annual report 2003 | 04

renewable partnerships opportunities contents

Achievements 3

Chairman’s review 4

CEO’s report 12

Finance and profitability 16

Sustainability 19

Energy 23

Renewables development 29

Consulting 35

Corporate support services 41

Corporate governance 46

Statement of corporate intent 52

Hydro Tasmania organisation 63

Supplementary information 64

Financial statements 67

Statistical summary 114

Selected Scenic Photography © David Blühdorn achievements 2003 | 2004

• Commissioning of $100 million Stage 2 of Woolnorth Wind Farm, making Woolnorth the largest wind farm in Australia (64.75MW)

• Continued prudent management of a prolonged dry inflow sequence

• Basslink cable-laying activities on schedule for link to become operational in November 2005

• Completion of a restructure of Hydro Tasmania into three interdependent lines of business to align with our strategic directions

• Successful conversion from oil to gas of the second 120MW generating unit at the Bell Bay Power Station

• Dam safety strategy to 2010 adopted

• Financial close and start of construction of the 66MW Cathedral Rocks wind farm project on the Eyre Peninsula in South Australia, Hydro Tasmania’s first major development outside the State

• Interstate mini-hydro opened at Terminal Storage in South Australia with joint venture partner

• Adoption by the International Hydropower Association of Sustainability Guidelines developed by Hydro Tasmania for the planning, design and construction of major hydro projects

• Successful NEMMCO trial dispatched all hydro plants remotely from NEMMCO headquarters

• Record financial result of $35.5 million profit after tax, an increase of 5.7 percent over the $33.6 million of 2002/2003

• Record capital expenditure of $132.7 million

• Returns to the State of Tasmania of $80.3 million comprising:

$M dividend 43.6 income tax equivalent 32.9 loan guarantee fee 3.8

total 80.3

3 c h a i r m a n ’s re v i e w

It is important for any D i r e c t R e t u r n s to G ove r n m e n t

$88M organisation to have a vision and

$83.4M a strategic plan, and as important $80.3M to be able to seize the opportunities

Direct returns to presented to pursue the vision and $69M Government year ending 30 June: $80.3M achieve the objectives of the plan. $64M

So it is with Hydro Tasmania.

00 01 02 03 0 4 W ith solid leadership and a O u r m a j o r c h a l l e n g e i s to ex p a n d o u r ex p e rt i s e f ro m consistent team effort, Hydro t h a t of a re n e wa b l e e n e r g y g e n e r a tor to th a t of a tr a d e r a s we l l, a s we p re p a re fo r t h e n ex t exci t i n g p h a s e i n Tasmania is on the path H yd ro Ta s m a n i a’s st r a te g i c p l a n – e n t ry to th e N a t i o n a l E l e c t r i c i t y M a r ket v i a B a s s l i n k . to achieving our goal to I t h a s b e e n a n oth e r ye a r of g re a t a c h i e ve m e n t fo r be a world-renowned H yd ro Ta s m a n i a a t a l o c a l, n a t i o n a l a n d i n te r n a t i o n a l l e ve l, w i t h m a ny h i g h l i g h t s a c ro s s a l l a re a s of t h e renewable energy o r g a n i s a t i o n. business. O u r g rowt h h a s b e e n a g g re s s i ve b u t s t r u c t u re d. O ve r a l l, we i nve s te d m o re t h a n $13 0 m i l l i o n i n o u r c a p i t a l p ro g r a m, o u r l a r g e s t e ve r i nve s t m e n t a n d a l l we l l -ta r g e te d a n d we l l - d e l i ve re d. I n Fe b r u a ry, we c o m p l e te d St a g e 2 of th e Woo l n o rt h Wi n d Fa r m, ma k i n g i t t h e l a r g e s t w i n d f a r m i n A u s t r a l i a , g e n e r a t i n g 6 4.75

A c h i eve m e n t s T i m e l i n e

1994 1995 1997 1998

of HEC

Farm opened Last major hydro Huxley Hill WindDisaggregation powerAnthony, scheme, completed the Boardwind authorised farm investment first Boardand endorsed growth strategies wind

4 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

m e g awat t s f ro m i t s 37 e l e g a n t t u r b i n e s. S t a g e 3, to b e c o n s t r u c te d ove r t h e n ex t t wo ye a r s, w i l l d o u b l e t h a t.

We a l s o re a c h e d f i n a n c i a l c l o s e o n o u r f i r s t m a j o r i n te r s t a te d e ve l o p m e n t, a j o i n t ve n t u re a r r a n g e m e n t w i t h S p a n i s h re n e wa b l e e n e r g y c o m p a ny C o r p o r a c i o n E n e r g i a H i d ro e l e c t r i c a d e N ava r r a ( EH N ) to c o n s t r u c t, ow n a n d o p e r a te t h e 6 6 m e g awat t w i n d f a r m a t C a t h e d r a l R o c k s o n t h e Ey re Pe n i n s u l a i n S o u t h A u s t r a l i a . T h i s p a rt n e r s h i p d e m o n s t r a te d o u r c o m m e rc i a l a c u m e n a n d c o n s i d e r a b l y e n h a n c e d t h e c re d i b i l i t y of o u r b u s i n e s s a s EH N i s o n e of th e wo r l d’s m o s t ex p e r i e n c e d re n e wa b l e e n e r g y d e ve l o p e r s, re p re s e n t i n g 3 0 p e rc e n t of t h e i n s t a l l e d w i n d e n e r g y g e n e r a t i o n i n S p a i n a n d f i ve p e rc e n t wo r l d w i d e.

We h ave n ow c o m m e n c e d t h e c o n s t r u c t i o n p h a s e of t h e p ro j e c t a n d o n c e c o m p l e te d i t w i l l p rov i d e o u r C h a i r m a n P e te r R a e t r a d e r s w i t h e a r l y ex p e r i e n c e o p e r a t i n g i n t h e N EM p r i o r to Ta s m a n i a j o i n i n g t h e m a r ket i n M ay 20 0 5. • t h e op e n i n g of th e ex te n s i o n s to th e Ki n g Is l a n d wi n d O t h e r h i g h l i g h t s fo r t h e ye a r i n c l u d e d : f a r m, t re b l i n g t h e g e n e r a t i o n w i t h t wo n e w l a r g e r • t h e l ay i n g by Pi re l l i of th e f i r s t 9 8 k i l o m e t re s of c a b l e t u r b i n e s a n d t h e c o n s t r u c t i o n of t h e f i r s t Van a d i u m i n t h e B a s s l i n k p ro j e c t, li n k i n g Ta s m a n i a to V i c tor i a R e d ox Ba t te ry s tor a g e a n d d e l i ve ry s y s te m.

• t h e off i c i a l o p e n i n g i n J u n e of t h e m i n i - hyd ro Fo r t h e s i x t h c o n s e c u t i ve ye a r, s o l i d p rof i t g rowt h h a s d e ve l o p m e n t a t B u t l e r s G o r g e - t h e t h i rd m i n i - b e e n a c h i e ve d, w h i l e a t t h e s a m e t i m e c o m m i t t i n g to hyd ro b u i l t by H yd ro Ta s m a n i a , a d d i n g e n o u g h t h e re c o rd c a p i t a l ex p e n d i t u re p ro g r a m. Prof i t afte r tax ex t r a hyd ro p owe r i n to t h e s y s te m to s e rv i c e 8 0 0 wa s u p by 5.7 p e rc e n t. We p rov i d e d tot a l re t u r n s to Ta s m a n i a n h o m e s t h e S t a te of $8 0.3 m i l l i o n, a n d o u r d i v i d e n d p ay m e n t s

• re f u r b i s h m e n t wo r k o n ou r hyd ro g e n e r a t i n g a s s e t s to t h e S t a te a re c o m m e n s u r a te w i t h H yd ro Ta s m a n i a w h i c h w i l l s e e a s i g n i f i c a n t i n c re a s e i n o u t p u t f ro m b e i n g Ta s m a n i a’s m o s t i m p o rt a n t G ove r n m e n t t h e ex i s t i n g wate r s u p p l y B u s i n e s s E n te r p r i s e.

1999 2000 2001 2002 2003 2004

profit opened finalised published underway completed MRET commencedscheme and contracts Power station disaggregation brand adopted ‘Hydro Tasmania’ Triple bottom line Hydro TasmaniaBlue Planet Prize Record after-tax $100M returned to ‘Lifeblood’ history reporting adopted awarded inaugural Woolnorth StageBasslink 1 approvals upgrade program Woolnorth Stage 2 State in first year after

5 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Chairman Peter Rae, Federal Environment Minister Dr David Kemp, Tasmanian Energy Minister Bryan Green and CEO Geoff Willis

In his section of this report, Chief Executive Officer construction and generation commission, with a Geoff Willis outlines details of the restructuring of the business based on borrowing for new construction organisation which was implemented on 1 April 2004, programs, to being a corporation operating on a fully and advises of risk management measures and our commercial basis, using internally generated funds preparations for entry into the National Electricity for new development projects; from rebutting claims Market. of being an environmental villain to recognition as a champion of renewable energy development on a truly In my commentary for this report, I would like the sustainable basis. For the second time in Tasmania’s opportunity to review my time as Chairman of the history, “the Hydro” was an important driver behind Board of Hydro Tasmania. the State’s economic revival – the growth vehicle A retrospective for the State’s economy. Our commitment to major

It has been a decade of significant challenge, great capital expenditure in associated energy projects opportunity and massive change for our organisation. involving more than $2 billion, including playing a I have been privileged to be Chairman for this period. pivotal role in encouraging gas supplier Duke Energy I was appointed to the Board as a director in 1992, to pipe gas to the State, provided renewed confidence and to the chairmanship the following year. It has to business and government in Tasmania. This has been a decade which has seen Hydro Tasmania helped set the scene for the State’s current positive make the transition from a Tasmanian-focused hydro economic progress.

6 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

Ec o n o m i c a c t i v i t y i s b a s e d o n c o n f i d e n c e i n m a k i n g W h e n t h e c o n s t r u c t i o n e r a c o n c l u d e d, a wo r kfo rc e i nve s t m e n t d e c i s i o n s. I t s s i ze a n d s t a n d i n g m e a n t h a t w h i c h o n c e n u m b e re d ove r 5 0 0 0 wa s d ow n s i ze d to H yd ro Ta s m a n i a h a s a n i m p o rt a n t l e a d e r s h i p ro l e to 16 0 0, s e n s i t i ve l y, re s p e c t f u l l y a n d w i t h o u t i n d u s t r i a l p l ay i n Ta s m a n i a . T h i s n e e d s to b e pa rt of th e st r a te g i c re l a t i o n s p ro b l e m s t h a t c a n a r i s e i f s u c h a c t i v i t y p l a n n i n g a n d i nve s t m e n t d e c i s i o n s of t h e B o a rd of i s m i s m a n a g e d. H yd ro Ta s m a n i a . I t wa s d u r i n g th i s ti m e th a t th e o r g a n i s a t i o n c o n s i d e re d I h ave e n j oye d p a rt i c i p a t i n g i n m a ny s i g n i f i c a n t e ve n t s i t s f u t u re. T h e i n i t i a l q u e s t i o n b e c a m e ‘co u l d i t i n t h e p ro u d h i s tory of “ t h e H yd ro”. T h e s e h ave re d e ve l o p i t s e l f a s a g rowt h ve h i c l e fo r Ta s m a n i a? ’ i n c l u d e d t h e c o m m i s s i o n i n g of t h e l a s t hyd ro p owe r T h e a n s we r wa s ‘ye s’ a n d a t te n t i o n t u r n e d to h ow to s t a t i o n of t h e c o n s t r u c t i o n e r a , Tr i b u te, i n M ay 19 9 4; a c h i e ve th i s – h ow to de ve l o p t h e v i s i o n. t h e p re p a r a t i o n fo r c h a n g e f ro m a mo n o p o l y g e n e r a tor Fro m a 19 9 3 d e c i s i o n to p re p a re t h e b u s i n e s s a n d s u p p l i e r to a re g u l a te d o p e r a tor a b o u t to e n te r th e c a s e we s t a rte d i n to w i n d f a r m t r i a l d e ve l o p m e n t f u l l y c o m p e t i t i ve n a t i o n a l m a r ket; th e d i s a g g re g a t i o n of i n 19 9 5. I n 19 97, t h e d e c i s i o n wa s t a ke n to p u r s u e t h e fo r m e r H yd ro o n 3 0 J u n e 19 9 8 i n to t h re e s e p a r a te m a j o r d e ve l o p m e n t of Ta s m a n i a’s wo r l d - c l a s s w i n d b u s i n e s s e s ( H yd ro Ta s m a n i a , Tr a n s e n d N e t wo r k s a n d re s o u rc e s, t h e f u l l ex te n t of w h i c h re q u i re d A u ro r a E n e r g y ) ; t h e c o m m e n c e m e n t of t h e s e c o n d a n oth e r m a j o r p ro j e c t to b e i n p l a c e, t h e B a s s l i n k c o n s t r u c t i o n e r a w i t h t h e o p e n i n g i n M a rc h 19 9 8 of i n te rc o n n e c t i o n w i t h m a i n l a n d A u s t r a l i a . We a l s o t h e f i r s t w i n d fa r m o n K i n g Is l a n d ; th e a r r i va l of g a s ; th e d e ve l o p e d a p ro g r a m fo r t h e re f u r b i s h i n g a n d b u i l d i n g of th e Woo l n o rt h W i n d Fa r m ; c o m m e n c e m e n t u p g r a d i n g of o u r hyd ro p owe r s t a t i o n s to a d d of o u r f i r s t i n te r s t a te g e n e r a t i o n, t h ro u g h m i n i - hyd ro s i g n i f i c a n t ex t r a c a p a c i t y i n t h e s y s te m. a n d a w i n d fa r m i n S o u t h Au s t r a l i a ; a n d th e c o m p l e t i o n of t h e c o n t r a c t u a l a g re e m e n t s fo r t h e B a s s l i n k p ro j e c t D i s a g g re g a t i o n of t h e fo r m e r, ve rt i c a l l y i n te g r a te d to p ro c e e d a n d b e c o m e t h e l o n g e s t u n d e r s e a p owe r H yd ro - E l e c t r i c C o r p o r a t i o n i n 19 9 8 e n a b l e d H yd ro c a b l e c o n n e c tor i n t h e wo r l d. Ta s m a n i a to fo c u s f u l l y o n i t s g rowt h g o a l s, to a d o pt a n d th i n k th ro u g h th e vi s i o n of be i n g a wo r l d - re n ow n e d We h ave wo n t h e B l u e P l a n e t P r i ze fo r t h e wo r l d’s b e s t re n e wa b l e e n e r g y b u s i n e s s. We fo c u s e d a l s o o n h ow p l a n n e d n e w hyd ro p ro j e c t a n d h ave b e e n s e l e c te d to to a r r i ve w h e re we a re tod ay, d o m e s t i c a l l y a b o u t p re p a re t h e S u s t a i n a b i l i t y G u i d e l i n e s a n d c o m p l i a n c e to e n te r t h e N a t i o n a l E l e c t r i c i t y M a r ket b u t w i t h a p rotoc o l s fo r t h e I n te r n a t i o n a l H yd ro p owe r A s s o c i a t i o n C o n s u l t i n g b u s i n e s s w h i c h o p e r a te s wo r l d -w i d e a n d ( I H A ) a n d t h e Wor l d W i n d E n e r g y A s s o c i a t i o n (WW EA ) . h a s d o u b l e d i n s i ze s i n c e d i s a g g re g a t i o n. T h e c h a l l e n g e s of t h i s j o u r n ey fo r a l l i nvo l ve d h ave T h e ex p e r i e n c e Hyd ro Ta s m a n i a h a s g a i n e d a s b oth a n b e e n m a s s i ve. o p e r a tor a n d a c o n s u l t a n t g i ve s i t a re a l a d va n t a g e i n Fu n d a m e n t a l to o u r s u c c e s s h a s b e e n t h e d e ve l o p m e n t p u r s u i n g i t s c o n s u l t i n g o p p o rt u n i t i e s. T h e re c o g n i t i o n of t h e v i s i o n of w h e re we a s p i re to g o a n d h ow we a re by t h e Wor l d B a n k of t h i s s p e c i a l q u a l i f i c a t i o n i s a b e s t a b l e to ac h i e ve th a t a s p i r a t i o n. s i g n a l e ve n t i n o u r re c e n t h i s tory.

7 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Innovation and leadership increasing the proportion of wind energy able to be

One of the most exciting developments, and the place used for power supply, solving the problem of wind where our wind energy story really began, is with the energy variability and system reliability. The facility King Island experiment. This innovative work now stores excess wind energy and releases it back into sees us as world leaders in overcoming the problems the system in a controlled way – the first commercial of intermittency and variability which exist for the application of the battery in Australia. It also earned provision of renewable energy solutions to the power Hydro Tasmania Australia’s first Renewable Energy Certificate for wind generation. needs of remote communities.

Hydro Tasmania pioneered the project but it would not The innovation does not stop there. In July 2003 Hydro have been possible without funding support from the Tasmania announced a collaboration with the University Australian Government, and in particular, Environment of Tasmania to develop a Renewable Hydrogen Minister David Kemp, the Australian Greenhouse Office Research Program. The program aims to establish and the Tasmanian Office of Energy, Planning and Tasmania in a lead position in developing renewable Conservation. hydrogen applications. With the planned installation of hydrogen facilities on Cape Barren Island and other The vision is to then link this with desalination to battery storage trials on Flinders Island, we will be in a provide fresh water, creating an example of how we unique position to develop forms of energy storage that can contribute to providing the first two components of can then provide what the world requires – small stand- WEHAB in the international community’s fight against alone, off-grid, renewable electricity supply. world poverty - Water, Energy, Health, Agriculture and Biodiversity, which was the objective agreed at the Our pioneering work on King Island is an example of World Summit on Sustainable Development in 2002. this - a stand-alone renewable energy generation system utilising wind and solar energy in conjunction Structuring the business for the future with a method of storage and delivery to overcome Enormous changes have been required to turn the variability and intermittency and capable of being linked organisation into a major business operating along fully to desalination to provide the energy and water needs commercial lines. Our success in this is emphasised for islands and remote communities. Almost half of the by the fact that Hydro Tasmania would be a top 100 island’s electricity is now generated from renewable company in Australia if it was publicly listed. Our resources. What started as an experiment is now business is constantly evolving to reflect the changing providing a significant renewable energy supply for environment, restructuring again during the past year King Island, bringing with it a reduction in diesel fuel into three defined business units – Energy, Renewables consumption of around one million litres each year and Development and Consulting – to meet the challenges eliminating 4,600 tonnes of greenhouse gas emissions. of the new era we are set to enter.

The development of an innovative battery system, “The Hydro’s” proud history includes achieving the Vanadium Redox Battery, is a key factor in excellence in dam construction and generation of

8 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

Wo o l n o r t h W i n d F a r m hyd ro p owe r. N ow th ro u g h hyd ro a n d w i n d g e n e r a t i o n, to re p re s e n t t h e re n e wa b l e s i n d u s t ry d u r i n g i t s E n e r g y a n d re s e a rc h a n d de ve l o p m e n t of ne w e n e r g y so u rc e s, Wee k i n Was h i n g ton t h i s ye a r we re h a l l m a r k s of th i s. we p re p a re to e n te r th e N a t i o n a l El e c t r i c i t y M a r ket a s a T h i s re c o g n i t i o n h a s l e d to oth e r o p p o rt u n i t i e s, t r a d e r. T h a t i s w h a t th e B a s s l i n k u n d e r s e a p owe r c a b l e s u c h a s b e i n g i nv i te d to d r a ft t h e I n te r n a t i o n a l e n a b l e s H yd ro Ta s m a n i a to b e c o m e – a t r a d e r i n t h e H yd ro p owe r A s s o c i a t i o n s u s t a i n a b i l i t y g u i d e l i n e s fo r m a r ket, an d not ju s t an im p o rte r an d ex p o rte r of en e r g y l a r g e - s c a l e hyd ro d e ve l o p m e n t, a n d t h o s e fo r t h e a c ro s s a m e d i u m. T h e wo n d e rf u l s y n e r g y b e t we e n Wor l d W i n d E n e r g y A s s o c i a t i o n. T h i s e n h a n c e s t h e wate r a n d w i n d e n a b l e s t h a t ro l e to b e a c h i e ve d e ve n l e a d e r s h i p p o s i t i o n of H yd ro Ta s m a n i a i n t h e wo r l d m o re e ff i c i e n t l y. re n e wa b l e e n e r g y i n d u s t ry a n d o u r s p e c i a l c a p a c i t y R e c o g n i t i o n o f s u s t a i n a b i l i t y i n e nv i ro n m e n t a l m a n a g e m e n t. I n B o n n, d u r i n g t h e

A f u n d a m e n t a l h a s b e e n to b u i l d a s u s t a i n a b l e R e n e wa b l e s C o n fe re n c e a t te n d e d by 15 4 n a t i o n s, b u s i n e s s. To t h i s e n d we h ave a c h i e ve d m u c h, I h a d t h e o p p o rt u n i t y to c o nve n e t h e m e e t i n g fo r re c e i v i n g re c o g n i t i o n n a t i o n a l l y a n d i n te r n a t i o n a l l y. t h e fo r m a t i o n of t h e I n te r n a t i o n a l R e n e wa b l e E n e r g y W i n n i n g t h e i n a u g u r a l B l u e P l a n e t P r i ze i n 20 01 fo r I n d u s t ry A l l i a n c e. T h e I H A , WW EA a n d I n te r n a t i o n a l l e a d e r s h i p i n e nv i ro n m e n t a l s u s t a i n a b i l i t y i n re n e wa b l e S o l a r E n e r g y S o c i e t y i n c o m b i n a t i o n w i l l p rov i d e a e n e r g y d e ve l o p m e n t fo r o u r K i n g R i ve r Powe r S c h e m e s t ro n g vo i c e fo r t h e p r a c t i c a l d e ve l o p m e n t of t h e o n Ta s m a n i a’s we s t c o a s t, l e a d e r s h i p i n s u s t a i n a b i l i t y i n d u s t ry. En c o u r a g i n g th e s e o r g a n i s a t i o n s, pa rt i c u l a r l y g u i d e l i n e s, n a t i o n a l a n d i n te r n a t i o n a l l e a d e r s h i p i n t h e I H A , to l o o k a t t h e i r ro l e s i n e nv i ro n m e n t a l re n e wa b l e e n e r g y p ro m oti o n a n d d e ve l o p m e n t, a n d th e s u s t a i n a b i l i t y a n d s u s t a i n a b l e d e ve l o p m e n t, a n d n ot q u i e t s a t i s f a c t i o n w h e n I wa s i nv i te d by th e Wor l d B a n k j u s t a s o r g a n i s a t i o n s b u i l d i n g d a m s a n d p rov i d i n g

9 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

electricity, has been a major achievement of Hydro growth area and a solution to the problems of the Tasmania. As a result, the World Bank has expressed world’s poor regions. interest in collaborating with Hydro Tasmania on The energy White Paper the development of sustainable hydro and water management projects. It is disappointing then that our own Australian Government in its White Paper presented in June In December in Milan, Italy, Australia presented the has not seen it the same way. It did not provide the nation’s innovative response to the challenge of necessary support to see investment in this industry global warming. Hydro Tasmania was instrumental in continue into the long term with an extension of its organising that presentation, involving Minister Kemp Mandatory Renewable Energy Target scheme. There is and the then Tasmanian Deputy Premier Paul Lennon, a genuine role for renewables in decreasing the release and also participated by speaking, chairing and of greenhouse gases into the environment. It is very providing the secretariat for the event. clear that every country in the world must urgently take

As well, I was invited to lead a team of eight people steps to find ways to substantially reduce greenhouse to participate in a Renewable Energy Mission to the gas emissions from the use of fossil fuels, and develop United States, sponsored by the Australian Academy new renewable energy sources so as to increase the of Technological Sciences and Engineering, earlier this renewable sources in the total energy mix. year. It was highly successful, leading to agreements It is a challenge that Hydro Tasmania is willing to take with the National Renewable Energy Laboratory in on and play its part. The challenge is for others in Denver, Colorado, and also with the United States industry and government to do likewise. Department of Energy under the Climate Action Partnership. Our hydrogen expert was selected by the Tasmanian community commitment US to form part of that country’s review team looking During the year, we completed our Cultural Heritage at its hydrogen program. Review, which formally documented Hydro Tasmania’s

At the national level we have again played a major role cultural heritage - every power station and personal with REGA (Renewable Energy Generators of Australia) stories associated with their history. There is a wealth for which we have provided the secretariat and I have of heritage to be found in our engineering systems and continued to chair, along with the ROUNDTABLE, which infrastructure and also the social history of the towns is the federation of the renewable and sustainable and villages that built our hydro network. The review is a energy associations of Australia. significant documentation of the assets and their history, and will assist in their management and preservation. These initiatives clearly demonstrate that Hydro Tasmania is leading the renewables development Throughout its history of almost 100 years, Hydro industry, and there is recognition now, particularly in Tasmania and its predecessors have built much more the United States, that this industry represents a major than dams, power stations and now wind farms. By

1 0 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

d e ve l o p i n g i t s p e o p l e, H yd ro Ta s m a n i a h a s c re a te d a n e n o r m o u s l y e ff i c i e n t wo r kfo rc e a n d h a s m a d e a m a j o r c o n t r i b u t i o n to t h e s o c i a l, e c o n o m i c a n d c o m m u n i t y f a b r i c of t h e S t a te – a p rofo u n d i m p a c t o n t h e Ta s m a n i a n c u l t u re. T h a t h a s e vo l ve d d u r i n g t h a t 10 0 -ye a r h i s tory, a n d c o n t i n u e s tod ay. A n ex a m p l e i s t h e way t h e l o c a l c o m m u n i t y h a s e m b r a c e d t h e n e w te c h n o l o g y a n d c o n c e pts i nvo l ve d i n t h e Woo l n o rt h W i n d Fa r m d e ve l o p m e n t to t h e p o i n t w h e re i t h a s b e c o m e a c o m m u n i t y i c o n.

H yd ro Ta s m a n i a t a ke s i t s re s p o n s i b i l i t i e s s e r i o u s l y. W h i l e p re s s i n g a h e a d fo r i n te r n a t i o n a l re c o g n i t i o n, we w i l l n ot fo r g e t t h a t o u r h o m e i s i n Ta s m a n i a . We a re a p a rt of t h e Ta s m a n i a n c o m m u n i t y, we a re p ro u d of t h a t a n d we wo r k h a rd to re t a i n o u r re p u t a t i o n a s t h e S t a te’s p r i n c i p a l c o r p o r a te e n t i t y.

B o a r d a n d g ove r n a n c e

I wo u l d l i ke to a c k n ow l e d g e t h e c o n t r i b u t i o n s of a l l L a k e P e d d e r l o o k i n g to wa r d s C a m e l I s l a n d . T h e b r o w n - s t a i n e d B o a rd m e m b e r s b oth fo r t h e i r h a rd wo r k a n d t h e i r wa te r i s c h a r a c te r i s t i c o f l a k e s i n Tas m a n i a’s so u t h - we s t c o m m i t m e n t t h ro u g h o u t t h e ye a r i n d e a l i n g w i t h a a n d c o m p re h e n s i ve r i s k m a n a g e m e n t s t r a te g i e s to b e b ro a d r a n g e of i s s u e s. I wo u l d l i ke to t h a n k fo r m e r d e ve l o p e d a n d e m p l oye d a s p a rt of th e re v i e w. d i re c tor D r N o r a S c h e i n ke s te l fo r h e r s e rv i c e to H yd ro

Ta s m a n i a a n d we l c o m e n e w b o a rd m e m b e r D r D av i d T h e re s u l t of t h e re v i e w p rov i d e s a n exc e l l e n t C re a n, fo r m e r Tre a s u re r i n t h e L a b o r G ove r n m e n t. f r a m e wo r k fo r t h e B o a rd to o p e r a te a n d p l a n i t s D r C re a n a t te n d e d h i s f i r s t m e e t i n g i n t h e m o n t h s t r a te g i e s a n d p o l i c i e s to s u c c e s s f u l l y t a ke H yd ro i m m e d i a te l y a fte r t h e f i n a n c i a l ye a r fo r w h i c h we Ta s m a n i a i n to th e f u t u re. a re re p o rt i n g, a n d h i s ex p e r i e n c e w i l l m a ke a g re a t I a l s o t a ke t h e o p p o rt u n i t y to t h a n k a l l t h e s t a ff of c o n t r i b u t i o n to o u r o r g a n i s a t i o n, pa rt i c u l a r l y a s we fa c e H yd ro Ta s m a n i a fo r t h e i r h e l p a n d e n t h u s i a s m to t h e c h a l l e n g e s i nvo l ve d w i t h b oth g rowt h a n d t r a d i n g. b u i l d b oth o u r b u s i n e s s a n d o u r s t a n d i n g i n t h e wo r l d To c o n c l u d e, t h e c o r p o r a te g ove r n a n c e re v i e w wa s of re n e wa b l e e n e r g y. T h ey h ave e ve ry re a s o n to fe e l c o m p l e te d d u r i n g t h e ye a r. I t too k m u c h l o n g e r t h a n p ro u d to s h a re t h e v i s i o n a n d t h e a c h i e ve m e n t s. wa s a n t i c i p a te d, d u e l a r g e l y to t h e s u s t a i n e d g rowt h I k n ow t h a t I d o – i t h a s b e e n my p r i v i l e g e fo r w h i c h w i t h i n th e o r g a n i s a t i o n, a n d th e n e e d fo r s o p h i s t i c a te d I a m g r a tef u l.

1 1 c e o ’s rep o r t

Hydro Tasmania has progressed I n te r m s of c o n s o l i d a t i o n, t h e m a j o r fo c u s wa s o n d e ve l o p i n g t h e i n te r n a l s y s te m s, p ro c e s s e s a n d strongly and diligently over the s e t t i n g s i n re a d i n e s s fo r o u r e n t ry n ex t M ay i n to t h e N a t i o n a l E l e c t r i c i t y M a r ket a n d o u r p re p a r a t i o n s fo r past twelve months, building on the o p e r a t i n g i n a B a s s l i n k e nv i ro n m e n t. solid foundation laid in recent years. T h i s in c l u d e d th e es t a b l i s h m e n t of a ne w or g a n i s a t i o n a l s t r u c t u re w h i c h w i l l u n d e r p i n th e s e key n e w d i re c t i o n s. It was a year of consolidation and At t h e s a m e t i m e, we c o n t i n u e d to f i n d ave n u e s fo r g rowt h t h ro u g h o u r i nve s t m e n t s i n re n e wa b l e e n e r g y yet one of significant growth, a n d t h ro u g h o u r C o n s u l t i n g b u s i n e s s, w i t h o u r p e o p l e a n d th e i r ex p e rt i s e i n g re a t d e m a n d at a l o c a l, n a t i o n a l buoyed by a growing Tasmanian a n d i n te r n a t i o n a l l e ve l. economy and a national F i n a n c i a l p e rfo r m a n c e wa s s t ro n g, w i t h e n e r g y s a l e s re ve n u e g row i n g by 6.8 p e rc e n t to $378.3 m i l l i o n, a n d energy market encouraging p rof i t a fte r t ax a t t h e re c o rd l e ve l of $3 5.5 m i l l i o n. renewable energy S t r e n g t h e n e d o r g a n i s a t i o n p r e p a r i n g f o r n a t i o n a l m a r ket e n t ry projects. T h e n e w s t r u c t u re d e f i n e s o u r t h re e i n te rd e p e n d e n t l i n e s of b u s i n e s s – E n e r g y, R e n e wa b l e s D e ve l o p m e n t a n d C o n s u l t i n g. T h i s, we c o n s i d e r, fo r m a l i s e s w h a t h a d b e e n e vo l v i n g ove r t i m e a n d re f l e c t s t h e m a t u r i t y of t h e b u s i n e s s. W h i l e “ l i ft i n g t h e b a r ” o n H yd ro Ta s m a n i a’s m a n a g e r s, i t w i l l e n a b l e g re a te r a c c o u n t a b i l i t y a n d f l ex i b i l i t y to b e t te r p o s i t i o n H yd ro Ta s m a n i a to t a ke a d va n t a g e of t h e o p p o rt u n i t i e s fo r t h e n e w e r a H yd ro Ta s m a n i a i s s e t to e n te r, a n d to b e o p e n to t h e m a r ket o p p o rt u n i t i e s m o re b ro a d l y. T h e s t r u c t u re wa s a d o pte d f ro m 1 A p r i l 20 0 4, g i v i n g t h e b u s i n e s s e s o n e f u l l ye a r to o p e r a te i n th i s m o d e b e fo re N EM e n t ry. We a re c o n f i d e n t t h a t i t w i l l e n a b l e e a c h b u s i n e s s to p ro g re s s, a d a pt a n d m e e t t h e c h a l l e n g e s a n d o p p o rt u n i t i e s a h e a d.

1 2 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

Tr a d i n g

G o o d p ro g re s s wa s m a d e o n g e t t i n g t h e o r g a n i s a t i o n g e a re d fo r N EM e n t ry f ro m a te c h n i c a l a n d te c h n o l o g i c a l p o i n t of v i e w. I t h a s re q u i re d a g re a t l e ve l of s k i l l, c o m m i t m e n t a n d v i s i o n f ro m o u r d e d i c a te d te a m of p e o p l e to de s i g n th e sy s te m s th a t wi l l al l ow us to in i t i a l l y c o m m u n i c a te a n d t h e n t r a d e e ffe c t i ve l y i n t h e n a t i o n a l m a r ket. Pa rt of th e p re p a r a t i o n h a s i nvo l ve d th e d e s i g n of a sy s te m w h i c h a l l ow s o u r tr a d e r s to ‘s h a d ow’ tr a d e, to si m u l a te tr a d i n g in th e ma r ket, wh e re th e req u i re m e n t w i l l b e to t r a d e e l e c t r i c i t y i n f i ve - m i n u te i n te rva l s. T h e s i m u l a t i o n, b a s e d o n re a l t r a d i n g i n t h e m a r ket, a l l ow s u s to te s t po o l tr a d i n g sy s te m s an d st r a te g i e s. T h i s le ve l of c o m m i t m e n t by H yd ro Ta s m a n i a to p re p a re fo r NEM e n t ry w i l l e n s u re o u r p o o l t r a d e r s h ave e ve ry p o s s i b l e o p p o rt u n i t y a n d ex p e rt i s e fo r o u r ‘re a l’ m a r ket d e b u t C E O G e o f f W i l i i s i n M ay 20 0 5. We a re p l e a s e d to n ow b e a n i n te g r a l p a rt of t h e N EM fo re c a s t s fo r t h e a n n u a l S t a te m e n t of P r u d e n t wa te r m a n a g e m e n t

O p p o rt u n i t i e s w h i c h a s s e s s e s e l e c t r i c i t y d e m a n d a n d O u r s tor a g e s re m a i n e d l ow, t h e ye a r c o m p l e t i n g a s u p p l y i n t h e m a r ket. s e ve n -ye a r p e r i o d of b e l ow ave r a g e r a i n f a l l. W h e n c o m b i n e d w i t h re c o rd e l e c t r i c i t y d e m a n d, i t h a s b e e n Wor l d - c l a s s s y s te m o f r i s k m a n a g e m e n t a te s t i n g p e r i o d. O n c e a g a i n, we h ave h a d to m a n a g e M a n a g i n g o u r s y s te m u n d e r a B a s s l i n k s c e n a r i o w i l l t h i s ve ry c a re f u l l y a n d w i t h g re a t s k i l l. W h i l e B a s s l i n k re q u i re u s to wo r k to t i g h te r d e a d l i n e s, a n d a t a p a c e i s th e u l t i m a te s o l u t i o n, th e i n te r i m s te p to c o nve rt B e l l w h i c h w i l l te s t o u r f l ex i b i l i t y a n d p e rfo r m a n c e. H av i n g a B ay Powe r S t a t i o n f ro m o i l to g a s o p e r a t i o n to s u p p o rt wo r l d - c l a s s i n te g r a te d s y s te m fo r r i s k m a n a g e m e n t i n t h e hyd ro s y s te m h a s p rove d to b e a c r u c i a l d e c i s i o n p l a c e i s a p r i o r i t y a n d we h ave m a d e s te a d y p ro g re s s f ro m a f i n a n c i a l p e r s p e c t i ve. T h e s e c o n d u n i t wa s towa rd s t h i s g o a l. We c o m p l e te d a c o m p re h e n s i ve c o nve rte d f ro m o i l to g a s i n N ove m b e r a t a c o s t of s e c u r i t y rev i e w of ou r as s e t s an d we fi n a l i s e d ou r tr a d i n g $6 m i l l i o n a n d t h e n e e d to r u n b oth u n i t s t h ro u g h r i s k f r a m e wo r k . We a re n ow wo r k i n g o n t h e d e t a i l e d m u c h of t h e s u m m e r a n d a u t u m n p rove d t h e va l u e of ro l e s a n d re s p o n s i b i l i t i e s of o u r e n e r g y t r a d e r s a n d r i s k t h i s d e c i s i o n. m a n a g e r s. We s t re n g t h e n e d o u r c o m p l i a n c e c a p a b i l i t y w i t h t h e a p p o i n t m e n t of a s p e c i a l i s t p o s i t i o n to c o - H a d B e l l B ay c o n t i n u e d to r u n o n o i l, t h e c o s t wo u l d o rd i n a te t h e i n c re a s e d o b l i g a t i o n s a n d i m p l i c a t i o n s h ave s e ve re l y i m p a c te d o n o u r c a s h f l ow, a n d l i m i te d c re a te d by o u r i nvo l ve m e n t i n t h e n a t i o n a l m a r ket. o u r c a p i t a l i nve s t m e n t p ro g r a m e n o r m o u s l y.

1 3 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Bell Bay Power Pty Ltd is currently a subsidiary 120 megawatt Musselroe wind farm on the north- company of Hydro Tasmania and will continue to east coast and the 160 megawatt Heemskirk wind provide a backup until Basslink commences in farm on the west coast. We have been very thorough November 2005. Following separation, Bell Bay Power in our applications for development approval and, will operate with great flexibility as a stand-alone while we accept that such large-scale developments business in a competitive Tasmanian electricity market. must be empathetic to their locality and ecology, it is In line with this, two external directors were appointed disappointing that there have been extensive delays in in April, Mr Christopher Lock and Mr Robert Woolley. the process.

Assessing progress Consulting has worked to strengthen the business model which will equip its team well to increase the Progress in building a ‘world-class’ safety culture has proportion of interstate and international work it been steadily nurtured through a significant partnership secures in the years ahead. Part of this strengthening with Du Pont Safety Services. The partnership with is to focus on the areas where we can achieve Du Pont has enabled Hydro Tasmania to set a simple sustainable returns. but clear strategy and action plan for the whole organisation. Our growth plans are increasing staff We sold our specialist software division Hydstra in numbers and it is especially important that we focus January to Kisters AG, a software company based in on the induction of new people into our safety culture. Germany. Strong ties have been retained with Hydstra and Kisters AG through the establishment of a long- The customer base has broadened this year with term partner agreement and representation on the the important interstate sales of Renewable Energy Kisters AG product development board. All key Hydstra Certificates, and our relationships in Tasmania staff were retained by Kisters AG as part of the sale. with Aurora Energy and Transend Networks have strengthened as we plan together for National Sustainability

Electricity Market entry. Much has been achieved for the sustainability of our business over the year. We are working to get a We have made good progress on our asset sustainability framework in place to fully internalise the refurbishment and modernisation program, completing triple bottom line approach which underpins our vision. the first stage of the Trevallyn Power Station upgrade, We are very aware of the need to continually assess and steady progress at Poatina and Tungatinah. the impact of our operations on the community, and to For our wind energy projects, the highlight was take into account a very broad range of stakeholders in undoubtedly the completion of Woolnorth Stage 2, our plans. We will use this new framework to bring all Australia’s largest wind farm which was commissioned of those interests to account in a balanced and long- on time and on budget in February. But of concern term perspective, to embed sustainability into business have been the delays in the approval process for our processes, and to measure and report performance other two major wind farm projects in Tasmania – the to achieve sustainable growth. This will be formalised

1 4 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

E n e r g y G e n e r a te d n ex t ye a r w h e n we m ove towa rd s c o n te m p o r a ry 10725GWh s u s t a i n a b i l i t y re p o rt i n g w i t h t h e re l e a s e of o u r f i r s tre p o rt o n e nv i ro n m e n t a l, so c i a l a n d e c o n o m i c s u s t a i n a b i l i t y.

O u r s o c i a l r e s p o n s i b i l i t i e s 10435GWh

T h e ye a r s aw a n u m b e r of o p p o rt u n i t i e s t a ke n to Energy generated e n s u re H yd ro Ta s m a n i a re c o g n i s e s i t s re s p o n s i b i l i t i e s excluding Bass 10195GWh Strait islands year to th e c o m m u n i t y. ending 30 June:

10098GWh 10725GWh We c o n d u c te d a C u l t u r a l H e r i t a g e R e v i e w of o u r 9997GWh p owe r s t a t i o n s, a n u m b e r of w h i c h a re i m p o rt a n t to t h e a rc h i te c t u r a l a n d h e r i t a g e s toc k s of Ta s m a n i a . 00 01 02 03 0 4 T h e Woo l n o rt h W i n d Fa r m re m a i n s a d r awc a rd fo r t h e p u b l i c, w i t h ove r 5 0 0 0 v i s i tor s d u r i n g t h e ye a r. T h e A l l of th e s e in i t i a t i ve s have be e n ta ke n wi t h th e in te re s t s o p p o rt u n i t y fo r t h e p u b l i c to a p p re c i a te t h e n a t u r a l of th e c o m m u n i t y i n m i n d. a d va n t a g e Ta s m a n i a e n j oys f ro m i t s e l e c t r i c i t y s y s te m b e i n g b a s e d o n c l e a n re n e wa b l e e n e r g y s o u rc e s i s L e s s o n s l e a r n e d n ow e n h a n c e d by th e V i s i tor C e n t re w h i c h we o p e n e d N ot eve ryt h i n g we n t s m o oth l y d u r i n g t h e ye a r. i n J u n e t h i s ye a r. A s we l l a s d e l ays i n g a i n i n g w i n d f a r m a p p rova l s, we C o n s u l t a t i o n h a s c o n t i n u e d w i t h l o c a l c o m m u n i t i e s h ave b e e n d i s a p p o i n te d th a t wo r k to ref u r b i s h G o rd o n i n te re s te d i n th e H e e m s k i r k a n d M u s s e l ro e w i n d fa r m s Powe r S t a t i o n N u m b e r 2 u n i t h a s n ot p ro c e e d e d to a n d i n s o l u t i o n s to t h e o n g o i n g i s s u e of s i l t a t i o n of t h e s c h e d u l e. T h i s re f u r b i s h m e n t w i l l n ow b e c o m p l e te d Ta m a r R i ve r. i n 20 0 5.

T h e re h a s b e e n g o o d c o - o p e r a t i o n w i t h I n l a n d F i s h e r i e s T h e s e i s s u e s w i l l b e g i ve n ex t r a m a n a g e m e n t at te n t i o n S e rv i c e o n t h e ‘co - i n te re s t ’ of l a ke l e ve l m a n a g e m e n t i n t h e fo rt h c o m i n g ye a r. fo r e l e c t r i c i t y g e n e r a t i o n a n d fo r re c re a t i o n. C o n c l u s i o n H yd ro Ta s m a n i a ac te d q u i c k l y a n d p rov i d e d a s o l u t i o n R i g h t t h ro u g h o u t t h e o r g a n i s a t i o n, t h e fo c u s of t h e w h e n t h e s a l i n e l e ve l of s o m e ve ry s p e c i a l l a ke s i n t h e ye a r h a s b e e n o n c o n s o l i d a t i n g i n a d va n c e of o u r Wor l d H e r i t a g e A re a , k n ow n a s m e ro m i c t i c l a ke s, fe l l fo rt h c o m i n g e n t ry i n to t h e N a t i o n a l E l e c t r i c i t y M a r ket. to le ve l s w h i c h c o u l d h ave s e e n t h e m l o s t fo re ve r. T h a t h a s b e e n ac h i e ve d a n d w h i l e mu c h re m a i n s to b e

A s p a rt of o u r p o l i c y of t r a n s p a re n c y i n re g a rd to p u t i n p l a c e, t h e re i s a re a l a i r of c o n f i d e n c e t h a t t h e e nv i ro n m e n t a l p e rfo r m a n c e, H yd ro Ta s m a n i a a l s o s i g n i f i c a n t c h a l l e n g e s of 20 0 5 a n d b eyo n d w i l l b e m e t. p rov i d e d pu b l i s h e d in fo r m a t i o n on both it s cl o u d se e d i n g o p e r a t i o n s a n d w i n d f a r m i m p a c t s o n b i rd p o p u l a t i o n s.

1 5 fi n a n c e and profitability

The positive trend of growth Pr of it a bilit y

$35.5M in profitability has continued in $33.6M

2003/2004. Hydro Tasmania has $27.8M achieved an after-tax profit of

$35.5 million, a 5.7 percent increase Profit after tax year $15.2M ending 30 June: over that reported last year. The $35.5M record result is attributable to both $7.2M strong revenue growth and cost 00 01 02 03 0 4 control and has been achieved R e ve n u e g rowt h wa s d e r i ve d f ro m i n c re a s e d a c t i v i t i e s despite a continuation of i n b oth t h e m a j o r i n d u s t r i a l a n d t h e re t a i l s e c tor s, a p o s i t i ve s i g n fo r t h e Ta s m a n i a n e c o n o my. I n a d d i t i o n, below-average rainfall re ve n u e f ro m s a l e s of R e n e wa b l e E n e r g y C e rt i f i c a te s exc e e d e d b u d g e t. T h e c o s t of r u n n i n g B e l l B ay fo r and higher than l o n g e r t h a n ex p e c te d d u e to t h e l ow r a i n f a l l wa s m o re t h a n off s e t by c o n t ro l s o n c o s t s i n oth e r a re a s. T h e expected gas ove r a l l p o s i t i ve c o s t re s u l t wa s a l s o a c h i e ve d i n s p i te of t h e n e e d fo r c o n t i n u e d ex p e n d i t u re i n p re p a r a t i o n consumption at fo r e n t ry to t h e N a t i o n a l E l e c t r i c i t y M a r ket. R e t u r n s to t h e S t a te of Ta s m a n i a i n th e fo r m of d i v i d e n d s, i n c o m e Bell Bay. t ax e q u i va l e n t s a n d l o a n g u a r a n te e fe e s c o n t i n u e d to b e s t ro n g. Fo r 20 0 3 / 20 0 4, t h e s e p ay m e n t s tot a l l e d $8 0.3 m i l l i o n.

C a p i t a l ex p e n d i t u r e i nve s t m e n t s

C a p i t a l ex p e n d i t u re i n 20 0 3 / 20 0 4 wa s $132.7 m i l l i o n. T h i s wa s a $3 8.9 m i l l i o n o r 41.5 p e rc e n t i n c re a s e ove r t h e p re v i o u s ye a r. A p ro g r a m of u p g r a d e s a t o u r m a j o r g e n e r a t i o n s i te s wa s c o n t i n u e d w i t h wo r k c o m p l e te d a t Tre va l l y n a n d c o m m e n c e d a t G o rd o n. S t a g e 2 of t h e Woo l n o rt h W i n d Fa r m wa s c o m p l e te d d u r i n g t h e

1 6 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

F r e n c h m a n s C a p, v i e we d f r o m L a k e B u r b u r y ye a r o n ti m e a n d o n b u d g e t. B oth S t a g e s 1 a n d 2 we re p ote n t i a l in te re s t ra te in c re a s e s. T h e de bt ma n a g e m e n t g e n e r a t i n g s t ro n g l y i n to th e g r i d a t t h e e n d of th e ye a r. a p p ro a c h i s to b e n c h m a r k H yd ro Ta s m a n i a’s c o s t of f u n d s a g a i n s t o u r p e e r s w h i l e e n s u r i n g i n te re s t c o s t O u r c a p i t a l wo r k s i n c l u d e d c o nve r s i o n of B e l l B ay s t a b i l i t y. T h e c u r re n t e c o n o m i c e nv i ro n m e n t h a s U n i t 2 to o p e r a te o n g a s, c o n t i n u e d u p g r a d e of t h e p rov i d e d o p p o rt u n i t i e s to re s t r u c t u re t h e p o rt fo l i o a n d te l e c o m m u n i c a t i o n s n e t wo r k a n d p re p a r a t i o n fo r re s u l te d i n a we i g h te d ave r a g e c o s t of d e bt at 3 0 Ju n e N EM e n t ry. 20 0 4 of 6.14 p e rc e n t, a re d u c t i o n f ro m 6.31 p e rc e n t at

C a p i t a l s t r u c t u r e 3 0 Ju n e 20 0 3. A s i d e f ro m th e p o rt fo l i o re s t r u c t u re, th e i n te re s t c ove r r a t i o i m p rove d f ro m 3.05 t i m e s i n 20 0 3 D u r i n g 20 0 3 / 20 0 4, H yd ro Ta s m a n i a u n d e rtoo k a to 3.3 0 t i m e s a s a t J u n e 20 0 4. d e t a i l e d re v i e w of i t s c a p i t a l s t r u c t u re a s i s re q u i re d by i t s M i n i s te r i a l C h a rte r. W h i l e t h e ex i s t i n g c a p i t a l R a te o f r e t u r n s t r u c t u re wa s fo u n d to b e a d e q u a te fo r t h e c u r re n t Eq u i t y i s n o r m a l l y m e a s u re d i n te r m s of c a p i t a l e nv i ro n m e n t, i t wa s i d e n t i f i e d t h a t a s t ro n g e r b a l a n c e i nve s te d i n a b u s i n e s s by s h a re h o l d e r s, w i t h f i n a n c i a l s h e e t wo u l d p rov i d e t r a d i n g a d va n t a g e s a n d g re a te r p e rfo r m a n c e m e a s u re d a s t h e re t u r n o n i nve s t m e n t. re s i l i e n c e i n t h e N a t i o n a l E l e c t r i c i t y M a r ket. A m o re a p p ro p r i a te m e a s u re of f i n a n c i a l p e rfo r m a n c e

D e b t m a n a g e m e n t a n d Tr e a s u ry p e rf o r m a n c e fo r a b u s i n e s s l i ke H yd ro Ta s m a n i a , w h i c h h a s n o t r u e s h a re h o l d e r e q u i t y i nve s te d i n i t, i s t h e c a s h r a te of D u r i n g t h e ye a r, H yd ro Ta s m a n i a c o n t i n u e d to re t u r n. T h i s i s c a l c u l a te d a s E a r n i n g s B e fo re I n te re s t, b o r row a n d i nve s t f u n d s t h ro u g h t h e Ta s m a n i a n Tax a t i o n, D e p re c i a t i o n a n d A m o rt i s a t i o n ( EB I T DA) a s a P u b l i c F i n a n c e C o r p o r a t i o n (Ta s c o r p ) . T h e C o r p o r a te p e rc e n t a g e of reva l u e d a s s e t s. Tre a s u ry a n d B u s i n e s s R i s k G ro u p h a s c o n t i n u e d a c t i ve m a n a g e m e n t of t h e p o rt fo l i o a i m e d a t b oth T h e c a s h ra te of ret u r n fo r th e 20 0 3 / 20 0 4 f i n a n c i a l ye a r b e n e f i t i n g t h e C o r p o r a t i o n f ro m t h e c u r re n t l ow wa s 7.0 p e rc e n t, c o m p a re d w i t h 7.04 p e rc e n t fo r t h e i n te re s t r a te e nv i ro n m e n t a n d i n s u l a t i n g t h e i m p a c t of 20 0 2 / 20 0 3 ye a r.

1 7 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

1 8 sustainability

“With a history of almost 100 years as a renewable energy generator

and as Australia’s largest supplier of renewable energy,

Hydro Tasmania is well placed to integrate sustainable practices with sustainable products – renewable energy from hydropower and wind.” s u s t a i na b i l i t y

Since the Earth Summit in Rio T h e re i s w i d e a c c e pt a n c e t h a t g l o b a l wa r m i n g m e a n s c l i m a te c h a n g e a n d t h e re i s a re c o g n i t i o n t h a t i n t h i s de Janeiro in 1992 sustainable c e n t u ry, e m i s s i o n s of g re e n h o u s e g a s e s f ro m t h e b u r n i n g of fo s s i l f u e l s m ay h ave to b e c u t by 5 0 to 6 0 development has been high on the p e rc e n t i f i r re ve r s i b l e c l i m a te ch a n g e i s to be avo i d e d. inter national and national agenda. O n e of th e s o l u t i o n s to th i s g l o b a l p ro b l e m i s to s u p p l y e n e r g y s e rv i c e s f ro m re n e wa b l e re s o u rc e s. W i t h a l m o s t 10 0 ye a r s of h i s tory a s a re n e wa b l e e n e r g y Foremost in the sustainability focus g e n e r a tor, a n d a s t h e l a r g e s t s u p p l i e r of re n e wa b l e e n e r g y to A u s t r a l i a n s, H yd ro Ta s m a n i a i s we l l p l a c e d are the efforts made to address to i n te g r a te s u s t a i n a b l e p r a c t i c e s w i t h a s u s t a i n a b l e one of the world’s most pressing p ro d u c t – re n e wa b l e e n e r g y f ro m hyd ro p owe r a n d w i n d. In ta k i n g ste p s to b e Ta s m a n i a’s wo r l d - re n ow n e d environmental and sustainability re n e wa b l e e n e r g y b u s i n e s s, H yd ro Ta s m a n i a a l s o s e e k s to b e a su s t a i n a b l e b u s i n e s s i n e c o n o m i c, s o c i a l issues – global warming. a n d e nv i ro n m e n t a l te r m s. We h ave l e a r n e d a l ot f ro m t h e e nv i ro n m e n t a l d e b a te s of t h e 1970s a n d 19 8 0 s. I n t h e l a s t d e c a d e we h ave i n s t i t u te d o p e r a t i o n a l p r a c t i c e s to m i n i m i s e e nv i ro n m e n t a l h a r m, a n d h ave h a d a n i n d e p e n d e n t l y c e rt i f i e d I S O 14 0 01 e nv i ro n m e n t a l m a n a g e m e n t s y s te m i n p l a c e s i n c e 19 9 8.

H yd ro Ta s m a n i a i s n ow t a k i n g t h e n ex t s te p s to b e i n g re c o g n i s e d a s a s u s t a i n a b l e e n e r g y b u s i n e s s b a s e d o n e c o n o m i c, s o c i a l a n d e nv i ro n m e n t a l o u tco m e s. A s a n ex a m p l e, we we re e n g a g e d by t h e I n te r n a t i o n a l H yd ro p owe r A s s o c i a t i o n ( I H A ) to p ro d u c e t h e I H A S u s t a i n a b i l i t y G u i d e l i n e s a n d t h e I H A C o m p l i a n c e P rotoc o l to e n c o u r a g e b e s t p r a c t i c e i n hyd ro - e l e c t r i c d e ve l o p m e n t. T h e I H A a d o pte d t h e s e g u i d e l i n e s i n N ove m b e r 20 0 3.

T h i s a c h i e ve m e n t wa s re c o g n i s e d i n M ay t h i s ye a r w h e n H yd ro Ta s m a n i a re c e i ve d t h e E nv i ro n m e n t a l l y R e s p o n s i b l e B u s i n e s s Awa rd a s pa rt of th e Ta s m a n i a n Awa rd s fo r E nv i ro n m e n t a l E xc e l l e n c e.

2 1 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Hydro Tasmania has also been working closely with the World Wind Energy Association to develop Sustainability and Due Diligence Guidelines and the first draft of this document now awaits comment from WWEA members.

In relation to our own practices, in the past 12 months the business has developed a framework for conducting a sustainability assessment of the organisation. The SEARCH Sustainability Framework represents Hydro Tasmania’s understanding of how • continued implementation of the Aquatic to embed sustainability into business processes, and Environment Program including: how to measure and report performance. It is based − South Esk Great Lake Water Management upon five key steps – Spirit, Elements, Assessment, Review implementation Reflection and Choices. − finalist in the United Nations Association of Nine sustainability elements have been identified and Australia Environment Day Awards for the are being used as the basis for sustainability indicators South Esk Great Lake Water Management and identifying stakeholders. Information is currently Review being collected and analysed for the 2003/2004 − Derwent Water Management Review - year, including consultation with stakeholders on community consultation and public release of sustainability expectations. the consultation report

Key sustainability achievements for 2003/2004 − formation of the Scientific Reference Committee include: for the Basslink Monitoring Program (an independent expert scientific review panel). • re-certification of environmental management system to ISO 14001 for the third time There are many other activities Hydro Tasmania supports, such as the Hands On Education Program, • commencement or completion of environmental sponsorship of community events, research impact assessments for major projects including partnerships and employee development and wellbeing Trevallyn Tunnel Maintenance, Meromictic Lakes programs that are integral to the sustainability of our Recharge, Poatina Re-regulation Weir, Tungatinah business. Our assets also provide multi-use benefits Power Station Upgrade Feasibility Stage, to the community through tourism, recreation, water Supplementary Generation, Heemskirk Wind Farm supply and irrigation. and Musselroe Wind Farm Hydro Tasmania is aiming to fully report on its • completion of the Derwent Pilot Stage of the sustainability performance in the 2004/2005 Cultural Heritage Program Annual Report.

2 2 energy

“Preparations for entry to the National Electricity Market will be underpinned by ensuring that energy generation assets are maintained to operate at peak

effectiveness. Hydro Tasmania has committed to a 10-year $208 million

upgrade and modernisation program of its hydro assets.” e n e r g y

A major effort in the Energy business during the past 12 months has been directed at getting the inter nal systems, processes and generating assets ready for Hydro

Tasmania’s entry into the National

Electricity Market in May 2005.

It has been a complex and challenging exercise, requiring Ex e c u t i ve G e n e r a l M a n a g e r, R o g e r G i l l a focused management and H yd ro Ta s m a n i a h a s wo r ke d c l o s e l y w i t h Tr a n s e n d team effort to co-ordinate N e t wo r k s a n d t h e N a t i o n a l E l e c t r i c i t y M a r ket M a n a g e m e n t C o m p a ny ( N EM M C O ) to ove rc o m e the various associated a n u m b e r of te c h n i c a l c h a l l e n g e s s o a s to p l a n fo r t h e o pti m a l t r a n s fe r of e n e r g y a c ro s s t h e B a s s l i n k activities. c a b l e. M a j o r I T p ro j e c t s h ave i n c l u d e d a s s e s s i n g t h e i n fo r m a t i o n te c h n o l o g y fo r i n te r n a l s y s te m s a n d p ro c e s s e s a n d w r i t i n g a n d re d e s i g n i n g s oft wa re fo r t h e n e w d e m a n d s. T h e m a j o r i t y of te c h n i c a l s y s te m s wo r k wa s c o m p l e te d, t h e E n e r g y C o n t ro l S y s te m wa s u p g r a d e d o n s c h e d u l e a n d u n d e r b u d g e t, a n d c o m m u n i c a t i o n s e s t a b l i s h e d w i t h N EM M C O. T h e d e s i g n of t h e S y s te m P rote c t i o n S c h e m e, w h i c h u n d e r p i n s s y s te m s t a b i l i t y a t h i g h e r p owe r t r a n s fe r l e ve l s, wa s c o m p l e te d re a d y fo r c o n s t r u c t i o n a n d i m p l e m e n t a t i o n.

2 5 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Basslink Project milestones during the 2003/2004 year were:

The enabler for achieving the significant milestone • Pirelli’s laying of the first 98 km cable section of Tasmania’s entry into the National Electricity in Bass Strait during June 2004. The second Market is the Basslink project, which is on track for of three cable lengths is currently being completion in November 2005. When operational, manufactured in Pirelli’s cable factory in Naples it will be the longest undersea power cable in the world. From Hydro Tasmania’s perspective, it is our • manufacture and testing of high voltage most important opportunity to secure a sustainable converter transformers and other major future, since it enables us to maintain our leading role electrical components was completed in the renewable energy business and become an • engineering design of the Basslink System energy trader by being connected physically to the Protection Scheme was completed and National Electricity Market. manufacture is well advanced

• civil construction is well advanced at the converter station sites at George Town in Tasmania and Loy Yang in Victoria where direct current (DC) transmission is converted to or from alternating current (AC) transmission

• overhead line installation in Tasmania is largely completed, with easement clearing in Victoria well advanced.

Basslink cable-laying ship, the Giulio Verne Through the trading of electricity in the national market, Basslink will: 29 June 2004 marked the half-way point in the project’s three-year construction time frame. • enable Tasmania to export its valuable renewable energy in times of peak demand and Basslink will be built, owned and operated by high prices interstate Basslink Pty Ltd, a wholly owned subsidiary of British listed company, National Grid Transco. • enable the import of cheaper, off-peak electricity

The cable is being built and installed by Basslink • stimulate business growth via access to a more Pty Ltd’s contractors Siemens Limited, for the land secure electricity system facilities and control systems, and Pirelli Cavi e • substantially drought-proof Tasmania’s electricity Sistemi Energia S.p.A, for the cable manufacture and system. subsea laying in Bass Strait.

2 6 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

S y s te m Wate r S to r a g e

U n d e r N EM M C O’s m a r ket re g i m e, e l e c t r i c i t y i s b i d i n to t h e m a r ket e ve ry f i ve m i n u te s. Fro m a wate r m a n a g em e n t 48.8% p o i n t of v i e w, e n g i n e e r i n g a n d p ro d u c t i o n te a m s h ave System water b e e n req u i re d to ret h i n k th e way th e sy s te m is co n t ro l l e d, storage at 30 June: 38.2% full. a n d d e ve l o p n e w m a t h e m a t i c a l m o d e l s of o p e r a t i o n of t h e s y s te m. I n o rd e r to m e a s u re h ow m u c h p owe r i s 38.8% 38.2% ava i l a b l e, a n e w m e te r i n g s y s te m a t a l l p owe r s t a t i o n s i s b e i n g i n s t a l l e d to p rov i d e a c c u r a te m e a s u re m e n t s y s te m s. M e te r s we re i n s t a l l e d o n a p p rox i m a te l y h a l f of t h e g e n e r a t i n g p l a n t d u r i n g t h e ye a r, w i t h t h e re m a i n d e r 30.2% 30.5% to be c o m p l e te d i n t h e 20 0 4/20 0 5 ye a r.

S h a d ow t r a d i n g 00 01 02 03 0 4 T h e re h a s b e e n a p ro g re s s i ve s t re n g t h e n i n g of t h e t r a d i n g p o rt fo l i o g ro u p w i t h i n H yd ro Ta s m a n i a i n d e a l of c o n t i n g e n c y p l a n n i n g to g u a r a n te e s e c u r i t y of p re p a r a t i o n fo r N EM e n t ry. Tr a d i n g h a s b e e n wo r k i n g Ta s m a n i a’s p owe r s u p p l y. Ad d i t i o n a l b a c k u p s o u rc e s j o i n t l y w i t h th e p ro d u c t i o n te a m a s pa rt of a n i n n ova t i ve fo r g e n e r a t i n g c a p a c i t y h ave b e e n p l a n n e d, s u c h a s ‘sh a d ow o p e r a t i o n s’ p ro j e c t. T h i s p ro j e c t p rov i d e s a t h e u s e of d i e s e l g e n e r a tor s a t B a s t ya n Powe r S t a t i o n s i m u l a te d tr a d i n g e nv i ro n m e n t fa c i l i t a t i n g th e te s t i n g of o n t h e S t a te’s we s t c o a s t, i f n e c e s s a ry. H oweve r, t h e p o o l tr a d i n g sy s te m s a n d st r a te g i e s, a n d th e p rov i s i o n m o s t va l u a b l e m i t i g a t i o n re m a i n s g a s. T h e c o nve r s i o n of ex p e r i e n c e to p ote n t i a l p o o l t r a d e r s i n a s i m u l a t i o n of a s e c o n d u n i t f ro m o i l to g a s a t t h e B e l l B ay Powe r e nv i ro n m e n t. T h e mo d e l de ve l o p e d by Hyd ro Ta s m a n i a S t a t i o n wa s c o m p l e te d su c c e s s f u l l y i n N ove m b e r. B oth h a s a l l owe d t h e t r a d i n g g ro u p to ‘sh a d ow’ t r a d e, by u n i t s o p e r a te d fo r th e d u r a t i o n of s u m m e r a n d au t u m n t a k i n g th e p re v i o u s we e k ’s e n e r g y tr a d i n g a n d p r a c t i s e to su p p l e m e n t cr i t i c a l wate r sh o rt a g e s. Th i s co nve r s i o n t h e d e c i s i o n s t h ey wo u l d m a ke i n a re a l t r a d i n g p rove d to b e a v i t a l, t i m e l y a n d c o s t-e ffe c t i ve d e c i s i o n e nv i ro n m e n t. G a i n i n g t h i s ex p e r i e n c e p r i o r to N EM g i ve n t h e re l i a n c e o n B e l l B ay a s s u p p o rt fo r t h e e n t ry w i l l b e i nva l u a b l e. hyd ro sy s te m.

Wate r m a n a g e m e n t G r owt h i n d e m a n d

I n t h e ye a r, H yd ro Ta s m a n i a h a s wo r ke d ve ry h a rd B oth p e a k d e m a n d a n d d e m a n d fo r e n e r g y h ave to m a n a g e i t s wate r s tor a g e s i n re s p o n s e to l ow c o n t i n u e d to i n c re a s e d u r i n g t h e ye a r. T h i s i s t h e re s u l t r a i n f a l l. D e c e m b e r 20 0 3 wa s t h e d r i e s t o n re c o rd a n d of a b u oya n t e c o n o my, a b o o m i n g c o n s t r u c t i o n a n d we ex p e r i e n c e d o u r s e ve n t h ye a r of b e l ow ave r a g e h o u s i n g i n d u s t ry a n d t h e d e c i s i o n by Ta s m a n i a n s to r a i n f a l l. H yd ro Ta s m a n i a h a s m a n a g e d th i s c h a l l e n g i n g c o nve rt to c l e a n e r, m o re e ff i c i e n t h e a t s o u rc e s s u c h a s s i t u a t i o n, us i n g it s wo r l d - c l a s s sk i l l s an d ex p e rt i s e. Wi t h h e a t p u m p s. T h e ye a r s aw a re c o rd p e a k i n e l e c t r i c i t y t h e de l ay in ge t t i n g Ba s s l i n k in pl a c e an d th e co n t i n u i n g d e m a n d of 16 91. 2 m e g awat t s. T h e c o m b i n a t i o n of hyd ro d ry au t u m n s, i t h a s b e e n a d e l i c a te ba l a n c e re q u i r i n g a a n d w i n d p owe r a n d g a s a re m e e t i n g t h i s d e m a n d.

2 7 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Managing infrastructure Dam safety

Preparations for NEM entry will be underpinned by New standards for the capability of spillways to carry ensuring generating assets are maintained to operate floodwater have been introduced progressively over at peak effectiveness. Hydro Tasmania has committed recent years. As a result, Hydro Tasmania has to a $208 million, 10-year upgrade and modernisation established a comprehensive Dam Safety Program program of its hydro assets specifically targeting 11 of underpinned by Hydro Tasmania’s Dam Safety Risk our 29 power stations. Projects have been approved Management policy and Tasmanian Dam Safety for Trevallyn, Gordon and Poatina power stations. legislation and regulations. The Dam Safety Program The first stage of the Trevallyn Power Station upgrade manages 54 large and some 120 smaller dams making program, the relining and repairing of the tunnel that us one of the largest dam owners in Australia. In the takes water from Lake Trevallyn to the Trevallyn Power past year, work has centred on the Forth River Valley Station, was completed during the year, and work with the completion of major flood capacity upgrades started on the upgrade of Gordon Power Station as to Cethana, Devils Gate and Paloona Dams on the part of a whole-of-station modernisation program. Mersey River, flood capacity enhancements on the Gordon is the largest capacity power station and Murchison, Mackintosh, Bastyan and Reece dams in investing in its reliability and increasing availability the Pieman Schemes, and substantial enhancements will be a key to future plans. Work on the first of two to the seismic monitoring and analysis capability, and machines will be completed by November 2005 in emergency and response capability. The 2003 annual readiness for Basslink coming on line. Upgrade of the conference of the Australian National Committee second machine will occur in 2006. on Large Dams (ANCOLD) was held in Tasmania in There is also further incentive for capital expenditure October, providing an opportunity to showcase Hydro on upgrade of existing generating assets from the Tasmania’s Dam Safety Program to national and Australian Government’s Mandatory Renewable international dam management experts. Energy Target (MRET) legislation that rewards Relationship building electricity generators for creating additional renewable energy capacity. For example, the work at Trevallyn, During the year, Hydro Tasmania renegotiated its which will include an upgrade of units three and four connection and network service agreement with at the power station, will create an additional capacity Transend. The close working relationship that has of 15 megawatts when completed, for an increase of been established will continue to be integral to Hydro between three to four per cent of its output. Hydro Tasmania’s successful entry into the national market and Tasmania is pleased to again be working with world in ensuring the quality and reliability of power supply. leaders in equipment supplies for our refurbishment Hydro Tasmania also worked closely and co-operatively program – Alstom, General Electric and Voith/ with the State Government project team, NEMMCO and Fuji/Siemens. Aurora Energy to achieve progress in key energy areas.

2 8 renewables

“Hydro Tasmania’s research and development program covers

emerging wind and hydro technologies, system integration

and storage, as well as monitoring other renewable energy

technologies such as hot rocks, tidal, solar and biomass.” re n e w a b l e s development

It was a year of considerable progress in Renewables Development, both in project milestones and in contributing to the organisation’s vision of being recognised as Tasmania’s world- renowned renewable energy business.

The organisation restructure establishing Hydro Tasmania as three interdependent lines G e n e r a l M a n a g e r R e n e wa b l e s D e ve l o p m e n t, M a r k Ke l l e h e r of business has placed T h e R e n e wa b l e s D e ve l o p m e n t te a m h a s a c a p a b i l i t y ove r t h e w h o l e l i fe c yc l e of w i n d f a r m d e ve l o p m e n t: Renewables Development s i te i d e n t i f i c a t i o n, a s s e s s m e n t of w i n d f a r m p ote n t i a l, p r i o r i t i s a t i o n of t h e s u i te of p ro j e c t s, l a n d ow n e r a n d in excellent shape to s t a ke h o l d e r ne g oti a t i o n, pre p a r a t i o n of bu s i n e s s ca s e s, f i n a nc i ng n e g oti ati o ns, c o nstr u c ti o n, c o m mi s s i o n i ng pursue its business a n d s u b s e q u e n t m a n a g e m e n t of t h e a s s e t s ove r t h e i r l i fe c yc l e. objectives. T h e s t re n g t h of t h i s f u l l s p e c t r u m of re s p o n s i b i l i t y i s t h e s h a re d l e a r n i n g w i t h i n t h e te a m, w i t h e ve ryo n e i nvo l ve d f u l l y awa re of t h e va r i o u s s te p s re q u i re d fo r a s u c c e s s f u l p ro j e c t.

N a t i o n a l f o c u s o n w i n d

M u c h of t h e wo r k i n p re v i o u s ye a r s h a s fo c u s e d o n i nve s t i g a t i n g w i n d s i te s i n Ta s m a n i a . D u r i n g th e ye a r, we w i d e n e d o u r h o r i zo n s a n d b u i l t u p a g o o d p o rt fo l i o of w i n d s i te s fo r p ote n t i a l w i n d fa r m d e ve l o p m e n t s a ro u n d

3 1 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

with transmission connection and project finance negotiations to be undertaken during the second half of the 2004 calendar year.

Investment strategy

Hydro Tasmania has needed to be innovative in its approach to accessing funding to meet our ambitious growth plans. The approach adopted for Hydro Tasmania’s first major interstate project has utilised non-recourse project finance and the participation of equity partners. This saw us complete the necessary agreements to commence construction on a planned 66 megawatt wind farm at Cathedral Rocks on the Eyre Peninsula near Port Lincoln in South Australia, in partnership with EHN (Oceania) Pty Ltd, a subsidiary of leading Spanish wind development company Corporacion Energia Hidroelectrica de Navarra (EHN). The project has been underpinned by a ten-year power purchase agreement with TXU, and National Australia Woolnorth Wind Farm Bank provided the project finance.

What was impressive was the smooth and Australia, in NSW, Victoria, South Australia, and Western efficient approval process for this project, taking four Australia, and purchased the rights to these sites. We months from the lodgement of the project application also investigated sites in New Zealand and have made to the granting of approval to proceed by South contact with potential joint partners in that country. Australian authorities. At the other end of the spectrum, we delivered strongly In Tasmania, the Development Application for the on our current wind farm construction program. The Heemskirk wind farm was lodged in January 2003 and completion of Stage 2 of Woolnorth was a significant that for Musselroe in April of the same year. Neither milestone, with the successful construction of 31 has yet received approval although we continue to turbines, taking the combined total of the project provide additional data and expect approval in the next to 37 turbines, and a capacity of 64.75 megawatts. few months. This project, the largest wind farm in Australia, was completed on time and on budget. Plans to Both wind farm projects in Tasmania have needed commence Woolnorth Stage 3 are now underway, extensive research to ensure that the developments

3 2 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

E nv i r o n m e n t a l M a n a g e m e n t E x p e n d i t u r e wo u l d n ot h ave a ny s i g n i f i c a n t i m p a c t s o n e n d a n g e re d $6.0M b i rd s p e c i e s i n h a b i t i n g th e a re a s a ro u n d th e p ro p o s e d $5.9M s i te s.

H yd ro Ta s m a n i a ta ke s i t s e nv i ro n m e n t a l re s p o n s i b i l i t i e s ve ry s e r i o u s l y a s e v i d e n c e d by t h e ex te n s i ve a n d t h o ro u g h re s e a rc h i t h a s c o n d u c te d i n to t h e s e b i rd $5.4M p o p u l a t i o n s, i n c l u d i n g t h e O r a n g e - b e l l i e d Pa r rot, Environmental management $5.2M Wed g e -ta i l e d E a g l e a n d W h i te - b e l l i e d S e a E a g l e. T h i s expenditure: $5.1M $6.0M re s e a rc h h a s s i g n i f i c a n t l y ex p a n d e d t h e k n ow l e d g e b a s e fo r t h e b e n e f i t of th e w i d e r c o m m u n i t y.

I n d u s t ry l e a d e r s h i p 00 01 02 03 0 4 A s A u s t r a l i a’s l a r g e s t re n e wa b l e e n e r g y p ro d u c e r, we we re ve ry a c t i ve d u r i n g t h e ye a r a t a n i n d u s t ry l e ve l. s u c h a s h ot ro c k s, t i d a l, s o l a r a n d b i o m a s s. T h e K i n g We a re a m e m b e r of t wo l e a d i n g n a t i o n a l re n e wa b l e I s l a n d w i n d g e n e r a t i o n a n d Van a d i u m R e d ox B a t te ry e n e r g y a s s o c i a t i o n s : t h e R e n e wa b l e E n e r g y G e n e r a tor s i n te g r a te d s o l u t i o n i s p rov i n g su c c e s s f u l, a l l ow i n g w i n d of A u s t r a l i a ( R EG A ) a n d t h e A u s t r a l i a n W i n d E n e r g y g e n e r a t i o n to m e e t a ro u n d 5 0 p e rc e n t of t h e i s l a n d’s A s s o c i a t i o n ( A u sWEA ) . B oth a re p a rt of t h e f i fte e n e l e c t r i c i t y n e e d s, a n d e l i m i n a t i n g a n e q u i va l e n t a m o u n t m e m b e r a s s o c i a t i o n s w h i c h c o m b i n e d w i t h te n S t a te of d i e s e l f u e l, t h e re by s av i n g 4 6 0 0 ton n e s of c a r b o n a n d Fe d e r a l G ove r n m e n t o b s e rve r s to c o n s t i t u te d i ox i d e e m i s s i o n s p e r a n n u m. t h e fe d e r a t i o n of re n e wa b l e a n d s u s t a i n a b l e e n e r g y a s s o c i a t i o n s – th e Re n e wa b l e a n d S u s t a i n a b l e En e r g y We h ave a l s o b e e n a c t i ve i n re s e a rc h i n g t h e e m e r g i n g R O U N DTA B L E. H yd ro Ta s m a n i a c h a i r m a n Pete r Ra e i s hyd ro g e n te c h n o l o g y, p a rt i c i p a t i n g i n a n u m b e r t h e c h a i r m a n of R EG A a n d a l s o of t h e R O U N DTA B L E. of c o n fe re n c e s i n A u s t r a l i a d u r i n g t h e ye a r a n d i n a S t ro n g a n d u n i f i e d a d vo c a c y i s f u n d a m e n t a l to d e l e g a t i o n to t h e U n i te d S t a te s fo r t h e I n te r n a t i o n a l f u rt h e r i n g t h e re c o g n i t i o n of A u s t r a l i a’s re n e wa b l e H yd ro g e n Pa rt n e r s h i p. C u r re n t l y H yd ro Ta s m a n i a i s e n e r g y a n d e n e r g y e ff i c i e n c y i n d u s t r i e s o n a n a t i o n a l d e ve l o p i n g a p ro p o s a l to e s t a b l i s h a n i n te g r a te d w i n d / a n d i n te r n a t i o n a l l e ve l. hyd ro g e n /di e s e l s o l u t i o n fo r C a p e B a r re n I s l a n d.

D eve l o p i n g e m e r g i n g n e w te c h n o l o g i e s We a re a l s o a d d re s s i n g t r a n s m i s s i o n s y s te m i s s u e s H yd ro Ta s m a n i a’s re s e a rc h a n d d e ve l o p m e n t p ro g r a m fo r l a r g e - s c a l e w i n d p owe r, i n p a rt i c u l a r, t h e v i e w t h a t c ove r s e m e r g i n g w i n d a n d hyd ro te c h n o l o g i e s, t h e re a re l i m i t s to t h e re l i a b i l i t y of w i n d p owe r b e c a u s e s y s te m i n te g r a t i o n a n d s tor a g e te c h n o l o g i e s, a s we l l of i t s i n te r m i t te n c y. N e w te c h n o l o g i e s a re e m e r g i n g a s m o n i tor i n g oth e r re n e wa b l e e n e r g y te c h n o l o g i e s c o n s t a n t l y a n d we a re wo r k i n g a c t i ve l y i n t h i s a re a to

3 3 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

The panel’s report recommended the target should continue to grow beyond 2010, and apply until 2035. However, the Australian Government ignored the report’s recommendation in its White Paper “Securing Australia’s Energy Future”, released on 15 June, and retained the target as is.

This was a disappointing maximise the penetration of wind generation. Tasmania outcome for the renewable energy industry. It means is well suited to do this because of the excellent projects underway at present will likely continue as synergy between its hydro and windpower assets. planned, but the long-term investment in this industry beyond 2007 is in serious doubt. Mandatory Renewable Energy Target (MRET)

Underpinning our significant capital investment The decision to leave MRET unchanged has a ripple in renewable energy projects is the Australian effect throughout the industry. For example, Danish Government’s Mandatory Renewable Energy wind turbine manufacturer Vestas was set to invest in Target (MRET). a blade manufacturing plant in Tasmania on the back of Hydro Tasmania’s significant investment plans and This target, set in legislation and in operation since an increase in MRET, but Vestas has now put this April 2001, specifies that energy retailers and major investment on hold. consumers need to source an additional two per cent of their energy requirements from renewable sources We will be working with the industry to convince by 2010. In essence, this translates to an additional decision-makers that increases in MRET are needed, 9500 gigawatt hours of electricity above a level based so as to build on the remarkable achievements to date on 1997 production. and to ensure growth of this industry continues.

During the year, after two years of operation of the scheme, a major review was undertaken by an expert independent panel appointed by the Australian Government.

3 4 consulting

“Our aim is to be world-renowned for the innovative provision of

sustainable solutions in water and energy. The demand for clean, green

renewable energy in countries such as India, China, Sri Lanka and

The Philippines is expected to open up numerous business opportunities

for the skills and expertise of Hydro Tasmania Consulting.” c on s u l t i n g

W ith decades of experience and expertise, Hydro Tasmania Consulting, one of Hydro Tasmania’s three lines of business, is growing an inter national reputation and client base with projects around the world.

In the past year, the business carried out catchment monitoring and modelling in Cambodia and G e n e r a l M a n a g e r C o n s u l t i n g , M i k e B r e w s te r

Fiji, wind energy modelling O u r a i m i s to b e wo r l d - re n ow n e d fo r t h e i n n ova t i ve p rov i s i o n of s u s t a i n a b l e s o l u t i o n s i n wate r a n d e n e r g y. in Canada, assessment of We offe r s e rv i c e s i n t h re e key a re a s : re n e wa b l e mini-hydro potential in e n e r g y, c a tch m e n t a n d e nv i ro n m e n t a l m a n a g e m e n t a nd p owe r e n g i n e e r i n g. Sri Lanka and dam C l i e n t s i n c l u d e d e l e c t r i c i t y, e nv i ro n m e n t a l a n d wate r u t i l i t i e s, a l l l e ve l s of g ove r n m e n t i n A u s t r a l i a safety in Indonesia a n d ove r s e a s, p ro j e c t d e ve l o p e r s a n d m u l t i l a te r a l l e n d i n g a g e n c i e s. and Samoa. W i t h th e le ve l of ac t i v i t y in th e Ta s m a n i a n en e r g y se c tor, p a rt i c u l a r l y re n e wa b l e e n e r g y g rowt h, a p p rox i m a te l y t wo -th i rd s of Hyd ro Ta s m a n i a Co n s u l t i n g se rv i c e s we re p rov i d e d to c l i e n t s w i t h i n H yd ro Ta s m a n i a . T h e ove r a l l g o a l of t h e b u s i n e s s i s to a c h i e ve a 5 0 / 5 0 b a l a n c e b e t we e n i n te r n a l a n d ex te r n a l c l i e n t s.

3 7 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Gordon Dam

Increased consultancy work during the year resulted Bundaberg in Queensland. The roller compacted in Hydro Tasmania Consulting recording an above- concrete project, the largest project ever undertaken budget financial result, doubling its contribution to by Hydro Tasmania Consulting outside Tasmania, was $4.1 million, from $2.1 million the previous year. conducted with consultants SMEC, contractors Walter and MacMahon and developer Burnett Water Pty Ltd in Delivering specialist services and solutions an alliance to design and construct what is Australia’s Hydro Tasmania Consulting offers solutions in a range largest sustainable water project under development. of specialist fields such as hydropower, mini-hydro, More than 50 of our consultants worked on the wind energy, dam design and safety, sustainable project, many based in Brisbane during the detailed catchment management, environmental services, design phase. Services provided by Hydro Tasmania transmission design, and power system modelling. Consulting have varied from environmental studies In line with this growth and level of specialisation, the and approvals, fishway design, dam design and the business continues to attract quality personnel, with electrical and mechanical aspects of the outlet works. an additional 50 leading engineers and environmental Hydro Tasmania Consulting was also involved in a scientists employed during the year, taking the total major power project in South Korea, the 250MW number of employees at year’s end to 359. Siwha Tidal Power Project, which will be the largest Hydro Tasmania Consulting worked on three significant such power development in the world. The contractor, projects throughout the year, including the 50-metre Daewoo, invited Hydro Tasmania Consulting to assist in high Burnett Dam being constructed inland from bidding for the design and construction of the project.

3 8 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

T h e te a m t r ave l l e d to S e o u l a n d a s s i s te d D a e wo o i n T h e d e m a n d fo r c l e a n, g re e n re n e wa b l e e n e r g y i n s e c u r i n g th e c o n t r a c t. H yd ro Ta s m a n i a C o n s u l t i n g h a s c o u n t r i e s s u c h a s I n d i a , C h i n a , S r i L a n k a a n d T h e re c e i ve d a s u c c e s s fe e fo r i t s i n i t i a l s e rv i c e s, a n d i s P h i l i p p i n e s i s ex p e c te d to o p e n u p nu m e ro u s bu s i n e s s n ow n e g oti a t i n g w i t h D a e wo o fo r i nvo l ve m e n t i n t h e o p p o rt u n i t i e s fo r t h e s k i l l s a n d ex p e rt i s e of H yd ro d e t a i l e d d e s i g n p h a s e. Ta s m a n i a C o n s u l t i n g.

Two ye a r s of m a r ket i n g a n d s a l e s a c t i v i t y i n S r i L a n k a H yd s t r a h ave c u l m i n a te d i n H yd ro Ta s m a n i a C o n s u l t i n g D u r i n g t h e ye a r, t h e b u s i n e s s s o l d i t s s p e c i a l i s t s oft wa re b e i n g awa rd e d a $75 0,0 0 0 c o n s u l t a n c y by t h e A s i a n c o m p a ny H yd s t r a to K i s te r s AG, a s oft wa re c o m p a ny D e ve l o p m e n t B a n k . b a s e d i n G e r m a ny. S t ro n g t i e s h ave b e e n re t a i n e d w i t h H yd s t r a a n d K i s te r s t h ro u g h t h e e s t a b l i s h m e n t of T h e p ro j e c t w i l l i nvo l ve c o l l e c t i n g i n fo r m a t i o n a b o u t th e a l o n g -te r m p a rt n e r a g re e m e n t a n d re p re s e n t a t i o n o n s o c i o - e c o n o m i c pa r a m e te r s i n S r i L a n k a n v i l l a g e s th a t t h e K i s te r s p ro d u c t d e ve l o p m e n t b o a rd. h ave re c e n t l y b e e n c o n n e c te d to t h e e l e c t r i c i t y g r i d, o r c o u l d b e i n t h e n e a r f u t u re. T h e a i m i s to p re p a re a te c h n i c a l a n d e c o n o m i c a r g u m e n t fo r p ro j e c t s th a t w i l l re s u l t i n i n c re a s i n g t h e n u m b e r of h o u s e h o l d s i n S r i L a n k a w i t h a c c e s s to t h e g r i d f ro m 5 0 to 8 0 p e r c e n t. T h i s g o a l i s a p r i o r i t y fo r t h e S r i L a n k a n G ove r n m e n t fo r t h e d e ve l o p m e n t of th e c o u n t ry.

H yd ro Ta s m a n i a C o n s u l t i n g w i l l c a r ry o u t t h i s c o n s u l t a n c y in as s o c i a t i o n wi t h Re s o u rc e De ve l o p m e n t C o n s u l t a n t s, o n e of t h e l a r g e s t c o n s u l t i n g f i r m s i n S r i L a n k a .

S u s t a i n a b l e g r owt h o p p o rt u n i t i e s

H yd ro Ta s m a n i a’s i n te r n a t i o n a l s t a t u s a s a l e a d e r i n t h e hyd ro p owe r i n d u s t ry h a s b e e n e n h a n c e d fo l l ow i n g th e ad o pti o n by th e In te r n a t i o n a l H yd ro p owe r A s s o c i a t i o n ( I H A ) of t h e S u s t a i n a b i l i t y G u i d e l i n e s a n d C o m p l i a n c e P rotoc o l fo r H yd ro p owe r D e ve l o p m e n t a n d Wate r M a n a g e m e n t. H yd ro Ta s m a n i a C o n s u l t i n g i n c o n j u n c t i o n w i t h H yd ro Q u e b e c d r a fte d t h e s e g u i d e l i n e s a s a s e rv i c e to t h e I H A to p ro m ote g re a te r c o n s i d e r a t i o n of e nv i ro n m e n t a l, s o c i a l a n d e c o n o m i c s u s t a i n a b i l i t y i n t h e d e ve l o p m e n t a n d o p e r a t i o n of hyd ro p ro j e c t s.

3 9 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

4 0 corporate services

“The main focus has been to provide support for Hydro

Tasmania’s major goals of preparing for entry to the

National Electricity Market and developing wind farms.” c o r p o r a t e support services

The full range of corporate support C o r p o r a te Fo r C o r p o r a te, t h e m a i n fo c u s of t h e 20 0 3 / 20 0 4 ye a r services is provided to Hydro h a s b e e n to p rov i d e s u p p o rt fo r H yd ro Ta s m a n i a’s m a j o r g o a l s of p re p a r i n g fo r e n t ry to t h e N a t i o n a l E l e c t r i c i t y Tasmania by its Corporate division M a r ket ( N EM ) a n d d e ve l o p i n g w i n d fa r m s. In pa rt i c u l a r, t h e C o r p o r a te te a m pl aye d a si g n i f i c a n t ro l e in prov i d i n g and the Human Resources and b a n k i n g, f i n a n c i n g, r i s k m a n a g e m e n t, i n s u r a n c e a n d

Public Relations groups, in order to c re d i t r i s k se rv i c e s ad v i c e fo r th e Ca t h e d r a l Ro c k s w i n d f a r m p ro j e c t. C o n s i d e r a b l e effo rt wa s a l s o d i re c te d i n to assist the organisation to meet its i m p rov i n g ex i s t i n g a c t i v i t i e s a n d p ro c e s s e s.

I n f o r m a t i o n Te c h n o l o g y business objectives. A p ro g r a m of ac t i v i t i e s c e n t re d o n i m p l e m e n t i n g th e I T s y s te m s re q u i re d fo r N EM o p e r a t i o n s. T h i s i s d u e fo r c o m p l e t i o n i n re a d i n e s s fo r N EM e n t ry i n M ay 20 0 5. A n e w n e t wo r k d o m a i n i n c l u d i n g e n h a n c e d s e c u r i t y a n d n e t wo r k re l i a b i l i t y wa s a l s o c o m p l e te d. A p i l ot p ro j e c t fo r e l e c t ro n i c d o c u m e n t m a n a g e m e n t wa s c o n d u c te d a n d wo r k h a s c o m m e n c e d o n i m p l e m e n t i n g t h i s s y s te m. A p l a n n e d re v i e w of I T s t r a te g y wa s c o m p l e te d, t a k i n g i n to c o n s i d e r a t i o n c h a n g e s to o r g a n i s a t i o n a l s t r u c t u re to su p p o rt N EM o p e r a t i o n s.

R i s k m a n a g e m e n t

R i s k m a n a g e m e n t c o n t i n u e s to b e p ro g re s s i ve l y i n te g r a te d w i t h no r m a l bu s i n e s s o p e r a t i o n a l p ro c e s s e s t h ro u g h t h e I n te g r a te d B u s i n e s s R i s k M a n a g e m e n t ( I B R M ) s y s te m. T h i s i n c l u d e s b u s i n e s s p l a n n i n g, b u d g e t p r i o r i t i s a t i o n a n d c a s e s fo r ex p e n d i t u re a p p rova l. R e p o rt i n g of r i s k t re n d s, t h e s t re n g t h e n i n g of t h e s t a t u s of m i t i g a t i n g a c t i o n s a n d t h e u s e of q u a n t i t a t i ve a s s e s s m e n t too l s a n d m e t h o d o l o g i e s a re b e i n g t r i a l l e d.

O p e r a t i o n a l r i s k m a n a g e m e n t h a s b e e n s t re n g t h e n e d a c ro s s f i n a n c i a l a n d a c c o u n t i n g f u n c t i o n s i n o rd e r to g a i n a n A u s t r a l i a n F i n a n c i a l S e rv i c e s L i c e n c e

4 3 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

necessary for operation in the NEM. Trading and risk Pont has enabled Hydro Tasmania to set a simple but policies continue to be developed and refined. An clear strategy and action plan to work towards its safety energy risk management system was also selected goal. The initial objectives have been achieved. and is ready for implementation. Importantly, the Lost Time Injury Frequency Rate (LTIFR) Critical Infrastructure Protection (CIP) of 3.3 lost time injuries per million man hours has Work continued across the organisation to ensure reduced from 7.4 last year and is a positive indication appropriate risk assessment and mitigating strategies of the effectiveness of the current safety program. in response to the ongoing general terrorism threat, The Healthy Hydro Tasmania Program (HHTP), which and to meet government expectations for critical involves a wide variety of health and fitness activities, infrastructure owners. Relationships have been further has played an important role in the wellbeing of Hydro developed within the Tasmanian electricity industry, Tasmania employees. State Government and the State Security Unit with a Tasmanian Energy CIP Group now being established Enterprise Partnership Agreement (EPA) to further improve sharing of information and co- The EPA was successfully negotiated and certified ordination of activities. by the Industrial Relations Commission in July 2003,

General business activities coming into effect on 1 August 2003. There were a number of new issues included in the EPA, such as a Preferred supplier agreements were developed during review of remuneration and classification structures. the year, leading to a range of benefits including lower purchase costs, lower inventory levels and better Leadership development availability of required goods and services. The leadership program continued to deliver leading Human Resources edge solutions with a panel of coaches established

This year the focus was on the areas of safety and to support leadership development throughout the health, leadership and values. A major activity was the business. Selective programs were offered in aspects move to the new organisational design of three lines such as communication and presentation skills. of business with their own support services, balance Values sheets and business models. In the process, 30 roles The values project, which spanned most of the were created or refined in a manner which provided a previous year, continued and provided an excellent number of opportunities for promotion and some new opportunity for the business to review what it valued. recruitment opportunities. This project resulted in values and behaviours being Safety and health set down based on feedback from employees. Values Progress in building a world-class safety culture has are used in recruitment and as part of our performance been steadily nurtured through a significant partnership management system, and are an integral part of with Du Pont Safety Services. The partnership with Du decision-making.

4 4 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

Wor kf o r c e p l a n n i n g M a j o r a c h i e ve m e n t s fo r t h e ye a r i n c l u d e :

A Wor kfo rc e P l a n n i n g S y s te m wa s d e ve l o p e d • e n te r i n g i n to a p a rt n e r s h i p w i t h t h e C S I R O c o l l a b o r a t i ve l y to p rov i d e m a n a g e r s w i t h a f r a m e wo r k D i s c ove ry C e n t re i n C a n b e r r a to d e ve l o p a n fo r e n s u r i n g H yd ro Ta s m a n i a h a s t h e o r g a n i s a t i o n a l exci t i n g ex h i b i t i o n o n E n e r g y Fu t u re s s k i l l s a n d c a p a b i l i t y to d e l i ve r b u s i n e s s s u s t a i n a b i l i t y • p rov i d i n g p rofe s s i o n a l d e ve l o p m e n t fo r p r a c t i s i n g a n d s t r a te g i c o b j e c t i ve s i n t h e s h o rt a n d l o n g te r m. A te a c h e r s w i t h f i e l d tr i p s to c a tch m e n t a re a s a n d th e s u c c e s s f u l pi l ot of th e sy s te m ha s prov i d e d th e c a t a l y s t Woo l n o rt h W i n d Fa r m fo r f u l l i m p l e m e n t a t i o n of t h e s y s te m i n t h e c o m i n g f i n a n c i a l ye a r. • s p o n s o r i n g m a ny s c h o o l - re l a te d e ve n t s a n d p ro g r a m s P u b l i c R e l a t i o n s • c o n t r i b u t i n g to th e sy l l a b u s co n te n t fo r a ne w co u r s e D u r i n g th e ye a r, H yd ro Ta s m a n i a c o n t i n u e d a p ro g r a m b e i n g offe re d i n Ta s m a n i a n se c o n d a ry sc h o o l s f ro m of i n i t i a t i ve s l o c a l l y, i n te r s t a te a n d ove r s e a s t h a t 20 0 5, “S c i e n c e of N a t u r a l R e s o u rc e s – E n e r g y” re f l e c te d i t s p o s i t i o n a s A u s t r a l i a’s l e a d i n g re n e wa b l e e n e r g y b u s i n e s s. A s i g n i f i c a n t e l e m e n t of t h i s wa s • i n s t a l l i n g th e m o s t ex te n s i ve c o l l e c t i o n of hyd ro g e n to wo r k w i t h s t a ke h o l d e r s, i n c l u d i n g G ove r n m e n t, f u e l c e l l m o d e l s i n t h e S t a te. t h e Pa r l i a m e n t, b u s i n e s s, c o m m u n i t y g ro u p s a n d B u i l d i n g c o m m u n i t y r e l a t i o n s h i p s t h e m e d i a , a s p a rt of a w i d e r c o m m i t m e n t to b e i n g a T h ro u g h t h e ye a r, H yd ro Ta s m a n i a c o n t i n u e d i t s re s p o n s i b l e c o r p o r a te c i t i ze n, a n d i n ke e p i n g w i t h i t s c o m m i t m e n t to in fo r m i n g th e co m m u n i t y of it s ac t i v i t i e s p o s i t i o n a s th e S t a te’s p r i n c i p a l G ove r n m e n t B u s i n e s s t h ro u g h i t s A n n u a l M e e t i n g a n d a s e r i e s of b u s i n e s s E n te r p r i s e. T h e re we re m a ny h i g h l i g h t s d u r i n g t h e f u n c t i o n s, s t a ke h o l d e r fo r u m s a n d c o n s u l t a t i o n ye a r, e s p e c i a l l y i n w i n d f a r m d e ve l o p m e n t. T h e P u b l i c e ve n t s to e n s u re Ta s m a n i a n s we re awa re of o u r R e l a t i o n s G ro u p p rov i d e d s u p p o rt a n d ex p e rt i s e to a c t i o n s, i n i t i a t i ve s a n d f u t u re p l a n s, a s we l l a s g a u g i n g p u b l i c i s e t h e s e h i g h l i g h t s to al l s t a ke h o l d e r s. c o m m u n i t y re a c t i o n to o u r p e rfo r m a n c e, a c t i v i t i e s T h e g ro u p wa s a l s o re s p o n s i b l e fo r ke e p i n g a n d d i re c t i o n. H yd ro Ta s m a n i a c o n t i n u e s to s u p p o rt g ove r n m e n t a t a l l l e ve l s i n fo r m e d of H yd ro Ta s m a n i a’s m a ny Ta s m a n i a n o r g a n i s a t i o n s a n d i n i t i a t i ve s t h ro u g h a c t i v i t i e s a n d p rov i d i n g s u p p o rt, i n fo r m a t i o n a n d s p o n s o r s h i p of e ve n t s a n d a c t i v i t i e s t h a t re f l e c t t h e b r i e f i n g s w h e n n e c e s s a ry. p r i o r i t i e s of t h e b u s i n e s s, e n h a n c e o u r p o s i t i o n a s a re s p o n s i b l e c o r p o r a te c i t i ze n a n d c o n t i n u e o u r E d u c a t i o n i nvo l ve m e n t w i t h wo rt hw h i l e c o m m u n i t y i n i t i a t i ve s. T h e Ha n d s On En e r g y Di s c ove ry Ce n t re is de ve l o p i n g a T h e p r i n c i p a l s p o n s o r s h i p s of t h e ye a r i n c l u d e d t h e g row i n g rep u t a t i o n fo r prov i d i n g an exci t i n g ed u c a t i o n a l Ta s m a n i a n S y m p h o ny O rc h e s t r a , t h e T h re e Pe a k s ve n u e fo r s t u d e n t s f ro m a l l a re a s of Ta s m a n i a , a s we l l R a c e ( a c h a l l e n g i n g s a i l i n g a n d l a n d - b a s e d e n d u r a n c e a s i n te r s t a te a n d ove r s e a s. A l m o s t 8 0 0 0 p e o p l e v i s i te d e ve n t) a n d th e S o u t h e r n Cro s s Yo u n g Ac h i e ve r Awa rd s t h e C e n t re d u r i n g t h e ye a r, i n c l u d i n g 6728 st u d e n t s. – E nv i ro n m e n t C a te g o ry.

4 5 co r p o r a t e g o v e r n a n c e

Hydro Tasmania’s Board of Directors C o r p o r a te g ove r n a n c e p h i l o s o p hy I n f u l f i l l i n g i t s o b l i g a t i o n s to G ove r n m e n t, e m p l oye e s has the corporate gover nance a n d t h e w i d e r c o m m u n i t y, t h e B o a rd of H yd ro Ta s m a n i a a i m s to exc e e d, r a t h e r t h a n s i m p l y m e e t, responsibilities of establishing the t h e g ove r n a n c e s t a n d a rd s i m p o s e d by t h e l aw o r e s t a b l i s h e d p r a c t i c e s. organisation’s strategic direction; O u r c o r p o r a te gove r n a n c e p ro c e s s e s a re s h a p e d by: formulating corporate policy and • a d e s i re to ac h i e ve th e h i g h e s t et h i c a l st a n d a rd s i n monitoring its implementation; setting e ve ryt h i n g we d o to e n s u re th a t we ac t fa i r l y a n d i n a c c o rd a n c e w i t h s t a ke h o l d e r ex p e c t a t i o n s ; a n d and monitoring risk management • a c o n c e r n to e n s u re t h e B o a rd i s o p e r a t i n g e ff i c i e n t l y a n d e ffe c t i ve l y i n t h e exe c u t i o n of i t s policies and procedures; and re s p o n s i b i l i t i e s. overseeing the prudent T h e D i r e c to r s 2 0 0 3/ 2 0 0 4

T h e Hyd ro - E l e c t r i c C o r p o r a t i o n, w h i c h tr a d e s a s Hyd ro management of the financial Ta s m a n i a , i s a s t a t u tory c o r p o r a t i o n w i t h a B o a rd affairs of the business on c o n s i s t i n g of a m ax i m u m of n i n e d i re c tor s.

T h e di re c tor s are ap p o i n te d by th e Gove r n o r- i n - C o u n c i l behalf of our owner, the fo r te r m s of u p to th re e ye a r s.

State of Tasmania. C h a i r m a n of H yd ro Ta s m a n i a i s t h e H o n o u r a b l e Pete r R a e AO.

H i s fe l l ow d i re c tor s a re M r G e off W i l l i s, D r Ju l i a n A m o s, M r Ke n B ax te r, M r D o n C h a l l e n, M s J a n i n e H e a l ey, M s C a ro l H u g h e s a n d M r G r a e m e Ke n n e d y.

D r N o r a S c h e i n ke s te l re s i g n e d f ro m t h e B o a rd o n 21 Ap r i l 20 0 4.

M r R a e ( 71) h a s b e e n a B o a rd m e m b e r s i n c e 19 92 a n d C h a i r m a n s i n c e 19 9 3. H e i s a l s o C h a i r m a n of t h e R e n e wa b l e E n e r g y G e n e r a tor s of A u s t r a l i a L i m i te d a n d fo u n d e r a n d C h a i r m a n of t h e R e n e wa b l e a n d S u s t a i n a b l e E n e r g y R O U N DTA B L E. M r R a e i s

4 6 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

Carol Hughes, David Crean, Janine Healey, Graeme Kennedy, Peter Rae, Ken Baxter, Julian Amos, Don Challen and Geoff W illis

V i c e P re s i d e n t ( O c e a n i a ) of t h e Wor l d W i n d E n e r g y H e wa s t h e Ta s m a n i a n S t a te M i n i s te r fo r Ed u c a t i o n A s s o c i a t i o n a n d a d i re c tor of t h e I n te r n a t i o n a l a n d fo r Te c h n o l o g y. H e a l s o s e rve d o n t h e A u s t r a l i a n H yd ro p owe r A s s o c i a t i o n. N a t i o n a l U n i ve r s i t y C o u n c i l a n d i t s F i n a n c e C o m m i t te e fo r 16 ye a r s. I n t h e 19 9 9 A u s t r a l i a D ay H o n o u r s, M r H e h o l d s a n A rt s d e g re e a n d a n H o n o u r s d e g re e i n R a e wa s m a d e a n O ff i c e r of t h e O rd e r of A u s t r a l i a L aw. H e i s a n AA D M, FA I C D a n d a n FA I E. fo r s e rv i c e s to A u s t r a l i a i n re l a t i o n to b u s i n e s s a n d D u r i n g h i s 21 ye a r c a re e r a s a p a r l i a m e n t a r i a n, c o m m e rc e a s we l l a s to Pa r l i a m e n t. i n c l u d i n g S e n a tor fo r Ta s m a n i a fo r 18 ye a r s, h e h e l d s e n i o r p o s i t i o n s a s c h a i r m a n of b oth S e l e c t a n d M r W i l l i s ( 5 6 ) h a s b e e n t h e C h i e f E xe c u t i ve O ff i c e r S t a n d i n g C o m m i t te e s of th e S e n a te. H e l e d th e refo r m s i n c e 8 Ma rc h 19 9 9. Pr i o r to th i s ap p o i n t m e n t, Mr Wi l l i s of t h e C o r p o r a t i o n s L aw a n d of t h e S toc k E xc h a n g e s wa s M a n a g i n g D i re c tor, A m c o r Pa p e r G ro u p. of A u s t r a l i a ( t h e R a e R e p o rt), a s we l l a s t h e re fo r m of H e ha s a Ba c h e l o r of Co m m e rc e de g re e an d a Ma s te r s C o m m o nwe a l t h G ove r n m e n t B u s i n e s s En te r p r i s e s l aw d e g re e i n B u s i n e s s Ad m i n i s t r a t i o n, a n d h a s c o m p l e te d a n d p r a c t i c e s. t h e E xe c u t i ve Pro g r a m a t S t a n fo rd U n i ve r s i t y. H e s e rve d b oth a s t h e Fe d e r a l S h a d ow M i n i s te r fo r I n d u s t ry a n d C o m m e rc e a n d a s a S h a d ow M i n i s te r M r W i l l i s i s C h a i r m a n of th e En e r g y S u p p l y A s s o c i a t i o n fo r F i n a n c e. T h i s fo l l owe d a n e a r l i e r te r m a s S h a d ow of A u s t r a l i a’s E nv i ro n m e n t C o m m i t te e, a m e m b e r of M i n i s te r fo r Ed u c a t i o n a n d S c i e n c e. H e l e d m a j o r t h e N a t i o n a l E l e c t r i c i t y C o d e Ad m i n i s t r a tor R e l i a b i l i t y i n q u i r i e s a n d p o l i c y d e ve l o p m e n t i n t ax re fo r m a s we l l Pa n e l, a d i re c tor of Ta s te l P t y Ltd a n d C h a i r m a n of a s t h e d e re g u l a t i o n of th e f i n a n c e s e c tor. C o l o r p a k L i m i te d.

4 7 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Government of Papua New Guinea since 1999. He has held the positions of Chairman of the Australian Dairy Corporation and Chairman of the Australian Dairy Research and Development Corporation, Chairman of the Council of Australian Governments Electricity Reform Committee, member of the COAG Micro-Economic Reform Committee, Director-General of the NSW Premier’s Department, Secretary of the Mr Willis is a Member of the Australian Institute of Department of Premier and Cabinet in Victoria and Company Directors. Director of the Sydney Organising Committee for the Olympic Games (2000). He has held the positions Dr Amos (59) was appointed to the Board on 20 May of Commissioner of the Australian National Railways 1999. He has a PhD in Botany and was a Cabinet Commission and Director of the Baker Medical Minister in the Tasmanian Parliament with the portfolios Research Institute. of Primary Industry, Energy and Forests. He was the founder of, and currently conducts, a business Mr Challen (54) was appointed to the Board on management consultancy specialising in strategic 22 March 1993. Currently Secretary of the Tasmanian positioning, negotiating skills and dispute resolution. Department of Treasury and Finance, Mr Challen has He is Chairman of Sun Aqua Pty Ltd and EMerchants a Masters degree in Economics. He is a Fellow of the Holdings Pty Ltd (both Queensland-based companies) Australian Institute of Company Directors, a Fellow of and chairs a Management Advisory Committee for CPA Australia and an Honorary Fellow of the Finance NSW Fisheries. Dr Amos was also a director of the and Treasury Association. Office of the Minister for Agriculture, Forests and Lands Mr Challen is Chairman of the Tasmanian Public Finance in NSW and the inaugural executive officer for Salmon Corporation and is a member of the Financial Reporting Enterprises of Tasmania (Saltas), the Tasmanian Council. He previously held the positions of Reader salmon industry’s representative body. in Economics at the University of Tasmania, Director,

Mr Baxter (60), appointed to the Board on 6 November Office of the Economic Planning Advisory Council and Managing Director of the Tasmanian Development 1996, is a Strategic Management Consultant. He has Authority. a Bachelor of Economics degree from the University of Sydney. He is a Fellow of the Australian Institute Ms Healey (45) was appointed to the Board on of Management, Fellow of the Australian Institute of 9 September 2002. Currently a Chartered Accountant Company Directors and a Member of the Academy of with R.J. Ruddick & Co, Ms Healey has wide-ranging Political Science (New York). He is Chairman of AVT commercial experience, particularly in the areas of Bioplasma Ltd and Computronics Ltd. He has been commercial taxation advice, business structures, and senior policy adviser to the Chief Secretary of the planning and cash flow management. Ms Healey has a

4 8 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

s t ro n g h i s tory of c o m m u n i t y i nvo l ve m e n t i n Ta s m a n i a of R e s o u rc e s a n d E n e r g y, a n d M i n e s. H i s ex te n s i ve w h i c h i n c l u d e s s e rv i n g a s a m e m b e r of t h e U n i ve r s i t y p r i va te s e c tor b a c kgro u n d r a n g e s f ro m s m a l l of Ta s m a n i a Au d i t a n d F i n a n c e C o m m i t te e ( i n c l u d i n g a b u s i n e s s a n d h e avy c i v i l e n g i n e e r i n g c o n s t r u c t i o n te r m a s C h a i r ) , Tre a s u re r of t h e L a u n c e s ton C h a m b e r to t h e d e bt a n d e q u i t y f i n a n c i n g of m a j o r i n d u s t r i a l of C o m m e rc e, D i re c tor of t h e I nve re s k R a i l ya rd a n d re s o u rc e d e ve l o p m e n t p ro j e c t s, a n d w i d e D e ve l o p m e n t A u t h o r i t y ( i n c l u d i n g C h a i r of t h e A u d i t ex p e r i e n c e i n t h e d o m e s t i c a n d i n te r n a t i o n a l c a p i t a l C o m m i t te e ) , D i re c tor of t h e Fe m a l e Fac tory H i s tor i c a n d m o n ey m a r ket s. S i te Ltd i n H o b a rt a n d D i re c tor a n d C h a i r of t h e A u d i t M r L a m p r i l l ( 6 0 ) wa s a p p o i n te d S e c re t a ry to t h e C o m m i t te e of th e Po rt of L a u n c e s ton P t y Ltd. B o a rd o n 19 M a rc h 19 97 a n d wa s fo r m e r l y S o l i c i tor to H e r p rofe s s i o n a l m e m b e r s h i p s i n c l u d e C h a i r m a n of th e t h e H yd ro - E l e c t r i c C o m m i s s i o n. H e h o l d s a B a c h e l o r Tax a t i o n I n s t i t u te of A u s t r a l i a (Ta s ) a n d Fe l l ow of t h e of L aw s d e g re e f ro m t h e U n i ve r s i t y of Ta s m a n i a . M r I n s t i t u te of C h a rte re d A c c o u n t a n t s. L a m p r i l l re t i re d o n 3 0 J u n e 20 0 4 w i t h M r S te p h e n B e n d e i c h a p p o i n te d Ac t i n g C o r p o r a t i o n S e c re t a ry u n t i l M s H u g h e s ( 57) wa s a p p o i n te d to t h e B o a rd o n t h e p o s i t i o n i s f i l l e d. 18 M ay 19 9 9, a n d i s a q u a l i f i e d l awye r. S h e h a s p r a c t i s e d fo r a n u m b e r of ye a r s a s a b a r r i s te r a n d * D e t a i l s o f d i r e c to r s a r e a s a t 3 0 J u n e 2 0 0 4 . * * D r D a v i d C r e a n wa s a p p o i n te d to t h e B o a r d o n 12 Ju l y 2 0 0 4 . s o l i c i tor, p re d o m i n a n t l y i n t h e a re a s of c o m m e rc i a l a n d fa m i l y l aw, a n d m o re re c e n t l y i n ad m i n i s t r a t i ve l aw B o a r d m e e t i n g s a t te n d e d ye a r e n d e d a s Ta s m a n i a n D i re c tor of t h e S o c i a l S e c u r i t y A p p e a l s 3 0 J u n e 2 0 0 4 Tr i b u n a l. S i n c e 1979, M s H u g h e s h a s b e e n a c t i ve l y O r d i n a ry m e e t i n g s h e l d i nvo l ve d i n c o m m u n i t y o r g a n i s a t i o n s, a n d h a s s e rve d w h i l e a B o a r d o n s e ve r a l b o a rd s, i n c l u d i n g Te r r a p i n P u p p e t T h e a t re, m e m b e r At te n d e d t h e Au s t r a l i a n Wom e n’s Ed u c a t i o n C o a l i t i o n, Ad vo c a c y H o n P E R a e 12 12 Ta s m a n i a a n d t h e Ta s m a n i a n C o u n c i l o n A I D S a n d G L W i l l i s 12 11 R e l a te d D i s e a s e s. S h e i s c u r re n t l y M a n a g e r of t h e J J A m o s 12 12 R e s o u rc e P l a n n i n g a n d D e ve l o p m e n t C o m m i s s i o n, a Tr u s te e of t h e S o u t h e r n R e g i o n a l C e m e te ry Tr u s t, a n d K P B ax te r 12 11 a m e m b e r of th e N o m e n c l a t u re B o a rd. D W C h a l l e n 12 11 R E G i l l * 1 1 M r Ke n n e d y ( 6 6 ) wa s a p p o i n te d a C o m m i s s i o n e r J M H e a l ey 12 12 o n 1 J u l y 19 9 0. H e h a s a n H o n o u r s d e g re e i n C i v i l E n g i n e e r i n g, is a M e m b e r of th e In s t i t u t i o n of En g i n e e r s C A H u g h e s 12 11 A u s t r a l i a a n d a Fe l l ow of t h e A u s t r a l i a n I n s t i t u te of G A Ke n n e d y 12 10

C o m p a ny D i re c tor s. M r Ke n n e d y i s C h a i r m a n a n d a N L S c h e i n ke s te l 10 9 d i re c tor of Ta s m a n i a n Pe r p e t u a l Tr u s te e s L i m i te d a n d * M r G i l l a t te n d e d t h e J u l y 2 0 0 3 m e e t i n g a s A c t i n g C E O a fo r m e r S e c re t a ry of t h e Ta s m a n i a n D e p a rt m e n t s

4 9 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Board Committee Structure Business Risk Committee

Committees play an important part in guiding G.A. Kennedy (Chair), D.W. Challen, C.A. Hughes, G.L. the Corporation on specific governance issues. Willis, with management support from L. Balcombe, Committees are able to give full attention to important S. Halliday and J. Minchin. corporate issues and make informed recommendations The Committee’s responsibilities are to: to the full Board, which makes the final decisions.

• advise the Board on risk management issues and The following is the current membership and a brief overview of the responsibilities of each committee. strategies

Audit Committee • sponsor the Integrated Business Risk Management (IBRM) program J.M. Healey (Chair), K.P. Baxter, J.J. Amos, P.E. Rae, with management support from B. Stubbe. • review and consider the consolidated profile of

The Committee operates under an Audit Committee Hydro Tasmania’s major risks Charter with responsibilities including to: • review and endorse IBRM, Treasury, Marketing and

• oversee the external financial reporting by the Trading, and Dam Safety risk management policies Corporation and provide an independent review of for Board approval financial information presented by management to • on behalf of the Board, monitor overall risk regulators management performance. • oversee the scope and quality of audits conducted The Committee meets at least quarterly. by the internal auditor Human Resources and Remuneration Committee • meet with the external auditors to discuss their audit scope and results D.W. Challen (Chair), C.A. Hughes, P.E. Rae, G.L. Willis, with management support from A. Vallance. • determine the adequacy of the Corporation’s systems of internal controls The Committee’s responsibilities include:

• receive reports on compliance matters and review • advising the the Board on human resources corrective actions taken. management policies and strategies

The Committee meets at least quarterly and reports • overseeing the annual safety plan and safety quarterly to the Board. reports

5 0 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

• m o n i tor i n g t h e e ffe c t i ve n e s s of p e rfo r m a n c e a n d T h e c o m m i t te e’s re s p o n s i b i l i t i e s a re to: d e ve l o p m e n t p ro g r a m s • m a i n t a i n g u i d e l i n e s i d e n t i fy i n g t h e ro l e s a n d

• re v i e w i n g th e p e rfo r m a n c e a n d effe c t i ve n e s s of th e re s p o n s i b i l i t i e s of th e B o a rd a n d m a n a g e m e n t C o r po ratio n’s re m u n e r a t i o n a n d b e n e f i t s s t r a te g y. • fo r m u l a te p ro c e s s e s fo r m e a s u re m e n t of B o a rd p e rfo r ma nc e T h e C o m m i t te e m e e t s a t l e a s t q u a rte r l y. • m o n i tor c o r p o r a te gove r n a n c e i s s u e s a s t h ey a r i s e. E nv i r o n m e n t C o m m i t te e T h e C o m m i t te e m e e t s a t l e a s t q u a rte r l y. P.E. Ra e ( C h a i r ) , J.J. Am o s, G.L. Wi l l i s, wi t h ma n a g e m e n t s u p p o rt f ro m A . L i v i n g s ton, A . S c a n l o n a n d H. Lo c h e r. C o m p l i a n c e T h e C o r p o r a t i o n h a s i n t ro d u c e d a s e n i o r ro l e to T h e C o m m i t te e’s re s p o n s i b i l i t i e s a re to: ove r s e e p e rfo r m a n c e i n re l a t i o n to a l l c o m p l i a n c e • a d v i s e t h e B o a rd o n H yd ro Ta s m a n i a ’s o b l i g a t i o n s. T h i s ro l e re p o rt s to t h e C h i e f E xe c u t i ve e nv i ro n m e n t a l p o l i c i e s O ff i c e r a n d h a s d i re c t a c c e s s to th e B o a rd.

• re v i e w t h e p e rfo r m a n c e of H yd ro Ta s m a n i a ’s C E O p e rf o r m a n c e E nv i ro n m e n t a l M a n a g e m e n t S y s te m T h e B o a rd a l s o m a i n t a i n s a fo r m a l p ro c e s s fo r t h e e va l u a t i o n of t h e C h i e f E xe c u t i ve’s p e rfo r m a n c e. T h e • re v i e w H yd ro Ta s m a n i a’s e nv i ro n m e n t a l p ro g r a m s fo r m a l eva l u a t i o n i s ba s e d o n s p e c i f i c c r i te r i a , i n c l u d i n g • ex a m i n e s t r a te g i c e nv i ro n m e n t a l i s s u e s i n c l u d i n g t h e C o r p o r a t i o n’s b u s i n e s s p e rfo r m a n c e, t h e ex te n t re l a t i o n s w i t h s t a ke h o l d e r s, n e w l e g i s l a t i o n a n d to w h i c h l o n g e r-te r m s t r a te g i c o b j e c t i ve s a re b e i n g n e w g ove r n m e n t a n d i n d u s t ry i n i t i a t i ve s a c h i e ve d a n d t h e d e ve l o p m e n t of t h e C o r p o r a t i o n’s p e o p l e at al l le ve l s of th e or g a n i s a t i o n. Th i s as s e s s m e n t • c o m m i s s i o n e nv i ro n m e n t a l a u d i t s a n d s t u d i e s to i s st r u c t u re d a n d co n d u c te d by th e Bo a rd a n d in c l u d e s a d d re s s i s s u e s of c o n c e r n o r to ve r i fy i n fo r m a t i o n t h e re q u i re m e n t s u n d e r t h e G ove r n m e nt B u s i n e s s E nte r p r i s e s A c t 19 95. • a p p rove th e a n n u a l E nv i ro n m e n t a l R e p o rt.

B o a r d p r o c e s s e s T h e C o m m i t te e m e e t s a t l e a s t q u a rte r l y. T h e B o a rd c o n d u c ts a p rog r a m of c o nti n u o u s C o r p o r a te G ove r n a n c e C o m m i t te e i m p rove m e nt of its op e r ati o n s, in c l u d i n g a cr i ti q u e at th e P.E. R a e ( C h a i r ) , G .L. W i l l i s, J.M. H e a l ey a n d c o n c l u s i o n of e a c h B o a rd m e eti n g. T h i s o n g o i n g ‘s e l f G . A . Ke n n e d y, w i t h m a n a g e m e n t s u p p o rt f ro m a s s e s s m e nt’ proc e s s en s u re s an ove r a l l im p rove m e nt in S. B e n d e i c h, L. B a l c o m b e a n d M. H owa rt h. B o a rd proc e d u re s an d pr a c ti c e s, on a co nti n u i n g b a s i s.

5 1 statement of c o r p or a t e in t e n t

This Statement of Corporate 1.1 B U S I N E S S D E F I N I T I O N 1.1.1 C o m m e r c i a l A c t i v i t i e s Intent has been prepared pursuant H yd ro Ta s m a n i a i s a G ove r n m e n t B u s i n e s s En te r p r i s e, o p e r a t i n g i n c o m m e rc i a l m a r ket s. O u r p r i n c i p a l to Section 41 of the Government b u s i n e s s a c t i v i t i e s a re :

Business Enterprises Act 1995 • m a n a g e m e n t a n d o p e r a t i o n of m a j o r d a m s, i n f r a s t r u c t u re a n d e q u i p m e n t fo r t h e g e n e r a t i o n (the GBE Act). a n d t r a d i n g of e l e c t r i c i t y a n d re l a te d p ro d u c t s ;

• d e ve l o p m e n t of n e w re n e wa b l e e n e r g y g e n e r a t i o n a s s e t s ; a n d

• p rov i s i o n of c o n s u l t i n g a n d oth e r s e rv i c e s i n re n e wa b l e e n e r g y, e nv i ro n m e n t a l a n d wate r m a n a g e m e n t a n d a s s o c i a te d s c i e n c e s a n d tec h no l o gi e s.

1.1. 2 N o n - C o m m e r c i a l O p e r a t i o n s

H yd ro Ta s m a n i a p rov i d e s c o n c e s s i o n a l a r r a n g e m e n t s to c u s tom e r s of H yd ro Ta s m a n i a l i v i n g o n t h e B a s s S t r a i t i s l a n d s. A u ro r a E n e r g y d e l i ve r s t h e s e a r r a n g e m e n t s to c u s tom e r s v i a a s u b - c o n t r a c t a r r a n g e m e n t, w i t h n e t c o s t s of t h e a c t i v i t y f u n d e d by t h e S t a te G ove r n m e n t a s a d e c l a re d C o m m u n i t y S e rv i c e O b l i g a t i o n ( C S O ) .

1.1. 3 S t r a te g i c O b j e c t i ve s

H yd ro Ta s m a n i a h a s a s t a t u tory o b l i g a t i o n u n d e r t h e G ove r n m e nt B u s i n e s s E nte r p r i s e s Ac t 19 95 to ac h i e ve a s u s t a i n a b l e c o m m e rc i a l ra te of ret u r n th a t m ax i m i s e s va l u e fo r t h e S t a te. I n fo r m u l a t i n g t h e s u s t a i n a b l e c o m m e rc i a l r a te of re t u r n, we h ave a s s e s s e d s u s t a i n a b i l i t y an d va l u e fo r th e St a te in ac c o rd a n c e wi t h t h e tr i p l e b ot tom l i n e b u s i n e s s m o d e l, w h i c h m e a s u re s c o r p o r a te p e rfo r m a n c e h av i n g re g a rd to p rof i t s, e nv i ro n m e n t a l s u s t a i n a b i l i t y a n d s o c i a l re s p o n s i b i l i t y. T h e va l u e fo r t h e S t a te d e f i n e d h e re p r i m a r i l y re f l e c t s

5 2 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

t h e l o n g -te r m i n c re a s e i n f i n a n c i a l re t u r n s f ro m a n d / m ax i m i s e s t h e va l u e fo r t h e S t a te i n a c c o rd a n c e w i t h o r e c o n o m i c wo rt h of t h e b u s i n e s s. T h i s C o r p o r a te i t s Co r p o r a te Pl a n, wh i l e hav i n g reg a rd to th e ec o n o m i c P l a n s e t s o u t o u r b u s i n e s s p e rfo r m a n c e t a r g e t s i n a n d s o c i a l o b j e c t i ve s of t h e S t a te. I n a c h i e v i n g t h i s, a c c o rd a n c e w i t h th e tr i p l e b ot tom l i n e b u s i n e s s m o d e l i t i s H yd ro Ta s m a n i a’s c h a rte r to p r u d e n t l y g row a n d i s s u b m i t te d by t h e H yd ro Ta s m a n i a B o a rd fo r t h o s e a re a s re l a te d to i t s p r i n c i p a l p u r p o s e s, w h i c h a p p rova l by t h e M i n i s te r fo r I n f r a s t r u c t u re, E n e r g y a n d w i l l e n h a n c e i t s p o s i t i o n l o c a l l y, n a t i o n a l l y a n d R e s o u rc e s a n d t h e Tre a s u re r, a s t h e Po rt fo l i o a n d i n te r n a t i o n a l l y w h e re s u c h g rowt h w i l l a d d va l u e to S t a ke h o l d e r M i n i s te r s u n d e r t h e G B E A c t. b oth H yd ro Ta s m a n i a a n d t h e S t a te of Ta s m a n i a .

T h e H yd ro Ta s m a n i a B o a rd re c o g n i s e s t h a t a p p rova l I n t h i s re g a rd, t h e p r i n c i p a l p u r p o s e s d e f i n e d i n t h e by t h e M i n i s te r a n d Tre a s u re r i n d i c a te s t h a t t h e H EC A c t a re : b u s i n e s s p e rfo r m a n c e t a r g e t s s p e c i f i e d w i t h i n t h e • ge n e r a t i o n a n d t r a d i n g of e l e c t r i c i t y; C o r p o r a te P l a n of H yd ro Ta s m a n i a a re s e t s o a s to a c h i e ve a s u s t a i n a b l e c o m m e rc i a l r a te of re t u r n t h a t • prov i s i o n of c o n s u l t i n g a n d oth e r s e rv i c e s i n m ax i m i s e s va l u e fo r t h e S t a te. hyd ro p owe r, e nv i ro n m e n t a n d wate r m a n a g e m e n t, a n d a s s o c i a te d s c i e n c e s a n d te c h n o l o g i e s ; a n d 1. 2 S T RAT EG I C D I R E C T I O N S

T h e bu s i n e s s d i re c t i o n s a n d st r a te g i e s we re d e ve l o p e d • sc i e n t i f i c a n d c o m m e rc i a l re s e a rc h a s s o c i a te d w i t h by c o n s i d e r i n g o u r f u t u re o p e r a t i o n s i n t h re e d i s t i n c t a l l of th e a b ove. p h a s e s : T h i s c o n tex t g u i d e s a n d d r i ve s t h e C o r p o r a t i o n’s • 10 ye a r s o u t to 2014 – w h e re we ex p e c t t h e f u t u re. b u s i n e s s to be p o s i t i o n e d i n 10 ye a r s t i m e ; I n d e ve l o p i n g o u r s t r a te g i c d i re c t i o n s i t h a s a l s o b e e n • 2 to 4 ye a r s o u t – h ow t h e b u s i n e s s w i l l b e re c o g n i s e d t h a t a h i g h e r l e ve l of s e p a r a t i o n to o u r p o s i t i o n e d fo l l ow i n g a few ye a r s of o p e r a t i n g i n th e t h re e b u s i n e s s l i n e s i s d e s i r a b l e. I n c re a s e d s e p a r a t i o n N EM ( N a t i o n a l E n e r g y M a r ket) ; a n d of t h e t h re e b u s i n e s s l i n e s w i l l a l l ow e a c h of t h e m to e n g a g e a n d c o m p e te e ffe c t i ve l y i n t h e i r m a r ket s, a n d • w h a t h a s to b e d o n e i n t h e n ex t 18 m o n t h s to a l i g n t h e i r g ove r n a n c e a n d d e l e g a t i o n f r a m e wo r k s t r a n s fo r m t h e b u s i n e s s f ro m i t s c u r re n t o p e r a t i o n s to t h e i r re s p e c t i ve b u s i n e s s o p e r a t i o n s. A s we l l, to NEM c o m p e t i tor. s p e c i f i c p e rfo r m a n c e m e a s u re s w i l l b e a p p l i e d to O u r a s p i r a t i o n s fo r t h e f u t u re a re f i r m l y g ro u n d e d by e a c h b u s i n e s s. H oweve r, t h e ove r a l l a c h i e ve m e n t of re fe re n c e to t h e H yd r o - E l e c t r i c C o r p o r at i o n A c t ( H EC t h e C o r p o r a t i o n’s st r a te g i c o b j e c t i ve s w i l l b e fa c i l i t a te d A c t) a n d t h e M i n i s te r i a l C h a rte r. by t h e c r i t i c a l i n te rc o n n e c t i o n s b e t we e n t h e t h re e b u s i n e s s e s a s s h ow n i n t h e d i a g r a m o n p a g e 5 4. H yd ro Ta s m a n i a i s t a s ke d t h ro u g h t h e G B E A c t w i t h a c h i e v i n g a s u s t a i n a b l e c o m m e rc i a l r a te of re t u r n t h a t

5 3 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

1.2.1 2014 timeframe values and learning from the work we do and from

Our vision for 2014 sees the Corporation: each other and who are proud of our exemplary approach to safety; and • successfully operating in the National Energy Market as a highly efficient and profitable generator, • applying our leading-edge corporate governance underpinned by world-class capabilities in trading, practices and concepts. water management, asset management and risk Our key strategies to achieve our vision for 2014 are to: management;

• develop and implement a robust business • positioning Tasmania as an icon for communities model, risk framework, trading approach and globally, for our sustainable energy and water transformation plan, to see us become a profitable solutions; and highly respected NEM participant; • building out from our existing strengths of hydropower, wind power and water management • establish a business culture built upon learning and into carefully targeted niches focused in fast- innovation and values-based decision-making; growing regional economies where risk is • position ourselves for profitable growth commensurate with reward and energy and water opportunities for consulting and development skills are highly valued; in our chosen niches - renewable energy and

• influencing/guiding/leading energy and water policy water solutions in Australia and New Zealand and because of our excellent reputation and expertise countries with fast-growing economies; to protect and enhance our business; • ensure the Consulting business develops its • being sought after for advice by the world’s leading profitable external niche markets; sustainable companies; • establish a lead role in renewables development • employing people who come from a range of in Australia and New Zealand together with our cultures, who are passionately committed to our industry and financial partners;

3 interdependent lines of business

Growth Opportunities Energy Business Renewables Developer Icon Status Consulting Opportunities

World Class Solutions

DevelopmentWorld Opportunities Class Solutions

Global Niche Consultant

5 4 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

• ac t i ve l y p a rt i c i p a te i n c a re f u l l y s e l e c te d re s e a rc h a n d d e ve l o p m e n t i n re n e wa b l e e n e r g y, wate r m a n a g e m e n t a n d re l a te d a re a s ;

• ac t i ve l y p ro m ote o u r Ta s m a n i a n i n f r a s t r u c t u re, re n e wa b l e re s o u rc e s a n d t r a d i n g c a p a b i l i t y a s a wo r l d - l e a d i n g re fe re n c e s i te;

• en s u re a n e ffe c t i ve c o r p o r a te g ove r n a n c e a n d c a p i t a l s t r u c t u re i s i n p l a c e ; a n d

• co n t i n u e to b e a n a c t i ve c o n t r i b u tor to e n e r g y a n d wate r p o l i c y d e ve l o p m e n t a n d i m p l e m e n t a t i o n at a l l l e ve l s (Ta s m a n i a , A u s t r a l i a a n d i n te r n a t i o n a l l y ) .

1. 2 . 2 2 –4 ye a r t i m e f r a m e

B y t h e e n d of 20 07 o u r b u s i n e s s w i l l h ave m ove d a h e a d s t ro n g l y i n o u r t h re e key bu s i n e s s a re a s of: L a k e P e d d e r l o o k i n g n o r t h - e a s t f r o m n e a r S c o t t s P e a k

• E n e r g y e nv i ro n m e n t a re a b l e to s u b s t a n t i a l l y i m p a c t o n ou r b u s i n e s s p e rfo r m a n c e. • R e n e wa b l e s D e ve l o p e r • O u r t r a d i n g o p e r a t i o n w i l l b e re a p i n g t h e b e n e f i t s • G l o b a l N i c h e C o n s u l t i n g. of ou r st ro n g i nve s t m e n t i n a s s e t m a n a g e m e n t w i t h E n e r g y i n 2 0 07 h i g h ava i l a b i l i t y a n d re l i a b i l i t y f ro m o u r a s s e t s.

• T h e b u s i n e s s w i l l b e t r a d i n g p rof i t a b l y i n N EM. R e n e wa b l e s D eve l o p e r

• T h e te c h n i c a l o p e r a t i o n of B a s s l i n k w i l l b e f u l l y • 250 MW of ren e wa b l e en e r g y as s e t s wi l l be in pl a c e b e d d e d i n. o r u n d e r c o n s t r u c t i o n w i t h a tot a l c a p i t a l va l u e of $5 0 0 M. T h e s e d e ve l o p m e n t s w i l l b e exe c u te d w i t h • A s we a re h i g h l y d e p e n d e n t o n ou r c o re Ta s m a n i a n t h e c l o s e i nvo l ve m e n t of o u r b u s i n e s s p a rt n e r s. b u s i n e s s, we c o n t i n u e to va l u e th i s m a r ket a n d o u r c o m m u n i t y s u p p o rt. G l o b a l N i c h e C o n s u l t i n g • O u r C o n s u l t i n g S o l u t i o n s i n R e n e wa b l e E n e r g y, • T h e q u a l i t y of N EM t r a d i n g a c t i v i t y a n d r i s k C a tch m e n t M a n a g e m e n t a n d Powe r E n g i n e e r i n g m a n a g e m e n t w i l l h ave i m p rove d to th e p o i n t w h e re w i l l b e i n c re a s i n g l y s o u g h t a fte r l o c a l l y, n a t i o n a l l y we a re h i g h l y re g a rd e d i n t h e m a r ket. a n d i n te r n a t i o n a l l y a n d 5 0 p e rc e n t of t h a t b u s i n e s s’ • O u r s y s te m s a n d p ro c e s s e s a re s o a d a pt a b l e re ve n u e s w i l l b e s o u rc e d f ro m i t s ex te r n a l a n d ro b u s t t h a t o n l y c h a n g e s i n t h e ex te r n a l c u s tom e r b a s e.

5 5 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

These outcomes will be achieved by committing resources and effort towards the following objectives.

Objective Outcome

Financial • achieve an increase in nominal profit (EBITDA) of 10 percent by 30 June 2008 primarily from trading across Basslink, REC sales and Consulting;

• achieve improved return on capital employed;

• strengthen our balance sheet, maintain our capital base and achieve and maintain a BBB credit rating;

• have new developments contributing financially to the Corporation; and

• generate free cash from our business of $25M for investment per annum by 30 June 2007.

Growth • actively monitor new technologies and appropriately participate in those which can grow our business profitably; and

• develop the partnering concept through joint ventures for renewables development, risk reward sharing contracts by Consulting and joint research programs.

People • develop a very strong safety culture;

• demonstrate clear leadership at all levels of management to guide the systematic transformation of Hydro Tasmania over the next two to four years

• develop, enhance and upskill our people to the extent that they use their accountability and apply the lessons they have learned to improve our business and, where necessary, move freely across our business to implement the vision;

• engender a commercial/business approach and have this embedded through our training, decision-making processes, recruitment and reward systems;

• provide our people with rewarding and challenging work; and

• embed the behaviours inherent in our values system across the organisation, while maintaining the flexibility in our businesses to allow behaviours appropriate to their individual markets and competitive environments.

Process and • simplify/streamline our processes and procedures; and Organisational • design and implement a business structure that allows us to engage and compete effectively Design in our markets, and align our governance and delegation frameworks to our respective business operations.

5 6 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

O b j e c t i ve O u t c o m e

I n f l u e n c e • se e k to opti m i s e t h e p o s i t i o n of H yd ro Ta s m a n i a fo r t h e l o n g te r m, by ad vo c a t i n g : Po l i c y - M a n d a tory R e n e wa b l e E n e r g y Ta r g e t ex te n d e d to 20 3 5 w i t h a re a l i n c re a s e i n t h e t a r g e t; - a n E m i s s i o n s Tr a d i n g f r a m e wo r k f avo u r a b l e to re n e wa b l e s w i t h hyd ro p owe r re c o g n i s e d a s a re n e wa b l e e n e r g y s o u rc e ; - g l o b a l l y, hyd ro d e ve l o p m e n t m u s t b e b a s e d o n s u s t a i n a b i l i t y, n ot w h e t h e r i t i s l a r g e o r s m a l l ;

• a c c e pt a n c e of w i n d te c h n o l o g y i n t h e N EM r u l e s ;

• a n i m p rove d t r a n s m i s s i o n re g u l a tory f r a m e wo r k ; a n d

• s u s t a i n a b l e wate r i n f r a s t r u c t u re p o l i c i e s.

C o r p o r a te • a c t re s p o n s i b l y i n t h e c o m m u n i t y a n d s u p p o rt c o m m u n i t y i c o n s ; C i t i z e n • h ave a n exe m p l a ry e nv i ro n m e n t a l re p u t a t i o n ; a n d

• e n s u re t h a t we m a i n t a i n c l o s e t i e s w i t h t h e Ta s m a n i a n c o m m u n i t y.

1. 2 . 3 18 - m o n t h t i m e f r a m e

A s p a rt of c o n d u c t i n g t h e f u l l a c t i v i t i e s of th e b u s i n e s s, a n e m p h a s i s w i l l b e p l a c e d o n t h e fo l l ow i n g key ac t i o n s.

S t r a te g i c P r i o r i t i e s

E n e r g y • a c h i e ve N EM e n t ry by M ay 20 0 5 a n d h ave th e C o r p o r a t i o n N EM re a d y a t t h a t t i m e ;

• s te e r B a s s l i n k to a s u c c e s s f u l i m p l e m e n t a t i o n th ro u g h a st ro n g re l a t i o n s h i p w i t h B a s s l i n k P t y Ltd;

• bu i l d o u r t r a d i n g c a p a b i l i t y w i t h : - t h e r i g h t p e o p l e i n a s t ro n g te a m e nv i ro n m e n t - g e t t i n g a n d u s i n g t h e r i g h t i n fo r m a t i o n t h ro u g h n e t wo r k i n g a n d - i m p l e m e n t i n g s u i t a b l e c o n t ro l s y s te m s ;

• s u s t a i n t h e ex i s t i n g a s s e t s a n d p ro g re s s a s s e t e n h a n c e m e n t s i n l i n e w i t h f i n a n c i a l c a p a b i l i t y;

• m a i n t a i n fo c u s o n c u r re n t o p e r a t i o n a n d c u s tom e r s ;

• i m p l e m e n t re g u l a r a n a l y s i s a n d re p o rt i n g of m a r ket c h a n g e s a n d e m e r g i n g d i re c t i o n s a n d p rov i d e fe e d b a c k o n t h e i m p a c t to th e b u s i n e s s ; a n d

• i m p l e m e n t a s t re a m l i n e d g ove r n a n c e s t r u c t u re a n d b e s t-p r a c t i c e r i s k m a n a g e m e n t f r a m e wo r k .

5 7 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Strategic Priorities

Renewables • complete Woolnorth Stage 2 on time and on budget; Developer • deliver wind developments within commercial parameters: - secure development financing; - Cathedral Rocks and Woolnorth Stage 3 approved and commissioned; and - planning approvals completed for Heemskirk and Musselroe;

• deliver working alliances with our alliance partners;

• refinance Woolnorth stages 1 and 2;

• resolve technical wind integration issues;

• develop a strategy and implementation plan for Research and Development for the next five years;

• continue to position Hydro Tasmania for future business prospects with potential partners; and

• be active in relevant forums to promote Hydro Tasmania’s profile.

Global Niche • re-orient the Consulting business through a Marketing Plan to extend its external customer Consultant base in niche solution areas and targeted geographies.

• implement Professional Services Automation;

• move to a contestable market for consulting services within Hydro Tasmania;

• implement new accommodation arrangements;

• establish an Advisory Panel for Consulting with appropriate accountability and role definition;

• develop the Hydro Tasmania Consulting brand; and

• establish a remuneration structure to better reflect the nature of a consulting business.

Systems and • create organisation design for a new environment: Processes - successfully bed it down; - identify and attract new talent; and - embed values and behaviours.

• lift PR capability to: - connect PR activities to our business strategy; - implement positioning strategies; and - ensure effective internal communications.

5 8 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

S t r a te g i c P r i o r i t i e s

S y s te m s a n d • i m p l e m e n t re g u l a r, fo r m a l s t a ke h o l d e r fe e d b a c k p ro c e s s e s ; P r o c e s s e s • c o n t i n u e p o l i c y i n f l u e n c i n g ta s k s fo r M R E T, CD M, NEM a n d wate r i n f r a s t r u c t u re p o l i c y w h e re t h e re i s a b u s i n e s s i m p a c t o n H yd ro Ta s m a n i a ;

• d e ve l o p a p a t hway fo r B e l l B ay s e p a r a t i o n w h i c h re c ove r s o u r i nve s t m e n t a n d l e ave s n o o n g o i n g l i a b i l i t y;

• a n n u a l l y p re p a re a ye a r- o n -ye a r K R A a s s e s s m e n t, w i t h s p e c i f i c a c t i o n s u n d e r e a c h K R A to i d e n t i fy h ow we w i l l i m p rove i n t h e c o m i n g ye a r; a n d

• l i ft a u d i t a n d c o m p l i a n c e c a p a b i l i t y to th e l e ve l re q u i re d by o u r s t r a te g i c d i re c t i o n.

F i n a n c i a l • d e ve l o p a n d i m p l e m e n t b e s t-p r a c t i c e f i n a n c i a l m a n a g e m e n t, w h i c h w i l l i n c o r p o r a te a l l m e a s u re m e n t a n d re p o rt i n g s y s te m s /pro c e s s e s a n d w h i c h w i l l re c o g n i s e t h e d i ffe re n c e s i n e a c h b u s i n e s s ;

• d e ve l o p s t r a te g i e s to su p p o rt t h e h i g h - l e ve l f i n a n c i a l o b j e c t i ve s ;

• d e ve l o p s e p a r a te ba l a n c e s h e e t s a n d f i n a n c i a l re p o rt i n g fo r e a c h b u s i n e s s ;

• e n s u re f i n a n c i a l f l ex i b i l i t y a p p ro p r i a te to ri s k s a h e a d ; a n d

• d e ve l o p a n d i m p l e m e n t a p l a n fo r oth e r c o n t i n g e n t a c t i o n s fo r a d d re s s i n g f i n a n c i a l s t re s s.

1. 3 FACTO R S A F F E C T I N G T H E B U S I N E S S • T h e i m p a c t of i n c re a s e d T U O S c h a r g e s o n t h e E N V IRONME NT C o r p o r a t i o n’s c o s t b a s e g o i n g fo rwa rd

• T h e hyd ro l o g i c a l r i s k a s s o c i a te d w i t h t h e ex i s t i n g • D e ve l o p m e n t s i n t h e re g u l a t i o n a n d o p e r a t i o n of b a l a n c e d s u p p l y a n d d e m a n d a n d t h e l ow t h e N a t i o n a l E l e c t r i c i t y M a r ket w h i c h m ay a ffe c t s tor a g e l e ve l s u p u n t i l c o m m e n c e m e n t of B a s s l i n k t r a d i n g o p p o rt u n i t i e s a n d re t u r n s o p e r a t i o n s • E l e c t r i c i t y p r i c e s c o n t i n u e to f a l l i n re a l te r m s • S a t i s f a c tory c o m p l e t i o n of t h e B a s s l i n k p ro j e c t o n p l a c i n g g re a te r e m p h a s i s o n c o s t c o n t ro l a n d t i m e, o n b u d g e t a n d to sp e c i f i c a t i o n o p e r a t i o n a l e ff i c i e n c y

• I n t ro d u c t i o n of n a t u r a l g a s to Ta s m a n i a a s a • M a r ket st r u c t u re b e c o m e s d o m i n a te d by i n te g r a te d c o m p e t i n g e n e r g y s o u rc e b u s i n e s s e s a n d t h e c o n t r a c t m a r ket b e c o m e s too t h i n • T h e ra te of g rowt h of th e Ta s m a n i a n e c o n o my a n d i t s e l e c t r i c i t y m a r ket

5 9 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

• Complex and often lengthy planning and approval • Potential volatility of earnings associated with processes for renewable developments operating in the NEM

• Continued uncertainty over the legislative outcomes • Insurance markets do not allow appropriate risk arising from the review of the Federal Government’s transfer mandatory renewable energy policy and Australia’s • Managing the Consulting business to improve position on the Kyoto protocols margins while continuing to support the • Continued restructuring and rationalisation in the Corporation’s overall goals NEM and associated counter-party credit issues • Australia’s forthcoming harmonisation with • Interest rates remain relatively low and stable international accounting standards.

• Hydro Tasmania’s actual and perceived environmental performance

1.4 BUSINESS PERFORMANCE TARGETS

1.4.1 Performance Indicators

2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

Performance Indicator Actual Target Target Target Target Target

Financial

Shareholder Value Added $M 36.50 31.33 48.49 29.33 35.03 42.83

Profit After Tax $M 35.50 34.10 56.02 42.09 48.70 58.11

Dividends Paid to Tasmania $M 43.55 40.00 40.00 * * *

Business Expenses Paid to Govt. $M 36.70 48.55 41.43 39.65 41.86 46.94

Capital Expenditure $M 132.70 98.74 88.14 79.33 98.07 108.02

Wind Investment $M 1.00 11.54 28.64 25.00 20.90 25.00

Consulting Contribution to PBT $M 4.10 4.10 6.51 6.20 7.65 9.66

People

Lost Time Incident Frequency No. 3.30 2.35 1.20 0.00 0.00 0.00

Resignation Rate % 4.10 7.00 7.00 7.00 7.00 7.00

6 0 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

2 0 0 3/ 0 4 2 0 0 4 / 0 5 2 0 0 5 / 0 6 2 0 0 6 / 07 2 0 07/ 0 8 2 0 0 8/ 0 9

Pe rf o r m a n c e I n d i c a to r A c t u a l Ta r g e t Ta r g e t Ta r g e t Ta r g e t Ta r g e t

A s s e t s a n d P r o c e s s e s

M a i n te n a n c e R o u t i n e s C o m p l e te d % 77.0 0 > 9 0 > 9 5 > 9 5 > 9 5 > 9 5

O p e r a t i o n B re a c h e s N o. 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0

Tot a l G e n e r a t i o n A s s e t s Ava i l a b i l i t y % 9 0.69 9 0.0 0 9 0.0 0 9 0.0 0 9 0.0 0 9 0.0 0

S t a rt S u c c e s s % 9 8.0 0 10 0.0 0 10 0.0 0 10 0.0 0 10 0.0 0 10 0.0 0

Eq u i va l e n t Fo rc e d O u t a g e Fac tor N o. 0.79 0.40 0.3 5 0.3 5 0.3 5 0.3 5

Te l e c o m m s N e t wo r k Ava i l a b i l i t y % 10 0.0 0 9 9.9 9 9 9.9 9 9 9.9 9 9 9.9 9 9 9.9 9

S t a ke h o l d e r s a n d E nv i r o n m e n t

E nv i ro n m e n t a l I n c i d e n t s N o. 1.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0

E nv i ro n m e n t a l C o m p l i a n c e % 10 0.0 0 10 0.0 0 10 0.0 0 10 0.0 0 10 0.0 0 10 0.0 0

R e g u l a tory B re a c h e s N o. 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0

*To be a g r e e d w i t h D e p a r t m e n t o f Tre a s u r y & F i n a n c e

L e g e n d to Pe rf o r m a n c e I n d i c a to r t a b l e : C o n s u l t i n g C o n t r i b u t i o n to PBT – C o n s u l t i n g

S h a re h o l d e r Val u e Ad d e d – T h e e c o n o m i c p rof i t s c o ntr i b u ti o n. g e n e r a te d by a b u s i n e s s ove r a n d a b ove t h e re t u r n L o s t T i m e I n c i d e n t Fre q u e n c y – N u m b e r of l o s t-ti m e re q u i re d by i t s c a p i t a l p rov i d e r s. Ca l c u l a te d a s Ave r a g e a c c i d e n t s p e r m i l l i o n h o u r s wo r ke d. I nve s t m e n t x ( ER O C– WACC ) ( to b e a g re e d w i t h t h e D e p a rt m e n t of Tre a s u ry a n d F i n a n c e ) . R e s i g n a t i o n R a te – S h ow n a s vo l u n t a ry re s i g n a t i o n s. D o e s n ot i n c l u d e re d u n d a n c i e s. P r o f i t A fte r Tax – C a l c u l a te d a s p e r s t a n d a rd a c c o u n t i n g p o l i c i e s. O p e r a t i o n B r e a c h e s – Nu m b e r of m a te r i a l b re a c h e s of s t a t u tory o b l i g a t i o n s, i n c l u d i n g c o r p o r a t i o n s l aw ( G B E D i v i d e n d s Pa i d to Ta s m a n i a – C a s h re t u r n s to o u r A c t), e nv i ro n m e n t a l, O H & S. s h a re h o l d e r f ro m d i v i d e n d s. To t a l G e n e r a t i o n A s s e t s Ava i l a b i l i t y – O ve r a l l ave r a g e B u s i n e s s E x p e n s e s Pa i d to G ove r n m e n t – C a s h ava i l a b l e p ro d u c t i ve t i m e fo r g e n e r a t i n g a s s e t s d u r i n g p ay m e n t of i n c o m e t ax e q u i va l e n t s a n d g u a r a n te e fe e s. t h e t i m e p e r i o d m e a s u re d.

C a p i t a l E x p e n d i t u r e – C a s h o u t l ay fo r c a p i t a l p ro j e c t s. Te l e c o m m s N e t wo r k Ava i l a b i l i t y – A m o u n t of ti m e th e

W i n d I nve s t m e n t – Eq u i t y i nve s te d i n w i n d f a r m n e t wo r k i s ava i l a b l e fo r u s e. d eve l o p m e nts.

6 1 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Environmental Incidents – Number of incidents 1.5 OTHER BUSINESS ISSUES adversely affecting the environment. 1.5.1 Key Limitations

Environmental Compliance – Extent of compliance with The key limitations facing Hydro Tasmania are: Hydro Tasmania’s environmental policies and relevant • prior to commencement of Basslink, the potential environmental and water management legislation. adverse implications should there be a period of

Regulatory Breaches – Number of breaches continued low rainfall; against REC Policy & Procedures, TEC Regulations, • the potential uncertainties associated with the OTTER Determinations, OH&S, Water Management, review of Federal Government MRET legislation; Environmental Management, Management & Pollution Control, Land Use Planning & Approval Legislation. • the potential uncertainties associated with the precise rules to apply upon establishment of 1.4.2 Distribution Policy Targets wholesale electricity market arrangements in The financial projections included in this Corporate Plan Tasmania; incorporate phasing out of the existing special dividend • the potential uncertainties associated with the arrangements, with the final special dividend to be evolving rules for the National Electricity Market; paid in 2005/2006. As part of these arrangements, the total of ordinary and special dividends paid by • the long-term financial commitments associated with the Corporation will equate to at least $40 million per Basslink operation and renewables developments; annum up to and including 2005/2006. • the risks associated with natural gas developments The timing of special dividend phase out is appropriate in Tasmania; and as once the Corporation is operating in the NEM the returns to our shareholder will reflect the Corporation’s • availability and retention of personnel with actual profitability and not be dominated by a commercial acumen, technical expertise and fixed return unrelated to the Corporation’s actual knowledge in key areas. performance. It also provides a clear, agreed dividend 1.5.2 Other approach which covers the tight operating period Growth into new markets and further exploitation of through to NEM and assists the Corporation in meeting the potential in the Tasmanian market may involve its obligation to fund our Basslink commitments and to partnerships and strategic alliances with energy continue our pre-NEM capital expenditure program. suppliers, equipment providers, customers or This distribution strategy balances the sharing of bankers as is the case with many major infrastructure profitability between returns to government and developments in Australia today. Innovative, but always retention of funds in the business for investment in carefully measured, approaches will be used to follow growth opportunities. these strategic directions.

6 2 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

O r g a n i s a t i o n a l S t r u c t u r e

E n e r g y R o g e r G i l l

H yd r o Ta s m a n i a B o a r d

C o n s u l t i n g C h a i r m a n Pete r R a e M i ke B re w s te r A/ C o r p o r a t i o n S e c r e t a ry C E O G e off W i l l i s S te p h e n B e n d e i c h D i re c tor J u l i a n A m o s D i re c tor Ke n B ax te r D i re c tor D o n C h a l l e n R e n e wa b l e s D eve l o p m e n t D i re c tor D av i d C re a n M a r k Ke l l e h e r D i re c tor J a n i n e H e a l ey D i re c tor C a ro l H u g h e s D i re c tor G r a e m e Ke n n e d y C h i e f E xe c u t i ve O ff i c e r C o r p o r a te G e off W i l l i s L a n c e B a l c o m b e A u d i t C o m m i t te e

B u s i n e s s R i s k C o m m i t te e

H u m a n R e s o u r c e s H u m a n R e s o u r c e s a n d A m a n d a Val l a n c e R e m u n e r a t i o n C o m m i t te e

E nv i r o n m e n t C o m m i t te e I n te r n a l A u d i t P u b l i c R e l a t i o n s B e re n d S t u b b e I a n C o l v i n C o r p o r a te G ove r n a n c e C o m m i t te e

Co m p li a n c e J o h n d e G ro ot

T h e s t r u c t u r e d e p i c te d h e r e i s c u r r e n t a s a t 31 Au g u s t 2 0 0 4

6 3 supplementary information

The Hydro-Electric Corporation R e s p o n s i b l e M i n i s te r T h e H o n B rya n G re e n M H A , M i n i s te r fo r In f r a s t r u c t u re, operates under the Hydro-Electric E n e r g y a n d R e s o u rc e s, i s t h e M i n i s te r to w h o m t h e H yd ro - E l e c t r i c C o r p o r a t i o n wa s re s p o n s i b l e fo r t h e Corporation Act 1995 (HEC Act 1995). p e r i o d u n d e r re p o rt.

It is a Gover nment Business Enterprise O b j e c t i ve s a n d f u n c t i o n s T h e H yd ro - E l e c t r i c C o r p o r a t i o n’s o b j e c t i ve s a n d subject to the provisions of the f u n c t i o n s a re s e t o u t i n t h e S t a te m e n t of C o r p o r a te I n te n t, th e H EC A c t 19 9 5 a n d t h e G B E A c t 19 9 5. Government Business Enterprises C h a n g e s i n l e g i s l a t i ve r e q u i r e m e n t s

Act 1995 (GBE Act 1995). T h e re we re n o s i g n i f i c a n t c h a n g e s to t h e p r i n c i p a l o p e r a t i n g l e g i s l a t i o n g ove r n i n g t h e H yd ro - E l e c t r i c C o r p o r a t i o n d u r i n g t h e p e r i o d u n d e r re p o rt.

P r i c i n g p o l i c i e s

I n 19 9 9 / 20 0 0, t h e O ff i c e of t h e Ta s m a n i a n E l e c t r i c i t y R e g u l a tor ( OTT ER ) wa s e s t a b l i s h e d a s a n i n d e p e n d e n t p r i c i n g re g u l a tor. O n e of i t s ro l e s wa s to d e te r m i n e th e m ax i m u m p r i c e fo r t a r i ff c u s tom e r s. I n 19 9 9 OTT ER u n d e rtoo k a n i nve s t i g a t i o n i n to e n e r g y p r i c i n g w h i c h s e t t h e p r i c e s fo r t h e p e r i o d f ro m 1 J a n u a ry 20 0 0 to 31 D e c e m b e r 20 0 2. T h i s a r r a n g e m e n t wa s ex te n d e d to c ove r t h e p e r i o d u p to t h e c o m m e n c e m e n t of t h e N a t i o n a l E l e c t r i c i t y M a r ket i n Ta s m a n i a .

T h e a r r a n g e m e n t h a s s u b s e q u e n t l y b e e n f u rt h e r ex te n d e d by a c o n t r a c t b e t we e n H yd ro Ta s m a n i a a n d A u ro r a E n e r g y w h i c h wa s a u t h o r i s e d by th e Au s t r a l i a n C o m p e t i t i o n a n d C o n s u m e r C o m m i s s i o n a s p a rt of t h e Ta s m a n i a n G ove r n m e n t ’s e n e r g y re fo r m p a c k a g e. T h i s c o n t r a c t s e t i n p l a c e p r i c i n g a r r a n g e m e n t s u p to M a rc h 20 07.

6 4 h y d r o t a s m a n i a • a n n u a l r e p o r t 2 0 0 3 | 0 4

S t a ff i n g p o l i c i e s P r o c u r e m e n t p o l i c y a n d p e rf o r m a n c e

H yd ro Ta s m a n i a m a i n t a i n s a c o m p re h e n s i ve s e t of H yd ro Ta s m a n i a h a s c o n t i n u e d i t s p o l i c y of s o u rc i n g p e o p l e m a n a g e m e n t p o l i c i e s w h i c h a re e s s e n t i a l fo r g o o d s a n d s e rv i c e s f ro m Ta s m a n i a n b u s i n e s s e s m a n a g i n g a d y n a m i c wo r kfo rc e. w h e re p o s s i b l e.

T h e p o l i c i e s a re c o n s i d e re d to b e c o n te m p o r a ry W h e re a p p ro p r i a te, wo r k i s p ro c u re d o n a c o m p e t i t i ve i n h u m a n re s o u rc e m a n a g e m e n t, a re re v i e we d b a s i s a n d a s i g n i f i c a n t p ro p o rt i o n of c o m p e t i t i ve l y re g u l a r l y i n o rd e r to e n s u re b u s i n e s s a l i g n m e n t a n d te n d e re d c o n t r a c t s i s awa rd e d to Ta s m a n i a n f i r m s. a re w i d e l y p u b l i c i s e d t h ro u g h t h e H yd ro Ta s m a n i a C o n t r a c t s awa rd e d to i n te r s t a te o r i n te r n a t i o n a l f i r m s i n t r a n e t we b s i te. ofte n a d d s i g n i f i c a n t va l u e to t h e Ta s m a n i a n e c o n o my Key e ff i c i e n c y a n d e ff e c t i ve n e s s i n d i c a to r s a n d t h ro u g h u s e of l o c a l s u p p l i e r s a n d s u b - c o n t r a c tor s. m o n i to r s D e t a i l s of c o n t r a c t s wo rt h m o re t h a n $5 0,0 0 0 w h i c h R e l e va n t in d i c a tor s are rec o rd e d th ro u g h o u t th e rep o rt, we re e n te re d i n to i n th e 20 0 3 / 20 0 4 f i n a n c i a l ye a r we re i n tex t u a l a n d g r a p h i c a l fo r m. a s fo l l ow s. Pe rfo r m a n c e m o n i tor i n g i s a l s o c o n d u c te d t h ro u g h C o n t r a c t s N o $M t h e s y s te m of B o a rd c o m m i t te e s : A u d i t, B u s i n e s s Ta s m a n i a n - b a s e d s u p p l i e r s 5 3 5 6.9 R i s k , Hu m a n Re s o u rc e s a n d Re m u n e r a t i o n, C o r p o r a te I n te r s t a te /ove r s e a s s u p p l i e r s 77 6 6.9 G ove r n a n c e a n d E nv i ro n m e n t. R e s p o n s i b i l i t i e s of To t a l c o n t r a c t s 13 0 12 3. 8 t h e s e c o m m i t te e s a re d e s c r i b e d i n t h e C o r p o r a te G ove r n a n c e c h a pte r. E m p l oye e s E m p l oye e n u m b e r s a s a t 3 0 J u n e 20 0 4 Pub lic atio n s

P u b l i c a t i o n s ava i l a b l e to t h e p u b l i c, d e a l i n g w i t h t h e E n e r g y 3 6 4 f u n c t i o n s a n d a c t i v i t i e s of H yd ro Ta s m a n i a , f a l l i n to R e n e wa b l e s D e ve l o p m e n t 21 t h e s e m a i n c a te g o r i e s : C o n s u l t i n g 3 59 C o r p o r a te 8 0 • e duc atio na l O ff i c e of th e C E O1 27 • p u b l i c re l a t i o n s P u b l i c R e l a t i o n s 9 To t a l , exc l u d i n g D i r e c to r s 8 6 0 • tou r i s m D i re c tor s2, 3 8 • a n n u a l a n d oth e r re p o rt s. To t a l , i n c l u d i n g D i r e c to r s 8 6 8

T h e m a i n c o n t a c t p o i n t fo r t h e s e p u b l i c a t i o n s i s o u r 1 I n c l u d e s H u m a n R e s o u r c e s G r o u p. 2 I n c l u d e s C E O. 3 O n e va c a n c y. H o b a rt off i c e t h ro u g h t h e P u b l i c R e l a t i o n s G ro u p, te l e p h o n e ( 0 3 ) 623 0 574 6.

6 5 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

6 6 financials

“Hydro Tasmania achieved a record financial result of $35.5 million profit

after tax, an increase of 5.7 percent on the previous year. A record

$132.7 million was invested in capital expenditure and Hydro Tasmania

provided returns to the State of Tasmania totalling $80.3 million.” h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Index - Financial Statements 30 June 2004 Note Contents Page Statement of Financial Performance 70 Statement of Financial Position 71 Statement of Cash Flows 72 1.1 Details of Reporting Entity 73 1.2 Statement of Significant Accounting Policies 73 2 Profit from Ordinary Activities 79 3 Individually Significant Items 80 4 Income Tax Equivalent Expense 81 5 Retained Profits 82 6 Debt Management Activities 82 7 Notes to the Statement of Cash Flows 83 8 Receivables 84 9 Investments 84 10 Inventories 84 11 Property, Plant and Equipment 85 12 Intangibles 86 13 Tax Assets 86 14 Other Assets 87 15 Accounts Payable 87 16 Borrowings 88 17 Tax Liabilities 89 18 Provisions 89 19 Other Liabilities 89 20 Employee Benefits 90 21 Provision Reconciliation 92 22 Reserves 93 23 Financial Instruments 93 24 Foreign Exchange 104 25 Segment Reporting 105 26 Commitments for Expenditure 106 27 Contingent Liabilities 107 28 Auditors Remuneration 107 29 Directors Remuneration 107 30 Related Party Information 108 31 Events Subsequent to Balance Date 108 32 Community Service Obligations 108 33 Controlled Entities 109 34 Interest in Joint Venture 110 35 Joint Venture Operations 111 36 Incorporated Joint Venture 111 37 Dividend 112 Superannuation Declaration 112 Statement of Certification 112 Independent Audit Report 113 Statistical Summary 114

6 9 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Statement of Financial Performance For The Year Ended 30 June 2004

CONSOLIDATED PARENT 2004 2003 2004 2003 NOTE $’000 $’000 $’000 $’000

Revenue from Ordinary Activities 2(a) 439,817 397,455 422,839 390,268

Expenses from Ordinary Activities, excluding Borrowing Costs 2(a) (295,385) (245,768) (278,702) (237,854)

Borrowing Costs 2(c) (72,358) (83,587) (72,358) (83,585)

Share of net profit or loss of joint ventures accounted for using the equity method 2(a) 67 - - -

Profit from ordinary activities before income tax equivalent expense 72,141 68,100 71,779 68,829

Income Tax Equivalent Expense 4 (36,661) (34,453) (35,791) (34,721)

Net Profit 35,480 33,647 35,988 34,108

Changes in Reserves 22 1,000 41,744 - 41,744

Total changes in equity other than those resulting from transactions with owners as owners.1 36,480 75,391 35,988 75,852

1 Owner is the State Government of Tasmania

The Statement of Financial Performance is to be read in conjunction with the notes to and forming part of the accounts included on pages 73 to 112.

7 0 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Statement of Financial Position As At 30 June 2004

CONSOLIDATED PARENT 2004 2003 2004 2003 NOTE $’000 $’000 $’000 $’000 Current Assets Cash 2,120 1,840 2,073 1,702 Receivables 8(a) 50,780 50,304 44,633 39,893 Investments 9(a) 10,817 37,440 10,817 37,440 Inventories 10 610 547 636 547 Tax Assets 13(a) 8,952 7,583 8,952 7,583 Other 14(a) 3,144 7,166 117,213 49,832 Total Current Assets 76,423 104,880 184,324 136,997

Non-Current Assets Receivables 8(b) 8,161 - 2,084 - Investments 9(b) 1,083 19 16 16 Property, Plant and Equipment 11 3,431,346 3,383,607 3,307,062 3,323,192 Intangibles 12 - 1,409 - - Tax Assets 13(b) 62,102 59,287 62,102 57,263 Other 14(b) 19,028 19,028 19,028 19,028 Total Non-Current Assets 3,521,720 3,463,350 3,390,292 3,399,499

TOTAL ASSETS 3,598,143 3,568,230 3,574,616 3,536,496

Current Liabilities Payables 15 55,422 73,602 49,213 57,456 Interest-Bearing Liabilities 16(a) 201,038 219,594 201,038 219,594 Tax Equivalent Liabilities 17(a) 7,908 7,836 8,057 6,708 Provisions 18(a) 47,265 41,638 35,555 34,611 Other 19(a) 1,740 4,244 1,739 3,650 Total Current Liabilities 313,373 346,914 295,602 322,019

Non-Current Liabilities Interest-Bearing Liabilities 16(b) 879,516 816,960 879,516 816,960 Tax Equivalent Liabilities 17(b) 143,032 134,980 143,032 135,120 Provisions 18(b) 186,963 187,044 181,705 180,071 Other 19(b) 19,028 19,028 19,028 19,028 Total Non-Current Liabilities 1,228,539 1,158,012 1,223,281 1,151,179

TOTAL LIABILITIES 1,541,912 1,504,926 1,518,883 1,473,198

NET ASSETS 2,056,231 2,063,304 2,055,733 2,063,298

EQUITY Reserves 22 1,872,166 1,881,066 1,871,166 1,881,066 Retained Profits 5 184,065 182,238 184,567 182,232 TOTAL EQUITY 2,056,231 2,063,304 2,055,733 2,063,298

The Statement of Financial Position is to be read in conjunction with the notes to and forming part of the accounts included on pages 73 to 112.

7 1 h ydro tasmania • a n n u a l r e p o r t 2 0 0 3 | 0 4

Statement of Cash Flows For The Year Ended 30 June 2004

CONSOLIDATED PARENT 2004 2003 2004 2003 NOTE $’000 $’000 $’000 $’000

CASH FLOWS FROM OPERATING ACTIVITIES

Inflows: Receipts from Customers 433,547 403,047 410,048 382,935 Subsidies and Grants Income 1,869 728 1,869 700 Interest Received 162 671 162 663

Outflows: Payments to Suppliers and Employees (227,074) (161,358) (204,889) (141,256) Interest Paid (66,984) (77,201) (66,979) (77,201) Government Guarantee Fee (3,795) (3,241) (3,795) (3,241) Income Tax Equivalent Paid (32,864) (19,641) (31,369) (19,641) NET CASH PROVIDED BY OPERATING ACTIVITIES 7(c) 104,861 143,005 105,047 142,959

CASH FLOWS FROM INVESTING ACTIVITIES

Inflows: Proceeds from Sale of Property, Plant and Equipment 1,360 1,487 1,360 1,472 Dividends Received 9 9 9 9 Proceeds from Sale of Business 1,177 - 1,177 -

Outflows: Amounts Advanced to Associate (100) - (100) - Payments for Property, Plant and Equipment (134,097) (95,905) (66,354) (56,169) NET CASH USED IN INVESTING ACTIVITIES (131,651) (94,409) (63,908) (54,688)

CASH FLOWS FROM FINANCING ACTIVITIES

Non-Government and Government Guaranteed Inflows: Proceeds from Semi-Government Guaranteed Loans 1,233,800 654,436 1,233,800 654,436

Outflows: Intercompany Loans - - (67,838) (39,786) Repayments of Semi-Government Guaranteed Loans (1,180,431) (640,231) (1,180,431) (640,231) Proceeds from Share Issues - 1 - - Sub Total Non-Government and Government Guaranteed 53,369 14,206 (14,469) (25,581)

Transactions with Government Outflows: Repayment of Treasury Loans (9,369) (14,993) (9,369) (14,993) Dividend Paid (43,553) (60,503) (43,553) (60,503)

Net transactions with Government (52,922) (75,496) (52,922) (75,496)

NET CASH USED IN FINANCING ACTIVITIES 447 (61,290) (67,391) (101,077)

NET (DECREASE)/INCREASE IN CASH (26,343) (12,694) (26,252) (12,806) CASH AT BEGINNING OF FINANCIAL YEAR 39,280 51,974 39,142 51,948 CASH AT END OF FINANCIAL YEAR 7(a) 12,937 39,280 12,890 39,142

The Statement of Cash Flows is to be read in conjunction with the notes to and forming part of the accounts included on pages 73 to 112.

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Notes to and Forming Part of the Financial Statements For The Year Ended 30 June 2004

1.1 DETAILS OF REPORTING ENTITY information satisfies the concepts of relevance and The financial statements and notes to the accounts reliability, thereby ensuring that the substance of the relate to Hydro-Electric Corporation, which is a underlying transactions or other events is reported. Tasmanian Government Business Enterprise and a The significant accounting policies, which have consolidated reporting entity. The Corporation was been adopted in the preparation of these financial established as the Hydro-Electric Commission by statements, are: the Hydro-Electric Commission Act 1944, and was (a) Basis of Preparation incorporated by the Hydro-Electric Corporation Act 1995. The Corporation trades using the business The financial statements are a general purpose name Hydro Tasmania. financial report, which have been prepared on an accrual basis under the historical cost The Corporation’s Australian Business Number is convention and, except where stated, do not 48 072 377 158. Its principal place of business is take into account changing money values or fair 4 Elizabeth Street, Hobart, Tasmania. values of assets. The financial statements have been prepared in accordance with: The Corporation is the electricity generator for the State of Tasmania. The Corporation operates 27 (i) The requirements of the Hydro-Electric hydro stations, one gas-fired power station and one Corporation Act 1995; wind farm. (ii) The requirements of the Government In 2004, the Corporation established two subsidiary Business Enterprises Act 1995 (GBE Act) companies. R40 Pty Ltd was incorporated in and related Treasurer’s Instructions; Victoria on 13 May 2004 for the purposes of acting as a holding company. Cathedral Rocks Wind (iii) Australian Accounting Standards and Farm Pty Ltd was incorporated in Tasmania on Urgent Issues Group Consensus Views; 20 November 2003 for the purpose of acting as (iv) Other authoritative pronouncements of the a wind farm construction company. An existing professional accounting bodies; and subsidiary, Taswind Pty Ltd, changed its name during the year to Cathedral Rocks Holdings Pty (v) Financial disclosure requirements of the Ltd. This company and Cathedral Rocks Wind Farm Corporations Act 2001, where applicable Pty Ltd were transferred on 31 May 2004 to the to the operations of the Hydro-Electric Cathedral Rocks joint venture. The share of this joint Corporation and its subsidiaries, and other venture is held by R40 Pty Ltd (note 34). requirements of the law.

The Corporation sold its equity holding in Hydstra These accounting policies have been consistently Pty Ltd, including its wholly owned subsidiaries applied by each company in the consolidated Hydsys Pty Ltd and Hydstra America Inc, on group and are consistent with those of the 1 January 2004 (note 33). previous year, unless otherwise stated.

At 30 June 2004 the Corporation had 800 full-time (b) Principles of Consolidation equivalent employees (FTEs) including directors The consolidated financial statements of Hydro (2003: 763 FTEs). Tasmania Group include the parent entity, Hydro- 1.2 STATEMENT OF SIGNIFICANT Electric Corporation and its controlled entities. A ACCOUNTING POLICIES list of controlled entities is contained in note 33.

Accounting policies are selected and applied in a The financial statements include the information manner which ensures that the resulting financial and results of each controlled entity from the

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date on which the Corporation obtains control Property, Plant and Equipment is written down and until such time as the Corporation ceases to recoverable amount when carrying amount to control the entity. exceeds recoverable amount. Recoverable amounts are assessed from expected cash Consistent accounting policies are employed flows which are discounted to present values. in the preparation and presentation of the consolidated financial statements. The asset revaluation reserve is used to record increments and decrements in the fair value of In preparing the consolidated financial statements, generation assets. the effects of all transactions between entities in the Group have been eliminated. (f) Depreciation Depreciation on Property, Plant and Equipment, Joint Ventures other than land, is based on remaining A joint venture is either an entity or an operation useful lives using the straight-line method. In that is jointly controlled by the consolidated accordance with Australian Accounting Standard entity. Refer note 1(p). AASB 1041, Accounting for the Revaluation of Non-Current Assets, the balance of accumulated (c) Receivables depreciation is transferred to the asset account Trade debtors are carried at amounts due. A when generation assets are re-valued. Useful provision for doubtful debts is raised when lives applying to each class are as follows: doubt as to collection exists (note 8). Debts that are known to be irrecoverable are written 2004 2003 off. Non-current receivables are recorded at Generation 2 – 100 years 10 – 100 years recoverable amount. In determining recoverable Auxiliary 3 – 50 years 3 – 50 years amount expected cash flows have been Motor Vehicles 4 – 33 years 4 – 33 years Minor Assets 1 – 10 years 1 – 10 years discounted to their present value. Buildings 5 – 50 years 5 – 50 years

(d) Inventories (g) Provisions Inventories are carried at the lower of cost or A provision is recognised when there is a legal, net realisable value (note 10). equitable or constructive obligation as a result of a past event and it is probable that a future (e) Property, Plant and Equipment sacrifice of economic benefits will be required The Corporation’s generation assets are to settle the obligation, the timing or amount of recorded on a fair value basis. Fair value is which is uncertain but can be reliably measured. determined on the basis of estimated future cash flows using assumptions which are Workers Compensation judgmental in nature and calculated by the Prior to 1 July 1998, the Corporation self-insured application of expert knowledge from sources for workers compensation. The Corporation both internal and external to the Corporation no longer self-insures. The provision has been (note 11). Fair values are reviewed at the end of retained to ensure adequate provision for each year to ensure that the carrying value of claims relating to incidents prior to 30 June generation assets is not materially different from 1998, for which the Corporation may be liable. their fair value. The workers compensation provision is funded Non-generation assets, being auxiliary assets, to a level that will meet expected workers motor vehicles, land and buildings, minor compensation liabilities (notes 18(a) and (b)). assets and capital work-in-progress, are carried at cost. Minor assets include items such as computers and office furniture.

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Onerous contracts transferred to independent RBF administrators An onerous contract is considered to exist when while employer contributions are retained the Corporation has a contract under which internally as a provision. the unavoidable cost of meeting contractual An internal interest charge, calculated by the obligations exceeds the economic benefits to application of market-related interest rates, be received. Present obligations arising under is added to this provision each year after an onerous contract for rental of gas pipeline advice from the State Actuary. In accordance capacity are recognised as a provision to the with Treasurer’s Instructions, the Corporation extent that the present obligation exceeds systematically recognises as an expense the unrecognised assets. The provision is reviewed under-provided amount of the RBF provision and adjusted each year based on assessment of over the average expected remaining working future obligations. lives of existing employees (note 20(b)).

(h) Employee Benefits Where employees are members of superannuation (i) Wages, salaries, annual leave and non- funds other than RBF, the Corporation makes monetary benefits contributions to complying superannuation funds as directed by the employee. Liabilities for wages, salaries and annual leave expected to be settled within 12 months (i) Taxation represent present obligations resulting from Under the Government Business Enterprises employees’ services provided to reporting date, Act 1995 the Corporation is required to pay an and are calculated at undiscounted amounts income tax equivalent to the State of Tasmania based on wage and salary rates that the as if it were a company under Commonwealth consolidated entity expects to apply at the time income tax laws. As a result the Corporation of settlement including related on-costs (note applies tax effect accounting principles 20(a)). prescribed in AAS3 Income Taxes (note 4) (ii) Long service leave whereby income tax expense is calculated on pre-tax accounting profit after adjustment for The provision for employee entitlement to long permanent differences. The tax effect of timing service leave represents the present value of differences, which occur when items are included the estimated future cash outflows to be made or allowed for income tax purposes in a period resulting from employees’ services provided to different from that for accounting, is shown at reporting date. current taxation rates in the deferred tax assets and deferred tax liabilities as applicable. The provision is calculated using expected future increases in wage and salary rates Revenues, expenses and assets are recognised including related on-costs and expected rates net of the amount of goods and services tax of utilisation based on historical patterns and is (GST) except: discounted using Commonwealth Bond Rates at reporting date (note 20(a)). The provision is • where the amount of GST incurred is not allocated to current and non-current portions recoverable from the Australian Tax Office based on expected utilisation of entitlements in (ATO) it is recognised as part of the cost the next twelve months. of acquisition of the asset or as part of an expense; (iii) Superannuation • for receivables and payables which are The Retirement Benefits Fund (RBF) is funded recognised inclusive of GST. by employee and employer contributions. Employee contributions to the fund are

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The net amount of GST recoverable from, or (ii) Option premiums are amortised over the payable to, the ATO is included as a current asset lives of the options (note 6); or liability in the Statement of Financial Position. (iii) Accrued interest receivable and payable on Cash flows are included in the Statement interest rate swaps is included in current of Cash Flows on a gross basis. The GST assets or liabilities in the Statement of components of cash flows arising from investing Financial Position (note 23(c)); and financing activities, which are recoverable (iv) Realised gains and losses on forward rate from, or payable to, the ATO are classified as agreements, futures contracts and interest operating cash flows. rate options are included in borrowing The Corporation and its wholly owned costs in the Statement of Financial Position; Australian resident entities have elected to form (v) Gains and losses on interest rate futures a tax consolidation group and will therefore be contracts are amortised to the Statement taxed as a single entity. All income tax expense, of Financial Performance over the life of tax assets and tax liabilities of the group are the underlying physical position where recognised in the financial statements of Hydro- the relevant Urgent Issues Group criteria Electric Corporation (note 4). are met. Otherwise gains and losses are (j) Loan Portfolio Restructuring written off to the Statement of Financial Performance in the year incurred. As part of its ongoing debt management activities, the Corporation periodically Refer note 1.2(n) for accounting policies with restructures its loan portfolio. In doing so, regard to foreign exchange instruments. interest costs on the prepayment of loans are recognised in the Statement of Financial (l) Borrowing Expenses Performance in accordance with the Expenses associated with the raising of loans recommendations in Accounting Guidance are deferred and written off over the life of the Release Debtors’ Accounting for Debt loan or five years, whichever is shorter. Restructuring - AAG 11 (notes 3 and 6). (m) National Debt Sinking Fund (NDSF) (k) Derivative Financial Instruments (notes 23 Contributions and 24) Department of Treasury and Finance loans from The Corporation enters into derivative financial prior years not required to be repaid to the State instruments including interest rate swaps, are treated as revenue (note 2(a)). futures, options, forward rate agreements and foreign exchange contracts to manage financial (n) Foreign Currency exposures. All foreign currency transactions are brought to account using the exchange rate in effect at Specific accounting treatments adopted for the date of the transaction. Foreign currency instruments other than foreign exchange amounts at balance date are translated to instruments are: Australian dollars at exchange rates in effect at (i) Where derivatives are classified as hedges, that date. which at inception and on an ongoing basis Gains and losses on forward exchange are effective in managing the designated contracts to hedge sales and purchases of exposure, the gains and losses arising from goods and services (including capital equipment) the derivative transactions are deferred are included in the cost of the purchase. and recognised in accordance with the timing of the recognition of the underlying transactions being hedged;

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Gains and losses on termination of forward (s) Commonwealth Compensation – King River exchange contracts that no longer represent and Anthony Power Developments Cost a hedge of an underlying transaction are Equalisation recognised in the Statement of Financial Under the terms of the Memorandum of Performance at the date of termination. Understanding between the Commonwealth and the State Government it was agreed (o) General Insurance Reserve that the State would receive $200M (valued A reserve has been set up for general insurance in December 1983 dollars) by means of ten purposes. This reserve was set at a level that annual instalments of $20M. Each instalment was expected to meet future costs, and the was subject to variation based on movements quantum of the reserve is evaluated every year in the Implicit Price Deflator for Gross Private by the Corporation’s Treasury and Corporate Non-Dwelling Construction Expenditure. Risk Group. Following this evaluation in 2004 The purpose of the funds was to ensure that it was established that the reserve is no longer the cost of replacing 112MW of electricity required and has been transferred to retained produced by the King River and Anthony Power earnings (note 22(b)). Developments was equivalent to the cost of electricity that would have been produced (p) Joint Ventures had the Gordon River Development Stage Interests in unincorporated joint venture 2 been completed. A total of $275.8M was operations are reported in the financial statements received and was used to finance the capital by including the Corporation’s share of the expenditure on the King and Anthony schemes. assets and liabilities of the joint ventures and The Memorandum of Understanding between of any expenses incurred in relation to the the State and Commonwealth Governments joint ventures in their respective classification includes an undertaking by the Commonwealth categories (note 35). Government that the difference between the energy output of the above two schemes and Interests in incorporated joint ventures are that which would have been provided by the reported in the financial statements under the Gordon River Power Development Stage 2 (i.e. equity method in the consolidated financial 68MW average) will be the subject of a similar statements and the cost method in the parent State/Commonwealth agreement when the entity financial statements (note 34). need for that electricity has been demonstrated.

(q) Restoration Costs (t) Basslink Project Restoration costs are expensed as incurred or The Basslink Services Agreement is accounted capitalised where appropriate. for in accordance with AASB 1033, Presentation and Disclosure of Financial Instruments, with the (r) Revenue Recognition exception of foreign currency and interest rate Revenue from the sale of electricity is elements. Hedge gains on the foreign currency recognised at the time the electricity is provided portion and hedge losses on the interest rate to the customer and is determined by meter portion as at finalisation of the Basslink Service readings. Revenue from sale of Renewable Agreement (29 November 2002) have been Energy Certificates is recognised at the time of deferred in accordance with the accounting receipt of funds. Consulting revenue is invoiced policy in notes 1.2(k) and 1.2(n). Further detail in accordance with contractual agreements. of the accounting for the Basslink project is Accrued Consulting revenue and other contained in note 23. revenue is accounted for at the fair value of the consideration receivable.

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(u) Adoption of Australian Equivalents to any actuarial gain or loss relating to this International Financial Reporting Standards plan will be recognised in the Statement of (AIFRS) Financial Performance as it arises. AIFRS will be introduced in Australia for financial years commencing on or after 1 January 2005. • Income Tax AIFRS will therefore be first applied by Hydro Currently, the Corporation applies the liability Tasmania in financial statements for the year method of tax-effect accounting whereby ended 30 June 2006. Transition rules require the income tax expense is based on the that those statements contain comparative accounting profit adjusted for any permanent figures prepared under AIFRS. differences. Timing differences are currently brought to account as either a provision The Corporation has been familiarising itself for deferred income tax or future income with these standards as they are released and tax benefit. Under AIFRS, the Corporation finalised in order to assess the impact on financial will be required to adopt the balance sheet performance and financial position as currently approach and identify temporary differences reported. All standards were passed by the for each asset and liability, rather than AASB in July 2004. Based on the assessment, identify the timing and permanent differences the Corporation expects that the key differences between taxable income and accounting in the Corporation’s accounting policies that will profit. Adjustments to deferred income tax arise from adoption of AIFRS are: or future income tax benefit on transition to AIFRS will be charged directly to retained • Valuation of Non-Current Assets earnings. Transitional rules allow the Corporation to either continue with fair value method of • Derivative Financial Instruments non-current asset valuation on transition The Corporation is not currently required to AIFRS or to revert to a cost basis to recognise derivative financial instruments of valuation. The latter would require in the financial statements. AASB 139, utilisation of the 2004 carrying value of Financial Instruments Recognition and non-current assets as the deemed cost on Measurement, will require derivative financial transition. The Corporation is investigating instruments and hedging activities to be these options and the differences in recorded in the financial statements. Initial definition of fair value and impairment recognition of derivative financial instruments between current standards and AIFRS on transition will be against retained (AASB 116 and AASB 136). earnings.

• Employee Benefits – Superannuation • Intangible Assets The Corporation is not currently required AIFRS will revise accounting policy with to record as a liability the full difference respect to capitalisation of development and between the RBF plan past service and research costs. These costs are currently accrued liabilities and the market value capitalised if it is beyond reasonable doubt of the RBF assets relevant for those that they will generate future benefits sufficient members. As at 30 June 2004 there to recover the deferred cost. The Corporation was $22.2M in unrecorded liability (note is investigating the impact of AASB 138 on 22). Transitional rules upon adoption future deferral of this expenditure. of AIFRS will require this amount to be immediately recognised as a liability with a corresponding direct charge against retained earnings. In subsequent years,

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2 PROFIT FROM ORDINARY ACTIVITIES

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 (a) DETAILED FINANCIAL PERFORMANCE Revenue from Ordinary Activities Electricity sales revenue 378,269 354,091 378,269 354,091 Other operating revenue: Services to external customers 29,042 30,669 27,943 28,508 Interest received 133 603 133 603 Operating grants and subsidies (note 2(b)) 6,617 5,966 6,617 5,938 NDSF Debt Forgiven (note 1.2(m)) 37 79 37 79 Other subsidiary revenue 12,208 - - - Subsidiary debt forgiveness 6,472 - 3,530 - Other 7,039 6,047 6,310 1,049 Total Revenue from Ordinary Activities 439,817 397,455 422,839 390,268

Expenses from Ordinary Activities Labour 74,683 63,351 73,143 61,829 Materials 55,158 40,352 20,475 24,990 Contributions to RBF provision (note 20(b)) 17,200 17,200 17,200 17,200 Depreciation and amortisation (notes 1.2(e), 2(f), and 11) 79,274 80,389 76,312 79,540 Other costs incurred by Consulting Division generating revenue 20,406 12,064 20,406 12,064 Other costs 47,560 27,405 70,064 37,700 Loss on sale of property, plant and equipment (note 2(d)) 1,033 4,764 1,031 4,288 Bad and doubtful debts 71 243 71 243 Total Expenses from Ordinary Activities 295,385 245,768 278,702 237,854

Borrowing Costs (note 2(c)) (72,358) (83,587) (72,358) (83,585) Net profit from Joint Ventures (note 35) 67 - - - Profit from Ordinary Activities Before Income Tax Equivalent 72,141 68,100 71,779 68,829

Income Tax Equivalent Expense (note 4) (36,661) (34,453) (35,791) (34,721) Net Profit 35,480 33,647 35,988 34,108

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2 PROFIT FROM ORDINARY ACTIVITIES (continued) CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 (b) OPERATING GRANTS AND SUBSIDIES The Corporation provides electricity to consumers on the Bass Strait islands below the cost of production as a Community Service Obligation (CSO). The State Government compensated the Corporation for the CSO (note 32). 4,748 5,238 4,748 5,238

Miscellaneous grants and subsidies. 1,869 728 1,869 700 6,617 5,966 6,617 5,938

(c) BORROWING COSTS Loan interest 60,372 66,138 60,372 66,138 Swap interest 1,089 1,070 1,089 1,070 Bank overdraft 2 1 2 1 Government guarantee fee 3,795 3,241 3,795 3,241 Hedging losses/debt management costs (note 6) 7,057 13,093 7,057 13,093 Other financial charges 43 44 43 42 72,358 83,587 72,358 83,585

(d) LOSS ON SALE OF PROPERTY, PLANT AND EQUIPMENT Proceeds from sale 1,360 1,488 1,360 1,472 Less: cost of sale 2,393 6,252 2,391 5,760 Loss on sale (note 2(a)) 1,033 4,764 1,031 4,288

(e) DEPRECIATION EXPENSE Generation assets 67,049 62,142 64,188 61,846 Auxiliary 4,424 10,637 4,422 10,635 Motor vehicles 1,316 1,096 1,315 1,085 Minor assets 5,759 5,431 5,721 4,987 Land & buildings 676 987 666 987 Total depreciation (note 11) 79,224 80,293 76,312 79,540

(f) AMORTISATION EXPENSE Goodwill 50 96 - -

3 INDIVIDUALLY SIGNIFICANT ITEMS Individually significant items included in profit from ordinary activities before income tax equivalent

Loan portfolio restructure 6,468 11,299 6,468 11,299 Net Individually Significant Items 6,468 11,299 6,468 11,299

Consideration value of loans 386,206 307,921 386,206 307,921 Capital value of loans 393,871 317,646 393,871 317,646 Cost on repurchase 7,665 9,725 7,665 9,725

(Gain)/loss on interest rate swap terminations (1,080) 1,574 (1,080) 1,574 Early amortisation of (gains)/losses on futures contracts (117) - (117) - Total cost of loan portfolio restructure (note 6(i)) 6,468 11,299 6,468 11,299

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4 INCOME TAX EQUIVALENT EXPENSE CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 The prima facie income tax equivalent on pre-tax accounting profit reconciles to the income tax equivalent in the financial statements as follows: Profit from Ordinary Activities 72,141 68,100 71,779 68,829

Income tax equivalent calculated at 30% (2003: 30%) of operating profit 21,642 20,430 21,534 20,649

Permanent differences: Amortisation of intangible assets 49 96 - - Depreciation of revaluation increments 14,624 14,968 14,551 14,968 Non-deductible expenses - 15 - 15 Research & Development (111) (81) (111) (75) Other 387 (175) 356 81

Impact of the tax consolidation system: Initial recognition of deferred tax balances of subsidiaries - - 1,216 - Income tax expense related to current and deferred tax transactions of the wholly owned subsidiaries in the tax consolidated group - - 8 - Derecognition of deferred tax balances of subsidiaries that have left the tax consolidated group during the financial year 158 - 158 -

15,107 14,823 16,178 14,989

(Over) provision of income tax equivalent in previous year (88) (800) (1,921) (917) 15,019 14,023 14,257 14,072 Income tax equivalent expense attributable to operating profit 36,661 34,453 35,791 34,721

Tax Consolidation System Legislation allowing groups, comprising a parent entity and its Australian wholly owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantively enacted on 21 October 2002.

Hydro Tasmania and its wholly owned Australian resident entities are eligible to consolidate for tax purposes under this legislation and have elected to be taxed as a single entity from 1 July 2003. The implementation of the tax consolidation system will be notified to the Australian Tax Office at the time of lodgement of the 2004 taxation return. The head entity within the tax consolidation group for the purposes of the tax consolidation system is Hydro-Electric Corporation.

The financial effect of the adoption of the tax consolidation system has been recognised in the financial statements. As a result all income tax expenses, revenues, assets and liabilities of the members of the tax consolidated group are recognised in the financial statements of Hydro-Electric Corporation.

Subsidiary entities within the tax consolidated group will enter into a tax-sharing agreement with Hydro-Electric Corporation. The terms of this agreement are to be determined.

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5 RETAINED PROFITS

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 Retained profits at the beginning of financial year 182,238 148,592 182,232 148,125 Adjustments to opening retained profits on initial adoption of AASB 1028 Employee Benefits - (190) - (190) Adjustments to opening retained profits on initial adoption of AASB 1044 Provisions, Contingent Liabilities and Contingent Assets - 60,503 - 60,503 Net Profit from current period 35,480 33,647 35,988 34,108 Dividend paid (43,553) (60,503) (43,553) (60,503) Adjustment to employee benefits already effected in the financial statements - 190 - 190 Transfer of general insurance reserve 9,900 - 9,900 - Retained profits at end of financial year 184,065 182,238 184,567 182,232

6 DEBT MANAGEMENT ACTIVITIES Debt Management Losses/(Gains) and Costs (i) Cost of portfolio restructure (note 1.2(j) and 3) 6,468 11,299 6,468 11,299

(ii) Hedging instruments losses/(gains) Amortisation of losses on terminated interest rate swaps (note 1.2(k)) 556 1,651 556 1,651 Amortisation of losses on futures contracts 28 34 28 34 Amortisation of (gains) on commodity option premiums - (39) - (39) Total losses on hedging instruments 584 1,646 584 1,646

(iii) State of Tasmania Treasury loan repayment fee 5 148 5 148

Total hedging losses/debt management costs (note 2(c)) 7,057 13,093 7,057 13,093

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7 NOTES TO THE STATEMENT OF CASH FLOWS

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 (a) Cash Reconciliation For the purposes of the Statement of Cash Flows, cash includes cash on hand and in banks and short- term money market investments net of outstanding bank overdrafts. Cash at the end of the reporting period as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows: Cash 2,120 1,840 2,073 1,702 Money market investments 10,817 37,440 10,817 37,440 12,937 39,280 12,890 39,142 (b) Loan Facilities Loan facilities through Tasmanian Public Finance Corporation (Tascorp) are unlimited, with the exception of the Committed Standby facility.

Details of the limit and usage are as follows: Committed Standby Facility Facility Limit 50,000 50,000 50,000 50,000 Less: used/committed - - - Balance 50,000 50,000 50,000 50,000

Bank Overdraft Facility Limit 1,000 1,000 1,000 1,000 Less: used/committed - - - - Balance 1,000 1,000 1,000 1,000

Corporate Mastercard Facility Limit 7,500 7,500 7,500 7,500 Less: used 5,082 4,861 5,082 4,861 Balance 2,418 2,639 2,418 2,639

(c) Reconciliation of net cash provided by operating activities to operating profit after income tax equivalent Operating profit after income tax equivalent 35,480 33,647 35,988 34,108 Depreciation and amortisation 79,274 80,389 76,312 79,540 NDSF debt forgiven (37) (79) (37) (79) (Gain)/loss on sale of fixed assets 1,033 6,218 1,031 5,328 Decrease/(increase) in accrued interest receivable 29 59 29 61 Decrease/(increase) in prepayments 35 (1,223) (2) (1,242) (Increase)/decrease in stores and consumables (62) 100 (89) 100 (Increase)/decrease in trade receivables (8,637) 4,560 (6,825) (6,022) Increase in accrued interest payable 2,812 788 2,812 788 (Increase)/decrease in deferred taxes 4,090 275 3,057 - Increase/(decrease) in trade creditors and accrued expenses (20,993) 1,394 (11,055) 7,578 Increase/(decrease) in employee entitlement provisions 2,805 4,648 2,805 4,668 Net hedging debt management charges 1,601 2,357 1,601 2,357 Net movement in other asset and liability accounts 7,431 9,872 (580) 15,774 Net cash provided by operating activities 104,861 143,005 105,047 142,959

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7 NOTES TO THE STATEMENT OF CASH FLOWS (continued) (d) Business Disposed During the financial year, the consolidated entity disposed of the Hydstra Group of entities (note 33). Consideration received in cash was $1.17M and deferred sales proceeds equalled $1.29M for a sum of $2.46M.

Net assets disposed: $’000 Cash 25 Receivables 690 Property, Plant and Equipment 616 Deferred tax assets 170 Tangible Assets 1,501 Intangibles 2,269 Payables (32) Other liabilities (680) Deferred tax liabilities (12) Net Assets 3,046

8 RECEIVABLES

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 (a) Current receivables Trade receivables 51,070 50,794 44,923 40,383 Less: Provision for doubtful debts (note 1.2(c)) (290) (490) (290) (490) 50,780 50,304 44,633 39,893 (b) Non-current receivables Trade receivables 8,161 - 2,084 -

9 INVESTMENTS (a) Current investments (at cost) Money market investments 10,817 37,440 10,817 37,440

(b) Non-current investments (at cost) Investment in joint venture (note 36) 1,067 - - - Investment in shares 16 19 16 16 1,083 19 16 16 All money market investments have been transacted through the Tasmanian Public Finance Corporation (Tascorp).

10 INVENTORIES Stores (note 1.2(d)) 610 547 636 547

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11 PROPERTY, PLANT AND EQUIPMENT The fair value of the Corporation’s Generation assets is determined by calculating the net present values of projected net future cash flows of the existing generation assets by applying appropriate assumptions, based on the best information available for a range of relevant factors, including projections for future inflation, asset lives, cost of capital, sales volumes and prices, expenses and tax rates. Projected future cash flows relating to the use of Basslink for exporting/importing electricity generated by existing assets are included.

The future cash flows from Basslink Inter-Regional Settlement Residues have been calculated using a base case simulation being a combination of published data (AFMA Victorian electricity forward price curve) and internal hydrological data, including commencement storages, Tasmanian load demand forecasts and water value curves.

A nominal after-tax discount rate of 7.56% was applied in calculating the recoverable amount (notes 1.2(e) and 1.2(f)).

CONSOLIDATED Capital Motor Land & Minor Work in Generation Auxiliary Vehicles Buildings Assets Progress at fair value at cost at cost at cost at cost at cost Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 Gross Carrying Amount Balance at 30 June 2003 3,273,988 48,144 8,281 15,088 46,254 117,504 3,509,259 Additions 15,207 230 2,564 499 5,806 - 24,306 Disposals (1,707) - (2,206) (2,290) (7,347) - (13,550) Other - 2 - - (254) 106,391 106,139 Balance at 30 June 2004 3,287,488 48,376 8,639 13,297 44,459 223,895 3,626,154

Accumulated Depreciation Balance at 30 June 2003 62,142 27,335 3,053 1,708 31,414 - 125,652 Disposals - - (1,353) (1,473) (7,109) - (9,935) Depreciation expense 67,049 4,424 1,316 676 5,759 - 79,224 Other - - - - (133) - (133) Balance at 30 June 2004 129,191 31,759 3,016 911 29,931 - 194,808

Net Book Value As at 30 June 2003 3,211,846 20,809 5,228 13,380 14,840 117,504 3,383,607 As at 30 June 2004 3,158,297 16,617 5,623 12,386 14,528 223,895 3,431,346

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11 PROPERTY, PLANT AND EQUIPMENT (continued) Parent Capital Motor Land & Minor Work in Generation Auxiliary Vehicles Buildings Assets Progress at fair value at cost at cost at cost at cost at cost Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 Gross Carrying Amount Balance at 30 June 2003 3,253,988 48,136 8,180 13,979 45,704 78,174 3,448,161 Additions 6,540 230 2,564 499 5,772 - 15,605 Disposals (1,577) - (2,206) (2,290) (7,347) - (13,420) Other - - - - (254) 48,183 47,929 Balance at 30 June 2004 3,258,951 48,366 8,538 12,188 43,875 126,357 3,498,275

Accumulated Depreciation Balance at 30 June 2003 61,846 27,330 3,004 1,708 31,081 - 124,969 Disposals - - (1,353) (1,473) (7,109) - (9,935) Depreciation expense 64,188 4,422 1,315 666 5,721 - 76,312 Other (133) - (133) Balance at 30 June 2004 126,034 31,752 2,966 901 29,560 - 191,213

Net Book Value As at 30 June 2003 3,192,142 20,806 5,176 12,271 14,623 78,174 3,323,192 As at 30 June 2004 3,132,917 16,614 5,572 11,287 14,315 126,357 3,307,062

12 INTANGIBLES CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 Goodwill - 1,573 - - Less: Accumulated Amortisation - (164) - - - 1,409 - -

13 TAX ASSETS (a) Current tax assets Future income tax benefit 8,952 7,583 8,952 7,583

(b) Non-current tax assets Future income tax benefit 62,102 59,287 62,102 57,263

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14 OTHER ASSETS

CONSOLIDATED PARENT 2004 2003 2004 2003

$’000 $’000 $’000 $’000 (a) Other current assets Interest accrued 2 31 2 31 Prepayments 2,020 2,055 2,020 2,019 Unamortised hedging costs 1,009 4,674 1,009 4,674 Loans to controlled entities - - 114,069 42,703 Loans to associates 100 - 100 - Miscellaneous 13 406 13 405 3,144 7,166 117,213 49,832

(b) Other non-current assets Deferred hedging settlement 19,028 19,028 19,028 19,028

15 ACCOUNTS PAYABLE Current payables Trade creditors 35,693 56,125 29,539 40,191 Other accrued expenses 1,367 1,927 1,312 1,715 Accrued interest payable 18,362 15,550 18,362 15,550 55,422 73,602 49,213 57,456 All trade creditors and accrued expenses are unsecured.

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16 BORROWINGS

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 All semi-government loans have been transacted through Tascorp. Loans maturing within one year that had an original term greater than one year and for which there is an existing arrangement with Tascorp to refinance the loan have been classified as non-current liabilities. This is a change in the treatment from the previous year and represents a re-classifiaction of $95.0M of loans (2003: $57.8M). Comparative figures for 2003 have been amended to reflect this treatment.

(a) Current interest-bearing liabilities Tascorp loans 201,038 219,594 201,038 219,594 201,038 219,594 201,038 219,594

(b) Non-current interest-bearing liabilities Tascorp loans 875,525 803,600 875,525 803,600 State of Tasmania Treasury loans 3,991 13,360 3,991 13,360 879,516 816,960 879,516 816,960

(c) Total interest-bearing liabilities Tascorp loans 1,076,563 1,023,194 1,076,563 1,023,194 State of Tasmania Treasury loans 3,991 13,360 3,991 13,360 1,080,554 1,036,554 1,080,554 1,036,554

(d) Discounted & premium loans The difference between the consideration and the face value is deferred interest (or discount/premium). Deferred interest is written off over the lives of the loans and is an interest component of borrowing. As at 30 June 2004 there were no discounted loans outstanding.

Discounted loans Discount written off during the year 1,528 1,441 1,528 1,441

Consideration value of loans - 69,022 - 69,022 Add: Discount to be written off - 1,528 - 1,528 Face value of loans - 70,550 - 70,550

Premium loans Premium written off during the year (204) 1,105 (204) 1,105

Consideration value of loans 51,833 218,029 51,833 218,029 Less: Premium to be written off 1,833 1,629 1,833 1,629 Face value of loans 50,000 216,400 50,000 216,400 The premium on these loans is written off to the Statement of Financial Performance over the term of the loans and effectively reduces the interest paid.

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17 TAX LIABILITIES

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 (a) Current tax liabilities Income tax equivalent payable 7,908 7,836 8,057 6,708

(b) Deferred tax liabilities Deferred income tax equivalent 143,032 134,980 143,032 135,120

18 PROVISIONS (a) Current provisions Employee entitlements (note 20) 35,555 34,382 35,555 34,382 Other current provisions (note 21): Workers compensation - 229 - 229 Other 11,710 7,027 - - 11,710 7,256 - 229

Total current provisions 47,265 41,638 35,555 34,611

(b) Non-current provisions Employee entitlements (note 20) 181,675 180,042 181,675 180,042 Other non-current provisions (note 21) Workers’ compensation 30 29 30 29 Other 5,258 6,973 - - 5,288 7,002 30 29 Total non-current provisions 186,963 187,044 181,705 180,071

(c) Total Provisions 234,228 228,682 217,260 214,682

19 OTHER LIABILITIES (a) Other current liabilities Income received in advance 787 596 786 2 Deferred hedging gains 442 3,538 442 3,538 Miscellaneous 511 110 511 110 1,740 4,244 1,739 3,650

(b) Other non-current liabilities Deferred hedging gain 19,028 19,028 19,028 19,028

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20 EMPLOYEE BENEFITS

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 (a) The aggregate employee benefit liability recognised in the financial statements is as follows: Provision for employee benefits: Current 35,555 34,382 35,555 34,382 Non-current 181,675 180,042 181,675 180,042 Accrued wages & salaries (i) 768 217 768 217 217,998 214,641 217,998 214,641 (i) Accrued wages & salaries are included in the Current Payables balance as disclosed in note 15 to the financial statements.

(b) Retirement Benefits Fund (RBF) Provision RBF provides benefits for eligible employees or their spouses on retirement or death.

The Retirement Benefits Fund (RBF) is funded by employee and employer contributions. Employee contributions to the funds are transferred to independent RBF administrators, while employer contributions are retained internally as a provision.

Each year, the State Actuary conducts a valuation of the past service and accrued liabilities within the RBF defined benefit scheme at the reporting date. Any shortfall between the value of these benefits and the market value of RBF assets relevant for those members determines the value of any unfunded superannuation liability, and is shown as a liability in the Statement of Financial Position (note 20(a)).

The funding status of the Corporation’s share of the liabilities of the defined benefit scheme at the reporting date, based on actuarial valuations, is summarised as follows:

Retirement Benefits Act 1993 Vested benefits 315,825 312,728 315,825 312,728

Accrued benefits 300,876 290,844 300,876 290,844 Less: Net market value of plan assets relevant to the Corporation (78,426) (73,224) (78,426) (73,224) Deficit (Unfunded past service liability) 222,450 217,620 222,450 217,620

The categories and respective liabilities, as determined by the State Actuary at 30 June 2004, for the different member classes of members of RBF are: Contributory members 51,075 44,303 51,075 44,303 Pensioners 160,371 163,422 160,371 163,422 Non-contributory members - - - - Retained Benefit Account 11,004 9,895 11,004 9,895 Total liability as at end of reporting period 222,450 217,620 222,450 217,620

Balance of the RBF provision as at end of reporting period 200,295 198,635 200,295 198,635 Amount under provided (22,155) (18,985) (22,155) (18,985)

In accordance with Treasurer’s Instructions, the Corporation is required to systematically recognise as an expense the under-provided amount of $22.2M (2003: $18.9M) over the average expected remaining working lives of existing employees.

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20 EMPLOYEE BENEFITS (continued)

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 The year end balance of the RBF provision in the accounts of the Corporation was as follows: Balance at beginning of period 198,635 193,971 198,635 193,971

Add: Expense for the current year: Contributions for the cost of the current year’s service 2,950 3,575 2,950 3,575 Interest added to provision 14,600 15,233 14,600 15,233 Add contribution to underprovision 2,600 1,967 2,600 1,967 Contributions to RBF provision (note 2(a)) 17,200 17,200 17,200 17,200 218,785 214,746 218,785 214,746

Less: Payments made to RBF (18,490) (16,111) (18,490) (16,111)

Balance at end of reporting period 200,295 198,635 200,295 198,635

Represented by: Current 25,641 25,283 25,641 25,283 Non-current 174,654 173,352 174,654 173,352 Balance at end of reporting period 200,295 198,635 200,295 198,635 The Corporation meets the Superannuation Guarantee obligations for all employees.

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21 PROVISION RECONCILIATION

Consolidated Workers Trading Compensation Losses $’000 $’000 Balance at 30 June 2003 258 14,000 Additional provisions recognised - 2,968 Reductions arising from payments/other sacrifices of future economic benefits (2) - Reductions resulting from the re-measurement of the estimated future sacrifice or the settlement of the provision without cost to the Corporation (226) - Balance at 30 June 2004 30 16,968

Current - 11,710 Non-current 30 5,258 Balance at 30 June 2004 30 16,968

Parent Workers Trading Compensation Losses $’000 $’000 Balance at 30 June 2003 258 - Additional provisions recognised - - Reductions arising from payments/other sacrifices of future economic benefits (2) - Reductions resulting from the re-measurement of the estimated future sacrifice or the settlement of the provision without cost to the Corporation (226) - Balance at 30 June 2004 30 -

Current - - Non-current 30 - Balance at 30 June 2004 30 -

(i) The provision for workers compensation represents estimates of claims outstanding relating to the period prior to the disaggregation of the Corporation.

(ii) The provision for trading losses represents unavoidable costs resulting from onerous contracts (for the purchase of goods and services) to the extent that these costs are greater than the realisable value of the resulting output.

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22 RESERVES

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 (a) Reserves comprise General insurance reserve (note 1.2(o)) - 9,900 - 9,900 Other reserves 1,000 - - - Asset revaluation reserve (note 1.2(e)) 1,871,166 1,871,166 1,871,166 1,871,166 1,872,166 1,881,066 1,871,166 1,881,066

(b) Movements in Reserves and Transfers (to)/from Retained Profits (note 5) General insurance reserve (note 1.2(o)) Amount as at the beginning of the reporting period 9,900 9,900 9,900 9,900 Less transfers to Retained Profits (9,900) - (9,900) - Amount as at the reporting date - 9,900 - 9,900

Asset revaluation reserve (note 1.2(e)) Amount as at the beginning of the reporting period 1,871,166 1,829,422 1,871,166 1,829,422 Add: Asset revaluation increment - 41,744 - 41,744 Amount as at the reporting date 1,871,166 1,871,166 1,871,166 1,871,166

23 FINANCIAL INSTRUMENTS Financial instruments are used by the Corporation to manage exposures relating to its loan portfolio, and its present and future major projects. The administration of all financial instruments, and the monitoring of credit limits, are strictly controlled in accordance with the requirements of the Corporation’s Treasury Policy Statement and relevant accounting statements.

(a) Derivative Financial Instruments Objectives and significant terms and conditions Interest Rate Swaps The Corporation has entered into interest rate swap contracts to achieve an interest rate exposure profile that is consistent with the long-term cash flow stability and the interest rate management strategy of the Corporation. All swaps, hedges and identified loans comply with the requirements of UIG 29 Early Termination of Interest Rate Swaps. Interest rate swaps allow the Corporation to swap floating rate exposures to fixed exposures and vice versa.

(i) Debt Portfolio At 30 June 2004 the fixed rates varied from 4.8% to 6.3% (2003: 4.8% to 6.2%). The floating rates were based on bank bill rates and these varied from 5.5% to 5.6% (2003: 4.6% to 4.8%).

The remaining terms and notional principal amounts of the Corporation’s outstanding interest rate swaps contracts at balance date are: Not later than one year - - - - Over one year and up to five years 113,400 142,500 113,400 142,500 Later than five years 40,000 146,500 40,000 146,500 Total 153,400 289,000 153,400 289,000

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23 FINANCIAL INSTRUMENTS (continued) CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 (ii) Basslink Project Basslink Services Agreement The Basslink Services Agreement (BSA) establishes the rights and obligations of both parties with respect to the monthly facility fee payments between Hydro Tasmania and Basslink Pty Ltd (BPL). The Basslink Facility Fee is a financial instrument with BPL whereby Hydro Tasmania is committed to make payments to BPL over the term of the contract should BPL meet its obligations to keep the link available. The BSA commences upon successful commissioning of the Basslink project, and is for a term of 25 years. As consideration for the Basslink Facility Fee, Hydro Tasmania has a right to receive from BPL an amount equal to the Inter-Regional Settlements Residue created by the power flows between Tasmania and Victoria. Hydro Tasmania has committed to sell the right to receive Inter-Regional Settlements Residue relating to power flows from Victoria to Tasmania. The link is capable of supporting a continuous load of 480MWh. By entering into the BSA, Hydro Tasmania has effectively swapped its exposure to the Tasmanian electricity market for an exposure to the combined Victorian and Tasmanian electricity markets.

The Basslink Facility Fee obligations include an interest rate exposure similar to that of a floating interest rate exposure on amortising debt. The remaining term and notional principal for this instrument at balance date is: Later than five years 599,810 599,810 599,810 599,810 Total 599,810 599,810 599,810 599,810 The notional principal amortises over the 25 year period to $306.2M.

Basslink Facility Fee Swap Derivatives entered into during 2003 for the Basslink project eliminate the financial market risks which arise from the Basslink Facility Fee payments including: - the foreign exchange risk inherent in the Facility Fee payment obligation (this resulted in a hedge gain recorded on the Statement of Financial Position as a deferred asset and deferred liability of $27.7M which will be brought to account over 25 years) - the construction interest rate risk inherent in the Facility Fee payment obligation (this resulted in a hedge cost recorded on the Statement of Financial Position as a deferred asset and deferred liability of $8.7M which will be brought to account over 25 years) The net hedge gain of $19.0M is recorded as a deferred gain in note 19 and deferred settlements in note 14. The Basslink Facility Fee Swap commences upon successful commissioning of the Basslink project, and is for a term of 25 years. The inherent fixed interest rate applicable to the Basslink Facility Fee Swap is 7.41%.

The remaining term and notional principal amount for this instrument at balance date is: Later than five years 599,810 599,810 599,810 599,810 Total 599,810 599,810 599,810 599,810 The notional principal amortises over the 25 year period to $306.2M.

Basslink Credit Swaps While the Basslink Facility Fee Swap transaction has been executed with a single counterparty, Hydro Tasmania has also entered into supplementary interest rate swap transactions with other counterparties to mitigate the potential credit risk associated with a single counterparty. These swaps are readily tradeable financial instruments.

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23 FINANCIAL INSTRUMENTS (continued) (b) Interest Rate Exposures The Corporation’s portfolio exposure to interest rates on financial instruments at 30 June 2004 was:

CONSOLIDATED Year Ended 30 June 2004 Weighted Average Fixed Interest Rate Maturing effective Floating Non interest Interest 1 year 1 to 5 Over 5 Interest rate Rate or less years years Bearing Total % $’000 $’000 $’000 $’000 $’000 $’000 Financial Assets Investments 5.4 10,817 - - - - 10,817 Receivables - - - - - 59,231 59,231 Other assets - - - - - 1,124 1,124

Total Financial Assets 10,817 - - - 60,355 71,172

Financial Liabilities Bank Overdrafts and Loans 6.1 358,038 94,991 547,525 80,000 - 1,080,554 Interest Rate Swaps - Pay Fixed/Rec. Floating 5.5 (153,400) - 113,400 40,000 - - Credit Swaps - Pay Fixed/Rec. Floating 6.0 (667,301) - - 667,301 - - - Rec. Fixed/Pay Floating 6.0 667,301 - - (667,301) - - Basslink Facility Fee Swap 7.4 (599,810) - - 599,810 - - Floating Facility Fee Instrument 4.8 599,810 - - (599,810) - - Accounts Payable - - 55,422 55,422 Other Liabilities - - - - - 953 953

Total Financial Liabilities 204,638 94,991 660,925 120,000 56,375 1,136,929

Net Financial Assets /(Liabilities) (193,821) (94,991) (660,925) (120,000) 3,980 (1,065,757)

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23 FINANCIAL INSTRUMENTS (continued)

PARENT Year Ended 30 June 2004 Weighted Average Fixed Interest Rate Maturing effective Floating Non interest Interest 1 year 1 to 5 Over 5 Interest rate Rate or less years years Bearing Total % $’000 $’000 $’000 $’000 $’000 $’000 Financial Assets Investments 5.4 10,817 - - - - 10,817 Receivables - - - - - 47,007 47,007 Other assets - - - - - 115,193 115,193

Total Financial Assets 10,817 - - - 162,200 173,017

Financial Liabilities Bank Overdrafts and Loans 6.1 358,038 94,991 547,525 80,000 - 1,080,554 Interest Rate Swaps - Pay Fixed/Rec. Floating 5.5 (153,400) - 113,400 40,000 - - Credit Swaps - Pay Fixed/Rec. Floating 6.0 (667,301) - - 667,301 - - - Rec. Fixed/Pay Floating 6.0 667,301 - - (667,301) - - Basslink Facility Fee Swap 7.4 (599,810) - - 599,810 - - Floating Facility Fee Instrument 4.8 599,810 - - (599,810) - - Accounts Payable - - - - - 49,213 49,213 Other Liabilities - - - - - 953 953

Total Financial Liabilities 204,638 94,991 660,925 120,000 50,166 1,130,720

Net Financial Assets /(Liabilities) (193,821) (94,991) (660,925) (120,000) 112,034 (957,703)

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23 FINANCIAL INSTRUMENTS (continued)

CONSOLIDATED Year Ended 30 June 2003 Weighted Average Fixed Interest Rate Maturing effective Floating Non interest Interest 1 year 1 to 5 Over 5 Interest rate Rate or less years years Bearing Total % $’000 $’000 $’000 $’000 $’000 $’000 Financial Assets Investments 4.7 37,440 - - - - 37,440 Receivables - - - - - 50,304 50,304 Other assets - - - - - 5,111 5,111

Total Financial Assets 37,440 - - - 55,415 92,855

Financial Liabilities Bank Overdrafts and Loans 6.1 347,142 137,756 509,215 42,441 - 1,036,554 Interest Rate Swaps - Pay Fixed/Rec. Floating 5.1 (247,000) - 117,500 129,500 - - - Rec. Fixed/Pay Floating 5.2 42,000 - (25,000) (17,000) - - Credit Swaps - Pay Fixed/Rec. Floating 6.5 (667,301) - - 667,301 - - - Rec. Fixed/Pay Floating 6.5 667,301 - - (667,301) - - Basslink Facility Fee Swap 7.4 (599,810) - - 599,810 - - Floating Facility Fee Instrument 4.8 599,810 - - (599,810) - - Accounts Payable - - - - - 73,602 73,602 Other Liabilities - - - - - 3,648 3,648

Total Financial Liabilities 142,142 137,756 601,715 154,941 77,250 1,113,804

Net Financial Assets /(Liabilities) (104,702) (137,756) (601,715) (154,941) (21,835) (1,020,949)

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23 FINANCIAL INSTRUMENTS (continued)

PARENT Year Ended 30 June 2003 Weighted Average Fixed Interest Rate Maturing effective Floating Non interest Interest 1 year 1 to 5 Over 5 Interest rate Rate or less years years Bearing Total % $’000 $’000 $’000 $’000 $’000 $’000 Financial Assets Investments 4.7 37,440 - - - - 37,440 Receivables - - - - - 39,893 39,893 Other assets - - - - - 47,814 47,814

Total Financial Assets 37,440 - - - 87,707 125,147

Financial Liabilities Bank Overdrafts and Loans 6.1 347,142 137,756 509,215 42,441 - 1,036,554 Interest Rate Swaps - Pay Fixed/Rec. Floating 5.1 (247,000) - 117,500 129,500 - - - Rec. Fixed/Pay Floating 5.2 42,000 - (25,000) (17,000) - - Credit Swaps - Pay Fixed/Rec. Floating 6.5 (667,301) - - 667,301 - - - Rec. Fixed/Pay Floating 6.5 667,301 - - (667,301) - - Basslink Facility Fee Swap 7.4 (599,810) - - 599,810 - - Floating Facility Fee Instrument 4.8 599,810 - - (599,810) - - Accounts Payable - - - - - 57,456 57,456 Other Liabilities - - - - - 3,648 3,648

Total Financial Liabilities 142,142 137,756 601,715 154,941 61,104 1,097,658

Net Financial Assets /(Liabilities) (104,702) (137,756) (601,715) (154,941) 26,603 (972,511)

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23 FINANCIAL INSTRUMENTS (continued)

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 The Weighted Average Cost of Debt (WACD) incorporates both loans and derivatives (Interest Rate Swaps and Futures Costs) on the books of the Corporation as at the reporting date. These rates are shown below.

Weighted Average Cost of Debt 6.14% 6.31% 6.14% 6.31%

(c) Net Fair Values

The following methods and assumptions are used to determine the net fair values of financial assets and liabilities:

Current Investments: The carrying amount approximates fair value because of the short term to maturity (note 9(a)).

Current Receivables and Payables: The carrying amount approximates fair value (notes 8 and 15).

Forward Foreign Exchange Contracts: The fair value of forward foreign exchange contracts is determined as the recognised gain or loss at balance date calculated by reference to current forward exchange contracts with similar maturity profiles.

Derivative Transactions: These are only used for the purpose of hedging financial exposures that arise. Therefore net fair values should not be assessed in isolation. The overall impact should take account of the underlying exposures being hedged.

Interest rate swaps, forward rate agreements, and futures contracts are valued at current market quoted prices.

Other Current Assets: The carrying amount approximates fair value (note 14). In accordance with AAS33, Presentation and Disclosure of Financial Instruments, prepayments are not included.

Other Current Liabilities: The carrying amount approximates fair value (note 19(a)).

Fixed rate loans, debentures issued, and forward bond contracts are valued at current risk adjusted market rates.

State of Tasmania Treasury Loans: These borrowings have an aggregate carrying amount of $3.99M and an estimated net fair value of $3.89M. The Corporation has not revalued these liabilities to net fair value as it expects to repay the carrying amount fully by holding them to maturity.

Tascorp Loans: These borrowings have an aggregate carrying amount of $1.077B and an estimated net fair value of $1.076B. The Corporation has not revalued these liabilities to net fair value as it expects to repay the carrying amount fully by holding them to maturity.

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23 FINANCIAL INSTRUMENTS (continued) Basslink Services Agreement

The net fair value of the BSA including the estimated revenues from the Inter-Regional Settlements Residues has been calculated using a net present valuation methodology. The future cash flow based on the BSA and estimated Inter-Regional Settlements Residues has been discounted to present value using a nominal discount rate of 10.8% being the pre-tax weighted average cost of capital as at 30 June 2004. The future cash flows from Inter-Regional Settlements Residues have been calculated using a base case simulation being a combination of published data (AFMA Victorian electricity forward price curve) and internal hydrological data, including commencement storages, Tasmanian load demand forecasts and water value curves.

Hydro Tasmania will pay a security deposit (non-interest bearing) of $50M to BPL on commissioning of the link. This will be repaid by means of a reduced facility fee towards the end of the agreement. This has been reflected in the net fair value of the BSA as at 30 June 2004. This inclusion is a change in the method of calculating the BSA net fair value. The comparative amount for 30 June 2003 has been amended to include this amount.

These assumptions are judgmental in nature and calculated by the application of externally sourced data and internal expert knowledge of Hydro Tasmania’s hydrological production.

The BSA is not a readily tradeable financial instrument.

Basslink Facility Fee Derivatives Floating Facility Fee Instrument and Facility Fee Swap

The net fair values of these transactions has been calculated using a net present value methodology based on the contractual obligations using a 25 year forward start market rate of 6.45% as at 30 June 2004 (2003: 5.61%). Neither derivative instrument is a readily tradeable financial instrument.

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23 FINANCIAL INSTRUMENTS (continued) The net fair values of financial assets and financial liabilities as at 30 June 2004 are:

CONSOLIDATED PARENT 2004 2004 2003 2003 2004 2004 2003 2003 Carrying Net Fair Carrying Net Fair Carrying Net Fair Carrying Net Fair Amount Value Amount Value Amount Value Amount Value $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Financial Assets Investments 10,817 10,817 37,440 37,440 10,817 10,817 37,440 37,440 Receivables 59,231 59,231 50,304 50,304 47,007 47,007 39,893 39,893 Other Assets 1,124 1,124 5,111 5,111 115,193 115,193 47,814 47,814 71,172 71,172 92,855 92,855 173,017 173,017 125,147 125,147

Financial Liabilities State of Tasmania Treasury Loans 3,991 3,892 13,360 13,027 3,991 3,892 13,360 13,027 Tascorp Loans 1,076,563 1,076,299 1,023,194 1,047,901 1,076,563 1,076,299 1,023,194 1,047,901 Accounts Payable 55,422 55,422 73,602 73,602 49,213 49,213 57,456 57,456 Other Liabilities 953 953 3,648 3,648 953 953 3,648 3,648 1,136,929 1,136,566 1,113,804 1,138,178 1,130,720 1,130,357 1,097,658 1,122,032

Financial Instruments Basslink Services Agreement - Unfavourable (see below) - 429,400 - 303,800 - 429,400 - 303,800 Basslink Facility Fee Instruments - Unfavourable - 245,500 - 253,000 - 245,500 - 253,000 Credit Swaps - Favourable - (29,850) - (104,407) - (29,850) - (104,407) Credit Swaps - Unfavourable - 29,850 - 104,407 - 29,850 - 104,407 Interest Rate Swaps - Favourable (126) (2,531) (108) (1,255) (126) (2,531) (108) (1,255) Interest Rate Swaps - Unfavourable 112 427 474 6,255 112 427 474 6,255 Forward Foreign Exchange Contracts - Unfavourable 405 405 2,478 2,478 405 405 2,478 2,478 Forward Foreign Exchange Contracts - Favourable (882) (882) (26) (26) (882) (882) (26) (26) (491) 672,319 2,818 564,252 (491) 672,319 2,818 564,252

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23 FINANCIAL INSTRUMENTS (continued) Investments, State of Tasmania loans and Tascorp loans together with interest rate swaps and forward exchange contracts are readily traded on organised markets in a standardised form. All other financial assets and liabilities are not readily traded on organised markets in a standardised form.

Basslink Services Agreement

The amount disclosed for the BSA in the above table is limited to the reporting requirements stipulated in AASB 1033, Presentation and Disclosure of Financial Instruments, and does not incorporate all revenue and benefits attributable to the Basslink project. In addition to the revenues included in this calculation the business case considered at the November 2002 Corporation meeting included revenues from fixed contract, spot and contract trading of electricity in the National Electricity Market, together with operational efficiencies, system optimisation, strategic development of renewable generation assets and hydrological risk offsets which exceed this amount.

Total revenues from Basslink have been applied in establishing the fair value of the Corporation’s Generation assets. Basslink is not an onerous contract as defined in AASB 1044, Provisions, Contingent Liabilities and Contingent Assets.

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23 FINANCIAL INSTRUMENTS (continued) (d) Liquidity Risk Liquidity risk arises from the possibility that the Corporation may be unable to settle a transaction on the due date. To manage this risk, the Corporation has adequate stand-by facilities and other funding arrangements in place.

(e) Credit Risk Credit risk represents the loss that would be recognised at the reporting date if counterparties failed to meet their contractual obligations. The Corporation measures credit risk as the positive revaluation of financial instruments plus a potential exposure of investments.

The Corporation reduces this risk by only transacting with counterparties of a high quality. Interest rate swaps are subject to the industry recommended International Swap Dealers Association (ISDA) documentation. Where possible this documentation contains clauses enabling the netting of exposures. The credit exposure of a financial instrument is its positive market revaluation at the reporting date. A potential exposure, broadly in line with Reserve Bank guidelines, is calculated on all interest rate swaps. The total exposure to interest rate swaps is also limited to a notional allocation as part of the Corporation’s capital base.

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000

Credit Risk Exposure by Instrument Type Financial Assets Investments and bank balances 14,783 43,779 14,783 43,748

Financial Instruments Interest rate swaps 44,578 7,146 44,578 7,146 Foreign exchange contracts 2,172 9,482 2,172 9,482 Basslink Facility Fee Swap 92,412 6,336 92,412 6,336 Total Credit Risk Exposure 153,945 66,743 153,945 66,712

Credit Risk Exposure by Institution Ratings Australian Based Institutions AA+ to AA- ratings 55,283 59,769 55,283 59,769 A+ to A ratings 92,412 6,336 92,412 6,336 147,695 66,105 147,695 66,105

Overseas Based Institutions AA+ to AA- ratings 6,250 638 6,250 607

Total Credit Risk Exposure 153,945 66,743 153,945 66,712

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24 FOREIGN EXCHANGE CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 Forward Foreign Exchange Contracts The Corporation enters into Forward Foreign Exchange contracts to buy and sell specified amounts of various foreign currencies in the future at pre-determined rates. The contracts are entered into to hedge certain anticipated purchase and sale commitments denominated in foreign currencies.

It is the Corporation’s policy to enter into forward foreign exchange contracts to hedge all foreign currency exposures greater than AUD 100,000 (unless otherwise approved by the Board of the Corporation) as soon as they are recognised.

These hedges are maintained until the exposures expire. These exposures may extend for a number of years.

(a) (Gains)/losses (i) The balance of realised hedge (gains)/losses relates to forward foreign exchange contracts for the purchase of property, plant and equipment. The contracts for the purchase of these assets have not been finalised as at 30 June 2004 so the realised hedge (gains)/losses on rolled forward foreign exchange contracts are accounted for separately. The Corporation expects the balance of deferred hedge (gains)/losses to be transferred to the underlying assets by 30 June 2005. (207) (779) (207) (779)

(ii) (Gains)/losses realised on foreign currency hedges and revaluation of open hedges, recognised in net profit during the year ended 30 June 2004. 67 105 67 105

(b) Non-hedged foreign currency balances The Australian dollar equivalents of foreign currency balances in the accounts which are not effectively hedged, including bank account balances, were as follows: 48 81 48 52

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24 FOREIGN EXCHANGE (continued)

c) Open hedge contracts The settlement dates, dollar amounts to be paid and contractual exchange rates on the Corporation’s outstanding open hedge contracts as at 30 June 2004 were:

2004 2003 Consolidated Consolidated AUD AUD AUD AUD Payables Receivables Payables Receivables Due Due Due Due 2004 2004 2003 2003 $’000 $’000 $’000 $’000 Not later than one year 19,927 8,128 48,868 1,460 Later than one year but not later than two years 1,245 640 - - Later than two years 1,463 3,004 - - 22,635 11,772 48,868 1,460

2004 2003 Parent Parent AUD AUD AUD AUD Payables Receivables Payables Receivables Due Due Due Due 2004 2004 2003 2003 $’000 $’000 $’000 $’000 Not later than one year 19,927 8,128 48,868 1,460 Later than one year but not later than two years 1,245 640 - - Later than two years 1,463 3,004 - - 22,635 11,772 48,868 1,460

25 SEGMENT REPORTING The Corporation operates predominantly in the electricty generation business. The Corporation’s operations and customers are located predominantly in one geographical segment. The Corporation’s principal activity is the generation and sale of electricity and related products.

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26 COMMITMENTS FOR EXPENDITURE

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 (a) Capital expenditure commitments Not later than 1 year 19,950 70,913 17,160 65,580 Over 1 year and up to 2 years 310 13 - 13 Over 2 years and up to 5 years - 81,503 - 81,503 20,260 152,429 17,160 147,096 The above items relate to the Corporation’s contractual commitments only.

(b) Lease commitments (i) Rental Expense: Minimum lease payment 3,124 1,873 3,124 1,873

(ii) Future Committed Lease Payments: Not later than 1 year 1,924 2,094 1,924 2,094 Over 1 year and up to 2 years 149 270 149 270 Over 2 years and up to 5 years 201 54 201 54 2,274 2,418 2,274 2,418 The majority of the Corporation’s leases are office accommodation rental costs. Contingent rental costs are mostly as a result of periodic escalation of leases by the Consumer Price Index. Since total contingent rentals are immaterial and cannot be reliably determined, they have been excluded from the calculations of lease commitments.

Payments made under operating leases are expensed on a straight line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property.

(c) Other commitments Not later than 1 year 40,392 24,370 12,698 8,397 Over 1 year and up to 2 years 23,482 32,748 6,831 4,149 Over 2 years and up to 5 years 9,828 32,133 5,561 8,379 Later than 5 years 365 3,430 365 3,430 74,067 92,681 25,455 24,355 Other commitments relate primarily to contracts for the supply of gas and provision of gas pipeline capacity to Bell Bay Power Pty Ltd and supply of general goods and services.

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27 CONTINGENT LIABILITIES

CONSOLIDATED PARENT 2004 2003 2004 2003 $’000 $’000 $’000 $’000 1. A Supreme Court of Victoria writ was issued on 5 December 2002 claiming damages from Hydro Tasmania in respect to a service contract with Ericsson Australia Pty Ltd . The principal claim concerns an allegation that Hydro Tasmania provided false and misleading tender information and over utilises the service. Hydro Tasmania considers there is little prospect of the claim being successful.

It is not possible to estimate the financial effect of this claim should it be successful. - - - -

2. Claims amounting to $500,000 have been received in respect to additional services provided under a service contract for the operation and maintenance of Bell Bay Power Station. Bell Bay Power Pty Ltd considers there is little prospect that the claims will be pursued or successful. 500 - - -

28 AUDITORS REMUNERATION Amounts received, or due and receivable, by the Auditor-General from the Corporation for auditing the accounts of the Corporation. 173 107 173 107

29 DIRECTORS REMUNERATION (a) Total salary and benefits paid to directors of the Corporation: (i) non-executive directors 399 319 399 319 (ii) executive director 308 326 308 326 707 645 707 645

(b) Total superannuation payments made on behalf of directors: (i) non-executive directors 75 58 75 58 (ii) executive director 11 11 11 11 86 69 86 69

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30 RELATED PARTY INFORMATION Parent Entity

The Directors for the period 1 July 2003 to Hydro-Electric Corporation 30 June 2004 are: Controlled Entities Honourable P E Rae, Mr G L Willis, Dr J J Amos, Mr K P Baxter, Mr D W Challen, Mrs J M Healey, Bell Bay Power Pty Ltd Ms C A Hughes and Mr G A Kennedy. Lofty Ranges Power Pty Ltd Roaring 40s Wind Pty Ltd Dr N L Scheinkestel resigned on 21 April 2004. R40 Pty Ltd Directors and Director related entities Transactions with Other Related Parties Hon. P E Rae and Mr G L Willis had an interest as chairman and director respectively of Renewable Other related parties include: Energy Generators of Australia Ltd. Aurora Energy AAPT Pty Ltd (trading as TasTel) Mr D W Challen had interests as Chairman of the (note 34). Electricity Oversight Committee, and as Chairman All transactions with related parties were conducted of Tascorp. in the normal course of business and on commercial All transactions with related parties were conducted terms and conditions and include the sale of at an arm’s length basis in the normal course of electricty to the parent entity. business and on commercial terms and conditions. 31 EVENTS SUBSEQUENT TO BALANCE Sponsorship and contribution fees of $8,500 were DATE paid to director-related entities of Hon. P E Rae and After due enquiry, the directors are not aware of Mr G L Willis. any matter or circumstances since the end of the financial year that have affected, or may significantly Interest revenue of $42,208 and interest expense affect, the operations of the Corporation, the results of $59.2M was received and paid to Tascorp, a of those operations or the state of affairs of the director-related entity of Mr D W Challen. Corporation in subsequent financial years. Details of directors remuneration and retirement 32 COMMUNITY SERVICE OBLIGATIONS benefits are disclosed in note 29 to the financial On 1 June 1999, the Government agreed to statements. formally recognise the cost of concessions to Equity Interests in Controlled Entities eligible pensioners and customers living on Bass Strait islands as Community Service obligations Details of the ordinary shares held in controlled (CSOs), as defined under the Government Business entities are disclosed in note 33 to the financial Enterprises Act 1995. statements. During the year ended 30 June 2004, the Equity Interests in Joint Ventures Government paid the Corporation $4.7M (2003 Details of interests in joint ventures are disclosed in $5.2M) as reimbursement of cost of providing note 34 to the financial statements. Community Service Obligations.

Transactions within the Wholly Owned Group The Wholly Owned Group includes:

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33 CONTROLLED ENTITIES

Percentage of Shares Held Footnote Country of Incorporation 2004 2003 Parent Entity % % Hydro-Electric Corporation

Controlled Entities Bell Bay Power Pty Ltd 1 Australia 100 100 Lofty Ranges Power Pty Ltd 2 Australia 100 100 Roaring 40s Wind Pty Ltd 3 Australia 100 100 R40 Pty Ltd 4 Australia 100 - Taswind Pty Ltd 5 Australia - 100 Hydstra Pty Ltd 6 Australia - 100 Hydsys Pty Ltd 7 Australia - 100 Hydstra America Inc 8 United States of America - 100

Footnotes 1. Bell Bay Power Pty Ltd was registered on 20 December 2001. 2. Lofty Ranges Power Pty Ltd was registered on 26 April 2002. 3. Roaring 40 s Wind Pty Ltd was registered on 21 March 2001. 4. R40 Pty Ltd was registered on 13 May 2004. 5. Taswind Pty Ltd’s name changed on 19 May 2004 to Cathedral Rocks Holdings Pty Ltd and was subsequently transferred into the jointly owned Cathedral Rocks group of companies under R40 Pty Ltd 6. Hydstra Pty Ltd was sold on 1 January 2004. 7. Hydsys Pty Ltd was sold on 1 January 2004. 8. Hydstra America Inc was sold on 1 January 2004. 9. The Hydstra Group was sold on 1 January 2004 with an aggregate loss to the consolidated entity of $1.27M.

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34 INTEREST IN JOINT VENTURE

Ordinary Ordinary Share Joint Venture Share Joint Venture Ownership Agreement Ownership Agreement Interest Voting Rights Interest Voting Rights CONSOLIDATED PARENT Joint Venture Principal Balance 2004 2003 2004 2003 2004 2003 2004 2003 Name Activity Date % % % % % % % % Aurora Telecom- Energy AAPT munications Pty Ltd Service (trading as Provider TasTel) 30 June 24.50 24.50 33.33 33.33 24.50 24.50 33.33 33.33 Cathedral Windfarm Rocks Construction Construction and Management Pty Ltd 30 June 50.00 - 50.00 - 50.00 - 50.00 - Cathedral Windfarm Rocks Development Holdings Pty & Operation Ltd 30 June 50.00 - 50.00 - - - - -

The Hydro-Electric Corporation entered into a joint venture (Aurora Energy AAPT Pty Ltd) with Aurora Energy Pty Ltd and AAPT Limited in the year ending 30 June 2001. The joint venture continues to operate and the investment was written down to nil as at 30 June 2002.

The Hydro-Electric Corporation entered into a joint venture (Cathedral Rocks Construction and Management Pty Ltd) with EHN (Oceania) Pty Ltd in the year ending 30 June 2004. The joint venture was established to construct and project manage a wind farm at Cathedral Rocks, South Australia.

A subsidiary of Hydro-Electric Corporation, R40 Pty Ltd entered into a joint venture (Cathedral Rocks Holdings Pty Ltd) with EHN (Oceania) Pty Ltd in the year ending 30 June 2004. The joint venture was established to develop, operate and maintain a wind farm at Cathedral Rocks, South Australia.

A subsidiary of Hydro-Electric Corporation, Lofty Ranges Power Pty Ltd holds an interest of 50% in the output of an unincorporated Joint Venture operation named SA Water Corporation & Lofty Ranges Power Pty Ltd Joint Venture. The principal activity of the Joint Venture is to contract for the construction of and to operate mini hydro facilities.

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35 JOINT VENTURE OPERATIONS CONSOLIDATED 2004 2003 $’000 $’000 Interest in Assets and Liabilities employed in Joint Venture Operations

Current Assets Cash 46 107 Receivables 25 200 Other - 2 Total Current Assets 71 309

Non-Current Assets Property, Plant and Equipment 1,478 1,403 Total Non-Current Assets 1,478 1,403

TOTAL ASSETS 1,549 1,712

Current Liabilities Payables 20 370 Total Current Liabilities 20 370

TOTAL LIABILITIES 20 370

36 INCORPORATED JOINT VENTURE Aggregate share of elements relating to incorporated joint ventures Share of profit of joint venture entity: Revenues from ordinary activities 33 - Expenses from ordinary activities - - Profit from ordinary activities before income tax expense 33 - Income tax expense relating to ordinary activities 10 - Net profit - accounted for using the equity method 23 - Statement of financial position Current assets 7,321 - Non-current assets 6,838 - Total assets 14,159 - Current liabilities 6,494 - Non-current liabilities 6,642 - Total liabilities 13,136 - Net assets - accounted for using the equity method 1,023 - Share of retained profits Share of retained profits at beginning of year - - Share of net profit 67 - Dividends received/receivable - - Share of retained profits at end of year 67 - Movements in carrying amount of joint venture entities Carrying amount at beginning of year - - Investment in joint venture entities acquired during the year 1,000 - Share of profit in joint venture entity for the year after tax 67 - Share of joint venture entities’ retained profits at end of year 1,067 -

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37 DIVIDEND The proposed statutory dividend for the financial year ended 30 June 2004 is $22.6M. This was declared by the Board in August 2004.

The proposed special dividend for the financial year is $17.4M.

The payment of a dividend by Hydro Tasmania is determined in accordance with the Government Business Enterprises Act 1995. This Act requires the Board of Directors to recommend a dividend within 60 days of the end of the financial year.

SUPERANNUATION DECLARATION I, Geoff L Willis, hereby certify that the Hydro-Electric Corporation has met its obligations under the Commonwealth’s Superannuation Guarantee (Administration) Act 1992 in respect of any employee who is a member of a complying superannuation scheme to which the Hydro-Electric Corporation contributes.

G.L. Willis Chief Executive Officer 12 August 2004

STATEMENT OF CERTIFICATION In the opinion of the directors of the Hydro-Electric Corporation: a) The financial statements are drawn up so as to give a true and fair view of the results and cash flows for the period ending 30 June 2004 and the state of affairs at 30 June 2004 of the Corporation; b) The accounts have been made out in accordance with the provisions of the Government Business Enterprises Act 1995; c) At the date of this statement there are reasonable grounds to believe that the Corporation will be able to pay its debts as and when they fall due.

The financial statements have been prepared in accordance with Treasurer’s Instructions, Australian Accounting Standards and Urgent Issues Group consensus views.

Signed in accordance with a resolution of the directors:

The Hon. P.E. Rae G.L. Willis Chairman Chief Executive Officer 12 August 2004 12 August 2004

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INDEPENDENT AUDIT REPORT I formed my audit opinion on the basis of these procedures, which included: To the Members of the Parliament of Tasmania • Examining, on a test basis, information to provide HYDRO-ELECTRIC CORPORATION evidence supporting the amounts and disclosures in the financial report, and Financial Report for the Year Ended 30 June 2004 • Assessing the appropriateness of the accounting Scope policies and disclosures used and the reasonableness of significant accounting estimates made by the The financial report and the Director’s responsibility Directors. The financial report comprises the statement of financial While I considered the effectiveness of management’s position, statement of financial performance, statement internal controls over financial reporting when determining of cash flows, accompanying notes to the financial the nature and extent of my procedures, my audit was not statements, and the Director’s declaration for both the designed to provide assurance on internal controls. Hydro-Electric Corporation and the consolidated entity for the year ended 30 June 2004. The consolidated entity The Audit Opinion expressed in this report has been formed comprises both Hydro-Electric Corporation and the entities on the above basis. controlled at the year’s end or during the financial year. Independence The Director’s are responsible for the preparation and true and fair presentation of the financial report in accordance In conducting my audit, I followed applicable independence with Section 52 (1) of the Government Business Enterprises requirements of Australian professional ethical Act 1995. This includes responsibility for the maintenance pronouncements. of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for Audit Opinion the accounting policies and accounting estimates inherent in the financial report. In my opinion the financial report of the Hydro-Electric Corporation: Audit approach a) presents fairly the Hydro-Electric Corporation’s and the I conducted an independent audit in order to express an consolidated entities’ financial position as at 30 June opinion to the members of the Parliament of Tasmania. My 2004 and the results of their operations and their cash audit was conducted in accordance with Australian Auditing flows for the year then ended; and Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. b) in accordance with the Treasure’s Instructions issued The nature of an audit is influenced by factors such as under the Government Business Enterprises Act the use of professional judgment, selective testing, the 1995 and applicable Accounting Standards and other inherent limitations of internal control, and the availability mandatory professional reporting requirements in of persuasive rather than conclusive evidence. Therefore, Australia. an audit cannot guarantee that all material misstatements have been detected.

I performed procedures to assess whether in all material TASMANIAN AUDIT OFFICE respects the financial report presents fairly, in accordance with the Government Business Enterprises Act 1995, the Treasurer’s Instructions, Accounting Standards and other H M Blake mandatory financial reporting requirements in Australia, AUDITOR-GENERAL a view which is consistent with my understanding of the Hydro-Electric Corporation’s financial position, and of its 19 August 2004 performance as represented by the results of its operations HOBART and cash flows.

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Statistical Summary Water Storages Storage Percent full 1/7/2004 1/7/2003 Lake Augusta 98 48 Great Lake 24 26 Arthurs Lake 68 61 Lake St Clair 65 23 Lake King William 82 52 Lake Echo 60 36 Tungatinah 86 46 Lake Mackenzie 100 76 Lake Rowallan 100 57 Lake Pedder 61 20 Lake Gordon 32 25 Lake Murchison 100 22 Lake Mackintosh 100 56 Lake Burbury 79 27 TOTAL 38.2 30.5

Five Year Profile - Revenue Account Year Ending 30 June 2004 2003 2002 2001 2000 $M $M $M $M $M TRADING INCOME Electricity Sales Key Customers 154.368 161.984 145.440 137.996 134.157 General Sales 223.902 192.107 171.674 160.297 144.403 Interest Received 0.133 0.603 0.479 0.435 0.473 Contribution to Consolidated Fund - - - 0.105 0.120 National Debt Sinking Fund - Debt Forgiven 0.037 0.079 0.105 0.145 0.353 Operating Grants and Subsidies 6.617 5.938 5.410 4.914 4.549 Miscellaneous 37.782 29.557 47.419 27.884 39.380 TOTAL INCOME 422.839 390.268 370.527 331.746 323.435

Less Expenses Labour 73.143 61.829 57.972 47.990 45.178 Materials 20.475 24.990 23.757 11.730 7.047 Other 91.572 54.295 55.374 41.433 45.385 Financial Charges 68.563 80.344 73.869 87.637 97.797 Depreciation of Fixed Assets 76.312 79.540 79.495 76.848 76.502 Superannuation and Retirement Benefits 17.200 17.200 16.750 16.861 15.336 Contribution to Consolidated Fund - - 0.011 0.101 0.161 Other Items - - - - 31.353 Loan Guarantee Fee 3.795 3.241 3.243 2.862 3.000 Income Tax Expense 35.791 34.721 32.252 31.060 (5.547) TOTAL EXPENSES 386.851 356.160 342.723 316.522 316.212 NET PROFIT/(LOSS) 35.988 34.108 27.804 15.224 7.223

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Five Year Profile - Balance Sheet Year Ending 30 June 2004 2003 2002 2001 2000 $M $M $M $M $M Fixed Assets 3,180.705 3,245.020 3,248.517 3,205.384 3,114.557 Deduct Provision for Depreciation - - - - - Fixed Assets (Depreciated) 3,180.705 3,245.020 3,248.517 3,205.384 3,144.557 Capital Work-in-Progress 126.357 78.174 86.540 39.774 36.189 Investments 10.817 37.440 50.373 31.016 20.000 Debtors, Current Assets etc 256.737 175.862 - 65.784 48.892 TOTAL ASSETS 3,574.616 3,536.496 3,515.018 3,341.958 3,249.638

Borrowings 1,080.554 1,036.554 1,036.554 1,036.554 1,036.559 Provision for Superannuation etc 368.349 356.510 417.015 383.018 373.561 Creditors Others 69.980 80.134 73.535 36.501 38.086 Equity 2,055.733 2,063.298 1,987.914 1,888.885 1,801.432 TOTAL LIABILITIES & EQUITY 3,574.616 3,536.496 3,515.018 3,341.958 3,249.638

Five Year Profile - Capital Works Year Ending 30 June 2004 2003 2002 2001 2000 $M $M $M $M $M EXPENDITURE Bass Strait Islands 2.4 4.9 1.1 0.3 0.6 Power Stations extension, Wind Farms, Switchyards and communications 106.5 67 54.4 28.0 11.8 Land and Buildings, General Plant Etc 26.1 21.9 9.2 10.1 8.8 TOTAL 135.0 93.8 64.7 38.4 21.3

FINANCED FROM Internal Sources 135.0 93.8 64.7 38.4 21.3 TOTAL 135.0 93.8 64.7 38.4 21.3

Customers and Sales Year Ending 30 June 2004 2003 2002 2001 2000 Sales (in million kWh) 10,210 9,987 9,751 9,654 9,563

Employee Numbers Year Ending 30 June 2004 2003 2002 2001 2000 Staff (including directors) 868 827 796 687 667

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Generating System As at June 30 2004 2003 2002 2001 2000 Mainland Tasmania Power Stations Hydro No. 29 28 27 27 27 Thermal No. 1 1 1 1 1 Wind No. 1 1 TOTAL No. 31 30 28 28 28

Installed Capacity Hydro MW 2,265 2,263 2,262 2,262 2,262 Thermal – Oil MW 0 120 240 240 240 Thermal – Gas MW 240 120 Wind MW 65 11 TOTAL MW 2,570 2,514 2,502 2,502 2,502

Energy Generated Hydro GWh 9,834 9 938 10,133 10,028 9,995 Thermal - Oil GWh 0 109 62 70 2 Thermal - Gas GWh 796 351 Wind GWh 95 37 TOTAL GWh 10,725 10,435 10,195 10,098 9,997

Generation Peak Load MW 1691 1660 1630 1592 1596 Generation Load Factor % 72 72 71 72 72

Bass Strait islands King Island Diesel MWh 11,589 13,029 12,294 11,487 11,238 Wind MWh 3,727 2,404 2,080 2,184 2,340

Flinders Island MWh 4,191 4,135 3,983 3,832 3,698

TOTAL MWh 19,507 19,568 18,357 17,503 17, 276

(a) Bell Bay unit 2 was converted to gas operation during 2003/04. (b) During 2003/04 thirty one additional 1.75 MW wind turbines were installed at Woolnorth. (c) Nieterana 2.2 MW mini hydro was completed during 2003/04. (d) On King Island two 850 kW wind turbines were added to the wind farm during 2003/04.

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