NEW ZEALAND GAZETTE

No. 91

2688

Future taxation benefits attributable to timing differences or losses carried forward are recognised in the financial statements only where there is virtual certainty that the benefit of the timing differences or losses will be utilised.

(ix) FINANCIAL INSTRUMENTS

Financial instruments entered into as hedges of an underlying exposure are accounted for on the same basis as the underlying exposure. Financial instruments entered into with no underlying exposure are accounted for on a mark to market basis.

(x) RESEARCH AND DEVELOPMENT

Costs incurred on all research and development project are written off as incurred, except that Development Costs are capitalised to the extent that such costs are expected, beyond any reasonable doubt, to be recoverable.

C. Changes in Accounting Policies

There have been no material changes in accounting policies. All policies have been applied on bases consistent with those used in previous years.

2. ELECTRICITY DISCLOSURE GUIDELINES

The Ministry of Commerce (the Ministry) has produced guidelines to assist electricity distributors in complying with the various requirements of the Regulations. In particular, the Ministry provided guidelines for the methodologies to be used to separate and allocate revenues, costs, assets and liabilities of the company into separate business units and resulting financial statements required by regulation 6 of the Regulations.

The company has followed the guidelines in all instances except as follows.

Assumptions for Direct Allocations:

Transmission charges

Transmission charges, although completely absorbed by the Network business, as the guidelines recommend, have not been passed on to the Energy business.

Line Losses

Line Losses are not settled between the energy business and the generators, as the guidelines recommend. The cost of line losses have instead been charged to the Network business by the Energy business.

Transmission Assets

Generation does not own transmission assets. The company defines the point of injection as the point of exit from the Generation facilities. All transmission assets are owned by the Network business.

Interface with Electricity Customers

The guidelines assume that the Energy business is the only interface with electricity consumers. The company assumes that both the Network and Energy businesses interface directly with all consumers. Accordingly, line fees and energy sales are charged to customers as separate components and have been allocated directly to the respective business units.

The above assumptions have affected the following allocations.

Revenue

Connection fees for new customers have been allocated directly to the Network business.

Line fees charged to customers have been allocated directly to the Network business rather than the Energy business. The Network business has not charged the Energy business for services provided to it in respect of transmission charges incurred or the maintenance of the transmission facilities.

Line losses have been charged to the Network business by the Energy business.

Expenses

The costs of meter reading have been charged directly to the Network business as a cost necessarily related to the ownership of the meters. As Line fees are allocated directly to the Network business, no charge for meter reading is made by it to the Energy business.

All marketing costs have been allocated in the same manner as other indirect costs and not to Energy business as recommended in the guidelines.

Bad and Doubtful debt expenses have been allocated on to the Network and Energy businesses in the proportion that Line fees and Energy sales represent of the sum of those two items.

Assets and Liabilities

Cash and Bank, Term Liabilities, and accrued interest, where not directly allocated have been allocated on the basis described under the heading “Assumptions for Indirect Allocations”. These assumptions have also been applied to the related profit and loss statement items.

Assumptions for Indirect Allocations

Where direct allocations of revenues, costs, assets and liabilities is not possible the company has used as its basis of allocation the relative effort required to maintain the service each business unit provides to the consumer. The relative effort has been calculated on the basis of the number of staff directly employed by each business unit. This methodology is not considered a divergence from the guidelines.