HydroTasmaniaReport Our Vision is to be Tasmania’s world-renowned 05 renewable energy business Hydro Tasmania Annual Report 2004/2005 incorporating the inaugural Sustainability Report Sustainable Development: HydroTasmania Contact Hydro Tasmania development that meets Head Office: Adelaide: Papua New Guinea: the needs of the present 4 Elizabeth Street 176 Fullarton Road, PO Box 327 Hobart Dulwich Port Moresby, without compromising the Tasmania South Australia 5065 NCD 121 Papua New Guinea Postal Address: Phone: +61 8 8364 3111 Report ability of future generations GPO Box 355 Fax: +61 8 8364 3222 Phone: (675) 321 3252 Hobart Fax: (675) 321 1647 Melbourne: to meet their own needs. Tasmania, 7001 Australia Level 20 31 Queen Street Website: www.hydro.com.au (United Nations Brundtland Commission, 1987) Phone within Australia: 1300360441 Melbourne Phone international: +61 3 6271 6221 Victoria Fax: +61 3 62305823 Phone: +61 3 8628 9700 Fax: +61 3 8628 9750 Directors Statement To the Hon Bryan Green MHA, Minister for Infrastructure, Energy and Resources, in compliance with requirements of the Government Business Enterprises Act 1995. In accordance with Section 55 of the Government Business Enterprises Act 1995, we hereby submit for your information and presentation to Parliament the report of the Hydro-Electric Corporation for the year ended 30 June 2005. The report has been prepared in accordance with the provisions of the Government Business Enterprises Act 1995. DM Crean Chairman Hydro-Electric Corporation 19 October 2005 GL Willis CEO Hydro-Electric Corporation 19 October 2005 Hydro-Electric Corporation ARBN 072 377 158 ABN 48 072 377 158 Hydro Tasmania Values We always behave with honesty and integrity We work together, respect each other and value our diversity We strive to deliver outstanding service We are committed to creating a sustainable future Our positive and determined approach ensures success Table of Contents Achievements and Challenges for 2004/2005 3 Chairman’s Review 5 Chief Executive’s Report 9 Reporting Scope 12 The Business Profile 13 Directors and Board Committees 16 Energy 21 Renewables Development 27 Hydro Tasmania Consulting 33 Corporate Support Services 39 Corporate Division 40 Human Resources 41 Public Relations 42 The Sustainability Report 43 Hydro Tasmania Sustainability Policy 44 Sustainability at Hydro Tasmania 45 Sustainability Performance 46 Summary 46 Sustainability Results 46 Governance 49 Operations 51 Market 54 Financial 56 Employee Capability and Opportunity 58 Health and Safety 60 Community 62 Ecosystems and Heritage 65 Suppliers and Partners 68 External Sustainability Assurance 70 GRI Reference Index 72 Statement of Corporate Intent 73 Financial Statements 81 Independent Audit Report 117 Statistical Summary 118 Glossary 121 Reader’s Feedback 123 Contact Hydro Tasmania Hydro Tasmania Annual Report 2004/2005 incorporating the inaugural Sustainability Report Achievements and Challenges for 2004/2005 Achievements • Record after tax profit of $44.4 million, a 25 per cent increase over the previous record of $35.5 million in 2003/2004 • Capital expenditure of $92.8 million, including $63.8 million on asset refurbishment • Returns to Government of $74 million - dividend $40 million - income tax equivalent $30 million - loan guarantee fee $4 million • 5.5 per cent increase in sales revenue • Formal entry to National Electricity Market on 29 May 2005 • Full year operation of Woolnorth Bluff Point Wind Farm • Construction of 66-megawatt Cathedral Rocks Wind Farm in South Australia • Project work for Hydro Tasmania Consulting in Papua New Guinea, South Korea, New Zealand, Malaysia, Sri Lanka and Fiji • Restoration of meromictic Lake Fidler in World Heritage Area • 29,000 visitors to Hydro Tasmania’s information centres • 8,000 visitors to Hands On Energy Discovery Centre Challenges • Prudent management of water resources, with 11 months of below average rainfall seeing inflows at 75.2 per cent of long-term average • Greater than expected use of thermal support from the gas-fired Bell Bay Power Station • Preparations for National Electricity Market entry • Planning for the future of Renewables Development following the Federal Government’s Mandatory Renewable Energy Target decision • Pursuit of project approvals for the Musselroe and Heemskirk Wind Farms, and for the Smithton to Burnie transmission line • Focused expansion of Hydro Tasmania Consulting’s client base • Revaluation of assets and impact of new accounting standards decreasing the value of assets • Improved safety performance as measured by the Lost Time Injury Frequency Rate • Development of systems to embed sustainability principles into business processes Hydro Tasmania Annual Report 2004/2005 incorporating the inaugural Sustainability Report Hydro Tasmania Annual Report 2004/2005 incorporating the inaugural Sustainability Report In the year Hydro Tasmania continued to build on its 90-year history as a sustainable, renewable energy generator Chairman’s Review The past year was one of considerable achievement for running Bell Bay Power Station longer than expected Hydro Tasmania as we progressed from a successful due to low water storages and poor rainfall, continued renewable energy producer to a producer and trader preparation for entry to the National Electricity Market, in the National Electricity Market, expanded our wind and funding of growth in the Consulting business. farm development in Tasmania and South Australia, and Total capital investment of $92.8 million was made in the broadened our client base for specialist consulting. hydro-generation assets upgrade and modernisation In the year Hydro Tasmania continued to build on its program and wind farm developments in Tasmania 90-year history as a sustainable, renewable energy and South Australia. generator by introducing sustainability principles into A number of factors adversely affected the its business. The Sustainability Policy articulates our statement of financial position presentation commitment to continual improvement and leadership of net assets. In particular, our generation in sustainability and this year we present our first assets are represented in the statement at sustainability report within this annual report. fair value. This fair value was reassessed Hydro Tasmania produced an excellent financial result in 2005 to incorporate the latest revenue for the year with $44.4 million profit after tax, an projections, resulting in a reduction in increase of 25 per cent on last year’s figure. This was generation asset value by $523 million to achieved through sales revenue increasing by 5.5 per $2.54 billion. These revised projections cent, expanded Consulting activities, lower debt costs reflected lower than expected real electricity and lower depreciation. Returns to Government of prices and current low pool prices. $74 million were 8 per cent lower than last year due This asset revaluation will not have any to reduction in the special dividend, as agreed with negative impact on the business cash Government, and to reduced tax equivalent payments. flows, or net profit. The combined Basslink A 7 per cent increase in costs was brought about by rights and obligations make a net positive contribution to the calculation of asset value. Chairman In addition, in 2005/2006 the Corporation is required to adopt new Australian Accounting Standards that Dr David Crean are aligned to international standards. This will result in a further $548.5 million reduction in net assets, due $88 M primarily to an increase in deferred tax liability and Direct Returns $83.4 M provision for retirement benefits. to Government We continue to progress our vision to be Tasmania’s $80.3M world-renowned renewable energy business, building on our skills and reputation to expand our horizons $74.0M beyond Tasmania with increased business activities Direct returns to interstate and overseas. Underpinning this growth $69 M Government outside our traditional boundary is a philosophy year ending 30 June: of bringing the benefits back to Tasmania through $74.0M increased revenue and returns to Government and enhanced skills and experience for our people. 01 02 03 04 05 Hydro Tasmania Annual Report 2004/2005 incorporating the inaugural Sustainability Report Hydro Tasmania Annual Report 2004/2005 incorporating the inaugural Sustainability Report Signing a co-operation agreement with Chinese electricity generation company, China Datang Corporation in Canberra in May 2005 A major highlight of the year was Tasmania’s entry to Hydro Tasmania is well positioned to continue its leadership the National Electricity Market (NEM) on 29 May 2005, role in the Australian renewable energy market in which it with Hydro Tasmania meeting all of its pre-conditions produces some 60 per cent of Australia’s electricity from to become a participating market generator. When the renewable energy sources. The renewable development Basslink interconnection is commissioned in April 2006, and system enhancements now in hand will strengthen physically linking the Tasmanian electricity system to the this position, significantly enhancing the long-term value of national grid, we will begin to realise the value of the the business, expanding revenues and commercial returns synergy of our wind and water generation as we take to Tasmania. advantage of market conditions to fully implement our In Tasmania, the 54-megawatt second stage of the trading strategy. Woolnorth Wind Farm was completed during the year The prolonged dry conditions