annual report 2007

Corporate OfficeLevel 12 Darling Park 201 Sussex Street Sydney NSW 2000 Telephone 02 9285 2700 Facsimile 02 9285 2777 Office Hours 8.30am – 5.00pm

Mt Piper Power Station350 Boulder Road Portland NSW 2847 Telephone 02 6354 8111 Facsimile 02 6354 8112 Office Hours 7.45am – 4.00pm

Munmorah Power StationScenic Drive Doyalson NSW 2262 Telephone 02 4390 1611 Facsimile 02 4390 1642 Office Hours 7.45am – 4.00pm

Vales Point Power StationVales Road Mannering Park NSW 2259 Telephone 02 4352 6111 Facsimile 02 4352 6007 Office Hours 7.45am – 4.00pm

Wallerawang Power Station1 Main Street Wallerawang NSW 2845 Telephone 02 6352 8611 Facsimile 02 6352 8847 Office Hours 7.45am – 4.00pm

Delta MaintenanceMunmorah Power Station Scenic Drive Doyalson NSW 2262 Telephone 02 4390 1606 Facsimile 02 4390 1642 Office Hours 7.45am – 4.00pm

Website

http://www.de.com.au

ISSN 1327-6557

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ContentsInside front cover Letter to voting shareholders1 Highlights2 Chairman’s Report4 Chief executive’s Report6 Profile7 Locations8 Key Performance Indicators9 Operations Review14 Governance21 Financial Report 2007Inside back cover IndexBack cover Contact details

Tables8 Table One: Key Performance Indicators – Statistical Summary11 Table Two: Development Projects13 Table Three: Trends in the Representation of eeO Groups13 Table Four: Trends in the Distribution of eeO Groups14 Table Five: Directors’ Meetings16 Table Six: executive Committees17 Table Seven: executive Remuneration18 Table eight: expenditure on Consultants

Communication objectives This annual Report is a financial and compliance report, prepared to meet the requirements prescribed by the annual Reports (Statutory Bodies) Regulation 2005. It takes into account exemptions granted by the Treasurer in July 1997.

a separate sustainability report is prepared consistent with the energy Supply association of australia Code of Sustainable Practice which provides guidelines for reporting on economic, social and environmental matters. The 2006/2007 Sustainability Report will be made available on the Delta website www.de.com.au

Featured on the cover:at Mt Piper Power Station, two natural draught hyperbolic cooling towers cool the circulating water after it has passed through the turbine steam condenser. Most of the water is recycled using water treatment plants.

Dear Shareholders,

It is with pleasure that the Board of Delta electricity submits its annual Report for the period of 1 July 2006 to 30 June 2007 as required under the annual Reports (Statutory Bodies) act. The annual Report covers the activities of Delta electricity for the year and contains the Statement of accounts for the period ended 30 June 2007.

The annual Report includes a letter of submission to the voting shareholders and was prepared in accordance with Section 24a of the State Owned Corporations act 1989 and the annual Reports (Statutory Bodies) act 1984. It is being submitted for presentation to Parliament.

Yours faithfully,

The Hon M Costa, MLC Treasurer, Minister for Infrastructure, and Minister for the HunterLevel 31, Governor Macquarie Tower1 Farrer PlaceSYDNeY NSW 2000

The Hon J Watkins, MLCDeputy Premier, Minister for Transport, Minister for FinanceLevel 30, Governor Macquarie Tower1 Farrer PlaceSYDNeY NSW 2000

Aapprentices 11auditor-General’s Opinion 55, 72

BBoard Committees 14Board Meetings 14Board of Directors 14Balance Sheets 22, 57

CChairman’s Report 2Chief executive’s Report 4Community Relations 11Consultants 18Cost of Reporting 19Cash Flow Statements 25, 60

DDisability Plan 13Diversity 13

Eenvironment 9equal employment Opportunity 13ethnic affairs Statement 13executive Committees 16executive Management Team 16exemptions 19

FFinancial Statements 23-72Freedom of Information 20

GGovernance 14-20

LLetter to Shareholders Inside Front CoverLocations 7, Back Cover

MMission 6

OOrganisation Structure 14Overseas Visits 19

PPerformance Summary 8Profile 6

RReporting Objectives Inside Front CoverRisk Management 13

S Safety 12Statement by Members of the Board 54, 71

V Values 6Vision 6

Index

Peter yOung CHaIRMaN

JiM HenneSS CHIeF exeCuTIVe

1

financial performanceProfit before tax of $201 million

marketingDelta scores overall customer satisfaction index of 98.2%

plant performanceHighest level of production with 21,952 GWh sent out

plant improvementsVales Point Unit 6 life extension outage completed Mt Piper’s 2 x 660 MW units re-rated to 2 x 700 MW unitsRefurbishment and installation of Mt Piper generator rotor

developmentDevelopment approval granted for Colongra gas turbinesConcept approval granted for Bamarang gas turbines

environmental managementReduced fresh water consumption at Vales Point Power Station by one thirdReplaced 50% of fresh water with recycled mine water to operate Wallerawang Power StationReduced visible particulate emissions at Vales Point Power Station by installing fabric filtersConstructed a reverse osmosis water recovery plant at Mt Piper Power Station

peopleCelebrated the 50th anniversary of Wallerawang Power StationAchieved 500 days without a Mt Piper staff member experiencing a lost time injury

highlights

2

This year has provided the Delta team with many challenges and yet the business has returned a before tax profit of $201 million. This is an exceptional result, particularly given the pressures placed on our production team by several unexpected outages.

The MarkeTThe National Electricity Market (NEM) now covers supplies of electricity in New South Wales, Victoria, Queensland, South Australia, Tasmania and the Australian Capital Territory. Delta is the second largest generator in the NEM.

During the year, all NEM regions experienced growth in electricity demand, with the highest growth being experienced by Queensland and New South Wales. Maximum demand was at record levels in every region (except for South Australia) and in the NEM overall.

There has been a continued tightening of NEM supply/demand balance as a result of record winter demand and the persistence of drought conditions across a large part of eastern Australia. The drought has forced some Queensland generators to temporarily reduce capacity and curtailed production in Victoria, New South Wales and Tasmania.

Tightening of the supply/demand balance was reflected in a record New South Wales annual average spot price of $58.72/MWh. This price reflects a 58% increase over the previous year.

STraTegic direcTionThe location and timing of new generation capacity, both peaking and base load, and policy responses to climate change are two factors likely to significantly influence the shape and direction of the industry in Australia. For several years, Delta has pursued strategies that are readily adaptable to decisions in these areas.

Delta has developed a range of options for new and expanded base load and peak generating capacity. These options include upgrading the capacity of the two existing Mt Piper units, refurbishing Munmorah Power Station, investing in gas turbine facilities and building and operating two 30 MW renewable energy facilities in partnership with the NSW Sugar Milling Co-operative. These options will ensure that Delta remains a major supplier to the NEM, a secure electricity supplier for NSW and a leading renewable energy player.

As demand for electricity continues to increase, Delta is implementing plans to ensure the energy needs of both the community and industry are met. Significant progress was made on Delta’s Colongra Gas Turbine project with the appointment of a contractor to begin detailed design and commence construction work in October 2007. Colongra will be a 667 MW open cycle gas turbine power station on the Central Coast of NSW. It is scheduled for completion in the second half of 2009.

Additionally, an open cycle gas power station at Bamarang (near Nowra) has been approved under the NSW Environmental Planning and Assessment Act, and concept approval for a second stage of the project to convert the power station into a 400 MW base load plant was also granted. An environmental impact assessment was also completed for a site near Marulan where Delta proposes the construction of a combined cycle gas turbine facility capable of producing 400 MW.

While carbon capture technology is not likely to become commercially viable for some time, another aspect of Delta’s readiness for the future is its research, development and involvement in a demonstration project into the capture and storage of carbon dioxide. The pilot carbon capture plant at Munmorah Power Station, established in partnership with the CSIRO, will provide vital experience in carbon capture processes and fill a gap in the spectrum of technologies for carbon abatement under investigation in Australia.

induSTry developMenTSIn January 2007, the Energy Reform Implementation Group delivered its final report. Established by the Federal Government to investigate how best to encourage the development of a fully national electricity transmission system, it also considered whether enhanced energy market structures and financial market arrangements are needed to foster competition in the sector. The Group concluded that further reforms would deliver economic benefits and provide greater market contestability, improve transmission planning and regulation, and facilitate more efficient financial markets.

In May 2007, the NSW Premier, Morris Iemma, announced the appointment of Professor Tony Owen to advise the NSW Government on the actions required to ensure timely investment in new base load generation capacity that addresses greenhouse gas emissions while retaining the State’s fiscal position. Professor Owen is to report to the Government by the end of August 2007.

In November 2006, the NSW Renewable Energy Target (NRET) scheme was announced. The NSW Scheme is scheduled to start on 1 January 2008. The scheme will be closely aligned to the Victorian Renewable Energy Target scheme.

The NSW Scheme requires that by 2010 at least 10% of the electricity consumed in NSW will come from renewable energy sources such as solar, hydro and wind. By 2020, this figure will be 15%. The current proportion of renewable energy use in NSW is 6.1% of total consumption.

chairman’s report

3

The two 30 MW co-generation plants currently being constructed in Delta’s joint venture with the NSW Sugar Milling Cooperative, at Condong and Broadwater on the North Coast of NSW, will provide a valuable contribution towards achieving the targets set under the NRET scheme. The plants are due to be commissioned by mid 2008.

WaTer During much of 2006/2007, a state wide drought compromised water supply reliability for our power generation facilities. On the Central Coast, Delta has converted auxiliary plant so it can use seawater for cooling purposes, thus reducing fresh water use by a third. The installation of a desalination plant, to treat recycled sewage so it is pure enough to use in the plant, will further reduce our use of fresh water. Concerns about the dwindling water storages which supply the power stations in Western NSW were eased with good rainfalls in June, but the issue will remain one of concern and Delta has invested in a number of initiatives to bolster the availability of water for the West. These include capturing and using mine water and installing a reverse osmosis water treatment plant at Mt Piper to improve the quality of recycled water.

ready for The fuTureDelta’s assessment of NEMMCO’s 2006 forecast of demand and energy growth indicates that new base load plant is required by 2013/2014. Thanks to a diverse and well developed portfolio of options, Delta is well positioned to assist the NSW Government in delivering new base load capacity for NSW while meeting renewable energy targets.

I am grateful to all Board members for their support through the year. Thanks must go also to our Chief Executive, Jim Henness, and the exceptional Delta Electricity team. They continue to deliver excellent results whilst keeping their eyes focused on the future, ensuring the energy needs of the Australian community and industry sectors are being addressed while remaining committed to a path of sustainable development.

Peter Young CHAIRMAN

The location and timing of new generation capacity, both peaking and base load, and policy responses to climate change are two factors likely to significantly influence the shape and direction of the industry in Australia. For several years, Delta has pursued strategies that are readily adaptable to decisions in these areas.”‘‘

4

In March 2007, a number of activities were held to commemorate 50 years of operation at Wallerawang Power Station. Hundreds of people, including staff past and present, attended the celebratory functions, indicating the positive role that the power station has had, and continues to have, in the lives of both employees and the broader community.

As the past informs our present and teaches us valuable lessons, we have been focusing on Delta Electricity’s future, developing strategies and investing to ensure we are future ready.

achieveMenTSWe have once again achieved a record level of generation, with 21,952 GWh sent out, and although only slightly higher than last year, it was achieved despite the impact of the drought on production from our Western power stations and the failure of a generator transformer at Vales Point.

An EPC contract was awarded to the international firm, Alstom, to construct Colongra Gas Turbines near the Munmorah Power Station on the Central Coast. We also achieved development consent to construct an open cycle gas turbine facility at Bamarang, with concept approval to convert to a closed cycle facility as required to meet future demand.

A comprehensive submission was prepared for the Owen Inquiry, established by the NSW Premier, to determine how to best meet future base load requirements while at the same time keeping greenhouse gas emissions to a minimum.

Mt Piper celebrated 500 days without a lost time injury, and our Western maintenance staff achieved one year with zero lost time injuries. These set inspiring benchmarks and demonstrate what can be achieved when people adopt safe work practices and look out for each other’s safety.

As planned, fabric filters have been installed on Unit 6 at Vales Point Power Station on the Central Coast and this will virtually eliminate visible particulate emissions. The $55 million project has seen fabric filters replace less effective precipitator technology and the refit of Unit 5 will see this upgrade in emissions control completed by the end of 2007. These works have provided an opportunity for an extensive refurbishment of other plant at Vales Point which will help ensure reliability well in to the future.

coal SupplieSDuring the year, Delta sought approval to construct a rail coal unloader to supply the Western power stations. These are the only NSW power stations that do not have such facilities.

After thorough investigation of 11 sites, Pipers Flat, near Mt Piper Power Station, was chosen as our preferred location. An environmental assessment report was prepared, and there was extensive community consultation, including the reassessment of sites proposed by community members. Delta is preparing a response to all submissions that have been made following the exhibition of the Environmental Assessment report.

Tenders to supply coal over the longer term for Mt Piper and Wallerawang were invited. It is imperative that Delta sources competitively priced fuel supplies to ensure it can meet long-term customer demands and serve community and industry needs.

reneWable energyDelta has advanced a number of initiatives to ensure it remains a major contributor to the National Electricity Market while at the same time helping to meet renewable energy targets. One such initiative is a joint venture between Delta and the NSW Sugar Milling Cooperative, called Sunshine Electricity. We expect the two 30 MW co-generation facilities at Condong and Broadwater on the NSW North Coast to begin operation by mid 2008. The facilities will provide base load renewable energy using waste from processing sugar cane as fuel.

peopleDelta is committed to staff development to ensure that we have the right people with the right skills to operate our power stations for the next decade and beyond.

One example of this commitment is Delta’s sponsorship of an apprenticeship program which supports the development of skills for the industry and for Delta in the long term. Twenty first year apprentices are sponsored and a further 30 apprentices are provided with industrial experience over the remaining period of their training. Delta’s sponsorship of the apprentice scheme, including additional places for Indigenous applicants is part of our planning for the future and our broader desire to support communities near our operations.

We are committed to addressing organisational succession planning needs. This includes capturing the skills and knowledge of experienced staff and putting measures in place to ensure we have the right calibre of people to move into key roles in the future. With this in mind, Delta has put in place an Accelerated Development Program to groom the next generation of Delta management. The program includes mentoring, exposure to executive level management and access to tertiary management programs.

chief executive’s report

5

WaTer ManageMenTThe impact of the drought has prompted Delta to develop a number of initiatives to ensure reliable water supply for our continuing operation.

As levels in the Western storage system declined, Delta transferred production to the Central Coast where Vales Point has been adapted to use seawater for the cooling of auxiliary plant, thus reducing by one third dependence on local fresh water supplies. Drought restrictions on the Central Coast had seen Level 4 restrictions put in place.

Delta is also committed to replacing fresh water with recycled water in industrial processes where possible. We also assisted Wyong Council in locating a temporary desalination plant which can treat salt water from Lake Macquarie, to boost community supplies of drinking quality water.

Another water conservation initiative is the Springvale Colliery/Delta Water Transfer Scheme, which won an award at the 2006 Energy and Water Green Globe awards. Springvale Colliery uses longwall mining methods and extracts water each day via boreholes. By capturing the mine water and directing it to the power station, an estimated 6,000 ML of mine water has replaced water from the Coxs River and Fish River systems in supplying the Western power stations.

Fortunately, rain in June ensured that the dam system returned to more sustainable levels. With the installation of reverse osmosis plants at both Wallerawang and Mt Piper, repeatedly recycled water can be treated in order to reduce its salinity. Delta is investigating other mine dewatering opportunities and continues to work jointly with Lithgow Council and Centennial Coal to assess the feasibility of the Clarence transfer scheme.

SafeTy in The WorkplaceDuring its 11 years of operation, Delta has developed a comprehensive Occupational Health and Safety Management System. This is regularly reviewed and audited to ensure its effectiveness. It provides a framework to ensure the organisation’s operational risks are eliminated or appropriately controlled.

Other reviews and actions have taken place in regard to the organisation’s risk assessment and consultation processes leading to positive initiatives in areas such as plant isolation protocols.

Outcomes from safety excellence programs are being used to promote a safe work culture, including ensuring staff intervene when colleagues or contractors are put at risk. Unfortunately, despite these initiatives, there were 10 lost time injuries through the year. While the trend in this area shows improvement over time, Delta is committed to increasing the pace of improvement.

We dedicate significant resources to making our workplace a safe one, taking every opportunity we can to ensure the health and well-being of our staff, contractors and site visitors.

acknoWledgeMenTS and ThankSI appreciate having the opportunity to once again acknowledge the contribution made by all staff to the ongoing productivity and efficiency of Delta, particularly when we and our systems were tested by a number of disruptive incidents during 2006/2007.

I would especially like to acknowledge the contribution of Paul Blume, our now-retired General Manager of Human Resources. Paul made Delta a safer and more enjoyable place to work in his 10 years in this role.

I also thank the members of our Board, especially Chairman Peter Young, for their prudent and strategic stewardship over the past year.

Jim Henness CHIEF ExECUTIVE

Delta has advanced a number of initiatives to ensure it remains a major contributor to the National Electricity Market while at the same time helping to meet renewable energy targets. One such initiative is a joint venture between Delta and the NSW Sugar Milling Cooperative, called Sunshine Electricity.”‘‘

6

profilevisionGenerating performance through innovation.

missionTo manage and grow the business in a safe, secure and environmentally responsible manner with reliable plant so that it generates consistent, superior dividends for the shareholder while recognising the interests of communities within which we operate.

valuesWe provide excellent customer service.We live and work safely.We deliver outstanding business success.We promote high achievement.We behave with respect and integrity.

buSineSS environMenTAustralia’s National Electricity Market was established when Australia’s electricity supply industry was reformed during the 1990s.

Previously, government authorities in the states and territories were responsible for all aspects of electricity supply in their individual jurisdictions. The reform program included disaggregating the industry and deregulating and interconnecting the electricity grids of the jurisdictions to facilitate inter-regional trade. The objectives of the reform were to improve cost and operational efficiency across the industry, to increase competition between businesses providing the same services in the electricity supply chain, and to provide choice for electricity consumers and send appropriate market signals to new investors.

Institutions involved in the governance structure of the energy market are:– the Australian Competition and Consumer Commission responsible

for competition law enforcement;– the Australian Energy Market Commission, responsible for rule

making, market review and market development;– the Australian Energy Regulator, responsible for making regulatory

decisions under the National Electricity Rules and ensuring industry compliance with the rules;

– the National Electricity Market Management Company, responsible for the operation of the wholesale market and technical operations of the overall power system;

– the Ministerial Council on Energy, responsible for energy policy making and legislation.

buSineSS profileDelta Electricity is a State owned electricity generation corporation. We produce electricity from several facilities using diverse energy sources such as coal, water and biomass materials.

Most of our electricity is generated at four coal-fired power stations in New South Wales. These are Mt Piper and Wallerawang near Lithgow and Munmorah and Vales Point on the Central Coast. Generation from the portfolio is coordinated, helping Delta lower production cost and respond to market demand and plant changes.

The capacity of Delta’s coal-fired plant is 4,320 MW, which provides some 12% of electricity for the market covering all states and territories except Western Australia and the Northern Territory.

The remainder of Delta’s electricity production is from renewable energy sources such as mini-hydro generators and co-firing biomass. Currently, this is small but is expected to grow when new projects are completed.

Delta Electricity operates under the Energy Services Corporations Act (1995) and the State Owned Corporations Act (1989). The organisation was formed on 1 March 1996 as part of the NSW Government’s restructure of the State’s electricity industry. This restructure was in response to large scale changes in generation, transmission and supply of electricity in Eastern Australia following the Federal government’s program of competition reform.

Delta Electricity’s principal functions are to: establish, maintain and operate facilities for the generation of electricity and other forms of energy; and supply electricity and other forms of energy.

Guiding Delta in carrying out these functions are the following principal objectives:

1. To be a successful business and, to this end to: (a) operate at least as efficiently as any other comparable business; (b) maximise the net worth of the State’s investment in Delta; and (c) exhibit a sense of social responsibility by having regard to the

interests of the community in which it operates.

2. To protect the environment by conducting its operations in compliance with the principles of ecologically sustainable development contained in section 6 (2) of the Protection of the Environmental Administration Act 1991.

3. To exhibit a sense of responsibility towards regional development and decentralisation in the way in which it operates.

4. To operate efficient, safe and reliable facilities for the generation of electricity.

5. To be an efficient and responsible supplier of electricity.

6. To be a successful participant in the wholesale market for electricity.

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SYDNEY

LISMORE

GRAFTON

BATHURST

LITHGOW

NEWCASTLE

WOLLONGONG

Munmorah

Condong

Glennies Creek

DungogChichester

Windamere

BroadwaterHarwood

Vales PointMt Piper

Wallerawang

Bamarang

Marulan

Coal Hydro Hydro plannedBiomass plannedGas planned

TWEED HEADS

unit total Location size units Capacity

coal

Mt Piper 700 MW 2 1,400 MW Vales Point 660 MW 2 1,320 MW Wallerawang 500 MW 2 1,000 MW Munmorah 300 MW 2 600 MW

4,320 MW

hydro

Mt Piper 350 kW 1 350 kW Chichester Dam 110 kW 1 110 kW Dungog Water Treatment Plant 110 kW 1 110 kW

570 kW

biomassBiomass operations at Wallerawang and Vales Point involve the addition of biomass materials to the coal being conveyed to the station for combustion. This activity does not change the capacity of the station. Output for 2006/2007 was 12.5 GWh.

locationsNew South Wales

SYDNEY

key performance indicators

TABLE ONE: keY PerformanCe indiCators – STATISTICAL SUMMARY

unit 06/07 05/06 04/05 03/04 02/03

financial statisticsTotal Sales Revenue $m 874.1 839.4 802.4 724.2 727.7Earnings before Interest and Tax $m 244.9 282.6 236.1 177.3 173.2Net Profit before Tax $m 201.0 234.7 180.5 111.0 102.0Net Profit after Tax $m 139.9 164.5 123.5 74.2 61.4Total Debt $m 660.3 583.0 579.7 642.8 784.3Total Equity $m 215.6 730.0 800.6 800.6 800.6Return on Assets % 7.6 13.2 12.5 9.4 8.6Return on Equity % 64.9 22.5 15.4 9.3 7.7Gearing % 75.4 44.4 42.0 44.5 49.5Interest Cover Times 5.6 5.9 4.3 2.7 2.4Debt:Equity % 306.2 79.9 72.4 80.3 98.0Current Ratio 0.4 0.5 0.7 0.8 1.3operational statisticsProduction GWh 21,952 21,948 21,740 21,308 20,354Equivalent Forced Outage Factor % 9.0 3.9 4.5 1.7 1.7Availablity % 75.5 86.5 87.0 92.9 88.8Thermal Efficiency % 35.2 35.0 35.4 35.5 35.3Coal Stockpile Levels $m 61.5 41.4 36.9 32.7 65.8employee statisticsGWh/employee 30.8 30.8 29.9 29.0 27.1Staff Numbers 713 713 728 735 751Training Days/employee Days/employee 7.1 6.0 4.7 5.8 5.9Sick Leave Days/employee Days/employee 9.4 8.0 8.3 8.0 6.1Safety Frequency Rate Frequency rate 5.6 7.0 4.1 8.8 8.7environmental statisticsLicence Breaches Number 2 1 2 1 0

Financial statistics include the impact of Australian Equivalents to International Financial Reporting Standards from 2005/2006.

8

9

productionDespite a number of challenges, Delta Electricity achieved its highest ever level of production in 11 years of operation, with 21,954 GWh sent out. This achievement was particularly noteworthy considering the impacts associated with the prolonged drought, especially in the Western Region, and the failure of a generator transformer at Vales Point. That record targets have been met despite being under pressure reflects well on the responsive, outcome-driven culture of the organisation.

Particularly noteworthy was the outstanding performance of Munmorah Power Station, the oldest power station in the Delta portfolio, which operated for more sustained periods than in many previous years. This resulted in an increase on last year’s production benchmark, with 1,932 GWh sent out. This increase was a result of shifting production to the seawater-cooled Central Coast power stations to reduce water usage by Western power stations.

Vales Point had a planned outage in order to replace the Unit 6 precipitator technology with fabric filters. Fabric filters will capture particulate emissions and virtually eliminate visible emissions from the stack. This $55 million project will see fabric filter technology fitted for Vales Point Unit 5 in late 2007 and will meet expectations that the impact of power station operations on neighbouring communities be kept to a minimum.

In keeping with this approach, a number of measures were introduced to reduce noise impacts arising from the operation of the conveyor to Vales Point. Rollers were replaced with a PVC variety and a rubber curtain was installed, which resulted in reduced noise levels. A noise monitor was also installed at Munmorah to improve monitoring.

The planned outage at Vales Point also allowed the beginning of an extensive upgrade, which will see a number of works as well as the fabric filter installation, to refurbish and upgrade generating equipment, consistent with our planned asset management strategy.

Over $340 million is scheduled to be spent on capital projects over the next three years to upgrade our existing capacity and ensure plant continues to be maintained to a high standard.

WaTer ManageMenTTowards the end of June 2007, the negative impact of the drought was beginning to lessen, but over the preceding months it affected Delta in several ways.

A Drought Impact Statement was issued in April 2007, noting that there was very little inflow to Western region storage dams on the Coxs River, and that Delta water allocations from Oberon Dam had been reduced and that this had resulted in higher levels of salinity in the available water.

Mt Piper and Wallerawang Power Stations are affected differently by salinity levels due to the differing age and capability of their water quality control systems. The more modern Mt Piper Power Station has sophisticated salinity control systems while the older Wallerawang Power Station needs adequate water supplies to manage salinity.

Delta implemented a number of strategies to optimise the use of the available water supplies and achieve the maximum production possible under continuing drought conditions. These included conserving water by transferring production to Delta’s seawater-cooled power stations, securing additional mine water supplies and installing reverse osmosis desalination plants.

The installation of reverse osmosis plants at Wallerawang and Mt Piper means repeatedly recycled water can be treated in order to reduce its salinity, lowering demand on “external” sources. Delta is also investigating other potential water sources, including harvesting mine water.

On the Central Coast, which had imposed Level 4 restrictions on fresh water use, some plant items at Vales Point have been adapted so that the cooling water and auxiliary cooling water pumps can use seawater for cooling purposes. This has reduced use of fresh water at the station by one third. A major new recycling plant at Vales Point is scheduled to be operational by early 2008. It will initially supply 230 million litres of water a year, with the capacity to expand to 500 million litres. These and other water saving measures mean overall fresh water consumption will be reduced by over two thirds of 2005 consumption at Vales Point.

environMenTal iMpacTS ManageMenTDelta is committed to complying with all statutory requirements for the range of activities related to electricity generation.

Strategies are in place for fuel and water use, air and water emissions management, environmental monitoring and areas which aim to reduce the impact of generation activities on the environment and nearby communities.

Vales Point had a planned outage in order to replace the Unit 6 precipitator technology with fabric filters. Fabric filters will capture particulate emissions and virtually eliminate visible emissions from the stack.”‘‘

operations review

10

A surveillance audit under ISO 14001 was carried out in the Western Region in 2007. This international standard outlines best practice processes to manage environmental impact. The auditor recommended that certification to ISO 14001:2004 be maintained and reported that: “It is quite clear that there has been a continual effort to communicate and reinforce environmental management within the Western Region and that it has been successful. Personnel directly and indirectly involved in day to day communication associated with the management of environmental issues and particularly those who have a primary responsibility for effective environmental management deserve commendation for their efforts and achievements”.

Delta has implemented and fully complies with the NSW Government’s Waste Reduction and Purchasing Policy. The biennial report to the Department of Environment and Conservation (NSW) was submitted in April 2007.

Delta’s commitment to continuously improving waste management practice has resulted in the development of Operation Standards and Regional Waste Management Plans. These plans detail the requirements covering the purchase of materials and waste management at all of our sites and facilities. All employees and contractors providing services to Delta are bound by the provisions of these plans.

Unfortunately, during 2006/2007 there were two reportable licence non-compliances. In February 2007, a leak from one of the acid storage tanks at Munmorah Power Station made its way, via the effluent system, to the station outfall canal. Following a detailed investigation, a number of physical and operational improvements have been carried out to prevent the recurrence of such an incident.

In April 2007, a failure in the cooling water systems at Mt Piper Power Station led to an overflow of cooling water to the environment. Although no significant environmental harm resulted, Mt Piper is a zero discharge station and such discharges are not covered by its licence. The faulty devices were repaired and a number of operational improvements have been implemented.

neW capaciTy Delta is constantly renewing its planning and operations to ensure it is well positioned to meet the challenges of delivering adequate and reliable supplies of electricity well into the future. Delta has a range of options for delivering both base load and peaking capacity. These include upgrading the capacity of Mt Piper, refurbishing Munmorah Power Station, constructing gas turbine facilities and investing in renewable energy.

Construction of the 667 MW Colongra Gas Turbine project will commence before the end of 2007 and is scheduled for completion in 2009. In addition, an open cycle gas power station at Bamarang has been approved under the NSW Environmental Planning and Assessment Act. Concept approval for a second stage of the project to convert the power station into a 400 MW base load plant was also granted.

An environmental impact assessment was undertaken for a site at Marulan, where Delta proposes the construction of a combined cycle 400 MW gas turbine facility.

Another aspect of Delta’s readiness for the future is the development, in partnership with the CSIRO, of a pilot plant at its Munmorah Power Station which will provide vital experience in carbon capture processes.

Progress on building the two 30 MW renewable energy facilities in partnership with the NSW Sugar Milling Co-operative is well advanced and the co-generation facilities at Condong and Broadwater, which will use sugar cane waste as fuel, are now expected to be operating by mid 2008.

TABLE TWO: deveLoPment ProJeCts

Project description status as at 30 June 2007

Bamarang Approximately 400 MW of combined cycle gas plant

Concept approval received

Colongra 667 MW open cycle gas turbines

Engineer, procure and construct contract with Alstom executed

Marulan Approximately 400 MW of combined cycle gas plant

Environmental assessments being finalised

Mt Piper extension Additional two units Feasibility reports completed

Munmorah upgrade Increase capacity of existing two units

Feasibility reports completed

Sugar mill co-generation joint venture at Condong and Broadwater

Two 30 MW biomass fired co-generating units

Construction well advanced

Western coal rail unloader

Rail loop and coal unloading facility at Mt Piper

Environmental assessment completed

11

reSearch and developMenTDelta continues its support for research into low emission coal technology through its membership of, and participation in, the Cooperative Research Centre (CRC) for Coal in Sustainable Development. This CRC focuses on research into reducing and capturing carbon dioxide emissions from coal-based power generation. Delta is also working in conjunction with other NSW generators, to research NSW’s carbon dioxide geo-sequestration potential.

Potential large-scale carbon dioxide geological storage sites in the Darling Basin and the coal seams of the Gunnedah region have been identified. It is proposed to complement these investigations by developing a research-scale carbon dioxide capture facility at Munmorah Power Station in 2008. It is hoped these activities will culminate in a demonstration-scale integrated carbon capture and storage project operating in 2013.

Delta also maintains a link to international research on power station strategic and operational issues through its membership of the Electric Power Research Institute. Research into maintenance practices is supported locally through Delta’s membership of the CRC for Integrated Engineering Asset Management and the Welding Technology Institute of Australia.

MarkeTingA survey was conducted based on interviews with Delta’s major customers, which rated Delta’s performance on 21 key issues considered critical to customer satisfaction. Once again, the result was excellent, with customers continuing to rate Delta’s services as highly satisfactory and Delta as the best generator on 20 of 21 key issues. This is a trend upwards on already high rates of customer satisfaction.

coMMuniTy relaTionSThe CARE Forum, Delta’s community consultative group made up of members of community organisations representing residents living near our Central Coast power stations, met four times throughout the year. A number of presentations on operational and environmental matters were made, and comment sought on issues of concern to local residents. These included requests to better address the issues of speed and debris from coal trucks, noise from a conveyor’s operation and assistance with improving the local amenity of parks and foreshores, including a request for sponsorship of seating for frail, elderly or disabled people.

A free to call 1800 number was established so that should community members living near our power stations be concerned about some aspect of operations, they can ring and hear recorded information which explains if anything unusual is happening at the power stations.

Through a program of sponsorship and donation, Delta supports a range of community organisations and activities that benefit local and

regional communities. Beneficiaries include environmental, business and community welfare groups, as well as organisers of community celebrations such as Australia Day.

Preliminary research has also been conducted with a view to establishing a community reference group in the Western Region. This could help facilitate the regular exchange of information and feedback about matters of concern between Delta senior managers and resident communities near our operations.

A number of consultations were undertaken throughout the year on development proposals, such as the rail coal unloading facility which Delta has proposed to build near Mt Piper Power Station, a gas turbine project at Bamarang and the gas pipeline to supply Colongra Gas Turbines.

Consultation is an important part of the development approval process. It ensures that community and other stakeholders can raise concerns about impacts. These can then be thoroughly researched and, when necessary, measures to minimise impacts on the environment and local communities can be incorporated into proposals.

peopleSafety remains a key focus for Delta Electricity, with new ways of motivating safer practices being developed and refined throughout the year. We now have a customised behavioural-based safety program, due to be rolled out in late 2007.

SkillS for The fuTureDelta continues to address the labour market skills shortage through staff development and merit-based recruitment. In line with Equal Employment Opportunity (EEO) some positions are tailored towards groups within society identified as disadvantaged.

Each year, along with other industries in the two regions where Delta operates, we sponsor a number of apprentice opportunities through training groups. This ensures that the training and cost of wages for 20 apprentices across both the Western Region and the Central Coast are paid, and that industrial experience opportunities are provided in subsequent years of training for five positions in each region. Industrial experience for the other five first year apprentices is organised by the training group. One such apprentice, who completed his electrical apprenticeship at the end of 2006 and took up a position with Delta as an electrical tradesman, won the Central Coast Apprentice of the Year Award, while another mechanical fitter apprentice was also nominated for an award.

Consultation is an important part of the development approval process. It ensures that community and other stakeholders can raise concerns about impacts. These can then be thoroughly researched and, when necessary, measures to minimise impacts on the environment and local communities can be incorporated into proposals.” ‘‘

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Delta provides work experience opportunities for graduates and undergraduates of several universities. Placements of 12 weeks to six months are a required part of undergraduate education, and in 2006/2007, a total of 14 students of electrical and mechanical engineering, environmental science and computer systems were provided with hands-on experience of work in the power industry.

Delta is also a member of the Australian Power Institute (API), which has been established by the electricity industry to boost the quality and number of power engineering graduates with the skills and motivation for a career in the energy industry. The API offers a bursary program for students undertaking electrical or mechanical engineering studies and aims to provide bursary holders paid vacation employment in the power industry to strengthen their interest in a career in the industry.

healTh and SafeTyDelta Electricity’s behavioural-based safety process was used extensively during the year by both Delta employees and on-site contractors. This led to 4,349 safety observations being carried out and barriers to safe practice removed.

A high percentage of Delta staff have been trained as safety observers and we have set a target to train 100% of staff in 2007/2008. Contractors who are based on power station sites have also received training.

Consultation is a key component of health and safety at Delta. Each of the business units has an elected OHS Committee. They meet regularly and recommendations are discussed with staff. Management committees have also been set up to develop and implement safer work practices and better systems.

The OHS management systems are regularly reviewed and audited to ensure effectiveness and that Delta’s operational risks are eliminated or appropriately controlled.

Two pilot Safety Excellence Programs were conducted, one in each region. The Safety Excellence approach included surveying staff in the organisation and collating the information in a way that brings better understanding of our safety culture and leadership. Delta is using survey outcomes to promote a culture that does not accept any unsafe work practices and encourages staff to intervene when colleagues or contractors are at risk.

During the year, Delta completed major maintenance shutdown work at all four of its power stations. Safety aspects of the shutdowns were very successful. In October 2006, we celebrated 500 days without a lost time injury at Mt Piper, clear evidence that cultivating a safety conscious culture means people go home safe and sound at the end of the day. Despite this local achievement, by year’s end Delta had a total of 10 lost time injuries. It is anticipated that the new Safety Excellence Program will help build on the achievements of our observational safety initiatives and further improvements will be forthcoming.

riSk ManageMenTDelta’s risk assessment and consultation process was refined and enhanced during 2006/2007. Task-based risk assessments were again a focus of the organisational business plan. All staff have received training in risk management, as staff engagement is crucial in minimising risk.

A benchmark review, of the isolation systems in use by other organisations was undertaken by Delta to determine best practice. As a result, actions were undertaken to improve the overall system of isolating apparatus in plants. Delta also benchmarked itself against the safety systems of the John Holland Construction Group, with a number of employees selected to participate in its training programs.

eMployee healTh prograMSInfluenza vaccinations were again offered free of charge to all staff this year and Delta continued its financial support for staff participating in aerobic activities.

A free employee assistance program, providing employees and their families with professional and confidential counselling, operated as part of Delta’s commitment to employee well-being.

induSTry acTiviTyDelta continues to be represented on a number of committees and working parties, including regulatory, national and local forums. Involvement in these forums gives Delta the opportunity to influence legislative direction and maintain an understanding of contemporary safety practices and developments.

equal eMployMenT opporTuniTy achieveMenTSDelta is committed to providing all employees with a safe work environment and ensuring they have access to ongoing professional development. We are also committed to ensuring the entire Delta team receive training opportunities and fair systems of pay, and are rewarded, recognised and valued for their contribution.

Delta fully supports the principles of Equal Employment Opportunity and the targets set by the NSW Government. The electricity generation industry is faced, however, with particular challenges in meeting these targets, such as the relatively low rates of staff turnover. Table three details the representation of EEO groups in Delta and compares these outcomes to the NSW Government’s targets. Given the particular issues highlighted previously, Delta is aware of the need to address current representation levels and we have implemented a range of initiatives.

For example, whilst only 7% of Delta employees are women, 23% of new employees in 2006/2007 are women. In addition, two female applicants were successful in obtaining an apprenticeship opportunity.

Under Delta’s Workforce Diversity Plan, one female employee is sponsored each year to attend a personal and professional development program.

Delta is committed to improving employment and community outcomes for the Indigenous community, and for a number of years has dedicated two additional apprenticeship positions to people

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‘‘Delta continues to be represented on a number of committees and working parties, including regulatory, national and local forums. Involvement in these forums gives Delta the opportunity to influence legislative direction and maintain an understanding of contemporary safety practices and developments.”

from an Indigenous background. This year, Delta was successful in recruiting three Indigenous apprentices, bringing the total number of apprentices of Aboriginal or Torres Strait Islander background to four.

During the year, Delta also supported the Indigenous community with a $5,000 sponsorship of a NAIDOC event and the donation of four computers to the Eleanor Duncan Aboriginal Health Centre.

Delta is committed to ensuring that equal opportunities exist for people with disabilities. Delta’s Disability Plan addresses three key result areas: employment, access, and communication/reporting.

An exhaustive external review of our buildings and facilities was conducted to ensure safe access for persons with a disability. Resulting actions have been implemented on a priority basis.

Delta also conducted training to ensure that selection committee members are aware of their anti-discrimination legislation obligations. A computer-based training module, mandatory for all employees to complete, was developed to highlight how to recognise and address important issues of anti-discrimination and diversity.

Whilst Delta has limited Ethnic Affairs Priority Statement responsibilities, we recognise the importance and benefits to our organisation and the community in general of cultural diversity. Delta’s Ethnic Affairs Priority Statement includes objectives and targets relating to social justice, community harmony and cultural opportunities. Delta achieved the outcomes outlined in our Ethnic Affairs Priority Statement during the past year.

major planned outcomes scheduled for 2007/2008Delta’s proposed Ethnic Affairs Priority Statement forward plan includes programs to ensure merit-based recruitment practices continue and that work arrangements are sensitive to, and accommodate, cultural and religious differences. Delta will continue to welcome female applicants and provide additional apprenticeship opportunities for Indigenous applicants, and will explore new initiatives to ensure the employment of a workforce which reflects the cultural diversity of the Australian community.

TABLE THREE: trends in tHe rePresentation of eeo grouPs1 % of total staff2

Whole of government Benchmark eeo grouP or target 2007 2006 2005 2004 2003 2002

Women 50% 8% 7% 7% 7% 7% 8%Aboriginal people or Torres Strait Islanders 2% 0.6% 0.6% 0.6% 0.4% 0.7% 1%People whose first language was not English 20% 5% 5% 5% 5% 6% 5%People with a disability 12% 8% 8% 7% 6% 9% 9%People with a disability requiring a work-related adjustment 7% 3.4% 3.4% 3.3% 2.7% 4.1% 3.8%

TABLE FOUR: trends in tHe distriBution of eeo grouPs1 Distribution Index3,4

Whole of government Benchmark eeo grouP or target 2007 2006 2005 2004 2003 2002

Women 100 93 98 98 99 98 96Aboriginal people or Torres Strait Islanders 100 n/a n/a n/a n/a n/a n/aPeople whose first language was not English 100 109 113 112 112 110 114People with a disability 100 101 102 100 100 99 102People with a disability requiring a work-related adjustment 100 93 95 93 n/a 94 96

explanatory notes1. Staff numbers are at 30 June 2007.2. Excludes casual staff.3. A Distribution Index of 100 indicates that the centre of the distribution of the EEO groups across salary levels is equivalent to that of other staff. Values less than

100 mean that the EEO group tends to be more concentrated at lower salary levels than is the case for other staff. The more pronounced the tendency is, the lower the index will be. In some cases the index may be more than 100, indicating that the EEO group is less concentrated at lower salary levels. The Distribution Index is automatically calculated by the software provided by the Office of the Director of Equal Opportunity in Public Employment.

4. The Distribution Index is not calculated where EEO group or non-EEO group numbers are less than 20.

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The STrucTure and coMpoSiTion of The boardAppointment of Directors to the Board is governed by the State Owned Corporations Act and the Constitution. The Board of Delta Electricity is composed by the following method:– the Chief Executive Officer– one Director appointed by the Voting Shareholders on the recommendation of a selection committee comprising:(a) two persons nominated by the Portfolio Minister; and(b) two persons nominated by the Labor Council of NSW, being

persons selected by the committee from a panel of three persons nominated by the Labor Council;

– and at least two and not more than five other Directors appointed by the Voting Shareholders, at their discretion.

The Directors in office at 30 June 2007 are:mr Peter Young, Chairman and Director BSc, MBAMr Young was appointed on 1 June 2004 and subsequently reappointed for period ending 31 May 2010.

MeeTingS of The boardThe Board of Delta Electricity meets monthly, or as required, and follows meeting guidelines set down to ensure all Directors are made aware of, and have available to them, all necessary information to participate in an informed discussion of all agenda items. Meetings are held either in the corporate office or at one of the power stations, allowing the Board to see the operation of the business. The attendance of Directors at these meetings is shown below. Committees of the Board meet quarterly or as required.

TABLE FIVE: direCtors’ meetings

Board environment, Board remuneration Board audit and occupational Health Board meetings & staff Committee finance Committee & safety Committee

a B a B a B a B

Mr P Young 11 11 4 4 Mr J Henness 11 11 4 4Mr W Phillips 11 8 2 2* 5 5 Ms S Moait 11 6* 4 2* 4 3*Mr M Knight 11 10 5 5 Mr P Forward 11 11 5 5

* Unfortunately, a serious illness prevented Ms S Moait from attending five consecutive Board meetings. Ms Moait is the Convenor of the Board Environment, Occupational Health Safety Committee and a member of the Board Remuneration Staff Committee. During Ms Moait’s absence, the full Board met twice as the Environment, Occupational Health Safety Committee and Mr W Phillips substituted for Ms Moait and attended two meetings of the Board Remuneration Staff Committee.

Column A is the number of meetings held.Column B is the number of those meetings attended.

governance

mr Warren Phillips, Director FCPA, FCIS, AIMM, MAICD, Dip Comm Mr Phillips was first appointed on 1 March 2000 and subsequently reappointed for period ending 31 August 2008.

ms sandra moait, Director Ms Moait was first appointed 18 September 2002 and subsequently reappointed for period ending 31 August 2008.

mr michael knight, DirectorMr Knight was appointed on 20 March 2006 for a period ending 19 September 2008.

mr Paul forward, Director BCom, MCom, MScMr Forward was appointed on 20 March 2006 for a period ending 19 September 2009.

mr Jim Henness, Chief Executive Officer and Director BSc, BE (Hons), MEngSc, MBA, FAICDMr Henness was appointed Chief Executive from 1 March 1996.

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Board of DirectorsPictured from left to right: Mr Peter Young (Chairman), Mr Jim Henness (Chief Executive), Mr Warren Phillips, Ms Sandra Moait, Hon Michael Knight, Mr Paul Forward, Mr Ray Madden (Corporate Secretary)

Board CommitteesThe three Board Committees in place at the end of the year are the:Board Audit and Finance Committee;Board Environment, Occupational Health & Safety Committee; andBoard Remuneration & Staff Committee.

The Terms of Reference for each Board Committee were reviewed and approved by the Board in June 2007. The Board Committees and their functions are listed below.

Board Audit and Finance CommitteeThe purpose of the Committee is to provide a forum for communications between the Board, senior management and both the internal and external auditors. It also ensures the integrity of the internal audit function and that management practices and systems support the effective operation of Delta’s risk management strategies, business continuity and fraud control plan. The Committee further reviews the adequacy of Delta’s short and long-term finance and risk management strategies.

MembershipWarren Phillips (Convenor), Michael Knight and Paul Forward.

Board Remuneration Staff CommitteeThe primary objectives of the Committee are to:– provide advice to the Board on remuneration and associated issues;– enhance the independence and objectivity of Board decisions on

sensitive commercial and personal issues related to the Executive Managers of the Corporation;

– enable corporate and business strategies and plans, and remuneration strategy and policy, to be effectively linked; and

– review processes and controls relating to Delta’s remuneration strategy, policy and practices in relation to legal and taxation requirements, corporate reporting obligations and overall corporate policy and direction.

MembershipPeter Young (Convenor), Sandra Moait.

Board Environment, Occupational Health & Safety CommitteeThe primary objectives of the Committee are to assist the Board in discharging its responsibilities relating to compliance with environmental and occupational health and safety policies and legislation.

MembershipSandra Moait (Convenor), Jim Henness.

Managing riSkSDelta Electricity’s Risk Management Plan was updated in March 2007 and conforms to the Australian Standard AS/NZS 4360:2004 Risk Management. The plan is structured to provide Delta Electricity and its employees with policy direction and a framework for identification, assessment and reporting of risk. Delta Electricity promotes a proactive risk management culture with its employees to identify and report potential risks as well as working in a risk aware environment.

Delta Electricity’s corporate risk management software supports a hierarchical framework which allows employees to identify, register and/or escalate risks to higher levels in the organisation for review, comment and action. The framework has been designed to allow elevation of risk information from plant owners through to Executive members and to the Board. Key risks (operational and strategic) are reviewed and reported monthly at business unit level and monitored quarterly by Delta Electricity’s Board.

In addition to risks being identified and monitored on an ongoing basis, strategies are formulated through the following:– annual planning conference and development of the annual

Strategic Plan;– annual planning process which forecasts a 10-year horizon; and– annual asset management reviews.

Delta Electricity has also developed a “Corporate Governance and Legal Compliance Plan” to ensure full compliance with obligations imposed on the organisation and its officers under legislation in the following areas:– corporate governance;– trade practices;– environmental law;– occupational health and safety; and– equal employment opportunity.

Internal procedures and controls over all commercial transactions are subject to regular review by internal and external auditing procedures. Both audit functions provide Delta Electricity with a basis for assessing and updating controls that govern commercial risk exposures.

As part of Delta Electricity’s annual insurance renewal program, reviews and valuations of risk exposures are undertaken. Presentations are made to insurance providers that assess risk exposures, risk management practices and Delta Electricity’s progress in implementing the recommendations of loss prevention surveys routinely conducted at power station sites. Delta Electricity is cooperatively engaged with its insurance providers to reduce risk exposures for key operating plant and equipment.

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governance

Executive committees oversee the implementation of Board approved strategic and operational decisions and the day to day operation of the business. Table six lists those committees and their membership.

TABLE SIx: eXeCutive Committees

name title a B C d e f g H i

Mr J Henness Chief Executive x x x x x x x x xMr T Baker General Manager/Marketing x x x x xMr P Blume/Mr J Bund General Manager/Human Resources x x x xMr G Everett General Manager/Strategy x x x x x x xMr D Hogg General Manager/Planning and Information Technology x x x xMr C Horner General Manager/Delta Maintenance x x x x xMr R Madden Corporate Secretary x x xMr S Saladine General Manager/Production x x x x x x x x xMr G Sharrock General Manager/Central Coast Operations x x x x x x x xMr R Street Chief Financial Officer x x x x x x xMr R Ward General Manager/Development x x x xMr J Della Bosca Occupational Health and Safety Manager x Mr G Deans Manager Environment xD Krallis Deloittee Touche Tohmatsu x

(A) Executive Management Committee (D) Executive Occupational Health & Safety Committee (G) Market Strategy Steering Committee(B) Executive Environment Committee (E) Executive Information Technology Strategy Committee (H) Development Projects Steering Committee(C) Executive Audit Committee (F) Executive Human Resources Committee (I) Executive Project Evaluation Committee

Delta has developed a comprehensive suite of policies and procedures for the management of those risks associated with the National Electricity Market and electricity contracting. Electricity Markets Risk Management (EMRM) Policies and Procedures are reviewed on a continuous basis to ensure that they effectively manage the risks associated with our operations.

execuTive ManageMenT TeaMJim Henness BSc, BE (Hons), MEngSc, MBA, FAICDChief Executive

tim Baker BSc, BEng (Hons), MBA, GAICDGeneral Manager/Marketing

Paul Blume BEc, Dip Labour Relations Law, Grad Cert Marketing, GAICDGeneral Manager/Human Resources (see note below)

John Bund BEc (Hons)General Manager/Human Resources (see note below)

greg everett BComm, MBA, GAICDGeneral Manager/Strategy

david Hogg BE, GAICDGeneral Manager/Planning and Information Technology

Chris Horner BEng, Marine Engineers CertificateGeneral Manager/Delta Maintenance

ray madden BA (Hons), MBus, Grad. Dip. AppCorpGov, ACISCorporate Secretary

stephen saladine BE (Hons)General Manager/Production

glenn sharrock BSc, GCofM, GAICDGeneral Manager/Central Coast Operations

richard street BEc, CA, MBA, GAICDChief Financial Officer

rodney Ward BEng (Hons), MBA, FAICD, ASA, CPAGeneral Manager/Development

Note: During the year Paul Blume advised that he would commence leave in June 2007 prior to retiring from Delta Electricity in September 2007. John Bund commenced work as Mr Blume’s replacement on 21 May 2007.

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Delta has developed a comprehensive suite of policies and procedures for the management of those risks associated with the National Electricity Market and electricity contracting.”‘‘

Performance and numbers of executive officersThe performance payments listed in table seven were made soon after the end of the 2006/2007 financial year. They were accrued into that year’s accounts.

The 2006/2007 performance payments were made up of the following components:

(a) A Balanced Scorecard Payment based on one or more of the following: – the result for a Delta overall Balanced Scorecard; and – the result for Business Unit Balanced Scorecard.

(b) An individual Performance Payment based on: – individual performance (see criteria in table); and – individual management and leadership performance.

TABLE SEVEN: eXeCutive remuneration

name and time in Position

Position held as at 30 June 2007

fixed remuneration 2006/2007

total Performance related Payment 2006/2007 individual Performance Criteria

Jim Henness All of year

Chief Executive $447,720 $60,711 Assessment of performance by the Board against corporate performance indicators, including Delta’s profit and plant performance and maintenance of effective external relationships.

Tim Baker All of year

General Manager/Marketing

$271,100 $47,497 Implementation of strategic marketing initiatives and as-sessment against other performance agreement targets.

Stephen Saladine All of year

General Manager/ Production

$268,000 $40,120 Business unit financial management and plant performance and assessment against other performance agreement targets.

Greg Everett All of year

General Manager/ Strategy

$262,900 $44,640 Contracted coal purchases and assessment against other performance agreement targets.

Richard Street All of year

Chief Financial Officer $248,900 $41,367 Management of financial projects and of the financial and management accounting function and assessment against other performance agreement targets.

Rodney Ward All of year

General Manager/ Business Development

$242,900 $39,933 Implementation and management of development projects and assessment against other performance agreement targets.

number of executive officers total Women

Number of executive officers with remuneration equal to or exceeding equivalent of SES Level 1 as at 30 June 2007 33 0Number of executive officers with remuneration equal to or exceeding equivalent of SES Level 1 as at 30 June 2006 28 0

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annual reporTing coMplianceDelta is required to report on a range of matters which are covered by various Acts, including the Annual Reports (Statutory Bodies) Act, Regulations and Treasury and Premier’s memoranda. The following information is provided in accordance with these requirements.

TABLE EIGHT: eXPenditure on ConsuLtants

Consultants equal to or more than $30,000 $EnvironmentMalfroy Environmental Strategies Advice on air quality and emissions 31,212.51 Parsons Brinckerhoff Provision of specialist environmental services 35,860.00 GHD Australia Pty Ltd Provision of specialist environmental services 124,368.30 URS Australia Pty Ltd Provision of specialist environmental services 341,209.30 532,650.11

Finance and AccountingDeloitte Touche Tohmatsu Financial and accounting/tax 39,189.00

Management ServicesParsons Brinckerhoff Colongra gas turbine study* 33,030.00 Marston International Pty Ltd Coal deposit study 211,388.18 Frog Tech Pty Ltd Darling Basin reservoir prediction study 88,400.00 Sinclair Knight Merz Advice on rail transport issues 30,326.17 Sinclair Knight Merz Mt Piper expansion feasibility study 338,856.44 Burns Roe Worley Pty Ltd Feasibility study for Munmorah, Wallerawang and Vales Point capacity upgrade 1,428,464.20 Evans & Peck Delta Maintenance Contracting model 128,470.45 WorleyParsons TMG Definitive design works for Western rail coal unloader 1,098,197.12 AME Consulting Pty Ltd Aluminium industry study 110,000.00 3,467,132.56 Total consultants equal to or more than $30,000 4,038,971.67

Consultants less than $30,000 Environment 56,621.00 Management services 26,270.00 Total consultants less than $30,000 82,891.00 Total consultancies 4,121,862.67

* Note: Expenditure of $33,030 in relation to Colongra Gas Turbine project has been capitalised.

governance

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Cost of annual reportThe cost of producing this Annual Report was $42,070.

exemption from the reporting ProvisionsApproval was given by the New South Wales Treasury under delegation from the then Treasurer, the Hon Michael Egan, MLC to exempt Delta Electricity for the year ended 30 June 1997 and subsequent financial years from reporting on the following areas:

– Budgets– Research and Development– Land Disposal– Payment of Accounts– Time for Payment of Accounts– Investment Management Performance– Liability Management Performance.

Exemptions for the following annual reporting requirements were approved subject to the condition that comments and information relating to these items are disclosed in summarised form:

– Summary Review of Operations– Management and Activities– Consumer Response– Report on Risk Management and Insurance Activities.

Other exemptions were approved subject to specific conditions:

Human ResourcesOverseas visits, with main purposes highlighted, are required to be disclosed.

ConsultantsTotal amount spent on consultants is to be disclosed along with a summary of the main purposes of the engagements.

disclosure of Controlled entitiesNames of the controlled entities are to be disclosed along with a summarised disclosure of the controlled entities’ objectives, operations and activities and measures of performance.

Financial Statements of Controlled EntitiesExempt from preparing manufacturing and trading statements but required to prepare a summarised operating statement.

overseas visitsDuring the year the following officers went overseas:

name date of travel Purpose of travel

Greg Everett 27/10/2006 to 06/11/2006 London/Paris – Coal Industry Advisory BoardMichael Gill 18/12/2006 to 22/12/2006 Seoul – Visited fabric filter manufacturerShane Lee 26/05/2007 to 02/06/2007 Tokyo – Attended generator engineering courseTim Baker 26/06/2007 to 28/07/2007 Paris – Attended a management courseJim Henness 11/06/2007 to 15/06/2007 Tokyo – Business delegation with Minister Ian Macdonald

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freedom of informationDuring 2006/2007 two applications were received. Four were received in the previous year. Delta Electricity’s compliance with the Freedom of Information Act did not raise any major issues during the reporting period, nor did compliance with the Act have any prominent impact on Delta activities.

Heritage assetsDelta’s heritage portfolio is registered with the Heritage Office and consists of:Barton Park CemeteryCoxs River Convict StockadeHospital Farm barnHospital CottageMary Slaven’s graveThompsons Creek Sites and gravesWallerawang A and B Power Station chimney stackWallerawang Schoolhouse

We are committed to complying with the State Owned Heritage Management Principles and Guidelines and the Heritage Act 1977 and continue to work with the Heritage Office as part of our annual asset management review process. The aim of this process is to ensure that our heritage portfolio is integrated into Delta’s business management system and that all sites are effectively managed into the future.

PromotionThe following publications are available.

Information for the public:1996 Annual Report Central Coast Operations1997 Annual Report Discovery of Electricity1998 Annual Report Electricity Generation1999 Annual Report Electricity in New South Wales2000 Annual Report Energy Expo2001 Annual Report Power from Coal2002 Annual Report Selenium Facts2003 Annual Report The History of Delta Electricity2004 Annual Report Western Operations2005 Annual Report Sunshine Electricity – Cogeneration Project2006 Annual Report1996-1999 Environment Report2000 Environment Review2001 Environment Report

Information for Delta Electricity staff:Code of ConductDeltanet staff newsletterDeltaweb staff intranetEmployee Assistance ServicesFamily Care Link

governance

financial report

21

Contents

Delta electricity

Balance Sheet 22

Income Statement 23

Statement of Changes in Equity 24

Cash Flow Statement 25

Notes to and forming part of the Financial Report 26

Statement by Members of the Board 54

Independent Auditor’s Report 55

Delta electricity Australia Pty. Ltd

Balance Sheet 57

Income Statement 58

Statement of Changes in Equity 59

Cash Flow Statement 60

Notes to and forming part of the Financial Report 61

Statement by Members of the Board 71

Independent Auditor’s Report 72

22

Delta electricity

Balance SheetAs at 30 June 2007

Consolidated Parent entity

Note2007

$’0002006

$’0002007

$’0002006$’000

Current Assets

Cash and Cash Equivalents 6 1,311 29,504 1,298 29,166

Trade and Other Receivables 7(a) 484,913 99,559 484,456 98,956

Tax Assets 1,035 – 1,035 –

Inventories 8 97,286 75,984 97,286 75,984

Other Financial Assets 9(a) 21,237 2,272 21,237 2,272

Other 10(a) 6,798 5,112 6,798 5,112

total Current Assets 612,580 212,431 612,110 211,490

Non-Current Assets

Receivables 7(b) 1,137 1,141 18,720 8,501

Other Financial Assets 9(b) 5,182 2,031 1,843 1,112

Property, Plant and Equipment 11 2,219,740 1,880,245 2,134,428 1,834,413

Intangible Assets 12 7,534 7,700 7,534 7,700

Deferred Tax Assets 5(b) 345,970 40,663 345,227 39,789

Other 10(b) 29,434 4,202 29,434 4,202

total non-Current Assets 2,608,997 1,935,982 2,537,186 1,895,717

total Assets 3,221,577 2,148,413 3,149,296 2,107,207

Current Liabilities

Trade and Other Payables 13 510,128 110,610 506,323 106,689

Borrowings 14(a) 20,460 75,882 20,460 75,882

Income Tax Payable – 18,435 – 18,435

Provisions 15(a) 158,672 176,875 158,672 176,875

Other Financial Liabilities 16(a) 771,347 51,611 771,347 51,611

Other 17 110 465 110 465

total Current Liabilities 1,460,717 433,878 1,456,912 429,957

Non-Current Liabilities

Borrowings 14(b) 639,814 507,081 571,136 467,363

Deferred Tax Liabilities 5(b) 547,964 441,141 546,962 440,865

Provisions 15(b) 14,242 22,070 14,242 22,070

Other Financial Liabilities 16(b) 343,204 14,279 343,204 14,279

total non-Current Liabilities 1,545,224 984,571 1,475,544 944,577

total Liabilities 3,005,941 1,418,449 2,932,456 1,374,534

net Assets 215,636 729,964 216,840 732,673

Equity

Contributed Equity 18(a) 175,376 175,376 175,376 175,376

Reserves 18(b) (44,958) 495,848 (46,917) 495,420

Retained Profits 18(c) 85,218 58,740 88,381 61,877

total equity 215,636 729,964 216,840 732,673

The accompanying Notes form an integral part of these Financial Statements.

BEGINNING OF AUDITED FINANCIAL STATEMENTS

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Delta electricity

Income StatementFor Year Ended 30 June 2007

Consolidated Parent entity

Note2007

$’0002006

$’0002007

$’0002006$’000

Revenue 3 881,992 847,444 881,971 847,430

Expenses, excluding finance costs 4 (674,622) (605,656) (674,329) (605,560)

Finance Costs (43,916) (47,820) (43,916) (47,820)

Profit Before Income tax expense, superannuation Gains and Financial Instrument Fair Value Movements 163,454 193,968 163,726 194,050

Income Tax Expense on Profit Before Superannuation Gains and Financial Instrument Fair Value Movements 5 (49,835) (58,023) (49,917) (58,048)

Profit Before superannuation Gains and Financial Instrument Fair Value Movements 113,619 135,945 113,809 136,002

Superannuation Gains 20(b) 24,197 40,035 24,197 40,035

Financial Instrument Fair Value Movements 13,337 745 13,103 (188)

Income Tax Expense on Superannuation Gains and Financial Instrument Fair Value Movements 5 (11,260) (12,234) (11,190) (11,954)

Profit for the Year 139,893 164,491 139,919 163,895

The accompanying Notes form an integral part of these Financial Statements.

24

Delta electricity

Statement of Changes in EquityFor Year Ended 30 June 2007

Consolidated Parent entity

Note2007

$’0002006

$’0002007

$’0002006$’000

total equity at Beginning of Financial Year 729,964 604,242 732,673 608,544

Adjustments on Adoption of AASB 132 and AASB 139, net of tax, to:

Retained Profits – 983 – 1,419

Reserves – (23,064) – (22,133)

Adjustments on Adoption of UIG 1052 to:

Retained Profits – – – (1,005)

Restated total equity at Beginning of Financial Year 729,964 582,161 732,673 586,825

Revaluation of Property, Plant and Equipment, net of tax 192,500 136,500 192,500 136,500

Changes in Fair Value of Cash Flow Hedges, net of tax (733,102) (21,550) (734,633) (22,909)

net Income Recognised Directly in equity (540,602) 114,950 (542,133) 113,591

Profit for Financial Year 139,893 164,491 139,919 163,895

total Recognised Income and expense for Financial Year (400,709) 279,441 (402,214) 277,486

Transactions with Equity Holders in Their Capacity as Equity Holders

Dividends Provided for or Paid (113,619) (131,638) (113,619) (131,638)

total equity at end of Financial Year 18 215,636 729,964 216,840 732,673

The accompanying Notes form an integral part of these Financial Statements.

25

Delta electricity

Cash Flow StatementFor Year Ended 30 June 2007

Consolidated Parent entity

Note

2007$’000

Inflows(outflows)

2006$’000

Inflows(Outflows)

2007$’000

Inflows(outflows)

2006$’000

Inflows(Outflows)

Cash Flows From Operating Activities

Cash Received from Customers 1,000,000 956,051 996,172 952,405

Interest Received 1,053 2,782 1,032 2,769

Cash Payments to Suppliers and Employees (725,464) (662,757) (721,577) (658,854)

Interest and Other Finance Costs Paid (47,209) (49,849) (47,209) (49,849)

Income Taxes Paid (47,363) (43,680) (47,363) (43,680)

net Cash Provided/(Used) by operating Activities 25(f) 181,017 202,547 181,055 202,791

Cash Flows from Investing Activities

Proceeds from Sale of Property, Plant and Equipment 1,172 1,198 1,172 1,198

Payments for Property, Plant and Equipment (155,236) (94,800) (115,554) (57,693)

Payments for Intangibles (2,864) (3,020) (2,864) (3,020)

Advances to Subsidiary – – (10,436) (1,422)

net Cash Provided/(Used) by Investing Activities (156,928) (96,622) (127,682) (60,937)

Cash Flows from Financing Activities

Proceeds from Borrowings 660,716 130,124 631,757 94,238

Repayment of Borrowings (582,078) (125,500) (582,078) (125,500)

Dividends Paid (131,638) (123,488) (131,638) (123,488)

net Cash Provided/(Used) by Financing Activities (53,000) (118,864) (81,959) (154,750)

Net Increase/(Decrease) in Cash and Cash Equivalents (28,911) (12,939) (28,586) (12,896)

Cash and Cash Equivalents at Beginning of Financial Year 29,227 42,166 28,889 41,785

Cash and Cash equivalents at end of the Year 25(b) 316 29,227 303 28,889

The accompanying Notes form an integral part of these Financial Statements.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

26

1. COrpOrATE INFOrmATIONDelta Electricity is a statutory state owned corporation domiciled in New South Wales. The entity’s Australian Business Number is 67 139 819 642.

The financial report of Delta Electricity for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the Directors on 20 September 2007.

2. SummAry OF SIgNIFICANT ACCOuNTINg pOLICIESThe financial report is a general purpose financial report prepared in accordance with Australian Accounting Standards including Australian Accounting Interpretations, the New South Wales Public Finance and Audit Act and Regulation, and requirements of the State Owned Corporations Act, 1989 (as amended).

(a) Statement of ComplianceThe financial report of the consolidated entity and Delta Electricity complies with Australian Accounting Standards, which include Australian Equivalents to International Financial Reporting Standards (AIFRS). The financial report also complies with International Financial Reporting Standards (IFRS).

(b) Basis of AccountingThe financial report has been prepared in accordance with the principles of accrual accounting and the historical cost convention, and except where stated do not take into account current valuations. Cost is based on the fair values of the consideration given in exchange for assets.

In the application of Australian Accounting Standards management is required to make judgements, estimates and assumptions that affect the carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Significant estimates and assumptions apply to the following items:

• DefinedBenefitSuperannuationSchemes Various actuarial assumptions are required when determining

the value of defined benefit superannuation schemes. Refer to Note 10 and Note 20(b).

• Property,PlantandEquipment Estimates and assumptions are required when determining

asset life and calculating the recoverable amount for impairment testing. Calculation of recoverable amount requires estimation of future sales volume and price, estimation of cash flows associated with power station operation and maintenance, and determination of an appropriate discount factor. Refer to Note 2(j), Note 2(l) and Note 11.

• ProvisionforEmployeeBenefits Estimates and assumptions are required for projected

remuneration rates, discount rates and timing of entitlement use when determining the provision for employee benefits. Refer to Note 2(n) and Note 15.

• ProvisionforInsurance Various actuarial assumptions are required when determining

the entity’s insurance provision. These assumptions are determined by specialist service providers. Refer to Note 2(p) and Note 15.

Australian Accounting Standards that have recently been issued or amended but are not yet effective have not been adopted for the reporting period ended 30 June 2007. A summary of relevant standards follows:

• AASB7FinancialInstruments:DisclosuresandAASB2005-10AmendmentstoAustralianAccountingStandards[AASB132,AASB101,AASB114,AASB117,AASB133,AASB139,AASB1,AASB4,AASB1023andAASB1038]

These standards apply to reporting periods beginning on or after 1 January 2007 and will affect disclosures in relation to financial instruments.

• AASB101PresentationofFinancialStatements This standard applies to reporting periods beginning on or after

1 January 2007 and amends disclosure requirements related to financial statements.

• AASB2007-4AmendmentstoAustralianAccountingStandardsarisingfromED151andOtherAmendments

This standard applies to reporting periods beginning on or after 1 July 2007 and amends disclosure requirements of the entity.

• AASB123BorrowingCosts This standard applies to reporting periods beginning on

or after 1 January 2009 and is not expected to have any impact on the entity.

(c) Changes in Accounting policiesUnless otherwise stated, the accounting policies adopted are consistent with those of the comparative year.

(d) Basis of ConsolidationThe consolidated financial report incorporates the assets and liabilities of all entities controlled by Delta Electricity (parent entity) as at 30 June 2007 and the results of all controlled entities for the year then ended. Delta Electricity and its controlled entities together are referred to as the consolidated entity. The effect of transactions between entities in the consolidated entity are eliminated in full.

Delta Electricity has one controlled entity, Delta Electricity Australia Pty. Ltd, which is a wholly owned subsidiary.

(e) Investments in SubsidiaryInvestments in the subsidiary are carried at cost of acquisition in Delta Electricity’s financial report.

(f) Contributed EquityDelta Electricity commenced operations on 1 March 1996. Under the terms of a Ministerial Order signed by the Honourable P.C. Scully Acting Minister for Energy and dated 1 March 1996, staff, assets, rights and liabilities were transferred from Pacific Power to Delta Electricity.

The State Owned Corporations Act, 1989 (as amended), requires Delta Electricity to have two voting shareholders. Current shareholders are the New South Wales Treasurer and the Minister for Finance who hold the shares on behalf of the NSW Government. Each shareholder holds one $1 share.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

27

2. SummAry OF SIgNIFICANT ACCOuNTINg pOLICIES (CONTINuEd)

(g) BorrowingsAll loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in the Income Statement through the amortisation process and when the liabilities are derecognised.

Fair value of interest bearing loans for disclosure purposes has been determined by Delta Electricity’s treasury service provider who uses a discounted cash flow methodology to market value the financial instruments. The discount rate used is based on the zero coupon curve derived from market rates prevailing at reporting date.

During the year, Delta Electricity actively managed its interest bearing liabilities against a benchmark in accordance with both Board approved policies and the Treasury Management Policy issued by New South Wales Treasury. New South Wales Treasury Corporation stock, interest rate and currency swaps, forward rate agreements and interest rate futures and options are available as a means of managing Delta Electricity’s interest rate exposures.

(h) Borrowing CostsBorrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in connection with arrangement of borrowings, and gains and losses incurred in the use of derivative instruments for the management of interest rate exposure related to borrowed funds.

Costs associated with borrowings specifically financing qualifying assets are capitalised up to the date of completion of each qualifying asset to the extent those costs are recoverable. Delta Electricity capitalised $521,000 in borrowing costs during the 2006/07 financial year (2006: $Nil). Delta Electricity Australia Pty. Ltd capitalised $4,397,000 in borrowing costs during 2006/07 (2006: $1,704,000).

(i) Cash and Cash EquivalentsCash and cash equivalents in the Balance Sheet comprise cash at bank and in hand along with short-term deposits and investments.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts and borrowings which are used in the cash management function on a day to day basis.

(j) property, plant and EquipmentProperty, plant and equipment is recognised at fair value less accumulated depreciation and impairment in accordance with AASB 116 Property Plant and Equipment, AASB 136 Impairment of Assets and the New South Wales Treasury Accounting Policy for the Valuation of Physical Non-Current Assets at Fair Value. Fair value of power station property, plant and equipment is determined by the depreciated replacement cost approach due to the absence of observable market prices.

Revaluations are made with sufficient regularity to ensure the carrying amount of property, plant and equipment does not differ materially from its fair value at reporting date.

Revaluation increments are generally credited directly to the asset revaluation reserve. A revaluation increment is only recognised immediately as revenue when the increment reverses a revaluation decrement, in respect of an individual asset, previously recognised as an expense in the Income Statement.

Revaluation decrements are generally recognised immediately as expenses in the Income Statement. A revaluation decrement is only recognised as a debit to the asset revaluation reserve when a credit balance for the same asset exists in the asset revaluation reserve.

Revaluation increments and decrements are offset against one another but only against the individual asset.

An item of property, plant and equipment is derecognised on disposal or when no further economic benefits are expected from its use or disposal. Upon disposal, any revaluation reserve related to the particular asset is transferred to retained profits. Any gain or loss on derecognition is included in profit or loss in the year the asset is derecognised.

The accounting policy for impairment of assets is included under Note 2(l).

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 (excluding land) over its expected useful life. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items.

The expected useful lives of property, plant and equipment is 50 years for operating power stations (2006: 50 years) and ranges from 5 to 30 years for other property, plant and equipment (2006: 5 to 30 years).

Major spares purchased specifically for particular plant are capitalised and depreciated on the same basis as the plant to which they relate.

Where material items of plant and equipment have separately identifiable components which are subject to regular replacement, those components are assigned useful lives distinct from the item of plant and equipment to which they relate.

(k) Intangible AssetsIntangible assets comprise eligible computer software. Computer software is stated at cost less accumulated amortisation and impairment and is amortised on a straight line basis over 2.5 years (2006: 2.5 years).

Amortisation is included in the Income Statement under the ‘Expenses, excluding Finance Costs’ line item.

(l) ImpairmentAt each reporting date, the entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the entity estimates the recoverable amount of the cash generating unit to which the asset belongs.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

28

2. SummAry OF SIgNIFICANT ACCOuNTINg pOLICIES (CONTINuEd)

(l) Impairment (continued)Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is based on value in use and is determined at the cash generating unit level being the Delta Electricity entity. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the assets for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of the cash generating unit is estimated to be less than its carrying amount, the carrying amount of the cash generating unit is reduced to its recoverable amount. An impairment loss is recognised in the profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease (refer Note 2(j)).

Where an impairment loss subsequently reverses, the carrying amount of the cash generating unit is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the cash generating unit in prior years. A reversal of an impairment loss is recognised in the profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase (refer Note 2(j)).

(m) Joint VenturesInterests in jointly controlled assets and operations of unincorporated joint ventures are reported in the financial report by including the entity’s share of assets employed in the joint venture, the share of liabilities incurred in relation to the joint venture, the share of any expenses incurred in relation to the joint venture in their respective classification categories, and the share of income earned from the joint venture.

(n) Employee BenefitsThe liability for wages and salaries at reporting date is recognised in current payables. The liability includes unpaid wages and salaries at reporting date and performance/business success payments related to the 2006/07 financial year. The liability is measured at the amounts expected to be paid when the liability is settled. The liability for wages and salaries is normally settled within 7 days of reporting date, while the liability for performance/business success payments is settled within two months of reporting date.

Delta Electricity makes provision through its Income Statement for its liability in respect of employee benefits for annual leave and long service leave. A calculation of the liability at reporting date is made each year for annual leave and long service leave employee benefits.

The basis of the liabilities and contributions are:

(i) For annual leave, the liability represents the amount which Delta Electricity has a present obligation to pay resulting from employees’ services provided up to reporting date. The provision has been calculated at amounts based on expected future salary rates and includes related oncosts. Liabilities in excess of 12 months are discounted.

(ii) For long service leave, the liability represents the present value of expected future payments for long service leave, including projected remuneration rates. Associated oncosts are also included.

Superannuation entitlement details are provided in Note 20(b).

(o) Cash management FundsCash management funds are stated at market values calculated by Delta Electricity’s funds manager by referencing specific market quoted prices/yields prevailing at reporting date. Refer to Note 6.

Income earned from cash management funds is included as revenue in the Income Statement.

(p) provisionsProvisions are recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Where it is expected that some or all of a provision is to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Income Statement net of any reimbursement.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, material increases in the provision due to the passage of time are recognised as a finance cost.

There is some degree of uncertainty about the timing of the future payments and/or the amounts to be paid.

(q) dividendsProvision is made for the amount of any dividend declared, determined or publicly recommended. Delta Electricity determines the level of dividend for the current financial year prior to reporting date as part of the Statement of Corporate Intent process. The Statement of Corporate Intent is a performance agreement between the Delta Electricity Board and the shareholders. The dividend provision is based on Profit Before Superannuation Gains and Financial Instrument Fair Value Movements.

(r) Inventory ValuationInventories are carried at the lower of cost and net realisable value. Cost is allocated on an average basis for stores and materials and on a weighted average cost per tonne/litre basis for coal and other fuel stocks.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

29

2. SummAry OF SIgNIFICANT ACCOuNTINg pOLICIES (CONTINuEd)

(s) TaxationIncome tax on profit or loss for the year comprises current and deferred tax. Income tax is recognised in the Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Income tax payments are made to the New South Wales Office of State Revenue under the National Tax Equivalent Regime (NTER).

Delta Electricity and its wholly resident subsidiary, Delta Electricity Australia Pty. Ltd formed a tax consolidated group on 1 July 2003 and are taxed as a single entity for the purposes of income tax.

Members of the group have entered into a tax sharing arrangement in order to limit the joint and several liability of each member of the tax consolidated group to their share of the head entity’s tax liability should the head entity default on its tax payment obligations. At the reporting date, the possibility of default of taxes is remote.

In addition, there is a tax indemnity deed between the members of the group whereby the head entity agrees to indemnify and hold the subsidiary entity harmless against all and any obligations related to income taxes.

(t) Foreign Currency TranslationTransactions denominated in a foreign currency are converted at the exchange rate at the date of the transaction. Foreign currency receivables and payables at reporting date are translated at exchange rates current at reporting date. Exchange gains and losses are brought to account in determining the profit or loss for the year.

(u) Segment reportingDelta Electricity is an electricity generation corporation that operates in a single business and geographical segment. All production facilities are located in New South Wales.

(v) revenueRevenue from the sale of electricity is recognised as it accrues. Other revenue includes rent and interest income on funds which are recognised as they accrue, and other miscellaneous income and proceeds from other operations which are recognised on performance of the service or delivery of the goods. Revenue is reported in Note 3.

(w) goods and Services TaxRevenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except:

• whentheGSTincurredonapurchaseofgoodsandservicesis not recoverable from the Australian Taxation Office (ATO), in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the item of expense as applicable; and

• receivablesandpayables,whicharestatedwiththeamount of GST included.

The net amount of GST recoverable from, or payable to the ATO is included as a current asset or liability in the Balance Sheet. Cash flows are included in the Cash Flow Statement on a gross basis.

(x) generating CostsGenerating costs represent all costs (raw materials, labour and overheads) associated with the production of electricity for sale in the National Electricity Market. Specific items requiring separate disclosure have been reported individually in Note 4.

(y) Comparative FiguresWhere necessary, comparative information has been reclassified to enhance comparability in respect of changes in presentation adopted in the current year.

(z) presentation Currency and roundingAmounts shown in the financial report are in Australian dollars, rounded to the nearest thousand dollars, except where the disclosure of whole dollar amounts is appropriate.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

30

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

3. rEVENuE

sale of electricity 874,060 839,412 874,060 839,412

other Revenue

Interest 1,073 2,779 1,052 2,765

Litigation Settlements 475 597 475 597

Proceeds from Other Operations 3,112 2,024 3,112 2,024

Royalties 1,005 1,078 1,005 1,078

Miscellaneous 2,267 1,554 2,267 1,554

Revenue 881,992 847,444 881,971 847,430

4. ExpENSES (ExCLudINg FINANCE COSTS)

Generating Costs 575,575 523,428 575,575 523,428

Depreciation

– Buildings 1 1 1 1

– Plant and Equipment 79,481 67,035 79,481 67,035

– Motor Vehicles 736 692 736 692

Amortisation of Intangible Assets

– Computer Software 3,188 1,738 3,188 1,738

Loss on Sale of Assets 129 179 129 179

Superannuation Expenses

– Defined Contribution Schemes 846 738 846 738

Provision for Employee Benefits 7,670 7,107 7,670 7,107

Write down in Value of Inventories 394 343 394 343

Operating Lease Rental Expense 833 744 833 744

Auditors’ Remuneration 185 185 174 176

Directors’ Remuneration 402 433 402 433

Consultants Fees 4,089 2,298 4,089 2,298

Other Expenses 1,093 735 811 648

Expenses (excluding Finance Costs) 674,622 605,656 674,329 605,560

Auditors’ Remuneration paid or payable in respect to the audit of the 2006/07 financial report is $176,000 (2006: $168,000).

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

31

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

5. INCOmE TAxThe major components of Income Tax for the year ended 30 June 2007 are as follows:

(a Income Tax ExpenseThe major components of income tax expense are:

Income statement

Current Income Tax

Current income tax expense 28,324 42,157 28,537 42,313

Adjustments in respect of current income tax of previous years 822 (154) 822 (154)

Deferred Income Tax

Origination and reversal of temporary differences (Note 5(b)) 31,949 28,254 31,748 27,843

Income tax expense reported in Income statement 61,095 70,257 61,107 70,002

statement of Changes in equity

Deferred income tax related to items charged or credited directly to equity:

Unrealised gain/(loss) on cash flow hedges (Note 18(b)) (314,186) (9,235) (314,842) (9,818)

Net gain on revaluation of property, plant and equipment (Note 18(b)) 82,500 58,500 82,500 58,500

Derecognition of revalued property, plant and equipment (88) – (88) –

Income tax expense reported in equity (231,774) 49,265 (232,430) 48,682

Reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the organisation’s effective income tax rate for the year ended 30 June 2007:

Accounting profit before tax 200,988 234,748 201,026 233,897

Income tax at statutory rate of 30% (2006: 30%) 60,296 70,424 60,308 70,169

Non deductible expense – entertainment 8 5 8 5

Research and development (31) (18) (31) (18)

Adjustments in respect of current income tax of previous years 822 (154) 822 (154)

Income tax expense reported in Income statement 61,095 70,257 61,107 70,002

(b) deferred Income Tax

Deferred income tax as at 30 June 2007 relates to the following:

Deferred Income tax Liabilities

Balance Sheet

Accelerated depreciation for tax purposes 239,417 195,624 239,417 195,624

Revaluations of property, plant and equipment 281,748 231,626 281,748 231,626

Inventory 18,889 13,012 18,889 13,012

Intangible assets (58) (64) (58) (64)

Derivative instruments 7,896 1,291 6,894 1,015

Other items 72 (348) 72 (348)

Gross deferred income tax liabilities 547,964 441,141 546,962 440,865

Income Statement

Accelerated depreciation for tax purposes 11,637 12,049 11,637 12,049

Inventory 5,877 1,661 5,877 1,661

Derivative instruments – fair value movement 5,987 249 5,918 157

Deferred income tax expense 23,501 13,959 23,432 13,867

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

32

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

5. INCOmE TAx (CONTINuEd)

(b) deferred Income Tax (Continued)

Deferred Income tax Assets

Balance Sheet

Employee benefits 868 868 868 868

Provisions (excluding employee benefits) 7,752 17,668 7,752 17,668

Derivative instruments 336,607 21,391 336,607 21,391

Other items 743 736 – (138)

Gross deferred income tax assets 345,970 40,663 345,227 39,789

Income Statement

Employee benefits (8) (158) (8) (158)

Provisions (excluding employee benefits) 9,916 14,363 9,916 14,363

Derivative instruments – fair value movement (1,948) (42) (1,948) (229)

Other items 488 132 356 –

Deferred income tax expense 8,448 14,295 8,316 13,976

6. CASH ANd CASH EquIVALENTS

Bank 1,025 2,504 1,012 2,166

Cash Management Funds 286 27,000 286 27,000

1,311 29,504 1,298 29,166

7. TrAdE ANd OTHEr rECEIVABLES

(a) Current

Trade Debtors 482,707 96,361 482,707 96,361

Other Debtors 836 1,998 379 1,395

Prepayments 1,370 1,200 1,370 1,200

484,913 99,559 484,456 98,956

(b) non-Current

Advance to Wholly Owned Subsidiary – – 17,592 7,369

Other Debtors 1,137 1,141 1,128 1,132

1,137 1,141 18,720 8,501

Trade and other debtors are carried at nominal amounts due less an allowance for any uncollectible amounts. Collectibility of trade and other debtors is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that Delta Electricity will not be able to collect the debt. There were no doubtful debts at reporting date (2006: $Nil).

Trade debtors incorporate electricity sales activities with participants in the National Electricity Market. Funds from trade debtors are receivable by no later than 21 working days after completion of the billing period. Board policies are in place for determining eligible counterparties and limits applying to those parties.

Current other debtors incorporate miscellaneous non-core activities undertaken by Delta Electricity. Amounts are due 30 days after invoicing.

Advance to wholly owned subsidiary represents the advance of funds to Delta Electricity Australia Pty. Ltd in accordance with the terms of a joint venture arrangement to develop renewable energy plant. The advance is presently interest free and is repayable on demand.

Non-current other debtors represent debtors with terms greater than one year from reporting date.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

33

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

8. INVENTOrIES

Stores and Materials 34,322 32,612 34,322 32,612

Coal Stocks 61,536 41,382 61,536 41,382

Other Fuel Stocks 1,428 1,990 1,428 1,990

97,286 75,984 97,286 75,984

9. OTHEr FINANCIAL ASSETS

(a) Current

Electricity Contracts 21,237 2,262 21,237 2,262

Other Derivatives – 10 – 10

21,237 2,272 21,237 2,272

(b) non-Current

Electricity Contracts 1,843 1,112 1,843 1,112

Interest Rate Swaps 3,339 919 – –

5,182 2,031 1,843 1,112

Refer to Note 24 for further information on Other Financial Assets.

10. OTHEr ASSETS

(a) Current

Refundable Security Deposit 5,385 5,092 5,385 5,092

Miscellaneous 1,413 20 1,413 20

6,798 5,112 6,798 5,112

(b) non-Current

Superannuation – Defined Benefit Schemes 29,434 4,202 29,434 4,202

29,434 4,202 29,434 4,202

A refundable security deposit has been provided to satisfy a requirement under Delta Electricity’s self insurer’s licence for workers’ compensation. This deposit can be redeemed in exchange for a bank guarantee.

Further details on superannuation are contained in Note 20.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

34

11. prOpErTy, pLANT ANd EquIpmENT

(a) reconciliation by Asset Classes

Parent entityYear ended 30 June 2007

Land$’000

Non Power Station

– Buildings$’000

Power Stations– Plant and Equipment

$’000

Other– Plant and Equipment

$’000Total

$’000

Carrying amount at 1 July 2006 26,282 39 1,796,944 11,148 1,834,413

Additions 50 – 107,313 1,146 108,509

Revaluation – – 275,000 – 275,000

Disposals/Write-offs (6) – (1,867) (1,403) (3,276)

Depreciation Expense – (1) (78,335) (1,882) (80,218)

Carrying amount at 30 June 2007 26,326 38 2,099,055 9,009 2,134,428

At 1 July 2006

Fair value 26,282 60 2,237,200 27,793 2,291,335

Accumulated depreciation and impairment – (21) (440,256) (16,645) (456,922)

Net carrying amount 26,282 39 1,796,944 11,148 1,834,413

At 30 June 2007

Fair value 26,326 60 2,458,439 26,052 2,510,877

Accumulated depreciation and impairment – (22) (359,384) (17,043) (376,449)

Net carrying amount 26,326 38 2,099,055 9,009 2,134,428

The above table includes work in progress for plant and equipment of $56.3 million (2006: $57.4 million).

Revaluation of Power Stations Plant and EquipmentOn 30 June 2007, the fair value of power stations plant and equipment was calculated by escalating a prior year depreciated replacement cost determined by specialist power engineering company, Burns and Roe Worley. Following determination of recoverable amount in accordance with the methodology and principles set out in Note 2(l), the revaluation increment to fair value was adjusted downwards to ensure carrying value would not exceed recoverable amount. As a result, a valuation uplift of $275.0 million was approved by the Board of Delta Electricity.

CONSOLIDATED ENTITYYear ended 30 June 2007

Land$’000

Non Power Station

– Buildings$’000

Power Stations– Plant and Equipment

$’000

Other– Plant and Equipment

$’000Total

$’000

Carrying amount at 1 July 2006 26,282 39 1,842,776 11,148 1,880,245

Additions 50 – 146,793 1,146 147,989

Revaluation – – 275,000 – 275,000

Disposals/Write-offs (6) – (1,867) (1,403) (3,276)

Depreciation Expense – (1) (78,335) (1,882) (80,218)

Carrying amount at 30 June 2007 26,326 38 2,184,367 9,009 2,219,740

At 1 July 2006

Fair value 26,282 60 2,283,032 27,793 2,337,167

Accumulated depreciation and impairment – (21) (440,256) (16,645) (456,922)

Net carrying amount 26,282 39 1,842,776 11,148 1,880,245

At 30 June 2007

Fair value 26,326 60 2,543,751 26,052 2,596,189

Accumulated depreciation and impairment – (22) (359,384) (17,043) (376,449)

Net carrying amount 26,326 38 2,184,367 9,009 2,219,740

The above table includes work in progress for plant and equipment of $141.6 million (2006: $103.2 million).

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

35

11. prOpErTy, pLANT ANd EquIpmENT (CONTINuEd)

(a) Reconciliation by Asset Classes (Continued)

PARENT ENTITYYear ended 30 June 2006

Land$’000

Non Power Station

– Buildings$’000

Power Stations– Plant and Equipment

$’000

Other– Plant and Equipment

$’000Total

$’000

Carrying amount at 1 July 2005 26,282 39 1,614,730 8,219 1,649,270

Additions – 1 52,873 6,394 59,268

Revaluation – – 195,000 – 195,000

Disposals/Write-offs – – – (1,397) (1,397)

Depreciation Expense – (1) (65,659) (2,068) (67,728)

Carrying amount at 30 June 2006 26,282 39 1,796,944 11,148 1,834,413

At 1 July 2005

Fair value 26,282 59 2,128,000 22,797 2,177,138

Accumulated depreciation and impairment – (20) (513,270) (14,578) (527,868)

Net carrying amount 26,282 39 1,614,730 8,219 1,649,270

At 30 June 2006

Fair value 26,282 60 2,237,200 27,793 2,291,335

Accumulated depreciation and impairment – (21) (440,256) (16,645) (456,922)

Net carrying amount 26,282 39 1,796,944 11,148 1,834,413

CONSOLIDATED ENTITYYear ended 30 June 2006

Land$’000

Non Power Station

– Buildings$’000

Power Stations– Plant and Equipment

$’000

Other– Plant and Equipment

$’000Total

$’000

Carrying amount at 1 July 2005 26,282 39 1,619,867 8,219 1,654,407

Additions – 1 93,568 6,394 99,963

Revaluations – – 195,000 – 195,000

Disposals/Write-offs – – – (1,397) (1,397)

Depreciation Expense – (1) (65,659) (2,068) (67,728)

Carrying amount at 30 June 2006 26,282 39 1,842,776 11,148 1,880,245

At 1 July 2005

Fair value 26,282 59 2,133,137 22,797 2,182,275

Accumulated depreciation and impairment – (20) (513,270) (14,578) (527,868)

Net carrying amount 26,282 39 1,619,867 8,219 1,654,407

At 30 June 2006

Fair value 26,282 60 2,283,032 27,793 2,337,167

Accumulated depreciation and impairment – (21) (440,256) (16,645) (456,922)

Net carrying amount 26,282 39 1,842,776 11,148 1,880,245

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

36

11. prOpErTy, pLANT ANd EquIpmENT (CONTINuEd)

(b) Carrying Amount of Asset Classes if Valued using the Cost modelIf property, plant and equipment were measured using the cost model, the carrying amounts would be as follows:

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

Land

At cost 8,677 8,633 8,677 8,633

total Land 8,677 8,633 8,677 8,633

Non power Station – Buildings

At cost 60 60 60 60

Less: accumulated depreciation (22) (21) (22) (21)

total Buildings 38 39 38 39

plant and Equipment

Power stations

At cost 1,664,836 1,520,999 1,579,524 1,475,168

Less: accumulated depreciation (401,741) (353,937) (401,741) (353,937)

Total power stations 1,263,095 1,167,062 1,177,783 1,121,231

other Plant and equipment

At cost 26,052 27,793 26,052 27,793

Less: accumulated depreciation (17,043) (16,645) (17,043) (16,645)

Total other plant and equipment 9,009 11,148 9,009 11,148

total Plant and equipment 1,272,104 1,178,210 1,186,792 1,132,379

total Written Down Value of Property, Plant and equipment 1,280,819 1,186,882 1,195,507 1,141,051

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

37

ConsolidatedParent entity

Software $’000

Total $’000

Total $’000

12. INTANgIBLE ASSETS

year ended 30 June 2007

Carrying amount at 1 July 2006, net of accumulated amortisation 7,700 7,700 7,700

Additions

– from internal development 749 749 749

– acquired externally 2,273 2,273 2,273

Amortisation (3,188) (3,188) (3,188)

Carrying amount at 30 June 2007 7,534 7,534 7,534

At 1 July 2006

Cost (gross carrying amount) 20,834 20,834 20,834

Accumulated amortisation (13,134) (13,134) (13,134)

Net carrying amount 7,700 7,700 7,700

At 30 June 2007

Cost (gross carrying amount) 23,856 23,856 23,856

Accumulated amortisation (16,322) (16,322) (16,322)

Net carrying amount 7,534 7,534 7,534

year ended 30 June 2006

Carrying amount at 1 July 2005, net of accumulated amortisation 6,872 6,872 6,872

Additions

– from internal development 1,302 1,302 1,302

– acquired externally 1,264 1,264 1,264

Amortisation (1,738) (1,738) (1,738)

Carrying amount at 30 June 2006 7,700 7,700 7,700

At 1 July 2005

Cost (gross carrying amount) 18,268 18,268 18,268

Accumulated amortisation (11,396) (11,396) (11,396)

Net carrying amount 6,872 6,872 6,872

At 30 June 2006

Cost (gross carrying amount) 20,834 20,834 20,834

Accumulated amortisation (13,134) (13,134) (13,134)

Net carrying amount 7,700 7,700 7,700

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

38

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

13. TrAdE ANd OTHEr pAyABLES

Current

Accounts Payable 500,925 103,076 497,120 99,155

Other Creditors 9,203 7,534 9,203 7,534

510,128 110,610 506,323 106,689

Accounts payable represents amounts to be paid in the future for goods received and services provided at reporting date. These liabilities are usually settled within 42 days. Current other creditors represents interest due on borrowings which are payable within 6 months.

14. BOrrOwINgS

(a) Current

NSW Treasury Corporation Short-Term Loans 20,460 75,882 20,460 75,882

20,460 75,882 20,460 75,882

(b) Non-Current

NSW Treasury Corporation Loans 571,136 467,363 571,136 467,363

Bank Loans – secured 68,678 39,718 – –

639,814 507,081 571,136 467,363

At reporting date, Delta Electricity had Executive Council approval to borrow up to $1,580 million (2006: $1,000 million).

Maturing loans may be re-financed if the borrowing limit is not exceeded. As such, Borrowings initially deemed as non-current, with less than one year to maturity have been classified as non-current. At reporting date, there were $117,544,000 of borrowings due to mature within one year requiring classification as non-current (2006: $Nil).

Bank Loans relate to the participation of Delta Electricity Australia Pty. Ltd (wholly owned subsidiary) in a joint venture arrangement to develop renewable electricity generation plant. The Bank Loans are secured over the property of the borrower.

15. prOVISIONS

(a) Current

Dividend 113,619 131,638 113,619 131,638

Employee Benefits 43,650 43,438 43,650 43,438

Insurance 1,403 1,799 1,403 1,799

158,672 176,875 158,672 176,875

(b) Non-Current

Employee Benefits 2,518 2,364 2,518 2,364

Superannuation – Defined Benefit Schemes – 6,363 – 6,363

Insurance 11,724 13,343 11,724 13,343

14,242 22,070 14,242 22,070

Delta Electricity’s insurance provision covers assessed employee and contractor related accident and injury liabilities at reporting date. In accordance with conditions associated with Delta Electricity’s Self Insurer’s licence for Workers’ Compensation, a current provision of $760,000 (2006: $561,000) and a non-current provision of $3,262,000 (2006: $3,651,000) for workers’ compensation has been included in the Insurance Provision.

Further details on employee benefits and superannuation are contained in Note 20.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

39

15. prOVISIONS (CONTINuEd)

(c) movements in provisionsMovements in each class of provision during the financial year, other than employee benefits, are set out below:

2007$’000

CurrentDividend Insurance Total

Carrying amount at start of year 131,638 1,799 133,437

Add: Additional provision 113,619 1,232 114,851

Less: Payments (131,638) (1,628) (133,266)

Carrying amount at end of year 113,619 1,403 115,022

Non-CurrentInsurance Total

Carrying amount at start of year 13,343 13,343

Discount adjustment 724 724

Less: Adjustment to assessed liability (2,343) (2,343)

Carrying amount at end of year 11,724 11,724

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

16. OTHEr FINANCIAL LIABILITIES

(a) Current

Electricity Contracts 766,677 51,611 766,677 51,611

Interest Rate Futures 23 – 23 –

Forward Foreign Exchange Contracts 4,647 – 4,647 –

771,347 51,611 771,347 51,611

(b) Non-Current

Electricity Contracts 328,564 14,279 328,564 14,279

Forward Foreign Exchange Contracts 14,640 – 14,640 –

343,204 14,279 343,204 14,279

Refer to Note 24 for further information on Other Financial Liabilities.

17. OTHEr LIABILITIES

Current

Miscellaneous 110 465 110 465

110 465 110 465

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

40

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

18. EquITy

(a) Contributed Equity

Balance at beginning of year 175,376 175,376 175,376 175,376

Return of Contributed Equity to Shareholder – – – –

Contributed Equity at end of year 175,376 175,376 175,376 175,376

(b) reserves

Asset Revaluation Reserve 732,758 540,462 732,758 540,462

Hedging Reserve (777,716) (44,614) (779,675) (45,042)

Total Reserves as per Balance Sheet (44,958) 495,848 (46,917) 495,420

Asset Revaluation ReserveThe asset revaluation reserve is used to record increments and decrements in the fair value of property, plant and equipment to the extent that they offset one another.

Balance at beginning of year 540,462 403,962 540,462 403,962

Revaluation of Property, Plant and Equipment 275,000 195,000 275,000 195,000

Tax Effect of Revaluation of Property, Plant and Equipment (82,500) (58,500) (82,500) (58,500)

Depreciation transfer (204) – (204) –

Asset Revaluation Reserve at end of year 732,758 540,462 732,758 540,462

Hedging ReserveThe hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

Balance at beginning of year (44,614) – (45,042) –

Adjustments on adoption of AASB 132 and AASB 139, net of tax – (23,064) – (22,133)

Restated balance at beginning of year (44,614) (23,064) (45,042) (22,133)

Net Gains / (Losses) on Cash Flow Hedges (1,047,288) (30,785) (1,049,475) (32,727)

Tax Effect 314,186 9,235 314,842 9,818

Hedging Reserve at end of year (777,716) (44,614) (779,675) (45,042)

(c) Retained Profits

Balance at beginning of year 58,740 24,904 61,877 29,206

Adjustments on adoption of AASB 132 and AASB 139, net of tax – 983 – 1,419

Adjustments on adoption of UIG 1052 – – – (1,005)

Restated balance at beginning of year 58,740 25,887 61,877 29,620

Profit for the Period after Related Income Tax Expense 139,893 164,491 139,919 163,895

Dividends provided for or paid (113,619) (131,638) (113,619) (131,638)

Depreciation transfer 204 – 204 –

Retained Profits at end of year 85,218 58,740 88,381 61,877

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

41

19. JOINTLy CONTrOLLEd ASSETS ANd OpErATIONS

(a) descriptionDelta Electricity Australia Pty. Ltd, Delta Electricity’s wholly owned subsidiary, is the consolidated entity’s participant in a joint venture.

outPut interest

Name of Joint Venture Principal Activity2007

%2006

%

Sunshine Electricity Joint Venture Electricity Generation 50 50

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

(b) share of AssetsThe subsidiary’s interest in assets employed in the above jointly controlled assets joint venture is detailed below:

Cash and Cash Equivalents 3 – – –

Trade and Other Receivables 30 28 – –

Total Current Assets 33 28 – –

Receivables 9 9 – –

Property, Plant and Equipment 85,312 45,832 – –

Total Non-Current Assets 85,321 45,841 – –

Total Assets 85,354 45,869 – –

(c) Share of Capital CommitmentsThe capital commitments arising from the consolidated entity’s interests in the joint venture are disclosed below:

plant and Equipment

Payable no later than one year 16,391 44,611 – –

Payable later than one, not later than five years – 2,424 – –

Payable later than 5 years – – – –

16,391 47,035 – –

Delta Electricity Australia Pty. Ltd expects to receive input tax credits from the Australian Taxation Office totalling $1,490,000 (2006: $4,276,000) for Goods and Services Tax paid for these commitments.

Other commitments are disclosed in Notes 21 and 22.

20. EmpLOyEE BENEFITS ANd SupErANNuATION

(a) Employee BenefitsThe aggregate employee benefit liability excluding superannuation is composed of:

Short-term Employee Benefits 13,559 13,366 13,559 13,366

Long-term Employee Benefits 36,392 36,042 36,392 36,042

49,951 49,408 49,951 49,408

Short-term employee benefits includes performance and business success payments that are part of formal agreements with employees.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

42

20. EmpLOyEE BENEFITS ANd SupErANNuATION (CONTINuEd)

(b) Superannuation – defined Benefit Schemes

(i) General Information and Description of PlansDefined benefits superannuation schemes are applicable to the parent entity only. As such, the information presented for the parent entity also applies to the consolidated entity.

Defined benefit superannuation schemes are administered by Pillar Administration on behalf of the SAS Trustee Corporation (STC). An actuarial review of superannuation liabilities for the defined benefit schemes was carried out by Mercer as at 30 June 2007.

The Pooled Fund (the Fund) holds in trust the investments of the closed NSW public sector superannuation schemes:

• StateAuthoritiesSuperannuationScheme(SASS)

• StateSuperannuationScheme(SSS)

• StateAuthoritiesNon-contributorySuperannuationScheme(SANCS)

These schemes are all defined benefit schemes – at least a component of the final benefit is derived from a multiple of member salary and years of membership. All of the schemes are closed to new members.

Actuarial gains and losses are recognised in profit and loss in the year they occur.

All Fund assets are invested by STC at arm’s length through independent fund managers.

The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the target allocation of assets to each class. The returns used for each class are net of investment tax and investment fees.

Parent entitysAss$’000

sAnCs$’000

sss$’000

2007$’000

2006$’000

(ii) Reconciliation of the Present Value of the Defined Benefit obligation

Present value of partly funded defined benefit obligations at beginning of the year 93,442 17,031 169,579 280,052 280,826

Current service cost 3,004 981 2,180 6,165 7,121

Interest cost 5,424 971 9,960 16,355 15,991

Contributions by fund participants 1,591 – 2,042 3,633 3,326

Actuarial (gains)/losses (334) (578) (9,664) (10,576) (20,688)

Benefits paid (6,908) (1,459) (4,671) (13,038) (6,524)

Present value of partly funded defined benefit obligations at end of year 96,219 16,946 169,426 282,591 280,052

(iii) Reconciliation of the Fair Value of Fund Assets

Fair value of Fund assets at beginning of the year 96,442 18,233 163,216 277,891 231,732

Expected return on fund assets 7,327 1,383 12,468 21,178 17,589

Actuarial gains/(losses) 4,049 1,153 9,761 14,963 24,870

Employer contributions 3,201 656 3,541 7,398 6,898

Contributions by Fund participants 1,591 – 2,042 3,633 3,326

Benefits paid (6,908) (1,459) (4,671) (13,038) (6,524)

Fair value of Fund assets at end of the year 105,702 19,966 186,357 312,025 277,891

(iv) Reconciliation of the Assets and Liabilities Recognised in the Balance sheet

Present value of partly funded defined benefit obligations at end of year 96,219 16,946 169,426 282,591 280,052

Fair value of Fund assets at end of year (105,702) (19,966) (186,357) (312,025) (277,891)

Net Liability/(Asset) recognised in balance sheet at end of year (9,483) (3,020) (16,931) (29,434) 2,161

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

43

20. EmpLOyEE BENEFITS ANd SupErANNuATION (CONTINuEd)

(b) Superannuation – defined Benefit Schemes (Continued)

(v) expense/(Income) Recognised in Income statement

Parent entitysAss$’000

sAnCs$’000

sss$’000

2007$’000

2006$’000

Current service cost 3,004 981 2,180 6,165 7,121

Interest cost 5,424 971 9,960 16,355 15,991

Expected return on Fund assets (net of expenses) (7,327) (1,383) (12,468) (21,178) (17,589)

Actuarial losses/(gains) recognised in year (4,383) (1,731) (19,425) (25,539) (45,558)

Expenses/(income) recognised (3,282) (1,162) (19,753) (24,197) (40,035)

(vi) Fund AssetsThe percentage investment in each asset class at the balance sheet date:

2007%

2006%

Australian equities 33.6 37.4

Overseas equities 26.5 27.9

Australian fixed interest securities 6.8 9.9

Overseas fixed interest securities 6.4 6.8

Property 10.1 8.6

Cash 9.8 5.0

Other 6.8 4.4

Parent entitysAss$’000

sAnCs$’000

sss$’000

2007$’000

2006$’000

(vii) Actual Return on Fund Assets

Actual return on Fund assets 13,829 2,536 23,443 39,808 36,192

(viii) Historical Information

Present value of defined benefit obligation 96,219 16,946 169,426 282,591 280,052

Fair value of Fund assets (105,702) (19,966) (186,357) (312,025) (277,891)

(Surplus)/Deficit in Fund (9,483) (3,020) (16,931) (29,434) 2,161

Experience adjustments – Fund liabilities (334) (578) (9,664) (10,576) (20,688)

Experience adjustments – Fund assets (4,049) (1,153) (9,761) (14,963) (24,870)

(ix) expected Contributions

Expected employer contributions 3,024 1,087 3,266 7,377 6,802

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

44

20. EmpLOyEE BENEFITS ANd SupErANNuATION (CONTINuEd)

(b) Superannuation – defined Benefit Schemes (Continued)

(x) Valuation Method and Principal Actuarial Assumptions at Reporting Date

Valuation MethodThe Projected Unit Credit (PUC) valuation method was used to determine the present value of the defined benefit obligations and the related current service costs. The method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.

Economic AssumptionsThe principal economic assumptions are outlined in the table below:

2007 2006%pa %pa

Salary increase rate (excluding promotional increases) – to June 2008 4.0 4.0

– thereafter 3.5 3.5

Rate of CPI Increase 2.5 2.5

Expected rate of return on assets backing current pension liabilities 7.6 7.6

Expected rate of return on assets backing other liabilities 7.6 7.6

Discount rate 6.4 5.9

Parent entitysAss$’000

sAnCs$’000

sss$’000

2007$’000

2006$’000

(xi) Funding Arrangements for employer Contributions

Surplus/DeficitThe following is a summary of the June 2007 financial position of the Fund calculated in accordance with AAS 25 Financial Reporting by Superannuation Plans.

Accrued benefits 95,074 16,768 152,829 264,671 247,254

Net market value of Fund assets (105,702) (19,966) (186,357) (312,025) (277,891)

Net (Surplus)/deficit (10,628) (3,198) (33,528) (47,354) (30,637)

Contribution RecommendationRecommended contribution rates for the entity are:

sass sanCs sss

multiple of member

contributions% member

salary

multiple of member

contributions

2007 1.9 2.5 1.6

2006 1.9 2.5 1.6

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

45

20. EmpLOyEE BENEFITS ANd SupErANNuATION (CONTINuEd)

(b) Superannuation – defined Benefit Schemes (Continued)

(xi) Funding Arrangements for employer Contributions (Continued)

Funding MethodThe method used to determine the employer contribution recommendations at the last actuarial review was the Aggregate Funding method. The method adopted affects the timing of the cost to the employer.

Under the Aggregate Funding method, the employer contribution rate is determined so that sufficient assets will be available to meet benefit payments to existing members, taking into account the current value of assets and future contributions.

Economic AssumptionsThe economic assumptions adopted for the last actuarial review of the Fund were:

2007 2006Weighted Average Assumptions %pa %pa

Expected rate of return on Fund assets backing current pension liabilities 7.7 7.7

Expected rate of return on Fund assets backing other liabilities 7.0 7.0

Expected salary increase rate 4.0 4.0

Expected rate of CPI increase 2.5 2.5

(xii) nature of Asset/LiabilityIf a surplus exists in the employer’s interest in the Fund, the employer may be able to take advantage of it in the form of a reduction in the required contribution rate, depending on the advice of the Fund’s actuary.

Where a deficiency exists, the employer is responsible for any difference between the employer’s share of Fund assets and the defined benefit obligation.

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

21. ExpENdITurE COmmITmENTSExpenditure contracted for at reporting date but not recognised as liabilities in the Balance Sheet:

(a) Capital – plant and Equipment

Payable no later than one year 169,187 76,229 152,796 31,618

Payable later than one, not later than 5 years 313,196 29,116 313,196 26,692

Payable later than 5 years – – – –

482,383 105,345 465,992 58,310

(b) Operating (excluding lease commitments) – Operational and maintenance

Payable no later than one year 27,939 24,293 26,110 22,737

Payable later than one, not later than 5 years 22,521 16,818 21,104 16,088

Payable later than 5 years 4,043 2,081 220 –

54,503 43,192 47,434 38,825

(c) Intangible Assets – Computer Software

Payable no later than one year 125 151 125 151

Payable later than one, not later than 5 years – – – –

Payable later than 5 years – – – –

125 151 125 151

Delta Electricity expects to receive input tax credits from the Australian Taxation Office totalling $46,685,000 (2006: $8,844,000) for Goods and Services Tax paid for these commitments.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

46

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

22. OpErATINg LEASE COmmITmENTSFuture operating lease rentals contracted for at reporting date but not recognised as liabilities in the Balance Sheet:

Payable no later than one year 1,900 845 1,893 838

Payable later than one, not later than 5 years 473 1,401 442 1,371

Payable later than 5 years 280 289 – –

2,653 2,535 2,335 2,209

Delta Electricity leases office accommodation under an operating lease expiring in December 2008. There is no option for renewal at the end of the lease period. There was one further operating lease in place relating to power station equipment which is due to expire during the 2007/08 financial year.

Delta Electricity expects to receive input tax credits from the Australian Taxation Office totalling $212,000 (2006: $201,000) for Goods and Services Tax paid for these commitments.

23. CONTINgENT LIABILITIES ANd CONTINgENT ASSETSThere were no known contingent liabilities or contingent assets in existence at reporting date.

24. FINANCIAL INSTrumENTS

(a) derivative Instruments

(i) Interest Rate swaps, Forward Rate Agreements, and Interest Rate FuturesDelta Electricity has a portfolio of debt consisting of short, medium and long-term borrowings. This debt is used to service the asset structure and ongoing activities of the organisation. Delta Electricity has identified interest rate risks associated with its debt portfolio. In managing the risks in accordance with Board approved limits, the organisation will be and is involved in derivative financial instruments. Derivative financial instruments including swaps, forward rate agreements, interest rate futures and forwards are used to alter and modify the natural risks inherent in the Balance Sheet.

The nominal principal amounts and periods of expiry for interest rate swaps and futures held at reporting date were:

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

Interest Rate swaps

Less than one year – – – –

One to five years – – – –

Greater than five years 70,000 70,000 – –

70,000 70,000 – –

Interest Rate Futures

Less than one year* – – – –

One to five years* 4,800 – 4,800 –

Greater than five years* 19,600 – 19,600 –

24,400 – 24,400 –

* Positive amount indicates bought futures; negative amount indicates sold futures.

The total notional amount of interest rate swaps for the consolidated entity is $70,000,000 with Delta Electricity Australia Pty. Ltd receiving floating interest and paying fixed interest.

These instruments are recognised on the Balance Sheet at fair value. The fair value of futures represents the margin call at reporting date. The fair value of interest rate swaps represents the amount Delta Electricity would expect to receive or pay on the termination of contracts at reporting date.

For instruments which qualify as cash flow hedges and meet the conditions of hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

47

24. FINANCIAL INSTrumENTS (CONTINuEd)

(a) derivative Instruments (Continued)

(i) Interest rate Swaps, Forward rate Agreements, and Interest rate Futures (Continued)If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year. For instruments that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year.

(ii) Forward Foreign exchange ContractsIn the normal course of business, Delta Electricity is required to purchase goods or services from overseas which require settlement in the supplier’s local currency. Under Board approved policies, Delta Electricity hedges specific material foreign exchange commitments by use of forward foreign exchange contracts to protect the organisation from the effect of future exchange rate fluctuations. The contracts are timed to mature when overseas payments are made.

At reporting date, Delta Electricity had 73 (2006: 8) forward foreign exchange contracts. The values of these contracts are outlined in the table below:

Parent entity2007 2006

Currencynumber ofContracts

CurrencyValue

Number ofContracts

CurrencyValue

USD 1 424,804 1 115,400

EUR 38 61,874,077 2 605,861

GBP – – 2 64,572

JPY 9 382,537,246 3 54,908,000

CHF 25 121,424,000 – –

Consolidated entity2007 2006

Currencynumber ofContracts

CurrencyValue

Number ofContracts

CurrencyValue

USD 1 424,804 1 115,400

EUR 38 61,874,077 2 605,861

GBP – – 2 64,572

JPY 9 382,537,246 3 54,908,000

CHF 25 121,424,000 – –

These instruments are recognised on the Balance Sheet at fair value. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.

For forward foreign exchange contracts which qualify as cash flow hedges and meet the conditions of hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement.

If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the carrying amount of the good purchased when the future purchase actually occurs.

For forward foreign exchange contracts that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

48

24. FINANCIAL INSTrumENTS (CONTINuEd)

(a) derivative Instruments (Continued)

(iii) electricity ContractsIn the normal course of business, Delta Electricity enters into various types of contracts with electricity market counterparties to manage the risks associated with fluctuations in wholesale electricity market prices. These contracts are undertaken in accordance with Board approved policies.

The notional face value of electricity contracts are outlined in the following table:

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

Less than one year 592,047 614,477 592,047 614,477

One to five years 945,522 1,210,157 945,522 1,210,157

Greater than five years 800,068 872,855 800,068 872,855

2,337,637 2,697,489 2,337,637 2,697,489

Electricity contracts are recognised on the Balance Sheet at fair value. The fair value of electricity contracts is calculated by reference to observable market data where available supported by valuation techniques where appropriate.

Electricity contracts are classified as cash flow hedges where they hedge exposure to variability in cash flows related to forecast generation.

In relation to cash flow hedges which meet the conditions for hedge accounting, the portion of the change in fair value on an electricity contract (hedging instrument) that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement.

If a hedged item is no longer expected to occur, the cumulative gain or loss recognised in equity is transferred to profit or loss for the year. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the Income Statement in the same year in which the forecast electricity generation occurs.

For electricity contracts that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year.

The carrying value of electricity contracts includes $15,779,000 (2006: $1,829,000) related to contracts which are held for trading. The remaining electricity contracts are subject to hedge accounting.

(b) Credit risk ExposuresThe credit risk on financial assets, apart from derivative instruments, which have been recognised on the Balance Sheet is generally the carrying amount, net of any provision for doubtful debts. The recognised financial assets of the Corporation include amounts receivable from government owned agencies (98.3%) and other debtors (1.7%).

The credit risk associated with electricity contracts is mitigated through the application of limits determined by a Board approved policy. These limits are based on the credit rating of the counterparty. In the absence of an acceptable public credit rating an internal credit rating is assigned on the advice of an external credit assessment specialist. The aggregate exposure on open electricity contracts at reporting date was $27.3 million (2006: $101.9 million).

Credit risk also arises from potential counterparty default on forward foreign exchange contracts. The Australian dollar value of this exposure at reporting date was $Nil (2006: $12,000).

(c) Fair ValuesThe financial assets and financial liabilities of the entity are recorded at fair value except as disclosed in the following table.

Parent entityCarrying amount Fair Value2007

$’0002006

$’0002007

$’0002006$’000

Financial Liabilities

Borrowings 591,596 543,245 588,196 550,920

Consolidated entityCarrying amount Fair Value2007

$’0002006

$’0002007

$’0002006$’000

Financial Liabilities

Borrowings 660,274 582,963 656,874 590,638

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

49

24. FINANCIAL INSTrumENTS (CONTINuEd)

(d) Interest rate riskThe following table sets out the carrying amount by maturity of financial instruments exposed to interest rate risk at 30 June 2007.

Parent entity Financial instruments maturing in CarryingAmount

$’000

<1 year$’000

>1 <2 years$’000

>2 <3 years$’000

>3 <4 years$’000

>4 <5 years$’000

>5 years$’000

Financial Assets

Floating Rate

Cash and Cash Equivalents 1,298 1,298

Fixed Rate

Other Debtors

– Current 1 1

Other Miscellaneous

– Current 6,797 6,797

Financial Liabilities

Fixed Rate

Borrowings 138,004 22,053 141,148 121,361 169,030 591,596

All other financial assets and liabilities are non-interest bearing.

The weighted average interest exposure on financial assets is 6.1% (2006: 5.7%), while weighted average interest exposure incorporating a government guarantee fee on financial liabilities is 7.3% (2006: 8.2%).

Consolidated Financial instruments maturing in CarryingAmount

$’000

<1 year$’000

>1 <2 years$’000

>2 <3 years$’000

>3 <4 years$’000

>4 <5 years$’000

>5 years$’000

Financial Assets

Floating Rate

Cash and Cash Equivalents 1,311 1,311

Fixed Rate

Other Debtors

– Current 1 1

Other Miscellaneous

– Current 6,797 6,797

Financial Liabilities

Fixed Rate

Borrowings 206,682 22,053 141,148 121,361 169,030 660,274

All other financial assets and liabilities are non-interest bearing.

The weighted average interest exposure on financial assets is 6.1% (2006: 5.7%), while weighted average interest exposure incorporating a government guarantee fee on financial liabilities is 7.3% (2006: 8.2%).

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

50

24. FINANCIAL INSTrumENTS (CONTINuEd)

(d) Interest rate risk (Continued)The following table sets out the carrying amount by maturity of financial instruments exposed to interest rate risk at 30 June 2006.

Parent entity Financial instruments maturing in CarryingAmount

$’000

<1 year$’000

>1 <2 years$’000

>2 <3 years$’000

>3 <4 years$’000

>4 <5 years$’000

>5 years$’000

Financial Assets

Floating Rate

Cash and Cash Equivalents 29,166 29,166

Fixed Rate

Other Debtors

– Non Current 4 4

Other Miscellaneous

– Current 5,092 5,092

Financial Liabilities

Fixed Rate

Borrowings 75,882 119,236 135,832 212,295 543,245

All other financial assets and liabilities are non-interest bearing.

Consolidated Financial instruments maturing in CarryingAmount

$’000

<1 year$’000

>1 <2 years$’000

>2 <3 years$’000

>3 <4 years$’000

>4 <5 years$’000

>5 years$’000

Financial Assets

Floating Rate

Cash and Cash Equivalents 29,504 29,504

Fixed Rate

Other Debtors

– Non Current 4 4

Other Miscellaneous

– Current 5,092 5,092

Financial Liabilities

Fixed Rate

Borrowings 115,600 119,236 135,832 212,295 582,963

All other financial assets and liabilities are non-interest bearing.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

51

24. FINANCIAL INSTrumENTS (CONTINuEd)

(e) Total debt maturity TableTotal debt outstanding and maturity at reporting date is as follows:

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

Up to one year 206,682 75,882 138,004 75,882

Over one and up to two years – 158,954 – 119,236

Over two years and up to five years 284,562 135,832 284,562 135,832

Over five years 169,030 212,295 169,030 212,295

660,274 582,963 591,596 543,245

25. NOTES TO THE CASH FLOw STATEmENT

(a) Cash and Cash EquivalentsFor the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash at bank and in hand, short term deposits and short term investments, net of outstanding bank overdrafts and borrowings which are used in the cash management function on a day to day basis.

(b) reconciliation of Cash and Cash EquivalentsCash and cash equivalents at the end of the financial year as shown in the Cash Flow Statement is reconciled to the related items in the Balance Sheet as follows:

Consolidated Parent entity2007

$’0002006

$’0002007

$’0002006$’000

Cash and Cash Equivalent Assets 1,311 29,504 1,298 29,166

Current Borrowings (995) (277) (995) (277)

Balance as per Cash Flow statement 316 29,227 303 28,889

Current borrowings reflect a NSW Treasury Corporation call facility used in the management of cash on a day to day basis.

(c) dividends and TaxesNo dividends were received during the period. Dividends paid by Delta Electricity during the period amounted to $131.6 million (2006: $123.5 million). Tax equivalent payments for the year were $47.4 million (2006: $43.7 million).

(d) Acquisitions and disposal of EntitiesThere were no acquisitions or disposals during the year.

(e) Financing Arrangements Consolidated Parent entity

2007$’000

2006$’000

2007$’000

2006$’000

Facilities Available

Bank Overdraft 2,000 2,000 2,000 2,000

NSW Treasury Corporation Loans 1,580,000 1,000,000 1,580,000 1,000,000

Project Borrowing Facility 70,000 70,000 – –

Total Available 1,652,000 1,072,000 1,582,000 1,002,000

Facilities Utilised

Bank Overdraft – – – –

NSW Treasury Corporation Loans 591,596 543,245 591,596 543,245

Project Borrowing Facility 68,678 41,040 – –

Total Utilised 660,274 584,285 591,596 543,245

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

52

25. NOTES TO THE CASH FLOw STATEmENT (CONTINuEd) Consolidated Parent entity

2007$’000

2006$’000

2007$’000

2006$’000

(f) reconciliation of profit for the year after related Income Tax Expense to Net Cash provided/(used) by Operating Activities

Profit for the Period 139,893 164,491 139,919 163,895

Add/(Less): Non-Cash Items

Depreciation and Amortisation 81,359 66,962 81,359 66,962

Inventory Adjustments 395 343 395 343

Assets Written Off 1,910 20 1,910 20

Add/(Less): Items classified as Investing/Financing Activities

(Gain)/Loss on Sale of Property, Plant and Equipment 161 179 161 179

Accounting (Gain)/Loss on Debt Re-financing – 1,791 – 1,791

net Cash Provided by operating Activities Before Changes in Assets and Liabilities 223,718 233,786 223,744 233,190

Net Changes in Assets and Liabilities During the Period

(Increase)/Decrease in Trade Debtors (379,113) (17,823) (379,113) (17,823)

(Increase)/Decrease in Other Receivables 131 37 (7) –

(Increase)/Decrease in Inventories (19,731) 10,047 (19,731) 10,047

(Increase)/Decrease in Other Assets (27,887) 532 (27,653) 839

Increase/(Decrease) in Payables 403,537 (2,770) 403,441 (2,570)

Increase/(Decrease) in Income Tax Related Assets/Liabilities 13,732 26,577 13,744 26,322

Increase/(Decrease) in Other Liabilities (33,370) (47,839) (33,370) (47,214)

Net Cash Provided/(Used) by Operating Activities 181,017 202,547 181,055 202,791

26. rELATEd pArTy dISCLOSurES

(a) directors and director-related EntitiesSome Directors of Delta Electricity hold directorships of other companies, some of which may have had transactions with Delta Electricity during the financial year. Any transactions with these entities would have been made in the normal course of business and on normal commercial terms and conditions. With respect to related entity transactions, no Director has declared that he/she has control or significant influence on the financial and/or operating policies of those companies in their dealings with Delta Electricity.

The Directors of Delta Electricity at 30 June 2007 were Mr PF Young, Mr JP Henness, Mr W Phillips, Ms S Moait, Hon MS Knight and Mr PJ Forward. Mr W Phillips and Mr JP Henness were Directors of Delta Electricity Australia Pty. Ltd for the full financial year.

(b) Key management personnel remuneration

Short-term Employee Benefits 3,694 3,227 3,694 3,227

Post-employment Benefits 221 295 221 295

Other Long-term Benefits 217 109 217 109

Termination Benefits – 465 – 465

Total 4,132 4,096 4,132 4,096

Key management personnel includes Directors and members of the Executive. Remuneration excludes insurance premiums paid by the parent entity in respect of directors’ and officers’ liability insurance as policies do not specify premiums paid in respect of individual directors and officers.

No additional remuneration is paid to key management personnel in relation to Delta Electricity Australia Pty. Ltd.

(c) Controlled EntitiesDelta Electricity acquired the two issued $1 ordinary shares of Delta Electricity Australia Pty. Ltd in 1997. The wholly owned subsidiary commenced commercial operations in 2002/03.

Delta Electricity Australia Pty. Ltd has entered into various agreements in respect of the Sunshine Electricity Joint Venture for the construction of renewable electricity generation plants at Condong and Broadwater. The terms of the construction and security agreements require Delta Electricity to make funding available to meet Delta Electricity Australia Pty. Ltd’s contributions to total project costs. The funding is made available under a Deed of Capital Contribution with advances carrying no interest charge and are repayable on demand. Approval has been received from NSW Treasury to advance up to $43.8 million to Delta Electricity Australia Pty. Ltd for the purpose of the Sunshine Electricity Joint Venture.

Delta electricity

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

53

26. rELATEd pArTy dISCLOSurES (CONTINuEd)

(d) related party TransactionsThe following table provides details of transactions that were entered into with related parties:

Related Party

Advance to related parties

$’000

Sales to related parties$’000

Amounts owed by related

parties$’000

Amounts owed to related parties

$’000

Consolidated

Sunshine Electricity Joint Venture 2007 168 – – 25

2006 250 5 – 25

Parent entity

Delta Electricity Australia Pty. Ltd 2007 10,223 1,175 17,592 –

2006 1,255 942 7,369 –

27. EVENTS OCCurrINg AFTEr rEpOrTINg dATEThe fair value of Delta Electricity’s electricity derivative contracts at 30 June 2007 reflected high market prices related to drought conditions and supply interruptions in the last quarter of the financial year.

These factors have improved during July and August 2007 and this has been reflected in a reduction in market prices. As a consequence, the net liability reported in Note 9 and Note 16 has reduced significantly since reporting date as shown in the following table:

Electricity Contracts30 June 2007

$’00031 August 2007

$’000

Current Assets 21,237 5,205

Non-current Assets 1,843 319

Current Liabilities (766,677) (202,947)

Non-current Liabilities (328,564) (75,152)

Net Asset/(Liability) (1,072,161) (272,575)

As Delta Electricity’s electricity derivative contracts are supported by physical production, there has been minimal impact on the entity’s profit and loss. The reduction in the net liability position has been primarily offset by an improvement in the equity hedging reserve.

28. CrOSS BOrdEr LEASEDelta Electricity has entered into several arrangements designed to optimise investment in Mt Piper Power Station. These arrangements have been executed through a series of agreements which in legal form constitute lease, prepayment and deposit transactions. These arrangements will run until 2 January 2020 and include options allowing Delta Electricity to purchase the assets at the end of the term. The substance and commercial effect of these transactions is to leave Delta Electricity with uninterrupted use and control of the associated infrastructure (subject to the satisfaction of the transaction’s contractual obligations), which remains on the Balance Sheet. The benefits derived by Delta Electricity were brought to account on inception of the arrangement.

No significant credit risk or concentration of credit risk arises as a consequence of these arrangements.

29. SuNSHINE ELECTrICITy JOINT VENTurE pOwEr purCHASE AgrEEmENTDelta Electricity has entered into a fifteen year Power Purchase Agreement with Sunshine Electricity Joint Venture to purchase electricity and renewable energy certificates from the renewable electricity generation plants being constructed at sugar milling plants located at Condong and Broadwater in northern New South Wales. The Power Purchase Agreement only becomes operable when the plants achieve a prescribed level of technical performance.

Under the terms of the Power Purchase Agreement it is possible that Delta Electricity may incur a liability in respect of a minimum electricity charge payable to Sunshine Electricity Joint Venture in a limited range of events relating to fuel availability and suppressed electricity and renewable energy certificate prices. The probability is remote and any assessment of such a liability could only be undertaken at the time of a minimum electricity payment event as it would be dependent on projections of production volumes and electricity and renewable energy certificate prices prevailing at the time.

END OF AUDITED FINANCIAL REPORT.

54

Delta electricity

Statement by Members of the Board

Pursuant to Section 41C of the Public Finance and Audit Act, 1983, and in accordance with a resolution of Delta Electricity, we declare on behalf of Delta Electricity that in our opinion:

1. The accompanying Financial Statements exhibit a true and fair view of the financial position of Delta Electricity as at 30 June, 2007 and its performance for the year ended on that date.

2. The accompanying Financial Statements are a general purpose financial report which has been prepared in accordance with Australian Accounting Standards including Australian Accounting Interpretations, the New South Wales Public Finance and Audit Act and Regulation, and requirements of the State Owned Corporations Act, 1989 (as amended).

3. At the date of this statement, there are reasonable grounds to believe that Delta Electricity will be able to pay its debts as and when they become due and payable.

4. We are not aware of any circumstances at the date of this declaration that would render any particulars included in the financial report to be misleading or inaccurate.

Peter Young Jim Henness CHAIRMAN CHIEF EXECUTIVE

20 September 2007 20 September 2007

55

56

57

Delta electricity Australia Pty. Ltd

Balance SheetAs at 30 June 2007

Note2007

$’0002006$’000

Current Assets

Cash and Cash Equivalents 6 13 337

Trade and Other Receivables 7(a) 482 631

total Current Assets 495 968

Non-Current Assets

Receivables 7(b) 9 9

Other Financial Assets 8 3,339 919

Property, Plant and Equipment 9 85,312 45,832

Deferred Tax Assets 5(b) 743 874

total non-Current Assets 89,403 47,634

total Assets 89,898 48,602

Current Liabilities

Trade and Other Payables 10(a) 3,830 3,947

total Current Liabilities 3,830 3,947

Non-Current Liabilities

Payables 10(b) 17,592 7,369

Borrowings 11 68,678 39,718

Deferred Tax Liabilities 5(b) 1,002 276

total non-Current Liabilities 87,272 47,363

total Liabilities 91,102 51,310

net Assets (1,204) (2,708)

Equity

Contributed Equity 12(a) – –

Reserves 12(b) 1,958 428

Retained Profits 12(c) (3,162) (3,136)

total equity (1,204) (2,708)

The accompanying Notes form an integral part of these Financial Statements.

BEGINNING OF AUDITED FINANCIAL STATEMENTS

58

Delta electricity Australia Pty. Ltd

Income StatementFor Year Ended 30 June 2007

Note2007

$’0002006$’000

Revenue 3 21 13

Expenses, excluding finance costs 4 (293) (95)

Finance Costs – –

Profit Before Income tax expense and Financial Instrument Fair Value Movements (272) (82)

Income Tax Expense on Profit Before Financial Instrument Fair Value Movements 5 82 25

Profit Before Financial Instrument Fair Value Movements (190) (57)

Financial Instrument Fair Value Movements 234 933

Income Tax Expense on Financial Instrument Fair Value Movements 5 (70) (280)

Profit for the Year (26) 596

The accompanying Notes form an integral part of these Financial Statements.

59

Delta electricity Australia Pty. Ltd

Statement of Changes in EquityFor Year Ended 30 June 2007

Note2007

$’0002006$’000

total equity at Beginning of Financial Year (2,708) (4,300)

Adjustments on Adoption of AASB 132 and AASB 139, net of tax, to:

Retained Profits – (438)

Reserves – (931)

Adjustments on Adoption of UIG 1052 to:

Retained Profits – 1,006

Restated total equity at Beginning of Financial Year (2,708) (4,663)

Changes in Fair Value of Cash Flow Hedges, net of tax 1,530 1,359

net Income Recognised Directly in equity 1,530 1,359

Profit/(Loss) for Financial Year (26) 596

total Recognised Income and expense for Financial Year 1,504 1,955

transactions with equity Holders in their Capacity as equity Holders

Dividends Provided for or Paid – –

total equity at end of Financial Year 12 (1,204) (2,708)

The accompanying Notes form an integral part of these Financial Statements.

60

Delta electricity Australia Pty. Ltd

Cash Flow StatementFor Year Ended 30 June 2007

Note

2007$’000

Inflows(outflows)

2006$’000

Inflows(Outflows)

Cash Flows From Operating Activities

Cash Received from Customers 3,828 3,646

Interest Received 21 13

Cash Payments to Suppliers and Employees (3,887) (3,904)

net Cash Provided/(Used) by operating Activities 18(f) (38) (245)

Cash Flows from Investing Activities

Payments for Property, Plant and Equipment (39,682) (37,107)

net Cash Provided/(Used) by Investing Activities (39,682) (37,107)

Cash Flows from Financing Activities

Proceeds from Advance from Parent 10,436 1,422

Proceeds from Borrowings 28,960 35,886

net Cash Provided/(Used) by Financing Activities 39,396 37,308

Net Increase/(Decrease) in Cash and Cash Equivalents (324) (44)

Cash and Cash Equivalents at Beginning of Financial Year 337 381

Cash and Cash equivalents at end of the Year 18(b) 13 337

The accompanying Notes form an integral part of these Financial Statements.

Delta electricity Australia Pty. Ltd

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

61

1. COrpOrATE INFOrmATIONDelta Electricity Australia Pty. Ltd (ACN 074 408 923) is domiciled in New South Wales and is a wholly owned subsidiary of Delta Electricity which is a New South Wales statutory state owned corporation. The entity’s Australian Business Number is 26 074 408 923.

The financial report of Delta Electricity Australia Pty. Ltd for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the Directors on 20 September 2007.

2. SummAry OF SIgNIFICANT ACCOuNTINg pOLICIESThe financial report is a general purpose financial report prepared in accordance with Australian Accounting Standards including Australian Accounting Interpretations, the New South Wales Public Finance and Audit Act and Regulation, and requirements of the State Owned Corporations Act, 1989 (as amended).

(a) Statement of ComplianceThe financial report of Delta Electricity Australia Pty. Ltd complies with Australian Accounting Standards, which include Australian Equivalents to International Financial Reporting Standards (AIFRS). The financial report also complies with International Financial Reporting Standards (IFRS).

(b) Basis of AccountingThe financial report has been prepared in accordance with the principles of accrual accounting and the historical cost convention, and except where stated do not take into account current valuations. Cost is based on the fair values of the consideration given in exchange for assets.

In the application of Australian Accounting Standards management is required to make judgements, estimates and assumptions that affect the carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Limited estimates and assumptions are required during the construction phase.

Australian Accounting Standards that have recently been issued or amended but are not yet effective have not been adopted for the reporting period ended 30 June 2007. A summary of relevant standards follows:

• AASB7FinancialInstruments:DisclosuresandAASB2005-10AmendmentstoAustralianAccountingStandards[AASB132,AASB101,AASB114,AASB117,AASB133,AASB139,AASB1,AASB4,AASB1023andAASB1038]

These standards apply to reporting periods beginning on or after 1 January 2007 and will affect disclosures in relation to financial instruments.

• AASB101PresentationofFinancialStatements This standard applies to reporting periods beginning on or after

1 January 2007 and amends disclosure requirements related to financial statements.

• AASB2007-4AmendmentstoAustralianAccountingStandardsarisingfromED151andOtherAmendments

This standard applies to reporting periods beginning on or after 1 July 2007 and amends disclosure requirements of the entity.

• AASB123BorrowingCosts This standard applies to reporting periods beginning on or after

1 January 2009 and is not expected to have any impact on the entity.

(c) Changes in Accounting policiesUnless otherwise stated, the accounting policies adopted are consistent with those of the comparative year.

(d) going ConcernThe financial report of Delta Electricity Australia Pty. Ltd has been prepared on a going concern basis. The company is a participant in a joint venture operation involved in the design, construction and operation of renewable energy generation plant. Under the terms of a Deed of Capital Contribution agreement, Delta Electricity (parent entity) is required to provide necessary funding to Delta Electricity Australia Pty. Ltd during the establishment and construction phase. Delta Electricity Australia Pty. Ltd is expected to commence earning revenue from sales on completion of generation plant construction.

(e) Contributed EquityDelta Electricity Australia Pty. Ltd was acquired on 15 December 1997 and is a wholly owned subsidiary of Delta Electricity. The company commenced commercial operations on 1 July 2002.

(f) Joint VenturesInterests in jointly controlled assets and operations of unincorporated joint ventures are reported in the financial report by including the entity’s share of assets employed in the joint venture, the share of liabilities incurred in relation to the joint venture, the share of any expenses incurred in relation to the joint venture in their respective classification categories, and the share of income earned from the joint venture. Details of the joint venture operation are set out in Note 13.

(g) BorrowingsAll loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in the Income Statement through the amortisation process and when the liabilities are derecognised.

Refer to Note 11.

(h) Borrowing CostsBorrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in connection with arrangement of borrowings, and gains and losses incurred in the use of derivative instruments for the management of interest rate exposure related to borrowed funds.

Costs associated with borrowings specifically financing qualifying assets are capitalised up to the date of completion of each qualifying asset to the extent those costs are recoverable. A total of $4,397,000 (2006: $1,704,000) in borrowing costs were capitalised during the 2006/07 financial year.

(i) Cash and Cash EquivalentsCash and cash equivalents in the Balance Sheet comprise cash at bank and in hand along with short-term deposits and investments.

Delta electricity Australia Pty. Ltd

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

62

2. SummAry OF SIgNIFICANT ACCOuNTINg pOLICIES (CONTINuEd)

(i) Cash and Cash Equivalents (continued)For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts and borrowings which are used in the cash management function on a day to day basis.

(j) property, plant and EquipmentProperty, plant and equipment is recognised at fair value less accumulated depreciation and impairment in accordance with AASB 116 Property Plant and Equipment, AASB136 Impairment of Assets and the New South Wales Treasury Accounting Policy for the Valuation of Physical Non-Current Assets at Fair Value. During the construction phase, acquisition cost represents fair value.

The accounting policy for impairment of assets is included under Note 2(k).

(k) ImpairmentAt each reporting date, the entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the entity estimates the recoverable amount of the cash generating unit to which the asset belongs.

Recoverable amount is based on value in use and is determined at the cash generating unit level being the Delta Electricity Australia Pty. Ltd entity. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the assets for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of the cash generating unit is estimated to be less than its carrying amount, the carrying amount of the cash generating unit is reduced to its recoverable amount. An impairment loss is recognised in the profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the cash generating unit is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the cash generating unit in prior years. A reversal of an impairment loss is recognised in the profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase.

(l) dividendsProvision is made for the amount of any dividend declared, determined or publicly recommended prior to reporting date.

(m) TaxationIncome tax on profit or loss for the year comprises current and deferred tax. Income tax is recognised in the Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Income tax payments are made to the New South Wales Office of State Revenue under the National Tax Equivalent Regime (NTER).

Delta Electricity Australia Pty. Ltd and its parent (Delta Electricity) formed a tax consolidated group on 1 July 2003 and are taxed as a single entity for the purposes of income tax. Delta Electricity is the head entity.

Members of the group have entered into a tax sharing arrangement in order to limit the joint and several liability of each member of the tax consolidated group to their share of the head entity’s tax liability should the head entity default on its tax payment obligations. At the reporting date, the possibility of default of taxes is remote.

In addition, there is a tax indemnity deed between the members of the group whereby the head entity agrees to indemnify and hold the subsidiary entity harmless against all and any obligations related to income taxes.

(n) Segment reportingDelta Electricity Australia Pty. Ltd is an electricity generation corporation that operates in a single business and geographical segment. All production facilities will be located in New South Wales.

(o) revenueInterest income on cash reserves is recognised as it accrues. Revenue from production output will commence on completion of electricity generation plant construction.

(p) goods and Services TaxRevenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except:

• whentheGSTincurredonapurchaseofgoodsandservicesis not recoverable from the Australian Taxation Office (ATO), in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the item of expense as applicable; and

• receivablesandpayables,whicharestatedwiththeamount of GST included.

The net amount of GST recoverable from, or payable to the ATO is included as a current asset or liability in the Balance Sheet. Cash flows are included in the Cash Flow Statement on a gross basis.

(q) Comparative FiguresWhere necessary, comparative information has been reclassified to enhance comparability in respect of changes in presentation adopted in the current year.

(r) presentation Currency and roundingAmounts shown in the financial report are in Australian dollars, rounded to the nearest thousand dollars, except where the disclosure of whole dollar amounts is appropriate.

Delta electricity Australia Pty. Ltd

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

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2007$’000

2006$’000

3. rEVENuE

revenue

Interest 21 13

Revenue 21 13

4. ExpENSES (ExCLudINg FINANCE COSTS)

Administration Costs 12 9

Other Expenses 281 86

Expenses (excluding Finance Costs) 293 95

Auditors’ Remuneration paid or payable in respect to the audit of the 2006/07 financial statements is $9,500 (2006: $9,000).

5. INCOmE TAxThe major components of Income Tax for the year ended 30 June 2007 are as follows:

(a) Income Tax ExpenseThe major components of income tax expense are:

Income statement

Current Income Tax Expense (213) (157)

Deferred Income Tax Expense – temporary differences (Note 5(b)) 201 412

Income tax expense reported in Income statement (12) 255

statement of Changes in equityDeferred income tax related to items charged or credited directly to equity:

Unrealised gain/(loss) on cash flow hedges (Note 12(b)) 656 582

Income tax expense reported in equity 656 582

Reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the organisation’s effective income tax rate for the year ended 30 June 2007:

Accounting profit/(loss) before tax (38) 851

Income tax at statutory rate of 30% (2006: 30%) (12) 255

Adjustments in respect of current income tax of previous years – –

Income tax expense reported in Income statement (12) 255

(b) deferred Income TaxDeferred income tax as at 30 June 2007 relates to the following:

Deferred Income tax Liabilities

BalanceSheet

Derivative instruments (Note 8) 1,002 276

Gross deferred income tax liabilities 1,002 276

IncomeStatement

Derivative instruments – fair value movement 69 92

Deferred income tax expense 69 92

Deferred Income tax Assets

Balance Sheet

Adjustments on adoption of UIG 1052 Tax Consolidation Accounting (Note 2(m)) – 1,006

Joint venture expenses – currently deductible 743 (132)

Gross deferred income tax assets 743 874

Income Statement

Derivative instruments – fair value movement – 188

Joint venture expenses – currently deductible 132 132

Deferred income tax expense 132 320

Delta electricity Australia Pty. Ltd

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

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2007$’000

2006$’000

6. CASH ANd CASH EquIVALENTS

Bank 13 337

13 337

7. TrAdE ANd OTHEr rECEIVABLES

(a) Current

Advance Receivable from Parent 25 25

Other Receivables 457 606

482 631

(b) Non-Current

Other Receivables 9 9

9 9

Advance Receivable from Parent and Other Receivables are carried at nominal amounts due less an allowance for any uncollectible amounts. Collectibility from debtors is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that Delta Electricity Australia Pty. Ltd will not be able to collect the debt. There were no doubtful debts at reporting date (2006: $Nil). Funds from current receivables are due within 42 days of reporting date.

8. OTHEr FINANCIAL ASSETS – NON-CurrENT

Interest Rate Swaps 3,339 919

3,339 919

Refer to Note 17 for further information on Other Financial Assets.

9. prOpErTy, pLANT ANd EquIpmENT

(a) reconciliation by Asset Classes

Year ended 30 June 2007

Power Stations– Plant and Equipment

$’000Total

$’000

Carrying amount at 1 July 2006 45,832 45,832

Additions 39,480 39,480

Depreciation Expense – –

Carrying amount at 30 June 2007 85,312 85,312

At 1 July 2006

Fair value 45,832 45,832

Accumulated depreciation and impairment – –

Net carrying amount 45,832 45,832

At 30 June 2007

Fair value 85,312 85,312

Accumulated depreciation and impairment – –

Net carrying amount 85,312 85,312

The above table includes work in progress for plant and equipment of $85,312,000 (2006: $45,832,000). All plant and equipment is currently under construction.

Delta electricity Australia Pty. Ltd

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

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9. prOpErTy, pLANT ANd EquIpmENT (CONTINuEd)

(a) reconciliation by Asset Classes (Continued)

Year ended 30 June 2006

Power Stations– Plant and Equipment

$’000Total

$’000

Carrying amount at 1 July 2005 5,137 5,137

Additions 40,695 40,695

Depreciation Expense – –

Carrying amount at 30 June 2006 45,832 45,832

At 1 July 2005

Fair value 5,137 5,137

Accumulated depreciation and impairment – –

Net carrying amount 5,137 5,137

At 30 June 2006

Fair value 45,832 45,832

Accumulated depreciation and impairment – –

Net carrying amount 45,832 45,832

2007$’000

2006$’000

(b) Carrying Amount of Asset Classes if Valued using the Cost modelIf property, plant and equipment were measured using the cost model, the carrying amounts would be as follows:

power Stations plant and Equipment

At cost 85,312 45,832

Less: accumulated depreciation – –

total Written Down Value of Property, Plant and equipment 85,312 45,832

10. TrAdE ANd OTHEr pAyABLES

(a) Current

Accounts Payable 3,830 3,947

3,830 3,947

Accounts Payable represents amounts to be paid in the future for goods received and services provided at reporting date. These liabilities are usually settled within 30 days.

(b) Non-Current

Advance from Parent Entity 17,592 7,369

17,592 7,369

Under the terms of a Deed of Capital Contribution agreement dated 11 October 2001, Delta Electricity (parent entity) is required to provide specified funding to Delta Electricity Australia Pty. Ltd to enable the company’s participation in a joint venture operation. Funding is currently provided as an interest free advance and is repayable on demand.

Delta Electricity has current approval under the Public Authorities (Financial Arrangements) Act to advance up to $43.8 million to Delta Electricity Australia Pty. Ltd. At reporting date, $17,592,000 (2006: $7,370,000) of this limit had been utilised.

11. BOrrOwINgS

Bank Loans – secured 68,678 39,718

68,678 39,718

The Bank Loans are secured over the property of Delta Electricity Australia Pty. Ltd. Following practical completion of generation plant construction, bank loan repayments are scheduled at six monthly intervals.

Delta electricity Australia Pty. Ltd

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

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12. EquITy

(a) Contributed Equity2007

$’0002006$’000

Balance at beginning of year 0.002 0.002

Share capital paid up by parent entity – –

Contributed Equity at end of year 0.002 0.002

(b) reserves

Hedging ReserveThe hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

Balance at beginning of year 428 –

Adjustments on adoption of AASB 132 and AASB 139, net of tax – (931)

Restated balance at beginning of year 428 (931)

Net Gains on Cash Flow Hedges 2,186 1,941

Tax Effect (Note 5(a)) (656) (582)

Hedging Reserve at end of year 1,958 428

(c) retained profits

Balance at beginning of year (3,136) (4,300)

Adjustments on adoption of AASB 132 and AASB 139, net of tax – (438)

Adjustments on adoption of UIG 1052 Tax Consolidation Accounting (Note 2(m)) – 1,006

Restated balance at beginning of year (3,136) (3,732)

Profit/(Loss) for the Period after Related Income Tax Expense (26) 596

Retained Profits/(Losses) at end of year (3,162) (3,136)

13. JOINTLy CONTrOLLEd ASSETS ANd OpErATIONS

(a) descriptionThe principal activity of Delta Electricity Australia Pty. Ltd is the participation in a joint venture operation called Sunshine Electricity to design, construct and operate renewable energy generation capacity in New South Wales.

Delta Electricity Australia Pty. Ltd has a 50% participating interest in the joint venture and is entitled to 50% of the output. The remaining 50% participating interest is held by Sunshine Renewable Energy Pty. Ltd.

Delta Electricity Australia Pty. Ltd has acquired one of the two $1 ordinary shares in Sunshine Electricity Management Pty. Ltd. The remaining $1 ordinary share was acquired by Sunshine Renewable Energy Pty. Ltd. Sunshine Electricity Management Pty. Ltd was established specifically as an agent for the joint venture partners.

(b) Share of AssetsThe entity’s interest in assets employed in the jointly controlled assets joint venture is detailed below:

2007$’000

2006$’000

Cash and Cash Equivalents 3 –

Trade and Other Receivables 30 28

total Current Assets 33 28

Receivables 9 9

Property, Plant and Equipment 85,312 45,832

total non-Current Assets 85,321 45,841

total Assets 85,354 45,869

Delta electricity Australia Pty. Ltd

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

67

14. ExpENdITurE COmmITmENTSExpenditure contracted for at reporting date but not recognised as liabilities in the Balance Sheet:

(a) Capital – plant and Equipment2007

$’0002006$’000

Payable no later than one year 16,391 44,611

Payable later than one, not later than 5 years – 2,424

Payable later than 5 years – –

16,391 47,035

(b) Operating (excluding lease commitments) – Operational and maintenance

Payable no later than one year 1,829 1,556

Payable later than one, not later than 5 years 1,417 730

Payable later than 5 years 3,823 2,080

7,069 4,366

Delta Electricity Australia Pty. Ltd expects to receive input tax credits from the Australian Taxation Office totalling $1,622,000 (2006: $4,408,000) for Goods and Services Tax paid for these commitments.

15. OpErATINg LEASE COmmITmENTSFuture operating lease rentals contracted for at reporting date but not recognised as liabilities in the Balance Sheet:

Payable no later than one year 7 7

Payable later than one, not later than 5 years 31 30

Payable later than 5 years 280 289

318 326

Delta Electricity Australia Pty. Ltd has entered into a number of leases in respect of the Sunshine Electricity Joint Venture to support operating activities. The leases have varying terms, escalation clauses and renewal rights and are due to expire within 18 to 44 years. Delta Electricity Australia Pty. Ltd expects to receive input tax credits from the Australian Taxation Office totalling $29,000 (2006: $30,000) for Goods and Services Tax paid for these commitments.

16. CONTINgENT LIABILITIES ANd CONTINgENT ASSETSThere were no known contingent liabilities or contingent assets in existence at reporting date.

17. FINANCIAL INSTrumENTS

(a) derivative InstrumentsDelta Electricity Australia Pty. Ltd has entered into three long term interest rate swaps for the duration of its externally funded debt. The swaps are used to alter and modify the natural risks inherent in the Balance Sheet.

Interest rate Swaps

Less than one year – –

One to five years – –

Greater than five years 70,000 70,000

70,000 70,000

The total notional amount of interest rate swaps is $70,000,000 with Delta Electricity Australia Pty. Ltd receiving floating interest and paying fixed interest.

The instruments are recognised on the Balance Sheet at fair value as measured by the instrument providers.

For interest rate swaps which qualify as cash flow hedges and meet the conditions of hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the Income Statement.

At reporting date, all interest rate swaps qualified as fully effective hedges.

If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year. For interest rate swaps that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year.

(b) Credit risk ExposuresThe credit risk on financial assets which have been recognised on the Balance Sheet is generally the carrying amount.

(c) Fair ValuesThe financial assets and financial liabilities of the entity are recorded at fair value.

Delta electricity Australia Pty. Ltd

Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

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17. FINANCIAL INSTrumENTS (CONTINuEd)

(d) Interest rate riskThe following table sets out the carrying amount by maturity of financial instruments exposed to interest rate risk at 30 June 2007.

Financial instruments maturing in CarryingAmount

$’000

<1 year$’000

>1 <2 years$’000

>2 <3 years$’000

>3 <4 years$’000

>4 <5 years$’000

>5 years$’000

Financial Assets

Floating Rate

Cash and Cash Equivalents 13 13

Financial Liabilities

Fixed Rate

Borrowings 68,678 68,678

All other financial assets and financial liabilities are non-interest bearing.

The weighted average interest exposure on financial assets is 5.5% (2006: 5.0%). The weighted average interest exposure on financial liabilities (net of interest rate swaps) is 7.3% (2006: 7.3%).

The following table sets out the carrying amount by maturity of financial instruments exposed to interest rate risk at 30 June 2006.

Financial instruments maturing in CarryingAmount

$’000

<1 year$’000

>1 <2 years$’000

>2 <3 years$’000

>3 <4 years$’000

>4 <5 years$’000

>5 years$’000

Financial Assets

Floating Rate

Cash and Cash Equivalents 337 337

Financial Liabilities

Fixed Rate

Borrowings 39,718 39,718

All other financial assets and financial liabilities are non-interest bearing.

18. NOTES TO THE CASH FLOw STATEmENT

(a) Cash and Cash EquivalentsFor the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash at bank and in hand, short term deposits and short term investments, net of outstanding bank overdrafts and borrowings which are used in the cash management function on a day to day basis.

(b) reconciliation of Cash and Cash EquivalentsCash and cash equivalents at the end of the financial year as shown in the Cash Flow Statement is reconciled to the related items in the Balance Sheet as follows:

2007$’000

2006$’000

Cash and Cash Equivalent Assets 13 337

Balance as per Cash Flow statement 13 337

(c) dividends and TaxesNo dividends were received during the period (2006: $Nil). There were no dividend or tax equivalent payments during the period (2006: $Nil).

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Notes to and forming part of the Financial ReportFor Year Ended 30 June 2007

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18. NOTES TO THE CASH FLOw STATEmENT (CONTINuEd)

(d) Acquisitions and disposal of EntitiesThere were no acquisitions or disposals during the year.

(e) Financing Arrangements2007

$’0002006$’000

Facilities Available

Project Borrowing Facility 70,000 70,000

Total Available 70,000 70,000

Facilities Utilised

Project Borrowing Facility 68,678 41,040

Total Utilised 68,678 41,040

(f) reconciliation of profit/(Loss) for the year after related Income Tax Expense to Net Cash provided/(used) by Operating Activities

Profit/(Loss) for the Period after Related Income tax expense (26) 596

Net Changes in Assets and Liabilities During the Period

(Increase)/Decrease in Other Receivables 138 37

(Increase)/Decrease in Other Assets (234) (307)

Increase/(Decrease) in Payables 96 (200)

Increase/(Decrease) in Income Tax Related Assets/Liabilities (12) 255

Increase/(Decrease) in Other Liabilities – (626)

net Cash Provided/(Used) by operating Activities (38) (245)

19. rELATEd pArTy dISCLOSurES

(a) Key management personnelThe Directors of the entity at 30 June 2007 were Mr JP Henness and Mr W Phillips. Mr JP Henness and Mr W Phillips were directors for the full financial year.

The above officers are also Directors of the parent entity. No additional remuneration is provided for being a Director of Delta Electricity Australia Pty. Ltd.

(b) ultimate parent EntityThe ultimate parent entity at reporting date is Delta Electricity.

(c) related party TransactionsThe following table provides details of transactions that were entered into with related parties:

Related Party

Advance to related parties

$’000

Advance from related parties

$’000

Purchases / (Sales) from

related parties$’000

Amounts owed to

related parties$’000

Delta Electricity 2007 – 10,223 1,175 17,592

2006 – 1,255 942 7,369

Sunshine Electricity Joint Venture 2007 168 – – 25

2006 250 – 5 25

20. EVENTS OCCurrINg AFTEr rEpOrTINg dATEThere were no significant events occurring after reporting date.

END OF AUDITED FINANCIAL REPORT.

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Delta electricity Australia Pty. Ltd

Statement by Members of the Board

Pursuant to Section 41C of the Public Finance and Audit Act, 1983, and in accordance with a resolution of Delta Electricity Australia Pty. Ltd, we declare on behalf of Delta Electricity Australia Pty. Ltd that in our opinion:

1. The accompanying Financial Statements exhibit a true and fair view of the financial position of Delta Electricity Australia Pty. Ltd as at 30 June, 2007 and its performance for the year ended on that date.

2. The accompanying Financial Statements are a general purpose financial report which has been prepared in accordance with Australian Accounting Standards including Australian Accounting Interpretations, the New South Wales Public Finance and Audit Act and Regulation, and requirements of the State Owned Corporations Act, 1989 (as amended).

3. At the date of this statement, there are reasonable grounds to believe that Delta Electricity Australia Pty. Ltd will be able to pay its debts as and when they become due and payable.

4. We are not aware of any circumstances at the date of this declaration that would render any particulars included in the financial report to be misleading or inaccurate.

Warren Phillips Jim Henness DIRECTOR DIRECTOR

20 September 2007 20 September 2007

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ContentsInside front cover Letter to voting shareholders1 Highlights2 Chairman’s Report4 Chief executive’s Report6 Profile7 Locations8 Key Performance Indicators9 Operations Review14 Governance21 Financial Report 2007Inside back cover IndexBack cover Contact details

Tables8 Table One: Key Performance Indicators – Statistical Summary11 Table Two: Development Projects13 Table Three: Trends in the Representation of eeO Groups13 Table Four: Trends in the Distribution of eeO Groups14 Table Five: Directors’ Meetings16 Table Six: executive Committees17 Table Seven: executive Remuneration18 Table eight: expenditure on Consultants

Communication objectives This annual Report is a financial and compliance report, prepared to meet the requirements prescribed by the annual Reports (Statutory Bodies) Regulation 2005. It takes into account exemptions granted by the Treasurer in July 1997.

a separate sustainability report is prepared consistent with the energy Supply association of australia Code of Sustainable Practice which provides guidelines for reporting on economic, social and environmental matters. The 2006/2007 Sustainability Report will be made available on the Delta website www.de.com.au

Featured on the cover:at Mt Piper Power Station, two natural draught hyperbolic cooling towers cool the circulating water after it has passed through the turbine steam condenser. Most of the water is recycled using water treatment plants.

Dear Shareholders,

It is with pleasure that the Board of Delta electricity submits its annual Report for the period of 1 July 2006 to 30 June 2007 as required under the annual Reports (Statutory Bodies) act. The annual Report covers the activities of Delta electricity for the year and contains the Statement of accounts for the period ended 30 June 2007.

The annual Report includes a letter of submission to the voting shareholders and was prepared in accordance with Section 24a of the State Owned Corporations act 1989 and the annual Reports (Statutory Bodies) act 1984. It is being submitted for presentation to Parliament.

Yours faithfully,

The Hon M Costa, MLC Treasurer, Minister for Infrastructure, and Minister for the HunterLevel 31, Governor Macquarie Tower1 Farrer PlaceSYDNeY NSW 2000

The Hon J Watkins, MLCDeputy Premier, Minister for Transport, Minister for FinanceLevel 30, Governor Macquarie Tower1 Farrer PlaceSYDNeY NSW 2000

Aapprentices 11auditor-General’s Opinion 55, 72

BBoard Committees 14Board Meetings 14Board of Directors 14Balance Sheets 22, 57

CChairman’s Report 2Chief executive’s Report 4Community Relations 11Consultants 18Cost of Reporting 19Cash Flow Statements 25, 60

DDisability Plan 13Diversity 13

Eenvironment 9equal employment Opportunity 13ethnic affairs Statement 13executive Committees 16executive Management Team 16exemptions 19

FFinancial Statements 23-72Freedom of Information 20

GGovernance 14-20

LLetter to Shareholders Inside Front CoverLocations 7, Back Cover

MMission 6

OOrganisation Structure 14Overseas Visits 19

PPerformance Summary 8Profile 6

RReporting Objectives Inside Front CoverRisk Management 13

S Safety 12Statement by Members of the Board 54, 71

V Values 6Vision 6

Index

Peter yOung CHaIRMaN

JiM HenneSS CHIeF exeCuTIVe

annual report 2007

Corporate OfficeLevel 12 Darling Park 201 Sussex Street Sydney NSW 2000 Telephone 02 9285 2700 Facsimile 02 9285 2777 Office Hours 8.30am – 5.00pm

Mt Piper Power Station350 Boulder Road Portland NSW 2847 Telephone 02 6354 8111 Facsimile 02 6354 8112 Office Hours 7.45am – 4.00pm

Munmorah Power StationScenic Drive Doyalson NSW 2262 Telephone 02 4390 1611 Facsimile 02 4390 1642 Office Hours 7.45am – 4.00pm

Vales Point Power StationVales Road Mannering Park NSW 2259 Telephone 02 4352 6111 Facsimile 02 4352 6007 Office Hours 7.45am – 4.00pm

Wallerawang Power Station1 Main Street Wallerawang NSW 2845 Telephone 02 6352 8611 Facsimile 02 6352 8847 Office Hours 7.45am – 4.00pm

Delta MaintenanceMunmorah Power Station Scenic Drive Doyalson NSW 2262 Telephone 02 4390 1606 Facsimile 02 4390 1642 Office Hours 7.45am – 4.00pm

Website

http://www.de.com.au

ISSN 1327-6557

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