## Note 2 – Significant accounting judgements, estimates and assumptions (continued) 

## Provision for environmental restoration 

The consolidated entity estimates the future removal and restoration costs of electricity generation assets, oil and gas production facilities, wells, pipelines and related assets at the time of installation of the assets. In most instances, removal of these assets will occur many years into the future. The calculation of this provision requires management to make assumptions regarding the removal date, application of environmental legislation, the extent of restoration activities required and available technologies. The carrying amount of the provision for environmental restoration is disclosed in Note 31. 

## Defined benefit superannuation plans 

Various actuarial assumptions are utilised in the determination of the consolidated entity’s defined benefit obligations. These assumptions and the related carrying amounts are discussed in Note 48. 

## Share-based payment transactions 

The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using the Black-Scholes and Monte Carlo simulation methods, with the assumptions detailed in Note 49. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity. 

## Carbon price 

On 8 November 2011, the Federal Parliament passed the Clean Energy Legislative Package, which introduced a carbon price into the Australian economy from 1 July 2012 to reduce carbon pollution and move to a clean energy future. 

The carbon pricing mechanism has a two phased approach: a fixed price mechanism, followed by an emission trading scheme (ETS). Under the carbon pricing scheme, as of 1 July 2012, every tonne of carbon dioxide equivalent (CO$_{2}$-e) produced by approximately 500 of Australia’s largest emitters will be priced at $23 per tonne. For the first three years, the carbon price is fixed, rising annually by 2.5%. On 1 July 2015, the pricing mechanism will transition to the floating ETS. 

To assist the electricity generation sector transition to lower carbon emissions and to maintain secure energy supplies, the Government established an Energy Security Fund. Under the Energy Security Fund, the Government is providing a total of $5.5 billion in the form of cash and free carbon permits to highly emissions-intensive coal-fired generators, over six years. Cash payments of $1 billion were made in June 2012 and eligible generators will share in four annual allocations of 41.7 million free carbon permits to the value of $4.5 billion, commencing on 1 September 2013. 

On 22 June 2012, Great Energy Alliance Corporation Pty Limited (GEAC), the owner of the Loy Yang A power station, received a coal-fired generation assistance cash payment of $240.1 million from the Australian Government as part of this arrangement. GEAC, a subsidiary of AGL Energy Limited, also anticipates receiving allocations of approximately 10 million free carbon permits on 1 September 2013, 2014, 2015 and 2016, respectively that are conditional on Loy Yang A satisfying a power system reliability test and publishing a Clean Energy Investment Plan. 

The impact of the carbon price on the consolidated entity’s future cash flows has been included in the estimation of the recoverable amount of the consolidated entity’s cash-generating units when testing for impairment at 30 June 2012. The introduction of the carbon price does not impact on the consolidated entity’s operating results for the year ended 30 June 2012. 

## Note 3 – Correction of unbilled distribution liability 

During the year ended 30 June 2012 AGL completed Project Spectrum. Project Spectrum transferred AGL’s business customers onto the same SAP billing platform as its consumer customers (excluding 118,600 Powerdirect customers). This single SAP billing platform has materially enhanced the granularity of analysis that is able to be performed on customer balances. Using this enhanced capability, AGL undertook a comprehensive review of debtors, unbilled sales, creditors and unbilled distribution costs. 

This review highlighted that, in prior periods, AGL had consistently but incorrectly estimated period-end distribution liabilities by using a methodology to accrue distribution charges based on an estimated number of days not yet billed by the relevant distributor in each state. AGL believed that this estimate fully accounted for invoices relating to the relevant period end that had yet to be received. However, this estimate has never fully accounted for invoices received after the relevant period end relating to distribution charges incurred prior to the period end. 

It has been impracticable to allocate the increased liability between opening balance liabilities arising from business acquisitions and increased expenses in prior periods. Accordingly, opening retained earnings for the year ended 30 June 2012 has been reduced by $79.9 million as a result of an increase in the opening distribution liability of $114.1 million and a net decrease in tax liabilities of $34.2 million. Actual distribution expense for the year ended 30 June 2012 has been correctly reflected in current year operating profit. 

## Note 4 – Segment information 

## Operating segments 

The consolidated entity reports segment information on the same basis as the internal management reporting structure, which drives how the consolidated entity is organised and managed. 

The consolidated entity has identified its operating segments based on the internal reports that are regularly reviewed and used by the Board of Directors (the chief operating decision maker) in assessing performance and in determining the allocation of resources. Management has determined the operating segments based on the manner in which products are sold, whether retail or wholesale, and the nature of the services provided. 

From 1 July 2011, the following changes were made to the consolidated entity’s operating segments: 

> Business customers (formerly commercial and industrial) previously reported in the Retail Energy operating segment are now included in the Merchant Energy operating segment; and 

> Certain administration costs (mainly finance and information technology) previously reported in the Retail Energy, Merchant Energy and Upstream Gas operating segments are now included in Other. 

Segment results are reported according to the internal management reporting structure at the reporting date. Segment comparative information has been restated to reflect the changes described above. 

