4052

NEW ZEALAND GAZETTE

No. 170

Electricity Corporation of New Zealand Limited
Notes to the Financial Statements

Fair values
The estimated fair values of ECNZ’s other financial instruments are as follows:

Cash and short term deposits, accounts receivable, accounts payable, other current assets and current liabilities are excluded from the table above because, due to their short term nature, the carrying value of these items is equal to their fair value.

The following methods were used to estimate the fair values of the following classes of financial instrument:

(a) Term liabilities and short term loans
The fair value of ECNZ’s term liabilities and short term loans is estimated based on current market interest rates available to ECNZ for debt of a similar maturity. ECNZ anticipates that these liabilities will be held to maturity and that settlement at fair value is unlikely.

(b) Currency and interest rate swaps, foreign exchange contracts forward rate agreements, interest rate options and interest rate futures
The fair value of these instruments is estimated based on their quoted market prices. ECNZ anticipates that these liabilities will be held to maturity and that settlement at fair value is unlikely.

18. Debt defeasance
On 1 February 1996 ECNZ sold eight power stations to Contact. Of the $1,592 million received from Contact, $419 million was used to defease debt and the balance was treated as surplus equity and distributed to the Crown as a special dividend.

19. Land claims
Under the Treaty of Waitangi Act 1975, the Waitangi Tribunal has the power to recommend, in appropriate circumstances, that land purchased by ECNZ under the State-Owned Enterprises Act 1986 be resumed by the Crown in order that it be returned to the Maori claimants. In the event that the Tribunal’s initial recommendation is confirmed and the land is to be returned, compensation will be paid to ECNZ under the provisions of the Public Works Act 1981. If this is insufficient to cover the loss, certain additional compensation is payable under the sale and purchase agreement between ECNZ and the Crown.

20. Transactions with related parties
The shareholder of ECNZ is the Crown. ECNZ undertakes many transactions with other State-Owned Companies and Government Entities, all of which are carried out on a commercial and arms length basis.

During the period, ECNZ entered into material transactions with Transpower (who operate the national electricity distribution grid). During the period ECNZ received $20 million (1998 $18 million) of revenue from Transpower, mainly for the provision of ancillary services such as spinning reserve and voltage control. ECNZ also paid Transpower transmission and connection fees amounting to $64 million (1998 $84 million).

During the period ECNZ held a 33% share in the Electricity Market Company Limited (EMCO) which functions as a clearing house for the wholesale electricity market. ECNZ paid service fees of $4 million (1998 $4 million) to EMCO during the period.

ECNZ sold and purchased electricity respectively through EMCO during the period. These sales and purchases are not deemed to be related party transactions. There are also many unrelated parties selling and purchasing electricity through EMCO and due to the way in which the wholesale electricity market operates it is not possible to determine exactly which party purchased or sold electricity from/to whom.