Notes to and Forming Part of the Financial Statements

For the year ended 30 June 2006

ELECTRICITY DIVISION

10. RECONCILIATION OF NZ IFRS WITH AMOUNTS PREVIOUSLY RECORDED UNDER NZ GAAP

Powerco Limited changed its accounting policies on 1 April 2004 to comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). The transition to NZ IFRS is accounted for in accordance with NZ IFRS 1 First time Adoption of New Zealand equivalents to International Financial Reporting Standards (NZ IFRS 1).

An explanation of how the transition from superseded policies to NZ IFRS has affected the company and consolidated entity’s financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.

(a) Reconciliation of Net Profit/(Loss) after Tax

NZ IFRS adjustments:

Restated balances under NZ IFRS | 33,256

(b) Reconciliation of Equity with NZ GAAP

NZ IFRS adjustments:

Deferred tax on a comprehensive basis | (17,089)

Restated balances under NZ IFRS | 418,899

(c) Reconciliation of Liabilities with NZ GAAP

NZ IFRS adjustments:

Deferred tax on a comprehensive basis | 17,088
Reclassification of deferred funding | (8,351)

Restated balances under NZ IFRS | 599,956

(d) Reconciliation of Assets with NZ GAAP

NZ IFRS adjustments:

Reclassification of deferred funding | (8,358)

Restated balances under NZ IFRS | 1,018,850

Adjustments were made at 1 April 2004 to restate the opening financial position of the company to a position consistent with the accounting policies specified in the Statements of Accounting Policies.

(a) Under superseded policies deferred tax was recognised on a partial basis. Under NZ IFRS deferred tax is determined using the balance sheet method in respect of temporary differences between the carrying amount of the asset and liabilities in the financial statements and their corresponding tax base. The adjustment represents the shift from one tax base to another.

(b) The Group elected to measure network assets on transition to NZ IFRS at fair value and has used that fair value as the item's deemed cost at that date. The effect of the revaluation is to increase the carrying value by $136.9 million (parent $128.4 million).

(c) Under superseded policies deferred funding costs were recognised as non-current assets. Under NZ IFRS deferred funding costs are included in borrowing to which they relate.

(d) The deferred tax asset under superseded policies has been reclassified to liabilities as a result of the change in the balance due to reclassification of deferred tax using the balance sheet approach.

(e) Under superseded policies the net cash balances were netted with the bank overdraft. Netting is not allowed under NZ IFRS unless it meets specific criteria. This criterion has not been met and as a result the cash and bank overdraft have been reported gross.

(f) Under the superseded policies the government grant funding was recognised on a milestone basis, whereas under NZ IFRS it is being recognised over the life of the asset to which the funding relates to.

Effect of NZ IFRS on the Cash Flow Statement

There are no material differences between the cash flow statement presented under NZ IFRS and the cash flow statement presented under the superseded policies.