NGC – Gas Distribution Activities

Notes to the Financial Statements

For the year ended 30 June 2002

1. Statement of Accounting Policies

a) Accounting Entity

The financial statements are those of NGC – Gas Distribution Activities (NGC). Gas Distribution Activities involves the ownership and the supply of line function services for the distribution of gas.

The financial statements represent the aggregated Gas Distribution Activities of NGC of New Zealand (NGCNZ) and AGL NZ Energy Limited (AGLNZE). AGLNZE is a subsidiary of AGL. NGCNZ is an indirect subsidiary of AGL and the two entities were therefore in a prescribed relationship, as defined in the Gas (Information Disclosure) Regulations 1997.

In 2001, as required by the Regulations, these financial statements represented the aggregated Gas Distribution Activities of NGCNZ and AGLNZE. They were compiled by aggregating the balances of each entity on a line by line basis for the period from 1 July 2000 to 30 June 2001, being the period in which a prescribed relationship existed.

On 30 June 2001 AGLNZE disposed of its metering distribution business and on 25 July 2001 disposed of its distribution pipeline business. These accounts include the results of the AGLNZE distribution pipeline business from 1 July 2001 to 25 July 2001.

b) Special Purpose Financial Statements

The financial statements have been prepared in accordance with the Gas (Information Disclosure) Regulations 1997 and generally accepted accounting principles.

c) General Accounting Policies

The general accounting policies recognised as appropriate for the measurement and reporting of earnings and the financial position under the historical cost method, as modified by the revaluation of certain assets, have been followed in the preparation of these financial statements. This includes the going concern concept and the matching of revenue and expenses under the accrual concept.

d) Particular Accounting Policies

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

i) Revenues and Expenses

Revenues and expenses are stated exclusive of Goods and Services Tax (GST).

ii) Valuation of Fixed Assets

Pipelines, compressors and gate stations are recorded at the most recent valuation, adjusted by subsequent additions, disposals and depreciation. Valuations are carried out regularly and reviewed by independent experts, using the optimised deprival valuation methodology. All fixed assets other than pipelines, compressors and gate stations, are included at cost less accumulated depreciation.

Under the modified historical cost method, the revaluation, reflecting the difference between the net carrying value of the assets and the valuation (net of the deferred tax), is recorded in the asset revaluation reserve. In arriving at the net carrying value any accumulated depreciation is written back against the asset value. The revaluation increase or decrease is transferred from the revaluation reserve to retained earnings on the disposal of an asset.

Construction in progress is recorded at cost. For projects having a cost in excess of $500,000 and a construction period of not less than three months, finance costs relating to that project are capitalised. The finance costs capitalised are based on the actual cost directly attributable to the construction of the asset. Where this is not clearly identifiable, NGC’s cost of debt is used. Assets constructed by NGC are commissioned and transferred from construction in progress to fixed assets as each facility or operating unit within a facility becomes operational and available for use.