RELIABILITY OF SUPPLY (SAIDI)

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUST

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

The improved profitability from growth and efficiency gains has been overshadowed bythe significant increase in the discount.

RETURN ON INVESTMENT

12%

10%

8%

6%

4%

2%

0%1999 2000 2001 2002 2003 2004 2005 2006

This graph shows the disparity between WEL’s falling line prices and the significant increasein retail prices. Prices are shown in 1998 dollars.

Note: retailers’ components include 10% reduction for prompt payment

RESIDENTIAL PRICES

14

12

10

8

6

4

2

0

WEL (c/kWh) Transpower (c/kWh) Retailers (c/kWh)

1998 1999 2000 2001 2002 2003 2004 2005 2006

ANNUAL GROWTH IN CUSTOMER NUMBERS

2000

1600

1200

800

400

0

1999 2000 2001 2002 2003 2004 2005 2006

WEL has achieved significant growth in customer numbers in recent years.

John Birch John Spencer Rodger Fisher (Chairman)

RELIABILITY OF SUPPLY (SAIDI)

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUST

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

The maintenance spend last year reflects increased labourcosts and additional maintenance programmes.

MAINTENANCE EXPENDITURE PER $ OF ODV

3.00

2.50

2.00

1.50

1.00

0.50

0.00

2000 2001 2002 2003 2004 2005 2006

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.01998 1999 2000 2001 2002 2003 2004 2005 2006

LOW VOLTAGE COMPLAINTS

This continues the trend of reducing low voltage complaints.

John Birch John Spencer Rodger Fisher (Chairman)

We are pleased to note that WEL continues to be an industry leader in this area. We achieved this byundertaking almost all of our maintenance work live line, although this is more expensive it ensures goodcustomer service.

GeneralWELAverage

100908070605040302010

0

PLANNED OUTAGES YEAR ENDED 31 MARCH 2005

450400350300250150100

500

RELIABILITY OF SUPPLY (SAIDI) YEAR ENDED 31 MARCH 2005

Timing of national benchmarking means that this graph relates to the 2004/05 figures. We had adisappointing year for reliability in 2004/05 but we are pleased to note that the 2005/06 year shows asignificant improvement

RELIABILITY OF SUPPLY (SAIDI)

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

Financial HighlightsWEL produced an excellent result for the year ended 31 March 2006 with the after tax surplus increasing to$14.3 million (2005 - $12.5 million). Key contributors to this improved result were increased line sale volumes,together with a significant number of new subdivisions being completed. This result is particularly pleasing giventhe increase in network maintenance and also the increase in discounts paid to consumers. PricesWEL increased its line charges to meet the higher charges imposed by Transpower, a government ownedmonopoly, and by the Electricity Commission. The recovery of these costs is specifically permitted under theCommerce Commission pricing threshold regime. This resulted in a 6% increase overall in our line charges asat 1 May 2005. DiscountsFollowing consultation with the WEL Energy Trust, WEL agreed to raise the discount level for the 2005/06 yearby 30%, with the result that customers connected to the WEL network in its traditional area will have receiveda discount of approx. $21 million* in total or $272* to the average residential customer. This discount represents38% of the average annual residential line charge and has resulted in a further reduction in real price levels. * including GST Wind PowerWEL is continuing to investigate a number of potential wind farm sites in the Waikato area. After the completionof an initial evaluation, a site near Te Uku was found to meet the Company’s investment criteria and requiredwind speed. On that basis, $2.5 million has been committed to seek resource consent and complete the detaileddesign. We believe this site has the potential for 24 x 3MW wind turbines capable of producing 240GWh perannum, which is enough energy to supply 30,000 homes. WEL will proceed with the project subject to gaining resource consent and proving viability once the windmonitoring and detailed design have been completed. The project will strengthen the security of supply to Raglanand the western Waikato, contribute to the nation’s generation requirements and is an environmentally responsibleform of renewable generation. TranspowerThe Company is most concerned at Transpower’s intention to raise its prices by 19% for the 2006/07 year tobe followed by four further years of 13% increases. WEL believes that it is inappropriate for Transpower toincrease its prices before the capital works have been approved by the Electricity Commission. The Commerce Commission is now investigating Transpower for a breach of their price threshold.

CHAIRMAN’SREPORTRodger Fisher[Chairman Since 2005]

WEL ENERGY TRUST

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

John Birch John Spencer Rodger Fisher (Chairman)

RELIABILITY OF SUPPLY (SAIDI)

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

CUMULATIVE REAL PRICE(INCLUDING DISCOUNTS) CHANGES

-0%

-10%

-20%

-30%

-40%

-50%

-60%1998 1999 2000 2001 2002 2003 2004 2005 2006

Real Price Change (% Change compared to 1998)

NET PROFIT AFTER TAX

30

25

20

15

10

5

02000 2001 2002 2003 2004 2005 2006

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUST

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

John Birch John Spencer Rodger Fisher (Chairman)

RELIABILITY OF SUPPLY (SAIDI)

CHIEFEXECUTIVE’S REPORTMike Underhill[Chief Executive Since 1999]

Planning for the futureDuring the year we have made a number of fundamental changes to our structure and the way we operate ourbusiness to ensure that the Company is best set up for meeting the challenges of the future and the ongoingneeds of our customers. In May 2006 we insourced the maintenance, faults and routine capital works functions that were previouslyundertaken by ENERGEX. We have made this decision to secure an experienced and competent workforce ina market facing serious skill shortages and record work levels. We also expect further efficiency gains to comefrom this move. I must record my appreciation for the excellent service provided by ENERGEX. The bulk of our capital work going forward is for discrete projects and we will continue to seek competitive bidsfrom outside contractors for this work. We have decided to establish a small number of multi-year contracts tocarry out this work which will be put out for tender. We have made changes in three further areas to gain bothefficiency and performance as follows: • We have insourced our procurement and stores function• We have insourced our GIS and data acquisition function• We have outsourced our call handling function. PerformanceReliability which is measured by SAIDI, efficiency which is measured by cost-per-customer, and profitability arethe Company’s major performance measures both operationally and strategically. The Company has annual andfive year targets. These targets are part of each staff member’s incentive package. These performance measures are monitored and reported on monthly both at Board level and at staff meetingsso that corrective action can be planned if adverse trends develop. Industry benchmarking provides an addedmotivation to achieve good results. ReliabilityA major storm in October prevented us from achieving a record result. Nevertheless 2005/06 was our secondmost reliable year with a SAIDI of 69.6 minutes. Although it was an excellent year for aggregate reliability, weare now focusing our attention on reducing the numbers of faults on some of the rural parts of our network. Cost per CustomerDuring the year a range of further initiatives has been put in place to improve our efficiency. Offsetting thesegains are the rising labour costs driven by the industry’s skill shortages. We were pleased to achieve our efficiencyfigure of $144 per customer. ProfitabilityAn excellent result of $14.3 million was achieved mainly due to energy volumes and our unregulated business.Improvements in profitability are driven by efficiency, energy volumes and unregulated business.

Capital ExpenditureWEL has had record capital spend for the second year in a row with a total of $26.4 million spent on growth,replacement and security projects. Notable projects include the completion of stage 2 of the 33kV subtransmissionconnecting the new Transpower grid exit point at Te Kowhai into our network.

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUST

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

John Birch John Spencer Rodger Fisher (Chairman)

RELIABILITY OF SUPPLY (SAIDI)

160

140

120

100

80

60

40

20

01998 1999 2000 2001 2002 2003 2004 2005 2006

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

450400350300250200150100

500

COST PER CUSTOMER ($/CUSTOMER)YEAR ENDED 31 MARCH 2005

GeneralWELAverage

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUST

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

John Birch John Spencer Rodger Fisher (Chairman)

RELIABILITY OF SUPPLY (SAIDI)

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUST

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

John Birch John Spencer Rodger Fisher (Chairman)

RELIABILITY OF SUPPLY (SAIDI)

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUST

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

John Birch John Spencer Rodger Fisher (Chairman)

RELIABILITY OF SUPPLY (SAIDI)

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUSTCORPORATE GOVERNANCEBoard of Directors

The Board is appointed by the shareholders and is responsible for setting and monitoring the direction of theCompany. It delegates day to day management of the Company to the Chief Executive. The Boardoperates in accordance with the WEL Networks Corporate Governance Charter, adopted in October 2005.Additionally the Board endorses the principles set out in the Code of Proper Conduct for Directors approvedand adopted by the Institute of Directors in New Zealand (Inc). The Board receives monthly reports frommanagement and meets at least 8 times during each financial year. The Constitution specifies that thereshall be no less than 4 and no more than 6 Directors of the Company at any time.

The Board has two operating committees: (a) The Remuneration Committee; assists the Board to developthe Company’s remuneration policy, set the Chief Executive’s remuneration package and all other mattersrelevant to ensuring a committed and competent workforce; and (b) The Audit and Risk Committee; overseesthe Company’s financial statements, treasury policy, preparation of the Annual Report, liaises with theexternal auditors and reviews internal and external controls relevant to financial reporting and associatedmatters, operating under a charter approved by the Board. The Board has put in place a number of mechanismsto ensure that it meets its compliance and regulatory responsibilities.

Risk ManagementThe Board oversees the Risk Management Committee which reports directly to the Audit Committee. TheRisk Management Committee ensures that appropriate risks are identified and mitigated where possible andthat all policies and procedures consider risks when drafted.

Environmental and Health and Safety IssuesThe Board recognises the importance of environmental and health and safety issues. It is committed to thehighest levels of performance in these areas by the Company. Health and safety and environmentalmanagement programmes have been adopted by the Company. The Company also seeks to assess andimprove its performance and standards in these areas, to use energy and other natural resources efficiently,and requires the adoption of similar standards by its suppliers and contractors.

Indemnification and Insurance of Officers and DirectorsThe Company is entitled to indemnify Directors and officers and to effect insurance for them in respect ofcertain liabilities arising from their positions (excluding claims by the Company or a related party of theCompany). The indemnities and insurances must be given and effected in accordance with the Constitutionand the Companies Act.

Information Used by DirectorsInformation relating to items to be discussed by the Directors at a meeting is provided to Directors prior to themeeting. Directors must not use information received in their capacity as Director which would not otherwisebe available to them without the prior consent of the Board. Directors are entitled to seek independentprofessional advice to assist them to meet their responsibilities.

Conflicts of InterestDirectors must identify any potential conflict of interest they may have in dealing with the Company’s affairs.Where a conflict arises, a Director may still attend a Directors’ meeting, be counted in the quorum or vote on aresolution or affix the seal to any document in which he is interested. Where appropriate or as determinedby the Chairman, a Director shall abstain from voting or absent himself from the meeting whilst the relevantmatter is being considered.

Interests RegisterThe Company maintains an interests register to record particulars of transactions or matters involvingDirectors. It is available for inspection at the Company’s registered office.

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

John Birch John Spencer Rodger Fisher (Chairman)

RELIABILITY OF SUPPLY (SAIDI)

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUST

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

John Birch John Spencer Rodger Fisher (Chairman)

RELIABILITY OF SUPPLY (SAIDI)

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUST

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

John Birch John Spencer Rodger Fisher (Chairman)

RELIABILITY OF SUPPLY (SAIDI)

We have an ongoing project for reducing the number of customers on individual 11kV distribution feeders. Aproject in Silverdale saw a new switching station connected back to the zone substation by new feeders with aresult that five heavily loaded existing feeders had their customer numbers and load reduced.

Our Avalon Drive zone substation has been rebuilt and has had new larger transformers installed. The early failure of 33kV pin insulators has seen replacement of these insulators by polymer insulators on twoof our critical rural 33kV subtransmission lines. This work has been made more complicated and expensive bythe need to carry out the work live line to ensure that there is no loss of supply.

GrowthThe strong Waikato economy is putting significant extra demands on our network, particularly in the north Waikato,the north eastern suburbs of Hamilton and the industrial areas in Te Rapa and Frankton. Over the next 10 yearsgrowth projects are a dominant part of our asset management plan with eight new zone substations to becompleted in the next four years. TranspowerWe must congratulate Transpower on completing their new grid exit point at Te Kowhai on time and on budget. This has provided a very important additional supply into the Waikato. In December we negotiated an arrangement with Transpower where we would relinquish our connection to theirWestern Road grid exit point (except in emergencies) to enable Transpower to better provide transmissionservices to Auckland. CustomersWe aim to give the best possible service to our customers and we operate, maintain and grow our network tobest meet their needs. Our primary objectives are; quality of supply, fair pricing and customer service. • Underlying reliability shows strong improvement• We have reduced our overall price by increasing our discount to $21 million (incl. GST).• No complaints were received by the Complaints Commissioner relating to our business.• We paid out $29,755 under our customer promise scheme to customers who had been without electricity

for more than three hours• After receiving a poor review of our service to dairy farmers, we worked effectively with Federated Farmers

and put in place a number of initiatives designed to improve both our service and our communications withthis critical part of the Waikato economy.

• We have continued to carry out uneconomic undergrounding which provides community benefits. This yearthe WEL Energy Trust has provided grants to enable us to carry out this work.

AcknowledgementsDuring the year two members of our Executive resigned. Chris Doak has taken up the position of Chief Executiveof Hamilton International Airport and Brett Hewitt has taken up a senior position with Siemens. Both made animportant contribution to the Company. I would like to thank each of the staff and the managers for their hard work and dedication during a year ofrecord work loads and organisational change. I am very proud of the team that we have at WEL.My thanks also go to the Chairman and Directors for their wise guidance and governance.

Regulatory IssuesI am pleased to report that for the year ended 31 March 2006 WEL has met both its reliability thresholds andits pricing thresholds. WEL has entered into a significant capital and maintenance programme to strengthenits network to ensure the ongoing improvement in its reliability. We believe that the Commerce Commissionneeds to engage with lines companies to establish the threshold or other rules that will pertain at the end ofthe current regime in 2009. It would be irresponsible to delay giving notice of the new period threshold requirementsuntil just before they come into effect as they can have multi-million dollar cost impacts. The Board has serious concerns with the legislative requirement for the governance of generation projects,such as our proposed wind farm, to be separated from the Boards fundamental accountability to providegovernance to WEL. The Board is also concerned with the Government’s changing position with respect toencouraging renewable generation. Both these issues are major disincentives to the encouragement of renewablegeneration investment. The WEL Energy TrustThe WEL Energy Trust undertook their tri-annual elections in June and three new trustees were elected: DavidKneebone, Steve McLennan and Michael West. I welcome these new trustees and look forward to continuingthe very positive relationship that the Board enjoys with the Trust. I acknowledge the positive contributions madeby departing trustees Margaret Evans, John Gallagher and David Laird. My thanks go to Chairman Garry Mallettand Deputy Tania Hennebry for the part they have played in delivering this productive working relationship. DirectorsI would like to thank John Green for his contribution during his term as a Director which ended with his retirementin September 2005. I am delighted to welcome to the Board John Spencer and the Hon. Richard Prebble who bring a combinationof strong commercial skills and Government knowledge of the electricity sector to the Board. Sir Dryden SpringSir Dryden Spring retired in June 2005 after serving as Chairman of WEL for more than six years. Sir Drydenbrought leadership and intellect of the highest level to the Board and gave the Company a strong sense ofdirection through a turbulent period in the electricity industry. Sir Dryden must be accorded recognition for thestrong position that WEL is now in. AcknowledgementsI would like to acknowledge the strong support of my fellow Directors in my first year as Chairman. I also thankChief Executive Mike Underhill and his Management team and staff for their sterling efforts in ensuring thesuccess of the Company. Looking ForwardThe Company has made significant investments in its network and systems in recent years which will ensurethat they continue to operate at a high standard. Financially the Company is strong and enjoys good networkreliability and operational efficiency. The Company is well positioned to meet the expectations of its consumers for the foreseeable future.

DIRECTORS’DISCLOSURES OF INTEREST

The following entries have been made in the interests register for the year ended 31March 2006:

Hon Richard Prebble

As Director and shareholder of Mainfreight. As Deputy Chairman of McConnell Limited (this company ownsHawkins Construction and New Zealand Steel Pipe). As Chairman of Stellaris Limited. As Director of Te WhenuaLimited and its associated companies. As Chairman of The Letter Limited, Kuble Limited and Malcolm KuperLimited, all family companies.

Brian Walsh

As Director of Clearmont Financial Services Limited

John Birch

As Director of Alpha Aviation Limited, Director of Alpha Aviation Manufacturing Limited, Director of Alpha AviationDesign Limited, Director of Heartland Investments Limited, Director of Habitat For Humanity (Waikato) LimitedDirector of Heartland Nine Investments Limited, Director of Heartland Ten Investments Limited.

John Spencer

As Chairman of Tainui Group Holdings Limited, Telfer Young Limited and Unidata Pty Limited. As DeputyChairman of NIWA, Solid Energy Ltd and the Accounting Standards Review Board. As Director of Tower Limited,and Natural Solutions Limited.

EXECUTIVE MANAGEMENT

Russell Shaw

General Manager OperationsOverall management of theplanning, development andoperation of the network.

Mike Underhill

Chief Executive

Kevin Palmer

General Manager Corporate ServicesManagement of finance, IT, companyadministration and company secretarialfunctions

Hon Richard PrebbleRichard is well known for his active role in New Zealand politics, which has spanned several decades. He retired as theleader of the ACT Party in 2005. His time in Parliament included his role as Minister of State Owned Enterprises. Richardby profession is a lawyer. He is now a professional Director being a Director and shareholder of Mainfreight, DeputyChairman of McConnell Ltd, Chairman and Director of a number of private and family companies. Richard is a Fellowof the Chartered Institute of Transport.

Jeff WilliamsJeff was the Chief Executive of TrustPower Ltd for nine years from 1992 to 2001. Whilst leading that company he oversawthe transition from a power board to a publicly listed company with a successful generation portfolio and related customerbase. Prior to that Jeff was Managing Director of ABB (NZ) Limited after having managed a number of ABB subsidiarycompanies, including David Fraser Limited and ABB Transformers. Jeff is a Director of Comvita New Zealand Limited,a number of private companies and runs a Business Consultancy company. Jeff was appointed to the Board in 2002.

Brian WalshBrian is a Financial Consultant specialising in capital raisings and equity valuations. He is a former director of investmentbanking at Merrill Lynch (New Zealand) Limited. Previously, he held senior management positions with Countrywide Bankand was Director of its operating lease subsidiary, Fleetlease Limited. He holds directorships in Capital Group FinanceLimited, Austral Distributors Limited, Annaghdown Holdings Limited, Moore Gallagher Limited, Gallagher CommunicationsHoldings Limited, Grant Samuel Capital Limited, Clearmont Financial Services Limited, Angelsea Medical PropertiesLimited, Walsh & Associates Advisory Limited and Geneva Finance Limited. Brian has a MA (Hons.) in Economics anda law degree from Otago University. He is a member of the Institute of Chartered Accountants. Brian was appointed tothe Board in 1999.

Hon Richard Prebble Jeff Williams Brian Walsh

WEL ENERGY TRUST

TRUSTEES

0:1 / Garry Mallett [Chairman]

0:2 / Tania Hennebry [Deputy Chairman]

0:3 / Mark Bunting

0:4 / Brad Chibnall

0:5 / John Easto

0:6 / David Kneebone

0:7 / Steve McLennan

0:8 / Michael West

John BirchJohn spent his early career managing major dairy and food industry capital projects. Until 2000 John was ashareholder and Director of McClunie Birch Ltd (MBL), this company grew over a period of ten years to becomeNew Zealand’s largest provider of process equipment and solutions to the dairy and food industries. During thistime John was heavily involved in both the growth of the parent company, the development of off-shore subsidiariesand the acquisition of manufacturing operations. Subsequent to exiting MBL, John became a director andChairman of Innovation Waikato Ltd, the organisation responsible for the establishment and operation of theproposed Innovation Park at Ruakura. John is also a Director of Whakamaru Farms Limited, Joffre DevelopmentsLimited, Birch Holdings Limited, BFU Limited, Alpha Aviation Limited and Habitat for Humanity (Waikato) Limited.John was appointed to the Board in 2002.

John SpencerJohn Spencer is Chairman of Tainui Group Holdings Limited, Telfer Young Ltd ,and Unidata Pty Ltd. He is DeputyChairman of the National Water and Atmospheric Research Limited (NIWA) and Solid Energy Limited, a Directorof Tower Limited, WEL Networks Ltd and Waikato Regional Airport Limited. He was the Chief Executive of NewZealand Dairy Group prior to the formation of Fonterra, and has held a number of senior management positionsin New Zealand and overseas. A Fellow of the Institute of Chartered Accountants, he is Deputy Chairman of theAccounting Standards Review Board.

Rodger Fisher (Chairman)Rodger is a Management Consultant, and was previously, Managing Director from 1987 to 1999 of, the Owens GroupLimited. He is Chairman of Eurotech Group Limited. Rodger is also a director of Tenon Limited (formerly FletcherChallenge Forests Limited), Lyttelton Port Company Limited and Waste Management New Zealand Limited. Rodgeris a Fellow of the Chartered Institute of Secretaries, the Chartered Institute of Transport, the Institute of Directors andthe New Zealand Institute of Management. Rodger was appointed to the Board as Deputy Chairman in 1999 and wasappointed to the role of Chairman in 2005.

DIRECTORS’ PROFILESKEY PERFORMANCE INDICATORS

John Birch John Spencer Rodger Fisher (Chairman)

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355149355149Expenditure (331)(104) (331)(104)

Net contribution to Operating surplus 24452445

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 1124511245

Net assets 1124511245

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial Performance 19

Statements of Financial Position 20

Statements of Cash Flows 21

Statement of Accounting Policies 23

Notes to the Financial Statements 26

Auditors’ Report 33

Directors’ Report and Statutory Information 35

Directory 37

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Financial PerformanceFor the year ended 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Revenue 2 60,605 53,637 60,605 53,637Expenses (40,758) (34,810) (40,758) (34,810)

Surplus Before Taxation 3 19,847 18,827 19,847 18,827

Income Tax Expense 5 (5,527) (6,363) (5,527) (6,363)

Surplus After Taxation 14,320 12,464 14,320 12,464

Statements of Movements in EquityFor the year ended 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Equity as at 1 April 2005 163,267 188,203 163,267 188,203

Net Surplus for the year 14,320 12,464 14,320 12,464

Total Recognised Revenueand Expenses 14,320 12,464 14,320 12,464

Dividends 7 - (37,400) - (37,400)

- (37,400) - (37,400)

Equity as at 31 March 2006 177,587 163,267 177,587 163,267

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361-361-At valuation 2,5462,5462,5462,546Buildings At cost 647172647172At valuation 8,7828,7828,7828,78212,33611,50012,33611,500Buildings Accumulated depreciationAt cost (28)(3)(28)(3)At valuation(521)(266)(521)(266)

Net book value 11,78711,23111,78711,231

Generation AssetsCost 1,7741,8441,7741,844Accumulated depreciation (224)(70)(224)(70)

Net book value 1,5501,7741,5501,774

Wind FarmCost 250-250 -Accumulated depreciation ----Net book value 250-250-

VehiclesCost 649472649472Accumulated depreciation (199)(175)(199)(175)

Net book value 450297450297

Computers, Furniture, Plant and EquipmentCost 14,47012,813 14,47012,813Accumulated depreciation (12,167)(11,297)(12,167)(11,297)

Net book value 2,3031,5162,3031,516

Distribution SystemCost 42,90518,89842,90518,898Valuation 182,188182,188182,188182,188225,093201,086225,093201,086Accumulated depreciationAt cost (4,088)(498)(4,088)(498)At Valuation (7,921)(5,280)(7,921)(5,280)Net book value 213,084195,308213,084195,308

Other Fixed Assets

Cost 1,3551,3551,3551,355Accumulated depreciation (678)(637)(678)(637)

Net book value 677718677718

Capital Spares 944161 944161

Capital Work In ProgressCost 7,9546,0607,9546,060

Net book value 7,9546,0607,9546,060

Total net book value 238,999217,065238,999217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355149355149Expenditure (331)(104) (331)(104)

Net contribution to Operating surplus 24452445

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 1124511245

Net assets 1124511245

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361-361-At valuation 2,5462,5462,5462,546Buildings At cost 647172647172At valuation 8,7828,7828,7828,78212,33611,50012,33611,500Buildings Accumulated depreciationAt cost (28)(3)(28)(3)At valuation(521)(266)(521)(266)

Net book value 11,78711,23111,78711,231

Generation AssetsCost 1,7741,8441,7741,844Accumulated depreciation (224)(70)(224)(70)

Net book value 1,5501,7741,5501,774

Wind FarmCost 250-250 -Accumulated depreciation ----Net book value 250-250-

VehiclesCost 649472649472Accumulated depreciation (199)(175)(199)(175)

Net book value 450297450297

Computers, Furniture, Plant and EquipmentCost 14,47012,813 14,47012,813Accumulated depreciation (12,167)(11,297)(12,167)(11,297)

Net book value 2,3031,5162,3031,516

Distribution SystemCost 42,90518,89842,90518,898Valuation 182,188182,188182,188182,188225,093201,086225,093201,086Accumulated depreciationAt cost (4,088)(498)(4,088)(498)At Valuation (7,921)(5,280)(7,921)(5,280)Net book value 213,084195,308213,084195,308

Other Fixed Assets

Cost 1,3551,3551,3551,355Accumulated depreciation (678)(637)(678)(637)

Net book value 677718677718

Capital Spares 944161 944161

Capital Work In ProgressCost 7,9546,0607,9546,060

Net book value 7,9546,0607,9546,060

Total net book value 238,999217,065238,999217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355149355149Expenditure (331)(104) (331)(104)

Net contribution to Operating surplus 24452445

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 1124511245

Net assets 1124511245

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash FlowsFor the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Cash Flows From Operating Activities

Cash received from operationsReceipts from customers 60,331 54,879 60,331 54,879Interest received 635 682 635 682

Total cash received from operations 60,966 55,561 60,966 55,561

Cash disbursed on operationsPayments to employees and suppliers (27,459) (23,613) (27,459) (23,613)Interest paid (3,109) (2,371) (3,109) (2,371)Income tax paid (1,597) (5,652) (1,597) (5,652)

Total cash disbursed on operations (32,165) (31,636) (32,165) (31,636)

Net cash flow from operations(refer to reconciliation below) 28,801 23,925 28,801 23,925

Cash Flows From Investing Activities

Cash received from investing activitiesSale of fixed assets 54 360 54 360Term deposits maturing 190 55 190 55

Total cash from investing activities 244 415 244 415

Cash disbursed on investing activities

Fixed asset purchases (28,877) (23,325) (28,877) (23,325)

Total cash disbursed oninvesting activities (28,877) (23,325) (28,877) (23,325)

Net cash flow from/(applied to)investing activities (28,633) (22,910) (28,633) (22,910)

Cash Flows From Financing Activities

Cash received from financing activitiesLoans Raised - 37,400 - 37,400

Total cash received from financing activities - 37,400 - 37,400

Cash disbursed on financing activitiesDividend paid - (40,040) - (40,040)

Total cash disbursed on financing activities - (40,040) - (40,040)

Net cash flow from/(applied to)financing activities - (2,640) - (2,640)

Net increase/(decrease) in cash held 168 (1,625) 168 (1,625)

Cash at the beginning of the year 14,244 15,869 14,244 15,869

Cash at the end of the year 14,412 14,244 14,412 14,244

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355149355149Expenditure (331)(104) (331)(104)

Net contribution to Operating surplus 24452445

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 1124511245

Net assets 1124511245

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355149355149Expenditure (331)(104) (331)(104)

Net contribution to Operating surplus 24452445

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 1124511245

Net assets 1124511245

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statement of Accounting PoliciesFor the year ended 31 March 2006

These financial statements have been prepared in accordance with the Financial Reporting Act 1993. The ParentCompany's financial statements are for WEL Networks Limited as a separate entity and the consolidated financialstatements are for the WEL Networks Group, which includes all its subsidiaries and associate entities as disclosedin Note 12. WEL Networks Limited, parent company, is registered under the Companies Act 1993.

1 GENERAL ACCOUNTING POLICIES

The general accounting policies recognised as appropriate for the measurement and reporting of results, cashflows and the financial position under the historical cost method, as modified by the revaluation of certain assets,have been followed in the preparation of these financial statements.

2 PARTICULAR ACCOUNTING POLICIES

The particular accounting policies which have a significant effect on the financial performance, cash flows, andthe financial position are as follows:

(a) Principles of consolidation

The consolidated financial statements include those of the parent company and its subsidiaries accounted for using the purchase method. The consolidated Statement of Financial Performance includes the Group’sshare of the tax-paid surpluses of associate entities as disclosed in the most recent audited financial statements.

All significant transactions between Group companies are eliminated on consolidation.

(b) Investments

Investments in subsidiaries are stated at net asset backing.

The equity method has been used for those associate entities in which the Group has a significant, but not a controlling interest.

Other investments are stated at the lower of cost or net realisable value.

Dividend income is not recognised until it is declared by the investee. Interest and rental income are accountedfor as earned.

(c) Inventories

Inventories are valued at the lower of weighted average cost and net realisable value. Work-in-progress is valued at cost comprising direct labour, contractors’ costs, materials and freight.

(d) Income Tax

The income tax expense charged to the Statement of Financial Performance includes both current and deferred tax. Deferred tax is calculated using the liability method, and is accounted for using the comprehensivebasis, except that deferred tax is not provided on asset revaluations of the distribution system.

Future tax benefits attributable to timing differences or losses carried forward are only recognisedwhere there is a virtual certainty that the benefit will be utilised by the Group.

(e) Trade Debtors

Trade debtors are stated at their estimated realisable value after adequate provision for doubtful debts.Bad debts are written off in the period they are identified.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355149355149Expenditure (331)(104) (331)(104)

Net contribution to Operating surplus 24452445

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 1124511245

Net assets 1124511245

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

(f) Revenue Recognition

Revenues from line sales include an accrual for units sold but not billed at balance date.

(g) Fixed Assets

Land and buildings are revalued every three years on the basis of open market value for highest and best use.Valuations are performed by independent valuers.

The distribution system is revalued every three years on the basis of Depreciated Replacement Cost. Valuationsare performed by independent valuers.

Costs for internally constructed assets comprise direct labour, contractors’ costs, materials and a proportion of production overheads based on a normal level of activity.

Feasibility study costs associated with the wind farm project are recognised as an expense in the period whiledirect costs of obtaining resource consents, design and constructing the assets are capitalised.

All other fixed assets and additions to the distribution system, land and buildings since the last valuation arerecorded at cost.

(h) Depreciation of Fixed Assets

Depreciation is not provided on freehold land.

Depreciation of buildings and the distribution system is provided for on a straight line basis over their remainingestimated useful lives as follows:

Buildings 3.0%Distribution System 2.9%

Depreciation of other fixed assets is provided for on a diminishing value basis over their remaining estimateduseful lives as follows:

Computer Equipment 35%Furniture, Plant and Equipment 20 - 50%Vehicles 25%Generation Assets 20%

(i) Research and Development Expenditure

Research and development expenditure is charged to operating expense except that expenditure incurred ondevelopment projects is deferred to future periods to the extent that such expenditure is expected to berecoverable from related future revenues. Deferred development expenditure is amortised over future periodson a basis related to expected future revenues.

(j) Statement of Cash Flows

The terms used in the Statement of Cash Flows are defined as follows:

(i) Cash means bank overdraft and cash deposits with financial institutions which the Group regards as partof its day-to-day cash management;

(ii) Investing activities comprise the purchase of fixed assets and investments; and(iii) Financing activities comprise the change in equity and debt capital structure of the Group and the payment

of dividends;(iv) Operating activities include all transactions that are not investing and financing activities.

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Notes to the Financial StatementsFor the year ended 31 March 2006

1 Discontinued Activities

There have been no activities discontinued during the year.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

2 Revenue

Gross line revenues 63,162 57,917 63,162 57,917Discount (18,381) (14,079) (18,381) (14,079)Net line revenues 44,781 43,838 44,781 43,838Contracting sales 3,840 2,392 3,840 2,392Rental income 836 825 836 825Interest on investments 635 682 635 682Third Party Contributions 7,168 4,050 7,168 4,050Other income 3,345 1,850 3,345 1,850

Total Operating Revenue 60,605 53,637 60,605 53,637

3 Net Operating Surplus

The Surplus Before Taxation is stated after charging/(crediting):

Continuing Activities

Transmission costs 12,950 11,755 12,950 11,755Wages and salaries 4,766 4,681 4,766 4,681Materials and services 7,830 5,430 7,830 5,430

Depreciation of property, plant and equipment

Buildings 281 269 281 269Vehicles 116 92 116 92Computers, furniture, plant and equipment 1,086 883 1,086 883Distribution system 6,232 5,593 6,232 5,593Land Fill Generation 154 70 154 70Other fixed assets 41 40 41 40Total Depreciation 7,910 6,947 7,910 6,947

Directors' fees 235 240 235 240Interest payments 3,109 2,371 3,109 2,371Net loss/(gain) on disposal of fixed assets 501 331 501 331Research and development 354 - 354 -Bad debts written off 217 135 217 135Change in provision for doubtful debts (12) 78 (12) 78Rental and operating lease payments 114 86 114 86Write down/(up) in value of investments 20 (54) 20 (54)

4 Remuneration of Auditors

Auditing the financial statements 24 24 24 24Other audit services 58 53 58 53

Total Remuneration 82 77 82 77

PricewaterhouseCoopers were the only auditors employed during the year.

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

28

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

9 Reserves

Revaluation of Assets ReserveBalance at the beginning of the year 111,387 111,387 109,279 109,279

Balance at the end of the year 111,387 111,387 109,279 109,279

10 Retained Earnings

Balance at the beginning of the year (40,562) (15,626) (38,454) (13,518)Surplus after taxation 14,320 12,464 14,320 12,464Dividends (note 7) - (37,400) - (37,400)

Balance at the end of the year (26,242) (40,562) (24,134) (38,454)

11 Current Assets

Cash and bank 14,412 14,244 14,412 14,244Trade debtors 7,231 5,692 7,231 5,692Prepayments 5 8 5 8Stock of materials - - - -Work in progress 151 33 151 33Current tax receivable 1,188 1,849 1,188 1,849

Total Current Assets 22,987 21,826 22,987 21,826

12 Investments

Other Investments

Shares in listed companies - 183 - 183

Balance at the end of the year - 183 - 183

Total Investments - 183 - 183

Subsidiary Companies comprise:

Operating SubsidiariesThere are no operating subsidiaries

Non Operating SubsidiariesWEL International LimitedWEL Electricity LimitedWEL Power LimitedWEL Energy Group Limited (formerly WEL Networks Limited)WEL Resource LimitedWaikato Electricity LimitedWEL Generation Limited

All subsidiaries have balance dates of 31 March. The parent company has a 100% interest in all subsidiaries.No subsidiaries have assets exceeding 5% of the Group's total assets.

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)

EquityPaid In Capital 8 92,44292,44292,44292,442Reserves 9 111,387111,387109,279109,279Retained Earnings 10 (26,242)(40,562)(24,134)(38,454)

Total Equity 177,587163,267177,587163,267

Represented by:

Current Assets 11 22,98721,82622,98721,826Investments 12 -183-183Other Assets 32403240Fixed Assets 13 238,999217,065238,999217,065

Total Assets 262,018239,114262,018239,114

Current Liabilities 14 28,03522,72228,03522,722Deferred Tax Liability 15 18,99615,72518,99615,725Convertible Note 16 37,40037,40037,40037,400

Total Liabilities 84,43175,84784,43175,847

Net Assets 177,587163,267177,587163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Land and Buildings were revalued on 31 March 2004 by DTZ New Zealand Ltd Registered Valuers. The distribution system was revalued on 31 March 2004 by Sinclair Knight Merz (NZ) Limited Registered Engineers.The value adopted is Depreciated Replacement Cost.

Other Fixed Assets represents the amount paid to Hamilton City Council in 1989 for the use of substations buildings. This amount is being depreciated over a period of 33 years.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)14 Current Liabilities

Trade creditors 9,165 8,292 9,165 8,292Discount Provision 18,604 14,179 18,604 14,179Customer deposits 13 13 13 13Provision for annualand long service leave 253 238 253 238

Total current liabilities 28,035 22,722 28,035 22,722

15 Deferred Income Tax Liability

Balance at the beginning of the year 15,725 13,522 15,725 13,522Current year timing differences 3,294 2,198 3,294 2,198Adjustment for previous year (23) 5 (23) 5

Balance at the end of the year 18,996 15,725 18,996 15,725

The tax effect of timing differences arising from asset revaluations of the distribution system approximating$28,036,000 (2005 $23,689,000) which would only crystallise on disposal, have not been recognised.

16 Convertible Note

On 30 June 2004 the Company paid a dividend of $37.4m to its 100% shareholder, WEL Energy Trust. On the same day the Company issued a $37.4m convertible note to the WEL Energy Trust. The Note is subordinatedto all other forms of debt. It is unsecured and bears interest of 8.3% p.a, accrued monthly. The Note is convertible into an amount of ordinary shares equal to the face value of the Note, divided by the assessed fairvalue of WEL shares at the date of conversion. Conversion is at the discretion of the Directors provided 30 business days notice is given.

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006 Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)

EquityPaid In Capital 8 92,44292,44292,44292,442Reserves 9 111,387111,387109,279109,279Retained Earnings 10 (26,242)(40,562)(24,134)(38,454)

Total Equity 177,587163,267177,587163,267

Represented by:

Current Assets 11 22,98721,82622,98721,826Investments 12 -183-183Other Assets 32403240Fixed Assets 13 238,999217,065238,999217,065

Total Assets 262,018239,114262,018239,114

Current Liabilities 14 28,03522,72228,03522,722Deferred Tax Liability 15 18,99615,72518,99615,725Convertible Note 16 37,40037,40037,40037,400

Total Liabilities 84,43175,84784,43175,847

Net Assets 177,587163,267177,587163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

17 Capital Commitments

Capital expenditure

The parent company and the group had commitments for future capital expenditure at 31 March 2006of $1,499,000 (2005 $4,314,000).

Operating leases Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Non-cancellable operating lease commitments:Within one year 54 73 54 73Later than one, not later than two years 43 54 43 54Later than two, not later than five years 120 123 120 123Later than five years 759 799 759 799

Total Operating Leases 976 1,049 976 1,049

The Group leases land and premises. Operating leases held over properties give the Group the right torenew the lease subject to a predetermination of the lease rental by the lessor. There are no options topurchase in respect of land and premises held under operating leases.

18 Financial Instruments

(a) Currency, Electricity Price and Interest Rate Risk

Nature of activities and management policies with respect to financial instruments:

(i) Concentrations of Credit Risk

In the normal course of its business, the company incurs credit risk from trade receivables from energycustomers and transactions with financial institutions. A provision has been set up for trade receivableswhich are unlikely to be collected.

The company has a credit policy which is used to manage this exposure to credit risk. As part of thispolicy, limits on exposures with counterparties have been set and are monitored on a regular basis.

The Group has in excess of 80% of its trade debtors owing from the incumbent retailer. This debt is subject to a written agreement that requires an investment grade credit rating to be maintained. If the credit ratingfalls below investment grade then a bond will be required as collateral.

b) Fair Values

The Directors estimate that the carrying amounts of financial instruments in the Statement of Financial Positionequal their fair values.

19 Segment Information

The Group operates primarily in the energy reticulation industry predominantly within New Zealand.

20 Contingencies

There are no contingent liabilities as at 31 March 2006 (2005 NIL).

21 Related Party Disclosures

All members of the Group are considered related parties of WEL Networks Limited. This includes thesubsidiaries and associated companies listed in note 12.

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006 Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)

EquityPaid In Capital 8 92,44292,44292,44292,442Reserves 9 111,387111,387109,279109,279Retained Earnings 10 (26,242)(40,562)(24,134)(38,454)

Total Equity 177,587163,267177,587163,267

Represented by:

Current Assets 11 22,98721,82622,98721,826Investments 12 -183-183Other Assets 32403240Fixed Assets 13 238,999217,065238,999217,065

Total Assets 262,018239,114262,018239,114

Current Liabilities 14 28,03522,72228,03522,722Deferred Tax Liability 15 18,99615,72518,99615,725Convertible Note 16 37,40037,40037,40037,400

Total Liabilities 84,43175,84784,43175,847

Net Assets 177,587163,267177,587163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

GroupGroupParentParent2006200520062005($000s) ($000s)($000s)($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,32012,46414,32012,464

Non cash itemsDepreciation 7,9106,9477,9106,947Write down/(up) in investment -(54)-(54)

Total non cash items 7,9106,8937,9106,893

(Increase)/decrease in working capitalTrade debtors 2,8874002,887400Stock of materials -(65)-(65)Work in progress (117)18(117)18Prepayments 3 42342Trade creditors (650)3,149(650)3,149Annual and long service leave provision 16(19)16(19)Provision for taxation 660(1,492)660(1,492)Deferred tax liability 3,2712,2043,2712,204

Net (increase)/decrease in working capital 6,070 4,2376,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501331501331501331501331

Net cash inflow fromoperating activities 28,80123,92528,80123,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006 Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361-361-At valuation 2,5462,5462,5462,546Buildings At cost 647172647172At valuation 8,7828,7828,7828,78212,33611,50012,33611,500Buildings Accumulated depreciationAt cost (28)(3)(28)(3)At valuation(521)(266)(521)(266)

Net book value 11,78711,23111,78711,231

Generation AssetsCost 1,7741,8441,7741,844Accumulated depreciation (224)(70)(224)(70)

Net book value 1,5501,7741,5501,774

Wind FarmCost 250-250 -Accumulated depreciation ----Net book value 250-250-

VehiclesCost 649472649472Accumulated depreciation (199)(175)(199)(175)

Net book value 450297450297

Computers, Furniture, Plant and EquipmentCost 14,47012,813 14,47012,813Accumulated depreciation (12,167)(11,297)(12,167)(11,297)

Net book value 2,3031,5162,3031,516

Distribution SystemCost 42,90518,89842,90518,898Valuation 182,188182,188182,188182,188225,093201,086225,093201,086Accumulated depreciationAt cost (4,088)(498)(4,088)(498)At Valuation (7,921)(5,280)(7,921)(5,280)Net book value 213,084195,308213,084195,308

Other Fixed Assets

Cost 1,3551,3551,3551,355Accumulated depreciation (678)(637)(678)(637)

Net book value 677718677718

Capital Spares 944161 944161

Capital Work In ProgressCost 7,9546,0607,9546,060

Net book value 7,9546,0607,9546,060

Total net book value 238,999217,065238,999217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355149355149Expenditure (331)(104) (331)(104)

Net contribution to Operating surplus 24452445

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 1124511245

Net assets 1124511245

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361-361-At valuation 2,5462,5462,5462,546Buildings At cost 647172647172At valuation 8,7828,7828,7828,78212,33611,50012,33611,500Buildings Accumulated depreciationAt cost (28)(3)(28)(3)At valuation(521)(266)(521)(266)

Net book value 11,78711,23111,78711,231

Generation AssetsCost 1,7741,8441,7741,844Accumulated depreciation (224)(70)(224)(70)

Net book value 1,5501,7741,5501,774

Wind FarmCost 250-250 -Accumulated depreciation ----Net book value 250-250-

VehiclesCost 649472649472Accumulated depreciation (199)(175)(199)(175)

Net book value 450297450297

Computers, Furniture, Plant and EquipmentCost 14,47012,813 14,47012,813Accumulated depreciation (12,167)(11,297)(12,167)(11,297)

Net book value 2,3031,5162,3031,516

Distribution SystemCost 42,90518,89842,90518,898Valuation 182,188182,188182,188182,188225,093201,086225,093201,086Accumulated depreciationAt cost (4,088)(498)(4,088)(498)At Valuation (7,921)(5,280)(7,921)(5,280)Net book value 213,084195,308213,084195,308

Other Fixed Assets

Cost 1,3551,3551,3551,355Accumulated depreciation (678)(637)(678)(637)

Net book value 677718677718

Capital Spares 944161 944161

Capital Work In ProgressCost 7,9546,0607,9546,060

Net book value 7,9546,0607,9546,060

Total net book value 238,999217,065238,999217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355149355149Expenditure (331)(104) (331)(104)

Net contribution to Operating surplus 24452445

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 1124511245

Net assets 1124511245

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

GroupGroupParentParent2006200520062005($000s)($000s)($000s)($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355149355149Expenditure (331)(104) (331)(104)

Net contribution to Operating surplus 24452445

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 1124511245

Net assets 1124511245

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006 Directors’ Report and Statutory Information

1. Directors' Remuneration

Directors' fees and other remunerationpaid during the year were:

Sir D Spring 17,500 70,000R H Fisher 66,872 50,000B V Walsh 35,625 30,000J Green 18,333 30,000J Birch 31,875 30,000J Williams 31,875 30,000Hon R Prebble 16,250 -J Spencer 16,250 -

234,580 240,000

2. Donations

There were no donations made by the Company during the year.

3. Directors' Indemnities and Insurance

The Deeds of Indemnity given by the Company in favour of those Directors who held office at the beginning ofthe financial year to which this report relates, and to Directors appointed since the beginning of the financial yearand who still hold office as Directors of the Company, remain in full force and effect on the same terms andconditions under which they were given.

As permitted by, and to the extent permitted by, the Company's Constitution, the Company has effected insurancefor Directors and officers which, together with the Deeds of Indemnity, generally ensures that the Directors willnot incur any monetary loss as a result of actions undertaken by them as Directors. The Directors and officersinsurance comprises a primary layer of $20 million and an excess layer of $15 million.

Statutory liability insurance with a limit of $500,000 per claim and in the aggregate has also been effected.

Year Ended31-March- 06

$

Group and Parent CompanyTotal Remuneration

Year Ended31-March- 05

$

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group GroupParentParent2006 200520062005

($000s) ($000s)($000s)($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149355149Expenditure (331) (104) (331)(104)

Net contribution to Operating surplus 24 452445

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 4511245

Net assets 112 4511245

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006

4. Employees Remuneration

The number of employees (excluding Directors) whose income was within specifiedbands is as follows:

Continuing Employees

440,000-449,999 1 -420,000-429,999 - 1260,000-269,999 1 -240,000-249,999 - 1190,000-199,999 1 -170,000-179,999 - 2140,000-149,999 - 2120,000-129,999 3 -110,000-119,999 - 1100,000-109,999 7 -

Discontinued Employees

180,000-189,999 1 -110,000-119,999 1 1

15 8

5. Shareholders

As at 31 March 2006, the Company's shareholder was:

WEL Energy Trust 7,801,754 shares

Total Shares on Issure: 7,801,754

Year Ended31-March- 06

$

Group and Parent Company

Year Ended31-March- 05

$

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006 DIRECTORY

As at 1 April 2006

Registered Office

WEL House711 Victoria StreetPO Box 925HamiltonNew Zealand

Telephone 64-7-838 1399Facsimile 64-7-858 1447Website www.wel.co.nzEmail connect@wel.co.nz

Directors holding office during the year

Rodger H Fisher – Chairman (Deputy Chairman until July 2005)Sir Dryden Spring – Immediate Past Chairman (Retired June 2005)Brian V WalshJohn C BirchJeff K WilliamsJohn W Green (retired September 2005)John L Spencer (appointed November 2005)Hon Richard W Prebble (appointed November 2005)Mike C Underhill (Alternate)

Chief ExecutiveMike C Underhill BE (Elect), MCom (Hons), FIPENZ

Executive Officers

General Manager Corporate ServicesKevin J Palmer BMS, CA

General Manager Operations Russell K Shaw BEng (Hons), MSc in Engineering Business

Management, CEng, MIEE, MIPENZAuditors

PricewaterhouseCoopers, AucklandSolicitors

Swarbrick Dixon, HamiltonLoft Consulting Limited, Whakatane

Insurance Brokers Aon New Zealand Limited, Auckland

Statements of Financial PositionAs at 31 March 2006

Note Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

EquityPaid In Capital 8 92,442 92,442 92,442 92,442Reserves 9 111,387 111,387 109,279 109,279Retained Earnings 10 (26,242) (40,562) (24,134) (38,454)

Total Equity 177,587 163,267 177,587 163,267

Represented by:

Current Assets 11 22,987 21,826 22,987 21,826Investments 12 - 183 - 183Other Assets 32 40 32 40Fixed Assets 13 238,999 217,065 238,999 217,065

Total Assets 262,018 239,114 262,018 239,114

Current Liabilities 14 28,035 22,722 28,035 22,722Deferred Tax Liability 15 18,996 15,725 18,996 15,725Convertible Note 16 37,400 37,400 37,400 37,400

Total Liabilities 84,431 75,847 84,431 75,847

Net Assets 177,587 163,267 177,587 163,267

For, and on behalf of, the Board

(k) Financial Instruments

Financial Instruments with off-balance sheet risk, have been entered into for the primary purpose of reducingexposure to fluctuations in foreign exchange rates, electricity prices and interest rates. While financialinstruments are subject to risk that market rates may change subsequent to acquisition, such changes wouldgenerally be offset by opposite effects on the items hedged.

(l) Foreign Currencies

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transactionexcept where forward currency contracts have been taken out to cover short term forward currency commitments.

Where short term forward currency contracts have been taken out, the transaction is translated at the ratecontained in the contract. Monetary assets and liabilities arising from trading transactions or overseasborrowings are translated at closing rates. Gains and losses due to currency fluctuations on these items areincluded in the Statement of Financial Performance except where monetary liabilities are identified as a hedgeagainst a foreign operation.

(m) Construction Contracts

Profits on construction contracts are determined using the percentage of completion method. Profits arerecognised only when the outcome of the contract can be reasonably estimated. Foreseeable losses on a contract are recognised immediately.

(n) Leased Assets

Operating Leases

Operating Lease payments are recognised as an expense in the period the amount is payable.

(o) Joint ventures

When a member of the Group participates in a joint venture arrangement, that member recognises itsproportionate interest in the individual assets, liabilities and expenses of the joint venture. The liabilitiesrecognised include its share of those for which it is jointly liable.

3 CHANGES IN ACCOUNTING POLICIES

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

Certain comparatives have been re-classified to ensure greater transparency and comparabilitybetween periods.

Statements of Cash Flows (continued)For the year ended 31 March 2006

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

Reconciliation of net cashflows from operating activitieswith surplus after taxation.

Surplus after taxation 14,320 12,464 14,320 12,464

Non cash itemsDepreciation 7,910 6,947 7,910 6,947Write down/(up) in investment - (54) - (54)

Total non cash items 7,910 6,893 7,910 6,893

(Increase)/decrease in working capitalTrade debtors 2,887 400 2,887 400Stock of materials - (65) - (65)Work in progress (117) 18 (117) 18Prepayments 3 42 3 42Trade creditors (650) 3,149 (650) 3,149Annual and long service leave provision 16 (19) 16 (19)Provision for taxation 660 (1,492) 660 (1,492)Deferred tax liability 3,271 2,204 3,271 2,204

Net (increase)/decrease in working capital 6,070 4,237 6,070 4,237

Items classified as investing activitiesNet loss/(gain) on sale of assets 501 331 501 331

501 331 501 331

Net cash inflow fromoperating activities 28,801 23,925 28,801 23,925

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

5 Taxation Expense

Surplus before taxation 19,847 18,827 19,847 18,827Permanent differences (2,917) 411 (2,917) 411Gain on disposal of investments 20 (54) 20 (54)

Surplus subject to tax 16,950 19,184 16,950 19,184

Tax at 33% 5,593 6,331 5,593 6,331Under/(over) provision previous year (66) 32 (66) 32

Taxation expense 5,527 6,363 5,527 6,363

Represented by:Deferred income tax liability 3,271 2,204 3,271 2,204Current taxation provision 2,256 4,159 2,256 4,159

5,527 6,363 5,527 6,363

Parent Parent2006 2005

($000s) ($000s)6 Imputation Credit Memorandum Account

Balance at the beginning of the year 397 14,568Dividends allocated - (19,721)Taxation paid 1,800 5,550Taxation refunds received (210) -

Balance at the end of the year 1,987 397

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

7 Dividends

Interim dividend paid/payable - 37,400 - 37,400

Total dividends - 37,400 - 37,400

8 Paid In Capital

Issued and paid in capital 7,801,754ordinary shares (2005: 7,801,754) 92,442 92,442 92,442 92,442

All ordinary shares carry equal voting rights.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)

13 Fixed Assets

Freehold Land and BuildingsLand At cost 361 - 361 -

At valuation 2,546 2,546 2,546 2,546Buildings At cost 647 172 647 172

At valuation 8,782 8,782 8,782 8,78212,336 11,500 12,336 11,500

Buildings Accumulated depreciationAt cost (28) (3) (28) (3)At valuation (521) (266) (521) (266)

Net book value 11,787 11,231 11,787 11,231

Generation AssetsCost 1,774 1,844 1,774 1,844Accumulated depreciation (224) (70) (224) (70)

Net book value 1,550 1,774 1,550 1,774

Wind FarmCost 250 - 250 -Accumulated depreciation - - - -Net book value 250 - 250 -

VehiclesCost 649 472 649 472Accumulated depreciation (199) (175) (199) (175)

Net book value 450 297 450 297

Computers, Furniture, Plant and EquipmentCost 14,470 12,813 14,470 12,813Accumulated depreciation (12,167) (11,297) (12,167) (11,297)

Net book value 2,303 1,516 2,303 1,516

Distribution SystemCost 42,905 18,898 42,905 18,898Valuation 182,188 182,188 182,188 182,188

225,093 201,086 225,093 201,086Accumulated depreciation

At cost (4,088) (498) (4,088) (498)At Valuation (7,921) (5,280) (7,921) (5,280)

Net book value 213,084 195,308 213,084 195,308

Other Fixed Assets

Cost 1,355 1,355 1,355 1,355Accumulated depreciation (678) (637) (678) (637)

Net book value 677 718 677 718

Capital Spares 944 161 944 161

Capital Work In ProgressCost 7,954 6,060 7,954 6,060

Net book value 7,954 6,060 7,954 6,060

Total net book value 238,999 217,065 238,999 217,065

Other than the payment of directors fees (refer note 3) the Group has not entered into anytransactions with Directors.

No related party debts were forgiven or written off during 2006 or 2005.

As noted in note 16, the company paid a dividend of $37.4m to the WEL Energy Trust in June 2004.

22 Events Subsequent to Balance Date

The contract with Energex to provide field services was cancelled on 11 April 2006. This work will now be done in house and commences on 8th May 2006. No adjustment has been made to these financial statements.

23 Joint Venture

The Company has a 99.9% interest in a land fill gas generation venture called Horotiu Landfill Gas Project. The venture was formed to operate the landfill gas generation plant owned by the Company. The venture commenced operation in November 2004.

Group Group Parent Parent2006 2005 2006 2005

($000s) ($000s) ($000s) ($000s)Financial performance

The share of revenues and expenditure proportionallyconsolidated was:Revenue 355 149 355 149Expenditure (331) (104) (331) (104)

Net contribution to Operating surplus 24 45 24 45

Financial position

The share of assets and liabilities proportionallyconsolidated was:

Trade receivables 112 45 112 45

Net assets 112 45 112 45

24 International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

The Company has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS across the Company. The Company will publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the consolidated statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

Rodger Fisher, Chairman 16 May 2006

Brian Walsh, Director16 May 2006

AUDITORS’ REPORT31 March 2006