We sat down with Chief Financial Officer Michael Crevola to talk through our annual results.
Michael. Welcome. How would you describe the state of the books at the moment?
Michael Crevola (MC): “Thanks. I know accountants aren’t always noted for getting too excited, but Western Power has had a remarkable year. Exceptional even. We are genuinely becoming a well-run and well-managed business.
Through the hard work of every single employee we’ve significantly cut costs while improving the safety and reliability of the network.
All this effort has allowed us to repay $143.5 million of debt for the first time in our organisation’s history. That reduces the overall debt of our owner, the State Government and ultimately the burden borne by taxpayers. We should all be very proud.
In addition to this, we also delivered a net profit of $269 million (excluding Gifted Assets). While this is a good result, it’s worth keeping in mind that Western Power has more than $7 billion in debt. So that is a modest return on our assets."
You mentioned the reduction in our spending, can you talk more about that?
MC: “The power landscape is constantly changing. You know it even from things like mobile phones and electric vehicles. People also have the option to generate their own electricity. So we need to be as efficient as ever. This is the only way will we continue to convince customers that the most effective way of powering their lifestyles is with a grid connection, even in combination with renewable energy or other solutions.
To this end, we’ve spent the past two years in a relentless search for savings. Last year, we spent $1.2 billion maintaining and building the network; the lowest level since 2006.
This “total” spending is made up of capital and operating expenditures. Capital is the spending we make on poles and wires and transformers. Operating expenditure, or “opex” is spending on things including maintenance and day-to-day running expenses.
Both measures have improved, as you can see from this chart on opex below. Since the peak in 2011/12, we have achieved operational savings of $65 million year on year with more set to be delivered. This ultimately means we are helping take pressure off household power bills.”
So what does this mean for our owner?
MC: “It means we are able to give the Government increasing returns, which benefits all taxpayers and helps the Government in this period of budget repair.
Our normalised payments to the Government in the 16/17 financial year were $325 million – a record. While this will likely represent a near-term high mark given we are about to go into our next regulatory cycle, it reinforces the solid financial footing we’re on. In addition, we repaid debt for the first time in our history. This will allow us to respond in the best way possible to the emerging energy landscape for our customers.”
So how are these numbers showing up in a way people can grasp?
MC: “Basically, it means all of the services we provide to the community are getting cheaper. Whether that’s installing or replacing wood poles and wires, or emergency response and everything in between. For example, the cost of us reinforcing a wood pole fell by 19 per cent last year. That has improved our safety bang for buck.”
And we spend $21 million a year less now on responding to emergencies, while being safer and more reliable than ever.
So where to now?
MC: “Well, none of this makes any real difference unless we are also providing as safe and reliable a service as possible. So what was really pleasing this year was that in terms of reliability performance, for the second time in our history, we met all 17 Service Standard Benchmarks set by our independent regulator, the Economic Regulation Authority.
On safety our Total Recordable Injury Frequency Rate was 3.2 – beating our tougher target of 4.0 per million hours worked, placing us amongst the best networks in Australia.
We can’t rest on our laurels though, the upcoming year is critical for the business.
Our next regulatory submission to the Economic Regulation Authority will happen in October 2017. If approved, we expect very small increases to the network charge which will translate to a very low impact on residential customer bills over the next five years.”
Annual Report 2017
For full results, download our annual reportAnnual Report 2017