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List of Amendments to Electricity (Information Disclosure) Regulations and ODV Handbook

[ Last Updated 13 January 2006 ]
Status:Archived

Contents

This document provides a list of the amendments to the Electricity (Information Disclosure) Regulations 1994 ("the Regulations") and Handbook for Optimised Deprival Valuation of Electricity Line Businesses ("ODV Handbook") agreed by the Government. Further amendments to the Regulations will be required once the Government's decision to separate line from retail and generation activities has been implemented.

Amendments to ODV Handbook

The Government is concerned that the current provisions permitting departures from the specified standard values and lives permit too much flexibility, and might provide scope for companies to increase their ODVs in order to hide monopoly profits. Accordingly, the Handbook is being amended to provide that:

  1. companies would no longer be permitted to exceed the standard asset values and lives specified in the Handbook, but
  2. the standard lives of certain assets be increased, as the current lives specified in the Handbook for these assets understate their actual useful life.

Substantive Amendments to the Regulations

I Ring-Fencing Electricity Companies' Line Businesses to Natural Monopoly Activities

For the purpose of disclosure,companies' line business financial statements will be required to be confined to the natural monopoly activities of the company. Under this approach, the line business disclosures would not include any potentially contestable activities (for example, metering and billing of final customers would be allocated to other business areas).

This is intended to focus scrutiny on companies' natural monopoly activities; make transparent the cost to the line business of contestable services (by requiring disclosure of transfer payments for services purchased from an associated business unit); and make it more difficult for companies to hide cross-subsidies by allocating inappropriate costs to their line businesses.

II Introduction of a Mandatory Avoidable Cost Allocation Methodology

The current version of the "Electricity Disclosure Guidelines" provides a non-mandatory methodology for allocating items amongst companies' businesses for the purpose of preparing separate financial statements for each business. The non-mandatory nature of this methodology has provided scope for different companies to allocate items in different ways (reducing comparability) or allocate items inappropriately1 to hide monopoly profits and/or cross-subsidies.

Accordingly, the Guidelines will in future include a prescriptive, partially-mandatory "avoidable cost" allocation methodology2 for allocating items amongst companies' line, generation, retailing and "other" businesses. Use of the "avoidable cost" methodology would be mandatory.3

This methodology will provide a more consistent and robust basis for assessing monopoly profits and cross-subsidies than the current methodology, because it enables comparison of the incremental costs and revenues obtained from electricity retailing activities - if the incremental revenues were insufficient to cover the incremental costs, this would suggest that electricity retailing customers were being subsidised.

III Disclosure of Separate Financial Statements for Electricity Retailing

Regulation 6(3) currently require electricity companies to disclose separate financial statements for their line, generation and "other electricity-related" activities. These statements are intended to make transparent any subsidisation of companies' potentially contestable activities from their line businesses. The "other electricity-related" statements currently include activities for which competition policy issues do not arise, including highly contestable activities such as appliance retailing. The inclusion of these activities makes it difficult to assess whether electricity retailing activities, about which competition policy concerns do arise, are being subsidised.

Accordingly, Regulation 6(3) will be amended to require disclosure of financial statements covering electricity retailing only.4

IV Enhanced Transfer Payment Disclosure

Where electricity companies transfer goods and services amongst their business units, they have incentives to price these at inappropriate levels in order to suppress the apparent profitability of the line business and cross-subsidise their contestable activities. The Regulations require companies to disclose details of any transfer payments, but are currently silent on the level of detail required to be disclosed. Currently, most companies' disclosures include insufficient detail for the appropriateness of these payments to be adequately assessed.

Accordingly, the Regulations will be amended to specify the transfer payment details to be disclosed, and also to require that all transfer payments be individually identified in companies' disclosed financial statements. This latter requirement will enable the impact of these transfer payments on companies' financial performance measures to be assessed.

V Individual Disclosure of Certain Items in Financial Statements

To date, there has been considerable variation in the level of detail in disclosed financial statements, with some companies disclosing highly aggregated information. In order to facilitate analysis of these financial statements, the Regulations will be amended to specify that certain items would be required to be separately disclosed in the financial statements. These items will include: transfer payments; certain significant items, such as advertising costs, in order that interested parties can assess the appropriateness of the allocation of these items; and those items which form the basis of the financial performance measures. (See Annex 1 for a more complete list of these items.)

VI Reconciliation of Financial Performance Measures with Financial Statements

The Regulations require companies to calculate financial performance measures which are intended to provide an indication of whether line businesses are making monopoly profits. Currently, it is not possible for users of the disclosed information to recalculate companies' disclosed financial performance measures from their line business financial statements, because companies are required to make some adjustments to the figures in the financial statements prior to using them in the financial performance measure formulae.5 This amendment will require companies to disclose all information required to enable reconciliation of their disclosed financial performance measures and financial statements.

This disclosure (in conjunction with the proposals for requiring separate disclosure of certain items in the accounts) will significantly facilitate analysis of companies' line business performance measures. For example, if an analyst considered that a company had allocated excessive costs to its line business in order to suppress its performance measures, he/she could reallocate these costs amongst the businesses and recalculate the line business performance measures on this basis.

VII Replacement of Requirements for Disclosure of Allocation of Line Business Costs and Revenues Amongst Customer Groups with More Detailed Line Charge Methodology Disclosures

The Regulations currently require companies to disclose details of the line business costs and revenues allocated to each of their customer groups, and the methodology for allocating these costs. The intention of this requirement is to reveal any cross-subsidies between line business customer groups. In order to accurately assess whether cross-subsidies are occurring, however, information about the incremental costs and revenues of each group is required. The current requirements for disclosure of line business costs and revenues by customer group do not provide this information, and accordingly are not satisfactory for determining the existence of cross-subsidies.

These requirements will accordingly be deleted, but the requirements for disclosure of line charge methodologies will be strengthened to ensure that these disclosure include sufficient details to assess whether any customers are being charged for an "inequitable" share of costs.

Companies' disclosed line charge methodologies will be required to include:

  1. a description of the approach used to calculate the prices charged or to be charged;
  2. the key components of the revenue required to cover costs and profits of the line owner's line business activities including cost of capital, which must include the numerical value of each of the components;
  3. the load groups used to calculate the prices charged or to be charged, including:
    1. the rationale for the grouping;
    2. the method by which the line owner determines which group customers are in; and
    3. for each of these load groups, the statistics relating to that group which were used in the methodology;
  4. the method by which the line owner allocated the components of the revenue required to cover the costs of its line business activities amongst customer groups and the rationale for allocating it in this manner, which must include the numerical values of the different components allocated to each customer group; and
  5. the method by which the line owner determined the proportion of its charges which are fixed and the proportion which are variable, and the rationale for determining the proportions in this manner.

VIII Disclosure of Incremental Costs and Revenues for Electricity Retailing Customer Groups

A concern arises about the possibility of retailers cross-subsidising their large, contestable customers from their small, non-contestable customers. Accordingly, companies will be required to disclose:

  1. Average wholesale electricity cost per kWh. This is the major cost incurred by electricity retailers, and therefore a relatively good proxy for the incremental cost of electricity retailing.
  2. Revenue from electricity sales to different customer groups. This is the incremental revenue from each customer group. Revenue will be required to be disclosed in both customer size categories and tariff categories.

Comparison of incremental revenue with incremental costs will provide an indication of whether any customer group was generating insufficient revenue to cover these costs. This would be prima facie evidence of a cross-subsidy, and interested parties could then carry out a more sophisticated assessment of this, or seek an explanation from the company.

IX Disclosure of Combined Line and Electricity Retailing Financial Performance Measures

The Regulations currently require electricity companies to disclose financial performance measures only for their natural monopoly line businesses. As some electricity retailing customers are currently not contestable (for example, domestic customers), companies also have potential to overcharge their electricity retailing customers. Accordingly, companies will also be required to disclose financial performance measures for their combined line and electricity retailing businesses.6

X Disclosure of Line Loss Methodologies

Incumbent line businesses are responsible for developing methodologies for allocating distribution line losses7 amongst the retailers supplying customers on their networks. A concern arises in that line businesses may have incentives to allocate losses in an anti-competitive manner, in order to minimise the costs faced by their associated electricity retailer. Accordingly, companies will be required to disclose their line loss allocation methodologies.8

XI Requirement for Companies to Disclose Certain Information on the Internet

Companies are currently required to publish a wide variety of information in the Gazette, includingseparate financial statements for their business units and line business performance measures.9 This amendment will require companies to also disclose Gazetted information on the Internet. The costs associated with this would be low, and such disclosure would enable interested parties to obtain all disclosures from one source10 and download them for analysis.

XII Requiring Companies to Respond to Requests Within Ten Working Days

In addition to being required to disclose some information in the Gazette, electricity companies are required to make other information (such as information about their line charge methodologies) available at their offices or to post this information to people requesting it. The Government is concerned about the time taken by some companies to respond to requests, and companies will be required to respond within ten working days.

Less Substantive or Technical Amendments

XIII Amendment to References to "Line Function Services" Throughout Regulations

Regulation 2 defines "line business activities" as: the supply of line function services; the conveyance of electricity; and the ownership of works used for the supply of line function services or conveyance of electricity.

References to "line function services" throughout the Regulations should more accurately be to "line business activities". For example, the definition of "line charge" in Regulation 2 states that line charges are charges "imposed in respect of the supply of line function services". In fact, the definition of "line charge" should cover all three line business activities. Similarly, Regulation 18 provides for line owners to disclose their methodologies for determining pricing for supply of "line function services", whereas line charge methodologies should cover all three line business activities. The Regulations will be amended accordingly.

XIV Regulation 2: Amendment to Definition of "Line Business Activities"

Regulation 6(2) requires line owners to disclose separate financial statements for their "line business activities". Regulation 2 defines "line business activities" as: the supply of line function services; the conveyance of electricity; and the ownership of works used for the supply of line function services or conveyance of electricity. "Line function services" is defined in section 2 of the Electricity Act as:

"...(a) The provision and maintenance of works for the conveyance of electricity:

(b) The operation of such works, including the control of voltage and assumption of responsibility for losses of electricity..."

The new allocation methodology will require that:

  1. the cost of line losses be allocated to the electricity retailing business, on the grounds that it is more appropriate for the electricity retailing business to manage line losses than for the line business to do so;
  2. the provision of asset construction and maintenance services be allocated to "other"11, on the grounds that it is contestable. (The line business could then contract for provision of maintenance services from the "other" business or a third party); and
  3. costs of investigating potential mergers and acquisitions be allocated amongst the businesses.

In order to ensure consistency with the requirements of Regulation 6(2), the definition of "line business activities" in Regulation 2 will be amended to specifically exclude the cost of line losses and the provisions of maintenance services, and include costs of mergers and acquisitions.

XV Regulation 6(6): Electricity Retailing Activities Less Than 5% Not to be Disclosed

Currently, Regulation 6(6) provides that, where the activities covered by Regulation 6(3) comprise less that 5 percent of companies' line, electricity retailing and generation assets and revenues, they can be included in the line business financial statements. The rationale for this clause is that it is unduly onerous for companies to prepare separate financial statements for these activities where they are immaterial.

Regulation 6(3) currently covers electricity retailing and other electricity-related activities not covered by clauses 6(1) or 6(2), but will be amended to cover only electricity retailing. Effectively, therefore, the only activities which could potentially be included in the line business financial statements are immaterial electricity retailing activities. Given that the line business financial statements will be confined to natural monopoly activities, it is inappropriate for electricity retailing activities to be included in these financial statements. Instead, the Regulations will permit allocation of immaterial electricity retailing activities to "other" (that is, such activities would not be required to be disclosed).

XVI Regulations 9 and 10: Disclosure of Transpower's Contracts

The intention of the Regulations is that all of Transpower's contracts for supply of transmission services should be subject to public disclosure, on the grounds that electricity transmission is a natural monopoly activity. As currently worded, however, Regulations 9 and 10 do not adequately cover all of Transpower's contracts, and these regulations will be amended to ensure that they do.

XVII Requirement That Companies Disclose Specified Details of Their ODV Reports

Companies are required to value their line assets using the Optimised Deprival Valuation ("ODV") methodology12 and disclose their ODV reports. Reports disclosed to date have varied in their level of detail, primarily because companies have disclosed only extracts from reports.

Accordingly, the Regulations will be amended to require that disclosed ODV reports include

the following components of the methodology:

  • the asset replacement costs used, the quantity of assets in each life/cost category, the rationale for any departures from the ODV Handbook, and the total Replacement Cost of the network;
  • specific details of the components of the network which were optimised, and the Optimised Replacement Cost of the network;
  • details of the amount of depreciation charged, and the Optimised Depreciated Replacement Cost of the network; and
  • details of the comparison of Optimised Depreciated Replacement Cost with economic value for those parts of the network which may not be able to sustain tariffs based on Optimised Depreciated Replacement Cost (including specific assumptions used).

These are the key components of the ODV valuation methodology, and would enable interested parties to assess the appropriateness of the ODV valuation.

XVIII Amendment to Regulation 22 to Clarify That it Applies to Any Distributor or Retailer Which Levies Any Charge Which Recovers Line Costs

Regulation 22 currently provides that "...any person...that invoices any consumer for any line charge..." is required to publicly disclose details of these line charges, and provide written notice to consumers of line charges and any changes to the charges.

Several electricity companies have taken the view that, as their invoices to customers do not include charges labelled "line charges", they do not invoice consumers for line charges, and therefore do not have to comply with Regulation 22. This is clearly inconsistent with the policy intention of Regulation 22, and the wording of Regulation 22 will be amended to make this clear.

XIX Amendment Regulation 22 to Require That Companies Must Give Written Notice to Consumers of Line Charges as at 1 April, Rather Than 31 March

Regulation 22 currently requires electricity distributors or retailers which invoice consumers for line charges to publicly disclose information about the line charges in place at the close of each financial year and whenever they are changed. For the purposes of complying with the Regulations, these companies must use a financial year end of 31 March. Our understanding is, however, that many companies change their line charges to take effect from the first day of the new financial year, that is, from 1 April. The current wording of Regulation 22 requires such companies to disclose both the line charges in place as at 31 March, and the changes to line charges made on 1 April. The date of annual disclosure will accordingly be amended to 1 April, in order to eliminate the earlier of these disclosure requirements, and reduce companies' compliance costs.

XX Amendment to Regulation 23 to Provide That Retailers Can Impute Line Charges Only If They Have Insufficient Information About Actual Charges

Regulation 22 requires "...any person which invoices a customer for a line charge..." to provide customers with written notification of line charges. The intention of this regulation is to provide final customers with sufficient information to calculate that portion of their electricity bill which they would be unable to avoid if they changed electricity supplier.

Regulation 23(1) provides that:

"...Where any person is required by regulation 22 of these regulations to publicly disclose any line charge imposed by any other person in respect of the conveyance of electricity supplied by the first-mentioned person, that first-mentioned person may impute that line charge..."

A concern arises in that Regulation 23 does not specify that line charges should be imputed only if retailers have insufficient information to provide details of actual charges imposed by the line business (that is, only if the line business does not determine line charges for individual customers). Imputing of line charges may lead to final customers receiving less meaningful information about the non-avoidable component of their charges than if line charges are determined by the line business. Accordingly, Regulation 23 will be amended to provide that imputation should be done only in situations where retailers have insufficient information to provide details of actual charges imposed by the line business, and that any imputed line charges should be labelled as such.

XXI First Schedule: Amendment to the Definition Of "Total Customers"

Part I of the First Schedule to the Regulations defines "total customers" as:

  1. for the purposes of Parts II and III of the First Schedule (which specify the efficiency performance measures, energy delivery efficiency performance measures and statistics to be disclosed by line owners), the average number of electricity customers supplied with line function services by means of works owned by that line owner; or
  2. for the purposes of Part IV of the First Schedule (which specifies the reliability performance measures to be disclosed by line owners), the average number of electricity meters to which electricity is directly supplied by means of works owned by that line owner. (Companies are permitted to use estimated information for the purpose of calculating these performance measures but, where they do so, they are required to disclose that they have done this, and the methodology used to calculate the estimated information.)

In the light of concerns raised with this definition, "metered customer network connection points" be used as a measure of total customers for Parts II, III and IV of the First Schedule. If companies do not currently have records of number of metered customer network connection points, they would be permitted to use estimated information. Where companies used estimated information, they would be required to disclose that they had done this, and the methodology used to calculate the estimated information.

XXII First Schedule: Amendment to Definition of "Earnings Before Interest and Tax"

One of the amendments to the Regulations promulgated at the beginning of 1996 was a change to the definitions of "direct expenditure" and "indirect expenditure"to provide that neither category of costs should include "...any payment made in respect of the use of the transmission system...".

This amendment results in a need for further amendments to definitions. "Earnings before interest and tax" (EBIT) is defined in the Regulations as revenue minus direct expenditure, indirect expenditure and depreciation. Removing transmission charges from the definitions of "direct expenditure" and "indirect expenditure" has therefore had the effect of removing them from the calculation of EBIT, which was not the intention. Accordingly, the definition of EBIT will be amended to provide that transmission charges (and avoided transmission charges13) be included as a deduction in the formula.

XXIII First Schedule: Amendment to Require That {Direct Plus Indirect Expenditure} Must Equal {The "Total Expenses" Figure From the Line Business Profit and Loss Statement, Less Transmission Charges, Avoided Transmission Charges and Depreciation}

The Regulations provide for companies to disclose line business efficiency performance measures based on direct and indirect expenditure figures. Direct and indirect expenditure should equal the "total expenses" figure from the company's line business profit and loss statement, less transmission charges, avoided transmission charges and depreciation.

In some companies' disclosures, these figures do not reconcile, possibly because companies have included some expenses in both the direct and indirect expenditure categories and/or failed to include some expenses in either the direct or indirect expenditure category. The Regulations will be amended to require companies to check that these figures reconcile with the figures in their financial statements, as a further check on the accuracy of disclosed information.

XXIV First Schedule: Definition of "Acquisitions"

There is currently some uncertainty as to whether expenditure on replacement and refurbishment of line business assets should be included in the formula for "revaluations" of these assets. Accordingly, the definition of "acquisitions" in the "revaluations" formula be extended to make it clear that capitalised replacement and refurbishment expenditure should be included.

XXV First Schedule: Definition of "Interruption Class"

The definition of "interruption class" in the First Schedule to the Regulations requires line owners to disclose information about their line interruptions in various categories. Some of the categories in the current definition are now inappropriate, and the definition of interruption class will be amended to ensure that the categories used lead to meaningful information being disclosed.

XXVI Second Schedule: Removal of Reference to True and Fair View From Forms 1, 5 & 6

The certificates to be signed by auditors and company directors in relation to financial statement disclosure state that "...those financial statements give a true and fair view of the matters to which they relate and have been prepared in accordance with the requirements of the Electricity (Information Disclosure) Regulations 1994..."

The phrase "true and fair view" implies full compliance with generally accepted accounting principles ("GAAP"). The Regulations do not require full compliance with GAAP, however. (The Regulations require that the financial statements required by the Regulations are prepared in accordance with GAAP, but do not require all of the financial statements required by GAAP.) Accordingly, auditors may have concerns with signing this statement as currently worded, and the references to "true and fair view" will be removed from these forms.

Annex 1: Items Required to be Separately Listed in Disclosed Financial Statements

Generation Business (Regulation 6(1)) Financial Statements

  1. Current assets
    1. Bank, cash, short-term investments
    2. Trade debtors
    3. Other debtors
    4. Prepayments
    5. Other current assets not listed in (a) to (d)
    6. Total current assets
  2. Fixed assets
    1. Generation plant
    2. Generation, transmission and connection assets
    3. Customer billing and information assets
    4. Motor vehicles
    5. Office equipment
    6. Land and buildings
    7. Other fixed assets not listed in (a) to (f)
    8. Total fixed assets
  3. Total assets (total current assets plus total fixed assets)
  4. Current liabilities
    1. Accounts payable
    2. Accrued payroll
    3. Other accruals
    4. Dividend provision
    5. Provision for deferred maintenance
    6. Other current liabilities not listed in (a) to (e)
    7. Total current liabilities
  5. Funding
    1. Long-term debt
    2. Shareholders' funds
    3. Other funding not listed in (a) and (b)
    4. Total funding
  6. Total equity and liabilities (total assets minus total current liabilities minus total funding)
  7. Revenue
    1. Revenue from the electricity retailing carried on by that line owner allocated to activities listed in regulation 6(1) for the generation of electricity (transfer payment)
    2. Revenue from generation of electricity other than revenue received from the electricity retailing carried on by that line owner and from the line business activities of line owner
    3. Revenue from line business activities of line owner allocated to activities listed in regulation 6(1) for avoided transmission/distribution costs (transfer payment)
    4. Income from interest on short-term investments
    5. Other revenue not listed in (a) to (d)
    6. Total revenue
  8. Expenditure
    1. Cost of asset construction and maintenance carried out by the line owner (transfer payments)
    2. Employee salaries and redundancies
    3. Customer billing and information expense
    4. Total depreciation expense
    5. Corporate and administration
    6. Total human resource expenditure
    7. Marketing/advertising
    8. Merger and acquisition costs
    9. Takeover defence costs
    10. Research and development
    11. Consultancy and legal expenses
    12. Other expenditure not listed in (a) to (k)
    13. Total expenditure
  9. Earnings before interest and tax (total revenue minus total expenditure)
  10. Interest expense
  11. Taxation expense
  12. Net profit after tax

Line Business (Regulation 6(2)) Financial Statements

  1. Current assets
    1. Bank, cash, short-term investments
    2. Trade debtors
    3. Other debtors
    4. Prepayments
    5. Other current assets not listed in (a) to (d)
    6. Total current assets
  2. Fixed assets:
    1. Distribution system fixed assets
    2. Centralised load control equipment
    3. Customer billing and information assets
    4. Motor vehicles
    5. Office equipment
    6. Land and buildings
    7. Other fixed assets not listed in (a) to (g)
    8. Total fixed assets
  3. Total assets (total current assets plus total fixed assets)
  4. Current liabilities
    1. Accounts payable
    2. Accrued payroll
    3. Other accruals
    4. Dividend provision
    5. Provision for deferred maintenance
    6. Other current liabilities not listed in (a) to (f)
    7. Total current liabilities
  5. Funding
    1. Long-term debt
    2. Shareholders' funds
    3. Other funding not listed in (a) to (c)
    4. Total funding
  6. Total equity and liabilities (total assets minus total current liabilities minus total funding)
  7. 7 Revenue:
    1. Revenue from line/access charges:
      1. Revenue from line/access charges invoiced to customers by electricity retailers in prescribed business relationships with the line owner and by that line owner and allocated to the line business activities of line owner (transfer payment)
      2. Revenue from line/access charges invoiced to customers by electricity retailers who are not in prescribed business relationships with the line owner
    2. Revenue from electricity retailing carried on by line owner allocated to line business activities for centralised load control services (transfer payment)
    3. Revenue from electricity retailing carried on by line owner allocated to line business activities for provision of reconciliation services (transfer payment)
    4. Income from interest on short-term investments
    5. Other revenue not listed in (a) to (d)
    6. Total revenue
  8. Expenditure
    1. Payment for transmission charges
    2. Revenue from line business activities allocated to electricity retailing carried on by line owner for providing metering data (transfer payment)
    3. Revenue from line business activities allocated to electricity retailing carried on by line owner for customer-based load control services (transfer payment)
    4. Revenue from line business activities of line owner allocated to activities listed in regulation 6(1) for avoided transmission/distribution costs(transfer payment)
    5. Cost of asset construction and maintenance, disconnections/reconnections carried out by the line owner (transfer payments)
    6. Payment to external contractors for asset construction and maintenance, disconnections/reconnections
    7. Employee salaries and redundancies
    8. Customer billing and information expense
    9. Total depreciation expense
    10. Corporate and administration
    11. Total human resource expenditure
    12. Marketing/advertising
    13. Merger and acquisition costs
    14. Takeover defence costs
    15. Research and development
    16. Consultancy and legal expenses
    17. Other expenditure not listed in (a) to (p)
    18. Total expenditure
  9. Earnings before interest and tax (total revenue minus total expenditure)
  10. Interest expense
  11. Taxation expense
  12. Net profit after tax

Electricity Retailing Business (Regulation 6(3)) Financial Statements

  1. Current assets
    1. Bank, cash, short-term investments
    2. Trade debtors
    3. Other debtors
    4. Prepayments
    5. Other current assets not listed in (a) to (d)
    6. Total current assets
  2. Fixed assets
    1. Meters and customer-based load control equipment
    2. Customer billing and information assets
    3. Motor vehicles
    4. Office equipment
    5. Land and buildings
    6. Other fixed assets not listed in (a) to (e)
    7. Total fixed assets
  3. Total assets (total current assets plus total fixed assets)
  4. Current liabilities
    1. Accounts payable
    2. Accrued payroll
    3. Other accruals
    4. Dividend provision
    5. Other current liabilities not listed in (a) to (d)
    6. Total current liabilities
  5. Funding
    1. Long-term debt
    2. Shareholders' funds
    3. Other funding not listed in (a) and (b)
    4. Total funding
  6. Total equity and liabilities (total assets minus total current liabilities minus total funding)
  7. Revenue
    1. Revenue from line business activities allocated to electricity retailing carried on by line owner for providing metering data (transfer payment)
    2. Revenue from line business activities allocated to electricity retailing carried on by line owner for customer-based load control services (transfer payment)(transfer payment)
    3. Revenue from sales of electricity
    4. Income from interest on short-term investments
    5. Other revenue not listed in (a) to (d)
    6. Total revenue
  8. Expenditure
    1. Purchases of electricity from electricity generators who are in prescribed business relationships with the line owner and the total cost of electricity generated by the line owner and supplied by that line owner in carrying out electricity retailing (transfer payment)
    2. Purchases of electricity from electricity generators who are not in prescribed business relationships with the line owner
    3. Revenue from line/access charges invoiced by electricity retailers in prescribed business relationships with the line owner and allocated to the line business activities of line owner (transfer payment)
    4. Revenue from electricity retailing carried on by line owner allocated to line business activities for provision of reconciliation services (transfer payment)
    5. Revenue from electricity retailing carried on by line owner allocated to line business activities for centralised load control services (transfer payment)
    6. Cost of asset construction and maintenance, meter reading, disconnections/reconnections carried on by line owner (transfer payment)
    7. Payment to external contractors for asset construction and maintenance, meter reading, disconnections/reconnections
    8. Employee salaries and redundancies
    9. Customer billing and information expense
    10. Total depreciation expense
    11. Corporate and administration
    12. Total human resource expenditure
    13. Marketing/advertising
    14. Merger and acquisition costs
    15. Takeover defence costs
    16. Research and development
    17. Consultancy and legal expenses
    18. Other expenditure not listed in (a) to (q)
    19. Total expenditure
  9. Earnings before interest and tax (total revenue minus total expenditure)
  10. Interest expense
  11. Taxation expense
  12. Net profit after tax

1 For example, companies can allocate inappropriate costs to their line business, artificially suppressing both their line business financial performance measures and the costs included in their contestable services.

2 Under an "avoidable cost" allocation methodology, companies would be required to assess which items would be avoided if the company did not operate any contestable activities. Items which would not be avoided are included in the line business accounts, and items which would be avoided are included in the other business units' accounts.

3 Some of the rules for allocation of specific items would be non-mandatory, as a fully mandatory methodology could provide an inaccurate picture of some companies' financial performance, but companies would be required to follow the "avoidable cost" guidelines in allocating these items, and to disclose precise details of the way in which they have allocated these items. Based on this information, analysts would be able to reconstruct different companies' disclosures on a directly comparable basis, if they wished.

4 The other activities currently required to be included in these accounts will no longer be required to be disclosed.

5 For example, companies which do not use the ODV valuation of their line assets in their financial statements are required to use ODVs in calculating their financial performance measures.

6 It would not be possible to calculate meaningful financial performance measures for the retailing business alone, as the electricity retailing statements will include only the incremental costs and revenues of retailing.

7 "Line losses" are losses of electricity occurring during distribution of electricity to customers.

8 Similar concerns do not arise with allocation of transmission losses, and Transpower would accordingly not be subject to this disclosure requirement.

9 The Ministry is also proposing that companies be required to publish in the Gazette sufficient information to enable reconciliation of financial performance measures with financial statements.

10 In 1996/97, companies disclosures were published in individual supplements to the Gazette, meaning that people interested in analysing all companies' disclosures were required to purchase 38 separate supplements.

11 The term "other" refers to business activities which are not required to be disclosed under the Regulations - that is, activities which fall outside the scope of Regulation 6.

12 Companies are required to value their line business assets using a standard valuation methodology in order to ensure that their line business financial performance measures are directly comparable. The ODV of an asset is the minimum of its Optimal Depreciated Replacement Cost and its Economic Value. The Optimal Depreciated Replacement Cost is a measure of the cost of replicating the distribution system in the most efficient way possible, from an engineering perspective, given its service capability and the age of the existing assets. The Economic Value is the earnings based value of the system, and is obtained by calculating the Net Present Value of future cash flows.

13 Companies may avoid transmission charges by using embedded generation, in which case it may be appropriate for their accounts to reflect a notional "avoided transmission charge" from the line business to the generation business. Such avoided transmission charges should be treated in the same way as actual transmission charges for the purpose of calculating the efficiency performance measures. If not, companies which utilise embedded generation would be disadvantaged by having higher (less efficient) values for their line business efficiency performance measures.

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