25 Minister for Energy Electricity Generators: Delta Electricity Eraring Energy Macquarie Generation Electricity Distributors: Country Energy EnergyAustralia Integral Energy Australi
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22 _ Auditor-General’s Report to Parliament 2009 Volume Three
DISTRIBUTORS
Energy Australia Integral Energy Country Energy Total
2009 2008 2009 2008 2009 2008 2009 2008
$m $m $m $m $m $m $m $m
Abridged Income
Statements
(year ended 30 June)
Total revenue 3,339.2 3,136.3 1,998.4 1,848.1 2,491.3 2,314.1 7,828.9 7,298.5
Profit before income
tax 330.7 373.4 205.6 239.1 125.0 50.2 661.3 662.7 Income tax equivalent 99.4 105.3 63.4 66.7 (34.0) 4.5 128.9 176.5 Dividends paid and
provided 172.9 183.5 103.6 125.0 29.2 49.1 305.7 357.6
Abridged Balance
Sheets
(at 30 June)
Total assets 8,948.1 7,920.7 4,305.7 3,918.7 4,974.3 4,642.2 18,228.1 16,481.6
Total liabilities 7,164.9 5,986.0 3,394.7 2,880.5 4,135.1 3,678.0 14,694.7 12,544.4
Net assets 1,783.2 1,934.7 911.0 1,038.2 839.2 964.2 3,533.4 3,937.1
Retained earnings
(at 30 June) 422.6 467.0 168.4 179.5 426.3 430.1 1,017.3 1,076.6
Financial Performance
Indicators*
(year ended 30 June)
Return on average
equity (%) 12.4 23.6 14.6 14.6 10.1 5.0 12.4 14.5 Return on average
assets (%) 7.1 11.6 8.7 9.2 6.8 4.9 6.5 8.7 Debt/equity 2.8 2.1 2.5 1.9 3.5 2.7 2.9 2.2 Interest cover (times) 2.2 2.5 2.4 2.9 1.6 1.3 2.1 2.2
* Indicators calculated in accordance with standard formulas used by the Productivity Commission
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Commentary on Government Agencies
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Minister for Energy
Electricity Generators:
Delta Electricity Eraring Energy Macquarie Generation
Electricity Distributors:
Country Energy EnergyAustralia Integral Energy Australia
TransGrid
Refer to Appendix 1 for:
Cobbora Unincorporated Joint Venture Cobbora Management Company Pty Limited
Cobbora Coal Unit Trust CCP Holdings Pty Limited
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Delta Electricity
AUDIT OPINION
The audits of Delta Electricity and its controlled entities’ financial reports for the year ended
30 June 2009 resulted in unqualified Independent Auditor’s Reports
Unless otherwise stated, the following commentary relates to the consolidated entity
The Independent Auditor’s Reports for Delta Electricity and Delta Electricity Australia Pty Ltd drew attention to significant uncertainty regarding forecast cash flows which may impact asset values
Delta Electricity and Delta Electricity Australia Pty Ltd calculate the carrying value of their power stations using estimated discounted cash flows These estimates are subject to volatility, particularly from the potential impacts of the Federal Government’s proposed Carbon Pollution Reduction Scheme The ultimate extent of this impact cannot presently be determined and this creates significant uncertainty as to whether the estimated discounted cash flows will be realised
KEY ISSUES
Restructure of Electricity Industry
The Government is proposing to contract Delta Electricity’s electricity trading rights to the private sector and to sell four of Delta Electricity’s development sites See the ‘Electricity Industry Overview’ section appearing earlier in this report for details on the sale and the Government’s final policy position on its ‘Energy Reform Strategy’ announced in September 2009
PERFORMANCE INFORMATION
Delta Electricity provided the following information regarding its performance:
2009 2009 2008 2007 2006
Generation of electricity
– gigawatt hours sent out 24,801 23,746 24,054 21,952 21,948
Plant availability
– total all stations (%) 82.0 86.8 77.3 75.5 86.5
Thermal efficiency
– total all stations (%) 35.6 34.6 35.0 35.2 35.0
Earnings before interest and tax ($m) 226.8 146.4 212.1 244.9 282.6
Return on equity (%) (a) 12.8 7.5 12.7 64.9 22.5
Debt to equity (%) 114.2 130.3 86.5 306.2 79.9
Total distributions to government ($m) 178.3 84.6 180.0 174.7 201.9
Capital expenditure ($m) 409.4 379.5 251.8 150.4 97.4
(a) profit after tax divided by equity
(b) earnings before interest and tax divided by total assets
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Plant availability measures the total time generating units were either in service or able to be placed in service over a given period Delta Electricity’s plant availability for 2008-09 was higher due to a lower number of unexpected technical difficulties
Thermal efficiency is a performance measure commonly used by power stations The thermal efficiency percentages above indicate the average percentage of energy contained in the coal used
by Delta’s Electricity’s power station to produce the electricity That is, a measure of the overall fuel conversion efficiency for the electricity generation process
Thermal efficiency is influenced by the design, age and condition of a power plant, as well as by the quality of coal used New South Wales government owned coal fired power stations outperform reported worldwide averages for thermal efficiency A brand new state of the art power station could expect to achieve a thermal efficiency in excess of 45 per cent.
Most financial performance measures were below target, driven by increases in generating costs, mostly relating to coal purchases, and lower prices and volumes for electricity sold
Debt to equity during 2008-09 increased due to an increase in borrowings from New South Wales Treasury Corporation to finance construction of the Colongra gas turbine In addition, a finance lease relating to the Colongra gas pipeline was also recognised for the first time In the absence of these two developments the debt to equity ratio would have been 92.8 per cent
Distributions to government comprised a dividend of $59.2 million ($124 million in 2007-08) and taxation of $25.4 million ($55.6 million) As Delta Electricity’s retained earnings have reduced to zero, its ability to pay dividends in the future will be limited to future earnings
OTHER INFORMATION
Valuation and Remaining Life of Power Station Assets
The carrying value of power stations represents 26.7 per cent of the power stations’ gross replacement cost, which indicates on average the power stations have slightly over one quarter of their service potential remaining
Delta Electricity’s power stations have a gross replacement cost of $10.4 billion After deducting accumulated depreciation of $7.4 billion and accumulated impairment of $225 million, the carrying value of Delta Electricity’s power stations was $2.8 billion
The remaining lives for most of Delta Electricity’s power stations range from 21 to 31 years Munmorah has an estimated remaining life of four to five years, with a generation capacity of 600 megawatts The retirement of Munmorah will be offset by the commissioning of Colongra, due for 2009-10 which will add 667 megawatts to the State’s generation capacity
Major Projects
Colongra Gas Turbine Power Station
Delta Electricity is finalising construction of a $574 million 667 megawatt gas turbine power station near its existing Munmorah coal fired power station The new station will operate as a peaking plant supplying electricity at short notice during times of high demand The plant is scheduled for completion in November 2009
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Colongra Gas Pipeline - Public Private Partnership
Delta Electricity entered into a public private partnership for the gas pipeline supplying the Colongra gas turbine The private sector partner owns and operates the gas pipeline, and has responsibility for its financing and construction Construction of the pipeline was completed this year
Delta Electricity pays a monthly fee in return for the availability of gas transportation and storage services over a period of 20 years Upon commencement of the lease, Delta Electricity recognised a lease asset and liability of $104 million
Joint Venture Co-generation Plants
In 2002 Delta Electricity, through its controlled entity Delta Electricity Australia Pty Ltd, entered into a joint development to design, construct and operate two 30 megawatt renewable energy electricity co-generation plants at Condong and Broadwater in northern New South Wales Construction reached practical completion in October and November 2008 for Condong and Broadwater respectively
These plants predominately burn bagasse, the waste material left after crushing sugar cane, to produce electricity to power nearby sugar mills and homes
Following completion of the plants, the joint venture began earning revenue from electricity and steam sales The joint venture also earns income from the sale of renewable energy certificates obtained from the production of renewable energy
Potential Development Sites
Delta Electricity has identified four sites for new generation capacity Proposals have been developed for construction of new gas turbines at Marulan (near Goulburn) and Bamarang (near Nowra), the rehabilitation of Munmorah as a gas or coal fired plant, and construction of new generation facilities at Mount Piper using either coal or gas
Delta Electricity is working to finalise the relevant approvals for these projects
The Government’s revised energy reform strategy, introduced to help secure the future supply of electricity in New South Wales, has identified these sites as suitable for the sale to the private sector
Coal Supply
Coal prices have increased significantly in recent years This has increased the risk for Delta Electricity in securing supplies of coal at competitive prices To mitigate this risk Delta Electricity, through its subsidiary Mid West Primary Pty Ltd, has entered into a joint venture with the other State owned generators to explore for and purchase coal resources in Central West New South Wales Further details appear in the Energy Industry Overview earlier in this report
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FINANCIAL INFORMATION
Abridged Consolidated Income Statements
2009 2008 2009 2008
$’000 $’000 $’000 $’000
PROFIT BEFORE FINANCE COSTS,
Finance costs 45,654 42,861 42,156 42,861
Depreciation 96,308 97,831 93,556 97,831
Income tax equivalent expense 25,369 55,560 29,684 56,083
Dividend provided 59,221 124,422 59,221 124,422
Total revenue included $983 million in electricity sales compared to $1.0 billion in the previous year The decrease was due to a combination of a reduction in electricity sales and a decrease in the average price for electricity from $41.66 to $38.85 per megawatt hour Profit before tax also decreased due to an increase in generation costs of $70.8 million, largely driven by coal price increases
Abridged Consolidated Balance Sheets
2009 2008 2009 2008
$’000 $’000 $’000 $’000
Current assets 292,490 208,032 337,332 248,350
Non-current assets 2,987,732 2,530,834 2,883,100 2,418,680
Current liabilities 417,094 565,351 407,512 561,645
Non-current liabilities 1,863,497 1,276,545 1,797,447 1,207,302
Current assets increased mainly due to a $33.6 million increase in financial assets This relates to changes in the value of derivative instruments used to manage energy price risk driven by changes
in the forecast price of electricity
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