equivalents payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment in respect of previous years. Deferred tax equivalent is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences occurring from the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss or differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantially enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be released simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (s) Issuance of financial statements The financial statements are authorised for issue by the Chairman and Director, Finance and Corporate Services at the date of signing the Management Certificate.

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 (t) Judgements and assumptions The preparation of the financial statements requires management to make judgements and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. 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 and in any future period affected. The SEQ Water Grid Manager has made no judgements or assumptions that may cause a material adjustment to the carrying amounts of assets, liabilities, income or expenses within the next reporting period. (u) Rounding and comparatives Amounts included in the financial statements are in Australian dollars and have been rounded to the nearest $1,000 or, where that amount is $500 or less, to zero, unless disclosure of the full amount is specifically required. Comparative information has been restated where necessary to be consistent with disclosures in the current reporting period. (v) New and revised accounting standards The SEQ Water Grid Manager did not voluntarily change any of its accounting policies during 2009–10. The new or amended Australian Accounting Standards that were applicable for the first time in 2009–10 financial year and that had a significant impact on the SEQ Water Grid Manager’s financial statements are detailed below. The SEQ Water Grid Manager complied with the revised AASB 101 Presentation of Financial Statements as from 2009–10. Pursuant to the change of terminology used in the revised AASB 101, the balance sheet is now re-named to the statement of financial position, and the cash flow statement has now been re-named to the statement of cash flows. The former income statement has been replaced by the statement of comprehensive income. The SEQ Water Grid Manager is not permitted to adopt a new accounting standard ahead of the specified commencement date unless approval is obtained from Queensland Treasury. Consequently, the SEQ Water Grid Manager has not applied any Australian Accounting Standards and Interpretations that have been issued but are not yet effective. The SEQ Water Grid Manager will apply these standards and interpretations in accordance with their respective commencement dates.

2010 2009 $’000 $’000 2. Other revenue Interest 369 273 Other 11 - Total 380 273

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10

3. Employee expenses 2010 2009 $’000 $’000 Employee benefits Wages and salaries 1,559 1,291 Annual leave* 179 187 Employer superannuation contributions* 214 124 Long service leave* 26 69 Other employee benefits 107 43 Employee related expenses Workers’ compensation premium** 6 2 Payroll tax** 90 21 Other employee related expenses 138 161 Total 2,319 1,898

*Employer annual leave, superannuation contributions and long service leave are regarded as employee benefits. **Costs of workers' compensation insurance and payroll tax are a consequence of employing employees and are not included in employee's total remuneration package. They are not employee benefits, but rather employee related expenses. The number of employees as at 30 June 2010 including both full-time and part-time employees measured on a full-time equivalent basis is:

2010 2009 Number of employees: 16 13

Executive remuneration The number of senior executives who received total remuneration of $100,000 or more:

2010 2009 $200,000 to $219,999 1 - $240,000 to $259,999 - 2 $260,000 to $279,999 1 - $320,000 to $339,999 - 1 $440,000 to $459,999 1 - Total 3 3

2010 2009 $’000 $’000 Total remuneration of executives shown above* 929 821

* The amount calculated as executive remuneration in these financial statements includes the direct remuneration received, as well as items not directly received by senior executives, such as the leave accruals and fringe benefits tax paid on motor vehicles. This amount will therefore differ from advertised executive remuneration packages which do not include the latter items.

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4. Supplies and services

2010 2009 $’000 $’000 Water services purchases* 658,013 596,706 Consultants and contractors 3,082 1,445 Service providers 672 498 Travel and accommodation 22 23 Supplies and consumables 130 76 Other 48 234 Total 661,967 598,982

*Under the South East Queensland Water (Restructuring) Act 2007, the SEQ Water Grid Manager is responsible for the efficient operation of the SEQ Water Grid. In undertaking these duties, the SEQ Water Grid Manager contracts with other State Government water entities for the storage, treatment, transportation and manufacture of water.

5. Depreciation and amortisation Depreciation and amortisation were incurred in respect of:

2010 2009 $’000 $’000 Plant and equipment 12 9 Leasehold improvements* 102 43 Internally generated software 89 60 Total 203 112

*Refer to note 21

6. Finance/borrowing costs

2010 2009 $’000 $’000 Interest 24,152 3,495 Borrowing costs 532 175 Total 24,684 3,670

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7. Other expenses

2010 2009 $’000 $’000 External audit fees* 65 30 Internal audit fees 122 58 Insurance 196 181 Miscellaneous 64 4 Board expenses 265 63 Total 712 336

*Total external audit fees relating to the 2009–10 financial year are estimated to be $54,900 (2009 $50,000). There are no non-audit services included in this amount.

8. Income tax There is no income tax expense for 2010 (2009: nil). Reconciliation between tax expense and pre-tax operating result:

2010 2009 $’000 $’000 Operating result before income tax (284,475) (354,089) Prima facie income tax effect using tax rate of 30% (2009: 30%) (85,343) (106,227) Tax effect of current year tax losses for which no deferred tax asset was recognised

85,293 106,227

Under/(over) provided in prior periods 50 - Total - -

Deferred tax assets have not been recognised in respect of unrecognised deferred tax assets:

2010 2009 $’000 $’000 Deductible temporary differences 300 74 Tax effect of current year tax losses 191,354 106,153 Offset of deferred tax liabilities (218) - Total 191,436 106,227

The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these because it is not probable that future taxable profit will be available against which the SEQ Water Grid Manager can utilise the benefits. The aggregate amount of deferred tax assets not recognised at 30 June 2010 was $191,436,000 (2009: $106,227,000).

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9. Cash and cash equivalents

2010 2009 $’000 $’000 Imprest accounts 1 1 Cash at bank 12,576 1,718 Total 12,577 1,719

Cash held during 2010 earned between 2.85% and 4.35% (2009: 2.85% to 7.1%).

10. Trade and other receivables

2010 2009 $’000 $’000 Trade debtors 49,141 40,842 GST receivable 4,422 8,037 Interest receivable 13 39 Grants receivable 6,260 - Total 59,836 48,918 11. Other current assets

2010 2009 $’000 $’000 Prepayments 23 20 Total 23 20

12. Plant and equipment

2010 2009 $’000 $’000 Plant and equipment at cost 858 858 Less: accumulated depreciation (166) (52) Total 692 806

The leasehold incentive component of plant and equipment has been restated for 2009 in note 21. Plant and equipment is valued at cost in accordance with Queensland Treasury's Non-Current Asset Policies for the Queensland Public Sector.

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2010 Plant and equipment reconciliation Plant and equipment Leasehold incentive Total $’000 $’000 $’000 Carrying amount at 1 July 2009 31 775 806 Acquisitions - - - Depreciation (12) (102) (114) Carrying amount at 30 June 2010 19 673 692

2009 Plant and equipment reconciliation Plant and equipment Leasehold incentive Total $’000 $’000 $’000 Carrying amount at 1 July 2008 29 - 29 Acquisitions 11 818 829 Depreciation (9) (43) (52) Carrying amount at 30 June 2009 31 775 806

13. Intangible assets

2010 2009 $’000 $’000 Internally generated software at cost 445 397 Less: accumulated amortisation (148) (60) Total 297 337

The SEQ Water Grid Manager has developed a contracts and settlements system to assist in the management of its Grid Contracts. This system was developed in-house and the costs associated with the development of the system have been capitalised and are reported as an intangible asset. This system has been in use since August 2008 and has been amortised during the current financial year. This asset will be amortised on a straight-line basis over the period of expected benefit to the SEQ Water Grid Manager, namely five years. The system has undergone further development in the current financial year which has captured data in accordance with the Market Rules SEQ Water Market. Expenditure on research activities relating to internally-generated intangible assets is recognised as an expense in the period in which it is incurred. The water entitlements received by the SEQ Water Grid Manager on 1 July 2008 represent an intangible asset under the requirements of AASB 138 Intangible Assets. The restructure of water arrangements in South East Queensland resulted in the transfer of the water entitlements from existing holders to the SEQ Water Grid Manager on 1 July 2008 which represented a contribution under the requirements of AASB 1004 Contributions. AASB 1004 requires a contribution to be recognised by a not-for-profit entity as income at the fair value of the contribution received or receivable. The water entitlements have a fair value of $nil.

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 Intangible asset reconciliation

Internally generated software Generated Work in Progress Total 2010 2009 2010 2009 2010 2009 $’000 $’000 $’000 $’000 $’000 $’000 Carrying amount at 1 July 337 - - 199 337 199 Acquisitions 48 198 - - 48 198 Transfers between classes - 199 - (199) - - Amortisation (88) (60) - - (88) (60) Carrying amount at 30 June 297 337 - - 297 337

14. Trade and other payables

2010 2009 $’000 $’000 Trade creditors 63,176 110,030 GST payable 167 106 Total 63,343 110,136

15. Accrued employee benefits

2010 2009 $’000 $’000 Current Annual leave 189 138 Long service leave - 16 Total 189 154 Non-current Long service leave 81 62 Total 81 62

16. Other financial liabilities

2010 2009 $’000 $’000 Current Queensland Treasury Corporation borrowings 244 1,823 Security deposit 10 - Total 254 1,823 Non-current Queensland Treasury Corporation borrowings 648,858 294,348 Total 648,858 294,348

No assets have been pledged as security for any liabilities.

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 A working capital facility and a long-term debt facility have been established with the Queensland Treasury Corporation, and are available for use in future periods. The working capital facility of $70 million (2009: $8.5 million) was available during the year along with a long-term debt facility of $550 million (2009: $541.5 million) for 2009–10 to meet the operating costs of the SEQ Water Grid. All borrowings are denominated in Australian dollars and carried at amortised cost. The facility interest rate applied during 2009–10 was 3.05% to 4.55% (2009: 3.05% to 7.30%). The fair value of the SEQ Water Grid Manager’s borrowings at 30 June 2010, as notified by the Queensland Treasury Corporation, was $666,551,090 (2009: $290,949,895). The Queensland Treasurer has approved a borrowing allocation of $404 million for the SEQ Water Grid Manager under the 2010–11 State Borrowing Program.

17. Other liabilities

2010 2009 $’000 $’000 Current Lease incentive 102 102 Total 102 102 Non-current Lease incentive 571 673 Total 571 673

18. Reconciliation of operating deficit to net cash from operating activities

2010 2009 $’000 $’000 Operating loss (284,475) (354,089) Depreciation and amortisation expense 203 112 Lease incentive (102) (43) Queensland Treasury Corporation loan interest and borrowing expense

24,684 3,670

Change in assets and liabilities (Increase)/decrease in trade debtors (8,299) (40,842) (Increase)/decrease in GST input tax credits receivable 3,615 (7,975) (Increase)/decrease in interest receivable 26 (27) (Increase)/decrease in grant receivable (6,260) (Increase)/decrease in prepayments/other (3) 49 Increase/(decrease) in trade creditors (46,854) 110,020 Increase/(decrease) in accrued employee benefits 54 174 Increase/(decrease) in GST payable 61 106 Increase/(decrease) in other payables - (59) Net cash from operating activities (317,350) (288,904)

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19. Financial instruments (a) Categorisation of financial instruments The SEQ Water Grid Manager has the following categories of financial assets and financial liabilities:

2010 2009 Category Notes $’000 $’000 Financial assets Cash and cash equivalents 9 12,577 1,719 Trade and other receivables 10 59,836 48,918 Other current assets 11 23 - Total 72,436 50,637 Financial liabilities Trade and other payables 14 63,343 110,136 Other financial liabilities 16 649,112 296,171 Other liabilities 17 673 775 Total 713,128 407,082

(b) Financial risk management The SEQ Water Grid Manager’s activities expose it to financial risks – interest rate risk, credit risk, liquidity risk and market risk. Financial risk is managed pursuant to Government and the SEQ Water Grid Manager’s financial policies. These policies seek to minimise potential adverse effects on the financial performance of the SEQ Water Grid Manager. All financial risk is managed by the Chief Executive Officer under policies approved by the Board. The SEQ Water Grid Manager measures risk exposure using a variety of methods as follows:

Risk exposure Measurement method Credit risk Ageing analysis, earnings at risk Liquidity risk Maturity analysis Market risk Interest rate sensitivity analysis

(c) Credit risk exposure Credit risk exposure refers to the situation where the SEQ Water Grid Manager may incur financial loss as a result of another party to a financial instrument failing to discharge their obligation. The maximum exposure to credit risk at balance date in relation to each class of recognised financial assets is the gross carrying amount of those assets inclusive of any provisions for impairment. The following table represents the SEQ Water Grid Manager’s maximum exposure to credit risk based on contractual amounts net of any allowances:

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19. Financial instruments (a) Categorisation of financial instruments The SEQ Water Grid Manager has the following categories of financial assets and financial liabilities:

2010 2009 Category Notes $’000 $’000 Financial assets Cash and cash equivalents 9 12,577 1,719 Trade and other receivables 10 59,836 48,918 Other current assets 11 23 - Total 72,436 50,637 Financial liabilities Trade and other payables 14 63,343 110,136 Other financial liabilities 16 649,112 296,171 Other liabilities 17 673 775 Total 713,128 407,082

(b) Financial risk management The SEQ Water Grid Manager’s activities expose it to financial risks – interest rate risk, credit risk, liquidity risk and market risk. Financial risk is managed pursuant to Government and the SEQ Water Grid Manager’s financial policies. These policies seek to minimise potential adverse effects on the financial performance of the SEQ Water Grid Manager. All financial risk is managed by the Chief Executive Officer under policies approved by the Board. The SEQ Water Grid Manager measures risk exposure using a variety of methods as follows:

Risk exposure Measurement method Credit risk Ageing analysis, earnings at risk Liquidity risk Maturity analysis Market risk Interest rate sensitivity analysis

(c) Credit risk exposure Credit risk exposure refers to the situation where the SEQ Water Grid Manager may incur financial loss as a result of another party to a financial instrument failing to discharge their obligation. The maximum exposure to credit risk at balance date in relation to each class of recognised financial assets is the gross carrying amount of those assets inclusive of any provisions for impairment. The following table represents the SEQ Water Grid Manager’s maximum exposure to credit risk based on contractual amounts net of any allowances:

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Maximum exposure to credit risk 2010 2009 Category Notes $’000 $’000 Financial assets Cash and cash equivalents 9 12,577 1,719 Trade and other receivables 10 59,836 48,918 Other current assets 11 23 - Total 72,436 50,637

No collateral is held as security and no credit enhancements relate to financial assets held by the SEQ Water Grid Manager. No financial assets or financial liabilities have been offset and presented net in the statement of financial position. The method for calculating any provisional impairment for risk is based on past experience, current and expected changes in economic conditions and changes in client credit ratings. There is no impairment loss to be recognised for 2010. No financial assets have had their terms renegotiated to prevent them from being past due or impaired, and are stated at the carrying amounts indicated. Ageing of past due but not impaired financial assets are disclosed in the following table:

2010 financial assets due but not impaired Contractual repricing/maturity date

Not

overdue

Less than 30

days 30 – 60

days 61 – 90

days

More than 90

days Total $’000 $’000 $’000 $’000 $’000 $’000 Financial assets Trade and other receivables

53,497

13

6,260

-

66

59,836

Total 53,497 13 6,260 - 66 59,836

2009 financial assets due but not impaired Contractual repricing/maturity date

Not

overdue Less than 30 days

30 – 60 days

61 – 90 days

More than 90

days Total $’000 $’000 $’000 $’000 $’000 $’000 Financial assets Trade and other receivables

48,734

184

-

-

-

48,918

Total 48,734 184 - - - 48,918

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 (d) Liquidity risk Liquidity risk refers to the situation where the SEQ Water Grid Manager may encounter difficulty in meeting obligations associated with financial liabilities. The SEQ Water Grid Manager is exposed to liquidity risk in respect of its payables and borrowings from the Queensland Treasury Corporation for operational funding. Borrowings are accessed through a Queensland Treasury Corporation Client Specific Pool Facility and Working Capital Facility. The SEQ Water Grid Manager manages its liquidity risk through the use of a liquidity management strategy. This strategy aims to reduce the exposure to liquidity risk by ensuring the SEQ Water Grid Manager has sufficient funds available to meet employee and supplier obligations as they fall due. This is achieved by ensuring appropriate levels of cash are held in the bank account so as to match the expected duration of the various employee and supplier liabilities. The Queensland Government has confirmed its continued financial support of the SEQ Water Grid Manager, through the provision of access to debt funding. The SEQ Water Grid Manager has received a letter from the Treasurer supporting the future cash flow requirements of the organisation. The following table sets out the liquidity risk of financial liabilities held by the SEQ Water Grid Manager. It represents the contractual maturity of financial liabilities, calculated based on cash flows relating to the repayment of the principal amount outstanding at balance date.

Financial liabilities Notes 2010 Payable in

Total < 1 year 1 – 5 years > 5 years

$’000 $’000 $’000 $’000 Trade and other payables 14 63,343 - - 63,343 Queensland Treasury Corporation Borrowings

Client specific pool* 16 - - 865,140 865,140 Working capital 16 244 - - 244 Other liabilities 17 102 408 163 673 Total 63,689 408 865,303 929,400

Financial liabilities Notes 2009 Payable in

Total < 1 year 1 – 5 years > 5 years

$’000 $’000 $’000 $’000 Trade and other payables 14 110,136 - - 110,136 Queensland Treasury Corporation Borrowings

Client specific pool* 16 - - 309,147 309,147 Working capital 16 1,823 - - 1,823 Other liabilities 17 102 408 265 775 Total 112,061 408 309,412 421,881

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 *Contractual undiscounted cashflows as at 30 June 2010 on Queensland Treasury Corporation borrowings. No repayments are currently being made on this debt and interest is capitalised. The weighted average borrowing rate for Queensland Treasury Corporation borrowings is 6.10% (2009: 5.80%). (e) Market risk The SEQ Water Grid Manager does not trade in foreign currency and is not materially exposed to commodity price changes. The SEQ Water Grid Manager is exposed to interest rate risk through its borrowings from the Queensland Treasury Corporation and cash deposited in an interest bearing account. The SEQ Water Grid Manager does not undertake any hedging in relation to interest rate risk and manages its risk as per the liquidity management strategy. Interest rate sensitivity analysis The following interest rate sensitivity analysis depicts the outcome to profit and loss if interest rates change by +/- 1 per cent from the year-end rates applicable to the SEQ Water Grid Manager’s financial assets and liabilities. With all other variables held constant, the SEQ Water Grid Manager would have a deficit and equity increase/(decrease) of $325,000 (2009: $225,000). This is mainly attributable to the SEQ Water Grid Manager’s exposure to variable interest rates on its borrowings from the Queensland Treasury Corporation.

Financial instruments Carrying amount

2010 Interest rate risk -1% +1%

Deficit Equity Deficit Equity Cash and cash equivalents 12,577 126 126 (126) (126) Queensland Treasury Corporation borrowings

Client specific pool* 648,858 (449) (449) 449 449 Working capital 244 (2) (2) 2 2 Potential impact (325) (325) 325 325

*The results of this sensitivity analysis are based on a portfolio modified duration of five years. The analysis has been performed on a net debt basis. The increase/decrease in interest cost is the result of periodic rebalancing over the year.

Financial instruments Carrying amount

2009 Interest rate risk -1% +1%

Deficit Equity Deficit Equity Cash and cash equivalents 1,719 17 17 (17) (17) Queensland Treasury Corporation borrowings

Client specific pool 294,348 (224) (224) 224 224 Working capital 1,823 (18) (18) 18 18 Overall effect (225) (225) 225 225 225

The SEQ Water Grid Manager’s sensitivity to interest rates has increased in the current period due to increased borrowings for operational requirements.

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 (f) Fair value The fair value of monetary financial assets and financial liabilities, other than borrowings, is based on market prices where a market exists, or is determined by discounting expected future cash flows by the current interest rate for financial assets and liabilities with similar risk profiles. The fair value of trade receivables and payables is assumed to approximate their nominal value less estimated credit adjustments. The carrying amounts of all financial assets and financial liabilities, except the borrowings from the Queensland Treasury Corporation are representative of their fair value. The fair value of borrowings is determined by reference to published price quotations in an active market and reflects the value of the debt if the SEQ Water Grid Manager repaid it in full at balance date. It is calculated using discounted cash flow analysis and the effective interest rate and is disclosed below.

Financial liabilities

2010 2009 Carrying amount Fair value

Carrying amount Fair value

$’000 $’000 $’000 $’000 Financial liabilities at amortised cost:

Queensland Treasury Corporation borrowings

Client specific pool* 648,858 666,551 294,348 290,950 Working capital 244 244 1,823 1,823 Total 649,102 666,795 296,171 292,773

*The book value of Queensland Treasury Corporation borrowings as at 30 June 2010 is $648,857,600. *The fair value of borrowings as at 30 June 2010 is $666,551,090 as advised by the Queensland Treasury Corporation. The fair value represents the true value of a debt at a relevant time and hence the repayment amount that would be required at that time to extinguish the debt. 20. Commitments Non-cancellable operating lease Commitments under operating leases at the reporting date are inclusive of anticipated GST and are payable as follows:

2010 2009 $’000 $’000 Not later than one year 423 400 Later than one year and not later than five years 2,384 1,789 Later than five years 307 1,338 Total 3,114 3,527

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Notes to and forming part of the financial statements 2009–10

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 Operating leases are entered into as a means of acquiring access to office accommodation. Lease payments are generally fixed, but with inflation escalation clauses on which contingent rentals are determined. There is an existing option of a five year renewal in relation to the operating lease. Contractual commitments The SEQ Water Grid Manager has in place Grid Contracts with other State Government water entities for the provision of storage, treatment, transportation and manufacture of water. The SEQ Water Grid Manager is required to pay for services provided under these contracts for charges on capital assets, fixed operating costs, fixed corporate costs, variable operating costs and other allowable costs. Amounts payable for charges on capital assets may be payable in the event that the services are not required by the SEQ Water Grid Manager. The amount payable for this item in 2010–11 is yet to be determined by the responsible Minister. 21. Recognition of leasehold incentive The SEQ Water Grid Manager was provided with a fit-out under the office premises lease with the Department of Public Works. Therefore, the leasehold incentive has been accounted for and presented in accordance with the economic reality. This requires the restatement of the financial statements from 2009 to recognise the leasehold incentive from the commencement of the lease.

2009 $’000 The initial value of the leasehold incentive 818 Depreciation by five months (43) Lease assets 775 Lease incentive current liability 102 Lease incentive non-current liability 673 The net effect on the 2009 operating loss is nil. 2009 $’000 Supplies and services decreases by the lease rental expense (43) Depreciation increases by five months – leasehold asset 43 Net effect on 2009 operating loss -

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SEQ Water Grid Manager Notes to and forming part of the financial statements 2009–10 The impact in the statement of financial position is the recognition of a leasehold asset and a lease hold liability of equal value. 2009 $’000 Assets Lease assets ($818 less $43) 775 Liability Lease incentive current liability 102 Lease incentive non-current liability 673 Total movement in liabilities 775

The financial statement line items for the 2009 year have been restated. As restated Prior to

restatement $’000 $’000 Supplies and services 598,982 599,025 Depreciation and amortisation 112 69 Lease assets 775 - Lease incentive current liability 102 - Lease incentive non-current liability 673 -

22. Going Concern These financial statements have been prepared on a going concern basis. The Queensland Government has confirmed its continued financial support of the SEQ Water Grid Manager, through the provision of access to debt funding. This access to debt funding will allow the SEQ Water Grid Manager to continue to fund the immediate pricing differential between the bulk water price path and the full cost of the provision of services, until such time as the bulk water price path is fully implemented. This commitment remains in place for the 2009–10 financial year and over the duration of the pricing period.

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Management certificate of the SEQ Water Grid Manager

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Independent auditor’s report

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Overseas travelDuring 2009 –10, staff did not travel overseas.

Appendix

Board and committee remuernation

Member Directors’ fees Superannuation Total

Gary Humphrys $70,000 $6,300 $76,300

David Cunliffe $40,000 $5,100 $45,100

Gordon Jardine * $40,000 NIL $40,00

Teresa Dyson * $40,000 NIL $40,000

Jamie Quinn $40,000 $5,100 $45,100

* Fees paid to employer organisation, therefore no superannuation benefits paid.

ConsultanciesDuring 2009 –10 we undertook the following activities with the use of external consultants at a total expenditure of $1,586,633. This supports our business model of outsourcing support and other specialist needs.

Details are in the table below.

Consultancy expenditure 2009 –10

Description Amount

General $367,202

Project management $101,053

Systems $344,213

Water quality $469,506

Risk management $238,026

SEQ Water Grid optimisation

$39,589

Legal $27,043

Total $1,586,632

* For further information, refer to Note 4, SEQ Water Grid Manager financial statements on page 71.

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Notes

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Level 15, 53 Albert Street, Brisbane QLD 4000PO Box 16205, City East QLD 4002

Tel: +61 7 3247 3012 Fax: +61 7 3405 0373

www.seqwgm.com.au