INFORMATION FOR DISCLOSURE
PURSUANT TO SECTION 57T OF THE COMMERCE ACT 1986
HORIZON ENERGY DISTRIBUTION LIMITED - Lines Business
STATEMENT OF FINANCIAL PERFORMANCE
For the Year Ended 31 March 2006
NOTE Lines Lines
Business Business
2006 2005
$000 $000
Total Operating Revenue 2,16 24,855 23,681
Total Operating Expenditure Before Award 2,16 (15,736) (14,987)
Award Monies 22 1,743 -
Operating Surplus before Interest and Taxation 2,16 10,862 8,694
Interest Expense 3 (2,104) (2,047)
Operating Surplus before Taxation 8,758 6,647
Income Tax Expense 4 (3,372) (2,812)
Net Surplus After Taxation 5,386 3,835
Surplus Attributable to
Shareholders of Horizon Energy Distribution Limited 5,386 3,835
HORIZON ENERGY DISTRIBUTION LIMITED - Lines Business
STATEMENT OF FINANCIAL POSITION
As at 31 March 2006
NOTE Lines Lines
Business Business
2006 2005
$000 $000
Shareholders' Equity / Capital Funds
Share Capital 5 8,432 8,432
Reserves 6 58,067 58,067
Retained Earnings 7 (21,480) (22,008)
Total Shareholders' Equity / Total Capital Funds 45,019 44,491
Current Assets
Advance to "Other" Business 16 2,040 1,427
Cash and Bank Balances 46 (752)
Accounts Receivable 8 4,475 2,580
Total Current Assets 6,561 3,255
Non Current Assets
Fixed Assets 9 74,962 74,613
Total Non Current Assets 74,962 74,613
Total Tangible Assets / Total Assets 81,523 77,868
Current Liabilities
Accounts Payable and Provisions 10,19 3,221 2,436
Taxation Payable 4 1,913 1,763
Total Current Liabilities 5,134 4,199
Non Current Liabilities
Term Loans 11 28,470 26,600
Deferred Taxation 4 2,900 2,578
Total Non Current Liabilities 31,370 29,178
Total Liabilities 36,504 33,377
Net Assets 45,019 44,491
HORIZON ENERGY DISTRIBUTION LIMITED - Lines Business
STATEMENT OF CASH FLOWS
For the Year Ended 31 March 2006 Lines Lines
Business Business
2006 2005
$000 $000
Cash Flow from Operating Activities
Cash was provided from:
Receipts from Customers 24,697 23,698
Interest from Short Term Deposits 5 6
24,702 23,704
Cash was applied to:
Payments to Suppliers and Employees (11,994) (11,888)
Interest Paid to Non-related Parties (2,101) (2,062)
Interest Paid to "Other" Business - -
Income Tax Paid (2,899) (2,340)
(16,994) (16,290)
Net Cash Inflow from Operating Activities 7,708 7,414
Cash Flow from Investing Activities
Cash was provided from:
Proceeds from the Sale of Other Fixed Assets - 4
Transfer of Fixed Assets to "Other" Business (note 16) - (1,066)
Cash was applied to:
Purchases and Construction of Fixed Assets (3,308) (2,788)
Net Cash Outflow to Investing Activities (3,308) (3,850)
Cash Flow From Financing Activities
Cash was provided from:
Transfer of Shares from "Other" Business - -
Cash was applied to:
Settlement of Term Debt 1,870 (1,685)
Dividends Paid (4,859) (2,860)
Issue/(Purchase Back) of Shares - -
Net Cash Inflow from (Outflow to) Financing Activities (2,989) (4,545)
Net Movement in Cash Held 1,411 (981)
Add Opening Cash 675 1,656
Closing Cash Carried Forward 2,086 675
Represented by:
Cash at Bank 46 (752)
Short Term Deposits - -
Advance to "Other" Business 2,040 1,427
Closing Cash Carried Forward 2,086 675
HORIZON ENERGY DISTRIBUTION LIMITED - Lines Business
STATEMENT OF CASH FLOWS
For the Year Ended 31 March 2006
Reconciliation of Surplus Attributable to Shareholders to Cash Flow From Operating Activities
Lines Lines
Business Business
2006 2005
$000 $000
Surplus Attributable to Shareholders 5,386 3,835
Add/(Less) Items Classified as Investing and Financing Activities:
Net Gain on Sale of Fixed Assets - (4)
Accounts Payable and Accruals that Relate
to the Purchase of Fixed Assets (23) (63)
Add/(Less) Non-Cash Items:
Depreciation 2,983 2,895
Increase/(Decrease) in Deferred Taxation Liability 322 241
3,282 3,069
Add/(Less) Movements in Working Capital Items:
Decrease/(Increase) in Accounts Receivable (1,895) 3
Increase/(Decrease) in Accounts Payable and Accruals 785 276
Increase/(Decrease) in Income Tax Payable 150 231
(960) 510
Net Cash Flow from Operating Activities 7,708 7,414
HORIZON ENERGY DISTRIBUTION LIMITED - Lines Business
STATEMENT OF MOVEMENTS IN EQUITY
For the Year Ended 31 March 2006
NOTE Lines Lines
Business Business
2006 2005
$000 $000
Opening Equity 44,491 43,516
Plus
Surplus Attributable to Shareholders 5,386 3,835
Revaluation of Fixed Assets - -
Less
Dividends Paid 12 (4,858) (2,860)
Equity as at 31 March 45,019 44,491
HORIZON ENERGY DISTRIBUTION LIMITED - Lines Business
Financial Statements for the purposes of the
Electricity Information Disclosure Requirements 2004
Notes to the Financial Statements
for the year ended 31 March 2006
1 STATEMENT OF ACCOUNTING POLICIES
These financial statements have been prepared in accordance with the Electricity Information Disclosure Requirements 2004.
A General Accounting Policies
The general accounting policies recognised as appropriate for the measurement and reporting of financial performance, cashflows and financial position have been followed in the preparation of these financial statements under the historical cost method, as modified by the revaluation of certain assets. Reliance has been placed on the fact that the lines business and undertakings of Horizon Energy Distribution Limited are a going concern.
B Particular Accounting Policies
The following particular accounting policies, which significantly affect the measurement of financial performance, cashflows and financial position, have been applied:
i) Revenue
Revenue shown in the statement of financial performance comprises amounts received and receivable for goods and services supplied to customers in the ordinary course of business. Line access revenue is based on actual and assessed readings plus an allowance for unread meters at balance date. Revenue is stated exclusive of Goods and Services Tax collected from customers.
ii) Depreciation
Depreciation is charged so as to write off the cost of fixed assets to their estimated residual value over their remaining useful lives.
iii) Fixed Assets
The cost of purchased fixed assets is the value of the consideration given to acquire the assets and the value of other directly attributable costs which have been incurred in bringing the assets to the location and condition necessary for their intended service.
The cost of assets constructed by the Company includes the cost of all materials used in construction, direct labour on the project, and financing costs that are directly attributable to the project. Costs cease to be capitalised as soon as the asset is ready for productive use and do not include any inefficiency costs.
Distribution system assets are valued using modified historical cost. Assets are carried at the latest valuation prepared on a depreciated replacement cost basis (latest valuation 31 March 2004), adjusted for subsequent additions, disposals and depreciation.
iv) Accounts Receivable
Accounts receivable are stated at estimated realisable value after providing for debts where collection is considered doubtful.
v) Taxation
The lines business follows the liability method of accounting for deferred taxation. The taxation charge against the surplus for the year is the estimated liability in respect of that surplus after allowance for all permanent differences. This is the comprehensive basis for the calculation of deferred taxation.
Future taxation benefits attributable to timing differences or losses carried forward are recognised in the financial statements only where there is virtual certainty that the benefit of the timing differences will be utilised by the lines business.
vi) Statement of Cash Flows
The following are the definitions of the terms used in the statement of cash flows:
a) Bank overdrafts is considered to be bank overdrafts net of cash on hand, short term deposits and current accounts in banks.
b) Investing activities are those activities relating to the acquisition, holding and disposal of fixed assets and investments. Investments can include securities not falling within the definition of cash.
c) Financing activities are those activities which result in changes in the size and composition of the capital of the lines business. This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities.
d) Operating activities include all transactions and other events that are not investing or financing activities.
HORIZON ENERGY DISTRIBUTION LIMITED - Lines Business
Financial Statements for the purposes of the
Electricity Information Disclosure Requirements 2004
Notes to the Financial Statements
for the year ended 31 March 2006
vii) Financial Instruments
Financial instruments with off-balance sheet risk have been entered into for the primary purpose of reducing exposure to fluctuations in interest rates. Horizon Energy Distribution Limited primarily uses interest rate swaps to reduce exposure to fluctuations in interest rates. The Company's Treasury Policy governs the duration and proportion of debt hedged. While financial instruments are subject to risk that market rates may change subsequent to acquisition, such changes would generally be offset by opposite effects on the items hedged.
Financial instruments entered into with no underlying exposure are accounted for on a mark to market basis.
ii) Research and Development
Costs incurred on all research and development projects are written off as incurred, except that development costs are capitalised to the extent that such costs are expected, beyond any reasonable doubt, to be recovered.
ix) Comparatives
The statements and notes do not restate comparatives or provide comparatives for changes to reflect the mandatory ACAM methodology or for new disclosure items per the Electricity Information Disclosure Requirements 2004.
C. Changes in Accounting Policies
There have been no changes in accounting policies.
HORIZON ENERGY DISTRIBUTION LIMITED - Lines Business
NOTES TO THE FINANCIAL STATEMENTS
Lines Lines
Business Business
2006 2005
$000 $000
2 OPERATING SURPLUS BEFORE TAXATION ITEMS
Operating revenue includes the following items:
Revenue Disclosure Items :
Revenue from Line / Access Charges 23,682 23,187
Gain on Sale of Fixed Assets 0 4
AC Loss-rental Rebates 335 203
Other Operating Revenue 838 287
Total operating revenue 24,855 23,681
Operating expenditure comprises the following items:
Payment for Transmission Charges 7,899 7,878
Expenses to Non-related Entities for Asset Maintenance
Services / Total Specified Expenses to Non-related Parties 1,258 1,327
AC Loss Rental Rebates Expense 214 89
Employee Salaries, Wages and Redundancies 1,145 999
Total Cost of Offering Credit
Increase in Estimated Doubtful Debts 11 12
Bad Debts Written Off - -
Total Cost of Offering Credit 11 12
Directors' Fees / Remuneration 120 120
Rental and Operating Lease Obligations (refer note 14) 82 64
Depreciation on System Fixed Assets 2,779 2,696
Depreciation on Other Fixed Assets 204 199
Total Depreciation 2,983 2,895
Local Authorities Rates Expense 122 113
j Other Expenditure (1,120) 243
Auditors Remuneration (Note 15) 90 111
Consumer Billing and Information System 148 85
Corporate and Administration Expenses 405 397
Marketing / Advertising 5 23
Human Resource Expenses 80 203
Research and Development Expenses 18 18
‚ Consultancy and Legal Expenses 533 410
Total Operating Expenditure 13,993 14,987
j Includes the reduction in expenses of $1.43m relating to the resolution of Arbitration Proceedings as described in Note 22.
‚ Includes the reduction Consultancy and Legal Expenses of $0.20m relating to the resolution of Arbitration Proceeding
as described in Note 22.
Lines Lines
Business Business
2006 2005
$000 $000
3 INTEREST
Net Interest comprises:
Interest Expense on Borrowings 2,104 2,047
ƒ Interest Income on Bank Balances, Short Term Investments & Legal Awards (117) (6)
Net Interest 1,987 2,141
Total Interest Expense 2,104 2,047
ƒ Includes interest of $0.11m relating to the resolution of Arbitration Proceedings as detailed in Note 22.
4 INCOME TAX
Income Tax Expense
The taxation expense has been calculated as follows:
Operating Surplus before Taxation 8,759 6,647
Income Tax on Surplus for the year at 33% 2,890 2,194
Plus/(Less) Permanent Differences
Non-Deductible Depreciation on Revalued
Portion of Fixed Assets 647 602
Non-Deductible Expenses 17 16
Non-Taxable Income (182) -
Income Tax Expense 3,372 2,812
Income tax expense comprises:
Tax Payable in Respect of Current Year 3,050 2,571
Deferred Taxation 322 241
Income Tax Expense 3,372 2,812
Deferred Taxation
Opening Balance 2,578 2,337
Deferred tax in respect of current year 322 241
Balance as at 31 March 2,900 2,578
Taxation Payable
Income tax payable/(prepaid) comprises:
Opening Balance 1,763 1,532
Tax Payable in Respect of Current Year 3,050 2,571
Tax payable in Respect of Prior Years - -
Income Tax Paid (2,900) (2,340)
Balance as at 31 March - Liability/(Asset) 1,913 1,763
NOTE Lines Lines
Business Business
2006 2005
$000 $000
5 SHARE CAPITAL
Share Capital - Issued and paid up
Opening Balance 8,432 8,432
Balance as at 31 March 8,432 8,432
2006 2005
No. of Shares No. of Shares
Shares issued - fully paid 24,991,385 24,991,385
- -
Shares issued 24,991,385 24,991,385
2006 2005
$000 $000
6 RESERVES
Asset Revaluation Reserve
Opening Balance 58,067 58,067
Plus Revaluation of System Fixed Assets 9 - -
Balance as at 31 March 58,067 58,067
7 RETAINED EARNINGS
Opening Retained Earnings (22,008) (22,983)
Surplus after Taxation 5,386 3,835
Plus Retained Earnings distributed from "Other" business - -
Less Dividends paid 12 (4,858) (2,860)
Balance as at 31 March (21,480) (22,008)
8 ACCOUNTS RECEIVABLE
Accounts Receivable comprises:
Trade Receivables 4,494 2,593
Less Provision for Doubtful Debts (19) (13)
Balance as at 31 March 4,475 2,580
Trade Receivables includes $1.74m relating to the Award monies as detailed in Note 22.
Lines Lines
Business Business
2006 2005
$000 $000
9 FIXED ASSETS
Fixed Assets comprise:
Land Cost 7 7
Buildings Cost 53 53
Accumulated Depreciation (25) (24)
Net Book Value 28 29
Plant and Equipment Cost 110 84
Accumulated Depreciation (89) (78)
Net Book Value 21 6
Furniture and Fittings Cost 436 435
Accumulated Depreciation (181) (133)
Net Book Value 255 302
Motor Vehicles Cost 161 114
Accumulated Depreciation (57) (40)
Net Book Value 104 74
Consumer Billing and Inform- Cost 1,436 1,325
ation System Equipment Accumulated Depreciation (1,189) (1,091)
Net Book Value 247 234
Office Equipment Cost 107 104
Accumulated Depreciation (53) (46)
Net Book Value 54 58
System Fixed Assets - Work in Progress
Cost 162 138
System Fixed Assets Valuation 79,603 76,505
Accumulated Depreciation (5,519) (2,740)
Net Book Value 74,084 73,765
Totals Cost or Valuation 82,075 78,765
Accumulated Depreciation (7,113) (4,152)
Total Fixed Assets Net Book Value 74,962 74,613
9 FIXED ASSETS (Continued) Lines Lines
Depreciation Expense Business Business
2006 2005
$000 $000
Buildings 1 6
Plant and Equipment 120 124
Furniture and Fittings 48 48
Motor Vehicles 35 21
Distribution System 2,779 2,696
Total 2,983 2,895
Useful lives and Depreciation Methods Useful Useful
Lives Lives
2006 2005
In Years In Years
Buildings 40-100 40-100
Distribution System 8-70 8-70
Plant and Equipment 2-10 2-10
Motor Vehicles 5-10 5-10
Furniture and Fittings 10 10
All assets are depreciated on a straight line basis.
Lines Lines
Business Business
2006 2005
$000 $000
10 ACCOUNTS PAYABLE AND PROVISIONS
Accounts Payable and Provisions comprise:
Trade Creditors and Accruals 3,087 2,210
Employee Entitlements 134 226
Balance as at 31 March 3,221 2,436

Lines Lines
Business Business
2006 2005
$000 $000
11 TERM LOANS
Term loans fall due for repayment in the following periods:
Within One Year - -
Within One to Two Years 28,470 26,600
Within Two to Three Years - -
Within Three to Four Years - -
Within Four to Five Years - -
Balance as at 31 March 28,470 26,600
Disclosed in Balance Sheet as:
Current Portion of Term Loans - -
Term Loans 28,470 26,600
Balance as at 31 March 28,470 26,600
All term loans are unsecured and are subject to negative pledge undertakings. The weighted
average interest rate, inclusive of margins on term loans is 7.26% (2005 7.13%), taking into account
the hedging undertaken by the Company as disclosed in Note 18. For that portion of term loans
not hedged the loan is at the floating 90 day bank bill rate plus margin. The Company currently has
$40 million rolling loan facilities, confirmed at this level until 31 October 2007.
12 DISTRIBUTION TO OWNERS
Dividends Paid Attributed to Lines Business 4,858 2,860
Dividends Paid attributable to "Other" Business 2,014 2,886
Total Dividends Paid by Horizon Energy Distribution Limited 6,873 5,746
Dividends paid to "Other" business includes a special dividend relating to a one off tax benefit that arose
from the sale of the Company's interest in the Kapuni Cogeneration Joint Venture in 1999.
13 IMPUTATION CREDIT ACCOUNT
Group Group
2006 2005
Opening Balance 3 1
Plus: Income Tax Paid 2,900 2,340
Less: Imputation Credits attached to dividends paid for "Other" business (500) (594)
Imputation Credits attached to dividends paid for Line Business (2,393) (1,744)
Balance as at 31 March 10 3
Lines Lines
Business Business
2006 2005
$000 $000
14 OPERATING LEASES
Operating lease commitments fall due for repayment in the following periods:
Within One Year 63 63
Within One to Two Years 63 63
Within Two to Five Years 169 190
Within Five to Eight Years - 42
295 358
15 REMUNERATION OF AUDITORS
Amounts received, or due and receivable, by the principal auditors for:
Auditing the Financial Statements:
Auditing the Financial Statements 43 40
Other Audit Fees 26 23
69 63
Other Services:
Assurance related 21 48
Total Payments to Auditors 90 111
16 RELATED PARTY TRANSACTIONS
The Company conducts business predominantly in the Eastern Bay of Plenty and undertakes transactions
with shareholders, company officers and other related parties that reside in the region. All transactions
with related parties have been carried out on a commercial and "arms length" basis.
Transactions
Sales to Eastern Bay Energy Trust 131 271
Dividend paid to Eastern Bay Energy Trust 3,755 4,443
Transfers to and from "Other" Business 612 (0)
Balance
Amounts Owed by "Other" Business for Re-allocations to and 2,040 1,427
from "Other" Business
Amounts owed by Eastern Bay Energy Trust - -
Eastern Bay Energy Trust owns 77.29% of the ordinary shares of Horizon Energy Distribution
Limited.
17 CAPITAL COMMITMENTS
The Group has commitments for future capital expenditure amounting to $395,283 ($181,090 in 2005).
18 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(a) The nature of activities and management policies with respect to financial instruments is
described as follows:
(i) Interest Rates
The Group generally uses swaps to manage interest rate risk.
As at 31 March 2006, the face value of the swaps the Group held were as follows:
Interest Rate Options:
Commencement Rate Term Notional Amount Notional Amount
Date 2006 2005
$000 $000
3 April, 1998 7.07% 144 Months 4,800 4,800
29 June, 2001 7.16% 72 Months 4,000 4,000
16 August, 2002 6.68% 84 Months 3,000 3,000
20 March, 2003 6.76% 45 Months 4,000 4,000
20 September, 2004 6.98% 69 Months 4,000 4,000
19,800 19,800
The mark to market value of the interest rate swap agreements as at 31 March 2006 showed
a loss of $217,946 (2005 - loss of $54,490). These interest rate swaps are treated as off balance sheet financial
instruments.
(ii) Credit
In the normal course of its business the Company incurs credit risk from trade debtors
and financial institutions. The Company has a credit policy which is used to manage
this exposure to credit risk. As part of this policy, limits on exposures have been set
and are monitored on a regular basis.
2006 2005
Maximum Exposures to Credit Risk at balance date are:
Cash 46 (752)
Accounts Receivable 4,475 2,580
(b) Fair Values: Term Loans, Accounts Receivable, Accounts Payables, Accruals and Cash
Except for the Company's off balance sheet financial instruments, the fair value of the Company's
financial instruments do not differ from their carrying values, as reported in these Financial Statements
and accompanying notes.
19 PROVISIONS
Balance at Beginning of Year 90 90
Current Year Provision - -
Provision Released (70) -
Balance at 31 March 20 90
The provision includes allowances for costs associated with disputes.
20 SEGMENTAL
The Company operates predominantly in one industry, the distribution of electricity. Its operations
are carried out solely in New Zealand and are therefore within one geographical segment for reporting
purposes.
21 CONTINGENT LIABILITIES
Electricity Purchase Commitment
In March 1999, as part of the sale of the Kapuni Generation assets, the Company assigned its
rights under a long term contract for the purchase of electricity and remains contingently liable to
purchase this electricity until the end of the contract (2008 - plus option to renew for a further
9 years) should the purchasers fail to perform their obligations under the contract.
22 EVENTS OCCURRING AFTER BALANCE DATE
Dividend Declarations
On 30 May 2006 the Directors declared a final fully dividend of 7.5 cents (2005: 12.0 cents imputed, 4.0 cents
non-imputed, total 16.0 cents) per ordinary share. As this event occurred after balance date the financial
date the financial effect has not been recognised in the financial statements.
On 14 November 2006 the Directors declared an interim dividend of 10.0 cents (2005 11.5 cents) per ordinary share.
As this event occurred after balance date the financial effect has not been recognised in the financial statements.
Resolution of Arbitration Proceedings
In Note 23 of the Company's 2006 Annual Report, a Partial Award of $0.72 million was recognised along with a 100% provision in relation to proceedings initiated by Horizon Energy against a supplier for the level of fees charged for services between 1 April 2004 and 31 March 2005. The provision reflected the Board of Directors' belief that there was significant uncertainty with the respect to the Company's ability to retain the Partial Award payment.
Since the release of the Annual Report the Company has received further Awards totalling $1.02 million relating to the recovery of fees charged by the supplier for services provided between 1 April 2004 and 31 March 2006. The characteristics of the Awards combined with the Company's regulatory obligations have resulted in the Board of Directors, post year end, resolving to refund $0.93 million of the Awards to electricity consumers in the Eastern Bay of Plenty, a recovery of $0.66 million for the Company and a provision of $0.15 million for future costs associated with this matter. The extent to which the Company can transparently refund these monies to electricity consumers will be dependent on the cooperation of other industry participants.
"These Financial Statements do not recognise provisions to reflect the Company's future refund of $0.93m and estimated future costs of $0.15m. These provisions have not been recognised in order to comply with Financial Reporting Standards which do not permit the recognition of provisions where there was no obligation to refund the monies at balance date.

The Board of Directors' believes that the disclosure of both the recoveries and provisions is critical to ensure these Information Disclosure Accounts are not 'misleading' to readers. The impact of the provsions would be to reduce Profit Before Tax by $1.08m ($0.72m after tax)."
23 NEW ZEALAND EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities
required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial
Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from
1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as
New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to
reflect New Zealand circumstances.
Horizon Energy Distribution Limited has commenced reviewing its accounting policies and financial reporting to comply with
NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will
be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS. The Company will transition to NZ IFRS and
publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.
The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree
of certainty the adjustments that will be required in the statement of financial position on adoption of NZ IFRS and the impact on
financial performance thereafter.
The key differences between current NZ GAAP and NZ IFRS identified to date as potentially having a significant effect on the
Company's financial Statements are summarised below.
FINANCIAL INSTRUMENTS
All interest rate swap contracts will be recorded in the statement of financial position at fair value under NZ IFRS and be
adjusted against opening equity. Any movements of the fair value of these instruments from year to year will have the potential
to affect the statement of financial performance and the statement of financial position, the extent to which will depend on
whether hedge accounting is adopted. The financial impact of the change cannot be reliably estimated at this stage and will be
dependent on the extent to which hedge accounting is adopted and is effective.
DEFERRED TAXATION
The IFRS basis of accounting for deferred tax is conceptually different to current GAAP. Under current GAAP deferred
taxation is calculated using the income statement approach whereas under NZ IFRS deferred taxation will be based on a
balance sheet approach. This method recognises deferred tax balances where there is a difference between the carrying value
of an asset or liability and its tax base. The most significant impact for the Company is the potential recognition of a deferred
tax liability in relation to the revaluation of distribution assets. Due to the uncertainty of recognition, the financial impact cannot
be reliably estimated at this stage.
CAPITAL CONTRIBUTIONS
Horizon Energy Distribution Limited currently recognises capital contributions as revenue in the year earned. NZ IFRS may
require the Company to capitalise capital contributions to deferred income and amortise the balance over the life of the asset to
the income statement. The financial impact of this change cannot be reliably estimated at this stage.
This summary should not be taken as an exhaustive list of all the differences between NZ GAAP and NZ IFRS. Further, the
Company has not yet quantified the effects of these differences. Accordingly there can be no assurances that the financial
performance and financial position as disclosed in these financial statements would not be significantly different if determined in
accordance with NZ IFRS.
24 ITEMS WITH NIL BALANCES REQUIRING SPECIFIC DISCLOSURE UNDER THE
ELECTRICITY INFORMATION DISCLOSURE REQUIREMENTS 2004.
Business Business
2006 2005
$000 $000
Revenue :
Revenue from "Other" business for services carried out by the line Nil Nil
business (transfer payment)
Operating Expenditure:
Asset maintenance carried out by "Other" business (transfer payment) Nil Nil
Consumer disconnection / reconnection services carried out by "Other"
business (transfer payment) Nil Nil
Charges for meter data carried out by "Other" business (transfer payment) Nil Nil
Charges for providing consumer-based load control services carried out
by "Other" business (transfer payment) Nil Nil
Charges for royalty and patent expenses by "Other" business (transfer
payment) Nil Nil
Avoided transmission charges on account of own generation Nil Nil
Charges for other goods and services carried out by "Other" business
(transfer payment) Nil Nil
Payment to non-related entities for providing disconnection /
reconnection services Nil Nil
Payment to non-related entities for providing meter data Nil Nil
Payment to non-related entities for providing consumer-based load
control services Nil Nil
Payment to non-related entities for royalty and patent expenses Nil Nil
Amortisation of goodwill Nil Nil
Amortisation of other intangibles Nil Nil
Total amortisation of intangibles Nil Nil
Merger and acquisition expenses Nil Nil
Takeover defence expenses Nil Nil
Donations Nil Nil
Audit fees paid to other auditors Nil Nil
Fees paid for other services to other auditors Nil Nil
Rebates to customers due to ownership interest Nil Nil
Subvention payments Nil Nil
24 ITEMS WITH NIL BALANCES REQUIRING SPECIFIC DISCLOSURE UNDER THE
ELECTRICITY INFORMATION DISCLOSURE REQUIREMENTS 2004.
(Continued)
Lines Lines
Business Business
2006 2005
$000 $000
Operating Expenditure (continued) :
Other interest expense not listed elsewhere Nil Nil
Unusual expenses Nil Nil
Financing charges related to finance leases Nil Nil
Current Assets :
Short term investments Nil Nil
Inventories Nil Nil
Short term Deposits Nil Nil
Other current assets not listed elsewhere Nil Nil
Fixed Assets :
Other fixed assets not listed elsewhere Nil Nil
Other tangible assets not listed elsewhere Nil Nil
Intangible Assets :
Goodwill Nil Nil
Other intangible assets not listed elsewhere Nil Nil
Total intangible assets Nil Nil
Current Liabilities :
Short-term borrowings Nil Nil
Other current liabilities not listed elsewhere Nil Nil
Provision for Final Dividend Nil Nil
Non - Current Liabilities :
Payables and accruals Nil Nil
Other non-current liabilities not listed elsewhere Nil Nil
Equity :
Minority interests in subsidiaries Nil Nil
Capital notes Nil Nil
Return of capital to shareholders Nil Nil
PRICEWATERHOUSE COOPERS
Auditors' Report
To the readers of the financial statements of Horizon Energy Distribution Limited - Lines Business
We have audited the accompanying financial statements of Horizon Energy Distribution Limited - Lines Business. The financial statements provide information about the past financial performance of Horizon Energy Distribution Limited - Lines Business and its financial position as at 31 March 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 Horizon Energy Distribution Limited - Lines Business as at 31 March 2006, and the 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 Horizon Energy Distribution 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.
Other than in our capacities as auditors and the provision of other assurance services we have no relationship with or interests in Horizon Energy Distribution Limited.
PRICEWATERHOUSE COOPERS
Auditors' Report
Horizon Energy Distribution Limited - Lines Business
Unqualified Opinion
We have obtained all the information and explanations we have required.
In our opinion:
(a) proper accounting records have been maintained by Horizon Energy Distribution Limited - Lines Business as far as appears from our examination of those records; and
(b) the financial statements referred to above:
(i) comply with generally accepted accounting practice
(ii) give a true and fair view of the financial position of Horizon Energy Distribution Limited - Lines Business as at 31 March 2006 and the results of its operations and cash flows for the year then ended; and
(iii) comply with the Electricity Information Disclosure Requirements 2004.
Our audit was completed on 20 November 2006 and our unqualified opinion is expressed as at that date.
PricewaterhouseCoopers
Chartered Accountants Auckland
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 10,862
Operating surplus before interest and income tax adjusted pursuant to regulation 18 (OSBIIT) 10,862
Interest on cash, bank balances, and short-term investments (ISTI) 117
OSBIIT minus ISTI 10,745 a 10,745 10,745
Net surplus after tax from financial statements 5,386
Net surplus after tax adjusted pursuant to regulation 18 (NSAT) 5,386 n 5,386
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) 2,779
Depreciation of SFA at ODV (y) 2,769
ODV depreciation adjustment 9 d add 9 add 9 add 9
Subvention payment tax adjustment 0 s*t deduct 0 deduct 0
Interest tax shield 656 q deduct 656
Revaluations 0 r add 0
Income tax 3,372 p deduct 3,372
Numerator 10,755 5,396 6,727
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) 74,613
Fixed assets at end of current financial year (FA1) 74,962
Adjusted net working capital at end of previous financial year (ANWC0) 144
Adjusted net working capital at end of current financial year (ANWC1) 1,255
Average total funds employed (ATFE) 75,487 c 75,487 75,487
(or regulation 33 time-weighted average)
Total equity at end of previous financial year (TE0) 44,491
Total equity at end of current financial year (TE1) 45,020
Average total equity 44,755 k 44,755
(or regulation 33 time-weighted average)
WUC at end of previous financial year (WUC0) 138
WUC at end of current financial year (WUC1) 162
Average total works under construction 150 e deduct 150 deduct 150 deduct 150
(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) 73,765
System fixed assets at end of current financial year at book value (SFAbv1) 74,084
Average value of system fixed assets at book value 73,925 f deduct 73,925 deduct 73,925 deduct 73,925
(or regulation 33 time-weighted average)
System Fixed assets at year beginning at ODV value (SFAodv0) 73,173
System Fixed assets at end of current financial year at ODV value (SFAodv1) 73,501
Average value of system fixed assets at ODV value 73,337 h add 73,337 add 73,337 add 73,337
(or regulation 33 time-weighted average)
Denominator 74,749 44,018 74,749
ATFEADJ = c - e - f + h Ave TEADJ = k - e - m + v - f + h ATFEADJ = c - e - ½r - f + h
Financial Performance Measure: 14.39 12.26 9.00
ROF = OSBIITADJ/ATFEADJ x 100 ROE = NSATADJ/ATEADJ x 100 ROI = OSBIITADJ/ATFEADJ x 100
HORIZON ENERGY DISTRIBUTION LIMITED
Requirement 14 - Financial and Efficiency Performance Measures
For the year ended 31 March 2006
2006 2005 2004 2003
1) Financial Performance Measures
(a) Return on Funds (ROF) j 14.39% 11.73% 14.77% 15.90%
(b) Return on Equity (ROE) j 12.26% 8.78% 13.19% 15.34%
(c) Return on Investment (ROI) j 9.00% 7.04% ‚ 27.45% 9.97%
j The higher Return Measures for 2006 reflects the one-off Award as detailed in Note 22.
The Company's normalised ROI is 7.44% (after removing the $1.74m Arbitration Award).
Inclusion of the net reduction in expenses of $0.66m (inclusion of the $1.74m Award less
the refund and other related provisions of $1.08m would reduce the ROI to 8.03%.
The Company's normalised ROF is 12.82% (after removing the $1.74m Arbitration Award).
Inclusion of the net reduction in expenses of $0.66m (inclusion of the $1.74m Award less
the refund and other related provisions of $1.08m) would reduce the ROF to 13.42%.
The Company's normalised ROE is 9.60% (after removing the $1.74m Arbitration Award).
Inclusion of the net reduction in expenses of $0.66m (inclusion of the $1.74m Award less
the refund and other related provisions of $1.08m) would reduce the ROE to 10.62%.
‚ The higher Return on Investment for the 2004 year is due to the revaluation of Fixed Assets.
2006 2005 2004 2003
2) Efficiency Performance Measures
(a) Direct Line Costs per kilometre " $430 ƒ $929 $677 $608
(b) Indirect Line Costs per Customer … $78 $81 $69 $65
ƒ The increase in direct line costs per kilometre for 2005 is attributable to increased maintenance
resulting from damage caused by extreme weather events .
" Direct line costs have been reduced by the treatment of the $1.43m decrease in expenditure associated
resolution of the Arbitration Proceedings partially offset by increased maintenance costs assoicated
with extreme weather events
… Indirect costs per customer have been incresaed by one-off legal and consultants fees related to the
successful Award as detailed in Note 22.
PRICEWATERHOUSECOOPERS
Auditors' Opinion of Performance Measures
Horizon Energy Distribution Limited - Lines Business
We have examined the attached information, being:-
(a) a derivation table; and
(b) an annual ODV reconciliation report; and
(c) financial performance measures; and
(d) financial components of the efficiency performance measures
that were prepared by Horizon Energy Distribution Limited - Lines Business and dated 14 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 Auckland
20 November 2006
HORIZON ENERGY DISTRIBUTION LIMITED
Requirement 20 - Energy Delivery Efficiency Performance Measures
For the year ended 31 March 2006
2006 2005 2004 2003
1) Energy Delivery Efficiency Performance Measures
(a) Load Factor 73.35% 73.22% 76.33% 76.71%
(b) Loss Ratio 3.03% 3.88% 3.48% 3.72%
(c) Capacity Utilisation 50.87% 53.33% 46.16% 47.64%
2) Statistics
(a) System Length (km)
110 kV - - - -
33 kV 181 180 180 180
11 kV 1,694 1,679 1,669 1,663
400 Volt 529 534 556 550
Total System Length (km) 2,404 2,393 2,404 2,393
(b) Circuit Length - Overhead (km)
110 kV - - - -
33 kV 177 177 176 176
11 kV 1,533 1,533 1,532 1,528
400 Volt 242 271 300 298
Total Circuit Length - Overhead (km) 1,952 1,981 2,007 2,001
(c) Circuit Length - Underground (km)
110 kV - - - -
33 kV 3 3 4 4
11 kV 161 146 137 136
400 Volt 287 263 256 252
Total Circuit Length - Underground (km) 451 412 397 392
(d) Transformer Capacity (kVA) 184,947 173,655 187,263 188,000
(e) Maximum Demand (kW) 94,074 92,615 86,444 89,567
(f) Total electricity entering system (before losses) (kWh) 604,433,814 594,055,073 579,559,451 601,855,016
(g) Total electricity supplied from system (after losses) on
behalf of an electricity generator and/or retailer (kWh)
Retailer A 253,190,431 272,356,795 246,530,377 250,470,780
Retailer B 1,291,437 1,427,951 1,323,049 770,147
Retailer C 288,443 196,910 169,520 99,734
Retailer D 3,817,347 3,211,834 2,498,521 3,163,394
Retailer E 4,601,277 3,619,012 1,455,924 4,464,636
Retailer F 2,626,723 873,558 5,152,620 1,471,434
Retailer G - - - -
Retailer H - - - -
Retailer I - - - -
Retailer J 320,840,581 289,325,966 302,243,165 319,033,932
Total (kWh) 586,656,239 571,012,026 559,373,176 579,474,057
(h) Total consumers 23,887 23,572 23,458 23,304
Requirement 21 Reliability Performance Measures
For the year ended 31 March 2006
2006 2005 2004 2003
1) Interruptions
Class A - Transpower planned interruptions 1 8 1 2
Class B - Horizon planned interruptions 68 51 67 57
Class C - Horizon unplanned interruptions 110 125 83 80
Class D - Transpower unplanned interruptions 6 5 4 4
Class E - Horizon generation unplanned interruptions - - - -
Class F - Other generation unplanned interruptions - 2 - -
Class G - Other line owner unplanned interruptions - 1 - -
Class H - Other line owner planned interruptions - - - -
Class I - Not in A to H 2 - - -
Total Number of Interruptions 187 192 155 143
2007 2006 2005 2004 2003
2) Interruption Targets (Next Year)
(a) Planned interruptions (Class B) 62 62 62 80 80
(b) Unplanned interruptions (Class C) 82 82 82 85 75
3) Average Interruption Targets (Next 5 Years)
(a) Planned interruptions (Class B) 62 62 62 80 80
(b) Unplanned interruptions (Class C) 82 82 82 85 75
4) Proportion of Class C interruptions not restored within
(a) 3 hours 25.00% 33.60% 14.46% 15.00%
(b) 24 hours 0.89% 8.80% 0.00% 0.00%
5) Faults per 100 km of prescribed voltage line
(a) Number of faults
110 kV - - - -
33 kV 4.0 3.9 0.6 0.6
11 kV 9.0 7.0 4.9 4.7
Total Number of Faults 8.5 6.7 4.6 4.3
2007 2006 2005 2004 2003
(b) Number of Faults Targeted
110 kV - - - - -
33 kV - - - - 1.1
11 kV 4.9 4.9 4.9 5.1 4.4
Total Number of Faults Targeted 4.4 4.5 4.5 4.6 4.1
(c) Average Number of Faults Targeted (Next 5yrs)
110 kV - - - - -
33 kV - - - - 1.1
11 kV 4.9 4.9 4.9 5.1 4.4
Total Average Number of Faults Targeted 4.4 4.5 4.5 4.6 4.1
Requirement 21 Reliability Performance Measures (Continued)
For the year ended 31 March 2006
2006 2005 2004 2003
6) Number of Faults per 100 km of Underground Prescribed Voltage Line
110 kV - - - -
33 kV - - - -
11 kV 4.8 4.8 4.4 1.5
Total Underground Faults / 100km 4.7 4.7 4.4 1.4
7) Number of Faults per 100 km of Overhead Prescribed Voltage Line
110 kV - - - -
33 kV 4.0 4.0 0.6 0.6
11 kV 7.2 7.2 5.0 5.0
Total Overhead Faults / 100km 6.9 6.9 4.6 4.6
8) SAIDI for Total Number of Interruptions ‡ 292 ‡ 987 219 192
‡ Due to extreme weather events as set out in the Company's 2005 and 2006 Threshold
Compliance Statements.
2007 2006 2005 2004 2003
9) SAIDI Targets (Next Year)
(a) Planned interruptions (Class B) 45 45 45 45 45
(b) Unplanned interruptions (Class C) 100 100 100 100 67
10) Average SAIDI Targets (Next 5 Years)
(a) Planned interruptions (Class B) 45 45 45 45 45
(b) Unplanned interruptions (Class C) 100 100 100 100 67
11) SAIDI for Total Interruptions by Class
Class A - Transpower planned interruptions 14 251 74 87
Class B - Horizon planned interruptions 31 22 25 20
Class C - Horizon unplanned interruptions 156 331 108 77
Class D - Transpower unplanned interruptions 84 372 12 8
Class E - Horizon generation unplanned interruptions - - - -
Class F - Other generation unplanned interruptions - - - -
Class G - Other line owner unplanned interruptions 4 11 - -
Class H - Other line owner planned interruptions - - - -
Class I - Not in A to H - - - -
Requirement 21 Reliability Performance Measures (Continued)
For the year ended 31 March 2006
2006 2005 2004 2003
12) SAIFI for Total Number of Interruptions ˆ 2.48 ˆ 3.54 1.62 1.60
ˆ Due to extreme weather events as set out in the Company's 2005 and 2006 Threshold
Compliance Statements
2007 2006 2005 2004 2003
13) SAIFI Targets (Next Year)
(a) Planned interruptions (Class B) 0.30 0.30 0.30 0.30 0.33
(b) Unplanned interruptions (Class C) 1.50 1.50 1.50 1.50 1.30
14) Average SAIFI Targets (Next 5 Years)
(a) Planned interruptions (Class B) 0.30 0.30 0.30 0.30 0.33
(b) Unplanned interruptions (Class C) 1.50 1.50 1.50 1.50 1.30
15) SAIFI for Total Interruptions by Class
Class A - Transpower planned interruptions 0.04 0.76 0.18 0.17
Class B - Horizon planned interruptions 0.16 0.11 0.15 0.18
Class C - Horizon unplanned interruptions 1.89 2.35 1.10 0.88
Class D - Transpower unplanned interruptions 0.31 0.16 0.19 0.36
Class E - Horizon generation unplanned interruptions 0.00 0.00 0.00 0.00
Class F - Other generation unplanned interruptions 0.00 0.07 0.00 0.00
Class G - Other line owner unplanned interruptions 0.04 0.09 0.00 0.00
Class H - Other line owner planned interruptions 0.00 0.00 0.00 0.00
Class I - Not in A to H 0.00 0.00 0.00 0.00
16) CAIDI for Total Number of Interruptions 118 279 135 120
2007 2006 2005 2004 2003
17) CAIDI Targets (Next Year)
(a) Planned interruptions (Class B) 150 150 150 150 136
(b) Unplanned interruptions (Class C) 67 67 67 67 52
18) Average CAIDI Targets (Next 5 Years)
(a) Planned interruptions (Class B) 150 150 150 150 136
(b) Unplanned interruptions (Class C) 67 67 67 67 52
19) CAIDI for Total Interruptions by Class
Class A - Transpower planned interruptions 343 330 411 501
Class B - Horizon planned interruptions 189 200 167 111
Class C - Horizon unplanned interruptions 82 141 98 87
Class D - Transpower unplanned interruptions 268 2,325 63 22
Class E - Horizon generation unplanned interruptions - - - -
Class F - Other generation unplanned interruptions - - - -
Class G - Other line owner unplanned interruptions 114 122 - -
Class H - Other line owner planned interruptions - - - -
Class I - Not in A to H - - - -
Schedule 1 Part 8 - Annual Valuation Reconciliation Report
A reconciliation of movements in the ODV carrying value follows :
Lines
Business
2006
$000
Total System fixed assets - end of the previous financial year 73,173
Add system fixed assets acquired during the year at ODV 3,098
Less system fixed assets disposed of during the year at ODV -
Less depreciation on system fixed assets at ODV (2,769)
Add revaluations of system fixed assets -
Equals system fixed assets at ODV - end of the financial year 73,501
FORM 4
CERTIFICATION OF FINANCIAL STATEMENTS, PERFORMANCE MEASURES,
AND STATISTICS DISCLOSED BY HORIZON ENERGY DISTRIBUTION LIMITED
We, Colin George Houston Holmes, and Graeme Scott Hawkins, Directors of Horizon Energy Distribution Limited certify that, having made all reasonable enquiry, to the best of our knowledge;-
(a) The attached audited financial statements of Horizon Energy Distribution Limited prepared for the purposes of Requirement 6 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 Horizon Energy Distribution Limited, and having been prepared for the purposes of Requirements 14, 15, 20, and 21 of the Electricity Information Disclosure Requirements 2004, comply with the Requirements.
The valuations on which those financial performance measures are based are as at 31 March 2004.
C G Holmes (Director)
G S Hawkins (Director)
Date: 14 November 2006