Dr Andrew Blakers' supplementary submission
The Australian National University
Dr Andrew Blakers
Senior Research Fellow
Engineering Department
The Faculties
Australian National University
Canberra, 0200
Telex 107-19236
Fax: 06-249-0506 int+61-6-249-0506
Tel: 06-249-5905 int+61-6-249-5905
e-mail: andyb@spigot.anu.edu.au
21st February 1995
Committee Secretary
House of Representatives Standing Committee
on Environment
Parliament House
Canberra 2600.
re: Lake Pedder Inquiry
Dear Sir/Madam
Enclosed is a submission to the Committee enquiring into the proposal to drain and restore Lake Pedder. I would be prepared to give evidence in person if required.
The submission consists of a summary together with supporting documents. Most of the figures are drawn from the paper entitled Hydroelectricity in Tasmania revisited and/or from Hydroelectric Commission sources. Assertions made in the submission can be substantiated.
Yours Sincerely,
Andrew Blakers
Enclosures:
Hydroelectricity in Tasmania Revisited, Australian Journal of Environmental Engineering, Vol 1, pp110-120, September 1994
Dam Debt in Tasmania, Conf. Proceedings, Solar '94, University of NSW, November 1994
Draining Lake Pedder
Dr Andrew Blakers
Department of Engineering, Australian National University
Canberra 0200, ph 249 5905, fax 249 0506
22nd February 1995
The economic cost of draining Lake Pedder will be low since the water in the lake is essentially valueless. This is because Tasmania has a vast oversupply of electricity, which is likely to continue. Useable water storage in Lake Pedder is insignificant. As it turned out, demand has been so low that no scheme completed since 1972 is needed (Pedder, Gordon, Pieman, King and Anthony).
The Hydroelectric Commission of Tasmania (HEC) has caused the destruction of rivers and lakes and wilderness over the past 25 years. It has also brought upon itself a financial disaster. It can be seen that predictions by conservationists regarding power demand growth rates and the cost of alternatives such as wind energy were remarkably accurate, while those of the HEC were wrong by a factor of three in each case.
Any claim by the Tasmanian government for compensation for draining Lake Pedder should be rejected. This is because Tasmania received compensation under false pretences in the period 1983-93 to the value of $500 million (present value including interest) for cancellation of the Gordon-below-Franklin project. The HEC was aware by 1985 that no new dam was needed yet continued to construct hydro schemes and take Commonwealth compensation money. If it is decided to compensate Tasmania for political reasons the appropriate level of compensation is approximately $30 million.
The environmental benefits of draining Lake Pedder are not restricted to restoration of an important part of the natural environment. There may be significant Greenhouse Gas emissions in the form of carbon dioxide and methane from the enlarged Lake Pedder which could be stopped by draining the lake.
The Tasmanian electricity generation capacity is 88% hydro (1186 MWave) and 12% oil fired at Bell Bay (170 MWave). This is illustrated in figure 1, together with the schemes completed over the last 20 years.
The record shows that the HEC has been consistently and alarmingly wrong in its forecasts of growth of power demand. The present over supply of electricity in Tasmania is so large that all schemes completed since 1972 could be closed. The Anthony, King, Pieman and Gordon/Pedder schemes need never have been built. In contrast, estimates of demand growth by conservationists were reasonably accurate. Figures 2 and 3 illustrate this. This over-capacity has had a major impact on HEC finances.
The HEC has spare capacity amounting to 383 MWave in a system with total capacity of 1356 MWave (including the 170 MWave Bell Bay oil fired power station). Thus 28% of the total is lying idle. There are very good reasons to believe that Comalco will close its operations in Tasmania and move to Queensland. In this case the electricity oversupply in Tasmania would increase from its present value of 28% to 41%. Table 1. contains relevant data on demand and supply capacity.
Figure 1: Overview of Tasmania's electricity system
| Source | Power (MWave) | |
| 1994 power production | 1994 HEC Annual Report | 1012 |
| 1995 predicted power production | reduction in Comalco consumption | 973 |
| average supply capacity - hydro only | 1990 HEC Corporate strategy report | 1186 |
| Bell Bay firm capacity | 1983 HEC King/Anthony Report | 170 |
| average supply capacity including Bell Bay | 1356 | |
| excess capacity (hydro only) | 213 | |
| excess capacity (including Bell Bay) | 383 | |
| excess capacity if Comalco leaves | 560 | |
| King output | 1983 HEC King/Anthony Report | 66 |
| Anthony output | 1983 HEC King/Anthony Report | 46 |
| Pedder output | 60 | |
| Gordon River output | 90 | |
| Pieman output | 160 | |
| HEC predictions (1983) for 1994 | 1983 HEC King/Anthony Report | 1426 |
| conservationists predictions (1979) for 1994 | Commonwealth Hansard | 1115 |
Table 1: Supply capacity and demand in Tasmania
The unnecessary hydro construction of the last 20 years has caused the HEC to accumulate an astonishing debt of $1,655 million, or $3,500 per Tasmanian (HEC 1994 annual report).
The HEC has a woeful record of financial management. It has made a loss in 7 of the last 12 years, including 3 of the last 4 years. It has an official target of a 4% return on equity to its owner (the Tasmanian government). In 1993/4 the return on equity was 0.6%, which is no better than in previous years. Its debt-to-equity ratio is 51:49. That is, after building dams for 60 years, more than half of the HEC's assets are in hock. Figure 4. shows this information graphically.
Figure 4: HEC financial problems
1994 HEC Sales and budget outcome (from 1994 HEC Annual Report)
| from 1994 HEC report | energy sales | energy sold | average price |
| the 19 industrial users | $128 million | 5195 million kWh (63%) | 2.5 c/kWh |
| general load (everyone else) | $301 million | 3038 million kWh (37%) | 9.9 c/kWh |
| total | $429 million | 8233 million kWh | 5.2 c/kWh |
The 19 industrial companies are getting heavily subsidised power, at a quarter of the price of other companies. Domestic and small industrial and commercial customers now pay the third highest electricity prices in Australia, after SA and WA. Since most employment is in small business, his policy contributes to high unemployment in Tasmania.
| Income from electricity sales: | $420 million |
| Other income: | $51 million |
| Total Income: | $471 million |
| Interest costs on $1,655 million debt @ 11.3% | $187 million |
| Depreciation on $4,100 million of assests | $94 million |
| Energy, network, retail, superannuation and other expenses | $166 million |
| levy, dividend and social service benefits to Tasmanian govt. | $33 million |
| Total Expenses | $480 million |
| Loss | $9 million |
The interest expenses of the HEC is a heavy burden. The HEC pays a miserable benefit of just $33 million to the Tasmanian Government on assets of $4,100 million. In addition, they made a loss of $9 million. In other words, the return on investment is just 0.6%. This is no better than in previous years.
Tasmania has a vast oversupply of electricity. If Lake Pedder were to be drained then there still might be an argument that alternatives to the energy produced from the lake's waters may one day need to be found. There are a number of cost-effective alternatives, discussed below.
The cheapest form of `new' energy is demand management. Examples include energy audits, better house insulation, appliance efficiency standards and the elimination of direct water and space heating from electricity in favour of heat pumps and gas. Over-investment in hydro means that the HEC has a positive disincentive to reduce demand. As a consequence there has been very little active demand management in Tasmania. It is highly likely that 10-30% of Tasmanian electricity demand could be eliminated in a cost effective manner by elementary and well tested methods of demand management.
The Bell Bay oil power station costs 5.5 c/kWh to run, which is mostly fuel cost. This is much cheaper than the energy cost from the King and Anthony schemes of 8 c/kWh (this cost is partly interest costs and partly repayment of loans). Unfortunately King and Anthony cannot be turned off to save fuel costs, unlike Bell Bay, and the HEC has to pay for them whether or not the power is used. The HEC could have invested in an additional oil or gas power station in the 1970s. Such power stations are cheap to build but relatively expensive to run. It would only have run intermittantly, so the overall cost to the HEC would have been much lower than further hydro schemes. Oil and gas power stations would also have asisted with drought proofing the system. Instead the HEC chose to invest in further hydro power stations to drought proof the system!
Wind energy is a reliable conventional source of electricity. About 30,000 windgenerators with a combined capacity of 3,000 MW have been installed worldwide over the past decade. Tasmania is a good site for wind energy. The HEC estimated in 1983 that wind energy in 1990 would cost 15 c/kWh (1995$). Conservationists estimated 6 c/kWh (1995$) in evidence to the Senate Inquiry into the Gordon-below-Franklin scheme in 1982. Robin Grey, the Tasmanian energy Minister, acknowledged in 1994 that wind energy in Tasmania would cost about 6 c/kWh, which is cheaper than the King and Anthony schemes or any new hydro scheme. Wind energy is modular, and can be installed to closely match demand. In contrast, hydro required a decade to build, which means that demand has to be accurately forecast a decade in advance.
The last HEC schemes (the King and Anthony, completed in 1992 and 1994 respectively) cost $1,200 million. The output from these schemes is not needed, and they accumulate interest costs of $140 million per year with no return on energy sales. In 1985, just two years after construction of these schemes began, the gap between the HEC forecast of demand and the actual demand exceeded the combined expected output of the King and Anthony. At that stage the two schemes should have been cancelled saving over a billion dollars. It is a mystery and a scandal that the HEC did not see financial reality at the time.
Lake Pedder is impounded by the Scotts Peak Dam (Huon R.) and the Serpentine Dam (Serpentine R). Lake Gordon is impounded by the Gordon Dam (Gordon R). The surface of Lake Pedder is maintained at a higher altitude (about 308 m) than Lake Gordon (280-290 m). Water from Lake Pedder drains to Lake Gordon through the McPartlan Pass canal.
The Gordon dam has large storage capacity, amounting to 4,600 GWh or 31% of Tasmania's total when full. The Gordon/Pedder scheme has a long term average electrical output of 150 MWave or 1,300 GWh per year. The contribution of each river to this is:
| Gordon R. | 90 MWave | 61% |
| Serpentine R | 45 MWave | 29% |
| Huon R | 15 MWave | 10% |
There is no power generation at either of the Lake Pedder dams - power generation occurs at the Gordon dam. The useful energy embodied in the stored water of Lake Pedder is minimal. The energy equivalent of this water when the dam is full is 157 GWh, or 1.1% of total Tasmanian hydroelectric storage. The purpose of Lake Pedder is to transfer the water of the Huon and Serpentine rivers to Lake Gordon.
If Lake Pedder were to be drained the only serious loss would be power production amounting to 60 MWave, or 5% of Tasmania's average hydroelectric capacity. The Serpentine river could be held behind the Serpentine dam at a lower level than the original Lake Pedder. The water could be pumped to Lake Gordon, recovering about 30 MWave after pumping losses. The loss from draining Lake Pedder would then be about 30 MWave.. The latter approach would engender construction costs.
A 300 MW cable link to Victoria has been proposed. Construction of this cable would not significantly alter the HEC surplus capacity. The reason for this is that the cable would be used primarily to carry power to Victoria during peak periods - that is, for a few hours per day. Hydro is good for providing peak power. The amount of energy sent to Victoria during these few hours would not be large because of the limited capacity of the cable.
Victoria (as well as NSW and Qld) also has a capacity surplus, and is unlikely to want substantial quantities of Tasmanian energy. It would also be possible for Victoria to export energy to Tasmania during off-peak periods to offset the peak periods. At this stage cable construction does not look likely.
The cable has both advantages and disadvantages. The main advantage is that some Tasmanian power could be exported at peak power prices, which are double the average price that the HEC charges its customers. Another advantage is that the HEC would get `drought insurance'. The major disadvantage in the short term would be the cost ($400 million or so). If a larger cable were installed, then there would be some severe environmental concerns. A large (and expensive) cable could:
The construction of a cable would not significantly affect the economics of draining Lake Pedder. As mentioned above, there will not be large scale energy transfers to Victoria. Also, because Lake Pedder has no generators at its dams it cannot contribute significantly to providing peaking power for Victoria. Cheap off-peak electricity from Victoria would pin the value of water in Lake Pedder at a low level.
It is possible that Lake Pedder is a significant and on-going source of Greenhouse gas emissions - carbon dioxide and methane from rotting vegetation in the lake. Methane is 21 times worse than carbon dioxide as a Greenhouse gas over a 100 years time frame. It is known that much of the vegetation on the floor of Lake Pedder is still intact, and so draining the lake will prevent further emissions. This is in stark contrast to the entirely unsupported claims of the HEC that Lake Pedder and other hydro schemes are pollution free (HEC press release, 9/11/94). Lake Pedder may have a particularly significant Greenhouse impact because it is large (240 km2), shallow and has a low energy yield (60 MWave).
Much of the land covered by the enlarged Lake Pedder was button grass. There was probably significant peat. Greenhouse gas emissions from peat bogs in Scotland have been studied (New Scientist, p6, 19/11/94). It was found that accumulation of carbon in peat bogs approximately cancels (from the Greenhouse point of view) methane emissions from peat bogs. It seems reasonable that if water then floods a peat bog, cutting off sequestration of carbon but not entirely cutting off methane production, then the flooded bog will become a net source of Greenhouse gas.
It is not possible to properly estimate the greenhouse impact of Lake Pedder because measurements need to be made of methane and CO2 emissions from the lake. However, a notional calculation certainly gives rise for concern. The results of a notional calculation are presented in figure 5, using the reasonable assumption that the amount of vegetation that will rot over a 100 year time frame is 20 kg/m2. It can be seen that if just 10% of the carbon is converted to methane then the Greenhouse impact of Lake Pedder is worse than that of Bell Bay oil fired power station.
Water in a hydro reservoir might have value for both energy storage and energy production.
Storage: In the case of Lake Pedder, there is essentially no energy storage. Lake Pedder contributes just 1% of total hydro storage in Tasmania (in contrast to the remarkable claim attributed to the HEC General Manager in an HEC press release of 9/11/94 that it is an essential storage!).
Energy Production: The draining of the HEC Lake Pedder would reduce the capacity of the Tasmanian electricity system by 60 MWave. Present overcapacity amounts to 383 MWave, of which 213 MWave is hydro capacity (see figure 3). If/when Comalco leaves overcapacity will rise to 560 MWave.
The draining of Lake Pedder would make no difference to either energy production or energy storage. The conclusion is therefore that the water in Lake Pedder is presently valueless. It will only ever have value if it can be sold.
Figure 5: Lake Pedder and Greenhouse Gas Production
The HEC received compensation money from the Commonwealth Government for the blocking of the Gordon-below-Franklin dam. The present value of this money, including interest (at the HEC's average rate over the period of 11-12%), is $500 million. This compensation was claimed because the cost of alternatives was allegedly higher. As it turned out neither the Gordon dam nor any alternative scheme was necessary. The Commonwealth saved the HEC from financial disaster by blocking construction of the dam. The HEC should be grateful to the Commonwealth for saving itself from its own folly.
The graph of demand through the 1980s (figure 2) shows clearly that by 1985 it was clear that the King and Anthony would not be needed. The HEC knew this, yet continued to build the schemes and take Commonwealth compensation money. This amounts to taking money under false pretences. The HEC could be required to show cause why it should not pay back this money. Alternatively, no compensation should be offered for draining Lake Pedder.
If the Commonwealth government decides to compensate Tasmania for draining Lake Pedder for political reasons then it will be necessary to calculate the appropriate amount. This is done below, assuming that a decision to drain Lake Pedder is taken in 1995. The results are presented in figure 6.
Using the technique of discounted cash flow analysis is is possible to calculate the value of Lake Pedder. The discount rate can be assumed to be equal to the average interest paid by the HEC on its loans is 11.3%. To do this calculation it is necessary to know when demand will catch up with supply: ie, the year in which Lake Pedder electricity can be sold and the water becomes of value. Figure 2 indicates that this is not likely to happen in the near term. A cable across Bass Strait would not affect this date for reasons outlined in section 7. There is no reason to expect power demand to increase rapidly in Tasmania. It has been falling over recent years. Nevertheless, if the assumption is made that demand grows at a rate of 1.5% per year then demand will exceed the capacity of the hydro system (excluding Lake Pedder and Bell Bay) in the year 2005.
The value of Lake Pedder electricity is approximately equal to the cheapest source of alternative supply. This will be either the cost of demand management measures (in terms of c/kWh), or the lowest price paid by Comalco and the other industrial users which is about 2 c/kWh (plus an allowance for any additional distribution costs). Another way of looking at this is to ask the following question: If there is a shortage of power, and a company is willing to pay 2.1 c/kWh (plus any additional distribution costs) for electricity, why should Comalco be charged 2 c/kWh? Distribution costs from main switchyards will range from 0.5-2 c/kWh for commercial users. Comalco will be at the low end of the range. Thus the approximate value of Lake Pedder electricity to the HEC is 2 c/kWh.
The low price charged by the HEC to Comalco and other large users is, in effect, a subsidy. There is no reason for the Commonwealth to take account of this subsidy when calculating the appropriate level of compensation. The subsidy is a Tasmanian decision.
If the power from Lake Pedder could be sold for 2 c/kWh it would bring a net benefit to the HEC of about $10 million/year, after allowing for marginal costs of production and sale.
The graph of figure 6 is the present value of Lake Pedder as a function of the year in which demand catches up with supply. If demand catches up with supply in the year 2005 the value today (1995) of Lake Pedder is about $30 million. This is the appropriate compensation that Tasmania could claim for the draining of Lake Pedder.
The reason that the present value of Lake Pedder declines the longer it sits idle is that money in the hand today is worth much more to the HEC than money in the future. Thus $30 million today in the hands of the HEC is as good as $90 million in the year 2005, given the large debts of the HEC and the consequent annual interest bill.
(The average selling price of HEC electricity is 5 c/kWh. The value of electricity in the HEC system will not exceed this figure while oil prices remain stable because it is also the approximate production cost of electricity at Bell Bay. The value will also not exceed the lowest cost of supply offered by Victoria if a Bass Strait cable is built, which will be 3-4 c/kWh.)
Figure 6: Appropriate compensation for draining Lake Pedder; the amount declines for each additional year that passes before the oversupply of electricity in Tasmania disappears.
Dr Andrew Blakers' supplementary submission
The Australian National University
Dr Andrew Blakers
Senior Research Fellow
Engineering Department
The Faculties
Australian National University
Canberra, 0200
Telex 107-19236
Fax: 06-249-0506 int+61-6-249-0506
Tel: 06-249-5905 int+61-6-249-5905
e-mail: andyb@spigot.anu.edu.au
4th April 1995
Mr John Langmore MP
House of Representatives Standing Committee
on Environment
Parliament House
Canberra 2600.
re: Lake Pedder Inquiry
Dear Mr Langmore,
Enclosed is a supplementary submission to the Committee enquiring into the proposal to drain and restore Lake Pedder. This document deals with the economic value of Lake Pedder as a source of energy. In summary, it can be shown using HEC data that the HEC estimate of the value of Lake Pedder ($450 - 670 million) is a vast overestimate.
Some comments on Comalco's submission are also provided.
Yours Sincerely,
Andrew Blakers
The present value (PV) of a hydro system to the HEC is given by
Here E is the annual energy output; a is the real discount rate (discount rate minus inflation rate); t is the system economic lifetime; T is the length of time until the energy from the scheme is actually needed; and k is the value to the HEC (after maintenance and distribution costs) of each unit of energy sold.
In the case of long system lifetimes (40-100 years) and moderate discount rates (6-10%) equation 1 can be approximated, with small error, by
The exponential function in equation 2 takes account of the fact that money in the hand of the HEC today is more valuable than money in the future. For example, with a 9% real discount rate and a twelve year waiting period before demand catches up with hydro supply the Present Value of Lake Pedder is reduced to just one third of the case in which all the power can be sold immediately.
The HEC valued Lake Pedder at $450 million (submissions, Vol 1, p166). This figure can be derived by substituting into equation 2 the values used by the HEC: T=0; E=570 million kWh; k=4.87 c/kWh; and a=(9.5-3.5)=6%.
The HEC estimated (p166) that the replacement cost of Lake Pedder would be $670 million using a thermal power station.
Two ways of valuing Lake Pedder are presented below.
The HEC has over 200 MW of hydro surplus (taking into account the loss of 59 MW in sales following the partial closure of the Comalco plant in March 1994). In addition it has 170 MW of unused capacity at the Bell Bay power station. Spare capacity in the HEC system amounts to about 380 MW, which is 28% of total capacity. The HEC in its submission states that Pedder delivers an average of 65 MW (570 GWh/yr). Transmission losses of 7% reduce this to 60 MW (530 GWh/yr).
Draining Pedder would make no difference to HEC income. Therefore the water presently in Pedder is worthless. So long as hydro supply exceeds demand Pedder remains worthless. This could be true for many years to come. In order to value Pedder several assumptions need to be made.
The HEC used an interest rate of 9.5% and an inflation rate of 3.5% to arrive at a real discount rate of 6% in its submission. This choice of figures is not supportable. The current average interest rate paid by the HEC is above 11%. The inflation rate over recent years has been 2-3%. This yields a real interest rate of around 9%. The discount rate must be above 9% to cover risk, dividend and tax. The HEC has a goal of a 4% return on assets. The operation of Pedder is far from risk free. For example, Comalco could leave Tasmania, resulting in an even larger gap between supply and demand. Nevertheless, in my analysis I assume a real discount rate of 9%.
a) Comalco pays about 2 c/kWh. The HEC and Comalco maintain that this is not a subsidised price. Therefore the marginal value to the HEC of electricity is 2 c/kWh. Certainly the large growth in demand required for demand to catch hydro supply must come from the Major Industrial Load (as distinct from small customers). Comalco is often presented as a possible future customer for expanded sales, and the price the HEC will receive for this electricity will be around 2 c/kWh; OR
b) Vigorous demand management would very likely save electricity at a cost below the equivalent of 2 c/kWh eg heat pumps rather than direct space heating; improved insulation; demand management in industry; OR
c) If Bass Link is built the replacement cost of electricity will be Victorian off peak - 2.6 c/kWh (HEC evidence, 21 Feb, p53) (+ transmission cost). Since there is no generation equipment at Pedder it cannot contribute to meeting peak power demand. The closure of Pedder would make no difference at all to the HEC's peak power supply capability; OR
d) The cheapest off-peak electricity price in Tasmania
Thus the value of Pedder electricity will be about 2 c/kWh. In point of fact, the value is less than this because the cost of supplying this electricity, such as maintaining the Pedder dams and power transmission, must be subtracted. The average selling price (4.87 c/kWh) is not the appropriate figure to use. This is not the price that the Major Industrial users pay, and the price includes substantial distribution costs.
a) Compensation can be made on the basis of what actually happens over the next 20 years OR
b) A demand growth rate in the future can be estimated. For example, the actual demand growth rate in the period 1983-95 was 1% per year. At this rate demand catches hydro supply (excl Pedder) in about 2007, twelve years in the future.
The HEC assumes that Pedder electricity is required immediately (ie T=0). This is not the case. The most likely situation in Tasmania over the next decade is that the dams will be full and water will run to waste. Water storage levels are rapidly rising - in 1991, 1992, 1993 and 1994 they were 24%, 32%, 41% and 54% respectively. If Comalco leaves Tasmania this situation could continue far into the future.
Equation 2 can now be used to estimate the value of Pedder. The figures used are: T=12 years; E=530 million kWh; k=2 c/kWh; and a=9%. This yields a Present Value of $40 million. For reasons outlined above this is probably an overestimate of its real value. This is far from the HEC estimate of $450 to 670 million.
Comalco reiterates its position - that it operates a smelter in Tasmania only because of access to cheap power. Expansion of Comalco production will therefore only occur if the HEC provides cheap power to Comalco. This means that the income to the HEC from sales to Comalco will be around 2 c/kWh. Since a large expansion in demand to take up the idle capacity in the HEC system can only really come from industrial users such as Comalco, the value of Pedder electricity is pinned to around 2 c/kWh.
Comalco raises the issue of security of supply if Pedder is drained. Comalco points out that an unexpected power outage could cost it many millions of dollars. Draining Lake Pedder will not have any effect on the rate of unexpected power outages. The reason for this is that no generation capacity will be lost if Pedder is drained. Water storage and the existence of the Bell Bay power station means that the HEC will have years of warning that an alternative power supply might be needed.
Comalco's estimate for the value of energy lost by draining Lake Pedder is $13 million per year. Comalco used the average industrial electricity price of 2.5 c/kWh. In contrast I use Comalco's price of around 2 c/kWh. The HEC uses the average price over all users of 4.87 c/kWh, which is well above the other two figures.
Comalco recognises that Pedder electricity is not at present required (page 6, 4th paragraph). The HEC failed to recognise this fact. Comalco refers to an `optimistic' possibility that the HEC surplus will be taken up shortly after the turn of the century.
Comalco refers to the fact that in 1993 it tried and failed to obtain from the HEC a large block of power for an expansion. Presumably the HEC was not prepared to supply electricity at a sufficiently low price (or to sell a power station to Comalco at a sufficiently low price). The HEC has a debt of $1,655 million with interest payments in 1994 of $187 million. If the entire current sales of the HEC were at the price paid by Comalco they would not even cover interest costs, let alone depreciation, salaries, superannuation, dividends and other costs (amounting to $293 million in 1994).
Two conclusion can be drawn. The first is that Comalco is not a very lucrative customer of the HEC (about $30 million/year for 18% of total sales in 1995). The second is that the HEC was most unwise to construct the Gordon, Pedder, Pieman, King and Anthony schemes and incur such debt.