NEW ZEALAND GAZETTE

No. 114

The major property holding of the company was valued as at February 1996 as follows:

The valuers used by Counties Power were Marsh & Irwin Limited who are Associates of the New Zealand Institute of Valuers. The accounting book value in the Financial Statements in respect of this property as at 31 March 1998 was $1,947,000.

Other properties with a total accounting book value amounting to $713,000 were not included in the above valuation.

Depreciation charged in total amounted to:

12. PROVISION FOR REPLACEMENT OF UNECONOMIC LINES

Section 62 of the Electricity Act 1992 requires Counties Power to maintain line services for the next 15 years. A provision of $1,392,000 for the replacement of some uneconomic lines was created at the 31 March 1993 year end of which $216,000 has been utilised during the current year. The basis of charging the provision is the cost of actual work carried out during the year.

13. OPERATING LEASE COMMITMENT

Obligations payable after balance date on non-cancellable operating leases are as follows:

There is a right of renewal on the leases for a further term of three years.

14. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES

Counties Power had no material commitments for future capital expenditure at 31 March 1998 (1997: $176,000 - relating to the improvement of the Pahurehure/Karaka area supply and the new Pukekohe substation).

Two legal claims relating to the Line Business were lodged during the year against Counties Power. The company is defending these actions and the directors are of the opinion that no significant liability will eventuate. There were no material contingent liabilities at 31 March 1997.

15. FINANCIAL INSTRUMENTS

(A) Nature of activities and management policies with respect to financial instruments.

(i) In the normal course of its business the Company incurs credit risk from trade debtors and financial institutions.

The Company has a credit policy which is used to manage this exposure to credit risk. As part of this policy limits on exposures have been set, and are monitored on a regular basis.

The Company does not have any significant concentrations of credit risk. The Company does not require any collateral or security to support financial instruments due to the quality of the financial institutions dealt with.

(ii) Provision for uneconomic lines (refer note 12).

(iii) The Company does not generally undertake any transactions denominated in foreign currencies apart from the purchase of distribution system equipment and does not hold any long term borrowings.

(iv) Revenue - electricity price hedging contracts
Counties Power Limited has entered into electricity price hedges with its generators. Under these agreements the Company agrees with its electricity generators at a fixed price (hedge price) for a percentage of its estimated electricity needs. It is the Company’s current policy to hedge between 70 - 90% of its estimated electricity needs. It is the Company’s policy not to enter into any speculative position in relation to electricity price hedging contracts.

On maturity of the electricity price hedges any difference between the hedge price and the spot market price is settled between the parties. Settlement occurs irrespective of the amount of electricity actually supplied. If the spot market price is greater than the hedge price, electricity generators must settle the difference with the Company. Conversely if the spot market price is less than the hedge price, the Company must settle the difference with the electricity generators.

Credit Risk - electricity price hedging contracts
With respect to electricity price hedges, the Company’s exposure is on any potential difference between the spot price and the hedge price, where on maturity of these agreements the spot price is greater than the hedge price. The Company does not anticipate any non-performance of any obligations which may exist on maturity of these agreements.

Fair value - electricity price hedging contracts
The fair value of electricity price hedging contracts can vary from day to day as the spot market price for electricity varies. As at balance date the secondary market for electricity price hedging contracts was not sufficiently active in order to obtain a reliable measure of the fair value of the Company’s hedging contracts. On maturity of these agreements there is potentially an asset or liability in relation to the electricity price hedges which has not been recognised in the financial statements. As at balance date the contract amount of the electricity hedging activity amounted to $28,647,000 (1997 $5,925,000).

(B) Fair Values

Cash and Liquid Deposits, Short and Long Term Loans, Accounts Payable and Receivable, Provision for Uneconomic Lines and Investments.

The carrying value of these items is equivalent to their fair value.

16. RELATED PARTY TRANSACTIONS

There have been no material transactions with related parties during the period.