4 SEPTEMBER NEW ZEALAND GAZETTE 2703

Horowhenua Energy Limited Line and Energy Businesses - Annual Report 1996

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 1996

1 STATEMENT

of accounting policies

ACCOUNTING ENTITY

The Financial Statements are those of the Line and Energy Businesses of Horowhenua Energy Limited. Information in respect of subsidiaries is included in the financial statements to the extent required by Regulation 6(5) of the Electricity (Information Disclosure) Regulations 1994. Horowhenua Energy Limited and its subsidiary, Lineworks Limited, are in a “Prescribed Business Relationship” as defined by Regulation 3(1)(a)(iii) of the Electricity (Information Disclosure) Regulations 1994.

The period reported is 1 April 1995 to 31 March 1996.

These Financial Statements are prepared in accordance with Regulations 6(2) and 6(3) of the Electricity (Information Disclosure) Regulations 1994. The Financial Statements have not been prepared for the purpose of the Financial Reporting Act 1993, or the Energy Companies Act 1992.

PRINCIPAL ACTIVITIES

The Line Business operates a line business activity, as defined by regulation 2 of the Electricity (Information Disclosure) Regulations 1994, in and around the Horowhenua and Kapiti Coast area.

The Energy Business operates a retail business activity, as defined by the regulation 2 of the Electricity (Information Disclosure) Regulations 1994, in and around the Horowhenua and Kapiti Coast area.

METHODOLOGY OF SEPARATION OF BUSINESS

Horowhenua Energy Limited has generally followed the Electricity Disclosure Guidelines as issued by the Ministry of Commerce dated 23 June 1994 with the exceptions noted below.

The Guidelines were issued by the Energy Policy Group of the Ministry of Commerce as guidance to assist Electricity Companies to comply with the Electricity (Information Disclosure) Regulations 1994.

Exceptions to the guidelines are noted in the Allocation Methodologies Disclosure which will be publicly disclosed.

MEASUREMENT BASE

The accounting principles recognised as appropriate for the measurement and reporting of earnings and financial position on a historical cost basis are followed by the company, with the exception that certain network assets have been re-valued.

SPECIFIC ACCOUNTING POLICIES

The following specific accounting policies which materially affect the measurement of financial performance and the financial position have been applied:

a) Fixed Assets

The company has five classes of fixed assets:

• Freehold land and buildings
• Network assets
• Capital work in progress
• Plant and equipment
• Vehicles

On 1 April 1995 the Company adopted Optimised Deprival Value (ODV) methodology in valuing most network assets. This methodology recognised the economic value of network assets based on the earnings segments of the network provided to the Company. The ODV of most network assets will be updated every two years to reflect network extensions and the earnings derived.

Also from 1 April 1995 the Company adopted infrastructure accounting methods which recognise that well planned maintenance of the network assets preserves their full economic value.

Freehold land is stated at the latest Government Valuation.

All other assets are recorded at cost.

b) Depreciation

Depreciation is provided on either a diminishing value (DV), or straight line (SL) basis on all tangible fixed assets other than certain network assets and freehold land, at rates calculated to allocate the assets’ cost or valuation less estimated residual value, over their estimated useful lives.

Leased assets are depreciated over the shorter of the un-expired period of the lease and the estimated useful life of the asset.

Depreciation rates are:

• Substation assets 4% straight line
• Freehold buildings 1% - 2.5% straight line
• Plant and equipment 10% - 25% diminishing value
• Computer equipment 20% straight line
• Vehicles 20% - 25% diminishing value

c) Receivables

Receivables are stated at their estimated realisable value.