VECTOR LIMITED & SUBSIDIARIES

GAS DISTRIBUTION ACTIVITIES

STATEMENT OF ACCOUNTING POLICIES

FOR THE YEAR ENDED 30 JUNE 2010

REPORTING ENTITIES

These financial information disclosure statements comprise the gas distribution activities of Vector Limited and its subsidiaries. The gas distribution activities involve the ownership and supply of pipeline function services for the distribution of gas.

Vector Limited and NGC Holdings Limited are companies registered under the Companies Act 1993. NGC Holdings Limited is a wholly owned subsidiary of Vector Limited. Vector Limited is an issuer for the purpose of the Financial Reporting Act 1993 and its statements comply with that Act. The gas distribution activities form part of that statutory entity, the financial statements of which are consolidated into the Vector Limited financial statements for the year ended 30 June 2010 which have been prepared in accordance with New Zealand International Financial Reporting Standards. These financial statements have been prepared in accordance with accounting policies detailed below and the disclosures correspond accordingly.

These financial information disclosure statements for the gas distribution activities are special purpose financial reports.

STATUTORY BASE

The consolidated financial information disclosure statements have been prepared in accordance with the requirements of the Gas (Information Disclosure) Regulations 1997.

MEASUREMENT BASE

The consolidated financial information disclosure statements are prepared on the basis of historical cost and should be read in conjunction with the accounting policies in Vector Limited’s annual report for the year ended 30 June 2010.

The avoidable cost allocation methodology (ACAM) as described in the Electricity Information Disclosure Handbook 31 March 2004 has been adopted, for the allocation of revenues, costs, assets and liabilities between the regulated activities and other activities of the company. Under the Gas (Information Disclosure) Regulation 1997, there is no mandated allocation methodology, thus ACAM as prescribed in the Electricity Information Disclosure Handbook has been applied.

The NGC gas distribution activities and the Vector gas distribution activities are treated as separate regulated standalone businesses and then consolidated for presentation in these information disclosure statements. This approach has been adopted as the Vector Auckland Gas Distribution business was subject to a provisional price control authorisation issued by the Commerce Commission (Commerce Act (Natural Gas Services) Provisional Authorisation 2005), at balance date.

The allocations have been carried out on the following basis:

• Direct allocation of all components of financial statement items which are directly attributable to the activity
• For any components of financial statement items that are not directly attributable to an activity:
  • By assessing the proportions of those components which are avoidable and non-avoidable; and
  • Allocating those components amongst the activities 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, for example IT costs and non-system asset depreciation, are separately analysed and are allocated using allocators specific to those costs.

All financial statement items not allocated to the standalone gas distribution activities, are allocated to other activities within the Vector group. Other activities are not disclosed within these consolidated financial information disclosure statements.

PRESENTATION OF FINANCIAL STATEMENTS

In accordance with the revised IAS 1 Presentation of Financial Statements (2007), which became effective for financial periods commencing on or after 1 January 2009, movements in equity resulting from transactions other than those with owners are presented in a statement of comprehensive income. Since this change in accounting policy only impacts presentation aspects, there are no impacts on the statement of comprehensive income, or the statement of financial position. Comparative information has been re-presented so that it conforms to the revised standard.

The comparative figures have been reclassified to ensure consistency with the presentation of Vector Limited statutory financial statements where required.

GOING CONCERN

The financial statements have been prepared on a going concern basis.