1. PZ 1 and PZ2 producer mines PZ 3 producer mine Pricing Zone 3 Pricing Zone 1 Port The Network Note: This is a hypothetical example and is not to scale. Pricing Zone 2 13

2. Pricing Zone 1 : Economic Cost maximum allowable revenue Maximum allowable revenue = Economic Cost FCC plus NCC (‘common costs’)VCC (Direct Costs) Pricing Zone 3: Economic Cost FCC plus NCC (‘common costs’)VCC (Direct Costs) Note: This is a hypothetical example and is not to scale. 14

3. PZ 3 producer LOSS (capitalised for recovery from PZ 3 producers in future periods) Revenue is received, based on use of the network… PZ 3 producer PZ 1 and 2 producers Pricing Zone 1 : Economic Cost FCC* plus NCC* (‘common costs’)VCC* (Direct Costs) Pricing Zone 3: Economic Cost Note: This is a hypothetical example and is not to scale. Actual use charge: based on variable maintenance Up-front charge: based on a share of common costs (reflecting contracted consumption of capacity) PZ 3 producer FCC plus NCC (‘common costs’) Actual use charge Up-front charge VCC (Direct Costs) * VCC is variable component of costs, FCC is fixed component of costs and NCC is new capital component of costs 15

4. Revenue distribution …some revenue from PZ3 producer is distributed… Note: This is a hypothetical example and is not to scale. PZ 3 producer PZ 1 and 2 producers Pricing Zone 1 : Economic Cost FCC plus NCC (‘common costs’)VCC (Direct Costs) Pricing Zone 3: Economic Cost PZ 3 producer LOSS (capitalised for recovery from PZ 3 producers in future periods) Producer B PZ 3 producer FCC plus NCC (‘common costs’) PZ 3 producer VCC (Direct Costs) 16

5. “ under recovery” paid by PZ 1 and 2 producers Smaller loss to be recovered from PZ3 producer in future periods through ‘loss capitalisation’ PZ1 and 2 producers to pay extra due to ‘unders and overs’ …then total revenue is “reconciled” to Economic Cost. Note: This is a hypothetical example and is not to scale. PZ 3 producer PZ 1 and 2 producers Pricing Zone 1 : Economic Cost FCC plus NCC (‘common costs’)VCC (Direct Costs) PZ 3 producer LOSS VCC (Direct Costs) Pricing Zone 3: Economic Cost PZ 3 producer FCC plus NCC (‘common costs’) 17