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Table of contents

1. Shareholder Agreement 3

2. Objectives 4

3. Business Overview 5

4. Strategic Direction 6

5. Financial Performance Targets 8

6. Non Financial Performance Targets 9

7. Reporting Obligations 10

8. Policy Compliance 1 1

9. State Owned Corporations Applicable Treasury Policy Papers 13

under the Commercial Policy Framework

10. State Owned Corporations Mandatory Accounting Policies 14

2 1 Statement of Corporate Intent 2015/2016 ~~ TransGrid

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1. Shareholder Agreement

NEW SOUTH WALES GOVERNMENT TRADING ENTERPRISES STATEMENT OF CORPORATE INTENT

ORGANISATION: TransGrid PERIOD: Commencing 1 July 2015

This Statement of Corporate Intent has been agreed between:

Mr Chum Darvall AM Chairman TransGrid

e "'

Managing Director TransGrid

3 1 Statement of Corporate Intent 2015/2016

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The Hon. Gladys Berejiklian MP Treasurer Minister for Industrial Relations First Voting Shareholder

The Hon. Dominic Perrottet MP Minister for Finance, Services and Property Second Voting Shareholder

~~ TransGrid ~

2. Objectives

The National Electricity Rules impose an extensive set of service obligations on TransGrid. In delivenng these transmission services TransGrid is also required to meet the principal objectives of its enabling legislation, the Energy Services Corporations Act, 1995 as follows:

a) to be a successful business and, to this end:

1. to operate at least as efficiently as any comparable businesses,

ii. to maximise the net worth of the State's investment in it,

iii. to exhibit a sense of social responsibility by having regard to the interests of the community in which it operates,

1. to protect the environment by conducting its operations in compliance with the principles of ecologically sustainable development contained in section 6 (2) of the Protection of the Enwonment Administration Act, 1991,

a ) to exhibit a sense of responsibility towards regional development and decentralisation in the way in which it operates,

b) to operate efficient, safe and reliable facilities for the transmission of electricity and other forms of energy,

c) to promote effective access to those transmission facilities.

> Each of these principal objectives is of equal importance.

These overall objectives are translated into specific business objectives and targeted outcomes including:

> SAFETY:

> zero harm for employees and contractors

> CUSTOMER SERVICE PERFORMANCE:

>

>

>

>

>

>

keeping transmission price increases below movements in CPI

reliability, plant availability, and market impact outcomes

achieving statistically significant improvements in customer satisfaction as measured by survey

CONSUMER, COMMUNITY AND STAI<EHOLDER PERFORMANCE:

achieving significant improvements in consumer, community and stakeholder satisfaction as measured by survey

COMMERCIAL:

> meeting or exceeding agreed profit and dividend targets

4 1 Statement of Corporate Intent 2015/2016

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Our Vision

Excellence in all we do

Our Mission

Create value by providing safe, reliable and efficient

transmission services

Our Values Caring Committed

Enterprising Collaborative

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3. Business Overview

TransGrid OVI.ns, operates and manages one of the largest h1gh voltage transmission networks m Austral ia. This network includes:

> 12,900 ki lometres of overhead transmission line and 78 kilometres of underground cables*;

> links to Queensland and Victoria facilitating wholesale interstate energy trading.

TransGrid's customers include:

> the NSW and ACT electricity distributors, electncity generators and consumers directly connected to TransGnd's network;

> generators and consumers seeking connection to the transmiss1on network; and

> businesses that participate in wholesale electricity trading in the National Electricity Market.

The serv1ce level requirements are essentially defined in·

> the National Electricity Rules together with NSW legislation, and

> regulations imposing additional service level requ1rements such as reliability standards for planning purposes.

These latter standards are crucial to minimising unacceptable levels of risk of maJor widespread power system interruptions with their associated h1gh econom1c and soc1al 1m pacts.

TransGrid has a regulated asset base of greater than $6 billion and a forecast prescribed annual revenue of $799 million for 2015/16.

*Note: as per TransGrid'sAnnual Report 20·14

51 Statement of Corporate Intent 2015/2016

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TransGrid's Corporate Plan 2015/16 sets out the organisation's strategic direction. This Plan has four initiatives which guide organisational effort in meeting service obligations and other statutory objectives.

The initiatives are:

> Ensuring an effective safety culture

> Developing new business

> Preparing for a competitive future

> Transitioning to the private sector

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4. Strategic Direction

Initiative

Ensuring an effective safety culture

Developing new business

Strategic Responses

Improve safety outcomes by strengthening the safety culture of our employees and contractors and • maintaining employee safety engagement. TransGrid's ultimate goal is zero harm for employees, contractors and the general public. In working to achieve that goal TransGrid will measure the number of incidents required to be reported to the relevant work, health and safety regulator. Other measures will include lost time injuries (L Tis) and high consequence incidents (HCis) with the intention of improving each year to achieve zero harm. Emphasis will be on:

• Delivering clear and simple safety procedures and work instructions;

• Effectively communicating and engaging staff on high consequence risks; and

• Ongoing management of contractor accreditation and performance management.

Deliver at least $1OOm revenue by 2018/2019 in lines of business where TransGrid has a competitive advantage. The focus for this year will be achieving continual growth in our two main business lines:

• Infrastructure- extension of current negotiated connection work and the development of contestable high voltage assets in other jurisdictions; and

• Telecommunications -long haul, high capacity services to large businesses in Australia. development of connections to NBN, telecommumcations facilities and the possibilities of joint ventures and partnerships.

This will be done through leveraging existing capabilities and in-place infrastructure to exploit a competitive advantage using our distinctive competencies in high voltage operations and maintenance.

The initiative will focus on the execution of our strategy and embedding a stonger customer service culture across the organisation.

61 Statement of Corporate Intent 2015/2016 ~~ TransGrid

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4. Strategic Direction

lnit ative

Preparing for a competitive future

Transitioning to the private sector

Strategic Responses

Improve our competitiveness for new business and drive down costs. In 2015/16 the initiative will drive an optimisation program to ensure that TransGrid provides safe and reliable services and delivers them at cost levels lower than the expenditure allowances determined by the Australian Energy Regulator (AER). Emphasis wi ll be on:

• Embedding the enhanced Asset Manager-Service Provider business model ,

• Optimising the maintenance program to undertake less routine maintenance within acceptable levels of risk;

• Utilising strategic procurement to deliver savings in capital and operating expenditure; and

• Optimising the delivery of capital projects to maximise the number of projects completed within our capital expenditure allowance set by the AER.

Engage our people to ach1eve a culture of high performance as we position TransGrid for the future. A strategic focus has been placed on ensuring TransGrid keeps its people engaged and committed to high performance as it transitions to the new lessee of the network. Emphas1s will be on

• Transaction support which has already commenced tn 2014/15 and Will contmue on tn 2015/16,

• Supporting staff to ensure ongoing engagement and productivity; and

• Effectively onboardtng the new lessee of the network to capitalise on new opportunities.

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7 1 Statement of Corporate Intent 2015/2016 4t, TransGrid ~

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5. Financial Performance Targets

TransGrid's f inancial performance targets for 2015/2016 to 2017/201 8 are shown in Table 1.

The targets reflect:

> The transmission network revenue from TransGrid's final transmission determination by the Australian Energy Regulator (AER) for the 2015/16 to 2017/18 regulatory period, with forecast revenue increases contained within the Consumer Price Index (CPI) over the regulatory control period.

> Growth in TransGrid's non prescribed revenue and profitabi lity from the organisation's business diversification strategy with a target of $52 mil lion of non prescribed revenue for the 2015/16 financial year.

> Cost savings based on TransGrid's Management Business Plan.

> The dividend payout ratio is in line with the medium term target as agreed with the shareholders and is in accordance with NSW Treasury's Financial Distributions Policy for Government Businesses. Dividend for 2015/"16 comprises the distribution from profit after tax

81 Statement of Corporate Intent 2015/2016

Table 1: Financial performance targets

Targets 2015/16 2016/17 2017/18 SCI Forecast Forecast

Revenue ($m)

Earnings before interest, tax, depreciation & amortisation ($m)

Profit after tax ($m)

Capital expenditure program ($m)

Return on assets(%)

Dividend payout ratio(%)*

* Payout ratio relates to distribution from distributable net profit after tax for each year.

855

660

152

322

6.2

100

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812 858

597 645

99 118

337 309

5.0 5.4

100 100

~~ TransGrid

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6. Non Financial Performance Targets

Measure Target

Workplace safety

Environmental performance

Project performance

Reliability

Consumer and stakeholder engagement

Customer experience

Performance culture

t

No more than 8 reportable incidents to the applicable work, health and safety regulator, leading to zero

No more than 3 reportable environmental incidents to the applicable regulator, leading to zero

75% of major projects on time and on budget

4 or fewer loss of supply events which are~ 0.05 system minutes

Show improvement from the benchmark set in June 2015

Show improvement from the benchmark set in June 2015

Show improvement in satisfaction compared to the benchmark set in June 2015

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9 1 Statement of Corporate Intent 2015/2016 ~~ TransGrid ~

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7. Reporting Obligations

During the course of 2015/20.16, Voting Shareholders will be provided with annual and half yearly reports in addition to State budget forward estimates and quarterly

performance reports of financial information to Treasury. as per Schedule 1 and Schedule 2.

Schedule 1: Statutory reporting requirements

Half year financial report

Annual report

Schedule 2: Additional reporting requirements

State Budget Forward Estimates*

Quarterly performance reports

Indicative timeframes are shown for the submission of State Budget forward estimates during 2015/16 based on the actual submission timeframes for 2014/15.

10 1 Statement of Corporate Intent 2015/2016 ~~ TransGrid

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8. Policy Compliance

The following Representation and Commitment Statement IS based on guidance provided by NSW Treasury.

1. The Board of TransGrid confirm the following:

a) The performance targets Within this Statement of Corporate Intent are based on and supported by TransGrid's Corporate Plan.

b; TransGrid's Board agrees to provide the Voting Shareholders with f inancial and other information, including information on major capital expenditure projects, on a quarterly basis to assess the pe1iormance against commitments in this SCI and to assess the value of the Shareholders' investment in the business.

c) TransGrid's asset maintenance policies and processes are adequate and appropriate to manage and control risks associated with physical assets.

d) All known 'key risks' and 'major emerging contingent liabilities' which could materially impact the current and future results of TransGrid for the coming year have been disclosed.

e) TransGricl has demonstrated its own internal audit and nsk management practices are consistent with standards recommended for Australian Securities Exchange (ASX) listed companies and where appropriate, has applied any addi:ional requirements tl1at are set out in NSW TC 09108 Internal Audit and Risk Management Policy.

11 1 Statement of Corporate Intent 2C 15/2016

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f) TransGrid's Managmg Director has an employment contract and performance agreement. The performance agreement is appraised following the end of each financial year. The employment contract expires on 26 April 2020.

g) TransGricl's Strategic Asset Management Plan IS, as far as practicable, consistent with the principles of the TPP 13-3 Total Asset Management (TAM) requirements for updating the NSW State Infrastructure Strategy (SIS) and the NSW Government Procurement Policy.

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h) The proposed dividends 111 this Statement of Corporate Intent will not put pressure on prices, service quality or future reliabil ity and take into account the requirements of TPP ·14-4 Financial Distributions Policy for Government Businesses. The additional dividend for 2015/16 and the dividend payout ratio are in accordance witll the dividend recommendation letter to the Shareholder Ministers dated 15 June 2015

~~ TransGrid

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9. State Owned Corporations Applicable TPPs under the Commercial Policy Framework

TPP 05-2 Reporting and Monitoring Policy for Government Businesses

TPP 14-4 Financial Distribution Policy for Government Businesses

TPP 02-7 Capital Structure Policy for Government Businesses

TPP 14-3 Government Guarantee Fee Policy for Government Businesses

TPP 09-2 Guidelines for Board of Government Businesses

TPP 06-1 CEO Contract Guidelines for Government Businesses

TPP 03-6 State Owned Corporation Indemnity Policy

TPP 07-4 Guidelines for Financial Appraisal

TPP 02-4 Guidelines for Assessment of Projects of State Significance

TPP 07-7 Treasury Management Policy

ATO Manual for the National Tax Equivalent Regime

July ·1994 Social Program Policy for NSW GTEs

TPP 13-3 Total Asset Management (TAM) Submission requirements

121 Statement of Corporate Intent 2015/2016

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-" r- r- r- r- r- ....- r,-- - - -1 0. State Owned Corporations Mandatory Accounting Policies

Financial Distribution Policy for Government Businesses

NSWTC 14/07 2013-14 Financial Accounting Arrangements for the Crown Entity

NSWTC 14/05 Accounting for Superannuation

NSWTC 14/04 Accounting for Long Service Leave and Annual Leave

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NSWTC 15/03 Mandates of Options and Major Policy Decisions under Australian Accounting Standards

NSWTC 15/02 Mandatory early close procedures for 2014-15

NSWTC 11/16 Accounting for Commonwealth Paid Parental Leave

NSWTC 10/15 Accounting for the Goods and Serv1ces Tax

TPP 14-1 Valuation of Physical Non-Current Assets at Fair Value

TPP 11-1 Lessor Classification of Long Term Land Leases

TPP 09-3 Contributions by Owners Made to Wholly-Owned Public Sector Entities

TPP 08-1 Accounting for Financial Instruments

TPP 06-8 Accounting for Privately Financed Projects

TPP 06-6 Guidelines for Capitalisation of Expenditure on Property, Plant and Equipment

TPP 05-4 Distinguishing For-Profit from Non-Profit Entities

13 1 Statement of Corporate Intent 2015/20~ 6

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