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09ANNUALR E P O R T

TPCLneTworkmanagedbyPowerneTLTd

Electricity Networks We Manage

Electricity Network Areas

ElectricitySouthland Limited

The Power Company Limited

LumsdenTapanui

Te Anau

Tuatapere Winton

Ranfurly

Palmerston

Dunedin

Clinton

Gore

Riverton Invercargill

Bluff

Stewart Island

Frankton

Balclutha

Owaka

MatauraMilton

Monowai

Manapouri Athol

Garston

The Year in Review 1

Directors’ Report 4

Directors’ Profiles 6

Trustees 6

Trustees’ Report 7

Approval by Directors 8

Statement of Service Performance 9

Income Statements 10

Statements of Changes in Equity 11

Balance Sheets 12

Statements of Cash Flows 13

Notes to the Financial Statements 14

Auditor’s Report 41

DirectorsAlan Harper (Chairman)

Cam McCulloch (Deputy Chairman)

Douglas Fraser

Maryann Macpherson

Head Office251 Racecourse Road

PO Box 1748

Invercargill 9840

New Zealand

Telephone: 03 211 1899

Facsimile: 03 211 1875

Website: www.tpcl.co.nz

Principal BankersANZ National Bank Limited

Westpac Banking Corporation

AuditorsPricewaterhouseCoopers, Christchurch

SolicitorsAWS Legal

09ANNUALR E P O R T

CONTENTS DIRECTORY


1. General

It has been a satisfactory year for The Power Company Limited

(Company) meeting the ongoing challenge of maintaining the

required quality supply to its consumers as the number of

connections and demand on the network increased significantly

through the continuing expansion of dairy farms within

Southland. An additional 78 dairy farms and over 400 new

houses were connected to the network. The ongoing increased

annual capital expenditure levels at $18 million compared to

the annual depreciation for the network assets of $12 million,

demonstrates the Company’s commitment to investment in the

network infrastructure to realise present and future benefits to

the Southland and West Otago economy.

During the latter part of the year there were indications of a slow

down in this increase in load and the focus of our engineering

staff and field services shifted to catching up on some overdue

maintenance on the network.

Major upgrades were either completed or continued at Mataura,

Gorge Road, Bluff and Mossburn substations but some work

on new 66kV subtransmission lines was deferred in favour of

maintenance as the impact of the downturn in the economy

became more uncertain.

Performance of the network met the Commerce Commission

target thresholds but was slightly outside the Business Plan targets

for the year.

The main source of revenue for the Company is attributable to

the Use Charge received from PowerNet Limited (PowerNet) for

the lease of the network assets. This Use Charge calculation takes

into account a specified rate of return on the book value of the

assets, depreciation and the corporate costs of the Company.

Other revenue is derived from the capital contributions of

customers connecting new installations to the network and

the profits from the Company’s investments in OtagoNet Joint

Venture, Otago Power Services Limited, Power Services Limited

and Electricity Southland Limited.

2. Financial Performance

The Group produced a net surplus after tax for the year ended

31 March 2009 of $9.738 million (2008: $12.730 million).

The decrease in the net surplus after tax of $2.992 million is mainly

due to the previous year’s results being boosted by $2.805 million

by a one off change in the corporate tax rate. Other items affecting

this year’s surplus included an increase in revenue from network

charges of $4.173 million offset by an increase in the consumer

discount of $0.963 million and an unfavourable movement in the

value of interest rate derivatives of $1.299 million.

The Company, through its Southland Electric Power Supply

Consumer Trust (Trust) ownership, had historically provided an

implicit discount to its consumers through lower line pricing;

this is demonstrated by the Company previously having one of

the lowest rates of return of any New Zealand lines business as

measured by the Commerce Commission. The view of Directors

was that the return required a substantial increase as, without an

improved return, the ability to fund investment in the network,

maintain the quality of supply to consumers and preserve the

value of the assets would be jeopardised.

In 2005, after consultation with the Trustees and industry experts

regarding these issues, the Board resolved to move away from

implicit discounts and move towards achieving a return which

begins to approach the Company’s Weighted Average Cost of

Capital. As a result, the operating surplus before the discount

has increased from $3.446 million in 2005 to $16.517 million

in 2009. This has enabled Directors to consider a balance

between increased investment in the network, retirement of

debt and the crediting of explicit discounts. Directors were

aware that the increase in line charges would result in the

Company breaching the Commerce Commission Price Path

Threshold for future years.

These decisions were further vindicated in March 2009 when the

Commerce Commission completed its post-breach inquiry and

made its final decision not to declare control in respect of the

breaches of the price path and quality thresholds at the 31 March

2008 assessment date.

The investments in OtagoNet Joint Venture, Otago Power Services

Limited and Power Services Limited have all generally met

expectations both financially and operationally. OtagoNet Joint

Venture and Otago Power Services Limited continue to contribute

positively to both the cash flow and net profit of the Group.

Overall the strong financial position, future operating results and

cash flow and continued growth prospects in the Southland and

Otago areas have the Group well positioned for the future.

The consolidated result for the Group is:

2009 2008

$000 $000

Operating Surplus before Discount 16,517 15,917

Less Discount to Consumers (4,906) (3,943)

Operating Surplus before Taxation 11,611 11,974

Taxation (Expense)/Benefit (1,873) 756

Net Surplus after Taxation 9,738 12,730

1

THE YEAR IN REVIEW

3. Operational Performance

The Company has continued to significantly increase its investment

in its distribution network to meet customer requirements in supply

quality and reliability, to allow increased generation to be established

in Southland and to meet the growing demand for power.

Customers were again given the opportunity during the year to

comment on the Asset Management Plan to ensure the Company

will continue to meet their requirements in the future.

The reliability statistics did not meet the SAIFI and SAIDI

interruption targets in the Statement of Intent.

The main reasons for the higher SAIFI result were the relaxation

in live line policy limits to allow an increased level of de-energised

work to be carried out on the lines to meet the increased

demand for new connections and to facilitate vegetation control

and there was an increasing number of minor incidents due to

deterioration.

The increase in SAIDI was primarily due to the relaxation in the

live line policy.

The target and actual SAIFI and SAIDI reliability indices are shown

below:

SAIFI - System Average Interruption Frequency Index

(the average number of times each year that each customer

connected to the network is without supply)

Target Actual

3.32 4.18

SAIDI - System Average Interruption Duration Index

(the average total time in minutes each year that each customer

connected to the network is without supply)

Target Actual

205.23 minutes 218.18 minutes

The SAIFI was better than the Commerce Commission target

of 4.32 and the SAIDI was also better than the Commerce

Commission target of 240.28 minutes.

Metering assets and load control relays were also retained by the

Company and managed by PowerNet during this period.

4. PowerNet Limited

The Power Company Limited has a 50% shareholding in PowerNet,

a joint venture with Electricity Invercargill Limited (50%). PowerNet

is responsible for managing the Company’s network, metering

assets and business interests.

This management is executed through a capital and maintenance

works programme which constitutes the major part of the

Business Plan approved by the Directors.

PowerNet publishes its own annual report and, as a break-even

company, its performance is reflected in the reliability statistics and

line charges for each of the respective networks that it manages.

5. Investment and Development

Investigations to increase investment and development have

been channelled through the joint venture company Electricity

Southland Limited, particularly those with a view to obtaining

further economies of scale and improved efficiencies of network

management.

The 50% investment in Electricity Southland Limited with Electricity

Invercargill Limited (50%) did not meet its overall projections this

year as revenue from the embedded networks in Frankton was

below target due to less new construction completed this year than

originally anticipated. Directors are pleased with the investment

however and remain confident the continuing development in the

area will meet the Company’s medium and long term projections.

The Company completed the fifth year of its 24.5% investment

in the electricity network owner OtagoNet Joint Venture and the

electrical contracting company Otago Power Services Limited

with its neighbour Electricity Invercargill Limited (24.5%) and

Marlborough Lines Limited (51%).

The Otago based investments performed as anticipated,

contributing a positive cash flow and increased profitability in

addition to the benefits of a strategic partnership and acquisition

of a strategic asset. Directors are pleased with the fifth year’s

performance and the shareholders are projected to benefit

further from increased dividends and growth in value in the years

to come. The higher revenue from the recent line charge increases

has enabled significant additional expenditure on renewing and

upgrading network assets, increasing the value of the network and

improving supply quality to the customers.

The Company is also a 51% shareholder in the electrical contracting

company Power Services Limited. The other shareholder in this

company is Electricity Invercargill Limited. Power Services Limited

has the lines and technical field service contracts for the western

part of The Power Company Limited network.

The Power Company Limited is keen to continue developing its

relationships with its joint venture partners in the interests of its

stakeholders.

09ANNUALR E P O R T2

THE YEAR IN REVIEW CONTINUED


The following major projects on The Power Company Limited

network were completed during the year :

Project Approximate Expenditure

New Customer Connections $5,456,000

Mossburn Substation Upgrade $2,955,000

Vegetation Management $1,107,000

Reticulation of New Subdivisions $851,000

Gorge Road, Mataura and Bluff

Substations – Completion of Upgrades $629,000

Distribution Transformer Replacements $543,000

6. Southland Warm Homes Trust

The Southland Warm Homes Trust (SWHT) was formed last

year by the Trust and Electricity Invercargill Limited. The SWHT,

in association with the Energy Efficiency and Conservation

Authority (EECA), offers support for warmer, healthier homes

by providing insulation and heating assessments and retrofits for

Southland homes.

The Invercargill City Council, Gore and Southland District

Councils, Environment Southland, Invercargill Licensing Trust, ILT

Foundation, Community Trust of Southland and Southland Primary

Health Organisations have also contributed to the project. The

Southland Times and Work and Income New Zealand have also

provided indirect support for the project.

The SWHT contracted Energy Smart in June 2008 to provide

the assessments on behalf of the Trust and to coordinate the

installations of insulation and heating products.

The SWHT project offers a range of subsidies for all home owners

and landlords with homes built before 2000. The project had an

annual budget of $2.5 million which will increase this year to

$4 million due to a recently announced increase in EECA funding.

Twenty jobs have been created as a result of this project.

7. Regulatory Environment

The significant work streams that took place last year for the

industry with the review of the Commerce Act came to fruition

this year. The outcome of the amended Commerce Act is likely

to see a significant improvement in the regulatory environment.

It was particularly pleasing to see Members of Parliament and

officials within the Ministry of Economic Development and

Commerce Commission take on board the comments and

concerns of the lines industry. The amendments give the sector

the opportunity to operate in a more certain environment in

the future.

As a consumer owned lines business the Company is now exempt

from the price path and quality control regime and only subject to

the lighter handed Information Disclosure regime. The outcome

is particularly pleasing and allows the consumers to ensure the

Company operates in a manner that meets their needs without

incurring additional costs of regulatory intervention.

Post-breach Inquiry

The Company has been subject to a Commerce Commission

post-breach inquiry of the price path and quality threshold

relating to a series of price increases that commenced on 1 April

2005. The increases will be in excess of the 2010 threshold by

$8.0 million or 36%. In March 2009 the Commission advised

that it had completed its post-breach inquiry and made its final

decision not to declare control in respect of the breaches up to

31 March 2008.

The Company was pleased with the outcome of the Commerce

Commission’s decision.

The Company awaits with interest the development of the

regulatory framework from the Commerce Act amendments,

particularly so with fluctuating short term interest rates, inflation

and levels of economic growth.

8. Acknowledgements

Directors again wish to acknowledge the ongoing support of

the Trustees throughout the year. The open and cooperative

relationship with the Trustees is appreciated by the Directors and

has been to the benefit of the Company.

The Directors also acknowledge the ongoing partnership with

Electricity Invercargill Limited which is continuing to reap benefits

for both Companies.

Directors are pleased with the successful relationship with

Marlborough Lines Limited through the joint venture investment

in the OtagoNet Joint Venture.

Directors also wish to record their appreciation to the staff of

PowerNet Limited who successfully managed the business for

another year.

Alan Harper Cam McCulloch Chairman Deputy Chairman

3

THE YEAR IN REVIEW CONTINUED

The Directors have pleasure in presenting their Annual Report and

Financial Statements for the year ended 31 March 2009.

Principal ActivitiesThe principal activity of the parent entity The Power Company Limited

is the provision of electricity distribution services. The Company is

a wholly owned subsidiary of the Trust. The Group consists of The

Power Company Limited, its subsidiaries, associates and joint ventures.

Result and DistributionThe Directors report that the Group’s profit after tax and interest for

the year under review was $9,738,000. No dividends have been paid

out or declared during the year by the Group.

State of Company’s AffairsThe Directors consider the state of the Company’s affairs to be

satisfactory.

DirectorsThe Directors are appointed by the Shareholder.

Directors’ InterestsThe following entries were made in the Interests Register of the

Company with regard to the Directors:

General:

All Directors are interested in transactions with the Company involving

the supply of standard network services, on standard terms and

conditions, to premises in which they may have one or more of the

following interests:

(a) Owner, either alone or jointly with others.

(b) Parent, child or spouse of another person who may have a material

interest in a property.

(c) Director, officer or shareholder of a body corporate which may

have a material interest in a property.

(d) Trustee or beneficiary of a trust which may have a material interest

in a property.

Because the interest which Directors may have in such transactions

is no different in kind, quality, benefit or obligation from transactions

which the Company has with other network services customers, it

is not intended to list such premises or properties in the Interests

Register.

Director Company Position

Douglas Fraser Electricity Southland Ltd Director

Last Tango Ltd Director

NZ Wool Board

Disestablishment Company Director

PowerNet Ltd Director

Telford Farm Management Board Director

Alan Harper AWS Legal Partner

Electricity Southland Ltd Director


OtagoNet Ltd Director

OtagoNet Joint Venture Chairman

Governing Committee


Southland Finance Ltd Director

Cam McCulloch Electricity Southland Ltd Director

Invercargill City

Holdings Ltd Deputy Chairman

Invercargill Te Ara a Kewa

Primary Health Organisation Chairman


McCulloch & Partners Consultant

PowerNet Ltd Chairman

Southfish Ltd Chairman

Maryann Macpherson

Electricity Southland Ltd Director



Power Services Ltd Director

Venture Southland Director

Alan Harper is a partner of AWS Legal, Solicitors and The Power

Company Limited and PowerNet Limited have engaged this firm for

legal services on a commercial basis.

Remuneration of Directors

The following Directors held office during the year under review and

were paid fees accordingly:

Alan Harper - Chairman

Cam McCulloch - Deputy Chairman

Douglas Fraser - Director

Maryann Macpherson - Director


DIRECTORS’ REPORT


Remuneration paid or due and payable to Directors for services as a

Director and in any other capacity for The Power Company Limited,

during the year was:

Douglas Fraser $17,050

Alan Harper $34,100

Cam McCulloch $22,000

Maryann Macpherson $17,050

Remuneration paid or due and payable to Directors for services as a

Director and in any other capacity for PowerNet Limited, during the

year was:

Douglas Fraser $17,500

Alan Harper $17,500

Cam McCulloch $35,000

Maryann Macpherson $17,500

Employee Remuneration

No employees or former employees received remuneration to the

value of $100,000 or greater during the period.

DonationsThe Company did not make any donations during the period.

Use of Company Information

During the year the Board received no notices from the Directors

of the Company requesting to use Company information received

in their capacity as Directors which would not otherwise have been

made available to them.

Directors’ and Employees’ Indemnity and Insurance

Liability Insurance was effected for Directors of the Company and its

subsidiary companies.

Accounting Policies

There have been no changes in accounting policies during the year.

These have been applied on a basis consistent with those used in the

previous year.

Auditor Remuneration

Refer to Note 3 of the Financial Statements for Auditor

remuneration.

For and on behalf of the Directors.

Alan Harper Chairman

Cam McCullochDeputy Chairman

5

DIRECTORS’ REPORT CONTINUED

Cam McCulloch (Deputy Chairman) FCA Cam is a Consultant with

McCulloch and Partners,

Chartered Accountants. He

is Chairman of PowerNet

Limited, Southfish Limited

and Invercargill Te Ara a Kewa

Primary Health Organisation.

Cam is also Deputy Chairman

of Invercargill City Holdings

Limited.

Doug Fraser BSc (Chemistry)Doug farms sheep and dairy

cows on 595 hectares in

Western Southland.

He is a Director of the NZ

Wool Board Disestablishment

Company and PowerNet

Limited.

Maryann MacphersonMaryann currently operates

a home and garden retail

business in Invercargill.

Her career background

is farming and taxation

management.

Maryann is a Director of

PowerNet Limited and Venture

Southland and Chairman of

Power Services Limited.

Previous governance roles have

included Chairman of Southern

Health Limited and Landbase

Trading Society Limited.

Alan Harper (Chairman) LLB BCom Alan is a partner in the law

firm of AWS Legal. He has

practised with the firm since

1979, specialising particularly in

commercial and company affairs.

He is Chairman of OtagoNet

Joint Venture, is a Local Advisory

Board Member for South

Canterbury Finance Limited and

a Director of PowerNet Limited.

Alan is also an Accredited Fellow

of the Institute of Directors.

TRUSTEES


DIRECTORS’ PROFILES

Ron McDonald

Vaughan Templeton(Chairman)

Graham SycamoreDon Nicolson Jim Hargest


Governance and Consultation

In its eleventh year of operation the Trustees have continued to

exercise the ownership rights of The Power Company Limited on

behalf of its consumer owners.

Trustees had the opportunity to comment on the Company’s

Statement of Intent and Business Plan projections prior to finalisation

by the Company’s Board of Directors. Of particular focus were the

Asset Management Plan, capital investments, return on investment

and the price and quality of service to consumers. No requests for

information were received from consumers that the Trustees have not

been able to respond to.

Trustees note the continued high level of capital investment in the

network required to meet the network load growth due to the

expansion in dairy farm conversions, associated industry developments

and the continuing number of residential subdivisions.

The Company’s performance is monitored throughout the year in

relation to the Statement of Intent and Business Plan. The Trust’s

Strategic Plan is reviewed annually as an aid to ensure compliance

with all aspects of its Trust Deed.

Core Business

The Company’s core business continues to be the ownership and

management of assets involved in the distribution of electricity or

similar products and associated services.

Management of these assets is principally through the joint venture

company PowerNet Limited.

Financial

The Company achieved a satisfactory operating surplus of $16.51

million before tax and the discount, exceeding its target of $15.908

million for the year. The high level of capital contributions for new

network connections contributed to the improved surplus.

Line Charges

Line charges were increased by 7.5% this year in line with the

Company’s intention to move to a sustainable return on investment.

This has provided funds for reinvestment in the network required to

meet the current and projected significant load growth and has also

continued the policy of replacing implicit discounts through lower line

charges with explicit discounts.

The Trust supports the Company’s line pricing plan as being in the

best long-term interests of its consumer owners and the performance

of the network.

The Trust notes that the breaches of the Commerce Commission

price and quality path thresholds up to March 2008 have been resolved

and welcomes the change to the Commerce Act which removes price

path thresholds in favour of the new Information Disclosure regime

for 100% consumer trust owned businesses.

Trustees believe that the interests of consumers are fully protected by

the nature of the consumer trust ownership and the regular election

of Trustees by consumers.

Consumer Discount

An explicit discount of $5.6 million (including GST) was credited to

consumers in September/October 2008.

Lines Operation

Trustees support the Company’s programme of major investment in

its network to meet the increases in demand, maintain the required

quality of supply and ensure the overall value of investment in the

network assets is maintained.

The Statement of Intent SAIDI (System Average Interruption

Duration Index) and SAIFI (System Average Interruption Frequency

Index) targets for supply interruptions were not met during the year

but the Commerce Commission overall quality threshold targets

were not breached. The main reasons for not meeting the Company

targets were an increase in de-energised work on the network and an

increased number of minor line faults.

OtagoNet Joint Venture

The OtagoNet Joint Venture continues to provide positive cashflows

for the Company and, along with Otago Power Services Limited, is

performing satisfactorily and is currently meeting the profitability

projections made at the time of acquisition. Trustees are happy with

this long term investment.

Southland Warm Homes Trust

The Trust decided to support the formation of the Southland Warm

Homes Trust to enable consumers to take advantage of the assistance

provided by the government via the Energy Conservation Authority

for insulation and clean heat retrofitting of homes built prior to 2000.

Trustees recommended to the Board and management that $250,000

be granted to the SWHT to help fund the energy assessment required

before a home could be retrofitted.

Our ambition is for the energy assessment to be available to all

householders in our network over time and consumers will then have

the option of taking advantage of the funding available at that time.

Energy Trusts Association

Trustees continue to support the Energy Trusts of New Zealand

(ETNZ) as an effective voice representing the interests of Energy

Trusts and their consumers.

7

TRUSTEES’ REPORT

Approval by Directors

The Directors have approved the Financial Statements of The Power Company Limited for the year ended 31 March 2009 on pages 9 to 40.

For and on behalf of the Board of Directors

25 June 2009

Alan Harper Cam McCullochChairman of Directors Deputy Chairman of Directors

Administration

Trustees wish to acknowledge the work of their Secretary Amy Vincent

and thank Blair Morris, for his financial services provided during the year.

Vaughan TempletonChairman

Southland Electric Power Supply Consumer Trust

Directors

The composition of the Board was unchanged during the year under

review and Trustees and Directors have maintained a good working

relationship. Trustees appreciate the efforts of the Board and PowerNet

management and staff in ensuring the security of electricity supply to

their consumers.


TRUSTEES’ REPORT CONTINUED

THE POWER COMPANY LIMITED FINANCIAL STATEMENTS For the Year ended 31 March 2009


The objectives of The Power Company Limited for this financial year are specified in the Statement of Intent, which was approved by the

Shareholders. The performance targets and measures identified in the Statement of Intent, along with the performance achieved during the

financial year, are detailed below.

GROUP TARGET ACHIEVEMENT

2009 2009 2008 Performance Targets $000 $000 $000

Financial Measures Inclusive Exclusive Inclusive Exclusive of Discount of Discount of Discount of Discount

Operating Surplus Before Tax 15,908 11,611 16,517 11,974 15,917

Earnings Before Interest and Tax % 5.24% 4.23% 5.76% 4.50% 5.76%

Return on Equity % 4.46% 3.90% 5.75% 5.31% 6.84%

Equity to Total Assets % 75.70% 77.84% 79.37% 76.71% 77.97%

TARGET ACHIEVEMENT

2009 2009 2008

Network Reliability Performance MeasuresSystem Average Interruption Duration Index (SAIDI)

The average total time in minutes each customer connected to the network is without supply.

Total Interruptions 205.23 218.18 296.69

System Average Interruption Frequency Index (SAIFI)

The average number of times each customer connected to the network is without supply.

Total Interruptions 3.32 4.17 3.77

Other Network Reliability Performance Measures

Total number of interruptions 1,329 975

Faults per 100km of line 6.36 8.48

Supplementary InformationNetwork Statistics

Length of overhead line 8,287 km 8,331 km

Length of underground cable 297 km 271 km

Transformer capacity MVA 356 345

Maximum demand kW 125,886 119,500

Energy into network GWh 731 706

Total consumers 33,690 32,998

9

STATEMENT OF SERVICE PERFORMANCE For the year ended 31 March 2009

09ANNUALR E P O R T

GROUP PARENT

Note 2009 2008 2009 2008 $000 $000 $000 $000

Operating Revenue (2) 48,535 44,362 23,778 21,774

Other Income (2) 9,011 7,735 7,859 7,488

Operating Expenses (3) (38,238) (34,055) (14,183) (13,510)

Finance Costs (3) (3,242) (2,151) (3,158) (1,969)

Share of Profit of Associates (9) 451 26 - -

Operating Surplus Before Discount 16,517 15,917 14,296 13,783

Discount to Consumers (3) (4,906) (3,943) (4,906) (3,943)

Operating Surplus Before Taxation (4) 11,611 11,974 9,390 9,840

Taxation Expense

Current (4) (3,523) (3,503) (2,360) (2,646)

Deferred (4/18) 1,650 4,259 1,668 4,272

Net Surplus After Taxation (21) 9,738 12,730 8,698 11,466

Net Surplus Attributable to Minority Interest (12) (230) (174) - -

Net Surplus Attributable to Parent 9,508 12,556 8,698 11,466

The accompanying notes on pages 14 to 40 form part of and should be read in conjunction with these financial statements.

10

INCOME STATEMENTS For the year ended 31 March 2009


GROUP PARENT

Note 2009 2008 2009 2008 $000 $000 $000 $000

Total Recognised Income and Expenses for the Year

Net Surplus for the Year comprising:

Parent Interest 9,508 12,556 8,698 11,466

Minority Interest 230 174 - -

9,738 12,730 8,698 11,466

Revaluation of Assets (5) - 753 - 753

Effect of Change in Tax Rate on Revaluation Reserve (18) - 1,162 - 1,162

9,738 14,645 8,698 13,381

Contributions from Shareholders - - - -

Distributions to Shareholders - - - -

Changes in Equity for the Year 9,738 14,645 8,698 13,381

Equity at Beginning of Year comprising:

Parent Interest 238,967 224,496 236,191 222,810

Minority Interest 938 764 - -

239,905 225,260 236,191 222,810

Equity at End of Year comprising:

Parent Interest 248,475 238,967 244,889 236,191

Minority Interest (12) 1,168 938 - -

(5) 249,643 239,905 244,889 236,191


11

STATEMENTS OF CHANGES IN EQUITY For the year ended 31 March 2009

09ANNUALR E P O R T

GROUP PARENT

Note 2009 2008 2009 2008 $000 $000 $000 $000

Equity

Share Capital (5) 29,622 29,622 29,622 29,622

Asset Revaluation Reserve (5) 27,013 27,058 27,013 27,058

Retained Earnings (5) 191,840 182,287 188,254 179,511

Parent Equity 248,475 238,967 244,889 236,191

Minority Interest Equity (12) 1,168 938 - -

Total Equity (5) 249,643 239,905 244,889 236,191

Represented By:

Current Assets

Cash and Cash Equivalents (6) 1,151 582 58 333

Receivables and Prepayments (7) 5,967 5,226 2,982 3,695

Inventories (8) 500 212 - -

Work in Progress 312 383 - -

Income Tax Receivable - 482 - 318

Interest Rate Swaps (22) - 54 - 54

Total Current Assets 7,930 6,939 3,040 4,400

Non Current Assets

Investments in Associates (9) 3,994 3,390 2,164 2,864

Investments in Subsidiaries (10) - - 30,229 30,043

Investments in Joint Ventures (11) - - 6,440 4,700

Property, Plant and Equipment (13) 289,775 285,372 258,664 255,421

Capital Work in Progress 14,599 12,820 14,084 11,910

Intangibles (14) 4,421 3,920 20 -

Interest Rate Swaps (22) - 315 - 315

Total Non Current Assets 312,789 305,817 311,601 305,253

Total Assets 320,719 312,756 314,641 309,653

Current Liabilities

Creditors and Accruals (15) 3,904 4,329 6,323 7,860

Employee Entitlements (16) 921 591 - -

Interest Rate Swaps (22) 340 - 340 -

Income Tax Payable 910 - 435 -

Total Current Liabilities 6,075 4,920 7,098 7,860

Non Current Liabilities

Term Loans (17) 26,422 28,293 25,712 27,583

Deferred Tax Liabilities (18) 37,988 39,638 36,351 38,019

Interest Rate Swaps (22) 591 - 591 -

Total Non Current Liabilities 65,001 67,931 62,654 65,602

Total Liabilities 71,076 72,851 69,752 73,462

Net Assets 249,643 239,905 244,889 236,191

The accompanying notes on pages 14 to 40 form part of and should be read in conjunction with these financial statements. 12

BALANCE SHEETS As at 31 March 2009


GROUP PARENT

Note 2009 2008 2009 2008 $000 $000 $000 $000

CASH FLOWS FROM OPERATING ACTIVITIES

Cash Was Provided From:

Receipts from Customers 52,220 46,440 24,295 21,693

Interest Received 307 159 730 588

Dividends Received 38 - 2,043 1,850

52,565 46,599 27,068 24,131

Cash Was Disbursed To:

Payments to Suppliers and Employees 24,362 19,783 3,038 1,018

GST Paid/(Received) (285) 69 (312) 40

Income Tax Paid 2,132 3,567 1,607 2,850

Interest Paid 2,060 1,932 1,967 1,767

28,269 25,351 6,300 5,675

Net Cash Flows From Operating Activities (21) 24,296 21,248 20,768 18,456

CASH FLOWS FROM INVESTING ACTIVITIES


Property, Plant and Equipment Sales 87 251 57 214

87 251 57 214

Cash Was Applied To:

Property, Plant and Equipment Purchases 21,339 22,359 18,003 19,304

Investments in Associates 1,304 (121) - -

Advances to Associates, Joint Ventures and Subsidiaries (700) 950 1,226 2,600

21,943 23,188 19,229 21,904

Net Cash Flows Used in Investing Activities (21,856) (22,937) (19,172) (21,690)

CASH FLOWS FROM FINANCING ACTIVITIES


Term Loans - 3,448 - 3,448

- 3,448 - 3,448

Cash Was Applied To:

Term Loans 1,871 - 1,871 -

1,871 - 1,871 -

Net Cash Flows From Financing Activities (1,871) 3,448 (1,871) 3,448

Net Increase/(Decrease) in Cash and Cash Equivalents Held 569 1,759 (275) 214

Add Opening Cash Brought Forward 582 (1,177) 333 119

Closing Cash and Cash Equivalents To Carry Forward

(6) 1,151 582 58 333


13

STATEMENTS OF CASH FLOWS For the year ended 31 March 2009

09ANNUALR E P O R T

1. Statement of Accounting Policies

Reporting Entity

The Parent Entity, The Power Company Limited, is a profit oriented limited liability company that was incorporated on 30 October 1990

and the address of its registered office is 251 Racecourse Road, Invercargill. The Company is wholly owned by a Consumer Trust (Southland

Electric Power Supply Consumer Trust) and is registered under the Companies Act 1993. The Group consists of The Power Company Limited,

its subsidiaries, and its interest in associates and jointly controlled entities referred to in Notes 9, 10 and 11.

The principal activity of The Power Company Limited is the provision of electricity distribution services.

The financial statements were approved by the Board of Directors on 25 June 2009.

Basis of Preparation

These financial statements are presented in New Zealand dollars, rounded to the nearest thousand.

These financial statements have been prepared in accordance with the requirements of the Energy Companies Act 1992, the Companies

Act 1993, and the Financial Reporting Act 1993. They follow New Zealand Generally Accepted Accounting Practice (NZ GAAP) and comply

with the New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS). These financial statements also comply with

International Financial Reporting Standards.

These financial statements have been prepared on the basis of historical cost except for the revaluation of certain financial instruments as

outlined in note 22 and property, plant and equipment as outlined in note 13.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

Use of Estimates and Judgements

The preparation of financial statements to conform to NZ IFRS requires management to make judgements, estimates and assumptions that

affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from

these estimates. The estimates and associated assumptions have been based on historical experience and other factors that are believed to

be reasonable under the circumstances.

In particular estimates and assumptions have been used in the following areas:

- Property, Plant and Equipment

- Value of Donated Assets

- Employee Benefits

- Recoverable Amount from Cash Generating Units

In the process of applying the Group’s accounting policies, management has made the following judgements, estimates and assumptions that

have the most significant impact on the amounts recognised in these financial statements.

The Group operates extensive integrated electricity distribution networks comprising large numbers of relatively minor individual network

asset components. These components are replaced over time as part of an ongoing maintenance/refurbishment programme, consistent with

the Group’s approved network asset management plans. The costs associated with recording and tracking all individual components replaced

and removed from the networks substantially outweigh the benefits of doing so. Management has estimated the quantities and the carrying

values of components removed from the networks in each reporting period. Any errors in the estimates of such removals are corrected at

the next asset revaluation, and are not considered to be material on either an annual or a cumulative basis with respect to either reported

net surpluses or carrying values of the networks.

The Group enters into arrangements with customers to purchase new network assets at below current replacement costs. Management has

estimated the difference between the cash costs and the replacement costs of these assets and the differences are reported within revenue.

Any errors in estimating the carrying values of these assets are corrected at the next asset revaluation and are not considered to be material

on either an annual or a cumulative basis with respect to either reported net profits or carrying values of the network.

14

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the year ended 31 March 2009

TPCLneTworkmanagedbyPowerneTLTd15

The Group invoices its customers (predominantly electricity retailers) monthly for electricity delivery services on the basis of an estimation of

usage, adjusted for the latest wash-up data available from the electricity wholesale market and certain metering data from electricity retailers.

Management has made an allowance in revenue and in current assets/liabilities for any amounts which are estimated to be under/over charged

during the reporting period. However, as final wash-up metering data is not available for in excess of twelve months, it is possible the final

amounts payable or receivable may vary from that calculated.

Other areas where judgement has been exercised in preparing these financial statements are in relation to calculating the recoverable

amounts from Cost Generating Units and the amounts of employee entitlements.

Specific Accounting Polices

The following specific accounting policies which materially affect the measurement of financial performance and financial position have been

applied:

(a) Principles of Consolidation

(i) Subsidiaries

Subsidiaries are all entities over which the Group has the power directly or indirectly to govern the financial and operating policies

of an entity so as to obtain benefits from its activities. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are

measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net

assets acquired is recognised as goodwill. If, after reassessment, the fair values of the identifiable net assets acquired, exceeds the cost

of acquisition, the difference is credited to the Income Statement in the period of acquisition. The financial statements of subsidiaries

are included in the financial statements from the date that control commences until the date that control ceases.

Minority interests in the results and equity of subsidiaries are shown separately in the Income Statement and Balance Sheet.

(ii) Associates

Associates are those entities over which the Group has significant influence, but not control, over the financial and operating policies.

The financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis,

from the date that significant influence commences until the date that significant influence ceases.

(iii) Joint Ventures

Joint Ventures are those entities over which the Group has joint control established by contractual agreement. The financial statements

include the Group’s proportionate share of the joint venture entities’ assets, liabilities, revenues and expenses with items of a similar

nature on a line by line basis, from the date that joint control commences to the date that joint control ceases.

(iv) Transactions Eliminated on Consolidation

All significant inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on

consolidation. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent

of the Group’s interest in the entity. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment

of the assets transferred.

(v) Parent Investments

Investments in subsidiaries, associates and joint ventures are accounted for at cost in the Parent financial statements.

(b) Revenue

Revenue is measured at the fair value of the consideration given for the sale of goods and services, net of Goods and Services Tax.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer,

recovery of the consideration is probable, the associated costs and possible return of the goods can be estimated reliably and there is no

continuing management involvement with the goods.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2009

09ANNUALR E P O R T

(i) Network Charges

Revenue comprises the amounts received and receivable for goods and services supplied to customers in the ordinary course of

business.

(ii) Customer Contributions

Contributions from customers in relation to the construction of new lines for the network and donated assets are accounted for as

revenue in the year in which they are received.

(iii) Government Grants

Government grants that compensate the Group for the cost of an asset are recognised initially in the Balance Sheet as deferred

income and then recognised in the Income Statement as other operating income on a systematic basis over the useful life of the

asset.

(iv) Financial Income

Financial income comprises interest income on funds invested, dividend income and changes in the fair value of financial assets

through the Income Statement. Interest income is recognised as it accrues, using the effective income method. Dividend income is

recognised on the date the Group’s right to receive payment is established.

(c) Finance Costs

Finance costs comprise interest expense on borrowings, changes in the fair value of financial assets through the Income Statement

and impairment losses recognised on financial assets (except for trade receivables). All borrowing costs are recognised in the Income

Statement using the effective interest method.

(d) Inventories

Inventories are stated at the lower of cost at weighted average cost price, and net realisable value. Obsolete items of inventory (if any)

have been written off.

(e) Property, Plant and Equipment

All property, plant and equipment is recognised at cost less accumulated depreciation and impairment losses. The cost of purchased

property, plant and equipment is the fair value of the consideration given to acquire the assets and the value of other attributable costs

which have been incurred in bringing the assets to the location and condition necessary for their intended service.

The deemed value of property, plant and equipment at 1 April 2006, the date of transition to NZ IFRS, was determined by reference to

its fair value at that date.

The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item if,

when that cost is incurred, it is probable that the future economic benefits embodied within the item will flow to the Group and the cost

of the item can be measured reliably. All other costs are recognised in the Income Statement as an expense as incurred.

The electricity distribution network is valued at fair value. Fair value is determined on the basis of a periodic valuation at a maximum

of every three years, based on depreciated replacement cost methodology. The fair values are recognised in the financial statements of

the Group and are reviewed at the end of each reporting period to ensure that the carrying amount of the distribution network is not

materially different from its fair value.

Any revaluation increase arising on the revaluation of assets is credited to the Asset Revaluation Reserve, except to the extent that it

reverses a revaluation decrease for the same asset previously recognised as an expense in the Income Statement, in which case the

increase is credited to the Income Statement to the extent of the decrease previously charged. A decrease in carrying amount arising

on revaluation is charged as an expense in the Income Statement to the extent that it exceeds the balance, if any, held in the Asset

Revaluation Reserve relating to a previous revaluation of that asset.

16



When a revalued asset is sold or retired the attributable revaluation surplus remaining in the Asset Revaluation Reserve, net of any related

deferred taxes, is transferred directly to Retained Earnings.

Easements

Easements obtained in relation to access, construction and maintenance of network assets are capitalised. Such easements represent a

right in perpetuity and are not depreciated.

(f) Depreciation

Depreciation is charged to the Income Statement on a combination of straight line and diminishing value bases on all property, plant and

equipment with the exception of land, at rates calculated to allocate the assets’ fair value, less any residual value, over their useful lives. The

primary annual rates used are:

Buildings 2.5-15.0% Straight line/Diminishing value

Network Assets (excluding land) 1.82-16.67% Straight line/Diminishing value

Metering Assets 10.0-14.4% Diminishing value

Plant and Office Equipment 7.0-80.4% Straight line/Diminishing value

Motor Vehicles 9.6-36.0% Straight line

(g) Impairment

At each reporting date the Group reviews the carrying amounts of its assets and assesses them for indications of impairment. If

indications of impairment exist, then the assets’ recoverable amounts are estimated in order to determine the extent of the impairment.

The recoverable amounts are the higher of fair value (less costs to sell) and value in use. In assessing value in use, the estimated future

pre-tax cash flows are discounted to their present value using a pre-tax discount rate that reflects the market assessments of the time

value of money and the risks specific to the assets involved. If the estimated recoverable amount of the asset is less than its carrying

amount, the asset is written down to its recoverable amount and an impairment loss is recognised in the Income Statement, except to the

extent that the impairment loss reverses a previous revaluation increase for that asset to the extent of that revaluation increase. When

the asset does not generate cash flows independent of other assets, the cash generating unit (CGU) to which the asset belongs is tested

for impairment.

Goodwill is tested for impairment annually and whenever there is an indication that it may be impaired. Any impairment of goodwill can

not subsequently be reversed.

(h) Capital Work in Progress

Capital work in progress is stated at cost and is not depreciated. It includes an accrual for the proportion of work completed at the end

of the period.

(i) Intangible Assets

(i) Goodwill

All business combinations are accounted for by applying the purchase method. Goodwill (if it exists) has been recognised in the

acquisitions of subsidiaries, associates and joint ventures. In respect of business acquisitions since 1 April 2006, Goodwill represents

the difference between the cost of the acquisition and the fair value of the net assets acquired.

In respect of acquisitions prior to this date, Goodwill is included on the basis of its deemed cost, which represents the amount recorded

under previous NZ GAAP at the transition date. The classification and accounting treatment of business combinations that occurred

prior to transition have not been reconsidered in preparing the Group’s opening NZ IFRS Balance Sheet as at 1 April 2006.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to CGUs and is no longer amortised but

tested annually for impairment. In respect of Associates, the carrying amount of Goodwill is included in the carrying amount of the

investment in the associate.

17


09ANNUALR E P O R T

Negative Goodwill arising on an acquisition is recognised directly in the Income Statement. Impairment relating to Goodwill is not

able to be reversed.

(ii) Computer Software

Under NZ IFRS computer software is classified as an intangible asset and amortised on a straight line/diminishing value basis over its

estimated useful life.

(iii) Research and Development

Research costs are expensed in the year in which they are incurred. Development costs are capitalised to the extent that future

benefits (exceeding the costs) are expected to accrue.

(iv) Amortisation

Amortisation is charged to the Income Statement on a straight line basis over the estimated useful lives of intangible assets, other

than Goodwill, from the date that they are available for use. The estimated amortisation rates for current and comparative periods

are as follows:

Software 12.5-48% Straight line/Diminishing value

(j) Goods and Services Tax (GST)

All amounts in the financial statements are shown exclusive of GST, with the exception of receivables and payables which are shown

inclusive of GST.

(k) Taxation

Income tax on the profit or loss for the period presented comprises current tax and additional or reversed deferred tax. Income tax is

recognised in the Income Statement except to the extent that it relates to items recognised directly in Equity, in which case it is recognised

in Equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at Balance

Sheet date, and any adjustments to tax payable in respect of previous years.

Deferred tax is recognised using the Balance Sheet liability method, providing for temporary differences between the carrying amount

of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The deferred income tax is not

accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time

of the transaction affects neither accounting nor taxation profit or loss.

Deferred tax is recorded using tax rates enacted or substantially enacted at the Balance Sheet date and which are expected to apply

when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent

that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except

where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference

will not reverse in the foreseeable future.

(l) Operating Leases

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items are classified as

operating leases. Payments under these leases are recognised in the periods when they are incurred.

(m) Employee Entitlements

Provision is made for benefits accruing to employees in respect of salaries and wages, annual leave and long service leave when it is

probable that they will be required and they are capable of being measured reliably.

18



Provisions made in respect of employee benefits expected to be settled within 12 months are measured at their nominal values using

the remuneration rate expected at the time of settlement.

Provisions made in respect of employee benefits that are not expected to be settled within 12 months are measured at the present value

of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to balance date.

(n) Seasonality

The Group’s revenues and profits are generally evenly distributed throughout the year hence the results are not subject to seasonality.

(o) Financial Assets

Where applicable the Group classifies its investments in the following categories:

Financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial

assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of

its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting

date.

(i) Financial Assets at Fair Value through Profit or Loss

Financial assets at fair value through profit or loss are financial assets held for trading which are acquired principally for the purpose

of selling in the short term with the intention of making a profit. Derivatives are also categorised as held for trading unless they are

designated as hedges.

(ii) Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active

market. They arise when the Company provides money, goods or services directly to a debtor with no intention of selling the

receivable. They are included in current assets, except for those with maturities greater than 12 months after the Balance Sheet date

which are classified as non-current assets. Loans and receivables are included in receivables in the Balance Sheet.

(iii) Held-to-Maturity Investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the

Company’s management has the positive intention and ability to hold to maturity.

(iv) Available-for-Sale Financial Assets

Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in

this category or not classified in any of the other categories. They are included in non-current assets unless management intends to

dispose of the investment within 12 months of the Balance Sheet date.

Available-for-sale financial assets and financial assets at fair value through profit and loss are subsequently carried at fair value. Loans

and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains or losses

arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category, including interest and dividend

income, are presented in the Income Statement within Other Income or Other Expenses in the period in which they arise.

(p) Financial Instruments

(i) Derivative Financial Instruments

The Group enters into interest rate swaps. These transactions are undertaken within board approved policies and limits for

the primary purpose of managing exposure to fluctuations in interest rates arising from financing activities. While these financial

instruments are subject to the risk that market rates may change subsequent to the acquisition of the financial instrument, such

changes would generally be offset by opposite effects on the items being hedged. The Group does not engage in speculative

transactions or hold derivative financial instruments for trading purposes.

19


09ANNUALR E P O R T

The Group has not designated any derivatives as hedges. Derivatives are initially recognised at fair value on the date the derivative

is entered into. Subsequent to any initial recognition derivatives are revalued to their fair value at each reporting date. The resulting

gain or loss is recognised in the Income Statement.

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the

Balance Sheet date, taking into account current interest rates and the credit worthiness of the swap counterparties.

(ii) Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are

readily convertible to a known amount of cash and are subject to an insignificant amount of risk of changes in value.

(iii) Trade and Other Payables

Trade and other payables are stated at fair value.

(iv) Receivables

Trade and other receivables are recognised initially at fair value. A provision for impairment of trade receivables is established

when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the

receivables.

(v) Borrowings

Borrowings are recognised initially at fair value, net of any transaction costs incurred. Borrowings are subsequently stated at

amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Income

Statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability at least

12 months after balance date.

New Standards and Interpretations not yet Adopted

In preparing these financial statements in accordance with NZ IFRS, the following standards have been issued but are not applicable at

this time:

NZ IFRS 8 Operating Segments

NZ IAS 1 (Revised) Presentation of Financial Statements

NZ IAS 23 Borrowing Costs

The above Standards become effective for annual reporting periods beginning on or after 1 January 2009 and are expected to be initially

applied in the year ending 31 March 2010.

The impact of NZ IAS1 (Revised) is expected only to have an impact on presentation and the effects of NZ IAS 23 and NZ IFRS 8 are not

able to be reliably measured or estimated at this stage.

20



GROUP PARENT

2009 2008 2009 2008 $000 $000 $000 $000

2. Income Operating Revenue - Network Charges 48,535 44,362 23,778 21,774

Other Income - Interest Revenue 258 171 632 648 - Dividends Received 38 - 2,043 1,850 - Capital Contributions 5,369 5,251 5,052 4,940 - Other Revenue 3,346 2,313 132 50

Total Income 57,546 52,097 31,637 29,262

3. Expenses Expenses Include:

Amortisation of Intangibles 188 133 9 -

Auditor Remuneration • AuditofFinancialReport - PricewaterhouseCoopers 60 54 31 27 - Deloitte 8 7 - - • OtherServices - PricewaterhouseCoopers 39 20 36 16 - Deloitte 1 1 - -

Bad Debts Written Off 10 8 - -

Scholarships and Awards 1 4 - -

Depreciation • Buildings 40 35 8 5 • PlantandOfficeEquipment 331 317 2 2 • MotorVehicles 314 286 - - • MeteringAssets 375 374 375 374 • NetworkAssets 12,840 12,535 11,679 11,402

Total Depreciation 13,900 13,547 12,064 11,783

Directors’ Fees 219 219 90 90

Discount to Consumers 4,906 3,943 4,906 3,943

Donations - 1 - -

Employee Benefit Expenses 6,972 6,017 - -

Interest Expense 1,943 2,088 1,859 1,906

Loss on Hedging 1,299 63 1,299 63

Network Costs 2,826 5,347 127 147

Transmission Costs 10,344 9,441 - -

Operating Lease Expenses • TenancyandRepeaterSiteLeases 118 116 - - • MotorVehicleLeases 112 92 - - • OfficeEquipmentLeases 28 23 - -

Total Operating Lease Expenses 258 231 - -

Loss on Disposal of Property, Plant and Equipment 482 539 436 474

Subvention Payment 462 65 - - The level of discount, if any, is determined by the Directors after considering the forecast operating surplus, capital expenditure, level of

debt and other future commitments of the Company.

21


09ANNUALR E P O R T

4. Taxation

Current Tax

Current tax expense is the expected tax payable on the taxable income for the year.

Current tax for the current and prior periods is classified as a current liability to the extent that it is unpaid. Amounts paid in excess of

amounts owed are classified as a current asset.

Deferred Tax

Deferred tax expense arises from the origination and reversal of temporary differences.

GROUP PARENT

Note 2009 2008 2009 2008 $000 $000 $000 $000

Operating Surplus Before Income Taxation 11,611 11,974 9,390 9,840

Income Not Taxable

- Exempt Dividends Received - - (2,005) (1,850)

- Unimputed Intercompany Dividend Received 600 - - -

- Capital Contributions (5,369) (5,251) (5,052) (4,940)

- Equity Accounted Earnings of Associates (451) (26) - -

- Other (34) (23) (30) (23)

Loss Offsets (357) (537) - -

Expenses Not Deductible 63 29 2 11

Taxable Income 6,063 6,166 2,305 3,038

Prima Facie Taxation at 30% (33% prior year) 1,819 2,035 692 1,003

Made up of:

Current Tax 3,469 3,489 2,360 2,635

Deferred Tax (18) (1,650) (1,454) (1,668) (1,632)

1,819 2,035 692 1,003

Under/(Over) Provisions in Prior Years 54 14 - 11

Effect of Change in Tax Rate (18) - (2,805) - (2,640)

Taxation Expense/(Benefit) for Year 1,873 (756) 692 (1,626)

Effective Tax Rate 16% (6%) 7% (17%)

Imputation Credit Account

Credit Balance at Beginning of Year 18,449 14,839

Credits:

Income Tax Payments 1,700 2,850

Imputation Credits on Dividends Received 76 760

Withholding Tax on Dividends Received 10 -

Debits:

Income Tax Refunds (103) -

Credit Balance at End of Year 20,132 18,449

The Imputation Credit Account relates to The Power Company Limited only. 22



5. Equity

The authorised and issued share capital comprises 29,622,000 (Group) and 29,622,000 (Parent) ordinary shares which are fully paid up

and are not subject to a par value. All shares have the same rights and privileges.

GROUP PARENT

2009 2008 2009 2008

$000 $000 $000 $000

Share Capital 29,622 29,622 29,622 29,622

Minority Interest Share Capital 735 735 - -

Asset Revaluation Reserve

Opening Balance 27,058 25,205 27,058 25,205

Revaluation of Assets - 753 - 753

Effect of Change in Tax Rate 3 1,162 3 1,162

Revaluation Write Downs due to Asset Disposal (48) (62) (48) (62)

Closing Balance 27,013 27,058 27,013 27,058

Retained Earnings

Opening Balance 182,490 169,698 179,511 167,983

Net Surplus for the Year 9,738 12,730 8,698 11,466

Revaluation Write Downs due to Asset Disposal 48 62 48 62

Effect of Change in Tax Rate (3) - (3) -

Closing Balance 192,273 182,490 188,254 179,511

Total Equity 249,643 239,905 244,889 236,191

6. Cash and Cash Equivalents

Current Account 69 582 58 333

Short Term Bank Deposits 1,082 - - -

Total Cash and Cash Equivalents 1,151 582 58 333

7. Receivables and Prepayments

Trade Debtors 5,488 4,819 2,906 3,272

GST Receivable - 176 - 394

Prepayments 479 231 76 29

Total Receivables and Prepayments 5,967 5,226 2,982 3,695

Trade and other receivables are stated at their cost less any impairment losses. The carrying amounts of the Group’s receivables are

reviewed at each Balance Sheet date to determine whether there is any indication of impairment. If any indication exists, the receivable’s

recoverable amount is estimated.

At balance date 5% of the Group’s trade receivables (Parent: 0%) were 30-90 days passed due, 1% of the Group’s trade receivables

(Parent: 0%) were > 90 days passed due. As most of these amounts are expected to be recovered, no provision for impairment has been

created.

23


09ANNUALR E P O R T

GROUP PARENT

2009 2008 2009 2008 $000 $000 $000 $000

8. Inventories

Network Spares and Sundry Network Consumables 500 212 - -

No inventories are pledged as security for liabilities nor are inventories subject to retention of title clauses.

9. Investments in Associates

Associate Companies Country of Incorporation Percentage Held By Group Balance

2009 2008 Date

Electricity Southland Ltd New Zealand 50% 50% 31 March

Otago Power Services Ltd New Zealand 24.5% 24.5% 31 March

Interests in associate entities are as follows:

Carrying Amount at Beginning of Year 3,390 2,561 2,864 1,914

Dividends from Associates (147) (147) - -

Share of Equity Accounted Earnings of Associates 451 26 - -

(Decrease)/Increase in Advances to Associates (700) 950 (700) 950

Investment in Shares in Associates 1,000 - - -

Carrying Amount at End of Year 3,994 3,390 2,164 2,864

The Parent’s advances to associates of $2,164,000 (31 March 2008: $2,864,000) are repayable on demand but with a 13 month notice

period. The advances incur interest at 0.75% above the 90 day bank bill rate.

GROUP

2009 2008 $000 $000

The Group’s share of the results of its associate entities is as follows:

Share of Surplus before Taxation 484 175

Less Taxation Expense (33) (149)

Total Recognised Revenues and Expenses of Associates 451 26

Summary financial information for equity accounted associates, not adjusted to percentage ownership held by the Group is as follows:

Revenue 10,187 9,538

Less Expenses (8,820) (8,975)

Net Profit/(Loss) 1,367 563

Current Assets 1,943 1,830

Non Current Assets 9,821 8,064

Current Liabilities 1,469 1,058

Non Current Liabilities 4,939 6,229

24



10. Investments in Subsidiaries

Subsidiary Companies Country of Incorporation Percentage Held By Group Balance

2009 2008 Date

Last Tango Limited New Zealand 100% 100% 31 March

Power Services Limited New Zealand 51% 51% 31 March

PARENT

2009 2008 $000 $000

Investment in Shares in Subsidiaries 28,075 28,075

Advances to Subsidiaries 2,154 1,968

Total Investments in Subsidiaries 30,229 30,043

The Parent’s advance to Last Tango Limited of $1,415,000 (31 March 2008: $1,229,000) is repayable on demand but with a 13 month

notice period and does not incur any interest.

The Parent’s advance to Power Services Limited of $739,000 (31 March 2008: $739,000) is repayable on demand but with a 13 month

notice period and incurs interest at 0.75% above the 90 day bank bill rate.

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09ANNUALR E P O R T

11. Investments in Joint Ventures

The Group has a participating interest in the following joint ventures through its wholly owned subsidiary Last Tango Limited.

Joint Ventures Country of Residence Percentage Held By Group Balance

2009 2008 Date

PowerNet Limited New Zealand 50% 50% 31 March

OtagoNet Joint Venture New Zealand 24.5% 24.5% 31 March

GROUP

2009 2008 $000 $000

Financial Performance

The Group’s share of operating revenues and expenses for the year, consolidated on a

line-by-line basis was:

Revenue 45,532 41,647

Expenses 23,484 20,357

Financial Position

The Group’s share of assets and liabilities consolidated on a line-by-line basis was:

Current Assets 5,691 4,039

Non Current Assets 33,346 32,483

Current Liabilities 4,068 4,988

Non Current Liabilities - 12

Net Assets Employed in Joint Venture 34,969 31,522

The Parent’s advances to joint ventures of $6,440,000 (31 March 2008: $4,700,000) are repayable on demand but with a 13 month notice

period. The advances incur interest at 0.75% above the 90 day bank bill rate.

GROUP

2009 2008 $000 $000

12. Minority Interest

Opening Balance 938 764

Minority Interest Share of Net Surplus 230 174

Closing Balance 1,168 938

The Minority Interest relates to Power Services Limited where the minority holds a 49% interest.

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13. Property, Plant and Equipment

GROUP

Plant and Office Motor Network Land Buildings Equipment Vehicles Assets Meters Total

$000 $000 $000 $000 $000 $000 $000

Cost or Valuation

Balance at 1 April 2007 176 793 1,151 1,137 274,770 3,155 281,182

Revaluation - - - - 1,341 - 1,341

Additions - - 425 527 18,110 319 19,381

Disposals - - (4) (51) (747) - (802)

Balance at 31 March 2008 176 793 1,572 1,613 293,474 3,474 301,102

Balance at 1 April 2008 176 793 1,572 1,613 293,474 3,474 301,102

Additions 45 327 688 657 16,699 323 18,739

Reallocation of Share of

Joint Venture Assets 13 41 131 - - - 185

Disposals - - (7) (30) (533) - (570)

Balance at 31 March 2009 234 1,161 2,384 2,240 309,640 3,797 319,456

Depreciation and Impairment Losses

Balance at 1 April 2007 - 28 165 131 1,495 375 2,194

Depreciation for Year - 35 317 286 12,535 374 13,547

Disposals - - (1) - (10) - (11)

Balance at 31 March 2008 - 63 481 417 14,020 749 15,730

Balance at 1 April 2008 - 63 481 417 14,020 749 15,730

Depreciation for Year - 40 331 314 12,840 375 13,900

Reallocation of Share of

Joint Venture Depreciation - 3 48 - - - 51

Disposals - - - - - - -

Balance at 31 March 2009 - 106 860 731 26,860 1,124 29,681

Carrying Amount/Book Value

Book Value 31 March 2008 176 730 1,091 1,196 279,454 2,725 285,372

Book Value 31 March 2009 234 1,055 1,524 1,509 282,780 2,673 289,775

Carrying amounts of property, plant and equipment had they been recognised under the cost model:

31 March 2008 176 730 1,091 1,196 236,365 2,725 242,283

31 March 2009 234 1,055 1,524 1,509 239,691 2,673 246,686

The reallocation detailed above relates to a change in the proportional interest in the PowerNet Limited Joint Venture from 67% to 80% during the year.

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09ANNUALR E P O R T

PARENT Plant and

Office Network Land Buildings Equipment Assets Meters Total

$000 $000 $000 $000 $000 $000

Cost or Valuation

Balance at 1 April 2007 85 156 12 247,298 3,155 250,706

Revaluation Adjustment - - - 1,341 - 1,341

Additions - - 2 16,302 319 16,623

Disposals - - - (689) - (689)

Balance at 31 March 2008 85 156 14 264,252 3,474 267,981

Balance at 1 April 2008 85 156 14 264,252 3,474 267,981

Additions 45 231 - 15,201 323 15,800

Disposals - - - (493) - (493)

Balance at 31 March 2009 130 387 14 278,960 3,797 283,288

Depreciation and Impairment Losses

Balance at 1 April 2007 - 5 2 395 375 777

Depreciation for year - 5 2 11,402 374 11,783

Disposals - - - - - -

Balance at 31 March 2008 - 10 4 11,797 749 12,560

Balance at 1 April 2008 - 10 4 11,797 749 12,560

Depreciation for year - 8 2 11,679 375 12,064

Disposals - - - - - -

Balance at 31 March 2009 - 18 6 23,476 1,124 24,624


Book Value 31 March 2008 85 146 10 252,455 2,725 255,421

Book Value 31 March 2009 130 369 8 255,484 2,673 258,664

Carrying amounts of property, plant and equipment had they been recognised under the cost model:

31 March 2008 85 146 10 213,531 2,725 216,497

31 March 2009 130 369 8 216,560 2,673 219,740

Deemed Cost

The carrying amount of property, plant and equipment at 1 April 2006, the date of transition to NZ IFRS is now taken as the deemed

cost of the property, plant and equipment at that date.

Valuation

The network assets of The Power Company Limited were revalued by means of a “Directors’ Revaluation” on 31 March 2007 to

assessed fair value. The assessed fair value was achieved by taking the previously revalued assets at their 1 April 2004 carrying values,

and updating those values in terms of today’s material and labour costs. This resulted in a revaluation movement of $38,743,000.

28



The network assets of OtagoNet Joint Venture were revalued on 1 April 2006 to depreciated replacement cost as assessed by

independent valuers PricewaterhouseCoopers. This resulted in the Group recording a revaluation movement of $4,165,000.

Acquisitions and Disposals

The Power Company Limited network assets acquired between 1 April 2004 and 31 March 2006 (pre-transition to NZ IFRS) are stated

at deemed cost, with all network assets acquired since that date stated at purchase cost. Disposals are written back against the asset

cost with any necessary adjustments to Accumulated Depreciation and the Asset Revaluation Reserve.

14. Intangibles

GROUP

Computer Software Goodwill Total $000 $000 $000

Cost

Balance at 1 April 2007 778 3,295 4,073

Additions 114 - 114

Disposals - - -

Balance at 31 March 2008 892 3,295 4,187

Balance at 1 April 2008 892 3,295 4,187

Additions 567 - 567

Reallocation of Share of Joint Venture Intangibles 175 - 175

Disposals - - -

Balance at 31 March 2009 1,634 3,295 4,929

Amortisation and Impairment

Balance at 1 April 2007 134 - 134

Amortisation for Year 133 - 133

Disposals - - -

Balance at 31 March 2008 267 - 267

Balance at 1 April 2008 267 - 267


Reallocation of Share of Joint Venture Amortisation 53 - 53

Disposals - - -



Book Value at 31 March 2008 625 3,295 3,920

Book Value at 31 March 2009 1,126 3,295 4,421

The reallocation detailed above relates to a change in the proportional interest in the PowerNet Limited Joint Venture from 67% to 80%

during the year.

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09ANNUALR E P O R T

PARENT

Computer Software Goodwill Total $000 $000 $000

Cost

Balance at 1 April 2007 - - -

Additions - - -

Disposals - - -

Balance at 31 March 2008 - - -


Additions 29 - 29

Disposals - - -


Amortisation and Impairment


Amortisation for Year - - -

Disposals - - -

Balance at 31 March 2008 - - -



Disposals - - -



Book Value at 31 March 2008 - - -

Book Value at 31 March 2009 20 - 20

Software assets have a finite useful life and are amortised over that useful life of 3-8 years.

Goodwill, in respect of acquisitions made prior to transition date, is stated at deemed cost being the amount recorded under NZ IFRS at

transition date. Goodwill additions since transition date have been stated at cost. Goodwill is not amortised but tested for impairment

annually. Goodwill is tested for impairment by allocation to the OtagoNet Joint Venture as a Cash Generating Unit.

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GROUP PARENT

2009 2008 2009 2008 $000 $000 $000 $000

15. Creditors and Accruals

Trade Creditors 1,785 2,926 1,811 3,800

Accruals 1,918 1,403 4,459 4,060

GST Payable 201 - 53 -

Total Creditors and Accruals 3,904 4,329 6,323 7,860

16. Employee Entitlements

Balance at Beginning of Year 591 445 - -

Reallocation of Joint Venture Employee Entitlements 64 - - -

Additional Accrual 846 610 - -

Amount Utilised (580) (464) - -

Total Employee Entitlements 921 591 - -

Employee entitlements include accrued wages, bonuses, accrued holiday pay, and long service leave. Where settlement is expected to be

greater than one year, the item(s) are discounted using the Group’s weighted average cost of capital.

The Directors consider that the carrying amount of the employee entitlements approximates their fair value.

The reallocation detailed above relates to a change in the proportional interest in the PowerNet Limited Joint Venture from 67% to 80%

during the year.

17. Term Loans

Multi Option Credit Facility 21,250 23,320 21,250 23,320

Advance – Southland Electric Power Supply Consumer Trust 4,462 4,263 4,462 4,263

Advance – Electricity Invercargill Limited 710 710 - -

Total Term Loans 26,422 28,293 25,712 27,583

Multi Option Credit Facility

The Company has a Multi Option Credit Facility of $27 million (31 March 2008: $25 million) with Westpac New Zealand Limited

(31 March 2008: ANZ National Bank Limited). The facility has a revolving two year term and is extendable by one year by agreement

between the Company and Westpac New Zealand Limited.

The facility provides for drawdowns to be made ranging from overnight to six months and are subject to interest rates at Bank Bill Buy

Rates plus a margin. The facility is unsecured and subject to a Deed of Negative Pledge.

At balance date the Company had interest rate swaps on the above facilities which total $14 million (31 March 2008: $16 million) at

interest rates between 6.28% and 8.12%, excluding bank margins.

Advance - Southland Electric Power Supply Consumer Trust

The Company has an unsecured, interest bearing Advance with the Southland Electric Power Supply Consumer Trust which is repayable

on demand with a 13 month notice period. Interest is payable quarterly at 7% and is added to the loan.

Advance - Electricity Invercargill Limited

The Minority Interest share of the Advance that Power Services Limited has with Electricity Invercargill Limited is repayable on demand but

with a 13 month notice period. Interest on the Advance is paid quarterly at 0.75% above the 90 day bank bill rate.

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09ANNUALR E P O R T

GROUP PARENT

Note 2009 2008 2009 2008 $000 $000 $000 $000

18. Deferred Tax Liabilities

Opening Balance 39,638 44,688 38,019 43,083

Charged to Income Statement (4)

- Temporary Difference Reversals

- Depreciation (1,020) (1,377) (1,278) (1,612)

- Temporary Difference Reversals

- Other (630) (77) (390) (20)

- Change in Company Tax Rate - (2,805) - (2,640)

Charged to Equity

- Revaluation Adjustment - 371 - 370

- Change in Company Tax Rate - (1,162) - (1,162)

Total Deferred Tax Liabilities 37,988 39,638 36,351 38,019

The primary component of the deferred tax balance is related to property, plant and equipment assets and software assets.

There is not expected to be any significant reversal of deferred taxation in the next 12 months.

19. Commitments

Operating Lease Commitments

Operating Lease Commitments are payable as follows:

Not later than one year 201 158 21 20

Later than one year and not later than two years 133 72 14 18

Later than two years and not later than five years 113 49 - 13

Later than five years - - - -

Total Operating Lease Commitments 447 279 35 51

Operating leases consist of vehicle leases, office equipment leases and tenancy leases.

Capital Commitments

The Group, through its joint ventures PowerNet Limited and OtagoNet Joint Venture, and its subsidiary Power Services Limited has

capital expenditure contracted for at 31 March 2009 but not provided for in the financial statements totalling $2,910,000 (31 March 2008:

$4,236,000).

The Parent has capital expenditure contracted for at 31 March 2009 but not provided for in the financial statements totalling $2,677,000

(31 March 2008: $3,473,000).

20. Contingent Liabilities

The Group has no Contingent Liabilities as at 31 March 2009 (31 March 2008: Nil).

32



21. Reconciliation of Net Surplus After Taxation with Net Operating Cash Flows

The following is a reconciliation between the Net Surplus After Taxation shown in the Income Statement and the Net Cash Flows From

Operating Activities.

GROUP PARENT

2009 2008 2009 2008 $000 $000 $000 $000

Net Surplus After Taxation 9,738 12,730 8,698 11,466

Plus/(Less) Non Cash Items:

Depreciation 13,900 13,547 12,064 11,783

Amortisation of Intangibles 188 133 9 -

Deferred Taxation (1,650) (4,259) (1,668) (4,272)

Loss on Disposal of Property, Plant and Equipment 482 539 436 474

Interest Rate Swaps 1,300 63 1,300 63

14,220 10,023 12,141 8,048

Plus/(Less) Net Movements in Working Capital:

Creditors and Accruals 81 388 (1,143) 366

Receivables, Prepayments and Work in Progress (847) (1,666) 319 (1,220)

Inventories (288) (16) - -

Income Tax Payable 1,392 (211) 753 (204)

338 (1,505) (71) (1,058)

Net Cash Flows From Operating Activities 24,296 21,248 20,768 18,456

22. Financial Instruments

The Group has exposure to the following risks from its use of financial instruments:

• Creditrisk

• Liquidityrisk

• Marketrisk

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.

Credit Risk

Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and short-term investments

and trade receivables. Cash and short-term investments are placed with banks with high credit ratings assigned by international credit-rating

agencies, or other high credit quality financial institutions.

The Group manages its exposure to credit risk from trade receivables by performing credit evaluations on all customers requiring credit

whenever possible, and continuously monitoring the outstanding credit exposure to individual customers. The Group does not generally

require or hold collateral against credit risk.

The Group is exposed to a concentration of credit risk with regards to the amounts owing by energy retailers for line charges. However,

these entities are considered to be high credit quality entities. An amount of $4,129,000 (2008: $3,588,000) is owed by energy retailers at

balance date.

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09ANNUALR E P O R T

Liquidity Risk Liquidity risk represents the Group’s ability to meet its contractual obligations.

The Group evaluates its liquidity requirements on an ongoing basis. In general the Group generates sufficient cash flows from its operating activities to meet its contractual obligations arising from its financial liabilities and has credit lines in place to cover potential shortfalls.

The following table details the Group’s exposure to liquidity risk as at 31 March 2009:

Maturity Maturity Maturity Dates Dates Dates < 1 Month < 1 Yr 1-5 Yrs Total $000 $000 $000 $000

Financial Assets Cash and Cash Equivalents 1,151 - - 1,151 Trade and Other Receivables 5,488 - - 5,488 Construction Work In Progress - 312 - 312 Interest Rate Swaps - - - -

6,639 312 - 6,951

Financial Liabilities Trade Creditors 1,986 - - 1,986 Accruals - 1,918 - 1,918 Employee Entitlements - 921 - 921 Advances - - 26,422 26,422 Interest Rate Swaps - 340 591 931

1,986 3,179 27,013 32,178

Advance repayment arrangements are discussed in Note 17.

The following table details the Parent’s exposure to liquidity risk as at 31 March 2009:


Financial Assets Cash and Cash Equivalents 58 - - 58 Trade and Other Receivables 2,906 - - 2,906 Construction Work In Progress - - - - Advances - - 10,758 10,758 Interest Rate Swaps - - - -

2,964 - 10,758 13,722

Financial Liabilities Trade Creditors 1,864 - - 1,864 Accruals - 4,459 - 4,459 Employee Entitlements - - - - Advances - - 25,712 25,712 Interest Rate Swaps - 340 591 931

1,864 4,799 26,303 32,966

Advances to associates, subsidiaries and joint ventures, are repayable on demand but with a 13 month notice period. Advance repayment arrangements are discussed in Note 17.

The accruals are funded by either short-term advance funds or from future cash generated from operating activities.

34



The following table details the Group’s exposure to liquidity risk as at 31 March 2008:


Financial Assets

Cash and Cash Equivalents 582 - - 582

Trade and Other Receivables 4,995 - - 4,995

Construction Work In Progress - 383 - 383

Interest Rate Swaps - 54 315 369

5,577 437 315 6,329

Financial Liabilities

Trade Creditors 2,926 - - 2,926

Accruals - 1,403 - 1,403

Employee Entitlements - 591 - 591

Advances - - 28,293 28,293

2,926 1,994 28,293 33,213

Advance repayment arrangements are discussed in Note 17.

The following table details the Parent’s exposure to liquidity risk as at 31 March 2008:


Financial Assets


Trade and Other Receivables 3,666 - - 3,666

Construction Work In Progress - - - -

Advances - - 9,531 9,531

Interest Rate Swaps - 54 315 369

3,999 54 9,846 13,899


Trade Creditors 3,800 - - 3,800

Accruals - 4,060 - 4,060

Employee Entitlements - - - -

Advances - - 27,583 27,583

3,800 4,060 27,583 35,443

Advances to associates, subsidiaries and joint ventures, are repayable on demand but with a 13 month notice period. Advance repayment

arrangements are discussed in Note 17.

The accruals are funded by either short-term advance funds or from future cash generated from operating activities.

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09ANNUALR E P O R T

Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or

the value of its holdings of financial instruments.

The following table details the Group’s exposure to interest risk as at 31 March 2009:

Variable Maturity Non Interest Dates Interest Rate < 1 Yr Bearing Total $000 $000 $000 $000

Financial Assets

Cash and Cash Equivalents 1,151 - - 1,151

Trade and Other Receivables - - 5,488 5,488

Interest Rate Swaps - - - -

1,151 - 5,488 6,639


Trade and Other Payables - - 3,904 3,904

Employee Entitlements - - 921 921

Advances 26,422 - - 26,422

Interest Rate Swaps - - 931 931

26,422 - 5,756 32,178

The following table details the Parent’s exposure to interest risk as at 31 March 2009:


Financial Assets



Advances 9,343 - 1,415 10,758

Interest Rate Swaps - - - -

9,401 - 4,321 13,722




Advances 25,712 - - 25,712


25,712 - 7,254 32,966

36



The following table details the Group’s exposure to interest risk as at 31 March 2008:


Financial Assets




582 - 5,364 5,946



Employee Entitlements - - 591 591

Advances 28,293 - - 28,293

28,293 - 4,920 33,213

The following table details the Parent’s exposure to interest risk as at 31 March 2008:


Financial Assets



Advances 8,303 - 1,228 9,531


8,636 - 5,263 13,899




Advances 27,583 - - 27,583

27,583 - 7,860 35,443

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09ANNUALR E P O R T

The Group uses interest rate swap agreements to manage its exposure to interest rate movements on its borrowings. The treasury

policy set by the Board requires that interest rate swap agreements are in place to ensure adequate hedging is maintained within a

series of time periods.

The interest rate agreements are held with independent and high credit quality financial institutions. The credit risk is limited because the

counterparties are banks with high quality credit ratings assigned by international credit rating agencies.

The following table details the notional principal amounts and remaining terms of interest rate swap agreements outstanding:

Notional Principal Fair Value

2009 2008 2009 2008 $000 $000 $000 $000

Less than one year 5,000 7,000 78 54

One to five years 9,000 9,000 852 315

14,000 16,000 930 369

Foreign Exchange Risk

The Group is not subject to foreign exchange risk.

Sensitivity Analysis for Interest Rate Change

The Power Company Limited is subject to exposure to interest rate variations through both its cash and short-term investments

and loans.

An increase/(decrease) in the interest rate of 1% is estimated to increase/(decrease) the operating profit before tax and equity by $5,000

(2008: $7,000).

Fair Value

The estimated fair values of the Group’s financial instruments are represented by the carrying values.

Capital Management

The Group’s capital includes share capital, reserves and retained earnings. The Group’s policy is to maintain a strong capital base so as to

maintain investor, creditor and market confidence and to sustain future development of the business.

The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowing and the

advantages and security afforded by a sound capital position.

23. Segmental Reporting

The Power Company Limited operates predominantly in one segment, being the management of assets involved in the distribution of

electricity in Southland and Otago.

38



24. Transactions With Related Parties

The Power Company Limited is wholly owned by the Southland Electric Power Supply Consumer Trust.

The Power Company Limited has an interest in the PowerNet Limited Joint Venture, the OtagoNet Joint Venture, Electricity Southland

Limited, Otago Power Services Limited and Power Services Limited through their wholly owned subsidiary company Last Tango Limited.

All transactions between The Power Company Limited and related parties relate to the normal trading activities of The Power Company

Limited and have been conducted on a commercial basis.

No related party debts have been written off or forgiven during the year.

Material transactions The Power Company Limited has had with the abovementioned parties during the year are as follows:

2009 2008 $000 $000

Goods and Services Supplied to:

PowerNet Limited (Joint Venture) 19,335 18,283

Electricity Southland Limited (Associate) 169 196

Power Services Limited (Subsidiary) 55 70

Otago Power Services Limited (Associate) 22 28

Receivables Outstanding at Balance Date (GST incl):


Electricity Southland Limited (Associate) 23 58

Power Services Limited (Subsidiary) 8 18

Otago Power Services Limited (Associate) 3 7

Goods and Services Supplied by:


Creditors Outstanding at Balance Date (GST incl):


Dividends Paid by:

Last Tango Limited (Subsidiary) 2,005 1,850

Advances Provided to/(Due from):


Electricity Southland Limited (Associate) (700) 950

Last Tango Limited (Subsidiary) 187 249

Otago Power Services Limited (Associate) - -

Power Services Limited (Subsidiary) - -

Advances Provided from:

Southland Electric Power Supply Consumer Trust (Other Related Party) 199 178

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09ANNUALR E P O R T

Other Related Parties

There have been no material transactions between The Power Company Limited Group and Directors with the exception of the

following:

The Power Company Limited and PowerNet Limited use AWS Legal as their solicitors of which Alan Harper is a Partner. Legal fees paid to

AWS Legal during the year amounted to $33,000 excl GST (31 March 2008: $31,000) of which $4,000 incl GST (31 March 2008: $1,000)

is owing at balance date.

PowerNet Limited uses WHK Cook Adam Ward Wilson as its tax advisors of which Philip Mulvey is Chief Executive. The Power Company

Limited’s share of fees for taxation advice paid to WHK Cook Adam Ward Wilson during the year amounted to $2,000 excl GST

(31 March 2008: $3,000) of which $1,000 incl GST(31 March 2008: $2,000) is owing at balance date.

All transactions between The Power Company Limited, PowerNet Limited, AWS Legal and WHK Cook Adam Ward Wilson relate to

normal activities and have been conducted on a commercial basis.

The Southland Electric Power Supply Consumer Trust owns 100% of the shares in The Power Company Limited. The Power Company

Limited has a $4,000,000 unsecured interest bearing loan with the Southland Electric Power Supply Consumer Trust.

During the year expenses were paid out on behalf of the Trust totalling $99,000 (31 March 2008: $109,000). The expenses paid by The

Power Company Limited on behalf of the Southland Electric Power Supply Consumer Trust have been deducted from the loan and interest

of $298,000 (31 March 2008: $287,000) has been added to the loan.

Key Management Personnel

Compensation of the Directors and Executives, being the key management personnel of the entities, is set out below:

GROUP PARENT

2009 2008 2009 2008 $000 $000 $000 $000

Salaries and Short-term Employee Benefits 1,153 1,074 90 90

Executive staff remuneration comprises salary and other short-term benefits. PowerNet executives appointed to the boards of related

companies do not receive directors’ fees personally.

25. Subsequent Events

No subsequent events have occurred since 31 March 2009 (31 March 2008: Nil) which would materially affect these accounts.

40



PricewaterhouseCoopers119 Armagh StreetPO Box 13244ChristchurchNew ZealandTelephone +64 3 374 3000Facsimile +64 3 374 3001Auditors’ Report

To the shareholders of The Power Company Limited

We have audited the financial statements on pages 10 to 40. The financial statements provide information about thepast financial performance and cash flows of the Company and Group for the year ended 31 March 2009 and theirfinancial position as at that date. This information is stated in accordance with the accounting policies set out on pages14 to 20.

Directors’ ResponsibilitiesThe Company’s Directors are responsible for the preparation and presentation of the financial statements which give atrue and fair view of the financial position of the Company and Group as at 31 March 2009 and their financialperformance and cash flows for the year ended on that date.

Auditors’ ResponsibilitiesWe are responsible for expressing an independent opinion on the financial statements presented by the Directors andreporting our opinion to you.

Basis of OpinionAn audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financialstatements. It also includes assessing:(a) the significant estimates and judgements made by the Directors in the preparation of the financial statements;

and(b) whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently

applied and adequately disclosed.

We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned andperformed our audit so as to obtain all the information and explanations which we considered necessary to provide uswith sufficient evidence to give reasonable assurance that the financial statements are free from materialmisstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of thepresentation of information in the financial statements.

We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacities asauditors, issuing certificates pursuant to the Electricity Information Disclosure Requirements 2004 and the CommerceAct (Electricity Distribution Threshold) Notice 2004, and advisors on industry related matters.

Unqualified OpinionWe have obtained all the information and explanations we have required.

In our opinion:(a) proper accounting records have been kept by the Company as far as appears from our examination of those

records; and(b) the financial statements on pages 10 to 40:

(i) comply with generally accepted accounting practice in New Zealand;(ii) comply with International Financial Reporting Standards; and(iii) give a true and fair view of the financial position of the Company and Group as at 31 March 2009 and

their financial performance and cash flows for the year ended on that date.

Our audit was completed on 30 June 2009 and our unqualified opinion is expressed as at that date.

Chartered Accountants Christchurch

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Auditor’s Report


Power to the Cows

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