✨ Financial Risk Disclosures
4352 NEW ZEALAND GAZETTE, No. 155 25 NOVEMBER 2013
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
ii
Commodity risk
Commodity risk is the risk of an adverse impact in commodity prices such as prices for aluminium and copper. These are some of the raw materials used in the construction of the electricity transmission network. Generally, Transpower has contracts in which commodity risk is borne by the supplier.
iii
Customer credit risk
Transpower’s customers comprise predominantly of electricity generators, electricity distribution companies and some large industrial users. There is a high concentration of credit risk with respect to trade receivables due to the small number of significant customers from which the majority of revenue is received. It is the Group’s policy to perform credit evaluations on customers requiring credit and the Group may in some circumstances require collateral. No collateral is held at 30 June 2013 (2012: none).
Significant receivables at balance date were:
| 2013 | 2012 | |
|---|---|---|
| $M | $M | |
| Vector Limited | 16.2 | 12.1 |
| Meridian Energy Limited | 10.8 | 5.8 |
iv
Insurance risk
Transpower insures its grid assets up to a cap of $500 million under a material damage policy. From 1 September 2013, this cap was raised to $750 million. Transmission lines are not insured because the premium cost exceeds the probability of significant loss. Submarine cables are separately insured to a cap of $90 million.
Transpower operates a captive insurance company through its subsidiary Risk Re-insurance Ltd (RRL). Under the material damage policy RRL is liable for the first $3 million of insurance cost for grid assets and up to $23.75 million for submarine cables. A $1 million excess applies under the material damage policy. No excess applies under the submarine cables policy.
RRL maintains an investment portfolio to meet any insurance claims.
v
Regulatory risk
Transpower is a natural monopoly and is regulated by the Commerce Commission (CC). The CC determines what rate of return applies to Transpower’s assets. It also determines the level of operating expenditure and capital expenditure that can be recovered from customers.
There is a risk that Transpower’s rate of return may be set at too low a level to compensate Transpower for undertaking investments in grid assets. There is also a risk Transpower overspends against its operating expenditure and capital expenditure thresholds and cannot recover these costs.
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NZ Gazette 2013, No 155
✨ LLM interpretation of page content
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Transpower New Zealand Limited Statement of Accounting Policies
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🏭 Trade, Customs & IndustryFinancial Statement, Credit Spreads, Fair Value, Sensitivity Analysis, Currency Risk, Debt, Derivatives, Investments, Yield Curve, Operating Risks, Foreign Purchases, Hedge Accounting, Foreign Exchange Contracts, Commodity Risk, Customer Credit Risk, Insurance Risk, Regulatory Risk