Annual Report 2008 Eraring Energy Letter to the Voting Shareholders The Hon. Eric Roozendaal MLC The Hon. Joseph Tripodi MP Treasurer Minister for Finance Minister for Infrastructure Level 36 Minister for Regulatory Reform Governor Macquarie Tower Minister for Ports and Waterways 1 Farrer Place Sydney NSW 2000 Level 31 Governor Macquarie Tower 1 Farrer Place Sydney NSW 2000 Dear Shareholders On behalf of the Board, we have pleasure in submitting the Eraring Energy Annual Report and Financial Statements for the year ended 30 June 2008. This Report has been prepared in accordance with the requirements of Section 24A of the State Owned Corporations Act 1989, and the Annual Reports (Statutory Bodies) Act 1984. It is submitted for presentation to both houses of Parliament. R M Bunyon, AM Peter Jackson Chairman Managing Director Overview 1 Board of Directors 3 Chairman’s Report 4 Managing Director’s Report 5 Highlights 6 Economic Performance 8 Environmental Performance 16 Social Performance 21 Governance 30 Financial Statements 39 Index 76 Overview Eraring Energy 1 Eraring Energy is a state-owned Eraring Energy manages a diverse The generation portfolio consists of corporation established on portfolio of coal fired, wind, hydro ten generating assets, with total 2 August 2000 under the State and pumped storage electricity capacity of over 3,000 Megawatts Owned Corporations Act 1989, the generating assets located (MW), with Eraring Power Station Energy Services Corporation Act throughout New South Wales. being the largest at 2,640 MW. 1995 and Energy Services Eraring Energy supplies Corporation (Eraring Energy) approximately 9% of the energy Regulation 2000. requirement of the National Electricity Market. Under the provisions of the State Owned Corporations Act, Eraring Energy is required to operate as a commercial enterprise and not represent the Crown or benefit from Crown guarantees. Keepit Eraring Blayney Warragamba Crookwell Shoalhaven Burrinjuck Hume Coal Fired Wind Hydro Brown Mountain Capacity Generating Asset Unit(s) size (MW) Fuel Source Eraring Power Station 4 x 660 MW 2,640 Black Coal Gas Turbine 1 x 40 MW 40 Diesel Shoalhaven Scheme – 2 x 40 MW 80 Hydro/Pumped Storage Bendeela Station Shoalhaven Scheme – 2 x 80 MW 160 Hydro/Pumped Storage Kangaroo Valley Station Hume Power Station 2 x 29 MW 58 Hydro Warragamba Power Station 1 x 50 MW 50 Hydro Burrinjuck Power Station 1 x 16 MW 27 Hydro 2 x 5.6 MW Keepit Power Station 1 x 6.5 MW 7 Hydro Brown Mountain 1 x 1 MW 5 Hydro Power Station 1 x 4.35 MW Blayney Wind Farm 15 x 660 KW 10 Wind Crookwell Wind Farm 8 x 600 KW 5 Wind 2 Eraring Energy Overview “ BY DEVELOPING AND involving OUR PEOPLE, ERARING ENERGY WILL BE A LEADER IN THE CHANGING ENERGY ENVIRONMENT” OBJECTIVES Eraring Energy will achieve this leadership position by focusing on the following strategic areas: Eraring Energy’s principle objectives, as set out in the State Owned Corporations • People Development and Involvement – Eraring Energy will continue to work Act 1989, are: towards the company vision through four key pillars: shaping our culture; developing our people; rewarding and recognising our people, and planning for a) to be a successful business and, to the future. These pillars focus on our people being the best in the industry, with this end; to operate at least as the major aim being to maximise internal capacities to capitalise on electricity efficiently as any comparable market opportunities. business, and to maximise the net worth of the State’s investment in it; • Health and Safety – Staff, contractor and visitor safety has been, and will continue to be, a major focus of the organisation. b) to exhibit a sense of social responsibility by having regard to the • Positive and Productive Stakeholder Relationships – Eraring Energy will proactively interests of the community in which engage key stakeholders in supporting the achievement of business aims, it operates; particularly in the area of business development; license to operate; changes to regulatory policy; and meeting our Shareholders’ expectations. c) where Eraring Energy’s activities affect the environment, to conduct • Greenhouse Response – In response to ongoing community, Government and its operations in compliance with the regulatory debate, Eraring Energy has committed to taking a leadership role in principles of ecologically sustainable reducing greenhouse gases, including operating and trading its existing renewable development contained in Section 6 assets to maximum benefit. (2) of the Protection of the • Environmental Excellence – Eraring Energy seeks to achieve environmental Environment Administration Act leadership through its Environmental Excellence Strategies. In particular, Eraring 1991; and Energy will take a proactive and leading position on practical management and d) to exhibit a sense of responsibility reduction of its impact on the environment. towards regional development and decentralisation in the way it operates. Each of the principle objectives is of equal importance. Board of Directors Eraring Energy 3 NON EXECUTIVE DIRECTORS EXECUTIVE DIRECTOR Ross Bunyon, AM Dean Pritchard Peter Jackson Chairman and Director Director Managing Director BComm (UNSW), CIE Aust BE, FIE Aust, CP Eng, FAICD BSc, BE, MEM GAICD Director/Consultant Director Appointed 11 September 2006 Appointed 21 July 2000 continuing with Appointed 22 August 2001 continuing reappointment to 30 June 2009 with reappointment to 30 June 2010 Rochelle Reynolds Company Secretary Beverley Hoskinson-Green LLB, BCom, Grad Dip CSP Michael Vertigan, AC Director Director Appointed Company Secretary Solicitor/Director, Suzie Broome & BEc (Hons) Tasmania, PhD California, 1 October 2004 - on extended leave Company Pty Limited, Strata Lawyers FAICD from 17 April 2007 to Appointed 21 July 2000 continuing with 3 December 2007 Director/Consultant reappointment to 30 June 2008 Philip Russell appointed Acting Appointed 21 July 2000 continuing with Reappointed to 30 June 2010 Company Secretary for period reappointment to 30 June 2008 17 April 2007 to 3 December 2007 Reappointed to 30 June 2010 Peter Murray, OAM Director GAICD General Secretary, Construction, Forestry, Mining and Energy Union (Unions NSW nominee) Appointed 1 September 2006 to 31 August 2008 Michael Nugent Director FCPA Director Appointed 1 July 2001 continuing with reappointment to 30 June 2010 Resigned 29th August 2008 4 Eraring Energy Chairman’s Report I am pleased to report that Eraring Eraring Power Station; creation of an 820Ml cooling water attemperation Energy has posted yet another strong reservoir to extend summer peaking trading performance. This year’s result operation; and life extension of the Eraring Power Station coal combustion continues the organisation’s excellent product system - all of which gained financial and business performance. development approval and/or Eraring Energy has continued its focus commenced works in the period. on infrastructure investment and on Other than super critical stations, Eraring Power Station is the most improving safety performance during energy efficient coal fired power station the reporting period. The external environment continues in Australia. to provide a number of challenges, including reduced spot Occupational Health and Safety has been an enduring focus of both the market prices and regulatory changes. Board and staff of Eraring Energy, and this was rewarded with the posting, in Earnings Before Interest, Tax, The Federal Government’s Emission January 2008, of a record low Lost Time Depreciation and Amortisation (EBITDA) Trading Scheme (ETS) design was Injury (LTI) rate of 1 injury per 1,000,000 from underlying operations was progressed, with the February 2008 hours worked. The Board and I $270.2 million. This strong performance release of the States and Territories congratulate staff on this important is supported by a record Gross Margin Garnaut Climate Change Review interim achievement. result. report and the release of the Federal Government’s Green Paper. Both Our focus this year will be on cost This continued record performance has reports indicate a preference for no reduction, efficiency improvements and been achieved in a market that has seen price caps on emissions and very limited delivery on major capital projects. average spot price fall 40% from the permit allocations to generators. These drought induced highs of the previous Further, on behalf of the Board, themes present a challenge to electricity period and conservative bidding I acknowledge the widespread generators, with various industry studies behaviour of competitors in response to, commitment of all members of the suggesting an inability to fully pass among other factors, the significantly Eraring Energy team to achieving our through the increased costs to negative Electricity Tariff Equalisation leadership goals and thank them for customers. Eraring Energy has Fund (ETEF) balance. their contribution to another previously demonstrated industry exceptional year. The reporting period saw significant leadership in successfully trading activity regarding energy industry policy challenging inherited positions and looks developments at both State and forward to repeating this performance in Federal levels. the future ETS regime. Ross Bunyon, AM Eraring Energy celebrated significant Chairman milestones through the year, with the Shoalhaven Hydro Scheme’s 30th anniversary and Hume Hydro Station’s 50th anniversary. These events serve to underline the long term nature of the industry,