Legislative Council Tuesday 10 November, 2020

Ms FORREST question to LEADER of the GOVERNMENT in the LEGISLATIVE COUNCIL, Mrs HISCUTT

As noted in Hydro Tasmania’s recently released 2019/20 Annual Report a significant write down of generation assets was recorded due to reductions in future expected revenue. Hydro Tasmania’s overall book value declined by $219 million in 2019/20 and Hydro’s balance sheet suffered a further loss following a $249 million decline in 2018/19.

This means Hydro has lost $467 million, or 23 per cent, of value in two years. These losses were not attributed to trading losses. The Annual Report of 2019/20 notes Hydro’s generation assets were marked down by $870 million to a figure below cost, incidentally the same level recorded 15 years ago when Basslink commenced.

Losses are also associated with onerous contracts with the latest value of Hydro’s onerous contracts being $260 million.

1. Please provide a detailed explanation of the $870m write-down of generation assets in 2019-20;

2. What triggers the need for generation assets to be revalued;

3. As noted in the Annual Report’s Statement of Corporate Intent, future returns to government will require an increase in borrowings. What impact is the current dividend policy having on upgrade, maintenance and investment in generation assets; and

4. With regard to the onerous contracts that make up the $260 million contract value noted in the Annual Report:

a. How many contracts comprise the total of onerous contracts;

b. Please indicate what is being purchased by each of the contracts, e.g. large generation certificates, electricity, gas etc.;

c. Do the contracts noted in question 4(b) cover specific quantities to be purchased; and

i. If yes, then what are these quantities;
ii. If no, please provide details to clarify in each instance; and

d. What is the value for each onerous contract which comprises the total of $260 million?

ANSWERS:

1. Please provide a detailed explanation of the $870m write-down of generation assets in 2019-20;
The write-down of the generation assets was the result of lower market and forecast energy prices. The market and energy prices used in the valuations are subject to volatility causing movements in the valuation of the generation class assets.

2. What triggers the need for generation assets to be revalued;
The trigger is a requirement to be compliant with the relevant Australian Accounting Standard.

3. As noted in the Annual Report’s Statement of Corporate Intent, future returns to government will require an increase in borrowings. What impact is the current dividend policy having on upgrade, maintenance and investment in generation assets;

Hydro Tasmania has invested over $1 billion into maintaining and upgrading its generation assets since 2008 and is planning to spend more than $1.1 billion on those assets over the next ten years. Sustaining the performance of the existing hydropower asset base for the long term is fundamental to Hydro Tasmania’s primary purpose and underpins the Shareholders’ energy policy.

Borrowing levels are driven by the planned expenditure mentioned above coupled with the forecast operating performance of the business. The amount of dividend paid under the policy is a product of the underlying performance and does not impact the level of investment on upgrade, maintenance and investment in generation assets. Hydro Tasmania will continue to work with its Shareholders to ensure that these investments are made in a financially prudent manner.

4. With regard to the onerous contracts that make up the $260 million contract value noted in the Annual Report:

a. How many contracts comprise the total of onerous contracts;
There are 52 contracts that comprise the balance of onerous contracts
b. Please indicate what is being purchased by each of the contracts, e.g. large generation certificates, electricity, gas etc.;
Onerous contracts include gas contracts, lease liabilities, and Large Generation Certificates.

c. Do the contracts noted in question 4(b) cover specific quantities to be purchased; and
i. If yes, then what are these quantities;
ii. If no, please provide details to clarify in each instance; and
The onerous contracts that relate to the wind Power Purchase Agreement (LGCs) are for the full windfarm output, so the quantities will fluctuate due to wind variability. All other volumes are specific to each individual contract. Details regarding the contracts are commercial in confidence.

d. What is the value for each onerous contract which comprises the total of $260 million?
Contracts involving 3rd parties and the specific details of each contract are commercial-in-confidence.