Vector Limited

Electricity Lines Business

Statement of Accounting Policies

For the year ended 31 March 2006

Reporting entity

The reporting entity is the electricity lines business of Vector Limited and therefore the electricity lines business adheres to the accounting policies of the Vector group. Those policies as they relate to the electricity lines business are detailed below.

Vector Limited is a company registered under the Companies Act 1993. Vector Limited is an issuer for the purpose of the Financial Reporting Act 1993 and its financial statements comply with that Act.

These financial statements are prepared for the year ended 31 March 2006 of the electricity lines business activity of Vector Limited and are Special Purpose Financial Reports as defined in the New Zealand Institute of Chartered Accountants' "Framework for differential reporting".

All prior year comparative numbers are as disclosed for the electricity lines business activity of Vector Limited for the year ended 31 March 2006.

Statutory base

These financial information disclosure statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Electricity Information Disclosure Requirements 2004.

Measurement base

The financial information disclosure statements are prepared on the basis of historical cost modified by the revaluation of certain items of property, plant and equipment as identified in specific accounting policies below.

Vector group has adopted a policy to apply the avoidable cost allocation methodology (ACAM) described in the Electricity Information Disclosure Handbook 31 March 2004, for the allocation of revenues, costs, assets and liabilities between the regulated businesses and other activities of the company.

The electricity lines business is treated as a separate regulated standalone business.

The costs have been allocated on the following basis:

• Direct allocation of all components of financial statement items which are directly attributable to the specific businesses.
• For any components of financial statement items that are not directly attributable to a specific business:
  • By assessing the proportions of those components which are avoidable and non-avoidable; and
  • Allocating those components amongst the businesses on the basis of those proportions using an appropriate cost allocator.

The two main allocators used are the number of employees and the book value of property plant and equipment. Some costs like integration costs, IT costs and non-system asset depreciation are separately analysed and are allocated using allocators specific to those costs.

All costs not allocated to the standalone electricity lines business, are allocated to other businesses within the Vector group. Other businesses are not disclosed within these financial information disclosure statements.

Allocators are also utilised to allocate balance sheet assets and liabilities that are not directly attributable to the standalone business (for instance accounts payable related to allocated cost items and goodwill). Debt and equity are allocated to the standalone business on the basis of the debt to equity ratio of the Vector group.

The Vector group has undertaken a review of the application of the ACAM methodology in the current year and adjusted some allocators used to ensure that ACAM is applied across the group in a consistent manner. These changes have not had a material impact on the results of the electricity lines business.

Specific accounting policies

The financial statements are prepared in accordance with New Zealand generally accepted accounting practice. The following specific accounting policies that materially affect the measurement of financial performance, financial position and cash flows have been applied.

a) Comparatives

Where a change in the presentational format of the financial information disclosure statements has been made during the period, comparative figures have been restated accordingly.