IS A C ATA LYSTQUALITY

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QUALITY IS A CATALYST.

IT IS OUR CONSTANT GOAL. IT IS A STRENGTH THAT CAN BE GIVEN TO

OTHERS. IT IS AN ATTRIBUTE THAT SHOULD NEVER BE UNDERVALUED.

QUALITY PASSES AMONG TEAM MEMBERS GAINING MOMENTUM AND

ENTHUSIASM LIKE AN ENERGY FORCE. EACH TIME A MEMBER TAKES ON THE

ATTRIBUTE OF QUALITY IT STRENGTHENS THE LINK THEY HOLD AS A TEAM

AND PROPELS THEM FORWARD TO PASS QUALITY TO ANOTHER.

QUALITY IS TRULY AN ENERGY FOR SUCCESS.

No.1

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1 6 Q U A L I T Y M A R K E T I N G

F I V E Y E A R S O F F O C U S E D

E F F O R T T R A N S L AT E S I N T O

C U S T O M E R R E L AT I O N S

L E A D E R S H I P.

1 8 Q U A L I T Y I N I T I AT I V E S

P R O J E C T S I N I T I AT E D A N D

D E V E L O P E D I N 2 0 0 0

R E A F F I R M E D M A C Q U A R I E

G E N E R AT I O N ’ S P O S I T I O N

A S A U S T R A L I A’ S L E A D I N G

E L E C T R I C I T Y P R O D U C E R .

2 0 Q U A L I T Y E M P L O Y M E N T

A S A F E W O R K P L A C E I S

C R I T I C A L T O B U S I N E S S

SUCCESS AND W ILL CONT INUE

T O B E A P R I O R I T Y I S S U E F O R

M A C Q U A R I E G E N E R AT I O N .

5 6 C O R P O R AT E I N F O R M AT I O N

2 1 F I N A N C I A L S T AT E M E N T S

C O N T E N T S

7 B O A R D O F D I R E C T O R S

8 C H I E F E X E C U T I V E ’ S R E P O R T

T H E Q U A L I T Y O F M A C Q U A R I E

G E N E R AT I O N ’ S P E O P L E ,

P R O C E S S E S A N D P A R T N E R -

S H I P S I S S E L F - E V I D E N T.

1 0 Q U A L I T Y PA R T I C I PAT I O N

M A C Q U A R I E G E N E R AT I O N ’ S

P O S I T I V E I N T E R A C T I O N W I T H

E X T E R N A L S T A K E H O L D E R S

CONT INUED I TS CONTR IBUT ION

T O C O M M E R C I A L S U C C E S S

I N 2 0 0 0 .

1 2 Q U A L I T Y T E C H N O L O G Y

W I T H Y 2 K ’ S P A S S A G E I N T O

H I S T O R Y, T H E T E C H N O L O G Y

F O C U S AT T H E S TA R T O F

T H E N E W M I L L E N N I U M I S

T H E I N T E R N E T.

1 4 Q U A L I T Y E N V I R O N M E N T

M A C Q U A R I E G E N E R AT I O N

C O N T I N U E S T O P L A C E A H I G H

P R I O R I T Y O N M A I N T A I N I N G I T S

F I R S T C L A S S E N V I R O N M E N T A L

R E C O R D .

2 L E T T E R T O S H A R E H O L D E R S

3 I N T R O D U C T I O N

4 F I N A N C I A L P E R F O R M A N C E

5 F I N A N C I A L H I G H L I G H T S

6 C H A I R M A N ’ S R E V I E W

T H E C O R P O R AT I O N I S A

S U C C E S S F U L B U S I N E S S ,

RUN BY SUCCESSFUL PEOPLE .

CONTENTS

F O R Y O U R C O N V E N I E N C E , T H E M A C Q U A R I E G E N E R AT I O N A N N U A L R E P O R T 2 0 0 0 I S A L S O P R E S E N T E D I N C D - R O M — P D F F O R M AT,

AT T A C H E D T O T H E I N S I D E B A C K C O V E R O F T H I S P U B L I C AT I O N . I F Y O U W O U L D L I K E T O R E C E I V E F U T U R E A N N U A L R E P O R T S I N

T H I S F O R M AT, T H E R E B Y C O N S E R V I N G S T O R A G E S PA C E A N D R E S O U R C E S , P L E A S E E - M A I L U S AT: E N Q U I R I E S @ M A C G E N . C O M . A U

O U R C O V E R : F O U R T H Y E A R E L E C T R I C A L A P P R E N T I C E R O B E R T B U T C H A R D , E X E C U T I V E A S S I S TA N T K AT E H A M S O N A N D D E C I S I O N

S U P P O R T M A N A G E R C . P. K A R U N A K A R A N .

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LETTER TO SHAREHOLDERS

October 2000

Hon Michael Egan MLCTreasurer of New South Wales,Minister for State Development,Vice-President of the Executive Council

Hon John Della Bosca MLCSpecial Minister of State,Assistant Treasurer

Parliament of New South WalesMacquarie StreetSydney New South Wales 2000

Dear Shareholders

We have pleasure in submitting the Macquarie Generation Annual Report, including the Profit and Loss

Statement and Balance Sheet for the financial year ended 30 June 2000, as certified by the Auditor-General

of New South Wales.

This Report is consistent with the requirement of Section 24A of the State Owned Corporations Act 1989,

and Section 10 of the Annual Reports (Statutory Bodies) Act 1984, and is submitted to the Shareholders for

presentation to Parliament.

HE Rees GV Every-Burns

Chairman Chief Executive and Managing Director

No.2

MacquarieGenerationseeks to becomeAustralia’s preferred providerof electricalenergy andrelated productsby addingvalue for itsshareholders,customers andthe communitythrough theoperation of asuccessfulcommercialbusiness whichsupplies reliableand safe productsat a competitivecost and in anenvironmentallysensitive manner.

quality |/’kwoluhtee/ noun (plural qualities) 1. a characteristic, property, or attribute. 2. character or nature, as belonging to or distinguishing a thing. 3. character with respect to excellence, fineness, etc., or grade of excellence: food of poor quality; silk of the finest quality. 4. high grade; superior excellence: goods of quality. 5. native excellence or superiority.6. an accomplishment or attainment.Macquarie Dictionary 2000

On 1 March 1996, Macquarie Generation became

owner and operator of Bayswater and Liddell Power

Stations in the Hunter Valley of New South Wales,

as a result of industry deregulation measures passed

by State Parliament.

A State Owned Corporation, Macquarie

Generation is charged with the efficient and safe

production of electricity for the National Electricity

Market (NEM).

Courtesy of its generating capacity (4,640

Megawatts), Macquarie Generation opened for

business in 1996 as the largest electricity producer

in the New South Wales market.

The first phase of the National Electricity

Market started in May 1997, opening up competition

by allowing the transfer of energy between

New South Wales and Victoria.

In response to oversupply in the new market

and unsustainably low pool prices, Macquarie

Generation took the unprecedented step in July

1998 of voluntarily withdrawing almost one quarter of

its generating capacity from production. The strategy

was successful on a number of fronts—contributing

to a stable recovery in market prices and enhancing

the Corporation’s operational efficiency and flexibility.

In December 1998, the National Electricity Market

Management Company (NEMMCO) commenced

formal management of a National Electricity

Market comprising New South Wales, Victoria,

South Australia and the Australian Capital Territory.

In October 2000, Queensland is scheduled to join

the NEM, extending competition along the

mainland’s eastern seaboard and to most

of Australia’s big electricity users.

Today, Macquarie Generation is the largest

electricity producer in the National Electricity

Market, supplying almost 22% of south-eastern

Australia’s electricity needs.

In recent years, the Corporation has also

assumed market leadership in other important

areas. These include:

a Biomass Co-firing Program that is diverting

timber industry waste away from landfills and into

renewable energy production

the commissioning of a rail unloader facility

to allow the region’s coal mines to compete

for power station supply contracts

the adoption and adaptation of advanced

computer hardware and software to improve the

efficiency of operational and business procedures

the strengthening of business partnerships

with customers, suppliers and governments

the introduction of an incentive program

for employees that recognises and rewards

achievement and continuous improvement

greater interaction with local communities

and elected representatives on essential issues

such as economic development, environmental

responsibility and good corporate citizenship.

At the dawn of a new century, Macquarie

Generation is building its strength on…

Quality People, Quality Processes and

Quality Partnerships.

For the purposes of this Report, the year2000 refers to the fiscal year 1 July 1999to 30 June 2000.

No.3

INTRODUCTIONM A C Q U A R I E G E N E R A T I O N I S T H E L A R G E S T E L E C T R I C I T Y P R O D U C E R

I N A U S T R A L I A , S U P P LY I N G 2 2 % O F T H E N A T I O N A L E L E C T R I C I T Y

M A R K E T ’ S D E M A N D

2000 1999 % CHANGE

Profit Statement ($ millions)

Revenue 729.9 719.7 1.4

Operating costs 470.4 473.8 -0.7

Earnings before depreciation, interest and tax 259.5 245.9 5.5

Depreciation 84.8 80.9 4.8

Earnings before interest and tax (EBIT) 174.7 165.0 5.9

Financing (net) 75.2 91.9 -18.2

Net profit before abnormals items and income tax 99.5 73.1 36.1

Abnormal items (net) before income tax 34.4 - 100.0

Net profit after abnormal items before income tax 65.1 73.1 -10.9

Income tax 5.9 26.5 -77.7

NET PROFIT AFTER INCOME TAX 59.2 46.6 27.1

Cashflow ($ millions)

Cashflow from operations (excluding financing) 246.9 248.1 -0.5

Capital expenditure 12.5 23.2 -46.1

Dividends paid 40.0 35.0 14.3

Balance Sheet ($ millions)

Total Assets 2,158.0 2,146.9 0.5

Total Debt 816.9 918.6 -11.1

Shareholders’ Equity 940.4 931.2 1.0

Financial Statistics

EBIT to Revenue (%) 23.9 22.9 4.4

Debt to Equity (%) 86.9 98.6 -11.9

Interest Cover (times) 2.3 1.8 29.4

Return (after tax) on Shareholders’ Equity (%) 6.3 5.0 25.8

Operating Statistics

EBIT per employee ($ 000’s) 278.6 250.4 11.3

Safety (accidents per million hours worked) 13.4 4.6 191.3

Equivalent forced outage (%) 1.3 1.1 19.3

Availability (%) 91.8 93.1 -1.4

Production per employee (GWh) 37.4 34.0 10.0

No.4

FINANCIAL PERFORMANCEA S U M M A R Y O F M A C Q U A R I E G E N E R AT I O N ’ S F I N A N C I A L P E R F O R M A N C EF R O M J U LY 1 1 9 9 9 T O J U N E 3 0 2 0 0 0

FINANCIAL HIGHLIGHTS

Earnings before interest and tax (EBIT)

increased by 6% to $175 million as a result of

higher selling prices, sales volume and improved

cost control.

Improved efficiency lifted the EBIT to sales

ratio by 4%, production volume per employee by

10% and EBIT per employee by 11%.

Average net selling prices increased by

25.8%. The average NSW pool price increased

by 16.8% to $28.28/MWh with maturing of the

National Electricity Market.

Net financing charges fell by 18.2% to $75

million due mainly to continuing debt repayment.

The Corporation repaid $104 million of debt in 2000.

Abnormal items (net) are explained in

Note 4 of the Financial Statements and include:

The abnormal income item of $18.8 million

includes a high investment return on externally

managed employee superannuation funds.

The abnormal expense item of $53.2 million

is a commercial settlement reached between

Macquarie Generation and Novacoal (Rio Tinto)

relating to the termination of a long-term coal

supply contract.

Income tax expense includes an abnormal

credit adjustment of $17.6 million resulting from

the restatement of deferred tax balances due to

restructured corporate tax rates. This is detailed

in Note 5 of the Financial Statements.

Net profit after tax increased by 27% to

$59.2 million.

Debt levels fell 11% to $817 million. The debt

to equity ratio improved by 12% to 87%.

Return on shareholders’ funds after tax

increased by 26% from 5% to 6.3%. The dividend

provided increased by 25% to $50 million.

The Corporation maintained a very high

standard of plant performance with the availability

and forced outage rates similar to those recorded

last year.

No.

Net profit beforeabnormal itemsand tax increasedby a significant36% due to theincreased averageNSW pool prices,increased salesvolume of 5%, thereduction in netfinancing chargesof 18% and areduction inoperating costsof 1%. The reduc-tion in operatingcosts included a3% reduction infuel costs and a12% reduction inlabour costs.

AVAILABILITY (%)

2000 91.8 1999 93.1 1998 95.9

EARNINGS BEFORE INTEREST AND TAX ($ MILLIONS)

2000 174.7 1999 165.0 1998 144.8

DEBT TO EQUITY (%)

2000 86.9 1999 98.6 1998 108.5

FORCED OUTAGE RATE (%)

2000 1.09 1999 1.09 1998 0.90

NET PROFIT AFTER TAX ($ MILLIONS)

2000 59.2 1999 46.6 1998 35.0

PRODUCTION PER EMPLOYEE (GWH)

2000 37.4 1999 34.0 1998 30.4

SAFETY (LTIFR)

2000 13.4 1999 4.6 1998 10.1

RETURN ON EQUITY AFTER TAX (%)

2000 6.3 1999 5.0 1998 3.8

5

The Corporationcontinues its focuson building long-term value by concentrating onappropriate levelsof maintenance, a willingness toonly contract forward sales atreasonable pricesand through reductions in coalpurchase prices.

The MacquarieGeneration Boardof Directors met14 times in 2000. Meetings wereheld at theCorporation’sSydney andNewcastle officesand Bayswaterand Liddell PowerStations. At 30June 2000, theMacquarieGeneration Boardof Directorscomprised (clock-wise from topright) ChairmanEvan Rees,Directors JamesWatt, John Cahill,Robert Webster,Deborah Page,Anna Buduls andManaging DirectorGrant Every-Burns.

BOARD OF DIRECTORS

No.7No.6

CHAIRMAN’S REVIEWT H E C O R P O R A T I O N C O N T I N U E S I T S F O C U S O N B U I L D I N GL O N G T E R M V A L U E

I believe Macquarie Generation hasmade great gains over the past four years.It remains the largest power generator inAustralia, and while not driven solely by thepursuit of market share, it is noteworthythat we currently supply some 22% ofdemand in the National Electricity Market.

The Corporation is a successful business,

run by successful people. It is making constant

improvements to its business processes,

IT systems, coal purchasing, market operation

and commercial awareness. However, the Return

on Equity (pre-tax and abnormals) increase in 2000

to 10.6% is still too low given the risks for generators

in a competitive market.

All the Corporation’s employees have played a

role in our business success. They are now members

of more productive and commercially focused teams.

Their efforts continue to be recognised and

encouraged through an incentive scheme and

other mechanisms tailored to promote highest

quality performance and achievement.

However, the Board of Directors and manage-

ment are disappointed that the Corporation’s

safety performance in 2000 slipped to 13.4 accidents

per million hours from previous record levels.

The support of all employees will be required to

restore what has been to this time, an enviable

industry safety record.

The Corporation continues its focus on building

long-term value by concentrating on appropriate

levels of maintenance, a willingness to only contract

forward sales at reasonable prices and through

reductions in coal purchase prices. We estimate

that over the next 10 years the Corporation will

save $670 million by purchasing coal more cheaply

than under arrangements that existed or were

planned four years ago.

Macquarie Generation continues to see the

benefits of its 1998 voluntary capacity withdrawal.

The strategy capitalises on our generation portfolio

to reduce marketplace risk and improve supply

integrity against plant failure and maintenance

shutdown—a major issue for other generators.

The movement in market prices to more

sustainable levels over the last six months of the

year is welcome. The higher prices coincided

noticeably with a series of sustained plant problems

in Victoria.

The Board is ever mindful of the need for

review and improvement of governance in the

developing electricity market. We have recently

completed the third review of our Energy Trading

Policies and an audit of our environmental

management processes. We are confident that

our management systems and policies reflect best

practice for environmental and trading protocols.

The Board also instituted a 360° review of itself for

further self-assessment of our performance, skills

development and future direction.

In March, Graham Stanford retired as a

Director of the Corporation after four years of

dedicated service. Graham was Chairman of the

Audit Committee for the entire period and served

us well. We especially thank him for his contribution.

This position has now been filled by Jim Watt,

whom I believe will also serve us well. We welcome

Deborah Page to the vacant Board position.

Her substantial background in finance and

accounting makes her an excellent replacement

on the Audit Committee.

The Board is continuing to work closely with

management on the development of an enduring

strategic vision including setting strategic goals

and seeking opportunities to improve the integrity

and net worth of the business.

We believe the outlook for the coming year is

positive for the business with a prospect of further

increases in profitability, market growth and

continuing reductions in coal prices. We are

confident of our ability to achieve further transport

efficiencies and source coal from competitive

new sources.

I am pleased with the performance of the

Corporation and take this opportunity to thank the

Board members, management and employees for

the team effort.

HE Rees

Chairman

It is essential thatNECA (NationalElectricity CodeAdministrator) andNEMMCO becomebetter able toserve marketparticipants andprovide moretransparentgovernance andadministrationof the NationalElectricity Market.

No.9No.8

CHIEF EXECUTIVE’S REPORTM A C Q U A R I E G E N E R A T I O N H A S B E N E F I T E D F R O M T H E R E L I A B I L I T YO F I T S P L A N T A N D I T S P O R T F O L I O A P P R O A C H

It is very pleasing to report on theCorporation’s continuing underlyingimprovement, especially in the millenniumyear widely tipped to bring transitionalproblems for business. This is our fourthconsecutive year of financial improvementsince the dramatic price falls in the electricitymarket in 1997.

Our improved financial performance in 2000

resulted from more realistic prices in the National

Electricity Market (NEM) in the second half year,

coupled with reduced coal prices and carefully

controlled expenditure. Compared with 1999,

earnings before interest and tax (EBIT) improved

by 6% to $174.7 million. Net profit after tax improved

27.1% to $59.2 million.

The underlying pre-tax profit of $99.5 million is

a significant improvement over last year’s result of

$73.1 million. However, this excellent result is masked

by abnormal expenses of $34.4 million derived

from a coal contract settlement and a superannua-

tion adjustment both beneficial to the Corporation.

Macquarie Generation has benefited from the

reliability of its plant and its portfolio approach.

We have been available to market electricity at

times of stress and higher than average prices.

During February, with blackouts in Victoria and hot

conditions throughout New South Wales,

Macquarie Generation was able to meet market

demand by recalling a 500 MW unit on standby

at Liddell. The continuing development of more

flexible staffing arrangements and relationships is

facilitating such short notice operation.

COSTS

The Corporation continues to focus on its

principal costs and was able to lower non-financial

operating costs by $3 million in 2000 despite

increased production and maintenance

requirements. We are improving our maintenance

effectiveness for each dollar spent by working

more closely with suppliers and by paying greater

attention to detailed needs.

BUSINESS DEVELOPMENT

In concert with all levels of government,

Macquarie Generation is promoting business

growth by working to attract significant industrial

loads to the Hunter Region and, in particular, the

buffer zone surrounding Bayswater and Liddell

Power Stations. We are a proud supporter of the

Beyond 2000 Taskforce, chaired by the Minister

Assisting the Premier on Hunter Development, and

have been pleased to contribute to the development

of proposals for steel, aluminium, magnesium and

chemical plants in the Hunter.

RENEWABLE ENERGY

Almost a year into Australia’s first Biomass

Co-firing Program, Liddell Power Station is

established as a leading renewable energy producer.

In 2000, Liddell produced almost 60,000 Megawatt

hours (MWh) of electricity from sawdust and wood

shavings that would otherwise have gone to

waste. This is equivalent to switching almost 7,000

households to 100% renewable energy.

In December, successful biomass co-firing trials

were held at Bayswater. The Corporation will expand

the program to Bayswater in 2001, continuing to

source timber waste from processing facilities.

The Corporation is very supportive of the

Federal Government’s commitment to having 2%

of Australia’s electricity sourced from renewable

energy providers by 2010. We are positioning

ourselves to contribute to the 9,500 GWh generating

requirement explicit in proposed legislation.

However, at the time of writing, there is real concern

that the legislation will fall short of imposing uniform

obligations on all large electricity users.

COAL

Competitive coal prices and efficient

procurement are fundamental to our operations,

and 2000 was marked by a number of positive

developments. The new rail unloader at

Ravensworth was completed in October 1999 and

received 1.4 million tonnes of coal during the period.

Our groundbreaking internet ‘reverse auction’ for

coal focused attention on the potential for electronic

commerce to contribute to greater business

efficiency. Contract negotiations also delivered

substantial long-term benefit to the Corporation.

A commercial settlement was reached between

Macquarie Generation and Novacoal (Rio Tinto)

relating to the termination of a long-term coal supply

contract. The Corporation’s expenditure to terminate

the contract enabled it to commence the purchase

of substantial quantities of market priced coal,

paving the way for estimated savings of $25 million

per year for 10 years.

SAFETY

Our safety result was disappointing in 2000,

rising to 13.4 accidents per million hours worked

after the previous year’s record result of 4.6.

Everyone at Macquarie Generation is focused on

rebuilding our excellent safety record and initiatives

are in place to ensure that safety is top of mind,

all the time. Our aim must always be zero accidents,

and we will redouble our efforts to be one of the

industry’s best.

THE ELECTRIC ITY MARKET

Governance remains a critical issue for the

National Electricity Market. The Corporation supports

moves by the National Electricity Market

Management Company (NEMMCO) to increase

participant input into its processes. The proposal

for an Advisory Committee to NEMMCO as a

transitional move towards industry ownership is

welcome. It is essential that NECA (National

Electricity Code Administrator) and NEMMCO

become better able to serve market participants

and provide more transparent governance and

administration of the National Electricity Market.

Macquarie Generation has expressed concerns

to the Australian Competition and Consumer

Commission over a proposed quadrupling of the

electricity pool price cap (VoLL) from $5,000 to

$20,000. The concept confers significantly higher

levels of risk on pool customers, ill-equipped to

manage exposure to such price volatility. Based on

our own research, there is no evidence to suggest

that an increase in VoLL is needed to encourage

additional generating capacity.

Macquarie Generation is looking forward to

Queensland’s connection to the NEM in the first

half of 2001. Queensland’s traditional load profile

offers the Corporation additional sales opportunities

over the next two summers. However, the threat

of oversupply in an expanded market is not far

away, and we are well advanced in planning to

manage this risk.

WATER

Macquarie Generation is continuing work

with government and local communities to achieve

desirable outcomes from the State Government’s

Water Reform Process.

We are the third largest water user in NSW and

a responsible user of water from the Hunter River.

Water security is essential for our power stations

to meet their electricity supply obligations. Changes

to water access rules over the last two years

posed a threat to long term water supply security

for Bayswater and Liddell under severe drought

conditions. However, we are now confident that new

arrangements can be achieved to provide water

security, while enhancing the rights of all legitimate

users and complementing the environment.

COMMUNITY

Macquarie Generation’s role as a leading

business in regional Australia continues through

the support of local communities and the dedication

of the Corporation’s employees.

We will continue our focus on regional

responsibility, interaction and positive outcomes

for the people of the Upper Hunter. The Corporation

has been particularly proud to be associated with

the successful efforts of a number of employees

to raise money for cancer research during the year.

None of the Corporation’s achievements in

2000 would have been possible without the input

of the hundreds of people who are the Macquarie

Generation family.

The quality of Macquarie Generation’s people,

processes and partnerships is self-evident and will

remain a catalyst for constant improvement.

Grant Every-Burns

Chief Executive and Managing Director

BR

IAN

D

AV

ISO

NBrian “Bear” Davison rides a big bike and shaves his head for money. Bear is hard to ignore when it comes to

fundraising for the John Hunter Hospital Cancer Support Unit—one of a number of community health projects

to enjoy employee and corporate financial support. The Leukemia Foundation, Camp Quality and CanTeen

have all benefited from the generosity of employees like Bear and Warehouse Officer, Les Pittman,

the driving force behind almost $46,000 in donations to Camp Quality over the past four years.

When he’s not tending to external plant maintenance, Bear rides with the Ulysses Motorcycle Club.

He’s Growing Old Disgracefully…and loving it.

WALKING THE TALKMacquarie Generation’s positive

interaction with external stakeholderscontinued its contribution to commercialsuccess in 2000 and the prospects for newemployment and investment opportunitiesin the Hunter region.

Working with Local and State Governments, the

Corporation took major steps towards securing sub-

stantial new investment in the industrial buffer zone

surrounding Bayswater and Liddell Power Stations.

The zone’s established infrastructure,

complemented by an exceptional regional skills

base, is attracting strong interest from Australian

and international companies with an eye to domestic

and export markets.

The Corporation’s annual survey of community

expectations again confirmed employment

generation as the key regional issue in 2000.

Importantly, Macquarie Generation was

acknowledged in the survey as both a regional

driver for economic growth and an environmentally

responsible business organisation.

The Macquarie Generation Community

Consultative Group met seven times in 2000, refining

its role as a communications facilitator and providing

the Corporation with valuable community feedback

on operational innovations including biomass

co-firing and supplementary fuels.

Founding Chair, Cr Greg Thompson, did not

contest the 1999 Local Government elections and

was succeeded by Muswellbrook’s Deputy Mayor,

Cr Robyn Tozer. The participation of representatives

from the Environment Protection Authority’s

Newcastle office ensured the Group was kept

abreast of regulatory issues associated with the

power stations.

COMMUNITY CONSULTATIVE

GROUP MEMBERS

Cr Greg Thompson MSC, Chair 1/7/99 – 10/11/99

Cr Robyn Tozer MSC, Chair from 10/11/99

Cr Alison Howlett SSC, Deputy Chair

Mr Keith Davies SSC

Cr Warren Cook Scone Shire Council

Mr Andrew White Scone, resigned 4/00

Mrs Ros Bull Muswellbrook

Mrs Lisa Gowing Muswellbrook

Mrs Robyn Angus Muswellbrook, resigned 5/00

Mrs Carol Russell Singleton

Mrs Lyn MacBain Singleton

Mr Tony Laffan Singleton

Mr John Marcheff Macquarie Generation

Mr Jim Beckwith Macquarie Generation

Mr Jim Devine Macquarie Generation

(MSC – Muswellbrook Shire Council,

SSC – Singleton Shire Council)

QUALITY SPONSORSHIPSMacquarie Generation continues to

play a leading role in the life of the regionand the Upper Hunter in particular. In 2000,community welfare and service provisionattracted the bulk of the Corporation’sfinancial support, followed by sport, com-munity events, medical research, culturalactivities and education.

MAJOR CORPORATE SPONSORSHIPS

Advancing Aberdeen Economic

Development Program

Camp Quality Charity Ball

Colleen Gale Children’s Centre

Edinglassie Rural Fire Brigade

Gundy Gala Day

Hunter Medical Research Foundation

Hunter Valley Research Foundation

Malcolm Sargent Cancer Fund Carnation Concert

Muswellbrook Memorial Grove

Muswellbrook Preschool

Newcastle Regional Show

Northumberland Region Tennis

Rutherford Road Childcare Centre

Singleton Pipes and Drums

Upper Hunter Bowling Association

Upper Hunter Hockey Association

Upper Hunter Regional Arts Program

World Energy Economics Conference

CORPORATE MEMBERSHIPS

Electricity Supply Association of Australia

Greenhouse Challenge (Australian

Greenhouse Office)

Hunter River Management Committee

NSW Chamber of Commerce

Newcastle and Hunter Business Chamber

Upper Hunter Beyond 2000 Taskforce

Upper Hunter Commercial Forests Steering

Committee

No.10

MacquarieGeneration isacknowledgedas both a regionaldriver for economicgrowth and anenvironmentallyresponsiblebusiness organisa-tion. Working withLocal and StateGovernments,MacquarieGeneration tookmajor steps in2000 towardssecuring substantialnew investmentin the industrialbuffer zonesurroundingBayswater andLiddell PowerStations.

QUALITY PARTICIPATIONO U R P E O P L E A N D O U R R E P U T A T I O N A R E O U R M O S TV A L U A B L E A S S E T S

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RContinuous business improvement in the 21st century will depend greatly

on the successful union of new technology and people. Macquarie Generation’s

adoption of SAP’s Enterprise Resource Planning System has established itself as a model for

Australian business—but it’s our people driving the technology on to new levels of performance.

Belinda Marr’s work for the Corporation’s SAP business support team covers the key areas of human

resources, payroll and occupational health and safety. Her development and continual fine-tuning of

computerised reporting systems is laying the foundations for better performance. It’s a rare talent,

and one shared willingly with young gymnasts at the Muswellbrook PYC.

WIRED FOR BUSINESSThe business of business is taking

on new dimensions at Macquarie Generationwith the internet in a lead role.

Capitalising on the momentum created

by a major technology upgrade in 1998, the

Corporation is accelerating towards a new era

in commerce and commercial relationships.

In May, Macquarie Generation conducted

Australia’s first on-line coal tender, using the

internet as a vehicle for bids from Hunter Valley

companies seeking to supply 50,000 tonnes

of coal.

The on-line reverse auction created

enormous interest in commercial and media

circles with follow-up inquiries from around

Australia and overseas.

Suppliers lodged their offers over the internet

using a bidding platform developed locally by

Sydney based company, PerfectMarkets Online.

The market stayed open for a minimum one

hour, with provision for a rolling extension of

fifteen minute increments in the event of active,

late bidding. Throughout the process the participants

were able to track all of the bidding but did not

know the identity of the competing suppliers.

The internet platform specifically prevented

dummy bidding.

While the on-line auction made news headlines,

another significant realisation of e-commerce’s

potential came in a new form of partnership

between Macquarie Generation, industrial goods

supplier, Blackwoods and enterprise software

developer, SAP.

Under an e-procurement arrangement,

Macquarie Generation obtains real-time product

pricing and availability information from Blackwoods

via the internet. This facility is supported by integrated

financial systems that accommodate both parties’

payments and reporting procedures on-line.

The system streamlines the way Macquarie

Generation does business with a major supplier

while allowing the supplier greater inventory and

administrative flexibility.

SAP’s Enterprise Resource Planning System

has been the cornerstone of Macquarie

Generation’s business support IT strategy since

December 1998 when the Corporation selected

a ‘vanilla-style’ SAP solution, opting to

re-engineer its own business processes, rather

than modify an internationally accepted

software package.

This approach has extracted maximum value

for the Corporation—making business processes

faster, easier to use and more cost effective.

No report of technology-related events in

2000 would be complete without reference

to the Y2K or ‘millennium bug’.

Macquarie Generation’s Year 2000 Project

was put in place in 1997, based on the New

South Wales Government’s Office of Information

Technology (OIT) Y2K Project Methodology.

Progress reports and ongoing assessment

by the office’s project team, delivered the

Corporation a ‘Y2K Ready’ status in May 1999.

A standby unit at Liddell was brought into

production but isolated from the grid to provide

a platform for rapid supply restoration to customers

in the event of a problem.

With all reasonably foreseeable Y2K related

risks and contingencies within its control

addressed or planned for, the most critical dates

(31 December 1999 and 29 February 2000)

passed without interruption to the power stations’

operations or transmission of electricity.

PLANT PERFORMANCELiddell

Energy sent out 7,451.44 GWh

Plant availability 89.75%

Forced outage rate 2.28%

Station trip rate 0.52 trips/1000hrsBayswater

Energy sent out 16,156.8 GWh

Plant availability 93.26%

Forced outage rate 0.62%

Station trip rate 0.29 trips/1000hrs

No.12

While the on-linereverse coalauction madenews headlines,another significantrealisation ofe-commerce’spotential camein the form ofa technologypartnership. Underan e-procurementarrangement,MacquarieGeneration obtainsreal-time productpricing andavailabilityinformation via theinternet. This facilityis supported byintegrated financialsystems thataccommodateboth parties’paymentsand reportingprocedures on-line.

QUALITY TECHNOLOGYW I T H Y 2 K ’ S P A S S A G E I N T O H I S T O R Y, T H E T E C H N O L O G Y F O C U S A TT H E S T A R T O F T H E N E W M I L L E N N I U M I S T H E I N T E R N E T

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A lasting reminder of Muswellbrook’s role as a host community for the Olympic Torch Relay is 2000 trees

and shrubs planted under the banner of the Olympic Landcare Project. Macquarie Generation technician

Jeff Coulter approached the Corporation on behalf of the McCully’s Gap Landcare Group, securing

corporate financial support to ensure the seedlings were established before the arrival of the Olympic Torch.

The Landcare movement enjoys strong support among Macquarie Generation employees, many of whom

have taken advantage of the Upper Hunter’s rural lifestyle. Macquarie Generation is raising more than

250,000 trees around its power stations and collaborating with State Forests on a hardwood plantation trial,

using soil enhancers manufactured from electricity generation by-products.

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BEYOND COMPLIANCEFull compliance with the Corporation’s

operating licences and innovations suchas renewable electricity from waste woodhighlighted environmental performancein 2000.

Continuous upgrading of the power stations’

environmental monitoring and reporting systems

is a key component of the Corporation’s Business

Plan, and is supported by independent reviews.

Biomass co-firing pioneered at Liddell Power

Station in 1999 fulfilled its promise as a cost-effective

means of reducing greenhouse gas emissions.

Using untreated wood waste as a fuel

supplement, Liddell and Bayswater recouped

more than 60,000 tonnes of carbon dioxide in

2000, as well as providing timber processors

with an environmentally responsible form of

waste disposal.

The carbon dioxide saving is equivalent to taking

13,000 cars off the roads while supplying almost

7,000 homes with 100% renewable energy.

Biomass co-firing is recognised under green-

house gas abatement measures endorsed by

the New South Wales Government and the Federal

Government. Liddell’s achievements have set the

stage for expansion of the program to Bayswater

in 2001.

The Corporation is also proceeding with

construction of a mini-hydroelectric generator,

driven by the large amounts of water moved

around its power stations.

Macquarie Generation continued participation

in the Greenhouse Challenge Program in 2000,

and is expected to achieve its emissions forecast

in absolute terms despite uncertainties surrounding

expansion of the National Electricity Market.

2000 OPERATIONAL SNAPSHOTLiddell

Biomass production 59,020 MWh

Coal consumption 3,835,730 tonnes

Thermal efficiency 32.93%Bayswater

Biomass production 2,080MWh (test firing)

Coal consumption 7,651,266 tonnes

Thermal efficiency 35.53%

Engineering modifications to existing coal-fired

power plants continue to represent the most viable

economic option for the achievement of lower

greenhouse gas emissions.

Improvements in the thermal efficiency

of large power stations can deliver substantial

emission reductions while emerging alternative

technologies continue their drive towards greater

economic competitiveness.

WATER MANAGEMENTWater diverted

Hunter River 65,406ML off-allocationSalt extracted

by brine concentrators 11,610 tonnesWater/salt discharged

under Salinity

Trading Scheme 5,853ML from Lake

Liddell containing

5,534 tonnes of salt

A secure water supply is essential for electricity

production. In 2000, the Corporation made

considerable progress towards this objective while

contributing to an improvement in water quality.

A leading participant in the Hunter River Salinity

Trading Scheme, Macquarie Generation’s water

treatment systems reduced net salt levels in the

Hunter River by more than 5,700 tonnes.

BY-PRODUCT SALESMaterial Sales (tonnes)

Fly Ash (Unclassified) 45

Fly Ash (Classified) 11,572

Bottom Ash (Bayswater) 5,650

Bottom Ash (Liddell) 185

Lime 1,630

Gypsum 1,610

Lime/Gypsum 334

Eels 1.6

Expanding markets for power station by-

products continue to support the Corporation’s

focus on quality environmental management.

Plashett Dam’s ideal environment for freshwater

eels resulted in the opening of a new Asian

export market.

No.14

Engineeringmodifications andnew investment inexisting coal-firedplant remain themost viableoptions for theachievement oflower greenhousegas emissionssought by theAustralian com-munity. Improve-ments in the thermal efficiencyof large power stations can deliversubstantial andtimely greenhousegas reductionswhile emergingalternativetechnologiescontinue theirdrive towardsgreater economiccompetitiveness.

QUALITY ENVIRONMENTM A C Q U A R I E G E N E R A T I O N C O N T I N U E S T O P L A C E A H I G H P R I O R I T YO N M A I N T A I N I N G I T S F I R S T C L A S S E N V I R O N M E N T A L R E C O R D

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It is Australia’s most traded commodity and has two unique characteristics.

Electricity cannot be stored and supply must meet demand every minute of every day.

Supported by the efficiency of Macquarie Generation’s generating plant and around-the-clock commitment

of its production teams, energy trader Brad Little’s task is to maximise the Corporation’s financial returns.

The Marketing and Trading Group’s prudent management of financial exposure to the wholesale spot and

forward contract markets is another critical component of Macquarie Generation’s success.

With a strategic focus on profitability over market share, the Corporation continues to capitalise

on competitor plant failures and demand spikes driven by extreme weather conditions.

Part-engineer and part-weather forecaster, a quality energy trader is also a light sleeper.

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MARKETING LEADERSHIPThe art of successfully selling a

commodity into a volatile, real-time marketis one that demands confidence in theability of an organisation to deliver qualityoutcomes at every level.

Macquarie Generation’s faith in its ability to

effectively manage the marketing of its products

was demonstrated in 1998, when the Corporation

took the decision to voluntarily withdraw almost

one quarter of its production capacity from

the market.

Two years hence, the Corporation is continuing

to reap the benefits of its focus on profitability,

complemented by the production flexibility to

exploit spot market opportunities as they arise.

The strategy was put to the test in January

and February, when generating shortfalls in Victoria

combined with hot weather across south-eastern

Australia to drive demand to record levels.

Macquarie Generation responded positively

by bringing standby units into service. The exercise

not only illustrated the Corporation’s production

flexibility but also its ability to serve a truly national

electricity market.Average pool price (NSW node)

1997 $21.89 (State Market up to 4 May 1997)

1998 $14.29

1999 $24.21

2000 $28.28

While price movements towards more

sustainable levels are welcome, the Corporation

is also implementing load growth strategies to

address over-capacity.

These include the attraction of energy-intensive

industries to the power stations’ buffer zone,

support for greater inter-regional access and

consumer promotion of energy-efficient

air-conditioning systems.

Customer service has been a cornerstone of

the Marketing and Trading Group’s philosophy and

business planning since the first transitional moves

to deregulation and interstate competition in 1997.

Importantly today, external needs and

expectations are now factored into all

the Corporation’s endeavours.

All business units have embraced the

Marketing and Trading Group’s well-established

customer relationship mindset. This is particularly

evident among power station employees who

are encouraged to find ways to drive positive

customer outcomes.

Most customers who visit our operations come

away with unique insights into operations, not as

a result of exposure to brochures and corporate

videos but personal interaction with employees.

Two-way feedback helps build professional

relationships and delivers a competitive advantage

to each party.

Regular third party internal and external

monitoring has tracked this innovative change

process and will continue to guide its development.

Macquarie Generation’s commitment to

its customers is demonstrated by constant

updating of best practice in risk management,

professional accreditation, information

technology and new products.

In 2000, the Corporation sold 50,000 MWh of

‘Green Warrants’ to retailers and other interested

parties—a new product created by the Biomass

Co-firing Program at Liddell Power Station.

The warrants—or greenhouse emission credits

—are legal, tradeable instruments recognised

under the terms of the New South Wales

Government’s greenhouse gas reduction targets.

They are also expected to be accredited under

the Federal Government’s Renewable Energy

(Electricity) Bill 2000, the centrepiece of national

greenhouse gas reduction strategies.

Macquarie Generation has committed itself

to the growth of this new market by developing

all the necessary documentation, systems and

regulatory framework to ensure its success.

Independent accreditation of the warrants is being

conducted by leading consulting group,

PricewaterhouseCoopers.

Quality partnerships are essential to long-term

business success. In 2000, Macquarie Generation

announced an alliance with energy retailer, AGL.

Under the terms of the alliance, Macquarie

Generation will supply competitively priced electricity

to support AGL’s energy retailing activities,

particularly in New South Wales.

No.16

External needsand expectationsare now factoredinto all theCorporation’sendeavours.Business unitshave embraced acustomer relation-ship mindset,particularly evidentamong powerstation employees.Most customerswho visit ouroperations comeaway with uniqueinsights into oper-ations as a resultof personal inter-action with employ-ees. Two-wayfeedback helpsbuild professionalrelationshipsand delivers acompetitive advan-tage to each party.

QUALITY MARKETINGF I V E Y E A R S O F F O C U S E D E F F O R T T R A N S L A T E S I N T O C U S T O M E RR E L A T I O N S L E A D E R S H I P

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Bayswater Production and Training Coordinator, Michael Bradley, wears a variety of hats but it’s the straw

one he donned for the Sydney Olympics that’s made 2000 a special year for him. A volunteer member

of the Olympic Park security team, Michael spent ten straight days examining spectators’ baggage

and maintaining the smile that assured the Sydney Olympics would be remembered as “the best ever”.

Michael’s initiative has also seen him train power station operators in Indonesia, conduct operator National

Competency Assessments in the Northern Territory and complete a Bachelor of Social Science degree by

correspondence. Michael is now studying for a Graduate Certificate in Manufacturing Management, and

wears another hat when the Whittingham Rural Fire Brigade is called out.

BIOMASS CO-F IR INGA full year of biomass co-firing at

Liddell Power Station and trials atBayswater produced more than 60 GWh ofrenewable energy for the NationalElectricity Market.

Calculated greenhouse gas savings of 60,000

tonnes contributed to carbon intensity targets

set by the New South Wales Government.

The biomass component in co-firing is also

nominated as a renewable energy source under

the terms of the Federal Government’s proposed

greenhouse gas reduction legislation to be

introduced to Parliament in 2001.

Liddell Power Station is now one of the largest

non-hydro renewable energy producers in NSW.

HYDROELECTRIC PROJECTThe most critical component of

thermal power generation—water—will beharnessed to produce Green Power in 2001at Macquarie Generation’s Bayswater andLiddell Power Stations.

A contract has been awarded for the design

and construction of a hydroelectric generator to

produce electricity by exploiting the carriage

of water around the industrial site.

The outlet from Plashett Dam near Bayswater

has been identified as an excellent generator site

with the potential to produce up to 3000 MWh

of certified Green Power annually.

Output from the hydroelectric generator will

be sufficient to supply about 340 homes with 100%

renewable energy.

COAL RAIL UNLOADERThe successful commissioning of

Macquarie Generation’s coal rail unloader at Ravensworth in 2000 will be followed up in 2001 with construction of a secondspur line.

The unloader is currently serviced by a 1.7km

spur off the main Northern Railway Line and linked

to the Bayswater and Liddell Power Stations by

1.3km of overland conveyor.

The duplicate spur line is being built to speed

turnaround times for up to two trains. The existing

infrastructure is capable of handling about

3.5 million tonnes of coal per annum.

BAYSWATER OVERHAULA major contract for inspection and

overhaul of Bayswater Power Station’s fourturbo-generators was let in 2000.

Over the next two years, the turbo-generators

and steam feed pump turbine equipment will be

overhauled sequentially. Liddell Power Station will

‘cover’ for the planned outages—an anticipated

benefit of the Corporation’s capacity withdrawal

strategy implemented in 1998.

Korea Plant Service and Engineering (KPS),

through Australian subsidiary New World Projects,

was awarded the contract after an exhaustive

open tender process.

BUFFER ZONE PROMOTIONLooking to the future of sustainable

economic development in the Upper Hunter,Macquarie Generation is taking a lead rolein the promotion of employment—creatingopportunities on buffer zone land surround-ing Bayswater and Liddell Power Stations.

The Corporation has been active in

promoting the zone’s established advantages

to energy-intensive industries looking to

become instantly competitive.

The buffer zone is making a big impression

on industries requiring; large amounts of energy

complemented by road, rail and port access;

established environmental management systems;

and a strong industrial skills base.

The buffer zone project is a collaboration

between Macquarie Generation, Singleton and

Muswellbrook Shire Councils and the New South

Wales Government. Further details are available

under the ‘Customers’ section of the Corporation’s

web site at www.macgen.com.au.

INTERACTIVE WEB S ITE

Ongoing development of our web site

(www.macgen.com.au) is a key tool in enhancing

services to customers, suppliers, employees

and local communities. Already an important hub

for corporate information, high level interactivity

with our audiences is the next phase in the

site’s evolution.

No.18

With Liddell PowerStation establishedas one of thelargest non-hydrorenewable energyproducers in NSW,the Biomass Co-firing Program willbe extended toBayswater in 2001.Utilising the GreenPower generatedby the movementof water betweenthe power stations’water storages,a contract hasbeen awarded forthe design andconstruction ofa hydroelectricgenerator capableof meeting theelectricity demandfrom 340 homes.

QUALITY INITIATIVESP R O J E C T S I N I T I A T E D A N D D E V E L O P E D I N 2 0 0 0 R E A F F I R M E DM A C Q U A R I E G E N E R A T I O N ’ S P O S I T I O N A S A U S T R A L I A ’ S L E A D I N GE L E C T R I C I T Y P R O D U C E R

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No.20

QUALITY EMPLOYMENTA S A F E W O R K P L A C E I S C R I T I C A L T O B U S I N E S S S U C C E S S A N D W I L LC O N T I N U E T O B E A P R I O R I T Y I S S U E F O R M A C Q U A R I E G E N E R A T I O N

RISK MANAGEMENT FOCUSThe achievement of a zero workplace

accident rate is the goal of every goodbusiness and will continue to be pursueddiligently by Macquarie Generation.

The key to reducing the risk of injuries is—

as always—in the hands of every manager and

employee. To facilitate the flow of information

and employee feedback, workplace Occupational

Health and Safety Committees play a vital role in

supporting an Executive Safety Committee with

responsibility for corporate performance.

The Corporation’s Lost Time Injury Frequency

Rate (LTIFR) leap—from a record low of 4.6 in 1999

to 13.4 in 2000—has refocused management and

employee attention on personal risk management

skills, their implementation and application in

the workplace.

One of the telling statistical outcomes from

incident data in 2000 was a high rate of muscular

strains. Reflecting Australia’s population trends,

our workforce is growing older. To address this

situation and return the Corporation to a position

of industry leadership in occupational health and

safety, a number of strategies are in place.

These include translating the wisdom of personal

experience into risk management practice and the

proactive redesign of health and safety services

aimed at ensuring employees are as fit for work

as the plant they operate and maintain.

An employee incentive scheme for the

achievement of individual and team performance

criteria was enhanced in 2000 with a cash bonus

of up to $2,000 available to award employees. In

the previous year, a total of $1.15 million was paid

to award employees under the scheme.

An outcome of productive negotiations with an

eye to long-term business success, the Macquarie

Generation Employees (State) Award 1999, came

into effect on 14 September. The three year award

delivers positive wage outcomes and increased

operational flexibility, enhancing the Corporation’s

reputation as a market leader.

2000 Employment Data

Number of employees

(at 30/6/00, excluding casuals) 624

Hours worked

(Award employees) 856,545

Accidents per

million hours worked (LTIFR) 13.4

Workplace training hours 11,905•

Employees sponsored

for further education 64

Wages and salaries paid $37.3 m

•Approximately 50% devoted to occupational

health and safety training

Continuing a tradition of providing trade skills

training and practical work experience, in 2000

the Corporation appointed six apprentices in the

electrical and mechanical trades and hosted paid

summer vacation work experience for eight

university undergraduates. Four of the students—

studying Law, Economics, Mechanical Engineering

and Computer Science—continued in part-time

employment with Macquarie Generation, confirming

the success of a partnership established with the

University of Newcastle.

The balancing of employee work and family

commitments continues to be assisted through

direct corporate support for childcare centres

in Muswellbrook, Singleton and other Upper

Hunter centres.

Macquarie Generation’s First Aid and Fire

Teams topped the competition at the NSW Power

Industry Safety Day for the second year in a row,

retaining the Champion’s Trophy.

Bayswater won the First Aid and Fire

Competitions, with Liddell’s First Aid Team a

close second.

Safety Day events are designed to challenge

and test the skills of the participants under accident

scenarios and firefighting drills developed and judged

by the NSW Fire Brigade and St John’s Ambulance.

N O T E S T O A N D F O R M I N G

PA R T O F T H E F I N A N C I A L

S TAT E M E N T S

STATUTORY INFORMATION

C O R P O R AT E G O V E R N A N C E

P R O F I T A N D L O S S S T AT E M E N T

B A L A N C E S H E E T

D I R E C T O R S ’ R E P O R T 22

27 30D I R E C T O R S ’ D E C L A R AT I O N47I N D E P E N D E N T A U D I T R E P O R T48

49

50

28S TAT E M E N T O F C A S H F L O W S 29

FINANCIALSTATEMENTSF O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 0

No.23No.22

DIRECTORS’ REPORT DIRECTORS’ REPORT

The Board of Directors present their report together with the financial statements of the Corporation for the year ended

30 June 2000 and the auditors’ report thereon:

Directors

The following persons were Directors of Macquarie Generation during the whole of the financial year and up to the date

of this report:

Evans Rees

Grant Every-Burns

Anna Buduls

John Cahill

James Watt

Robert Webster

Deborah Page was appointed a Director on 1 March 2000 and continues in office at the date of this report.

Graham Stanford was a Director from the beginning of the financial year until his retirement from the Board on 29 February 2000.

Information on Directors

Evan Rees FIE Aust CPMetallurgy

Chairman and Non-Executive Director

Mr Rees was appointed Chairman of Macquarie Generation on 1 March 1996. Mr Rees was reappointed as Chairman

on 1 March 2000 for a three year term ending on 28 February 2003.

Mr Rees worked for Australian National Industries (ANI), Australia’s largest publicly listed engineering company for over

thirty four years. Mr Rees was an ANI Board member from 1986 when he was appointed Executive Director with the

responsibility for manufacturing and steel distribution business. He was appointed ANI Managing Director in 1991 until

retirement in 1996. Mr Rees is also Chairman of EISA Limited and Phoenix Capital.

Grant Every-Burns BE(Hons) MAICD

Chief Executive and Managing Director

Mr Every-Burns was appointed as Chief Executive and Managing Director on 1 March 1996. Mr Every-Burns was

reappointed as Chief Executive and Managing Director on 1 September 1999 for a three year term ending on 31 August 2002.

He is also Director and Vice President of the National Safety Council of Australia Limited. He has over twenty five years of

extensive engineering and managerial experience in running thermal power stations in New South Wales. His former roles

included Manager of Bayswater and Eraring Power Stations, and Assistant General Manager of Pacific Power.

Anna Buduls BA MComm

Non-Executive Director

Ms Buduls was appointed Director of Macquarie Generation on 1 March 1996 and is the Chairman of the Board Remuneration

and Human Resources Committee. Ms Buduls was reappointed as a Director on 1 March 2000 for a two year term ending

on 28 February 2002.

Ms Buduls is a Financial Consultant, former Head of Investment Relations Westpac Banking Corporation Ltd and Associate

Director of Macquarie Bank Limited. Ms Buduls is currently a Non-Executive Director of several listed and public sector entities,

including Mirvac Group Limited, Australian Dairy Corporation and Freedom Furniture Limited.

John Cahill

Non-Executive Director

Mr Cahill was appointed Director of Macquarie Generation on 3 May 1996 and is a member of the Board Remuneration

and Human Resources Committee and Board Issues Management Sub-Committee. Mr Cahill was reappointed as a Director on

1 March 2000 for a year ending on 28 February 2001.

He is the Assistant General Secretary of the Public Service Association of New South Wales and Assistant State Secretary of the

Community and Public Sector Union. Mr Cahill is also a Director of the Bowlers Club of New South Wales. He has eighteen years

of industrial experience in the electricity generation industry.

James Watt FAICD BSc(For) BA MF

Non-Executive Director

Mr Watt was appointed Director of Macquarie Generation on 1 March 1996. He is the Chairman of the Board Audit Committee

and a member of the Board Remuneration and Human Resources Committee. Mr Watt was reappointed as a Director on

1 March 2000 for a three year term ending on 28 February 2003.

He is also Chairman of Austraclear Limited.

Robert Webster AFAIM

Non-Executive Director

Mr Webster was appointed Director of Macquarie Generation on 1 March 1996 and is Chairman of the Board Issues

Management Sub-Committee. Mr Webster was reappointed as a Director on 1 March 2000 for a two year term ending on

28 February 2002.

He is the Executive Director of the International Banks and Securities Association of Australia and former State Government

Minister. Mr Webster is Chairman of the National Science and Technology Centre. He is a Director of British American Tobacco

Australasia Limited, Australian Stock Exchange Settlement and Transfer Corporation Pty Ltd, Allianz Australia Limited, Ausflag

Limited and the Mirvac Group Limited.

Deborah Page BEc FCA MAICD

Non-Executive Director

Mrs Page was appointed Director of Macquarie Generation on 1 March 2000 for a year ending on 28 February 2001 and is a

member of the Board Audit Committee.

Mrs Page is General Manager, Finance and Administration in the Commonwealth Bank’s Technology, Operations and Property

Division. A chartered accountant, Mrs Page has held senior executive positions with technology, financial services and real estate

companies and is a former KPMG partner. She is currently the Chair of the New South Wales Cancer Council and is a Director of

Commonwealth Property Limited.

No.25No.24

DIRECTORS’ REPORT DIRECTORS’ REPORT

Directors’ Meetings

The number of Directors’ meetings (including meetings of Committees of Directors) and the number of meetings attended

by each of the Directors during the financial year ended 30 June 2000 were:

BOARD REMUNERATION ISSUES MANAGEMENT

BOARD AUDIT AND HUMAN RESOURCES SUB-COMMITTEE

BOARD MEETINGS COMMITTEE MEETINGS COMMITTEE MEETINGS MEETING

Held Attended Held Attended Held Attended Held Attended

Mr Evan Rees 14 14 – – 2 1 – –

Mr Grant Every-Burns (1) (2) (3) 14 14 3 3 2 2 1 1

Ms Anna Buduls 14 14 – – 2 2 – –

Mr John Cahill (6) 13 11 – – – – 1 1

Mrs Deborah Page (5) 7 7 – – – – – –

Mr Graham Stanford (4) 6 6 3 3 – – – –

The Hon Robert Webster 14 11 – – 1 1 1 1

Mr James Watt 14 14 3 3 2 2 – –

(1) Although not a member of the Board Audit Committee, Mr Every-Burns attended all meetings of the Committee by invitation.

(2) Although not a member of the Board Remuneration and Human Resources Committee, Mr Every-Burns attended all meetings

of that Committee by invitation.

(3) Although not a member of the Issues Management Sub-Committee, Mr Every-Burns attended the one meeting held by invitation.

(4) Mr Graham Stanford retired on 29 February 2000.

(5) Mrs Deborah Page was appointed to the Board on 1 March 2000.

(6) Mr Cahill was in attendance at the 2 March 2000 Board Meeting. As he had not been formally reappointed at this time

he abstained from voting at this meeting.

Principal Activities

The principal activities of the Corporation during the course of the financial year were:

the operation and maintenance of coal fired thermal power stations for the purpose of generating

and selling electricity into the wholesale energy market;

the marketing and sale of electricity into the New South Wales and national energy markets; and

the management of market risk arising from participation in the New South Wales and national energy markets.

There have been no significant changes in the nature of the activities of the Corporation during the year.

Operating Results

The operating profit after tax of the Corporation for the financial year ended 30 June 2000 was $59.216 million.

Review of Operations

The operations of the Corporation during the financial year and the result of those operations are discussed

in the Chairman’s Report, the Chief Executive’s Review and elsewhere in the Annual Report.

Dividends

Dividends paid or proposed by the Corporation since the end of the previous financial year were:

an interim dividend of $20.0 million in respect of the year ended 30 June 1999 was paid on 1 December 1999;

a final dividend of $20.0 million in respect of the year ended 30 June 1999 was paid on 1 March 2000; and

a proposed dividend of $50.0 million in respect of the year ended 30 June 2000 has been provided for

in the financial statements.

State of Affairs

There were no significant changes in the state of affairs of the Corporation during the financial year.

Likely Developments

In the opinion of the Directors, all appropriate information concerning likely developments in, and the likely results of,

the operations of the Corporation is contained in the Annual Report.

Further information as to the likely developments in the operations of the Corporation and the expected results of those

operations in subsequent financial years has not been included in this report because the Directors believe, on reasonable

grounds, that to include such information would be likely to result in unreasonable prejudice to the Corporation.

Events Subsequent to Balance Date

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction

or event of a material and unusual nature likely, in the opinion of the Directors of the Corporation, to affect significantly the

operations of the Corporation, the results of those operations, or the state of affairs of the Corporation, in subsequent

financial years.

Environmental Performance Report

Protection of the Environment Operations Act 1997

Bayswater and Liddell Power Stations were licensed by the Environment Protection Authority (EPA) under the Protection of the

Environment Operations Act 1997, which came into force on 1 July 1999.

Both stations are required to monitor atmospheric emissions of particulate matter, sulphur dioxide, nitrogen oxides and total

fluoride emissions which must not exceed limits or concentrations specified in the licence. The Bayswater licence also regulates

the volume, concentration and type of pollutants in aqueous discharges to Lake Liddell and Tinkers Creek, as well as the

discharge from Lake Liddell to the Hunter River under the Hunter River Salinity Trading Scheme. It also permits the discharge of

ash to the Ravensworth Ash Disposal site.

The licences also include requirements for reporting to the EPA of:

Information obtained from monitoring;

Exceedences of licensed discharge limits; and

Events or occurrences which caused actual or potential environmental harm not otherwise permitted by the licence.

Macquarie Generation also holds a licence for the operation of its gas turbines at Liddell. This requires the reporting of

incidences which cause or are likely to cause environmental harm.

Macquarie Generation complied fully with all relevant discharge limits, monitoring and reporting requirements.

There were no exceedences of licensed limits for atmospheric emissions or aqueous discharges. There were no

events causing actual or potential environmental harm which required reporting.

Certificates of compliance have been completed for these licences.

Water Act 1912

Macquarie Generation is licensed by the Department of Land and Water Conservation under the Water Act 1912. The licence

regulates the pumping of water from the Hunter River and is valid from 2 January 2000 to 2 January 2005. All requirements

relating to environmental flows have been met.

Macquarie Generation is also licensed to pump water from the Barnard River. This licence is valid from 20 May 1993 to

20 May 2003. No pumping other than for testing purposes occurred under this licence during the year ended 30 June 2000.

No.27

P R O F I T A N D L O S S S T A T E M E N TFOR THE YEAR ENDED 30 JUNE 2000

2000 1999

Notes $’000 $’000

Revenue

Operating activities 2 729,645 716,524

Outside operating activities 2 3,191 4,969

TOTAL REVENUE 732,836 721,493

Expenditure

Operations (470,391) (473,816)

Depreciation (84,857) (80,886)

Finance charges (78,067) (93,728)

TOTAL EXPENDITURE 3 (633,315) (648,430)

Operating profit before abnormal items and income tax 99,521 73,063

Abnormal items before income tax 4 (34,387) –

Operating profit before income tax 65,134 73,063

Income tax attributable to operating profit 5 (5,918) (26,468)

Operating profit after income tax 59,216 46,595

Retained earnings at the beginning of the financial year 10,115 3,520

Total available for appropriation 69,331 50,115

Dividend provided 6 (50,000) (40,000)

RETAINED EARNINGS AT THE END OF THE FINANCIAL YEAR 19,331 10,115

The above Profit and Loss Statement should be read in conjunction with the accompanying notes.

No.26

DIRECTORS’ REPORT

Waste Minimisation and Management Act 1995

Liddell Power Station is licensed to store coal tar substances under the Waste Minimisation and Management Act 1995.

This material must be stored, contained and handled to prevent contamination of surface and ground waters and the generation

of dust. The station has complied with the conditions of the licence.

Environmentally Hazardous Chemical Act 1985

An asbestos burial site is regulated by a Chemical Control Order issued by the EPA. The stations have complied with the order

which regulates the management of the waste. There are no reporting requirements for the sites.

Directors’ Interests

The Corporation did not enter into any contracts during the financial year with entities in which Directors declared an interest

except as disclosed in Note 23 to the financial statements.

No Director holds an interest in the share capital of the Corporation.

Directors’ Benefits

No Director has declared the receipt of, or has declared an entitlement to receive, during or since the financial year, a benefit as

a result of a contract made by the Corporation with a Director, an entity of which a Director is a member or an entity in which a

Director has a substantial financial interest.

Indemnification of Directors and Officers

During the financial year Macquarie Generation paid a premium of $93,688 to insure the Directors and certain officers of the

Corporation. The policy covers losses and expenses that may be incurred in defending civil or criminal proceedings that may be

brought against the Directors and officers in their capacity as Directors and officers of the Corporation. At the date of this report

no claims have been made against the policy.

Rounding of Amounts

Amounts in the financial statements and Directors’ Report have been rounded to the nearest thousand dollars unless

otherwise indicated.

Signed in accordance with a resolution of the Directors.

HE Rees GV Every-Burns

Chairman Chief Executive and Managing Director

1 September, 2000

No.29No.28

S T A T E M E N T O F C A S H F L O W SFOR THE YEAR ENDED 30 JUNE 2000

2000 1999

Notes $’000 $’000

Cash Flows from Operating Activities

Cash received in the course of operations 678,223 720,148

Cash paid in the course of operations (431,361) (472,013)

Interest received 2,896 1,813

Interest paid (76,795) (102,021)

NET CASH FLOWS FROM OPERATING ACTIVITIES 17 172,963 147,927

Cash Flows from Investing Activities

Payments for property, plant and equipment (11,701) (23,338)

Proceeds from sale of property, plant and equipment 295 241

NET CASH FLOWS FROM INVESTING ACTIVITIES (11,406) (23,097)

Cash Flows from Financing Activities

Repayment of borrowings (101,660) (84,951)

Dividend paid (40,000) (35,000)

NET CASH FLOWS FROM FINANCING ACTIVITIES (141,660) (119,951)

NET INCREASE IN CASH HELD 19,897 4,879

Cash at the beginning of the financial year 17,410 12,531

CASH AT THE END OF THE FINANCIAL YEAR 7 37,307 17,410

The above Statement of Cash Flows should be read in conjunction with the accompanying notes.

2000 1999

Notes $’000 $’000

Current Assets

Cash 7 37,307 17,410

Receivables 8 124,662 72,871

Inventories 9 81,143 75,793

Other 11 25,570 9,436

TOTAL CURRENT ASSETS 268,682 175,510

Non-Current Assets

Receivables 8 381 750

Property, plant and equipment 10 1,885,465 1,958,727

Other 11 3,440 11,921

TOTAL NON-CURRENT ASSETS 1,889,286 1,971,398

TOTAL ASSETS 2,157,968 2,146,908

Current Liabilities

Creditors 12 126,636 77,148

Borrowings 13 127,837 269,587

Provisions 14 59,023 48,506

Other 15 17,109 109

TOTAL CURRENT LIABILITIES 330,605 395,350

Non-Current Liabilities

Borrowings 13 689,059 648,969

Provisions 14 125,710 135,396

Other 15 72,185 36,000

TOTAL NON-CURRENT LIABILITIES 886,954 820,365

TOTAL LIABILITIES 1,217,559 1,215,715

NET ASSETS 940,409 931,193

Shareholders’ Equity

Share capital 16 921,078 921,078

Retained earnings 19,331 10,115

TOTAL SHAREHOLDERS’ EQUITY 940,409 931,193

The above Balance Sheet should be read in conjunction with the accompanying notes.

B A L A N C E S H E E TAS AT 30 JUNE 2000

No.31No.30

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S

FOR THE YEAR ENDED 30 JUNE 2000

Note 1—Summary of Significant Accounting Policies (continued)

(g) Property, Plant and Equipment

Property, plant and equipment are brought to account at cost or at independent or Directors’ valuation, less, where applicable,

any accumulated depreciation.

Costs arising from the installation, start-up and development of assets acquired or constructed are included in the carrying value

of those assets.

Depreciation is calculated on a straight line basis to write off the net cost or revalued amount of each item of property,

plant and equipment, other than freehold land, over its expected useful life to the Corporation.

Estimates of useful lives are made on a regular basis for all assets and these are:

Power Stations 40 years

Other Buildings 35 years

Other Plant and Equipment 2.5-10 years

Provision is not made for potential capital gains tax arising from the disposal of property, plant and equipment unless there

is an intention to sell the assets concerned.

(h) Sale of Non-Current Assets

Proceeds from the sale of property, plant and equipment are included in operating revenue. The depreciated value of such

assets is included in operating expenditure.

(i) Leased Assets

Macquarie Generation leases a large proportion of its vehicles and mobile plant under fully maintained operating leases.

Operating lease payments are charged to the profit and loss account in the periods in which they are incurred, as this

represents the pattern of benefits derived from the leased assets.

(j) Trade and Other Creditors

These amounts represent liabilities for goods and services provided to the Corporation prior to the end of the financial year and

which are unpaid at that date. These amounts include payments due to counter parties in respect of electricity hedge contract

sales.

(k) Borrowings

Borrowings are carried at their principal amounts, representing proceeds received on issue, net of amortisation. Discount or

premium on borrowings is amortised over the terms of the borrowings and is included in the profit and loss statement as a

financing charge. Interest is recognised as an expense in the period to which it relates and is accrued as part of other creditors.

(l) Derivative Instruments

(i) Financial

New South Wales Treasury Corporation has been engaged to manage the treasury risk of Macquarie Generation in accordance

with both approved Board policies and the Treasury Management Guidelines issued by New South Wales Treasury. To achieve

this, New South Wales Treasury Corporation enters into derivative financial instruments, as disclosed in note 21(b), on Macquarie

Generation’s behalf. Derivative financial instruments are not recognised in the financial statements on inception.

All gains and losses incurred in the use of interest rate futures are included in the profit and loss statement as part of the

Corporation’s financing charges for the year. The market value of open futures is reported in note 21(e).

The accounting for forward foreign exchange contracts is in accordance with note 1(c)(ii).

(ii) Commodity

Macquarie Generation is a participant in the wholesale electricity market. The Corporation forward sells its electricity production

capacity using commodity based contracts and employs a range of hedging instruments to manage market risk. These

arrangements are viewed as commodity contracts which are excluded from the disclosure requirements of AAS33 “Presentation

and Disclosure of Financial Instruments”.

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T SFOR THE YEAR ENDED 30 JUNE 2000

Note 1 – Summary of Significant Accounting Policies

This general purpose financial report has been prepared, as required by the State Owned Corporations Act, 1989, in accordance

with the provisions of Part 3 of the Public Finance and Audit Act, 1983, Australian Accounting Standards, other authoritative

pronouncements of the Public Sector Accounting Standards Board and Australian Accounting Standards Board

and Urgent Issues Group Consensus Views.

(a) Basis of Accounting

These financial statements have been prepared in accordance with the principles of accrual accounting and the historical cost

convention, except for certain assets which, as noted, are at independent or Directors’ valuation. The accounting policies

adopted have been consistently applied except as otherwise indicated.

(b) Income Tax

Macquarie Generation is exempt from liability for Commonwealth income tax. However, under the State Owned Corporations

Act, 1989, income tax equivalents are payable to the New South Wales Office of State Revenue.

Tax effect accounting procedures are followed whereby the income tax expense in the profit and loss statement is matched with

the accounting profit after allowing for permanent differences. Income tax on cumulative timing differences is set aside to the

deferred income tax or the future income tax benefit accounts at the rates which are expected to apply when those timing

differences reverse.

Future income tax benefits attributable to income tax losses are not carried forward as assets unless they are virtually certain

of being realised. Recognised income tax losses are carried as a reduction in deferred income tax liabilities where it is expected

that the benefit will be utilised in the same periods as the liability is incurred.

(c) Foreign Currency Translation

(i) Transactions

Transactions denominated in a foreign currency are converted to Australian dollars at the exchange rate at the date of the

transaction. Foreign currency receivables and payables at balance date are translated at exchange rates current at balance

date. Exchange gains and losses are brought to account in determining the profit or loss for the year.

(ii) Specific Commitments

Hedging is undertaken in order to avoid or minimise possible financial effects of movements in exchange rates. Gains or losses

arising from hedging transactions are brought to account on a basis consistent with the underlying foreign physical asset or liability.

(d) Receivables and Revenue Recognition

Trade debtors are primarily attributable to electricity sales. Electricity sales revenue comprise National Electricity Market

settlements at spot market price and also payments due to the Corporation by counter parties in respect of hedge contracts.

Secured sundry debtors represent loans advanced to employees to assist in the purchase of housing in the Hunter region.

These are secured by mortgages over the subject properties. The carrying amount of the debt excludes any unearned income.

Interest revenue is brought to account over the term of each contract.

Bad debts are written off in the period in which they are identified.

(e) Inventories

Stores and materials, coal, biomass and oil stocks are stated at the lower of cost and net realisable value. Cost is determined

using the weighted average cost method, which is updated upon the receipt of new items and is separately determined for each

location.

(f) Recoverable Amount of Non-Current Assets

The recoverable amount of a non-current asset is the net amount expected to be recovered through the net cash inflows arising

from its continued use and subsequent disposal, discounted to present values using the Corporation’s weighted average cost of

capital.

Where the carrying amount of a non-current asset is greater than its recoverable amount the asset is revalued to its recoverable

amount. Where net cash inflows are derived from a group of assets working together, recoverable amount is determined on the

basis of the relevant group of assets.

No.33No.32

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S

FOR THE YEAR ENDED 30 JUNE 2000

2000 1999

$’ 000 $’ 000

Note 2—Revenue

Revenue from Operating Activities

Sales revenue 720,583 697,335

Community service obligations 7,854 18,153

Miscellaneous sources 1,208 1,036

729,645 716,524

Revenue from Outside Operating Activities

Interest revenue 2,896 1,806

Overfunded superannuation reserve brought to account – 2,922

Proceeds from sale of property, plant and equipment 295 241

3,191 4,969

Note 3—Operating Expenditure

Depreciation of

Buildings 7,325 7,279

Plant and equipment 77,532 73,607

Provisions for

Employee entitlements 2,563 5,796

Redundancy 1 3,352

Bad debts (recovered) written off during the period 2 (8)

Contributions to employee superannuation plans 5,898 5,030

Net loss on foreign currency transactions 135 202

Financing charges

Interest and related financing charges 78,067 83,738

Debt restructuring costs – 9,990

Operating lease rentals 1,917 2,284

Depreciated value of property, plant and equipment sold 106 18

Directors’ remuneration 314 313

Auditors’ remuneration

Audit of the financial statements 132 133

Other services 1 –

Consultants’ fees 2,702 1,969

Community service obligations 7,854 18,153

Other expenditures 448,766 436,574

633,315 648,430

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T SFOR THE YEAR ENDED 30 JUNE 2000

Note 1—Summary of Significant Accounting Policies (continued)

(m) Employee Entitlements

(i) Wages, Salaries and Annual Leave

Liabilities for wages, salaries and annual leave are recognised and are measured as the amount unpaid at balance date at

current pay rates in respect of employees’ services up to that date.

(ii) Long Service Leave

A liability for long service leave is recognised, and is measured as the present value of expected future payments to be made in

respect of services provided by employees up to balance date. Consideration is given to expected future wage and salary levels,

experience of employee departures and periods of service. Expected future payments are discounted using interest rates on

national government guaranteed securities with terms to maturity that match, as far as possible, the estimated future cash

outflows.

(iii) Superannuation

A liability or asset in respect of defined benefit superannuation is recognised, and is measured as the difference between the

present value of employees’ accrued benefits at balance date and the net market value of the schemes’ assets at that date.

The present value of accrued benefits is based on expected future payments which arise from membership of the schemes to

balance date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods

of service. Expected future payments are discounted using interest rates on national government guaranteed securities with

terms to maturity that match, as far as possible, the estimated future cash outflows. The amount included in the profit and loss

statement in respect of superannuation represents the contributions made by the Corporation to the superannuation schemes,

adjusted by the movement in the superannuation asset or liability.

(n) Community Service Obligations

Community Service Obligations are costs incurred by the Corporation in the form of rebates and subsidies to certain

customers in accordance with New South Wales State Government policy decisions and are included in operating expenditure.

The Community Service Obligations ceased effective from 5 December 1999.

New South Wales Treasury has undertaken to reimburse the Corporation for the full cost of the Community Service Obligations

incurred. The reimbursement is recorded as other revenue and the balance outstanding as trade debtors.

(o) Provision for Internal Insurance

Macquarie Generation has external insurance but carries a significant excess on most of its policies. Accordingly, an internal

insurance provision has been created to recognise this self-retained risk. The liabilities are determined by specialist internal

insurance staff and whenever necessary in conjunction with independent insurance advisers and loss adjusters. The balance

of the provision is periodically adjusted to reflect an actuarial assessment of all known liabilities at balance date.

(p) Provision for Redundancy

The Board has resolved to reduce the staffing levels of the organisation by the continued use of voluntary redundancy programs.

Under the terms of the programs redundancy payments are calculated on the basis of the length of service of the qualifying

employees.

(q) Segment Reporting

The Corporation operates predominantly in one industry segment, that being the generation of electricity, and within one

geographical sector, Australia.

(r) Rounding of Amounts

Amounts shown in these financial statements are rounded to the nearest thousand dollars when presented in tabular form.

However, amounts quoted within text are stated as whole dollars.

(s) Comparative Figures

Where necessary, comparative information has been reclassified to enhance comparability in respect of changes in presentation

adopted in the current year.

No.35No.34

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S

FOR THE YEAR ENDED 30 JUNE 2000

2000 1999

$’ 000 $’ 000

Note 5—Income Tax

(a) Income tax on operating profit differs from

the prima facie tax on that profit as follows:

Prima facie income tax on the operating profit at 36% 23,448 26,302

Tax effect of permanent differences which

reduce tax payable due to:

Non–assessable revenue 74 84

Increase tax payable due to non-deductible:

Superannuation contributions 20 12

Entertaining expenses 17 22

Consultants’ fees 48 42

Legal expenses 10 43

Sundry items 19 61

114 180

Prima facie tax adjusted for permanent differences 23,488 26,398

Abnormal adjustment to deferred income tax liabilities and

assets to reflect the decrease in company tax rates to 34/30% (17,559) –

(Over)/under provision in previous year (11) 70

INCOME TAX ATTRIBUTABLE TO OPERATING PROFIT 5,918 26,468

Aggregate income tax expense comprises:

Tax losses recognised (15,752) (19,932)

Deferred income tax provision 13,189 45,935

Future income tax benefits 8,481 465

5,918 26,468

Adjustment to deferred income tax balances

Legislation reducing the company tax rate from 36% to 34% in respect of the 2000-2001 income tax year and then to 30% from

the 2001-2002 income tax year was announced on 21 September 1999 and received Royal Assent on 10 December 1999.

As a consequence, deferred tax balances which are expected to reverse in the 2000-2001 or a later income tax year have been

remeasured using the appropriate new rates, depending on the timing of their reversal.

(b) Future income tax benefits attributable to tax losses have been recognised as a reduction to the provision for deferred

income tax and are disclosed in Note 14. Future income tax benefits disclosed in Note 11 are attributable to timing differences

and do not include tax losses.

Note 6—Dividend

In accordance with the share dividends scheme determined by the voting shareholders, and as required by the Energy Services

Corporations Act, 1995, the Board has provided for a dividend payment of $50,000,000 (1999 $40,000,000). This will be paid during

the course of the 2000–2001 year and is represented by the balance of the provision, disclosed in Note 14, at 30 June 2000.

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T SFOR THE YEAR ENDED 30 JUNE 2000

2000 1999

$’ 000 $’ 000

Note 4—Abnormal Items

Operating Profit after income tax includes

the following abnormal items:

Gains

Overfunded superannuation reserve 18,798 –

Less: Applicable income tax 6,767 –

ABNORMAL REVENUE ITEMS AFTER INCOME TAX 12,031 –

Expenses

Coal contract termination payment 53,185 –

Less: Applicable income tax 19,146 –

ABNORMAL EXPENSE ITEMS AFTER INCOME TAX 34,039 –

Abnormal items (net) before income tax 34,387 –

Less: Applicable income tax 12,379 –

ABNORMAL ITEMS (NET) AFTER INCOME TAX 22,008 –

The abnormal expense item after income tax of $34,039,000 represents a termination payment for the release of a supplier’s

obligations under a long term coal contract. The contract was terminated as part of the settlement of a dispute.

No.37No.36

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S

FOR THE YEAR ENDED 30 JUNE 2000

2000 1999

$’ 000 $’ 000

Note 10—Property, Plant and Equipment

Buildings

Power stations

At cost 168,794 167,485

Less: Accumulated depreciation 30,928 23,740

137,866 143,745

Other buildings

At cost 1,935 1,935

Less: Accumulated depreciation 256 182

1,679 1,753

At Directors’ valuation 1999 1,410 1,410

Less: Accumulated depreciation 63 –

1,347 1,410

TOTAL BUILDINGS 140,892 146,908

Land

At cost 3,291 3,291

At Directors’ valuation 1999 1,000 1,000

TOTAL LAND 4,291 4,291

Plant and equipment

Power stations

At cost 2,028,348 2,020,606

Less: Accumulated depreciation 310,160 237,679

1,718,188 1,782,927

Other plant and equipment

At cost 31,500 28,970

Less: Accumulated depreciation 9,406 4,369

22,094 24,601

TOTAL PLANT AND EQUIPMENT 1,740,282 1,807,528

TOTAL DEPRECIATED VALUE OF PROPERTY, PLANT AND EQUIPMENT 1,885,465 1,958,727

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T SFOR THE YEAR ENDED 30 JUNE 2000

2000 1999

$’ 000 $’ 000

Note 7—Cash

Cash at bank and on hand 2,150 1,055

Deposits at call 35,157 16,355

37,307 17,410

Note 8—Receivables

Current

Trade debtors 122,122 72,371

Sundry debtors – secured* 210 –

Sundry debtors – unsecured 2,330 500

124,662 72,871

Non-Current

Sundry debtors – secured* 381 750

*secured by mortgages over the subject properties.

Note 9—Inventories

Coal stocks (at cost) 39,229 36,153

Biomass (at cost) 1,422 –

Stores and materials (at cost) 39,351 38,758

Oil stocks (at cost) 1,141 882

81,143 75,793

No.39No.38

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S

FOR THE YEAR ENDED 30 JUNE 2000

2000 1999

$’ 000 $’ 000

Note 14—Provisions

Current

Insurance 861 531

Dividend 50,000 40,000

Employee entitlements 7,062 6,725

Redundancy 1,100 1,250

59,023 48,506

Non-Current

Employee entitlements 15,505 19,012

Insurance 10,480 13,891

Deferred income tax 90,004 92,566

Mine restoration 9,721 9,927

125,710 135,396

Deferred Income Tax

The provision for deferred income tax has been partially offset by the recognition of future income tax benefits attributable to

income tax losses amounting to $63,414,976 (1999 $47,663,830).

The income tax losses have been brought to account as realisation of the benefit is regarded as virtually certain and will only be

obtained if:

(a) the Corporation derives future assessable income of a nature and of an amount sufficient to enable the benefit to be realised;

(b) the Corporation continues to comply with the conditions for deductibility imposed by tax legislation; and

(c) no changes in tax legislation adversely affect the Corporation in realising the benefit from the deductions for the losses.

Mine Restoration

Under the terms of a license issued by the Department of Mineral Resources the Corporation is required to restore a mine site,

the restoration cost of which has been independently determined. The net present value of the future cashflows to complete the

restoration is represented by the balance of the above provision.

Note 15—Other Liabilities

Current

Amounts received in advance 109 109

Coal contract termination payment 17,000 –

17,109 109

Non-Current

Security deposit 36,000 36,000

Coal contract termination payment 36,185 –

72,185 36,000

Security Deposit

The security deposit was provided under the terms of a long term electricity supply contract. The deposit is non-interest bearing

and is repayable upon any breach of the contract by Macquarie Generation or upon completion of the contract in 2017.

Coal Contract Termination Payment

The coal contract termination payment represents an amount payable to a supplier releasing them from their obligations under

a long term coal contract. The contract was terminated as part of the settlement of a dispute. Payments under the terms of the

settlement will be completed in July 2002.

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T SFOR THE YEAR ENDED 30 JUNE 2000

2000 1999

$’ 000 $’ 000

Note 11—Other Assets

Current

Prepayments 25,570 9,436

Non-Current

Development costs carried forward 189 189

Future income tax benefits 3,251 11,732

3,440 11,921

Note 12—Creditors

Current (Unsecured)

Accounts payable 112,892 60,250

Accrued interest 13,744 16,898

126,636 77,148

Note 13—Borrowings

Current (Unsecured)

Borrowings 127,837 269,587

Non-Current (Unsecured)

Borrowings 689,059 648,969

Borrowings are comprised of fixed rate debt of $756,895,671 (1999 $858,556,430) bearing interest rates of between 5.5%

and 12% and the remainder bearing floating interest rates of between 5.92% and 6.59%. These rates are exclusive of the

Government guarantee fee applicable to an organisation with a credit rating of BB+ and New South Wales Treasury

Corporation administration fees (refer Note 21c).

Maturity Analysis

The following table summarises the maturity pattern of

Macquarie Generation’s borrowings.

Up to one year 127,837 269,587

Over one and up to two years 113,886 –

Over two and up to five years 274,885 338,421

Over five years 300,288 310,548

TOTAL 816,896 918,556

Financing Arrangements

Facilities Available

Bank overdraft 2,000 2,000

New South Wales Treasury Corporation loans 1,010,000 1,010,000

New South Wales Treasury Corporation come and go facility 390,000 390,000

TOTAL AVAILABLE 1,402,000 1,402,000

Facilities Utilised

Bank overdraft – –

New South Wales Treasury Corporation loans 816,896 918,556

New South Wales Treasury Corporation come and go facility – –

TOTAL UTILISED 816,896 918,556

Macquarie Generation, with the exception of overdraft facilities, is required to undertake all new borrowings through the New

South Wales Treasury Corporation.

No.41No.40

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S

FOR THE YEAR ENDED 30 JUNE 2000

2000 1999

$’ 000 $’ 000

Note 19—Lease Commitments

Total lease expenditure contracted for at balance date

but not provided for in the financial statements:

Payable not later than one year 1,060 1,210

Payable later than one, not later than two years 1,005 982

Payable later than two, not later than five years 911 1,801

REPRESENTING CANCELLABLE OPERATING LEASES 2,976 3,993

Note 20—Events Occurring After Balance Date

There have been no events occurring after balance date, and prior to completion of this financial report, that have significantly

or may significantly affect the operations of the Corporation, the results of those operations or the state of affairs of the

Corporation in subsequent financial years.

Note 21—Financial Instruments

(a) Recognised Financial Instruments

Macquarie Generation has recognised certain financial instruments in the accounts. These financial instruments have been

disclosed in Notes 7,8,12,13 and 15.

(b) Unrecognised Financial Instruments

Interest Rate Exposure

The Corporation manages interest rate risk with the assistance of interest rate swaps, forward rate agreements and interest rate

futures and options. These products are also used to assist in the management of Macquarie Generation’s financial assets, with

positions being marked to market and a gain or loss recognised in the accounts. All derivatives are managed through New South

Wales Treasury Corporation in accordance with Board policies including total value and credit risk and can only be used for

hedging purposes.

Foreign Currency Exposure

In the normal course of business the Corporation enters foreign currency contracts for the supply of parts and equipment.

Macquarie Generation policy requires exposures exceeding $250,000 to be fully hedged through the use of forward foreign

exchange contracts. Gains and losses are brought to account on a basis consistent with the underlying asset or liability.

At balance date the details of the outstanding contracts are:

2000 1999 2000 1999

Australian Dollars Average Exchange Rate

$’ 000 $’ 000

Buy United States Dollars

Maturity 0 – 6 months 1,035 1,813 0.599 0.621

Sell United States Dollars

Maturity 0 – 6 months – 20 – 0.621

Buy Great Britain Pounds

Maturity 0 – 6 months 3,781 1,036 0.395 0.520

Sell Great Britain Pounds

Maturity 0 – 6 months – 1,036 – 0.520

Buy Belgian Francs

Maturity 0 – 6 months – 686 – 21.690

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T SFOR THE YEAR ENDED 30 JUNE 2000

2000 1999

$’ 000 Shares $’ 000 Shares

Note 16—Share Capital

Ordinary Share Capital, Fully Paid

Balance at the beginning of the financial year 921,078 2 – 2

Transfer from Share Premium Reserve – – 921,078 –

BALANCE AT THE END OF THE FINANCIAL YEAR 921,078 2 921,078 2

Share Premium Reserve

Consequent upon an amendment to the Corporations Law, which abolished par values of shares, the amount standing to the

credit of the Share Premium Reserve at 1 July 1998 was deemed to become Share Capital.

Note 17—Cash Flow Information

Cash includes cash on hand and deposits at call which are readily convertible to cash on hand and are subject to an insignificant

risk of changes in value.

2000 1999

$’ 000 $’ 000

Reconciliation of net cash flows from operating

activities to operating profit after income tax

Operating profit after income tax 59,216 46,595

Depreciation 84,857 80,886

Increase (decrease) in net interest accruals 1,272 (8,286)

Net profit on sale of non-current assets (189) (223)

Assets written off – 2

Tax losses recognised (15,752) (19,932)

Increase in net deferred taxes payable 21,670 46,400

Changes in assets and liabilities

(Increase) in trade and other debtors (51,422) (2,376)

Decrease (increase) in inventories (5,350) 10,406

(Increase) in prepayments (16,134) (1,123)

Increase (decrease) in trade and other creditors,

employee entitlements and other provisions 94,795 (4,422)

NET CASHFLOWS FROM OPERATING ACTIVITIES 172,963 147,927

Net Cash Flows

Borrowings and repayments of debt have been presented on a net cash basis in the Statement of Cash Flows.

Note 18—Capital Expenditure Commitments

Total capital expenditure contracted for at balance date

but not provided for in the financial statements:

Payable not later than one year 5,883 7,246

Payable later than one, not later than two years 250 1,700

Payable later than two, not later than five years 100 –

6,233 8,946

No.43No.42

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S

FOR THE YEAR ENDED 30 JUNE 2000

Note 21—Financial Instruments (continued)

(d) Credit Risk Exposure

Credit risk is the risk of financial loss arising from another party to a contract or financial position failing to discharge a financial

obligation thereunder. Macquarie Generation’s exposure to credit risk on financial instruments is represented by carrying

amounts of financial assets on the Balance Sheet. The recognised financial assets of the Corporation include amounts receivable

from the Government owned agencies (87%), secured debtors (11%) and other debtors (2%). The recognised financial assets

also include unrealised gains from derivative financial instruments.

(e) Net Fair Value of Financial Assets and Liabilities

Recognised

The net fair value of cash and cash equivalents and non-interest bearing financial assets and financial liabilities are represented

by their carrying value, except in regard to a non-interest bearing security deposit and contract termination payment where net

fair values are disclosed in the table below.

Unrecognised

The net fair value of unrecognised financial assets and financial liabilities arising from interest rate swap agreements has been

determined as the carrying value which represents the amount currently receivable or payable at the reporting date, and the

present value of the estimated future cash flows which have not been recognised as an asset or liability.

The net fair value for futures represents the margin variation at balance date.

For forward exchange contracts, the net fair value is taken to be the unrealised gain or loss at balance date calculated by using

the exchange rates at balance date.

The recognised and unrecognised financial assets and financial liabilities of the Corporation are recorded at net fair value except

as disclosed in the following table.

2000 1999

Carrying Net Fair Carrying Net Fair

Amount Value Amount Value

$’000 $’000 $’000 $’000

Recognised Financial Instruments

Financial Assets

Loans to employees 591 496 750 341

TOTAL 591 496 750 341

Financial Liabilities

Borrowings 830,640 851,693 935,455 965,862

Security deposit 36,000 8,355 36,000 6,957

Coal contract termination payment 53,185 44,892 - -

TOTAL 919,825 904,940 971,455 972,819

Unrecognised Financial Instruments

Financial Assets

Interest rate futures - - 13 13

TOTAL - - 13 13

Financial Liabilities

Forward exchange contracts - 36 - 210

TOTAL - 36 - 210

Although loans to employees are carried at an amount above net fair value, the Directors have not caused those assets to be

written down as it is intended to retain those assets to maturity.

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T SFOR THE YEAR ENDED 30 JUNE 2000

Note 21—Financial Instruments (continued)

(b) Unrecognised Financial Instruments (continued)

As these contracts are hedging anticipated future purchases, any unrealised gains and losses on the contracts, together with

the cost of contracts, are deferred and will be recognised in the measurement of the underlying transaction. Amounts receivable

and payable on open contracts are included in other debtors and other creditors respectively.As at 30 June 2000 the Corporation’s foreign exchange position gave rise to an unrealised loss of $35,669 (1999 unrealised lossof $209,549) which has been deferred.

(c) Interest Rate Risk ExposureInterest rate risk is the risk that the financial instrument will fluctuate due to changes in market interest rates. The Corporation’sexposure to interest rate risks and the weighted average interest rate for each class of financial assets and financial liabilities,both recognised and unrecognised at balance date are listed below:

FLOATING FIXED INTEREST RATE MATURING IN: NON-

INTEREST 1 YEAR 1 – 5 OVER 5 INTEREST

RATE OR LESS YEARS YEARS BEARING TOTAL

$’000 $’000 $’000 $’000 $’000 $’000

2000Financial AssetsCash 37,304 - - - 3 37,307Receivables 591 - - - 124,452 125,043

37,895 - - - 124,455 162,350

Weighted average interest rate 6.1%

Financial LiabilitiesTrade creditors - - - - 112,892 112,892Accrued interest - - - - 13,744 13,744Borrowings 60,000 127,837 348,771 280,288 - 816,896Security deposit - - - - 36,000 36,000Coal contract termination payment - - - - 53,185 53,185

60,000 127,837 348,771 280,288 215,821 1,032,717

Weighted average interest rate 6.2% 6.0% 8.1% 7.3%

NET FINANCIAL ASSETS (LIABILITIES) (22,105) (127,837) (348,771) (280,288) (91,366) (870,367)

FLOATING FIXED INTEREST RATE MATURING IN: NON-

INTEREST 1 YEAR 1 – 5 OVER 5 INTEREST

RATE OR LESS YEARS YEARS BEARING TOTAL

$’000 $’000 $’000 $’000 $’000 $’000

1999Financial AssetsCash 17,376 - - - 34 17,410Receivables 750 - - - 72,871 73,621

18,126 - - - 72,905 91,031

Weighted average interest rate 4.5%

Financial LiabilitiesTrade creditors - - - - 60,250 60,250Accrued interest - - - - 16,898 16,898Borrowings 60,000 269,587 328,421 260,548 - 918,556Security deposit - - - - 36,000 36,000

60,000 269,587 328,421 260,548 113,148 1,031,704

Weighted average interest rate 4.9% 7.0% 8.0% 7.3%

NET FINANCIAL ASSETS (LIABILITIES) (41,874) (269,587) (328,421) (260,548) (40,243) (940,673)

No.45No.44

Note 23—Directors’ Interests

No Director has declared the receipt of, or has declared an entitlement to receive, or become entitled to receive, during or since

the financial year, a benefit as a result of a contract between Macquarie Generation 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 hold positions with the following organisations which the Corporation has

business dealings with, which are all made in the normal course of business and on normal commercial terms and conditions.

Director Positions Organisation

Mr Grant Every-Burns Director/Vice President National Safety Council of Australia Limited

Mr James Watt Chairman Austraclear Limited

Mrs Deborah Page Senior Executive Commonwealth Bank of Australia

Note 24—Remuneration of Directors

2000 1999

Income paid or payable, or otherwise made available, to $ $

Directors in connection with the management of the

the affairs of the entity 673,363 575,133

$ No. No.

The numbers of Directors whose total income from the 10,000 – 19,999 1 –

entity was within the specified bands are as follows: 30,000 – 39,999 1 –

40,000 – 49,999 4 5

70,000 – 79,999 1 1

260,000 – 269,999 – 1

360,000 – 369,999 1 –

Note 25—Remuneration of Executives

2000 1999

Total remuneration received, or due and receivable, from $ $

the entity by Executive Officers (including Directors) whose

income is $100,000 or more 2,942,333 1,866,205

$ No. No.

The numbers of Executive Officers (including Directors) 100,000 – 109,999 4 –

whose remuneration from the entity was within the 110,000 – 119,999 1 2

specified bands are as follows: 120,000 – 129,999 1 4

130,000 – 139,999 2 –

140,000 – 149,999 3 –

150,000 – 159,999 1 1

170,000 – 179,999 – 1

180,000 – 189,999 1 2

190,000 – 199,999 – 1

210,000 – 219,999 2 –

220,000 – 229,999 2 –

260,000 – 269,999 – 1

360,000 – 369,999 1 –

For the purposes of this note, Executive Officers are defined as being those employees who are employed under a performance

based employment contract and whose total remuneration package including all benefits and incentive payments received from

the entity during this financial year exceeded $100,000.

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S

FOR THE YEAR ENDED 30 JUNE 2000

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T SFOR THE YEAR ENDED 30 JUNE 2000

Note 22—Superannuation

Macquarie Generation contributes to three superannuation schemes, the State Superannuation Scheme (SSS), State Authorities

Superannuation Scheme (SASS) and the State Authorities Non-Contributory Superannuation Scheme (SANCS). Employees

contribute to the schemes at various percentages of their wages and salaries. Macquarie Generation contributes to the

schemes at rates as advised by the Superannuation Administration Corporation.

Contributions to the schemes are expensed when paid or payable and reduce the superannuation liability. These payments are

held in Investment Reserve Accounts by the Superannuation Administration Corporation. The Investment Reserve Accounts are

invested by the Superannuation Administration Corporation and the resultant investment income or deficit adds to or subtracts

from the balance of these accounts.

At balance date any net unfunded superannuation liability is recognised as a liability in the Balance Sheet. Similarly, the amount of

any net overfunded position is brought to account as revenue and recognised as an asset in the Balance Sheet in the form of

prepaid superannuation contributions. The prepaid contributions included in the Balance Sheet as at 30 June are composed of:

SASS (i) SANCS (ii) SSS (iii) TOTAL

$’000 $’000 $’000 $’000

2000 2000 2000 2000

Gross liability assessed by

actuaries as at 30 June 2000 14,233 5,765 42,530 62,528

Investment reserve 19,221 7,547 60,737 87,505

Prepaid contributions 4,988 1,782 18,207 24,977

1999 1999 1999 1999

Gross liability assessed by

actuaries as at 30 June 1999 14,569 5,681 45,192 65,442

Investment reserve 15,451 6,160 52,779 74,390

Prepaid contributions 882 479 7,587 8,948

(i) SASS—State Authorities Superannuation Scheme

(ii) SANCS—State Authorities Non-Contributory Superannuation Scheme

(iii) SSS—State Superannuation Scheme

Triennial actuarial reviews of the above schemes are carried out by the Scheme’s Actuary. The last review was conducted as at

30 June 1997. On an annual basis the Scheme’s Actuary will review the key actuarial assumptions employed in the last triennial

review and determine the financial position of each fund as at 30 June. We have been advised that the triennial actuarial review

as at 30 June 2000 will be carried out during the forthcoming financial year.

The actuarial assumptions used in determining the financial positions of each of the schemes shown above are as follows:

1999/2000 and thereafter % p.a.

Investment return 7.0

Salary growth rate 4.0

Consumer price index 2.5

No.47No.46

Directors’ Declaration

Pursuant to Section 41C of the Public Finance and Audit Act 1983, we state that in the opinion of the

Directors of Macquarie Generation:

(a) the accompanying financial statements and notes comprise a general purpose financial report which has been

prepared in accordance with applicable Australian Accounting Standards, the State Owned Corporations Act 1989,

the Public Finance and Audit Act 1983, the Public Finance and Audit (General) Regulation 1995, and mandatory

professional reporting requirements and give a true and fair view of the Corporation’s financial position as at

30 June 2000 and its performance for the year ended on that date;

(b) at the date of this statement, there are reasonable grounds to believe that the Corporation will be able to pay

its debts as and when they become due and payable;

(c) we are not aware of any circumstances at the date of this declaration that would render any particulars

included in financial report to be misleading or inaccurate.

This declaration is made in accordance with a resolution of the Directors.

HE Rees GV Every-Burns

Chairman Chief Executive and Managing Director

1 September, 2000

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S

FOR THE YEAR ENDED 30 JUNE 2000

Note 25—Remuneration of Executives (continued)

The number of executive officers with remuneration (excluding incentive payments) equal to or exceeding the equivalent of

Senior Executive Service (SES) Level 1 ($104,985 for the year ending 30 June 2000) at the end of the reporting period was

12 (1999 11).

The number of executive officer positions equal to or exceeding SES Level 1 filled by women in the current year was 1 (1999 nil).

In relation to the Chief Executive and Managing Director and Managers reporting directly to him the following specific

remuneration and incentive payments were made during the financial year. The incentive payments were made in relation to

performance in the year ending 30 June 1999.

2000 2000

$ $

Remuneration Incentive

Package Payment

Position Title Name of Executive

Chief Executive and Managing Director Grant Every-Burns 278,386 88,125

Chief Financial Officer and Company Secretary David Ipkendanz 181,151 45,500

Manager Marketing and Trading Russell Skelton 181,088 47,200

Manager Bayswater Power Station John Neely 170,669 42,400

Manager Liddell Power Station John Marcheff 170,763 39,365

Manager Fuel and Environment Steve Ireland 155,090 29,900

General Manager Human Resources Lee Edmonds-Ward 150,082 –

Macquarie Generation has in place an executive and staff incentive program. In the case of executive contract staff, incentives

are aligned to measurable commercial targets that increase profit and shareholder value outcomes. The incentive payments are

subject to the recommendation of the Remuneration and Human Resources Committee for approval by the Board. Disclosure of

the specific targets would entail the disclosure of commercially sensitive information.

Note 26—Exemptions

The 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 (General) Regulation 1995, except that the following exemptions have been granted by

the Treasurer to allow disclosure for the electricity industry on a basis broadly consistent with the Corporations Law:

(1) Exemption from preparing manufacturing and trading statements.

(2) Exemption from reporting amounts set aside for renewal or replacement of fixed assets.

(3) Exemption from reporting amounts set aside to any provision for known commitments.

(4) Exemption from reporting amounts appropriated for repayment of loans, advances, debentures and deposits.

(5) Exemption from reporting material items of income and expenditure on a program or activity basis

in respect of commercially sensitive information.

N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T SFOR THE YEAR ENDED 30 JUNE 2000

No.49No.48

Charter and Legislation

Macquarie Generation is a statutory State Owned Corporation, in accordance with the State Owned Corporations Act 1989. It was constituted on 1 March 1996, by the Energy Services Corporations Act 1995 as an electricity generator.

Section 8 of the State Owned Corporation Act 1989 sets out the principal objectives of State Owned Corporations while theEnergy Services Corporations Act 1995, Part 2 Section 5, sets out the principal objectives of electricity generators.

The clients served by Macquarie Generation are participants trading in the wholesale electricity market, principally holders ofretail licences in New South Wales, and the Tomago Aluminium Smelter.

The Board of DirectorsThe Macquarie Generation Board of Directors bears ultimate responsibility for the corporate governance of the Corporation. This includes strategic direction and performance, establishing goals for management and monitoring theachievement of these goals.

The names of current Directors, together with details of their experience, qualifications, special responsibilities and attendance at Board meetings are disclosed in the Directors’ Report.

The Board exercises its functions and monitors the Corporations’ performance through regular Board meetings andBoard committees.

Board CommitteesThe Board has established a Board Audit Committee, a Board Remuneration and Human Resources Committee and a BoardIssues Management Sub Committee to assist it in decision making, oversight and control. The minutes of all Board committeemeetings are tabled and discussed and any recommendations considered at the next scheduled Board meeting. Thememberships of the Board committees, the number of meetings held and Directors attendance details are disclosed in theDirectors’ Report. The responsibilities of the Board committees are as follows:

Audit CommitteeThis committee reviews and makes recommendations to the Board on the Corporations’ financial reporting, internal controls and the internal and external audit processes to assist the Board to fulfil its oversight responsibilities and to ensure compliance with financial, regulatory and legal requirements.

Remuneration and Human Resources CommitteeThis committee makes recommendations to the Board on remuneration policies and practices for the Corporation. The Committee considers independent advice in determining policies and practices that will attract and retain high quality employees.

Issues Management Sub CommitteeThe Subcommittee’s role is to identify and provide guidance on the management of external issues with the potential to influence the Corporation’s normal business activities. The Subcommittee met for the first time on 21 March 2000. No further meetings were held during the reporting period.

Risk Management and Internal ControlThe Board monitors the operational and financial performance of the Corporation against budget and other key performancemeasures through monthly management reports. The Board also reviews and receives reports and advice on areas ofoperational and financial risk. The Corporation has established internal controls to manage risk in the key areas of exposurerelevant to its business. Systems have been designed to provide reasonable assurance that the assets of the Corporation aresafeguarded and risk exposures are within limits defined by the Board in policy documents.

The management of business risk is conducted through management committees covering the following areas:Energy TradingEnvironmentSafetyBudget ReviewInformation Technology

Ethics and ConductThe Corporation has established a code of conduct, which identifies the ethical and general behavioural standards under whichemployees are to conduct themselves. The code covers fairness and equity, confidentiality, the use of corporate resources,acceptance of gifts and benefits, conflicts of interests, corrupt conduct and accountability. In all aspects of its business, theemployees of Macquarie Generation are expected to conduct themselves in a responsible manner, honestly and with integrity.

C O R P O R A T E G O V E R N A N C EN O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T SFOR THE YEAR ENDED 30 JUNE 2000

No.51No.50

S T A T U T O R Y I N F O R M A T I O N

Equal Employment Opportunity

As at 30 June 2000, Macquarie Generation had 624 employees, in the following categories:

Number of employees

Male 550

Female 74

People identifying as Aboriginal or Torres Strait Islander 2

People from racial, ethnic and ethno-religious minority groups 21

People whose language first spoken as a child was not English 20

People with a disability 15

People with a disability requiring adjustment at work 31

Key activities in the area of workforce diversity and equity included:

Recommenced Spokeswomen’s Program and conducted a special women’s information

day for employees with guest speaker, Captain Carolyn Brand, Royal Australian Navy;

Continuing financial support to the Muswellbrook Community Child Care facility;

Financial and other support to the Singleton Child Care facility;

Financial and other support to community play groups and pre-schools;

Senior high school education programs focused on workplace; and

EEO awareness training to new recruits - apprentices and trainees.

Freedom of Information

No requests for release of information under the NSW Freedom of Information Act were received by Macquarie Generation

during the reporting period.

Funds Granted to Non–Government Community Organisations

Macquarie Generation donations and sponsorships during the reporting year to Hunter region community organisations

totalled $167,336.

Overseas Visits

Name Title Country Purpose

J Neely Manager Bayswater Korea Inspection of Korean power plants

B Wallace Engineering Officer Turbines Bayswater

S Ireland Manager Fuel and Environment United States Meeting with coal consultants

Italy International Coal Services Conference

D Price Manager Information Systems United States E-Commerce Conference

R Outridge Manager Commercial Services

D Ipkendanz Chief Financial Officer and United Kingdom Presentations to insurance underwriters

Company Secretary

J Marcheff Manager Liddell United Kingdom Steam turbine performance

P Sewell Production Manager Bayswater

P Blackshaw Performance Engineer Liddell

Senior Management Team

Title Name and Qualification Executive Committee Representation (1)

Chief Executive and

Managing Director Mr Grant Every-Burns BE(Hons) 1,2,4,5,6

Chief Financial Officer (7)

and Company Secretary Mr David Ipkendanz BEc DipEd FCPA 1,3,4,6

Manager Bayswater (7) Mr John Neely BSc(Eng) 1,2,3,5,6

Manager Liddell (7) Mr John Marcheff BE 1,2,3,5,6

General Manager

Human Resources (7) Ms Lee Edmonds-Ward

JP BA(Pol. Sci.,Soc.) MBA SRN(G),

MAHRI, FACOHN 1, 5

Manager Marketing

and Trading (7) Mr Russell Skelton BE 1,3,4

Manager Fuel and

Environment (7) Mr Steve Ireland BE BLegS 1,2

Notes:

(1) Reflects membership of Executive Committee

(2) Executive Environment Committee

(3) Executive Information Technology Governance Committee

(4) Executive Trading Committee

(5) Executive Safety Committee

(6) Executive Budget Review Committee

(7) Direct report to the Chief Executive

Annual Report Costs

Macquarie Generation’s Annual Report fulfils dual roles as a marketing and promotional tool and vehicle for the disclosure of

statutory information. A total of 2,000 copies have been printed at an estimated cost of $31.80 per copy.

Increased production costs include the provision for the first time of a CD-ROM version of this report. Significant cost reductions

will occur in coming years with expansion of electronic report production and distribution.

Chief and Senior Executive Officers

Macquarie Generation has not been included as a Declared Authority under Schedule 3 of the Public Sector Management Act

1988. Accordingly, Macquarie Generation senior managers are not members of the Government’s Senior Executive Service (SES)

and terms and conditions of their employment are set out in the Macquarie Generation Contract of Employment.

Controlled Entities

Macquarie Generation has no controlled entities of the kind referred to in Section 39 (1A) of the Public Finance and Audit Act 1983.

S T A T U T O R Y I N F O R M A T I O N

No.52

S T A T U T O R Y I N F O R M A T I O N

Promotion

A variety of communication vehicles have been produced to inform the public, customers and suppliers during the reporting year

as follows:

Annual Report 1999;

‘Powerhouse’ column, Hunter Valley News;

Awareness advertising, Rural Press Ltd (Upper Hunter TV Guide);

Media releases, radio and TV interviews;

Internet Website updates: www.macgen.com.au;

Community Billboard, Radio 2NM; and

Casual newspaper and magazine advertising.

Social Programs

Macquarie Generation carries out community service obligations in the form of rebates and subsidies to certain customers in

accordance with New South Wales Government policy decisions. New South Wales Treasury has undertaken to reimburse

Macquarie Generation for the full amount of community service obligations incurred with respect to:

(i) NorthPower Electricity Subsidy (ceased effective from 5 December 1999)

M A C Q U A R I E G E N E R A T I O N

C O R P O R A T E O F F I C E

3 4 G R I F F I T H S R O A D

L A M B T O N N S W 2 2 9 9

P O S T A L A D D R E S S

P O B O X 3 4 1 6

H A M I LT O N D C N S W 2 3 0 3

A U S T R A L I A

T E L E P H O N E

6 1 2 4 9 6 8 7 4 9 9

F A C S I M I L E

6 1 2 4 9 6 8 7 4 8 9

6 1 2 4 9 6 8 7 4 3 3

B U S I N E S S H O U R S

8 A M – 5 P M M O N D AY T O F R I D A Y

B A Y S W A T E R

P O W E R S T A T I O N

L I D D E L L P O W E R S T A T I O N

N E W E N G L A N D H I G H W AY,

M U S W E L L B R O O K N S W 2 3 3 3

P O S T A L A D D R E S S

P R I VAT E M A I L B A G 2

M U S W E L L B R O O K N S W 2 3 3 3

A U S T R A L I A

T E L E P H O N E

6 1 2 6 5 4 2 0 7 1 1

B U S I N E S S H O U R S

A D M I N I S T R A T I O N

8 A M – 4 P M M O N D AY T O F R I D A Y

S E C U R I T Y A N D

O P E R A T I O N S

2 4 H O U R S 7 D AY S

W E B S I T E A D D R E S S

W W W. M A C G E N . C O M . A U

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