4584 NEW ZEALAND GAZETTE No. 174

ELECTRICITY CORPORATION OF NEW ZEALAND LIMITED

STATEMENT OF ACCOUNTING POLICIES

Reporting Entity

These financial statements have been prepared and presented in accordance with Generally Accepted Accounting Practice in New Zealand, the Companies Act 1993 and the Financial Reporting Act 1993. The financial statements are for Electricity Corporation of New Zealand Limited (ECNZ) as defined in Regulation 4 of the Electricity (Information Disclosure) Regulations 1994.

Constitution, Ownership and Activities

ECNZ was incorporated on 26 February 1987, pursuant to the State-Owned Enterprises Act 1986, and commenced business on 1 April 1987. With effect from that date ECNZ acquired under a sale and purchase agreement with the Crown the electricity generation business of the Electricity Division of the Ministry of Energy.

ECNZ is wholly-owned by Her Majesty the Queen in Right of New Zealand (the "Crown").

ECNZ’s business is primarily the generation and wholesale marketing of electricity.

Pursuant to the restructuring and breakup of ECNZ’s monopoly in the electricity generation industry (note 25) ECNZ undertook a fair value exercise as at 1 February 1996 (note 27). As a result, the fair value of assets and liabilities as at 1 February 1996 is deemed to be their historic cost.

General Accounting Policies

The general accounting policies recognised as appropriate for the measurement and reporting of results, and the financial position have been followed in the preparation of these financial statements.

Measurement System

The historical cost method has been followed.

Specific Accounting Policies

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

Revenue

Sales shown in the statement of financial performance comprise the amounts received and receivable by ECNZ for electricity and related electricity services supplied to customers, and gains on disposals in the ordinary course of business. Sales are stated exclusive of Goods and Services Tax collected from customers.

Foreign Currencies

Assets and liabilities denominated in a foreign currency are translated at the rates of exchange ruling at balance date. Exchange differences on translation are taken to the statement of financial performance. Hedged foreign currency assets and liabilities are translated at the rate of exchange determined by the underlying hedge contract.

Foreign currency transactions are translated at the average monthly exchange rate ruling during the month in which the transaction occurred.

Outstanding forward foreign exchange contracts which are not designated as hedges are valued at the forward rate of exchange at balance date and the resulting gains and losses are recognised in the statement of financial performance.

Investments

Investments in subsidiaries are stated at cost.

Investments in associate entities are stated at ECNZ’s share of the fair value of the associate’s net tangible assets at acquisition, adjusted for ECNZ’s share of post-acquisition increases and decreases in the associate’s reserves.

Short term investments consist of investments which mature or are otherwise realisable within not more than 12 months from the date of purchase and are stated at cost, or market value where available, with resulting gains and losses taken to the statement of financial performance.

Debt

Debt as at 1 February 1996 is stated at fair value (note 27). All subsequent debt is stated at cost, less unamortised discounts, premiums and prepaid interest which are amortised to interest expense or interest income on a yield to maturity basis over the period of the borrowing. Borrowing costs such as origination, commitment and transaction fees are deferred and amortised to interest expense over the borrowing period.

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