2 OCTOBER NEW ZEALAND GAZETTE

TRANSALTA NEW ZEALAND LIMITED

Notes to and forming part of the Financial Statements

For the Year Ended 31 March 1998

Note 1: Statement of Accounting Policies

Reporting Entity

TransAlta New Zealand Limited (the Company) was formed on 1 October 1996 following the amalgamation of EnergyDirect Corporation Limited and Capital Power Limited under the Companies Act 1993. The Company is a public company registered under the Companies Act 1993 and is listed on the New Zealand Stock Exchange. The Company is an issuer for the purposes of the Financial Reporting Act 1993.

The financial statements have been prepared in accordance with the methodology required by the Electricity (Information Disclosure) Regulations 1994, the Companies Act 1993, the Financial Reporting Act 1993, and in accordance with generally accepted accounting practice.

The Financial Statements have been extracted from the audited Financial Statements of TransAlta New Zealand Limited parent company.

The comparative figures have been extracted from the unaudited Financial Statements of Capital Power Limited for the six months ended 30 September 1996, EnergyDirect Corporation for the six months ended 30 September 1996, and the audited Financial Statements of TransAlta New Zealand Limited for the six months ended 31 March 1997.

Due to differences in accounting treatment between Capital Power Limited and EnergyDirect Corporation Limited some adjustments to historic figures have been required for consistency in presentation and reporting purposes.

Electricity (Information Disclosure) Regulations 1994

Where practical, all costs, revenues, assets and liabilities have been directly allocated to the appropriate Lines or Energy businesses. Other costs, revenues, assets and liabilities are allocated using the allocation bases in accordance with the guidelines, with the exception of cash and short term investments. These have been allocated on the basis of cash required to adequately fund the business units.

Measurement Base

The financial statements have been prepared on an historical cost basis, modified by the revaluation of certain assets as detailed below in the specific accounting policies. Accrual accounting is used to match revenues and expenses. Reliance is placed on the fact that the Company is a going concern.

Specific Accounting Policies

a) Income Recognition

Electricity sales represent customer usage during the financial period. Allowance is made for unbilled sales being unread meters and unbilled line charges as at balance date.

b) Valuation of Fixed and Long Term Assets

The fixed and long term assets of the Company, other than electricity network distribution assets, are stated at cost.

Electricity network distribution assets are stated at their current value. The current value approximates Optimised Deprival Value (ODV), which is the lower of a network’s Optimised Depreciated Replacement Cost (ODRC) or its Economic Value (EV). The ODRC of an asset represents the cost of the most efficient asset capable of performing the same functions, depreciated for the age of the asset being valued. The EV of an asset is the greater of the net realisable value of that asset or the net present value of the future earnings from that asset.

The information disclosed in the 1998 Information Disclosure package issued by TransAlta New Zealand Limited has been prepared solely for the purposes of the Electricity (Information Disclosure) Regulations 1994.

The information should not be used for any other purpose than that intended under the regulations.