1. ERGON ENERGY'S APPROACH TO CORPORATE GOVERNANCE

The Board of Directors (the Board) is responsible for the corporate governance of Ergon Energy Corporation Limited and its controlled entities (the Group).

The Board and management are committed to conducting all business activities, legally, ethically and with strict observance of the highest standards of integrity and propriety.

To achieve this requires sound corporate governance practices and policies that have been adopted by the Board and implemented throughout all levels of management.

Each director is expected to have regard to these practices and policies in the performance of his or her duties as a director of the Company.

Good corporate governance is a fundamental part of the culture and the business practices of the Group.

Ergon Energy's corporate governance practices are further described in the "Corporate Governance Statement" section of the Governance and Annual Financial Report 2008-09.

The Australian Stock Exchange (ASX) Corporate Governance Council released Principles of Good Corporate Governance and Best practice Recommendations ('the Principles") on 31 March 2003. Ergon Energy has reviewed its current practices and established that, where the Principles are applicable to a Government Owned Corporation (GOC), it is substantially in accordance with the Principles.

This position has been confirmed by internal audit findings in September 2004.

The State of Queensland (Queensland Treasury) issued Corporate Governance Guidelines ('the Guidelines") for Government Owned Corporations in September 2005.

These guidelines have been drafted having regard to the ASX Principles, Reports from the Queensland Auditor-General and the OECD Principles of Corporate Governance.

In some instances, the recommendations in the guidelines differ from those in the principles.

Where appropriate, new policies and procedures have been developed in response to these differences.

Ergon Energy will continue to review its policies and practices in light of further developments in corporate governance and new guidelines that are generally accepted by the business community.

The corporate governance section on this website will be progressively updated with any changes to the company's governance arrangements.

2. BOARD OF DIRECTORS

The Directors of the parent company are appointed by the Governor-in-Council in accordance with the Government Owned Corporations Act 1993 and are accountable under the provisions of that Act to the Queensland Government shareholding Ministers.

All, including the Chairman, are non-executive Directors, and in light of the interests disclosed by those Directors, are assessed as being independent based on the seven criteria for assessing the independence of directors under the ASX Corporate Governance Guidelines.

When conducting the assessment, materiality is judged on a case-by-case basis by reference to each Director's individual circumstances rather than by general materiality thresholds.

The Board has set out the functions that have been delegated to it in the Constitution and at law and those delegated to management in a Board Charter and a policy document Delegation of Powers.

ASX Best Practice Recommendation 1.1, 2.1, 2.2, 2.3
GOC Guidelines, Principle 1,2

3. BOARD PERFORMANCE

3.1. Evaluation

The Board reviews and evaluates the performance of itself and Committees on a regular basis with the guidance of the Chairman.

The framework for the conduct of the review is set out in a Board Performance Evaluation Policy which provides that the process selected may vary from year to year depending upon the circumstances and that a report of the evaluation is to be provided to the shareholding Ministers.

External consultants have been engaged to facilitate the 2007 review.

This will involve interviews with individual directors and a Board workshop to present the findings from the interviews and to consider areas for improvement in board performance.

ASX Best Practice Recommendation 8.1
GOC Guidelines, Principle 2,8

3.2. Induction and Continuing Education

Senior management, working with Chairman, provide an orientation program for new Directors in order to assist them in fulfilling their duties and responsibilities.

The program included discussions with the Chief Executive and members of the Executive Management Team, the provision of reading material, tutorials and workshops.

These include details of the director's rights, duties and responsibilities, the Company's strategic plans, its significant financial, accounting and risk management issues, its Code of Conduct, management structure and its internal and external auditors.

A board handbook is made available to directors to facilitate the board operations.

Directors are also encouraged to keep up to date on relevant topical issues.

ASX Best Practice Recommendation 8.1.
GOC Guidelines, Principle 1

4. ACCESS TO INFORMATION AND INDEPENDENT PROFESSIONAL ADVICE

The Directors Code of Conduct provides for each director to have the right to seek independent professional advice at the Company's expense, subject to the prior approval of the Chairman.

The Board has the authority to conduct or direct any investigation required to fulfil its responsibilities and has the ability to retain, at the Company's expense, such legal, accounting or other services, consultants or experts as it considers necessary from time to time in the performance of its duties.

To effectively discharge its responsibilities, the Board may request additional information from management.

In the normal course, requests by a director for access to information from management, or access to an employee, should be made via the Chief Executive or Company Secretary or otherwise in accordance with protocols or arrangements approved by the Board or Chief Executive.

The Company has entered into a Deed of Access with each Director giving them right of access to all documents that were provided to them during their term in office, and for a period of seven years after ceasing to be a Director.

ASX Best Practice Recommendation 2.5.
GOC Guidelines, Principle 8

5. CONFLICTS OF INTEREST

Directors and senior executives are expected to observe the highest standards of ethical behaviour, the requirements for which are defined in the Directors Code of Conduct and Employees Code of Conduct policies.

These standards are further expanded in the Conflict of Interest Guidelines.

Directors are expected to avoid any action, position or interest that conflicts with an interest of the Company, or gives an appearance of a conflict.

In accordance with the Corporations Act 2001, any director with a material interest in a matter must not be present when the matter is being considered and may not vote on the matter.

A Director who has a material personal interest in a matter that relates to the affairs of the Company must give the other Directors notice of such interest.

The Board regularly reviews the register of Director's interests and all new declarations of interest by Directors should be provided in writing to the Company Secretary, who is to ensure that the declaration is brought to the attention of the other directors.

The Board has approved a Trading in Securities Policy which provides that Directors, officers or employees who may in the course of their duties have access to inside information about a company's securities that aren't generally available to others, must not use this information in deciding whether or not to buy or sell those securities.

ASX Best Practice Recommendation 3.1, 3.2
GOC Guidelines, Principle 3

6. REPORTING OF UNLAWFUL/UNETHICAL BEHAVIOUR

The Company actively encourages the reporting of unlawful/unethical behaviour and has established an independent service (FairCall Service) that provides a means by which a person can report suspected fraud, unethical conduct or breach of policy.

The service reflects the principles embodied in the various whistle blowers' protection standards and ensures fairness to all concerned.

ASX Best Practice Recommendation 3.1
GOC Guidelines, Principle 7

7. BOARD COMMITTEES

The Board has established a number of committees to assist in the execution of its duties and to allow detailed consideration of complex issues.

Current committees of the Board are:

Audit & Financial Risk
Operational Risk
People

ASX Best Practice Recommendation 4.2, 4.3, 4.4
GOC Guidelines, Principle 1, 4, 9

8. RISK MANAGEMENT, COMPLIANCE AND INTERNAL CONTROLS

The Board has adopted overarching polices for risk management and compliance which govern the overall approach of the Company to the management of risk.

These policies are designed to ensure that strategic, operational, legal, reputational, financial and business risks are identified, assessed, monitored and managed to produce better performance outcomes and minimise unnecessary volatility.

Risks are managed by setting appropriate levels and areas for risk retention, and where necessary, through the use of insurance or other forms of risk financing and risk transfer.

The Board requires the Company and its executives to conduct all business activities in a manner that complies with the law and Board approved delegated limits of authority.

Considerable importance is placed on maintaining a strong control environment to safeguard the Company's and stakeholders interests.

Detailed control procedures cover management accounting, financial reporting, project appraisal and approval, environment, health and safety, information technology, security, compliance and other key risk areas.

An internal audit section has been established and operates under the terms of an Internal Audit Charter.

Compliance with control procedures is subject to investigation by Internal Audit as part of an annual plan approved by the Audit and Financial Risk Committee.

Detailed questionnaires on key aspects of operational and financial risks are completed by senior management on a quarterly basis and are reviewed by the Operational Risk Committee and the Audit & Financial Risk Committee.

When presenting financial statement for approval, the Chief Executive and Chief Financial Officer provide a formal statement to the Board that:

• The company's financial statements present a true and fair view, in all material respects, of the company's financial condition and operational results in accordance with relevant accounting standards;
  
• The company's financial statements are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board, and
  
• The risk management and internal control systems are sound and operating effectively in all material respects.

ASX Best Practice Recommendation 4.1, 7.1, 7.2, 7.3
GOC Guidelines, Principle 4, 7

9. REMUNERATION

9.1. Directors

Directors are remunerated separately from executive management.

Directors' emoluments are set by State Government regulation, with other fees and allowances determined on the basis of meetings attended and expenditure incurred in performing their roles as Directors of the Company.

Directors of the Company do not participate in any variable reward or at risk plan.

ASX Best Practice Recommendation 9.1, 9.3, 9.5.

9.2. Senior Executives

The People Committee recommends Executive remuneration to the Board as part of an annual review.

Input is sought from several industry and market surveys (in addition to that from the shareholding Ministers) when determining the level of remuneration for these positions.

Final approval is required from shareholding Ministers ensuring that remuneration arrangements for the Executives are appropriate.

Executive staff are eligible for an at risk or variable component that is directly linked to both the overall performance of the Company and their individual efforts against a range of key indicators.

Any at risk payment is totally contingent upon the Board's assessment of the Company's overall performance.

ASX Best Practice Recommendation 9.1, 9.2, 9.3, 9.5
GOC Guidelines, Principle 9

10. STAKEHOLDERS INTERESTS

The Board has a formal Directors Code of Conduct to guide compliance with legal and other obligations to legitimate stakeholders.

10.1 Shareholders

Ergon Energy is required to keep the shareholding Ministers reasonably informed (GOC Act, Section 133)

A Disclosure to Shareholders Policy has been adopted to ensure that these requirements are met and Ergon Energy will, in addition to any other disclosure obligations, provide the shareholding Ministers with sufficient information to enable the shareholding Ministers to properly fulfil their obligations, will base its disclosures on a 'no-surprises' approach and will ensure that its disclosure of information is: