This 2007/08 Sustainability Report details AGL’s performance over the last 12 months in managing our responsibilities to the environment, our customers, the community, and our employees.  It also provides an overview of our economic performance during the year and the measurement and management of our greenhouse footprint.  A key aspect of this report is the disclosure of our greenhouse footprint and the complex array of factors that contribute to it. This is detailed in the Greenhouse Footprint section of this report.

We would like to take this opportunity to discuss some of the challenges that our organisation will continue to face. 

Climate Change Initiatives

The Federal Government has released its Green Paper on the proposed emissions trading scheme, to be known as the Carbon Pollution Reduction Scheme (CPRS). Draft legislation for the CPRS is expected by the end of 2008. The CPRS will have implications across the whole economy and is one of the most significant economic policies that Australia has seen.

Over the past five years we have been analysing our own greenhouse footprint, and assessing the likely impact on the company from relevant international and domestic policies relating to emissions trading and renewable energy development.

AGL has worked with both Federal and State governments in the shaping of Australia’s policies on climate change. AGL supports the introduction of the CPRS and we will continue to assist the Federal Government in designing features of the CPRS ahead of its formal implementation in 2010.

Managing business risks and opportunities within the carbon constrained economy of the future is one of the major challenges faced by industry, and the whole community.  One of the immediate challenges for industry is to determine the cost of carbon permits under the CPRS.  AGL has taken a leading role in establishing a market for carbon permits by entering into Australia’s first carbon trade in May 2008, more than two years ahead of the planned commencement of the CPRS. We are directing resources to consolidate our existing carbon trading activities to capture the value in our zero and low emission generation assets.

AGL currently manages the largest privately-owned and operated portfolio of renewable generation facilities in Australia.  AGL's owned, operated and controlled renewable energy generation assets currently comprise around 27% of our generation portfolio (by installed capacity). and we continue to invest in renewable energy and low-emission generation projects in preparation for a carbon constrained future. These projects will enable us to benefit under the Federal Government’s proposed expanded Renewable Energy Target (RET).  The expanded RET proposes that, by 2020, 20% of Australia's electricity be supplied from renewable energy sources.

We will continue to manage changes in our greenhouse footprint as we develop electricity generation assets and upstream gas supply projects to meet Australia’s energy needs.  Our total greenhouse footprint has increased sixfold this year due to the inclusion of the gas-fired Torrens Island Power Station, which we acquired in July 2007. 

Although our total greenhouse footprint has increased, it is also important to consider the greenhouse intensity of assets managed and invested in by the company.   The greenhouse intensity of assets is a measure of the level of emissions of greenhouse gases for each MWh of electricity generated by the assets.  We have continued to lower the greenhouse intensity of our electricity output with increased investment in low-emission and renewable energy generation capacity.

This year, the greenhouse intensity of AGL’s owned, operated or controlled generation (including our equity share from Loy Yang Power) has decreased by 14% from 0.99 tCO₂e/MWh in 2006/07 to 0.85 tCO₂e/MWh.

Developing World Class Customer Service

AGL is Australia’s largest energy retailer with more than 3.2 million customer accounts.  We are continuing to build our competitive capability through the ongoing roll-out of the Phoenix change program. This four year business transformation program commenced in 2006 and involves the standardisation and simplification of our systems and processes to provide our employees with the tools they require to meet our customers’ needs.  Phoenix will see the full replacement of multiple billing and customer management systems with a single billing and customer management system using a SAP platform.

More than 1.6 million customer accounts were transferred to the new SAP platform this year, and the final transfer will take place by 31 December 2008.

AGL’s Retail Energy teams have been reorganised as part of the Phoenix program to provide enhanced service to our residential and small business customers.

Project Phoenix is on track and delivering early benefits. However, maintaining high customer service standards during this transition period was challenging.  We experienced an increase in customer complaints in the first few weeks following the first transfer of customers on to the new SAP platform and worked hard to rectify these issues quickly.

As a result of Project Phoenix, our customers should experience improved standards of service at a lower cost to the company.

The Safety of our Employees

The safety and wellbeing of our employees is a paramount concern for AGL management and the AGL Board, particularly as we increase our interests in the construction and operation of electricity generation assets and upstream gas activities.

Our Lost Time Injury Frequency Rate (LTIFR) decreased from 5.0 to 3.6 this year, an indication of a reduction in the overall number of work related injuries.  However, the medical treatment injury frequency rate and average duration of lost time injuries both increased during the period.  Contributing to this were stress-related injuries in our retail business, the result of significant activity around new process and systems roll-outs.

During the year, the Torrens Island Power Station celebrated its eighth year without a lost time injury.  This is an achievement that all employees at Torrens Island should be proud of.

The AGL Board has also established a separate Board Committee – the Safety, Sustainability and Corporate Responsibility Committee – to provide additional Board oversight of a number of matters including the company’s occupational health and safety management framework.

Engaging our Employees

We believe that there is a direct correlation between the level of engagement of our employees and achievement of the company’s operational, customer service, and financial objectives.  AGL regularly surveys its employees to measure levels of employee engagement.

During 2007/08, our employee engagement rating improved and, although encouraging, there remains opportunity for further improvement.  During 2008/09 we will continue to develop our programs to further increase employee engagement.

Engaging with the local community

Our engagement with the local communities in which we operate has always been a priority for AGL and has become even more important as we increase our electricity generation assets and upstream gas supply activities. We have a responsibility to work with the community to develop mutually beneficial outcomes and to manage sensitively the environmental aspects of our projects.

During 2007/08, AGL engaged with local communities regarding major developments in a number of areas including the Hallett and Burra regions in South Australia and the Mount Beauty/Bogong area of Victoria.  In November 2007, the Victorian Premier, Hon John Brumby MP, and the Minister for Energy, Hon Peter Batchelor MP, visited the Bogong site and hosted media and local community representatives on a tour of the site.  In June 2008, the South Australian Premier, Hon Mike Rann MP, officially opened the Hallett Wind Farm in South Australia. Local community representatives attended both of these events.

This report documents how we have met the various challenges we faced during 2007/08. We welcome your views on this report and on our performance through the feedback mechanisms listed in this report .

Mark Johnson Chairman

Michael Fraser Managing Director and CEO