contact details Corporate office Level 12 Darling Park 201 Sussex Street Sydney NSW 2000 Telephone 02 9285 2700 Facsimile 02 9285 2777 Office Hours 8.30am – 5.00pm

Mt Piper power station 350 Boulder Road Portland NSW 2847 Telephone 02 6354 8111 Facsimile 02 6354 8112 Office Hours 7.45am – 4.00pm

Munmorah power station Scenic Drive Doyalson NSW 2262 Telephone 02 4390 1611 Facsimile 02 4390 1642 Office Hours 7.45am – 4.00pm

Vales Point power station Vales Road 08annual report Mannering Park NSW 2259 ’ Telephone 02 4352 6111 Facsimile 02 4352 6007 Office Hours 7.45am – 4.00pm Delta Electricity Wallerawang power station 1 Main Street Delta Wallerawang NSW 2845 Telephone 02 6352 8611 Facsimile 02 6352 8847 Re port a nn ua l E lectricity Office Hours 7.45am – 4.00pm

Delta Maintenance Munmorah Power Station Scenic Drive Doyalson NSW 2262 Telephone 02 4390 1606 Facsimile 02 4390 1642 Office Hours 7.45am – 4.00pm

Website

http://www.de.com.au 2008 Community information line 1800 115 277 ISSN 1327-6557 Front Cover: Sugar cane growing The Hon. Eric Roozendaal, MLC in the sub-tropical north coast of Treasurer New South Wales. Sugar cane is Level 36 Governor Macquarie Tower considered to be carbon dioxide 1 Farrer Place Sydney NSW 2000 neutral, meaning CO emissions 2 The Hon. Joseph Tripodi, MP from the crop and those produced Minister for Finance, Minister for Infrastructure, during milling and energy generation Minister for Regulatory Reform, and Minister operations are balanced by CO 2 for Ports and Waterways accumulation by the crop. Level 31 Governor Macquarie Tower In a partnership between Delta 1 Farrer Place Sydney NSW 2000 ’08annual report Electricity and the NSW Sugar Delta Electricity Milling Co-Operative Limited cogeneration units which use green sugar cane waste (bagasse) as fuel have been built at Condong dear and Broadwater sugar mills. index Cogeneration is the combined shareholders, production of power and heat. It is with pleasure that the Board of Delta Electricity a The steam produced drives two submits its Annual Report for the period of Apprentices 12 processes – low pressure steam 1 July 2007 to 30 June 2008 as required under Auditor-General’s Opinion 55, 72 is used for heating in the sugar the Annual Reports (Statutory Bodies) Act 1984. mill while high pressure steam b drives the turbine generators to The Annual Report covers the activities of Delta Board Committees 16 produce electricity and to run the Electricity for the year and contains the Statement Board Meetings 16 mill engines. All output will be sold of Accounts for the period ended 30 June 2008. Board of Directors 15 as renewable energy under the The Annual Report includes a letter of submission Balance Sheets 22, 56 Australian Government’s mandatory to the Voting Shareholders and was prepared in renewable energy accreditation c accordance with section 24A of the State Owned Chairman’s Report 2 scheme. Corporations Act 1989 and the Annual Reports Chief Executive’s Report 4 Delta Electricity is proud to be (Statutory Bodies) Act 1984. It is being submitted Community engagement 11 managing the largest baseload for presentation to Parliament. Consultants 18 renewable energy project in Yours faithfully, Cost of Reporting 19 Australia. Cash Flow Statements 25, 60 d Diversity 12 e Environment 8 Equal Employment Opportunity 12 Peter Young Chairman Ethnic Affairs Statement 14 Executive Committees 16 Executive Management Team 17 contents tables Exemptions 19 Inside front cover 7 table one: Key Performance f Letter to Voting Shareholders Indicators – Statistical Summary Financial Statements 23-72 1 Highlights 9 table two: Freedom of Information 20 2 chairman’s Report Environmental incidents Jim Henness Chief Executive 4 chief Executive’s Report 11 table three: New developments g 6 Profile 14 table four: Trends in the Governance 15-20 8 review of Operations Representation of EEO Groups 12 People 14 table five: Trends in the l 15 Governance Distribution of EEO Groups Letter to Shareholders Inside front cover 21 Financial Statements 2008 16 table six: Directors’ Meetings Locations 7 Inside back cover Index 17 table seven: Back cover Contact Details Executive Committees m 18 table eight: Mission 6 Executive Remuneration o Overseas Visits 19 communication objectives p Performance Summary 7 This Annual Report is a financial and compliance report, prepared to meet Profile 6 the requirements prescribed by the Annual Reports (Statutory Bodies) Regulation 2005. It takes into account exemptions granted by the Treasurer r in July 1997. Reporting Objectives Inside front cover Risk Management 14 The 2008 Sustainability Report will be prepared this year against the National Generator Forum standards derived from the Global Reporting s Index. This will be completed by December 2008 and made available on Safety 12 our website www.de.com.au. Statement by Members of the Board 54, 71 v Values 6 Vision 6

Designed and produced by Ross Barr & Associates Pty Limited As a major generator in the National Electricity Market, Delta Electricity has successfully put in place the strategies which will increase capacity, reduce emissions and prepare for the introduction of an emissions trading scheme.

financial performance development • Profit before tax of $132.1 million • Began construction at Colongra of low emission gas turbine plant and associated pipeline plant performance • Commenced commissioning of renewable energy plants • Record level of production achieved with at Condong and Broadwater 24,054 GWh sent out • Prepared environmental assessments for NSW gas turbine facilities at Marulan and at Bamarang plant improvements • Completed installation of fabric filters environmental management at Vales Point Power Station • Initiated pilot post combustion carbon capture research • Mt Piper Power Station boiler safety control project with CSIRO systems replaced and a new generator control • Retained ISO 14001 compliance assuring best practice system installed processes in environmental management • Second ash storage silo installed at Wallerawang, reducing noise impacts safety on community • Mt Piper Power Station staff achieved 900 days without a lost time injury • Maintained self insurance licence after meeting requirements of WorkCover safety audit people • Delta apprentice won Central Coast Apprentice of the Year for second consecutive year • New scholarship established for indigenous students at University of Newcastle Ourimbah campus

highlights 1 chairman’s Peter Young report

The past 12 months have been our business performance characterised by a focus on the NSW As a major generator, Delta Electricity has been implementing strategies to increase Government’s proposal to restructure the capacity, reduce emissions and prepare for the introduction of an emissions trading State’s electricity industry and associated scheme. We have also continued to operate an efficient energy generation business. activity and, equally, a focus on climate We achieved our highest level of production this year with 24,054 gigawatt hours change. In particular, we awaited the (GWh) sent out – sufficient to power three million homes – and we returned a before tax profit of $132.1 million. outcomes of an independent review by Professor Ross Garnaut, commissioned Plant availability was unacceptably low at 77.3%. This reduced our ability to sell on the by Australia’s Commonwealth, State and spot market and consequently this had an impact on our revenues. A comprehensive review of outage occurrences and remedies to improve plant performance has been Territory Governments in April 2007. implemented. The effectiveness of actions to improve availability will be monitored by the Board. It is recognised by the Board that availability needs to improve and The review was set up to examine effecting improvements will remain a high priority. the impacts of climate change on the Australian economy and recommend serving our market medium to long-term policies and policy Delta continues to position itself to meet the challenges of a tightening supply frameworks which will improve the market. We have a number of major projects underway to increase our generation prospects of a sustainable economic capacity enabling us to deliver increased base load and peaking capacity while environment. lowering the emissions intensity of our energy supply chain. The main capacity increase will come from a 667 megawatt (MW) gas turbine facility being built at Colongra near Munmorah Power Station. This $500 million power station will produce about 40% less greenhouse gas emissions per unit of output compared to coal-fired power plants. Colongra will be a power station operating at times of peak demand and is expected to be commissioned in early 2009. In another exciting development, Delta is constructing the largest baseload renewable energy project in Australia. Two 30 MW renewable energy co-generation facilities, one each at Condong and Broadwater sugar mills on the NSW North Coast, will be operating by the end of 2008. The $200 million project which saw extensive refurbishment at the sugar mills, was undertaken in a joint venture with the NSW Sugar Milling Co-Operative. Both plants will predominantly use sugar- cane based materials as fuel to ensure 24 hour a day, seven day a week, year round generation of baseload renewable energy. These projects will ensure the sustainability of our business as we deliver low emission and renewable energy 2 competitively into the National Electricity Market. The next year for Delta will be an exciting one. The need to meet growing energy needs in an ecologically sustainable manner is now beyond dispute.

our industry situation We are also supporting research on developing solar-thermal technology. Delta is The Owen Inquiry reported in September 2007 one of nine participants in a study focusing on technology selection, potential site on generation requirements for New South Wales. selection (including sites in NSW), network issues and cost estimates. A major finding was that the forecast rise in energy The widespread community concern for the environment has made power stations consumption in NSW will require considerable a target for activists seeking to draw attention to climate change issues. This has investment to meet projected demand. required us to further upgrade the tight security arrangements we have in place According to the Owen Report, forecast growth at all our plants. in electricity use implies a need to provide around 91,000 GWh of electrical energy in New South Wales environment in 2013/2014. This is around 10,500 GWh above During the year, the drought conditions that we have experienced over previous current annual consumption – equivalent to the years lessened. This reduced the direct pressure on Delta to find new sources of yearly output of the Mt Piper power station. Peak water although a number of options continue to be evaluated. The water shortages demand is currently at its highest in winter both in have helped us to focus on innovations such as purifying recycled water using NSW and in the National Electricity Market, however, reverse osmosis plant, reclaiming water from sewage treatment plants and treating summer maximum demand is growing faster than recovered mine water. These initiatives reduce our use of drinking quality water in winter maximum demand in all regions. industrial processes. Renewable energy and small-scale generation schemes, including wind, solar and wave, are our future forecast to provide over 1,500 GWh of the The next year for Delta will be an exciting one as we continue to generate a safe 10,500 GWh needed. The Owen Report advised and reliable supply of electricity. The need to increase power production, linked with that the remainder will need to be met by gas the focus on reducing carbon emissions, will see the electricity industry attract a lot or coal-fired generation. The growth in demand of interest. The need to meet growing energy needs in an ecologically sustainable could be impacted by the introduction of a carbon manner is now beyond dispute. emissions trading scheme. My thanks to all members of the Board, management and staff of Delta who have worked hard over this year to deliver the changes that the Government and the responding to emission community are seeking. reduction Delta’s progress towards developing a long term, sustainable footing requires us Electricity generators face the additional challenge to maintain a balance between meeting the demand from the community for reliable of a carbon-constrained environment. NSW is electricity supply and a requirement to minimise impacts from the production committed to reaching emission reduction targets of electricity. based on the national emission-trading scheme to be in place by 2010. We look forward to continuing to move our power generation business towards a sustainable future. Coal-fired power stations are one of the major contributors of carbon dioxide emissions along with the transport and agricultural sectors. There are clear implications for our business as our annual emissions are in the order of 20 million tonnes. Reduction in greenhouse gas emissions will be a major and costly reform. Over recent years Delta has been investigating, and is now trialling, Peter Young Chairman several innovative technologies in preparation for the introduction of emission reduction policies. Delta, with CSIRO, has constructed a $5 million pilot-scale research facility at Munmorah Power Station on the NSW Central Coast to capture up to 3,000 tonnes per year of CO2. The Munmorah pilot project will investigate post combustion carbon capture processes under Australian conditions. Additionally, Delta is participating in the NSW Clean Coal Working Group to develop low-emission coal technologies. With the other NSW power generators, we have assessed the viability of geo-sequestration of carbon dioxide in deep saline aquifers and coal seams. We have identified large-scale aquifers and coal seams that may be storage site options.

3 chief executive’s Jim Henness report

The Federal Government has commenced In anticipation of this period of transition to a low carbon emission future, Delta consultation for an emissions trading has been investing in both short and long term solutions. These include improving the efficiency of existing plant operations, investing in low emission gas turbine scheme to reduce the level of carbon technology and in renewable energy generation with both co-generation units and dioxide. The scheme is planned to through co-firing biomass at coal fired facilities. commence in 2010 and we will be While Delta currently uses a small amount of biomass in some of its coal fired power conveying the view to policy makers that stations, we have commenced investigation of using larger volumes of biomass for an emissions trading scheme must be electricity production. Post combustion carbon capture and sequestration which is executed in a manner that allows for an being demonstrated at several sites around the world offers a long term solution and orderly transition to a range of generation is being trialled at a number of Australian sites including our Munmorah Power Station. technologies and does not undermine the An equally important focus is the issue of availability which was below forecast viability of the industry. levels for 2007/2008. Following an extensive review, a number of actions to improve availability have been implemented as a matter of priority in order to ensure that acceptable availability levels for the plant in Delta’s portfolio are achieved. achievements We set a new production record with 24,054 GWh sent out. Mt Piper Power Station operated at its maximum capacity of 700 MW consistently while output from Munmorah has been the highest for 10 years. High standards of safety were achieved at all Delta sites, with substantial periods without any lost time injury. Periods ranged from 900 days for Mt Piper, 510 days for our Western Region maintenance staff, 467 days for Munmorah and one year for Wallerawang Power Station. These safety achievements are commendable and are due to all staff who strive for an ever higher standard of workplace safety. Their efforts were supported by a new Safety Excellence Program rolled out across the organisation and a renewed emphasis on inducting new staff into Delta’s strong culture of safety. Overall, we have seen a slight reduction this year in the number of lost time injuries with the total down to nine. Further reductions are sought as we continue to develop and implement best practice so that Delta staff go home safely at the end of the day.

4 Another initiative that gives expression to our vision of generating performance through innovation is a joint venture to develop the largest base load renewable project in Australia.

Delta posted a record high in sales revenue and an annual reduction of 400,000 tonnes of carbon dioxide per year. This is an important achieved a net profit before tax of $132.1 million part of Delta’s commitment to develop resources as the energy sector enters a period despite challenges in the electricity contract market of transition to a more diverse range of lower emission fuels. this year. The early part of the year was dominated by concerns about the impact of the drought across water management most regions in the market. The latter part of the Several water management initiatives have been taken on the Central Coast and in year was marked by concerns about the implications the Western Region to improve our capacity to withstand the impacts of prolonged of carbon trading on future sales. drought. Most significant is the innovative Vales Point water reclamation scheme The installation of fabric filter technology was finalised where treated sewage is piped to Vales Point for additional treatment to a standard at Vales Point Power Station. When it was built in that can be used in industrial processes to replace up to 230 million litres per year the 1970s, the power station was equipped with the of drinking quality water. best available methods for pollution reduction but Water for the Western Region power stations is sourced primarily from Delta’s new fabric filter technologies now remove 99.9% of own storages which comprise Lake Wallace and Lake Lyell on the Coxs River and particulate emissions. The upgrade cost $55 million Thomsons Creek Reservoir (an off-river storage filled by pumping from the Coxs and there are now virtually no visible emissions from system). Some water is also sourced from the Fish River system through Oberon Dam. the plant. The 12 week planned outage was also An additional supply is also secured from the nearby Springvale/Angus Place mines. used as an opportunity for maintenance work and significant upgrades which will extend the life of the Despite good rains at the end of 2007, which partially restored water systems and power station. storages, over the past 12 months, rainfall has been inconsistent. To address issues of salinity in these closed water systems, the capacity of a reverse osmosis plant at The establishment of a carbon capture project in Mt Piper will be increased. partnership with CSIRO at our Munmorah Power Station is a very important step, as it puts Delta at the cutting edge of low emission coal research. people Delta has been developing new recruitment and human resources (HR) processes If the technology is successful, it will ensure that to attract apprentices and graduates as well as to retain our current highly skilled coal can continue to be used for power generation workforce. Plentiful employment opportunities for young people with engineering in Australia. While Australia’s contribution to world or trades qualifications, coupled with the likely retirement of a high proportion of greenhouse gas emission is relatively small, our staff over the coming years, is putting increasing pressure on recruitment. development of carbon capture technology is a demonstration of Australia’s commitment to meet its We have also introduced a number of HR process improvements to ensure that global responsibilities. The additional benefit will be individual annual performance and development targets are consistent with the that we will be able to export our expertise to help broader business strategy. other countries with much higher rates of carbon dioxide emissions. community engagement Delta Electricity maintains close links with the local communities in which our power gas turbine projects stations are located and we seek people’s inputs into decision-making that will Good progress was made on the construction impact on their communities. Representatives of resident and community groups in of the Colongra Gas Turbine facility with foundations these two regions make up the CARE Forum on the Central Coast and the Western for the four generators poured by mid-year. Region’s Community Consultative Group which was established this year. Both A pipeline licence was granted and construction on community groups meet quarterly with senior Delta managers to share information, the preferred pipeline route commenced. This facility raise concerns and discuss measures to reduce impacts on our neighbouring will be an important addition to the NSW supply communities. sector, helping to meet the high level of demand occurring during peaking periods. It can also be acknowledgements and thanks brought into action in the event of an unexpected My thanks to the executive team and all staff for their contribution throughout capacity loss and thus will ensure reliability of supply a year which was dominated by uncertainty over the future structure of the industry. for the community. Work to secure approvals for the gas facilities at Bamarang and Marulan has also We had a number of challenges arising from this uncertainty but, overall, been progressing well. we approached our daily responsibilities with the same diligence as if it was a business-as-usual scenario. renewable energy I also thank our Board, especially Chairman Peter Young, for their careful Another initiative that gives expression to our vision of stewardship over the past year. generating performance through innovation is a joint venture to develop the largest base load renewable project in Australia. The two co-generation plants at Condong and Broadwater sugar mills, which use the waste from sugar cane milling as fuel, began commissioning in mid 2008. Production from these plants will be about 420 GWh per annum giving Jim Henness Chief Executive

5 profile

Delta Electricity is a State owned electricity Delta’s principal functions are to: generation corporation. We produce electricity from • establish, maintain and operate facilities for the generation of electricity and other several facilities using diverse energy sources such forms of energy; and as coal, water and biomass materials. • supply electricity and other forms of energy. Most of our electricity is generated at four coal-fired Guiding Delta in carrying out these functions are the following principal objectives: power stations in NSW. These are Mount Piper and 1. To be a successful business and, to this end, to: Wallerawang near Lithgow and Munmorah and (a) operate at least as efficiently as any other comparable business; Vales Point on the Central Coast. Generation from (b) to maximise the net worth of the State’s investment in Delta; and the portfolio is coordinated, helping Delta lower (c) to exhibit a sense of social responsibility by having regard to the interests production cost, and respond to market demand of the community in which it operates. and plant changes. 2. To protect the environment by conducting its operations in compliance with The capacity of Delta’s coal-fired plant is 4,320 MW the principles of ecologically sustainable development contained in section 6 (2) which provides some 12% of electricity for the market of the Protection of the Environment Administration Act 1991. covering all States and Territories except Western 3. To exhibit a sense of responsibility towards regional development and Australia and the Northern Territory. decentralisation in the way in which it operates. 4. To operate efficient, safe and reliable facilities for the generation of electricity. The remainder of Delta’s electricity production is 5. To be an efficient and responsible supplier of electricity. from renewable energy sources such as mini-hydro 6. To be a successful participant in the wholesale market for electricity. generators and co-firing biomass. Currently this is small but will grow significantly when new projects vision are completed. Generating performance through innovation. Delta Electricity operates under the Energy Services Corporations Act 1995 and the State Owned mission Corporations Act 1989. The organisation was formed To manage and grow the business in a safe, secure and environmentally responsible on 1 March 1996 as part of the NSW Government’s manner with reliable plant so that it generates consistent, superior dividends for the restructure of the State’s electricity industry. This Shareholders while recognising the interests of communities within which we operate. restructure was in response to large scale changes in generation, transmission and supply of electricity in values eastern Australia following the Federal Government’s We provide excellent customer service. program of competition reform. We live and work safely. We deliver outstanding business success. We promote high achievement. We behave with respect and integrity.

TWEED HEADS locations CONDONG Unit tOtal LISMORE Location Size Units Capacity Coal BROADWATER Mt Piper 700 MW 2 1,400 MW Vales Point 660 MW 2 1,320 MW Wallerawang 500 MW 2 1,000 MW Munmorah 300 MW 2 600 MW 4,320 MW

Hydro Mt Piper 350 kW 1 350 kW Chichester Dam 110 kW 1 110 kW NSW Dungog Water Treatment Plant 110 kW 1 110 kW GLENNIES CREEK 570 kW CHICHESTER DUNGOG Biomass WINDAMERE VALES POINT Biomass operations at Wallerawang and Vales Point involve MT PIPER NEWCASTLE the addition of biomass materials to the coal being conveyed COLONGRA MUNMORAH BATHURST WALLERAWANG to the station for combustion. This activity does not change the capacity of the station. Output for 2007/2008 was 1.9 GWh. LITHGOW Sydney

WOLLONGONG Biomass planned Coal BAMARANG Gas planned Hydro MARULAN Hydro planned 6 key performance indicators

Table one: Key performance indicators – Statistical summary Unit 07/08 06/07 05/06 04/05 03/04 Financial Statistics Total Sales Revenue $m 1,008.4 874.1 839.4 802.4 724.2 Earnings before Interest and Tax $m 174.9 244.9 282.6 236.1 177.3 Net Profit before Tax $m 132.1 201.0 234.7 180.5 111.0 Net Profit after Tax $m 87.7 139.9 164.5 123.5 74.2 Total Debt $m 776.2 660.3 583.0 579.7 642.8 Total Equity $m 897.0 215.6 730.0 800.6 800.6 Return on Assets (EBIT/Assets) % 6.4% 7.6% 13.2% 12.5% 9.4% Return on Equity (NPAT/Equity) % 9.8% 64.9% 22.5% 15.4% 9.3% Gearing (Debt / (Debt + Equity) % 46.4% 75.4% 44.4% 42.0% 44.5% Interest Cover (EBIT/Interest) Times 4.1 5.6 5.9 4.3 2.7 Debt:Equity (Debt/Equity) % 86.5% 306.2% 79.9% 72.4% 80.3% Current Ratio (CA/CL) % 0.4 0.4 0.5 0.7 0.8 Operational Statistics Production GWh 24,054 21,952 21,948 21,740 21,308 Equivalent Forced Outage Factor % 7.1 9.0 3.9 4.5 1.7 Availability % 77.3 75.5 86.5 87.0 92.9 Thermal Efficiency % 35.0 35.2 35.0 35.4 35.5 Coal Stockpile Levels $m 69.8 61.5 41.4 36.9 32.7 Employee Statistics GWh/employee 33.1 30.8 30.8 29.9 29.0 Staff Numbers 726 713 713 728 735 Training Days/employee Days/employee 5.8 7.1 6.0 4.7 5.8 Sick Leave Days/employee Days/employee 10.8 9.4 8.0 8.3 8.0 Safety Frequency Rate Frequency rate 4.9 5.6 7.0 4.1 8.8 Environmental Statistics Licence Breaches Number 2 2 1 2 1 Financial statistics include the impact of Australian equivalents to International Financial Reporting Standards from 2005/2006.

7 review of operations

production water Delta set a new production record with 24,054 GWh Heavy rainfall in the Coxs and Fish River catchments during June 2007 afforded sent out. This is sufficient energy to power around some relief from the worst effects of the drought that had impacted on the three million homes for the year. Western Region power stations. Despite some high rainfalls, the Oberon Dam (Fish River supply) continued to fall and, by mid 2008, had reached an historical low. Mt Piper Power Station operated at its maximum capacity of 700 MW consistently while output from To ensure production can be maintained as required at our two Western Region Munmorah Power Station has been the highest for power stations, a reverse osmosis plant which treats water to reduce salinity was 10 years. Mt Piper operated at levels of efficiency installed temporarily at Wallerawang power station. A reverse osmosis plant built above the Generator Efficiency Standard. This to treat water at Mt Piper will be augmented to lift production from 2.4 million litres result, coupled with higher than forecast efficiency at a day to up to 6 million litres daily. This will enable more effective management of Wallerawang Power Station, resulted in a lower than water and salinity in the Western Region. forecast rate of greenhouse emissions for the year. Delta has provided Lithgow Council with plans and studies that assessed increasing Throughout the year, outages are planned for those pump-transfer of water from the Clarence coal mine to the Coxs River. Lithgow periods when demand is at its lowest so that plant Council plans to secure funding to proceed with the scheme. Delta may be able systems can be upgraded and major refurbishments to source some additional water once the transfer scheme is augmented. can take place. Delta has investigated the feasibility of sourcing additional water supplies from other On other occasions, unplanned or forced outages abandoned mines. Further treatment options have been assessed to reduce the arise, when an unexpected failure of a system salinity of the mine water being transferred from the Springvale mine. occurs. Unfortunately, plant experienced a higher On the Central Coast, the construction of a major water reclamation scheme than expected rate of forced outages for the year commenced. and this resulted in an availability factor of 77.3%. A working group was established to examine in detail It will initially supply 230 million litres of water a year, with the capacity to expand how best to ensure improved plant performance. to 500 million litres. These and other water saving measures at Vales Point have resulted in greatly reduced consumption of drinking quality water. During a planned outage, Mt Piper Unit 2 had the boiler safety control systems replaced using the latest technology and a new generator control system environmental impacts management installed, which along with other work completed, Delta is committed to complying with all statutory requirements set out in the will ensure that the power station continues to relevant legislation, regulations and licences issued by a number of government provide reliable supply to the National Electricity authorities. These cover the range of activities related to electricity generation. Market. Units 7 and 8 at Wallerawang Power Station both underwent overhauls in preparation for the Delta sets its own targets which in many cases are more stringent. These winter months. organisational targets include targets to reduce fuel and water use and manage air and water emissions. We also undertake additional monitoring with the aim of Installation of fabric filters was completed at Vales reducing the impact of our operations on the environment and nearby communities. Point, increasing particulate emission capture rates of 99.5% to 99.9%. During the 12 week planned The ISO 14001 international standard outlines best practice processes to manage outage the opportunity was taken for major environmental impact. A recertification audit was carried out on the Central Coast and refurbishment of many other areas of the plant which the Western Region in 2008 and recertification was achieved. The auditor noted that: will provide a cost effective extension to the life of “we have been very impressed by Delta’s Environmental Management System’s this power station. Sufficient work was completed structure, contents and the level of compliance with ISO 14001”. to ensure that a major outage is not now required for another four years. Delta fully complies with the NSW Government’s Waste Reduction and Purchasing Policy (WRAPP). We aim to reduce landfill by about 10% each year in accordance A number of safety and environmental improvements with WRAPP. were completed at Munmorah during two periods of planned outage to ensure continued reliability of By consolidating all waste management into a single contract with a single service the plant. provider the following innovations and initiatives have been introduced to reduce landfill: A range of initiatives were also completed at several • Recycling of fluorescent tubes, most plastic items and a range of batteries instead sites, to ensure that noise would not cause problems of going to landfill. for our neighbours. High pressure steam, overland • Computers, monitors, keyboards, printers and photocopiers are recycled. conveyors and heavy vehicle movements can be sources of noise and/or dust which can impact on • A drum crusher has been installed to crush drums which attract a scrap residents living near power stations and Delta staff metal rebate. worked hard to ensure that these impacts were • Timber is being collected separately instead of going in the general waste bin minimised. and is then recycled for green waste at the local tip. • A compound has been constructed where the separation of scrap metal has commenced to sort out the different metals which attract a greater rebate.

8 In 2006, the Central Coast experienced severe water restrictions. While these have now eased, Delta put in place several initiatives to significantly reduce its use of drinking quality water.

Table two: Environmental incidents 2007/2008 Date Environmental Incident Authority Response July 2007 Cooling water discharged from Reported to Department of Corrected by lowering the control Wallerawang showed a slight Environment and Climate Change set point. exceedance of the upper pH limit. (DECC). December 2007 Total suspended solids discharged Reported to DECC. Removed sediment build-up from Wallerawang settling pond in the settling pond. exceeded limits. August 2007 Native bushland cleared. Reported to Wyong Council Contractor dismissed. and DECC. September 2007 Dust escaped from ash repository. Reported to DECC. Contract for ash management services, with emphasis on environmental management, put out to tender.

water

Case study 1 / Vales Point Water Reclamation Plant In 2006, the Central Coast experienced severe water restrictions. While these have now eased, Delta put in place several initiatives to significantly reduce its use of drinking quality water. As well as water efficiency measures and changing processes so that salt water could be used instead of fresh water, a major new water reclamation plant is being constructed that will deliver 230 million litres a year of recycled water. The project consists of a new microfiltration system to treat sewage effluent to a high level of purity, a pipeline to transport the reclaimed water from Mannering Park Sewage Treatment Plant to Vales Point and a reverse osmosis plant at Vales Point Power Station which treats the water further so it can be used in the power station’s boiler system. Michelle Moroney, general manager, Project Veolia Water PartnersSolutions in and delivering Glen Sherock, these water general efficiencies manager, are production, Wyong Central Coast. Council and Veolia Water Solutions, which won the tender to construct this important recycling project. L-R: Michelle Moroney, General Manager, Projects, Veolia Water Solutions and Glenn Sharrock, General Manager/ Central Coast Operations.

9 carbon

Case study 2 / Post combustion carbon capture pilot project Although the greenhouse emission rate from coal-fired generation technology is improving, to achieve deep cuts to these emission rates, it is necessary to capture and store carbon dioxide emissions. CSIRO and Delta Electricity have constructed a $5 million research scale pilot facility at Munmorah Power Station to investigate the potential to adapt a particular post carbon capture (PCC) process to Australian conditions. The research scale pilot plant is designed to capture up to

3,000 tonnes per annum of CO2 from the power station. The PCC pilot plant at Munmorah forms part of the CSIRO Energy Transformed Flagship PCC research program. It is hoped the Munmorah project will provide the foundation for a large-scale $150 million post combustion capture and storage demonstration project in NSW, planned for operation

by 2013, capturing up to 100,000 tonnes of CO2 each year. L-R: James McGregor, Energy Systems Manager, CSIRO Energy and Peter Coombes, Manager, Sustainability, Delta Electricity.

new capacity base load renewable energy The final report of the Owen Report into Electricity Construction of two 30 MW renewable energy facilities in partnership with Supply was released in September 2007. One of its the NSW Sugar Milling Co-operative nears completion. The co-generation facilities key findings was that NSW needs to be prepared for at Condong and Broadwater use sugar cane waste as fuel and are expected to be additional base load power supply by 2013/2014. operating by the last quarter of 2008. This will be the largest base load renewable energy project in Australia. In the past 12 months, Delta has continued developing options for delivering both base load and peaking capacity. These include investing low emission gas turbine facilities in the provision of base load renewable energy A gas-fired power station with a 667 MW capacity is being built at Colongra near and the construction of low emission gas turbine the existing Munmorah Power Station as an important enhancement to the State’s facilities. Building the gas turbine facility on the electricity system. The new environmentally friendly gas-fired plant will produce Central Coast near existing infrastructure is part of about 40% less greenhouse gas emissions compared to coal-fired power plant. Delta’s strategy to lower greenhouse gas emissions The gas turbine construction contract was awarded to international engineering while broadening its portfolio of generation to meet firm Alstom Limited, while Jemena, formerly Alinta, won the contract to build the growing demand. gas pipeline for this $500 million major infrastructure project. The construction of a gas pipeline and associated infrastructure to supply the turbines is being undertaken by Jemena (formerly Alinta). Regular consultation with local community members ensures impacts on local households are kept to a minimum. Delta was granted approval in early 2007 for a gas turbine power facility to be built at Bamarang near Nowra in two stages with project approval for stage one as a peaking plant and then concept approval for a stage two conversion to a base load plant. When the environmental assessment report was placed on exhibition, a number of issues were raised including the proposed use of water for cooling in stage two. In order to avoid the use of large volumes of water, the design was modified so that air, rather than water, would be used for cooling. The facility will still use water but considerably less than the initial design. This change meant that the infrastructure required for the facility changed slightly and thus the potential impacts on the environment changed. Accordingly, additional technical and other studies were conducted and a revised environmental assessment placed on exhibition in April/May 2008.

10 A community consultative group was established in the Western Region so that regular discussions can be held with local residents and others with an interest in our operations. A similar group on the Central Coast also meets quarterly.

It is hoped that project approval for stages one and two, and the pipeline and marketing associated infrastructure will be granted by the last quarter of 2008. Growth in demand for electricity continued to tighten Environmental assessments were conducted to support Delta’s proposal to build the supply demand balance in NSW. Spot prices a gas turbine plant in two stages on a site near the Marulan high voltage switchyard. were low compared to the previous year, failing to The site was preferred because it is adjacent to the existing TransGrid Marulan provide a signal to encourage timely investment in Switchyard and close to the Moomba to Sydney gas pipeline. Stage one consists new base load plant in NSW. of two open-cycle gas turbines. Stage two converts it to a combined cycle facility In the forward and futures electricity markets, the to generate electricity for intermediate/base load electricity demand. year was marked by considerable price volatility and On an adjacent site, EnergyAustralia proposes to build a second gas turbine facility low trading volumes for terms beyond June 2010. consisting of two open cycle gas turbines and the environmental aspects of these The early part of the year was dominated by proposals have been assessed individually, as well as cumulatively. Measures to concerns about the impact of the drought across mitigate impacts of gas turbine operations on the local community and ecology most regions of the market, as the majority of coal have been identified as part of the specialist studies conducted for the fired power stations rely on fresh water for cooling. environmental assessment. Both hydro and coal-fired stations experienced low Delta and EnergyAustralia will seek approvals to construct the two separate gas water storage levels. The prospect that these low turbine facilities on their adjacent sites. storages might feed into high spot prices drove up forward prices in the first half of the year. The second half of the year was affected by uncertainty around research and development the proposed carbon regulatory regime which Delta made a significant investment in research and development to support the substantially reduced trading activity for forward piloting of an innovative post combustion carbon capture technology at Munmorah years 2010/2011 and beyond. Power Station with CSIRO. Delta Electricity continues to play a constructive role Delta is also investigating Advanced Solar Thermal technology. The study will focus in the development of energy policy and regulation on technology selection, potential site selection (including sites in NSW), network through the industry consultation processes issues and costings. conducted by the AEMC, NEMMCO and other Delta was a member of the Cooperative Research Centre for Coal in Sustainable relevant bodies. Development which completed its term in June 2008. The Centre focused on low emission options for coal-fired plant for transition to a more sustainable generation base. Delta also retains its membership of the: • Electric Power Research Institute; • Welding Technology Institute of Australia; and • CRC for Integrated Engineering Asset Management.

TABLE three: New developments Project Description Status as at 30 June 2008 Colongra Gas Turbine 667 MW open cycle gas turbine. Construction well advanced. Peaking Plant Bamarang Gas Turbine Approximately 400 MW of combined cycle Development consent received. gas plant in two stages. Marulan Gas Turbine – Approximately 400 MW of combined cycle Environmental assessments being finalised. in two stages gas plant in two stages. Western Rail Coal Unloader Rail loop and unloading facility for coal for Mt Piper. Additional studies conducted as requested by Department of Planning. Now awaiting approval. Sugar Mill co-generation Two 30 MW biomass-fired co-generating plant. Performance testing commenced. joint venture at Condong and Broadwater

11 Equal employment principles remain a fundamental platform for our recruitment and work practices. These principles are reinforced through staff induction and ongoing training.

community engagement people A community consultative group was established safety in the Western Region so that regular discussions A new safety program, Safety Excellence, was successfully rolled out across the can be held with local residents and others with organisation with the aims of communicating and reinforcing Delta’s commitment to an interest in our operations. A similar group on the ensure that everyone is safe at work. One of the interventions, which aims to improve Central Coast, the CARE Forum also meets quarterly. safety in the workplace, saw an increased number of managers conducting safety These groups meet quarterly. At the meetings reports inspections with over 300 recorded for the year. are presented on operational and environmental DZIP (Delta’s Zero Incident Process), behavioural based safety program was matters and issues are raised by community introduced in 2003 to help improve safety at work and at home. It encourages safe representatives. Delta undertakes appropriate behaviours by looking at how people carry out their job and identifying safe and actions to address issues and reports progress back at risk behaviours, and having a conversation to reinforce the safe behaviours. to the groups. It continues to be an integral part of our safety system with: Each year in the Western and Central Coast • 97% employees trained as observers – with all newly appointed staff included; regions Delta supports activities and organizations • 174 hard barriers were removed this year; and that promote community development. Grants are • over 9,500 safety conversations recorded as part of DZIP observations. made to: Delta is required to undergo periodic audits by the NSW WorkCover Authority • local government to assist with improvements to continue to hold a self-insurer’s licence. A week-long audit was conducted in to local playing areas and park facilities; May 2008. We successfully met all requirements of the audit ensuring that our • local schools to sponsor annual prizes; licence to self-insure was renewed. • Landcare groups for their activities; and On each day of Safe Work Week 2007, information and advice on a specific safety • other community organisations that help support improvement topic was sent out to team leaders to deliver safety talks to staff. families, children and those with disabilities. Delta welcomed 49 new staff members this year. This is another large intake Staff are encouraged to donate to their preferred after the annual high of 50 new employees who joined last year. To ensure they charity through a payroll giving program and a understand and comply with Delta’s strong safety culture, an Occupational Health corporate policy has provided a dollar-for-dollar and Safety presentation was developed to introduce our safety policies and matching donation. Around $35,000 was donated practices to all new starters at all work sites. by staff and matched in this way during 2007/2008. For all new projects, a community consultation plan skills for the future is developed and implemented. In the past year Within the current labour market the demand and competition for skilled resources consulting with the community was undertaken as continues to increase. Delta also has undertaken a range of initiatives in 2008 to part of seeking approval for the following projects: help attract, retain and develop a skilled workforce. For example, sponsorship was • the construction of the co-generation facilities provided through training organizations to support 21 new apprenticeships. This at Condong and Broadwater sugar mills; support was split between the two regions where our power stations operate, with • construction of a gas turbine facility the costs for training and wages met by the Delta sponsorship. Currently, 49 people in the Bamarang area; at different stages of their apprenticeships are being supported in this way. • construction of a gas turbine facility in the Marulan area; Delta undertakes a range of activities to increase the number and quality of people studying engineering. Financial and practical experience has been provided for eight • the extension to an ash storage facility known students through formal scholarship programs with participating universities. as Kerosene Vale; • the construction of a gas pipeline to supply Delta also provides industrial experience placements of varying lengths for Colongra Gas Turbines; and graduates and undergraduates at several universities. A total of 26 students have • the construction of a rail coal unloader benefited from their involvement with the power industry. at Pipers Flat, near Lithgow. As a foundation member of the Australian Power Institute (API), Delta supports activities which aim to attract students to power engineering in order to boost the quality and number of graduates in the industry. The API now offers a bursary program to provide financial and industrial support to students and also provides development opportunities for professional staff within the power industry. employee health programs A free, confidential counselling service is available to all staff and their families with costs covered by Delta. Qualified counsellors provide assistance to help people deal with personal, family or work related issues. Delta continues its policy of offering influenza vaccinations to all staff. We also provide financial incentives to encourage staff to undertake activities to enhance their aerobic fitness.

12 human resource systems development While Delta supports and aligns itself with the EEO principles and targets set down by the NSW Human resource (HR) management depends on a variety of systems to help Government, low staff turnover has limited our ability support the effectiveness and well-being of staff. Delta has operated a performance to satisfy these targets. management system for many years which was improved by the introduction of an electronic performance management system in 2008. It allows for a greater Nevertheless there were performance improvements alignment between the establishment and reporting of goals. during the year: Work has also commenced to introduce an electronic leave system for annual and • the percentage of women employees increased long service leave. to 8%; • 16% of new recruits were women; workplace reform • two young women took up apprenticeship opportunities on the Central Coast and four were During the past 12 months a consultative forum was established with Unions offered administration traineeships which run for NSW and union representatives to discuss major initiatives and issues that may 12 months; and impact upon the workplace. This coincided with the negotiations to extend • a new 12 month traineeship for a person with the Delta Electricity Employees Enterprise Agreement for a further 12 months. a disability was established. equal employment opportunity Equal employment principles remain a fundamental platform for our recruitment and work practices. These principles are reinforced through staff induction and ongoing training. All policies and standards governing work are reviewed to ensure alignment with EEO principles. gas

Case study 3 / Colongra Gas Turbines In 2006, Delta gained approval to build a new gas fired power station near the existing Munmorah Power Station. With a capacity of 667 megawatts the new plant will produce about 40% less greenhouse gas emissions compared to coal-fired power plant. The gas turbine construction contract for this major infrastructure project was won by international engineering firm Alstom Limited. Building the gas turbine facility is part of Delta’s strategy to lower greenhouse gas emissions and broaden its generation portfolio. L-R: Paul Richards, Site Civil Engineer, Alstom; Rodney Ward, General Manager/Development, Delta Electricity; John Barben, Project Manager/Gas Turbines, Delta Electricity and Leo Cooper, Project Site Manager, Alstom.

13 While not a direct service provider, Delta draws its employees from the multi-cultural Australian community. We recognise the importance and benefits of cultural diversity to our organisation and the community in general. ethnic affairs priority major planned outcomes scheduled statement for 2008/2009 As required, our Ethnic Affairs Priority Statement Delta’s Ethnic Affairs Priority Statement forward plan includes programs to ensure (EAPS) identifies objectives and targets relating merit-based recruitment practices continue and that work arrangements are to social justice, community harmony and cultural sensitive to, and accommodate, cultural and religious differences. opportunities. Delta will continue to offer apprenticeship opportunities and reserve positions for While not a direct service provider, Delta draws suitable female and indigenous applicants. We will continue to explore new initiatives its employees from the multi-cultural Australian to ensure the employment of a workforce which reflects the cultural diversity of the community. We recognise the importance and Australian community. benefits of cultural diversity to our organisation and the community in general. risk management Our forward plan includes ensuring the continuance Delta Electricity’s Risk Management Plan was updated and conforms to the of merit-based recruitment practices and work Australian Standard AS/NZS 4360:2004 Risk Management. This encourages arrangements that are sensitive to and accommodate a proactive risk management culture with employees actively engaged in identifying cultural and religious differences as appropriate. and reporting potential risks. Key operational and strategic risks are reviewed and reported monthly at business support for local indigenous unit level and monitored quarterly by the Board of Directors. communities Risk management software has been enhanced to enable all staff to validate Delta has continued its support for the indigenous the effectiveness of risk control measures in their area of responsibility. community by providing apprenticeship opportunities for those with Aboriginal or Torres Strait Islander As part of our annual insurance renewal program, reviews and valuations of background. During 2008, two apprentices were risk exposures are undertaken. Each year presentations are made to insurance accepted under this program, bringing the total providers that assess risk exposures, risk management practices and progress number of indigenous trainees to four. in implementing the recommendations of loss prevention surveys routinely conducted at power station sites. In addition, a scholarship was sponsored for an Aboriginal student attending the Ourimbah Delta is cooperatively engaged with its insurance providers to reduce risk exposures campus of Newcastle University and sponsorship for key operating plant and equipment. was provided for annual NAIDOC events on the Central Coast and in the Western Region.

TABLE four: TRENDS IN THE REPRESENTATION OF EEO GROUPS1 % of total staff2 Whole of Government Benchmark EEO GROUP or Target 2008 2007 2006 2005 2004 2003 Women 50% 9% 8% 7% 7% 7% 7% Aboriginal people or Torres Strait Islanders 2% 0.7% 0.6% 0.6% 0.6% 0.4% 0.7% People whose language first spoken as a child was not English 20% 6% 5% 5% 5% 5% 6% People with a disability 12% 7% 8% 8% 7% 6% 9% People with a disability requiring a work related adjustment 7% 3% 3.4% 3.4% 3.3% 2.7% 4.1%

TABLE five: TRENDS IN THE DISTRIBUTION OF EEO GROUPS1 distribution index3,4 Whole of Government Benchmark EEO GROUP or Target 2008 2007 2006 2005 2004 2003 Women 100 93 93 98 98 99 98% Aboriginal people or Torres Strait Islanders 100 n/a n/a n/a n/a n/a n/a People whose language first spoken as a child was not English 100 106 109 113 112 112 110% People with a disability 100 99 101 102 100 100 99% People with a disability requiring a work related adjustment 100 n/a 93 95 93 n/a 94% 1. Staff numbers are as at 30 June 2008. 2. Excludes casual staff. 3. A distribution index of 100 indicates that the centre of the distribution of the EEO group across salary levels is equivalent to that of other staff. Values less than 100 mean that the EEO groups tend to be more concentrated at lower salary levels than is the case for other staff. The more pronounced this tendency is, the lower the index will be. In some cases, the index may be more than 100, indicating that the EEO group is less concentrated at lower salary levels. The distribution index is automatically calculated by the software provided by ODEOPE. 4. The distribution index is not calculated where EEO group or non-EEO group numbers are less than 20.

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the structure and Mr Peter Young AM, BSc, MBA Chairman and Director composition of the board Mr Young was first appointed on 1 June 2004 and subsequently reappointed Appointment of Directors to the Board is governed for a period ending 31 May 2010. by the State Owned Corporations Act 1989 and the Constitution. The Board of Delta Electricity is Mr Warren Phillips FCPA, FCIS, Dip Comm composed by the following method: Director • the Chief Executive Officer; Mr Phillips was first appointed on 1 March 2000 and subsequently reappointed for a period ending 31 August 2008. • one Director appointed by the Voting Shareholders on the recommendation of a selection committee Ms Sandra Moait comprising: Director a. two persons nominated by the Portfolio Ms Moait was first appointed 18 September 2002 and subsequently reappointed Minister; and for a period ending 31 August 2008. b. two persons nominated by the Labor Council of NSW, being persons selected by the committee Mr Michael Knight AO from a panel of three persons nominated by the Director Labor Council; and Mr Knight was appointed on 20 March 2006 for a period ending 19 September 2008. • at least two and not more than five other directors Mr Paul Forward BComm, MComm, MSc, GAICD appointed by the Voting Shareholders, at their Director discretion. Mr Forward was appointed on 20 March 2006 for a period ending 19 September 2009. The Directors in office at 30 June 2008 are: Mr Loftus Harris BA, FAICD Director Mr Harris was appointed on 1 October 2007 for a period ending 30 September 2010.

Mr Jim Henness BSc, BE (Hons), MEngSc, MBA, FAICD Chief Executive Officer and Director Mr Henness was appointed Chief Executive and Executive Director from 1 March 1996.

Board of Directors L-R: Mr Loftus Harris, Mr Warren Phillips, Mr Michael Knight, Mr Paul Forward, Mr Jim Henness (Chief Executive), Ms Sandra Moait and Mr Peter Young (Chairman) 15 governance report

meetings of the board The Board of Delta Electricity meets monthly or as required and follows meeting guidelines set down to ensure all Directors are made aware of, and have available to them, all necessary information to participate in an informed discussion of all agenda items. Meetings are held either in the corporate office or at one of the power stations, allowing the Board to see the operation of the business. The attendance of Directors at these meetings is shown below. Committees of the Board meet quarterly or as required.

TABLE six: DIRECTORS’ MEETINGS B board board Environment, Board R remuneration Board Audit and occupational Health Meetings and Staff Committee finance Committee and Safety Committee A B A B A B A B Mr P Young 11 11 4 4 Mr W Phillips 11 9 5 5 Ms S Moait 11 11 4 4 4 4 Mr M Knight 11 11 5 5 Mr P Forward 11 11 5 5 3 3 Mr L Harris 8 8 2 2 Mr J Henness 11 11 4 4 Note: Column A is the number of meetings that a Director was entitled to attend. Column B is the number of those meetings attended.

Board Committees Board Remuneration and Staff Committee The three Board committees in place at the end The primary objectives of the committee are to: of the year were: • Provide advice to the Board on remuneration and associated issues. • Board Audit and Finance Committee; • Enhance the independence and objectivity of Board decisions on sensitive • Board Environment, Occupational Health commercial and personal issues related to the Executive Managers of the and Safety Committee; and Corporation. • Board Remuneration and Staff Committee. • Enable Corporate and Business Strategies and Plans, and remuneration strategy and policy to be effectively linked. The terms of reference for each Board committee • Review processes and controls relating to Delta’s remuneration strategy, policy were reviewed and approved by the Board in May and practices in relation to legal and taxation requirements, Corporation reporting 2008. The Board committees and their functions are obligations and overall Corporation policy and direction. listed below. Membership Board Audit and Finance Committee Peter Young (Convenor), Sandra Moait and Loftus Harris. The purpose of the committee is to provide a forum for communications between the Board, senior management and both the internal and external managing risks auditors. It also ensures the integrity of the internal Delta Electricity’s Risk Management Plan conforms to the Australian Standard audit function and that management practices and AS/NZS 4360:2004 Risk Management. The plan is structured to provide Delta and systems support the effective operation of Delta’s its employees with policy direction and a framework for identification, assessment risk management strategies, business continuity and and reporting of risk. fraud control plan. The committee further reviews Delta’s corporate risk management software supports a hierarchical framework the adequacy of Delta’s short and long-term finance which allows employees to identify, register and/or escalate risks to higher levels in and risk management strategies. the organisation for review, comment and action. The framework has been designed Membership to allow elevation of risk information from plant owners through to Executive members and to the Board if necessary. Key risks (operational and strategic) are Warren Phillips (Convenor), Michael Knight reviewed and reported monthly at business unit level and reported quarterly to and Paul Forward. Delta’s Board. Board Environment, Occupational Health In addition to risks and controls being identified and monitored on an ongoing basis, and Safety Committee strategies are formulated through the following: The primary objectives of the committee are to assist • annual planning conference and development of the annual Strategic Plan; the Board in discharging its responsibilities relating • annual planning process which forecasts a 10-year horizon; and to compliance with environmental and occupational • annual asset management reviews. health and safety policies and legislation. Membership Sandra Moait (Convenor), Paul Forward and Jim Henness.

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Delta has a Corporate Governance and Legal Compliance Plan to ensure full executive compliance with obligations imposed on the organisation and its officers by all relevant legislation, including the following areas: management team • corporate governance; Jim Henness BSc, BE (Hons), MEngSc, MBA, FAICD • trade practices; Chief Executive • environmental law; Tim Baker BSc, BEng (Hons), MBA, GAICD • occupational health and safety; and General Manager/Marketing • equal employment opportunity. John Bund BEc (Hons) Delta’s corporate compliance management software supports the centralised General Manager/Human Resources oversight of the discharge of all legal, regulatory and compliance obligations. Greg Everett BComm, MBA, GAICD The system allows business units to register compliance obligations in a structured General Manager/Strategy format that includes escalation rules to ensure that non-compliances and overdue compliance tasks are elevated to Delta’s senior management. David Hogg BE, GAICD General Manager/Planning and Information Technology Internal procedures and controls over all commercial transactions are subject to regular review by internal and external auditing procedures. Both audit functions Chris Horner B Eng, provide Delta with a basis for assessing and updating controls that govern Marine Engineers Certificate, GAICD commercial risk exposures. General Manager/Delta Maintenance

As part of Delta’s annual insurance renewal program, reviews and valuations of Ray Madden BA (Hons), MBus, risk exposures are undertaken. Presentations are made to insurance providers Grad.Dip.AppCorpGov, GAICD, ACIS that assess risk exposures, risk management practices and Delta’s progress in Corporate Secretary implementing the recommendations of loss prevention surveys routinely conducted Stephen Saladine BE (Hons) at power station sites. Delta is cooperatively engaged with its insurance providers General Manager/Production to reduce risk exposures for key operating plant and equipment. Glenn Sharrock BSc, GCofM, GAICD Delta has developed a comprehensive suite of policies and procedures for the General Manager/Central Coast Operations management of risks associated with the National Electricity Spot Market and electricity contracting. Electricity Markets Risk Management (EMRM) Policies Richard Street BEc, CA, MBA, GAICD and Procedures are reviewed on a continuous basis to ensure that they effectively Chief Financial Officer manage Delta’s market related risks. Rodney Ward BEng (Hons), MBA, FAICD, ASA, CPA Business continuity risks have been identified and have action plans designed General Manager/Development to return the business to normal operations in an effective and efficient manner. Executive committees oversee the implementation of Board approved strategic and operational decisions and the day-to-day operation of the business. Table seven lists those committees and their membership.

TABLE seven: EXECUTIVE COMMITTEES Name and Title a b c d e f g H i J Henness Chief Executive X X X X X X X X X T Baker General Manager/Marketing X X X X X J Bund General Manager/Human Resources X X X X G Everett General Manager/Strategy X X X X X X X D Hogg General Manager/Planning and Information Technology X X X X C Horner General Manager/Delta Maintenance X X X X X R Madden Corporate Secretary X X X S Saladine General Manager/Production X X X X X X X X X G Sharrock General Manager/Central Coast Operations X X X X X X X X X R Street Chief Financial Officer X X X X X X X R Ward General Manager/Development X X X X J Della Bosca Occupational Health and Safety Manager X G Deans Manager/Environment X D Krallis Deloitte Touche Tohmatsu X (A) Executive Management Committee (D) Executive Occupational Health and Safety Committee (G) Market Strategy Steering Committee (B) Executive Environment Committee (E) Executive Information Technology Strategy Committee (H) Development Projects Steering Committee (C) Executive Audit Committee (F) Executive Human Resources Committee (I) Executive Project Evaluation Committee

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Performance and numbers of executive officers The performance payments listed in Table Eight were made soon after the end of the 2007/2008 financial year. They were accrued into that year’s accounts. The 2007/2008 performance payments were made up of the following components. A payment based on one or more of the following: • the outcome of performance against a Delta overall balanced scorecard; • the outcome of performance against business-unit-specific balanced scorecards; • an individual performance payment based on: – individual performance (see criteria in table), and – individual management and leadership performance.

TABLE eight: EXECUTIVE REMUNERATION Total Performance Name and Time in Position Held as Fixed Remuneration Related Payment Position at 30 June 2008 2007/2008 2007/2008 Individual Performance Criteria Jim Henness Chief Executive $459,000 $70,502 Assessment of performance by the Board All of year against corporate performance indicators, including Delta’s profit and plant performance and maintenance of effective external relationships. Tim Baker General Manager/ $277,9 0 0 $53,607 Implementation of strategic marketing All of year Marketing initiatives and assessment against other performance agreement targets. Stephen Saladine General Manager/ $274,700 $49,199 Business unit financial management and All of year Production plant performance and assessment against other performance agreement targets. Greg Everett General Manager/ $269,500 $54,412 Contracted coal purchases and assessment All of year Strategy against other performance agreement targets. Richard Street Chief Financial Officer $255,200 $49,458 Management of financial projects and of All of year the financial and management accounting function and assessment against other performance agreement targets. Rodney Ward General Manager/ $249,000 $45,567 Implementation and management of All of year Business Development development projects and assessment against other performance agreement targets.

TABLE nine: NUMBER OF EXECUTIVE OFFICERS Number of Executive Officers Total Women Number of executive officers with remuneration equal to or exceeding 33 0 equivalent of SES Level 1 as at 30 June 2007/2008 Number of executive officers with remuneration equal to or exceeding 33 0 equivalent of SES Level 1 as at 30 June 2006/2007

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annual reporting compliance Delta is required to report on a range of matters which are covered by various Acts, including the Annual Reports (Statutory Bodies) Act 1984, Regulations and Treasury and Premier’s memoranda. The following information is provided in accordance with these requirements.

Exemption from the Reporting Provisions Approval was given by the New South Wales Treasury under delegation from the then Treasurer, the Hon. Michael Egan, MLC to exempt Delta Electricity for the year ended 30 June 1997 and subsequent financial years from reporting on the following areas: • Budgets • Research and Development • Human Resources • Land Disposal • Payment of Accounts • Time for Payment of Accounts • Investment Management Performance • Liability Management Performance. Exemptions for the following annual reporting requirements were approved subject to the condition that comments and information relating to these items are disclosed in summarised form: • Summary Review of Operations • Management and Activities • Consumer Response • Report on Risk Management and Insurance Activities. Other exemptions were approved subject to specific conditions:

Consultants The total amount spent on consultants is required to be disclosed, along with a summary of the main purposes of engagements. In 2007/2008 expenditure on consultants totalled $1,213,430. The main purposes of these engagements were for environmental assessment services, engineering feasibility studies, finance, accounting and management services.

Human Resources Overseas visits with main purposes highlighted, are required to be disclosed. During the year the following officers went overseas.

OVERSEAS VISITS Name Date of Travel Purpose of Travel Tim Baker 24/10/2007 to 26/10/2007 Wellington – CIGRE C5 meeting Tim Baker 9/11/2007 to 19/11/2007 Rome – CIGRE C5 meeting Peter Tang 28/10/2007 to 7/11/2007 Tokyo – CIGRE C5 meeting Jim Henness 3/11/2007 to 9/11/2007 Paris – CIAB Congress Jim Henness 17/11/2007 to 22/11/2007 China – Government business delegation Jim Henness 19/5/2008 to 25/5/2008 Japan/China – Government carbon capture study tour Steve Saladine 22/2/2008 to 29/2/2008 Germany – Meeting with gas turbine manufacturer

Disclosure of Controlled Entities Names of the controlled entities are to be disclosed along with a summarised disclosure of the controlled entities’ objectives, operations and activities and measures of performance.

Financial Statements of Controlled Entities Exempt from preparing manufacturing and trading statements but required to prepare a summarised operating statement.

Cost of Annual Report The cost of producing this Annual Report was $44,890.00.

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Freedom of Information No direct applications for information were received under the terms of the Freedom of Information Act 1989 although two applications for information were made to Delta by third parties which had received a request for information. Delta Electricity’s compliance with the Freedom of Information Act did not raise any major issues during the reporting period, nor did the compliance with the Act have any prominent impact on Delta activities.

Heritage Assets Delta’s heritage portfolio is registered with the Heritage Office and consists of: • Barton Park Cemetery • Coxs River Convict Stockade • Hospital Farm barn • Hospital cottage • Mary Slaven’s grave • Thompsons Creek sites and graves • Wallerawang A and B Power Station chimney stack • Wallerawang schoolhouse. We are committed to complying with the State Owned Heritage Management Principles and Guidelines and the Heritage Act 1977 and continues to work with the Heritage Office as part of our annual asset management review process. The aim of this process is to ensure that our heritage portfolio is integrated into Delta’s business management system and that all sites are effectively managed into the future.

Promotion The following publications are available. Information for the public: 1996 Annual Report Central Coast Operations 1997 Annual Report Discovery of Electricity 1998 Annual Report Electricity Generation 1999 Annual Report Electricity in New South Wales 2000 Annual Report Energy Expo 2001 Annual Report Fact Sheet – Delta Electricity 2002 Annual Report Fact Sheet – Colongra Gas Turbines 2003 Annual Report Fact Sheet – Munmorah Carbon Capture Pilot Project 2004 Annual Report Power from Coal 2005 Annual Report Selenium Facts 2006 Annual Report The History of Delta Electricity 2007 Annual Report Western Operations 1996-1999 Environment Report Sunshine Electricity – Co-generation Project 2000 Environment Review 2001 Environment Report 2005 Sustainability Report 2006 Sustainability Report 2007 Sustainability Report Information for Delta Electricity staff: Fact Sheet – Apprenticeships and Trainees Fact Sheet – Summer Internships Booklet – New employee handbook Booklet – Code of Conduct, 2008 Staff newsletter Deltanet Staff intranet Deltaweb Family Care Link

20 Front Cover: Sugar cane growing The Hon. Eric Roozendaal, MLC in the sub-tropical north coast of Treasurer New South Wales. Sugar cane is Level 36 Governor Macquarie Tower considered to be carbon dioxide 1 Farrer Place Sydney NSW 2000 neutral, meaning CO emissions 2 The Hon. Joseph Tripodi, MP from the crop and those produced Minister for Finance, Minister for Infrastructure, during milling and energy generation Minister for Regulatory Reform, and Minister operations are balanced by CO 2 for Ports and Waterways accumulation by the crop. Level 31 Governor Macquarie Tower In a partnership between Delta 1 Farrer Place Sydney NSW 2000 ’08annual report Electricity and the NSW Sugar Delta Electricity Milling Co-Operative Limited cogeneration units which use green sugar cane waste (bagasse) as fuel have been built at Condong dear and Broadwater sugar mills. index Cogeneration is the combined shareholders, production of power and heat. It is with pleasure that the Board of Delta Electricity a The steam produced drives two submits its Annual Report for the period of Apprentices 12 processes – low pressure steam 1 July 2007 to 30 June 2008 as required under Auditor-General’s Opinion 55, 72 is used for heating in the sugar the Annual Reports (Statutory Bodies) Act 1984. mill while high pressure steam b drives the turbine generators to The Annual Report covers the activities of Delta Board Committees 16 produce electricity and to run the Electricity for the year and contains the Statement Board Meetings 16 mill engines. All output will be sold of Accounts for the period ended 30 June 2008. Board of Directors 15 as renewable energy under the The Annual Report includes a letter of submission Balance Sheets 22, 56 Australian Government’s mandatory to the Voting Shareholders and was prepared in renewable energy accreditation c accordance with section 24A of the State Owned Chairman’s Report 2 scheme. Corporations Act 1989 and the Annual Reports Chief Executive’s Report 4 Delta Electricity is proud to be (Statutory Bodies) Act 1984. It is being submitted Community engagement 11 managing the largest baseload for presentation to Parliament. Consultants 18 renewable energy project in Yours faithfully, Cost of Reporting 19 Australia. Cash Flow Statements 25, 60 d Diversity 12 e Environment 8 Equal Employment Opportunity 12 Peter Young Chairman Ethnic Affairs Statement 14 Executive Committees 16 Executive Management Team 17 contents tables Exemptions 19 Inside front cover 7 table one: Key Performance f Letter to Voting Shareholders Indicators – Statistical Summary Financial Statements 23-72 1 Highlights 9 table two: Freedom of Information 20 2 chairman’s Report Environmental incidents Jim Henness Chief Executive 4 chief Executive’s Report 11 table three: New developments g 6 Profile 14 table four: Trends in the Governance 15-20 8 review of Operations Representation of EEO Groups 12 People 14 table five: Trends in the l 15 Governance Distribution of EEO Groups Letter to Shareholders Inside front cover 21 Financial Statements 2008 16 table six: Directors’ Meetings Locations 7 Inside back cover Index 17 table seven: Back cover Contact Details Executive Committees m 18 table eight: Mission 6 Executive Remuneration o Overseas Visits 19 communication objectives p Performance Summary 7 This Annual Report is a financial and compliance report, prepared to meet Profile 6 the requirements prescribed by the Annual Reports (Statutory Bodies) Regulation 2005. It takes into account exemptions granted by the Treasurer r in July 1997. Reporting Objectives Inside front cover Risk Management 14 The 2008 Sustainability Report will be prepared this year against the National Generator Forum standards derived from the Global Reporting s Index. This will be completed by December 2008 and made available on Safety 12 our website www.de.com.au. Statement by Members of the Board 54, 71 v Values 6 Vision 6

Designed and produced by Ross Barr & Associates Pty Limited contact details Corporate office Level 12 Darling Park 201 Sussex Street Sydney NSW 2000 Telephone 02 9285 2700 Facsimile 02 9285 2777 Office Hours 8.30am – 5.00pm

Mt Piper power station 350 Boulder Road Portland NSW 2847 Telephone 02 6354 8111 Facsimile 02 6354 8112 Office Hours 7.45am – 4.00pm

Munmorah power station Scenic Drive Doyalson NSW 2262 Telephone 02 4390 1611 Facsimile 02 4390 1642 Office Hours 7.45am – 4.00pm

Vales Point power station Vales Road 08annual report Mannering Park NSW 2259 ’ Telephone 02 4352 6111 Facsimile 02 4352 6007 Office Hours 7.45am – 4.00pm Delta Electricity Wallerawang power station 1 Main Street Delta Wallerawang NSW 2845 Telephone 02 6352 8611 Facsimile 02 6352 8847 Re port a nn ua l E lectricity Office Hours 7.45am – 4.00pm

Delta Maintenance Munmorah Power Station Scenic Drive Doyalson NSW 2262 Telephone 02 4390 1606 Facsimile 02 4390 1642 Office Hours 7.45am – 4.00pm

Website

http://www.de.com.au 2008 Community information line 1800 115 277 ISSN 1327-6557 ’08financial report Delta Electricity 22 Balance Sheet 23 Income Statement 24 Statement of Changes in Equity 25 Cash Flow Statement 26 Notes to and forming part of the Financial Report 53 Statement by Members of the Board 54-55 Independent Auditor’s Report

Delta Electricity Australia Pty. Ltd 56 Balance Sheet 57 Income Statement 58 Statement of Changes in Equity 59 Cash Flow Statement 60 Notes to and forming part of the Financial Report 70 Statement by Members of the Board 71-72 Independent Auditor’s Report

21 BEGINNING of Audited Financial statements

Delta Electricity Balance Sheet As at 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Note $’000 $’000 $’000 $’000

Current Assets Cash and Cash Equivalents 7 1,239 1,311 737 1,298 Trade and Other Receivables 8(a) 92,813 484,913 134,782 502,048 Tax Assets – 1,035 – 1,035 Inventories 9 108,132 97,286 107,212 97,286 Other Financial Assets 10(a) 1,291 1,709 1,062 1,709 Other 11(a) 4,557 6,798 4,557 6,798 Total Current Assets 208,032 593,052 248,350 610,174

Non-current Assets Receivables 8(b) 2,492 1,137 1,398 1,128 Other Financial Assets 10(b) 5,318 5,582 333 2,243 Property, Plant and Equipment 12 2,451,990 2,219,740 2,346,578 2,134,428 Intangible Assets 13 4,440 7,534 4,440 7,534 Deferred Tax Assets 6(b) 63,533 345,970 62,870 345,227 Other 11(b) 3,061 29,434 3,061 29,434 Total Non-current Assets 2,530,834 2,609,397 2,418,680 2,519,994 Total Assets 2,738,866 3,202,449 2,667,030 3,130,168

Current Liabilities Trade and Other Payables 14 150,803 510,128 149,480 506,323 Borrowings 15(a) 105,188 20,460 102,872 20,460 Income Tax Payable 31,874 – 31,807 – Provisions 16(a) 167,776 158,672 167,776 158,672 Other Financial Liabilities 17(a) 109,579 751,818 109,579 751,818 Other 18 131 110 131 110 Total Current Liabilities 565,351 1,441,188 561,645 1,437,383

Non-current Liabilities Borrowings 15(b) 671,016 639,814 603,337 571,136 Deferred Tax Liabilities 6(b) 543,735 547,964 542,171 546,962 Provisions 16(b) 19,753 14,242 19,753 14,242 Other Financial Liabilities 17(b) 42,041 343,605 42,041 343,605 Total Non-current Liabilities 1,276,545 1,545,625 1,207,302 1,475,945 Total Liabilities 1,841,896 2,986,813 1,768,947 2,913,328 Net Assets 896,970 215,636 898,083 216,840

Equity Contributed Equity 19(a) 175,376 175,376 175,376 175,376 Reserves 19(b) 673,060 (44,958) 669,789 (46,917) Retained Profits 19(c) 48,534 85,218 52,918 88,381 Total Equity 896,970 215,636 898,083 216,840

The accompanying Notes form an integral part of these Financial Statements.

22 Delta Electricity Income Statement For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Note $’000 $’000 $’000 $’000

Revenue 3 1,016,923 881,992 1,016,896 881,971 Expenses, Excluding Finance Costs 4 (789,482) (675,963) (787,711) (675,670) Finance Costs 5 (42,861) (43,916) (42,861) (43,916)

Profit Before Income Tax Expense, Superannuation 184,580 162,113 186,324 162,385 Actuarial Gains/(Losses) and Financial Instrument Fair Value Movements Income Tax Expense on Profit Before Superannuation Actuarial Gains/(Losses) and Financial Instrument Fair 6 (60,158) (49,433) (60,681) (49,515) Value Movements

Profit Before Superannuation Actuarial Gains/ 124,422 112,680 125,643 112,870 (Losses) and Financial Instrument Fair Value Movements Superannuation Actuarial Gains/(Losses) 21(b) (37,179) 25,538 (37,179) 25,538 Financial Instrument Fair Value Movements (15,328) 13,337 (15,328) 13,103 Income Tax Expense on Superannuation Actuarial Gains/ 6 15,752 (11,662) 15,752 (11,592) (Losses) and Financial Instrument Fair Value Movements Profit for the Year 87,667 139,893 88,888 139,919

The accompanying Notes form an integral part of these Financial Statements.

23 Delta Electricity Statement of Changes in Equity For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 Note $’000 $’000 $’000 $’000

Total Equity at Beginning of Financial Year 215,636 729,964 216,840 732,673

Revaluation of Property, Plant and Equipment, Net of Tax 42,000 192,500 42,000 192,500 Changes in Fair Value of Cash Flow Hedges, Net of Tax 676,089 (733,102) 674,777 (734,633)

Net Income Recognised Directly in Equity 718,089 (540,602) 716,777 (542,133) Profit for Financial Year 87,667 139,893 88,888 139,919 Total Recognised Income and Expense for Financial Year 805,756 (400,709) 805,665 (402,214)

Transactions with Equity Holders in Their Capacity as Equity Holders Dividends Provided for or Paid (124,422) (113,619) (124,422) (113,619) Total Equity at End of Financial Year 19 896,970 215,636 898,083 216,840

The accompanying Notes form an integral part of these Financial Statements.

24 Delta Electricity Cash Flow Statement For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Inflows Inflows Inflows Inflows Note (Outflows) (Outflows) (Outflows) (Outflows)

Cash Flows from Operating Activities Cash Received from Customers 1,167,532 1,000,000 1,165,309 996,172 Interest Received 850 1,053 823 1,032 Cash Payments to Suppliers and Employees (843,672) (725,464) (838,415) (721,577) Interest and Other Finance Costs Paid (44,529) (47,209) (44,529) (47,209) Income Taxes Paid (41,041) (47,363) (41,041) (47,363) Net Cash Provided/(Used) by Operating Activities 26(f) 239,140 181,017 242,147 181,055

Cash Flows from Investing Activities Proceeds from Sale of Property, 1,249 1,172 1,249 1,172 Plant and Equipment Payments for Property, Plant and Equipment (241,811) (155,236) (218,784) (115,554) Payments for Intangibles (1,319) (2,864) (1,319) (2,864) Advances to Subsidiary – – (25,206) (10,436) Net Cash Provided/(Used) by Investing Activities (241,881) (156,928) (244,060) (127,682)

Cash Flows from Financing Activities Proceeds from Borrowings 1,282,124 660,716 1,280,807 631,757 Repayment of Borrowings (1,165,221) (582,078) (1,165,221) (582,078) Dividends Paid (113,619) (131,638) (113,619) (131,638) Net Cash Provided/(Used) by Financing Activities 3,284 (53,000) 1,967 (81,959)

Net Increase/(Decrease) in Cash and Cash 543 (28,911) 54 (28,586) Equivalents Cash and Cash Equivalents at Beginning 316 29,227 303 28,889 of Financial Year Cash and Cash Equivalents at End of the Year 26(b) 859 316 357 303

The accompanying Notes form an integral part of these Financial Statements.

25 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

1. Corporate Information • Defined Benefit Superannuation Schemes Delta Electricity is a statutory State owned Various actuarial assumptions are required when determining the value of corporation domiciled in New South Wales. defined benefit superannuation schemes. Refer to Note 11, Note 16 and The entity’s Australian Business Number is Note 21(b). 67 139 819 642. • Property, Plant and Equipment The financial report of Delta Electricity for the year Estimates and assumptions are required when determining asset life and ended 30 June 2008 was authorised for issue in calculating the recoverable amount for impairment testing. Calculation of accordance with a resolution of the Directors on recoverable amount requires estimation of future sales volume and price, 18 September 2008. estimation of cash flows associated with fuel supplies, power station operation and maintenance, and determination of an appropriate discount factor. 2. Summary of Significant The potential impact of a future emissions trading scheme has not been Accounting Policies incorporated in the calculation of recoverable amount for impairment testing. The financial report is a general purpose financial Refer to Note 2(k), Note 2(n) and Note 12. report prepared in accordance with Australian Accounting Standards including Australian • Provision for Employee Benefits Accounting Interpretations, the New South Wales Estimates and assumptions are required for projected remuneration rates, Public Finance and Audit Act and Regulation, and discount rates and timing of entitlement use when determining the provision requirements of the State Owned Corporations Act for employee benefits. Refer to Note 2(p) and Note 16. 1989 (as amended). • Provision for Insurance (a) Statement of Compliance Various actuarial assumptions are required when determining the entity’s The financial report of the consolidated entity and insurance provision. These assumptions are determined by specialist service Delta Electricity complies with Australian Accounting providers. Refer to Note 2(r) and Note 16. Standards, which include Australian Equivalents to (ii) New/Amended Accounting Standards Australian International Financial Reporting Standards (AIFRS). Accounting Standards that have recently been issued or amended but are not yet The financial report also complies with International effective have not been adopted for the reporting period ended 30 June 2008. Financial Reporting Standards (IFRS). A summary of relevant standards follows: (b) Basis of Accounting • AASB 101 Presentation of Financial Statements The financial report has been prepared in This standard applies to reporting periods beginning on or after 1 January 2009 accordance with the principles of accrual accounting and amends disclosure requirements related to financial statements. and the historical cost convention, and except where stated do not take into account current valuations. • AASB 123 Borrowing Costs Cost is based on the fair values of the consideration This standard applies to reporting periods beginning on or after given in exchange for assets. 1 January 2009 and is not expected to have a material impact as Delta Electricity capitalises borrowing costs under the existing standard. (i) Significant Accounting Judgements, Estimates and Assumptions in the application of Australian Other recently issued or amended standards are not expected to have a material Accounting Standards, management is required to impact on the entity. make judgements, estimates and assumptions that affect the carrying values of assets and liabilities that (c) Changes in Accounting Policies are not readily apparent from other sources. Unless otherwise stated, the accounting policies adopted are consistent with those of the comparative year. Significant Accounting Judgements The financial report has been prepared on a (d) Basis of Consolidation business as usual basis and does not take into The consolidated financial report incorporates the assets and liabilities of all entities account proposed reforms of the New South Wales controlled by Delta Electricity (parent entity) as at 30 June 2008 and the results of electricity industry involving the private sector (refer all controlled entities for the year then ended. Delta Electricity and its controlled to Note 28). The financial report does not include the entities together are referred to as the consolidated entity. The effect of transactions potential effect of a future emissions trading scheme between entities in the consolidated entity are eliminated in full. as there is significant uncertainty as to the impact of Delta Electricity has one controlled entity, Delta Electricity Australia Pty. Ltd, such a scheme on Delta Electricity at this stage. which is a wholly owned subsidiary. Significant Accounting Estimates (e) Investments in Subsidiary and Assumptions Investments in the subsidiary are carried at cost of acquisition in Delta Electricity’s The estimates and associated assumptions are financial report. based on historical experience and various other factors that are believed to be reasonable under the (f) Contributed Equity circumstances, the results of which form the basis Delta Electricity commenced operations on 1 March 1996. Under the terms of a of making the judgements. Actual results may differ Ministerial Order signed by the Honourable PC Scully Acting Minister for Energy and from these estimates. dated 1 March 1996, staff, assets, rights and liabilities were transferred from Pacific Power to Delta Electricity. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to The State Owned Corporations Act 1989 (as amended), requires Delta Electricity accounting estimates are recognised in the period to have two voting shareholders. Current shareholders are the New South Wales in which the estimate is revised if the revision affects Treasurer and the Minister for Finance who hold the shares on behalf of the NSW only that period, or in the period of the revision and Government. Each shareholder holds one $1 share. future periods if the revision affects both current (g) financial Assets and Financial Liabilities and future periods. Significant estimates and The classification of financial assets and financial liabilities depends on the nature assumptions apply to the following items: of the item and is determined at the time of initial recognition. Further disclosure on financial assets and financial liabilities is included in Note 25. 26 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

2. Summary of Significant (h) Borrowings Accounting Policies (continued) All loans and borrowings are initially recognised at fair value being the consideration received net of issue costs associated with the borrowing. Financial Assets Financial assets are categorised as follows: After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is Cash and Cash Equivalents calculated by taking into account any issue costs, and any discount or premium on Cash at bank and cash management funds are settlement. Gains and losses are recognised in the Income Statement through the classified as cash and cash equivalents. amortisation process and when the liabilities are derecognised. Loans and Receivables Fair value of interest bearing loans for disclosure purposes has been determined Trade debtors, advances and other receivables by Delta Electricity’s treasury service provider who uses a discounted cash that have fixed or determinable payments that are flow methodology to market value the financial instruments. The discount rate not quoted in an active market are classified as used is based on the zero coupon curve derived from market rates prevailing at loans and receivables. Loans and receivables are reporting date. measured at amortised cost. (i) Borrowing Costs At Fair Value Through Profit and Loss – Borrowing costs include interest, amortisation of discounts or premiums relating to Held for Trading borrowings, amortisation of ancillary costs incurred in connection with arrangement This category includes derivative financial of borrowings, and gains and losses incurred in the use of derivative instruments instruments not designated or effective as a hedging for the management of interest rate exposure related to borrowed funds. instrument. These assets are recorded at fair value with any resultant gain or loss recognised in profit Costs associated with borrowings specifically financing qualifying assets are and loss. capitalised up to the date of completion of each qualifying asset to the extent those costs are recoverable. Refer to Note 5. Derivative Financial Instruments – Effective Hedges (j) Cash and Cash Equivalents This category includes derivative financial Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand instruments used as cash flow hedges of highly along with short-term deposits and investments. probable forecast transactions or firm commitments. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of These assets are recorded at fair value. Changes in cash and cash equivalents as defined above, net of outstanding bank overdrafts and fair value of effective hedges are deferred in equity. borrowings which are used in the cash management function on a day to day basis. The timing of the recognition in profit and loss depends on the nature of the hedging relationship. (k) property, Plant and Equipment Ineffective hedges are classified as held for trading Property, plant and equipment is recognised at fair value less accumulated and included in the At Fair Value Through Profit and depreciation and impairment in accordance with AASB 116 Property Plant and Loss category. Equipment, AASB 136 Impairment of Assets and the New South Wales Treasury Accounting Policy for the Valuation of Physical Non-current Assets at Fair Value. Financial Liabilities Fair value of power station property, plant and equipment is determined by Financial liabilities are categorised as follows: the depreciated replacement cost approach due to the absence of observable At Fair Value Through Profit and Loss – market prices. Held for Trading Revaluations are made with sufficient regularity to ensure the carrying amount This category includes derivative financial of property, plant and equipment does not differ materially from its fair value at instruments not designated or effective as a hedging reporting date. instrument. These liabilities are recorded at fair value with any resultant gain or loss recognised in profit Revaluation increments are generally credited directly to the asset revaluation and loss. reserve. A revaluation increment is only recognised immediately as revenue when the increment reverses a revaluation decrement, in respect of an individual asset, Derivative Financial Instruments – previously recognised as an expense in the Income Statement. Effective Hedges This category includes derivative financial Revaluation decrements are generally recognised immediately as expenses in the instruments used as cash flow hedges of highly Income Statement. A revaluation decrement is only recognised as a debit to the probable forecast transactions or firm commitments. asset revaluation reserve when a credit balance for the same asset exists in the These liabilities are recorded at fair value. Changes asset revaluation reserve. in fair value of effective hedges are deferred in equity. The timing of the recognition in profit and loss Revaluation increments and decrements are offset against one another but depends on the nature of the hedging relationship. only against the individual asset. The definition of an asset for the purposes of Ineffective hedges are classified as held for trading offsetting revaluation increments and decrements in the asset revaluation reserve and included in the at Fair Value Through Profit and has been determined to be at the power station level. The rationale for this is that Loss category. all components of the complex infrastructure asset must function and combine together to produce electricity. Other Financial Liabilities Other financial liabilities include payables and An item of property, plant and equipment is derecognised on disposal or when borrowings. These liabilities are initially recorded no further economic benefits are expected from its use or disposal.U pon disposal, at fair value and subsequently measured at any revaluation reserve related to the particular asset is transferred to retained profits. amortised cost. Any gain or loss on derecognition is included in profit or loss in the year the asset is derecognised. The accounting policy for impairment of assets is included under Note 2(n).

27 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

2. Summary of Significant time value of money and the risks specific to the assets for which the estimates of Accounting Policies (continued) future cash flows have not been adjusted. (k) property, Plant and Equipment (continued) If the recoverable amount of the cash generating unit is estimated to be less than its Depreciation is calculated on a straight-line basis to carrying amount, the carrying amount of the cash generating unit is reduced to its write off the net cost or revalued amount of each item recoverable amount. An impairment loss is recognised in profit or loss immediately, of property, plant and equipment (excluding land) unless the relevant asset is carried at fair value, in which case the impairment loss is over its expected useful life. Estimates of remaining treated as a revaluation decrease (refer Note 2(k)). useful lives are made on a regular basis for all assets, Where an impairment loss subsequently reverses, the carrying amount of the cash with annual reassessments for major items. generating unit is increased to the revised estimate of its recoverable amount, but The expected useful lives of property, plant and only to the extent that the increased carrying amount does not exceed the carrying equipment is 50 years for operating power stations amount that would have been determined had no impairment loss been recognised (2007: 50 years) and ranges from 5 to 30 years for for the cash generating unit in prior years. A reversal of an impairment loss is other property, plant and equipment (2007: 5 to recognised in profit or loss immediately, unless the relevant asset is carried at fair 30 years). value, in which case the reversal of the impairment loss is treated as a revaluation increase (refer Note 2(k)). Major spares purchased specifically for particular plant are capitalised and depreciated on the same (o) Joint Ventures basis as the plant to which they relate. Interests in jointly controlled assets and operations of unincorporated joint ventures are reported in the financial report by including the entity’s share of assets employed Where material items of plant and equipment have in the joint venture, the share of liabilities incurred in relation to the joint venture, separately identifiable components which are the share of any expenses incurred in relation to the joint venture in their respective subject to regular replacement, those components classification categories, and the share of income earned from the joint venture. are assigned useful lives distinct from the item of plant and equipment to which they relate. (p) employee Benefits The liability for wages and salaries at reporting date is recognised in current trade (l) Intangible Assets and payables. The liability includes unpaid wages and salaries at reporting date Intangible assets comprise eligible computer and performance/business success payments related to the 2007/2008 financial software. Computer software is stated at cost less year. The liability is measured at the amounts expected to be paid when the liability accumulated amortisation and impairment and is is settled. The liability for wages and salaries is normally settled within seven days amortised on a straight-line basis over 2.5 years of reporting date, while the liability for performance/business success payments is (2007: 2.5 years). settled within two months of reporting date. Amortisation is included in the Income Statement Delta Electricity makes provision through its Income Statement for its liability in under the “Expenses, excluding Finance Costs” respect of employee benefits for annual leave and long service leave. A calculation line item. of the liability at reporting date is made each year for annual leave and long service (m) Green Certificates leave employee benefits. Green certificates include renewable energy The basis of the liabilities and contributions are: certificates and New South Wales greenhouse abatement certificates. The certificates are classified (i) For annual leave, the liability represents the amount which Delta Electricity has a as other assets and recorded at fair value on present obligation to pay resulting from employees’ services provided up to reporting the Balance Sheet with any gains or losses from date. The provision has been calculated at amounts based on expected future salary changes in fair value taken to profit and loss. Fair rates and includes related oncosts. Liabilities in excess of 12 months are discounted. value is calculated on the basis of observable market (ii) For long service leave, the liability represents the present value of expected future data where available. payments for long service leave, including projected remuneration rates. Associated (n) Impairment oncosts are also included. At each reporting date, the entity reviews the Superannuation entitlement details are provided in Note 21(b). carrying amounts of its tangible and intangible assets to determine whether there is any indication (q) Cash Management Funds that those assets have suffered an impairment loss. Cash management funds are stated at market values calculated by Delta If any such indication exists, the recoverable amount Electricity’s funds manager by referencing specific market quoted prices/yields of the asset is estimated in order to determine prevailing at reporting date. Refer to Note 7. the extent of the impairment loss (if any). Where the asset does not generate cash flows that are Income earned from cash management funds is included as revenue in the Income independent from other assets, the entity estimates Statement. the recoverable amount of the cash generating unit (r) provisions to which the asset belongs. Provisions are recognised when there is a present obligation (legal or constructive) Intangible assets with indefinite useful lives and as a result of a past event, it is probable that an outflow of resources embodying intangible assets not yet available for use are tested economic benefits will be required to settle the obligation and a reliable estimate can for impairment annually and whenever there is an be made of the amount of the obligation. indication that the asset may be impaired. Where it is expected that some or all of a provision is to be reimbursed, for Recoverable amount is based on value in use and example, under an insurance contract, the reimbursement is recognised as is determined at the cash generating unit level a separate asset but only when the reimbursement is virtually certain. The being the Delta Electricity entity. In assessing expense relating to any provision is presented in the Income Statement net of any value in use, the estimated future cash flows are reimbursement. discounted to their present value using a discount If the effect of the time value of money is material, provisions are determined by rate that reflects current market assessments of the discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks 28 specific to the liability. Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

2. Summary of Significant Members of the group have entered into a tax sharing arrangement in order to limit Accounting Policies (continued) the joint and several liability of each member of the tax consolidated group to their share of the head entity’s tax liability should the head entity default on its tax payment (r) provisions (continued) obligations. At the reporting date, the possibility of default of taxes is remote. Where discounting is used, material increases in the provision due to the passage of time are recognised In addition, there is a tax indemnity deed between the members of the group as a finance cost. whereby the head entity agrees to indemnify and hold the subsidiary entity harmless against all and any obligations related to income taxes. There is some degree of uncertainty about the timing of the future payments and/or the amounts (v) foreign Currency Translation to be paid. Transactions denominated in a foreign currency are converted at the exchange rate at the date of the transaction. Foreign currency receivables and payables at (s) dividends reporting date are translated at exchange rates current at reporting date. Exchange Provision is made for the amount of any dividend gains and losses are brought to account in determining the profit or loss for the year. declared, determined or publicly recommended. Delta Electricity determines the level of dividend for (w) Segment Reporting the current financial year prior to reporting date as Delta Electricity is an electricity generation corporation that operates in a single part of the Statement of Corporate Intent process. business and geographical segment. All production facilities are located in The Statement of Corporate Intent is a performance New South Wales. agreement between the Delta Electricity Board (x) revenue and the shareholders. The dividend provision is Revenue from the sale of electricity is recognised as it accrues. Other revenue based on Profit Before Superannuation Actuarial includes rent and interest income on funds which are recognised as they accrue, Gains/(Losses) and Financial Instrument Fair Value and other miscellaneous income and proceeds from other operations which are Movements. recognised on performance of the service or delivery of the goods. Revenue is (t) Inventory Valuation reported in Note 3. Inventories are carried at the lower of cost and net (y) goods and Services Tax realisable value. Cost is allocated on an average Revenues, expenses and assets are recognised net of the amount of goods and basis for stores and materials and on a weighted services tax (GST) except: average cost per tonne/litre basis for coal and other fuel stocks. • when the GST incurred on a purchase of goods and services is not recoverable from the Australian Taxation Office (ATO), in which case the GST is (u) taxation recognised as part of the cost of acquisition of the asset or as part of the item Income tax on profit or loss for the year comprises of expense as applicable; and current and deferred tax. Income tax is recognised in the Income Statement except to the extent that • receivables and payables, which are stated with the amount of GST included. it relates to items recognised directly in equity, in which case it is recognised in equity. The net amount of GST recoverable from, or payable to the ATO is included as a current asset or liability in the Balance Sheet. Cash flows are included in the Cash Current tax is the expected tax payable on the Flow Statement on a gross basis. taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, (z) generating Costs and any adjustment to tax payable in respect of Generating costs represent all costs (raw materials, labour and overheads) previous years. associated with the production of electricity for sale in the National Electricity Market. Specific items requiring separate disclosure have been reported individually Deferred tax is provided using the balance sheet in Note 4. liability method, providing for temporary differences between the carrying amounts of assets and (aa) Comparative Figures liabilities for financial reporting purposes and the Where necessary, comparative information has been reclassified to enhance amounts used for taxation purposes. The amount comparability in respect of changes in presentation adopted in the current year. of deferred tax provided is based on the expected Delta Electricity elected to disclose gross replacement cost for property, plant manner of realisation or settlement of the carrying and equipment for the year ended June 2008. The comparative figures for the amount of assets and liabilities, using tax rates year ended June 2007 have not been restated as the relevant information is not enacted or substantively enacted at the reporting readily available. date. The financial report incorporates disclosure requirements outlined in AASB 7 A deferred tax asset is recognised only to the extent Financial Instruments: Disclosures. The additional disclosure and comparative that it is probable that future taxable profits will be figures are provided in Notes 8, 10, 17, 19 and 25. available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it (ab) Presentation Currency and Rounding is no longer probable that the related tax benefit will Amounts shown in the financial report are in Australian dollars, rounded to the be realised. nearest thousand dollars, except where the disclosure of whole dollar amounts is appropriate. Income tax payments are made to the New South Wales Office of State Revenue under the National Tax Equivalent Regime (NTER). Delta Electricity and its wholly resident subsidiary, Delta Electricity Australia Pty. Ltd, formed a tax consolidated group on 1 July 2003 and are taxed as a single entity for the purposes of income tax.

29 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

3. revenue Sale of Electricity 1,008,438 874,060 1,008,438 874,060 Other Revenue Interest 748 1,073 721 1,052 Litigation Settlements 103 475 103 475 Proceeds from Other Operations 3,052 3,112 3,052 3,112 Royalties 855 1,005 855 1,005 Grants 720 – 720 – Defined Benefit Superannuation Schemes 1,788 – 1,788 – Miscellaneous 1,219 2,267 1,219 2,267 Revenue 1,016,923 881,992 1,016,896 881,971

4. expenses (excluding Finance Costs) Generating Costs 673,072 575,575 673,294 575,575 Depreciation – Buildings 1 1 1 1 – Plant and Equipment 97,074 79,481 97,074 79,481 – Motor Vehicles 756 736 756 736 Amortisation of Intangible Assets – Computer Software 4,311 3,188 4,311 3,188 Loss on Sale of Assets 524 129 524 129 Superannuation Expenses – Defined Contribution Schemes 1,106 846 1,106 846 – Defined Benefit Schemes 1,240 1,341 1,240 1,341 Provision for Employee Benefits 5,829 7,670 5,829 7,670 Write-down in Value of Inventories 359 394 359 394 Operating Lease Rental Expense 732 833 732 833 Auditors’ Remuneration 212 185 201 174 Directors’ Remuneration 450 402 450 402 Consultants’ Fees 1,213 4,089 1,213 4,089 Other Expenses 2,603 1,093 621 811 Expenses (excluding Finance Costs) 789,482 675,963 787,711 675,670

Auditors’ Remuneration paid or payable in respect to the audit of the 2007/2008 financial report is $207,000 (2007: $186,000). Directors’ Remuneration increased during 2008 following an appointment to fill a vacancy on the Board.

5. fInance Costs Interest on Bank Overdrafts and Borrowings 56,156 48,016 50,126 43,621 Unwinding of Discounts on Provisions 739 724 739 724 Other Finance Costs (1,885) 94 (1,185) 92 Total Finance Costs 55,010 48,834 49,680 44,437 Less: Amounts included in the Cost of Qualifying Assets (12,149) (4,918) (6,819) (521) Finance Costs 42,861 43,916 42,861 43,916

30 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 6. Income Tax The major components of Income Tax for the year ended 30 June 2008 are as follows: (a) Income Tax Expense The major components of income tax expense are: Income Statement Current Income Tax Current income tax expense 65,025 28,324 65,628 28,537 Adjustments in respect of current income tax of previous years 8,924 822 8,924 822 Deferred Income Tax Origination and reversal of temporary differences (Note 6(b)) (29,543) 31,949 (29,623) 31,748 Income tax expense reported in Income Statement 44,406 61,095 44,929 61,107

Statement of Changes in Equity Deferred income tax related to items charged or credited directly to equity: Unrealised gain/(loss) on cash flow hedges (Note 19(b)) 289,753 (314,186) 289,190 (314,842) Net gain on revaluation of property, plant and equipment (Note 19(b)) 18,000 82,500 18,000 82,500 Derecognition of revalued property, plant and equipment (30) (88) (30) (88) Income tax expense reported in equity 307,723 (231,774) 307,160 (232,430)

Reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the organisation’s effective income tax rate for the year ended 30 June 2008: Accounting profit before tax 132,073 200,988 133,817 201,026 Income tax at statutory rate of 30% (2007: 30%) 39,622 60,296 40,145 60,308 Non-deductible expense – entertainment 7 8 7 8 Research and development (95) (31) (95) (31) Adjustments in respect of current income tax of previous years 4,872 822 4,872 822 Income tax expense reported in Income Statement 44,406 61,095 44,929 61,107

(b) deferred Income Tax Deferred income tax as at 30 June 2008 relates to the following: Deferred Income Tax Liabilities Balance Sheet Accelerated depreciation for tax purposes 231,155 239,417 231,155 239,417 Revaluations of property, plant and equipment 287,969 281,748 287,969 281,748 Inventory 21,355 18,889 21,355 18,889 Intangible assets (8) (58) (8) (58) Derivative instruments 3,255 7,896 1,691 6,894 Other items 9 72 9 72 Gross deferred income tax liabilities 543,735 547,964 542,171 546,962

Income Statement Accelerated depreciation for tax purposes (19,991) 11,637 (19,991) 11,637 Inventory 2,466 5,877 2,466 5,877 Derivative instruments – fair value movement (5,235) 5,987 (5,235) 5,918 Other items (30) – (30) – Deferred income tax expense (22,790) 23,501 (22,790) 23,432

31 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 6. Income Tax (continued) (b) deferred Income Tax (continued) Deferred Income Tax Assets Balance Sheet Employee benefits 987 868 987 868 Provisions (excluding employee benefits) 16,347 7,752 16,347 7,752 Derivative instruments 45,536 336,607 45,536 336,607 Other items 663 743 – – Gross deferred income tax assets 63,533 345,970 62,870 345,227

Income Statement Employee benefits (118) (8) (118) (8) Provisions (excluding employee benefits) (8,595) 9,916 (8,595) 9,916 Derivative instruments – fair value movement 1,876 (1,948) 1,876 (1,948) Other items 84 488 4 356 Deferred income tax expense (6,753) 8,448 (6,833) 8,316

7. Cash and Cash Equivalents Bank 1,142 1,025 639 1,012 Cash Management Funds 97 286 98 286 1,239 1,311 737 1,298

8. trade and Other Receivables (a) Current Trade Debtors 89,646 482,707 89,646 482,707 Advance to Wholly Owned Subsidiary – – 42,143 17,592 Other Debtors 2,472 836 2,298 379 Prepayments 695 1,370 695 1,370 92,813 484,913 134,782 502,048

(b) non-current Other Debtors 2,492 1,137 1,398 1,128 2,492 1,137 1,398 1,128

Trade and other debtors are carried at nominal amounts due less an allowance for any uncollectible amounts. Collectibility of trade and other debtors is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that Delta Electricity will not be able to collect the debt. There were no doubtful debts at reporting date (2007: $Nil). Trade debtors incorporate electricity sales activities with participants in the National Electricity Market. Funds from trade debtors are receivable by no later than 21 working days after completion of the billing period. Board policies are in place for determining eligible counterparties and limits applying to those parties. Advance to wholly owned subsidiary represents the advance of funds to Delta Electricity Australia Pty. Ltd in accordance with the terms of a joint venture arrangement to develop renewable energy plant. The advance is presently interest free and is repayable on demand. Current other debtors incorporate miscellaneous non-core activities undertaken by Delta Electricity. Amounts are due 30 days after invoicing. Non-current other debtors represent debtors with terms greater than one year from reporting date.

32 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

8. trade and Other Receivables (Continued) (b) non-current (continued) Trade debtors and other receivables past due but not impaired are as follows: Less than three months overdue 50 90 50 90 Three to six months overdue 25 – 25 – Later than six months overdue – 2 – 2 75 92 75 92

Delta Electricity still considers that these amounts will be recoverable.

9. Inventories Stores and Materials 36,028 34,322 36,028 34,322 Coal Stocks 69,838 61,536 69,838 61,536 Other Fuel Stocks 2,266 1,428 1,346 1,428 108,132 97,286 107,212 97,286

10. Other Financial Assets (a) Current Electricity Contracts – cash flow hedges 92 100 92 100 Electricity Contracts – held for trading 938 1,609 938 1,609 Interest Rate Swaps – cash flow hedges 229 – – – Other Derivatives – held for trading 32 – 32 – 1,291 1,709 1,062 1,709

(b) non-current Electricity Contracts – cash flow hedges 328 400 328 400 Electricity Contracts – held for trading – 1,843 – 1,843 Interest Rate Swaps – cash flow hedges 4,985 3,339 – – Other Derivatives – held for trading 5 – 5 – 5,318 5,582 333 2,243

Refer to Note 25 for further information on Other Financial Assets.

11. other Assets (a) Current Refundable Security Deposit – 5,385 – 5,385 Green Certificates 3,611 – 3,611 – Miscellaneous 946 1,413 946 1,413 4,557 6,798 4,557 6,798

(b) non-current Superannuation – Defined Benefit Schemes 3,061 29,434 3,061 29,434 3,061 29,434 3,061 29,434

Further details on superannuation are contained in Note 21(b).

33 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Non-power Power Stations Other Station – Plant and – Plant and Parent Entity Land – Buildings Equipment Equipment Total Year ended 30 June 2008 $’000 $’000 $’000 $’000 $’000

12. Property, Plant and Equipment (a) reconciliation by Asset Classes Carrying amount at 1 July 2007 26,326 38 2,099,055 9,009 2,134,428 Additions 4,818 – 242,725 4,372 251,915 Revaluation 18,352 – 273,992 – 292,344 Impairment – – (232,344) – (232,344) Disposals/Write-offs (280) – (188) (1,466) (1,934) Depreciation Expense – (1) (95,796) (2,034) (97,831) Carrying amount at 30 June 2008 49,216 37 2,287,444 9,881 2,346,578

At 1 July 2007 Fair value 26,326 60 2,458,439 26,052 2,510,877 Accumulated depreciation and impairment – (22) (359,384) (17,043) (376,449) Net carrying amount 26,326 38 2,099,055 9,009 2,134,428

At 30 June 2008 Gross replacement cost 49,216 60 9,769,959 27,256 9,846,491 Accumulated depreciation – (23) (7,250,171) (17,375) (7,267,569) Fair value 49,216 37 2,519,788 9,881 2,578,922 Accumulated impairment – – (232,344) – (232,344) Net carrying amount 49,216 37 2,287,444 9,881 2,346,578 The above table includes work in progress for plant and equipment of $232.4 million (2007: $56.3 million). Revaluation of Land and Power Stations Plant and Equipment On 30 June 2008, the fair value of land and power stations plant and equipment was calculated by Rushton Valuers. Following determination of recoverable amount in accordance with the methodology and principles set out in Note 2(n), the revaluation increment to fair value was adjusted downwards to ensure carrying value would not exceed recoverable amount. As a result, a valuation uplift of $60 million was approved by the Board of Delta Electricity. Non-power Power Stations Other Station – Plant and – Plant and Consolidated Entity Land – Buildings Equipment Equipment Total Year ended 30 June 2008 $’000 $’000 $’000 $’000 $’000

Carrying amount at 1 July 2007 26,326 38 2,184,367 9,009 2,219,740 Additions 4,818 – 262,825 4,372 272,015 Revaluation 18,352 – 273,992 – 292,344 Impairment – – (232,344) – (232,344) Disposals/Write-offs (280) – (188) (1,466) (1,934) Depreciation Expense – (1) (95,796) (2,034) (97,831) Carrying amount at 30 June 2008 49,216 37 2,392,856 9,881 2,451,990

At 1 July 2007 Fair value 26,326 60 2,543,751 26,052 2,596,189 Accumulated depreciation and impairment – (22) (359,384) (17,043) (376,449) Net carrying amount 26,326 38 2,184,367 9,009 2,219,740

At 30 June 2008 Gross replacement cost 49,216 60 9,875,371 27,256 9,951,903 Accumulated depreciation – (23) (7,250,171) (17,375) (7,267,569) Fair value 49,216 37 2,625,200 9,881 2,684,334 Accumulated impairment – – (232,344) – (232,344) Net carrying amount 49,216 37 2,392,856 9,881 2,451,990

The above table includes work in progress for plant and equipment of $337.8 million (2007: $141.6 million).

34 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Non-power Power Stations Other Station – Plant and – Plant and Parent Entity Land – Buildings Equipment Equipment Total Year ended 30 June 2007 $’000 $’000 $’000 $’000 $’000

12. Property, Plant and Equipment (continued) (a) reconciliation by Asset Classes (continued) Carrying amount at 1 July 2006 26,282 39 1,796,944 11,148 1,834,413 Additions 50 – 107,313 1,146 108,509 Revaluation – – 634,382 – 634,382 Impairment – – (359,382) – (359,382) Disposals/Write-offs (6) – (1,867) (1,403) (3,276) Depreciation Expense – (1) (78,335) (1,882) (80,218) Carrying amount at 30 June 2007 26,326 38 2,099,055 9,009 2,134,428

At 1 July 2006 Fair value 26,282 60 2,237,200 27,793 2,291,335 Accumulated depreciation and impairment – (21) (440,256) (16,645) (456,922) Net carrying amount 26,282 39 1,796,944 11,148 1,834,413

At 30 June 2007 Fair value 26,326 60 2,458,439 26,052 2,510,877 Accumulated depreciation and impairment – (22) (359,384) (17,043) (376,449) Net carrying amount 26,326 38 2,099,055 9,009 2,134,428

Carrying amount at 1 July 2006 26,282 39 1,842,776 11,148 1,880,245 Additions 50 – 146,793 1,146 147,989 Revaluation – – 634,382 – 634,382 Impairment – – (359,382) – (359,382) Disposals/Write-offs (6) – (1,867) (1,403) (3,276) Depreciation Expense – (1) (78,335) (1,882) (80,218) Carrying amount at 30 June 2007 26,326 38 2,184,367 9,009 2,219,740

At 1 July 2006 Fair value 26,282 60 2,283,032 27,793 2,337,167 Accumulated depreciation and impairment – (21) (440,256) (16,645) (456,922) Net carrying amount 26,282 39 1,842,776 11,148 1,880,245

At 30 June 2007 Fair value 26,326 60 2,543,751 26,052 2,596,189 Accumulated depreciation and impairment – (22) (359,384) (17,043) (376,449) Net carrying amount 26,326 38 2,184,367 9,009 2,219,740

35 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

12. Property, Plant and Equipment (continued) (a) reconciliation by Asset Classes If property, plant and equipment were measured using the cost model, the carrying amounts would be as follows: Land At cost 13,463 8,677 13,463 8,677 Total Land 13,463 8,677 13,463 8,677

Non-power Station – Buildings At cost 60 60 60 60 Less: accumulated depreciation (23) (22) (23) (22) Total buildings 37 38 37 38

Plant and Equipment

Power Stations At cost 1,925,737 1,664,836 1,820,325 1,579,524 Less: accumulated depreciation (458,273) (401,741) (458,273) (401,741) Total power stations 1,467,464 1,263,095 1,362,052 1,177,783

Other Plant and Equipment At cost 27,256 26,052 27,256 26,052 Less: accumulated depreciation (17,375) (17,043) (17,375) (17,043) Total other plant and equipment 9,881 9,009 9,881 9,009

Total Plant and Equipment 1,477,345 1,272,104 1,371,933 1,186,792

Total Written Down Value of Property, Plant and Equipment 1,490,845 1,280,819 1,385,433 1,195,507

Consolidated Parent Entity Software Total Total $’000 $’000 $’000

13. Intangible Assets Year ended 30 June 2008

Carrying amount at 1 July 2007, net of accumulated amortisation 7,534 7,534 7,534 Additions – from internal development 387 387 387 – acquired externally 830 830 830 Amortisation (4,311) (4,311) (4,311) Carrying amount at 30 June 2008 4,440 4,440 4,440

At 1 July 2007 Cost (gross carrying amount) 23,856 23,856 23,856 Accumulated amortisation (16,322) (16,322) (16,322) Net carrying amount 7,534 7,534 7,534

At 30 June 2008 Cost (gross carrying amount) 25,073 25,073 25,073 Accumulated amortisation (20,633) (20,633) (20,633) Net carrying amount 4,440 4,440 4,440

36 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity Software Total Total $’000 $’000 $’000

13. Intangible Assets (continued) Year ended 30 June 2007 Carrying amount at 1 July 2006, net of accumulated amortisation 7,700 7,700 7,700 Additions – from internal development 749 749 749 – acquired externally 2,273 2,273 2,273 Amortisation (3,188) (3,188) (3,188) Carrying amount at 30 June 2007 7,534 7,534 7,534

At 1 July 2006 Cost (gross carrying amount) 20,834 20,834 20,834 Accumulated amortisation (13,134) (13,134) (13,134) Net carrying amount 7,700 7,700 7,700

At 30 June 2007 Cost (gross carrying amount) 23,856 23,856 23,856 Accumulated amortisation (16,322) (16,322) (16,322) Net carrying amount 7,534 7,534 7,534

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

14. Trade and Other Payables Current Accounts Payable 142,073 500,925 140,750 497,120 Other Creditors 8,730 9,203 8,730 9,203 150,803 510,128 149,480 506,323

Accounts payable represents amounts to be paid in the future for goods received and services provided at reporting date. These liabilities are usually settled within 42 days. Current other creditors represents interest due on borrowings which are payable within six months.

15. Borrowings (a) Current NSW Treasury Corporation Short-Term Loans 102,872 20,460 102,872 20,460 Bank Loans – secured 2,316 – – – 105,188 20,460 102,872 20,460

(b) non-current NSW Treasury Corporation Loans 603,337 571,136 603,337 571,136 Bank Loans – secured 67,679 68,678 – – 671,016 639,814 603,337 571,136

At reporting date, Delta Electricity had Executive Council approval to borrow up to $1,580 million (2007: $1,580 million). Maturing loans may be refinanced if the borrowing limit is not exceeded. As such, borrowings initially deemed as non-current, which now have less than one year to maturity have been classified as non-current. At reporting date, there were no borrowings due to mature within one year requiring classification as non-current (2007: $117,544,000). Bank Loans relate to the participation of Delta Electricity Australia Pty. Ltd (wholly owned subsidiary) in a joint venture arrangement to develop renewable electricity generation plant. The Bank Loans are secured over the property of the borrower.

37 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

16. Provisions (a) Current Dividend 124,422 113,619 124,422 113,619 Employee Benefits 39,786 43,650 39,786 43,650 Insurance 3,568 1,403 3,568 1,403 167,776 158,672 167,776 158,672

(b) non-current Employee Benefits 5,173 2,518 5,173 2,518 Superannuation – Defined Benefit Schemes 1,984 – 1,984 – Insurance 12,596 11,724 12,596 11,724 167,776 158,672 167,776 158,672

Delta Electricity’s insurance provision covers assessed employee and contractor related accident and injury liabilities at reporting date. In accordance with conditions associated with Delta Electricity’s Self Insurer’s licence for Workers’ Compensation, a current provision of $1,002,000 (2007: $760,000) and a non-current provision of $4,555,000 (2007: $3,262,000) for workers’ compensation has been included in the insurance provision. An actuarial review of employee benefits was carried out by David A Zaman Pty Ltd as at 30 June 2008. The provision for employee benefits for 2008 reflects the outcome of that actuarial review whereas in prior years the employee benefits provision was based on internal Delta Electricity modelling. Further details on employee benefits and superannuation are contained in Note 21. (c) movements in Provisions Movements in each class of provision during the financial year, other than employee benefits, are set out below: 2008 $’000

Current Dividend Insurance Total Carrying amount at start of year 113,619 1,403 115,022 Additional provision 124,422 3,567 127,989 Payments (113,619) (1,402) (115,021) Carrying amount at end of year 124,422 3,568 127,990

Non-current Insurance Total Carrying amount at start of year 11,724 11,724 Discount adjustment 739 739 Adjustment to assessed liability 133 133 Carrying amount at end of year 12,596 12,596

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 17. other Financial Liabilities (a) Current Electricity Contracts – cash flow hedges 97,619 741,142 97,619 741,142 Electricity Contracts – held for trading 543 6,006 543 6,006 Forward Foreign Exchange Contracts – cash flow hedges 10,617 3,810 10,617 3,810 Forward Foreign Exchange Contracts – held for trading 782 837 782 837 Other Derivatives – held for trading 18 23 18 23 109,579 751,818 109,579 751,818 (b) non-current Electricity Contracts – cash flow hedges 41,314 327,770 41,314 327,770 Electricity Contracts – held for trading – 1,195 – 1,195 Forward Foreign Exchange Contracts – cash flow hedges 724 14,640 724 14,640 Forward Foreign Exchange Contracts – held for trading 3 – 3 – 42,041 343,605 42,041 343,605

Refer to Note 25 for further information on Other Financial Liabilities. 38 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 18. Other Liabilities Current Miscellaneous 131 110 131 110 131 110 131 110

19. Equity (a) Contributed Equity Balance at beginning of year 175,376 175,376 175,376 175,376 Return of Contributed Equity to Shareholders – – – – Contributed Equity at end of year 175,376 175,376 175,376 175,376

(b) Reserves Asset Revaluation Reserve 774,687 732,758 774,687 732,758 Hedging Reserve (101,627) (777,716) (104,898) (779,675) Reserves at end of year 673,060 (44,958) 669,789 (46,917)

Asset Revaluation Reserve The asset revaluation reserve is used to record increments and decrements in the fair value of property, plant and equipment to the extent that they offset one another. Balance at beginning of year 732,758 540,462 732,758 540,462 Revaluation 292,344 634,382 292,344 634,382 Impairment (232,344) (359,382) (232,344) (359,382) Tax Effect (18,000) (82,500) (18,000) (82,500) Depreciation transfer (71) (204) (71) (204) Asset Revaluation Reserve at end of year 774,687 732,758 774,687 732,758

Hedging Reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

Balance at beginning of year (777,716) (44,614) (779,675) (45,042) Gains/(Losses) Recognised on Cash Flow Hedges: Electricity Contracts 957,512 (1,337,006) 957,512 (1,337,006) Forward Foreign Exchange Contracts 4,192 (18,622) 4,192 (18,622) Interest Rate Swaps 2,575 2,325 – – Tax Effect (289,284) 405,991 (288,511) 406,688 Transferred to Profit or Loss Electricity Contracts (653) 305,980 (653) 305,980 Tax Effect 196 (91,794) 196 (91,794) Transferred to Initial Carrying Amount of Hedged Item Forward Foreign Exchange Contracts 2,916 173 2,916 173 Interest Rate Swaps (700) (139) – – Tax Effect (665) (10) (875) (52) Hedging Reserve at end of year (101,627) (777,716) (104,898) (779,675)

Gains/(losses) transferred from equity into profit or loss during the period are included in the Income Statement under revenue and income tax expense on profit before superannuation gains and financial instrument fair value movements.

39 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

(c) retained Profits Balance at beginning of year 85,218 58,740 88,381 61,877 Profit for the Period after Related Income Tax Expense 87,667 139,893 88,888 139,919 Dividends provided for or paid (124,422) (113,619) (124,422) (113,619) Depreciation transfer 71 204 71 204 Retained Profits at end of year 48,534 85,218 52,918 88,381

20. Jointly Controlled Assets and Operations (a) description Delta Electricity Australia Pty. Ltd, Delta Electricity’s wholly owned subsidiary, is the consolidated entity’s participant in a joint venture. Output Interest 2008 2007 Name of Joint Venture Principal Activity % % Sunshine Electricity Joint Venture Electricity Generation 50 50

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

(b) Share of Assets The subsidiary’s interest in assets employed in the above jointly controlled assets joint venture is detailed below:

Cash and Cash Equivalents 20 3 – – Trade and Other Receivables 191 30 – – Inventories 920 – – – Total Current Assets 1,131 33 – –

Receivables 1,094 9 – – Property, Plant and Equipment 105,190 85,312 – – Total Non-current Assets 106,284 85,321 – –

Total Assets 107,415 85,354 – –

(c) Share of Capital Commitments The capital commitments arising from the consolidated entity’s interests in the joint venture are disclosed below: Plant and Equipment Payable no later than one year 2,302 16,391 – – Payable later than one, not later than five years – – – – Payable later than five years – – – – 2,302 16,391 – –

Delta Electricity Australia Pty. Ltd expects to receive input tax credits from the Australian Taxation Office totalling $209,000 (2007: $1,490,000) for Goods and Services Tax paid for these commitments. Other commitments are disclosed in Notes 22 and 23.

40 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

21. Employee Benefits and Superannuation (a) employee Benefits The aggregate employee benefit liability excluding superannuation is composed of: Short-term Employee Benefits 13,677 13,559 13,677 13,559 Long-term Employee Benefits 34,556 36,392 34,556 36,392 48,233 49,951 48,233 49,951

Short-term employee benefits includes performance and business success payments that are part of formal agreements with employees. (b) Superannuation – Defined Benefit Schemes (continued) (i) General Information and Description of Plans Defined benefit superannuation schemes are applicable to the parent entity only. As such, the information presented for the parent entity also applies to the consolidated entity. Defined benefit superannuation schemes are administered by Pillar Administration on behalf of the SAS Trustee Corporation (STC). An actuarial review of superannuation liabilities for the defined benefit schemes was carried out byM ercer as at 30 June 2008. The Pooled Fund (the Fund) holds in trust the investments of the closed NSW public sector superannuation schemes: • State Authorities Superannuation Scheme (SASS) • State Superannuation Scheme (SSS) • State Authorities Non-contributory Superannuation Scheme (SANCS). These schemes are all defined benefit schemes – at least a component of the final benefit is derived from a multiple of member salary and years of membership. All of the schemes are closed to new members. Actuarial gains and losses are recognised in profit and loss in the year they occur. All Fund assets are invested by STC at arm’s length through independent fund managers. The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the target allocation of assets to each class. The returns used for each class are net of investment tax and investment fees.

Parent Entity SASS SANCS SSS 2008 2007 $’000 $’000 $’000 $’000 $’000

(ii) Reconciliation of the Present Value of the Defined Benefit Obligation Present value of partly funded defined benefit obligations 96,219 16,946 169,426 282,591 280,052 at beginning of the year Current service cost 2,906 925 1,997 5,828 6,165 Interest cost 6,017 1,046 10,705 17,768 16,355 Contributions by Fund participants 1,611 – 2,053 3,664 3,633 Actuarial (gains)/losses (4,586) 38 (1,299) (5,847) (10,576) Benefits paid (5,529) (1,139) (6,095) (12,763) (13,038) Present value of partly funded defined benefit obligations at end of year 96,638 17,816 176,787 291,241 282,591

(iii) Reconciliation of the Fair Value of Fund Assets Fair value of Fund assets at beginning of the year 105,702 19,966 186,357 312,025 277,891 Expected return on Fund assets 8,073 1,581 14,490 24,144 21,179 Actuarial gains/(losses) (14,333) (2,826) (25,867) (43,026) 14,962 Employer contributions 3,698 711 3,865 8,274 7,398 Contributions by Fund participants 1,611 – 2,053 3,664 3,633 Benefits paid (5,529) (1,139) (6,095) (12,763) (13,038) Fair value of Fund assets at end of the year 99,222 18,293 174,803 292,318 312,025

41 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Parent Entity SASS SANCS SSS 2008 2007 $’000 $’000 $’000 $’000 $’000

21. Employee Benefits and Superannuation (Continued) (b) Superannuation – Defined Benefit Schemes (continued)

(iv) Reconciliation of the Assets and Liabilities Recognised in the Balance Sheet Present value of partly funded defined benefit obligations 96,638 17,816 176,787 291,241 282,591 at end of year Fair value of Fund assets at end of year (99,222) (18,293) (174,803) (292,318) (312,025) Net Liability/(Asset) recognised in balance sheet (2,584) (477) 1,984 (1,077) (29,434) at end of year

(v) Expense/(Income) Recognised in Income Statement Current service cost 2,906 925 1,997 5,828 6,165 Interest cost 6,017 1,046 10,705 17,768 16,355 Expected return on Fund assets (net of expenses) (8,073) (1,581) (14,490) (24,144) (21,179) Actuarial losses/(gains) recognised in year 9,747 2,864 24,568 37,179 (25,538) Expense/(income) recognised 10,597 3,254 22,780 36,631 (24,197)

(vi) Fund Assets The percentage investment in each asset class at the balance sheet date:

2008 2007 % % Australian equities 31.6 33.6 Overseas equities 25.4 26.5 Australian fixed interest securities 7.4 6.8 Overseas fixed interest securities 7.5 6.4 Property 11.0 10.1 Cash 6.1 9.8 Other 11.0 6.8

Parent Entity SASS SANCS SSS 2008 2007 $’000 $’000 $’000 $’000 $’000

(vii) Actual Return on Fund Assets Actual return on Fund assets (6,793) (1,245) (12,223) (20,261) 39,808

(viii) Historical Information Present value of defined benefit obligation 96,638 17,816 176,787 291,241 282,591 Fair value of Fund assets (99,222) (18,293) (174,803) (292,318) (312,025) (Surplus)/Deficit in Fund (2,584) (477) 1,984 (1,077) (29,434) Experience adjustments – Fund liabilities (4,586) 38 (1,299) (5,847) (10,576) Experience adjustments – Fund assets 14,333 2,826 25,867 43,026 (14,963)

(ix) Expected Contributions Expected employer contributions 3,061 1,069 3,284 7,414 7,377

42 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

(x) Valuation Method and Principal Actuarial Assumptions at Reporting Date Valuation Method The Projected Unit Credit (PUC) valuation method was used to determine the present value of the defined benefit obligations and the related current service costs. The method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.

21. Employee Benefits and Superannuation (Continued)

Economic Assumptions The principal economic assumptions are outlined in the below table: 2008 2007 % % Salary increase rate (excluding promotional increases)* – to June 2008 – 4.0 – thereafter 3.5 3.5 Rate of CPI Increase 2.5 2.5 Expected rate of return on assets backing current pension liabilities 8.3 7.6 Expected rate of return on assets backing other liabilities 7.3 7.6 Discount rate 6.6 6.4

*The salary increase rate assumes productivity gains.

(xi) Funding Arrangements for Employer Contributions Surplus/Deficit The following is a summary of the June 2008 financial position of the Fund calculated in accordance with AAS 25 Financial Reporting by Superannuation Plans.

Parent Entity SASS SANCS SSS 2008 2007 $’000 $’000 $’000 $’000 $’000

Accrued benefits 96,463 17,909 163,205 277,577 264,671 Net market value of Fund assets (99,222) (18,293) (174,803) (292,318) (312,025) Net (Surplus)/deficit (2,759) (384) (11,598) (14,741) (47,354)

Contribution Recommendation Recommended contribution rates for the entity are: SASS SANCS SSS multiple of % multiple of member member member contributions salary contributions 2008 1.9 2.5 1.6 2007 1.9 2.5 1.6

Funding Method The method used to determine the employer contribution recommendations at the last actuarial review was the Aggregate Funding method. The method adopted affects the timing of the cost to the employer. Under the Aggregate Funding method, the employer contribution rate is determined so that sufficient assets will be available to meet benefit payments to existing members, taking into account the current value of assets and future contributions. Economic Assumptions The economic assumptions adopted for the last actuarial review of the Fund were: 2008 2007 Weighted Average Assumptions % pa % pa Expected rate of return on Fund assets backing current pension liabilities 7.7 7.7 Expected rate of return on Fund assets backing other liabilities 7.0 7.0 Expected salary increase rate 4.0 4.0 Expected rate of CPI increase 2.5 2.5

(xii) Nature of Asset/Liability If a surplus exists in the employer’s interest in the Fund, the employer may be able to take advantage of it in the form of a reduction in the required contribution rate, depending on the advice of the Fund’s actuary. Where a deficiency exists, the employer is responsible for any difference between the employer’s share of Fund assets and the defined benefit obligation.

43 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

22. Expenditure Commitments Expenditure contracted for at reporting date but not recognised as liabilities in the Balance Sheet: (a) Capital – Plant and Equipment Payable no later than one year 297,497 169,187 295,195 152,796 Payable later than one, not later than five years 25,578 313,196 25,578 313,196 Payable later than five years – – – – 323,075 482,383 320,773 465,992

(b) operating (excluding lease commitments) – Operational and Maintenance Payable no later than one year 27,047 27,939 26,677 26,110 Payable later than one, not later than five years 19,031 22,521 17,656 21,104 Payable later than five years 3,494 4,043 – 220 49,572 54,503 44,333 47,434

(c) Intangible Assets – Computer Software Payable no later than one year – 125 – 125 Payable later than one, not later than five years – – – – Payable later than five years – – – – – 125 – 125

Delta Electricity expects to receive input tax credits from the Australian Taxation Office totalling $33,169,000 (2007: $46,685,000) for Goods and Services Tax paid for these commitments.

23. Operating Lease Commitments Future operating lease rentals contracted for at reporting date but not recognised as liabilities in the Balance Sheet:

Payable no later than one year 449 1,900 441 1,893 Payable later than one, not later than five years 32 473 – 442 Payable later than five years 272 280 – – 753 2,653 441 2,335

Delta Electricity leases office accommodation under an operating lease expiring in December 2008. Delta Electricity expects to receive input tax credits from the Australian Taxation Office totalling $40,000 (2007: $212,000) for Goods and Services Tax paid for these commitments.

24. Contingent Liabilities and Contingent Assets There were no known contingent liabilities or contingent assets in existence at reporting date.

25. Financial Instruments (a) Capital Risk Management Delta Electricity manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through optimisation of debt and equity balance. Delta Electricity’s capital structure is reviewed each year as part of the development and finalisation of the Statement of Corporate Intent which is a high level agreement between the Board and shareholders. In addition, Delta Electricity complies with the requirements of the Capital Structure Policy for Government Businesses administered by New South Wales Treasury and borrowing limits approved under the Pubic Authorities (Financial Arrangements) Act 1987. The Capital Structure Policy for Government Businesses is one of the key policy mechanisms which help to ensure that Government businesses operate on a commercial basis and make appropriate investment decisions. The capital structure consists of cash and cash equivalents, borrowings and total equity consisting of contributed equity, reserves and retained profits as disclosed in Note 7, Note 15, and Note 19 respectively. Operating cash flows are used to maintain and expand the organisation’s operating capacity as well as make routine outflows related to taxation, dividends and repayment of borrowings. Borrowings are sourced from New South Wales Treasury Corporation unless specific approval is granted under the Pubic Authorities (Financial Arrangements) Act 1987 to source private borrowings. The overall strategy remains unchanged from 2007.

44 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

25. Financial Instruments (Continued) (b) Categories of Financial Instruments The carrying amounts of Delta Electricity’s financial instruments are outlined in the following table:

Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Financial Assets Cash and Cash Equivalents 1,239 1,311 737 1,298 Loans and Receivables 94,882 491,363 135,883 508,604 Derivative Instruments – Designated in Hedge Accounting Relationships 5,634 3,839 420 500 Derivative Instruments – Held for Trading 975 3,452 975 3,452 102,730 499,965 138,015 513,854

Financial Liabilities Payables and Borrowings 926,569 1,130,186 855,250 1,057,702 Derivative Instruments – Designated in Hedge Accounting Relationships 150,274 1,087,362 150,274 1,087,362 Derivative Instruments – Held for Trading 1,346 8,061 1,346 8,061 1,078,189 2,225,609 1,006,870 2,153,1253

(c) financial Risk Management Objectives Delta Electricity’s activities expose the organisation to a variety of financial risks including market risk (currency, interest and price risk), credit risk and liquidity risk. The organisation aims to minimise the effects of these risks by using a range of derivative financial instruments. The use of financial instruments is governed by Board approved policies which are reviewed annually or as required. Compliance with policies is reviewed on a continuous basis and is subject to routine audit. Delta Electricity does not enter into or trade financial instruments for speculative purposes.

(d) foreign Currency Risk Management In the normal course of business, Delta Electricity is required to purchase goods or services from overseas which require settlement in the supplier’s local currency. Under Board approved policies, Delta Electricity hedges specific foreign exchange commitments greater than AUD250,000 by use of forward foreign exchange contracts to protect the organisation from the effect of future exchange rate fluctuations. The contracts are timed to mature when overseas payments are made. At reporting date, Delta Electricity had 63 (2007: 73) forward foreign exchange contracts. The values of these contracts are outlined in the table below: Parent Entity 2008 2007 Number of Currency Number of Currency Currency Contracts Value Contracts Value USD – – 1 424,804 EUR 31 26,470,007 38 61,874,077 JPY 7 860,585,100 9 382,537,246 CHF 25 121,424,000 25 121,424,000 Consolidated Entity 2008 2007 Number of Currency Number of Currency Currency Contracts Value Contracts Value USD – – 1 424,804 EUR 31 26,470,007 38 61,874,077 JPY 7 860,585,100 9 382,537,246 CHF 25 121,424,000 25 121,424,000

These instruments are recognised on the Balance Sheet at fair value. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. For forward foreign exchange contracts which qualify as cash flow hedges and meet the conditions of hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the carrying amount of the good purchased when the future purchase actually occurs. For forward foreign exchange contracts that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year.

45 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

25. Financial Instruments (Continued) (d) foreign Currency Risk Management (continued) A 10% strengthening/(weakening) of the Australian dollar against the relevant foreign currencies would decrease/(increase) post tax profit by $585,000/($715,000) (2007: $307,000/($375,000)) and decrease/(increase) other equity (tax effected) by $10,456,000/($12,780,000) (2007: $13,100,000/($16,012,000)). The sensitivity reflects management’s view of the reasonably possible movement in the Australian dollar against the relevant foreign currencies at balance date which is based on advice from Delta Electricity’s service provider. The sensitivity assumes all other variables remain constant. (e) Interest Rate Risk Management Delta Electricity has a portfolio of debt consisting of short, medium and long-term borrowings. This debt is used to service the asset structure and ongoing activities of the organisation. Delta Electricity has identified interest rate risks associated with its debt portfolio. New South Wales Treasury Corporation (TCorp) manages interest rate risk exposures applicable to specific borrowings of Delta Electricity in accordance with Board approved policies and a debt portfolio mandate agreed between the two parties. TCorp receives a fee for this service which may include a performance component where TCorp is able to add value by achieving a reduction in Delta Electricity’s debt costs against an agreed benchmark. TCorp uses derivatives, primarily interest rate futures, to establish short-term (tactical) and longer-term (strategic) positions within agreed tolerance limits to manage portfolio duration and maturity profiles. At reporting date the carrying value of borrowings and derivatives (net of funds held at call) managed by TCorp stood at $704,919,000 (2007: $590,866,000). The nominal principal amounts and periods of expiry for interest rate swaps and futures held at reporting date were: Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Interest Rate Swaps Less than one year 2,968 2,316 – – One to five years 17,559 15,508 – – Greater than five years 47,157 52,176 – – 67,684 70,000 – –

Interest Rate Futures Less than one year* (301,000) – (301,000) – One to five years* 13,300 4,800 13,300 4,800 Greater than five years* 37,200 19,600 37,200 19,600 (250,500) 24,400 (250,500) 24,400

* Positive amount indicates bought futures; negative amount indicates sold futures. The total notional amount of interest rate swaps for the consolidated entity is $67,684,000 with Delta Electricity Australia Pty. Ltd receiving floating interest and paying fixed interest. These instruments are recognised on the Balance Sheet at fair value. The fair value of futures represents the margin call at reporting date. The fair value of interest rate swaps represents the amount Delta Electricity would expect to receive or pay on the termination of contracts at reporting date. For instruments which qualify as cash flow hedges and meet the conditions of hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year. For instruments that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year. For Delta Electricity, the weighted average interest exposure on financial assets is 6.3% (2007: 6.1%), while weighted average interest exposure incorporating a government guarantee fee on financial liabilities is 7.0% (2007: 7.3%). For the consolidated entity, the weighted average interest exposure on financial assets is 6.4% (2007: 6.1%), while weighted average interest exposure incorporating a government guarantee fee on financial liabilities is 7.2% (2007: 7.3%). A 1.0% increase/(decrease) in interest rates would decrease/(increase) post tax profit by $2,310,000 (2007: $1,211,000). The sensitivity reflects management’s view of the reasonably possible movement in interest rates as at balance date which is based on advice from Delta Electricity’s debt management service provider. The sensitivity percentage is derived from historically based volatility information calculated over a 10 year period. The sensitivity assumes that all other variables remain constant.

46 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

25. Financial Instruments (Continued) (f) electricity Price Risk Management Delta Electricity sells all generated electricity to the National Electricity Market. The wholesale price for generated electricity is based on numerous supply and demand factors and can be extremely volatile. In the normal course of business, Delta Electricity enters into various types of derivative contracts with electricity market counterparties to manage the risks associated with fluctuations in wholesale electricity prices. These contracts are undertaken in accordance with Board approved policies. The policies permit the active hedging of price and volume related to forecast electricity generation within prescribed limits. The fair value of electricity derivative contracts are outlined in the following table: Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Less than one year* 97,132 745,439 97,132 745,439 One to five years* 40,986 326,722 40,986 326,722 Greater than five years* – – – – 138,118 1,072,161 138,118 1,072,161

* Positive amount indicates net liability; negative amount indicates net asset. Electricity contracts are recognised on the Balance Sheet at fair value. The fair value of short to medium-term electricity contracts is calculated by reference to observable market data where available supported by valuation techniques where appropriate. Fair value for long dated electricity contracts is calculated using an input cost plus margin model. Electricity contracts are classified as cash flow hedges where they hedge exposure to variability in cash flows related to forecast generation. In relation to cash flow hedges which meet the conditions for hedge accounting, the portion of the change in fair value on an electricity contract (hedging instrument) that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement. If a hedged item is no longer expected to occur, the cumulative gain or loss recognised in equity is transferred to profit or loss for the year. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the Income Statement in the same year in which the forecast electricity generation occurs. For electricity contracts that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year. Management has assessed the possible changes in both forward and spot electricity prices over a financial year based on historical data and future expectations. Assuming all other variables are held constant, a reasonable possible change in forward electricity prices could increase/(decrease) post tax profit by $65,000 (2007: $1,702,000) and increase/(decrease) other equity (tax effected) by $56,875,000 (2007: $137,362,000). (g) oil Price Risk Management Delta Electricity utilises significant levels of oil in the electricity generation process. The wholesale price of oil is based on world wide supply and demand factors and can be extremely volatile. In the normal course of business, Delta Electricity can enter into derivative contracts such as commodity swaps to manage the risks associated with fluctuations in wholesale oil prices. These contracts are undertaken in accordance with Board approved policies which require economic hedging when total oil exposure reaches a specified level. The notional face value of oil commodity swaps are outlined in the following table: Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Less than one year 2,028 – 2,028 – One to five years – – – – Greater than five years – – – – 2,028 – 2,028 –

Commodity swaps are recognised on the Balance Sheet at fair value. The fair value of commodity swap is calculated by reference to quoted rates at reporting dates. For commodity swaps which qualify as cash flow hedges and meet the conditions of hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year. For commodity swaps that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year. A 10.0% increase/(decrease) in oil prices would increase/(decrease) post tax profit by $150,000 (2007: $Nil). The sensitivity reflects management’s view of the reasonably possible movement in oil commodity prices as at balance date which is based on advice from Delta Electricity’s service provider. The sensitivity assumes all other variables remain constant.

47 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

25. Financial Instruments (Continued) (h) Credit Risk Management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the organisation. The credit risk on financial assets, apart from derivative instruments, which have been recognised on the Balance Sheet is generally the carrying amount, net of any provision for doubtful debts. The recognised financial assets of the Corporation include amounts receivable from government owned agencies (90.0%) and other debtors (10.0%). The majority of credit risk for the organisation is related to receivables from the sale of generated electricity supplied to the National Electricity Market (NEM) and derivative electricity contracts. The credit risk associated with supply of physical electricity to the NEM is considered minimal due to prudential requirements needed by participants prior to registration in the market. The credit risk associated with derivative electricity contracts is mitigated through the application of limits determined by a Board approved policy. These limits are based on the credit rating of the counterparty. In the absence of an acceptable public credit rating an internal credit rating is assigned on the advice of an external credit assessment specialist. Credit risk exposure and counterparty credit ratings are continuously monitored with monthly reporting to the Board. The aggregate exposure on open electricity contracts at reporting date was $61.8 million (2007: $27.3 million). Credit risk also arises from potential counterparty default on forward foreign exchange contracts and commodity swap contracts. The value of this exposure at reporting date was $21,000 (2007: $Nil). (i) liquidity Risk Management Delta Electricity manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The organisation maintains adequate reserves, flexible banking facilities and has reserve borrowing facilities in place to manage additional funding required from time to time. The extent of these facilities is disclosed in Note 26(e). The following tables set out the remaining undiscounted contractual maturity for financial liabilities. Maturity Dates < 1 year 1-5 years > 5 years Total Parent Entity $’000 $’000 $’000 $’000

2008 Financial Liabilities Variable interest rate instruments 25,030 – – 25,030 Fixed interest rate instruments 116,235 451,153 317,204 884,592 Non-interest bearing instruments 149,042 – – 149,042 Derivative instruments 117,952 48,578 – 166,530 408,259 499,731 317,204 1,225,194

2007 Financial Liabilities Variable interest rate instruments 996 – – 996 Fixed interest rate instruments 173,325 376,634 210,583 760,542 Non-interest bearing instruments 466,107 – – 466,107 Derivative instruments 798,748 397,878 – 1,196,626 1,439,176 774,512 210,583 2,424,271

Maturity Dates < 1 year 1-5 years > 5 years Total Consolidated $’000 $’000 $’000 $’000

2008 Financial Liabilities Variable interest rate instruments 25,030 – – 25,030 Fixed interest rate instruments 118,551 466,661 369,375 954,587 Non-interest bearing instruments 150,366 – – 150,366 Derivative instruments 117,952 48,578 – 166,530 411,899 515,239 369,375 1,296,513

2007 Financial Liabilities Variable interest rate instruments 996 – – 996 Fixed interest rate instruments 242,003 376,634 210,583 829,220 Non-interest bearing instruments 469,912 – – 469,912 Derivative instruments 798,748 397,878 – 1,196,626 1,511,659 774,512 210,583 2,496,754

48 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

25. Financial Instruments (Continued) (j) fair Value of Financial Instruments Management considers that the carrying amounts of financial assets and liabilities in the financial statements approximate fair value except as disclosed in the following table: Parent Entity Carrying Amount Fair Value 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Financial Liabilities Borrowings 706,209 591,596 694,446 588,196

Consolidated Entity Carrying Amount Fair Value 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Financial Liabilities Borrowings 776,204 660,274 764,441 656,874

(k) total Debt Maturity Table Total debt outstanding and maturity at reporting date is as follows: Consolidated Parent Entity 2008 2007 2008 2007 ` $’000 $’000 $’000 $’000 Up to one year 105,188 206,682 102,872 138,004 Over one and up to two years 44,778 – 41,810 – Over two years and up to five years 317,998 284,562 305,458 284,562 Over five years 308,240 169,030 256,069 169,030 776,204 660,274 706,209 591,596

26. Notes to the Cash Flow Statement (a) Cash and Cash Equivalents For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash at bank and in hand, short-term deposits and short-term investments, net of outstanding bank overdrafts and borrowings which are used in the cash management function on a day to day basis. (b) reconciliation of Cash and Cash Equivalents Cash and cash equivalents at the end of the financial year as shown in the Cash Flow Statement is reconciled to the related items in the Balance Sheet as follows: Consolidated Parent Entity 2008 2007 2008 2007 ` $’000 $’000 $’000 $’000 Cash and Cash Equivalent Assets 1,239 1,311 737 1,298 Current Borrowings (380) (995) (380) (995) Balance as per Cash Flow Statement 859 316 357 303

Current borrowings reflect a NSW Treasury Corporation call facility used in the management of cash on a day to day basis. (c) dividends and Taxes No dividends were received during the period. Dividends paid by Delta Electricity during the period amounted to $113.6 million (2007: $131.6 million). Tax equivalent payments for the year were $41.0 million (2007: $47.4 million). (d) acquisitions and Disposal of Entities There were no acquisitions or disposals during the year.

49 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

26. Notes to the Cash Flow Statement (continued) (e) financing Arrangements Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Facilities Available Bank Overdraft 2,000 2,000 2,000 2,000 NSW Treasury Corporation Loans 1,580,000 1,580,000 1,580,000 1,580,000 Project Borrowing Facility 70,000 70,000 – – Total Available 1,652,000 1,652,000 1,582,000 1,582,000

Facilities Utilised Bank Overdraft – – – – NSW Treasury Corporation Loans 706,209 591,596 706,209 591,596 Project Borrowing Facility 69,995 68,678 – – Total Utilised 776,204 660,274 706,209 591,596

(f) reconciliation of Profit for the Year after Related Income Tax Expense to Net Cash Provided/(Used) by Operating Activities

Profit for the Period 87,667 139,893 88,888 139,919

Add/(Less): Non-cash Items Depreciation and Amortisation 101,107 81,359 101,107 81,359 Inventory Adjustments 359 395 359 395 Assets Written Off 2,092 1,910 2,092 1,910

Add/(Less): Items classified as Investing/Financing Activities (Gain)/Loss on Sale of Property, Plant and Equipment 1,088 161 1,088 161 Accounting (Gain)/Loss on Debt Refinancing 19 – 19 –

Net Cash Provided by Operating Activities Before Changes in Assets and Liabilities 192,332 223,718 193,553 223,744

Net Changes in Assets and Liabilities During the Period (Increase)/Decrease in Trade Debtors 345,691 (379,113) 345,691 (379,113) (Increase)/Decrease in Other Receivables (3,572) 131 (2,625) (7) (Increase)/Decrease in Inventories (22,571) (19,731) (21,920) (19,731) (Increase)/Decrease in Other Assets 30,059 (27,887) 30,059 (27,653) Increase/(Decrease) in Payables (336,902) 403,537 (337,238) 403,441 Increase/(Decrease) in Income Tax Related Assets/Liabilities 3,364 13,732 3,888 13,744 Increase/(Decrease) in Other Liabilities 30,739 (33,370) 30,739 (33,370) Net Cash Provided/(Used) by Operating Activities 239,140 181,017 242,147 181,055

50 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

27. related Party Disclosures (a) directors and Director-related Entities Some Directors of Delta Electricity hold directorships of other companies, some of which may have had transactions with Delta Electricity during the financial year. Any transactions with these entities would have been made in the normal course of business and on normal commercial terms and conditions. With respect to related entity transactions, no Director has declared that he/she has control or significant influence on the financial and/or operating policies of those companies in their dealings with Delta Electricity. As part of Delta Electricity’s Board governance, Directors are required to nominate investments, business dealings and contracts in which the Director may have a personal interest that does or could conflict with his/her Director’s duties. Additionally, Directors are required to disclose other directorships and committee memberships. These disclosures are retained in a register maintained by the Corporate Secretary which is submitted quarterly to the Board for verification. At each meeting of the Board, a standing agenda item of Directors’ interests allows the opportunity for Directors to disclose any additional conflicts relative to the matters being considered in the meeting. Should a Director declare a conflict of interest, then papers related to that matter are excluded from that Director’s papers. When the matter is considered by the Board, the Director leaves the meeting and does not participate in the discussion and resolution of the matter. The Directors of Delta Electricity at 30 June 2008 were Mr PF Young, Mr JP Henness, Mr WL Phillips, Ms SM Moait, Hon MS Knight, Mr PJ Forward and Mr LW Harris. Mr WL Phillips and Mr JP Henness were Directors of Delta Electricity Australia Pty. Ltd for the full financial year. Consolidated Parent Entity 2008 2007 2008 2007 $’000 $’000 $’000 $’000

(b) Key Management Personnel Remuneration Short-term Employee Benefits 3,670 3,694 3,670 3,694 Post-employment Benefits 230 221 230 221 Other Long-term Benefits 471 217 471 217 Termination Benefits – – – – Total 4,371 4,132 4,371 4,132

Key management personnel include Directors and members of the Executive. Remuneration excludes insurance premiums paid by the parent entity in respect of directors’ and officers’ liability insurance as policies do not specify premiums paid in respect of individual directors and officers. No additional remuneration is paid to key management personnel in relation to Delta Electricity Australia Pty. Ltd. (c) Controlled Entities Delta Electricity acquired the two issued $1 ordinary shares of Delta Electricity Australia Pty. Ltd in 1997. The wholly owned subsidiary commenced commercial operations in 2002/2003. Delta Electricity Australia Pty. Ltd has entered into various agreements in respect of the Sunshine Electricity Joint Venture for the construction of renewable electricity generation plants at Condong and Broadwater. The terms of the construction and security agreements require Delta Electricity to make funding available to meet Delta Electricity Australia Pty. Ltd’s contributions to total project costs. The funding is made available under a Deed of Capital Contribution with advances carrying no interest charge and are repayable on demand. Approval has been received from NSW Treasury to advance up to $48.8 million (2007: $43.8 million) to Delta Electricity Australia Pty. Ltd for the purpose of the Sunshine Electricity Joint Venture. (d) related Party Transactions The following table provides details of transactions that were entered into with related parties: Amounts Owed Amounts Owed Advance to Sales to Related by Related to Related Related Parties Parties Parties Parties Related Party $’000 $’000 $’000 $’000

Consolidated Sunshine Electricity Joint Venture 2008 555 – – 40 2007 168 – – 25

Parent Entity Delta Electricity Australia Pty. Ltd 2008 24,551 1,553 42,143 – 2007 10,223 1,175 17,592 –

51 Delta Electricity Notes to and forming part of the Financial Report For Year Ended 30 June 2008

28. Events Occurring After Reporting Date In December 2007, the NSW Government announced a plan to secure the State’s future energy supply by announcing it would accept the key recommendations of the Owen Inquiry into Electricity Supply in NSW. The proposed reforms involved the lease of existing power generators and the transfer of the retail activities of the electricity distributors to the private sector. On 28 August 2008, the NSW Government announced a revised plan that involves the transfer of retail activities of the distributors and the sale(s) of generation development sites to the private sector. At this time, the NSW Government has not finalised its strategy. Delta Electricity shall await the outcome of these deliberations to establish the potential effect of the strategy on its current development sites.

29. Cross Border Lease Delta Electricity has entered into several arrangements designed to optimise investment in Mt Piper Power Station. These arrangements have been executed through a series of agreements which in legal form constitute lease, prepayment and deposit transactions. These arrangements will run until 2 January 2020 and include options allowing Delta Electricity to purchase the assets at the end of the term. The substance and commercial effect of these transactions is to leave Delta Electricity with uninterrupted use and control of the associated infrastructure (subject to the satisfaction of the transaction’s contractual obligations), which remains on the Balance Sheet. The benefits derived by Delta Electricity were brought to account on inception of the arrangement. No significant credit risk or concentration of credit risk arises as a consequence of these arrangements.

30. Sunshine Electricity Joint Venture Power Purchase Agreement Delta Electricity has entered into a 15 year Power Purchase Agreement with Sunshine Electricity Joint Venture to purchase electricity and renewable energy certificates from the renewable electricity generation plants being constructed at sugar milling plants located at Condong and Broadwater in northern New South Wales. The Power Purchase Agreement only becomes operable when the plants achieve a prescribed level of technical performance. Under the terms of the Power Purchase Agreement it is possible that Delta Electricity may incur a liability in respect of a minimum electricity charge payable to Sunshine Electricity Joint Venture in a limited range of events relating to fuel availability and suppressed electricity and renewable energy certificate prices. The probability is remote and any assessment of such a liability could only be undertaken at the time of a minimum electricity payment event as it would be dependent on projections of production volumes and electricity and renewable energy certificate prices prevailing at the time. End of Audited Financial Report

52 Delta Electricity Statement by Members of the Board For Year Ended 30 June 2008

Pursuant to Section 41C of the Public Finance and Audit Act, 1983, and in accordance with a resolution of Delta Electricity, we declare on behalf of Delta Electricity that in our opinion: 1. The accompanying Financial Statements exhibit a true and fair view of the financial position of Delta Electricity as at 30 June, 2008 and its performance for the year ended on that date. 2. The accompanying Financial Statements are a general purpose financial report which has been prepared in accordance with Australian Accounting Standards including Australian Accounting Interpretations, the New South Wales Public Finance and Audit Act and Regulation, and requirements of the State Owned Corporations Act, 1989 (as amended). 3. At the date of this statement, there are reasonable grounds to believe that Delta Electricity will be able to pay its debts as and when they become due and payable. 4. We are not aware of any circumstances at the date of this declaration that would render any particulars included in the financial report to be misleading or inaccurate.

Peter Young Jim Henness CHAIRMAN CHIEF EXECUTIVE 18 September 2008 18 September 2008

53 54 55 BEGINNING of Audited Financial statements

Delta Electricity Australia Pty. Ltd Balance Sheet As at 30 June 2008

2008 2007 Note $’000 $’000

Current Assets Cash and Cash Equivalents 6 502 13 Trade and Other Receivables 7(a) 214 482 Inventories 8 920 – Other Financial Assets 9(a) 229 – Total Current Assets 1,865 495

Non-current Assets Receivables 7(b) 1,094 9 Other Financial Assets 9(b) 4,985 3,339 Property, Plant and Equipment 10 105,190 85,312 Deferred Tax Assets 5(b) 663 743 Total Non-current Assets 111,932 89,403 Total Assets 113,797 89,898

Current Liabilities Trade and Other Payables 11 43,507 21,422 Interest Bearing Liabilities 12(a) 2,316 – Total Current Liabilities 45,823 21,422

Non-current Liabilities Borrowings 12(b) 67,679 68,678 Deferred Tax Liabilities 5(b) 1,564 1,002 Total Non-current Liabilities 69,243 69,680 Total Liabilities 115,066 91,102 Net Assets (1,269) (1,204)

Equity Contributed Equity – – Reserves 3,270 1,958 Retained Profits (4,539) (3,162) Total Equity (1,269) (1,204)

The accompanying Notes form an integral part of these Financial Statements.

56 Delta Electricity Australia Pty. Ltd Income Statement For Year Ended 30 June 2008

2008 2007 Note $’000 $’000

Revenue 3 27 21 Expenses, Excluding Finance Costs 4 (1,994) (293) Finance Costs – –

Profit/(Loss) Before Income Tax Expense and Financial Instrument Fair (1,967) (272) Value Movements Income Tax Expense on Profit Before Financial Instrument Fair Value Movements 5 590 82

Profit/(Loss) Before Financial Instrument Fair Value Movements (1,377) (190) Financial Instrument Fair Value Movements – 234 Income Tax Expense on Financial Instrument Fair Value Movements 5 – (70) Profit/(Loss) for the Year (1,377) (26)

The accompanying Notes form an integral part of these Financial Statements.

57 Delta Electricity Australia Pty. Ltd Statement of Changes in Equity For Year Ended 30 June 2008

2008 2007 Note $’000 $’000

Total Equity at Beginning of Financial Year (1,204) (2,708) Changes in Fair Value of Cash Flow Hedges, Net of Tax 1,312 1,530

Net Income Recognised Directly in Equity 1,312 1,530 Profit/(Loss) for Financial Year (1,377) (26) Total Recognised Income and Expense for Financial Year (65) 1,504

Transactions with Equity Holders in Their Capacity as Equity Holders Dividends Provided for or Paid – – Total Equity at End of Financial Year 13 (1,269) (1,204)

The accompanying Notes form an integral part of these Financial Statements.

58 Delta Electricity Australia Pty. Ltd Cash Flow Statement For Year Ended 30 June 2008

2008 2007 $’000 $’000 Inflows Inflows Note (Outflows) (Outflows)

Cash Flows From Operating Activities Cash Received from Customers 2,223 3,828 Interest Received 27 21 Cash Payments to Suppliers and Employees (5,479) (3,887) Net Cash Provided/(Used) by Operating Activities 19(f) (3,229) (38)

Cash Flows from Investing Activities Payments for Property, Plant and Equipment (22,805) (39,682) Net Cash Provided/(Used) by Investing Activities (22,805) (39,682)

Cash Flows from Financing Activities Proceeds from Advance from Parent 25,206 10,436 Proceeds from Borrowings 1,317 28,960 Net Cash Provided/(Used) by Financing Activities 26,523 39,396

Net Increase/(Decrease) in Cash and Cash Equivalents 489 (324) Cash and Cash Equivalents at Beginning of Financial Year 13 337 Cash and Cash Equivalents at End of the Year 19(b) 502 13

The accompanying Notes form an integral part of these Financial Statements.

59 Delta Electricity Australia Pty. Ltd Notes to and forming part of the Financial Report For Year Ended 30 June 2008

1. Corporate Information (ii) New/Amended Accounting Standards Delta Electricity Australia Pty. Ltd (ACN 074 408 923) Australian Accounting Standards that have recently been issued or amended but is domiciled in New South Wales and is a wholly are not yet effective have not been adopted for the reporting period ended 30 June owned subsidiary of Delta Electricity which is 2008. A summary of relevant standards follows: a New South Wales statutory State owned • AASB 101 Presentation of Financial Statements corporation. The entity’s Australian Business This standard applies to reporting periods beginning on or after 1 January 2009 Number is 26 074 408 923. and amends disclosure requirements related to financial statements. The financial report of Delta Electricity Australia Pty. • AASB 123 Borrowing Costs Ltd for the year ended 30 June 2008 was authorised This standard applies to reporting periods beginning on or after for issue in accordance with a resolution of the 1 January 2009 and is not expected to have any material impact as Delta Directors on 18 September 2008. Electricity Australia Pty. Ltd capitalises borrowing costs under the existing 2. Summary of Significant standard. Accounting Policies Other recently issued or amended standards are not expected to have The financial report is a general purpose financial a material impact on the entity. report prepared in accordance with Australian Accounting Standards including Australian (c) Changes in Accounting Policies Accounting Interpretations, the New South Wales Unless otherwise stated, the accounting policies adopted are consistent with those Public Finance and Audit Act and Regulation, and of the comparative year. requirements of the State Owned Corporations Act (d) going Concern 1989 (as amended). The financial report of Delta Electricity Australia Pty. Ltd has been prepared on (a) Statement of Compliance a going concern basis. The company is a participant in a joint venture operation The financial report of Delta Electricity Australia Pty. involved in the design, construction and operation of renewable energy generation Ltd complies with Australian Accounting Standards, plant. Under the terms of a Deed of Capital Contribution agreement, Delta Electricity which include Australian Equivalents to International (parent entity) is required to provide necessary funding to Delta Electricity Australia Financial Reporting Standards (AIFRS). The financial Pty. Ltd during the establishment and construction phase. Delta Electricity Australia report also complies with International Financial Pty. Ltd is expected to commence earning revenue from sales on completion of Reporting Standards (IFRS). generation plant construction. (b) Basis of Accounting (e) Contributed Equity The financial report has been prepared in Delta Electricity Australia Pty. Ltd was acquired on 15 December 1997 and is a accordance with the principles of accrual accounting wholly owned subsidiary of Delta Electricity. The company commenced commercial and the historical cost convention, and except where operations on 1 July 2002. stated do not take into account current valuations. (f) Joint Ventures Cost is based on the fair values of the consideration Interests in jointly controlled assets and operations of unincorporated joint ventures given in exchange for assets. are reported in the financial report by including the entity’s share of assets (i) Significant Accounting Judgements, Estimates employed in the joint venture, the share of liabilities incurred in relation to the joint and Assumptions in the application of Australian venture, the share of any expenses incurred in relation to the joint venture in their Accounting Standards, management, is required to respective classification categories, and the share of income earned from the joint make judgements, estimates and assumptions that venture. Details of the joint venture operation are set out in Note 14. affect the carrying values of assets and liabilities that (g) financial Assets and Financial Liabilities are not readily apparent from other sources. The classification of financial assets and financial liabilities depends on the nature Significant Accounting Judgements of the item and is determined at the time of initial recognition. Further disclosure on The financial report has been prepared on a financial assets and financial liabilities is included in Note 18. business as usual basis and does not take into Financial Assets account proposed reforms of the New South Wales Financial assets are categorised as follows: electricity industry involving the private sector (refer to Note 21). Cash and Cash Equivalents Cash at bank and cash management funds are classified as cash and cash Significant Accounting Estimates equivalents. and Assumptions The estimates and associated assumptions are Loans and Receivables based on historical experience and various other Trade debtors, advances and other receivables that have fixed or determinable factors that are believed to be reasonable under the payments that are not quoted in an active market are classified as loans and circumstances, the results of which form the basis receivables. Loans and receivables are measured at amortised cost. of making the judgements. Actual results may differ At Fair Value Through Profit and Loss – Held for Trading from these estimates. This category includes derivative financial instruments not designated or effective as The estimates and underlying assumptions are a hedging instrument. These assets are recorded at fair value with any resultant gain reviewed on an ongoing basis. Revisions to or loss recognised in profit and loss. accounting estimates are recognised in the period Derivative Financial Instruments – Effective Hedges in which the estimate is revised if the revision affects This category includes derivative financial instruments used as cash flow hedges only that period, or in the period of the revision and of highly probable forecast transactions or firm commitments. These assets are future periods if the revision affects both current and recorded at fair value. Changes in fair value of effective hedges are deferred in future periods. Limited estimates and assumptions equity. The timing of the recognition in profit and loss depends on the nature of are required while the entity is in the construction the hedging relationship. Ineffective hedges are classified as held for trading and phase. included in the at Fair Value Through Profit and Loss category.

60 Delta Electricity Australia Pty. Ltd Notes to and forming part of the Financial Report For Year Ended 30 June 2008

(g) financial Assets and Financial Liabilities (k) property, Plant and Equipment (continued) Property, plant and equipment is recognised at fair value less accumulated Financial Liabilities depreciation and impairment in accordance with AASB 116 Property Plant and Financial liabilities are categorised as follows: Equipment, AASB 136 Impairment of Assets and the New South Wales Treasury Accounting Policy for the Valuation of Physical Non-current Assets at Fair Value. At Fair Value Through Profit and Loss – During the construction phase, acquisition cost represents fair value. Held for Trading This category includes derivative financial The accounting policy for impairment of assets is included under Note 2(l). instruments not designated or effective as a hedging (l) Impairment instrument. These liabilities are recorded at fair value At each reporting date, the entity reviews the carrying amounts of its tangible and with any resultant gain or loss recognised in profit intangible assets to determine whether there is any indication that those assets have and loss. suffered an impairment loss. If any such indication exists, the recoverable amount Derivative Financial Instruments – of the asset is estimated in order to determine the extent of the impairment loss Effective Hedges (if any). Where the asset does not generate cash flows that are independent from This category includes derivative financial other assets, the entity estimates the recoverable amount of the cash generating instruments used as cash flow hedges of highly unit to which the asset belongs. probable forecast transactions or firm commitments. Recoverable amount is based on value in use and is determined at the cash These liabilities are recorded at fair value. Changes generating unit level being the Delta Electricity Australia Pty. Ltd entity. In assessing in fair value of effective hedges are deferred in value in use, the estimated future cash flows are discounted to their present value equity. The timing of the recognition in profit and loss using a discount rate that reflects current market assessments of the time value of depends on the nature of the hedging relationship. money and the risks specific to the assets for which the estimates of future cash Ineffective hedges are classified as held for trading flows have not been adjusted. and included in the At Fair Value Through Profit and Loss category. If the recoverable amount of the cash generating unit is estimated to be less than its carrying amount, the carrying amount of the cash generating unit is reduced to its Other Financial Liabilities recoverable amount. An impairment loss is recognised in profit or loss immediately, Other financial liabilities include payables and unless the relevant asset is carried at fair value, in which case the impairment loss is borrowings. These liabilities are initially recorded at fair treated as a revaluation decrease. value and subsequently measured at amortised cost. Where an impairment loss subsequently reverses, the carrying amount of the cash (h) Borrowings generating unit is increased to the revised estimate of its recoverable amount, but All loans and borrowings are initially recognised at only to the extent that the increased carrying amount does not exceed the carrying fair value being the consideration received net of amount that would have been determined had no impairment loss been recognised issue costs associated with the borrowing. for the cash generating unit in prior years. A reversal of an impairment loss is After initial recognition, interest bearing loans recognised in the profit or loss immediately, unless the relevant asset is carried at and borrowings are subsequently measured at fair value, in which case the reversal of the impairment loss is treated as amortised cost using the effective interest method. a revaluation increase. Amortised cost is calculated by taking into account (m) Dividends any issue costs, and any discount or premium on Provision is made for the amount of any dividend declared, determined or publicly settlement. Gains and losses are recognised in the recommended prior to reporting date. Income Statement through the amortisation process and when the liabilities are derecognised. (n) taxation Income tax on profit or loss for the year comprises current and deferred tax. Income Refer to Note 12. tax is recognised in the Income Statement except to the extent that it relates to (i) Borrowing Costs items recognised directly in equity, in which case it is recognised in equity. Borrowing costs include interest, amortisation of Current tax is the expected tax payable on the taxable income for the year, using tax discounts or premiums relating to borrowings, rates enacted or substantively enacted at the reporting date, and any adjustment to amortisation of ancillary costs incurred in connection tax payable in respect of previous years. with arrangement of borrowings, and gains and losses incurred in the use of derivative instruments Deferred tax is provided using the balance sheet liability method, providing for for the management of interest rate exposure related temporary differences between the carrying amounts of assets and liabilities for to borrowed funds. financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or Costs associated with borrowings specifically settlement of the carrying amount of assets and liabilities, using tax rates enacted or financing qualifying assets are capitalised up to substantively enacted at the reporting date. the date of completion of each qualifying asset to the extent those costs are recoverable. A total of A deferred tax asset is recognised only to the extent that it is probable that future $5,330,000 (2007: $4,397,000) in borrowing costs taxable profits will be available against which the asset can be utilised. Deferred tax were capitalised during the 2007/2008 financial year. assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (j) Cash and Cash Equivalents Cash and cash equivalents in the Balance Sheet Income tax payments are made to the New South Wales Office of State Revenue comprise cash at bank and in hand along with under the National Tax Equivalent Regime (NTER). short-term deposits and investments. Delta Electricity Australia Pty. Ltd and its parent (Delta Electricity) formed a tax For the purposes of the Cash Flow Statement, cash consolidated group on 1 July 2003 and are taxed as a single entity for the purposes and cash equivalents consist of cash and cash of income tax. Delta Electricity is the head entity. equivalents as defined above, net of outstanding bank overdrafts and borrowings which are used in the cash management function on a day to day basis.

61 Delta Electricity Australia Pty. Ltd Notes to and forming part of the Financial Report For Year Ended 30 June 2008

2. Summary of Significant Accounting Policies (continued) (n) taxation (continued) Members of the group have entered into a tax sharing arrangement in order to limit the joint and several liability of each member of the tax consolidated group to their share of the head entity’s tax liability should the head entity default on its tax payment obligations. At the reporting date, the possibility of default of taxes is remote. In addition, there is a tax indemnity deed between the members of the group whereby the head entity agrees to indemnify and hold the subsidiary entity harmless against all and any obligations related to income taxes. (o) Segment Reporting Delta Electricity Australia Pty. Ltd is an electricity generation corporation that operates in a single business and geographical segment. All production facilities will be located in New South Wales. (p) revenue Interest income on cash reserves is recognised as it accrues. Revenue from production output will commence on completion of electricity generation plant construction. (q) goods and Services Tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except: • when the GST incurred on a purchase of goods and services is not recoverable from the Australian Taxation Office (ATO), in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the item of expense as applicable; and • receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to the ATO is included as a current asset or liability in the Balance Sheet. Cash flows are included in the Cash Flow Statement on a gross basis. (r) Comparative Figures Where necessary, comparative information has been reclassified to enhance comparability in respect of changes in presentation adopted in the current year. The financial report incorporates disclosure requirements outlined in AASB 7 Financial Instruments: Disclosures. The additional disclosure and comparative figures are provided in Notes 7, 9, 13, and 18. (s) presentation Currency and Rounding Amounts shown in the financial report are in Australian dollars, rounded to the nearest thousand dollars, except where the disclosure of whole dollar amounts is appropriate.

62 Delta Electricity Australia Pty. Ltd Notes to and forming part of the Financial Report For Year Ended 30 June 2008

2008 2007 $’000 $’000

3. revenue Revenue Interest 27 21 Revenue 27 21

4. expenses (excluding Finance Costs) Administration Costs 357 140 Fuel Management Expenses 1,020 23 Utilities Expenses 437 104 Other Expenses 180 26 Expenses (excluding Finance Costs) 1,994 293

Auditors’ Remuneration paid or payable in respect to the audit of the 2007/2008 financial statements is $12,000 (2007: $9,500).

5. Income Tax The major components of Income Tax for the year ended 30 June 2008 are as follows: (a) Income Tax Expense Income Statement Current Income Tax Expense (670) (213) Deferred Income Tax Expense – temporary differences (Note 5(b)) 80 201 Income tax expense reported in Income Statement (590) (12)

Statement of Changes in Equity Deferred income tax related to items charged or credited directly to equity: Unrealised gain/(loss) on cash flow hedges (Note 13(b)) 563 656 Income tax expense reported in equity 563 656

Reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the organisation’s effective income tax rate for the year ended 30 June 2008: Accounting profit/(loss)before tax (1,967) (38) Income tax at statutory rate of 30% (2007: 30%) (590) (12) Adjustments in respect of current income tax of previous years – – Income tax expense reported in Income Statement (590) (12)

(b) deferred Income Tax Deferred income tax as at 30 June 2008 relates to the following: Deferred Income Tax Liabilities Balance Sheet Derivative instruments (Note 9) 1,564 1,002 Gross deferred income tax liabilities 1,564 1,002

Income Statement Derivative instruments – fair value movement – 69 Deferred income tax expense – 69

Deferred Income Tax Assets Balance Sheet Joint venture expenses – currently deductible 663 743 Gross deferred income tax assets 663 743

Income Statement Joint venture expenses – currently deductible 80 132 Deferred income tax expense 80 132

63 Delta Electricity Australia Pty. Ltd Notes to and forming part of the Financial Report For Year Ended 30 June 2008

2008 2007 $’000 $’000

6. Cash and Cash Equivalents Bank 502 13 502 13

7. trade and Other Receivables (a) Current Advance Receivable from Parent 40 25 Other Receivables 174 457 214 482

(b) non-current Other Receivables 1,094 9 1,094 9

Advance Receivable from Parent and Other Receivables are carried at nominal amounts due less an allowance for any uncollectible amounts. Collectibility from debtors is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that Delta Electricity Australia Pty. Ltd will not be able to collect the debt. There were no doubtful debts at reporting date (2007: $Nil). Funds from current receivables are due within 42 days of reporting date. There were no trade debtors and other receivables past due or impaired at reporting date (2007: $Nil).

8. Inventories Fuel Stocks 920 – 920 –

9. other Financial Assets (a) Current Interest Rate Swaps – cash flow hedges 229 – 229 –

(b) non-current Interest Rate Swaps – cash flow hedges 4,985 3,339 4,985 3,339 Refer to Note 18 for further information on Other Financial Assets.

10. Property, Plant and Equipment (a) reconciliation by Asset Classes Power Stations – Plant and Total Year ended 30 June 2008 Equipment $’000 Carrying amount at 1 July 2007 85,312 85,312 Additions 19,878 19,878 Depreciation Expense – – Carrying amount at 30 June 2008 105,190 105,190

At 1 July 2007 Fair value 85,312 85,312 Accumulated depreciation and impairment – – Net carrying amount 85,312 85,312

At 30 June 2008 Fair value 105,190 105,190 Accumulated depreciation and impairment – – Net carrying amount 105,190 105,190

The above table includes work in progress for plant and equipment of $105,190,000 (2007: $85,312,000). All plant and equipment is currently under construction.

64 Delta Electricity Australia Pty. Ltd Notes to and forming part of the Financial Report For Year Ended 30 June 2008

10. Property, Plant and Equipment (Continued) (a) reconciliation by Asset Classes (continued) Power Stations – Plant and Total Year ended 30 June 2008 Equipment $’000 Carrying amount at 1 July 2006 45,832 45,832 Additions 39,480 39,480 Depreciation Expense – – Carrying amount at 30 June 2007 85,312 85,312

At 1 July 2006 Fair value 45,832 45,832 Accumulated depreciation and impairment – – Net carrying amount 45,832 45,832

At 30 June 2007 Fair value 85,312 85,312 Accumulated depreciation and impairment – – Net carrying amount 85,312 85,312

2008 2007 $’000 $’000

(b) Carrying Amount of Asset Classes if Valued Using the Cost Model If property, plant and equipment were measured using the cost model, the carrying amounts would be as follows: Power Stations Plant and Equipment At cost 105,190 85,312 Less: accumulated depreciation – – Total Written Down Value of Property, Plant and Equipment 105,190 85,312

11. trade and Other Payables Current Accounts Payable 1,364 3,830 Advance from Parent Entity 42,143 17,592 43,507 21,422

Accounts Payable represents amounts to be paid in the future for goods received and services provided at reporting date. These liabilities are usually settled within 30 days. Under the terms of a Deed of Capital Contribution agreement dated 11 October 2001, Delta Electricity (parent entity) is required to provide specified funding to Delta Electricity Australia Pty. Ltd to enable the company’s participation in a joint venture operation. Funding is currently provided as an interest free advance and is repayable on demand. Delta Electricity has current approval under the Public Authorities (Financial Arrangements) Act to advance up to $48.8 million (2007: $43.8 million) to Delta Electricity Australia Pty. Ltd. At reporting date, $42,143,000 (2007: $17,592,000) of this limit had been utilised.

12. Borrowings (a) Current Bank Loans – secured 2,316 – 2,316 – (b) Non-current Bank Loans – secured 67,679 68,678 67,679 68,678

The Bank Loans are secured over the property of Delta Electricity Australia Pty. Ltd. Following practical completion of generation plant construction, bank loan repayments are scheduled at six monthly intervals.

65 Delta Electricity Australia Pty. Ltd Notes to and forming part of the Financial Report For Year Ended 30 June 2008

13. Equity (a) Contributed Equity 2008 2007 $’000 $’000

Balance at beginning of year 0.002 0.002 Share capital paid up by parent entity – – Contributed Equity at end of year 0.002 0.002

(b) reserves Hedging Reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Balance at beginning of year 1,958 428 Gain on Cash Flow Hedges Interest Rate Swaps 2,575 2,325 Tax Effect (773) (698) Transferred to Initial Carrying Amount of Hedged Item Interest Rate Swaps (700) (139) Tax Effect 210 42 Hedging Reserve at end of year 3,270 1,958

(c) retained Profits Balance at beginning of year (3,162) (3,136) Profit/(Loss) for the Period after Related Income Tax Expense (1,377) (26) Retained Profits/(Losses) at end of year (4,539) (3,162)

14. Jointly Controlled Assets and Operations (a) description The principal activity of Delta Electricity Australia Pty. Ltd is the participation in a joint venture operation called Sunshine Electricity to design, construct and operate renewable energy generation capacity in New South Wales. Delta Electricity Australia Pty. Ltd has a 50% participating interest in the joint venture and is entitled to 50% of the output. The remaining 50% participating interest is held by Sunshine Renewable Energy Pty. Ltd. Delta Electricity Australia Pty. Ltd has acquired one of the two $1 ordinary shares in Sunshine Electricity Management Pty. Ltd. The remaining $1 ordinary share was acquired by Sunshine Renewable Energy Pty. Ltd. Sunshine Electricity Management Pty. Ltd was established specifically as an agent for the joint venture partners. (b) Share of Assets The entity’s interest in assets employed in the jointly controlled assets joint venture is detailed below: Cash and Cash Equivalents 20 3 Inventories 920 – Trade and Other Receivables 191 30 Total Current Assets 1,131 33

Receivables 1,094 9 Property, Plant and Equipment 105,190 85,312 Total Non-current Assets 106,284 85,321

Total Assets 107,415 85,354

15. Expenditure Commitments Expenditure contracted for at reporting date but not recognised as liabilities in the Balance Sheet: (a) Capital – Plant and Equipment Payable no later than one year 2,302 16,391 Payable later than one, not later than five years – – Payable later than five years – – 2,302 16,391

66 Delta Electricity Australia Pty. Ltd Notes to and forming part of the Financial Report For Year Ended 30 June 2008

15. Expenditure Commitments (Continued) (b) operating (excluding lease commitments) – Operational and Maintenance 2008 2007 $’000 $’000

Payable no later than one year 370 1,829 Payable later than one, not later than five years 1,375 1,417 Payable later than five years 3,494 3,823 5,239 7,069 Delta Electricity Australia Pty. Ltd expects to receive input tax credits from the Australian Taxation Office totalling $209,000 (2007: $1,622,000) for Goods and Services Tax paid for these commitments.

16. Operating Lease Commitments Future operating lease rentals contracted for at reporting date but not recognised as liabilities in the Balance Sheet: Payable no later than one year 7 7 Payable later than one, not later than five years 32 31 Payable later than five years 272 280 311 318

Delta Electricity Australia Pty. Ltd has entered into a number of leases in respect of the Sunshine Electricity Joint Venture to support operating activities. The leases have varying terms, escalation clauses and renewal rights and are due to expire within 17 to 43 years. Delta Electricity Australia Pty. Ltd expects to receive input tax credits from the Australian Taxation Office totalling $28,000 (2007: $29,000) for Goods and Services Tax paid for these commitments.

17. Contingent Liabilities and Contingent Assets There were no known contingent liabilities or contingent assets in existence at reporting date.

18. Financial Instruments (a) Capital Risk Management Delta Electricity Australia Pty. Ltd manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through optimisation of debt and equity balance. The capital structure is reviewed each year as part of the development and finalisation of the business plan and budget. The capital structure consists of cash and cash equivalents, borrowings and total equity consisting of contributed equity, reserves and retained profits as disclosed in Note 6, Note 12, and Note 13 respectively. During the construction phase, funds are sourced from private borrowings and advances from the parent company. The overall strategy remains unchanged from 2007. (b) Categories of Financial Instruments The carrying amounts of Delta Electricity Australia Pty. Ltd’s financial instruments are outlined in the following table.M anagement considers that the carrying amounts of financial assets and liabilities in the financial statements approximate fair value.

Financial Assets Cash and Cash Equivalents 502 13 Loans and Receivables 1,182 376 Derivative Instruments – Designated in Hedge Accounting Relationships 5,214 3,339 6,898 3,728

Financial Liabilities Payables and Borrowings 113,502 90,100 113,502 90,100

(c) financial Risk Management Objectives Delta Electricity Australia Pty. Ltd’s current activities expose the organisation to a variety of financial risks including market risk (interest risk), credit risk and liquidity risk. The organisation aims to minimise the effects of these risks by using approved derivative financial instruments where appropriate. Delta Electricity Australia Pty. Ltd does not enter into or trade financial instruments for speculative purposes. (d) Interest Rate Risk Management Delta Electricity Australia Pty. Ltd debt is in the form of bank loans taken out to fund construction of electricity generation facilities. The entity has entered into three long-term interest rate swaps for the duration of its externally funded debt with the aim of fixing interest payments. The swaps are used to alter and modify the natural risks inherent in the Balance Sheet.

67 Delta Electricity Australia Pty. Ltd Notes to and forming part of the Financial Report For Year Ended 30 June 2008

18. Financial Instruments (Continued) (d) Interest Rate Risk Management (continued) 2008 2007 $’000 $’000

The nominal principal amounts and periods of expiry for interest rate swaps and futures held at reporting date were: Interest Rate Swaps Less than one year 2,968 2,316 One to five years 17,559 15,508 Greater than five years 47,157 52,176 67,684 70,000

The total notional amount of interest rate swaps for the consolidated entity is $67,684,000 with Delta Electricity Australia Pty. Ltd receiving floating interest and paying fixed interest. These instruments are recognised on the Balance Sheet at fair value. The fair value of interest rate swaps represents the amount Delta Electricity would expect to receive or pay on the termination of contracts at reporting date. For instruments which qualify as cash flow hedges and meet the conditions of hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year. For instruments that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year. The weighted average interest exposure on financial assets is 6.5% (2007: 6.1%), while weighted average interest exposure on financial liabilities is 7.5% (2007: 7.3%). A 1.0% increase/(decrease) in interest rates would decrease/(increase) post tax profit by $2,000 (2007: $Nil) and decrease/(increase) other equity (tax effected) by $16,000 (2007: $9,000). (e) Credit Risk Exposures The credit risk on financial assets which have been recognised on the Balance Sheet is generally the carrying amount. The credit risk is regarded as minimal as cash and receivables are currently held with creditworthy counterparties. (f) liquidity Risk Management Delta Electricity Australia Pty. Ltd manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring that sufficient funding facilities are available. The following table set out the remaining contractual maturity for financial liabilities.

Maturity Dates < 1 year 1-5 years > 5 years Total $’000 $’000 $’000 $’000

2008 Financial Liabilities Fixed interest rate instruments 2,316 15,508 52,171 69,995 Non-interest bearing instruments 43,507 – – 43,507 45,823 15,508 52,171 113,502

2007 Financial Liabilities Fixed interest rate instruments 68,678 – – 68,678 Non-interest bearing instruments 21,422 – – 21,422 90,100 – – 90,100

19. Notes to the Cash Flow Statement (a) Cash and Cash Equivalents For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash at bank and in hand, short-term deposits and short-term investments, net of outstanding bank overdrafts and borrowings which are used in the cash management function on a day to day basis. (b) reconciliation of Cash and Cash Equivalents Cash and cash equivalents at the end of the financial year as shown in the Cash Flow Statement is reconciled to the related items in the Balance Sheet as follows:

68 Delta Electricity Australia Pty. Ltd Notes to and forming part of the Financial Report For Year Ended 30 June 2008

19. Notes to the Cash Flow Statement (continued) (b) reconciliation of Cash and Cash Equivalents (continued) 2008 2007 $ $

Cash and Cash Equivalent Assets 502 13 Balance as per Cash Flow Statement 502 13

(c) dividends and Taxes No dividends were received during the period (2007: $Nil). There were no dividend or tax equivalent payments during the period (2007: $Nil). (d) acquisitions and Disposal of Entities There were no acquisitions or disposals during the year. (e) financing Arrangements Facilities Available Project Borrowing Facility 70,000 70,000 Total Available 70,000 70,000 Facilities Utilised Project Borrowing Facility 69,995 68,678 Total Utilised 69,995 68,678

(f) reconciliation of Profit/(Loss) for the Year after Related Income Tax Expense to Net Cash Provided/(Used) by Operating Activities Profit/(Loss) for the Period after Related Income Tax Expense (1,377) (26) Net Changes in Assets and Liabilities During the Period (Increase)/Decrease in Other Debtors (947) 138 (Increase)/Decrease in Inventories (651) – (Increase)/Decrease in Other Assets – (234) Increase/(Decrease) in Payables 336 96 Increase/(Decrease) in Income Tax Related Assets/Liabilities (590) (12) Increase/(Decrease) in Other Liabilities – – Net Cash Provided/(Used) by Operating Activities (3,229) (38)

20. Related Party Disclosures (a) Key Management Personnel The Directors of the entity at 30 June 2008 were Mr JP Henness and Mr WL Phillips. Mr JP Henness and Mr WL Phillips were directors for the full financial year. The above officers are also Directors of the parent entity. No additional remuneration is provided for being a Director of Delta Electricity Australia Pty. Ltd. (b) ultimate Parent Entity The ultimate parent entity at reporting date is Delta Electricity. (c) related Party Transactions The following table provides details of transactions that were entered into with related parties: Purchases/ Amounts owed Advance to Advance from (Sales) from to Related Related Parties Related Parties Related Parties Parties Related Party $’000 $’000 $’000 $’000

Delta Electricity 2008 – 24,551 1,553 42,143 2007 – 10,223 1,175 17,592

Sunshine Electricity Joint Venture 2008 555 – – 40 2007 168 – – 25

21. Events Occurring After Reporting Date In December 2007, the NSW Government announced a plan to secure the State’s future energy supply by announcing it would accept the key recommendations of the Owen Inquiry into Electricity Supply in NSW. The proposed reforms involved the lease of existing power generators and the transfer of the retail activities of the electricity distributors to the private sector. On 28 August 2008, the NSW Government announced a revised plan that involves the transfer of retail activities of the distributors and the sale(s) of generation development sites to the private sector. At this time, the NSW Government has not finalised its strategy. Delta Electricity Australia Pty. Ltd shall await the outcome of these deliberations to establish the potential effect of the strategy on its operations. End of Audited Financial Report 69 Delta Electricity Australia Pty. Ltd Statement by Members of the Board For Year Ended 30 June 2008

Pursuant to Section 41C of the Public Finance and Audit Act, 1983, and in accordance with a resolution of Delta Electricity Australia Pty. Ltd, we declare on behalf of Delta Electricity Australia Pty. Ltd that in our opinion: 1. The accompanying Financial Statements exhibit a true and fair view of the financial position of Delta Electricity Australia Pty. Ltd as at 30 June, 2008 and its performance for the year ended on that date. 2. The accompanying Financial Statements are a general purpose financial report which has been prepared in accordance with Australian Accounting Standards including Australian Accounting Interpretations, the New South Wales Public Finance and Audit Act and Regulation, and requirements of the State Owned Corporations Act, 1989 (as amended). 3. At the date of this statement, there are reasonable grounds to believe that Delta Electricity Australia Pty. Ltd will be able to pay its debts as and when they become due and payable. 4. We are not aware of any circumstances at the date of this declaration that would render any particulars included in the financial report to be misleading or inaccurate.

Warren Phillips Jim Henness DIRECTOR CHIEF EXECUTIVE 18 September 2008 18 September 2008

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