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HORIZON POWER

2008/09 ANNUAL REPORT

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OUR PROFILE 3

Who we are 3 What we do 3 What we believe in 4 How we do it 5

THE YEAR IN SUMMARY – OUR ACHIEVEMENTS 7

CHAIRMAN’S REPORT 9

MANAGING DIRECTOR’S REPORT 11

PERFORMANCE OVERVIEW 13

REVIEW OF OPERATIONS 14

Our performance 14 Adding value to our customers and regional communities 14 Building the value of the business 19 Reducing our environmental footprint 22

STRATEGIC FOCUS 28

Performance excellence 29 Developing the Pilbara 31 Extending our service 32

KEY STATISTICS 36

Performance indicators 38 Network assets 38 Employment 38 Safety targets 39 Environmental Management System 39 Greenhouse gas emissions 39 Atmospheric emissions 40

CORPORATE GOVERNANCE 42

Governance Framework 42 Board of Directors 42 Attendance at Board meetings 44 Horizon Power Directors’ Terms of Appointment 45 Audit and Risk Management Committee 46 Remuneration report 47 Corporate compliance disclosures 49 Observance of the Code of Conduct for Horizon Power 51

FINANCIAL PERFORMANCE 53

DIRECTOR’S DECLARATION 55

STATEMENT OF FINANCIAL PERFORMANCE 56

Income statement 56 Balance sheet 57 Statement of changes in equity 58 Cash flow statement 59

NOTES TO THE FINANCIAL STATEMENTS 60

INDEPENDENT AUDIT REPORT 106

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OUR PROFILE

Who we are Horizon Power is Western Australia’s regional electricity provider. What sets us apart is our passion and ability to deliver reliable, safe and affordable services in the most challenging of environments. Our service area is vast, approximately 2.3 million square kilometres. Horizon Power services the biggest area with the least amount of customers in the world - for every 57.5 square kilometres of terrain, we have one customer. Our customers range from people living in remote, isolated communities with less than 100 people, to residents and small businesses in busy regional towns, to major mining companies in the resource-rich Pilbara region. We maintain two interconnected networks as well as 34 isolated or islanded systems that power towns and communities throughout regional Western Australia. The systems are exposed to intense heat and cyclonic conditions in the north, and ravaging storms in the south. It is these challenges that drive the innovation and commitment of our agile, professional and engaged team of more than 340 employees. Although Horizon Power is a relatively new business, we have the benefit of a long history as part of the State-owned energy company in its various forms. Horizon Power is a Government Trading Enterprise which operates on a commercial basis. We focus on delivering the best possible set of economic, environmental and social outcomes to the communities we serve while applying a commercial discipline and focus to the way we do it.

What we do The sustainable delivery of safe, reliable and affordable electricity is at the heart of what we do at Horizon Power. But we are not standing still. We are constantly exploring ways of doing things better, of extending our reach, of developing new business opportunities and exploring new horizons. At Horizon Power we are increasing our capability of delivering services other than electricity to regional Western Australia and beyond. We have developed energy systems that are capable of sustainably powering remote communities anywhere in the world. Growing our profit by extending our suite of services and footprint will reduce our reliance on external funding and increase our ability to assist in the development of regional Western Australia.

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Horizon Power currently delivers power to 41,000 customer connections, supplying more than 100,000 residents of regional towns and remote communities and more than 3,000 businesses. We operate in the Pilbara, Kimberley, Gascoyne, Mid West and the Southern Goldfields, including Esperance, Hopetoun and Norseman. Our head office is in Karratha, with administration provided out of Bentley. The service area includes two networks – the North West Interconnected System (NWIS) in the Pilbara and a smaller regional network connecting the towns of Kununurra and Wyndham. The isolated system powering Esperance and the surrounding rural regions provides service to a third of Horizon Power’s customers. Another third are supplied by the NWIS and the remainder of our customers reside in the towns and communities not connected to those main grids. Power is delivered to these communities via islanded or isolated power systems. Almost every month more communities become Horizon Power customers through the regularisation of remote and town reserve community power systems throughout Western Australia. As a result, members of these Aboriginal communities are now receiving a level of service similar to that which many other West Australians take for granted.

What we believe in Horizon Power is committed to creating lasting value in regional Western Australia by maximizing the economic, social and environmental benefit for the communities in which we operate and live. We are committed to extending the availability of reliable and safe electricity supplies to all regional communities - ensuring the delivery of appropriate levels of service regardless of what part of our service area our customers reside and work in. Replacing and managing ageing infrastructure and building sustainable systems with additional capacity to meet growing demands for energy into the future is a key objective. The resource-rich Pilbara region creates much wealth for this State and the rest of Australia. It is paramount that industry can access reliable and efficient sources of power. Horizon Power is playing an integral role in the development of a more sustainable energy supply to the Pilbara through the development and expansion of the Pilbara Energy System. To meet these objectives, Horizon Power will continue to provide leadership and develop quality relationships with stakeholders to achieve the best possible outcomes for all regional West Australians. Our success is predicated on the commitment of our staff. At Horizon Power, our employees are agile, professional and engaged and are committed to fulfilling their duties in a safe, respectful and inclusive manner.

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How we do it Generation The way in which we generate electricity varies across our systems, with most mainstream towns serviced by gas-fired power stations and remote communities and other towns serviced by diesel generators and, increasingly, renewable forms of energy. Horizon Power will soon provide the towns of Marble Bar and Nullagine with electricity generated by state-of-the-art solar diesel hybrid power stations and in Hopetoun, Esperance, Coral Bay, Exmouth and Denham electricity is supplied by wind farms which are connected to traditional generators. In Karratha, Horizon Power has joined forces with its supply partners to build the most efficient gas-fired power station on the system. It will have the capacity to expand to become even more efficient and to cope with energy demand into the future. Business structure Our business is structured to ensure we are best placed to deliver excellent service to our customers. The operational realignment which took effect at the beginning of this financial year follows: Operations – Delivers balanced, consistent and sustainable operational performance in each district. Islanded Systems Development – Develops, sells and implements islanded system opportunities. Strategy and Business Development – Leads strategy development, pursues new opportunities to grow, and commercially manages the North West Interconnected System. Governance and Company Secretariat – Develops and implements effective systems of governance, monitors and reports on compliance and legislative obligations, and manages risk and maintains the company’s policies and procedures. The Division also provides support to the Board. People and Corporate Services – Develops and ensures effective deployment of key corporate services such as public affairs, human resources, marketing, product development and safety and health management. Shared Services – Develops and maintains a range of internal technical consulting and support solutions. Knowledge and Technology – Creates, deploys and manages a strategy to position the business as an innovative and effective user of technology. Finance Services – Leads and secures appropriate funding and ensures sound financial management and reporting.

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Business Strategy Our business strategy is made up of three core components:

- performance excellence in existing service delivery - providing reliable, affordable and safe electricity supplies to our customers;

- developing the North West Interconnected System - improving the coordination and growth of energy supplies to the Pilbara, thereby further developing the economic strength of the region;

- remote service extension – exploring opportunities to expand our service offerings to the regions, and remote locations offshore.

The driver of these three elements is our overriding commitment to add value to the communities we serve and the physical environment we operate in. To do this, we need to increase the value of our business. Horizon Power’s unique operational setting means that the more statutory customers we connect, the less profitable we become because the cost of supplying power to regional Western Australia is much more than the amount we charge our customers through the government energy tariff system. In order to add lasting value to regional Western Australia, Horizon Power needs to grow its revenue by looking outside of its existing service region. The strategy of improving the existing business and concurrently pursuing commercially profitable growth will lead to a more sustainable and commercially viable Horizon Power over time by reducing our reliance on government subsidisation and contributing to the development of regional Western Australia. Integral to the development of regional Western Australia is the improved coordination and development of the NWIS.

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THE YEAR IN SUMMARY – OUR ACHIEVEMENTS The 2008/09 financial year saw the delivery of a number of achievements and milestones by Horizon Power. Invested a record amount upgrading our systems A record $81 million was spent on capital works designed to improve the safety and performance of the systems. Awarded major undergrounding project in the North West Horizon Power will undertake the $130 million network hardening/undergrounding project in the Pilbara. Relaunch of customer information and billing service Horizon Power has improved its customer service and billing system. Customers will experience a more flexible, targeted service. Lived our safety commitment We achieved an end of year Public Safety Incidents result of zero and improved our internal safety performance. Improved network management A new network management system was installed which allows operational control centre staff to see the network in “real time”. ENMAC allows remote computerised access to the system, improving safety, operational response times and the reliability of the service. Launched our Betterways education campaign Regional Western Australia benefited from an advertising campaign designed to help our customers reduce their energy use. Work began on the new Karratha Power Station Construction work is well underway on the new Karratha power station and transmission asset. The Karratha station will be a highly-efficient gas-fuelled station that will provide extra capacity on the North West Interconnected System. Carnarvon power station upgrade A $5 million upgrade of the existing power station will be followed by the staged development of a new station, planning for which was in full swing this financial year. Town reserves regularised this year The power systems in four Aboriginal town reserve communities have been upgraded which means the service the communities will receive is at a higher standard, closer to that experienced by customers in mainstream towns. Remote Aboriginal communities funding approved Horizon Power was funded for Aboriginal and Remote Communities Power Supply Project phase 2.1A, which will allow new power stations to be built in the communities of Kalumburu and Yungngora. Renewable energy will be harnessed, with the new stations to be powered by a diesel-solar hybrid. Funding is still being sought to upgrade another eight communities.

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Built our capacity and capability To a total of 343 full-time permanent staff, including five new trainees, despite the pressures of an extremely tight labour market. This will improve our capacity to deliver on our expanding list of project commitments.

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CHAIRMAN’S REPORT At Horizon Power we set out to do things differently when first created in 2006 – to become a major service provider in regional Western Australia which genuinely adds value to the communities we serve and to deliver sustainable energy solutions, reduce our impact on the environment and reduce our reliance on external funding by improving efficiencies and creating new business opportunities. Horizon Power is now realising the results of the detailed planning and sheer hard work that has taken place over the past three years to ensure the structure of the business, the systems and the processes are in clear alignment with our business objectives. In this, the third year of operation, Horizon Power is able to show again that it can deliver on its overriding commitment to excellence. For example, our work in Aboriginal communities, in collaboration with various government agencies, is an example of how small changes can make a very big difference in the lives of our customers, particularly in Aboriginal communities where electricity supplies were traditionally ad hoc and often below standard. During visits to the communities of Bidyadanga and Mungullah during the financial year, Board members had the great pleasure to witness first hand how the actions of Horizon Power had assisted, and made a difference in the lives, of community members. Community leaders in Mungullah cite the relationship between the community and Horizon Power as an example of how all communities and agencies should be working together. The fact that we genuinely engage communities and do not just pay lip service to the idea fills me with great pride. 2008-09 has also been about building the business, in particular more efficient power stations. By reducing our reliance on ageing, inefficient infrastructure, Horizon Power can continue to improve the reliability of supplies. A challenge that lies ahead is improving the coordination and capacity of power supplies in the Pilbara. Horizon Power is working closely with the State Government to ensure the demand for energy in that region in the next decade can be met. A critical element of delivering reliable energy supplies from the North West Interconnected System is to protect the network as much as possible from the wild elements that are so significant in remote and regional Western Australia. The decision by the State Government to award Horizon Power the $130 million contract, from Royalties to Regions funding, for the undergrounding of the Pilbara network is a major win for our customers in the North-West. It will result in more reliable electricity supplies for our customers. Sinking the infrastructure below ground will remove interruptions to service created by cyclonic and windy conditions. At a personal and corporate level, the awarding of this major contract to Horizon Power is a source of great pride and a testament to the hard work and due diligence that has gone into building this new business into a corporation that is recognised as safe, reliable and able to deliver on commitments.

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I would like to thank former Board members Alan Dundas, Peter Yu and Tony Chilvers for the valuable contribution they made to the inaugural board of Horizon Power. They assisted greatly in setting the vision for Horizon Power into the future. We welcome Nicole Lockwood and Robert Eagle to the Horizon Power board – both important members of their regional communities. They bring with them a combination of enthusiasm and experience and we look forward to working with them in 2009-10. The next financial year is an exciting one for Horizon Power with major asset works taking place and the delivery of programs that will sustainably enhance life in regional Western Australia.

Brendan Hammond CHAIRMAN

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MANAGING DIRECTOR’S REPORT In 2008-09, Horizon Power remained committed to fulfilling its long-term strategy of building a sustainable business which adds value in every area it operates. Horizon Power’s focus over the past three years has been on improving existing services, developing new business opportunities and improving internal processes to ensure they reflect our corporate objectives. The realignment of the business at the beginning of the financial year reinforced the business strategy and removed barriers to the successful implementation of our objectives of performance excellence in existing areas, growing and profiting from the growth in demand for energy supplies in the Pilbara and extending our services to remote communities. A significant change that came about as a result of the restructure was the placement of a District Business Manager and a Community and Customer Relations Manager in each of our six regions. These placements provide our customers with an end to end service in their local area - with generation, network and customer service functions managed at the regional level. It also empowers local managers to make informed decisions about the operation of their systems. At the same time, we have powered ahead with the replacement of ageing infrastructure, particularly in Esperance and the surrounding rural region, the planning and building of new, more efficient power stations and continuing to upgrade services to Aboriginal communities. The new gas-fired power station which is currently under construction in Karratha is a fundamental plank of Horizon Power’s key objective of sustainably developing the Pilbara Energy System to best serve the interests of industry. Despite an economic downturn, demand for energy in the Pilbara region remains very strong. With the number of major projects coming on line, it is paramount that the ongoing management and future development of the North West Interconnected System is well coordinated, managed and delivers a sustainable power supply to the nation’s economic powerhouse. The State Government’s decision to underground the network in the North West is further evidence of the critical importance of the delivery of reliable electricity supplies in the region. The fact that Horizon Power has been tasked with this major project is a testament to the commitment and diligence of the Horizon Power team. A key focus this year has been on assisting our customers to reduce their demand for energy through the use of energy-efficient appliances, behavioural change and by affording them the opportunity to power their own homes with renewable sources of energy. The two increases in energy tariffs this year by the State Government gives these projects extra importance from a customer perspective. However, efforts to reduce energy demand will not only result in lower energy bills for our customers but will reduce Horizon Power’s impact on the environment and our reliance on external funding. The importance of building the capacity of Horizon Power staff cannot be overstated. The delivery of excellent service requires engaged staff who are fully committed to the objectives of the business.

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Horizon Power has attracted more than 100 new people to the business over the past 12 months - people of extraordinary quality who add to the current mix of experience, youth and above all, professionalism and agility – the hallmarks of Horizon Power employees. The implementation of leadership training for all formal leaders at Horizon Power has consolidated existing skills and formed the foundation for Horizon Power’s unique approach to delivering lasting value through effective and shared leadership. Horizon Power heads into 2009-10 with the same level of commitment and passion to building the business and improving our service to customers with which we exited the last financial year.

Rod Hayes MANAGING DIRECTOR

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PERFORMANCE OVERVIEW Horizon Power made a number of performance commitments in our Statement of Corporate Intent for the 2008/09 financial year. The following table provides an overview of how we performed in our endeavours to meet those commitments.

Key result area

Objectives Performance target for 2008/09 Performance results in 2008/09

Performance results in 2007/08

Customer value

Improved value to the customer through safe, improved and expanded service.

Operational performance SAIDI Complying towns/systems: 26/34 Number of towns/systems with outages longer than 290 minutes duration Operational impact on customers: Target is 80 per cent of customers not experiencing outages longer than 290 minutes Customer satisfaction Customer satisfaction survey result : >70 per cent Public Safety Number of public safety incidents related to Horizon Power performance: 4

24/34 77 83 0

25/34 78 84 0

Community social benefit

Building capacity, capability and opportunity to improve the lives of members within the communities we serve.

Power supply regularisation Number of remote and Aboriginal communities: 11 Training Number of Indigenous or local people in a Horizon Power training program: 16

10 19

7 14

Environmental benefit

Sustainably minimising the impact on the environment from both our current and future operations.

Pollution Pollution intensity (kg/MWh): less than 20.9 kilo Greenhouse emissions Greenhouse Intensity kgC02/kWh sold: 0.80 Renewable Generation Generation from renewable sources (GWh): 82

21.9 0.77 87.56

18.36 .808 84.2

Business value

Increasing our profitability and building the value of the business.

Net Profit after Tax ($M): -$9.5 million

- $42.3 million

$7.4 million

Economic benefit

Working with all stakeholders to drive and deliver value from regional development.

Stakeholder satisfaction Survey results: 77 per cent

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84

Processes and knowledge

Achieving a state where we are operating at or above industry standards.

Corporate reputation Corporate reputation index: 70 per cent Employee opinion of reputation Mean result (per cent) of Pulse Survey questions on corporate image: 75 Safety LTIFR: 0 (Lost time injuries per one million hours worked) AMIFR: 14 (Number of workers compensation claims per one million hours worked) Organisational development Personal development programs (per cent of modules successfully completed by designated attendees): 90 Employee perception Mean result (per cent) of Pulse survey questions relating to employee perception: 79

75 79 2 6.6 100 80

73 78 4 18.8 100 79

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REVIEW OF OPERATIONS Our performance The economic climate in which Horizon Power operated in 2008-09 presented more challenges than previous years but, despite the economic downturn, demand for energy supplies in regional Western Australia remained strong. The cost of supplying energy to regional centres and isolated communities was significantly higher than the uniform tariff revenue Horizon Power received, resulting in a reported loss of $42.3 million in 2008-09. Increases in electricity tariffs took effect in April and July 2009 however there will remain a disparity between the cost of supplying energy and the subsidised amount received from customers. Horizon Power spent 16 per cent more this year than last on capital works - a total of $81 million - including 37 per cent more on projects that will make the system safer. Horizon Power was unable to meet regulated reliability targets which take into account all faults, including major incidents such as cyclones. Based on normalised data, which excludes those major events, Horizon Power complied with the SAIDI standard of disruptions of less than 290 minutes. Of the 34 towns and systems we service, 24 complied with the SAIDI measure. Horizon Power is dedicated to meeting our more stringent, internal target of 26 complying towns. The main causes of these disruptions have already been rectified. The biggest cause of faults was the performance of the independent power producers (private companies which own the generating facilities) from which Horizon Power buys energy. Collaborative management plans were implemented this financial year to address those problems in the future. The Esperance rural region also experienced a high number of disruptions, some of them planned by Horizon Power. Horizon Power is three years into a major project to upgrade the Esperance network.

Adding value to our customers and regional communities Major change in the delivery of customer service at Horizon Power Since the disaggregation of Western Power in 2006, through a long-term service level agreement, Synergy has been responsible for managing the customer information and billing system used by Horizon Power to service its 41,000 customers. Despite the reliable service it delivered, the customer profile of Synergy and Horizon Power differ markedly. Horizon Power’s customers are spread over a much larger area and are fewer in number. Offering some services to Horizon Power’s customers through Synergy’s newly selected customer information system was cost prohibitive.

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Horizon Power required the ability to deliver a more flexible and cost-effective service to its customers and embarked on Project Sunrise to bring about this change. Gentrack was chosen as the solution provider of choice. Its flagship product Gentrack Velocity is the new software platform implemented to manage billing, customer signup, customer care, credit and collections and market messaging for Horizon Power. Gentrack specialises in utilities and is used elsewhere in the West Australian energy market for billing and customer management solutions. Horizon Power also partnered with Serviceworks to deliver these services using the Gentrack platform. The successful changeover to the new system in June is a testament to the close partnerships formed between Horizon Power, Gentrack and Serviceworks in the interests of excellence in customer service. Regional offices can now assist Horizon Power’s customers directly by providing copies of their bills on the spot and connecting customers to services with more efficiency. Town Reserves Regularisation Project The electrical networks in four town reserve Aboriginal communities were upgraded in the second half of the financial year under the Town Reserves Regularisation Project. The project, like its counterpart for remote Aboriginal communities – the Aboriginal and Remote Communities Power Supply Project (ARCPSP) – is not just about upgrading power supplies, it is about improving the quality of life in Aboriginal communities – the power supply systems of which have been operating on an ad hoc and unreliable basis for many years. Horizon Power has been contracted to undertake the work by the WA Department of Housing to ensure better outcomes for residents of Aboriginal communities. It has been a busy year for our multi-skilled team at Horizon Power which includes project managers, retail staff and Indigenous engagement officers. The communities of Wongatha Wongarra, near Laverton, Nambi Road, near Leonora, Bondini, near Wiluna, and Ninga Mia, near Kalgoorlie, were regularised under the project in June. Another nine town reserve communities will have a network upgrade in the next financial year. Wongatha, Nambi Road and Bondini residents have all become direct Horizon Power customers, with access to the full range of customer services, including rebates. Ninga Mia residents are now direct customers to Synergy because they are connected to the Western Power network. The Ninga Mia regularisation project was unique because it is outside Horizon Power’s footprint and involved multiple utility agencies working collaboratively to ensure residents have a safe and reliable power supply to the same standards of that experienced in Kalgoorlie and Boulder. Horizon Power worked closely with key stakeholders and community leaders on each project to ensure a smooth transition to upgraded power supplies in these communities. Benefits include improved reliability of power supplies because of a power system upgrade, improved

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street lighting and safer wiring in community housing. Pre-payment meters and related retail services are also implemented and education relating to pre-payment meter use and electrical safety is carried out. Aboriginal Communities Training program Horizon Power received international attention for its Aboriginal Communities Training (ACT) program which was recognised in June with a prestigious Australian Business Award. The Aboriginal Communities Training program is an enterprise-based traineeship developed by Horizon Power to meet the specific requirements of remote Aboriginal communities in Western Australia. The program was developed to support the ARCPSP, ensuring that the remote communities are provided with safer and more reliable energy supplies. Under the ACT program, members of Aboriginal communities are employed full time as Horizon Power’s Essential Services Officers (ESO) and commence training to carry out basic construction and maintenance tasks in their local communities. In December, it was showcased to an international audience at the World Indigenous Peoples Conference – Education held in Melbourne. Six delegates from Horizon Power were among an audience of approximately 4,000 delegates from 30 countries. Countries represented included New Zealand, the Americas, the Pacific, Asia, Africa and Northern Europe. ACT was recognised with an Australian Business Award in June and was soon after shortlisted as a finalist for the prestigious Premier’s Award which will be announced later this year. The Australian Business Awards recognise organisations that demonstrate the core values of business excellence, product excellence, sustainability and commercial success in their respective industries. The program, along with ARCPSP, won the community contribution category. Horizon Power’s ESOs service the remote communities of Ardyaloon, Beagle Bay, Bidyadanga, Lombadina/Djarindjin and Warmun. Additional officers are expected to be employed by the end of the year to service the communities of Yungngora (Noonkanbah) and Kalumburu. Horizon Power is in the process of having the ESO training program assessed for national accreditation by EE-Oz (the National Industry Skills Training Council). The application for accreditation has been assessed by the National Training Advisory Group - Transmission/Distribution (NTAG-T&D). This electricity supply industry based advisory group has recommended to EE-Oz that the ESO training program be considered and evaluated for registration and endorsement. EE-Oz is expected to make its decision on this application in October 2009. EE-Oz will then make a recommendation to the Federal Department of Education, Science and Training for final approval and registration of the new national qualification.

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Reconciliation During the course of the financial year, Horizon Power implemented a number of actions committed to when the Reconciliation Action Plan (RAP) was adopted in June 2008. As a participating organisation with Reconciliation Australia, Horizon Power committed to completing an annual progress report for the 12 months to June 2009 and to submit a refreshed Action Plan for the 12 months to June 2010. The annual progress report was completed in June 2009 and highlighted a number of successful actions undertaken by Horizon Power. They include:

- Code of Conduct developed which acknowledges understanding and respect for Indigenous culture

- Development and implementation of appropriate customer surveys targeted at Aboriginal communities to improve service delivery

- Progress towards updating tender processes to reflect RAP principles in all tender documents

- Development and implementation of the Aboriginal Communities Training program. Horizon Power also employed an Aboriginal Heritage and Native Title Officer this year whose role involves ensuring processes and procedures comply with relevant legislation as well as developing training and awareness programs. Engagement with Aboriginal communities is also a core part of the business at Horizon Power – in line with our commitment to not only deliver service but to add value to all of the communities we connect with. Horizon Power is focused on establishing positive and mutually beneficial relationships with Aboriginal organisations, groups and communities to ensure there is a true partnership. In the year ahead, Horizon Power will continue to facilitate and develop opportunities to work with Indigenous Australians. A key focus will be to develop an Indigenous Employment Strategy. The aim is for Indigenous West Australians to see Horizon Power as an employer of choice and for Horizon Power to influence its partners and suppliers to embrace the principles of the RAP to encourage higher levels of employment, training, work experience and mentoring placements. Making a difference in Mungullah – case study Horizon Power has a very close relationship with the Indigenous community of Mungullah, just out of Carnarvon. In June, as part of National Reconciliation Week celebrations, Horizon Power hosted the viewing of a poignant reconciliation video called “Liyarn Ngarn” to community members. The same video, featuring Aboriginal elder Pat Dodson and British actor Pete Postlethwaite, was shown to Horizon Power staff in our regions and Bentley. In September 2009, Mungullah is due to be incorporated in to the Horizon Power network after a major upgrade of its power supply system under the Town Reserves Regularisation Project phase two.

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Horizon Power has been commended for its work in Mungullah by community leaders. Finding solutions to community issues Horizon Power has been working with the State Government to develop strategies that assist with the payment for electricity use. Though residents in newly-regularised town reserves pay for their own power use through the pre-payment meter system, the difficulty in collecting payment for electricity used to run services shared in the community, such as water and sewerage pumping, needed to be addressed. Horizon Power is looking at a range of options including proposing a new tariff structure which covers the cost of shared services. Sponsorship support for regional communities Horizon Power develops and supports partnerships with community organisations that have activities, interests and values compatible with its own. Part of Horizon Power’s Community Partnership/Sponsorship program is to identify and support initiatives that contribute lasting value to the communities it serves. Horizon Power seeks partnerships and sponsorships that involve the company as part of the community. Horizon Power views community involvement as a natural part of successful business practice that must be managed as professionally as any other aspect of its business. Horizon Power aims to support a broad range of not for profit organisations and events that encompass areas of education, environment, arts and culture, sporting development and community themes. From July 2008 to June 2009 Horizon Power supported and sponsored the following causes and events: Education and Business Pegs Creek Primary School fundraiser, Constable Care, Connecting Kids Discovery Voyage TS LEEUWIN 2, Tournament of the Minds Australasian Pacific Finals, Leadership Western Australia ‘ Place Scholar’, Regional Achievement Community Awards ‘ Leadership and Innovation’. Port Hedland Business of the Year Awards, Shire of Roebourne Business of the Year Awards; International Association for Energy Economics Second Asian Conference. Environment Esperance Incident Control Vehicle, Festival of the Wind, Yalgoo solar powered street lights project. Arts and Culture Cossack Art Awards, Shinju Matsuri Festival, Opera Under The Stars, Pilbara Music Festival, FORM Port Hedland Art Awards, Right to be counted exhibition, Ord Valley Muster Sporting Carnarvon Golf Club Open, Burrup Mountain Bike Marathon, Gascoyne Dash, Kimberley Open Short Course Swimming Championships, Carnarvon Country Swimming Pennants,

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Smarter Than Smoking Esperance Open Squash Tournament, Esperance Football League and Umpire of the Year, North West Championships for Volunteer Fire Fighters, Gascoyne Football Association, Esperance Relay for Life, Esperance Soccer League, Carnarvon Speedway Super Sedan Titles, Leonora Golden Gift. Community Kununurra Agricultural Show, Shark Bay Arts Council Community Market Day, FeNaCING Festival, Meekatharra Festival, Exmouth Pink Bridge Project (Breast Awareness), Esperance Royal Agricultural Show, Laverton Fire Day, Yaandina Domestic Violence March, State-wide Christmas Lights Competitions, Shire of Roebourne Australia Day Awards, North West Expo, Royal Flying Doctor Service, Teddy Bears Picnic. Overhead Customer Service Lead Replacement Program The Horizon Power commitment to replace overhead customer service leads throughout regional Western Australia is well ahead of schedule with 3,371 leads replaced this financial year, above the target of 3,000. The program began in 2005 under Western Power and was adopted by Horizon Power when it was formed in 2006. It involves the phased replacement of all PVC-insulated and bare conductor leads and more inspections to identify faults. Every instance where leads have been identified as being compromised have been addressed in every district of Horizon Power’s networks. An inspection of all overhead connections is scheduled for later this year to establish if any further compromised connections have developed, and to ensure they are remedied urgently.

Building the value of the business Karratha Power Station Construction work is well underway on the new Karratha power station – a highly efficient gas-fired station which will build the capacity of the North West Interconnected System. Horizon Power invited Energy Minister, Peter Collier, to the Karratha site to officially mark the beginning of construction work in March this year. In June, two transformers – weighing 60 tonnes and measuring 6.8 metres in height – were installed at the Karratha site. The next major step is the installation of the first gas turbine late in July 2009. The project is scheduled for completion in April 2010. The Karratha Power Station is being built by ATCO Power on land owned by Horizon Power, next to our 132 kV substation - providing a direct link into the local network. ATCO will own the station under a long-term supply contract with Horizon Power. The open cycle gas turbine power station will have an initial capacity of 86 MW but capacity can be increased as demand grows.

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The new technology being used will provide greater reliability and security of power supplies, which is of critical importance to the major industrial customers on the NWIS. The power station will produce 35 per cent less carbon dioxide than the ageing thermal stations from which Horizon Power currently sources the majority of its energy. Horizon Power is dedicated to developing the capacity and reliability of the NWIS and the Karratha Power Station is an important first step on this journey. Improvements in network performance and safety in Esperance The overhaul of the electricity network in rural areas surrounding Esperance is a significant asset renewal project that was marked by the achievement of major milestones in this, its third year. The Esperance Network Rural Upgrade Project (ENRUP) has been carried out in partnership with Transfield Services. In the past year, all work on areas identified as presenting the highest fire risk was completed. This included reducing the distance between poles to prevent sagging powerlines and clashing conductors that can lead to bush fires. The project has had impressive results. An analysis produced in April showed there were no reported bushfires in the region in the previous 12 months resulting from a failure of the network. The Esperance network is by far the largest regional network consisting of 3,000 km of lines supported by 25,000 power poles and other structures and is frequently exposed to potential high risk weather conditions. Other major works outside of the ENRUP project also took place in Esperance, including the undergrounding of parts of the distribution network. Improvements in Carnarvon To ensure compliance with Department of Environment and Conservation regulations and to reduce any inconvenience for surrounding residents, Horizon Power spent more than $5 million this year reducing noise emissions from the existing Carnarvon power station. Following consultation and agreement with the DEC the works program was altered to achieve managed compliance resulting in a project saving of $2 million against the original budget. Horizon Power is in the process of planning to completely replace the old power station with a new one at a new site on the outskirts of Carnarvon. The new gas-fired station, which has been allocated a budget of $70 million, will have back-up diesel generation and the flexibility to incorporate renewable energy technology in the future. Horizon Power is currently undertaking studies to ensure the new power station meets the long-term electricity needs of Carnarvon residents and businesses. Negotiations have begun with land owners to secure land for the power station.

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Horizon Power will continue to keep the community informed about the project as it progresses. Investing in the future In 2008/09, Horizon Power celebrated the graduation of its inaugural group of trainees as fully qualified linespeople. In October, six of our Distribution Workers were the first Horizon Power trainees to be awarded their Certificate III Electricity Supply Industry – Distribution qualification since Horizon Power was formed in 2006. In October 2009, another six trainees will graduate, with a further three trainees close to completing their training. Five new trainees were employed this financial year and expect to graduate at the end of 2012. Horizon Power is now giving its linespeople the opportunity to become the most skilled electrical workers in the country by upgrading their existing overhead electrical distribution skills with cable jointing and other skills required to maintain underground power networks. Approximately one year of extra training is required to upgrade the skills of existing linespeople – the completion of which will provide them with dual trade status (linesperson/cable jointer). With the large investment in the undergrounding of the power systems in the North West of the State, Horizon Power must ensure it has the capability of maintaining an underground network. Within the next 12 months, all of Horizon Power’s Pilbara-based distribution workers will be able to maintain both underground and overhead electrical systems. Building internal capability Over the past year, 100 Horizon Power leaders have undertaken an intensive Leadership Development Program, including group leaders, branch managers and general managers. The program has led to measurable improvements in the quality and effectiveness of the Horizon Power leadership group, according to an all-staff survey. The purpose of the four day Leadership Development Program training is to equip managers with the tools, techniques and support to build the desired culture of Horizon Power. It provides training on how to effectively lead people and increase their leadership capability. In 2009-10, all staff will undertake the Personal Leadership Program to extend and embrace the notion of effective shared leadership. The two day program will focus on Horizon Power’s desired key behaviours and the belief that all employees are accountable to improve interactions with formal leaders and other team members.

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Reducing our environmental footprint Powered by the sun Horizon Power is on schedule with planning for the construction of its state-of-the-art solar power stations to be built in Marble Bar and Nullagine – two of the hottest towns in Australia. The two solar diesel hybrid stations will incorporate innovative new technology to generate and store energy provided by the sun. The project includes the installation of ‘solar farms’ in Marble Bar and Nullagine to track the sun throughout the day. These solar farms will be the largest of their type in Western Australia, with 1,008 panels installed in Marble Bar and 900 in Nullagine. A flywheel energy storage system will be used to store excess energy and to stabilise power quality between the diesel power station and solar panels as well as covering solar radiation fluctuations. The solar energy systems will generate over 1 GWh of renewable electricity per year, supplying over 60 per cent of the towns’ daytime energy demand from sunlight. This will mean a saving of up to 40 per cent of diesel and 1,100 tonnes of greenhouse gas emissions every year. The new power stations will also be significantly quieter than the current power stations, which have been operating since 1973. Pre-construction work began this financial year with contracts for the construction of the solar farms and construction of the control room and energy storage system being let. Horizon Power has signed a contract with Sunpower Australia, a WA-based company, to operate the solar panels in the “solar farms”. PowerCorp Pty Ltd, a Darwin-based company, has been awarded the contracts to build services for the sites, such as civil works and fencing, and to supply the power stations’ control room and energy storage system. Consultation and planning is still underway regarding land and heritage issues. Close engagement with the Aboriginal communities near Marble Bar and Nullagine – the communities of Pipunya, Goodabinya and Irrungadi - is about to begin to ensure residents are fully informed about the projects before any work begins. This will involve undertaking education programs for children and adults about energy safety and efficiency. Construction is due to begin later this year and the project is expected to be completed by early 2010. Carbon Pollution Reduction Horizon Power is in the process of developing a detailed position on the Federal Government’s Carbon Pollution Reduction Scheme (CPRS). The delay of the scheme by one year affords Horizon Power more time to explore low-cost abatement opportunities that are consistent with our corporate values and to better understand how we can take more control of our indirect emissions.

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Under the CPRS, a company is liable for direct (scope 1) greenhouse gas emissions. Horizon Power operates only one generating facility that exceeds the threshold of 25,000 tonnes of emissions a year. Horizon Power will also bear the costs of the indirect (scope 2) emissions passed on from its independent power producers. Indirect emissions will amount to approximately 630,000 tonnes in 2010-11. Horizon Power can meet its obligations by: • changing its generation mix; • reducing its emissions intensity; • reducing overall energy demand; • purchasing emissions permits; and/or • generating carbon offsets. Horizon Power already has a number of programs in place that are focused on reducing greenhouse gas emissions. We will continue to investigate further opportunities in line with our CPRS obligations, including the increasing use of renewable energy. Existing programs are detailed below. Demand Side Management The Demand Side Management (DSM) Project aims to deliver the following outcomes for Horizon Power:

- Minimised impact on the environment; - Reduced operating costs; - Delayed or reduced capital expenditure requirements; and - Delivered social benefit and leadership in the areas of energy efficiency, renewable

energy generation and general sustainability. The climatic conditions, the high costs of energy generation within the business’ service area and our specific expertise put Horizon Power in a unique position to establish itself as a national leader in the area of demand side management. There are several demand side management trials and projects underway at Horizon Power. Demand side management in Broome In order to manage demand for electricity during peak times, Horizon Power partnered with Energy Response Pty Ltd to manage peak loads in a trial project involving major business customers in Broome. Under the trial project which took place in March 2009, major customers with their own generating capacity switched off from the network when called upon in times of peak demand. The aim of the project was to ensure Horizon Power could meet its regulatory responsibilities in relation to the reliable delivery of power to all of its customers and to reduce the financial imposition on Horizon Power that results from providing higher levels of capacity for short-time periods. The success of the trial has resulted in it becoming a permanent demand side management tool at Horizon Power. It will be expanded in Broome in the summer of 2010 to include more businesses.

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The project also gives Horizon Power the opportunity to trial smart meter technology. Smart meters provide a real-time snapshot of the customer’s energy use. The technology gives Horizon Power the ability to identify the exact amount of energy used at any given time. Energy audits for businesses in the Mid-West Horizon Power received funding from the Sustainable Energy Development Office to assist with the facilitation of energy-efficiency audits of 20 businesses in the Mid-West region of Western Australia. The audits revealed major changes could be made by business to reduce their energy costs and carbon footprint. Reducing the energy use of business also assists Horizon Power by lowering the costs of supplying energy. Horizon Power was instrumental in interpreting the audit results to the businesses and, together with SEDO, offering a financial incentive to the businesses to make energy-efficient changes, such as replacing energy-intensive appliances and simple steps such as installing flyscreens so employees can open their office windows when there is a breeze rather than using energy-intensive air-conditioning. The SEDO project is now being rolled out in the Gascoyne region with the intention of the project becoming State-wide. Utilities Collaborate Horizon Power and the Water Corporation are investigating ways of dovetailing their efforts to improve efficiencies of existing energy and water systems. The utilities will work together on improving the design and operation of remote area water systems. It is expected that the collaborative approach will change the way energy is supplied to, and consumed by, these essential services. Energy audits for Aboriginal communities throughout regional Western Australia Horizon Power was awarded funding by the Office of Energy to carry out energy efficiency audits and behavioural change education in 440 homes throughout 15 Town Reserve Regularisation Project communities and two Aboriginal Remote Communities of Yungngora (Noonkanbah) and Kalumburu. The Energy Efficiency project involves engaging with residents of each home on their use of appliances, particularly those drawing a lot of energy such as air conditioning, heating, refrigeration and water heating systems. The program involves undertaking physical audits of each home, including the measurement of existing roof and wall insulation and checking individual appliances. Average home energy consumption by Horizon Power customers is more than 30 units a day which equates to $5.30. For residents of Aboriginal communities this means the use of one quarter of a $20 power card a day, and possibly more, depending on individual heating and cooling needs and house design. The aim of the program is to understand power use in Aboriginal communities in order to undertake and develop culturally-acceptable energy efficiency education programs and determine the need for structural home improvements to reduce energy use, such as insulation, passive shading, tinting, and window and door seals.

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Audits have been carried out in Ninga Mia (Kalgoorlie), Bondini (Wiluna), Wongatha Wongarra (Laverton). The audit program will be rolled out in communities in the Pilbara and Kimberley throughout 2009 and early 2010. Each resident is given an audit report which explains their current use and how they can maximise the value of a $20 ReadyPower card through reducing energy use. Findings from the Audits will be provided to the Office of Energy and Department of Housing to establish the potential of a follow-up energy efficiency refit program. Another future benefit that could result is the development of energy-efficient housing design for Aboriginal communities. Solar Flagships Program In May 2008 the Federal Government announced its Clean Energy Initiative (CEI) in the May 2009 Budget. The CEI supports the research, development and demonstration of low-emission energy technologies, including industrial scale carbon capture and storage (CCS) and solar energy. One of the key projects announced was the Solar Flagships Program. Solar Flagships provides funding for the support, construction and demonstration of large-scale solar power stations in Australia, which may include solar thermal, photovoltaic and energy storage technologies. The target size is 1000MW of electricity generation. As the Pilbara region of WA has an abundance of space, sunshine and comparatively high energy costs, Horizon Power will be examining the merits of installing a large scale solar power station in the Pilbara. Renewable energy buy-back scheme Horizon Power runs a renewable energy buy-back scheme which means residential customers can generate electricity for their own homes from renewable energy sources. They can sell the excess renewable energy back to the network through Horizon Power’s Renewable Energy Buyback Scheme (REBS). Most home renewable energy systems, such as solar arrays, wind turbines or micro-hydro power systems, will produce more energy than is required at certain times during the day and less than is required at other times. For times when the renewable energy system is not producing enough to meet demand, participants can draw power from Horizon Power's electricity grid. When the system is generating more power, Horizon Power buys the excess energy back. The Renewable Energy Buyback scheme is available to all Horizon Power residential customers on an A2 Residential tariff. Other customers including non-profit organisations and educational institutions (schools, TAFE, universities) can choose to apply for REBS also.

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REBS CASE STUDY – customer Chris Boston The Renewable Energy Buy-Back Scheme, for residential and other eligible customers, has been of great benefit to long-time Carnarvon resident and banana plantation owner Chris Boston. Mr Boston, 72, cares for his community and the environment - he has even created his own electric car to get around town. His energy needs are completely powered by the sun with panels he erected himself. Horizon Power is proud to partner with customers to lower their energy costs and to assist in reducing the carbon load on the environment. A renewable support package is expected to be offered to business customers in 2009. Mr Boston said he was a big supporter of renewable energy and welcomed the opportunity provided by Horizon Power to make the best use of what nature offers. "Horizon Power works closely with its customers in regional areas to ensure the best outcomes, not only for residents but for the environment," Mr Boston said. Betterways of promoting efficiency Our consumer awareness program, Betterways, encourages consumers to save energy in their own homes. There were major developments with the program this financial year, including the establishment of a dedicated Betterways website and the launch of a television and newspaper advertising campaign in regional Western Australia. The increase in energy tariffs during the year highlighted the importance of the Betterways campaign because it will assist our 41,000 customers in reducing their power bills. The six-month Betterways advertising campaign was aired on GWN and WIN Television and published in regional newspapers. Betterways tips are also provided directly to our customers through the Horizon Power newsletter, On The Horizon, in dedicated Betterways brochures and on our website. Betterways displays were showcased around regional Western Australia during the year, including the Esperance Agricultural Show; North West Expo and the Festival of the Wind in Esperance. Green options GreenSelect is the Horizon Power product which encourages customers to reduce the emissions associated with their energy use and limit their impact on climate change. GreenSelect is 100 per cent accredited and audited by the National GreenPower Accreditation Program which sets stringent environmental and reporting standards. The GreenPower program guarantees that Horizon Power uses only government approved renewable sources.

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For an extra 5.5 cents per unit of electricity, customers are able to ensure energy equal to half or all of their yearly consumption is generated from a renewable energy source in regional Western Australia. The environmental benefits of delivering GreenSelect this way are the same as those that would be gained from delivering renewable electricity directly to a customer’s home or business. The program was developed as a result of demand for green energy options from our business and retail customers. GreenSelect is an easy way to help the environment, increase the demand for renewable energy and assist in the further development of renewable energy generation sources in regional Western Australia. For commercial customers, the ability to say their energy consumption contributes to the development of renewable energy projects is a positive way of differentiating themselves from the competition.

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STRATEGIC FOCUS Horizon Power will continue to create lasting value in regional Western Australia by successfully implementing its strategy of performance excellence in existing operations, developing the Pilbara Energy System and extending both the suite of services we offer and the areas in which we operate.

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Performance excellence Safety Above All The overriding priority of Horizon Power is the safety of the public and Horizon Power staff. In such a high-risk industry, it is critical that safety is the number one priority and that a significant amount of internal resources are directed at it. Horizon Power is proud to report that there were no reported public safety incidents this financial year and that our internal safety performance also improved. Horizon Power’s corporate safety committee launched a new safety program – Safety Above All – which puts safety at the forefront of the mind of every Horizon Power employee. The aim of Safety Above All is to ensure that safety is a priority of each and every staff member, not just a compliance issue. The intention is to ensure that our employees return home fit and well after a days work and to ensure all work practices are safe. Unsafe work practices can also impact on public safety. All personal protective equipment required to be worn by Horizon Power staff is adorned by the new Safety Above All logo – a visible reminder of our safety commitment. A new internal computerised hazard reporting system – Cintellate – was implemented during the year, resulting in more immediate responses to hazards identified in the field. Horizon Power launched a number of public safety advertising and awareness campaigns including the cyclone and storm advertising campaign, a tree trimming and a stubble burning safety campaign. Major change in the delivery of customer service at Horizon Power Since the disaggregation of Western Power in 2006, through a long-term service level agreement, Synergy has been responsible for managing the customer information and billing system used by Horizon Power to service its 41,000 customers. Despite the reliable service it delivered, the customer profile of Synergy and Horizon Power differ markedly. Horizon Power’s customers are spread over a much larger area and are fewer in number. Offering some services to Horizon Power’s customers through Synergy’s newly selected customer information system was cost prohibitive. Horizon Power required the ability to deliver a more flexible and cost-effective service to its customers and embarked on Project Sunrise to bring about this change. Gentrack was chosen as the solution provider of choice. Its flagship product Gentrack Velocity is the new software platform implemented to manage billing, customer signup, customer care, credit and collections and market messaging for Horizon Power. Gentrack specialises in utilities and is used elsewhere in the West Australian energy market for billing and customer management solutions. Horizon Power also partnered with Serviceworks to deliver these services using the Gentrack platform.

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The successful changeover to the new system in June is a testament to the close partnerships formed between Horizon Power, Gentrack and Serviceworks in the interests of excellence in customer service. Regional offices can now assist Horizon Power’s customers directly by providing copies of their bills on the spot and connecting customers to services such as GreenSelect with more efficiency. Revolution in the control of Horizon Power’s networks The implementation of the leading edge network management system ENMAC went live in May at the Horizon Power Control Centre at our Karratha Head Office. It replaces the previous manual and passive control system XA21 and comes with technology that revolutionises the way we operate the network. ENMAC is a management tool which allows remote access to the system, via computer, in “real time”. The “real time” operation means there is now visibility to distribution network level and information can be fed back and updated instantly. Operational staff will therefore be given the latest information available to undertake their work. Safety is improved through ENMAC’s built-in intelligence which provides an additional check for proposed modifications to the networks. In most instances, Horizon Power operational staff will know a problem has occurred on a network even before a customer reports a fault. Operational staff can see faults on their computer screens and program work to fix them immediately. The first stage of implementation has taken place in the NWIS and will be phased in to the non-interconnected systems over the next 12-18 months, starting with Esperance. The announcement of underground power for the Pilbara region will also usher in a new phase of automation as the latest technology is installed into the network, allowing greater remote control capabilities with ENMAC. ENMAC is a management system capable of growing with our business; meeting our needs for greater visibility and automation of network and generation operations, improved customer service and most importantly, supporting our operational staff to complete their work in an efficient and safe way. Connecting with customers in the regions Horizon Power’s Community and Customer Relations Managers (CCRM) provide a valuable gateway into the business for regional stakeholders, acting as a point of contact for local Shires, community groups and media, in addition to providing advocacy on their behalf within the business. In 2008/09, Horizon Power employed three additional CCRMs based in regional offices - one in Carnarvon, one in Port Hedland and one in Esperance. We already employ CCRMs in Karratha and Broome.

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The role of CCRMs was also developed further this year to include an expansion of duties in respect to developing power supply contracts with customers and assisting with other local issues. Finding solutions to community issues Horizon Power has been working with the State Government to develop strategies that assist with the payment for electricity use. Though residents in newly-regularised town reserves pay for their own power use through the pre-payment meter system, the difficulty in collecting payment for electricity used to run services shared in the community, such as water and sewerage pumping, needed to be addressed. Horizon Power is including a range of options including a new tariff structure which covers the cost of shared services. Tariff increase management The State Government announced increases in electricity tariffs during the year to bring the price of electricity more into line with the cost of supply. Horizon Power undertook a major information and education campaign to ensure its customers were well informed about the increases and could attempt to reduce the impact of the increases by taking positive steps to manage energy use. Brochures outlining the changes in tariffs were developed to accompany power bills and a major advertising campaign was undertaken to educate customers about simple energy-saving tips. This included development of a dedicated Betterways website, customer competitions and tips promoting energy-efficiency.

Developing the Pilbara Plans for the Pilbara The Pilbara region is a source of significant wealth for the state and national economy and as such presents itself as a key strategic focus for Horizon Power with electricity supply to the region a major contributor to Horizon Power’s commercial viability. Recent estimates suggest that total energy demand in the Pilbara will reach 10,500 GWh per annum by 2015, doubling current consumption. As major investment decisions relating to electricity infrastructure are being finalised at present, an urgent need exists for an effective power solution in the Pilbara.

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Transmission in the Pilbara is largely serviced by the North West Interconnected System (NWIS), though much generation in the region is isolated. Horizon Power is working with Government and Industry to ensure the integration of the NWIS is a key plank in work to underpin the sustainability of power supply to the region. Pilbara energy system - the next generation Current demand projections indicate that Horizon Power will need to invest in approximately 100MW of new generation capacity in the Pilbara region by November 2012. The Pilbara Generation 2012 project will ensure the development of an additional 100MW of generation capacity. The new capacity will be sufficient to meet Horizon Power’s projected demand growth and reserve margin for a period of five to seven years. The project is expected to involve the construction of a combined-cycle power station with very high efficiency, resulting in a reduction in energy costs and carbon emissions in the Pilbara. The construction of the power station will provide for significantly increased security to Horizon Power’s load in the Pilbara, with additional reserve capacity and dual-fuel capability. Horizon Power is currently examining a number of sites in the Pilbara for this purpose. Horizon Power envisions this high efficiency generation plant as being an integral component of a future power system in the Pilbara. Efficient generation, alongside an integrated transmission system in the region, will meet the requirements of all stakeholders, residential and industrial alike, and provide affordable and reliable power well into the future.

Extending our service Aboriginal and Remote Communities Power Supply Project Comprehensive planning of the second phase of the Aboriginal and Remote Communities Power Supply Project (ARCPSP) has been underway following the successful completion of phase one last financial year (2007-08). This includes measurement of electricity loads during the summer of 2008/09. The lessons learned and knowledge gained from the ARCPSP process has also assisted Horizon Power in developing its remote service extension model which can result in isolated energy systems being developed to suit any remote location in the world. In each remote West Australian community under ARCPSP, the project has improved the quality, reliability and affordability of power supplies to the communities. The project involves:

- Close liaison with the communities, their leadership groups, traditional owners and relevant stakeholders including third party land holders;

- The construction of new, efficient power stations with renewable energy to provide a major input into supply;

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- An audit and upgrade of the distribution network to normal utility standards; - Installation of new streetlights; - Installation of prepayment electricity meters; - Retail services to individual customers at the uniform tariff, rather than a ‘whole

community’ payment system; and - Education on electrical safety, what to do in the event of a power interruption and how

to use the prepayment system. Phase 2.1A of the project involves regularisation of power supplies in the communities of Kalumburu and Noonkanbah (Yungngora). Tenders have been called for work in the remote community of Yungngora which is expected to be underway early next year. Discussions are ongoing with State and Federal Governments to obtain additional funding to regularise power supplies in other large remote communities including Billiluna, Balgo, Warakurna, Warburton, Yandeyarra, Jigalong and Burringurrah. Phase one of ARCPSP was recognised in June with a major national award – the prestigious Australian Business Award. The project, along with the Aboriginal Communities Training program which was developed to ensure the success of the employment objectives of ARCPSP, won the community contribution category. Horizon Metering Services Horizon Power joined with Commonwealth and State agencies to deliver metering services to Aboriginal communities which have previously had difficulty with revenue collection to meet fuel costs for community power stations. Horizon Metering Services is Horizon Power’s metering services business which assists Aboriginal communities to ensure they have sufficient revenue to cover power costs by installing pre-payment meters (PPMs) for electricity in communities. With pre-payment meters, residents pay for the power before they use it by inserting a $10, $20 or $50 power card. The Ngaanyatjarra Metering Project commenced during the year with funding from the Commonwealth Department of Families, Housing, Community Services and Indigenous Affairs. The WA Department of Housing and Horizon Power have been working together since September 2008 to install the PPMs in 12 Ngaanyatjarra communities (‘the ‘Lands’): Blackstone, Cosmo Newberry, Jameson, Kanpa, Kiwirkurra, Patjarr, Tjirrkarli, Tjukurla, Wanarn, Warakurna, Warburton and Wingellina. Horizon Power's role was to engage with the key stakeholders including the Ngaanyatjarra Council and leaders in each of the 12 communities and residents. The scope of the project includes upgrades to internal house wiring, installation of PPMs, education on their use, and facilitation of a retail arrangement for the sale of power cards to residents. Regular updates are provided to government agencies. A range of communication strategies were developed and implemented to further assist residents gain a clear understanding of the new way to pay for power including educational materials translated into Ngaanyatjarra language as English is often a second or third language to people living in the Lands. In addition, radio announcements were developed and translated into Ngaanyatjarra language and set to music created by local Indigenous people.

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Horizon Power staff and those from other agencies also had the opportunity to appreciate and learn more about the culture and language of the people living in the Lands, and to gain an understanding of the lifestyles, cost of living in remote locations, and the beauty of the country and people. Lamboo Gunian (Koongie Park) – CASE STUDY Lamboo Gunian (Koongie Park) is an Aboriginal community on a pastoral lease 20 kilometres west of Halls Creek, with a population of 50 people. Electricity was supplied to the community via a credit master meter but the community had a long history of difficulties in paying its electricity bills. In October 2008, Horizon Power called together Government agencies who deliver services to the town to resolve the ongoing problem. After close consultation with the leadership of Lamboo Gunian, an agreement was reached which involved splitting the outstanding debt among the parties and installing a new meter system. To assist the community in meeting its future payments, Horizon Power installed pre-payment electricity meters on the houses. This means each resident is responsible for the payment of his or her electricity consumption, rather than the incorporated community body. Horizon Power’s initiative has been met with a very positive response from Government stakeholders and from members of the community, with the expectation that electricity accounts for “community” consumption will be more manageable for residents. The new system commenced in March 2009. Horizon Power in the space race We are excited to be involved in the most significant radio-astronomy ‘mega science’ project ever developed – the Square Kilometre Array project. Australia and South Africa are in the running to be the preferred site for an international, next generation radio astronomy project that will be 50 times more powerful than the world’s largest existing telescope. This groundbreaking initiative will enable astronomers to see the formation of the early universe, including the emergence of the first stars, galaxies and other structures. In 2006, South Africa and Australia were shortlisted as acceptable sites to host the SKA project. If Australia is chosen, it will put WA on the cosmic map and at the forefront of the world’s radio astronomy industry. As part of Australia’s bid for the project, a demonstration project will be built in Western Australia. This is known as the Australian SKA Pathfinder (ASKAP) and will represent approximately one per cent of the total SKA project. It will be located at the isolated Boolardy Station within the Shire of Murchison, approximately 400 kilometres north east of Geraldton. Horizon Power is focused on delivering the energy needs for ASKAP and the potential SKA project. A team of Horizon Power and other Australian and international energy specialists are heading to the University of Manchester in September 2009 to further analyse the energy requirements of this project, and to ensure that we are in a position to deliver a world class solution for the SKA.

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Curtin University collaboration Horizon Power has entered into a collaborative relationship with Curtin University of Technology in a variety of areas including staff exchange programs, research projects, co-operative industry projects, vacation work, graduate placements and scholarships. Remote water services Horizon Power is constantly seeking opportunities to fulfil its commitment to improve the quality of life in regional Western Australia. Power and water are both essential services. Because Horizon Power is a skilled utility provider in remote Western Australia, we are now exploring the possibility of using that capability to extend our service provision to remote communities to include the supply of water services. A water services strategy is in the process of being developed. Rottnest Horizon Power has submitted an Expression of Interest to provide utility services (power, water, wastewater and LPG) on Rottnest Island. Horizon Power has been shortlisted, along with another company, and will be submitting a final bid in late 2009. Horizon Power is well placed to provide a cost effective service for the provision of utilities on Rottnest Island. The utility delivery model that will be deployed is a natural extension of our business, aligned to the remote islanded communities’ strategy, with the operational management integrated into our Operations Regional District Model. Service without borders With more than one billion people in the world without power, Horizon Power is exploring the possibility of assisting neighbouring developing countries with the provision of power services to their communities. Horizon Power is continuing to develop energy solutions which are fully-integrated, cost-effective and able to be used in any remote area in Australia and other parts of the world. Horizon Power is looking to the Asia Pacific region to seek out potential new markets.

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KEY STATISTICS Electricity generation and sales July 08 to June 09

PowerStation Generated Power (kWhs) Generated Power-Wind Purchases(kWhs)

Total Power Purchased /

Generated (kwh)

Used in Works (kwh) Sent Out (kWhs)

Ardyaloon - - 1,572,213 1,572,213 - 1,572,213 Beagle Bay - - 1,455,077 1,455,077 - 1,455,077 Bidyadanga - - 2,394,551 2,394,551 - 2,394,551 Broome - - 128,705,972 128,705,972 - 128,705,972 Looma - - 2,476,759 2,476,759 - 2,476,759 Carnarvon 48,923,768 - - 48,923,768 2,211,868 46,711,900 Coral Bay - - 3,087,279 3,087,279 - 3,087,279 Cue - - 2,218,050 2,218,050 - 2,218,050 Denham 2,992,606 2,510,172 - 5,502,778 46,538 5,456,240 Derby - - 31,806,354 31,806,354 - 31,806,354 Djarindjin - - 1,508,094 1,508,094 - 1,508,094 Esperance - - 71,796,567 71,796,567 - 71,796,567 Exmouth - - 24,009,653 24,009,653 - 24,009,653 Fitzroy Crossing - - 12,156,881 12,156,881 - 12,156,881 Gascoyne Junction - - 531,253 531,253 - 531,253

Halls Creek - - 10,504,257 10,504,257 - 10,504,257 Hopetoun - - 5,676,921 5,676,921 - 5,676,921 Kununurra 396,069 - 57,971,516 58,367,585 920,542 57,447,043 Lake Argyle - - 399,851 399,851 - 399,851 Laverton - - 3,557,487 3,557,487 - 3,557,487

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PowerStation Generated Power (kWhs) Generated Power-Wind Purchases(kWhs)

Total Power Purchased /

Generated (kwh)

Used in Works (kwh) Sent Out (kWhs)

Leonora - - 9,399,127 9,399,127 - 9,399,127 Marble Bar 2,289,456 - - 2,289,456 77,158 2,212,298 Meekatharra - - 7,063,525 7,063,525 - 7,063,525 Menzies - - 684,407 684,407 - 684,407 Mount Magnet - - 4,016,476 4,016,476 - 4,016,476 Norseman - - 4,796,892 4,796,892 - 4,796,892 Nullagine 1,058,739 - - 1,058,739 25,923 1,032,816 Onslow 12,967 - 5,198,670 5,211,637 13,053 5,198,584 Sandstone - - 794,305 794,305 - 794,305 Warmun - - 2,370,913 2,370,913 - 2,370,913 Wiluna - - 2,675,389 2,675,389 - 2,675,389 Wyndham 223,900 - 8,035,733 8,259,633 42,536 8,217,097 Yalgoo - - 906,901 906,901 - 906,901

55,897,505 2,510,172 407,771,074 466,178,751 3,337,618 462,841,133

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KEY STATISTICS

Performance indicators Performance indicators (rolling 12 months)

Target Actual

Social benefit SAIDI: System outage duration * Less than 290 339 SAIFI: Frequency of outages Less than 5 4.94 CAIDI: Duration of customer outages Less than 49 62 Complying towns Greater than 26/34 24 Corporate reputation index (per cent) Greater than 70 75 Employee perception survey rating (per cent)

Greater than 79 80

Leadership survey rating (per cent) Greater than 70 78 Customer value Average unit cost (cents/kWh) 25.90 29.80 Average selling price (cents/kWh) 15.66 15.87 * System performance measured in minutes

Network assets Transmission lines (km) 455Distribution lines

- High voltage overhead (km) - High voltage single phase (km) - Low voltage overhead (km)

246127041809

Distribution cable (underground) - High voltage (km) - Low voltage (km)

387596

Total transformer capacity (kVA) 533,426Number of streetlights (Number) 13,383

Employment

Division Full time employees (FTEs) Office of the Managing Director & Board 8 Finance Services 18 Governance & Company Secretariat 18 Islanded Systems Development 19 Knowledge and Technology 27 Operations 179 Strategy & Business Development 17 People & Corporate Services 20 Shared Services 37 Total 343

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Safety targets Horizon Power monitors staff safety and measures the effectiveness of initiatives designed to ensure the safety of staff and contractors by using the traditional key performance indicators of Lost Time Injuries and Medical Frequency Rate, and Public Safety Incidents indicator for public safety risk. 2007/08 financial year Target Actual Lost Time Injuries (LTIs) 0 2 Medical Frequency Rate

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6.6 (This rate includes LTIs

and other medical treatments)

Public Safety Incidents 4 0

Environmental Management System An Environmental Management System (EMS) is a structured system designed to assist the organisation to reduce its environmental impacts through targeted continuous improvement in its environmental management, leading to improvements in its overall environmental performance. Horizon Power is currently redeveloping its EMS and expects that the new system will be functional before the end of 2009. The EMS will be an intranet-based system predicated on the requirements of the standard for Environmental Management Systems (AS 14001) and will be accessible to all Horizon Power staff, incorporating environmental management as well as Indigenous heritage and native title management. The system will facilitate the identification and risk assessment of our environmental and Indigenous heritage impacts, with the aim of continually improving management of these issues throughout the business

Greenhouse gas emissions Horizon Power was previously a member of the Greenhouse Challenge Plus Program (GCP) and used GCP methods to estimate emissions. The GCP ceased operation on 30 June 2009 following the commencement of the National Greenhouse and the Energy Reporting Act 2007 (National Greenhouse Energy Reporting Systems or NGERS). Horizon Power’s greenhouse gas emissions are now calculated using the methodology of the NGERS. Horizon Power has registered under the Act and will be reporting its emissions for 2008/09 to NGERS prior to 31 October 2009. The emission figures presented below are based on the most accurate data as of 31 July 2009. Greenhouse gas emissions by scope Tonnes of CO

2 Equivalents

Direct emissions (Scope 1) 37,190 Indirect emissions (Scope 2) 37,810 Further indirect emissions from Independent power producers (Scope 3) 609,760

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Horizon Power’s direct (Scope 1) emissions totalled 37,190 tonnes and were emitted primarily from the combustion of fuel in power stations. Minor sources of direct emissions included vehicle fleet (1,040 tonnes) and leakage of sulphur hexafluoride from the transmission network (11 tonnes). Horizon Power’s direct emissions have decreased by approximately 48,000 tonnes in the last year, mainly due to the replacement of a number of Horizon Power owned power stations in the Kimberley by Independent power producers. This has also produced a corresponding rise in Horizon Power’s indirect (Scope 3) emissions. Horizon Power’s Scope 2 emissions were primarily due to losses in the transmission and distribution networks. These losses accounted for a total of 36,610 tonnes, while the remaining 1,200 tonnes were associated with electricity consumed in operational areas such as depots, offices and buildings. The Scope 3 emissions are almost entirely made up of buying electricity from independent power producers (IPPs) and selling it to customers. Indirect emissions from IPPs represented an estimated 609,760 tonnes of greenhouse gas emissions. Horizon Power’s key performance indicator for greenhouse gas emissions is carbon intensity (kg CO2e/kWh). The carbon intensity of different activities can be measured and compared from year to year. Performance Indicators Kgs of CO

2 Equivalent per kWh

Horizon Power power stations carbon intensity (as electricity sent out) 0.68 Retailed power carbon intensity (as electricity sold) 0.77 Transmission and distribution carbon intensity (as electricity sent out) 0.04 Horizon Power’s key performance indicator measures the carbon intensity of electricity generation in its power stations. This indicator has decreased from 0.75 to 0.68 Kgs of CO2 Equivalent per kWh in the past year. This was mainly due to the replacement of a number of older, less efficient Horizon Power-owned power stations in the Kimberley region.

Atmospheric emissions Horizon Power’s emission details are provided annually to the National Pollutant Inventory (NPI). This information can be accessed via http://www.npi.gov.au. The following table provides information on the main atmospheric emissions from the business’ major power stations. Performance Indicator Total (tonnes) kgs/MWh Sulphur Dioxide emissions 0.4 0.01 Nitrogen Oxides emissions 1070 19.2 The atmospheric emission indicators used by Horizon Power have also exhibited a decreasing trend in the past year. This is primarily due to the replacement of a number of older Horizon Power owned power stations in the Kimberley region but is also linked to the general decrease in sulphur levels in diesel fuel.

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Contaminated Sites Horizon Power is actively managing the 29 contaminated sites that have been reported under the Contaminated Sites Act 2003. Significant work has been undertaken to obtain a better understanding of the risks associated with Horizon Power’s contaminated sites and to develop an appropriate management strategy to address these risks. Associated with the ongoing management of contamination issues at each of these sites, numerous pieces of environmental investigation work have been undertaken in the last year to gain a better understanding of the contamination that is present. The investigation work completed includes:

- Detailed Site Investigations of five Kimberley power station sites (Fitzroy Crossing, Halls Creek, Camballin, Lake Argyle, Kununurra);

- Groundwater Monitoring and Quantitative Risk Assessment of Esperance and Hopetoun power stations;

- Detailed Site Investigations of Carnarvon, Onslow and Exmouth power stations; - Further assessment of potential off-site impacts at Meekatharra power station; and - Groundwater monitoring and additional delineation of hydrocarbon plume at Derby

Power Station. A summary of the classification status of Horizon Power’s contaminated sites is provided below. Contaminated - Remediation Required Derby Power Station (PS), Esperance PS, Exmouth PS, Wiluna PS and Wittenoom PS. Possibly Contaminated - Investigation Required` Broome PS, Fitzroy Crossing PS, Laverton PS, Marble Bar PS, Nullagine PS and Onslow PS Contaminated Restricted Use Yalgoo PS Remediated For Restricted Use Menzies PS Report Not Substantiated Karratha Depot The remaining 15 reported sites have not been classified. Horizon Power is committed to the appropriate remediation of its contaminated sites. Horizon Power’s contaminated site remediation strategy is being developed and will define Horizon Power’s future management of these sites. This strategy will be discussed with the Department of Environment and Conservation (DEC) and their input will be sought prior to implementation. Horizon Power continues to provide for the assessment and remediation of its contaminated sites as required.

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CORPORATE GOVERNANCE

Governance Framework A Governance Framework provides the ‘running rules’ that support the business by:

- Providing a structure and consistency to the way Horizon Power does business; - Promoting the business’ values, corporate governance principles, systems and

practices, including the roles, responsibilities and authorities of the Board and Executive;

- Encouraging the creation of lasting value consistent with the Business Model; - Aligning with Horizon Power’s Strategic and Business Plans; and - Providing accountability and control systems consistent with the risks involved.

Horizon Power’s governance principles are driven by the importance placed upon providing staff with the necessary knowledge (supported by structure, systems and processes) to allow them to appropriately respond to circumstances, issues and opportunities with a clear understanding of Horizon Power’s context. This ‘Response within Context’ means that employees are able to perform their activities in a responsible, thoughtful, knowledgeable and consistently professional manner, which contributes to the overall direction and success of the business.

Board of Directors In accordance with the Electricity Corporations Act 2005, Horizon Power must be governed by a Board of Directors, of between four and six directors appointed by the Governor on the nomination of the Minister for Energy. The Board of Directors is responsible to the Minister for Energy for the performance of the business. The Board Members between them have a suitable source of knowledge and experience with which to guide Horizon Power in ways to continuously expand and improve its services. Directors Brendan Hammond (Chairman) Brendan has a wealth of experience from a career largely associated with the resources sector. He has held senior executive roles in large mining corporations, worked in and with the highest levels of Government and had a major influence on Indigenous affairs across the country. Brendan is also Chairman of the Dampier Port Authority and a member of the State Indigenous Implementation Board. He continues to have a strong involvement in community and Indigenous activities, art, health and learning.

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Susan Bradley Susan’s extensive business and community experience in the Kimberley has included owning and managing cattle stations, farms on the Ord Irrigation Area and a caravan park in Kununurra. She has lived in the Kimberley for 40 years and held many public positions including the Wyndham-East Kimberley Shire President, Chair of the Ord Development Study, Inaugural Chair of the Kimberley Development Commission and Chair of the Kimberley Regional Water Resources Development Study. Susan is presently General Manager of two North Kimberley Dunkeld Pastoral Company Pty Ltd properties and Ellenbrae Station Pty Ltd, and is a Director of the Kimberley Foundation Australia Ltd. Robert Eagle Robert Eagle brings to Horizon Power almost 40 years of extensive and wide-ranging experience in the practice of law. He is currently a Lawyer and Mediator with his own practice based in Broome. Since 1999, he has been a Director of a Business Forecasting Company, with clients including major banks, insurers, telecommunications companies, major retailers and a range of other businesses. He has a wide experience of agreements and contracts, trusts, incorporating companies, superannuation funds and corporate acquisitions. Robert is the Public Officer of a number of Aboriginal Corporations and is a keen participant in the community life of Broome. Nicole Lockwood Nicole Lockwood has a keen interest in regional development and is committed to the sustainability of the Pilbara community. Based in Karratha, she has a background as a State prosecutor, solicitor and research assistant and has extensive experience in policy formation and community consultation. Nicole is an elected member of the Shire of Roebourne Council, member of the Pilbara Regional Council and has consulted to the Pilbara Area Consultative Committee. In these roles she has been integral to the coordination and implementation of significant events and the development of initiatives to benefit the Pilbara region. Alan Dundas (Deputy Chairman) Alan was appointed to the Horizon Power Board as Deputy Chairman on 1 April 2006. He also served on the Audit and Risk Management Committee. Alan has accumulated more than 30 years of experience in the resources industry both in Australia and overseas, most recently with WMC Resources where he served in senior management and Board roles. Alan has also held company representative roles with the Chamber of Minerals and Energy in Western Australia and the Northern Territory. He is a non-executive Director of Westralia Airports Corporation and is non-executive Chairman of Barminco Limited. Alan retired from the Horizon Power Board on 31 March 2009.

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Rod Hayes (Managing Director) Rod has 12 years of experience in Australia’s utilities sector and a record of strong and dynamic leadership. Before joining Horizon Power, he served for more than three years as the Chief Executive Officer of the Gladstone Area Water Board, a government-owned commercialised business servicing one of Queensland’s biggest coastal cities. Rod brings previous experience in senior management roles in the electricity sector, after spending several years with Tasmanian electricity distribution and retail company Aurora Energy. Rod is a Fellow of the Australian Institute of Management. Company Secretary Pete Feldhusen Pete is also Horizon Power’s General Manager, Governance and Company Secretariat. He has held Board, Company Secretarial, Financial and Operating Management positions in a number of mining, legal and utility organisations. The company secretary provides administrative services to the Board and oversees the corporate governance systems. Special Adviser to the Board Angela Riley The Horizon Power Board has retained the services of Angela Riley as a specialist adviser to the Board to enable the Board to prudently discharge its Audit and Risk obligations. Angela is the chair of Horizon Power’s Audit and Risk Management Committee.

Attendance at Board meetings The Board meets bi-monthly, however there were a number of additional meetings and circular resolutions during the year which are recognised as duly constituted Board meetings. Board Meetings A B Mr Brendan Hammond (Chairman) 15 16 Mr Alan Dundas (retired from Board 31 March 2009) 14 14 Ms Susan Bradley 15 16 Mr Robert Eagle 15 16 Ms Nicole Lockwood 16 16 Mr Rod Hayes 15 16 A – Number of meetings attended. B – Number of meetings eligible to attend during the time the Director held office during the year. Declarations of Interest

Brendan Hammond:

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o Seymour Associates (Director/Owner)

Alan Dundas: o Ripstone Consulting (Director) o Westralia Airports Corporation Pty Ltd (Non-executive Director) o Barminco Limited (Non-executive Chairman)

Angela Riley: o BL Riley & Co. (Co-manager) o MG Community Foundation Pty Ltd (Director) o MG Dawang Land Pty Ltd (Director) o MG Developments Pty Ltd (Director)

Horizon Power Directors’ Terms of Appointment Horizon Power Director’s Terms of Appointment

Director Appointed Expires

Brendan Hammond (Chairman) 1 Dec 2005 31 Mar 2009

Second Term 1 Apr 2009 31 Mar 2012

Alan Dundas (retired) 1 Apr 2006 31 Mar 2009

Susan Bradley 1 Apr 2006 30 Jun 2007

Second Term 1 Aug 2007 30 Jun 2008

Third Term 1 Jul 2008 30 Jun 2010

Nicole Lockwood 1 Jul 2008 30 Jun 2010

Robert Eagle 1 Jul 2008 30 Jun 2010

Rod Hayes (Managing Director) 30 Jan 2006 30 Jan 2008

Second Term 1 Feb 2008 29 Jan 2009

Third Term 30 Jan 2009 29 Jan 2012

Consultants to the Board Appointed Expires

Angela Riley (Chair Audit and Risk Management Committee) 31 Mar 2007 31 Mar 2010

Second Term 1 Apr 2007 30 Jun 2008

Third Term 1 Jul 2008 30 Jun 2009

Fourth Term 1 Jul 2009 30 Jun 2012

Anthony Chilvers

(consulted to the Audit and Risk Management Committee)

1 Jul 2008 30 Sep 2008

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Audit and Risk Management Committee The Audit and Risk Management Committee (ARMC) is a committee of the Board of Directors of Horizon Power. The Committee’s role is to assist the Board to discharge its responsibility of oversight and corporate governance of the organisation. In doing so, the Committee is responsible to the Board. Specialist adviser, Angela Riley, who has a strong financial and auditing background, chairs the Committee. Angela and fellow directors Nicole Lockwood and Robert Eagle comprise the ARMC. A key role of the Committee is to provide reasonable assurance to Directors that Horizon Power’s core business goals and objectives are being achieved in an efficient and economical manner, within an appropriate framework of internal control and risk management. Financial Reporting The ARMC performs an overview function in financial reporting as follows:

Considers the appropriateness of Horizon Power’s accounting policies and principles; Assesses significant estimates and judgements in the financial reports; Reviews management’s process for ensuring compliance with laws, regulations and

other requirements relating to the external reporting of Horizon Power; Assesses information from the internal and external auditors regarding the quality of

financial reports; and Reviews the management of Treasury operations.

Internal Control and Risk Management The ARMC provides oversight of the identification of risks and threats to Horizon Power, and the processes by which those risks and threats are managed. The Committee also assesses and adds value to Horizon Power’s corporate governance, including its systems of internal control and internal audit function. Composition of ARMC The ARMC comprises:

Angela Riley, Chair Alan Dundas (retired 31 March 2009) Nicole Lockwood Robert Eagle (joined Committee May 2009) Tony Chilvers (consulted to the Committee July 2008 to September 2008)

ARMC meetings in the 2008/09 financial year were attended by:

Rod Hayes, Managing Director Amelia Yam, General Manager, Finance Services Pete Feldhusen, Company Secretary, General Manager, Governance and Company

Secretariat/Acting General Manager Finance Services (until September 2008) Andrew Georgiades, Manager, Risk and Audit

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ARMC Meetings Attended Audit and Risk Management Committee Meetings A B Ms Angela Riley * 8 8 Ms Nicole Lockwood 8 8 Mr Robert Eagle (joined May 2009) 2 2 Mr Alan Dundas (retired 31 March 2009) 3 3 Mr Tony Chilvers (consultant from 1 July 2008 to 30 September 2008)

2 2

A – Number of meetings attended. B – Number of meetings eligible to attend during the time the Director held office during the year. *Special Adviser to the Board appointed to enable the Board to prudently discharge its Audit and Risk obligations.

Remuneration report Principles used to determine remuneration The Minister for Energy (the Minister) approves the remuneration of all non-executive directors. The Board, subject to the concurrence of the Minister approves the remuneration of the Managing Director (also referred to as the Chief Executive Officer). The Board, on recommendation of the Managing Director, approves the remuneration of all Executive Officers. Key Management Personnel Remuneration Horizon Power’s compensation policy is designed to:

Provide market competitive remuneration to employees having regard to both the level of work assigned and the personal effectiveness in its performance;

Allocate remuneration to employees on the basis of merit and performance; Adopt performance measures that align the interests of employees with the interests of

key stakeholders; and Adopt a remuneration structure that provides an appropriate balance in ‘risk and

reward sharing’ between the employee and Horizon Power. Non-Executive Directors Payment to non-executive directors consists of base remuneration and superannuation. Managing Director and Executives The Managing Director and Executives compensation framework is based upon total target remuneration that includes a total fixed remuneration structured with:

cash; selection of prescribed non-financial benefits; superannuation; and cost of the fringe benefits tax.

In addition to total target remuneration, those Executives resident in remote locations are provided housing benefits and location allowances.

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Details of compensation

(i) Non-executive directors' remuneration 2009

Name Cash salary

and fees Superannuation Total $ $ $

B Hammond 95,000 8,550 103,550 S Bradley 45,000 4,050 49,050 R Eagle 43,962 3,957 47,919 N Lockwood 43,962 3,957 47,919 A Dundas 46,615 4,195 50,810 Total 274,539 24,709 299,248

(ii) Executives' remuneration

2009

Name Cash salary

and fees Performance

Pay (i) Non monetary

benefits (ii) Superannuation Total $ $ $ $ $

R Hayes 393,962 108,614 91,881 45,232 639,689 A Yam 152,906 - - 13,762 166,668 P Feldhusen 213,007 37,040 - 23,424 273,471 M Laughton Smith 223,166 35,777 - 24,554 283,497 D McDonald (includes redundancy payment) 142,167 34,789 5,256 6,530 188,742 D Martin 203,641 35,875 - 21,556 261,072 F Tudor 247,142 39,229 - 25,773 312,144 Z Wilk 230,765 34,933 83,708 23,268 372,674 P Jensen 149,259 - - 13,433 162,692 J Deacon 122,018 - - 10,982 133,000 Total 2,078,033 326,257 180,845 208,514 2,793,649

The non-executive directors of Horizon Power during the period were:

B Hammond - Chairman A Dundas – Director (retired 31 March 2009) S Bradley - Director Nicole Lockwood – Director Robert Eagle - Director

The other key management personnel of Horizon Power during the period were:

R Hayes – Managing Director A Yam – General Manager Finance Services (appointed on 1 September 2008) M Laughton-Smith – General Manager Islanded Systems Development D Martin – General Manager People and Corporate Services F Tudor – General Manager Strategy and Business Development Z Wilk – General Manager Operations P Feldhusen – General Manager Governance and Company Secretariat P Jensen – General Manager Shared Services (appointed on 13 October 2008) J Deacon – General Manager Knowledge and Technology (appointed on 9 October

2008) Darren McDonald – General Manager Retail (finished on 29 August 2008)

Indemnification of Directors The Directors’ and Officers’ Liability Insurance Policy is in place to ensure that the Directors and Officers of the Corporation have adequate coverage.

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The Directors’ and Officers’ Liability Insurance Policy forms part of the Corporation’s Third Party Liability Policy. At the date of this report no claims have been made against the Directors and Officers component of the Policy.

Corporate compliance disclosures Electricity Licences The Electricity Industry Act (2004) requires participants who generate, transmit, distribute or retail electricity in the Western Australia to obtain a licence to operate. Licences are issued by the Economic Regulation Authority. Horizon Power was issued an Integrated Regional Licence on 30 March 2006. The Integrated Regional Licence requires Horizon Power to periodically submit a Licence Performance Audit and an Asset Management System Review to the Economic Regulation Authority. The first of these were submitted in December 2008. In January 2009 the Economic Regulation Authority issued a Notice requiring Horizon Power to rectify a number of matters in order to fully comply with our Integrated Regional Licence. Horizon Power is actively addressing each of those recommendations. Restriction on area in which Horizon Power may operate Within Western Australia, the performance of Horizon Power’s functions is limited to those parts of the State that are not served by the South West Interconnected System. State Records Act 2000 Horizon Power maintains and supports quality record-keeping practices in its day-to-day business activities. The function of managing records resides within the Knowledge and Technology Division of Horizon Power. Horizon Power’s Record-Keeping Plan is reviewed annually to ensure currency and any updates are submitted to the Minister for Energy for approval. The approved plan is then presented to the State Records Office. The record-keeping plan ensures all records are managed according to the requirements of the State Records Act 2000 and demonstrates an ongoing commitment to the training of staff in record-keeping principles and practices. Western Australian Electoral Act 1907 In accordance with the requirements of Section 175ZE of the Western Australian Electoral Act 1907, the following information in respect to expenditures (excluding GST) incurred by, or on behalf of, Regional Power Corporation during the financial period ended 30 June 2009 is as follows: Advertising agencies $562,776 Market research organisations $11,621 Direct mail organisations $37,246 Media advertising organisations $79,964

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Rebates Horizon Power administers various tariff and supply charge concessions for seniors and concession card holders. The value of the rebates has increased in line with increases in electricity tariffs. The rebates include: Account Establishment Fee Rebate – The fee for establishing a new electricity account is waived for eligible customers. The rebate increased from $29.80 to $32.10 after July 1 2009. Energy Rebate – Eligible customers are entitled to a subsidy of 32 cents per day for their primary metered residence on the electricity supply charge. Dependent Child rebate – Customers with dependent children, who are eligible for supply charge rebates, are also entitled to a rebate on a proportion of the energy charge. Reduced Meter Test Fee – If a meter is tested and found not to be faulty, Horizon Power will charge a fee for that testing. Eligible customers can apply for a rebate for that fee. Air Conditioning Rebate – Eligible seniors and dependent child rebate recipients are entitled to a rebate to offset the electricity costs associated with running air conditioning. Freedom of Information Act 1992 The Freedom of Information Act 1992 requires Horizon Power to publish an Information Statement. Our Information Statement is available online at http://www.horizonpower.com.au/general/foi_statement.html Disability Access Disclosures Horizon Power has a current Disability Access and Inclusion Plan in accordance with the Disability Services Act 1993. The plan facilitates the provision of accessible services, facilities and information for people with disabilities. Public Interest Disclosures Horizon Power complies with various corporate obligations of the Public Interest Disclosure (PID) Act 2003. The PID Act enables employees to make disclosures about improper conduct within the organisation and aims to ensure openness and accountability in government by encouraging people to make disclosures and protecting them when they do. Horizon Power supports the principles of this plan. There were no Public Interest Disclosures during the year. Sustainable Practice Framework The sustainability of our business, our network and our relationship with our customers is a principle guiding factor at Horizon Power. Every action taken is guided by the principle of sustainability. Horizon Power has this year committed to the Sustainable Practice Framework developed by Energy Supply Association of Australia which sets out a map for achieving sustainability in the energy supply sector.

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The nine principles in the framework that Horizon Power has committed to are set out below:

- Maintain good corporate governance practices; - Deliver value to shareholders, customers and the community; - Provide a safe, secure and reliable energy supply; - Engage key internal and external stakeholders on significant sustainability matters; - Maintain and enhance workforce health, safety, wellbeing and development; - Develop and implement climate change responses; - Improve environmental performance and resource efficiency; - Foster and support community programs; and - Promote measurement and reporting of sustainability performance.

Observance of the Code of Conduct for Horizon Power Section 33 of the Electricity Corporations Act 2005 (WA) (Act) requires the Board of Horizon Power (Board) to provide to the Minister for Energy, at the same time as delivering its Annual Report, a separate report on the observance of its Code of Conduct by members of staff. The Board confirms that consistent with Section 31 of the Act, Horizon Power’s Code of Conduct was developed after consultation with staff and the Commissioner for Public Sector Standards and was adopted by the Board at its meeting on 18 October 2006. The Code of Conduct was revised and signed off by the Board in August 2009. The Code of Conduct has been circulated to employees of Horizon Power and is available on the Horizon Power website for reference. The Board and the Managing Director, under delegated authority, assign accountability to Managers in the organisation to ensure observance of the standards of conduct and integrity by members of staff. There were no reported incidents that breach the Code of Conduct for the 2008-09 financial year. Environmental regulations Horizon Power acts responsibly to ensure compliance to all State and Federal environmental Acts and regulations that apply. The main environmental legislation that impacts on its operation is the Environmental Protection (EP) Act 1986. This is an Act of the Western Australian Parliament and gives rise to many regulations with the main ones referred to below: EP (Controlled Waste) Regulations 2004 specify that certain wastes (used lube oil, transformer oil, interceptor wastes, oil filters, lead-acid batteries, etc) are carried only by licensed carriers and that any facility that regularly produces them has a generator identification number. Horizon Power employs a regular systematic program to dispose of controlled wastes. EP (Native Vegetation Clearing) Regulations 2004 are designed to maintain the remaining native vegetation in the State. They specify the need to gain a permit from the Department of

52

Environment and Conservation prior to the clearing of any native vegetation during a non-exempt activity. Other State and Federal legislation that Horizon Power operates under, but which have a smaller impact on the business, includes:

EP (Unauthorised Discharge) Regulations 2004; EP (Noise) Regulations 1997; Contaminated Sites Act 2003; Dangerous Goods Safety Act 2004; National Greenhouse and Energy Reporting Act 2007; and Environmental Protection and Biodiversity Conservation Act 1999.

Horizon Power has a site-specific license to operate the existing power station at Carnarvon. This licence contains specific requirements that must be met in order to continue operating. The conditions include reporting air emissions, testing stacks annually for emissions, guidelines for storing liquid fuels and chemicals and supplying an annual report to the Department of Environment and Conservation on power station operations.

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FINANCIAL PERFORMANCE Key Drivers for change in reported net profit (loss) – 2007/08 to 2008/09 Horizon Power ended the financial year with a Net Loss of $42.3M down from the prior year’s restated profit of $7.4M. The 30 June 2008 Net Profit after tax was restated from $1.5M to $7.4M to take into account distribution assets from subdivisions, “gifted” to Horizon Power as part of its “day to day” operations. The key drivers for the variance are shown in the graph below:- During the year, Regional Western Australia continued to experience increased economic activity which has led to Horizon Power incurring additional labour costs to grow and expand its networks. Horizon Power has also had to embark on a capability build as support services such as information technology, fleet management, insurance and technical services, previously performed by Western Power under service level agreements since disaggregation in April 2006 have been withdrawn or are gradually being withdrawn. As a result, Horizon Power has increased its workforce from 251 to 343 and wages and related costs have risen. In

Key Drivers for Change to NPAT 2007/8 to 2008/9

-70

-60

-50

-40

-30

-20

-10

0

10

$'M

illio

n

Negative Variance Positive Variance

-7.9

-2.8-9.2

-10.9

-14.4

-13.5

9.0

Build W

orkforce C

apability & C

apacity

Cost P

ressures

Fair Value of

Derivatives

Additional D

ecomm

C

osts

Prior Y

ear A

bnormal Item

s

Additional

Finance Leases

Tax Savings

& O

thers

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addition to an increase in workforce numbers, the average cost per employee has risen by approximately 2%. The average cost of supply increased from last year due mainly to higher gas requirements to meet additional electricity sales in the NWIS. The additional gas purchased was at market prices. Horizon Power has a policy to manage oil price fluctuations using forward hedge contracts. The overall downward trend of world oil prices resulted in losses to hedge contracts this financial year. Further environmental assessment and a review of decommissioning costs for Horizon’s power stations have led to a change in provision of $10.9M. Non-recurring transactions and accounting adjustments from the prior year has also been a contributor. These include the reversal of a finance lease and revenue from a legal settlement. A number of new Power Purchase Agreements supplying the West Kimberley region were recognised as Finance Leases in the latter half of 2007/08. The full year impact of these Agreements as finance leases contributed to the $13.5M of additional interest and amortisation this year. Capital employed was $736.8M, an increase of $98.6M compared to the prior year. Capital employed includes interest bearing liabilities of $571.7M, reflecting an increase of $63.6M against the prior year, mainly as a result of an increase in debt to fund capital works. In addition, Horizon received $35M equity injection for the Pilbara Undergrounding Project. Dividends No dividends have been paid nor recommended for this financial year. Significant changes in Horizon Power’s state of affairs In the opinion of the Directors, there were no significant changes in the Corporation’s state of affairs during the reporting period. Significant Events after Balance Date There were no significant events after Balance Date.

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DIRECTOR’S DECLARATION In accordance with a resolution of the Directors of Regional Power Corporation (trading as Horizon Power), we state that: In the opinion of the Directors:

(a) the financial statements and notes of the Corporation are in accordance with Schedule 4 of the Electricity Corporations Act 2005, including:

i. giving a true and fair view of the Corporation’s financial position as at 30 June

2009 and of its performance for the 12 month period ended on that date; and ii. complying with Accounting Standards, AASB Interpretations and Corporations

Regulations; and (b) there are reasonable grounds to believe that the Corporation will be able to pay its

debts as and when they become due and payable. On behalf of the Board

Brendan Hammond CHAIRMAN 10 September 2009

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STATEMENT OF FINANCIAL PERFORMANCE

Income statement For the year ended 30 June 2009 30 June 30 June 2009 2008

Notes $'000 $'000

Revenue 4 188,738 172,646 Cost of sales 6 (189,528) (160,265) Gross (loss) / profit (790) 12,381

Other income 5 72,210 79,726 Expenses 6 (88,954) (49,670) Finance costs 6 (43,062) (32,306) (Loss) / profit before income tax

(60,596) 10,131

Income tax benefit / (expense) 7 18,254 (2,756) (Loss) / profit for the year (42,342) 7,375

The above income statement should be read in conjunction with the accompanying notes.

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Balance sheet As at 30 June 2009 30 June 30 June 2009 2008

Notes $'000 $'000

ASSETS Current assets Cash and cash equivalents 8 36,096 2,332 Trade and other receivables 9 23,774 33,506 Inventories 10 7,466 7,550 Derivative financial instruments 11 34 1 Intangible assets 15 200 224 Other current assets 12 576 281 Total current assets 68,146 43,894

Non-current assets Property, plant and equipment 13 711,841 659,265 Net deferred tax assets 14 33,674 14,669 Intangible assets 15 269 91 Total non-current assets 745,784 674,025

Total assets 813,930 717,919

LIABILITIES Current liabilities Derivative financial instruments 11 1,542 9 Trade and other payables 16 67,481 44,093 Provisions 17 10,383 7,647 Interest bearing liabilities 18 65,367 61,883 Current tax liabilities 19 4,449 3,796 Other current liabilities 20 8,672 5,863 Total current liabilities 157,894 123,291

Non-current liabilities Other payables 21 1,093 1,113 Interest bearing liabilities 22 506,345 446,217 Retirement benefit obligations 25 2,018 1,789 Provisions 24 17,749 9,287 Total non-current liabilities 527,205 458,406

Total liabilities 685,099 581,697

Net assets 128,831 136,222

EQUITY Contributed equity 26 165,121 130,121 Reserves 27 (49) - Accumulated losses (36,241) 6,101 Total equity 128,831 136,222

The above balance sheet should be read in conjunction with the accompanying notes.

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Statement of changes in equity For the year ended 30 June 2009

Contributed

equity Reserves Retained earnings Total

Notes $’000 $’000 $’000 $’000 Balance at 1 July 2007 124,524 - (6,764) 117,760Adjustment of correction of errors (net of tax) 38 - - 5,490 5,490Restated total equity at the beginning of the financial year 124,524 - (1,274) 123,250 Profit for the year - - 1,545 1,545Total comprehensive income for the year - - 1,545 1,545 Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs 26 5,597 - - 5,597 5,597 - - 5,597 Balance at 30 June 2008 130,121 - 271 130,392Adjustment of correction of errors (net of tax) 38 - - 5,830 5,830Restated total equity at the beginning of the financial year 130,121 - 6,101 136,222 Loss for the year - - (42,342) (42,342)Cash flow hedges - (69) - (69)Income tax relating to cash flow hedges - 20 - 20Total comprehensive income for the year - (49) (42,342) (42,391) Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs 26 35,000 - - 35,000 35,000 - - 35,000 Balance at 30 June 2009 165,121 (49) (36,241) (128,831) The above statement of changes in equity should be read in conjunction with the accompanying notes.

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Cash flow statement For the year ended 30 June 2009 30 June 30 June 2009 2008

Notes $'000 $'000

Cash flows from operating activities Receipts from continuing operations (inclusive of goods and services tax) 206,889 153,120 Other receipts 72,000 71,600 Net GST and Fuel Tax Credits received 13,172 10,347 Interest received 1,330 1,307 Payments to suppliers and employees (inclusive of GST) (250,352) (208,061) Borrowing costs (41,748) (31,657) Receipts/(payments) for financial assets at fair value through profit or loss (6,038) 666 Income tax paid - (77) Net cash (outflow) from operating activities 34 (4,747) (2,755)

Cash flows from investing activities Proceeds from sale of property, plant and equipment 593 4,712 Payments for property, plant and equipment (80,571) (65,986) Payments for intangible assets (299) (19) Net cash (outflow) from investing activities

(80,277) (61,293)

Cash flows from financing activities Proceeds from borrowings 68,855 40,140 Developer and customer contributions to capital works 14,956 9,238 Proceeds from contributed equity 35,000 5,597 CES, customers' and contractors' deposits/(refunds) (23) (402) Net cash inflow from financing activities 118,788 54,573

Net increase (decrease) in cash and cash equivalents 33,764 (9,475) Cash and cash equivalents at the beginning of the financial year 2,332 11,807 Cash and cash equivalents at end of year 8 36,096 2,332

The above cash flow statement should be read in conjunction with the accompanying notes.

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Notes to the financial statements

1 Corporate information The financial report of Regional Power Corporation, trading as Horizon Power, for the year ended 30 June 2009 was authorised for issue in accordance with a resolution of the Directors on 9 September 2009.

The nature of the operations and principal activities of Horizon Power are described in the Our Profile section of the Annual Report.

2 Summary of significant accounting policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies havebeen consistently applied to all the years presented, unless otherwise stated.

(a) Basis of preparation

This general purpose financial report has been prepared in accordance with the requirement of Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the disclosure requirements of Schedule 4 of the Electricity Corporations Act 2005.

The financial statements are presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated.

Statement of Compliance The financial statements comply with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS).

Historical cost convention These financial statements have been prepared on an accrual basis and are based on the historical cost convention except where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.

Comparative amounts Comparative amounts are for the year to 30 June 2008. Comparative figures are, where appropriate, reclassified to be comparable with the figures presented in the current financial year.

(b) Significant accounting judgements, estimates and assumptions

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from the estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods.

Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.

Significant accounting judgements

• Lease Commitments

Horizon Power has entered into power purchase agreements relating to specific generating facilities. Horizon Power has assessed whether it assumes all the significant risks and rewards of ownership in determining:

i) whether the agreements represent leases; and

ii) if the agreements represent leases, the classification as operating or finance leases.

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at inception, whether the fulfilment of the arrangement is dependent on the use of a specific asset or the arrangement conveys a right to use the asset.

(b) Significant accounting judgements, estimates and assumptions (continued)

• Recovery of deferred tax assets

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Deferred tax assets are recognised for losses and deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those losses and temporary differences. Assessing the future utilisation of these assets requires Horizon Power to make significant estimates related to expectations of future taxable income.

• Impairment of non-financial assets

Horizon Power assesses impairment of all assets at each reporting date by evaluating conditions specific to Horizon Power and to the particular asset that may lead to impairment. These include product and manufacturing performance, technology, economic and political environments and future product expectations. If an impairment trigger exists, the recoverable amount of the asset is determined.

• Restoration and decommissioning

A provision has been made for the present value of anticipated costs of future restoration and decommissioning of generating plants and workshops. The provision includes future cost estimates associated with dismantling, closure, decontamination and permanent storage of historical residues. The calculation of this provision requires assumptions such as application of environmental legislation, plant closure dates, available technologies and engineering cost estimates. These uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision recognised for each site is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for sites are recognised in the balance sheet by adjusting both the expense or asset (if applicable) and provision. The related carrying amounts are disclosed in note 17 and note 24.

• Estimation of useful lives of assets

The estimation of the useful lives of assets has been based on historical experience as well as lease terms (for leased equipment). In addition, the condition of the assets is assessed at least once per year and considered against the remaining useful life. Adjustments to useful lives are made when considered necessary.

Depreciation charges are included in note 6.

• Estimation of Unread Sales

Electricity meters are read on a periodic basis throughout the year. The estimation of accrued revenue associated with unread meters at year end has been based on historical experience. Unread sales are adjusted in the following period.

(c) Foreign currency translation

The functional and presentation currency of Horizon Power is Australian dollars (A$).

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and monetary liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All currency translation differences in the financial statements are recognised in the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined.

(d) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to Horizon Power and the revenue can be reliably measured. It is valued at the fair value of the consideration received, or to be received, net of the amount of Goods and Services Tax (GST). The following specific recognition criteria must also be met before revenue is recognised:

Sale of electricity

Sale of electricity comprises revenue earned from the provision of electricity to entities outside Horizon Power and is recognised when the electricity is provided. As at each reporting date, sales and trade and other receivables incorporate amounts attributable to ‘unread sales’, which are an estimate of electricity delivered to customers that has not been billed at the reporting date.

Community service obligations

Community service obligations (CSOs) are obligations to perform functions, on behalf of the State Government, that are not in the commercial interests of Horizon Power to perform. Where the Government agrees to reimburse Horizon Power for the cost of CSOs, the entitlement to reimbursement is recognised in the income statement on a basis consistent with the associated CSO expenses. Horizon Power recognises revenue in respect of the reimbursement of CSOs including:

• Air conditioning subsidy for seniors;

• Pensioner concessions;

• Tariff migration;

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• Aboriginal and Remote Communities Power Supply Project; and

• Coral Bay electricity supply.

Developer and customer contributions

Horizon Power receives developer and customer contributions toward the extension of electricity infrastructure to facilitate network connection. Contributions can be in the form of either cash or assets and consist of:

• Work performed for developers – developers make cash contributions to Horizon Power for the construction of electricity infrastructure within a subdivision;

• Handover works – developers have the option to independently construct electricity infrastructure within a subdivision. Upon approval by Horizon Power of the completed work, these network assets are vested in Horizon Power; and

• Upgrade and new connections – customers (including generators) make cash contributions for the upgrade or extension of electricity infrastructure to existing lots, or for the construction of electricity infrastructure to new lots in existing areas.

Cash contributions received are recognised as revenue when the customers/developers are connected to the network in accordance with the terms of the contributions. Vested assets are recognised as revenue at the point of handover and are measured at their fair value. The network assets resulting from contributions received are recognised as property, plant and equipment and depreciated over their useful life.

Interest income

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.

Others

Other revenue comprises revenue earned from the provision of activities incidental to the core activities of Horizon Power. Other revenue includes:

• Joint ventures;

• Account establishment fees;

• Property rent;

• External chargeable works; and

• Connection and disconnection fees.

(e) Tariff Equalisation Fund

A significant portion of Horizon Power’s revenue is derived from the Tariff Equalisation Fund (TEF). Western Power pays money into the TEF in amounts determined by the Treasurer and the Minister for Energy. This money is released to Horizon Power as determined by the Treasurer and recognised on a receipts basis.

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(f) Cost of Sales

Cost of sales are those costs attributable to the integrated manufacturing process involved in the generation and transformation of electricity into a saleable commodity. It includes costs associated with purchasing fuel and electricity as well as costs involved in operating and maintaining the transmission and distribution systems.

Fuel costs

Liquid fuels are assigned on the basis of weighted average cost. Gas costs comprise payments made under the sale and purchase agreement.

Electricity costs

Electricity purchased from independent generators is recognised at the contracted price on an accruals basis.

Transmission and distribution operating costs

Costs to operate and maintain the electricity transmission and distribution systems are recognised on an accruals basis.

(g) National Taxation Equivalent Regime and other taxes

The calculation of the liability in respect of Horizon Power’s taxes is governed by the Income Tax Administration Acts and the National Taxation Equivalent Regime (NTER) guidelines as agreed by the Western Australian State Government.

Income tax on the profit or loss for the reporting period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity.

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

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

• when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:

• when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• when the deductible temporary differences is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

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(g) National Taxation Equivalent Regime and other taxes (continued)

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

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 taxation authority.

Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

• when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• receivables and payables, which are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(h) Leases

Finance leases that transfer to Horizon Power substantially all the risks and benefits incidental to ownership of the leased item are brought to account by recognising an asset and liability at the inception of the lease equal to the fair value of the leased item or, if lower, the present value of the minimum lease payments.

Lease payments are apportioned between borrowing costs in the income statement and reduction of the lease liability in the balance sheet so as to achieve a constant rate of interest on the remaining balance of the liability.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.

Horizon Power has recognised finance leases implicit in existing power purchase agreements in accordance with Interpretation 4 “Determining whether an Arrangement contains a Lease” and AASB 117 “Leases”. Horizon Power does not have any other finance leases as at 30 June 2009.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Horizon Power’s operating lease payments are representative of the pattern of benefits derived from the leased assets and accordingly are recognised in the income statement in the reporting periods in which they are incurred.

(i) Impairment of assets

At each reporting date Horizon Power assesses whether there is any indication that an asset may be impaired, that is, where events or changes in circumstances indicate the carrying value exceeds recoverable amount. Where an indicator of impairment exists, Horizon Power makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the income statement.

(j) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank, deposits held at call with financial institutions and other short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash.

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(k) Trade and other receivables

Trade receivables, which generally have 21-day terms for tariff customers, 14-day terms for contract customers and 30 to 90 days for non-energy customers, are recognised and carried at original invoice amount less a provision for any irrecoverable amounts. This provision is raised when collection of the full amount is no longer probable.

Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (allowance for impairment of trade receivables) is used when there is objective evidence that Horizon Power will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtors, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the impairment allowance 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. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.

The amount of the impairment loss is recognised in the income statement within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement.

(l) Inventories

Inventories are valued at the lower of cost and net realisable value. The cost incurred in bringing inventories to their present location and condition is assigned on the following basis:

• Liquid fuels – weighted average cost basis;

• Consumables – weighted average cost basis; and

• Rotational spares – refurbished cost basis.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

An allowance to allow for the expected impairment in value of materials inventory, due to obsolescence and items being surplus to requirements, has been determined by periodic review.

(m) Interest in joint ventures

Joint ventures are a contractual arrangement in which Horizon Power and other parties undertake an economic activity subject to joint control. Joint control exists when no party is in a position to unilaterally control the economic activity.

Interest in joint venture operations

Where material, Horizon Power’s interests in jointly controlled operations are accounted for in the financial statements by recognising;

• Assets controlled by Horizon Power in the joint ventures;

• Liabilities incurred by Horizon Power in relation to the joint ventures;

• Expenses incurred by Horizon Power in relation to the joint ventures; and

• Horizon Power’s share of income earned from the joint ventures.

(n) Derivatives

Through its operations, Horizon Power is exposed to changes in interest rates, foreign exchange rates and commodity prices. These risks may be managed with the prudent use of derivative financial instruments such as commodity swaps, interest swaps and forward foreign exchange contracts. Horizon Power only uses derivatives in liquid markets and all hedge activities are conducted within Horizon Power’s Board approved policy. Comprehensive systems are in place and compliance is monitored closely. Horizon Power uses derivatives solely for hedging and not for speculative purposes.

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(n) Derivatives (continued)

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently re-measured to fair value. The fair values of forward foreign exchange contracts, interest rate swaps and commodity price (oil) hedging contracts are obtained from an external financial risk adviser. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument.

Hedge accounting is applied to derivative financial instruments that are designated as hedging instruments. Horizon Power designates such derivatives as either:

• Cash flow hedges when they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or recognised liability or a forecasted transaction; or

• Fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or recognised liability.

Horizon Power 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. Horizon Power 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 fair values or cash flows of hedged items.

Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the income statement, together with any changes in the fair value of the hedged asset or hedged liability that are attributable to the hedged risk. There is no impact on the equity reserves. Horizon Power has not accounted for any derivative financial instruments that qualify for hedge accounting as fair value hedges.

Cash flow hedges

The effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gains or losses relating to the ineffective portion are recognised immediately in the income statement.

Amounts accumulated in equity are recycled in the income statement in the period when the forecast purchase that is hedged takes place. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (i.e. qualifying assets) or non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the acquisition cost or carrying amount of the asset or liability.

When a hedging instrument expires, is sold, is 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 income statement. When a forecast transaction is no longer expected to occur, the net cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

Derivatives that do not qualify for hedge accounting

For derivatives that do not qualify for hedge accounting, any changes in fair value are recognised immediately in the income statement.

Embedded derivatives

Derivatives embedded in contracts that change the nature of the host contract’s risk are separately recorded at fair value with movements recorded in the income statement.

At 30 June 2009, Horizon Power did not have any derivatives embedded in contracts.

(o) Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses.

Acquisition of assets

The cost method of accounting is used for all acquisitions of assets. Cost is determined as the fair value of the asset given at the date of acquisition plus costs incidental to the acquisition. Direct costs together with associated indirect costs in respect of assets being constructed are capitalised.

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(o) Property, plant and equipment (continued)

Decommissioning costs

Upon recognition of an item of property, plant and equipment, the cost of the item includes the anticipated costs of dismantling and removing the asset, and restoring the site on which it is located, discounted to their present value as at the relevant date of acquisition.

Capitalisation of borrowing costs

Borrowing costs are capitalised during the construction of major capital projects that have construction periods extending beyond one year.

Depreciation

Discrete assets that are not subject to continual extension and modification are depreciated using the straight-line method. Such assets include power stations, the transmission network and buildings.

Other assets, primarily the electricity distribution network that are continually extended and modified are depreciated using the reducing balance method. Land is not depreciated.

The useful lives of Horizon Power’s major property, plant and equipment classes are as follows:

- Leasehold buildings 25 - 40 years - Leasehold improvements 2 - 20 years - Plant and equipment 4 - 50 years - Equipment under finance leases Based on term of contract, which typically ranges

between 10 to 20 years - Construction in progress No depreciation

Depreciation rates are reviewed annually, and if necessary adjusted to reflect the most recent assessment of the useful lives of the assets.

Disposal of assets

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising from derecognition of an asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset, and is recognised in the income statement when the asset is derecognised.

(p) Intangible assets

Intangible assets acquired separately are capitalised at cost at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible asset.

Amortisation

The useful lives of intangible assets are assessed to be either finite or indefinite. For intangible assets with finite useful lives, an amortisation expense is recognised in the income statement over the useful lives of the assets.

Computer software assets have finite useful lives. Amortisation is calculated using the straight-line method. The useful life of Horizon Power’s computer software is four years.

Exclusive rights have finite useful lives. Amortisation is calculated using the straight-line method. The useful life of Horizon Power's exclusive rights is 10 years.

Amortisation rates are reviewed annually, and if necessary adjusted to reflect the most recent assessment of the useful lives of the assets.

Disposal of assets

An intangible asset is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising from de-recognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset, and is recognised in the income statement when the asset is derecognised.

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(q) Trade and other payables

These amounts represent liabilities for goods and services provided to Horizon Power prior to the end of the reporting period that are unpaid. The amounts are unsecured and are settled within prescribed periods.

(r) Interest bearing liabilities

All interest-bearing liabilities are initially recognised at fair value net of transaction costs incurred. Subsequent to initial recognition interest-bearing liabilities are measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement.

Any difference between the cost and the redemption amount is recognised in the income statement over the period of the interest bearing liabilities using the effective interest method.

(s) Borrowing costs

Borrowing costs are recognised in the income statement as an expense when incurred, except where they are included in the costs of qualifying assets as described in note 2(o). Borrowing costs are capitalised where they relate to the financing of significant projects under construction for more than one year up to the date of commissioning or sale. Borrowing costs are capitalised at the weighted average interest rate applicable to Horizon Power’s outstanding borrowings during the period of capitalisation.

Borrowing costs may include:

• Amortisation of ancillary costs incurred in connection with the arrangement of borrowings;

• Amortisation of discounts or premiums relating to borrowings;

• Discount rate adjustment for the movement in present value over time in connection with the contributory extension scheme payables and decommissioning costs;

• Finance charges in respect of finance leases recognised;

• Interest on bank overdrafts, short-term and long-term borrowings; and

• Guarantee fees on borrowings from the Western Australian Treasury Corporation (WATC).

(t) Provisions

Provisions are recognised when:

• Horizon Power has a present obligation (legal or constructive) as a result of a past event;

• It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

• A reliable estimate can be made of the amount of the obligation.

Employee benefits

Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include annual leave and long service leave.

Liabilities arising in respect of annual leave, unconditional long service leave and any other employee benefits due within twelve months from the reporting date are measured at their nominal amount based on remuneration rates that are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the market yield at the reporting date on selected Commonwealth Government securities, which have terms to maturity approximating the terms of the related liability, are used.

A provision for the on-costs attributable to annual leave and unconditional long service leave benefits is recognised in other provisions, not as employee benefits.

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(t) Provisions (continued)

Decommissioning costs

Provision is made for the present value of the estimated cost of legal and constructive obligations to restore operating locations in the period in which the obligation arises. The nature of decommissioning activities includes the removal of generating facilities and restoration of affected areas, including the treatment of contaminated sites.

Typically, the obligation arises when the asset is installed at the location. When the provision is initially recognised, the estimated cost is capitalised by increasing the carrying amount of the related generating facility. Over time, the provision is increased for the change in the present value based on a risk adjusted pre-tax discount rate appropriate to the risks inherent in the liability. The unwinding of the discount is recorded as an accretion charge within borrowing costs. The carrying amount capitalised in generating assets is depreciated over the useful life of the related assets (refer note 2(o)).

Costs incurred that relate to an existing condition caused by past operations, and do not have a future economic benefit, are expensed.

Other provisions

Provision is made for current and non-current sundry obligations of Horizon Power.

(u) Retirement benefit obligations

All employees of Horizon Power are entitled to benefits upon retirement, disablement or death from one of many superannuation plans, which may include a defined contribution section, a defined benefit section, or both.

The defined contribution section, being the Superannuation Trust of Australia and other employee nominated funds, receive fixed contributions and Horizon Power's legal and constructive obligation is limited to these contributions.

The defined benefit sections provide either a pension or lump sum benefit based upon years of service and final salary, averaged over a number of years in accordance with the relevant governing rules. Each of the defined benefit sections, being the Pension Scheme and the Gold State Superannuation Scheme, is closed to new members.

The Pension Scheme and Gold State Superannuation Scheme are State plans.

In the case of the Superannuation Trust of Australia, the defined benefit section is immaterial in terms of the number of members and employer contributions. As the substance of the superannuation plan is primarily a defined contribution plan and the separate treatment of the defined benefit section is not expected to add any material information to the users of the financial report, the entire Superannuation Trust of Australia has been treated as a defined contribution plan.

Defined contribution superannuation plans

Obligations for contributions to defined contribution plans are recognised in the income statement as incurred.

Defined benefit superannuation plans

A provision in respect of the defined benefit superannuation plans is recognised in the balance sheet and is measured at the present value of the defined benefit obligations, based upon services provided up to the reporting date, plus/less unrecognised actuarial gains/losses less the fair value of the superannuation plans' assets at that date and any unrecognised past service cost.

The present value of the defined benefit obligations is based upon expected future payments and is calculated using discounted cash flows consistent with the projected unit credit method. Consideration is given to the expected future wages and salaries level, experience of employee departures and periods of service.

Expected future payments are discounted using the market yield, as at the reporting date, on selected Commonwealth Government securities with terms to maturity approximating the terms of the related liability.

The defined benefits of the Pension Scheme are wholly unfunded. Horizon Power meets the cost of these benefits when the employee leaves the service of Horizon Power.

Actuarial gains and losses arising from experience adjustments and changes in actuarial adjustments are recognised immediately in the income statement.

Retirement benefit obligations are paid as an untaxed amount to the employee and therefore no provision is required to be made for future taxes in measuring the net asset or liability relating to retirement benefit obligations.

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(v) Renewable Energy Certificates

The Renewable Energy (Electricity) Act that took effect on 1 April 2001 requires electricity wholesale purchasers to source specified amounts of electricity from renewable energy (RE) sources. The Act imposes an annual liability, on a calendar year basis, by applying the specified renewable power percentage to relevant wholesale acquisitions. The requirements of the Act are applicable until 31 December 2020. No certificates can be created; and no liability arises, in respect of electricity generated after this date.

The RE liability is extinguished by annual surrender of an equivalent number of renewable energy certificates (RECs) with a penalty applying for any shortfall. Horizon Power has a contract with Verve Energy for the acquisition of RECs. Horizon Power’s liability is based on estimated sales volume multiplied by the agreed contract price per REC from Verve Energy.

RECs purchased from external sources are recognised as intangible assets at their purchase price.

(w) New accounting standards and interpretations as at June 2009

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by Horizon Power for the annual reporting year ended 30 June 2009.

These are outlined below:

Reference Title Summary Application date of standard*

Impact on Group financial report

Application date for Group*

AASB Int. 17 and AASB 2008-13

Distributions of Non-cash Assets to Owners and consequential amendments to Australian Accounting Standards AASB 5 and AASB 110

The Interpretation outlines how an entity should measure distributions of assets, other than cash, as a dividend to its owners acting in their capacity as owners. This applies to transactions commonly referred to as spin-offs, split-offs or demergers and in-specie distributions.

1 July 2009 Horizon Power does not distribute any assets as dividends therefore the Interpretation is not applicable.

1 July 2009

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(w) New accounting standards and interpretations as at June 2009 (continued)

Reference Title Summary Application date of standard*

Impact on Entity financial report

Application date for Entity*

AASB Int. 18 Transfers of Assets from Customers

This Interpretation provides guidance on the transfer of assets such as items of property, plant and equipment or transfers of cash received from customers. The Interpretation provides guidance on when and how an entity should recognise such assets and discusses the timing of revenue recognition for such arrangements and requires that once the asset meets the condition to be recognised at fair value, it is accounted for as an ‘exchange transaction’.

Once an exchange transaction occurs the entity is considered to have delivered a service in exchange for receiving the asset.

Entities must identify each identifiable service within the agreement and recognise revenue as each service is delivered.

Applies prospectively to transfer of assets from customers received on or after 1 July 2009

This is not expected to change the current accounting treatment adopted by Horizon Power.

1 July 2009

AASB 123 (Revised) and AASB 2007-6

Borrowing Costs and consequential amendments to other Australian Accounting Standards

The amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised.

1 January 2009 Horizon Power’s existing policy is to capitalise borrowing costs

1 July 2009

72

(w) New accounting standards and interpretations as at June 2009 (continued)

Reference Title Summary Application date of standard*

Impact on Entity financial report

Application date for Entity*

AASB 101 (Revised), AASB 2007-8 and AASB 2007-10

Presentation of Financial Statements and consequential amendments to other Australian Accounting Standards

Introduces a statement of comprehensive income.

Other revisions include impacts on the presentation of items in the statement of changes in equity, new presentation requirements for restatements or reclassifications of items in the financial statements, changes in the presentation requirements for dividends and changes to the titles of the financial statements.

1 January 2009 This is a disclosure standard and therefore will not impact reported outcomes

1 July 2009

AASB 3 (Revised)

Business Combinations

The revised Standard introduces a number of changes to the accounting for business combinations, the most significant of which includes the requirement to have to expense transaction costs and a choice (for each business combination entered into) to measure a non-controlling interest (formerly a minority interest) in the acquiree either at its fair value or at its proportionate interest in the acquiree’s net assets. This choice will effectively result in recognising goodwill relating to 100% of the business (applying the fair value option) or recognising goodwill relating to the percentage interest acquired. The changes apply prospectively.

1 July 2009 Will only impact Horizon Power if in the future it acquires controlled entities

1 July 2009

73

(w) New accounting standards and interpretations as at June 2009 (continued)

Reference Title Summary Application date of standard*

Impact on Entity financial report

Application date for Entity*

AASB 2008-5

Amendments to Australian Accounting Standards arising from the Annual Improvements Project

The improvements project is an annual project that provides a mechanism for making non-urgent, but necessary, amendments to IFRSs. The IASB has separated the amendments into two parts: Part 1 deals with changes the IASB identified resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact.

This was the first omnibus of amendments issued by the IASB arising from the Annual Improvements Project and it is expected that going forward, such improvements will be issued annually to remove inconsistencies and clarify wording in the standards.

The AASB issued these amendments in two separate amending standards; one dealing with the accounting changes effective from 1 January 2009 and the other dealing with amendments to AASB 5, which will be applicable from 1 July 2009 [refer below AASB 2008-6].

1 January 2009 The impact if any is still to be assessed by Horizon Power

1 July 2009

74

(w) New accounting standards and interpretations as at June 2009 (continued)

Reference Title Summary Application date of standard*

Impact on Entity financial report

Application date for Entity*

AASB 2008-8

Amendments to Australian Accounting Standards – Eligible Hedged Items

The amendment to AASB 139 clarifies how the principles underlying hedge accounting should be applied when (i) a one-sided risk in a hedged item is being hedged and (ii) inflation in a financial hedged item existed or was likely to exist.

1 July 2009 Not expected to have a material impact on Horizon Power

1 July 2009

AASB 2009-1**

Amendments to Australian Accounting Standards – Borrowing Costs of Not-for-Profit Public Sector Entities [AASB 1, AASB 111 & AASB 123]

This Standard amends AASB 123 to reintroduce the option to expense borrowing costs in the period in which they are incurred.

Subject to the requirements in AASB 1049 Whole of Government and General Government Sector Financial Reporting, an entity would therefore be able to choose whether it expenses or capitalises borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset.

AASB 111 is also amended to specify that costs that may be attributable to contract activity in general and that can be allocated to specific contracts include borrowing costs only when the contractor capitalises borrowing costs in accordance with AASB 123.

Annual reporting periods beginning on or after 1 January 2009 that end on or after 30 April 2009

Horizon Power’s existing policy is to capitalise borrowing costs

1 July 2009

75

(w) New accounting standards and interpretations as at June 2009 (continued)

Reference Title Summary Application date of standard*

Impact on Entity financial report

Application date for Entity*

AASB 2009-2

Amendments to Australian Accounting Standards – Improving Disclosures about Financial Instruments [AASB 4, AASB 7, AASB 1023 & AASB 1038]

The main amendment to AASB 7 requires fair value measurements to be disclosed by the source of inputs, using the following three-level hierarchy:

quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

These amendments arise from the issuance of Improving Disclosures about Financial Instruments (Amendments to IFRS 7) by the IASB in March 2009.

The amendments to AASB 4, AASB 1023 and AASB 1038 comprise editorial changes resulting from the amendments to AASB 7.

Annual reporting periods beginning on or after 1 January 2009 that end on or after 30 April 2009.

The impact if any is still to be assessed by Horizon Power

1 July 2009

76

(w) New accounting standards and interpretations as at June 2009 (continued)

Reference Title Summary Application date of standard*

Impact on Entity financial report

Application date for Entity*

AASB 2009-5

Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project

[AASB 5, 8, 101, 107, 117, 118, 136 & 139]

The amendments to some standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal effect on accounting.

The main amendment of relevance to Australian entities is that made to AASB 117 by removing the specific guidance on classifying land as a lease so that only the general guidance remains. Assessing land leases based on the general criteria may result in more land leases being classified as finance leases and if so, the type of asset which is to be recorded (intangible v property, plant and equipment) needs to be determined.

These amendments arise from the issuance of the IASB’s Improvements to IFRSs. The AASB has issued the amendments to IFRS 2, IAS 38, IFRIC 9 as AASB 2009-4 (refer above).

1 January 2010 The impact if any is still to be assessed by Horizon Power

1 July 2010

77

(w) New accounting standards and interpretations as at June 2009 (continued)

Reference Title Summary Application date of standard*

Impact on Entity financial report

Application date for Entity*

AASB 2009-Y

Amendments to Australian Accounting Standards

[AASB 5, 7, 107, 112, 136 & 139 and Interpretation 17]

These comprise editorial amendments and are expected to have no major impact on the requirements of the amended pronouncements.

1 July 2009 The impact if any is still to be assessed by Horizon Power

1 July 2009

* designates the beginning of the applicable annual reporting period unless otherwise stated ** only applicable to not-for-profit / public sector entities

(x) Contributed Equity

AASB Interpretation 1038 ‘Contributions by Owners Made to Wholly-Owned Public Sector Entities’ requires transfers, other than as a result of a restructure of administrative arrangements, in the nature of equity contributions to be designated by the Government (the owner) as contributions by owners (at the time of, or prior to transfer) before such transfers can be recognised as equity contributions. Capital contributions have been credited directly to Contributed Equity. Transfer of net assets to/from other agencies, other than as a result of a restructure of administrative arrangements, are designated as contributions by owners where the transfers are non-discretionary and non-reciprocal.

78

3 Financial risk management Horizon Power's principal financial instruments comprise receivables, payables, interest bearing borrowings and cash and cash equivalents.

Horizon Power has developed a Financial Risk Management policy to provide a framework through which Horizon Power maintains the appropriate level of control over financial and associated risks. The Treasury Management Committee oversees Treasury functions on behalf of the Board to ensure that all financial and associated risks are managed through use of various financial instruments.

The main risks arising from Horizon Power's financial instruments are interest rate risk, liquidity risk and credit risk. Horizon Power's policies for managing each of these risks are summarised below.

Horizon Power holds the following financial instruments:

30 June 30 June 2009 2008

$'000 $'000

Financial assets Cash and cash equivalents 36,096 2,332 Trade and other receivables 23,774 33,506 Derivative financial instruments 34 1 59,904 35,839

Financial liabilities Trade and other payable 68,574 45,206 Interest bearing liabilities 571,712 508,100 Derivative financial instruments 1,542 9 641,828 553,315

(a) Market risk

(i) Foreign exchange risk Horizon Power's exposure to foreign currency risk at the reporting date is low because all transactions are denominated in AUD except for a USD contract for the purchase of cable for West Pilbara Power Project. Exchange rate exposures are managed by Horizon Power Treasury group within approved policy parameters utilising forward foreign exchange contracts.

It is the policy of Horizon Power to enter into forward foreign exchange contracts to cover significant foreign currency payments and receipts.

Horizon Power’s exposure to foreign currency risk at the reporting date was as follows:

30 June 2009

USD ‘000

Forward exchange contracts - buy foreign currency (cash flow hedges) 407 - sell foreign currency (cash flow hedges) 59 (ii) Commodity price risk Price risk represents the extent to which movements in commodity prices will cause Horizon Power financial loss. Horizon Power is exposed to commodity price risk for distillate fuel (Gasoil).

Horizon Power is exposed to fluctuations in the gasoil price through the purchase of fuel for its diesel power stations as well as fuel consumed by its independent power producers. Although diesel fuel payments are made in AUD, the relevant wholesale market for gasoil is denominated in USD and as such, there is an indirect exposure to the AUD/USD exchange rate.

This exposure is managed by the use of AUD denominated gasoil commodity swaps to hedge against increases in wholesale crude oil prices and falls in the AUD/USD exchange rate.

Horizon Power deals in gasoil commodity swaps for the purpose of providing an economic hedge against gasoil costs. The limits of this trading are set by the Board.

79

(ii) Commodity price risk (continued) The table below summarises the impact of increases/decreases of gasoil price on Horizon Power's post-tax profit for the year and on equity. The analysis is based on management's expectations of future outlook that the gasoil price had increased/decreased by 10% with all other variables held constant.

-10% +10% Profit Equity Profit Equity

$’000 $'000 $’000 $'000

30 June 2009 Gasoil 50ppm Diesel (960) (960) 960 960

30 June 2008 Gasoil 50ppm Diesel (1,630) (1,630) 1,630 1,630 (iii) Interest rate risk

Horizon Power's exposure to market risk for changes in interest rates relates primarily to its long-term debt obligations and lease liabilities.

Horizon Power's borrowings are all obtained through the Western Australian Treasury Corporation (WATC) and are at fixed rates with varying maturities or at variable rates. The risk is managed through portfolio diversification and variation in maturity dates.

At balance date Horizon Power had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk.

30 June 2009 30 June 2008

Weighted average

interest rate Balance

Weighted average interest

rate Balance

% $'000 % $'000

Financial Assets Cash and cash equivalents 2.7% 36,096 6.7% 2,332 Interest rate swap contracts 3.9% 34 - % - Financial Liabilities Interest bearing borrowings 2.8% 36,500 7.4% 15,500 Net exposure to cash flow interest rate risk 72,630 17,832

Horizon Power's policy is to manage its finance costs using a mix of fixed and variable debt with the objective of achieving cost effective outcomes whilst managing interest rate risk to avoid uncertainty and volatility in the market place.

Horizon entered into an interest rate swap contract under which it is obligated to receive interest at basis points from the BBSW rate and to pay interest at fixed rates.

Horizon Power constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions and alternative financing.

(iv) Summarised sensitivity analysis At 30 June 2009, if interest rates and exchange rate had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows.

Interest rate risk Foreign exchange risk -1% +1% -10% +10%

30 June 2009 Carrying amount Profit Equity Profit Equity Profit Equity Profit Equity

$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000

Financial assets Cash and cash equivalents 36,096 (361) (361) 361 361 - - - - Interest rate swap contract (cash flow hedges) 34 - 153 - (150) - - - - Financial liabilities Interest bearing borrowings 27,500 275 275 (275) (275) - - - - Forward foreign exchange contract (cash flow hedges) 104 - - - - - 43 - (35) Total increase/ (decrease) (86) 67 86 (64) - 43 - (35)

80

Interest rate risk -1% +1%

30 June 2008 Carrying amount Profit Equity Profit Equity

$'000 $'000 $'000 $'000 $'000

Financial assets Cash and cash equivalents 2,332 (23) (23) 23 23 Financial liabilities Interest bearing borrowings 15,500 155 155 (155) (155) Total increase/ (decrease) 132 132 (132) (132)

(b) Credit risk

Horizon Power operates predominantly within the electricity generation transmission, distribution and sales industry and accordingly is exposed to risks affecting that industry. The maximum exposure to this industry risk is the carrying value of trade debtors.

Horizon Power follows stringent credit control and management procedures in reviewing and monitoring debtor accounts as evidenced by the historical performance of aged debtor balances.

With respect to credit risk arising from cash and cash equivalents, Horizon Power's exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of the cash and cash equivalents.

Horizon Power manages cash and cash equivalent through highly rated financial institutions.

(c) Liquidity risk

Horizon Power's objective is to ensure adequate funding is available at all times, to meet the commitments of Horizon Power, as they arise.

The table below reflects the contractual maturity of financial liabilities, including estimated interest payments. These include trade and other payables and interest bearing borrowings.

2009 2008

$'000 $'000

6 months or less 137,372 100,6236 - 12 months 36,893 44,951 1 - 5 years 286,573 247,603Over 5 years 555,472 532,078 1,016,310 925,255

Maturity analysis of financial assets and liability based on management expectation

The risk implied from the values shown in the following table, reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in the ongoing operations such as property, plant and equipment and investments in working capital e.g. inventories and trade receivables. These assets are considered in Horizon Power's overall liquidity risk.

Risk associated with the liability on borrowings is reduced by Horizon Power paying a guarantee charge included in addition to the interest rate that guarantees payment to the WATC by Government for outstanding borrowings in case of default.

81

30 June 2009 Less than 6

months

6 - 12 months

Between 1 and 5 years

Over 5 years

Total

$'000 $'000 $'000 $'000 $'000

Financial assets Cash and cash equivalents 36,096 - - - 36,096 Trade and other receivables 23,774 - - - 23,774 Derivative financial instruments - - 34 - 34 Total financial assets 59,870 - 34 - 59,904

Financial liabilities Trade and other payables 67,381 100 784 309 68,574 Interest bearing borrowings 48,934 16,432 144,071 362,275 571,712 Derivative financial instruments 104 - - - 104 Total financial liabilities 116,419 16,532 144,855 362,584 640,390

30 June 2008 Less than 6 months

6 - 12 months

Between 1 and 5 years

Over 5 years

Total

$'000 $'000 $'000 $'000 $'000

Financial assets Cash and cash equivalent 2,332 - - - 2,332 Trade and other receivables 33,506 - - - 33,506 Derivative financial instruments 1 - - - 1 Total financial assets 35,839 - - - 35,839

Financial liabilities Trade and other payables 43,990 102 600 514 45,206 Interest bearing borrowings 37,190 26,243 114,442 330,225 508,100 Derivative financial instruments 69 (60) - - 9 Total financial liabilities 81,249 26,285 115,042 330,739 553,315

4 Revenue 30 June 30 June 2009 2008

$'000 $'000

Revenue consisted of the following items: Sales of electricity 133,165 117,311 Sales of gas 8,036 5,297 141,201 122,608 Other revenue from operations:

Community service obligation 23,943 20,063 Developer and customer contributions 17,429 17,141 Interest 1,330 1,307 Others 4,835 11,527 47,537 50,038

188,738 172,646

82

5 Other income 30 June 30 June 2009 2008

$'000 $'000

Tariff equalisation fund 72,000 71,600 Net gain on derecognition of finance lease - 7,243 Net gain on commodity swap - 883 Net gain on disposal of property, plant and equipment (net loss in 2008, see note 6) 210 - 72,210 79,726

6 Cost of sales and expenses 30 June 30 June 2009 2008

$'000 $'000

Classification of these expenses by function Cost of sales

Fuel purchases 45,477 47,650 Electricity purchases 94,281 65,729 Labour, materials and services 49,770 46,886

189,528 160,265

Other expenses from ordinary activities Marketing 1,092 537 Administration 87,862 49,133

88,954 49,670

(Loss)/ profit before income tax includes the following specific expenses:

Depreciation Leasehold buildings 634 752 Plant and equipment 12,072 13,064 Equipment under finance leases 18,562 12,700

Total depreciation 31,268 26,516

Amortisation Patents, trademarks and other rights 1 3 Computer software 120 158

Total amortisation 121 161

Employee benefits expense Salaries and wages 19,989 17,392 Superannuation 3,216 2,406 Long service leave 1,521 192 Annual leave 2,875 2,119 Other related expenses 1,451 1,244

29,052 23,353

83

Finance costs Interest on debts 13,027 9,860 Unwinding of discount on contributory extension scheme 141 139 Unwinding of discount on decommissioning provision 534 507 Finance lease interest 29,360 21,800

43,062 32,306 Loss on disposal of property, plant and equipment

Net loss on disposal of property, plant and equipment - 444

Contingent rent Contingent rentals 1,787 1,838

Net loss on revaluation of financial assets at fair value through profit or loss

Net loss on revaluation of financial assets at fair value through profit or loss 1,380 59

Net loss/(gain) on commodity swaps not qualifying as hedges Net loss/(gain) on commodity swaps not qualifying as hedges 7,006 (904)

7 Income tax expense 30 June 30 June 2009 2008

$'000 $'000

(a) Income tax expense

Current tax - 1,452 Deferred tax (18,102) 1,605 Adjustments for net deferred tax assets and liabilities of prior period (923) 372 Adjustments for current tax of prior periods 771 (673) (18,254) 2,756

Income tax expense is attributable to: (Loss) / profit from operations (18,254) 2,756 Income tax (benefit) / expense (18,254) 2,756

Deferred income tax (benefit) expense included in income tax expense comprises: Decrease (increase) in deferred tax assets (note 14) (13,520) 23,533 (Decrease) increase in deferred tax liabilities (note 23) (4,582) (21,928) (18,102) 1,605

(b) Numerical reconciliation of income tax expense to prima facie tax payable

(Loss) / profit before income tax expense (60,596) 10,131 Tax at the Australian tax rate of 30% (2008 - 30%) (18,179) 3,039 Tax effect of amounts which are not deductible (taxable) in calculating taxable income:

Entertainment 19 38 Div 41 investment allowance (56) - Derecognition of deferred tax assets/deferred tax liabilities 405 - Research and development (293) (20) Sundry items 3 (2)

(18,101) 3,055

Adjustments for current tax of prior periods (153) (299) Total income tax (benefit) / expense (18,254) 2,756

84

(c) Amounts recognised directly in equity

Deferred tax arising in the reporting period and not recognised in net loss but directly charged to equity

Net deferred tax - charged directly to equity (notes 14 and 27) (22) - (22) -

8 Current assets - Cash and cash equivalents 30 June 30 June 2009 2008

$'000 $'000

Cash at bank and in hand 36,096 2,332 36,096 2,332

9 Current assets - Trade and other receivables 30 June 30 June 2009 2008

$'000 $'000

Net trade receivables Trade receivables (i) 20,615 32,117 Allowance for impairment of receivables (39) (57) 20,576 32,060

Other receivables Other receivables 3,198 1,446 23,774 33,506

(i) The credit period on sales of electricity is 14 to 21 days. Non-energy customers generally have credit periods of 30 to 90 days. No interest is charged on current trade receivables. An allowance has been made for estimated irrecoverable amounts from the sale of electricity, determined by reference to past default experience.

Trade receivables incorporate amounts attributable to 'unread sales' which are an estimate of electricity delivered to customers that has not been billed at the reporting date. The estimation of accrued revenue associated with unread meters at year end is based on historical experience.

(a) Credit risk

Trade receivables

Horizon Power operates predominantly within the electricity industry and accordingly is exposed to risks affecting that industry. The maximum exposure to this industry risk is the carrying value of the trade receivables.

At 30 June, the ageing analysis of trade receivables is as follows:

30 June 30 June 2009 2008

$'000 $'000

00 - 25 days 7,433 26,384 26 - 50 days PDNI* 6,282 3,595 51 - 78 days PDNI* 4,713 426 +79 days PDNI* 2,187 1,712

20,615

32,117

85

* Past due not impaired ('PDNI')

Receivables past due but not considered impaired above 26 days are $13,182K (2008: $5,733K). It is expected that payments will be received in full.

Other receivables do not contain impaired assets and are not past due. It is expected that these balances will be received when due.

Movements in the allowance for impairment loss were as follows:

30 June 30 June 2009 2008

$'000 $'000

At 1 July 57 374 Allowance for impairment recognised/(released) during the year 480 (130) Receivables written off during the year (498) (187) 39 57

Other receivables

No significant risk is believed to be attached to other receivables.

(b) Fair Value

The directors consider the carrying amounts of receivables represent their fair value due to the short term nature of these receivables.

10 Current assets - Inventories 30 June 30 June 2009 2008

$'000 $'000

Fuel 457 1,571 Materials 5,946 4,890 Rotational spares 1,063 1,089 7,466 7,550

11 Derivative financial instruments 30 June 30 June 2009 2008

$'000 $'000

Current assets Interest rate swap contracts - cash flow hedges (i) 34 - Forward foreign exchange contracts - cash flow hedges - 1 Total current derivative financial instrument assets 34 1

Current liabilities Forward foreign exchange contracts - cash flow hedges (ii) 104 - Commodity swaps 1,438 9 Total current derivative financial instrument liabilities 1,542 9

(1,508) (8)

86

(i) Interest rate swap contracts - cash flow hedges

Horizon Power has Term Floating Rate (TFR) facilities held with the Western Australian Treasury Corporation. The interest rate on these facilities is variable, determined by a premium over the Bank Bill Swap (BBSW) rate. It is Horizon Power’s policy to have debt mature over a particular profile and to protect part of the loans from exposure to fluctuations in interest rates. Accordingly, Horizon Power entered into an interest rate swap contract under which it is obligated to receive interest at basis points from the BBSW rate and to pay interest at fixed rates.

The swap currently in place covers approximately 24.66% of the TFR loan outstanding and is timed to expire as each loan repayment falls due. The swap fixed interest rate is 3.87% and the TFR variable rates are between 0.39% and 0.49% below the BBSW rate which at the balance date was 3.19%.

The contract requires settlement of net interest receivable or payable each 90 days. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The contracts are settled on a net basis.

The gain or loss from remeasuring the hedge instrument at fair value is deferred in equity in the hedging reserve, to the extent that the hedge is effective, and reclassified into profit and loss when the hedged interest expense is recognised. In the year ended 30 June 2009 a revaluation amount of $69,991 was recognised directly in equity. There was no hedge ineffectiveness in the current year.

(ii) Forward exchange contracts - cash flow hedges

The West Pilbara operations use materials purchased from Singapore for its interconnection assets for a new gas fired power station in Karratha Western Australia. In order to protect against exchange rate movements, Horizon Power entered into forward exchange contracts to purchase US dollars. These contracts are hedging known purchases for the 2010 financial year. The contracts are timed to mature when the materials have been delivered and passed testing.

The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the cash flow occurs, the initial measurement of the component recognised in the balance sheet is adjusted by the related amount deferred in equity.

12 Current assets - Other current assets 30 June 30 June 2009 2008

$'000 $'000

Other assets 19 - Prepayments 557 281 576 281

87

13 Non-current assets - Property, plant and equipment

Freehold land

Leasehold buildings and improvements

Plant and equipment

Equipment under finance lease at cost Total

$'000 $'000 $'000 $'000 $'000

30 June 2009 Opening net book amount 4,950 9,952 315,182 329,181 659,265 Additions 2,597 8,907 69,444 3,280 84,228 Disposals (2) - (382) - (384) Depreciation charge - (634) (12,072) (18,562) (31,268) Closing net book amount 7,545 18,225 372,172 313,899 711,841

30 June 2009 Cost 7,545 20,485 410,780 343,247 782,057 Accumulated depreciation - (2,260) (38,608) (29,348) (70,216) Net book amount 7,545 18,225 372,172 313,899 711,841

Expenditure recognised in plant and equipment in the course of construction is $99,060K.

Horizon Power receives non-cash capital contributions in the form of gifted assets. The fair value of the non-cash capital contributions included in additions to plant and equipment in the year was $5,292,614 (2008: $8,560,615).

88

Freehold land

Leasehold buildings and improvements

Plant and equipment

Equipment under finance lease at cost Total

$'000 $'000 $'000 $'000 $'000

30 June 2008 Opening net book amount before correction of error 4,241 9,263 247,371 104,001 364,876 Prior years correction - - 7,845 - 7,845 Opening net book amount after correction of error 4,241 9,263 255,216 104,001 372,721 Additions 735 1,755 77,854 298,851 379,195 Disposals (26) (314) (4,824) (60,971) (66,135) Depreciation charge - (752) (13,064) (12,700) (26,516) Closing net book amount 4,950 9,952 315,182 329,181 659,265

30 June 2008 Cost 4,950 11,578 341,886 339,967 698,381 Accumulated depreciation - (1,626) (26,704) (10,786) (39,116) Net book amount 4,950 9,952 315,182 329,181 659,265

Expenditure recognised in plant and equipment in the course of construction is $76,450K.

Horizon Power receives non-cash capital contributions in the form of gifted assets. The fair value of the non-cash capital contributions included in additions to plant and equipment in the year was $8,560,615 (2007: $3,670,019).

89

14 Non-current assets - deferred tax assets 30 June 30 June 2009 2008

$'000 $'000

The balance comprises temporary differences attributable to:

Tax losses * 10,030 - Provisions 9,047 5,108 Property, plant and equipment 6,306 7,418 Power Purchase Agreements classified as finance leases 99,071 100,641 124,454 113,167

Other Community Service Obligation (CSO) 3,730 1,073 Workers compensation premium 7 - Accruals 30 29 Contributory extension scheme 60 - Derivatives 463 2 Sub-total other 4,290 1,104

Total deferred tax assets 128,744 114,271

Set-off of deferred tax liabilities pursuant to set-off provisions (note 23) (95,070) (99,602) Net deferred tax assets 33,674 14,669

Movements:

Opening balance at 1 July 114,271 48,090 Credited/(charged) to the income statement (note 7) 13,520 (23,533) Credited/(charged) to equity (22) - Acquisition or disposal of deferred tax assets - 89,786 Adjustments for deferred tax assets of prior periods 975 (72) Closing balance at 30 June 128,744 114,271

Deferred tax assets to be recovered within 12 months 19,637 5,139 Deferred tax assets to be recovered after more than 12 months 109,107 109,132 128,744 114,271

* The deferred tax asset attributable to tax losses does not exceed taxable amounts arising from the reversal of existing assessable temporary differences.

90

15 Intangible assets Current intangible assets

Renewable Energy

Certificates Total

$'000 $'000

30 June 2009 Opening net book amount 224 224 Surrendered (24) (24)Closing net book amount (i) 200 200

30 June 2009 Cost 200 200Impairment - -Net book amount 200 200

Renewable Energy

Certificates Total

$'000 $'000

30 June 2008 Opening net book amount - - Additions 224 224Closing net book amount (i) 224 224

30 June 2008 Cost 224 224Impairment - -Net book amount 224 224

Non-current intangible assets

Patents, trademarks and other

rights Computer software Total

$'000 $'000 $'000

30 June 2009 Opening net book amount 8 83 91Additions - 299 299Amortisation charge (1) (120) (121)Closing net book amount (i) 7 262 269

30 June 2009 Cost 11 696 707Accumulated amortisation and impairment (4) (434) (438)Net book amount 7 262 269

91

Non-current intangible assets (continued)

Patents, trademarks and other

rights Computer software Total

$'000 $'000 $'000

30 June 2008 Opening net book amount - 233 233 Additions 11 8 19 Amortisation charge (3) (158) (161) Closing net book amount 8 83 91

30 June 2008 Cost 11 397 408 Accumulated amortisation and impairment (3) (314) (317) Net book amount 8 83 91

(i) As at the reporting date, no intangible assets were assessed to have indefinite useful lives.

16 Current liabilities - Trade and other payables

30 June

2009 30 June

2008 $’000 $’000 Trade payables (i) 66,936 43,705 Other payables 344 184 Contributory extension scheme payables (ii) 201 204 67,481 44,093

(i) Trade payables are non-interest bearing and are generally settled on 30-day terms. Other payables (excluding Contributory Extension Scheme payables) are non-interest bearing and generally have settlement terms between 14 and 30 days.

(ii) Contributory Extension Scheme (CES) payables represent contributions received from customers to extend specific electricity supplies. These deposits are progressively refunded as other customers are connected to existing supply extension schemes. By 2022 when the scheme finishes, all scheme members will have their contributions refunded.

17 Current liabilities – Provisions 30 June 30 June 2009 2008

$'000 $'000

Long service leave 1,876 1,697 Annual leave 3,685 2,753 Employee on-costs 811 436 Other employee entitlements - 418 Decommissioning (i) 4,011 2,343 10,383 7,647

92

(i) Decommissioning

The decommissioning provision provides for the costs of dismantling and removing certain generating plants and workshops and restoring the site on which they are located.

Movements in decommissioning

30 June 30 June 2009 2008

$'000 $'000

Current Carrying amount at start of year 2,343 2,767

- reclassification from non-current liabilities (note 24) 3,264 197 - payments/other sacrifices of economic benefits (1,596) (621)

Carrying amount at end of year 4,011 2,343

18 Current liabilities - Interest bearing liabilities 30 June 30 June 2009 2008

$'000 $'000

WATC loans (i) 55,976 53,145 Finance lease liabilities (ii) 9,391 8,738

65,367 61,883

(i) The domestic currency loans are ultimately secured by government guarantee. They are governed by a facility agreement that provides Horizon Power with the full discretion to refinance all or any part of maturing debt. For domestic currency loans maturing over the next twelve months, it is the intention to refinance all maturing debt under this facility agreement. At 30 June 2009 the carrying value of the domestic currency loans is considered a reasonable approximation of its fair value.

(ii) Finance lease liabilities are disclosed in note 31 to the financial statements.

19 Current liabilities - Current tax liabilities 30 June 30 June 2009 2008

$'000 $'000

Income tax 4,449 3,796 4,449 3,796

20 Current liabilities - Other current liabilities 30 June 30 June 2009 2008

$'000 $'000

Deferred developer and customer contributions 8,672 5,863 8,672 5,863

93

21 Non-current liabilities - Other payables 30 June 30 June 2009 2008

$'000 $'000

Contributory extension scheme payables (note 16) 1,093 1,113 1,093 1,113

22 Non current liabilities - Interest bearing liabilities 30 June 30 June 2009 2008

$'000 $'000

Secured WATC loans (note 18) 185,499 119,475 Unsecured Finance lease liabilities (note 31) 320,846 326,742 506,345 446,217

94

23 Non-current liabilities - Deferred tax liabilities 30 June 30 June 2009 2008

$'000 $'000

The balance comprises temporary differences attributable to:

Contributory extension scheme - 301 Consumable stocks 164 431 Power Purchase Agreements - classified as finance leases 94,170 98,754 94,334 99,486

Other Fringe benefits tax - 3 Accruals 67 65 Research and development 669 48 Sub-total other 736 116

Total deferred tax liabilities 95,070 99,602

Set-off of deferred tax liabilities pursuant to set-off provisions (note 14) (95,070) (99,602) Net deferred tax liabilities - -

Movements:

Opening balance at 1 July 99,602 31,574 Charged to the income statement (note 7) (4,582) (21,928) Adjustments for deferred tax liabilities of prior periods 50 300 Acquisition or disposal of deferred tax liabilities - 89,656 Closing balance at 30 June 95,070 99,602

Deferred tax liabilities to be settled within 12 months 900 546 Deferred tax liabilities to be settled after more than 12 months 94,170 99,056 95,070 99,602

95

24 Non-current liabilities – Provisions 30 June 30 June 2009 2008

$'000 $'000

Long service leave 1,774 945 Employee on-costs 227 61Decommissioning 15,748 8,281 17,749 9,287

The decommissioning provision provides for the costs of dismantling and removing certain generating plants and workshops and restoring the site on which they are located.

Movements in decommissioning

30 June 30 June 2009 2008

$'000 $'000

Current Carrying amount at start of year 8,281 8,605 Reclassification to current liabilities (note 17) (3,264) (197) Charged/(credited) to the income statement - increase in / unused amounts reversed 10,197 (634) - unwinding of discount 534 507 Carrying amount at end of year 15,748 8,281

25 Non-current liabilities - Retirement benefit obligations

(a) Balance sheet amounts

The amounts recognised in the balance sheet are determined as follows:

30 June 30 June 2009 2008

$'000 $'000

Present value of unfunded obligations (i) 2,018 1,789 Net liability in the balance sheet 2,018 1,789

(i) The present value of the retirement benefit obligations liability was assessed by PricewaterhouseCoopers at 30 June 2009 as required under AASB119. For the period 1 July 2008 to 30 June 2009, a provision has been raised to recognise the increase in value of this liability over this period.

(b) Reconciliations

30 June 30 June 2009 2008

$'000 $'000

Reconciliation of movement in the present value of the unfunded obligations recognised in the balance sheet: Balance at the beginning of the year 1,789 1,399 Interest cost 117 81 Actuarial losses 112 309 Balance at the end of the year 2,018 1,789

96

(c) Amounts recognised in income statement

The amounts recognised in the income statement are as follows:

30 June 30 June

2009 2008

Interest cost 117 81 Actuarial losses 112 309 Total included in employee benefits expense 229 390

(d) Principal actuarial assumptions

The principal actuarial assumptions used were as follows:

30 June 30 June

2009 2008

Discount rate 5.5% 6.5% Expected future salary increases 4.5% 4.5% Expected future pension increases 3.0% 3.0%

(e) Employer contributions

Employer contributions are made to meet the cost of the retirement benefit obligations as they fall due. For more details regarding the policy in respect of provision for retirement benefit obligations refer to Note 2(u).

(f) Historic summary

30 June 30 June 30 June 30 June 2009 2008 2007 2006

$'000 $'000 $'000 $'000

Defined benefit plan obligation 2,018 1,789 1,399 898 Surplus 2,018 1,789 1,399 898

Experience adjustments arising on plan liabilities (gain)/loss (51) 358 7 7

26 Contributed equity 30 June 30 June 2009 2008

$'000 $'000

Contributed equity at the beginning of the financial year 130,121 124,524 Equity contribution during the financial year 35,000 5,597

Contributed equity at the end of the financial year

165,121 130,121

27 Reserves 30 June 30 June 2009 2008

$'000 $'000

Hedging reserve - cash flow hedges, net of tax (note 7(c)) (49) -

97

28 Key management personnel disclosures

(a) Directors

The Non-executive Directors of Horizon Power during the period were: B Hammond, Chairman A Dundas, Deputy Chairman (finished on 31 March 2009) S Bradley, Director R Eagle, Director (appointed on 1 July 2008) N Lockwood, Director (appointed on 1 July 2008)

(b) Other key management personnel

The other key management personnel of Horizon Power during the year were:

R Hayes Managing Director A Yam General Manager Finance Services

(appointed on 1 Sept 2008)

P Feldhusen General Manager Governance and Company Secretariat

M Laughton-Smith General Manager Islanded Systems Development

D McDonald General Manager Retail (finished on 29 Aug 2008)

D Martin General Manager People & Corporate Services

F Tudor General Manager Strategy & Business Development

Z Wilk General Manager Operations P Jensen General Manager Shared Services

(appointed on 13 Oct 2008)

J Deacon General Manager Knowledge & Technology (appointed on 9 Oct 2008)

(c) Key management personnel remuneration

Principles used to determine the nature and amount of compensation

Compensation approval protocols are as follows:

- Non-executive Directors: the Minister for Energy (the Minister) approves the remuneration of all non-executive directors.

- Managing Director: the Board, subject to the concurrence of the Minister, approves the remuneration of the Managing Director (also referred to as the Chief Executive Officer).

- Executive Officers: the Board, on recommendation of the Managing Director, approves the remuneration of all Executive Officers.

The compensation policy is to:

- Provide market competitive remuneration to employees having regard to both the level of work assigned and the personal effectiveness in its performance;

- Allocate remuneration to employees on the basis of merit and performance;

- Adopt performance measures that align the interests of employees with the interests of key stakeholders; and

- Adopt a remuneration structure that provides an appropriate balance in 'risk and reward sharing' between the employee and Horizon Power.

98

(c) Key management personnel remuneration (continued)

Non-executive Directors

Payment to Non-executive Directors consists of base remuneration and superannuation.

Managing Director and Executives

The Managing Director and Executives compensation framework is based upon total target remuneration that includes:

1. Total fixed remuneration structured with:

- Cash;

- Selection of prescribed non-financial benefits;

- Superannuation;

- Cost of fringe benefits tax; and

2. An annual at risk remuneration element.

In addition to total target remuneration, those Executives resident in remote locations are provided housing benefits and location allowances.

Total fixed remuneration

The compensation framework is market competitive, performance based with flexibility for the package to be structured at the Executive's discretion upon a combination of cash, a selection of prescribed non-financial benefits, superannuation and cost of fringe benefits tax. External remuneration consultants provide analysis and advice to ensure remuneration is set to reflect the market for a comparable role. Remuneration for Executives is reviewed annually to ensure the level is market competitive. There are no guaranteed remuneration increases included in any executive contracts.

Non-financial benefits

Selection available: cost of novated or associated leasing of selected motor vehicle, electricity (to a maximum tax allowable figure), laptop computer, health check-up and the cost of fringe benefits tax. As stated above, housing benefits are also provided to Executives resident in remote locations.

Superannuation

Paid at not less than the amount that is required under the Superannuation Guarantee (Administration) Act 1992 (Cth), on the Executive's behalf to a superannuation fund that is a complying superannuation fund within the meaning of that Act.

Annual at risk remuneration (ARR) element

At the Board's discretion, as agreed by the Minister, the Managing Director and General Managers are eligible for incentive payments for achievement of specific performance targets covering Horizon Power's major measurable outcomes, in line with the Strategic Development Plan Balanced Scorecard of key performance indicators, including:

- Contribution to the progression of major identified corporate projects and initiatives;

- Personal contribution through leadership and behaviour, focussing on alignment with Horizon Power's values; and

- Developing and enhancing Horizon Power's reputation and relationship management.

The next determination of ARR will be for the 12 month period ended on 30 June 2009, which is expected to be performed within the first quarter of the 2009/10 financial year.

99

(i) Non-executive directors' remuneration

2009

Name Cash salary

and fees Superannuation Total $ $ $

B Hammond 95,000 8,550 103,550 S Bradley 45,000 4,050 49,050 R Eagle 43,962 3,957 47,919 N Lockwood 43,962 3,957 47,919 A Dundas 46,615 4,195 50,810 Total 274,539 24,709 299,248

2008

Name Cash salary

and fees Superannuation Total $ $ $

B Hammond 95,000 8,550 103,550 A Dundas 60,000 5,400 65,400 P Yu 45,000 4,050 49,050 S Bradley 45,000 4,050 49,050 T Chilvers 45,000 4,050 49,050 Total 290,000 26,100 316,100

(ii) Executives' remuneration

2009

Name Cash salary

and fees Performance

Pay (i) Non monetary

benefits (ii) Superannuation Total $ $ $ $ $

R Hayes 393,962 108,614 91,881 45,232 639,689 A Yam 152,906 - - 13,762 166,668 P Feldhusen 213,007 37,040 - 23,424 273,471 M Laughton-Smith 223,166 35,777 - 24,554 283,497 D McDonald (includes redundancy payment) 142,167 34,789 5,256 6,530 188,742 D Martin 203,641 35,875 - 21,556 261,072 F Tudor 247,142 39,229 - 25,773 312,144 Z Wilk 230,765 34,933 83,708 23,268 372,674 P Jensen 149,259 - - 13,433 162,692 J Deacon 122,018 - - 10,982 133,000 Total 2,078,033 326,257 180,845 208,514 2,793,649

100

2008

Name Cash salary

and fees Performance

Pay Non monetary

benefits Superannuation Total $ $ $ $ $

R Hayes 369,614 92,880 130,735 34,045 627,274 T Cocks (includes redundancy) 481,026 29,051 - 22,651 532,728 P Feldhusen 195,138 23,929 - 20,338 239,405 M Laughton-Smith 194,982 35,467 - 22,870 253,319 D McDonald 200,639 47,294 43,259 18,057 309,249 D Martin 157,492 15,932 - 14,377 187,801 F Tudor 212,623 47,356 - 19,136 279,115 Z Wilk 257,205 42,516 106,982 22,296 428,999 Total 2,068,719 334,425 280,976 173,770 2,857,890

(i) Performance pay related to financial performance FY2007/08 was paid in FY2008/09.

(ii) The amount shown for non monetary benefits is the housing allowances provided to the Executives working in remote areas.

(iii) Service agreements R Hayes – Managing Director

• Term of Agreement – three years commencing from 30 January 2009.

• Notice period – three months’ written notice by the Managing Director or three months’ written notice by Horizon Power, or such shorter period as may be agreed, or remuneration in lieu of notice.

• Termination – Redundancy: should the Minister for Energy elect to merge, restructure, or dispose of the business of Horizon Power, there will be a redundancy payment of 50 per cent of annual salary.

• Performance Pay – at the Board’s discretion, with the concurrence of the Minister for Energy, the Managing Director is eligible for incentive payments up to $100,000 for achievement of specific performance targets covering Horizon Power’s major measurable outcomes.

A Yam – General Manager Finance Services • Term of agreement – not a fixed term contract.

• Notice period – four weeks written notice by the General Manager or 52 weeks written notice by Horizon Power or remuneration in lieu of notice.

• Termination – Redundancy: there will be a redundancy payment of 12 weeks in lieu of notice plus three weeks per year of service to a total maximum of 89 weeks.

• Performance Pay – at the Board’s discretion, the General Manager is eligible for incentive payments up to 15 per cent of total fixed remuneration for achievement of specific performance targets defined by the Board.

P Feldhusen – General Manager Governance and Company Secretariat • Term of Agreement – Not a fixed term contract.

• Notice period – four weeks written notice by the General Manager or 52 weeks written notice by Horizon Power or remuneration in lieu of notice.

• Termination – Redundancy: should the Minister for Energy elect to merge, restructure, or dispose of the business of Horizon Power, there will be a redundancy payment of 12 weeks in lieu of notice plus three weeks per year of service to a maximum of 87 weeks. Incapacity or Poor Performance: four weeks notice, or without notice for serious misconduct.

• Performance Pay – At the Board’s discretion, the General Manager is eligible for incentive payments up to 25 per cent of total fixed remuneration for achievement of specific performance targets as defined by the Board.

101

(iii) Service agreements (continued) M Laughton-Smith – General Manager Islanded Systems Development

• Term of Agreement – not a fixed term contract.

• Notice period – four weeks written notice by the General Manager or 52 weeks written notice by Horizon Power or remuneration in lieu of notice.

• Termination – Redundancy: should the Minister for Energy elect to merge, restructure, or dispose of the business of Horizon Power, there will be a redundancy payment of 12 weeks in lieu of notice plus three weeks per year of service to a maximum of 87 weeks. Incapacity or Poor Performance: four weeks notice, or without notice for serious misconduct.

• Performance Pay – at the Board’s discretion, the General Manager is eligible for incentive payments up to 25 per cent of total fixed remuneration for achievement of specific performance targets as defined by the Board.

D Martin – General Manager People and Corporate Services • Term of Agreement – not a fixed term contract.

• Notice period – four weeks written notice by the General Manager or 52 weeks written notice by Horizon Power or remuneration in lieu of notice.

• Termination – Redundancy: should the Minister for Energy elect to merge, restructure, or dispose of the business of Horizon Power, there will be a redundancy payment of 12 weeks in lieu of notice plus three weeks per year of service to a maximum of 87 weeks. Incapacity or Poor Performance: four weeks notice, or without notice for serious misconduct.

• Performance Pay – at the Board’s discretion, the General Manager is eligible for incentive payments up to 25 per cent of total fixed remuneration for achievement of specific performance targets as defined by the Board.

F Tudor – General Manager Strategy and Business Development • Term of Agreement – not a fixed term contract.

• Notice period – four weeks written notice by the General Manager or 52 weeks written notice by Horizon Power or remuneration in lieu of notice.

• Termination – Redundancy: should the Minister for Energy elect to merge, restructure, of dispose of the business of Horizon Power, there will be a redundancy payment of 12 weeks in lieu of notice plus three weeks per year of service to a maximum of 52 weeks. Incapacity or Poor Performance: four weeks notice, or without notice for serious misconduct.

• Performance Pay – at the Board’s discretion, the General Manager is eligible for incentive payments up to 25 per cent of total fixed remuneration for achievement of specific performance targets as defined by the Board.

Z Wilk – General Manager Operations • Term of Agreement – not a fixed term contract.

• Notice period - four weeks written notice by the General Manager or 52 weeks written notice by Horizon Power or remuneration in lieu of notice.

• Termination – Redundancy: should the Minister for Energy elect to merge, restructure, of dispose of the business of Horizon Power, there will be a redundancy payment of 12 weeks in lieu of notice plus three weeks per year of service to a maximum of 87 weeks. Incapacity or Poor Performance: four weeks notice, or without notice for serious misconduct.

• Performance Pay – at the Board’s discretion, the General Manager is eligible for incentive payments up to 25 per cent of total fixed remuneration for achievement of specific performance targets as defined by the Board.

P Jensen - General Manager Shared Services • Term of agreement - not a fixed term contract.

• Notice period - four weeks written notice by the General Manager or 52 weeks written notice by Horizon Power or remuneration in lieu of notice.

• Termination – Redundancy: there will be a redundancy payment of 12 weeks in lieu of notice plus three weeks per year of service to a total maximum of 89 weeks.

• Performance Pay – At the Board’s discretion, the General Manager is eligible for incentive payments up to 25 per cent of total fixed remuneration for achievement of specific performance targets defined by the Board.

102

(iii) Service agreements (continued) J Deacon - General Manager Knowledge and Technology

• Term of agreement - not a fixed term contract.

• Notice period - four weeks written notice by the General Manager or 52 weeks written notice by Horizon Power or remuneration in lieu of notice.

• Termination – Redundancy: there will be a redundancy payment of 12 weeks in lieu of notice plus three weeks per year of service to a total maximum of 89 weeks.

• Performance Pay – at the Board’s discretion, the General Manager is eligible for incentive payments up to 25 per cent of total fixed remuneration for achievement of specific performance targets defined by the Board.

29 Remuneration of auditors 30 June 30 June 2009 2008

$ $

Audit services Audit and review of financial reports 101 95

Total remuneration for audit services 101 95

30 Contingencies

(a) Contingent liabilities

Horizon Power did not have any contingent liabilities as at 30 June 2009.

(b) Contingent assets

Horizon Power did not have any contingent assets as at 30 June 2009.

31 Commitments

(a) Capital commitments

30 June 30 June 2009 2008

$'000 $'000

Property, plant and equipment Payable: Within one year 117,198 101,245 Later than one year but not later than five years 179,680 51,386 Later than five years - - 296,878 152,631

(i) At 30 June 2009 capital expenditure commitments principally related to the network enhancement for various towns ($93 million), Carnarvon power station upgrade ($70 million), safety improvement projects for various towns ($26 million), customer driven works ($22 million), asset replacement for various towns ($21 million), Aboriginal and Remote Communities Power Supply Project Phase 2.1A ($21 million), Nullagine and Marble Bar power stations ($13 million), IT improvement and other projects ($31 million).

(ii) The amounts reported in this Note are based on budgeted capital expenditure for projects less actual expenditure incurred against capital projects.

103

(b) Lease commitments

Operating leases

Horizon Power has recognised an operating lease over the Midwest Power Station. The lease term is 10 years and is not terminable except in circumstances of unremedied default. Lease rentals are paid per unit of electricity supplied. However, there is no minimum lease payment specified for this lease.

In addition, Horizon Power has commitments to property leases as at 30 June 2009. Lease rentals are subject to half-yearly and yearly reviews.

30 June 30 June 2009 2008

$'000 $'000

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year 3,673 2,079 Later than one year but not later than five years 5,824 3,037 Later than five years 3,768 2,607 13,265 7,723

2008 comparatives have been restated to reflect commitments to property leases that were not disclosed in 2008 Financial Statements.

Finance leases

Finance leases relate to leases implicit in electricity purchase agreements identified in accordance with Interpretation 4.

30 June 30 June 2009 2008

$'000 $'000

Commitments in relation to finance leases are payable as follows: Within one year 38,548 37,771 Later than one year but not later than five years 152,587 149,768 Later than five years 455,340 480,473 Minimum lease payments (i) 646,475 668,012

Future finance charges (316,238) (332,532) Recognised as a liability 330,237 335,480

Representing lease liabilities: Current (note 18) 9,391 8,738 Non-current (note 22) 320,846 326,742 330,237 335,480

(i) Minimum future lease payments include the aggregate of all lease payments and any guaranteed residual.

32 Related party transactions Other than as disclosed in Note 28, key management personnel remuneration and in the following paragraph, Horizon Power did not transact with key management personnel or their related parties during the reporting period. As at 30 June 2009, Horizon Power did not recognise any assets or liabilities arising from transactions with key management personnel or related parties.

104

33 Interests in joint ventures

(a) Jointly controlled operations and assets

Name of entity Principal activity Output interest

Mid-West Pipeline Joint Venture Gas Transportation in the Mid West and Hill 60 Pipelines 29.2%

Horizon Power's interest in assets employed in the above jointly controlled operations and assets is detailed below. The amounts are included in the financial statements under their respective asset categories:

30 June 30 June 2009 2008

$'000 $'000

Midwest pipeline 201 1,408 Hill 60 Extension 533 664 Total non-current assets 734 2,072

34 Notes to the Cash Flow Statement Reconciliation of (loss)/profit after income tax to net cash flow from operating activities

30 June 30 June 2009 2008

$'000 $'000

(Loss)/profit for the year (42,342) 7,375 Depreciation and amortisation 31,389 26,677 Developer and customer contributions (17,496) (17,140) Net (gain) loss on sale of non-current assets (210) (6,799) Change in operating assets and liabilities, net of effects from purchase of business and sale of discontinued operation

Decrease /(increase) in trade and other receivables 9,471 (16,430) Decrease/(Increase) in inventories 84 (2,379) (Increase)/decrease in other assets (304) (157) Increase/(decrease) in trade and other payables 20,038 4,162 Increase/(decrease) in derivatives 2,367 9 Increase (decrease) in income tax liabilities (18,351) 2,547 Increase/(decrease) in employee provisions 2,292 128 Increase (decrease) in other provisions 8,315 (748)

Net cash outflow from operating activities (4,747) (2,755)

35 Non-cash investing and financing activities 30 June 30 June 2009 2008

$'000 $'000

Acquisition of plant and equipment by means of finance leases 3,280 298,851

105

36 Economic Dependency A significant portion of Horizon Power’s revenue is derived from the Tariff Equalisation Fund (TEF). Western Power pays money into the TEF in amounts determined by the Treasurer and the Minister for Energy. This money is released to Horizon Power as determined by the Treasurer. Horizon Power is dependant on the sufficient and timely flow of these funds to remain solvent. Horizon Power began receiving revenue from the TEF from October 2006.

37 Subsequent Events There has not arisen in the interval between the end of the reporting period and the date of this report any matter or circumstance likely, in the opinion of the Horizon Power Board, to affect significantly the operations of Horizon Power, the results of those operations, or the state of affairs of Horizon Power in subsequent reporting periods.

38 Correction of errors Assets constructed by developers which are connected to Horizon Power’s network are vested to Horizon Power. Australian Accounting Standards require these assets to be recognised as gifted assets by Horizon Power with income recognised based on the fair value of the asset vested. Due to Horizon Power not incurring any costs associated with these assets, they were not identified by Horizon Power in prior years and therefore the related income was not recognised.

Renewable energy certificates were reclassified from other current assets to intangible assets as they meet the definition of intangible assets under AASB 138.

Some operating costs were reclassified from expenses to cost of sales as they were incurred in operating and maintaining the transmission and distribution systems.

These errors and reclassifications had the following effect:

Per 2008 Correction Reclassification 30 June Accounts of error 2008

$'000 $'000 $'000 $'000

Balance Sheet Property, plant and equipment 643,093 16,172 659,265Intangible assets 91 - 224 315Other current assets 506 (1) (224) 281Current tax liabilities (10) 3,806 3,796Deferred tax assets 15,714 (1,045) 14,669Retained earnings (5,219) 11,320 6,101 Income statement Revenue 164,085 8,561 172,646Cost of sales (160,058) - (207) (160,265)Gross profit 4,027 8,561 (207) 12,381Other income 79,726 - 79,726Expenses excluding finance costs (49,643) (234) 207 (49,670)Finance costs (32,306) - (32,306)Profit before income tax 1,804 8,327 10,131Income tax expense (259) (2,497) (2,756)Profit for the year 1,545 5,830 7,375

The errors and reclassifications have been corrected by restating the 2008 comparative financial statement line items. The errors and reclassifications had no impact on cash flows.

106

INDEPENDENT AUDIT REPORT