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20 June 2013
Floods at Yallourn power station in Victoria’s Latrobe Valley in June may cost owner TRUenergy $128.75 million, with the company still considering its options on insurance claims.
The floods came when the Morwell River – recently diverted by the company to gain access to coal seams – broke its banks and flowed into the mine, cutting output at the power station by three-quarters and forcing TRUenergy to buy power in the wholesale market to fulfil contracts.
TRUenergy’s parent, Hong Kong-based CLP Holdings, last week released its half-yearly results, which put the cost of the flood at $HK844 million ($104.1 million), plus $HK200 million ($24.6 million) likely to be incurred in the current half.
The cost breakdown includes $HK200 million for lost generation and energy purchases; $HK644 million ($79.4 million) for operational damage and remediation expenses; and an expected $HK200 million for repair and recovery.
TRUenergy is installing pipes to divert water from the Morwell River into the nearby Latrobe River. When that is completed, the Morwell bank will be repaired.
A company spokesman told insuranceNEWS.com.au TRUenergy is still reviewing its claim options. The group will not disclose details of its insurance arrangements.
Industry sources believe TRUenergy self-insures flood risk at the mine, after insurers failed to provide adequate cover following an earlier inundation by the Latrobe River in 2007.
If so, the company may have to carry the $HK644 million damage and remediation costs itself.
Analysts say it is likely the company has insurance for business interruption, which may cover the $HK200 million cost of lost generation and energy purchases.
However, there can be complications with such cover. Many business interruption policies require a “physical damage trigger”, which means the damage must be caused by an insured event such as a flood or fire.
If Yallourn is self-insured, it may not have a trigger to claim on business interruption insurance. Industry specialists say there are business interruption policies that do not require a physical damage trigger, but they are rare.
Dealing with flood damage and related business interruption claims is a bugbear for the mining industry, with cases dragging on for years and often involving expensive litigation.
Sources say the insurance industry is working on a solution.
CLP planned to raise $3 billion with a partial float of TRUenergy later this year under the new brand EnergyAustralia, but this has been put off – probably until the first half of next year – while the Yallourn issues are resolved.
TRUenergy says it has no plans to seek compensation from the Victorian Government over the floods.
Yallourn is currently producing 75% of its rated output and the company says it could hit 100% if the market demands it.
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