20 09ANNUAL REPORT

ANNUAL REPORT

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ANNUAL REPORT

Contents

Commerce Amendment Act Introduction

Comment from Greg

Highlights of 2009

Highlights 1

Company Profile 2 - 3

Introduction 4

Year in Review 5 - 7

Connecting with our Stakeholders 8 - 15

Connecting with our People 16 - 19

Connecting with our Customers 20 - 23

Connecting with our Environment 24 - 29

Connecting with our Communities 30 - 33

Directors’ Profiles 34 - 35

Directors’ Report 36 - 38

Approval by Directors 39

Income Statement 40

Statement of Changes in Equity 40

Balance Sheet 41

Statement of Cash Flows 42

Notes to the Financial Statements 43 - 57

Auditor’s Report 58

Executives 59

Directory 60

GRI Indicators 61

Commerce Amendment Act The prospect for certainty surrounding regulatory matters was greatly enhanced with the passing of the Commerce Amendment Act.

Establishment of the Southland Warm Homes TrustPowerNet was involved in the establishment of, and provides ongoing assistance for, The Southland Warm Homes Trust. The Trust offers support for warmer, drier, healthier Southland homes by providing insulation and heating assessments and retrofits.

Recycling programmeA recycling programme has been put in place at PowerNet to reduce the amount of recyclable office waste ending up in landfill. One initiative is the purchase of Bokashi Bins to recycle organic waste for compost to home gardens.

2 11

LineOwners

PowerNet

DisclosureStandards

and Pricing

YourPower Supply Service

Safety statistics Health and safety is of prime importance to PowerNet. There were no reported lost days due to work related accidents.

Record year for capital expenditureUnprecedented economic growth and the need for renewal work on the distribution networks saw capital expenditure increase to record levels at $26.8 million.

Increase in staffing levels Eleven new positions were established and filled this year to provide succession resources and meet the increasing level of capital work.

Purchase of mobile generatorPowerNet purchased two mobile generators to improve the network owners’ reliability performance and provide customers with an improved service.

Web upgradeThe PowerNet website was upgraded this year as part of the strategy to communicate more clearly with its customers. The revamped web is a first step towards providing easier access to in-house information for contractors, suppliers and staff in the field.

Connections to the networks Customer connections to PowerNet’s networks have steadily increased in the last decade. As a result of rapid growth in Southland in the last two years there has been a 20% increase in the usual number of network connections.

www.powernet.co.nz

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ANNUAL REPORT

Company Profile

Electricity Networks We Manage

Electricity Network Areas

ElectricitySouthland Limited

Stewart IslandElectricity Supply Authority

OtagoNet Joint Venture

ElectricityInvercargill 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

Electricity Invercargill Ltd

PowerNet is an electricity network management

business completing its fifteenth year since its

formation in 1994.

PowerNet’s shareholders are Electricity

Invercargill Limited (EIL) and The Power

Company Limited (TPCL).

Electricity Invercargill Limited (EIL) was formed

in 1992 and owns the electricity network assets

in Invercargill City and the Bluff township area,

with approximately 17,100 consumers.

EIL has provided power to Invercargill since

1905, operating under a variety of different

names over the years, most notably the

Invercargill Municipal Electricity Department.

EIL is owned by the Invercargill City Council

through its subsidiary, Invercargill City

Holdings Limited. Invercargill City Holdings

retains 100% ownership of the Company and

receives an annual dividend from EIL.

The Power Company Limited (TPCL) was

formed in 1991 and owns the network assets

in the Southland area, excluding parts of

Invercargill City and the Bluff township area.

TPCL has approximately 33,700 consumers.

TPCL has a long, proud history of being

innovative and proactive in providing

electricity to the people of the south. The

Company has operated over the years as the

Southland Electric Power Board, Southland

Electric Power Supply and currently The

Power Company Limited.

TPCL is owned by the consumers connected

to the network and the Southland Electric

Power Supply Consumer Trust exercises

the ownership rights on behalf of those

consumers.

PowerNet manages the network assets and

operations of its two shareholder network

owners and similar network assets in Otago

owned by the OtagoNet Joint Venture (OJV),

the joint venture partners of which are EIL,

TPCL and Marlborough Lines Limited (MLL).

Under a contract with the Southland District

Council, PowerNet also manages the network

and generation assets of the Stewart Island

Electricity Supply Authority (SIESA).

The embedded network in Frankton owned by

Electricity Southland Limited, the shareholders

of which are EIL and TPCL, is also managed by

PowerNet.

3

Invercargill City Council

Electricity Invercargill Limited

Electricity Southland Limited

PowerNet Limited

OtagoNet Joint Venture

Otago Power Services Limited (Contracting)

Power Services Limited (Contracting)

SEPS Consumer Trust

The Power Company Limited

50%

50%

24.5

%24

.5%

51%

51%

100%

100%

50%

50%

24.5

%

24.5%

49%

Marlborough Lines Limited

Last Tango Limited(Holding Company)

100%

100%

Pylon Limited(Holding Company)

51%

Company Structure 2009

PowerNet’s sixty-five staff work from the main office in Invercargill, a regional

office in Balclutha and a 24/7 faults call centre and control room located at

the Invercargill Transpower substation.

The PowerNet staff are engaged in carrying out analysis, design,

construction and maintenance of electricity network assets along with

managing regulatory and financial reporting.

All field services are contracted out by PowerNet to their main service

providers. Otago Power Services Limited (Balclutha and Gore), Power

Services Limited and Transfield Services Limited.

As EIL and TPCL have retained ownership of their meters and ripple

receivers, these are also managed by PowerNet.

The total Optimised Deprival Valuation (ODV) of the three major

networks managed by PowerNet is over $350 million with 13,655kms of

lines, 69 zone substations and 14,400 transformers. The three networks

represent diverse topography, climate zones, customer density and

technical design and equipment. PowerNet is equivalent to the fourth

largest network company in New Zealand, delivering electricity to around

66,150 consumers.

EIL and TPCL are sole shareholders of Power Services Limited and also

joint shareholders with MLL of Otago Power Services Limited.

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ANNUAL REPORT

Introduction PowerNet recognises that a company’s

performance is no longer just about economic

outcomes but increasingly that companies are

being judged on their social and environmental

performance as well. This is the first time

PowerNet has published an annual report that

includes the environmental and social impacts

of PowerNet. It is a pleasure to present this

information and to be developing the annual

reporting and performance measures of

PowerNet to include a wider range of impacts.

Reporting ObjectivePowerNet has an obligation to its shareholders

and stakeholders, in particular the Southland

community, to be a good corporate citizen.

This report is a way in which we can start to

quantify and demonstrate our performance on

this obligation.

This report primarily covers the measurement

of key financial, environmental and social

indicators. This is the first stage of PowerNet’s

triple bottom line approach to measuring

its success. For PowerNet this means evaluating

environmental sensitivity, engagement with

stakeholders and demonstrating financial acumen.

This first report focuses on the measurement

and presentation of environmental and social

indicators. Targets are provided where they

have been developed but many are currently

being finalised and these will be reported on

in future reports.

Reporting ScopeThis repor t covers the year 1 April 2008

to 31 March 2009. It covers the activities of

PowerNet Limited, a network management

company, and does not include any activities

involved with the ownership of the line networks.

Data Collection Many people have been involved in the collection

of information contained in this report. In

addition to PowerNet staff, Dr Sara Walton from

Critical Advisors on Sustainability Ltd was also

involved in compiling and analysing data.

Reporting GuidelinesThe report has been compiled with reference

to the Global Reporting Initiative (GRI)

Sustainability Reporting Guidelines, third version

(known as G3). The GRI produces, through

intensive worldwide consultation, a set of

guidelines for reporting on social, environmental

and economic impacts. These are the most

commonly adopted standards worldwide.

There are a number of levels of reporting; A, B

and C, with A+ being the highest level, usually

achieved by well established reporters. This

report meets the standards associated with

level C of GRI. See the table on page 61 for the

GRI indicators reported on this year.

Future Reporting for PowerNet It is anticipated that in future reports there will

be an expansion of the GRI indicators to include

more environmental and social indicators.

Measureable targets will be developed across

all performance indicators and achievements

will be reported on in relation to the targets.

Chief Executive’s and Chairman’s Report

Martin Walton Cam McCulloch

4

CEO Report

5

Through contracting their business management to PowerNet, the network owners and their

stakeholders are continuing to obtain financial and operational benefits from the resulting

economies of scale and yet still retain their individual sovereignty over their respective assets.

Directors of all three major networks and PowerNet are in general pleased with the performance

of PowerNet in managing their networks and recognise again that the year’s price path breaches by

OJV and TPCL were determined by the network owners after taking into account the price path

regulation and the financial requirements of the businesses. It was pleasing to receive notification

from the Commerce Commission that TPCL was no longer at risk of control following the 2008

breaches and the investigation of OJV’s breaches had been discontinued. Directors believe these

responses justified the previous prudent decisions and actions by both network owners.

The southern networks have continued to experience strong growth during the year although there

were indications of a slowing down during the latter months. New connection applications continued at

the same level as 2007/08, maintaining the pressure on internal and field resource capability.

The growth in the dairy sector has also impacted on the townships throughout Southland which

have experienced significant growth over the past few years. The “zero fees” scheme at the Southern

Institute of Technology continues to contribute to increased activity in Invercargill. Towards the end

of the year there were some signs of the economic downturn beginning to impact on the South

but the more favourable exporting situation, the underlying diverse agricultural economy and the

energy development potential have tended to dampen the adverse effects.

To cope with the increased work load and provide an improved service to our network owners

and customers, the number of staff has increased to over 60 with a pleasing influx of technically

qualified engineers. There are one or two additional positions still to be filled. An objective of

PowerNet is to regain key intellectual knowledge which now resides with third party owned

contracting companies. We view this as critical to maintain the quality of supply to our customers

and our future success.

The Year in Review

Mt Linton

ANNUAL REPORT

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ANNUAL REPORT

Year in Review continued

Chief Executive’s and Chairman’s Report

Human resources are a key strength of PowerNet and the retention, well being and development of

staff are high priorities. The Company again encouraged staff involvement in personal development,

job enhancement training and exercise and sporting activities. Heart defribrillators were purchased

and distributed around the work areas and all staff encouraged to attend regular first aid courses.

The increase in staff numbers has necessitated short term temporary accommodation to be

provided through the purchase of an adjacent property. The house has been appropriately

modified and is providing excellent office facilities for some of the staff. Plans have progressed on

the design of a new office and workshop facility and are awaiting final costing prior to preparation

for resource consent submission.

To assist in the management of the businesses and to facilitate the recording of information, a new

document management system, WorkSite, and intelligent form recognition software, Teleform, were

installed. Both systems have proved invaluable in improving the business processes.

Customer surveys carried out during the year signalled very satisfactory customer service and

performance by PowerNet with useful comments and feedback to the Company. It was interesting

that the larger customers desired more personal contact with PowerNet’s staff to discuss reliability,

service and line charges.

The continuing sponsorship of the PowerNet Cycle Tour of Southland shows our ongoing

commitment to the people of Southland and our desire to be recognised as a good corporate

citizen. PowerNet also contributed towards the new electronic scoreboard for Southland Cricket

and the lighting at the new hockey grounds in Invercargill.

We are again pleased with the Company’s achievements this year and would like to convey our

appreciation to all the Directors and staff for their support and efforts, making it another successful

year for PowerNet and the five networks it manages.

We hope you enjoy reading this record of our achievements during the year ended

31 March 2009.

Cam McCulloch Martin Walton

Chairman Chief Executive

6

CEO Report

7

Customer surveys carried out during the year signalled very satisfactory customer service and performance by PowerNet with useful comments and feedback to the Company.

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ANNUAL REPORT

Connecting with our Stakeholders

PowerNet takes its responsibility to its stakeholders seriously and commits to engage as widely as

possible with them.

Electricity is an important part of the economy and peoples’ lives and PowerNet, as an electricity

distributor, has a vital role in the community. PowerNet also has a prime responsibility to act with

the highest possible safety standards within its community.

As part of its stakeholder analysis and business planning, PowerNet intends to continue to:

- have open dialogue with stakeholders where appropriate

- learn from stakeholders about their perspectives

- identify future issues and directions from stakeholders.

ShareholdersThe compartmentalised financial results for the two shareholders for the year were satisfactory.

Line charge revenue for TPCL was above estimate but EIL was below estimate due to more

favourable weather conditions.

PowerNet’s joint venture agreement requires it to operate as a break even company. During the year

increased line charge revenue and the high levels of capital expenditure contributed to an over recovery

of overheads resulting in an operating surplus before tax of $101,000 (2008: $858,000).

Network OwnersPowerNet’s core business is the management of electricity networks and generation. It manages five

networks in Otago and Southland, the five network owners being five of PowerNet’s key stakeholders.

PowerNet manages the networks of Electricity Invercargill Limited (EIL), The Power Company

Limited (TPCL), OtagoNet Joint Venture (OJV), Electricity Southland Limited (ESL) and Stewart

Island Electricity Supply Authority (SIESA).

Voltage Regulator

Bainfield Road, Invercargill, Pole Top Work

8 9

For the three major networks, EIL, TPCL and OJV, administration and financial reporting for each

of the three network owner Boards of Directors is prepared monthly. These reports include

the preparation of the respective annual Information Disclosure Regulation returns, Commerce

Commission Threshold Statements, Asset Management Plans and Annual Reports; all of which

have met governance and regulatory requirements.

PowerNet and all three network owners once again received unqualified financial audit reports.

Monthly reports are prepared for ESL and SIESA and an Asset Management Plan is prepared for SIESA.

The Company’s operation of its 24-hour, 7day a week, manned control room continued to

provide a high level of monitoring and control of network operations and a faults call service

for the 66,150 customers connected to all the networks. It is only one of two such facilities in

the South Island providing an informed and efficient faults call centre service for its customers

and a safety enhancing operations control room. This facility also enables PowerNet to meet the

network owners’ Commerce Commission quality threshold regulation monitoring and reporting

requirements in an efficient and technologically effective manner.

We have purchased two mobile generators to improve the network owners’ reliability performance

and provide customers with an improved service.

We have vigorously applied and complied with the Tree Regulations on behalf of the network

owners and all the networks have experienced less unplanned supply interruptions due to tree

contacts and public safety has been enhanced.

Results for all three networks do not indicate deterioration in performance of the network assets and

PowerNet has in general met the expectations of the network owners in accordance with the respective

service level agreements.

Electricity Invercargill LimitedThe Optimised Deprival Valuation of the EIL network assets is almost $46million consisting of

over 655km of lines and cables and over 445 distribution transformers, with a total capacity of

over 145 MVA.

“EIL continues to be one of the most reliable networks.”

Troopers Corner War Memorial

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ANNUAL REPORT

Connecting with our Stakeholders

EIL Projects Approximate Expenditure

Saturn, John and Murphy Street Area,

– Undergrounding $529,000

Tramway, Coronation and York Street Area,

– Undergrounding $480,000

New Customer Connections and Reticulation of

New Subdivisions $301,000

Distribution Transformer Replacements $239,000

Jed Street, Invercargill Substation Upgrade $176,000

Ring Main Unit Replacements $160,000

EIL contracts PowerNet to manage its network assets and charges

PowerNet a fee for the use of the network. PowerNet adds maintenance

costs and overheads to this and the total costs are on-charged to the

electricity retailers through the line charges.

The farsighted decision of EIL’s owners in the late 1960’s to underground

the EIL network in the city continues to make it one of the most reliable

networks in the country besides enhancing the vista of the city.

The System Average Interruption Duration Index (SAIDI) this year

at 33.09 minutes was better than the Business Plan and Commerce

Commission target of 35.44 minutes. The System Average Interruption

Frequency Index (SAIFI) figure for EIL of 0.85 was also better than the

Commerce Commission and Business Plan target of 0.99.

All major substation equipment maintenance was carried out and

one major undergrounding project, Saturn/John/Murphy Streets was

completed with Tramway Road in progress.

The Power Company LimitedThe Optimised Deprival Valuation of TPCL network assets is over

$218million, made up of over 8,584km of lines and cables and 10,228

distribution transformers with a total capacity of 356 MVA.

TPCL contracts PowerNet Limited to manage its network assets and

charges PowerNet a fee for the use of the network. PowerNet adds

maintenance costs and overheads to this and the total costs are on-

charged to the electricity retailers through the line charges. TPCL is one

of the better performing predominately rural networks in New Zealand.

The SAIDI for TPCL of 218.18 minutes was better than the Commerce

Commission target of 240.28 minutes but did not meet the Business

Plan target of 205.23 minutes. The continued effort to maintain control

and management of vegetation growth has required extended outages

impacting on the overall SAIDI figure. The SAIFI figure for TPCL of 4.18

was also better than the Commerce Commission target of 4.32 but

higher than the Business Plan target of 3.32.

New subdivisions and a continuing high level of dairy farm conversions

with associated irrigation maintained a high volume of capital work for

staff to execute although this level reduced towards the end of the year

as the economic downturn progressed. As spare capacity is utilised, the

planning and design of new subtransmission lines and zone substations

continues and during the year new voltage regulators were installed at

Five Rivers, Colac Bay, South Hillend, Oreti Hall and Kelso to meet the

increasing demand.

Mount Linton

10 11

The rebuilding of the Monowai to Redcliffe 66kV line and major substation

projects at Mataura and Bluff were completed during the year.

Work was carried out to upgrade Mossburn Substation to supply the

predicted growth in demand for irrigation and dairying in the Mossburn

area and for future developments at Kingston.

The upgrade work includes the installation of a new transformer,

switchgear, protection system and associated structures and civil works

at a cost of approximately $3million.

Although some line maintenance has been deferred, all major substation

equipment maintenance has been carried out.

TPCL Projects 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

Upgrades of Gorge Road, Mataura and Bluff Substations $629,000

Distribution Transformer Replacements $543,000

OtagoNet Joint VentureOtagoNet Joint Venture (OJV) was formed in July 2002 and owns the

electricity network assets throughout North, South, East and part of

Central Otago, including the regional Otago towns of Balclutha, Milton,

Ranfurly, Palmerston, Middlemarch and Naseby.

OJV has over 14,770 consumers and contracts PowerNet to manage the

assets on its behalf.

OJV’s Optimised Deprival Valuation is almost $91.5million made up of

4,371km of lines and cables and over 4,045 distribution transformers,

with a total capacity of just over 147 MVA. OtagoNet has the lowest

density of consumers in New Zealand at 3.4 consumers per km of line.

PowerNet charges OtagoNet a network management fee. OtagoNet

then adds maintenance costs, depreciation, overheads and a return on

investment to the PowerNet charges. The total costs are on-charged to

electricity retailers.

The rebuilding of the Monowai to Redcliffe 66kV line and major substation projects at Mataura and Bluff were completed during the year.

The SAIDI for OJV was 274.66 minutes compared to the Business Plan

target of 394.57 minutes and the Commerce Commission target of 249.30

minutes. The OJV results again reflect the increased level of targeted

maintenance and renewals carried out during the year and the increasing

efforts to trim trees and clear vegetation away from the lines. The SAIFI

figure for OJV of 2.83 was higher than the Commerce Commission

target of 2.38 and higher than the Business Plan target of 2.68.

Works programmes were completed by the end of the year and included

significant line maintenance including the replacement of over 900 poles.

These replacements were identified in a recent survey of 11kV lines which

spanned 3,200km and 28,000 poles.

There were a number of rural line projects where 41km of lines were

rebuilt to reduce faults and safety risks to customers.

Planned maintenance work on electricity lines in townships was also

carried out with the completion of overhead line replacement in the

main highway of Middlemarch and a section of 11kV line reinforcement

through Waitati including sections of underground cable.

At Kaka Point work has commenced on replacing the badly corroded

lines and equipment on the beach front. The replacement lines have been

rerouted through the back of the town.

New indoor 33kV switchgear at Charlotte Street zone substation in

Balclutha and new 11kV switchgear at Patearoa substation were installed.

The former project was to improve supply security to customers and the

latter project was to supply increased load.

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ANNUAL REPORT

Connecting with our Stakeholders

The increased level of maintenance and renewal expenditure on the OJV network that has

occurred over the past years was reduced this year due to a focus on higher priority maintenance

and renewal work and to permit increased dividends to the shareholders.

OJV Projects Approximate Expenditure

New Customer Connections $1,891,000

Refurbishment of 11kV Lines and Distribution Transformer Replacements $1,320,000

Individual Pole Replacements $1,075,000

Indoor Switchgear – Charlotte Street, Balclutha and Patearoa Substations $860,000

Vegetation Management $786,000

11kV and 22kV Single Wire Earth Return Line Refurbishment $285,000

Electricity Southland Limited Electricity Southland Limited (ESL) is an electricity network asset company that was formed in

March 1995 by EIL and TPCL. It owns the embedded Lakeland electricity network at Frankton in

the Queenstown Lakes area and has contracted PowerNet to manage the assets on its behalf.

Assets comprise of approximately 9.2km of cables and 5 distribution transformers with a total

capacity of 2.1 MVA supplying in excess of 141 consumers.

In Frankton, the new Remarkables Park substation is complete but delays again occurred with the

cable installation due to the timing of the realignment of roads, airport plans for the future and

consequential land issues.

The ESL embedded network in Frankton met the customers’ requirements for quality of supply.

Stewart Island Electricity Supply AuthorityThe Stewart Island Electricity Supply Authority (SIESA) was formed in 1987 by the Southland

District Council to ensure that businesses and homes have a reliable power supply.

The Southland District Council has contracted PowerNet to manage the electricity assets on its

behalf and within the guidelines of the management contract.

The SIESA network assets include 26km of overhead lines, 10km of underground cables and 43

distribution transformers with a total capacity of 2.2 MVA. In excess of 423 customers are connected

to the network.

The SIESA network met the customers’ requirements for quality of supply.

12 13

There were a number of rural line projects where lines were rebuilt to reduce faults and safety risks to customers (OtagoNet electricity network).

McCulloch Road, OtagoNet Electricity Network

ANNUAL REPORT

Directors’ Report

14 15

ANNUAL REPORT

Connecting with our Stakeholders

Electricity Invercargill Ltd

Network comparisons

Network Southland Electric Invercargill City Joint Venture Electricity Invercargill Southland Ownership Power Supply Holdings Limited Limited/The Power District Council Consumer Trust Company Limited

Connected Consumers 33,690 17,126 14,770 141 423

Network Length 8,584km 655km 4,371km 9.2km 36km

Consumer Density 3.9 consumers/km 26.1 consumers/km 3.4 consumers/km 15.3 consumers/km 11.7 consumers/km

Number of Distribution Transformers 10,288 445 4,045 5 43

Distribution Transformer Capacity 356MVA 145MVA 147MVA 2.1MVA 2.2MVA

Distribution Transformer Capacity Density 42kVA/km 221kVA/km 34kVA/km 228kVA/km 61kVA/km

Maximum Demand 126MW 61MW 60MW 1.1MW 0.4MW

Total Energy Conveyed 731GWh 289GWh 412GWh 3.7GWh 1.6GWh

Busck Prestressed Concrete

14 15

SuppliersFaults and maintenance services are provided

by Otago Power Services Limited (OJV and

TPCL East), Peak Power Distribution Limited

(ESL), Power Services Limited (EIL, TPCL West

and SIESA) and Transfield Services Limited

(TPCL Technical).

The contractors responded well towards fault

management with all the contractors offering

support across the entire region and working

together at times.

Crane Distribution Limited, through its trading

name MasterTrade, has continued to provide

a materials procurement and management

service to PowerNet through its Invercargill

and Balclutha stores.

The alliance agreement with MasterTrade which

provides for the risks and gains associated with

business activity to be shared between the parties

has continued to operate well for both parties.

Asplundh, an international accredited vegetation

management company, has continued to

provide vegetation control services on the

TPCL and EIL networks.

During the year Busck Prestressed Concrete

Limited established a factory in Invercargill to

supply concrete poles to PowerNet for use on

the local networks.

Electricity Sector and GovernmentThis year saw significant work streams

established for the industry with the impending

reviews of the Information Disclosure

Regulations, the threshold reset for 2009-2014

and the Commerce Amendment Act.

PowerNet continued to take an active role

in these issues through its Chief Executive as

Deputy Chair of the Electricity Networks

Association and its Chief Financial Officer

a member of the Electricity Networks

Association regulatory working group.

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 and support

its proposed amendments to the Commerce

Amendment Act.

MasterTrade

Kaka Point

Busck Prestressed Concrete Limited

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ANNUAL REPORT

Connecting with our People

<20 21-30 31-40 41-50 51-60 60+ Total

Age group Male Female

70

60

50

40

30

20

10

0

Human resources are a key strength of PowerNet and the retention, development and wellbeing

of its staff are its highest priority.

Who we areWe employ sixty-five staff, sixty staff are based in Invercargill, with a further five in Balclutha. The

Invercargill staff manage the EIL, TPCL, SIESA and ESL networks and provide administration, financial

and some engineering services for the OJV network. The Balclutha staff manage the OJV network.

All our staff are employed on individual employment agreements.

Age, Categories of Staff

“We are only as good as our people. They are our greatest asset. We try to develop and look after them to ensure our positive future “,Martin WaltonChief Executive.

Num

ber

of S

taff

16 17

Full time Part time Fixed term Casual

Total workforce by contract type as as 31 March 2009

-20 21-30 31-40 41-50 51-60 60+ Total

Age group Male Female

6

4

2

0

Staff Turnover

Seventeen new staff members were

employed during the year, eleven of whom

filled new positions to meet the increasing

level of capital work and provide succession

resources and the other six were employed

to replace staff who had moved elsewhere.

New staff were sourced predominantly

from within New Zealand including a recent

returning engineer from London. Many of our

new employees have families and have moved

to Southland or Balclutha to enjoy the lifestyle,

friendly and safe communities and its abundance

of readily available activities.

Staff turnoverIt is pleasing to report that turnover remains

relatively low at PowerNet. A total of six staff

left during the year. Five staff left the Invercargill

office and one from the Balclutha office. The

turnover was around 10% of the total number

of employees. Of the staff who left PowerNet,

two staff moved to Australia, one moved to

Central Otago to work for one of PowerNet’s

contractors and the other three left to take up

positions elsewhere.

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ANNUAL REPORT

Connecting with our People

Health and safety

Percentage of employees receiving regular performance and career development reviews

100

85

70

55

40

25

0

Full Time Part Time Casual

50

25

0

Facilities Occupational Rates Lost Days Absenteeism Diseases of Injury due to Accidents

Average hours of training per year per employee for each employee category

35

30

25

20

15

10

0

Full Time Part Time Fixed Term Casual Total

Training and personal developmentWe believe that learning and development is

critical to our success. Training and development

is a key driver in the Business Plan.

The total number of hours spent on training

for all staff this year was 2,108, which is

approximately 32 hours per staff member. We

aim to maintain this level next year.

Performance reviews Receiving regular performance reviews for all

staff has been a priority for PowerNet.

Health and safetyHealthy people and a healthy and safe

workplace is always PowerNet’s aim. Health

and safety is of prime importance to PowerNet

given the nature of the electrical industry. We

have a Health and Safety Committee that

meets two-monthly and its recommendations

are generally promptly adopted.

Hou

rs o

f Tr

anin

g%

of E

mpl

oyee

sN

umbe

r of

Day

s

18 19

Notable staff achievementsDuring the year we celebrated Network Information Administrator, John Smith’s 40 year career

with PowerNet and its predecessors.

Outward BoundThis year PowerNet sponsored Andrew Mackway-Jones, a Computer Mapping Trainee, on a Classic

21 day Outward Bound course at Anakiwa in the Marlborough Sounds.

Auckland Careers ExpoPowerNet joined a number of other Southland businesses in the “Southland Village” at the two

day 2008 Auckland Careers Expo. Over 10,000 visitors attended the event. The Southland Village

concept enabled candidates considering a move to explore various career paths while evaluating

many of the benefits to be gained by a move to Southland.

Staff sporting eventsPowerNet continues to support staff involvement in sporting activities. This year our staff competed

in volleyball and table tennis teams in local competitions. A PowerNet cycle team also competed in

the corporate cycling challenge at the indoor velodrome in Invercargill.

CIGRE ConferenceEngineering Manager Roger Paterson, attended the 2008 Session of CIGRE in Paris, co-authoring

the paper “Optimising the scale of a wind farm development at the weak extremity of a rural

network.” Roger also represented New Zealand at the working group reviewing Active Distribution

Networks and Microgrids.

PowerNet continues to support staff involvement in sporting activities.

John Smith 40 Years Service

20 21

ANNUAL REPORT

Connecting with our Customers

PowerNet Website UpgradeIn an effort to communicate more clearly and easily with its customers, PowerNet completed an

upgrade of its website.

We wanted the web to be relatively intuitive and easy to navigate for the public, contractors

and staff. The backend of the web needed to be easy to use and provide the ability to update

information and images quickly.

This is only the first step and it is envisaged that the web will provide contractors and suppliers

with in-house information in the future. We also want to provide customers with a range of on-line

forms which will allow information to be validated as customers make requests of PowerNet.

PowerNet Customer SurveysWe continued to obtain regular customer feedback on both our performance and that of the

contractors providing new or altered supply arrangements.

A “connection survey” was sent out to all PowerNet customers who had recently connected to

one of our networks or had requested a change in their supply arrangements. This survey asked

customers to rate how they think we performed and how effectively we communicated with

them. The feedback was generally very positive and provided an oppor tunity to address any

specific issues.

In an effort to communicate more clearly and easily with its customers, PowerNet completed an upgrade of its website.

20 21

We also engaged with a number of our

commercial customers either by site visits or

telephone conversations throughout the year

to discuss ways to improve their processes to

take better advantage of our pricing structure.

Line Owner Asset Management Plans The Commerce Commission’s review of the

2007 Asset Management Plans graded the

three AMPs completed by PowerNet in the

top half of all AMPs.

Ranking for OJV and TPCL improved

since 2006. EIL’s grade dropped due to

not supplying separate information for

the non contiguous Bluff network. The

requirements changed in 2008 and separate

data for Bluff is now not required.

External Consultant’s SurveyWe also engaged an external consultant to

conduct an extensive confidential customer

satisfaction survey of customers’ connected

to our network. The survey was designed to

determine the level of satisfaction with our

services, including the faults response service

and also obtain customers’ views on the

frequency and duration of supply interruptions.

Information from these surveys has in the past

provided assistance in improving PowerNet’s

customer service performance.

This survey is completed annually and

sources recipients from across the EIL, TPCL

and OJV networks.

Commercial Customer SurveyWe conducted face to face surveys with several

of our commercial customers. The results were

overall favourable with many commercial

customers wanting increased personal contact

with PowerNet staff.

ANNUAL REPORT

CONNECTING WITH CLIMATE CHANGE

22 23

ANNUAL REPORT

Connecting with our Customers

Graph Legend

OJV UnplannedOJV Planned Severe StormTPCL UnplannedTPCL Planned Severe StormEIL UnplannedEIL Planned Severe Storm

System Average Interruption Duration Index (SAIDI)The average total time in minutes each customer connected

to the network is without supply each year.

Tota

l Min

utes

450

400

350

300

250

200

150

100

50

02004/05 2005/06

Years

2006/07 2007/08

500

2008/09

Reliability Statistics

System Average Interruption Frequency Index (SAIFI)The average number of times each customer connected to

the network is without supply each year.

Num

ber

of T

imes

5

4

3

2

1

02004/05 2005/06

Years

2006/07 2007/08 2008/09

22 23

CEO Report

24 25

ANNUAL REPORT

Connecting with our Environment

If electricity is distributed in a safe and efficient manner then less electricity needs to be generated and fewer accidents occur.

Cub

ic M

etre

s

Water Consumption2008/09

4000

3500

3000

2500

2000

1500

1000

500

0

The measurements will be reviewed over the

coming year and benchmarks will be developed

for environmental performance that capture our

commitment to reducing environmental impacts.

WaterWater is an increasingly scarce resource

worldwide and adequate clean water is one

of the issues facing humankind this century.

In Southland water is taken for granted but

monitoring shows that Southland does suffer

from drought conditions. It is predicted that

through climate change Southland could have

more wet weather but whether this will bring

about clean water in the right places at the right

times, particularly for agricultural production,

remains an unknown.

MeasureThis year water usage has been monitored.

While PowerNet is not an intensive water user

the aim is to raise consciousness about being

careful with all natural resources that are used.

ManageTarget: Not to exceed current water usage while

in the current office building. PowerNet is planning

a new building and we aim to reduce water

consumption by 5% in the first year of occupation.

Stewardship of the natural environment is

becoming increasingly important to the way

in which PowerNet does business. Increasing

pressure on natural resources and a rising

awareness of the impacts of climate change

mean that business is not just about financial

performance but also about the sustainability of

our resources. Being a good corporate citizen

requires us to give serious consideration to

PowerNet’s impacts – both on society and the

natural environment.

Managing an efficient electricity distribution

system is the most important role PowerNet

has in relation to all of its stakeholders and this

impacts on the natural environment. The less

line losses incurred through the distribution

of electricity, the less electricity needs to

be generated. Furthermore, if electricity is

distributed in a safe and efficient manner then

fewer accidents occur.

Our approach to the environment includes

carbon emission management, water and

electricity efficiency and waste reduction.

This report provides an initial measurement

of each of these and the key ways in which

we can effect improvement in these areas.

24 25

Water is an increasingly scarce resource worldwide and adequate clean water is one of the key issues facing humankind this century.

Invercargill Water Tower

26 27

ANNUAL REPORT

Connecting with our Environment

Organic waste

Plastic

Glass

Cardboard

Paper

Other

ReduceReduction plans for water in the new building include:

- Smaller volume water cisterns

- Grey water used in ablution block

- Low-flow showerheads

- Energy efficient dishwashers.

Office WasteMeasureEarlier this year a waste audit was carried out in order to establish which recycling mechanisms to

put in place. The results of the waste audit are shown below:

ManageTargets:

Reduce non-recyclable waste by 2% in the next 12 months-

Reduce recyclable waste by 5% in the next 12 months-

This year we began to examine the type and quantity of waste involved in our operations.

26 27

In the past year redundant power poles have been used for stop banks for the Otago Regional Council and local farmers, for firewood and for the refurbishment of the wharf at Halfmoon Bay, Stewart Island.

ReduceAs a response to the waste audit a number

of initiatives have been undertaken that will

facilitate a significant reduction in recyclable

waste ending up in landfill.

These include:Four Bokashi Bins have been purchased -

for the Racecourse Road office for

organic waste. Staff members have taken

responsibility for the organic waste and are

using the compost for their home gardens.

It is intended that Bokashi Bins will be rolled

out to all other offices.

Small green cubes have been placed on

each staff member’s desk for recycling

organic waste.

- A glass recycling bin has been introduced in

the staff room. Each week a staff member

takes the the glass to the Invercargill

Recycling Centre while doing other duties.

Paper, plastic, cardboard and tin recycling -

now occurs to reduce the amount of

recyclable material going to landfill. Labelled

bins have been placed in the staff room and

paper recycling bins have been placed in the

printer area and beside photocopiers.

- The paper, cardboard, plastic and tin bins

are emptied into large wheelie bins which

are collected by the Southland disABILITY

Enterprises Business Collections and

Kerbside Recycling.

During the next financial year the aim is for all

remaining general rubbish bins to be removed.

This should enable targets to be achieved.

Network WasteThere are two key operational waste products

resulting from our business. These are insulating

oil and power poles.

Measure(Waste Oil)

Waste oil is a by-product of the transformers

and switchgear used in electricity distribution

and the disposal of oil in an environmentally

sensitive manner is of importance to PowerNet.

Presently oil is taken off site for recycling. Waste

oil can appear in streams or rivers through

spillage or significant leakage. PowerNet aims

to have zero spillage. This year all oil was

recycled and there were no reported spillages

or material leakage.

(Redundant Power Poles)

Power poles form the backbone of PowerNet’s

networks and maintaining them is one of

PowerNet’s key roles. There are many reasons

for replacing poles including the replacing of old

poles that have the potential to be a danger to

the public or the network. These poles need to

be disposed of and we actively try to minimise

the number of poles going to landfill. Presently

approximately 10% of redundant power poles

end up in the landfill. PowerNet staff actively

find ways for power poles to be reused. For

example, in the past year redundant power

poles have been used for stop banks for the

Otago Regional Council and local farmers, for

firewood and for the refurbishment of the

wharf at Halfmoon Bay, Stewart Island.

28 29

ANNUAL REPORT

Connecting with our Environment

Travel in vehicles owned by PowerNet

Electricity usage

Transmission and line losses

Air travel

Other travel

Waste

predict it could be at the higher end of the range. These changes would result in both opportunities

and risks. For example, the Stern review on the Economics of Climate Change decribes New

Zealand as one of the lifeboats of the future. While being a lifeboat presents opportunities, the

risks could perhaps outweigh these when millions of displaced people look for a place to live. This

is perhaps just one scenario of the future – considering all the possible scenarios is becoming an

important part of futures planning.

A temperature change in Southland would result in little change in the maintenance of power lines

and poles. However, increased summer loading of the lines could result in financial implications due

to reduced thermal rating of equipment and reduced available capacity. Increased loads could be

the result of new factors such as greater agricultural production in the area, more people living in

the region and increased use of air conditioning in the summer.

Presently, PowerNet has decided to concentrate on measuring and reducing carbon emissions. This

year the carbon emitted through PowerNet’s activities has been analysed. The aim is to take active

steps to reduce the footprint.

PowerNet’s total carbon emission results:

Manage(Waste Oil)

Target:

- 100% waste oil is removed from the site for

recycling.

- No incidents that adversely affect the

environment due to leakage or spillage.

(Redundant Power Poles)

Target: Maintain at least 10% of old power

poles to landfill.

Reduce(Waste Oil)

Target: Maintain current standards and

procedures with the disposal of oil from

transformers and switchgear.

(Redundant Power Poles)

Target: Continue to find ways for old poles to

be used by other local groups and projects.

PowerNet and climate changeClimate change is purported to be the biggest

threat to humankind that we know. The

United Nations InterGovernmental Panel on

Climate Change predicts that, at a minimum,

temperatures could rise between 1.1 and 6.4

°C but recent predictions using feedback loops

Voltage Regulator Ohai

28 29

Virtual Server

MeasureThe key to managing carbon emissions is to start by measuring emissions. This year PowerNet

collected data to measure total carbon emissions based on the Ministry for the Enviroment’s

Guidance for Voluntary Corporate Greenhouse Gas Reporting (2008).

ManageTargets:

Reduce annual average litres of transport fuel per 100 km by 10%.-

Reduce CO- 2(e) emissions per km by 5%.

Reduce PowerNet’s and Network Owners’ electricity consumption by 2.5%.-

ReduceReduction strategies are in the process of being developed to meet the targets.

- One of the key areas of concentration is on vehicle type and in particular fuel type. Fuel efficient

diesel or hybrid vehicles are being adopted where possible.

- Trips are being analysed for their necessity and where alternative methods of communication are

possible these will be preferred.

- PowerNet has invested in video conferencing units for convenience and to reduce the

necessity to travel. We also regularly use telephone conferencing if video conferencing

facilities are not available.

- PowerNet installed virtual servers this year which allow a single server to securely run multiple

servers as virtual machines. This means that less physical servers are needed and these are more

highly utilised, with less electricity used to power and cool them. Virtual servers also allow IT

consultants to securely work on our systems remotely without the necessity of travel.

- Reducing electricity consumption can occur though small actions such as switching computer

monitors off when not in use, turning off lights and replacing fan heaters with heat pumps.

However, it is intended the new office building will have energy efficiency built into its design,

following Green Building principles, making it possible to more effectively use the various forms of

energy available. The waste targets outlined previously will also help reduce carbon emissions.

Resource ConsentsResource consents are an inevitable part of

the many projects carried out by PowerNet

each year although resource consents are not

necessary when the area has been designated

for electricity distribution operations within the

Councils’ District Plans.

In the past year there have been no more than

ten resource consents issued to PowerNet.

Most of the consents are for oil bunding at

substations or for the installation of regulators.

Complying with resource consents is a priority

for PowerNet and it is pleasing to note that in

the past year there were no breaches to the

conditions of existing consents.

3130

ANNUAL REPORT

Connecting with our Communities

PowerNet and its staff have a strong sense of

community responsibility. PowerNet is involved

in the community in a myriad of ways from

supporting young people by offering electrical

engineering scholarships and holiday work to

providing support for the community through

contributions towards significant community

facilities and initiatives.

In the last financial year PowerNet supported

the development of two community facilities,

sponsored a significant sporting event,

supported a new project that aims to improve

the health and wellbeing of the community,

supported a trade event and produced a

booklet with information about working safely

when close to an electricity network.

In the coming year PowerNet intends to allow

staff to spend eight paid hours per person on

approved voluntary work.

PowerNet Tour of SouthlandPowerNet sponsors the PowerNet Tour of

Southland. The event is New Zealand’s premier

multi-stage cycle road race, listed on the

international cycling calendar and is a major

event on the Australasian circuit.

The PowerNet Tour is a six day event that begins

and ends in Invercargill and travels throughout

much of Southland and into the Queenstown

Lakes area. The Tour captures the attention and

support of the Southland community and the

economic impact of the event is reported to

be approximately $2million.

Twenty three sponsored teams with a mix

of national and international riders and their

supporting personnel travelled to Southland to

compete in the 2008 Tour.

The success of this Tour is such that this is

the eighth successive year that PowerNet has

supported the event as the major sponsor.

We are pleased to note the support and

passion of PowerNet staff towards this event,

with the Company sponsoring a team in the

Tour for the second year.

Our staff also joined Sports Southland and the

NZ Police to present a school programme

based on road and cycling safety during the

week of the Tour.

PowerNet contributed to the revamp and

improvement of the Tour website following

feedback from previous years. The refurbished

website received very favourable comments

from the cycling fraternity around the world.

www.tourofsouthland.com Cyclists in the PowerNet Tour of Southland cycle 885 kmin one week.

31

The Tour captures the attention and support of the Southland community and the economic impact of the event is reported to be approximately $2million.

ANNUAL REPORT

Directors’ Report

32 33

ANNUAL REPORT

Connecting with our Communities

Southland Warm Homes Trust PowerNet provides administration and financial reporting services on behalf of the Southland

Warm Homes Trust (SWHT).

The SWHT was formed last year by the Southland Electric Power Supply Consumer Trust

(Southland Power Trust for branding purposes) 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 installation 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.

The SWHT project offers a range of subsidies for all home owners and landlords with homes built before 2000.

32 33

TA

KIN

G A

PO

SIT

IVE

LIN

E IN

TH

E S

OU

TH

A guide for working safely

Other sponsorships PowerNet has contributed to two significant community facilities during the year. PowerNet

supported the development of the Southland Cricket facilities by contributing towards the new

electronic scoreboard. A significant development for Southland Hockey was the purchase and

refurbishment of club rooms and laying of artificial turf. PowerNet contributed towards the cost of

the lighting that surrounds the new turf.

We continue to support the Southland TradeQual Awards event that celebrates the success and

achievements of Southland’s Trade Training graduates.

A guide for working safely bookletPowerNet has developed “A Guide for Working Safely” on its networks for use by contractors

and the service community when working near its overhead lines or underground cables. The

guide was launched in early March 2009 and was well received by both PowerNet’s employees

and contractors. The guide can be viewed on the PowerNet website and a printed pocket sized

booklet is also available. PowerNet worked with Vector Networks on the illustrations for the booklet

as Vector Networks had produced a similar booklet for its electricity, gas and communications

networks. The content of the guide was largely from internal procedures and information contained

on the PowerNet website.

34 35

ANNUAL REPORT

Directors’ Profiles

Neil Boniface JPNeil is Chairman of Electricity Invercargill Limited, Member of

OtagoNet Joint Venture Governing Committee, Deputy Mayor

of the Invercargill City Council, Board Member of the Invercargill

Licensing Trust, Board Member of the ILT Foundation and Chairman

of the Southland Warm Homes Trust. He operates a Driving School

business in Southland and also serves on several charitable trusts.

Cam McCulloch (Chairman) FCA

Cam is a Consultant with McCulloch and Partners, Chartered

Accountants. He is Chairman of Southfish Limited and Invercargill

Te Ara a Kewa Primary Health Organisation. Cam is also Deputy

Chairman of The Power Company Limited and Invercargill City

Holdings Limited.

Philip Mulvey (Deputy Chairman) BCom CA

Philip joined the Board of PowerNet Limited on 1 February 2001.

He is Chief Executive of WHK Cook Adam Ward Wilson, Chartered

Accountants and has a number of Directorships, including Electricity

Invercargill Limited. He also acts as financial advisor to a large

number of local and national companies.

Douglas 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 The Power Company Limited.

34 35

Alan Harper 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 The Power Company Limited

and OtagoNet Joint Venture Governing Committee and is a Local

Advisory Board Member for South Canterbury Finance Limited.

Alan is also an Accredited Fellow of the Institute of Directors.

Geoffrey PiercyGeoff is a fifth term Invercargill City Councillor, Chairman of the

Works and Services Committee and appointed member of the Bluff

Community Board. He is also a Director of Electricity Invercargill Limited

and Invercargill Te Ara a Kewa Primary Health Organisation and a Trustee

of the Southland Museum and Art Gallery. Geoff is a retired hospital and

Area Health Board administrator, Life Member and President of Grey

Power Southland and an Anglican Lay Minister.

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 The Power Company

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.

Ross Smith BCom

Ross joined the Board of PowerNet Limited in November 2003.

He is Chief Executive of SBS Bank, the only member owned

Building Society with Bank Registration in New Zealand. Ross is also

a Director of SBS Bank, Finance Now Limited, Funds Administration

NZ Limited, Southsure Assurance Limited, Electricity Invercargill

Limited and Power Services Limited.

36 37

ANNUAL REPORT

Directors’ Report

The Directors have pleasure in presenting their Annual Report together with the Financial

Statements of PowerNet Limited for the year ended 31 March 2009.

Principal ActivitiesPowerNet Limited is a joint venture company which manages the electricity networks of The

Power Company Limited, Electricity Invercargill Limited, OtagoNet Joint Venture, Stewart Island

Electricity Supply Authority and Electricity Southland Limited. The parties to the PowerNet Limited

joint venture are The Power Company Limited and Electricity Invercargill Limited and their interests

are represented through their respective wholly owned subsidiaries Last Tango Limited and Pylon

Limited. PowerNet Limited’s core business is to efficiently and effectively manage the electricity

networks under its control.

Result and DistributionThe Directors report that the Company’s after tax profit for the year under review was $264,000.

The Directors have not declared a dividend for the year ended 31 March 2009.

State of Company’s AffairsWith the continuing support of PowerNet’s shareholders, the Directors consider the state of the

Company’s affairs to be satisfactory.

DirectorsEach of the Shareholding Companies has appointed four Directors.

Appointed by Electricity Invercargill Limited are: Appointed by The Power Company Limited are:

Philip Mulvey (Deputy Chairman) Cam McCulloch (Chairman)

Neil Boniface Douglas Fraser

Geoffrey Piercy Alan Harper

Ross Smith Maryann Macpherson

The Directors report that the Company’s after tax profit for the year under review was $264,000.

36 37

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.

Cam McCulloch

Electricity Southland Ltd Director

Invercargill City Holdings Ltd Deputy Chairman

Invercargill Te Ara a Kewa Primary

Health Organisation Chairman

Last Tango Ltd Director

McCulloch and Partners Consultant

Southfish Ltd Chairman

The Power Company Ltd Director

Philip Mulvey

Electricity Invercargill Ltd Director

Electricity Southland Ltd Director

Forest Dynamics Ltd Director

Otago Cricket Association Director

Pylon Ltd Director

Southland Outdoor Stadium Trust Trustee

WHK Cook Adam Ward Wilson Chief Executive

WHK Cook Adam Limited Director

WHK (New Zealand) Ltd Director

Zak Holdings Ltd Chairman

Neil Boniface

Electricity Invercargill Ltd Chairman

Electricity Southland Ltd Director

Invercargill City Council Deputy Mayor

Invercargill Licensing Trust Member

OtagoNet Joint Venture Member, Governing Committee

OtagoNet Ltd Director

Pylon Ltd Director

Southland Driving School Director

Southland Warm Homes Trust Trustee

Douglas FraserElectricity Southland Ltd DirectorLast Tango Ltd DirectorNZ Wool Board Disestablishment Company DirectorThe Power Company Ltd Director

Alan HarperAWS Legal PartnerElectricity Southland Ltd DirectorLast Tango Ltd DirectorOtagoNet Joint Venture Chairman, Governing CommitteeOtagoNet Ltd DirectorSouthland Finance Ltd DirectorThe Power Company Ltd Chairman

Maryann MacphersonElectricity Southland Ltd DirectorLast Tango Ltd DirectorThe Power Company Ltd DirectorPower Services Ltd DirectorVenture Southland Director

Geoffrey PiercyElectricity Invercargill Ltd DirectorElectricity Southland Ltd DirectorGrey Power Southland PresidentInvercargill City Council CouncillorInvercargill Te Ara a Kewa Primary Health Organisation DirectorPylon Ltd DirectorSouthland Museum & Art Gallery Trustee

Ross SmithElectricity Invercargill Ltd DirectorElectricity Southland Ltd DirectorFinance Now Ltd DirectorFraser Properties Ltd DirectorFunds Administration NZ Ltd DirectorPower Services Ltd DirectorPylon Ltd DirectorRural Livestock Finance Ltd DirectorSouthland Building Society Director, Chief Executive OfficerSouthsure Assurance Ltd Director

38 39

ANNUAL REPORT

Directors’ Report

Remuneration of DirectorsThe following Directors held office during the year under review and were paid fees accordingly:Cam McCulloch - Chairman, Chairman Audit Committee, Chairman Remuneration Committee

Philip Mulvey - Deputy Chairman, Member Audit Committee, Member Remuneration Committee

Neil Boniface - Director

Douglas Fraser - Director

Alan Harper - Director

Maryann Macpherson - Director

Geoffrey Piercy - Director

Ross Smith - Director

Remuneration paid or due and payable to Directors for services as a Director and in any other capacity, during the year was:Cam McCulloch $35,000 Alan Harper $17,500Philip Mulvey $22,000 Maryann Macpherson $17,500Neil Boniface $17,500 Geoffrey Piercy $17,500Douglas Fraser $17,500 Ross Smith $17,500

Employee RemunerationEight continuing or former employees received remuneration in the following bands:$100,000 - $110,000 2 $200,000 - $210,000 1$110,000 - $120,000 1 $210,000 - $220,000 1$140,000 - $150,000 1 $350,000 - $360,000 1$180,000 - $190,000 1

Scholarships, Awards and DonationsDuring the year the Company promoted learning through various scholarships and awards which totalled $389. In addition, donations made by the Company totalled $100.

Use of Company InformationDuring 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 InsuranceLiability Insurance was effected for Directors and certain Executives of the Company.

Accounting PoliciesAccounting policies have been amended to reflect the fact that these accounts have been prepared under the New Zealand Equivalents to International Financial Reporting Standards.

AuditorRefer to Note 3 of the Financial Statements for Auditor remuneration.

For and on behalf of the Directors.

Cam McCulloch Philip MulveyChairman Deputy Chairman

38 39

The Directors have approved the Financial Statements of PowerNet

Limited for the year ended 31 March 2009 pages 40 to 57.

For and on behalf of the Board of Directors

28 May 2009

Approval by Directors

C McCulloch P Mulvey

Chairman Deputy Chairman

Mount Linton

40 41

FINANCIAL INFORMATION

The accompanying notes on pages 43-57 form part of and should be read in conjunction with these Financial Statements.

FINANCIAL INFORMATION

Income Statement for the year ended 31 March 2009

Note 2009 2008 $000 $000

Operating Revenue (2) 74,692 72,132

Other Income (2) 2,454 2,146

Operating Expenses (3) (76,578) (72,894)

Financial Expenses (3) (467) (526)

Operating Surplus Before Taxation 101 858

Taxation (Expense)/Benefit

Current (4) (71) (26)

Deferred (4/13) 234 24

Net Surplus After Taxation 264 856

Statement of Changes in Equity for the year ended 31 March 2009

2009 2008 $000 $000

Net Surplus for the Year 264 856

Total Recognised Income and Expenses 264 856

Distributions to Shareholders

Dividend Paid/Declared - (600)

Changes in Equity for the Year 264 256

Equity at Start of Year 561 305

Equity at End of Year 825 561

40 41

FINANCIAL INFORMATION

The accompanying notes on pages 43-57 form part of and should be read in conjunction with these Financial Statements.

FINANCIAL INFORMATION

Balance Sheet as at 31 March 2009

Note 2009 2008 $000 $000

Equity

Share Capital (5) 20 20

Retained Earnings (5) 805 541

Total Equity 825 561

Represented By:

Current Assets

Cash and Cash Equivalents (6) 615 1,065

Receivables and Prepayments (7) 8,233 9,622

Construction Work in Progress (8) 4,895 4,235

Inventories (9) 493 158

Taxation Receivable - 4

Total Current Assets 14,236 15,084

Non-Current Assets

Property, Plant and Equipment (14) 1,350 1,006

Capital Work in Progress 350 608

Intangibles (15) 1,350 920

Deferred Taxation (13) 235 1

Total Non-Current Assets 3,285 2,535

Total Assets 17,521 17,619

Current Liabilities

Creditors and Accruals (10) 8,030 8,925

Employee Entitlements (11) 565 483

Taxation Payable 51 -

Provision for Dividend - 600

Total Current Liabilities 8,646 10,008

Non-Current Liabilities

Advances (12) 8,050 7,050

Total Non-Current Liabilities 8,050 7,050

Total Liabilities 16,696 17,058

Net Assets 825 561

42 43

FINANCIAL INFORMATION

The accompanying notes on pages 43-57 form part of and should be read in conjunction with these Financial Statements.

FINANCIAL INFORMATION

Statement of Cash Flows for the year ended 31 March 2009

Note 2009 2008 $000 $000

CASH FLOWS FROM OPERATING ACTIVITIES

Cash Was Provided From:

Receipts from Customers 78,007 72,271

Interest Received 67 42

78,074 72,313

Cash Was Applied To:

Payments to Suppliers and Employees 77,317 72,347

Income Tax Paid 16 -

Interest Paid 555 520

77,888 72,867

Net Cash Flows From/(Used In) Operating Activities (19) 186 (554)

CASH FLOWS FROM INVESTING ACTIVITIES

Cash Was Provided From:

Property, Plant and Equipment Sales 1 3

1 3

Cash Was Applied To:

Property, Plant and Equipment Purchases 1,037 787

1,037 787

Net Cash Flows Used In Investing Activities (1,036) (784)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash Was Provided From:

Advances 5,000 5,100

5,000 5,100

Cash Was Applied To:

Advances 4,000 3,000

Dividend Paid 600 -

4,600 3,000

Net Cash Flows From Financing Activities 400 2,100

Net (Decrease)/Increase in Cash Held (450) 762

Add Opening Cash and Cash Equivalents

Brought Forward 1,065 303

Closing Cash and Cash Equivalents To Be Carried Forward

(6) 615 1,065

42 43

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009

1. Statement of Accounting Policies

Reporting Entity

PowerNet Limited is a profit oriented limited liability company that was incorporated in New Zealand on 21 April 1994 and the address of its registered

office is 251 Racecourse Road, Invercargill. The Company is a joint venture company and is registered under the Companies Act 1993. The parties to the

joint venture are The Power Company Limited and Electricity Invercargill Limited and their interests are represented through their respective wholly owned

subsidiaries Last Tango Limited and Pylon Limited.

The principle activity of PowerNet Limited is the management of electricity distribution networks.

PowerNet Limited manages the networks of The Power Company Limited, Electricity Invercargill Limited, OtagoNet Joint Venture, Electricity Southland

Limited and Stewart Island Electricity Supply Authority, those entities retaining ownership of their respective network assets. PowerNet Limited also

provides administration services to the contracting company Power Services Limited.

The financial statements were approved by the Board of Directors on 28 May 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 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) (to the extent that is required using differential reporting options referred to in (p)).

These financial statements have been prepared on the basis of historical cost unless otherwise noted in a specific accounting policy.

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

- Employee Benefits

Specific Accounting Polices

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

(a) 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 probable return of the goods can be estimated reliably and there is no continuing management involvement with

the goods.

(i) Line and Metering Charges

Line and Metering charges represent amounts invoiced to retailers in relation to services provided on behalf of the joint venture parties.

44 45

FINANCIAL INFORMATIONFINANCIAL INFORMATION

(ii) Network Revenue

Network Revenue comprises amounts charged to the joint venture parties in relation to asset construction on their behalf.

(iii) Financial Income

Financial income comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective income method.

(b) Financial Expenses

Financial expenses comprise interest expense on borrowings. All borrowing costs are recognised in the Income Statement using the effective interest method.

(c) Construction Work in Progress

Work in Progress related to The Power Company Limited’s and Electricity Invercargill Limited’s Capital Work includes direct material and labour costs

plus an accrual for the proportion of work completed at the end of the period, plus a mark up designed to cover PowerNet Limited’s associated

indirect overheads. Where charges relate to external customers, profit is recognised on a percentage completion basis.

Mark ups on contracts are recognised progressively over the period of each contract. Foreseeable losses on a contract we recognised immedietely.

contract are recognised immediately.(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 initially 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 Company 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 Company and the cost of the item can be

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

(f) Depreciation

Depreciation is charged to the Income Statement on a combination of straight line and diminishing value bases on all tangible assets 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 4.0-15.0% Straight line/Diminishing value

Plant and Equipment 7.0-48.0% Straight line/Diminishing value

Office Furniture 9.0-80.4% Straight line/Diminishing value

Computer Hardware 20-48.0% Straight line/Diminishing value

System Control Assets 11.4-48% Straight line/Diminishing value

(g) Capital Work in Progress

Capital Work in Progress is stated at cost and is not depreciated. Costs for a specific project are transferred to Property, Plant and Equipment once

the project is commissioned, and then depreciated.

(h) Impairment

At each reporting date the Company reviews the carrying amounts of its assets (with the exception of inventory and deferred tax 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.

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

44 45

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

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.

(i) Intangible Assets

(i) Computer Software

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

useful life.

(ii) 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.

(iii) Amortisation

Amortisation is charged to the Income Statement on a straight line or diminishing value basis over the estimated useful lives of intangible assets

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.

(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 Benefits

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.

46 47

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

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 Company in respect of services provided by employees up to balance date.

(n) Seasonality

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

(o) Financial Instruments

(i) 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.

(ii) 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 Company will not be able to collect all amounts due according to the original terms of the receivables.

(iii) Trade and Other Payables

Trade and Other Payables are stated at cost.

(iv) 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 Company has an unconditional right to defer settlement of the liability at least 12 months

after balance date.

(p) Differential Reporting

An entity is granted concessions from certain requirements of NZ IFRS if it meets the qualifying entity requirements of the Framework for Differential

Reporting for Entities Applying the New Zealand Equivalents to International Financial Reporting Standards Reporting Regime.

PowerNet Limited is a qualifying entity for Differential Reporting by virtue of the fact that it has no public accountability and all of its owners are

represented on the governing body.

PowerNet Limited has not applied any differential reporting exemptions during the year.

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. Initial application of these standards will not affect

any of the amounts recognised in the financial statements, but may change the disclosures presently made.

46 47

FINANCIAL INFORMATIONFINANCIAL INFORMATION

2009 2008 $000 $000

2. Income

Operating Revenue:

Line and Metering Charges 53,421 49,764

Network Revenue 20,763 21,995

External Revenue 508 373

Other Income:

Interest Revenue 79 47

Other Revenue 2,375 2,099

Total Income 77,146 74,278

3. Expenses

Expenses Include:

Network Costs 25,844 26,348

Transmission Charges 12,912 11,803

Use Charges 27,707 26,546

Interest Expense 467 526

Deficit on Disposal of Property, Plant & Equipment 1 1

Operating Lease Expenses

- Tenancy and Repeater Site Leases 117 99

- Motor Vehicle Leases 157 135

- Office Equipment Leases 11 8

Total Operating Leases 285 242

Amortisation of Intangibles 273 199

Auditor’s Fees

- Audit of Financial Report 28 24

- Other Services - -

Bad Debts Written Off 13 6

Depreciation

- Buildings 12 12

- Plant and Equipment 71 63

- Office Equipment 38 34

- Computer Hardware 100 74

- System Control Assets 25 36

Total Depreciation 246 219

Directors’ Fees 162 162

Donations - 2

Employee Benefit Expenses 4,682 3,894

Scholarships and Awards - 5

Subvention Payment 824 130

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

48 49

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

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.

2009 2008 $000 $000

Operating Surplus Before Income Tax 101 858

Permanent Differences 13 13

Utilised Tax Loss Offset (713) (874)

Taxable Income (599) (3)

Prima Facie Taxation at 30% (33% prior year) (179) (1)

Made up of:

Current Tax 55 23

Deferred Tax (234) (24)

(179) (1)

Prior Period Adjustment 16 3

Taxation (Benefit)/Expense for Year (163) 2

Effective Tax Rate (161%) 0%

Imputation Credit Account

Opening Credit Balance 1 1

Credits

Income Tax Payments 16 -

Debits

Income Tax Refunded - -

Closing Credit Balance 17 1

48 49

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

5. Equity

The authorised and issued share capital consists of 20,000 ordinary $1 shares which are divided into two groups. Group A comprises 10,000 ordinary

shares and Group B comprises 10,000 ordinary shares.

Group A and Group B shares have the same rights and privileges and are subject to the same restrictions. However, dividends are distributed to Group A or

Group B shares in accordance with the net profit or loss contributed by each joint venture party’s network as calculated in accordance with the allocation

method used to allocate income and expenditure between the joint venture parties.

2009 2008 $000 $000

Share Capital 20 20

Retained Earnings

Opening Balance 541 285

Net Surplus for the Year 264 856

Dividend Paid/Declared - (600)

Closing Balance 805 541

Total Equity 825 561

6. Cash and Cash Equivalents

Current Account 35 45

Short Term Bank Deposits 580 1,020

Total Cash and Cash Equivalents 615 1,065

7. Receivables and Prepayments

Owing by:

Trade Debtors 5,809 5,064

The Power Company Limited 1,669 3,769

Electricity Invercargill Limited 270 504

7,748 9,337

Prepayments and Other Receivables 485 285

Total Receivables and Prepayments 8,233 9,622

Trade and other receivables are stated at their cost less any impairment losses. The carrying amounts of the Company’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 4% of the Company’s trade receivables were 30-90 days passed due and 3% of the Company’s trade receivables were >90 days passed

due. As most of these amounts are expected to be recovered, no provision for impairment has been created.

50 51

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

2009 2008 $000 $000

8. Construction Work in Progress

On behalf of:

The Power Company Limited 4,341 3,838

Electricity Invercargill Limited 438 345

Third Party Customers 116 52

Total Construction Work in Progress 4,895 4,235

9. Inventories

Network Spares and Sundry Network Consumables 493 158

10. Creditors and Accruals

Owing to:

Trade Payables 2,225 3,796

Accruals 2,021 1,179

Inland Revenue - GST Payable 47 198

The Power Company Limited 2,855 3,185

Electricity Invercargill Limited 882 567

Total Creditors and Accruals 8,030 8,925

11. Employee Entitlements

Opening Balance 483 412

Additional Accrual 509 442

Amount Utilised (427) (371)

Total Employee Entitlements 565 483

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 Company’s weighted average cost of capital.

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

12. Advances

Advances from:

The Power Company Limited 6,440 4,700

Electricity Invercargill Limited 1,610 2,350

Total Advances 8,050 7,050

Interest on the Advances is paid quarterly. The interest rate in respect of the advances is 0.75% above the 90 day Bank Bill Rate at the end of each month.

The advance facility is repayable on demand but with a 13 month notice period.

50 51

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

2009 2008 $000 $000

13. Deferred Taxation

Opening Balance (1) 23

Charged to Income Statement

- Depreciation (non current liability) 72 35

- Other (current assets) (306) (62)

- Other (current liabilities) - 3

Charged to Equity - -

Total Deferred Taxation (235) (1)

The movement in deferred tax during the year is mainly due to a subvention payment, the difference between tax and accounting depreciation and the

movement in holiday pay accruals.

14. Property, Plant and Equipment System Plant and Office Computer Control

Land Buildings Equipment Equipment Hardware Assets Total

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

Cost

Balance at 1 April 2007 97 309 138 216 201 169 1,130

Additions - - 148 15 95 7 265

Disposals - - - (1) (5) - (6)

Balance at 31 March 2008 97 309 286 230 291 176 1,389

Balance at 1 April 2008 97 309 286 230 291 176 1,389

Additions - - 246 88 256 2 592

Disposals - - (1) - (1) - (2)

Balance at 31 March 2009 97 309 531 318 546 178 1,979

Depreciation and Impairment

Balance at 1 April 2007 - 13 18 39 64 32 166

Depreciation for Period - 12 63 34 74 36 219

Disposals - - - (1) (1) - (2)

Balance at 31 March 2008 - 25 81 72 137 68 383

Balance at 1 April 2008 - 25 81 72 137 68 383

Depreciation for Period - 12 71 38 100 25 246

Disposals - - - - - - -

Balance at 31 March 2009 - 37 152 110 237 93 629

Carrying Amount/Book Value

Book Value at 31 March 2008 97 284 205 158 154 108 1,006

Book Value at 31 March 2009 97 272 379 208 309 85 1,350

Deemed Cost

The carrying amount of Property, Plant and Equipment as 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.

52 53

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

15. Intangible Assets

Computer

Software

$000

Cost

Balance at 1 April 2007 1,147

Additions 171

Disposals -

Balance at 31 March 2008 1,318

Balance at 1 April 2008 1,318

Additions 703

Disposals -

Balance at 31 March 2009 2,021

Amortisation and Impairment

Balance at 1 April 2007 199

Amortisation for Period 199

Disposals -

Balance at 31 March 2008 398

Balance at 1 April 2008 398

Amortisation for Period 273

Disposals -

Balance at 31 March 2009 671

Carrying Amount/Book Value

Book Value at 31 March 2008 920

Book Value at 31 March 2009 1,350

Software assets have a finite useful life and are amortised over that useful life.

52 53

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

16. Transactions with Related Parties

The parties to the PowerNet Limited Joint Venture consist of The Power Company Limited and Electricity Invercargill Limited through their respective

subsidiaries Last Tango Limited and Pylon Limited. Electricity Southland Limited also has the same ownership as the PowerNet Limited Joint Venture. All

transactions between PowerNet Limited, its joint venture parties and Electricity Southland Limited relate to the normal trading activities of PowerNet

Limited and have been conducted on a commercial basis.

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

Material transactions PowerNet Limited has had with the abovementioned related parties during the year, excluding on-charges incurred on behalf of

related parties, are as follows:

2009 2008 $000 $000

Asset Construction and Management Fees

Supplied To:

The Power Company Limited 18,011 19,553

Electricity Invercargill Limited 3,268 2,942

Electricity Southland Limited 115 110

Receivables Outstanding at Balance Date (GST incl):

The Power Company Limited 1,669 3,769

Electricity Invercargill Limited 270 504

Electricity Southland Limited 11 10

Use Charges and Miscellaneous Charges Supplied By:

The Power Company Limited 19,335 18,283

Electricity Invercargill Limited 8,957 8,890

Electricity Southland Limited 824 130

Creditors Outstanding at Balance Date (GST incl):

The Power Company Limited 2,855 3,185

Electricity Invercargill Limited 882 567

Dividends Supplied To:

The Power Company Limited - 600

Electricity Invercargill Limited - -

Advances Supplied By/(Repaid To):

The Power Company Limited 1,740 1,400

Electricity Invercargill Limited (740) 700

Other Related Parties

There have been no material transactions with Directors with the exception of the following:

- PowerNet Limited uses AWS Legal as its solicitors, of which Alan Harper is a Partner. Legal fees paid to AWS Legal during the year amounted to

$46,000 (excl GST) (2008: $41,000 excl GST) of which $2,000 (incl GST) is owing at balance date.

- PowerNet Limited uses WHK Cook Adam Ward Wilson as its tax advisors, of which Philip Mulvey is Chief Executive. Fees for taxation advice paid

to WHK Cook Adam Ward Wilson during the year amounted to $4,000 (excl GST) (2008: $6,000 excl GST) of which $1,000 (incl GST) is owing at

balance date.

All transactions between PowerNet Limited and both AWS Legal and WHK Cook Adam Ward Wilson relate to normal trading activities and have been

conducted on a commercial basis.

Key Management Personnel

Compensation of the Directors and Executives, being the key management personnel of the Company, is as follows:

Salaries and Short Term Employee Benefits 1,441 1,324

Executive staff remuneration comprises salary and other short term benefits. PowerNet Limited Executives appointed to the boards of related companies

do not receive Directors’ fees personally.

54 55

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

2009 2008 $000 $000

17. Commitments

Capital Commitments

Capital Commitments as at 31 March 2009 total Nil (2008: $495,000).

Operating Lease Commitments

Operating Lease Commitments are payable as follows:

- Not later than one year 277 203

- Later than one year and not later than two years 201 127

- Later than two years and not later than five years 234 196

- Later than five years - -

Total Operating Lease Commitments 712 526

18. Contingent Liabilities

There are no Contingent Liabilities as at 31 March 2009 (2008: Nil).

19. Net Cash Flow from Operating Activities

The following is a reconciliation between the Net Surplus After Taxation shown in the Income Statement and the net cash flow from operating activities.

Net Surplus After Taxation 264 856

Add/(Less) Non Cash Items:

Amortisation of Intangibles 273 199

Depreciation 246 219

Deferred Taxation (234) (24)

Deficit on Sale of Property, Plant & Equipment 1 1

286 395

Add/(Less) Movements in Working Capital:

Creditors, Accruals and Employee Entitlements (813) 213

Receivables and Prepayments 1,389 (1,240)

Inventories (335) (21)

Construction Work in Progress (660) (783)

Taxation Payable 55 26

(364) (1,805)

Net Cash Flow From/(Used In) Operating Activities 186 (554)

54 55

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

20. Financial Instruments

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

- Credit risk

- Liquidity risk

- Market risk

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

Credit Risk

Financial instruments that potentially subject the Company 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 Company 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 Company does not generally require or hold collateral

against credit risk.

The Company is exposed to a concentration of credit risk with regard to the amounts owing by energy retailers at balance date for Line Charges as

disclosed in Note 7 Receivables and Prepayments (amongst Trade Debtors). However, these entities are considered to be high credit quality entities. An

amount of $4,828,000 (31 March 2008: $4,310,000) is owing by energy retailers at balance date.

The Company is exposed to a concentration of credit risk with regard to the amounts owing by related parties at balance date as disclosed in Note 16

Transactions with Related Parties. However, these entities are considered to be high credit quality entities.

Liquidity Risk

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

The Company evaluates its liquidity requirements on an ongoing basis. In general the Company 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 exposure to liquidity risk as at 31 March 2009:

Maturity Maturity Maturity Dates Dates Dates < l Month < l Year > l Year Total $000 $000 $000 $000

Financial Assets

Cash and Cash Equivalents 615 - - 615

Trade and Other Receivables 7,748 - - 7,748

Construction Work In Progress - 4,895 - 4,895

8,363 4,895 - 13,258

Financial Liabilities

Trade Payables 6,009 - - 6,009

Accruals - 2,021 - 2,021

Employee Entitlements - 565 - 565

Advances - - 8,050 8,050

6,009 2,586 8,050 16,645

Advance repayment arrangements are discussed in Note 12.

56 57

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

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

Maturity Maturity Maturity Dates Dates Dates < l Month < l Year > l Year Total $000 $000 $000 $000

Financial Assets

Cash and Cash Equivalents 1,065 - - 1,065

Trade and Other Receivables 9,337 - - 9,337

Construction Work In Progress - 4,235 - 4,235

10,402 4,235 - 14,637

Financial Liabilities

Trade Payables 7,746 - - 7,746

Accruals - 1,179 - 1,179

Employee Entitlements - 483 - 483

Advances - - 7,050 7,050

7,746 1,662 7,050 16,458

Advance repayment arrangements are discussed in Note 12.

Market Risk

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

holdings of financial instruments.

The Company has interest bearing debt which is subject to interest rate variations in the market.

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

Variable Maturity Non Interest Dates Interest Rate < l Year Bearing Total $000 $000 $000 $000

Financial Assets

Cash and Cash Equivalents 615 - - 615

Trade and Other Receivables - - 7,748 7,748

615 - 7,748 8,363

Financial Liabilities

Trade and Other Payables - - 8,030 8,030

Employee Entitlements - - 565 565

Advances 8,050 - - 8,050

8,050 - 8,595 16,645

Advance repayment arrangements are discussed in Note 12.

56 57

FINANCIAL INFORMATIONFINANCIAL INFORMATION

Notes to and Forming Part of the Financial Statements for the year ended 31 March 2009 continued

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

Variable Maturity Non Interest Dates Interest Rate < l Year Bearing Total $000 $000 $000 $000

Financial Assets

Cash and Cash Equivalents 1,065 - - 1,065

Trade and Other Receivables - - 9,337 9,337

1,065 - 9,337 10,402

Financial Liabilities

Trade and Other Payables - - 8,925 8,925

Employee Entitlements - - 483 483

Advances 7,050 - - 7,050

7,050 - 9,408 16,458

Advance repayment arrangements are discussed in Note 12.

Foreign Exchange Risk

The Company is not subject to foreign exchange risk.

Sensitivity Analysis for Interest Rate Change

The Company is subject to exposure to interest rate variations through both its cash and short term investments and its advances.

An increase/(decrease) in the interest rate of 1% is estimated to decrease/(increase) the operating profit before tax and equity by $55,000

(2008: $52,000).

Fair Value

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

Capital Management

The Company’s capital includes share capital and retained earnings. The Company’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.

The Company is not subject to any externally imposed capital requirements.

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FINANCIAL INFORMATIONFINANCIAL INFORMATION

Auditor’s Report for the year ended 31 March 2009

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FINANCIAL INFORMATIONFINANCIAL INFORMATION

Executives

Chief Financial Officer Greg Buzzard

Chief Engineer Roger Paterson

Network Manager (OtagoNet Area) Terry Jones

Business Services Manager Lyn Daly

Chief Executive Martin Walton

GM Network Operations Gary Pritchard

Company Secretary Jim Dawson

Human Resources Manager Janet Ellis

60

ANNUAL REPORT

Directory

Head Office251 Racecourse Road

PO Box 1642

Invercargill 9840

New Zealand

Telephone: 03 211 1899

Facsimile: 03 211 1880

Website: www.powernet.co.nz

E-Mail: powernet@powernet.co.nz

Principal BankersThe National Bank of New Zealand Limited

AuditorsPricewaterhouseCoopers, Christchurch

SolicitorsAWS Legal

60 61

GRI Indicators

Indicator Description Page number

EC2 Financial implications and other risks and opportunities for the organisation’s activities

due to climate change 28

EN3 Direct energy consumption by primary energy source 28

EN8 Total water withdrawal by source 24

EN16 Total direct and indirect GHG emissions 28

EN22 Total weight of waste by type and disposal method 26

LA1 Total workforce by employment type, employment contract and region 17

LA2 Total number and rate of turnover by age group, gender and region 17

LA7 Rates of injury, occupational diseases, lost days and absenteeism and number of

work-related fatalities by region 18

LA10 Average hours of training per year per employee per employee category 18

LA12 Percentage of employees receiving regular performance and career development reviews 18

PR5 Practices related to customer satisfaction, including results of surveys measuring

customer satisfaction 21

This Annual Report is printed on environmentally sustainable paper using soy based inks.