INFORMATION FOR DISCLOSURE
PURSUANT TO SECTION 57T OF THE COMMERCE ACT 1986
PRICEWATERHOUSE COOPERS
REPORT OF THE AUDITORS
TO THE READERS OF THE FINANCIAL STATEMENTS OF TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS FOR THE YEAR ENDED 30 JUNE 2006
We have audited the financial statements of Transpower New Zealand Limited Lines Business. The financial statements provide information about the past financial performance of Transpower New Zealand Limited Lines Business and its financial position as at 30 June 2006. This information is stated in accordance with the accounting policies set out in the Statement of Accounting Policies.
Directors' responsibilities
The Commerce Commission's Electricity Information Disclosure Requirements 2004 made under section 57T of the Commerce Act 1986 require the Directors to prepare financial statements which give a true and fair view of the financial position of Transpower New Zealand Limited Lines Business as at 30 June 2006, and results of operations and cash flows for the year then ended.
Auditors' responsibilities
It is our responsibility to express an independent opinion on the financial statements presented by the Directors and report our opinion to you.
Basis of opinion
An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing:
· the significant estimates and judgements made by the Directors in the preparation of the financial statements; and
· whether the accounting policies are appropriate to Transpower New Zealand Limited Lines Business' circumstances, consistently applied and adequately disclosed.
We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary. We obtained sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements.
We carried out other assignments for Transpower New Zealand Limited in the areas of taxation compliance and other assurance services, taxation advice and financial advisory services. Other than these assignments and in our capacity as auditor, we have no relationship with or interests in Transpower New Zealand Limited.
Unqualified opinion
We have obtained all the information and explanations we have required.
In our opinion:
· proper accounting records have been kept by Transpower New Zealand Limited Lines Business as far as appears from our examination of those records; and
· the financial statements of Transpower New Zealand Limited Lines Business:
(a) comply with generally accepted accounting practice; and
(b) give a true and fair view of Transpower New Zealand Limited Lines Business' financial position as at 30 June 2006 and the results of its operations and cash flows for the year ended on that date; and
(c) comply with the Electricity Information Disclosure Requirements 2004.
Our audit was completed on 22 November 2006 and our unqualified opinion is expressed as at that date.
PricewaterhouseCoopers
PRICEWATERHOUSE COOPERS
AUDITORS OPINION ON THE PERFORMANCE MEASURES OF TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
We have examined the attached information, being:
(a) the derivation table; and
(b) the annual ODV reconciliation report; and
(c) financial performance measures; and
(d) financial components of the efficiency performance measures,
that were prepared by Transpower New Zealand Limited Lines Business and dated 22 November 2006 for the purposes of the Commerce Commission's Electricity Information Disclosure Requirements 2004.
In our opinion, having made all reasonable enquiry, to the best of our knowledge, that information has been prepared in accordance with those Electricity Information Disclosure Requirements 2004.
PricewaterhouseCoopers
PRICEWATERHOUSE COOPERS
AUDITORS OPINION ON THE VALUATION REPORT OF TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
We have examined the valuation report of Transpower New Zealand Limited Lines Business and dated November 2006, which report contains valuations of system fixed assets as at 30 June 2006.
In our opinion, having made all reasonable enquiry, and to the best of our knowledge, the valuations contained in the report, including the total valuation of system fixed assets of $2,031,000,000 have been made in accordance with the ODV Handbook.
PricewaterhouseCoopers
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
STATEMENT OF FINANCIAL PERFORMANCE
FOR THE YEAR ENDED 30 JUNE 2006
LINES BUSINESS LINES BUSINESS
2006 2005
Notes $000 $000
Operating revenue 2 507,820 510,681
Operating expenses 3 320,844 310,091
186,976 200,590
Net finance costs 5 58,511 65,841
Surplus from operations before tax 128,465 134,749
Tax expense 6 44,586 43,990
Operating surplus after tax 83,879 90,759
Net surplus attributable to shareholders 83,879 90,759
These statements are to be read in conjunction with the accompanying notes
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
STATEMENT OF MOVEMENTS IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2006
LINES BUSINESS LINES BUSINESS
2006 2005
Notes $000 $000
Equity at the beginning of the year 1,060,859 1,008,027
Net surplus attributable to shareholders 83,879 90,759
Total recognised revenue and expenses for the year 83,879 90,759
Dividends paid 15 (6,414) (37,927)
Equity at the end of the year 1,138,324 1,060,859
These statements are to be read in conjunction with the accompanying notes
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2006
LINES BUSINESS LINES BUSINESS
2006 2005
Notes $000 $000
ASSETS EMPLOYED
Current assets 7 81,373 71,340
Fixed assets 8 2,175,521 2,071,103
Other long term assets 9 540,350 541,710
Total Assets Employed 2,797,244 2,684,153
FUNDS EMPLOYED
Liabilities
Current liabilities 10 231,666 202,070
Other long term liabilities 2,803 1,502
Long term lease liabilities 11 1,913 -
Long term debt 12 1,422,538 1,419,722
Total Liabilities 1,658,920 1,623,294
Equity
Capital 13 1,200,000 1,200,000
Accumulated deficit 14 (61,676) (139,141)
Total Equity 1,138,324 1,060,859
Total Funds Employed 2,797,244 2,684,153

These statements are to be read in conjunction with the accompanying notes
The Board of Directors of Transpower New Zealand Limited authorised these financial statements for issue on 22 November 2006.
For, and on behalf of, the Board
David Gascoigne Mark Tume
Chairman Director
22 November 2006
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2006
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
CASH FLOW FROM OPERATIONS
Cash was provided from:
Receipts from customers 503,885 517,487
Interest received 35,021 33,933
Cash was applied to:
Payments to suppliers and employees (166,076) (190,482)
Tax payments (48,426) (49,676)
Interest paid (100,540) (104,668)
Net cash inflows from operations 223,864 206,594
CASH FLOW FROM INVESTMENTS
Cash was provided from:
Sale of assets 3,514 191
Short term investments 421,574 710,079
Cash was applied to:
Purchase of fixed assets (225,387) (99,876)
Short term investments (421,574) (710,069)
Net cash outflows from investments (221,873) (99,675)
CASH FLOW FROM FINANCING
Cash was provided from:
Increase in loans 889,526 747,796
Cash was applied to:
Dividends paid (6,414) (37,927)
Repayment of loans (884,099) (816,426)
Net cash outflows from financing (987) (106,557)
Net increase/(decrease) in cash held 1,004 362
Opening balance brought forward 1,084 722
Closing net cash carried forward 2,088 1,084
Closing net cash carried forward comprises:
Cash and bank 2,088 1,084
Bank overdraft - -
2,088 1,084
These statements are to be read in conjunction with the accompanying notes
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
STATEMENT OF CASH FLOWS continued
FOR THE YEAR ENDED 30 JUNE 2006
RECONCILIATION OF "OPERATING SURPLUS AFTER TAX" WITH "NET CASH FLOW FROM OPERATIONS"
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
Operating surplus after tax 83,879 90,759
Add/(deduct) non-cash items:
Depreciation 117,639 114,401
Capitalised interest (6,299) (3,262)
Movements in working capital items:
Decrease/(increase) in trade and other receivables (9,464) 8,322
Decrease/(increase) in prepayments 515 (74)
Decrease/(increase) in stocks of materials 1,813 4,032
(Decrease)/increase in trade and other
liabilities, interest payable and deferred income 20,710 (2,043)
(Decrease)/increase in taxation payable (3,840) (5,686)
Increase/(decrease) in provisions 9,489 (5,716)
Add/(deduct) items classified as investing activities:
Fixed asset write-offs and loss on sale 9,422 5,861
Net Cash Flow from Operations 223,864 206,594
These statements are to be read in conjunction with the accompanying notes
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2006
1. STATEMENT OF ACCOUNTING POLICIES
Reporting Entity
These financial statements are for the lines business of Transpower New Zealand Limited
Line Business (The Transpower Lines Business).
The financial statements are presented in accordance with the State-Owned Enterprises Act
1986, the Financial Reporting Act 1993 and the Electricity Information Disclosure Requirements 2004.
The Electricity Information Disclosure Handbook has been followed in the preparation
of these financial statements.
The avoidable cost allocation methodology (ACAM) is used for allocating costs and assets
and liabilities between the Lines business and Other businesses.
Measurement Base
The measurement basis is historical cost except as modified by the revaluation of certain
assets and investments.
Accounting Policies
The following accounting policies are applied:
(a) Principles of Consolidation
The Transpower Lines Business financial statements are prepared from the financial
statements of Transpower and its subsidiaries which undertake lines business
activities, as at 30 June 2006. The purchase method is used to consolidate subsidiary
companies. All significant transactions between group companies are eliminated on
consolidation.
(b) Revenue
Revenue shown in the Statement of Financial Performance comprises the
amounts received and receivable by the Transpower Lines Business for
transmission services. Dividends received and interest income from investments
are included within net finance costs.
(c) Goods and Services Tax (GST)
The Statement of Financial Performance and the Statement of Cash Flows have
been prepared so that all components are stated exclusive of GST. All items in the
Statement of Financial Position are stated net of GST with the exception of
receivables and payables which include GST invoiced.
(d) Current Assets
Receivables are stated at their estimated net realisable value.
Short term investments are recorded at their original cost which is adjusted for
the amortisation of premiums and accrual of discounts to maturity.
Stocks of materials are valued at the lower of cost, calculated on the weighted
average cost basis and estimated net realisable value.
(e) Investments
Investments are recorded at the lower of cost and net realisable value.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
(f) Fixed Assets
Historical Cost Measurement
Fixed assets are recorded at cost less accumulated depreciation. In respect of assets
acquired prior to 1 July 2003, cost represents the valuation of those assets at 30 June
2003. In respect of assets acquired after 1 July 2003 cost is determined by including
all costs directly associated with bringing the fixed assets to their location and condition.
When the carrying amount of an asset is greater that its estimated recoverable amount,
it is written down to its recoverable value.
Capital Work in Progress
Capital work in progress is recorded at cost. Cost is determined by including all costs
directly associated with bringing the fixed assets to their location and condition. Finance
costs incurred during the period of time that is required to complete and prepare the
fixed asset for its intended use are capitalised as part of the total cost for capital work
in progress.
The finance costs capitalised are based on Transpower's weighted average cost of capital.
Assets are transferred from capital work in progress to fixed assets as they become
operational and available for use.
(g) Depreciation
Depreciation of fixed assets is calculated using the straight line
method to allocate the cost or valuation of the fixed assets over their expected
useful lives, after due allowance for their expected residual value. The estimated
economic lives are as follows:
Transmission lines 20-70 years
Freehold buildings 20-55 years
Substations 15-55 years
HVDC 30 years
Communications 10-25 years
Administration assets 3-10 years
(h) Leased Assets
The Transpower Lines Business leases certain plant, equipment, land and buildings.
Finance leases effectively transfer substantially all of the risks and benefits incidental
to the ownership of the leased item to the entity. Assets acquired by means of a finance
lease are capitalised at the lower of the fair value of the asset and the present value of the
minimum lease payments. Leased assets are depreciated over their economic lives. A
corresponding liability is also established at the inception of each lease and each lease
payment is allocated between the liability and finance costs.
Under operating leases all the risks and benefits of ownership are effectively
retained by the lessor. Operating lease payments are representative of the pattern
of benefits derived from the leased assets and are accordingly recognised in the
Statement of Financial Performance as expenses, in the period in which they
are incurred.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
(i) Statement of Cash Flows
The following are the definitions of the terms used in the Statement of Cash
Flows:
(i) Cash and bank means coins, notes and demand deposits. Cash includes
liabilities which are the negative form of the above, such as the bank
overdraft.
(ii) Operations comprise the transmission of bulk electricity, and the related
support, maintenance, administration and interest costs.
(iii) Investments comprise the purchase, holding and disposal of
fixed assets and investments. Capitalised interest on capital work in
progress is also included in investing activities.
(iv) Financing include changes in equity, borrowings and dividends paid on equity.
(j) Taxation
The Transpower Lines Business follows the liability method of accounting for deferred tax
applied on a partial basis.
The tax expense charged against the surplus for the year is the estimated liability in
respect of that surplus after allowance for permanent differences plus any
adjustments arising from prior years.
The partial basis considers the cumulative income tax effect of all timing differences.
The income tax effect of timing differences is only recognised as deferred tax for
those timing differences that can be expected to reverse in the foreseeable future.
Timing differences that are not recognised in the Statement of Financial Position are
disclosed in the Deferred tax liability memorandum account in Note 6.
Future tax benefits attributable to losses carried forward are recognised in the
financial statements only where there is virtual certainty that the benefit of the
losses will be utilised.
(k) Foreign Currencies
Transactions denominated in a foreign currency are converted at the exchange rate
at the date of the transaction. Monetary assets and liabilities at balance date are
translated at exchange rates current at balance date. Where transactions are
hedged they are translated at the hedge rate.
Gains and losses due to currency fluctuations on foreign currency receivables and
payables are included in the Statement of Financial Performance.
Exchange differences and associated costs on hedging transactions undertaken to
establish the price of a particular purchase are deferred and are included in the
measurement of the purchase transaction as at the transaction date.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
(l) Financial Instruments
Derivative financial instruments including foreign exchange contracts, forward rate
agreements, foreign exchange options, cross currency interest rate swaps, interest rate
swaps and interest rate options which are entered into for the purpose of reducing exposure
to fluctuations in interest rates and foreign exchange rates. While these financial
instruments are subject to the risk that market rates will change subsequent to acquisition,
such changes would generally be offset by an opposite effect on the items being hedged.
For interest rate swaps, the differential to be paid or received is accrued as interest
rates change and is recognised as a component of interest and expensed over the life
of the swap. Premiums paid on interest rate options are amortised over the period
to maturity. The settlement cash flows on the maturity of forward rate agreements
are amortised over the period of the underlying asset or liability that the financial
instrument is hedging.
Foreign exchange contracts and cross currency interest rate swaps entered into as
hedges of foreign currency assets and liabilities are valued at exchange rates
prevailing at balance date. Any unrealised gains and losses are offset against foreign
currency gains or losses on the related asset or liability.
Additional information about financial instruments to which the Transpower
Lines Business is a party is provided in Note 20.
(m) Reclassifications
Certain reclassifications of prior year balances have been made to conform with current year
classifications.
Changes in Accounting Policies
There has been no change in accounting policies during the year.
The Impacts of Adopting New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS)
In December 2002 the Accounting Standards Review Board announced that New Zealand entities required to comply with
New Zealand Generally Accepted Accounting Practice (NZ GAAP) under the Financial Reporting Act 1993 would be
required to apply New Zealand International Financial Reporting Standards (NZ IFRS). The new standards are able to
be applied for periods beginning on or after 1 January 2005. Mandatory application of the new standards is required for
periods beginning on or after 1 January 2007.
Transpower has elected to adopt NZ IFRS for the financial year beginning 1 July 2007 with comparatives required to be
restated on initial adoption. Transpower has commenced a project assessing the impacts of changes in accounting
standards on Transpower and designing and implementing processes to deliver NZ IFRS compliant financial reporting as
well as dealing with any related business impacts.
Transition from existing NZ GAAP to NZ IFRS will be made in accordance with NZ IFRS 1 "First-time Adoption
of New Zealand Equivalents to International Financial Reporting Standards". Upon adoption of NZ IFRS, comparative
information will be restated to conform with the requirements of NZ IFRS and the impact that adoption of NZ IFRS
has had on Transpower's financial statements will be set out.
The material areas of difference identified to date between existing NZ GAAP and NZ IFRS are detailed below. This
list is intended to be a summary of the potential significant impacts resulting from transition to NZ IFRS. The differences
below should not be taken as an exhaustive list of all significant differences between existing NZ GAAP and NZ IFRS.
We note the quantitative impact has yet to be calculated.
We note the NZ IFRS standards are subject to ongoing review by the Company and industry. Furthermore NZ IFRS,
and interpretations of NZ IFRS continue to be reviewed and new standards issued. As a result the effect of the actual
impact of adopting NZ IFRS may vary from the estimates indicated below, and the differences may be material.
Financial Instruments
Transpower economically hedges against the vast majority of its interest rate and currency risk using derivatives.
NZ IFRS requires derivative financial instruments to be recognised in the balance sheet at fair value. Transpower has
elected to also fair value its net debt portfolio. Subsequent to transition, changes in fair value of both the derivatives
and the net debt will flow through to the income statement. This will create some volatility in the income statement
as market prices change. Under existing NZ GAAP, financial instruments, including derivatives, are included at their fair
value in the notes to the financial statements. Material foreign purchases which are economically hedged will be accounted
for as hedges under NZ IAS 39 where possible. The changes in hedged terms will flow through the income statement but
will offset to the extent that they qualify for fair value hedges in accordance with NZ IAS 39.
Taxation
Transpower currently accounts for tax using the liability method applied on a partial basis. This means that deferred
tax is not recognised if the timing difference is not expected to reverse in the foreseeable future. This amount is disclosed
in the notes to the financial statements. NZ IFRS requires that all deferred tax be recognised in the balance sheet. Also,
the tax basis will change from the current "income statement" approach to a "balance sheet" approach. The net effect
of these changes will mean that Transpower will have to recognise its deferred tax liability in the balance sheet.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
2. OPERATING REVENUE
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
Transmission services revenue 506,285 509,417
Other revenue 1,535 1,264
Total operating revenue 507,820 510,681
Transmission services revenue consists of charges for the transmission of electricity from the
point of generation to the point of supply.
Electricity regulations additional disclosures:
Revenue provided to Lines Business from Other Transpower Businesses 229 229
Revenue - AC loss rental rebates 88,660 58,690
Expense - AC loss rental rebates (88,660) (58,690)
AC loss rental rebates not passed through to customers - -
3. OPERATING EXPENSES
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
Business support costs 33,274 33,249
Asset operation and maintenance costs 140,965 152,499
Industry Levies 10,406 5,777
Charges in respect of assets:
Depreciation - Buildings 2,808 2,540
Depreciation - Substations 37,247 36,107
Depreciation - HVDC 24,884 24,379
Depreciation - Communication assets 7,036 7,853
Depreciation - Administration assets 11,490 11,345
Depreciation - Transmission lines 34,174 32,177
Stock and asset write-offs 9,422 5,861
Charges in respect of receivables:
Bad debts written off 14 -
Movement in the provision for doubtful debts - -
Provision for industry related costs - (10,000)
Directors' fees 336 306
Study grants and donations 802 840
Lease and rental costs 7,986 7,158
Total operating expenses 320,844 310,091
Net loss on the disposal of assets included in stock and asset write-offs:
Net loss on the disposal of assets 9,422 5,861
9,422 5,861
Electricity regulations additional disclosures:
Employee salaries and redundancies 37,260 36,878
Human resource expenses 5,675 5,692
Marketing / advertising expenses 1,266 556
Legal and consultancy expenses 11,213 7,574
Corporate and administration expenses 19,885 19,326
Transfer payments to "Other Transpower Businesses"
Payment for metering data 1,825 1,333
Payment for IT support 274 -
Payment for insurance 10,206 10,595
Total transfer payments to "Other Transpower Businesses" 12,305 11,928
Local authority rates expense 2,341 1,864
Consumer billing and information system expense 224 1,132
Depreciation of system assets 104,737 101,026
Depreciation of other assets 12,902 13,375
Total depreciation 117,639 114,401
Bad debts written off 14 -
Movement in the provision for doubtful debts - -
Total cost of offering credit 14 -
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
4. REMUNERATION OF AUDITORS LINES BUSINESS LINES BUSINESS
2006 2005
Fees paid or payable to the auditors of the annual report $000 $000
As auditor of Transpower and Transpower subsidiaries 197 183
For other services
Other assurance-oriented assignments 36 10
233 193
Fees paid to other auditors
As auditor of Transpower and Transpower subsidiaries - -
For other services
Reporting engagements other than the annual report 241 146
Assistance to internal audit function 374 157
Other assurance-oriented assignments 131 268
Other 1,190 250
1,936 821
5. NET FINANCE COSTS
Finance costs 99,831 103,036
Capitalised interest (6,299) (3,262)
Interest received (35,021) (33,933)
Net finance costs 58,511 65,841
Total operating expenses 320,844 310,091
Net finance costs 58,511 65,841
Total expenses including net financing costs 379,355 375,932
6. TAXATION
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
Operating surplus before tax 128,465 134,749
Prima facie tax at 33% 42,393 44,467
Tax effect of:
Timing differences not recognised
- current period excluding revaluation adjustment 4,964 (3,078)
- current period revaluation adjustment - -
Permanent differences - -
Income tax charge in respect of
the current year 47,357 41,389
Under / (over) provision in prior years (2,771) 2,601
Tax expense 44,586 43,990
The income tax charge is represented by:
Tax payable in the current year 44,586 42,652
Deferred tax - 1,338
44,586 43,990
Deferred tax asset
Balance at the beginning of the year - 1,338
Increase in deferred tax asset - (1,338)
Balance at the end of the year - -
Deferred tax liability memorandum account
Balance at the beginning of the year 154,472 151,394
Increase (reduction) in deferred tax liability (4,964) 3,078
Balance at the end of the year 149,508 154,472
These timing differences predominantly relate to depreciation and are not recognised
in the financial statements.
Imputation credit memorandum account
Balance at the beginning of the year 109,631 78,635
Tax payments made 48,426 49,676
Imputation credits attached to dividends
paid to shareholders (3,159) (18,680)
Balance at the end of the year 154,898 109,631
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
7. CURRENT ASSETS
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
Cash and bank 2,088 1,084
Short term investments - -
Trade receivables 59,465 52,341
Provision for current tax 11,305 7,465
Deferred tax - -
Other receivables 1,574 1,181
Stocks of materials 5,025 6,838
Prepayments 1,916 2,431
Total current assets 81,373 71,340
Reconciliation of provision for current tax:
Balance at the beginning of the year (7,465) (441)
Tax payable in the current year (refer Note 6) 44,586 42,652
Provisional tax (payments) refunds made during the year (48,426) (49,676)
Balance at the end of the year (11,305) (7,465)
8. FIXED ASSETS Cost Accumulated Depreciation Net Book Value Net Book Value
2006 2006 2006 2005
$000 $000 $000 $000
Transmission lines 476,237 64,387 411,850 405,503
Leased Transmission Lines 385,654 33,575 352,079 357,781
Freehold land 77,257 - 77,257 54,008
Freehold buildings 47,471 7,748 39,723 36,694
Leased substation buidings 5,154 568 4,586 4,563
Substations 755,297 85,176 670,121 651,688
Leased substations 166,827 20,659 146,168 146,292
HVDC 59,869 29,945 29,924 39,334
HVDC leased assets 222,798 41,136 181,662 194,883
Communications 58,865 15,680 43,185 43,506
Administration assets 45,257 37,097 8,160 20,901
Capital work in progress 210,806 - 210,806 115,950
Total fixed assets 2,511,492 335,971 2,175,521 2,071,103
Administration assets include plant, equipment, furniture and motor vehicles.
Capital work in progress comprises the following asset classes:
Transmission lines 90,496 38,243
Freehold land and buildings 21,763 5,212
Substations 71,810 53,617
HVDC 3,155 3,336
Communications 2,609 4,496
Administration assets 20,973 11,046
210,806 115,950
During the year the following borrowing costs were capitalised:
Transmission lines 2,940 1,076
Freehold land and buildings 895 146
Substations 2,114 1,508
HVDC 145 94
Communications 30 126
Administration assets 175 322
6,299 3,272
Electricity regulations additional disclosures:
Motor vehicles 705 739
Office equipment 1,841 1,469
Customer billing and information assets - -
Transpower lines business system fixed assets have a value in these financial statements of $1,919 million (2005: $1,899 million).
9. OTHER LONG TERM ASSETS
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
Structured financing transaction assets 532,700 532,700
Trade receivables greater than one year 7,650 9,010
540,350 541,710
The structured financing transaction assets are discussed in Note 12.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
10. CURRENT LIABILITIES
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
Bank overdrafts - -
Trade creditors 29,160 15,279
Interest payable 9,045 9,754
Employee entitlements 8,469 7,418
Other creditors and provisions 36,031 26,542
Short term debt 24,819 34,720
Current portion of long term debt 105,648 95,392
Deferred income 18,494 12,965
Total current liabilities 231,666 202,070
11. LONG TERM LEASE LIABILITIES
Long term lease liabilities payable:
One to two years 190 -
Two to five years 612 -
Later than five years 1,111 -
1,913 -
The HVDC converter plants at the Haywards and Benmore substations were previously
leased to a subsidiary company Haywards Limited, by ECNZ. The equipment was then
sub-leased by Haywards Limited to Transpower. The head lease arrangement was renegotiated
in the year ended 30 June 1997 with a third party and became subject to a cross border lease.
The submarine cables are subject to a cross border lease arrangement entered into by Oteranga
Bay Limited in the period ended 30 June 1996.
The majority of the AC transmission assets in the South Island are subject to a cross border lease
arrangement entered into by Halfway Bush Finance Limited and TB and T Limited in the period
ended 30 June 2004.
The Transpower Lines Business does not recognise a lease liability with respect to these
cross border leases as all obligations have been prepaid to the respective lessors for all rental
payments in respect of the primary period.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
12. LONG TERM DEBT
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
The following loan arrangements included within long
term debt have a face value as follows:
Bonds 350,000 400,000
Euro Medium Term Notes 271,047 183,903
US Private Placement 164,474 164,474
Structured financing transaction liability 732,700 732,700
1,518,221 1,481,077
Less unamortised discount (1,531) (2,323)
1,516,690 1,478,754
Less current portion of long term debt (105,648) (95,392)
1,411,042 1,383,362
Between one to two years 732,700 105,394
Between two to five years 265,536 767,100
Greater than five years 412,806 510,868
Long term debt 1,411,042 1,383,362
Add debt allocated (to) from non-lines businesses* 11,496 36,360
Total Long Term Debt 1,422,538 1,419,722
*These financial statements have been prepared by adjusting the Transpower Group
financial statements for non lines business items included in those financial
statements.
The nature of security provided against amounts borrowed is as follows:
Bonds
Bonds are issued under a trust deed dated 6 April 1995 between Transpower, the Initial
Guaranteeing Subsidiaries (including Transpower Finance Limited) and The New
Zealand Guardian Trust Company Limited. The trust deed has been amended on
various occasions to incorporate new subsidiaries into the Guaranteeing Group.
Pursuant to the trust deed, Transpower and its fellow subsidiaries
excluding Risk Reinsurance Limited, Benmore Finance and Bunnythorpe Holdings
(the "Guaranteeing Group") have given a negative pledge that while any of the stock
issued under the trust deed remains outstanding they will not, subject to certain exceptions,
create or permit to exist any charge or lien over any of their respective assets.
Each member of the Guaranteeing Group has guaranteed all amounts payable on
redemption or repayment of the Bonds and the payment of interest during the term of the
Bonds.
Euro Medium Term Notes
Under the Euro Medium Term Note programme Transpower Finance Limited may
from time to time issue notes guaranteed by Transpower. The aggregate principal
amount of the notes outstanding will not at any time exceed US$1,000,000,000
(NZ$1,636,929,000) as at June 2006, US$1,000,000,000 (NZ$1,427,348,000) as at
30 June 2005 or equivalent in other currencies. The Guarantor (Transpower) and
Transpower Finance Limited have given a negative pledge and guarantee payment of
all principal and interest amounts.
Australian Medium Term Notes
Under the Australian Medium Term Note programme, Transpower Finance Limited may
issue notes guaranteed by Transpower New Zealand Limited. The aggregate principal
amount of the notes outstanding may not exceed AU$750,000,000 (NZ$911,995,000).
There were no Australian Medium Term notes outstanding as at 30 June 2006 (2005: nil).
US Private Placement
Bonds are issued by Transpower Finance Limited under a Note and Guarantee Agreement
dated 27 September 2004. The bonds are guaranteed by Transpower (the "Guarantor"),
Fighting Bay Finance Limited, Haywards Limited, Oteranga Bay Limited, Omaka Training Limited,
Energy Market Services Limited, Aratiatia Holdings Limited, Halfway Bush Finance Limited and
TB and T Limited (the "Subsidiary Guarantors"). The Guarantor and Subsidiary Guarantors
have unconditionally guaranteed payment of the principal, interest and other amounts owing
under the Agreement.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
12. LONG TERM DEBT continued
Structured Financing Transaction
In 2002, Transpower entered into a transaction which raised gross funds of $732,700,000 of which
$532,700,000 was on-lent to financial institutions. The economic substance of the transaction, is
that the Lines Business has a net obligation of $200,000,000.
13. CAPITAL
Transpower's share capital consists of 1,200,000,000 (2005: 1,200,000,000) issued and fully paid
ordinary shares which confer on the holders the right to vote at any annual general meeting of Transpower.
All ordinary shares rank equally.
14. ACCUMULATED DEFICIT
Balance at the beginning of the year (139,141) (191,973)
Operating surplus after tax 83,879 90,759
Accumulated deficit before dividends paid (55,262) (101,214)
Dividends paid (6,414) (37,927)
Balance at the end of the year (61,676) (139,141)
15. DIVIDENDS TO THE SHAREHOLDER
Final dividend paid 6,414 37,927
Interim dividend paid - -
6,414 37,927
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
16. CAPITAL COMMITMENTS LINES BUSINESS LINES BUSINESS
2006 2005
Capital commitments in respect of $000 $000
contracts for capital expenditure:
Within one year 40,260 13,589
One to two years - 2,412
Two to five years - -
Total capital commitments 40,260 16,001
17. OPERATING LEASE COMMITMENTS
Commitments in respect of non-cancellable
operating leases payable:
Within one year 4,932 3,196
One to two years 4,922 3,104
Two to five years 11,631 8,784
Later than five years 12,338 12,852
Total operating lease commitments 33,823 27,936
18. CONTINGENT LIABILITIES
(i) Guarantees
Cross Border Lease
Transpower has entered into three cross border leases in respect of certain HVDC converter
stations, the submarine cables and the majority of the AC transmission assets in the South Island.
The nature of these transactions is described in Note 11.
Transpower has given guarantees and certain undertakings in accordance with a limited
guarantee dated 24 October 1996 in respect of certain HVDC converter stations, a limited
guarantee dated 31 May 1996 in respect of the submarine cables and a limited guarantee
dated 22 December 2003 in respect of the South Island AC assets.
The likelihood of losses in respect of these matters is considered to be remote.
Debt
Transpower has provided guarantees in respect of loan arrangements for the Bonds,
Euro medium term notes and Australian medium term notes as described in Note 12.
The maximum exposure under each of these guarantees is as follows:
Bonds 348,233 397,681
Euro Medium Term Notes 271,283 183,178
Australian Medium Term Notes - -
US Private Placement 164,474 164,474
The likelihood of losses in respect of these matters is considered to be remote.
(ii) Todd Energy and Kiwi Co-operative Dairies Claim
Todd Energy Limited (Todd) and Kiwi Co-operative Dairies Limited have commenced a claim against
both Transpower and Powerco Limited alleging breaches of the Commerce Act 1986.
Kiwi Co-operative Dairies Limited has since withdrawn from the proceedings. Todd is seeking
declarations, injunctions and damages in an amount that it has indicated it will quantify two months
before trial (plus interest and costs). Transpower has filed a statement of defence and believes that it
has not breached the Commerce Act in any respect. Transpower applied to the High Court for
summary judgement and strikeout against Todd on the grounds that there is no arguable basis for
Todd's claim. The High Court struck out one of Todd's causes of action against Transpower in
April 2005. Transpower is appealing the High Court decision (in respect of the remaining two causes
of action that were not struck out) to the Court of Appeal (and Todd has cross-appealed).
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
18. CONTINGENT LIABILITIES continued
(iii) Economic Gain (Loss) Account
Transpower operates its revenue setting methodology within an Economic Value ("EV") framework that analyses
economic gains and losses between those attributable to shareholders and those attributable to customers. The
balance of the accumulated gain (loss) from monopoly activities attributable to customers ("the EV balance")
has been passed on or claimed from customers over time.
The EV balance at 30 June 2006 has yet to be calculated. The balance of the EV account at 30 June 2005
was $98,740,000 to the credit of the customer.
(iv) Administrative settlement and Customer Rebates
On 23 December 2005 the Commerce Commission (the Commission) published notice of its intention to make a
declaration of control of Transpower under Part 4A of the Commerce Act.
On 27 January 2006 the Commission published a paper setting out its draft reasons for forming an intention to
declare control.
Transpower disagreed with the Commission's preliminary conclusions and the reasons, and provided the Commission
with detailed written submissions setting out Transpower's views on the matter. Transpower also provided the
Commission with a number of reports prepared by independent experts, which supported Transpower's views.
On 31 March 2006, the Commission and Transpower reached agreement whereby: (a) the Commission agreed
to delay its decision on whether to impose control and to provide Transpower with an opportunity to put forward
an administrative settlement proposal and (b) Transpower agreed to invoice customers in accordance with notified
2006/07 prices, but provide a credit note that effectively restored customer charges to the level applicable in March 2006.
Transpower has issued credit notes for $22.4m for the period April to June 2006.
Depending upon the outcome of the administrative settlement Transpower's Transmission revenue for the period
April to June 2006 may vary from that invoiced and disclosed in Note 2.
(v) 400kV project
On 30 September 2005 Transpower submitted its Grid Upgrade Plan. This included the North Island 400kV project,
being the line proposed between Whakamaru and South Auckland. On 27 April 2006 the Electricity Commission (EC)
issued a draft "no" to Transpower's 400kV proposal, on the basis that there were more economic alternatives.
Transpower disputed the EC findings and intends to submit a revised project to the EC in the near future. To date,
including property purchases, Transpower has capitalised some $46.8 million of costs relating to the 400kV project.
The vast majority of these costs are expected to be recycled into a revised project that is acceptable to the EC. In the
event that there is no line constructed between Whakamaru and South Auckland then Transpower would face a
write-down in the value of the Capitalised Costs. No such provision for any write-down has been made for the June
2006 financial statements.
(vi) Various other lawsuits, claims and investigations
Various other lawsuits, claims and investigations have been brought or are pending against Transpower.
The Directors of Transpower cannot reasonably estimate the adverse effect (if any) on Transpower
if any of the foregoing claims are ultimately resolved against Transpower's interests.
19. SEGMENTAL INFORMATION
The Transpower Lines Business operates predominantly in one industry, the transmission of
high voltage electricity. Transpower's operations are carried out in New Zealand and
are therefore within one geographical segment for reporting purposes.
20. FINANCIAL INSTRUMENTS
(a) Financial risks
The Transpower Group is subject to a number of financial risks which arise as a result of its business
activities, including having a debt portfolio of $1,541,509,000 as at 30 June 2006 ($1,513,474,000 as
at 30 June 2005) denominated in both New Zealand dollars and foreign currency, making purchases
from foreign suppliers and having contractual agreements with customers. These financial risks comprise:
Interest rate risk
Interest rate risk is the risk of adverse impact on the present and future finance costs of
the Group arising from the interaction of interest rate movements with
the Transpower Group's debt portfolio.
Currency risk
Currency risk is the risk of adverse impact of exchange rate movements, which determine the
New Zealand dollar cost of foreign denominated expenditures and the New Zealand dollar value
of debt issued in foreign currencies.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
20. FINANCIAL INSTRUMENTS continued
Credit risk
Credit risk is the risk of adverse impact on the Transpower Group through the failure of a third party
bank, financial institution or customer to meet its financial obligations. Financial instruments
which subject the Transpower Group to credit risk include bank balances, receivables, investments,
interest rate swaps, cross currency interest rate swaps, interest rate options, forward rate
agreements, foreign exchange and forward contracts.
Liquidity risk
Liquidity risk is the risk of adverse impact on the Transpower Group arising from the Group's
inability to meet its monetary obligations in an orderly manner. This might result from
the Group not maintaining adequate funding facilities or being unable to renew or
replace existing facilities when they mature.
To manage and limit the effect of these financial risks the Transpower Board of Directors has
approved policy guidelines and authorised the use of various financial instruments. The policy
adopted by the Board prohibits the use of financial instruments for speculative purposes. All off
balance sheet financial instruments must be directly related to underlying physical debt or firm
capital commitments on Board approved projects.
(b) Risk management policies
The key risk management policies are as follows:
Interest rate risk management policy
The Group's policy sets annual minimum and maximum hedging parameters expressed as a
percentage of forecast debt out to 10 years. This policy ensures that the Group's costs of funds
will be reasonably predictable from year to year.
Currency risk management policy
The Transpower Group's policy is to hedge all material foreign currency denominated purchases.
Foreign currency borrowings are hedged into New Zealand dollars at the time of
commitment to drawdown by the Transpower Group. Currency risk is eliminated using
cross currency interest rate swaps.
Credit risk management policy
The Transpower Group's credit policy is to establish credit limits with counterparties that
are either a bank, a financial institution or special purpose derivative products
company. These net credit limits are not to exceed 20 per cent of Transpower Group
shareholders' funds or 15 per cent of the shareholders' funds of the counterparty as
shown in the most current annual report. If the counterparty is a New Zealand
Corporate, the credit limit is not to exceed NZ$40,000,000.
In addition, the counterparty must have a minimum long term credit rating of
A or above by Standard & Poor's, or Moody's equivalent.
Credit limits are monitored on a daily basis.
The concentration of credit risk with respect to trade receivables is high due to the
small number of customers comprising the Group's customer base. 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 2006 (30 June 2005: nil).
Liquidity risk policy
To ensure the Group has adequate funding facilities in place to support future
operations, the Group's liquidity policy requires the Group to have access to
committed debt facilities (i.e. guaranteed funds) that exceed the peak cumulative
anticipated financing and operating cash flow requirements excluding long term debt
over the next six months by 20 per cent. To smooth the Group's refinancing
requirements in future periods, committed debt facilities maturing in any 12 month
period are not to exceed NZ$350,000,000. No more than 50% of debt facilities can mature
within the next three years and at least 20% of debt facilities must mature after five years.
c) Financial instruments which manage currency, interest rate and liquidity risk
The Directors have authorised the use of the following financial instruments
to manage currency risk, interest rate risk and liquidity risk:
On Balance Sheet financial assets and liabilities
Term debt
The Transpower Group has five active debt facilities; a European Commercial Paper programme,
a Euro Medium Term Note programme, a Domestic Medium Term Note programme, an
Australian Medium Term Note programme and a Domestic Multi-option Facility.
The Group uses these facilities to issue debt securities into different global debt markets.
In the event the Transpower Group is unable to utilise these facilities the Group has established
a committed credit facility. This is a Standby Facility for NZ$250,000,000 which was not in use
at 30 June 2006 or 30 June 2005.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
20. FINANCIAL INSTRUMENTS continued
Term investments
The Transpower Group from time to time invests surplus cash arising from its core operations
and from active liquidity management in wholesale bank deposits and securities for periods
of up to one year.
Off Balance Sheet financial assets and liabilities
Interest rate swaps
Interest rate swaps are used to change the interest rate structure on physical debt
issued by the Group. The interest rate on debt is either converted from floating rate
to fixed rate or vice versa through entering into an interest rate swap. In the
normal course of the Group's hedging activities interest rate swaps are entered into for
periods of up to ten years.
The notional gross contract amounts of interest rate swaps outstanding at balance date are:
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
Interest rate swaps 2,752,500 1,877,500
Cross currency interest rate swaps
Cross currency interest rate swaps are used to convert foreign currency denominated
debt issued by the Group into New Zealand dollar denominated debt. Cross currency interest
rate swap contracts eliminate foreign currency risk on the underlying debt by determining
the New Zealand dollar equivalent of the interest payments and final principal exchange at the time
of entering into the contract.
The principal amounts of cross currency interest rate swaps outstanding at balance date
are:
Cross currency interest rate swaps
Principal receivable 410,035 369,194
Principal payable (441,977) (438,773)
Forward rate agreements
Forward rate agreements are used to fix interest rates on the underlying debt for periods
commencing in the future. In the normal course of business the Group enters into
forward rate agreements to fix interest rates on floating rate debt for intervals
of three months.
The notional contract amounts of forward rate agreements outstanding as at 30 June 2006 was nil (2005; nil)
Interest rate options
The Group enters into interest rate options to manage interest rate repricing risk.
The Group purchases interest rate options to minimise the impact on finance costs
arising from floating rate debt if interest rates were to rise in the future. In the normal course
of interest rate management, the sale of interest rate options is restricted by the requirement
to simultaneously purchase an interest rate option.
The notional contract amounts of interest rate options outstanding as at 30 June 2006 was nil (2005; nil)
Foreign exchange forward contracts
The Transpower Group uses foreign exchange forward contracts to fix the New Zealand dollar cost of
foreign denominated capital equipment and stock purchases.
The contract amount of forward foreign exchange contracts
outstanding at balance date are:
Forward foreign exchange contracts 6,413 7,073
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
20. FINANCIAL INSTRUMENTS continued
(d) Maximum credit risk exposure
The maximum credit exposure in respect of on balance sheet assets is best represented by
their carrying value. For other financial instruments the maximum credit exposure is best
represented by the net marked to market valuation by counterparty where the valuation is
positive, as follows:
LINES BUSINESS LINES BUSINESS
2006 2005
$000 $000
Interest rate swaps 14,750 179
Cross currency interest rate swaps 912 3,754
Foreign exchange forward contracts 314 170
The credit risk arising from the use of derivative products is minimised by the netting and
set-off provisions of the documentation and the application of applicable law. The Group
further manages this risk by only entering into transactions with counterparties that fall within
the Group's credit risk management policy as outlined in section (b) Risk management policies, of
this note.
(e) Carrying value and fair value
Carrying value
For off balance sheet financial instruments the carrying value in the Carrying/Fair Value table below is
taken from the other receivables and other liabilities categories in the Statement of Financial Position
as appropriate. The carrying values represent the results of accounting for these instruments, as
described in the Statement of Accounting Policies. The unrealised foreign currency gains and losses
on cross currency interest rate swaps are included in the carrying value of debt.
Fair value
Fair value represents the amount which would, in the course of the normal operation of the financial
markets, extinguish all current and future contractual obligations arising in respect of a particular
financial instrument.
The fair value for short term investments, debt, cross currency interest rate swaps, foreign exchange
forward contracts, interest rate swaps, forward rate agreements, interest rate options and foreign currency
options is determined using the current market rates at balance date. For those debt instruments where
there is no quoted market rate at balance date the fair value is based on the current market rate of a
financial instrument with a similar maturity.
For cash and bank, trade receivables/creditors, other receivables, other liabilities,
investments and investments in shares the fair value is equivalent to their carrying value and
has been excluded from the Carrying/Fair Value table.
The difference between the carrying value and the fair value represents an unrealised cost or
benefit to the Company. This arises as a result of variations between the historical contract
rate and the current market rate at balance date.
The unrealised loss arising from movements in interest rates since the acquisition date of
debt carried at 30 June 2006 and the derivative products used to manage interest rate risk in
respect of that debt was NZ$1,968,000 (NZ$31,492,000 as at 30 June 2005).
This comprises the difference between the carrying values and fair values of debt, cross currency
interest rate swaps, interest rate swaps, forward rate agreements and interest rate options.
Transpower anticipates that the financial instruments will be held to maturity and it is unlikely
that settlement at the reported fair values will occur and the resulting loss realised.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
20. FINANCIAL INSTRUMENTS continued
Carrying Fair Carrying Fair
Value Value Value Value
Carrying value/fair value 2006 2006 2005 2005
$000 $000 $000 $000
LINES BUSINESS
On Balance Sheet
Cash (bank overdraft) 2,088 2,088 1,084 1,084
Long term assets 540,350 540,201 541,710 541,765
Debt (1,553,005) (1,529,800) (1,549,834) (1,567,534)
Off Balance Sheet
Cross currency interest rate swaps 1,618 (34,261) 2,263 1,127
Foreign exchange forward contracts - 946 - 171
Interest rate swaps 859 10,769 1,197 (13,187)
(f) Interest rate repricing analysis
The following table covers Transpower's total debt portfolio, including the effect of off balance
sheet financial instruments, when interest rates will be repriced and the current weighted
average interest rate of each maturity. Transpower will transact further interest rate hedging in
advance of the repricing date to fix interest rates on the Company debt portfolio within the
policy parameters adopted by the Board.
Trade receivables/creditors, other receivables and other liabilities have not been included in the table
below as they are not interest rate sensitive.
Forward rate agreements are also excluded from the repricing analysis as these contracts mature
within one year. For the purpose of repricing, debt denominated in foreign currencies is stated after
applying cross currency interest rate swaps.
LINES BUSINESS 2006
Effective Within one One to two Two to five Greater than Total
interest rate year years years five years
$000 $000 $000 $000 $000
Assets
Cash 6.15% 2,088 - - - 2,088
Long term assets 6.32% - 534,230 6,120 - 540,350
2,088 534,230 6,120 - 542,438
Liabilities
Debt 6.95% (130,399) (732,700) (265,536) (424,370) (1,553,005)
(130,399) (732,700) (265,536) (424,370) (1,553,005)
Off Balance Sheet
Interest rate swaps 1,666,500 133,000 (13,000) (1,786,500) -
Interest rate options - - - - -
1,666,500 133,000 (13,000) (1,786,500) -
Repricing Profile 1,538,189 (65,470) (272,416) (2,210,870) (1,010,567)
The interest rate on debt as amended by interest rate swaps is 6.64%
LINES BUSINESS 2005
Effective Within one year One to two Two to five Greater than Total
interest rate years years five years
$000 $000 $000 $000 $000
Assets
Cash 5.65% 1,084 - - - 1,084
Long term investments 6.33% - 1,802 539,908 - 541,710
- 1,802 539,908 - 542,794
Liabilities
Debt 6.78% (130,112) (105,694) (768,302) (547,228) (1,551,336)
(130,112) (105,694) (768,302) (547,228) (1,551,336)
Off balance sheet
Interest rate swaps 297,000 (14,500) (56,500) (226,000) -
Interest rate options - - - - -
297,000 (14,500) (56,500) (226,000) -
Repricing Profile 167,972 (118,392) (284,894) (773,228) (1,008,542)
The interest rate on debt as amended by interest rate swaps is 6.72%
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
21. SUBSIDIARIES OF TRANSPOWER GROUP
The subsidiaries that make up the lines business of the Transpower Group are as follows:
2006 2005
Subsidiaries Holding Holding
Fighting Bay Finance Limited 100% 100%
Haywards Limited 100% 100%
Oteranga Bay Limited 100% 100%
Transpower Finance Limited 100% 100%
TB and T Limited 100% 100%
Aratiatia Holdings Limited 100% 100%
Benmore Finance 100% 100%
Bunnythorpe Holdings 100% 100%
Benmore Trust 100% 100%
Halfway Bush Finance Limited 100% 100%
The subsidiaries that make up the "Other Transpower Businesses" are as follows:
Energy Market Services Limited 100% 100%
Risk Reinsurance Limited 100% 100%
Omaka Training Limited (non-trading) 100% 100%
All subsidiary entities have a balance date of 30 June.
Risk Reinsurance Limited is incorporated in the Cayman Islands. All other subsidiary entities are
incorporated in New Zealand.
All subsidiaries are direct subsidiaries of Transpower except for;
- Oteranga Bay Limited and Haywards Limited which are wholly owned by Fighting Bay Finance Limited.
- Benmore Finance in which Bunnythorpe Holdings has a 4% share.
- Benmore Trust which is wholly owned by Aratiatia Holdings Limited and Benmore Finance.
The principal activity of the trading subsidiaries (excluding Energy Market Serices Limited ("EMS") and Risk Reinsurance)
is financing.
EMS was established in 1998 as a separate legal entity to provide reconciliation and metering services for both
MARIA and NZEM parties.
Risk Reinsurance was established in 2001 to provide insurance services to the Transpower Group.
22. RELATED PARTY TRANSACTIONS
Transpower conducts transactions with other State-Owned Enterprises and Government Departments.
These transactions are undertaken on a commercial and arm's length basis and it is considered that
these do not fall within the intended scope of related party disclosure.
The subsidiaries identified in Note 21 are related parties of Transpower.
Transactions with these parties are disclosed as "Other Business" transactions in Note 2 and 3.
All of these transactions are conducted on a commercial basis. No related party debts have been
written off or forgiven during the year.
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2006
23. OTHER ITEMS REQUIRING SPECIFIC DISCLOSURE UNDER THE ELECTRICITY (INFORMATION
DISCLOSURE) REGULATIONS 2004
2006 2005
Transfer Payments by Line businesses to "Other Transpower Businesses" for:
Asset maintenance services 0 0
Disconnection/reconnection services 0 0
Consumer-based load control services 0 0
Royalty and patent expenses 0 0
Avoided transmission charges on account of own generation 0 0

Expense to non-related entities for:
Disconnection/reconnection services 0 0
Consumer-based load control services 0 0
Royalty and patent expenses 0 0
Operating Expenditure
Transmission charges 0 0
Amortised goodwill 0 0
Amortisation of other intangibles 0 0
Merger and acquisition expenses 0 0
Takeover defence expenses 0 0
Research and development expenses 0 0
Rebates to consumers due to ownership interests 0 0
Subvention payments 0 0
Other goods and services provided to Transpower lines business 0 0
Unusual expenses 0 0
Assets
Goodwill 0 0
Total intangible assets 0 0
Total tangible assets 2,797,244 2,684,153
Equity
Capital notes 0 0
SCHEDULE 1 - PART 7
FORM FOR THE DERIVATION OF FINANCIAL PERFORMANCE MEASURES FROM FINANCIAL STATEMENTS
Derivation Table Input and Calculations Symbol in formula ROF ROE ROI
Operating surplus before interest and income tax from financial statements 188,383
Operating surplus before interest and income tax adjusted pursuant to regulation 18 (OSBIIT) 188,383
Interest on cash, bank balances, and short-term investments (ISTI) 1,407
OSBIIT minus ISTI 186,976 a 186,976 186,976
Net surplus after tax from financial statements 83,879
Net surplus after tax adjusted pursuant to regulation 18 (NSAT) 83,879 n 83,879
Amortisation of goodwill and amortisation of other intangibles 0 g add 0 add 0 add 0
Subvention payment 0 s add 0 add 0 add 0
Depreciation of SFA at BV (x) 104,737
Depreciation of SFA at ODV (y) 108,000
ODV depreciation adjustment -3,263 d add -3,263 add -3,263 add -3,263
Subvention payment tax adjustment 0 s*t deduct 0 deduct 0
Interest tax shield 21,852 q deduct 21,852
Revaluations 0 r add 0
Income tax 44,586 p deduct 44,586
Numerator 183,713 80,616 117,275
OSBIITADJ = a + g + s + d NSATADJ = n + g + s - s*t + d OSBIITADJ = a + g - q + r + s + d - p - s*t
Fixed assets at end of previous financial year (FA0) 2,071,103
Fixed assets at end of current financial year (FA1) 2,175,521
Adjusted net working capital at end of previous financial year (ANWC0) -9,167
Adjusted net working capital at end of current financial year (ANWC1) -33,219
Average total funds employed (ATFE) 2,102,119 c 2,102,119 2,102,119
(or regulation 33 time-weighted average )
Total equity at end of previous financial year (TE0) 1,060,859
Total equity at end of current financial year (TE1) 1,138,324
Average total equity 1,099,592 k 1,099,592
(or regulation 33 time-weighted average )
WUC at end of previous financial year (WUC0) 115,950
WUC at end of current financial year (WUC1) 210,806
Average total works under construction 163,378 e deduct 163,378 deduct 163,378 deduct 163,378
(or regulation 33 time-weighted average )
Revaluations 0 r
Half of revaluations 0 r/2 deduct 0
Intangible assets at end of previous financial year (IA0) 0
Intangible assets at end of current financial year (IA1) 0
Average total intangible asset 0 m add 0
(or regulation 33 time-weighted average )
Subvention payment at end of previous financial year (S0) 0
Subvention payment at end of current financial year (S1) 0
Subvention payment tax adjustment at end of previous financial year 0
Subvention payment tax adjustment at end of current financial year 0
Average subvention payment & related tax adjustment 0 v add 0
System fixed assets at end of previous financial year at book value (SFAbv0) 1,899,000
System fixed assets at end of current financial year at book value (SFAbv1) 1,919,000
Average value of system fixed assets at book value 1,909,000 f deduct 1,909,000 deduct 1,909,000 deduct 1,909,000
(or regulation 33 time-weighted average )
System Fixed assets at year beginning at ODV value (SFAodv0) 1,979,000
System Fixed assets at end of current financial year at ODV value (SFAodv1) 2,031,000
Average value of system fixed assets at ODV value 2,005,000 h add 2,005,000 add 2,005,000 add 2,005,000
(or regulation 33 time-weighted average )
Denominator 2,034,741 1,032,214 2,034,741
ATFEADJ = c - e - f + h Ave TEADJ = k - e - m + v - f + h ATFEADJ = c - e - ½r - f + h
Financial Performance Measure: 9.0 7.8 5.8
ROF = OSBIITADJ/ATFEADJ x 100 ROE = NSATADJ/ATEADJ x 100 ROI = OSBIITADJ/ATFEADJ x 100
t = maximum statutory income tax rate applying to corporate entities bv = book value ave = average odv = optimised deprival valuation subscript '0' = end of financial year subscript '1' = end of the current financial year ROF = return on funds ROE = return on equity ROI = return on investment
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
STATEMENT OF PERFORMANCE MEASURES
FOR THE YEAR ENDED 30 JUNE 2006
LINES LINES LINES LINES LINES
BUSINESS BUSINESS BUSINESS BUSINESS BUSINESS
2006 2005 2004 2003 2002
Financial Measures
Return on Equity 7.8% 8.1% 7.1% 5.9% 8.6%
Return on Funds 9.0% 9.4% 7.9% 3.3% 8.5%
Return on Investment 5.8% 6.1% 10.3% 7.1% 9.3%
Efficiency Measures
Direct line costs per kilometre, which shall be calculated in accordance with the
following formula:
a 140,965,000 152,499,000 134,120,000 147,249,000 134,087,000
b 17,248 17,045 17,041 17,134 17,145
a is direct expenditure (in dollars): and $8,173 $8,947 $7,870 $8,594 $7,821
b is system length (in kilometres);
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
ANNUAL VALUATION RECONCILIATION REPORT
YEAR ENDED 30 JUNE 2006
2006 2005
$ million $ million
System fixed assets at ODV at 30 June 2005 1,979 2,026
Add system fixed assets acquired during the year at ODV 130 73
Less system fixed assets disposed of during the year at ODV (13) (5)
Less depreciation on system fixed assets at ODV (108) (109)
Add revaluations of system fixed assets 43 (6)
Equals system fixed assets at ODV at 30 June 2006 2,031 1,979
The Electricity Information Disclosure Requirements 2004
(For 12 months ending 30 June 2006, 2005, 2004, 2003)
Part 4
Energy Delivery Efficiency Performance Measures and Statistics(Disclosure under Requirement 20) 2005/06 2004/05 2003/04 2002/03
1. Energy delivery efficiency performance measures
(a) Load factor %Electrical energy entering the transmission system as percentage of maximum demand times hours per year 66.50 69.70 71.05 70.50
(b) Loss ratio %Transmission losses as percentage of energy entering the system 3.63 3.76 3.82 4.36
(c) Capacity utilisation %Maximum demand as percentage of total transformer capacity Based on Maximum Continuous Ratings 51.61 49.72 48.17 50.81
2. Statistics
(a) System length, broken down by voltage
Total & km 17,248 17,045 17,041 17,134
350 kV (HVDC) km 611 611 611 611
270 kV (HVDC) km 611 611 611 611
0 kV (HVDC earth electrode) km 31 31 31 31
220 kV (HVAC) km 8,611 8,380 8,376 8,357
110 kV (HVAC) km 6,219 6,073 6,073 6,076
66/50/33/11 kV (HVAC) & km 1,165 1,339 1,339 1,449
(b) Circuit length of overhead electric lines, broken down by voltage.
Total & km 17,163 16,960 16,956 17,049
350 kV (HVDC) km 571 571 571 571
270 kV (HVDC) km 571 571 571 571
0 kV (HVDC earth electrode) km 31 31 31 31
220 kV (HVAC) km 8,611 8,380 8,376 8,357
110 kV (HVAC) km 6,214 6,068 6,068 6,071
66/50/33/11 kV (HVAC) & km 1,165 1,339 1,339 1,449
NB: HVDC link submarine power cables measure approximately 80km. Broken down by voltage
350 kV (HVDC) km 40 40 40 40
270 kV (HVDC) km 40 40 40 40
(c) Total circuit length of underground electric lines ( 110 kV HVAC) km 5 5 5 5
(d) Transformer capacity (kilovolt amperes) Maximum Continuous Ratings kVA 12.88x106 12.75x106 12.65x106 11.87x106
(e) Maximum demand (kilowatts) *$ kW 6.65x106 6.34 x106 6.09x106 6.04x106
(f) Total electricity entering the system (before losses of electricity), in kilowatt hours: *$ kWh 38.73x109 38.71x109 38.02x109 37.28x109
(g) Total amount of electricity (in kilowatt hours) supplied from the system (after losses of electricity) during the financial year on behalf of each person that is an electricity generator or an electricity retailer, or both: *$@ kWh 37.33x109 37.25x109 36.57x109 35.65x109
(h) Total connected customers 47 48 48 48
* To 2 decimal places only, higher accuracy used in calculations.
@ Including sales to direct connected customers.
& 2005/06 , 2004/05, 2003/04 data excludes 61 km of circuits leased from others and operated by Transpower. 34km owned by Transpower but operated by others not included above.
$ For all years, figures for maximum demand kW and kWh injected and supplied include loads on circuits leased by Transpower. The effect of these circuits cannot be measured as metering equipment is not installed at the inter-connection points with Transpower-owned assets, but the difference is estimated to be no more than 0.1% of totals. Loads on Transpower assets leased to others are not included as Transpower does not collect operational data for these assets.
The Electricity Information Disclosure Requirements 2004
(For 12 months ending 30 June 2006, 2005, 2004, 2003)
Part 6
Reliability Performance Measures to be Disclosed by Transpower(Disclosure Under Requirement 21) 2005/06 2004/05 2003/04 2002/03
1. Total number of unplanned interruptions*Resulting from 80 loss of supply incidents in 2005/06 148 67 75 72
2. Electricity customer interruptions in system minutes** 40.8 6.7 5.3 6.3
Planned 2.8 3.4 1.7 3.6
Unplanned 38.0 3.3 3.6 2.6
3. Underlying electricity customer interruptions in system minutes ** Underlying interruptions are those interruptions of 1 system minute or less duration 8.8 5.7 5.3 6.3
Planned 1.5 3.4 1.7 3.6
Unplanned 7.2 2.3 3.6 2.6
4. Average supply reliability %Measured by the energy supplied divided by the sum of the energy supplied and not supplied 99.9879 99.9981 99.9985 99.9982
5. Uneconomic generation due to planned and unplanned transmission system unavailability % Uneconomic generation relates to the amount of electricity generated from any source other than the most economic source. - - - -
6. Uneconomic generation due to HVDC system unavailability % - - - -
7. Uneconomic generation due to unplanned transmission system unavailability % - - - -
8. Planned interruption restoration performance % 72.2 71.9 71.0 81.3
9. Unplanned interruption response % 100.0 100.0 98.7 100.0
The information compiled using estimated information includes Part 6 sections 2, 3 and 4. The methodology used to calculate the estimated information is documented and available from Transpower upon request.
Uneconomic generation (Part 6 sections 5, 6 and 7) is not relevant in the market environment because scheduling is now based on offered price, not economic cost. In the market, 'offers to generate' are made after taking constraints into account and it is not possible to predict what a generator would have offered if the constraint was not present. As a result data is not available to allow a calculation and a null entry has been returned.
The reliability performance measures given in Part 6 do not include the performance of the 34km of circuit leased to other parties because Transpower does not collect operational data for these assets.
* Where two supply voltages, or two customers, at the same station are both interrupted this is counted as two interruptions.
** Any minor differences between the total and the sum of planned and unplanned are due to rounding.
System minutes of interruptions are not counted if energy is made up by backfeed from another point of supply or by embedded generation within a customer's network.
Form 5
ELECTRICITY INFORMATION DISCLOSURE REQUIREMENTS 2004
REGULATION 31(2)
CERTIFICATE BY DIRECTORS OF FINANCIAL STATEMENTS, PERFORMANCE MEASURES, AND STATISTICS DISCLOSED BY TRANSPOWER NEW ZEALAND LIMITED
We, David Gascoigne and Mark Tume, Directors of Transpower New Zealand Limited ("Transpower") certify that, having made all reasonable enquiry, to the best of our knowledge;
(a) The attached audited financial statements of Transpower, prepared for the purposes of regulation 5 of the Commerce Commission's Electricity Information Disclosure Requirements 2004, comply with those Requirements; and
(b) The attached information, being the derivation table, financial performance measures, efficiency performance measures, energy delivery efficiency performance measures, statistics and reliability performance measures in relation to Transpower, and having been prepared for the purposes of requirements 14, 15, 20, and 21 of the Electricity Information Disclosure Requirements 2004, comply with those Requirements
The valuations on which those financial performance measures are based are as at 30 June 2006.
David Gascoigne Mark Tume
22 November 2006
Mark Tume, directors of Transpower New Zealand Limited certify that, having made all reasonable enquiry, to the best of our knowledge-
(a) The attached valuation report of Transpower New Zealand Limited, prepared for the purposes of requirement 19 of the Commerce Commission's Electricity Information Disclosure Requirements 2004 complies with those requirements; and
(b) The replacement cost of the lines business system fixed assets of Transpower New Zealand Limited is $5,545,000; and
(c) The depreciated replacement cost of the lines business system fixed assets of Transpower New Zealand Limited is $2,277,000; and
(d) The optimised depreciated replacement cost of the lines business system fixed assets of Transpower New Zealand Limited is $2,032,000; and
(e) The optimised deprival valuation of the lines business system fixed assets of Transpower New Zealand Limited is $2,031,000; and
(f) The values in paragraphs (b) through to (e) have been prepared in accordance with the ODV Handbook (as defined in the Electricity Information Disclosure requirements 2004). These valuations are as at 30 June 2006.
Signed:
David Gascoigne Mark Tume
Date: 22 November 2006
Form 7
ELECTRICITY (INFORMATION DISCLOSURE) REGULATIONS 2004
REGULATION 37
STATUTORY DECLARATION IN RESPECT OF STATEMENTS AND INFORMATION SUPPLIED TO COMMERCE COMMISSION
I, David Gascoigne, of Wellington being Chairman of Transpower New Zealand Limited, solemnly and sincerely declare that having made all reasonable enquiry, to the best of my knowledge, the information attached to this declaration is a true copy of information made available to the public by Transpower under the Electricity Information Disclosure Requirements 2004.
And I make this solemn declaration conscientiously believing the same to be true and by virtue of the Oaths and Declarations Act 1957. Declared at this day of 22 November 2006.
Solicitor of the High Court
of New Zealand
Helena Rose Harbrow
Solicitor
Wellington