Hydro Tasmania Annual Report 07 Australia’s leading renewable energy business Achievements & Challenges for 2006/07 Achievements Ensuring Utilising Basslink Profit after tax Returns to Sale of Bell Bay Capital Further investment Targeted cost Slight increase in Hydro Tasmania Hydro Tasmania Integration of continuity of helps manage low of $79.4 million; Government of power site and gas expenditure of in Roaring 40s of reduction program staff engagement Consulting office Consulting sustainability electricity supply water storages underlying $57.8 million turbines to Alinta $54.2 million, $10 million as joint realises recurrent with Hydro opened in New achieved national performance to Tasmania in profit of • Dividend including Gordon venture builds savings of Tasmania among Delhi success as part reporting time of drought $19.5 million $21.2 million Power Station wind portfolio in $7.7 million the better of bid to receive better reflects • Income tax redevelopment Australia, China performing an $8.7 million operating result equivalent and Tungatinah and India businesses grant for a major and takes account $28.7 million switchyard nationally water monitoring of impact of low • Loan guarantee upgrade project inflows fee $5.1 million • Rates equivalent $2.8 million Challenges Operational and financial Protection of water Environmental risks Restructuring the Business response to Improving safety Increased greenhouse The direction of national Continuous improvement pressures as a result of storages as levels dipped as a result of low business to ensure it climate change culture across the whole gas emissions from energy policy in sustainability drought to 17.3 per cent full, the rainfall, particularly is best positioned to business gas generation at reporting lowest in 40 years at Great Lake achieve its strategic Bell Bay power site objectives due to drought Achievements & Challenges for 2006/07 Ensuring Utilising Basslink Profit after tax Returns to Sale of Bell Bay Capital Further investment Targeted cost Slight increase in Hydro Tasmania Hydro Tasmania Integration of continuity of helps manage low of $79.4 million; Government of power site and gas expenditure of in Roaring 40s of reduction program staff engagement Consulting office Consulting sustainability electricity supply water storages underlying $57.8 million turbines to Alinta $54.2 million, $10 million as joint realises recurrent with Hydro opened in New achieved national performance to Tasmania in profit of • Dividend including Gordon venture builds savings of Tasmania among Delhi success as part reporting time of drought $19.5 million $21.2 million Power Station wind portfolio in $7.7 million the better of bid to receive better reflects • Income tax redevelopment Australia, China performing an $8.7 million operating result equivalent and Tungatinah and India businesses grant for a major and takes account $28.7 million switchyard nationally water monitoring of impact of low • Loan guarantee upgrade project inflows fee $5.1 million • Rates equivalent $2.8 million Operational and financial Protection of water Environmental risks Restructuring the Business response to Improving safety Increased greenhouse The direction of national Continuous improvement pressures as a result of storages as levels dipped as a result of low business to ensure it climate change culture across the whole gas emissions from energy policy in sustainability drought to 17.3 per cent full, the rainfall, particularly is best positioned to business gas generation at reporting lowest in 40 years at Great Lake achieve its strategic Bell Bay power site objectives due to drought Directors Statement To the Hon David Llewellyn MHA, Minister for Energy, 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 2007. The report has been prepared in accordance with the provisions of the Government Business Enterprises Act 1995. D M Crean Chairman Hydro-Electric Corporation 17 October 2007 V J Hawksworth CEO Hydro-Electric Corporation 17 October 2007 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 Contents Achievements and Challenges for 2006/07 cover Chairman’s Review 3 Chief Executive’s Report 7 REPORT SCOPE/BUSINESS PROFILE 11 Report Scope 13 Our Sustainability Performance 15 Hydro Tasmania’s Profile 17 The Board 20 Executive Team 24 Roaring 40s 26 OUR DIRECTION 29 Statement of Corporate Intent 31 Managing Water Levels 37 Climate Change 38 BUSINESS PERFORMANCE 41 Governance 43 Operations 46 Market 54 Finance 58 STAKEHOLDERS 63 Employee Capability and Opportunity 65 Health and Safety 70 Community 74 Suppliers and Partners 78 ECOSYSTEMS 81 Ecosystems and Heritage 83 FINANCIAL STATEMENTS 91 STATEMENTS, SUMMARIES AND STATISTICS 145 Sustainability Summary 147 Assurance Statement 149 Statistical Summary 151 Glossary 154 GRI Index 155 Feedback 157 Electronic version of Hydro Tasmania Annual Report 07 inside back cover Chairman’s In the past 12 months, Review Hydro Tasmania experienced one of its worst years on record in terms of poor inflows and declining storage levels, which fell below 20 per cent full for the first time since 1967. David Crean, Chairman 3 Chairman’s Review In the past 12 months, Hydro Tasmania experienced storages to assist in absorbing the impact of the low one of its worst years on record in terms of poor inflows the cash outcome would have been much inflows and declining storage levels, which fell below worse. In order to accommodate our reduced cash 20 per cent full for the first time since 1967. This has position and provide for other expenditure, net debt been a year which has challenged the business on increased from $1.061 billion to $1.141 billion. many fronts but two fundamental issues have been In times of below average rainfall it is important to acutely highlighted by the poor rainfall. maintain a balance between adequate cash flow and Firstly, as rainfall is the Corporation’s energy revenue sustainable storage levels. Achieving this balance is a stream, continued poor rainfall significantly impacts constant and high priority of the business, which is on cash flow. Secondly, Basslink provides enormous committed to creating a sustainable future. However, it is fair to say that the continued low inflows flexibility to Hydro Tasmania and has demonstrated have presented the biggest cash challenge in many its capacity to allow the business to “keep the lights decades. on” in severe drought conditions. Hydro Tasmania’s profit for the financial year was Because of the continued low rainfall, Hydro $79.4 million after tax, an increase on the previous Tasmania’s cash flow as measured after receipts and year’s result. The paradoxical situation of cash payments to suppliers and employees was falling and profit rising is a result of new Australian $87.1 million down on the previous year at accounting standards adopted by Hydro Tasmania $134.5 million. Had the business not utilised its two years ago. chairman’s review chairman’s hydro tasmania annual report 07 - 4 Guelph Basin of Lake King William Last year, I stated that these new accounting budgeted, Basslink imports were required for longer standards can cause greater volatility to reported periods at higher prices than anticipated, which profit. This is because they have brought non-cash limited export opportunities. This resulted in lower fair value movements onto the Income Statement export revenue and lower revenue from hydro and therefore impacted on profit. The increased profit generation. The low inflows also required additional is mostly a reflection of the substantial increase in gas to be purchased to run the Bell Bay Power market prices which have flowed through to the Station. valuation of Hydro Tasmania’s assets. This increase in In spite of these challenges, Hydro Tasmania valuation has been recorded in the Income Statement maintained its commitment to upgrading its assets, and goes directly to profit. as well as financing its 50 per cent share of Roaring The first full year operation of Basslink highlighted 40s’ wind developments in China and India. the timely nature of its construction and its ability Roaring 40s, which is a joint venture between Hydro to export and import over Bass Strait under a variety Tasmania and China Light and Power Group (CLP), is a of market conditions. It operated at 99.3 per cent company started from scratch by Hydro Tasmania in reliability in its first full year and has proved to 2002. It is now worth in excess of $190 million and is be a valuable long-term investment. With almost set to grow significantly over the next five years. unprecedented drought conditions in Tasmania and nationally, Basslink has enabled Hydro Tasmania to Hydro Tasmania, as Australia’s leading renewable maintain energy supply in the State by replacing the energy business, believes there will be significant shortfall in energy from poor rainfall with imported uplift in value in Roaring 40s in the years ahead as energy across the link. the world quickly moves to carbon pricing and more countries continue to provide incentives to promote However, because the inflow shortfall from poor renewable energy. rainfall was so significant and much higher than Climate change is the biggest environmental Chairman’s challenge of our time. The overwhelming scientific view is that humans are contributing substantially to this change and the burning of fossil fuels in the energy sector is the main contributor. An effective response to climate change can only be mounted if the necessary policies are put in place and only if governments throughout the world are Review prepared to drive them.