1. Draft Decision on the Reset of Prices for Electricity Distribution Businesses Presentation to Market Analysts 19 July 2011

2. Background: Purpose of Part 4 To promote the long-term benefit of consumers by promoting outcomes that are consistent with outcomes produced in competitive markets such that suppliers: have incentives to innovate and invest have incentives to improve efficiency share efficiency gains, including through lower prices; and are limited in their ability to extract excessive profits

3. Background: “Process” Objectives of Part 4 Reduce uncertainty compared to previous regimes Implement a framework that is systematic, consistent & stable Low cost default with provision for customisation if needed

4. Background: Input Methodologies Set methodologies upfront – then get certainty IMs are methodologies set by the Commission WACC Treatment of tax Value of regulatory asset base Allocation of costs Must be applied in the Commission’s decisions and by suppliers Subject to merits review (Court considers alternative proposals) By definition no certainty until merits review completed Industry supported extension of time

5. Background: WACC

7. Background: Default & Customised Price Paths DPP applies to all suppliers by default generic low cost instrument uses sector wide productivity analysis as a base easily verified differences between EDBs where practicable Option of applying for an alternative path (CPP) requires verified detailed data from individual suppliers applies building blocks methodology Both DPP and CPP applied via CPI-X price cap

8. 2012 Reset of Prices: Context Prices left unchanged from the previous period when the 2010-15 DPP was first set This avoided prices being set twice First at the start of the regulatory period & a second time when input methodologies were published Intention to revisit prices after input methodologies were published was consulted on when the 2010-15 DPP was first set

9. 2012 Reset of Prices: Legal Basis Legal basis DPP able to be reset to take account of input methodologies ‘Material’ difference trigger for reset e.g. CPI – treat. of GST incr. Nine month window for reset after publication IMs (Jan 2011) So must reset by 20 October 2011 to apply 1 April 2012

10. 2012 Reset of Prices: Current & Projected Profitability Existing prices based on outcomes from end of old Part 4A regime These may be too low or too high to provide normal returns Aim of reset: to better align prices with costs to achieve normal returns for suppliers Balance - incentivising investment and limiting excessive profits Method: assess current and projected profitability Using input methodologies

11. 2012 Reset of Prices: Consultation Consultation Process began Feb 2010 April 2011 Consultation Update Paper Now use multi-period approach (previously used single-year ROI approach) More accurately modeled current and projected profitability of each supplier Consequently removed bands around WACC point estimate Used approximate data to provide indicative results Commission was responding to submissions and results of own internal analysis

12. 2012 Reset of Prices: Key Changes from Update Paper Financial information based on input methodologies for the first time Information requests issued to suppliers in March 2011 New RAB values (incl. asset corrections) available for first time More precise present value modeling Revenues modeled as received throughout the year Model adapted to individual suppliers where data permits Independent reputable forecasts adapted to each supplier e.g. Move to regional not national demand forecasts Use of supplier’s own forecast for capex

13. 2012 Reset of Prices: Main Points of Draft Decision Outcomes of the Draft Decision Overall effect on industry revenues between 2012/13 and 2014/15 is near neutral (-0.7%) The 2012 reset would be the first alignment of revenues with costs under the new regime Future resets to prices are likely to be less significant No application of claw-back Implementation through An allowed revenue for each supplier for 2012/13 by taking into account expected demand growth 2012-15 and smoothing the revenue allowance over these 3 years

14. Maximum Allowable Net Revenues for 2012/13

15. 2012 Reset of Prices: Alternative Rates of Change Draft Decision provides alternative rate of change (or glide path) Minimise potential for sharp increases in prices (limit of 10% in the first year) Final two years of the regulatory period Alpine (CPI+5%) Centralines (CPI+10%) The Lines Company (CPI+5%) Top Energy (CPI+10%)

16. Indicative adjustments by supplier

17. Questions?