FINANCIAL INFORMATION Abridged Income Statements_part1 pdf

Most of its generation comes from Eraring Power Station, which uses thermal coal.. The thermal efficiency percentages above indicate the percentage of energy contained in the coal used b

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_ Delta Electricity

Auditor-General’s Report to Parliament 2009 Volume Three _ 31

Non-current assets increased mainly due to purchases of property, plant and equipment Asset additions for the year totalled $484 million, which included construction costs associated with Colongra and initial recognition of the finance lease asset for the Colongra gas pipeline ($104 million)

Total liabilities increased as a result of additional borrowings of $424 million from New South Wales Treasury Corporation for the construction of Colongra and the finance lease over the gas pipeline for $103 million This increase was partially offset by a $130 million decrease in financial liabilities, resulting from changes in the value of electricity derivative instruments

The parent entity has advanced $71.4 million ($42.1 million) to its controlled entities at

30 June 2009 on an interest free basis The recovery of these advances is dependent upon the controlled entities ability to generate future profits

ENTITY ACTIVITIES

See the ‘Electricity Industry Overview’ section earlier in this report for general industry comment

Delta Electricity was constituted in March 1996 as an electricity generator under the Energy Services Corporations Act 1995 and as a statutory State owned corporation under the State Owned Corporations Act 1989 The voting shareholders are the Treasurer and the Minister for Finance

Delta Electricity operates the Mount Piper, Vales Point, Wallerawang and Munmorah coal-fired power stations, and three mini hydro generators It provides around 12 per cent of electricity to the National Electricity Market The Colongra gas turbine power station is under construction and is scheduled for completion in November 2009

For more information on Delta Electricity, refer to www.de.com.au

CONTROLLED ENTITIES

Delta Electricity Australia Pty Ltd

$’000 $’000

Loss after tax 10,304 1,377

Total assets 109,151 113,797

Total liabilities 125,242 115,066

Net liabilities (at 30 June) 16,091 1,269

The company began earning revenue after completion of plant construction during the year The Company expects to significantly increase revenue in 2009-10 following the resolution of issues associated with commissioning the plants and allowing for a full year’s production

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Delta Electricity _

32 _ Auditor-General’s Report to Parliament 2009 Volume Three

Revenue includes sales of electricity and green certificates of $10.7 million Expenses include generating costs of $9.7 million, and impairment write-downs and depreciation on the co-generation plant of $8.2 million and $2.7 million respectively

Total assets decreased due to impairment and depreciation on the co-generation plant Total liabilities increased largely due to $8.0 million in advances from Delta Electricity The advances totalled $50.2 million at balance date and are on an interest free basis The advances are repayable on demand, but only after the company’s private sector borrowing repayments are met The Company has advised that it will review its funding and capital structure during 2009-10

Mid West Primary Pty Ltd

$’000

Total assets 22,797

Total liabilities 23,414

Net liabilities (at 30 June) 617

* Comparative information is not available as this is the first period of company operation

Mid West Primary Pty Ltd was formed on 7 August 2008 The Company is a participant in a joint venture to explore, investigate and operate coal resources in New South Wales The Company has a 38.3 per cent interest in the joint venture and is entitled to 38.3 per cent of the output

Total assets are mainly $21.0 million in advances made from the company to the joint venture and related entities Total liabilities mainly comprise interest free advances of $21.3 million received from Delta Electricity

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Eraring Energy

AUDIT OPINION

The audit of Eraring Energy and its controlled entity’s financial reports for the year ended

30 June 2009 resulted in an unqualified Independent Auditor’s Reports

The auditor’s report included an emphasis of matter paragraph drawing attention to Eraring Energy’s power station equipment and buildings valuation The carrying value of Eraring Energy’s power station equipment and buildings is determined using estimated discounted cash flows These estimations are subject to volatility, particularly from the potential impacts of the Federal Government’s proposed Carbon Pollution Reduction Scheme (the Scheme) The ultimate extent of the impact of the Scheme cannot presently be determined and this creates a 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 Eraring Energy’s electricity trading rights to the private sector See the ‘Electricity Industry Overview’ section appearing earlier in this report for details on the Government’s final policy position on its ‘Energy Reform Strategy’ announced in September

2009

PERFORMANCE INFORMATION

Operational Performance

Eraring Energy operates a diverse portfolio of generating assets comprising thermal coal, hydro and wind Most of its generation comes from Eraring Power Station, which uses thermal coal Eraring Power Station produced 15,426 gigawatt hours of electricity in 2009

Generation was down on recent record levels High generation occurred at Eraring Power Station in the previous two years because of the drought conditions Eraring Power Station uses relatively little water in its electricity production processes, whereas some of its competitors, who use fresh water for cooling, had to curtail production during the drought This provided Eraring Power Station with opportunities for increased generation With the easing of the drought, competitors’ generation levels have returned to normal

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Eraring Energy _

Some of the indicators Eraring Energy uses to assess its electricity generation performance are shown below

2009 2009 2008 2007 2006 2005

Generation of electricity (gigawatt hours)

Thermal coal 17,600 15,426 17,283 17,530 14,216 12,703

Hydro 254 101 92 114 309 202

Wind 28 30 24 24 26 28

Plant availability (%) 90.2 86.1 92.5 93.0 86.9 85.9

Thermal efficiency as

generated (%) 38.0 37.8 37.9 37.9 37.9 37.9

Source: Eraring Energy

Plant availability measures the total time Eraring Power Station’s generating units were producing electricity or able to produce electricity over a given period Plant availability is directly impacted

by the amount of time required for maintenance and capital improvements Eraring’s plant availability was adversely impacted by increased maintenance in 2009

Thermal efficiency is a performance measure commonly used by power stations The thermal efficiency percentages above indicate the percentage of energy contained in the coal used by Eraring 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, source of cooling water, 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 achieve a thermal efficiency in excess of 45 per cent Eraring Power Station’s thermal efficiency is better than other New South Wales government owned coal fired power stations because it is one of the most recent designs in the State, benefits from coastal cooling and is well maintained

Consolidated Financial Performance

2009 2009 2008 2007 2006 2005

Earnings before interest, tax,

and depreciation from

normal operations ($m)(a) 342.6 215.5 270.2 272.4 182.4 181.4

Return on equity (%) (b) 9.0 6.0 8.3 34.6 11.0 6.9

Return on assets (%) (c) 8.6 5.7 7.3 6.9 7.1 8.0

Interest cover (times) 5.0 4.2 9.1 13.8 7.2 10.0

Total distributions to

government ($m) (d) 188.4 95.4 159.1 193.8 97.0 115.7

Debt/equity (%) (e) 37.5 52.5 27.9 77.7 23.5 14.5

Capital expenditure ($m) 187.0 189.1 55.0 38.0 36.3 43.4

(a) Excludes fair value movements in electricity derivatives, superannuation and insurance provision movements

(b) Net profit after tax (excluding fair value movements in electricity derivatives, superannuation and provision movements) divided by total equity

(c) Earnings before interest and tax from normal operations divided by total assets

(d) Total distribution before adjustment for Community Service Obligation

(e) Total interest bearing liabilities divided by total equity

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_ Eraring Energy

This is the first year since Eraring Energy commenced operations that the entity did not meet agreed targets The 2009 results reflect lower than expected electricity prices, as well as lower generation levels as drought conditions eased

Capital expenditure has increased significantly in 2009 to fund major projects, some of which are discussed below Further significant capital expenditure is expected in coming years

Eraring Energy’s 2007 return on equity ratio was impacted by a significant fluctuation in equity levels that particular year The Corporation’s equity levels were adversely impacted by the entity’s position on electricity derivatives at year end

OTHER INFORMATION

Major Project Expenditure

Work continues on the Eraring Power Station capacity upgrade The project will increase the nominal capacity of each of the Eraring Power Station’s four units from 660 megawatts to

720 megawatts This will increase the Station’s capacity to generate electricity

During the upgrade process, plant availability will reduce because units will be out of service Accordingly, Eraring Power Station’s electricity generation target for 2009-10 is less than 17,000 gigawatt hours The upgrade is scheduled for completion by December 2011 and the generation target for 2011-12 is almost 19,000 gigawatt hours (as generated) After the upgrade, Eraring Power Station will have the largest capacity of all New South Wales public sector power stations

Performance improvements are also underway with the construction of an 800 megalitre cooling water reservoir Eraring Power Station uses salt water from Lake Macquarie for cooling This means that Eraring Power Station performs favourably in terms of fresh water usage compared to many stations However, because the water is returned to the lake after use, the exit temperature of the used water is a constraint on production The cooling water reservoir will reduce water exit temperatures and permit higher levels of generation in hotter months The reservoir is due for completion by January 2010

Coal Supply

Coal represents the highest expenditure category and presents challenges for the organisation to manage future costs Contracts are in place for a significant proportion of future years’ coal requirements

As part of its strategy to minimise risks associated with increasing coal costs, Eraring Energy is a participant in the Cobbora Unincorporated Joint Venture with other State owned power generators, Macquarie Generation and Delta Electricity

Eraring Energy incurred capital expenditure of $9.9 million on land purchases for the Cobbora mine through its subsidiary company Rocky Point Holdings Pty Limited

Further detail on the Cobbora Coal Project appears in the ‘Electricity Industry Overview’ earlier in this report

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Eraring Energy _

FINANCIAL INFORMATION

The following consolidated financial information is for Eraring Energy and its controlled entities Controlled entities are considered immaterial

Abridged Income Statements

2009 2008 2009 2008

REVENUE

Electricity sales and other 628,501 732,155 628,501 732,884 Electricity Tariff Equalisation Fund 16,506 16,111 16,506 16,111

PROFIT BEFORE BORROWING COSTS,

Borrowing costs 25,845 19,528 25,845 19,528 Depreciation 107,457 92,794 107,457 92,794

Income tax equivalent expense 26,728 50,773 27,584 50,932

Dividend provided 60,398 114,594 60,398 114,594

Revenue included $618 million in electricity sales compared to $714 million in the previous year The decrease was largely due to lower spot prices and lower generation levels

Abridged Balance Sheets

2009 2008 2009 2008

Current assets 117,156 136,371 115,335 136,746

Non-current assets 1,794,152 2,303,157 1,796,663 2,303,157

Current liabilities 310,331 320,285 308,902 320,285

Non-current liabilities 634,948 780,134 634,948 780,134

The reduction in Eraring Energy’s non-current assets value is attributable to movements in the valuation of electricity generation assets These assets are valued based on estimated discounted cash flows Expectations about future cash flows from the sale of electricity have reduced as a result of lower price expectations Reductions in the forward price of electricity have influenced the long term pricing assumptions used by Eraring Energy in the estimations

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_ Eraring Energy

Eraring Energy holds electricity and foreign exchange derivatives that it records at fair value An

improvement in the Corporation’s net position on electricity and foreign exchange derivatives of

$102 million partly offsets the lower electricity generation asset values

CORPORATION ACTIVITIES

See the ‘Electricity Industry Overview’ section earlier in this report for general industry comment

Eraring Energy was established as a statutory State owned corporation in July 2000 under the State

Owned Corporations Act 1989, Energy Services Corporations Act 1995 and Energy Services

Corporation (Eraring Energy) Regulation 2000 It commenced operations in August 2000 to generate

electricity for sale in the National Electricity Market

For further information on Eraring Energy, refer to www.eraring-energy.com.au

CONTROLLED ENTITIES

Rocky Point Holdings Pty Limited

$’000

Income tax benefit 856

Loss after tax 2,119

Total liabilities 16,120

Net liabilities (at 30 June) 2,119

Rocky Point Holdings Pty Limited was established during the year to manage Eraring Energy’s

involvement in the Cobbora Coal Project

Controlled entities have not been reported on separately as they are not considered material by

their size or the nature of their operations to the consolidated entity

Eraring Retail Pty Limited was established during the year as part of the Government’s previous

energy restructure strategy This company was to acquire Integral Energy’s retail business effective

1 August 2008 Following the Government’s decision not to proceed with that strategy, The

Treasury issued a policy instruction terminating integration agreements between Eraring and

Integral

Eraring Retail Pty Limited recorded no transactions during the 2009 financial year As such, Eraring

Energy’s consolidated financial report does not reflect any retail operations A liquidator has been

appointed to voluntarily wind up Eraring Retail Pty Limited

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Macquarie Generation AUDIT OPINION

The audits of Macquarie Generation and its controlled entity financial reports for the year ended

30 June 2009 resulted in unqualified Independent Auditor’s Reports

The Independent Auditor’s Report for Macquarie Generation included a ‘significant uncertainty’ paragraph regarding the effect of the Federal Government’s proposed Carbon Pollution Reduction Scheme

Impact of the Carbon Pollution Reduction Scheme

Macquarie Generation supports the carrying value of its power stations using a valuation model based on estimated discounted cash flows The cash flows are subject to significant uncertainties arising from the Federal Government’s proposed Carbon Pollution Reduction Scheme (Scheme) Macquarie Generation did not take into account the impact of the Scheme on its valuation due to the uncertainty of the final terms and the timing of implementation of the legislation

KEY ISSUES

Restructure of Electricity Industry

The Government is proposing to contract Macquarie Generation’s electricity trading rights to the private sector and to sell two of Macquarie Generation’s development sites See the ‘Electricity Industry Overview’ section appearing earlier in this report for details on the sale and Government’s final policy position on its ‘Energy Reform Strategy’ announced in September 2009

Major Projects

Macquarie Generation is undertaking a range of developments aimed at meeting the increasing need for power, environmental improvements and the exploration of renewable energy options

Water Treatment Plan Upgrade

Macquarie Generation recently invested over $50.0 million to upgrade water capture and treatment facilities at Bayswater Power Station The upgrade will increase the capture of water from the Hunter River and improve efficiency of water use and quality in Lake Liddell because of improved technology

Liddell Turbine Upgrade

Macquarie Generation recently completed a $100 million technology upgrade of Liddell Power Station to provide additional capacity and significantly reduce greenhouse gas emissions All the generating turbines were replaced, improving efficiency of the power station by approximately three per cent

Tomago Gas-Fired Power Station

Macquarie Generation currently has approval for the construction of a gas-fired power station at Tomago, north of Newcastle, in three phases The first two phases include two open cycle gas turbines with a capacity of 250 megawatts each to assist in meeting short run peaks in demand for electricity The third phase will use combined cycle technology to capture heat generated by the two open cycle gas turbines powering an additional steam-driven unit, for a total output of

790 megawatts

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Macquarie Generation

PERFORMANCE INFORMATION

Operational Performance

Generation of electricity (gigawatt hours sent out)

Bayswater 15,864 15,430 14,310 16,540 Liddell 11,135 10,851 10,825 10,057

Plant availability

Bayswater (%) 92.3 91.5 89.8 90.1 Liddell (%) 79.4 78.9 85.5 76.9 Thermal efficiency

Bayswater (%) 35.2 35.4 34.9 35.8 Liddell (%) 32.5 33.2 33.2 32.6 Equivalent forced outages (%) 6.3 5.4 4.9 5.1

Macquarie Generation has a policy of not disclosing operational performance targets Accordingly,

these have not been included in the above table

Plant availability measures the total time generating units were either in service or able to be

placed in service over a given period

Thermal efficiency is a performance measure of the percentage of energy contained in the coal

used in electricity production New South Wales government owned coal fired power stations outperform reported worldwide averages for thermal efficiency

Macquarie Generation’s market share of the National Electricity Market was 13 per cent in June 2009 (13 per cent in June 2008)

Financial Performance

Earnings before interest and tax ($’m) 274.3 156.8 660.1

Return on equity (%) 12.5 6.2 34.2

Return on assets (%) 6.5 3.8 14.8

Interest cover (times) 5.8 4.0 15.0

Debt to equity (%) 43.5 43.6 45.6

Total distributions to government ($’m) 218.0 185.5 454.4

Capital expenditure ($’m) 106.0 80.0 83.0

* Targets agreed with shareholder Ministers in the Statement of Corporate Intent

Most of the financial ratios were below prior year because of an adverse movement of $427 million

in financial instruments valuation The adverse movement was mainly caused by a fall in value of

an electricity contract linked to the price of aluminium, which fell in 2008-09 and an increase in

the electricity forward price curve

Distributions to government decreased by $269 million (59 per cent) this year Dividends decreased

by $120 million while income tax decreased by $150 million

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