ERARING ENERGY 2003 ANNUAL REPORT
88
Annual Report 2003
Transcript of ERARING ENERGY 2003 ANNUAL REPORT
Annual Report 2003
Chairman’s Report . . . . . . . . . . . 3
Managing Director’s Report . . . 4
Board of Directors. . . . . . . . . . . . 6
Trading . . . . . . . . . . . . . . . . . . . . . . 8
Production. . . . . . . . . . . . . . . . . . 12
Pacific Western . . . . . . . . . . . . . 18
People. . . . . . . . . . . . . . . . . . . . . . 20
Environment . . . . . . . . . . . . . . . . 24
Corporate Governance . . . . . . 28
Financial Statements . . . . . . . . 35
Statutory Information . . . . . . . . 77
Index . . . . . . . . . . . . . . . . . . . . . . . 84
October 2003
Hon Michael Egan MLC
Treasurer of New South Wales,
Minister for State Development
Vice-President of the Executive Council
Hon John Della Bosca MLC
Special Minister of State,
Assistant Treasurer
Level 33
1 Farrer Place
Governor Macquarie Tower
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
30th June 2003.
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 G F Grove-White
Chariman Managing Director
Eraring Energy Letter to the Voting Shareholders
By developing and growing it’s people, Eraring Energy
will become the leading Electricity Company in Australia.
Eraring Energy Highlights2
Recorded a profit of $58 million - which exceeded the budgetedfigure for the secondconsecutive year
Derivatives trading performancesubstantially exceeded budget
Average spot price for electricityin the NEM fell for the secondconsecutive year making theprofit result even more creditable
Total generation for the periodwas 14,948GWh of electricalenergy
1.4% of total energy productionwas derived from renewableenergy sources (wind and hydro)
Commenced a major program toupgrade the unit control systemsat Eraring Power Station
Thermal efficiency for the EraringPower Station was 38.3%,which exceeded target
Eraring Power Station availabilitywas 92.5% - 2.5 percentagepoints above target
Commenced studies to examinefeasibility of increasing outputfrom Brown Mountain and Humehydro power stations
Blayney Wind Farm achieved arecord capacity factor of 26%
Posted a record 190 dayswithout a lost time injury toemployees or contractors
All staff trained in riskassessment for hazardous work
Eraring’s Pacific Westernsubsidiary recorded asignificantly increased profit aftertax of $1.99 million
Planted 4,000 trees in theenvirons of Eraring power station
Initiated a waste reductionpurchasing plan (WRAPP)
Chairman’s Report Eraring Energy 3
our client Western Power for the
renewal of this contract and it is
hoped that this process will be
successfully concluded before the
end of the calendar year.
Eraring continued to play an active
role in industry affairs during the
year and we are committed to
working with other participants to
ensure the maximum benefits of a
competitive national market system
are realised through ongoing
refinement of the current structure.
Eraring was established with the
vision of creating a best practice
organisation. Over the past twelve
months we continued to build on
the experience and success of our
first two years’ trading and I can
say with confidence that we are
significantly closer to realising this
vision. I congratulate and thank
everyone in the organisation for
their effort and commitment.
Ross Bunyon
Chairman
I am pleased to report on another
positive year of operations and
financial outcomes.
For the second successive year
the organisation has recorded a
profit in excess of budget.
The figure for this year was $58
million, a 19.78% improvement on
the previous result.
Key issues for the period included
relatively subdued energy demand
due to a combination of factors
including generally mild weather in
both summer and winter and the
flow through of the economic
impact of one of the worst
droughts in memory.
Viewed against this backdrop our
results are robust to say the least
and bring credit to the energy
production team and our energy
trading unit.
Eraring Energy is an energy trading
company backed by production
assets. This positioning is
determined by the nature of our
generation assets. Our main
physical asset is the 20 year old
4x660MW Eraring Power Station,
which is supplemented by a
portfolio of renewable generation
assets.
It is the skill and dexterity of our
trading unit and the interface of
this unit with the production team
that helps define the organisation
and, in effect, allows the
organisation to successfully ‘fight
above its weight’ given the nature
and mix of our generation assets.
The age of the Eraring Power
Station necessitated the
commencement of a planned
major upgrade of the station’s
control systems. The other
significant capital project for the
period was the installation of a new
information technology system and
platform throughout the organis-
ation providing further economies
in financial management, works
management, power station
maintenance and information
technology infrastructure
operations and maintenance.
Our Western Australian subsidiary,
Pacific Western, which has an
operations and maintenance
contract for the Collie coal-fired
power station, continued its
outstanding record of performance
and is recognised as a benchmark
setter for the industry in the region.
Negotiations are progressing with
Eraring Energy Managing Director’s Report4
I am delighted to report Eraring
Energy’s third year of operations
has been one of achievement and
progress on many fronts. The
success of Eraring has depended
on the performance of all parts of
the business and the collaborative
support provided in pursuing our
business objectives.
Our record financial result flowed
directly from outstanding commit-
ment and effort, organisation wide.
A profit of $58 million was posted
in a year of falling electricity prices
- the average spot price has fallen
for the last two years.
A feature of the price movements
this year was greater volatility than
in the past. The January summer
prices were generally higher than
would be expected but this period
was followed by very mild weather
and extremely low prices. Our
trading and production teams
excelled in this difficult environment.
It was particularly pleasing to have
a member of our trading team
named as ‘spot trader of the year’
by his industry peers. Equally, his
eschewing of any personal glory by
citing the result as a win for the
trading team reflects the spirit and
commitment that has evolved
across the organisation in three
short years.
Stringent controls on costs also
contributed to the good
commercial outcome this year as
did the high availability of the
generating asset, particularly
during the peak summer months
when trading conditions were very
strong. The above target availability
factor, reflects positively on both
the maintenance regime at the
power station and the excellence
of station management and staff.
During the year the station
underwent the longest outage in its
history for a planned major
overhaul of the turbine and boiler
of number three unit. This large
and complex job was completed
entirely to schedule and was a
credit to all involved.
One of the most significant events
of the period was the decision to
adopt a vision or mission
statement published in the opening
to this report. The core elements
are a commitment to leadership
and the development of our
people. Both have been readily
embraced and in some respects
formalise a prevailing ethos within
the organisation since inception.
We have set in train processes to
identify what constitutes leadership
in the various sectors of our
business and how it can be
measured.
Without doubt one of the surest
signals is when your peers
acknowledge your strengths or
achievements.
Managing Director’s Report Eraring Energy 5
Safety will always be our number
one priority. It is a priority borne
out of a desire to eliminate pain
and suffering among staff,
contractors and their families rather
than a concern with statistics. To
this end Eraring regards injuries to
contractors in the same vein as our
staff and all LTIFR statistics
encompass contractors as well
as staff.
Eraring recently adopted an
innovative behavioural safety
program known as “B-Safe”. It is a
voluntary program within Eraring
and the take up rate has been
excellent. The program is based
around training people to observe
the work practices of themselves
and their colleagues with a critical
eye. It promotes the identification
and resolution of any deemed
unsafe behaviour. All contractors to
Eraring have also signed on to this
program and contractors are now
integrated into our house OHS
committees. The success of the
program is evident on the shop
floor, in official figures and most
importantly at the homes of our
staff and contractors. The success
of the “B-Safe” program at Eraring
has led to many enquiries from
other industry members who
appear likely to follow Eraring with
its adoption.
A significant structural change to
management was implemented
during the year when the key
Organisational Development
function was elevated to the
executive committee and a
significant, and already very
successful, outside appointment
made.
On the business development front
we moved forward to expand our
capacity in renewables, with plans
progressed for the upgrading of
the Brown Mountain and Hume
hydro stations and a joint venture
with the view to constructing one
of Australia’s largest windfarms is
being progressed.
In terms of environmental
management we continue to be
on track to achieve ISO 14001
accreditation in September 2003.
My thanks and congratulations
to everyone at Eraring for a
successful year and a job well done!
Gerry Grove-White
Managing Director
Eraring Energy Board of Directors6
Non-Executive Directors
Ross Bunyon
Chairman and Director
BComm (UNSW), CIE Aust,
Director/Consultant
Appointed 21st July, 2000 to
30th June 2003
Reappointed to 30th June 2006
Beverley Hoskinson-Green
Director
LLB (UNSW), LL, M (Harvard)
Solicitor, Landerer &
Company Solicitors
Appointed 21st July 2000 to
30th June 2002
Reappointed to 30th June 2005
John Maitland
Director
National Secretary, Construction,
Forestry, Mining and Energy Union
Appointed 21st July 2000
continuing with reappointment to
30th June 2002
Reappointed to 30th June 2003
Michael Nugent
Director
FCPA
Director
Appointed 1st July 2001 to
30th June 2004
Dean Pritchard
Director
BE, FIE Aust, CP Eng.
Director
Appointed 22nd August 2001 to
30th June 2004
Michael Vertigan
Director
B.Ec (Hons) Tasmania,
PhD California
Director/Consultant
Appointed 21st July 2000 to
30th June 2002
Reappointed to 30th June 2005
Executive Director
Gerry Grove-White
Managing Director
BSc (MechEngr) Hons,
Chartered Engineer MI Mech.E,
Cert. Diploma in Accountancy
and Finance
Appointed Executive Director
2nd January 2001
Steven Graham
Secretary
Dip Tech (Comm)
MAICD Dip.
Appointed Secretary
11 September 2000
Eraring Energy 7
Eraring Energy Trading8R
EB
EC
CA
A
DA
MS
AN
NE
-MA
RIE
A
KLE
LIN
DS
AY
ALL
AN
AD
ELA
A
N
NE
IL
AN
DE
RS
ON
RAY
MO
ND
A
NS
ELL
ME
THS
IRI
AR
ATC
HIG
E
ER
NE
ST
AR
MS
TRO
NG
STE
PH
EN
A
US
TON
BR
ETT
B
ALD
WIN
ALA
N
BA
LDW
IN
JEFF
ER
Y
BA
LKW
ILL
KE
VIN
B
AR
KE
R
CLA
RK
B
ATH
VO
LKE
R
BA
UM
GA
RT
AS
HW
IN
BA
WE
JA
RO
NA
LD
BE
ATTI
E
ER
IC
BE
ND
ER
TRA
CE
Y
BE
NN
ETT
FAB
IO
BE
TTIN
ZO
LI
SU
SA
N
BIR
DS
ALL
STE
PH
EN
B
LOO
D
STE
PH
AN
B
OR
AS
CH
AD
B
OU
TILL
IER
RAY
MO
ND
B
OY
CE
JUA
N
BR
AD
BE
RY
BA
RR
Y
BR
AD
FIE
LD
FRA
NK
B
RA
JLIH
MAT
THE
W
BR
AN
CH
ELS
A
BR
AU
N
NE
IL
BR
EE
ZE
ER
NE
ST
BR
OO
KS
CA
LLE
NA
B
RO
OK
S
BR
UC
E
BR
OW
N
KE
NN
ETH
B
RO
WN
CH
RIS
TOP
HE
R
BR
UC
KI
WAY
NE
B
RYA
NT
SC
OTT
B
RY
DS
ON
LEIG
H
BR
YD
SO
N
RO
SS
B
UN
YO
N
ALL
AN
B
UR
GE
SS
RO
BE
RT
BU
RN
S
TER
EN
CE
B
YR
NE
S
GE
OFF
RE
Y
BY
RN
ES
MIC
HA
EL
CA
IRN
EY
IAN
C
AM
PB
ELL
Trading Eraring Energy 9
Energy trading is a core business of Eraring Energy
– trading results were again above budget and a
major contributor to the strong financial performance
of the organisation
GR
EG
OR
Y
CA
RR
UTH
ER
S
ALA
SD
AIR
C
AU
SH
JOE
C
EN
ER
E
AN
THO
NY
C
HA
MB
ER
S
CO
LIN
C
HA
RLE
S
CH
RIS
TOP
HE
R
CH
AS
-TO
N
PH
ILLI
P
CH
ITTI
CK
KE
ITH
C
LAR
K
SE
LWY
N
CLE
VE
RLE
Y
PH
ILIP
C
LEW
S
KAT
HR
YN
C
OAT
ES
PATR
ICK
C
OLE
MA
RK
C
OLE
MA
N
AN
THO
NY
C
OLG
AN
RO
BE
RT
CO
LLA
RD
BA
RR
Y
CO
LLIN
S
IAN
C
ON
LON
MIC
HA
EL
CO
OP
ER
MA
RK
C
OR
KE
TT
AN
TON
Y
CO
TIC
GE
OFF
RE
Y
CO
ULT
ER
CH
RIS
TOP
HE
R
CO
X
GA
RR
Y
CR
AIG
BR
UC
E
CR
OS
S
DO
NN
A
CR
OS
SA
N
GLE
NN
C
UR
RIN
GTO
N
RO
BE
RT
DA
VIE
S
JAM
ES
D
AV
IES
SC
OTT
D
AV
IS
CO
LIN
D
AV
Y
STE
PH
EN
D
AV
Y
IAN
D
AW
SO
N
PE
TER
D
ED
DE
N
NE
VIL
LE
DO
DD
S
MIC
HA
EL
DO
HE
RTY
STE
PH
EN
D
ON
OG
HU
E
RO
SS
D
UM
BR
ELL
LIN
DS
AY
DU
MB
RIL
L
JOE
D
UN
DA
S
STU
AR
T D
UR
IE
SH
AU
N
ED
WA
RD
S
DO
NA
LD
ED
WA
RD
S
MA
RK
E
DW
AR
DS
DA
VID
E
LLIS
RO
BE
RT
EM
ER
Y
MA
RK
E
THE
RTO
N
Eraring Energy Trading10
Energy Trading is a core business
activity of Eraring Energy, and it
has critical impact on the financial
performance of the organisation.
The principle tasks of the Group
are the management of the
organisation’s contract portfolio in
the electricity derivatives market;
participation in the National
Electricity Market (NEM) including
daily bidding and rebidding in the
spot electricity market; review and
updating the energy trading policy,
supporting procedures and
systems; risk management
activities; forecasting; and
management of coal contracts and
supplies.
It is pleasing to report that the
Senior Pool Trader was voted the
‘Pool Trader of the Year’ by his
industry peers.
Financial Performance
Derivatives trading performance
was well above budget in spite of
falling AFMA published contract
prices. Derivative contracts are
traded under the ISDA Master
Agreements and Eraring Energy
has now executed ISDA Master
Agreements with a majority of
market participants thus enabling it
to trade widely.
The average spot fell for the
second year in a row. The average
price has again fallen to a level
below the long-run marginal cost
of generation.
There was much publicity
associated with price spikes in the
spot market. This led to a review
by NECA and ACCC of the bidding
and rebidding rules in the National
Electricity Code. New bidding and
rebidding rules were subsequently
approved and are now in place.
Given the need to balance supply
and demand at each instant in
time, and the volatility in demand
due to weather and other factors
(eg unplanned unit outages), price
volatility is a feature of the
electricity spot market. If the price
spikes were absent, the average
spot price would have been
even lower.
Risk Management
Risk management is the
cornerstone of all energy trading
activities. There is a rigorous
energy trading risk management
framework in place, incorporating
the Energy Trading Risk
Management Committee that has
the oversight of all key energy
trading risk issues. In addition, the
Board approved Energy Trading
Policy is reviewed regularly and at
least annually. There is continual
review of key procedures and
updates to work instructions as
required. A rigorous internal audit
program also operates in this area
under the Corporations Audit
Program.
Fuel
Key achievements included the
completion of a new coal contract,
and the novation of existing coal
contracts to a new supplier. This
was done in a seamless manner
and a strong business relationship
has been developed with the new
supplier.
Market Review and
Developments
Electricity is an essential
commodity in the economy and it
is not surprising that there is
NSW time-weighted average spot price
$/MWh
13/12/98-30/6/99
1/7/99-30/6/00
1/7/00-30/6/01
1/7/01-30/6/02
1/7/02-30/6/03
$40.00
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0
Trading Eraring Energy 11
considerable public interest and
scrutiny on the electricity market.
Moreover, being a relatively new
market, there is considerable
industry initiated review and
change as well.
Perhaps the most significant
external review was the release of
the so-called ‘Parer Report’ –
Towards a truly National and
Efficient Energy Market in
November 2002. This was as a
result of the Council of Australian
Governments (COAG) endorse-
ment of the need for a national
energy policy and agreement to
commission an independent review
of the strategic direction for
stationary energy market reform in
Australia. The committee received
over 150 submissions and met
interested groups.
The ‘Parer Report’ makes a
number of recommendations,
some of which are beginning to be
implemented. An example is the
role of the Ministerial Council on
Energy as the key decision-making
body on energy related matters,
subsuming the role of NEM
Ministers Forum. The setting up of
a single energy regulator to replace
the energy functions exercised by
the ACCC, and the state and
territory regulators, and the
National Electricity Code
Administrator (NECA) is another
key recommendation that has
already been agreed.
Besides bidding and rebidding,
two areas where there has recently
been considerable activity include
network constraints and
improvement or better ways of
integrating network service
providers into the electricity market
as networks are becoming more
important in the operation of the
market due to constraints,
availability and other factors. The
Energy Trading Group is pro-active
on both these matters that are
expected to continue to dominate
as key market improvement
opportunities.
Another development of
importance was the Mandatory
Renewable Energy Target (MRET)
review of the Renewable Energy
(Electricity) Act 2000. The Act
provided for a review of operation
after the initial two-year period.
Eraring Energy made a submission
on this matter. A report is expected
by end of September 2003.
Regulation and Compliance
The Corporate approach is to
ensure that there is strict
compliance with the spirit and
intent of all regulation. There are a
range of compliance issues
ranging from compliance with the
Commonwealth Trade Practices
and Corporations laws to
compliance with the National
Electricity Code on a daily basis.
Regular training programs are in
place to ensure that all relevant
staff are aware of and meet their
obligations for compliance. In
addition, all reporting requirements
were met in a timely manner.
Training and Development
In addition to compliance training,
the Energy Trading Group has
significant participation in industry
conferences not only as attendees
but also as presenters. With
continual change and development
in the electricity industry,
conferences, seminars and
workshops are important avenues
for keeping informed and taking
pro-active roles on significant
issues. All derivative and pool
trading staff are AFMA accredited.
Eraring Energy Production12
The high availability of the Eraring Power Station during the
year allowed the organisation to capitalise on prevailing
market conditions; it also reflects the quality of station staff
and practices, and maintenance practices in particular
RAY
MO
ND
FA
INT
GA
RY
FA
INT
RO
BE
RT
FA
RLE
IGH
RO
BE
RT
FE
IGH
AN
MIC
HA
EL
FE
NE
CH
BA
RR
Y
FER
NA
NC
E
RO
BE
RT
FE
RN
AN
DE
Z
SH
AN
E
FIE
LD
HE
NR
Y
FILI
P
PH
ILLI
P
FIS
HE
R
ALA
N
FITZ
GE
RA
LD
MIC
HA
EL
FO
RR
ES
TER
RO
BE
RT
FO
WE
LL
GA
RY
FO
X
DA
RR
EN
FR
EN
CH
WA
RR
EN
FR
EW
FRA
NC
ES
FR
OS
T
GR
AN
T G
AM
AG
E
STE
PH
EN
G
AM
BR
ILL
KE
VIN
G
AV
EN
LOC
K
CO
LIN
G
AV
EN
LOC
K
RO
GE
R
GE
THIN
GS
GE
RA
RD
G
IBB
ON
S
TIM
OTH
Y
GIL
ES
ALA
N
GIL
LES
PIE
AN
DR
EW
G
IUS
TI
GIA
NN
I G
IUS
TI
DIA
NN
E
GO
RTO
N
GR
AZ
IA
GO
UG
H
STE
VE
N
GR
AH
AM
BE
LIN
DA
G
RAY
GE
RA
LD
GR
OV
E-W
HIT
E
GLE
NN
G
UIL
FOY
LE
PE
TER
H
AH
N
NIC
OLE
H
AIG
H
TON
Y
HA
IN
STE
VE
N
HA
LL
THO
MA
S
HA
MIL
TON
KE
VIN
H
AM
ILTO
N
KE
VIN
H
AM
ILTO
N
EM
ILY
H
AR
PE
R
GR
AH
AM
H
AR
RO
D
MIC
HA
EL
HA
RT
NE
IL
HA
RV
EY
PE
TER
H
AR
VE
Y
LES
LIE
H
AYW
AR
D
TON
Y
HE
AR
NE
Production Eraring Energy 13
IAN
H
EAT
H
BR
EN
T H
EN
DE
RS
ON
KE
N
HE
ND
ER
SO
N
PE
TER
H
EN
NE
SS
Y
MA
RK
H
EY
MA
NS
PE
TER
H
OB
SO
N
GR
EG
OR
Y
HO
CK
ING
S
JEFF
RE
Y
HO
GA
N
DA
VID
H
OLL
IS
CH
RIS
TOP
HE
R
HO
LME
S
BE
VE
RLE
Y
HO
SK
INS
ON
-G
RE
EN
PE
TER
H
OU
STO
N
PE
TER
H
OW
ELL
S
TER
ES
A
HU
DS
ON
NO
EL
HU
RR
ELL
MIC
HA
EL
HU
TCH
INS
ON
MIC
HA
EL
HU
THN
AN
CE
WIL
LIA
M
HU
YN
H
JULI
E
HY
DE
PAU
L H
YD
E
TRA
CIE
IR
VIN
E
PE
TER
JA
CK
SO
N
AD
AM
JA
CK
SO
N
WIL
LIA
M
JAC
KS
ON
GA
RY
JO
HN
SO
N
GR
EG
OR
Y
JOH
NS
TON
E
DA
VID
JO
NE
S
RO
BE
RT
JO
NE
S
STE
PH
EN
JO
NE
S
PAU
L J
UD
D
YU
NG
K
AO
PH
ILLI
P
KE
EV
ER
S
PAU
L K
ELL
Y
BA
RR
Y
KE
LLY
IAIN
K
EN
NE
DY
JOH
N
KE
NN
ED
Y
PAU
L K
IDC
AFF
YATI
SH
K
UM
AR
JOH
N
LA G
RE
CA
PE
TER
LA
IDLA
W
BE
RN
AR
D
LAN
DI
RU
DO
LF
LAN
DS
IED
EL
GE
OR
GE
LA
NE
BR
ETT
LA
RK
IN
STE
VE
N
LAW
LES
S
JEFF
RE
Y
LAW
SO
N
Eraring Energy Production14
Eraring Energy manages a diverse
set of generating assets that are
located throughout NSW. The
capacity of these facilities ranges
from the 2,640MW coal fired
Eraring Power Station on Lake
Macquarie, down to the 4MW
Brown Mountain Hydro Power
Station near Bega. Their combined
generating capacity is 3,041MW.
The age of the 43 units varies from
1 to 65 years.
These power stations produce
electricity from energy supplied by
coal combustion, wind, water
catchment schemes and pumped
water storage. Such a broad
generating portfolio supplies our
varied customers with the cost
effective, reliable, and specific
products they demand.
Eraring Energy generated
14,948GWh of electrical energy for
the year ending 30th June 2003.
Of this, 1.4% was green power
produced from the renewable
energy sources of hydro and wind.
Coal Fired -
Eraring Power Station
Excellent availability and reliability
results in 2002/03 have optimised
Eraring Energy’s opportunity to
compete effectively in the National
Electricity Market. Strict
management of maintenance
strategies has limited plant outages
to periods of low electricity
demand.
Eraring Energy has a long-term
asset management strategy aimed
at prolonging the economic life of
its plant. A contract has been
awarded to Yokogawa Australia for
the upgrade of the unit control
systems. Implementation of this
project will begin during the major
unit outage planned for March
2004. The new system will provide
greater reliability and operating
flexibility, and lead to improved
thermal efficiency.
This year saw the installation of
replacement blades on the last
rows of the LP steam turbines on
unit 3. Similar reblading work is
planned for the other three units in
the next two years. Regular turbine
blade inspections, and a turbine
blade failure during 2001, have
highlighted the need to upgrade
these critical components, in order
to maintain unit reliability. The
installation of new LP turbine
blades, combined with the
associated turbine overhaul, has
provided a noticeable improvement
in thermal efficiency.
Production GWh gen
Coal Fired 14,744
Hydro 126
Wind 31
Pumped Storage 47
Gas Turbines 0
Total 14,948
Despite two boiler tube failures,
and major planned outages during
the later part of 2002, Eraring
Power Station recorded an
availability factor of 92.5%, a figure
above the target of 90%.
Unplanned outages accounted for
only 0.9% of the 7.5% total
availability loss, well within the
target of less than 3%.
Nine unit trips were recorded
during the year. Four of these
occurred whilst rebalancing the
unit 3 main turbine, following blade
replacement work.
Generated thermal efficiency for
the year was above target at
38.3%. This result reflects the initial
Energy Generated
GWh Excludes Pumped Storage
2001 2002 2003
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Production Eraring Energy 15
Station Units Capacity Energy Source
Eraring 4 x 660 MW 2,640 MW Black coal
Keepit 1 x 6 MW 6 MW Water catchment
Warragamba 1 x 50 MW 50 MW Water catchment
Bendeela 2 x 40 MW 80 MW Pumped storage
Kangaroo Valley 2 x 80 MW 160 MW Pumped storage
Burrinjuck 2 x 6 MW + 1x16 MW 28 MW Water catchment
Brown Mountain 5 units 4 MW Water catchment
Hume 2 x 29 MW 58 MW Water catchment
Crookwell 8 x 600 kW 5 MW Wind
Blayney 15 x 660 kW 10 MW Wind
Total 43 units 3,041 MW
Eraring Power Station
Capacity Factor 63.8%
Output Factor 69.3%
Availability Factor 92.5%
Thermal Efficiency Generated 38.3%
Forced Outage Rate 0.7%
Coal Consumed 5,937kT
impact of the unit 3 turbine
overhaul, and consistently high
output factors.
A program of capacity testing was
implemented with the aim of
increasing the station’s maximum
electrical output. One of the four
units underwent capability testing,
and has received endorsement to
operate at an increased overload
rating of 700MW.
Eraring Power Station remains
committed to implementing plant
improvement projects that will
increase thermal efficiency. These
projects not only provide a cost
saving to the company but also act
to reduce environmental emission
rates.
Hydro and Wind Power
Stations
Drought conditions in NSW
resulted in lower generation at
most hydro power stations. The
reliability of the Shoalhaven hydro
units (98.5%) continues to be
world class for plant of its age.
Additional water pumping was
required from Kangaroo Valley and
Bendeela Power Stations as the
Shoalhaven scheme was used to
supplement water levels in
Warragamba and other Sydney
catchment dams.
Feasibility studies commenced on
the refurbishment options for
Brown Mountain Hydro Power
Station. Prefeasibility studies were
also completed on increasing the
generating capacity at Hume
Power Station.
The wind farms at Crookwell and
Blayney generated more electrical
energy than the previous year,
despite equipment reliability issues
at Crookwell. The Blayney wind
farm achieved a record capacity
factor of 26% for the year.
Forced Outage Rate
%Eraring Power Station
2001 2002 2003
10
9
8
7
6
5
4
3
2
1
0
Availability
%Eraring Power Station
2001 2002 2003
100
90
80
70
60
50
40
30
20
10
0
Green Capacity
MWExcludes Pumped Storage
2001 2002 2003
200
180
160
140
120
100
80
60
40
20
0
Eraring Energy Production 16
Occupational Health and Safety
The health and safety of Eraring
employees and contractors is the
organisation’s highest priority.
In line with the new corporate
mission of ‘Industry Leadership’
further resources and commitment
have been directed to occupational
health and safety (OHS) issues in
order to ensure leadership in this
field.
During the year actions were taken
on three fronts with the view to
achieving this goal, namely:
Refinement of the Occupational
Health and Safety Management
System;
Increasing employee
involvement; and
Increasing Contractor
participation in Eraring Energy’s
OHS program and improving
their OHS performance.
There were four employee and four
contractor lost time accidents in
the year with a combined Lost
Time Injury Frequency Rate of eight
for the year.
At the 30th of June Eraring Energy
had achieved 190 days without a
lost time injury to employees or
contractors. This was a new
record period without a lost time
injury for the power station, beating
the previous record by 42 days.
Eraring’s annual OHS audit also
revealed significant improvement in
all areas audited with the average
audit score increasing from three
to five (on a scale of 0 to 7).
The OHS Management System
Eraring Energy has implemented a
strong Corporate Governance
Structure with an Executive
Occupational Health and Safety
Committee, a Production
Occupational Health and Safety
Committee, and site committees at
a number of locations.
To maximise employee
consultation the Chairperson of the
Eraring Power Station OHS
Committee participates in the
Production and Executive OHS
Committees. Occupational health
and safety is also integrated into
the Production Business Plan.
Eraring Energy is a “self insurer” for
Workers’ Compensation and uses
the WorkCover Self Insurer’s Model
as the basis of its Occupational
Health and Safety system. Eraring
Energy’s system has been
significantly refined in the last 12
months to improve its
effectiveness. The system has also
been modified to ensure that it
meets the requirements of the new
OHS Act 2000 and OHS
Regulation 2001.
A simplified Occupational Health
and Safety System is being
developed for the Hydro and Wind
Operations Group based on the
requirements of the WorkCover
Self Insurer’s Model and the OHS
Act and Regulation.
Average Time Lost Per InjuryDays lost per incident (includes contractors)
2001 2002 2003
10
9
8
7
6
5
4
3
2
1
0
Production Eraring Energy 17
Risk management is a key focus of
the new Act and Regulation and
Eraring Energy has established a
risk management process for
occupational health and safety.
Risk Assessment training has been
provided to all staff, and work
process risk assessments are
completed for all hazardous work.
New Power Industry Safety Rules
have been developed and Eraring
Energy is working to develop
supporting procedures. The new
rules and procedures should
improve the safety of all work
carried out in the power stations.
Employee Involvement
A number of performance
indicators that relate to the
effectiveness of the OHS
Management System have been
identified and are now tracked
monthly by the Production and
Executive OHS Committees.
A recognition scheme for high
standards of OHS performance
has been developed and will be
used for employees, work teams
and work locations that achieve
outstanding results.
A behaviour based program, called
“B-Safe”, is now being used to
identify “at risk” (unsafe) behaviour
as well as other improvement
opportunities in the way work is
performed at Eraring Power
Station.
Eraring Energy has also
encouraged widespread
networking in the area of OHS.
Eraring Energy OHS staff
participate in a number of regional
OHS forums and employees have
visited a range of industries to
examine how they undertake
occupational health and safety
activities.
A new OHS Recognition Scheme
that promotes OHS performance
and rewards nominated charities
has been developed in
consultation with employees and
will be implemented in the 2003/04
Financial Year.
Contractor Participation
Contractor OHS performance is
now measured as one of Eraring
Energy’s OHS performance
indicators. Contractor lost time
injuries are included in Eraring
Energy’s Lost Time Injury
Frequency Rate Calculations.
Contractor OHS Management
Systems and OHS performance
are now key factors in the selection
process of new contracts.
Contractor representatives from
seven of the main contracting firms
now participate on the Eraring
Power Station OHS Committee
and in “B-Safe”.
Lost Time Injury Frequency RateInjuries per million hours worked (includes contractors)
2001 2002 2003
20
18
16
14
12
10
8
6
4
2
0
Pacccific c GWh
Eraring Energy Pacific Western18
Pacific Western operates and manages Western Power’s
largest and most efficient coal fired power station and posted
another year of excellent results
TRE
VO
R B
AR
KE
R
RO
BE
RT
BE
RR
Y
MA
RK
CIR
AS
A
STU
AR
T D
AY
STE
VE
DE
ON
CK
PE
TER
DIN
SD
ALE
TRA
CE
Y D
OO
LAN
SIM
ON
DO
WN
S
KE
ITH
EA
STC
OTT
TER
RY
EVA
NS
GA
RY
FLA
TT
BR
ETT
GLU
YAS
PE
TER
HA
RR
ISO
N
KE
VIN
HAY
PE
TER
HE
AD
STE
PH
EN
HE
IL
GE
OFF
ER
Y H
OW
ELL
S
TER
RY
HO
Y
RIC
KY
KE
NY
ON
DA
VID
KIN
G
NE
IL K
NIG
HT
HO
N L
YE
JOH
N M
CD
ON
ALD
BR
IAN
MC
KE
NR
Y
WA
RR
EN
MIT
CH
ELL
RO
BE
RT
MO
RG
AN
GLE
NN
MU
RR
AY
KR
YS
TYN
A N
OW
AK
NE
EM
A P
RE
MJI
TOD
D S
HE
PH
ER
DS
ON
DA
NIE
L S
NE
LGA
R
JAS
ON
STA
NLE
Y
MIC
HE
AL
STO
NE
BR
IAN
TO
DD
PAU
L TR
ICH
ET
CA
SS
AN
DR
A U
RE
N
KIM
VA
NK
EY
RO
BE
RT
WA
LKE
R
EM
MA
WA
SY
LKE
WY
CZ
ME
LIS
SA
WO
OD
Pacific Western Eraring Energy 19
Pacific Western is a wholly owned
subsidiary of Eraring Energy. The
company operates and maintains,
under contract to Western Power,
the Collie power station in Western
Australia.
The company had a successful
year reporting a profit after tax of
$1,991,190 million on total revenue
of $15,121,330.
It is very pleasing to report that
there were no lost time injuries to
staff or contractors during the year.
The availability of the plant in peak
periods has been maintained at
levels consistent with contract
obligations. Condition monitoring
programs continue to aid in the
reduction of the forced outages
which mainly arise from process
control and plant design problems.
The station fell short of its targeted
annual availability factor by 1.18%
mainly due to one major planned
outage and one forced outage.
Despatched output for the year
was 2188 which was 1.93% above
budget. Average load was 270MW
for the year up 4.15% from last
year reflecting supply conditions.
Production
GWh Gen
2001 2002 2003
4,000
3,000
2,000
1,000
0
Safety
Lost time injury frequency rateESAA basis
2001 2002 2003
4
3
2
1
0
The station successfully undertook
compliance audits during the year
to retain its accreditations to
Australian Standards for Safety,
Environment and Quality. These
accreditations are essential
elements of the management
model implemented to achieve a
leadership position in the operation
of power station plant.
Pacific Western's contract with
Western Power expires in May
2005 and negotiations in regard to
an extension of the contract are in
progress.
Eraring Energy People20N
EV
ILLE
LE
E
PE
TER
LE
EC
H
YE
W
LEO
W
SIM
ON
LI
PE
RT
AN
DR
EW
LI
STE
R
TRO
Y
LOC
KE
PE
TER
LY
ON
S
KAT
HLE
EN
M
AC
DO
NA
LD
JER
EM
Y
MA
DS
EN
RO
DN
EY
M
AH
OO
D
JOH
N
MA
ITLA
ND
GR
EG
OR
Y
MA
LLA
BY
CA
RE
L M
AR
EC
HA
L
RO
BE
RT
MA
RTI
N
KE
NN
ETH
M
AS
SE
Y
PAU
L M
AS
SO
N
PAU
L M
ATTH
EW
S
WIL
LIA
M
MC
AR
THU
R
KE
ITH
M
CB
UR
NE
Y
MA
RK
M
CD
ON
ALD
RO
DN
EY
M
CG
ILL
GA
RY
M
CIN
TOS
H
KE
NN
ETH
M
CLE
AN
DA
NIE
L M
CN
ALL
Y
STE
WA
RT
MC
PH
ER
SO
N
JAN
E
MC
WIL
LIA
M
FRA
NK
M
IES
ZA
LA
JAR
RE
D
MIL
LER
DA
NIE
L M
ILLE
R
WIL
LIA
M
MIL
LER
RAY
MO
ND
M
ILLI
GA
N
FRA
NK
M
ITC
HE
LL
RE
BE
CC
A
MO
RG
AN
PH
ILIP
M
OR
IAR
TY
STE
VE
N
MO
RR
IS
KE
NN
ETH
M
OR
RIS
NE
IL
MO
RR
IS
MIC
HA
EL
MO
RTI
SS
RO
DN
EY
M
OU
LDE
R
AN
THO
NY
M
UR
PH
Y
RO
Y
MU
RP
HY
BR
ETT
M
UR
PH
Y
TER
RY
M
UR
RAY
CO
N
NE
CTI
ON
S
IAN
N
EW
TON
GR
AN
T N
ICH
OLL
S
IAN
N
ICO
L
People Eraring Energy 21
The growth and development of our people will become a key
focus for Eraring Energy and is demonstrated by the
establishment of the Organisational Development Business Unit
DE
NN
IS
NIG
HTI
NG
ALE
AN
DR
EW
N
OR
TH
MIC
HA
EL
NU
GG
EN
T
PE
TER
O
AK
ES
IAN
O
BR
IEN
MIC
HA
EL
OC
ON
NO
R
RO
BE
RT
OG
DE
N
GE
OFF
RE
Y
ON
EA
LL
CO
LIN
O
RE
ILLY
MIC
HA
EL
PA
LME
R
BA
RR
Y
PAR
EK
H
KE
VIN
PAR
KE
R
DO
UG
LAS
PA
YN
E
AU
STI
N
PE
AR
SA
LL
WA
RR
EN
P
EN
FOLD
DA
NIE
L P
ER
ICA
RT
BR
UC
E
PE
RR
IN
RU
SS
ELL
P
ETC
H
TER
RE
NC
E
PH
ILLI
PS
VE
RO
N
PH
ITID
IS
PE
TER
PIC
KE
N
GE
OFF
RE
Y
PO
NT
BR
ETT
P
OR
TER
MIC
HA
EL
PO
WE
LL
FRA
NC
IS
PR
ES
TON
KA
RY
N
PR
ICE
AN
THO
NY
P
RIE
ST
DE
AN
P
RIT
CH
AR
D
PAU
L P
RO
SS
ER
DE
NN
IS
PR
YD
E
GLE
NN
P
UR
CE
LL
AN
THO
NY
P
UR
CIV
AL
AR
THU
R
RA
DFO
RD
PE
TER
R
AK
E
CH
RIS
TOP
HE
R
RA
LPH
GLE
NN
R
AM
SAY
NE
IL
RA
ND
ALL
STE
PH
EN
R
EA
DE
TT
JOH
N
RE
EV
ES
JOH
N
RE
GO
ALA
N
RE
YN
OLD
S
RO
CH
ELL
E
RE
YN
OLD
S
KE
RR
Y
RIC
HA
RD
S
IAN
R
ICH
AR
DS
ON
ED
WA
RD
R
IDIN
G
GA
RR
Y
RIL
EY
Eraring Energy People22
Eraring Energy undertook
substantial measures during the
2002/03 year to further build on its
history of investing in the growth
and development of its people.
In August 2002 a new vision for
the organisation - “By developing &
growing its people, Eraring Energy
will become the leading electricity
company in Australia” - was
adopted to align the business to
the challenges of the increasingly
competitive energy sector.
This vision has been embraced by
all levels of the organisation, as
evidenced by the involvement of
employees in key cultural, training
and leadership development
initiatives.
Delivering the vision of industry
leadership through developing and
growing our people has required a
strategic, ‘whole-of-business’
approach. As a result the following
major structural initiatives were
implemented during the year:
Creating an Organisational
Development Focus
The Organisational Development
(OD) group was established as a
service group in July 2002. The
new position of General Manager
Organisational Development was
filled in November 2002 following
an extensive search. As part of this
initiative OD was transferred from
the Production Business Unit to a
separate business unit forming part
of the Executive.
The cornerstone activities designed
to assist in delivering the new
Eraring Vision are grouped in three
areas, with significant progress
achieved in each one during the
past 12 months.
Shaping Our Culture
The inaugural Eraring Energy
Culture Survey was initiated in
March 2002. The high response
rate to the survey allowed the
development of a capture
mechanism for the important
growth and development issues
facing employees as well as
providing the opportunity for a
feedback channel to communicate
progress in the areas raised. This
survey will be repeated in 2003.
Developing Our People
The 2001/02 “Achievement
through People” program was
extended in 2002/03 from the
executive to line managers.
In addition, the OD group
collaborated with the rest of the
organisation to identify additional
leadership development
opportunities. Central to this
strategy for Eraring is a set of core,
shared leadership competencies.
These were defined by a cross-
functional team led by line
managers in January 2003 and
were adopted by all management
levels within the organisation
during the year.
Attached to these competencies
has been a matrix of behavioural
and skill standards against which
our leadership, as an organisation
and as individuals, can be
measured.
People Eraring Energy 23
The knowledge base of Eraring
has been updated to create a
learning, training and development
database aligned to the core
leadership competencies. This will
now form a channel by which
training opportunities can be
aligned to ongoing development in
these competencies.
Rewarding and
Recognising Our People
The OD initiatives of the past year
have laid the ground work for
reviewing the mechanisms by
which people are recognised and
rewarded. This will be a key focus
for 2003/04 and will also embrace
the issues of performance
management, career path planning
and succession planning,
recognition and celebration of
success and ongoing investment in
the quality of industrial relationships
including equitable award
negotiations.
At the close of the reporting period
staff numbers were 364, compared
to 369 at the close of 2001/02.
Community
Eraring Energy participated in a
range of community programs and
sponsorships as part of our
ongoing policy to maintain strong
and positive relationships with our
local communities.
A key activity was the
establishment of the Eraring
Energy Community Forum based
at Eraring Power Station. Nineteen
groups representing environmental
protection interests, fishing and
lake marine life, local government
and other government depart-
ments are members of the Forum.
The Community Forum is an
opportunity to inform the
community of environmental issues
associated with the Power Station
and to engage in discussion with
community representatives. The
Forum enables participants to
interact with senior management
and station environment team, to
gain understanding of Eraring
Energy’s environment management
systems, and to raise issues and
seek clarification relating to matters
of concern.
Sponsorship grants supported
local activities in the areas of Lake
Macquarie, Kangaroo Valley and
Crookwell. Sponsorships covered
schools, community and sporting
groups.
Highlights included sponsorship of
the Southlake Business Excellence
Awards 2002 and the Lake
Macquarie City Council’s Fire
Fighters Recognition Ceremony
held on Australia Day 2003.
Site tours for school, university and
community groups were
conducted at Eraring Power
Station and the Crookwell and
Blayney Wind Farms.
The outer grounds around Eraring
Power Station were made available
for athletic and cross country
events held by local schools and
athletic associations.
Eraring Energy Environment24
Eraring Energy is complementing its Environmental
Management System by gaining certification to ISO14001.
By building on our foundation of Environmental Excellence,
Eraring Energy leads the way in Environmental Management.
MA
NFR
ED
R
OB
L
CO
LIN
R
OD
D
RAY
MO
ND
R
OLP
H
HE
LEN
R
OO
KE
CH
ELS
EA
R
OS
E
LES
LIE
R
OW
LAN
DS
ON
PH
ILIP
R
US
SE
LL
DA
VID
R
US
SE
LL
TRE
VO
R
RU
SS
ELL
IAN
R
US
T
BR
IAN
S
AG
ER
NIC
K
SA
VO
NO
V
MIC
HA
EL
SC
HO
FIE
LD
WA
RW
ICK
S
CH
OLE
S
LUK
E
SE
AR
L
RO
BE
RT
SE
MM
EN
S
FRE
DE
RIC
K
SE
YS
EN
ER
BR
YAN
S
HA
RM
AN
STE
PH
EN
S
HA
WC
RO
SS
FRE
DE
RIC
K
SH
ELL
EY
CR
AIG
S
HE
RID
AN
MA
RK
S
HE
RR
Y
NE
IL
SIM
PS
ON
DA
RR
EN
S
INC
LAIR
PAU
L S
INC
LAIR
PE
TER
S
KE
RR
Y
LES
LIE
S
KIN
NE
R
TRE
VO
R
SM
ITH
CO
LIN
S
MIT
H
STU
AR
T S
MIT
H
RO
BE
RT
SM
ITH
NE
IL
SM
ITH
RAY
MO
ND
S
MIT
H
GR
AN
T S
MIT
H
SH
AN
E
SM
ITH
JOA
NN
E
SM
ITH
BR
IAN
S
TAP
LES
SIM
ON
S
TEV
EN
S
BE
NJA
MIN
S
TEV
EN
S
RAY
MO
ND
S
TEV
EN
SO
N
FRA
NC
IS
STO
BB
S
JOS
EP
HIN
E
STO
RE
R
TER
EN
CE
S
TRA
CH
AN
AD
AM
S
TYM
AN
GA
RR
Y
SU
LLIV
AN
GE
OFF
RE
Y
SU
TTO
N
BR
IAN
S
UTT
ON
MIC
HA
EL
SY
LVE
STE
R
MA
RK
TA
YLO
R
MA
RK
TH
OM
AS
DA
VID
TH
OM
PS
ON
LAU
RE
NC
E
THO
MP
SO
N
KE
NN
ETH
TH
OR
NTO
N
MA
RG
UE
RIT
E
TIE
RN
EY
TER
RY
TI
MM
S
PE
TER
TO
BIN
DA
VID
TO
D
RO
CH
ELL
E
TOD
D
MA
RTI
N
TON
KS
STE
PH
EN
TR
AN
TER
KE
LLY
TU
IMA
UA
LUG
A
BA
RR
Y
TULK
JOH
N
VE
NTU
RA
MIC
HA
EL
VE
RTI
GA
N
JULI
E-A
NN
E
VIR
TUE
AB
BE
Y
WA
LKE
R
RAY
MO
ND
W
ALK
ER
KE
NN
ETH
W
ALT
ON
GA
RR
Y
WA
RN
ER
RO
BE
RT
WAT
ER
MA
N
PAU
L W
ATE
RS
JOH
N
WAT
SO
N
DA
VID
W
ATTE
RS
ALI
STA
IR
WE
BB
GE
OR
GE
W
ELL
S
JOH
N
WE
THE
RE
D
WA
LLA
CE
W
ETZ
LER
MIC
HA
EL
WH
EE
LAH
AN
STE
PH
EN
W
HE
ELE
R
MAT
THE
W
WIL
LIA
MS
NE
IL
WIL
LIA
MS
JOH
N
WIL
LOTT
BR
UC
E
WIL
SO
N
WA
RW
ICK
W
ILTO
N
WAY
NE
W
INTE
RB
INE
GR
EG
OR
Y
WO
NG
CH
RIS
TOP
HE
R
WO
OD
GR
AH
AM
W
OO
D
DA
VID
W
OO
DR
OO
F
JOH
N
WO
OD
WA
RD
IVO
R
WR
IGH
T
MA
RK
W
YB
UR
N
RE
UB
IN
YO
UN
G
Environment Eraring Energy 25
Eraring Energy Environment26
Eraring Energy is committed to
managing its operations in an
environmentally responsible manner
and maintaining a system of
continual improvement. As part of
our new vision Eraring Energy has
targeted industry leadership in
Environmental Performance, as
measured by compliance and
relationships with the community
and other stakeholders.
Key environmental objectives are to:
Take actions necessary to comply
with existing environmental
licences and legislation and
participate with stakeholders to
find innovative and practical
solutions to emerging issues.
Proactively encourage, identify
and promote positive outcomes
for the environment and local
community.
Educate our people to carry out
activities in an environmentally
responsible manner.
Conduct business operations
following the principle of cleaner
production where technically and
economically feasible.
Establish measurable targets that
are acted upon and regularly
reported and reviewed.
Regularly review our
environmental management and
reporting systems to improve our
environmental performance and
manage our environmental risks.
It is recognised that the success of
the new environmental policy
depends on its implementation by
all Eraring Energy employees and
contractors.
Eraring Energy is a participant in the
Australian Greenhouse Office
Generator Efficiency Standards
program. To this end, Eraring
Power Station has tabled its
Strategic Plan for reducing
greenhouse gas emissions.
Furthermore, Eraring Energy’s
Green Forum is investigating the
benefits of producing NSW
Greenhouse Abatement Certificates
in accordance with the NSW Green-
house Gas Reduction scheme.
The Load-based Licence fee for
2002 was $1.7 million.
The Waste Reduction and
Purchasing Plan (WRAPP)
The Waste Reduction and
Purchasing Plan (WRAPP) is in
operation with a Waste Manage-
ment Committee formed in July
2002 looking at improvements for
recycling and minimisation of waste.
The use of recycled paper was
increased over the past year
through the WRAPP from 15%
to 43%.
Eraring Power Station continued
to build on the record quantities
of ash recycled last year,
increasing the sales from 48% to
49% of total ash produced. A
steering committee has been
established to review ash dam
management.
Eraring Power Station and
Environs Initiatives
The weed-settling pond at the
CW Screens was modified to
prevent excess seaweed entering
Muddy Lake and allow marine life
to re-enter Lake Macquarie.
New oil-on-water detectors are
being installed on selected station
drains and will be completed in
the last half of calendar 2003.
Oil-on-water boom deployment
exercises were carried out on
Eraring Power Station’s outlet
canal during the year.
Eraring Energy planted another
4000 trees in the past year.
A program with the Rural Lands
Protection Board was carried out
to eradicate pest animals on site.
Eraring Power Station drainage
has been improved around the
effluent holding tank, directing
possible leakage into the
sewerage system.
Effluent Recycling
% of Fresh Water Replaced
2001 2002 2003
100
80
60
40
20
0
Environment Eraring Energy 27
A Community Forum was
established to inform local
interest groups of operations
taking place within the Eraring
Power Station. Two meetings
were held during 2002/03.
There were fifteen community
complaints during the year. Of
these the majority concerned
fauna trapped in fenced areas
and litter at the outlet canal.
Four turtles were found at Eraring
Power Station during the year.
In accordance with the National
Parks and Wildlife Service
Licence, three were released.
One was found deceased in the
inlet canal.
Aquabait P/L (Worm Farm)
established on Eraring Energy
land won an award by the Rural
Industry Research Development
Corporation – Rural Womens
Award in NSW.
Effluent recycling declined due to
drought conditions and plant
issues, reducing fresh water
replacement to 60%.
Eraring Power Station
Reportable Incidences
The year 2002/03 was the first year
for reporting on the expanded
National Pollution Inventory now
covering 90 substances. There was
one exceedence detected in
January 2003, with a copper
reading of 6.1 ug/L compared to a
reportable limit of 5 ug/L. Preliminary
investigations indicate this was due
to a high ambient level in Lake
Macquarie. Consultation with the
Environment Protection Agency on
this issue is continuing. The two
other reportable incidences involved
foam on Lake Macquarie and a leak
from an effluent holding tank.
Shoalhaven
As a joint stakeholder in the
Shoalhaven Scheme (Kangaroo
Valley and Bendeela) Eraring Energy
has been working proactively on
the quality of its relationships with
Sydney Catchment Authority and
their stakeholders. These
relationships have been
strengthened by attendance at
workshops with stakeholders.
Feedback received from these
stakeholders has formed an
important part of our risk
management strategy in relation to
dealing with Blue-Green Algae.
Open dialogue with stakeholders
will lead to a better understanding
of our environmental and social
performance.
ISO14001 Accreditation
Eraring Energy aims to achieve
certification of its Environmental
Management System (EMS) to
ISO14001 by September 2003.
Initially certification will be for
Eraring Power Station, with all other
generating assets targeted for
certification by September 2004.
This certification process will
instigate a system of continual
improvement in the management of
a number of current and future key
environmental issues including:
Environmental awareness –
development of training matrix for
site employees including
specialised and mandatory
training based upon identified
competencies and recognition of
prior learning.
Independent and third party EMS
auditing.
Develop a database of “risk
assessed” issues including
reportable incidents, near misses
and non-compliances that can be
prioritised for remedial action.
Ash Recycling
% of Production
2001 2002 2003
100
80
60
40
20
0
Environment
Reportable Environmental Incidents
2001 2002 2003
5
4
3
2
1
0
Eraring Energy Corporate Governance28
Established systems of governance set parameters
for the way in which the organisation and its people
conduct business
Corporate Governance Eraring Energy 29
Risk Management
Eraring Energy seeks to adopt best
practice risk management practices
in its day-to-day business activities.
Eraring Energy’s philosophy is that
Risk Management should be a living
and continuous process. Our overall
business risk management objective
is to be confident in taking business
risks, always for the appropriate
rewards, in the knowledge that it
has a sound and systematic
appreciation of and response to
these business risks.
During the year, we have continued
to build our risk management
practices and further developed the
integration with day to day
management practices. The Risk
Management Framework continues
to be implemented within the
business through:
A process for thorough
identification of the Corporation’s
major risks and the objectives and
accountabilities for managing
those risks;
A process for regular and focused
monitoring, measuring and
reporting on major risks and risk
management actions; and
Practical and timely links as an
input to the business planning and
budgeting.
The risk management process starts
and ends with Eraring’s people who
internally “workshop” risks to ensure
accurate identification and
management of all issues. The
outcomes of the risk management
process is “stress tested” through a
central Executive Risk Management
Committee and monitored,
measured and reported through a
“risk focused” internal audit
program. This process is overviewed
by the Board Audit and Risk
Management Committee. Feed-
back, at all these different stages, is
continuous which allows our people
to manage risk in a transparent and
learning environment.
The risk management process
allows Eraring to provide the right
focus on key risk areas. For
example in the high risk areas of
Occupational Health and Safety,
Environment management and
Energy Trading these are managed
in more detail with dedicated
Executive Committees overseeing
management of the risk. During the
year these areas have continued to
implement strategies and actions to
mitigate Eraring’s over risk exposure
and have delivered positive results.
The Board
The Board is responsible for
ensuring the long-term success of
the corporation, the achievement
of the shareholders’ objectives of
efficient operation, maximisation of
shareholder wealth, social
responsibility, compliance with the
principle of ecologically sustainable
development and support of
regional development.
Our success is determined by our
approach to the creation of
shareholder value, managing risks
and reputation and discharging our
responsibilities as a corporate
citizen.
The role of the Board is to –
set the strategic direction for the
corporation and oversee
implementation;
appoint the Managing Director,
monitor performance and
oversee the development,
succession and reward of the
Managing Director and senior
management;
ensure the development,
maintenance and operation of
appropriate risk management
and people management
systems; and
ensure the corporation’s values
are embraced at all levels and in
all activities.
The Board actively pursues the
highest standards of corporate
governance and promotes sound
Eraring Energy Corporate Governance30
commercial practice ensuring
Eraring’s business activities are
conducted not only within all
applicable legislation but also in an
ethical manner.
The governance framework
incorporates monitoring and review
processes together with incident
and breach reporting at executive
management and Board level.
Board Membership
The constitution of Eraring Energy,
the State Owned Corporations
Act 1989, and the Energy Services
Corporations Act 1995 allow for a
minimum of three and a maximum
of seven directors to be appointed.
Six are non-executive directors
appointed by the shareholders.
The only executive director is the
Managing Director. The chairperson
is a non-executive director
appointed by the shareholders.
The term of each director’s
appointment is determined by
voting shareholders up to a period
of five years. Appointments may be
renewed.
Directors have access to
management and to independent
advice. Such advice would normally
be sought after consultation with
the Chairman or Secretary.
Remuneration of Directors
The remuneration of each non-
executive director is determined by
the voting shareholders and is paid
out of Eraring Energy funds. The
Managing Director is not entitled to
any additional remuneration for
being an executive director.
Changes in Board Membership
The appointment of the Chairman,
Ross Bunyon expired on
30/6/2003 and he was re-
appointed for a further three years.
The appointment of Director John
Maitland expired on 30/6/2003.
Board Committees
The Board has established three
standing committees, outlined
below, and when required forms a
committee of appropriately skilled
directors to deal with specific
matters. During the year, the
charters for each committee were
reviewed.
Audit & Risk Management
Committee
Support the Board by monitoring
auditors and management in
relation to:
overall risk management
framework;
financial reporting processes;
systems for internal control and
management of financial risks;
processes for monitoring
compliance with legislation and
regulation, the code of conduct
and fraud prevention;
audit outcomes and actions; and
performance of auditors.
The Committee is also responsible
for recommending the
appointment of auditors.
Environment Committee
Assists and supports the Board in
fulfilling its oversight responsibilities
in the management of
environmental issues, risks and
incidents. This Committee meets
quarterly to provide advice on
environmental performance by:
monitoring performance against
set objectives and targets;
reviewing processes for
monitoring of compliance with
legislation and regulations; and
reviewing or requesting reports
from the Executive Environment
Committee on significant issues.
Remuneration Committee
Provide advice to the Board on:
executive remuneration
structures of the Managing
Director and executives who
report directly to him;
framework for at-risk payments
and executive senior staff
remuneration; and
appointment of Managing
Director and reporting executives
and monitoring their
performance.
In addition to the above Committee
a Board Safety Committee was
formed during the year to focus on
contractor safety performance. In
June 2003 the Board resolved to
Corporate Governance Eraring Energy 31
establish a standing Human
Resource and Safety Committee
which absorbs the role of the
Board Safety Committee. The
Board Human Resource and Safety
Committee first met in July 2003.
Conflicts of Interest
A register of directors’ interests is
maintained and directors disclose
any material contract in which they
have an interest. Directors do not
take part in any decision-making
processes considered by the
Board if they have any personal
interest in the matters.(Note 31 to the accounts details related parties’
transactions.)
Meetings of the Board
Meetings of the Eraring Energy
Board are held monthly and
generally Board committee
meetings quarterly.
A Attended
E Eligible meetings
A E
BoardRoss Bunyon 12 12Beverley Hoskinson-Green 9 12John Maitland 9 12Michael Nugent 11 12Dean Pritchard 12 12Michael Vertigan 12 12Gerry Grove-White 12 12
Audit and Risk ManagementMichael Vertigan 6 6Ross Bunyon 6 6Michael Nugent 6 6
EnvironmentBeverley Hoskinson-Green 4 4Ross Bunyon 4 4John Maitland 3 4
RemunerationRoss Bunyon 2 2Beverley Hoskinson-Green 2 2Dean Pritchard 2 2
Executive Management
Organisation Structure
Managing DirectorGerry Grove-White
General Manager ProductionPeter Jackson
General Manager Trading Stephan Boras
General Manager Treasury & Business Development Alasdair Caush
General Manager Finance Philip Russell
General Manager Organisational Development Grazia Gough
SecretarySteven Graham
Remuneration and
Performance of Executive and
Senior Officers
The number of executives and
senior officers with remuneration
packages (excluding incentive
payments) equal to or exceeding
$100,000 at the end of this
reporting period and comparison
with the previous reporting year are
disclosed below:
Executive and Senior Officers
As at As at 30/6/02 30/6/03
No. above $100,000 27 29No. of females above $100,000 1 4
Total package remuneration for the period was: $4,180,000 $4,903,166
Contracts for all these officers provide
for an at-risk payment and the Board
has established a policy for the
assessment of performance and the
calculation of at-risk payments based
on a balanced scorecard approach
and the organisation’s performance.
The Managing Director’s assessment
of executives is reviewed by the
Board Remuneration Committee and
recommendations are made by that
Committee to the Board.
The following specific payments
were made to executives during
the financial year:
Managing Director
Gerry Grove-WhiteB.Sc (Mech Engr) Hons, Chartered Engineer MI
Mech.E, Cert. Diploma in Accountancy and
Finance
Appointed: 2/1/2001
Package Payments: $317,050
Performance Payment: $75,000*
Performance Statement:
Assessed by Board against
business plan targets including
financial performance, strategic
advice and strategy
implementation, stakeholder
relationships, safety and
environmental performance.
Eraring Energy Corporate Governance32
General Manager Trading
Stephan BorasDegree in Business Administration (Hamburg),
MAICD
Appointed: 6/11/00
Package Payments: $216,561
Performance Payment: $55,000*
Retention Payment: $109,700#
Performance Statement:
Assessed by Managing Director
against business plan targets
including market strategy, trading
performance, coal purchases and
other performance targets.
Secretary
Steven GrahamDipTech (Comm) MAICD Dip,
Appointed: 11/9/00
Package Payments: $202,748
Performance Payment: $48,000*
Performance Statement:
Assessed by Managing Director
against business plan targets
including stakeholder relationships,
governance, corporate services
and other performance targets.
General Manager Production
Peter JacksonB.Sc, B.E., M.E.M., GAICD
Appointed: 18/5/02
Package Payments: $214,176
Performance Payment: $20,000*
Performance Statement:
Assessed by Managing Director
against business plan targets
including plant performance,
financial management, safety,
environment and other
performance targets.
General Manager Treasury
& Business Development
Alasdair CaushBA (Hons) BusEcon., MBA
Appointed: 11/06/01
Package Payments: $210,341
Performance Payment: $40,000*
Performance Statement:
Assessed by Managing Director
against business plan targets
including projects, credit
management and other
performance targets.
General Manager
Organisational Development
Grazia GoughGraduate Diploma in Business (HRM), MBA
Appointed: 11/11/02
Package Payments: $160,000
Performance Payment*:
Ms Gough commenced in
November 2002 and was therefore
not eligible for performance
payment.
Performance Statement:
Assessed by Managing Director
against business plan targets
including succession planning,
leadership development programs
and enhanced communications.
General Manager Finance
Philip RussellComm Acct Cert, Dip Chartered Sec, FCPA.
FCIS, GAICD, MFTA, AFAIPMM
Appointed: 18/6/02
Package Payments: $173,982
Performance Payment: $25,000*
Performance Statement:
Assessed by Managing Director
against business plan targets
including financial management
and projects, stakeholder
relationships and other
performance targets.
Manager Energy Derivatives
Stephen DavyB.Sc (1st Class Hons)
Appointed: 14/12/00
Package Payments: $179,559
Performance Payment: $29,750*
Retention Payment: $72,800#
Performance Statement:
Assessed by General Manager
Trading against performance
agreement targets including
contract trading strategy
implementation.* Amount shown relates to performancepayments for 2001/02 made in 2002/03.Determinations under this policy for 2002/03will be concluded in 2003/04 and reported inthe 2003/04 annual report.# In December 2001 the NSW Governmentannounced a program for investigation of the‘Transfer’ of NSW generator and retailerelectricity trading books to the private sector.As a consequence of the need to retain keystaff involved in trading related activities, untilafter the stated target for completion of thetrader proposal, a targeted retention programwas put in place. These payments were madein accordance with that retention programwhich has expired.
Executive Committee
Meets monthly to monitor
corporate performance, review
audit reports, agree and monitor
the implementation of actions
arising from those reports, develop
and review implementations of
business strategy, and promote
the development of business
improvement initiatives. Key
strategies in areas such as
information technology are also
addressed within this Committee.
Corporate Governance Eraring Energy 33
Members
Managing Director
Gerry Grove-White
General Manager Trading
Stephan Boras
General Manager Treasury &
Business Development
Alasdair Caush
Secretary
Steven Graham
General Manager Production
Peter Jackson
General Manager Finance
Philip Russell
General Manager
Organisational Development
Grazia Gough
Environment Committee
Generally meets quarterly to review
environmental audit reports, agree
and monitor the implementation of
actions arising from such reports,
oversee the development of
compliance and audit programs,
set and review policy, review
incidents, and develop
environmental initiatives.
Members
Managing Director
Gerry Grove-White
General Manager Production
Peter Jackson
Secretary
Steven Graham
Wind, Hydro &
Environment Manager
Frank Mieszala
Executive Safety Committee
Meets monthly to review and
monitor the effectiveness of OHS&R
management and performance,
determine and implement initiatives
and targets aimed at achieving
best practice OHS&R in all parts of
the business, and monitor
compliance with all NSW
Occupational Health and Safety
and Workers’ Compensation
legislation.
Members
Managing Director
Gerry Grove-White
General Manager Production
Peter Jackson
General Manager
Organisational Development
Grazia Gough
Asset Manager
Wayne Winterbine
Production Manager
Shaun Edwards
Wind, Hydro &
Environment Manager
Frank Mieszala
Special Projects Manager
Peter Harvey
Projects Manager
George Wells
Commercial Manager
David Woodroof
Organisational Development
Consultant
Jane McWilliam
Acting Occupational Health and
Safety Manager
Steve Gambrill
Chairperson Eraring Occupational
Health & Safety Committee
Leigh Brydson
Shift Manager on Duty.
PACIFIC WESTERN
Pacific Western Pty Ltd is a wholly
owned subsidiary of Eraring
Energy incorporated under
Corporations Law.
Pacific Western’s operations are
governed by Corporations Law, its
constitution and the provisions of
the Energy Services Corporations
Act 1989 and State Owned
Corporations Act 1995 relating to
the operations of subsidiaries of
state owned corporations.
The Board
The Board is responsible for the
oversight of the management of the
company in accordance with
corporations law, and other
applicable legislation and regulations.
Board Membership
Pacific Western’s Board is
comprised of non-executive directors
and at present is as follows:
Ross Bunyon Chairman
John Maitland Director
Michael Vertigan Director
Gerry Grove-White Director
Brian Todd Secretary
Eraring Energy Corporate Governance34
Directors have access to
management and to independent
advice. Such advice would normally
be sought after consultation with
the Chairman or Secretary.
Remuneration of Directors
No remuneration is currently paid
to Directors by Pacific Western.
Changes in Board Membership
All Directors have held office for the
whole of the financial year.
Meetings of the BoardA Attended
E Eligible meetings
A E
Board
Ross Bunyon 5 5
John Maitland 3 5
Michael Vertigan 5 5
Gerry Grove-White 5 5
Executive Management
Organisation Structure
Executive Management
General ManagerBob Morgan
Production ManagerBrian McKenry
Commercial Manager/SecretaryBrian Todd
Remuneration and
Performance of Executive and
Senior Officers
The number of executives and
senior officers with remuneration
packages (excluding incentive
payments) equal to or exceeding
$100,000 at the end of this
reporting period and comparison
with the previous reporting year are
disclosed below:
As at As at 30/6/02 30/6/03
No. of executive officers above $100,000 3 3
No. of female executive officers above $100,000 - -
Total package remuneration for the period was: $441,939 $464,337
Contracts for all these officers
provide for an at-risk payment and
the Board has established a policy
for the assessment of performance
and the calculation of at-risk
payments based on the
organisation’s performance against
its business plan and personal
performance, with the major
component being the
organisation’s performance.
The following specific payments
were made to executives during
the financial year:
General Manager
Bob MorganBEng (Mech Eng) Hons UNSW. MEng SciUNSW
Appointed: 09/02/98
Package Payments: $175,719
Performance Payment: $14,315*
Performance Statement:
Assessed by Board against
business plan targets including
financial, contract, safety,
environmental performance and
stakeholder relationships.
Production Manager
Brian McKenryBBus (Production & Operations Mgt and HRMgt) USQ
Appointed: 06/04/98
Package Payments: $132,844
Performance Payment: $11,837*
Performance Statement:
Assessed by General Manager
against business plan objectives
and targets including contract,
financial, safety, environmental and
quality performance and preparation
of the stations Condition Monitoring
and Asset Management Plan.
Commercial Manager/Secretary
Brian ToddCPA
Date Appointed: 20/04/98
Package Payments: $119,013
Performance Payment: $10,609*
Performance Statement:
Assessed by General Manager
against business plan objectives
and targets covering information
technology, purchasing and
warehousing, financial accounting,
safety and environmental targets
relative to his area of responsibility.* Amount shown relates to performancepayments for 2001/02 made in 2002/03.Determinations under this policy for 2002/03will be concluded in 2003/04 and reported inthe 2003/04 annual report.
Financial Statements Eraring Energy 35
Beginning of the Financial Statements audited by the Auditor-General
Statement of
Financial Performance. . . . . . . 36
Statement of
Financial Position . . . . . . . . . . . 37
Statement of Cash Flows. . . . 38
Notes to and
forming part of the
Financial Statements . . . . . . . . 39
Statement by members
of the Board . . . . . . . . . . . . . . . . 60
Independent Audit Report . . . 61
Pacific Western
Pty Limited . . . . . . . . . . . . . . . . . 62
Statutory Information . . . . . . . . 77
Index . . . . . . . . . . . . . . . . . . . . . . . 84
36 Eraring Energy Statement of Financial PerformanceFor the year ended 30th June, 2003
Consolidated Parent Entity2003 2002 2003 2002
Note $’000 $’000 $’000 $’000
Revenues from ordinary activities 2 553,659 535,705 540,962 519,705
Raw materials and consumables used (331,679) (324,322) (329,925) (321,474)Employee benefits expense (43,128) (40,165) (38,783) (35,939)Depreciation expense (44,745) (38,768) (44,248) (38,282)Borrowing costs expense (7,151) (10,542) (7,151) (10,542)Other expenses from ordinary activities (68,774) (73,334) (63,372) (67,113)
Profit from ordinary activities before income tax expense 3 58,182 48,574 57,483 46,355 Income tax expense relating to ordinary activities 4 (18,090) (17,954) (17,232) (16,855)
Net profit 40,092 30,620 40,251 29,500
Increase in asset revaluation reserve arising on revaluation of non-current assets 21 55,131 - 55,131 -
Total revenue, expense and valuation adjustments recognised 55,131 - 55,131 -
Total changes in equity other than those resultingfrom transactions with owners as owners 21 95,223 30,620 95,382 29,500
The above statement of financial performance should be read in conjunction with the accompanying notes
Statement of Financial Position Eraring EnergyAs of 30th June, 2003
37
Consolidated Parent Entity2003 2002 2003 2002
Note $’000 $’000 $’000 $’000
Current AssetsCash assets 5 1,215 175 1,005 77 Receivables 6 92,494 162,116 92,664 161,849 Inventories 7 43,283 58,976 37,924 53,804 Current tax assets 8 2,533 3,260 2,533 3,260 Other 9 3,201 917 3,126 832
Total Current Assets 142,726 225,444 137,252 219,822
Non-Current AssetsProperty, plant and equipment 11 1,229,020 1,165,688 1,228,388 1,164,700 Deferred tax assets 12 12,645 13,068 12,347 12,810
Total Non-Current Assets 1,241,665 1,178,756 1,240,735 1,177,510
Total Assets 1,384,391 1,404,200 1,377,987 1,397,332
Current LiabilitiesPayables 13 79,002 132,619 77,026 130,435 Interest bearing liabilities 14 41,991 32,902 41,991 32,902 Current tax liabilities 15 21,480 12,522 21,253 12,008 Provisions 16 43,381 38,624 41,395 36,093 Other 17 5,127 2,793 5,127 2,793
Total Current Liabilities 190,981 219,460 186,792 214,231
Non-Current LiabilitiesInterest bearing liabilities 18 48,693 97,702 48,693 97,702 Deferred tax liabilities 19 1,093 773 1,093 773 Provisions 20 46,064 48,100 46,018 48,029
Total Non-Current Liabilities 95,850 146,575 95,804 146,504
Total Liabilities 286,831 366,035 282,596 360,735
Net Assets 1,097,560 1,038,165 1,095,391 1,036,597
EquityContributed equity 21 1,032,481 1,032,481 1,032,481 1,032,481 Reserves 21 55,131 - 55,131 - Retained profits 21 9,948 5,684 7,779 4,116
Total Parent Entity Interest 1,097,560 1,038,165 1,095,391 1,036,597
Total Equity 1,097,560 1,038,165 1,095,391 1,036,597
The above statement of financial position should be read in conjunction with the accompanying notes
Eraring Energy Statement of Cash FlowsFor the year ended 30th June, 2003
38
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Inflows Inflows Inflows Inflows Note (Outflows) (Outflows) (Outflows) (Outflows)
Cash flows from operating activitiesCash received in the course of operations 608,386 530,190 591,970 510,304 Interest and bill discount received 50 26 214 194 Cash paid in the course of operations (470,266) (486,003) (457,058) (471,284)GST refunded (32,007) (17,704) (32,007) (17,704)Interest and other finance costs paid (9,166) (21,796) (9,182) (21,511)Dividend received - - 2,150 1,441 Income tax paid (7,661) (1,674) (6,476) (625)
Net cash provided by operating activities 26 89,336 3,039 89,611 815
Cash flows from investing activitiesProceeds from sale of equipment 338 9,378 310 9,378 Proceeds from sale of investments - 1,389 - 1,389 Payments for property, plant & equipment (19,511) (21,320) (19,370) (21,214)
Net cash used in investing activities (19,173) (10,553) (19,060) (10,447)
Cash flows from financing activitiesProceeds from borrowings 602,696 618,105 598,926 618,105 Repayment of borrowings (641,966) (587,486) (638,696) (584,986)Repayment (borrowing) of loans & advances by related parties (516) 2,442 (516) 2,442 Dividend paid (29,337) (25,172) (29,337) (25,172)
Net cash used in financing activities (69,123) 7,889 (69,623) 10,389
Net increase in cash held 1,040 375 928 757 Cash at beginning of the year 175 (200) 77 (680)
Cash at the end of the year 5 1,215 175 1,005 77
The above statement of cash flows should be read in conjunction with the accompanying notes
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
39
Note 1 Summary of SignificantAccounting Policies(a) Basis of PreparationThese financial statements are ageneral purpose financial reportprepared in accordance with theprovisions of the Public Finance andAudit Act, 1983 and Public Financeand Audit Regulation, 2000,Australian Accounting Standards,other authoritative pronouncementsof the Australian AccountingStandards Board, Urgent IssuesGroup Consensus Views and therequirements of the State OwnedCorporations Act, 1989.
The financial report has beenprepared on the basis of historicalcost except for some classes of non-current assets, which have beenaccounted for at valuation. Cost isbased on the fair values of theconsideration given in exchange forassets. The accounting policies havebeen consistently applied by eachentity in the consolidated entity.
Despite current liabilities exceedingcurrent assets at balance date,Eraring Energy is able to pay itsdebts as and when they fall dueowing to PAFA approved facilitieswith T’corp.
(b) Non-Current AssetsNon-current assets have beenaccounted for in accordance withAccounting Standard AASB1041“Revaluation of Non-Current Assets”with classes of non-current assetsbeing valued at the lower of writtendown replacement cost or a businessdiscounted cash flow valuation.
The recoverable amount of a non-current asset is the net amountexpected to be recovered through
the net cash inflows arising from itscontinued use and subsequentdisposal, discounted to present valueusing Eraring Energy’s weightedaverage cost of capital.
Where a group of assets worktogether to generate net cashinflows, the recoverable amount testis applied to that group of assets asa whole. The recoverable amounttest is undertaken annually.
(c) Acquisition of AssetsThe purchase method of accountingis used for all acquisition of assetsregardless of whether equityinstruments or other assets areacquired. Cost is measured as thefair value of the assets given up orliabilities undertaken at the date ofacquisition plus incidental costsdirectly attributable to the acquisition.
(d) Depreciation of Property, Plantand EquipmentDepreciation is calculated on astraight line basis to write off the netcost or revalued amount of eachitem of property, plant andequipment, other than land, over itsexpected useful life to Eraring Energy.
Estimates of remaining useful livesare made on a periodic basis for allassets. The useful lives assigned toEraring Energy’s assets from 2ndAugust 2000 are:■ Eraring Power Station 32 Years■ Hydro and Other Generation
Up to 40 Years■ Plant and Equipment
Up to 10 Years■ Buildings 40 Years
Major spares purchased specificallyfor particular plant are capitalisedand depreciated on the same basisas the plant to which they relate.
(e) Principles of ConsolidationThe financial statements of EraringEnergy and its controlled entities areconsolidated in compliance withAccounting Standard AASB 1024“Consolidated Accounts”. Theconsolidated financial reportcombines the financial report ofEraring Energy and its controlledentity, Pacific Western Pty Ltd. Theeffect of all transactions betweenentities in the consolidated entity hasbeen eliminated in full in preparingthe consolidated financialstatements.
(f) Foreign Currency TranslationForeign currency transactions areinitially translated into Australiancurrency at the rate of exchange atthe date of the transaction. Foreigncurrency monetary items outstandingat balance date have been convertedto Australian dollars using theexchange rate current at that date.Exchange differences relating tomonetary items have been broughtto account as exchange gains orlosses in determining the profit orloss for the year.
Exchange differences on forwardforeign exchange contracts to hedgethe purchase or sale of specificgoods and services are deferred andincluded in the measurement of thepurchase or sale when it takes place.
In the event of the early terminationof a foreign currency hedge of ananticipated purchase or sale ofgoods and services, the deferredgains and losses that arose on theforeign exchange contract prior to itstermination are:
■ Deferred and included in themeasurement of the purchase or
Eraring Energy Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
40
sale when it takes place, where theanticipated transaction is stillexpected to occur; or
■ Recognised in the Statement ofFinancial Performance at the dateof termination, if the anticipatedtransaction is no longer expectedto occur.
(g) Interest Rate ContractsGains and losses on forward interestrate contracts are deferred andamortised over the period of theunderlying borrowing. Gains andlosses on interest rate swaps areincluded in the determination ofinterest expense.
(h) DerivativesThe consolidated entity is exposedto changes in interest rates, foreignexchange rates and commodityprices from its activities. Theconsolidated entity uses the followingderivative financial instruments tohedge these risks: interest rateswaps, forward rate agreements,interest rate options, forward foreignexchange contracts and electricityderivative contracts. Derivativeinstruments are not held forspeculative purposes.
(i) HedgesWhere hedge transactions aredesignated as a hedge of theanticipated purchase or sale ofgoods or services, the gains andlosses on the hedge arising up to thedate of the anticipated transaction,together with any costs or gainsarising at the time of entering into thehedge, are deferred and included inthe measurement of the anticipatedtransaction when the transaction hasoccurred as designated. Any gains
or losses on the hedge transactionafter that date are included in theStatement of Financial Performance.
When the anticipated transaction isno longer expected to occur asdesignated, the deferred gains andlosses relating to the hedgedtransaction are recognisedimmediately in the Statement ofFinancial Performance.
(j) Liability ManagementEraring Energy actively manages itsliabilities against a benchmark inaccordance with Board approvedpolicies and the TreasuryManagement Guidelines issued byNew South Wales Treasury. Inaccordance with the accountingpolicy adopted for the underlyingdebt instruments, all gains andlosses incurred in the use ofderivative instruments are recognisedas interest income/ expense in theStatement of Financial Performanceas incurred.
(k) Borrowing CostsBorrowing costs directly attributableto buildings under construction andland held for resale are capitalised aspart of the cost of those assets.
(l) Discount and Premium on LoansDiscount and premium on loans istreated as an additional cost ofborrowing which is amortised overthe term of the loans, theamortisation amount applicable toeach year being included as interestincome/ expense in the Statement ofFinancial Performance as part ofEraring Energy’s borrowing costs forthat year.
(m) Revenue RecognitionRevenues are recognised at fairvalue of the consideration received
net of the amount of goods andservices tax (GST). Exchanges ofgoods or services of the samenature and value without any cashconsideration are not recognised asrevenues.
Sale of ElectricityRevenue from the sales of electricityis recognised based on meteredenergy sent out from generationfacilities adjusted for transmissionline losses at the regional referencenode.
Interest RevenueInterest revenue is recognised as itaccrues.
Sale of Non-Current AssetsThe gross proceeds of non-currentasset sales are included as revenueat the date control of the assetpasses to the buyer, usually when anunconditional contract of sale issigned. The gain or loss on disposalis calculated as the differencebetween the carrying amount of theasset at the time of disposal and thenet proceeds on disposal.
Goods and Services TaxRevenues, expenses and assets arerecognised net of the amount ofgoods and services tax (GST), except:
(a) where the amount of GSTincurred is not recoverable from thetaxation authority, it is recognised aspart of the cost of acquisition of anasset or as part of an item ofexpense; or
(b) for receivables and payables whichare recognised inclusive of GST.
The net amount of GST recoverablefrom, or payable to, the taxationauthority is included as part ofreceivables or payables.
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
41
(n) ReceivablesTrade accounts receivable, amountsdue from related parties and otherreceivables represent the principalamounts due at balance date plus,where applicable, accrued interestand less any unearned income andprovisions for doubtful accounts.Trade debtors are normally settledwithin 28 days.
(o) InventoriesInventories are measured at thelower of cost and net realisable valuein accordance with AccountingStandard AASB 1019 “Inventories”.Costs have been assigned toinventory quantities on hand atbalance date using the weightedaverage cost method.
(p) Segment ReportingEraring Energy operates pre-dominantly in one business segment,that being electricity generation, andwithin one geographical segment,that being Australia.
(q) LeasesEraring Energy’s operating leasepayments are charged to expense inthe periods in which they areincurred, as this represents thepattern of benefits derived from theleased assets.
(r) Operating CycleAn operating cycle of 12 months hasbeen used as the basis for identifyingcurrent assets and current liabilitiesin the Statement of Financial Position.
(s) InsuranceEraring Energy has externalinsurances in place. The majority ofthese policies carry a significantexcess. The corporation is a self-insurer for certain risks and is
responsible for the portion of riskapplicable below the externalinsurance excess.
(t) Income TaxTax effect accounting procedures arefollowed whereby the income taxexpense in the Statement ofFinancial Performance is matchedwith the accounting profit afterallowing for permanent differences.
Income tax on cumulative timingdifferences is set aside to the deferredincome tax or the future income taxbenefit accounts at the rates whichare expected to apply when thosetiming differences reverse.
Eraring Energy is exempt from liabilityfor Commonwealth income tax.Income tax equivalents are, however,payable to the New South WalesOffice of State Revenue under theNational Tax Equivalent Regime. TheNational Tax Equivalent Regime isadministered by the AustralianTaxation Office.
(u) Employee EntitlementsEraring Energy’s present obligation inrespect of employee entitlements,namely salaries, wages and annualleave, are recorded as liabilities,having been calculated at nominalamounts based on remunerationrates that are expected to be paidincluding related on-costs. Thismeasurement basis reflects thechange to AASB 1028 “EmployeeBenefits”.
For long service leave, the liabilityhas been determined using anactuarial shorthand method ofcalculation, and represents thepresent value of estimated futurecash outflows in respect of long
service leave, after taking intoaccount projected remunerationincreases and related on-costs.
(v) Leasehold ImprovementsThe cost of improvements to or onleasehold properties is amortisedover the unexpired period of thelease or the estimated useful life ofthe improvement to the consolidatedentity, whichever is the shorter.
(w) PayablesLiabilities are recognised for amountsto be paid in the future for goodsand services received. Tradeaccounts payable are normallysettled within 30 days. Payables inthe Statement of Financial Positionrepresent the principal amounts out-standing at balance date plus, whereapplicable, any accrued interest.
(x) ComparativesThe comparative informationcontained in these financialstatements relating to the yearended 30 June 2002 has beenadjusted. This reclassification isnecessary to correctly state EraringEnergy’s receivables and payablesarising from our electricity sales on agross basis, where our tradingcontracts do not permit set-off onsettlement. In 2002, Eraring Energy’sfinancial statements were presentedon a net basis. The adjustment is anincrease to both current receivablesand payables of $78,029,750 in theStatement of Financial Position.
(y) Rounding of AmountsAmounts shown in these financialstatements have been rounded tothe nearest thousand dollars, unlessotherwise stated.
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 2 Revenue from Ordinary ActivitiesRevenue from operating activitiesElectricity sales 535,512 473,607 535,512 473,607 Electricity Tariff Equalisation Fund - 1,436 - 1,436 Services rendered 15,079 17,672 - -
550,591 492,715 535,512 475,043
Other revenue from operating activitiesSuperannuation movement 287 - 287 -
Rentals 49 47 49 47 Interest received 50 26 36 8 Interest - Pacific Western - - 178 186 Dividends received relating to last year - - 2,150 1,441 CSO NSW Treasury 110 59 110 59
Other revenue from outside operating activitiesProceeds from sale of property, plant & equipment 338 9,378 310 9,378 Insurance provision writeback - 27,072 - 27,072 Miscellaneous 2,234 6,408 2,330 6,471
2,781 42,990 5,163 44,662
Total revenue from ordinary activities 553,659 535,705 540,962 519,705
Note 3 Operating ProfitProfit from ordinary activities before income tax expense includes:ExpensesRaw material and consumables used 331,679 324,322 329,925 321,474 Depreciation:Buildings 615 442 615 442 Plant and equipment 44,064 38,260 43,567 37,774 Leasehold improvements 66 66 66 66
44,745 38,768 44,248 38,282
Depreciated value of assets sold and/or written off 392 962 353 962
Superannuation movement - 13,299 - 13,299 Superannuation contribution 10,000 - 10,000 -
Borrowing costsInterest and finance charges paid/payable 7,151 11,661 7,151 11,661 Interest capitalised - (1,119) - (1,119)
7,151 10,542 7,151 10,542
Operating lease rentals:Minimum lease payments 445 358 383 275
Consultants 567 471 355 284 Doubtful debts (245) 408 (245) 408
Eraring Energy Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
42
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
43
ConsultantsExpenditure on consultants totalled $355,155 (consolidated $567,616). The main purpose of the engagements related to recruitment and organisational development services, tax advice and accounting advice particularly relating to the adoption ofInternational Accounting Standards, and economic research.
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 4 Income TaxIncome tax on operating profit differs from the primafacie tax on that profit as follows:Prima facie income tax on operating profit at 30% 17,455 14,573 17,245 13,906
Tax effect of permanent differences which reduce tax payment due to:Rebatable dividend - - (645) (432)Actuary assessment of defined superannuation funds (86) - (86) - Research and development concession (1) - (1) -
(87) - (732) (432)
Increase tax payable due to non-deductible:Actuary assessment of defined superannuation funds - 3,989 - 3,989 Asset revaluation decrement 149 - 149 - Incremental depreciation expense on revaluation of non-current assets 573 - 573 - Entertainment expenses 8 4 5 4 Non deductible loss on sale of fixed assets - 19 - 19 Donations and sponsorhips 2 16 2 16 Legal expenses 3 22 3 22
735 4,050 732 4,050
Prima facie tax adjusted for permanent differences 18,103 18,623 17,245 17,524
Prior year adjustments (13) - (13) -
Company tax rate adjustment to deferred income tax liability notrecognised in 2000/01 Annual Accounts - (669) - (669)
Income tax attributable to operating profit 18,090 17,954 17,232 16,855
Aggregate income tax expense comprises:Income tax payable 12,538 6,394 11,640 5,135 Deferred income tax provision 4,401 1,534 4,401 1,557 Future income tax benefits 1,151 10,026 1,191 10,163
18,090 17,954 17,232 16,855
Note 5 Current Assets - Cash AssetsCash at bank and on hand 1,215 175 1,005 77
Eraring Energy Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
44
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 6 Current Assets - ReceivablesTrade debtors 91,957 161,890 90,554 160,497 Less: Allowance for doubtful debts (163) (408) (163) (408)
91,794 161,482 90,391 160,089
Loan to Pacific Western - - 1,573 1,057 Other debtors 700 634 700 703
92,494 162,116 92,664 161,849
Other DebtorsOther amounts generally arise from transactions outside the usual operating activities of the consolidated entity. Collateral is notnormally obtained. Interest may be charged at commercial rates where the terms of repayment exceed six months.
Note 7 Current Assets - InventoriesStores and materials 6,535 35,837 1,176 30,665 Coal stocks 35,748 22,825 35,748 22,825 Oil stocks 1,000 314 1,000 314
43,283 58,976 37,924 53,804
Stores and MaterialsOn 1st July 2002, stores and materials worth $30,492,000 were transferred to property, plant and equipment, and depreciated on a straight-line basis over its expected useful life to Eraring Energy.
Note 8 Current Assets - Current Tax AssetsFuture income tax benefit 2,533 3,260 2,533 3,260
Future Income Tax BenefitThe amount of the future income tax benefit which is expected to be realised within the next operating cycle, ie 12 months.
Note 9 Current Assets - OtherAdvances for overseas travel - 4 - 4 Prepayments 579 913 504 828 Superannuation - overfunded liability (see Note 30) 2,622 - 2,622 -
3,201 917 3,126 832
Note 10 Non-Current Assets - Shares in Controlled EntitiesShares in controlled entities - - .001 .001
Shares in Controlled EntitiesAs at balance date, Eraring Energy held 100% of the shareholding in Pacific Western Pty Ltd, being one $1.00 ordinary share.
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
45
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 11 Non-Current Assets - Property, Plant and EquipmentFreehold landAt cost - 2,469 - 2,469 At valuation 26,514 - 26,514 -
Total Freehold Land 26,514 2,469 26,514 2,469
BuildingsOperating power stations - at cost - 13,712 - 13,712 Operating power stations - at valuation 19,938 - 19,938 - Less: Accumulated depreciation (585) (732) (585) (732)
19,353 12,980 19,353 12,980
Other - at cost - 1,800 - 1,800 Other - at valuation 1,219 - 1,219 - Less: Accumulated depreciation (30) (86) (30) (86)
1,189 1,714 1,189 1,714
Total Buildings 20,542 14,694 20,542 14,694
Plant and equipmentOperating power stations - at cost - 1,212,327 - 1,212,327 Operating power stations - at valuation 1,212,382 - 1,212,382 - Less: Accumulated depreciation (42,930) (69,500) (42,930) (69,500)
1,169,452 1,142,827 1,169,452 1,142,827
Other - at cost 16,623 8,115 14,056 5,650 Less: Accumulated depreciation (4,638) (3,010) (2,703) (1,533)
11,985 5,105 11,353 4,117
Total Plant and Equipment 1,181,437 1,147,932 1,180,805 1,146,944
Leasehold improvementsAt cost 659 659 659 659 Less: Accumulated depreciation (132) (66) (132) (66)
Total Leasehold Improvements 527 593 527 593
Total Property, Plant and Equipment 1,229,020 1,165,688 1,228,388 1,164,700
Eraring Energy Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
46
Valuation of Freehold LandValuation of freehold land is based on the fair market value of the property. The valuation was based on an open market basis. The valuation was conducted by BEM Consultants Pty Ltd as at 1st July 2002. The valuation increased the carrying amount of the class of assets to $26,514,000 the increment being $24,069,000.
Valuation of Other BuildingsValuation of miscellaneous buildings is based on fair market value. The valuation was based on an open market basis. The valuation reduced the carrying amount of the class of assets to $1,218,600 resulting in a write-down of $495,345. The valuation was conducted by BEM Consultants Pty Ltd as at 1st July 2002.
Valuation of Power Station Equipment and Power Station BuildingsThe classes of power station equipment and associated building assets are measured on a fair value basis. An independent review of the written down replacement value of the Eraring power station assets was conducted by Rodney Hyman Asset Services. The valuation of the asset classes has been performed on a fair value basis by identifying the recoverable amount arising from the expected net cash flows discounted to their present value from the use of the assets. The valuation was conducted as at 1st July 2002. The revaluation resulted in an increment to the power station building and plant and equipment power station classes of assets of $31,102,000.
ReconciliationsReconciliations of the carrying amounts of each class of property, plant and equipment at the end of the current financial year are set out below:
Power Plant & Plant &Freehold Station Other Equipment Equipment Leasehold
Land Building Buildings Power Stn Other Improvement Total$'000 $'000 $'000 $'000 $'000 $'000 $'000
Parent EntityBalance @ 01/07/02 2,469 12,980 1,714 1,142,827 4,117 593 1,164,700 Asset revaluation increase 24,029 6,943 - 24,159 - - 55,131 Asset revaluation decrease - - (495) - - - (495)
Balance after revaluation @ 01/07/02 26,498 19,923 1,219 1,166,986 4,117 593 1,219,336
Parent plant spares transfer - - - 30,708 - - 30,708 Capital spares transfer - - - 3,111 - - 3,111 Asset additions 16 15 - 10,849 8,985 - 19,865 Asset disposals - - - - (384) - (384)Depreciation expense - (585) (30) (42,202) (1,365) (66) (44,248)
Balance @ 30/06/03 26,514 19,353 1,189 1,169,452 11,353 527 1,228,388
Work in progress amounting to $13,094,805 (2002 - $10,155,508) is included in the carrying amount of property, plant and equipment.
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
47
Power Plant & Plant &Freehold Station Other Equipment Equipment Leasehold
Land Building Buildings Power Stn Other Improvement Total$'000 $'000 $'000 $'000 $'000 $'000 $'000
Consolidated EntityBalance @ 01/07/02 2,469 12,980 1,714 1,142,827 5,105 593 1,165,688 Asset revaluation increase 24,029 6,943 - 24,159 - - 55,131 Asset revaluation decrease - - (495) - - - (495)
Balance after revaluation @ 01/07/02 26,498 19,923 1,219 1,166,986 5,105 593 1,220,324
Parent plant spares transfer - - - 30,708 - - 30,708 Capital spares transfer - - - 3,111 - - 3,111 Asset additions 16 15 - 10,849 9,126 - 20,006 Asset disposals - - - - (384) - (384)Depreciation expense - (585) (30) (42,202) (1,862) (66) (44,745)
Balance @ 30/06/03 26,514 19,353 1,189 1,169,452 11,985 527 1,229,020
Broken Hill Gas TurbinesEraring Energy is the registered operator of the Broken Hill Gas Turbines in the National Electricity Market, and effectively has beneficial use of these turbines. Ownership remained with Pacific Power during 2002/03 and was not transferred to Eraring Energy under Ministerial Order in August 2000. This asset has not been taken into account in preparing these Financial Statements, as its value is considered not material.
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 12 Non-Current Assets - Deferred Tax AssetsFuture income tax benefit 12,645 13,068 12,347 12,810
Note 13 Current Liabilities - PayablesTrade creditors 57,756 106,344 55,780 104,160 Other creditors 21,246 26,275 21,246 26,275
79,002 132,619 77,026 130,435
Note 14 Current Liabilities - Interest Bearing LiabilitiesBorrowings 41,991 32,902 41,991 32,902
41,991 32,902 41,991 32,902
Current BorrowingsShort term loans - face value 12,694 Come and go - face value 27,700 Short term loans - Pacific Western Pty Ltd 1,500 Premium on domestic loans issued by NSW Tcorp 97
41,991
Note 15 Current Liabilities - Current Tax LiabilitiesIncome tax 10,437 5,559 10,210 5,045 Current deferred income tax liability 11,043 6,963 11,043 6,963
21,480 12,522 21,253 12,008
Eraring Energy Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
48
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 16 Current Liabilities - ProvisionsDividend (see Note 25) 35,828 29,337 34,438 27,187 Employee entitlements (see Note 30) 3,053 2,608 2,457 2,227 Redundancy - 1,179 - 1,179 Insurances (see Note 20) 4,500 5,500 4,500 5,500
43,381 38,624 41,395 36,093
Reconciliation of provision classes - see Note 20
Note 17 Current Liabilities - OtherSuperannuation - underfunded liability (see Note 30) 5,127 2,793 5,127 2,793
Note 18 Non-Current Liabilities - Interest Bearing LiabilitiesBorrowings 48,693 97,702 48,693 97,702
Non-Current BorrowingsNon-current borrowings 46,715 Premium on domestic loans issued by NSW Tcorp 1,978
48,693
Total Debt and Maturity AnalysisTotal debt outstanding at 30th June 2003, and maturity pattern is:Up to one year 41,991 Over one and up to two years - Over two and up to five years 25,239 Over five years 23,454
Total 90,684
Finance Facilities AvailableBank overdraft 2,000 NSW Treasury Corporation loans and come and go 230,000
Total 232,000
Finance Facilities Used as at 30 June 2003Bank overdraft - NSW Treasury Corporation loans and come and go 90,684
Total 90,684
Eraring Energy also utilises the Commonwealth Bank of Australia facilities for contingent liabilities associated with dust diseasesliabilities ($10,000,000), intra day cash management (real time gross settlements - $10,000,000) and credit card facilities ($750,000) as approved by the Governor under Public Authorities Finance Act legislation. With the exception of the Commonwealth Bank of Australia facilities, all new borrowings are arranged through NSW Treasury Corporation.
Note 19 Non-Current Liabilities - Deferred Tax LiabilitiesProvision for deferred income tax 1,093 773 1,093 773
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
49
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 20 Non-Current Liabilities - ProvisionsEmployee entitlements 9,238 7,938 9,192 7,867 Insurance 36,826 40,162 36,826 40,162
46,064 48,100 46,018 48,029
ReconciliationsReconciliations of the carrying amounts of each class of provision at the end of the current financial year are set out below:
Current Non-Current TotalEmployee Employee
Dividend Entitlements Redundancy Insurances Entitlements Insurances$'000 $'000 $'000 $'000 $'000 $'000 $'000
Parent EntityBalance @ 01/07/02 27,187 2,227 1,179 5,500 7,867 40,162 84,122Additional provisions recognised 34,438 4,492 - 278 - - 39,208Provision payments (27,187) (2,937) (1,179) (4,614) - - (35,917)Provision remeasurement - - - - - - -Current v non-current transfer - (1,325) - 3,336 1,325 (3,336) -
Balance @ 30/06/03 34,438 2,457 - 4,500 9,192 36,826 87,413
Current Non-Current TotalEmployee Employee
Dividend Entitlements Redundancy Insurances Entitlements Insurances$'000 $'000 $'000 $'000 $'000 $'000 $'000
Consolidated EntityBalance @ 01/07/02 29,337 2,608 1,179 5,500 7,938 40,162 86,724Additional provisions recognised 35,828 4,957 - 278 (25) - 41,038Provision payments (29,337) (3,187) (1,179) (4,614) - - (38,317)Provision remeasurement - - - - - - -Current v non-current transfer - (1,325) - 3,336 1,325 (3,336) -
Balance @ 30/06/03 35,828 3,053 - 4,500 9,238 36,826 89,445
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
InsurancesCurrent (see Note 16) 4,500 5,500 4,500 5,500 Non-current (see Note 20) 36,826 40,162 36,826 40,162
41,326 45,662 41,326 45,662
Eraring Energy Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
50
As part of the restructure of Pacific Power, the existing workers' compensation claims for employees, and existing and future dust diseases insurance liabilities for third party contractors and employees associated with:Former decommissioned Power Stations of the former Electricity Commission;Delta Electricity and Macquarie Generation Power Stations prior to their formation; andPacific Power prior to 2nd August 2000 were transferred to Eraring Energy with the WorkCover licence under the Ministerial Order.
The total insurance provision is made up of a provision for current workers compensation and dust diseases claims liability at$5,133,562 (2002 - $5,783,347) which exceeds the minimum amount certified by the actuary in accordance with Clause 3.3 (a) (iv) of the Self Insurer licence provisions. The remaining balance of the insurance provision is $36,192,145 (2002 - $39,878,645) and represents future dust diseases claims liability.
The insurance provision includes a provision for $37,965,707 which relates to other than Eraring Energy employees and contractors.
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 21 Contributed Equity, Reserves and Retained ProfitsContributed equity 1,032,481 1,032,481 1,032,481 1,032,481 Reserves 55,131 - 55,131 - Retained profits 9,948 5,684 7,779 4,116
1,097,560 1,038,165 1,095,391 1,036,597
Movements in Contributed EquityOpening balance 1,032,481 879,177 1,032,481 879,177 NSW Treasury Corporation debt reduction - 150,000 - 150,000 Pacific Power LSL transfer - 3,293 - 3,293 Pacific Power Asset transfer - 11 - 11
1,032,481 1,032,481 1,032,481 1,032,481
Movements in ReservesOpening balance - - - - Asset Revaluation Reserve 55,131 - 55,131 -
55,131 - 55,131 -
Movements in Retained ProfitsOpening balance 5,684 10,094 4,116 8,937 Net profit after tax 40,093 30,620 40,252 29,500 Dividends (see Note 25) (37,979) (36,471) (36,589) (34,321)Prior year dividend elimination 2,150 1,441 - -
9,948 5,684 7,779 4,116
In accordance with the State Owned Corporations Act, 1989, the two voting shareholders, the Hon. M.R. Egan, Treasurer, and the Hon. J. Della Bosca, Special Minister of State, hold one share each value at $1.00 per share.
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
51
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 22 Capital Expenditure CommitmentsCapital commitments payable:Within one year 24,079 7,368 24,079 7,343 Later than one year but not later than five years 27,225 15,642 27,225 15,642
51,304 23,010 51,304 22,985
Eraring Energy expects to receive input tax credits from the Australian Taxation Office totalling $4,664,000 for Goods and Services Tax paid with these commitments.
Note 23 Lease CommitmentsOperating lease rentals payable:Within one year 334 329 310 300 Later than one year but not later than five years 465 760 460 756
799 1,089 770 1,056
Operating LeasesThe operating lease commitments are non-cancellable and are not provided for in the accounts. While lease commitments for theparent entity extend to 30 November 2005, rental prices are only agreed to November 2003. Assumptions have been made fromDecember 2003.
Eraring Energy expects to receive input tax credits from the Australian Taxation Office totalling $70,000 (consolidated - $72,600) forGoods and Services Tax paid with these commitments.
Note 24 Operating Expenditure CommitmentsOperating expenditure commitments payable:Within one year 23,810 20,140 23,525 19,881 Later than one year but not later than five years 8,392 14,588 8,085 14,347
32,202 34,728 31,610 34,228
Eraring Energy expects to receive input tax credits from the Australian Taxation Office totalling $2,874,000 (consolidated - $2,927,000) for Goods and Services Tax paid with these commitments.
Note 25 Dividends & Community Service ObligationsIn accordance with the share dividends scheme determined by the voting shareholders, and as required by the Energy Services Corporation Act, 1995 and State Owned Corporations Act, 1989, the Board has provided for a dividend payment of$35,828,049 (2002 - $29,337,368). This will be paid during the course of the 2003/2004 year and is represented by the balance of the provision at balance date (see Note 16). The dividend payment has been reduced by the amount of $4,264,698 (2002 - $4,717,042) paid for worker's compensation and dust disease Court determinations for other than Eraring Energy employees. This liability was transferred from the NSW Government to Eraring Energy on corporatisation with agreement for thematter to be treated as a community service obligation and deducted from dividends.
Eraring Energy Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
52
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 26 Cash Flow InformationCash at bank and on hand (see Note 5) 1,215 175 1,005 77
1,215 175 1,005 77
Reconciliation of profit from ordinary activities after income taxexpense to net cash provided by operating activities:Profit from ordinary activities after income tax expense 40,092 30,620 40,251 29,500
Add/(less):(Profit)/loss on repayment of borrowings 348 (238) 348 (238)Amortisation of fixed interest borrowings (497) 622 (497) 622 Transfer of Long Service Leave from contributed equity - 3,293 - 3,293 Transfer of assets from contributed equity - 11 - 11 Provision for doubtful debts (245) (408) (245) (408)(Profit)/loss on sale of property, plant and equipment 15 (8,435) 43 (8,435)
Add/(less): Non-cash itemsDepreciation 44,723 38,768 44,248 38,282 Depreciation on assets written off 53 20 31 20 Parent plant spares transfer (33,819) - (33,819) - (Increase)/decrease in accrued interest income 16 - - - Increase/(decrease) in income tax 10,469 16,438 10,756 16,228(Increase)/decrease in accrued interest expense (2,031) (11,255) (2,031) (10,970)
Net cash provided by operating activities before changes in assetsand liabilities 59,124 69,436 59,085 67,905
Net changes in assets and liabilities during the financial year:(Increase)/decrease in receivables 6,689 (84,136) 6,808 (84,554)(Increase)/decrease in other debtors (14,891) (38,311) (14,891) (38,311)(Increase)/decrease in inventories 15,693 (5,627) 15,880 (5,480)(Increase)/decrease in other assets 298 9,533 327 9,680 Increase/(decrease) in payables and borrowings 80 79,138 248 78,618 Increase/(decrease) in other liabilities 22,343 (26,994) 22,154 (27,043)
Net cash provided by operating activities 89,336 3,039 89,611 815
For the purposes of the Statement of Cash Flows, cash includes cash on hand and on deposit at bank, net of outstanding bankoverdrafts. It also includes investments as part of the daily cash management function.
Note - restructuring adjustments to and from NSW Treasury Corporation are equity transactions, with no cash effect.
Note 27 Contingent LiabilitiesEraring Energy has received claims for additional costs from a contractor for work performed at Burrinjuck in the order of $16 million. Eraring Energy will contest the quantum of claims and its own assessment is under $1 million and has been provided for in its accounts. The dispute is in arbitration.
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
53
Note 28 Financial InstrumentsAll derivatives are managed in accordance with policies approved by the Eraring Energy Board including total value and credit risk limits and can only be used to hedge existing exposures. There were no outstanding interest rate or currency swaps at balance date.
Forward Foreign Exchange ContractsIn the normal course of business, Eraring Energy enters into contracts required for goods or services from overseas which are settled in the suppliers currency. Under Board approval, Eraring Energy hedges specific commitments by use of forward foreignexchange contracts. The contracts are timed to mature when settlement of the goods and services are due, and any gain or loss realised being included in the measurement of the purchase. At balance date Eraring Energy had 5 (2002 - 5) forward foreign exchange contracts as detailed below:
2003 2002Average Principal Average Principal
Exchange Amount Exchange AmountContracts Rate AUD Contracts Rate AUD
Japanese Yen duration less than one year 5 65.28 3,462,481 2 62.79 4,899,346 Japanese Yen duration greater than one year - - - 3 62.74 1,896,064
The contracts as at 30 June 2003 are showing an unrealised loss of $419,373 (2002 - $140,718).
a) Interest Rate RiskInterest rate risk is the risk that the value of the financial instrument used will fluctuate due to changes in the market interest ratesresulting in an adverse financial effect.
Weighted Floating Fixed Interest Rate Maturing In Non- Total Average Interest 1 Year 1 to 5 Over 5 Interest Carrying Effective
Rate or less Years Years Bearing Amount Interest $'000 $'000 $'000 $'000 $'000 $'000 Rate pa %
Parent Entity 2003Financial AssetsCash 1,005 - - - - 1,005 3.61%Trade Debtors - - - - 91,250 91,250 - Received from Related Entities - 1,573 - - - 1,573 5.26%Deposits - - - - - - - Other - - - - 183 183 -
Total Financial Assets 1,005 1,573 - - 91,433 94,011 -
Financial LiabilitiesAccounts Payable - - - - 70,575 70,575 - Overdraft - - - - - - - Debt 27,700 14,291 25,239 23,454 - 90,684 5.43%Other - - - - 35,011 35,011 -
Total Financial Liabilities 27,700 14,291 25,239 23,454 105,586 196,270 -
Eraring Energy Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
54
Weighted Floating Fixed Interest Rate Maturing In Non- Total Average Interest 1 Year 1 to 5 Over 5 Interest Carrying Effective
Rate or less Years Years Bearing Amount Interest $'000 $'000 $'000 $'000 $'000 $'000 Rate pa %
Consolidated 2003Financial AssetsCash 1,215 - - - - 1,215 3.61%Trade Debtors - - - - 92,758 92,758 - Received from Related Entities - - - - - - - Deposits - - - - - - - Other - - - - 183 183 -
Total Financial Assets 1,215 - - - 92,941 94,156 -
Financial LiabilitiesAccounts Payable - - - - 72,561 72,561 - Overdraft - - - - - - - Debt 27,700 14,291 25,239 23,454 - 90,684 5.43%Other - - - - 36,401 36,401 -
Total Financial Liabilities 27,700 14,291 25,239 23,454 108,962 199,646 -
Parent Entity 2002Financial AssetsCash 77 - - - - 77 4.12%Trade Debtors - - - - 161,197 161,197 - Received from Related Entities - 1,057 - - - 1,057 6.19%Deposits - - - - - - - Other - - - - 572 572 -
Total Financial Assets 77 1,057 - - 161,769 162,903 -
Financial LiabilitiesAccounts Payable - - - - 115,293 115,293 - Overdraft - - - - - - - Debt 17,300 15,602 45,528 52,173 - 130,603 6.23%Other - - - - 27,187 27,187 -
Total Financial Liabilities 17,300 15,602 45,528 52,173 142,480 273,083 -
Consolidated 2002Financial AssetsCash 175 - - - - 175 4.12%Trade Debtors - - - - 162,590 162,590 - Received from Related Entities - - - - - - - Deposits - - - - - - - Other - - - - 572 572 -
Total Financial Assets 175 - - - 163,162 163,337 -
Financial LiabilitiesAccounts Payable - - - - 119,628 119,628 - Overdraft - - - - - - - Debt 17,300 15,602 45,528 52,173 - 130,603 6.23%Other - - - - 29,337 29,337 -
Total Financial Liabilities 17,300 15,602 45,528 52,173 148,965 279,568 -
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
55
b) Credit Risk - Recognised Financial InstrumentsCredit risk is the risk of financial loss arising from another party to a contract or financial position failing to discharge a financialobligation thereunder. Eraring Energy's maximum exposure to credit risk is represented by the carrying amount of the financial assets included in the consolidated Statement of Financial Position.
Government Banks Others Total$'000 $'000 $'000 $'000
Parent Entity 2003Financial AssetsCash - 1,005 - 1,005 Trade Debtors 84,483 - 6,767 91,250 Received from Related Entities - - 1,573 1,573 Deposits - - - - Other - - 183 183
Total Financial Assets 84,483 1,005 8,523 94,011
Consolidated 2003Financial AssetsCash - 1,215 - 1,215 Trade Debtors 85,984 - 6,774 92,758 Received from Related Entities - - - - Deposits - - - - Other - - 183 183
Total Financial Assets 85,984 1,215 6,957 94,156
Parent Entity 2002Financial AssetsCash - 77 - 77 Trade Debtors 143,843 - 17,353 161,196 Received from Related Entities - - 1,057 1,057 Deposits - - - - Other - - 572 572
Total Financial Assets 143,843 77 18,982 162,902
Consolidated 2002Financial AssetsCash - 175 - 175 Trade Debtors 145,180 - 17,408 162,588 Received from Related Entities - - - - Deposits - - - - Other - - 572 572
Total Financial Assets 145,180 175 17,980 163,335
Eraring Energy Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
56
Total Carrying Aggregate Net Amount Fair Value
$’000 $’000
c) Net Fair ValueThe recognised and unrecognised financial assets and financial liabilities of the Corporation are recorded at net fair value except as disclosed in the following table:
Parent Entity 2003Semi-Government Bonds 90,684 93,025
Consolidated 2003Semi-Government Bonds 90,684 93,025
Parent Entity 2002Semi-Government Bonds 130,604 130,835
Consolidated 2002Semi-Government Bonds 130,604 130,835
d) Credit Risk Exposure - Unrecognised Financial InstrumentsElectricity Hedging ContractsThe corporation is an active manager of its credit risk exposure to electricity hedging contracts. Following Board approved policy, exposure limits are applied to each respective counterparty. This is done by reference to an acceptable public credit rating assigned by an approved credit rating agency, or in the absence of an acceptable public rating, by assessing internally the credit rating of that counterparty using a methodology consistent with the approach of an approved credit rating agency. Credit limits are monitored regularly and reported monthly to the Board. It is preferred policy to seek an ISDA master agreement with all trading counterparts, and when necessary, the ISDA may require a Bank Guarantee or other acceptable security exercisable in the State of New South Wales. The total credit exposure for electricity hedging as at 30th June 2003 was $97,021,260 (2002 - $52,209,956).
Forward Foreign Exchange Contracts, Interest Rate Swaps and Interest Rate FuturesCredit exposures are represented by the net mark to market position of the contracts, as disclosed. Board approved policy is in place which sets limits and credit rating for the financial institutions the company is allowed to deal with. Monthly reporting on limits and exposures is presented to the Board.
e) Electricity Derivatives Disclosure Note2003 2002
Face Value Face Value$'000 $'000
Electricity Hedging ContractsDuration less than one year 329,919 270,548 Duration later than one year but not later than five years 548,077 564,277 Duration later than five years 23,880 69,562
901,876 904,387
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
57
The contracts as at the 30th June 2003 have a net mark to market value of negative $153 million (2002 -negative $288 million)
The table includes predominantly swap contracts where the face value is calculated by multiplying the MW volume by the contract price. In addition to the above derivatives, Eraring has purchased CAP contracts which may be exercised depending on the spot price in relation to the strike price. The CAP contracts are not material and expire by the end of 2006. A reliablemethodology to value the caps is not available.
Wholesale market contracts have been entered into with electricity market counterparties to hedge the risk associated withfluctuations in the sale price of electricity into the national electricity market (NEM). It is the policy of the entity to manage its exposure in line with forecast generation. In doing so, the entity has entered into various electricity contracts.
Uncontracted generation exposes the entity to pool price variation. The entity's risk management policy is to limit the exposure and consequent price risk within Board prescribed limits.
Mark to market value is measured based on industry accepted valuation methodologies and a market published forward curve. The amounts disclosed above are only indicative of the amounts which may ultimately be realised.
As these contracts can be settled other than by physical delivery of the underlying commodity, they are classified as financialinstruments. In entering into these contracts for the purpose of hedging the risks associated with future generation, the gains and costs of entering these contracts and any realised or unrealised gains and losses are deferred until the underlying generation occurs. On maturity, the contracted price is compared to the spot price on that date and the price differential is applied to the contracted quantity. A net amount is paid or received by the entity.
Note 29 Events Occurring After Balance DateAgreement was reached for Eraring Energy to repay capital of $137 million in October 2003 (equity to debt swap)
A claim lodged by a contractor with respect to work done at Burrinjuck was adjudicated under the Security of Payments Act and payment made for $0.8 million in May 2003. This matter will be the subject of arbitration. A further claim of around $1 million from the same contractor was received after balance date. This is currently the subject of adjudication.
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 30 Employee EntitlementsProvision for employee entitlementsCurrent (see Note 16) 3,053 2,608 2,457 2,227 Non-current (see Note 20) 9,238 7,938 9,192 7,867
12,291 10,546 11,649 10,094
Long Service LeaveLong service leave is measured at its present value, using the following assumptions:Consumer price index 2.5%Investment return 6.0%Salary increase 2.5%
SuperannuationEraring Energy contributes to three defined superannuation schemes at rates determined by Pillar (formerly the SuperannuationAdministration Corporation). These schemes are the State Superannuation Scheme (SSS), State Authorities Superannuation Scheme (SASS) and the State Authorities Non-Contributory Superannuation Scheme (SANCS).
Contributions to the scheme are expensed when paid or payable and reduce the superannuation liability. These contribution receipts are invested by Pillar and the resultant investment income or deficits adds to or subtracts from the fund balances.
At balance date, any underfunded superannuation liability is recognised as a liability in the Statement of Financial Position. Similarly, the amount of any overfunded position is recognised as an asset in the Statement of Financial Position in the form of prepaid superannuation contributions. The superannuation balance of the three defined superannuation schemes included in the Statement of Financial Position are:
SASS SANCS SSS Total$'000 $'000 $'000 $'000
2003Accrued liability assessed by actuaries at 30 June 2003 14,199 5,901 49,949 70,049 Investment reserve balance 16,157 6,565 44,822 67,544
Superannuation balance - brackets indicate underfunded position 1,958 664 (5,127) (2,505)
2002Accrued liability assessed by actuaries at 30 June 2002 11,317 5,309 41,078 57,704Investment reserve balance 9,741 4,533 40,637 54,911
Superannuation balance - brackets indicate underfunded position (1,576) (776) (441) (2,793)
The following assumptions were adopted in measuring present values of superannuation:Consumer price index 2.5%Investment return 7.0%Salary increase 4.0%
Note 31 Related PartiesNo Director has declared the receipt of, or an entitlement to receive, during or since the financial year, a benefit as a result of a contract between Eraring Energy and a Director, an entity of which a Director is a member or an entity in which a Director has a substantial financial interest.
The following Directors have disclosed that they held positions with the following organisations which the Corporation had business dealings with, which were all made in the normal course of business and on normal commercial terms and conditions:
■ Mr D Pritchard is a Director of Onesteel Limited, a company with which Eraring Energy has had business dealings during the year.
The following Directors have disclosed that their spouses held positions with the following organisations which the Corporation had business dealings with, which were all made in the normal course of business and on normal commercial terms and conditions:
■ Mr M Nugent's spouse is a Director of Origin Energy, a company with which Eraring Energy has had business dealings during the year.
Note 32 DirectorsTerms and Remuneration of DirectorsAppointments for non-executive directors can be for a period of up to five years. Eraring Energy pays all remuneration of non-executive directors which is set by the voting shareholders. No additional remuneration is paid to the Managing Director for being anexecutive director.
Name & Position Appointed Qualifications
Non-Executive DirectorsMr RM Bunyon* 21st July 2000 to 30th June 2003 BComm (UNSW), CIE Aust, AMP (Harvard)Chairman and Director Reappointed to 30th June 2006 Director/Consultant
Ms BA Hoskinson-Green 21st July 2000 to 30th June 2005 LLB (UNSW), LL.M (Harvard)Director Solicitor
Mr J Maitland* 21st July 2000 to 30th June 2003 National Secretary, Construction, Forestry,Director Mining & Energy Union
Dr MJ Vertigan* 21st July 2000 to 30th June 2005 B.Ec (Hons) TasmaniaDirector PhD California
Director/Consultant
Eraring Energy Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
58
Notes to & forming part of the Financial Statements Eraring EnergyFor the year ended 30th June, 2003
59
Name & Position Appointed Qualifications
Mr M Nugent 21st July 2001 to 30th June 2004 FCPADirector Director
Mr D Pritchard 21st July 2001 to 30th June 2004 BE, FIE Aust, CP Eng.Director Director
Executive DirectorMr G Grove-White * 2nd January 2001 BSc (MechEngr) Hons, Chartered Engineer MI MechManaging Director E, Cert Diploma in Accountancy and Finance
* These directors of Eraring Energy are also directors of Pacific Western Pty Ltd. No additional remuneration is paid to these directors for undertaking their Pacific Western directorship.
Parent Entity2003 2002$'000 $'000
Income paid or payable, or otherwise made available, to directors inconnection with the management of the affairs of the entity 745 695 Superannuation benefits payable 75 53
Total remuneration payable to directors 820 748
Parent Entity2003 2002
$ $'000 $'000
The number of directors whose total income from the entity waswithin the following bands are as follows: 40,000 - 49,999 - 1
50,000 - 59,999 2 2 60,000 - 69,999 3 2
100,000 - 109,999 - 1 110,000 - 119,999 1 - 340,000 - 349,999 - 1 390,000 - 399,999 1 -
Consolidated Parent Entity2003 2002 2003 2002$’000 $’000 $’000 $’000
Note 33 Remuneration to External AuditorsRemuneration paid or payable for the audit of the financial report
186 183 171 169
Note 34 ExemptionsThe financial statements have been prepared in accordance with the requirements of Part 3 of the Public Finance and Audit Act 1983 and the Public Finance and Audit Regulation 2000, except that the following exemptions have been granted by the Treasurer:
Exemption from reporting amounts set aside for renewal or replacement of fixed assets.
Exemption from reporting amounts set aside to any provision for known commitments.
Exemption from reporting amounts appropriated for repayment of loans, advances and deposits.
Exemption from reporting material items of income and expenditure on a program or activity basis in respect of commercially sensitive information.
Eraring Energy Statement by Members of the BoardFor the year ended 30th June, 2003
60
End of the Financial Statements audited by the Auditor-General
Pursuant to Section 41C of the Public Finance and Audit Act 1983, and inaccordance with a resolution of the Board of Eraring Energy, we declareon behalf of Eraring Energy that in our opinion:
1. The Financial Statements exhibit a true and fair view of the financialposition of Eraring Energy as at 30th June 2003.
2. The Financial Statements are a general purpose financial report whichhas been prepared in accordance with applicable Australian AccountingStandards and other mandatory professional reporting requirements,the provisions of the State Owned Corporations Act 1989, includingPart 3 of the Public Finance and Audit Act 1983, the Public Finance andAudit Regulation 2000, except where the Treasurer's exemption hasbeen granted.
3. At the date of this statement, there are reasonable grounds to believethat the company will be able to pay its debts as and when theybecome due and payable.
4. We are not aware of any circumstances at the date of this declarationthat would render any particulars included in this financial report to bemisleading or inaccurate.
Dated at Sydney this 25th day of September 2003.
RM Bunyon GF Grove-WhiteChairman Managing Director
Independent Audit Report Eraring Energy 61
To Members of the New South Wales Parliament
Audit OpinionIn my opinion, the financial report of Eraring Energy:
(a) presents fairly the Corporation's and the consolidated entity's financial position as at 30 June 2003 and their financialperformance and cash flows for the year ended on that date, in accordance with applicable Accounting Standards andother mandatory professional reporting requirements in Australia, and
(b) complies with section 41B of the Public Finance and Audit Act 1983 (the Act). The opinion should be read in conjunctionwith the rest of this report.
The Board's RoleThe financial report is the responsibility of the members of the Board of Eraring Energy. It consists of the statements offinancial position, the statements of financial performance, the statements of cash flows and the accompanying notes forEraring Energy and the consolidated entity. The consolidated entity comprises Eraring Energy and the entity it controlled at theyear's end or during the financial year.
The Auditor's Role and the Audit ScopeAs required by the Act, I carried out an independent audit to enable me to express an opinion on the financial report. My auditprovides reasonable assurance to Members of the New South Wales Parliament that the financial report is free of material misstatement.
My audit accorded with Australian Auditing and Assurance Standards and statutory requirements, and I:■ evaluated the accounting policies and significant accounting estimates used by the Board in preparing the financial report, and ■ examined a sample of the evidence that supports the amounts and other disclosures in the financial report.
An audit does not guarantee that every amount and disclosure in the financial report is error free. The terms 'reasonableassurance' and 'material' recognise that an audit does not examine all evidence and transactions. However, the auditprocedures used should identify errors or omissions significant enough to adversely affect decisions made by users of thefinancial report or indicate that Board members had failed in their reporting obligations.
My opinion does not provide assurance:■ about the future viability of the Corporation or its controlled entity, ■ that they have carried out their activities effectively, efficiently and economically, or ■ about the effectiveness of their internal controls.
The Audit Office complies with all applicable requirements of Australian professional ethical pronouncements. The Act furtherpromotes independence by:■ providing that only Parliament, and not the executive government, can remove an Auditor-General, and ■ mandating the Auditor-General as auditor of public sector agencies but precluding the provision of non-audit services, thus
ensuring the Auditor-General and the Audit Office are not compromised in their role by the possibility of losing clients or income.
R J SendtAuditor-General
SYDNEY25 September 2003
BOX 12 GPO
SYDNEY NSW 2001
Pacific Western Pty Limited Directors’ Report62
The Directors present their reporttogether with the financial statementsof Pacific Western Pty Limited for theperiod 1 July 2002 to 30 June 2003and the auditor's report thereon.
DirectorsThe Directors in office at the date ofthis report are Ross MurdochBunyon, John Maitland, MichaelJohn Vertigan and Gerry Grove-White. All Directors have held officefor the whole of the financial year.
Principal ActivitiesThe principal continuing activity ofthe company for the year isoperation and maintenance of theCollie Power Station.
Trading ResultsThe profit from ordinary activitiesafter tax was $1,991,190 (2002 -$2,560,593) on total revenue of $15,121,330 (2002- $17,690,573).
DividendsThe dividend provided for in the prioryear was paid to the parent entityduring the year. The directors haverecommended the payment of a finaldividend of $1,389,632, which isexpected to be paid out of retainedprofits at 30 June 2003.
Directors' BenefitsDuring the financial year no Directorof the company has received orbecome entitled to receive anybenefit by reason of a contract madeby the company with the Director orwith a firm of which the Director is amember, or with a company in whichthe Director has a substantialfinancial interest.
Review of OperationsPerformance for 2002/03 waspleasing with good commercialoutcomes.
The availability of the plant in peakoperating periods has beenmaintained at levels consistent withcontractual obligations despite someplant problems. These weremanaged very effectively by thePacific Western team with bothshort/medium and long termsolutions being developed.
As a consequence of the successfulapplication of condition monitoringprograms for the plant, the forcedoutage factor due to plant failurescontinues to reduce. The majorfactor contributing to plant outageshave been identified as processcontrol and design problems.Corrective works have continued tobe implemented as part of assetmanagement plans.
Structural reforms undertakenpreviously have shown animprovement in productivity andemployee development programshave been maintained to the benefitof the company and staff.
The company successfully undertookcompliance audits in December2002 and has retained itsaccreditation for Safety, Environmentand Quality which are essentialelements of the management modelimplemented to achieve a leadershipposition in the operation of the plant.
The company continues to maintainits excellent safety record with nolost time injuries occurring during theyear. Directors congratulate the staffof Pacific Western for thisoutstanding performance.
Dated at Sydney this 25th day ofSeptember 2003.
Signed in accordance with aresolution of the Directors:
R M BunyonDirector
G F Grove-WhiteDirector
Directors’ Declaration Pacific Western Pty Limited 63
In the opinion of the Directors of Pacific Western Pty Limited:
a) the accompanying financial statements of the company are drawn up so asto give a true and fair view of the profit and cash flows of the company forthe period 1 July 2002 to 30 June 2003 and the state of affairs of thecompany at 30 June 2003;
b) at the date of this statement there are reasonable grounds to believe thatthe company will be able to pay its debts as and when they fall due;
c) the financial statements have been made out in accordance withCorporations Act 2001;
d) the financial statements of the company have been made out inaccordance with applicable accounting standards, authoritativepronouncements of the Australian Accounting Standards Board and UrgentIssues Consensus Group Views, and
e) the financial statements have been prepared in accordance with theprovisions of the NSW Public Finance and Audit Act, 1983 and the NSWPublic Finance and Audit Regulation, 2000.
Dated at Sydney this 25th day of September 2003.
Signed in accordance with a resolution of the Directors:
R M Bunyon G F Grove-WhiteDirector Director
Pacific Western Pty Limited Independent Audit ReportFor the year ended 30th June, 2003
64
To Members of the New South Wales Parliament and Members of Pacific Western Pty Limited
Audit OpinionIn my opinion, the financial report of Pacific Western Ply Limited is in accordance with:-
(a) the Corporations Act 2001, including:
(i) giving a true and fair view of the company's financial position as at 30 June 2003 and financial performance for theyear ended on that date, and
(ii) complying with Accounting Standards in Australia, and the Corporations Regulations 2001,
(b) other mandatory financial reporting requirements in Australia, and
(c) section 41B of the Public Finance and Audit Act 1983.
The opinion should be read in conjunction with the rest of this report.
The Directors' RoleThe financial report is the responsibility of the company's directors. It consists of the statement of financial position, thestatement of financial performance, the statement of cash flows and the accompanying notes, and directors' declaration.
The Auditor's Role and the Audit ScopeAs required by the Public Finance and Audit Act 1983 and the Corporations Act 2001, I carried out an independent audit toenable me to express an opinion on the financial report. My audit provides reasonable assurance to Members of the NewSouth Wales Parliament and the members of Pacific Western Pty Limited that the financial report is free of materialmisstatement.
My audit accorded with Australian Auditing and Assurance Standards and statutory requirements, and I:■ evaluated the accounting policies and significant accounting estimates used by the directors in preparing the financial report, and ■ examined a sample of the evidence that supports the amounts and other disclosures in the financial report.
An audit does not guarantee that every amount and disclosure in the financial report is error free. The terms 'reasonableassurance' and 'material' recognise that an audit does not examine all evidence and transactions. However, the auditprocedures used should identify errors or omissions significant enough to adversely affect decisions made by users of thefinancial report or indicate that the company's directors had failed in their reporting obligations.
My opinion does not provide assurance:■ about the future viability of the company, ■ that it has carried out its activities effectively, efficiently and economically, or ■ about the effectiveness of its internal controls.
The Audit Office complies with all applicable independence requirements of Australian professional ethical pronouncements andthe Corporations Act 2001. The Public Finance and Audit Act 1983 further promotes independence by:
■ providing that only Parliament, and not the executive government, can remove an Auditor-General, and■ mandating the Auditor-General as auditor of public sector agencies but precluding the provision of non-audit services, thus
ensuring the Auditor-General and the Audit Office are not compromised in their role by the possibility of losing clients or income.
R J SendtAuditor-General
SYDNEY25 September 2003
BOX 12 GPO
SYDNEY NSW 2001
Statement of Financial Performance Pacific Western Pty Limited For the year ended 30th June, 2003
65
2003 2002Note $ $
Revenue from rendering services 2a 15,075,951 17,672,327Other revenues from ordinary activities 2b 45,379 18,246
Materials and consumables used (1,753,892) (2,847,926)Depreciation (496,716) (486,244)Borrowing cost expenses (178,276) (186,600)Employee benefits expense (4,345,225) (4,226,288)Other expenses from ordinary activities (5,497,829) (6,283,436)
Profit from ordinary activities before income tax expense 3 2,849,392 3,660,079Income tax expense relating to ordinary activities 4 (858,202) (1,099,486)
Profit from ordinary activities after income tax expense 1,991,190 2,560,593
Net profit attributable to members of the parent entity 12 1,991,190 2,560,593
Total changes in equity other than those resulting from transactions with owners as owners 1,991,190 2,560,593
The statement of financial performance is to be read in conjunction with the accompanying notes.
Pacific Western Pty Limited Statement of Financial PositionAs of 30th June, 2003
66
2003 2002Note $ $
Current AssetsCash assets 210,044 98,061Receivables 5 1,508,461 1,392,706Inventories 5,359,387 5,172,216Other 6 74,468 85,271
Total Current Assets 7,152,360 6,748,254
Non-Current AssetsPlant and equipment 7 632,333 987,761Deferred tax assets 4c 298,214 258,345
Total Non-Current Assets 930,547 1,246,106
Total Assets 8,082,907 7,994,360
Current LiabilitiesPayables 8 2,081,928 4,403,430Interest bearing liabilities 9 1,573,383 1,057,009Provisions 10 1,985,935 381,040Current tax liabilities 4b 227,130 513,833
Total Current Liabilities 5,868,376 6,355,312
Non-Current LiabilitiesProvisions 10 45,450 71,525
Total Non-Current Liabilities 45,450 71,525
Total Liabilities 5,913,826 6,426,837
Net Assets 2,169,081 1,567,523
EquityContributed equity 11 1 1Retained profits 12 2,169,080 1,567,522
Total Parent Entity Interest 2,169,081 1,567,523
Total Equity 2,169,081 1,567,523
The statement of financial position is to be read in conjunction with the accompanying notes.
Statement of Cash Flows Pacific Western Pty LimitedFor the year ended 30th June, 2003
67
2003 2002Note $ $
Cash flows from operating activitiesCash receipts in the course of operations 16,416,442 19,886,076Interest received 14,198 18,246Cash payments in the course of operations (13,208,222) (14,720,018)Borrowing costs paid (161,903) (471,428)Income taxes paid (1,184,775) (1,048,790)
Net cash provided by operating activities 14 (ii) 1,875,740 3,664,086
Cash flows from investing activitiesPayments for property, plant and equipment (141,287) (105,752)Proceeds from sale of property, plant and equipment 27,530 -
Net cash used in investing activities (113,757) (105,752)
Cash flows from financing activitiesProceeds from borrowings 3,770,000 1,000,000Repayment of borrowings (3,270,000) (3,500,000)Dividends paid 14 (iii) (2,150,000) (1,440,679)
Net cash provided by /(used in) financing activities (1,650,000) (3,940,679)
Net increase/(decrease) in cash held 111,983 (382,345)Cash at the beginning of the financial year 98,061 480,406
Cash at the end of the financial year 14 (i) 210,044 98,061
The above statement of cash flows should be read in conjunction with the accompanying notes.
Pacific Western Pty Limited Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
68
Note 1. Summary of SignificantAccounting Policies
The significant policies which have beenadopted in the preparation of thesefinancial statements are:
a) Basis of Preparation
The financial statements are a generalpurpose financial report which has beenprepared in accordance with therequirements of the NSW Public Financeand Audit Act 1983, the NSW PublicFinance and Audit Regulation 2000, theAustralian Accounting Standards,Corporations Act 2001, Urgent IssuesGroup Consensus Views and otherauthoritative pronouncements of theAustralian Accounting Standards Board.
They have also been prepared inaccordance with the historical costconvention and do not take account ofchanges in the general purchasingpower of the dollar except where stated.The accounting policies have beenconsistently applied by the Companyand are consistent with those of theprevious year.
b) Income Tax
Tax effect accounting procedures arefollowed whereby the income taxexpense in the Statement of FinancialPerformance is matched with theaccounting profit after allowing forpermanent differences. The futureincome tax benefits are not brought toaccount unless realisation of the asset isassured beyond reasonable doubt.Income tax on cumulative timingdifferences is set aside to the deferredincome tax or future income tax benefitsaccounts at the rates which are expectedto apply when those timing differencesreverse. Income tax is paid to the NSWOffice of State Revenue under theNational Tax Equivalent Regime.
c) Plant and Equipment
Items of plant and equipment arerecorded at cost. Cost is determined asthe fair value of the assets given asconsideration plus the costs incidentalto the acquisition. Depreciation iscalculated on a straight line basis towrite off the net cost or re-valuedamount of plant and equipment over itsexpected useful life.
Estimates of remaining useful lives aremade on a periodic basis for all assets.The useful lives presently assigned tothe company’s assets - plant andequipment are between 3 - 5 years.
d) Inventories
Inventories, which consist predominantlyof maintenance spare parts, are valuedat the lower of cost and net realisablevalue. Costs are assigned to individualitems of stock on the basis of weightedaverage cost.
e) Interest bearing liabilities
Loans are carried at their principalamounts which represent the presentvalue of future cashflows associatedwith servicing the debt. Interest isaccrued over the period it becomes dueand is recorded as part of interestbearing liabilities.
f) Revenue recognition
Revenues are recognised at fair value ofthe consideration received net of theamount of goods and services tax (GST)payable to the taxation authority.Exchanges of goods and services of thesame nature and value without any cashconsideration are not recognised asrevenues.
Revenue from rendering servicesrepresents revenue earned for theprovision of services under the Operatingand Maintenance Agreement with thestation owner. Revenue is recognised inproportion to the stage of completion ofthe contract when the stage ofcompletion can be reliably measured.
g) Receivables
Trade accounts receivable, amounts duefrom related parties and other receivablesrepresent the principal amounts due atbalance date plus, where applicable,accrued interest and less any unearnedincome and provisions for doubtful debts.Trade debtors are normally settled within30 days.
h) Payables
Liabilities are recognised for amounts tobe paid in the future for goods andservices received. Trade accountspayables are normally settled within 30days. Payables in the Statement ofFinancial Position represent the principalamounts outstanding at balance dateplus, where applicable, any accruedinterest.
i) Goods and Services tax
Revenues, expenses and assets arerecognised net of the amount of goodsand services tax (GST), except
(a) where the amount of GST incurred isnot recoverable from the taxationauthority, it is recognised as part of thecost of acquisition of an asset or aspart of an item of expense; or
(b) for receivables and payables which arerecognised inclusive of GST. The netamount of GST recoverable from, orpayable to, the taxation authority isincluded as part of receivables orpayables.
Notes to & forming part of the Financial Statements Pacific Western Pty LimitedFor the year ended 30th June, 2003
69
2003 2002$ $
Note 2. RevenueRevenue from Ordinary ActivitiesOperating results have been arrived at after including:a) Revenue from Operating ActivitiesRendering of services 15,075,951 17,672,327
15,075,951 17,672,327
b) Other Revenue from Non Operating ActivitiesInterest 14,197 18,246Proceeds on disposal of plant and equipment 27,530 -Other 3,652 -
45,379 18,246
Total Revenue from Ordinary Activities 15,121,330 17,690,573
Note 3. Profit from Ordinary Activities before Income Tax ExpenseOperating results have been arrived at after including:
ExpensesDepreciation 496,716 486,244Borrowing costs – loan from parent entity 178,276 186,600Consultant costs 212,461 186,774Amounts paid or payable to Auditors for audit of the Annual Report 10,000 8,000Contractor costs 3,691,488 4,406,251
Consultants - Expenditure on consultants totalled $212,461. The main purpose of the engagements relate to continued maintenance of accreditation for Environment ISO14001:1991 and Quality under ISO 9001:2000, recruitment services and specialist technical advice.
j) Employee Entitlements
(i) Annual leaveLiabilities for wages and salaries,including non-monetary benefits andannual leave expected to be settledwithin 12 months of the reporting dateare recognised in provisions foremployee benefits up to the reportingdate and are measured at theamounts expected to be paid whenthe liabilities are settled.
(ii) Long service leaveThe liability for long service leaveexpected to be settled within 12months of the reporting date isrecognised in the provision foremployee benefits and is measured inaccordance with (i) above. The liabilityfor long service leave expected to besettled more than 12 months from thereporting date is recognised in theprovision for employee benefits andmeasured as the present value ofexpected future payments to be
made in respect of services providedby employees up to the reporting date.Consideration is given to expectedfuture wage and salary levels,experience of employee departuresand periods of service. Expected futurepayments are discounted using marketyields at the reporting date on NationalGovernment bonds with terms tomaturity that match, as closely aspossible, the estimated future cashoutflows.
Pacific Western Pty Limited Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
70
2003 2002$ $
Note 4. Income Taxa) Income Tax ExpenseThe income tax expense for the financial year differs from the amount calculated on the profit. The differences are reconciled as follows:Profit from ordinary activities before income tax expense 2,849,392 3,660,079
Income tax calculated at 30% 854,817 1,098,024Tax effect of permanent differences:Sundry items 3,385 1,462
Income tax expense 858,202 1,099,486
Aggregate income tax expense comprises: Current taxation provision 898,072 1,259,007Future income tax benefit (39,870) (136,887)Deferred income tax provision - (22,634)
858,202 1,099,486
b) Current Tax LiabilitiesBalance at beginning of year 513,833 303,617Less income tax paid (1,184,775) (1,048,791)Current year’s income tax expense on operating profit 898,072 1,259,007
227,130 513,833
c) Deferred Tax AssetsFuture income tax benefit comprises the estimated future benefit at current income tax rates on the following items:
Provisions and accruals not currently deductible 298,214 258,345
298,214 258,345
Note 5. ReceivablesTrade debtors 1,508,461 1,392,706
1,508,461 1,392,706
Notes to & forming part of the Financial Statements Pacific Western Pty LimitedFor the year ended 30th June, 2003
71
2003 2002$ $
Note 6. PrepaymentsPrepayments 74,468 85,271
74,468 85,271
Note 7. Plant and EquipmentPlant and equipment at cost 2,567,115 2,464,877Less accumulated depreciation (1,934,782) (1,477,116)
Written down value 632,333 987,761
ReconciliationReconciliation of the carrying amount of the above plant and equipment at the beginning and end of the current financial year are set out below:
Carrying amount at 1 July 2002 987,761Additions 141,287Disposals (39,049)Accumulated depreciation write-back of assets disposed 39,050Depreciation expense (496,716)
Carrying amount at 30 June 2003 632,333
Note 8. PayablesCurrentTrade creditors and accruals 1,985,830 2,184,680Dividend owing to Parent Entity - 2,150,000Other owing to Parent Entity 96,098 68,750
2,081,928 4,403,430
Note 9. Interest Bearing LiabilitiesLoans from Parent Entity (including interest accrued – 2003- $73,383 2002 - $57,009) 1,573,383 1,057,009
1,573,383 1,057,009
Pacific Western Pty Limited Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
72
2003 2002$ $
Note 10. ProvisionsCurrentEmployee provisions – long service leave 263,255 131,556Employee provisions – annual leave 333,048 249,484Dividend to Parent Entity (prior year dividend included in payables) 1,389,632 -
1,985,935 381,040
Non CurrentEmployee provisions – long service leave 45,450 71,525
45,450 71,525
Note 11. Contributed EquityAuthorised Capital100,000,000 Ordinary shares of $1 each 100,000,000 100,000,000
Issued and Paid up Capital1 Ordinary share of $1 each, fully paid 1 1
Note 12. Retained ProfitsRetained profits at the beginning of the financial year 1,567,522 1,156,929Net profit attributable to members of the parent entity 1,991,190 2,560,593Dividends provided for or paid (1,389,632) (2,150,000)
Retained profits at the end of the financial year 2,169,080 1,567,522
Note 13. Related Party Disclosures
DirectorsThe names of each person holding the position of Director of the company during the financial year were:
RM Bunyon, J Maitland, MJ Vertigan and G Grove-White. All of these persons were also directors during the year ended 30th June 2002.
Ultimate Parent EntityThe ultimate parent entity of the company as at balance date is Eraring Energy.
Transactions with Ultimate Parent EntityExpenses incurred for services provided by Eraring Energy totalled $96,098. These were primarily in relation to insurance services and were on normal terms and conditions. Other transactions included borrowing costs of $178,276. As at the 30 June 2003, the company owed Eraring Energy $3,059,113, for insurance premiums of $96,098, a provision for a dividend of $1,389,632 and a loan of $1,573,383 (including accrued interest).
Notes to & forming part of the Financial Statements Pacific Western Pty LimitedFor the year ended 30th June, 2003
73
2003 2002$ $
Note 14. Notes to the Statement of Cash Flowsi) Reconciliation of CashFor the purposes of the Statement of Cash Flows, cash includes cash on hand and at bank. Cash at the end of the financialyear as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position asfollows:
Cash assets 210,044 98,061
ii) Reconciliation of profit from ordinary activities after income tax expenseto net cash provided by operating activities
Profit from ordinary activities after income tax 1,991,191 2,560,593Add/(less) ; Non-cash itemsDepreciation 474,507 486,244Depreciation on assets sold/written off 22,208 -Proceeds from sale of non-current assets (27,530) -Increase/ (decrease) in interest payable 16,373 (284,828)Increase/ (decrease) in income taxes payable (286,704) 210,216
Net cash provided by operating activities before changes in assets and liabilities 2,190,045 2,972,225Net changes in assets and liabilities during the financial year:(Increase)/decrease in debtors (118,944) 417,005(Increase)/decrease in inventories (187,172) (147,286)(Increase)/decrease in prepayments 10,803 (9,825)(Increase)/decrease in future income tax benefit (39,870) (136,887)Increase/(decrease) in trade creditors and accruals (168,311) 520,073Increase/(decrease) in deferred income tax payable - (22,634)Increase/(decrease) in other liabilities 189,189 71,415
Net cash provided by operating activities 1,875,740 3,664,086
iii) DividendsThe dividend of $2,150,000 relating to the year ended 30 June 2002 which was paid on the 28th November 2002 was not franked.
Note 15. Commitments for ExpenditureCapital CommitmentsCommitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities, payable:
Within one year - 24,789Later than 2 years but not later than 5 years - -Later than 5 years - -
Pacific Western Pty Limited Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
74
2003 2002$ $
Operating LeasesThe Company has a number of motor vehicle operating leases none of which have any contingent rentals, renewal options,conditions or restrictions. Minimum lease payments in any year are dependent on the term of each lease.
Total amount of rental expense during the year relating to operating leases including GST of $5,653 (2002 - $8,310): 62,179 91,411
Commitments and minimum payments in relation to these operating leases contracted for at the reporting date but not recognised as liabilities, payable:
Within one year - including GST of $2,188 (2002 $2,673) 24,063 29,413Later than one year but not later than 5 years - including GST of $413 (2002 -$340) 4,546 3,742Later than 5 years - -
28,609 33,155
Novated LeasesThe Company has commitments under Deeds of Novation in respect of employee motor vehicle leases. The Company’scommitment under a Deed of Novation ceases on termination of employment of the employee concerned. All costs paid bythe Company in respect of these leases are fully recovered from employee’s salaries. Minimum lease payments in any year aredependent on the term of each lease and the continued employment of the relevant employees.
Total amount of rental payments during the year relating to novated leases including GST of $27,437 (2002 - $21,604): 301,803 237,645
Commitments and minimum payments in relation to these novated leases contracted for at the reporting date but not recognised as liabilities, payable:
Within one year - including GST of $25,938 (2002 - $23,507) 285,324 258,582Later than one year but not later than 5 years - including GST of $27,891 (2002 - $21,907) 306,807 240,976Later than 5 years - -
592,131 499,558
The Company has no finance leases.
Note 16. Contingent LiabilitiesPacific Western Pty Limited had no contingent liabilities as at 30 June 2003.
Note 17. Employee Benefit and Related on-costs LiabilitiesProvision for employee benefits - current (note 10) 596,303 381,040Provision for employee benefits - non-current (note 10) 45,450 71,525
Aggregate employee benefit and related on-costs liabilities 641,753 452,565
Employee NumbersNumber of employees at reporting date 44 43
Notes to & forming part of the Financial Statements Pacific Western Pty LimitedFor the year ended 30th June, 2003
75
Note 18. Financial InstrumentsFinancial instruments give rise to positions that are financial assets or liabilities of either Pacific Western or its counterparties.For Pacific Western these include cash, receivables, creditors and borrowings.
In accordance with AASB1033 “Presentation and Disclosure of Financial Instruments”, information is disclosed in this Note inrespect of the risks entailed in the use of financial instruments. All such amounts are carried in the accounts at net fair valueunless otherwise stated. The specific accounting policy in respect of each class of such financial instrument is statedhereunder.
Classes of instruments recorded at cost comprise Cash, Receivables and Payables. Borrowings are recorded at the principalsum repayable at maturity. All financial instruments including revenue, expenses or other cash flows arising from instrumentsare recognised on an accrual basis.
(a) Interest Rate RiskInterest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in market interest rates.Pacific Western’s exposure to interest rate risks and the effective interest rate of financial assets and liabilities, both recognisedand unrecognised at balance date, are as follows:
Weighted Average
Floating Fixed Interest Rate Maturing In Non Total Effective Interest 1 Year 1 to 5 Over 5 Interest Carrying Interest
Rate or less years years Bearing Amount Rate
2003Financial AssetsCash 210,044 - - - - 210,044 3.70%Receivables - - - - 1,508,461 1,508,461 -
Total Financial Assets 210,044 - - - 1,508,461 1,718,505
Financial Liabilities Borrowings: (a) Parent Entity - 1,573,383 - - - 1,573,383 8.61%Payables: (a) Parent Entity - - - - 96,098 96,098 -
(b) Other - - - - 1,985,830 1,985,830 -
Total Financial Liabilities - 1,573,383 - - 2,081,928 3,655,311
2002Financial AssetsCash 98,061 - - - - 98,061 3.70%Receivables - - - - 1,392,706 1,392,706 -
Total Financial Assets 98,061 - - - 1,392,706 1,490,767
Financial Liabilities Borrowings: (a) Parent Entity - 1,057,009 - - - 1,057,009 8.59%Payables: (a) Parent Entity - - - - 2,218,750 2,218,750 -
(b) Other - - - - 2,184,680 2,184,680 -
Total Financial Liabilities - 1,057,009 - - 4,403,430 5,460,439
Pacific Western Pty Limited Notes to & forming part of the Financial StatementsFor the year ended 30th June, 2003
76
(b) Credit RiskCredit Risk is the risk of financial loss arising from another party to a contract or financial position failing to discharge a financialobligation thereunder. Pacific Western’s maximum exposure to credit risk is represented by the carrying amounts of thefinancial assets included in the Statement of Financial Position.
Governments Banks Other Total
2003Financial AssetsCash - 210,044 - 210,044Receivables 1,500,927 - 7,534 1,508,461
Total Financial Assets 1,500,927 210,044 7,534 1,718,505
2002Financial AssetsCash - 98,061 - 98,061Receivables 1,337,426 - 55,280 1,392,706Receivables - related entities - - - -
Total Financial Assets 1,337,426 98,061 55,280 1,490,767
(c) Net Fair ValueThe aggregate net fair value of financial assets and financial liabilities approximate the values recognised in the Statement ofFinancial Position.
Note 19. Standby Arrangements and Credit FacilitiesLoan FacilitiesShort term advances from Eraring Energy - $9 million limit.
End of the Financial Statements audited by the Auditor-General
Statutory Information Eraring Energy 77
Code of ConductA new code of conduct was developed during the year and approved by the Board. Staff were introduced to the new codethrough briefings in May 2003. The code establishes standards of acceptable behaviour by the Board and all employees.
In pursuit of its vision as the leading Electricity Company in Australia, Eraring Energy is committed to fairness, honesty andintegrity in all its dealings with all stakeholders.
This “Code of Conduct” Policy and “Code of Conduct” Procedures (the “Code”) applies to the Board of Eraring Energy and toall people employed by Eraring Energy, including executive officers, managers and permanent and casual staff.
1. Specifically our objectives are to ensure:1.1 A working environment that is free from discrimination and harassment.1.2 All business actions and decisions are based on the highest standards of ethics and honesty, free from any conflicts of
interest.1.3 Any benefits or gifts obtained while performing duties for Eraring Energy be treated in accordance with Eraring Energy
“Code of Conduct” Procedures.1.4 Eraring Energy information is protected and safeguarded and Eraring Energy resources are used efficiently and
economically.1.5 Any instances of possible corruption, maladministration or serious and substantial waste be reported to the appropriate
Eraring Energy Officer.1.6 Where employees of Eraring Energy engage in other employment or business, that their employment or business does
not compromise or conflict with their employment with Eraring Energy.
2. “Code of Conduct” Responsibilities2.1 The Board:
Approve policy;Periodically review this policy.
2.2 The Executive:Develop, implement and monitor compliance programs in accordance with relevant legislation;Promote and support adherence to the Code;Provide adequate resources to communicate the Code;Review and report compliance and oversee corrective action.
2.3 Managers and Team Leaders:Ensure their staff are aware of, appropriately trained in, and comply with their responsibilities under the Code;Assess and control the application of the Code and recommend corrective action as required;Identify and report any breaches of the Code.
2.4 Eraring Energy employees and contract employees:Respect the law and act accordingly;Act in accordance with the Code;Comply with relevant legislation and corporate policies and procedures;Raise concerns and questions with a manager or team leader regarding understanding of, or non-compliance with, the Code.
Eraring Energy Statutory Information78
Cost of Annual Report700 copies of the annual report have been produced in printed format at a total cost of $31,400 including all external costs.
Departures from Financial and Other SCI TargetsEraring Energy exceeded all financial and operational targets agreed with Government in the 2002/03 Statement of CorporateIntent. The major explanations for the departures are outlined below:
EBIT, Dividend, Tax Expense and Tax Payable were all well above targets due to favourable spot and contract pricescompared to forecasts. The favourable variance on sales was partly offset by an adverse superannuation movement causedmainly by an increase in liabilities following changed actuarial assumptions.Production levels achieved the target in aggregate but were lower at Hydro Stations due the prolonged effects of the drought.Generation technical performance measures of reliability, availability, forced outage rates and thermal efficiency exceeded targets due to high plant performance which resulted from robust asset management strategies.
Disability PlanEraring Energy is committed to meeting the needs of people with a disability. Since its inception in August 2000, EraringEnergy has provided assistance to a number of our employees including the provision of temporary assistance with transport,parking access, purchase/updating of technology resources and flexible work practices and telecommuting.
It is intended that a dedicated Disability Action Plan will be developed for Eraring Energy during 2003/04 reporting period.
Disclosure of Controlled EntitiesEraring Energy has a wholly owned subsidiary, Pacific Western Pty Ltd. The specific activity of the company is the operation and maintenance of Collie Power Station in Western Australia, under contract to Western Power.(Operations of the Company have been included in the Financial Statements forming part of the Annual Report)
Ethnic Affairs StatementEraring Energy is currently in the process of developing an Ethnic Affairs Priority Statement. Part of this process includes theidentification of strategies and actions, which will ensure that the operation and conduct of our business reflects, accommodates and considers cultural diversity.
Exemptions from ReportingThe New South Wales Treasury granted approval under delegation from the Treasurer, the Hon. Michael Egan MLC, to exemptEraring Energy for the financial year ended 30th June 2001 and subsequent years from the following financial requirements:
BudgetsPayment of AccountsTime for Payment of AccountsInvestment Management PerformanceLiability Management PerformanceResearch & DevelopmentLand Disposal
Statutory Information Eraring Energy 79
EEO STATISTICAL TABLES
A. Trends in the Representation of EEO Groups1
% of Total Staff2
EEO Group NSW Government 20003 2001 2002 2003Public Sector Benchmark
or Target
Women 50% 7% 8% 9%Aboriginal people and Torres Strait Islanders 2% 0.7% 0.4% 0%People whose first language was not English 20% 7% 7% 7%People with a disability 12% 11% 10% 9%People with a disability requiring work-related adjustment 7% 5% 4% 4%
B. Trends in the Distribution of EEO Groups
Distribution Index4
EEO Group NSW Government 20005 2001 2002 2003Public Sector Benchmark
or Target
Women 100 92 90 97Aboriginal people and Torres Strait Islanders 100 n/a n/a n/aPeople whose first language was not English 100 115 117 112People with a disability 100 102 104 100People with a disability requiring work-related adjustment 100 n/a n/a n/a
Notes: 1. Staff numbers are as at 30 June. 2. Excludes casual staff 3. Data not available as Eraring Energy was not established until August 2000. 4. 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 group tends to be more concentrated at lower salary levels than is the case for other staff. The more pronounced thistendency 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. 5. The Distribution Index is not calculated where EEO group or non-EEO group numbers are less than 20.
Exemptions were also approved for the following annual reporting requirements subject to the condition that comments andinformation relating to these items are disclosed in summarised form:
Report of OperationsManagement and ActivitiesConsumer ResponseRisk Management & Insurance Activities
Further exemptions were approved subject to specific conditions:
Consultants Disclosure of total amount spent on consultants with a summary of the main purposes of the engagement.
Human Resources Disclosure of overseas visits with the main purposes highlighted.
Disclosure of Controlled Entities Name of controlled entity 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 Exemption from preparing manufacturing and trading statements but required toprepare a summarised operating statement.
Eraring Energy Statutory Information80
Freedom of InformationEraring Energy did not receive any applications for release of information under the Freedom of Information Act during 2002/03.
Funds Granted to Non-Government Community OrganisationsEraring Energy plays an active role in the community, through the provision of facilities for community and sporting bodies in a range of broad-based events, its contributions to community projects, and the willing support it provides to staff involved in various charity fund-raising activities.
More than 20 organisations and community groups benefited from donations and sponsorships from Eraring Energy totallingapproximately $16,000 during the year.
Heritage ManagementEraring Energy maintains a register of heritage items in accordance with Section 170 of the Heritage Act. The following itemsare included:
Eraring wetlandBrown Mountain Hydro Power StationBurrinjuck No. 1 Power StationBurrinjuck No. 2 Power StationBurrinjuck Terminal station
The register is reviewed and updated in accordance with Eraring Energy procedures for management of heritage items.
Legal ChangeThe regulatory environment in which participants in the National Electricity Market operate continues to change. These changesare occurring in the NEM rules, Corporations Law and related financial services regulations, as well as in areas affecting
commercial undertakings more generally such as Trades Practices, Occupational Health and Safety, and Environmental Law.
Eraring Energy has been active in both the debate of proposed changes and in the implementation of appropriate education andcompliance strategies.
Occupational Health & Safety PerformanceSafety Frequency Rate - 5.5
Number Total Days Frequency Durationof LTI's Lost Rate Rate
Total Eraring Energy 4 18 5.5 4.5
Statutory Information Eraring Energy 81
Overseas VisitsDuring 2002/03, the following officers travelled overseas.
Name Destination Purpose
Alasdair Caush Spain Wind Farm Research
Gerry Grove-White Spain Wind Farm Research
Alasdair Caush London Senior Executive Program - London Business School
Shaun Edwards London Senior Executive Program - London Business School
PromotionEraring Energy utilises, as required, a variety of communication vehicles to inform the public, customers and suppliers duringthe reporting year as follows:
Television, Radio and other forms of media releasesEducational materialInformation tours of the power station for school groups and local communities.
The following publications are available
Annual ReportsEnvironmental PolicyCode of Conduct
Social ProgramEraring Energy has not been involved in any social programs as defined under the Annual Reports (Statutory Bodies) Regulation 2000 for reporting period 2002/03.
Workforce DiversityEraring Energy is committed to the principles of EEO and recognises the value of diversity as a means of achieving business success.
Achievements for the reporting period:
Planning Outcome Achievements EEO related data has been collected for 89% of staff. Eraring Energy makes a determined effort to ensure that diversity is present and evident in working parties and committees.Examples include female participation in the monthly Senior Executive meeting and Award Steering Committee, diverserepresentation by classification grouping, gender/age, social/cultural background is sought for business planning activities andcommittees such as the occupational health and safety committee and workplace consultative committee. All of theseexamples have either one or more representatives from the executive team.
Eraring Energy Statutory Information82
There were a number of opportunities for staff to have their views heard and addressed during the period including: Six monthly small group staff briefings with the Managing Director. Culture Survey and related feedback/action planning workshops for all staff. Monthly Site Consultative Committee Meetings. Team Briefings. Consultation in new people related programs and initiatives ie: Leadership Development Program, Length of ServiceRecognition Program, Safety Recognition Program.
A presentation is made to the executive team as part of the Strategic Planning Cycle to ensure diversity and equity initiativesand responsibilities are included in Business Plans.
Action Outcome Achievements Eraring Energy has reviewed a number of people related policies and procedures. Part of this review includes checking toensure that policies do not directly or indirectly discriminate against any staff. The following policies/procedures were reviewed or developed during the period:
Grievance Procedure Leadership Development Program Guidelines Discipline Procedure Code of Conduct Capability ProcedureClassification Review and Job Evaluation Process Guidelines
Eraring Energy supports the development and promotion of people through a variety of initiatives. Managers are requested toconsider diversity, equity and EEO Group membership when providing opportunities to their staff. Development and promotionactivities include secondment opportunities, staff rotations, acting in higher grade, participation in working parties andleadership/management development programs.
Eraring Energy presently operates a Women in Eraring Strategy. During the period, 60% of women attended targeteddevelopment activities.
Eraring Energy integrates diversity into mainstream training course content.
Program Outcome AchievementsEleven people were recruited during the period with 100% responding to the EEO data request form. Fifty-five percent ofthose recruited were female and included three employees in the Salary Level >$86,231. One of these employees is amember of the executive team.
Statutory Information Eraring Energy 83
Nineteen people left the organisation during the period. Seventy-nine percent of separations were male employees (21%female – four employees). Of the nineteen people who separated, 8.8% (two employees) identified as being an Aboriginal orTorres Strait Islander, 6% (2 employees) as being people whose language first spoken as a child was not English, 20%people with a disability and 5.3% people with a disability requiring adjustment.
Eraring Energy’s progress towards Government targets and benchmarks for the representation of EEO Groups has beenadvanced in the women category with the percentage of employees who are women increasing by 1% per year sinceEraring Energy was established in August 2000. Representation in all other EEO groups has decreased.
Key Initiatives July 1 2003 – June 30 2004The following activities are planned for the next reporting period:
Refocus efforts to ensure that Eraring Energy Executive, management and employees understand the value of diversity andtheir role and responsibilities in ensuring that the workplace is free from harassment and discrimination.
People related Training Programs to incorporate EEO and Diversity in course content.
More frequent communication, education and examples of the value, benefits and business outcomes to be realised byrespecting and increasing the diversity of our workplace.
Review recruitment strategies to ensure a diverse pool of applicants is attracted to advertised positions.
WRAPPEraring Energy has an effective Waste Management Committee (WMC) membership of which is representative of all levels inthe organisation.
The main aim of the WMC is to reduce the amount of materials purchased, minimise and recycle waste, and improve disposalmethods for all waste generated on site.
Training is carried out for all employees at Eraring Energy covering areas from waste management to the purchasing ofmaterials, reusing, recycling and disposal.
During the last year achievements include:
Recycled paper usage increased from 15% to 43%.
Bottom ash and fly ash recycling increased from 576,000 tonnes to 588,000 tonnes.
Demolition waste crushed and used to upgrade fire trails.
4ML of secondary sewerage treated daily and used in electricity generation.
The disposal of non-recyclable materials in an environmental friendly way.
84 Eraring Energy Index
A Auditor General’s OpinionEraring Energy 61Pacific Western 64
B Board of Directors 6Board Membership
Eraring Energy 30Pacific Western 33
Board MeetingsEraring Energy 31Pacific Western 34
Board Committees 30
C Chairman’s Report 3Code of Conduct 77Community 23Consultants 43Contacts Inside Back CoverCorporate Governance 28Cost of Annual Report 78
D Directors’ Terms & Remuneration Eraring Energy 58Pacific Western 34
Directors’ ReportPacific Western 62
Directors’ DeclarationPacific Western 63
E Environment 24Equal Employment Opportunity 79Executive Remuneration & Performance
Eraring Energy 31Pacific Western 34
Executive TeamEraring Energy 31Pacific Western 34
Executive Committees 32Exemptions from Reporting 59, 78
F Financial Statements - Eraring 35Cash Flows 38Financial Performance 36Financial Position 37Notes To and Forming Part of the Financial Statements 39
Financial Statements - Pacific Western 62Cash Flows 67Financial Performance 65Financial Position 66Notes To and Forming Part of the Financial Statements 68
Freedom of Information 80Funds to Non-GovernmentCommunity Organisations 80
H Heritage Management 80
L Letter to Voting Shareholders Inside Front Cover
M Managing Director’s Report 4
O Occupational Health & Safety 5, 16, 80Overseas Visits 81
P Pacific Western 18People 20Production 12Promotion 81
R Risk Management 29
S Statement by Members of the BoardEraring Energy 60
Statutory Information 77
T Trading 8
W Waste Management 26, 83Workforce Diversity 81
Corporate Office
Level 16,
227 Elizabeth Street
Sydney NSW 2000
Telephone: 02 8268 4200
Facsimile: 02 9261 2967
Office Hours
8.30am – 5.00pm
Postal Address
P.O. Box A2238
Sydney South NSW 1235
Eraring Power Station
Rocky Point Road
Eraring NSW 2264
Telephone: 02 4973 0700
Facsimile: 02 4973 0710
Office Hours
7.45am – 4.00pm
Postal Address
P.O. Box 5044
Dora Creek NSW 2264
