Macquarie Generation - Parliament of NSW

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Macquarie Generation

ABN: 18 402 904 344

Financial Statements for the period 1 July 2014 to. 27 February 2015

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MACQUARIE GENERA"IlON STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD 1 JULY 2014 TO 27 FEBRUARY 2015

Discontinued operations Revenue Other income, excluding gains on derivative finandal instruments Finance costs Carbon tax expense Other expenses L.oss on sale of the enUre disposal group Net fair value gains on derivative financlallnstruments {Loss) Profit from discontinued operations before income tax expense Income tax beneflt on profit from discontinued operations (Loss) Profit from discontinued operation, net of tax

Net (Loss) Profit .tor the period attributable to Owner of the Corporation

Other comprehensive income from discontinued operaUons

Ot!ter comprehensive income from discontinued operations Items that may be reclassified subsequently to profit or loss: Changes ln fair value of cash flow hedges net of tax Balance reclassified to profit or loss I tams that will not bo reclassified subsoquenUy to profit or loss: Revalualion (decrement) increment on property, plant and equipment net of tax Defined benefit superannuation actuarial gains (losses) net of tax Other comprehensive income (foss) from discontinued operations, net of tax Total comprehensive income (loss) for the period attrlbutablo to Owner of the Corporation

1July2014~

Notes 27 February 2015

3 3 4 4 4 4 3

$'000

144,262 6,263

(66,310) 2,338

(124,519) (224,694)

1!500 (261,160)

(244,908)

(26,681)

(26,681)

(271,589)

The above statement of comprehensive income should be read In conjunction with the accompanying notes

1 July2013-30June2014

$'000

1,092,916 18.495

(55,912) (296,577) (801,347)

153,633

40,067 (63,437)

(218,957) (94,393)

(336,720)

(183,087)

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MACQUARIE GENERATION STATEMENT OF FINANCIAL POSITION AS AT 27 FEBRUARY 2015

Current Assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Current tax assets Deferred tax assets Other assets Assets classified as held for sale Total Current Assets

Non~urrent Assets Property, plant and equipment Deferred tax assets Intangible assets Derivative financial instruments Total Non·CurrentAssets

Total Assets

Current liabilities Trade and other payables Borrowings Derivative financial instruments Deferred tax liabilities Provisions Liabilities directly associated with disposal group classified as held for sale Total Current Liabilities

Non~Current Liabilities Borrowings Derivative financial instruments Deferred tax liabilities Provisions Total Non.Current Liabilities

Total Liabilities

Net Assets

Equity Contributed equity Reserves Retained profits Total Equity

27 February Notes 2015

$'000

8 9

13 5 11 14 6

10 11 12 13

15 16 13 17 18 6

16 13 17 18

19(a) 19(b) 19(c)

The above statement of financial position should be read in conjunction with the accompanying notes

30 June 2014 $'000

370,167 19,810

22,714

176 1,853,499 2,266,366

133

133

2,266,499

28,851 713,557

1,447 16,252

139,536 440,128

1,339,771

1,339,771

926,728

281,078 514,455 131,195 926,728

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MACQUARIE GENERATION STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD 1 JULY2014 TO 27 FEBRUARY 2015

Contributed Asset Cash ftow Retained Total Equity Revaluation hedge profits Equity

At 1 July 2014 281,078 514,455 131,195 926,728

Loss for the period (244,908) (244,908) Other comprehensive loss (26,681) [26,681)

Total comprehensive Joss for the period (271,589) (271,589)

Movement in Reserves 19(b) Transfer to I (from) reserves [514,455) 514.455 Transactions with owners In their capacity as owners: Transfers to Crovm 1 9[c) [281,078) (374,061) (655,139) At27 February 2015

Conbibuted Asset Cash flow Retained Total Equity Revaluation hedge profits Equity

Reserve reserve At 1 July 2013 281,078 732,810 23,370 72,557 1,109,815

Profit for the period 153,633 153,633 Other comprehensive income (218,957) (23,370) (94,393) (336,720)

Total comprehensive Income for the year (218,957) (23,370) 59,240 (183,087)

Movement in Resarvos 19(b) 602 !602) Al30 June 2014 281.078 514.455 131,195 926,728

The above statement of changes In equity should be read In conjunction with the accompanying notes

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MACQUARIE GENERATION STATEMENT OF CASH FLOWS FOR THE PERIOD 1 JULY 2014 TO 27 FEBRUARY 2015

Cash Flows from Operating Activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest received Interest paid Income tax pa:id Receipt of Insurance proceeds NET CASH INFLOWS I (OUTFLOWS) FROM OPERATING ACTIVITIES

Cash Flows from Investing Activities Proceeds from sale of property, plant & equipment Proceeds from disposal of discontinued operation Payments for property, plant and equipment Payments for Intangible assets NET CASH INFLOWS I (OUTFLOWS) FROM INVESTING ACTIVITIES

Cash Flows from Financing Activities Proceeds I (Repayments) of New South Wales Treasury Corporation loans Dividends paid to Shareholders NET CASH (OUTFLOWS) FROM FINANCING ACTIVITIES

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the financial petiod Cash transferred (out) as a result of administraUve restructuring CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD

1 July 2014 • Notes 27 February 2015

$'000

183,152 (331,698)

4,634 (6,118)

3,200 20 !146,830)

681,357

681,357

(780,520)

!780.520!

(245,993) 370,167

19(c) !124,174! 8

The above statement of cash flows should be read In conjunction with the accompanying notes

1 July2013-30June2014

$'000

1,268,479 (1,083,117)

14,165 (68,894) (24,258)

7,000 113,376

634

(39,249) (1,131)

!39,746)

2,229 (30,000) (27.771)

45,858 324,309

370,167

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MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY 2014 TO 27 FEBRUARY 2015

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted In the preparation of the Financial Statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(a) Basis of Preparation

The General Purpose Financial Statements have been prepared In accordance with appllcab\e Australian Accounting Standards, the State Owned Corporations Act 1989, and mandatory professional reporting requirements.

These Rnanclal Statements are prepared on the basis that the Corporation Is a Discontinued Operation due to their significant asset sale In September 2014 as described In Nate 6(a) and vesting of remaining assets and !labi11Ues to other government agencies in Janual)' and February 2015. It should be noted the following the vesting of such assets and liabilities out of the Corporation, Macquarie Generation was dissolved on 27 February 2015.

The Corporation ls classified as a for-profit entity for the purposes of the application of Australian Accounting Standards and after consideration of all factors contained in New South Wales Treasury Policy TPP 05-4 Distinguishing For-Profit from NotFor-Profit Entities.

(il) Australfan Accounting Standards In the current reporting period the Corporation has adopted all of the new and revised Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for annual reporting periods beginning on 1 July 2014. Material changes In reported results arising from adoption of new standards are noted below.

(Iii) Historic cost r;onvention These Financial Statements have been prepared under the historic cost convention, as modified by the revaluation of financial assets and llablHHes, lndudlng derivative financial instruments, at fair value through profit or loss, revaluation of emission rights and property, plant and equipment, which as noted is at Independent or Directors' valuation.

(iv) Significant accounting judgements, estimates and assumptions Sjgnificant accountjoo \udgements

In the process of applying the Corporation's accounting policies, management has made various judgements, apart from those Involving estimates, which have significant effect on the amounts recognised in the Financial Statements. Judgements for the comparative period were made with an underlying business as usual assumption:current period judgements assume the privatlsation ofthe Corporation as discussed in Note 6(a}.

Significant accounting judgements (continued) The definition of an asset in accordance with AASB 116 Property, Plant and Equipment for the purposes of offsetting revaluation Increments and decrements in the asset revaluation reserve has been determined to be at the power station level. The rationale for this It that all components of the complex Infrastructure asset being the power station plant must function and combine together to produce eiecbiclty.

This interpretation Is in accordance with New South Wales Treasury's Mandates of Options and Major Policy Decisions under Australian Accounung Standards (fC14-03) which are mandatory for all New South Wales public sector agencies.

Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions thai have a significant risk of causing a material adjustment 1o the carrying amounts of certain assets and liabilities are as follows:

• Defined benefit superannuation funds Various actuarial assumptions are required when determining the Corporation's defined benefit obligations. The nature of the assumptions and related canylng amounts are disclosed In Note 24- Superannuation.

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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(a) Basis of Preparation (continued)

Significant accounting estimates and assumptions (continued) • Property, plant and equipment Various assumptions are required when determining the Corporation's fair value and recoverable amount In relation to property, plant and equipment The nature of the assumptions and related carrying amounts are disclosed in Note 10 - Property, Plant and Equipment.

·Valuation of long dated electricity supply contracts Various assumptions are required when determining the Corporation's fair value of long dated electricity supply contracts. The assumptions are disclosed In Note 1(q).

• Impairment of assets The Corporation assesses whether there Is any Indication that any asset may be i~aired at the end of each reporting period, In accordance with Note (f). For the purposes of assessing Impairment, assets are grouped at the lowest levets for which there are separately identifiable cash flows which are largely Independent of the cash inflows from other assets or groups of assets (cash generating units). Key estimates and assumptions are made in determining the recoverable amount of assets including demand, gas price, the Impact of the carbon pricing mechanism and the discount and escalation rates.

The sources for the key estimates and assumptions, leading to uncertainty In valuations, include:

(a) Forecast electricity prices The projected cash flows include the estimated electricity price for future periods which Is detennined by forecast demand projections. Demand forecasts are based on Management's expectation taking Into account current and historical market conditions and forward year growth rate estimates.

(b) Gas Prices New entrants are assumed to be predominantly gas fired with a component of renewable energy sources. Gas price forecasts are essential for understanding the long term impact of new gas fired entrants into the electricity market and corresponding Impact this would have on pricing, loss of market share and reduced generation for coal fired operators. The forecast gas price is based on the AEMO National Transmission Network Development Plan.

(c) Carbon price On 18 November 2011 the Clean Energy Act 2011 (Act) received Royal Assent and was substantively enacted. The Act Implemented a carbon pricing mechanism from 1 July 2012. Assumptions for the comparative period Included an Initial carbon price at commencement on 1 July 2012 of $23ft COl and then a transition to a cap and trade pricing mechanism from 1 July 2015. During the financial period The Clean Energy legislation (Carbon Tax Repeal) Act 2014 succesfully repealed the Clean Energy Act 2011, thereby abolishing the carbon pricing mechanism with effect from 1 July 2014.

(d) Discount rate The discount rate Is used to calculate the present value of projected future cash flows. The rate represents a pre--tax weighted average cost of capital (WACC) being the estimate of the overall required rate of return on an investment for both debt and equity owners. Determlriatlon of the WACC Is based on the separate analysis of debt and equity costs utilising publ!cally available Information including the risk free Interest rate, a risk premium based on comparable companies within the Industry and the underlying cost of debt.

•Inventories Coal stockpile levels are determined through volumetric and density surveys undertaken by registered surveyors, Craven Elliston & Hayes (Lithgow) Pty Ltd, on behalf of the Corporation. Significant estimate and judgment Is used when extrapolating sample survey data collected across coal stockpiles. Any variation in density or volume between the sample collected and actual stockpile may impact the Corporation's reported financial position and results which indudes Inventory and other expenses.

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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED}

(b) Income Tax

Macquarie Generation was subject to the National Tax Equivalent Regime which reflects Federal income Tax legislation.

The Income tax expense for the period is the tax payable on the current period's taxable income based on the company income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts In the Financial Statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities settled. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised In relation to these temporary differences if they arose In a transaction, other than a business combination, that at the time of the transaction did not affect el\her accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences, carry-forward of unused tax losses and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Current and deferred tax balances attributable to amounts recognised directly in Equity or Other Comprehensive Income are also recognised directly In Equity or Other Comprehensive Income respectively.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same tax authority.

(c) Other Taxes- Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred by the Corporation as a purchaser that is not recOverable from the Australian Taxation Office {ATO) is recognised as part of the cost of acquisition of an asset or as part of an item of expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or current liability in the Statement of Financ!al Position.

Cash flOVoiS are included In the Statement of Cash Flows on a gross basis and th~ GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the ATO are classified as operating cash flows.

(d) Foreign Currency Translation

Transactions denominated in a foreign currency are converted to Australian dollars at the exchange rate at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated tn foreign currencies are recognised In the Statement of Comprehensive Income, except when recognised in other comprehensive income and deferred in equity as qualifying cash flow hedges.

(e) Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Corporation and the revenue can be reliably measured. Revenue is measured at the fair value of the conslderatlon received or receivable. The following specific recognition criteria must also be met before revenue Is recognised:

(i) Electricity sales are recognised when metered as delivered. Electricity sales revenue comprises National ElectriCity Market settlements at spot market prices, net payments due to the Corporation by counterpartles In respect of electricity derivative contracts and a direct supply contract.

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(e) Revenue Recognition {continued)

Electricity production by-products sales are recognised when the significant risk and rewards of ownership of the goods have passed to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Risks and rewards of ownership are considered passed to the buyer at the time of delivery of the goods to the customer.

(ii) Interest revenue is recognised as Interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which Is the rate that exactly discounts estimated fUture cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

(f) lmpalnnant of Assets

The Corporation assesses whether there Is any Indication that an asset may be Impaired at the end of each reporting period. If any such Indication exists, or when annual Impairment testing for an asset Is required, the Corporation makes an estimate of the asset's recoverable amount. An assefs recoverable amount is the higher of Its fair value less costs to sell and its value in use and is determined for an Individual asse~ unless the asset does not generate cash Inflows that are largely independent of those from other assets or groups of assets and the asset's value In use cannot be determined to be close to Its fair value. In such cases the asset is tested for Impairment as part of the cash-generating unit to which it belongs. Infrastructure assets are considered to belong to one cash generating unit on the basis that all components of the complex infrastructure asset being the power station plant must function and combine together to produce electricity.

In accordance with New South Wales Treasury Accounting Policy Valuation of Physical Non-Current Assets at Fair Value (TPP 14-01 ), the recoverable amount of specialised property plant and equipment is based on an entity specific value in use model unless there is market based evidence of selling prices available. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit Is considered impaired and is written down to its recoverable amount. Estimates induded in management's assumptions are described In Note (a). Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the Impaired asset unless the asset is carried at revalued amount with a resulting reserve carried in equity, in which case the Impairment loss is treated as a revaluation decrease.

No valuation of property, plant and equipment was conducted effective 27 February 2015 as no balance of property, plant and equipment was held by the Corporation. This is discussed further in Note 10.

(g) Financial Assets

Financial assets are recognised when an entity becomes party to the contractual provisions of the instrument. Financial assets are iniUally measured at fair value. Transactions costs which are directly attributable to the acquisition or Issue of financial assets are added to the fair value of the finandal asset, as appropriate, on lniUal recognition. Transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are recognised immediately in the profit or loss.

Financial assets are classified into the following specified categories as either "fair value through profit or loss" (FVTPL), ~held to maturity investments", "available for sale" financial assets or "loans and receivables•. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. At the reporting date the types of Financial Assets for the purpose of disclosure was limited to "fair value through profit or loss", and nloans and receivables'.

Effective Interest Method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash recelpts through the expected life of the financial asset, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

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MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY2014 TO 27 FEBRUARY2015

NOTE 1. SUMMARY OF SiGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(g) Financial Assets {continued)

Financial Assets at Fair Value through Profit or Loss Rnanclal assets are classified as financial assets at fair value through profit or loss where the financial asset Is a derivative that Is not part of a qualifying hedge relationship. Financial assets at fair value through profit or loss are stated at fair value with any resultant gain or loss recognised in profit or loss. Fair value is determined in the manner described In Note 1(q).

Loans and Receivables Cash and cash equivalents and trade and sundJY debtors from which there are fixed or determinable receipts and are not quoted In an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest rate method less impairment. Interest is recognised by applying the effective Interest rate.

Available for sale financial assets Available for sale financial assets, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are Included In non-current assets unless management Intends to dispose of the Investment wllhln 12 months of the reporting date. Investments are designated as available for sale if they do not have fixed maturities and fixed or determinable payments and management intends to hold them for the medium and long term. Available for sale financial assets are stated at fair value with any resultant gain or loss recognised in other comprehensive income.

Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of Impairment at each reporting date. Financial assets are Impaired where there Is objective evidence that as a result of one or more events that occurred after the Initial recognition of the financial asset that the estimated future cash flO\NS of the Investment have been Impacted. For financial assets carried at amortised cost, the amount of the Impairment Is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of the financial asset Is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable Is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised In profit or loss.

Oerecoqnjtjon of financial assets A financial asset Is derecognised only when the contractual rights to the cash flows from the asset expire, or when It transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Corporation neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset the Corporation recognises its retained Interest in the asset and an associated llabi!lty for amounts It may have to pay.

On derecognltion of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the rumulatlve gain or loss that had been recognised In other comprehensiVe income and accumulated In equity Is recognised In profit or loss.

Statement of Cash Flows oresentatlon For Statement of Cash Flows presentation purposes cash and cash equivalents comprise cash on hand and deposits at call wfich are readily convertible to cash and are subject to an insignificant risk of changes in value, and bank overdrafts.

The deposits at call include deposits held vnth the Commonwealth Bank of Australia, New South Wales Treasury Corporation lndudlng the Hour~Giass Cash Facility and other ffnanciallnstitutions.

Sank overdrafts are shown within borrowings under current liabilities on the Statement of Financial Position.

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(h) Inventories

Stares and materials, coal and oil stocks are valued at the lower of cost and net realisable value.

Cost is determined using the weighted average cost method which is updated upon the receipt of new Items and Includes the costs incurred in bringing each product to Its present location and condition.

(i) Property, Plant and Equipment

Capitalisation and Initial Recognition Property, plant and equipment are brought to account at cost or at fair value, less, where applicable, any accumulated depreciation and accumulated Impairment losses.

In general, non-current physical assets with a value greater than $1,000 are capitalised.

Valuation of Propertv. Plant and Equipment Property, plant and equipment are valued at fair value in accordance with Australian Accounting Standard AASB 13 Fafr Value Measurement and New South Wales Treasury Accounting Polley Veluation of Physical Non-Current Assets at Fair Value (TPP 14-01), which provides additional guidance on applying AASB 13 to public sector assets.

Methods selected for valuing property, plant and equipment maximise the use of relevant observable Inputs and minimise the use of unobservable inputs.

Property, plant and equipment classified within disposal groups held for sale are valued as part of that group In accordance with Australian AccounUng Standard AASB 5 Non-current Assets Held for Sole and Discontinued Operations.

Revaluations are made with sufficient regularity to ensure that the carrying amount does not materially differ from fair value at reporting date. Subject to the above, assets are revalued at least every fwe years.

Where the Corporation revalues depredable assets by reference to an Index to the depreciated replacement cost, the gross amount and accumulated depreciation are separately stated. Otherwise, any accumulated depreciation at the date of revaluation Is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.

Increases in the carrying amounts arising on the revaluation of property, plant and equipment are credited to the asset revaluation reseJVe in equity. To the extent that the Increase reverses a decrease previously recognised in profit attributable to the same asset. the Increase Is tirst recognised in profit or Joss. Decreases that reverse previous increases of the same asset are first charged directly against the asset revaluation reserve In equity to the extent of the remaining reserve attributable to that asset. All other decreases are charged to !he Statement of Comprehensive Income.

Assets acquired or constructed since the last revaluation are valued at cost. Cost includes expenditure that Is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases for property, plant and equipment

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the Item wlll flow to the Corporation and the cost of the item can be measured reliably.

Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts Is Incurred. Similarly, when each major Inspection is performed, its cost is recognised In the carrying amount of the plant and equipment as a replacement only If It Is eligible for capitalisation.

All other repairo and maintenance. are charged to the Statement of Comprehensive Income during the financial period In which they are incurred.

Capitalisation of costs related to assets held for sale is discussed at Note 1 (s).

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MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY2014 T027 FEBRUARY2015


(I) Property, Plant and Equipment (continued)

Depreciation is calculated on a straight-line basis to write off the net cost or revalued amount of each Item of property, plant and equipmen~ other than freehold land, over its estimated useful life to the Corporation.

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

Estimates of useful lives are made on a regular basis for all assets and these are: Power Stations 50 years Other Buildings 30 - 35 years Other Plant and Equipment 2.5-15 years

Derecoqnlt!on and disposal An Item of property, plant and equipment is derecognlsed upon disposal or when no further future economic benefits are expected from Its use or disposal.

Any gain or loss arising on derecagnit!on of the asset, calculated as the difference between the net disposal proceeds and the carrying amount of the asset, is included in profit or loss in the period the asset is derecognlsed.

Upon disposal, any revaluation reserve relating to the particular asset being sold Is transferred to retained profits.

Impairment The carrying values of plant and equipment are reviewed for Impairment at each reporting date; refer Note 1 {f).

Asset Revaluation Reserve

The asset revaluation reserve Is used to record Increments and decrements arising from the revaluation of non-current assets.

OJ Leased Assets

The determination of whether an arrangement contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment ofthe arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Macquarie Generation leased a large proportion of its mobile plant under fully maintained operating leases. Operating lease payments are recognised as an expense In the Statement of Comprehensive Income on a straight-line basis over the period of the lease.

(k) Intangible Assets

lntangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses where It has been determined there Is no actiVe market.

Intangible assets with finite lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight line basis over the estimated useful life.

The useful lives of Intangible assets are assessed to be either finite or Indefinite. Any lndefinile life assessment is reviewed each reporting period to determine whether it continues to be supportable. If not supportable, the change In the useful life assessment from Indefinite to finite would be accounted for as a change in accounting estimate.

Intangibles With indefinite useful lives are tested for impainnent annually.

Internally generated intangible assets Research costs are recorded as an expense as incurred.

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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (CONTINUED)

(k) Intangible Assets (Continued)

Management judgement is required to determine whether to capitalise development costs. Development costs are only capitalised if it can be demonstrated that the project is technically and commercially feasible, an asset arises that can be sold or used to generate revenue or savings, and 1he Corporation has sufficient resources and Intent to complete the development and ability to reliably measure the expenditure attributable to the Intangible assets during its development

Internally generated jntangible assets <continued) External costs of materials and services directly associated with the development phase of generating intangibles for lntemal use are capitalised when they satisfy the criteria described above.

Acouired Intangibles Water Access Ucences The Corporation had purchased Water Access Licences, which allowed access to certain categories of water under the Water Sharing Plan for the Hunter Regulated River Water Source.

The useful lives of water access licences had been assessed as indefinite since August 2005 unt!l their date of sale to AGL Macquarie Pty Limited on 2 September 2014 as they were held in perpetuity under the Water Management Act2000 with a title independent of any landholdings.

Amortisation Estimates of useful lives are made on a regular basis for all intangibles and these are: Water Licences Indefinite Salinity Credits 10 years Corporate Model 2.5 years

(I) Emission Rights

Macquarie Generation acquired Energy Saving Certificates (ESCs) as a participant In the New South Wales Energy Savings Scheme. The Corporation held purchased ESCs which were recognised in the Financial Statements at cost. The Corporation's ESC liability was recognised In the Financial Statements as a Current Provision at the estimated amount required to settle the obligation.

The COrporation also held internally generated and purchased Renewable Energy Certificates (REGs) which were recognised in the Financial Statements at fair value and cost respectively.

REC and ESC assets were tested annually for impairment.

At the tima of issuing these Financial Statements neither the International Accounting Standards Board nor the Australian Accounting Standards Board have issued authoritative pronouncements on the Accounting for Emission Rights.

(m) Carbon tax

In relation to the Carbon Pricing Mechanism, the Corporation records its emission liability in accordance with accounting standard AASB 137 Provisions, Contingent Uabf/Jtfes and ConUngrmt Assets.

Accountrng for emission liability As carbon dioxide is emitted, an obligation arises to deliver carbon permits to the Government. The emission liability and expense is recorded as and when carbon Is emitted throughout the period, with the expectation that the Corporation will cross the annual threshold.

Accounting for permits The permits are recorded based on the price per unit and classified as Other Assets. Carbon emission expense Incurred is presented on a net basis in the Statement of Comprehensive Income offset against the value of carbon permits received.

The emission liability and the permit assets are shown on a net basis, as the Corporation has a legally enforceable right to setoff the amounts of the permit and its obligation to pay for the emission !lability {I.e. 1he Corporation will only either be in a net liability or a net asset position since it will either have to pay the Government for Its emissions or holding permits in excess of what it is liable to pay) and intends to settle on a net basis.

During the financial period The Clean Energy Legislation {Carbon Tax Repeal) Act2014 succesfully repealed the Clean Energy Act 2011, thereby abolishing the carbon 1ax with effect from 1 July 2014.

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(n) Financial Instruments issued by the Corporation

Debt and equity Instruments are classified as either financial liabilities or equity In accordance with the substance of the contractual arrangement

(o) Financial Liabilities

Financial liabilities are classified as either financialliabiiiUes 'at fair value through profit or Joss' or other financialllabllitles.

Rnancial Liabilities at fair value through profit and loss Financial liabilities are classified as financial liabilities at fair value through profit or loss where the financial liability Is a derivative that does not form part of a qualifying hedge relationship. Flnanclalllabil!ties at fair value through profit or loss are stated at fair value with any resultant gain or loss recognised in profrt or loss. Fair value is determined in the manner described In Note 1 (p). ·

Other Financial Liabilities Otherflnanclalliabllities, including borrowings, trade and other payables, and security derx>sils, the latter of which Is disclosed as other liabilities, are initially measured at fair value, net of transaction costs. Other nnancia\llabillties, excluding security deposits, are subsequently measured at amortised cost using the effective Interest rate method.

Security deposits Include amounts provided under the terms of a long term electricity supply contract. The deposit was non~ interest bearing and was repayable upon any breach of contract by Macquarie Generation or upon completion of the contract in 2017.

(p} Derivative Financial lnstruments

Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date, The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Corporation designated certain derivatives as hedges of highly probable forecast transactions, being cash flow hedges.

The Corporation documents at the inception of the transaction the relationship between hedging Instruments and hedged Items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Corporation also documents its assessment, both at hedge Inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in cash flows of hedged Items.

The fair values of various derivative financial instruments used for hedging purposes are disclosed In Note 22. The movements in tha hedge accounting reserve In equity are shown In Note 19 (b).

Cash flow hedges The effective portion of changes In the fair value of derivative financial Instruments that are designated and qualify as cash flow hedges is recognised in Other Comprehensive Income in the hedge accounting reserve. The gain or loss relating to the ineffective porUon is recognised immediately in the profit of loss.

Amounts accumulated in Other Comprehensive Income are recycled in the profit or loss in the periods when the hedged Item will affect profit or loss, for example when the forecast electricity sale that Is hedged takes place In the same line as the recognised hedged Item. However, when the forecast transaction that is hedged results In the recognition of a non- financial asset, for example property, plant and equipment, or a non-financial liability, the gains and losses previously deferred In Other Comprehensive Income are transferred from Other Comprehensive Income and Included in the measurement of the initial cost or carrying amount of the non-financial asset or non-financial liability.

When a hedging instrument expires or Is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction Is ultimately recognised In the profit or lo5S, When a forecast transaction Is no longer expected to occur, the cumulative gain or loss that was reported in Other Comprehensive Income Is Immediately transferred to the profit or loss.

13


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (CONTINUED)

(p) Derfvatlve Financial Instruments

Derivatives that do not gualifv for hedge accounting

Certain derivative financial Instruments do not qualify for hedge accounting. Changes in the fair value of any derlvattve instrument that does not qualify for hedge accounting are recOgnised immediately in the profit or loss.

Embedded derivative Embedded derivatives are separated from the host contract and are accounted for separately at fair value.

The electricity derivative contracts ~ held for trading Includes the fair value of an embedded derivative in relation to a long term direct electricity supply contract.

{q) Fair Value of Financial Instruments

The fair value of financial assets and ftnanclalliabllit!es must be estimated for recognition and measurement, and for disclosure purposes.

Electricity and Interest Rate Derjvatives The fair values of financial assets and tlnandal Uabllltles including derivatives are determined as follows: • Those with standard terms and conditions and traded on active liquid markets are detennined with reference to quoted market prices. These currently include electricity and interest rate futures which are traded on futures exchanges.

• Other fair values are detennlned In accordance with generally accepted prtctng models based on discounted cash flow analysis and where applicable option pricing models using market rates from current observable current market transactions adjusted for any differences. These currenUy include electricity derivative contracts including swaps, options and the embedded derivative and forward foreign exchange contracts.

• The utilisation of management assumptions are limited to the cost plus margin methodology for the long tenn supply contracts. The main assumptions in the cost plus margin model are that of a ftx.ed ratio of cost Inputs (labour and raw materials). These inputs are substantially represented in the sales contracts to which relevant indexation applies. Accordingly. to the extent the ratlo of cost inputs remains significantly unchanged and the contracted indexation reflects changes in actual costs then the falr value since Inception must also remain slgnlficanUy unchanged. Management reviews cost ratios and indexation results on a recurring basis.

Other Rnaoda! Assets and Ejnanda! Liabilities The fair value of loans and receivables and other financial liabilities Is represented by their carrying value, except In regard to borrowings which are recognised at amortised cost. The fair value of other monetary financial assets and liabilities for disclosure purposes are based on market prices where markets exist or estimated by discounting the future contractual cash flows by the current market Interest rate that is available to the Corporation for similar derivative financial instruments.

(r) Hedge Accounting Reserve- Cash Flow Hedges

The hedge accounting reserve Is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly In equity, as described above. Amounts are recognised in the profit and Joss when the associated hedge transaction affects profit and loss.

(s) Disposal Groups Held For Sale

The Corporation classifies non-current assets and disposal groups as held for sale if their canying amounts will be recovered principally through a sale rather than through continuing use. This is only considered to be the case when the disposal group is available for Immediate sate In its present condition, the sale Is highly probable, and expected to be completed within one year from the date of the classification.

Where it is probable that future economic benefits associated with further costs will flow to the Corporation, these costs are also capitalised and classified as held for sale. Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

Disposal groups classified as held for sale are measured at the lower of their previous canying amount and fair value less costs to sell. Disposal groups are tested for Impairment with sufficient regularity to ensure that the carrying amount does not materially differ from fair value less costs to sell at reporting date.

14

...

'



(t) Maintenance and Repairs

Plant owned by the Corporation is required to be overhauled on a regular basis. This is managed as part of an ongoing major cyclical maintenance program. The costs of this maintenance ls charged as an expenses as incurred, except where it relates to the replacement of a significant component of an asset, In which case the costs are caplta!lsed and depreciated over the asset's rematnlng useful life In accordance with Note 1 (1). Other routine operating maintenance, repairs and minor renewal costs are also charged as expenses as incurred.

(v) Employee Benefits

Wages. Salaries and Annual Leave Liabilities for wages, salaries and annual leave expected to be settled within one year of the reporting date, are recognised In the provision for employee benefits In respect of services provided by employees up to the reporting date and are measured at the amounts expected to be paid when the liabftities are settled.

Liabilities for annual leave which are expected to be settled more than one year after the reporting date are recognised in the provision for employee benefits In respect of services provided by employees up to the reporting date, are measured at the amounts expected to be paid when the liabilities are settled and are discounted using Interest rates on Commonwealth Government Bonds with terms to maturity that match, as far as possible, the estimated future cash outflows.

Liabilities for non-accumulating sick leave are recognised when the leave Is taken and measured at the rates paid or payable.

Lono ServJw Leave A liability for long service leave Is recognised In the provision for employee benefits and is determined using the Projected Unit Credit ach.Jarial valuation method and represents the present value of expected future payments to be made in respect of services provided by employees up to balance date. Consideration is given to expected future wage and salary levels. experience of employee departures and periods of service. Expected future payments are discounted using interest rates on Commonwealth Government Bonds with terms to maturity that match, as far as possible, the estimated future cash outflows,

Superannuation Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.

A liability or asset in respect of defined benefit superannuation is recognised, and Is measured as the difference between the present value of defined benefit obligation at the reporting date and the fair value of the schemes' assets at that date. The liability Is assessed annually by actuaries based on data maintained by the SAS Trustee Corporation. It Is calculated using the latest actuarial economic assumptions applied to the schemes as a whole using the Projected Unit Credit actuarial valuation method.

The present value of the gross liability Is based on expected future payments, which arise from membership of the schemes to balance date In respect of the contributory service of current and past employees.

Consideration Is given to expected future wage and salary levels, expected future investment earnings rate, growth rate in Consumer Price Index, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on Commonwealth Government Bonds With terms to maturity that match, as closely as possible, the estimated future cash flows. The amount included in the Statement of Comprehensive Income in respect of superannuation represents the contributions made by the Corporation to the superannuation schemes, adjusted by the actuarial movement in the superannuation asset or liability.

Future taxes that are funded by the schemes and are part of the provision of the existing benefit obligation. for example taxes on Investment Income and employer contributions, are taken Into account In measuring the net liability or asset.

The actuarial gains or losses are recognised in retained earnings In the period In which they occur.

Employee Benefit on~costs Employee benefit on-costs, Including payroll tax, fringe benefits tax, superannuation and workers' compensation Insurance premiums are recognised and Included In employee benefit liabilities and costs when the employee benefits to which they relate are recognised as llab!Hties.

15

.,



{w) Provision for. Insurance

Macquarte Generation had an Insurance program wh!ch covered the Corporation for catastrophic public liability and property claims and motor vehicle damage.

It was cost effective for the Corporation to maintain an internal provision for insurance to provide for nonMcatastrophlc losses and other non-insurable claims.

The Provision for Insurance at 30 June 20131ncluded existing and future public liability dust diseases claims for employees of contractors and their relatives associated with Lie! dell Power Station. Macquarle GeneraUon's obllgaUons for dust disease claims were transferred to the Electricity Assets Ministerial Holding Corporation on 1 August 2013 with NSW Self Insurance Corporation appointed to undertake the claims management function.

(x) Provision for Dividends

Provision is made for dividends determined by the Directors on or before the end of the financial period but not distributed at the reporting date and is in accordance with New South Wales Treasury Dividend Policy.

(y) Provision for Mine Rehabilitation

The Corporation owned land, which included mine sites that had attached to them a statutory obligation to rehabilitate that land under the terms of a license issued by the Department of Primary Industries. The future rehabilitation costs were expected to be Incurred over the operating life of Bayswater Power Station and had been estimated by specialist Internal technical staff based on current information and legal requirements. The balance of the provision represented the net present value of the estimated future cash flows required to complete the rehabilitation process, discounted by the Corporation's weighted average cost of capital at30 June 2013. Following the sale of all land to AGL Macquarie Ptyltd on 2 September2014, no provision for mine rehabUitatlon is required at 27 February 2015.

(z) Government Grants

When grants are received that relate to an expense Item, they are recognised as income in the periods necessary to match the grant to the costs that it is Intended to compensate.

When the grant relates to an asset, the receipt is credited to deferred income and is released to the statement of comprehensive Income over the expected usefulllfe of the relevant asset

(aa) Rounding of Amounts

Amounts shown in these Financial Statements are rounded to the nearest thousand dollars and are expressed In Australlan currency.

(ab) Comparative Figures

Where necessary, comparative Information has been reclassified to enhance comparability in respect of changes in presentation adopted in the current period.

(ac) Corporate Information

The Financial Statements of the Corporation for the period 1 July 2014 to 27 February 2015 were authorised for issue in accordance with a resolution of the Directors of Macquarle Generation on 17 April 2015.

16

.,


NOTE 2. FINANCIAL AND CAPITAL RISK MANAGEMENT

The COrporation's principal financial Instruments; other than derivatives, comprise cash, receivables, payables, borrowings and other liabilities and are disclosed in Notes 8, 9,15 and 16. The Corporation's derivative financial Instruments are disclosed in Note 13.

The Corporation's activities Including the sale of wholesale electricity and treasury management expose It to a variety of financial risks including: • Market risk (Including currency risk, interest rate risk and price risk) • Credit risk • Liquidity risk

The Corporation's overall risk management program seeks to minimise potential adverse effects on the financial performance of the Corporation from unfavourable movements tn wholesale electricity prices, foreign exchange rates and interest rates. The COrporation uses derivative financial instruments such as a variety of electricity hedging contracts, foreign exchange contracts and interest rate derivative contracts to hedge certain risk exposures.

The corporalian's risk management framework comprises Board approved pollcles that govern the objectives, policies and processes for managing and monitoring the risks associated wlth financial Instruments, as described below.

The Board reviews compliance with these poll des and exposure limits.

(a) Market Risk

Foreign Exchange Risk In the normal course of business the Corporation entered into foreign currency contracts for future payments for the supply of Infrastructure parts and equipment These transactions exposed the COrporation to foreign exchange risk.

The Board approved policies required that the foreign exchange risk on exposures greater than $250,000 were managed through the use of forward foreign exchange contracts. The exposures are for the estimated future payments applicable under approved contracts entered Into by the Corporation for the firm commitment of the purchase.

The forward foreign exchange contracts must be ln the same currency as the hedged item and were entered Immediately after the contract is appropriately approved.

The forward foreign exchange contracts were timed to mature when the payments were expected to be made to the suppliers under the contract terms.

Interest rate risk The Corporaflon's exposure to market risk for changes in interest rates arises from its borrowings and investment of excess funds.

Borrowings- New South Wales Treasurv Corooration loans New South Wales Treasury Corporation (T-Corp) manages interest rate risk exposures applicable to specific borrowings of the Corporation In accordance with Board approved policies. T-Corp receives a fee tor this service which Includes a perfonnance component where T-Corp is able to add value by achieving a reduction in the Corporation's debt costs against an agreed benchmark.

The objectives of the Board approved policies are to contain the potential for financial loss from unfavourable movements In Interest rates. The Corporation managed interest rate risk with the use of interest rate swaps, Interest rate futures and options.

The Corparalion used interest rate derivative financial instruments in accordance with Board approved policies to establish short term (tactical) and longer term (strategic) positions within agreed tolerance limits to manage the portfolio duration and maturity profiles.

Details of Nrm South Wales Treasury Corporation loans are disclosed In Note 16.

17

'



(a) Market Risk (continued)

Investment of excess funds The Corporation held units In the New SOuth Wales Treasury Corporation Hour-Glass Cash Facility which Invests In cash and money market instruments with maturities of up to 2 years.

The unit price of the facility Is equal to the total fair value of the net assets held by the facility divided by the total number of units on issue for the facility. Unit prices are calculated and published daily.

The Corporation also held tenn deposits with financial institutions for maturities of 3 to 6 months.

Interest rate risk NSW Treasury Corporation (T-Corp) as trustee for the above facility is required to act In the best interests of the unit holders and to administer the trust in accordance with the trust deed. As trustee, T-Corp has appointed external managers to manage the performance and risks of the facility In accordance with a mandate agreed by the parties. T-COrp acts as manager for part of the Cash Facility. A significant portion of the administration of the facility is outsourced to an external custodian.

Electricitv Price risk Macquarle Generation operated In the National Electricity Market and sold the majority of its electricity output into the New South Wales Pool. Macquarle Generation received the New South Wales floating pool price per half hour based on the energy (MWh) supplied per half hour.

The overall objectiVe of the Corporation was to reduce the variability in cash flows associated with electricity sales within acceptable risk management guidelines and parameters as set out in the Board approved policies.

Electricity derivative contracts were used to manage the price risk associated With the sale of electricity.

Details of electricity derivative contracts are lnduded in Notes 22(b).

Credit risk refers to the risk that counterparties IJ.Jill default on their contractual obligations resulting in financial loss to the Corporation.

Macquarie Generation's maximum exposure to credit risk at balance date is represented by the canying amount of financial assets on the Statement of Financial Position Including any asset derivative financial instruments, net of any provision for Impairment of receivables and any collateral received from Individual counterparties not exceeding assets due from that counterparty.

The deposits held with T-Corp are guaranteed by the State of New South Wales and are AM-rated by Standard and Poors.

Macquarie Generation also requires the provision of performance guarantees from certain counterparties in accordance With the Corporation's contract management policy and NSW TC14101 Acceptance of Performance Bonds or Unconditional Und9rlakings by Government Agencies

The Corporation does not have any significant credit risk exposure to any single counterparty or a group of counterparties with similar characterlslics.

The Corporation has not granted any financ!al guarantees. Bank guarantees issued on behalf of the Corporation and provided as performance guarantees are included in amounts disclosed In Note 16.

18

.,.



{b) Credit Risk

Electricity Derivative Contracts The Corporation managed its credit risk exposure to Electricity Derivative Contracts by applying a Board approved policy under which the exposure limit applicable to each respective counterparty was determined With reference to an acceptable public credit rating assigned by an approved credit rating agency.

In the absence of an acceptable public rating, the Corporation requires acceptable credit support.

lhe Corporation calculates the credit exposure to contract counterparties in accordance with a Loss Given Default methodology.

forward foreign exchange contracts and Interest rate derlvativa contracts The Corporation was exposed to credit risks associated with Interest rate derivative transactions and forward foreign exchange contracts entered into on Its behalf by New South Wales Treasury Corporation in accordance with Board approved pol!c!es.

Transactions were restricted to high credit quality counterparties who have a strong or better capacity as defined by ratings agencies, to meet cash flow obligations.

Offsettlna financial assets and financial liabilities Financial assets and llab11ltles lnduded in the tables below: • are offset in the Corporation's statement of financial position; or • are subject to terms and conditions with similar characteristics to master netting agreements, however all amounts are disclosed on a gross balance as not all criteria for offsetting have been met.

Over the counter transactions subject to International Swaps and Derivatives Agreements (ISDA) terms and conditions may be offset where a default event occurs. Financial instruments transacted with brokers are subject to normal <:learing house rules including daily net settlement

The financial erfect or collateral held by the Corporation is also renected In the net amounts below.

Financial assets subject to offsetting, enforceable master netting agreements, collateral, and similar agreements

Gross amounts of Gross amounts of Net amounts of Related amounts not Net amount recognised recognised financial recognised financial offset in the

financial assets liabilities offset in the assets presented in the statement of statement of financial statement of financial financial position

position position

Financial instruments

(Including non~cash collateral)

•vw •""" •vvv •vvv •vvv

I~' reoruary ~u1o Electricity derivative . . . . . contracts

1101"' . . . . -

I"""""" <UI~ Electricity derivative 156,587 . 156,587 (41,014) 115,573 contracts 10<01 ooo,vor . •oo,oor '~'·"'~! .. ~.~,,

19

•.


NOTE 2. FINANCIAL AND CAFITAL RISK MANAGEMENT

(b) Credit Risk (continued)

Offsetting financfal assets and financial !jabi!lties <continued) Rnancialliabllitles subject to offsetting, enforceable master netting agreements, and s!mllar agreements

Gross amounts of Gross amounts of Net amounts of Related amounts not Net amount recognised recognised financial recognised financial offset In lhe

financial liabilities assets offset In the liabilities presented In statement of statement of financial the statement of financial financial position

position position

Financial Instruments

(including non~cash collateral)

$'000 $'000 $'000 $'000 $'000 27 February 2015

Electrfclty derivalive contracts . . . . Total . . . . 3D June 2014

Electricity derival1ve contracts 75,258 . 75,258 - 75,258 Total 75,258 . 75,258 - 75,258

(c) Liquidity Risk

Liquidity risk Is the risk that the Corporation will be unable to meet Its payment obligations when they fall due.

The Corporation continuously manages liquidity risk through monitoring future short and longer term cash flow forecasts to ensure 1here is adequate holding of high quality liquid assets and committed credit facilities.

The Corporation managed its liquidity risk elq)osure to New South Wales TreasuT)' Corporation loans by applying a Board approved policy which prescribes the prudential limits applicable to the maturity profile and liquidity limits of the total debt portfolio.

--

. -

The Corporation arranged with New South Wales Treasury Corporation sufficient borrowings and financing facilities limits under the Public Authorities (Financial Arrangements) Act 1987.

The details of credit standby arrangements and the used and unused loan facilities of the Corporation are dlsdosed In Note 16.

{d) Capital risk management

The Corporation's capital structure is maintained under the New South Wales Treasury Capital Structure Policy and the Shareholders' Statement of Corporate Intent process and remains unchanged from 2014.

The capital structure of the Corporation consisted of debt. which includes borrowings disclosed In Note 16, equity consisting of the contributed equity of the Shareholders and equity consisting of reserves and retained earnings as disclosed in Note 19. It should ba noted from 2 September 2014, the Corporation· repaid all outstanding debt

Operating cash flows are used to maintain and upgrade the Corporation's assets as well as to make the routine outflows of tax, interest and dividend and to periodically prepay debt

As a holder of an Australian Financial Services Licence (AFSL), the Corporation has regulatory requirements under the Corporations Law as regulated by the Australian Securities and Investments Commission (ASIC). In accordance with the Corporation's AFSL conditions. the Corporation's Net Tangible Assets must exceed $500 million in accordance with ASIC's regulate!)' definitions. The Corporation did not breach any of the AFSL conditions during the period and was cancelled by the date of signing the Financial Statements.

20

·,·


NOTE 3. REVENUE

Sales revenue Sale of electricity Sale of eleclricily production by-products

Other revenue Other miscellaneous revenue Interest -Net gain (loss) on financial assets designated as ''fair value through profit or loss" (FVTPL)

Revenue

Other Income Net gain on foreign currency derivatives at FVTPL Net gain on electricity derivative contracts at FVTPL Net gain on Interest rate derivative contracls at FVTPL Fair value gains on derivative financial Instruments at FVTPL

Revaluation increment~ non-infrastructure· buildings Government grants Service fees Insurance settlement proceeds Other income, excluding gains on derivative financial instruments Total other income

NOTE 4. EXPENSES

Proflt before Income tax expense includes the following specific expenses: Net loss on interest rate derivative contracts at FVTPL Fair value !asses on derivative financial instruments at FVTPL

Finance costs Interest and related finance charges on borrowings Mine restoration provision - change in discount rate Mine restoration provision- unwinding of discount

Depreciation and amortisation of: Buildings Plant and equipment Intangibles

Total Depreciation and amortisation

1 July2014· 27 February 2015

$'000

138,624 288

138,912

717 4,568

65 5,350

144,262

1,500 1,500

5,424 36

803 6,263 7,763

66,310

66,310

1 July2013-30 June 2014

$'000

1,076,862 1,706

1,078.568

1,139 5,839

7,370 14,348

1,092.916

774 70,701

71,475

391 638 466

17,000 18,495 89,970

1,436 1,436

54,221 1,224

467 55,912

413 110,880

733 112,026

21


NOTE 4. EXPENSES (continued)

Bad and doubtful debts Sundry debtors

Total bad and doubtful debts

Net (gain) loss on sale of entire disposal group

1 July 2014-27 February 2015

$'000

224,G94

1 July 2013-30June 2014

$'000

13 13

The Sale and Purchase Agreement (SPA) between the State of New South Wales, Macquarie Generation and AGL Maaqualie Ply Limited dated 12 February 2014, was implemented in acoordance with the Agreement dated 20 August 2014 between the parties. In accordance with the SPA, on 2 September 2014, $1.813 billion in assets and $284.4 million in liabilities were sold to AGL Macquarie Pty ltd, resulting in a loss on sale of assets recognised by the Corporation of $120.5 million. Further losses of$1 04.2 million were recognised an the subsequent close aut of exchange traded derivatives and the payment of the first and second working capital and capital expenditure adjustment. For additional disclosure on the sale of assets to AGL Macquarie Pty Limited, please refer to note 6(a).

Employee benefits Annual reave and long service leave entitlements 2,305 14,188 Service cost In defined benefits superannuation funds 1,064 5,840 Net interest expense in defined benefits superannuation funds 2,689 5,955 Superannuation contributions to accumulation funds 941 4,251 Salaries and wages 18,706 87,961

Total employee benefits expense 25,705 118,195

Operating lease rentals 831 2,430

Nonwexecutive Directors' remuneration 288 335

Auditors' remuneration Audit of the financial statements 140 254 Australian Financial Services licence Assurance 6

Consultants• fees 470 3,285

Write-downs (write-ups) in value of inventories (309) 5,256

Carbon tax expense (2,338) 296,577

The $2.338 mil!lon carbon tax expense adjustment was recognised In the financial period to reverse an overprovision of carbon tax In the prior period. Please refer to note 18 for additional disclosure.

22

MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY 2014 TO 27 FEBRUARY2015

NOTE 5. INCOME TAX EXPENSE

(a) Income tax recognised In Statement of Comprehensive Income for dist:ontinued operations Income tax expense comprises: Current tax expense/(benefit) Current tax under/( over) provided in prior years Income tax benefit not recognised Deferred tax {benefit) expense relating to the origination and reversal of temporary differences Income tax benefit

Disclosed In the Income Statement as: Income tax on profit Income tax benefit

Deferred income tax expense (benefit) included in income tax expense comprises: (Increase) decrease in deferred tax assets Increase (Decrease) In deferred tax liabilities

(b) Numerical reconciliation of income tax: expense to prima facie tax payable: (Loss) Profit before income tax from discontinued operations (Loss) Profit before income tax expense

Income tax at Corporation's income tax rate of 30% (2014 - 30%) Tax effect of amounts Which are not deductible (taxable) in calculating taxable income: Loss on sale of discontinued operations Entertainment expenses sundl)' Items

Current Income tax benefit not recognised Deferred tax balances derecognised Income tax expense (benefit)

Income tax expense (benefit) is attributable to: Discontinued operations

(c) Income tax recognised directly in other comprehensive Income for discontinued operations Aggregate current and deferred tax arising in the current reporting period and not recognised In net profit or loss but debited or (credited) directly to other comprehensive income Current tax: Revaluation of property. plant and equipment

Deferred tax: Revaluation of derlvaUve financial Instruments - cash flow hedges Actuarial valuation of defined benefits superannuation

(d) Current tax assets and liabilities Income tax (receivable) I payable by Macquarie Generation

Notes

11 17

1 July 2014 • 27 February 2015

$'000

(29,055)

29,055

(16,252) {16,252)

{16,252) !16,2521

(261,160) (261,160)

(78,348)

67,408

(18,115) (29,055) 29,055

(16,252) (16,252)

(16,252) (16,252)

1 July 2013 • 30 June 2014

$'000

20,833

(126,019) (126,019)

66,336 (213,188) !146,852}

27,614 27,614

8,284

14 218 232

(134,535) (126,019}

(.126,019) (126,019)

(314,319} (314,319)

(10,015) 77,927 67,912

(22,714) (22,714)

23

MACQUARie GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY2014 T027 FEBRUARY2015

NOTE 6. DISCONTINUED OPERATIOIIIS

(a) Details of disposed operations

The Electricity Generator Assels (Authorised Transactions) Act 2012 was assented to by the Governor of New South Wales on 5 June 2012. This legislation provides for the privatisation of New South Wales electricity generator assets Including those of Macquarie Generation. The Auslrallan Competition Tribunal approved AGL's appeal against the Australian Competition and Consumer Commission's ruling concerning the sale of Macquarie Generation's enabling the sale transaction to proceed. The Sale of Purchase Agreement ('SPA') between the State of New South Wales, Macquarie Generation and AGL Macquarle Pty Limited dated 12 Februal)' 2014 was implemented in accordance with the agreement dated 20 August 2014 between the two parties.

On 2 September 2014 the majority of Macquarte Generations assets and liabilities were sold to AGL Macquarte Pty Limited. Under the terms ofthe SPA, total gross proceeds were $1.505 billion however Macquarle Generation would be responsible for the payment of $97.240 million in stamp duty to the Office of State Revenue on behalf of the purchaser. As such, net proceeds in relation to the sale of assets was $1.4076 billion.

Total proceeds from the sale were receipted in 3 tranche payments. The first tranche of $800 mi11/on was received on 2 September 2014, the second trancha of $600 million less $96.1 million for working capital and capital expenditure adjustments was received on 25 September 2014 and the third tranche of $105 million net of final working capital adjustments of $7.9 million was received on 27 January 2015. Net proceeds received to date from the sale of assets have been utilised to repay Macquarie Generation's T-Corp loan, with any residual cash amounts transferred to Restart NSW. Please refer to note 9 and note 19 (c) for additional disclosures.

Following the vesting of all remaining assets and liabilities of the Corporation to various government agencies in the monlhs of Janual)' and Februal)' 2015, In accordance with vesting orders signed by the Treasurer on 29 January 2015, the Corporation was dissolved on 27 February 2015.

(b) Assets and liabilities and cash flow information of disposed entity

The major classes of assets and liabilities of discontinued operations held for sale are as follows:

Assets Trade and other receivables Inventories Properly Plant Equipment Intangible assets Derivatives

Assets classified as held for sale UebiHties Trade and other payables Provisions Derivatives other liabilities Liabilities classified as held for sate

Net assets attributable to discontinued operations held for sate Cash flows from (used in) discontinued operation Operating activities Investing activities Financing activities Net cash outflow

27 February 2015 $'000

(146,830) 681,357

30June 2014

s·ooo

83,961 195,614

1,406,392 10,945

156,587 1,853,499

84,079 239,367 75,258 41,424

440,128

1,413,371

113,375 (39,746)

During the period, the entirety of the Corporation was dassified as a discontinued operation. Cash flows from discontinued operations therefore reconciles to the Statement of Cash FloiNS.

24

--··-·-·---


27 February 2015 30 June 2014 $'000 5'000

NOTE 7. DIVIDEND

In accordance with the share dividends scheme detennined by the voting shareholders and as required by the Energy Services Corporation Act, 1995, the Board has not provided for a dividend payment for the 2014/2015 financial pertod (2014 ·$nil).

NOTE B. CASH AND CASH EQUIVALENTS

Cash on hand

Deposits in the New South Wales Treasury Corporation: (T-Corp) Hour-Glass Gash Facility Other depos~s at call Short-temn deposits

Reconciliation of cash at the end of the period The above figures are reconciled to cash at the end of the financial year as shown in the Statement of Cash Flaws as fallows: Balances as disclosed above Balances per Cash Flow Statement

NOTE 9. RECEIVABLES

Current Trade debtors Sundry Debtors Less: Provision for impairment of sundry debtors

Movements: Provision for impairment of sundry debtors Balance at the beginning of the period Additions Balance sold to AGL Macquarie Pty Ltd Balance at the end of the period

35

(35)

7

306,878 3,282

60,000 370,160

370,167 370,167

19,845 35

19,610

22 13

35

25

MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FORlHE PERIOD 1 JULY 2D14 TO 27 FEBRUARY 2D15

NOTE 1D. PROPERTY, PLANT AND EQUIPMENT

(a) Carrying values

The carrying amounts of each class of non-current property, plant and equipment at the beginning and end of the current and previous financial periods are set out below.

Power Stations Non- Infrastructure Total Plant and Plant and

Land Equipment Land Buildings Egulement Fair Value ($'000) Carrying amount at 1 July 2013 29,465 3,060,431 3,768 6,899 32,491 3,133,044 Additions 2 31,061 21 4,875 35,959 Revaluation increment I (decrement) 109 (1,733,915) (2,939) (1,736,745) Transfers (29.433) (1 ,356.437) (3,768) (3,981) (34,732) (1,428,351) Disposals (1,140) (2,634) (3,n4)

Carrying amount at 30 June 2014 133 133 Additions Revaluation increment I (decrement)

Transfers Disposals (133) (133)

Carrying amovnt at 27 February 2015

Depreciation and impairment carrying amount at 1 July 2013 (1,094,335) (3,358) (19,557) (1,117,250) Revaluation increment I (decrement) 1,200,530 3,329 1,203,859 Transfers 442 21,517 21,959 Disposals 439 2,287 2,726 lmpainnent Depreciation expense (106,634) (413) (4,247) (111,294)

Carrying amount al30 June 2014 Revaluation Increment I (decrement) Transfers Disposals Impairment Depreciation expense Carrying amount at 27 February 2015

Plant and Plant and Net Book Value ($'000) Land Equipment Land Buildings Equipment At 1 July2013 29,455 1,966,096 3,768 3,541 12,934 2,015,794 At 30 June 2014 133 133 At 27 February 2015

Notes: The above tables include work in progress carried at cost for Power Stations plant and equipment of $nil and nonInfrastructure plant and equipment of $nil (June 2014-$10.3 million total).

The gross replacement co5t for Power Stations plant and equipment at 30 June 2014 was $ntl (2014 -$9,843.6 million) and accumulated depreciation was $nil (2014 -$7,407.5 million). This does not include amounts for work In progress, capital spares and some additions which are Included In the fair value of Power Stations plant and equipment of $ntl (2014- $1.3 million) and disclosed in the above table.

Fo!!OW.ng the sale of assets to AGL Macquarie Pty Limited, no property, plant and equipment was held by the Corporation at 27 February 2015.

26

----------. -----·---- ---

MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY 2014 TO 27 FEBRUARY2015

NOTE 10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

(b) Valuation of Power Stations

The Directors' valuallons of infrastructure land and specialised plant and equipment assoo!ated with the power stations aro based on fair value.

In accordance with AASB 116 Prop9rl.y, Plant and Equipment the Directors are required to assess on an annual basis whether the carrying value of assets equates to fair value.

The Directors' have detennlned at 27 February 2015 that as all infrastructure assets have been sold to AGL Macquarie pty Ltd and the Corporation dissolved, no assessment Is required.

(c) The carrying amounts that would have been recognised If property, plant and equipment were stated at cost are as follows:

Power Stations: Land Cost

Plant and equipment Cost Accumulated depreciation

Total Power Stations

Non-infrastructure: Land Cos I

Buildings Cost Accumulated depreciation

Plant and oqulpment Cost Accumulated depreciation

Total non-Infrastructure

Total depreciated value of property, plant and equipment

NOTE 11. DEFERRED TAX ASSETS

The balance comprises temporary differences attributable to;

Amounts recognised in profit or loss Doubtful debts Defined beneflt superannuation funds Other employee benefits provisions other provisions Trade creditors Low value plant pools Derivative financial Instruments -held for trading Deferred Income Consultants' fees

27Februarv2015 $'000

30June2014 $'000

6.369 6,369

2,792.,083 (1.233.866) 1.558.217

1.564.586

2,464 2,464

8,821 (5.712) 3,109

36,747 (23,537) 13,210

18,783

1,583,369

27

MACQUARIE OENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY 2014 TO 27 FEBRUARY2015

NOTE 11. DEFERRED TAX ASSETS (CONTINUED)

Amounts recognised directly in equity Derivative financial instruments cash flow hedges Defined benefit superannuation funds

Net deferred tax assets

Movements: Opening balance at 1 July Credited (charged) to Income Credited (charged) to equity Closing balance

NOTE 12.1NTANGIBLE ASSETS

27 Februa 2015 Notes $'000

5

30 June2014

123,162 (66,336) (56,826)

The carrying amounts of each class of non-current Intangible assets at the beginning and end of the current and previous financial period are setout below.

(a) Period ended 27 February 2015 Water entitlements Salinity Trading Scheme Credits Accumulated amortisation Corporate Model Accumulated amortisation

(b) Year ended 30 June 2014 Water entitlements Salinity Trading Scheme Credits Accumulated amortisation Corporate Model Accumulated amortisation

{c) Reconciliations

'ZT February 2015

30 June 2014

1 July 2014

1 July 2013 9,674

386 (55)

1,640

11,645

The reconciliations of the carrying amount of each class of non-current Intangible assets at the beginning and end of the current and previous financial periods are set out below.

carrying amount at 1 July 2013 Additions Amortisatlon Transfer to assets held for sale Ca~ng amount at 30 June 2014 Additions Amortisation Transfer to assets held for sale Carrying amount at 27 February 2015

Corporata Model

1,640

(678) (962)

Walor Salinity Trading Entitlements Sr;hema Credits

9,674 331 34

(54) (9,674) (311)

28

MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY2014 TO 27 FEBRUARY 2015

NOTE 13. DERIVATIVE FINANCIAL INSTRtJMENTS

Current liabilities Forward foreign exchange contracts- held for trading Interest rate futures contracts- held for trading

For further information refer to Note 22.

Reconciliation of movement In Electricity Derivative Contracts Electricity derivative contracts valued using non market observable Inputs Opening Balances Unreai'sed gains/losses for contracts held at balance sheet date Closing Balance

NOTE 14. OTHER ASSETS

Current Renewable Energy Certificates (RECs) Purchased RECs Energy Saving Ccrtifi,ates (ESCs) Purchased ESCs

NOTE 15. TRADE AND OTHER PAY ABLES

Current (Unsecured) Trade creditors Accrued Interest on borrowings

NOTE 16. BORROWINGS

Current (Unsecured) New South Wales Treasury Corporation loans Marsln Calls

Bnandna Arrangaments: Facilities Available Bank overdraft Intra-day credit facUlty Bank guarantee fac11!ty Credit card facility New South Wales Treasury Corporation loans New South Wales Treasury Corporation come and go facility

Total available

Facilities Utilised Bank guarantee facility New South Wale5 Treasury Corporation loans Total utilised

27 Februa 2015 $'000

(1,510) 1,510

30 June2014 $000

11 1.436 1,447

10,917 (12.427) (1,510)

158

18 176

16,789 12,062 28,851

706.413 7,144

713.557

2,000 20,000

4,000 1,000

1,650,000

3,274 713,557 716,831

Macquarie GeneraUon has approval from the Treasurer under the Public Authorities {Financial Arrangements) Act 1987 (PAFA), to obtain the bank overdraft, intra-day credit, bank guarantee and credit card facilities from a Commercial Bank.

29

'

MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR. THE PERIOD 1 JULY 2014 TO 27 FEBRUARY 2015

NOTE 16. BORROWINGS (CONTINUED)

Facilities Utilised {continued) Macquarie Generation, with the exception of the above commercial facl!itles, is required to undertake all borrowings through New South Wales Treasury Corporation.

A significant portion of sales proceeds received from AGL Macquarle Pty Limited in the tranche 1 payment on 2 September 2014 were utilised to repay Macquarle Generation's outstanding T -Corp loan. As such, the Corporation held no outstanding borrowings at balance sheet date.

NOTE 17. DEFERRED TAX LIABILITIES

The balance comprises temporary differences attributable to: Amounts recognised in profit end loss Inventories

Amounts recognised directly in equity

Net deferred tax liabilities

Movements: Opening balance at 1 July Olarged (credited) to the statement of comprehensive Income Charged (credited) to equity aosing balance

NOTE 18. PROVISIONS

Current Insurance Dividend Employee benefits Green scheme obligations Defined benefits superannuation funds

Movements ln Provisions:

Notes

5

7

24

16,252 (16,252)

Movements in each class of provision during the financial period other than employee benefits are set out below.

Defined benefits Green Insurance

superannuation Schemes

$'000 $'000 $'000

Current

Carrying amount at the start of the period 105,862 1,074 Transfer (to) (from liabilities held for sale 95,962

Additional provisions recognised I (reversed) 21,821 (2,338) (1,074)

16.252 16,252

16,252

532,674 (213,188) (303,234)

16,252

1,074

32,600 105,862

139,536

Total·

$'000

106,936

95,962

18,409 Paymentsfother sacrifices of economic benefits (112,376) (112,376)

Provision forTomago Carbon Units recognised 8,852 8,852 Transfer (to} I from other government agency (117,783) (117,783)

Carrying amount at the end of the period

30


NOTE 19. EQUITY

(a) Share Capital

Ordinary Shares, fully paid

Contributed Equity

--·· -·-····-··----·-·---

27 Februa 2015 30 June 2014

No. of Shares No. of Shares

$'000

2 $'000

281,078

In accordance with the State Q\.vned Corporations Act, 1989, the tv.Jo voting shareholders at 30 June 2014, Honourable A. Constance, MP, Treasurer and the Honourable D. Perrett, MP, Minister for Finance and Services held one share each at $1.00 per share in the Corporation. Following the dissolution of the Corporation on 27 February 2015, no shares were held by shareholders and all contributed equity was repafd to the State.

(b) Reserves

Asset revaluation reserve Hedge accounting reserve~ cash flow hedges

Movements: (I} Assel Revaluation Reserve: Balance at the beginning of the financial period Revaluation (decrement) on property, plant and and equipment Deferred tax arising on revaluations Deferred tax. derecognised Realisation of asset (increment) transferred to retained profits Deferred tax arising on transfers to retained earnings Balance at the end of the financial period

$'000

514,455

(514,455)

$'000

514,455

514,455

732,810 (533,276) 159,983 154,336

860 (258)

514,455

The revaluation reserve associated with the Corporation's property, plant and equipment was transferred to retained earnings following the sale of all property, plant and equipment to AGL Macquarle Pty Limited on 2 September 2014.

(Ji) Hedge accounting reserve - cash flow hedges: Balance at the beginning of the financial period Gain (loss) recognised on electricity derivative contracts Deferred tax arising on electricity derivative contracts Transfer to profit or loss: Sale of electricity Removal of qualifying hedged items Deferred tax arising on transfers to profit Balance at the end of the financial period

{c) Rotalned Profits

Balance at the beginning of the financial period Transfer of realised asset revaluation increments from reserves Deferred tax arising on transfers from reserves Net profit Defined benefrts superannuation actuarial gains (losses) Deferred tax arising on actuarial adjustments Deferred tax derecognised as future deductions not probable Transfer to Crown Balance at the end of the financial period

131,195 514,455

(244,908) (26,661)

(374,061)

23,370 (52,766) 15,829

110,005 (90,624) (5,814)

72,557 (860) 258

153,633 (16,466)

4,940 {82,867)

131,195

Transfers out to Crown Is comprised of sales proceeds from tranche 1, tranche 2 and tranche 3 ($800 million, $600 mUllan and $105 million respectively) net of working capital and capital expenditure adjustments ($1 04 million) and repayments of the Corporation's T -Corp loan ($780.80 million} that were receipted by Restart NSW on behalf of the Corporation In the financial period.

Transfers out to Crown also Include $56.3 million In cash repatriated to the State and assets of $96.6 mlllion (excluding stamp duty receivable) and liab!lltles of $118.0 million vested across to Delta Electricity, the Electricity Assets Ministerial Holding Corporation ('EAMHC1 and the State prior 10 the dissolution of tile Corporation on 27 February 2015.

31


NOTE 20. CASH FLOW INFORMATION

Reconciliation of net profit after tax to net cash flows from operations Net profit Adjuslments for: Depredation Revaluation decrementl(lncrement) • non lnfrastruciUre buildings Deferred tax in Other Comprehensive Income Superannuation provision adjustments In Other Comprehensive Income Increase!( decrease) In borrowings accruals Net {galn)/!oss on sale of non-current assets Fair value adjustment to derivative financial Instruments Fair value adjustment to borrowings Changes In operating assets anclllabU/Ues Decrease/(increase) in trade and other receivables {lncrease)/decrease In Inventories (lncrease)/decrease In derivative financial Instrument assets (lncrease)!decrease In other assets Increase!( decrease) in derivative financial instrument llabllltles

Notes

Increase!( Decrease) in trade and other creditors, employee benefits and other provisions Increase/( decrease) in provision for taxes payable (Decrease) !n net deferred taxes payable

Net cash flows (used in) I from operating activities

NOTE 21. COMMITMENTS

(a) Capital Commitments

27 Fabru 2015 $'000

(244,908)

(26,681)

224,712

53,478

(14,506) (7,427) 55,667

176 (27,789)

(143,300)

Capital expenditure contracted at the reporting date but not recognised as liabilities, payable: Property, plant and equipment Within one year Later than one year but not later than five years

(b) lease Commitments

Commitments in relation to leases contracted at the reporting date but not recognised as liabilities, payable: Within one year Later than one year but not later than five years

30 Juna 2014 $1)00

153,633

112.026 (391)

314,319 (94,393) (1.057)

779 (23,370)

13,302 (8.481)

(44,908) 951

19,477 68,174

404

404

2,567

2,567

The Corporation leased mobile plant under a non-cancellable operating lease during the period 1 July 2014 to 1 September 2014. All leasing arrangements were vested across to AGL Macquarie Pty Limited on 2 September 2014.

The Corporation leases office space in Sydney under a non-cancellable operating lease expiring in June 2016. In accordance with the directors intention to dissolve the Corporation, the lease was vested across to Government Property NSW on 30 January 2015 under a vesting order signed by the secretary of NSW Treasury on 29 January 2015.

In accordance with New South Wales Treasury Circular Nswrc 10/15 Accounting for Goods and Services Tax (GST) the above amounts are inclusive of GST which will be recoverable from the Australian Taxation Office after payment of the future commitments. The total amount of GST included in the above commitments balance is $nil (2014- $270,000).

32

MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY2014 TO 27 FEBRUARY2D15

NOTE 22. FINANCIAL INSTRUMENTS

(a) Instruments used by the Corporation

The Corporation used derivative financial instruments In the normal course of business in order to hedge exposure to fluctuations In wholesale electricity prices, foreign exchange and Interest rates and to trade and to profit from movements In the wholesale electricity market prices and interest rates In accordance with Board approved risk management policies as described In Note 2.

The Corporation's Financial Instruments have been disclosed in Notes 1(g), 1(n), 1(o), 1(p), 1 (q), 1(r), 8, 9, 13, 15 and 16.

Instruments reported by categories of Financial Assets and Einancja! UabmUes

27 February 2015 30 June 2014 Notes s·ooo $'000

Loans and receivables Cash on hand Deposits In the New South Wales Treasury Corporation (TCorp) HourGlass Cesh Facility Other deposits at call Short-term deposits Trade debtors Sundry debtors Provision for impairment of receivables

Financial assets and financial liabilities at fair value through profit or loss Assets Elec!riclty derivative contracts - held for trading Forward foreign exchange contracts- held for trading Interest rate futures contracts- held for trading

Liabilities Electricity derivative contracts· held for trading Forward foreign exchange contracts- held for trading Interest rate futures contracts- held for trading

Otherflnanclalllabllltles Trade creditors Accrued interest New South Wales Treasury Corporation loans Other liabilities

(b) Eleetricity derivative contracts- cash flow hedges

8 7

8 306,878 8 3,282 8 60,000

6,9 75,955 6,9 17,143

9----------------~*(3~5 463,230

13 156,586 13 13

156,566

13 75,258 13 11 13 1,436

76,705

15 91,242 15 12,062 16 713,557 15 36,000

852,861

Derivatives that are designated and effective as cash flow hedging carried at fair value Assets Electricity derivative contracts- cash flow hedges 13 ______ .o,_ _____ _

Liahilitles Electricity derivative contracts - cash flow hedges

13 ____________________ _

The use of hedging Instruments to manage electricity price risk is discussed in Note 2(a). Amounts reclassified from Equity to profit and loss and recognised in Other Comprehensive Income for the period are disclosed in Note 19(b).

33


NOTE 22. FINANCIAL INSTRUMENTS (CONTINUED)

{c) Forward foreign exchange contracts .. held for trading

At balance date the details of the outstanding contracts for the Corporation are:

Aust Dollars 27 February 2015 30 June2014

Buy Japanese Yen Maturity 0-12 months 1-2 years

$'000 $'000

257

Average Exchange Rate 27 February 2015 30 June 2014

95.52

The amounts disclosed above represent the Australian dollar equivalent of the contracted foreign currency amount

(d) Fair value of financial instruments not represented by carrying amount

Set out below, Is a comparison of the carrying amounts and fair value of the Group's financial instruments, other than those with carrying amounts are reasonable approximations of fair values:

Carrying Value 27 February 2015 30 June 2014

New South Wales Treasury Corporation loans 713,557 713.557

(e) Interest rate futures contracts M held for trading

The Interest rate futures position for the Corporation at the end of the period are as follows:

Delivery Month

Number Contracts

Sold

Number

Contracts Bought

Fair Value 27 February 2015 30 June 2014

Total Nominal

Value

781,971 781,971

Total Nominal

Value 27 February 2015 SO June 2014

$'000 10 Year Bond Futures* N/A

* Negative amounts Indicate sold futures and positive amounts indicate bought futures.

(f) Interest Rate Risk Exposure

Interest rate risk Is the risk that the financial instrument will fluctuate due to changes in market Interest risks.

$'000 (57,600 57,600

Policies have been adopted with the objective of ensuring that the Corporation is not exposed to interest rate movements which could adversely affect their ablllty to meet their financial obligations as they fall due.

(9) Credit Risk Exposure

The Corporation's risk management objectives and policies in relation to credit risk are described in Note 2. This includes maximum exposure to credit risk and credit quality of financial assets discussed in Note 2{b).

34



(h) Uquiditv risk

The Lable below analy:ses the Corporation's nnanclalllabllltles Into relevant maturity groupings based on the remaining per1od at the reporting date to the contractual maturity date. The amount& In the table are the contractual undiscountod cash flows of each class of financial liabilities, therefore the amounts disclosed below will not reconcile to the Statement of Anancial Position.

1 year or Over 1 to OverS Total Carrying less Syears years Amount

27 February 27 February 27 February 27 February 27 February 2015 2015 2015 2015 2015 $'000 $'000 $'000 $'000 $'000

Financial liabilities Non-derivatives Trade creditors New South Wales Trea5ury Corporation loans including accrued Interest Other liabilities Total non-derivatives Derivatives Held for Trading - Electricity derivative contracts - For.wrd foreign elCchange contracts -Interest rate futures Total Derivatives

1 year or Over 1 to Over5 Total Carrying less 5 years years Amount

30 June 2014 30 June 2014 30 June 2014 30 June2014 30 June 2014 $'000 $'000 $'000 $'000 $'000

Financial liabilities Non·derivatives Trade creditors 91,242 91,242 91,242 New South Wales Treasury Corporation loans Including accrued interest 207,839 500,115 151,060 859,014 725,619 Other liab!tities Total non~erivatlves Derivatives Held for Trading - Electricity derivative contracts 46,156 31,016 77,172 75,258 - Forward foreign exchange contracts '11 11 11 -Interest rate futures 1.436 1,436 1,436 Total Derivatives 47,603 31,016 78,619 76,705

Policles and objectives concemlng liquidity risk are described In Note 2(c).

(I) Summarised sensitivity analysis The foi!O'Mng infonnatlon summarises the sensitivity of the Corporatron's financial assets and financlalliabllitles to interest rate risk. foreign exchange risk and price risk.

The effect on profit and loss and equity due to a reasonably possible change in the relevant risk variable is outlined in the Information below. The analysis Is performed on the same basis as for 2014 and assumes all other variables remain constant, with the exception of Foreign Exchange Risk as detailed below.

lntef9st rate risk The sensitivity Information applicable to New South Treasury Corporation loans and deposits at call are derived from historically based volatility lnfonnation collected over a ten year by New South Wales Treasury Corporation, quoted at two standard deviations, that Is a 95% probability.

At27 February 2015, If Interest rates had changed by plus or minus 1% from the yearend rates with all other variables held constant, post tex profit for the period would remain unchanged as no loans or deposits at call were held by the Corporation at balance sheet date (June 2014. 52,591,000 lower or higher). Post tax equity would also remain unchanged.

35

MACQUARIE GENERATION NOTES TO lliE FINANCIAL STATEMENTS FOR 1HE PERIOD 1 JULY 2014 TO 27 FEBRUARY 2015


Foreign E:xchangs Risk The sensitivity infonnation applicable to Forward Foreign Exchange Contracts is derived from historically based volatility information collected over a ten year period by New South Wales Treasury Corporation, quoted at hvo standard deviations.

At 27 February 2015, if foreign exchange rates had changed by plus or minus 10% from the period end rates with all other variables held constant, post tax profit and post tax equity would remain unchanged as no foreign exchange contracts "Nere held at balanca sheet date (June 2014: $23,000 lower or $29,000 higher post tax).

Efectrlclty Price Risk The sensitiVIty Information appHcable to Electricity Derivative Contracts Is dertved from an analysis of the volatility of the electricity forward price curve over a ten year period.

At 27 February 2015, if forward electricity prices had changed by plus or minus 10% from the period end rates 'hith all other variables held constant, post tax profit and post equity would remain unchanged as no electricity derivative contracts "Were held at balance sheet dale (June 2014- $35,000,000 lower or$35,000,000 higher post lax).

NOTE 23. FAIR VALUE MEASUREMENT

The Corporation uses various methods in estimating the fair value of assets and liabilities. The methods comprise: Leve11- the fair value is calculated using quoted prices in active markets Levet 2 - the fair value Is estimated using Inputs other than quoted prices Included In Level 1 that are obse!Vable for the asset or liability, either directly (as prices) or lndlrectly(derived from prices).

Level 3 -the fair value Is estimated using inputs for the asset or liability that are not based on observable market data.

The fair value of the flnanclallnstruments by Level are summarised In the table below. There have been no transfers between Leve11 and Levol2 during the current or prior period.

Period end.ed 27 February 2015 Disposal group held ror sale Non·flnanciol Assets Measured at Fair Value Land

Financial Instruments .. assets Hourglass facilities

Derivative Instruments Elecbicity derivative contracts

Financial Instruments ·liabilities Derivative Instruments Electricity derivative contracts Foreign exchange contracts Interest rate futures

Liabilities for which fair values are disclosed Interest bearing loans measured at amortised cost

Quoted Market Price

(Level1)

$'000

Valuation Technique-

Market observable

inputs (Level2)

$'000

Valuation technique - non

market observable

Inputs (Level3)

$'000

Total

$'000

36


NOTE 23. FAIR VALUE MEASUREMENT (CONTINUED)

Year ended 30 June 2014 Disposal group held for sale Non-financial Assets Measured at Fair Value Land Financial Instruments - assets Hourglass faciiiUes Derivative Instruments Electricity derivative contracts

Financial Instruments. llabiUties Derivative Instruments Electr!dty derivative contracts Foreign exchange contracts Interest rate futures Liabilltles for which fair valuos are disclosocl Interest bearing loans measured at amortised cost

Financial Instruments

Quoted Market Price

(Level1)

$'000

133

133

1,436

1.436

Valuation Technique-

Market observable

Inputs (Level2)

$'000

1,422,225

306,878

137.018 1,866,121

54,180 11

781.971 836,162

Valuatron technique -non

market observable

Inputs (Level 3)

$'000

19.568 19,568

21.078

21,078

Total

$'000

1,422,225

133

306,878

156.586 1,885,822

75,258 11

1,436

781,971 858 676

The fafrvalue of financial Instruments are, In certain circumstances, measured using valuation techniques based on a cost plus margin model that incorporate assumptions that are not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data (Level 3).

The sensitivity of those fair values to reasonably possible alternative assumptions are an increase or decrease to profit and equity of $nil (2014: $69 million) .The unobservable input is the cost of electricity production.

37


NOTE 24. SUPERANNUATION

Macquarie Generation contributes to defined benefit and accumulation superannuation funds on behalf of all employees and Directors. Mercer Consulting (Australia) Pty Ltd (AFS license #411770) was engaged to perform all actuarial seiVices In relation to the Corporation's defined benefits superannuation obligations.

On 2 September2014 as part of the sale transaction, $93.56 million In defined benefits liability was sold to AGL Macquarie Ply Umited. The residual defined benefits liability of $117.6 million was vested across to the State on 27 February 2015 in accordance with the vesting order signed by the the Treasurer on 29 January 2015.

(a) Defined Benefits Superannuation Funds

General description of the type of plan

Macquarie Generation contributes to three New South Wales public sector defined benefit superannuation schemes: the State Superannuation Scheme (SSS), State Authorities Superannuation Scheme (SASS) an the State Authorities Non-contr1butory Superannuation Scheme {SANCS). Employees contribute to the schemes at various percentages of their wages and salaries. Macquarie Generation contributes to the schemes at rates as advised by Pillar Administration as referred to above.

Contributions to the schemes are expensed when paid or payable and reduce the superannuation liabilities. These payments are held in Investment Reserve Accounts In trust by the trustee, SAS Trustee Corporation (STC). The resultant investment Income or deficit adds to or subtracts from the balance of their accounts. These schemes, as defined benefit schemes, have at least a component of the final benefit derived from a multiple of member salary and years of membership.

All the schemes are closed to new members.

Description of the regulatory framework The schemes in the Pooled Fund are established and governed by the following NSW legislation: Superannuation Act 1916. State Authorities Superannuation Act 1987, Pollee Regulation (Superannuation) Act 1906, State AuthoriUes Non-Contributory Superannuation Scheme Act 1987, and their associated regulations.

The schemes In the Pooled Fund are exempt public sector superannuation schemes under the Commonwealth Superannuation lndustry(Supetvislon) Act 1993 (SIS). The SIS Legislation treats exempt public sector superannuation funds as complying funds for concessional taxation and superannuation guarantee purposes.

Under a Heads of Government agreement, the New SOuth Wales Government undertakes to ensure that the Pooled Fund 'NfiJ confonn with the principles of the Commonwealth's retirement incomes policy relating to preservation, vesting and reporting to members and that members' benefits are adequately protected.

The New South Wales Govemment prudentially monitors and audits the Pooled Fund and the Trustee Board activities in a manner consistent with the prudential controls at the SIS legislation. These provisions are In addition to other legislative obligations on the Trustee Board and internal processes that monitor the Trustee Board's adherence to the principles of the Commonwealth's retirement Incomes policy.

An actuarial investigation of the Pooled Fund is performed every three years. The last actuarial Investigation was performed as at 30 June 2012.

Description of other entitles' responsibilities fer the governance of the fund

The Fund's Trustee is responsible for the governance of the Fund. The Trustee has a legal obligation to act solely in the best interests of fund beneficiaries. The Trustee has the folloWing roles:

• Administration of the fund and payment to the beneficiaries from fund assets when required in accordance with the fund rules; : Management and Investment of the fund assets; and *Compliance with other applicable regulations.

Description of risks

There are a number of risks to which the Fund exposes the Employer. The more significant risks relating to the defined benefrts are: '* Investment risk· The risk that investment retums will be lower than assumed and the Employer will peed to Increase contributions to offset this shortfall.

38

MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY 2014 T027 FEBRUARY2015

NOTE 24. SUPERANNUATION (CONTINUED)

• Longevity risk-The risk that pensioners live longer than assumed, increasing future pensions. * Pension indexation risk- The risk that pensions will increase at a rate greater than assumed, increasing future pensions. *Salary growth risk- The risk that wages or salaries (on which future benefit amounts for active members will be based) will rise • Legislative risk- The risk is that legislative changes could be made which increase the cost of providing the defined benefits.

The defined benefit fund assets are invested with Independent fund managers and have a diversified asset mix. The Fund has no significant concentration of investment risk or liquidity risk.

Description of significant events

There were no fund amendments, curtailments or settlements during the reporting period.

Reconciliation of the Net Defined Benent Liability I (Asset)

SASS SANCS sss Total 1 Jul2014to 1 Jul2014to 1 Jul2014to 1 Ju12014to 27 Feb 2015 27 Feb 2015 27 Feb 2015 27 Feb2015

A$'000 A$'000 A$'000 A$'000

Net Defined Benefit Uability/(Asset) at 5tart of the period 31,701 6JS96 143,696 182,293

Current service cost 448 140 476 1,064

Net Interest on the net defined benefit liability/(asset) 360 85 2,244 2,689

Past seiVIce cost (Galns)Jlosses arising from settlements Actual return on Fund assets less Interest income (584) (318) (12,513) (13,415) Actuarial (galns}llosses arising from changes in demographic assumptions Actuarial (gains)/losses arising from changes In financial

3,850 447 39,425 43,722 assumptions Actuarial (gains )!losses arising tram liability experience 2,180 356 (6,162) (3,625)

AdJustment for effect of asset ceiling Employer contributions (686) (177) (520) (1,382)

Transfer of assets to AGL 89,369 14,749 51,958 156,077

Transfer of defined benefrt obligations to AGL (112,933) (19,238) (117,468) (249,639)

Transfer of assets to Crown (2,177) (2,499) 133,344 128,668

Transfer of defined bene1!f obligations to Crown (11,530) (441) (234,481) (248,451)

Net Deffned Benefit Liablltly/(Asset) at end of the period

SASS SANCS sss Total 1 Jul20131o 1 Jul2013to 1 Jul2013to 1 Jul2013 to 30 Jun 2014 JOJun 2014 30 Jun 2014 30 Jun 2014

A$'000 A$'000 A$'000 A$'000

Net Defined Benefit Liability/(Asset) at start of the period 24,715 5,198 129,428 159,341

Current service cost 2,288 747 2,805 5,840 Net Interest on the net defined benefit liability/(asset) 691 185 4,878 5,954 Past service cost (Gains)/losses arising from settlements Actual retum on Fund assets less Interest income (8,041) (976) (11,984) (21 ,001), Actuarial (gains)nosses arising from changes in demographic assumptions Actuarial (galns)Aosses arising from changes In flnanclal

6,502 1,494 13,439 21,435 assumptions Actuarial (galns)/!osses arising from liabllity experience 7,878 921 7,234 16,033

Adjustment for effect of asset ceil!ng Employer contrlbu!ons (2,532) (673) (2,104) (5,309)

Net Deflnfld Benefit Uabflftyi(Asset) at end of the period 31,701 6,896 143,696 182,293

39

MACGlUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY 2014 TO 27 FEBRUARY 2015


Reconcl/iatlon ofthe Fair Value of Fund Assets

SASS SANCS sss Total 1 Jul2014to 1 Jul2014 to 1 Jul2014to 1 Jul2014to 27 Feb 2015 27 Feb 2015 27 Feb 2015 27 Feb2015

A$'000 A$'000 A$'000 A$'000

Fair value of Fund assets at beginning of the period 85,460 12,047 172,623 270,130

Interest Income 480 32 3,237 3,749

Actual return on Fund assets less Interest Income 584 318 12,513 13,415

Employer contributions 686 177 520 1,382 Contributions by participants 216 225 441

Benefits paid (420) (62) (5,629) (6,111)

Taxes, premiums & expenses paid 187 (261) 1.813 1.739

Transfers out to AGL (89,369) (14,749) (51 ,958) (156,077)

Transfers out to Crown 2,177 2,499 (133,344) (128,668)

Contributions to accumulation section SetUements Exchange rate changes Fair value of Fund assets at end of the period

SASS SANCS sss Total 1 Jul2013 to 1 Jul2013 to 1 Jul2013to 1 Jul2013 to 30 Jun 2014 30Jun 2014 30Jun 2014 30 Jun 2014

A$'000 A$'000 A$'000 A$'000

Fair value of Fund assets at beginning of the period 73,746 11,764 157,914 243,424

Interest Income 2,751 441 5,904 9,096

Actual return Qn Fund assets less Interest income 8,041 976 11,985 21,002

Employer contributions 2,532 673 2,104 5,309

Contributions by participants 1,126 1,352 2,478

Beneflts paid (3,284) (1 ,851) (6,810) (11 ,945)

Taxes, premiums & expenses paid 548 44 174 766

COntributions to accumulation section Settlements Exchange rate changes Fair vall.J9 of Fund assets at end of the period 85,460 12,047 172,623 270,130

40

'



Reconcillatfon of the Defined Benefit Obligation SASS SANCS sss Total

1 Jul2014 to 1 JUI2014to 1 Jul2014to 1 Jul2014to 27 Feb 2015 21 Feb 2015 21 Feb 2015 27 Feb 2015

A$'000 A$'000 A$'000 A$'000 Present value of defined benefit obligations at beginning of

117,161 18,942 316,319 452,422 the period Current service cost 448 140 476 1,064

Interest cost 840 117 5,480 6,438

Contributions by participants 216 225 441 Actuarial (galns)/losses arising from changes in demographic assumptions Actuarial (gains)nosses arising from changes In financial

3,850 447 39,425 43,722 assumptions Actuarial (galns)llosses arising from liability experience 2,180 356 (6,162) (3,625)

Benefits paid (420) (62) (5,629) (6,111)

Taxes, premiums & expenses paid 187 (261) 1,813 1,739

Transfers out to AGL (112,933) (19,238) (117,468) (249,639)

Transfer out to Crown (11,530) (441) (234,481) (246.451)

ContrlbuUons to accumulation section Past service cost Settlements Exchange rate changes Present value of defined benefit obligations af end of the period

SASS SANCS sss Total 1 Jul2013to 1 Jul2013to 1 Jul2013to 1 Jul2013to 30Jun 2014 30Jun 2014 30 Jun 2014 30 Jun 2014

A$'000 A$'000 A$'000 A$'000

Present value of defined benefit obligations at beginnlng of 98,461 16,961 287,342 402,764 the period

Current service cost 2,288 747 2,805 5,840

Interest cost 3,642 626 10,783 15,051

Contributions by participants 1,126 1,352 2,478 Actuarial (galns)/losses arising from changes In demographic assumptions Actuarial (galns)llosses arising from changes In financial

6,502 1,494 13,439 21,435 assumptions Actuarial· (galns)/losses arising from liability experience 7,878 921 7,234 16,033

Benefits paid (3,284) (1,851) (6,810) (11,945)

Taxes, premiums & expenses paid 548 44 174 766

Contributions to accumulation section Past service cost Settlements Exchange rate changes Present value of defined benefit obligations at end of the

117,161 18,942 316,319 462,422 period

41

MACQUARJE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY 2014 TO 27 FEBRUARY 2015


Reconcfllatlon of the effect ofths Asset Coffing

SASS SANCS sss Total 1 Jul 2014 to 1 Jul 2014to 1 Ju\2014to 1 Jul 2014to 27Feb 2015 27 Feb 2015 27 Feb 2015 27 Feb 2015

A$'000 A$'000 A$'000 A$'000 Adjustment for effect of asset ceiling at beginning of the period Change in the effect of asset ceiling

Adjustment for effect of asset ceiling at end of the pen'od

SASS SANCS sss Total 1 Jul 2013to 1 Jul 2013 to 1 Ju12013to 1 Ju12013to 30 Jun 2014 30Jun 2014 30 Jun 2014 30 Jun 2014

A$'000 A$'000 A$'000 A$'000 Adjustment for effect of asset ceiling at beginning of the period Change in the effect of asset ceiling

Adjustment for effect of asset ceiling at end of /he period

Proflt and Loss Impact SASS SANCS sss Total

1 Ju12014to 1 Jul 2014to 1 Jul 2014to 1 Jul2014to 27 Feb 2015 27 Feb 2015 27 Feb 2015 27Feb 2015

A$'000 A$'000 A$'000 A$'000 Current service cost 448 140 476 1,064 Net Interest 360 65 2,244 2,689 Past seJVice cost (Gains)/Loss on settlement Profit and Loss component of the Defined benefit cost 808 225 2,720 3,753

Other Comprehensive Income SASS SANCS sss Total

1 Jul2014to 1 Jul2014to 1 Jul2014to 1 Jul2014to 27 Feb 2015 27Feb 2015 27 Feb 2015 27 Feb2015

A$'000 A$'000 A$'000 A$'000 Actuarial (gains) losses on liabilities 6,030 603 33,264 40,097 Actual retum on Fund assets less Interest income (564) (318) (12,513) (13,415) Adjustment for effect of asset ceiling Total remeasurement in Other Comprehensive Income 5,446 485 20,751 26,682

42



(a) Defined Benefit Superannuation Funds {Continued)

Fair value of Fund assets

All Pooled Fund assets are Invested by STC at arm's length through lnclependent fund managers and assets are not separately Invested for each entity. As such, the disclosures below relate to total assets of the Pooled Fund.

As at 30 November 2014"

Asset Category Short term securities Australian fixed interest International fixed interest Australian equities lntemat!onal equities Property Alternatives Total

Quoted market prlce (Leve11)

$'000

2,800,451 2,602,827

935,087 10.448,731 11,641,044 3,413,800 6,733,061

aa,ns,oo1

Valuation technique Valuation technique Total ($'000) - market observable - non market

inputs {Level2) observable inputS S'OOO (Level 3) $'000

60,035 2,740,416 9,345 2,576,647

(315) 935,402 9,989,280 454,401 8,954,866 2,885,762

970,865 759,838 607,195 3136,335

20,591,291 13,489,001

16,635

5,050 396

1,683,097 2,989,531 4,894,709

The percentage invested in each asset class at the Statement of Financial Position date:

Short term securities Australian equities OveTSeas equities Australian fixed Interest securities Overseas fixed interest securities Property Other

30·Nov·14 7.2%

26.9% 30.5% 6.7% 2.5% 8.8%

17.4%

30~Jun·14

6.5% 30.9% 28.6%

6.2% 2.3% 8.6%

16.7%

• As actual asset allocation as at 27 February 2015 is not yet available, the latest available as at 30 November2014 has been used • ... Additional to the assets disclosed above, at 30 November 2014 Pooled Fund has provisions for recelvab!es/(payables) estimated to be around $2.1 bllllon, giving an estimated assets totalltng around $40.9 billion.

Derivatlves, including futures and options, can be used by Investment managers. However, each manager's investment mandate clearly states that derivatives may only be used to facilitate efficient cashflow management or lo hedge the portfolio against market movements and cannot be used for speculative purposes or gearing of the investment portfiolio. As such managers make limited use of derivatives.

Fair value of entity's own financial instruments The fair value of the Pooled Fund assets Include as at 30 November 2014 $243.0 milfion in NSW government bonds.

Significant Actuarial Assumptions at the Reporting Date

Discount rate at balance date

Expected salary Increases (excluding promtlonal increases)

Expected rate of CPI Increase Penli!loner mortality

27-Feb .. 15 3Q-Jun~14

2.5% 3.57% 2.25% 201412015; 2.50% 201512016 2.27% pa to 30 June 2015, then 2.5% to 2018/2019i 3.50% 2019/2020 and pa to 30 June 2018, 3.0% pa from 1 202012021; 3.00% pa 202112022 to July 2018 to 30 June 2023, and 3.5%

2025/2026; 3.50% pa thereafter pa thereafter

2.5% 2.5% as per the 2012 Actuarial Investigation of the Pooled Fund

43



(a} Defined Benefit Superannuation Funds (Continued)

Sensitivity Analysis The entity's total defined benefit obligation as at 27 February 2015 under several scenarios Is presented below. The total defined benefit obligation disclosed Is inclusive or the contribution tax provision which Is calculated based on the asset level at 27 February 2015. SCenarios A to F relate to senslUvlty of the total defined benefit obligation to economic assumptions, and scenarios G and H relate to sensitivity to demographic assumptions.

Discount rate Rate of CPilncrease Salary IJ1flatlon rate Defined benefit obligation (A$'000)

Discount rate Rate of CPI increase Salary inflation rate Defined benefit obligatiOn (A$'000)

Discount rate Rate of CPI!ncrease

Salary Jnnation rate Defined benefit obligation {A$'000)

Defined benefit obligation {A$'000)

Base Case 2.48%

as above as above 246.451

Base Case as above

2.5% as above 246.451

Baso Case as above as above

as above 246.451

Base Case 246.451

Scenario A Scenario B 1.48% 3.48%

as abOVe as above as above as above 286.437 213.926

Scenario C +0.5% Scenario D ~0.5% rate otCPI rate ofCPI lncreaso increase

as above as above 3.0% 2.0%

as above as above 264.999 229.552

Scanario E +0.5% Scenario F .Q,5% salary Increase salary increase

rato rate as above as above as above as above

above rates plus above rates less 0.5% pa 0.5%pa

246.451 246,451

Scenario G +5% Scenario H .. 5% pensioner pensioner

mortality rates mortality rates 243.341 249.743

The defined benefit obligation has been recalculated by changing the assumptions as outlined above, whilst retaining all other assumptions.

Asset·Lrablflty matching strategies The Trustee monitors Its asset~liabllity risk continuously in setting its investment strategy. It also monitors cashflows to manage liquidity requirements.

Expected contributiOns SASS SANCS sss Total

27-Feb-15 27.feb·15 27-Feb-15 27-Feb·15 s·ooo $'000 $'000 $'000

Expected employer contributions

SASS SANCS sss Total 30-Jun-14 30.Jun·14 30-Jun-14 30-Jun-14

$"000 $"000 $'000 $'000 2,139 708 2,163 5.010

Funrilng arragement for employer contributions The following is a summaty of the financial positition of the Fund at27 February 2015 and 30 June 2014 calculated in accordance with AAS 25 ~ Financial Reporting by Superannuation Plans. Funding arrangements are reviewed at least every three years following the release of the triennial actuarial review and was last reviewed foltowing completion of the triennial review as at 30 June 2012. Contribution rates are set after discussions between the employer, STC and NSW Treasury. Funding positions are reviewed annually and funding arrangements may be adjusted as required after each annual review.

44

MACQUARIE GENERATION NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JULY 2014 TO Z1 FEBRUARY 2015


(a) Defined Benefit Superannuation Funds (Continued) The AAS 25 info1Tl1.ation is relevant as it can be used to assess the level of future contributions and reflects the plan's Investment strategy as well as the employer's long term fUnding plan.

(a) Surplus/deficit

Accrued benefits · Net marKet value of Fund assets Nel (surplus)/deflcit

Accrued benefits Net mar1<et value of Fund assets Net (surplus)ldeficit

(b) Recommended contribution rates for the entity are:

(c) Economic assumptions

SASS 27-Feb-15

$'000 4.693 2,177 6,870

SASS 30-Jun-14

$'000 89,416

(85.4601 3,956

SANCS 27-Feb·15

$'000

2,499 2,499

SANCS 30-Jun-14

$'000 13,952

(12.047) 1,905

SASS

multiple of member contributions N/A

sss Total 27-Feb-15 27-Feb-15

$'000 $'000 113,957 118,650

(133,344) (19,381)

(128,668! (10,018

sss Total 30..Jun·14 3thlun·14

$'000 $'000 164,883 268,251

(172,623) (270, 130) (7,740) (1 ,879)

SANCS sss

o/o member salary multiple of member

contributions NIA NIA

The economic assumptions adopted for the 30 June 2012 actuarial investigation of the Pooled Fund are:

Weighted-Average Assumptions

Expected rate of retum on Fund assets backing current pension llabnities Expected rate of retum on Fund assets backing other liabilities

Expected salary Increase rate Expected rate of CPI increase

Maturity profile of defined benefit obligation

The weighted average duration of the defined benefit obligation is 13.9 years.

(b) Accumulation Superannuation Funds

8.3% pa 7.3% pa

SASS, SANCS, SSS 2.7% pa{PSS 3.5% pa) to 30June 2018, then 4.0% pa thereafter 2.5% pa

Macquarie Generation also contnbutes to various accumulation supamnnuation funds on behalf of employees and Directors at the statutOJY rate of salaries and wages or Director's fees as determined by the Superannuation Guarantee (Administration) Act 1992 which was 9.6o/o for the period 1 July 2014 to 27 February 2016 (30 June 2014 ~ 9.26%).

NOTE 25. EVENTS OCCURRING AFTER BALANCE DATE

Following the sale of assets to AGL Macquarie Pty Ltd on 2 September 2014, Macquarie Generation vested all remaining assets and liabilities to various government agencies including Roads & Maritime SeNices, Delta Electricity and the Electricity Assets Ministerial Holding Corporation In January and February 2015. Following the transfer of all residual asset and liabllities out of the Corporation, Macquarie Generation was dissolved on 27 February 2015. No events after balance were noted.

NOTE 26. RELATED PARTY DISCLOSURES

The transactions that were entered into with direc1or related partles for the Corporation for the financial period are Olsclosed In Notes 27 and 29.

45

'


NOTE 27. DIRECTORS' INTERESTS

No Director has declared the receipt of, or has declared an entitlement to receive, during or since the financial period. a benefit as a result of a contract made by the Corporation with a Director, an entity of which a Director Is a member or an entity In which a Director has a substantial financial interest.

The ra!lowing Director has disclosed that he holds a position with the following organisations. The Corporation has business dealings with a division of those organisations, which are all made in the normal course of business and on normal commercial terms.

Director Lucio Di Bartolomeo

Position Non~executlve Director

Organisation ARTC

Following the sale of assets to AGL Macquarie Pty Ltd, the Corporation as at 27 February 2015 no longer holds any contracts with Australian Rail Track Corporation Limited.

NOTE 28. DIRECTOR AND EXECUTIVE DISCLOSURES

(a) Principles used to determine the nature and amount of remuneration

The performance of the COrporation depends upon the quality of its Directors and Executives.

The Shareholders appoint the Directors of the Corporation for a specified term. The reappointment of a Director at the end of the specified term Is subject to the review and approval of the Shareholders.

To meet the Shareholders' objectives the Corporation must have highly skilled and competent Directors, and attract, motivate and retain highly skilled and competent Executives, who contribute to the success of the Corporation.

To this end, the Corporation embodies the following principles In its remuneration framework:

• provide competitive rewards to attract highly skilled and competent executives;

.. an appropriate portion of Executive remuneration is 'at risk' dependent upon meeting pre~deterrnined performance benchmarks; and

• establish appropriate and specific stretching targets derived from the Business Plan relating to corporate profit improvement. cost reduction, business growth and personal development in relation to variable Executive remuneration. ·

(Q Remuneration and Human Resources Committee

The Board of Directors is responsible for determining and reviewin9 remuneration arrangements for the Chief Executive and Managing Director and the Senior Executives reporting to him and the total remuneration costs of the Corporation.

(Q Remuneration and Human Resources Committee {continued)

The Remuneration and Human Resources Committee assesses the appropriateness of the nature and amount of remuneration of the Chief Executive and Managing Director and the Senior Executives re!X)rting to him on an annual basis by reference to industry trends, expert external advice and experience with the overall objectives of ensuring maximum Shareholder benefit from the retention of a high quality Senior Executive Team. The Remuneration and Human Resources Commitlee makes recommendalions to the Board of Directors on the remuneration aspects after their assessments.

(ii) Remuneration Structure

The structure of non-executive Directors and Executive remuneration is separate and dlstlnct

46


NOTE 28. DIRECTOR AND EXECUTIVE DISCLOSURES (CONTINUED)

(a} Principles used to determine the nature and amount of remuneration (continued)

(IH) Non-executive Director Remuneration

Ob!ectlye The Shareholders seek 1o set remuneration at a level which provides the Shareholder.s with the ability to attract Directors of high calibre, whilst incurring an acceptable cost.

Structure Under lhe State Owned Corporations Act 1989, the Voting ShareholdeiS determine the remuneration of the State Owned Corporation's Chairpersons and Directors. At the Premier's request the Statutory and Other Offices Remuneration Tribunal (SOORT} recommends such remuneration.

The remuneration levels are reviewed annually by SOORT. SOORT considers advice from external consultants as well as fees paid to non-executive Directors of comparable and private sector entities when undertaking the annual review process.

Each Director receives a fee for being a Director of the Corporation. An additional fee is paid to Directors who are members of the Board Audit and Assurance Committee.

Likewise the Chairs of the Board of Directors and the Board Committees receive additional fees In recognition of the additional time and responsibility involved in these positions.

The remuneration of non-executive Directors for the period 1 July 2014 to 27 February 2015 Is Included in Table A below.

(lv) Managing Director and senior Executive Remuneration

Ob!ectjya The COrporation alms to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Corporation and so as to:

• reward Exerutives for the Corporation's and Individual's performance against stretching targets set by reference to appropriate benchmarks;

• align the interests of executives with those of the Shareholders;

• link reward with the strategic goals and perfonnance of the Corporation, and

• ensure total remuneration is competitive by market standards.

Structure In determining the level and make~up of the Chief Executive and Managing Director's and Senior Executive's remuneration1 the Remuneration and Human Resources Committee engages an external consultant to provide Independent expert advice In the form of a written report detailing market levels of remuneration for comparable executive roles.

It is the Board1s Polley to enter an employment contract with the Chief Executive and Managing Director and Executives reporting dlrectiy to him. Details are provided below. (iv) Managing Director and Senior Executive Remuneration (continued)

Remuneration consists of the following key elements:

Fixed Remuneration; and

Variable Remuneration based on performance:

The fixed remuneration and structure of variable remuneration are 55tabllshed for the Chief Executive and Managing Director and Senior Executives by the Remuneration and Human Resources Committee and recommended !o the Board of Directors for approval. Table 2 below details the variable and fixed remuneration.

47


NOTE2B. DIRECTOR AND EXECUTIVE DISCLOSURES (CONTINUED)

(a) Principles used to determine the natura and amount of remuneration (continued}

(v) Fixed Remuneration

The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and competitive in the market

Fixed remuneration Is reviewed annually by the Remuneration and Human Resources Committee with access to external independent expert advice.

The Chief Executive and Managing Director and Senior Executives are given the opportunity to receive their fixed remuneration in a variety of forms including cash and other non-monetary benefits, 'such as motor vehicles and other salary sacrificed

(vi) Variable Remuneration

Objective The objective of the incentive program is to link the Corporation's operational and strategic targets as agreed with the Shareholders In the annual Statement of Corporate Intent and Business Plan with the remuneration received by the Executives responsible for meeting those targets. The total potential incentive payments available are set at a level so as to provide sufficient Incentive to the Executive to achieve the operational and strategic targets and such that the cost to the Corporation is reasonable.

The Chief Executive and Managing Director and Senior Executives' remuneration, performance criteria and performance assessments are subject to formal yearly reviB'N by the Remuneration and Human Resources Committee of the Board which then makes recommendation to the Board of Directors.

Structure The Chief Executive and Managing Director and Senior Executives' performance targets are set based on specific and measurable stretching targets derived from the Business Plan relating to corporate profit improvement, cost containment, safety, business growth and Shareholder value. The Business Plan is agreed with the Shareholders on an annual basis.

Actual incentive payments granted to ead1 Executive depend on the extent to which the specific stretching targets are met.

Performance reviews for the Chief Executive and Managing Director and Senior Executives take place in the last quarter of each financial year dependent upon audited figures from the Corporation's aC<Jounts.

(vii) Employment Contracts

It Is the Board's Polley to enter a performance based employment Contract with the Chief Executive and Managing Director.

The Chief Executive Officer's salary review Is conducted with respect to August each year.

The Ex;ecutives reporting directly to the Chief Executive and Managing Director are also employed under performance based employment contracts.

48

•


NOTE 28. DIRECTOR AND EXECUTIVE DISCLOSURES (CONTINUED)

(a} Prlnclples used to determine the nature and amount of remuneration (continued)

(viii) Specified Executives

The specified Executives of the Corporation being those with the greatest authority for the strategic direction and management of the Corporation as at 27 February 2015 are as follows:

It should be noted all employment contracts with executive personnelllsted above were terminated or transferred to AGL Macquarle Pty Limited on 2 September 2014 as part of the sale transaction.

Stephen Saladine was rehired by Macquarle Generation post the sale transaction to act as Managing Director and assist in the wind up and dissolution of the Corporation. His contract with Macquarie Generation was terminated prior to the dissolution of the Corporation on 27 February 2015.

(b) Details of Remuneration Table 1A Remuneration of Directors and Executives for the period 1 July 2014 to 27 February 2015

27 February 2015 30 June2014

$ $ ShorHerm benefits 2,401,113 4,632,411 Post-employment benefits 93,938 438.722 Other Lono-term benefits 17,078 307.262 Total 2,512,129 5,378,395

It should be noted there were no executives in office at 27 February 2015 whose remuneration package meet or exceed SES level 5 during the period.

(c) Additional Shareholder Disclosures

For the purposes of this note, Executive Officers are defined consistent with the Annual Reports (Statutory Bodies} Regulation 201 0 and indudes those Officers who take part in the management of Macquarie Generation and are employed under a performance based employment contract.

There were no Executive Officers with remuneration (excluding incenUve payments) equal to or exceeding the equivalent of Senior Executive Service (SES) Level1 ($170.250 for the period 1 July 20141o 27 February 2015) at the end of the reporting period (2014- 29).

The number of Executive Officer positions equal to or exceeding SES Level1 filled by women in the current period was zero (2014· 2).

49

··-·-···---

..


NOTE 29. CONTINGENCIES

Macquarle Generation did not have any contingent liabilities at 27 February 2015.

NOTE 30. ELECTRICITY GENERATOR PRIVATISATION

The Electricity Generator Assets (Authorised Transactions) Act 2012 was assented to by the Governor of New South Wales on 5 June 2012. This legislation provides for the prlvatlsatlon of New South Wales electricity generator assets Including those of Macquarie Generation.

The sale program commenced on 6 July 2012 with the appointment of Goldman Sachs as specialist financial advisors. On 30 July 2013 the Government called for expressions of interest for the purchase ofMacquarie Generation's electricity generator assets.

A Sale and Purchase Agreement (SPA) was entered into between the NSW Government, Macquarie Generation and AGL Macquarle Ply Limited, with the sale transaction taking place on 2 September 2014.

Following the completion of the sale transaction with AGL Macquarie Pty Ltd on 2 September 2014, all remaining assets and liabilities were vested to other government agencies in January and February 2015 in accordance wllh vesting orders signed by the Treasurer on 29 January 2015 and the Corporation was dissolved on 27 February 2015.

END OF AUDITED FINANCIAL STATEMENTS

50

MACQUARIE GENERATION FOR THE PERIOD 1 JULY 2014 TO 27 FEBRUARY 2015

DIRECTORS' DECLARATION

We state that in the opinion of the Directors of Macquarie Generation:

(a) The accompanying Financial Statements comprise a general purpose financial report which has been prepared in accordance with applicable Australian Accounting Standards, the State Owned Corporations Act, 1989, and mandatory professional reporting requirements and present fairly, in all material respects the Corporation's financial position as at 27 February 2015 and its financial performance for the period 1 July 2014 to 27 February 2015;

(b) We are not aware of any circumstances at the date of this declaration that would render any particulars included in the Financial Statements to be misleading or inaccurate.

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

17 April 2015

SYDNEY 17 Apri12015

SYDNEY

51

INDEPENDENT AUDITOR'S REPORT

Macquarie Generation

To Members of the New South Wales Parliament

1 have audited the accompanying financial statements of Macquarte Generation (the Corporation), which comprise the statement of financial position as at 27 February 2015, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the period then ended, notes comprising a summary of significant accounting policies and other explanatory information.

Opinion

In my opinion, the financial statements:

give a true and fair view of the financial position of the Corporation as at 27 February 2015, and of its financial performance and its cash fiows for the year then ended in accordance with Australian Accounting Standards are in accordance with section 41 B of the Public Finance and Audit Act 1983 (PF&A Act) and the Public Finance and Audit Regulation 2010.

My opinion should be read In conjunction with the rest of this report.

Directors' Responsibility for the Financial Statements

The directors are responsible for preparing financial statements that give a true and fair view in accordance with Australian Accounting Standards, the PF&A Act and the State Owned Corporations Act 1989 and for such internal control as the directors determine is necessary to enable the preparation of financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

My responsibility is to express an opinion on the financial statements based on my audit I conducted my audit in accordance with Australian Auditing Standards. Those standards require. that I comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including an assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

Level15, 1 Margaret Street, Sydney NSW 2000 ! GPO Box 12, Sydney NSW2001 I t029275 7101 ! f02 9275 7179 I e [email protected] 1 audlt.nllw.gov.au

I believe the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

My opinion does not provide assurance:

• that it carried out its activities effectively, efficiently and economically

about the effectiveness of the internal control about the security and controls over the electronic publication of the audited financial statements on any website where they may be presented about other information that may have been hyperlfnked to/from the financial statements.

Independence

In conducting my audit, I have complied with the independence requirements of the Australian Auditing Standards and relevant ethical pronouncements. The PF&A Act further promotes independence by:

providing that only Parliament, and not the executive government, can remove an Auditor-General

• mandating the Auditor-General as auditor of public sector agencies but precluding the provision of non-audit services, thus ensuring the Auditor-General and the Audit Office of New South Wales are not compromised in their roles by the possibility of losing clients or income.

-4 o/..Ai.{f t..Z AT Whitfield PSM Acting Auditor-General

17 Apri12015 SYDNEY

Macquarie Generation - Parliament of NSW

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